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| N/A(Translation of Registrant’sname into English) | Israel(Jurisdiction of incorporationor organization) |
|---------------------------------------------------------|------------------------------------------------------|

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| Title of each class                          | Name of each exchange on which registered  |
|----------------------------------------------|-------------------------------------------------|
| Ordinary Shares par value NIS 0.01 per share | NYSE Amex                                       |

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| Large accelerated filer o |  Accelerated filer þ    |  Non- accelerated filer o |
|--------------------------------|-------------------------------------------------------|-------------------------------------|

|   | U.S. GAAP o                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------|
|   | International Financing Reporting Standards as issued by the International Accounting Standards Board þ |
|   | Other o                                                                                                      |

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|  PART I    |                                                                         | PAGE   |
|-----------------|------------------------------------------------------------------------------|--------|
|            |                                                                         |   |
| ITEM 1.         | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        | 1      |
| ITEM 2.         | OFFER STATISTICS AND EXPECTED TIMETABLE                                      | 1      |
| ITEM 3.         | KEY INFORMATION                                                              | 1      |
| ITEM 4.         | INFORMATION ON THE COMPANY                                                   | 10     |
| ITEM 4A.        | UNRESOLVED STAFF COMMENTS                                                    | 33     |
| ITEM 5.         | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 | 33     |
| ITEM 6.         | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   | 49     |
| ITEM 7.         | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 57     |
| ITEM 8.         | FINANCIAL INFORMATION                                                        | 59     |
| ITEM 9.         | THE OFFER AND LISTING                                                        | 62     |
| ITEM 10.        | ADDITIONAL INFORMATION                                                       | 62     |
| ITEM 11.        | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 70     |
| ITEM 12.        | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 73     |
|            |                                                                         |   |
| PART II         |                                                                         |   |
|            |                                                                         |   |
| ITEM 13.        | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 74     |
| ITEM 14.        | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 74     |
| ITEM 15.        | CONTROLS AND PROCEDURES                                                      | 74     |
| ITEM 16A.       | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 75     |
| ITEM 16B.  | CODE OF ETHICS                                                               | 75     |
| ITEM 16C.       | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       | 75     |
| ITEM 16D.       | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 76     |
| ITEM 16E.  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 76     |
| ITEM 16F.       | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                  | 76     |
| ITEM 16G.       | CORPORATE GOVERNANCE                                                         | 76     |
|            |                                                                         |   |
| PART III        |                                                                         |   |
|            |                                                                         |   |
| ITEM 17.   | FINANCIAL STATEMENTS                                                         | 77     |
| ITEM 18.        | FINANCIAL STATEMENTS                                                         | 77     |
| ITEM 19.        | EXHIBITS                                                                     | 77     |

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PART

SENIOR MANAGEMENT AND ADVISERS

KEY INFORMATION

| TABLE I  |  Selected Financial Data in accordance with IFRS |
|---------------|-------------------------------------------------------|

|   | Year Ended December 31, |
|--------|-------------------------|

|                                             |   | 2009                                            |      |   | 2008   |   |      | 2007   |   |
|--------------------------------------------------|--------|-------------------------------------------------|-----------|--------|--------|--------|-----------|--------|--------|
| Income Statement Data:                           |   | (In thousands of NIS, except per share amounts) |      |
| Sales                                            |   |                                            | 891,995   |   |   |   | 673,484   |   |   |   | 583,650 |   |
| Income from ordinary operations                  |   |                                            | 15,587    |   |   |   | 35,351    |   |   |   | 71,109 |   |
| Share in profits of associated companies, net    |   |                                            | 87,359    |   |   |   | 51,315    |   |   |   | 856 |   |
| Net income                                       |   |                                            | 91,748    |   |   |   | 67,960    |   |   |   | 31,535 |   |
| Selected Balance Sheet Data:                     |   |                                            |      |   |   |   |      |   |   |   |   |   |
| Total assets                                     |   |                                            | 2,316,325 |   |   |   | 2,044,094 |   |   |   | 1,319,915 |   |
| Fixed assets                                     |   |                                            | 1,126,360 |   |   |   | 767,542   |   |   |   | 405,231 |   |
| Long-term debt                                   |   |                                            | 697,617   |   |   |   | 676,034   |   |   |   | 186,261 |   |
| Shareholders’ equity                       |   |                                            | 858,429   |   |   |   | 757,629   |   |   |   | 669,971 |   |
| Per Share Data:                                  |   |                                            |      |   |   |   |      |   |   |   |   |   |
| Shares outstanding at end of year                |   |                                            | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,132,728 |   |
| Amount in NIS                                    |   |                                            | 50,608    |   |   |   | 50,608    |   |   |   | 41,327 |   |
| Net income per NIS 1 par value:                  |   |                                            |      |   |   |   |      |   |   |   |   |   |
| Primary attributed to company shareholders       |   |                                            | 18.03     |   |   |   | 13.77     |   |   |   | 7.63 |   |
| Fully diluted attributed to company shareholders |   |                                            | 18.03     |   |   |   | 13.77     |   |   |   | 7.62 |   |

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| TABLE II | Selected Financial Data in accordance with Israeli GAAP |   |
|----------|--------------------------------------------------------------|--------|

|                                                   |   |                                                        | Year Ended December 31, |   |
|--------------------------------------------------------|--------|-------------------------------------------------------------|-------------------------|--------|
| Income Statement Data:                                 |   |                                                        | 2006                    |   |   | 2005 |   |
|                                                   |   | (In thousands of NIS, except per share amounts)   |                    |
| Sales                                                  |   |                                                        | 530,109                 |   |   |   | 482,461 |   |
| Income from ordinary operations                        |   |                                                        | 50,501                  |   |   |   | 43,338 |   |
| Share in profits (losses) of associated companies, net |   |                                                        | **(26,202               | )      |   |   | 16,414 |   |
| Net income                                             |   |                                                        | 1 13,330                |   |   |   | 145,715 |   |
| Selected Balance Sheet Data:                           |   |                                                        |                    |   |   |   |   |   |
| Total assets                                           |   |                                                        | 1,173,287               |   |   |   | 1,155,758 |   |
| Fixed assets                                           |   |                                                        | 400,823                 |   |   |   | 379,934 |   |
| Long-term debt                                         |   |                                                        | 256,290                 |   |   |   | 260,581 |   |
| Shareholders’ equity                             |   |                                                        | 430,842                 |   |   |   | 523,384 |   |
| Per Share Data:                                        |   |                                                        |                    |   |   |   |   |   |
| Shares outstanding at end of year                      |   |                                                        | 4,032,723               |   |   |   | 4,002,205 |   |
| Amount in NIS                                          |   |                                                        | 40,327                  |   |   |   | 40,022 |   |
| Net income per NIS 1 par value:                        |   |                                                        |                    |   |   |   |   |   |
| Primary attributed to company shareholders             |   |                                                        | 3.31                    |   |   |   | 11.43 |   |
| Fully diluted attributed to company shareholders       |   |                                                        |  3.28              |   |   |   | 11.35 |   |
| Dividend declared per share                            |   |                                                        | 2 24.85                 |   |   |   | *2 24.99 |   |

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| * | Consists of two dividends that were declared in 2005 (see footnote 2 below). |
|---|------------------------------------------------------------------------------|

| ** | Amount does not include the cumulative effect of a change in the accounting policy of an associated company (NIS 461 thousand). |
|----|---------------------------------------------------------------------------------------------------------------------------------|

| 1 | The net income includes losses in the year 2005, in the sum of NIS 10,000 thousand (representing other than temporary impairment of investment in associated companies). Net income in the year 2005 includes gains of NIS 14,440 thousand, originating from certain tax benefits. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Dividend for 2005 in the sum of NIS 12.50 per share ($2.71 per share) was declared in August 2005 and paid in September 2005. An additional dividend for 2005 in the sum of NIS 12.49 per share ($2.71 per share) was declared in December 2005 and paid in January 2006. A dividend for 2006 in the sum of NIS 24.85 per share ($ 5.64 per share) was declared in June 2006 and paid in July 2006. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  TABLE III  | Selected Financial Data in accordance with U,S GAAP |   |
|-----------------------|----------------------------------------------------------|--------|

|                                                   |   |  Year ended December 31                               |      |
|--------------------------------------------------------|--------|------------------------------------------------------------|-----------|
|                                                   |   | 2006                                                       |      |   | 2005 |   |
|                                                   |   | (In thousands of re-measured NIS,except per share amounts) |      |
| Sales                                                  |   |                                                       | 530,109   |   |   |   | 482,461 |   |
| Income from ordinary operations                        |   |                                                       | 76,917    |   |   |   | 63,258 |   |
| Share in profits (losses) of associated companies, net |   |                                                       | (19,686   | ) |   |   | 8,193 |   |
| Net income                                             |   |                                                       | 123,909   |   |   |   |  141,861 |   |
| Total assets                                           |   |                                                       | 1,123,964 |   |   |   | 1,097,543 |   |
| Fixed assets                                           |   |                                                       | 362,539   |   |   |   | 340,914 |   |
| Long-term debt                                         |   |                                                       | 257,075   |   |   |   | 260,581 |   |
| Shareholders’ equity                             |   |                                                       | 374,768   |   |   |   | 461,406 |   |
| Per Share Data:                                        |   |                                                       |      |   |   |   |   |   |
| Shares outstanding at end of year                      |   |                                                       | 4,032,723 |   |   |   | 4,002,205 |   |
| Share outstanding to compute:                          |   |                                                       |      |   |   |   |   |   |
| Basic net income per share                             |   |                                                       | 4,025,181 |   |   |   | 3,999,910 |   |
| Diluted net income per share                           |   |                                                       | 4,055,628 |   |   |   | 4,051,610 |   |
| Amount in NIS                                          |   |                                                       | 40,327    |   |   |   | 40,022 |   |
| Net income per share (re-measured NIS)                 |   |                                                       |      |   |   |   |   |   |
| Basic                                                  |   |                                                       | 5.94      |   |   |   | 10.47 |   |
| Diluted                                                |   |                                                       | 5.89      |   |   |   | 10.33 |   |
| Dividend declared per share                            |   |                                                       | 224.85    |   |   |   | **224.99 |   |

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| ** | Consists of two dividends that were declared in 2005 (see footnote 2 below). |
|----|------------------------------------------------------------------------------|

| 1 | The net income includes losses in the year 2005, in the sum of NIS 10,000 thousand (representing other than temporary impairment of investment in associated companies). Net income in the year 2005 includes gains of NIS 14,440 thousand, originating from certain tax benefits. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Dividend for 2005 in the sum of NIS 12.50 per share ($2.71 per share) was declared in August 2005 and paid in September 2005. An additional dividend for 2005 in the sum of NIS 12.49 per share ($2.71 per share) was declared in December 2005 and paid in January 2006. A dividend for 2006 in the sum of NIS 24.85 per share ($ 5.64 per share) was declared in June 2006 and paid in July 2006. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  Month                     |   | High            |   | Low             |
|---------------------------------|--------|-----------------|--------|-----------------|
|                            |   | 1 U.S. dollar = |   | 1 U.S. dollar = |
| June 2010 (until June 15, 2010) |   | 3.884 NIS  |   | 3.819 NIS  |
| May 2010                        |   | 3.870 NIS       |   | 3.730 NIS       |
| April 2010                      |   | 3.749 NIS       |   | 3.682 NIS       |
| March 2010                      |   | 3.787 NIS       |   | 3.713 NIS       |
| February 2010                   |   | 3.796 NIS       |   | 3.704 NIS       |
| January 2010                    |   | 3.765 NIS       |   | 3.667 NIS       |
| December 2009                   |   | 3.815 NIS       |   | 3.772 NIS       |

| Period                                    |   | Exchange Rate |
|-------------------------------------------|--------|---------------|
| January 1, 2010 – March 31, 2010    |   | 3.734 NIS/$1  |
| January 1, 2009 – December 31, 2009 |   | 3.933 NIS/$1  |
| January 1, 2008 – December 31, 2008 |   | 3.588 NIS/$1  |
| January 1, 2007 – December 31, 2007 |   | 4.108 NIS/$1  |
| January 1, 2006 – December 31, 2006 |   | 4.456 NIS/$1  |
| January 1, 2005 – December 31, 2005 |   | 4.488 NIS/$1  |

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ON THE COMPANY

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| 1 | In February 2007, the Company sold its holding in TMM Integrated Recycling Industries Ltd. (43% of TMM’s issued share capital) and no longer owns shares of TMM. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | In addition, the Company has the following holdings in inactive companies: Integrated Energy Ltd.; Hadera Paper - Development and Infrastructure Ltd.; AIPM Marketing (1992) Ltd.; Yavnir Trading Company Ltd.; Nir Oz Investment Company Ltd.; and Dafnir Packaging Systems Ltd |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Mondi has four wholly-owned subsidiaries: Mondi Hadera Paper Marketing Ltd., Grafinir Paper Marketing Ltd., Yavnir (1999) Ltd., and Mitrani Paper Marketing 2000 (1998) Ltd. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4 | In addition to KCTR, H-K has two other wholly-owned subsidiaries: Hogla Kimberly Marketing Ltd. and Mollett Marketing Ltd. |   |
|---|----------------------------------------------------------------------------------------------------------------------------|--------|

| 5 | Carmel has a wholly-owned subsidiary named Tri-Wall Containers (Israel) Ltd. |
|---|------------------------------------------------------------------------------|

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| - | Investment of approximately NIS 4.2 million (approximately $1.1 million) in improvement of power plant. |
|---|---------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 333.0 million (approximately $84.7 million) in Machine 8. |
|---|--------------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 101.0 million (approximately $25.6 million) in buildings, equipment, transportation and information technology. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 7.7 million (approximately $2.0 million) in environmental expenditures. |
|---|----------------------------------------------------------------------------------------------------------|

| - | An investment of approximately NIS 4.7 million (approximately $1.2 million) in a conversion to a gas system. |
|---|--------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 6.7 million (approximately $1.8 million) in conversion and improvement of steam tanks. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 191.0 million (approximately $49.7 million) in Machine 8. |
|---|--------------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 53.6 million (approximately $14.6 million) in buildings, equipment, transportation and information technology. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 1.8 million (approximately $0.5 million) in environmental expenditures. |
|---|----------------------------------------------------------------------------------------------------------|

| - | An investment of approximately NIS 12.5 million (approximately $3.3 million) in a conversion to a gas system. |
|---|---------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 19.4 million (approximately $5.0 million) in conversion and improvement of steam tanks. |
|---|--------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 2.8 million (approximately $0.7 million) in real estate in Naharia as a reserve for the Company’s future development. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 5.6 million (approximately $1.4 million) in Machine 8. |
|---|-----------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 34.4 million (approximately $8.9 million) in buildings, equipment, transportation and information technology. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 1. | Cardboard - The Company is engaged, via Carmel, in the production of cardboard products in three categories: |
|--------|----|--------------------------------------------------------------------------------------------------------------|

|   | a. | Corrugated board products – the corrugated board products, that constitute an essential part of this sector of operations, are manufactured and processed in line with the customers’ specific requirements, which are determined according to the type of stored goods, the type of packaging, the expected weights on the packaging during transportation, temperature and humidity conditions during the storage and transportation, the graphic design of the packaging, etc. The manufactured and processed corrugated cardboard products include: (i) “standard” corrugated board containers, i.e., boxes manufactured in different sizes, which are closed by sealing the upper flaps and bottom of the box; (ii) containers and boxes in different geometric shapes that can be “positioned” by manually folding the cardboard plate without sealing or mechanically folding the flaps using warm glue. These products are primarily sold to machinery-intensive industries that operate at high rates, such as the soft beverage industry; and (iii) cardboard crates for agriculture, i.e., trays that are folded only using tray folding machines with matching molds as much as possible, in geographic proximity to the final customers. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Corrugated cardboard sheets – these are used as raw materials and marketed to corrugated cardboard processors, who use them as raw materials for the manufacture of packaging. Cardboard processors are small processing plants, which sell their products to small and medium-sized customers. Carmel and another competitor specialize in the manufacture of triple-wall sheets that are used for specialized packaging, among others by Tri-Wall, mainly for the high-tech industry. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Digital printing (advertising) products  - planning, design and production of digital prints for diverse applications in sales promotion, display stands, decoration of pavilions in trade exhibitions and on billboards. High printing quality using a technology of ink injection on the work surface, while the cutting is shape-based, with no need for dye casts and printing blocks. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Cardboard shelf packaging - Frenkel CD designs, produces and markets shelf packaging and display stands. The raw materials used for the Frenkel CD products primarily include duplex cardboard and some corrugated board. Duplex cardboard is mostly imported directly from Europe and the U.S. and is purchased in part from local agents (indirect imports). Corrugated board supply from Carmel accounts for approximately 20% of Frenkel CD’s raw materials. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Containers and pallets - The Company is engaged, through Tri-Wall, in the production of the following products: |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | a. | Triple-wall cardboard packaging which are mainly used for the export of heavy bulky products such as chemicals, electronic equipment, high-tech equipment, medical equipment, security equipment, etc. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Complex packaging primarily for the export of high-tech products, which are made of wood, plywood, triple-wall cardboard, padding materials, metals and other materials. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Regular and unique wooden surfaces and pallets which are used as a basis for the above packaging and wooden pallets for transportation. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

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|   | 1. | Pulp - The principal raw material used in the production of paper is pulp. Engagement for purchase of pulp is performed in a centralized manner for Mondi and for MBP (the parent company) and for other plants in Europe, allowing for a constant supply of pulp as well as economies of scale. Under the annual negotiations that are conducted between MBP (in coordination and in cooperation with the responsible officer at Mondi) and pulp suppliers, framework agreements are made between them and MBP which obligate them to supply a certain amount of pulp to the MBP Group (with Mondi included therein). These agreements do not set pulp prices, which are set in a routine manner according to pulp’s global market prices every month. Mondi pays the pulp price directly to the supplier and pays a commission to MBP exclusively in order to cover its costs. Mondi purchases 109,000 tons of pulp per year, of three principal types, at a financial value of $54 million per year. All the pulp is purchased overseas within the framework of long-term contracts, which include mechanisms for price adjustment and suppliers’ undertakings to ensure the supply of pulp from alternative sources in the event that the supplier cannot provide the agreed quantity. There is a relative flexibility in the demand for types of pulp, with shifting from one type of pulp to another, and as the world pulp market is quite a large one relative to Mondi use, Mondi is in effect not dependent on any particular supplier or on any particular type of pulp. If need be, it would be possible to purchase any type of pulp in any quantity immediately on the free market. Following the trend of rising pulp prices in the second half of 2009 and as a result of effects of the global crisis, pulp prices rose sharply during the first quarter of the year 2010 as compared with the corresponding quarter last year. This rise originated from damage caused by the earthquake in Chile to three plants of large pulp producers, that have led to delays in the provision of pulp to the global market. Throughout the global temporary reduction of pulp production, there has been no disruption to Mondi’s paper production capacities. Mondi’s main pulp suppliers and the proportion of pulp purchases are: (i) International Forest (a supplier based in the U.S., purchasing from whom in 2009, 2008, and 2007 amounted to 39%,  34% and 30%, respectively, of total pulp purchasing); (ii) Central National Gottesman  (a supplier based in the U.S., purchasing from whom in 2009, 2008, and 2007 amounted to 13%,  18% and 10%, respectively, of total pulp purchasing);  (iii) Heinzel Zellstof Poels AG (a supplier based in Austria, purchasing from whom in 2009, 2008, and 2007 amounted to 10%, 13% and 10%, respectively, of total pulp purchasing). (iv) Soedra Cell International AB (a supplier based in Spain, purchasing from whom in 2009, 2008, and 2007 amounted to 15%, 10% and 16%, respectively, of total pulp purchasing). (v) Grupo Empresarial Ence S.A. (a supplier based in Sweden, purchasing from whom in 2009, 2008, and 2007 amounted to 8%, 7% and 15%, respectively, of total pulp purchasing). (vi) Portucel – Empresa Produtora de Pasta e Papel S.A. (a supplier based in Portugal, purchasing from whom in 2009, 2008, and 2007 amounted to 6%, 13% and 16%, respectively, of total pulp purchasing). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 2. | Coated paper - Mondi imports coated paper mainly from APP Group and from Stora Enso.  Mondi has no dependency on either APP or Stora Enso as paper suppliers. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | PCC - Another important raw material in the production of fine paper is PCC (Precipitated Calcium Carbonate). In 2005, an agreement was signed between Mondi and the Swedish company Omya International AG, or Omya, for the supply of PCC. Omya constructed and operates a PCC plant in Israel.  In September 2005, the agreement was assigned to an Israeli fully-owned subsidiary of Omya. The original agreement was signed for a period of 10 years. In early 2009, the parties signed an amendment to the original agreement. This amendment stipulates that the original agreement would be extended by a further four years through December 31, 2020, and is based on a different price mechanism which was put in place, compared to the original agreement. The PCC purchased from Omya replaced a former PCC purchase from another PCC supplier, and led to a significant savings in PCC purchase costs and improved product quality. Mondi is dependent on Omya as a single supplier of PCC. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Starch – Mondi purchases starch from Galam Ltd., or Galam, used by Mondi in paper production. Until 2009, Mondi was dependent on Galam as a single producer of starch in Israel, however, following the entry into Israel of competing imports of starch, at prices competitive to those of Galam, this dependence has now decreased significantly. The engagement with Galam is for a period of 11 years, terminating in 2011. Should Mondi’s contract with Galam be terminated and not be renewed, Mondi would be required to import starch, which, in the past, would have increased its expenses for purchasing starch from alternative sources, such as Mondi’s overseas suppliers, however, as mentioned above, due to competing imports, it appears that the expense for acquiring starch will not rise significantly. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                   |   | Paper and recycling    |    |   | Marketing of office supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Mondi Hadera Paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|------------------------|--------|------------------------|---------|--------|------------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|--------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                   |   |  NIS in thousands |    |
| 2009                   |   |                   |    |   |                         |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |
| Sales                  |   |                   | 219,866 |   |                         |   | 149,107 |                          |   |   | 468,339        |   |   |               | 1,722,613 |   |                         |   | 645,972 |   |   |   | (2,368,582 | ) |   |   | 837,315 |   |
| Sales between Segments |   |                   | 119,433 |   |                         |   | 1,904   |                          |   |   | 15,965         |   |   |               | 4,014     |   |                         |   | 23,250  |   |   |   | (109,886 | ) |   |   | 54,680 |   |
| Sales – net      |   |                   | 339,299 |   |                         |   | 151,011 |                          |   |   | 484,304        |   |   |               | 1,726,627 |   |                         |   | 669,222 |   |   |   | (2,478,468 | ) |   |   | 891,995 |   |
| 2008                   |   |                   |    |   |                         |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Sales                  |   |                   | 273,436 |   |                         |   | 129,068 |                          |   |   | 500,069        |   |   |               | 1,605,376 |   |                         |   | 717,424 |   |   |   | (2,660,433 | ) |   |   | 564,940 |   |
| Sales between Segments |   |                   | 133,331 |   |                         |   | 2,046   |                          |   |   | 12,508         |   |   |               | 3,200     |   |                         |   | 14,923  |   |   |   | (57,464 | ) |   |   | 108,544 |   |
| Sales – net      |   |                   | 406,767 |   |                         |   | 131,114 |                          |   |   | 512,577        |   |   |               | 1,608,576 |   |                         |   | 732,347 |   |   |   | (2,717,897 | ) |   |   | 673,484 |   |
| 2007                   |   |                   |    |   |                         |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Sales                  |   |                   | 326,636 |   |                         |   | 117,795 |                          |   |   | 561,759        |   |   |               | 1,373,528 |   |                         |   | 746,031 |   |   |   | (2,681,318 | ) |   |   | 444,431 |   |
| Sales between Segments |   |                   | 138,143 |   |                         |   | 1,901   |                          |   |   | 14,824         |   |   |               | 2,146     |   |                         |   | 24,001  |   |   |   | (41,796 | ) |   |   | 139,219 |   |
| Sales – net      |   |                   | 464,779 |   |                         |   | 119,696 |                          |   |   | 576,583        |   |   |               | 1,375,674 |   |                         |   | 770,032 |   |   |   | (2,723,114 | ) |   |   | 583,650 |   |

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| Name of the Company                                                                                                   |   | Ownership and Voting |   | Country of  Incorporation |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|-------------------------------------|
| Subsidiaries                                                                                                          |   |                 |   |                                |
| Amnir Recycling Industries Ltd.                                                                                       |   |                 | 100.00 | %                                   | Israel |
| Graffiti Office Supplies & Paper Marketing Ltd.                                                                   |   |                 | 100.00 | %                                   | Israel |
| Attar Marketing Office Supplies Ltd.                                                                                  |   |                 | 100.00 | %                                   | Israel |
| Hadera Paper Industry  Ltd.                                                                                 |   |                 | 100.00 | %                                   | Israel |
| Carmel Containers Systems Ltd.                                                                                        |   |                 | 89.30  | %                                   | Israel |
| Frenkel CD Ltd. (directly and indirectly through Carmel)                                                              |   |                 | 54.74  | %*                                  | Israel |
|                                                                                                                  |   |                 |   |                                |   |
| Associated Companies                                                                                                  |   |                 |   |                                |   |
| Hogla-Kimberly Ltd.                                                                                                   |   |                 | 49.90  | %                                   | Israel |
| Kimberly –Clark Tuketim  Mallari Sanayi Ve Ticaret A.S. (held through  Hogla-Kimberly Ltd.) |   |                 | 49.90  | %                                   | Turkey |
| Mondi Paper Hadera Ltd.                                                                                               |   |                 | 49.90  | %                                   | Israel |
| Cycle-Tec Recycling Technology Ltd.                                                                                   |   |                 | 30.18  | %                                   | Israel |

----

----

----

----

MMENTS

----

----

----

| Amount and Percentage Increase (Decrease)in thousands of NIS |   |
|--------------------------------------------------------------|--------|
|                                                         |   | Year ended December 31, 2009 compared to the year ended December 31, 2008 |   |
|                                                         |   | ChangesNIS |   |   | Changes% |   |
| Net sales                                                    |   |   | 218,511 |   |   |   | 32.4 |   |
| Cost of sales                                                |   |   | 223,290 |   |   |   | 41.2 |   |
| Gross profit                                                 |   |   | (4,779 | ) |   |   | (3.6 | ) |
| Selling, administrative, general and other expenses          |   |   | 14,985 |   |   |   | 15.7 |   |
| Income from ordinary operations                              |   |   | (19,764 | ) |   |   | (55.9 | ) |
| Financial income                                             |   |   | (7,342 | ) |   |   | (60.8 | ) |
| Financial expenses                                           |   |   | (4,120 | ) |   |   | (15.2 | ) |
| Profit after financial expenses                              |   |   | (22,986 | ) |   |   | 152.8 |   |
| Share in profits of associated companies, net                |   |   | 36,044 |   |   |   | 70.2 |   |
| Income before taxes on income                                |   |   | 13,058 |   |   |   | 18.2 |   |
| Taxes on income                                              |   |   | 10,730 |   |   |   | (292.9 | ) |
| Profit for the year                                          |   |   | 23,788 |   |   |   | 35.0 |   |
|                                                         |   |   |   |   |   |   |   |   |
| Attributed to:                                               |   |   |   |   |   |   |   |   |
| Company shareholders                                         |   |   | 21,520 |   |   |   | 30.8 |   |
| Minority interests                                           |   |   | 2,268 |   |   |   | (129.6 | ) |

| * | The statements of income for the year ended December 31, 2009, and the applicable period in 2008 are presented in New Israeli Shekels as more fully described in Note 1 of our consolidated financial statements contained elsewhere in this Annual Report. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| I. | Overview of Results of Operations |
|----|-----------------------------------|

| 1. | Consolidated Data |
|----|-------------------|

| 2. | Net profit and the Earnings per Share Attributed to the Company’s Shareholders |
|----|--------------------------------------------------------------------------------------|

----

| Impact of the Business Environment on Company Operations |
|----------------------------------------------------------|

----

| 1. | Sales |
|----|-------|

----

| 2. | Cost of Sales |
|----|---------------|

| 3. | Selling, General and Administrative Expenses |
|----|----------------------------------------------|

| 4. | Operating Profit |
|----|------------------|

----

| 5. | Financial Expenses |
|----|--------------------|

| 6. | Taxes on Income |
|----|-----------------|

| 7. | Company’s Share in Earnings of Associated Companies |
|----|-----------------------------------------------------------|

|   | - | The Company’s share in the net profit of Mondi Hadera Paper (49.9%) rose by NIS 4.5 million. The increase in profit originated primarily from an increase in the operating profit of Mondi, that grew from NIS 34.1 million last year, to NIS 40.5 million this year, despite the erosion of prices as a result of imports at dumping prices, in light of the implementation of an aggressive efficiency program in operations and purchasing and a decrease in input prices. The net profit also grew as a result of recording tax revenues as a result of the change in the tax rate, in the sum of NIS 6.4 million, that was offset as a result of the increase in financial expenses during the reported period, as compared with last year, primarily as a result of the influence of the devaluation of the NIS against the U.S. dollar, as an average between the reported periods. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | - | The Company’s share in the net profit of Hogla-Kimberly Israel (49.9%) increased by NIS 21.5 million. H-K’s operating profit grew from NIS 169.0 million to NIS 210.0 million this year. The improved operating profit originated from a quantitative increase in sales, improved selling prices in some of the sectors of operation, innovating products and empowering the H-K’s brands, a decrease in the prices of certain company inputs in view of the erosion of global commodity prices, continuing efficiency measures across the Company and growing savings in procurement that also contributed significantly to the improved profit. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the losses of KCTR Turkey (49.9%) was reduced by NIS 8.1 million. The significant decrease in the loss is attributed primarily to the growth in the volumes of operation (see above - “Strategic Investment in Turkey”) that led to the continued reduction in the operating loss, from NIS 33.4 million last year to approximately NIS 14.7 million this year. Moreover, due to the increase in the shareholders' equity of KCTR through a financial influx from Hogla-Kimberly last year and during the reported period, and bank loans repayment the financial expenses were reduced, thereby leading to an additional reduction in the net loss. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| I. | Overview of Results of Operations |
|----|-----------------------------------|

| 1. | Consolidated Data |
|----|-------------------|

| 2. | Net profit and the Earnings per Share Attributed to the Company’s Shareholders |
|----|--------------------------------------------------------------------------------------|

| II. | The Business Environment |
|-----|--------------------------|

----

| III. | Analysis of Operations and Profitability |
|------|------------------------------------------|

| 1. | Sales |
|----|-------|

----

| 2. | Cost of Sales |
|----|---------------|

| 3. | Selling, General and Administrative Expenses |
|----|----------------------------------------------|

----

| 4. | Operating Profit |
|----|------------------|

| 5. | Financial Expenses |
|----|--------------------|

| 6. | Taxes on Income |
|----|-----------------|

| 7. | Company’s Share in Earnings of Associated Companies |
|----|-----------------------------------------------------------|

----

|   | - | The Company’s share in the net profit of Mondi Hadera Paper (49.9%) rose by NIS 0.6 million. The increased income was primarily attributed to the improvement in Mondi’s operating profit, which grew from NIS 33.6 million in 2007 to NIS 34.1 million in 2008 - primarily due to a quantitative increase in sales, operating efficiency and lower energy costs due to the transition to using natural gas at the Hadera site. The net profit also increased as a result of the decrease in financial expenses in 2008 in relation to 2007, primarily on account of the impact of the revaluation of the NIS against the U.S. dollar. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the net earnings of Hogla-Kimberly Israel  (49.9%) increased by approximately NIS 12.3 million. H-K’s operating profit grew from NIS 136.3 million to NIS 169.0 million in 2008. The improved operating profit originated from a quantitative increase in sales, improved selling prices net of the impact of higher raw material prices, the continuing implementation of efficiency measures and the continuing trend of raising the proportion of some of the premium products out of the products basket, while innovating products and empowering H-K’s brands. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the losses of KCTR Turkey (formerly, “Ovisan”) (49.9%) decreased by NIS 48.0 million. The significant decrease in the loss is attributed to the growth in the volumes of operation that led to a significant reduction in the operating loss, from NIS 73.7 million in 2007 to approximately NIS 33.4 million in 2008. In 2007, the Company recorded a non-recurring loss in respect of termination of trade agreements with distributors following the transition to distribution by Unilever, amounting to approximately NIS 6 million ($1.5 million), of which the Company’s share amounts to approximately NIS 3 million. Moreover, the tax asset that was recorded in previous years in Turkey, in the sum of approximately NIS 26.8 million (approximately $6.4 million) was reduced, of which our share is NIS 13.4 million. Moreover, due to the increase in the shareholders’ equity of KCTR through a financial influx from H-K, the bank loans were repaid, while significantly reducing the financial expenses, thereby leading to an additional reduction in the net loss. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the loss of Carmel (36.21% as at August 31, 2008 - the date of consolidation), increased by NIS 6.4 million. This increase is attributed to the sharp erosion in the operating margin as a result of lower demand for packaging due to the slowdown in industrial exports on account of the erosion of currency exchange rates vis-à-vis the NIS, coupled with the damages of the cold spell in the agricultural sector. On the other hand, the prices of imported raw materials did not decrease in NIS terms, due to hedging transactions on exchange rates. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 1. | Cash Flows |
|----|------------|

| 2. | Financial Liabilities |
|----|-----------------------|

----

|   | - | On December 21, 2003, the Company issued notes through tender by private placement to institutional investors in the aggregate amount of NIS 200 million. These notes carry an interest rate of 5.65% per annum (a margin of 1.45% above government notes with a comparable average maturity at the time). The unpaid balance of the notes are to be repaid in four equal annual installments, commencing in 2010 and ending in 2013, with both the principal and the interest being linked to the CPI.  The notes are not convertible into the Company’s ordinary shares and shall not be registered for trade on a public exchange. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | On July 14, 2008, the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008, of a new series of debentures. The Company has offered an aggregate principal amount of NIS 187.5 million of debentures issued in return for approximately NIS 187.5 million bearing an interest rate of 4.65% and payable annually each on July 10th of the years 2010-2018. The notes, principal and interest, are linked to the CPI (base CPI of May 2008). |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | On July-August, 2008, the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008. The Company offered an aggregate principal amount of NIS 235.6 million of debentures issued in return for approximately NIS 240.4 million bearing an interest rate of 7.45%, and payable annually each on July 10th of the years 2010-2015. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Short-term credit from banks – the Company has a bank credit facility of approximately NIS 413.0 million, of which, as of December 31, 2009, some NIS 131.6 million were utilized. The Company does not have any credit limitations (i.e. – financial covenants) other than this. See Notes 9b and 14c of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Notes – see Note 9a of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|---------------------------------------------------------------------------------------------------------------|

|   | - | Long Term Loans – see Note 9b of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------|

|   | - | Other liabilities – see Note 9d of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------|

| 3. | Financial Liabilities at Fair Value through the Statement of Income |
|----|---------------------------------------------------------------------|

----

| 4. | Material Commitments for Capital Expenditures |
|----|-----------------------------------------------|

|   | - | In the last quarter of 2007, the Company entered into an agreement with a gas company for the delivery of gas for a period of six years with a two-year extension option.  The total financial value of the transaction is NIS 13.8 million. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | During the years 2008 and 2009, the Company entered into an agreement with the main equipment suppliers for the new manufacturing facility of packaging papers, in consideration of an aggregate amount of €62.3 million. Most of the equipment supplied during 2008 and 2009, the rest will be supplied during 2010. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | In November 3, 2008, the general meeting of the Company approved the validity of a lease agreement entered into on September 8, 2008, by and between the Company and Gev-Yam Lands Ltd. (for the purpose of this paragraph, the “Lessor”), a public company indirectly controlled by the controlling shareholder in the Company, pursuant to which the Company will lease a plot in Modiin, with a space of 74,500 square meters, and buildings that the Lessor plans to build for the Company, covering a total space of 21,300 square meters, which will be used as a center for the purposes of logistics, industry and office for subsidiaries and associated companies of the Company and in part will substitute existing lease agreements. The term of the lease will be 15 years from the date of delivery of possession in the leased property in addition to which the Company will have an option to extend the lease by a further 9 years and 11 months. The cost of annual lease amounts to NIS 13.6 million   linked to the CPI for July 2008. The subsidiaries and associated company provided guarantees for their part in the rental agreement, yet for the associated company, this matter is still under discussion between the company and the other shareholder. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        | Payment due by Period |
|-----------------------------|-----------------------|
| in millions of NIS          | Total                 | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| Long term debt obligations* | 1,019.8     | 200.4 | 370.7 | 258.0 | 190.7 |
| Purchase obligations        | 341.0                 | 68.3 | 96.1 | 60.6 | 116.1 |

----

AND EMPLOYEES

| Name                                              | Age    | Position/Principal Occupation                                            |
|---------------------------------------------------|--------|--------------------------------------------------------------------------|
| Senior management in Company and its subsidiaries |   |                                                                     |
| Ofer Bloch                                        | 50     | Chief Executive Officer (as of January 1, 2010)                          |
| Avi Brener                                        | 56     | Former Chief Executive Officer (until December 31, 2009)                 |
| Shaul Gliksberg                                   | 48     | VP Finance Business Development                                          |
| Lea Katz                                          | 59     | Legal counsel and Corporate Secretary.                                   |
| Gur Ben David                                     | 58     | General manager of Packaging Paper and Recycling Division.               |
| Gideon Liberman                                   | 60     | General Manager of Development and Infrastructure Division, VP Operation |
| Amir Moshe                                        | 44     | General Manager, Graffiti Office Supplies & Paper Marketing Ltd.     |
| Uzi Carmi                                         | 54     | General Manager, Amnir Recycling Industries Ltd.                         |
| Simcha Kenigsbuch                                 | 52     | Chief Information Officer                                                |
| Doron Kempler                                     | 60     | General Manager, Carmel Container Systems Ltd.                           |
| David Basson                                      | 51     | VP group supply chain                                                    |
| Michal Mendelson                                  | 51     | Group Marketing Manager                                                  |
| Noga Alon                                         | 45     | Group Organizational Development Manager                                 |
| Abraham Tenenboum                                 | 58     | Development and Innovation Manager                                       |
| Shmoel Molad                                      | 37     | Accountant                                                               |
| Eli Greenbaum                                     | 58     | Internal Auditor                                                         |
|                                              |   |                                                                     |
| Senior management in affiliated companies         |   |                                                                     |
| Arik Schor                                        | 53     | General Manager, Hogla-Kimberly Ltd. (Until June 30, 2009)               |
| Ari Melamud                                       | 42     | General Manager, Hogla-Kimberly Ltd. (From July 1, 2009)                 |
| Avner Solel                                       | 55     | General Manager, Mondi Business Paper Hadera Ltd.                        |
|                                              |   |                                                                     |
| Directors of the Company                          |   |                                                                     |
| Zvi Livnat(1)                                     | 57     | Chairman of the Board                                                    |
| Atalya Arad(2)                                    | 55     | External Director                                                        |
| Ari Bronstein(3)                                  |   | Director ( until September 30,2009)                                      |
| Roni Milo(4)                                      | 59     | Director                                                                 |
| Avi Fischer(5)                                    | 53     | Director                                                                 |
| Isaac Manor(6)                                    | 68     | Director                                                                 |
| Amos Mar-Haim(7)                                  | 71     | Director                                                                 |
| Adi Rozenfeld(8)                                  | 54     | Director                                                                 |
| Avi Yehezkel(9)                                   | 50     | Director                                                                 |
| Amir Makov(10)                                    | 75     | External Director                                                        |

| (1) | Mr. Livnat has been a member of our board of directors since 2003 and was appointed chairman of our board of directors in 2006. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mrs. Arad has been a member of our board of directors since 2008. |
|-----|-------------------------------------------------------------------|

| (3) | Mr. Bronsthein served as a member of our board of directors from 2006 to September 30,2009Ms. Arad has been a member of our board of directors since 2008. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Mr. Milo has been a member of our board of directors since 2007. |
|-----|------------------------------------------------------------------|

| (5) | Mr. Fischer has been a member of our board of directors since 2004. |
|-----|---------------------------------------------------------------------|

| (6) | Mr. Manor has been a member of our board of directors since 2003. |
|-----|-------------------------------------------------------------------|

| (7) | Mr. Mar-Haim has been a member of our board of directors since 1984. |
|-----|----------------------------------------------------------------------|

| (8) | Mr. Rozenfeld has been a member of our board of directors since 2004. |
|-----|-----------------------------------------------------------------------|

| (9) | Mr. Yehezkel has been a member of our board of directors since 2003. |
|-----|----------------------------------------------------------------------|

| (10) | Mr. Makov has been a member of our board of directors since 2005. |
|------|-------------------------------------------------------------------|

----

----

----

| Recipient Details    | Remuneration for Services (in NIS thousands)                                      | Total in NIS thousands  |
|----------------------|-----------------------------------------------------------------------------------|------------------------------|
| Name                 | Position                                                                          | Scope of employment          | Salaries | Bonus | Other | Share based payment for options “out of the money”** | Total |
| Avi Brener (1)       | Group CEO (until December 31, 2009)                                               | 100%                         | 1,891(2) | 971 (3) | 356(4) | 1,392(5) | 4,610 |
| Shaul Glicksberg(6)  | VP Finance and Business Development                                               | 100%                         | 1,243(7) | 300(8) |   | 226(9) | 1,769 |
| Gideon Lieberman(10) | VP operations  and CEO Hadera Paper Development and Infrastructure Ltd. | 100%                         | 1,020(11) | 355 (12) |   | 226 (13) | 1,601 |
| Gur Ben David (14)   | General Manager, Packaging Paper & Recycling Division                         | 100%                         | 864 (15) | 250(16) |   | 226(17) | 1,340 |
| Doron Kempler (18)   | CEO of Carmel Container Systems Ltd.                                              | 100%                         | 989 (19) | 200 (20) |   | 67 (21) | 1,256 |

----

|   | The sums appear in terms of the cost to the Company in 2009. |
|--------|--------------------------------------------------------------|

|   |  ■ | The offeree will be eligible to exercise into shares one quarter of the aggregate amount of options commencing one year from January 14, 2008 (the “Determining Date”) and ending four years after the Determining Date. |
|--------|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |          |                                                                                                                                                                                                                                 |
|   |  ■ | The offeree will be eligible to exercise into shares one additional (second) quarter of the aggregate amount of options, commencing two years from the Determining Date and ending four years after the Determining date.            |
|   |          |                                                                                                                                                                                                                                 |
|   |  ■ | The offeree would be eligible to exercise into shares an additional (third) quarter of the aggregate amount of options, commencing three years from the Determining Date and ending five years after the Determining Date.           |
|   |          |                                                                                                                                                                                                                                 |
|   |  ■ | The offeree would be eligible to exercise into shares an additional (fourth) quarter of the aggregate amount of options, commencing four years from the Determining Date and ending six years after the Determining Date.            |

----

| 1. | On November 11, 2009, Mr. Avi Brener informed the Company of his intention to retire his position. Mr. Brener served as CEO of the Company until December 31, 2009, and his employment with the Company terminated on January 31, 2010. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Includes salary, social and auxiliary provisions as accepted, provisions recognized in the financial statements for 2009 on account of retirement bonus according to the Mr. Brener’s Employment Agreement, additional 13th bonus salary and a company car. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Reflects the sum of the annual bonus approved by the Company’s board of directors for payment to Mr. Brener on account of the year ended December 31, 2009, equivalent to 9 monthly salaries, and that will actually be paid in 2010. According to Mr. Brener’s Employment Agreement, the annual bonus of the CEO will be equal to between 6 and 9 monthly salaries, to be determined by the Company’s board of directors. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | Sum paid to Mr. Brener on account of the remaining period of advanced notice, of approximately 3.5 months, out of the period of the early announcement of 6 months set in Mr. Brener’s Employment Agreement. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | On March 28, 2008, as part of his employment terms, Mr. Brener was allocated a sum of 40,250 options, convertible into up to 40,250 ordinary shares of the Company, according to the terms of the employee share option plan adopted by the Company, exercisable in four equal tranches. Upon the date of termination of his employment (January 31, 2010), two of the four option tranches were exercisable. Upon the terms of the employee share option plan and since the Mr. Brener’s employment was terminated due to disability, he was also eligible to exercise an additional (third) option tranche. Moreover, the remuneration committee, audit committee and the board of directors of the Company decided, under the circumstances of the termination of employment (due to disability), and taking into considering the period of his employment in the Group, all according to the terms of the share option plan, to enable Mr. Brener to exercise the additional (fourth) option tranche. All of the tranches will be eligible for exercise at the original dates set forth in the plan. Following the retirement of Mr. Brener, the sum appearing in the table above includes the entire accounting expenditure on account of the outstanding options (as it was recognized in the financial statements of the year ended December 31, 2009). |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | Employed as the Company’s VP of Finance since January 1, 2008. According to the terns of his employment agreement, each of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. | Includes basic salary, social and additional deductions as normally accepted, additional 13th bonus salary and company car. |
|----|-----------------------------------------------------------------------------------------------------------------------------|

| 8. | Reflects the sum of the bonus paid by the Company to Shaul Glicksberg in the March 2010 paycheck, on account of 2009. Mr. Glicksberg’s employment agreement has no guaranteed bonus and the sums of the bonuses paid were determined according to the discretion of the Company’s board of directors, based on their evaluation of the contribution made by Mr. Glicksberg to the results of operation of the Company. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. | On March 10, 2008, as part of his employment terms, Mr. Glicksberg was granted 11,000 options, convertible into up to 11,000 ordinary shares of the Company, according to the terms of the employee share option plan adopted by the Company. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. | Employed as the Company’s COO and CEO Hadera Paper Development and Infrastructure Ltd. Is employed by the Company since August 25, 1975. According to his employment agreement, each of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11. | Includes basic salary, social and additional deductions as normally accepted, additional 13th bonus salary and company car. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| 12. | Reflects the sum of the bonus paid by the Company to Gideon Liberman in the March 2010 paycheck, on account of 2009. The employment agreement of Mr. Liberman includes no guaranteed bonus and the sums of the bonuses paid were determined according to the discretion of the Company’s board of directors, based on their evaluation of the contribution made by Mr. Liberman to the results of operation of the Company. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13. | On March 10, 2008, as part of his employment terms, Mr. Liberman was granted 11,000 options, convertible into up to 11,000 ordinary shares of the Company, according to the terms of the employee share option plan adopted by the Company. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14. | General Manager, Packaging Paper Division, employed August 1, 2006. According to his employment agreement, each of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15. | Includes basic salary, social and additional deductions as normally accepted, additional 13th bonus salary and company car. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| 16. | Reflects the sum of the bonus paid by the Company to Gur Ben David in the March 2010 paycheck, on account of 2009. The employment agreement of Mr. Ben David includes no guaranteed bonus and the sums of the bonuses paid were determined according to the discretion of the Company’s board of Directors, based on their evaluation of the contribution made by Mr. Ben David to the results of operation of the Company. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 17. | On March 10, 2008, as part of his employment terms, Mr. Ben David was granted 11,000 options, convertible into up to 11,000 ordinary shares of the Company, according to the terms of the employee share option plan adopted by the Company. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 18. | CEO of Carmel Container Systems Ltd., employed since May 2001. According to the terms of his employment agreement, each of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 19. | Includes basic salary, social and additional deductions as normally accepted, additional 13th bonus salary and company car. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| 20. | Reflects the sum of the bonus paid to Doron Kempler in the March 2010 paycheck, on account of 2009. The employment agreement of Mr. Kempler includes no guaranteed bonus and the sums of the bonuses paid were determined by the Company’s board of directors, based on their evaluation of the contribution made by Mr. Kempler to the results of operation of the Group. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21. | On March 10, 2008, as part of his employment terms, Mr. Kempler was granted 11,000 options, convertible into up to 11,000 ordinary shares of the Company, according to the terms of the employee share option plan adopted by the Company. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

CTIONS

| Name and Address:                                                                                                     |   | Amount Beneficially Owned Directly or Indirectly* |      |   | Percent of Class Outstanding |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|--------|------------------------------|--------|
| Clal Industries and Investments Ltd. (“Clal”)3 Azrieli Center, the Triangle Tower,  Tel Aviv, Israel |   |                                              | 3,007,621 | (1)    |                         |   | 59.15 | %(1) |
| Clal Insurance Holdings Ltd. (“Clal Holdings”)                                                                 |   |                                              | 275,850   |   |                         |   | 5.43 | %(2) |
| Clal Finance Ltd. (“Clal Finance”)                                                                             |   |                                              | 46,188    | (3)    |                         |   | 0.91 | %(3) |
| All officers and directors as a group                                                                                      |   |                                              | **        |   |                         |   | ** |   |

| * | Beneficial ownership is calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| ** | The officers and directors of the Company own, in the aggregate, less than 1% of the Company’s outstanding ordinary shares, except for, Isaac Manor and Zvi Livnat whose ownership is set forth in footnote (1) below. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1) | Clal is a public company. To the best of the Company’s knowledge, as of the date of this Annual Report, IDB Development Co., Ltd., or IDB Development, a reporting company  is a wholly owned (directly and indirectly) subsidiary of IDB Holding Company Ltd., ("IDB Holdings"). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | To the best of the Company’s knowledge, IDB Holdings is a public company whose shares are listed for trade on the TASE, whose shareholders are: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Ganden Holdings Ltd., ("Ganden Holdings"), a private company incorporated in Israel, which holds directly and via Ganden Investments IDB Ltd., (" Ganden"), a private company incorporated in Israel wholly owned by it (indirectly), 54.72% of the equity and voting rights of IDB Holdings (approximately 53.65%, on a fully diluted basis), as follows: Ganden holds 37.22% of the equity and voting rights of IDB Holdings(approximately 36.49%, on a fully diluted basis), and Ganden Holdings directly holds 17.50% of the equity and voting rights of IDB Holdings (approximately 17.15%, on a fully diluted basis). The controlling shareholders of Ganden Holdings are as described below. In addition, Shelly Bergman (one of the controlling shareholders of Ganden Holdings) holds, via a wholly-owned private company incorporated in Israel, approximately 4.17% of the equity and voting rights of IDB Holdings (approximately 4.09%, on a fully diluted basis). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Manor Holdings B.A. Ltd., (" Manor Holdings"), a private company incorporated in Israel, which holds directly and via Manor Investments - IDB Ltd., (" Manor"), its subsidiary which is a private company incorporated in Israel, 13.30% of the equity and voting rights of IDB Holdings (approximately 13.04%, on a fully diluted basis), as follows: Manor holds 10.25% of the equity and voting rights of IDB Holdings (approximately 10.05%, on a fully diluted basis) and Manor Holdings directly holds 3.05% of the equity and voting rights of IDB Holdings (approximately 2.99%, on a fully diluted basis). The controlling shareholders (and other material shareholders) of Manor Holdings are as described below. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Avraham Livnat Ltd., a private company incorporated in Israel, holds directly and via Avraham Livnat Investments (2002) Ltd.,     (" Livnat"), a wholly-owned private company incorporated in Israel, approximately 13.31% of the equity and voting rights of IDB Holdings (approximately 13.05%, on a fully diluted basis), as follows: Livnat holds 10.20% of the equity and voting rights of IDB Holdings (approximately 10%, on a fully diluted basis), and Avraham Livnat Ltd. directly holds 3.11% of the equity and voting rights of IDB Holdings (approximately 3.05%, on a fully diluted basis). The controlling shareholders (and other material shareholders) of Avraham Livnat Ltd. are as described below. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | Clal Insurance Holdings Ltd., a public company whose shares are listed for trading on the TASE, which is controlled, as of the date of this Annual Report, by IDB Development. To the best of the Company’s knowledge, Clal Holdings is an interested party in the Company, since it is controlled by IDB Development, the controlling shareholder of Clal. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Clal Finance Ltd., a public company whose shares are listed for trading on the TASE, which is controlled, as of the date of this Annual Report, by Clal Holdings. To the best of the Company’s knowledge, Clal Finance is an interested party in the Company, since it is controlled by  IDB Development, the controlling shareholder of Clal. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

MAT

----

----

----

IS

|                                |   | NYSE Amex |   |   | Tel Aviv Stock Exchange |   |
|-------------------------------------|--------|-----------|--------|--------|-------------------------|--------|
|                                |   | High      |   |   | Low                     |   |   | High |   |   | Low |   |   | High |   |   | Low |   |
|                                |   | $         |   |   | NIS                     |   |   | $* |   |
| Yearly Highs and Lows               |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2009                                |   |      | 71.5   |   |                    |   | 29.6 |   |   |   | 272.00 |   |   |   | 117.30 |   |   |   | 71.64 |   |   |   | 29.73 |   |
| 2008                                |   |      | 80.80  |   |                    |   | 26.55 |   |   |   | 270.20 |   |   |   | 104.50 |   |   |   | 83.58 |   |   |   | 26.98 |   |
| 2007                                |   |      | 67.50  |   |                    |   | 41.90 |   |   |   | 259.40 |   |   |   | 185.00 |   |   |   | 65.60 |   |   |   | 43.65 |   |
| 2006                                |   |      | 52.12  |   |                    |   | 38.50 |   |   |   | 237.00 |   |   |   | 168.50 |   |   |   | 53.01 |   |   |   | 38.42 |   |
| 2005                                |   |      | 57.98  |   |                    |   | 37.50 |   |   |   | 246.90 |   |   |   | 176.90 |   |   |   | 56.42 |   |   |   | 38.24 |   |
|                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly Highs and Lows            |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Second Quarter (until June 15 2010) |   | 83.00     |   |   | 67.42                   |   |   | 309.90 |   |   | 260.20 |   |   | 83.03 |   |   | 67.60 |   |
| First Quarter                       |   |      | 82.25  |   |                    |   | 68.53 |   |   |   | 311.30 |   |   |   | 252.50 |   |   |   | 82.40 |   |   |   | 67.80 |   |
|                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2009                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fourth Quarter                      |   |      | 71.50  |   |                    |   | 54.19 |   |   |   | 272.0 |   |   |   | 206.2 |   |   |   | 71.64 |   |   |   | 55.18 |   |
| Third Quarter                       |   |      | 58.36  |   |                    |   | 41.25 |   |   |   | 218.90 |   |   |   | 165.60 |   |   |   | 57.67 |   |   |   | 41.86 |   |
| Second Quarter                      |   |      | 44.30  |   |                    |   | 35.00 |   |   |   | 177.80 |   |   |   | 147.70 |   |   |   | 45.17 |   |   |   | 35.11 |   |
| First Quarter                       |   |      | 39.48  |   |                    |   | 29.62 |   |   |   | 164.0 |   |   |   | 117.3 |   |   |   | 39.16 |   |   |   | 29.73 |   |
|                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2008                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fourth Quarter                      |   |      | 60.25  |   |                    |   | 26.55 |   |   |   | 205.60 |   |   |   | 104.50 |   |   |   | 58.84 |   |   |   | 26.98 |   |
| Third Quarter                       |   |      | 74.5   |   |                    |   | 52.5 |   |   |   | 256.10 |   |   |   | 186.70 |   |   |   | 74.73 |   |   |   | 53.02 |   |
| Second Quarter                      |   |      | 80.8   |   |                    |   | 59.71 |   |   |   | 270.20 |   |   |   | 212.10 |   |   |   | 83.58 |   |   |   | 62.09 |   |
| First Quarter                       |   |      | 69.05  |   |                    |   | 56.5 |   |   |   | 261.30 |   |   |   | 192.10 |   |   |   | 67.68 |   |   |   | 56.83 |   |
|                                |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Monthly Highs and Lows              |   |      |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| June 2010 (until June 15 2010)      |   | 74.49     |   |   | 67.42                   |   |   | 281.50 |   |   | 260.20 |   |   | 73.20 |   |   | 67.60 |   |
| May 2010                            |   |      | 83.00  |   |                    |   | 70.00 |   |   |   | 309.90 |   |   |   | 272.20 |   |   |   | 83.03 |   |   |   | 70.34 |   |
| April 2010                          |   |      | 81.94  |   |                    |   | 76.46 |   |   |   | 304.00 |   |   |   | 283.70 |   |   |   | 81.55 |   |   |   | 76.70 |   |
| March 2010                          |   |      | 82.25  |   |                    |   | 74.32 |   |   |   | 311.30 |   |   |   | 279.80 |   |   |   | 82.40 |   |   |   | 74.30 |   |
| February 2010                       |   |      | 81.64  |   |                    |   | 73.49 |   |   |   | 302.40 |   |   |   | 273.3 |   |   |   | 80.77 |   |   |   | 73.17 |   |
| January 2010                        |   |      | 73.51  |   |                    |   | 68.53 |   |   |   | 275.00 |   |   |   | 252.50 |   |   |   | 73.61 |   |   |   | 67.80 |   |
| December 2009                       |   |      | 69.89  |   |                    |   | 61.78 |   |   |   | 272.00 |   |   |   | 241.40 |   |   |   | 71.64 |   |   |   | 63.95 |   |

| * | Share prices have been translated from New Israeli Shekels (NIS) to U.S. Dollars at the representative rate of exchange, as reported by the Bank of Israel, on the dates when such high or low prices in NIS were recorded. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

ATI

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----

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ITEM 11. QUANTITATIVE AND QUALITATIVE 

----

|                | Maturity         |
|---------------------|------------------|
|                | In NIS thousands |
|                | 2010             | 2011-12 | 2013-14 | More than 5 years | Total book value | Total fair value |
| Series 2 debentures | 32,922           | 65,845 | 32,922 | - | 131,689 | 136,715 |
| Series 3 debentures | 21,979           | 43,959 | 43,959 | 87,918 | 197,815 | 207,266 |
| Series 4 debentures | 39,260           | 78,519 | 78,519 | 39,260 | 235,557 | 266,721 |

|                                        |   | Sensitivity to Interest Rates |   |
|---------------------------------------------|--------|-------------------------------|--------|
| Sensitive Instruments                       |   | Profit (loss) from changes    |   |   | Fair value as of December 31, 2009 |   |   | Profit (loss) from changes |   |
|                                        |   | Interest rise10%              |   |   | Interest rise5% |   |   | Interest decrease5% |   |   | Interest decrease10% |   |
| In NIS thousands                            |   |
| Series 2 Debentures                         |   |                          | 1,247  |   |   |   | 626 |   |   |   | (136,715 | ) |   |   | (631 | ) |   |   | (1,266 | ) |
| Series 3 Debentures                         |   |                          | 3,160  |   |   |   | 1,590 |   |   |   | (207,266 | ) |   |   | (1,611 | ) |   |   | (3,442 | ) |
| Series 4 Debentures                         |   |                          | 2,729  |   |   |   | 1,371 |   |   |   | (266,721 | ) |   |   | (1,383 | ) |   |   | (2,779 | ) |
| Loan A - fixed interest                     |   |                          | 148    |   |   |   | 74 |   |   |   | (23,350 | ) |   |   | (75 | ) |   |   | (150 | ) |
| Loan B - fixed interest                     |   |                          | 1,500  |   |   |   | 754 |   |   |   | (111,745 | ) |   |   | (763 | ) |   |   | (1,534 | ) |
| Loan C- fixed interest                      |   |                          | 135    |   |   |   | 68 |   |   |   | (24,119 | ) |   |   | (68 | ) |   |   | (136 | ) |
| Long-term loans and capital notes - granted |   |                          | (195   | ) |   |   | (98 | ) |   |   | 50,980 |   |   |   | 98 |   |   |   | 197 |   |

| The fair value of the loans is based on a calculation of the present value of the cash flows, according to the generally-accepted interest rate on loans with similar characteristics (4% in 2009). Regarding the terms of the debentures and other liabilities – See Note 9 to our consolidated financial statements contained elsewhere in this Annual Report.  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Regarding long-term loans and capital notes granted - See Note 5 of our consolidated financial statements contained elsewhere in this Annual Report.                                                                                                                                                                                                                              |

----

|                            |   | Sensitivity of €-linked instruments to changes in the € exchange rate |   |
|---------------------------------|--------|-----------------------------------------------------------------------------------|--------|
| Sensitive Instruments           |   | Profit (loss) from changes                                                        |   |   | Fair value as of December 31, 2009 |   |   | Profit (loss) from changes |   |
|                            |   | Rise in €10%                                                                |   |   | Rise in € 5% |   |   | Decrease in € 5% |   |   | Decrease in € 10% |   |
|                            |   | In NIS thousands                                                                  |   |
| Cash and cash equivalents       |   |                                                                              | 203    |   |   |   | 101 |   |   |   | 2,027 |   |   |   | (101 | ) |   |   | (203 | ) |
| Designated deposits             |   |                                                                              | 2,395  |   |   |   | 1,197 |   |   |   | 23,949 |   |   |   | (1,197 | ) |   |   | (2,395 | ) |
| Other Accounts Receivable       |   |                                                                              | 508    |   |   |   | 254 |   |   |   | 5,075 |   |   |   | (254 | ) |   |   | (508 | ) |
| Other Accounts Payable          |   |                                                                              | (7,258 | ) |   |   | (3,629 | ) |   |   | (72,583 | ) |   |   | 3,629 |   |   |   | 7,258 |   |
| NIS-€ forward transaction |   |                                                                              | 5,123  |   |   |   | 1,994 |   |   |   | (1,114 | ) |   |   | (4,264 | ) |   |   | (7,393 | ) |

|                                                      |   | Sensitivity to the U.S. Dollar Exchange Rate |   |
|-----------------------------------------------------------|--------|----------------------------------------------|--------|
| Sensitive Instruments                                     |   | Profit (loss) from changes                   |   |   | Fair value as of December 31, 2009 |   |   | Profit (loss) from changes |   |
|                                                      |   | Revaluation of $ 10%                         |   |   | Revaluation of $ 5% |   |   | Devaluation of $ 10% |   |   | Devaluation of $ 5% |   |
|                                                      |   | In NIS thousands                             |   |
| Cash and cash equivalents                                 |   |                                         | 495    |   |   |   | 247 |   |   |   | 4,945 |   |   |   | (247 | ) |   |   | (495 | ) |
| Other Accounts Receivable                                 |   |                                         | 1,271  |   |   |   | 635 |   |   |   | 12,707 |   |   |   | (635 | ) |   |   | (1,271 | ) |
| Other  Accounts Payable                              |   |                                         | (4,082 | ) |   |   | (2,041 | ) |   |   | (40,820 | ) |   |   | 2,041 |   |   |   | 4,082 |   |
| Liabilities at fair value through the statement of income |   |                                         | (1,198 | ) |   |   | (599 | ) |   |   | (11,982 | ) |   |   | 599 |   |   |   | 1,198 |   |

| Other accounts receivable reflect primarily short-term customer debts. Capital note – See Note 5d of our consolidated financial statements contained elsewhere in this Annual Report. Accounts payable reflect primarily short-term liabilities to suppliers. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                         |   | Sensitivity to the Consumer Price Index |   |
|------------------------------|--------|-----------------------------------------|--------|
| Sensitive Instruments        |   | Profit (loss) from changes              |   |   | Fair value as of December 31, 2009 |   |   | Profit (loss) from changes |   |
|                         |   | Revaluation of $ 10%                    |   |   | Revaluation of $ 5% |   |   | Devaluation of $ 10% |   |   | Devaluation of $ 5% |   |
|                         |   | In NIS thousands                        |   |
| NIS-CPI forward transactions |   |                                    | 2,000  |   |   |   | 1,000 |   |   |   | 3,052 |   |   |   | (1,000 | ) |   |   | (2,000 | ) |
| Bonds 2                      |   |                                    | (4,145 | ) |   |   | (2,073 | ) |   |   | (207,266 | ) |   |   | 2,073 |   |   |   | 4,145 |   |
| Bonds 3                      |   |                                    | (2,734 | ) |   |   | (1,367 | ) |   |   | (136,715 | ) |   |   | 1,367 |   |   |   | 2,734 |   |

| See Note 17c of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------------------------------------------------------------------------------------------------|

|                   |   | Sensitivity to the exchange rate of the yen |   |
|------------------------|--------|---------------------------------------------|--------|
| Sensitive Instruments  |   | Profit (loss) from changes                  |   |   | Fair value as of December 31, 2009 |   |   | Profit (loss) from changes |   |
|                   |   | Revaluation of $ 10%                        |   |   | Revaluation of $ 5% |   |   | Devaluation of $ 10% |   |   | Devaluation of $ 5% |   |
|                   |   | In NIS thousands                            |   |
|  Accounts Payable |   |                                        | 260    |   |   |   | 130 |   |   |   | 2,605 |   |   |   | (130 | ) |   |   | (260 | ) |

----

| NIS millions                                                   |   | Unlinked |   |   | CPI-linked |   |   | In foreign currency, or linked thereto (primarily US$) |   |   | €-linked |   |   | Non-Monetary Items |   |   | Total  |   |
|----------------------------------------------------------------|--------|----------|--------|--------|------------|--------|--------|--------------------------------------------------------|--------|--------|----------------|--------|--------|--------------------|--------|--------|--------|--------|
| Assets                                                         |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |
| Cash and cash equivalents                                      |   |     | 19.3   |   |       |   |   |                                                   |   | 5.0    |           |   |   | 2.0                |   |   |   |   |   |   | 26.3 |   |
| Short-term deposits and investments                            |   |     | 103.7  |   |       |   |   |                                                   |   |   |           |   |   | 23.9               |   |   |   |   |   |   | 127.6 |   |
| Other Accounts Receivable                                      |   |     | 398.7  |   |       |   | 1.1    |                                                   |   |   | 13.3           |   |   |               | 5.1    |   |   |   | 4.6 |   |   |   | 422.8 |   |
| Inventories                                                    |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 175.9 |   |   |   | 175.9 |   |
| Investments in Associated Companies                            |   |     | 17.8   |   |       |   | 36.7   |                                                   |   |   |           |   |   |               |   |   |   |   | 286.5 |   |   |   | 341.0 |   |
| Deferred taxes on income                                       |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 29.7 |   |   |   | 29.7 |   |
| Fixed assets, net                                              |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 1,126.4 |   |   |   | 1,126.4 |   |
| Intangible Assets                                              |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 27.1 |   |   |   | 27.1 |   |
| Land under lease                                               |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 37.6 |   |   |   | 37.6 |   |
| Other assets                                                   |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 1.3 |   |   |   | 1.3 |   |
| Assets on account of employee benefits                         |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 0.6 |   |
| Total Assets                                                   |   |     | 540.1  |   |       |   | 37.8   |                                                   |   |   | 18.3           |   |   |               | 31.0   |   |   |   | 1,689.1 |   |   |   | 2,316.3 |   |
| Liabilities                                                    |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                                   |   |     | 131.6  |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 131.6 |   |
| Other Accounts Payable                                         |   |     | 252.6  |   |       |   |   |                                                   |   |   | 43.4           |   |   |               | 72.6   |   |   |   |   |   |   |   | 368.6 |   |
| Current tax liabilities                                        |   |     | 2.7    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 2.7 |   |
| Deferred taxes on income                                       |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 58.1 |   |   |   | 58.1 |   |
| Long-Term Loans                                                |   |     | 253.5  |   |       |   | 28.1   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 281.6 |   |
| Notes (debentures) – including current maturities        |   |     | 237.9  |   |       |   | 328.1  |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 566.0 |   |
| Liabilities on account of employee benefits                    |   |     | 37.3   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 37.3 |   |
| Liabilities at fair value through the statement of income      |   |     |   |   |       |   |   |                                                   |   |   | 12.0           |   |   |               |   |   |   |   |   |   |   |   | 12.0 |   |
| Shareholders’ equity, reserves and retained earnings     |   |     |   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 858.4 |   |   |   | 858.4 |   |
| Total liabilities and equity                                   |   |     | 915.6  |   |       |   | 356.2  |                                                   |   |   | 55.4           |   |   |               | 72.6   |   |   |   | 916.5 |   |   |   | 2,316.3 |   |
| Surplus financial assets (liabilities) as at December 31, 2009 |   |     | (375.5 | )      |       |   | (318.4 | )                                                      |   |   | (37.1          | )      |   |               | (41.6  | )      |   |   | 772.6 |   |   |   | 0.0 |   |

PTI

----

 DELINQUENCIES

NTR

| (a) | Disclosure Controls and Procedures |
|-----|------------------------------------|

| (b) | Management’s Report on Internal Control over Financial Reporting |
|-----|------------------------------------------------------------------------|

|   | — | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;                                                                                                                                                                                         |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | — | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and  |
|   | — | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.                                                                                                                             |

----

| (c) | Attestation report of the registered public accounting firm |
|-----|-------------------------------------------------------------|

| (d) | Changes in Internal Control Over Financial Reporting |
|-----|------------------------------------------------------|

NCIA

. PRINCIPAL 

----

|                                                               |   | U.S. $ in thousands |   |
|--------------------------------------------------------------------|--------|---------------------|--------|
|                                                               |   | 2009                |   |   | 2008 |   |
| Audit fees                                                         |   |                |   |   |   |   |
| Audit of financial statements (including shelf prospectus in 2008) |   |                | 135    |   |   |   | 206 |   |
| Audit-related Fees                                                 |   |                |   |   |   |   |   |   |
| ICFR audit                                                         |   |                | 66     |   |   |   | 73 |   |
| Tax Fees                                                           |   |                | -      |   |   |   | - |   |
| All Other Fees                                                     |   |                | -      |   |   |   | - |   |
| Differentials                                                      |   |                | 19     |   |   |   | 47 |   |
| Total                                                              |   |                | 220    |   |   |   | 326 |   |

IO

IST

----

PART III

ENTS

|   | (i) | Consolidated Audited Financial Statements of the Company for the year ended December 31, 2009 (including Reports of Independent Registered Public Accounting Firms). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | Financial statements of Mondi Hadera Paper Ltd. for the year ended December 31, 2009. |
|--------|------|---------------------------------------------------------------------------------------|

|   | (iii) | Financial statements of Hogla-Kimberly Ltd. for the year ended December 31, 2009. |
|--------|-------|-----------------------------------------------------------------------------------|

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|   | HADERA PAPER LTD. |                                                  |
|--------|-------------------|-------------------------------------------------------|
|   |              |                                                  |   |
|   | By:               | /s/ Shaul Gliksberg                              |   |
|   |              | Shaul Gliksberg                                       |   |
|   |              | Chief Financial and Business Development Officer |   |

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| ExhibitNumber |   | Description                                                                                                                                                                                                                                                                                 |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1           |   | Memorandum of Association of the Company (incorporated by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 1987).                                                                                                                                |
| 1.2           |   | Articles of Association of the Company (incorporated by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 2008).                                                                                                                                  |
| 3.1           |   | Voting Agreement dated February 5, 1980 by and among Clal Industries Ltd., PEC Israel Economic Corporation and Discount Bank Investment Corporation Ltd. (incorporated by reference to exhibit 3.1 to the Company’s Annual Report on Form 20-F for the year ended December 31, 1987). |
| 12.1          |   | Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.*                                                                                                                                                    |
| 12.2          |   | Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.*                                                                                                                                                    |
| 13.1          |   | Certification of Chief Executive Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act.*                                                                                                                                                        |
| 13.2          |   | Certification of Chief Financial Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act.*                                                                                                                                                        |

----

----

|                                                       | Page        |
|------------------------------------------------------------|-------------|
| REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   | F-1 - F-2   |
| Consolidated Financial Statements                          |        |
| Consolidated statements of financial position              | F-3 - F-4   |
| Consolidated Income Statements                             | F-5         |
| Consolidated Statements of comprehensive income            | F-6         |
| Consolidated Statements of changes in shareholders' equity | F-7 - F-8   |
| Consolidated Statements of Cash Flows                      | F-9 - F-10  |
| Notes to the Consolidated Financial Statements             | F-11 - F-95 |

----

|   | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel: +972 (4) 860 7333Fax: +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 Independent Registered Public Accounting Firm

----

|   | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel: +972 (4) 860 7333Fax: +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

HADERA PAPER LTD

|                                |   |   |   |   | December 31      |   |
|-------------------------------------|--------|--------|--------|--------|------------------|--------|
|                                |   | Note   |   |   | 2 0 0 9          |   |   | 2 0 0 8 |   |
|                                |   |   |   |   | NIS in thousands |   |
|                                |   |   |   |   |             |   |   |   |   |
| Assets                              |   |   |   |   |             |   |   |   |   |
| Current Assets                      |   |   |   |   |             |   |   |   |   |
| Cash and cash equivalents           |   |   | 2f     |   |             |   | 26,261 |   |   |   | 13,128 |   |
| Designated deposits                 |   |   | 2f     |   |             |   | 127,600 |   |   |   | 249,599 |   |
| Accounts receivable:                |   |   | 14a    |   |             |   |   |   |   |   |   |   |
|    Trade receivables |   |   |   |   |             |   | 323,882 |   |   |   | 318,926 |   |
|    Other receivables |   |   |   |   |             |   | 98,897 |   |   |   | 100,888 |   |
| Current tax assets                  |   |   |   |   |             |   | - |   |   |   | 6,271 |   |
| Inventories                         |   |   | 14b    |   |             |   | 175,944 |   |   |   | 168,755 |   |
| Total Current Assets                |   |   |   |   |             |   | 752,584 |   |   |   | 857,567 |   |
|                                |   |   |   |   |             |   |   |   |   |   |   |   |
| Non-Current Assets                  |   |   |   |   |             |   |   |   |   |   |   |   |
| Fixed assets                        |   |   | 6      |   |             |   | 1,126,360 |   |   |   | 767,542 |   |
| Investments in associated companies |   |   | 5      |   |             |   | 340,975 |   |   |   | 318,101 |   |
| Deferred tax assets                 |   |   | 12     |   |             |   | 29,745 |   |   |   | 29,848 |   |
| Deferred lease expenses             |   |   | 7      |   |             |   | 37,630 |   |   |   | 36,344 |   |
| Other intangible assets             |   |   | 8      |   |             |   | 27,084 |   |   |   | 31,519 |   |
| Other assets                        |   |   |   |   |             |   | 1,298 |   |   |   | 2,549 |   |
| Employee benefit assets             |   |   | 10     |   |             |   | 649 |   |   |   | 624 |   |
| Total Non-Current Assets            |   |   |   |   |             |   | 1,563,741 |   |   |   | 1,186,527 |   |
|                                |   |   |   |   |             |   |   |   |   |   |   |   |
| Total Assets                        |   |   |   |   |             |   | 2,316,325 |   |   |   | 2,044,094 |   |

|                               |   |                    |   |                                            |
|------------------------------------|--------|-------------------------|--------|-------------------------------------------------|
| Z. Livnat                          |   | O. Bloch                |   | S. Gliksberg                                    |
| Chairman of the Board of Directors |   | Chief Executive Officer |   | Chief Financial and BusinessDevelopment Officer |

----

|                                                        |   |   |    |   | December 31      |   |
|-------------------------------------------------------------|--------|--------|---------|--------|------------------|--------|
|                                                        |   | Note   |    |   | 2 0 0 9          |   |   | 2 0 0 8 |   |
|                                                        |   |   |    |   | NIS in thousands |   |
|                                                        |   |   |    |   |             |   |   |   |   |
| Liabilities and Equity                                      |   |   |    |   |             |   |   |   |   |
| Current Liabilities                                         |   |   |    |   |             |   |   |   |   |
| Credit from banks and others                                |   |   | 9b, 14c |   |             |   | 131,572 |   |   |   | 77,655 |   |
| Current maturities of long-term notes and long term loans   |   |   | 9a, b   |   |             |   | 149,940 |   |   |   | 76,469 |   |
| Trade payables                                              |   |   | 14d     |   |             |   | 255,895 |   |   |   | 195,020 |   |
| Other payables and accrued expenses                         |   |   | 14d     |   |             |   | 112,745 |   |   |   | * 104,943 |   |
| Short term employee benefit liabilities                     |   |   | 10a     |   |             |   | 22,421 |   |   |   | * 17,478 |   |
| Other financial liabilities                                 |   |   | 9d      |   |             |   | - |   |   |   | 32,770 |   |
| Financial liabilities at fair value through profit and loss |   |   | 2q(2)   |   |             |   | 11,982 |   |   |   | 13,904 |   |
| Current tax liabilities                                     |   |   |    |   |             |   | 2,760 |   |   |   | - |   |
| Total Current Liabilities                                   |   |   |    |   |             |   | 687,315 |   |   |   | 518,239 |   |
|                                                        |   |   |    |   |             |   |   |   |   |   |   |   |
| Non-Current Liabilities                                     |   |   |    |   |             |   |   |   |   |   |   |   |
| Loans from banks and others                                 |   |   | 9b      |   |             |   | 225,802 |   |   |   | 121,910 |   |
| Notes                                                       |   |   | 9a      |   |             |   | 471,815 |   |   |   | 554,124 |   |
| Deferred tax liabilities                                    |   |   | 12      |   |             |   | 58,053 |   |   |   | 76,641 |   |
| Employee benefit liabilities                                |   |   | 10a     |   |             |   | 14,911 |   |   |   | * 15,551 |   |
| Total Non-Current Liabilities                               |   |   |    |   |             |   | 770,581 |   |   |   | 768,226 |   |
|                                                        |   |   |    |   |             |   |   |   |   |   |   |   |
| Capital and reserves                                        |   |   | 11      |   |             |   |   |   |   |   |   |   |
| Issued capital                                              |   |   |    |   |             |   | 125,267 |   |   |   | 125,267 |   |
| Reserves                                                    |   |   |    |   |             |   | 307,432 |   |   |   | 299,949 |   |
| Retained earnings                                           |   |   |    |   |             |   | 399,346 |   |   |   | 306,097 |   |
| capital and reserves attributed to shareholders             |   |   |    |   |             |   | 832,045 |   |   |   | 731,313 |   |
|                                                        |   |   |    |   |             |   |   |   |   |   |   |   |
| Minority Interests                                          |   |   |    |   |             |   | 26,384 |   |   |   | 26,316 |   |
|                                                        |   |   |    |   |             |   |   |   |   |   |   |   |
| Total capital and reserves                                  |   |   |    |   |             |   | 858,429 |   |   |   | 757,629 |   |
|                                                        |   |   |    |   |             |   |   |   |   |   |   |   |
| Total Liabilities and Equity                                |   |   |    |   |             |   | 2,316,325 |   |   |   | 2,044,094 |   |

----

HADERA PAPER LTD

|                                                                 |   |   |   |   | Year ended December 31 |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|
|                                                                 |   | Note   |   |   | 2 0 0 9                |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                 |   |   |   |   | NIS in thousands       |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |
| Revenue                                                              |   |   | 14e    |   |                   |   | 891,995 |   |   |   | 673,484 |   |   |   | 583,650 |   |
| Cost of sales                                                        |   |   | 14f    |   |                   |   | 765,677 |   |   |   | 542,387 |   |   |   | 440,739 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                         |   |   |   |   |                   |   | 126,318 |   |   |   | 131,097 |   |   |   | 142,911 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, marketing, general and administrative expenses              |   |   | 14g    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                                       |   |   |   |   |                   |   | 71,998 |   |   |   | 45,674 |   |   |   | 31,344 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| General and administrative expenses                                  |   |   |   |   |                   |   | 58,967 |   |   |   | 54,970 |   |   |   | 35,991 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other (income) expenses, net                                         |   |   | 14l    |   |                   |   | (20,234 | ) |   |   | (4,898 | ) |   |   | 4,467 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total expenses                                                       |   |   |   |   |                   |   | 110,731 |   |   |   | 95,746 |   |   |   | 71,802 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit from ordinary operations                                      |   |   |   |   |                   |   | 15,587 |   |   |   | 35,351 |   |   |   | 71,109 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                                                       |   |   | 14j    |   |                   |   | 4,727 |   |   |   | 12,069 |   |   |   | 10,648 |   |
| Finance expenses                                                     |   |   | 14k    |   |                   |   | 22,992 |   |   |   | 27,112 |   |   |   | 32,817 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Finance expenses, net                                                |   |   |   |   |                   |   | 18,265 |   |   |   | 15,043 |   |   |   | 22,169 |   |
| Profit (loss) after financial expenses                               |   |   |   |   |                   |   | (2,678 | ) |   |   | 20,308 |   |   |   | 48,940 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Share in profit of associated companies, net                         |   |   | 5b     |   |                   |   | 87,359 |   |   |   | 51,315 |   |   |   | 856 |   |
| Profit before taxes on income                                        |   |   |   |   |                   |   | 84,681 |   |   |   | 71,623 |   |   |   | 49,796 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Taxes on income                                                      |   |   | 12e    |   |                   |   | (7,067 | ) |   |   | 3,663 |   |   |   | 18,261 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                                                  |   |   |   |   |                   |   | 91,748 |   |   |   | 67,960 |   |   |   | 31,535 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Attributed to:                                                       |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Company shareholders                                                 |   |   |   |   |                   |   | 91,230 |   |   |   | 69,710 |   |   |   | 31,535 |   |
| Minority interests                                                   |   |   |   |   |                   |   | 518 |   |   |   | (1,750 | ) |   |   | - |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                 |   |   |   |   |                   |   | 91,748 |   |   |   | 67,960 |   |   |   | 31,535 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earning for regular share of NIS 0.01 par value (see note 15):  |   |   |   |   |                   | NIS    |   |
| Primary attributed to Company shareholders                           |   |   |   |   |                   |   | 18.03 |   |   |   | 13.77 |   |   |   | 7.63 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Fully diluted attributed to company shareholders                     |   |   |   |   |                   |   | 18.03 |   |   |   | 13.77 |   |   |   | 7.62 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Number of share used to compute the primary earnings per share       |   |   |   |   |                   |   | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,132,728 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Number of share used to compute the fully diluted earnings per share |   |   |   |   |                   |   | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,139,533 |   |

----

HADERA PAPER LTD

|                                                                                                    |   | Year ended       |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                    |   | December 31      |   |
|                                                                                                    |   | 2 0 0 9          |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                                                    |   | NIS in thousands |   |
| Comprehensive Income                                                                                    |   |             | 91,748 |   |   |   | 67,960 |   |   |   | 31,535 |   |
|                                                                                                    |   |             |   |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income                                                                              |   |             |   |   |   |   |   |   |   |   |   |   |
| Profit (loss) on cash flow hedges, net                                                                  |   |             | 5,191  |   |   |   | (2,306 | ) |   |   | - |   |
| Allocation to the income statement on account of cash flow hedging transactions, net                    |   |             | (1,128 | ) |   |   | - |   |   |   | - |   |
| Actuarial profit (loss) from defined benefit plans, net                                                 |   |             | 477    |   |   |   | (1,501 | ) |   |   | - |   |
| Revaluation from step acquisition                                                                       |   |             | -      |   |   |   | 17,288 |   |   |   | - |   |
| Share in Other Comprehensive Income of associated companies, net                                        |   |             | (507   | ) |   |   | (29,111 | ) |   |   | 3,158 |   |
| Share in other comprehensive income associated companies, which allocated to the income statements, net |   |             | 1,163  |   |   |   | 1,017 |   |   |   | 17 |   |
| Total Other Comprehensive Income for the period, net                                                    |   |             | 5,196  |   |   |   | (14,613 | ) |   |   | 3,175 |   |
| Total Comprehensive Income for the period                                                               |   |             | 96,944 |   |   |   | 53,347 |   |   |   | 34,710 |   |
|                                                                                                    |   |             |   |   |   |   |   |   |   |   |   |   |
| Attributed to:                                                                                          |   |             |   |   |   |   |   |   |   |   |   |   |
| Company shareholders                                                                                    |   |             | 96,428 |   |   |   | 55,115 |   |   |   | 34,710 |   |
| Minority interests                                                                                      |   |             | 516    |   |   |   | (1,768 | ) |   |   | - |   |
|                                                                                                    |   |             | 96,944 |   |   |   | 53,347 |   |   |   | 34,710 |   |

----

HADERA PAPER LTD

|                                                                                |   | Share capital    |    |   | Premium of share |   |    | Share based payments reserves |   |   | Capital reserves resulting from tax benefit on exercise of employee options |   |   | Capital reserve from revaluation from step acquisition |   |   | Hedging reserves |   |   | Foreign currency translation reserves |   |   | Retained earnings |   |   | Total for Company shareholders |    |   | Minority Interests |   |    | Total  |   |
|-------------------------------------------------------------------------------------|--------|------------------|---------|--------|------------------|--------|---------|-------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|------------------|--------|--------|---------------------------------------|--------|--------|-------------------|--------|--------|--------------------------------|---------|--------|--------------------|--------|---------|--------|--------|
|                                                                                |   | NIS in thousands |    |
|                                                                                |   |
| Balance - January 1, 2009                                                           |   |             | 125,267 |   |             |   | 301,695 |                          |   |   | 6,227                                                                       |   |   |                                                   | 3,397  |   |             |   | 15,908 |                                  |   |   | (5,092            | )      |   |                           | (22,186 | )      |               |   | 306,097 |   |   |   | 731,313 |   |   |   | 26,316 |   |   |   | 757,629 |   |
|                                                                                |   |             |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   |   |                                  |   |   |              |   |   |                           |    |   |               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the Year endedDecember 31, 2009:                                                |   |             |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   |   |                                  |   |   |              |   |   |                           |    |   |               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Comprehensive Income for the Year                                             |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | 5,609             |   |   |                           | (686    | )      |               |   | 91,505  |   |   |   | 96,428 |   |   |   | 516 |   |   |   | 96,944 |   |
| Purchasing shares of subsidiary company                                             |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |               |   | -       |   |   |   | - |   |   |   | (448 | ) |   |   | (448 | ) |
| Depreciation of capital from revaluation from step acquisition to retained earnings |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | (1,744 | )                                     |   |   | -                 |   |   |                           | -       |   |               |   | 1,744   |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Share based payment                                                                 |   |             | -       |   |             |   | -       |                          |   |   | 4,304                                                                       |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |               |   | -       |   |   |   | 4,304 |   |   |   | - |   |   |   | 4,304 |   |
| Balance – December 31, 2009                                                   |   |             | 125,267 |   |             |   | 301,695 |                          |   |   | 10,531                                                                      |   |   |                                                   | 3,397  |   |             |   | 14,164 |                                  |   |   | 517               |   |   |                           | (22,872 | )      |               |   | 399,346 |   |   |   | 832,045 |   |   |   | 26,384 |   |   |   | 858,429 |   |
|                                                                                |   |             |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   |   |                                  |   |   |              |   |   |                           |    |   |               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2008                                                           |   |             | 125,267 |   |             |   | 301,695 |                          |   |   | -                                                                           |   |   |                                                   | 3,397  |   |             |   | -      |                                  |   |   | (635              | )      |   |                           | 3,810   |   |               |   | 236,437 |   |   |   | 669,971 |   |   |   | - |   |   |   | 669,971 |   |
|                                                                                |   |             |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   |   |                                  |   |   |              |   |   |                           |    |   |               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year endedDecember 31, 2008:                                                |   |             |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   |   |                                  |   |   |              |   |   |                           |    |   |               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Comprehensive Income for the year                                             |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | 17,288 |                                  |   |   | (4,457            | )      |   |                           | (25,996 | )      |               |   | 68,280  |   |   |   | 55,115 |   |   |   | (1,768 | ) |   |   | 53,347 |   |
| First transfer to consolidation – creating minority interests                 |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |               |   | -       |   |   |   | - |   |   |   | 28,084 |   |   |   | 28,084 |   |
| Depreciation of capital from revaluation from step acquisition to retained earnings |   |             | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | (1,380 | )                                     |   |   | -                 |   |   |                           | -       |   |               |   | 1,380   |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Share based payment                                                                 |   |             | -       |   |             |   | -       |                          |   |   | 6,227                                                                       |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |               |   | -       |   |   |   | 6,227 |   |   |   | - |   |   |   | 6,227 |   |
| Balance – December 31, 2008                                                   |   |             | 125,267 |   |             |   | 301,695 |                          |   |   | 6,227                                                                       |   |   |                                                   | 3,397  |   |             |   | 15,908 |                                  |   |   | (5,092            | )      |   |                           | (22,186 | )      |               |   | 306,097 |   |   |   | 731,313 |   |   |   | 26,316 |   |   |   | 757,629 |   |

----

|                                                                                            |   | Share capital    |    |   | Premium on shares |   |    | Capital reserves resulting from tax benefit on exercise of employee options |   |   | Hedging reserves |   |   | Foreign currency translation reserves |   |   | Retained earnings |   |   | Total for Company shareholders |   |
|-------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|-------------------|--------|---------|-----------------------------------------------------------------------------|--------|--------|------------------|--------|--------|---------------------------------------|--------|--------|-------------------|--------|--------|--------------------------------|--------|
|                                                                                            |   | NIS in thousands |    |
| Year ended December 31, 2007                                                                    |   |             |    |
|                                                                                            |   |             |    |   |              |   |    |                                                                        |   |   |             |   |   |                                  |   |   |              |   |   |                           |   |
| Balance – January 1, 2007                                                                 |   |             | 125,257 |   |              |   | 90,060  |                                                                        |   |   | 2,414            |   |   |                                  | -      |   |              |   | -      |                           |   |   | 204,902 |   |   |   | 422,633 |   |
| Total comprehensive income for the year                                                         |   |             | -       |   |              |   | -       |                                                                        |   |   | -                |   |   |                                  | (635   | )      |              |   | 3,810  |                           |   |   | 31,535 |   |   |   | 34,710 |   |
| Issuance of shares (deduction of cost issuance in the amount of  NIS 1,581 thousands) |   |             | 10      |   |              |   | 211,635 |                                                                        |   |   | -                |   |   |                                  | -      |   |              |   | -      |                           |   |   | - |   |   |   | 211,645 |   |
| Tax benefit on exercise of employee options into shares                                         |   |             | -       |   |              |   | -       |                                                                        |   |   | 983              |   |   |                                  | -      |   |              |   | -      |                           |   |   | - |   |   |   | 983 |   |
| Balance – December 31, 2007                                                               |   |             | 125,267 |   |              |   | 301,695 |                                                                        |   |   | 3,397            |   |   |                                  | (635   | )      |              |   | 3,810  |                           |   |   | 236,437 |   |   |   | 669,971 |   |

----

HADERA PAPER LTD

|                                                                                                     |   | Year ended       |    |
|----------------------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                                     |   | December 31      |    |
|                                                                                                     |   | 2 0 0 9          |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                                                     |   | NIS in thousands |    |
| Cash flows – operating activities                                                                  |   |             |    |   |   |   |   |   |   |
|    Net Profit for the year                                                                |   |             | 91,748  |   |   |   | 67,960 |   |   |   | 31,535 |   |
|    Taxes on income recognized in profit and loss                                          |   |             | (7,067  | ) |   |   | 3,663 |   |   |   | 18,261 |   |
| Finance expenses recognized in profit and loss, net                                                      |   |             | 18,265  |   |   |   | 15,043 |   |   |   | 22,169 |   |
| Capital profit on sale of fixed assets                                                                   |   |             | (73     | ) |   |   | (284 | ) |   |   | 1,403 |   |
| Capital loss on sale investment in associated company                                                    |   |             | -       |   |   |   | - |   |   |   | 28 |   |
| Share in profit of associated companies                                                                  |   |             | (87,359 | ) |   |   | (51,315 | ) |   |   | (856 | ) |
| Dividend received from associated company                                                                |   |             | 61,814  |   |   |   | - |   |   |   | - |   |
| Income from repayment of capital note to associated company                                              |   |             | (16,418 | ) |   |   | - |   |   |   | - |   |
| Depreciation and amortization                                                                            |   |             | 78,552  |   |   |   | 59,784 |   |   |   | 36,138 |   |
| Share based payments expenses                                                                            |   |             | 3,762   |   |   |   | 4,913 |   |   |   | - |   |
| Gain from negative goodwill                                                                              |   |             | -       |   |   |   | (14,664 | ) |   |   | - |   |
|                                                                                                     |   |             | 143,224 |   |   |   | 85,100 |   |   |   | 108,678 |   |
|                                                                                                     |   |             |    |   |   |   |   |   |   |   |   |   |
| Changes in assets and liabilities:                                                                       |   |             |    |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in trade and other receivables                                                       |   |             | 22,373  |   |   |   | 66,805 |   |   |   | (5,416 | ) |
| Increase in inventories                                                                                  |   |             | (7,189  | ) |   |   | (19,868 | ) |   |   | (7,498 | ) |
| Increase (Decrease) in trade and other payables                                                          |   |             | 24,407  |   |   |   | * (16,923 | ) |   |   | 18,646 |   |
| Increase (Decrease)  in financial  liabilities at fair value through profit and loss |   |             | (1,922  | ) |   |   | 10,003 |   |   |   | 2,289 |   |
| Increase (Decrease) in employee benefit                                                                  |   |             | 4,089   |   |   |   | * (3,063 | ) |   |   | 2,913 |   |
|                                                                                                     |   |             | 41,758  |   |   |   | 36,954 |   |   |   | 10,934 |   |
|                                                                                                     |   |             |    |   |   |   |   |   |   |   |   |   |
| Tax Payments                                                                                             |   |             | (5,754  | ) |   |   | (8,182 | ) |   |   | (27,755 | ) |
| Net cash generated by operating activities                                                               |   |             | 179,228 |   |   |   | 113,872 |   |   |   | 91,857 |   |

----

|                                                            |   | Year ended       |     |
|-----------------------------------------------------------------|--------|------------------|----------|
|                                                            |   | December 31      |     |
|                                                            |   | 2 0 0 9          |     |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                            |   | NIS in thousands |     |
| Cash flows – investing activities                         |   |             |     |   |   |   |   |   |   |
| Acquisition of fixed assets                                     |   |             | (350,685 | ) |   |   | (230,053 | ) |   |   | (83,363 | ) |
| Acquisition of subsidiaries                                     |   |             | -        |   |   |   | (70,567 | ) |   |   | - |   |
| Acquisition of other assets                                     |   |             | (752     | ) |   |   | (2,770 | ) |   |   | - |   |
| Proceeds from sales of fixed assets                             |   |             | 1,960    |   |   |   | 825 |   |   |   | 31,415 |   |
| Decrease (Increase) in designated deposits                      |   |             | 124,614  |   |   |   | (255,244 | ) |   |   | - |   |
| Interest received                                               |   |             | 1,565    |   |   |   | 7,764 |   |   |   | 1,716 |   |
| Prepaid expenses with respect to an operating lease             |   |             | (1,770   | ) |   |   | (2,622 | ) |   |   | (2,596 | ) |
| Associated companies:Granting of loans to an associated company |   |             | (1,068   | ) |   |   | (422 | ) |   |   | (318 | ) |
| Repayments of loans to an associated company                    |   |             | -        |   |   |   | 2,851 |   |   |   | 2,893 |   |
| Proceeds from sale of investment of associated companies        |   |             | -        |   |   |   | - |   |   |   | 27,277 |   |
| Net cash by used in investing activities                        |   |             | (226,136 | ) |   |   | (550,238 | ) |   |   | (22,976 | ) |
|                                                            |   |             |     |   |   |   |   |   |   |   |   |   |
| Cash flows – financing activities                         |   |             |     |   |   |   |   |   |   |   |   |   |
| Proceeds from private share allocating                          |   |             | -        |   |   |   | - |   |   |   | 211,645 |   |
| Proceeds from issuing notes                                     |   |             | -        |   |   |   | 424,617 |   |   |   | - |   |
| Short-term bank credit – net                              |   |             | 53,917   |   |   |   | (111,444 | ) |   |   | (59,988 | ) |
| Borrowings received from banks                                  |   |             | 159,674  |   |   |   | 39,448 |   |   |   | - |   |
| Repayment of borrowings from banks and from others              |   |             | (37,830  | ) |   |   | (11,801 | ) |   |   | (5,212 | ) |
| Repayment of capital note                                       |   |             | (32,770  | ) |   |   | - |   |   |   | - |   |
| Interest Paid                                                   |   |             | (42,012  | ) |   |   | (20,360 | ) |   |   | (24,994 | ) |
| Redemption of notes                                             |   |             | (40,427  | ) |   |   | (38,904 | ) |   |   | (37,167 | ) |
| Net cash generated by financing activities                      |   |             | 60,552   |   |   |   | 281,556 |   |   |   | 84,284 |   |
|                                                            |   |             |     |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                |   |             | 13,644   |   |   |   | (154,810 | ) |   |   | 153,165 |   |
| Cash and cash equivalents  beginning of the year      |   |             | 13,128   |   |   |   | 167,745 |   |   |   | 13,621 |   |
| Net foreign exchange differences                                |   |             | (511     | ) |   |   | 193 |   |   |   | 959 |   |
| Cash and cash equivalents end of the year                       |   |             | 26,261   |   |   |   | 13,128 |   |   |   | 167,745 |   |

----

HADERA PAPER LTD

|   | A. | Description Of Business |
|--------|----|-------------------------|

|   | B. | Definitions: |
|--------|----|--------------|

|   | The Company | - Hadera Paper Limited. |
|--------|-------------|-------------------------|

|   | The Group | - the Company and its Subsidiaries. |
|--------|-----------|-------------------------------------|

|   | Related Parties | - as defined by IAS 24. |
|--------|-----------------|-------------------------|

|   | Interested Parties | - as defined in the Israeli Securities law and Regulations 1968. |
|--------|--------------------|------------------------------------------------------------------|

|   | Controlling Shareholder | - as defined in the Israeli Securities law and annual Financial Statements, 2010. |
|--------|-------------------------|-----------------------------------------------------------------------------------|

|   | NIS | -  New Israeli Shekel. |
|--------|-----|----------------------------------|

|   | CPI | - the Israeli consumer price index. |
|--------|-----|-------------------------------------|

|   | Dollar | - the U.S. dollar. |
|--------|--------|--------------------|

|   | Subsidiaries | - companies in which the Company control, (as defined by IAS 27) directly or indirectly,    and whose financial statements are fully consolidated with those of the Company. |
|--------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Associated Companies | - companies in which the Group has significant influence and the Group investments in   them, directly or indirectly are included in the financial statements using the equity method. |
|--------|----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Affiliated Companies | - Subsidiaries and associated companies. |
|--------|----------------------|------------------------------------------|

|   | A. | Applying International Accounting Standards (IFRS) |
|--------|----|----------------------------------------------------|

----

|   | B. | The financial statements are drawn up in accordance with the Israeli Securities Regulations (Annual Financial Statements), 2010 (hereinafter – "Financial Statements Regulations"). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Operating cycle period |
|--------|----|------------------------|

|   | D. | Basis of preparation |
|--------|----|----------------------|

|   | · | Derivative financial instruments measured by fair value. |
|--------|--------|----------------------------------------------------------|

|   | · | Inventories are stated at the lower of cost and net realizable value. |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Liabilities to employees as described in note 2 X below. |
|--------|--------|----------------------------------------------------------|

|   | E. | Foreign currencies |
|--------|----|--------------------|

|   | (1)     Functional currency and presentation currency |
|--------|---------------------------------------------------------------------------|

|   | (2)     Translation of transactions that are not in the functional currency |
|--------|-------------------------------------------------------------------------------------------------|

----

|   | E. | Foreign currencies (cont.) |
|--------|----|----------------------------|

|   | (3)    Method of recognizing exchange rate differentials |
|--------|-------------------------------------------------------------------------|

|   | (4)    Translation of financial statements of associated companies whose functional currency is not the New Israeli Shekel (NIS). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | Cash and cash equivalents |
|--------|----|---------------------------|

|   | G. | Consolidated Financial Statements |
|--------|----|-----------------------------------|

----

|   | G. | Consolidated Financial Statements (cont.) |
|--------|----|-------------------------------------------|

|   | H. | Business combinations |
|--------|----|-----------------------|

----

|   | H. | Business combinations (cont.) In business combinations, where control is obtained after several exchange transactions (acquisition in stages) the assets, liabilities and contingent liabilities of the acquired company will be measured at fair value on the date in which control was obtained, while the difference between their fair value on the date of the acquisitions that preceded the business combination and their fair value on the date of the business combination shall be carried to will be reported in other comprehensive income under "Profit (loss) from Acquisition step". The capital reserve created as a result of these valuations is transferred to retained earnings on the date in which the item in respect of which has been created is depreciated or amortized. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | Investments in associated companies |
|--------|----|-------------------------------------|

|   | J. | Goodwill |
|--------|----|----------|

----

|   | J. | Goodwill |
|--------|----|----------|

|   | K. | Property, plant and equipment |
|--------|----|-------------------------------|

----

|   | K. | Property, plant and equipment (cont.) |
|--------|----|---------------------------------------|

| The annual depreciation and amortization rates are: |   | Useful life length |   |
|-----------------------------------------------------|--------|--------------------|--------|
|                                                |   |               |   |
| Buildings                                           |   |               | 10-50  |   |
| Machinery and equipment                             |   |               | 7-20   |   |
| Motor vehicles                                      |   |               | 5-7    |   |
| Office furniture and equipment                      |   |               | 3-17   |   |

|   | L. | Intangible assets |
|--------|----|-------------------|

| Customer relations | 5-10 years |
|--------------------|------------|
| Software           | 3 years    |

----

|   | L. | Intangible assets (cont.) |
|--------|----|---------------------------|

|   | (2) | Intangible assets acquired under a business combination (cont.) In subsequent periods to the initial recognition, intangible assets acquired under a business combination are presented at cost less any accumulated amortization and subsequent accumulated impairment loss. The amortization of intangible assets with a finite life is calculated based on the straight line method over the estimated useful life of these assets. The estimated useful life and method of amortization are tested at the end of each reporting year while the effect of changes in the estimates useful life is accounted for prospectively.As to the publication of IFRS 3 (amended) "Business Combinations" see note 3C below. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | M. | Impairment of value of tangible and intangible assets, excluding goodwill |
|--------|----|---------------------------------------------------------------------------|

----

|   | M. | Impairment of value of tangible and intangible assets, excluding goodwill (cont.) |
|--------|----|-----------------------------------------------------------------------------------|

|   | N. | Borrowing costs |
|--------|----|-----------------|

|   | O. | Inventories |
|--------|----|-------------|

----

|   | O. | Inventories(cont.) |
|--------|----|--------------------|

| Raw, auxiliary materials and others       | - | Based on weighted-average basis.                                                                                                                               |
|-------------------------------------------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Finished products and products in process | - | Based on overhead absorption costing. At cost, calculated based on the absorption pricing of production costs incurred during the production of finished goods |

|   | P. | Financial assets |
|--------|----|------------------|

|   | (1)   General |
|--------|-------------------------|

----

|   | P. | Financial assets (cont.) |
|--------|----|--------------------------|

|   | (2) | Loans and receivables |
|--------|-----|-----------------------|

|   | (3) | Financial assets at Fair Value through Profit an Loss (FVTPL) |
|--------|-----|---------------------------------------------------------------|

|   | ● | it has been acquired principally for the purpose of selling in the near future; or |
|--------|---------|------------------------------------------------------------------------------------|

|   | ● | it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | it is a derivative that is not designated and effective as a hedging instrument. |
|--------|---------|----------------------------------------------------------------------------------|

|   | (4) | Impairment of financial assets |
|--------|-----|--------------------------------|

|   | ● | Significant financial difficulty of the issuer or counterparty; or |
|--------|---------|--------------------------------------------------------------------|

|   | ● | Default or delinquency in interest or principal payments; or |
|--------|---------|--------------------------------------------------------------|

|   | ● | It becoming probable that the borrower will enter bankruptcy or financial re-organization. |
|--------|---------|--------------------------------------------------------------------------------------------|

----

|   | P. | Financial assets (cont.) |
|--------|----|--------------------------|

|   | (4) | Impairment of financial assets (cont.) |
|--------|-----|----------------------------------------|

|   | Q. | Financial liabilities and equity instruments issued by the Group |
|--------|----|------------------------------------------------------------------|

|   | (1) | Classification as debt or equity |
|--------|-----|----------------------------------|

|   | (2) | Options to sell shares of an investee |
|--------|-----|---------------------------------------|

|   | (3) | Other financial liabilities |
|--------|-----|-----------------------------|

----

|   | Q. | Financial liabilities and equity instruments issued by the Group (cont.) |
|--------|----|--------------------------------------------------------------------------|

|   | (3) | Other financial liabilities (cont.) |
|--------|-----|-------------------------------------|

|   | (4) | CPI-linked liabilities |
|--------|-----|------------------------|

|   | (5) | Extinguishing Financial Liabilities |
|--------|-----|-------------------------------------|

|   | R. | Derivative financial instruments |
|--------|----|----------------------------------|

|   | (1) | General |
|--------|-----|---------|

----

|   | R. | Derivative financial instruments (cont.) |
|--------|----|------------------------------------------|

|   | (2) | Hedge accounting |
|--------|-----|------------------|

----

|   | R. | Derivative financial instruments (cont.) |
|--------|----|------------------------------------------|

|   | (2) | Hedge accounting (cont.) |
|--------|-----|--------------------------|

|   | S. | Revenue recognition |
|--------|----|---------------------|

|   | (1) | Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|   | · | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The amount of revenue can be measured reliably; |
|--------|--------|-------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be measured reliably. |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | (2) | Interest revenue Interest revenue is accrued on a time basis, by reference to the principal outstanding and by using the effective interest rate method. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Dividends Revenue is recognized when the Group's right to receive the payment is established. |
|--------|-----|----------------------------------------------------------------------------------------------------|

----

|   | S. | Revenue recognition (cont.) |
|--------|----|-----------------------------|

|   | (4) | Reporting of revenues on a gross basis or a net basis The Company's revenues as an agency or intermediary from providing electricity, water, steam, and logistical services to the Group without bearing the risks and returns that derive from the transaction are presented on a net basis. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | T. | Leasing |
|--------|----|---------|

|   | U. | Provisions |
|--------|----|------------|

|   | V. | Share - Based payments |
|--------|----|------------------------|

----

|   | V. | Share - Based payments (cont.) |
|--------|----|--------------------------------|

|   | W. | Taxation |
|--------|----|----------|

|   | (1) | General |
|--------|-----|---------|

|   | (2) | Current tax |
|--------|-----|-------------|

|   | (3) | Deferred tax |
|--------|-----|--------------|

----

|   | W. | Taxation (cont.) |
|--------|----|------------------|

|   | (3) | Deferred tax (cont.) |
|--------|-----|----------------------|

|   | X. | Employee benefits |
|--------|----|-------------------|

|   | (1) | Post-Employment Benefits |
|--------|-----|--------------------------|

----

|   | X. | Employee benefits (cont.) |
|--------|----|---------------------------|

|   | (1) | Post-Employment Benefits (cont.) |
|--------|-----|----------------------------------|

|   | (2) | Short term employee benefits |
|--------|-----|------------------------------|

|   | Short term employee benefits are benefits which are going to be paid during a period that does not exceed 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Short term company benefits include the Group's liability for short term absences, vacations, payment of grants, bonuses, double profit and compensation. These benefits are recorded to the income statement, on a non capitalized basis, which the company is expected to pay when created. The benefits are measured on a non capitalized basis. The difference between the amount of the short term benefits to which the employee is entitled and the amount paid is therefore recognized as an asset or liability. As for IAS19 (Amended) "Employee Benefits" regarding the classification of entitlement for compensated absences (paid vacation and sick leave), see Note 3a(2), below. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Y. | Net income per share |
|--------|----|----------------------|

----

|   | Z. | Exchange Rates and Linkage Basis |
|--------|----|----------------------------------|

|   | (1) | Foreign currency balance, or balances linked to foreign currency are included in the financial statements according to the exchange rate announced by the Bank of Israel at the end of reporting period. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Balances linked to the CPI are presented according to index of the last month of the report period. |
|--------|-----|-----------------------------------------------------------------------------------------------------|

|   | (3) | Following are the changes in the representative exchange rates of the Euro and the U.S. dollar vis-a-vis the NIS and in the Israeli Consumer Price Index (“CPI”): |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    As of:        |   | Representative exchange rates of the dollar(NIS per $1) |   |   | Representative exchange rates of the Euro (NIS per €1) |   |   | CPI“in respect of”(in points) * |   |
|---------------------------------|--------|---------------------------------------------------------|--------|--------|--------------------------------------------------------------|--------|--------|---------------------------------------------|--------|
|                            |   |                                                    |   |   |                                                         |   |   |                                        |   |
| December 31, 2009               |   |                                                    | 3.775  |   |                                                         |   | 5.442  |                                        |   |   | 206.19 |   |
| December 31, 2008               |   |                                                    | 3.802  |   |                                                         |   | 5.297  |                                        |   |   | 198.42 |   |
|                            |   |                                                    |   |   |                                                         |   |   |                                        |   |   |   |   |
| Increase (decrease) during the: |   | %                                                       |   |   | %                                                            |   |   | %                                           |   |
| Year ended December 31, 2009    |   |                                                    | (0.71  | )      |                                                         |   | 2.74   |                                        |   |   | 3.9 |   |
| Year ended December 31, 2008    |   |                                                    | (1.1   | )      |                                                         |   | (6.39  | )                                           |   |   | 3.8 |   |

|   | A. | Standards and interpretations that influence this reporting period and/or previous reporting periods: |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | (1) | Standards that influence the presentation and disclosure |
|--------|-----|----------------------------------------------------------|

|   | § | IFRS 8, Operating Segments |
|--------|--------|----------------------------|

----

|   | A. | Standards and interpretations that influence this reporting period and/or previous reporting periods: (cont.) |
|--------|----|---------------------------------------------------------------------------------------------------------------|

|   | (1) | Standards that influence the presentation and disclosure (cont.) |
|--------|-----|------------------------------------------------------------------|

|   | § | IAS 1 (Amended) “Presentation of Financial Statements” |
|--------|--------|--------------------------------------------------------------------|

|   | § | Amendment to IFRS 7 "Financial Instruments: Disclosure" |
|--------|--------|---------------------------------------------------------|

|   | (2) | Standards and interpretations that influence the reported results and financial position |
|--------|-----|------------------------------------------------------------------------------------------|

|   | § | Amendment IAS 19 "Employee benefits" |
|--------|--------|--------------------------------------|

----

|   | A. | Standards and interpretations that influence this reporting period and/or previous reporting periods: (cont.) |
|--------|----|---------------------------------------------------------------------------------------------------------------|

|   | (2) | Standards and interpretations that influence the reported results and financial position (cont.) |
|--------|-----|--------------------------------------------------------------------------------------------------|

|   | § | Amendment IAS 19 "Employee benefits" (cont.) |
|--------|--------|----------------------------------------------|

|                                                |   | December 31, 2008 |    |
|-----------------------------------------------------|--------|-------------------|---------|
|                                                |   | NIS in thousands  |    |
|                                                |   |              |    |
| Decrease in other payables and accrued expenses     |   |              | (1,119  | ) |
| Decrease in long term employee benefits liabilities |   |              | (16,359 | ) |
|                                                |   |              |    |   |
| Increase in short term employee benefits            |   |              | 17,478  |   |

|   | B. | New standards and interpretations that do not have a material effect on the current period and/or previous reporting periods: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------|

|   | § | IAS 23 (Amended) “Borrowing Costs” |
|--------|--------|------------------------------------------------|

----

|   | B. | New standards and interpretations that do not have a material effect on the current period and/or previous reporting periods: (cont.) |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment of IAS 28 "Investments in Associates" (regarding impairment of goodwill of an associated company) |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IAS 38 "Intangible Assets". |
|--------|--------|------------------------------------------|

|   | § | Amendment to IFRS 2, Share Based Payment- Vesting and Revocation Conditions |
|--------|--------|-----------------------------------------------------------------------------|

|   | § | IFRIC 16 "Hedges of a Net Investment in a Foreign Operation" |
|--------|--------|--------------------------------------------------------------|

----

|   | B. | New standards and interpretations that do not have a material effect on the current period and/or previous reporting periods: (cont.) |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRIC 16 "Hedges of a Net Investment in a Foreign Operation" (cont.) |
|--------|--------|----------------------------------------------------------------------|

|   | § | Amendment to IAS 32, "Financial Instruments: Presentation", and IAS 1, "Presentation of Financial Statements" |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IFRIC 9, “Reassessment of Embedded Derivatives” and IAS 39, “Financial Instruments: Recognition and Measurement” |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Group in Early Adoption, which expected or may have an impact on future periods: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IAS 27 (Amended) “Consolidated and Separate Financial Statements “ |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | The standard stipulates that transactions with minority shareholders, in the context of which the Group holds control of the subsidiary before and after the transaction, will be treated as capital transactions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Group in Early Adoption, that might have or expected to have an effect on future periods: (cont.) |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IAS 27 (Amended) “Consolidated and Separate Financial Statements “ (cont.) |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | In the context of transactions, subsequent to which the Group loses control in the subsidiary, the remaining investment is to be measured as of the date that control is lost, at fair value. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The minority interest in the losses of a subsidiary, which exceed its share in shareholders’ equity, will be allocated to it, while ignoring its obligations and ability to make additional investments in the subsidiary. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRS 3 (Amended) “Business Combinations” |
|--------|--------|------------------------------------------------------|

|   | · | The standard determines measurement rules for contingent consideration in business combinations which is to be measured as a derivative financial instrument. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The transaction costs directly connected with the business combination will be recorded to the income statement when incurred. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | Minority interests will be measured at the time of the business combination to the extent of their share in the fair value of the assets, including goodwill, liabilities and contingent liabilities of the acquired entity, or to the extent of their share in the fair value of the net assets, as aforementioned, but excluding their share in goodwill. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | As for business combinations where control is achieved after a number of acquisitions (acquisition in stages), the earlier |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | purchases of the acquired company will be measured at the time that control is achieved On that date, equity interests will be premeasured at fair value prior to the date of acquisition, On that date, equity interests will be remeasured at fair value prior to the date of acquisition while recording the difference to the income statement. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRS 3 (Amended) “Business Combinations” (cont.) |
|--------|--------|--------------------------------------------------------------|

|   | § | Amendment of IAS 28 "Investment in Associates" (regarding the loss of significant influence in an associated company) |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IAS 17, “Leases” |
|--------|--------|------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IAS 17, “Leases (cont.) |
|--------|--------|-------------------------------------------------|

|   | § | Amendment of IFRS 5 "Non-Current Asset Held for Sale ad Discontinued Operations" |
|--------|--------|----------------------------------------------------------------------------------|

|   | § | Amendment to IAS 36, “Impairment of Assets” |
|--------|--------|--------------------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment of IAS 39 "Financial Instruments: Recognition and Measurement" (regarding the scope of the standard, the date of recognition of gains and losses in profit or loss with respect to hedging instruments and an option for early repayment in debt instruments) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRS 9: "Financial instruments" |
|--------|--------|---------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRS 9: "Financial instruments" (cont.) |
|--------|--------|-----------------------------------------|

|   | · | A debt instrument which, according to tests, is measured at depreciated cost, can be designated through profit and loss only if the designation cancels inconsistency in recognition and measurement that would have been created had the asset been measured at amortized cost. Equity instruments are measured at fair value through profit and loss. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On the date of initial recognition equity instruments can be designated as measured at fair value when profits or losses are recognized in other comprehensive income. Instruments designated as aforesaid will no longer be subject to impairment testing and any profit or loss in respect thereof will not be recognized in profit and loss, including during the disposal thereof. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Embedded derivatives will not be separated from the host contract which falls under the application of the standard. Instead, compound contracts will be measured as a whole at amortized cost or at fair value, in accordance with the business model tests and contractual cash flow tests. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments will be reclassified from depreciated cost to fair value and vice versa only when the entity changes its business model to financial asset management. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments in equity instruments that do not have a quoted price in an active market including derivatives on these instruments will always be measured at fair value. The alternative of measurement at cost under certain circumstances has been cancelled. At the same time, the standard specifies that under specific circumstances cost may constitute a proper estimate of fair value. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | New standards and interpretations which have been issued but not yet entered into effect and have not been adopted early by the Group, and are not expected to affect the Group's financial statements: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | IFRIC 17 "Distribution of non-cash assets to owners". |
|--------|--------|-------------------------------------------------------|

|   | § | IAS 24 (Amended) "Related Party Disclosures" |
|--------|--------|----------------------------------------------|

|   | § | Amendment to IAS 32 "Financial Instruments: Presentation" |
|--------|--------|-----------------------------------------------------------|

|   | § | Amendments to IFRS 2: "Cash-settled Share-based Payment Transactions " |
|--------|--------|------------------------------------------------------------------------|

----

|   | D. | New standards and interpretations which have been issued but not yet entered into effect and have not been adopted early by the Group, and are not expected to affect the Group's financial statements: (cont.) |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IFRS 8, “Operating Segments” |
|--------|--------|-------------------------------------------------------|

|   | § | IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" |
|--------|--------|------------------------------------------------------------------------|

|   | § | Amendment of IFRIC 14: "Prepayments of a Minimum Funding Requirement" |
|--------|--------|-----------------------------------------------------------------------|

|   | E. | The following additional amendments were published within the framework of the annual improvements project for 2009: |
|--------|----|----------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment of IAS 1 - "Presentation of financial statements" |
|--------|--------|-------------------------------------------------------------|

----

|   | E. | The following additional amendments were published within the framework of the annual improvements project for 2009: (cont.) |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|   | § | Amendment to IAS 7, “Statements of Cash Flows” |
|--------|--------|-----------------------------------------------------------------|

|   | A. | General |
|--------|----|---------|

|   | B. | Critical judgments in applying accounting policies |
|--------|----|----------------------------------------------------|

|   | · | Deferred taxes- the company recognizes deferred tax assets for all of the deductible temporary differences up to the amount as to which it is anticipated that there will be taxable income against which the temporary difference will be deductible. During each period, for purposes of calculation of the utilizable temporary difference, management uses estimates and approximations as a basis which it evaluates each period. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Approximation of  length of life of items of fixed assets- each period, the company’s management evaluates salvage values, depreciation methods and length of useful lives of the fixed assets. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 4      - | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont.) |
|----------------------------------------|----------------------------------------------------------------------------------|

|   | B. | Critical judgments in applying accounting policies (cont.) |
|--------|----|------------------------------------------------------------|

|   | · | Measuring provisions and contingent liabilities and contingent liabilities- see C(1) below. |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Measuring obligation for defined benefits and employee benefits- see C(2) below. |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | Measuring share based payments- see note 11 below. |
|--------|--------|----------------------------------------------------|

|   | · | Measuring the fair value of an option to sell shares of an associated company – see C(3) below. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | Measuring the fair value on account of the allocation of the cost of acquisition - see C(4) below. |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | Examination of the impairment of cash generating units – see C(5) below. |
|--------|--------|--------------------------------------------------------------------------------|

|   | C. | Key sources of estimation uncertainty |
|--------|----|---------------------------------------|

|   | 1. | Provisions for legal proceeding |
|--------|----|---------------------------------|

|   | 2. | Employee benefits |
|--------|----|-------------------|

----

| NOTE 4      - | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont.) |
|----------------------------------------|----------------------------------------------------------------------------------|

|   | C. | Key sources of estimation uncertainty (cont.) |
|--------|----|-----------------------------------------------|

|   | 3. | Fair value of an option to sell shares of an associated company |
|--------|----|-----------------------------------------------------------------|

|   | 4. | Measurement at fair value on account of the allocation of the cost of acquisition |
|--------|----|-----------------------------------------------------------------------------------|

----

| NOTE 4      - | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont.) |
|---------------------------------------------|----------------------------------------------------------------------------------|

|   | C. | Key sources of estimation uncertainty (cont.) |
|--------|----|-----------------------------------------------|

|   | 4. | Measurement at fair value on account of the allocation of the cost of acquisition (cont.) |
|--------|----|-------------------------------------------------------------------------------------------|

|   | 5. | Examination of the impairment of cash generating units |
|--------|----|--------------------------------------------------------|

----

|   | a. |   Details of Subsidiaries and Associated Companies |
|--------|----|---------------------------------------------------------------------------------------|

|                                               |   | Percentage of direct and indirect holding in shares conferring equity and voting rights |   |   | The amount investment in an associated company (*) |   |
|----------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                               |   | %                                                                                       |   |   | at December 31                                     |   |
|                                               |   |                                                                                    |   |   | 2009                                               |   |   | 2008 |   |
|                                               |   |                                                                                    |   |   | NIS in thousands                                   |   |
| Main subsidiaries: (**)                            |   |                                                                                    |   |   |                                               |   |   |   |   |
| Amnir Recycling Industries Limited                 |   |                                                                                    | 100.00 |   |                                               |   | 179,669 |   |   |   | 173,943 |   |
| Graffiti Office Supplies and Paper Marketing Ltd.  |   |                                                                                    | 100.00 |   |                                               |   | (10,619 | ) |   |   | (11,921 | ) |
| Attar Marketing Office Supplies Ltd. (***)         |   |                                                                                    | 100.00 |   |                                               |   | - |   |   |   | - |   |
| Hadera Paper Industries Ltd.                       |   |                                                                                    | 100.00 |   |                                               |   | 137,965 |   |   |   | 156,279 |   |
| Hadera Paper - Development and Infrastructure Ltd. |   |                                                                                    | 100.00 |   |                                               |   | 161,930 |   |   |   | 152,778 |   |
| Carmel Container Systems Limited                   |   |                                                                                    | 89.30  |   |                                               |   | 144,743 |   |   |   | 138,814 |   |
| Frenkel C.D.  Limited(****)              |   |                                                                                    | 54.74  |   |                                               |   | 11,158 |   |   |   | 11,149 |   |
| Main associated companies:                         |   |                                                                                    |   |   |                                               |   |   |   |   |   |   |   |
| Hogla-Kimberly Ltd.                                |   |                                                                                    | 49.90  |   |                                               |   | 227,883 |   |   |   | 220,349 |   |
| Mondi Hadera Paper Ltd.                            |   |                                                                                    | 49.90  |   |                                               |   | 114,124 |   |   |   | 98,011 |   |

|   | * | The amount of investment in a directly held entity is calculated as the net amount based on the consolidated financial statements, which is attributed to the shareholders of the Company, of total assets less total liabilities, which present financial information on the investee company in the Company's consolidated financial statements, including goodwill. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ** | Not including dormant companies. |
|--------|----|----------------------------------|

|   | *** | Attar Marketing office Supplies Ltd. Is held through Graffiti Office Supplies and Paper Industries Ltd.(in the rate of 100%) |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|   | **** | Frenkel C.D. Limited is partly held through the Company in the rate of 28.92% and partly held through Carmel Container Systems Limited (in the rate of 25.83%) the holding in voting shares of C.D. Packaging Systems Limited is 54.73%. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. |   Investments in associated companies |
|--------|----|-------------------------------------------------|

----

|   | b. |   Investments in associated companies (cont.) |
|--------|----|---------------------------------------------------------|

|   | 1. | Composed as follows: |
|--------|----|----------------------|

|                                             |   | December 31      |    |
|--------------------------------------------------|--------|------------------|---------|
|                                             |   | 2009             |    |   | 2008 |   |
|                                             |   | NIS in thousands |    |
| Investment in Shares:                            |   |             |    |   |   |   |
| Cost                                             |   |             | 1,875   |   |   |   | 1,875 |   |
| Gain on issuance of shares of an associated      |   |             |    |   |   |   |   |   |
| company to a third party                         |   |             | 40,241  |   |   |   | 40,241 |   |
| Adjustments from translation of foreign currency |   |             |    |   |   |   |   |   |
| financial statements                             |   |             | (22,872 | ) |   |   | (22,186 | ) |
| Share in cash flow hedging capital               |   |             | (940    | ) |   |   | (2,426 | ) |
| Share in Actuarial losses                        |   |             | (451    | ) |   |   | (307 | ) |
| Share in profits since acquisition, net          |   |             | 268,670 |   |   |   | 247,935 |   |
|                                             |   |             | 286,523 |   |   |   | 265,132 |   |
| Long-term loans and capital notes *              |   |             | 54,452  |   |   |   | 52,969 |   |
|                                             |   |             | 340,975 |   |   |   | 318,101 |   |

|   | The total amounts of the loans and capital notes are as follows: |
|--------|------------------------------------------------------------------|

|                                   |   |   Weighted averageinterest rateat December 31, |   |   |   December 31 |   |
|----------------------------------------|--------|-----------------------------------------------------|--------|--------|--------------------|--------|
|                                   |   | 2009                                                |   |   | 2009               |   |   | 2008 |   |
|                                   |   | %                                                   |   |   | NIS in thousands   |   |
|                                   |   |                                                |   |   |               |   |   |   |   |
|  Unlinked loans and capital notes |   |                                                | 6.3%   |   |               |   | 54,452 |   |   |   | 52,969 |   |
|                                   |   |                                                |   |   |               |   | 54,452 |   |   |   | 52,969 |   |

|   | As of December 31, 2009, the repayment dates of the balance of the loans and capital notes have not yet been determined. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The changes in the investments during 2008 are as follows: |
|--------|----|------------------------------------------------------------|

|                                                                        |   | NIS in thousands |    |
|-----------------------------------------------------------------------------|--------|------------------|---------|
| Balance at the beginning of the year                                        |   |             | 318,101 |   |
| Changes during the year:                                                    |   |             |    |   |
| Share in profits of associated companies - net                              |   |             | 87,359  |   |
| Dividend distributed or declared by an associated company                   |   |             | (66,624 | ) |
| Differences from translation of foreign currency financial statements  |   |             | (686    | ) |
| Share in capital surplus of hedging cash flows at associated companies |   |             | 1,486   |   |
| Share in capital surplus from recording actuarial gains to reserves         |   |             | (144    | ) |
| Decrease in balance of long-term loans and capital notes - net              |   |             | 1,483   |   |
| Balance at end of year                                                      |   |             | 340,975 |   |

----

|   | b. |   Investments in associated companies (cont.) |
|--------|----|---------------------------------------------------------|

|   | 3. | Mondi Hadera Paper Ltd. (hereafter - Mondi Hadera; formerly - Neusiedler Hadera Paper Ltd. - NHP): |
|--------|----|---------------------------------------------------------------------------------------------------------|

|   | 4. | Hogla-Kimberly Ltd. (hereafter – Hogla-Kimberly) |
|--------|----|--------------------------------------------------------|

|   | 5. | Dividends from associated companies |
|--------|----|-------------------------------------|

|   | § | On February 26, 2009 an associated company decided to allocate preferred shares to the Company, which will grant the Company the right to receive a special dividend in accordance with board of directors' resolutions of the associated company from time to time. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | On March 19, 2009 a dividend in the amount of NIS 32.77 million was received from an associated company in respect of a preferred share that was allotted during the first quarter of 2009, which allows the Company to receive dividend in accordance with the resolution of the Board of Directors of the associated company. In addition, on March 19, 2009 a capital note in the amount of NIS 32.77 million was repaid by the Company for an associated company (See also note 9d below). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | On July 1, 2009 a dividend in cash, in the amount of NIS 19.6 million, that was declared on February 26, 2009, was received from an associated company. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | b. |   Investments in associated companies (cont.) |
|--------|----|---------------------------------------------------------|

|   | 5. | Dividends from associated companies (cont.) |
|--------|----|---------------------------------------------|

|   | § | On October 1, 2009 a dividend in cash, in the amount of NIS 9.5 million, that was declared on July 30, 2009, was received from an associated company. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | On October 22, 2009, an associated company declared the distribution of a dividend in the amount of approximately NIS 40 million.  The Company’s share in the dividend was received after the end of the reporting period (see note 21B as follows). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein during 2009, are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | C o s t                      |      |   | Accumulated depreciation  |   |    |                      |   |
|------------------------------------------------------|--------|------------------------------|-----------|--------|---------------------------|--------|---------|---------------------------|--------|
|                                                 |   | Balance at beginning of year |      |   | Additions during the year |   |    | Disposals during the year |   |   | Balance at end of year |   |   | Balance at beginning of year |   |   | Additions during the year |   |   | Disposals during the year |   |   | Balance at end of year |   |   | Depreciated balanceDecember 312009 |   |
|                                                 |   | NIS in thousands             |      |
| Land and buildings thereon                           |   |                         | 229,257   |   |                      |   | 9,787   |                      |   |   | - |   |   |   | 239,044 |   |   |   | 131,056 |   |   |   | 4,501 |   |   |   | - |   |   |   | 135,557 |   |   |   | 103,487 |   |
| Machinery and equipment                              |   |                         | 1,280,262 |   |                      |   | 47,107  |                      |   |   | 106,300 |   |   |   | 1,221,069 |   |   |   | 916,033 |   |   |   | 60,646 |   |   |   | 100,555 |   |   |   | 876,124 |   |   |   | 344,945 |   |
| Vehicles                                             |   |                         | 47,861    |   |                      |   | 1,980   |                      |   |   | 10,784 |   |   |   | 39,057 |   |   |   | 30,760 |   |   |   | 4,701 |   |   |   | 10,074 |   |   |   | 25,387 |   |   |   | 13,670 |   |
| Office furniture and equipment (including computers) |   |                         | 98,371    |   |                      |   | 2,055   |                      |   |   | 36,568 |   |   |   | 63,858 |   |   |   | 75,500 |   |   |   | 3,507 |   |   |   | 41,345 |   |   |   | 37,662 |   |   |   | 26,196 |   |
| Payments on account of machinery and equipment, net  |   |                         | 238,845   |   |                      |   | 377,261 |                      |   |   | - |   |   |   | 616,106 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 616,106 |   |
| Spare parts – not current, net                 |   |                         | 26,295    |   |                      |   | -       |                      |   |   | 4,339 |   |   |   | 21,956 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 21,956 |   |
|                                                 |   |                         | 1,920,891 |   |                      |   | 438,190 |                      |   |   | 157,991 |   |   |   | 2,201,090 |   |   |   | 1,153,349 |   |   |   | 73,355 |   |   |   | 151,974 |   |   |   | 1,074,730 |   |   |   | 1,126,360 |   |

----

|   | b. | Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein during 2008, are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                      |   | C o s t                      |      |   | Accumulated depreciation  |   |    |                      |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------|-----------|--------|---------------------------|--------|---------|---------------------------|--------|
|                                                                                      |   | Balance at beginning of year |      |   | Additions during the year |   |    | Disposals during the year |   |   | Initial Consolidation |   |   | Balanceat endof year |   |   | Balance at beginning of year |   |   | Additions during the year |   |   | Disposals during the year |   |   | Initial Consolidation |   |   | Balanceat endof year |   |   | Depreciated balance |   |
|                                                                                      |   | December 31             |      |
|                                                                                      |   |                         | 2008      |   |
|                                                                                      |   | NIS in thousands             |      |
| Land and buildings     thereon                                             |   |                         | 207,001   |   |                      |   | 2,393   |                      |   |   | 25 |   |   |   | 19,888 |   |   |   | 229,257 |   |   |   | 114,653 |   |   |   | 2,478 |   |   |   | - |   |   |   | 13,925 |   |   |   | 131,056 |   |   |   | 98,201 |   |
| Machinery and     equipment                                                |   |                         | 762,771   |   |                      |   | 31,147  |                      |   |   | 1,997 |   |   |   | 488,341 |   |   |   | 1,280,262 |   |   |   | 529,195 |   |   |   | 44,187 |   |   |   | 1,496 |   |   |   | 344,147 |   |   |   | 916,033 |   |   |   | 364,229 |   |
| Vehicles                                                                                  |   |                         | 35,245    |   |                      |   | 6,617   |                      |   |   | 903 |   |   |   | 6,902 |   |   |   | 47,861 |   |   |   | 21,311 |   |   |   | 4,248 |   |   |   | 872 |   |   |   | 6,073 |   |   |   | 30,760 |   |   |   | 17,101 |   |
| Office furniture and equipment (including computers)                                 |   |                         | 72,417    |   |                      |   | 2,779   |                      |   |   | 8 |   |   |   | 23,183 |   |   |   | 98,371 |   |   |   | 51,310 |   |   |   | 2,478 |   |   |   | 8 |   |   |   | 21,720 |   |   |   | 75,500 |   |   |   | 22,871 |   |
| Payments on account of     machinery and     equipment, net |   |                         | 21,782    |   |                      |   | 216,921 |                      |   |   | - |   |   |   | 142 |   |   |   | 238,845 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 238,845 |   |
|                                                                                      |   |                         |      |   |                      |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Spare parts –     not current, net                                   |   |                         | 22,484    |   |                      |   | 3,811   |                      |   |   | - |   |   |   | - |   |   |   | 26,295 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 26,295 |   |
|                                                                                      |   |                         | 1,121,700 |   |                      |   | 263,668 |                      |   |   | 2,933 |   |   |   | 538,456 |   |   |   | 1,920,891 |   |   |   | 716,469 |   |   |   | 53,391 |   |   |   | 2,376 |   |   |   | 385,865 |   |   |   | 1,153,349 |   |   |   | 767,542 |   |

----

|   | c. | The item is net of investment grants in respect of investments in “approved enterprises”. |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | d. | Depreciation expenses amounted to NIS 73,355 thousands and NIS 53,391 thousands NIS for the years ended December 31, 2009 and 2008 respectively. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | As of December 31, 2009 and 2008, the cost of fixed assets includes borrowing costs of NIS 31,918 thousands and NIS 27,071 thousands capitalized to the cost of machinery and equipment for the years ended December 31, 2009 and 2008, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | As of December 31, 2009 and 2008, the cost of fixed assets includes payroll costs of NIS 9,052 thousands and NIS 1,987 thousands capitalized to the cost of machinery and equipment for the years ended December 31, 2009 and 2008, respectively. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g. | In light of the existence of indications regarding the impairment of the packaging paper cash-generating unit, as stated in Note 4c, the company estimated the fair value of the fixed asset items that are included under the packaging paper sector, based on assessment reports. In this capacity, the company found that the fair value of the fixed assets, net of the selling costs, is higher than the book value and in accordance with IAS-36, no recognition is necessary of a loss on account of the impairment of the fixed assets. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h. | For details of rights in lands – see note 7 as follows. |
|--------|----|---------------------------------------------------------------|

|                                                                                      |   | NIS in thousands |    |
|-------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                      |   |             |    |
| Land owned                                                                                |   |             | 81,484  |   |
| Property under capitalized lease (lease rights for the period ending on 2059).       |   |             | 35,960  |   |
| Property under non-capitalized lease (lease rights for different periods ending in 2049). |   |             | 1,670   |   |
|                                                                                      |   |             | 119,114 |   |

|                  |   | December 31      |    |
|-----------------------|--------|------------------|---------|
|                  |   | 2009             |    |   | 2008 |   |
|                  |   | NIS in thousands |    |
|                  |   |             |    |   |   |   |
| Fixed assets          |   |             | 81,484  |   |   |   | 81,443 |   |
| Expenditure for lease |   |             | 37,630  |   |   |   | 36,344 |   |
|                  |   |             | 119,114 |   |   |   | 117,787 |   |

----

|   | a. | Composition and changes are as follows: |
|--------|----|-----------------------------------------|

|                                      |   | Software         |   |   | Order backlog |   |   | Goodwill |   |   | Portfolio of Customers |   |   | Total  |   |
|-------------------------------------------|--------|------------------|--------|--------|---------------|--------|--------|----------|--------|--------|------------------------|--------|--------|--------|--------|
|                                      |   | NIS in thousands |   |
| Cost                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |
| Balance at January 1, 2009                |   |             | 1,377  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,050 |   |
| Additions during the year                 |   |             | 81     |   |          |   | -      |     |   |   | -                      |   |   |   | -      |   |   |   | 81 |   |
| Balance at December 31, 2009              |   |             | 1,458  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,131 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Cost                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2008                |   |             | -      |   |          |   | -      |     |   |   | -                      |   |   |   | 4,147  |   |   |   | 4,147 |   |
| Additions during the year                 |   |             | 178    |   |          |   | -      |     |   |   | -                      |   |   |   | 1,750  |   |   |   | 1,928 |   |
| Initial Consolidation                     |   |             | 1,199  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 29,095 |   |   |   | 33,975 |   |
| Balance at December 31, 2008              |   |             | 1,377  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,050 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Accumulation amortization and impairment: |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2009                |   |             | 1,081  |   |          |   | 3,082  |     |   |   | -                      |   |   |   | 4,368  |   |   |   | 8,531 |   |
| Deduction                                 |   |             | 246    |   |          |   | -      |     |   |   | 448                    |   |   |   | 3,822  |   |   |   | 4,516 |   |
| Balance at December 31, 2009              |   |             | 1,327  |   |          |   | 3,082  |     |   |   | 448                    |   |   |   | 8,190  |   |   |   | 13,047 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Accumulation amortization and impairment: |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2008                |   |             | -      |   |          |   | -      |     |   |   | -                      |   |   |   | 2,569  |   |   |   | 2,569 |   |
| Deduction                                 |   |             | 334    |   |          |   | 3,082  |     |   |   | -                      |   |   |   | 1,799  |   |   |   | 5,215 |   |
| Initial Consolidation                     |   |             | 747    |   |          |   | -      |     |   |   | -                      |   |   |   | -      |   |   |   | 747 |   |
| Balance at December 31, 2008              |   |             | 1,081  |   |          |   | 3,082  |     |   |   | -                      |   |   |   | 4,368  |   |   |   | 8,531 |   |
| Amortized cost:                           |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                         |   |             | 131    |   |          |   | -      |     |   |   | 151                    |   |   |   | 26,802 |   |   |   | 27,084 |   |
| December 31, 2008                         |   |             | 296    |   |          |   | -      |     |   |   | 599                    |   |   |   | 30,624 |   |   |   | 31,519 |   |

|   | b. | Amortization of intangible assets is presented in the statement of income under the following items: |
|--------|----|------------------------------------------------------------------------------------------------------|

|                                |   | Year endedDecember 31 |   |
|-------------------------------------|--------|-----------------------|--------|
|                                |   | 2009                  |   |   | 2008 |   |
|                                |   | NIS in thousands      |   |
|                                |   |                  |   |   |   |   |
| Selling and marketing expenses      |   |                  | 2,908  |   |   |   | 970 |   |
| Cost of sales                       |   |                  | -      |   |   |   | 3,082 |   |
| General and administrative expenses |   |                  | 1,160  |   |   |   | 1,163 |   |

|   | c. | Additional information: The Group has a list of customers that was created internally. This list is a significant asset for the group, but at the same time is not recognized as an asset in the group's financial statements, since the list, which was created internally, does not meet the criteria for asset recognition. As for testing the impairment of other intangible assets see note 2L above. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Notes |
|--------|----|-------|

|                      |   | December 31      |    |
|---------------------------|--------|------------------|---------|
|                      |   | 2009             |    | 2008 |   |
|                      |   | NIS in thousands |    |
|                      |   | Series IV        |    |   | Series III |   |   | Series II |   |   | Series IV |   |   | Series III |   |   | Series II |   |   | Series I |   |
| Balance *                 |   |             | 235,557 |   |   |   | 197,815 |   |   |   | 131,689 |   |   |   | 235,557 |   |   |   | 190,541 |   |   |   | 158,559 |   |   |   | 7,422 |   |
| Less - current maturities |   |             | 39,260  |   |   |   | 21,979 |   |   |   | 32,922 |   |   |   | - |   |   |   | - |   |   |   | 31,712 |   |   |   | 7,422 |   |
|                      |   |             | 196,297 |   |   |   | 175,836 |   |   |   | 98,767 |   |   |   | 235,557 |   |   |   | 190,541 |   |   |   | 126,847 |   |   |   | - |   |

|                        |   | Nis in thousands |      |
|-----------------------------|--------|------------------|-----------|
|                        |   |             |      |
| 1st year - Current maturity |   |             | 94,161    |   |
| 2nd year                    |   |             | 94,161    |   |
| 3rd year                    |   |             | 94,161    |   |
| 4th year                    |   |             | 94,161    |   |
| 5th year                    |   |             | 61,239    |   |
| 6th year and forward        |   |             | 127,178   |   |
|                        |   |             | * 565,061 |   |

|   | * | The aforementioned detailed balance does not include deferred issuance expenses in the amount of NIS 915 thousands (as of December 31, 2008 – NIS 1,179 thousand) which were deducted from the bonds balance. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | Series I – May 1992 |
|--------|----|---------------------------|

|   | 2) | Series II – December 2003 |
|--------|----|---------------------------------|

|   | 3) | Series III July – August 2008 |
|--------|----|-------------------------------------|

|   | 4) | Series IV – July – August 2008 |
|--------|----|--------------------------------------------|

|   | In July-August,  2008 the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008. The company has offered an aggregate principal amount of  NIS 235,557 thousands of debentures issued in return for approximately NIS 240,360 thousands bearing an interest rate of 7.45%, and payable annually each on July 10th of the years 2010-2015. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Notes (cont.) |
|--------|----|---------------|

|   | 5) | As of December 31, 2009 the balance of the notes amounts to NIS 565,976 thousands, is after deduction of issuance costs. (On December 31, 2008 the amounts was NIS 554,124 thousands). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Credit from bank and others |
|--------|----|-----------------------------|

|   | 1) | Composition of financial liabilities measuring at depreciated balance: |
|--------|----|------------------------------------------------------------------------|

|                                                   |   |   Yearly Interest Rate |      |   |   Current LiabilitiesAs of December 31 |   |    |   Non-Current LiabilitiesAs of December 31 |   |   |   TotalAs of December 31 |   |
|--------------------------------------------------------|--------|-----------------------------|-----------|--------|---------------------------------------------|--------|---------|-------------------------------------------------|--------|--------|-------------------------------|--------|
|                                                   |   | 31/12/08                    |      |   | 2009                                        |   |    | 2008                                            |   |   | 2009                          |   |   |  2008 |   |   | 2009 |   |   | 2008 |   |
|                                                   |   | %                           |      |   | NIS in thousands                            |   |    |   NIS in thousands                         |   |   |   NIS in thousands       |   |
| Banks:                                                 |   |                        |      |   |                                        |   |    |                                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |
| Short-term credit                                      |   |                        | 3.8%-4.5  | %      |                                        |   | 131,572 |                                            |   |   | 77,655                        |   |   |   | - |   |   |   | - |   |   |   | 131,752 |   |   |   | 77,655 |   |
| Loans:                                                 |   |                        |      |   |                                        |   |    |                                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| linked to the CPI                                      |   |                        | 3.8%-5.65 | %      |                                        |   | 8,218   |                                            |   |   | 11,060                        |   |   |   | 19,925 |   |   |   | 24,212 |   |   |   | 28,143 |   |   |   | 35,272 |   |
|                                                   |   |                        |      |   |                                        |   |    |                                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unlinked                                               |   |                        | 3.8%-7.45 | %      |                                        |   | 47,561  |                                            |   |   | 26,275                        |   |   |   | 205,877 |   |   |   | 97,698 |   |   |   | 253,438 |   |   |   | 123,973 |   |
| Total financial liabilities measured at amortized cost |   |                        |      |   |                                        |   | 187,351 |                                            |   |   | 114,990                       |   |   |   | 225,802 |   |   |   | 121,910 |   |   |   | 413,153 |   |   |   | 236,900 |   |

|   | 2) | Distribution according to repayment dates as of December 31, 2009: |
|--------|----|--------------------------------------------------------------------|

|                                             |   | NIS in thousands |    |
|--------------------------------------------------|--------|------------------|---------|
|                                             |   |             |    |
| 1st year - Current maturities of long-term loans |   |             | 55,779  |   |
| 2nd year                                         |   |             | 59,297  |   |
| 3rd year                                         |   |             | 54,961  |   |
| 4th year                                         |   |             | 38,655  |   |
| 5th year                                         |   |             | 28,399  |   |
| 6th year and forward                             |   |             | 44,490  |   |
|                                             |   |             | 281,581 |   |

|   | 3) | Borrowing during the reporting period |
|--------|----|---------------------------------------|

|   | a. | On May 25, 2009, the Company obtained credit in the amount of NIS 50 million from public institutions, bearing interest at the rate of Bank of Israel + 2%.  The loans are for a period of two years, with an exit option being available to either of the parties every three months.  On August 25, 2009 NIS 20 million was repaid, and on September 7, 2009 the company raised NIS 10 million at the same terms. On July 2, 2009, the Company obtained long-term NIS credit from public institutions in the amount of NIS 100 million.  The loan is for a period of 8 years, bears a nominal fixed interest of 6.3% and is repayable (principal and interest) in semi-annual installments. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | On October 5, 2009, the company assumed a long-term loan in the sum of NIS 56.5 million, to be repaid within five years and carrying a variable interest rate of Prime + 1.5%. The principal and the interest are to be repaid in quarterly installments, except for the repayment of the first installment of the principal, which will be made six months after the receipt of the loan. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Financial Parameters and Covenants The Company has no financial covenants vis-à-vis the banks. However, in relation to long-term loans to the bank, from a company that was associated until August 31, 2008, and that was consolidated for the first time on September 1, 2008, whose balance as at December 31, 2009, amounts to a total sum of NIS 17,519 thousands (at December 31, 2008-NIS 19,316 thousands). The consolidated subsidiary undertook toward the bank, inter alia, that the ratio of tangible shareholders' equity of the company to the balance sheet total will not fall below 18.5%. As of the date of the financial statements the consolidated subsidiary is in compliance with the required condition. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Other financial liabilities Other financial liabilities include capital note from an associated company. The capital note is unlinked and interest free. On March 19, 2009 the Company repaid the capital for the associated company in the amount of NIS 32.77 million (See also note 5b (4) and 14l below). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a. | Composition |
|--------|----|-------------|

|                                                                                                                |   | As of December 31 |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                |   | 2 0 0 9           |   |   | 2 0 0 8 |   |
| Post Employment Benefits at defined benefit plan:                                                                   |   |              |   |   |   |   |
| Severance pay and retirement liability (asset)                                                                      |   |              | 2,985  |   |   |   | 3,560 |   |
| Benefits to retirees                                                                                                |   |              | 7,754  |   |   |   | 7,632 |   |
|                                                                                                                |   |              | 10,739 |   |   |   | 11,192 |   |
|                                                                                                                |   |              |   |   |   |   |   |   |
| Severance pay benefits                                                                                              |   |              | 3,523  |   |   |   | 3,735 |   |
|                                                                                                                |   |              | 14,262 |   |   |   |  * 14,927 |   |
| Short term employee benefits:                                                                                       |   |              |   |   |   |   |   |   |
| Salaries and wages, payroll and social benefits                                                                |   |              | 29,081 |   |   |   | * 26,592 |   |
| Profit-sharing and bonus plans                                                                                      |   |              | 16,324 |   |   |   | 15,766 |   |
| Severance and retirement benefits**                                                                                 |   |              | 2,344  |   |   |   | - |   |
| Vacation employee benefits                                                                                          |   |              | 20,077 |   |   |   | * 17,478 |   |
|                                                                                                                |   |              | 67,826 |   |   |   | 59,836 |   |
| Stated in the balance sheet as follows:                                                                             |   |              |   |   |   |   |   |   |
| Employee benefit assets:                                                                                            |   |              |   |   |   |   |   |   |
| Non-current assets                                                                                                  |   |              | 649    |   |   |   | 624 |   |
|                                                                                                                |   |              | 649    |   |   |   | 624 |   |
| Employee benefit liabilities:                                                                                       |   |              |   |   |   |   |   |   |
| Current liabilities  – partly included in of other payables and accrued expenses -see note 14 d (2) |   |              | 67,826 |   |   |   | *59,836 |   |
| Non-current liabilities                                                                                             |   |              | 14,911 |   |   |   | *15,551 |   |
|                                                                                                                |   |              | 82,737 |   |   |   | 75,387 |   |

|   | * | Reclassified |
|--------|---|--------------|

|   | ** | On December 31, the Company's CEO retired from his position. The retirement bonus paid in January 2010 amounted to NIS 2.3 million (gross - before tax effects). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | b. | Post Employment Benefits |
|--------|----|--------------------------|

|   | a) | General |
|--------|----|---------|

----

|   | b. | Post Employment Benefits (cont.) |
|--------|----|----------------------------------|

|   | b) | Changes in the current value of the liability in respect of a defined benefit plan |
|--------|----|------------------------------------------------------------------------------------|

|                                               |   | For the year ended December 31 |   |
|----------------------------------------------------|--------|--------------------------------|--------|
|                                               |   | 2009                           |   |   | 2008 |   |
|                                               |   | NIS in thousand                |   |
| Opening Balance                                    |   |                           | 23,615 |   |   |   | 2,440 |   |
| Current service cost                               |   |                           | 1,945  |   |   |   | 505 |   |
| Interest rate cost                                 |   |                           | 1,229  |   |   |   | 318 |   |
| Actuarial losses                                   |   |                           | 284    |   |   |   | 260 |   |
|  Paid-up benefits                             |   |                           | (3,118 | ) |   |   | (1,148 | ) |
|  Liabilities assumed in business combinations |   |                           | -      |   |   |   | 21,268 |   |
| Other                                              |   |                           | -      |   |   |   | (28 | ) |
| Closing balance                                    |   |                           | 23,955 |   |   |   | 23,615 |   |

|   | c) | Changes in the fair value of plan assets |
|--------|----|------------------------------------------|

|                                     |   | For the year ended December 31 |   |
|------------------------------------------|--------|--------------------------------|--------|
|                                     |   | 2009                           |   |   | 2008 |   |
|                                     |   | NIS in thousand                |   |
|                                     |   |                           |   |   |   |   |
| Opening balance                          |   |                           | 19,431 |   |   |   | 2,440 |   |
| Projected return on plan assets          |   |                           | 995    |   |   |   | 231 |   |
| Actuarial profits (losses)               |   |                           | 1,445  |   |   |   | (1,478 | ) |
| Deposits by the employer                 |   |                           | 1,691  |   |   |   | 799 |   |
| Paid-up benefits                         |   |                           | (3,241 | ) |   |   | (851 | ) |
| Assets acquired in business combinations |   |                           | -      |   |   |   | 18,572 |   |
| Other                                    |   |                           | -      |   |   |   | (282 | ) |
| Closing balance                          |   |                           | 20,321 |   |   |   | 19,431 |   |

|   | d) | Changes in the current value of the liability in respect of benefits to retirees |
|--------|----|----------------------------------------------------------------------------------|

|                                         |   | As of December 31 |   |
|----------------------------------------------|--------|-------------------|--------|
|                                         |   | 2009              |   |   | 2008 |   |
|                                         |   | NIS in thousand   |   |
|                                         |   |              |   |   |   |   |
| Opening balance                              |   |              | 7,632  |   |   |   | 8,117 |   |
| Current service cost                         |   |              | 80     |   |   |   | 123 |   |
| Interest rate cost                           |   |              | 440    |   |   |   | 593 |   |
| Actuarial profits                            |   |              | 258    |   |   |   | (721 | ) |
| Paid-up benefits                             |   |              | (656   | ) |   |   | (1,779 | ) |
| Liabilities assumed in business combinations |   |              | -      |   |   |   | 1,299 |   |
| Closing balance                              |   |              | 7,754  |   |   |   | 7,632 |   |

----

|   | c. | Main actuarial assumptions as of the end of the reporting period of post employment benefits |
|--------|----|----------------------------------------------------------------------------------------------|

|                                            |   | As of December 31 |   |
|-------------------------------------------------|--------|-------------------|--------|
|                                            |   | 2009              |   |   | 2008 |   |
|                                            |   | %                 |   |   | % |   |
|                                            |   |              |   |   |   |   |
| Discount rate                                   |   |              | 5.32   | % |   |   | 6.07 | % |
| Projected rates of return regarding asset plans |   |              | 5.15   | % |   |   | 5.15 | % |
| Projected rates of salary increases             |   |              | 4.25   | % |   |   | 4.25 | % |
| Churn and departure rates                       |   |              | 19     | % |   |   | 19 | % |

|   | d. | Amounts recognized in the statement of income in respect of post employment benefits |
|--------|----|--------------------------------------------------------------------------------------|

|                                              |   | For the year ended December 31 |   |
|---------------------------------------------------|--------|--------------------------------|--------|
|                                              |   | 2009                           |   |   | 2008 |   |
|                                              |   | NIS in thousand                |   |
|                                              |   |                           |   |   |   |   |
| Current service cost                              |   |                           | 2,025  |   |   |   | 406 |   |
| Interest rate cost                                |   |                           | 1,669  |   |   |   | 1,494 |   |
| Projected yield on the plan's assets              |   |                           | (995   | ) |   |   | (232 | ) |
| Effect of any reduction or settlement             |   |                           | 924    |   |   |   | (1,935 | ) |
|                                              |   |                           | 3,623  |   |   |   | (267 | ) |
|                                              |   |                           |   |   |   |   |   |   |
| The expense were included in the following items: |   |                           |   |   |   |
| Cost of sales                                     |   |                           | 1,446  |   |   |   | (1,425 | ) |
| Selling expenses                                  |   |                           | 511    |   |   |   | 97 |   |
| Administrative and general expenses               |   |                           | 992    |   |   |   | (299 | ) |
| Financing expenses                                |   |                           | 674    |   |   |   | 1,263 |   |
| Capitalized amounts                               |   |                           | -      |   |   |   | 97 |   |
|                                              |   |                           | 3,623  |   |   |   | (267 | ) |

|   | e. | Severance pay benefits |
|--------|----|------------------------|

----

|   | a. | Share capital |
|--------|----|---------------|

|                         |   |       |       |   | December 31     |   |
|------------------------------|--------|------------|------------|--------|-----------------|--------|
|                         |   |       |       |   | 2009            |   |   | 2008 |   |
|                         |   | Authorized |       |   | Issued and paid |   |
| Number of shares of NIS 0.01 |   |       | 20,000,000 |   |            |   | 5,060,872 |   |   |   | 5,060,774 |   |
| Amount in NIS                |   |       | 200,000    |   |            |   | 50,609 |   |   |   | 50,608 |   |

|   | b. | Employee stock option plans: |
|--------|----|------------------------------|

|   | 1) | The 2001 plan for senior officers in the Group |
|--------|----|------------------------------------------------|

----

|   | b. | Employee stock option plans: (cont.) |
|--------|----|--------------------------------------|

|   | 1) | The 2001 plan for senior officers in the Group (cont.) |
|--------|----|--------------------------------------------------------|

|   | 2) | The 2008 plan for senior officers in the Group |
|--------|----|------------------------------------------------|

----

|   | b. | Employee stock option plans: (cont.) |
|--------|----|--------------------------------------|

|   | 2) | The 2008 plan for senior officers in the Group (cont.) |
|--------|----|--------------------------------------------------------|

| Share price (NIS)                     | 245.20-217.10 |
|---------------------------------------|---------------|
| Exercise price (NIS)                  | 223.965       |
| Anticipated volatility (*)            | 27.04%        |
| Length of life of the options (years) | 3-5           |
| Non risk interest rate                | 5.25%         |

|   | 3) | Additional details of options granted to employees (cont.) |
|--------|----|------------------------------------------------------------|

|                                   |   | 2009           |    |   | 2008                                   |   |
|----------------------------------------|--------|----------------|---------|--------|----------------------------------------|--------|
|                                   |   | No. Of options |    |   | Weighted average of the exercise price |   |   | No. Of options |   |   | Weighted average of the exercise price |   |
| Options granted to employees which:    |   |           |    |   |                                   |   |   |   |   |   |   |   |
| Outstanding at the start of the period |   |           | 246,250 |   |                                   |   | 223.96 |   |   |   | - |   |   |   |   |
|  Granted                          |   |           | 34,000  |   |                                   |   | 223.96 |   |   |   | 250,500 |   |   |   | 223.96 |   |
|  Forfeited                        |   |           | (17,686 | )      |                                   |   | 223.96 |   |   |   | (4,250 | ) |   |   | 223.96 |   |
| Exercised                              |   |           | (1,064  | )      |                                   |   | 223.96 |   |   |   | - |   |   |   |   |   |
| Outstanding at the end of the period   |   |           | 261,500 |   |                                   |   | 223.96 |   |   |   | 246,250 |   |   |   | 223.96 |   |

----

|   | a. | Deferred income taxes |
|--------|----|-----------------------|

|                               |   | Balance at January 1, 2008 |    |   | Recognized in profit and loss |   |   | Recognized in equity |   |   | Initial Consolidation |   |   | Balance at December 31,2008 |    |   | Recognized in profit and loss |   |    | Recognized in equity |   |   | Balance at December 31, 2009 |   |
|------------------------------------|--------|----------------------------|---------|--------|-------------------------------|--------|--------|----------------------|--------|--------|-----------------------|--------|--------|-----------------------------|---------|--------|-------------------------------|--------|---------|----------------------|--------|--------|------------------------------|--------|
|                               |   | NIS in thousands           |    |
| Temporary differences              |   |                       |    |   |                          |   |   |                 |   |   |                  |   |   |                        |    |   |                          |   |    |                 |   |   |                         |   |
| Hedging cash flow                  |   |                       | -       |   |                          |   | -      |                 |   |   | (1,240                | )      |   |                        | 1,040   |   |                          |   | (200    | )                    |   |   | -                            |   |   |   | 200 |   |   |   | - |   |
| Intangible assets                  |   |                       | -       |   |                          |   | 1,075  |                 |   |   | -                     |   |   |                        | (8,106  | )      |                          |   | (7,031  | )                    |   |   | 2,021                        |   |   |   | - |   |   |   | (5,010 | ) |
| Fixed assets                       |   |                       | (40,515 | )      |                          |   | (686   | )                    |   |   | -                     |   |   |                        | (28,209 | )      |                          |   | (69,410 | )                    |   |   | 16,367                       |   |   |   | - |   |   |   | (53,043 | ) |
| Employee benefits provisions       |   |                       | 5,690   |   |                          |   | 396    |                 |   |   | 871                   |   |   |                        | 1,536   |   |                          |   | 8,493   |                 |   |   | (326                         | )      |   |   | (509 | ) |   |   | 7,658 |   |
| Doubtful debts                     |   |                       | 5,193   |   |                          |   | (178   | )                    |   |   | -                     |   |   |                        | 915     |   |                          |   | 5,930   |                 |   |   | 1,390                        |   |   |   | - |   |   |   | 7,320 |   |
| Spare parts inventory              |   |                       | (272    | )      |                          |   | 374    |                 |   |   | -                     |   |   |                        | (271    | )      |                          |   | (169    | )                    |   |   | 33                           |   |   |   | - |   |   |   | (136 | ) |
|                               |   |                       | (29,904 | )      |                          |   | 981    |                 |   |   | (369                  | )      |   |                        | (33,095 | )      |                          |   | (62,387 | )                    |   |   | 19,485                       |   |   |   | (309 | ) |   |   | (43,211 | ) |
|                               |   |                       |    |   |                          |   |   |                 |   |   |                  |   |   |                        |    |   |                          |   |    |                 |   |   |                         |   |   |   |   |   |   |   |   |   |
| unutilized losses and tax benefits |   |                       |    |   |                          |   |   |                 |   |   |                  |   |   |                        |    |   |                          |   |    |                 |   |   |                         |   |   |   |   |   |   |   |   |   |
| losses for tax purposes            |   |                       | 10,011  |   |                          |   | 3,182  |                 |   |   | -                     |   |   |                        | 2,401   |   |                          |   | 15,594  |                 |   |   | (691                         | )      |   |   | - |   |   |   | 14,903 |   |
| Total                              |   |                       | (19,893 | )      |                          |   | 4,163  |                 |   |   | (369                  | )      |   |                        | (30,694 | )      |                          |   | (46,793 | )                    |   |   | 18,794                       |   |   |   | (309 | ) |   |   | (28,308 | ) |

----

|   | a. | Deferred income taxes (cont.) |
|--------|----|-------------------------------|

|                                                     |   | December 31      |    |
|----------------------------------------------------------|--------|------------------|---------|
|                                                     |   | 2009             |    |   | 2008 |   |
|                                                     |   | NIS in thousands |    |
| Among non-current assets - Deferred tax assets           |   |             | (29,745 | ) |   |   | 29,848 |   |
| Among non-current liabilities - Deferred tax liabilities |   |             | (58,053 | ) |   |   | (76,641 | ) |
| Total                                                    |   |             | (28,308 | ) |   |   | (46,793 | ) |

|   | b. | Amounts in respect of which deferred tax assets were not recognized |
|--------|----|---------------------------------------------------------------------|

|                            |   | For the year endedDecember 31 |   |
|---------------------------------|--------|-------------------------------|--------|
|                            |   | 2009                          |   |   | 2008 |   |
|                            |   | NIS in thousands              |   |
|                            |   |                          |   |   |   |   |
| Real losses from securities     |   |                          | 11,786 |   |   |   | 11,786 |   |
| Capital losses for tax purposes |   |                          | 7,126  |   |   |   | 4,986 |   |
| Total                           |   |                          | 18,912 |   |   |   | 16,772 |   |

|   | c. | Taxes that refer to components in the Other Comprehensive Income: |
|--------|----|-------------------------------------------------------------------|

|                                                                         |   | For the year endedDecember 31 2009 |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | Sums before Tax on income          |   |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                   |   |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                               |   |   |   |   |   |   |   |
| Profit from cash flow hedging                                                |   |                               | 3,862  |   |   |   | 200 |   |   |   | 4,062 |   |
| Actuarial from a defined benefit plan                                        |   |                               | 986    |   |   |   | (509 | ) |   |   | 477 |   |
| Share in other comprehensive income of associated companies                  |   |                               | 1,170  |   |   |   | (513 | ) |   |   | 657 |   |
| Total                                                                        |   |                               | 6,018  |   |   |   | (822 | ) |   |   | 5,196 |   |

----

|   | c. | Taxes that refer to components in the Other Comprehensive Income: (cont.) |
|--------|----|---------------------------------------------------------------------------|

|                                                                         |   | For the year endedDecember 31 2008 |    |
|------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                         |   | Sums before Tax on income          |    |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                   |    |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                               |    |   |   |   |   |   |   |
| Loss from cash flow hedging                                                  |   |                               | (1,937  | ) |   |   | (369 | ) |   |   | (2,306 | ) |
| Actuarial loss from a defined benefit plan                                   |   |                               | (1,501  | ) |   |   | - |   |   |   | (1,501 | ) |
| Share in other comprehensive income of associated companies                  |   |                               | (28,318 | ) |   |   | 224 |   |   |   | (28,094 | ) |
| Capital reserve from revaluation from step acquisition                       |   |                               | 17,288  |   |   |   | - |   |   |   | 17,288 |   |
| Total                                                                        |   |                               | (14,468 | ) |   |   | (145 | ) |   |   | (14,613 | ) |

|                                                                         |   | For the year endedDecember 31 2007 |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | Sums before Tax on income          |   |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                   |   |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                               |   |   |   |   |   |   |   |
| Share in other comprehensive income of associated companies                  |   |                               | 2,916  |   |   |   | 259 |   |   |   | 3,175 |   |
| Total                                                                        |   |                               | 2,916  |   |   |   | 259 |   |   |   | 3,175 |   |

|   | d. | Tax expense (income) on income recognized in profit and loss |
|--------|----|--------------------------------------------------------------|

|   | 1) | As follows: |
|--------|----|-------------|

|                                                               |   | For the year endedDecember 31 |    |
|--------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                               |   | 2009                          |    |   | 2008 |   |   | 2007 |   |
|                                                               |   | NIS in thousands              |    |
| For the reported year:                                             |   |                          |    |   |   |   |   |   |   |
| Current                                                            |   |                          | 11,727  |   |   |   | 7,826 |   |   |   | 20,408 |   |
| Former Years                                                       |   |                          | -       |   |   |   | - |   |   |   | 850 |   |
| Deferred taxes in respect of the reporting   period |   |                          | (18,794 | ) |   |   | (4,163 | ) |   |   | (2,997 | ) |
|                                                               |   |                          | (7,067  | ) |   |   | 3,663 |   |   |   | 18,261 |   |

----

|   | d. | Tax expense (income) on income recognized in profit and loss (cont.) |
|--------|----|----------------------------------------------------------------------|

|   | 2) | Following is a reconciliation of the “theoretical” tax expense, assuming all income is taxed at the regular rate applicable to companies in Israel, as stated in c above, and the actual tax expenses in the income statement, for the reported year: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                 |   | 2009   |   |   | 2008      |   |   | 2007   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|
|                                                                                                                                                                 |   |   |   |   | NIS in    |   |   |   |   |   | NIS in |   |   |   |   |   | NIS in |   |
|                                                                                                                                                                 |   | %      |   |   | thousands |   |   | %      |   |   | thousands |   |   | % |   |   | thousands |   |
|                                                                                                                                                                 |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before taxes on income                                                                                                                                 |   |   | 100.0  |   |      |   | (2,678 | )      |   |   | 100.0 |   |   |   | 20,308 |   |   |   | 100.0 |   |   |   | 48,940 |   |
| Theoretical tax on the above amount                                                                                                                                  |   |   | 26.0   |   |      |   | (696   | )      |   |   | 27.0 |   |   |   | 5,483 |   |   |   | 29.0 |   |   |   | 14,192 |   |
| Tax increments (savings) due to:                                                                                                                                     |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments due to tax rate changes                                                                                                                                  |   |   | (320.1 | )      |      |   | (8,571 | )      |   |   | (3.9 | ) |   |   | (803 | ) |   |   | (1.7 | ) |   |   | (859 | ) |
| Losses for tax purposes on whose account deferred tax assets were not recognized in the past, yet for whom deferred taxes were recognized during the reported period |   |   | (41.2  | )      |      |   | (1,103 | )      |   |   | (10.4 | ) |   |   | (2,103 | ) |   |   | - |   |   |   | - |   |
| Tax expenditures calculated by different tax rate                                                                                                                    |   |   | 139.5  |   |      |   | 3,736  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Differences at equity and non financial assets definition for the purpose of tax                                                                                     |   |   | -      |   |      |   | -      |   |   |   | - |   |   |   | - |   |   |   | 4.9 |   |   |   | 2,400 |   |
| Non-taxable income                                                                                                                                                   |   |   | (18.7  | )      |      |   | (500   | )      |   |   | (19.5 | ) |   |   | (3,958 | ) |   |   | - |   |   |   | - |   |
| Non-deductible expenses                                                                                                                                              |   |   | 42.4   |   |      |   | 1,135  |   |   |   | 22.8 |   |   |   | 4,629 |   |   |   | 1.0 |   |   |   | 486 |   |
| Other differences, net                                                                                                                                               |   |   | (39.9  | )      |      |   | (1,068 | )      |   |   | 2.0 |   |   |   | 415 |   |   |   | 2.4 |   |   |   | 1,192 |   |
|                                                                                                                                                                 |   |   | (263.9 | )      |      |   | (6,371 | )      |   |   | (9.0 | ) |   |   | (1,820 | ) |   |   | 6.6 |   |   |   | 3,219 |   |
| Adjustments performed during the year in respect of prior years current taxes                                                                                        |   |   | -      |   |      |   | -      |   |   |   | - |   |   |   | - |   |   |   | 1.7 |   |   |   | 850 |   |
| Taxes on income as presented in profit and loss                                                                                                                      |   |   | (263.9 | )      |      |   | (7,067 | )      |   |   | 18.0 |   |   |   | 3,663 |   |   |   | 37.3 |   |   |   | 18,261 |   |

|   | e. | Tax assessments |
|--------|----|-----------------|

|   | f. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (hereafter - the inflationary adjustments law) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | g. | More details |
|--------|----|--------------|

|   | 1. | In accordance with Amendment No. 147 of the Income Tax Ordinance, 2005, a tax rate of 34% which is applicable to companies was gradually reduced starting from 2006 (for which a tax rate of 31% was determined) until 2010 - for which a tax rate of 25% was determined (the tax rate in the years 2007, 2008 and 2009 is 29%, 27% and 26%, respectively). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Economic Efficiency Law (Legal Amendments to the Implementation of the Economic Program for 2009 and 2010) of 2009 was published in July 23, 2009 (hereinafter: "The Settlement Law"). According to the Settlement Law, the tax rates of 26% and 25% that apply to companies in the years 2009 and 2010, respectively, will be gradually reduced starting in fiscal year 2011, for which a company tax rate of 24% was set, through to fiscal year 2016, for which a company tax rate of 18% was determined. Subsequent to this change, the company recognized deferred tax revenues in the amount of NIS 8,571 thousands in 2009. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | In December 2007, the Company and subsidiary Hadera Paper Industries Ltd (formerly American-Israeli Paper Mills (1995) Ltd) have submitted an application to the Tax Authority to split the production services business, specified below, which Hadera Paper Industries Ltd. has provided to Group companies at the Company's site in Hadera, to a new company called – Hadera Paper Development and Infrastructures Ltd (herein after – Infrastructure Company). The infrastructure services include: Engineering services, regular maintenance for maintaining production continuity, supply of gas, electricity, steam, sewage treatment, environmental issues and water. Infrastructure Company also provides additional services, including: Spare-parts warehouse, employee transportation services, cleaning, security and catering. Note that these services are also provided to the Company's associated companies at the Company premises in Hadera. The split is in accordance with the provisions of Section 105 of the Income Tax Ordinance. The date of the split is December 31, 2007 and from this date the Infrastructures Company is active as an independent entity and therefore Infrastructure Company has begun drawing up separate financial statements and tax reports since 2008. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a. | Subsidiaries provided guarantees to various entities, in connection with tenders, in the aggregate amount of approximately NIS 4,900 thousands. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | In accordance with the Companies Law, 1999, the Company issued new letters of indemnity to its officers in 2004, pursuant to which the Company undertakes to indemnify the officers for any liability or expense, for which indemnification may be paid under the law, that may be incurred by the officers in connection with actions performed by them as part of their duties as officers in the Company, which are directly or indirectly related to the events specified in the addendum to the letters of indemnity, provided that the total amount of indemnification payable to the officers, shall not exceed 25% of the Company’s shareholders’ equity as per its latest financial statements published prior to the actual indemnification.  The liability of officers in connection with the performance of their duties, as above, is partly covered by an insurance policy. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | During the year 2008, 2009, the Company has engaged in a contract with the main equipment suppliers for the new manufacturing facility of packaging papers ("machine no. 8"), for the total sum of €62.3 million. Most of the equipment supplied during 2008 and 2009 and the rest will be supplied in the beginning of 2010.Balance at December 31, 2009 is 14.2 million Euro. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | In the last quarter of 2007, the Company signed an agreement with a gas company for the transmission of gas for a period of 6 years with a two-year extension option. The total financial value of the transaction is NIS 13.8 million. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | In November 3, 2008, the general meeting of the company approved the validity of a lease agreement signed on September 8, 2008 between the Company and Gev-Yam Lands Ltd (hereinafter – "the lessor"), a public company indirectly controlled by the controlling shareholder in the Company, pursuant to which the Company will rent a plot in Modiin, with a space of 74,500 square meters, and buildings that the lessor plans to build for the Company, covering a total space of 21,300 square meters, which will be used as a center for the purposes of logistics, industry and office (hereinafter – "the logistic center") for subsidiaries and associated companies of the Company and in part will substitute existing lease agreements. The term of the lease will be 15 years from the date of delivery of possession in the leased property in addition to which the Company will have an option to extend the lease by a further 9 years and 11 months. The cost of annual lease amounts to NIS 13.6 million linked to the Consumer Price Index for July 2008. The subsidiaries and associated company provided guarantees for their part in the rental agreement, yet for the associated company, this matter is still under discussion between the company and the other shareholder. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | f. | In November 2006, the Environmental Protection Ministry announced that, even though the company plant at Hadera has made considerable investments in sewage treatment and environmental protection issues, an investigation may be launched against it to review deviations from certain emission standards into the air.  Based on the opinion of its legal advisors, the Company anticipates that the investigation will not materially impact its operations. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g. | Against the company and its subsidiaries there are several pending and open claims and financial demands in a total amount of approximately NIS 11,550 thousands (December 31, 2008: NIS 10,680 thousands), in respect of them a provision was credited in a sum of NIS 5,345  thousands (December 31, 2008: NIS 28 thousands was recorded).See additional details in sections h-l below |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h. | In September 2008 the Municipality of Hadera submitted a request for a land betterment levy in the amount of 1.4 million in respect of a change in the use of land which is designated for the construction of a new manufacturing line for packaging papers. The Company contested the amount of the levy with a counter assessment in the amount of NIS 28,000. The Company recorded a provision of NIS 900,000 in these financial statements in light of an expected settlement between the parties. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i. | A demand to pay purchasing tax of NIS 1,460,000 was submitted to the Company in respect of the extension of the lease on a plot of land located in Totzeret Haaretz Street in Tel Aviv (formerly the Shafir plant). A decision was handed down by the appeals committee pursuant to which the Company was required to pay a total of NIS 1,390,000, which accounts for 66% of the original demand for payment. The Company paid the amount. Both the Company and the Tax Authority have appealed this decision to the Supreme Court. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | j. | In December 2006 Israel Natural Gas Lines Ltd (hereinafter –"Natural Gas Lines") informed the Company that owners of lands close to the gas production plan have initiated a damages claim against Natural Gas Lines in respect of impairment. It should be noted that the agreement between the Company and Natural Gas Lines addresses the indemnification of Natural Gas Lines as part of the payment of compensation due to harm to adjacent land. The proceeding is conducted before the appeals committee and the Company is not a party to the proceedings. At this stage the Company is unable to assess the chances of success of the damages claim and accordingly, neither the extent of the Company's exposure, particularly since the Company is not a party to the proceedings. In any case, in the Company's opinion, the exposure is immaterial. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | k. | A consolidated company received from the Municipality of Netanya and from the renter of a property, claims of payment amounting to NIS 2,700 thousands relating to assessments regarding taxes and levies for the years 2000-2008 for the above company's enterprise in Netanya. The consolidated company submitted an appeal on the claim, in the amount of NIS 2,000 thousands, which was rejected by the Municipality. The consolidated company submitted an appeal on the rejection. In June 2009 a compromise agreement was reached whereby the consolidated company will pay approximately NIS 950 thousand for the assessments regarding taxes and levies. The aforementioned compromise agreement did not have a material effect on the operating results of the consolidated company for the year 2009, since the financial statements included a sufficient provision in the past. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | l. | During the year of 2009, as part of a formal tax inspection of the Turkish Tax Authorities, the Financial Reports for the years 2004-2008 of KCTR the Turkish subsidiary ("KCTR") of the associated company Hogla- Kimberly Ltd, held by 49.9% were examined. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | l. | (cont.) |
|--------|----|---------|

----

|   | a. | Receivables: |
|--------|----|--------------|

|                                   |   | December 31      |    |
|----------------------------------------|--------|------------------|---------|
|                                   |   | 2009             |    |   | 2008 |   |
|                                   |   | NIS in thousands |    |
| 1)    Trade:       |   |             |    |   |   |   |
| Open accounts                          |   |             | 293,682 |   |   |   | 282,279 |   |
| Checks collectible                     |   |             | 30,200  |   |   |   | 36,647 |   |
|                                   |   |             | 323,882 |   |   |   | 318,926 |   |
| The item is:                           |   |             |    |   |   |   |   |   |
| Net of allowance for doubtful accounts |   |             | 24,236  |   |   |   | 22,652 |   |
| Includes associated companies          |   |             | 12,556  |   |   |   | 14,642 |   |

|                                         |   | December 31      |    |
|----------------------------------------------|--------|------------------|---------|
|                                         |   | 2009             |    |   | 2008 |   |
|                                         |   | NIS in thousands |    |
| Aging of customers debts:                    |   |             |    |   |   |   |
| Are not in delay                             |   |             | 275,020 |   |   |   | 268,750 |   |
| Delay till 6 months                          |   |             | 43,543  |   |   |   | 47,079 |   |
| Delay from 6 months to 12 months             |   |             | 4,597   |   |   |   | 4,442 |   |
| Delay from 12 months to 24 months            |   |             | 3,371   |   |   |   | 1,992 |   |
| Delay more then 24 months                    |   |             | 21,587  |   |   |   | 19,315 |   |
| Total                                        |   |             | 348,118 |   |   |   | 341,578 |   |
| Deduction of allowance for doubtful accounts |   |             | 24,236  |   |   |   | 22,652 |   |
|                                         |   |             | 323,882 |   |   |   | 318,926 |   |

|                                                            |   |             | 2009   |   |   |   | 2008   |   |
|-----------------------------------------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|
|                                                            |   | NIS in thousands |   |
| Movement in provision for doubtful debts during the year:       |   |             |   |   |   |   |   |   |
| Balance at beginning of the year                                |   |             | 22,652 |   |   |   | 17,390 |   |
| Impairment losses recognized on receivables                     |   |             | 2,848  |   |   |   | 2,029  |   |
| Amounts written off as uncollectible                            |   |             | (261   | )      |   |   | (127   | )      |
| Amounts recovered during the year                               |   |             | (340   | )      |   |   | -      |   |
| Reversal of impairment losses in respect of accounts receivable |   |             | (663   | )      |   |   | (1,741 | )      |
| Initial consolidation                                           |   |             | -      |   |   |   | 5,101  |   |
| Balance at the end of the year                                  |   |             | 24,236 |   |   |   | 22,652 |   |

----

|   | a. | Receivables: (cont.) |
|--------|----|---------------------------|

|                                                                      |   | December 31      |   |
|---------------------------------------------------------------------------|--------|------------------|--------|
|                                                                      |   | 2009             |   |   | 2008 |   |
|                                                                      |   | NIS in thousands |   |
| 2)    Other:                                          |   |             |   |   |   |   |
| Employees and employee institutions                                       |   |             | 1,702  |   |   |   | 2,331 |   |
| Customs and VAT authorities                                               |   |             | 2,036  |   |   |   | 4,841 |   |
| Associated companies - current debt                                       |   |             | 81,460 |   |   |   | 71,734 |   |
| Prepaid expenses                                                          |   |             | 4,595  |   |   |   | 3,847 |   |
| Advances to suppliers                                                     |   |             | 2,252  |   |   |   | 3,907 |   |
| Accounts Receivable                                                       |   |             | 3,310  |   |   |   | 3,618 |   |
|             Others |   |             | 3,542  |   |   |   | 10,610 |   |
|                                                                      |   |             | 98,897 |   |   |   | 100,888 |   |

|   | b. | Inventories: |
|--------|----|--------------|

|                                           |   | December 31      |    |
|------------------------------------------------|--------|------------------|---------|
|                                           |   | 2009             |    |   | 2008 |   |
|                                           |   | NIS in thousands |    |
| For industrial activities:                     |   |             |    |   |   |   |
| Products in process                            |   |             | 2,603   |   |   |   | 3,133 |   |
| Finished goods                                 |   |             | 67,149  |   |   |   | 51,380 |   |
| Raw materials and supplies                     |   |             | 65,881  |   |   |   | 73,968 |   |
| Total for industrial activities                |   |             | 135,633 |   |   |   | 128,481 |   |
| For commercial activities - purchased products |   |             | 20,799  |   |   |   | 22,759 |   |
|                                           |   |             | 156,432 |   |   |   | 151,240 |   |
| Maintenance and spare parts *                  |   |             | 19,512  |   |   |   | 17,515 |   |
|                                           |   |             | 175,944 |   |   |   | 168,755 |   |

|   | c. | Credit from banks: |
|--------|----|--------------------|

|     |   | Weighted average |   |   |             |   |
|----------|--------|------------------|--------|--------|------------------|--------|
|     |   | Interest rate    |   |   | December 31      |   |
|     |   | on December 31,  |   |   | 2009             |   |   | 2008 |   |
|     |   | 2009             |   |   | NIS in thousands |   |
| Unlinked |   |             | 2.8%   |   |             |   | 131,572 |   |   |   | 77,655 |   |

----

|   | d. | Trade payable and accruals - other: |
|--------|----|-------------------------------------|

|   |   | December 31      |                                 |
|--------|--------|------------------|--------------------------------------|
|   |   | 2009             |                                 |   | 2008 |   |
|   |   | NIS in thousands |                                 |
|   | 1      | )                | Trade payables:                      |   |   |   |   |   |   |
|   |   |             | Open accounts                        |   |   | 250,235 |   |   |   | 190,002 |   |
|   |   |             | Checks payable                       |   |   | 5,660 |   |   |   | 5,018 |   |
|   |   |             |                                 |   |   | 255,895 |   |   |   | 195,020 |   |
|   | 2      | )                | Other:                               |   |   |   |   |   |   |   |   |
|   |   |             | Payroll and related expenses         |   |   | 45,405 |   |   |   | * 42,358 |   |
|   |   |             | Institutions in respect of employees |   |   | 21,196 |   |   |   | 19,362 |   |
|   |   |             | Accrued interest                     |   |   | 19,194 |   |   |   | 17,234 |   |
|   |   |             | Accrued expenses                     |   |   | 14,619 |   |   |   | 18,712 |   |
|   |   |             | Others                               |   |   | 12,331 |   |   |   | 7,277 |   |
|   |   |             |                                 |   |   | 112,745 |   |   |   | 104,943 |   |

|   | Statements of income: |
|--------|-----------------------|

|   | e. | Sales - net (1) |
|--------|----|-----------------|

|                                                                                 |   | Year ended December 31 |    |   |
|--------------------------------------------------------------------------------------|--------|------------------------|---------|--------|
|                                                                                 |   | 2009                   |    |   | 2008 |   |   | 2007 |   |   |
|                                                                                 |   | NIS in thousands       |    |   |
| Industrial operations (2)                                                            |   |                   | 733,938 |   |   |   | 542,244 |   |   |   | 462,634 |   |
| Commercial operations                                                                |   |                   | 158,057 |   |   |   | 131,240 |   |   |   | 121,016 |   |
|                                                                                 |   |                   | 891,995 |   |   |   | 673,484 |   |   |   | 583,650 |   |
| (1)       Including sales to associated companies |   |                   | 186,410 |   |   |   | 132,375 |   |   |   | 159,627 |   |
| (2)       Including sales to export               |   |                   | 69,800  |   |   |   | 55,757 |   |   |   | 48,669 |   |

|   | f. | Cost of sales: |
|--------|----|----------------|

|                                                                   |   | Year ended December 31 |    |
|------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                   |   | 2009                   |    |   | 2008 |   |   | 2007 |   |
|                                                                   |   | NIS in thousands       |    |
| Industrial operations:                                                 |   |                   |    |   |   |   |   |   |   |
|     Materials consumed                                  |   |                   | 233,520 |   |   |   | 143,392 |   |   |   | 93,260 |   |
| Expenditure on the basis of benefits to employees (please see h below) |   |                   | 206,903 |   |   |   | 149,212 |   |   |   | 115,014 |   |
|     Depreciation and amortization                       |   |                   | 67,497  |   |   |   | 53,144 |   |   |   | 31,550 |   |
|     Other manufacturing costs                           |   |                   | 160,383 |   |   |   | 115,027 |   |   |   | 114,400 |   |
|     Decrease (increase) in inventory of finished goods  |   |                   | (14,716 | ) |   |   | (11,879 | ) |   |   | (2,826 | ) |
|                                                                   |   |                   | 653,587 |   |   |   | 448,896 |   |   |   | 351,398 |   |
| Commercial operations - cost of products sold                          |   |                   | 112,090 |   |   |   | 93,491 |   |   |   | 89,341 |   |
|                                                                   |   |                   | 765,677 |   |   |   | 542,387 |   |   |   | 440,739 |   |

----

|   | Statements of income: (cont.) |
|--------|-------------------------------|

|   | g. | Selling, marketing, administrative and general expenses: |
|--------|----|----------------------------------------------------------|

|                                                                   |   | Year ended December 31 |   |
|------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                   |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                                                   |   | NIS in thousands       |   |
| Selling and marketing:                                                 |   |                   |   |   |   |   |   |   |   |
| Expenditure on the basis of benefits to employees (please see h below) |   |                   | 30,095 |   |   |   | 18,568 |   |   |   | 13,431 |   |
| Packaging, transport and shipping                                      |   |                   | 27,843 |   |   |   | 15,670 |   |   |   | 9,712 |   |
| Commissions                                                            |   |                   | 2,405  |   |   |   | 2,684 |   |   |   | 1,869 |   |
| Depreciation and amortization                                          |   |                   | 4,101  |   |   |   | 1,246 |   |   |   | 1,403 |   |
| Other                                                                  |   |                   | 7,554  |   |   |   | 7,506 |   |   |   | 4,929 |   |
|                                                                   |   |                   | 71,998 |   |   |   | 45,674 |   |   |   | 31,344 |   |
|                                                                   |   |                   |   |   |   |   |   |   |   |   |   |   |
| Administrative and general:                                            |   |                   |   |   |   |   |   |   |   |   |   |   |
| Expenditure on the basis of benefits to employees (please see h below) |   |                   | 57,388 |   |   |   | 55,735 |   |   |   | 45,458 |   |
| Office supplies, rent and maintenance                                  |   |                   | 3,698  |   |   |   | 2,222 |   |   |   | 1,214 |   |
| Professional fees                                                      |   |                   | 4,318  |   |   |   | 3,210 |   |   |   | 1,789 |   |
| Depreciation and amortization                                          |   |                   | 6,501  |   |   |   | 5,097 |   |   |   | 3,159 |   |
| Doubtful accounts and bad debts                                        |   |                   | 2,290  |   |   |   | 233 |   |   |   | 738 |   |
| Other                                                                  |   |                   | 12,873 |   |   |   | 15,006 |   |   |   | 9,997 |   |
|                                                                   |   |                   | 87,068 |   |   |   | 81,503 |   |   |   | 62,355 |   |
| Less - rent and participation from associated companies                |   |                   | 28,101 |   |   |   | 26,533 |   |   |   | 26,364 |   |
|                                                                   |   |                   | 58,967 |   |   |   | 54,970 |   |   |   | 35,991 |   |

|   | h. | Expenses in respect of employee benefits |
|--------|----|------------------------------------------|

|                                              |   | Year ended December 31 |    |
|---------------------------------------------------|--------|------------------------|---------|
|                                              |   | 2009                   |    |   | 2008 |   |   | 2007 |   |
|                                              |   | NIS in thousands       |    |
| Composition:                                      |   |                   |    |   |   |   |   |   |   |
| Payroll                                           |   |                   | 267,230 |   |   |   | 193,023 |   |   |   | 157,781 |   |
| Other long term employee benefits                 |   |                   | (505    | ) |   |   | 657 |   |   |   | 401 |   |
| Expenses in respect of a defined deposit plan     |   |                   | 22,803  |   |   |   | 15,889 |   |   |   | 15,249 |   |
| Expenses in respect of a defined benefit plan     |   |                   | 3,623   |   |   |   | 477 |   |   |   | 224 |   |
| Changes in central compensation fund              |   |                   | (221    | ) |   |   | 225 |   |   |   | (184 | ) |
| Share-based payment transactions                  |   |                   | 2,900   |   |   |   | 5,922 |   |   |   | - |   |
| Severance benefits                                |   |                   | 3,115   |   |   |   | 1,358 |   |   |   | 826 |   |
| Benefits in respect of profit-sharing and bonuses |   |                   | 4,493   |   |   |   | 7,951 |   |   |   | 1,774 |   |
|                                              |   |                   | 303,438 |   |   |   | 225,502 |   |   |   | 176,071 |   |
| Net of capitalized amounts (see note 6f).         |   |                   | (9,052  | ) |   |   | (1,987 | ) |   |   | (2,168 | ) |
|                                              |   |                   | 294,386 |   |   |   | 223,515 |   |   |   | 173,903 |   |

----

|   | Statements of income: (cont.) |
|--------|-------------------------------|

|   | i. | Depreciation and amortization |
|--------|----|-------------------------------|

|                                                                                                               |   | 2009             |   |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|
|                     |   | NIS in thousands |   |
| Composition:                                                                                                       |   |             |   |   |   |   |   |   |   |
| Depreciation of fixed assets (see note 6)                                                                          |   |             | 73,355 |   |   |   | 53,391 |   |   |   | 34,749 |   |
| Depreciation of leased land                                                                                        |   |             | 913    |   |   |   | 1,178  |   |   |   | 644 |   |
| Impairment of intangible assets (see note 8b)                                                                      |   |             | 4,068  |   |   |   | 5,215  |   |   |   | 705 |   |
| Depreciation of other assets                                                                                  |   |             | 216    |   |   |   | -      |   |   |   | - |   |
|                                                                                                               |   |             | 78,552 |   |   |   | 59,784 |   |   |   | 36,098 |   |

|   | j. | Finance income ** |
|--------|----|-------------------|

|                                                                                       |   | Year ended December 31 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                                         |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                         |   | NIS in thousands       |   |
| (1) interest income                                                                                                                          |   |                   |   |   |   |   |   |   |   |
|                                                                                                                                         |   |                   |   |   |   |   |   |   |   |
|     Interest income from short-term bank deposits                                                                        |   |                   | -      |   |   |   | 108 |   |   |   | 113 |   |
|     Interest income from short-term balances                                                                             |   |                   | 3,436  |   |   |   | 3,912 |   |   |   | 2,945 |   |
|     Interest income from short-term loans                                                                                |   |                   | -      |   |   |   | 96 |   |   |   | - |   |
|     Interest income from long-term loans                                                                                 |   |                   | 3,763  |   |   |   | 592 |   |   |   | 547 |   |
|     Interest income from long-term bank deposits                                                                         |   |                   | -      |   |   |   | - |   |   |   | 3,352 |   |
|     Interest income from operational revaluation – net                                                             |   |                   | 813    |   |   |   | 1,204 |   |   |   | - |   |
|     Total interest income                                                                                                |   |                   | 8,012  |   |   |   | 5,912 |   |   |   | 6,957 |   |
|                                                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| (2) Other                                                                                                                                    |   |                   | 113    |   |   |   | 286 |   |   |   | 3,691 |   |
|                                                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| (3) Net Profit (loss) from financial assets, by groups                                                                                       |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
|     Derivative financial instruments designated as hedging items                                                         |   |                   | 6,221  |   |   |   | 5,871 |   |   |   | - |   |
|         Less:     Amounts capitalized to cost of fixed assets (see note 6e) |   |                   | (9,619 | ) |   |   | - |   |   |   | - |   |
|     Total Finance income                                                                                                 |   |                   | 4,727  |   |   |   | 12,069 |   |   |   | 10,648 |   |
|                                                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| ** include financial income of loans to associated companies                                                                                 |   |                   | 3,763  |   |   |   | 4,790 |   |   |   | 2,655 |   |

----

|   | Statements of income: (cont.) |
|--------|-------------------------------|

|   | k. | Finance expenses |
|--------|----|------------------|

|                                                                                                                |   | Year ended December 31 |    |
|---------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                                |   | 2009                   |    |   | 2008 |   |   | 2007 |   |
|                                                                                                                |   | NIS in thousands       |    |
|      1) interest expenses                                                                  |   |                   |    |   |   |   |   |   |   |
|                                                                                                                |   |                   |    |   |   |   |   |   |   |
|      Interest expenses from short-term bank loans                                          |   |                   | 894     |   |   |   | 224 |   |   |   | - |   |
|      Interest expenses from short-term loans                                               |   |                   | 574     |   |   |   | 3,618 |   |   |   | 10,159 |   |
|      Interest expenses from long-term loans                                                |   |                   | 10,338  |   |   |   | 4,927 |   |   |   | 1,907 |   |
|      Interest expenses on account of non-convertible bonds net of related hedges           |   |                   | 39,004  |   |   |   | 34,469 |   |   |   | 15,642 |   |
|      Interest expenses from operating monetary balance-net                                 |   |                   | 10,221  |   |   |   | - |   |   |   | 2,228 |   |
|      Other interest expenses                                                               |   |                   | 1,331   |   |   |   | 8,077 |   |   |   | 1,560 |   |
|      Total interest expenses                                                               |   |                   | 62,362  |   |   |   | 51,315 |   |   |   | 31,496 |   |
|                                                                                                                |   |                   |    |   |   |   |   |   |   |   |   |   |
|       2) other                                                                        |   |                   |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                |   |                   |    |   |   |   |   |   |   |   |   |   |
| Changes in the fair value of derivative financial instruments designated as hedging items                           |   |                   | 824     |   |   |   | - |   |   |   | - |   |
|             Bank commissions                                 |   |                   | 670     |   |   |   | 501 |   |   |   | 270 |   |
|             Interest costs from employee benefits            |   |                   | 673     |   |   |   | 1,360 |   |   |   | 1,051 |   |
|     Total other finance expenses                                                                |   |                   | 2,167   |   |   |   | 1,861 |   |   |   | 1,321 |   |
|     Less:    Amounts capitalized to cost of fixed assets (see note 6e) |   |                   | (41,537 | ) |   |   | (26,064 | ) |   |   | - |   |
|             Total finance expenses                           |   |                   | 22,992  |   |   |   | 27,112 |   |   |   | 32,817 |   |

|   | l. | Other income |
|--------|----|--------------|

|                                                                       |   | Year ended December 31 |   |
|----------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                       |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                                                       |   |                   |   |   | NIS in thousands |   |
| Profit from written off a negative cost surplus                            |   |                   | -      |   |   |   | 14,664 |   |   |   | - |   |
| Capital gain from sale of fixed assets and spare parts inventory           |   |                   | 73     |   |   |   | 237 |   |   |   | (2,150 | ) |
| Profit (loss) from revaluation PUT option  to associated company |   |                   | 1,922  |   |   |   | (10,003 | ) |   |   | (2,289 | ) |
| Capital loss from sale of associated company                               |   |                   | -      |   |   |   | - |   |   |   | (28 | ) |
| Revenues from unilateral dividend                                          |   |                   | 16,418 |   |   |   | - |   |   |   | - |   |
| Revenues from sale of other assets, net                                    |   |                   | 1,321  |   |   |   | - |   |   |   | - |   |
|     Other                                                   |   |                   | 500    |   |   |   | - |   |   |   | - |   |
|     Total Other income                                 |   |                   | 20,234 |   |   |   | 4,898 |   |   |   | (4,467 | ) |

----

|                                                                                                                          |   | Net income             |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                          |   | Year ended December 31 |   |
|                                                                                                                          |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                          |   | NIS in thousands       |   |
|                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Net income  for the period, as reported in the income statements, used in computation of basic net income per share |   |  91,230           |   |   |  69,710 |   |   |  31,535 |   |
| Total net income for the purpose of computing  diluted income per share                                                  |   |                   | 91,230 |   |   |   | 69,710 |   |   |   | 31,535 |   |

|                                                                                                                       |   | Number of sharesYear ended December 31 |      |
|----------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                                                                                       |   | 2009                                   |      |   | 2008 |   |   | 2007 |   |
|                                                                                                                       |   |                                   |      |   |   |   |   |   |   |
| Weighted average number of shares used for  computing the basic income  per share                      |   |                                   | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,132,728 |   |
| Adjustment in respect of incremental shares of warrants                                                                    |   |                                   | -         |   |   |   | - |   |   |   | 6,805 |   |
| Weighted average number of shares used for      computing the diluted income  per share |   |                                   | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,139,533 |   |

----

|   | a. | As of December 31, 2009 the acquisition of fixed assets with suppliers credit amounted to NIS 70,541 thousand. |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | b. | As of December 31, 2008 the acquisition of fixed assets with suppliers credit amounted to NIS 17,261 thousands. |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | a. | The purpose of financial risk management |
|--------|----|------------------------------------------|

|   | The finance division of the Group supplies services to the business operation, provides access to domestic and international financial markets, monitors and manages the financial risks associated with the Group's activities through internal reports that analyze the level of exposure to risks according to their degree and intensity. These risks include market risks (currency risk, fair value risk in respect of interest rates, price risk and cash flow risk in respect of interest rates), credit risks and liquidity risk. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The financial management division of the Group makes quarterly reports to the Group's management committee, about the risks and the implementation of the policy which be assimilated in order to reduce the risks exposures. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Market risk |
|--------|----|-------------|

|   | The Group's activity exposes it primarily to financial risks of changes in foreign currency exchange rates (see section e below). The Group holds a range of derivative financial instruments in order to manage its exposure to market risks, including: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Foreign currency swap contracts to hedge EURO currency risks arising from EURO payments result of imports of equipment for Machine 8 from the EU nations. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Foreign currency swap contracts to hedge currency risks arising from the purchase of raw materials in dollars according to the company's policy. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Derivative financial instruments |
|--------|----|--------------------------------------------|

|   | d. | Credit risks |
|--------|----|--------------|

----

|   | e. | Foreign currency risks |
|--------|----|------------------------|

|                                                                                                                                                                     |   | December 31, 2009                                  |   |   | December 31, 2008   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|--------|---------------------|--------|
|                                                                                                                                                                     |   | In, or linked to, foreign currency (mainly dollar) |   |   |   In Euro |   |   |   Linked to the Israeli CPI |   |   |     Unlinked |   |   | In, or linked to, foreign currency (mainly dollar) |   |   |   In Euro |   |   |   Linked to the Israeli CPI |   |   |     Unlinked |   |
|                                                                                                                                                                     |   |                                               |   |   | NIS in thousands    |   |   |   |   |   | NIS in thousands |   |
| Assets:                                                                                                                                                                  |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                                                                                                                                          |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents and designated deposits                                                                                                                        |   |                                               | 4,952  |   |                |   | 25,976 |   |   |   | - |   |   |   | 122,933 |   |   |   | 2,325 |   |   |   | 128,427 |   |   |   | - |   |   |   | 131,975 |   |
| Receivables                                                                                                                                                              |   |                                               | 13,338 |   |                |   | 5,075 |   |   |   | 1,053 |   |   |   | 398,817 |   |   |   | 15,816 |   |   |   | 3,206 |   |   |   | 910 |   |   |   | 396,035 |   |
| Investments in associated companies - long-term                                                                                                                          |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| loans and capital notes                                                                                                                                                  |   |                                               | -      |   |                |   | - |   |   |   | 36,674 |   |   |   | 17,777 |   |   |   | - |   |   |   | - |   |   |   | 36,674 |   |   |   | 16,295 |   |
|                                                                                                                                                                     |   |                                               | 18,290 |   |                |   | 31,051 |   |   |   | 37,727 |   |   |   | 539,428 |   |   |   | 18,141 |   |   |   | 131,633 |   |   |   | 37,584 |   |   |   | 544,305 |   |
| Liabilities:                                                                                                                                                             |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                     |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                                                                                                                                             |   |                                               | -      |   |                |   | - |   |   |   | - |   |   |   | 131,572 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 77,655 |   |
| Accounts payables and accruals                                                                                                                                           |   |                                               | 43,437 |   |                |   | 72,583 |   |   |   | - |   |   |   | 277,801 |   |   |   | 36,814 |   |   |   | 23,969 |   |   |   | - |   |   |   | 240,299 |   |
|                    Financial liabilities at fair value through profit and loss |   |                                               | 11,982 |   |                |   | - |   |   |   | - |   |   |   | - |   |   |   | 13,904 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Long-term liabilities (including current maturities):                                                                                                                    |   |                                               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                Long –term loans                                                              |   |                                               | -      |   |                |   | - |   |   |   | 28,143 |   |   |   | 253,438 |   |   |   | - |   |   |   | - |   |   |   | 35,271 |   |   |   | 123,974 |   |
|   Notes                                                                                                                                                             |   |                                               | -      |   |                |   | - |   |   |   | 328,069 |   |   |   | 237,907 |   |   |   | - |   |   |   | - |   |   |   | 354,658 |   |   |   | 238,600 |   |
|   Other liability                                                                                                                                                   |   |                                               | -      |   |                |   | - |   |   |   | - |   |   |   | 14,911 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 32,770 |   |
|                                                                                                                                                                     |   |                                               | 55,419 |   |                |   | 72,583 |   |   |   | 356,212 |   |   |   | 915,629 |   |   |   | 50,718 |   |   |   | 23,969 |   |   |   | 389,929 |   |   |   | 713,298 |   |

----

|   | e. | Foreign currency risks (cont.) |
|--------|----|--------------------------------|

|   | Sensitivity analysis of foreign currency: |
|--------|-------------------------------------------|

|   | The group is primarily exposed to the US dollar and the euro. The following table illustrates the sensitivity to a decrease of 5% in the NIS vis-à-vis the other currencies. 5% was the rate of sensitivity that was used in reporting to key executives. This index also represents management estimates regarding the reasonable potential change in exchange rates. The sensitivity analysis includes the existing balances of monetary items denominated in foreign currency and adjusts their translation at the end of the period to a change of 5% in the foreign exchange rates. Impacts of a decrease of 5% in the NIS vis-à-vis the other currencies, after the impact of taxes and net of discounted sums: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                       |   | The influence of the US Dollar |   |   | The influence of the Euro |   |
|--------------------------------------------|--------|--------------------------------|--------|--------|---------------------------|--------|
|                                       |   | December 31                    |   |   | December 31               |   |
|                                       |   | 2008                           |   |   | 2009                      |   |   | 2008 |   |   | 2009 |   |
|                                       |   | NIS in thousands          |   |   | NIS in thousands     |   |
| Profit or (loss)                           |   |                           | 268    |   |                      |   | 872 |   |   |   | (1,336 | )  |   |   | (1,114 | )  |
|                                       |   |                           |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Other sections in the shareholders' equity |   |                           | 995    |   |                      |   | 9,407 |   |   |   | - |   |   |   | - |   |

|               |   | Average foreign exchange rate |   |   | Foreign currency    |   |   | Contract value    |   |   | Fair value                  |   |
|--------------------|--------|-------------------------------|--------|--------|---------------------|--------|--------|-------------------|--------|--------|-----------------------------|--------|
|               |   | 2009                          |   |   | 2008                |   |   | 2009              |   |   | 2008                        |   |   | 2009 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
|               |   | NIS                           |   |   | Dollar in thousands |   |   | Euro in thousands |   |   | NIS  in thousands |
| Hedging cash flow  |   |                          |   |   |                |   |   |              |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase EURO      |   |                          |   |   |                |   |   |              |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | 5.55   |   |                |   | 5.31   |              |   |   | -                           |   |   |   | - |   |   |   | 11,674 |   |   |   | 26,150 |   |   |   | 64,745 |   |   |   | 138,794 |   |   |   | (1,113 | ) |   |   | 1,597 |   |
| Sell EURO          |   |                          |   |   |                |   |   |              |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | -      |   |                |   | 5.45   |              |   |   | -                           |   |   |   | - |   |   |   | - |   |   |   | 5,000 |   |   |   | - |   |   |   | 27,250 |   |   |   | - |   |   |   | (836 | ) |
| Purchase Dollar    |   |                          |   |   |                |   |   |              |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | 3.88   |   |                |   | 3.66   |              |   |   | 1,133                       |   |   |   | 3,000 |   |   |   | - |   |   |   | - |   |   |   | 4,400 |   |   |   | 10,994 |   |   |   | 18 |   |   |   | 500 |   |
| Sell Dollar        |   |                          |   |   |                |   |   |              |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | -      |   |                |   | 3.52   |              |   |   | -                           |   |   |   | (1,500 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (5,281 | ) |   |   | - |   |   |   | (20 | ) |
| EURO  deposit |   |                          | 5.44   |   |                |   | 5.30   |              |   |   | -                           |   |   |   | - |   |   |   | 4,041 |   |   |   | 23,956 |   |   |   | 23,949 |   |   |   | 126,902 |   |   |   | - |   |   |   | - |   |

----

|   | f. | Interest rate and liquidity risk |
|--------|----|----------------------------------|

|   | 1. | Financial liabilities that do not constitute derivative financial instruments |
|--------|----|-------------------------------------------------------------------------------|

|                                           |   | Average effective interest rate |   |   | Till 1 month     |   |   | 1-3 months |   |   | From 3 months to 1 year |   |   | From 1 year to 5 years |    |   | Above 5 years |   |    | Total  |   |
|------------------------------------------------|--------|---------------------------------|--------|--------|------------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|------------------------|---------|--------|---------------|--------|---------|--------|--------|
|                                           |   | %                               |   |   | NIS in thousands |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
| 2009                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
| Short-term credit                              |   |                            | 2.75   |   |             |   | 44,544 |       |   |   | 67,270                  |   |   |                   | 20,138  |   |          |   | -       |   |   |   | - |   |   |   | 131,952 |   |
| Loans from banks                               |   |                            | 4.27   |   |             |   | 3,364  |       |   |   | 5,327                   |   |   |                   | 35,380  |   |          |   | 146,996 |   |   |   | 1,083 |   |   |   | 192,150 |   |
| Long-term credit from others                   |   |                            | 6.30   |   |             |   | 8,053  |       |   |   | -                       |   |   |                   | 8,053   |   |          |   | 64,424  |   |   |   | 48,318 |   |   |   | 128,848 |   |
| Index linked notes carrying permanent interest |   |                            | 5.05   |   |             |   | -      |       |   |   | -                       |   |   |                   | 71,540  |   |          |   | 224,436 |   |   |   | 98,148 |   |   |   | 394,124 |   |
| Notes carrying permanent interest              |   |                            | 7.45   |   |             |   | 8,847  |       |   |   | -                       |   |   |                   | 47,961  |   |          |   | 198,018 |   |   |   | 42,184 |   |   |   | 297,010 |   |
|                                           |   |                            |   |   |             |   | 64,808 |       |   |   | 72,597                  |   |   |                   | 183,072 |   |          |   | 633,874 |   |   |   | 189,733 |   |   |   | 1,144,084 |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
| 2008                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
| Short-term credit                              |   |                            | 3.9    | %      |             |   | 76,175 |       |   |   | 1,506                   |   |   |                   | -       |   |          |   | -       |   |   |   | - |   |   |   | 77,681 |   |
| Loans from banks                               |   |                            | 5.0    | %      |             |   | 4,530  |       |   |   | 7,483                   |   |   |                   | 33,591  |   |          |   | 129,009 |   |   |   | 7,532 |   |   |   | 182,145 |   |
| Index linked notes carrying permanent interest |   |                            | 5.1    | %      |             |   | -      |       |   |   | -                       |   |   |                   | 57,111  |   |          |   | 259,004 |   |   |   | 120,631 |   |   |   | 436,746 |   |
| Notes carrying permanent interest              |   |                            | 7.5    | %      |             |   | 8,606  |       |   |   | -                       |   |   |                   | 8,702   |   |          |   | 209,717 |   |   |   | 87,293 |   |   |   | 314,318 |   |
|                                           |   |                            |   |   |             |   | 89,311 |       |   |   | 8,989                   |   |   |                   | 99,404  |   |          |   | 597,730 |   |   |   | 215,456 |   |   |   | 1,010,890 |   |

----

|   | f. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 2. | Derivative financial instruments |
|--------|----|----------------------------------|

|                                                         |   | Till 1 month     |   |    | 1-3 months |   |   | From 3 months to 1 year |   |   | From 1 year to 5 years |   |
|--------------------------------------------------------------|--------|------------------|--------|---------|------------|--------|--------|-------------------------|--------|--------|------------------------|--------|
|                                                         |   | NIS in thousands |   |
| 2009                                                         |   |             |   |    |       |   |   |                    |   |   |                   |   |
| Derivative financial instruments designated as hedging items |   |             |   |    |       |   |   |                    |   |   |                   |   |
| Foreign currency swap contracts                              |   |             | (1,114 | )       |       |   | -      |                    |   |   | -                      |   |   |   | - |   |
|                                                         |   |             |   |    |       |   |   |                    |   |   |                   |   |   |   |   |   |
| 2008                                                         |   |             |   |    |       |   |   |                    |   |   |                   |   |   |   |   |   |
| Derivative financial instruments designated as hedging items |   |             |   |    |       |   |   |                    |   |   |                   |   |   |   |   |   |
| Foreign currency swap contracts                              |   |             | (185   | )       |       |   | -      |                    |   |   | -                      |   |   |   | - |   |
| Forward contracts on the CPI                                 |   |             | -      |    |       |   | (861   | )                       |   |   | (474                   | )      |   |   | (1,358 | ) |
| Option warrants                                              |   |             | (1,250 | )       |       |   | -      |                    |   |   | -                      |   |   |   | - |   |
|                                                         |   |             | (1,435 | )  |       |   | (861   | )                  |   |   | (474                   | )      |   |   | (1,358 | ) |

|   | 3. | Financial assets that do not constitute derivative financial instruments |
|--------|----|--------------------------------------------------------------------------|

|                               |   | Till 1 month     |    |   | 1-3 months |   |   | From 3 months to 1 year |   |   | From 1 year to 5 years |   |   | Total  |   |
|------------------------------------|--------|------------------|---------|--------|------------|--------|--------|-------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                               |   | NIS in thousands |    |
| 2009                               |   |             |    |   |       |   |   |                    |   |   |                   |   |   |   |   |
| Loans measured at depreciated cost |   |             |    |   |       |   |   |                    |   |   |                   |   |   |   |   |
| Loans to related parties           |   |             | 1,004   |   |       |   | 2,008  |                    |   |   | 7,195                  |   |   |   | 48,012 |   |   |   | 58,219 |   |
| Deposits in the banks              |   |             | 154,153 |   |       |   | -      |                    |   |   | -                      |   |   |   | -      |   |   |   | 154,153 |   |
|                               |   |             | 155,157 |   |       |   | 2,008  |                    |   |   | 7,195                  |   |   |   | 48,012 |   |   |   | 212,378 |   |

----

|   | f. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 3. | Financial assets that do not constitute derivative financial instruments (cont.) |
|--------|----|----------------------------------------------------------------------------------|

|                                    |   | Till 1 month     |    |   | 1-3 months |   |    | From 3 months to 1 year |   |   | From 1 year to 5 years |   |   | Total  |   |
|-----------------------------------------|--------|------------------|---------|--------|------------|--------|---------|-------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                    |   | NIS in thousands |    |
|                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| 2009                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Trade receivables and other receivables |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Other accounts                          |   |             | 62,114  |   |       |   | 160,566 |                    |   |   | 70,772                 |   |   |   | 565    |   |   |   | 294,017 |   |
| Checks collectible                      |   |             | 10,027  |   |       |   | 16,848  |                    |   |   | 3,569                  |   |   |   | -      |   |   |   | 30,444 |   |
| Accounts receivable                     |   |             | 258     |   |       |   | 49      |                    |   |   | -                      |   |   |   | -      |   |   |   | 307 |   |
|                                    |   |             | 72,399  |   |       |   | 177,463 |                    |   |   | 74,341                 |   |   |   | 565    |   |   |   | 324,767 |   |
|                                    |   |             | 227,556 |   |       |   | 179,471 |                    |   |   | 81,536                 |   |   |   | 48,577 |   |   |   | 537,140 |   |

|                                    |   | Till 1 month     |    |   | 1-3 months |   |    | From 3 months to 1 year |   |   | From 1 year to 5 years |   |   | Total  |   |
|-----------------------------------------|--------|------------------|---------|--------|------------|--------|---------|-------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                    |   | NIS in thousands |    |
|                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| 2008                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Loans measured at depreciated cost      |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Loans to related parties                |   |             | 1,161   |   |       |   | 2,311   |                    |   |   | 10,510                 |   |   |   | 39,912 |   |   |   | 53,894 |   |
| Deposits in the banks                   |   |             | 262,727 |   |       |   | -       |                    |   |   | -                      |   |   |   | -      |   |   |   | 262,727 |   |
|                                    |   |             | 263,888 |   |       |   | 2,311   |                    |   |   | 10,510                 |   |   |   | 39,912 |   |   |   | 316,621 |   |
|                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |   |   |   |   |   |
| Trade receivables and other receivables |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |   |   |   |   |   |
| Other accounts                          |   |             | 60,643  |   |       |   | 148,321 |                    |   |   | 74,836                 |   |   |   | -      |   |   |   | 283,810 |   |
| Checks collectible                      |   |             | 11,463  |   |       |   | 22,363  |                    |   |   | 3,271                  |   |   |   | -      |   |   |   | 37,097 |   |
| Accounts receivable                     |   |             | 3,618   |   |       |   | -       |                    |   |   | -                      |   |   |   | -      |   |   |   | 3,618 |   |
|                                    |   |             | 75,724  |   |       |   | 170,684 |                    |   |   | 78,107                 |   |   |   | -      |   |   |   | 324,525 |   |
|                                    |   |             | 339,612 |   |       |   | 172,995 |                    |   |   | 88,617                 |   |   |   | 39,912 |   |   |   | 641,146 |   |

|   | 4. | Financial assets that constitute derivative financial instruments |
|--------|----|-------------------------------------------------------------------|

----

|   | f. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 4. | Financial assets that constitute derivative financial instruments (cont.) |
|--------|----|---------------------------------------------------------------------------|

|                                                              |   | Till 1 month     |   |   | 1-3 months |   |   | From 3 months to 1 year |   |   | Total  |   |
|-------------------------------------------------------------------|--------|------------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------|--------|
|                                                              |   | NIS in thousands |   |
| Derivative financial instruments designated as hedging items:     |   |             |   |   |       |   |   |                    |   |   |   |   |
| 2009                                                              |   |             |   |   |       |   |   |                    |   |   |   |   |
| Forward contracts on the CPI                                      |   |             | 3,052  |   |       |   | -      |                    |   |   | -      |   |   |   | 3,052 |   |
|                                                              |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| 2008                                                              |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| Foreign currency forward contracts                                |   |             | 1,537  |   |       |   | 283    |                    |   |   | 337    |   |   |   | 2,157 |   |
| Foreign currency option warrants                                  |   |             | 59     |   |       |   | 147    |                    |   |   | -      |   |   |   | 206 |   |
|                                                              |   |             | 1,595  |   |       |   | 430    |                    |   |   | 337    |   |   |   | 2,363 |   |
|                                                              |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| Derivative financial instruments not designated as hedging items: |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| Forward contracts on the CPI                                      |   |             | 1,633  |   |       |   | -      |                    |   |   | -      |   |   |   | 1,633 |   |

|   | 5. | Interest risk |
|--------|----|---------------|

|   | § | The earnings of the group for the year ended December 31, 2009 would have been reduced by NIS 5,734 thousands (2008: lower by NIS (1,273) thousands). This change originates primarily from the group's exposure to interest rates on account of variable-interest loans. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | g. | Exposure to the Consumer Price Index |
|--------|----|--------------------------------------|

|   | · | The earnings for the year ended December 31, 2009 would have been reduced by NIS 888 thousands (2008: increase of NIS 125 thousands) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | h. | Fair value of financial instruments |
|--------|----|-------------------------------------|

|   | · | The fair value of financial assets and liabilities with customary terms that are traded in active markets is determined based on quoted market prices. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The fair value of other financial assets and liabilities (except for derivative instruments) is determined through accepted pricing techniques based on the analysis of discounted cash flows, using observed current market prices and traders' quotes for similar instruments. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The fair value of derivative financial instruments is calculated based on quoted prices. When such prices are not available, a discounted cash flow analysis is utilized, using the appropriate yield curve for the duration of the instruments for derivatives that are not options while for derivatives which are options, option pricing models are used. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | Carrying Amount   |    |   | Fair Value        |   |    | Carrying Amount |   |   | Fair Value |   |
|--------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|---------|-----------------|--------|--------|------------|--------|
|                                                   |   | December 31, 2009 |    |   | December 31, 2008 |   |
|                                                   |   | NIS in thousands  |    |   | NIS in thousands  |   |
| Financial Assets                                       |   |              |    |   |              |   |    |            |   |   |       |   |
| Long term loans and capital note                       |   |              | 54,452  |   |              |   | 50,980  |            |   |   | 52,969     |   |   |   | 49,355 |   |
| Financial Liabilities                                  |   |              |    |   |              |   |    |            |   |   |       |   |   |   |   |   |
| Notes – series 1 *                               |   |              | -       |   |              |   | -       |            |   |   | 7,422      |   |   |   | 7,537 |   |
| Notes – series 2 *                               |   |              | 131,362 |   |              |   | 136,715 |            |   |   | 158,559    |   |   |   | 155,637 |   |
| Notes – series 3 *                               |   |              | 196,708 |   |              |   | 207,266 |            |   |   | 190,541    |   |   |   | 195,959 |   |
| Notes – series 4 *                               |   |              | 237,906 |   |              |   | 235,557 |            |   |   | 235,557    |   |   |   | 269,078 |   |
| Other liability*                                       |   |              | -       |   |              |   | -       |            |   |   | 32,770     |   |   |   | 31,359 |   |
|     Long term loans with fixed interest |   |              | 149,809 |   |              |   | 159,915 |            |   |   | 65,021     |   |   |   | 61,854 |   |
|                                                   |   |              | 715,785 |   |              |   | 739,453 |            |   |   | 689,870    |   |   |   | 721,424 |   |

|   | (1) | The fair value of long-term Assets and Liabilities are based on the calculation of the current value of cash flows at real interest rate of 4%. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | i. | Financial instruments that are presented in the statement of financial position at fair value |
|--------|----|-----------------------------------------------------------------------------------------------|

|   | Level 1:   | Quoted prices (unadjusted) in active markets for identical financial liabilities and assets. |
|--------|----------------------|----------------------------------------------------------------------------------------------|

|   | Level 2: | Data other than quoted prices included in Level 1, that are observed directly (i.e.- prices) or indirectly (data derived from prices), regarding financial assets and liabilities. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3: | Data regarding financial assets and liabilities that are not based on observable market data. |
|--------|----------|-----------------------------------------------------------------------------------------------|

|                                                            |   | December 31, 2009 |   |
|-----------------------------------------------------------------|--------|-------------------|--------|
|                                                            |   | Level 2           |   |   | Total |   |
|                                                            |   | NIS in thousands  |   |
| Financial assets at Fair – value through profit and loss: |   |              |   |   |   |   |
| Derivatives                                                     |   |              | 3,052  |   |   |   | 3,052 |   |

|                                                                 |   | December 31, 2009 |   |
|----------------------------------------------------------------------|--------|-------------------|--------|
|                                                                 |   | Level 2           |   |   | Level 3 |   |   | Total |   |
|                                                                 |   | NIS in thousands  |   |
| Financial liabilities at Fair – value through profit and loss: |   |              |   |   |   |   |   |   |   |
| Derivatives                                                          |   |              | (1,114 | ) |   |   | - |   |   |   | (1,114 | ) |
| Put option on an associated company                                  |   |              | -      |   |   |   | (11,982 | ) |   |   | (11,982 | ) |
| Total                                                                |   |              | (1,114 | ) |   |   | (11,982 | ) |   |   | (13,096 | ) |

|   | (1) | The Put option on an associated company is assessed according to the valuation of an external assessor. The estimation was done according to the binomial model. The non-risk interest rate used for the estimation is 5.63%. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | j. | Financial instruments at fair-value that are measured according to level 3: |
|--------|----|-----------------------------------------------------------------------------|

|                              |   | Year ended December 31, 2009 |   |
|-----------------------------------|--------|------------------------------|--------|
|                              |   | NIS in thousands             |   |
| Balance – January 1, 2009   |   |                         | 13,904 |   |
| Recognized in profit and loss     |   |                         |   |   |
| Profit                            |   |                         | (1,922 | ) |
| Balance – December 31, 2009 |   |                         | 11,982 |   |

----

|   | a. | General |
|--------|----|---------|

|   | b. | Transactions with interested parties |
|--------|----|--------------------------------------|

|   | The Company and its subsidiaries perform transactions at market terms with interested parties during their ordinary course of business. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | Negligible transactions: |
|--------|--------------------------|

|   | On March 8, 2009, the board of directors of the Company determined, that in the absence of unique quality considerations that arise from the circumstances of the matter, an interested party transaction shall be considered negligible if the relevant criterion for the transaction (one or more) is less than 1%. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In cases in which the above criteria are not relevant, a transaction shall be considered negligible based on a more relevant criterion established by the Company, provided the criterion calculated for said transaction is less than 1%. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Transactions for purchase of services from interested parties and related parties: communication services, tourism services, services of operating the Company's logistic center, investment consulting services and other financial services. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Transactions for the purchase and/or rent of goods from interested parties and related parties: trucks and hauling equipment, vehicles, insurance products. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Transactions in connection with marketing campaigns, advertising and discounts with interested parties and related parties or related to the products of interested parties and related parties. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Transactions with interested parties and related parties in connection with the purchase of gift coupons of interested parties and related parties |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Transactions for rent buildings/structures and real-estate assets. |
|--------|----|--------------------------------------------------------------------|

----

|   | b. | Transactions with interested parties (cont.) |
|--------|----|----------------------------------------------|

|   | 6. | Sale of paper products, office equipment and other products to companies in the IDB Group. |
|--------|----|--------------------------------------------------------------------------------------------|

|                                                        |   |  Year ended December 31, |   |
|-------------------------------------------------------------|--------|-------------------------------|--------|
|                                                        |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
|                                                        |   |  NIS in thousands        |   |
| Sales (1)                                                   |   |                          | 27,097 |   |   |   | 33,286 |   |   |   | 54,803 |   |
| Cost of sales (2)                                           |   |                          | 10,689 |   |   |   | 3,976 |   |   |   | - |   |
| Financing expenses in respect of non-marketable bonds       |   |                          | 1,363  |   |   |   | 1,584 |   |   |   | 2,128 |   |
|                                                        |   |                          |   |   |   |   |   |   |   |   |   |   |
| Related parties:                                            |   |                          |   |   |   |   |   |   |   |   |   |   |
| Sales (1)                                                   |   |                          | 55,833 |   |   |   | 95,448 |   |   |   | 125,044 |   |
| Cost of sales (2)                                           |   |                          | 29,521 |   |   |   | 13,607 |   |   |   | 21,780 |   |
| Selling, marketing, general and administrative expenses (3) |   |                          | 25,368 |   |   |   | 24,243 |   |   |   | 23,630 |   |

|   | (1) | Sales |
|--------|-----|-------|

|   | a. | The Company sold during the year to interested parties from the IDB Group and Clal Industries packaging paper. Total transactions with interested parties in the years 2009, 2008 and 2007 amounted to NIS 27.1 million, NIS 33.3 million and NIS 54.8 million, respectively. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company sold during the year to associated companies, which are related parties, packaging paper, office supplies and products and white paper waste. Total transactions with interested parties in the years 2009, 2008 and 2007 amounted to NIS 55.8 million, NIS 95.4 million and NIS 125.0 million, respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | b. | Transactions with interested parties (cont.) |
|--------|----|----------------------------------------------|

|   | (2) | Cost of sales |
|--------|-----|---------------|

|   | a. | The Company and a subsidiary have transactions with interested parties from the IDB Group relating to building rental services. Total transactions in the years 2009 and 2008 aggregated to NIS 11 million and NIS 4 million, respectively. The value of transactions in 2007 is negligible. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company purchased during the year from associated companies, which are related parties, white paper and cleaning and toiletry products which are sold by the company. Total transactions with interested parties in the years 2009, 2008 and 2007 amounted to NIS 2.5 million, NIS 13.6 million and NIS 21.8 million, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Selling, marketing, general and administrative expenses |
|--------|-----|---------------------------------------------------------|

|   | (1) | Remuneration of key executives: |
|--------|-----|---------------------------------|

|                                             |   | For the year ended December 31 |   |
|--------------------------------------------------|--------|--------------------------------|--------|
|                                             |   | 2009                           |   |   | 2008 |   |   | 2007 |   |
|                                             |   | NIS in thousand                |   |
| Short-term benefits                              |   |                           | 8,084  |   |   |   | * 8,934 |   |   |   | * 9,138 |   |
| Benefits after the completion of the transaction |   |                           | 7      |   |   |   | 7 |   |   |   | 42 |   |
| Other long-term benefits                         |   |                           | -      |   |   |   | * - |   |   |   | * - |   |
| Severance benefits                               |   |                           | 2,335  |   |   |   | 2,205 |   |   |   | 1,953 |   |
| Share-based payment                              |   |                           | 2,136  |   |   |   | 2,047 |   |   |   | - |   |
|                                             |   |                           | 12,562 |   |   |   | 13,193 |   |   |   | 11,133 |   |

|   | * Reclassified. |
|--------|-----------------|

----

|   | b. | Transactions with interested parties (cont.) |
|--------|----|----------------------------------------------|

|   | (2) | Benefits to interested parties: |
|--------|-----|------------------------------------------------|

|                                                                                                                 |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Payroll to interested parties employed       by the Company - NIS  in thousands * |   |   | 3,503  |   |   |   | 2,503  |   |   |   | 2,643 |   |
| Number of people to whom the benefits relate                                                                         |   |   | 1      |   |   |   | 1      |   |   |   | 1 |   |
| Remuneration of directors who are not  employed by the Company -                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS in thousands                                                                                                     |   |   | 807    |   |   |   | 793    |   |   |   | 601 |   |
| Number of people to whom  the benefits relate                                                              |   |   | 12     |   |   |   | 12     |   |   |   | 11 |   |

|   | * | Refers to the payroll of CEO. |
|--------|---|-------------------------------|

|   | (3) | The company granted to an interested party employed by the Company (the outgoing CEO) during 2008, 40,250 options, as part of the 2008 plan for senior officers in the Group. On March 7, 2010 the Company Board of Directors approved the grant conditions for the third and fourth batches to the outgoing CEO in light of his retirement from managing the Company, as a result of his disability. The total impact on profit and loss amounts to approximately NIS 641 thousand. During 2007, the outgoing CEO exercised 1,975 options under the 2001 plan for senior employees in the group (see note 11b(1)). As of December 31, 2007 all his options from 2001 plan were exercised. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Related parties and interested parties balance:** |
|--------|----|---------------------------------------------------|

|                                            |   | As of December 31, |   |
|-------------------------------------------------|--------|--------------------|--------|
|                                            |   | 2009               |   |   | 2008 |   |
|                                            |   | NIS in thousands   |   |
| Accounts receivable - commercial operations (1) |   |               | 24,562 |   |   |   | 18,942 |   |
| Accounts payables and accruals                  |   |               | 5,740  |   |   |   | 1,907 |   |
| Notes (2)                                       |   |               | 38,793 |   |   |   | 58,830 |   |

|   | (1) | There were no significant changes in the balance during the year. |
|--------|-----|-------------------------------------------------------------------|

|   | (2) | Notes |
|--------|-----|-------|

|   | · | Non-tradable notes |
|--------|--------|--------------------|

|   | · | Tradable notes |
|--------|--------|----------------|

|   | (3) | See note 14 in respect of associated companies balance. |
|--------|-----|---------------------------------------------------------|

----

|   | a. | General |
|--------|----|---------|

----

|   | b. | Business segment data 2009: |
|--------|----|-----------------------------|

|                                                                       |   | Paper and recycling |      |   | Marketing ofoffice supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Mondi Hadera Paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|----------------------------------------------------------------------------|--------|---------------------|-----------|--------|-----------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|--------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                                       |   | NIS in thousands    |      |
| Sales                                                                      |   |                | 219,866   |   |                        |   | 149,107 |                          |   |   | 468,339        |   |   |               | 1,722,613 |   |                         |   | 645,972 |   |   |   | (2,368,582 | ) |   |   | 837,315 |   |
| Sales between  Segments                                          |   |                | 119,433   |   |                        |   | 1,904   |                          |   |   | 15,965         |   |   |               | 4,014     |   |                         |   | 23,250  |   |   |   | (109,886 | ) |   |   | 54,680 |   |
| Sales - net                                                                |   |                | 339,299   |   |                        |   | 151,011 |                          |   |   | 484,304        |   |   |               | 1,726,627 |   |                         |   | 669,222 |   |   |   | (2,478,468 | ) |   |   | 891,995 |   |
| Income from ordinary operations                                            |   |                | (2,737    | )      |                        |   | 3,983   |                          |   |   | 14,712         |   |   |               | 193,805   |   |                         |   | 40,541  |   |   |   | (234,717 | ) |   |   | 15,587 |   |
| Financial income                                                           |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 4,727 |   |
| Financial expenses                                                         |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 22,992 |   |
| Income before taxes on income                                              |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | (2,678 | ) |
| Taxes on income                                                            |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 7,067 |   |
| Income from operations of the Company and its subsidiaries                 |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 4,389 |   |
| Share in profits of associated companies – net                       |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 87,359 |   |
| Net income for the year                                                    |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 91,748 |   |
|                                                                       |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Segment's assets (for the end of the year)                                 |   |                | 1,638,895 |   |                        |   | 43,542  |                          |   |   | 356,742        |   |   |               | 990,670   |   |                         |   | 461,786 |   |   |   | (1,575,061 | ) |   |   | 1,916,574 |   |
| Join assets that were not allocated between segments(1)                    |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 399,751 |   |
| Total assets in the consolidated statements (for the end of the year)      |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 2,316,325 |   |
| Segment's liabilities (for the end of the year)                            |   |                | 141,911   |   |                        |   | 31,327  |                          |   |   | 82,657         |   |   |               | 534,577   |   |                         |   | 306,478 |   |   |   | (841,055 | ) |   |   | 255,895 |   |
| Join liabilities that were not allocated between segments                  |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 1,202,001 |   |
| Total liabilities in the consolidated statements (for the end of the year) |   |                |      |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 1,457,896 |   |
| Depreciation and amortization                                              |   |                | 56,503    |   |                        |   | 1,502   |                          |   |   | 20,547         |   |   |               | 29,213    |   |                         |   | 12,028  |   |   |   | (41,241 | ) |   |   | 78,552 |   |
| Capital investments                                                        |   |                | 421,182   |   |                        |   | 1,212   |                          |   |   | 15,797         |   |   |               | 42,484    |   |                         |   | 4,383   |   |   |   | (46,867 | ) |   |   | 438,190 |   |

----

|   | c. | Business segment data 2008: |
|--------|----|-----------------------------|

|                                                                       |   | Paper and recycling |    |   | Marketing ofoffice supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Mondi Hadera Paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|----------------------------------------------------------------------------|--------|---------------------|---------|--------|-----------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|--------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                                       |   | NIS in thousands    |    |
| Sales                                                                      |   |                | 273,436 |   |                        |   | 129,068 |                          |   |   | 500,069        |   |   |               | 1,605,376 |   |                         |   | 717,424 |   |   |   | (2,660,433 | ) 9 |   |   | 564,940 |   |
| Sales between  Segments                                          |   |                | 133,331 |   |                        |   | 2,046   |                          |   |   | 12,508         |   |   |               | 3,200     |   |                         |   | 14,923  |   |   |   | (57,464 | ) |   |   | 108,544 |   |
| Sales - net                                                                |   |                | 406,767 |   |                        |   | 131,114 |                          |   |   | 512,577        |   |   |               | 1,608,576 |   |                         |   | 732,347 |   |   |   | (2,717,897 | ) |   |   | 673,484 |   |
| Income from ordinary operations                                            |   |                | 37,773  |   |                        |   | 3,233   |                          |   |   | (6,226         | )      |   |               | 135,753   |   |                         |   | 34,090  |   |   |   | (169,272 | ) |   |   | 35,351 |   |
| Financial income                                                           |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 12,069 |   |
| Financial expenses                                                         |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 27,112 |   |
| Income before taxes on income                                              |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 20,308 |   |
| Taxes on income                                                            |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 3,663 |   |
| Income from operations of the Company and its subsidiaries                 |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 16,645 |   |
| Share in profits of associated companies – net                       |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 51,315 |   |
| Net income for the year                                                    |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 67,960 |   |
|                                                                       |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Segment's assets (for the end of the year)                                 |   |                | 803,279 |   |                        |   | 72,624  |                          |   |   | 415,666        |   |   |               | 946,156   |   |                         |   | 483,962 |   |   |   | (1,430,118 | ) |   |   | 1,291,569 |   |
| Join assets that were not allocated between segments(1)                    |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 752,525 |   |
| Total assets in the consolidated statements (for the end of the year)      |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 2,044,094 |   |
| Segment's liabilities (for the end of the year)                            |   |                | 82,925  |   |                        |   | 35,258  |                          |   |   | 76,837         |   |   |               | 505,167   |   |                         |   | 361,404 |   |   |   | (866,571 | ) |   |   | 195,020 |   |
| Join liabilities that were not allocated between segments                  |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 1,091,445 |   |
| Total liabilities in the consolidated statements (for the end of the year) |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 1,286,465 |   |
| Depreciation and amortization                                              |   |                | 51,946  |   |                        |   | 1,445   |                          |   |   | 25,604         |   |   |               | 24,367    |   |                         |   | 11,649  |   |   |   | (55,227 | ) |   |   | 59,784 |   |
| Capital investments                                                        |   |                | 254,494 |   |                        |   | 1,694   |                          |   |   | 18,027         |   |   |               | 53,334    |   |                         |   | 11,649  |   |   |   | (32,971 | ) |   |   | 306,227 |   |

----

|   | d. | Business segment data 2007: |
|--------|----|-----------------------------|

|                                                                       |   | Paper and recycling |    |   | Marketing ofoffice supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Mondi Hadera Paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|----------------------------------------------------------------------------|--------|---------------------|---------|--------|-----------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|--------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                                       |   | NIS in thousands    |    |
| Sales                                                                      |   |                | 326,636 |   |                        |   | 117,795 |                          |   |   | 561,759        |   |   |               | 1,373,528 |   |                         |   | 746,031 |   |   |   | (2,681,318 | ) |   |   | 444,431 |   |
| Sales between  Segments                                          |   |                | 138,143 |   |                        |   | 1,901   |                          |   |   | 14,824         |   |   |               | 2,146     |   |                         |   | 24,001  |   |   |   | (41,796 | ) |   |   | 139,219 |   |
| Sales - net                                                                |   |                | 464,779 |   |                        |   | 119,696 |                          |   |   | 576,583        |   |   |               | 1,375,674 |   |                         |   | 770,032 |   |   |   | (2,723,114 | ) |   |   | 583,650 |   |
| Income from ordinary operations                                            |   |                | 70,405  |   |                        |   | 704     |                          |   |   | 15,322         |   |   |               | 61,450    |   |                         |   | 33,924  |   |   |   | (110,696 | ) |   |   | 71,109 |   |
| Financial income                                                           |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 10,648 |   |
| Financial expenses                                                         |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 32,817 |   |
| Income before taxes on income                                              |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 48,940 |   |
| Taxes on income                                                            |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 18,261 |   |
| Income from operations of the Company and its subsidiaries                 |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 30,679 |   |
| Share in profits of associated companies – net                       |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 856 |   |
| Net income for the year                                                    |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 31,535 |   |
|                                                                       |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Segment's assets (for the end of the year)                                 |   |                | 630,217 |   |                        |   | 63,509  |                          |   |   | 442,140        |   |   |               | 914,280   |   |                         |   | 331,737 |   |   |   | (1,688,157 | ) |   |   | 693,726 |   |
| Join assets that were not allocated between segments(1)                    |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 626,189 |   |
| Total assets in the consolidated statements (for the end of the year)      |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 1,319,915 |   |
| Segment's liabilities (for the end of the year)                            |   |                | 79,116  |   |                        |   | 29,293  |                          |   |   | 118,872        |   |   |               | 513,344   |   |                         |   | 224,456 |   |   |   | (1,022,064 | ) |   |   | 108,409 |   |
| Join liabilities that were not allocated between segments                  |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 541,535 |   |
| Total liabilities in the consolidated statements (for the end of the year) |   |                |    |   |                        |   |    |                          |   |   |           |   |   |               |      |   |                         |   |    |   |   |   |   |   |   |   | 649,944 |   |
| Depreciation and amortization                                              |   |                | 33,911  |   |                        |   | 1,598   |                          |   |   | 24,927         |   |   |               | 27,871    |   |                         |   | 10,701  |   |   |   | (63,499 | ) |   |   | 35,509 |   |
| Capital investments                                                        |   |                | 80,431  |   |                        |   | 1,653   |                          |   |   | 24,958         |   |   |               | 43,013    |   |                         |   | 8,458   |   |   |   | (76,429 | ) |   |   | 82,084 |   |

----

| a.   | On February 11, 2010 the company assumed a long-term loan from banks in the sum of NIS 70 million, carrying a variable interest rate of prime+1.15%, and to be repaid within 7 years. The principal and the interest are to be repaid in quarterly installments, commencing from the second year. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | On January 20, 2010 a dividend in cash in the amount of NIS 19.6 million, that was declared on October 22, 2009, was received from an associated company. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   |  On February 18, 2009 an associated company declared the distribution of a dividend in the amount of approximately NIS 20 million from the retained earnings. The dividend will be paid during May 2010. The Company’s share in the dividend is approximately NIS 10 million. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | On April 22, 2010, an associated company declared the distribution of a dividend in the amount of approximately NIS 40 million from the retained earnings. The dividend will be paid during the third quarter of 2010. The Company’s share in the dividend is approximately NIS 20 million. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | On May 23, 2010, the Company completed a further offering pursuant to the Shelf Prospectus, raising a gross total of NIS 181,519 thousand, in exchange for the allocation of NIS 181,519 thousand par value of bonds (Series 5), bearing interest at 5.85%. The principal amount shall be payable in five annual and equal installments made on the 30th day of November of each of the years between 2013 and 2017 (inclusive). The interest shall be payable in biannual installments made on the 31th day of May and the 30th day of November of each of the years between 2010 and 2017 (inclusive). Both the principal amount and the interest payments shall not be linked to the CPI or to any other index or foreign currency. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f.   | On June 1, 2010, the Company entered into an agreement for the sale of its rights to a plot of land with an area of approximately 7600 square meters in Totseret HaAretz Street in Tel Aviv, that is currently leased by the Company from the Tel Aviv municipality in consideration of NIS 64 million, plus VAT. The purchasing parties are Bayside Land Corporation Ltd., (“Bayside”), a company indirectly controlled by IDB Development Company Ltd., the controlling shareholder of the Company and by Amot Investments Ltd. (“Amot”), with holdings in Bayside of 71% and 29%, respectively. The transaction is subject to a precondition and two nullifying conditions. Pursuant to the finalization of the transaction according to the terms of the agreement, the Company is expected to record in its financial statements net capital gains totaling approximately NIS 27.5 million. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g.   | On June 6, 2010, an associated company Hogla-Kimberly Ltd. and another competitor company received a petition for the approval of a class action against them. According to the petition, the Competitor and Hogla-Kimberly Ltd. has misled the public by presenting plastic bags as oxo biodegradable and therefore environmentally friendly, while the products are breaking down into fragments. The plaintiff estimates the scope of the petition, if approved as class action, to be approximately NIS 111 million. At this early stage Hogla-Kimberly Ltd. is examining the petition and is not able to assess its chances and its influences. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel          |  KOST FORER GABBAY & KASIERER |
|------------------------|----------------------------------------|
| February 23, 2010 | A Member of Ernst & Young Global   |

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|   | Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel     |  KOST FORER GABBAY & KASIERER |
|-------------------|----------------------------------------|
| February 23, 2010 | A Member of Ernst & Young Global   |

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|                 -  Mondi Hadera Paper Ltd. |
|----------------------------------------------------------------------------------------------------------------------------|

|                 -  Hogla-Kimberly Ltd. |
|-----------------------------------------------------------------------------------------------------------------------------|

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|                                                    | Page                |
|---------------------------------------------------------|---------------------|
|                                                    |                |
|                                                    |                |
| Report of Independent Registered Public Accounting Firm | M - 1               |
|                                                    |                |
| Consolidated Financial Statements:                      |                |
|                                                    |                |
| Statements of  Financial Position             | M - 2               |
|                                                    |                |
| Statements of Operations                                | M - 3               |
|                                                    |                |
| Statements of Comprehensive Income                      | M - 4               |
|                                                    |                |
| Statements of Changes in Shareholders’ Equity     | M - 5               |
|                                                    |                |
| Statements of Cash Flows                                | M - 6 - M - 7       |
|                                                    |                |
| Notes to the Financial Statements                       | M - 8 - M - 42 |

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|   | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel: +972 (4) 860 7333Fax: +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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MONDI HADERA PAPER LTD. AND SUBSIDIARIES

|                                                          |   |   | December 31, |   |
|---------------------------------------------------------------|--------|--------|--------------|--------|
|                                                          |   | Note   |         |   | 2009 |   |   | 2008 |   |
| Assets                                                        |   |   |         |   |   |   |   |   |   |
| Current assets                                                |   |   |         |   |   |   |   |   |   |
| Cash and cash equivalents                                     |   |   | 4            |   |   |   | 17,076 |   |   |   | 13,315 |   |
| Financial assets carried at fair value through profit or loss |   |   |         |   |   |   | - |   |   |   | 2,382 |   |
| Trade receivables                                             |   |   | 5            |   |   |   | 184,415 |   |   |   | 168,911 |   |
| Other receivables                                             |   |   | 6            |   |   |   | 2,018 |   |   |   | 1,379 |   |
| Inventories                                                   |   |   | 7            |   |   |   | 108,202 |   |   |   | 140,002 |   |
| Total current assets                                          |   |   |         |   |   |   | 311,711 |   |   |   | 325,989 |   |
|                                                          |   |   |         |   |   |   |   |   |   |   |   |   |
| Non-current assets                                            |   |   |         |   |   |   |   |   |   |   |   |   |
| Property, plant and equipment                                 |   |   | 10           |   |   |   | 146,731 |   |   |   | 154,441 |   |
| Goodwill                                                      |   |   | 8A           |   |   |   | 3,177 |   |   |   | 3,177 |   |
| Long term trade receivables                                   |   |   |         |   |   |   | 167 |   |   |   | 355 |   |
| Total non-current assets                                      |   |   |         |   |   |   | 150,075 |   |   |   | 157,973 |   |
| Total assets                                                  |   |   |         |   |   |   | 461,786 |   |   |   | 483,962 |   |
|                                                          |   |   |         |   |   |   |   |   |   |   |   |   |
| Equity and liabilities                                        |   |   |         |   |   |   |   |   |   |   |   |   |
| Current liabilities                                           |   |   |         |   |   |   |   |   |   |   |   |   |
| Short-term bank credit                                        |   |   | 13           |   |   |   | 69,440 |   |   |   | 105,388 |   |
| Current maturities of long-term bank loans                    |   |   | 13           |   |   |   | 10,599 |   |   |   | 15,768 |   |
| Trade payables                                                |   |   | 11           |   |   |   | 105,624 |   |   |   | 97,293 |   |
| Hadera Paper Ltd. Group, net                                  |   |   |         |   |   |   | 57,595 |   |   |   | 69,614 |   |
| Other financial liabilities                                   |   |   | 14           |   |   |   | 432 |   |   |   | 5,512 |   |
| Current tax liabilities                                       |   |   |         |   |   |   | 3,701 |   |   |   | 107 |   |
| Other payables and accrued expenses                           |   |   | 12           |   |   |   | 21,079 |   |   |   |  (*)18,386 |   |
| Accrued severance pay, net                                    |   |   | 15           |   |   |   | 206 |   |   |   | 214 |   |
| Total current liabilities                                     |   |   |         |   |   |   | 268,676 |   |   |   | 312,282 |   |
|                                                          |   |   |         |   |   |   |   |   |   |   |   |   |
| Non-current liabilities                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Long-term bank loans                                          |   |   | 13           |   |   |   | 13,019 |   |   |   | 23,484 |   |
| Deferred taxes                                                |   |   | 23           |   |   |   | 22,704 |   |   |   | 24,274 |   |
| Employees Benefits                                            |   |   | 15           |   |   |   | 2,079 |   |   |   | (*)1,364 |    |
| Total non-current liabilities                                 |   |   |         |   |   |   | 37,802 |   |   |   | 49,122 |   |
|                                                          |   |   |         |   |   |   |   |   |   |   |   |   |
| Commitments and contingent liabilities                        |   |   | 16           |   |   |   |   |   |   |   |   |   |
|                                                          |   |   |         |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                          |   |   | 17           |   |   |   |   |   |   |   |   |   |
| Share capital                                                 |   |   |         |   |   |   | 1 |   |   |   | 1 |   |
| Premium                                                       |   |   |         |   |   |   | 43,352 |   |   |   | 43,352 |   |
| Capital reserves                                              |   |   |         |   |   |   | 929 |   |   |   | (3,150 | ) |
| Retained earnings                                             |   |   |         |   |   |   | 111,026 |   |   |   | 82,355 |   |
|                                                          |   |   |         |   |   |   | 155,308 |   |   |   | 122,558 |   |
| Total equity and liabilities                                  |   |   |         |   |   |   | 461,786 |   |   |   | 483,962 |   |

|  (*) Reclassified. |   |
|-------------------------|--------|

|                         |   |                    |   |                                         |
|------------------------------|--------|-------------------------|--------|----------------------------------------------|
| D. MuhlgayFinancial Director |   | A. SolelGeneral Manager |   | P. MachacekChairman of the Supervisory Board |

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MONDI HADERA PAPER LTD. AND SUBSIDIARIES

|                                |   |   | Year ended December 31, |   |
|-------------------------------------|--------|--------|-------------------------|--------|
|                                |   | Note   |                    |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |
| Revenue                             |   |   | 18                      |   |   |   | 669,222 |   |   |   | 732,347 |   |   |   | 770,032 |   |
| Cost of sales                       |   |   | 19                      |   |   |   | 578,537 |   |   |   | 649,640 |   |   |   | 688,000 |   |
| Gross profit                        |   |   |                    |   |   |   | 90,685 |   |   |   | 82,707 |   |   |   | 82,032 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses        |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling expenses                    |   |   | 20                      |   |   |   | 39,694 |   |   |   | 38,293 |   |   |   | 37,889 |   |
| General and administrative expenses |   |   | 21                      |   |   |   | 10,826 |   |   |   | 9,740 |   |   |   | 10,532 |   |
| Other (income) expenses             |   |   |                    |   |   |   | (376 | ) |   |   | 584 |   |   |   | (313 | ) |
|                                |   |   |                    |   |   |   | 50,144 |   |   |   | 48,617 |   |   |   | 48,108 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                    |   |   |                    |   |   |   | 40,541 |   |   |   | 34,090 |   |   |   | 33,924 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                      |   |   |                    |   |   |   | (104 | ) |   |   | (5,889 | ) |   |   | (5,783 | ) |
| Finance costs                       |   |   |                    |   |   |   | 11,363 |   |   |   | 13,496 |   |   |   | 14,197 |   |
| Finance costs, net                  |   |   | 22                      |   |   |   | 11,259 |   |   |   | 7,607 |   |   |   | 8,414 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit before tax                   |   |   |                    |   |   |   | 29,282 |   |   |   | 26,483 |   |   |   | 25,510 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax charge                   |   |   | 23                      |   |   |   | 611 |   |   |   | 7,127 |   |   |   | 7,220 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                 |   |   |                    |   |   |   | 28,671 |   |   |   | 19,356 |   |   |   | 18,290 |   |

----

MONDI HADERA PAPER LTD. AND SUBSIDIARIES

|                                                                 |   | Year ended December 31, |   |
|----------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                 |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |
| Profit for the year                                                  |   |                    | 28,671 |   |   |   | 19,356 |   |   |   | 18,290 |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash flow hedges, net.                                               |   |                    | 80     |   |   |   | (4,079 | ) |   |   | - |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Transfer to profit or loss from equity  on cash flow hedge |   |                    | 3,999  |   |   |   | - |   |   |   | - |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year (net of tax)                 |   |                    | 32,750 |   |   |   | 15,277 |   |   |   | 18,290 |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |

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MONDI HADERA PAPER LTD. AND SUBSIDIARIES

|                            |   | Share   |   |   |    |   |   | Capital  |   |   | Retained |   |   |   |    |
|---------------------------------|--------|---------|--------|--------|---------|--------|--------|----------|--------|--------|----------|--------|--------|--------|---------|
|                            |   | capital |   |   | Premium |   |   | reserves |   |   | earnings |   |   | Total  |    |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |
| Balance - January 1, 2007       |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 44,709  |   |   |   | 88,991 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Changes during 2007:            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the year             |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 18,290  |   |   |   | 18,290 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2007     |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 62,999  |   |   |   | 107,281 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Changes during 2008:            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Loss on cash flow hedges, net   |   |    | -      |   |    |   | -      |     |   |   | (4,079   | )      |   |   | -       |   |   |   | (4,079 | ) |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the year             |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 19,356  |   |   |   | 19,356 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2008     |   |    | 1      |   |    |   | 43,352 |     |   |   | (3,150   | )      |   |   | 82,355  |   |   |   | 122,558 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Changes during 2009:            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit on cash flow hedges ,net |   |    | -      |   |    |   | -      |     |   |   | 4,079    |   |   |   | -       |   |   |   | 4,079 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the year             |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 28,671  |   |   |   | 28,671 |   |
|                            |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2009     |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 111,026 |   |   |   | 155,308 |   |

----

MONDI HADERA PAPER LTD. AND SUBSIDIARIES

|                                                                                      |   | Year ended December 31, |    |
|-------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                      |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                                      |   |                    |    |   |   |   |   |   |   |
| Cash flows - operating activities                                                         |   |                    |    |   |   |   |   |   |   |
| Profit for the year                                                                       |   |                    | 28,671  |   |   |   | 19,356 |   |   |   | 18,290 |   |
| Adjustments to reconcile net profit to net                                                |   |                    |    |   |   |   |   |   |   |   |   |   |
| cash used in operating activities                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| (Appendix A)                                                                              |   |                    | 38,406  |   |   |   | 28,840 |   |   |   | (1,299 | )  |
| Net cash from operating activities                                                        |   |                    | 67,077  |   |   |   | 47,196 |   |   |   | 16,991 |   |
|                                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash flows - investing activities                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Acquisition of property plant and equipment                                               |   |                    | (4,383  | ) |   |   | (9,655 | ) |   |   | (6,969 | ) |
| Proceeds from sale of property plant and  Equipment                             |   |                    | 676     |   |   |   | 287 |   |   |   | 376 |   |
| Interest received                                                                         |   |                    | 104     |   |   |   | 415 |   |   |   | 393 |   |
| Net cash used in investing  activities                                          |   |                    | (3,603  | ) |   |   | (8,953 | ) |   |   | (6,200 | ) |
|                                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash flows - financing activities                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Short-term bank credit, net                                                               |   |                    | (35,948 | ) |   |   | 3,628 |   |   |   | 5,020 |   |
| Repayment of long-term bank  loans                                              |   |                    | (15,929 | ) |   |   | (14,024 | ) |   |   | (15,927 | ) |
| Proceeds of long-term bank loans                                                          |   |                    | -       |   |   |   | - |   |   |   | 18,000 |   |
| Repayment of capital                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| notes to shareholders                                                                     |   |                    | -       |   |   |   | (5,700 | ) |   |   | (5,676 | ) |
| Interest paid                                                                             |   |                    | (7,894  | ) |   |   | (10,852 | ) |   |   | (11,749 | ) |
| Net cash used in financing activities                                                     |   |                    | (59,771 | ) |   |   | (26,948 | ) |   |   | (10,332 | ) |
|                                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Increase in cash and cash equivalents                                                     |   |                    | 3,703   |   |   |   | 11,295 |   |   |   | 459 |   |
| Cash and cash equivalents  at the                                               |   |                    |    |   |   |   |   |   |   |   |   |   |
| beginning of the financial period                                                         |   |                    | 13,315  |   |   |   | 323 |   |   |   | 15 |   |
| Net foreign exchange difference     on cash and cash equivalents |   |                    | 58      |   |   |   | 1,697 |   |   |   | (151 | ) |
| Cash and cash equivalents of the                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| end of the financial period                                                               |   |                    | 17,076  |   |   |   | 13,315 |   |   |   | 323 |   |

----

|                                                                                                 |   | Year ended December 31, |    |
|------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                 |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
| A.  Adjustments to reconcile net profit  to net cash provided by operating activities |   |                    |    |   |   |   |   |   |   |
|                                                                                                 |   |                    |    |   |   |   |   |   |   |
| Finance expenses recognized in profit and loss                                                       |   |                    | 11,259  |   |   |   | 7,607 |   |   |   | 8,414 |   |
| Taxes on income recognized in profit and loss                                                        |   |                    | 611     |   |   |   | 7,127 |   |   |   | 7,220 |   |
| Depreciation and amortization                                                                        |   |                    | 12,028  |   |   |   | 11,649 |   |   |   | 10,701 |   |
| Capital loss (gain) on disposal of property                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| plant and equipment                                                                                  |   |                    | (376    | ) |   |   | 584 |   |   |   | (313 | ) |
|                                                                                                 |   |                    |    |   |   |   |   |   |   |   |   |   |
| Changes in assets and liabilities:                                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| (Increase) Decrease  in trade receivables and other receivables                            |   |                    | (16,582 | ) |   |   | 21,652 |   |   |   | (18,761 | ) |
| Decrease (Increase) in inventories                                                                   |   |                    | 31,565  |   |   |   | 2,551 |   |   |   | (34,250 | ) |
| Increase (Decrease) in trade and other payables, and accrued expenses                                |   |                    | 11,991  |   |   |   | (21,728 | ) |   |   | 17,509 |   |
| (Decrease) Increase  in Hadera Paper Ltd. Group, net                                       |   |                    | (12,019 | ) |   |   | (1,495 | ) |   |   | 8,302 |   |
|                                                                                                 |   |                    | 38,477  |   |   |   | 27,947 |   |   |   | (1,178 | ) |
| Income tax paid                                                                                      |   |                    | (71     | ) |   |   | (107 | ) |   |   | (121 | ) |
|                                                                                                 |   |                    | 38,406  |   |   |   | 27,840 |   |   |   | (1,299 | ) |

----

MONDI HADERA PAPER LTD.

|  A.  | Description of Business                                                                                                                                                                                                    |   |                                                                                                                                                      |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Mondi Hadera Paper Ltd. (“the Company”) was incorporated and commenced operations on January 1, 2000. The Company and its Subsidiaries are engaged in the production and marketing of paper, mainly in Israel. |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | The Company is presently owned by Neusiedler Holding BV (NL) (the “Parent Company”) (50.1%) and Hadera Paper Ltd. (49.9%).                                                                                     |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|  B.  | Definitions:                                                                                                                                                                                                               |   |                                                                                                                                                      |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | The Company                                                                                                                                                                                                                | -      | Mondi Hadera Paper Ltd.                                                                                                                                   |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | The Group                                                                                                                                                                                                                  | -      | the Company and its Subsidiaries, a list of which is presented in Note 8.                                                                                 |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Subsidiaries                                                                                                                                                                                                               | -      | companies in which the Company exercises control (as defined by IAS 27), and whose financial statements are fully consolidated with those of the Company. |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Related Parties                                                                                                                                                                                                            | -      | as defined by IAS 24.                                                                                                                                     |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Interested Parties                                                                                                                         | -      | As defined in Opinion No.29 of the Institute of Certified Public Accountants in Israel                                                               |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Controlling Shareholder                                                                                                                                                                                | -      | As defined in Opinion No.29 of the Institute of Certified Public Accountants in Israel                                                               |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | NIS                                                                                                                                                                                                                        | -      | New Israeli Shekel.                                                                                                                                       |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | CPI                                                                                                                                                                                                                        | -      | the Israeli consumer price index.                                                                                                                         |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Dollar                                                                                                                                                                                                                     | -      | the U.S. dollar.                                                                                                                                          |
|           |                                                                                                                                                                                                                       |   |                                                                                                                                                      |
|           | Euro                                                                                                                                                                                                                       | -      | the United European currency.                                                                                                                             |

----

|   | A. | Applying international accounting standards (IFRS) Statement of compliance The consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) for all reporting periods presented. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Basis of preparation Until December 31, 2003, Israel was considered a country in which hyper-inflation conditions exist. Therefore, non-monetary balances in the balance sheet were presented on the historical nominal amount and were adjusted to changes in the exchange rate of the U.S. dollar. As of December 31, 2003 when the economy ceased to be hyper-inflationary and the Company no longer adjusted its financial statements to the U.S. dollar, the adjusted amounts as of this date were used as the historical costs. The financial statements were edited on the basis of the historical cost, except for: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Assets and liabilities measured by fair value: changes in the fair value of financial assets and liabilities that are measured by fair value are recorded directly as profit or loss. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Non-current assets held for sale are measured at the lower of their previous carrying amount and fair value less costs of sale. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| §   | Inventories are stated at the lower of cost and net realizable value. |
|--------------------|-----------------------------------------------------------------------|

| §   | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Liabilities to employees as described in note 15. |
|--------------------|---------------------------------------------------|

|   | C. | Foreign currencies The individual financial statements of each group entity are presented in New Israeli Shekel the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements, are also presented in the New Israeli Shekel ("NIS"), which is the functional currency of the Group and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. (Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined). Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they accrue. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. As of 31.12.09 no impairment is recognised. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | F. | Property, plant and equipment Property, plant and equipments are tangible items, which are held for use in the manufacture or supply of goods, which are predicted to be used for more than one period. The Group presents its property, plant and equipments items according to the cost model. Under the cost method - a property, plant and equipment are presented at the balance sheet at cost (net of any investment grants), less any accumulated depreciation and any accumulated impairment losses. The cost includes the cost of the assets acquisition as well as costs that can be 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. Depreciation is calculated using the straight-line method at rates considered adequate to depreciate the assets over their estimated useful lives. Amortization of leasehold is computed over the shorter of the term of the lease, including any option period, where the Group intends to exercise such option, or their useful life. The annual depreciation and amortization rates are: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                           |   | %      |   |   |
|--------|--------------------------------|--------|--------|--------|--------|
|   |                           |   |   |   |   |
|   | Leasehold improvements         |   |   | 10     |   |   |
|   | Machinery and equipment        |   |   | 5-20   |   | (mainly 5%) |
|   | Motor vehicles                 |   |   | 20     |   |   |
|   | Office furniture and equipment |   |   | 6-33   |   |   |

----

|   | G. | Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | H. | Inventories Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventories are stated at the lower of cost and net realizable value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production over heads and other cost that are 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 costs necessary to make the sale. Cost determined as follows: Finished products    -    Based on moving-average basis. Raw, auxiliary materials and other    -    Based on moving-average basis. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | Financial assets |
|--------|----|------------------|

| ·   | Financial assets ‘at fair value through profit or loss’ (FVTPL) |
|--------------------|-----------------------------------------------------------------------------|

| ·   | Loans and receivables |
|--------------------|-----------------------|

----

|   | J. | Financial assets (cont.) |
|--------|----|--------------------------|

|   | • | it has been acquired principally for the purpose of selling in the near future; or |
|--------|---------|------------------------------------------------------------------------------------|

|   | • | it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | it is a derivative that is not designated and effective as a hedging instrument. |
|--------|---------|----------------------------------------------------------------------------------|

|   | • | significant financial difficulty of the issuer or counterparty; or |
|--------|---------|--------------------------------------------------------------------|

|   | • | default or delinquency in interest or principal payments; or |
|--------|---------|--------------------------------------------------------------|

|   | • | it becoming probable that the borrower will enter bankruptcy or financial re-organization. |
|--------|---------|--------------------------------------------------------------------------------------------|

----

|   | J. | Financial assets (Cont.) |
|--------|----|--------------------------|

|   | K. | Borrowings |
|--------|----|------------|

|   | L. | Derivative financial instruments |
|--------|----|----------------------------------|

----

|   | L. | Derivative financial instruments (cont.) |
|--------|----|------------------------------------------|

|   | M. | Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The amount of revenue can be measured reliably; |
|--------------------|-------------------------------------------------|

| ·   | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | The costs incurred or to be incurred in respect of the transaction can be measured reliably. |
|--------------------|----------------------------------------------------------------------------------------------|

|   | N. | Leasing Operating lease payments are recognised as an expense on a straight-line basis over the lease term. |
|--------|----|------------------------------------------------------------------------------------------------------------------|

----

|   | O. | Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. |
|--------|----|----------------------------------------------------------------------------------------------------|

----

|   | P. | Employee benefits |
|--------|----|-------------------|

|   | (1) | Post-Employment Benefits The Group's post-employment benefits include: benefits to retirees and liabilities for severance benefits. The Group's post-employment benefits are classified as either defined contribution plans or definedbenefit plans. Most of the Group's employees are covered by Article 14 to the Severance Law and therefore the Group's companies makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required. Expenses in respect of a Defined Benefit Plan are carried to the income statement in accordance with the Projected Unit Credit Method, while using actuarial estimates that are performed at each balance sheet date. The current value of the Group's obligation in respect of the defined benefit plan is determined by discounting the future projected cash flows from the plan by the market yields on government bonds, denominated in the currency in which the benefits in respect of the plan will be paid, and whose redemption periods are approximately identical to the projected settlement dates of the plan. Actuarial profits and losses are carried to the income statements on the date they were incurred. The Past Service Cost is immediately recognized in the Group's income statement to the extent the benefit has vested. A past service cost which has not yet vested is amortized on a straight-line basis over the average vesting period until the benefit becomes vested. The Group's liability in respect of the Defined Benefit Plan which is presented in the Group's balance sheet, includes the current value of the obligation in respect of the defined benefit. A net plan, which is created from said calculation, is limited to the amount of the actuarial losses and past service cost that were not yet recognized with the addition of the current value of available economic benefits in the shape of returns from the plan or in the shape of reduction in future contributions to the plan. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Other long term employee benefits Other long term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | P. | Employee benefits (cont.) |
|--------|----|---------------------------|

|   | (2) | Other long term employee benefits (Cont.) Other employee benefits of the Group include liabilities for early retirement.  These liabilities are recorded to statement of operations in accordance with the projected unit credit method. The present value of the Group’s obligation for early retirement was determined by means of the capitalization of anticipated future cash flows from the program at market yields of government bonds, denominated in the currency in which the benefits for early retirement will be paid. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Short term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that does not exceed 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Short term Group benefits include the Group’s liability for short term absences, payment of grants, bonuses and compensation. These benefits are recorded to the statement of operations when created. The benefits are measured on a non capitalized basis. The difference between the amount of the short term benefits to which the employee is entitled and the amount paid is therefore recognized as an asset or liability. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Q. | Exchange Rates and Linkage Basis Following are the change in the representative exchange rates of the Euro and the U.S. dollar vis-à-vis the NIS and in the Israeli Consumer Price Index (“CPI”): |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    As of:        |   | Representative exchange rate of the Euro (NIS per €1) |   |   | Representative exchange rate of the dollar(NIS per $1) |   |   | CPI“in respect of”(in points) |   |
|---------------------------------|--------|------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------|--------|
|                            |   |                                                             |   |   |                                                   |   |   |                                      |   |
| December 31, 2009               |   |                                                             | 5.4417 |   |                                                   |   | 3.775  |                                      |   |   | 114.88 |   |
| December 31, 2008               |   |                                                             | 5.2973 |   |                                                   |   | 3.802  |                                      |   |   | 110.55 |   |
| December 31, 2007               |   |                                                             | 5.6592 |   |                                                   |   | 3.846  |                                      |   |   | 106.40 |   |
|                            |   |                                                             |   |   |                                                   |   |   |                                      |   |   |   |   |
| Increase (decrease) during the: |   | %                                                                |   |   | %                                                      |   |   | %                                         |   |
| Year ended December 31, 2009    |   |                                                             | 2.72   |   |                                                   |   | (0.71  | )                                         |   |   | 3.9 |   |
| Year ended December 31, 2008    |   |                                                             | (6.4   | )      |                                                   |   | (1.14  | )                                         |   |   | 3.8 |   |
| Year ended December 31, 2007    |   |                                                             | 1.71   |   |                                                   |   | (8.97  | )                                         |   |   | 3.39 |   |

|   | R. | Reclassification Comparative figures relating to the years 2007 and 2008 were reclassified in these financial statements as follows: NIS 5,054 thousands in 2007 and NIS 4,857 thousand in 2008 were reclassified from employees' benefits in non current liabilities to employees' benefits in current liabilities. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | S. | Adoption of new and revised Standards and interpretations |
|--------|----|-----------------------------------------------------------|

----

|   | S. | Adoption of new and revised Standards and interpretations (Cont.) B.    Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective IAS 17 – leases As part of improvement to IFRSs (2009) issued in April 2009, the International Accounting Standards Board amended the requirements of IAS 17 Leases regarding the classification of leases of land. Following the amendments, leases of land are classified as either 'finance' or 'operating' in accordance with the general principles of IAS 17. These amendments are effective for annual periods beginning on or after 1 January 2010, and they are to be applied retrospectively to unexpired leases at 1 January 2010 if the necessary information was available at the inception of the lease. Otherwise, the revised Standard will be applied based on the facts and circumstances existing on 1 January 2010 (i.e. the date of adoption of the amendments) and the Group will recognise assets and liabilities related to land leases newly classified as finance leases at their fair values on that date, any difference between those fair values will be recognised in retained earrings. IFRS 9 Financial Instruments introduces a new classification and measurement regime for financial assets within its scope. In summary, IFRS 9 proposes that: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Debt instruments meeting both a "business model" test and a "cash flow characteristics" test are measured at amortized cost (the use of fair value id optional in some limited circumstances) |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Investments in equity instruments can be designated as "fair value" through other comprehensive income with only dividends being recognized in profit or loss. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | All other instruments (including all derivatives) are measured at fair value with changes recognized in the profit or loss. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | The concept of "embedded derivatives" does not apply to financial assets within the scope of the standard and the entire instrument must be classified and measured in accordance with the above guidelines. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Unquoted equity instruments can no longer be measured at cost less impairment (must be at fair value) |
|--------------------|-------------------------------------------------------------------------------------------------------|

----

|   | A. | General In the application of the Group’s accounting policies, which are described in Note 2, the management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Significant judgments in applying accounting policies The following are the significant judgments, apart from those involving estimations (see below), that the management have made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognized in financial statements. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Useful lives of property, plant and equipment - As described at 2F above, the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Impairment of goodwill - Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Deferred taxes- the company recognizes deferred tax assets for all of the deductible temporary differences up to the amount as to which it is anticipated that there will be taxable income against which the temporary difference will be deductible. During each period, for purposes of calculation of the utilizable temporary difference, management uses estimates and approximations as a basis which it evaluates each period. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Measurement of obligation for employee benefits. |
|--------|---------|--------------------------------------------------|

|   | C. | Key sources of estimation uncertainty |
|--------|----|---------------------------------------|

|   | • | In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated.  Included in the allowance for doubtful debts are individually impaired trade receivables. The impairment recognised represents the difference between the carrying amount of these trade receivable and the present value of the expected proceeds. The Group does not hold any collateral over these balances. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | As of December 31, |   |
|---------------------------------|--------|--------------------|--------|
|                            |   | 2 0 0 9            |   |   | 2 0 0 8 |   |
|                            |   |               |   |   |   |   |
| Cash in bank – NIS        |   |               | 4,697  |   |   |   | 221 |   |
| Cash in bank - foreign currency |   |               | 12,379 |   |   |   | 13,094 |   |
|                            |   |               | 17,076 |   |   |   | 13,315 |   |

----

|                                   |   | As of December 31, |    |
|----------------------------------------|--------|--------------------|---------|
|                                   |   | 2 0 0 9            |    |   | 2 0 0 8 |   |
| Domestic                               |   |               |    |   |   |   |
| Open accounts                          |   |               | 145,914 |   |   |   | 136,510 |   |
| Checks receivable                      |   |               | 21,621  |   |   |   | 23,260 |   |
|                                   |   |               | 167,535 |   |   |   | 159,770 |   |
| Foreign                                |   |               |    |   |   |   |   |   |
| Open accounts                          |   |               | 20,676  |   |   |   | 13,301 |   |
|                                   |   |               | 188,211 |   |   |   | 173,071 |   |
| Less - allowance for doubtful accounts |   |               | (3,796  | ) |   |   | (4,160 | ) |
|                                   |   |               | 184,415 |   |   |   | 168,911 |   |

|        |   | 31/12/09 |   |
|-------------|--------|----------|--------|
| 60-90 days  |   |     | 8.3    |   |
| 90-120 days |   |     | 3.6    |   |
| Total       |   |     | 11.9   |   |

|                                        |   | Year ended December 31, |   |   |
|---------------------------------------------|--------|-------------------------|--------|--------|
|                                        |   | 2 0 0 9                 |   |   | 2 0 0 8 |
|                                        |   |                    |   |   |   |
| Balance at beginning of the year            |   |                    | 4,160  |   |   |   | 2,992 |   |
| Impairment losses recognized on receivables |   |                    | 2,599  |   |   |   | 1,334 |   |
| Amounts written off as uncollectable        |   |                    | (2,963 | )      |   |   | (166 | ) |
| Balance at end of the year                  |   |                    | 3,796  |   |   |   | 4,160 |   |

----

|                  |   | As of December 31, |
|-----------------------|--------|--------------------|
|                  |   | 2 0 0 9            |   | 2 0 0 8 |
|                  |   |               |   |   |
| Prepaid expenses      |   |               | 1,369 |   | 117 |
| Advances to suppliers |   |               | 285 |   | 512 |
| Others                |   |               | 364 |   | 750 |
|                  |   |               | 2,018 |   | 1,379 |

|                                                      |   | As of December 31, |
|-----------------------------------------------------------|--------|--------------------|
|                                                      |   | 2 0 0 9            |   | 2 0 0 8 |
|                                                      |   |               |   |   |
| Raw and auxiliary materials                               |   |               | 42,235 |   | 42,241 |
| Finished products and goods in process                    |   |               | 65,967 |   | 97,761 |
|                                                      |   |               | 108,202 |   | 140,002 |
|                                                      |   |               |   |   |   |
|    Includes products in transit            |   |               | 18,563 |   | 22,187 |
|                                                      |   |               |   |   |   |
| The inventories are presented net of impairment provision |   |               | 3,218 |   | 1,158 |

|                                                                                  |   | As of December 31, |   |
|---------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                  |   | 2 0 0 9            |   |   | 2 0 0 8 |   |
|                                                                                  |   |               |   |   |   |   |
|   A.        Goodwill, Net                |   |               | 3,177  |   |   |   | 3,177 |   |
|                                                                                  |   |               |   |   |   |   |   |   |
|      Impairment tests for goodwill are discussed in note 2E. |   |               |   |   |   |   |   |   |

|   | B. | Consolidated Subsidiaries The consolidated financial statements as of December 31, 2009, include the financial statements of the following Subsidiaries: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                      |   | Ownership and control |   |
|-------------------------------------------|--------|-----------------------|--------|
|                                      |   | As of December 31,    |   |
|                                      |   | 2 0 0 9               |   |
|                                      |   | %                     |   |
|                                      |   |                  |   |
| Mondi Hadera Paper Marketing Ltd.         |   |                  | 100.00 |   |
| Grafinir Paper Marketing Ltd.             |   |                  | 100.00 |   |
| Yavnir (1999) Ltd.                        |   |                  | 100.00 |   |
| Miterani Paper Marketing 2000 (1998) Ltd. |   |                  | 100.00 |   |

----

|                        |   | As of December 31, |    |
|-----------------------------|--------|--------------------|---------|
|                        |   | 2 0 0 9            |    |   | 2 0 0 8 |   |
|                        |   |               |    |   |   |   |
| Trade and other receivables |   |               | 184,946 |   |   |   | 170,016 |   |
| Cash and cash equivalents   |   |               | 17,076  |   |   |   | 13,315 |   |
| Derivative assets (1)       |   |               | -       |   |   |   | 2,382 |   |
|                        |   |               | 202,022 |   |   |   | 185,713 |   |

| 1.   | Derivative financial instruments are held at fair value. Appropriate valuation methodologies are employed to measure the fair value of derivative instruments. As of 31.12.09 the derivative are presented in other financial liabilities. See also note 24E. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        |   |               |                 |         |            |   |             |           |   |   | Office          |   |   |        |      |
|-----------------------------|--------|--------------------|----------------------|--------------|-----------------|--------|------------------|----------------|--------|--------|-----------------|--------|--------|-------------|-----------|
|                        |   |               |                 |         |            |   |             |           |   |   | Furniture,      |   |   |        |      |
|                        |   |               |                 |         | Machinery       |   |             |           |   |   | Computers       |   |   |        |      |
|                        |   | Leasehold          |                 |         | and             |   |             | Motor          |   |   | and             |   |   |        |      |
|                        |   |  improvements |                 |         |  equipment |   |             |  vehicles |   |   |  equipment |   |   |  Total |      |
| Consolidated                |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |
| Cost:                       |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |
| Balance - January 1, 2008   |   |               | (*)  4,104 |         |            |   | (*) 204,933 |           |   |   | (*) 4,774       |   |   |        | (*) 3,158 |   |   |   | 216,969 |   |
| Changes during 2008         |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Additions                   |   |               | 299                  |         |            |   | 8,492            |           |   |   | 392             |   |   |        | 472       |   |   |   | 9,655 |   |
| Dispositions                |   |               | -                    |         |            |   | (1,959           | )              |   |   | -               |   |   |        | -         |   |   |   | (1,959 | ) |
| Increase spare parts stock  |   |               | -                    |         |            |   | 813              |           |   |   | -               |   |   |        | -         |   |   |   | 813 |   |
| Balance - December 31, 2008 |   |               | 4,403                |         |            |   | 212,279          |           |   |   | 5,166           |   |   |        | 3,630     |   |   |   | 225,478 |   |
|                        |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Changes during 2009:        |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Additions                   |   |               | 628                  |         |            |   | 3,454            |           |   |   | -               |   |   |        | 301       |   |   |   | 4,383 |   |
| Dispositions                |   |               | -                    |         |            |   | (1,206           | )              |   |   | (380            | )      |   |        | -         |   |   |   | (1,586 | ) |
| Increase spare parts stock  |   |               | -                    |         |            |   | 235              |           |   |   | -               |   |   |        | -         |   |   |   | 235 |   |
| Balance - December 31, 2009 |   |               | 5,031                |         |            |   | 214,762          |           |   |   | 4,786           |   |   |        | 3,931     |   |   |   | 228,510 |   |
|                        |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Accumulated depreciation    |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Balance - January 1, 2008   |   |               | (*) 2,144            |    |            |   | (*) 54,341       |           |   |   | (*) 2,113       |   |   |        | (*) 1,878 |   |   |   | 60,476 |   |
| Changes during 2008         |   |               | 429                  |         |            |   | 9,886            |           |   |   | 773             |   |   |        | 561       |   |   |   | 11,649 |   |
| Additions                   |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Dispositions                |   |               | -                    |         |            |   | (1,088           | )              |   |   | -               |   |   |        | -         |   |   |   | (1,088 | ) |
| Balance - December 31, 2008 |   |               | 2,573                |         |            |   | 63,139           |           |   |   | 2,886           |   |   |        | 2,439     |   |   |   | 71,037 |   |
|                        |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Changes during 2009:        |   |               | 517                  |         |            |   | 10,189           |           |   |   | 756             |   |   |        | 566       |   |   |   | 12,028 |   |
| Additions                   |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| Dispositions                |   |               | -                    |         |            |   | (1,007           | )              |   |   | (279            | )      |   |        | -         |   |   |   | (1,286 | ) |
| Balance - December 31, 2009 |   |               | 3,090                |         |            |   | 72,321           |           |   |   | 3,363           |   |   |        | 3,005     |   |   |   | 81,779 |   |
| Net book value:             |   |               |                 |         |            |   |             |           |   |   |            |   |   |        |      |   |   |   |   |   |
| December 31, 2009           |   |               | 1,941                |         |            |   | 142,441          |           |   |   | 1,423           |   |   |        | 926       |   |   |   | 146,731 |   |
| December 31, 2008           |   |               | 1,830                |         |            |   | 149,140          |           |   |   | 2,280           |   |   |        | 1,191     |   |   |   | 154,441 |   |

----

|                                      |   | As of December 31, |    |
|-------------------------------------------|--------|--------------------|---------|
|                                      |   | 2 0 0 9            |    |   | 2 0 0 8 |   |
|                                      |   |               |    |   |   |   |
| In Israeli currency                       |   |               | 29,355  |   |   |   | 26,341 |   |
| In foreign currency or linked thereto (1) |   |               | 76,269  |   |   |   | 70,952 |   |
|                                      |   |               | 105,624 |   |   |   | 97,293 |   |

|   |   |   |                   | As of December 31, |   |
|--------|--------|--------|------------------------|--------------------|--------|
|   |   |   |                   | 2 0 0 9            |   |   | 2 0 0 8 |   |
|   | (1     | )      |                   |               |   |   |   |   |   |
|   |   |   | USD                    |               |   | 55,588 |   |   |   | 53,064 |   |
|   |   |   |     EUR |               |   | 20,681 |   |   |   | 17,888 |   |
|   |   |   |                   |               |   | 76,269 |   |   |   | 70,952 |   |

|   | (*) | Average days of credit for trade payables are 104 days. |
|--------|-----|---------------------------------------------------------|

|                                               |   | As of December 31, |   |
|----------------------------------------------------|--------|--------------------|--------|
|                                               |   | 2 0 0 9            |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                               |   |               |   |   |   |   |   |   |   |
| Accrued payroll and related expenses               |   |               | 14,048 |   |   |   | (*) 13,954 |   |   |   | (*) 14,375 |   |
| Value Added Tax                                    |   |               | 4,238  |   |   |   | 640 |   |   |   | 777 |   |
| Advances from customers                            |   |               | 314    |   |   |   | 1,284 |   |   |   | 941 |   |
| Neusiedler Holding – Accrual for license fee |   |               | 165    |   |   |   | - |   |   |   | 34 |   |
| Interest payable                                   |   |               | 265    |   |   |   | 502 |   |   |   | 1,493 |   |
| Other                                              |   |               | 2,049  |   |   |   | 2,006 |   |   |   | 2,220 |   |
|                                               |   |               | 21,079 |   |   |   | 18,386 |   |   |   | 19,840 |   |

|  (*) Reclassified |
|------------------------|

|                                                                                          |   | Interest  rate |     |   | As of December 31, |
|-----------------------------------------------------------------------------------------------|--------|---------------------|----------|--------|--------------------|
|                                                                                          |   |                | %(*)     |   |               |   | 2 0 0 9 |   |   |   | 2 0 0 8 |   |
| A.              Secured |   |                |
| In NIS –  Short term Bank loans                                               |   |                | 2.3%-2.7 | %      |               |   | 69,440 |   |   |   | 105,388 |   |
| In NIS – not linked                                                                     |   |                | 2.5%-6   | %      |               |   | 19,966 |   |   |   | 26,568 |   |
| In NIS indexed to the CPI                                                                     |   |                | 5%-6.55  | %      |               |   | 3,652 |   |   |   | 12,684 |   |
|                                                                                          |   |                |     |   |               |   | 93,058 |   |   |   | 144,640 |   |

----

|                                                                                  |   | As of December 31, |   |
|---------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                  |   | 2 0 0 9            |   |
| B.        Maturities of long term loans  |   |               |   |
|    First year - 2010                                                        |   |               | 10,599 |   |
|    Second year - 2011                                                       |   |               | 3,662  |   |
|    Third year - 2012                                                        |   |               | 2,563  |   |
|    Fourth year - 2013                                                       |   |               | 2,649  |   |
|    Fifth year - 2014                                                        |   |               | 4,145  |   |
|    Onward                                                                   |   |               | 23,618 |   |

|   | C. | According to the loan agreements with the banks, as amended in the second half of 2005, the Company has to achieve, inter alia, financial ratio at the end of each audited fiscal year of total shareholders equity (which includes capital notes to shareholders) to total assets to be no less than 22%. In case the Company fails to fulfill these covenants, the banks are entitled to demand early repayment of the loans, in whole or in part. As of December 31, 2009, the Company was in full compliance with the covenants stipulated in the bank agreements and this financial ratio amounted to 33.6%. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | As to a "negative pledge agreement" signed by the Company, see Note 16B. |
|--------|----|--------------------------------------------------------------------------|

|   | E. | The Company and its Subsidiaries have been granted a total bank credit facility, pursuant to which the Company and its Subsidiaries may, from time to time, borrow an aggregate principal amount of up to adjusted NIS 314,000 thousand. As of the balance sheet date, the Group utilized NIS 90,859 thousand of the credit facility as long & short term borrowings and as bank guarantees granted to third parties. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                  |   | As of December 31, |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                  |   | 2 0 0 9            |   |   | 2 0 0 8 |   |
| Derivatives that are designated and effective as hedging  instruments carried at fair value |   |               |   |   |   |   |
|                                                                                                  |   |               |   |   |   |   |
| Commodity forward contracts                                                                           |   |               | -      |   |   |   | 5,512 |   |
|                                                                                                  |   |               |   |   |   |   |   |   |
| See also note 24F.                                                                                    |   |               |   |   |   |   |   |   |
|                                                                                                  |   |               |   |   |   |   |   |   |
| Derivatives carried at fair value through profit or loss                                              |   |               | 432    |   |   |   | - |   |
|                                                                                                  |   |               |   |   |   |   |   |   |
| See also note 9, note 24E                                                                             |   |               |   |   |   |   |   |   |

----

|   | A. | Composition |
|--------|----|-------------|

|                                 |   | As of December 31, |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | 2 0 0 9            |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
| Post Employment Benefits:            |   |               |   |   |   |   |   |   |   |
| Benefits to retirees                 |   |               | 2,079  |   |   |   | (*) 1,364 |   |   |   | (*) 1,399 |   |
| Accrued severance pay                |   |               | 206    |   |   |   | 214 |   |   |   | 46 |   |
|                                 |   |               |   |   |   |   |   |   |   |   |   |   |
| Short term employee benefits:        |   |               |   |   |   |   |   |   |   |   |   |   |
| Accrued payroll and related expenses |   |               | 8,121  |   |   |   | (*) 8,791 |   |   |   | (*) 9,321 |   |
| Liability for vacation pay           |   |               | 5,927  |   |   |   | 5,163 |   |   |   | 5,054 |   |
|                                 |   |               | 16,333 |   |   |   | 15,532 |   |   |   | 15,820 |   |

|   | (*) B. | Reclassified Defined contribution plan Most of the Group's employees are covered by Article 14 to the Severance Law and therefore the Group's companies makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required. The total expense recognized in the income statement of NIS 6,683 thousand represents contributions to these plans by the group. |
|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Actuarial assumptions The groups defined benefit plans has been calculated by estimating the present value of the future probable obligation used actual valuation methods. The discounted rate is based on field on government bonds at a fixed interest rate which have an average lifetime equal to that of the gross liability. The actuarial assumptions used in the plan are detailed bellow. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Defined benefit plans The groups defined benefit plans include benefits to retirees – holiday gifts and paper distribution. The principal assumptions used for the purposes of the actuarial valuations were as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                       |   |   Valuation at |     |
|----------------------------|--------|--------------------------|----------|
|                       |   | 2009                     |     |   | 2008 |   |   | 2007 |   |
|                       |   |                     |     |   |   |   |   |   |   |
| Discount rate              |   |                     | 5.54%-6  | % |   |   | 5.9 | % |   |   | 3.62 | % |
| Expected rate of inflation |   |                     | 2.6%-2.7 | % |   |   | 2.1 | % |   |   | 1.9 | % |
| Expected rate of leaving   |   |                     | 3%-14    | % |   |   | 3%-11 | % |   |   | 5 | % |

----

|   | D. | Defined benefit plans (cont.) Amounts recognized in profit or loss in respect of these defined benefit plans are as follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------|

|                                                       |   | Year ended December 31, |   |
|------------------------------------------------------------|--------|-------------------------|--------|
|                                                       |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                                       |   |                    |   |   |   |   |   |   |   |
| Current service cost                                       |   |                    | 20     |   |   |   | 17 |   |   |   | 74 |   |
| Interest on obligations                                    |   |                    | 61     |   |   |   | 66 |   |   |   | 66 |   |
| Actuarial losses (gains)  recognized in the year |   |                    | 44     |   |   |   | (382 | ) |   |   | - |   |
| Benefit paid during the year                               |   |                    | (49    | ) |   |   | (42 | ) |   |   | (38 | ) |
|                                                       |   |                    | 76     |   |   |   | (341 | ) |   |   | 102 |   |

|                                               |   | As of December 31, |   |
|----------------------------------------------------|--------|--------------------|--------|
|                                               |   | 2009               |   |   | 2008 |   |   | 2 0 0 7 |   |
|                                               |   |               |   |   |   |   |   |   |   |
| Present value of funded defined benefit obligation |   |               | 1,134  |   |   |   | 1,058 |   |   |   | 1,399 |   |

|                               |   |  As of December 31, |   |
|------------------------------------|--------|--------------------------|--------|
|                               |   | 2009                     |   |   | 2008 |   |   | 2007 |   |
|                               |   |                     |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |                     | 1,058  |   |   |   | 1,399 |   |   |   | 1,297 |   |
| Current service cost               |   |                     | 20     |   |   |   | 17 |   |   |   | 74 |   |
| Interest cost                      |   |                     | 61     |   |   |   | 66 |   |   |   | 66 |   |
| Actuarial losses (gains)           |   |                     | 44     |   |   |   | (382 | ) |   |   | - |   |
| Benefits paid                      |   |                     | (49    | ) |   |   | (42 | ) |   |   | (38 | ) |
| Closing defined benefit obligation |   |                     | 1,134  |   |   |   | 1,058 |   |   |   | 1,399 |   |

----

|   | D. | Other long term employee benefits Other long term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. Other employee benefits of the Group  include liabilities for early retirement. The obligation in respect of early retirement includes an obligation for pension of the period starting the date of the early retirement up to reaching the legal retirement age. The amount included in the balance sheet arising from the entity's obligation in respect of early retirement is as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | Year ended December 31, |   |
|----------------------------------------------------|--------|-------------------------|--------|
|                                               |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                               |   | NIS in thousands        |   |
|                                               |   |                    |   |   |   |   |   |   |   |
| Present value of funded defined benefit obligation |   |                    | 945    |   |   |   | 306 |   |   |   | - |   |

|                               |   | Year ended December 31, |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                               |   | NIS in thousands        |   |
|                               |   |                    |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |                    | 306    |   |   |   | - |   |   |   | - |   |
| Interest cost                      |   |                    | 54     |   |   |   | - |   |   |   | - |   |
| Current service cost               |   |                    | 759    |   |   |   | 306 |   |   |   | - |   |
| Benefits paid                      |   |                    | (174   | ) |   |   | - |   |   |   | - |   |
| Closing defined benefit obligation |   |                    | 945    |   |   |   | 306 |   |   |   | - |   |

----

|   | A. | Commitments: The Company and its Subsidiaries lease certain of their facilities under operating leases for varying periods with renewal options primarily from Hadera Paper Group. At the balance sheet date, the group had outstanding commitments under non cancellable operating leases, which fall due as follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                         |   | Consolidated |   |
|----------------------------------------------|--------|--------------|--------|
|                                         |   |         |   |
|     Within 1 Year        |   |         | 4,654  |   |
|     Between 1 to 2 Years |   |         | 6,494  |   |
|     Between 2 to 5 Years |   |         | 9,600  |   |
|                                         |   |         | 20,748 |   |

|   | B. | Liens To secure long-term bank loans and short-term bank credits (the balance of which as of December, 31 2009 is NIS 93,058 thousand), the Company entered into a “negative pledge agreement” under which the Company is committed not to pledge any of its assets, excluding fixed pledges relating to assets financed by others, prior to the consent of the banks. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Guarantees The Company from time to time and in the course of its ongoing operations provides guarantees. |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | A. | As of December 31, 2009, 2008 and 2007, share capital is composed of ordinary shares of NIS 1.00 par value each. Authorized - 38,000 shares; issued and paid up - 1,000 shares. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B.  | Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus share (stock dividend) distributions and, in the event of the liquidation of the Company, in the distribution of assets after satisfaction of liabilities to creditors (See also Note 1A). |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                  |   | Year ended December 31, |    |
|-----------------------|--------|-------------------------|---------|
|                  |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                  |   |                    |    |   |   |   |   |   |   |
| Industrial operations |   |                    | 531,453 |   |   |   | 569,772 |   |   |   | 580,202 |   |
| Commercial operations |   |                    | 137,769 |   |   |   | 162,575 |   |   |   | 189,830 |   |
|                  |   |                    | 669,222 |   |   |   | 732,347 |   |   |   | 770,032 |   |

|                                  |   |  Year ended December 31, |          |
|---------------------------------------|--------|-------------------------------|---------------|
|                                  |   |  2 0 0 9                 |          |   |  2 0 0 8 |   |   |  2 0 0 7 |   |
|                                  |   |                          |          |   |   |   |   |   |   |
| Purchases (*)                         |   |                          | 117,080       |   |   |   | 141,478 |   |   |   | 175,507 |   |
| Materials consumed                    |   |                          | 292,083       |   |   |   | 373,131 |   |   |   | 383,002 |   |
| Salaries and related expenses         |   |                          | 44,018        |   |   |   | 42,760 |   |   |   | 40,756 |   |
| Subcontracting                        |   |                          | 3,075         |   |   |   | 4,494 |   |   |   | 5,260 |   |
| Energy costs                          |   |                          | 47,535        |   |   |   | 49,240 |   |   |   | 57,700 |   |
| Depreciation                          |   |                          | 11,903        |   |   |   | 11,487 |   |   |   | 10,432 |   |
| Other manufacturing costs             |   |                          |          |   |   |   |   |   |   |   |   |   |
| and expenses (including rent)         |   |                          |  31,114  |   |   |   |  34,796 |   |   |   |  28,133 |   |
|                                  |   |                          | 546,808       |   |   |   | 657,386 |   |   |   | 700,790 |   |
| Change in finished goods , goods in   |   |                          |          |   |   |   |   |   |   |   |   |   |
| process, and products in transit (**) |   |                          | 31,729        |   |   |   | (7,746 | ) |   |   | (12,790 | ) |
|                                  |   |                          |  578,537 |   |   |   |  649,640 |   |   |   |  688,000 |   |

|   | (*) | The purchases of the Group are related principally to commercial operations. |
|--------|-----|------------------------------------------------------------------------------|

|   | (**) | Change in raw and auxiliary materials are included in materials consumed. |
|--------|------|---------------------------------------------------------------------------|

|                                |   |  Year ended December 31, |         |
|-------------------------------------|--------|-------------------------------|--------------|
|                                |   | 2 0 0 9                       |         |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                |   |                          |         |   |   |   |   |   |   |
| Salaries and related expenses       |   |                          | 20,029       |   |   |   | 19,780 |   |   |   | 19,340 |   |
| Packaging and shipping to customers |   |                          | 8,095        |   |   |   | 6,512 |   |   |   | 6,065 |   |
| Maintenance and rent                |   |                          | 7,961        |   |   |   | 8,408 |   |   |   | 8,438 |   |
| Vehicles                            |   |                          | 1,755        |   |   |   | 1,855 |   |   |   | 1,953 |   |
| Advertising                         |   |                          | 250          |   |   |   | 126 |   |   |   | 450 |   |
| License fees to a shareholder       |   |                          | 166          |   |   |   | - |   |   |   | 26 |   |
| Depreciation                        |   |                          | 77           |   |   |   | 124 |   |   |   | 212 |   |
| Others                              |   |                          |  1,361  |   |   |   |  1,488 |   |   |   |  1,405 |   |
|                                |   |                          |  39,694 |   |   |   |  38,293 |   |   |   |  37,889 |   |

----

|                             |   |  Year ended December 31, |         |
|----------------------------------|--------|-------------------------------|--------------|
|                             |   | 2 0 0 9                       |         |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                             |   |                          |         |   |   |   |   |   |   |
| Salaries and related expenses    |   |                          | 4,356        |   |   |   | 4,025 |   |   |   | 4,221 |   |
| Office maintenance               |   |                          | 234          |   |   |   | 147 |   |   |   | 174 |   |
| Professional and management fees |   |                          | 1,549        |   |   |   | 1,413 |   |   |   | 1,998 |   |
| Depreciation                     |   |                          | 48           |   |   |   | 57 |   |   |   | 57 |   |
| Bad and doubtful debts           |   |                          | 2,599        |   |   |   | 1,334 |   |   |   | 156 |   |
| Other                            |   |                          |  2,040  |   |   |   |  2,764 |   |   |   |  3,926 |   |
|                             |   |                          |  10,826 |   |   |   |  9,740 |   |   |   |  10,532 |   |

|                                                                                |   | Year ended December 31, |   |
|-------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                                |   |                    |   |   |   |   |   |   |   |
| A.     Financing income:                                   |   |                    |   |   |   |   |   |   |   |
| Interest income                                                                     |   |                    | 104    |   |   |   | 415 |   |   |   | 393 |   |
| Foreign currency gains (see note C)                                                 |   |                    | -      |   |   |   | 5,474 |   |   |   | 5,390 |   |
| Total financing income                                                              |   |                    | 104    |   |   |   | 5,889 |   |   |   | 5,783 |   |
|                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
| B.     Financing costs:                                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest expenses                                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest on bank loans                                                              |   |                    | 8,329  |   |   |   | 13,134 |   |   |   | 13,857 |   |
| Interest on defined benefit arrangements (see note 15)                              |   |                    | 61     |   |   |   | 362 |   |   |   | 340 |   |
| Foreign currency losses (see note C)                                                |   |                    | 2,973  |   |   |   | - |   |   |   | - |   |
| Total interest expenses                                                             |   |                    | 11,363 |   |   |   | 13,496 |   |   |   | 14,197 |   |
|                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net finance cost                                                                    |   |                    | 11,259 |   |   |   | 7,607 |   |   |   | 8,414 |   |
|                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
| C.     Foreign Exchange                                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| The amounts credited to the consolidated income statement are presented below: |   |                    |   |   |   |   |   |   |   |   |   |   |
| Included in net financing costs                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Foreign currency gains (losses)                                                     |   |                    | (159   | ) |   |   | 3,092 |   |   |   | 5,390 |   |
| Fair value gains (losses) on forward foreign exchange contracts (see note 24)       |   |                    | (2,814 | ) |   |   | 2,382 |   |   |   | - |   |
| Net foreign currency (losses) gains                                                 |   |                    | (2,973 | ) |   |   | 5,474 |   |   |   | 5,390 |   |

----

|   | A.  | The Company and its Subsidiaries are taxed according to the provisions of The Income Tax Ordinance and the Income Tax Law (Inflationary Adjustments), 1985. The Company is an industrial company in conformity with the Law for the Encouragement of Industry (Taxes), 1969. The major benefit the Company is entitled to under this law is accelerated depreciation rates. |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B.  | Composition |
|--------|----------|-------------|

|                            |   | Year ended December 31, |   |
|---------------------------------|--------|-------------------------|--------|
|                            |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                            |   |                    |   |   |   |   |   |   |   |
| Current taxes                   |   |                    | 3,614  |   |   |   | 97 |   |   |   | 140 |   |
| Taxes in respect of prior years |   |                    | -      |   |   |   | - |   |   |   | 74 |   |
| Deferred taxes (D. below)       |   |                    | (3,003 | ) |   |   | 7,030 |   |   |   | 7,006 |   |
|                            |   |                    | 611    |   |   |   | 7,127 |   |   |   | 7,220 |   |

|   | C.  | Reconciliation of the statutory tax rate to the effective tax rate |
|--------|----------|--------------------------------------------------------------------|

|                                                  |   | Year ended December 31, |   |
|-------------------------------------------------------|--------|-------------------------|--------|
|                                                  |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                  |   |                    |   |   |   |   |   |   |   |
| Income before income taxes                            |   |                    | 29,282 |   |   |   | 26,483 |   |   |   | 25,510 |   |
|                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Statutory tax rate                                    |   |                    | 26     | % |   |   | 27 | % |   |   | 29 | % |
| Tax computed by statutory tax                         |   |                    |   |   |   |   |   |   |   |   |   |   |
| rate                                                  |   |                    | 7,613  |   |   |   | 7,150 |   |   |   | 7,398 |   |
|                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Tax increments (savings) due to:                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Non-deductible expenses                               |   |                    | -      |   |   |   | 75 |   |   |   | - |   |
| Loss on disposal not recognized as deferred tax asset |   |                    | -      |   |   |   | 158 |   |   |   | - |   |
| Utilization of tax losses not previously recognized   |   |                    | (483   | ) |   |   | - |   |   |   | - |   |
| Change in tax rate                                    |   |                    | (6,379 | ) |   |   | - |   |   |   | - |   |
| Differences arising from basis of measurement         |   |                    | (140   | ) |   |   | (256 | ) |   |   | (252 | ) |
| Prior years income taxes                              |   |                    | -      |   |   |   | - |   |   |   | 74 |   |
|                                                  |   |                    | 611    |   |   |   | 7,127 |   |   |   | 7,220 |   |

|   | D.  | Deferred Taxes |
|--------|----------|----------------|

|                                          |   | Year ended December 31, |    |
|-----------------------------------------------|--------|-------------------------|---------|
|                                          |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                          |   |                    |    |   |   |   |   |   |   |
| Balance as of beginning of year               |   |                    | (24,274 | ) |   |   | (18,677 | ) |   |   | (11,671 | ) |
| Charged to the consolidated income statements |   |                    | 3,003   |   |   |   | (7,030 | ) |   |   | (7,006 | ) |
| Charged directly to equity                    |   |                    | (1,433  | ) |   |   | 1,433 |   |   |   | - |   |
| Balance as of end of year                     |   |                    | (22,704 | ) |   |   | (24,274 | ) |   |   | (18,677 | ) |

----

|   | E.   | Deferred Taxes (cont.) |
|--------|----------------|------------------------|

|                                     |   | As of December 31, |    |
|------------------------------------------|--------|--------------------|---------|
|                                     |   | 2 0 0 9            |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                     |   |               |    |   |   |   |   |   |   |
| Deferred taxes arise from the following: |   |               |    |   |   |   |   |   |   |
| Allowance for doubtful accounts          |   |               | 949     |   |   |   | 744 |   |   |   | 570 |   |
| Vacation and recreation pay              |   |               | 1,709   |   |   |   | 1,586 |   |   |   | 1,743 |   |
| Carry forward tax losses                 |   |               | -       |   |   |   | 2,533 |   |   |   | 8,933 |   |
| Depreciable fixed assets                 |   |               | (25,412 | ) |   |   | (30,624 | ) |   |   | (29,934 | ) |
| Accrued severance pay, net               |   |               | 50      |   |   |   | 54 |   |   |   | 11 |   |
| Cash flow hedges                         |   |               | -       |   |   |   | 1,433 |   |   |   | - |   |
|                                     |   |               | (22,704 | ) |   |   | (24,274 | ) |   |   | (18,677 | ) |

|   |   | For 2009 - Deferred taxes were computed at rates between 25%-20%, primarily - 25%. Deferred taxes are not recognized in respect of all losses of subsidiaries amounted to NIS 1,853 thousands as of December 31, 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F.  | Reduction of Corporate Tax Rates In July 2005, the Israeli Knesset passed the Law for Amending the Income Tax Ordinance (No. 147), 2005, according to which commencing in 2006 the corporate income-tax rate would be gradually reduced, for which a 31% tax rate was established, through 2010, in respect of which a 25% tax rate was established. |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | On July 14, 2009 the Knesset (The legislative branch of the Israeli government), passed the Economic Efficiency Law (legislative amendments to implement the economic plan for the years 2009 and 20010) – 2009, which stipulates, inter allia, and additional gradual reduction in the rate of companies tax to 18% in the 2016. tax year and thereafter. According to these amendments, the rate of Group tax applying to the 2009 tax year and thereafter are as follows: 2009 tax year – 26%, 2010 tax year – 25%, 2011 tax year – 24%, 2012 tax year – 23%, 2013 texture – 22%, 2014 tax year – 21%, 2015 tax year – 20%, and in the 2016 tax year and thereafter there will be companies tax rate of 18%. The change in the tax rates have decreased the deferred taxes liability as of December 31, 2009 in the amount of NIS 6,379 thousand. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | The Company and its Subsidiaries have tax assessments that are final through the 2004 tax year. |
|--------|----|-------------------------------------------------------------------------------------------------|

----

|   | A. | Significant accounting policies |
|--------|----|---------------------------------|

|   | B. | Categories of financial instruments |
|--------|----|-------------------------------------|

|                                                                           |   | As of December 31, |    |
|--------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                           |   | 2009               |    |   | 2008 |   |
| Financial assets                                                               |   |               |    |   |   |   |
| Derivative instruments                                                         |   |               | -       |   |   |   | 2,382 |   |
| Loans and receivables  (including cash and cash equivalents)         |   |               | 202,022 |   |   |   | 183,330 |   |
|                                                                           |   |               |    |   |   |   |   |   |
| Financial liabilities                                                          |   |               |    |   |   |   |   |   |
| Derivative instruments                                                         |   |               | 432     |   |   |   | - |   |
| Derivative instruments in designated hedge  accounting relationships |   |               | -       |   |   |   | 5,512 |   |
| Amortized cost                                                                 |   |               | 263,669 |   |   |   | 319,168 |   |

|   | C. | Credit risk |
|--------|----|-------------|

|   | D. | Liquidity risk |
|--------|----|----------------|

----

|   | D. | Liquidity risk (cont.) |
|--------|----|------------------------|

|              |   | 1 year |    |   | 1-2 years |   |   | 2-5 years |   |   | Total  |   |
|-------------------|--------|--------|---------|--------|-----------|--------|--------|-----------|--------|--------|--------|--------|
| 2009              |   |   |    |   |      |   |   |      |   |   |   |   |
| Supplier payables |   |   | 170,346 |   |      |   | -      |      |   |   | -      |   |   |   | 170,346 |   |
| Borrowings'       |   |   | 81,027  |   |      |   | 4,318  |      |   |   | 10,419 |   |   |   | 95,764 |   |
| Total             |   |   | 251,373 |   |      |   | 4,318  |      |   |   | 10,419 |   |   |   | 266,110 |   |
|              |   |   |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| 2008              |   |   |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Supplier Payables |   |   | 174,026 |   |      |   | -      |      |   |   | -      |   |   |   | 174,026 |   |
| Borrowings'       |   |   | 123,002 |   |      |   | 11,510 |      |   |   | 14,741 |   |   |   | 149,253 |   |
| Total             |   |   | 297,028 |   |      |   | 11,510 |      |   |   | 14,741 |   |   |   | 323,279 |   |
|              |   |   |    |   |      |   |   |      |   |   |   |   |   |   |   |   |

----

|   | E. | Exchange rate risk |
|--------|----|--------------------|

|   |   | Liabilities |   |   | Assets |   |
|--------|--------|-------------|--------|--------|--------|--------|
|   |   | 2009        |   |   | 2008   |   |   | 2009 |   |   | 2008 |   |
|   |   | NIS         |   |   | NIS    |   |   | NIS |   |   | NIS |   |
| USD    |   |        | 56,020 |   |   |   | 53,064 |   |   |   | 37,692 |   |   |   | 30,239 |   |
| EUR    |   |        | 20,681 |   |   |   | 23,400 |   |   |   | 1,079 |   |   |   | 4,945 |   |

|                                                         |   | USD Impact |   |   | EUR Impact |   |
|--------------------------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                         |   | 2009       |   |   | 2009       |   |
|                                                         |   | NIS        |   |   | NIS        |   |
|        Profit or loss (1) |   |       | 282    |   |       |   | 1,962 |   |

|   | (1) | This is mainly attributable to the exposure outstanding on receivables, cash and payables at year end in the Group, and forward foreign exchange contracts. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Outstanding contracts |  Buy Currency |   |  Sell Currency |   | Net Fair value NIS |   |
|-----------------------|--------------------|--------|---------------------|--------|--------------------|--------|
|                  |               |   |                |   |               |   |
| Less than 3 months    | USD                |   | NIS                 |   |               | 432    |   |

----

|   | F. | Commodity price risk |
|--------|----|----------------------|

|   | G. | Fair value of financial instruments |
|--------|----|-------------------------------------|

----

|   | F. | Linkage Terms of Financial Instruments |
|--------|----|----------------------------------------|

|                                                          |   | December 31, 2009                                  |         |   | December 31, 2008                     |   |
|---------------------------------------------------------------|--------|----------------------------------------------------|--------------|--------|---------------------------------------|--------|
|                                                          |   | In, or linked to, foreign currency (mainly dollar) |         |   |   Linked to the Israeli CPI |   |   | In, or linked to, foreign currency (mainly dollar) |   |   |   Linked to the Israeli CPI |   |   |     Unlinked |   |   |     Unlinked |   |
|                                                          |   | NIS in thousands                                   |         |   | NIS in thousands                      |   |
| Assets:                                                       |   |                                               |         |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                     |   |                                               | 12,379       |   |                                  |   | - |   |   |   | 4,697 |   |   |   | 13,094 |   |   |   | - |   |   |   | 221 |   |
| Financial assets carried at fair value through profit or loss |   |                                               | -            |   |                                  |   | - |   |   |   | - |   |   |   | 2,382 |   |   |   | - |   |   |   | - |   |
| Trade and other receivables                                   |   |                                               | 26,392       |   |                                  |   | - |   |   |   | 158,554 |   |   |   | 19,709 |   |   |   | - |   |   |   | 150,307 |   |
|                                                          |   |                                               |  38,771 |   |                                  |   | - |   |   |   | 163,251 |   |   |   |  35,185 |   |   |   | - |   |   |   | 150,528 |   |
| Liabilities:                                                  |   |                                               |         |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                                  |   |                                               | -            |   |                                  |   | - |   |   |   | 69,440 |   |   |   | - |   |   |   | - |   |   |   | 105,388 |   |
| Trade and other payables                                      |   |                                               | 76,269       |   |                                  |   | - |   |   |   | 94,342 |   |   |   | 70,952 |   |   |   | - |   |   |   | 103,576 |   |
| Other financial liabilities                                   |   |                                               | 432          |   |                                  |   | - |   |   |   | - |   |   |   | 5,512 |   |   |   | - |   |   |   | - |   |
| Long term loans (including current maturities)                |   |                                               | -            |   |                                  |   | 3,653 |   |   |   | 19,965 |   |   |   | - |   |   |   | 12,684 |   |   |   | 26,568 |   |
|                                                          |   |                                               |  76,701 |   |                                  |   | 3,653 |   |   |   | 183,747 |   |   |   |  76,464 |   |   |   | 12,684 |   |   |   | 235,532 |   |
|                                                          |   |                                               |         |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|   | The Group is owned by Neusiedler Holding (The "Parent Company") (50.1%) and Hadera Paper Ltd. (49.9%).  |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Transactions with Related Parties |
|--------|----|-----------------------------------|

|                                           |   |  Hadera Paper and itssubsidiaries |   |   |  Neusiedler Holding and its subsidiaries |   |
|------------------------------------------------|--------|----------------------------------------|--------|--------|-----------------------------------------------|--------|
|                                           |   |  Year ended December 31,          |   |   |  Year ended December 31,                 |   |
|                                           |   |  2 0 0 9                          |   |   |  2 0 0 8                                 |   |   |  2 0 0 9 |   |   |  2 0 0 8 |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |
| Sales to related parties                       |   |                                   | 23,453 |   |                                          |   | 14,882 |   |   |   | - |   |   |   | - |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Purchases of goods                             |   |                                   | -      |   |                                          |   | - |   |   |   | 6,225 |   |   |   | 2,895 |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                  |   |                                   | 85,709 |   |                                          |   | 88,775 |   |   |   | 1,818 |   |   |   | 2,660 |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Selling expenses, net                          |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| (Participation in selling                      |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| expenses, net)                                 |   |                                   | -      |   |                                          |   | - |   |   |   | 166 |   |   |   | - |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| General and  administrative expenses |   |                                   | 3,020  |   |                                          |   | 2,743 |   |   |   | - |   |   |   | - |   |
|                                           |   |                                   |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Financing expenses ,net                        |   |                                   | 3,349  |   |                                          |   | 3,703 |   |   |   | - |   |   |   | 232 |   |

|   | B. | Balances with Related Parties |
|--------|----|-------------------------------|

|                                |   |  Hadera Paper and its subsidiaries |         |   |  Neusiedler Holding and its subsidiaries |   |
|-------------------------------------|--------|-----------------------------------------|--------------|--------|-----------------------------------------------|--------|
|                                |   | As of December 31,                      |         |   | As of December 31,                            |   |
|                                |   |  2 0 0 9                           |         |   |  2 0 0 8                                 |   |   |  2 0 0 9 |   |   |  2 0 0 8 |   |
| Other receivables                   |   |                                    | -            |   |                                          |   | - |   |   |   | - |   |   |   |  370 |   |
|                                |   |                                    |         |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Trade payables                      |   |                                    |  57,595 |   |                                          |   |  69,614 |   |   |   |  2,752 |   |   |   |  221 |   |
|                                |   |                                    |         |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Other payables and accrued expenses |   |                                    | -            |   |                                          |   | - |   |   |   |  166 |   |   |   | - |   |

|                            C. | (1) | The Group leases its premises from Hadera Paper and receives services (including energy, water, maintenance and professional services) under agreements, which are renewed based on shareholders agreements. See also Note 16A above. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                          | (2) | The Group is obligated to pay commissions to Mondi Neusiedler GmbH. |
|--------------------------------------------------------------------------------------------------------------------------------------------------|-----|---------------------------------------------------------------------|

----

|   | D. | Compensation of key management personnel |
|--------|----|------------------------------------------|

|                                                                |   |  Year ended December 31, |   |
|---------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                |   | 2 0 0 9                       |   |   | 2 0 0 8 |   |
|                                                                |   |                          |   |   |   |   |
|         Short term benefits |   |                          | 5,175  |   |   |   | 5,085 |   |
|         Share options       |   |                          | 648    |   |   |   | 635 |   |
|                                                                |   |                          | 5,823  |   |   |   | 5,720 |   |

----

----

|                                                       | Page                         |
|------------------------------------------------------------|------------------------------|
|                                                       |                         |
| Auditor's                                                  | K - 1                   |
| Consolidated Financial Statements:                         |                         |
| Consolidated Statements of Financial Position              | K - 2                   |
| Consolidated Income Statements                             | K - 3                   |
| Consolidated Statements of Comprehensive Income            | K - 4                   |
| Consolidated Statements of Changes in Shareholders' Equity |  K-5 - K-6              |
| Consolidated Statements of Cash Flows                      |   K-7 - K- 8            |
| Notes to the Financial Statements                          |    K-9 - K-53 |

----

|   | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel: +972 (4) 860 7333Fax: +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |
|--------|

HOGLA-KIMBERLY LTD. AND SUBSIDIARIES

|                                   |   |   | As of December 31, |   |
|----------------------------------------|--------|--------|--------------------|--------|
|                                   |   | Note   |               |   | 2 0 0 9 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
| Current Assets                         |   |   |               |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents              |   |   | 4                  |   |   |   | 106,996 |   |   | 23,219 |   |   | 23,082 |   |
| Trade receivables                      |   |   | 5                  |   |   |   | 289,680 |   |   | 264,918 |   |   | 263,879 |   |
| Inventories                            |   |   | 6                  |   |   |   | 180,631 |   |   | 234,841 |   |   | 184,424 |   |
| Current tax assets                     |   |   | 22                 |   |   |   | - |   |   | 137 |   |   | 12,219 |   |
| Capital note of shareholder            |   |   | 7                  |   |   |   | - |   |   | 32,770 |   |   | - |   |
| Other current assets                   |   |   | 8                  |   |   |   | 5,757 |   |   | 6,340 |   |   | 8,019 |   |
|                                   |   |   |               |   |   |   | 583,064 |   |   | 562,225 |   |   | 491,623 |   |
| Non-Current Assets                     |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Capital note of shareholder            |   |   | 7                  |   |   |   | - |   |   | - |   |   | 31,210 |   |
| VAT Receivable                         |   |   |               |   |   |   | 47,171 |   |   | 41,423 |   |   | 43,317 |   |
| Property plant and equipment           |   |   | 9A                 |   |   |   | 334,604 |   |   | 317,174 |   |   | 310,368 |   |
| Goodwill                               |   |   | 10                 |   |   |   | 18,650 |   |   | 18,708 |   |   | 24,495 |   |
| Employee benefit assets                |   |   | 11                 |   |   |   | 517 |   |   | 343 |   |   | - |   |
| Deferred tax assets                    |   |   | 22                 |   |   |   | 4,899 |   |   | 4,389 |   |   | 11,245 |   |
| Prepaid expenses for operating lease   |   |   | 9B                 |   |   |   | 1,765 |   |   | 1,894 |   |   | 2,022 |   |
|                                   |   |   |               |   |   |   | 407,606 |   |   | 383,931 |   |   | 422,657 |   |
|                                   |   |   |               |   |   |   | 990,670 |   |   | 946,156 |   |   | 914,280 |   |
| Current Liabilities                    |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings                             |   |   | 12                 |   |   |   | 25,977 |   |   | 52,718 |   |   | 155,302 |   |
| Trade payables                         |   |   | 13                 |   |   |   | 296,359 |   |   | 286,835 |   |   | 262,304 |   |
| Employee benefit obligations           |   |   | 11                 |   |   |   | 12,855 |   |   |  (*) 11,241 |     |   | (*) 10,396 |   |
| Current tax liabilities                |   |   | 22                 |   |   |   | 26,631 |   |   | 5,413 |   |   | 2,260 |   |
| Dividend payables                      |   |   |               |   |   |   | 40,000 |   |   | - |   |   | - |   |
| Other payables and accrued expenses    |   |   | 14                 |   |   |   | 57,873 |   |   | 44,023 |   |   | 36,909 |   |
|                                   |   |   |               |   |   |   | 459,695 |   |   | 400,230 |   |   | 467,171 |   |
| Non-Current Liabilities                |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings                             |   |   | 12                 |   |   |   | 33,736 |   |   | 59,044 |   |   | - |   |
| Employee benefit obligations           |   |   | 11                 |   |   |   | 7,515 |   |   | (*) 7,879 |   |   | (*) 6,443 |   |
| Deferred tax liabilities               |   |   | 22                 |   |   |   | 33,631 |   |   | 38,014 |   |   | 39,730 |   |
|                                   |   |   |               |   |   |   | 74,882 |   |   | 104,937 |   |   | 46,173 |   |
| Commitments and Contingent Liabilities |   |   | 15                 |   |   |   |   |   |   |   |   |   |   |   |
| Capital and reserves                   |   |   | 16                 |   |   |   |   |   |   |   |   |   |   |   |
| Issued capital                         |   |   |               |   |   |   | 265,246 |   |   | 265,246 |   |   | 265,246 |   |
| Reserves                               |   |   |               |   |   |   | (60,156 |  ) |   | (57,680 | ) |   | (8,106 | ) |
| Retained earnings                      |   |   |               |   |   |   | 251,003 |   |   | 233,423 |   |   | 143,796 |   |
|                                   |   |   |               |   |   |   | 456,093 |   |   | 440,989 |   |   | 400,936 |   |
|                                   |   |   |               |   |   |   | 990,670 |   |   | 946,156 |   |   | 914,280 |   |

|                               |   |                    |   |                    |
|------------------------------------|--------|-------------------------|--------|-------------------------|
| G .Calvo Paz                       |   | O. Lux                  |   | A. Melamud              |
| Chairman of the Board of Directors |   | Chief Financial Officer |   | Chief Executive Officer |

----

HOGLA-KIMBERLY LTD. AND SUBSIDIARIES

|                                |   |       |   |   | Year ended December 31, |   |
|-------------------------------------|--------|------------|--------|--------|-------------------------|--------|
|                                |   |  Note |   |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |
| Revenue                             |   |       | 17     |   |                    |   | 1,726,627 |   |   |   | 1,608,576 |   |   |   | 1,375,674 |   |
| Cost of sales                       |   |       | 18     |   |                    |   | 1,164,949 |   |   |   | 1,097,567 |   |   |   | 968,594 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                        |   |       |   |   |                    |   | 561,678 |   |   |   | 511,009 |   |   |   | 407,080 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses        |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses      |   |       | 19     |   |                    |   | 304,776 |   |   |   | 308,737 |   |   |   | 286,042 |   |
| General and administrative expenses |   |       | 20     |   |                    |   | 63,097 |   |   |   | 66,519 |   |   |   | 59,588 |   |
|                                |   |       |   |   |                    |   | 367,873 |   |   |   | 375,256 |   |   |   | 345,630 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                    |   |       |   |   |                    |   | 193,805 |   |   |   | 135,753 |   |   |   | 61,450 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Finance expenses                    |   |       | 21     |   |                    |   | (3,041 | ) |   |   | (12,355 | ) |   |   | (29,327 | ) |
| Finance income                      |   |       | 21     |   |                    |   | 4,557 |   |   |   | 13,702 |   |   |   | 1,790 |   |
| Finance income (expenses), net      |   |       |   |   |                    |   | 1,516 |   |   |   | 1,347 |   |   |   | (27,537 | ) |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Profit before tax                   |   |       |   |   |                    |   | 195,321 |   |   |   | 137,100 |   |   |   | 33,913 |   |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes charge                 |   |       | 22     |   |                    |   | ( 44,226 | )  |   |   | (47,473 | ) |   |   | (64,545 | ) |
|                                |   |       |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Profit (loss) for the year          |   |       |   |   |                    |   | 151,095 |   |   |   | 89,627 |   |   |   | (30,632 | ) |

----

HOGLA-KIMBERLY LTD. AND SUBSIDIARIES

|                                                                         |   | Year Ended December, 31 |    |
|------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                         |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                         |   |                    |    |   |   |   |   |   |   |
| Profit for year                                                              |   |                    | 151,095 |   |   |   | 89,627 |   |   |   | (30,632 | ) |
| Exchange differences arising on translation of foreign operations            |   |                    | (1,375  | ) |   |   | (52,096 | ) |   |   | 7,636 |   |
| Cash flow hedges                                                             |   |                    | 766     |   |   |   | (572 | ) |   |   | (1,841 | ) |
| Transfer to profit or loss from equity on cash flow hedge                    |   |                    | (2,270  | ) |   |   | 4,081 |   |   |   | 47 |   |
| Income tax relating to components of other comprehensive income              |   |                    | 403     |   |   |   | (987 | ) |   |   | 521 |   |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss) for the   year (net of tax) |   |                    | (2,476  | ) |   |   | (49,574 | ) |   |   | 6,363 |   |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                      |   |                    | 148,619 |   |   |   | 40,053 |   |   |   | (24,269 | ) |

----

HOGLA-KIMBERLY LTD. AND SUBSIDIARIES

|                         |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Accumulated other comprehensive income |    |   | Retained earnings |   |   | Total  |   |
|------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|----------------------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                         |   |          |   |   |             |   |    |                                 |   |   |                                   |    |   |              |   |   |   |   |
| Year ended December 31, 2009 |   |          |   |   |             |   |    |                                 |   |   |                                   |    |   |              |   |   |   |   |
|                         |   |          |   |   |             |   |    |                                 |   |   |                                   |    |   |              |   |   |   |   |
| Balance - January 1, 2009    |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (58,853                                | )       |   |              | 1,173  |   |   |   | 233,423 |   |   |   | 440,989 |   |
| Total comprehensive income   |   |          | -      |   |             |   | -       |                                 |   |   | (1,375                                 | )  |   |              | (1,101 | )      |   |   | 151,095 |   |   |   | 148,619 |   |
| Dividend                     |   |          | -      |   |             |   | -       |                                 |   |   | -                                      |    |   |              | -      |   |   |   | (133,515 | ) |   |   | (133,515 | ) |
| Balance - December 31, 2009  |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (60,228                                | )       |   |              | 72     |   |   |   | 251,003 |   |   |   | 456,093 |   |

|                         |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Accumulated other comprehensive income |   |   | Retained earnings |   |   | Total  |   |
|------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                         |   |          |   |
| Year ended December 31, 2008 |   |          |   |   |             |   |    |                                 |   |   |                                   |   |   |              |   |   |   |   |
|                         |   |          |   |   |             |   |    |                                 |   |   |                                   |   |   |              |   |   |   |   |
| Balance - January 1, 2008    |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (6,757                                 | )      |   |              | (1,349 | )      |   |   | 143,796 |   |   |   | 400,936 |   |
| Total comprehensive income   |   |          | -      |   |             |   | -       |                                 |   |   | (52,096                                | )      |   |              | 2,522  |   |   |   | 89,627 |   |   |   | 40,053 |   |
| Balance - December 31, 2008  |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (58,853                                | )      |   |              | 1,173  |   |   |   | 233,423 |   |   |   | 440,989 |   |

----

|                                                                                    |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Accumulated other comprehensive income |   |   | Retained earnings |   |    | Total  |   |
|-----------------------------------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|-------------------|--------|---------|--------|--------|
|                                                                                    |   |          |   |
| Year ended December 31, 2007                                                            |   |          |   |   |             |   |    |                                 |   |   |                                   |   |   |              |   |    |   |   |
|                                                                                    |   |          |   |   |             |   |    |                                 |   |   |                                   |   |   |              |   |    |   |   |
| Balance - January 1, 2007                                                               |   |          | 29,638 |   |             |   | 230,153 |                                 |   |   | (14,393                                | )      |   |              | (76    | )       |   |   | 181,443 |   |   |   | 426,765 |   |
| Total comprehensive income                                                              |   |          | -      |   |             |   | -       |                                 |   |   | 7,636                                  |   |   |              | (1,273 | )       |   |   | (30,632 | ) |   |   | (24,269 | ) |
| Movement in capital note revaluation reserve                                            |   |          | -      |   |             |   | -       |                                 |   |   | -                                      |   |   |              | -      |    |   |   | (1,560 | ) |   |   | (1,560 | ) |
| Capitalization of retained earnings From    Approved Enterprise Earnings |   |          | -      |   |             |   | 5,455   |                                 |   |   | -                                      |   |   |              | -      |    |   |   | (5,455 | ) |   |   | - |   |
| Balance - December 31, 2007                                                             |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (6,757                                 | )      |   |              | (1,349 | )  |   |   | 143,796 |   |   |   | 400,936 |   |

----

AND SUBSIDIARIES

|                                                                                                                  |   | Year ended December 31, |     |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                                                  |   | 2 0 0 9                 |     |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
| Cash flows – operating activities                                                                               |   |                    |     |   |   |   |   |   |   |
| Net income (Loss) for the year                                                                                        |   |                    | 151,095  |   |   |   | 89,627 |   |   |   | (30,632 | )  |
| Adjustments to reconcile operating profit to net   cash provided by operating activities  (Appendix A) |   |                    | 90,548   |   |   |   | 12,972 |   |   |   | 121,853 |   |
| Net cash generated by operating activities                                                                            |   |                    | 241,643  |   |   |   | 102,599 |   |   |   | 91,221 |   |
|                                                                                                                  |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash flows – investing activities                                                                               |   |                    |     |   |   |   |   |   |   |   |   |   |
| Acquisition of property plant and equipment                                                                           |   |                    | (42,484  | ) |   |   | (53,334 | ) |   |   | (43,013 | ) |
| Proceeds from disposal of Property plant and equipment                                                                |   |                    | 32       |   |   |   | 4,851 |   |   |   | 124 |   |
| Repayment of capital note by shareholders                                                                             |   |                    | 32,770   |   |   |   | - |   |   |   | - |   |
| Interest received                                                                                                     |   |                    | 1,495    |   |   |   | 1,525 |   |   |   | 720 |   |
| Net cash used in investing activities                                                                                 |   |                    | (8,187   | ) |   |   | (46,958 | ) |   |   | (42,169 | ) |
|                                                                                                                  |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash flows – financing activities                                                                               |   |                    |     |   |   |   |   |   |   |   |   |   |
| Dividend paid                                                                                                         |   |                    | (93,515  | ) |   |   | - |   |   |   | - |   |
| Borrowings received                                                                                                   |   |                    | -        |   |   |   | 82,947 |   |   |   | - |   |
| Borrowing paid                                                                                                        |   |                    | (23,904  | ) |   |   | - |   |   |   | - |   |
| Short-term bank credit                                                                                                |   |                    | (28,139  | ) |   |   | (124,286 | ) |   |   | (7,368 | ) |
| Interest paid                                                                                                         |   |                    | (3,381   | ) |   |   | (8,353 | ) |   |   | (26,470 | ) |
| Net cash used in financing activities                                                                                 |   |                    | (148,939 | ) |   |   | (49,692 | ) |   |   | (33,838 | ) |
|                                                                                                                  |   |                    |     |   |   |   |   |   |   |   |   |   |
| Net increase in cash and cash equivalents                                                                             |   |                    | 84,517   |   |   |   | 5,949 |   |   |   | 15,214 |   |
| Cash and cash equivalents – beginning of year                                                                   |   |                    | 23,219   |   |   |   | 23,082 |   |   |   | 7,190 |   |
| Effects of exchange rate changes on the  balance of cash held in foreign currencies                         |   |                    | (740     | ) |   |   | (5,812 | ) |   |   | 678 |   |
| Cash and cash equivalents - end of year                                                                               |   |                    | 106,996  |   |   |   | 23,219 |   |   |   | 23,082 |   |

----

|                                                                                                                      |   | Year ended December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                      |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
| A.      Adjustments to reconcile operatingprofit tonet cash providedby operating activities |   |                    |    |   |   |   |   |   |   |
|  Finance expenses adjustments to profit                                                                              |   |                    | 4,426   |   |   |   | 6,828 |   |   |   | 25,750 |   |
|  Taxes on income recognized in profit and loss                                                                       |   |                    | 44,226  |   |   |   | 47,473 |   |   |   | 64,545 |   |
|  Depreciation and amortization                                                                                       |   |                    | 29,213  |   |   |   | 24,367 |   |   |   | 27,871 |   |
|  Capital loss on disposal of property,  plant and equipment                                           |   |                    | 948     |   |   |   | 2,878 |   |   |   | 658 |   |
|  Effect of exchange rate differences, net                                                                            |   |                    | -       |   |   |   | - |   |   |   | (1,110 | ) |
|  Effect of discounting capital note to shareholder                                                                   |   |                    | -       |   |   |   | (1,560 | ) |   |   | (1,560 | ) |
|                                                                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
|  Changes in assets and liabilities:                                                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |
|  Decrease (Increase) in trade receivables                                                                            |   |                    | (19,566 | ) |   |   | 5,465 |   |   |   | 25,381 |   |
|  Decrease (Increase) in other current assets                                                                         |   |                    | 597     |   |   |   | 3,872 |   |   |   | (516 | ) |
|  Decrease (Increase)  in inventories                                                                       |   |                    | 54,144  |   |   |   | (66,659 | ) |   |   | (7,004 | ) |
|  Increase in trade payables                                                                                          |   |                    | 11,927  |   |   |   | 18,407 |   |   |   | 36,894 |   |
|  Net change in balances with related parties                                                                         |   |                    | (12,911 | ) |   |   | 1,339 |   |   |   | (5,878 | ) |
|  Increase (Decrease)  in other payables and accrued expenses                                               |   |                    | 12,303  |   |   |   | (3,195 | ) |   |   | 9,147 |   |
|  Effect of exchange rate differences on dividend payables                                                            |   |                    | (2,540  | ) |   |   | - |   |   |   | - |   |
|  Decrease in other long term asset                                                                                   |   |                    | (5,947  | ) |   |   | (9,163 | ) |   |   | (14,177 | ) |
|  Change in employee benefit obligations, net                                                                         |   |                    | 1,089   |   |   |   | 5,414 |   |   |   | 4,822 |   |
|                                                                                                                      |   |                    | 117,909 |   |   |   | 41,856 |   |   |   | 164,823 |   |
| Income taxes received                                                                                                     |   |                    | 10,880  |   |   |   | 7,065 |   |   |   | 6,030 |   |
| Income taxes paid                                                                                                         |   |                    | (38,241 | ) |   |   | (35,949 | ) |   |   | (49,000 | ) |
|                                                                                                                      |   |                    | 90,548  |   |   |   | 12,972 |   |   |   | 121,853 |   |

----

NOTES TO THE FINANCIAL 

|   | A. | Description Of Business Hogla Kimberly Ltd. (“the Company”) and its Subsidiaries are engaged principally in the production and marketing of paper and hygienic products. The Company’s results of operations are affected by transactions with shareholders and affiliated companies. The Company is owned by Kimberly Clark Corp. (“KC” or the “Parent Company”) (50.1%) Hadera Paper Ltd. (49.9%). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Definitions: |
|--------|----|--------------|

| The Company             |  -       | Hogla-Kimberly Ltd                                                                                                                                                      |
|-------------------------|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Group               |  -  | the Company and its Subsidiaries                                                                                                                                        |
| Subsidiaries            |  -  | companies in which the Company control, (as defined by IAS 27) directly or indirectly, and whose financial statements are fully consolidated with those of the Company. |
| Related Parties         |  -  | as defined by IAS 24.                                                                                                                                                   |
| Interested Parties      |  -       | as defined in the Israeli Securities Regulations (Annual Financial Statements), 2010.                                                                                   |
| Controlling Shareholder |  -  | as defined in the 1968 Israeli Securities law and Regulations.                                                                                                          |
| NIS                     |  -  | New Israeli Shekel.                                                                                                                                                     |
| CPI                     |  -  | the Israeli consumer price index.                                                                                                                                       |
| Dollar                  |  -  | the U.S. dollar.                                                                                                                                                        |
| YTL                     |  -  | the Turkish New Lira.                                                                                                                                                   |

|   | A. | Applying International Accounting Standards (IFRS) Statement of compliance The consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) for all reporting periods presented. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | B. | Basis of preparation Until December 31, 2003, Israel was considered a country in which hyper-inflation conditions exist. Therefore, non-monetary balances in the balance sheet were presented on the historical nominal amount and were adjusted to changes in the exchange rate of the U.S. dollar. As of December 31, 2003 when the economy ceases to be hyper-inflationary and the Company no longer adjusted its financial statements to the U.S. dollar, the adjusted amounts as of this date were used as the historical costs. The financial statements were edited on the basis of the historical cost, except for: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Assets and liabilities measured by fair value and derivative financial instruments. |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Inventories are stated at the lower of cost and net realizable value. |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Liabilities to employees as described in note 2R. |
|--------|--------|---------------------------------------------------|

|   | C. | Foreign currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the New Israeli Shekel ("NIS"), which is the functional currency of the Company and the presentation currency for the consolidated financial statements.In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.Exchange differences are recognised in profit or loss in the period in which they occur except for: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Exchange differences on transactions entered into in order to hedge certain foreign currency risks.  |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | Ÿ | Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognized in the foreign currency translation reserve and recognized in profit or loss on disposal of the net investment. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Foreign currencies (Cont.) For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in NIS using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Cash and Cash Equivalents Cash and cash equivalents include bank deposits, available for immediate withdrawal, as well as unrestricted short-term deposits with maturities of less than three months from the date of deposit. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.  |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |
|--------|

|   | G. | Property, plant and equipment Property, plant and equipments are tangible items, which are held for use in the manufacture or supply of goods or services, or leased to others, which are predicted to be used for more than one period. The Company presents its property, plant and equipments items according to the cost model. Under the cost method - a property, plant and equipment are presented at the balance sheet at cost (net of any investment grants), less any accumulated depreciation and any accumulated impairment losses. The cost includes the cost of the asset's acquisition as well as costs that can be 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.Depreciation is calculated using the straight-line method at rates considered adequate to depreciate the assets over their estimated useful lives. Amortization of leasehold improvements is computed over the shorter of the term of the lease, including any option period, where the Company intends to exercise such option, or their useful life. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The annual depreciation and amortization rates are: |   | %      |   |
|-----------------------------------------------------|--------|--------|--------|
|                                                |   |   |   |
| Buildings                                           |   |   | 2-4    |   |
| Leasehold improvements                              |   |   | 10-25  |   |
| Machinery and equipment                             |   |   | 5-10   |   |
| Motor vehicles                                      |   |   | 15-20  |   |
| Office furniture and equipment                      |   |   | 6-33   |   |

|   | H. | Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | H. | Impairment of tangible and intangible assets excluding goodwill (cont.) Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Inventories Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.Inventories are stated at the lower of cost and net releasable value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production over heads and other cost that are incurred, in bringing the inventories to their present location and condition.Net releasable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.Cost determined as follows:                                     Manufactured finished products                               Based on standard cost method Purchased finished goods raw, auxiliary materials and other                    Based on moving-average basis. Inventories that are purchased on differed settlement terms, which contains a financing element, are stated in purchase price for normal credit terms. The difference between the purchase price for normal credit terms and the amount paid is recognized as interest expense over the period of the financing. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | Financial assets |
|--------|----|------------------|

|   | (1) | General  Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.             Financial assets are classified into Loans and receivables |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | J. | Financial assets (Cont.) |
|--------|----|--------------------------|

|   | (2) | Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Impairment of financial assets Financial assets, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For all other financial assets, objective evidence of impairment could include •   Significant financial difficulty of the issuer or counterparty; or•   Default or delinquency in interest or principal payments; or•   It becoming probable that the borrower will enter bankruptcy or financial re-organization. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | K. | Other financial liabilities |
|--------|----|-----------------------------|

|   | L. | Provisions |
|--------|----|------------|

|   | M. | Derivative financial instruments (1)       General |
|--------|----|--------------------------------------------------------------------------------------------|

----

|   | M. | Derivative financial instruments (Cont.) |
|--------|----|------------------------------------------|

|   | N. | Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;  |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The amount of revenue can be measured reliably;  |
|--------|--------|-------------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the transaction will flow to the entity; and  |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be measured reliably.  |
|--------|--------|----------------------------------------------------------------------------------------------------|

----

|   | N. | Revenue recognition (Cont.) |
|--------|----|-----------------------------|

|   | O. | Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. |
|--------|----|----------------------------------------------------------------------------------------------------|

----

|   | O. | Taxation (Cont.) |
|--------|----|------------------|

|   | P. | prepaid expenses of operating lease Operating lease payments are recognised as an expense on a straight-line basis over the lease term. the Company's lands in Afula which were leased from the Israel Land Administration, shall be presented in the Company's balance sheet as prepaid expenses for operating lease in respect of lease, and amortized over the remaining period of the lease. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Q. | Employee benefits  |
|--------|----|-------------------------|

|   | (1) | Post-Employment Benefits The Group's post-employment benefits include: benefits to retirees and liabilities for severance benefits. The Group's post-employment benefits are classified as either defined contribution plans or definedbenefit plans. Most of the Group's employees are covered by Article 14 to the Severance Law and therefore the Group's companies makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required.Expenses in respect of a Defined Benefit Plan are carried to the income statement in accordance with the Projected Unit Credit Method, while using actuarial estimates that are performed at each balance sheet date. The current value of the Group's obligation in respect of the defined benefit plan is determined by discounting the future projected cash flows from the plan by the market yields on government bonds, denominated in the currency in which the benefits in respect of the plan will be paid, and whose redemption periods are approximately identical to the projected settlement dates of the plan. Actuarial profits and losses are carried to the income statements on the date they were incurred. The Past Service Cost is immediately recognized in the Group's income statement to the extent the benefit has vested. A past service cost which has not yet vested is amortized on a straight-line basis over the average vesting period until the benefit becomes vested. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Q. | Employee benefits (Cont.)  |
|--------|----|---------------------------------|

|   | (1) | Post-Employment Benefits (Cont.) The Group's liability in respect of the Defined Benefit Plan which is presented in the Group's balance sheet, includes the current value of the obligation in respect of the defined benefit, with the addition (net of) actuarial past service cost that was not yet recognized. A net plan, which is created from said calculation, is limited to the amount of the actuarial.losses and past service cost that were not yet recognized with the addition of the current value of available economic benefits in the shape of returns from the plan or in the shape of reduction in future contributions to the plan. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Other long term employee benefits Other long term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | R.  | Exchange Rates and Linkage Basis Following are the changes in the representative exchange rates of the U.S. dollar vis-a-vis the NIS and the Turkish Lira and in the Israeli Consumer Price Index (“CPI”): |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     As of:  |   | Turkish Lira exchange rate vis-a-vis the U.S. dollar(TL’000 per $1) |   |   | Representative exchange rate of the dollar(NIS per $1) |   |   | CPI“in respect of”(in points) |   |
|---------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------|--------|
|                            |   |                                                                      |   |   |                                                   |   |   |                                      |   |
| December 31, 2009               |   |                                                                      | 1,515  |   |                                                   |   | 3.775  |                                      |   |   | 114.55 |   |
| December 31, 2008               |   |                                                                      | 1,521  |   |                                                   |   | 3.802  |                                      |   |   | 110.55 |   |
| December 31, 2007               |   |                                                                      | 1,176  |   |                                                   |   | 3.846  |                                      |   |   | 106.40 |   |
|                            |   |                                                                      |   |   |                                                   |   |   |                                      |   |   |   |   |
| Increase (decrease) during the: |   | %                                                                         |   |   | %                                                      |   |   | %                                         |   |
| Year ended December 31, 2009    |   |                                                                      | (0.4   | )      |                                                   |   | (0.71  | )                                         |   |   | 3.7 |   |
| Year ended December 31, 2008    |   |                                                                      | 29.38  |   |                                                   |   | (1.14  | )                                         |   |   | 3.9 |   |
| Year ended December 31, 2007    |   |                                                                      | (16.95 | )      |                                                   |   | (8.97  | )                                         |   |   | 3.8 |   |

----

|   | (1) | Standards and Interpretations which are effective and have been applied in these financial statements Three Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period, these are: |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | IAS 1 (revised 2007) Presentation of Financial Statements The revised Standard has introduced a number of terminology changes (including revised titles for the condensed financial statements) and has resulted in a number of changes in presentation and disclosure. According to the requirements of the standard the company chose to present statement of comprehensive income in separate from the income statement.However, the revised Standard has had no impact on the reported results of operations and the financial position of the Group. Amendment to IFRS 7 "Financial Instruments Disclosure" The amendments require enhanced disclosures about fair value measurements and liquidity risk, by establishing a three level hierarchy for making fair value measurements. Entities are required to apply the amendments for annual periods beginning on or after January 1, 2009, with earlier application permitted.The management of the Group estimated that the implementation of the amendment does not have any influence on the financial statements of the Group.Amendment to IAS 19 "employee benefits" The definitions of short-term and other long-term employee benefits, as Defined in IAS 19 "Employee Benefits" were amended as part of the May 2009 annual improvements issued by the IASB.According to the amendment, the unused compensated absences should be classified as a short-term benefit in accordance with IAS 19 and will be presented as a current liability in the statement of financial position.Effective from 1 January 2009, the company measures the expected cost of unused, accumulated compensated absences as the amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period.As a result of the amendment NIS 9,433 thousand were reclassified from employee benefit obligations in non-current liabilities to employee benefit obligations in current liabilities as of December 31, 2008. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | S.    | Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective Amendment IAS 36 "Impairment of Assets" The amendment determines that allocation of goodwill acquired in a business combination should be to cash generating unit which is not larger tan an operating segment in accordance with IFRS 8 "Operating Segments". The amendment is effective commencing January 1, 2010. The Company estimates that the financial statements will not be effected by the amendment Amendment to IAS 17 "Leases" The amendment determines that land and building leased will be classified in accordance to general classification instructions to each component, therefore land leases from the Israeli land administration could be classified as finance lease. The amendment is effective commencing January 1, 2010, early adoption is permitted. At this stage management is examining the effect of this amendment on the group's financial statements. IFRS 9 IFRS 9 Financial Instruments introduces a new classification and measurement regime for financial assets within its scope. In summary, IFRS 9 proposes that: |
|--------|----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments meeting both a "business model" test and a "cash flow characteristics" test are measured at amortized cost (the use of fair value id optional in some limited circumstances) |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments in equity instruments can be designated as "fair value" through other comprehensive income with only dividends being recognized in profit or loss. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All other instruments (including all derivatives) are measured at fair value with changes recognized in the profit or loss. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | The concept of "embedded derivatives" does not apply to financial assets within the scope of the standard and the entire instrument must be classified and measured in accordance with the above guidelines. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Unquoted equity instruments can no longer be measured at cost less impairment (must be at fair value) |
|--------|--------|-------------------------------------------------------------------------------------------------------|

----

|   | S. (2)   | Adoption of new and revised Standards and interpretations (Cont.) Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (cont.) Amendment to IFRS 2 "Share-based Payment" The amendments clarify the accounting for group Cash Cash-settled Share-based payment transactions. The amendments to IFRS 2 also incorporate guidance previously included in IFRIC 8 scope of IFRS 2 and IFRIC 11 IFRS 2 Group and Treasury share transactions. The amendments are effective for annual reporting periods commencing January 1, 2010. IAS 27 (as revised in 2008) Consolidated and Separate Statements IAS 27(2008) has not been adopted in advance of its effective date (annual periods beginning on or after 1 July 2009). The revisions to IAS 27 principally affect the accounting for transactions or events that result in a change in the Group's interests in its subsidiaries. The adoption of the revised Standard is not predicted to have an affect on the accounting of the Group.IFRS 3 (as revised In 2008) Business Combinations IFRS 3(2008) has not been adopted in the current year in advance of its effective date (business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July, 2009. In accordance with the relevant transitional provisions, IFRS 3(2008) need to be applied prospectively to business for which the acquisitions date is on or after 1 January 2009. The adoption of IFRS 3(2008) Business Combinations is not predicted to have a material affect on the group's accounting. |
|--------|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | General In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Critical judgments in applying accounting policies The following are the critical judgments, apart from those involving estimations (see below), that the management have made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognized in financial statements.Revenue recognitionIn making their judgment, the management considered the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group had transferred to the buyer the significant risks and rewards of ownership of the goods. Following the detailed quantification of the Group’s liability in respect of rectification work, and the agreed limitation on the customer’s ability to require further work or to require replacement of the goods, the management is satisfied that the significant risks and rewards have been transferred and that recognition of the revenue in the current year is appropriate, in conjunction with the recognition of an appropriate provision for the rectification costs.Impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was NIS 18.6 million. Useful lives of property, plant and equipmentAs described at 2G above, the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.Employee retirement benefits The present value of the employee retirement benefits is based on an actuarial valuation using many assumptions inter alia the capitalization rate. Changes in the assumptions may influence the book value of the liabilities for retirement benefits.  The Company determines the capitalization rate once a year based on the basis of the capitalization rate of government bonds. Other key assumptions are based on the current prevailing terms in the market and the past experience of the Company (see also note 11). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                      |   |  As of December 31, |    |
|---------------------------|--------|--------------------------|---------|
|                      |   | 2009                     |    |   | 2008 |   |   | 2007 |   |
|                      |   | NIS in thousands         |    |
| Cash in banks             |   |                     | 1,788   |   |   |   | 1,750 |   |   |   | 7,510 |   |
| Short term bank deposits  |   |                     | 105,208 |   |   |   | 21,469 |   |   |   | 15,572 |   |
| Cash and cash equivalents |   |                     | 106,996 |   |   |   | 23,219 |   |   |   | 23,082 |   |

|                                   |                               |   | As of December 31, |    |
|----------------------------------------|------------------------------------|--------|--------------------|---------|
|                                   |                               |   | 2009               |    |   | 2008 |   |   | 2007 |   |
|                                   |                               |   | NIS in thousands   |    |
|                                   |                               |   |               |    |   |   |   |   |   |   |
| Domestic      | -   Open accounts        |   |               | 179,902 |   |   |   | 178,421 |   |   |   | 172,982 |   |
|                                   | -   Checks receivable    |   |               | 38,957  |   |   |   | 36,444 |   |   |   | 33,994 |   |
|                                   | -   Related parties |   |               | 940     |   |   |   | 948 |   |   |   | 897 |   |
|                                   |                               |   |               | 219,799 |   |   |   | 215,813 |   |   |   | 207,873 |   |
|                                   |                               |   |               |    |   |   |   |   |   |   |   |   |   |
| Foreign                                | -   Open accounts        |   |               | 38,470  |   |   |   | 27,235 |   |   |   | 40,596 |   |
|                                   | -   Related parties |   |               | 34,742  |   |   |   | 29,335 |   |   |   | 21,781 |   |
|                                   |                               |   |               | 73,212  |   |   |   | 56,570 |   |   |   | 62,377 |   |
|                                   |                               |   |               | 293,011 |   |   |   | 272,383 |   |   |   | 270,250 |   |
| Less - allowance for doubtful accounts |                               |   | 3,331              |    |   |   | 7,465 |   |   |   | 6,371 |   |
|                                   |                               |   |               | 289,680 |   |   |   | 264,918 |   |   |   | 263,879 |   |

----

|   | The average credit period on sales of goods is 60 days. For each customer, where possible, the Company checks its credit rating with an external credit rating companies to assess the potential customer’s credit quality and help in defining its credit limit. Credit limit for each customer is determined and approved according to the Company's policy taking into account its rating and collaterals.Of the trade receivables balance at the end of the year, 49.4 million NIS (2008: 40 million) is due from Company A, and 36 million Nis (2008: 29.8 million) is due from customer B which are the Group’s largest customers .There are no other customers who represent more than 10% of the total balance of trade receivables.Hogla Kimberly exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 24.Included in the Group's trade receivable balance, are debtors with a carrying amount of NIS 8,830 thousands which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group is insured for NIS 164 million of these balances. Ageing of past due but not impaired |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|               |   | As of December 31, 2009 |   |
|--------------------|--------|------------------------------|--------|
|               |   |                         |   |
| 30-90 days         |   |                         | 7,291  |   |
| More then 120 days |   |                         | 1,539  |   |
|               |   |                         | 8,830  |   |

|   | Movement in provision for doubtful debts during the year  |
|--------|----------------------------------------------------------------|

|                                        |   | As of December 31 |   |
|---------------------------------------------|--------|-------------------|--------|
|                                        |   | 2009              |   |   | 2008 |   |   | 2007 |   |
|                                        |   | NIS in thousands  |   |
| Balance at beginning of the year            |   |              | 7,465  |   |   |   | 6,371 |   |   |   | 26,855 |   |
| Impairment losses recognized on receivables |   |              | 315    |   |   |   | 2,360 |   |   |   | 783 |   |
| Amounts written off as uncollectible        |   |              | (2,943 | ) |   |   | - |   |   |   | (14,519 | ) |
| Amounts recovered during the year           |   |              | (1,506 | ) |   |   | (1,098 | ) |   |   | (7,169 | ) |
| Foreign currency exchange rate differences  |   |              | -      |   |   |   | (168 | ) |   |   | 421 |   |
|                                        |   |              |   |   |   |   |   |   |   |   |   |   |
| Balance at end of the year                  |   |              | 3,331  |   |   |   | 7,465 |   |   |   | 6,371 |   |

----

|                        |   | As of December 31, |    |
|-----------------------------|--------|--------------------|---------|
|                        |   | 2009               |    |   | 2008 |   |   | 2007 |   |
|                        |   | NIS in thousands   |    |
| Raw and auxiliary materials |   |               | 80,660  |   |   |   | 113,667 |   |   |   | 75,071 |   |
| Finished goods              |   |               | 79,012  |   |   |   | 100,083 |   |   |   | 89,886 |   |
| Spare parts and other       |   |               | 20,959  |   |   |   | 21,091 |   |   |   | 19,467 |   |
|                        |   |               | 180,631 |   |   |   | 234,841 |   |   |   | 184,424 |   |

|                                                                         |   | As of December 31, |   |
|------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                         |   | 2009               |   |   | 2008 |   |   | 2007 |   |
|                                                                         |   | NIS in thousands   |   |
| Prepaid expenses                                                             |   |               | 2,976  |   |   |   | 3,299 |   |   |   | 5,262 |   |
| Derivatives assets (*)                                                       |   |               | -      |   |   |   | 2,041 |   |   |   | - |   |
| Loans to employees                                                           |   |               | 473    |   |   |   | 449 |   |   |   | 588 |   |
| Other                                                                        |   |               | 2,308  |   |   |   | 551 |   |   |   | 2,169 |   |
|                                                                         |   |               | 5,757  |   |   |   | 6,340 |   |   |   | 8,019 |   |
| (*)       Derivatives assets see note 23. |   |               |   |   |   |   |   |   |   |   |   |   |

----

|                                     |   |             |   |   |         |   |   | Machinery |   |   |     |   |   | Furniture |   |   |   |   |
|------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
|                                     |   | Buildings        |   |   | Improvements |   |   | Equipment |   |   | Vehicles |   |   | Equipment |   |   | Total  |   |
|                                     |   | NIS in thousands |   |
| Cost:                                    |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
| Balance - January 1, 2009                |   |             | 51,090 |   |         |   | 15,718 |      |   |   | 482,521  |   |   |      | 12,343 |   |   |   | 13,862 |   |   |   | 575,534 |   |
| Changes during 2009:                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                |   |             | 2,412  |   |         |   | 2,431  |      |   |   | 42,428   |   |   |      | -      |   |   |   | 618 |   |   |   | 47,889 |   |
| Dispositions                             |   |             | (130   | )      |         |   | -      |      |   |   | (8,984   | )      |   |      | -      |   |   |   | (18 | ) |   |   | (9,132 | ) |
| Foreign currency translation adjustments |   |             | (105   | )      |         |   | 1      |      |   |   | (409     | )      |   |      | (5     | )      |   |   | (22 | ) |   |   | (540 | ) |
| Balance - December 31, 2009              |   |             | 53,267 |   |         |   | 18,150 |      |   |   | 515,556  |   |   |      | 12,338 |   |   |   | 14,440 |   |   |   | 613,751 |   |
|                                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation:                |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2009                |   |             | 20,208 |   |         |   | 8,241  |      |   |   | 209,087  |   |   |      | 10,663 |   |   |   | 10,161 |   |   |   | 258,360 |   |
| Changes during 2009:                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                |   |             | 1,268  |   |         |   | 1,293  |      |   |   | 24,732   |   |   |      | 567    |   |   |   | 1,218 |   |   |   | 29,078 |   |
| Dispositions                             |   |             | (130   | )      |         |   | -      |      |   |   | (8,004   | )      |   |      | -      |   |   |   | (18 | ) |   |   | (8,152 | ) |
| Foreign currency translation adjustments |   |             | (23    | )      |         |   | 4      |      |   |   | (108     | )      |   |      | (5     | )      |   |   | (7 | ) |   |   | (139 | ) |
| Balance - December 31, 2009              |   |             | 21,323 |   |         |   | 9,538  |      |   |   | 225,707  |   |   |      | 11,225 |   |   |   | 11,354 |   |   |   | 279,147 |   |
| Net book value:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                        |   |             | 31,944 |   |         |   | 8,612  |      |   |   | 289,849  |   |   |      | 1,113  |   |   |   | 3,086 |   |   |   | 334,604 |   |

|                                                |   |             |   |   |         |   |   | Machinery |   |   |     |   |   | Furniture |   |   |   |   |
|-----------------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
|                                                |   | Buildings        |   |   | Improvements |   |   | Equipment |   |   | Vehicles |   |   | Equipment |   |   | Total  |   |
|                                                |   | NIS in thousands |   |
| Cost:                                               |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
| Balance - January 1, 2008                           |   |             | 56,589 |   |         |   | 13,558 |      |   |   | 488,301  |   |   |      | 14,510 |   |   |   | 18,481 |   |   |   | 591,439 |   |
| Changes during 2008:                                |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                           |   |             | 3,260  |   |         |   | 3,083  |      |   |   | 47,118   |   |   |      | 341    |   |   |   | 1,125 |   |   |   | 54,927 |   |
| Dispositions                                        |   |             | (490   | )      |         |   | (607   | )         |   |   | (39,673  | )      |   |      | (2,231 | )      |   |   | (4,492 | ) |   |   | (47,493 | ) |
| Foreign currency  translation adjustments |   |             | (8,269 | )      |         |   | (316   | )         |   |   | (13,225  | )      |   |      | (277   | )      |   |   | (1,252 | ) |   |   | (23,339 | ) |
| Balance - December 31, 2008                         |   |             | 51,090 |   |         |   | 15,718 |      |   |   | 482,521  |   |   |      | 12,343 |   |   |   | 13,862 |   |   |   | 575,534 |   |
|                                                |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation:                           |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2008                           |   |             | 21,521 |   |         |   | 7,247  |      |   |   | 225,389  |   |   |      | 12,647 |   |   |   | 14,267 |   |   |   | 281,071 |   |
| Changes during 2008:                                |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                           |   |             | 585    |   |         |   | 1,182  |      |   |   | 21,073   |   |   |      | 519    |   |   |   | 1,008 |   |   |   | 24,367 |   |
| Dispositions                                        |   |             | (465   | )      |         |   | (23    | )         |   |   | (32,578  | )      |   |      | (2,225 | )      |   |   | (4,473 | ) |   |   | (39,764 | ) |
| Foreign currency  translation adjustments |   |             | (1,433 | )      |         |   | (165   | )         |   |   | (4,797   | )      |   |      | (278   | )      |   |   | (641 | ) |   |   | (7,314 | ) |
| Balance - December 31, 2008                         |   |             | 20,208 |   |         |   | 8,241  |      |   |   | 209,087  |   |   |      | 10,663 |   |   |   | 10,161 |   |   |   | 258,360 |   |
| Net book value:                                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| December 31, 2008                                   |   |             | 30,882 |   |         |   | 7,477  |      |   |   | 273,434  |   |   |      | 1,680  |   |   |   | 3,701 |   |   |   | 317,174 |   |

----

|   | A. | Composition and movement (Cont.) |
|--------|----|----------------------------------|

|                                                |   |             |   |   |         |   |   | Machinery |   |   |     |   |   | Furniture |   |   |   |   |
|-----------------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
|                                                |   | Buildings        |   |   | Improvements |   |   | Equipment |   |   | Vehicles |   |   | Equipment |   |   | Total  |   |
|                                                |   | NIS in thousands |   |
| Cost:                                               |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
| Balance - January 1, 2007                           |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
|  Changes during 2007:                          |   |             | 52,531 |   |         |   | 12,066 |      |   |   | 453,748  |   |   |      | 13,101 |   |   |   | 16,493 |   |   |   | 547,939 |   |
|  Additions                                     |   |             | 1,158  |   |         |   | 1,406  |      |   |   | 34,007   |   |   |      | 1,424  |   |   |   | 1,580 |   |   |   | 39,575 |   |
|  Dispositions                                  |   |             | -      |   |         |   | -      |      |   |   | (2,438   | )      |   |      | -      |   |   |   | - |   |   |   | (2,438 | ) |
|  Foreign currency translation adjustments      |   |             | 2,900  |   |         |   | 86     |      |   |   | 2,984    |   |   |      | (15    | )      |   |   | 408 |   |   |   | 6,363 |   |
|  Balance - December 31, 2007                   |   |             | 56,589 |   |         |   | 13,558 |      |   |   | 488,301  |   |   |      | 14,510 |   |   |   | 18,481 |   |   |   | 591,439 |   |
|                                                |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
|  Accumulated depreciation:                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
|  Balance - January 1, 2007                     |   |             | 19,890 |   |         |   | 6,193  |      |   |   | 202,421  |   |   |      | 12,065 |   |   |   | 12,561 |   |   |   | 253,130 |   |
|  Changes during 2007:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
|  Additions                                     |   |             | 1,157  |   |         |   | 1,034  |      |   |   | 23,435   |   |   |      | 597    |   |   |   | 1,519 |   |   |   | 27,742 |   |
|  Dispositions                                  |   |             | -      |   |         |   | -      |      |   |   | (1,654   | )      |   |      | -      |   |   |   | - |   |   |   | (1,654 | ) |
|  Foreign currency translation adjustments |   |             | 474    |   |         |   | 20     |      |   |   | 1,187    |   |   |      | (15    | )      |   |   | 187 |   |   |   | 1,853 |   |
|  Balance - December 31, 2007                   |   |             | 21,521 |   |         |   | 7,247  |      |   |   | 225,389  |   |   |      | 12,647 |   |   |   | 14,267 |   |   |   | 281,071 |   |
| Net book value:                                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
|   December 31, 2007                       |   |             | 35,068 |   |         |   | 6,311  |      |   |   | 262,912  |   |   |      | 1,863  |   |   |   | 4,214 |   |   |   | 310,368 |   |

|   | B. | Prepaid expenses for operating lease Hogla-Kimberly leased land in Afula from the Israel Land Administration on January 1988 at the amount of NIS 4,600 thousand, the end of the leasing period is September 2023. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                      |   | As of December 31,     |   |
|-----------------------------------------------------------|--------|------------------------|--------|
|                                                      |   | 2 0 0 9                |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                      |   | NIS  in thousands |   |
|                                                      |   |                   |   |   |   |   |   |   |   |
| Prepaid expenses for operating leases as of January, 1988 |   |                   | 4,600  |   |   |   | 4,600 |   |   |   | 4,600 |   |
| Accumulated expenses recognized in profit and loss        |   |                   | (2,835 | ) |   |   | (2,706 | ) |   |   | (2,578 | ) |
|                                                      |   |                   | 1,765  |   |   |   | 1,894 |   |   |   | 2,022 |   |

|                    |   | As of December 31,    |   |
|-------------------------|--------|-----------------------|--------|
|                    |   | 2 0 0 9               |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                    |   | NIS in thousands |   |
|  Cost              |   |                  | 26,009 |   |   |   | 26,009 |   |   |   | 26,009 |   |
| Translation adjustments |   |                  | (7,359 | ) |   |   | (7,301 | ) |   |   | (1,514 | ) |
|                    |   |                  | 18,650 |   |   |   | 18,708 |   |   |   | 24,495 |   |

----

|   | B. | Annual impairment test The goodwill is allocated to KCTR's activity, which is the cash generating unit for the purpose of calculating the recoverable amount. The recoverable amount value is based on the fair value of investment in KCTR less cost to sell, calculated by six (*) years DCF forecast approved by the company's management and based on the following assumptions, determined by KC experience in similar markets. : 1.   Long term growth ratio of 0%.2.   Weighted cost of capital of 13%. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Investment in Kimberli Clark Tuketim Mallari Sanayi Ve Ticaret A.Ş. ("KCTR") As of December 31, 2009 and 2008, the Group’s investment in KCTR (a Turkish Subsidiary) amounted to NIS 250,813 and NIS 208, 313 thousand respectively (including goodwill – see above). In recent years KCTR incurred significant losses from operations.The company examined the investment in KCTR for impairment in accordance to its revocable amount. Based on the said examination, the company's business forecast and estimates made, no impairment is required. (see note 10 B above)During years 2005 - 2009, the Company provided KCTR NIS 583,758 thousand for the continuation of its on going operations. In addition, the Company has committed to financially support KCTR in 2009.  Such finance support may be granted to KCTR either by cash injections, long-term loans, or guaranties if required so by banks according to the financing needs of KCTR. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Consolidated Subsidiaries The consolidated financial statements as of December 31, 2009, include the financial statements of the following Subsidiaries: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                 |   | Ownership and control as ofDecember 31,2009 |   |
|--------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                 |   | %                                           |   |
|                                                                                 |   |                                        |   |
| Hogla-Kimberly Marketing Ltd. (“Marketing”)                              |   |                                        | 100    |   |
|                                                                                 |   |                                        |   |   |
| Kimberly Clark Tuketim Mallari Sanayi Ve Ticaret A.Ş. (“KCTR”) |   |                                        | 100    |   |
| Mollet Marketing Ltd. (“Mollet”)                                         |   |                                        | 100    |   |
| H-K Overseas (Holland) B.V. (*)                                                      |   |                                        | 100    |   |
| Hogla-Kimberly Holding Anonim Sirketi (*)                                            |   |                                        | 100    |   |
|      (*) The company is inactive.                           |   |                                        |   |   |

----

|   | E. | Capital Injections  |
|--------|----|--------------------------|

|   | 1.    2. | In December, 2007 the capital notes to KCTR were converted to capital injections at the amount of NIS 44,609 thousands In December 2007, Hogla Kimbely made a share premium contribution to it's subsidiary, H-K Overseas (Holland) B.V, in the amount of NIS 18,045 thousands. |
|--------|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | As of December 31,     |   |
|----------------------------------------------------|--------|------------------------|--------|
|                                               |   | 2 0 0 9                |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                               |   | NIS  in thousands |   |
| Post Employment Benefits:                          |   |                   |   |   |   |   |   |   |   |
| Severance pay benefits:                            |   |                   |   |   |   |   |   |   |   |
| Severance pay liability                            |   |                   | 4,176  |   |   |   | 3,341 |   |   |   | 1,142 |   |
| Less – Amounts deposited with a general fund |   |                   | (2,160 | ) |   |   | (1,745 | ) |   |   | - |   |
| Severance pay net                                  |   |                   | 2,016  |   |   |   | 1,596 |   |   |   | 1,142 |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Liability for early retirement                     |   |                   | 4,237  |   |   |   | 5,009 |   |   |   | 4,394 |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Benefits to retirees                               |   |                   | 1,910  |   |   |   | 1,995 |   |   |   | 1,899 |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Other short term employee benefits:                |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Liability for vacation pay                         |   |                   | 11,690 |   |   |   | 10,178 |   |   |   | 9,404 |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Stated in the balance sheet as follows:            |   |                   |   |   |   |   |   |   |   |   |   |   |
| Non current Assets                                 |   |                   | 517    |   |   |   | 343 |   |   |   | - |   |
| Short-term Liabilities                             |   |                   | 12,855 |   |   |   | 11,241 |   |   |   | 10,396 |   |
| Long-term Liabilities                              |   |                   | 7,515  |   |   |   | 7,879 |   |   |   | 6,443 |   |

|   | B. | Defined contribution plan Most of the Company and its Israeli subsidiaries employees are covered by Article 14 to the Severance Law and therefore the Company and its Israeli subsidiaries makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required.During the year 2009 a sum of NIS 17,758 thousand was recognized in the income statement due to the defined contribution plan. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Actuarial assumptions The groups defined benefit plans and other long term employee benefits provisions, has been calculated by estimating the present value of the future probable obligation using actuarial valuation methods. The discounted rate is based on yield on government bonds at a fixed interest rate which have an average lifetime equal to that of the gross liability. The actuarial assumptions used in each plan are detailed bellow. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Defined benefit plans The groups defined benefit plans include benefits to retirees and severance pay |
|--------|----|------------------------------------------------------------------------------------------------------------|

|   | 1. | The group's Severance pay liability. Severance pay provisions resulting from the Israeli companies and included in the financial statements of the group are due to increased severance pay which are not covered by deposits made on monthly basis. In respect of this part of the obligation, there is a reserve deposited in the Company's name in a recognized compensation fund. Under the Turkish Labor Law, the Company is required to pay employment termination benefits to each employee who has qualified. Also, employees are required to be paid their retirement pay provisions who retired by gaining right to receive retirement pay provisions according to current 506 numbered Social Insurance Law’s 6 March 1981 dated, 2422 numbered, 25 August 1999  dated and 4447 numbered  with 60th article that has been changed. Some transition provisions related to the pre-retirement service term was excluded from the law since the related law was changed as of 23 May 2002.The principal assumptions used for the Severance pay liability in Israel actuarial valuations were as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                             |   | Valuation at |   |
|----------------------------------|--------|--------------|--------|
|                             |   | 2009         |   |   | 2008 |   |   | 2007 |   |
|                             |   |         |   |   |   |   |   |   |   |
| Discount rate                    |   |         | 5.47   | % |   |   | 6.07 | % |   |   | 3.62 | % |
| Expected rate of inflation       |   |         | 2.64   | % |   |   | 2.13 | % |   |   | 1.9 | % |
| Expected rate of salary increase |   |         | 4.25   | % |   |   | 4.25 | % |   |   | 2.31 | % |

|   |   |  The provisions at the respective balance sheet dates in Turkish subsidiary have been calculated assuming an annual inflation rate of 4.8% and a discount rate of 11%, the anticipated rate of forfeitures is considered. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | Defined benefit plans 1.    The group's Severance pay liability.(Cont.)         The amounts recognized in profit or loss in respect of Severance pay liability are as follows: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | Year ended December 31, |   |
|---------------------------------------------|--------|-------------------------|--------|
|                                        |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                        |   | NIS  in thousands  |   |
|                                        |   |                    |   |   |   |   |   |   |   |
| Current service cost                        |   |                    | 1,257  |   |   |   | 2,724 |   |   |   | 1,762 |   |
| Interest on obligations                     |   |                    | 192    |   |   |   | 135 |   |   |   | 123 |   |
| Actuarial losses recognized during the year |   |                    | 143    |   |   |   | 51 |   |   |   | - |   |
| Benefit paid during the year                |   |                    | (744   | ) |   |   | (440 | ) |   |   | (3,373 | ) |
| Foreign currency translation affect         |   |                    | (13    | ) |   |   | (271 | ) |   |   | 319 |   |
|                                        |   |                    | 835    |   |   |   | 2,199 |   |   |   | (1,169 | ) |

|   |   | The amount included in the balance sheet arising from the entity's obligation in respect of Severance pay liability is as follows: |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | As of December 31,     |   |
|------------------------------------------|--------|------------------------|--------|
|                                     |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                     |   | NIS  in thousands |   |
|                                     |   |                   |   |   |   |   |   |   |   |
| Present value of Severance pay liability |   |                   | 4,176  |   |   |   | 3,341 |   |   |   | 1,142 |   |

|   |   | The amount of Severance pay liability of 4,176 consists of: NIS 2,533 thousands (2008 – NIS 1,939 thousands, 2007 – NIS 1,142 thousands) due to severance pay liability for of the Turkish subsidiary employees according to the Turkish law and NIS 1,643 thousand due to liability for increased severance pay for certain employees according to a collective agreement.Movements in the present value of Severance pay liability in the current period were as follows: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | As of December 31,     |   |
|-------------------------------------|--------|------------------------|--------|
|                                |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                |   | NIS  in thousands |   |
|                                |   |                   |   |   |   |   |   |   |   |
| Opening defined benefit obligation  |   |                   | 3,341  |   |   |   | 1,142 |   |   |   | 2,311 |   |
| Current service cost                |   |                   | 1,257  |   |   |   | 2,724 |   |   |   | 1,762 |   |
| Interest cost                       |   |                   | 192    |   |   |   | 135 |   |   |   | 123 |   |
| Actuarial losses                    |   |                   | 143    |   |   |   | 51 |   |   |   | - |   |
| Benefit paid during the year        |   |                   | (744   | ) |   |   | (440 | ) |   |   | (3,373 | ) |
| Foreign currency translation affect |   |                   | (13    | ) |   |   | (271 | ) |   |   | 319 |   |
| Closing defined benefit obligation  |   |                   | 4,176  |   |   |   | 3,341 |   |   |   | 1,142 |   |

----

|   | D. | Defined benefit plans (cont.) |
|--------|----|-------------------------------|

|   |        2. | Benefits to retirees of holiday vouchers. The financial statements include liability to benefits given to retirees – holiday gifts. Employees who are not temporary are entitled to received holiday vouchers, after retirement, until the end of their life. In cases of death, the remaining spouses are entitled to receive the benefits until the end of their life.The principal assumptions used for the purposes of the actuarial valuations were as follows: |
|--------|-----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                       |   | Valuation at |      |
|----------------------------|--------|--------------|-----------|
|                       |   | 2009         |      |   | 2008 |   |   | 2007 |   |
|                       |   |         |      |   |   |   |   |   |   |
| Discount rate              |   |         | 5.54      | % |   |   | 6.07 | % |   |   | 3.62 | % |
| Expected rate of inflation |   |         | 2.61      | % |   |   | 2.13 | % |   |   | 1.9 | % |
| Expected rate of leaving   |   |         | 2.6%-15.1 | % |   |   | 2.6%-15.1 | % |   |   | 4.5%-11.5 | % |

|   |   | The amounts recognized in profit or loss in respect of these defined benefit plans are as follows: |
|--------|--------|----------------------------------------------------------------------------------------------------|

|                                    |   | Year ended December 31, |   |
|-----------------------------------------|--------|-------------------------|--------|
|                                    |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                    |   | NIS in thousands        |   |
|                                    |   |                    |   |   |   |   |   |   |   |
| Current service cost                    |   |                    | 59     |   |   |   | 48 |   |   |   | - |   |
| Interest on obligations                 |   |                    | 105    |   |   |   | 92 |   |   |   | 92 |   |
| Actuarial losses recognized in the year |   |                    | 68     |   |   |   | 58 |   |   |   | 88 |   |
| Benefit paid during the year            |   |                    | (112   | ) |   |   | (104 | ) |   |   | (80 | ) |
|                                    |   |                    | 120    |   |   |   | 94 |   |   |   | 100 |   |

|   |      | The amount included in the balance sheet arising from the entity's obligation in respect of its benefits to retirees' plans is as follows: |
|--------|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | As of December 31,     |   |
|----------------------------------------------------|--------|------------------------|--------|
|                                               |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                               |   | NIS  in thousands |   |
| Present value of funded defined benefit obligation |   |                   | 1,910  |   |   |   | 1,995 |   |   |   | 1,899 |   |

----

|   | D. | Defined benefit plans (cont.) |
|--------|----|-------------------------------|

|   |   | 2.   Benefits to retirees of holiday vouchers.       Movements in the present value of the defined benefit obligation in the current period were as follows: |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | As of December 31,     |   |
|------------------------------------|--------|------------------------|--------|
|                               |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                               |   | NIS  in thousands |   |
|                               |   |                   |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |                   | 1,995  |   |   |   | 1,899 |   |   |   | 1,799 |   |
| Current service cost               |   |                   | 31     |   |   |   | 48 |   |   |   | - |   |
| Interest cost                      |   |                   | 100    |   |   |   | 94 |   |   |   | 92 |   |
| Actuarial losses                   |   |                   | 59     |   |   |   | 58 |   |   |   | 88 |   |
| Benefits paid                      |   |                   | (275   | ) |   |   | (104 | ) |   |   | (80 | ) |
| Closing defined benefit obligation |   |                   | 1,910  |   |   |   | 1,995 |   |   |   | 1,899 |   |

|   | E. | Other short term employee benefits Other short term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | Other long term employee benefits |
|--------|----|-----------------------------------|

|   | Early retirement The obligation in respect of early retirement includes an obligation for pension for the period starting the date of the early retirement up to reaching the legal retirement age. The amount included in the balance sheet arising from the entity's obligation in respect of early retirement is as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                    |   | As of December 31,     |   |
|---------------------------------------------------------|--------|------------------------|--------|
|                                                    |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                                    |   | NIS  in thousands |   |
| Present value of funded defined benefit obligation |   |                   | 4,237  |   |   |   | 5,009 |   |   |   | 4,394 |   |

----

|   | Early retirement (Cont.) Movements in the present value of early retirement in the current period were as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------|

|                               |   | As of December 31,     |   |
|------------------------------------|--------|------------------------|--------|
|                               |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                               |   | NIS  in thousands |   |
|                               |   |                   |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |                   | 5,009  |   |   |   | 4,394 |   |   |   | - |   |
| Interest cost                      |   |                   | 220    |   |   |   | 233 |   |   |   | - |   |
| Additions                          |   |                   | 402    |   |   |   | 1,383 |   |   |   | 4,645 |   |
| Benefits paid                      |   |                   | (1,394 | ) |   |   | (1,001 | ) |   |   | (251 | ) |
| Closing defined benefit obligation |   |                   | 4,237  |   |   |   | 5,009 |   |   |   | 4,394 |   |

|     Stated in balance sheet |   | As of December 31,     |   |
|--------------------------------------------|--------|------------------------|--------|
|                                       |   | 2009                   |   |   | 2008 |   |   | 2007 |   |
|                                       |   | NIS  in thousands |   |
|                                       |   |                   |   |   |   |   |   |   |   |
| Short term liabilities                     |   |                   | 1,165  |   |   |   | 1,063 |   |   |   | 992 |   |
| Long term liabilities                      |   |                   | 3,072  |   |   |   | 3,946 |   |   |   | 3,402 |   |
|                                       |   |                   | 4,237  |   |   |   | 5,009 |   |   |   | 4394 |   |

|   | This Note provides information about the contractual terms of the interest-bearing loans and borrowings. For more information about the exposure of the Group to interest rate and foreign currency risks, see Note 23 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | December 31, 2009 |   |   | December 31, 2008 |   |    | December 31, 2007 |   |
|------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|---------|-------------------|--------|
|                                           |   | NIS thousands     |   |
| Current liabilities to banks                   |   |              |   |   |              |   |    |              |   |
| Short-term borrowings                          |   |              | 670    |   |              |   | 28,815  |              |   |   | 155,302 |   |
| Current maturities of long term bank loans (*) |   |              | 25,307 |   |              |   | 23,903  |              |   |   | - |   |
|                                           |   |              | 25,977 |   |              |   | 52,718  |              |   |   | 155,302 |   |
| Non-current liabilities to banks and others    |   |              |   |   |              |   |    |              |   |   |   |   |
| Long term bank loans                           |   |              | 33,736 |   |              |   | 59,044  |              |   |   | - |   |
|                                           |   |              | 59,713 |   |              |   | 111,762 |              |   |   | 155,302 |   |

|                  (*)    The loans are not linked and bear interest at a variable rate. The principal of the loan and interest are paid quarterly. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                              |      |   | Nominal interest |      |   | Current LiabilitiesDecember 31,  |   |   | Non-Current liabilitiesDecember 31, |   |
|---------------------------------------------------|-----------|--------|------------------|-----------|--------|---------------------------------------|--------|--------|-------------------------------------|--------|
|                                              |      |   | rate (*)         |      |   | 2009                                  |   |   | 2008                                |   |   | 2007 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|                                              | Currency  |   | %                |      |   | NIS in thousands                 |   |
| Loans and  borrowings  from banks: |      |   |             |      |   |                                  |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowing:                                        |      |   |             |      |   |                                  |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS nominated                                     |  NIS |   |             | 3.8-4.7   |   |                                  |   | -      |                                |   |   | 28,530 |   |   |   | 59,260 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| YTL nominated                                     |  YTL |   |             | 20.09     |   |                                  |   | 670    |                                |   |   | 285 |   |   |   | 96,042 |   |   |   | - |   |   |   |   |   |   |   |   |   |
| Loans:                                            |      |   |             |      |   |                                  |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS nominated                                     | NIS       |   |             | 3.25-2.75 |   |                                  |   | 25,307 |                                |   |   | 23,903 |   |   |   | - |   |   |   | 35,140 |   |   |   | 59,044 |   |   |   | - |   |
|                                              |      |   |             |      |   |                                  |   | 25,977 |                                |   |   | 52,718 |   |   |   | 155,302 |   |   |   | 35,140 |   |   |   | 59,044 |   |   |   | - |   |

|             (*)   As of December 31, 2009 |
|------------------------------------------------------------------------------------------------------------|

|   |  Terms and debt repayment table On January 2008, the Company made an agreement with an Israeli bank for prime linked interest loan in the amount of NIS 100 million which will be repaid during a four years period. As part of the agreement the Company agreed to the following covenants: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | It's shareholder's equity will not be less than NIS 250 million and not less than 25% of the total consolidated assets.  |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Both the Company's shareholder's Kimberly Clark and Hadera Paper separately or together, will not hold less than 51% of the Company's share capital. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | As of December 31, 2009 the Company meets all covenants agreed with banks. |   |
|--------|----------------------------------------------------------------------------|--------|

|                          |   | As of December 31, |   |
|-------------------------------|--------|--------------------|--------|
|                          |   | 2 0 0 9            |   |
|                          |   | NIS in thousands   |   |
| Maturities of long term loans |   |               |   |
| First year - 2010             |   |               | 25,307 |   |
| Second year - 2011            |   |               | 26,795 |   |
| Third year - 2012             |   |               | 6,941  |   |
|                          |   |               | 59,043 |   |

|                                                                 |   | As of December 31, |    |
|----------------------------------------------------------------------|--------|--------------------|---------|
|                                                                 |   | 2 0 0 9            |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                 |   | NIS in thousands   |    |
| In Israeli currency:                                                 |   |               |    |   |   |   |   |   |   |
|     Open accounts                                     |   |               | 143,957 |   |   |   | 124,924 |   |   |   | 124,328 |   |
|     Related parties                                   |   |               | 28,611  |   |   |   | 24,534 |   |   |   | 26,119 |   |
| In foreign currency:                                                 |   |               |    |   |   |   |   |   |   |   |   |   |
|     Open accounts                                     |   |               | 95,164  |   |   |   | 97,172 |   |   |   | 82,877 |   |
|     Related parties                                   |   |               | 28,626  |   |   |   | 40,205 |   |   |   | 28,980 |   |
|                                                                 |   |               | 296,358 |   |   |   | 286,835 |   |   |   | 262,304 |   |
|  Regarding exposure to currency risks are disclosed in note 23. |   |               |    |   |   |   |   |   |   |   |   |   |

|   |   | The Trade payables balance include an amount of NIS 15,454 Thousands (2008: NIS 10,049 thousands, 2007: NIS 8,456 thousands) due to fixed assets purchases. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                 |   | As of December 31, |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | 2 0 0 9            |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                 |   | NIS in thousands   |   |
|                                 |   |               |   |   |   |   |   |   |   |
| Accrued payroll and related expenses |   |               | 36,689 |   |   |   | 33,052 |   |   |   | 28,015 |   |
| Value Added Tax                      |   |               | 7,955  |   |   |   | 2,330 |   |   |   | 577 |   |
| Advances from customers              |   |               | 278    |   |   |   | 435 |   |   |   | 413 |   |
| Derivatives liabilities (*)          |   |               | 119    |   |   |   | - |   |   |   | 2,394 |   |
| Sales Agent fee accrual              |   |               | 6,534  |   |   |   | 3,946 |   |   |   | - |   |
| Other                                |   |               | 6,298  |   |   |   | 4,260 |   |   |   | 5,510 |   |
|                                 |   |               | 57,873 |   |   |   | 44,023 |   |   |   | 36,909 |   |

|   | A. | Commitments  |
|--------|----|-------------------|

|   | (1) (2) | The Group is obligated to pay royalties to a shareholder - see also Note 24B. The Company and its Subsidiaries lease a number of their facilities under operating leases for varying periods with renewal options. The Company does not have an option to purchase the leased assets at the end of the lease period .In addition the company has a vehicles lease agreement for the period between 2008-2014 Future minimum lease  and vehicles leasing rentals as of December 31, 2009 are as follows: |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                         |   | NIS in thousands |    |
|------------------------------|--------|------------------|---------|
|                         |   |             |    |
| 2010                         |   |             | 25,893  |   |
|     2011-2014 |   |             | 80,809  |   |
| 2015 and thereafter          |   |             | 92,238  |   |
|                         |   |             | 198,940 |   |

|   | B. | Guarantees  |
|--------|----|------------------|

|   | (1) (2) | As part of their normal course of business, the Company and its Subsidiaries provided third parties with bank guarantees for contract performance, the balance of which as of December 31, 2009 amounted to NIS 1,047 thousand. A Subsidiary has given letter of guarantees to the local banks for a number of contingent liabilities that have arisen as a result of the Company’s importing transactions. The amount disclosed of NIS 2,140 thousands represents the aggregate amount of such contingent liabilities for which the Company as an importer is liable. |
|--------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 1. | In July 2005, Clubmarket Marketing Chains Ltd. (“Clubmarket”), a customer of the Company and one of the largest retail groups in Israel, applied for the regional court in Tel-Aviv (“Court”) for a staying of procedures by creditors. In December 2005, the Court approved a creditors settlement submitted by the trustees, according to which, amongst other matters, the Company is to receive about 51% of Clubmarket’s debt to the Company. On September 2007 a compromise was made between the trustees and the company, which was approved by the court, that the total approved debt of clubmarket to the company is NIS 23.9 million. Until December 31, 2009, NIS 11 million was received as part of the creditors' settlement. There is not any remaining net balance of Clubmarket's debt as of December 31, 2009, that is in excess of the doubtful accounts provision recorded in the financial statements. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | On July 12, 2007 a lawsuit was filled against KCTR, a Hogla Kimberly subsidiary, by a former distributor, claiming financial loss caused to him. The amount claimed is approximately YTL 832 thousands (NIS 2,080 thousands).KCTR filed a counter claim for it's damage in the amount of approximately YTL 355 thousands ( NIS 888 thousands). Based on the Company’s legal counsels, management estimates that the Company has valid arguments to oppose the lawsuit, and it is probable that its arguments will be accepted. Therefore, no provision was recorded in the financial statements relating to this lawsuit. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On April 2009, a labor- financial lawsuit filled against the Company, by a former employee that was fired at once without advance notice and severance pay, due to firm evidence of stealing from Company's site. The amount claimed is approximately NIS 128 thousands (Approximately US$ 32 thousands) for advance notice, severance pay etc'. Based on the Company’s legal counsels, management estimates that the Company has valid arguments to oppose the lawsuit, and that the Company's chances that its arguments to oppose the lawsuit will be accepted are probable.. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | During 2009, as part of a formal tax inspection of the Turkish Tax Authorities, KCTR's Financial Reports for the years 2004-2008 were examined. On February 16, 2010, KCTR received a tax inspection report, following the aforementioned inspection, according to which KCTR is required to an additional tax payment for two matters audited, as detailed below, on the total amount of 135 millions YTL (approximately 89 millions USD) including interest and penalty. KCTR has provided a provision at its Financial Reports for December 31, 2009, with regards to one of these two matters (Stamp Tax) of 158 thousands YTL (approximately 104 thousands USD), which KCTR consider to be the required estimated cash outflow for the matter. Regarding the second matter, which is the essential part of the tax demand (tax on capital injection from Hogla- Kimberly to KCTR), KCTR, based on its tax consultant opinion, estimates that the likelihood that it will be demanded for the additional tax payment in this matter, is not probable, and therefore it will not provide a provision at its |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |  Financial Reports for December 31, 2009, with regards to the second matter. Based on its tax consultant opinion,  KCTR opposes the Turkish Tax Authorities demands regarding the second matter, and is about to appeal. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  On May 20, 2008 the Company received from the Israeli tax authority compensation in the amount of approximate NIS 4.5 millions. The compensation is due to loss of earnings during a security situation that occurred in July 2006 in northern Israel and caused the Company to partially stop its manufacturing activity in its Naharia plant. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                  |   | Number of Shares (*) |       |
|---------------------------------------|--------|----------------------|------------|
|                                  |   |                 |       |   | Issued and |   |
|                                  |   | Authorized           |       |   | fully paid up |   |
|                                  |   |                 |       |   |   |   |
| Ordinary Shares of NIS 1.00 par value |   |                 | 11,000,000 |   |   |   | 9,113,473 |   |

|   | (*) | As of December 31, 2008 the Company has completed the process of registering 600,000 shares by the registrar of companies. The shares were issued to the shareholders of the Company as part of the merger process. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus share (stock dividend) distributions and, in the event of the liquidation of the Company, in the distribution of assets after satisfaction of liabilities to creditors. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | According to the decision of the Board of Directors which took place on March 1, 2007, the Company approved the capitalization of NIS 5.455 million of the Company's retained earnings that were derived from Approved Enterprise activities of previous years, by transferring the said amount from retained earnings to capital reserve. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | The company issued one preference Share to Hadera Paper Ltd, which gives Hadera Paper the right to receive special dividends according to the decision of the Board from time to time. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                    |   | Year ended December 31, |    |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                    |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                                                                    |   | NIS in thousands        |    |
| A.        Sales of the Turkish subsidiary                       |   |                    | 489,560 |   |   |   | 404,024 |   |   |   | 245,025 |   |
|                                                                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| B.        Sales to major customers                              |   |                    |    |   |   |   |   |   |   |   |   |   |
|             (as percentage from total net sales) |   |                    |    |   |   |   |   |   |   |   |   |   |
|             Customer A                           |   |                    | 14      | % |   |   | 13.2 | % |   |   | 15.4 | % |
|             Customer B                           |   |                    | 9.5     | % |   |   | 10.5 | % |   |   | 11.8 | % |

|                          |   | Year ended December 31, |      |
|-------------------------------|--------|-------------------------|-----------|
|                          |   | 2 0 0 9                 |      |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                          |   | NIS in thousands        |      |
|                          |   |                    |      |   |   |   |   |   |   |
| Material consumed             |   |                    | 597,791   |   |   |   | 564,455 |   |   |   | 485,152 |   |
| Purchases (*)                 |   |                    | 267,842   |   |   |   | 271,688 |   |   |   | 234,720 |   |
| Salaries and related expenses |   |                    | 119,867   |   |   |   | 110,844 |   |   |   | 111,447 |   |
| Manufacturing expenses        |   |                    | 133,098   |   |   |   | 140,991 |   |   |   | 125,402 |   |
| Depreciation                  |   |                    | 27,387    |   |   |   | 21,883 |   |   |   | 24,630 |   |
|                          |   |                    | 1,145,985 |   |   |   | 1,109,861 |   |   |   | 981,351 |   |
| Change in finished            |   |                    |      |   |   |   |   |   |   |   |   |   |
|  goods inventory         |   |                    | 18,964    |   |   |   | (12,294 | ) |   |   | (12,757 | ) |
|                          |   |                    | 1,164,949 |   |   |   | 1,097,567 |   |   |   | 968,594 |   |

|            (*)     The purchases of the group are related principally to commercial operations. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                    |   | Year ended December 31, |    |
|-----------------------------------------|--------|-------------------------|---------|
|                                    |   | 2 0 0 9                 |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                    |   | NIS in thousands        |    |
|                                    |   |                    |    |   |   |   |   |   |   |
| Salaries and related expenses           |   |                    | 80,930  |   |   |   | 81,744 |   |   |   | 78,014 |   |
| Maintenance and transportation expenses |   |                    | 83,132  |   |   |   | 82,676 |   |   |   | 75,025 |   |
| Advertising and sales promotion         |   |                    | 82,936  |   |   |   | 85,589 |   |   |   | 78,634 |   |
| Commissions to distributors             |   |                    | 11,941  |   |   |   | 11,541 |   |   |   | 7,141 |   |
| Royalties                               |   |                    | 31,117  |   |   |   | 29,584 |   |   |   | 29,296 |   |
| Depreciation                            |   |                    | 1,668   |   |   |   | 1,695 |   |   |   | 2,285 |   |
| Other                                   |   |                    | 13,052  |   |   |   | 15,908 |   |   |   | 15,647 |   |
|                                    |   |                    | 304,776 |   |   |   | 308,737 |   |   |   | 286,042 |   |

----

|                                 |   | Year ended December 31, |   |
|--------------------------------------|--------|-------------------------|--------|
|                                 |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                 |   | NIS in thousands        |   |
|                                 |   |                    |   |   |   |   |   |   |   |
| Salaries and related expenses        |   |                    | 36,434 |   |   |   | 35,224 |   |   |   | 32,097 |   |
| Administrative and computer services |   |                    | 13,005 |   |   |   | 12,118 |   |   |   | 10,862 |   |
| Services provided by Shareholder     |   |                    | 1,373  |   |   |   | 1,380 |   |   |   | 1,295 |   |
| Office maintenance                   |   |                    | 3,549  |   |   |   | 4,392 |   |   |   | 5,412 |   |
| Depreciation                         |   |                    | 832    |   |   |   | 749 |   |   |   | 956 |   |
| Provision for doubtful accounts      |   |                    | (1,724 | ) |   |   | 1,459 |   |   |   | (1,962 | ) |
| Other                                |   |                    | 9,628  |   |   |   | 11,197 |   |   |   | 10,928 |   |
|                                 |   |                    | 63,097 |   |   |   | 66,519 |   |   |   | 59,588 |   |

|                                                              |   | Year ended December 31, |   |
|-------------------------------------------------------------------|--------|-------------------------|--------|
|                                                              |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                                              |   | NIS in thousands        |   |
| Exchange rate differences                                         |   |                    | 1,024  |   |   |   | 8,388 |   |   |   | - |   |
| Interest from long-term and short-term bank deposits              |   |                    | 213    |   |   |   | 612 |   |   |   | 230 |   |
| Interest income from tax authorities                              |   |                    | 1,164  |   |   |   | 631 |   |   |   | - |   |
| Application of amortized cost method on Receivables and payables. |   |                    | 1,434  |   |   |   | 2,379 |   |   |   | - |   |
| Finance expense from derivative                                   |   |                    | 683    |   |   |   |   |   |   |   |   |   |
| Due to capital note to related parties                            |   |                    | -      |   |   |   | 1,560 |   |   |   | 1,560 |   |
| Other                                                             |   |                    | 39     |   |   |   | 132 |   |   |   | - |   |
|                                                              |   |                    | 4,557  |   |   |   | 13,702 |   |   |   | 1,790 |   |

|                                            |   | Year ended December 31, |   |
|-------------------------------------------------|--------|-------------------------|--------|
|                                            |   | 2 0 0 9                 |   |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                            |   | NIS in thousands        |   |
|                                            |   |                    |   |   |   |   |   |   |   |
| Interest on long-term bank loans                |   |                    | 1,395  |   |   |   | 4,595 |   |   |   | - |   |
| Interest on Short-term bank loans               |   |                    | 807    |   |   |   | 4,499 |   |   |   | 26,815 |   |
| Exchange rate differences                       |   |                    | -      |   |   |   | - |   |   |   | 9 |   |
| Interest expenses  to tax authorities |   |                    | -      |   |   |   | - |   |   |   | 158 |   |
| Finance Expenses from derivative                |   |                    | -      |   |   |   | 3,002 |   |   |   | 1,779 |   |
| Other                                           |   |                    | 839    |   |   |   | 259 |   |   |   | 566 |   |
|                                            |   |                    | 3,041  |   |   |   | 12,355 |   |   |   | 29,327 |   |

----

|                          |   | Balance at December 31, 2008 |   |   | Charged to profit and loss |   |   | Charge to other comprehensive income |   |   | Change in Tax rate |   |   | Balance at December 31, 2009 |   |
|-------------------------------|--------|------------------------------|--------|--------|----------------------------|--------|--------|--------------------------------------|--------|--------|--------------------|--------|--------|-----------------------------------|--------|
|                          |   |                         |   |   |                       |   |   |                                 |   |   |               |   |   |                              |   |
| Property, plant and equipment |   |                         | 39,498 |   |                       |   | 1,562  |                                 |   |   | -                  |   |   |                              | (6,287 | ) |   |   | 34,773 |   |
| Doubtful debts                |   |                         | (1,399 | )      |                       |   | 975    |                                 |   |   | -                  |   |   |                              | (27    | ) |   |   | (451 | ) |
| Derivatives                   |   |                         | 433    |   |                       |   | -      |                                 |   |   | (401               | )      |   |                              | -      |   |   |   | 32 |   |
| Employee benefits             |   |                         | (4,848 | )      |                       |   | (791   | )                                    |   |   | -                  |   |   |                              | 50     |   |   |   | (5,589 | ) |
| Expenses accruals             |   |                         | -      |   |                       |   | -      |                                 |   |   | -                  |   |   |                              | -      |   |   |   | - |   |
| Tax carry forward losses      |   |                         | -      |   |                       |   | -      |                                 |   |   | -                  |   |   |                              | -      |   |   |   | - |   |
| Other                         |   |                         | (59    | )      |                       |   | 25     |                                 |   |   | -                  |   |   |                              | -      |   |   |   | (33 | ) |
|                          |   |                         | 33,625 |   |                       |   | 1,772  |                                 |   |   | (401               | )      |   |                              | (6,264 | ) |   |   | 28,732 |   |

----

|                          |   | Balance at January 1, 2007 |    |   | Charged to profit and loss |   |   | Charged to equity |   |   | Exchange difference |   |   | Change in Tax rate |   |   | Balance at December 31, 2007 |   |   | Charged to profit and loss |   |   | Charged to equity |   |   | Exchange difference |   |   | Change in Tax rate |   |   | Balance at December 31, 2008 |   |
|-------------------------------|--------|----------------------------|---------|--------|----------------------------|--------|--------|-------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|------------------------------|--------|--------|---------------------------------|--------|--------|-------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|-----------------------------------|--------|
|                          |   |                       |    |   |                       |   |   |              |   |   |                |   |   |               |   |   |                         |   |   |                            |   |   |              |   |   |                |   |   |               |   |   |                              |   |
| Property, plant and equipment |   |                       | 33,902  |   |                       |   | 6,118  |              |   |   | -                   |   |   |               | 46     |   |                         |   |   |                            |   | 40,066 |              |   |   | (54                 | )      |   |               | -      |   |                              |   | (514 | ) |   |   | - |   |   |   | 39,498 |   |
| Doubtful debts                |   |                       | (4,679  | )      |                       |   | 2,878  |              |   |   | -                   |   |   |               | (31    | )      |                         |   | 141    |                            |   |   | (1,691            | )      |   |                | 112    |   |               |   | -      |                              |   |   | 50 |   |   |   | 130 |   |   |   | (1,399 | ) |
| Derivatives                   |   |                       | (34     | )      |                       |   | -      |              |   |   | (519                | )      |   |               | -      |   |                         |   | -      |                            |   |   | (553              | )      |   |                | -      |   |               |   | 986    |                              |   |   | - |   |   |   | - |   |   |   | 433 |   |
| Employee benefits             |   |                       | (3,183  | )      |                       |   | (2,404 | )                 |   |   | -                   |   |   |               | (27    | )      |                         |   | 284    |                            |   |   | (5,330            | )      |   |                | (410   | )      |               |   | -      |                              |   |   | 447 |   |   |   | 445 |   |   |   | (4,848 | ) |
| Expenses accruals             |   |                       | (1,852  | )      |                       |   | (1,676 | )                 |   |   | -                   |   |   |               | (290   | )      |                         |   | -      |                            |   |   | (3,818            | )      |   |                | 2,997  |   |               |   | -      |                              |   |   | 821 |   |   |   | - |   |   |   | - |   |
| Tax carry forward losses      |   |                       | (27,047 | )      |                       |   | 27,816 |              |   |   | -                   |   |   |               | (769   | )      |                         |   | -      |                            |   |   | -                 |   |   |                | -      |   |               |   | -      |                              |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                         |   |                       | 84      |   |                       |   | (273   | )                 |   |   |                |   |   |               |   |   |                         |   |   |                            |   |   | (189              | )      |   |                | 130    |   |               |   |   |                              |   |   |   |   |   |   |   |   |   |   | (59 | ) |
|                          |   |                       | (2,809  | )      |                       |   | 32,459 |              |   |   | (519                | )      |   |               | (1,071 | )      |                         |   | 425    |                            |   |   | 28,485            |   |   |                | 2,775  |   |               |   | 986    |                              |   |   | 804 |   |   |   | 575 |   |   |   | 33,625 |   |

----

|   | B. | Deferred taxes are presented in the balance sheet as follows: |
|--------|----|---------------------------------------------------------------|

|                                                     |   | 2009             |   |   | 2008   |   |   | 2007   |   |
|----------------------------------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                     |   | NIS in thousands |   |
| Long-term liabilities (in respect of depreciable assets) |   |             | 33,631 |   |   |   | 38,014 |   |   |   | 39,730 |   |
| Long-term Assets                                         |   |             | (4,899 | )      |   |   | (4,389 | )      |   |   | (11,245 | ) |
|                                                     |   |             | 28,732 |   |   |   | 33,625 |   |   |   | 28,485 |   |

|   |   |  For 2009 - Deferred taxes were computed at rates between 18%-26%, primarily – 20.5%. For 2008 - Deferred taxes were computed at rates between 20%-27%, primarily – 24.5%. For 2007 - Deferred taxes were computed at rates between 20%-28%, primarily – 24.5%. As of December 31, 2009 deferred tax liability at the amount of NIS 32 thousand (2008 – NIS 433) due to revaluation of financial instruments treated as cash flow hedges was recognized directly to equity. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Deferred tax assets that were not recognised The calculation of deferred taxes does not take into account the taxes that would be applicable in case of realization of the investment in subsidiaries and associates, since the Group intends to retain the investment. Deferred taxes in respect of a distribution of profit in Israeli subsidiaries were also not taken into account, since the dividends are not taxable. In addition, unutilized deferred tax assets in respect of losses carried forward, were not recognized in cases where future taxable income against which they can be utilized, is not foreseen.As of December 31, 2009 carry forward tax losses deriving from the Turkish subsidiary sum up to NIS 246.6 (98.7 YTL) millions. The Company has examined the validity of the deferred tax assets deriving from its Turkish subsidiary. As a result of this examination, the deferred tax asset due to carry-forward tax losses in the Turkish subsidiary was fully amortized in the amounts of NIS 26,509 thousand for the year ended December 31, 2007. As of December 31, 2009 deferred tax assets were not recognized in respect of utilizing tax losses in the Turkish subsidiary since it is not anticipated that there will be taxable income against which the tax benefits can be utilized.According to the Turkish law, carry forward tax losses can be utilized for a five years period only, unrecognized tax losses of KCTR will expire as follow: An amount of NIS 24.7, 81.6, 80.6, 7.6 and 6.9 will expire between 2010-2014, respectively. The balance of unrecognized deferred tax assets in respect of losses for tax purposes is approximately NIS 75 million. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Income tax attributable directly to other comprehensive income |
|--------|----|----------------------------------------------------------------|

|                                    |   | 2009             |   |   | 2008   |   |      | 2007   |   |
|-----------------------------------------|--------|------------------|--------|--------|--------|--------|-----------|--------|--------|
|                                    |   | NIS in thousands |   |
|                                    |   |             |   |   |   |   |      |   |   |
| Total tax recognized directly in equity |   |             | (199   | )      |   |   | 155  |   |   |   |  531 |   |

----

|   | E. | Tax Ccomposition |
|--------|----|------------------|

|                            |   | 2009             |   |   | 2008   |   |   | 2007   |   |
|---------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|
|                            |   | NIS in thousands |   |
|                            |   |             |   |   |   |   |   |   |   |
| Current taxes                   |   |             | 48,715 |   |   |   | 43,902 |   |   |   | 33,082 |   |
| Taxes in respect of prior years |   |             | -      |   |   |   | 221    |   |   |   | (1,421 | ) |
| Deferred taxes - A. above       |   |             | (4,489 | )      |   |   | 3,350  |   |   |   | 32,884 |   |
|                            |   |             | 44,226 |   |   |   | 47,473 |   |   |   | 64,545 |   |

|   | F. | Reconciliation of the statutory tax rate to the effective tax rate: |
|--------|----|---------------------------------------------------------------------|

|                                                                |   | 2 0 0 9          |    |   | 2 0 0 8 |   |    | 2 0 0 7 |   |
|---------------------------------------------------------------------|--------|------------------|---------|--------|---------|--------|---------|---------|--------|
|                                                                |   | NIS in thousands |    |
| Income before income taxes                                          |   |             | 195,321 |   |    |   | 137,100 |    |   |   | 33,913 |   |
|                                                                |   |             |    |   |    |   |    |    |   |   |   |   |
| Statutory tax rate (see H. below)                                   |   |             | 26      | %      |    |   | 27      | %       |   |   | 29 | % |
| Tax computed by statutory tax rate-                                 |   |             | 50,783  |   |    |   | 37,017  |    |   |   | 9,835 |   |
|                                                                |   |             |    |   |    |   |    |    |   |   |   |   |
| Tax increments (savings) due to:                                    |   |             |    |   |    |   |    |    |   |   |   |   |
| Income (Expenses) in reduced tax rate                               |   |             | (4,268  | )      |    |   | (2,104  | )       |   |   | 8,159 |   |
| Non-deductible expenses                                             |   |             | 1,024   |   |    |   | 2,297   |    |   |   | 1,326 |   |
| Non-taxable income                                                  |   |             | (48     | )      |    |   | (90     | )       |   |   | (505 | ) |
| Unrecorded deferred taxes in connection with tax loss carry forward |   |             | 3,027   |   |    |   | 5,483   |    |   |   | 20,216 |   |
| Amortizing differed taxes                                           |   |             | -       |   |    |   | 4,244   |    |   |   | 27,255 |   |
| Reduction in corporate tax rates (see H. below)                     |   |             | (6,177  | )      |    |   | 651     |    |   |   | (762 | ) |
| Differences arising from basis of measurement                       |   |             | (185    | )      |    |   | 579     |    |   |   | 331 |   |
| Income (Expenses) taxes for prior years                             |   |             | -       |   |    |   | 221     |    |   |   | (1,421 | ) |
| Other differences, net                                              |   |             | 70      |   |    |   | (825    | )       |   |   | 111 |   |
|                                                                |   |             | 44,226  |   |    |   | 47,473  |    |   |   | 64,545 |   |

|   | G. | Current Tax Balance |
|--------|----|---------------------|

|                    |   | 2009             |   |   | 2008   |   |   | 2007   |   |
|-------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|
|                    |   | NIS in thousands |   |
|                    |   |             |   |   |   |   |   |   |   |
| Current taxes assets    |   |             | -      |   |   |   | 137    |   |   |   | 12,219 |   |
| Current tax liabilities |   |             | 26,631 |   |   |   | 5,413  |   |   |   | 2,260 |   |

----

|   | H. | The Company and its Israeli Subsidiaries are subject to the Income Tax Ordinance and the Income Tax Law (Inflationary Adjustments), 1985. Under the inflationary adjustments law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli CPI.  The Company and its subsidiaries in Israel are taxed under this law. On February 26, 2008, the Knesset ratified the third reading of the Income Tax Law ("Inflation Adjustments") (Amendment 20) (Limitation of Term of Validity) - 2008 (hereinafter: "The Amendment"), pursuant to which the application of the inflationary adjustment law will terminate in tax year 2007 and as of tax year 2008, the law will no longer apply, other than transition regulations whose intention it is to prevent distortions in tax calculations. According to the amendment, in tax year 2008 and thereafter, the adjustment of revenues for tax purposes will no longer be considered a real-term basis for measurement. Moreover, the linkage to the CPI of the depreciated sums of fixed assets and carryover losses for tax purposes will be discontinued, in a manner whereby these sums will be adjusted until the CPI at the end of 2007 and their linkage to the CPI will end as of that date. Non-Israeli Subsidiaries are subject to income tax provisions of their home country. The Company is an industrial company in conformity with the Law for the Encouragement of Industry (Taxes), 1969. The principal benefit that the Company is entitled to under this law is accelerated depreciation rates and reduced tax rates. According to this law the Company and Shikma (formerly a subsidiary) filed consolidated tax returns until December 31, 2005. On December 31, 2005, Shikma was merged into the Company. On January 15,2009  the Company received an approval from the investment center for the merger of the Company and its subsidiary Shikma which took place at the end of 2005. During 2002, the Company’s program for the establishment of a new facility for manufacturing paper was granted Approved Enterprise status in accordance with the Law for the Encouragement of Capital Investments, 1959, under “alternative benefits” track. The approval program is for total investments of approximately NIS 97 million. According to the terms of the program, income derived from the Approved Enterprise will be tax-exempt for a period of 10 years commencing in the year in which the program was substantially completed. Distribution of dividends from tax exempt profits of the Approved Enterprise will be subject to income tax at a rate equal to the income tax rate of the Approved Enterprise had the Company not elected the alternative benefits track. The Company completed the investments relating to the new facility. Commencement of operations was during 2003. The Company filed a final report to the Investment center, An approval has not yet been given yet. The Company and its subsidiary Shikma Ltd. possess final tax assessments through 2003. Hogla Kimberly Marketing Ltd., a subsidiary of the Company, posses' final tax assessments through 2004. Mollet Marketing Ltd., a subsidiary of the Company, posses' final tax assessments through 2004. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | H.   (Cont.) On July 14, 2009 Knesset passed the Economic Efficiency Law (legislative amendments to implement the economic plan for the years 2009 and 2010) - 2009, which stipulates, inter alia, an additional gradual reduction in the rate of companies tax to 18% in the 2016. tax year and thereafter. According to these amendments, the rate of company tax applying to the 2009 tax year and thereafter are as follows: 2009 tax year - 26%, 2010 tax year - 25%, 2011 tax year - 24%, 2012 tax year - 23%, 2013 texture - 22%, 2014 tax year - 21%, 2015 tax year - 20%, and in the 2016 tax year and thereafter there will be a companies tax rate of 18%. The change in the tax rates have decreased the deferred taxes liability as of December 31, 2009 in the amount of NIS 6,177 thousand. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | General In the normal course of business, Hogla-Kimberly is exposed to credit, liquidity and market risks, as well as interest and currency risks. The Company monitors these risks on a constants basis. The Group's policy is to hedge the exposure from fluctuations in foreign exchange rates to minimize its exposure to fluctuations of foreign currency rates. The hedging is according to a policy adopted by the Company's Board of Directors. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Significant accounting policies Details as to the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Categories of financial instruments |
|--------|----|-------------------------------------|

|                                                                |   | As of December 31, |    |
|---------------------------------------------------------------------|--------|--------------------|---------|
|                                                                |   | 2009               |    |   | 2008 |   |   | 2007 |   |
|                                                                |   | NIS in thousands   |    |
| Financial assets                                                    |   |               |    |   |   |   |   |   |   |
| Derivative instruments                                              |   |               | -       |   |   |   | 2,041 |   |   |   | - |   |
| Loans and receivables (including cash and cash equivalents)         |   |               | 399,457 |   |   |   | 301,593 |   |   |   | 297,314 |   |
|                                                                |   |               |    |   |   |   |   |   |   |   |   |   |
| Financial liabilities                                               |   |               |    |   |   |   |   |   |   |   |   |   |
| Derivative instruments in designated hedge accounting relationships |   |               | 119     |   |   |   | - |   |   |   | 2,394 |   |

----

|   |
|--------|

|   | C. | Credit risk Credit risk refers to the possibility that counterparty will fail to meet its contractual obligations, resulting in financial loss to the Company.Commencing November 2007 Hogla Kimberly is covered by a credit insurance policy, which partially covers it's most major customers. In accordance with its policy conditions, the company will be reimbursed starting from an annual loss of US dollars 200 thousands to a maximum of US dollars 10  million, subject to deductible conditions.The revenues of the Company and its Israeli subsidiaries are mainly in Israel and derived from two major customers and a large number of smaller customers. Trade receivables in the Turkish subsidiary consist of a limited number of customers, where no single counterparty or any company of counterparties having similar characteristics.The Company has a policy of creditworthy customers and obtaining sufficient collaterals where possible as a means of mitigating the risk of financial loss from defaults,For each customer, where possible, the Company checks its credit rating with an external credit rating companies to assess the potential customer’s credit quality and help in defining its credit limit. Credit limit for each customer is determined and approved according to the Company's policy taking into account its rating and collaterals.Management regularly monitors the balance of trade receivables and the financial statements include an allowance for doubtful accounts based on management's estimation.The exposure to credit risks relating to trade receivables is limited due to the relatively large number of customers and to the credit insurance.The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the group's maximum exposure to credit risk (without taking account of the value of any collateral obtained). Cash and cash equivalents are deposited with major banks in Israel and abroad. Therefore, it is not expected that such banks will fail to meet their obligations. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Liquidity risk Liquidity risk is the risk that the Group could experience difficulties in meeting its commitments to creditors as financial liabilities fall due for payment. The Group manages its liquidity risk by maintaining sufficient reserves, committed borrowing facilities and other credit lines as appropriate. The following table presents the Group's outstanding contractual maturity profile for its non-derivative financial liabilities. The analysis presented is based on the undiscounted contractual maturities of the Group's financial liabilities, including any interest that will accrue. Non-interest bearing financial liabilities which are due to be settled in less than 12 months from maturity equal their carrying values, since the impact of the time value of money is immaterial over such a short duration. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | Liquidity risk (Cont.) Maturity profile of outstanding financial liabilities |
|--------|----|-----------------------------------------------------------------------------------|

|              |   | 1 year           |    |   | 1-2 years |   |   | 2-4 years |   |   | Total  |   |
|-------------------|--------|------------------|---------|--------|-----------|--------|--------|-----------|--------|--------|--------|--------|
|              |   | NIS in thousands |    |
| 2009              |   |             |    |   |      |   |   |      |   |   |   |   |
| Supplier payables |   |             | 296,359 |   |      |   | -      |      |   |   | -      |   |   |   | 296,359 |   |
| Borrowings        |   |             | 25,977  |   |      |   | 26,795 |      |   |   | 6,941  |   |   |   | 59,713 |   |
| Total             |   |             | 322,336 |   |      |   | 26,795 |      |   |   | 6,941  |   |   |   | 356,072 |   |
|              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| 2008              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Supplier payables |   |             | 286,835 |   |      |   | -      |      |   |   | -      |   |   |   | 286,835 |   |
| Borrowings        |   |             | 52,718  |   |      |   | 25,307 |      |   |   | 26,795 |   |   |   | 104,820 |   |
| Total             |   |             | 339,553 |   |      |   | 25,307 |      |   |   | 26,795 |   |   |   | 391,655 |   |
|              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| 2007              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Supplier Payables |   |             | 262,304 |   |      |   | -      |      |   |   | -      |   |   |   | 262,304 |   |
| Borrowings        |   |             | 155,302 |   |      |   | -      |      |   |   | -      |   |   |   | 155,302 |   |
| Total             |   |             | 417,606 |   |      |   | -      |      |   |   | -      |   |   |   | 417,606 |   |

|   | E. | Exchange rate risk The Group is exposed to foreign currency risks mainly due to payments for purchases of raw materials and finished goods inventory and purchases of equipment and spare parts linked to the dollar or the Euro. In applying a policy of minimizing the exposure, the Group makes forward transactions against the dollar and euro. The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                      |   | 31, December 2009NIS thousands |   |
|---------------------------|--------|--------------------------------|--------|
|                      |   | USD                            |   |   | EURO |   |   | YTL |   |
|                      |   | NIS  in thousands         |   |
| Cash and cash equivalents |   |                           | 38,586 |   |   |   | 748 |   |   |   | 22,975 |   |
| Trade receivables         |   |                           | 35,583 |   |   |   | 1,328 |   |   |   | 34,738 |   |
| Borrowings                |   |                           | -      |   |   |   | - |   |   |   | 670 |   |
| Trade payables            |   |                           | 61,536 |   |   |   | 25,002 |   |   |   | 30,576 |   |

|                      |   | December31, 2008NIS thousands |   |
|---------------------------|--------|-------------------------------|--------|
|                      |   | USD                           |   |   | EURO |   |   | YTL |   |
|                      |   | NIS  in thousands        |   |
| Cash and cash equivalents |   |                          | 17,886 |   |   |   | 954 |   |   |   | 4,106 |   |
| Trade receivables         |   |                          | 30,268 |   |   |   | 2,970 |   |   |   | 21,284 |   |
| Borrowings                |   |                          | -      |   |   |   | - |   |   |   | 285 |   |
| Trade payables            |   |                          | 86,547 |   |   |   | 26,575 |   |   |   | 16,296 |   |

----

|   | E. | Exchange rate risk (Cont.)  |
|--------|----|----------------------------------|

|                      |   | December 31, 2007NIS thousands |   |
|---------------------------|--------|--------------------------------|--------|
|                      |   | USD                            |   |   | EURO |   |   | YTL |   |
|                      |   | NIS  in thousands         |   |
|                      |   |                           |   |   |   |   |   |   |   |
| Cash and cash equivalents |   |                           | 17,422 |   |   |   | 3,165 |   |   |   | 2,327 |   |
| Trade receivables         |   |                           | 22,835 |   |   |   | 250 |   |   |   | 38,114 |   |
| Borrowings                |   |                           | -      |   |   |   | - |   |   |   | 96,042 |   |
| Trade payables            |   |                           | 54,381 |   |   |   | 26,905 |   |   |   | 20,657 |   |

|   |   | The following table details the Group's sensitivity to a 10% increase and decrease in the NIS against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the NIS strengthens 10% against the relevant currency. For a 10% weakening of the NIS against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|               |   | USD Impact        |   |   |  EUR Impact |   |
|--------------------|--------|------------------------|--------|--------|------------------|--------|
|               |   | 2009                   |   |   | 2008             |   |   | 2008 |   |   | 2008 |   |
|               |   | NIS  in thousands |   |
| Profit or loss (1) |   |                   | (5,671 | )      |             |   | (6,585 | ) |   |   | (542 | ) |   |   | (1,182 | ) |
| Other equity (2)   |   |                   | 1,737  |   |             |   | 1,873 |   |   |   | 740 |   |   |   | 811 |   |

|   | (1) (2) | This is mainly attributable to the exposure outstanding on receivables, cash and payables at year end in the Group, and forward foreign exchange contracts. This is as a result of the changes in fair value of derivative instruments designated as cash flow hedges. |
|--------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Forward foreign exchange contracts The Company hedges its exposure of itself and its Israeli subsidiaries by entering into forward foreign exchange contracts, according to a policy adopted by the Company's Board of Directors, to manage the risk associated with anticipated purchase transaction. The Company hedges 80% of its forecasted payments to suppliers of its forecasted exposure for a period of six month forward.These hedging transactions are treated as cash flow hedges and the resulting gain or loss is recognized in other comprehensive income.  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | E. | Exchange rate risk (Cont.) The following table details the forward foreign currency (FC) contracts outstanding as at the reporting date: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------|

| Outstanding contracts | Buy Currency | Sell Currency |   | Fair value NIS |   |
|-----------------------|--------------|---------------|--------|----------------|--------|
|                  |         |          |   |           |   |
| Less than 3 months    | USD          | NIS           |   |           | 2,360  |   |
| 3 to 6 months         | USD          | NIS           |   |           | 1,503  |   |
| Less than 3 months    | EUR          | NIS           |   |           | 809    |   |
| 3 to 6 months         | EUR          | NIS           |   |           | 411    |   |

|   |   | The Company does not hedge its foreign currency exposure to the YTL in respect of its investment in the Turkish subsidiary. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | F. | Fair Value of Financial Instruments The financial instruments of the Group consist primarily of non-derivative assets and liabilities. Non-derivative assets include cash and cash equivalents, receivables and other current assets. Non-derivative liabilities include trade payables and other current liabilities. Due to the nature of these financial instruments, their fair value, generally, is identical or close to the value at which they are presented in the financial statements, unless stated otherwise. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The Company is owned by Kimberly Clark Corp. (“KC” or the “Parent Company”) (50.1%) and Hadera Paper Ltd. (“Hadera Paper”) (49.9%). Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below: |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Balances with Related Parties |
|--------|----|-------------------------------|

|                       |   | December 31,  |      |
|----------------------------|--------|---------------|-----------|
|                       |   | 2 0 0 9       |      |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                       |   | NIS Thousands |      |
|                       |   |          |      |   |   |   |   |   |   |
| Trade receivables          |   |          | 35,682    |   |   |   | 30,212 |   |   |   | 22,678 |   |
| Other current assets       |   |          |  948 |   |   |   |  - |   |   |   |  - |   |
| Capital note - shareholder |   |          | -         |   |   |   | 32,770 |   |   |   | 31,210 |   |
| Trade payables             |   |          | 72,339    |   |   |   | 79,683 |   |   |   | 55,099 |   |

----

|   | B. | Transactions with Related Parties |
|--------|----|-----------------------------------|

|                                        |   | December 31,  |    |
|---------------------------------------------|--------|---------------|---------|
|                                        |   | 2 0 0 9       |    |   | 2 0 0 8 |   |   | 2 0 0 7 |   |
|                                        |   | NIS Thousands |    |
| Sales to related parties (1)                |   |          | 243,212 |   |   |   | 216,841 |   |   |   | 82,217 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| Cost of sales (2)                           |   |          | 256,696 |   |   |   | 268,476 |   |   |   | 188,252 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| Royalties to the shareholders (3)           |   |          | 31,117  |   |   |   | 29,584 |   |   |   | 28,069 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| General and administrative expenses (*) (4) |   |          | 11,980  |   |   |   | 12,488 |   |   |   | 10,944 |   |

|   | C. |
|--------|----|

|   | (1) | Sales of finished goods to companies in KC group and Hadera Paper. |
|--------|-----|--------------------------------------------------------------------|

|   | (2) | Mainly purchase of finished goods from companies in KC group and Hadera Paper group. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | (3) | The group is obligated to pay royalties to KC. |
|--------|-----|------------------------------------------------|

|   | (4) | The Company leases its premises in Hadera and Naharia from Hadera Paper and receives certain services (including energy, water, maintenance, computer and professional services) under agreements, which are renewed based on shareholders agreements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Compensation of key management personnel Total remuneration of key management during the year was NIS 9,891 thousands (2008: NIS 11,939 thousands). The amounts include costs relating to options (*) granted to senior managements to shares of the Company's shareholders. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   (*)   | The Company's senior management was rewarded by allotment of KC's and Hadera Paper's share options. The cost of the benefit was determined as the fair value on the grant day and this amount is being charged to the income statement over the vesting period. The company's debt resulting from the grant will be paid in cash to both shareholders. The fair value of the options granted as aforementioned was estimated by applying the economic models. The total expenses resulting from the aforementioned grant for the year ended December 31, 2009 was NIS 589 thousand (2008: NIS 1,652 thousands). |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|          (1) |  On March 19, 2009 Hogla-Kimberly distributed dividend in the amount of NIS 32.77 million to the holder of the preference share. |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|

|          (2) | On February 26, 2009 the board of directors decided to distribute Dividend in the amount of Dollar 10 million from the unapproved enterprise retained earnings of 2008 to the holders of the ordinary shares. On July 1, 2009 the company paid the Dividend. |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|         (3)  | On July 30, 2009 the board of directors decided to distribute Dividend in the amount of Nis 19,015 thousand from the unapproved enterprise retained earnings accumulated as of June 30, 2009 to the holders of the ordinary shares On October 1, 2009 the company paid Dividend. |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|         (4) | On October 22, 2009 the board of directors decided to distribute Dividend in the amount Nis 40 million from the unapproved enterprise retained earnings accumulated as of September 30, 2009 to the holders of the ordinary shares. The dividend was paid On January 20, 2010. |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----