UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

OR

For the fiscal year ended December 31, 2006

OR

For the transition period from _________ to ________

OR

Date of event requiring this shell company report _________

Commission File Number: 0-12332

SCAILEX CORPORATION LTD.
(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)

Israel
(Jurisdiction of incorporation or organization)

3 Azrieli Center, Triangular Tower, 43^rd Floor, Tel Aviv 67023, Israel
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares, NIS 0.12 nominal (par) value per share
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)

        Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2006:

43,467,388 Ordinary Shares, NIS 0.12 nominal (par) value per share

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

o Yes   x  No

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

o Yes   x  No

Note– Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o  No

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

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

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18 x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

x Yes   o  No

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TABLE OF CONTENTS

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INTRODUCTION

Unless indicated otherwise by the context, all references in this Annual Report to:

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Except for the historical information contained in this Annual Report on Form 20-F, certain information contained herein, including, without limitation, information appearing under “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”, are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are based on various assumptions (some of which are beyond our control) and may be identified by the use of forward-looking terminology, such as “may”, “can be”, “will”, “expects”, “anticipates”, “intends”, “believes”, “projects”, “continues”, “plans”, “seeks”, “potential”, and similar words and phrases. Actual results could differ materially from those contained in forward-looking statements due to a variety of factors, including, but not limited to:

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Except as may be required by law, we do not undertake, and specifically disclaim, any obligation to release publicly the results of any revisions which may be required to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such forward-looking statements.

USE OF TRADE NAMES

Scailex is our trademark. Jemtex is a trademark of Jemtex.

PART I

Not applicable.

Not applicable.

The following selected consolidated statements of operations data for the years ended December 31, 2004, 2005 and 2006 and the selected consolidated balance sheet data as of December 31, 2005 and 2006 are derived from our audited consolidated financial statements set forth elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The selected consolidated statement of operations data for the years ended December 31, 2002 and 2003 and the selected consolidated balance sheet data as of December 31, 2002, 2003 and 2004 are derived from audited consolidated financial statements not appearing in this Annual Report, which have been prepared in accordance with U.S. GAAP.

In November 2005, Scailex Vision, our majority owned subsidiary, sold its business to Hewlett-Packard Company, as described below under Item 10.C “Additional Information–Material Contracts.” As a result of the sale, since November 2005, the results of operations of Scailex Vision have been reported as discontinued operations and the consolidated results from continuing operations have no longer included the revenues and expenses attributable to Scailex Vision. Similarly, assets and liabilities relating to Scailex Vision are presented on our balance sheet separately as assets and liabilities of discontinued operations. Our consolidated financial statements for prior periods have been reclassified to reflect these changes. See Note 1b(2) to our consolidated financial statements included in this Annual Report.

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In August 2006 we decreased our holdings in Jemtex from approximately 75% to approximately 15% (on a fully diluted basis). See “Item 4A. History and Development of the Company,” “Item 4B. Business Overview,” and “Item 10C. Material Contracts. Reorganization Contract between the Company and Senior Management of Jemtex”. As a result of the sale, since August 2006 the results of operations of Jemtex have been reported as discontinued operations and the consolidated results from continuing operations have no longer included the revenues and expenses attributable to Jemtex. Similarly, assets and liabilities relating to Jemtex are presented on our balance sheet separately as assets and liabilities of discontinued operations. Our consolidated financial statements for prior periods have been reclassified to reflect these changes. See Note 1b(3) to our consolidated financial statements included in this Annual Report.

As of December 31, 2006, our continuing operations are comprised of Scailex Corporation. Consequently, we did not record any revenues from such continuing operations in the years 2002 through 2006. Since we are exploring our strategic alternatives, including engaging in new areas of operations, the data presented below are not indicative of our future operating results or financial position.

The following selected financial data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report.

BALANCE SHEET DATA

* Includes a restricted cash deposit in a bank, the balance of which was $20,203,000 as of December 31, 2002, and is presented on the balance sheet as a restricted deposit.

** Includes a restricted cash deposit in a bank, the balance of which was $5,165,000, $18, 000,000 and $18,262,000 as of December 31, 2005, 2004 and 2003, respectively.

*** Net working capital is calculated as current assets minus current liabilities as presented in the audited financial reports.

**** Includes minority interest related to continued operations.

***** Includes minority interest related to discontinued operations.

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STATEMENT OF OPERATIONS DATA

Not Applicable.

Not Applicable.

The following important factors, together with others that appear with the forward-looking statements made by, or on behalf of, Scailex in this Annual Report, or in Scailex’s other SEC filings and public statements, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements.

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Risks Related to Our Business

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Risks Related to Operations in Israel

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Risks Related to the Market for Our Ordinary Shares

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CORPORATE HISTORY & DETAILS

Our legal and commercial name is Scailex Corporation Ltd. and our legal form is a company limited by shares. We were incorporated under the laws of the State of Israel on November 2, 1971, succeeding a predecessor corporation, Scientific Technology Ltd. that was founded on September 5, 1968. On December 29, 2005, we changed our name from “Scitex Corporation Ltd.” to “Scailex Corporation Ltd.” Our corporate headquarters and principal executive offices are located at 3 Azrieli Center, Triangular Tower, 43^rd Floor, Tel Aviv, 67023, Israel. Our telephone number in Israel is (972) 3 - 6075855. Our website address is www.scailex.com. Information contained on our website does not constitute a part of this Annual Report.

We initially focused on imaging competencies in systems for the textile design market. In 1979, we launched the world’s first computerized color prepress system. In the 1990s, we identified the evolving digital printing market and focused on commercializing innovative solutions for the graphic publishing industry in its transition from analog to digital printing, and made several key acquisitions of digital printing operations. We operated in this field principally through SDP, our then indirect wholly owned subsidiary, and Scailex Vision, our majority owned subsidiary. In April 2000, we sold our digital preprint operations and our print-on-demand systems business to Creo, now part of Kodak. In January 2004, we sold the businesses of SDP to Kodak.

In November 2005, we sold the operations of Scailex Vision, which was involved in the wide format segment to Hewlett-Packard, and in August 2006, we reduced our holdings from 75% to 15% in Jemtex which was involved in the industrial inkjet digital printing market. Since the completion of these transactions, most of the Company assets are cash and cash equivalents, and the Company is looking for additional investment opportunities. Between February and May 2007, the Company, through its 80.1% subsidiary, PCH, purchased approximately 13.4% of ORL share capital, and may obtain joint control of ORL together with Israel Corp. However, control of ORL is contingent on the receipt of certain mandatory regulatory approvals which the Company currently awaits. See “Item 10C. Material Contracts.”

MAJOR BUSINESS DEVELOPMENTS

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With the sale of the business of Scailex Vision in November 2005, as described above, we no longer conducted significant business operations. Currently, we hold substantially all of our assets in financial investments and shares in ORL. Our current plan of operation is to explore and consider strategic investments and business opportunities. Other than activities relating to attempting to locate such opportunities and activities relating to our holdings, primarily in ORL (through PCH), we do not currently conduct any material operations.

PRINCIPAL CAPITAL EXPENDITURE & DIVESTITURES

Since January 1, 2004, except for the self tender offer and the cash distribution described below, most of our principal capital expenditures and divestitures have been for the acquisition or sale of interests in other companies, as follows:

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As previously reported, we were involved in several disputes with C.D.I. Technologies (1999) Ltd. (CDI) a minority shareholder of Scailex Vision, including claims against us, Scailex Vision and several other parties. In May 2005, we and our former two largest shareholders, Clal and Discount, purchased all of CDI’s interest in Scailex Vision, constituting 1.89% of Scailex Vision’s issued share capital (1.35% on a fully diluted basis), for $1.6 million, plus additional contingent consideration to be paid if Scailex Vision undergoes an “exit event” in the subsequent two years at a higher valuation than implied in the agreement. As a result of the sale of the business of Scailex Vision to Hewlett Packard, we have already paid to CDI an additional $0.3 million in February 2006 and $0.2 million in February 2007 in respect of such contingent consideration and we expect to pay an additional amount (as a result of Scailex Vision’s future distributions). In connection with the purchase agreement, CDI agreed to dismiss all of the claims asserted by it against us and the other parties.

Upon the sale of Scailex Vision’s business in November 2005, we ceased substantially all of the operations of our business as conducted prior thereto. Since then, we have held substantially all of our assets in financial investments and in shares in ORL (through PCH), a recently privatized oil refinery located in Haifa, Israel. Our current plan of operation is to explore and consider strategic investments and business opportunities.

OIL REFINERIES LTD.

Information presented in this Annual Report regarding ORL and its subsidiaries was compiled based on ORL’s public filings in Israel. ORL is a public company in Israel, with its shares traded on TASE, and its reports are made in Hebrew and posted on the web site of the Israeli Securities Authority at www.magna.gov.il. Additional information about ORL, together with recent financial information, can be found on ORL’s web site, http://www.orl.co.il/index_eng.html. The contents of this web site are not deemed to be part of this Annual Report.

General

ORL was established in 1959 under the name of Haifa Refineries Ltd. and in 1972 its name was changed to Oil Refineries Ltd. ORL was set up by the Israeli government as a result of the government decision to acquire and receive the rights of a British petroleum company under a franchise that had been granted to it, and title to the Haifa refinery, which had up until then been under the control of foreign shareholders.

In 1971, Israel Corp. acquired shares in ORL from the Israeli government which provided to it 26% of the capital and voting rights in ORL. The amounts invested by Israel Corp. were, among other things, used for constructing the Ashdod Oil Refinery, which began operations in 1973. On February 12, 2006, Israel Corp. sold all of its holdings in ORL to the State of Israel, and the State of Israel again became the sole shareholder of ORL.

Until September 28, 2006, ORL operated a refinery at Haifa and a refinery at Ashdod. As part of the privatization process of ORL begun by the State of Israel in 2004, on September 28, 2006, the Company’s operations were split, and the Ashdod refinery was sold to a subsidiary of ORL – Oil Refinery Ashdod Ltd. (“ORA”), which was sold on that date to Paz Oil Company Ltd. At the date of this Annual Report, ORL operates only the Haifa refinery.

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Purchase of ORL shares by the Company

In December 2006, in anticipation of the public offering by the State of Israel of ORL’s shares, the Company entered into a shareholders agreement with Linura Holding AG, a Swiss company indirectly held by one of the largest global natural resource companies, pursuant to which the parties established PCH to purchase shares in ORL. Under the agreement, we hold 80.1% of PCH’s share capital, while Linura holds 19.9%. For a description of the agreement, see “Item 10C. Material Contracts.”

In February and March 2007, Scailex, through PCH, and Israel Corp. jointly acquired 53.6% of ORL’s issued share capital pursuant to an MOU signed by the parties, which provided for, among other things, the joint acquisition of ORL shares by PCH and Israel Corp. and an option for PCH to acquire additional shares in ORL from Israel Corp. Of the 53.6%, PCH acquired 12.62% of ORL’s outstanding shares and Israel Corp. acquired 40.98% of the outstanding shares. Total consideration paid by PCH for the purchase of the ORL’s shares was $192.9 million.

Israeli law requires that in order to exercise the rights associated with control of ORL or 24% or more of ORL’s share capital, including the right to receive dividends, the right to appoint directors and officials, and the right to exercise voting rights in the Annual General Meeting, a control permit from the Minister of Finance and the Prime Minister must be obtained, pursuant to the Israeli Government Companies Order (Declaration of the State’s Vital Interests in ORL) (2007). In addition, upon the acquisition of 25% or more of ORL’s share capital, Israeli law requires receipt of approval by the Commissioner of the Israeli Antitrust Authority. While we did receive the required approval from the Israeli Antitrust Commissioner on March 27, 2007, we have experienced delays in receiving the control permit. As a result, on May 10, 2007 we and Israel Corp revoked the MOU and entered into an irrevocable Deed of Undertaking, pursuant to which the parties agreed to apply separately for the control permit. Pursuant to the Deed of Undertaking in the event that PCH succeeds in receiving the control permit and any additional regulatory approvals required from the Antitrust Commissioner by May 15, 2009, the parties will enter into the Control Agreement for the joint control of ORL. The decision to apply separately stemmed from the fact that the parties assume that Israel Corp., which until February 2007 held 26% of ORL, will succeed in obtaining a control permit in a relatively short time. Furthermore, PCH has experienced delays in receiving the control permit due to the fact that additional information was requested about Linura, which holds 19.9% of PCH.

In addition, pursuant to the Deed of Undertaking, we were granted the right to exercise a call option, allowing us to increase our holdings in ORL to 45% of the 50.25% control core of ORL within 120 days of the receipt of mandatory regulatory approvals required to control ORL or until May 15, 2009, whichever is earlier. The Deed of Undertaking further provides that the right to enter into the Control Agreement is transferable to a third party, subject to Israel Corp.‘s right of first refusal, provided that such third party receives a control permit by May 15, 2009.

Following the adoption of the Deed of Undertaking, PCH (our 80.1% owned subsidiary) acquired, independently of Israel Corp., an additional 15.5 million shares of ORL for $12.9 million, bringing its total current holdings in ORL to approximately 13.4%. For a description of current agreements with Israel Corp., as well as contemplated future agreements see “Item 10C. Material Contracts.”

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ORL’s Business

ORL, together with its subsidiaries, has three primary areas of operations as follows:

Refining.   ORL’s principal field of operation is refining. ORL operates an 180,000 barrel per day refinery and ranks at 7.4 on the Nelson Complexity Index. ORL purchases crude oil and interim materials, distills and separates them into various products, some of which are end products and others of which are raw materials for the manufacture of other products.

The refining of oil is a process that consists of a number of stages:

Products from ORL’s refining business include: light gasses; liquefied petroleum gas; naphtha; various kinds of gasoline; kerosene; various kinds of diesel; various kinds of fuel oil; waxy substances; and bitumen. ORL also generates revenues by selling electricity and steam manufactured in its power plant to industrial customers in the Haifa Bay, as well as infrastructure services (storage, pumping and loading of fuel products).

The main factor affecting the results of refinery operations is the refining margin (i.e., the difference between revenues from sales of the set of products that ORL sells, and the cost of raw materials purchased by ORL at the refinery gate). Most of ORL’s prices were capped, with maximum prices set by the Israeli Supervision of Prices for Commodities and Services Order (2000) until January 1, 2007, when such restrictions were removed with regard to most of ORL’s refinery products (excluding liquefied petroleum gas, bitumen and low-sulfur diesel).

ORL’s raw materials are crude oil and interim materials produced in the process of separating out crude oil. ORL purchases its crude oil from various suppliers worldwide, mostly on the basis of spot transactions, with the remainder (20-30%) via one year contracts based on price formulas. This combination enables ORL to take advantage of opportunities for purchasing crude at attractive prices and create a fixed basis for regular supply. The majority of the crude oil is purchased from countries bordering the Black and Caspian Seas and, according to ORL’s assessment, it is not dependant upon any one supplier.

Refining operations accounted for approximately 90% of ORL’s consolidated revenue for the fiscal year 2006.

Polymers. Polymer products are manufactured by Carmel Olefins Ltd. (“Carmel Olefins”), a private company in which ORL holds a 50% ownership interest, and in which IPE, our controlling shareholder, holds the remaining 50%. Carmel Olefins produces ethylene, polyethylene and polypropylene, which are the principal raw materials in the plastics industry. Carmel Olefins is the only manufacturer of polypropylene and low density polyethylene in Israel. Carmel Olefins manufactures its products in three integrated facilities – a monomer facility, a polyethylene facility and a polypropylene facility. The monomer facility is fed mainly by naphtha purchased from ORL, manufactures ethylene and propylene which are used as feedstock to the polypropylene facility.

Aromatics. Aromatic materials are produced by Gadiv, a private company that is wholly-owned by ORL. Gadiv is engaged in the manufacture and sale of aromatic products. These are interim products or components of the raw materials used in manufacturing other products, and are not intended for consumption by end users. The raw materials requires by Gadiv are supplied by ORL and Carmel Olefins. Gadiv sells most (about 95%) of its products out of Israel.

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DOR VENTURES

Dor Venture Capital Fund (“Dor”), headquartered in Brussels, Belgium, is a specialized venture capital fund investing in technology companies worldwide. As of December 31, 2006, we have invested an aggregate of approximately $3.6 million in one of the funds managed by Dor, and we are generally committed to invest up to additional $1.4 million in the future upon Dor’s request. To date, we received approximately $1.3 million as distributions from the fund. We currently hold approximately 13.2% of Dor. The Company has decided to discontinue its investment in Dor and not to realize its past commitment to invest an additional $1.4 million. As a result of this decision, the Company will be subject to penalties and the Company’s holdings in Dor may be diluted by 50%.

REALTIMEIMAGE LTD.

RTI was formed in 1996. It was headquartered in San Bruno, California, with research and development operations in Or-Yehuda, Israel, and employed about 42 employees (it had no employees as of December 31, 2006) before IDX Information Corporation Systems acquired the company’s business in July of 2005. We held an approximately 14.9% interest in RTI until that time. After the sale we received a dividend of $2.6 million, and the Company expects to receive an additional $0.4 million. Since RTI sold its healthcare business to IDX, it has not conducted any operations.

RTI is presented in our financial reports on a cost method. After receiving a dividend of $2.6 million, we recognized a capital gain of $1.8 million.

XMPIE INC.

XMPie, which was formed in 2000, developed and marketed software solutions for dynamic publishing in print and electronic media. The XMPie software platform was designed to allow organizations and marketing service providers, such as digital commercial printers and direct marketing agencies, to efficiently create – plan, design and produce – highly customized and personalized documents for direct marketing communication and other highly targeted messaging disciplines. XMPie is headquartered in New York, New York and, as of December 31, 2005, employed approximately 50 people. In November 2006, the Xerox Corporation acquired XMPie for approximately $48 million, including our approximately 2.3% interest in XMPie. We received $1.3 million for the sale, and we expect to receive an additional approximately $0.2 million, which is currently held in trust.

DISCONTINUED OPERATIONS

Scailex Vision

On November 1, 2005, we completed a transaction to sell the business of Scailex Vision, as described under “Item 10C. Material Contracts – Sale of Scailex Vision’s Business” below. As a result of this transaction, the results of operations of Scailex Vision are reported as discontinued operations and the consolidated results from continuing operations no longer include revenues and expenses attributable to Scailex Vision. Nevertheless, since the operations of Scailex Vision comprised one of our principal activities in the past years, the following is a brief description of Scailex Vision’s business prior to November 1, 2005. Accordingly, the following description of Scailex Vision’s business, to the extent it uses the current tense, does not purport to describe the current operations of Scailex Vision. For example, since November 2005, Scailex Vision’s business is conducted under the name of HP Industrial Printing Ltd., a wholly owned subsidiary of Hewlett-Packard (“HP”).

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General. Scailex Vision Ltd. (formerly, Scitex Vision Ltd.), or Scailex Vision, is our majority owned subsidiary (approximately 77.1% interest on an issued and outstanding basis). It was a developer, manufacturer and distributor of wide-format and super-wide format, color inkjet digital printing systems used for point-of-purchase displays, banners and indoor and outdoor advertising posters. It was also engaged in the design, development, manufacturing and marketing of advanced digital printing presses and specialized water-based inks for the packaging and textile markets based on its patented drop-on-demand inkjet technology. As of November 1, 2005, Scailex Vision employed approximately 570 employees (including employees of its sales, marketing and support subsidiaries and part-time and temporary employees).

Scailex Vision printers are dedicated to a wide array of applications including billboards, fleet marking, banners, street advertising, point-of-purchase displays and floor and window graphics, and applications for the packaging display market and, through strategic partners, for the textile market. Its printing systems are aimed at providing high-quality and cost-effective solutions to digital printing houses worldwide.

Scailex Vision had a large customer base with over 2,000 systems installed globally. It sold its products through its direct sales force, indirect distribution channels and third party joint sales arrangements. Equipment sales were typically made on terms requiring an advance payment, with the balance of the purchase price payable in stages, generally on delivery and on or shortly after installation.

Jemtex Ink Jet Printing Ltd.

In August 2006, a reorganization agreement was signed with the senior management of Jemtex, whereby our holdings in the Company were reduced from 74.9% to 15% (on a fully diluted basis). See “Item 4A. History and Development of the Company” and “Item 10C. Material Contracts.”

As a result of the aforementioned reorganization transaction, the results of operations of Jemtex are reported as discontinued operations and the consolidated results from continuing operations no longer include revenues and expenses attributable to Jemtex. Nevertheless, since the operations of Jemtex comprised one of our principal activities in the past years, the following is a brief description of Jemtex’s business prior to August 2006. Accordingly, the following description of Jemtex business, to the extent it uses the current tense, does not purport to describe the current operations of Jemtex. For additional details see Note 1b(3) to the Company’s financial statements. For details of the asset and liabilities of Jemtex and the results of the measures taken with respect to the discontinued operations of Jemtex, see Note 1b(3) of the Company’s financial statements.

Jemtex, located in Lod, Israel, was established in 1995. Jemtex is a developer of inkjet based digital systems, printheads and engines for the heavy-duty industrial printing markets for the ceramic tiles, carpet and corrugated packaging markets.

Jemtex’s Continuous Ink Jet technology was designed to allow for customization, higher flexibility in design, file changes during print runs, smaller production runs, and faster turnaround time from print order to delivery of printed material. Jemtex developed solutions for nozzle design, drop assignment and image processing algorithms for multi-nozzle alignment, calibration and on-line video process control. The design of its printheads and modular implementation aimed to assure fast assembly and up time, as well as smooth operation with higher viscosity inks and colorant concentrations. Jemtex’s strategy was to operate through strategic alliances.

CUSTOMERS & SALES

As explained in Item 3A, we did not record any revenues from our current continuing operations in the past three years.

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GOVERNMENT REGULATIONS

Trade & Export. Israel has the benefit of a free trade agreement with the United States which, generally, permits tariff-free access into the United States for products produced in Israel by the Israeli companies in which Scailex has invested. In addition, as a result of an agreement entered into by Israel with the European Union, or the EU, and countries remaining in the European Free Trade Association, or EFTA, the EU and EFTA have abolished customs duties on Israeli industrial products. However, there can be no assurance that these agreements will not be terminated, changed, amended or otherwise declared non-applicable to all or some of our Israeli subsidiaries, joint ventures and Group Companies, thereby materially harming our and their businesses.

Banking Regulations. The guidelines of the Bank of Israel relating to the limitation of on the indebtedness of a borrower and a group of borrowers provides that in the event that an entity is held by more than one person, and such holding is material for any of those persons, then that person for which the holding is material may be deemed as part of a Borrowers Group together with that person’s controlling shareholders, the held entity and their respective subsidiaries. Pursuant to such guidelines, we may be deemed part of a Borrowers Group, together with our controlling shareholders, ORL and their respective subsidiaries, since the investment in ORL’s shares is material to us. In addition, pursuant to these guidelines, in the event that we receive the control permit from the Minister of Finance and the Prime Minister and enter into the Control Agreement with Israel Corp. for the joint control of ORL, pursuant to these guidelines, we may be deemed part of a Borrowers Group comprised of our controlling shareholders, companies controlled by us, ORL, Israel Corp., and their controlling shareholders and companies controlled by them. The aforementioned Borrowers Groups related to ORL and Israel Corp. include several companies that require, or may require in the future, extensive credit facilities from Israeli banks for the operations of their businesses. The guidelines generally provide that an entity will be subject to limitations on the amount of financing available to it from an Israeli bank if such entity is included within a Borrowers Group to which the amount of debt financing that has been extended from such Israeli bank amounts to 30% of such bank’s capital, or is a member of one of the bank’s six largest borrowers or groups of borrowers to which, collectively, the amount of debt financing that has been extended from the bank amounts to 150% of such bank’s capital (gradually reduced to 135% between April 2005 and June 2006). As a result, we cannot assure you that our banks will not exceed these limits (if applicable to us) in the future. Should our banks exceed these limits, they may limit our ability to draw funds, which may have a material adverse effect on our financial condition. The guidelines also provide that a bank may request that the Israeli Supervisor of Banks exempt certain entities from the scope of the definition of a Borrower Group. Since we currently do not believe that the guidelines will impact us, we do not currently intend to request that our banks seek an exemption on our behalf from the Israel Supervisor of Banks. Should we decide to make such a request of our banks, there can be no assurance that our banks would agree to request an exemption from the Israel Supervisor of Banks on our behalf or that the Israel Supervisor of Banks would grant an exemption, if requested. Notwithstanding the foregoing, we believe that if we were to be deemed part of ORL’s or Israel Corp.‘s Borrower Group and were subject to the borrowing limitations in Israel as described above, we would still be able to obtain credit from foreign banks or by means of a debenture offering.

Investment Company Act of 1940. Regulation under the Investment Company Act governs almost every aspect of a registered investment company’s operations and can be very onerous for operating companies, especially those that conduct business through, or with, partially owned affiliates.  The Investment Company Act, among other things, limits an investment company’s capital structure, borrowing practices and transactions between an investment company and its affiliates, and prohibits the issuance of traditional options, warrants and incentive compensation arrangements, imposes requirements concerning the composition of an investment company’s board of directors and requires shareholder approval of certain policy changes.  Contracts made in violation of the Investment Company Act are void unless a court finds otherwise.  An investment company organized outside of the United States is not permitted to publicly offer or promote its securities in the United States.

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Following the sale of the businesses of SDP and Scailex Vision and the investment of the cash proceeds of such transactions, we believe we are not an “investment company” under the Investment Company Act because we are actively engaged in exploring and considering strategic investments and business opportunities and hold substantially all of our assets in cash and cash equivalents, except for our holdings in ORL, a recently privatized oil refinery located in Haifa, Israel. If we fail to receive the control permit for the exercise of control of ORL, and we otherwise fail to make other strategic, controlling investments,, the likelihood of being deemed to be an investment company would increase over time and we may be required to seek exemptive or other relief from the SEC so as not to be regulated under the Investment Company Act. No assurance can be made that we will obtain such exemptive or other relief from the SEC, if and when we seek the same. If we were deemed to be an investment company, we would not be permitted to register under the Investment Company Act without obtaining exemptive relief from the SEC because we are incorporated outside of the United States and, prior to being permitted to register, we would not be permitted to publicly offer or promote our securities in the United States.

Scailex is part of a group of which it is the parent company. The following table sets forth the name, jurisdiction and ownership and voting interest of our principal subsidiaries, as of the date hereof:

(1) In November 2005, Scailex Vision sold its business to Hewlett-Packard and consequently has only minimal operations, primarily related to managing the company following the transaction. As a result, our holdings in Scailex Vision currently represent primarily our right to share, with the other shareholders and employees of Scailex Vision, in the distribution of any cash that Scailex Vision makes after payment of all of its commitments and liabilities.

(2) After giving effect to contemplated distributions to employees of Scailex Vision and outstanding options, ownership is approximately 71.8% on a fully diluted basis.

(3) Shares of ORL are held through PCH, of which we hold 80.1%. Initially, in February and March 2007, we jointly acquired 53.6% of the outstanding shares of ORL with Israel Corp. Of that amount, we held approximately 12.62% of the outstanding shares, and Israel Corp. held approximately 40.98% of the outstanding shares. In May 2007, we acquired, through PCH, additional shares in ORL, independently of Israel Corp., bringing PCH’s total holdings to approximately 13.4% of the outstanding shares. Our ability to exercise our rights with respect to these shares is contingent on our receipt of a control permit by Israeli authorities. See “Item 4B. Business Overview. Oil Refineries Ltd.”” and “Item 10C. Material Contracts”. Pursuant to the irrevocable Deed of Undertaking executed with Israel Corp., we were granted under certain conditions the right to exercise a call option allowing us to increase our holdings in ORL to 45% of the 50.25% “control core” of ORL within 120 days of the receipt of mandatory regulatory approvals required to control ORL, or until May 15, 2009, whichever is earlier. Following the exercise of this call option, and assuming PCH does not acquire additional ORL shares and that ORL does not issue additional shares, PCH would own approximately 24.9% of the outstanding shares of ORL. See “Item 10C. Material Contracts.”

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In January 2004, we relocated to new corporate administrative offices in Tel Aviv, Israel, pursuant to a Services Agreement between us and Discount. For more information about the Services Agreement, please see “Item 7B. Related Party Transactions.” That lease was terminated in September 2004 and we currently lease 147 square meters located on the same premises from another lessor for $3,500 a month.

In January 2007, we entered into lease for 325 square meters of office space in Herzliya, Israel for approximately $7,000 a month, which includes rent and monthly management fees. The lease is in effect for a period of five years and may be extended an additional ten-year period (with an option to extend the lease five consecutive times for a period of terms of two years each, rather than one additional ten-year period). As of the date of this Annual Report, we have not yet moved into the Herzliya offices and expect to do so in the summer of 2007. We are currently renovating the Herzliya offices and expect the aggregate cost of such renovations, including furniture and communication systems, to total approximately $0.6 million.

We believe that the aforesaid offices and facilities are suitable and adequate for our operations as currently conducted and as currently foreseen. In the event that additional facilities are required, we believe that we could obtain such facilities at commercially reasonable rates.

        None.

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this Annual Report, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions, which may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Accordingly, actual results may differ from these estimates or judgments under different assumptions or conditions. In this respect, we urge you to read the discussion under the caption “Critical Accounting Policies” below.

It should be noted that for so long as our ordinary shares were both on the TASE and Nasdaq, we prepared our financial results in accordance with U.S. GAAP. As a result of the delisting of our shares from Nasdaq in September 2006, we were no longer considered a dual-listed company for purposes of Israeli law, and as such, we were required by Israeli law to prepare our financial statements in accordance with the Israeli Securities Law Regulations. Therefore, in accordance with Israeli law, we have prepared our financial reports from the third quarter of 2006 and onwards in accordance with IFRS for the purposes of reporting in Israel, and we submit our financial statements to the SEC in accordance with U.S. GAAP, in accordance with the SEC rules and regulations. The Company also translates into the English language its IFRS financial statements that it submits in Israel and then submits those reports to the SEC under cover of a Form 6-K.

The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth in “Item 3–Key Information–Risk Factors.”

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You should read the following discussion with the consolidated financial statements and other financial information included elsewhere in this Annual Report.

OVERVIEW

Historically, we were an operating company until 2000, after which time our operations were carried out by our then active subsidiaries, which focused on the industrial inkjet digital printing market. In recent years, we have sold substantially all of our operations and undergone substantial changes and developments, including:

As of the date of this Annual Report, we hold substantially all of our assets in financial investments and in shares of ORL, a recently privatized oil refinery located in Haifa, Israel, in which we hold, through PCH, approximately 13.4% of the outstanding shares. If we are denied the control permit by the relevant authorities, we will not be able to enter into the Control Agreement with Israel Corp. for the joint control of ORL, and we would retain a minority interest in ORL with little influence over the activities of ORL. In addition, in such event, we may elect to find more suitable investments, and we may decide to sell, subject to the exercise by Israel Corp. of its right of first refusal, the ORL shares in order to pursue such other investments. Because the shares of ORL are publicly traded, we may opt to sell our shares in ORL at a loss. See “Item 3D. Risk Factors. If we do not receive the mandatory control permit and any other required regulatory approvals required to enter into an arrangement with Israel Corp. for joint control of ORL, we will hold a minority interest in ORL with no control. In addition, in such a case, we may opt to sell our shares at a loss if we elect to pursue alternative investments.” Our current plan of operation is to explore and consider strategic investments and business opportunities.

FINANCIAL HIGHLIGHTS

In 2002, we recorded net losses of approximately $32.0 million, primarily as a result of write-downs of $22.3 million associated with our holdings in Creo.

In 2003, we recorded net income of approximately $1.4 million, which was primarily derived from approximately $8.8 million of net income from discontinued operations that resulted from the sum of the operational results of Scailex Vision, SDP and Jemtex in 2003 offset by a net loss of $7.4 million from continuing operations (mainly from headquarter expenses, impairments of our cost investments in Dor and Real Time Image Ltd., and losses derived from the Company’s proportionate share in Objet’s 2003 financial results).

In 2004, we recorded net income of approximately $47.3 million, which was primarily derived from net income from discontinued operations of $47.9 million (approximately $51.6 million of which was as a result of the sale of SDP to Kodak) offset by losses of $0.7 million from continuing operations (mainly from operating expenses incurred by our headquarters that were offset by income derived from our deposits and investments).

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In 2005, we recorded net income of approximately $106.1 million, which derived from: (1) net income from continuing operations of $5.2 million that was mainly from finance income related to yield from the Company’s cash balances and income of $2.9 million in capital gains derived from the sale of Objet, offset by general and administrative expenses related to consultants and headquarter expenses; and (2) net income from discontinued operations of $100.9 million of which net income of $92.3 million related to a capital gain from the sale of Scailex Vision’s business, net income of $4.3 million related to the activities of Scailex Vision through the closing of the transaction in November 2005 and net income of $8.8 million related to the sale of SDP’s business. This net income was offset by a loss of $4.7 million related to Jemtex’s operations and an amortization of Jemtex’s technology in 2005.

In 2006, we recorded net income of approximately $22.5 million which was comprised of $11.4 million of net income related to continued operations and net income of $11.1 million related to discontinued operations. Net income from continued operations derived mainly from financial income reduced by general and administrative expenses relating to consultant and headquarter expenses. The reduction in net income as compared to net income in 2005 occurred mainly as a result of Scailex Vision’s sale to HP in 2005 which generated net income from discontinued operations. The net income from continued operations increased due to the growth of the cash balance of the Company and the increase of the monetary interest rate in the United States, where substantially all our cash is held. Since we are exploring strategic alternatives, including engaging in new areas of operations, the data presented below are not indicative of our future operating results or financial position.

EXPLANATORY NOTES

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2006 FINANCIAL HIGHLIGHTS

Some of the key aspects of our operating results in 2006 are as follows:

COMPARISON OF 2004, 2005 AND 2006 FINANCIAL RESULTS

Revenues; Cost of Revenues

As explained above, as a result of the reclassification of our financial results, we did not recognize any revenues in those years.

Operating Expenses

* Following the reduction of our holdings in Jemtex, our financial statements were restated to reflect the discontinuation of operations of Jemtex as a segment in the Company financial report. See Note 1b to our consolidated financial statements included in this Annual Report.

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Operating expenses. Operating expenses were comprised only of general and administrative costs, which included primarily salaries and related costs for our executive and administrative staff, and insurance, legal and accounting expenses, both in Israel and abroad, as well as investor relations expenses.

In 2006 and in 2005, operating expenses were $3.0 million and in 2004 they were $3.2 million, all of which were headquarter expenses related to general and administrative expenses and were mainly used for payment of salaries and related expenses, directors and officers insurance, investor relations expenses and consultant fees.

Financial and Other Income and Expenses

Financial income (expenses), net, consisted primarily of interest earned on bank overnight deposits and on marketable bonds (especially U.S. government and U.S. agency bonds), interest incurred on bank and other loans and exchange rate differences.

Total net financial income amounted to $13.2 million in 2006 compared to about $4.3 million in 2005. The significant increase was mostly due to the significant increase in the Company’s cash balance arising from sale of operations of Scailex Vision to Hewlett-Packard. (See Note 1b(2) to our consolidated financial statements) and due to an increase in dollar interest rates.

Net financial income increased from $2.8 million in 2004 to $4.3 million in 2005, due primarily to the increase in our cash balance due to the sale of the business of Scailex Vision.

Furthermore, the average overnight LIBOR rate which we receive on our cash deposits was 4.9% in 2006 compared to 3.3% in 2005 and 1.7% in 2004. This rate increased from 1.06% in the beginning of 2004 to 2.35% in the beginning of 2005 and to 4.34% at the beginning of 2006. The LIBOR rate increased to 5.34% at the end of 2006, resulting in a relatively significant impact on the financial income.

Other income for the Company in 2006 amounted to $3.1 million and was mostly due to dividends received from RTI of $2.6 million, which yielded income of $1.8 million, as well as a gain from the sale of XMPie shares for $1.3 million, fully recorded as income. In 2005, other income amounted to $0.9 million, derived mainly from receipt of a $0.8 million dividend from Dor. In 2004, other income was minimal.

Net income from continuing operations amounted to $11.4 million in 2006, compared to $5.2 million in 2005. The increase in net income was mostly due to increase in financial income and to increase in other income, as set forth above.

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In 2004, the net losses from continuing operations amounted to $0.7 million and derived mainly from the headquarters expenses and the Company’s proportionate share in Objet results.

In 2006, net income from discontinued operations amounted to $11.1 million and mainly consisted of: (1) A price adjustment to proceeds from the sale of Scailex Vision assets and operations, amounting to approximately $2.8 million (net of tax and minority); (2) Income derived from a tax refund of $12.6 million received by SDP from the U.S. tax authorities relating to a tax return amendment that SDP filed for prior years, comprised of $7.8 million in principal amount recognized as income in 2005, and $4.8 million in linkage and interest differentials on this principal amount, recognized as income in 2006; and (3) Tax income net of minority of approximately $3.1 related to reduced tax income related to the Scailex Vision transaction and other tax expenses related to discontinued operations in previous years. This income was offset by Jemtex operational losses amounting to $2.3 million. The income from discontinued operations in 2005 was $100.9 million and derived mainly from the capital gain resulting from the sale of Scailex Vision to Hewlett Packard. In 2004, income from discontinued operations was $49.0 million and derived mainly from capital gains stemming from the sale of SDP’s business.

Taxes

Israeli companies are generally subject to income tax at the corporate rate of 31% for 2006 (compared to 35% for 2004 and 34% for 2005). Following an amendment to the Israeli Income Tax Ordinance, which came into effect on January 1, 2006, the corporate tax rate is scheduled to decrease as follows: 29% for the 2007 tax year, 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter.

Capital gains derived after January 1, 2003, are subject to capital gains tax at a rate of 25%. See “Item 5B – Corporate Tax Rate” below for additional information.

As of the end of 2006, our deferred income tax assets were $109.8 million, reduced from $141.1 million as of December 31, 2005, due to the liquidation of several subsidiaries and further decrease of income tax rates in Israel. We have created a valuation allowance on the entire deferred tax assets, since we believe that it is not more likely than not that these deferred tax assets will be utilized.

As of the end of 2005, our deferred income tax assets were reduced from $146 million as of December 31, 2004 to $141.1 million, mainly due to the sale of our interests in Objet and the utilization of carry-forward losses.

A number of factors may impact future taxable income, including those discussed under “Risk Factors” in Item 3D, as well as any tax planning strategies. To the extent that estimates of future taxable income are reduced or not realized, the amount of the deferred tax asset considered realizable could be adversely affected.

The Company’s tax expenses amounted to approximately $1.5 million in 2006, stemming mainly from the write off of a tax asset of a foreign subsidiary that was not utilized because that company entered into a liquidation process in July 2006. This figure compares to the tax benefit in the amount of $0.1 million in 2005, which was mostly a net amount of creation and usage of a tax asset for utilization of carry forward losses of a foreign subsidiary. In 2004, tax income in the amount of $1.1 million was related to the creation of a deferred tax asset by one of our foreign subsidiaries in connection with the possible recognition of income in the coming year.

Equity Investments

Since June 2000, we held an equity stake in Objet Geometrics Ltd. In 2004, our proportionate share in Objet losses in 2004 was $1.4 million and in 2005 was $0.1 million. In June 2005, we sold our holdings in Objet for a consideration of $3.0 million. See “Item 4A. Principal Capital Expenditures and Divestitures.”

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IMPACT OF RELATED PARTY TRANSACTIONS

We have entered into a number of agreements with related parties. Please see “Item 7B – Related Party Transactions” below for specific details as to these transactions and certain other related party transactions entered into by us.

We believe that the terms of these related party transactions are not different in any material respect than the terms we could receive from unaffiliated third parties. The pricing and/or value of such transactions were arrived based on arms’-length negotiations between the parties and, in certain cases, based upon, among other things, opinions of third party financial advisors. Our management reviewed the pricing of such transactions and confirmed that they were not materially different than could have been obtained from unaffiliated third parties.

Under the Companies Law certain transactions and arrangements with interested parties require approval by our board of directors and our audit committee and, in some cases, also require approval by our shareholders. In this respect, see the discussion in “Item 6C – Approval of Specified Related Party Transactions under Israeli Law” below.

IMPACT OF INFLATION AND EXCHANGE RISKS

New Israeli Shekel. Historically, the New Israeli Shekel, the Israeli currency, has been devalued in relation to the U.S. dollar and other major currencies principally to reflect the extent to which inflation in Israel exceeds average inflation rates in Western economies. Such devaluations in any particular fiscal period are never completely synchronized with the rate of inflation and therefore may lag behind or exceed the underlying inflation rate. The table below sets forth the annual rate of inflation, the annual rate of devaluation (or revaluation) of the NIS against the U.S. dollar and the gap between the two for the periods indicated:

Costs not denominated in, or linked to, dollars are translated to dollars, when recorded, at prevailing exchange rates for the purposes of our financial statements. To the extent such costs are linked to the Israeli Consumer Price Index, such costs may increase if the rate of inflation in Israel exceeds the rate of devaluation of the shekel against the dollar or if the timing of such devaluations were to lag considerably behind inflation. Conversely, such costs may, in dollar terms, decrease if the rate of inflation is lower than the rate of devaluation of the shekel against the dollar. Accordingly, our Israeli operations experienced an increase in dollar costs in 2003, 2004, and 2006 and a decrease in 2002 and 2005. The representative dollar exchange rate for converting the shekel to dollars, as reported by the Bank of Israel, was NIS 4.225 on December 31, 2006 (NIS 4.603 on December 31, 2005).

Other currencies. Prior to the sale of SDP and Scailex Vision we had a significant amount of activity in non-dollar currencies. However, subsequent to the sale of SDP and Scailex Vision the volume of activity in non-dollar currencies became nominal. Since November 2005, substantially all of the Company assets and operations have been in U.S. dollars. Since February 2007, our holdings of ORL shares through PCH have been denominated in NIS. See also “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

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CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations included in this Item 5 and elsewhere in this Annual Report are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements often requires us to make estimates, judgments and assumptions, which may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures as of the date of the financial statements and during the reported period. On a regular basis, we evaluate and may revise our estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent. Some of those judgments can be complex, and consequently, actual results may differ from those estimates. For any given individual estimate, judgment or assumption made by our management, there may be alternative estimates, judgments or assumptions, which are also reasonable, and any estimate or assumption presented is rarely identical to the actual results. We believe that the estimates, assumptions and judgments described below have the greatest potential impact on our financial statements and consider these to be our critical accounting policies:

Deferred tax valuation allowance. Deferred taxes are determined utilizing the asset and liability method, based on the estimated future tax effect resulting from differences between the amounts presented in our financial statements and those taken into account for tax purposes, in accordance with the related tax laws, and from tax losses carry forward. Valuation allowances are included in respect of deferred tax assets when it is more likely than not that all or a portion of such assets will not be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Due to the uncertainty as to utilization of the tax losses carry forward, a valuation allowance was provided to reduce our deferred tax assets, because we expect that for the foreseeable future it is more likely than not that all of the deferred tax assets will be realized. Conversely, the carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. A number of factors may impact future taxable income, including those discussed under “Risk Factors” in Item 3D, as well as any tax planning strategies. To the extent that estimates of future taxable income are reduced or not realized, we could be required to establish additional valuation allowances and the amount of the deferred tax asset considered realizable could be adversely affected by a material amount. If it were determined that we would be able to realize a deferred tax asset in excess of its net recorded amount, an adjustment to deferred tax assets would increase our income.

Treatment of income tax. Our tax returns as well as those of our subsidiaries are subject to examination by tax authorities in various jurisdictions. In general, our management considers tax provisions based on its reasonable estimate of the outcome of the examination. Our management believes that the estimates reflected in the financial statements reflect our tax liabilities. However, our actual tax liabilities may ultimately differ from those estimates if taxing authorities successfully challenge our tax treatment or if we were to prevail in matters for which provisions have been established. Accordingly, our effective tax rate in a given financial statement period may materially change.

Investments in marketable securities Pursuant to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, part of the Company’s investments in marketable securities has been designated as held to maturity and part of it has been classified as available-for-sale. Investments classified as available-for-sale are reported at fair value with unrealized gains and losses, net of related tax, recorded as a separate component of comprehensive income in shareholders´ equity until realized. Interest and amortization of premiums and discounts for debt securities and gains and losses on securities sold are included in financial income. For all investment securities, unrealized losses that are other than temporary are recognized in net income. Investment in marketable securities – which are to be held to maturity - are stated at amortized cost with the addition of computed interest accrued as of the balance sheet date (such interest represents the computed yield on cost from acquisition to maturity). Interest and amortization of premium or discount for those debt securities are carried to financial income or expenses.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring and presenting in the financial statements tax positions taken or expected to be taken on a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties and disclosure requirements for uncertain tax positions. FIN 48 is effective beginning as of January 1, 2007. The provisions of FIN 48 shall be applied to all tax positions upon initial adoption of this interpretation. Only tax positions that meet the “more likely than not’ recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of this FIN 48. The Company is currently assessing the impact of that adoption of FIN 48 will have on its consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance on the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB No. 108 did not result in corrections of the Company’s consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements; however, it does not require any new fair value measurements. SFAS 157 is effective for the Company beginning as of January 1, 2008, although earlier adoption is encouraged. The Company is currently evaluating the impact of the provisions of SFAS 157 on its consolidated financial position and results of operations.

In June 2006, EITF reached a consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-03 relates to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction. EITF 06-03 states that the presentation of the taxes, either on a gross or net basis, is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22, “Disclosure of Accounting Policies,” if those amounts are significant. The Company must adopt EITF 06-03 for interim and annual reporting periods beginning as of January 1, 2007. The Company does not expect that the adoption of EITF 06-03 will have a material effect on its consolidated financial position or results of operations.

In February 2007, FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This standard permits companies to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement will be effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact that the adoption of SFAS 159 will have on its consolidated financial statements.

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IMPACT OF GOVERNMENTAL POLICIES

In February 2007, we entered into a Memorandum of Understanding (the “MOU”) with Israel Corp. for the joint acquisition of ORL shares and control thereof. Pursuant to the MOU, we initially purchased through PCH, our 80.1% subsidiary, 12.62% of the outstanding shares of ORL, and Israel Corp. acquired 40.98% of the outstanding shares. Israeli law requires that in order to exercise the rights associated with control of ORL or 24% or more of ORL’s share capital, including the right to receive dividends, the right to appoint directors and officials, and the right to exercise voting rights in the Annual General Meeting, a control permit from the Minister of Finance and the Prime Minister must be obtained, pursuant to the Israeli Government Companies Order (Declaration of the State’s Vital Interests in ORL) (2007). In addition, upon the acquisition of 25% or more of ORL’s share capital, Israeli law requires receipt of approval by the Commissioner of the Israeli Antitrust Authority. While we have received the required approval of the Antitrust Commissioner, we have experienced delays in receiving the control permit. As a result, in May 2007, we and Israel Corp. revoked the MOU and entered into an irrevocable Deed of Undertaking, pursuant to which the parties agreed to apply separately for the control permit, and in the event that PCH succeeds in receiving the control permit by May 15, 2009, the parties will enter into the Control Agreement for the joint control of ORL. Since signing the Deed of Undertaking, PCH has acquired additional ORL shares (independent of Israel Corp.), and it currently holds approximately 13.4% of the outstanding share capital of ORL.

PCH has experienced delays in receiving the control permit due to the fact that additional information was requested about Linura, which holds 19.9% of PCH. If we are denied the control permit by the relevant authorities, we will not be able to enter into the Control Agreement with Israel Corp. for the joint control of ORL, and we would retain a minority interest in ORL with little influence over the activities of ORL. In addition, in such event, we may elect to find more suitable investments, and we may elect to sell, subject to Israel Corp.‘s right of first refusal, the ORL shares in order to pursue such other investments. Because the shares of ORL are publicly traded, we may opt to sell our shares in ORL at a loss, which may materially and adversely affect our financial results. See “Item 3B. Risk Factors”, “Item 4B. Business Overview” and “Item 10C. Material Contracts.”

OVERVIEW

On December 31, 2006, our net working capital from continuing operations was $262.3 million, compared to $230.3 million on December 31, 2005. The net working capital increased primarily as a result of an increase in the cash and cash equivalents related to continued operations that derived from further dividends received from subsidiaries and from the increase in short-term portion of financial instruments held to maturity from long-term due to upcoming maturity of the financial instruments.

On December 31, 2004, the Company’s net working capital from continuing operations was $142.7 million as compared to $230.3 million in 2005. The increase in 2005 was due to the sale of the Scailex Vision business, which increased cash and cash equivalents of the Company on a consolidated basis.

Cash, cash equivalents, and short-term investments as of December 31, 2006 for continued and discontinued operations were $280.6 million compared to $290.0 million at December 31, 2005. The decrease in 2006 was primarily attributable to the dividend of approximately $34.2 million paid by Scailex Vision in February 2006 to the minority holders of that company, which was offset by increase in current maturity of Held-to-maturity securities due to their upcoming maturity.

The cash, cash equivalents, short-term investments for continued and discontinued operations as of December 31, 2004 were $160.6 million The increase in cash, cash equivalents and short-term investments in 2005 was attributable primarily to the proceeds received from the sale of Scailex Vision’s business, which was off-set by repayments of loans drawn by Scailex Vision.

Our working capital is sufficient for the Company’s present business requirements.

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Cash Flows

Overview. We had positive cash flow from operations in 2006, which amounted to $24.7 million, stemming mainly from a tax refund of $12.6 million received by SDP from the U.S. tax authorities and from financial income derived from interest received with respect to Company’s funds.

We had positive cash flow from operations in 2005, totaling $26.9 million, which was mostly due to positive cash flow from current operations of Scailex Vision up to the date of the sale of its assets, and positive cash flow from operations of the Company itself that derived mainly from financial income derived from Company investments and deposits. Negative cash flow from operations in 2004 was $10.3 million was due to discotinued operations.

Our investment activities currently consist primarily of investments and redemptions of short-term bank deposits and U.S. government securities. In 2006, $0.4 million was used in investment activities compared to $184.6 million that was generated from investment activities in 2005 and $173.2 million in 2004. The cash used in investment activities in 2006 was related primarily to tax payments related to the Scailex Vision sale adjusted mainly by the receipt in 2006 of additional consideration of approximately $6.6 million from the sale of the business of Scailex Vision and by the receipt of a dividend stemming from the sale of the operations of RTI. The cash generated from investment activities in 2005 is related primarily to the proceeds received from the sale of Scailex Vision’s business, while the cash generated from investment activities in 2004 was related primarily to the proceeds received from the sale of SDP’s business. The increase in cash generated from investment activities in 2005 compared to 2004 is related primarily to cash used for investments in marketable securities, which were significantly higher in 2004 than in 2005.

Net cash used in financing activities in 2006 was approximately $34.2 million, consisting mainly of a distribution of a dividend by Scailex Vision to its minority shareholders in February 2006. Net cash used in financing activities in 2005 was approximately $43.2 million, consisting mainly of repayment of loans drawn by Scailex Vision. Net cash used in financing activities in 2004 was approximately $133.7 million, consisting mainly of $117.9 million used in the cash distribution and tender offer and a further $15.8 million used for repayment of long and short term loans.

In sum, the net cash flow (cash and cash equivalents) used in 2006 amounted to $9.9 million.

The cash, cash equivalents and marketable securities investment (short- and long-term) balance as of December 31, 2006 was $303.5 million (of which $16.9 million was listed under current assets from discontinued operations) compared to a balance of $319.5 million as of December 31, 2005 (of which $59.7 million was listed under current assets from discontinued operations). The above balances exclude an amount of $23 million which is held in escrow under terms of the sale of the business of Scailex Vision to Hewlett Packard.

The ability of our subsidiaries to transfer funds to us in the form of cash dividends is generally subject to restrictions imposed by the corporation laws of the respective jurisdiction in which they are incorporated. For example, our Israeli subsidiaries and companies in which we currently invest may not pay dividends unless they meet specified criteria or, if these criteria are not met, only with the approval of the court. We do not believe that such restrictions or any other restrictions imposed by law on our subsidiaries have had or are expected to have any material adverse impact on our ability to meet our cash obligations.

Capital Expenditures

Capital expenditures in fixed assets of continuing operations in 2004, 2005 and 2006 were nominal. Our capital expenditures by way of equity and convertible debt investments in the companies in which we currently invest (other than our consolidated subsidiaries) in 2004, 2005 and 2006 were approximately $0.6 million, $0.3 million and $0.6 million, respectively.

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Credit Facilities

The Company has a large cash balance and has no outstanding bank liabilities. For further information regarding loans related to our discontinued operations, see Note 1b of our consolidated financial statements.

Tax Audits

Not all of the tax returns of our operations are final and, from time to time, we are subject to further audit and assessment by the applicable tax authorities, including the following:

While we believe that we established sufficient reserves for these matters, additional payments may be required at the conclusion of these matters. It is not possible to predict at this time whether and when any eventual payments will be made.

Cash Outlook for 2007

Our investment activities, which may include investments in shares of ORL, contingent payments for past acquisitions and investments in capital assets, may be higher than the amount of cash generated from our financial income. However, our management believes that existing cash and short-term investments will be sufficient to meet operating requirements in 2007.

EFFECTIVE CORPORATE TAX RATE

Israeli companies are generally subject to corporate tax on their taxable income at the rate of 31% for the 2006 tax year (compared to 34% for the 2005 tax year and 35% for the 2004 tax year). Following an amendment to the Israeli Income Tax Ordinance which came into effect on January 1, 2006, the corporate tax rate is scheduled to decrease as follows: 29% for the 2007 tax year, 27% for the 2008 tax year, 26% for the 2009 tax year, and 25% for the 2010 tax year and thereafter. Israeli companies are generally subject to capital gains tax at a rate of 25% for capital gains derived after January 1, 2003 (other than with respect to gains deriving from the sale of listed securities).

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See below under “Item 10E – Taxation” and in Note 8 to our consolidated financial statements for more information on our income taxes.

MARKET RISK

For information on our market risk and the use of financial instruments for hedging purposes, see below under “Item 11 – Quantitative and Qualitative Disclosures About Market Risk.”

Following the sale of Scailex Vision’s business in November 2005 and the sale of a majority of our holdings in Jemtex, we are not conducting research and development activities.

As part of the SDP transaction in January 2004 and the Scailex Vision transaction in November 2005, Kodak and Hewlett-Packard acquired all the applicable intellectual property of these subsidiaries relating to the digital printing businesses that they acquired.

Our plan of operation is to explore and consider strategic investments and business opportunities. There is no assurance that any of these alternatives will be pursued or, if one is pursued, the timing thereof or terms on which it would occur. Since this may result in the engagement of new areas of operations, our financial data reported in this Annual Report is not necessarily indicative of our future operating results or financial position.

We are not a party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes therein, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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The table below summarizes, as of December 31, 2006, our following contractual obligations to third parties for the periods indicated:

(1) In connection with our lease in Herzliya, we have deposited approximately $23,000 in a bank account to secure a bank guarantee covering our obligations under the first three months of the lease. See Note 6 to our consolidated financial statements included in this Annual Report.

The following table sets forth certain information with respect to our directors and senior management, as of June 17, 2007:

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Eran Schwartz serves as Chief Executive Officer of IPE, the parent company of the Company’s largest shareholder, and of I.D. Federman Holdings Ltd., a major shareholder of one of IPE’s principal shareholders, and has held such positions for in excess of the last five years. He is a director of Modgal Ltd. and of its subsidiaries. Mr. Schwartz also serves as the Chairman of Scailex Vision (Tel Aviv) Ltd. and director of IPE, Petroleum Capital Holdings Ltd., Avgol Industries (1953) Ltd., Maccabi Tel Aviv Basketball (1995) Ltd., Camera Corp Ltd., Wet Water Ltd., Secure Pharmaceuticals Ltd. and Globecom Investments Ltd. Mr. Schwartz holds a bachelors degree in economics and business management and a masters degree in business administration from Tel Aviv University, Israel.

Yahel Shachar joined Scailex in December 2001 and was appointed Chief Financial Officer and Corporate Secretary in February 2002. In 2006, he was appointed Chief Executive Officer of Scailex. Before he joined Scailex, Mr. Shachar served as Chief Operating Officer at BVR Technologies Ltd. from 1998 to 2001. From 1995 to 1998, he was an attorney with Goldfarb, Levy, Eran & Co., an Israeli law firm. Mr. Shachar serves as a director of Scailex Vision (Tel Aviv) Ltd., Petroleum Capital Holdings Ltd., and Ham-let (Israel-Canada) Ltd. Mr. Shachar holds an LL.M. degree from Georgetown University (specializing in corporate, tax and securities law) in Washington, D.C., and an LL.B. degree from the Tel Aviv University, and is a member of the Israeli and New York bar associations.

Shachar Rachim joined Scailex in March 2004 as the Controller of Scailex Corporation Ltd. In 2006, he was appointed Chief Financial Officer of Scailex. Prior to that he served as Assistant Controller for Discount Investments Ltd. and as a senior accountant at PricewaterhouseCoopers in Tel-Aviv. He holds a BA in economics and accounting from Ben Gurion University and a master’s degree in business administration from ESG, France. He is a certified public accountant in Israel.

Moshe Cohen has been a senior partner for 24 years in the accounting firm of Chaikin, Cohen, Rubin & Gilboa – Certified Public Accountants. Mr. Cohen serves as a director of Zoko Shiluvim Ltd. and as the Internal Auditor of a number of other public companies. He holds a BA in economics and accounting from Tel Aviv University and he is a certified public accountant in Israel.

Dror Barzilai has served during the last eight years as Chief Executive Officer of Nestle Ice Creams (Israel), a subsidiary of the Osem Group. In addition, Mr. Barzilai serves as an external director of Clal Credit Insurance Ltd. and as the Chairman of its audit committee, and as the Vice Chairman of Soy Magic (UK). He is not an employee of the Company or any of its subsidiaries or affiliated companies or of any principal shareholder or other “interested party” (as such term is defined by the Companies Law), nor is he related to any such person (which includes other directors of the Company). Mr. Barzilai is a certified public accountant (Israel) and holds a bachelor degree in accounting and economics from Tel Aviv University, Israel. He and has graduated from the Advanced Management Program at Harvard Business School.

Irit Ben-Ami served as Chief Financial Officer of some of the business units of “General Health Services” in Israel until 2003. She is a director of Dorea Ltd., Eldan-Tech Ltd. and AdvanTech Ltd. Ms. Ben-Ami holds a bachelor’s degree in economics and accounting from Haifa University, Israel; an M.H.A. from Ben Gurion University, Beersheba, Israel; and a law degree from the Sha’arei Mishpat College of Law, Israel. She is a certified public accountant (Israel) and a member of the Israeli bar association.

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Yoav Biran was Director General of the Israel Ministry of Foreign Affairs from 2002 until 2004. Prior thereto, From 1998 to 2002, he served as Senior Deputy Director General of the Ministry of Foreign Affairs with special responsibility for the Middle East and the coordination of the peace process and, from 1999 to 2001, he also acted as a Deputy National Security Advisor (Foreign Policy) in the Israel Prime Minister’s Office. From 1988 to 1993, Mr. Biran was Israel’s Ambassador to the United Kingdom. He joined the Israel Ministry of Foreign Affairs in 1963 and served in a number of increasingly senior positions, both in Israel and abroad, until his appointment as Ambassador in 1988. He holds bachelor’s degrees in International Relations and History and a master’s degree in International Relations from the Hebrew University, Israel.

Dr. Arie Ovadia has, during the last five years, served as Chairman of the Phoenix Holdings Ltd., acted as an advisor to corporations and served as a member of the Israel Accounting Standards Board. He is a director of IPE, Straus Elite Ltd., Real Estate Participations In Israel Ltd., Orda Print Industries Ltd., Tadiran Communications Ltd., Mehedrin Ltd., Carmel Olefins Ltd., Giron Ltd. and Destiny Investments Ltd. He holds a P.hD. in economics from University of Pennsylvania, Wharton School.

Modi Peled has, during the last five years, served as Managing Partner of Proviso Capital Ltd. He serves as Managing Director of Pelgo Ltd. Mr. Peled also served in 2002 and 2003 as Chief Executive Officer of Migdal Private Equity Ltd. He is a director of Fourier Systems Ltd. Mr. Peled holds a bachelor’s degree in economics and business management and a master’s degree in business administration, both from Tel Aviv University, Israel. 

Arie Silverberg has, during the last five years, acted as an advisor to Glencore International AG, and for the last two years he has also been a director and Chief Executive Officer of Energy Infrastructure Acquisition Company Ltd. Until November 2006, he was a director of Granite Hacarmel Ltd. and many of its subsidiaries, Sonol Ltd., Sonol Israel Ltd., Supergas – Israeli Company for the Distribution of Gas Ltd., Organim Beyarok Ltd., Tambour Ecology Ltd. and Boroglan Ltd.  He is currently a board member of PCH.  He holds a bachelors degree and a master’s degree in chemical engineering from the Technion – Israel Institute of Technology in Haifa, Israel.

Shalom Singer serves as a partner of Singer Barnea & Co. Ltd. and as Chairman of Clal Insurance Company Ltd.‘s Investment Committee of Profit Participating Policies. From 2003 to 2005, Mr. Singer served as the Chairman and CEO of Kagam Central Pension Fund. From 1999 to 2002 he served as Executive Vice President of Elbit Medical Imaging Ltd. From 1991 until1992 he served as the Director General of the Israeli Ministry of Finance. Mr. Singer is a director of Scope-Metal Trading & Technical Services Ltd., Israel Petrochemical Enterprises Ltd. and Robert Marcus Loss Adjusters Ltd. He holds a bachelor’s degree in accounting from Haifa University, Israel.

Arie Zief has, during the last five years, served as Chief Executive Officer of Dubek Ltd., a tobacco company, and Chairman of Modgal Ltd. From 1991 to 1997, he was Director-General, Israeli Customs & Excise and VAT, and from 1999 to 2003, he was Chairman of United Mizrachi Bank Investments. Mr. Zief is a director of Carmel Olefins Ltd., IPE, Ardalia Ltd. and Scailex Vision (Tel Aviv) Ltd. and is a member of the advisory committee to the Bank of Israel. He holds a bachelors degree in economics from the Hebrew University, Israel.

Additional Information

Upon the sale of Clal’s and Discount’s entire holdings in Scailex (constituting 18,800,255 shares, representing approximately 49.4% of Scailex’s outstanding share capital) to Israel Petrochemicals Enterprise Ltd. on July 18, 2006, the following directors resigned from the Board: Arie Mientkavich, Shimon Alon, Avraham Asheri, Raanan Cohen, Avi Fischer, Nachum Shamir, Shay Livnat and Ophira Rosolio-Aharonson. They were replaced immediately by the following seven new directors: Eran Schwartz, Irit Ben-Ami, Dr. Arie Ovadia, Modi Peled, Arie Silverberg, Shalom Singer and Arie Zief. Mr. Eran Schwartz, CEO of IPE, was appointed Chairman of our board of directors, replacing Mr. Arie Mientkavich, who served as the Chairman since June 2006, when he replaced Mr. Ami Erel, who held the position since 2003.

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In addition, Mr. Yahel Shachar, the former CFO of Scailex, was appointed as CEO of Scailex, replacing Mr. Raanan Cohen. Mr. Shachar Rachim, the former controller of Scailex, was appointed as CFO.

Mr. Yoav Biran was elected as one of our external directors at our 2005 Annual General Meeting which was held on December 29, 2005. He succeeded Ariella Zochovitzky, who had been our external director since 2002. Mr. Dror Barzilai was elected as our other external director at our 2006 Annual General Meeting, which was held on December 31, 2006. He succeeded Mr. Gerald Dogon, who had served in such capacity since 2003.

There are no family relationships among any of the directors or members of senior management named above.

General

The total salary and benefits of the directors and the CEO and related expenses for the fiscal year ended December 31, 2006 was $753,000 (including a one-time payment of $250,000 received by the CEO directly from our two former major shareholders after the control of the Company was transferred).

The following table sets forth with respect to all directors and senior management of Scailex, as a group, all cash and cash-equivalent forms of remuneration paid by Scailex during the fiscal year ended December 31, 2005 and 2006:

Total payments by the Company and its subsidiaries to the CEO for the fiscal year ended December 31, 2006 equaled: $208,000; to the CFO, $124,000; to the Chairman of the Board, $123,000; and to the Internal Auditor, $7000. The CEO and the CFO of the Company also received a one-time payment directly from our two former major shareholders after the control of the Company was transferred in the amount of $250,000 and $20,000, respectively.

In accordance with the approval of our shareholders on December 27, 2000, our external directors receive annual directors’ fees and participation fees equivalent to the maximum fees that were generally permitted for each external director under regulations issued pursuant to the Companies Law (approximately $11,400 per annum for directors fees and participation fees of approximately $440 per board or committee meeting), although new regulations were approved in 2003, which would, in certain circumstances, permit us to pay higher fees. Directors’ fees and participation fees of a similar amount are paid to all our other directors, other than directors who are office holders of our principal shareholders. Except as aforesaid, we did not compensate any of our other directors in 2006.

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Pursuant to our 2003 Option Plan, in 2004, options exercisable for 120,000 ordinary shares were granted to the Company’s CFO at the time, Yahel Shachar, who presently serves as the Company’s CEO. In addition, options exercisable for 48,000 ordinary shares, were granted to the Company’s Controller at the time, Shachar Rachim, who currently serves as the Company’s CFO. The options were granted with an exercise price of $3.70 per share, and were exercisable in three equal parts, beginning in January 2005 for the Company’s CEO and in March 2005 for the Company’s CFO. In February 2007, Mr. Shachar exercised 80,000 options for Company shares, and Mr. Rachim exercised 32,000 options for Company shares at an exercise price of $3.70 per option. Immediately after exercising those options, the two sold the shares to IPE at a price of approximately $9.14 per share. See “Item 6E. Share Ownership” below.

There are no arrangements or understandings between us and any of our directors for benefits upon termination of service.

Additional Information

In connection with the sale of the business of Scailex Vision to Hewlett-Packard in November 2005, our shareholders approved the grant of a special cash bonus in the amount of $168,600 to Mr. Raanan Cohen, our former President and CEO. In addition to the bonus paid by Scailex, each of Discount and Clal agreed to pay Mr. Cohen a bonus in an amount of $15,700. These amounts reflect the respective proportional holdings of Scailex, Clal and Discount in Scailex Vision. The overall bonus amount paid to Mr. Cohen was $200,000.

INTRODUCTION

According to the Israeli Companies Law and our articles of association, the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. As part of its powers, our board of directors may cause us to borrow or secure payment of any sum or sums of money for our purposes, at times and upon terms and conditions as it determines, including the grant of security interests in all or any part of our property.

ELECTION OF DIRECTORS

Our directors are elected at annual meetings of our shareholders. Except for our external directors (as described below), our directors hold office until the next annual meeting of shareholders following the annual meeting at which they were appointed, which is required to be held at least once during every calendar year and not more than fifteen months after the last preceding meeting. Directors may be removed earlier from office by resolution passed at a general meeting of our shareholders. Our board of directors may temporarily fill vacancies in the board until the next annual meeting of shareholders.

Under an amendment to the Israeli Companies Law, our board of directors was required to determine, by April 19, 2006, the minimum number of directors who must have “accounting and financial expertise” (as such term is defined in regulations promulgated under the Companies Law). Our board determined that the board should include at least two directors who have “accounting and financial expertise.” We have determined that Messrs. Shalom Singer and Dror Barzilai have the requisite “accounting and financial expertise.”

ALTERNATE DIRECTORS

Our articles of association provide that a director may appoint another person to serve as an alternate director. An external director may not appoint an alternate director, except in very limited circumstances. To qualify as an alternate director, a person must be qualified to serve as a director but cannot be a director or the alternate director of another director. An alternate director shall have all the rights and obligations of the director who appointed him or her. The alternate director may not act for such director at any meeting at which the director appointing him or her is present. Unless the time or scope of any appointment is limited by the appointing director, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment. Notwithstanding the foregoing, a director may serve as an alternate director on any committee of our board of directors of which he or she is not already a member. At present, there are no appointments of alternate directors.

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EXTERNAL DIRECTORS

Under the Companies Law, Israeli companies whose shares are listed for trading on a stock exchange or have been offered as securities to the public in or outside of Israel are required to appoint at least two “external directors.” Our external directors are Messrs. Yoav Biran and Dror Barzilai.

The Companies Law provides that a person may not be appointed as an outside director of a company if the person or the person’s relative, partner, employer or any entity under the person’s control has, as of the date of the person’s appointment to serve as an outside director, or had, during the two years preceding that date any affiliation with:

The term affiliation includes:

Pursuant to an amendment to the Companies Law, effective as of January 19, 2005, (1) an outside director must have either “accounting and financial expertise” or “professional qualifications” (as such terms are defined in regulations promulgated under the Companies Law) and (2) at least one of the outside directors must have “accounting and financial expertise.” We believe that Mr. Barzilai has the requisite “accounting and financial expertise” and that Mr. Biran has the requisite “professional qualifications.”

No person can serve as an outside director if the person’s position or other business creates, or may create, a conflict of interests with the person’s responsibilities as an outside director or may otherwise interfere with the person’s ability to serve as an outside director. Until the lapse of two years from termination of office, a company may not engage an outside director to serve as an office holder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person.

Outside directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:

The initial term of an outside director is three years and may be extended for an additional three years. The term of office of Mr. Barzilai and Mr. Biran commenced in December 2006 and December 2005, respectively.

Outside directors may be removed from office only by the same percentage of shareholders as is required for their election, or by a court, and then only if the outside directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. Each committee of a company’s board of directors empowered with powers of the board of directors is required to include at least one outside director except for the audit committee, which is required to include all outside directors.

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INDEPENDENT DIRECTORS

In October 2006, we were de-listed from Nasdaq because the Company was determined by the Nasdaq staff to be a public shell lacking any business operations. As of the date of this Annual Report, the Company’s shares are quoted on the OTC Bulletin Board in the United States. Despite the fact that our shares have been de-listed from Nasdaq, we still make efforts to comply with the corporate governance provisions of the Nasdaq Marketplace Rules.

Of the nine (9) members of our board of directors, our board of directors has determined that, except for Mr. Eran Schwartz and Dr. Arie Ovadia, all other directors qualify as “independent directors” within the meaning of the Nasdaq Marketplace Rules, including all the members of our audit committee.

COMMITTEES OF THE BOARD

Subject to the provisions of the Companies Law, our board of directors may delegate its powers to committees consisting of board members. Our board of directors has established the following committees:

Audit Committee. Under the Companies Law, our board of directors is required to appoint an audit committee, which must be comprised of at least three directors, including all of the outside directors, but may not include:

Under the Companies Law, the role of the audit committee is:

Pursuant to SEC rules, effective as of July 31, 2005, the members of the audit committee are generally required to be independent within the meaning of the SEC rules. Our audit committee comprises Mr. Singer, chairman of the audit committee, Messrs. Barzilai and Biran (our Outside directors), Ms. Ben-Ami, and Mr. Peled, all of whom are independent within the meaning of applicable Nasdaq and SEC rules. In addition, we have adopted a charter for the audit committee.

Our audit committee assists the board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices and financial statements and the independence qualifications and performance of our outside auditors. Our audit committee also has the authority and responsibility to oversee our outside auditors, to recommend for shareholder approval the appointment and, where appropriate, replacement of our outside auditors and to pre-approve audit engagement fees and all permitted non-audit services and fees. A recent amendment to our Articles of Association allows for the appointment of our auditors for a complete fiscal year, beyond the Annual General Meeting.

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In May 2004, our board of directors resolved to designate the audit committee as our Qualified Legal Compliance Committee, or the QLCC. In its capacity as the QLCC, the audit committee is responsible for investigating reports made by attorneys appearing and practicing before the SEC in representing us of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar violations by us or any of our agents.

Remuneration Committee. Our board of directors has also appointed a remuneration committee, which is currently comprised of Arie Zief, Yoav Biran and Shalom Singer, all of whom are independent within the meaning of Nasdaq Marketplace Rules. The role of the remuneration committee is to review the salaries and incentive compensation of our executive officers and to make recommendations on such matters for approval by the board of directors. The members of the remuneration committee also administer our share incentive and stock option plans, subject to additional board approval where required pursuant to the Companies Law.

Financial Investments Committee. Our board of directors has also appointed a financial investments committee, which is currently comprised of Dr. Arie Ovadia, and Messrs. Dror Barzilai, Eran Schwartz, Arie Silverberg and Shalom Singer. The role of the financial investments committee is to review and manage our financial investments and cash management in accordance with the principles approved by the board of directors.

Nominating Committee. In March 2005, our board of directors established a nominating committee, which is currently comprised of Messrs. Shalom Singer, Yoav Biran and Arie Zief, all of whom are independent within the meaning of the Nasdaq Marketplace Rules. The role of the nominating committee is to recommend to our board nominees for election as directors at the annual meetings of shareholders and to identify candidates to fill any vacancies on the board.

INTERNAL AUDITOR

Under the Companies Law, our board of directors is also required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. The internal auditor may not be an interested party or officer holder, or a relative of any interested party or office holder, and may not be a member of our independent accounting firm. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager. Mr. Moshe Cohen of Chaikin, Cohen, Rubin & Gilboa, an Israeli accounting firm, serves as our internal auditor.

APPROVAL OF SPECIFIED RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

Fiduciary Duties of Office Holders. The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.

The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:

        The duty of loyalty of an office holder includes a duty to:

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Disclosure of Personal Interests of an Office Holder. The Companies Law requires that an office holder disclose to the company any personal interest that he or she may have, and all related material information known to him or her, in connection with any existing or proposed transaction by the company. The disclosure is required to be made promptly and in any event no later than the board of directors meeting at which the transaction is first discussed. A personal interest of an office holder includes an interest of a company in which the office holder is, directly or indirectly, a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager. In the case of an extraordinary transaction, the office holder’s duty to disclose applies also to a personal interest of a relative of the office holder. An extraordinary transaction is a transaction not in the ordinary course of business, not on market terms, or likely to have a material impact on the company’s profitability, assets or liabilities.

Under the Companies Law, once the office holder complies with the above disclosure requirement, the board of directors is authorized to approve the transaction, unless the articles of association provide otherwise. Nevertheless, a transaction that is adverse to the company’s interest may not be approved.

If the transaction is an extraordinary transaction, then it also must be approved by the company’s audit committee and board of directors, and, under certain circumstances, by the shareholders of the company. When an extraordinary transaction is considered by the audit committee and board of directors, the interested director may not be present or vote, unless a majority of the members of the board of directors or the audit committee, as the case may be, has a personal interest in the matter. If a majority of the members of the board of directors have a personal interest therein, shareholder approval is also required.

Under the Companies Law, all arrangements as to compensation of directors in public companies such as ours generally require the approvals of the audit committee, the board of directors and the shareholders, in that order.

INSURANCE & INDEMNIFICATION OF DIRECTORS AND SENIOR MANAGEMENT

Insurance. Under the Companies Law, a company may, if its articles of association so provide and subject to the provisions set forth in the law, enter into a contract to insure the liability of an office holder for acts or omissions committed in his or her capacity as an office holder of the company for:

Our articles were amended in December 2000 to contain provisions in line with the aforesaid provisions and, having obtained the approvals required under the Companies Law and our articles, we have procured the permitted insurance for our office holders. In December 2003, the Company’s shareholders set the maximum annual premium for such insurance at $1.0 million. The Company has insurance coverage for $30 million that is in effect until August 14, 2007. The annual premium for such coverage is approximately $0.4 million.

Indemnification. Subject to certain qualifications, the Companies Law also permits us, provided that our articles of association allow us to do so, to indemnify an office holder for acts or omissions committed in his or her capacity as an office holder of the company, retroactively (after the liability has been incurred) or in advance, for:

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In addition, our articles of association provide that:

In April 2004, the Company’s audit committee, board of directors and shareholders, in that order, also resolved to indemnify the Company’s office holders, including any future director or officer of the Company who may be considered a “controlling shareholder” (as such term is defined under the Companies Law), by providing them with a Letter of Indemnification to be substantially in the form approved by the shareholders. In December 2005, the Company approved certain revisions to the Letter of Indemnification. These changes include provisions that the maximum indemnification amount payable by the Company to all officers eligible for indemnification is not to exceed $100 million, except for exceptional cases to be approved by the Company’s shareholders and audit committee. See Exhibit 4(c)(3) in Item 19 for the form of the Letter of Indemnification to office holders.

On April 30, 2007, the Company’s General Meeting approved the grant of Letters of Exculpation to current and future Company office holders, relieving them from liability to the Company, directly or indirectly, for any damage caused or that may be caused to the Company resulting from a breach of an office holder’s duty of care owed the Company, subject to certain limitations set forth by applicable Israeli law.

Limitations on Exculpation, Insurance and Indemnification. The Companies Law provides that a company may not exculpate or indemnify an office holder, or enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:

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In addition, under the Companies Law, exculpation of, an undertaking to indemnify or indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our board of directors and, in specified circumstances, such as if the beneficiary is a director, by our shareholders.

Our articles also provide that, subject to the provisions of applicable law, we may procure insurance for or indemnify any person who is not an office holder, including without limitation, any of our employees, agents, consultants or contractors.

The following table details certain data on the workforce of Scailex and its consolidated subsidiaries for the periods indicated*:

* Excludes the employees of SDP, Scailex Vision and Jemtex for these years as a result of the sale of SDP’s business in January 2004, the sale of Scailex Vision’s business in November 2005 and the reduction of holdings in Jemtex in August 2006.

(1) This employee’s employment agreement is due to expire at the end of June 2007.

We consider our relations with our employees to be positive and we have never experienced a strike or work stoppage.

Our employees are not generally represented by labor unions. Nevertheless, with respect to our employees in Israel, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and Israel’s Coordination Bureau of Economic Organizations (including the Manufacturers’ Association) are applicable to such employees by Israeli governmental order. These provisions principally concern cost-of-living wage increases, paid vacation and holidays, length of the workday, wage tariffs, termination, severance payments and other conditions of employment. However, we generally provide our employees with benefits and conditions beyond the required minimums, including payment to managers’ insurance policies and pension funds and contributions to funds to provide severance. Employee agreements are generally for an undetermined term and each party may terminate the relationship at will. As of the reporting date, the Company has no material dependency on any employee.

SECURITY OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS

None of our directors own any of our shares or hold any stock options for the purchase of our shares, except for Mordechai Peled who is the CEO of Pelgo Ltd., which holds 2,300 shares, constituting 0.01% of the outstanding shares of the Company. Although several of our directors are directors or officers of our major shareholders or their affiliates, such individuals disclaim beneficial ownership of any of the shares held by these major shareholders.

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None of our executive officers own any of our shares or hold any stock options for the purchase of our shares, except for our CEO, Mr. Yahel Shachar, and our CFO, Mr. Shachar Rachim, who were granted options. Mr. Shachar beneficially owns 40,000 shares, all of which are in the form of stock options which are exercisable within 60 days of the date of this Annual Report. The exercise price of all the stock options held by Mr. Shachar is $3.70 per share and they expire in September 2014. Mr. Rachim beneficially owns 16,000 shares, all of which are in the form of stock options, which are exercisable within 60 days of the date of this Annual Report. The exercise price of all the stock options held by Mr. Rachim is $3.70 per share and they expire in September 2014. All of these options were granted pursuant to our 2003 Stock Option Plan described below. See ” Item 6A. Directors and Senior Management” above.

STOCK OPTION PLANS

From time to time, we grant our employees and directors options to purchase our shares pursuant to our share option plans:

The following table summarizes certain information with respect to the foregoing plans:

The foregoing description is qualified in its entirety by reference to the Israel Key Employee Share Incentive Plan 1991, the 2001 Stock Option Plan (as amended, 2003), and to the 2003 Share Option Plan which are filed as exhibits in Item 19 of this Annual Report, all of which are hereby incorporated by reference.

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REPURCHASE PROGRAM

In May 1998, our board of directors approved a program for our repurchase of up to two million of our ordinary shares, to be held for the benefit of employees within the framework of our stock option plans. These ordinary shares are held by a trustee for reissuance to employees upon the exercise of existing stock options. Under the approved program, we may not purchase ordinary shares from our major shareholders. A balance of 448,975 ordinary shares is held by the trustee pursuant to the program, purchased with funds provided by us. No ordinary shares have been repurchased under this program since August 5, 1999.

Unless otherwise stated, all data in this Item 7 is as of June 17, 2007, at which date there were 43,579,388 of our ordinary shares outstanding, excluding:

In all instances, the percentage of ownership is equal to the voting rights of our ordinary shares and all ordinary shares have identical voting rights. In particular, the ordinary shares held by our principal shareholders do not carry different voting rights.

To our knowledge, except as described below, we are not directly or indirectly owned or controlled (i) by any corporation, (ii) by any foreign government or (iii) by any other natural or legal person, nor are there any arrangements, the operation of which may at a subsequent date result in a change in control of Scailex.

The following table sets forth the number of our ordinary shares owned by any person who is known to us to own beneficially more than 5% of our ordinary shares:

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Significant changes in percentage ownership by major shareholders during last three years

Based upon public filings with the SEC by Ilan Ben Dov, Ben Dov Holdings Ltd., a company wholly owned by Mr. Ben Dov, and Suny, in August 2004, Mr. Ben Dov, Ben Dov Holdings Ltd., and Suny became the beneficial owners of 2,043,997 ordinary shares which were held directly by Suny, representing 5.37% of our outstanding ordinary shares at the time,. Since July 2004, Mr. Ben Dov, Ben Dov Holdings Ltd., and Suny and/or their affiliates, purchased, from time to time, additional ordinary shares, and Tao, in which Mr. Ben Dov directly and indirectly has an 81.30% interest, and Harmony (Ben Dov) Ltd., a company wholly owned by Mr. Ben Dov, also acquired ordinary shares. Based on public filings made in May 2007, Mr. Ben Dov may now be deemed to have the sole voting and dispositive power as to the aggregate of 10,931,823 ordinary shares of the Company, due to his holdings in Suny, Tao and Harmony. See shareholder table above in this Item 7 describing the holdings of these entities.

Based upon reports received by the Company during 2004, Mivtach Shamir Holdings Ltd. (“Mivtach Shamir”) was the beneficial owner of 2,090,200 ordinary shares, representing 5.49% of our outstanding ordinary shares at the time. In January 2007, based upon a public filing with the SEC, Mivtach Shamir reported that their shareholdings in Scailex were 1,069,230 ordinary shares, representing 2.8% of our outstanding ordinary shares, and it had therefore ceased to be a beneficial owner of 5% or more of our shares. Meir Shamir, Chairman of Mivtach Shamir and owner of 40.2% of its shares, had entered into a shareholders agreement with the holder of a further 14.91% of the shares of Mivtach Shamir. Accordingly, he was deemed to beneficial own the shares in Scailex held by Mivtach Shamir.

On July 18, 2006, the Company’s then principal shareholders, Clal and Discount, completed the sale of all of the 18,800,255 Scailex shares held by them, representing approximately 49.4% of Scailex’s outstanding share capital, to a fully owned subsidiary of Israel Petrochemicals Enterprise Ltd. (IPE), an Israeli holding company whose shares are traded on the Tel Aviv Stock Exchange. IPE’s controlling shareholder is Modgal Industries Ltd., which holds 60.91% of IPE share capital. 50.14% of Modgal Industries Ltd. is held by Modgal Ltd., a company held by Gima Investments Ltd. (50%), I.D. Federman Holdings Ltd. (47%) and Eran Schwartz (3%).

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The shares were acquired by IPE for an aggregate purchase price of $165.0 million, and additional $2.6 million to be paid within 10 business days from closing due to an adjustment in the purchase price relating to the $12.6 million tax refund received by Scailex. The purchase price is subject to certain additional adjustments according to the sale agreement.

In February 2007, IPE purchased 112,000 shares from two executives of the Company and an additional 200,000 shares on TASE, increasing its total holdings in the Company to 50.06%.

RECORD HOLDERS

Based on a review of the information provided to us primarily by our transfer agent, as of May 25, 2007, we had 296 shareholders of record, of whom 263 were registered with addresses in the United States, representing approximately 33.44% of our outstanding ordinary shares. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 33.27% of our outstanding ordinary shares as of said date).

Duties of Shareholders

Disclosure by Controlling Shareholders. Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company.

Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the engagement of a controlling shareholder as an office holder or employee, generally require the approval of the audit committee, the board of directors and the shareholders, in that order. The shareholder approval must include at least one-third of the shares of non-interested shareholders voted on the matter. However, the transaction can be approved by shareholders without this one-third approval if the total shares of non-interested shareholders voted against the transaction do not represent more than one percent of the voting rights in the company.

General Duties of Shareholders. In addition, under the Companies Law, each shareholder has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his or her power in the company, such as in shareholder votes. In addition, specified shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the articles of association, has the power to appoint an office holder or any other power with respect to the company. However, the Companies Law does not define the substance of this duty of fairness.

Globecom Management Agreement

On May 1, 2007, the Company entered into a management agreement with Globecom Investments Ltd., (“Globecom”), a private company under the control of Mr. Eran Schwartz, the Chairman of the Board of Scailex. Under the agreement Globecom, through Mr. Schwartz, is to provide management services to the Company. The term of the agreement is for 18 months, commencing on July 2006, when Mr. Schwartz became Chairman of the Company’s board of directors. The agreement will terminate on December 31, 2007, unless either party terminates it earlier by giving six months’ advanced notice.

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The management agreement sets forth that the scope of services to be provided will be determined in accordance with actual needs of the Company. The monthly aggregate cost to be paid by the Company for such services under the agreement is approximately $24,000, to be linked to the Israeli consumer price index. Globecom will also be entitled to the reimbursement of reasonable expenses.

The agreement sets forth that Globecom and Schwartz are to receive indemnification rights and insurance coverage similar to the rights and coverage offered to other Company office holders. The agreement includes non-competition provisions which apply for the term of the agreement and an additional six months beyond termination.

Services Agreements

The discussion below relates to two agreements that terminated in July 2006.

Clal Services Agreement. In November 2001, we entered into a Services Agreement with Clal in connection with the transfer of our corporate offices to facilities leased to Clal at the Azrieli Center, Tel Aviv and the seconding of personnel. Pursuant to the Clal Services Agreement, Clal provided us with office space for our personnel, together with other services, such as accounting, security, information management services (MIS) and cleaning. In addition, Clal seconded certain executives to serve in various management positions with us. In addition, with effect from January 1, 2003, two other Scailex employees became employees of Clal and were seconded back to us for 100% of their work hours. Pursuant to the Clal Services Agreement, other employees of Clal and Scailex were available for secondment to each other (on a full time or part time basis) on an as-needed basis, as agreed from time to time between the parties.

The Clal Services Agreement provided that certain services could be provided by subsidiaries of Clal or directly from third party suppliers, and Clal may assign its rights and obligations under the Clal Services Agreement, in whole or in part, to its affiliates. Generally, the services rendered (other than the seconding of employees) were to be provided by Clal at the actual cost incurred by Clal for the services and do not include any overhead expense, or general and administrative cost. However, if the actual cost incurred by Clal would not be determined with respect to any service, the cost to us would generally be calculated either (i) on the basis of the proportion of office space occupied by us at Azrieli Center (including, proportionally, by employees seconded to us by Clal and excluding, proportionally, employees seconded to Clal by us), for rental of the facilities and common parts, cleaning, security, local taxes, electricity and all other expenses associated with facility maintenance; or (ii) on the basis of the number of our employees located at Azrieli Center (including, proportionally, those seconded to us by Clal and excluding, proportionally, those seconded to Clal by us) for other, generally unspecified, services. Certain services, such as accounting and MIS services, were at a fixed rate. See Note 8b to our consolidated financial statements included in this Annual Report.

The audit committees of both Scailex and Clal agreed to periodically review and adjust the services rendered and amounts paid pursuant to the Clal Services Agreement. However, the aggregate changes in respect of (i) the amount payable for seconded employees could not exceed an additional $300,000 per annum and (ii) the amount payable for other services provided to us could not exceed an additional $20,000 per quarter, in each case, in excess of the amount envisaged at the commencement of the Clal Services Agreement.

In light of the Discount Services Agreement (described below), which became effective in January 2004, we and Clal agreed to suspend substantially all the services provided by Clal to us pursuant to the Clal Services Agreement, including the termination of (1) the use by us of the office space provided by Clal, including related ancillary services (such as cleaning, security and MIS), and (2) the seconding of personnel by Clal to us, which was no longer required. The other provisions of the Clal Services Agreement continued in full force and effect, and Clal could continue to provide certain other services to us pursuant to the Clal Services Agreement.

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The Clal Services Agreement was submitted to and approved by our audit committee, our board of directors and our shareholders, in that order. Similarly, the suspension of certain services under the Services Agreement was also submitted to and approved by our audit committee, our board of directors and our shareholders, in that order.

The Clal Services Agreement terminated on July 18, 2006.

The foregoing description of the Clal Services Agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the Clal Services Agreement and the amendment thereto filed by us as Exhibit 4(d)(1) in Item 19.

Discount Services Agreement. We entered into a Services Agreement with Discount in connection with the transfer of our corporate offices to facilities leased by Discount at the Azrieli Center, Tel Aviv, and the seconding of one of Discount’s senior officers to serve as our President and/or Chief Executive Officer. The Agreement became effective as of January 15, 2004.

Pursuant to the Discount Services Agreement, Discount provided us with office space at the Azrieli Center for our personnel, together with ancillary services, such as cleaning, security and MIS, similar to that previously provided by Clal pursuant to the Clal Services Agreement. In addition, with effect from January 5, 2004, Discount seconded Mr. Raanan Cohen, Vice President of Discount (or another senior officer of Discount if agreed upon by us and Discount) to serve as Interim President and Chief Executive Officer of Scailex, dedicating approximately 40% of his work hours to us. We were required to provide to such person an indemnity letter in connection with personal liabilities that could arise from serving in such capacity similar to the letter provided by us to our other executive officers. Mr. Cohen’s tenure as Interim President and Chief Executive Officer ended in July 2006, when CEI and Discount sold their holdings in the Company to IPE.

Certain services could be provided by Discount through its subsidiaries or directly from third party suppliers. Discount could assign its rights and obligations under the Discount Services Agreement, in whole or in part, to its affiliates. Generally, the services rendered were to be provided by Discount at the actual cost incurred by Discount for the services and would not include any overhead expense, or general and administrative cost. However, if the actual cost incurred by Discount could not be determined with respect to any service, the cost to us would generally be calculated either (i) on the basis of the proportion of the office space occupied by us at Azrieli Center (including a relative part of common areas) for cleaning, security, local taxes, electricity and all other expenses associated with facility maintenance or (ii) on the basis of the number of our employees located at Azrieli Center for other, generally unspecified, services, according to the nature of the service.

Our audit committee periodically reviewed the services rendered and amounts paid under the Discount Services Agreement. The specific approval of our audit committees was required for any material increases in the amounts paid under the Discount Services Agreement. However, in no event could the aggregate increase in the office space occupied by us at Azrieli Center exceed 175% of the office space occupied by us at the commencement of the agreement. Initially, the aggregate cost of the services (including the leased office space, but excluding the seconding of Mr. Cohen) was approximately $17,000 per fiscal quarter. However, since September 2004, we no longer leased the office space from Discount. As for the services of Mr. Cohen as our President and CEO, we were required to pay Discount the sum of NIS 500,000 (equivalent to approximately $112,000 based on the then-current exchange rate) per annum. This sum was based upon the actual cost incurred by Discount with respect to the services of Mr. Cohen. In the event of a change in the cost of such services to Discount or, having regard to our needs, if the parties agreed upon a change in the percentage of the work hours to be dedicated to us by Mr. Cohen (or such other senior officer of Discount who was to serve as President and/or Chief Executive Officer of Scailex), the consideration payable for these services was to be increased or decreased accordingly, subject to the approval of our audit committee, provided that in no event could the sum payable in respect of such services exceed NIS 750,000 (equivalent to approximately $170,000 based on the then-current exchange rate) per annum. Discount waived its right to receive payments in respect of Mr. Cohen’s fees for the period commencing on January 1, 2006 and thereafter.

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The Discount Services Agreement was submitted to and approved by our audit committee, our board of directors and our shareholders, in that order.

The Discount Services Agreement terminated on July 18, 2006; however certain ongoing obligations related to MIS services and parking payments remain.

The foregoing description of the Discount Services Agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the Discount Services Agreement filed by us as Exhibit 4(d)(3) in Item 19.

Sale of Scailex Vision’s Business

In connection with the sale of Scailex Vision’s business to Hewlett-Packard, we entered into non-material agreements with Scailex Vision regarding the management thereof following the sale, as well. See “Item 10C. Material Contracts – Sale of Scailex Vision” below.

FINANCIAL STATEMENTS

Our consolidated financial statements are set forth in Item 18.

LEGAL PROCEEDINGS

We are from time to time named as a defendant in certain routine litigation incidental to our business. We are currently not party to any legal proceedings which would reasonably be expected to have a material adverse effect on our financial position. For a discussion of other pending legal proceedings, see Note 6b to our consolidated financial statements included in this Annual Report.

DIVIDEND POLICY

Except as described below, we did not distribute any dividends (in cash or otherwise), bonus shares or declared any split, recapitalization or make any rights offerings to the holders of our shares since the third quarter of 1996. Payment of dividends is considered by the Board from time to time, and a payment, or non-payment, of a dividend should not be considered indicative as to the payment of future dividends. For general information on the applicable tax rate on dividends, please see in “Item 10E. – Taxation” below.

On July 12, 2004, we distributed $2.36 per ordinary share, or approximately $90 million in the aggregate, to our shareholders of record as of June 30, 2004.

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Except as otherwise disclosed in this Annual Report, no significant change has occurred since December 31, 2006.

Our ordinary shares are listed and traded on TASE, since 2001 under the symbol “SCIX”. Our shares were listed for trade on the Nasdaq Global Market from 1980 until October 2006. In October 2006, our ordinary shares were de-listed from Nasdaq as a result of a determination by the Nasdaq staff that we are a public shell lacking any business operations. As at the date of this Annual Report, the Company’s shares are traded on TASE and are quoted on the OTC Bulletin Board (“OTCBB”) in the United States.

All share prices below on Nasdaq and on the OTCBB are reported in U.S. dollars, and all share prices below on TASE are reported in NIS. As of December 31, 2006, the exchange rate was equal to NIS 4.225 per $1.00 (NIS 4.603 on December 31, 2005).

The following table sets forth, for the periods indicated, the high and low closing sales prices per ordinary share on Nasdaq, OTCBB and on TASE as reported in published financial sources:

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* On June 22, 2004, we announced a distribution of $2.36 per ordinary shares and, effective July 1, 2004, the ordinary shares were traded “ex-dividend,” as a result of which Nasdaq and TASE adjusted (downwards) the opening price of our shares in the respective markets.

On June 14, 2007, the last reported sale price of our ordinary shares on the OTCBB was $8.80 per share, and on June 17, 2007, the last reported sale price of our ordinary shares on the TASE was NIS 38.11 per share.

Not Applicable.

In October 2006, our ordinary shares were de-listed from Nasdaq as a result of a determination by the Nasdaq staff that we are a public shell lacking any business operations. Our ordinary shares are listed on TASE and are quoted on the OTCBB. The shares trade on both markets under the symbol “SCIX.”

Not Applicable.

Not Applicable.

Not Applicable.

Not Applicable.

Set out below is a description of certain provisions of our Memorandum of Association and Articles of Association, and of the Israeli Companies Law related to such provisions. This description is only a summary and does not purport to be complete and is qualified by reference to the full text of the Memorandum and Articles which are incorporated by reference as exhibits to this Annual Report and to Israeli law.

We were first registered under Israeli law on November 2, 1971 as a private company, succeeding a predecessor corporation, Scientific Technology Ltd., which was founded on September 5, 1968. In May 1980, we became a public company. In December 2005, we changed our name from “Scitex Corporation Ltd.” to “Scailex Corporation Ltd.” We are registered with the Registrar of Companies in Israel under number 52-003180-0.

OBJECTS AND PURPOSES

Pursuant to Section 2(I)(a) of our Memorandum of Association, the principal object for which we are established is to engage in the activity or business of, inter alia, developing, manufacturing, producing, vending, purchasing, licensing, leasing, importing, exporting, or otherwise dealing in any products and moveable property of every kind and description, and to engage in selling, promoting, leasing, licensing, importing, exporting, or otherwise dealing in, any services. We may also acquire, create, form, operate, encourage or otherwise promote or manage any kind of enterprise.

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DIRECTORS

The Companies Law requires that transactions between a company and its office holders (which term includes directors) or that benefit its office holders, including arrangements as to the compensation of office holders, be approved as provided for in the Companies Law and the company’s articles of association. For further information as to such approval provisions, see “Item 6. Directors, Senior Management and Employees – Board Practices – Approval of Specified Related Party Transactions under Israeli Law”)

Under our Articles, in general, the management of our business is vested in the board of directors, which may exercise all such powers, including the power to borrow or secure the payment of any sum or sums of money for the purposes of the Company, in such manner, at such times and upon such terms and conditions in all respects, as it thinks fit.

There is no requirement under our Articles or Israeli law for directors to retire on attaining a specific age. The Articles do not require directors to hold our ordinary shares to qualify for election.

SHARES

Our registered capital is divided into 48,000,000 ordinary shares of nominal (par) value NIS 0.12 each. There are no other classes of shares. All of our outstanding shares are fully paid and non-assessable. The shares do not entitle their holders to preemptive rights.

Subject to the rights of holders of shares with special rights (which may be issued in the future), holders of paid up ordinary shares are entitled to participate in the payment of dividends and, in the event of our winding-up, in the distribution of assets available for distribution, in proportion to the nominal value of their respective holdings of the shares in respect of which such dividend is being paid or such distribution is being made. Our Articles do not specify any time limit after which dividend entitlement lapses.

Each ordinary share is entitled to one vote on all matters to be voted on by shareholders, including the election of directors. Our ordinary shares do not have cumulative voting rights. As a result, the holders of our ordinary shares that represent a simple majority of the voting power represented at a shareholders meeting and voting at the meeting have the power to elect all of the directors put forward for election, subject to specific requirements under the Companies Law with respect to the election of “Outside Directors”. For further information as to these requirements, see “Item 6C. Board Practices – Outside Directors”.

The Companies Law requires that extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the engagement of a controlling shareholder as an office holder or employee, be approved as provided for in the Companies Law, which may necessitate the approval of at least one-third of the shares of non-interested shareholders voting on the matter. For further information as to such provisions, see “Item 7A. Major Shareholders – Duties of Shareholders”.

VARIATION OF RIGHTS

Shares with preferential rights relating, among other things, to dividends, voting and repayment of share capital can be created by adoption of a “special resolution”, which requires approval by at least 75% of the voting power represented at the meeting in person or by proxy and voting thereon. In addition, through a special resolution, we can subdivide issued and outstanding ordinary shares. Modification or abrogation of the rights of any class of shares requires the written consent of the holders of 75% of the issued shares of such a class or adoption of a special resolution by affected shareholders voting separately as a class.

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GENERAL MEETINGS

Our Articles provide that an annual general meeting must be held at least once in every calendar year at such time within a period of not more than 15 months after the holding of the last preceding annual general meeting, and at such place, as may be determined by the board of directors. Our board of directors may, in its discretion, convene additional shareholder meetings and, pursuant to the Companies Law, must convene a meeting upon the demand of two directors or one-quarter of the directors in office or upon the demand of the holder or holders of five percent of our issued share capital and one percent of our voting rights or upon the demand of the holder or holders of five percent of our voting rights.

Under the Companies Law, shareholder meetings generally require prior notice of not less than 21 days. In December 2006, the General Meeting adopted an amendment to the Company’s Articles of Association that allows notice of General Meetings to be duly given to Israeli shareholders by means of publication in two Israeli daily publications and duly given to shareholders outside of Israel by means of publication in one international daily publication or by international wire service. The function of the annual general meeting is to receive and consider the directors’ report, profit and loss account and balance sheet, to elect directors and appoint auditors and fix their fees, and to transact any other business which under the Articles or by law are to be transacted at our annual general meeting.

The quorum required for either an ordinary (regular) or an extraordinary (special) meeting of shareholders consists of at least two shareholders present in person or by proxy and holding or representing between them at least one-third of our voting power. If a meeting is convened at the request of shareholders and no quorum is present, it shall be dissolved. If a meeting is otherwise called and no quorum is present, the meeting is adjourned to the same day one week later at the same time and place, or to such other day time and place as our Chairman may determine with the consent of a majority of the voting power represented at the meeting and voting on the question of an adjournment. Our Articles provide that, at adjourned meetings, any two or more shareholders present in person or by proxy shall constitute a quorum. We believe this provision in our Articles regarding the quorum at adjourned meetings complies with Israeli law and practice.

Generally, under the Companies Law and our Articles, shareholder resolutions are deemed adopted if approved by the holders of a simple majority of the voting rights represented at a meeting unless a different majority is required by law or pursuant to our Articles. The Companies Law provides that resolutions on certain matters, such as amending a company’s articles of association, assuming the authority of the board of directors in certain circumstances, appointing auditors, appointing external directors, approving certain transactions, increasing or decreasing the registered share capital and approving a merger with another company must be made by the shareholders at a general meeting. A company may determine in its articles of association certain additional matters in respect of which resolutions by the shareholders in a general meeting will be required.

A company such as Scailex, incorporated prior to February 1, 2000, is subject to various rules with respect to the transition from being governed by the Israeli Companies Ordinance [New Version], 5743 – 1983, to being governed by the Companies Law. These rules provide, among other things, that any amendment to the Memorandum or Articles will generally require a resolution adopted by the holders of 75% or more of the voting power represented and voting at a general meeting, and that the approval of a merger will require a resolution adopted by the holders of 75% or more of the voting power represented and voting at a general meeting, unless and until we amend our Articles in such manner to provide for a different majority.

Subject to the Companies Law, a resolution in writing signed by the holders of all of our ordinary shares entitled to vote at a meeting of shareholders or to which all such shareholders have given their written consent will be sufficient to adopt the resolution in lieu of a meeting.

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LIMITATION ON RIGHTS TO OWN SHARES

Our Memorandum of Association, our Articles and Israeli law do not restrict in any way the ownership or voting of ordinary shares by non-residents or persons who are not citizens of Israel, except with respect to subjects of nations which are in a state of war with Israel. Fully paid ordinary shares may be freely transferred pursuant to our Articles unless the transfer is restricted or prohibited by another instrument.

DIVIDEND AND LIQUIDATION RIGHTS

Dividends on our ordinary shares may be paid only out of profits and other surplus, as defined in the Companies Law, per our most recent financial statements or as accrued over a period of two years, whichever is higher. Our board of directors is authorized to declare dividends, provided that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Notwithstanding the foregoing, dividends may be paid with the approval of a court, provided that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to their respective holdings. This liquidation right may be affected by the grant of preferential dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

CHANGE OF CONTROL

There are no specific provisions of our Memorandum or Articles that would have an effect of delaying, deferring or preventing a change in control of Scailex or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries). However, certain provisions of the Companies Law may have such effect.

The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transaction approved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, the merger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the other party to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) vote against the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposals for approval of the merger have been filed with the Israeli Registrar of Companies by each merging company and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.

The Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greater shareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder of the company which resulted in the acquirer becoming a 45% or greater shareholder of the company. The tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. The tender offer may be consummated only if (i) at least 5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

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If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to it. The Companies Law provides for appraisal rights if any shareholder files a request in court within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquiror may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.

Lastly, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.

NOTIFICATION OF SHAREHOLDING

There are no specific provisions of our Memorandum or Articles governing the ownership threshold above which shareholder ownership must be disclosed; however the Israeli Securities Law (1968) sets forth certain thresholds and situations in which disclosure is required, such as possessing 5% or more of the issued capital or voting power of a company, or possessing the ability to appoint a director or a CEO, or the fact that a shareholder serves as a director or a CEO of a company .

CHANGES IN CAPITAL

Our Articles require that changes in capitalization must be adopted by special resolution, approved by the holders of 75% or more of the voting power represented and voting at a general meeting. Subject thereto, the conditions imposed by our Memorandum and Articles governing changes in the capital, are no more stringent than is required by Israeli law.

On December 21, 2006, we entered into a shareholders agreement with (i) Linura Holding AG, or Linura, a Swiss company indirectly held by one of the largest global companies involved in natural resources, and (ii) Petroleum Capital Holdings Ltd., or PCH, a company owned 80.1% by us and 19.9% by Linura. The shareholders agreement governs the formation and operation of PCH as well as PCH’s participation in the privatization of ORL by way of the State of Israel’s initial public offering of the shares of ORL.

Under the shareholders agreement, we provide management and administrative services to PCH free of charge, excluding out-of-pocket expenses incurred for such services, which will be reimbursed by PCH.

PCH Board of Directors and Decision-Making Process

Under the shareholders agreement, the board of directors of PCH is to consist of at least three and no more than seven members. So as long as Linura holds 19.9% of the share capital of PCH, it is entitled to appoint one director. As of the date of this Annual Report, the board of directors of PCH consists of three directors appointed by Scailex and one director representing Linura. We are entitled to appoint the Chairman of the Board of the Directors. The Chairman does not have an additional vote.

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For so long as Linura holds at least 15% of the share capital of PCH, the following decisions are subject to both our and Linura’s approval as shareholders: (i) amendments to PCH’s articles of association; (ii) any merger, de-merger, reorganization, consolidation, acquisition, sale or grant of an exclusive license to subsantially all of PCH’s assets; (iii) decisions regarding bankruptcy, liquidation of the business or reconciliation or any other settlement with creditors; and (iv) an application for the listing of shares or debt secruities of PCH on any recognized stock exchange.

In addition, under the terms of the agreement, for so long as Linura holds at least 15% of the share capital of PCH, the board of directors’ decision to approve any of the foregoing, or to approve a transaction that is not within the normal course of business and/or a transaction in respect of the sale of all of PCH assets or a significant part thereof are subject to the approval of all members of the board of directors appointed by us and Linura.

In addition to the above decisions, for as long as Linura holds at least 19.9% of PCH’s shares, the material terms of financing obtained by PCH until obtaining control over ORL are subject to the approval of all members of the board of directors appointed by us and Linura.

PCH Financing

As part of the shareholders agreement, we and Linura committed to provide shareholder loans to PCH in accordance with our pro rata shareholdings in PCH. If additional financing is requested by PCH, we and Linura may each provide additional shareholder loans to PCH. The shareholders agreement also provides that PCH may not distribute dividends until all of the shareholder loans have been repaid to PCH.

Restriction on Transfer of PCH Shares

Under the shareholders agreement, until the date of expiration of the first Put Option and the first Call Option (each as defined below), the parties are not permitted to transfer their holdings in PCH or any rights under the shareholders agreement, other than permitted transfers such as the transfer to subsidiaries. Following the restriction period, the parties are permitted to transfer shares in PCH subject to the right of first refusal and tag along rights described below.

The shareholders agreement further provides that neither we nor Linura may transfer our holdings in PCH at any time if the transfer violates the terms of PCH’s control permit for the ORL shares (if granted) under applicable Israeli Law or if the transfer would prevent PCH from obtaining such a control permit.

Under the shareholders agreement, we have a right of first refusal in the event that Linura desires to sell its PCH shares to a third party. Prior to accepting a third party’s offer, Linura must first present us with the details of the offer after which we will have 30 days to match the third party’s offer.

The shareholders agreement also grants Linura a right of first opportunity in the event that we decide to sell our PCH shares to a third party. Prior to offering our PCH shares to a third party, we must first present the terms of the contemplated offer to Linura, which shall have 30 days to accept the proposed offer. If Linura refuses to accept the contemplated offer, we will have the right to force Linura to sell its shares in PCH to a third party on the same terms as the proposed offer.

The shareholders agreement also grants Linura the right to join the sale of our PCH shares to a third party, pro-rata to Linura’s holdings in PCH.

Transfers of ORL Shares

In the event that PCH elects to sell its entire holdings in ORL to a third party, the shareholders agreement provides that we and Linura will have a right to purchase the ORL shares first, pro-rata to our holdings in PCH.

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First Put & Call Options

Under the terms of the agreement, if, within twelve (12) months from the date of the public offering of ORL shares PCH has not acquired control of ORL, Linura may force us to purchase all of Linura’s PCH shares. The purchase price of Linura’s PCH shares is equal to the amount of Linura’s capital investment in PCH, plus interest, minus dividends and returns of capital contributions.

If Linura fails to exercise the above option within thirty days from the date it becomes entitled to exercise such right, we will have the right to purchase all of Linura’s PCH shares according to a pricing mechanism stipulated in the shareholders agreement.

Second Put & Call Options

On the first anniversary of the date of acquisition of the control of ORL, Linura may require Scailex to purchase all Linura’s PCH shares at a purchase price equal to the amount of Linura’s capital investment in PCH, minus dividends and returns of capital contributions.

If Linura fails to exercise the above option within thirty (30) days following the first anniversary of the date of acquisition of control of ORL, we will have the option to to purchase all of Linura’s shares in PCH according to a pricing mechanism stipulated in the shareholders agreement.

ORL Undertaking

Under the shareholders agreement, the parties acknowledged that a party nominated by Linura will use its best efforts to offer ORL competitive terms on crude oil and petroleum products. For as long as Linura holds 19.9% of the share capital of PCH, and subject to legal restrictions, we and Linura agreed to use our utmost efforts through PCH to increase the share of crude oil and/or petroleum products supplied by such nominated party to ORL and/or the purchase by the nominated party of any petroleum products designated for export by ORL, provided however, that the nominated company extends the most competetive offers to ORL and that ORL’s competetive status as a purchaser or supplier, as applicable, will not be adversly affected.

Addendum to the Shareholders Agreement

On May 10, 2007, the parties to the shareholders agreement agreed that in the event that the shareholders agreement contradicts the definitive Control Agreement to be entered into by PCH, Scailex and Israel Corp., as set forth below, the Control Agreement shall prevail.

Memorandum of Understanding

The Memorandum of Understanding described below was revoked on May 10, 2007, and the parties thereto have entered into an irrevocable Deed of Undertaking, as also described below.

On February 18, 2007, PCH and the Company (collectively the “Scailex Group”) entered into a binding Memorandum of Understanding (the “Memorandum of Understanding” or “MOU”) with Israel Corp. for the joint acquisition and control of ORL, pursuant to which Israel Corp. and Scailex Group agreed to submit a joint proposal for the purchase of shares of ORL as part of the public offering of shares of ORL by the State of Israel. The parties agreed that Israel Corp. would hold 80% of the shares of ORL to be acquired and the Scailex Group would hold the remaining 20% of such shares (the “Preliminary Stake Ratio”).

The parties agreed in the MOU that they would mutually determine the number and price of the ORL shares to be purchased and that, in the event of a dispute, each party would be entitled to act in its sole discretion and, in such an event, the Memorandum of Understanding would be revoked.

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The Scailex Group was granted the option (“Call”) to increase its share in the acquisition from the Preliminary Stake Ratio to 45% of the shares to be purchased by the parties as part of the offering within 120 days from the date of either: (a) the receipt of mandatory regulatory approvals required to control ORL; or (b) nine months from the date of execution of the Memorandum of Understanding, whichever is earlier. The purchase price of a share acquired pursuant to the Call option was to be the average NIS cost of ORL shares in the relevant offering, linked to increases in the consumer price index, plus 5% annual interest, subject to standard adjustments.

The parties agreed that the terms and conditions of the MOU would apply to the purchase, either jointly or severally, of any additional shares of ORL after the public offering. Decisions with regard to the purchase of shares of ORL in the secondary market following completion of the offering, whether on the stock exchange or outside the stock exchange, including a public offering, would be mutually agreed upon.

Under the MOU, each of the parties was entitled to acquire additional shares of ORL, provided that it would offer the other party, within three (3) business days from the date of the acquisition, the opportunity to purchase a proportional share of the shares it purchased as if, on the same date the Call Option had been exercised (i.e., 55% to Israel Corp. and 45% to PCH,) at cost plus market interest until the date of actual payment. However, the terms of the MOU were not to apply to acquisitions of additional shares or securities of ORL by any of the parties that were to cause the shares subject to the MOU to exceed 45% of ORL’s issued share capital.

Appointment of Directors; Officers

Furthermore, as part of the MOU, the parties agreed to appoint directors to the board of directors of ORL, its committees and its subsidiaries, pro rata to each party’s holding, provided that the Scailex Group would be entitled to appoint at least one director to ORL’s board of directors or committees and provided that the Scailex Group and Israel Corp. are able to affect the appointment of two or more directors.

The parties agreed that the manner of appointment and discharge of the executive officers of ORL would be set forth in the Control Agreement to be entered into by the parties at a future date. The parties also agreed that each party would nominate one external director.

Voting at the General Meeting

The MOU further provided that prior to any general meeting of ORL, the parties would convene a preliminary meeting to decide (pro rata to their holdings in ORL) on how they would vote and act at the general meeting, and the parties would proceed in accordance with their mutual decision.

Dividends

Under the MOU, the parties undertook to act pursuant to the provisions of all applicable laws so that ORL and its subsidiaries would adopt a dividend policy providing for the distribution of at least 75% of the annual profits that are deemed distributable.

Right of First Refusal

If the Scailex Group wishes to sell its shares in ORL to a third party, Israel Corp. would have the right of first refusal with respect of the shares offered for sale and would be entitled to purchase all the shares being offered for sale as follows: (1) during the first year from the signing of the MOU, at the average cost price of ORL shares acquired by the Scailex Group, with the value linked to increases in the CPI, plus interest at a rate of 5% annually, subject to the customary adjustments (the foregoing will not apply if the third party holds more than 45% of ORL’s issued share capital prior to the sale); and (2) after the end of one year from the signing of the MOU, or in the event that the third party holds more than 45% of ORL’s issued share capital prior to the sale, according to the price offered by the third party.

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Tag Along

If Israel Corp. desires to sell its shares in ORL, in whole or in part, to a third party, the Scailex Group would be entitled to join the aforementioned sale in proportion to its holdings of the ORL shares to which the provisions of this MOU apply.

Rights of Parties in the Event of Exercise of the Call

If the Call were to be exercised, the parties would grant each other the right of first refusal with respect to the shares of ORL held by each party, and each party would have the right (tag along right) to join the other (provided the right of first refusal is not exercised) in the case of a sale of all or a portion of the holdings of the other party, to a third party, pro rata to such party’s respective holdings of the ORL shares to which the provisions of this MOU apply. If ORL shares are transferred to a third party, the acquiring party must become a party to the Memorandum of Understanding or the definitive agreement that follows the Memorandum of Understanding, and all provisions of the MOU or the definitive agreement shall apply mutatis mutandis to the third party.

Minority Interests

The Scailex Group was granted customary minority rights, such as group veto rights with respect to certain decisions affecting ORL or its subsidiaries and affiliated companies, including: modifications to the articles of association, structural changes (mergers, reorganization, material acquisitions/sales, etc.), liquidations, stay of proceedings, the registration of securities or debt for trading, and transactions with interested parties. Israel Corp. undertook that, for so long as Israel Corp. and Scailex Group are in control of ORL, it would act in manner conducive to Scailex Group fulfilling its undertakings to Linura, subject to the provisions of any applicable law.

Buy/Sell

At the end of twelve (12) months from the date of exercise of the Call, one party to the agreement would be entitled to offer to purchase all shares of the other party to which the provisions of the MOU apply at the price set in the offering, and the second party would be bound to either accept the offer or, alternatively, acquire all the shares of the offering party to which the provisions of the MOU apply at a price determined in the offer, all per the election of the second party.

Linura Supplier Undertaking

The parties agreed that so long as Linura holds at least 19.9% of the shares of PCH, and subject to any applicable legal or regulatory restrictions, the parties would use their best efforts to significantly increase the share in the supply of crude oil and petroleum products sold to ORL and/or any purchase of petroleum products designated by ORL for export, by the company nominated by Linura. The foregoing is contingent upon the nominated company extending the most competitive terms to ORL and ORL’s competitive status as a purchaser or supplier, as applicable, not being adversely affected.

Addendum to the MOU Dated February 19, 2007

On February 19, 2007, the parties signed an addendum to the MOU provided that the provisions of the Memorandum of Understanding and any amendment or addition thereto will be subject to any financial arrangement made or to be made between either of the parties and a bank or insurance company (the “Lien Holder”), that will finance the purchase of ORL shares and whose loan will be secured by a pledge of ORL shares.

Upon violation of the financial arrangement by one of the parties and notification by the Lien Holder that it intends to foreclose on all or a portion of the lien, the Lien Holder would be entitled to allow the second party to pay all the debts of the first party that were immediately payable and be entitled to receive all the rights of the Lien Holder to the ORL shares subject to the lien in the form of an irrevocable assignment.

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The party that receives ORL shares in the form of the aforementioned irrevocable assignment would realize the lien subject to the provisions of the Memorandum of Understanding.

Joint Purchase of ORL Shares

Pursuant to the provisions of the MOU, the Scailex Group and Israel Corp. submitted a joint offer as part of the public offering. On February 20, 2007, the Company received notification that the joint offer was accepted and that PCH and Israel Corp. had been issued 920 million shares of ORL, which constitutes approximately 46% of the total share capital of ORL. In accordance with the terms of the MOU, out of the total number of shares of ORL purchased jointly by the Scailex Group and Israel Corp., PCH purchased 184 million ordinary shares (9.2% of the issued share capital of ORL), and Israel Corp. purchased 736 million shares (36.8% of the issued share capital). The shares in the offering were acquired based on a valuation of ORL of NIS 6.6 billion and a share value of NIS 3.30 per share.

During February and March 2007, PCH and Israel Corp. acquired an additional 107.24 million shares of ORL on the Tel Aviv Stock Exchange. As consideration for these additional shares, PCH paid a total amount of approximately NIS 142.8 million at an average price of approximately NIS 2.96 per share. As a result of the aforementioned purchases, Israel Corp. and Scailex (through PCH) held jointly, as of March 28, 2007, 53.6% of the issued share capital of ORL, with PCH holding 252.4 million shares, or 12.62% of the issued share capital, and Israel Corp. holding 819.5 million shares, or 40.98% of the issued share capital of ORL.

Notwithstanding the foregoing, the rights in the shares of ORL are limited, including the ability to exercise common control of ORL under a shareholder agreement, until the shareholders receive the mandatory regulatory approvals in Israel, which include approval by the Israel Antirust Authority for the acquisition of 25% or more of the ORL share capital and receipt of a control permit for control of 24% or more of ORL from the Minister of Finance and the Prime Minister. The Scailex Group and Israel Corp. have received the necessary approval from the Israeli Antitrust Commissioner, but continue to await receipt of the control permit.

Deed of Undertaking

The parties decided to revoke the MOU and the Addendum to the MOU on May 10, 2007 and to enter into an irrevocable deed of undertaking (the “Deed of Undertaking”) allowing the parties to file separately for a control permit for the acquisition of ORL. The parties entered into the Deed of Undertaking in order to expedite the acquisition of the control of ORL since Scailex, PCH and Israel Corp. believed (and believe) that it is in the best interests of ORL to establish control by its new shareholders as soon as possible. The decision to apply separately stemmed from the fact that the parties assumed that Israel Corp., which until February 2007, formerly held 26% of ORL, would succeed in obtaining a control permit in a relatively short time. Furthermore, PCH has experienced delays in receiving the control permit due to the fact that additional information was requested about Linura, which holds 19.9% of PCH. . The revocation of the MOU enabled Israel Corp. to submit a separate application for the control permit for the acquired ORL shares from the Finance Minister and the Prime Minister.

The following is a summary of the main points of the Deed of Undertaking:

The parties agreed that if the Scailex Group receives the mandatory regulatory approvals, including a control permit and a possible additional approval from the Israeli Antitrust Commissioner, on or before May 15, 2009, Israel Corp and the Scailex Group will enter into the Control Agreement for the joint control of ORL, as described below.

The call option (the “Call Option”), which is to be granted to PCH pursuant to the Control Agreement (as described below), shall be exercisable until May 15, 2009 or until 120 days after the mandatory governmental approvals for the exercise of the ORL shares have been obtained, whichever is earlier. Exercise of the Call Option will enable PCH to purchase and receive by way of transfer from Israel Corp. 230 million shares of ORL (the “Underlying Shares”), so that, subsequent to exercise of the Call Option, PCH will hold 45% of the 50.25% control core (the “Control Core Shares”) in ORL’s share capital, and Israel Corp. will hold 55% of the Control Core Shares in ORL’s share capital. The price of the Underlying Shares would be the cost price for purchasing the Control Core Shares in the sale offering, namely NIS 3.30 per share for a total of NIS 759 million, plus index linkage differentials and linked interest at the rate of 5% per annum, less any dividends distributed (if any), plus index linkage differentials and interest as aforesaid.