מ"מכתשים אגן תעשיות בעMakhteshim Agan Industries Ltd.

2010 Annual Reports

Chapter A – The Corporation's Operations Chapter B – Board of Directors Report for Year Ended

31 December 2010 Chapter C – Consolidated Financial Statements as of

December 31, 2010 Chapter D - Additional Information on the Corporation

1

CHAPTER A

THE CORPORATION'S OPERATIONS

The information contained herein constitutes an unofficial translation of the report published by the Company in Hebrew. The Hebrew version is the binding version. This translation was prepared for convenience

purposes only.

2

Makhteshim-Agan Industries hereby submits its 2010 Annual Report. The Report includes five

complementary chapters and should be viewed as a single text (hereafter, the Report).

In the Report, the following terms will carry the meanings below:

MA Industries - Makhteshim-Agan Industries, Ltd.

The Company or the Group

or Makhteshim-Agan Group

- Makhteshim-Agan Industries, Ltd., including all its

consolidated subsidiaries, unless explicitly stated otherwise

Koor - Koor Industries, Ltd.

Makhteshim - Makhteshim Chemical Works, Ltd.

Agan - Agan Chemical Manufacturers, Ltd.

Stock Exchange - Tel Aviv Stock Exchange (TASE)

Merger Agreement - The agreement dated January 8, 2011, to which the parties

are: (1) the Company; (2) China National Agrochemical

Corporation ("CC"); (3) Sinac Merger Sub Ltd., a wholly-

owned private company (indirectly, through a wholly-owned

corporation) of CC that was established in Israel for the

purpose entering into the merger agreement; (4) Koor and its

wholly-owned subsidiary.

Unless explicitly stated otherwise, all figures in the present report are denominated in $US.

Translation of financial figures in various currencies to US dollars: Transactions in foreign currency are

translated to US dollars, the Group's functional currency, at the exchange rate prevailing on the transaction

dates. Financial Assets and liabilities denominated in foreign currency on the reporting date are translated to

the functional currency at the exchange rate prevailing on that date.

Interest rates: The interest exchange rates referred to in this chapter are annual.

Standardized financial figures: As of January 2008, the Company's financial reports are formulated

according to the International Financial Reporting Standards (IFRS).

Unless explicitly stated otherwise, the Company and its figures are herein described on a consolidated

basis. The Company-only data report is attached to this Periodic Report.

3

he Company's OperationGeneral Development of trt I: Pa

4

1. THE COMPANY'S ACTIVITY AND GENERAL OPERATIONAL DEVELOPMENT

1.1 General

MA Industries and its subsidiaries (which, as aforementioned, will be jointly referred to as the Company)

specialize in chemical industries, and at the time of this Report have focused mainly on agrochemistry.

Within this framework, the Company's chief operations are developing, manufacturing and marketing

crop protection products (see Section 6 below). It also operates to a non-substantial extent (at the time of

this Report) in other business areas, based on its core agrochemical capabilities (see Subsection 1.2

below).

At the time of this Report, the Company's crop protection products are mainly generic, i.e., products

similar to patent-protected products in terms of their active ingredients (after the patents have expired),

and its products are usually not protected by patents but require registration. A significant part of the

Company's products in its additional activity areas are original products developed by the Company; as

part of its ongoing operations, the Company continually examines further options for developing or

marketing original products.

At the time of this Report and to the best of its knowledge, the Company ranks seventh in the world (in

terms of sales) among all crop protection companies (both original/research-based and generic) and is the

largest generic company in the world. At the time of this Report, the Company sells its products in 120

countries, through some 50 subsidiaries worldwide, all as detailed below (see Section 31 for details

about Company objectives and strategy).

MA Industries was incorporated in Israel as a public company in December 1997, as part of a settlement

for changing the holdings structure in the Makhteshim-Agan Group (hereafter, the Settlement).

According to this Settlement, MA Industries was to fully own both Makhteshim and Agan – two crop

protection companies whose stocks had been traded in the Stock Exchange up to that time, founded in

1952 and 1945, respectively. Up to the implementation of the Settlement, MA Industries was not an

active company, apart for activities related to the Settlement. As reported in a prospectus published by

MA Industries, the Settlement was concluded on April 2, 1998, and its stocks have been traded in the

Stock Exchange as of May 15 of that year. With the conclusion of this Settlement, Makhteshim and

Agan's stocks were no longer traded in the Stock Exchange.

The largest shareholder in MA Industries (in terms of number of shares) is Koor of the IDB Group. At

the publication date of this Report, Koor holds 46.55% of MA Industries' issued and outstanding capital

stock and 41.88% of its voting rights (i.e., not including dormant shares and shares owned by a

subsidiary of the Company) (see Subsection 2.2 for further details on Koor Industries' tender offer and its

results). The rest of MA Industries' shares are held by the public and several interested parties, including

other IDB Group companies..

5

On January 8, 2011, after previously obtaining approval from the Audit Committee and Board of

Directors of the Company, the Company entered into a merger agreement, the parties to which are: (1)

the Company (2) CC, a Chinese corporation of the China National Chemical Corporation , the largest

Chinese Group controlled by the Chinese Government, engaged in the chemicals and agrochemicals

industry; (3) Sinac Merger Sub Ltd. – a private company, wholly-owned (indirectly through its wholly-

owned corporation) of CC that was established in Israel for the purpose of entering into the merger

agreement ("special purpose company"); (4) Koor Industries Ltd. and M.A.G.M. Chemical Holdings

Ltd., a wholly-owned subsidiary of Koor (together with Koor – "Koor companies")("the merger

agreement"). Under the terms of the merger agreement and subject to the fulfillment of the suspending

conditions for its closing, the Company's shares, which on the transaction's closing date will constitute

60% of the issued and paid-up capital of the Company will be acquired (and this will also include the

acquisition of all of the public's holdings in the Company, and also the acquisition from the Koor

companies of shares that will constitute 7% of the issued and paid-up capital of the Company). Upon the

closing of the merger, the Company's shares will be de-listed from trading on the Stock Exchange and

the Company will become a private company, to be held by CC at the rate of 60% and by Koor at the

rate of 40%. However, it will continue to be a reporting corporation, as this term is defined in the

Securities Regulations – 1968. For additional information on the merger agreement and its related

agreements, and regarding the suspending conditions for its closing, see Subsection 2.2 of this Report.

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1.2 The Company's Activity Area

Crop protection products (Agro). At the report date, the Company is focused on the development,

manufacturing and marketing of generic crop protection products (hereafter, CPP area). The

company's main products in this activity area are: (1) herbicides, (2) fungicides, and (3) pesticides. All

are designed to protect agricultural and other crops, at various stages of their development, during their

growing season. As mentioned above, the Company's products in the CPP area are generic products,

which have similar ingredients to products developed by third parties, whose intellectual property

rights protections have expired. In 2010, the CPP area represented some 92.3% of Company sales.

See Section 31 below for more about the Company's business strategy.

See Section 6 below for additional information and a description of its related areas.

Further activities. As part of the Company's core chemical industry capabilities, it is also engaged in

several other non-agricultural areas, which together represented 7.7% of its sales in 2010. These

include mainly the manufacturing and marketing of nutritional additives and food supplements,

aromatic products for the perfume, cosmetics, body treatments and detergents industries, industrial

chemical production and other insignificant activities. At this time, none of these activities, in and of

itself, is material to the Company. (See Section 18 below for a more detailed description of these

company activities).

7

1Activity Structure1.3

100% 100% 100%

1 This diagram does not present all the Company's subsidiaries, but only those material to its operations. See Note 35 to the Company's financial statements for a complete list of the Company's subsidiaries and affiliates. See Section 31 below for details about the Company's strategy and its implications on its organizational structure as illustrated above, including its main sales regions.

MA INDUSTRIES

Further activities

Crop Protection Products (CPP) Area

Additional activities carried

out, whether directly or indirectly,

through the Agan and

Makhteshim subsidiaries

Makhteshim Agan

Israeli and global

subsidiaries Israeli subsediaries

100%

Milenia Agrociencias Group S.A

Makhteshim Agan of North America Inc.

Marketing & distribution

companies in key European

countries

Australian marketing & distribution company

Other global markting & distribution companies

Lycored

Indian marketing & distribution

8

1.4 Structural Changes in the Group's Development: Material M&A's

1.4.1 Agan and Makhteshim were founded separately by different groups of chemists in 1945 and 1952,

respectively, with the goal of developing expertise in the chemicals industry. Until the 1970's, most

of Makhteshim and Agan's activity was focused on establishing technical expertise in chemical

synthesis in order to create a broad portfolio of generic crop protection products. In those years,

Makhteshim and Agan engaged in developing and producing the same types of crop protection

products. In the 1960's, Makhteshim was acquired by Koor.

During the 1970's Makhteshim invested in Agan in return for 50% of its share. Following this

investment, the two began to collaborate, mainly in creating a joint international marketing

network.

In the 1980's the two companies started investing in developing a comparative advantage and

expertise in the area of registering their products in various countries throughout the world.

Following this, and after additional generic companies also began investing in the registration of

their products in various countries, the two focused, during the 1990's, on creating a network of

multinational companies and partnerships in the countries, which solidified their position in those

countries, including through the acquisition of two large Brazilian companies engaged in CPP

manufacturing and marketing. As part of the 1998 settlement, as reported in Subsection 1.1 above,

the two companies have become wholly-owned by MA Industries.

From then onward, the Company continued growing, both organically and through the acquisition

of companies engaged in its area and obtaining registration and distribution rights to existing and

additional CPP products, including making acquisitions, all as detailed in Section 1.5 below. As

part of this trend, the company acted as follows.

9

From 2000 to 2010, the Company expanded its operations in Western and Eastern Europe, the US

and Australia, Latin America and Asia, including through the acquisition of CPP companies, as

well as obtaining registrations and distribution rights for a large amount of products by

agrochemical companies Bayer CropScience, Aventis and Syngenta. In 2009, a wholly-owned

Company subsidiary completed the acquisition of 90% of the shares of the Polish agrochemical

company Rokita Agro of the German PCC group, as well as the acquisition of the operations of the

Serb agrochemical distributor Magan-Yu by acquiring all the share capital of Serbian

agrochemicals distributor Magan Agrochemicals d.o.o. Subotica. For further details on these

acquisitions, see the Company's immediate reports dated December 11, 2008, RN 2008-01-350880

and RN 2008-01-351261. Moreover, in 2009 the Company also acquired the American CPP

formulation company Bold Formulators LLC, which is engaged in the formulation of CPP's (see

Section 1.5 for further details about these acquisitions). Furthermore, in 2008-2009, the Company

began operating directly in the Indian market – a key emerging market in Asia – and created a

local marketing company for that purpose. It also started operating similarly in Canada. Likewise,

the Company signed a strategic collaboration agreement with Cibus Global Limited (Cibus) to

establish a joint venture for developing enhanced traits in five key crops (based, according to the

directive in effect at the time of this Report, on natural enhancement rather on genetic seed

engineering (non-GMO)), with emphasis on the European market. The Company was granted

several options that will take effect gradually over a period of several years starting in 2014, for

converting said investment into Cibus shares and build up to holding of up to 50.1% of Cibus (see

Subsection 28.1 below for further details).

In October 2010, the Company entered into a strategic partnership agreement with Monsanto,

regarding the inclusion of several herbicides sold by the Company in a weed management program

(see Subsection 28.2 for additional details). At the time of this Report, as part of the modes of

operation and strategic objectives (as detailed in Section 31 below), the Company continues, from

time to time, to look into collaborations or acquisitions of firms, operations and various products in

its core operational area.

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During the year, the Company acquired companies that it believes will enable it to enter into new

markets with high growth potential: in October 2010, a wholly-owned subsidiary of the Company

signed an agreement to acquire the shares of several Bravo AG group companies, which own

production facilities and a sales network in Mexico, and is a manufacturer and distributor of

copper-based pesticides, which are considered environmentally friendly and are used mainly in

organic farming. The consideration for the acquisition is not material. Subsequent to the balance

sheet date, this transaction was closed. For further details on this acquisition, see the Company's

immediate report dated November 17, 2010, RN 2010-01-683709). See section 1.5 for details on

these acquisitions and other material acquisitions made by the Company in the five years

preceding the report date.

1.4.2 For details on the Company's undertaking in the merger agreement, which, upon its closing, the

Company's shares will be de-listed from the Stock Exchange and the Company will become a

private company, to be 60%-held by CC and 40%-held by the Company. See Sections 1.1. and 2.2

of this report. See Section 31.4 of the report regarding the Company's plans as a result of the

merger.

1.4.3 During 2010, the Company began implementation of a comprehensive plan for changing its

strategy, intended to adapt the business operation model for the changes in the industry's

competitive environment and to strengthen its major areas of activity.

1.4.4 As part of the implementation of changes in the strategic plan:

1. The reorganization was completed, including new hiring, with emphasis on the different

geographic regions in which the Company operates, core processes that cross throughout the

organization and supporting global functions. See section 21.2 of the Report for more details.

2. The Company began implementation of optimization of its production facilities, purchasing

and chain of supply, intended to improve the cost structure of the products sold by the

Company, while improving the operational flexibility and better utilizing its broad global

deployment. Within this process, in October 2010, the Company entered into an agreement of

principles with the New Histadrut Clalit, pursuant to which, it was agreed on the voluntary

retirement of employees in Israel. See Section 21.4 below for additional details.

3. The Company implemented a reorganization plan for Milenia, its subsidiary in Brazil, which

included a significant modification of manpower levels, a considerable reduction of

manufacturing activity at its production site in Taquari, and partially at the site in Londrina,

and the outsourcing of the production in order to reduce overhead. See Par. 33.2 of the report

for additional details.

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1.5 Acquisitions by the Company:

Presented below are details of the key transactions for acquiring significant companies that were executed by the Company during the five-year period ended on the report date:

Date Country Acquired Company

Acquired Company's Operations

% of Stock Payment in Cash*

Payment in Stock*

Strategic Objective

Jun-06

US CSI

Marketing pesticides for the American non-crop industry

7.1% more (further to the 60% acquired in 2004-2005)

Immaterial

Increasing the Company's holdings to 67.1%. Both the Company and the remaining shareholders have the option to cause the Company to acquire the remaining CSI stock

Jan. 2008

Holland Mabeno

Exclusive CPP distributor in Benelux and Scandinavia

6% (following 49% in January 2005)

Immaterial

Expanding the Company's presence in Benelux and Scandinavia. At the time of this writing, the Company's holdings in Mabeno total 55%

May-2005

Hungary

Biomark Tradinghouse Ltd.

CPP distributor in Hungary

An additional 30%, further to the acquisition of 70% in 2005

Immaterial

(Biomark)

Mar-06

US Alligare LLC

Development, marketing and sales of herbicides for the non-crop market

30% Immaterial

Deepening marketing of herbicides used for highway vegetation management in the US

Jan. 2007

US Alligare LLC " 19% Immaterial

The company has the option to acquire a controlling share as of 2008. As of 2010, both the Company and the remaining shareholders have the option to cause the Company to acquire the remaining Alligare stock.

Feb. 2008

US Alligare LLC "

21% (Exercising an option for a controlling share following 49% during 2006, and 2007 & onwards)

Immaterial

Deepening marketing of herbicides used for highway vegetation management in the US.

Feb. 2010

US Alligare LLC " 10% Immaterial At the time of this Report, Company holdings in

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Alligare total 80%

June Italy

Kollant Group (Kollant)

Italian non-crop leader

60% 12.5 Penetrating the European non-crop sector 2006

Oct. 2008

Italy Kollant " Completing 100%

15

Nov. 2006

Czech Rep.

Agrovita SPOL S.R.O

Czech distributor

75% Immaterial

Another important step in realizing the Company's Eastern European growth strategy

May-09

Czech Rep.

Agrovita SPOL S.R.O

" Completing 100%

Immaterial "

Sep-08

Serbia Magan Yu Agrochemical products distributor

Acquiring operations

7.5. Expanding marketing channels in Serbia

Dec-08

Poland Magan Yu

An agrochemical company, member of the Polish PCC Group

Some 90%. An additional 4% were acquired after the transaction is closed.

Oct-2010

US JK Inc.

Formulation and distribution of CPP to the Korean market

51%

Expanding the manufacturing and formulation capacities in the Korea

* In millions of dollars. "Immaterial" payment is less than $5m in cash or its stock equivalent. ** As of report date, an agreement was signed to acquire companies from the Mexican Bravo AG Group, engaged in the manufacture and distribution of copper-based pesticides, for total cash consideration of not more than $20 million, as well as additional amounts that the Company may pay in the future, based on formulas prescribed in the agreement. The transaction was closed subsequent to the balance sheet date. ***Subsequent to the balance sheet date, the Company closed the transaction for the acquisition of 17.5% of the share capital of Proficol Andina B.V. ("Proficol"), a Colombian company engaged in formulization and distribution of CPP's in South America, in consideration for $16 million. Hence, the Company increased its stake in the share capital of Proficol to 75%.

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2. INVESTMENTS IN COMPANY EQUITY TRANSACTIONS IN ITS SHARES

2.1 To the best of the Company's knowledge, during 2009-2010, no off-exchange transactions have been

executed by shareholders, except for the merger agreement, as discussed in Section 2.2 below2.

Moreover, during 2009 and 2010 and until the report date, Company employees exercised options into

Company shares at a total rate of 0.03% of the Company's issued and outstanding capital stock, of which

0.01% of the Company's issued and outstanding capital stock was issued and converted during 2010.

2.2 Company undertaking in merger agreement

2.2.1 Further to the Company's immediate reports dated October 11, 2011, November 21, 201 and

January 9, 2011 (RN 2010-01-642195, 2010-01-686415 and 2011-01-009165, respectively), the

information disclosed in them is included in this report be reference, on January 8, 2011, after

approval had been obtained from the Company's audit committee and board of directors, the

Company entered into a merger agreement to which the parties are: (1) the Company; (2) CC; (3)

the special purpose company; (4) Koor companies.

2.2.2 Under the terms of the merger agreement, within the framework of the merger, the Company's

shares which, on the closing date will constitute 60% of the Company's issued and outstanding

share capital (and this includes the acquisition all of the public's holdings, as well as those held by

Koor companies, which will constitute 7% of the Company's issued and outstanding share capital),

at a price that will reflect a company value of $2.4 billion, calculated based on the effective

holdings that do not include Company shares held by the Company and by a subsidiary. Hence,

immediately upon the merger's closing, CC will hold 60% and Koor will hold 40% of the issued

capital of the Company.

Pursuant to the merger agreement, the special purpose company, which is a company with no

assets or liabilities (except for the obligations pursuant to the merger agreement), will merge with

and into the Company, and all of the Company's ordinary shares (as provided in the transaction

report, as defined below), except for: (1) Company shares held directly or indirectly by the

Company or its subsidiaries (the exception shares) and (2) ordinary shares of the Company held by

Koor companies, which on the closing date will constitute 40% of the Company's issued share

capital (excludes the exception shares), will be converted into the right to receive cash proceeds of

the merger from CC.

2 For details on the sale of shares from the Company to a subsidiary and from the subsidiary to the Company during the report period, and changes in the number of dormant shares held by the Company and its subsidiary during the report period, see immediate reports dated March 23, 2010 and December 21, 2010 (RN 2010-01-426906 and 2010-01-726231, respectively.

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2.2.3 The merger proceeds to be paid for each said share is the amount obtained from dividing: (a)

$1,440,000,000, subject to the adjustment provided below by (b) the number of entitling shares (as

defined in this section below) as they will be on the merger's closing date. The per-share merger

proceeds, before the negligible dilution expected to be caused by the exercise of employee options,

is $5.57 per share, which, at the publication date of the transaction report (as defined below),

taking into account the representative exchange rate of the dollar on the publication date of the

report, amounted to NIS 20.06 per share. It should be noted that if, and to the extent, the Company

will issue capital from the signing date of the agreement until its closing date, added to the total

consideration will be an amount equivalent to 60% of the said offering proceeds. The merger

proceeds will not bear interest and tax will be withheld as required by law.

2.2.4 Upon the closing of the merger agreement, the Company's shares will be de-listed from trading on

the Stock Exchange and the Company will become a private company. Although the Company

will become a private company, it will continue to be a reporting corporation, as the term is

defined in the Securities Law – 1968, in view of the fact that the bonds issued by the Company in

the past will continue to be listed for trading on the Stock Exchange even after the merger closes.

2.2.5 Moreover, and as part of the merger, the parties – all or some, as applicable and as provided below

– have or will enter into additional agreements, as follows: (1) a loan agreement will be signed

between CC, Koor and a Chinese bank, whereby CC will cause a non-recourse loan to be provided

for the benefit of Koor, through a Chinese bank, totaling $960 million, which will be secured by a

lien on the Company's shares to be held by Koor, and may be repaid in cash or through the pledged

shares; (2) on the signing date of the merger agreement and in connection thereto, the Koor

companies and CC signed a voting agreement and a shareholders' agreement; (3) until the closing

date, additional agreements will be signed in connection with the execution of the merger,

including, a fidelity agreement between the parties and a registration rights agreements between

the Company, Koor companies and CC.

2.2.6 The merger's closing is contingent upon the fulfillment of various suspending conditions,

including, inter alia (but not only): (1) obtaining the requisite approvals from the governmental

authorities in China, which could take several months (and if not received within the period

prescribed (and which may be extended by CC for certain reasons), the merger agreement may be

cancelled by Koor or the Company; (2) signing of a loan agreement and providing the loan to Koor

(if Koor's board of directors decides not to approve the loan agreement, Koor will be permitted to

cancel the merger agreement); (3) obtaining approval of a general meeting of the Company in a

special majority, in accordance with the provisions of Sections 320(c) and 275 of the Companies

Law (Koor has undertaken to vote in favor of the merger in the general meeting of the Company,

subject to the signing of the loan agreement and additional conditions).

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Likewise, pursuant to the merger agreement, the Company has undertaken that during the interim

period from the merger agreement's signing date and its closing date (or cancellation date of the

merger agreement, whichever is earlier), and except as stated in the Company's budget for 2011,

and as made an exception in the merger agreement and its appendices, the Company and its

subsidiaries will during the ordinary course of business and commerce, including the Company's

undertaking not to take certain actions during the interim period without obtaining the consent of

CC, to comply with the terms of the agreement.

2.2.7 The merger's closing will occur soon after the fulfilment of all of the conditions for the merger, the

fulfilment of which is required before the merger's closing (or waiver of their fulfilment by the

party allowed to waive fulfilment of any suspending condition pursuant to the merger agreement).

The merger agreement prescribes that if the merger closing is not carried out by August 31, 2011

(or a later date – if certain circumstances provided in the agreement are fulfilled), the agreement

may be cancelled by any of the parties. The merger will take effect on the date the merger

certificate is received from the Companies Registrar.

2.2.8 On January 20, 2011, the Company published an invitation to a general meeting and an immediate

report on the transaction between the Company and its controlling shareholder, the information

that it contains is included by reference (RN 01-2011-025200) ("Transaction Report"). For

additional information on the merger agreement and its terms, regarding the additional

agreements discussed in Section 2.2.5 above and regarding the opinion obtained by the

Company regarding the reasonableness of the merger proceeds to the Company's

shareholders (including focus on the benefit attributed to Koor in connection with the loan

agreement), see the transaction report. For details on the Company's plan following the merger,

see Section 31.4 of this Report below. For details on the class action lodged against the Company

and against Koor in connection with the merger, see the immediate report dated January 16, 2011

(RN 2011-01-018612) as well as Note 20 to the financial statements at December 31, 2010.

2.3 Buy-back of Company's shares

At the report date, the Company holds 39,882,486 shares, or 8.4% of the Company's issued share

capital. Moreover, a subsidiary holds 4,415,569 shares, or 0.93% of the Company's issued and

outstanding share capital.3 Note that as described in Section 2.2 of the report, a suspending

condition for closing the merger agreement is that all of the Company's shares held directly or

indirectly by the Company or its subsidiary will be cancelled by the merger's closing date.

3For details on the sale of shares from the subsidiary to the Company and from the Company to the subsidiary during the report period, and the changes in the number of dormant shares held by the Company and its subsidiary during the report period, see footnote 2 on page 13 above.

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2.4 Issuance of rights by the Company and making exception of foreign holders

On March 9, 2010, the Company's board of directors adopted a resolution in principle regarding the

issuance of shares by means of rights to the Company's shareholders. On May 11, 2010, the

Company's board of directors resolved not to issue the shares by means of rights.

For details regarding approval of the general meeting to making an exception of the foreign

shareholders in every issuance of securities through rights, as a result of which the Company will also

be subject to the laws of a foreign country, see the immediate reports dated March 10, 2010 and March

24, 2010 (RN 2010-01-409374 and 2010-10-428952, respectively).

3. DIVIDEND DISTRIBUTION

In March 2007, a resolution was adopted by the Company, whereby the board of directors will consider,

from time to time, at its exclusive discretion, the possibility of distributing dividends and their amount,

according to the Company's requirements as they may be from time to time, its cash flows and

anticipated investment plan, all subject to the existence of distributable earnings and applicable legal

provision. (For further details, see the Company's immediate report of March 13, 2007, RN 2007-01-

334826).

Cash dividends declared and distributed in 2009-2010:

Year Total

2009 70,000,000

2010 0

For further details about dividends distributed by the Company in 2009 and the board's resolutions

regarding their distributions, see immediate reports of August 12 and September 29, 2009 (RN 2009-01-

195360 & 2009-01-243120, respectively). For details about one-off withdrawal of profits from foreign

Group companies in 2009, subject to Amendment 169 of the Income Tax Ordinance (New Version),

5721-1961, see Section 24 below).

The balance of distributable earnings according to the Company's financial statements at December 31,

2010, totals $610,987,0004.

4 For details on tax aspects of the dividend distribution from such earnings, see Section 24 below.

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According to the Amendment to the Securitization Agreement of January 2010, so long as the ratio of the

Company's interest-bearing financial obligations to EBITDA exceeds 3.3, the Company will not distribute to

its shareholders, and will cause its subsidiaries and affiliates not to distribute to its shareholders, any

dividend or other allocation, and will also pay no management fees, apart for those related to its normal

business practices and under market conditions.

Likewise, pursuant to the merger agreement, the Company has undertaken that during the interim period

from the signing date of the merger agreement until the merger closing date (or the cancellation date of the

merger agreement), the Company will not distribute dividends to shareholders without obtaining CC's

consent, under the terms prescribed in the agreement.

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Part II: Further Information

4. FINANCIAL DATA

As detailed above, at the report date, the Company is engaged in one core area. For financial information

and data about the Company's operations see its consolidated financial statements at December 31, 2010,

attached herein. The following table reports the Company's consolidated income by segment –from its

core activity area and additional operations (in a format identical to the segmentation in its financial

reports and without adjustments to the consolidated financial statements)5 in the three years prior to the

abovementioned report.

2010 (in $ thousands)

Area of activity

Income Costs6

Operating income

Attributed to Parent Company

owners

Operating income Attributed to rights

not conferring control

Operating income margin

Total Assets

Total Liabilities

CPP 2,179,939 2,197,937 )18,237( 239 )0.8%( 2,690,454 477,374 Other

Activities 182,293 158,063 24,230 - 13.3% 205,483 26,023

Total 2,362,232 2,356,000 5,993 239 0.3% 503,397

2009 (in $ thousands)

Area of activity

Income Costs6

Operating income Attributed to

Parent Company owners

Operating income Attributed to rights

not conferring control

Operating income margin

Total Assets

Total Liabilities

CPP 2,042,170 1,944,859 95,427 1,884 4.8% 2,605,245 543,556 Other

Activities 172,446 150,027 22,280 139 13% 215,692 20,508

Total 2,214,616 2,094,886 117,707 2,023 5.4% 564,064

2008 (in $ thousands)

Area of activity

Income Costs6 

Operating income Attributed to

Parent Company owners

Operating income Attributed to rights

not conferring control

Operating income margin

Total Assets

Total Liabilities

CPP 2,334,517 1,996,496 336,208 1,813 14.5% 2,632,469 507,218Other

Activities 200,987 171,758 29,124 105 14.5% 222,806 33,944

Total 2,535,504 2,168,254 365,332 1,918 14.5% 541,162

For further explanation of developments in the figures presented in the financial statements, see the

Company's Directors Report attached herein. In addition, for the presentations made by the Company in the

periodic report regarding its operations and results, see the immediate reports dated March 10, 2010, May 12,

2010, June 28, 2010, and August 11, 2010 (RN 2010-01-409815, 2010-01-478635/ 2010-01-535371 and

2010-01-582831, respectively), included as a reference in this report.

5 At the report date, revenues and income from inter-segment sales are negligible. . 6 At the report date, the Company management believes that segmenting the core activity area's costs into fixed and variable costs (as required by the Securities Regulations (Prospectus Details and Prospectus Draft – Structure and Format)-1969, as revised in January 2010) is irrelevant to the Company's operations; therefore, the management does not analyze these data and they are unavailable.

19

5. ECONOMIC ENVIRONMENT AND EXTERNAL FACTORS AFFECTING COMPANY OPERATIONS

The following is a description of trends, events and key developments in the Company's macro-

economic environment that have or may be expected to have, to the best of the Company's knowledge

and estimate, material impact on its business results or developments. The factors listed below affect the

Company and its various products differently in the various geographic regions. Since the Company's

product range is comparatively broad and it is active throughout the world, the aggregate effect of

changes in the conditions detailed below, in any given year, is not uniform and may sometimes even be

mitigated by the effects of other factors in a particular region or time of year.

The Company's estimates presented in this section and in the rest of this report are based, among other

things, on data published, by (1) Phillips McDougall (http://www.phillipsmcdougall.com) – an

independent consultation and research firm specializing in agriculture, crop protection and biotechnology

(data received in February 2011); (2) Cropnosis – crop protection and biotechnology market research and

consultation firm (http://www.cropnosis.com); and (3) the US Department of Agriculture (USDA)

website (http://www.usda.gov/wps/portal/usdahome). Note, however, that the figures below have not

been independently assessed by the Company.

Global Factors

Demographic changes, economic growth and rising standards of living. Multi-year global economic

growth, the population explosion, urbanization and rising standards of living in various regions,

particularly in emerging economies, have led to an increase in food consumption, particularly animal-

derived food consumption. Accordingly, there has been a clear trend of rising demand for agricultural

crops to meet this rising consumption, particularly for crops containing vegetable proteins used by the

food industry (cereals, mainly corn and soybean). This demand fueled the growth of the agricultural

sector, concurrent with stabilization of planting areas (whose global maximal area is limited), reduction

of the arable land areas (among other things due to the demand for such areas to build new cities), and

at the same time led to increased steps to maximize crops production per unit land area and enhance

crop quality. On top of that, rising standards of living in emerging markets are expected to increase

demand for food products, including demand for beef products (and consequently growing demand for

grain fodder).

20

Agricultural commodity prices. In 2010, mainly toward the end of the year, agricultural commodity

prices resumed their climb, almost reaching their high level of 2008. The global population growth,

the multi-year increase in living standards and the change in nutrition practices, particularly in

emerging markets such as Brazil, China and India, which increased the demand for food in general and

animal -derived food in particular, raised demand for agricultural commodities. At the same time, we

note relative stability in the size of global planting areas over time, which requires steps to increase the

production of available lands. In this context, it should be noted that in 2010, extreme climatic

conditions, such as the fires in Russia, extension of the winter and floods in Europe and exceptional

cold in North America caused a decrease in agricultural output and inventories. Consequently, and to

meet the growing demand for agricultural commodities, we observe a multi-annual trend of increased

demand for Company CPP's, essential for protecting agricultural crops and facilitating the

maximization of existing areas. Moreover, the higher agricultural commodity prices and the higher

profitability to farmers, the more worthwhile for them to increase crop protection. Accordingly,

demand for CPP's increases. The Company estimates that in the long run, the relative stability in

planting areas, population growth and high standards of living, will continue to positively impact

demand for Company CPP's.

Significant fluctuations in global oil prices and impact of natural gas. In 2009-2010, prices of oil and

oil derivatives rose, although the price of oil remained below its record price of early 2008.

In the global market, the price of oil has several cumulative effects on the Company's core products:

(1) About 75% of the sales costs of these products are due to the purchase of raw materials –

chemicals usually produced as third- or fourth-order oil derivatives. This means that although extreme

changes in global oil prices do lead to concomitant changes in the price of these chemicals (affecting

the Company's sales costs), the effect is indirect and partial due to their being distant derivations of oil.

Moreover, these effects are usually evident in the Company's results only months later. (2) In addition,

oil is used by the companies in our core area of operations as an energy source for operating

production facilities and overland and oversea transportation of their products. Global oil price

fluctuations thus affect energy costs directly, fully and immediately. Nevertheless, the level of these

costs is relatively lower than those resulting from first main effect.

21

The Company entered into a multi-year natural gas supply agreement for the Group's production

facilities in Ashdod and Ramat Hovav, and is in advanced negotiations to purchase natural gas from

alternate sources. With the beginning of the flow of gas, pursuant to the agreements, natural gas will

also serve as part of the energy sources used in its production. Therefore, developments in the gas

market that impact the price or availability of natural gas could influence its businesses. In the

Mediterranean, within the territorial waters of the State of Israel, natural gas reserves have been

discovered in recent years, in very large volumes, and according to third-party assessments, the sea has

additional gas reserves. These discoveries could provide the Company with additional natural gas

sources in the medium-term. Contrarily, the political instability revealed in recent months in several

Middle Eastern countries, including Egypt, could, under certain scenarios, have a negative impact on

the availability of natural gas produced in Egypt. For additional information see Section 19.6.

Development of the genetically modified seeds market. Over the past decade, genetically modified

organisms (GMO) technology developed through crop seed enhancement, leading to increased

demands in the agrochemical market in which the Company operates. This stimulated the development

of advanced agriculture wherein farmers make informed use of various inputs, leading to increased

usage of CPP's in order to maximize per unit output. Also farmers are more prone to protect crops that

generate more from a given planting. As a result of the development of the GMO market, prices of

certain CPP's have fallen, leading to rising demand for non-selective products at the expense of

selective products, while putting pressure on their profitability. The company is currently in the

process of readjusting its product range, including the marketing of herbicides adapted to GMO crops.

Pursuant to this, the company invested in 2009 in a joint venture to develop enhanced traits in

agricultural crops through specific modifications of the cell's genetic sequence, without affecting the

rest of its genomic structure, without injecting foreign genetic material to the genome and without

leaving traces of foreign genetic material in the plant. (See Subsections 6.4 and 28.1 below for further

details). Moreover, in 2010, the Company entered into a strategic partnership agreement with

Monsanto, regarding the inclusion of several herbicides sold by the Company in a weed management

program. For additional details, see Section 28.2 of the report.

Patent expiry and growth in volume of generic products. The Company estimates that in recent years,

the market share of patent-protected CPP products has been consistently shrinking due to patent expiry

and the reduced amount of new ethical products. This means growth potential for companies engaged

in developing new generic products replacing products whose patents have expired. Nevertheless, the

growth potential for the volume of generic products globally is expected to lead to increased

competition for market shares, including on the part of ethical companies, which may even erode

product prices. (See Subsection 7.3 below for further details).

22

Chemicals industry in China , including agrochemicals

During the last decade, China has developed a chemicals industry that the Company estimates is the

second largest in the world after the US. Within this industry, the agrochemicals industry has also

developed, including thousands of players who invested in manufacturing infrastructure, of which half of

their production capacity is presently directed to exports, intended for sale through small and large

companies that are the Company's competitors. The growth in production capacity, on one hand, and the

price levels and competitiveness of the products produced in China on the other hand, affect the structure

of competition in the entire industry.

23

5.2 Localized Factors

The agricultural market and difficult weather conditions. The global market at which the Company's

crop protection products are directed is mainly the agricultural market. Weather conditions during the

growing season in each country where the Company operates impact directly on the demand for its

products. The Company estimates that extreme weather conditions, as well as natural disasters (floods,

drought, frost) affect the demand for CPP products, either positively or negatively, as the case may be,

and thus its financial results.

Regulatory changes:

o Environmental protection. The company's core activity area is subject to strict and rigorous

regulatory requirements in the environmental protection area, applicable both to the Company's

production processes and to its production environments. Moreover, these vary with the policies

of each country where it operates. In addition, use of company products is subject to registration

by health, environmental protection and agriculture agencies in the various countries. Recent

years have seen a consistent trend of growing strictness and rigor in these regulatory

environmental requirements in various countries, including Israel, which led to increased

company investments and ongoing costs in this area. The company makes material investments in

product development and registration as well as in upgrading its production facilities, among other

things, in order to meet such regulatory requirements. (See Section 25 below for more details).

o Registration. The company's core activity area is subject to product registration requirements,

based on the policy in each of the countries in which it operates. Moreover, the Company is

required, from time to time, to renew its registrations by conducting new tests and studies as well

as compliance with new requirements. Any intensification or easing of registration requirements

respectively increases or decreases costs for companies interesting in registering their products.

Moreover, intensified registration requirements make it difficult for new players to penetrate

markets, thus strengthening the position of licensed operators already established in these markets,

and vice versa. The company thus estimates that in countries where it already enjoys a

competitive edge, intensifying registration requirements could only increase this edge, since it

would make it difficult for its competitors to penetrate that market, while in countries where it has

a relatively small market share, if any, such a move could make it more difficult for it to penetrate

the market in question. Likewise, changes in registration requirements for chemicals in Europe or

changes in customer preferences in Western countries could limit the use of raw materials bought

by the Company in emerging markets and require redeployment of the Company's procurement

organization, which might reduce its profitability for a certain period of time.

24

Government policies. Governments often use subsidies and/or other types of assistance as incentives to

increase and/or reduce the extent of land development. The nature of government policies and resulting

extent of arable lands in a given country affect the demand for and prices of the Company's products.

Up to the time of this report, however, no government policy had any significant effect, whether

positive or negative, on Company results.

Since the Company operates globally, its export and import activities are subject, among other things,

to a variety of national requirements and standards related to registration. Moreover, customs and port

clearance is conditioned on registration. Extreme intensification of such requirements and standards

might make it difficult for the Company to import raw materials and export its products, and even

compromise its profitability.

World ports. Imports and exports of products and raw materials by multinationals in the Company's

activity area depend mainly on worldwide port services. Strikes and sanctions, heavy traffic, bad

weather conditions or substandard infrastructure in world ports might delay the supply of Company

products and make the raw materials it requires unavailable, compromising the Company's ability to

meet deadlines and its obligations to its customers in general and consequently its reliability and

reputation. Importantly, the recent slowdown in world trade following the Global Crisis reduces the

potential impact of the aforementioned factors. Be that as it may, in order to minimize such risks, the

Company occasionally readjusts its inventory volumes, and sometimes makes use of air transport.

5.3 Monetary Policy and the Financial Market

Foreign exchange volatility. The company denominates its consolidated financial statements in USD

($) (its functional currency), while its operations, sales and raw material purchases are carried out in a

variety of currencies (mainly USD, Euro, NIS and Brazilian real, as well as pound sterling, Australian

dollar, Polish zloty, South-African rand, Indian rupee and others). Therefore, fluctuations in the

exchange rates of buying and selling currencies, whether positive or negative, as the case may be,

affect company results, mainly due to two key factors: (1) the rising dollar exchange rate relative to

other currencies used by the Company reduces the Company's dollar-denominated sales volume; and

(2) the high volatility of other currencies increases the costs of currency hedging transactions, thus

increasing the Company's financing costs.

At the time of this Report, the Company consolidates its currency exposure resulting from such

volatility on an ongoing basis and takes steps to hedge the maximum material net exposure to a certain

currency using derivative financial instruments (foreign exchange futures and/or currency options

and/or other hedges). Nevertheless, since these steps enable the Company to hedge against most of its

balance-sheet exposure but only part of its economic exposure, extreme fluctuations in the exchange

rates of the abovementioned currencies might affect company results and profitability either positively

or negatively, as the case may be.

25

Consumer price index (CPI) volatility. The company finances its business operations also by CPI-

linked NIS-denominated loans, such as bonds it issued in Israel. Therefore, increased CPI rates, as well

as changes in the NIS exchange rate, may have material impact on its funding costs. At the report date,

Company policy is to hedge most of the said risk using derivative financial instruments, such as swaps,

forwards and index transactions. The Company's board may, from time to time, revise this policy as

circumstances change or subject to its discretion. During 2010, the Israeli CPI rose by 2.7%.

Recommendations of the Committee for Investments in Nongovernmental Bonds by Institutional

Bodies. In July 2010, the Ministry of Finance published provisions related to the investment in non-

government bonds by institutional bodies, prescribing provisions and recommendations with respect to

contractual stipulation that such bodies would have verify are included in the bond terms prior to

investing in them, and recommendations regarding the information essential for such bodies in order

to assess and follow-up on bond investments. The Company assesses that these provisions may affect

opportunities and the terms for raising capital from institutional bodies in bond offerings.

Note: The Company's business activity and results may be affected by the abovementioned factors, either

positively or negatively, also in the future. The extent of such effects depends on factors including the

intensity of said events, their duration and the Company's ability to cope with them. (For further

details on risk factors relevant to the Company's operations see Section 34 below).

The Company's assessments regarding the rising standards of living, commodity and raw material

prices, legislative developments and their effects on Company results relies on information from

proprietary Company data, studies and other publications as detailed below, as well as on the

Company's own estimates at the report date of the effects of market trends on supply and demand for

its products.

This information is inherently uncertain as it depends, among other things, on additional factors

beyond the Company's control, including activities by its existing and potential competitors, global

and national regulatory and economic processes. Company estimates might thus prove incorrect

should it become apparent that said data were wrong or should other factors beyond the Company's

control, affected supply and demand as mentioned above.

26

Part III: Profile of Company's Businesses

6. CROP PROTECTION PRODUCTS (AGROCHEMISTRY)

6.1 Background Information

The Company's crop protection product (CPP) area includes research, development, production and

marketing of products which enhance crop quantity and quality by protecting against the damaging and

destructive effects of a variety of weeds, pests and fungi. Accordingly, the Company's product range

includes three main product families: (1) herbicides; (2) pesticides; and (3) fungicides. In addition, the

Company markets (mostly directly and otherwise through external distributors and agents) the products

it develops and produces, as well as other crop protection products it buys from third parties.

CPP's in the global market are divided into (1) patent-protected ethical products originally developed by

leading companies in the field (research-based companies, as described below); and (2) generic products,

such as the Company's products, which are similar to patent-expired source products (in terms of

composition and modus operandi) and are produced by generic companies.

The Company sells CPP's in over 120 countries and at the report date, is the global leader in generic CPP

manufacturing and distribution.

CPP's are used mainly by the agricultural sector. However, the Company uses its expertise to develop

and adapt similar products for non-crop uses as protection against weeds, pests and fungi in roadsides,

forests, lawns, parks, institutions, the wood and paint industry, and private facilities, homes and gardens.

6.2 Legislative Restrictions, Regulations and Special Constraints in the CPP Area

Company operations are subject to legislative restriction and constraints related to registration and

environmental protection issues and requirements for registrations and permits from government

agencies such as the Ministry of Health, the Ministry of Agriculture and the Ministry of Environmental

Protection or their counterparts in each country. See Sections 15 and 26 below for more information

about these aspects of the Company's operations and details on the various restrictions.

27

6.3 Trends in the CPP Area Activity Volume and Profitability

According to data reported by the Phillips McDougall independent consultancy group,7 the Company

estimates that over 70% of the world CPP market are controlled by six giant multinational research-

based companies, or RBCs, which develop and produce the original (ethical) products and patent the

research rights in most world countries (hereafter, ethical companies). In addition, since the patents on

some of the ethical companies' products have expired, they also sell patent-expired products (which

represent, at the time of this Report, a significant share of the products sold by those companies).

The years 1995-2002 saw a significant consolidation process among ethical companies, reducing the

number of the leading players from 12 in 1995 to 6 in 2002. According to the Company's estimate, this

M&A process is designed to ensure global economies of scale by streamlining operations and increasing

R&D investment. Importantly, many of the companies listed below, particularly the bigger ones, engage

in diverse business activities (in many cases, overshadowing their CPP operations). For example, Bayer,

Dow and DuPont have significant operations in the industrial chemicals area. Other companies, such as

Monsanto, DuPont and Syngenta have significant operations in the seed industry, as detailed in

Subsection 6.4 below.

The Company, which, as noted, mainly produces and markets generic CPP's which compete with patent-

expired products of ethical companies, ranks seventh worldwide in terms of its sales turnover, with annual

sales of $2,362.2m in 2010 (of which $2,179.9m is from CPP's), making it the largest generic company in

its area.8 Nevertheless, it is worthy of note that a significant part of ethical companies' sales as detailed

below are sales of products whose patent has expired but are still sold by those companies.

According to advance estimates provided by Phillips McDougal in February 2011, the sales turnover of

the leading CPP companies for both the crop- and non-crop markets totaled about USD 44,195m9 in

2010 (compared with USD43,720m in 2009)

Presented below is total 2009 sales turnover of the CPP's area to the agricultural and non-agricultural10

markets by the leading companies:

7 Source: Phillips McDougall – Industry Overview; data provided in February 2011. 8 This figure is based on the Company's financial reports attached herein, while the figures in the table below are based on advance estimates submitted to the Company by Phillips McDougall in January 2011. 9 According to preliminary estimates submitted to the Company by Phillips McDougall in February 2011. 10 Excludes sales of modified seeds.

Sales Turnover (in $ millions)* Name of Company

8,878Syngenta 8,136Bayer (excluding seeds) 5,342BASF 4,869Dow AgroSciences** 2,892Monsanto*** 2,486DuPont 2,180Makhteshim Agan

28

*The Company estimates that the turnovers above also include sales among the companies included in the table. ** Including modified seed sales. *** This company's financial year ends in November.

In order to deal with the improved competitive position of ethical companies following the consolidation

process described above, large non-ethical companies began consolidated their own positions by acquiring

local distribution companies or cooperating with other medium-sized companies to streamline and reduce the

costs of registration processes and new market penetration efforts. Moreover, in view of this consolidation

process and owing to the resultant large market shares now controlled by merging companies, anti-trust

authorities in the various countries have sometimes required the sale or abandonment of certain production

lines in the merging companies' product range as conditions for approving mergers. Sometimes, these

companies even agreed to give up on strategically important products. These developments enabled other

companies active in the CPP area, including the Company, to buy such products and expand their own

product range.

The CPP area is affected by a variety of external factors, as detailed above, particularly those which

materially affect the global agricultural market, and especially in countries where the Company operates. In

addition, the global agricultural market and success of a growing season are affected by weather conditions.

The Company is active in various countries in both hemispheres – the Northern Hemisphere (, where the

growing season starts in the first quarter, and the Southern Hemisphere where the season starts in the third

quarter. This serves to mitigate the effects of external localized factors on Company results.

Over the last decade (beginning in 2000), the global agricultural sector experienced impressive growth,

leading to expanded planting areas (which are limited) and increased crop volumes to meet the growing

demand for agricultural products – which was expressed in the quantitative increase in CPP sales (against a

real decrease in CPP prices), as provided below..

According to the Company's estimate, two main factors fueled this agricultural growth: (1) Growing

populations and rising standards of living globally, and changes in eating habits, combined with the

urbanization trend, particularly in emerging economies such as China and India increasing the demand for

food in general, and animal-derived food in particular, and led to an increase in quantities consumed This

resulted in growing demand for crops consumed in the food industry and which constitute protein sources for

animal fodder (such as wheat, corn, and soybean). (2) Growing global demand for oil product substitutes

derived from sugarcane and corn crops. Their effect was an increase in planting areas (which are limited) and

investment in protection and increasing high-quality crop production from a given area. As Together with

the limited planting areas worldwide, these factors have led to growing demand for agricultural commodities

and rising prices of commodities such as cotton, soybean, corn and wheat. At the same time, this led to

increased demand for CPP's – the Company's core operational area.

This trend, and the higher prices of agricultural commodities, made cultivation all the more valuable to

farmers seeking to meet the demand for agricultural commodities and to maximize their crop yields. The

29

farmers thus required larger amounts of CPP's throughout the growing stages in order to maximize crop

protection.

During 2009, the Company's business environment changed considerably, impacting CPP companies,

including the Company, mainly as a result of the global crisis and due to the falling prices of Glyphosate, a

major product in the market, whose price plunged during 2009. Consequently, the sharp growth which

characterized its operations grounded to a halt in 2009.

In 2010, the Company's global sales increased. The Company's modest sales growth in 2010 is similar to the

positive trend that characterized most of its competitors, and the Company increased its market share in some

of its existing regions of activity (Europe and APAC), and maintained a stable market share in other regions

of activity (Latin America aside from Brazil). Stability was also maintained in the basic long-term trends

that impact the CPP industry, including stability in amount of planting areas and a high level (in a multi-year

comparison) of agricultural commodity prices. Notwithstanding the aforesaid, the Company's results

worsened in 2010, especially in the fourth quarter of 2010, and this, noting non-recurring events, including

the deterioration of the business results of the Brazilian company, which together with the comprehensive

reorganization plan, led to the recognition of one-off expenses (including impairment of assets provision),

employee terminations and other expenses for this reorganization (as noted in Section 33.2 of the report) and

expenses for termination of employees from production sites in Israel, pursuant to the agreement of

principles signed (as discussed in Section 21.4 of the report) and an increase in financing expenses and tax

expenses. For additional details and explanations on the Company's results for 2010, see the Directors'

Report attached in Chapter 2 of this report.

Below are 2010 figures submitted to the Company by Phillips McDougall shortly before this publication on

the market distribution and growth rates in the CPP for the agricultural market alone, according to regions (in

current prices, in sales to distributor terms):

NAFTA Latin

America

Europe

Asia

Africa & Middle-

East

Total Nominal Year-to-Year Change (Total)

$M 7,945 8,385 10,430 9,995 1,560 38,315 1.2%

% 20.7% 21.9% 27.2% 26.1% 4.1% 100%

30

Source: Phillips McDougall – Industry Overview; data provided in February 2011.

As seen in the figures above, despite the relatively high increase in quantities of CPP's sold globally, the

increase in the value of sales in the global CPP market over the years is modest, despite the positive trends

described previously, due to the increase in sales of generic products, which intensified competition.

In 2010, the planting areas remained stable and level of CPP consumption increased compared to 2009, due

mainly to the rising agricultural commodity prices, primarily toward the end of the year, which supported

demand for CPP's and an increase in sales quantities in the market. Inventories in the marketing pipeline fell

below their 2009 level.

The Company's 2010 results were adversely affected by extreme weather conditions in some of its activity

areas and generally: the cold winter in the northern hemisphere (mainly in Europe and North America),

which delayed the opening of the agricultural season in the first quarter, floods in Northern Europe in the

second quarter, and the drought in Eastern Europe in the third quarter Additionally, the weather conditions in

the northern hemisphere hurt fungicide sales in the relevant seasons.

Moreover, the quantitative sales growth in the CPP market continued in 2010, alongside a decrease in prices

of CPP's. The price declines were due mainly to consequences of the weather on the agricultural season in

the Northern Hemisphere, the level of inventories in certain product pipelines, and the growing competition

in the CPP market. The intensified competition , whether due to competition from large companies or from

the development of the agrochemicals industry in China and the increase in the percentage of imports from

China, which mainly hurt companies for which Glyphosate is a key component of their operations (such as

Monsanto and Nufarm). Average sales prices stabilized in the fourth quarter. Evident in 2010 is the increase

in investment by the large companies in trading and marketing in emerging markets, focused on Asia.

Company management estimates that the changes in the Company's strategy (as discussed in Section 31.2 of

the report) and the measures completed by the Company in 2010, will begin to be expressed and lead to

gradual improvement in its results already in 2011. At the report date, the Company assesses that as a result

of these measures, and in view of the trends characterizing the business environment, as expressed as the

time of this report, in the first quarter of 2011, the Company will present business results similar to those

presented in the first quarter of 2010.

See the Directors' Report below for further details on the 2010 trends and their effect on the Company's

results.

2010 to 2009 Growth

NAFTA 0.2% Latin America 8.9%

Europe -9.1% Asia 8.1%

Africa and the Middle East 3.7% TOTAL 1.2%

31

The abovementioned Company assessments of long- and short-term developments in the CPP area, as well

as the Company assessments regarding possible growth in demand for its products, constitute forward-

looking statements as defined in the Securities Law - 1968, which are based on subjective Company

estimates, based on its executives' experience and market trends in 2010 and prior years. Since most of these

factors are beyond the Company's control, its estimates remain uncertain, among other things due to its

inability to foresee one-time, exceptional or significant events, or due to the materialization of any of the risk

factors detailed in Section 34 below, or the effects of other extraneous factors beyond the Company's control.

Factors affecting supply and demand in the CPP area. Beyond the factors detailed in Sections 5 and 6.3

above, recent years have been characterized by patent expiry at a higher rate than that of the entry of new

patent-protected products into the market. Therefore, in recent years, growth in the generic product market in

which the Company operates has been more rapid than the corresponding ethical products market.

Nonetheless, it should be noted that a significant part of the sales of ethical companies is of products whose

patents have expired, but the companies continue to sell them.

In addition, multi-year rise in standards of living in the Western world also increases demand for non-crop

CPP's.

As already mentioned, the strategy adopted by the Company in recent years was to grow and expand by

means including buying companies and product lines as detailed in Subsection 1.4 above. These acquisitions

enhanced the Company's marketing capabilities owing to its improved geographical deployment, enabling it

to respond more quickly, shorten its supply chain, reduce its dependence on independent distributors and cut

brokerage costs. In addition, this strategy expanded the Company's product range and improved its ability to

provide a variety of solutions for a variety of needs. Likewise, in 2010, the Company began implementation

of a comprehensive change in strategy, in order to adapt its business model to changes in the industry's

competitive environment and to strengthen its key areas of activity. See Par. 31.2 of the report for additional

details.

6.4 Technological changes that could affect the CPP Area

The development of genetically modified organisms (GMOs) encouraged the development of selective

herbicides designed to destroy weeds of a certain kind (and no other), which therefore do not damage the

very crop they are designed to protect. In order to deal with the shortcomings of the nonselective herbicides

which destroy all existing weed types in a single stroke (and also threaten the crop itself), Monsanto – one of

the leading nonselective product manufacturer – acquired during the 1980's controlling interests in seed

developing companies, in order to pursue R&D activities and find genetic engineering solutions that will

make crops resistant to the chemicals involved.

32

To the best of the Company's knowledge, there are two genetic seed engineering families: (1) Input traits:

products implanted with properties which benefit the farmers by, among other things, protecting their crops

against nonselective substances, thus saving farmers the costs of buying several selective CPP's. To the best

of the Company's knowledge, at the report date, investments and development were carried out mainly in this

family, although mostly in major crops, such as corn, soybean, cotton and canola; and (2) Output traits:

products implanted with properties which improve the crop's quality and nutritional composition. Towards

the late nineties, genetically modified seeds sold on the market to farmers enabled the use of a single,

nonselective herbicide – Glyphosate – require them to by less selective herbicides. Moreover, at the same

time, a genetically modified seed was developed for certain crops with an active agreement released by the

crop itself, acting as an herbicide, making the use of some herbicides completely redundant.

At the report date, GMOs are sold mainly in the US, Brazil and Argentina, and recently also in India and

China. Recently, EC countries have recently backtracked on their decision to prohibit the use of GMOs,

although it enabled a country-level decision on certain matters. Note that Company CPP sales to EC

members represent some 40% of its total turnover.

Upon identifying the demand for Glyphosate, the Company contracted a long-term agreement with

Monsanto to market its nonselective herbicide in Brazil, Europe and other countries. The Company also buys

Glyphosate from other suppliers. Additionally, the Company produces and markets complementary CPP's for

genetically modified seeds, and in 2010, it entered into a strategic cooperation agreement with Monsanto for

the inclusion of several herbicides sold by the Company, see Section 7.5, in Monsanto's Weed Management

Program, as detailed in Section 28.2 of the report.

Despite the falling demand for the Company's selective products in regions and crops in which there is

increased use of GMO's, the Company estimates that this technological innovation offers new opportunities

for companies producing selective products, mainly for the following reasons: (1) using the non-selective

products creates new challenges for farmers which may be solved by Company products; (2) use of a single

material with a non-changing action is not desirable and could cause an increase in the development of

weeds resistant to it, requiring the use of other Company products; (3) the more weeds originate in

genetically modified seeds planted in the past in the farmer's lands (such as a different crop left over from the

previous season), the more resistant they are to the product; and (4) continued development of seeds resistant

to additional agrochemical products by leading seed companies. Nevertheless, should the Company not

properly adjust its product range to these technological changes, this might affect the demand for its

products.

In addition, the Company estimates that continued R&D in the genetically modified seeds area will focus

mainly on output traits, making crops more valuable to farmers. This trend also represents a potential for

increased demand for Company products designed to protect those same crops.

33

The abovementioned company assessments of the effects of recent technological developments, new business

opportunities for companies manufacturing selective products and foreseeable GMO trends constitute

forward-looking statements as defined in the Securities Law, based on on subjective Company estimates and

various publications, as well as on the Company's estimate regarding the potential implications of the

development of GMOs and the extent of Glyphosate consumption. The realization of these estimates is

uncertain, among other things due to the materialization of risk factors or the effects of extraneous factors

(such as changed trends in the CPP area or the GMO area) beyond the Company's control.

6.5 Success Factors Critical to Company Operations

The Company estimates that the following factors are critical to its successful CPP operations:

General:

a) Accumulated reputation and knowledge in the CPP area in the various countries and among

customers and suppliers;

b) Financial strength and resilience combined with consistent growth, allowing the Company to

realize an M&A strategy and provide immediate response to attractive business opportunities to

expand its product range and volume of its operations;

c) Access to funding sources and reasonable funding conditions allowing the Company to make

investments and ensure positive ROI;

Generic development:

d) Dedicated knowledge and technologies, financial investments, skilled manpower and registrations

required to develop and market the designated product;

e) Successful completion of generic product development with proven effectiveness and quality of

the developed product compared to the ethical product, as well as timely market entry;

f) Consistent and continued development of additional products based on the Company's

accumulated technological expertise;

Raw material procurement:

g) Raw material availability and supply chain efficiency;

h) Appropriate raw material costs, prices, quality and quantities, and operational flexibility for

meeting actual demand;

34

Production:

i) Efficient production costs structure combined with appropriate global deployment;

j) Obtaining regulatory approvals and permits for the product's commercial production and

marketing in relevant markets;

k) The Company's extensive technological expertise accumulated over years of industrial production

of its products, particularly in chemical synthesis and formulation, which ensures its products are

high quality, effective and safe;

l) Ownership of or access to appropriate dedicated manufacturing facilities and efficient and well-

controlled production operations, at minimal health risks to Company employees, while

complying with quality and safety standards;

Commercial marketing:

m) An efficient and wide-ranging marketing organization, allowing the Company to distribute its

products to a maximum number of prospective clients, as well as entering into commercial

agreements for production and marketing of products at competitive terms, while relying, among

other things on the Company's subsidiaries to forge close local relationships and develop new

marketing niches in those and other countries;

n) A global marketing and distribution network, offering an advantage over generic competitors

active in only some of the Company's markets, enabling the Company to sell its products

throughout the year according to the seasons of each geographic region;

o) Ability to utilize marketing and sales management knowledge, expertise and experience in target

countries, allowing the Company to enter markets at the right time and secure a competitive edge;

p) Stable and ongoing relationships with strategic clients building trust in the quality of the

Company's products and their dependable supply, which also allow the Company to reasonably

forecast its future sales volumes;

q) Broad product range for every agricultural season and crop, providing a comprehensive response

to farmer requirements;

r) Expertise in registering its products in various countries, thereby speeding up the process of

introducing a new product into markets and providing the Company with a marketing edge.

35

6.6 Activity Area's Entry and Exit Barriers

The Company estimates that entities active in the CPP area require, first and foremost, equity and

financial strength to start their operations in the area and make the required investments in production

facilities. Expertise, experience and good reputation are also paramount.

The CPP market is characterized by high entry barriers which include high development costs

(particularly for companies developing patent-protected ethical products) as well as payments for use of

know-how for registration purposes, knowledge and expertise requirements, and particularly extensive

technological knowhow in industrial production of chemical syntheses and formulations, relying on

professional and skilled human resources or external consultants, high marketing and distribution costs,

compliance with strict registration requirements, significant investments in building and maintaining

production facilities and typically high customer loyalty. (For details about developments in the generic

CPP market, see Section 7.3 below).

Nevertheless, in markets where relatively lenient registration requirements expedite the process and

reduce its costs, the entry barriers are lower and, together with options for outsourcing production, this

could allow smaller companies to start limited CPP operations.

The Company estimates that there are no significant exit barriers in the CPP market, apart for those related to

future uses of capital assets and the dedicated facilities used by companies engaged in this area, among other

things since it is not characterized by long-term customer relationships.

36

6.7 Substitutes for Company products

To the best of the Company's knowledge, no other service or products may be deemed as bona fide

substitutes for its products designed to protect plants against weeds, pests and fungi that are not of the

same type of products produced by the Company or related source products. Nevertheless, some view

genetically modified seeds and nonselective herbicides such as Glyphosate as products which may

partially substitute for the Company's selective products in certain locales and for certain crops.

Moreover, despite its negligible extent, organic farming (which largely avoids CPP's) represents a

substitute for company products.

6.8 Competition Structure in the Company's Activity Area

See Section 13 below regarding competition in the Company's activity area and changes therein.

37

7. COMPANY PRODUCTS

7.1 Crop protection products (CPP's)

As mentioned above, the Company manufactures and sells a broad range of CPP's, divided into three

main categories (based on their active ingredient): (1) herbicides, (2) pesticides and (3) fungicides.

(1) Herbicides

During cultivation, crops are exposed to various weeds which grow in their environment and compete

it for water, light and nutrients. Herbicides are designed to prevent the development of such weeds or

delay their growth in order to allow the designated crop to develop optimally. Herbicides are used on

different stages of the crop growing process, but mainly prior to planting, before germination and over

the crops early stages of development. As already mentioned, the herbicides marketed by the

Company are both selective and non-selective, as detailed in Subsection 6.4 above. According to the

Company's estimate, the best-selling herbicides are designed to protect soybean, corn, cereal, rice and

cotton crops.

(2) Pesticides

During the crop growing process, crops are often exposed to various insects and other pests which

damage their quality and even threaten their future development. The pesticides produced by the

Company are designed to destroy various types of such insects selectively, that is, without damaging

or destroying the crop itself. The use of GMO's that are capable of releasing active ingredients which

remove damaging insects makes usage of some company products essentially redundant. However, at

the time of this report, they are used to a limited extent, mostly in non-edible crops. The Company

estimates that the best-selling pesticides are designed to protect fruit and vegetable, corn, cotton and

soybean crops. At the time of this writing, the Company's gross profit from pesticide sales is higher

than its gross profit from herbicide sales.

(3) Fungicides

In the course of the growing process, crops are attacked by various diseases and types of parasitical

fungi negatively affecting crop quantity and quality. The fungicides produced and marketed by the

Company are designed to combat such diseases. For example, demand for fungicides grew

dramatically when rust attacked Brazilian soybean crops in 2004. On the other hand, when weather

conditions in the growing season are dry, the outbreak of crop diseases is much smaller, reducing

demand for such products. The Company estimates that at the time of this report, the crops in which

fungicides are used most frequently are grains, fruits, vegetables, soybean, vines and rice. Gross

profits from fungicide sales are higher than those from herbicide sales.

38

CPP World Market Distribution in 2009-2010 (excl. non-crop)

Source: Phillips McDougall; data provided in February 2011.

7.2 Key markets

The Company's CPP operations are focused on Europe, North America and South America, totaling 120

countries worldwide. In recent years, the Company has taken action to expand its presence in the

European (including Eastern Europe) market, the-American, Latin American and Asia-Pacific and Africa,

which are characterized by steady growth and rising standards of living as detailed above. Pursuant to

this effort, the Company completed the acquisition of two Eastern European countries in 2009, as

reported in Subsection 1.4 above. At the report date, Company sales in Europe (including Eastern

Europe) represent some 41% of its total CPP sales. The North-American market, the world's largest, also

constitutes an important target for further growth and expansion of Company CPP operations. For details

on negotiations conducted by the Company to acquire a large generic CPP company in North and South

America, see Section 33.4 below. In the South American market, which is extensive and important on a

global scale, the Company has been working to solidify its position (created in the late 1990's) by

focusing on expanding its existing product range and providing a more comprehensive response to the

variety of customers in this region, with their diverse requirements and characteristics.

In 2009, the Company began operating directly in the Indian market, which represents a key emerging

Asian market, and in 2010, the Company's significant sales growth in the Indian market is evident. In

2010, the Company acquired companies that it believes will enable it to enter new markets with high

growth potential in Mexico (a transaction that closed after the balance sheet date) and in Korea (for

additional details, see Sections 1.4 and 1.5).

The Company has solidified its position in the abovementioned markets and expanded its product

offerings therein through a process of organic growth as well as by a combination of acquiring

companies with production lines and/or distribution networks and acquiring products and/or certain

rights thereto. Sometimes, the Company buys these products such that it acquires full ownership rights

to the product, underlying knowledge, related registrations, goodwill and trademarks as well as global

distribution rights. In other cases, it only acquires certain rights to the product, such as distribution in a

limited territory.

2010 2009

% ($m) % ($m)

44.9% 17,210 46.3% 17,527 )Herbicides(

25.6% 9,810 24.9% 9,411 )Insecticides(

26.3% 10,080 25.7% 9,726 )Fungicides(

3.2% 1,215 3.2% 1,196 Other

%100 38,315 %100 37,860 Total

39

Total CPP Sales in the Company's Key Markets 2009-2010

% change 2010 vs.

2009

2010 2009

($m) ($m)

Europe 2.8% 965.6 939.5

Latin America -0.2% 539.6 540.9

North America 0.5% 404.3 402.2

Asian Rim and Africa 48.2% 363.3 245

Israel 2.8% 89.4 87

Total 6.7% 2,362.2 2,214.6

7.3 Generic Products

As mentioned above, the Company produces and markets generic CPP's. Generic products are similar to

ethical products developed by RBCs over a long R&D process whose patents have expired. (See Subsection

6.3 above for further details).

The generic CPP area has several distinct characteristics:

Although their development is generic, developing new CPP's still requires advanced development and

registration processes and production process adjustments. In order to complete development, CPP

companies have to meet high costs. Nevertheless, the Company estimates that the development costs of

generic products are significantly lower than ethical product R&D costs.

As aforementioned, registering the products for marketing in the various target markets is subject to

obtaining regulatory approval and marketing permits for each market, a process which may take

between three to seven years (together with the development period). (For more details on regulations

applicable to the Company's activity area, see Sections 15 and 25 below). The procedures of obtaining

the required regulatory approvals in each country carry considerable costs for CPP companies, including

expenses on research studies and hiring the services of licensed representatives in the EU, North

America and South America. Some regulatory approvals are contingent on reviews of research and

production processes of the instrumentation and machinery in question, requiring the producer to

redesign labs and production facilities, establish a documentation and control mechanism and invest in

skilled and professional manpower.

Regulatory authorities in the different countries dictate development rules and conditions for

development of search studies for the registration of CPP's. Research conducted for preparation of a

registration portfolio must be carried conducted in certified laboratories (good laboratory practices, or

GLP). These conditions are updated from time to time and entail prolonged registration procedures

which include testing of the product's development and registration processes, the quality of labs and

equipment, lab consistency and reliability and periodic reviews conducted by the regulatory authorities

in countries in which the product is marketed, after its approval, based on these authorities' policies.

40

The Company estimates that in recent years, the market share of patent-protected ethical CPP's has

been steadily shrinking due to patent expiry on the one hand, and reduced entries of new ethical

products on the other. For example, to the best of the Company's knowledge, until 2020, due to patent

expiry and expiry of exclusive use of data, ethical products will be available to the Company with

annual sales, after patent expiry, estimated by the Company at $9 billion (in terms of sales of the ethical

products). When these patents expire, the products are generally free up for generic companies a

market share that could have growth potential for them, as long as development and registration

resources were invested at the right time. However and at the same time, new patent-protected

products continue entering the market, eating away the market share of generic and other products, and

some of the ethical companies continue to market the product after patent expiry.

According to the Company's estimate, this trend represents growth potential for generic CPP

companies, since at the time of this report, there are ethical products whose patents has already expired,

which are still sold by ethical companies although their patents no longer protect against the

development of similar generic products. In addition, over the next few years, in view of the

aforementioned patent expiry forecast, this product share is expected to grow and constitute additional

growth potential for generic companies, out of sales hitherto protected by ethical companies. At the

same time, this growth potential also represents growing competition among existing generic

companies, potential entry by new competitors and price erosion, and the ability to take advantage of it

depends on the ability of each player, including the Company, to launch new generic products, at the

right time, volumes and diversity in order to maintain their market shares. Utilizing this potential also

requires investment in development and registration, marketing channels, production facilities,

advanced technologies and more. (See Sections 11, 15.1 and 20 for further details). At the time of this

Report, the Company intends to operate over the period mentioned according to its strategy by

expanding its product range and increasing its market share, among other things through the

development and registration of new generic products based on patent-expired ethical products.

Despite being generic, the Company also has two patent-protected products, for which it holds

exclusive production and marketing rights: (1) the Novaluron (Rimon®) insecticide used mainly in

edible crops such as apples, pears and potatoes;11 and (2) the Herold® herbicide whose marketing and

production rights are applicable in Germany and Belgium alone. See Section 16 below for further

details. At the time of this Report, Company income from these products is operationally immaterial.

However, note that their gross profitability is higher than the average profitability of the Company's

generic products.

The abovementioned company assessments of future ethical product development potential in the CPP area

constitute forward-looking information as defined in the Securities Law - 1968, relying on subjective

company estimates of uncertain validity, and the Company is unable to assess the chances for their

11 The basic patent for Rimon® expired in all countries in 2007-2008, apart for Italy, where it received an extension up to December 2011, and Japan and Switzerland, where it was extended until December 2012.

41

realization, for reasons including materialization of risk factors or the effects of extraneous factors beyond

the Company's control.

7.4 Production Process in the Crop Protection Area

The Company's operations include (1) production and marketing of active ingredients (over 100 in

number) through multi-stage synthetic chemical processing of raw materials; (2) production and marketing

of end products (some 1,000 different formulations, as defined below); and (3) buying active products and

processing them through various formulation activities before selling them to third parties. The Company's

production sites use active substances both for itself, as inputs in the process of producing end products, and

for sale to third parties. At the report date, the annual sales of each product sold by the Company (excluding

Glyphosate) do not exceed 10% of total Company sales.

The Company's main production process is a chemical reaction (synthesis). Various products require

between one and several reaction stages.

Formulation is a process wherein active substances produced by the Company or bought from third parties

are adapted for chemical preparations designed for various agricultural uses. During this adjustment and

preparation stage, the concentration of active ingredients is reduced, and various additives are added.

Sometimes, the active agent's physical form is transformed (including its liquefaction or solidification, as the

case may be). This modification of the active ingredient and its conversion to a preparation for agricultural

uses is hereafter called "formulization".

About half of the production of active ingredients is produced in one of the Company's plants, while final

formulation and packaging – which require less complex production facilities – are completed in the

Company's main plants or in the customer's country or a nearby country where the Company operates

formulation facilities or is party to a formulation services agreement. The highest percentage of active

ingredients is produced in Israel. Outside Israel, the Company operates active ingredient plants in Poland,

Brazil and Columbia. It also operates formulation facilities in Brazil12, Poland, Greece, Spain, Italy,

Columbia, the US and Korea, and at the report date, is building a formulation facility in India.

In addition to the Company's manufacturing activity, it also operates commercially, on a smaller scale, in

buying end products and/or active agents from third parties and selling them "as is", without any

manufacturing intervention (usually to complement the Company's product offerings).

In 2010, Company sales (including non-CPP operations) totaled $2,362,232K. Of this total, Company sales

of its industrial activities totaled $2,050,030K. Company commercial sales totaled $312,202K.

12 At the end of 2010, the Company completed a reorganization after which production in Brazil was cut back. See Section 33.3 below for additional details.

42

7.5 Marketing the Glyphosate Herbicide

As already mentioned, Glyphosate is a nonselective herbicide developed by Monsanto. It is the world's

bestseller, easy to use, allows for reuse and due to its broad protective range, is used for basic treatment of

many crops.

In 1998, the Company began marketing Glyphosate through multi-year (non-exclusive) agreements with

Monsanto for purchasing active ingredients for manufacturing Glyphosate, and currently markets the

herbicide in Brazil, Europe and other countries. Over the said period, these agreements were renegotiated

and renewed several times. In 2009, they were renewed again for a period of several more years, and in

2010, they were amended.

These marketing agreements include various mechanisms to determine the quantities supplied, the price per

each quantity, as well as payment and delivery terms, and so forth. The agreements adjust the purchase price

as a function of the market selling price. Moreover, they arrange for support for the registration of products

containing the active materials bought pursuant to the supply agreements. Moreover, following the rising

numbers of Glyphosate suppliers and suppliers of active ingredients used for producing the herbicide, all

around the world but particularly in China, the Company has been buying, subject to its discretion and based

on price considerations, active ingredients for manufacturing Glyphosate products from other (particularly

Chinese) suppliers. At the time of this Report, the Company has contracted long-term agreements with these

suppliers, according to which it buys said active ingredients, formulates them and packages and markets the

Glyphosate mainly in Brazil, but also in other countries.

In October 2010, the Company entered into a strategic partnership agreement with Monsanto regarding the

inclusion of several herbicides sold by the Company in Monsanto's Weed Management Program. See

Section 28.2 below for additional details.

In 2010, the trend which began in the last third of 2008 continued – oversupply of Glyphosate produces

caused by the increasing number of suppliers, mainly in China. During 2009, Glyphosate prices stabilized at

a relatively low level with slight recovery at the year's end, mainly in South America. In 2010, stabilization

is evident in purchase prices and sales prices of Glyphosate, with further slight recovery toward the end of

the year. In 2010, this product's share in Company CPP sales is estimated at around 7.6%. (For more details

on the relationship between this product and GMO technology, see Subsection 6.4 above).

43

7.6 Product Pricing

The Company's products are sold in competitive markets, such that well-known competing products

exist for almost all its product range. The Company's share in the various markets is relatively small, and it

estimates its global market share at about 5% and 12% of generic companies. In view of these facts, the

Company usually adjusts the prices of its products to those of market available products, such that Company

costs have little effect on their pricing and the Company's ability to weigh them so as to obtain prices higher

than market prices is limited. Nevertheless, the Company usually tries to maximize the inclusion of raw

material costs in its sales prices. When the Company realizes that producing a certain product is not

economically viable in the longer term, it evaluates the option of ceasing its production and/or marketing.

7.7 Product Branding

The Company has a flexible policy regarding its worldwide use of brands. The decision to use brands

is made on an individual case basis. Sometimes, the Company buys products and decides to retain the

manufacturer's original brand names. In other cases, it changes the brands into its own. When companies are

acquired, their brands are sometimes changed into Company brands. On the other hand, when existing

brands have significant goodwill attached to them in their sales regions, bought brands are retained.

7.8 Product Return and Liability Policies

On the whole, Company policy does not allow the return of non-defective sold products. The amount

of products returned in 2010 was immaterial, and Company policy dictates the creation of appropriate

provisions for expected refunds in its financial statements. At the report date, the Company has a third-party

liability and defective products insurance policy of up to USD350m in aggregate annual damages.

44

8. NEW PRODUCTS

As discussed above, the Company's strategy is to maximize its agrochemical capabilities and expand

its existing and newly developed product range according to market needs, penetrate new markets and

reinforce its position in existing ones by developing and producing either complementary or new generic

products as well as through M&A's. Accordingly, the Company is continually developing and registering

new herbicides, pesticides and fungicides. In 2010, the Company continued to pursue this policy of investing

in new product development and manufacturing, launching 2 new active agents and 27 new compounds, and

obtaining 210 permits for marketing its products in new regions. To the best of the Company's knowledge, at

the report date, none of said products is material to the Company and none of them (either self-developed or

bought) may materially affect its sales volume or development costs in 2011. See Subsection 28.1 below for

further details about the Company's strategic collaboration agreement with Cibus for a new joint venture for

developing improved crop traits.

45

9. PRODUCT REVENUE SEGMENTATION

Company Revenues by Major* Product Groups Exceeding 10% of total Company Revenues (in $ thousands)

2010 Product Group Revenues Percentage of Corporate Revenues

Herbicides 1,109,512 47.0% Pesticides 620,137 26.3% Fungicides 450,290 19.1%

CPP total 2,179,939 92.3%

Other operations 182,293 7.7%

Total 2,362,232 100.0%

2019 Product Group Revenues Percentage of Corporate Revenues

Herbicides 1,060,407 47.9% Pesticides 562,815 25.4% Fungicides 418,948 18.9%

CPP total 2,042,170 92.2%

Other operations 172,446 7.8%

Total 2,214,616 100.0%

2008 Product Group Revenues Percentage of Corporate Revenues

Herbicides 1,323,321 52.2% Pesticides 597,646 23.6% Fungicides 413,550 16.3%

CPP total 2,334,517 92.1%

Other operations 200,987 7.9%

Total 2,535,504 100.0%

Note that the volatility of pesticide and fungicide sales is higher than that of herbicide sales, since the former

are more sensitive to the presence or lack of particular diseases or pests.

Note that Company sales of active agents are immaterial in comparison to end product sales.

46

10. CUSTOMERS

10.1 Customer Characteristics and Nature of Business Relationship

The Company's numerous CPP customers may be found in dozens of countries throughout the world.

In some countries, sales are effected to a small number of customers. Generally, the Company's agricultural

products are sold to regional and local distributors in the different countries, who in turn market them to end

customers in that country. The Company also sells to multinationals (which buy its products in order to

market them either as end products or as intermediate materials for their manufacturing operations) and to

other producers who manufacture end products based on the Company's active ingredients. In countries

where the Company has no independent marketing and distribution organization, it sometimes also sells

directly to large cooperatives and farmers.

Almost all sales are made to regular customers, normally without long-term supply contracts. In most

countries, purchases are made without requiring long-term advance orders, while in some areas they are

made on the basis of (non-binding) evolving sales forecasts and actual orders, such that the Company's actual

production is based on these forecasts.

Customer sales prices are determined, among other things, by the quantity procured, with discounts given

occasionally dependent on minimum order quantities. These discounts are included in the Company's

financial statements relative to the progress in meeting its targets, but only when these targets are expected to

be reached and discount totals may be reasonably estimated. The lead supply times of products in countries

where company subsidiaries operate are very short, usually a few days after receiving the order.

10.2 The Company Supply Chain

*At the report date, in most cases, the formulator and/or importer are Group companies.

In the past, the Company sold mainly to importers – those who buy and import the active ingredients,

formulate and package them or, alternatively, buy the post-formulation end products and store them in

warehouses. The importers usually also have the relevant local registration or license from the registration

owner. In recent years, following the Company's expansion and acquisition and creation of subsidiaries in

various regions worldwide, it is usually Company subsidiaries who act as the importers.

Usually, importers sell the end products to distributors (whether Company subsidiaries or third parties to

which the Company sells the active materials) who in turn sell them to retailers who supply them to farmers.

The general model depicted here varies according to local practices. Likewise, in some countries, farmers

form cooperatives, which buy large quantities of products directly from the wholesalers.

Importer/Formulator* Distributor Retailer Farmer

47

In the past, farmers stored the inventory in their own warehouses, but today most of the goods are stored in

the importers' (in recent years, mainly subsidiaries') warehouses. In recent years, the increasing competition

in the CPP area led many to maintain sufficient inventories in order to respond more quickly to ad hoc

customer demand.

10.3 Customer Credit Control Procedure

As mentioned above, most of the Company's sales are made to regular customers with whom it maintains

good long-term business relationships. The Company follows a rigorous credit control procedure which

requires frequent credit evaluations of new and existing customers, and adjusting each customer's credit

limits to changing circumstances including payment history, collaterals, customer's country credit rating and

the credit insurance the Company is able to obtain for the customer.

Company customers include many dozens of customers operating in many countries. The provision for

doubtful debts is evaluated on an individual basis for each customer, based on payment history, payment

arrangements, collateral, the financial condition of the customer and the political situation of the country in

which the customer operates. When a customer has declared bankruptcy, a provision is recorded for the full

amount owed. In certain countries (such as Brazil and Argentina) customers must furnish proprietary

collateral (such as agricultural land and equipment) against sales, the value of which is evaluated regularly

by the Company. In these countries, when a debt is doubtful, the Company records a provision in the amount

of the debt net of the value of the collateral provided, and takes action to realize the collateral.

The Company has a renewable agreement with an international insurance company for insuring customer

credit for some of its customers and subsidiaries.

As a result of growing Company sales and acquisitions of companies and products over the past few years,

the number of the Company's customers keeps rising. As it adds new customers, the Company continues to

act to retain its long-term customers.

Several years ago, the Company began securitizing some of its customers' debts in certain countries. For

details about the securitization agreement, see Note 5 in its financial statements, as well as Subsection 22.3

below. At the report date, the proceeds received from customer debts sold for cash totaled some $166.3m.

On December 31, 2010, the Company's provisions for bad debts totaled $55.7 million (compared to $48.1m

at December 31, 2009). In 2010, the Company increased its bad debt expenses to approx. $17.43 million

(compared to $6.4m in 2009). The balance of the change in provisions for bad debts is due to credit risks in

the Brazilian subsidiary and consequently, the provision for doubtful debts. At the report date, the Company

has no single customer whose purchases exceed 10% of its turnover, and according to the Company's

estimate, it is not dependent on any single customer. Note that the Company follows a policy according to

which the provision is made for specific debts, and a considerable part of its bad debts originates in Brazil.

See Note 32 to the Company's financial statements for additional information.

48

11. DISTRIBUTION AND MARKETING

As already mentioned, the Company's marketing operations are global and designed to consistently increase

market share. In the past, the Company focused mainly on the production of active materials sold mainly to

formulators and/or local distributors, which imported the active material and formulated it (either themselves

or through subcontractors). Over time, the Company strengthened its marketing channels and refocused on

independent distribution. It established and acquired distribution companies in various regions which import

end materials and active ingredients and carry out any formulations required (themselves or through third

parties), and then sell to cooperatives or local distributors (occasionally Company subsidiaries), which sell

them to the end customers. The Company followed the same approach in 2009-2010 when it took steps to

expand its network by starting marketing companies in both India and Canada, and strengthened its

marketing capability. In 2010, the Company acquired companies in Korea and Mexico (closing after the

balance sheet date).

As from early 2010, the Company is organizing its operations in three key regions: (1) Europe (Eastern and

Western); (2) the Americas (includes the US, Canada and South America, including Brazil); (2) Asia-Pacific,

Africa and the Middle East (including Israel). The Company's global sales network, which equally serves

all product groups (herbicides, pesticides and fungicides), has been organized into these geographic regions

since early 2010. For additional details on the redefinition of the Company's geographic operating regions,

as part of the implementation of changes in the strategic plan, see Section 31.2 below. Moreover, the

implementation of changes in the Company's strategic plan, the Company appointed Mr. Yoav Zeif as Vice-

President of Products and Marketing, a function that had not existed previously. Moreover, the Company

operates product manager teams responsible for developing and marketing the products under their

responsibility worldwide. The company has more than 50 subsidiaries operating in 120 countries. Through

its own startups and acquisitions, it created a global network of subsidiaries responsible for marketing,

selling, developing and registering Company products. (For a complete list of subsidiaries, see the Appendix

to the Company's financial statements).

In countries where the Company has no subsidiaries, it operates networks of (mostly exclusive, commission-

earning) local agents and marketing channels in line with the market structure in those countries, helping the

Company with its ongoing customer contacts. Since in the main Company's markets, the marketing networks

rely on subsidiaries, the Company estimates it is independent of external marketing channels whose loss

might significantly compromise its operations.

When the Company sells globally through agents, after receiving customer payment, it pays its agents a sales

commission, usually ranging from 3% to 5% of the sale value.

The Company's marketing activity is handled by local salespersons and directed at distributors, agricultural

consultants and farmers. This activity includes a broad range of marketing and promotion tools, such as

meetings with farmers and distributors, in situ demonstrations, ads in trade magazines, direct marketing and

49

Internet infomercials. The Company also closely follows market data to allow it to quickly appraise present

and future customer needs and expectations.

Another important activity is the professional agronomic support the Company offers to farmers. According

to the Company's estimate, this activity is particularly valued by small-scale growers in developing countries.

In recent years, the Company has held many courses to train growers worldwide in using its products

correctly and safely.

The Company's strategy of enhancing its independent marketing and sales capabilities in its key markets is

designed to continually reduce its dependence on external distributors and maintain high profit margins

(which would otherwise shrink due to payments to distributors and other players along the supply chain).

The Company's marketing and sales expenses in the CPP area totaled some $396 million or about 18.1% of

its total CPP sales in 2010.

50

12. ORDERS BACKLOG

Since the Company's products are sold on a current basis and over the immediate term rather than based on

long-term contracts, it has no significant amount of order backlog in the CPP area. At the time of this report,

Company estimates are based on non-binding forecasts of annual order volume by its key customers.

51

13. COMPETITION IN THE CPP AREA

As noted in Subsection 6.6 above, the CPP market is controlled by six giant multinational ethical companies,

each with an annual CPP turnover exceeding two billion dollars. The Company estimates that the entry

barriers for the CPP market are relatively high, but vary from region to region.

According to Phillips McDougall's list of both ethical and generic companies, the Company ranked seventh

worldwide in 2009. The company estimates its 2009 market share at 5% (similar to 2008) , and is considered

the largest generic CPP company.

The Company's competitors are multinational ethical companies which continue producing and marketing

their ethical products after their patents have expired, as well as other generic companies. According to the

Company's estimate, in most cases the original producer's market share falls to between 60% and 70% within

a few years after patent expiry, leaving the remaining market share open to competition among generic

companies, in addition to the competition between them and the ethical company (which continues

manufacturing the product in question and even leads its market prices and sales conditions), which recently

adopted a policy of aggressive price cutting, which impacts CPP sale prices.

The Company competes with ethical companies in all the markets in which it operates, since they also have

global marketing and distribution networks. As a rule, other generic players who do not have international

marketing and distribution networks compete with the Company focally in those geographical markets in

which they operate.

New emerging trends may affect the nature of competition in the CPP area: (1) The proportion of products

whose patents have expired continues to rise relative to that of patent-protected ethical products, due mainly

to the fact that the rate of patent expiry exceeds that of new patent registration; (2) Some generic

companies13 have been expanding (among other things, as a result of mergers and company and product

acquisitions) and increasing their market shares, and in the future they may compete with Company products

in world markets they have hitherto neglected; (3) Smaller companies have begun operating in certain

markets with relatively lower entry barriers, as detailed in Subsection 6.6 above; (4) Development of

agrochemicals industry in China; and (5) Aggressive price cutting by multinational ethical companies.

The Company's expertise in launching new generic products, as soon as possible following the expiry of

their patents, represents a crucial factor in maintaining the Company's status in the global market. The

Company normally pilot tests the feasibility of manufacturing and producing a patent-protected ethical

products some five to six years prior to patent expiry. These tests include market size analysis and future

demand forecasts, as well as assessments of the potential to expand the use of the product in question

compared to others. Moreover, the Company estimates expected changes in the product's price and global

market share against the share it may be able to capture as it begins to market it. All these factors are

evaluated, among other things, in reference to market aspects and the availability of competing products

13 Such as the Indian UPL and American FMC.

52

launched over the same period, genetic engineering developments (as detailed in Subsection 6.4 above) and

their potential impact on product launch, as well as the Company's estimated technological ability to

manufacture the product efficiently and economically. Finally, possible means of manufacturing and

marketing the product are evaluated.

In recent years, the CPP area has been characterized by growing competition, among other things due to the

following key factors: (1) Growing competition by Southeast Asian producers (which conversely reduces

raw material and product costs); (2) Extenuated product registration requirements, which decrease

registration costs in certain countries and make it easier for new (small- and medium-scale) generic

competitors, while at the same time reducing the Company's own registration costs, allowing it to enter

markets and products in which it would otherwise have been inactive; (3) The generic CPP market's growth

potential, as detailed in Subsection 7.3 above.

According to the Company's estimate, at the time of this Report it enjoys material competitive advantages

arising, among other things, from its technological and chemical expertise; professional knowledge; financial

strength and the availability of financial resources for building and upgrading production facilities;

development capabilities; experience in registration processes in various markets around the world (and the

resulting ability to launch generic products soon after patent expiry); strict observance of environmental

standards; global marketing and distribution network; and, finally, production and marketing collaborations

with multinationals.

53

14. SEASONAL EFFECTS

CPP sales are directly affected by the timing of growing seasons in each of the Company's markets, the

climate and weather in each region and its typical crop cycles – factors completely beyond the Company's

control. Therefore, at the time of this report, the Company's quarterly revenues vary. In the Northern

Hemisphere (mainly Europe and North America), the growing season spans the first two quarters of the year,

in which the Company accordingly reports higher sales, subject to the effects of external factors and the

Company's year-round risk factors. Conversely, in the Southern Hemisphere the growing seasons span the

last two quarters, apart for Australia where most of the sales are made from April to July. According to the

Company's estimate, its global reach and market diversity mitigate those seasonal effects.

Total Quarterly Sales in the CPP Area, by Region (in $thousands)

2009 Q1 Q2 Q3 Q4 Annual Israel 20,860 2.9% 23,299 4.2% 21,902 5.0% 20,908 4.2% 86,969 20,860

North America 124,353 17.2% 120,007 21.4% 76,969 17.7% 80,915 16.3% 402,244 124,353

South America 143,841 19.9% 98,842 17.6% 101,757 23.3% 196,457 39.6% 540,897 143,841Europe 367,615 50.9% 265,692 47.4% 177,116 40.6% 129,049 26.0% 939,472 367,615

Asia-Pacific and Africa* 65,599 9.1% 52,411 9.4% 58,186 13.3% 68,838 13.9% 245,034 65,599

TOTAL 722,268 100% 560,251 100% 435,930 100% 496,167 100% 2,214,616 722,268Quarterly percentage

of annual sales 32.6 25.3 19.7 22.4

2008 Q1 Q2 Q3 Q4 Annual Israel 25,405 3.5% 32,187 4.7% 31,866 5.0% 23,756 4.8% 113,214 4.5%

North America 110,749 15.3% 140,655 20.6% 93,274 14.6% 99,291 20.2% 443,969 17.5%

South America 147,362 20.4% 143,633 21.1% 206,099 32.2% 177,912 36.2% 675,006 26.6%

Europe 339,964 47.1% 279,906 41.0% 248,841 38.9% 142,183 29.0% 1,010,894 39.9%

Asia-Pacific and Africa* 98,688 13.7% 85,875 12.6% 59,972 9.4% 47,886 9.8% 292,421 11.5%

TOTAL 722,168 100% 682,256 100% 640,052 100% 491,028 100% 2,535,504 100%

Quarterly percentage of annual sales

28.5 26.9 25.2 19.4

* Excludes Israel.

2010 Q1 Q2 Q3 Q4 Annual

Israel 20,608 2.8% 22,894 3.8% 19,635 3.7% 26,297 5.2% 89,434

North America 119,639 16.5% 126,366 21.0% 74,547 14.0% 83,725 16.6% 404,277

South America 116,589 16.1% 105,140 17.5% 149,534 28.1% 168,356 33.3% 539,619

Europe 372,498 51.5% 261,158 43.5% 191,390 35.9% 140,598 27.8% 965,644

Asia-Pacific and Africa* 93,784 13.0% 85,385 14.2% 97,990 18.4% 86,099 17.0% 363,258

TOTAL 723,118 100.0% 600,943 100.0% 533,096 100.0% 505,075 100.0% 2,362,232

Quarterly percentage of annual sales 30.6% 25.4% 22.6% 21.4%

54

15. DEVELOPMENT AND REGISTRATION ACTIVITY

In ethical companies, R&D expenses represent significant cost factors, since developing patent-protected

molecules requires research involving years of considerable financial investments over many years.

On the other hand, as a generic producer, the Company does not conduct studies to discover and/or develop

new molecules, but rather develops production processes and licensing data for existing molecules in the

ethical product, and hence spends a lot less compared to ethical product R&D companies, which involve

many years of extensive investment in order to discover the appropriate active ingredient and molecules until

successful and complete development of the product.

15.1 Development

The Company's main development and registering activity focuses on the chemical-engineering development

of production processes for new generic products, biological and agrochemical tests designed to meet

registration requirements, in-house development of compounds, as well as streamlining of production

processes and development of innovative and unique formulations of existing products. The Company also

provides scientific-technological support for existing production processes, emphasizing quality

improvement, efficiency, safety, environmental protection as well as production cost reduction. Some

development activities are conducted in Company and subcontractor labs, in Israel and other countries

(China and elsewhere). Such development efforts may be based on exclusive proprietary knowledge, on

knowledge jointly developed with the subcontractor, or on knowledge exclusively owned by the latter.

Additionally, the Company develops several innovative materials, based on molecules acquired after a

screening process, in which their effectiveness is proven. The Company develops the product's biological

uses and licenses them in the target countries, and also conducts chemical development of the production

process.

The fact that the Company's development and registration costs are lower than those of multinational ethical

companies gives it a competitive edge and allows it to offer a broad and diverse range of generic products at

competitive costs. Nevertheless, introducing a new generic product in the market still requires considerable

investment in development and registration, particularly in view of recent developments and increasing

competition in the generic market. (See Subsection 7.3 above for more on this matter).

Product sales in the various international markets progress in line with obtaining the registering required by

each country.

In 2010, the Company's recognized R&D expenses (excluding registration expenses) totaled $23.28 million,

or 0.98% of its consolidated revenues. R&D expenses are not recognized as intangible assets.

According to the Company's estimate, and subject to the materialization of its work plan, during the twelve

months following the publication of this Report, it projects expenses of some $29 million on R&D activities.

55

At the time of this writing, the Company operates several research labs in Israel, Germany, China, India and

Brazil, which also conduct QA tests for its various products. In 1996, Makhteshim and Agan received a

standard certificate from German health authorities, attesting to the high quality of working procedures in its

R&D Division's analytical labs (GLP, or Good Laboratory Practice). The Company employs some 200

development and registration workers, most of whom have academic degrees in chemistry, chemical

engineering, agriculture and the life sciences. The Company also receives research and consulting services

from several researchers and academic institutes specializing in agricultural, chemical and toxicological

studies.

15.2 Chief Scientist

Up to the time of this report, the Company has financed its registration and development investments using

its own funds, bank and non-bank funding, and in the past, immaterial grants by the Ministry of Industry,

Trade and Labor's Research and Development – Chief Scientist's Bureau (hereafter, Chief Scientist).

The Chief Scientist is empowered by the Encouragement of Industrial Research and Development Law

5744-1984 and subsequent bylaws (hereafter, R&D Law) to promote commercial and industrial R&D

according to Israeli government policy. As a rule, and according to the Chief Scientist's normal support

programs, it grants up to 50% of the R&D budget of programs submitted for its approval, based on criteria

determined by its Research Committee. Upon receiving that grant, its recipient is subject to the provisions of

the R&D Law, briefly reviewed below. A Chief Scientist grant recipient is required to pay it royalties on

future sales of products based on the supported R&D program, at rates determined in the bylaws and subject

to provisions set out in permits issued to the Company by the Chief Scientist. In general, the aggregate

royalties involved equal the grant, linked to the dollar and bearing LIBOR interest, which is updated from

time to time. Note that in certain cases (such as due to conducting production operations outside Israel), this

royalty ceiling may rise, subject to provisions of the R&D Law.

The R&D Law also prohibits granting non-Israeli residents rights to knowledge derived from an approved

program (which is not the product developed in the course of that program), or any right deriving from it,

unless approved by the Research Committee and subject to payments required by the R&D Law.

At December 31, 2010, the balance of Chief Scientist grants to R&D programs currently pursued by the

Company or such that have been completed successfully, net of royalties paid (recorded in the financial

statements as liabilities for development grants), totals some $3.9m . (See Note 20 to the Company's

Financial Reports for details on development grants refund terms).

15.3 Registration – General

As already mentioned, the materials and products marketed by the Company require, at various stages of

their production and marketing, registrations in every country where the Company intends to market them.

56

For this purpose, the company employs over 120 professional registration workers – mostly scientists,

engineers and technicians in chemistry, agronomy, biology and other life sciences – and also hires the

services of third parties in order to develop registration data.

CPP's are sold under the supervision of state authorities in every country (usually the Ministries of

Agriculture, Health and Environment). Registration requirements change from time to time and tend to

become stricter with time in various countries, including Eastern European and South American countries;

consequently, registration costs rise and more time is required to prepare registration portfolios. In some

countries, registrations have no time limit, although additional tests are required every several years. In other

countries, registrations are limited to 10-15 years and have to be renewed, with additional tests and data

required for that purpose. In preparation for such tests, chemical, toxicological, environmental and

agricultural data have to be collected. Registrations might be revoked should such information fail to meet

the required updated criteria. The cost of registration and the time required to obtain a registration vary by

country, and may last for several years. Likewise, since formulations and active ingredients of products

distributed by the Company also change over time, the Company is required to make changes in order to

fully comply with the specific registration requirements of the different companies and makes the requisite

modifications. Usually, the Company develops chemical, toxicological, environmental and agricultural data

for a main database and then carries out additional work based on specific registration requirements of target

countries.

Registration costs are typically several hundreds of thousands of US dollars per product, and in countries

such as the US and Japan, they may even total several millions per product.

The US, Japan and the EU have the most stringent standards. Other countries are gradually adjusting their

own requirements to those standards. Obtaining a registration requires meeting health, safety and

environmental standards.

For additional details on registration requirements for the Company and the related risks, see Section 34.2 of

the periodic report, under the title "Legislation Changes, Standards and Regulation of Company Products".

During 2010, the Company obtained some 210 new registrations for active materials, formulations and

various mixtures in the CPP area. This total does not include registration renewals and new crop indications

for registered products.

In 2010, the Company's registrations expenses totaled some $77.3 million net, plus depreciation, or about

3.3% of Company revenues, gross.

15.4 Registration in the United States

The registration process in the US includes federal registration by the Environmental Protection Agency

(EPA) for the active material and chemical preparations, which are the end products for sale. Moreover,

several states (such as California and Arizona) require special permits and registrations for the various

57

preparations and configurations of active materials already registered at the federal level. This naturally

requires developers to provide more registration relevant information.

There are two main methods for obtaining federal registrations:

(1) Submitting a complete portfolio which includes all the data and studies required. This data portfolio

should cover four key development aspects: chemical, toxicological, environmental and the effects of

leftovers in the final product. Preparing this portfolio takes 4-5 years, and the EPA review in this type of

process takes 2-4 years, according to the product's estimated importance for the American agricultural

market.

(2) Following 10 registration years, citing all the existing data on another company's active material (Cite

All), and demonstrating that the active material to be registered is chemically similar to the existing

material in that country. In this method, the generic company is required to compensate the development

company with the original registration by an agreed amount which is a function of the data's value and

the cost of registering the original product, as well as the value of the time saved by speeding up the

registration process. If the generic company and the original registration owner fail to agree on the

compensation amount, a mandatory mediation mechanism is introduced. This procedure takes between

nine and twelve months. Note that it is also possible to cite only part of another company's active

material data, limiting the compensation liability to those data only, but that in most cases, this approach

takes longer since authorities tend to review the data submitted more thoroughly. Fifteen years after

having obtained a registration, the data at its basis are open to the public, and from this time on there is

no compensation liability.

As part of the EPA's additional re-registration requirements (re-registration is a procedure in which a

company is required to periodically provide additional data), several companies may pool their resources to

save time and money (including the need to compensate the original developer for the re-registration costs)

to prepare the newly required data by creating a "re-registration task force". The Company is reputed to be a

professional and reliable group, so that international companies tend to cooperate with it when developing

new data for re-registration purposes.

15.5 Registration in Europe

The registration processes of EU members have recently been consolidated, which resulted in new CPP

regulations. Today, every new material intended for use in EU countries passes through a rigorous

registration process composed of two main stages. Stage 1 enables the producer to include the active material

in the list of materials allowed for use in EU countries (Annex I). In Stage 2, the final product has to be

registered for its various uses in EU countries. In 1991, EU authorities began reevaluating all CPP

registrations in the European market (including the Company's products), a process which continues to this

day. CPP companies were required to submit registration portfolios based on the new registration

requirements (Directive 91/414), including additional registration data according to a timetable determined

58

separately for each active material. The company continually prepares and submits the newly required data

based on those timetables. Preparing the complete data requires 3-4 years, while the EU authorities' review

takes another 3-4 years.

In view of the approach of the European authorities and the regulation published in 2007 (1095/2007_, the

Company submitted new registration data for some of its products, as required. However, due to the

authorities' backlog, some of the registrations have not yet been received, but the Company estimates that

they will be received on a timely basis.

In July 2011, a new registration regulation (1107/2009) will enter into effect instead of Directive 91/414.

This new regulation involves rejecting products based on their potential hazard, as opposed to the older

directive, which assesses products based on their risk to humans and the environment.

The Company takes part in several multi-company groups, or task forces, to jointly develop the data required

for several of the materials it develops, in order to reduce re-registration expenses. Note that even after the

abovementioned consolidation, additional data must be submitted for registration in each country separately.

The registration portfolios and the permits themselves represent strategically important economic assets. The

company policy has been and is to retain ownership of company product registrations and indications. In

some countries, the Company has allowed and allows distributors of its materials to use such registrations in

order to enable them to sell the products in question, but when distribution contracts terminate, it is generally

possible to revoke distributor registrations.

REACH Legislation

In December 2006 the European Parliament and Council of Ministers ratified the Framework Legislation for

the Registration, Evaluation and Authorization of Chemicals (REACH). REACH came into effect on June 1,

2007, and it applies to existing as well as to new chemicals either produced in or imported into Europe.

REACH requires chemical producers in the EU as well as importers thereto (including CPP chemicals but

excluding active CPP materials regulated by the aforementioned Directive 91/414) to submit registration

dossiers with detailed information on every material or chemical compound produced in or imported into

Europe which are included in the product in question, apart for the active ingredient, but only when the

quantities exceed one ton a year. These dossiers were added to the main data base of each material, as noted

("registration dossiers").

REACH will be implemented gradually over the years 2007-2018 under the supervision of a new agency –

European Chemical Agency (ECHA). The company has already met the first (pre-registration) period

deadlines, during which importers and exporters were required report materials designated for registration in

order to receive an extension for completing their full registration, allowing it to continue selling them.

The Company complied with the timetables and filed the complete registration dossiers of the materials that

were pre-registered, and whose registration was required by December 1, 2010. Furthermore, all of the

59

safety forms for Company products were re-prepared and re-written in the form and content required by

REACH.

During the next two years, the Company will continue to prepare registration dossiers for additional

materials, if any, that must be registered fully by June 2013.

The Company receives continuous support and consultation services, in both the legal and product

registration areas, in order to continue to assimilate REACH and meet its targets. At the time of this Report,

the Company estimates that the costs involved in implementing this legislation over the following year

would not be material. (For more on registration as an external factor liable to affect company operations, see

Section 5 above).

The Company's assessments regarding the completion of approval procedures and/or the projected costs

involving REACH implementation detailed in this subsection constitute - 1968 statements as defined in the

Securities Law, based on the Company's familiarity with the procedures required as well as Company tasks

required thereby. These assessments may not materialize should the relevant authorities' requirements and/or

the Company's failure to meet them prolong the process and make it more costly.

15.6 Registration in Brazil

The generic substance registration procedure in Brazil is based on chemical identity of an active substance

available in the market. If the registration applicant proves such chemical identity according to specified

rules, it may be granted a registration following an expedited review process of 1-2 years. Since 2006, the

Brazilian authorities have relaxed their approach to the registration process, allowing the filing of many

applications for registration that could not have been filed previously

At the time of this Report, the actual registration process takes 2-4 years to complete, due to rigorous review

by the Health Ministry (Anvisa) and the present portfolio overload. (See Subsection 33.2 below for details

about the Company's Brazilian subsidiary Milenia's registration contacts with Brazilian authorities).

60

16. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY IN THE CPP AREA

Most of the Company's CPP's (both in absolute and in relative sales terms) are generic, and therefore not

protected by patents. Nevertheless the Company has 4 patent families that protect innovative products and 30

more patent families protecting processes, formulations, material properties and unique mixtures. It also

relies on trademark registration to establish its reputation for products it manufactures and markets. At the

time of this Report, the Company owns over 7,000 such trademarks. Some of the Company's products are

also branded in addition to each product's trademark under the well-known and registered Makhteshim-Agan

logo.

The Company also owns two patent-protected products for which it has exclusive registrations: (1) the

Novaluron (Rimon®) insecticide whose patent extensions have expired in various countries during 2007-

2008, and will expire in Italy in December 2011 and in Switzerland and Japan in December 2012; and (2) the

Flufenacet/ Diflufenican (Herold®) herbicide whose marketing and production rights apply in Germany and

Belgium alone, the patent for which will expire in 2011. Moreover, in 2007 the Company bought all the

rights to four patent-protected materials (a nematode repellent, two types of insecticides and one type of

fungicide), some of which are already in the Company's name while others are still in the process of

ownership transfer.

The Company also owns several exclusive local registrations for other materials. For further details on the

Lycord subsidiary's patents and other intangible assets, see Subsection 18.1 below. See Note 11 to the

Company's financial statements for details on agreements to acquire CPP registrations and distribution rights

from Bayer CropScience, Aventis and Syngenta in 2001-2002. For details on the agreement, whereby the

Company will become the exclusive supplier of select products, which constitute part of the pest-control plan

for Glyphosate-resistant weeds of Monsanto –Roundup Ready PLUS Weed Management Program, see

Section 28.2 below and the immediate report dated October 19, 2010 (RN 2010-01-652386).

In view of the fact that most of the Company's products are generic, it may begin commercial production and

marketing thereof only after the ethical product patent has expired. The Company has an intellectual property

department responsible for registering patents on company developments and for trademarking its products.

This department also provides the Company with important technical and legal expertise to help it introduce

new generic products while avoiding the infringement of relevant valid patents. The company acts to

safeguard and protect its unregistered commercial secrets through confidentiality clauses, differential

authorization, etc.

In order to prepare for initial production and marketing of a patent-expired product, the Company needs to

develop its manufacturing process, initiate registration procedures as well as build a new production facility

or adapt an existing one for its manufacture. The registration process normally requires the production of

61

small, non-commercial amounts of the product, subject to the laws applicable in each country determining

the legality of such production (albeit in small quantities) prior to patent expiration.

According to generally accepted accounting principles, the amounts recognized as the Company's major

intangible assets at December 31, 2010 (including subsidiary goodwill) totaled some $653 million .

62

17. RAW MATERIALS, INVENTORIES AND SUPPLIERS

The Company buys a large variety of raw materials, the lion's share of which is distant oil derivatives, which

may not be uniformly characterized. It also buys complementary raw materials required to produce the

finished product and/or its formulation.

The shelf lives of most of these raw materials are several years, and they maintain their stability throughout

the years. Moreover, they may usually be extended by simple treatments. In view of this fact, raw material

losses in Company warehouses due to obsolescence are negligible.

The most significant factor in the Company's sales costs is the cost of raw materials used in its industrial

activities. This cost is affected by the volatility of global oil prices. The cost of buying finished products for

marketing to third parties is also significant. (See Section 5 below, as well as the attached Directors' Report

for information about material changes in the world prices of oil and its derivatives during 2010 and their

impact on Company results).

In 2010, raw material and packaging costs totaled $1,133,770 thousand, representing 81.9% of the

Company's total CPP costs (excluding finished products), which totaled $1,383,920 thousand.

In contrast, in 2009, the raw materials and packaging costs totaled $1,043,584 thousand. This cost

represented about 78.7% of the Company's total production costs in the crop protection area (excluding

finished products), which totaled $1,325,626 thousand.

The Company buys its raw materials from various suppliers, mainly in Europe, the US, China and South

America. The Company's supplier network has not changed significantly over the past few years, but

nevertheless, it gradually increased the volumes procured from various Chinese suppliers (such that most of

the increase derived from purchases in China, with no significant reduction in the quantities bought from the

Company's other suppliers) in view of their lower costs.

The Company stores raw material inventories in accordance with the order forecast for each season, for

periods averaging two to three months. At the time of this Report, the Company estimates itself to be

independent of any single supplier. For further details on supplier credit, see Subsections 22.4 and 22.5

below. On the agreement with Monsanto to buy raw materials for Glyphosate production, see Subsection 7.5

above. Finally, see Subsection 27.11 below on the Company's agreement with a Chinese supplier for

exclusive substance development and production.

63

Further OperationsPart IV: 18. GENERAL

In addition to the Company's core operational area, it is also active in various other, non-CPP areas. The

Company's aggregate revenues from and investments in these additional activities do not exceed 10% of its

total consolidated revenues and investments. At the time of this Report, the Company has additional

activities, in order of importance: (1) Dietary supplements and food additives; (2) Aromatic products; (3)

Industrial chemicals; and (4) other products.

In these additional activities, the Company takes advantage of its knowledge, experience and chemical and

industrial capabilities. In view of the highly diverse nature of those additional activities and products, and

since they do not represent core Company activities in view of their small scales, they are reviewed and

analyzed below separately, to an extent commensurate with their share of Company results.

18.1 Dietary Supplements and Food Additives

At the report date, the Company holds 100% of Lycord Ltd. (Lycord),14 after having acquired during 2010,

2% from minority shareholders, who had exercised a put option granted as part of Lycord's 2005 acquisition

agreement.15 Lycord is engaged mainly in developing, manufacturing and marketing dietary supplements

(DS) and special food additive ingredients, and in developing and manufacturing DS materials and

applications (produced by its clients in their own brands) (hereafter, "supplements"), mainly for non-Israeli

markets. Lycord manages independent and separate operations, including its own development, production,

marketing and distribution organization. The Lycord plant is located on land bought from the Company on

which the latter's Beer-Sheba plant is located.

Lycord sells mainly materials, ingredients and application added in the process of producing processed food

and DS. It specializes in developing and producing natural (anti-oxidant) carotenoids and a large variety of

other (natural and synthetic) food additive products. These are marketed both as mixtures for the food

industry and as formulated products (ready for use in the final products).

Lycopene. At the time of this writing, one of Lycord's unique products is natural lycopene produced from

tomatoes. Lycord has developed a unique and innovative process for producing this material (the carotenoid

which gives the tomato its red color), which some ascribe with properties for protecting the human body

against degenerative and malignant diseases. In order to produce lycopene, Lycord has developed (jointly

with Volcani Center and Zeraim Gedera, Ltd.) unique tomato strains (mainly intended for industrial

1414 93.86.% fully diluted, assuming realization of options issued to Lycord employees and based on their value at balance date. 1515 The agreement granting the minority shareholders the option to oblige the company to buy their remaining holdings in Lycord was signed before one of those grantees was appointed to high office at the company, and exercising the option of that minority shareholder, at a rate of 1% of Lycord's stocks, was carried out after the end of his term as an executive in the company, and following the balance date. Accordingly the remaining percent has been consolidated after the balance date.

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applications), with particularly high lycopene content. In addition, Lycord has developed technological

capabilities for extracting, separating and concentrating the products of tomato processing and adapting them

to market requirements.

Beta-carotene and lutein. Lycord develops, produces and markets beta-carotene (including synthetic) and

lutein, products designed mainly for the DS and beverage industries.

In addition to carotenoids, Lycord has several secondary activities: (1) It provides formulating services for

active DS materials; (2) It provides coating for active ingredients and prepares mixtures, such as vitamins,

minerals and other natural materials for food additive.

Lycord's gross margins are not materially different than those of the Company's in the CPP area.

Structure, recent developments and competition in the DS market

Food additive ingredients are added to food in industrial production processes in order to enrich the final

product with certain nutritional or health properties, marketed either as separate ingredients and/or in

mixtures for the food additive and DS industries.

The food and nutrition industry may be characterized by retail-based competition, technological

conservatism and increasing commitment to the quality of food and supplements, health consequences,

consumer nutritional habits and changes in consumer tastes. From the producers' point of view, these factors

require technological innovativeness, responsiveness to the requirements of customers – both food and DS

producers – as well as the ability to meet high quality standards. In recent years we have witnessed a

growing consolidation trend in the area, with M&A's and consequent shrinking of supply chains, which have

resulted in reduced competitiveness by small companies. Nevertheless, relatively small companies with

unique and innovative products such as Lycord have managed to grow and establish their position despite

said trend. The DS industry has also been exposed to growing competition by East Asian producers which

market raw materials, and have recently begun to market formulated materials as well.

In recent years, consumers worldwide have grown more aware of the nutritional importance of carotenoids,

including lycopene – Lycord's main products. Lycord's operations in these areas may be affected by attempts

to introduce synthetic lycopene, which competes with its natural product. Nevertheless, some natural

lycopene properties have no synthetic substitute, although the end consumers – who are truly aware of the

health advantages of lycopene – may not necessarily be aware of the advantages of natural versus synthetic

lycopene (particularly as the latter is significantly cheaper). On the other hand, as the Company has been

informed by Lycord, the penetration of synthetic lycopene into the multivitamin market may also increase

public awareness of lycopene, thus contributing to natural lycopene's absolute market share.

During 2005, Lycord received the FDA's approval for using its natural lycopene product as food color for the

US food industry, following past permits to distribute the product in Europe and Japan. This approval was

highly significant for Lycord, since Europe and the US have yet to approve the use of synthetic lycopene for

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the same purpose, due to the fact that – according to the Company's estimate – there are still not enough data

to prove that the synthetic variety is not a health hazard.

As the Company has been informed, Lycord estimates that the more the food market uses lycopene

complementary products, it could launch new products based on natural lycopene, thus competing with the

cheaper synthetic variety.

Synthetic lycopene producers such as BASF SE and DSM Nutritional Products compete with Lycord in the

carotenoid area. Other competitors are natural lutein producers like Kemin Industries, Inc., formulators like

DSM Nutritional Products and vitamin and mineral mixture producers such as Glanbia Fortitech Strategic

Nutrition.

Volume and profitability developments

As mentioned above, recent years have seen increased competitiveness by international companies and

continued shrinking of margins for older products. In 2010, Lycord's sales totaled some $79m, compared to

$83m in 2009. At the report date, Lycord's market share is immaterial in all of its product groups.

Critical success factors

The Company estimates that the main success factors in Lycord's DS operations are: (1) Technological

capability, leadership and innovativeness; (2) Responsiveness to the changing requirements of the food and

nutrition industry, and ever-changing consumer preferences; (3) Maintaining and reinforcing its relationships

with regular clients, while providing optimal customer service; (4) Global marketing deployment allowing it

to form tight relationships and develop new marketing niches in the markets it operates in as well as in other

countries and improve international trading relations; (5) Expertise and experience.

Entry barriers

Like all companies in the DS areas, Lycord is required to obtain and maintain various permits and

registrations, as well as to meet a large number of quality standards required by customers in various

countries. In addition, DS companies require, among other things, knowledge, unique technologies and rich

experience in scientific development, extraction technologies and storage techniques (to make the most of

DS products), chemical expertise and advanced technology to produce relevant product applications. In turn,

these require own capital, financial standing and reputation since it takes a long time to establish a position in

the DS area. Furthermore, proven technological knowledge and extensive experience are required to

manufacture market and distribute DSs, together with the ability to extract, separate, stabilize and fully

utilize the manufacturing process's various products and byproducts.

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Customers

In the DS area, Lycord's customers are mainly manufacturing companies, including those which produce and

sell end products to retailers, shops and industrial companies which then formulate and package ingredients

supplied by Lycord for dietary supplements and private labels.

Marketing and distribution

At the time of this Report, Lycord sells its products mainly in North America, Europe, Japan and the Far

East. These sales are usually not based on long-term contracts and orders, but on specific, current orders

received shortly before supply deadlines. Lycord's estimates are based on non-binding forecasts of annual

order volumes from key customers. Over the years, it has developed its own marketing and distribution

channels, as well as customer and technical support services. Sometimes, Lycord also relies on local agents.

R&D

Most of Lycord's activities are carried out in its own labs, but occasionally, as dictated by development

constraints, it uses external laboratory or research services. Lycord's main R&D activity is the development

and improvement of lycopene-rich potato strains, development of other products based on potato extraction

byproducts and development of new formulations in response to food and health market demand. In addition,

it conducts clinical studies to demonstrate the contribution of lycopene-based products to the prevention of

cancer and other degenerative diseases, sclerosis and high blood pressure, as well as dermal conditions and

menopause side effects. It performs these studies in Israeli, European, North American and East Asian

research facilities. All of its past and present R&D activity has been funded independently.

Regulatory restrictions, registrations and permits

Production and marketing of dietary supplements and food additive ingredients are usually subject to

national health agencies registration and quality requirements. Lycord recently received the FDA's approval

for using tomato-produced lycopene as a natural food color, in addition to permits it has already received

from European and Japanese authorities. Following the publication of new studies, some of the various US

recommendations for vitamins and minerals have been revised, and later adopted also in Israel. In 2001,

based on new EC regulations, Israel adopted Public Health (Food) (Dietary Supplements) Regulations, 2001,

which list permitted supplements, measures and values. During 2010, the company received a permit to

market lycopene in Europe as a novel food to enrich food products.

Raw materials and suppliers

At the time of this Report, the raw materials of Lycord's products are tomatoes, Marigold flowers (Tagetes

erecta), and algae. Consequently, its main DS suppliers are farmers so that supply is also dependent on

factors affecting the agricultural industry, including those detailed in Sections 5 and 6 above. Moreover,

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Lycord has contracted with Zeraim Gedera, Ltd. for the supply and development of special tomato strains, as

well as with growers whom it supplies with seeds and growing instructions. In addition, Lycord buys

vitamins and minerals from Western and East Asian companies. Recently, the prices of these materials have

risen substantially, so that Lycord had to raise its selling prices. An import permit by the Ministry of Health is

required for most imported vitamins and minerals.

Lycopene inventory planning is crucial, since Lycord extracts the material from its uniquely developed

potato strains, which yield crops during June to September. Nevertheless, thanks to Lycord's extraction

technologies and unique storage methodology, it usually manages to maintain inventory levels sufficient for

lycopene production until the following growing season. Due to limitations of water and planting areas, the

company processes tomatoes in California, in a local tomato plant, and the processed product is imported to

Israel for use in the Beer Sheba plant.

Intellectual property

All of Lycord's products have been originally developed. At the time of this Report, Lycord has some 17

registered production and formulation process patent families, as well as some additional 24 patent families

in advanced registration stages. Some of the patents refer to production and formulation processes, as

mentioned above, while others refer to the health-promoting properties of active materials developed by

Lycord. Lycord also owns several brands, registered as trademarks, such as Lyc-O-Mato, Tomat-O-Red and

other formulation brands.

18.2 Aromatic Products for the Cosmetics and Flavors & Fragrances (F&F) Industries

At the report date, the Company indirectly holds 100% of the shares of Agan Aroma and Fine Chemicals,

Ltd. (hereafter, Agan Aroma), which mainly develops, manufactures and markets synthetic chemicals and

fragrances for the detergent industry (soaps, washing powders, laundry softeners, cleaning agents, etc.), for

the cosmetics and body care industry (lotions, shampoos and deodorants) and for the fine fragrances industry.

The great majority of these products are intended for export. Agan Aroma owns over ten types of aromatic

chemicals used to produce scent extracts. It focuses on R&D, manufacturing and marketing of added-value

aromatic chemicals. Its products are raw materials included in the final product, providing it with the main

source of fragrance.

Agan Aroma's activity focuses on synthetic chemical production based on organic synthesis of fragrances for

the aromatic industry in its dedicated facilities in Ashdod. Most of its raw materials are high-grade

chemicals.

The Company has a joint venture with a Swiss company to produce and market fragrance materials in its

Agan plant. As part of its activities, the joint venture developed a unique process for producing an F&F

product. The partnership established a joint company in 2010 for the purpose of building a facility at the

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Makhteshim site in Ramat Hovav Construction of the facility is dependent on obtaining the requisite

approvals from the authorities and various conditions agreed upon by the parties.

Structure, recent developments and competition in the aroma market

The aromatic chemicals market has developed considerably over the past few years in view of rising

standards of living and changing preferences of end consumers who want their products accompanied with

pleasant fragrances, almost in every product category.

Activity in this area requires innovation, expertise and advanced R&D, as well as the technological

knowhow required for sophisticated production and initial funding for investment in complex production

facilities. Critical success factors are good reputation and branding, which take years to build. Clients for

whom unique aromatic products have been customized require high levels of reliability and consistency.

Agan Aroma's main competitors include leading FF multinationals with significant production capacity, such

as International Flavors and Fragrances, Inc. (IFF), leading chemical producers such as SE BASF and other

companies in East Asia. Note, however, that as Agan Aroma focuses on producing unique materials and

products it avoids competition with its customers, which gives it a competitive edge.

Customers

Most (75%) of Agan Aroma's customers in the FF area are multinationals. The rest are medium- and small-

scale companies. Agan Aroma supplies most of the leading FF companies (with an aggregate market share of

75% of world activity). Its major customers in this area include multinationals such as Firmenich, Givaudan,

Symrise, IFF, Procter & Gamble, Quest International Fragrances and Robertet Flavors. Aromatic chemicals

are usually developed in response to customer demand, requiring long-term strategic relationships with

clients, as well as collaboration in development and customization efforts.

Marketing

Most aromatic products sales are based on long-term contracts and orders, and the rest on current orders

received by Agan Aroma shortly before the supply deadlines. Agan Aroma's estimates are based on non-

binding forecasts of annual order volumes by key customers. Its marketing, distribution and sales network is

based on: (a) direct sales (usually through Agan Aroma subsidiaries) to end customers; (b) commission-based

sales through agents in various countries (such as in Europe, Singapore, India and Japan); and (c) sales

through a company jointly held (50%) by Agan Aroma (for joint company products alone).

Competition

Agan Aroma's main competitors include leading F&F multinationals having production capacity in this area,

such as IFF, leading chemical companies, such as SE BASF and other companies in Eastern Asia. However,

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note that Agan Aroma focuses on the production of materials or products that differ from its customers'

products, thereby avoiding competition with them – a fact that gives them a competitive advantage.

R&D

Agan Aroma focuses on constant development and improvement of aromatic products manufacturing

processes and applying technologies appropriate for high-grade aromatic chemicals. Other R&D activities

are designed for QC, to ensure company products meet global standards.

Regulatory restrictions, registrations and permits

Agan Aroma products are being gradually subjected to strict health and safety standards. For further details,

see "REACH legislation", in Subsection 15.5 above. Customers require producers to provide certificates

demonstrating that their FF products meet regulatory standards and legal requirements. Recently, producers

are increasingly required to document production processes and meet stringent environmental standards.

Raw materials and suppliers

In order to maintain high quality and availability, FF producers such as Agan Aroma need to forge long-term

relationships with suppliers. Recently, production of certain chemicals – particularly aromatic chemicals – in

low-cost economies such as China and India has increased. Agan Aroma's main raw material suppliers are

based abroad. At the time of this Report, it is independent of any single supplier. Finished products in the FF

area may be stored for a period of several months.

Turnover and profitability developments

Agan Aroma's sales totaled $51m in 2010, compared to $40m in 2009.

Intellectual property

All the aromatic products manufactured by the Company's subsidiaries are generic.

18.3 Industrial Chemicals

At the time of this writing, the Company produces and markets industrial chemicals, mainly byproducts of its

CPP production processes, and sometimes raw materials, as detailed below:

Hydrogen peroxide, used mainly in the production of detergents for the paper and chemical industries

Electrolysis products, sold by the Company to manufacturers, mainly in Israel

CO2 and hydrogen for industrial uses, mainly in the food industry

The Company's industrial chemical operations include the production of chemicals, as well as their

importation and marketing in Israel. It is its industrial chemical capabilities which allow it to produce these

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products. Note some production activity is carried out in the Company's ordinary facilities, while others are

carried out in dedicated facilities.

In 2010, industrial chemical sales totaled about $41m, compared to some $40m in 2009.

Customers

Since this activity area involves basic chemicals, it caters to a variety of customers, including mainly

manufacturers in areas such as food, energy, textiles, plastics, construction and chemistry. As already

mentioned, most of the Company's industrial chemicals customers are Israeli. Products in this area are

marketed through dedicated distribution agreements or based on orders, as the case may be.

Following a production malfunction occurring in November 2009 in CO2 supplied to Company customers,

CO2 supply was suspended temporarily. During the second quarter of 2010, the Company resumed orderly

CO2 production, after obtaining all the approvals from the Ministry of Health.

Competition

The company controls about half of the Israeli industrial chemicals market. Its main competitors in Israel

include importers as well as local producers, such as Fertilizers and Chemicals, Ltd., Maxima Air Separation

Center Ltd. and Deptochem, Ltd.

Raw materials and suppliers

Most raw materials inputs in the industrial chemical market derive from the Company's CPP activity. Since

most industrial chemicals are raw materials produced by the Company or byproducts of end product

manufacturing processes, inventory periods are short, usually no more than a few weeks.

18.4 Additional Products

In addition to the products detailed in this section above, the Company produces several industrial chemicals,

utilizing its production expertise and/or technologies – intermediate materials for the pharmaceutical and

other industries – however, the production and sales volumes of each are negligible.

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Issues Relevant to the Entire Group Part V:

19. FIXED ASSETS, LAND AND FACILITIES

The Company's fixed assets are mainly the plants where it manufactures, researches, develops, formulates

and packages Company products. Its main production facilities are in Israel and Brazil; it also operates

several proprietary formulation and packaging facilities around the world, and others (including through

distribution companies acquired over the years). See Subsection 7.4 above for a description of the

Company's production, formulation and packaging processes.

19.1 Production Plants

In 2002, the Company began implementation of a changed strategy plan, whereby the Company is in the

process of optimizing its production plants, purchasing and chain of supply. As part of this process,

decisions were made in the second half of 2010 regarding the closing of two production lines in Israel during

2011. For additional details, see Section 31.2 of the report.

Below is a short description of the Company's major production plants

Beer Sheba

The Company's plant in Beer Sheba currently formulates and packages the pesticides and fungicides

produced in the Ramat Hovav plant. The plant also formulates and packages other products produced by

third parties and sold by the Company.

The plant is located on a land area of some 100 acres16, which the Makhteshim subsidiary leases from the

Israel Land Administration (ILA), including a constructed area of some 37,000m2 with buildings, offices,

facilities and warehouses. The leasing periods are long-term and different for various parts of the land,

ending 2018-2068 (Beer Sheba land). The leasing agreements include provisions which commonly appear,

from time to time, in leasing agreements with the ILA, including extension rights.

In addition, a Lycord plant is located within the bounds of the Beer Sheba land. As already mentioned,

Lycord is a subsidiary which produces dietary supplements and food additive ingredients as detailed in

Subsection 18.1 above, and is located on land purchased from the Company by Lycord in 2002. For details

on Lycord's other plants, see Section 19.2 of the report.

16 At the time of this Report, the Company is conducting advanced negotiations related to a capitalization settlement for leasing about 18 acres of the Beer Sheba land, such that it concurrently has extension options under the original lease agreement with the Israel Land Administration (ILA). Despite the time that had elapsed and in view of the progress in the lease extension negotiations, both parties continue to abide by the original lease contract provisions, whose term had already expired, and the Company estimates no significant exposure may be expected in relation to this contract. In addition, some five acres of the plant grounds used by the Company are registered in ILA books as leased to Harsa Israeli Ceramics Ltd., and the Company's use of this land used to be governed by a settlement between Harsa and the Company. In practice, it was agreed to assign the leasing rights on that land to the Company and at the time of this writing, the Company is in the process of completing the leasing rights' registration in ILA books. The leasing rights granted by this rights assignment agreement will expire in 2017.

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Ramat Hovav

At the time of this Report, the Company's Ramat Hovav plant manufactures all the Company's active

materials used for pesticide and fungicide production. The plant also packages active materials. Furthermore,

it is used to manufacture industrial chemicals for the Company and other industries, as detailed in Subsection

18.3 above.

Company land in Ramat Hovav. The Ramat Hovav plant is built on a land area of some 270 acres, leased

from the ILA, with a constructed area of 169,471m2 with buildings, offices, facilities and warehouses. The

leasing periods are long-term and different for various parts of the land, ending in 2023-2029. The leasing

agreements include provisions which commonly appear, from time to time, in leasing agreements with the

ILA, including extension rights. (See Subsections 25.9 below for further details and procedures concerning

this plant's operations).

In May 2007, Makhteshim signed an agreement with Ramat Negev Energy Ltd. (Negev Energy) – a third

party unaffiliated with the Company, which has been amended from time to time, to build and operate a

power plant in Ramat Hovav ("the Agreement"). Following the agreement, the parties signed a sublease

agreement, according to which Makhteshim will sublet to Negev Energy some land (subject to the ILA's

approval, which has not been obtained at the time of this writing), on which – pursuant to the Agreement -

Negev Energy will build and operate an electric and steam power plant using natural gas (subject to the

availability of a pipeline and regular supply of natural gas) within thirty months of the approval date for

providing the financing required to build the plant. The consideration for leasing this land is immaterial to

the Company. In addition, the Agreement provides for Negev Energy to supply energy, electricity, steam, soft

water, distilled water and compressed air to Makhteshim's facilities in Ramat Hovav for a period of 24 years

and 11 months after providing the area to Negev Energy, after which time the power plant will be owned by

Makhteshim. To the best of the Company's knowledge, at the time of this writing not all the approvals

required to build this power plant have been obtained, and the funding required has yet to be raised. The

construction works are under Negev Energy's responsibility and at its expense, and so are obtaining the

legally mandated permits and registrations.

Ashdod

The Ashdod plant, located in the city's northern industrial area, is mainly used to manufacture the active

materials used for herbicide production, as well as for producing the Group's aromatic products, as detailed

above in Subsection 18.2. The plant also includes formulation and packaging facilities.

At the time of this Report, the land on which the manufacturing plant is built and the related service areas are

located on a land area of 60 acres, of which some 22 have been registered under the Company's name, and 28

will be registered as such following consolidation and allocation procedures which have yet to be completed,

at the time of this writing. The remaining ten acres are leased from the ILA, of which 5.5 acres are leased

under a contract from the ILA and 4.5 dunam that were allotted to the Company under a development

73

contract and the attached lease contract. These lease agreements are for periods ending in 2050 and 2054,

and include provisions which are common, from time to time, in ILA leasing agreements.

This land includes a constructed area of 41,600m2 with production facilities, warehouses, storage areas for

packages, engineering services, technical equipment, offices, laboratories, platforms, employee welfare

services and various auxiliary buildings. In addition, Agan leases – from various third parties unaffiliated

with the Company – an area of less than two acres, next to the plant grounds, for parking, with two buildings

(500 and 1750 m2) used for storage, for amounts immaterial to the Company.

In April 2006, Agan signed an agreement for 5 years with the Ashdod Municipality, and for an additional

period of 19 years (subject to approval by the Minister of the Interior, allowing Agan to make use of a land

area of five acres to build and operate a sewage treatment plant, construction of which is complete, at a total

cost of some NIS 130m (See paragraph 25.11.3 below for more details)

In July 2006, Agan signed an agreement with Ashdod Energy Ltd. – a third party unaffiliated with the

Company – according to which it will sublet to the latter a land area of 2.6 acres, part of a 5.5 acre land area

leased by Agan from the ILA, on which Ashdod Energy will build an electric and steam power plant using

natural gas (subject to the availability of a pipeline and regular supply of natural gas) within four years after

signing the agreement. The return for leasing this land is immaterial to the Company. In addition, the

agreement provides for Ashdod Energy to supply Agan with energy for a period of a period of 20 years after

the power plant starts operating or for a period of 24 years and 11 months after signing the aforementioned

sublet agreement, whichever is sooner. When this power plant becomes commercially viable, the discounted

electricity and steam rates will represent complete disbursement of the rental fee of $80,000 a year. The

building and construction works are under Ashdod Energy's responsibility, and so is obtaining the legally

mandated permits and registrations.

Plants in Brazil

Londrina, State of Paraná. This plant is located in the city's industrial area and is fully owned by the

Milenia Agrociencias Group S.A. (hereafter, Milenia). The plant is built on an area of 60 acres of which

36,000m2 are constructed and include manufacturing, formulation and packaging facilities, as well as

warehouses. This site is also the location of Milenia's Brazilian HQ.

Taquari, State of Rio Grande do Sul is home to another Milenia plant. The plant's area covers more than

120 acres, with a constructed area of 68,000m2, including CPP manufacturing, formulation and packaging

facilities.

For details on the Milenia reorganization plan, which includes a significant cutback in the production

activities in Taquari and a partial cutback in Londrina, see Section 33.2 below.

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19.2 Other plants

As already mentioned, Lycord has a plant in Beer Sheba on land bought from the Company, not far from the

Company's own facilities there, over an area of 17,200m2. The procedure of registering the land in Lycord's

name is not yet complete.

Lycord also has a plant in Yavne, where it leases an area of 2,707 m2, leased from a third party in an ordinary

rental for a period ended on July 9, 2012.

Lycord has two more wholly-owned plants (both the land and the structures), one in the UK and one in the

US. These produce carotenoids, vitamin and mineral coating, mixtures for the food industry and other dietary

supplements. These facilities have been developed by Lycord itself and are customized for manufacturing its

specific products. Finally, Lycord has operational rights in other plants in Israel and abroad.

19.3 Packaging and Formulation Plants

In addition to the abovementioned production plants, the Group operates several facilities in its activity areas

worldwide, including in the US, Columbia, Spain, Italy, Greece and Korea, and after the balance sheet date,

following the closing of the Bravo transaction (see Par. 1.5 above), also in Mexico. These facilities are

designed mainly for final formulation and packaging of products and materials produced in Israel. At the

time of this Report, however, their operations are immaterial in relation to the Group's volume of operations.

Moreover, as already mentioned, the Group has agreements with distributors around the world, some of them

under its control and others acting as partners, as well as with still other companies, for outsourced

formulation and packaging services in their own facilities as required.

19.4 Company HQ

In April 2007, the Company agreed to lease office space of some 3,870m2 (at a cost immaterial to the

Company) in the Airport City compound at Ben-Gurion International Airport, in which the Company's HQ

have been located since the end of 2007, including its management, sales, development and registration,

finance and human resources, main subsidiary managements and its procurement operations in Israel.

According to the leasing agreement, the lease periods ends after 15 years, but the Company has the option of

terminating the contract on three milestones (following 9, 11, and 13 years, subject to an advance written

notice of 12 months) in return to a predetermined compensation. During 2010, the Company leased

additional space in the building, which, after the balance sheet date, the Company is in the process of

subletting.

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19.5 Machinery

The main machinery in the Company's facilities includes active material production lines. Its size,

constituent materials and number of units change from one facility to another. Company facilities include the

following items:

Revolving machine tools, such as pumps, reactors and compressors of various types.

Static machinery and pipelines, such as distillation columns, containers and cooling towers.

Electricity and control, such as computerized control systems.

Civil engineering and iron or concrete constructions.

At December 31, 2010, the depreciated cost of machinery and fixtures totaled $499.5 million..

19.6 Investments in Production Facilities

The Company acts continuously to expand its production capacity, mainly by expanding existing synthesis,

formulation and packaging facilities and by building new production facilities on its existing locations,

operating production facilities owned by acquired distribution companies, expanding its R&D infrastructures

and various environmental protection projects. During 2007, the Company completed the construction of

three ecological treatment plants: a biological sewage treatment facility at Ramat Hovav, a thermal oxidizer

at the Agan plant, and another in Ramat Hovav. In addition to those treatment plants, the Company has

constructed an additional biological sewage treatment facility at the Agan plant. The facility operated

continuously throughout 2010. At the report date, the facility is operating and is continuing to operate

different pilots in accordance with the future plans of Agan and requirements of the Ministry of

Environmental Protection (See paragraph 25.11.3 for details on this facility).

In 2010, the Company invested a total of some $74.2m in facilities and machinery. The Company intends to

continue expanding its production capacity by investing in production facilities, as and to the extent required,

subject to various applicable legal restrictions and requirements.

Moreover, the Company intends to continue expanding its environmental investments, whether of its own

initiative or to meet regulatory and legal requirements. In December 2009, it entered into a multi-annual

agreement with Egyptian company EMG (East Mediterranean Gas) for providing natural gas for the Group's

production facilities in Ashdod and Ramat Hovav. Pursuant to the November 2010 amendment to the

agreement, the starting dates for the flow of gas were postponed. The Company is also in advanced

negotiations for another natural gas supply agreement with an alternate source, in accordance with the

Company's demand and requirements (See Subsection 25.7 below for more details about this agreement and

the Company's investments in ecological facilities in the years leading up to this report).

Various expansions of the Company's plants in Israel have been granted Approved Enterprise status eligible

for investment grants and/or tax benefits under the Law for the Encouragement of Capital Investments, 1959.

Note that the Ashdod plant is eligible only for tax benefits (not grants), since it is classified as a "benefitted

enterprise" under the Law for the Encouragement of Capital Investments and not an "approved enterprise".

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During 2006, the Company completed the following investment programs approved by the Ministry of

Industry's Investment Center (hereafter, Center):

Ramat Hovav and Beer Sheba. At December 27, 2005, the Center approved a grants program totaling

some NIS117m (about $30m) for the construction and expansion of production facilities, as well as

safety- and environmentally-related activities. In July 2006, a further investment of some NIS6m in land

and infrastructure development, new structures and machinery was approved. At the time of this Report,

the Company has completed its investments and the Center's execution approval was received.

Ashdod. At December 31, 2006, the Company completed a $7.4m program for investing in the

Company's production facilities, together with a neutralized investment of some $7.2m in systems,

structures, general-purpose systems and new machinery, approved by the Center on July 19, 2004 as a

non-grant, tax benefits program. The benefits period for several expansion programs ended in 2008 and

2010, and for others, will end in 2012.

All benefits accrued by virtue of the abovementioned approvals are contingent on meeting legal and

regulatory conditions, and on applicable terms set forth in the approval documents for investment in the

Approved Enterprises. The Company consistently complies with the provisions of the Law for the

Encouragement of Capital Investments.

19.7 The balance of the depreciated cost of fixed assets in the Company's consolidated financial

statements at December 31, 2010, net of investment grants, totals some $619.7m. (See Note 10 to the

financial statements).

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20. PRODUCTION CAPACITY

The Company's production capacity is affected mainly by the location of production, formulation and

packaging facilities in several sites in Israel and abroad, their output and each one's area and time allocation

at full capacity.

In general, the Company's production plants (detailed in Section 19 above) operate around the clock, in

shifts, apart for self-initiated stops for occasional maintenance work, during which the Company sells mainly

inventoried products. At the time of this Report, the average number of annual actual production stops due to

such maintenance work, as well as malfunctions, holidays and other such events is fifteen (15) days.

The Company's production sites house two types of facilities: (1) Dedicated facilities designed to produce a

single product or product family; and (2) versatile facilities – over half the Company's facilities – where

several different kinds of products may be manufactures. The latter provide the Company with

manufacturing flexibility and enable it to prepare for the production of new products.

As mentioned above, the Company continuously invests in expanding its production capacity. The Company

estimates that its existing sites have enough facilities and land areas to expand its production capacity, if

necessary, among other things by taking the following measures: (1) Expansions and changes in existing

facilities; (2) changes in work processes; and (3) expanding the activity volume of certain shifts, which are

currently below maximum capacity (for example, by adding weekend shifts; note that the Company has a

permit to employ workers on the Sabbath).

In general, the Company's average output is about 80%. Nevertheless, in certain times of the year some of its

facilities operate at higher outputs exceeding 90%. As the demand for products manufactured in these plants

increases, the Company will consider expanding them or alternatively, purchase the same materials from

other suppliers. According to the Company's estimate, expanding a production facility may take between six

(6) and eighteen (18) months, following regulatory approval. Facility expansion costs vary with the nature of

each facility and extent of expansion required.

The Company estimates that should it be required to reduce production volumes in its facilities, in view of

market conditions, its overheads – which vary from one facility to another – would represent a higher

proportion of its income.

For further details about the Company's investments in production facilities, see Subsection 19.5 above. In

addition, see Subsection 7.4 above for details about the production processes of Company products.

Please note that this section includes forward-looking statements, as defined in the Securities Law - 1968,

based on subjective Company estimates of uncertain validity as to the output of its production facilities,

facility expansion timeframes, and the availability of its existing locations and facilities. Such estimates may

not necessarily materialize due, among other things, to the risk factors enumerated in Section 34 below as

well as failure to complete facility expansion on schedule due to dependence on subcontractors, and – as

concerns facility output – machinery and equipment wear and tear.

78

21. HUMAN CAPITAL

2.1. At December 31, 2010, the Group employed 3,937 workers. Over the two years prior to this

writing, these were employed according to the following breakdowns:

December 31, 2010 December 31, 2009

Production 1,783 1,755 R&D 174 156

Sales and Registration 1,593 1,587 Management & Administration 387 374

TOTAL 3,937 3,872

December 31, 2010 December 31, 2009

Israel 1,438 1,431

Latin America 836 988

Europe 789 747

North America 321 279

Asia-Pacific and Africa 553 427

TOTAL 3,937 3,872

79

In 2010, the Company began implementation of its comprehensive change-in-strategy plan, intended to

modify the business model to changes in the industry's competitive environment and strengthen its major

areas of activity. As part of the implementation of the changes in the strategic plan, a reorganization was

completed, including new hiring, with a redefinition of the geographic regions in which the Company

operates.

21.2 Organization-wide core processes and supporting global functions. Within this framework, on

January 25, 2010, the Company announced its management's move to change the positions or

authorities of several high-ranking executives. For additional details, see the immediate report dated

January 25, 2010 (RN 2010-10-364086). Likewise, during 2010, the Company completed

managerial changes to its operating model in the American markets, in which it implemented a

comprehensive reorganization of its operations in Brazil (as discussed in Section 33.2 below). The

Company also entered into an agreement in principle with the New Histadrut Labor Federation –

Southern District ("the Histadrut"), whereby the Company committed, among other things, to

continue carrying out production activities, in the volume and on certain production lines in the

subsidiaries' plants in Israel, until 1.6.2017 (See Section 21.4 above for further details).

For details about the appointments and termination of Company executives in 2010, carried out in

connection with the change-in-strategy plan, see immediate reports of March 10, 2010 and May 2,

2010 (RN 2010-01-409425, 2010-01-466266, 2010-01-466299, 2010-01-466302, 2010-01-466305,

2010-01-466533 and 2010-01-466551, respectively,

80

21.3 The Company's Organizational Chart

* Post date of this statement, the joint CEO of Makhteshim and Agan has left his position. Instead a CEO for

each of the subsidiaries has been appointed.

Products and

Marketing

Global Resources

and Corporate Developme

t

Legal and Corporate

Social Reponsibility

Finance

Presidend & CEO

Agan Joint CEO*

Makhteshim

Israeli and Foreign Subsidiaries*

*Whether fully owned or jointly owned with other parties

Regional Managers

Strategy,

Innovation and Business

Intelligence

HR

Corporate Communication

Board of Directors

81

21.4 Labor Relations and Employment Agreements in the Company's Key Subsidiaries

Makhteshim

Makhteshim employees are represented by a Workers' Council comprised of three historical councils. From

time to time, the subsidiary's management and its employees sign collective agreements and pay contracts for

predetermined periods, which set forth pay conditions as well as benefits. In late 2007, a collective labor

agreement was signed which put an end to the labor dispute in the company, and settled the pay and

employment terms for each of the years 2007-2009. Both parties abide by the valid collective agreements.

This agreement states that the parties thereto accept the principle that allowances be paid only out of

Makhteshim profits. It also includes a commitment to industrial peace and avoidance of unilateral steps.

Finally, the agreement determines the extent of promotions and makes them contingent on employee

performance.

On April 8, 2010, Makhteshim received notice under the Resolution of Labor Disputes Law – 1957

("Resolution Law"), about the Histadrut's intent to declare a strike with respect to the Makhteshim plant in

Beer Sheba. For additional details, see the immediate report dated April 11, 2010 (RN 2010-01-444006).

Later on, in October 2010, the Company reached agreement with the Histadrut, ending the labor disputes

declared with respect to the plants of the Company and its subsidiaries, as provided in this section below.

Agan

Labor relations in Agan are governed by a special collective agreement signed by the management and the

Ashdod Workers' Council on May 31, 1973. From then on, Agan's management and its Workers' Council

sign special collective agreements, usually for periods of two years at the time (normally at the end of each

such period), which revise select issues included in the historical agreement and introduce new

arrangements. The collective agreement was to expire in October 31, 2004 (2004 Agreement) and it governed

the following issues, among others: inducting new employees according to employee groups divided into two

generations; employee recruitment and promotion arrangements; working conditions; pay, bonuses and

plant-wide allowances; promotions; social and other benefits; professional education; temporary

employment, etc. Some Agan workers are employed according to individual contracts. Relations between the

Agan management and the employees are correct, with no strikes or labor disputes in the Ashdod plant over

the past ten years.

The 2004 Agreement has been extended to December 31, 2010, and it governs mainly the issues detailed

above, as well as including a commitment by the employees to maintain industrial peace throughout said

period. In September 2007, a special collective agreement was signed to arrange for the early retirement of

up to thirty employees, the costs entailed thereby are being insignificant to the Company at the time of this

Report.

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Agreement of Understandings with the Histadrut with respect to Employees of Makhteshim and Agan

On October 17, 2010, the Company received notice under the Labor Disputes Law from the Histadrut and

the Histadrut Haclalit – Ashdod District, regarding a possible strike of the Makhteshim and Agan plants (see

the immediate report dated October 18, 2010, RN 2010-01-649857). On October 31, 2010, the Company

announced that it had reached agreement with the Histadrut and the Histadrut Haclalit – Ashdod District,

ending the labor dispute declared with respect to the subsidiaries' plants. The key agreements reached in the

agreement in principle are presented below:

A. The Company committed to continue production in the volume and on certain production lines in the

subsidiaries' plants in Israel until 1.6.2017 ("commitment period") provided that any agreement to

transfer control in the Company will be closed by 1.6.2012. The commitment period will be

anchored in a transfer of control in the Company agreement if such an agreement will be signed.

B. It was agreed on the voluntary retirement of up to 100 employees over age 57 during the years 2011-

2012, in each of the subsidiaries (total of up to 200 employees). The names of the voluntary retirees

will be agreed by the parties.

C. In the event any agreement to transfer control in the Company is signed, a special assistance fund

will be established for the voluntary retirees;

Employee representatives have committed to industrial calm on matters that were arranged in the

agreements between the parties, including with respect to a future transfer of control in the Company. On

6.11.10, the Company's management gave the workers' council of Makhteshim agreement in principle, as

provided in the agreement in principle whereby during the years 2013-2014, up to 50 permanent

employees may retire, in addition to those already listed in the agreement in principle, subject to all the

stipulates of the agreement in principle.

The said agreement in principle integrates in a broad process of optimization of the Company's

production plants, purchasing and the chain of supply, with the objective of improving the cost structure

of products sold by the Company, improving operational flexibility and better maximizing its broad

geographic deployment. For additional details regarding the Company's goals and strategies, see Section

31 below.

Implementation of the voluntary retirement process requires recording one-off provisions in the Company's

financial statements for 2010 totaling $58.2 million. For additional details, see Note 20 (Par. A.10) to the

financial statements at December 31, 2010. Company management estimates that completion of the above

retirements will gradually lead to annual savings of $8 million in 2011 and $13 million in 2012.

83

Milenia - Brazil

The employment conditions of Milenia employees follow CLT (Consolidação das Leis Trabalhistas) rules –

the federal legislation rules governing employment in Brazil. Every private company in this country is

required to meet their labor requirements. At the time of this Report, labor relations in the Londrina plant are

correct.

Labor relations at the Taquari plant are governed by a biannually renewed collective agreement. At the time

of this Report, labor relations there are correct and to the best of the Company's knowledge, no significant

labor disputes have plagued this plant in recent years.

For details on the Company's liabilities for termination of employment relations, see Note 19 to the financial

statements. For details of the reorganization plan for Milenia (which includes significant manpower layoffs),

see Section 33.2 below.

In November 2010, the President of Milenia terminated his service and was replaced by an Acting President.

Subsequent to the balance sheet date, a permanent President was appointed.

21.5 Investments in Training, Employee Development and Incentives

From time to time, Group members offer their employees training in accordance with their positions and

Group requirements. Occasionally, employees received updated information on areas related to their roles,

by taking part in exhibitions, lectures, seminars and professional education.

On October 14, 2007, the Company's Compensation Committee approved quantitative criteria for bonus

allocation as part of the Company's general policy of compensating non-executive, senior and junior

management Company employees, in reference to both annual bonuses and long-term compensation

programs. These criteria are subject to the framework of an allocation budget to be annually approved as part

of the Company's work plan. The extent of the bonus, should there be any, is a function of employee

performance and Company results, so that this policy is not expected to significantly increase the rate of

actual bonus payment.

21.6 Executives and Senior Management

At the time of this Report, the Company's senior management team comprises 10 managers, mostly

employed in its offices in Israel and abroad (sometimes through a management services agreement).

The Company's executive compensation policy (which applies both to middle-ranking executives and to

members of the senior management team) is composed of the following three tiers:

(1) Basic pay and allowances;

(2) Annual bonuses (at the discretion of the board of directors); and

84

(3) Stock options17.

Officers and senior management of the Group are employed in personal employment contracts and/or

management services contracts that include base salary, pension and insurance coverage on various tracks,

acceptable benefits, personal incentives (bonuses) and stock options of the Company. The remuneration terms of

senior Company officers are approved by the organs prescribed in the Companies Law – 1999, after the details are

discussed before the Remuneration Committee appointed by the Company's board of directors, which makes

recommendations to the authorized Company organs before being sent to these organs for discussion.

For details on the key quantitative tests for classification of the remuneration terms of senior officers as an

exceptional transaction, see the immediate report published by the Company on June 7, 2007 (RN 2007-01-

420299).

For further details about the employment terms of senior Company officers, see Chapter D of this Report, as

well as Note 30 to the financial statements. See Subsection 21.7 below for details about Company stock

options issued to senior Company officers and employees.

Board Chairman

Until December 31, 2010, Mr. Avraham Bigger served as the Company's active Chairman of the Board.18

Commencing January 1, 2011, Mr. Ami Arel serves as the Company's Chairman of the Board.

For additional details on the end of Mr. Bigger's tenure and the appointment of Mr. Ami Arel, who served

previously as a director of the Company, as Chairman of the Company, see the immediate reports dated

November 23 and 25, 2010 (RN 2010-01-689961 and 2010-01-695415, respectively).

CEO

Commencing January 1, 2010, Mr. Erez Vigodman serves as Company CEO. See Chapter D for details

about Mr. Vigodman's compensation package.

Senior Company officers

On January 17, 2011, subsequent to the balance sheet date, Mr. Oren Leider was appointed a director in the

Company (see the immediate report of that date, RN 2011-01-019959). On January 30, 2011, subsequent to

the balance sheet date, Mr. Odd Koritchner was appointed a director in the Company (see the immediate

report of that date, RN 2011-01-031974).

Note that one of the suspending conditions for the closing of the merger (as defined in this report) is receipt

of signed resignation letters from all of the Company's directors, in effect from the closing date of the

17 Regarding the economic value of the options granted to senior officers of the Company, at December 31, 2010, see Note 22 to the financial statements for 2010. 18 Until the end of 2009, Mr. Avraham Bigger also served as CEO of the Company (concurrent with his tenure as Chairman of the Board) and as from January 1, 2010, Mr. Erez Vigodman serves as Company CEO.

85

merger, such that after the merger's closing, directors will be appointed in accordance with the shareholders'

agreement between Koor and CC. For additional details, see the transaction report issued by the Company

on January 20, 2011 (RN 2011-01-025200).

For additional details on the Company's officers and their employment terms, see Chapter D.

21.7 The Company's Option Plans

For details about the Company's option plans and options allotted to employees and senior executives,

including with respect to the allotment of options to senior officers and the Company's CEO during 2010, see

Note 2 to the Company's financial statements at December 31, 2010.

Note that one of the suspending conditions for the closing of the merger (as defined in this report) is

cancellation of all the Company's stock options by the closing date of the merger. To this end, the Company

has undertaken with some of the offerees, including Mr. Chen Lichtenstein, who serves as an officer in the

Company, and with Mr. Saul Freidland, who serves as a senior officer, in agreements, whereby the Company

will buy the options they hold, against a payment by the Company to these option holders of an amount that is

immaterial to the Company (NIS 710 thousand to Mr. Lichtenstein and NIS 1,631,477 to Mr. Friedland). For

additional details on the actions taken by the Company for the exercise, purchase and cancellation of the

options, as noted, see the transaction report issued by the Company on January 20, 2011 (RN 2011-01-025200).

21.8 Senior Executives' Indemnification and Insurance

Officers' Insurance. Directors and officers of the Company and its subsidiaries are insured up to a liability

limit of USD100m plus an increment of up to 20% of the said amount, to cover the legal defense expenses in

Israel. Note that this policy was initially provided by Clal Insurance Ltd. before the owner of its controlling

interest, IDB, became an entity that could be considered the owner of the Company's controlling interest. The

policy is renewed annually according to a framework resolution approved by the Company's General

Meeting on December 29, 2010, for periods that will not exceed five years on aggregate, i.e. until December

1, 2015. For additional details on the resolution by a general meeting regarding officers' insurance, see the

immediate reports dated November 23, 2010 and December 29, 2010 (RN 2010-01-690012 and 2010-01-

736380, respectively and Chapter D.

Officers' indemnification. On October 8, 2007, the Company's General Meeting approved an undertaking to

indemnify in officers serving at that time and who may serve in the future (including those officers who may

be considered owners of a controlling interest in the Company); the Company's bylaws were amended

accordingly. (See the Company's immediate report on August 26, 2007, RN 2007-01-371416 for details).

21.9 See Section 29 below for details about corporate governance resolutions.

21.10 At the time of this Report, the Company estimates that it is not dependent in any way on any of its

employees.

86

22. WORKING CAPITAL

22.1 General

Company Working Capital in 2010

Working Capital Balance Current Ratio Quick Ratio

697,395 1.46 0.82

22.2 Customer Credit

As a rule, the Company follows a customer credit control procedure which sets forth the conditions for

providing customer credit limits, as well as collection follow-up. The Company normally gives its customers

credit of between several months and one year, such that a separate liability is managed for each customer

according to its profile (i.e., previous transactions between the Company and the customer and their

relationships, the customer's collaterals, the insurance the Company received for the customer, if any, etc.),

its specific requirements and the type of business relations it has with the Company. For additional details on

this procedure, see Subsection 10.3 above.

The amount of credit extended to customers varies as a function of the competitiveness in each of the

Company's markets, the types of crops in the region in question, the number of entities involved in the

supply chain, and other such factors which may affect the amount of credit at any given time. In certain

regions, mainly in South America, the credit period is long (compared to that given to West European

customers), and sometimes, among other things, due to bad crops or difficult economic conditions, the

Company may find it difficult to collect its debts, prolonging the collection period for up to several years.

This risk also exists in developing countries where the Company is less familiar with its customers, their

collaterals are of doubtful quality and there is no certainty as to such customers' insurance cover. In this

context, see also Subsection 10.3 in reference to provisions for bad debts.

The Company usually extends credit to its customers according to the credit terms common in the markets in

which it operates.

The average customer credit extended in the three years preceding the report date:

31.12.2010 31.12.2009 31.12.2008

Average customer credit days 133 130 112

CPP sales are directly dependent on the growing seasons and crop cycles. Therefore, the Company's sales

are not divided evenly over the year, and accordingly, there is variation between the first and second half of

the year in customer characteristics and average credit days. Countries in the southern hemisphere are

characterized by similar timing of growing seasons, and therefore, these countries usually have their highest

87

sales in the first half of the calendar year, whereas the growing season is the opposite in the southern

hemisphere (except for Australia), and most sales are effected in the second half of the year.

The customer credit days in the northern hemisphere countries are lower than the average for Company

customers, and the customer credit days in southern hemisphere countries are higher than the Company

customer average. Due to these seasonal factors, for the most part, the average credit days on June 30 of

every year is lower. Sales in Brazil, accounting for 15% of the Company's sales, are effected mainly in the

third and fourth quarters, and collections are made mainly in the second year of the subsequent year.

The Company's trade receivables (including a promissory note) at December 31, 2010 totaled $681 million.

For additional details, see Note 5 to the financial statements.

The Company's provision for bad debts totaled some $17.4 million in 2010. For further details, see the

Company's Directors' Report.

22.3 Customer Debt Securitization

The Company has undertaken ongoing customer debt securitization transactions in order to reduce the extent

of Company funding from both bank and non-bank sources, under which foreign special purpose entities

(SPE's) (not owned or controlled by the Company) created and funded by international financial institutions

will buy its customers' debts. At the report date, the maximum debt acquisition by these companies is limited

to a total of 250 million US dollars on a current basis, such that the consideration received from the

customers whose debts have been sold would be used to purchase new customer debt. In September 2009,

the customer debt securitization agreement was amended and extended to an additional term of three years,

with no significant changes in the structure of the extended securitization transaction (Securitization

Agreement). During the additional term, the credit facility will be approved annually, according to the

securitization agreement. At the report publication date, the credit facility renewal was approved until

February 27, 2012.

Customer debts are sold to the SPE for a price lower than the actual debt, such that the debt reduction is

calculated based on the expected payment date. For further details, see Note 5 to the financial statements; see

Subsection 23.5 below for restrictions the Securitization Agreement imposed on the Company; see Note 3 to

the financial statements for details about debt securitization insurance.

22.4 Inventory Policy

In view of the seasonal nature of Company sales, the relative distance of its production plants from its

various markets and the high importance attached by the Company to the quality of its customer service, the

Company usually follows a flexible inventory policy with regard to both raw materials and finished goods.

88

The Company's production plan is based on a projection of periodic (seasonal) orders, which is updated on a

continuous basis according to actual orders. According to this plan, the Company normally orders its raw

materials from suppliers in view of their expected future availability and logistical considerations, and

subject to the various production limits, if any; however, it plans, to the extent possible, to receive the raw

materials in close proximity to the planned production deadlines (for reasons of funding and efficiency). The

Company usually stores in its plants an inventory of raw materials in line with such projections. The shelf

lives of most raw materials are several years, and may even be extended by simple treatments.

The Company has a dedicated inventory policy for each finished product, based on its profitability as well as

production deadlines and expected customer orders. In addition, the Company attaches great importance to

managing its current inventory efficiently and to shortening its global supply chain. Due to the fact that the

Company's customer sales are based on orders submitted on short notice, its inventory policy enables it to

maintain product availability throughout each season and according to its stages.

Total Inventory and Inventory Days, December 31, 2010 (in $thousands)

Raw materials & Company produced inventory

918,703

Marketed products inventory 83,455

Total inventory 1,002,158

Inventory days (for historical sales) 206

Inventory total and inventory days in the three years prior to report date:

31.12.2010 31.12.2009 31.12.2008

Total inventory (*) ($K's) 1,002,158 1,000,591 1,135,418

Inventory days (for historical

sales) 206 230 198

(*) Total inventory – includes current and non-current inventory.

In every period, the Company evaluates the need for recording inventory impairment. To this end, various

indicators are evaluated, such as entry of competitors, regulatory changes that could impact consumption of

specific Company products or their production costs, notice of cancellation of registration (or intention to do

so), receipt or revocation of permits to sell various products in different regions, strategic decisions and

processes in the Group and any event that could impact the expectations for realization of a certain product,

its sales price or production cost.

At December 31, 2010, inventories totaled $1,002 million (compared to $1,001 million in 2009).

89

22.5 Supplier Credit

Normally, the Company receives 30- to 180-day supplier credit. It acts continuously to raise the number of

credit days it receives from various suppliers.

At December 31, 2010, supplier credit totaled $574,204 thousand, and the average supplier credit period was

127 days.

The balance of the Company's trade payables at December 31, 2010 totaled some $503.4 million.

Average trade payables and supplier credit days in the three years prior to report date:

31.12.2010 31.12.2009 31.12.2008

Average trade payables and

accrued expenses ($K's) 574,204 507,356 557,105

Supplier credit days 127 129 99

90

23. FINANCING AND CREDIT

The Company finances its business activity with its equity as well as with outside financing, mainly

medium- and long-term bonds issued by the Company (as detailed in Subsection 23.3 below), whose balance

at the report date was some $972m.Under the bond terms, the Company has not undertaken to comply with

any financial covenants.

The smaller share of the Company's external funding comes from: (1) long-term bank credit, whose balance

at the report date (including current maturities) was some $254m, and under the terms of which the Company

has undertaken to comply with certain financial covenants, as detailed in Subsection 23.5 below; (2) short-

term bank credit, whose balance at the report date (excluding current maturities), totaled $263m; (3)

customer debt securitization limited to $250 million, with a total balance of $166m at December 31, 2010,

under which the Company has undertaken to meet certain financial covenants as detailed in Subsection 23.5

below (see Subsection 22.3 above for details about the Company's Securitization Agreement); and (4)

supplier credit. On the other hand, on December 31, 2010, the Company had liquid cash and cash-equivalent

balances totaling $423m.

For details about credit limitations applicable to the Company by virtue of its financial funding agreements

and the Securitization Agreement, see Subsection 23.5 below.

23.1 Long-term loans

Long-term bank loans (incl. current maturities)

Weighted Interest Rate at

31.12.2010

Effective interest rate (%)

Value

% % (in $ thousands) USD 3.00 3.03 232,363

Brazilian Real 6.40 6.56 8,336 Euro 3.10 3.14 10,490 Other 5.40 5.51 2,982

TOTAL - 254,171

Expected Future Loan Payments

Maturity 2009 Value (in $ thousands) First year 179,742

Second year 24,799 Third year 25,300 Fourth year 18,984

Fifth year and thereafter 5,346

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23.2 Short-Term Loans and Variable Interest Credit

Short-Term Bank Loans: Average Interest Rate and Value by Currency – 2010

Short-term bank credit

Weighted interest rate

31.12.2010 Effective interest rate 2010

% % $ thousands

Overdraft:

Shekels 5.9 6.08 291

US dollars 4.5 3.98 71,784

Euro 4.2 4.29 13,415

Brazilian real 12.4 13.20 4,725

Other 6.1 6.29 4,331

TOTAL 94,546

Short-term credit

US dollars 3.0 2.94 65,633

Euro 2.1 2.12 614

Other 9 9.42 33,727

TOTAL 99,974

23.3 Company Bonds

The Company main debt financing is intermediate and long-term bonds it issued.

Outstanding Company Bond Liabilities

Series Linkage Interest rate (%)

Value (in $ thousands)

B Indexed 5.15 502,684

C Indexed 4.45 271,524

D Non-indexed 6.5 197,334

BALANCE 971,542

On November 30, 2010, the Company made the first payment of principle on Series C bonds totaling

NIS 281,500 thousand par value.

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Bonds (Series B , C and D)

In December 2006, the Company issued bonds to institutional investors in three separate series

totaling NIS2.35 billion (Series B, C and D) in consideration for their par value: (1) CPI-linked

bonds at a total book value of some NIS 1,650 million at a base annual interest rate of 5.15%, with

principal paid off in 17 equal installments over the years 2020-2036 (Series B); (2) CPI-linked bonds

at a total book value of some NIS 465 million at a base annual interest rate of 4.45%, with principal

paid off in 4 equal installments over the years 2010-2013 (Series C); and (3) Unlinked bonds at a

total book value of some NIS 235 million at a base annual interest rate of 6.5%, with principal paid

off in 6 equal installments over the years 2011-2016 (Series D). These three series are rated ilAA by

Standard and Poor's Maalot, as detailed in Subsection 23.7 below. The Company is subject to no

restrictions in receiving credit by way of these said bonds.

On May 27, 2008, the Company published a shelf prospectus and a trade registration prospectus, in

which it registered its Series B, C and D bonds for trading.

On March 24, 2009 the Company issued, by way of a series extension based on a shelf offering

report, Series C bonds with par value of NIS 661m and Series D bonds with par value of NIS 472m.

For details about the results of the offering, see the immediate report dated March 26, 2009 (RN

2009-01-067944).

23.4 Shelf prospectus

On May 10, 2010, the Company published a shelf prospectus (RN 2010-01-000043) according to

which it may offer the public, through shelf offering reports, subject to all laws, the following

securities, including by way of rights offer: up to 250,000,000 ordinary Company shares, of NIS 1 par

value each; three bond series (B, C and D) such that each series will have total par value of up to NIS

1,500,000,000 NIS, offered by way of extending a negotiable series; up to 5 bond series (E through I),

each at a total book value of up to NIS 1,500,000,000; up to 5 series of options (7 to 11), exercisable

for Company bonds (series B through L), with each series including no more than 15,000,000

warrants; and up to 10 series of quoted securities (series 1 to 10), with each having total par value of

up to NIS 1 billion.

23.5 Credit Restrictions

A. Restrictions by virtue of long-term bank credit documents

The bank financing documents for the long-term credit of the Company and its subsidiaries include

undertakings by the Company to maintain financial ratios (financial covenants), the most important of

which are the following:

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(1) The ratio between the Company's interest-bearing financial liabilities and its equity will not

exceed that specified in some of the financing documents, or 1.25 (the strictest) to 1.5 (at

December 31, 2010, the actual ratio was 0.9).

(2) The ratio between the Company's interest-bearing financial liabilities and its earnings before

interest, taxes depreciation and amortization (EBITDA) will not exceed 4.

After the Company believed that there is a possibility that it may not comply with certain

financial covenants, the Company initiated contact with the relevant banks, and as a result,

in December 2010, received letters of consent from its financing banks ("letters of

consent"(, whereby the financial covenant with respect to the ration between the Company's

interest-bearing financial liabilities and EBITDA, so that for the period ended December 31,

2010, this ratio will not exceed 4.5 for one of the financing banks and 5 for the other

financing banks.19 At December 31, 2010, the ratio between the Company's interest-bearing

financial liabilities and EBITDA (excluding one-off expenses as noted) was 4.2, and

accordingly, the Company was in compliance with this covenant on December 31, 2010.

Likewise, the terms of the letters of consent received by the Company amended the financial

covenant regarding the ratio between the Company's interest-bearing financial liabilities and

EBITDA so that for the period until the third quarter of 2011 (inclusive) for some of the

financing banks until the fourth quarter of 2011 (inclusive) for one of the financing banks,

this ratio will be updated and will not exceed 5.

(3) The Company's equity will be no less than that specified in some of the financing

documents, between $1.22 billion (the strictest) and $850m (at December 31, 2010, equity

totaled $1.131 billion and equity, net of the said one-off expenses, totals $1.221 billion)20.

(4) The financing documents of one of the banks further provides that the balance of surpluses

or retained earnings according to the financial statements at every date shall not be less than

$700 million. The letter of consent received from the relevant bank provides that the

calculation of retained earnings at December 31, 2010 will exclude one-off expenses

totaling cumulatively up to $90 million for certain non-recurring events (at December 31,

2010, Company's retained earnings totaled $611 million and the balance after neutralizing

the said one-off expenses totaled $701 million).21

19 Furthermore, the letters of consent given to the Company by one of the relevant banks provided an exception,

whereby at December 31, 2010 and for each of the quarters until the third quarter of 2011 (inclusive), the calculation of the said ratio will exclude one-off expenses totaling $90 million (for some of the banks) or up to $90 million for certain non-recurring events (for one of the banks).

20 Note that the letter of consent received from one of the relevant banks prescribes that in the calculation of the equity balance, as noted, at December 31, 2010 and for each of the quarters until the third quarter of 2011 (inclusive), one-off expenses totaling up to $90 million will be neutralized for certain non-recurring events.

21 Note that the letter of consent received from the relevant bank provides that in the calculation of the retained earnings balance at December 31, 2010 and for each of the quarters until the third quarter of 200 (inclusive), one-off expenses totaling up to $90 million will be neutralized for certain non-recurring events.

94

(5) It is also agreed that no change in control (as defined in the applicable documents) of the

Company or its Agan and Makhteshim subsidiaries will be made without the bank's prior,

written consent.

In addition, note that consolidated subsidiaries are subject to certain credit restrictions which are, to

the best of the Company's knowledge, immaterial, and that at the report date, they comply with said

restrictions.

At December 31, 2010, the Company was in compliance with the financial covenants prescribed by

the financing banks in the financing documents and letters of consent received from the financing

banks during the report period. Likewise, the Company assesses that it will comply with the financial

covenants as prescribed in the letters of consent during the relevant periods. It should be clarified that

after those periods, the original financial covenants will revert to those prescribed in the financing

documents.

The main financing documents of the Company and its subsidiaries opposite financing corporations

contain Cross Default clauses, whereby the relevant bank will be allowed to call the debts owed to it

for immediate payment, under circumstances in which an event has occurred that entitles another

financing party to call the debts of the Company and/or its subsidiaries for immediate repayment, in

full or part, all provided that the amount of the debts and obligations of the Company and/or

subsidiaries toward that financing party will exceed the minimum prescribed in the various financing

documents.

B. Restrictions by virtue of long-term bank credit documents

The Securitization Agreement detailed in Subsection 22.3 above includes undertakings by the

Company to comply with financial covenant

After the Company believed that there is a possibility that it may not comply with certain financial

covenants, the Company initiated contact with parties with which it entered into a securitization

agreement during 2010, and as a result, in September and December 2010, amendments were signed to

the securitization agreement, whereby at September 30, 2010 and December 31, 2010, the Company

will not be required to comply with the financial covenants prescribed in the agreement. Pursuant to

the amendments to the securitization agreements signed in December 2010, commencing March 31,

2011, the Company will once again be required to comply with the financial covenants prescribed in

the securitization agreements, of which the key covenants are as follows:

(1) The ratio between the Company's financial liabilities and its equity will not exceed 1.25.

(2) The ratio between the Company's interest-bearing financial liabilities and EBITDA will not

exceed 3.3. As part of the extension of the credit facility for an additional year, and

amendment of the securitization agreement, the Company reached agreement with the

95

financing party regarding amendment to the financial covenant with respect to the ratio

between the Company's interest-bearing financial liabilities and EBITDA, so that for the

period ended March 31, 2011 and for each period until December 31, 2011 (inclusive), the

ratio between the financial liabilities and EBITDA will be updated and will not exceed 522.

At the report publication date, the consent was given to the Company verbally, and the

related documents have not yet been signed.

(3) The Company's equity will be no less than $1 billion (on December 31, 2010, the equity

totaled $1.25 billion).

(4) Unused cash balances and/or credit lines, totaling no less than USD250m, will be made

available by July 30, 2010.

The securitization agreements contain Cross Default clauses, whereby the Company's counter-party to

the securitization agreement will be allowed to call the debts owed to it for immediate payment, under

circumstances in which an event has occurred that entitles another financing party to call the debts of

the Company and/or its subsidiaries for immediate repayment, in full or part, all provided that the

amount of the debts and obligations of the Company and/or subsidiaries toward the other financing

party will exceed the minimum prescribed in the various financing documents.

In addition to the above, the Company has undertaken, within the framework of said consent letters, to

meet further standards that, according to the Company's estimate at the time of this writing, do not

restrict its operations materially. (See Section 3 above for details about the Company's dividend-

related undertakings). The Company estimates that as a result of the gradual improvement expected in

the Company's results, as described in Section 6.3 above, by the end of 2010, the Company will

comply with the original covenants. The Company also estimates that to the extent an extension of

the letters of consent for an additional quarter or quarters will be necessary, it will be possible to

obtain the consent of the financing banks for such extension. Notwithstanding the aforesaid,

unexpected worsening of the Company's results, due to the occurrence of an event beyond the

Company or the non-materialization of the Company's forecast, as provided in Section 6.3 above,

could cause the Company to be in non-compliance with the covenants prescribed in the letters of

consent (with respect to all or some of the financing banks).

At the report date and proximate to its publication, to the best of the Company's knowledge, the Company

complies with all the restrictions as stipulated in said consent letters. According to the financing documents

and consent letters, the Company's compliance is assessed on a quarterly basis, as well as for all four quarters

prior to the assessment.

22 In addition, the Company reached an agreement with the financing party, that the amendment to the securitization will include an exception, whereby at March 31, 2011 and for all the periods until December 31, 2011 (inclusive), in the calculation of the said ratio, one-off expenses totaling $90 million will be neutralized.

96

Notwithstanding the aforesaid, an unexpected worsening in the Company's results due to the occurrence of

an event beyond the Company or non-materialization of the Company's forecasts, as provided in Section 6.3

above, could cause the Company to be in non-compliance with the covenants prescribed in the letters of

consent.

The aforesaid regarding the Company's estimates of its compliance in 2011 with the financial covenants

prescribed in the consent letters constitutes forward-looking statements as defined in the Securities Law –

1968 , based on subjective Company estimates of uncertain validity. Such estimates may not necessarily

materialize due, among other things, to the materialization of risk factors as well as the effects of extraneous

factors beyond the Company's control.

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23.6 Further Credit Restrictions on the Company as a Borrowing Group Member

Since IDB holds the Company indirectly, MA Industries and each of the Group members are members of the

"borrowing group" (as the term is defined in the Bank of Israel's Proper Banking Procedure) of IDB

Holdings, Ltd. Israeli banks are limited in the credit they may extend to each member of the IDB group as a

"single borrower" (as the term is defined in the Bank of Israel's Proper Banking Procedure), including the

Company and the other members of the Makhteshim-Agan Group, affected by the total credit extended to the

Group as a whole. These restrictions may affect the credit extended to the Group by certain Israeli Banks, its

ability to invest in companies which have received significant credit from certain Israeli banks, as well as its

ability to complete certain business transactions with entities which have been extended such credit.

In 2010, and at the time of this Report, the Company financed its operations with equity, as well as with non-

bank and bank credit (both short- and long-term), customer securitization and supplier credit, and it

continuously assesses the effect of said restrictions on its ability to obtain bank credit or on the extent of such

credit, as required.

23.7 The Company's Credit Rating

On November 22, 2006, Standard and Poor's Maalot's Rating Committee decided to give the Company's

(Series B, C and D) bonds an AA rating. On December 2, 2006, Maalot announced their final rating of said

bonds as AA/Stable.

On December 3, 2009, Maalot announced a downgrading of the Series B, C and D bonds issued by the

Company from ilAA to ilAA-/Stable. (For further details and the complete text of Maalot's announcement,

see the Company's immediate report of December 3, 2009 (RN 2009-01-309126)).

On June 29, 2010, Maalot announced that it was entering the Company to "credit watch" with a negative

outlook (RN 2010-01-537342) and on September 7, 2010 Maalot announced ratifying the ilAA rating of the

Company with a negative outlook and removal from the credit watch (RN 2010-01-616242).

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23.8 Variable Interest Credit

Interest Range (stated) at the report date and proximate to its publication

Type of

Credit Currency

Credit amount

proximate to

date of

statement of

financial

position (in $

thousands)

Variation

Mechanism

Interest

Rate

proximate to

report date

Interest Range in

2010

L/T loan USD 33,334 1 M Libor 0.261 0.228-0.354

L/T loan USD 179,251 3 M Libor 0.303 0.2485-0.539

L/T loan EUR 10,490 3 M Libor 0.939 0.5756-0.995

Overdraft USD 88,030 1 D USD 0.252 0.16938-0.32125

Overdraft EUR 13,415 1 D EUR 0.606 0.27125-0.77

Overdraft ILS 291 1 D ILS 1.850 0.25-1.88

Overdraft BRL 4,725 1 D BRL 10.640 8.55-10.65

Overdraft Others 4,331 - 3.458 2.1221-3.8729

S/T credit USD 67,622 3 M Libor 0.261 0.228-0.354

S/T credit EUR 614 3 M Libor 0.303 0.66-2.847

S/T credit Others 33,727 - 7.820 2.6869-7.9678

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24. TAXATION

24.1 General

The Company is assessed according to the Israeli tax law in accordance with the Income Tax Ordinance

(New Version) – 1961 ("the Ordinance" or "the Tax Ordinance") and its Regulations .

As already mentioned, at the report date, the Company is the largest generic crop protection products

company in the world. It operates in 120 countries worldwide, through some 50 subsidiaries incorporated in

various countries, which employ most of the Group's workers. Each of these subsidiaries plays a different

role and contributes differently to the Group's operations, and they are assessed according to the local tax

laws, as detailed below.

Note that what follows is an extremely concise description based on tax laws as they exist at the time of this

report, and that any future change therein would necessarily yield different results.

24.2 Tax Laws Applicable to the Company in Israel

Corporate Tax in Israel

The Israeli tax base is territorial and personal, thus applicable to companies defined as Israel residents

based on provisions of the Income Tax Ordinance23.

According to Section 1 of the Tax Ordinance, the Company is deemed an Israel resident for income

taxation purposes if it was incorporated in Israel or if it is controlled and governed from Israel. The term

"control and governance" is not defined in the Ordinance. To the best of the Company's knowledge, the

foreign subsidiaries held by the Company are controlled and governed from outside Israel, and therefore,

to the best of the Company's knowledge, they are not deemed Israel residents for income taxation

purposes. Note that the Israeli and/or foreign tax authorities may not accept the taxation results as

described in general above and below.

On February 26, 2008, the Knesset (Israeli parliament) legislated the Income Tax Law (Inflationary

Adjustments) (Amendment No. 20) (Restricting Term and Application), 2008 (Amendment). According to

the Amendment, the Adjustments Law expired in 2007, and from 2008 onwards, it provisions no longer

apply, apart for transitional provisions designed to prevent distortions in tax calculations.

Based on the Amendment, from the beginning of 2008 onwards, the depreciation amounts for fixed assets

and tax loss carryforward amounts will no longer be indexed, and the balances to be accounted for will be

linked to the end of 2007 index.

23 See reference to the annulment of the Income Tax Law (Inflationary Adjustments), 1985, in this paragraph below.

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On July 25, 2005, the Knesset enacted the Income Tax Ordinance Amendment Law (No. 147), 2005

(Amendment 147), stipulating, among other things, that the corporate tax rate will be gradually reduced as

follows: 27% in 2008, 26% in 2009 and 25% in 2010 and onwards.

On July 14, 2009, the Knesset legislated the Law for Economic Efficiency (Amendments for the

Implementation of Economic Plan for 2009- 2010), 2009 (Efficiency Law). Based on the Efficiency Law

and Section 160 of the Ordinance, 1961 (Amendment 171), the corporate tax rate is expected to be

reduced gradually from 2011 to 2016. According to the Efficiency Law, the corporate tax rates applicable

in 2010 and onwards will be as follows: 25% in 2010, 24% in 2011, 23% in 2012, 22% in 2013, 21% in

2014, 20% in 2015, and 18% in 2016 and onwards. The Efficiency Law also provided for a gradual

reduction in individual marginal tax rates from a maximum of 46% in 2009 to 45% in 2010-2011, to be

gradually reduced to 39% in 2016.

Law for the Encouragement of Capital Investments

On January 6, 2011, the Economic Policy Law for 2011-2012 was published in the Gazette, which

amended the Law for the Encouragement of Capital Investments – 1959 ("Amendment to the law") The

effective period of the Amendment to the law commences January 1, 2011 and its provisions will apply to

preferred income generated or earned by a preferred company, as defined in the Amendment to the law, in

2011 and thereafter. A company is allowed to elect not to be covered by the Amendment to the law and

remain under the law before its amendment, until the end of the benefits period. The last election year that

a company may elect is the 2012 tax year, provided that the minimum entitling investment began by 2010.

The Amendment to the law prescribes that eligible for the grants track will be companies will be only

companies in Priority Area A and they will be entitled to benefit from this track and the parallel benefits

track. Likewise, the existing benefits track were cancelled (tax-exemption track, the "Ireland" track and

the "Strategic" track), to be replaced by two new tax tracks – a preferred enterprise and a special preferred

enterprise, namely a uniform reduced tax rate on all of the Company's benefit-entitled income, for

example: for a preferred enterprise, in tax years 2011-2012 – 10% in Priority Area A and 15% in the rest

of the country; in tax years 2013-2014 – 7% in Priority Area A and 12.5% in the rest of the country, and;

in tax years 2015 and thereafter – 6% in Priority Area A and 12% in the rest of the country. Moreover, an

enterprise that meets the definition of a special preferred enterprise is entitled to a benefits period of 10

consecutive years, at a reduced tax rate of 5% if it is located in Priority Area A or a reduced tax rate of 8%

elsewhere.

The Amendment to the law further provides that no tax will be imposed on a dividend to be distributed out

of preferred income, after corporate tax has been withheld, to a shareholder who is an Israel resident. A

tax rate of 15% will still apply to a dividend that will be distributed out of preferred income to a

shareholder who is an individual, subject to a treaty to prevent double taxation – in other words, there is

no change from the existing law. The Amendment to the law also provides relief related to the tax paid on

a dividend paid by an Israeli company from the income of an approved/alternative/benefitted enterprise,

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earned during the benefits period according to the formula of the law before its amendment, if the

dividend distributing company notifies the tax authorities by June 30, 2015 of the imposition of the

provisions of the Amendment to the law, and the dividend is distributed after the notice date.

At the report date, the Company has elected to continue with the benefits conferred by the law before its

amendment.

Israeli law promotes the building and expansion of industrial plants and other projects by defining such

investment plans as Approved Enterprise. Until Amendment 60 to the law was promulgated, the general

guidelines for granting this status had been benefits to the national economy, competitiveness in

international markets, use of innovative technologies, job creation, high added value and providing

satisfactory solutions to the unique needs of the (new) nation's economy.

Amendment 60 added several criteria for obtaining the Approved Enterprise status. The main criteria

(export conditions) are as follows: (1) The enterprise's main activity is in the biotechnology or nano-

technology fields; (2) Its revenues during the tax year from sales in a given market do not exceed 75% of

its total revenues during the same tax year; and (3) At least 25% of its total sales revenues during the tax

year come from sales in a given market with more than 12 million inhabitants.

The law offers two main benefit programs: (1) The grant program – this is offered to enterprises which

have met the abovementioned criteria and is also contingent on own capital investment by the enterprise

owner. It is also contingent on receiving the Israel Investment Center (IIC)'s approval, which is entitled to

add further conditions; (2) The tax benefit programs – before Amendment 60, the main benefit program

was the alternative program, as detailed below. The amendment added two more programs: The Priority

Area Program and the Strategic Program. After the amendment, enterprises included in the tax holiday

programs are called "Beneficiary Enterprises".

Grant Program. An approved enterprise in Priority Area A is entitled to a two-year corporate tax

exemption and to reduced tax for the remainder of the benefits period on undistributed income (5 years for

an investor in a company that does not meet the definition of a foreign-investment company and 8 years

for a company meeting the definition of a foreign-investment company). If income is distributed from the

exemption period, the enterprise owners will have to pay a reduced dividend tax, while the enterprise will

be liable for the tax it would have paid had it not opted for the alternative program. The reduced corporate

tax rate is 25% (this rate may be reduced down to 10% according to the rate of foreign investment in the

enterprise).

Tax Benefit Programs:

(1) Alternative Program. This program is under the Tax Authority's responsibility. A corporation seeking

tax benefits for its industrial operations and subject to meeting certain conditions such as minimal

own investment and export conditions as detailed above, is entitled to accelerated depreciation as

well as priority area-based tax benefits, as follows:

102

Priority Area A Priority Area B Central Israel

Corporate Tax Exemption

10 Years 6 Years 2 Years

Reduced Corporate Tax

Israeli Investor-owned None 1 Year 5 Years

Foreign Investor-owned None 4 Years 8 Years

(2) Priority Area Program (Ireland Program). This program is offered for enterprises in Priority Area A

only. Its tax benefits are as follows:

Reduced Corporate Tax Dividend Tax

Israeli Investor 11.5% 15%

Foreign Investor 11.5% 4%

(3) Strategic Investment Program. This program is offered for enterprises requiring relatively high capital

investments, and exclusively for priority areas. In general, the program grants a complete tax

exemption over the benefit period for enterprises meeting its conditions.

Benefits period

The Approved Enterprise tax benefits are granted, depending on the relevant Priority Area in which the

enterprise is located, for a consecutive period of 7 years, from the first taxable income year, assuming 14

years have not elapsed from the approval year and 12 years have not elapsed from the year the enterprise

started operating or 12 years from the election regarding benefitted enterprise, whichever is earlier. The

tax on a dividend distributed by an approved enterprise is 15%, subject to the different treaties to prevent

double taxation, if the dividend is distributed to foreign residents.

The various expansions of the Company's plants in Israel have been granted Approved Enterprise status,

entitled to investment grants and/or tax benefits. Note that the Ashdod facility enjoys only tax benefits,

since the benefit period granted for several of its expansion plans ended in 2008, and for part also in 2010,

and will end for several others in 2012. For still other plans, the benefits period has yet to begin. (See Note

18 to the financial statements for further details about the tax benefits and approval documents obtained

by the Company).

Encouragement of Industry (Taxes) Law, 5729-1969

The Company is entitled to certain benefits by virtue of the provisions of the Encouragement of Industry

(Taxes) Law, 5729-1969.

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Tax Rates on Capital Gains in Israel and Dividends

At the report date, the tax rate for real capital gains accrued by the Company is 25%.

A dividend received by the Company originating in income produced or accrued in Israel and received,

whether directly or indirectly, from another body of persons subject to corporate tax, is not liable for

corporate tax by the Company.

A dividend received by the Company originating in income produced or accrued outside Israel, as well as

a dividend whose origin lies outside Israel, is liable for 25% corporate tax. Alternatively, if the Company

chooses to receive an indirect credit (as detailed below) for this dividend, the dividend, when grossed-up,

will be liable for ordinary corporate tax.

24.3 Foreign Taxation

At the time of this Report, the Company develops, purchases, produces and markets its products through

multiple subsidiaries worldwide. Over 95% of the Group's sales are in international markets outside Israel,

hence its choice to operate through multiple subsidiaries which, to the best of the Company's knowledge, are

incorporated, controlled and managed outside Israel, and accordingly, assessed subject to their countries' tax

laws.

Some of these foreign subsidiaries have been founded by the Company, while others have been acquired

during the long years during which it has become a multinational, the great majority of its commercial and

marketing operations conducted overseas.

24.4 Taxation of Foreign Income in Israel

Income derived from dividends distributed by foreign companies abroad will be taxable in Israel,

while receiving a credit in the amount of the tax withheld by the foreign companies including by means of an

indirect credit, subject to provisions of the Ordinance, as detailed below.

When interest income from a foreign to an Israeli company is liable for corporate tax in Israel, a credit will

be received in the amount of the tax withheld by the foreign companies. Generally, the level of the foreign

tax credit is limited to the amount of tax for which the Israeli company is liable on its income from that

source. The excess credit that may not be offset during the tax year may be offset in the next five years

against the same source.

Indirect credit in Israel

According to the current legislation, instead of a liability for 25% tax, Israeli companies are entitled to

choose a liability for the current corporate tax rate (25% in 2010; this rate is expected to fall gradually to

24% in 2011, and to 18% in 2016 as aforementioned) for all income out of which dividends have been

distributed and receive "indirect credit" for the foreign corporate tax imposed on that income from which

104

dividends were distributed, so long as the Israeli company holds 25% or more of the means of control in the

foreign subsidiary which distributes the dividends. Israeli companies are entitled to such indirect credit for

corporate tax imposed on foreign sub-subsidiaries, so long as they hold 25% or more of the means of control

in the foreign subsidiary, while the latter directly holds more than 50% of the foreign sub-subsidiary which is

the source of the income out of which the dividends have been distributed.

Foreign controlled company

Should most of the income of foreign companies held by the Company (whether directly or indirectly) be

passive, those same foreign companies may be considered "foreign controlled". In such an eventuality,

according to Section 75b of the Ordinance, the company which controls the foreign company which is

considered a foreign controlled company will be taxable as though it has received its share of the latter's

undistributed earnings in the tax year in which they've been accrued. This section's provisions refer to

earnings derived from passive income by the foreign company (such as income derived from interest or

dividend that may not be considered business income).

105

24.5 Transfer Pricing

On November 29, 2006, Section 85a of the Income Tax Ordinance took effect with the publication of the

Income Tax Regulations (Market Terms Determination), -2006, on that very day (Transfer Pricing

Regulations). According to that section and the Transfer Pricing Regulations, a cross-border transaction (in

which one of the parties involved is not an Israeli resident), in which the two parties have a "special

relationship" (as defined therein), will report according to market terms and be taxed accordingly. The

Transfer Pricing Regulations apply to various cross-border transactions, including the initial stages of

manufacturing a product up to selling it, concluded on and from the day the came into effect. Rules for

ongoing reports have been formulated by virtue of these regulations, and the assessment authorities have also

been authorized to demand market studies.

Section 85a and the Transfer Pricing Regulations adopt the market pricing principle by stating that price

appropriateness and the terms of cross-border transactions between parties who have a special relationship

will be evaluated by comparing them to similar transactions between parties with no such relationship.

According to Regulation 2(a), in order to determine whether a cross-border transaction is indeed a market

terms transactions, a market study will be conducted to compare the transaction in question with similar

transactions by the assessed party, as defined in the Transfer Pricing Regulations. The comparison will be

made according to one of the methods detailed in this regulation. The study will be submitted to the

assessment authorities within 60 days as per their request, unless the cross-border transaction has been

approved as a one-time transaction, according to Regulation 4.

The cross-border transaction will be considered a market terms transactions if the said study's findings do not

exceed the inter-quarterly range (the values between the 25th and 75th percentiles) compared to similar

transactions. In the pricing comparison method, a transaction is considered a market terms transactions if it is

completely within the range of similar transactions. For transactions which cannot be construed as such, the

transaction price will be reported according to the value of the 50th percentile in the range of values obtained

by comparison to similar transactions.

As aforementioned, the Company develops, purchases, produces and markets its products through multiple

subsidiaries worldwide. Each of these subsidiaries which are assessed for tax purposes in various regions

worldwide plays a part in the overall network of the Company's international business operations (sometimes

within the same product chain) – manufacturing, knowledge maintenance and development, procurement,

logistics, marketing and sales. Accordingly, some of the Group members hold intangible assets, others act as

manufacturing contractors, and procurement coordinators, logistics centers and as marketing companies.

Company services or products (at their various production stages) are priced based on transfer pricing studies

conducted to assess the relative contributions and risks of each relevant subsidiary and to reflect the market

price that would be determined for these services or products had they been provided to non-group members.

106

Accordingly, the pre-tax income is divided among many countries with varying tax rates. At the time of this

Report, the various double taxation treaties have no material effect on the Company. Different classification

or categorization of the proceeds for the value elements of each Group member in the various countries, or of

their characteristics, however, affect the amounts of income accrued and assessed for taxation purposes in

each country, and this may indeed have a material effect on taxing the Group and its results. (See also

Section 34 – Risk Factors – below).

According to the tax laws existing in countries in which deferred taxes were recognized, there is no time

limit on the utilization of the tax losses and of the temporary differences that may be deducted. However, in

Brazil, there is a limit on the level of loss carryforwards that may be offset each year (30% of annual taxable

income).

The main supporting evidence used by the Company for the recognition of current tax assets is based on the

characteristics of the industry in which the Company operates, including: agrochemicals industry is

characterized by stability and the products are older products, based on traditional chemistry and are not

affected by significant technological developments.

For details on the $20 million reduction of deferred tax assets during the third quarter of 2010, as a result of

events related to the subsidiary in Brazil, see Note 18 to the financial statements at December 31, 2010.

According to the Company's consolidated financial statements at December 31, 2010 and Note 18 thereto in 2010,

the Company's pre-tax loss amounted to $121.2 million, with tax savings, calculated based on the statutory tax

rate, such have been some $30 million. However, actual consolidated tax expenses to the Company, according to

the said Note, amounted to $7.3 million, attributable to $44 million for non-recording of a tax asset for losses in

Brazil and Israel, reversal of a tax asset created in Brazil in prior years, for carryforward losses totaling $20

million, and after offset of taxable income at other tax rates totaling $14 million.

24.4 Effective Tax Rate

Most of the Group's tax expenses in 2010 originate in Group companies operating in Israel The Group's main

taxable incomes in 2009 came from Group members active in Israel (whose rates are detailed above), as well as in

European countries (mainly Italy, Spain and France), the US and South American countries. To the best of the

Company's knowledge, the statutory corporate tax rates applicable on December 31, 2010 were 37.5% (effective

tax) in Italy, 30% in Spain, 33% in France and 38.4% in the US; in Latin American countries, the rates vary

between 25% and 35%; in other countries where the group is active, they range between 16% and 40%, while

some Group members have been incorporated in foreign territories where the rates are less than 5%.

As detailed above, the year 2010 was characterized by a sharp drop in Company's profitability, such that in

some regions, mainly South America, the Company reported losses, while in others it reported slight profit

erosion. Accordingly, losses for tax purposes transferred to the following year – whose adjusted total on

balance day is some $353 million (mainly due to the operations in South America and in Israel) – may be

107

realized over a period of several years. The Company has a deferred tax asset for accrued losses totaling

some $35 million, based on the Company's estimate that these losses are highly likely to be realized over the

next few years. The (consolidated) effective tax rate in 2010 was 8.85%.

Some of the Company's surpluses come from income of Approved Enterprises in Israel (see Note 18 to the

financial statements) and of its foreign subsidiaries. Distributing these surpluses could, on certain conditions,

create a tax liability. Since the Group's policy is to use most of the operational surpluses to expand Group

operations, and as stated in Note 3 to the Company's financial statement, when calculating the deferred taxes,

the taxes that would have been levied had investments in the held companies would be realized were not

taken into account since at the time of this Report, the Company intends to hold these investments rather than

realize them. Moreover, the Group may be liable to additional tax in case of dividend payout among Group

members. This additional tax was also not taken into account when calculating the deferred taxes in the

financial documents, due to the aforementioned policy of not allocating dividends if this entails a material

increase in tax rates (apart for the dividend allocated by the Company pursuant to Amendment 169 of the

Ordinance in 2009). At the time of this Report, the Company has no information about the extent of liability,

if any, for the said dividend distributions, but based on its preliminary estimate, should the Company be

required to distribute said surpluses under certain circumstances (contrary to its said policy and as a function

of the amounts involved), this liability could prove material. (See Note 18 to the financial statements for

further details and explanations about the tax provisions applicable to the Company and the difference

between its statutory and effective tax rates).

24.8 Tax Assessments

Final tax assessments have been received for up to 2005 for Agan, for up to and including tax year 2004 for

Makhteshim, and for Company, for up to and including 2003, and for up to and including 2006 for Lycored.

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25. ENVIRONMENTAL RISKS AND THEIR MANAGEMENT

25.1 General

The Company's production processes, as well as the products it manufactures and markets involve

environmental risks and have environmental impact. Both in the countries where it operates production

plants and in the countries where it sells its products, the Company is therefore subject to comprehensive

regulations governing the production, storage, treatment, transportation, usage and disposal of its products,

their components and their waste, as well as to emissions resulting from their manufacturing process.

The main environmental risks and impact of Company operations are related to the following areas: (1)

atmospheric emissions; (2) industrial sewage; (3) soil and sweet water pollution; (4) seawater pollution; and

(5) environmental and health damages due to Company products.

To the best of the Company's knowledge, at the time of this report, the Company's environmental permits

and licenses are valid (on this matter, see also Section 34 below, under "Civil or criminal liability due to

incompliance with environmental, health and safety laws and regulations").

25.2 Environmental regulation

Over the past few years, regulations governing the Company's production processes and facilities have become

significantly more rigorous, and the same applies to environmental oversight and the enforcement of

environmental standards worldwide, a trend which may be expected to continue over the following years.

Consequently the Company invests considerable resources in ensuring compliance with the provisions of

environmental laws applicable to its operations, seeking to prevent or at least minimize environmental risks

attending its activities. The Company acts continuously and consistently to minimize its environmental impact and

will continue adapting its operations to changes in regulations, legal provisions and directions by environmental

authorities. The main environmental laws applicable to the Company's Israeli operations are the Law for the

Prevention of Nuisances, 1961; Hazardous Materials Law 1993; Business Licensing Law, 1968; Law for the

Prevention of Sea Pollution from Land-Based Sources, 1988; Water Law, 1959, Freedom of Information Law –

1998, Israel Clean Air Law – 2008 ("Clean Air Law") and the related regulations issued, and the Law to Arrange

Treatment of Packaging – 2011 ("Packaging Law"). There are also several environmental bills in different stages

of legislation, including a Memorandum Law to Prevent Soil Pollution and Rehabilitation of Polluted Soil – 2011

and a Bill to Prevent Asbestos and Harmful Powder Nuisances – 2011.

The Clean Air Law took effect on January 1, 2011. The purpose of this law is to protect the quality of air in

Israel and prevent its pollution, among other things, by establishing a national monitoring system for

measuring air pollution and setting air pollution standards. According to the Clean Air Law, the subsidiaries,

Makhteshim and Agan must file applications for emission permits for its relevant facilities in their plants in

Israel. The said subsidiaries must file applications for emission permits for existing facilities by March 1,

2014. New facilities will be required to have an emissions permit for their operation on any date after

January 1, 2011.

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According to the Clean Air Law, a fee will be imposed for the emissions permit, which will be charged on

the filing date of the emissions permit application, for every emissions source requiring a permit, depending

on the type and volume of activity conducted in it. A fee was also designated for an application for a

significant operational change in the emissions source.

The Company estimates that the maximum amount of fees it will be required to pay is not material.

Further note that according to the Clean Air Law, the Ministry must determine a penalty for the emission of

pollutants, to be imposed on the holder of an emissions permit. This penalty has not yet been determined,

although the Ministry of Environmental Protection intends to prescribe a penalties mechanism, as part of the

general trend to price activities that impact the environment, even if it is duly conducted under a permit,

similar to the penalties currently existing for the flow of sewage into the sea with a permit, as well as the

burial of waste.

The Company's plant in Ramat Hovav is deployed to comply with the terms of the law, under the terms of

the business license it was issued on March 23, 2008. In the wake of surveys submitted in accordance with

the conditions of the business license from March 2008, the plant received in July 2010, like other plants in

Ramat Hovav, a draft in principle of additional terms for the business license, namely determining

atmospheric emission values. These principles are being discussed professionally between the Ramat Hovav

plants and the Ministry of Environmental Protection. When the discussions conclude in several months, they

are expected to be imposed on the Makhteshim plant in Ramat Hovav under the terms of its business license.

At the report date, the Company believes that the said terms will not entail material additional expenses on

the Company beyond the environmental costs it will be required to bear.

The Agan plant is also deployed to take action toward complying with the law, among other things, under the

terms of the business license concerning air quality received at Agan in March 2010.

The main environmental requirements relevant to the Company's production facilities and processes in Israel

may be found in the special conditions for business licensing and toxin permits of the Company's Ramat

Hovav, Beer Sheba and Ashdod plants, as detailed below.

Integrated licensing

The Ministry of Environmental Protection recently published a draft document on the adoption of integrated

licensing in Israel, for large plants that have complex effects on the environment and guidelines for

submitting information for the purpose of this licensing process.

Integrated licensing, as provided in the European directive IPPC (Integrated Pollution Prevention and

Control Directive), strives to comprehensively examine the environmental effect of a plant on the

environment, from all aspects (sewage, air, soil, etc.) and accordingly, to prescribe individual conditions for

each plant, considering its unique conditions and the integration between its different environmental effects.

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The draft document published includes a general outline of the information that will be required during the

integrated licensing process. These include a requirement to file an emissions reduction plan and the filing

of information pertaining to plant development plans.

The Ministry of Environmental Protection has not yet designated which plants will be subject to the

integrated licensing process, and it notified that the target population of this process will be assembled during

the coming year. The IPPC Directive applies to a series of categories, most being those requiring an

emission permit under the Clean Air Law. At the report date, the Company estimates that the integrated

licensing system is not expected to impose additional material costs on the Company beyond those it must

bear anyway for environmental issues. The mechanism will require reorganization and the addition of

information and surveys submitted to the Ministry of Environmental Protection for the purpose of licensing

the Company's sites.

PRTR (Environmental Information System)

PRTR (Pollutant Release & Transfer Register) is an environmental data base, in which all potentially

polluting materials emitted into the atmosphere, water and soil, or are transferred from one site to another,

among other things, by industrial sources. The system was set up by the Ministry of Environmental

Protection according to the parallel European model, as part of the process of Israel's entry into the OECD.

When the system is fully operational, it will require every potentially polluting plant to file an annual report

on the materials it emits into the atmosphere, water and soil. This information will be available to the public.

In December 2008, a tender was published for building an environmental information system, and as of the

report publication date, the Ministry of Environmental Protection tested the system for its gradual

implementation. The Company, through the Makhteshim subsidiary, volunteered to be part of the steering

committee founded for carrying out the pilot. To the best of the Company's knowledge, as submitted from

the Ministry of Environmental Protection, the system will begin operations for the entire industry during

2011. Orderly and continuous operation of the system, as submitted by the Ministry of Environmental

Protection, is expected during 2013. The Ministry intends to anchor the PRTR in legislation in the coming

years.

Adopted on January 19, 2011 is the Packaging Law, which was enacted in order to reduce the quantity of

packaging waste, to prevent its burial and encourage recycling of packaging. In order to achieve this goal,

the Law imposes, among other things, broad responsibility on manufacturers of packaged products, on

manufacturers of service packaging and the importers of products and packaging, such that for instituting the

obligations imposed by the law, the manufacturers and importers must contract with a recognized entity that

will coordinate and carry out the required recycling activities. The costs of the recognized entity will be

financed by the manufacturers and importers, taking into consideration factors including their share of the

total weight and the type of material and the possibility of recycling the packaging that they produced or

imported vis a vis the total of all manufacturers and importers that contracted with that recognized entity.

The law also empowers the Minister of Environmental Protection to prescribe regulations regarding the

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labeling of different product packaging to achieve the law's goal. When such regulations will be prescribed,

the sale of packaged products will only be allowed if they are labeled in accordance with these regulations.

Some of the provisions of the Packaging Law will apply commencing March 1, 2011 and some as from July

1, 2011. Presently, a recognized entity has still not been established and the regulations have not been

enacted. The provisions of the law do not apply to packaging of products that are hazardous materials,

unless they are intended for home usage. The Company estimates, based on the data published at the report

date, that this does not entail a material expenditure to be incurred by the Company.

Additional matters

A significant part of the Company's raw materials, as well as the products it manufactured, are considered

hazardous materials according to the Hazardous Materials Law 1993, and the Company needs specific

permits in order to store them in its Israeli plants. The Company has permits for storing all its hazardous

materials in Israel, which determine, among other things, their storage conditions and the maximal storable

amounts of each material. As required by law, the Company has appointed hazardous materials officers in

each of its plants.

Company products manufactured or sold in Israel require registration according to Crop Protection Law,

1956and the regulations developed to implement it. The objective of this registration mechanism is to protect

public health and the environment against the effects of various ingredients in crop protection products.

See Subsection 25.12 below for details on legal and regulatory requirements applicable to the Company's

plants in Brazil.

25.3 Atmospheric Emissions in Israel

The business licenses of the Company's subsidiaries – Makhteshim and Agan – set strict limits on the

volumes and component materials of their atmospheric emissions. In May 1998, they voluntarily joined the

Convention for Applying Emission Standards for Hazardous Air Pollutants, based mainly on the German TA

Luft standard (1986), concluded between the Ministry of Environmental Protection and the Manufacturers

Association of Israel. After joining the convention, they adopted the emission standards determined therein

as part of the special terms of their business licenses. Note that recently, the Ministry of Environmental

Protection has been basing its additional terms for the Company's subsidiaries' air quality business licenses

on provisions of the IPPC Directive. Both Makhteshim and Agan take many other steps to prevent the

emission of hazardous pollutants and smell nuisances. (For further details about the atmospheric emissions in

Makhteshim's Ramat Hovav plant, see Subsection 25.9 below; for further details about the atmospheric

emissions in Agan's Ashdod plant, see Subsection 25.11 below; for further details about the significant

reduction of atmospheric emissions from consumption of fuels and electricity (including greenhouse gas)

emissions in electricity production due to the transition to clean-source energy, see Subsection 25.7 below).

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The Company operates two thermal oxidizers – one in Ramat Hovav and the other in Ashdod – which, to the

best of its knowledge, represent the most effective technology for removing volatile organic pollutants from

gases emitted out of production facilities.

25.4 Industrial Sewage in Israel

Industrial sewage containing various pollutants is a byproduct of manufacturing processes of Company

products in each of its sites. They are treated differently, according to each site's conditions, circumstances

and business license terms. For industrial sewage treatment in Ramat Hovav, Beer Sheba and Ashdod see

Subsections 25.9, 25.10 and 25.11, respectively.

25.5 Solid Waste in Israel

Solid waste produced by Makhteshim and Agan's plants is largely disposed of in the national toxic waste

disposal site run by the Environmental Services Company, Ltd. (hereafter, ESC), such that the standards

governing the way the waste is packed and marked and the waste disposal price rates are frequently updated,

making requirements ever stricter.

25.6 Environmental Standard Certificates

Makhteshim, Agan and Milenia (in charge of the Company's production plants in Brazil) have received the

ISO 14001 – Environmental Management System certificate. This is an international standard adopted as an

Israeli standard by the Standards Institution of Israel in February 1997. The standard's main objectives are to

protect the environment, prevent pollution and establish management systems which take corrective action to

ensure constant improvement.

The standard sets forth the requirements of an organized environmental management system integrated in

general management activities, and includes five main sections: (1) Setting an environmental policy by the

senior management; (2) Proper planning of the implementation of this policy, both from the environmental

and from the legal perspectives; (3) Implementation of the policy-based planning; (4) Evaluation and

correction of actual implementation; and (5) Executive review of the environmental management system.

Makhteshim and Agan also qualify for the Occupational Health and Safety Standard (OHSAS 18001), which

is similar to ISO 14001.

The aforementioned ISO qualifications apply to all Company plants.

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25.6 Environmental Investments

In $ millions 2008 2009 2010

Approx. total investment 35 39 44

Approx. current costs (before depreciation)

24 33 36

The company intends to continue investing in environmental protection, as much as required to pursue its

BAT policy. The Company estimates that, at the report date, according to the existing work plan,

environmental costs in 2011 are expected to total $74 million and in 2012 $61 million. Subsequently, the

total environmental costs are expected to total $56 million annually (merely an estimate, that assumes

increased support for new facilities being built, maintenance and other costs and contrarily, savings from the

connection to natural gas, as discussed below).

Company management's estimates concerning the amount of environmental-related investments constitutes

forward-looking statements, based on the Company's budget and work plan. The Company's estimates

regarding the amount of projected environmental may not materialize, whether in whole or in part, due to

factors that are beyond the Company's control, including changes to the regulatory requirements applicable

to the Company and other events including those deriving from realization of the Company's risk factors.

The Company estimates that the total amount of environmental costs that the Company incurred in the report

periods was invested mainly in future prevention and in reducing environmental damage from the realization

of the Company's risk factors. In December 2009, the Group signed a multi-annual agreement with East

Mediterranean Gas (EMG) for natural gas supply for its production facilities in Ashdod and Ramat Hovav.

Natural gas will substitute for crude oil, diesel fuel and liquefied petroleum gas (LPG), and supply is

expected to begin in 2011, subject to obtaining approvals from the Gas Authority and to orderly apply of gas.

The transition to clean-source energy consumption is part of the Group's long-term policy of reducing fossil

fuel consumption and will result in a significant decrease in atmospheric emissions due to electricity

production, including greenhouse gas emissions, contributing significantly to environmental preservation.

(See the immediate report of December 20, 2009 (RN 2009-01-335130); for details regarding the Company's

contracts with Negev Energy and Ashdod Energy for the establishment of natural gas-powered electric and

steam power plants, see Subsection 19.1 above).

25.8 Environmental Protection and Safety Committee

In 2003, the Company's board of directors created the Environmental Protection and Safety Committee in

order to set the Group's overall environmental policy, and which convenes from time to time also in the

different plants in Israel. Specific environmental issues are dealt with by the Company's subsidiaries, as they

vary among production sites and countries.

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25.9 Environmental aspects of the Company's main production plants

25.9.1 Makhteshim's Ramat Hovav Plant

In the past, the Ramat Hovav site was selected by the Israeli Government as a chemical

industrial center, on the basis of two assumptions: (1) The chalk layers over the aquifer are

impervious to percolation and any potential pollution by local plants; (2) The prevailing wind in

the area is such that most of the time, it does not blow in the direction of Beer Sheba. Over the

years, Makhteshim moved most of its production operations from its Beer Sheba plant to its

Ramat Hovav plant, and in 2000, it completely suspended all production processes involving

chemical reactions in the former plant.

The Ramat Hovav Industrial Park was built by the Israeli Government in 1975 as a central hub

for developing chemical and other industries. The Ramat Hovav Local Industrial Council

(hereafter, Council) was founded in 1989 by virtue of a joint decree by the Ministers of Finance,

Internal Affairs, and Industry and Commerce. The Council coordinates and manages joint

services for local plants (hereafter in this section, users), including: cleaning and first-aid

services; business licensing and the enforcement of various state laws and regulations,

particularly in the environmental protection area; oversight; public infrastructure development,

etc. The Council's area of jurisdiction is defined as Priority Area A.

To finance its ongoing activities, the Council collects property tax and various fees, including

for the use of its facilities on an actual usage basis. The facility fees charged of new users

(who've not shared in the financing of their construction) are higher than those charged of old

users (who have). The Council's Executive Committee, whose membership includes two user

representatives (including one Company representative), makes investment decisions, related

mainly to infrastructure and environmental protection. Such investments are approved following

an internal discussion among users and a broad-based discussion of their reservations, if any.

The Executive Committee's resolutions are ratified by the Council plenum, where the users are

represented by three delegates.

25.9.2 Makhteshim's Ramat Hovav facilities have been constructed with an emphasis on the ecological

aspect. The following steps have been taken accordingly:

a) A continuous emission monitoring system (CEMS) has been installed in the facility stacks,

above and beyond the environmental monitoring system installed by the Council.

b) An acid distillation system has been installed, to allow reusing or selling acids instead of

neutralizing them.

c) A new physical-chemical sewage treatment system has been installed.

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d) The sewage pipelines have been replaced, and sewage flows separated. The new pipelines

have been installed above ground in order to allow for rapid leak detection and treatment

without sewage percolation into underground water.

e) A plant-wide biological treatment facility has been constructed, as detailed in Subsection

25.9.6 below.

f) The Company is doing its utmost to operate plant-wide evaporation pools, as detailed in

Subsection 25.9.5 below, under the terms of the Company's business license and similar to

other plants in Ramat Hovav that participated with the Company t in the mediation process

described in Subsection 25.9.5 below. The date for completion of the plant evaporation

pools is scheduled for October 2011. During 2010, the Ramat Hovav plants announced that

statutory difficulties in the process of allotting the land for the pools, as well as the delay in

clearing fallen objects from the area designated by the Ministry of Defense, are delaying the

start of the pools' construction – which will ultimately delay their construction beyond the

scheduled date. The position of the Ministry of Environmental Protection at the report

preparation date is that the Ramat Hovav plants will not receive an extension beyond the

scheduled date and the Ministry will take enforcement measures against the plants in this

matter. The Ramat Hovav plants are working to promote the matter opposite the different

authorities and since it does not entail delays that are under the control of the Ramat Hovav

plants, they intend to take action to obtain a further extension from the Ministry of

Environmental Protection for construction of the pools.

g) In 2011, the Company commenced continuous operation of a system for oxidizing some of

the sewage (Loprox) flows before they reach the biological sewage treatment facility, as

detailed in Subsection 25.8.6 below, as from the second half of 2010, approximately.

h) A thermal oxidizer for stack emissions has been installed and is fully operational since

February 2009.

25.9.3 Makhteshim continuously tests its stack emissions. The results of these tests are submitted to the

Ministry of Environmental Protection (hereafter, Ministry) and the Council, in accordance with

the business license terms of all plants in the area, including the Company's. These tests are

conducted in addition to the multiple surprise tests carried out by the Ministry and the Council.

25.9.4 A report submitted in December 1997 to the Ministry and the Council included findings of a study

suggesting that the quality of the upper underground water has improved to a certain degree,

such that underground pollution need not be treated.

Moreover, monitoring activities undertaken in the last two years also show that the quality of

underground water in most areas in Ramat Hovav has improved. In a small number of specific

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locales where underground water pollution has been detected, which may not be attributed to

the Company or to other plants in the area, polluted water is drained and pumped out by the

Council.

25.9.1 Following odor nuisances in the Ramat Hovav and Beer Sheba area, which emanated from the

Council's evaporation pool in the summer of 2002, the Ministry decided in 2004 to add further

terms to the business licenses of Makhteshim and other Ramat Hovav plants, requiring the

implementation of an innovative process for treating industrial sewage until they solidify – a

process called zero liquid discharge, or ZLD – within a given timeframe. Consequently, the

plants initiated a mediation process at the end of which, in December 2006, they reached an

agreement with the Ministry, the Council and the Sustainable Development for the Negev NPO

(hereafter, Mediation Agreement), which received the force of law, stipulating new business

license terms for the plants, including Makhteshim's Ramat Hovav plant. The plants which were

party to the Mediation Agreement (including Makhteshim's) have subsequently undertaken

considerable financial investments to prevent environmental future nuisances.

The Mediation Agreement, integrated into the business licensing terms of Makhteshim's Ramat

Hovav plant, stipulates that (1) sewage treatment will be under each plant's exclusive

responsibility, and no sewage discharge to the central treatment system will be allowed (for

details on sewage treatment see the following Subsection 25.10.2 below); (2) Each plant will

build a storage and evaporation pool at its own responsibility; and (3) Quality values for

wastewater have been determined, including interim values, which the plants will have to meet

subject to detailed timetables.

To the best of the Company's knowledge, at the time of this Report its Ramat Hovav plant

complies with its business license terms and meets all related requirements.

The Company built a wastewater desalination facility in its Ramat Hovav plant, planned to

operate so that high-quality water is returned to the ground and only the concentrate is

vaporized; this will enable the Company to reduce the surface area of future pools, preventing

the need to salinate them and save considerable amounts of water. At the writing of this report,

the facility is operating.

During 2009, a joint agreement was signed among all the Mediation Agreements cosignatories

governing the joint construction of the future vaporization pools.

In February 2010, the Company's Ramat Hovav plant received a draft text of additional terms in

its business license, updating its sewage-related business license terms. For additional

information on the construction of evaporation pools by the Company, see Section 25.9.2(f)

above. The plant's sewage is treated in a physical-chemical facility in the plant's courtyard, up

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to the treatment level required as threshold for beginning the biological treatment. The

biological treatment plant facility was built at a cost of some 17 million dollars, based on

expertise and design by the Japanese Kubota company – a world leader in this technology. The

treatment includes a gas washing installation designed to significantly reduce the smell

nuisances which may emanate from the biological treatment facility's activity. Following this

onsite treatment, the sewage is directed into the evaporation pools built by the Council and

jointly used by the plants in the area.

25.9.6 In recent years, the Company has undertaken several initiatives in its Ramat Hovav plant to

minimize its environmental impact. These include the construction of atmospheric emission

purification systems such as biological purification systems, integrated absorption facilities for

production processes and a thermal oxidizer system for stack emissions of most of the plant's

facilities. Moreover, in December 2009 the Company contracted with EMG for natural gas

supply for its Ashdod and Ramat Hovav facilities, as detailed in Subsection 19.6 above.

25.9.7 On April 1, 2007, the Israeli Government decided to task the Ministry of Defense and the IDF

with building the new training camp complex around the Negev Junction, located some six

miles from Ramat Hovav. The decision includes directions to the Ministry and the Council

designed to ensure local air quality as required by a court ruling in this matter. At the time of

this Report, the Company is unable to assess the effects of this decision and its implementation,

whatever they may be, on the operations of its Ramat Hovav plant.

25.10 Makhteshim's Beer Sheba Plant

25.10.1 The Beer Sheba plant used to be Makhteshim's main production site. Thirty years ago, though, it

began moving its production activity, including chemical syntheses, to the Ramat Hovav plant as

mentioned before. Today, the Beer Sheba plant is used for formulation, pilot R&D as well as

packaging and storage of materials and products.

25.10.2 As part of the Company's effort to prevent ecological nuisances, the following facilities, among

others, have been installed in the Beer Sheba plant:

a) A ten-mile pipeline in which waste flowed from the Beer Sheba site to the Ramat Hovav site until

2009, for the treatment of industrial sewage of the Beer Sheba plant in the Ramat Hovav

biological facility.

b) After making the required readjustments, commencing August 2009, the Company began

shipping the wastewater from Beer Sheba to Ramat Hovav in tank trucks. .

c) Absorption systems for gasses and odors emitted from various sources.

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d) The plant's storage facilities have been improved to prevent agrochemical powder emissions, as

per the Ministry's requirements.

From time to time, Makhteshim is required to inspect claims that grounded waste or remnants

thereof have been found in areas neighboring its plant, or that waste produced by the

manufacturing process have percolated underground. Should such soil pollution in fact be

identified, Makhteshim may be required to immediately clean up the above- or underground areas

in question.

25.10.3 During 2008, several leaks were discovered in the underground waste pipeline connecting the Beer

Sheba and Ramat Hovav plants. Company executives have been summoned for inquiry following

these events.

25.10.4 Under the terms of the toxins permit received by the Company's Beer Sheba plant in early 2011,

with respect to 2011, the Company was asked to conduct a soil inspection at the site. The

historical soil inspection will be submitted in the next few months. At this preliminary stage of

inspecting the soil, the Company is unable to estimate the outcome of the soil inspection and

whether it will result in the Company incurring material expenses.

25.11 Agan's Ashdod Plant

In its Ashdod plant, Agan has been acting and investing in protecting the environment. In view of

the stricter Ministry requirements, particularly in view of the plant's location in an industrial park

near a population center, the Company allocates considerable resources, including considerable

managerial resources, both in terms environmental preservation facilities and technologies and in

terms of ongoing costs. These activities include, among other things, the following.

25.11.1 Atmospheric pollutant emissions, material emissions and odor nuisance. The Ashdod plant

operates based on special environmental business licensing terms. To meet them, Agan is required

to use low-sulfur fuels, as well as special additives. Moreover, the Company has recently

completed – at a cost of some 10 million US dollars – the installation of a system for collecting

gasses emitted from production processes and their oxidation in a thermal oxidizer, which also

allows the use of non-recyclable organic solvents and wastes as fuel, reducing both Agan's energy

usage and the quantity of its disposed organic waste . In May 2008, new business license terms

related to the thermal oxidizer's operation were received. The thermal oxidation facility has been

constructed and operates to the Ministry's satisfaction, significantly reducing atmospheric

emissions. To the best of the Company's knowledge, at the time of this Report its Ashdod plant

complies with its business license terms and meets all related requirements.

In view of Agan's natural gas supply agreement with EMG (see 25.7 above), it expects that

following the construction process its atmospheric emissions will be reduced even further.

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Moreover, the transition from fossil fuels to natural gas (subject to the existence of regular supply)

is expected to reduce its energy costs. Note that added to Agan's toxins permit from July 18, 2010

were conditions pertaining to the use of natural gas, the natural gas system and the pipeline.

At the report date, Agan was issued additional business license terms focusing on atmospheric

emissions and providing guidelines for conducting process reviews, BAT gap reviews, fugitive

emissions leak detection and repair (LDAR) programs and various other environmental reviews

and monitoring activities. As part of implementing the terms, during 2009-2010, Agan conducted a

preliminary round of tests to identify fugitive emissions in accordance with the plan. The results

of the preliminary tests were submitted to the Ministry. The second round of tests began during

2010 and will also continue in 2011. Activities to identify and treat fugitive emissions are carried

out regularly in the Agan plant. The testing does not involve material expenses for the Company.

25.11.2 Monitoring station in Nir Galim – At the request of the Ministry of Environmental Protection,

Agan is building and financing a monitoring station in the moshav Nir Galim.

25.11.3. Since 1975, the industrial sewage produced by the plant is discharged about 1,100 meters into

the Mediterranean by a delivery pipe owned by Paz Ashdod Refinery, Ltd. (Paz). Agan has a

multi-annual agreement with Paz for using this pipe. Although this agreement has expired, the

parties still abide by it, and negotiations for its renewal are currently underway. Discharging the

sewage into the sea requires a permit by the Marine Discharge Permit Committee (Committee).

Agan is also required to pay a marine discharge fee of immaterial value. Nevertheless, as of

2010, Agan is required to pay significantly higher fees than those paid in the past.

In order to meet permit requirements, it has been required to treat its sewage in a biological

facility prior to their discharge. Having successfully completed a pilot test, Agan has

constructed a new biological treatment facility (biological facility) on land leased for that

purpose from the Ashdod Municipality (see Subsection 19.1 above for details).

In June 2008, Agan completed construction of the biological facility, at a total investment of

some NIS 130 million, and it commenced operations. During 2010, significant changes were

made to the facility, while converting the anaerobic system into an aerobic system. The facility

operated uninterrupted throughout 2010. At the time of this Report, the facility is working and

various pilots are operating, in accordance with the future plans of Agan and the Ministry's

requirements. The Ministry renewed the discharge permit of Agan for 2011, at the terms

provided in the discharge permit for this year.

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The Company expects to make further investment in an additional upgrade of the sewage

treatment plant and its conversion to an MBR (Membrane Bioreactor System) and completion

of the construction of a system to improve the quality of upstream sewage.

Note that Agan is working intensively to improve the quality of its sewage, not only

downstream (the biological facility), but also upstream. The Company is in ongoing contacts

with the Ministry and acts to comply with its requirements.

In recent years, the Committee's policy and the terms it requires companies to meet are

becoming consistently stricter, and this includes Agan's marine discharge permits for 2009, 2010

and 2011 in particular. Consequently, Agan is required to invest considerable amounts in sewage

treatment technologies, resulting in potential negative material effects on its operations, results

and finances.

25.11.4 Industrial waste treatment. Agan transports some of its industrial waste for treatment by

Environmental Services Company Ltd. (ESC). Since it is unable to treat some of the materials

locally, ESC, a government company, exports these materials to facilities overseas. The regular

operation of the thermal oxidizer from the end of 2007 allows Agan to use some of these

solvents and waste flows as fuel for the oxidizer and for steam production. With the

uninterrupted operation in early 2010 of the drying system, the quantities of industrial waste

transferred to ESC have decreased.

25.11.5 Noise. During 2010, Agan undertook several projects to reduce the potential for noise nuisances

in the plant's environs. Additional measures are planned in 2011, including construction of

acoustic insulation for some of the production facilities, building an acoustic wall on the

southern side of the plant. The construction of the wall does not entail material expenditures

for Agan.

25.11.6 Odor – At the end of 2010, an active coal system was built to improve the quality of the air

emitted from the waste filtering and drying system, in order to reduce the potential odor

nuisance. See Note 20 to the financial statements in this context.

25.11.7 Agan submitted to authorities a detailed plan for construction of a logistical center for storing

raw materials and output in a new area in the Northern Industrial Park, and is awaiting a

building permit. Operating this center will reduce the amount of materials stored on the plant

premises.

25.11.8 Soil. In August 2009, Agan was required to submit plans to conduct a soil inspection, and is

currently coordinating implementation details with the Ministry. In mid-2010, a historic soil

inspection, and at the writing of this report, a soil-gas inspection is being conducted. No

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material expenses are expected for these soil inspections. At this preliminary stage of

conducting the soil inspection, the Company is unable to estimate its outcome, and whether it

will cause the Company to incur material expenditures.

25.11.9 Fire extinguishing – Agan is in the throes of carrying out a three-year plan based on a fire risks

survey. The plan is being carried out in full coordination with the fire and rescue authorities.

The Company is also in the process of installing a closed-circuit television system, whose

objective is to identify fire sources, as prescribed in the compromise agreement signed between

the Company and the class action's representative (see Note 20 to the financial statements).

25.12 Milenia's Plants in Brazil

Milenia – the Company's subsidiary in Brazil – operates two main plants in that country: one, the

bigger, near Taquari, State of Rio Grande do Sul, and another in Londrina, State of Paraná. To the best

of the Company's knowledge, at the time of this report no environmental permits or licenses held by

Milenia have been denied.

From 1996 up to and including 2010, Milenia invested in safety and ecological facilities in these two

factories as part of its ecological process improvement policy. Milenia invested in subsurface tests

and remedying irregularities, changes in production processes, constructing sewage purification

facilities and byproduct storage.

Sewage treatment in Taquari plant

The sewage treatment system in Taquari conducts the sewage to a nearby river after treatment based on

flocculation and filtering, as well as on a biological process subject to the requirements of binding

regulations and rules enforced by the state environmental protection agencies. The Londrina plant,

which focuses on formulation, produces a relatively small amount of liquid sewage. Some of it is

treated locally and recycled for internal use, while others are treated in an external site. Solid wastes

and non-recyclable solvents are led to an external site and burnt there.

Atmospheric emission treatment

Milenia's atmospheric emission monitoring plan, initiated in 2002, relies on advanced technology and

machinery. Recent assessments reveal that its emission volumes meet the state environmental

protection agency's requirements.

Water sources and industrial waste control.

Milenia regularly tests the water sources surrounding its plants and in most cases, is also active in

recycling industrial waste. It has recently joined a group of plants which voluntarily act to set

procedures for treating and removing empty crop protection product packages.

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25.13 Environment-Related Legal Proceedings

See Note 20 to the financial statements for details on such legal proceedings.

Environmental insurance

The Company is insured against sudden and unexpected environmental pollution incidents, both in

Israel and abroad. According to its insurance consultants, the extent of the Company's insurance

cover for such incidents is appropriate.

At the time of this Report, the Company has only limited and relatively small-scale insurance cover

for ongoing environmental pollution. This is due to the difficulty in obtaining broader cover at a

reasonable cost.

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25.14 The Company's Environmental Officers

Mr. Joseph Goldstein is responsible for environmental protection and safety in Israel. Mr.

Goldstein has a BA in chemical engineering and an MA in industrial engineering management.

Mr. Goldstein previously managed the Ramat Hovav plant for six years.

Mr. Nethanel Nagar heads the Safety and Environmental Protection Dept. and Chief Safety

Officer in Makhteshim's Ramat Hovav plant and its Chief Safety Officer since 2009. Mr. Nagar

has a BA in chemical engineering and an MBA.

Mr. Asher Goldstein is responsible for environmental issues in the Makhteshim plant in Beer

Sheba. Mr. Goldstein, who holds a FA in chemical engineering, heads the Safety and

Environmental Protection Dept. and is Chief Safety Officer in the plant since 2002.

Mr. Benjamin Marx is in charge of environmental issues in the Agan plant. Mr. Marx has a BA

in chemical engineering, an MA in industrial engineering management and a second MA in

Environmental Engineering, with qualifications and publications in environmental protection,

safety and chemicals production processes. Mr. Marx has been involved in Agan's

environmental matters since 1999.

Mr. Hernando Vidal is in charge of environmental protection in Milenia. Mr. Vidal has an MA in

chemistry, and is responsible for Milenia's production and supply activities, including

procurement, distribution, logistics, manufacturing, QA, maintenance, environmental protection

and safety.

The information concerning expected investments, completion of facility construction projects and deadlines

expected to be met as detailed in this Section 25 constitutes forward-looking statements as defined in the

Securities Law - 1968, and by the nature of things, may not materialize, whether in whole or in part, or

materialize in a manner different than expected by the Company, as it essentially relies on Company

estimates and expectations, based on its past experience and subjective assessments. These assessments may

change, in whole or in part, from time to time, among other things due to developments in the Company's

area of operations. There is therefore no certainty that the Company's intentions will be realized or its

strategy implemented.

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26. REGULATION AND CONTROL OF COMPANY OPERATIONS As an integral part of the Company's business activities, it is subject to certain legal and regulatory

controls. These are detailed in the following summary of legal and regulatory restrictions and

arrangements relevant to the Company's operations.

26.1 Registering active agents, products and dietary supplements. The Company's operations involve

the production and marketing of active agents and chemicals for planet protection. Producing and

marketing these products and materials usually require completing statutory registration procedures

which apply to various stages in the process. The registration procedure is complex and prolonged.

(See Section 15 above for details).

26.2 Environmental laws and related quality standards. The Company's operations involve chemical-

industrial processes, and are therefore subject to certain environmental laws and related quality

standards. (See Section 25 above for details).

26.3 Crop protection laws. Company products manufactured or sold in Israel must be registered according

to the Crop Protection Law and its related regulations, in order to protect public health and the

environments from potential ill effects of certain materials contained in crop protection products.

26.4 Business licenses. All Company plants require business licenses according to local laws. (For details

about the special terms in the Ramat Hovav plant's business license and related mediation legal

proceedings, see Subsection 25.9.5 above, as well as Note 20 to the Company's financial statements).

26.5During 2009, the Company was informed by the Ashdod Municipality that it is incompliant with its

business license in terms of significant changes to the approved construction plan. At the time of this

Report, the Company, in coordination with the Ashdod Municipality, is taking the steps required to

settle this matter.

26.6 Quality control. Makhteshim and Agan's plants in Israel and Milenia's in Brazil qualify for ISO 9002,

which specified standard production process standards, as well as overseeing all ancillary processes.

Moreover, Makhteshim and Agan qualify for the Occupational Health and Safety Standard (OHSAS

18001), which is similar to ISO 14001. In October 2001 Milenia qualified for International ISO 14001.

26.7 Encouragement of Industrial Research and Development Law, its provisions, related regulations

and rules, and R&D grants given to the Company by the Chief Scientist (see Section 15 for details).

26.8 Law for the Encouragement of Capital Investments, its provisions and related regulations, as well

as approvals granted for the Company's various investments (see Subsection 19.6).

26.9 Israel Land Administration owns 93% of Israel's lands. In particular, most of the lands on which

Company plants are located are leased from the ILA on a long-term basis. They rights to these lands

and related transactions are thus subject to contractual provisions and land use regulations.

Accordingly, the Group is required to pay certain fees to the ILA, such as permit fees, consent fees,

leasing fees and capitalization fees.

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27. SIGNIFICANT AGREEMENTS

27.1 See Sections 1.1 and 2.2 above for details on the Company's entering into a merger agreement, upon

the closing of which, the Company's shares will be de-listed from Stock Exchange trading and the

Company will become a private company, to be 60%-held by CC and 40%-held by Koor.

27.2 Securitization. See Subsection 22.3.

27.3 Acquisitions between 2006-and2010. See Subsection 1.4.

27.4 Capital raised . See Section 23.3 and 23.4.

27.5 Multi-year agreements for raw material purchases and sales (including the agreement with

Monsanto) – see Subsection 7.5.

27.6 Agreement with Histadrut regarding subsidiaries' employees – see Section 21.4.

27.7 Agreements to build two electric and steam power plants in Ashdod and Ramat Hovav. See

Subsection 19.1.

27.8 Agreement to construct the biological plant in Ashdod. See Subsection 19.1.

27.9 Agreement to supply natural gas to the Ashdod and Ramat Hovav plants. See Subsection 25.7.

27.10 Strategic partnership agreement with Cibus and Monsanto. See Subsections 28.1 and 28.1.

27.11 Agreement for exclusive material development and marketing. During 2009, the Company

contracted an agreement with a Chinese supplier for exclusive material production and marketing. The

agreement provides for completing materials in the process of development, as well as development of

new materials by the Chinese supplier, based on its own and the Company's knowledge. The company

undertook to invest an immaterial amount in researching, developing and manufacturing the new

materials, as well as to buy a significant share of the new materials produced. The agreement also

governs both parties' property rights to the developed products. Finally, the two parties also signed an

exclusive supply agreement to be applied to each of the fully developed products. At the report date,

the parties are in compliance with the agreement.

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28. COLLABORATION AGREEMENTS

In September 2009, the Company signed a strategic partnership agreement with Cibus, according to

which it will invest up to 37 million dollars, by milestones, over a period of five years, in a joint

venture for developing enhanced traits in five key crops.

28.1 See the immediate report of September 21, 2009 (RN 2009-01-236325) for further details.

28.2 In October 2010, the Company entered into a strategic partnership agreement with Monsanto,

regarding the inclusion of several herbicides sold by the Company in the Weed Management System

of Monsanto (Weed Management System and the Agreement, respectively). Under the terms of the

Agreement, the Weed Management Plan will include the Company's materials, and the Company will

be granted the exclusive right to use Monsanto's trademark: "Round Up Ready" together with the word

"Plus" on the Company's herbicide packages, against an annual payment in each of the Agreement

years, of immaterial amounts. The exclusivity will apply to the Company's products included in the

Agreement in the locales stipulated, for a three-year period, with the Company having an extension

option (with each side having the right to terminate at the end of each Agreement year). See the

immediate report dated October 19, 2010 (RN 2010-01-652386) for additional details.

28.3 The Company has a large number of collaboration agreements with leading multinationals for

developing product registration data and submitting them to regulatory authorities, as detailed in

Section 15 above.

29. CORPORATE GOVERNANCE 29.1 The Board of Directors' Governance Resolutions

The Company abides by the principles of corporate governance to ensure checks and balances in the

conduct of its affairs. Accordingly, on May 9, 2007, its board adopted several resolutions concerning

the Company's corporate governance, including with respect to the board's adopting resolutions in

writing, recording minutes, parallel presentation of matters in the audit committee and the board, and

the participation of invited parties in meetings of the audit committee, criteria related to remuneration

terms and presentation of all compensation terms when approving a new compensation component.

See the immediate report dated June 7, 2007 (RN 2007-01-420299) for additional details.

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29.2 Board Committees

In addition to the Audit Committee, the board committees include the following: Committee for

Examination of Financial Statements, Environmental Protection and Safety Committee; Compensation

Committee; Finance Committee; and Product Development Committee.

29.3 Code of Ethics

In its meeting of March 10, 2009, the board decided to impose a code of ethics on all Company

employees in Israel and abroad. The code of ethics is designed to provide simple and easily applicable

guidelines for the Company's and its employees' required behavior. Among other things, the code

includes rules concerning the Company's commitment to its employees, the employees' responsibility

to the Company, business ethics, community relations and responsibility for appropriate behavior.

During 2009, the Company took steps to ensure all its operations, and those of its subsidiaries in Israel

and abroad, comply with the code.

29.4 Negligible Transactions

For details, see the board's report in Chapter B.

29.5 Committee on Corporate Governance Code

The Company adopted and implemented, from time to time, some of the recommendations of the

Committee on Corporate Governance Code ("Goshen Committee"), which, at the publication date of

this report, were adopted in part as relevant legislation. . Accordingly, on March 1, 2009, Mr. Gideon

Shitiat – an outside director – was appointed Chairman of the Company's Audit Committee. Likewise,

on January 30, 2011, the Company's board appointed a Committee to Examine the Financial

Statements, as required by the Companies Regulations (Directives and Conditions Related to

Financial Statement Approval) – 2010.

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30. LEGAL PROCEEDINGS

For details regarding material current legal proceedings involving the Company at the time of this

Report, see Note 20 to its Financial Statements at December 31, 2010.

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31. BUSINESS OBJECTIVES AND STRATEGY

31.1 Company strategy - general

As already mentioned, the Company is among the leading multinationals in its core operational area – crop

protection products. The Company also has other activities in other areas of expertise, which, at the time of

this report, are immaterial to its results. At the time of this Report, the Company's chief objective is to

continue to be a global crop protection products leader.

31.2 Strategy-change policy

During 2010, the Company began implementation of a comprehensive strategy-change policy, intended to

modify the Company's operational business plan for changes in the industry's competitive environment and

to strengthen its core activities.

This plan expresses the Company's strategic emphasis in the coming years, by creating a unique business

model for the agrochemicals industry that combines its advanced licensing, development and marketing

capabilities with effective and advanced operational, manufacturing and logistics systems, in order to offer

customers high-quality, efficient and accessible solutions, thereby achieving profitability growth in the

Company's results. The strategic plan will allow the Company to continue and solidifying its competitive

position while maximizing the potential deriving from the changes in its business and competitive

environment, and from the continuous need for farmers to improve the output of their fields, while dealing

with water and land shortages. The Company assesses that the better it is able to adapt its operational

structure and create a unique business model in the industry, then the higher the added value it will generate

from the basic trends in the agrochemicals industry, mainly the accelerated rate of patent expiry and the

frequent growth in the generic market's share of the global agrochemicals industry, in addition to maximizing

the growth potential in the emerging markets of Asia, South America, Africa and Eastern Europe.

As part of the implementation of the changes in the strategic plan, a reorganization was completed, including

new hiring, while redefining the different geographic regions in which the Company operates, its

organization-wide core processes and the supporting global functions.

In order to improve the cost structure of its products, the Company is working to create the right combination

of outsourcing and Company production of products and the optimal deployment of its global supply chain.

In this context, the Company is in the process of optimizing its manufacturing plants, purchasing and supply

chain (optimization process), with the objective of improving the cost structure of the products sold by the

Company, to improve operational flexibility and better maximize its extensive global dispersal. In the scope

of the optimization process, decisions were reached in the second half of 2010 relating to a reorganization in

Brazil (see Section 33.2 below), which is already complete, regarding the closing of two production lines in

Israel during 2011, and agreements were signed with the employees organized under collective agreements in

Israel (see Section 21.4 above). Subject to the closing of the ChemChina transaction (see Sections 1.1 and

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2.1 above), if and to the extent it is closed, Company management intends to evaluate, during the second half

of 2011, the business implications of the ChemChina transaction on continuation of the optimization process

(subject to the obligations toward employees pursuant to the agreement of principles with them) relating to

the existing and future production infrastructures and the way in which the merger will, if at all, influence the

optimization process. Company management estimates that all of the said processes should lead to gradual

improvement in the Company's operational efficiency, which will begin to be expressed in the Company's

business results, already in 2011.

Moreover, the Company completed managerial changes in its operational model in the American markets,

including a comprehensive reorganization of operations in Brazil (see Section 33.2 below). In order to

continue and strengthen its American operations, the Company closed a strategic partnership with Monsanto

(see Section 28.2), which Company management believes could also support the Company's organic growth

in the coming years, mainly in the US and Brazil. In order to realize the potential of its expansion and

growth in the region, the Company closed (subsequent to the balance sheet date) a strategic investment in

Mexico – an agrochemicals market with high growth potential.

Completion of the construction of the Company's headquarters and defining a new region of operations in

Asia-Pacific, Africa and the Middle East (as part of the redefinition of the different geographic regions in

which the Company operates) were intended to enable focusing on the goal of expanding commercial

activity in this geographic region, and streamlining the logistical manufacturing system, while improving the

ability to provide solutions for the needs of the region's customers. Further to the strategic focus on this

region, the Company acquired a company in Korea during the year.

At the same time, the Company continues to strengthen its development and licensing of new products,

which support its global organic growth, in order to continue improving its product range and tailor it to the

changing market conditions and key agricultural trends.

Concurrent with the implementation of changes in the operating structure and expansion of the global

deployment, the Company worked to identify and realize a significant business process, including through a

merger or acquisition with a company engaged in the Company's area or complementary areas (for details on

the ChemChina transaction, see Sections 1.1 and 2.2 above). The Company also occasionally evaluates the

possibility of making small acquisitions, and in two instances – subject to policy and decisions by the

Company's board of directors and management and the economic feasibility of the investments and activity,

as noted (see Section 1.5 above for details on acquisitions made by the Company, including acquisition of

companies during and subsequent to the report period).

Company management estimates that completion of the actions deriving from the strategy-change policy and

modification of its operational model will enable the Company to maximize the potential inherent in its

assets and holdings, while dealing with its key issues and challenges in a manner that conforms to the future

directions of the industry's development. Likewise, the modification of the operational model will facilitate

the Company's continued growth, while improving its profitability and will enable the Company to utilize

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appropriate opportunities in the global market of CPP's. Within this framework, the Company adopted a

multi-year plant that expresses the Company's business development based on implementation of all the said

decisions.

Company management's estimates regarding the results of the strategy-change plan constitutes forward-

looking statements based on the information currently held by Company management and on the basis of

which the board approved the plan. The Company's estimates may not materialize, including due to factors

beyond its control, including actions by the Company's potential competitors and changes in the markets of

its operations.

31.3 Company goals

At the report date, it is Company periodically reviews the strategy guiding its operations and its goals in

senior management forums and board meetings. This review is based on considerations such as its

competitive positioning, growth, profitability and trends and developments in its business environment.

Accordingly, based on available information and the Company's estimates of economic and technological

developments in its area, it has set certain objectives (which may change from time to time) in order to

obtain a relative edge in the competitive global crop protection products market. At the time of this Report,

the Company's main business objectives are as follows:

The Company's marketing and sales objectives include reinforcement and bolstering of its current

position in the markets in which it operates, as well as expanding its shares in markets with high

growth potential (such as Eastern Europe, Asia and Latin America). TO this end, the Company is

working to solidify its local marketing platforms in its main operational regions; and initiates and

strives for collaborations with local and international entities to leverage mutual product development,

registration and distribution capabilities.

The Company's product objectives include growth based on its current product range, involving the

development of new registrations for these products for additional crops and in additional regions. The

Company also acts to expand its product range by launching and registering patent-expired products as

well as by updating advanced and environment-friendly formulation and improving its finished product

mixtures. The Company is also working toward selective development of innovative products. All

these activities are compliant with periodically changing regulatory requirements.

The Company continuously strives to enhance its production capacity and competitiveness by

operational streamlining of all its supply chain elements. The Company constantly invests in

improving its facilities, production processes and working environments, so as to meet high safety and

environmental protection standards.

The Company continuously assesses business opportunities in the crop protection products area, by

acquiring products and/or obtaining product rights and acquiring companies in the industry so as to

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enable it to decentralize its distribution and marketing networks, access new customers and markets, as

well as expand its product range and production capacity.

In the context of its other, non-core activities, the Company is mainly active in promoting the dietary

supplements and food additive area, as well as the aromatic products area, by completing the development of

product lines and supporting their marketing.

Most of the Company's efforts are focused on maintaining the uniqueness and added value of its products,

while ensuring innovativeness and a broad technological basis, establishing R&D capabilities and acquiring

new technologies. Finally, the Company constantly seeks to provide high-level services and to offer a broad

and diverse product range to large- and medium-scale international customers.

The strategy and objectives detailed in this Section 28 are based on the Company's management assessment

and rely on its accumulated experience with economic (global, local and industry-specific), technological,

social and other developments, as well as on estimates of the effects of each development on the others. By

necessity, these aforementioned developments may change or not materialize, in whole or in part, or

materialize in a manner different than anticipated by the Company, from time to time, among other things,

due to developments in the markets where the Company operates, in its area of operations and in the demand

for its products. There is therefore no certainty that the Company's intentions will be realized or that its

strategy implemented. In such eventualities, the Company's management will review the strategy detailed

above and its main objectives, and assess its compatibility with future developments.

31.4 Company plans following the merger

If and to the extent the merger agreement (as defined in this report) is closed, the merged company

intends to continue its activities and businesses, and to this end, the Company may take measures, from time

to time, to sell and/or acquire and/or merge assets, expand or trim areas of activity, reorganize the Company,

make structural changes, etc. In this context, the Company draws your attention to: (a) agreements reached

by the Company with the Histadrut pertaining to employees of the subsidiaries Makhteshim and Agan (see

Section 21.4 above); and (b) agreements between Koor and CC, including as pertains to the possibility of

selling certain agrochemical assets of CC to the Company, subject to Koor's consent and the approval of

Company management for the Company carrying out an IPO in the future, as discussed in Section 2.5.3 of

the transaction report published by the Company on January 20, 2011 (RN: 2011-01-025200).

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32. EXCEPTIONAL CHANGES IN THE COMPANY'S OPERATIONS

To the best of the Company's knowledge, except as provided in this report, no exceptional changes

have occurred in its operations, including in the course of its regular activities, in the period following

the date of its financial reports up to the time of this Report, which are known to the Company at the

time of this Report.

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33. EXCEPTIONAL EVENTS OR ISSUES

33.1 Events in the Brazilian subsidiary Milenia

On July 7, 2009 the Company announced that following reviews by Brazilian health authorities in

Milenia's facilities, as well as other agrochemical companies' facilities, regarding the registration of

several formulations produced and/or marketed in Brazil by Milenia, Milenia was required to

temporarily avoid producing and selling these formulations, a decision which also applied to

inventories held by some of its customers. In the report period, most of the formulations were released

for production, except for one formulation, for which Milenia has filed an application for new

licensing (but all approvals have not yet been received) and another formulation for which Milenia has

filed a request to cancel the licensing and discontinued its production and marketing.

For further details, see immediate reports of July 7 & August 2, 2009 (RN 2009-01-164559 & 2009-

01-184518, respectively), and the supplementary immediate report dated May 9, 2010 (RN: 2010-01-

473316).

On March 24, 2010, Milenia received a decision from the Ministry of Health in Brazil whereby, in

administrative proceedings opened against it (separately for each formulation), Milenia was charged

with administrative penalties of an immaterial amount. The Company's financial statements include

an appropriate provision for these penalties. Milenia filed a court appeal of the penalties, and as of the

report date, it is still pending.

Following the ruling in the administrative proceedings, a criminal investigation was opened against

Milenia and its managers by the Londrina police and the Taquari police/ During October 2010,

Milenia's managers were summoned for a hearing, which has not yet been scheduled, after which it

will be decided whether or not to open criminal proceedings against Milenia and its managers.

33.2 Subsidiary in Brazil and its reorganization

In view of Milenia's not realizing its business plan, its sales forecast and its profit margins, and due to

the need to adapt the operational model in Brazil to the changing market conditions, and as part of the

process of changing the Company's global production network, the Company's board of directors, in

October 2010, approved a comprehensive reorganization plan in the Brazilian subsidiary (the Plan).

At the report date, implementation of the plan was completed, which included a significant

adjustment of manpower levels, significant reduction of production activity at the production site in

Taquari and partial reductions at the site in Londrina, as well as outsourcing products in order to

reduce overhead. Likewise, the implementation of the Plan included making changes in the senior

management of the Brazilian subsidiary and replacing the subsidiary's CEO. The number of

employees in the Brazilian subsidiary will decrease by 320 employees as a result of implementation

of the Plan, of which 240 are permanent employees and after completing the Plan, will total 502

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employees, of whom 483 are permanent employees. Regarding the reorganization, also see the

Company's immediate report dated October 11, 2010 (RN: 2010-01-642231).

For details on one-off provisions in respect of the subsidiary in Brazil, mainly as a result of asset

impairment, totaling $47 million, see Note 20.A.11 to the financial statements at December 31, 2010.

Company management estimates that completion of the Plan's implementation will lead to annual

savings of some $30 million in sales costs and general and administrative expenses (excludes cost

savings of some $7 million in production and overhead costs) of the subsidiary in Brazil, which will

lead to improved results already in 2011.

Company management's estimate regarding the results of the reorganization plan in the subsidiary in

Brazil is forward-looking information based on proprietary information of the Company

management and on the basis of which the plan was approved by the Company's board of directors.

The Company's estimates may not materialize, due to reasons including factors that are beyond the

Company's control, such as demand and supply for the Company's products in the Brazilian market.

33.3 In 2010, the Company began implementation of an extensive process of changing the Company's

global production network, intended to reduce the production costs of the Company's products, while

increasing operational flexibility and outsourcing certain products. As part of the process, the

Company entered into an agreement of principles in October 2010 with the Histadrut, the terms of

which include agreement on the voluntary early retirement of employees in Israel. See Section 21.4

above for more details.

33.4 Memorandum of understanding to acquire Albaugh

On June 27, 2010, the Company's board approved an undertaking in a memorandum of

understanding, whereby, subject to due diligence, agreement and signing of a binding agreement

between the parties and the fulfillment of suspending conditions, the Company will acquire all of the

issued and outstanding share capital of Albaugh Inc., the largest generic CPP producer in North and

South America. On September 2, 2010, the Company announced that it had halted negotiations with

Albaugh Inc. See immediate reports dated June 29 and September 2, 2010 (RN: 2010-01-533358

and 2010-01-610632) for additional details.

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34. RISK FACTORS

According to the Company's estimate, it is exposed to several major risk factors, related to its

economic environment, the industry and the Company's unique characteristics, as detailed below

(without prioritization):

31.1 Macroeconomic Risk Factors

Exchange rate fluctuations

As the Company conducts its business on a global scale, it is continually exposed

to exchange rate fluctuations involving mainly the ratio between the value of the

currency in which it buys raw materials and other inputs and the value of the

currency in which it sells its products, so that revaluation of the former relative to

the latter is liable to compromise its profitability. Moreover, the dollar value of

customer and supplier debts denominated in the Company's reports in currencies

which are not the US dollar is exposed to fluctuations as the dollar revaluates or

devaluates relative to those currencies. For further details on the foreign currencies

relevant to the Company and their effect thereon, see Section 5 above. Periodically

and according to its estimates, the Company initiates currency hedges to reduce

this exposure, as detailed in Section 5 above. At the time of this Report, the

Company's main functional currency is the US dollars, and its major exposures are

to the Euro, the NIS and the Brazilian Real. The strengthening of the dollar

relative to the other currencies in which the Company operates, reduces the

volume of the Company's dollar sales and vice versa. For further details on

exchange rate fluctuations and the Company's currency hedges, see the attached

Directors' Report.

Exposure to Interest rate, CPI and NIS exchange rate fluctuations

Some of the Company's liabilities bear interest at variable rates, and its bond

liabilities (Series B and C) are NIS-denominated and linked to the consumer price

index (CPI) and bear fixed interest. Therefore, any rise in the exchange rate or CPI

might lead to a concomitant rise in the Company's financing costs. At the time of

this Report, most of said risks are hedged by various instruments, as detailed in

the Directors' Report attached herein.

Business operations in emerging markets

The Company conducts its business – mainly product sales and raw material

procurement – also in emerging markets such as Latin America, Eastern Europe,

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Asia and Africa, which exposes it to risks typical of those markets, including: the

regimes' sensitivity to political upheavals leading to economic instability; volatile

exchange rate of the local currency (in which customer debts are denominated)

against the dollar; fiscal instability and frequent revisions of economic legislation;

relatively high inflation and interest rates; barter deals; and potential entry of

international competitors and accelerated market consolidation by large-scale

competitors. On the other hand, the Group's deployment in multiple regions

contributes to diversifying such risks and to reducing its dependency on particular

economies. In addition, registration requirement upgrades or giving precedence to

customers in developed countries so as to limit the use of raw materials purchased

in emerging economies will require redeployment of the Company's procurement

organization, which might compromise its profitability for a certain period.

The Global Crisis

The Global Crisis which affected markets, peaking in the last third of 2008 and the

first half of 2009, influenced various factors in the business environment in which

the Company and its competitors operate, and had a negative effect on its 2009

results, particularly its sales (quantities and prices). (See Section 5 above and the

Directors' Report for further details about the effects of the Global Crisis).

The Company estimates that in 2010 the effects of the Global Crisis on its results

will gradually weaken. Nevertheless, should the rate of global recovery slow down

or fluctuate, the continued trend of financial market instability (particularly in

emerging markets where a material part of Company operations are conducted)

could materially impact Company operations, among other things by slowing

down its multi-annual growth trend and leading to extreme fluctuations in the

other factors affecting its results.

Hostilities in Israel

As the Company's major plants are located in Israel, military conflicts, hostilities

or acts of terror, particularly in Southern Israel, might compromise the Company's

ongoing operations and profitability.

34.2 Industry Risk Factors

Competition

At the time of this Report, six leading multinational source companies are engaged

in the crop protection products areas. These R&D giants have significant financial

138

resources at their disposal. The Company's ability to effectively compete with

them as a mainly generic producer involves continuous efforts and significant

investments in timely new product development and registration, as well as in

ongoing marketing and sales of existing products. Moreover, in most of its

markets, the Company also competes with other generic companies and smaller-

scale ethical companies, most of which have yet to deploy global distribution

networks at the time of this report, and are active on a local basis. Any delay in

developing or obtaining registrations for products and/or delayed penetration into

markets and/or growth of generic competitors (whether by the expansion of their

product range or by the globalization of their distribution networks) might affect

the Company's total sales in its core activity area, affect its global position and

erode sales prices. For further details about the Company's position as a leading

generic company and its global ranking as seventh among all the companies active

in its core area, see Subsection 6.3 above.

Extreme weather and other changes affecting farmers

Most of the Company's crop protection products are designed for use throughout

the growing season. Many extraneous factors, such as extreme weather conditions,

significant drops in agricultural commodity prices, changes for the worse in

government policies and farmers' economic situation, necessarily lead to reduced

farming intensity, and consequently to reduced demand for company products,

lower product prices and collection difficulties – all liable to significantly affect

Company results. The Company has no way of forecasting bad growing seasons,

but should an unbroken sequence of such seasons occur, Company results might

be significantly affected.

Legislative and regulatory changes in the environmental area

The Company operates in a heavily regulated environment, particularly in relation

to the storage, treatment, manufacturing, transport, usage and disposal of its

products, their ingredients and byproducts some of which are considered

hazardous. The regulatory requirements imposed on the Company vary from

product to product and from market to market, and tend to become stricter with

time. In recent years, both law enforcement authorities and environmental NPOs

have been applying growing pressure, mainly through increasingly stricter

legislative proposals related to companies and products which may potentially

pollute the environment. Since the Company must meet such legislative and

regulatory requirements in order to continue manufacturing and marketing its

139

products, it is required to spend considerable human and financial resources (both

in terms of ongoing costs and in terms of material one-time investments) in order

to meet mandatory environmental standards. In some cases, this results in delaying

the introduction of Company products into new markets, affecting its profitability.

In addition, any changing or toughening of environmental license or permit terms,

or their revocation, might significantly affect the Company's finances and business

results.

Although the Company invests material sums in adapting its facilities and in

constructing special facilities as per environmental requirements, it is currently

unable to assess with any certainty whether these investments (current and future)

and their outcomes would satisfy or meet future requirements, should these be

significantly updated or upgraded. (See Section 25.11.3 for details about the

significantly stricter policy of the Marine Discharge Permit Committee and its

implications for Agan).

Legislative and regulatory changes in the product registration area

Most materials and products marketed by the Company require registrations in

various stages of their production and marketing, and are also subject to strict

regulatory oversight in each country. Compliance with registration requirements,

which vary from country to country, some of which becoming stricter with time,

involves significant investments of time and resources, and rigorous matching of

licensing demands with each and every product. Noncompliance therewith is

liable to materially affect the Company's cost structure and profit margins, as well

as penetration of its products in the relevant market, and could even lead to

suspension of sales of the relevant product. Moreover, to the extent that new

regulatory requirements are imposed on registered products (requiring additional

investment or leading to the existing registration's revocation) and/or the

Company is required to compensate another for its use of the latter's product

registration data, these amounts might accrue to significant sums, considerably

increasing the Company's costs and affecting its results. Nevertheless, in countries

where the Company has a large market share, any toughening of registration

requirements may represent a competitive advantage vis-à-vis other companies

interested in penetrating those markets and competing with it therein. See Section

15 above for further details on Company product registration.

140

Environmental, health and safety exposure

The Company's operations involve dangerous substances as defined in the 5753-

1993 Dangerous Substances Law. In the extremely unlikely eventuality of a

significant industrial malfunction leading to the release of such dangerous

substances, this could threaten lives or the environment where the Company is

active.

The Company might become significantly liable, civilly or criminally (including

high fines) due to any divergence from and/or violation of environmental, health

or safety laws and regulations. Some of the existing legislation might impose such

liability without any intention or negligence on the Company's part (to the best of

the Company's knowledge, from the authorities' point of view this is strict liability

in most cases and absolute liability in others). Other environmental laws and/or

regulatory requirements and guidelines hold the Company liable for treating

pollutions, potentially exposing it to the costs involved in cleansing and purifying

soils and/or water bodies, should and to the extent that such pollution occur (even

after the Company's production activities in a certain area be terminated, should

and to the extent that they be terminated). Moreover, the increasing pressure

applied in recent years, both by law enforcement authorities and by environmental

NPOs, on potentially polluting companies and products, as described in

Subsection 25.2 above, also involves criminal, civil and administrative legal

proceedings. Finally, the Company is exposed to lawsuits claiming bodily injury

or property damage due to exposure to hazardous materials, mostly covered by the

Company's insurance policies. (For further details concerning legal proceedings

related to environment, health and safety issues, see Note 20 in the financial

statements; see Paragraph 25.11.3 about the significantly stricter policy of the

Marine Discharge Permit Committee and its implications for Agan).

Product liability

Product and producer liability represent a risk factor. Regardless of their prospects

or actual results, product liability lawsuits might involve considerable costs as

well as tarnish the Company's reputation, potentially affecting its incomes. The

Company has a third-party and defective product liability insurance cover of up to

300 million dollars in aggregate annual damages. Nevertheless, there is no

certainty that any future product liability lawsuit or series of lawsuits would not

materially affect Company operations and results, should the Company lose the

lawsuit or should its insurance cover not suffice or apply in that particular case.

141

Market penetration and product diversification

Following their development, the Company must market new products in its

various markets. Should these fail to meet registration requirements or should it

take too long to obtain registrations for them, the Company's ability to

successfully introduce a new product to the market in question in the future would

be affected. Successful market penetration involves, among other things, product

diversification in order to respond to each market's changing needs. Therefore, to

the extent that the Company fails to adapt its product mix accordingly, its future

ability to penetrate that market would be similarly affected. Failure to introduce

new products to given markets and meet Company objectives (given the

considerable time and resources invested in their development and registration)

might affect the sales of the product in question in those markets, as well as the

Company's results and margins.

Infringement of third-party property rights

As already mentioned, the Company is mainly active in the generic products area.

As such, it owns no patent-protected intellectual property for most of its products.

The Company depends on protecting its commercial secrets and exposed to the

possibility that its competitors develop similar or competing technologies. The

Company is also exposed to legal claims that its products or production processes

infringe on third-party intellectual property rights (even though the source

products similar to its own are no longer patent protected). To the best of the

Company's knowledge, up to the time of this writing, all such lawsuits have been

settled for immaterial amounts.

Fluctuations in raw material inputs and prices and in sales prices

Raw materials represent a significant element in the company's production inputs.

Many of them are oil derivatives, and as such are heavily dependent on (often

considerable) market price fluctuations. Extreme fluctuations in oil price and

energy costs might materially affect the Company's raw material and sales prices

and erode its profitability and competitiveness.

Exposure due to recent developments in the genetically modified seeds market

Any further significant development in the market of seeds genetically modified

for agricultural crops and/or any significant increase in the sales of genetically

modified seeds or Glyphosate and/or to the extent new crop protection products

are developed for further crops and widely used (substituting for traditional

142

products), this will affect demand for crop protection products, requiring the

Company to respond by adapting its product range to the new demand structure.

Consequently, to the extent that the Company fails to adapt its product range

accordingly, this might reduce demand for its products, erode their sales price and

necessarily affect Company results and market shares.

Nevertheless, the fact that the Company itself markets Glyphosate acts to mitigate

this exposure (albeit only in terms of marketing margins). For further details about

this technological innovation and its implications, see Subsection 6.4 above.

Operational risks

Company operations, including its manufacturing activities, rely, among other

things, on state-of-the-art computer systems. The company continually invests in

upgrading and protecting these systems. Any unexpected malfunction in these

systems which could not be repaired within a reasonable timeframe is liable to

affect the Company's operations and results. At the report date, the Company has a

property and loss-of-profit insurance policy covering up to $1,345.7 million in

aggregate annual damages.

34.3 Company-Specific Risk Factors

Disruptions in raw material supply and/or shipping and port services

Lack of raw materials or other inputs used for manufacturing Company products

might prevent the Company from supplying its products or significantly increase

their production costs. Moreover, the Company imports raw materials to its

production facilities in Israel and/or abroad, whence it exports its products to its

Subsidiaries abroad for formulation and/or marketing purposes, as the case may be

– all through ports in Israel and other countries. Prolonged disruptions and/or

strikes and/or infrastructural defects in any of the ports used by the Company

might significantly affect its ability to obtain raw materials in general, or to obtain

them at reasonable prices, as well as limit its ability to supply its products and/or

meet supply deadlines. These might negatively affect the Company and its

finances, customer relations and results.

Failed M&A's

As already mentioned, the Company's strategy includes mergers and acquisitions

designed to calculatedly expand its product range and deepen its presence in

certain markets. This requires assimilation of acquired operations and their

143

effective integration in the Group, including the ability to realize projections,

maintain profitability and adapt to certain market and competitive conditions.

Failure to achieve these could mean wasting away the added value projected,

losing customers, exposure to unexpected liabilities, reduced value of the

intangible assets included in the merger or acquisition as well as the loss of

professional and skilled human resources.

Production concentrated in a few plants

The lion's share of the Company's production operations is concentrated in a small

number of locations. Natural disasters, hostilities, labor disputes, substantial

operational malfunctions or any other material damage might materially affect

Company operations.

International taxation

Over 95% of Company sales are in markets outside Israel, through its consolidated

subsidiaries worldwide. These play various roles in the Company's operational

structure (sometimes in relation to the same product), including production,

knowledge maintenance and development, as well as procurement, logistics,

marketing and sales of the Company's various products. These firms are assessed

according to the tax laws in their countries of residence. Due to the varying tax

rates imposed on the Group's earnings in various countries, substantially different

classification or allocation of the return on each subsidiary's value elements in the

various countries or any change in their attributes (including changes related to the

location of their HQ) might affect the amount of earnings made and assessed in

each country, with a possibly material effect on the Group's tax rates and financial

results. (For further details, as well as regarding the tax laws applicable to the

Company, see Section 24 above). The Company's financial statements do not

include a material provision for exposure for international taxation, as aforesaid,

based on an opinion it has received.

Failure to meet the Approved Enterprise terms

Some of the Company's plants have received benefits (in the form of tax relief

and/or grants) under the Law for the Encouragement of Capital Investments, 1959-

5719. Failure to comply with the Approved Enterprise terms on which these

benefits are conditioned might lead to withdrawal of said benefits and/or the

144

imposition of added tax due for past earnings. According to the Company's

estimate, it complies with these terms at the time of this Report. (See Subsection

19.6 above for further details).

Failure to comply with the Chief Scientist's terms

State grants received under the Chief Scientist programs limit the Company's

ability to produce and transfer technologies outside Israel, and oblige it to comply

with certain terms. Failure to meet these terms might force the Company to repay

those grants (together with interest and fines) as well as expose it to criminal

proceedings. According to the Company's estimate, it complies with these terms at

the time of this Report. For details about grants thus received by the Company, see

Subsection 19.6 above.

Limitations on raising bank credit and non-compliance with financial covenants

For the purposes of the Israeli banking system, the Company is part of an IDB

Holdings Ltd. "borrower group" (see Subsection 23.6 above). Consequently, it

might be not be able to raise bank credit unrestrictedly. In addition, the Company's

funding documents require it to meet certain financial covenants, as detailed in

Subsection 23.5 above. Failure to meet these covenants due to an extraneous event

or non-materialization of Company forecasts, as well as should it not obtain the

agreement of its funders to extend or update these financial covenants according to

its abilities, could lead the funders to oblige the Company to immediately pay off

its liabilities (or part thereof).

Customer credit

The Company's sales to its customers in Israel and abroad usually involve

customer credit as customary in each market (and as detailed in Subsection 22.2

above). Some of these credit lines are insured, while the rest are exposed to risk,

particularly during economic slowdowns. The Group's aggregate credit, however,

is distributed among many customers in multiple countries, mitigating this risk.

Nevertheless, in certain regions, particularly in South America, credit lines are

particularly long (compared to those extended in Western Europe, for example),

and sometimes, among other things due to bad crops or economic downturns in

those countries, the Company might find it difficult to collect customer debts, with

some debts finally collected only after several years.

This risk is also marked in developing countries where the Company is less

familiar with its customers, their collaterals are of doubtful value and there is no

145

certainty as to such customers' insurance cover. Credit default by any of its

customers might affect the Company's cash flow and financial results. This risk is

particularly relevant to developing markets such as South America, Eastern

Europe, Africa and Asia. (For further details, see board report notes and the

Company's financial reports)

146

Company Risk Factors Breakdown according to Potential Impact

Risk Factor Potential impact on the

Company's overall operations

High Medium Low

Macro risks

Exchange rate fluctuations +

Interest rate, CPI and NIS exchange rate fluctuations +

Business operations in emerging markets +

Hostilities in Israel +

Industry risks

Competition +

Extreme climatic and other changes affecting farmers +

Legislating and regulatory changes (environment) +

Legislating and regulatory changes (product registration) +

Environmental, health and safety exposure +

Product liability +

Market penetration and product diversification +

Infringement of third-party proprietary rights +

Fluctuations in raw material inputs and prices and in sales prices

+

Developments in the genetically modified seeds market +

Operational risks +

Company-specific risks

Disruptions in raw material supply shipping & port services + Failed M&A's +

Production concentrated in a few plants +

International taxation +

Failure to meet the Approved Enterprise terms +

Failure to comply with the Chief Scientist's terms +

Bank credit restrictions +

Customer credit +

Makhteshim Agan Industries Ltd

1

Board of Directors Report for Year ended 31 December, 2010

The Board of Directors is pleased to present the Directors' Report on the State of the Company’s Affairs for the period ended September 30, 2010 ("the reporting period").

A. Board of Directors explanations on the state of the Company's affairs

1. Summary of Company's business environment

Makhteshim Agan Industries Ltd. and its subsidiaries ("the Company") specialize in the chemical industry and as at the reporting date, focuses primarily on the agriculture related chemical industry (agrochemicals). As such, the Company develops, manufactures and markets crop protection products. Furthermore, the Company has other operations which are based on its core capacities (in the agricultural and chemical industries), the scope of which, as at the reporting date, is insignificant. At the reporting date the Company is the leading global generic manufacturer of crop protection products, and sells its products in more than 120 countries worldwide. The Company's key success factors are primarily wide global deployment, one of the broadest product portfolios in the industry, its goodwill, know-how, experience and special knowledge of agriculture, excellent technical-chemical capacities, expertise in product licensing, adherence to stringent ecological standards, strict quality control, global marketing and distribution system and financial robustness. Steady and consistent R&D investment facilitates launching of new generic products at opportune times.

The Company's business strategy and the changes that have occurred

The Company's business strategy and goals in the generic plant protection market focuses mainly on (1) reinforcing and establishing presence in the markets in which it operates and expanding its share in potentially high growth markets; (2) continued growth based on the Company's existing product portfolio and its ability to launch new products; (3) steady improvement of the Company's operational capacities allowing efficient and competitive production; and (4) growth through the acquisition of companies and rights in products that will enable the Company access to new customers and markets. At reporting date, the Company's objective is to continue as a leading player in the crop protection products market worldwide.

During the course of 2010, the Company started applying a comprehensive strategy change plan intended to adapt the Company's business operating model to changes in the competitive environment of the industry and to substantially strengthen its areas of operation.

This plan expresses the Company's strategic emphasis in recent years, by creating a unique business model in its state-of-the-art agrochemical industry, combining licensing, R&D and marketing capacities with cutting-edge efficient operating, production and logistics systems. The objective of all this is to offer clients top quality, effective and accessible solution thereby attaining profitable growth in the Company's results. The strategic plan will enable the Company to continue establishing its competitive position by exploiting its full potential deriving from the changes in its business and competitive environment and the continuous need of the farmers to improve the productivity of their fields while coping with shortages of water and land resources. The Company estimates that as long as it can adjust the structure of the unique operating and production business model in the industry, it will be able to derive higher added value than the basic trends in the agrochemical market, especially from the acceleration in patent expiration and consistent growth in the generic market share of the global

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2

agrochemical industry. This is in addition to exploiting the growth potential in emerging markets in Asia, Latin America, Africa and Eastern Europe..

As part of applying the changes in the strategic plan, changes in the organizational structure were completed, including new positions, by redefining the various geographic regions in which the Company operates, its core organization-wide processes and supporting global functions.

Aiming to improve the costs structure of its products, the Company acts to create the right balance between outsourcing and self-production of products and the optimum global supply distribution chain..

In this regard the Company is currently carrying out optimization of its production plant, purchasing and supply chain (the "Optimization Process"). Under the optimization process, decisions were taken during the latter half of 2010 concerning the re-organization in Brazil (which has already been implemented), with respect to the closing of two production lines in Israel during the course of 2011 and signing of agreements with the employees that are bound to an agreement in principle with them. Subject to the closing of the ChemChina transaction, if it will be closed, the Company's management intends examining, during the latter half of 2011, the implications of the ChemChina transaction on continuing the foregoing optimization process (subject to commitments made to the employees under these collective agreements) concerning the existing and future production infrastructures and how the merger, if at all, will impact this optimization process. The Company's management estimates that all the foregoing processes is expected to generate an improvement in the Company's operating efficiency which will begin bearing fruit in 2011.

In addition, the Company introduced managerial changes in its marketing operating model in America, including comprehensive re-organization of its Brazil operations. With the purpose of continuing to reinforce its operations in America, the Company completed signing of a strategic collaboration agreement with Monsanto, which the Company's management believes could also support the Company's organizational growth in the coming years, especially in the United States and Brazil. In order to exploit its full competitive and growth potential in this area, the Company completed (subsequent to the balance sheet date) a strategic acquisition in Mexico, an agrochemical market with high growth potential.

The completion of the Company's headquarters and defining of a new Asia, Pacific, Africa and Middle East operating region (as part of redefining of the geographic regions in which the Company operates) is meant to enable focusing on the goal of expanding commercial operations along with streamlining the production and logistics system by improving the ability to provide solutions for customer needs in this geographic region. Further to the strategic focus in this area, during the course of the year, the Company made an acquisition in Korea.

At the same time, the Company continues reinforcing R&D and licensing of new products which supports its global organic growth for the purpose of improving its product mix and adapting it to the changing market conditions and to the key trends in agriculture.

Simultaneous to implementing the changes to the operations structure and expanding its global deployment, the Company examined its processes for finding and applying options for carrying out a significant business deal,, including through a merger or acquisition transaction with a company operating in the same industry as the Company or in related fields (for further details pertaining to the ChemChina transaction see below). Furthermore the Company examines, from time to time, opportunities for small-scale acquisitions in both cases, subject to the policies and decisions of the Company's Board of Directors and management, and the financial feasibility of such investments and operations.

The Company's management estimates that by completing all measures deriving from the foregoing strategic changes plan and by adapting its operating model, the Company will be able to realize the potential in its assets and its strengths while addressing its key issues and challenges, keeping in line with the direction of future developments in the industry. In addition, adapting the operating model will help the Company to continue to grow by improving profitability and will enable the Company to exploit the appropriate opportunities in the global plant protection market. In this regard, the Company completed a multi-annual plan that expresses its business development, based on the application of all the said decisions.

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3

For further information concerning the Company's business goals and strategy, see section 31 of Chapter A of the report.

The Company's management estimates that the outcome of the strategic changes plan constitutes forward-looking information which is based on information currently in the possession of the Company's management and on the basis of which the plan was approved by the Company's board of directors. The Company's assessments may not materialize, inter alia, due to factors out of the Company's control, including the operations of the Company's potential competitors and changes in the markets in which it operates.

For a description of the Company's businesses and material events during the reporting period see Chapter A of the report.

Brief overview of the changes in the business environment

Below is a brief review of the trends characteristic of the Company's business environment in 2010.

1. Climatic conditions in some areas in which the Company operates, including cold winter in the northern hemisphere (mainly Europe and North America) which caused a delay in the start of the agricultural season in the first quarter, floods in Northern Europe (in the second quarter), as well as arid conditions and drought in Eastern Europe (in the third quarter), harmed sales of some of the Company's products.

2. During the course of 2010 there was a decrease in inventories compared with the high level of inventories that characterized the market in 2009.

3. Increased competition in the crop protection products market are due to the development of the agrochemical industry in China and because of competition from the largest companies in the market.

4. The extent of sowing areas and rising prices for agricultural produce remained stable in 2010, particularly towards the end of the year, which bolstered demand for crop protection products and increased sales volumes in the market, as reflected in the Company's results.

Along with the increase in sales volumes, the average selling price recorded in 2010 was lower than the average price for crop protection products in 2009, mainly due to climatic implications on the agricultural season in the northern hemisphere, the level of inventories of certain products in the marketing pipelines and increased competition in the market, as aforesaid. During the fourth quarter of the year, the average sale price stabilized.

The Company's management believes that the above mentioned developments that the Company completed during the course of 2010 will bear fruit and lead to a gradual improvement in the Company's results already in 2011. At the reporting date, the Company estimates that subsequent to these moves, and given the trends in the business environment, as expressed as at the reporting date, the Company presents business results similar to those presented in the first quarter of 2010.

The foregoing with respect to the Company’s assessments for 2011 is a forward-looking statement, based on the Company's subjective estimates that are based on the experience of its managers and in light of the trends that began to take place in the market in 2010. . It is uncertain whether the Company's assessments will be realized, inter alia, due to the fact that Makhteshim Agan is unable to anticipate the scope of non-recurring, unusual or significant events.

Merger with ChemChina Group

On January 8, 2011, subsequent to receiving the approval of the Company;s audit committee and the board of directors, the Company signed a merger agreement, the parties in which are: (1) the Company; (2) China National Agrochemical Corporation ("CC"), part of the China National Chemical Corporation Group, which is the largest Chinese Group controlled by the Chinese government which operates in the chemical and agrochemical industry; (3) Cinac Merger Sub Ltd., a private company wholly owned (indirectly through a wholly owned subsidiary) of CC, which was established in Israel for the purpose of carrying out the merger agreement ("the Designated Company"); (4) Koor Industries Ltd. and M.A.G.M. Chemical Holdings Ltd., a wholly owned subsidiary of Koor (together

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with Koor, the "Koor Corporation") (the "Merger Agreement"). Under the merger agreement, subject to compliance with the contingent conditions for closing it, the Company's shares, constituting 60% of the issued and paid up share capital of the Company on the closing date of the transaction, will be acquired (including, all public holdings and Koor's shares, which will be about 7% of the issued and paid up share capital of the Company). Upon completion of the merger agreement, the Company's shares will be delisted from the TASE and the Company will become a private company, 60% of which will be held by CC and 40% by Koor Corporation, but will continue being a reporting company, as this term is defined in the Securities Law, 1968.

For further information pertaining to the merger agreement and its accompanying agreements, and concerning the contingent conditions to be fulfilled, see section 2.2 of Chapter A of the report and the business report published by the Company on January 20, 2011 (Ref. No.: 2011-01-025200), whereby the information contained therein is presented here by way of reference.

2. Results of Operations – Condensed Statement of Income

Statement of Income for 2010 (in USD millions)

% 2010 % 2009 Change

% of Change

Revenue 2,362.2 2,214.6 147.6 6.7% Gross profit 27.5% 649.2 26.3% 581.9 67.3 11.6% R&D, Sales and General and Administrative expenses 27.2% 643.0 20.9% 462.1 180.9 39.1%

Operating profit (EBIT) 0.3% 6.2 5.4% 119.7 (113.5) - Financing expenses, net 5.1% 121.5 4.2% 93.7 27.8 29.7% Share in losses of affiliate treated by the equity method - (5.9) - - (5.9) Pre-tax income (loss) (5.1%) (121.2) 1.2% 26.0 (147.2) - Net loss (5.6%) (131.9) 1.6% 34.7 (166.6) - EBITDA 6.0% 141.7 9.8% 217.7 (76.0) -

Statement of Income for Q4 2010 (in USD millions)

%

October - Decembe

r 2010 %

October - December

2010 Change % of

Change

Revenue 505.1 496.2 8.9 1.8% Gross profit 21.0% 106.1 20.3% 100.9 5.2 5.1% R&D, Sales and General and Administrative expenses 48.7% 245.8 23.8% 118.3 127.5 107.8%

Operating loss (EBIT) (27.7%) (139.7) (3.5%) (17.4) (122.3) - Financing expenses, net 5.2% 26.1 4.7% 23.1 3.0 13.1% Share in losses of affiliate treated by the equity method - (5.9) - - (5.9)

Pre-tax income (loss) (34.0%) (171.8) (8.2%( (40.5) (131.3) - Net profit (loss) after non-controlling interest (31.5%) (159.3) (6.0%) (29.9) (129.4) -

EBITDA (16.9)% (85.4) 1.8% 8.7 (94.1) -

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3. Proforma Management Accounts

Breakdown of adjustments to proforma management accounts for 2010 (in USD millions):

2010 2009

Net loss after minority share – accounting (131.9) 34.7 Voluntary early retirement provisions in the Israeli subsidiaries 58.2 Tax effect for voluntary early retirement provisions (8.6) Total 49.6 Depreciation of Israeli production facility 5.0 Brazilian subsidiary Milenia Employee provisions 5.1 Depreciation of fixed and intangible assets, and long-term investments 26.2 Depreciation of current assets 27.8 8.2 Depreciation of deferred tax assets 19.9 Expenses for negotiations to purchase Albaugh 4.9 - Depreciation of licensing assets in the USA and other provisions 14.5 - Events in Brazilian subsidiary Milenia 11.4 Dividend distribution from the Group’s companies overseas 15.0 Net loss after minority share - administrative 21.1 69.3

Proforma management accounts for 2010 (in USD millions):

% 2010 % 2009 Change

% of change

Revenues 100.0% 2,368.2 100.0% 2,214.6 153.6 6.9% Gross profit 28.4% 673.1 27.2% 602.1 71.0 11.8% R&D, sales and marketing, administrative and general, and other expenses 22.6% 525.2 20.6% 455.6 69.6 15.3%

Operating profit (loss) (EBIT) 6.2% 147.9 6.6% 146.5 1.4 1.0% Financing expenses, net 5.1% 121.5 4.2% 93.7 27.8 29.7% Profit (loss) before tax 0.9% 20.5 2.4% 52.7 (32.2) (61.2%) Profit for the year 0.9% 21.1 3.1% 69.3 (48.2) (69.6%) EBITDA 10.9% 258.1 11.0% 244.4 13.7 5.6%

* The comparative data for 2009, as they appear in the foregoing management reports were not reported in the financial statements as at December 31, 2009. Subsequent to the Company's decision to publish proforma management accounts as of the third quarter of 2010, proforma management accounts were also prepared for 2009. Nonetheless, the non-recurring events which were adapted for the 2010 management reports are different from the non-recurring events which were adapted for the 2009 management reports, as set out in the adjustments table above.

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Breakdown of adjustments to proforma management accounts for Q4 (in USD millions):

October - December

2010

October - December

2009

Net loss after minority share – accounting (159.3) (29.9) Voluntary early retirement provisions in the Israeli subsidiaries 58.2 Tax effect for voluntary early retirement provisions (8.6) Total 49.6 Depreciation of Israeli production facility 5.0 Reorganization plan in Brazilian subsidiary Milenia Employee provisions 5.1 Depreciation of fixed assets, intangible assets and long-term investments 26.2 Depreciation of current assets 18.3 Expenses for negotiations to purchase Albaugh 0.8 - Depreciation of licensing assets in the USA and other provisions 14.5 Net loss after minority share - administrative (39.8) (29.9)

Proforma management accounts for Q4 (in USD millions):

%

October - December

2010 %

October - December

2009 Change% of

change

Revenues 100.0% 511.1 100.0% 496.2 14.9 3.0% Gross profit 23.8% 121.5 20.3% 100.9 20.6 20.4% R&D, sales and marketing, administrative and general, and other expenses 26.0% 133.1 23.8% 118.3 14.8 12.5% Operating profit (loss) (EBIT) (2.3%) (11.6) (3.5%) (17.4) 5.8 (33.3%) Financing expenses, net 5.1% 26.1 4.7% 23.1 3.0 13.0% Loss before tax (8.6%) (43.7) (8.2%) (40.5) (3.2) 7.9% Loss for the period (7.8%) (39.8) (6.0%) (29.9) (9.9) 33.1% EBITDA 3.4% 17.4 1.8% 8.7 8.7 100.0%

As part of the presentation of the proforma management accounts, events which in the opinion of the Company's management are non-recurring in nature and are not expected to recur were neutralized. The Company's management believe that if these events are not neutralized their impact will make it difficult for the sensible investor to properly understand and to properly analyze the ongoing business performance of the Company ("non-recurring effects"). The Company's management will continue presenting management reports in the future if and when, in its opinion, it is required to present them in order to properly reflect the results of its operations.

The proforma management accounts presented in this section are not drafted in accordance with GAAP and they are presented in addition to the profit and loss accounting reports presented in the report.

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4. Analysis of Results of Business Operations

During the fourth quarter of 2010 the Company's sales from amounted to USD 44.3 million, compared with sales of USD 41.5 million in the corresponding period of the previous year, an increase of USD 2.8 million. The sales growth derived mainly from a quantitative increase in sales of crop protection products which was partially offset by the decline in the average sales prices for the Company's products, compared with the prices in the corresponding quarter last year.

Makhteshim Agan sales in 2010 amounted USD 2,362.2 million compared with USD 2,214.6 million in 2009, an increase of USD 147.6 million. The sales growth derived mainly from a quantitative increase in sales of crop protection products which was partially offset by the decline in the average sales prices for the Company's products, compared with the average prices in 2009.

For specific information pertaining to the trends in the key areas of operation see below.

A. Segmentation of Revenue based on Geographic Region

Breakdown of annual sales in USD millions

% 2010 % 2009 Change % of

Change

Europe 40.9% 965.6 42.4% 939.5 26.2 2.8%

Latin America 22.8% 539.6 24.4% 540.9 (1.3) (0.2%)

North America 17.1% 404.3 18.2% 402.2 2.0 0.5%

Asia, Pacific and Africa 15.4% 363.3 11.1% 245.0 118.2 48.2%

Israel 3.8% 89.4 3.9% 87.0 2.5 2.8%

Total 100.0% 2,362.2 100.0% 2,214.6 147.6 6.7%

Breakdown of quarterly sales in USD millions

% Oct - Dec

2010 % Oct - Dec

2010 Change % of

Change

Europe 27.8% 140.6 26.0% 129.0 11.5 8.9%

Latin America 33.3% 1684 39.6% 196.5 (28.1) (14.3%)

North America 16.6% 83.7 16.3% 80.9 2.8 3.5%

Asia, Pacific and Africa 17.0% 86.1 13.9% 68.8 17.3 25.1%

Israel 5.2% 26.3 4.2% 20.9 5.4 25.8%

Total 100.0% 505.1 100.0% 496.2 8.9 1.8%

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Breakdown of annual sales in %:

Below is a description of the specific trends that affect the Company's operations, in addition to the general trends described above, by areas of operation:

Europe:

The Company's turnover in Europe for the fourth quarter of 2010 amounted to USD 140.6 million, compared with USD 129.0 million in the corresponding quarter of the previous year, an increase of USD 11.5 million. The increase in turnover derives from the increase in the sales volume which was offset in part due to the decline in the Company's average sales price compared with the corresponding quarter last year and due to the strengthening of the USD against the Euro, which lowered the dollar value of the sales.

The Company's turnover in Europe in 2010 amounted USD 965.6 million compared with USD 939.5 million in 2009, an increase of USD 26.2 million. The increase in sales derives from the increase in sales volume and new operations in Eastern Europe which was partially offset by the decline in the Company's average sales price compared with 2009.

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Latin America

The Company's turnover in Latin America for the fourth quarter of 2010 amounted to USD 168.4 million, compared with USD 196.5 million in the corresponding quarter of the previous year, a decrease of USD 28.1 million. The decrease in sales derives mainly from the decrease in sales volume in Brazil compared with the corresponding quarter last year.

The Company's turnover in Latin America for 2010 amounted to USD 539.6 million, compared with USD 540.9 million in 2009. The decrease in turnover derives mainly from the decrease in the Company's average sales price compared with 2009 (mainly in Brazil), which was almost completely offset by the increase in sales volume.

North America:

The Company's turnover in the fourth quarter of 2010 in North America amounted to USD 83.7 million, compared with USD 80.9 million in the corresponding period of the previous year. The increased turnover in the quarter derives from the increase in sales volume which was offset due to the decline in the Company's average sales price.

The Company's turnover in Latin America for 2010 amounted to USD 404.3 million, compared with USD 402.2 million in 2009. The minor increase in turnover derives from the increase in sales volume which was mostly offset due to the decline in the Company's average sales price.

Asia, Pacific and Africa:

The Company's turnover in Asia, Pacific and Africa for the fourth quarter of 2010 amounted to USD 86.1 million, compared with USD 68.8 million in the corresponding quarter of the previous year, an increase of USD 17.3 million.

The Company's turnover in Asia, Pacific and Africa in 2010 amounted USD 363.3 million compared with USD 245.0 million in 2009, an increase of USD 118.2 million, constituting growth of 48%. The significant increase in turnover derives from the increase in sales volume (mainly in India and Australia), which was partially offset due to the decline in the Company's average sales price.

In Israel

The Company's turnover in Israel for the fourth quarter of 2010 amounted to USD 26.3 million, compared with USD 20.9 million in the corresponding quarter of the previous year, an increase of USD 5.4 million. The increased turnover in the quarter derives from the increase in sales volume which was offset due to the decline in the Company's average sales price.

The Company's turnover in Israel for 2010 amounted to USD 89.4 million, compared with USD 87.0 million in 2009.

B. Analysis by Areas of Operation

Breakdown of Quarterly Sales by Areas of Operation, in USD millions

% 2010 % 2009 Change % of

Change

Crop protection products 90.4% 456.6 90.6% 449.9 6.7 1.5%

Other operations 9.6% 48.5 9.4% 46.3 7.2 4.8%

Breakdown of Sales 2010 by Areas of Operation (in USD millions)

% 2010 % 2009 Change % of

Change

Crop protection products 92.3% 2,179.9 92.2% 2,042.2 137.7 6.7%

Other operations 7.7% 182.3 7.8% 172.4 9.9 5.7%

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In the fourth quarter of 2010 the Company's turnover from other operations amounted to USD 48.5 million, compared with USD 46.3 million in the corresponding period of the previous year.

The Company's turnover in 2010 from other operations amounted to USD 182.3 million, compared with USD 172.4 million in 2009.

C. Gross profit

The Company's gross profit in the fourth quarter of 2010, less the non-recurring effects in the quarter as stipulated above, amounted to USD 121.5 million (23.8% of turnover), compare with USD 100.9 million (20.3% of turnover) in the corresponding quarter of the previous year. The gross profit in the fourth quarter of 2010, including the non-recurring effects in the quarter as noted above, amounted to USD 106.1 million (21.0% of turnover), compared with USD 100.9 million (20.3% of turnover) in the corresponding quarter of the previous year. The increase in gross profit rate (excluding non-recurring effects) was due to a decline in raw material prices, compared with the corresponding quarter last year, leading to a decrease in the Company's sales costs and an increase in sales volume which was partly offset by the decline in selling prices.

The gross profit in 2011, less the foregoing non-recurring effects, amounted to USD 673.1 million (28.49% of turnover) compared with gross profit less non-recurring effect in the amount of USD 602.1 million (27.2% of turnover) in 2009. The gross profit in 2010, including the non-recurring affects in the quarter as noted above, amounted to USD 649.2 million (27.5% of turnover), compared with USD 581.9 million (26.3% of turnover) in the corresponding quarter of the previous year.

The increase in gross profit rate (excluding the non-recurring effects) in the reporting period derives mainly from:

(1) a decline in raw material prices compared with 2009, which led to lower sales costs.

(2) Increase in sales volume;

(3) new operations in Eastern Europe and in Asia.

(4) the Company's improved product mix.

(5) On the other hand, the decline in the Company's average selling price compared with the prices in 2009 offset the improved gross profit.

D. Operating profit (loss)

The Company's operating loss in the fourth quarter of 2010, excluding the non-recurring effects in the quarter as noted above, amounted to USD 11.6 million compared with operating loss in the amount of USD 17.4 million in the corresponding quarter of the previous year. The gross profit in the fourth quarter of 2010, including the non-recurring affects in the quarter as aforesaid, amounted to operating loss of USD 139.7 million compared with operating loss of USD 17.4 million in the corresponding quarter of the previous year.

The gross profit in 2010, excluding the foregoing non-recurring effects, amounted to USD 147.9 million (6.4% of turnover) compared with gross profit excluding non-recurring effects in the amount of USD 146.5 million (6.6% of turnover) in 2009. The Company's operations in 2010, including the non-recurring affects in the quarter as noted above, amounted to operating profit of USD 6.2 million (0.3% of turnover), compared with USD 119.7 million (5.4% of turnover) in the corresponding quarter of the previous year.

The increase in operating loss in the quarter and the sharp decline in operating profit in 2010 derives mainly from the non-recurring effects as aforesaid.

Operating expenses

In the fourth quarter of 2010, the operating expenses amounted to USD 245.8 million (48.7% of turnover) compared with USD 118.3 million (23.8% of turnover) last year.

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The operating expenses in 2010 amounted to USD 643.0 million (27.2% of turnover) compared with USD 462.1 million (20.9% of turnover) last year.

The increase in operating expenses in the quarter and in the reporting period derives primarily from the foregoing non-recurring effects and from an increase in the selling costs and administrative and general expenses, as specified below.

R&D expenses:

The financing expenses in the third quarter of 2010 amounted to USD 1.4 million, compared with USD 5.2 million in the corresponding period of the previous year.

In 2010 the R&D expenses amounted to USD 23.2 million compared with USD 21.8 million in 2009.

Selling Expenses

The selling expenses in the fourth quarter of 2010 amounted to USD 105.9 million (21.0%) , compared with USD 92.8 million (18.7%) in the corresponding period of the previous year. The increase in selling expenses are mainly the increase in the variable expenses for the increased sales volume.

The selling expenses for 2010 amounted to USD 410.4 million, (17.4% of turnover) compared with USD 358.4 million (16.2% of turnover) in 2009.

The increase in selling expenses in the reporting period is mainly the increase in variable expenses due to the increase in sales volume and due to the increase in salaries and registration costs.

Administrative and general expenses

The administrative and general expenses, excluding non-recurring effects in the fourth quarter of 2010 amounted to USD 24.4 million (4.8% of turnover) compared with administrative and general expenses, excluding non-recurring effects, of USD 19.2 million (3.9% of turnover) in the corresponding quarter last year. The administrative and general expenses in the fourth quarter of 2010, including non-recurring effects, amounted to USD 34.6 million (6.8% of the turnover).

The administrative and general expenses, excluding non-recurring effects, in 2010 amounted to USD 91.2 million (3.9% of turnover), compared with USD 74.4 million (3.4% of turnover) in 2009. The administrative and general expenses including non-recurring effects in 2010 amounted to USD 106.5 million (4.5% of turnover), compared with USD 79.4 million (3.6% of turnover) in 2009, an increase of USD 27.1 million. The increase in expenses derive from the increase in provisions set aside for doubtful debts and an increase in expenses for professional services.

Other expenses, net

The net other expenses in the fourth quarter of 2010 amounted to USD 103.9 million, compared with USD 1.1 million in the corresponding period of the previous year.

The net other expenses for 2010 amounted to USD 102.9 million, compared with USD 2.5 million in 2009.

Net other expenses in the fourth quarter of 2010 originated in non-recurring events as stipulated above.

E. Financing expenses

The net financing expenses in the fourth quarter of 2010 amounted to USD 26.1 million, compared with USD 23.1 million in the corresponding period of the previous year. The increase in financing expenses in the quarter derives mainly from non-cash financing costs incurred due to revaluation of employee funds following the strengthening of the NIS against the USD.

The net financing expenses for 2010 amounted to USD 121.5 million, compared with USD 93.7 million in 2009. The increase in financing expenses derives mainly from non-cash financing costs incurred due to revaluation of employee funds following the strengthening of the NIS against the USD and due to the expansion of series of debentures in March 2009.

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12

F. Taxes on Income

The increase in revenues in the fourth quarter of 2010, including the non-recurring affects in the quarter as aforesaid, income tax of USD 3.9 million was recorded compared with income tax of USD 10.7 million in the corresponding quarter of the previous year. The income tax in the fourth quarter of 2010, including the foregoing non-recurring effects in the quarter, amounted to USD 12.5 million.

In 2010, tax income, excluding non-recurring effects as aforesaid, amounted to USD 0.6 million compared with tax costs, excluding non-recurring effects, in the amount of USD 16.6 million for the corresponding period last year. The tax costs in 2010, including the non-recurring affects in the quarter as noted above, amounted to USD 10.7 million, compared with USD 8.7 million in 2009.

The increase in tax costs for 2010 compared with 2009 derives mainly from amortization of tax assets at the subsidiary in Brazil.

For additional information, see Note 18 to the financial statements.

G. Net Profit (Loss):

The results of the Company's operations in the fourth quarter of 2010, , excluding the non-recurring effects in the quarter as noted above, amounted to a loss of USD 39.7 million compared with a loss in the amount of USD 29.7 million in the corresponding quarter of the previous year. The Company's operation, including the non-recurring affects in the quarter as aforesaid, in the fourth quarter of 2010, amounted to operating loss of USD 159.2 million compared with operating loss of USD 29.7 million in the corresponding quarter of the previous year.

The net profit in 2010, excluding the non-recurring effects in the quarter as noted above, amounted to USD 20.8 million (0.9% of turnover), compared with net profit, excluding non-recurring effects, of USD 67.3 million (3.0% of turnover) in 2009. The Company's operations in 2010, including the non-recurring affects, amounted to USD 132.2 million, compared with USD 32.7 million in 2009.

H. EBITDA

The EBITDA in the fourth quarter of 2010, excluding the non-recurring effects in the quarter as noted above, amounted to USD 17.4 million (3.4% of turnover), compared with USD 8.7 million (1.8% of turnover) in the corresponding quarter of the previous year. The Company's operations in the fourth quarter of 2010, including the foregoing non-recurring effects in the quarter, amounted to negative EBITDA of USD 85.4 million.

Excluding the non-recurring effects in 2010 as noted above, the EBITDA amounted to USD 258.1 million (10.9% of turnover), compared with EBITDA, excluding non-recurring effects, of USD 244.4 million (11.0% of turnover) in 2009. The EBITDA in 2010, including the non-recurring effects, as aforesaid, amounted to USD 141.7 million (6.0% of turnover) compared with EBITDA including non-recurring effects in the amount of USD 217.7 million (9.8% of turnover) in 2009.

5. Financial status and liquidity

A. Cash flows from ongoing operations

The cash flows from ongoing operations in 2010 amounted to positive cash flow of USD 162.4 million compared with positive cash flow of USD 209.6 million in 2009.

The current cash flows in the fourth quarter of 2010 amounted to negative cash flow of USD 5.8 million compared with negative cash flow of USD 10.0 million in 2009.

B. Cash flows from investment operations

In 2010 the Company's investments (excluding short-term and other investments) amounted to USD 196.8 million compared with USD 153.8 million in 2009. The investment operations

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13

included investments in product licensing, investment in intangible assets and in fixed assets. The investment in fixed assets, which including the investment in equipment and facilities, including facilities for the maintenance and protection of environmental facilities, amounted to USD 98.9 million, excluding investment grants, compared with USD 69.4 million last year.

The Company's investments in the fourth quarter of 2010 (excluding short-term and other investments) amounted to USD 64.5 million, compared with USD 46.2 million in the corresponding quarter of the previous year. The main investments included investment in product licensing, investment in intangible assets and in fixed assets. The investment in fixed assets, which included investment in equipment and facilities, including facilities for the maintenance and protection of environmental facilities, amounted to USD 31.8 million, excluding investment grants, compared with USD 24.3 million last year.

C. Free cash flows

The free cash flows in 2010 (excluding short-term investments) amounted to negative cash flow of USD 34.3 million compared with positive cash flow of USD 55.8 million in 2009.

The free cash flows (excluding short-term investments) in the fourth quarter of 2010 amounted to negative cash flow of USD 71.0 million compared with negative cash flows of USD 56.2 million in the corresponding quarter last year.

D. Current assets

The Company's current assets as at December 31, 2010 amounted to USD 2,201.6 million, compared with USD 2,305 million as at December 31, 2009.

E. Investments in property, plant and equipment

see the section on cash flows above.

F. Cash flows, current liabilities and long-term loans

The scope of the Company's credit (bank credit line and debentures) as at December 31, 2010 amounted to USD 1,488.8 million (of which 38.9% is short term), compared with USD 1,520.2 million (of which 21.1% was short term) as at December 31, 2009.

The Company's cash balances and short term investments as at December 31, 2010 amounted to USD 423.1 million, compared with USD 562.9 million as at December 31, 2009.

The Company's net debt (bank loans and debentures, less cash balances and short term investments) as at December 31, 2010 amounted to USD 1,065.6 million compared with USD 957.2 as at December 31, 2009.

The Company's net debt (less hedging transactions attributed to debt) as at December 31, 2010 amounted to USD 979.1 million compared with USD 858.5 as at December 31, 2009.

The increase in the Company's net debt derives from the decline in cash flows.

The Company is restricted in obtaining credit due to long term bank credit documents and trade receivables securitization agreement of the Company and the Company's subsidiaries (including amendments). During the reporting period, the Company received letters of agreement from its financing banks and the securitization agreement was amended. As at the reporting date and shortly prior to publication of the report, to the best of the Company's knowledge, the Company complies with all applicable restrictions based on aforesaid letters of agreement. For further information see section 23.5 of Chapter A of the report.

G. Equity

The Company's equity (including non-controlling interests) as at December 31, 2010 amounted to USD 1,147.7 million, compared with USD 1,276.8 million as at December 31, 2009. The equity to balance sheet ratio at December 31, 2010 was 31.0%, compared with 30.9% at December 31, 2009.

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14

The Company's issued and paid-up equity as at December 31, 2010 was 474,769,685 ordinary shares of NIS 1 par value each, and fully diluted, 474,849,027 ordinary shares of NIS 1 par value each.

H. Financial ratios

at December 31, 2010 2009

The current assets to current liabilities ratio (the current ratio) 1.46 1.97

The ratio of current assets, excluding inventory, to current liabilities (the quick ratio) 0.82 1.15

The financial liabilities to total gross balance sheet ratio 40.0% 40.4%

The financial liabilities to total gross equity ratio 129.7% 119.1%

I. Financing sources

The Company finances its business operations from equity and by external financing as specified below. The Company's main external source of finance is the medium and long term debentures raised by the Company. The balance of these debentures at the reporting date is USD 971.5 million. The Company did not undertake, under the debentures, to comply with financial covenants.

The source of a minor part of the Company's external financing is: (a) long term bank credit, the balance of which (including current maturities) at reporting date is USD 254.2 million and under which the Company undertook to comply with financial criteria as set forth in Chapter A of the periodic report; (b) short term bank credit, the balance of which (excluding current maturities) at reporting date is USD 262.0 million; (c) securitization of trade receivables of USD 250 million, the balance of which as at December 31, 2010 is USD 166.3 million, according to which the Company undertook to comply with financial covenants as set out in Chapter A of this report; and (d) supplier credit. On the other hand, at December 31, 2010 the Company has liquid cash and cash equivalents balances of USD 423 million.

The suppliers credit at December 31, 2010 amounts to USD 503.4 million.

The customers credit at December 31, 2010 amounts to USD 650.4 million.

During the course of 2010 the Company allotted 56,675 ordinary NIS 1 par value shares as a result of exercising of options (non-tradable) under the Company's existing employees options plan.

6. Sensitivity tests

The tables below summarize the sensitivity tests as shown in the appendix to this report (in thousands of dollars):

Sensitivity to USD/NIS exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 0.256 0.268 0.282 0.297 0.313 Total 25,545 10,919 (168,427) (6,860) (10,355)

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15

Sensitivity to USD/Euro exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 1.201 1.268 1.335 1.402 1.468 Total (6,208) (3,104) 62,299 3,104 6,208

Sensitivity to USD/BRL exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 0.660 0.630 0.600 0.632 0.667 Total (5,135) (2,491) 37,972 1,011 2,074

Sensitivity to USD/GBP exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 1.393 1.470 1.548 1.625 1.702 Total (591) (296) 5,768 296 591

Sensitivity to USD/AUD exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 0.810 0.855 0.900 0.945 0.990 Total (1,084) (542) 11,285 542 1,084

Sensitivity to USD/PLN exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 3.261 3.112 2.964 2.816 2.668 Total (3,351) (1,767) 31,460 1,931 3,933

Sensitivity to USD/ZAR exchange rate changes

Profit(loss) from change Asset base Profit (loss) from change +10% +5% -5% -10% Exchange rate 7.305 6.973 6.641 6.309 5.977 Total (678) (355) 7,520 392 828

Sensitivity of financial instruments to interest rate changes

Changes to NIS linked interest rates

Profit(loss) from change Fair value Profit (loss) from change +10% +5% -5% -10% Total 28,118 14,381 (722,195) (15,062) (30,845)

Changes to NIS unlinked interest rates

Profit(loss) from change Fair value Profit (loss) from change +10% +5% -5% -10% Total 3,497 1,761 (209,052) (1,787) (3,599)

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Changes to USD interest rates

Profit(loss) from change Fair value Profit (loss) from change +10% +5% -5% -10% Total 973 487 29,564 (489) (980)

Changes to BRL interest rates

Profit(loss) from change Fair value Profit (loss) from change +10% +5% -5% -10% Total (3,904) (1,989) 79,364 2,068 4,219

7. Remuneration of executive officers

The remuneration given to the executive offers as set forth in Standard 21 in Chapter D of the report, is composed of salary (including provisions for social benefits) and reimbursement of expenses and long term compensation by way of share-based payments. In addition, the Company has a policy of granting bonuses to its senior officers, at the discretion of the CEO and the approval of the relevant organs, based, inter alia, on the Company's results and the quantitative targets, including sales, profits and special goals of business development. The Company has no prior liabilities for granting these bonuses

As part of the 2010 financial statement approval process the Company's Board of Directors discussed the employment and compensation terms of each of the Company's officers in depth, as set out under Regulation 21 in the Securities Regulations (Periodic and Immediate Reports), 1970. Prior to the foregoing discussion, the board of directors remuneration committee met on March 9, 2011. During this meeting the remunerations committee decided the criteria according to which the Company's Board of Directors would examine whether the benefits granted to each of the officers specified in the forgoing Regulation 21, for 2010 is fair and reasonable. The remunerations committee set the following criteria:

With regard to assessment of the salary terms (excluding discretionary bonuses) of the officers, including the CE):

1. the officer's contribution to the Company's businesses, achievement of the strategic goals and execution of the Company's work plans, its profits, robustness and stability, and the contribution as aforesaid in the relevant year. In this matter, the Board of Directors will receive a review from the manager in charge of each officers, as aforesaid, concerning his or her contribution and actions over the past year and in general, and the satisfaction level of fulfilling his or her position.

2. The Company's need to retain skilled, specialist and expert officers.

3. The level of responsibility placed on the officer.

4. The existence or absence of substantial changes in the functioning and position of the officer or in the Company's expectations from him or her during the relevant year.

Furthermore, the remunerations committee decided that the officer's salary terms will be assessed also based on the market conditions in the relevant year and in general, so that the Company's directors may be assessed: (a) the officer's salary terms compared with the salary terms of officers in similar positions (or in similar ranking positions) in comparative companies: (b) the salary terms of the officer considering the changes in the market in which the Company operates, the scope of the Company's operations and its balance sheet, and multi-annual changes in the results of the Company's regular operations; and (c) the salary terms of the officer considering the macro-economic changes and the economic and other trends in the markets in general.

The remunerations committee also set criteria regarding the decision concerning bonuses for officers which are not based on a preset formula, but are discretionary:

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17

a) the bonus will be fixed as a multiple of the monthly salary.

b) the maximum bonus (in the absence of a special consideration as noted below) will not exceed 15 monthly salary payments. In cases where the officer's unique business contribution is of real importance to the Company's business, or in cases of special challenges of great importance to the Company that the officer dealt with during the year, the Board of Directors will award the officer a bonus equivalent to more than 15 gross monthly salary payments.

c) The scope of the bonus will be determined while considering the following parameters:

1. The Company's business performance during the year.

2. The officer's contribution to the Company's business, its profits, robustness and stability.

3. The Company's need to retain skilled, specialist and expert officers.

4. The level of responsibility placed on the officer.

5. The changes that occurred in the officer's responsibilities over the year.

6. The level of satisfaction with the officer's performance (including the willingness , level of involvement and dedication shown by the officers in carrying out his or her job).

7. An assessment of the officer's ability to work in cooperation and collaboration with a team.

8. The officer's contribution to corporate governance and appropriate control and ethical environment.

9. The officer's contribution to the promotion and development of managers, scientists and engineers, in so far as this is relevant to his or her position.

d) With regard to the CEO, the bonus will not be determined as a multiple of his monthly salary and will not be limited in this regard, as aforesaid.

For the purpose of the discussion concerning fair and reasonable fringe benefits awarded to each such senior officer, the following material, concerning each officer separately, was brought, inter alia, before the Board of Directors: (a) particulars of the terms of the officer's salary and fringe benefits, excluding bonuses for 2010; (b) the officer's relevant job description and his or her contribution to the Company during the reporting period; and (c) financial analysis concerning whether the total benefits for the officer are reasonable with respect to market conditions during the reporting period.

In determining whether the benefits awarded to the officers are reasonable, the Board of Directors consider the foregoing criteria.

After examining the bonus awarded to the senior officers as set forth in Standard 21 in Chapter D of this report, and the contribution of each officer during the reporting period and the information concerning the market conditions has been presented to the Board of Directors, and the Board of Directors has come to the conclusion that such bonuses are appropriate, fair and reasonable considering the size of the Company, the scope and complexity of its business activities, the tasks and scope of responsibilities of each of the senior officers who have devoted much effort in promoting the Company's businesses and their contribution to the development of the Company's businesses.

B. Exposure to Market Risks and Means for their Management

1. General

The Company conducts its business in a number of business environments operating in various currencies. Due to its activities, the Company is exposed to market risks, which mainly involve exchange rate fluctuations, partial adjustment of the prices of products to reflect changes in the cost of raw materials, changes in the rates of increase of the Consumer Price Index (CPI) and changes in the LIBOR interest rate. The Company's board of directors approved a policy to use accepted financial instruments (such as options, forward contracts and swap contract) for the purpose of hedging against exposure to exchange rate fluctuations and increases in the CPI arising from the Company's

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operations.. The Company only effects such transactions via banking corporations and stock exchanges, which are obligated to meet capital adequacy requirements or to maintain a scenario-based level of collateral.

For information pertaining to credit risk and solvency risk see Note 32 to the financial statements of the Company.

2. Risk Management Officer

The Company’s CFO, Mr. Aviram Lahav, is responsible for the Company's market risk management. For further information pertaining to his education, qualifications and business experience, see Chapter D of this report - Additional information about the Company.

The following are exchange rate data for the principal currencies used by the Company in relation to the Dollar, as well as LIBOR interest data:

December 31, 2010 Q4 average Annual average

2010 2009 Change 2010 2009 Change 2010 2009 Change

EUR/USD 1.335 1.442 7.4% 1.359 1.476 7.9% 1.325 1.390 4.7% USD/BRL 1.666 1.741 4.3% 1.697 1.738 2.4% 1.760 1.997 11.9% USD/PLN 2.964 2.850 -4.0% 2.923 2.833 -3.2% 3.022 3.127 3.4% USD/ZAR 6.64 7.398 10.2% 6.933 7.522 7.8% 7.347 8.453 13.1% AUD/USD 1.018 0.900 13.0% 0.987 0.908 8.7% 0.917 0.780 17.6% GBP/USD 1.548 1.619 -4.4% 1.581 1.632 -3.1% 1.544 1.559 -0.9% USD/NIS 3.549 3.775 -6.0% 3.625 3.769 -3.8% 3.738 3.933 -5.0% USD L 3M 0.30% 0.25% 20.0% 0.30% 0.27% 12.6% 0.34% 0.69% -50.7%

The exchange rate fluctuations of these currencies during the quarter and the reporting period are attributed to the various items in the Company's financial statements. The net impact of the changes in currency exchange rates during the period following the balance sheet date on the balance sheet exposure is immaterial due to the high rate of balance sheet hedging carried out by the Company, as aforesaid.

3. Description of Market Risks

The Company’s market risk management policies

The Company's policy is to maintain as high as possible correlation between the currency in which it sells its products and the currency with which it purchases its raw materials. The Company continually examines its balance sheet and economic exposures 12 months in advance, based on forecasts of its income and expenses. As at the date of approval of the financial statements, the Company hedges most of its balance sheet exposure and part of its financial exposure with respect to the principal currencies in which the Company operates.

Below are details of the policies with regard to each of the risks. It is noted that as at the date of the approval of the financial statements, no material changes have occurred in the Company's risk management policies.

Currency Risks

The Company drafts its consolidated financial statements in USD (the Company's functional currency), while its operations, sales and purchases of raw materials are carried out in various currencies. Therefore, fluctuations in the exchange rate of the purchasing currency against the sales currency, either positive or negative, as the case may be, will impact the Company’s results. In the Company's assessment, the Group's substantial exposure is to the Euro, NIS and Brazilian Real. Furthermore, the Company has lesser exposures to other currencies such as the GBP, PLN, AUD, ZAR and INR. The strengthening of the USD against the other currencies in which the Company operates reduces the scope of the Company's dollar sales and visa versa.

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From an annual perspective, 40% of the Company's sales are to the European bloc and therefore the impact of long-term trends on the Euro may affect the Company's results and profitability.

Currency exposure from foreign currency exchange rate fluctuations is constantly monitored against assets (including inventory of finished products in countries of sale), liabilities and cash flows denominated in foreign currencies. High volatility of the exchange rates of these currencies could increase the costs of transactions to hedge against currency exposure, thereby increasing the Company's financing costs. The Company uses accepted financial instruments (such as options, forward contracts and swap contracts) to hedge most of its substantial net balance sheet exposure to any particular currency. Nonetheless, since the Company hedges against most of its balance sheet exposure as part of these operations, and only against part of its financial exposure, extreme volatility of the currency exchange rate might impact the Company's results and profitability, positively or negatively as the case may be. As at the date of approval of the financial statements, the Company hedged most of its balance sheet exposure to the Euro, Real and NIS.

In addition, crop protection product sales depend directly on agricultural seasons and the cyclical nature of agriculture, therefore the Company’s income and its exposure to the various currencies is not evenly distributed over the year. Countries in the northern hemisphere have similar agricultural seasons and therefore, in these countries, the highest sales are usually during the first half of the calendar year. During this period the Company is substantially exposed to the Euro, PLN and GBP. In the southern hemisphere, the seasons are opposite and most of the local sales (with the exception of Australia) are carried out during the second half of the year. During these months, most of the exposure generated pertains to the Real. The Company has more sales in markets in the northern hemisphere and therefore, the Company's sales volume during the first half of the year is higher than the sales volume during the second half of the year.

During the course of November 2006 the Company completed a private placement of Debentures (Series B, C and D) in the scope of NIS 2,350,000,000 par value, which were listed for trading on the TASE in May 2007. On March 25, 3009, the Company completed an issue of debentures by way of the expansion of Series C and D in the amount of NIS 1,133,000,000 par value (together: "the Debentures"). On November 30, 2010, the Company redeemd NIS 281,500,000 par value, the first principal payment of Debentures (Series C). The main portion of the debentures is linked to the CPI and therefore, an increase in the CPI as well as fluctuation in the NIS exchange rates may cause significant exposure to the currency in which the Company operates, which is the USD. As at the date of approval of the financial statements, the Company hedged most of its exposure from the issues of debentures, as aforesaid, in swap transactions and forward contracts.

For further information, see Note 32 to the Company's financial statements as at December 31, 2010.

Exposure to CPI Linkage

The main portion of the above debentures is linked to the CPI and therefore an increase in the CPI is liable to lead to a significant increase in the Company's financing expenses. As at the date of approval of the financial statements, the Company hedged most of its exposure to this risk on an ongoing basis, in CPI hedging transactions.

Risk in Raw Material Prices (in Source Currency)

Approximately 75% of the cost of the Company's sales derive from raw material costs. Most of the Company's raw materials are distant derivatives of oil prices. Therefore, any increase or decrease in oil prices affects raw material prices.

To reduce exposure to fluctuations in the prices of raw materials, the Company customarily engages in long-term purchase contracts for key raw materials, wherever possible. Similarly, the Company acts to adjust its sales prices, if possible, to reflect the changes in the prices of raw materials.

As at the date of approval of the financial statements, the Company has not engaged in any hedging transactions against oil and against raw material prices.

Interest risks

The Company is exposed to changes in the LIBOR interest rate on the USD as the Company has liabilities denominated in USD, which bear variable LIBOR interest. The Company drafts a quarterly

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summary of its exposure to changes in the LIBOR rate. As at the date of the approval of the financial statements, the Company has not hedged against this exposure.

4. Means of Supervision of Risk Management Policy and Method of Implementation

The Company maintains internal documentation regarding the designation of financial instruments for exposures, reflecting the link between the instruments and the exposure. Once every quarter, the Company's board of directors and its finance committee discuss the Company's exposure to market risks and the actions taken by the management in this regard. The Company's management examines the control procedures on an ongoing basis and updates them according to the scope of operations and the risk arising from these operations.

5. Sensitivity tests

Sensitivity tests of changes in risk factors

Below is a description of the models used for testing the sensitivity of the fair value of the various financial instruments:

1. For options based on a B&S formula - the known standard deviation curve and the relevant underlying asset prices.

2. For forward transactions - the relevant underlying asset price and the interest points deriving from the interest rates.

3. Debentures and bank loans - the known interest curve and the life expectancy of the debentures.

4. The various interest rates:

Currency Representative exchange rate as

at December 31, 2010 EUR. USD 1.335 GBP. USD 1.548 JPY. USD 81.395 BRL. USD 1.666 AUD. USD 1.018 ZAR. USD 6.641 NIS. USD 3.549 USD. PLN 2.964 USD. CHF 0.937 USD. CZK 18.778 USD. RON 3.205 USD. RUB 30.477 USD. CAD 0.998 USD.HUF 208.888 USD.SEK 6.711

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Interest for up to one year

Interest Exchange rate – Bid Interest Exchange rate - Ask

Currency 1M 2M 3M 6M 9M 1Y 1M 2M 3M 6M 9M 1Y

USD 0.55 0.58 0.60 0.64 0.86 1.08 0.30 0.33 0.35 0.44 0.64 0.83 JPY 0.30 0.35 0.38 0.55 0.64 0.72 0.10 0.15 0.13 0.30 0.39 0.47 GBP 0.70 0.67 0.80 1.36 1.52 1.68 0.40 0.47 0.60 1.10 1.24 1.37 CHF 0.27 0.32 0.38 0.48 0.63 0.77 0.02 0.07 0.13 0.23 0.38 0.52 SEK 1.56 1.81 1.95 2.05 2.23 2.40 1.44 1.69 1.83 1.80 1.98 2.15 EUR 0.87 0.97 1.04 1.33 1.48 1.63 0.75 0.85 0.82 1.11 1.26 1.41 NIS 2.08 2.24 2.26 2.36 2.53 2.69 1.92 2.07 2.10 2.20 2.37 2.53 AUD 5.00 5.10 5.20 5.40 5.65 5.90 4.60 4.70 4.80 5.00 5.25 5.50 ZAR 5.87 6.56 5.90 6.30 6.35 6.40 5.61 5.06 5.66 5.80 5.85 5.90 CZK 0.90 1.00 1.10 1.45 1.60 1.75 0.67 0.75 0.84 1.15 1.26 1.36 RON 4.26 4.05 6.26 7.01 7.01 7.01 3.76 3.54 5.76 6.26 6.26 6.26 RUB 3.75 3.80 3.90 4.25 5.00 5.75 3.25 3.30 3.40 3.75 4.38 5.00 CAD 1.25 1.36 1.45 1.55 1.80 2.05 1.00 1.11 1.20 1.35 1.58 1.80 HUF 4.49 5.86 5.91 4.88 5.18 5.48 4.43 4.49 4.68 4.53 4.51 4.48 PLN 3.62 3.80 3.96 4.13 4.24 4.35 3.42 3.60 3.76 3.93 4.04 4.15 BRL 11.71 12.23 10.69 10.21 10.31 10.40 9.67 10.67 9.33 9.33 9.50 9.67

Interest for more than one year

2 Y 5 Y 10 Y

NIS 3.06 3.93 4.95 NIS CIP 0.08 0.99 2.07 USD 0.81 2.25 3.56 EURO 1.56 2.52 3.39 BRL 12.27 11.94

Volatility – Bid Volatility - Ask

1W 1M 2M 3M 6M 9M 1Y 1W 1M 2M 3M 6M 9M 1Y

EUR.USD 12.45 13.15 13.78 14.05 14.35 14.40 14.45 13.30 13.55 14.23 14.40 14.65 14.70 14.75GBP.USD 8.38 9.20 9.90 10.53 11.53 12.15 12.45 10.12 9.50 10.40 11.03 12.03 12.45 12.75CHF.USD 12.60 11.75 12.15 12.35 12.55 12.55 12.55 13.35 12.05 12.45 12.65 12.85 12.85 12.85JPY.USD 9.12 10.28 10.98 11.40 12.35 13.05 13.40 9.87 10.53 11.23 11.65 12.65 13.35 13.70USD.SEK 12.94 14.29 15.02 15.45 15.77 15.49 15.65 15.66 15.31 15.98 16.35 16.63 16.49 16.65BRL.USD 8.00 9.60 11.25 12.00 13.25 14.25 15.15 10.50 10.30 11.75 12.50 13.65 14.65 15.55AUD.USD 10.90 12.45 13.05 13.55 14.50 15.00 15.20 11.65 12.75 13.35 13.85 14.80 15.30 15.50ZAR.USD 10.25 11.90 13.15 13.40 14.10 14.40 14.60 12.25 13.90 14.15 14.40 15.10 15.40 15.60CZK.USD 4.50 7.10 7.25 7.20 7.30 7.25 7.15 6.50 8.60 8.45 8.40 8.30 8.25 8.15RON.USD 14.00 15.25 15.55 16.75 17.60 18.50 19.00 16.50 17.25 17.55 18.25 19.10 20.00 20.50NIS.USD 5.25 6.60 6.70 6.90 7.00 7.10 7.15 7.25 7.20 7.30 7.50 7.60 7.70 7.75USD.PLN 15.55 17.40 18.50 18.90 19.50 19.85 20.22 17.55 17.90 19.00 19.40 20.00 20.35 21.23USD.HUF 14.00 15.25 15.55 16.75 17.60 18.50 19.00 16.50 17.25 17.55 18.25 19.10 20.00 20.05USD.RUB 7.00 8.25 9.00 9.50 10.25 10.75 11.00 7.00 8.25 9.00 9.50 10.25 10.75 11.00USD.CAD 7.75 9.25 9.80 10.30 10.95 11.35 11.55 8.75 9.55 10.10 10.60 11.25 11.65 11.85

Max. 1 day Min. Max. 1 week Min.

USD 0.32125 0.252 0.17 0.3313 0.2544 0.2063 EUR 0.77 0.606 0.27 0.7588 0.5363 0.3056 PLN 3.8729 3.458 2.12 3.3 3.28 2.87 BRL 10.65 10.64 8.55 13.217 5.933 -5.911 NIS 1.88 1.85 0.25 2 2 1.28

For information about the affect on the fair value of hedging transactions, exchange rates, interests and financial instruments, see the appendix to this report.

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C. Corporate Governance

1. Directors with accounting and financial expertise

Based on the decision of the Company's Board of Directors on March 8, 2004, the minimum number of directors with accounting and financial expertise in the Company is two.

As at the date of the publication of this report, the Company has seven directors who have declared that they have accounting and financial expertise and that they comply with the duly required conditions: Messrs. Nochi Dankner, Raanan Cohen, Yitzhak Manor, Oren Lieder, Dov Pekelman and Oded Koritshoner. Furthermore, the member of the Board of Directors, Mr. Gideon Chitayat serves as an external director with accounting and financial expertise. For information pertaining to the education, qualifications and business experience of these directors see Chapter D of this report - Other information about the Company.

2. Independent directors

The Company's articles of association doe not contain provisions concerning the number of independent directors.

As at the date of the approval of the financial statements, Mr. Oded Koritshoner serves as an independent director, as the term is defined in the Companies Law, 1999.

3. The Internal Auditor

A. Particulars of the Internal Auditor

Mr. Joshua Hazenfrantz, CPA, was appointed to the position of internal auditor of the Company and commenced his position in the Company on November 6, 2007.

B. The internal auditor's compliance with regulatory requirements.

To the best of the Company's knowledge, based on the declaration of the internal auditor, the internal auditor complies with the provisions of section 146(B) of the Companies Law and the provisions of section 8 of the Internal Audit Law.

C. Holdings of securities of the Company or of entities related to it

As at the reporting date, as the internal auditor informed the Company, the internal auditor does not hold any securities of the Company or of any entity related to it.

D. The internal auditor's relationships with the Company and with entities related to it

To the best of the Company's management's knowledge, as the Company was informed by the internal auditor, the internal auditor serves and internal auditor of Clal Biotechnology Industries Ltd. and of Nesher Israel Cement Enterprises Ltd. Other than the foregoing, the internal auditor does not have any material business connections or other material connections with the Company or with an entity related to it and the internal auditor's other business connections do not generate conflict of interest with his position as internal auditor of the Company.

E. Additional functions of the internal auditor in the Company

The internal auditor is an external service provider of the Company on behalf of the accounting firm, Shiff Hazenfrantz & Co., Certified Public Accountants. Other than his position as the internal auditor of the Company, the internal auditor is not employed by the Company or provide it with other external services.

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F. Additional functions of the internal auditor outside of the Company

Mr. Joshua Hazenfrantz is a partner in the accounting firm, Shiff, Hazenfrantz & Co. Certified Public Accountants.

G. Appointment of the internal auditor:

Mr. Joshua Hazenfrantz was appointed to serve as the Company's internal auditor at the recommendation of the Company's audit committee on November 1, 2007 and the Company's Board of Directors resolution of November 6, 2007. In the Company's audit committee and board of directors meetings Mr. Joshua Hazenfrantz was appointed as the internal auditor of the Company after his qualifications and years of experience were examined in depth. Mr. Hazenfrantz was found suitable to serve as the Company's internal auditor, inter alia, considering the scope and complexity of the Company's operations.

H. The identity of the internal auditor’s superior

The internal auditor answers directly to the Chairman of the Company's Board of Directors.

I. Audit plan

The internal auditor's audit plan is an annual plan that is derived from a multi-annual work plan.

The internal auditor's annual work plan is prepared by the internal auditor of the Company, based on and with the approval of the Board of Directors and with the supervision of the CEO and is approved by the Company's audit committee. The considerations guiding the preparation of the plan are based on the issues considered to be appropriate for in-depth examination of their risk level, for the purpose of locating problems, streamlining systems, guaranteeing protection of the Company's assets, and ensuring compliance with the Company's procedures and the laws of the countries in which the Company operates.

The internal audit annual work plan also includes auditing the follow-up of implementation of the recommendations of the internal auditor and the audit committee by the Company's management. The audit is carried out according to the plan, under the supervision of the internal auditor and is adjusted according to the developments and findings disclosed during the course of the audit.

J. Material transactions

The internal auditor receives an invitation, together with background material, to the Company's audit committee meetings and is present at the committee meetings at which transactions are examined and approved, as set forth in section 270 of the Companies Law, 1999. In addition, the internal auditor receives, upon request, minutes of the meetings of the Company's Board of Directors at which such transactions are approved.

K. Auditing abroad and auditing of investees

The internal auditor also serves as the internal auditor of the subsidiaries, Makhteshim and Agan. The auditing of subsidiaries abroad is carried out mainly by the accounting firm, Deloitte & Touche.

In the matter of the auditing of material investees, the Company's multi-annual audit plan is designed to include a range of auditing topics, once every few years, for each subsidiary.

L. Scope of the internal auditor's service

The scope of the internal auditor's service is fixed by the audit committee based on the audit plan that is approved by it. In 2010 the number of internal audit work hours at the Company and at its investees totaled 4,713 hours, according to the distribution presented in the following table: The scope of the work is set according to the needs of the audit plan and is not limited by the auditing body.

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Work hours

Internal audit in the Company and in subsidiaries 4,713

Internal audit in the Company's investees 3,196

Internal audit of operations in Israel 2,975

Internal audit of operations outside of Israel 1,738

Of the total internal audit working hours as aforesaid, approximately 2,975 auditing hours were spent by the internal auditor on audits in Israel and 1,738 auditing hours were spent by the internal auditor on audits abroad.

The scope of the auditing work hours in the Company and its subsidiaries is set based on the audit plan proposed by the internal auditor in conjunction with the management and approved by the audit committees of the various boards of directors.

M. Professional standards guiding the audit

The internal auditor and the team of employees under him carry out the audit while strictly complying with the criteria prescribed for conducting a professional, reliable, independent audit that is not dependent on the auditing body. Based on the information provided to the Company's management by the internal auditor, the audit reports are based on the findings of the audit and the figures documented in the audit are presented in accordance with generally accepted professional standards pursuant to section 4(b) of the Internal Auditing Law, the IIA (1000 and 2000 series) accounting standards and the guidelines of the Institute of Internal Auditors in Israel. The Board of Directors relies on the internal auditor's reports concerning his compliance with the professional standards according to which the audit is carried out.

N. Internal auditor access

The internal auditor of the Company has free coordinated access to relevant documents, information and information systems of the Company and of the subsidiaries, including financial and other information. Concerning the subsidiaries abroad, the internal auditor of the Company conducts audits based on the reports received from the auditors of the subsidiaries abroad.

O. The internal auditor’s report

During the course of 2010 the audit committee met five times at which they discussed, inter alia, the internal audit reports which were submitted in writing to the Chair of the audit committee and to the Company's CEO, as follows:

On March 4, 2010 the audit committee discussed two reports submitted on February 18, 2010.

On May 9, 2010 the audit committee discussed a report submitted on February 2, 2010 and a report submitted on February 15, 2010.

On August 8, 2010 the audit committee discussed a report submitted on February 2, 2010 and two reports submitted on June 27, 2010.

On November 7, 2010 the audit committee discussed a report submitted on October 8, 2010 and a report submitted on November 2, 2010.

On December 6, 2010 the audit committee discussed two reports submitted on November 24, 2010.

P. The Company's Board of Director’s assessment of the internal auditor’s activities

In the opinion of the Company's Board of Directors, the scope, nature and continuity of the internal auditor’s activities and his work plan are reasonable in the circumstances, and they fulfill the Company’s internal audit goals.

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Q. Remuneration of the Internal Auditor

The remuneration paid to the internal auditor of the Company and its subsidiaries in Israel is based on working hours and according to the work plan that is approved by the audit committee. At the beginning of each year the auditor submits a proposal for the annual audit plan which includes the planned number of work hours. The audit committee determines the audit work plan and the number of work hours. The auditor does not exceed the number of work hours without the consent of the audit committee. In the event that additional tasks are allocated to the auditor during the course of the audit year, the audit committee will fix the number of work hours for the additional tasks. In 2010 the remuneration paid to the internal auditor for his activities in Israel amounted to NIS 595,100, plus VAT.

The Company estimates that the remuneration for the work based on working hours does not affect the professional considerations of the internal auditor.

4. Contributions

The Company sees its contribution and assistance for the community in Israel and in the countries in which it operates abroad, as a most important component that should be integrated into its activities. The Company, similar to other companies of the IDB Group, sees its contribution and aide to the community in Israel, particularly in the south of the country and in the front line communities close to the locations of the Company's production plants, and worldwide with regard to communities in the vicinity of its plants, as a key tier in its business vision. The Company believes that it has a responsibility towards the community every where that it operates and this by recognizing that business leadership goes together with social-value leadership.

The social responsibility, the involvement with and contribution to the community, are strategic goals that are an inseparable part of the Company's working program, which allocates financial resources for this issue in the annual work program. The community activities are carried out with the involvement of the employees and the assimilation of social responsibility and ecological values.

The Company decide4d to focus on activities for the benefit of the community in education and environmental protection together with activities connected to health, culture, art, sport, heritage, welfare and in Israel also with regard to the IDF.

Implementation of the social investment policy

1. Allocation of financial resources for the benefit of the community: Contributions for education and encouragement of excellence among children and teenagers; granting of scholarships in front line communities and for outstanding students; contributions for the purchase of medical equipment for welfare institutions and in Israel, also for IDF soldiers as part of the "Adopt a Soldier" project of the Friends of the IDF society.

2. Establishment of partnerships for community contribution: Promotion of educational projects in culture, the arts and environmental protection, together with the municipal education administrations, institutions and organizations at kindergartens, elementary and high schools.

The contribution is given as part of an approved program that is built in collaboration with the supported organization and the Company. After approving the program, a jointly run partnership is established for joint and continuous control, supervision and monitoring regarding the Company's attainment of its contribution goals. Furthermore, the Company maintains regular contact and dialogue with dozens of social partners, inter alia, by way of indirect aide for promoting educational and cultural activities, allowing exposure and expansion of potential audiences.

3. Employee involvement in community volunteering: The Company initiates and encourages many of its employees to volunteer in areas such as: absorption of new immigrants, education and encouragement of children and teenagers to attain excellence and in welfare activities. The employees donate money and time for the benefit of the community. The Company believes in nurturing volunteering and aiding values also among the children of its employees by

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employing them during the summer vacation in community services, work that expresses educational values of volunteering for the benefit of the community.

In 2010 the Company contributed an amount of USD 1,016,000, of which USD 913,000 was in Israel.

5. Company's Auditor

A. Particulars of the Auditor

The primary auditors of the Company and its subsidiaries are the accounting firm, Somech Chaikin of the KPMG group ("KPMG").

B. Auditors' fees

The fees paid to KPMG in 2010 for auditing services, services connected to the audit, including audit on the effectiveness of control, tax consultancy services concerning the Company's financial statements in Israel amounted to USD 1,200,000 (for 188,000 work hours). The fees paid to KPMG for support and consultancy services in mapping the control of financial reporting processes as part of the Company's preparations for implementing the Securities Regulations (Period and Immediate Reports) (Amendment 3), 2009, amounted to USD 200,000 (for 2,600 working hours).

Fees paid to KPMH in 2010 outside of Israel amounted to USD 2,200,000 (for 215,000 working hours).

The fees for auditing services are more than half of the total paid to the auditors by the Company in the reporting year. The fees are paid on the basis of working hours. The Company's Board of Directors, which is authorized by the general meeting, approves the auditors fees.

6. Approval of the financial statements

The Company has, since 2011, a committee for examining the financial statements ("the Committee"), which was established for this purpose and which is not the audit committee. The Committee includes five directors, as follows: Committee Chairman, Dr. Gideon Chitayat (an external director with accounting and financial expertise), Mr. Oren Lieder (a director with accounting and financial expertise), Mr. Raanan Cohen (a director with accounting and financial expertise), Mr. Oded Koritshoner (an independent director with accounting and financial expertise) and Prof. Ilan Chet (an external directors who is skilled to read and understand financial statements). All the Committee members provided statements for their appointment, concerning their education and experience as set forth in Standard 26 of Chapter D of this report,according to which the Company deems them to have accounting and financial expertise or to be skilled to read and understand financial statements, respectively. Once ever quarter the Committee recieves a detailed presentation of the financial results from the CFO and discusses these financial results as they are expressed in the financial statements (the "Reports"), the estimates and forecasts prepared with regard to the Reports, the internal audit connected with the Reports, the integrity and proper disclosure in the Reports, the accounting policies adopted and the accounting practices applied in the material issued of the Company and the evaluations (including the underlying assumptions and estimates) on which the figures in the Reports are based. Moreover, the Committee discusses other material issues and including the presentation of the material legal proceedings in which the Company is a party. The Committee held two meetings for examining the financial statements for the period ended December 31, 2010/ Other than the Committee members, the following interested parties and senior officers participated at the meeting held on March 6, 2010: Dov Pekelman, Erez Vigodman, Aviram Lahav, Michael Arlozorov and Keren Yoniyov. Other than the Committee members, the following interested parties and senior officers participated at the meeting held on March 10, 2010: Dov Pekelman, Erez Vigodman, Aviram Lahav, Michael Arlozorov and Keren Yoniyov.

The members of the committee and of the board of directors receive a draft of the financial statements a few days before the meetings are convened.

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Representatives of the Company's auditors are invited to the Committee's meetings, as well as to meetings of the board of directors at which the financial statements are discussed and approved, and they comment and respond to questions directed to them by members of the Committee and/or the Board of Directors, relating to the material issues arising from the data presented in the financial statements under discussion. The Company's internal auditor receives notices of the convening of the Committee meetings and is invited to participate at them. Furthermore, the Chairman of the committee held a separate meeting with representatives of its auditors and with the Company's internal auditor, without the participation of the Company's managers. After discussing the Reports, the Committee formulates recommendations concerning the approval of the Reports and sends them in writing to the Company's Board of Directors, at least 3 business days prior to the discussion at the Board meeting. In the opinion of the Company's Board of Directors, this amount of time is reasonable

When presenting the financial statements to the board of directors, the Company's CEO Mr. Erez Vigodman presents the main results of the Company's operations during the period under review and refers to material events that occurred during the period. Thereafter, the CFO, Mr. Aviram Lahav gives a detailed presentation of the Company's financial results during the period under review, while comparing them with previous periods, emphasizing substantial issues arising from them. During the course of these reviews, the Company's management responds to questions addressed to it by the members of the board of directors.

On March 16, 2011 under the discussion of the financial statements, the Company's Board of Directors discussed the Company's financial statements and the Committee's recommendations and resolved to approve the Company's financial statements as at December 31, 2010.

D. Disclosure of financial reporting

1. Linkage balances

See Note 32 to the Company's financial statements as at December 31, 2010.

2. Critical accounting estimates

The preparation of the financial statements according to generally accepted accounting principles obligates the Company's management to make estimates and assessments that influence the reported values of assets and liabilities, income and expenses, and disclosure relating to contingent assets and liabilities.

For further information concerning the critical accounting estimates used by the Company in its financial statements, see Note 2 to the financial statements.

3. Events Occurring Subsequent to the Date of the Financial Statements

On March 16, 2010, the Company's Board of Directors approved the Company's purchase of a property and loss of profits insurance policy from Clal Insurance Co. Ltd. ("Clal"), a company controlled by IDB Development Corporation Ltd, as a transaction that is not extraordinary. Under this transaction, the Company will pay a premium for the said policy over a period of 18 months in the amount of USD 6.6 million. IDB Development Corporation Ltd., which may be considered to be a controlling shareholder (indirectly) of the Company, may be deemed as an interested party withg a personal interest in the transaction due to the fact that it is the controlling shareholder of Clal. Furthermore, the individuals who are likely to be deemed as controlling shareholders (indirectly) in the Company may be deemed as interested parties with a personal interest due to their service and/or the service of their relatives (as the relative is defined in the Companies Law) as directors in the Company.

For further information concerning the signing of a merger agreement between the Company and a company of the ChemChina Group see above.

.

28

For further information concerning litigations ree Note 20 to the financial statements at December 31, 2010.

E. Information pertaining to the Company’s Debentures

See the table attached herewith as an appendix.

The Company's Board of Directors and management express their gratitude to the Company's officers, the managements of the various companies in the Group and their employees, and thank them for their respected contribution, willingness, dedication and for meeting the many challenges that the Group faced in 2010.

Ami Erel Erez Vigodman Aviram Lahav -

Chairman of the board of directors of

President & CEO CFO

Tel Aviv, March 6, 2011

29

Appendix of details of the Company's debentures

Series Date of

issue Rating

Total par value at date of issue

(in NIS millions)

Type of interest

Interest rate set

Effective interest at

date of report

Stock exchange value as

at December 31, 2010 (in USD millions)

Dates of payment of

interest

Principal repayment

Dates Linkage

basis

Nominal par value

as at December 31, 2010 (in NIS

millions)

CPI linked

nominal par value

as at Decembe

r 31, 2010 (in

NIS millions)

Book value of

debenture balance as

at December 31, 2010 (in USD millions)

Book value of interests

to be paid as at

December 31, 2010 (in USD millions)

Fair value as

at Decembe

r 31, 2010 (in

USD millions)

Series B Dec 2006 ilAA (5) 1,650

Annual interest:

linked to the CPI

5.15% 5.6% 1,800.4

Twice annually on May 31 and on November 30 of each of the years 2006 through 2036

On November 30 of each of the years 2020 through 2036

CPI for October 2006

1,637.5 1,787.1 502.7(6) 2.2 507.3

Series C (4)

Dec 2006

ilAA (5)

465

Annual interest:

linked to the CPI

4.45% 2.0% 1,024.4

Twice annually on May 31 and on November 30 of each of the years 2006 through 2013

On November 30 of each of the years 2010 through 2013

CPI for October 2006

844.5 961.5 271.5 1.0 288.6 March 2009

661

Series D (4)

Dec 2006

ilAA (5)

235

Annual interest:

6.5% 5.6% 741.9

Twice annually on May 31 and on November 30 of each of the years 2006 through 2016

On November 30 of each of the years 2011 through 2016

Unlinked 707.0 707.0 197.3 1.1 209.1 March 2009

472

30

(1) The trustee for Debentures (Series B) is Aurora Fidelity Trust Company Ltd., 12 Menachem Begin Road, Ramat Gan (Tel: 03-6005946; Fax: 03-6120675) Contact person: Adv. Iris Shlevin, CEO

Email: ishlevin@aurorafidelity.com.. Series B is deemed a material liability of the Comapny

(2) The trustee for Debentures (Series C and D) is HermeticTrust (1975) Ltd., 113 Hayarkon Street, Tel Aviv, Israel; (Tel: 03-5274867, Fax: 03-5271736), contact person: Dan Avnon or Meirav Ofer.

Email: hermetic@hermetic.co.il. Series C and D are deemed as material liabilities of the Company

(3) As at the date of the report, the Company was in compliance of all of the conditions and undertakings under the Deed of Trust and no conditions existed giving rise to a cause of action for immediate repayment of the debentures.

(4) On March 25, 2009 the Company issued NIS 661,000,000 par value debentures (Series C) and NIS 472,000,000 par value debentures (Series D).

For further information see the Company's immediate report of March 26, 2009 (Ref. No.: 2009-01-067944)

(5) On December 4, 2006 Standard & Poor's Maalot ("Maalot") announced granting a rating of AA/Stable for Debentures (Series B, C and D). On December 11, 2008 Maalot announced

Debentures (Series B, C and D) rating with credit watch negative. On March 22, 2009 Maalot announced confirmation of the ilAA rating for the unpaid debentures and awarded a rating of ilAA for the issue by way of expansion of Series C and D in the amount of NIS 1.2 billion. On December 3, 2009, Maalot announced impairment ratings for Debentures (Series B, C and D) which the Company issued, from a ilAA with credit watch negative rating to a ilAA stable rating. On June 29, 2010 Maalot announced the introduction of the re-examination of the ilAA ratings for Debentures (Series C and D) as credit watch negative. On September 7, 2010 Maalot confirmed the ilAA rating for Debentures (Series B, C and D) (For further information see the Company's report dated September 7, 2010 (Ref. No. 2010-01-616242)).

(6) The book value of the balance of the debenture (Series B) as at December 31, 2010 is presented less the debentures acquired by a wholly owned subsidiary.

31

Appendix - Sensitivity Analysis Tables

Effect of the exchange rate changes on hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD 7,326 3,633 229 (3,663) (7,326) GBP/USD 735 367 149 (367) (735) USD/ZAR 401 210 (226) (232) (490) USD/PLN 3,562 1,750 (234) (1,903) (4,260) USD/NIS (95,217) (49,462) 86,622 53,521 110,407 USD/BRL 5,162 2,658 (2,106) (4,138) (8,223) AUD/USD 1,384 692 (679) (692) (1,384) Effect of fluctuations on accounting hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD 0 0 229 0 0 GBP/USD 0 0 149 0 0 USD/ZAR 0 0 (226) 0 0 USD/PLN 0 0 (234) 0 0 USD/NIS (6) (3) 86,622 3 5 USD/BRL (55) (28) (2,106) 29 60 AUD/USD 0 0 (679) 0 0 Effect of fluctuations on accounting hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD 5 3 229 (3) (5) GBP/USD 0 0 149 (0) (0) USD/ZAR (0) (0) (226) 0 0 USD/PLN (2) (1) (234) 1 2 USD/NIS 65 33 86,622 (33) (65) USD/BRL (3) (1) (2,106) 1 3 AUD/USD 4 2 (679) (2) (4) Effect of interest of the leading currency on accounting hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD (4) (2) 229 2 4 GBP/USD (0) (0) 149 0 0 USD/ZAR 2 1 (226) (1) (2) USD/PLN 13 7 (234) (7) (13) USD/NIS (426) (213) 86,622 213 426 USD/BRL 71 36 (2,106) (36) (71) AUD/USD (0) (0) (679) 0 0

32

Effect of interest of the leading currency on adjusted balance hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD 13,577 7,106 (4,342) (9,063) (19,282) GBP/USD 692 320 113 (317) (687) USD/PLN 1,810 929 (498) (1,137) (2,536) USD/NIS (3,878) (2,041) 1,293 2,216 4,641 AUD/USD (966) (460) (199) 213 475 Effect of interest of the leading currency on adjusted balance hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD (216) (109) (4,342) 110 222 GBP/USD (0) 0 113 (0) (0) USD/PLN (13) (7) (498) 7 15 USD/NIS (3) (1) 1,293 1 3 AUD/USD (8) (4) (199) 4 8 Effect of changes in interest of the leading currency on adjusted balance hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD 43 21 (4,342) (21) (43) GBP/USD 0 (0) 113 0 (0) USD/PLN (2) (1) (498) 1 2 USD/NIS 6 3 1,293 (3) (6) AUD/USD 2 1 (199) (1) (2) Effect of changes in interest of the leading currency on financial hedging transactions (in USD thousands):

Profit (loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

EUR.USD (23) (11) (4,342) 11 23 GBP/USD (0) (0) 113 0 0 USD/PLN 14 7 (498) (7) (14) USD/NIS (31) (15) 1,293 15 31 AUD/USD (0) (0) (199) 0 0

33

Sensitivity to USD/NIS exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 0.256 0.268 0.282 0.297 0.313 Cash and cash equivalents (1,599) (799) 15,988 799 1,599 Short-term investments - - - - - Trade receivables (1,198) (599) 11,984 599 1,198 Other receivables (1,794) (897) 17,944 897 1,794 Advances less tax provisions (110) (55) 1,102 55 110 Investments, loans and other long-term receivables (282) (141) 2,818 141 282

Total assets (4,984) (2,492) 49,836 2,492 4,984 - Liabilities Credit from banks and other credit providers 29 15 291 (15) (29) Trade receivables 8,713 4,357 87,130 (4,357) (8,713) Other receivables 9,243 4,622 92,431 (4,622) 9,243) Tax provisions less liabilities 1,662 831 16,624 (831) (1,662) Bonds 97,154 48,577 971,542 (48,577) (97,154) Other long-term liabilities 281 141 2,814 (141) (281) Employee benefits 8,662 4,331 86,623 (4,331) (8,662) Total liabilities 125,746 62,873 1,257,455 (62,873) (125,746) Difference 120,762 60,381 (1,207,619) (60,381) (120,762) Balance sheet hedges Options (942) (82) 20,287 278 563 Forward transactions (70,160) (36,748) 774,672 40,611 85,729 SWAP (24,115) (12,631) 244,232 12,631 24,115 Total (95,217) (49,462) 1,039,192 53,521 110,407 Total 25,545 10,919 (168,427) (6,860) (10,355) Contractual hedges Options (149) (87) 2,250 57 83 Forward transactions (3,729) (1,953) 40,000 2,159 4,558 Total (3,878) (2,041) 42,250 2,216 4,641

34

Sensitivity to USD/Euro exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 1.201 1.268 1.335 1.402 1.468 Cash and cash equivalents (9.922) (4,961) 99,223 4,961 9,922 Trade receivables (11,152) (5,576) 111,524 5,576 11,152 Other receivables (1,212) (606) 12,124 606 1,212 Advances less tax provisions (133) (67) 1,332 67 133 Investments, loans and other long-term receivables (28) (14) 278 14 28

Total assets (22,448) (11,224) 224,481 11,224 22,448 - Liabilities Credit from banks and other credit providers 1,403 701 14,029 (701) (1,403) Trade receivables 10,086 5,043 100,860 (5,043) (10,086) Other receivables 6,650 3,325 66,498 (3,325) (6,650) Bank loans (including current maturities) 94 47 940 (47) (94) Other long-term liabilities 1,049 525 10,490 (525) (1,049) Tax provisions 512 256 5,121 (256) (512) Minority put option 539 270 5,394 (270) (539) Liabilities for termination of employee-employer relations, net 205 103 2,050 (103) (205)

Total liabilities 20,538 10,269 205,382 (10,269) (20,538) Difference (1,910) (955) 19,099 955 1,910 Balance sheet hedges Forward transactions 7,326 3,663 (73,042) (3,663) (7,326) Total 7,326 3,663 (73,042) (3,663) (7,326) Total 5,417 2,708 (53,943) (2,708) (5,417) Inventory* (11,624) (5,812) 116,242 5,812 11,624 Total including inventory (6,208) (3,104) 62,299 3,104 6,208 Contractual hedges Options 11,225 5,929 (190,324) (7,887) (16,929) Forward transactions 2,353 1,176 (23,777) (1,176) (2,353) Total 13,577 7,106 (214,101) (9,063) (19,282)

* the accounting hedging for inventories was carried our against the inventory in the customer's country for selling in Euro to the end customer.

35

Sensitivity to USD/BRL exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 0.660 0.630 0.600 0.632 0.667 Cash and cash equivalents (867) (433) 8,669 433 867 Trade receivables (8,636) (4,318) 86,361 4,318 8,636 Other receivables (957) (479) 9,571 479 957 Investments, loans and other long-term receivables (9,819) (4,910) 98,191 4,910 9,819

Total assets (20,279) (10,140) 202,792 10,140 20,279 - Liabilities Credit from banks and other credit providers 3,510 1,755 35,095 (1,755) (3,510) Trade receivables 2,414 1,207 24,143 (1,207) (2,414) Other receivables 2,179 1,089 21,788 (1,089) (2,179) Bank loans (including current maturities) 834 417 8,336 (417) (834) Other long-term liabilities 960 480 9,598 (480) (960) Liabilities for termination of employee-employer relations, net 86 43 860 (43) (86)

Total liabilities 9,982 4,991 99,820 (4,991) (9,982) Difference (10,297) (5,149) 102,972 5,149 10,297 Balance sheet hedges Options 5,162 2,658 (65,000) (4,138) (8,223) Total 5,162 2,658 (65,000) (4,138) (8,223) Total (5,135) (2,491) 37,972 1,011 2,074

36

Sensitivity to USD/BPS exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 1.393 1.470 1.548 1.625 1.702 Cash and cash equivalents (2,589) (1,294) 25,887 1,294 2,589 Trade receivables (433) (217) 4,330 217 433 Other receivables (6) (3) 64 3 6 Total assets (3,028) (1,514) 30,281 1,514 3,028 - Liabilities Trade receivables 34 17 342 (17) (34) Other receivables 1,668 834 16,679 (834) (1,668) Total liabilities 1,702 851 17,021 (851) (1,702) Difference (1,326) (663) 13,260 663 1,326 Balance sheet hedges Forward transactions 735 367 (7,492) (367) (735) Total 735 367 (7,492) (367) (735) Total (591) (296) 5,768 296 591 Contractual hedges Options 160 54 (2,250) (51) (155) Forward transactions 532 266 (5,434) (266) (532) Total 692 320 (7,684) (317) (687) Sensitivity to USD/AUD exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 0.810 0.855 0.900 0.945 0.990 Cash and cash equivalents (2,816) (1,408) 28,162 1,408 2,816 Short-term investments - - - - - Trade receivables (885) (442) 8,845 442 885 Other receivables (356) (178) 3,563 178 356 Total assets (4,057) (2,029) 40,570 2,029 4,057 Trade receivables 100 50 1,000 (50) (100) Other receivables 1,457 729 14,570 (729) (1,457) Liabilities for termination of employee-employer relations, net 32 16 322 (16) (32)

Total liabilities 1,589 795 15,892 (795) (1,589) Difference (2,468) (1,234) 24,678 1,234 2,468 Balance sheet hedges Forward transactions 1,384 692 (13,393) (692) (1,384) Total 1,384 692 (13,393) (692) (1,384) Total (1,084) (542) 11,285 542 1,084 Contractual hedges Options 475 213 (10,000) (460) (966)

37

Sensitivity to USD/PLN exchange rate changes (in USD thousands):

Profit (loss) from

change Base Asset

Profit (loss) from change

+10% +5% -5% -10%

Exchange rate 3.261 3.112 2.964 2.816 2.668 Cash and cash equivalents (977) (489) 9,770 489 977 Trade receivables (3,960) (1,980) 39,595 1,980 3,960 Other receivables (180) (90) 1,797 90 180 Investments, loans and other long-term receivables (0) (0) 4 0 0

Total assets (5,117) (2,558) 51,166 2,558 5,117 - Liabilities Credit from banks and other credit providers 307 161 3,381 (178) (376) Trade receivables 553 276 5,526 (276) (553) Other receivables 208 104 2,078 (104) (208) Liabilities for termination of employee-employer relations, net (4) (2) 40 2 4

Total liabilities 1,064 539 11,025 (556) (1,132) Difference (4,052) (2,019) 40,141 2,002 3,985 Balance sheet hedges Options 347 66 (10,000) (43) (332) Forward transactions 3,215 1,684 (35,219) (1,684) (3,215) Total 3,562 1,750 (46,219) (1,727) (3,547) Total (491) (269) (5,078) 276 438 Inventory* (2,860) (1,498) 31,460 1,656 3,496 Total including inventory (3,351) (1,767) 31,460 1,931 3,933 Contractual hedges Options 1,353 689 (22,162) (872) (1,977) Forward transactions 458 240 (5,036) (265) (559) Total 1,810 929 (27,198) (1,137) (2,536) * The accounting hedging for inventories was carried our against the inventory in the customer’s country

for selling in Euro to the end customer.

38

Sensitivity to USD/ZAR exchange rate changes (in USD thousands):

Profit (loss) from change

Base Asset Profit (loss) from

change

+10% +5% -5% -10%

Exchange rate 7.305 6.973 6.641 6.309 5.977

Cash and cash equivalents (9) (5) 97 5 11 Trade receivables (1,391) (729) 15,301 805 1,700 Other receivables (1) (0) 10 1 1

Total assets (1,401) (734) 15,408 811 1,712

- Liabilities Trade receivables 135 71 1,481 (78) (165) Other receivables 194 102 2,132 (112) (237) Deferred tax, net (6) (3) 68 4 8

Total liabilities 322 169 3,681 (187) (394)

Difference (1,078) (565) 11,727 624 1,318

Balance sheet hedges Options Forward transactions 401 210 (4,207) (232) (490)

Total 401 210 (4,207) (232) (490)

Total (678) (355) 7,520 392 828

Sensitivity of financial instruments to interest rate changes (in USD thousands):

Changes to linked NIS interest rates

Profit(loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

Series B bonds 27,448 14,045 (486,268) (14,726) (30,173)

Series C bonds 879 440 (288,639) (441) (884)

SWAP transactions (132) (66) 49,554 66 132

CPI/NIS transactions (1) (1) 989 1 1

Shekel interest investments (74) (38) 2,169 38 78

Total 28,118 14,381 (722,195) (15,062) (30,845)

Changes to unlinked NIS interest rates

Profit(loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

Series D bonds 3,497 1,761 (209,052) (1,787) (3,599)

Total 3,497 1,761 (209,052) (1,787) (3,599)

39

Changes to USD interest rates

Profit(loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

SWAP transactions 819 410 49,554 (412) (825)

USD loans 153 77 (19,991) (77) (155)

Total 973 487 29,564 (489) (980)

Changes to BRL interest rates

Profit(loss) from change Fair value Profit (loss) from change

+10% +5% -5% -10%

BRL investments (4,186) (2,133) 86,008 2,216 4,520

BRL loans 282 143 (6,644) (148) (301)

Total (3,904) (1,989) 79,364 2,068 4,219

Makhteshim-Agan Industries Ltd.

Consolidated Financial Statements As of December 31, 2010

In USD

Makhteshim-Agan Industries Ltd.

Financial Statements as of December 31, 2010 Contents PAGE Auditors’ Report - Internal control over financial reporting 1 Auditor's Report - Annual Financial Statements 2 Financial statements Consolidated Statements of Financial Position 3 Consolidated Income Statements 5 Consolidated Statements of Comprehensive Income 6 Consolidated Statements of Changes in Equity 7 Consolidated Statements of Cash Flows 10 Notes to the Consolidated Financial Statements 13 Appendix to the Financial Statements - Schedule of Investee Companies 122

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Auditors' Report to the Shareholders of Makhteshim-Agan Industries Ltd. Regarding the Audit of Internal Control Components over Financial Reporting in accordance with paragraph 9b(c) of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 We have audited internal control components over financial reporting of Makhteshim-Agan Industries Ltd. and its subsidiaries (hereinafter “the Company”) as of December 31, 2010. These control components were determined as explained in the following paragraph. The Company's Board of Directors and Management are responsible for maintaining effective internal control over financial reporting and for their assessment of the effectiveness of the Company’s internal control components over financial reporting accompanying the periodic report as of the above date. Our responsibility is to express an opinion on the Company’s internal control components over financial reporting based on our audit.

Internal control components over financial reporting audited by us were determined in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of Internal Control Components over Financial Reporting” (hereinafter “Auditing Standard 104”). These components are: (1) Entity level controls, including controls over the preparation and closure of the financial reporting process and information technology general controls; (2) controls over sales; (3) controls over purchase; (4) controls over inventory; (5) controls over financial derivatives (all these are named together “audited control components”).

We conducted our audit in accordance with Auditing Standard 104. This standard requires us to plan and perform the audit to identify the audited control components and to obtain reasonable assurance about whether these control components were effective in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, identifying the audited control components, assessing the risk that a material weakness exists in the audited control components, and testing and evaluating the design and operating effectiveness of those control components based on the assessed risk. Our audit, regarding those control components, also included performing such other procedures as we considered necessary in the circumstances. Our audit referred only to the audited control components, as opposed to internal control over all significant processes related to financial reporting, therefore our opinion refers to the audited control components only. Our audit also did not refer to mutual effects between audited control components and non audited control components, therefore our opinion does not take into account these possible effects. We believe that our audit provide a reasonable basis for our opinion in the context described above.

Because of its inherent limitations, internal control over financial reporting as a whole, and internal control components in particular, may not prevent or detect misstatements. Also, projections of any current evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective audited control components as of December 31, 2010.

We have also audited, in accordance with generally accepted auditing standards in Israel, the Company’s consolidated financial statements as of December 31, 2010 and 2009 and the consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows, for each of the three years, the last of which ended December 31, 2010 and our report dated march 16, 2011 expressed an unqualified opinion on those financial statements.

Somekh Chaikin Certified Public Accountants (Isr.) Tel-Aviv, Israel March 16, 2011

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Report of the Auditors to the Shareholders of Makhteshim-Agan Industries Ltd.

We have audited the accompanying consolidated statement of financial position of Makhteshim-Agan Industries Ltd. (hereinafter - “the Company”) as of December 31, 2010 and 2009, and the consolidated income statement, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years, the last of which ended on December 31, 2010. These financial statements are the responsibility of the Company’s Board of Directors and its Management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain consolidated subsidiaries whose assets constitute 5.6% and 5.5% of the total consolidated assets as at December 31, 2010 and 2009, respectively, and whose revenues constitute 9.1%, 10.8% and 11.8% of the total consolidated revenues for each of the three years, the last of which ended December 31, 2010. Furthermore, we did not audit the financial statements of equity accounted investees, the Group's share in the loss of which amounted to $5,911 thousand for the year ended December 31, 2010. The financial statements of those companies were audited by other auditors whose reports thereon were furnished to us and our opinion, insofar as it relates to the amounts included for those companies, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors' Regulations (Manner of Auditor's Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and by Management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material aspects the consolidated financial position of the Company and its consolidated subsidiaries as of December 31, 2010 and 2009, and their results of operations, changes in its equity and cash flows for each of the three years, the last of which ended on December 31, 2010, in accordance with International Financial Reporting Standards (IFRS) and in accordance with the Securities Regulations (Annual Financial Statements) - 2010. We have also audited, in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of Internal Control Components over Financial Reporting”, the components of the Company’s internal control over financial reporting as of December 31, 2010, and our report dated March 16, 2011 expressed an unqualified opinion on the effectiveness of such components. As explained in Note 3(B), since the Company’s functional currency is U.S. dollars, the financial statements are prepared in U.S. dollars. Somekh Chaikin Certified Public Accountants (Isr.) March 16, 2011

Makhteshim-Agan Industries Ltd.

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Consolidated Statements of Financial Position as at December 31 2010 2009 Note $ thousands $ thousands

Current assets Cash and cash equivalents 422,632 562,430 Short-term investments 4 445 448 Trade receivables 5 582,223 567,858 Subordinated capital note from sale of trade receivables 5 68,179 42,092 Prepaid expenses 13,116 13,320 Financial assets, including derivatives 6 134,556 151,192 Advances net of provision for income taxes 18 8,154 8,084 Inventories 7 972,358 959,591 Total current assets 2,201,663 2,305,015 Long-term investments, loans and receivables Other financial investments and receivables 8 137,144 123,548 Other non-financial investments and receivables 9 33,223 * 49,794 170,367 173,342 Fixed assets Cost 10 1,239,554 1,138,343 Less - accumulated depreciation 619,871 558,416 619,683 *579,927 Deferred tax assets 18 73,541 86,542 Intangible assets Cost 11 1,212,202 1,104,748 Less - accumulated amortization 558,708 489,727 653,494 615,021 Total non-current assets 1,517,085 1,454,832 Total assets 3,718,748 3,759,847 * Reclassified – see Note 2E(2)

Makhteshim-Agan Industries Ltd.

4

2010 2009 Note $ thousands $ thousands

Current liabilities Credit from banks and other lenders 12 442,779 236,975 Current maturities of debentures 16 123,528 83,480 Trade payables 13 503,397 501,692 Other payables 14 388,767 278,980 Provision for taxes net of advances 18 25,978 43,347 Put options to non-controlling interest 19,819 24,098 1,504,268 1,168,572 Long-term liabilities Loans from banks 15 74,429 303,199 Debentures 16 848,014 896,556 Other long-term liabilities 17 19,552 18,711 Deferred tax liability 18 28,301 39,591 Employee benefits 19 91,474 56,455 Put options to non-controlling interest 4,940 - 1,066,710 1,314,512 Equity Share capital 125,578 125,563 Share premium 623,846 623,861 Reserves 15,846 23,732 Retained earnings 610,987 731,401 Company shares held by Company and subsidiary (245,548) (245,548) Total equity attributable to owners of the Company 1,130,709 1,259,009 Non-controlling interest 17,061 17,754 Total equity 22 1,147,770 1,276,763 Total liabilities and equity 3,718,748 3,759,847

Ami Arel Erez Vigodman Aviram Lahav Chairman of the Board of Directors President & Chief Executive Officer Chief Financial Officer Date of approval of the financial statements: March 16, 2011 The notes are an integral part of these financial statements.

Makhteshim-Agan Industries Ltd.

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Consolidated Income Statements for the year ended December 31

2010 2009 2008 Note $ thousands $ thousands $ thousands

Revenues 23 2,362,232 2,214,616 2,535,504 Cost of sales 24 1,713,006 1,632,752 1,687,759 Gross profit 649,226 581,864 847,745 Other income (2,717) (3,001) (3,684) Sales and marketing expenses 25 410,371 358,400 375,200 General and administrative expenses 26 106,529 79,402 83,972 Research and development expenses 27 23,187 21,816 22,374 Other expenses 28 105,624 5,517 2,633 642,994 462,134 480,495 Operating income 6,232 119,730 367,250 Financing expenses 187,972 127,665 180,645 Financing income (66,460) (33,955) (84,038) Financing expenses, net 29 121,512 93,710 96,607 Share of loss of equity accounted investees 20A(7) 5,911 - - Profit (loss) before taxes on income (121,191) 26,020 270,643 Taxes on income 18 10,721 (8,681) 49,684 Profit (loss) for the year (131,912) 34,701 220,959 Attributable to: Owners of the Company (132,151) 32,678 219,041 Non-controlling interest 239 2,023 1,918 Profit (loss) for the year (131,912) 34,701 220,959 $ $ $ Earnings (loss) per share Basic earnings (loss) per share 31 (0.31) 0.076 0.498 Fully diluted earnings (loss) per share 31 (0.31) 0.075 0.496 The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statements of Comprehensive Income For the year ended December 31

2010 2009 2008 $ thousands $ thousands $ thousands

Profit (loss) for the year (131,912) 34,701 220,959 Components of other comprehensive income Foreign currency translation differences for foreign operations (1,885) 14,229 (12,275) Effective portion of changes in fair value of cash flow hedges 32,013 33,029 22,279 Net change in fair value of cash flow hedges transferred to profit or loss (38,795) (26,420) (16,279) Actuarial gains (losses) from defined benefit plan 6,615 (366) (312) Tax on other comprehensive income (558) (3,391) 1,073 Other comprehensive income (loss) for the period, net of tax (2,610) 17,081 (5,514) Comprehensive income (loss) for the period (134,522) 51,782 215,445 Attributable to: Owners of the Company (135,076) 48,287 214,940 Non-controlling interest 554 3,495 505 Comprehensive income (loss) for the year (134,522) 51,782 215,445

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statements of Changes in Equity for the year ended December 31 Company Total equity shares held attributed to Share Retained by Company the owners of Non controlling Share capital premium Reserves earnings and subsidiary the Company interest Total equity $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

For the year ended December 31, 2010

Balance as at January 1, 2010 125,563 623,861 23,732 731,401 (245,548) 1,259,009 17,754 1,276,763

Other comprehensive income for the year Profit (loss) for the year - - - (132,151) - (132,151) 239 (131,912) Component of other comprehensive income Foreign currency translation differences in respect of foreign operation - - (2,200) - - (2,200) 315 (1,885) Effective portion of change in fair value of cash flow hedges - - 32,013 - - 32,013 - 32,013 Net change in fair value of hedged cash flow transferred to statement of profit or loss - - (38,795) - - (38,795) - (38,795) Actuarial gains from defined benefit plan - - - 6,615 - 6,615 - 6,615 Taxes on comprehensive income - - 1,096 (1,654) - (558) - (558) Total other comprehensive income for the year, net of tax - - (7,886) 4,961 - (2,925) 315 (2,610) Comprehensive income for the year - - (7,886) (127,190) - (135,076) 554 (134,522)

Exercise of employee options 15 (15) - - - - - - Expenses for employee options - - - 6,776 - 6,776 - 6,776 Dividend to non controlling interest - - - - - - (425) (425) Acquisition of non controlling interest - - - - - - (822) (822)

Balance as at December 31, 2010 125,578 623,846 15,846 610,987 (245,548) 1,130,709 17,061 1,147,770

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statements of Changes in Equity for the year ended December 31 Company Total equity shares held attributed to Share Retained by Company the owners of Non controlling Share capital premium Reserves earnings and subsidiary the Company interest Total equity $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

For the year ended December 31, 2009

Balance as at January 1, 2009 125,542 623,882 7,906 759,544 (245,548) 1,271,326 15,351 1,286,677

Other comprehensive income for the year Profit (loss) for the year - - - 32,678 - 32,678 2,023 34,701 Components of other comprehensive income Foreign currency translation differences in respect of foreign operation - - 12,757 - - 12,757 1,472 14,229 Effective portion of change in fair value of cash flow hedges - - 33,029 - - 33,029 - 33,029 Net change in fair value of hedged cash flow transferred to profit or loss - - (26,420) - - (26,420) - (26,420) Actuarial losses from defined benefit plan - - - (366) - (366) - (366) Taxes on other comprehensive income - - (3,567) 176 - (3,391) - (3,391) Total other comprehensive income (loss) for the year, net of tax - - 15,799 (190) - 15,609 1,472 17,081 Comprehensive income (loss) for the year - - 15,799 32,488 - 48,287 3,495 51,782

Exercise of employee options 21 (21) - - - - - - Expenses for employee options - - - 8,658 - 8,658 - 8,658 Tax benefit in respect of employee options - - 27 - - 27 - 27 Dividend to equity holders - - - (69,289) - (69,289) - (69,289) First-time consolidation - - - - - - 3,399 3,399 Dividend to non controlling interest - - - - - - (1,665) (1,665) Acquisition of non controlling interest - - - - - - (2,826) (2,826)

Balance as at December 31, 2009 125,563 623,861 23,732 731,401 (245,548) 1,259,009 17,754 1,276,763

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statements of Changes in Equity for the year ended December 31 (cont'd) Company Total equity shares held attributed to Share Retained by Company the owners of Non controlling Share capital premium Reserves earnings and subsidiary the Company interest Total equity $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

For the year ended December 31, 2008

Balance as at January 1, 2008 125,274 624,150 11,575 699,019 (144,196) 1,315,822 21,245 1,337,067

Other comprehensive income for the year Profit for the period - - - 219,041 - 219,041 1,918 220,959 Components of other comprehensive income Foreign currency translation differences in respect of foreign operation - - (10,865) - - (10,865) (1,410) (12,275) Effective portion of change in fair value of cash flow hedges - - 22,282 - - 22,282 (3) 22,279 Net change in fair value of hedged cash flow transferred to profit or loss - - (16,279) - - (16,279) - (16,279) Actuarial losses from defined benefit plan - (312) - (312) - (312) Taxes of other comprehensive income - - 1,018 55 - 1,073 - 1,073 Total other comprehensive income for the year, net of tax - - (3,844) (257) - (4,101) (1,413) (5,514) Comprehensive income for the year - (3,844) 218,784 - 214,940 505 215,445

Exercise of employee options 268 (268) - - - - - - Buy-back of the Company’s shares - - - - (101,352) (101,352) - (101,352) Options granted to employees - - - 10,350 - 10,350 - 10,350 Tax benefit in respect of employee options - - 175 - - 175 - 175 Dividend to equity holders - - - (168,609) - (168,609) - (168,609) First time consolidation - - - - - - (1,405) (1,405) Dividend to non controlling interest - - - - - - (1,430) (1,430) Acquisition of non controlling interest - - - - - - (3,564) (3,564)

Balance as at December 31, 2008 125,542 623,882 7,906 759,544 (245,548) 1,271,326 15,351 1,286,677

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statement of Cash Flows for the year ended December 31

2010 2009 2008 $ thousands $ thousands $ thousands

Cash flows from operating activities Profit (loss) for the period (131,912) 34,701 220,959 Adjustments Depreciation 110,420 100,000 91,191 Impairment loss of fix and intangible assets 25,292 - - Gain from buy-back of Company's debentures - - (5,692) Decrease (increase) in value of long-term investments - - 103 Capital loss (gain) from realization of fixed and other assets, net 5,029 426 153 Amortization of discount and issue costs (142) (73) 92 Share of loss of equity accounted investees 5,911 - - Expenses for employee options 6,776 8,658 10,350 Revaluation of put options - 355 1,702 Adjustment of long-term liabilities 78,589 59,559 32,649 Effect of swap transactions (23,017) (15,886) (16,279) Change in provision for tax and income tax advances, net (17,529) 31,837 (2,501) Decrease (increase) in deferred taxes, net 1,153 (50,648) 26,911 Changes in assets and liabilities Decrease (increase) in trade receivables, accounts receivable and other assets (29,661) (50,491) (66,237) Decrease (increase) in inventories 257 152,138 (355,094) Increase (decrease) in trade payables, accounts payable and other liabilities 108,623 (58,579) 76,276 Change in provisions and employee benefits 22,656 (2,382) 232 Net cash provided by operating activities 162,445 209,615 14,815 The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statement of Cash Flows for the year ended December 31 (cont’d)

2010 2009 2008 $ thousands $ thousands $ thousands

Cash flows from investing activities Acquisition of fixed assets (98,864) (69,417) (70,430) Investment grant received 517 - - Investment in equity accounted company (5,911) - - Additions to intangible assets (91,764) (74,687) (60,686) Short-term investments, net 3 66 95,345 Repayment of long-term investments 960 203 541 Proceeds from realization of fixed and other assets 933 2,982 6,882 Payment for newly consolidated companies net of cash acquired (2,638) (12,940) (2,520) Net cash used in investing activities (196,764) (153,793) (30,868) Cash flows from financing activities Receipt of long-term loans from banks 12,027 272,592 55,101 Repayment of long-term loans and liabilities from banks and other lenders, net (80,322) (20,626) (5,085) Settlement of debentures (86,941) - - Increase (decrease) in short-term liabilities to banks 44,889 (194,936) 285,934 Settlement of swap transaction 12,381 18,000 - Dividend to non-controlling interest (425) (1,418) (326) Issuance of debentures net of issue costs - 285,749 - Company buy-back of its shares - - (101,352) Dividend to owners of the Company (5,066) (64,223) (168,609) Company buy-back of its debentures - - (16,425) Acquisition of non-controlling interest (2,022) *(3,450) *(16,419) Net cash provided by (used in) financing activities (105,479) 291,688 32,819 Increase (decrease) in cash and cash equivalents (139,798) 347,510 16,766 Cash and cash equivalents at beginning of the year 562,430 214,920 198,154 Cash and cash equivalents at end of the year 422,632 562,430 214,920 * Reclassified, see Note 2E(1).

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Consolidated Statement of Cash Flows for the year ended December 31 (cont’d)

2010 2009 2008 $ thousands $ thousands $ thousands

Additional information: Interest paid in cash (83,341) (79,074) (68,354) Interest received in cash 8,319 14,987 5,593 Taxes paid in cash, net (29,085) (9,626) (32,078)

2010 2009 2008 $ thousands $ thousands $ thousands

A. Investments in first time consolidated companies Working capital (excluding cash and cash equivalents) 2,128 (6,103) 208 Fixed assets, net (2,485) (9,980) (22) Other assets, net - (1,629) (8,836) Surplus cost of investment created on acquisition (7,949) (9,630) - Long-term liabilities 728 2,949 - Liability in respect of acquisition of a company - 8,054 - Non-controlling interest - 3,399 - Put options to non-controlling shareholders 4,940 - 6,130 (2,638) (12,940) (2,520)

The notes are an integral part of these financial statements.

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Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010 Note 1 - General

A. Description of the Company and its activities 1. The Company is an Israel-resident company that was incorporated in Israel, and its official

address is the Arava Building in Airport City Park. The consolidated financial statements of the Company as at December 31, 2010 include those of the Company and its subsidiaries as well as the Company’s right in joint ventures (together - "the Group"). The Group operates in Israel and abroad and is engaged in the development, manufacture and marketing of agrochemicals, intermediate materials for other industries, food additives and synthetic aromatic products, mainly for export. The Company is held by Koor Industries Ltd. (hereinafter, “Koor”). The Company's securities are listed for trading on the Tel Aviv Stock Exchange. As at December 31, 2010 and 2009, Koor holds approximately 46.6% of the issued and paid shares (after neutralizing dormant shares) of Makhteshim-Agan Industries and approximately 47% of the voting rights therein (after neutralizing dormant shares and shares owned by a subsidiary of the Company).

2. Sales of agrochemical products are directly dependent on the agricultural seasons and the

cyclical pattern of the growing seasons and, therefore, the Company’s income is not spread evenly throughout the year. Countries located in the northern hemisphere are characterized by the same timing of the agricultural seasons and, as a result, sales to these countries are usually highest in the first half of the year. In the southern hemisphere, the seasonal trends are the opposite and most of the local sales are made in the second half of the year, except for Australia where most of the sales are made in April through July. The Company’s worldwide operations act to balance out the seasonal impacts, even though the Company’s sales are higher in the northern hemisphere.

B. Definitions In these financial statements (1) International

Financial Reporting Standards (hereinafter – IFRS)

- Standards and interpretations that were adopted by the International Accounting Standards Board (IASB) and which include international financial reporting standards and international accounting standards (IAS) along with the interpretations to these standards of the International Financial Reporting Interpretations Committee (IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.

(2) The Company - Makhteshim-Agan Industries Ltd. (3) The Group - Makhteshim-Agan Industries Ltd. and its subsidiaries. (4) Subsidiaries - Companies, including a partnership, the financial statements of which are

fully consolidated, directly or indirectly, with the financial statements of the Company.

(5) Proportionately consolidated companies

- Companies, including partnerships, whose financial statements are proportionally consolidated, directly or indirectly, with those of the Company.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 1 – General (cont’d)

B. Definitions (cont’d) (6) Investee companies - Subsidiaries and companies, including a partnership or joint venture, the

Company’s investment in which is stated, directly or indirectly, on the equity basis.

(7) Related party - Within its meaning in IS 24, “Relating Party Disclosures”. (8) Interested parties - Within their meaning in Paragraph (1) of the definition of an “interested

party” in Section 1 of the Securities Law – 1968. (9) CPI - The Consumer Price Index as published by the Central Bureau of

Statistics. (10) Dollar - The United States dollar.

Note 2 - Basis for Financial Statement Preparation

A. Declaration of compliance with International Financial Reporting Standards (IFRS) The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The Group adopted IFRSs for the first time in 2008 with the date of transition to IFRSs being January 1, 2007 (hereinafter – “the date of transition”). The financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 2010. The consolidated financial statements were authorized for issue by the Company’s Board of Directors on March 16, 2011. B. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the derivative financial instruments and liabilities for cash-settled share-based payment arrangements. Deferred tax assets and liabilities are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Provisions are recognized according to the best possible estimate at the end of the reporting period of the outflow required for settling the present obligation. The amount recognized as a defined benefit liability is the present value of the defined benefit obligation at the end of the reporting period less any unrecognized past service cost and less the fair value at the end of the reporting period of plan assets that will directly serve to settle the obligation.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 2 - Basis for Financial Statement Preparation (cont’d) C. Classification of expenses recognized in the statement of income The classification of expenses recognized in the statement of income is based on the function of the expense. Additional information regarding the nature of the expense is included in the notes to the financial statements. D. Use of estimates and judgment When preparing financial statements in conformance with IFRS, Company management is required to use judgment when making assessments, estimates and assumptions that affect the implementation of the policies and amounts of assets and liabilities, revenues and expenses. It is clarified that the actual results are likely to be different from these estimates. When formulating the accounting estimates used in the preparation of the Company's financial statements, management is required to make assumptions regarding circumstances and events that involve significant uncertainty. The judgment in determining the estimates by the Company's management is based on past experience, various facts, outside factors and reasonable assumptions, based on the appropriate circumstances for each estimate. The estimates and the assumptions used for preparing the financial statements are reviewed continuously. Changes in accounting estimates are recognized in the period during which the estimate was revised and in all affected future periods. Presented below is information on critical estimates made while applying the accounting policies, which have a material influence on the financial statements: • Contingent liabilities - When assessing the possible outcomes of legal claims filed against the

Company and its subsidiaries, the companies relied on the opinions of their legal counsel. These assessments by the legal counsel are based on the best of their professional judgment, considering the stage of the proceedings and the legal experience aggregated on various matters. Since the results of the claims will be decided by the courts, the outcomes could be different from the assessments.

In addition to the said claims, the Company is exposed to unasserted claims, inter alia, where there is doubt as to the agreement's interpretation and/or interpretation of the law and/or the manner in which they are to be implemented. This exposure is brought to the Company's attention in several ways among other, using official dealing with these matters in the Company. In assessing the risk deriving from the unasserted claims, the Company relies on internal assessments by officials dealing with these matters and by management, which weights the assessment of the prospects of a claim being filed, and the chances for its success, if filed. The assessment is based on experience gained with respect to the filing of claims and the analysis of the details of each claim. By their nature, in view of the preliminary stage of the clarification of the legal assertion, the actual outcome could be different from the assessment made before the claim was filed.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 2 - Basis for Financial Statement Preparation (cont’d) D. Use of estimates and judgment (cont’d)

• Asset impairment - The Company evaluates the need for recording an impairment provision of goodwill once a year, on a fixed date. Likewise, on the balance sheet date, the Company evaluates whether events have occurred or there have been changes in circumstances that indicate that impairment has occurred in one or more of the non-monetary assets. If there are signs of impairment, an examination is made as to whether the amount at which the investment in the asset is stated can be recovered from the discounted cash flows expected from that asset, and as necessary, an impairment provision is recorded up to the recoverable amount. The discounted cash flows are calculated using a pre-tax discount rate that represents the market's assessment of the time value of money and the specific risks attributed to the asset. Determination of the estimated cash flows is based on past experience of this asset or similar assets, and the Company's best assessment of the economic conditions that will prevail during the remaining estimated useful life of the asset. Changes in the Company's assessments, as noted, could lead to material changes in the book value of the assets and the operating results.

• Estimated useful life of intangible assets - Intangible assets are amortized methodically, over their estimated useful lives. The amortization period reflects the best estimate of the period in which future economic benefits are expected to derive to the Company. Use of other assumptions could lead to a different assessment of the estimated period in which future economic benefits are expected to be received.

• Allowance for doubtful accounts - The Company's trade accounts receivable are stated net of the allowance for doubtful accounts. The allowance for doubtful accounts is examined regularly by the Company's management and is determined mostly according to familiarity with the customer, quality of the customer and the amount of collateral from the customer. Changes in the assumptions for calculation of the provision could lead to material changes in the required allowances.

• Taxes - The Company and Group companies are assessed for tax purposes in a large number of jurisdictions and therefore, the Company's management must use considerable judgment in determining the total provision for taxes and attribution of income. Deferred taxes are calculated at the tax rates expected to be in effect when realized. Similarly the Company and group companies create deferred tax assets in respect of losses for tax purposes whose utilization may be spread over a number of years in those cases where there is a high level of probability of realization of these losses in the coming years. Changes in these assumptions could lead to material changes in the book values of the tax assets, tax liabilities and in operating results.

• Employee benefits - The Group's obligations for long-term and post-employment employee benefits are calculated according to the estimated future amount of the benefit to which the employee will be entitled in consideration for his services during the current period and prior periods. The benefit is stated at present value net of the fair value of the plan's assets, based on actuarial assumptions. Changes in the actuarial assumptions could lead to material changes in the book value of the liabilities and operating results.

• Derivative financial instruments - The Group enters into transactions in derivative financial instruments for the purpose of hedging foreign currency risks, inflationary risks and interest risks. The derivatives are recorded at their fair value. The fair value of derivative financial instruments is based on bank quotes. The reasonableness of the quotes are examined through future discounted cash flows, based on the terms and duration to maturity of each contract, while using the market interest of a similar instrument as at the measurement date. Changes in the economic assumptions and the calculation model could lead to material change in the fair value of the assets, liabilities and operating results.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 2 - Basis for Financial Statement Preparation (cont’d) D. Use of estimates and judgment (cont’d) • Inventories - Inventories are measured in the financial statements at the lower of cost and net

realizable value. Net realizable value is an estimate of the sales price in the ordinary course of business, after deducting the estimated cost to completion and the costs required to effect the sale. The sales price is estimated on the basis of the expected sales price at the time inventories are sold. A reduction in the expected price could lead to an impairment in the carrying value of the inventories and in operating results, respectively.

E. Changes in accounting policies (1) Business combinations and transactions with non-controlling interests

As from January 1, 2010 the Group implements IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) (hereinafter – IFRS 3 and IAS 27, respectively). Transactions with non controlling interest while retaining control are treated as a capital transaction. Accordingly, the cash flow related to these transactions were reclassified as financing activities, whereas they had previously been classified in investing activities, conforming to the accounting policy chosen by the Group for the treatment of transactions with the non-controlling shareholders. The provisions of the Standard are applied prospectively. For further information on the accounting policies of the Group regarding business combinations and transactions with non-controlling interest see Note 3A regarding significant accounting policies.

(2) Leases

As from January 1, 2010, the group implements the amendment to IAS 17 – Leases, classification of land and building leases (hereinafter "the Amendment") which was published in the framework of the 2009 improvements to IFRSs project.

According to the Amendment there is no longer a requirement to classify land leases as operational leases whenever ownership is not expected to pass to the lessee at the end of the lease period. According to the Amended Standard, the requirement is to evaluate the land lease based on the ordinary criteria for classification as a financing or operating lease.

Likewise, it was provided that the elements of land and building in a land and building lease are examined separately for the purpose of classifying the leases, based on the ordinary Standard's criteria, with significant consideration in classifying the land element given to the fact that the land generally has an indefinite useful life.

The Group leases land from the Israel Land Administration for a period of 49 years that was treated as operational leasing. As a result of applying the amendment, the group reclassified the land as financial leasing and presented the asset as fixed asset, since the Group’s production factory is located on that land.

As a result of retroactive application the group reclassified an amount of $3.5 million from non financial investments and other receivables to fixed assets as of December 31, 2009.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 2 - Basis for Financial Statement Preparation (cont’d) E. Changes in accounting policies (cont’d) (2) Leases (cont’d)

The Group leases land in a non-capitalized lease from the Israel Lands Administration, for a 49-year period. If certain conditions are fulfilled, the Group is entitled to extend the lease period for an additional 49 years. Prior to the adoption of the Amendment, these leases were classified as operating lease. As a result of the adoption of the Amendment, the Group classified the land as leased under financing leases since this involves land on which the Group's production facilities are located, they will be stated as fixed assets. Correspondingly, the Group recognizes a liability for the future minimum lease payments, which were discounted at a real interest rate of 5% as of the date of the execution date of the lease agreement with the Administration, based on the discount rate used by the Administration at such time. According to the provisions of IAS 17, the Group did not recognize an asset or liability for future payments to exercise the option to extend the lease period, since these payments constitute contingent lease fees, deriving from the fair value of the land on the future renewal date of the lease agreements. Accordingly, the effect of the retroactive application of the Standard's provisions regarding the recording of fixed assets and the liability is immaterial.

(3) Impairment of assets

As from January 1, 2010 the Group implements the amendment to IAS 36, Impairment of Assets – Unit of accounting for goodwill impairment test (hereinafter – the Amendment), which was published in the framework of Improvements to IFRSs 2009. The Amendment provides that for purposes of impairment testing the largest cash-generating unit to which goodwill should be allocated is the operating segment level as defined in IFRS 8 before applying the aggregation criteria in Paragraph 12 of IFRS 8. Implementation of the Amendment has no significant effect.

(4) Presentation of statement of changes in equity

As from January 1, 2010 the Group early implements the revision to IAS 1, Presentation of Financial Statements, which was issued in the framework of Improvements to IFRSs 2010, pursuant to which the Group presents in the statement of changes in equity, for each component of equity, a reconciliation between the carrying amount at the beginning of the period and the carrying amount at its end, and provides separate disclosure for each change resulting from profit or loss and other comprehensive income

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in Note 2E, Basis of Preparation, under the section addressing changes in accounting policies. A. Basis for Consolidation

As a result of the initial implementation of IFRS 3 (2008) and IAS 27 (2008) the Group has changed its accounting policy with respect to accounting for business combinations and transactions with non-controlling interests. (1) Business combinations

The Group implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. The Company exercises discretion in determining the acquisition date and whether control has been obtained. Accounting treatment of business combinations after January 1, 2010 For acquisitions on or after January 1, 2010, the Group recognizes goodwill at acquisition according to the fair value of the consideration transferred including any amounts recognized in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the acquirer in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed. On the acquisition date the acquirer recognizes a contingent liability assumed in a business combination if there is a present obligation resulting from past events and its fair value can be reliably measured. Furthermore, as from January 1, 2010 goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination, also with respect to previous business combinations from before that date. Costs associated with the acquisition that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other professional or consulting fees, other than those associated with an issue of debt or equity instruments connected to the business combination, are expensed in the period the services are received. Business combinations between January 1, 2007 and January 1, 2010 For acquisitions between January 1, 2007 (the date of transition to IFRSs) and January 1, 2010, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the recognized amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, a bargain purchase gain is recognized in profit or loss on the acquisition date.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) A. Basis for Consolidation (cont’d)

Business combinations between January 1, 2007 and January 1, 2010 (cont’d) Transaction costs, other than those associated with an issue of debt or equity instruments, that the Group incurred in connection with the business combination were capitalized as part of the cost of the acquisition. Business combinations prior to January 1, 2007 (the date of transition to IFRSs) On the date of transition to IFRSs, the Group adopted the relief provided in IFRS 1 and elected not to retrospectively implement the provisions of IFRS 3 (2004) with respect to business combinations, acquisitions of affiliates, acquisitions of jointly controlled entities and acquisition of non-controlling interests prior to the date of transition. Therefore, in respect of acquisitions prior to January 1, 2007 the goodwill recognized and the excess cost created represent the amounts recognized by the Group under Israeli GAAP.

(2) Subsidiaries

Subsidiaries are entities that are controlled by the Group. Control exists when the Group has the ability to control the financial and operational policy of the entity in order to derive benefit from its activity. The financial statements of the subsidiaries are included in the consolidated financial statements from the date control was acquired until the date control ceases to exist. The accounting policy of the subsidiaries was changed as necessary to correspond with the accounting policy adopted by the Company.

(3) Transactions eliminated in the consolidation

Intercompany balances within the Group and unrealized income and expenses deriving from intercompany transactions are eliminated in preparation of the consolidated financial statements.

(4) Proportional consolidation

The consolidated financial statements include a proportional part of the assets, liabilities, expenses and income of partly consolidated companies according to the holding percentage in those companies.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) A. Basis for Consolidation (cont’d) (5) Affiliates of equity accounted investees

Affiliates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Affiliates is accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The consolidated financial statements include the Group’s share in profit or loss of equity accounted investees.

(6) Transactions with non-controlling interest, while retaining control

Until January 1, 2010, for the purchasing of non-controlling interest, additional goodwill was recognized, the effect of selling non-controlling interest was recognized in the income statement. Commencing January 1, 2010, transactions with non-controlling interest are treated as capital transactions. Accordingly any difference between the consideration paid or received and the change in the non-controlling interest is recognized to the Company’s equity holders, directly to retained earnings.. The amount of the adjustment to non-controlling interests is calculated as follows: For a rise in the holding rate, according to the proportionate share acquired from the balance of non-controlling interests in the consolidated financial statements prior to the transaction. For a decrease in the holding rate, according to the proportionate share realized by the owners of the subsidiary in the net assets of the subsidiary, including goodwill.

(7) Issuance of put option to non-controlling interests

A put option issued by the Group to non-controlling interests that is settled in cash or another financial instrument is recognized as a liability at the present value of the exercise price. In subsequent periods, changes in fair value of the liability in respect of put options issued after January 1, 2010 are recognized in profit or loss. Changes in liabilities in respect of a put option issued by the Group to non-controlling interests before January 1, 2010, will continue to be recognized in goodwill and will not be recognized in profit or loss. The Group’s share of the acquiree’s profits includes the share of the non-controlling interests to which the Group issued a put option.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) B. Functional currency and presentation currency General The dollar is the currency that represents the main economic environment in which the Company operates. Accordingly, the dollar is the functional and presentation currency in these financial statements. Foreign currency transactions Foreign currency transactions are translated to the Group’s functional currency according to the exchange rate prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currency on the reporting date are translated to the functional currency according to the exchange rate prevailing on that date. Exchange rate differences for monetary items are the difference between the amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and for payments during the payment and between the amortized cost in foreign currency translated according to the exchange rate at the end of the period. Exchange rate differences are recognized directly in the statement of income, in financing expenses. C. Foreign Operations The assets and liabilities of foreign operations, including goodwill and adjustments to fair value created upon acquisition, were translated into dollars according to the exchange rates prevailing on the balance sheet date. Income and expenses of foreign operations were translated into dollars according to the exchange rates that were in effect at the time of the transaction. Foreign currency differences are recognized directly in other comprehensive income since January 1, 2007, the date of transition to IFRSs, such differences have been recognized in equity in the foreign currency translation reserve. When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal. D. Financial Instruments 1. Non-derivative financial instruments

Initial recognition of financial assets The Group initially recognizes loans and receivables and deposits on the date that they are created. All other financial assets acquired in a regular way purchase, including assets designated at fair value through profit or loss, are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument, meaning on the date the Group undertook to purchase or sell the asset. Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables and cash and cash equivalents.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d)

D. Financial Instruments (cont’d) 1. Non-derivative financial instruments (cont’d)

Derecognition of financial assets Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. Regular way sales of financial assets are recognized on the trade date, meaning on the date the Company undertook to sell the asset. Securitization of trade receivables In July 2007, a company unrelated to the Group ("the acquiring company") acquired an insurance policy that was renewed in April 2009 from an insurance company to insure the trade receivables sold as part of the securitization transaction. As a result of the said policy, commencing from this date the securitization transaction meets the requirements for deduction of financial assets. Pursuant to the insurance policy, the insurance company will indemnify the acquiring company (which is the beneficiary of the policy) for the entire amount of the initial loss. Based on past experience, this amount is much higher than the Company's actual losses from the trade receivables sold in the securitization transaction. In addition, the insurance premium is fixed. Therefore, the risks and rewards in connection with the trade receivables sold in the securitization transaction have been transferred in full to the acquiring company. See also Note 5. Cash and cash equivalents Cash balances include cash available for immediate use and demand deposits. Cash equivalents include highly-liquid short-term investments (with original maturities of three months or less) that may be easily converted into known amounts of cash, and which are exposed to insignificant risk of changes in value. Investments presented at fair value through the statement of income A financial instrument is classified as measured according to fair value through the statement of income if it is held for trading or if it was designated as such at the time of the initial recognition. Financial instruments are designated as measurable according to fair value through gain and loss if the Group manages investments of this type and makes purchase and sale decisions on the basis of fair value, according to the way the Company documented the risk management or investment strategy. At the time of initial recognition, the attributable transaction costs are recorded in the statement of income as incurred. These financial instruments are then measured at fair value and the changes therein are recorded to gain and loss. Loans and receivables Loans and other assets are non-derivative financial assets with fixed or determinable that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and other assets are measured at amortized cost using the effective interest method net of impairment losses.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) D. Financial Instruments (cont’d) 1. Non-derivative financial instruments (cont’d)

Offset of financial assets and liabilities Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

2. Non-derivative financial liabilities

The Group initially recognizes debt securities issued on the date that they are originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled. Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.

Non-derivative financial liabilities: bank overdrafts, loans and borrowings from banks and others, finance lease liabilities and trade and other payables.

3. Derivative financial instruments, including hedge accounting

The Group executes transactions in derivative financial instruments for the purpose of hedging against foreign currency risks, inflation risks and interest risks. The hedge is a cash flow hedge. Derivatives are initially recognized according to fair value; the attributable transaction costs are charged to the statement of income as incurred. On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss. After initial recognition, changes in fair value of derivatives used for hedging cash flows, for the effective portion of the hedge, are recorded to other comprehensive income directly to hedging reserve. For the non-effective portion, changes in fair value are recorded in the statement of income.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) D. Financial Instruments (cont’d) 3. Derivative financial instruments, including hedge accounting (cont'd)

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized through other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction occurs or is no longer expected to occur. If the forecasted transaction is no longer expected to occur, then the cumulative gain or loss previously recognized in the hedging reserve is recognized immediately in profit or loss. Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge financial assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized in profit or loss under financing income or expenses.

4. CPI-linked assets and liabilities not measured at fair value

The value of CPI-linked financial assets and liabilities that are not measured according to fair value are revalued in every period, according to the actual rate of increase in the CPI.

5. Share capital

The additional costs that are directly attributed to the issuance of ordinary shares and stock options are presented as a reduction of the equity. Company shares held by Company and subsidiary When share capital that was recognized in equity is repurchased by the Group, the consideration paid, including direct costs, is deducted from equity. The repurchased shares are classified as treasury shares and are presented as a deduction from equity.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) E. Property, plant and equipment 1. Recognition and measurement

Property, plant and equipment items are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditures that can be directly attributed to the purchase of the asset. The cost of assets that were constructed independently includes the cost of the materials and direct labor costs, as well as additional costs that are directly attributable to bringing the asset to the position and condition necessary for it to function as management intended, as well as costs to dismantle and remove the item and to restore its location and capitalized borrowing costs. The cost of purchased software, which is an integral part of operating the related equipment, is recognized as part of the cost of said equipment. When major parts of a fixed asset (including costs of major periodic inspections) have different life expectancies, they are treated as separate items (major components) of the fixed assets. The gain or loss from disposal of a fixed asset item is determined by comparing the consideration from its disposition to the book value, and is recognized net in the other income item in the Statement of Income.

2. Subsequent costs

The cost of replacing part of a fixed asset item is recognized as part of the book value of that item if it is expected that the future financial benefit embodied in the items will flow to the Group and its cost can be measured reliably. The book value of the part that was replaced is deducted. Routine maintenance costs are expensed when incurred.

3. Depreciation

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset, or other amount substituted for cost, less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of fixed asset item, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful life for the current period and comparative periods is as follows: Buildings 25-50 years Plant and equipment 22 years Furniture, equipment and accessories 7-17 years mainly 14 years Motor vehicles 5-7 years Computers and auxiliary equipment 3-5 years The estimates regarding the depreciation method, the useful life and the residual value are reevaluated at least at the end of every reporting period and adjusted if appropriate.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d)

F. Intangible Assets 1. Goodwill

Goodwill that arises upon the acquisition of subsidiaries (including non-controlling interest acquisitions) is included in intangible assets. For information on measurement of goodwill at initial recognition, see Paragraph A(1) of this note. Subsequent measurements Goodwill is measured according to cost after deduction of accrued impairment losses.

2. Research and development

Expenditures related to research activities undertaken for the purpose of acquiring know-how and new scientific or technical knowledge are expensed as incurred. Development activities are directly related to the production of new products or processes or significant improvement of existing products. Expenditures for development activities are recognized as an asset only if: it is possible to reliably measure the development costs; it is technically and commercially possible to implement the product or process; future economic benefit is expected from the product and the Group has intentions and sufficient resources to complete development of the asset and then use or sell it. The costs that were recognized as intangible assets include the cost of materials, direct salaries and overhead expenses that can be directly attributed to preparing the asset for its intended use. Other costs for development activities are expensed as incurred. Development costs that were recognized as an asset are measured according to cost after the deduction of the amortization and accrued impairment losses.

3. Other intangible assets

Other intangible assets purchased by the Group, with a determinate useful life, are measured according to cost less amortization and accrued impairment losses.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) F. Intangible Assets (cont’d) 4. Subsequent costs

Subsequent costs are recognized as an intangible asset only when they increase the future economic benefit embodied in the assets for which they were incurred. All other costs are expensed as incurred.

5. Amortization

Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset, less its residual value. Amortization is recognized in profit or loss on a straight-line basis, other than as stated hereunder, over the estimated useful lives of the intangible assets from the date they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Goodwill has an indefinite useful life is not systematically amortized but is tested at least once a year for impairment.

Internally generated intangible assets are not systematically amortized until they are available for use, meaning are brought to the working condition for their intended use.

The estimated useful life for the current period and comparative periods is as follows: ● Product licensing - mainly eight years. ● Intangible assets upon purchase of products - mainly twenty years. ● Marketing rights - five to ten years. ● Non-competition and confidentiality agreement - five years. ● Rights for the use of trademarks – mainly four years.

Licensing costs incurred for products that can be identified and separated, and from which the company expects to produce future economic benefit, are recognized as an asset in the “intangible assets” category and are amortized over the period of economic benefit they are expected to provide.

The estimates of the amortization method and useful lifespan are reevaluated at least at the end of every reporting period and determined accordingly.

The Group examines the estimated useful life of an intangible asset that is not amortized (goodwill) during every period, in order to determine if events and circumstances continue to support the determination that the intangible asset has an indeterminate lifespan.

G. Leased Assets

Leases, including leases of lands from the Israel Lands Administration or from other third parties, where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Future payments for exercising an option to extend the lease from the Israel Lands Administration are not recognized as part of an asset and corresponding liability since they constitute contingent lease payments that are derived from the fair value of the land on the future dates of renewing the lease agreement. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d)

H. Inventory Inventory is measured at the lower of cost or net realizable value. The cost of raw materials, packaging materials, spare parts, maintenance material and purchased materials inventories is determined according to the “moving average” method that includes the costs of purchasing the inventory and bringing it to its current location and condition. The cost of finished products and of products in process is determined on the basis of average production costs, including materials, labor and production expenses. The cost includes the allocable part of the production overhead, based on normal capacity. Net realizable value is the estimated selling price during the ordinary course of business, after deduction of the estimated cost to completion and the estimated costs required for effecting the sale. Long-term inventory is inventory the Company expects to realize in excess of 12 months. I. Capitalization of Credit Costs The costs of specific credit and of non-specific credit were capitalized to qualified assets, during the period required for completion and construction, until they are ready for their intended use. Non-specific credit costs were capitalized in the same manner to the investment in qualified assets or to the part that was not financed by specific credit, using an interest rate that is the weighted-average of the cost rates for those credit sources that were not capitalized specifically. Other credit costs are expensed as incurred. J. Impairment 1. Non-derivative financial assets A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. For material financial assets, the need to reduce the value of the asset is examined for each asset individually. For other financial assets, the need for impairment is examined collectively, for groups having similar credit risks. All impairment losses are recorded to the statement of income. The impairment loss is reversed when such recovery is objectively attributable to an event that occurred after recognition of the impairment loss. Reversal of an impairment loss of financial assets for assets that measured according to depreciated cost is recorded to the statement of income. 2. Non-financial assets The book value of the Group's non-financial assets, which are neither inventory nor deferred tax assets, is examined for each reporting period in order to determine if there are signs indicating impairment in value. If such signs exist, the estimated recoverable amount of the asset is calculated. The Group conducts an annual examination on a constant date of the recoverable amount for goodwill and intangible assets that have indefinite useful lives or unavailable for use, or more frequently if there are signs of impairment.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) J. Impairment (cont’d) 2. Non-financial assets (cont’d) The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net selling price (fair value less costs to sell). 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). Subject to an operating segment ceiling test (before the aggregation of similar segments), for the purposes of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes but not higher than the segment (before the aggregation of similar segments). Goodwill purchased in business combinations is allocated for the purpose of examining for impairment in value to cash-generating units that are expected to yield benefits from the synergy of the combination. When goodwill is not monitored for internal reporting purposes, it is allocated to operating segments (before the aggregation of similar segments) and not to a cash-generating unit (or group of cash-generating units) lower in level than an operating segment. An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. K. Employee Benefits 1. Post-employment benefits The Group has number post-employment benefit plans. The plans are primarily funded by deposits with insurance companies or funds managed by a trustee, and they are classified as defined contribution plans and as defined benefit plans. a. Defined contribution plans

The Group’s obligation to make deposits in a defined contribution plan is recorded as an expense to income and loss in the periods during which services are rendered by employees.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) K. Employee Benefits (cont’d)) b. Defined benefit plans

The Group’s net obligation, regarding defined benefit plans for post-employment benefits, is calculated separately for each plan by estimating the future amount of the benefit to which an employee will be entitled as compensation for his services during the current and past periods. The benefit is presented according to present value after deducting the fair value of the plan assets. The discount rate is determined according to the yield on government bonds, whose currency and maturity date are similar to the conditions obligating the Group, as at the reporting date. The calculations are performed by a licensed actuary using the “predicted eligibility unit” method.

When on the basis of the calculations a net asset is created for the Group, the asset is not recognized as an asset of the Group, since the Group is not entitled to refunds or a reduction in future deposits.

The Group records immediately, directly in retained earnings through other comprehensive income, all actuarial gains and losses deriving a defined benefit plan.

2. Other long-term employee benefits

The Group’s net obligation for long-term employee benefits, which are not attributable to post-employment plans, is for the amount of the future benefit to which employees are entitled for services that were provided during the current and prior periods. The amount of these benefits is discounted to its present value and the fair value of the assets related to this obligation is deducted therefrom. The discount rate is determined according to the yield on government bonds, whose currency and maturity date are similar to the conditions that obligate the Group, as at the reporting date. The calculations use the “predicted eligibility unit” method. Actuarial gains and losses are recorded to income and loss in the period in which they arise. 3. Termination benefits

Termination benefits are recognized as an expense when the Group is clearly obligated to pay it, without any reasonable chance of cancellation, in respect of termination of employees before they reach the customary retirement age according to a formal, detailed plan. The benefits given to employees upon voluntary retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be accepted and the number of employees that will accept the proposal can be reliably estimated. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. The discount rate is the yield at the reporting date on Government debentures denominated in the same currency, that have maturity dates approximating the terms of the Group’s obligations. 4. Short term benefits

Obligations for short-term employee benefits are measured on a non-discounted basis, and the expense is recorded when the related service is provided. Provisions for short-term employee benefits for cash bonuses or a profit-sharing plan are recognized when the Group has a current legal or constructive obligation to pay the said amount for services provided by the employee in the past and the amount can be estimated reliably. In the statement of financial position the employee benefits are classified as current benefits or as non-current benefits according to the time the liability is due to be settled.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d) K. Employee Benefits (cont’d)

b. Defined benefit plans (cont’d) 5. Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in the retained earnings within the equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service conditions, is adjusted to reflect the number of awards that are expected to vest.

The fair value of the amount to which employees are entitled for an increase in the value of the shares, settled in cash, is recorded as an expense, against a corresponding increase in liabilities, over the period in which the employees’ eligibility for the payment is obtained. The liability is re-measured in each reporting period and on the settlement date. Any change in the fair value of the liability is recorded as salary expense to income and loss. L. Provisions (1) Legal claims

A provision for claims is recognized if, as a result of a past event, the Company has a present legal or constructive obligation and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably. When the value of time is material, the provision is measured at its present value. (2) Restructuring

A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. The provision includes direct expenditures caused by the restructuring and necessary for the restructuring, and which are not associated with the continuing activities of the Group. M. Revenues Revenues from the sale of goods in the ordinary course of business is measured at the fair value of the consideration reviewed or receivable, net of returns discounts and commercial and quantity discounts. Discounts to customers which are conditional upon the customers’ compliance with certain targets such as minimal annual purchases, are included in the financial statements as a deduction from revenue, on a basis proportionately to the pace of compliance, only when it is probable that the targets will be achieved and the amount of the discount can be reasonably determined. The Group recognizes revenue when the significant risks and rewards from ownership of the merchandise are transferred to the buyer, receipt of the proceeds is expected, it is possible to reliably estimate the chance that the goods will be returned and the costs that were incurred or will be incurred for the transaction can be reliably estimated, when management has no ongoing involvement in the merchandise and the revenue may be reliably estimated. Timing of the transfer of the risks and rewards changes according to the specific terms of the sale contract. Regarding sales of products in Israel, transfer of the risks and rewards generally exists when the products arrive at the customer's warehouses, although regarding certain international shipments, the transfer occurs when the merchandise is loaded on the shipper's transport vehicles.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

33

Note 3 - Significant Accounting Policy (cont’d) M. Revenues (cont’d) When the Group acts, within the scope of the transaction, as an agent and not an owner, the revenue is recognized up to the amount of the net commission. Where the credit period of a sale exceeds the accepted credit period given in the sector, the group recognizes the future consideration at their present value while using the effective interest risk of the customer. The difference between the fair value and the stated value of the proceeds is recognized as interest income over the extended credit period. N. Financing Income and Expenses Financing income includes interest income on amounts invested, dividend income, changes in the fair value of financial assets presented at fair value through income and loss, exchange rate gains and from hedging instruments recognized in income and loss. Interest income is recognized as accrued, using the effective interest method. Dividend income is recognized when the Group is given the right to receive the payment. Financing expenses include interest on loans received, changes in the time value of provisions, changes in the fair value of financial assets presented at fair value through income and loss, impairment losses of financial assets and losses from hedging instruments recognized in income and loss. Credit costs, which are not capitalized, are charged to the statement of income using the effective interest method. Gains and losses from exchange rate differences are reported on a net basis. O. Income Tax Expenses Income tax expense comprise current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable (for receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred taxes are recognized in respect to temporary differences between the book values of the assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Company does not recognize deferred taxes for the following temporary differences: initial recognition of goodwill, initial recognition of assets and liabilities in transactions that do not constitute a business combination and do not impact the accounting profit and the profit for tax purposes, as well as differences deriving from investments in subsidiaries, if it is not expected that they will reverse in the foreseeable future and the extent the Group controls the date of reversal. Deferred taxes are measured according to the tax rates that are expected to apply to the temporary differences at the time they are realized, on the basis of the laws that were conclusively or effectively enacted as at the balance sheet date. The Company offsets deferred tax assets and liabilities if there is an enforceable legal right to offset current tax assets and liabilities and they are attributed to the same taxable income and are taxed by the same tax authority for the same assessed company or different companies that intend to settle current tax assets and liabilities on a net basis, or if the tax assets and liabilities are settled simultaneously. When calculating deferred taxes, taxes that would apply in the event that investments in investee companies are realized were not taken into account since it is the Company’s intention to hold these investments and not realize them.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

34

Note 3 - Significant Accounting Policy (cont’d) O. Income Tax Expenses (cont’d) The Group may be subject to additional tax in a case of distribution of dividends for Group companies. This additional tax is not included in the financial statements since the Group’s policy is not to cause a dividend distribution involving additional tax for the Group.

A deferred tax asset is recognized for unused tax losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred taxes for intercompany transactions in the consolidated financial statements are recorded based on the tax rate of the purchasing company. P. Government Grants Grants received from the Chief Scientist for research and development projects are treated as forgivable loans, in accordance with the provisions of IAS 20. Accordingly, grants received from the Chief Scientist are recognized as liabilities according to their fair value on the date the grants were received unless it was reasonably certain on that date that the amount received will not be repaid. The obligation amount is reexamined in each period and any changes in the present value of the cash flows, discounted at the original interest of the grant, are recorded in the statement of income. Q. Earnings (loss) per share The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or loss attributable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings per share are determined by adjusting the income or loss attributable to ordinary equity holders and the weighted-average number of ordinary shares outstanding for the effect of all potentially dilutive ordinary shares, including stock options and stock options granted to employees. R. Segment Reporting An operating segment is a component of the Group that meets three conditions as follows:

1. It engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components;

2. Its operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

3. Discrete financial information is available in its respect. S. Environmental costs The routine costs for operation and maintenance of facilities for the prevention of environmental pollution and projected provisions for environmental rehabilitation costs stemming from current or past activities are recorded in the statement of income. The cost of constructing facilities to prevent environmental pollution, which increase the life expectancy of a facility or its efficiency, or decrease or prevent the pollution, are added to the cost of the fixed assets and are depreciated according to the usual depreciation rates used by the Group.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

35

Note 3 - Significant Accounting Policy (cont’d)

T. New standards and interpretations not yet adopted In the framework of Improvements to IFRSs 2010, in May 2010 the IASB published and

approved 11 amendments to IFRS and to one interpretation on a wide range of accounting issues. Most of the amendments apply to periods beginning on or after January 1, 2011 and permit early adoption, subject to the specific conditions of each amendment.

Presented hereunder are the amendments that may be relevant to the Group and are expected to have an effect on the financial statements:

* Amendment to IAS 34 Interim Financial Reporting – Significant events and transactions

(hereinafter – “the Amendment”) – The Amendment expanded the list of events and transactions that require disclosure in interim financial statements, such as the recognition of a loss from the impairment in value of financial assets and changes in the classification of assets as a result of changes in their purpose or use. In addition, the materiality threshold was removed from the minimum disclosure requirements included in the Standard before its amendment. The Amendment is effective for annual periods beginning on or after January 1, 2011.

* Amendment to IFRS 7 Financial Instruments: Disclosures – Clarification of disclosures

(hereinafter – “the Amendment”) – The Amendment requires adding an explicit declaration that the interaction between the qualitative and quantitative disclosures enables the users of the financial statements to better assess the company’s exposure to risks arising from financial instruments. Furthermore, the clause stating that quantitative disclosures are not required when the risk is immaterial was removed, and certain disclosure requirements regarding credit risk were amended while others were removed. The Amendment is effective for annual periods beginning on or after January 1, 2011. Early implementation is permitted with disclosure.

IFRS 9 (2010), Financial Instruments (hereinafter – “the Standard”) – This Standard is one of the

stages in a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter – IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities.

In accordance with the Standard, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entity’s business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other debt assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments where revaluations are measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 3 - Significant Accounting Policy (cont’d)

T. New standards and interpretations not yet adopted (cont’d)

The Standard generally preserves the instructions regarding classification and measurement of financial liabilities that are provided in IAS 39. Nevertheless, unlike IAS 39, IFRS 9 (2010) requires as a rule that the amount of change in the fair value of financial liabilities designated at fair value through profit or loss, other than loan grant commitments and financial guarantee contracts, attributable to changes in the credit risk of the liability be presented in other comprehensive income, with the remaining amount being included in profit or loss. However, if this requirement aggravates an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. Amounts thus recognized in other comprehensive income may never be reclassified to profit or loss at a later date. The new standard also eliminates the exception that allowed measuring at cost derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured. Such derivatives are to be measured at fair value.

The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012 it is not required to restate prior periods.

The Group has not yet commenced examining the effects of adopting the Standard on the financial statements.

IAS 24 (2009) Related Party Disclosures (hereinafter – “the Standard”). The new standard

includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. The Standard is to be applied retrospectively for annual periods beginning on or after January 1, 2011. The Group is in the process of reassessing its relationships with related parties for the purpose of examining the effects of adopting the Standard on its financial statements.

Note 4 - Short Term Investments December 31 2010 2009 $ thousands $ thousands

Composition: Deposits 445 448 445 448

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

37

Note 5 - Trade Receivables and Subordinated Capital Note December 31 2010 2009 $ thousands $ thousands

Open debts* Foreign 636,765 614,881 Domestic (Israel) 1,191 1,068 637,956 615,949 Net of allowance for doubtful accounts (55,733) (48,091) 582,223 567,858

December 31 2010 2009 $ thousands $ thousands

Non-current trade receivables 30,659 25,399 Trade receivables - open accounts 637,956 615,949 Net of allowance for doubtful accounts (55,733) (48,091)

612,882 593,257

* Including post dated checks received (in the amount of $5,389 thousand USD as of

December 31, 2010 and $2,438 thousand USD as of December 31, 2009).

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

38

Note 5 - Trade Receivables and Subordinated Capital Note (cont’d) Subordinated capital note from sale of trade receivables

December 31 2010 2009 $ thousands $ thousands

Trade receivables included in the securitization transaction as at the balance sheet date 234,506 199,273 Less proceeds in respect of those receivables, net(*) 172,509 149,437

Subordinated capital note 61,997 49,836

Trade receivables sold where the proceeds were received (refunded) subsequent to the balance sheet date, net (*) 6,182 (7,744)

Subordinated capital note from sale of trade receivables 68,179 42,092

(*) As of the balance date, cash proceeds in the amount of $166.3 million were received from the sale of trade receivables (31 December 2009 - $157.2 million).

In October 2001, the Company and certain subsidiaries of Makhteshim Agan Industries signed an agreement regarding a securitization transaction for the sale by those companies of all their trade receivables to foreign companies that were established for this purpose (hereinafter - "special purpose companies"), which are neither owned nor controlled by the Makhteshim Agan Industries Group. The purchase of these trade receivables by the special purpose companies was financed by the American company Kitty Hawk Funding Corp. of the Bank of America Group.

In September 28, 2004, the Company and certain subsidiaries of Makhteshim Agan Industries (hereinafter, the Companies) signed an agreement with Bank of America to terminate a securitization transaction. On that day, the Companies signed a new agreement with Rabobank International for the sale of trade receivables in a securitization transaction, replacing the previous agreement with Bank of America. The new agreement is similar in principle to the previous agreement, with certain changes that also include that the agreement for the new transaction includes additional subsidiaries of the Company.

Pursuant to the new securitization agreement, the Companies will sell their trade receivables to a foreign company that was established for this purpose, which is neither owned nor controlled by the Makhteshim Agan Industries Group (hereinafter - the Acquiring Company). The purchase of these trade receivables by the Acquiring Company financed by the American company Erasmus Capital Corporation of the Rabobank International Group. Upon the transition from the previous agreement to the new agreement, the Acquiring Company acquired the trade receivables that remained under the ownership of the special vehicle company.

The trade receivables included in the securitization transaction are those that comply with a number of criteria, as stated in the agreement. The period in which the Companies will sell their trade receivables to the Acquiring Company is one year from the date of the closing of the transaction. The period may be extended, with the consent of both parties, for additional one-year periods, up to a maximum of 2 extensions.

On September 8, 2009, the Company and some of its subsidiaries extended the securitization agreement with Rabobank International by 3 more years. Without significant changes in the structure of the securitization of transaction, while during the facility period, the credit facility will be re-approved annually, pursuant to the securitization agreement. Subsequent to the balance sheet date, renewal of the credit facility until February 27, 2012 was approved.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 5 - Trade Receivables and Subordinated Capital Note (cont’d)

The maximum expected volume of the financial means available to the Acquiring Company for the purpose of purchasing the trade receivables of the consolidated subsidiaries, is $250 million on a current basis, such that the amounts collected from customers whose debts were sold will be available to purchase new trade receivables. The price at which the trade receivables will be sold is the amount of the debt being sold less a discount calculated on the basis of the period anticipated to pass between the date the debt was sold and the expected repayment date. On the date the debt is purchased, the Acquiring Company will pay the majority of the debt price in cash, with the balance in subordinated capital notes to be paid after the debt is collected. The rate of the cash payment varies in accordance with the composition and quality of the receivable portfolio. The Companies bear in full the losses that will be sustained by the Acquiring Company due to the non-payment of the trade receivables included in the securitization transaction, up to the amount of the total outstanding balance of the debt included in the subordinated capital note. The Acquiring Company will not have a right of recourse to the Companies with respect to the amounts paid in cash, except debts for which a commercial dispute arises between the Companies and their customers, namely, a dispute arising from an alleged failure by the seller to fulfil an obligation in the supply agreement for the product, such as: failure to supply the correct product, defect in the product, non-compliance with the supply date, etc. The Companies handle collection of the sold trade receivables included as part of the securitization transaction for the Acquiring Company. In July 2007, the Acquiring company purchased an insurance policy which was renewed in April 2009 from an insurance company to insure the trade receivables sold as part of the securitization transaction. Pursuant to this policy, the insurance company will indemnify the Acquiring Company (which is the beneficiary of the policy) for the entire amount of the initial loss. Based on past experience, this amount is much higher than the Company's actual losses from the trade receivables sold in the securitization transaction. In addition, the insurance premium is fixed. The accounting treatment of the sale of trade receivables in a securitization transaction is: Until July 2007, the transfer of the trade receivables to the Acquiring Company was not recognized as a sale. Therefore, the securitized trade receivables were not deducted from the financial statements. From July 2007, following the Acquiring Company's purchase of the insurance policy, as described above, the securitization transaction met the requirements for deducting the financial assets, since the risks and rewards involved in the securitized receivables were transferred in full to the Acquiring Company. Accordingly, the trade receivable balances that were sold, for which the proceeds were received in cash and/or unsubordinated liability, were deducted. The part of trade receivables included in the securitizations, for which cash proceeds were not received, a subordinated capital note was recorded in the amount of the difference between the trade receivables balance included in the securitization and the proceeds. The loss on sale of the trade receivables was recognized at the date of sale in the statement of income, in the item financing expenses. Under the terms of the agreement, the Company committed to maintain certain financial covenants, mainly, financial liabilities to equity and profitability ratios - see Note 21D.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

40

Note 6 - Financial Assets Including Derivatives* December 31 2010 2009 $ thousands $ thousands

Claims from the government in respect of participations and tax refunds 46,621 51,138 Employees 1,223 1,577 Current maturities of long-term receivables 16,659 10,918 Income receivable 3,932 1,108 Receivables in respect of hedging transactions 50,391 72,231 Advances to suppliers 2,695 5,137 Other 13,035 9,083 134,556 151,192

* Except for derivative transactions that are presented at fair value, the remaining items are classified to

loans and receivables. Note 7 - Inventories

December 31 2010 2009 $ thousands $ thousands

Finished products 595,453 601,825 Products in progress 67,120 63,051 Raw materials 196,761 210,602 Packing materials 11,381 7,825 Spare parts and maintenance materials 18,188 17,029 888,903 900,332 Purchased products for sale 83,455 59,259 972,358 959,591 Additional information: Merchandise in transit (included in inventories balance) 35,260 52,590

December 31 2010 2009 $ thousands $ thousands

Non current inventory 29,800 41,000 Current inventory 972,358 959,591 1,002,158 1,000,591 The Group wrote-down inventory mainly, due to slow moving inventory and net realizable value at December 31, 2010 by the amount of $17.6 million and at December 31, 2009 by the amount of $29.8 million.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

41

Note 8 - Other Financial Investments and Receivables A. Composition

December 31 2010 2009 $ thousands $ thousands

Long-term investments, loans and receivables 19,890 23,897 Claims from the government in respect of tax refunds 53,283 43,695 Non-current trade receivables 30,659 25,399 Bank deposits 14 12 Derivatives 49,957 41,463 153,803 134,466 Less - current maturities 16,659 10,918 137,144 123,548 B. Maturities The other financial investments and receivables mature as follows:

$ thousands First year (current maturities) 16,659 Second year 25,392 Third year 25,956 Fourth year 10,517 Fifth year and thereafter 74,823 Without fixed maturity date 456 153,803

Note 9 - Other Non-Financial Investments and Receivables

December 31 2010 2009 $ thousands $ thousands

Non-current inventory 29,800 41,000 Non-financial assets 3,423 8,794

33,223 *49,794 * Reclassified - See Note 2E(2).

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 10 - Fixed Assets Composition Office furniture Land and Plant and Motor computers and buildings equipment vehicles equipment Total $ thousands

Cost Balance at beginning of year 174,712 935,336 8,594 19,701 1,138,343 Additions, net of grants 19,521 74,208 1,665 4,756 100,150 Newly consolidated companies 1,887 637 166 99 2,789 Disposals (215) (210) (997) (306) (1,728) Balance at end of year 195,905 1,009,971 9,428 24,250 1,239,554

Accumulated depreciation Balance at beginning of year 81,042 460,062 3,652 13,660 558,416 Additions 6,585 35,524 1,563 2,929 46,601 Impairment loss 874 14,916 - - 15,790 Newly consolidated companies 74 79 120 31 304 Disposals - (111) (880) (249) (1,240) Balance at end of year 88,575 510,470 4,455 16,371 619,871

Depreciated balance at December 31, 2010 107,330 499,501 4,973 7,879 619,683 Office furniture Land and Plant and Motor computers and buildings equipment vehicles equipment Total $ thousands Cost Balance at beginning of year *168,213 858,506 7,502 16,522 1,050,743 Additions, net of grants 4,384 72,045 1,983 3,788 82,200 Newly consolidated companies 2,903 9,099 278 210 12,490 Disposals (788) (4,314) (1,169) (819) (7,090) Balance at end of year 174,712 935,336 8,594 19,701 1,138,343

Accumulated depreciation Balance at beginning of year * 75,539 424,948 3,000 11,127 514,614 Additions * 5,848 33,849 1,416 3,210 44,323 Newly consolidated companies 23 3,150 142 104 3,419 Disposals (368) (1,885) (906) (781) (3,940) Balance at end of year 81,042 460,062 3,652 13,660 558,416

Depreciated balance at December 31, 2009 93,670 475,274 4,942 6,041 579,927

* Reclassified – see Note 2E(2)

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 10 - Fixed Assets (cont’d) B. Additional information 1. The Makhteshim facilities are located on an approximately 1,086 acre plot in Ramat Hovav leased

for various periods expiring between the years 2023-2029 with an extension right and on an approximately 407 acre plot in Beer Sheba leased from the Israel Land Administration for periods expiring between the years 2018-2026 with an extension right. The Agan facilities are located in Ashdod on freehold area of approximately 242 acres of which approximately 40 acres are leased from the Israel Land Administration for lease periods expiring between the years 2050 and 2054. In addition, a company of Agan rents an additional plot of approximately 7 acres adjacent to the plant. The facilities of the companies outside Israel are located on freehold land.

2. Regarding liens - see Note 21. C. Collateral As at December 31, 2010, fixed asset items totalling $22,231 thousand (2009: $17,624 thousand) are pledged to secure bank loans (see Note 15, Long-term Bank Loans, regarding terms and maturity dates). D. Purchase of fixed assets for credit During the year ended December 31, 2010, the Company purchased fixed assets for credit totalling $12,506 thousand. E. Investment grants Investment grants received for the purchase of fixed assets

December 31 2010 2009 $ thousands $ thousands

Buildings and equipment in the Group’s plants 107,621 107,104 The investments grant that was deducted from the cost of the buildings and equipment in the Group’s plants were received for investments in an “approved enterprise” for many years. To secure compliance with the conditions for receipt of the grant, a floating lien was registered on all of the Group’s assets in favor of the State of Israel. For part of the investments, if the Group does not comply with the conditions for receipt of the grant, the investments will have to return the grant amount, in full or in part, plus interest at a rate to be prescribed by the Investment Center. During 2010 additional grants were received in the amount of $517 thousand. (During 2009, no additional grants were received).

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 10 - Fixed Assets (cont’d)

F. Capitalized costs

December 31 2010 2009 $ thousands $ thousands

Credit costs 22,011 22,011 During 2009 and 2010 no credit costs were capitalized. G. Additional Information The Group has fully-depreciated assets that are still in operation. The original cost of these assets as at December 31, 2010 is $216,438 thousand (December 31, 2009: $215,051 thousand). Part of the freehold land in Israel has not yet been registered in the name of the Group companies in the Land Registry Office, mostly due to registration arrangements or technical problems.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 11 - Intangible Assets

A. Composition: Intangible assets on Product purchase of Marketing rights Registration Goodwill products Software and trademarks(1) Other(2) Total $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Cost Balance as at January 1, 2010 479,715 211,782 329,583 33,680 19,089 30,899 1,104,748 Additions 70,989 10,118 - 7,662 35,392 449 124,610 Disposals (4,172) (6,211) - (480) - (6,293) (17,156) Balance at end of year 546,532 215,689 329,583 40,862 54,481 25,055 1,212,202 Amortization Balance as at January 1, 2010 248,525 47,830 140,225 24,503 15,526 13,118 **489,727 Amortization for the year 36,374 915 17,343 4,080 1,336 2,430 62,478 Impairment loss 2,022 - 7,480 - - - 9,502 Disposals (1,137) - - (83) - (1,779) (2,999) Balance at the end of the year 285,784 48,745 165,048 28,500 16,862 13,769 558,708 Depreciated balance as at December 31, 2010 260,748 166,944 164,535 12,362 37,619 11,286 653,494

Cost Balance as at January 1, 2009 402,249 200,650 329,583 26,882 17,822 27,725 1,004,911 Additions 79,852 5,345 - 6,798 98 440 92,533 First-time consolidation 1,811 6,052 - - 1,169 2,734 11,766 Disposals (4,197) (265) - - - - (4,462) Balance at end of year 479,715 211,782 329,583 33,680 *19,089 *30,899 1,104,748 Amortization Balance as at January 1, 2009 216,686 46,912 122,681 21,215 13,777 11,078 **432,349 Amortization for the year 33,909 918 17,544 3,288 1,749 2,040 59,448 First-time consolidation 507 - - - - - 507 Disposals (2,577) - - - - - (2,577) Balance at the end of the year 248,525 47,830 140,225 24,503 *15,526 *13,118 **489,727 Depreciated balance as at December 31, 2009 231,191 163,952 189,358 9,177 3,563 17,781 615,021 (1) Including rights to use trademarks (2) Including primarily lists of customers. * Reclassified ** Including impairment provision for impairment in value of licensed products totaling approximately $19 million as of December 31, 2009. The provision were made in 2006 and 2007.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 11 - Intangible Assets (cont’d) B. Additional details 1. In 2002, subsidiaries, wholly-controlled by the Company, signed several agreements with Bayer

Crop Science AG for the acquisition of several products, licenses and distribution rights in the field of agrochemicals. The total consideration for such acquisition totaled approximately $185.3 million. Approximately $34.6 million of the consideration was allocated to acquisition of licenses, approximately $144.1 million to intangible assets on purchase of products including: intellectual property rights, trademarks, brandname, technological know-how, information on customers and suppliers of raw materials and approximately $6.6 million was allocated to marketing and distribution rights.

2. In 2001, subsidiaries, wholly-controlled by the Company, signed agreements with Aventis and

Syngenta A.G. for the purchase of four new agrochemical products as well as the purchase of marketing and distribution rights of a product package in the Scandinavian countries. The total consideration for purchase of the four products totaled approximately $105 million. Approximately $20 million was allocated to product registration costs, approximately $2.5 million to the purchase of agreements with third parties and approximately $77.5 million to intangible assets on purchase of products which includes: intellectual property rights, trademarks, brand name, technological know-how, information on customers and suppliers of materials and $5 million was allocated to the marketing and distribution rights.

3. In 2010, a wholly-controlled subsidiary of the Company, entered into a strategic partnership

agreement with Monsanto, regarding the inclusion of several herbicides sold by the Company, which selling by the Company under a plan of managing of Monsanto seeds. The plan is for managing the treatment of Monsanto seeds. The total investment at December 31, 2010 amounted to $35 million, which were allocated to marketing rights and trademarks.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

47

Note 12 - Loans and Credit from Banks and Other Lenders A. Current liabilities

December 31 December 31 2010 2009 $ thousands $ thousands

Credit from banks Overdrafts 94,546 87,678 Short-term credit 99,974 32,674 194,520 120,352 Customer discounting * 68,402 95,592 262,922 215,944 Current maturities of others 115 105 Current maturities of long-term loans from banks 179,742 20,926

442,799 236,975

* A subsidiary is guarantor of trade receivables that were discounted. Therefore, the risks and benefits involved in these trade receivables have not been transferred.

B. Linkage terms and interest rates (excluding current maturities)

Weighted Interest rate as at

balance sheet date

December 31 2010 2009 % $ thousands $ thousands

Credit from banks Overdrafts: In Israeli currency 5.9 291 73 In US dollars 4.5 71,784 62,766 In Euro 4.2 13,415 12,775 In Brazilian currency 12.4 4,725 7,548 In other currencies 6.1 4,331 4,516 94,546 87,678 Short-term credit: In US dollars 3.0 65,633 13,382 In Euro 2.1 614 5,942 In other currencies 9.0 33,727 13,350 99,974 32,674 Customer discounting: In US dollars 6.9 38,395 33,272 In Brazilian currency 11.0 30,007 62,320 68,402 95,592 262,922 215,944 C. Regarding financial covenants - see Note 21C.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

48

Note 13 - Trade Payables December 31 December 31 2010 2009 $ thousands $ thousands

Open accounts 499,363 498,686 Post-date checks provided 4,034 3,006 503,397 501,692

Note 14 - Payables and Credit Balances December 31 December 31 2010 2009 $ thousands $ thousands

Liabilities to employees and for salaries and wages 93,256 77,005 Government institutions 11,628 20,059 Payables in respect of hedging transactions 35,039 12,386 Accrued expenses 75,593 42,179 Payables in respect of other assets 53,185 31,646 Liabilities for discounts 75,764 57,260 Provisions 10,030 10,720 Other 34,272 27,725 388,767 278,980

Note 15 - Long-term Loans from Banks

A. Composition

December 31 December 31 2010 2009 $ thousands $ thousands

Loans from banks 254,171 324,125 Less - current maturities 179,742 20,926 74,429 303,199

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 15 - Long-term Loans from Banks (cont’d) B. Linkage terms and interest rates

Weighted Interest rate as at balance sheet date

December 31 December 31 2010 2009 % $ thousands $ thousands

In US dollars 3.0 232,363 313,403 In Brazilian currency 6.4 8,336 2,159 In Euro 3.1 10,490 5,384 In other foreign currency 5.4 2,982 3,179 254,171 324,125

C. Maturities $ thousands

First year (current maturities) 179,742 Second year 24,799 Third year 25,300 Fourth year 18,984 Fifth year and thereafter 5,346 254,171

D. Regarding the commitment of the Company and certain subsidiaries to banks to maintain certain

financial covenants, mainly debt-equity and profitability ratios - see Note 21C. Note 16 - Debentures

On December 4, 2006, the Company issued to institutional investors three series of debentures in the aggregate amount of NIS 2,350 million par value, broken down into three separate series, as follows: 1. Series B, totalling NIS 1,650 million par value, linked to the CPI and bearing base annual interest of

5.15%. The debenture principal is to be repaid in 17 equal payments during the years 2020-2036. The issue costs in respect of this series totalled $1,044 thousand.

2. Series C, totalling NIS 465 million par value, linked to the CPI and bearing base annual interest

of 4.45%. The debenture principal is to be repaid in 4 equal payments during the years 2010-2013. The issue costs in respect of this series totalled $294 thousand.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

50

Note 16 - Debentures (cont’d) 3. Series D, totalling NIS 235 million par value, unlinked and bearing base annual interest of

6.5%. The debenture principal is to be repaid in 6 equal payments during the years 2011-2016. The issue costs in respect of this series totalled $149 thousand.

On May 27, 2008, the Company published a shelf prospectus and prospectus to list for trading, pursuant to which debentures of the Company (Series B, C and D) were listed for trading. Until this date, the Company had paid supplemental interest of 0.25% on these debentures, and met all the financial commitments it had assumed pursuant to the trust deeds during the period until listing for trading. During 2008, the Company purchased by itself and through a wholly-owned subsidiary, a cumulative total of NIS 80.4 million par value debentures (Series B), at a total cost of $16,425 thousand. Due to the Company's purchase, debentures having par value of NIS 12.5 million were de-listed from trading. On March 25, 2009, the Company issued debentures by the way of expanding Series C and D under shelf prospectus published May 27, 2008 in the total amount of NIS 1,133 million par value debentures for a consideration of 101.56% and 98.95% of its par value, respectively. Those debentures are divided into two Series as follows: 1) Series C in the amount of NIS 661 million par value debentures linked to the CPI (Base Index

October 2006), bearing base annual rate of 4.45%. The debenture principal will be repaid in 4 equal instalments in the years 2010 to 2013. The issue costs of those debentures were $1,297 thousand.

2) Series D in the amount of NIS 472 million par value debentures bearing base annual rate of

6.5% and is not linked to the CPI. The debenture principal will be repaid in 6 equal instalments in the years 2011 to 2016. The issue costs of that Series were $1,090 thousand.

On November 30, 2010 the Company repaid a total of $281.5 million Par Value Series C which totaled $86.9 million, as the first payment of principal on debentures Series C. A. Linkage terms and interest rates:

Interest rate as of balance sheet date Per Value Total Linkage terms % NIS thousands $ thousands

Debentures - Series B ILS CPI 5.15% 1,569,590 502,684 Debentures - Series C ILS CPI 4.45% 844,500 271,524 Debentures - Series D ILS 6.50% 707,000 197,334 3,121,090 971,542

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Note 16 - Debentures (cont’d) B. Maturities

$ thousands First year (current maturities) 123,528 Second year 123,528 Third year 123,528 Fourth year 33,202 Fifth year 33,202 Sixth year and thereafter 534,554 971,542

Note 17 - Other Long-term Liabilities

December 31 December 31 2010 2009 $ thousands $ thousands

Liabilities linked primarily to the Brazilian real 11,069 9,016 Liability in respect of purchase of a subsidiary 2,403 4,678 Liability for State grants 2,814 2,320 Other liabilities 3,266 2,697

19,552 18,711

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 18 - Taxes on Income

Information on the tax environment in which the Group operates (cont’d) A. Benefits under the Law for the Encouragement of Capital Investments, 1959 The plants of subsidiaries in Israel have been granted “Approved Enterprise” or “Beneficiary Enterprise” status under the Israeli Law for the Encouragement of Capital Investments, 1959. Part of the income deriving from the “Approved Enterprise” or “Beneficiary Enterprise” during the benefit period is subject to tax at the rate of 25% (the total benefit period is seven years and in certain circumstances up to ten years, but may not exceed either 14 years from the date of the Letter of Approval or 12 years from the date the “Approved Enterprise” commenced operations). Other plants of subsidiaries in Israel are entitled to a tax exemption for periods of between two and six years and a reduced tax rate of 25% for the remainder of the benefit period. Should a dividend be distributed from the tax-exempt income, the subsidiaries will be liable for tax on the income from which the dividend was distributed at a rate of 25%. The benefit period has ended for some of the plants of the subsidiaries and for others will end during years until 2014. In addition, subsidiaries have other investment programs in progress or for which the benefit period has not yet commenced. The aforementioned benefits are conditional upon compliance with certain conditions specified in the Law, related Regulations and the Letters of Approval, in accordance with which the investments in the Approved Enterprises were made. Failure to meet these conditions may lead to cancellation of the benefits, in whole or in part, and to repayment of any benefits already received, together with interest. Management believes that the companies are in compliance with these conditions. B. Benefits under the Law for the Encouragement of Industry (Taxes), 1969 Under the Israeli Law for the Encouragement of Industry (Taxes) 1969, the Company is an Industrial Holding Company and the subsidiaries in Israel are “Industrial Companies”. The main benefit under this law is the filing of consolidated income tax returns (The Company files a consolidated income tax return with Makhteshim), higher depreciation for tax purposes and amortization of know-how over 8 years. C. Amendment to the Law for the Encouragement of Capital Investments - 1959 On December 29, 2010, the Knesset approved the Economic Policy Law for Years 2010-2012, under which the Law for the Encouragement of Capital Investments – 1959 was amended ("Amendment to the Law"). The Amendment to the Law was published in the Code on January 6, 2011. The Amendment to the Law takes effect on January 1, 2011 and its provisions will apply to preferential income generated or earned by a preferential company, as defined in the Amendment to the Law, in year 2011 and henceforth. The Company is allowed to not have the Amendment to the Law apply to it and remain under the effect of the Law before its amendment, until the end of the benefits period. The last year of election that a company is allowed to choose is the 2012 tax year, provided that the minimum entitling investment began in year 2010.

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Note 18 - Taxes on Income

Information on the tax environment in which the Group operates (cont'd) C. Amendment to the Law for the Encouragement of Capital Investments - 1959 (cont’d) Within the scope of the Amendment, it was provided that eligible for the grants track will be only companies in Development Area A, and they will be entitled to benefit from this track and from the tax benefits track at the same time. Likewise, the existing tax benefits tracks were cancelled (tax exemption track, the "Ireland" track and the "strategic" track) and were replaced by new tax tracks, preferential enterprise and special preferential enterprise, which are namely a uniform reduced tax rate on all of the income of a company eligible for benefits, as follows: regarding a preferential enterprise – in the 2011-2012 tax years – 10% in Development Area A, and 15% in the rest of the country. In the tax years 2013-2014 – 7% in Development Area A and 12.5% in the rest of the country, and in the tax year 2015 and henceforth – 6% in Development Area A and 12% in the rest of the country. Moreover, an enterprise that meets the definition of a special preferential enterprise is eligible for a benefits period of 10 consecutive years, to a reduced tax rate of 5% if it is located in Development Area A or to a reduced tax rate of 8% if it is located elsewhere. The Amendment to the Law further provides that a tax will not be imposed on a dividend that will be distributed out of preferential income to a shareholder that is a company, at the distributing company level and at the shareholders level. A tax rate of 15% will still apply to a dividend that will be distributed out of preferential income to a taxpayer who is an individual or a foreign resident covered by a treaty to prevent double taxation – in other words, there is no change with respect to the existing law. Likewise, the Amendment to the Law provides relief ("the Relief") related to the tax paid on a dividend received by an Israeli company out of the income of an approved/alternative/benefitted enterprise, earned during the benefits period according to the formula of the Law before its amendment, if the dividend-distributing company will notify the tax authorities by June 30, 2015 of the imposition of the Amendment to the Law, and the dividend will be distributed after the notification date. At the report date, the Company elected to continue the benefits conferred by the Law before its amendment. D. Taxation under inflationary conditions The Israeli Income Tax Law (Inflationary Adjustments), 1985, ("the Law") has been in effect since the 1985 tax year. The Law instituted the measurement of results for tax purposes on a real basis. The various adjustments required by the Law are intended to bring about taxation of income on a real basis. Since the financial statements are not linked to the CPI from the date the Israeli economy was no longer considered a hyperinflationary economy, differences have been created between income according to the financial statements and adjusted income for income tax purposes, as well as temporary differences between the value of assets and liabilities in the financial statements and their tax basis. On February 26, 2008, the Knesset passed the Income Tax Law (Adjustments for Inflation) (Amendment No. 20) (Limited Period of Applicability) 2008 (hereinafter, “the Amendment”). Pursuant to the Amendment, the applicability of the Adjustments Law ended in 2007, and in 2008 the provisions of the law were no longer in effect, other than the transition provisions having the purpose of preventing distortions in the calculation of taxes.

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Note 18 - Taxes on Income (cont'd) D. Taxation under inflationary conditions (cont'd) Pursuant to the Amendment, from 2008 forward, the adjustment of income for inflation is no longer calculated for purposes of taxation on a real basis. Furthermore, the linkage to the CPI of depreciation amounts for fixed assets and tax loss carryforwards ceased, so that these amounts are adjusted for the CPI as of the end of 2007 and their linkage to the CPI ceased from that point forward. The effect of this Amendment to the Adjustments Law was expressed in the calculation of current taxes and deferred taxes commencing in 2008. E. Foreign subsidiaries The companies are assessed according to the tax laws applicable in their countries of domicile. F. Change in tax rate On July 14, 2009, the Knesset passed the Economic Efficiency Law (Legislation Amendments for Implementation of the 2009 and 2010 Economic Plan) – 2009, which provided, inter alia, an additional gradual reduction in the company tax rate to 18% as from the 2016 tax year. In accordance with the aforementioned amendments, the company tax rates applicable as from the 2009 tax year are as follows: In the 2009 tax year – 26%, in the 2010 tax year – 25%, in the 2011 tax year – 24%, in the 2012 tax year – 23%, in the 2013 tax year – 22%, in the 2014 tax year – 21%, in the 2015 tax year – 20% and as from the 2016 tax year the company tax rate will be 18%.

Current and deferred tax balances for the periods reported in these financial statements are calculated in accordance with the new tax rates specified in the Economic Efficiency Law. G. On January 1, 2009. Amendment No.169 to the Income Tax Ordinance was enacted as a

Temporary Provision for tax year 2009 alone, whereby a company may elect to pay 5% tax on dividend income it received in 2009 and paid to it by a foreign-resident body of persons, provided that several conditions prescribed in the Temporary Order are fulfilled. After the Company examined the manner in which the said Amendment to the Ordinance is to be implemented, the Company’s board of directors approved a proposal for a one-off withdrawal of earnings from the Groups foreign companies, totalling $300 million. The earnings transferred in the fourth quarter of 2009 are used by the Company for its operating needs and as a reserve for a dividend distribution. The financial statements include a liability for taxes payable of $15 million (5% of the dividend amount). It should be clarified that the withdrawal of earnings, as noted, does not change the Company’s dividend distribution policy and/or its timing.

H. On February 4, 2010 was published temporary order amendment No. 174 to the income tax

ordinance to the tax laws 2007, 2008 and 2009 (hereinafter "the ordinance amendment"). According to the ordinance amendment, Israeli accounting principle no. 29 concerning adoption of International Financial Reporting Standards (IFRS) will not apply for the use of determining the taxable income in the aforementioned years, although it was applied for the use of the financial statements. The effect of the Amendment on the financial statements is not material.

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Note 18 - Taxes on Income (cont'd) I. Deferred tax assets and liabilities (1) Deferred tax assets and liabilities recognized Deferred taxes are calculated at the tax rate expected to be in effect on the date of the reversal, as provided below. Deferred taxes for subsidiaries operating outside of Israel were calculated according to the relevant tax rates in each country. Deferred tax assets and liabilities are attributed to the following items: Fixed assets and Employee Tax loss other assets benefits carryforwards Inventories Other Total $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands Deferred tax asset (liability) balance as at January 1, 2009 (85,391) 21,444 11,726 45,172 6,086 (963) Changes charged to statement of income 6,250 (2,852) 33,313 5,875 8,901 51,487 Changes charged to comprehensive income (53) 213 - 302 (4,035) (3,573) Deferred tax asset (liability) balance as at January 1, 2010 (79,194) 18,805 45,039 51,349 10,952 46,951 Changes charged to statement of income 3,494 10,161 (9,897) (5,301) 369 (1,174) Changes charged to comprehensive income (32) (1,563) (24) (54) 1,136 (537) Deferred tax asset (liability) balance as at December 31, 2010 (75,732) 27,403 35,118 45,994 12,457 45,240 December 31 December 31 2010 2009 $ thousands $ thousands Presented in: Deferred tax assets 73,541 86,542 Deferred tax liability (28,301) (39,591) Total 45,240 46,951

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Note 18 - Taxes on Income (cont'd) I. Deferred tax assets and liabilities (cont’d) (1) Deferred tax assets and liabilities recognized (cont’d) The deferred tax asset balance for tax loss carry forwards is mainly from a subsidiary in Brazil and subsidiaries in Israel. Deferred tax assets were recognized since there is an expectation of future taxable income against which it will be possible to offset the tax loss carry forwards not yet utilized. According to the existing tax laws in the countries in which deferred taxes were recognized, there is no time limit on the utilization of deductible temporary differences. However, Brazil does limit the amount of tax loss carry forwards that may be offset every year (30% of annual taxable income). The main supporting evidence used by the Company for the purpose of recognizing a tax asset is based on the characteristics of the industry in which the company operates, including: the agrochemicals industry is characterized by stability and the products are old products based on traditional chemistry, not influenced by significant technological developments. Brazil is one of the Group's main growth engines, due mainly to the vacant cultivation areas and because Brazil is a key factor in the production of major agricultural crops, in domestic consumption and in global exporting. During the third quarter of 2010, the sales turnover and profit margins fell below the forecasts of the subsidiary in Brazil. Consequently, the Company is instituting a comprehensive reorganization plan, which includes a significant adaptation of manpower levels, a considerable reduction in manufacturing activities and the transfer of products from independent manufacturing to outsourcing while reducing the subsidiary's overhead. In the Company's estimation, based, inter alia, on its past experience in instituting reorganization plans in the Group, and based on the activities decided upon and which are being carried out in the subsidiary since the fourth quarter of 2010, the reorganization plan is expected to improve the results of the subsidiary, already as from 2011. Accordingly, the subsidiary in Brazil update its forecasts according to the detailed data for the next eight years, based on factors including the detailed sales forecast of the subsidiary and the projected results of the reorganization plan described previously. Consequently, during the third quarter of 2010, deferred tax assets of $20 million were reversed (of which $12 million derive from prior years).

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 18 - Taxes on Income (cont'd) I. Deferred tax assets and liabilities (cont’d) (2) Deferred tax assets not recognized

Deferred tax assets were not recognized for the following items:

December 31 December 31 2010 2009 $ thousands $ thousands

Tax losses 216,813 36,199 Deferred tax assets were not recognized for these items, since it is not expected that there will be taxable income in the future, against which it will be possible to utilize the tax benefits.

J. Composition of tax expense

Components of income tax expenses (income) For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Current tax expenses (income) for current period 17,718 38,570 38,168 Adjustments for previous years, net (8,171) 4,236 (7,840) 9,547 42,806 30,328 Deferred tax expenses (income) Creation and reversal of temporary differences 1,174 (45,967) 19,356 Change in the tax rate - (5,520) - 1,174 (51,487) 19,356 Total income tax expenses (income) 10,721 (8,681) 49,684

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Note 18 - Taxes on Income (cont'd)

K. Theoretical tax

Following is reconciliation between the theoretical tax and the tax expense included in the statement of income:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Income (loss) before taxes on income (121,191) 26,020 270,643 Company's main tax rate 25% 26% 27% Tax calculated at the ordinary tax rate (30,298) 6,765 73,074 Tax benefits from Approved Enterprises (1,200) (1,415) (5,397) Difference between financial statement measurement of income and tax basis (6,867) (13,228) 15,809 Taxable income and temporary differences at other tax rates (14,177) (24,664) (31,961) Taxes in respect of previous years (8,171) 4,236 (7,840) Temporary differences and losses in the report year 43,734 - - for which deferred taxes were not created Reversal of tax asset created in previous years for loss carryforwards 19,668 - - Utilization of tax losses from prior years for which deferred taxes were not created (477) 210 609 Tax in respect of dividend distributed within the group - 15,000 - Non-deductible expenses and other differences 8,509 9,935 5,390 Change in tax rate in respect of deferred taxes - (5,520) -

10,721 (8,681) 49,684

Effective tax rate (8.8%) (33.4%) 18.4%

Income taxes charged directly to equity For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Taxes recognized directly in equity - 27 175 Taxes for components of other comprehensive income (558) (3,391) 1,073 L. Final assessments

Agan has received final tax assessments up to the 2005 tax year. Makhteshim and the Company have received final tax assessments up to and including the 2004 tax year. Lycored has received final tax assessments up to and including the 2006 tax year.

M. Losses and deductions available for carryforward to future years

As of the balance sheet date tax losses carry forward adjusted amount of $353 million. For accrued losses, the Group has created a tax asset of $35 million, based on management's assessment that it is probable that these losses will be realized in future years.

N. Additional Information

Regarding tax claims against Milenia - see Note 20E(1).

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Note 19 - Employee Benefits Employee benefits include post-employment benefits, other long-term benefits, short-term benefits, termination benefits and share-based payments. Likewise, the Company has a defined benefit plan for some of its employees, which are subject to Section 14 of the Severance Pay Law, 1963. Severance pay and retirement grants The Company and its subsidiaries in Israel make regular deposits with “Nativ” (the Pension Fund of the Workers and Employees of the Histadrut Ltd.) and insurance companies, conferring pension rights or severance pay upon reaching retirement age. Amounts deposited in the pension fund are not included in the balance sheet because they are not under the management or control of the companies.

Employees dismissed before reaching retirement age, to which Section 14 of the Severance Pay Law does not apply, will be eligible for severance benefits, computed on the basis of their most recent salary. Where the amounts accumulated in the pension fund are not sufficient to cover the computed severance benefits, the companies will cover the difference.

In addition to their above mentioned pension rights, most employees are entitled to receive retirement grants at the rate of 2.33% of their salary at retirement age. The accrual in the balance sheet covers the companies’ obligations to pay retirement grants, as well as the full projected liability to pay severance benefits to some of their employees for the period prior to the date on which these employees joined the pension plan, during which period no deposits had been made in the fund in the name of the employee. Early retirement pension

The financial statements include a provision for payment of pension benefits to a number of employees whose work was terminated before they reached retirement age. The provision was calculated for actuarial basis in the period from the date their employment was terminated until the date stipulated in the agreement, on the basis of the present value of the pension payments.

Regarding the agreements reached by the Company with the Histadrut Haclalit and with the workers’ councils of the subsidiaries in Israel, see Note 20A(10). Regarding the comprehensive reorganization plan of the subsidiary in Brazil – see Note 20A(11).

Employee Benefits December 31,

2010 December 31,

2009 $ thousands $ thousands

Present value of unfunded obligations 23,838 19,731 Present value of funded obligations 33,467 41,176 Total present value of obligations 57,305 60,907 Fair value of plans' assets 30,346 25,893 Liability recognized for defined benefit plan 26,959 35,014

Liability in respect of early retirement, net 74,277 25,777 Liability for other short term benefits 26,227 13,344 Liability for other long-term benefits 19,691 25,606 Total employee benefits, net 147,154 99,741 Classified as follows: Other payables 55,680 43,286 Long-term employee benefits 91,474 56,455 147,154 99,741

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

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Note 19 - Employee Benefits (cont'd)

Post-employment benefit plans - defined benefit plan (1) Change in liability for defined benefit plan

For the year ended December 31 2010 2009 $ thousands $ thousands

Liability for defined benefit plan at January 1 60,908 55,040 Benefits paid (5,982) (5,222) Classified pay benefits for short term (4,844) - Current service costs and interest 8,681 7,524 Changes due to translation adjustments 3,443 481 Actuarial losses (gains) charged to equity (4,901) 3,084 Liability for defined benefit plan at December 31 57,305 60,907 (2) Change in plan assets

For the year ended December 31 2010 2009 $ thousands $ thousands

Fair value of plan assets at January 1 25,893 20,977 Amounts deposited 1,470 1,392 Benefits paid (1,418) (826) Changes due to translation adjustments 1,500 181 Expected yield from plan assets 1,187 1,451 Actuarial gains charged to equity 1,714 2,718 Fair value of plan assets at December 31 30,346 25,893 3. Expenses charged to statement of income

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Current service costs 5,873 3,872 4,630 Interest costs 2,919 3,652 3,921 Translation adjustments 1,942 300 213 Expected yield on plan's assets (1,187) (1,451) (1,683)

9,547 6,373 7,081

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Note 19 - Employee Benefits (cont'd) 3. Expenses charged to statement of income (cont'd) The expenses are classified in the following statement of income items:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Cost of sales 1,739 1,669 1,948 Selling and marketing expenses 1,219 927 985 General and administrative expenses 1,253 1,109 1,170 Research and development expenses 283 167 527 Other income 1,379 - - Financing expenses 3,674 2,501 2,451

9,547 6,373 7,081 4. Actuarial gains and losses charged directly to equity

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Cumulative balance at January 1 993 1,359 1,671 Amounts recognized during the period 6,615 (366) (312) Cumulative balance at December 31 7,608 993 1,359

Actuarial assumptions The key actuarial assumptions at the reporting date (weighted average)

2010 2009 2008 % % %

Discount rate on December 31 1.3 1.9 3.6 Expected yield on plan's assets at January 1 2.2-2.5 2.9-3.6 2.0-3.6 Rate of increase in the pension annuity Linked to the

CPI Linked to the

CPI Linked to the

CPI The assumptions regarding the future mortality rate are based on published statistical data and mortality tables.

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Note 19 - Employee Benefits (cont'd) 4. Actuarial gains and losses charged directly to equity (cont'd) Historical data

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Adjustments to liabilities deriving from past experience (4,901) 3,084 (3,393) Adjustments to assets deriving from past experience 1,714 2,718 (3,705) The Company's estimate for expected deposits in 2011 in a funded defined benefit plan is $1,183 thousand. Post-employment benefit plans - defined contribution plans

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Amount recognized as an expense for defined contribution plan 2,156 2,011 2,109

Note 20 - Commitments and Contingent Liabilities

A. Commitments 1. The liability of directors and officers (including officers who might be considered controlling

shareholders) of the Company and its subsidiaries is covered by an insurance policy, in which the liability limit is $100 million and the addition of up to 20% of the amount in question, to cover legal protection expenses in Israel. The insurance policy is renewed annually according to the framework agreement approved by the General Meeting of the Company on December 29, 2010, for periods that will not exceed five years cumulatively, meaning until December 1, 2015.

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Note 20 - Commitments and Contingent Liabilities (cont’d) A. Commitments (cont’d) 2. On October 8, 2007, the General Meeting of the Company approved giving a commitment for

advance indemnification to officers by granting indemnity notes to officers of the Company (including officers who might be considered controlling shareholders). At the same time, the General Meeting of the Company approved an amendment to the sections of the Articles of Association dealing with exemption, insurance and indemnity of officers in the Company.

3. Regarding undertakings of the Company and its subsidiaries within the scope of a securitization

transaction - see Note 5. 4. Regarding undertakings with interested parties - see Note 30. 5. In July 2006, Agan entered into an agreement with Ashdod Energy Ltd. (hereinafter, “Ashdod

Energy”), pursuant to which it will rent to Ashdod Energy, as a subtenant, approximately 10.5 acres of land, which is part of a 22.25 acre lot rented by Agan from the Israel Lands Administration, on which Ashdod Energy will construct a power plant for production of electricity and steam. – based on the use of natural gas (and subject to the existence of an available natural gas pipeline and orderly supply of natural gas). Furthermore, according to the agreement, Ashdod Energy will supply electricity and steam to Agan for a period of 20 years from the power plant’s operation date or a period of 24 years and 11 months from the signing date of the sublet agreement, whichever is earlier. When the power plant begins commercial production, the discount embedded in the tariffs for electricity and steam will serve as full payment of the rent, which comes to $80,000 for each year of rental. To the best of the Company's knowledge, as of the report date, all of the approvals required for constructing the power plant had not yet been received and not all of the financing needed for its construction had been obtained. The construction projects and the building of the power plant are the responsibility of and at the expense of Negev Energy, which is also responsible for obtaining the necessary permits and licenses required by law.

6. In May 2007, Makhteshim entered an agreement with Ramat Hanegev Energy Ltd. (hereinafter,

“Negev Energy”), to build and operate a power plant in Ramat Hovav ("the Agreement"). As a result of the agreement, the parties signed a sub-rental agreement, pursuant to which Makhteshim will will rent to Negev Energy, as a subtenant (conditional on the approval of the Israel Lands Authority which had not yet been given on the report date), land on which Negev Energy will construct a power plant for production of electricity and steam, based on the usage of natural gas (and subject to the existence of an available natural gas pipeline and an orderly supply of natural gas) within 30 months of the approval of the financing required to build the plant. Furthermore, according to the agreement and the subsequent amendments, Negev Energy will supply electricity, steam, soft water, distilled water and compressed air to Makhteshim’s facilities in Ramat Hovav for a period of twenty-four (24) years and eleven (11) months from the date of the area was made available to Negev Energy. Subsequently, the power plant will be transferred to Makhteshim’s ownership. Construction of the power plant is conditional on receiving various approvals and financial support for its construction. To the best of the Company’s knowledge, as at the report date, all the requisite approvals for construction of the power plant have not yet been received nor has the financing needed to build the power plant been made available. The construction projects and the building of the power plant are the responsibility of and at the expense of Negev Energy, which is also responsible for obtaining the necessary permits and licenses required by law.

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Note 20 - Commitments and Contingent Liabilities (cont’d) A. Commitments (cont’d) 7. In September 2009, the Company entered into a strategic collaboration agreement with a

Company developing crop improvement features (hereinafter-Cibus) whereby the Company will invest up to $37 million, according to milestones, during a five-year period, in a joint venture, the objective of which is to develop improved traits in five key agricultural crops (which do not constitute, as of the directive existing on the report date, genetic engineering of seeds–non-GMO), with emphasis on the European market ("collaboration agreement"). Moreover, on the same date, a strategic investment agreement was signed by the parties, whereby the Company was given several options, which will take effect over several years, commencing in 2014, whereby it will be able to convert the said investment into shares in Cibus, and even to gradually raise its stake to holdings of up to 50.1% in Cibus.

Pursuant to the collaboration agreement, Cibus will develop for the venture, strains with unique and improved traits for seeds, intended to increase crops and develop the resiliency of key crops to a wide range of herbicides marketed by the Company. The joint venture intends to enter into agreements with leading seed companies, in order to cause the integration of the improved traits in the quality strains, and to be marketed by the seed companies, in consideration for royalties that will be paid to the venture, and divided between Cibus and the Company. According to the agreement, the joint venture will operate so that the seed companies will sell the seeds together with the Company's agrochemicals.

The Company has significant influence of joint venture. Therefore, the accounting treatment in accordance with equity accounted investees.

8. In December 2009, the Group entered into a multi-year agreement with EMG (East Mediterranean Gas), to supply natural gas for the Group's production facilities in its plants in Ashdod and Ramat Hovav. The supply of natural gas will replace the use of heavy crude, diesel and condensed carbonated gas. Pursuant to the amendment to the Agreement signed in November 2010, the starting date for the flow was postponed to the second quarter of 2011. The transition to consumption of clean energy is part of the Group's long-term policy to reduce consumption of natural resources, and will enable a significant reduction in atmospheric emissions from the production of electricity, including a reduction of greenhouse gases and a significant improvement in the quality of the environment.

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Note 20 - Commitments and Contingent Liabilities (cont’d) A. Commitments (cont’d) 9. On January 8, 2011, after previously obtaining approval from the Audit Committee and Board

of Directors of the Company, the Company entered into a merger agreement, the parties to which are: (1) the Company; (2) China National Agrochemical Corporation ("CC"), a Chinese corporation of the China National Chemical Corporation, the largest Chinese Group controlled by the Chinese Government, engaged in the chemicals and agrochemicals industry; (3) CNAC Merger Sub Ltd. – a private company, wholly-owned (indirectly through its wholly-owned corporation) of CC that was established in Israel for the purpose of entering into the merger agreement ("special purpose company"); (4) Koor Industries Ltd. and M.A.G.M. Chemical Holdings Ltd., a wholly-owned subsidiary of Koor (together with Koor – "Koor companies") ("the merger agreement"). Under the terms of the merger agreement and subject to the fulfilment of the suspending conditions for its closing, the Company's shares, which on the transaction's closing date will constitute 60% of the issued and paid-up capital of the Company will be acquired (and this will also include the acquisition of all of the public's holdings in the Company, and also the acquisition from the Koor companies of shares that will constitute 7% of the issued and paid-up capital of the Company) and converted for the right to receive cash from CC, the merger consideration. The merger consideration to be paid for each share, as aforesaid, is the amount obtained from dividing: (a) US$1,440,000,000, subject to the adjustment as provided below, by (b) the number of acquired shares as they will be on the merger's closing date. It should be noted that if and to the extent that the Company issues capital from the signing date of the agreement until the closing date, added to the total consideration will be a sum equal to 60% of the offering proceeds. The merger consideration will not bear interest and tax will be withheld in accordance with the law. Upon the closing of the merger agreement, the Company's shares will be de-listed from trading on the stock exchange and the Company will become a private company. Although the Company will become a private company, the Company will continue to be a Reporting Corporation, as the term is defined in the Securities Law – 1968, in view of the fact that the debentures issued by the Company in the past will continue to be listed for trading on the stock exchange even after the merger closes. Furthermore, and as part of the merger, the parties, or some of them, as applicable, have or will undertake, as provided below, in additional agreements, as follows: (1) that a loan agreement will be signed between CC, Koor and a Chinese bank, whereby CC will cause a non-recourse loan to be provided in favour of Koor, through a Chinese bank, amounting to $960 million, which will be secured by a lien on the Company's shares that will be held by Koor, and may be repaid in cash or in the pledged shares; (2) on the signing date of the merger agreement and in connection therewith, the Koor Corporations and CC signed a voting agreement and a shareholders' agreement; (3) until the closing date, additional agreements will be signed pertaining to the merger's execution, including a fidelity agreement between the parties and a registration rights agreement between the Company, the Koor companies and CC. The closing of the merger is subject to the fulfilment of various suspending conditions, including: (1) obtaining the requisite approvals from the governmental authorities in China; (2) signing of a loan agreement and providing the loan to Koor; (3) obtaining approval of a general meeting of the Company in a special majority, in accordance with the provisions of Sections 320(c) and 275 of the Companies Law (Koor has undertaken to vote in favour of the merger in the general meeting of the Company, subject to the signing of the loan agreement and additional conditions).

The merger agreement stipulates that if the merger is not closed by August 31, 2011 (or a later date – if certain conditions prescribed in the agreement are fulfilled), the agreement may be cancelled by any of the parties. The merger will take effect on the date the merger certificate is received from the Companies Registrar.

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Note 20 - Commitments and Contingent Liabilities (cont’d) A. Commitments (cont’d)

10. On October 31, 2010, the Company announced that she reached agreements with the new

Histadrut and the workers committees of the subsidiaries in Israel, Makhteshim and Agan, of which labor disputes that declared will end in relation to the subsidiaries plants.

Highlights of the agreements reached in the agreement of principles: (1) The Company has undertaken to continue to engage in manufacturing activities in

certain volumes and on certain production lines in the subsidiaries' plants in Israel until June 1, 2017 ("the commitment period"), provided that any agreement for transferring control in the Company will be closed by June 1, 2012. The commitment period will be anchored within the framework of the agreement for transferring control in the Company, if such an agreement will be signed.

(2) Agreement was reached on the voluntary early retirement of up to 100 employees

above the age of 57 during the years 2011-2012 in each of the subsidiaries (a total of up to 200 employees). The names of the voluntary retirees will be agreed between the parties.

(3) In the event any agreement will be signed to transfer control in the Company, a special

fund will be established to assist the employees and those retiring voluntarily. The employees' representatives have committed to industrial peace on matters settled within the framework of the agreements between the parties, including with respect to a future transfer of control in the Company. On November 6, 2010, the Company's management gave the Makhteshim workers council its consent in principle, in accordance with the stipulations in the agreement in principle, whereby during the years 2013-2014, up to 50 permanent workers may retire in addition to those already listed in the agreement in principle, subject to all the conditions provided in the agreement in principle. In the fourth quarter of 2010, the Company recorded a one-off provision totaling $58 million for the retirement of 150 employees from production sites in Israel, for whom agreements were reached. This provision does not include a provision to the assistance fund that will be established an agreement to transfer control is signed.

11. On October 11, 2010, the Company's board of directors approved in principle, in the fourth

quarter of 2010, a comprehensive reorganization in Milenia, the subsidiary in Brazil ("the plan"). Implementation of the plan involves a significant adjustment of manpower levels, a significant reduction in manufacturing activities and the transfer of products from independent manufacturing to outsourcing, while reducing overhead. Due to implementation of the plan, Milenia recorded one-off provisions for employee terminations and for write-down of assets totaling $47 million.

12. Due to discrepancies in the payments of customs duties on certain products to the US Customs

Authorities, the Company initiated a request to the said authorities to settle the debt and the interest thereon. The financial statements include an appropriate provision for the said amounts.

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Note 20 - Commitments and Contingent Liabilities (cont’d) B. Contingent liabilities 1. In accordance with the Israeli Law for the Encouragement of Capital Investments, 1959,

Company subsidiaries received grants from the State of Israel in respect of investments in fixed assets made as part of plant expansion plans approved by the Investments Center. Receipt of the grants is conditional upon fulfilment of the terms of the Letter of Approval that include, among others, exports at certain rates. If the companies do not comply with the required terms, they will have to refund the grants amounts, together with interest from the date of their receipt. Managements of the subsidiaries believe that they are in compliance with the conditions of the approval. Also see Note 10.E.

2. In accordance with the Israeli Law for the Encouragement of Research and Development in

Industry, 1984, subsidiaries received grants from the State of Israel in respect of the research and development expenses they incurred on projects approved by the Israeli Industrial Research and Development Administration. Receipt of the grants is conditional upon compliance with the terms of the letter of approval which include, among other things, the payment of royalties to the State of Israel at rates of between 2%-3.5% of the sales of the products, up to the amount of the State’s participation. The balance of the State’s participation in the said companies’ research and development programs (net of royalties paid in respect thereof), after deduction of unsuccessful research projects, amounts to approximately $3.2 million.

C. Environmental protection 1. The manufacturing processes of the Company, and the products that it produces and markets,

entail environmental risks that impact the environment. The Company invests substantial resources in order to comply with the applicable environmental laws and attempts to prevent or minimize the environmental risks that could occur as a result of its activities. To the best of the Company’s knowledge, at the balance sheet date, none of its applicable permits and licenses with respect to environmental issues has been revoked. The Company has insurance coverage for sudden, unexpected environmental contamination in Israel and abroad. The Company estimates, based on the opinion of its insurance consultants, that the extent of its insurance coverage for said events is reasonable. At the balance sheet date, the Company has only limited, relatively low insurance coverage for ongoing environmental contamination. Such insurance is difficult to obtain and, when it can be obtained, the cost of the premium and the conditions of the coverage do not justify its purchase, in the Company’s opinion, its purchase.

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Note 20 - Commitments and Contingent Liabilities (cont’d) C. Environmental protection (cont’d) 2. One of Makhteshim’s plants was constructed in Ramat Hovav, which was selected by the

Government of Israel as a center for the chemicals industry based, inter alia, on two cumulative basic assumptions: (1) the assumption that the soil strata in that area were absolutely sealed against seepage of liquid discharges or contamination; and (2) the winds in the region do not blow in the direction of Beer Sheba most of the time. Over the years, Makhteshim has relocated most of its production from its plant in Beer Sheba to its plant in Ramat Hovav, and in 2000, discontinued all production, including chemical reactions in its Beer Sheba plant. A report submitted to the Ministry of Environmental Protection and the Ramat Hovav Local Industrial Council in December 1997, at their request, by researchers from academic institutions included data regarding subterranean contamination in Ramat Hovav reported data related to subterranean pollution of the Ramat Hovav district. The conclusions of research completed in early 2004 were that there has been some improvement in the quality of the upper ground water and there is no need to treat the subterranean contamination, which will remedy itself. In the last two years, the results of the monitoring clearly indicate that there has been an improvement in the quality of the subterranean water in most of the Ramat Hovav area. In a small number of specific centers in which subterranean water pollution was identified, which cannot be attributed to Makhteshim or the other plants in the region, drainage and pumping of the polluted water is being conducted by the Council.

3. In 2004, the Ministry of Environmental Protection decided to add conditions to the business

licenses of Makhteshim and other factories in the Ramat Hovav area, regarding the treatment of industrial waste. Consequently, and due to the unreasonable nature of the Ministry of Environmental Protection’s requirements, the Israeli Union of Industrialists and factories in Ramat Hovav filed an administrative petition against the Ministry of Environmental Protection–Southern District and the Ramat Hovav Local Council in Be’er Sheba District Court. The petition was referred to a mediation process which was concluded with the signing of an arbitration agreement that was given the force of a court judgment on December 2006. As part of implementation of the ruling, Makhteshim took upon itself to make significant monetary investments in treating waste water and preventing environmental hazards.

4. On April 1, 2007, the Israeli Government decided to impose on the Ministry of Defense and the

IDF to build a cluster of training camps at the Negev Junction site ("BHD City"), located 10 kilometers from the Ramat Hovav site. The decision includes instructions to the Ministry of Environmental Protection for the purpose of assuring the air quality in the area, as required in the court ruling on the subject. As of the report date, Makhteshim is unable to assess the effect of the Government's decision and its implementation, if any, on the operations of its plant in Ramat Hovav.

5. On July 22, 2008, the Knesset approved the Israel Clean Air Law, 2008 ("Clean Air Law"),

which took take effect on January 1, 2011. The objective of the Clean Air Law is to regulate the quality of the air in Israel and prevent its pollution, inter alia, by setting up a national monitoring system for measuring air pollution and prescribing air pollution standards. According to the Clean Air Law, the companies in Israel, Makhteshim and Agan, are required to file applications for an emissions permit for the facilities requiring a permit in their facilities in Israel. The said subsidiaries should file requests for emissions permits for existing facilities by March 1, 2014. These subsidiaries must file applications for emissions permits for existing facilities by January 1, 2011. According to the Clean Air (Fees) Regulations–2010, a fee will be charged for the emissions permit, which will be charged when the application for an emissions

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Note 20 - Commitments and Contingent Liabilities (cont’d) C. Environmental protection (cont’d) 5. (cont'd)

permit is filed, for every source of emissions requiring a permit, according to the type and volume of activity conducted there. Moreover, a fee was prescribed for a request for a significant operating change in the emissions source. The Company estimates that the maximum amount of the fees that it will be required to pay is not material. The Makhteshim plant in Ramat Hovav is prepared to comply with the Law's requirements, within the scope of the conditions for a business license imposed on it on March 23, 2008. The Agan plant is also prepared to carry out activities toward compliance with the Law's requirements, inter alia, within the scope of the conditions for a business license related to air quality received by Agan in March 2010. Moreover, it should be noted that according to the Clean Air Law, the Ministry must determine an emissions assessment for air pollution to be imposed on the holder of an emissions permit. This assessment has not yet been determined, although the Ministry of Environmental Protection intends to designate a mechanism of such assessments, as part of a general trend to price activities that impact the environment, even if it is conducted lawfully under permit, similar to assessments that exist for the flow of sewage to the sea with a permit, and the burying of waste.

6. On November 11, 2010, the State of Israel (Ministry of Environmental Protection) indicted

Agan Chemical Manufacturers Ltd. and five executives of various rankings ("the defendants") in Magistrate's Court in Kiryat Gat. The indictment contains allegations against the defendants that they breached the terms of the poisons permit issued to the Agan plan in Ashdod ("the plant") and caused serious or unreasonable air pollution and water pollution as a result of the fire incident that occurred in the plant on January 14, 2009. The date for reading the indictment was scheduled for September 6, 2011. In the opinion of the Company's legal counsel, in view of the early stage of the proceedings, it is difficult to assess the outcome.

D. Claims against the Company 1. On January 16, 2011, a motion was filed in Tel-Aviv District Court for removal and prevention

of discrimination, and a motion for class action recognition under the Class Action Law – 2006 ("the motion"), against the Company and its controlling shareholder, Koor Industries Ltd. ("Koor"). The petitioner in the motion, who claims to be a shareholder in the Company, alleges that the distribution of the consideration in the merger (described previously) discriminates against the shareholders from the public, while creating preference and granting a benefit to Koor, the controlling shareholder in the Company, due to the benefit in the non-recourse loan that Koor will receive as part of the sale. The petitioner is asking the court to order the distribution of the said beneficial consideration among all the shareholders of the Company, so that Koor will pay to the pro rata share of the benefit to the other shareholders proportionate to the holdings of each shareholder in the Company; and alternatively, to order the Company and Koor to cause the shareholders among the public to be entitled to the same conditions that Koor is receiving in the merger. The class action was valued by the petitioner at between NIS 381 and 762 million. In the estimation of the Company's management, based on the opinion of its legal counsel, the petition does not create exposure to the Company since it does not request operative relief against the Company.

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Note 20 - Commitments and Contingent Liabilities (cont’d) E. Claims against subsidiaries In the ordinary course of business, legal claims were filed against the Company, including lawsuits for patent infringement. Inter alia, from time to time, the Company is exposed to class actions for large amounts, which it must defend against while incurring considerable costs, even if these claims, for the start, have no basis. A trend has become evident recently, of an increase in the filing of claims against companies such as the Company, with motions for class action recognition, due to various causes of action. In the estimation of the Company's management, based, inter alia, on the opinions of its legal counsel, regarding the prospects of the proceedings, the financial statements include appropriate provisions where necessary to cover the exposure resulting from the claims as provided below: 1. Administrative proceedings and fiscal claims are pending against Milenia (subsidiary in Brazil),

all of which deal with demands for payment of various taxes, totaling $118 million (including interest and linkage differences at the balance sheet date). On the basis of the opinion of its legal advisors, Milenia estimates that its chances of prevailing in all the proceedings and fiscal claims pending against it are good and therefore, no provision for this claim was recorded in the financial statement.

2. In 2002, a claim was filed against Milenia by a private environmental protection organization,

claiming that Milenia’s plant in Londrina pollutes the environment and causes damage to its vicinity and residents. The plaintiff demands that Milenia prepare an environmental impact study, provide examinations for Milenia’s employees and neighbors, halt production activity at the plant and pay damages to the vicinity's residents. The plaintiffs estimate that the amount claimed from Milenia is $20 million. The lower court ordered an environmental impact study to be conducted but the court of appeals decided that Milenia is not obligated to prepare an environmental impact study and/or conduct examinations for Milenia’s employees and neighbors until a final ruling is issued obligating Melina to make these remedies. Milenia’s legal advisors estimate that Milenia has good defense arguments against the claim and therefore, no provision was recorded for this claim.

3. Following testing conducted by the Brazilian health authorities in Milenia in July 2009 relating

to the issue of licensing several formulations that Milenia produces and/or markets in Brazil, it was ruled that Milenia must refrain temporarily from the production and sale of these formulations, and that the ban will also apply to the inventory existing at some of Milenia's customers. Milenia's position, as presented to the authorities, is that the formulations it sells are similar to those sold in the Brazilian market by other companies, and that the changes made to the formulations are minor, intended to improve their quality, and if there is any variation, it entails merely an administrative and procedural matter.

On March 24, 2010, Milenia, the subsidiary in Brazil, received a decision by the Brazilian Health Ministry, whereby in the administrative proceedings that were opened against Milenia, administrative penalties of immaterial amounts were imposed on it. In the financial statements, the Company included an appropriate provision for these penalties. As a result of the decision on the administrative proceedings, a criminal investigation was opened against Milenia and its managers by the Londrina police and the Taquari police. During October 2010, Milenia's managers were summoned for a hearing, the date of which has not yet been determined, after which it will be decided whether to open criminal proceedings against Milenia and its managers.

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Note 20 - Commitments and Contingent Liabilities (cont’d) E. Claims against subsidiaries (cont’d) 4. In 2004, six identical actions were filed against a subsidiary in the United States and six other

agrochemical companies in the State of Illinois, USA, by a local water supplier (hereinafter, “the Plaintiff”). The Plaintiff seeks to represent all the water suppliers in the State of Illinois. The Plaintiff claims that the product Atrazine, which is sold by the defendant companies, pollutes its water source and that water contaminated with Atrazine is a health hazard. The Plaintiff does not indicate the concentration of Atrazine in the water or that the quantity of Atrazine in its water exceeds the amount permitted by the Federal Water Standard but claims that Atrazine is a health hazard even at concentrations below the Federal Water Standard. One of the principal contentions in the claim is that the subsidiary (as well as the other defendants) is aware of the danger of Atrazine to human beings but is concealing this information from the authorities and the public. The subsidiary contends that it received its license for Atrazine pursuant to United States law by means of referring to studies submitted by the original license holder without it having been permitted to review the said studies. In addition, the subsidiary contends that it did not conduct its own independent studies and it is not aware of studies indicating that Atrazine at the concentration permitted by the Federal Water Standard is hazardous to human health. The cause of action claimed by the Plaintiff are negligence and violation of the environmental protection and water pollution laws. As is customary for claims of this type in the United States, the claim does not state the amount of the damages sought or the compensation requested. Although the claim was filed in 2004, it is still in the preliminary stages of discovery. Accordingly, and based on the opinion of its legal counsel, the subsidiary estimates that the prospects for dismissal are more likely than the prospects it will prevail, and therefore, no provision was recorded in the financial statement.

5. On April 8, 2010 BASF filed a lawsuit and motion for a restraining order against the American

subsidiary, claiming that actions taken by the subsidiary for future marketing of a product based on the Active Ingredient Fipronil, are allegedly patent infringement of a registered BASF patent. On October 18, 2010, BASF informed the court that it does not intend to insist on the motion for issuing a temporary restraining order. Based on the opinion of its legal counsel, and considering that the subsidiary has not yet begun to market products based on the active ingredient, the subsidiary estimates that it has no significant exposure from these proceedings.

6. On March 10, 2011, a subsidiary in the UK was furnished with a claim and motion for a

restraining order filed by BASF alleging that a product based on the chemical material pan dim ethylene, which is marketed by the subsidiary, infringes on a patent registered to BASF. Noting the date that the claim was furnished, the Company is unable, on the publication date of the financial statements, to assess its outcome.

7. During 2007, three suits were filed in Beer Sheba District Court against the Ramat Hovav Local

Industrial Council and the State of Israel by three groups of plaintiffs, among residents of the Ramat Hovav area. The Plaintiffs claim that they have suffered various illnesses and deformities and that there is a causal relationship between their illnesses and poisonous substances that were emitted by or seeped from the Ramat Hovav Industrial area.

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Note 20 - Commitments and Contingent Liabilities (cont’d) E. Claims against subsidiaries (cont’d) 7. (cont'd)

The Plaintiffs allege that two primary focal points of contamination have been identified: the water purification plants and the evaporation pools (that are owned and operated by the Ramat Hovav Local Industrial Council) and the factories that are located in the Ramat Hovav Industrial Area, including the Company’s factories, which the Plaintiffs allege significantly exceed the permitted amount of contamination. The Plaintiffs further alleged that the Ramat Hovav Local Industrial Council and the State of Israel were negligent, inter alia, in their supervision, enforcement and initiative to prevent the Plaintiffs’ exposure to contamination originating in the Ramat Hovav Industrial Area. The Plaintiffs estimate the sum of their claims at approximately NIS 242 million. This amount does not include general damages that were not quantified. In 2008, third party notices were filed against Makhteshim and against thirty-six additional corporations and persons which were sent by the Ramat Hovav Industrial Council and by the State of Israel. In the third party notice on behalf of the State and the Local Industrial Council, each denies the claims against it, contending that if they are obliged to pay any amount to the plaintiffs, the third party notice recipients will have to compensate or indemnify it for the full amounts imposed on it. On March 30, 2009, Makhteshim filed its statement of defense against the notices of the Ramat Hovav Industrial Council and the State. On February 4, 2009, the court ruled that the hearing on the claims would revolve first around the question of whether there is a specific medical causal relationship between the illness claimed by each of the plaintiffs and his exposure to the materials emitted from the Ramat Hovav site. On April 6, 2010, the defendants and several third parties, including Makhteshim, filed evidence and experts' opinions on the matter at hand. In the estimation of Makhteshim's legal advisors, the claims are not expected to be accepted, and therefore provisions for them were not included in the financial statements.

8. On July 1, 2009, a criminal complaint was filed in Beer Sheba Magistrate's Court against Agan,

directors, officers and an executive in Agan, by a group of residents of the moshav Nir Galim ("the Complainants"). In the complaint, the Complainants assert that there were several instances during the years 2007-2009, in which the Ashdod plant of Agan produced strong and unreasonable odor nuisances in violation of the provisions of the Abatement of Nuisances Law, 1961. In the complaint, the Complainants are petitioning to convict the defendants and to impose penalties and/or imprisonment, based on the provisions of the relevant laws ("the Complaint"). At the Court's order, the Complaint was transferred to Magistrate's Court in Netanya. On August 5, 2010, the Prosecutors Office informed the Court that after an extensive review of the complaint, the Ministry of Environmental Protection decided that it does not intend to join and conduct the claim. On January 2, 2011, the Complainants and the defendants signed a document of understandings, whereby the parties will begin conducting an arbitration process, with the objective or reaching a final compromise agreement between the parties (the criminal complaint and the civil action, as provided below). The Court gave the document of understandings the validity of a ruling on January 6, 2011. Under the terms of the understandings, it was further agreed that as long as the arbitration proceedings will continue, the defendants (except for Agan) will be removed from the complaint, and the Court ordered their removal from the complaint. If the arbitration process ends successfully, the parties have

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8. (cont'd)

agreed that the complaint will be halted. If the arbitration process is unsuccessful, the complaint process will resume before the Court, and in such a case, in the estimation of the Company's legal counsel, it is not possible at this juncture to estimate the prospects of the complaint. However, the Company has worthy defense claims against the complaint and its legal counsel is of the opinion that in view of the fact that the Company cooperates regularly with the regulator, has received its approval for the environmental investment plans in the plant and is implementing such plans, it is more likely than not that the Court will not demand the issuance of orders to halt the environmental nuisances.

9. On July 14, 2009, a lawsuit was filed in Beer Sheba Magistrate's Court against Agan, directors,

officers and an executive in Agan, by a group of residents of the moshav Nir Galim ("the Plaintiffs"), claiming damages that the plaintiffs allege were sustained due to odor nuisances, noise and air pollution originating in the Agan plant. In the statement of complaint, the plaintiffs are petitioning the court to issue a restraining order and a mandatory injunction against Agan, and to require Agan to pay damages totalling NIS 59 million. Following the motion filed by the defendants, the court ruled that the plaintiffs must pay the full amount of the court fee, and if not, the claim will be dismissed, Therefore the plaintiffs filed a motion to delete the financial relief of NIS 59 million and to retain only the remedies of a restraining order and a mandatory injunction. Since a period of time elapsed, in which the fee was not paid in full, and since a motion was not filed to stay the execution of the court's ruling, the law is for the claim to be dismissed. On February 25, 2010, the plaintiffs filed a motion for leave to appeal with the Supreme Court of the court's January 14, 2010 ruling, in which the court was asked to rule that the court fee paid by the plaintiffs, when the claim was filed, was paid lawfully, and alternatively, to order the lower court not to dismiss the claim due to the existence of additional remedies, for which the court fee was paid lawfully. On May 4, 2010, the Supreme Court dismissed the motion for leave to appeal on the classification of the claim for fee purposes, although it ruled that the Court should enable the petitioners to amend the Statement of Claim and not order its dismissal. On January 2, 2011, the plaintiffs and defendants signed a document of understanding, whereby the parties will begin an arbitration process, with the objective of reaching a final compromise agreement between the parties, which will settle the disputes and avoid the need of clarifying the legal proceddings between the parties (the civil claim and criminar complaint, as above). Furthermore, as long as the arbitration process continues, the defendants (aside from Agan) will be removed from the claim. To the extent the arbitration process is successful, the parties agree that the claim process will be halted. To the extent the arbitration process is unsuccessful, the claim process will resume before the Court, and in such a case, in the estimation of the Company's legal counsel, in view of the dismissal of the motion for leave to appeal on the classification of the claim, and as long as the plaintiffs have not filed an amended claim, the claim does not pose a risk of paying cash damages. In addition, the Company's legal counsel is of the opinion that in view of the fact that the Company is cooperating regularly with the regulator, has received its approval for the environmental investment plans in the plant and is implementing such plans, it is more likely than not that the Court will not demand the issuance of orders to halt the environmental nuisances.

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Note 20 - Commitments and Contingent Liabilities (cont’d) E. Claims against subsidiaries (cont’d) 10. In October 2009, Agan was furnished with a demand by the Ashdod Municipality to pay

various development assessments totalling NIS 8.8 million. At the date of the financial statements, Agan had not yet received the details and reasons which it had requested relating to the legal and factual infrastructures on which the payment demand is based. In the estimation of Agan, based on the opinion of its legal counsel, the chances that these payment demands will be dismissed are reasonable.

11. In July 2009, Makhteshim was furnished with a demand by the Beer Sheba Municipality to pay

sewer and development assessments totalling NIS 20.6 million. At the date of the financial statements, Makhteshim had not yet received the details and reasons which it had requested relating to the legal and factual infrastructures on which the payment demand is based. In the estimation of Makhteshim, based on the opinion of its legal counsel, the chances that these payment demands will be dismissed are reasonable.

12. Several claim of immaterial amounts have been filed against Group companies for damages that

the plaintiffs allege was caused by using their products, the supply of defective products, etc. The cumulative amounts claimed in these claims were estimated by the different plaintiffs at a total of $5.6 million. In the estimation of the Group companies, based on the opinion of the legal counsel, it is more likely than not that the claims will be dismissed rather than they will success, or the provisions recorded in the books of account are appropriate. The Company has insurance coverage for its warranty liability, which involves the Company's participation.

F. Legal proceedings that have concluded 1. In 2003, a criminal complaint was filed against subsidiary in Israel, Makhteshim, and one of its

directors by Adam, Teva VeDin (Israel Union for Environmental Defense). In the complaint, Makhteshim is accused that on several occasions during the years 1999 through 2003, emissions of materials at prohibited concentrations were measured in the chimneys of its Ramat Hovav plant, creating severe pollution. Hence, according to the complainant, Makhteshim created strong or unreasonable pollution, disturbing the people near the site, which, according to the complaint, constituted a crime under the Law to Prevent Hazards, 1961 (this crime is a serious liability crime that does not require proof of criminal intent). Makhteshim does not admit to the accusations in the complaint. On May 26, 2010, the Court ordered dismissal of the criminal proceedings in accordance with the compromise agreement signed by the parties, whereby Makhteshim will contribute $250 thousand to an environmental project to be run by Adam, Teva VeDin.

2. In October 2007, a monetary suit and motion for class action recognition were filed under the

Class Action Law – 2006, in Beer Sheba District Court against Makhteshim by three residents of the village Wadi El-Naim claiming that damage to their health has apparently been caused by the Makhteshim factories in the Ramat Hovav Industrial Area, for various causes related to air pollution. If recognized as a class action, the plaintiffs estimate that the amount claimed from Makhteshim is approximately NIS 1 billion. On August 17, 2010, the motion for class action recognition was stricken and the claim of the plaintiffs was dismissed, without an order for expenses.

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Note 20 - Commitments and Contingent Liabilities (cont’d

F. Legal proceedings that have concluded (cont'd)

3. In January 2009, a monetary claim was filed in Beer Sheba District Court against Agan, and a motion for recognition as a class action suit under the Class Action Law, by a resident of Ashdod, alleging damages that were apparently sustained, due to the suffering that the plaintiff alleges was caused as a result of a fire that occurred in the Agan plant in Ashdod on January 14, 2009. To the extent the claim will be recognized as a class action, the plaintiff estimates that the amount claimed from Agan will be NIS 100 million. On November 11, 2009, Agan and the Plaintiff filed a motion with the Beer Sheba District Court to approve a compromise agreement, pursuant to which Agan has undertaken: (A) without admitting any right and/or assertion against it, and in consideration for final settlement of the claims and the plaintiff and class members, Agan will set up a closed-circuit television system, which will enable watching at any given moment that which is occurring in the production facilities and warehouses in Agan and will facilitate prevention of the occurrence of unexpected events; likewise, Agan will finance/build within the bounds of the city of Ashdod a public garden also suitable for people with handicaps. Agan estimates that the cost of these actions totals NIS 1.2 million; (B) to pay the petitioner the total sum of NIS 20 thousand; (C) to pay the representative of the class' representative the sum of NIS 180 thousand as fees. On December 16, 2010, the Court approved the compromise agreement, giving it the validity of a ruling. The Company has insurance coverage for the expenditure involved in carrying out the ruling.

G. Guarantees

1. A subsidiary has committed to indemnify financial institutions, upon the fulfilment of certain conditions, in respect of credit received by the subsidiary's customers from those financial institutions, which were used for repayment of the debts of such customers.

The amount of the indemnification commitment at the balance sheet date, was approximately $62 million (December 31, 2009- approximately $49.9 million).

2. Subsidiaries have undertaken to indemnify the bank in the framework of the transaction for sale of trade receivables in certain cases that are defined in the agreements, if debts sold are not paid.

3. A subsidiary has guaranteed the liabilities of a customer to banks. The balance of the debts at

December 31, 2010 for which the subsidiary is guarantor totals $9 million.

Note 21 - Liens and Financial Covenants

A. Liabilities to banks secured by liens:

The Company and its Israeli subsidiaries have made commitments to banks not to register liens on their assets in total of other parties, except specific liens for acquisition of an asset totalling $22.2 million to secure liabilities totalling $22.3 for the purchase of an asset for the benefit of the party financing the acquisition of certain terms, except for creation of liens related to receipt of investment grants, as stated in Par. B below, and except for a lien on trade receivables within the scope of the securitization transaction, as discussed in Note 5.

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Note 21 - Liens and Financial Covenants (cont'd)

B. To secure fulfilment of the conditions of investment grants received (see Note 18A), the Company and its subsidiaries have registered floating liens in unlimited amounts on all of their assets.

C. The Company has committed to banks to maintain financial covenants, the main ones of which

are as follows: (1) The ratio of the interest-bearing financial liabilities to shareholders’ equity of the

Company shall not exceed the ratio prescribed in some of the financing documents, ranging between 1.25 (the most stringent ratio) and 1.5 (at December 31, 2010 the ratio was actually 0.9).

(2) The ratio of the interest-bearing financial liabilities to income before financing

`expenses, taxes, depreciation and amortization (EBITDA) shall not exceed 4. After the Company believed that there is a possibility that it will not comply with certain covenants, the Company, at its initiative, approached the relevant banks, and following its request, received during December 2010, letters of consent from its financing banks, whereby the financial contingency regarding the ratio between the Company's interest-bearing financial liabilities and EBITDA, so that for the period ending December 31, 2010, the ratio between the financial liabilities and EBITDA will not exceed 4.5 in relation to one of the funding banks and 5 in relation to banks and other funders. Moreover, the letters of consent given to the Company by the relevant banks prescribe an exception, whereby at December 31, 2010 and for each of the quarters until the third quarter of 2011 (inclusive), when calculating the said ratio, one-off expenses totalling $90 million will be neutralized (for some of the banks) or a total of up to $90 million for certain non-recurring events (for the other banks). At December 31, 2010, the ratio between the Company's interest-bearing financial liabilities and EBITDA (Excluding the aforementioned non-recurring expenses) of 4.2, according to the company position on December 31, 2010, met this criterion. In addition, the Company received consent writings correcting the financial condition of the ratio of interest-bearing financial liabilities of the Company to EBITDA so that the ratio all periods until the third quarter, 2011 (inclusive) in relation to some of the funding banks and until the fourth quarter, 2011 (inclusive) in relation to one of the financing banks Such treatment will be updated to no more than 5.

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Note 21 - Liens and Financial Covenants (cont’d) C. (cont’d)

(3) The shareholders’ equity will not be less than the amount prescribed in some of the

financing agreements, ranging between $1.22 billion (the most stringent amount) and $850 million. In the written consent obtained from the relevant bank, it was determined that the calculation of equity capital balance as of December 31, 2010 and for each of the quarters until the third quarter 2011 (including) neutralized one-off expenses in the amount of up to $90 million for certain one-time events. (as at December 31, 2010, the Company's equity amounted to $1.131 billion neutralizing the one-off expenses mentioned above equity amounted to $1.221 billion).

(4) The financing documents of one of the banks further prescribed that the balance of

retained earnings of the Company according to the financial statements on every date shall not be less than $700 million. The letter of consent received from the relevant bank prescribed that for the calculation of retained earnings at December 31, 2010, one-off expenditures will be neutralized totalling a cumulative amount not exceeding $90 million for certain non-recurring events (at December 31, 2010, the balance of the Company's retained earnings totalled $611 million, and the retained earnings balance after neutralizing the said one-off expenses totalled $701 million). It should be noted that as per the written consent obtained from the relevant bank, it was determined that the calculation of equity capital balance as of December 31, 2010 and for each of the quarters until the third quarter 2011 (including) neutralized one-off expenses in the amount of up to $90 million for certain one-time events.

(5) It was also agreed that there will be no transfer of control (as defined in the relevant

agreements), in the Company and in the subsidiaries Makhteshim and Agan without obtaining the Bank's prior written consent. Furthermore, it should be noted that there are limitations on the subsidiaries in receiving credit, which, to the best of the Company's knowledge, are not material and at the report date, they are in compliance with these limitations.

D. The securitization agreement of trade receivables of the Company and its subsidiaries

(including their amendments) include the Company's commitment to maintain financial ratios. After the Company believed that there is a possibility that it will not comply with certain covenants, the Company, at its initiative, approached the parties with which it has undertaken in a securitization agreement during 2010 and consequently, in September and December 2010, amendments to the securitization agreement were signed, whereby at September 30, 2010 and December 31, 2010,the Company will not be required to comply with the financial covenants prescribed in the securitization agreement.

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Note 21 - Liens and Financial Covenants (cont’d) D. (cont'd)

According to the amendments to the securitization agreements that were signed in December 2010, commencing March 31, 2011, the Company will once again be required to comply with the financial covenants prescribed in the securitization agreements, of which the significant covenants are as follows: (1) The ratio between the Company's financial liabilities and its equity will not exceed

1.25. (2) The ratio between the Company's interest-bearing financial liabilities and EBITDA will

not exceed 3.3. As part of the extension of the credit facility for an additional year and amendment of the securitization agreement, the Company reached agreement with the financing party regarding the amendment of the financial covenant regarding the ratio between the Company's interest-bearing financial liabilities and EBITDA, so that for the period ended March 31, 2011 and for every period until December 31, 2011 (inclusive), the ratio between the financial liabilities and EBITDA will not exceed 5. Furthermore, the Company reached agreement with the financing party, so that the amendment to the securitization agreement will contain an exception, whereby at March 31, 2011 and for every period until December 31, 2011 (inclusive), the calculation of the said ratio will not include one-off expenses totalling $90 million. The said agreements were given to the Company verbally, and the related documents have not yet been signed.

(3) The Company's shareholders' equity will not fall below $1 billion.

The securitization agreement and the agreements with banks contain Cross Default clauses, whereby the party opposite which the Company has undertaken in the agreement will be allowed to demand immediate repayment of the debts of the Company and/or its subsidiaries, in full or part, provided that the amount of the debts and obligations of the Company and/or subsidiaries toward that other financing parties exceeds the minimum amount prescribed in the various financing agreements. Furthermore, the Company has undertaken, under the terms of the letters of consent opposite financing parties, as aforesaid, to comply with additional criteria which the Company believes, at the report date, does not significantly restrict the Company's activities. At December 31, 2010, the Company was in compliance with the financial covenants prescribed by the financing banks under the terms of the financing documents and letters of consent received from the financing banks at the end of the report period. Likewise, in the Company's estimation, it will be in compliance with the financial covenants prescribed in the letters of consent in the relevant period. It should be clarified that following those periods, the original financial covenants, as prescribed in the financing agreements, will be resumed.

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Note 22 - Equity

A. Share capital and premium on shares

Ordinary shares 2010 2009

In thousands of shares, NIS 1 par value Share capital issued and paid-up at January 1 474,713 474,626 Exercise of options for shares during the period 57 87 Share capital issued and paid-up at December 31 474,770 474,713 Authorized share capital 750,000 750,000 The holders of ordinary shares have the right to receive dividends as declared from time to time, and voting rights at general meetings of the Company, at one vote per share. Regarding the allotment of shares to employees, see Note 22D regarding share-based payments. B. Translation reserve of foreign activities The capital reserve includes all exchange rate differences deriving from the translation of the financial statements of foreign activities. C. Hedge fund The hedge fund includes the effective part of the net cumulative change in fair value of cash flow hedging instruments that relate to transactions that were hedged but did not yet occur. D. Share-based payments 1. On April 14, 2003 (hereinafter, “the record date”), the Company’s Board of Directors decided

to adopt an employee compensation plan for the employees of the Company and its subsidiaries and directors of the Company and its subsidiaries (hereinafter, “Plan 2003”), pursuant to which 17,000,000 options would be issued to the employees, which are exercisable for up to 17,000,000 of the Company’s ordinary shares of NIS 1 par value each, at an exercise price of NIS 4.44 as at the balance sheet date, after adjustments made due to a dividend distribution (the closing share price of the Company’s shares on the stock exchange on the record date was NIS 9.13 per share). All of the options were issued under Section 102 of the Income Tax Ordinance. The options issued and the shares to be issued upon their exercise will be held by a trustee for a period of at least two years from the end of the year in which the options are issued. In accordance with Plan 2003, at the time of exercise of the options, the Company will issue shares in an amount that reflects the amount of the monetary benefit embodied in the options, that is, the difference between the price of an ordinary share of the Company on the exercise date and the exercise price of the option.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 1. (cont’d)

The right to exercise the options is in three increment, as follows: one-third at the end of one year from the record date, an additional one-third at the end of two years from the record date and the balance at the end of three years from the record date. The expiration date of the options is five years from the beginning of the exercise period of each increment. Furthermore, in the framework of Plan 2003, the previous CEO was issued 1,600,000 options which are exercisable for up to 1,600,000 of the Company’s ordinary shares of NIS 1 par value each. In addition, in the framework of Plan 2003, the Company’s directors were issued a total of 1,800,000 options. On March 8, 2004, the Company’s Board of Directors resolved to make an additional issuance under Plan 2003 of 1,420,000 options to the directors (who were not serving at the time of prior issuance to the directors) and to Company employees. The options were allotted during 2004. In 2008, Company employees exercised 36,667 options for 29,740 of the Company’s ordinary shares of NIS 1 par value. In 2009, Company employees exercised 86,333 options for 62,976 of the Company’s ordinary shares of NIS 1 par value. In 2010, Company employees exercised 76,999 options for 56,675 of the Company’s ordinary shares of NIS 1 par value.

2. On March 13, 2005, the Company’s Board of Directors resolved to adopt a new stock option

plan for officers and employees of the Company and its subsidiaries (hereinafter, “Plan 2005”). Pursuant to Plan 2005, on March 14, 2005, 14,900,000 options exercisable for up to 14,900,000 of the Company’s ordinary shares of NIS 1 par value each were allotted, of which 800,000 options were issued to the Company’s previous CEO, 11,600,000 were issued to employees of the Company and subsidiaries in Israel and overseas and the balance of 2,500,000 were issued to a trustee for purposes of future allotments. The exercise price of the options is as follows: Regarding the options issued to the Company’s previous CEO and seven additional employees (hereinafter, “Group A”), the exercise price will be equal to the opening price of the Company’s shares on April 15, 2006, and if there is no trading on that date, on the first subsequent trading day. Regarding the options issued to the other offerees (hereinafter, “Group B”), the exercise price will be equal to NIS 25.10 (subject to adjustments for dividend distributions), which is equal to the opening price of the Company’s share on the stock exchange at the time of the resolution by the Company’s Board of Directors (March 13, 2005). The cost of the benefit embedded in the options when issued, based on the fair value as at their allotment date, amounted to $21,981 thousand. This amount is amortized to the statement of income over the vesting period of each increment.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 2. (cont’d)

On August 8, 2005, the Company’s Board of Directors resolved to revise the exercise price of the options issued to Group A so that the exercise price of these options will be equal to the exercise price determined for options issued to Group B. As at the balance sheet date, the exercise price after adjustments, as stated above, is NIS 21.94. The cost of the benefit embedded in the revised exercise price, based on fair value at the time of the revision, totaled $566 thousand. This amount is amortized to the statement of income over the vesting period. The options under the Plan will be allotted to the offerees pursuant to the provisions of Section 102 of the Income Tax Ordinance under the capital track. Regarding offerees who will be allotted options in the future, as stated above, (hereinafter, “Group C”), the exercise price will be equal to the closing price of the Company’s shares on the eve of the decision to allot options to them. Eligibility to exercise the options subject to the terms of Plan 2005 is in three increments, as follows: one-third at the end of two years from the record date, an additional third at the end of three years from the record date and the balance at the end of four years from the record date. The expiration date of each increment is 5 years from the beginning of its exercise period. The record date for Group A was fixed as April 14, 2006 (which is the end of the third and final vesting period of the employee options plan from 2003) and for Group B and Group C, the record date is March 13, 2005 (the approval date of the plan). On March 8, 2006, the Company’s Board of Directors decided to allot the balance of 2,500,000 of the aforementioned options to the employees. As at the balance date, the exercise price, after adjustments is NIS 20.99. The cost of the benefit inherent in the options, based on the fair value of the capital instruments granted is $3,748 thousand as at the grant date. This amount is amortized to the statement of income over the vesting period of each increment. In 2008, Company employees exercised 2,524,434 options for 832,304 ordinary shares, NIS 1 par value of the Company. Subsequent to the balance sheet date, the Company entered into agreements with the holders of options from the Year 2005 Plan, the execution of which is contingent on the closing of the merger agreement (as discussed in Note 20A(9) above), whereby the Company will purchase from them the options that they hold, against a payment by the Company to the said options holders of amounts that are not material to the Company.

3. On November 26, 2006, the Company’s Board of Directors resolved to allot 2,700,000 options to

Mr. Avraham Bigger. The exercise premium of the options is NIS 21.61 (based on the closing price of the Company’s shares on the stock exchange on the eve of the Board of Directors’ resolution on the issue). As at the balance sheet date, the exercise price after adjustments is NIS 19.61.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 3. (cont’d)

The cost of the benefit inherent in the options when issued, based on the fair value as at their allotment date, amounted to $3,957 thousand. This amount is amortized to the statement of income over the vesting period of each increment. The options will vest in three equal increments, where one-third may be exercised one year after the record date, the second third of the quantity may be exercised two years after the record date, and the final third three years after the record date. The options from each increment referred to above are exercisable commencing from the vesting date of such increment and during a period of two years from such date. The other conditions of the options will be in accordance with the conditions of the options granted to the directors approved by the Company in 2003. On September 22, 2009, after receiving approval of the Company’s audit committee and board of directors, a general meeting of shareholders approved an amendment to the terms of the options that had been allotted to the Company’s former President and Chairman of the board (Avraham Bigger), whereby the expiration date of some of the instalments of options will be extended, as follows: The first instalment of options, which has vested, will be exercisable, commencing on the vesting date of that instalment and for a four-year period from such date. The options that are part of the second instalment, which has vested, will be exercisable to commencing on the vesting date of that instalment and for three years from such date. The options that are part of the third instalment that has vested will be exercisable commencing on the vesting date of that instalment and for a period of two years from such date. The cost of the embedded benefit resulting from the amendment for the options terms is $1,127 thousand. This amount was recorded as an expense in the third quarter of 2009.

4. On December 4, 2006, the Company’s Board of Directors resolved to allot 51,500 options to an

external director. The exercise premium of the options is NIS 22.58 (based on the closing price of the Company’s shares on the stock exchange on the eve of the Board of Directors’ allotment resolution). As at the balance sheet date, the exercise price after adjustments is NIS 20.58. The cost of the benefit inherent in the options allotted, based on the fair value as at their allotment date amounted to $93 thousand. This amount is amortized to the statement of income over the vesting period of each increment. The record date for allotment of the said options is July 25, 2006. The options will vest in three equal increments, where one-third exercisable one year after the record date, the second third is exercisable two years after the record date, and the final third three years after the record date. The options from each increment referred to above are exercisable commencing from the vesting date of such increment and during a period of five years from such date. The other conditions of the options will be in accordance with the conditions of the options granted to the directors approved by the Company in 2003.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 5. On December 27, 2006, the Company’s Board of Directors resolved to allot 800,000 options to a

Company officer who is not an interested party in the Company and will not become an interested party as a result of the allotment. The exercise premium of the options is NIS 22.49, which is the average price of a Company share in the 30 trading days preceeding the date the Company’s Board of Directors approved allotment of the said options. The record date for allotment of the said options is September 10, 2006. As at the balance sheet date, the exercise price after adjustments is NIS 20.49. The cost of the benefit inherent in the options issued, based on the fair value as of their allotment date amounted to $1,363 thousand. This amount is amortized to the statement of income over the vesting period of each increment. The options will vest in three equal increments, where one-third of the quantity may be exercised one year after the record date the second third may be exercised two years after the record date, and the final third, three years after the record date. The options from each increment referred to above are exercisable commencing from the vesting date of such increment and during a period of two years from such date. The other conditions of the options will be in accordance with the conditions of the options granted to the directors approved by the Company in 2005. On august 11, 2009, the Company’s board of directors approved an update of the terms of the options, whereby the exercise period of the options would be extended for an additional two years. The cost of the benefit embedded in amendment of the options terms is $280 thousand. This amount was recorded as an expense in the third quarter of 2009.

6. On August 28, 2007, the Company’s Board of Directors resolved to allot 3,130,000 options to

officers and employees of the Company and its subsidiaries. The exercise premium of the options is NIS 30.07 linked to the CPI on the record date. The record dated for the said options is August 28, 2007. As at the balance sheet date, the exercise price after adjustments and CPI linkage is NIS 31.46. The cost of the benefit inherent in the options allotted, based on the fair value as of their allotment date, amounted to $5,690 thousand. This amount is amortized to the statement of income over the vesting period of each increment. The options will vest in two increments, where the first increment equaling two-thirds of the quantity may be exercised two years after the record date and the second increment equalling one-third, three years after the record date. The options from each increment referred to above are exercisable commencing from the vesting date of such increment and during a period of six months from such date. The exercise period was extended to 18 months on January 8, 2008. The options under this plan were issued to the offerees pursuant to the provisions of Section 102 of the Income Tax Ordinance under the capital track.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 6. (cont’d)

On January 8, 2008, the Company's board of directors approved changes in the terms of the options that had been allotted to three officers and 7 employees of the Company, pursuant to the option plans that were allotted in August 2007, whereby the options that will vest, pursuant to the plan's terms, will be exercisable commencing from the vesting date and for a period of eighteen months commencing on that date, and not for a period of only six months, as provided in the plan. The cost of the additional benefit inherent in the options allotted, based on the fair value on the date of the change, amounted to $934 thousand. This amount is recognized as an expense in the statement of income over the vesting period of each increment. On august 11, 2009, the Company’s board of directors approved an update of the terms of options, whereby the exercise period of some of the options will be extended for two additional years. The cost of the benefit embedded in amendment of the option terms is $1,038 thousand. This amount is amortized in the statement of operations over the balance of the vesting period of each instalment.

7. On January 9, 2008, the Company’s Board of Directors resolved to allot 900,000 options to the

Chairman and previous CEO of the Company (Mr. Avraham Bigger). The exercise premium of the options is NIS 34.43 per option. The options can be exercised for up to 900,000 ordinary shares of the Company, NIS 1 par value each. As at the balance sheet date, the exercise price, after adjustments, is NIS 32.43. According to the options plan, when the options are exercised, the Company will issue shares that reflect the amount of the financial benefit inherent in the options, i.e. the difference between the price of one of the Company’s ordinary shares on the issue date and the exercise price of the option. The options that were allotted to the Chairman and previous CEO of the Company will vest in three equal increments, where one-third of the options may be exercised one year after the record date, the second third of the options may be exercised two years after the record date, and the final third, three years after the record date. The options from each of these increments are exercisable commencing from the vesting date of each instalment and during a period of two years from such date. The cost of the benefit embedded in the allotted options, based on the fair value on their grant date totalled $2,711 thousand. This amount is recognized as an expense in the statement of income over the vesting period of each increment. Furthermore, it was resolved to allot 51,500 options to an outside director of the Company. The exercise premium of the options is NIS 36.27 per option. The options are exercisable for up to 51,500 ordinary shares of the Company, NIS 1 par value each. As at the balance sheet date, the exercise price, after adjustments, is NIS 34.27. The options that were allotted to the outside director will vest in two increments, where two-thirds of the options may be exercised one year after the record date, and one-third of the options may be exercised two years after the record date. The options from each instalment statement are exercisable commencing from the vesting date of such instalment, and during a period of two years from such date.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 7. (cont’d)

The cost of the benefit inherent in the allotted options, based on the fair value on their grant date, totalled $128 thousand. This amount is recognized as an expense in the statement of income over the vesting period of each instalment. On February 17, 2008, the General Meeting approved the aforementioned grants. On September 22, 2009, after receiving approval of the Company’s audit committee and board of directors, a general meeting of shareholders approved an amendment to the terms of the options that had been allotted to the Company’s former President and Chairman of the board (Avraham Bigger), whereby the expiration date of some of the instalments of options will be extended as follows: The first instalment of options, which has vested, will be exercisable commencing on the vesting date of that instalment and for a three-year period from such date. The options that are part of the second and third instalments will be exercisable commencing on the vesting date of that instalment and for a two-year period since such date. The cost of the embedded benefit resulting from the amendment of the options terms is $80 thousand. This amount was recorded as an expense in the third quarter of 2009.

8. On May 13, 2008, the Company's Board of Directors resolved to allot 800,000 options to an officer

of the Company. The exercise premium is NIS 31.104 per option. The options may be exercised for up to 800,000 ordinary shares, NIS 1 par value each of the Company. The exercise premium is linked to the CPI on the record date. The record date for the allotment is January 1, 2008. As at the balance sheet date, the exercise price after adjustments and CPI linkage, as stated above, is NIS 33.41. The cost of the benefit inherent in the allotted options, based on the fair value on the grant date, totalled $1,648 thousand. This amount is recognized as an expense in the statement of income over the vesting period of each instalment. The options will vest in two increments, as follows: The first increment will contain 2/3 of the number of options allotted to the offeree, and will be exercisable two years after the record date. The second increment, which will include one-third of the number of options, will be exercisable three years after from the record date. The options included in the above increments will be exercisable from the vesting date of each instalment, for a period of eighteen months from that date. On August 11, 2009, the Company’s board of directors approved an update of the terms of options, whereby the exercise period of some of the options will be extended for two additional years. The cost of the benefit embedded in amendment of the option terms is $307 thousand. This amount is recognized as an expense in the statement of operations over the balance of the vesting period of each instalment.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 9. On August 11, 2009, the Company’s board of directors resolved to allot 3,600,000 options to the

Company’s new President, as provided below:

1. With respect to the 900,000 options, the exercise price will be NIS 33.04 per option (“first allotment”). As at the balance sheet date, the exercise price after adjustments is NIS 32.43.

2. With respect to the 2,700,000 options, the exercise price will be NIS 20.22 per option (“second allotment”). As at the balance sheet date, the exercise price after adjustments is NIS 19.61.

The record date for the purpose of the above allotments is September 15, 2009.

The options that were allotted to the Company’s new President will vest in three equal installments, with one-third of the options being exercisable one year after the date of record, the second third of the options being exercisable two years after the date of record, and the last third three years after the date of record. The options belonging to each of the above installments will be exercisable commencing on the vesting date, as noted, of that installment, and for a two-year period from such date.

The cost of the benefit embedded in the options allotted, as noted, based on the fair value on their grant date, totaled $4,786 thousand. This amount is recognized as an expense in the statement of operations over the balance of the vesting period of each installment.

10. On May 11, 2010 the Company's Board of Directors resolved to allot through a trustee 6,500,000

options to company officers and to a manager in the Company. The options are exercisable for ordinary shares of the Company, NIS 1 par value each. The exercise price of the options is NIS 20.22 per options. The cost of the benefit inherent in the options when issued, based on the fair value as at their allotment date, amounted $7.7 million. The options will vest in three equal increments, where one-third of the options may be exercised one year after the record date, the second third of the options may be exercised two years after the record date, and the final date, three years after the record date. The options from each of these increments are exercisable commencing from the vesting date of each instalment and during a period f two years from such date. This amount is amortized to the statement of income over the vesting period of each increment.

11. Regarding the options that were allotted to other directors and officers in the Company pursuant

to various option plans, it was provided that if certain events occur, such as upon liquidation, the sale of the Company or merger of the Company, the option terms will change, so that they will be exercisable immediately and over a short-period following the occurrence of the event.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 12. Presented below are the changes in the options during 2008

First First Second Second allotment allotment allotment allotment Allotment in 2006 in 2006 in 2006 in 2006 in 2008 from from from from from Plan 2001 Plan 2003 Plan 2005 Plan 2005 Plan 2003 Plan 2003 Plan 2005 Plan 2007 Plan 2008A Plan 2003 Plan 2008B Total

Balance as at January 1, 2008 88,487 314,341 8,095,034 1,946,664 2,700,000 51,500 533,333 3,130,000 - - - 16,859,359 Granted during the year - - - - - - - - 900,000 51,500 800,000 1,751,500 Forfeited during the year - - (346,665) (21,668) - - - - - - - (368,333) Exercised during the year (55,153) (36,667) (1,667,776) (856,658) - - - - - - - (2,616,254) Total options in circulation as at December 31, 2008(*) 33,334 277,674 6,080,593 1,068,338 2,700,000 51,500 533,333 3,130,000 900,000 51,500 800,000 15,626,272

The weighted average of the remaining contractual life of the options in circulation on December 31, 2008 is 3.5 years. (*) The exercise price of the options in circulation in Plan 2001 as at December 31, 2008 is $1.214. The exercise price of the options in circulation in Plan 2003 as at December 31, 2008 is NIS 5.04 and the exercise price of the remaining options in circulation as at December 31, 2008 ranges between NIS 20.22 and NIS 34.88.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 12. Presented below are the changes in the options during 2009

First First Second Second First Second allotment allotment allotment allotment Allotment allotment allotment in 2006 in 2006 in 2006 in 2006 in 2008 in 2009 in 2009 from from from from Plan from from from Plan 2001 Plan 2003 Plan 2005 Plan 2005 Plan 2003 Plan 2003 Plan 2005 Plan 2007 2008A Plan 2003 Plan 2008B Plan 2008A Plan 2008A Total

Balance as at January 1, 2009 33,334 277,674 6,080,593 1,068,338 2,700,000 51,500 533,333 3,130,000 900,000 51,500 800,000 - - 15,626,272 Granted during the year - - - - - - - - - - - 900,000 2,700,000 3,600,000 Forfeited during the year - (35,000) (233,336) (40,001) - - - - - - - - - (308,337) Exercised during the year (33,334) (86,333) - - - - - - - - - - - (119,667) Total options in circulation as at December 31, 2009(*) - 156,341 5,847,257 1,028,337 2,700,000 51,500 533,333 3,130,000 900,000 51,500 800,000 900,000 2700,000 18,798,268

The weighted average of the remaining life of the options in circulation on December 31, 2009 is 3.4 years. (*) The exercise price of the options in circulation in Plan 2003 as at December 31, 2009 is NIS 4.44 and the exercise price of the remaining options in circulation as at December 31, 2009 ranges between NIS 19.61 and

NIS 34.27.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 12. Presented below are the changes in the options during 2010

First First Second Second First Second allotment allotment allotment allotment Allotment allotment allotment Allotment in 2006 in 2006 in 2006 in 2006 in 2008 in 2009 in 2009 in 2010 from from from from Plan from from from from Plan 2003 Plan 2005 Plan 2005 Plan 2003 Plan 2003 Plan 2005 Plan 2007 2008A Plan 2003 Plan 2008B Plan 2008A Plan 2008A Plan 2008A Total

Balance as at January 1, 2010 156,341 5,847,257 1,028,337 2,700,000 51,500 533,333 3,130,000 900,000 51,500 800,000 900,000 2,700,000 - 18,798,268 Granted during the year - - - - - - - - - - - - 6,500,000 6,500,000 Forfeited during the year - (462,000) (73,333) - - - (150,000) - - - - - - (685,333) Exercised during the year (76,999) - - - - - - - - - - - - (76,999) Total options in circulation as at December 31, 2010 (*) 79,342 5,385,257 955,004 2,700,000 51,500 533,333 2,980,000 900,000 51,500 800,000 900,000 2,700,000 6,500,000 24,535,936

The weighted average of the remaining life of the options in circulation on December 31, 2010 is 2.7 years. (*) The exercise price of the options in circulation in Plan 2003 as at December 31, 2010 is NIS 4.44 and the exercise price of the remaining options in circulation as at December 31, 2010 ranges between NIS 19.61 and

NIS 34.27.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) 13. The fair value of the options granted, as above, is estimated using the binomial model for pricing options.

The model assumptions include the share price on the measurement date, the exercise price of the instrument, the life expectancy of the instruments (based on past experience and the overall behavior of the option holders), dividends expected and risk-free interest rate (based on government bonds). The service terms that are not market terms are not taken into account when determining fair value.

The parameters which served in the application of the model are as follows: First First Update of Second Second Update of First Second allotment allotment first allotment allotment second First Second Plan allotment allotment allotment in 2006 in 2006 allotment in in 2006 in 2006 allotment in Update update Update 2008B Update in 2009 in 2009 in 2010 from from 2006 from from from 2006 from for for Plan for Plan from Plan for Plan from from from Plan 2005 Plan 2005 Plan 2003 Plan 2003 Plan 2003 Plan 2005 Plan 2005 Plan 2007 Plan 2007 Plan 2007 2008A 2008A Plan 2003 2008C 2008C Plan 2008 Plan 2008 Plan 2008A

Share price (in NIS) 25.5 23.52 21.61 17.90 22.0 24.18 17.90 31.90 36.27 17.9 36.27 17.90 36.27 32.30 17.90 17.34 17.34 15.76 Original exercise price (in NIS) 25.1 23.52 21.61 20.22 22.58 22.49 21.10 *30.07 *30.28 *30.83 34.43 33.04 36.27 *31.104 *32.71 33.04 20.22 20.22 Expected fluctuations 27.75% 25.83% 25.17% 42.43% 27.24% 25.29% 42.43% 25.38% 25.66% 42.43% 25.66% 42.43% 25.66% 28.3% 42.43% 42.63% 42.63% 43.12% Average contractual life of the options (in years) 8.0 7.0 4.0 2.2 6.6 3.7 3.6 3.0 3.8 3.9 4.0 2.3 3.3 3.8 4.2 4.0 4.0 4.0 Risk-free interest rate 6.08% 6.13% 5.62% 2.08% 5.59% 5.4% 2.9% 3.28% 3.03% 0% 5.35% 2.5% 5.35% 1.9% 0.23% 3.5% 3.5% 3.55% Economic value on grant date (NIS thousands) 97,452 17,661 17,040 4,203 391 5,718 1,085 23,470 3,550 4,016 10,300 300 487 6,337 1,189 2,799 15,201 28,990 Economic value on grant date ($ thousands) 22,547 3,748 3,957 1,127 93 1,363 280 5,690 934 1,038 2,711 80 128 1,648 307 744 4,042 7,716 * Linked to the increase in the CPI.

According to GAAP, the cost of the benefit from the options is calculated only once, at their economic value on the grant date, and is amortized over the period until the vesting date, and does not change and is not affected by changes in the share price or ability to actually exercise.

The anticipated fluctuations were determined based on the historical fluctuations in prices of the Company’s shares.

The lifespan of the options was determined based on management’s estimate with respect to the holding period by the employees of the options taking into account their positions with the Company and the Company’s past experience regarding the employee turnover rate.

The risk-free interest rate was determined based on the yield to redemption on government debentures, where the balance of their period is equal over the anticipated lifespan of the options.

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Note 22 - Equity (cont'd) D. Share-based payments (cont'd) Salary expenses for share-based payments and other information

For the year ended December 31 2010 2009 2007 $ thousands $ thousands $ thousands

Share options granted in 2005 1,325 1,351 2,790 Share options granted in 2006 - 2,020 1,937 Share options granted in 2007 709 3,091 3,020 Share options granted in 2008 558 1,820 2,496 Share options granted in 2009 2,459 853 - Share options granted in 2010 2,948 - - Total expenses recognized as salary expenses for share-based payments 7,999 9,135 10,243 Regarding the options granted to related parties, see also Note 30 regarding related and interested parties. E. Buy-Back of Shares In March 2008, the Company’s Board of Directors resolved to buy-back the Company’s shares in an amount not in excess of $100 million. During 2008 the Company completed the buy-back. F. Options to employees in investees The subsidiary Lycored - Natural Products Ltd. ("Lycored") has options that were issued to employees, the exercise of which will dilute the Company's holding percentage in Lycored from 100% to 93.86%, based on the value of the employee options as at the balance sheet date. G. Dividend distribution policy On March 12, 2007, the Company's Board of Directors resolved to cancel the policy of distributing dividends at a fixed rate of the income. From time to time, the Board of Directors will examine the possibility of making dividend distributions and their amount in accordance with the investment policy and the Company's needs as they will be from time to time, in addition to the existence of sufficient distributable earnings. In March 2008, the Company’s Board of Directors resolved to distribute a dividend of $120 million. The amount of the dividend, after deducting the dividend for shares held by a subsidiary, is $119 million. On April 10, 2008 the Company distributed the aforementioned dividend.

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Note 22 - Equity (cont'd) G. Dividend distribution policy (cont'd) In November 2008, the Company’s Board of Directors resolved to distribute a dividend of $50 million. The amount of the dividend, after deducting the dividend for shares held by a subsidiary, is $49.5 million. On December 10, 2008 the Company distributed the aforementioned dividend. In August 2009, the Company’s Board of Directors resolved to distribute a dividend of $70 million. The amount of the dividend, after deducting the dividend for shares held by a subsidiary is $69.3 million. On October 14, 2009, the Company distributed the aforementioned dividend. Dividends The following dividends were declared and paid by the Group:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

$0.267 per ordinary share - - 119,051 $0.115 per ordinary share - - 49,558 $0.161 per ordinary share - 69,289 -

Note 23 - Revenues For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Foreign sales - As part of industrial operations 1,985,411 1,794,241 2,129,947 As part of commercial operations 287,896 336,607 293,441 2,273,307 2,130,848 2,423,388 Domestic sales - As part of industrial operations 64,619 57,781 66,783 As part of commercial operations 24,306 25,987 45,333 88,925 83,768 112,116 2,362,232 2,214,616 2,535,504

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Note 24 - Cost of Sales For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Materials and commercial inventory 1,332,426 1,219,869 1,642,901 Salaries and related expenses 102,707 103,532 107,501 Outsourcing 68,547 63,963 67,188 Other production expenses 143,417 131,020 134,088 Depreciation 42,038 38,344 34,338 1,689,135 1,556,728 1,986,016 Change in finished products and goods in process inventory 23,871 76,024 (298,257) 1,713,006 1,632,752 1,687,759

Note 25 - Sales and Marketing Expenses For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Salaries and related expenses 118,006 105,937 104,652 Commissions and delivery costs 86,566 76,198 98,514 Advertising 31,392 24,319 24,748 Depreciation and amortization 63,797 57,433 53,460 Licensing 27,522 26,583 26,639 Professional services 12,187 8,452 9,633 Insurance 11,006 9,412 10,179 Royalties 3,746 3,821 3,042 Other 56,149 46,245 44,333 410,371 358,400 375,200

Note 26 - General and Administrative Expenses For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Salaries and related expenses 34,332 33,413 38,443 Directors’ fees to Koor and the IDB Group 324 324 325 Depreciation and amortization 4,122 4,065 3,163 Bad and doubtful debts 17,428 6,388 9,227 Professional services 28,633 14,062 12,260 Insurance 4,117 3,446 2,384 Other 17,573 17,704 18,170 106,529 79,402 83,972

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Note 27 - Research and Development Expenses For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Salaries and related expenses 10,837 9,967 13,255 Field trials 5,649 4,406 2,784 Professional services 2,118 3,441 2,325 Materials 342 343 497 Other expenses 4,241 3,659 3,513 23,187 21,816 22,374

Note 28 - Other Expenses For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Impairment expenses for early retirement of employees (1) 63,325 - - Impairment of other assets 9,502 - - Impairment of fixed assets and other assets in subsidiary in Brazil (2) 22,104 - - Impairment of fixed assets for subsidiary in Israel 5,000 - - Other 5,693 5,517 2,633 105,624 5,517 2,633

(1) See Note 20A(10) and 20A(11). (2) See Note 20A(11).

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Note 29 - Net Financing Expenses (Income) For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

A. Recognized in statement of income Interest income on trade receivables 920 3,878 3,740 Gain from buy-back of Company's debentures - - 5,692 Interest income on short-term investments and from others 3,805 2,808 4,718 Net change in fair value of derivative financial assets 60,548 - 68,205 Exchange rate differences, net and others - 25,818 - Expected yield on assets of defined benefit plan 1,187 1,451 1,683 Interest income recognized in statement of income 66,460 33,955 84,038 Losses on sale of trade receivables in securitization 6,521 5,898 13,642 transaction and discounted Interest expenses on debentures 55,127 48,813 37,017 Linkage expenses on debentures 19,675 30,606 25,783 Interest expenses on short and long-term loans 25,648 30,214 20,292 Exchange rate differences, net and other expenses 75,844 - 79,764 Dividend to maturity 2,238 1,702 1,317 Interest expenses on post-employment employee benefits 2,919 3,652 3,921 Net change in fair value of financial asset derivatives - 6,780 - Less: capitalized credit costs - - (1,091) Financing expenses recognized in statement of income 187,972 127,665 180,645 Net financing expenses recognized in statement of income 121,512 93,710 96,607

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

B. Recognized directly in comprehensive income Foreign currency translation differences from foreign activities (1,885) 14,229 (12,275) Effective part of changes in fair value of hedged cash flows (6,782) 6,609 6,000 Income taxes on income and expenses recognized directly in comprehensive income 1,096 (3,567) 1,018 Financing income (expenses) recognized directly in comprehensive income, net (7,571) 17,271 (5,257)

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Note 29 - Net Financing Expenses (Income) (cont’d)

B. Recognized directly in comprehensive income (cont’d) Financing income (expenses) recognized directly in equity net of related tax:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Holders of equity rights in the Company Foreign currency translation differences from foreign activities (2,200) 12,757 (10,865) The effective part of changes in fair value of cash flows hedge, net (5,686) 3,042 7,021 (7,886) 15,799 (3,844) Non-controlling interest Foreign currency translation differences from foreign activities 315 1,472 (1,410) The effective part of changes in fair value of cash flows hedge, net - - (3) 315 1,472 (1,413)

Note 30 - Transactions and Balances with Related and Interested Parties

A. Transactions with interested parties In July 2007, Discount Investment company of the I.D.B. Group acquired shares of Koor Industries Ltd. from the prior shareholders. (1) Trivial transactions

During the ordinary course of business, the Company and its subsidiaries, especially in view of the multi-branched holding structure of the Group and the diverse activities, effect or could effect interested party transactions, mainly the purchase of services (such as logistical services, shipping services, operating leases of vehicles, communication services, tourism, investment portfolio management, management and coordination of issuances), the purchase or rental of goods, movable property or real estate insurance products, office equipment, offices, marketing transactions, etc. This mainly involves transactions that are not material for the Company, whether quantitatively or qualitatively, and they are effected mainly at terms similar to those of transactions made opposite unrelated parties. On March 10, 2009, the Company's board of directors resolved to adopt guidelines and principles for classifying a transaction of the Company or its subsidiary with an interested party as a minor transaction.

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Note 30 - Transactions and Balances with Related and Interested Parties (cont’d) A. Transactions with interested parties (cont’d) (1) Trivial transactions (cont’d)

According to these guidelines and rules, it was designated that an interested party transaction that is not an exceptional transaction (i.e. - is effected in the ordinary course of business, for the benefit of the Company and at market terms), will be deemed a trivial transaction if it meets a two-stage test: (a) Qualitative test - If from the standpoint of the nature, substance and influence on the

Company, is not material to the Company and there are no special considerations arising from the range of circumstances of the matter, testifying to the materiality of the transaction.

(b) Quantitative test - If the cumulative effect is less than 1.5% of total operating

income of the Company, as recorded in its latest published consolidated audited financial statements of the Company. It should be noted, that if the interested party transaction meets the above quantitative test, it will not be deemed trivial if qualitative considerations testify to its materiality, if from the standpoint of its influence on the Company, or due to the importance of its disclosure to the investing public.

On May 3, 2010, the Company's board of directors resolved to update the guidelines and rules for the classification of a transaction by the Company or its subsidiary with an interested party as a trivial transaction effected as provided in Regulation 41(A)(6) to the Securities Regulations (Annual Financial Statements) – 2010 ("Financial Statement Regulations"). These updated rules and guidelines will also serve to evaluate the scope of the disclosure in the periodic report and in the prospectus (including in a shelf offering) related to a transaction of the Company, a corporation its controls and its related company, with a controlling shareholder, or the controlling shareholder has a personal interest in its approval, as provided in Regulation 22 of the Securities Regulations (Periodic and Immediate Reports) – 1970 ("Periodic Reports Regulations") and in Regulation 54 of the Securities Regulations (Details of Prospectus and Draft Prospectus – Structure and From) – 1969 ("Prospectus Details Regulations"), and to evaluate the need to file an immediate report for such a transaction of the Company, as provided in Regulation 37A(6) of the Periodic Reports Regulations (Types of Transactions Provided in the Financial Statement Regulations and in the Prospectus Details Regulations mentioned previously, hereafter – "interested party transactions"). Therefore, the Company's board of directors prescribed that an interested party transaction that is not an exceptional transaction (as the term is defined in the Companies Law) shall be deemed a trivial transaction if it meets the following two-stage test: (1) qualitative test – if from the standpoint of the nature, substance and influence on the Company, is not material to the Company and there are no special considerations arising from the range of circumstances of the matter, testifying to the materiality of the transaction; (2) quantitative test – (a) for immediate report purposes – if the ratio between the total amount of the interested party transaction (one or more of certain types, as discussed below) to the relevant criteria is less than 0.5% and its amount does not exceed $1.25 million, as provided below; (b) for periodic report purposes – if the ratio between the total amount of transactions of that type (in annual terms) ("cumulative transaction") and the relevant criteria in the annual report is less than 0.5%, and their total does not exceed $1.25 million, as provided below:

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Note 30 - Transactions and Balances with Related and Interested Parties (cont’d) A. Transactions with interested parties (cont’d) (1) Trivial transactions (cont’d)

In each type of interested party transaction (including cumulative transactions of a certain type) whose classification as a trivial transaction was evaluated, the said ratio will be calculated against one or more of the relevant criteria of the certain transaction, based on the last reviewed or audited consolidated financial statements of the Company: (a) in the purchase of a fixed asset ("a non-current asset") – the amount of the transaction against total assets (in other words, total balance sheet); (b) sale of a fixed asset ("a non-current asset") – the gain/loss from the sale against the average annual income (i.e. for four quarters) based on the last 12 quarters for which reviewed or audited financial statements were issued. In this context, the gain/loss from the transaction and the income/loss in each quarter will be calculated at their absolute value: (c) receipt of monetary liability – amount of the transaction against total liabilities in the balance sheet; (d) in the purchase/sale of products (except for fixed assets) or services – amount of the transaction against total revenues from sales and services in the last 4 quarters for which reviewed or audited financial statements were issued. In cases in which, at the Company's discretion, none of the quantitative criteria mentioned previously are relevant for evaluating the triviality of an interested party transaction, the transaction will be deemed trivial, in accordance with another relative criterion, to be prescribed by the Company (provided that the relevant criterion calculated for the transaction will less than 0.5% and will not exceed $1.25 million). With respect to multi-year transactions, the amount of the transaction for purposes of evaluating triviality will be calculated on an annual basis. For example, in multi-year insurance transactions, the annual insurance fees paid or collected will be deemed the amount of the transaction. It should be pointed out that even if an interested party transaction meets the above quantitative test, it will not be deemed trivial if the qualitative considerations testify to its materiality, whether from the standpoint of its impact on the Company or due to the importance of its disclosure to the investing public. For immediate report purposes, the triviality of the transaction will be evaluated based on a certain, individual transaction. For the purposes of reporting in a periodic report, financial statements and a prospectus (including shelf offering statements), the triviality of the cumulative transactions will be examined on an annual bases (i.e., combining all the interested party transactions of the same type). If the Company does not have available information that enables an examination of the classification of interested party transactions as trivial transactions, then the cumulative total of all the transactions of that type as a trivial transaction will be deemed a trivial transaction, unless one of the following two conditions are met: (a) the transaction itself, as an individual transaction, is not trivial; or (b) the cumulative total of the transactions is material for the Company. Separate transactions which are interdependent, so that they are actually part of the same undertaking (for example, negotiating a group of transactions on a consolidated basis) will be examined as a single transaction. The total transactions classified as trivial by the Company's investees will be deemed trivial also at the Company level. Transactions of the Company's investees, which have been classified by them as not trivial, will be examined against the relevant criteria at the Company level.

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Note 30 - Transactions and Balances with Related and Interested Parties (cont’d) A. Transactions with interested parties (cont’d) (1) Trivial transactions (cont’d)

Annually, the audit committee will review the manner in which the instructions of this procedure are carried out by the Company and will perform sample testing of transactions that were classified as trivial by the instructions of the procedure. Within the scope of the sample testing of the said transactions, the audit committee will also examine the ways prices and the remaining terms of the transactions are determined, under the circumstances of the matter, and will examine the effect of the transaction on the Company's financial position and operating results. The activities of the audit committee pursuant to this paragraph, including the said sample testing, the manner in which it is performed, and a summary of its results and conclusions, will be disclosed in the Company's periodic report. According to the Company's consolidated financial statements for 2010, the revenues and expenses pertaining to interested party transactions, as noted, which were classified as trivial transactions under the provisions instructions of this procedure, totaled $1,135 thousand and $6,953 thousand, respectively. From time to time, the Company's board of directors will examine the need for updating the instructions of this procedure, noting the interested party transactions in which the Company has undertaken and changes in the provisions of the relevant laws.

(2) The Company’s Audit Committee, at its meeting on December 26, 2007, the Board of

Directors, at its meeting on January 9, 2008 and the general meeting of the Company, which met on February 17, 2008, approved the Company’s undertaking in the amendment to the management services agreement between the Company and the company that provides it with management services, including the services of the Chairman of the Board of Directors and/or CEO of the Company through Mr. Avraham Bigger, and reorganized pursuant to which was the undertaking with the company controlled by Mr. Bigger, as well as the annual bonus that it will be granted, if the predetermined goals are met. On December 31, 2010 ended the tenure of Mr. Avraham Bigger, Chairman of the Board of Directors

(3) The Company’s audit committee, at its August 9, 2009 meeting, and the board of directors,

and its August 11, 2009 meeting, approved the employment terms of Mr. Erez Vigodman, the new CEO, and the remuneration to which he is entitled. His tenure began on January 1, 2010.

(4) Regarding interested party insurance and indemnification – see Note 20(A)(1) and (2). The

insurance is provided by Clal Insurance Company Ltd., a company controlled by I.D.B. Development Company Ltd.

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Note 30 - Transactions and Balances with Related and Interested Parties (cont’d)

A. Transactions with interested parties (cont'd) (5) Regarding the options granted to interested parties – see Note 22.

(6) Regarding communicating with Clal Insurance Company Ltd. For insurance of property and

earning loss – see Note 35(4). Provided below are details of transactions with related and interested parties:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Revenues - 1,135 5,748 8,662 Expenses - 19,767 17,345 14,910

B. Benefits to interested parties

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Salaries and related benefits to interested party employed by the Group* 1,052 378 438 Number of interested parties 2 1 1 Expenses from options to interested party employed by the Group 2,795 2,364 2,701 Number of interested parties 2 1 1 Fees to directors appointed by Koor and IDB 385 324 325 Number of directors 7 7 8

Fees to other directors 260 208 181 Number of directors 4 4 4

Expenses in respect of options to directors - 30 131

Number of directors - 2 2 (*) Does not include the annual bonus that was paid to the company controlled by the former

CEO and Chairman of the Board of Directors for 2008 according to the set criteria that were approved by the general meeting in the amount of NIS 3,714 thousand.

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Note 30 - Transactions and Balances with Related and Interested Parties (cont’d)

C. Balances with related and interested parties

December 31 December 31 2010 2009 $ thousands $ thousands

Trade receivables (1) - Related parties 389 58 Trade payables - Related parties 2,358 2,164 Severance pay fund administered by related companies 4,380 3,626 (1) Highest balance during the year - trade receivables 597 4,042 Benefits to a group of officers and senior management in Israel and abroad In addition to salary, senior executives in the Group are entitled to benefits beyond regular salary. These benefits include: annual bonuses, social and salary-related benefits and options granted. Senior executives also participate in the Group's option plans (see Note 22). The benefits attributed to the key management personnel are comprised as follows:

2010 2009 2008 $ thousands $ thousands $ thousands

Direct salary 4,024 3,523 3,474 Bonuses* - - 2,008 Post-employment and other benefits 1,966 1,096 1,104 Share-based payments** 6,406 7,386 6,703 12,396 12,005 13,289 * The bonuses are based on the operating results of the Group. ** The cost of the benefit to each officer from share-based payments is calculated only once,

according to the economic value of the options on the grant date, amortized over the vesting period until vesting date and does not change and is not affected by changes in the price of the share or the ability to exercise.

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Note 31 - Earnings per Share Basic earnings (loss) per share Calculation of the loss per share for the year ending December 31, 2010, is based on the loss attributed to the holders of the ordinary shares in the amount of $132,151 thousand (in 2009 - earnings of $32,678 thousand, in 2008 - earnings of $219,041 thousand), divided by the weighted-average number of ordinary shares outstanding of 430,454 thousand shares (in 2009 - 430,392 thousand shares, in 2008 - 439,414 thousand shares), calculated as follows:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Earnings attributed to ordinary shareholders (132,151) 32,678 219,041

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Weighted average of the number of ordinary shares: Balance as at January 1 474,713 474,626 473,716 Less shares of the Company held by the Company and subsidiaries as at January 1 (44,297) (44,297) (29,291) Net of company shares acquired by the company during the period - - (5,628) With the addition of convertible securities that were exercised into shares 38 63 617 Weighted average of the number of ordinary shares used in the computation of basic earnings per share 430,454 430,392 439,414 Fully diluted earnings (loss) per share Calculation of diluted losses per share for the year ending December 31, 2010, is based on the loss attributed to the holders of the ordinary shares in the amount of $132,151 thousand (in 2009 - earnings of $32,320 thousand, in 2008 - earnings of $218,763 thousand), divided by the weighted-average number of ordinary shares outstanding of 430,454 thousand shares (in 2009 - 430,533, in 2008 - 441,330 thousand shares), calculated as follows:

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Earnings used to calculate basic earnings per share (132,151) 32,678 219,041 Adjustments for convertible securities in subsidiary - (358) (278) Earnings attributed to ordinary shareholders (diluted) (132,151) 32,320 218,763

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

103

Note 31 - Earnings per Share (contd.)

For the year ended December 31 2010 2009 2008 Thousands

shares Thousands

shares thousands

shares Weighted average of the number of ordinary shares (diluted): Weighted average of the number of ordinary shares used to calculate basic earnings per share 430,454 430,392 439,414 Effect of employee options - 141 1,916 Weighted average of the number of ordinary shares used in the computation of diluted earnings per share 430,454 430,533 441,330 The average market value of the Company's shares for the purpose of calculating the dilutive effect of the share options was based on the quoted market prices for the period in which the options were outstanding.

Note 32 - Financial Instruments

A. General The Group has extensive international operations, and, therefore, it is exposed to credit risks, liquidity risks and market risks (including currency risk, interest risk and other price risk). In order to reduce the exposure to these risks, the Group uses financial derivatives instruments, including forward transactions, swaps and options (hereinafter, “derivatives”). Transactions in derivatives are undertaken with major financial institutions in Israel and abroad and, therefore, in the opinion of Group Management the credit risk in respect thereof is low. This note provides information on the Group's exposure to each of the above risks, the Group's objectives, policies and processes regarding the measurement and management of the risk. Additional quantitative disclosure is included throughout these consolidated financial statements. The board of directors holds overall responsibility for establishing the Group's risk management policy and monitoring it. The Finance Committee is responsible for establishing and monitoring the Group's risks management policy. The Chief Financial Officer reports about these risks to the Finance Committee on a regular basis The Group's risks management policy was formulated in order to identify and analyze the risks facing the Group, to prescribe reasonable limits for the risks and controls and monitoring of the risks and compliance with the limits. The risks and methods for managing the risks are reviewed regularly, in order to reflect changes in market conditions and the Group's activities. The Group, through training, and management standards and procedures, works to develop an effective control environment in which all the employees understand their roles and obligations.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

104

Note 32 - Financial Instruments (cont'd) B. Credit risk Credit risk is the risk of financial loss that the Group will sustain if a customer or counter-party to a financial instrument does not meet its contractual obligations, and derives mainly from trade receivables and other receivables as well as from cash and deposits in bank corporations. Trade receivables and other current assets The Group’s revenues are derived from a large number of widely dispersed customers in many countries. Customers include multi-national companies and manufacturing companies, as well as distributors, agriculturists, agents and agrochemical manufacturers who purchase the products either as finished goods or as intermediate products for their own requirements. The financial statements contain specific provisions for doubtful debts, which properly reflect, in management’s estimate, the loss embodied in debts, for which collection is in doubt. In April 2009, a two-year agreement with an international insurance company was renewed. The amount of the insurance coverage was fixed at $100 million cumulative per year. The indemnification from the insurer is full indemnification up to a sum of $10 million for securitized trade receivables. For sums exceeding $10 million up to $100 million the indemnification is 80% of the debt of securitized trade receivables and for remaining trade receivables, indemnification is limited to 90% of the debt. The Group’s exposure to credit risk is influenced mainly by the personal characterization of each customer, and by the geographic characterization of the customer’s base, including the risk of insolvency of the industry and geographic region in which the customer operates. Approximately 1.5% of the Group’s revenues derive from sales opposite a single customer. The Company's management prescribed a credit policy, whereby each new customer will be examined thoroughly regarding the quality of his credit, before offering him shipping and payment terms customary for the Group. The examination made by the Group includes independent credit rating, if any, and in many cases, receipt of documents from an insurance company. A credit limit is prescribed for each customer, reflecting the maximum open amount of the trade receivable balance. These limits are examined annually. Customers that do not meet the Group's criteria for credit quality may undertake with the Group on the basis of a prepayment or against the furnishing of appropriate collateral. Most of the Group's customers have done business with it for many years, and occasionally have generated losses. In monitoring customer credit risk, the customers were grouped according to a characterization of their credit, based on geographical location, industry, aging of receivables, maturity, and existence of past financial difficulties. Customers’ rates as "high risk" are classified to a list of restricted customers and are under management's supervision and are reported to the Finance Committee.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

105

Note 32 - Financial Instruments (cont'd) B. Credit risk (cont’d) The Group recognizes an impairment provision, which reflects its assessment of losses sustained from trade receivables and other receivables and investments. The key elements of this provision are specific losses related to specific significant exposure, and examined the need for a general loss to be determined for groups of similar assets regarding losses sustained but yet identified. The general loss provision was determined based on historical information about payment statistics relating to events that occurred in the past.

Cash and Deposits The Company holds cash and deposits in bank corporations with high credit rating. These corporations are also committed to capital adequacy and securities in different scenarios.

Guarantees The Company's policy is to furnish financial guarantees only to wholly-owned subsidiaries. C. Liquidity risk Liquidity risk is the risk that the Group will be unable to meet its obligation when they come due. The Group's approach to managing its liquidity risk is to assure, to the extent possible, an adequate degree of liquidity for meeting its obligations timely, under ordinary conditions and under pressure conditions, without sustaining unwanted losses or hurting its reputation. The Group verifies the existence of sufficient levels of cash, according to requirements for the payment of expected operating expenses, including the amounts required to meet its financial obligations; the aforesaid does not take into account the potential effect of extreme scenarios that it is not reasonable to foresee, such as natural disasters. D. Market risks Market risk is the risk that changes in market prices, such as currency exchange rates, CPI, interest rates and prices of capital instruments, will affect the Group's revenues or the value of its holdings in its financial instruments. The objective of market risks management is to manage and monitor the exposure to market risks within acceptable parameters, while maximizing the yield.

During the ordinary course of business, the Group purchases and sells derivatives and assumes financial liabilities for the purpose of managing market risks. The said transactions are executed according to guidelines prescribed by the Finance Committee.

Currency risk The Group is exposed to currency risk from its sales, purchases, expenses and loans denominated in currencies that differ from the Group's functional currency. Most of the exposure is to the Euro, Brazilian Real and the Shekel. The Group uses foreign currency derivatives - forward transactions, swaps and currency options - in order to hedge the risk that the dollar cash flows, which derive from existing assets and liabilities and anticipated sales and costs and projected sales, may be affected by exchange rate fluctuations.

The Group hedged a part of the estimated currency exposure for projected sales and purchases during the subsequent year. Likewise, the Group hedges most of its financial balances denominated in a non-dollar currency. The Group uses foreign currency derivatives to hedge its currency risk, mostly with maturity dates of less than one year from the reporting date, except for the following swap transaction.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

106

Note 32 - Financial Instruments (cont'd) D. Market risks (cont'd) During November 2006 and March 2009, the Company held an offering of debentures, most of which are linked to the CPI; therefore, an increase in the CPI, as well as changes in the shekel exchange rate, could cause significant exposure toward the Company's functional currency the dollar. As at the approval date of the financial statements, the Company had hedged most of its exposure deriving from the issuance of the debentures, in a swap transaction and in forward contracts.

Interest rate risk The Group has exposure to changes in the Libor interest rate on the U.S. dollar, since the Group has U.S. dollar obligations, which bear variable Libor interest. The Company prepares a quarterly summary of exposure to a change in the Libor interest rate. As at the approval date of the financial statements, the Company had not hedged this exposure.

The Group does not enter into commodity contracts, except for barter contracts opposite a customer, for the purpose of meeting the estimated usage and sales needs; these contracts are not settled on a net basis. E. Determination of fair value - derivatives The fair value of forward contracts on foreign currency is based on their listed market price, if available. In the absence of market prices, the fair value is estimated based on the discounted difference between the stated forward price in the contract and the current forward price for the balance of the contract period to maturity, using the appropriate interest rate.

The fair value of foreign currency options and interest rate swaps is based on bank quotes. The reasonableness of the quotes is evaluated through discounting future cash flow estimates, based on the conditions and duration to maturity of each contract, using the market interest rates of a similar instrument at the measurement date and Black&Scholes model. F. Credit risk (1) Exposure to credit risk

The carrying value of the financial assets represents the maximum credit exposure. The maximum exposure to credit risk on the balance sheet date was as follows:

December 31 December 31 2010 2009 Book value thousands $

Cash and cash equivalents 422,632 562,430 Short-term investments 445 448 Assets in respect of currency swap contracts used for hedging 49,957 41,463 Assets in respect of forward contracts on exchange rates not used for hedging 47,670 66,476 Assets in respect of forward contracts on exchange rates used for hedging 2,721 5,755 Customers and deferred capital note 650,402 609,950 Non-current trade receivables 30,659 25,399

1,204,486 1,311,921 The above balances are included in cash and cash equivalents, short-term investments, trade receivables, accounts receivable, including derivatives and other financial investments and debts.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

107

Note 32 - Financial Instruments (Cont'd) F. Credit risk (cont'd) (1) Exposure to credit risk (cont'd)

The maximum exposure to credit risk from trade receivables and subordinated capital note as at the balance sheet date, according to geographic regions was as follows:

December 31 December 31 2010 2009 $ thousands $ thousands

Israel 11,545 6,140 Latin America 333,381 357,847 Europe 179,627 142,070 North America 61,632 59,855 Rest of the world. 94,876 69,437

681,061 635,349

The Group's major customer is an agricultural corporation that constitutes $40,248 thousand of the total carrying value of trade receivables as at December 31, 2010 (as at December 31, 2009: $29,512 thousand).

(2) Aging of receivables and allowance for doubtful accounts

Presented below is the aging of trade receivables (without subordinated capital note):

December 31 December 31 2010 2009 $ thousands $ thousands

Not past due 486,547 479,566 Past due by less than 90 days 66,697 64,902 Past due by more than 90 days 115,371 96,880 668,615 641,348

The change in the allowance for doubtful accounts during the year was as follows:

December 31 December 31 2010 2009 $ thousands $ thousands

Balance as at January 1 48,091 35,069 Additions during the year 17,428 6,388 Write-off to bad debts (9,993) (715) Exchange rate differences 207 7,349 Balance as at December 31 55,733 48,091

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

108

Note 32 - Financial Instruments (cont'd) G. Liquidity risk Presented below are the contractual maturity dates of the financial liabilities, including estimated interest payments:

As at December 31, 2010 Carrying Contractual Fifth year value cash flow First year Second year Third year Fourth year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Non-derivative financial liabilities Bank overdrafts 94,546 95,604 95,604 - - - - Short-term loans from banks 99,974 101,212 101,212 - - - - Short-term loans from others 68,402 68,976 68,976 - - - - Trade payables 503,397 503,397 503,397 - - - - Other payables 403,605 404,644 404,644 - - - - Debentures (1) 971,542 1,507,303 174,430 168,257 162,084 65,585 936,947 Long-term loans from banks (1) 254,171 268,554 186,827 27,712 27,453 20,614 5,948 Other long-term liabilities (1) 19,667 19,667 115 13,704 755 2,151 2,942 Financial derivatives Derivatives in foreign currency 35,039 35,039 35,039 - - - - 2,450,343 3,004,396 1,570,244 209,673 190,292 88,350 945,837 (1) Including current maturities

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

109

Note 32 - Financial Instruments (cont'd) G. Liquidity risk (cont'd)

As at December 31, 2009 Carrying Contractual Fifth year value cash flow First year Second year Third year Fourth year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Non-derivative financial liabilities Bank overdrafts 87,678 88,608 88,608 - - - - Short-term loans from banks 32,674 33,175 33,175 - - - - Short-term loans from others 95,592 104,783 104,783 - - - - Trade payables 501,692 501,692 501,692 - - - - Other payables 333,128 334,862 334,862 - - - - Debentures (1) 980,036 1,511,712 134,091 160,790 155,236 149,317 912,278 Long-term loans from banks (1) 324,125 345,817 30,047 241,089 34,388 21,886 18,407 Other long-term liabilities (1) 18,711 18,711 - 12,385 220 4,898 1,208 Financial derivatives Derivatives in foreign currency 12,386 12,386 12,386 - - - - 2,386,022 2,951,746 1,239,644 414,264 189,844 176,101 931,893 (1) Including current maturities

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

110

Note 32 - Financial Instruments (cont'd) G. Liquidity risk (cont'd) The table below presents the periods in which projected cash flows that are related to the derivatives used to hedge cash flows:

2010 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year value cash flows or less months year year year year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap: 49,957 41,745 (1,096) 14,280 13,915 14,646 - - - Forward contracts on exchange rates (3,607) (3,607) (4,381) 774 - - - - - 46,350 38,138 (5,477) 15,054 13,915 14,646 - - - The table below presents the periods in which cash flows that are related to the derivatives used to hedge cash flows are expected to impact income or loss.

2010 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year value cash flows or less months year year year year and above (1) $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap (8,271) (8,271) (1,555) (1,555) (2,044) (1,192) (481) (481) (963) Forward contracts on exchange rates (2,451) (2,451) (3,246) 795 - - - - - (10,722) (10,722) (4,801) (760) (2,044) (1,192) (481) (481) (481)

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

111

Note 32 - Financial Instruments (cont'd) G. Liquidity risk (cont'd) The table below presents the periods in which projected cash flows that are related to the derivatives used to hedge cash flows:

2009 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year value cash flows or less months year year year year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap: 41,463 28,115 (1,739) 7,464 6,594 7,464 8,333 - - Forward contracts on exchange rates 3,064 3,064 2,274 790 - - - - - 44,527 31,179 535 8,254 6,594 7,464 8,333 - - The table below presents the periods in which cash flows that are related to the derivatives used to hedge cash flows are expected to impact income or loss.

2009 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year value cash flows or less months year year year year and above (1) $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap (10,414) (10,414) (1,726) (1,726) (2,409) (1,627) (1,002) (481) (1,443) Forward contracts on exchange rates 1,534 1,534 1,223 311 - - - - - (8,880) (8,880) (503) (1,415) (2,409) (1,627) (1,002) (481) (1,443)

(1) Interest rate swap that includes in the sixth year and above period repays in one payment at the end of 2017.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

112

Note 32 - Financial Instruments (cont'd)

H. Linkage and foreign currency risks

(1) Linkage terms of monetary balance

December 31, 2010 Denominated Denominated in or linked to In CPI-linked In unlinked in or linked to other In Brazilian Israeli Israeli Non-monetary dollar In euro currency real currency currency items Total $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Assets - Cash and cash equivalents 210,692 99,223 88,060 8,669 4,900 11,088 - 422,632 Short-term investments - - 445 - - - - 445 Trade receivables 253,131 102,245 139,385 86,361 - 1,101 - 582,223 Subordinated capital note from sale of trade receivables 34,779 9,279 13,238 - - 10,883 - 68,179 Other receivables and current assets * 58,314 12,124 17,249 9,571 1,021 16,923 15,811 131,013 Advances net of provision for income taxes 2,956 1,332 2,764 - 1,102 - - 8,154 Inventories - - - - - - 972,358 972,358 Long-term investments, loans and receivables (including current maturities) 51,591 278 925 98,191 - 2,818 33,223 187,026 Deferred tax assets - - - - - - 73,541 73,541 Fixed assets - - - - - - 619,683 619,683 Other assets - - - - - - 653,494 653,494 611,463 224,481 262,066 202,792 7,023 42,813 2,368,110 3,718,748

Liabilities - Credit from banks (not including current maturities) 175,449 14,029 38,058 35,095 - 291 - 262,922 Trade payables 211,912 100,860 79,352 24,143 - 87,130 - 503,397 Other payables and current liabilities * 152,708 66,498 54,482 21,788 6,495 85,936 860 388,767 Provision for taxes net of advances 5,300 940 3,114 - 16,624 - - 25,978 Loans from banks (including current maturities) 232,363 10,490 2,982 8,336 - - - 254,171 Debentures - - - - 774,208 197,334 - 971,542 Other long-term liabilities (including current maturities) 492 5,121 1,642 9,598 2,814 - - 19,667 Deferred tax liability - - - - - - 28,301 28,301 Employee benefits 63 2,050 1,878 860 - 86,623 - 91,474 Put option to non-controlling interest 14,424 5,394 4,941 - - - - 24,759 792,711 205,382 186,449 99,820 800,141 457,314 29,161 2,570,978 * Regarding the group’s exposure to linkage and currency risks of financial derivatives. See Note 32(2) below.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

113

Note 32 - Financial Instruments (cont'd)

H. Linkage and foreign currency risks (cont’d)

(1) Linkage terms of monetary balance (cont’d)

December 31, 2009 Denominated Denominated in or linked to In CPI-linked In unlinked in or linked to other In Brazilian Israeli Israeli Non-monetary dollar In euro currency real currency currency items Total $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Assets - Cash and cash equivalents 335,101 91,618 75,761 28,526 528 30,896 - 562,430 Short-term investments 1 95 352 - - - - 448 Trade receivables 246,641 82,793 110,732 126,890 - 802 - 567,858 Subordinated capital note from sale of trade receivables 26,868 1,749 7,273 - - 6,202 - 42,092 Other receivables and current assets * 72,522 17,590 12,976 12,966 1,479 17,604 18,457 153,594 Advances net of provision for income taxes 1,637 1,654 3,581 - 1,212 - - 8,084 Inventories - - - - - - 959,591 959,591 Long-term investments, loans and receivables 43,775 1,216 692 86,134 2,649 - 53,346 187,812 Deferred tax assets - - - - - - 86,542 86,542 Fixed assets - - - - - - 576,375 576,375 Other assets - - - - - - 615,021 615,021 726,545 196,715 211,367 254,516 5,868 55,504 2,309,332 3,759,847

Liabilities - Credit from banks (not including current maturities) 109,437 18,717 17,971 69,851 - 73 - 216,049 Trade payables 205,808 91,933 44,477 94,738 - 64,736 - 501,692 Other payables and current liabilities 75,361 66,157 40,140 12,497 8,807 75,107 911 278,980 Provision for taxes net of advances 25,248 1,826 4,167 - 12,106 - - 43,347 Loans from banks (including current maturities) 312,567 5,384 4,015 2,159 - - - 324,125 Debentures - - - - 794,961 185,075 - 980,036 Other long-term liabilities (including current maturities) 2,320 8,072 1,050 7,269 - - - 18,711 Deferred tax liability - - - - - - 39,591 39,591 Employee benefits 40 2,087 631 513 - 53,184 - 56,455 Put option to non-controlling interest 17,917 6,181 - - - - - 24,098 748,698 200,357 112,451 187,027 815,874 378,175 40,502 2,483,084 * Regarding the group’s exposure to linkage and foreign currency risks of financial derivatives, see Note 32(2) below.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

114

Note 32 - Financial Instruments (cont'd)

H. Linkage and foreign currency risks (cont’d)

(2) The exposure to linkage and foreign currency risk

The Group’s exposure to linkage and foreign currency risk in respect of derivatives is as follows: December 31, 2010 Currency/ Currency/

linkage linkage Date of Notional value receivable payable expiration (currency) Fair value $ thousands $ thousands

Forward foreign currency USD EUR 25/02/2011 287,144 (4,113) contracts and purchase USD PLN 15/04/2011 72,417 (732) options USD BRL 01/02/2011 65,000 (2,106) USD GBP 13/02/2011 15,175 262 ILS USD 22/03/2011 837,209 37,958

USD Others 104,213 (1,954) CPI forward contract CPI ILS 09/08/2011 253,593 989 Interest rate swaps ILS ILS USD 29/11/2013 244,232 49,957 December 31, 2009 Currency/ Currency/

linkage linkage Date of Notional value receivable payable expiration (currency) Fair value $ thousands $ thousands

Forward foreign currency USD EUR 10/03/2010 323,355 1,131 contracts and purchase USD PLN 22/2/2010 78,831 (631) options USD BRL 26/01/2010 95,000 (291) USD GBP 23/02/2010 17,176 257 ILS USD 22/03/2010 747,079 58,159

USD Others 79,877 (69) CPI forward contract CPI ILS 02/11/2010 264,901 1,288 Interest rate swaps ILS ILS USD 29/11/2013 273,323 41,463

Presented below are data on Consumer Price Index and significant exchange rates:

Average 1-12 December 31 Change in

2010 2009

2010

Change in

2010 2009

2010

(4.7%) 1.390 1.325 (7.4%) 1.442 1.335 EUR\USD (11.0%) 1.997 1.760 (4.3%) 1.741 1.666 USD/BRL

(3.4%) 3.127 3.022 4.0% 2.850 2.964 USD/PLN (13.1%) 8.453 7.347 (10.2%) 7.398 6.641 USD/ZAR

17.6% 0.780 0.917 13.0% 0.900 1.018 AUD/USD (0.9%) 1.559 1.544 (4.4%) 1.619 1.548 GBP/USD (5.0%) 3.933 3.738 (6.0%) 3.775 3.549 USD/ILS

2.3% 114.767 117.385 Known Index 2.7% 114.767 117.821 Actual Index

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

115

Note 32 - Financial Instruments (cont'd)

H. Linkage and foreign currency risks (cont'd)

(3) Sensitivity analysis

The strengthening or weakening of the dollar against the following currencies as at December 31 and the increase or decrease in the CPI would increase (decrease) the equity and income or loss by the amounts presented below. This analysis assumes that all the remaining variables, among others interest rates, remained fixed. The analysis for 2009 was done on the same basis. December 31, 2010 Decrease of 5% Increase of 5% Equity Income (loss) Equity Income (loss) $ thousand $ thousand $ thousand $ thousand

Shekel (4,643) (6,836) 8,878 10,939 Pound sterling (21) 282 24 (287) Euro (11,771) (2,412) 9,814 3,751 Real 1,011 1,011 (2,491) (2,491) Polish zloty (861) 114 660 (52) Australian dollar 82 591 (330) (506) Consumer Price Index 12,415 13,466 (12,415) (13,466) December 31, 2009 Decrease of 5% Increase of 5% Equity Income (loss) Equity Income (loss) $ thousand $ thousand $ thousand $ thousand

Shekel (1,817) (4,060) 1,824 3,646 Pound sterling (991) (84) 1,006 34 Euro (10,342) (3,581) 10,830 4,123 Real 967 967 (2,165) (2,165) Polish zloty (1,437) (436) 905 27 Australian dollar 1,568 1,199 (1,612) (1,199) Consumer Price Index 14,237 15,456 (14,237) (15,456) I. Interest rate risks (1) Type of interest

Presented below are data on the type of interest on the Group's interest-bearing financial instruments:

December 31 2010 2009 Carrying value Carrying value $ thousands $ thousands

Fixed-interest instruments Financial assets 101,009 67,134 Financial liabilities (1,002,737) (985,374) (901,728) (918,240)

Variable-interest instruments Financial assets 2,837 6,869 Financial liabilities (485,898) (534,731) (483,061) (527,862)

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

116

Note 32 - Financial Instruments (cont'd)

I. Interest rate risks (cont'd) (1) Type of interest (cont’d) The Group’s exposure to interest risk in respect of derivatives is as follows:

December 31, 2010 Interest Receivable (NIS Interest Date of Notional value Fair value CPI Linked) Payable (USD) expiration (currency) $ thousands

4.45% 6.89% 29/11/2013 110,921 16,300 Interest rate swaps 4.45% 6.295% 29/11/2013 112,099 33,111 4.45% 6.42% 29/11/2013 21,212 546 6.586% 244,232 49,957

December 31, 2009 Interest Receivable (NIS Interest Date of Notional value Fair value CPI Linked) Payable (USD) expiration (currency) $ thousands

Interest rate swaps 4.45% 6.89% 29/11/2013 137,384 8,977 4.45% 6.295% 29/11/2013 135,939 32,486 6.603% 273,323 41,463 (2) Sensitivity analysis of fair value flows regarding fixed interest instruments The Group's fixed-interest assets and liabilities are not measured at fair value through income/loss. Therefore, a change in the interest rate as at the balance sheet date is not expected to have any effect on income or loss due to changes in the value of the fixed-interest assets and liabilities. (3) Sensitivity analysis of cash flows regarding variable-interest instruments A change of 5% in the interest rates on the reporting date would increase or reduce equity and income or loss by the amounts presented below. This analysis assumes that all the remaining variables, among others exchange rates, remained fixed. The analysis for 2009 was done on the same basis.

As at December 31, 2010 Income or loss Income or loss Increase in

interest Decrease in

interest Increase in

interest Decrease in

interest $ thousands $ thousands $ thousands $ thousands

Variable-interest instruments 432 (434) 432 (434)

As at December 31, 2009 Income or loss Income or loss Increase in

interest Decrease in

interest Increase in

interest Decrease in

interest $ thousands $ thousands $ thousands $ thousands

Variable-interest instruments 362 (364) 362 (364)

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

117

Note 32 - Financial Instruments (cont'd)

J. Fair value (1) Fair value compared with carrying value The carrying value of certain financial assets and liabilities, including cash and cash equivalents, trade receivables, other receivables, other short-term investments, derivatives, bank overdrafts, short-term loans and credit, trade payables, other payables and proposed dividends, conform to or approximate their fair value. The table below provides the carrying value and fair value of categories of long-term financial instruments, which are stated in the financial statements at other than their fair value:

December 31, 2010 December 31, 2009 Carrying value Fair value Carrying value Fair value $ thousands $ thousands $ thousands $ thousands

Financial assets Long-term loans and other receivables (1) 103,846 90,699 74,003 47,838

Financial liabilities Long-term loans (2) 254,171 251,097 324,125 333,785 Debenture (3) 971,542 983,959 980,036 965,791

(1) The fair value of the long-term loans given is based on a calculation of the present value of cash flows, using the acceptable interest rate for similar loans having similar characteristics.

(2) The fair value of the long-term loans received is based on a calculation of the present value of cash flows, using the acceptable interest rate for similar loans having similar characteristics.

(3) The fair value of the debentures were listed for trading on the stock exchange quotes. (2) The interest rate used determining fair value

The interest rates used to discount the estimate of projected cash flows are:

December 31 2010 2009 In % In %

Real 9.33-12.27 7.65-12.78 U.S. dollar 0.3-3.56 0.17-3.05 Shekel 1.92-4.95 1.24-5.55 Euro 0.75-3.39 0.34-2.84

(3) Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical instrument. Level 2: inputs other than quoted prices included within Level 1 that are observable, either

directly or indirectly Level 3: inputs that are not based on observable market data.

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

118

Note 32 - Financial Instruments (cont'd)

J. Fair value (cont’d)

(3) Fair value hierarchy (cont’d)

The Company’s financial instruments carried at fair value, are valuated by observable inputs and therefore are concurrent with the definition of level 2.

December 31, 2010 $ thousands

Derivatives used for hedging: Interest rate swaps 49,957 Forward contracts and options (3,607)

Derivatives not used for hedging: Forward contracts and options 18,958 65,308

Note 33 - Segment Reporting

A. Products and services:

The Company presents its segment reporting according to a primary format, which is based on a breakdown by business segments:

• Activity in the agrochemical products market (Agro) This is the main area of the Company’s operation and includes the manufacture and marketing of conventional agrochemical products.

• Non-Agro activity (Non Agro) This field of activity includes a large number of sub-fields, including: Lycopan (an oxidization retardant), aromatic products, and other chemicals. It combines all the Company’s activities not included in the agro-products segment.

Segment results reported to the chief operating decision maker include items directly attributable to a segment as well at those that can be allocated on a reasonable basis. Unallocated items comprise mainly financing expenses, net.

For the year ended December 31, 2010 Non-Agro Agro activity activity Adjustments Consolidated $ thousands $ thousands $ thousands $ thousands

Statement of Income information: Revenues 2,179,939 182,293 - 2,362,232 Sales outside the Group Inter-segment sales - 4,806 (4,806) - Total revenues 2,179,939 187,099 (4,806) 2,362,232

Results Segment's results (16,085) 24,230 (1,913) 6,232 Financing expenses, net (121,512) Share of loss of equity accounted investees (5,911) (5,911) Taxes on income (10,721) Non-controlling interest (239) Loss for the year (132,151)

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

119

Note 33 - Segment Reporting (cont'd) A. Products and services: (cont'd)

For the year ended December 31, 2009 Non-Agro Agro activity activity Adjustments Consolidated $ thousands $ thousands $ thousands $ thousands

Statement of Income information: Revenues Sales outside the Group 2,042,170 172,446 - 2,214,616 Inter-segment sales - 5,317 (5,317) - Total revenues 2,042,170 177,763 (5,317) 2,214,616 Results Segment's results 96,590 22,419 721 119,730 Financing expenses, net (93,710) Taxes on income 8,681 Non-controlling interest (2,023) Net income for the year 32,678

For the year ended December 31, 2008 Non-Agro Agro activity activity Adjustments Consolidated $ thousands $ thousands $ thousands $ thousands

Statement of Income information: Revenues Sales outside the Group 2,334,517 200,987 - 2,535,504 Inter-segment sales - 8,849 (8,849) - Total revenues 2,334,517 209,836 (8,849) 2,535,504 Results Segment's results 338,932 29,229 (911) 367,250 Financing expenses, net (96,607) Taxes on income (49,684) Non-controlling interest (1,918) Net income for the year 219,041

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

120

Note 33 - Segment Reporting (cont'd)

B. Geographic:

Presented below are sales revenues according to geographic segments based on the location of the customers (sales’ targets):

For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Europe 965,645 939,472 1,010,894 North America 404,277 402,244 443,969 Latin America 539,619 540,897 675,006 Asia Pacific and Africa 363,257 245,034 292,421 Israel 89,434 86,969 113,214

2,362,232 2,214,616 2,535,504 Note 34 - Investments in Investees

Additional details in respect of subsidiaries directly held by the Company

For the year ended December 31, 2010 Company Country of equity Loans to Investments association rights investees in investees % $ thousands $ thousands

Makhteshim Chemical Works Ltd. Israel 100 273,967 667,980 Agan Chemical Manufacturers Ltd. Israel 100 524,318 422,863 Lycored Ltd. Israel 100 - 65,672 798,285 1,156,515 Investment in company shares held by subsidiary (9,708)

1,146,807

The Company is a guarantor of the liabilities to banks of subsidiaries unlimited in amount. The balance of subsidiaries’ liabilities to banks as at balance sheet date for which the Company is guarantor is $358 million dollars.

For the year ended December 31, 2009 Company Country of equity Loans to Investments association rights investees in investees % $ thousands $ thousands

Makhteshim Chemical Works Ltd. Israel 100 346,841 707,580 Agan Chemical Manufacturers Ltd. Israel 100 466,702 519,231 Lycored Ltd. Israel 99 - 55,650 813,543 1,282,461 Investment in company shares held by subsidiary (9,708)

1,272,753

Makhteshim-Agan Industries Ltd. Notes to the Financial Statements as at December 31, 2010

121

Note 35 - Subsequent Events 1. For details on the undertaking in a merger agreement with a ChemChina Group corporation, see

Note 20A(9). 2. For details on the motion for class action recognition filed against the Company and its

controlling shareholder, see Note 20D(1). 3. For details on the claim regarding patent infringement, which was filed against a subsidiary, see

Note 20E(6). 4. On March 16, 2011, the Company's board of directors approved the Company's undertaking in a

property and lost profits insurance policy with Clal Insurance Company Ltd. ("Clal"), a company controlled by I.D.B. Development Company Ltd, as a non-exceptional transaction. Under the terms of this undertaking, the Company will bear the premium for purchase of the said policy, for an 18-month period totaling $6.6 million. I.D.B. Development Company Ltd., which could be deemed a controlling shareholder (indirect) in the Company, could be deemed as having a personal interest in the transaction, due to the fact that it is the controlling shareholder in Clal. Moreover, the individuals that could be deemed controlling shareholders (indirect) in the Company could be deemed as having a personal interest in the transaction, due to their tenure and/or the tenure of their relatives (as the term "relative" is defined in the Companies Law) as directors in Clal.

Makhteshim-Agan Industries Ltd. Appendix – Schedule of Investee Companies

122

Control and ownership of holding company

Holding company Investee company % A. Domestic consolidated subsidiaries

Makhteshim-Agan Industries Ltd. Makhteshim Chemical Works Ltd. (Makhteshim) 100 Agan Chemical Manufacturers Ltd. (Agan) 100 Lycored Ltd. (Lycored) 100 Agan Agan Aroma and Fine Chemicals Ltd. 100 Agan Chemical Marketing Ltd. 100 Lycored Lycored Bio Ltd. 100 Dalidar Pharma Israel (1995) Ltd. 100 Negev Aroma (Ramat Hovav) Ltd. 50

B. Foreign consolidated subsidiaries Makhteshim Celsius Property B.V. (Celsius) 100 Agan Fahrenheit Holding B.V. (Fahrenheit) 100 Lycored Lycored Sarl 100 ALB Holdings UK 100 Lycored Corp. (USA) 100 ALB Holdings UK Lycored Ltd (UK) 100 Makhteshim and Agan in equal parts Makhteshim gan Holding B.V. 100 Celsius Irvita Plant Protection N.V. (Irvita) 100 JK Inc. 51 Fahrenheit Quena Plant Protection N.V. (Quena) 100 Fahrenheit and Celsius in equal parts Magan HB B.V. 100 Aragonesas Agro S.A. 100 Magan Argentina S.A. 100 Kollant s.r.l 100 MACEE k.f.t. 100 Proficol Andina N.V. 57.5 CFM B.V. 100 Irvita and Quena Makhteshim Agan C LLC 100 Magan HB B.V. Milenia Agrociencias S.A. 100

Makhteshim-Agan Industries Ltd. Appendix – Schedule of Investee Companies

123

Control and ownership of

holding company

Holding company Investee company %

B. Foreign consolidated subsidiaries (CONTD.)

MACEE k.f.t Makhteshim Agan Hungaria K.F.T 100 Proficol Andina B.V Profiandina S.A. 100 Makhteshim Agan Holding B.V Agricur Defensivos Agricolas Ltd. 100 Agronica (New Zealand) Ltd. 100 Agrovita Spol S.r.o 100 Magan Holding Germany GmbH 100 Magan Italia S.R.L. 100 Magan Korea Co Ltd. 100 Magan Agrochemicals d.oo. Subotica 100 Marus Ltd. 100 Makhteshim Agan (Australia) Pty Ltd. 100 Makhteshim Agan Agro Poland S.A. 96 Makhteshim Agan Benelux and Nordic B.V. 55 Makhteshim Agan Costa Rica SA. 100 Makhteshim Agan Dominican Republic 100 Makhteshim Agan Espana S.A. 100 Makhteshim Agan France S.A.R.L. 100 Makhteshim Agan Guatemala Ltd 100 Makhteshim Agan Holland B.V 100 Makhteshim Agan Italia S.R.L. 100 Makhteshim Agan Japan K.K. 100 Makhteshim Agan Lda 100 Makhteshim Agan de Mexico S.A. 100 Makhteshim Agan (New Zealand) Ltd. 100 Makhteshim Aga of North America Inc. 100 Makhteshim Agan Paraguay S.R.L. 100 Makhteshim Agan Peru S.A. 100 Makhteshim Agan Poland SP Z.O.O 100 Makhteshim Agan Portugal Ltd. 100 Makhteshim Agan Marom S.R.L 100 Makhteshim Agan (Shanghai) Trading Co Ltd. 100 Makhteshim Agan south Africa PTY Ltd. 100 Makhteshim Agan Switzerland AG 100 Makhteshim Agan Singapore Pte Ltd. 100 Makhteshim Agan (Thailand) Ltd. 100 Makhteshim Agan (UK) Ltd. 100 Makhteshim Agan Ukraine Ltd. 100 Makhteshim agan Venezuela S.A. 100 Makhteshim Agan West Africa Ltd. 100 MA Holding and Celsuis Makhteshim Agan India Private Ltd. 100 MA India Royal Agro Indonesia PT 100 Magan Holding Germany GmbH Feinchemie Schwebda GmbH 100 Makhteshim Agan Deutschland GmbH 100

Makhteshim-Agan Industries Ltd. Appendix – Schedule of Investee Companies

124

B. Foreign consolidated subsidiaries (CONTD.) Makhteshim Agan of North America Inc. Farm Saver Group 100 Control Solutions Inc. 67.1 Alligare LLC 80 Makhteshim Agan of North America CANADA Inc. 100 Bold Formulators LLC 100 Makhteshim Agan American Inc. 100 Makhteshim Agan Australasia Pty Ltd Ecktrade Australia Pty Ltd 100 Farmoz Pty Limited 100

C. Companies Proportionately Consolidated Makhteshim Agan Industries Biotec M.A.H. Management Ltd 50 Biotec M.A.H. - Registered Partnership 50 Biotec M.A.H Registered Partnership Biotec Agro Ltd. 100 Makhteshim Agan Holdings B.V. Alfa Agricultural Supplies S.A. 49 Alfa Agribul Ltd. 100 Fahrenheit InnovAroma S.A. 50

D. Equity accounted investees Makhteshim Agan C LLC Incima B.V 50

Makhteshim and Agan hold shares in other foreign companies that hold registration rights to certain products sold outside of Israel.

Makhteshim-Agan Industries Ltd.

Separate Financial Data As at December 31, 2010

In USD

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Contents

Page Auditors’ Report - Annual Financial statements 1 Data on Financial Position 2 Data on Income 4 Data on Comprehensive Income 5 Data on Cash Flows 6 Additional Information to the Separate Financial Data 7

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

To the Shareholders of Makhteshim-Agan Industries Limited Special Auditors’ Report on Separate Financial Data according to Regulation 9C of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 We have audited the separate financial data presented in accordance with Regulation 9C of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970, of Makhteshim-Agan Industries Ltd. (hereinafter - the Company) at December 31, 2010 and 2009 and for each of the three years the last of which ended on December 31, 2010. The separate financial data are the responsibility of the Company’s Board of Directors and Management. Our responsibility is to express an opinion on the separate financial information based on our audits. We did not audit the financial statements of equity accounted investees the investment in which amounted to $83,692 thousand and $76,234 thousand as of December 31, 2010 and 2009, respectively, and the Group's share in their profits amounted to $8,970 thousand, $9,305 thousand and $17,461 thousand for each of the three years, the last of which ended December 31, 2010. The financial statements of those companies were audited by other auditors whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts emanating from the financial statements of such companies, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial data. An audit also includes assessing the accounting principles that were used in preparing the separate financial data and significant estimates made by the Board of Directors and by Management, as well as evaluating the separate financial data presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the separate financial data has been prepared, in all material respects, in conformity with Regulation 9.C of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. Somekh Chaikin Certified Public Accountants (Isr.) Member Firm of KPMG Internationa1 March 16, 2011

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Data on Financial Position

December 31 2010 2009 Note $ thousands $ thousands

Current assets Cash and cash equivalents 3 911 3,901 Short-term investments 4 20,105 18,085 Prepaid expenses 251 52 Other receivables 4 86,269 73,271 Derivatives 4 53,108 67,999 Deferred tax assets 1,102 896 Total current assets 161,746 164,204 Long-term investments, loans and receivables Balance of investee companies 1,146,807 1,272,753 Loans to investees 4 798,285 813,543 Derivatives 4 33,305 31,097 1,978,397 2,117,393 Fixed assets 2,244 1,488 Intangible assets 1,879 1,658 Deferred tax assets 6 319 914 Total non-current assets 1,982,839 2,121,453 Total assets 2,144,585 2,285,657

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Data on Financial Position

December 31 2010 2009 Note $ thousands $ thousands

Current liabilities Current maturities of debentures 4 123,528 83,480 Other payables 4 18,130 21,958 Derivatives 4 - 359 Total current liabilities 141,658 105,797 Long-term liabilities Debentures 4 869,760 916,541 Employee benefits 2,458 4,310 Total non-current liabilities 872,218 920,851 Equity Share capital 125,578 125,563 Share premium 623,846 623,861 Reserves 15,846 23,732 Retained earnings 610,987 731,401 Company shares held by Company and subsidiary (245,548) )245,548( Total equity attr ibutable to equity holders of the Company 1,130,709 1,259,009 Total liabilities and equity 2,144,585 2,285,657

Ami Arel Erez Vigodman Aviram Lahav Chairman of the Board of Directors President & Chief Executive Officer Chief Financial Officer Date of approval financial statements: March 16, 2011 The accompanying additional information is an integral part of the separate financial data.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Data on Income Year ended December 31 2010 2009 2008 Note $ thousands $ thousands $ thousands Revenues Management fees from investees 28,952 16,052 22,276 Expenses General and administrative expenses 38,683 25,506 29,015 Other expenses - - 531 38,683 25,506 29,546 Operating loss (9,731) )9,454( (7,270) Financing income (102,958) (111,669) (93,480) Financing expenses 105,476 111,629 104,321 Financing income (expenses), net 2,518 (40) 10,841 Profit (loss) after financing expenses, net (7,213) )9,494( 3,571 Earnings (loss) from investees (124,500) 42,868 213,338 Profit (loss) before taxes (131,713) 33,374 216,909 Tax on income 5 (438) (696) 2,132 Profit (loss) for the year attributable to owners of the Company (132,151) 32,678 219,041 The accompanying additional information is an integral part of the separate financial data.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Data on Comprehensive Income Year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands Income (loss) for the period attributable to the owners of the Company (132,151) 32,678 219,041 Components of other comprehensive income Effective portion of changes in fair value of cash flow hedges 20,875 23,965 4,674 Net change in fair value of cash flow hedges transferred to profit or loss (23,017) (1,946) (16,279) Actuarial gains (losses) from defined benefit plan 1,915 (292) 487 Other comprehensive income (loss) from investees, net from tax (2,637) (1,126) 4,238 Taxes on other components of comprehensive income (62) (4,992) 2,779 Other comprehensive income (loss) for the period, net of tax (2,926) 15,609 (4,101) Total comprehensive income (loss) for the period attributed to the owners of the Company (135,077) 48,287 214,940 The accompanying additional information is an integral part of the separate financial data.

Makhteshim-Agan Industries Ltd.

Separate Financial Data as at December 31, 2010

Data on Cash Flows Year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Cash flows from operating activities Profit (loss) for the period attributable to Company's equity holders (132,151) 32,678 219,041

Adjustments Earnings (losses) from investees 124,500 )42,868( (213,338) Depreciation and amortization 1,532 1,319 1,007 Gain from buy-back of Company’s debentures - - (890) Amortization of premium and issue costs (142) )73( 92 Expenses for employee options 6,776 8,658 10,350 Adjustment of long-term liabilities 78,589 59,559 32,939 Swap transactions (23,017) )15,886( (16,279) Change in provision for tax and income tax advances, net (206) )426( (3,465) Change in deferred taxes, net 532 950 1,362

Changes in assets and liabilities Decrease (increase) in accounts receivable and current assets 20,978 )57,650( 23,764 Increase (decrease) in accounts payable and other liabilities 879 )41,407( 47,979 Change in provisions and employee benefits 63 599 (2,663) Net cash provided by (used in) operating activities from transactions with investees (42,203) 71,496 (95,510) Net cash provided by operating activities 36,130 16,949 4,389 Cash flows from investing activities Acquisition of fixed assets (1,126) )232( (587) Additions to intangible assets (1,384) )1,140( (976) Short-term investments, net (2,200) )18,085( 98,989 Net cash provided by (used in) investing activities from transactions with investees 46,018 )232,958( 163,827 Net cash provided by (used in) investing activities 41,308 )252,415( 261,253 Cash flows from financing activities Issuance of debentures net of issue costs - 285,749 - Settlement of debentures (86,941) - - Settlement of swap transaction 12,381 18,000 - Dividend to shareholders (5,066) )64,934( (170,000) Buy-back of Company’s debentures - - (2,571) Buy-back of Company’s shares - - (101,352) Net cash used in financing activities from transactions with investees (802) - - Net cash provided by (used in) financing activities (80,428) 238,815 (273,923) Increase (decrease) in cash and cash equivalents (2,990) 3,349 (8,281) Cash and cash equivalents at beginning of the period 3,901 552 8,833 Cash and cash equivalents at end of the period 911 3,901 552 Supplementary information: Interest paid in cash (56,148) )52,779( (38,393) Interest received in cash 13 35 940 Taxes paid in cash, net (51) )113( (92)

The accompanying additional information is an integral part of the separate financial data.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information 1. General

Presented hereunder are financial data from the Group’s consolidated financial statements of December 31, 2010 (hereinafter – the consolidated financial statements), which are issued in the framework of the periodic reports, and which are attributed to the Company itself (hereinafter – separate financial data), and are presented in accordance with Regulation 9C (hereinafter – the Regulation) and the tenth addendum to the Securities Regulations (Periodic and Immediate Reports) – 1970 (hereinafter – the tenth addendum) regarding separate financial data of an entity.

In these separate financial data – the Company, subsidiaries and investees as defined in Note 1B in the consolidated financial statements.

2. Significant accounting policies applied in the separate financial data The accounting policies described in Note 3 to the consolidated financial statements have been applied consistently to all periods presented in the Company’s separate financial data, including the manner by which the financial data were classified in the consolidated financial statements, with any necessary changes deriving from that mentioned hereunder: A. Presentation of the financial data (1) Data on financial position

Information on amounts of assets and liabilities included in note 3 to the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), according to categories of assets and liabilities, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total assets less total liabilities, in respect of investee companies, including goodwill.

(2) Data on comprehensive income

Information on amounts of revenues and expenses included in the consolidated financial statements, allocated between income and other comprehensive income, attributable to the Company itself (other than in respect of investee companies), while specifying the categories of revenues and expenses, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total revenues less total expenses in respect of the operating results of investee companies.

(3) Data on cash flows

Information on cash flows included in the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), taken from the consolidated statement of cash flows, classified according to flow from operating activities, investing activities and financing activities with details of their composition. Cash flows from operating activities, investing activities and financing activities for transactions with investee companies are presented separately on a net basis, under the relevant type of activity, in accordance with the nature of the transaction.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

2. Significant accounting policies applied in the separate financial information (cont’d) B. Transactions between the Company and investees (1) Presentation Intra-group balances and transactions, and any income and expenses arising from intra-group transactions, which were eliminated in preparing the consolidated financial statements, were presented separately from the balance in respect of investee companies and the profit in respect of investee companies, together with similar balances with third parties.

Unrealized gains and losses from transactions between the Company and its investee companies were presented in the balance in respect of investee companies and under the profit in respect of investee companies. (2) Measurement Transactions between the Company and its subsidiaries were measured according to the recognition and measurement principles provided in International Financial Reporting Standards (“IFRS”) with respect for the accounting treatment for transactions of this kind that are executed with third parties.

3. Cash and Cash Equivalents December 31 2010 2009 $ thousands $ thousands

Cash and cash equivalents denominated in Shekel 122 2,654 Cash and cash equivalents linked to the dollar 221 767 Cash and cash equivalents linked to other currency 568 480

Total cash and cash equivalent 911 3,901

4. Financial Instruments

A. Short-term investments and other receivables December 31, 2010 In unlinked Denominated in Denominated in Israeli or linked to the or linked to currency dollar other currency Total

$ thousands $ thousands $ thousands $ thousands Current assets Short-term investments - 10,301 9,804 20,105 Other receivables 84,850 1,419 - 86,269

Total 84,850 11,720 9,804 106,374

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont'd)

A. Short-term investments and other receivables (cont'd)

December 31, 2010 Denominated in In unlinked or linked Israeli currency to the dollar Total

$ thousands $ thousands $ thousands Non-current assets Loans to investees (see Note 7B) 651,936 146,349 798,285

December 31, 2009 In unlinked Denominated in Denominated in Israeli or linked to the or linked to currency dollar other currency Total

$ thousands $ thousands $ thousands $ thousands Current assets Short-term investments - 8,294 9,791 18,085 Other receivables 72,085 1,183 3 73,271

Total 72,085 9,477 9,794 91,356

December 31, 2009 Denominated in In unlinked or linked Israeli currency to the dollar Total

$ thousands $ thousands $ thousands Non-current assets Loans to investees (see Note 7B) 513,679 299,864 813,543 B Derivatives Breakdown according to financial asset groups

December 31 2010 2009

$ thousands $ thousands

Current investments Assets in respect of forward contracts On exchange rates not used for hedging 36,456 57,633

Assets in respect of interest rate Swaps used for hedging 16,652 10,366 53,108 67,999 Non-current investments Assets in respect of interest rate swap used for hedging 33,305 31,097

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont'd)

C. Loans and credit Information on the contractual terms of the Company’s interest-bearing loans and credit, measured at amortized cost.

(1) Linkage terms and interest rates:

Interest rate As of balance sheet Linkage terms date Par value Total

% NIS thousands $ thousands

Debentures – Series B ILS CPI 5.15% 1,637,500 524,430 Debentures – Series C ILS CPI 4.45% 844,500 271,524 Debentures – Series D ILS 6.50% 707,000 197,334

Total 3,189,000 993,288

(2) Maturities

$ thousands

First year (current maturities) 123,528 Second year 123,528 Third year 123,528 Fourth year 33,202 Fifth year 33,202 Sixth year and thereafter 556,300

993,288

D. Other payables December 31, 2010 Denominated Denominated In unlinked In CPI-linked in or linked to in or linked to Israeli currency Israeli currency dollar other currency Total

$ thousands $ thousands $ thousands $ thousands $ thousands

Other payables 12,391 3,325 1,078 1,336 18,130

December 31, 2009 Denominated Denominated In unlinked In CPI-linked in or linked to in or linked to Israeli currency Israeli currency dollar other currency Total

$ thousands $ thousands $ thousands $ thousands $ thousands

Other payables 12,667 8,445 763 83 21,958

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont’d) E. Liquidity risk Present below are the contractual maturity dates of the financial liabilities, including estimates of interest payments:

As at December 31 2010 Carrying Projected Up to Fifth year amount cash flows one year 1-2years 2-3 years 3-4 years and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Non-derivative financial liabilities Other payables 18,130 18,130 18,130 - - - - Debentures 993,288 1,549,225 175,551 169,378 163,205 66,706 974,386 Total 1,011,418 1,567,355 193,681 169,378 163,205 66,706 974,386

As at December 31 2009 Carrying Projected Up to Fifth year amount cash flows one year 1-2years 2-3 years 3-4 years and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Non-derivative financial liabilities Other payables 21,958 21,958 21,958 - - - - Debentures 1,000,021 1,523,654 135,338 162,037 150,768 144,849 930,662 Derivative financial liabilities CPI forward contract 359 359 359 - - - - Total 1,022,338 1,545,971 157,655 162,037 150,768 144,849 930,662

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont’d) E. Liquidity risk (cont'd) The table below presents the periods in which projected cash flows that are related to the derivatives used to hedge cash flows:

2010 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year amount cash flows or less months year year year year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap: 49,957 41,745 (1,096) 14,280 13,915 14,646 - - - The table below presents the periods in which cash flows that are related to the derivatives used to hedge cash flows are expected to impact income or loss.

2010 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year amount cash flows or less months year year year year and above (1) $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap: (8,271) (8,271) (1,555) (1,555) (2,044) (1,192) (481) (481) (963)

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont’d) E. Liquidity risk (cont'd) The table below presents the periods in which projected cash flows that are related to the derivatives used to hedge cash flows:

2009 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year amount cash flows or less months year year year year and above $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap 41,463 28,115 (1,739) 7,464 6,594 7,464 8,333 - - The table below presents the periods in which cash flows that are related to the derivatives used to hedge cash flows are expected to impact income or loss.

2009 Carrying Projected 6 months 6-12 Second Third Fourth Fifth Sixth year amount cash flows or less months year year year year and above (1) $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Interest rate swap (10,414) (10,414) (1,726) (1,726) (2,409) (1,627) (1,002) (481) (1,443)

(1) Interest rate swap that includes in the sixth year and above period repays in one payment at the end of 2017.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

4. Financial Instruments (cont’d) F. Linkage and foreign currency risks

(1) Presented below are the company exposure to linkage and foreign currency risk in respect of derivatives:

December 31 2010 Currency/ Currency/

linkage linkage Date of Notional value receivable payable expiration (currency) Fair value $ thousands $ thousands

Forward foreign currency contracts and purchase options ILS USD 31/03/2011 728,853 35,467

CPI forward contract CPI ILS 09/08/2011 253,593 989 Interest rate swaps ILS ILS USD 29/11/2013 244,232 49,957 December 31 2009 Currency/ Currency/

linkage linkage Date of Notional value receivable payable expiration (currency) Fair value $ thousands $ thousands

Forward foreign currency contracts and purchase options ILS USD 27/03/2010 654,579 55,987 CPI forward contract CPI ILS 02/11/2010 264,901 1,288 Interest rate swaps ILS ILS USD 29/11/2013 273,323 41,463

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

5. Income tax expenses (income)

A. Components of income tax expenses (income) For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Current tax expenses (income) For current period (95) (254) (413) Adjustments for prior years - - (2,959) (95) (254) (3,372) Deferred tax expenses Creation and reversal of temporary differences 533 318 1,240 Changes in the rate - 632 - 533 950 1,240 Total income tax expenses (income) 438 696 (2,132)

B. Income taxes charged to equity For the year ended December 31 2010 2009 2008 $ thousands $ thousands $ thousands

Taxes recognized directly in equity - 27 175 Taxes for components of other comprehensive income (62) (4,992) 2,779

Under the Israeli Law for the Encouragement of Industry (Taxes) 1969 the Company files a consolidated

income tax return with Makhteshim.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

5. Income tax expenses income (cont’d)

C. Income taxes on comprehensive income For the year ended December 31 2010 2009 2008 Deferred Deferred Deferred tax assets tax assets tax assets Before tax (liabilities) Net of tax Before tax (liabilities) Net of tax Before tax (liabilities) Net of tax $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands

Hedge cash flows (2,142) 450 (1,692) 22,019 (5,088) 16,931 (11,605) 2,901 (8,704) Actuarial gains (losses) from defined benefit plan 1,915 (512) 1,403 (292) 96 (196) 487 (122) 365 Total comprehensive income (227) (62) (289) 21,727 (4,992) 16,735 (11,118) 2,779 (8,339)

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

6. Deferred tax assets and liabilities

A. Deferred tax assets and liabilities recognized

Deferred tax assets and liabilities are attributed to the following items:

Employee Financial benefits instruments Total $ thousands $ thousands $ thousands

Deferred tax asset balance as at January 1, 2009 1,244 5,612 6,856

Changes charged to statement of income (239) (711) (950) Changes charged to comprehensive income 96 (5,088) (4,992)

Deferred tax asset (liability) balance as at January 1, 2010 1,101 (187) 914 Changes charged to statement of income (280) (253) (533) Changes charged to comprehensive income (512) 450 (62)

Deferred tax asset balance as at December 31, 2010 309 10 319 B. Items for which deferred tax assets were not recognized Deferred tax assets were not recognized for the following items: December 31 2010 2009 $ thousands $ thousands

Tax capital losses 23,339 21,942

According to existing tax laws, there is no time limit on the utilization of tax losses and the utilization of temporary differences that may be deducted. Deferred tax assets were not recognized for these items, since it is not expected that there will be capital gains in the future, against which it will be possible to utilize the tax benefits.

Makhteshim-Agan Industries Ltd. Separate Financial Data as at December 31, 2010 Additional Information

7. Ties, commitments and material transactions with investee companies

A. Financial guarantees

The Company has guaranteed the liabilities to banks of subsidiaries, unlimited in amount. The balance of liabilities to banks of subsidiaries at the reporting date, for which the Company is a guarantor, is $358 million.

B. Loans

The loans between the Company and Israeli investee companies are given at the same terms as those obtained by the Company, provided that the loan terms will not be less than the minimum interest required by Israeli tax law. During the financial statement preparation, the loan terms complied with the said agreement.

C. Agreement to provide services

The Company provides services to the subsidiaries Makhteshim and Agan, management services and various headquarter services. For these services, the subsidiaries, Makhteshim and Agan, pay annual consideration, which is calculated based on the cost of the services plus a designated margin, in quarterly payments.

1  

Chapter D – Additional Information on the Corporation

Company name: Makhteshim Agan Industries Ltd. Corporate ID No.: 52-004360-5

Address: Golan Arava Building, POB 298, Airport City Park, 70100 Fax: 073-2321074 Telephone: 073-2321000 Report date: March 16, 2011

Balance sheet date: 31.12.2010

Page Regulation 9 – Financial Statements D-2

Regulation 9B – Report on Effectiveness of Internal Controls on Financial Reporting and Disclosure

D-2

Regulation 9C – Separate Financial Statements of the Corporation D-2

Regulation 9D – Statement of Liabilities by Maturity Date D-2

Regulation 10 – Directors' Report on State of Corporation's Affairs D-2

Regulation 10A – Condensed Quarterly Statements of Comprehensive Income D-3

Regulation 10C – Use of Security Proceeds D-4

Regulation 11 – List of Investments in Subsidiaries and Related Companies D-4

Regulation 12 – Changes in Investments in Subsidiaries and Related Companies D-5

Regulation 13 – Revenues of Subsidiaries and Related Company and Company's Revenues from Them

D-5

Regulation 14 – List of Loans D-5

Regulation 20 – Stock Exchange Trading D-5

Regulation 21 – Compensation to Interested Parties and Senior Officers D-6

Regulation 21A – Control in the Company D-6

Regulation 22 – Transactions with Controlling Shareholders D-10

Regulation 24 – List of Shareholders D-10

Regulation 24A – Authorized Capital, Issued Capital and Convertible Securities D-12

Regulation 24B – List of Shareholders D-16

Regulation 25A – Registered Address D-17

Regulation 26 – Corporation's Directors D-17

Regulation 26A – Corporation's Senior Officers D-18

Regulation 26B – Independent Authorized Signatories D-28

Regulation 27 – Corporation's Auditors D-33

Regulation 28 – Change in Company's Bylaws D-33

Regulation 29 – Recommendations and Resolutions of Board of Directors D-33

Regulation 29A – Company Resolutions D-34

The information contained in these financial statements constitutes an unofficial translation of the

financial statements published by the Company in Hebrew. The Hebrew version is the binding version. This translation was prepared for convenience purposes only. 

2  

Regulation 9 – Financial Statements

Under Regulation 9 of the Securities Regulations (Periodic and Immediate Reports) – 1970, ("Reporting Regulations"), attached to this Report as Chapter C are the Company's audited financial statements for the year ended December 31, 2010, together with the Opinion of the Company's Auditor.

Regulation 9B – Report on Effectiveness of Internal Controls over Financial Reporting and Disclosure

Under Regulation 9B to the Reporting Regulations, attached to this Periodic Report in Chapter E, are reports on the Effectiveness of Internal Controls over Financial Reporting and Disclosure for the year ended December 31, 2010, together with the Opinion of the Company's Auditor.

Regulation 9C – Separate Financial Statements of Corporation

Under Regulation 9C to the Reporting Regulations, attached to this Periodic Report are the Separate Financial Statements of the Company for the year ended December 31, 2010, together with the Opinion of the Company's Auditor.

Regulation 9D – Statement of Liabilities by Maturity Date

Under Regulation 9D of the Regulations for the Periodic and Immediate Reports, concurrent with publication of this Periodic Report, the Company publishes an Immediate Report on the Statement of the Company's Liabilities by Maturity Date.

Regulation 10 – Directors' Report on the State of the Corporation's Affairs

Under Regulation 10 to the Reporting Regulations, attached to this Periodic Report in Chapter B is the Company's Directors' Report for the year ended December 31, 2010.

3  

Regulation 10A – Condensed Consolidated Statements of Income for Each Quarter of 2010 (in US$ thousands)

Year Quarter Quarter Quarter Quarter 1-12/2010 10-12/2010 7-9/2010 4-6/2010 1-3/2010

Sales revenues 2,362,232 505,075 533,096 600,943 723,118

Cost of sales 1,713,006 398,999 397,876 425,873 490,258

Gross profit 649,226 106,076 135,220 175,070 232,860

Other revenues (2,717) 174 (114) )(172 (2,605)

Selling and marketing expenses 410,371 105,928 104,978 97,230 102,235 General and administrative

expenses 106,529

34,554

27,228

26,355

18,392 Research and development

expenses 23,187

1,443

7,249

7,180

7,315

Other income (expenses) 105,624 103,724 520 378 1,002

Total expenses 642,994 245,823 139,861 130,971 126,339

Operating income (loss) 6,232 (139,747) (4,641) 44,099 106,521

Financing expenses, net 121,512 26,125 35,594 29,252 30,541

Income (loss) after financing (115,280) (165,872) (40,235) 14,847 75,980

Equity in loss of affiliates 5,911 5,911 - - -

Pre-tax income (loss) (121,191) (171,783) (40,235) 14,847 75,980

Income taxes 10,721 (12,483) 15,859 2,450 4,895

Income (loss) for the period (131,912) (159,300) (56,094) 12,397 71,085

Attributed to:

Holders of equity rights (132,151) (159,170) (56,246) 12,379 70,886

Minority interest 239 (130) 152 18 199

Income (loss) for the period (131,912) (159,300) (56,094) 12,397 71,085

4  

Summarized Statements of Comprehensive Income of the Company for Each Quarter of 2010 (in US$ thousands)

Year Quarter Quarter Quarter Quarter 1-12/2010 10-12/2010 7-9/2010 4-6/2010 1-3/2010

Income (loss) for the period (131,912) (159,300) (56,094) 12,397 71,085

Components of other comprehensive income

Foreign currency translation differences for foreign operations (1,885) (3,521) 13,020 (13,648) 2,264

Effective portion of changes in fair value of cash flow hedges 32,013 15,333 3,780 3,150 9,750

Net change in fair value of cash flow hedges transferred to income (loss) (38,795) (9,065) (19,775) (3,603) (6,352)

Actuarial gains (losses) from defined benefit plan 6,615 9,854 (4,238) 1,133 (134)

Taxes on components of other comprehensive income (558) (3,181) 2,700 167 (244)

Total other comprehensive income (loss) for the year, net of tax (2,610) 9,420 (4,513) (12,801) 5,284

Comprehensive income (loss) for the period (134,522) (149,880) (60,607) (404) 76,369

Total comprehensive income (loss) attributed to:

Holders of equity rights (135,706) (148,464) (62,070) (220) 75,678

Rights that do not confer control 554 (1,416) 1,463 (184) 691

Comprehensive income (loss) for the period (2,610) 9,420 (4,513) (12,801) 5,284

Regulation 10C – Use of Security Proceeds

On May 9, 2010, the Company published a shelf prospectus ("shelf prospectus") (RN: 2010-01-000043), pursuant to which the Company is allowed to offer to the public shares, straight debentures, debentures convertible into shares, options exercisable for shares, options exercisable for debentures and commercial paper. During the report period, the Company did not offer securities pursuant to the shelf offering. Details on the earmarking of the future consideration to be received for the securities to be offered pursuant to the shelf prospectus, if offered, will be provided as part of the shelf offering reports.

5  

Regulation 11 – List of Investments in Subsidiaries and Related Companies at Date of Statement of Financial Position

% held by Company Value in

Company only

financial statements

Cost (in

US$ K's)

Total issued and

outstanding

Number of shares held

Type of

share

Stock exchange number

Company name

In authority

to appoint

directors

In voting

In equity

In secu-rity

-------- ------- ----- ------- ----- ----- ------ ----- ----- ------ -----

100% 100% 100% 100%663,126 208,456 90,238,251 90,238,251 Ordinary Not listed Makhteshim

Chemical Works Ltd.

100% 100% 100% 100%418,009 196,519 15,065,980 15,065,980 Ordinary Not listed

Agan Chemical Manufac-turers Ltd.

100% 100% 100% 100%65,672 12,654 11,613,280 11,613,280 Ordinary Not listed Lycored

Ltd.

1,146,807

417,629

Total investments

in subsidiaries

Balance of loans to subsidiaries and related companies – as of date of Statement of Financial Position (in dollar thousands)

Maturity date

Interest rate Linkage terms Loan amount Company name

Not yet fixed 1.5% CPI-linked 42,810 Agan Chemical Manufacturers Ltd.(capital note)

Not yet fixed 1.5% CPI-linked 481,508 Agan Chemical Manufacturers Ltd.

Not yet fixed 1.5% CPI-linked 127,618 Makhteshim Chemical Works Ltd. (capital note)

Not yet fixed 1.5% Dollar-linked 146,349 Makhteshim Chemical Works Ltd.

798,285 Total

6  

Regulation 12 – Changes in Investments in Subsidiaries and Related Companies in Report Period

During 2010, the Company acquired companies, through wholly-owned subsidiaries, and increased its investment in companies at a total cost of $8,316 thousand. For details on transactions related to these changes, see Par. 1.5 of Chapter A of the Report.

Regulation 13 – Revenues of Subsidiaries and Related Companies and Corporation's Revenues from Them at Date of Statement of Financial Position (in $ thousands).

Company's revenues from subsidiaries Income (loss) Subsidiary's Name

Interest, linkage

differences

Manage-ment fees Dividend

After provision for tax, includes

equity in earnings of subsidiaries

Before provision for

tax

15,796 13,186 - )40,476( )52,172( Makhteshim Chemical Works Ltd.

18,136 15,766 - )93,175( )87,266( Agan Chemical Manufacturers Ltd.

16 - - 9,237 11,400 Lycored Ltd.

Regulation 14 – List of Loans Given at Date of Statement of Financial Position, if Giving Loans is one of the Corporation's Main Areas of Activity

None.

Regulation 20 – Stock Exchange Trading – Securities Listed for Trading/Suspension of Trading – Dates and Reasons

A. Shares Total shares listed for trading during 2010 amounted to 56,675 ordinary shares, NIS 1 par value each, as provided below:

56,675 Shares, NIS 1 par value, from exercise of non-marketable options of Company

employees pursuant to options plan from 2003.

B. Suspension of trading

During the report period, there was no suspension of trading in the shares issued by the Company, except for the suspension of trading customary at the time the financial statements are published and except as below: On October 11, 2010, IDB Holding Corp. Ltd., Discount Investment Corp., Koor Investments Ltd. and the Company announced that they intend to issue a report regarding a material event. Consequently, trading in the securities of the said companies opened after the report was issued.

7  

Regulation 21 – Payments to senior officers

Presented below are details on compensation paid during reporting year, as provided in the Sixth Addendum to the Reporting Regulations.

A. Senior officers in the Company and in the companies it controls In calculating the compensation detailed in the table below, the share-based payment granted to the senior officers is presented separately from the other compensation elements, in view of the fact that the exercise prices of the options granted to some of the officers were determined based on the price of the Company's share on the date the option was granted, which was significantly higher than the share price on the balance sheet date. The Company believes that the difference between the exercise price and the share price reduces the probability that the option will be exercised on the dates designated, so that in the foreseeable future, it is reasonable that the said officers will not exercise their rights to the options during the exercise period at the price set for them, even through in 2009, the authorized organs of the Company approved an extension of the exercise period of the options allotted to the Company's chairman and for nine employees and officers of the Company and subsidiaries. For additional details, see Note No. 8 to the table below. In this context, note that one of the suspending conditions for closing the merger agreement (as defined in this Report) is actually the cancellation of all the options for shares by the closing date of the merger1. Furthermore, the benefit element of the share-based payment to some of the officers is merely theoretical, and no longer reflects (at the report date) the real compensation, even though pursuant to generally accepted accounting standards, the theoretical cost of the benefit is calculated only once, at its economic value on the grant date, and is amortized until the vesting date – and does not change nor is it influenced by changes in the share's price or the ability for actual exercise (and therefore, the Company's financial statements do not reflect the significant decrease in the economic value of the options to those officers). In view of the purpose of Regulation 21, and in order to realistically reflect the value of the compensation for senior officers at December 31, 2010, the Company chose to present the share-based payment granted to officers separately in the table below, as reliable and important information for its investors.

                                                            1 For additional details, see the employment report published by the Company on January 20, 2011 (RN: 2011-01-025200).

8  

Particulars of compensation recipient Compensation for services (in NIS thousands)(*)

Name Position Scope of position

Share-holding in

Company's equity

Salary (1) Bonus for

2010 Total

Share-based

payments as recorded in financial statements

Erez Vigodman (2)

President and CEO

100% 0 1,954 - 1,954 9,191

Ignacio Dominguez

(8)

Europe Regional Manager

100% 0 2,282 (7) - 2,282 1,648 (3)

Chen Lichtenstein

(8) (9)

VP Global Human

Resources and Business Development

100% 0 2,327 - 2,327 1,603 (4)

Yoav Zeif (8) VP

Marketing and Products

100% 0 1,474 - 1,474 2,160 (5)

Saul Friedland (8) (9)

Americas Regional Manager

100% 0 2,218 - 2,218 1,337 (6)

(*) Compensation amounts are in terms of cost to the Company. (1) The salary element stated above includes all of the following components: monthly CPI-linked salary, social benefits,

prevailing social provisions and related expenses, value and grossing up of vehicle value and telephone – landline and cellphone – reimbursement.

Note that one of the suspending conditions for closing the merger agreement (as defined in this Report) is cancellation of all share options of the Company by the merger closing date. For additional details, see Par. 2.2 of Chapter A of this Report.

(2) On August 11, 2009, the Company's board of directors approved the employment terms of Mr. Erez Vigodman, Company CEO. Pursuant to his employment agreement, Mr. Vigodman is entitled to a monthly salary, officers' insurance and indemnity at terms identical to the maximum terms applicable to officers in the Company and other terms. In addition to his salary, Mr. Vigodman will be entitled, at the end of every calendar year, to a fixed monetary bonus and an additional monetary bonus, based on the Company's annual pre-tax income, according to the following principles: if the Company's annual pre-tax income in the calendar year that ended will total at least $100 million – a fixed bonus of $250,000, and additionally, if the Company's annual pre-tax income, in the year then ended, will exceed $100 million, then the supplemental bonus will be 0.5% of every dollar of the Company's pre-tax annual income exceeding $100 million. For additional details, see the Immediate Report dated August 12, 2009 (RN: 2009-01-195411). Likewise, on September 15, 2009 ("the date of record"), in accordance with the resolution of the Company's board of directors of August 12, 2009, 3,600,000 options, not listed for trading, were allotted to Mr. Vigodman, of which 900,000 options will vest in three equal annual installments commencing from the end of one year from the date of record, and may be exercised for shares of the Company against an exercise price of NIS 33.04 (subject to adjustments) and 2,700,000 options will vest in three equal annual installments commencing from the end of one year from the date of record, and will be exercisable for the Company's shares against an exercise price of NIS 20.22 (subject to adjustments). For additional information, see Immediate Reports from August 12, 2009 and September 15, 2009 (RN: 2009-01-195390 and 2009-01-232635).

(3) On October 15, 2007, in accordance with the approval of the Company's board of directors from August 28, 2007, 500,000 options were allotted, exercisable for shares of the Company against an exercise price of NIS 30.07, in 2 installments (two-thirds and one-third), commencing August 28, 2009. Likewise, on May 25, 2010, in accordance

9  

with the approval of the Company's board of directors from May 11, 2010, 710,000 options were allotted, exercisable for the Company's shares against an exercise price of NIS 20.22, in three installments (of one-third each), commencing May 11, 2010. The amount stated in the "share-based payment" column expresses the annual expense recognized by the Company according to International Financial Reporting Standard No. 2 for the granting of options, and is based on the value of the options on the grant date.

(4) On March 9, 2006, in accordance with the approval of the Company's board of directors from March 8, 2006, 350,000 options were allotted, exercisable for 350,000 shares of the Company, against an exercise price of NIS 23.25, in 3 installments commencing March 7, 2007. The Company entered into an agreement with Mr. Lichtenstein, pursuant to which it will purchase these options for NIS 710 thousand. On October 15, 2007, in accordance with the approval of the board of directors from August 28, 2007, 450,000 options were allotted, exercisable for the Company's shares against an exercise price of NIS 30.07, in 2 installments (two-thirds and one-third) commencing August 28, 2009. On May 25, 2010, in accordance with the approval of the Company's board of directors from May 11, 2010, 710,000 options were allotted, exercisable for the Company's shares against an exercise price of NIS 20.22, in three installments (of one-third each), commencing May 11, 2010.

(5) On July 3, 2008, in accordance with the approval of the Company's board of directors from May 13, 2008, 800,000 options were allotted, exercisable for the Company's shares against an exercise price of NIS 31.1, in two installments (two-thirds and one-third), commencing January 2010. Likewise, on May 25, 2010, in accordance with the approval of the Company's board of directors from May 11, 2010, 710,000 options were allotted, which are exercisable for shares of the Company against an exercise price of NIS 20.22, in three installments (one-third each), commencing May 11, 2010. The amount stated in the "share-based payment" column expresses the annual expense recognized by the Company according to International Financial Reporting Standard No. 2 for the granting of options, and is based on the value of the options on the grant date.

(6) On March 14, 2005, in accordance with the approval of the Company's board of directors from March 13, 2005, 300,000 options were allotted, exercisable for Company shares against an exercise price of NIS 25.10, in 3 installments commencing April 2008. On March 9, 2006, in accordance with the approval of the Company's board of directors from March 8, 2006, 50,000 options were allotted, exercisable for Company shares against an exercise price of NIS 23.52, in 3 installments commencing March 2007. On October 10, 2007, in accordance with the approval of the Company's board of directors from August 28, 2007, 150,000 options were allotted, exercisable for Company shares against an exercise price of NIS 30.07, in 2 installments (two-thirds and one-third), commencing August 28, 2009. On May 25, 2010, in accordance with the approval of the Company's board of directors from May 11, 2010, 710,000 options were allotted, exercisable for Company shares against an exercise price of NIS 20.22, in 3 installments commencing May 2011.

(7) With respect to this officer, the salary element stated above includes a bonus for 2009, which was approved subsequent to the date of the financial statements at December 31, 2009.

(8) On August 11, 2009, the authorized Company organs approved the extension of the exercise period of the options allotted to the (then) chairman of the board, and to nine employees and officers of the Company and subsidiaries. For additional details, see the immediate report dated August 12, 2009 (RN: 2009-01-194253).

(9) Under the terms of the merger agreement (as defined in this Report), and subject to its closing, the Company has undertaken that all of the existing options in the Company on the closing date of the merger will be cancelled. At the Report date, the Company is working to fulfill its obligation to cancel the options, and to this end, has undertaken with some of the option holders in agreements, the execution of which is contingent on the closing of the merger agreement, whereby the Company will purchase from them the options that they hold, against a payment by the Company to the holders of the said options of an amount that is immaterial to the Company. For details on the purchase of the options from officers, see Section 21.7 to Chapter A of this Report.

10  

B. Senior officers in the Company

There are no senior officers receiving the highest compensation in the corporation that are not included in the above list.

C. Compensation paid to senior officers subsequent to the balance sheet date, related to their tenure or their employment in the reporting year

See the above table.

D. Compensation paid to each of the interested parties in the Company that is not included in the above item

During the year preceding the report date, compensation to directors that is not irregular (i.e. does not exceed the maximum amount under Regulation 4 and 5 of the Companies Regulations (Rules on Compensation and Expenses to Outside Directors) – 2000) totals NIS 2,363 thousand. For details on the amount of the compensation and the reasons of the audit committee and the board of directors, see the Company's immediate report from May 14, 2008 (RN: 2008-01-132468).

E. For additional details on the Company's compensation policy, see Par. 21 of Chapter A of the Report.

Regulation 21A – Control in the Company

At the report date, the controlling shareholder in the Company is Koor Industries Ltd.

Regulation 22 – Transactions with controlling shareholders

Presented below are details on transactions with a controlling shareholder or a controlling shareholder with a personal interest in their approval, in which the Company had undertaken during the report period or on a date subsequent to the end of the reporting year until the filing date of the Report, or are still in effect on the report date:

Transactions listed in Section 270(4) of the Companies Law – 1999 ("the Companies Law")

(1) On December 29, 2010, after approval was received from the audit committee and board of directors of the Company, a general meeting of the Company (in the majority required under Section 275 of the Companies Law) resolved to approve, in advance, a framework undertaking of the Company in an annual officers' liability insurance policy for the Company and subsidiaries, including officers who are controlling shareholders in the Company or their relatives. The policy's liability limit is $100 million with an addition of up to 20% of the said amount to cover the expenses of a legal defense in Israel ("insurance policies"). The insurance policies will be in effect for several insurance periods not to exceed five (5) years cumulatively, i.e. for annual insurance periods, the last of which is until 21.1.2015. The insurance policies may also be taken through additional extensions of the existing insurance policy in which the Company has undertaken with Clal Insurance Company Ltd., in accordance with the approval of the general meeting of the Company's shareholders on October 6, 2005, with a change in its

11  

terms, provided that the undertaking is on the basis of the key undertakings detailed in the Company's reporting from 23.11.2010, and will not deviate from the significant provisions included in the principles of the undertaking.

(2) On January 8, 2011, after previously obtaining approval from the audit committee and board of directors of the Company, the Company entered into a merger agreement ("the merger agreement"), the parties to which are: (1) the Company (2) China National Agrochemical Corporation ("CC"), a Chinese corporation of the China National Chemical Corporation, the largest Chinese Group controlled by the Chinese Government, engaged in the chemicals and agrochemicals industry; (3) a wholly-owned private company (indirectly through its wholly-owned corporation) of CC that was established in Israel for the purpose of entering into the merger agreement ("special purpose company"); (4) Koor and M.A.G.M. Chemical Holdings Ltd., a wholly-owned subsidiary of Koor (together with Koor – "Koor companies"). Under the terms of the merger agreement, the Company's shares, which on the transaction's closing date will constitute 60% of the issued and outstanding capital of the Company will be acquired (and this will also include the acquisition of all of the public's holdings in the Company, and also the acquisition from the Koor companies of shares that will constitute 7% of the issued and outstanding-up capital of the Company). Upon the closing of the merger, the Company's shares will be de-listed from trading on the Stock Exchange and the Company will become a private company, to be held by CC at the rate of 60% and by Koor at the rate of 40%. However, it will continue to be a reporting corporation, as this term is defined in the Securities Regulations – 1968. For additional information on the merger agreement and its related agreements, including details on the personal interest of its controlling shareholder, see the transaction report published by the Company on January 20, 2011 (RN: 2011-01-025200) and Subsection 2.2 of Chapter A of this periodic report.

Transactions not listed in Section 270(4) of the Company's Law and are not trivial

(1) On March 16, 2011, the Company's board of directors approved the Company's undertaking in a property and lost profits insurance policy for an 18-month period with Clal Insurance Company Ltd. ("Clal"), a company controlled by I.D.B. Development Company Ltd. Under the terms of the undertaking, the Company will bear the premium for the purchase of the said policy totaling $6.6 million. I.D.B. Development Company Ltd., which could be deemed a controlling shareholder (indirect) in the Company, could be deemed having a personal interest in the transaction due to the fact that it is the controlling shareholder in Clal. Moreover, the individuals who could be deemed controlling shareholders (indirect) in the Company could be deemed as having a personal interest in the transaction due to their tenure and/or tenure of their relatives (as the term "relative" is defined in the Companies Law) as directors in Clal.

(2) On March 24, 2010, the Company's board of directors approved the undertaking of Agan, a wholly-owned subsidiary of the Company, in an agreement with B.P.T. Bio Pure Technology Ltd. ("BPT"), under the terms of which Agan will purchase from BPT a facility for filtering sewage using membrane technology, which will be designed and

12  

built by BPT in Agan's plant in Ashdod. For the design, construction and handing over of the facility, Agan will pay to BPT the maximum sum of $4.3 million, based on payment milestones prescribed by the parties. To the best of the Company's knowledge, BPT is 17.45%-owned by Elron Electronic Industries Ltd., which is controlled by DIC, which could be deemed a controlling shareholder (indirect) in the Company and which could be deemed as having a personal interest in approving the transaction.

Regulation 24 – Holdings of interested parties and senior officers

Presented below are shares and other securities held by interested parties in the corporation, subsidiary or a related company as at March 1, 20112:

Interested party holdings Holding percentage –

fully diluted%(1) Holding percentage

% Par value held

and/or quantity of convertible securities

Security No. on stock

exchange

Security name

ID No., passport no. or Corp ID

no.

Name of interested party In voting In equity In voting

In equity

47.02 46.55 47.02 46.55 202,454,602 1081819 Ordinary shares

NIS 1 520014143

Koor Industries Ltd.(2)

0 1.02 0 1.02 4,415,569 1081819 Ordinary shares NIS 1 (dormant

subsidiary) 777000342 Magan H.B B.V(3)

0.24 0.24 0.24 0.24 1,041,307 1081819 Ordinary shares

NIS 1 520023896

Discount Investments Ltd. (3)

1.1 1.09 1.1 1.09 4,717,354.07 1081819 Ordinary shares

NIS 1 520036120

Clal Insurance business holdings

(nostro; profit-participating

insurance accounts, provident funds and

provident fund management companies) (4)

0.03 0.03 0.03 0.03 149,466 1081819 Ordinary shares

NIS 1 512843855

Manor Holdings B.A. Ltd. (5)

0 0 0 0 17,271 1081819 Ordinary shares

NIS 1 512967993

Euroman Investments Ltd. (6)

0 0 0 0 5,604 1081819 Ordinary shares

NIS 1 510515752

David Lubinski Ltd.(7)

0.57 0.56 0.57 0.56 2,435,383 1081819 Ordinary shares

NIS 1 511382343

Clal Finance Group (nostro; funds) (8)

0 0 - - 51,500 1087998

Non-marketable options

according to outline for Company employees

72644339 Gidon Shtiat(9)

0 0 - - 51,500 1087998

Non-marketable options

according to outline for Company employees

006359053 Ilan Chet(9)

  

                                                            2 The table on this page presents holdings in equity rights and it should be commented that the Company's issued share capital also includes shares held by the Company itself (which are dormant shares and do not confer any rights, including dividends) at the rate of 8.4%. Voting rights in this table are presented after neutralizing shares held by the Company (dormant shares) and shares held by a subsidiary of the Company.

13  

0 0 - - 3,600,000 1115484

Non-marketable options

according to outline for Company employees

056094477 Erez Vigodman(10)

0 0 0 0 39,882,486 1081819 Ordinary shares NIS 1 (dormant)

520043605 Makhteshim-Agan

Industries Ltd.

- - - - 124,670,686 1110915 Debentures (Series B)

520036120

Includes Insurance Business Holdings

(nostro; profit-participating life

insurance accounts; provident funds and

provident fund management companies) (4)

- - - - 7,348,448 1110923 Debentures (Series C)

520036120

Clal Insurance Business Holdings

(nostro; profit-participating

insurance accounts, provident funds and

provident fund management companies) (5)

- - - - 39,229,479 1110931 Debentures (Series D)

520036120

Clal Insurance Business Holdings

(nostro; profit-participating

insurance accounts, provident funds and

provident fund management companies) (4)

- - - - 830,000 1110915 Debentures (Series B)

510515752 David Lubinski

Ltd.(7)

- - - - 47,260,776 1110915 Debentures (Series B)

511382343 Clal Finance Group

(ETF's; funds) (8)

- - - - 4,632,378 1110923 Debentures (Series C)

511382343 Clal Finance Group

(ETF's; funds) (8)

- - - - 7,920,287 1110931 Debentures (Series D)

511382343 Clal Finance Group

(ETF's; funds) (8)

- - - - 5,286,215 1110915 Debentures (Series B)

511576209 Epsilon Mutual

Fund Management (1991) Ltd.(11)

(1) Assumes exercise of all option plans existing at report date. For details, see Note 22 to the accompanying financial

statements. The assumption of full exercise of the options according to the options plan for the aforementioned employees and officers is only theoretical, since actually, upon exercise, the full amount of the underlying shares will not be allotted to the offerees, but rather, the number of shares reflecting the amount of financial benefit embodied in the options – i.e. the number of shares whose market value according to the opening price of the shares on the stock exchange on the exercise date is equal to the difference between the price of the Company's ordinary share on the exercise date and the exercise price of the option. The calculations relating to full dilution were made on the basis of the share price at the balance sheet date.

(2) To the best of the Company's knowledge, Koor Industries Ltd. is a company controlled indirectly by IDB Holding Corp. Ltd. through Discount Investment Corp. ("DIC"). To the best of the Company's knowledge, IDB Holding Corp. Ltd. is controlled by Messrs. Nochi Dankner, Zvi Livnat and Yitzchak Manor.

(3) To the best of the Company's knowledge, Discount Investments Ltd. is a company controlled by IDB Holding Corp. Ltd., a controlling shareholder in the Company.

(4) To the best of the Company's knowledge, Clal Insurance Business Holdings Ltd. is a company controlled by IDB Holding Corp. Ltd., a controlling shareholder in the Company.

(5) To the best of the Company's knowledge, Manor Holdings B.A. Ltd. is a private company controlled by Mr. Yitzhak Manor (among those who could be deemed controlling shareholders in the Company) and his family members.

14  

(6) To the best of the Company's knowledge, Euroman Investments Ltd. is a private company controlled by Mr. Yitzhak Manor (among those who could be deemed controlling shareholders in the Company) and his family members.

(7) To the best of the Company's knowledge, David Lubinski Ltd. is a private company controlled by Mr. Yitzhak Manor (among those who could be deemed controlling shareholders in the Company) and his family members.

(8) To the best of the Company's knowledge, Clal Finance Group Ltd. is a subsidiary of Clal Holdings, and it reports to the corporation separately about its holdings in its shares (including the holdings of its subsidiaries and related companies).

(9) Outside director of the Company.

(10) Company President and CEO.

(11) To the best of the Company's knowledge, Epsilon Mutual Fund Management (1991) Ltd. is a company controlled indirectly by IDB Holding Corp. Ltd., a controlling shareholder in the Company.

Presented below are the shares and other securities held by officers in the Company as at March 10, 2011:

Holdings of Senior Officers

Holding percentage – fully diluted%(1)

Holding percentage %

Par value held and/or

quantity of convertible securities

Security No. on stock

exchange In voting

Security name In equity

Holding percentage –

fully diluted%(1)

Holding percentage %

In voting In equity In voting In equity

0 0 0 0 533,333 1101120

Non-marketable options

according to outline for Company employees

27866268 Ron Meidan

0 0 0 0 710,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 116,669 1092808

Non-marketable options

according to outline for Company employees

22977631 Chen Lichtenstein 0 0 0 0 450,000 1107499

Non-marketable options

according to outline for Company employees

0 0 0 0 710,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 800,000 1107499

Non-marketable options

according to outline for Company employees

55458921 Michal Arlozorov 0 0 0 0 2,000 1081819 Ordinary shares

0 0 0 0 550,000 1119445

Non-marketable options

according to outline for Company employees

15  

0 0 0 0 800,000 1111343

Non-marketable options

according to outline for Company employees

22406615 Yoav Zeif

0 0 0 0 710,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 276,668 1092808

Non-marketable options

according to outline for Company employees

60847746 Saul Friedland 0 0 0 0 150,000 1107499

Non-marketable options

according to outline for Company employees

0 0 0 0 710,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 500,000 1107499

Non-marketable options

according to outline for Company employees

5240022 Ignacio

Dominguez

0 0 0 0 710,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 250,000 1107499

Non-marketable options

according to outline for Company employees

054960513 Amos Rabin

0 0 0 0 500,000 1119445

Non-marketable options

according to outline for Company employees

0 0 0 0 600,000 1119445

Non-marketable options

according to outline for Company employees

56115876 Aviram Lahav

0 0 0 0 500,000 1119445

Non-marketable options

according to outline for Company employees

55732408 Daniel Harari

16  

Regulation 24A – Authorized capital, issued capital and convertible securities

At the Report publication date:

a. The Company's authorized capital is NIS 750,000,000 par value divided into 750,000,000 ordinary shares, NIS 1 par value each.

b. The issued and outstanding capital of the Company is NIS 474,829,605 divided into 474,829,605 ordinary shares, NIS 1 par value each. The Company's issued and outstanding capital, net of 4,415,569 shares held by a subsidiary (which do not confer voting rights in the Company) and net of NIS 39,882,486 par value of dormant shares held by the Company, is NIS 430,531,550 divided into 430,531,550 ordinary shares, NIS 1 par value each.

c. Of the non-marketable options under the options plan for employees of the Company and subsidiaries from 2003 allotted by the Company, 2,803,000 options have not yet been exercised3.

d. Of the non-marketable options under the options plan for employees of the Company and subsidiaries from 2005 allotted by the Company, 6,873,594 options have not yet been exercised4.

e. Of the non-marketable options under the options plan for employees of the Company and subsidiaries from 2007 allotted by the Company, 2,980,000 options have not yet been exercised.

f. Of the non-marketable options under the options plan for employees of the Company and subsidiaries from 2008 allotted by the Company, 11,000,000 options have not yet been exercised5.

g. Of the non-marketable options under options plan No. 2 from 2008 for employees of the Company and subsidiaries allotted by the Company, 800,000 options have not yet been exercised.

                                                            3 Of the options under the 2003 plan not yet exercised at this date, 2,751,500 options were allotted during 2007 according to the Company's immediate reports dated December 3, 2006 and December 4, 2006 and 51,500 options allotted during 2008 according to the Company's immediate report dated January 9, 2008. 4 Of the options under the 2006 plan not yet exercised at this date, 533,333 options were allotted during 2007 according to the Company's immediate report dated December 28, 2006. 5 Of the options under the 2008 plan not yet exercised at this date, 3,600,000 options were allotted during 2009 according to the Company's immediate report dated August 12, 2009 and 6,500,000 allotted in 2010 according to the Company's immediate report dated May 12, 2010.

17  

Regulation 24B – Registry of Shareholders

At the publication date of the Company's periodic report, the registry of the Company's shareholders is as follows:

Name of shareholder

Corporate/ID No. Street City Zip code Residency Par value

Corzion, Mazal & Samuel

Hashita 8 Meitar

Israel 2

Livnat Raz 55088645 Hacarmel 8 New Givat

Saviyon 55900 Israel 4

Kramer Moshe 59761759 Damesek Eliezer 5 Bnei Braq Israel 2

Oked Yitzchak

Shmaryahu Levin 26

Rishon LeZion POB 15199 Israel 20

Roi Pigernissi 214846784 Hama'avak 9 Ramat Hasharon Israel 20

Gershon Shlomo Yones

5098199 Adad 2 Lehavim

Israel 36

David Neuman 8332884 David Shimoni 14 Jerusalem 92623 Israel 152

Yehuda Bar-Levav Tolokovski 3A Tel Aviv 69358 Israel 217

Dekel Eli 215197591 Maon 9/9 Arad POB1256 Israel 400

Chana Kanat

Moshav Balfouria

Israel 913

Shargal Ainan Rachel

467845 Pinchas

Rotenberg 9 Ramat-Gan 52306 Israel 1,900

Saviyon Tal 38506499 Geulim 44 Zichron Yakov 30900 Israel 3,000

M.A.G.M. Chemical

Holdings Ltd. 510575814 Ha'arba'ah 21 Tel-Aviv 64739 Israel 117,391,593

Arthur L.Liberman

Foreign US 1,537

Zolikov Inbar (custodian of

Gidon Zolikov) 312144678 Hacarmel 28B Kiryat Tivon

Israel 20

Total shareholders –

bearer 117,399,816

Registry Company of Bank

Hapoalim Ltd. Yehuda Halevi 62 Tel-Aviv

Israel 357,429,789

Regulation 25A – Registered address

Registered address of the Company is Golan Street, Ha'arava Building, POB 298 Airport City Park, 70100.

Telephone: 073-2123000; Fax: 073-2321074

Email: www.MA-INDUSTRIES.COM

18  

Regulation 26 – Directors of the Corporation (at March 16, 2011)

Presented below are personal and professional particulars of the Company's directors:

)1( Director's Name Ami Erel

ID No. 04871265

Date of birth: 1947

Address for delivery of legal documents:

Discount Investment Corp., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv

Citizenship: Israeli

Membership of subcommittees: Compensation and Product Development

Outside director: No

Employee of corporation, subsidiary, related company or interested party

President and Chief Operating Officer of Discount Investments Ltd., which is an interested party in the Company

Start date of tenure as director: 2006

Education: BA Electrical Engineering, Technion, Haifa

Engaged in the last five years and other corporations in which he serves as director:

President and COO of Discount Investments Ltd., from March 2007 – December 2007 CEO of Netvision Ltd., Chairman of the Board of Cellcom Israel Ltd., Netvision Ltd. and Koor Industries Ltd.; director in Elron Electronic Industries Ltd. and Chairman and/or director in other IDB Group companies

Family ties to interested party No

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law: No

)2( Director's Name Nochi Dankner

ID No. 052763224

Date of birth: 13.11.1954

Address for delivery of legal documents:

IDB Holding Corp., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv 67023

Citizenship: Israeli

Membership of subcommittees: Executive Compensation

Outside director: No

Employee of corporation, subsidiary, related company or interested party

Chairman of the Board of IDB Holding Corp., interested party in the Company

Start date of tenure as director: 7.8.2006

Education: BA of Law and Political Science, Tel Aviv University

19  

Engaged in the last five years and other corporations in which he serves as director:

Chairman of the Board of IDB Holding Corp. (and until September 2009 also served as its COO), IDB Development Corp. Ltd., Discount Investments Ltd. and Clal Industries and Investments Ltd.; Chairman and COO of Gandan Group; director of different companies in the IDB Group, Gandan Group and in private companies.

IDB Holding Corp. (Chairman); IDB Development Corp. Ltd. (Chairman); Discount Investments Corp. Ltd. (Chairman); Clal Industries and Investments Ltd. (Chairman); Clal Insurance Businesses Holdings Ltd.; Clal Insurance Company Ltd.; Supersol Ltd.; Cellcom Israel Ltd., Cellcom Holdings (2001) Ltd.; Mashav Initiation and Development Ltd.; Nesher Israel Cement Enterprises Ltd.; Properties and Building Ltd.; Koor Industries Ltd.; Makhteshim-Agan Industries Ltd.; Gandan Holdings Ltd. (Chairman); Gandan Investments 2000 Ltd. (Chairman); Gandan Real Estate Holdings (2000) Ltd. (Chairman); Tomahawk Investments Ltd. (Chairman); Peleg-Dan Investments Ltd.; Oshir Holdings Ltd.; Luck Time Ltd.

Family ties to interested party Brother of Mrs. Shelly Bergman, a controlling shareholder of the Company

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law: Yes

)3( Director's Name Zvi Livnat

ID No. 51918001

Date of birth: 1953

Address for delivery of legal documents:

Clal Industries and Investments Ltd., Azrieli 3, Tel-Aviv 67023

Citizenship: Israeli

Membership of subcommittees: Compensation

Outside director: No

Employee of corporation, subsidiary, related company or interested party

Deputy Chairman of I.D.B. Development Corp., Deputy COO and director in IDB Holding Corp., Joint CEO in Clal Industries and Investments Ltd.

Start date of tenure as director: 2006

Education: BA HND Business Studies (Transport & CIT) - Dorset Institute of Higher Education, Bournemouth, United Kingdom

Engaged in the last five years and other corporations in which he serves as director:

Deputy Chairman of I.D.B. Development Corp., Deputy COO of IDB Holding Corp., Joint CEO of Clal Industries and Investments Ltd. Former VP of Trading in Ta'avura Holdings Ltd.

Director in: I.D.B. Development Corp, I.D.B. Holding Corp., Discount Investments Ltd., Ta'avura Holdings Ltd., Supersol Ltd., Yafora Ltd., Yafora Tabouri Ltd., Hadera Paper Ltd., Nesher Israel Cement Enterprises Ltd., Mashav Initiation and Development Ltd., Kitan Industries Ltd., Golf A.K. Ltd., KBA

20  

Kvutzat Bonei Arim Ltd., Koor Industries Ltd., Maxima Air Separation Center Ltd., Carman Properties and Investments Ltd., Carman Finance (1994) Ltd., Carman Management and Properties (1997) Ltd., Ohr Assaf Investments Ltd., Hamashbir Holdings (1999) Ltd., A. Livnat Orchards Ltd., Carman Properties and Investments (USA) Inc., Marine Agriculture Fish Ltd. and several other companies held by the IDB Group, Ta'avura Group and Avraham Livnat Group.

Family ties to interested party Son of Avraham Livnat (controlling shareholder in Avraham Livnat Ltd., which constitutes part of the controlling interest in IDB Holding Corp.) and brother of Zev Livnat and Shai Livnat (directors in different IDB Group companies).

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law: No

)4( Director's Name Yitzchak Manor

ID No. 049474356

Date of birth: 1941

Address for delivery of legal documents:

IDB Holding Corp., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv 67023

Citizenship: Israeli, French

Membership of subcommittees: No.

Outside director: No

Employee of corporation, subsidiary, related company or interested party

Deputy Chairman of IDB Holding Corp. and part of its controlling interest.

Director in Koor Industries Ltd. and Discount Investment Corp. Ltd.

Start date of tenure as director: 2007

Education: MBA from Hebrew University Jerusalem

Engaged in the last five years and other corporations in which he serves as director:

Chairman of the Board: IDB Holding Corp. (part of controlling interest), David Lubinski Ltd., Udit Investments Ltd., Admit Industry and Auto Services in Jerusalem Ltd., Schroder Ltd., Prime-Lease Auto Fleet Management Ltd., Lubex Trading Ltd., EMC (Yetzikot) Ltd., Lubit Insurance Agency (1997) Ltd., D.T.M.S. Investments Ltd., Manor Holdings B.A. Ltd., Car East Auto Imports Ltd., Euroman Investments Ltd., Manor Investments – IDB Ltd., Euroman Automotive Ltd., D.V.B. Motor Sport Ltd., Prime-Rent Car Rental Ltd., Morgan-Rimon Construction Ltd., Auto Dynamic Israel Ltd. (inactive).

Director: Lubinski Garage Tel-Aviv Ltd. (inactive), Nesher Israel Cement Enterprises Ltd., David Lubinski Properties Holdings (1993) Ltd., Cellcom Israel Ltd., Schroder Properties Ltd., Olympia Morgan Projects Ltd., Koor Industries Ltd., American Israel Paper Ltd., Israel Union Bank Ltd., Clal Industries and Investments Ltd., Supersol Ltd., Discount Investments Corp., Property and Building Corp., Mashav Initiation and Development

21  

Ltd., IDB Development Corp. Ltd., Clal Insurance Businesses Holdings Ltd., Makhteshim-Agan Industries Ltd., Mor International Real Estate Fund Ltd.

Family ties to interested party Husband of Ruth Manor and father of Dori Manor, interested party in the corporation.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law: Yes.

)5( Director's Name Avi Fisher

ID No. 54185608

Date of birth: 1956

Address for delivery of legal documents:

Clal Industries Ltd., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv 67023

Citizenship: Israeli

Membership of subcommittees: No.

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

Deputy CEO of IDB Holding Corp.

Start date of tenure as director: 2007

Education: LLB from Tel Aviv University. zzzz

Engaged in the last five years and other corporations in which he serves as director:

Deputy COO of IDB Holding Corp., Deputy Chairman of IDB Development Corp. Ltd., Joint CEO of Clal Industries and Investments Ltd., Deputy Chairman of Gandan Holdings Ltd., Chairman of the Board of Clal Biotechnology Industries Ltd., Chairman of Fundtech Ltd., Chairman of the general partner Infinity Israel China Fund Partners Ltd., Director in different IDB Group companies, Gandan Group and private companies, Joint Chairman of "Matan – Your Way to Give" Foundation, President of the Public Committee of "Adopt a Fighter" Project of the Association for Well-being of Soldiers. Member of Executive Committee of Israel Institute for Democracy and a partner in the law firm of Fisher, Bachar, Chen, Wohl, Orion & Co.

Director in: Discount Investments Corp., Clal Industries and Investments Ltd., Koor Industries Ltd., Gandan Investments IDB Ltd., Gandan Investments (2000) Ltd. (Deputy Chairman), Gandan Technologies Ltd., Aviv Shigur Yael Daroma Ltd., Oshir Holdings Ltd., Noga M.G.A. Investments (1992) Ltd., Tiferet Braun Ltd. and Avi Fisher Law Firm.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) No.

22  

of the Companies Law:

)6( Director's Name Oren Leider

ID No. 009153800

Date of birth: 1948

Address for delivery of legal documents:

IDB Development Corp. Ltd., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv

Citizenship: Israeli

Membership of subcommittees: Financial Statements Examination Committee

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

I.D.B. Development Company Ltd. and Property and Building Corp.

Start date of tenure as director: 17/1/2011

Education: BA Economics and Statistics, University of Haifa

Engaged in the last five years and other corporations in which he serves as director:

Project Manager for real estate investments in the USA in the IDB Group companies, Manager in IDB Group USA Investments, director in Gav Yam Properties Ltd. Until 2008, Executive Vice President and CFO of Discount Investments Corp.. and director of Makhteshim-Agan Industries Ltd. and in Cellcom Ltd., Supersol Ltd., Property and Building Corp., Ham-let (Israel-Canada) Ltd., and Maxima Air Separation Center Ltd.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law: Yes.

)7( Director's Name Chaim Gavrieli

ID No. 24892606

Date of birth: 1970

Address for delivery of legal documents:

IDB Holding Corp., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv

Citizenship: Israeli

Membership of subcommittees: No.

Outside director: No.

Employee of corporation, subsidiary, related company or

IDB Holding Corp. Ltd. and Deputy CEO of IDB Development Corp.

23  

interested party

Start date of tenure as director: 2006

Education: BA Political Science, Executive Masters in Public Administration from Haifa University

Engaged in the last five years and other corporations in which he serves as director:

CEO IDB Holding Corp. since September 2009, Deputy CEO of I.D.B. Development Corp. since November 2006; VP I.D.B. Development Corp. 2005-2006, Chairman of Modi'in – Energy Management (1991) Ltd., Chairman Noya Oil and Gas Exploration Ltd., Deputy Chairman of Supersol, director and CEO Meniv Issuances Ltd., Director of Discount Investments Ltd., Cellcom, Koor Industries Ltd., Makhteshim-Agan Industries Ltd., Clal Finance Ltd., Netvision Ltd., Nesher Israel Cement Enterprises Ltd., Mashav Development and Initiation, IDB Group USA Investments, IDB Tourism (2009) Ltd., Diesenhaus Unitours, Israir Aviation and Tourism Ltd., IDB – DT (2010) Energy Ltd., Gandan Technologies (2000) Ltd., IDB Investments (UK) Ltd.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

No.

)8( Director's Name Raanan Cohen6

ID No. 23073919

Date of birth: 1967

Address for delivery of legal documents:

Koor Industries Ltd., Azrieli Center 3, Triangle Building, 44th Floor, Tel-Aviv

Citizenship: Israeli

Membership of subcommittees: Financial Statements Examination Committee, Audit Committee and Ecology Committee.

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

IDB Holding Corp. Ltd. and Deputy CEO of IDB Development Corp.

Start date of tenure as director: 2006

Education: BA in Economics and Law, Tel Aviv University. MBA from Kellogg School of Business, Northwestern University, US

   

                                                            6 On May 26, 2008, Raanan Cohen informed the Company that he would not be present at a discussion nor participate in the vote in meetings of the Audit Committee pertaining to resolutions on Company transactions in which the controlling shareholder, at the date of this prospectus, has a personal interest, except for transactions noted in Section 271 of the Companies Law and except for transactions in which most of the members of the Audit Committee have a personal interest in their adoption.

24  

Engaged in the last five years and other corporations in which he serves as director:

Since 2006, CEO Koor Industries Ltd., VP Discount Investments Corp. since 2001, CEO of Scailex (formerly Scitex) 2004-6, director of Cellcom Israel Ltd. and other Group companies.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

Yes.

)9( Director's Name Prof. Dov Peckelman

ID No. 8280208

Date of birth: 1940

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Membership of subcommittees: Ecology and Product Development.

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

IDB Holding Corp. Ltd. and Deputy CEO of IDB Development Corp.

Start date of tenure as director: 1989

Education: BA Machinery Engineering, Technion, PhD in Business Administration, University of Chicago

Engaged in the last five years and other corporations in which he serves as director:

Active Chairman of Etra Networks Ltd., Chairman Gilon Investments (1979) Ltd., Prof. of Business Administration at Inter-Disciplinary Center and Tel Aviv University, Member of Executive Board and Chairman of Economic Corporation of Inter-Disciplinary Center, Director and controlling shareholder in P.O.C. Hi-tech Ltd. Served as outside director in Degem Ltd. (presently Gefen Swing Investments Ltd.).

Active Chairman of Arcal Industries.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

Yes

25  

)10( Director's Name Prof. Hermona Soreq

ID No. 008101636

Date of birth: 1947

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Membership of subcommittees: Ecology.

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

No.

Start date of tenure as director: 1998

Education: PhD in Biochemistry, specialization in Cholinesterase Inhibitors.

Engaged in the last five years and other corporations in which he serves as director:

Professor of Molecular Biology in the Natural Sciences and Dean of the Faculty of Natural Sciences in Hebrew University, member of the National Council for Research and Development, Chairman of the Board of Sorful Ltd., scientific consultant to Amarin, Ireland, member of the board of "Yisum", company for the transfer of technologies of Hebrew University,

Family ties to interested party No.

Is she a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

No.

)11( Director's Name Dr. Gidon Shtiat

ID No. 72644339

Date of birth: 1939

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Membership of subcommittees: Financial Statements Examination, Audit, Compensation, Ecology and Product Development Committees.

Outside director: Yes.

Employee of corporation, subsidiary, related company or interested party

No.

Start date of tenure as director: 2006

Education: BA in Economics from Hebrew University in Jerusalem.

MBA from Hebrew University in Jerusalem.

PhD in Business & Economics, Wharton, University of

26  

Pennsylvania

Engaged in the last five years and other corporations in which he serves as director:

Chairman and President of GMBS Consultants Ltd., Chairman of the Board of Delta Galil, director in Paz Oil Industries Ltd., Melissron, BATM, Bank Hapoalim Ltd., Gilat Computer Communications Ltd., Ofer Properties Ltd., Delta Galil Industries Ltd., Bank Hapoalim Holding USA, Tel Aviv Museum, Technology Institute, Holon.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

Yes.

Is he a director who, because of his education, experience and skills, has strong skills and a deep understanding of the Company's main areas of activity: No.

)12( Director's Name Prof. Ilan Chet

ID No. 00635905-3

Date of birth: 1939

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Membership of subcommittees: Financial Statements Examination, Audit, Ecology and Product Development Committees.

Outside director: Yes.

Employee of corporation, subsidiary, related company or interested party

No.

Start date of tenure as director: 2007

Education: Doctorate in Microbiology (specialty in plant disease pest-control), Hebrew University.

Engaged in the last five years and other corporations in which he serves as director:

Professor in Plant Diseases and Microbiology Department of Hebrew University, Professor of Plant Sciences, Weizmann Institute, President of Weizmann Institute (2001-2006), Chairman of the Health and Environment Foundation, member of the Landau Foundation Executive, consultant for establishment of a research institute in India (until 2007).

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

No.

   

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Is he a director who, because of his education, experience and skills, has strong skills and a deep understanding of the Company's main areas of activity: Yes.

)13( Director's Name Oded Korichoner

ID No. 030073563

Date of birth: 1950

Address for delivery of legal documents:

31 Hanassi Street, Herzliya

Citizenship: Israeli

Membership of subcommittees: Financial Statements Examination Committee.

Outside director: No.

Employee of corporation, subsidiary, related company or interested party

No.

Start date of tenure as director: 30/1/2011

Education: BA in Economics from Hebrew University in Jerusalem.

MBA from Hebrew University in Jerusalem.

Engaged in the last five years and other corporations in which he serves as director:

VP Robotic Vehicle Industry. Active Chairman of Priority Investments Ltd., director of Israel Electric Corp., Lidcom and several other private companies.

Family ties to interested party No.

Is he a director that the Company deems as having accounting and finance expertise for the purpose of the minimum number of directors under Section 92(A)(12) of the Companies Law:

Yes.

Is he a director who, because of his education, experience and skills, has strong skills and a deep understanding of the Company's main areas of activity: Yes.

For details on the independent directors of the Company, see the Section on Corporate Governance in Chapter B of the Report.

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Regulation 26A – Senior Officers (at March 16, 2011)

)1( Officer's Name Erez Vigodman

ID No. 056094477

Date of birth: 27/09/1959

Start date of tenure: 01/01/2010

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: Graduate of Executive MBA Program – Harvard University

BA in Economics and Accounting – Tel Aviv University

Position in Company: President and CEO

Engaged in the last five years as: President and CEO of Strauss Group (2001-2009), President and CEO of Elite Industries 1998-2000, President and CEO Makhteshim-Agan Industries Ltd.

)2( Officer's Name Chen Lichtenstein

ID No. 022977631

Date of birth: 1967

Start date of tenure: 26/01/2006

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: Doctor of Business Administration and Law, Stanford University, USA

Position in Company: VP Global Resources and Business Development

Engaged in the last five years as: Executive Director Investment Banking Division – Goldman Sachs International

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)3( Officer's Name Aviram Lahav

ID No. 056115876

Date of birth: 30/11/1959

Start date of tenure: 01-06-2010

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA in Accounting – Hebrew University

Graduate of AMP Executive Program, Harvard Business School, USA

Position in Company: CFO

Engaged in the last five years as: CEO Synergy Cables Ltd., CEO Delta Group

)4( Officer's Name Shaul Friedland

ID No. 060847746

Date of birth: 1952

Start date of tenure: 01/11/2003

Address for delivery of legal documents:

Makhteshim-Agan Americas Inc. 18851 N.E. 29th Avenue, #501, Aventura, Florida, 33180 USA

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: Bsc, Msc Agronomy Hebrew University

MBA

Position in Company: CEO of subsidiary – Americas Regional Manager

Engaged in the last five years as: VP Marketing and Sales of Company, BP Trading in Agan Chemical Manufacturers Ltd.

)5( Officer's Name Ran Meidan

ID No. 027866268

Date of birth: 1970

Start date of tenure: 09/09/2006

Address for delivery of legal documents:

Makhteshim-Agan Singapore PTE Ltd., 9 Temaselc Blvd. #16-o3A Suntec Tower Two Singapore 03989, Singapore

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Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA in Economics and Accounting

Masters in Business Administration and Finance

Certified Public Accountant

Position in Company: CEO of subsidiary – Asia Pacific & Africa Regional Manager

Engaged in the last five years as: CFO of Company, CFO Koor Industries Ltd., CFO Elisra Electronic Systems, VP M&A Koor Industries Ltd.

)6( Officer's Name Ignacio Dominguez

Passport No. 5240022

Date of birth: 14/07/1960

Start date of tenure: 05-09-2007

Address for delivery of legal documents:

Makhteshim Agan Europe. Spitalstrasse 5, 8200 Schaffhausen Switzerland

Citizenship: Spain

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA - Complutense University of Madrid – Automatic Calculus

Position in Company: President and CEO of subsidiary – Europe Regional Manager

Engaged in the last five years as: CEO of subsidiaries of the Company; Managing Director of Syngenta Agro S.A. 2005 – 2007.

)7( Officer's Name Michal Arlozoroff

ID No. 055458921

Date of birth: 1958

Start date of tenure: 01/08/2007

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is she an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: LLB, Bsc Political Science, Tel Aviv University

Attorney

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Position in Company: VP, Legal Counsel and Corporate Secretary, Corporate Social Responsibility Director (CSR)

Engaged in the last five years as: Attorney, Partner in A.S. Shimron, Molcho, Persky & Co. Law Firm

)8( Officer's Name Yoav Zeif

ID No. 22406615

Date of birth: 1966

Start date of tenure: 07/10/2007

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: MBA Kellogg – Recanati, Doctorate in International Economics – Bar Ilan University

Position in Company: VP Marketing and Products

Engaged in the last five years as: Associate Principal McKinsey & Company 2003-2007, Lecturer at Recanati Business School 2001-2003, Lecturer and faculty member – Bar Ilan University, Economics Department 1998-2001

)9( Officer's Name Daniel Harari

ID No. 55732408

Date of birth: 02/03/1959

Start date of tenure: 01/01/2010

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA Arabic and Middle Eastern Studies – Tel Aviv University; Masters Middle Eastern Studies – Tel Aviv University; Masters International Political Science – Haifa University

Position in Company: VP Strategy, Innovation and Information Management

Engaged in the last five years as: Officer in IDF Unit, rank of brigadier-general (4 years).

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)10( Officer's Name Amos Rabin

ID No. 054960513

Date of birth: 06/10/1957

Start date of tenure: 10/03/2010

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA Social Sciences, Tel Aviv University

Business, Tel Aviv University

Position in Company: VP Human Resources

Engaged in the last five years as: VP Human Resources Elisra of the Elbit Group, VP Human Resources 013 Barak

11( Officer's Name Keren Yunayov

ID No. 025699950

Date of birth: 16/01/1974

Start date of tenure: 01/06/2010

Address for delivery of legal documents:

Makhteshim-Agan Industries Ltd., Hagolan Street, Airport City 70151

Citizenship: Israeli

Is she an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA Economics and Accounting, Management College Rishon LeZion, Certified Public Accountant.

Masters of Law for Accountants, Bar Ilan University

Position in Company: Controller

Engaged in the last five years as: Audit Manager at Somekh Chaikin KPMG Accounting Firm.

)13( Officer's Name Joshua Hazenfratz

ID No. 52187986

Date of birth: 1953

Start date of tenure: 06/11/2007

Address for delivery of legal documents:

52 Derech Menachem Begin, Tel Aviv

33  

Citizenship: Israeli

Is he an interested party in the corporation/relative of an interested party or other senior officer in corporation:

No.

Education: BA Economics and Accounting, Tel Aviv University

Position in Company: Internal Auditor

Engaged in the last five years as: Partner in Shiff Hazenfratz & Co. Accounting Firm.

Internal Auditor: Oil and Energy Infrastructures Ltd., Trans-Israel Highway Ltd., Castro Ltd., Gaon Holdings Ltd., Clal Biotechnology Ltd., Meitav Stock Exchange Services, Meitav Portfolio Management, Nesher, Likud, Dan, Ligad.

Regulation 26B – Independent authorized signatories

At the report date, the Company has no authorized signatories with the power to bind the Company, without needing the signature of an additional official of the corporation, with respect to certain actions.

Regulation 27 – Company's Independent Auditor

Somekh Chaikin & Co. 17 Ha'arba'ah Street, Tel Aviv

Regulation 28 – Change in Memorandum or Bylaws

During the report period, no changes were made to the Memorandum or the Bylaws.

Regulation 29 – Recommendations and resolutions of directors

A. Regulation 29(A) – none.

B. Regulation 29(B) – none.

C. Regulation 29(C) – Resolutions of Special General Meetings:

(1) On January 24, 2010, a special general meeting of the Company's shareholders approved the extension of the tenure of the Outside Director, Prof. Ilan Chet, to an additional three-year term.

(2) On March 24, 2010, a special general meeting of the Company's shareholders approved that in every issuance of securities through rights, as a result of which the Company will also be subject to the laws of foreign countries, the Company will be allowed not to offer the rights to the security holders of the Company to whom the laws of a foreign country will apply, in accordance with the provisions of the Securities Regulations (Manner of Public Offering of Securities) – 2007.

(3) On December 29, 2010, a special general meeting of the Company's shareholders approved a framework undertaking of the Company in annual insurance policies for officers' liability, in the Company and in subsidiaries, including officers who

34  

are controlling shareholders in the Company or their relatives. For additional details, see Regulation 22 above.

Regulation 29A – Company resolutions

Presented below are resolutions of the Company's board of directors that were not detailed in "Regulation 29 – Resolutions and Recommendations of the Directors" above:

1. Approval of actions under Section 255 of the Companies Law: None.

2. Actions under Section 254(A) of the Companies Law: None.

3. Exceptional transactions requiring special approvals under Section 270(1) of the Companies Law: None.

4. Exemption, indemnity and insurance of officers: On October 8, 2007, a general meeting of the Company approved the granting of indemnity to officers in the Company. For details on the resolutions of the Company's board of directors regarding officers' insurance, see Regulation 22 above.

Date: March 16, 2011.

Ami Arel

Chairman of the Board of Directors

Erez Vigodman

President and CEO