- Annual and Transition Report (foreign private issuer) (20-F)

As filed with the Securities and Exchange Commission on June 16, 2011

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-14398

SHAMIR OPTICAL INDUSTRY LTD.

(Exact name of registrant as specified in its charter)

N/A

(Translation of registrant’s

name into English)

Israel

(Jurisdiction of incorporation

or organization)

Kibbutz Shamir

Upper Galilee

12135 Israel

(Address of principal executive offices)

Mr. David Bar-Yosef, General Counsel

Telephone Number: +972-4-6947777; E-Mail: davidby@shamir.co.il ,

(Name, Telephone, E-mail and/or Facsimile number and Address of the Registrant’s Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:

Ordinary Shares, par value NIS 0.01 each

Name of each exchange on which registered:

NASDAQ Global Market

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

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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 17,132,267 Ordinary Shares, 0.01 NIS per share outstanding as of December 31, 2010.

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

Yes o No x

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

Yes o No x

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

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x

International Financing Reporting Standards as issued by the International Accounting o

Standards Board o

Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18 o

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).

Yes o No x

TABLE OF CONTENTS

CERTAIN DEFINED TERMS	1
FORWARD-LOOKING STATEMENTS	1
PART I	3
ITEM 1. IDENTITY OF DIRECTORS; SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	3
ITEM 3. KEY INFORMATION	3
ITEM 4. INFORMATION ON THE COMPANY	17
ITEM 4A. UNRESOLVED STAFF COMMENTS	31
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	32
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	42
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	50
ITEM 8. FINANCIAL INFORMATION	56
ITEM 9. THE LISTING	56
ITEM 10. ADDITIONAL INFORMATION	58
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	72
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	72
PART II	73
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	73
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	73
ITEM 15. CONTROLS AND PROCEDURES	73
ITEM 16. [RESERVED]	73
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	73
ITEM 16B. CODE OF ETHICS	74
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	74
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	74
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	74
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	74
ITEM 16G. CORPORATE GOVERNANCE	74
PART III	75
ITEM 17. FINANCIAL STATEMENTS	75
ITEM 18. FINANCIAL STATEMENTS	75
ITEM 19. EXHIBITS	75
FINANCIAL STATEMENTS	F-1

CERTAIN DEFINED TERMS

In this annual report, unless otherwise provided, references to “the Company”, “Shamir,” “we,” “us” and “our” refer to Shamir Optical Industry Ltd. (or its predecessor or successor entities) and its subsidiaries, and references to “our company” refer to Shamir Optical Industry Ltd. (or its predecessor or successor entities) without its consolidated subsidiaries. The terms “Euro,” “EUR” or “€”refer to the common currency of the member states of the European Union, “NIS” refers to New Israeli Shekel, and “dollar,” “USD” or “$” refers to U.S. dollars.

We own rights directly or through our subsidiary Shamir Insight Inc. (“Shamir Insight”) in the following trademarks in various jurisdictions world-wide: Shamir Ô , Shamir logo, Insight Ô , Shamir Genesis Ô , Genesis Ô , Shamir Piccolo Ô , Piccolo Ô , Shamir Office Ô , Shamir Creation Ô , Shamir Autograph Ô , Autograph Ô , Autograph II Ô , Autograph Attitude Ô , Shamir Attitude Ô , Attitude Ô , Shamir Attitude Golf Ô , Prescriptor Ô , Eye Point Technology Ô , Freeform Ô , Freeform Technology Ô , Panorama Ô , Direct Lens Technology Ô , Autograph Golf Ô , Autograph Short Ô , Autograph Everyday Ô , Piccolo Wrap Ô , The Progressive Lens Experts Ô , Titan Hardcoat Ô , Deskvision Ô , Individual Eyes Ô , Recreating Perfect Vision Ô , Multispace Ô , Shamir Nano Ô , Shamir Relax Ô , Autograph Relax Ô , Sport Attitude Ô , Shamir Smart Office™, Shamir Smart Attitude™, Autograph Single Vision™, Shamir Smart Single Vision™, Shamir Freeform Geometry™, Superlite Ô , Resultant Rx Ô , Polyplus Ô , RCPV Ô , Midview Ô , Prescriptor Ô , Prescriptor Optical Yield Optimizer Ô , Shamir Autograph Freeframe Ô and Shamir Freeform Cosmetics™, Spectrum Proprioception™, Office Proprioception™, Relax Proprioception™, Autograph Proprioception™, Shamir Computer™, Shamir Imagine™, Shamir Workspace™, Glacier Plus™, Shamir First Pal™, Shamir Spectrum™. Our main trademarks are registered or are in the process of being registered in the U.S., the European Union, Canada and additional countries. All other trademarks or brand names referred to in this annual report are the property of their respective owners.

FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements. Forward-looking statements may be, but are not necessarily, identified by words like “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “plan,” “assume,” “may,” “will,” “should,” “could” and similar expressions. Forward-looking statements also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this annual report are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance of financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

·	the effects of competition in our industry and changes in our relationships with optical laboratories, distributors and other third parties;

·	the effects of the international expansion of our operations and our ability to manage our growth, including our ability to manage potential future acquisitions;

·	the political, economic, trade restriction, staffing, contract enforcement, tax and other risks associated with international operations;

·	the effects of the worldwide economic conditions;

·	the effects of exchange rate fluctuations;

·	our ability to timely develop and market new or enhanced products and the effects of developments in alternative technologies and treatments in our industry;

·	our ability to protect our proprietary technology and intellectual property rights;

·	our ability to capitalize on our research and development capabilities;

·	our relationship with Kibbutz Shamir;

·	the political, military and economic conditions in Israel;

·	our success at managing the risks of the foregoing;

·	risks related to the merger and related transactions we entered into with Essilor International SA; and

·	the other factors referenced in this annual report, including, without limitation, in the sections entitled “Item 3. Key Information—Risk Factors,” “Item 5. Operating and Financial Review and Prospect” and “Item 4. Information on the Company.”

We undertake no obligation to update forward-looking statements or risk factors in this annual report to reflect new information, future events or otherwise, except as may be required under applicable securities laws and regulations.

AMENDMENT NO. 16 TO THE COMPANIES LAW

On March 7, 2011, Amendment no. 16 to the Israeli Companies Law, 1999 (the "Companies Law”), or Amendment 16, was enacted by the Israeli Knesset. Amendment 16, which has come into effect on May 14, 2011(excluding certain provisions which will come into effect on September 14, 2011), places a special emphasis on the autonomy of the board of directors and the External Directors and on the composition and responsibilities of the audit committee.

Under Amendment 16, among others: (i) the approval of certain interested party transactions will require the affirmative vote of a majority of the shares and in addition either that (a) the majority (rather than one third, which is the current requirement of the Companies Law prior to Amendment 16) of the shares held by shareholders who do not have a personal interest in the transaction attending in person or represented by proxy have voted in favor of the proposal (shares held by abstaining shareholders shall not be considered) or (b) that the total number of disinterested shares voted against the proposal does not exceed 2% (rather than 1%, which is the current requirement of the Companies Law prior to Amendment 16) of the aggregate voting rights; (ii) the approval of the appointment of an External Director will require the affirmative vote of a majority of the shares and in addition either that (a) the majority (rather than one third, which is the current requirement of the Companies Law prior to Amendment 16) of the shares held by shareholders who are not controlling shareholders or having a personal interest in the appointment attending in person or represented by proxy have voted in favor of the proposal (shares held by abstaining shareholders shall not be considered) or (b) that the total number of disinterested shares voted against the proposal does not exceed 2% (rather than 1%, which is the current requirement of the Companies Law prior to Amendment 16) of the aggregate voting rights; (iii) the majority of members of the audit committee shall be independent directors (as defined under Amendment 16), and the audit committee chairman shall be an External Director; (iv) the quorum required to determine a decision of the audit committee shall be not less than a majority of the independent directors, including at least one External Director; and (v) the audit committee shall determine whether certain related party transactions are considered extraordinary transactions for the purpose of the Companies Law and should be approved as such.

The description of the provisions of the Companies Law and the arrangements thereunder, throughout this annual report on Form 20-F, assumes that Amendment 16 in its entirely has already come into effect.

PART I

ITEM 1. IDENTITY OF DIRECTORS; SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Introduction - Corporate Reorganization

In March 2005, we conducted an initial public offering (“IPO”) and concurrent listing on The NASDAQ National Market (currently known as The NASDAQ Global Market) of our ordinary shares. Our ordinary shares have also been listed on the Tel Aviv Stock Exchange ("TASE") since May 2, 2005. Prior to the IPO, we were organized as an agricultural co-operative society (A.C.S.), which is a corporate entity organized under Israeli law with shares and limited liability for its members. The principal distinction between an Israeli corporation, our current corporate form, and an A.C.S. is that an A.C.S. is a pass-through tax entity and all the profits and losses of the A.C.S. are attributed to its shareholders pro rata to their shareholding. Historically, the Articles of Association of our A.C.S. reflected the laws and regulations applicable to such an entity.

On March 6, 2005, we changed the structure of our company from an A.C.S. into an Israeli corporation. To do so, we relied on a provision of the Companies Law that allows such reorganization without having to transfer any assets, rights or liabilities into a new entity and by using the same entity of the A.C.S. in order to change its form into a corporation, which is not considered as a taxable event. As part of this reorganization and in preparation for the March 2005 offering, we adopted new Articles of Association and restructured our share capital by splitting the 105,506 existing shares so that each share with a par value of NIS 1.00 was divided into 100 ordinary shares with a par value of NIS 0.01 each. In addition, we distributed to our shareholders out of our equity 2,160,732 new ordinary shares with a par value of NIS 0.01 each. With this distribution, the old shares of the A.C.S. were in effect split at a ratio of 120.48-to-one, and our total issued and outstanding share capital then amounted to NIS 127,113 consisting of 12,711,332 ordinary shares with a par value of NIS 0.01 each. We also created an authorized share capital of 100,000,000 ordinary shares with a par value of NIS 0.01 each. As part of the IPO, which closed on March 16, 2005, we issued 3,400,000 new ordinary shares with a par value of NIS 0.01 each. In addition, on July 31, 2005, we allocated 145,182 ordinary shares to Severn Confirmers & Forwarders, Ltd. As of June 1, 2011, we had 17,256,916 ordinary shares outstanding. See also “Item 10. Additional Information—Share Capital.”

On October 15, 2010, we signed a Merger Agreement, which shall be referred to in this annual report on Form 20-F as the Merger Agreement, with an indirect wholly-owned subsidiary of Essilor International SA, a French société anonyme , or Essilor. Under the terms of the proposed merger, our shareholders will be entitled to receive $14.50 in cash, without interest and less any applicable withholding taxes, for each ordinary share of Shamir that the shareholders own as of the effective time of the merger, other than ordinary shares held directly or indirectly by (i) Kibbutz Shamir A.C.S., or Kibbutz Shamir, an Israeli agricultural cooperative society and our controlling shareholder, (ii) Shamir Optica Holdings A.C.S. Ltd., or Shamir Holdings, an Israeli agricultural cooperative society wholly owned by Kibbutz Shamir through which Kibbutz Shamir holds most of its ordinary shares of Shamir, (iii) Essilor, or (iv) Shamrock Acquisition Sub Ltd., or the Merger Sub, an Israeli company and an indirect wholly-owned subsidiary of Essilor. The merger is being effected as an arrangement between Shamir and its shareholders under Sections 350 and 351 of the Israeli Companies Law and is subject to Israeli court approval. In connection with the transactions contemplated by the Merger Agreement, Kibbutz Shamir, Shamir Holdings and Essilor entered into a Share Purchase and Subscription Agreement, dated as of October 15, 2010, or the Share Purchase and Subscription Agreement. Pursuant to the Share Purchase and Subscription Agreement, (i) simultaneously with and subject to the occurrence of the merger, Essilor will purchase from Kibbutz Shamir shares of Shamir held by Kibbutz Shamir, and (ii) immediately following the merger, Essilor will (x) subscribe for certain newly issued shares of Shamir Holdings, in exchange for cash, and (y) subscribe for additional newly issued shares of Shamir Holdings, in exchange for the contribution to Shamir Holdings by Essilor of all of the shares of Shamir then held directly by Essilor. Following the consummation of the merger and the other transactions contemplated by the Merger Agreement and the Share Purchase and Subscription Agreement, our shares will be delisted from The NASDAQ Global Market and the TASE. We will be a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Following the merger, Kibbutz Shamir, Shamir Holdings, Shamir and Essilor intend to enter into certain other agreements, including a shareholders’ agreement, amended lease agreement and various commercial agreements. On April 26, 2011, our shareholders approved the Merger Agreement, the merger and related transactions. On May 5, 2011, we filed with the district court in Nazareth a motion requesting the court to issue an order approving the merger. On June 13, 2011, such order has been issued by the court. The closing of the merger remains subject to the satisfaction of the remaining conditions specified by the Merger Agreement. Please see Exhibit a(2) to Schedule 13E-3/A we filed with the Securities and Exchange Commission on March 24, 2011 for more details on the Merger Agreement and the other transactions contemplated thereby.

3.A SELECTED FINANCIAL DATA

The following selected consolidated financial data as of December 31, 2009 and 2010, and for the years ended December 31, 2008, 2009 and 2010, have been derived from our audited consolidated financial statements. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and audited by Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global. The selected consolidated statement of income data as of December 31, 2006 and 2007 (1) , and the selected consolidated balance sheet data for the years ended December 31, 2006, 2007 and 2008, have been derived from other consolidated financial statements not included in this annual report and have also been prepared in accordance with U.S. GAAP and audited by Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global.

The selected consolidated financial data set forth below should be read in conjunction with and are qualified by reference to Item 5, “Operating and Financial Review and Prospects” and the Consolidated Financial Statements and notes thereto and other financial information included elsewhere in this annual report.

	Year Ended December 31,
(Dollars in thousands, except per share data)	2006			2007			2008			2009			2010

STATEMENT OF OPERATIONS DATA:
Revenues, net	$	97,280		$	120,419		$	140,326		$	142,384		$	157,991
Cost of revenues (2)		44,038			55,856			64,415			65,448			71,485
Gross profit		53,242			64,563			75,911			76,936			86,506
Operating expenses:
Research and development (2)		2,372			2,564			3,368			3,239			4,579
Selling and marketing (2)		32,798			36,552			42,374			40,959			44,937
General and administrative (2)		10,986			13,549			16,793			15,410			17,238
Total operating expenses		46,156			52,665			62,535			59,608			66,754
Operating income		7,086			11,898			13,376			17,328			19,752
Financial expenses, net		(159	)		(239	)		(2,142	)		(395	)		(220	)
Income before taxes on income		6,927			11,659			11,234			16,933			19,532
Taxes on income		2,179			5,013			2,216			3,699			3,834
Income after taxes on income		4,748			6,646			9,018			13,234			15,698
Equity in gain (losses) of affiliates, net		(245	)		46			44			31			(114	)
Net income		4,503			6,692			9,062			13,265			15,584
Net income (loss) attributable to non-controlling interest (1)		(1,957	)		(1,509	)		(16	)		477			772
Net income attributable to Shamir Optical Industry Ltd. Shareholders	$	6,460		$	8,201		$	9,078		$	12,788		$	14,812

Net earnings per share:
Basic	$	0.40		$	0.50		$	0.55		$	0.78		$	0.88
Diluted	$	0.39		$	0.50		$	0.55		$	0.77		$	0.87

Weighted average number of shares (in thousands)
Basic		16,257			16,339			16,424			16,438			16,771
Diluted		16,548			16,552			16,522			16,530			16,945

(1)

On January 1, 2009, we adopted Accounting Standard Codification 810 “Consolidation” (“ASC 810”). The guidance establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for deconsolidation of a subsidiary. As a result net income now includes net income attributable to both the Company and the non-controlling interest in the consolidated statements of operations. Net income excluding the non-controlling interest is now presented after net income, with the caption net income attributable to our Shareholders.

(2)

Operating expenses includes the following stock-based compensation:

	Year Ended December 31,
	2006		2007		2008		2009		2010
(Dollars in thousands)

Cost of revenues		—	$	23	$	40	$	38		—
Research and development		247		226		149		8		47
Selling and marketing		260		86		63		15		75
General and administrative		919		695		481		390		443
Total	$	1,426	$	1,030	$	733	$	451	$	565

	As of December 31,
	2006		2007		2008		2009		2010
(Dollars in thousands)

FINANCIAL POSITION DATA:
Cash and cash equivalents	$	23,205	$	18,953	$	18,276	$	19,929	$	15,360
Short term investment		16,911		14,375		7,187		11,679		12,998
Working capital		59,028		52,316		47,770		55,081		56,303
Total assets		146,996		160,491		149,496		163,714		162,299
Total liabilities		64,970		74,468		61,477		68,262		58,171
Total debt		40,381		45,433		35,193		32,878		23,462
Total shareholders’ equity		79,803		85,223		86,769		91,940		97,941

__________________________

Exchange Rate Data

Our reporting currency is the U.S. dollar. We generate revenues and incur expenses principally in dollars, Euros and NIS. See also “Item 5. Operating and Financial Review and Prospects—Functional Currency and Exchange Rate Fluctuations.”

The following table sets out the average exchange rates for these currencies per $1.00 for the past five fiscal years, based on the exchange rates published by the Bank of Israel:

Currency	2006		2007		2008		2009		2010
EUR		0.797		0.730		0.682		0.719		0.754
NIS		4.457		4.108		3.588		3.933		3.733

On June 1, 2011, the exchange rate was NIS 3.420 per $1.00 and €0.694 per $1.00, as reported by the Bank of Israel.

3.B CAPITALIZATION AND INDEBTEDNESS

Not applicable

3.C REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

3.D RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this annual report. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this report. The risks described below do not purport to be exhaustive and these risks do not constitute the only risks to which we are exposed. The order in which the individual risks are presented does not provide an indication of the likelihood of their occurrence nor of the severity or significance of the individual risks.

Risks Relating to Our Business and the Ophthalmic Industry

The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products.

Competition in our industry is intense, and we expect competition to increase. New products are introduced frequently, and we compete primarily on the basis of innovation, quality and breadth of product offerings, customer service and price.

Many of our main competitors are significantly larger than we are and have significantly greater financial and human resources than we do. They also have greater technical, product development and marketing resources and are more established and enjoy greater market recognition than we do. As a result, these competitors benefit from greater economies of scale and may be able to develop products or services that are more effective than ours and to respond more quickly to new or emerging technologies or changes in customer requirements. They compete with us in some cases by offering lower prices or devoting greater resources to product marketing than we do. Price competition in our industry is often severe and may result in lower prices or reduced demand for our products and a corresponding reduction in our gross margins, which would, in turn, impair our ability to maintain profitability.

Certain of our competitors also have more developed and substantial direct customer bases than we have and may be able to fund significant direct sale efforts as well as more product development and acquisition efforts. A number of our principal competitors are vertically integrated with optical laboratories to a greater extent than we are. This integration may limit the number of independent optical laboratories to which we can market our products and may limit the amount of purchases of our products by these laboratories. In addition, within a particular market, certain of our competitors may enjoy a “home-country” advantage over foreign competition, and we may also face additional competition if new participants enter the markets in which we operate. The development and successful introduction by a competitor of products or services that are superior in performance to or lower in price than ours could adversely affect our ability to effectively compete in the marketplace for optical lenses.

We rely on optical laboratories in various geographic markets to purchase, market and sell our products worldwide. If we are unable to maintain or expand our relationships with these laboratories, it could have a material adverse effect on the sales and distribution of our products.

We rely on optical laboratories in the different geographic markets in which we operate to purchase our products from us or to distribute our products to the end-user on our behalf. The number, size, business strategy and operations of these laboratories vary widely from market to market. The success of our sales and distribution channels depends heavily on our successful cooperation with these laboratories in some of our markets.

The U.S. ophthalmic market is characterized by a large number of laboratories, independent and non-independent, as well as large national retail chains and buying groups, some of which own their own laboratories. We distribute our products to independent and non-independent laboratories, which distribute our products to the ophthalmic market. The laboratories in the U.S. sell both their own products as well as products of other manufacturers like us. If a large number of non-independent laboratories, buying groups or retail chains cease to purchase our products due to a change in internal purchasing policies, or if the number of independent laboratories decreases, it could have an adverse impact on our sales and our results of operations in the U.S.

The European ophthalmic market, relative to the U.S. market, has a smaller number of optical laboratories. Non-independent laboratories control a major share of the European market, and sell mainly their own products. We sell our products in Europe mainly through our own laboratories and distribution channels to opticians and retail chains. In the rest of the world we sell our products through our laboratories to opticians or to independent or non-independent laboratories. If one or more of such laboratories cease to purchase our products due to a change in internal purchasing policies, it could have an impact on our sales and our results.

A significant portion of our business is conducted outside of Israel and the United States, and we intend to continue to expand our operations internationally. As a result, we are subject to a number of risks associated with our foreign operations.

We derive substantial revenues from sales outside of Israel, and a significant part of our sales outside of Israel and the United States. During 2010, we generated approximately 68.2% of our revenues from sales outside of Israel and the United States, including 47.6% in Europe. We also sell our products in Australia, Thailand Canada, South Africa, Central and South America, China and several additional countries. An integral part of our expansion strategy is to enter new foreign markets, principally in Central and South America and Asia, and to further penetrate those foreign markets in which we are currently active. Our ability to penetrate certain international markets may be limited, and our international sales and operations and our expansion strategy are subject to numerous risks inherent in international business activities, including:

developments in the political and economic environment in some foreign countries in which we operate that might have an adverse effect on our operations in those countries, including the fact that customers in some jurisdictions may not do business with an Israeli company;

the imposition of tariffs or exchange controls, technology export license requirements or other trade restrictions;

developments in foreign policy toward Israel that may lead to economic sanctions against operations related to Israel which are located outside of Israel;

difficulty in managing a large organization spread through various countries, including staffing and managing foreign operations;

difficulty in enforcing agreements and collecting receivables through certain foreign legal systems, in particular in developing markets in Asia, Central and South America;

longer payment cycles for foreign customers than for customers in the United States;

currency exchange risks, in particular between the U.S. dollar and local foreign currencies;

difficulties in complying with a variety of foreign laws and regulations;

tax rates in certain foreign countries that exceed those in Israel, withholding requirements on foreign earnings and local import or export taxes; and

greater difficulty in safeguarding intellectual property in certain jurisdictions, in particular in China and other Asian countries.

These and other factors could have a material adverse effect on our international operations or our business as a whole. As we continue to expand our business globally, our success will increasingly depend on our ability to effectively manage these risks.

An economic slowdown or recession could trigger a decline in demand for our products that may adversely affect our results of operations.

The markets in which we sell our products have previously been adversely affected by economic slowdowns and recessions which have led to reduced consumer and governmental spending and a decrease in prices in the ophthalmic market. Future economic slowdowns and recessions may have an adverse effect on our revenues, as well as on our ability to raise capital or debt at an attractive cost of capital.

We conduct our operations in Israel and throughout the world, including in Europe and in the U.S. In 2010 our sales to customers in Europe constituted approximately 47.6% of our revenues, while our sales to customers in the U.S. constituted approximately 28.6% of our revenues. A renewed economic slowdown, recession or sustained loss of consumer confidence in the markets in which we sell our products, especially in the European and U.S. markets, could trigger a decline in demand for our products that may adversely affect our results of operations.

We generate a significant portion of our revenues and expenses in currencies other than the dollar. As a result, our results of operations may be adversely affected by currency fluctuations.

We operate globally, and our financial results are subject to both transaction and translation effects resulting from fluctuations in currency exchange rates. We generate our revenues primarily in Euros and dollars, and we incur a significant portion of our expenses, principally salaries and related expenses of our staff in Israel, in NIS. In 2010, we generated approximately 37% of our revenues in dollars and 38% in Euros, and we incurred approximately 17% of our operating expenses in NIS, 31% in dollars and 31% in Euros. Exchange rate fluctuations between the dollar and the Euro and between the dollar and the NIS may impact our revenues, cost of revenues and other operating expenses. See “Item 5. Operating and Financial Review and Prospects —Functional Currency and Exchange Rate Fluctuations.” We currently do not fully hedge our currency exposure through financial instruments .

During 2009, the NIS exchange rate appreciated against the dollar by 0.7% and the Euro exchange rate appreciated against the dollar by 3.4%. During 2010, the NIS exchange rate appreciated against the dollar by 6.0% and the Euro exchange rate devaluated against the dollar by 8.0%. In 2009, the NIS annual average rate devaluated against the U.S. dollar by 9.6% and the Euro annual average rate devaluated against the U.S. dollar by 5.4%, compared to the previous year average. In 2010, the NIS annual average rate appreciated against the U.S. dollar by 5.1% and the Euro annual average rate devaluated against the U.S. dollar by 4.8%, compared to the previous year’s average.

One currency exchange risk we face is translation risk. In preparing our consolidated financial statements, we convert the results from operations outside the U.S. dollar zone into dollars at the average rate for each reporting period.

Another currency exchange risk we face is translation risk in companies were the measurement of taxable income is in a different currency than the functional currency. When coming to measure our taxable income in these companies, we translate the operating results from the functional currency to the currency in which the taxable income is measured. Therefore, translation differences in the financial statements may differ from those recognized for tax purposes. This exchange risk may dramatically affect our effective income tax rate.

We are also exposed to translation risk when our sales are denominated in currencies that are different from those in which we purchase raw materials or incur production costs. If the value of the currency in which the purchase price is denominated declines relative to the currency in which we incur our costs, the profit margin for the transaction will be reduced.

If we do not continually enhance our existing products and develop and market new products, our product portfolio may become obsolete and we may not achieve broad market acceptance and brand recognition.

The market for ophthalmic lenses and lens designs is characterized by:

short product life cycles and frequent product introductions and enhancements;

low price sources of the products with improving quality;

evolving industry performance standards; and

changes in customer and end-user requirements.

Any one of these factors could reduce the demand for our products or require us to expend substantial resources for research, design and development of new products and technologies to avoid technological or market obsolescence. Our success will depend on our ability to continually enhance our existing products and develop or acquire and market new products in an effort to maintain and increase sales and to improve our gross margins. We cannot assure you that we will have sufficient financial resources or otherwise be able to develop the technological advances necessary for us to remain competitive or that any new products that we develop will be accepted in the marketplace, either at all or on a timely basis or at competitive prices. Any delay or failure by us to respond to these market conditions or to technological advances by our competitors would have a material adverse effect on our business, operating results and financial condition.

We compete against alternative technologies and treatments that provide a substitute for spectacle lenses.

Ophthalmic lenses compete with other methods of vision correction, including laser surgery and contact lenses. Some of these technologies currently offer limited competition to our progressive lens products, our most significant products in terms of sales. See “Item 4. Information on the Company—Industry Overview—Lenses and Alternatives.” As alternative technologies evolve in the future, they may decrease demand for spectacle lenses, which would have a material adverse effect on our sales and results of operations.

Our main manufacturing facilities are located in Israel and Portugal. An interruption of manufacturing at these facilities for any reason could have a material adverse effect on our results of operations.

A significant portion of the development and manufacturing of our products is concentrated at our manufacturing facilities in Israel and in Portugal. Raw materials and finished product inventories are also stored at these facilities. Although these facilities are in several separate locations, a disruption of our operations, disruption to air delivery or damage to any of these facilities, whether as a result of fire, natural disaster, act of war, terrorist attack, plague or otherwise, could materially affect our ability to deliver products on a timely basis and could materially adversely affect our results of operations. We have insured the portion of our product inventories stored in these facilities against loss from any such disruption or damage. For risks relating to our facilities in Israel, see also “—Risks Relating to our Operations in Israel.”

In addition, we have some additional manufacturing facilities in Australia, Thailand, Italy, Turkey and Mexico, that are smaller and less significant than those that are mentioned above. Nevertheless, a disruption of our operations or damage to any of these facilities, whether as a result of fire, natural disaster, act of war, terrorist attack, plague or otherwise, could affect our ability to deliver products on a timely basis and could affect our results of operations.

Our proprietary technology is difficult to protect. Unauthorized use of our proprietary technology by third parties may impair our ability to compete effectively.

Our success and ability to compete within the ophthalmic industry depend in large part on our ability to protect our proprietary technology. To do so, we currently rely on a combination of patent protection for our technologies and products, trade secret and intellectual property laws, nondisclosure and other contractual agreements, and other technical measures to protect our proprietary rights and maintain the confidentiality of key business and manufacturing processes. We seek to defend and enforce our rights against infringement and to operate without infringing the proprietary rights of others.

The validity and breadth of claims in patent applications for ophthalmic technology or processes involve complex legal and factual questions and may therefore be highly uncertain. We cannot assure you that:

patent authorities will not grant patents based on applications our competitors have filed or may file;

the scope of any patent protection we receive will exclude competitors or provide us with competitive advantages;

any of the patents that have been or may be issued to us will be held valid if subsequently challenged; or

others will not claim rights in or ownership of the patents and other proprietary rights that we hold.

Furthermore, we cannot assure that others have not developed or will not develop similar products or technologies, duplicate any of our products or technologies, or design around any patents that have been or may be issued to us. In many countries patent applications remain confidential until the issuance of a patent. We cannot be certain, therefore, that others have not filed earlier applications for inventions covered by our pending patent applications, nor can we be certain that we will not infringe any patents that may be issued to others on such applications.

Certain of our employees and consultants are subject to confidentiality undertakings in favor of the Company, and we also seek these undertakings from some suppliers and customers. However, not all of our employees or suppliers and customers are subject to these undertakings, and even where they are, these measures may not be sufficient to protect our technology from third-party infringement or misappropriation. There can be no assurance that our counterparties will not breach these agreements, and we may not have adequate remedies for such breaches. In addition, our competitors may learn of our trade secrets through other methods. Intellectual property law protection may be insufficient to safeguard our proprietary information, and our products may be sold in countries that provide less protection to intellectual property than the United States, Europe or Israel, or no protection at all. If any third parties infringe our proprietary technology rights, this infringement could have a material adverse effect on our competitive position.

Our business may suffer if we are involved in disputes or protracted negotiations regarding our intellectual property rights or the intellectual property rights of third parties.

We are subject to the risk of adverse claims and litigation alleging infringement by us on the intellectual property rights of others. There are increasing numbers of patents and patent applications in our industry. Third parties may assert infringement claims in the future, alleging infringement by our current or future products or applications. For example, in January 2011, a lawsuit was filed against us by a shareholder of one of our subsidiaries claiming that we illegally used the intellectual property of the Technion Israel Institute of Technology to seek unjust enrichment. See “Item 8. Financial Information—Legal Proceedings.”

We may institute or otherwise be involved in litigation to protect our registered patents and/or trade secrets or know-how, challenge the validity of proprietary rights of others or defend against alleged infringement by us of proprietary rights of others. This type of litigation is costly and diverts management’s attention from its day-to-day responsibilities of running our business. In addition, an adverse determination in such litigation could:

limit the value of our trade secrets or know how;

subject us to significant liabilities to third parties;

require us to seek licenses from third parties; or

prevent us from manufacturing and selling products,

any of which could have a material adverse effect on our business, financial condition and results of operations.

We are a company that is focused on research and development, and we cannot assure that our research and development efforts will result in new products or product enhancements that will receive the market acceptance and demand that we expect.

We are focused on research and development (R&D) and the success of our business depends substantially on the results of our R&D activities. We conduct R&D both to enhance our existing proprietary technologies and to develop new technologies. We cannot assure you that our R&D efforts will result in product enhancements or new products, or that there will be a market for products related to or based on these new concepts. The success of our R&D efforts depends on the availability of funds as well as on the timely completion of our R&D projects. If we fail to provide the necessary funds to complete our various R&D projects or if we miss our target deadlines, we may lose a competitive advantage of being the first to market. In addition, our competitors that have greater financial resources to commit to R&D efforts may be able to “leap frog” our technological innovations with their own technological innovations and make our innovations obsolete even before we introduce them to market. In addition, some of the agreements pursuant to which we provide design services restrict our ability to offer products with certain qualities that exceed those designed for the customer who is party to the agreement, which may limit our ability to market new product developments outside of those relationships. Our investment of human and financial resources in R&D is therefore highly risky with no guarantees of any developmental success or investment return.

We also provide design and manufacturing services to producers, distributors and wholesalers of lenses in accordance with specifications defined by such producers, distributors and wholesalers. Though we are usually compensated for this development work, this compensation is primarily in the form of royalties and depends on the ability of these producers, distributors and wholesalers to sell these products. Their failure to do so may affect our results.

We intend to continue our policies of acquisitions and of co-operations with local strategic partners. Pursuing these polices could divert our resources, create unanticipated expenses, disrupt our business and adversely affect our financial condition.

Part of our expansion strategy is to pursue acquisitions of other businesses, in particular laboratories, establish local co-operations and acquire complementary businesses or technologies. Negotiating potential acquisitions or local co-operations as well as integrating newly acquired or jointly developed businesses, products or technologies into our operations could divert our management’s attention from other business matters and could be expensive and time-consuming. We cannot assure that we will be successful in integrating acquired businesses, laboratories or technologies or in establishing local co-operations or that we will be able to realize the intended sales and cost benefits of the acquisition or local co-operations.

In addition, future acquisitions could require substantial cash expenditures and could result in customer or distributor dissatisfaction, including with respect to independent laboratories that may view our ownership of laboratories in their respective jurisdictions as competitive. We may also experience performance problems with an acquired company, suffer a decrease in our profit margins or incur debt and contingent liabilities from the acquired businesses. In addition, we may issue equity securities in the context of an acquisition that could cause dilution to our existing shareholders at the time, and we may incur impairment charges related to goodwill and amortization of intangibles. Any of these factors could harm our business, financial condition and results of operations.

We have non-wholly-owned subsidiaries for various parts of our business operations, including research and development and sales. If our relationships with these third parties ends or deteriorates, it might have an adverse effect on our business and results of operations.

We have non-wholly-owned subsidiaries for certain parts of our foreign operations. We are also distributing our products to national retail chains, optical retail stores and national retail buying groups who, we believe, will make up a growing part of the distribution of spectacle lenses

We have non-controlling partners in some of our foreign subsidiaries that contribute to our sales and profitability. The consent of certain non-controlling partners in certain subsidiaries is required for certain matters regarding the subsidiaries operations, including resolutions that contradict specific existing agreements, issuances of shares, and transactions with related parties (including us) or other transactions outside the ordinary course of business. Dividends and other payments to us from subsidiaries in certain jurisdictions are subject to legal restrictions and may have tax consequences to us. In addition, these payments or shareholders loans are contingent on the results of operations of the particular subsidiaries and are subject to various business considerations.

We are dependent on a small number of suppliers for raw materials and subcontractors.

Most of the raw materials used in the manufacture of lenses, including our products, are available from a limited number of suppliers. There is a narrow number of suitable suppliers of monomers for plastic and polycarbonate lenses. We purchase our raw materials from some of these suppliers. A change of supplier may cause us a high expense.

A certain part of the production process of our lenses is supplied by a limited number of worldwide subcontractors, some of which own a worldwide recognize trademark for their process and product. In addition, our competitors control some of these subcontractors.

The loss of any one of these suppliers or subcontractors, would require us to obtain these materials or services elsewhere. Because these markets are dominated by a small number of suppliers or subcontractors, there is the risk of a price cartel or monopoly. Our larger competitors may be able to purchase more supplies or subcontractors at any given time than we are and may therefore achieve lower prices than we do or prevent us from receiving such services. See “—The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products.” If we are unable to obtain such raw materials or services from our suppliers (or alternative suppliers) or subcontractors at acceptable prices, we may realize lower margins and experience difficulty in meeting our customers’ requirements.

We have several large customers to which we sell our products.

We have five large customers that collectively accounted for approximately 32.3% of our revenues during 2010. In addition, our largest customer accounted for approximately 13.5% of our revenues during 2010. The remaining 67.7% of our revenues are spread across a large number of customers in various geographic locations, and no other customer, other than our five largest customers, accounted for more than 3.5% of our revenues. Nevertheless, if one of our large customers were to cease purchasing our products, partially or entirely, it could cause a decrease in our total revenues.

We may not be able to continually reduce manufacturing costs for our products.

Prices for certain of our products come under pressure, in particular when such products become available from a comparatively large number of suppliers with little product differentiation. To maintain or strengthen our competitive position for these products within the ophthalmic industry, we must continually reduce our product manufacturing costs. These reductions are necessary to help offset price decreases, inflationary pressures and changes in product and regional mix. To the extent our cost reduction activities are unsuccessful, in part or in full, our ability to compete may be significantly impacted and our profit margin may be reduced.

Our operating results may fluctuate on a periodic basis, which could cause us to fail to meet expectations for a given period and result in a decline in the trading price of our shares.

Our results of operations may fluctuate significantly in the future on a quarterly and an annual basis due to a number of factors, many of which are beyond our control. These factors include:

foreign currency exchange rate fluctuations;

variations in the timing of orders and shipments of our products and services;

variations in the demand from and the size of orders by our customers;

the timing and success of new product or technology introductions by us or our competitors;

the pricing and profitability of our products or the timing of aggressive low-pricing policies by our competitors;

changes in the availability or cost of raw materials;

seasonal variations in customer spending in Europe and the United States;

the timing of technological innovations for our products or those of our competitors;

our ability to bring new products into volume production efficiently;

shifts in market and industry emphasis and end-user demands; and

market conditions in the ophthalmic industry and in the economy as a whole.

These factors complicate our planning processes and reduce the predictability of our earnings. This problem is particularly acute for us because of our relatively small size and the dynamics of the industry and worldwide markets in which we operate. Fluctuations in our quarterly results could cause us to fail to meet expectations (either our own or those of securities analysts) for the relevant period and could cause the trading price of our shares to decline. Therefore, period-to-period comparisons of our results of operations may not be meaningful, and you should not rely on them as indications of our future performance.

We have a limited number of key personnel. If we lose the services of these individuals, our business may be affected.

Our continued growth and success depend to a large extent on the services of, among others, certain of our senior personnel. If any of these key personnel should leave our employ we may be unable to locate and recruit sufficient replacement personnel without undue delay or additional cost. Any such delay or inability could delay or terminate some or all of our development programs or the commercialization of our products. Even if we are able to attract suitable replacement personnel, to the extent that the process of educating new personnel in our technologies, in the needs of the ophthalmic industry and in our company culture requires a certain transition period, we may incur delays with respect to the further developments of our products. The implementation of our business strategy and our future success will also depend in large part on our continued ability to attract and retain other highly qualified scientific, technical, marketing, financial and management personnel.

Risks Related to Our Relationship with Kibbutz Shamir

Kibbutz Shamir is our controlling shareholder, and its interests may conflict with those of other investors.

As of June 1, 2011, our majority shareholder, Kibbutz Shamir, held approximately 61.4% of our outstanding ordinary shares. As a result, this single shareholder had sufficient voting power to effectively control all matters concerning our company that require shareholder approval. For example, Kibbutz Shamir may have the power to affect our legal and capital structure; to elect all of our directors; to prevent or effect changes in our control or management; to approve or reject changes to our operations or strategic direction; to amend our Articles of Association and change the rights attached to our shares; and to determine whether we may enter into mergers or other business combination transactions in which shareholders could receive a premium over the prevailing market price for our shares. In addition, we have entered into certain agreements with Kibbutz Shamir pursuant to which Kibbutz Shamir provides us with, among other things, facilities, workers to fill certain positions within our company, administrative services, security and facilities maintenance, and other services. For more information please see “Item 7. Major Shareholders and Related Party Transactions.”

In these and other circumstances, Kibbutz Shamir’s interests may conflict with those of other investors, and other investors may be unable to prevent Kibbutz Shamir from acting in conflict with their interests.

Our agreements with Kibbutz Shamir may be less favorable to us than if they had been negotiated with unaffiliated third parties.

Our headquarters and certain manufacturing facilities are located on the premises of Kibbutz Shamir, which is our majority shareholder. In addition, we have entered into certain agreements with Kibbutz Shamir pursuant to which Kibbutz Shamir provides us with the certain services mentioned above. While these agreements have been negotiated on an arms’ length basis, they may contain terms that are different from the terms that would have been included had these agreements been negotiated with unaffiliated third parties. See “Item 7. Major Shareholders and Related Party Transactions.”

Our directors and executive officers who are members of Kibbutz Shamir may have conflicts of interest with respect to matters involving the Company.

Certain of our directors, officers and key employees are members of Kibbutz Shamir, which is our majority shareholder. Some of these individuals are also members of the management board of Kibbutz Shamir. These persons will have fiduciary duties to both us and Kibbutz Shamir. As a result, they may have real or apparent conflicts of interest on matters affecting both us and Kibbutz Shamir and in some circumstances may have interests adverse to ours. Currently, two members of our board of directors (including our chairman), and one of our executive officers are members of Kibbutz Shamir and members of Kibbutz Shamir’s management board. In addition, another member of our board of directors, who is not a member of Kibbutz Shamir, also serves on the management board of Kibbutz Shamir. See “Item 6. Directors, Senior Management and Employees.”

Risks Related to the Transaction with Essilor

On October 15, 2010 we signed a Merger Agreement with Essilor, pursuant to which, among other things, following the consummation of the merger and the other transactions contemplated by the Merger Agreement, we will become a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Please see Exhibit a(2) to Schedule 13E-3/A we filed with the Securities and Exchange Commission on March 24, 2011, for more details on and risk related to, the Merger Agreement and the other transactions contemplated thereby.

Consummation of the merger is subject to various conditions. If the merger is not completed, Shamir’s business and operations could be materially harmed.

The merger is subject to the satisfaction of certain closing conditions that are beyond either Shamir’s or Essilor’s control and that may prevent its completion. If the merger is not completed, Shamir may be subject to the following material risks, among others:

the disruption to Shamir’s relationships with customers, distributors, suppliers, licensors, licensees and business partners as a result of uncertainties relating to the proposed merger with Essilor may detract from Shamir’s ability to grow or even maintain its level of revenues which may lead to a loss of market position and profitability that Shamir might be unable to regain. In particular, in anticipation of the merger, customers may reduce future orders, pursue other sources for supply, or curtail or terminate their relationships with Shamir. Shamir might not be able to regain those relationships, and Shamir might not be able to replace any lost business with new customers. At the same time, Shamir’ relationships with its key suppliers could also be harmed, and Shamir might not be able to obtain suitable replacement sources of supply;

the disruption to Shamir’s relationships with the Essilor group companies;

Shamir may lose potential strategic opportunities while the merger is pending;

the diversion of management attention from Shamir’s day-to-day business to undertake the necessary actions to achieve the closing of the merger may detrimentally affect Shamir’s business;

Shamir could lose key employees during the merger approval process or due to the merger not being completed. In addition, the motivation of remaining employees may be adversely affected;

third parties may be reluctant to enter into or renew relationships with Shamir due to uncertainties relating to Shamir continuing as an independent company;

if the Merger Agreement is terminated and the board of directors of Shamir determines to seek another merger or business combination, Shamir may not be able to find a party willing to pay an equivalent or more attractive price than that which would be paid in the proposed merger with Essilor;

Shamir may be required to pay Essilor a termination fee of $7.0 million and an additional amount of up to $4.0 million in expenses to Essilor if the Merger Agreement is terminated under certain circumstances. See “Material Contracts – Transaction with Essilor” for more information;

Shamir’s costs related to the merger, such as legal and accounting fees, must be paid by Shamir whether or not the merger is completed;

Shamir’s ability to raise capital to fund its business needs or pursue strategic opportunities may be impaired; and

the price of shares of Shamir will likely decline, and the decline could be exacerbated if Shamir shareholders sell substantial amounts of shares of Shamir in the public market, including likely sales by arbitrageurs who may have acquired shares of Shamir.

If some or all of these risks were to occur, Shamir may not be able to continue its present level of operations, may need to scale back its business and may not be able to take advantage of future opportunities or effectively respond to competitive pressures, any of which could have a material adverse effect on its business and results of operations.

Any delay in consummating the merger may reduce or eliminate the expected benefits of the merger.

A prolonged delay in completing the planned merger may increase uncertainty among Shamir’s employees, customers, suppliers or partners, which could exacerbate the risks described in the preceding risk factor and have an adverse effect on Shamir’s business and results of operations. In addition, a prolonged delay could affect Shamir’s operational planning, budgeting, capital expenditures and hiring decisions, which could harm Shamir’s business and results of operations.

Furthermore, even if the merger is consummated, the anticipated benefits and strategic advantages of the merger may not be realized.

The Merger Agreement restricts Shamir’s ability to pursue alternatives to the merger and also contains restrictions on Shamir’s operational flexibility during the pendency of the merger.

The Merger Agreement contains “no solicitation” provisions that restrict Shamir’s ability to solicit, initiate or knowingly encourage, or, subject to certain exceptions, discuss or commit to competing third-party proposals to acquire all or a significant part of Shamir. Shamir has also agreed that the board of directors of Shamir will not withdraw or modify in a manner adverse to Essilor its recommendation of the Merger Agreement, subject to certain limited exceptions, and Essilor generally has a right to be informed of any competing acquisition proposal that Shamir might receive. Although the board of directors of Shamir is permitted to take actions in response to a competing acquisition proposal if it determines that doing so is necessary in order to comply with its fiduciary duties, taking certain actions in specified situations (including withdrawal or modification of its recommendation of the Merger Agreement) could entitle Essilor to terminate the Merger Agreement and receive a termination fee and reimbursement of expenses in an aggregate amount of up to $11.0 million from Shamir.

These “no solicitation” provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Shamir from considering or proposing such an acquisition, even if it was prepared to pay consideration with a higher per share cash or market value than the Essilor consideration proposed to be issued in the merger, or could result in a potential competing acquirer proposing to pay a lower per share price to acquire Shamir than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable to Essilor.

In addition, the Merger Agreement imposes restrictions on Shamir’s operational flexibility during the pendency of the merger.

Shamir may lose key personnel, customers and suppliers, as a result of uncertainties associated with the merger.

Shamir’s current and prospective employees, customers and suppliers, may be uncertain about their future roles and relationships with Shamir following completion of the merger. This uncertainty may adversely affect Shamir’s ability to attract and retain key management and operational personnel.

Risks Related to Our Shares

The trading price of our shares may fluctuate substantially.

The trading price of our shares is subject to wide fluctuations. Factors that could affect the trading price of our shares include:

any development related to the consummation of the merger agreement with Essilor;

the gain or loss of significant orders or customers;

actual or anticipated variations in our operating results or a variance in our financial performance from the expectations of market analysts;

announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;

conditions and trends in the end markets we serve and changes in the estimates of the sizes and growth rates of these markets;

recruitment or departure of key personnel;

changes in our pricing policies or the pricing policies of our competitors;

changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our ordinary shares;

changes in market valuation or earnings of our competitors;

changes in legislation;

the trading volume of our shares; and

market conditions in our industry, the industries of our customers and the economy as a whole.

If our future quarterly or annual operating results are below the expectations of securities analysts or investors, the price of our shares would likely decline. Share price fluctuations may be exaggerated if the trading volume of our shares is limited.

In addition, the stock market in general, and The NASDAQ Global Market in particular, have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business, financial condition, future results and cash flow.

Future sales of our shares could adversely affect the market price of our shares.

Our shareholders, who held shares prior to the initial public offering of our ordinary shares in March 2005, hold approximately 65.88% of our outstanding shares as of June 1, 2011. These shareholders are not contractually prohibited from transferring our shares. See “Item 7. Major Shareholders and Related Party Transactions.” Any sale by us or our pre-offering shareholders of our shares into the public market, or the perception that sales could occur, could adversely affect the prevailing market price for our shares.

All of our current shareholders who held shares prior to the March 2005 offering have the right, subject to some limited conditions, to demand that we file a registration statement on their behalf to register their shares or that we include their shares in a registration statement that we file on our behalf or on behalf of other shareholders. See “Item 10. Additional Information – Shares Eligible for Future Sale – Registration Rights Agreement.”

We may fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404, which started in connection with our Annual Report on Form 20-F for the fiscal year ended December 31, 2007, have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of resources. Section 404 of the Sarbanes-Oxley Act of 2002 requires (i) management’s annual review and evaluation of our internal control over financial reporting and (ii) subject to our status as an accelerated filer, an attestation report issued by an independent registered public accounting firm on our internal control over financial reporting . We have documented and tested our internal control systems and procedures in order for us to comply with the requirements of Section 404. While our assessment of our internal control over financial reporting resulted in our conclusion that as of December 31, 2010, our internal control over financial reporting was effective, we cannot predict the outcome of our testing in future periods. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities, and could have a material adverse effect on our operating results investor confidence in our reported financial information, and the market price of our ordinary shares.

Our shares are listed for trade on more than one stock exchange, and this may result in price variations.

Our ordinary shares are listed for trading on The NASDAQ Global Market and on the Tel Aviv Stock Exchange. This may result in price variations. Our ordinary shares are traded on these markets in different currencies, U.S. dollars on The NASDAQ Global Market and New Israeli Shekels on the Tel Aviv Stock Exchange. These markets have different opening times and close on different days. Different trading times and differences in exchange rates, among other factors, may result in our shares being traded at a price differential on these two markets. In addition, market influences in one market may influence the price at which our shares are traded on the other.

Provisions of our Articles of Association and Israeli law could inhibit our acquisition by others.

Provisions in our Articles of Association may make it difficult and expensive for a third party to pursue a tender offer or a change in control or takeover attempt that our management and board of directors oppose. Public shareholders that might desire to participate in one of these transactions may not have an opportunity to do so. For example, our Articles of Association contain provisions:

establishing advance notice requirements for director nominations or other proposals at shareholder meetings;

generally requiring the affirmative vote of holders of at least 75% of the voting power of our outstanding voting shares to amend any provision in our Articles of Association, which could make it more difficult for a third party to remove the provisions we have included to prevent or delay a change of control; and

providing for staggered terms for the members of our board of directors.

These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control or to change our management and board of directors.

Some provisions of Israeli corporate law may also have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us. In addition, 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. See “Item 10. Additional Information—Share Capital” and “—Israeli Taxation.”.

Risks Relating to Our Operations in Israel

Conducting business in Israel entails special risks.

Our headquarters and main research and development department, and part of our manufacturing facilities, are located in the State of Israel, some of our key employees, officers and our directors are residents of Israel. Although most of our sales are made to customers outside Israel, we are nonetheless directly influenced by the political, economic and military conditions affecting Israel. Specifically, we could be materially and adversely affected by:

any major hostilities involving Israel;

a full or partial mobilization of the reserve forces of the Israeli army;

the interruption or curtailment of trade between Israel and its present trading partners; or

a significant downturn in the economic or financial condition of Israel.

Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. In July 2006, there have been extensive hostilities along Israel’s northern border with Lebanon and to a lesser extent in the Gaza Strip. Since June 2007, the Hamas militant group has taken over the Gaza Strip from the Palestinian Authority, and the hostilities along Israel’s border with the Gaza Strip have increased, escalating to a wide scale attack by Israel in December 2008, in retaliation to rocket attacks into southern Israel. The resumption of hostilities in the region, and the on-going tension in the region, have a negative effect on the stability of the region which might have a negative effect on our business condition, harm our results of operations and adversely affect our share price. Furthermore, there are a number of countries, primarily in the Middle East, as well as Malaysia and Indonesia, that restrict business with Israel or Israeli companies, and we are precluded from marketing our products to these countries. Restrictive laws or policies directed toward Israel or Israeli businesses may have an adverse impact on our operations, our financial results or the expansion of our business.

Our operations could be disrupted as a result of the obligation of our key personnel in Israel to perform military service.

Some of our executive officers and employees in Israel are obligated to perform up to 84 days of military reserve service on a three year basis until the age of 40 for soldiers and until the age of 45 for officers. This time-period may be extended by the Military Chief of the General Staff and the approval of the Minister of Defense or by a directive of the Minister of Defense in the event of a declared national emergency. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees due to military service. To date, our operations have not been materially disrupted as a result of these military service obligations. Any disruption in our operations due to such obligations would adversely affect our ability to produce and market our existing products and to develop and market future products.

The Israeli government programs and tax benefits in which we have participated in the past and in which we currently participate or from which we receive benefits require us to meet several conditions. These programs or benefits may be terminated or reduced in the future, which could increase our costs.

We benefit from certain Israeli government programs and tax benefits, particularly from tax exemptions and reductions resulting from the status of our manufacturing facilities in Israel (see “Item 10. Additional Information—Taxation—Israeli Taxation.”). To be eligible for these programs and tax benefits, we must continue to meet certain conditions, including deriving a certain level of the revenues related to those facilities from exports outside of Israel. If we fail to meet such conditions in the future, these tax benefits could be cancelled or reduced, and we could be required to refund those tax benefits already received, adjusted for inflation and with interest. These tax benefits may not be continued in the future at their current levels or at all, and our requests for future participation in these programs may not be approved. Further changes in the policy of the Israeli Government in general, and the termination or reduction of these programs and tax benefits specifically, could increase our tax rates, thereby reducing our net profits or increasing our net losses, or otherwise materially adversely affect us. See “Item 10. Additional Information—Taxation—Israeli Taxation.”

It may be difficult to enforce a U.S. judgment against us, most of our officers and directors and some of the experts named in this annual report or to assert U.S. securities law claims in Israel.

We are incorporated in Israel. Most of our executive officers and directors are nonresidents of the United States, and a substantial portion of our assets and the assets of these persons is located outside the United States. Therefore, service of process upon any of our officers or directors may be difficult to effect in the United States. Furthermore, it may be difficult to enforce a judgment obtained in the United States against us or any of these persons, including one based on the civil liability provisions of the U.S. federal securities laws, in both U.S. and non-U.S. courts.

Additionally, it may be difficult for investors to assert U.S. federal securities laws claims or to enforce civil liabilities under U.S. federal securities laws in actions originally instituted in Israel.

ITEM 4. INFORMATION ON THE COMPANY

4.A HISTORY AND DEVELOPMENT OF THE COMPANY

We began our activity as a limited partnership in the early 1970’s as a manufacturer of bifocal lenses. During the first half of the 1980’s, we began to develop our own progressive lens. In the mid-1980’s, we began to produce and market progressive glass lenses and gradually began to produce glass molds for casting progressive plastic lenses for other manufacturers. In 1994, we established Shamir USA in order to establish a marketing presence in the United States. In 1995, we made a decision to focus on the development and production of progressive lenses. In 1997, we acquired 25% of Shamir Eyal Ltd. (formally known as “Eyal Optical Industries (1995) Ltd.”) (“Eyal”), the manufacturer of Shamir brand plastic progressive lenses. In 1998, we, along with Eyal and other founders, established Shamir Insight, our U.S. distributor of Shamir lens brands, and we purchased an additional 25% of Eyal. In the fourth quarter of 2001 we acquired our European operation and an additional 1% of Eyal to give us control of Eyal. In November 2003, we acquired an additional 47% of Eyal, and in May 2004, we acquired the remaining 2% of Eyal’s shares. In September 2004, we purchased the Cambridge Optical Group, through which we gained control in Shamir UK Limited.

In March 2005, we conducted an IPO and concurrent listing on The NASDAQ National Market (currently known as The NASDAQ Global Market) of our ordinary shares. Our ordinary shares have also been listed on the Tel Aviv Stock Exchange since May 2, 2005. Prior to the IPO, we were organized as an agricultural co-operative society (A.C.S.), which is a corporate entity organized under Israeli law with shares and limited liability for its members. The principal distinction between an Israeli corporation, our current corporate form, and an A.C.S. is that an A.C.S. is a pass-through tax entity and all the profits and losses of the A.C.S. are attributed to its shareholders pro rata to their shareholding. Historically, the Articles of Association of our A.C.S. reflected the laws and regulations applicable to such an entity.

On March 6, 2005, we changed the structure of our company from an A.C.S. into an Israeli corporation. To do so, we relied on a provision of the Israeli Companies Law that allows such reorganization without having to transfer any assets, rights or liabilities into a new entity and by using the same entity of the A.C.S. in order to change its form into a corporation, which is not considered as a taxable event.

On June 27, 2005, we established a laboratory facility in Turkey, Altra Optik Sanayi ve Ticaret A.S. (“Altra”). In establishing this facility, our subsidiary acquired the assets of the laboratory from another laboratory in Turkey.

On September 30, 2005, we completed the purchase of an additional 31.3% stake in Shamir Insight from Severn Confirmers & Forwarders, Ltd. In April 2005, we purchased 2% of Shamir Insight from one of its non-controlling shareholders, and in July 2007, we purchased the remaining 10% from an additional non-controlling shareholder, following which we are the sole shareholder of Shamir Insight.

On December 1, 2005, we established a subsidiary in France, Shamir France S.A.R.L., in order to establish and operate sales and distribution platform.

In December 2005, we established a subsidiary in Kibbutz Shamir, Israel, Shamir Special Optical Products Ltd. (“SSOP”), which manufactures and develops polycarbonate and finished lenses.

In January 2006, we purchased 51% of Spherical Optics (PTY) Ltd., a local distributor in South Africa, through which we distribute our lens brands in the South African market.

In January 2006, SSOP and Einit Ltd., a well known local distributor of lens and frames in the Israeli market, established a subsidiary, Shamir Einit Ltd., to distribute Shamir’s lenses in the Israeli market. In August 2007, in two separate transactions, we purchased both Einit’s as well as SSOP’s holdings in Shamir Einit following which we are the sole shareholder of Shamir Einit. In addition, on July 31, 2007, Shamir Einit changed its name to Shamir Israel Optical Marketing Ltd. (“Shamir Israel”).

On July 2, 2006, we purchased the remaining holdings of the outstanding shares in our R&D Israeli based subsidiary Shamir Or Ltd. following which we are the sole shareholder of Shamir Or Ltd.

On August 15, 2006, we purchased 26% in Centro Integral Optico S.A. de C.V. (“CIO”), a local laboratory and distributor in Mexico. In addition, On November 1, 2006, we established an additional Mexican company, Shalens S.A. de C.V. (“Shalens”), with our local strategic partners. On February 20, 2008, we exercised our option to purchase an additional 25% of each of CIO and Shalens, following which we currently hold 51% of the outstanding shares of each of CIO and Shalens.

In January 2007, we finalized a purchase of 25.8% in Shamirlens (Thailand) Co., Ltd. (formally known as “Siam Optical Technology Company Ltd.”) (“SLT”), through which we operate a local laboratory in Thailand. July 26, 2008, we executed an amendment to the SLT share acquisition agreement following which we increased our holdings in SLT to 40.4%. On July 1, 2009, we have executed an additional acquisition of SLT shares following which we gained effective control in SLT. Through SLT we hold 97.7% of the outstanding shares of K-T Optic Co. Ltd., a local Thai company which owns the property on which our local lab is established and leases it to SLT.

On July 1, 2008, we executed an agreement pursuant to which we purchased the remaining 49% of Shamir Optic GmbH (formally known as “Altra Trading GmbH”) and gained full control of our European subsidiaries.

On November 1, 2008, we executed an agreement pursuant to which we purchased through Spherical Optics (PTY) Ltd. holdings in a local laboratory in South Africa, Optispeed Laboratory (PTY) Ltd.

During the fourth quarter of 2008 we executed several internal changes in the structure of our European holdings following which we gained direct holdings in Shamir UK Limited and in our Turkish operation, and Shamir UK became the holding company of the remaining European subsidiaries.

In June 2009, we gained 28% holdings in Emerald Lens and Coating Technologies (Pty) Limited, a local laboratory in South Africa, via Spherical Optics (PTY) Ltd.

On November 4, 2009, we executed several agreements pursuant to which we purchased 66% of Shamir Australia (Pty) Ltd. (formally known as “Smyth & Perkins (Pty) Ltd.”), a local laboratory and distributor in Australia.

On October 15, 2010 we signed a Merger Agreement with an indirect wholly-owned subsidiary of Essilor. Under the terms of the Merger Agreement, our shareholders will be entitled to receive $14.50 in cash, without interest and less any applicable withholding taxes, for each ordinary share of Shamir that the shareholders own as of the effective time of the merger, other than ordinary shares held directly or indirectly by (i) Kibbutz Shamir (ii) Shamir Holdings (iii) Essilor, or (iv) Merger Sub. The merger is being effected as an arrangement between Shamir and its shareholders under Sections 350 and 351 of the Israeli Companies Law and will be subject to Israeli court approval. In connection with the transactions contemplated by the Merger Agreement, Kibbutz Shamir, Shamir Holdings and Essilor entered into a Share Purchase and Subscription Agreement, pursuant to which (i) simultaneously with and subject to the occurrence of the merger, Essilor will purchase from Kibbutz Shamir 550,000 shares of Shamir at a per share price of $14.50, constituting an aggregate cash consideration of $7,975,000, and (ii) immediately following the merger, Essilor will (x) subscribe for certain newly issued shares of Shamir Holdings, in exchange for cash, and (y) subscribe for additional newly issued shares of Shamir Holdings, in exchange for the contribution to Shamir Holdings by Essilor of all of the shares of Shamir then held directly by Essilor. Following the consummation of the merger and the other transactions contemplated by the Merger Agreement and the Share Purchase and Subscription Agreement, our shares will be delisted from The NASDAQ Global Market and the Tel Aviv Stock Exchange, or the TASE. We will be a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Following the merger, Kibbutz Shamir, Shamir Holdings, Shamir and Essilor intend to enter into certain other agreements, including shareholders agreement, amended lease agreement and various commercial agreements. On April 26, 2011, our shareholders approved the Merger Agreement, the merger and related transactions. On May 5, 2011, we filed with the district court in Nazareth a motion requesting the court to issue an order approving the merger. On June 13, 2011, such order has been issued by the court. The closing of the merger remains subject to the satisfaction of the remaining conditions specified by the Merger Agreement. Please see "Material Contracts – Transaction with Essilor" for more details on the Merger Agreement and the other transactions contemplated thereby.

During December 2010 we have fully merged one of our local French distributors, Interoptic S.a.r.l., into our second local French distributor, Shamir France S.a.r.l.

On January 19, 2011, we have executed an agreement following which our newly established subsidiary in the Netherlands, Shamir Nederland B.V., has purchased the assets of a local distributor.

On March 1, 2011, we have executed an agreement with a local Israeli distributor following which Shamir Israel has purchased the assets of the distributor and increased its market share.

On April 1, 2011, we have executed an agreement following which our newly established subsidiary in Italy, Shamir RX Italia S.r.l., has purchased the assets of a local laboratory.

We financed our acquisitions and purchases of significant fixed assets through loans, capital leases and working capital, including the proceeds from the March 2005 offering of our shares.

Our main office and production facilities are located at Kibbutz Shamir, Upper Galilee, 12135, Israel. Our telephone number at our main office is +972 (4) 6947777. Our agent for service of process in the United States is Shamir USA, 29800 Agoura Rd., Suite 102, Agoura Hills, CA, 91301-2559.

4.B BUSINESS OVERVIEW

Introduction

We are a leading provider of innovative products and technology to the spectacle lens market, with a particular focus on the progressive and sophisticated lens market. Utilizing our proprietary technology, we develop, design, manufacture and market progressive lenses that we sell to the ophthalmic market. In addition, we sell finished lenses (stock and prescriptions) to opticians, and utilize our capabilities to provide design services to optical lens manufacturers under service, royalty agreements. Progressive lenses, also known as progressive addition lenses or PALs, combine several optical strengths in a single lens to provide a gradual and seamless transition from near to intermediate to distant vision.

We differentiate our products from those of our competitors primarily through lens design. We have successfully pursued a strategy of focusing on higher value product categories, and several of our lenses are recognized by industry and research sources for their superior design and quality. Our leading lenses are marketed under a variety of brand names, including Shamir Genesis, Shamir Piccolo, Shamir Office, Shamir Autograph, Shamir Creation, Shamir Smart and Shamir Attitude.

We believe that we have one of the world’s preeminent research and development teams for progressive lenses, molds and complementary technologies and tools. Through our research and development team, we have continually enhanced our capabilities and resources to develop new, innovative products and design tools with superior characteristics.

We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses for a variety of activities and environments. We have also created software tools specifically designed for our research and development and production requirements, including our Eye Point Technology software that simulates human vision. We believe that these proprietary tools provide us with a competitive advantage in our market. To maintain this advantage, we have pursued investments in new technologies in the ophthalmic field and are developing product technologies and materials in fields such as lens development, lens production, lens coating and optical measurement and simulation.

The Markets in which we Operate

The global ophthalmic retail market consists of various type of products, including frames, spectacle lenses, contact lenses, optical accessories, medical and military products. For a breakdown of our total revenues by category of activity and geographic market, see “Item 5. Operating and Financial Review and Prospects— Operating Results.”

Lenses and Alternatives

The spectacle lens market consists of three primary types of lenses.

Single Vision Lenses. Single vision lenses have only one optical power and are primarily used to correct deficiencies in either near or distant vision. As they are essentially simple magnifying glasses when used to treat near-sightedness, single vision lenses tend to be cheaper than other types of lenses and are readily available in most markets in the world.

Bifocal Lenses. Bifocal lenses have two optical powers and are used to correct deficiencies in both near and distant vision. The surface of the bifocal lens is typically divided into two parts, the upper portion for distant vision and part of the lower portion for near vision. The division between the two parts of the lens is clearly visible and forces the eyes to make an abrupt transition.

Progressive Lenses. Progressive lenses utilize complex designs to combine several optical powers for different viewing distances, with the optical power gradually increasing from the upper portion of the lens to the lower portion of the lens. The transition between powers is gradual and seamless, thereby eliminating distracting lines between the different vision areas and allowing the user to see at various distances without an image jump, restrictive focal lengths or demarcation lines, although some users have difficulty adapting to the distortion areas of progressive lenses. Progressive lenses are generally the most expensive type of lenses and are less frequently covered by insurance than single vision or bifocal lenses. Progressive lenses are used to treat Presbyopia, a vision condition where the crystalline lens of the eye loses its flexibility and the eye muscles become less powerful causing the eye to lose its ability to focus on close objects. Presbyopia is part of the normal aging process and develops gradually over an extended period of time and affects almost everyone over the age of 45, regardless of whether they have previously had normal vision or have suffered from myopia, astigmatism or other vision conditions. Presbyopia is a degenerative condition that worsens and often requires progressively stronger lenses over time. Presbyopia cannot currently be cured but is treated with lenses that generate optical power assisting the eye to focus on both close and distant objects.

Contact lenses and surgical procedures, including laser surgery, represent the primary alternatives to spectacles for the visually impaired. Both contact lenses and surgical procedures provide solutions for near-sightedness, far-sightedness and astigmatism, but we believe that they are inferior to progressive lenses as remedies to treat Presbyopia. With progressive lenses, as the wearer naturally shifts his eyes downward or upward when focusing on near or far objects, his eyes move gradually through the different optical powers of the lens. Contact lenses can have multifocal properties, but they are unable to take into account this natural movement of the eyes. Current applications of laser surgery to treat Presbyopia seek to modify the optical power of one eye for near distances and that of the other eye for far distances, thereby reducing overall flexibility and quality of vision relative to other treatments. In addition, surgical procedures are invasive and irreversible, can be painful and involve some recuperation time, and do not address the degenerative nature of Presbyopia.

We believe that most users choose progressive spectacle lenses due to the benefits of these lenses over alternative treatments for Presbyopia. While these other techniques may evolve to be better suited for the treatment of Presbyopia (see “Item 3. Key Information—Risk Factors—We compete against alternative technologies and treatments that provide a substitute for spectacle lenses.”), we do not believe that they currently represent a significant alternative to progressive lenses.

Market Growth

We believe the following factors will stimulate growth in the progressive lens market:

Increased Awareness . Over the past few years, there has been an increasing number of advertising, marketing, promotional and educational programs supported by progressive lens manufacturers and optical chains to increase public awareness of progressive lenses and their advantages. We expect the progressive lens market to continue to benefit from these programs.

Shift From Bifocal Lenses . Progressive lenses will continue to benefit from the shift in demand away from bifocal lenses to progressive lenses as a superior treatment for Presbyopia. As technologies evolve and more people begin to require treatment for Presbyopia, we expect that the market shift from bifocal to progressive lenses will accelerate.

Favorable Demographic Trends. Multifocal lenses, which include bifocal and progressive lenses, are currently the most satisfactory treatments for Presbyopia. Because Presbyopia generally becomes symptomatic for individuals in their early forties, the primary market for progressive lenses is people over the age of 45. We expect that the world population over the age of 45 will grow.

Advancements in Lens Technologies. Over the past five years, there have been significant technological advances in lens quality due to the development of design and manufacturing processes, anti-reflective coatings, improved raw materials and other factors. We believe that the continuous introduction of improved technology will also encourage customers to upgrade and replace their lenses.

Fashion Trends. Leading companies in fashion, cosmetics and athletics are promoting multiple spectacle frames of different styles for different activities. We believe this trend will result in increased purchases of spectacles, as fashion-conscious customers will choose a different frame for each specific activity. In addition, we believe that these customers will prefer progressive to bifocal lenses for the lack of visible lines marking the shift in prescription strengths.

Maturing of New Markets. We believe that currently approximately half of all people suffering from Presbyopia are left untreated. A significant part of these potential customers reside in China and India. We believe that, as these countries develop and health care becomes more readily accessible, the demand for progressive lenses as a solution to Presbyopia will expand as well.

We believe that we are well positioned to benefit from these trends, especially due to our proprietary technology created by our research and development team, which we believe will enable us to continue to design and manufacture top quality lenses, and due to our marketing capabilities.

Market Structure

The following graphic shows the flow of orders and goods in the market for optical lenses.

The current progressive lens market is driven by the eye correction needs of the patient. A patient undergoes an eye examination in which an optical doctor or an optometrist determines the proper prescription and sends it to an optical laboratory. To complete the prescription, the optical laboratory uses semi-finished progressive lens blanks that are supplied by lens manufacturers. Semi-finished progressive lens blanks are lenses that contain the progressive surface on one side and are unfinished on the other. The optical laboratories finish the progressive lenses by surfacing the other side of the lens blanks according to the prescription and may add coating or tinting that the customer may request. The finished lenses are finally cut, edged and mounted onto the frame by the optical laboratory or the optical shop and delivered to the patient.

Basis for Statements about our Competitive Position

We compete primarily with manufacturers and distributors of spectacle lenses. Our main competitors include Essilor, Zeiss (merged with Sola), Hoya, Younger and Rodenstock for the production and marketing of spectacle lenses. Many of our competitors have significantly greater resources than we do and may benefit from greater economies of scale. See “Item 3. Key Information—Risk Factors—The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products”. In Europe our competitors’ primary distribution channels are the optical laboratories and distribution centers that they own. We compete with these laboratories, as well as with other distributors in Europe that do not own their own labs, through our optical laboratories and distribution centers in Germany, France, Spain, Turkey, Portugal, Italy, Netherlands and the United Kingdom.

Competition in our industry is based primarily on technological innovation and product quality, as well as on breadth of product offerings, customer service, marketing and price. Price competition can be severe in the spectacle lens industry, especially in certain geographic markets and for high-volume, standardized products. We attempt to counter this competition to the extent possible by offering what we believe are among the highest quality progressive lenses in the market. We believe that our research and development services gives us a competitive advantage over other progressive lens manufacturers.

For additional information about our competitive position, see “—Products” below.

We believe that we have a number of competitive strengths that allow us to capitalize on the prevailing trends in our industry. These strengths include:

Research and Development

We believe that we are a technological leader in the progressive spectacle lens market. Through our research and development efforts, we believe that we possess expertise in developing a variety of new progressive lens designs and production techniques. Our proprietary Eye Point Technology is based on mathematical algorithms that simulate the vision of the human eye in order to calculate the optical performance of the lens. This technology has become the cornerstone of our research and development approach and enables us to minimize distortions inherent in the design of progressive lenses.

We believe that the quality of our research and development efforts has been validated by independent industry publications, as well as by our ability to sell exclusively designed progressive lenses and molds to other leading progressive lens manufacturers for the production or sale of their own branded lenses.

Products for the Progressive Lens Market

When we began operations in the progressive lens field, we were among the first companies in the world engaged in the design, development and marketing of progressive lenses, and we have focused on progressive lenses since 1995. Our concentration on progressive lenses has enabled us to develop lens designs and technologies to produce lenses that are considered among the best-performing lenses in the industry. Our leading product portfolio includes Shamir Genesis, our general purpose lens, Shamir Piccolo for use in small frames, Shamir Office for viewing distances common to an office environment, Shamir Creation, optician cosmetic fit for the newest line of frames, Shamir Attitude, lenses especially designed for wrap around frames, and Shamir Autograph, which is based on our Direct Lens Technology to allow greater customization of the lens.

Distribution Channels

We have currently two separate distribution platforms for our two major markets, the United States and Europe, which are specifically tailored to our target customers in each market. Our sales via our European subsidiaries, mainly to European based operations, accounted for $70.4 million, or 44.6%, of our revenues in 2010, and sales mainly in the United States, via Shamir Insight, accounted for $34.6 million, or 21.9% during the same period.

In Europe, we sell our products directly to retail optical shops through our vertically integrated optical laboratories in Portugal, Italy and Turkey, as well as through our distribution centers in Spain, France, Germany, the Netherlands and the United Kingdom. In addition, we sell our products through our European subsidiaries to clients from other parts of the world.

In the United States, we distribute our products to opticians through laboratories. Laboratories in the U.S. sell their own products as well as the products of different manufactures, like us. As of the date hereof, we have not yet established or acquired an optical laboratory in the United States. We have expanded our U.S. sales via Shamir Insight from approximately $8.7 million in 2003 to approximately $34.6 million in 2010, representing a compound annual growth rate of 21.8% .

Ability to Leverage Resources

Through our design services to third party lens manufacturers, we have successfully introduced our technology to the market without having to bear the cost of marketing. As a result, we are able to generate design service revenues, including royalties, by leveraging our proprietary intellectual property across a broad spectrum of customers in our established markets. In addition, we apply our research and development expertise and resources to making our own lenses and to providing design services to third party lens companies. By providing these services, we are able to generate revenues and further expand our intellectual property base.

We believe that the implementation of our Freeform Technology, further described below, and the ability of optical laboratories to produce custom-made progressive lenses to specification, using our innovative software and based on our mathematical algorithms, has the potential to increase our revenues and to enhance our financial results. As laboratories adopt the Freeform Technology and use this technology to produce lenses, we are able to generate revenues without incurring the cost of manufacturing. Moreover, as we expand into developing markets, we will further leverage our proven technology across a broader geographic base.

Strong Ownership and Dedicated Workforce and Management Team

Kibbutz Shamir is our largest shareholder and holds approximately 61.4% of our outstanding shares as of June 1, 2011. Kibbutz Shamir was founded in 1944 and is a small communal society of approximately 300 members, including 53 of our employees in Israel. As with most kibbutzim, each member of Kibbutz Shamir owns an equal part of the assets of Kibbutz Shamir. Kibbutz Shamir has been successful in developing and encouraging a creative and dedicated managerial and entrepreneurial team to manage the businesses located in Kibbutz Shamir, including Shalag Industries Ltd., a company that is listed on the Tel Aviv Stock Exchange.

Our management team supports a particularly creative and dynamic culture, which we believe enhances our ability to innovate. Our executive management group has completed a number of key strategic initiatives, improved our financial performance, successfully completed and integrated acquisitions, strengthened sales and marketing, and enhanced our focus on research and new product development. Three of our directors, including the chairman of our board, and an additional one executive officer, are members of the management board of Kibbutz Shamir.

Growth Strategy

The following plans are the focal points of our strategy to grow our business and increase our revenues.

Maintain Technological Leadership

We plan to further strengthen our research and development efforts to continue to develop innovative optical design tools, which will be used to design new optical products. We plan to maintain our position among the leading designers and developers of new innovative products that we will utilize for our own production and distribution and sell to third parties. We also plan to continue to invest in promising technologies both directly and through our subsidiaries. We believe that the technologies we are developing will enable us to maintain our technical leadership and create innovative premium products, services and technologies into the future.

Capitalize on Positive Demographic Trends and Increase Penetration

Given our strategic focus on progressive lenses, we believe that we are well positioned to benefit from the positive demographic trends in developed countries and the increased penetration of progressive lenses in developed and developing regions. Because Presbyopia is an age-related process that affects almost all individuals above the age of 45, we believe demand for progressive lenses will continue to benefit from the aging of the population. In addition, the multifocal lens market continues to experience a positive transition to progressive lenses as a superior alternative to bifocal lenses. We intend to capitalize on our design and manufacturing capabilities in order to take advantage of these demographic and market trends.

Increase Share in Key Markets

We plan to expand our sales in Europe by acquiring or establishing additional optical laboratories and marketing platforms, and also plan to implement new sales and marketing programs to further leverage our existing optical laboratories and distribution centers in Germany, Italy, The Netherlands, Spain, Portugal, France, Turkey and the United Kingdom.

We plan to significantly increase our presence in the United States by investing in our marketing programs. We plan to increase awareness and brand recognition world-wide by participating in trade shows, seminars and conventions, and hosting presentations for optometrists, opticians and ophthalmologists. We believe that greater brand recognition, combined with the quality of our products, will enable us to expand our business with existing laboratory customers and generate additional business from potential new customers.

Expand into New Geographic Markets

Given the population demographics of Central and South America, China, India, other Asian countries and Eastern Europe, and the low current penetration in these areas, we believe these markets provide significant growth opportunities for our products. In each of these markets, we have established relationships with optical laboratories and distributors with whom we intend to develop agreements so that they expand distribution of our products, as we have done in other parts of the world. In addition, we plan to explore vertical acquisitions of optical laboratories or to establish new laboratories or distribution platforms with local strategic partners where appropriate to maintain and increase our market share. By developing new and existing distribution relationships and expanding our sales of technology solutions and design molds into developing markets, we believe that we will be able to further leverage our proven technology across a broader geographic base, deriving even more value from our existing resources.

Implement New Approach of Designing and Manufacturing Personal Lenses

We were among the first progressive lens manufacturers to provide optical laboratories with a newly developed Freeform production method. Our Freeform production method, known as our Direct Lens Technology, is an advanced surfacing technology for creating premium lenses customized for the unique needs of each patient. By combining the patient’s exact vision requirements with our proprietary Eye Point Technology, a personal file for a customized progressive lens is created and transferred to advanced cutting and polishing machinery for production. We believe that over time Freeform production methods will redefine the traditional ophthalmic business model on an industry-wide basis. We are currently utilizing our Direct Lens Technology in optical laboratories and we intend to increase the number of laboratories to whom we provide this production technology.

Focus on Value-Added Materials

Our lenses are available in a variety of materials, including standard plastics and high refraction index plastics that allow for thinner lenses. We plan to continue to increase our offerings of lenses made from plastic and high index material. We believe that they represent the fastest growing segment for progressive lenses and provide enhanced profit margins. We believe this strategy will improve the performance of our products and generate increased sales.

Products

Our products consist of lenses that we sell to optical laboratories and opticians, and design services, including molds, which we sell to optical lens manufacturers under service and royalty agreements. During the year 2010, revenues from our sales of lenses and Direct Lens Technology calculation (“DLT”) accounted for 97.5% of our total revenues, while revenues from our sales of design services and other accounted for 2.5% of our total revenues.

Lenses

Premium Lenses. We believe that we have been one of the market leaders in manufacturing premium progressive lenses in a wide range of materials over the past several years. These lenses are sold under our own brand names as well as private labels. We currently produce over 50 principal types of progressive lenses, which differ from one another in design, color and lens material, as well as in size and shape.

Freeform Lenses. In addition to our premium lens offerings described above, we also produce lenses under the Shamir Autograph and Shamir Smart brands using our proprietary Freeform production method known as Direct Lens Technology, a technology which we released in 2004. Our Direct Lens Technology creates a unique personal computer file for a customized progressive lens by combining the patient’s exact vision requirements with our proprietary Eye Point Technology. This file can be transferred to advanced cutting and polishing machinery for mold-free lens production. This single process yields a finished lens that contains both the progressive and prescription characteristics and does not require any further surfacing. In addition, this process allows the optical laboratory to place both the progressive and prescription characteristics on the back surface of the lens, which is closer to the patient’s eye, thereby enhancing the field of view. By taking into account the patient’s personal prescription, measured or traced frame data and the exact pupil position for specifically chosen frames, the Shamir Autograph is a finished, customized progressive lens that is ready for edging and framing in every type of frame. In addition to producing these lenses ourselves, we are also currently providing this technology to selected laboratory customers to allow them to produce these advanced lenses tailored to meet their patients’ unique requirements, for which we receive fees according to usage.

The following table shows our primary brands of lenses.

Brand	Characteristics	Available Materials
Shamir Genesis	All-purpose progressive lens.	Plastic, Glass, Trivex
Shamir Office	Designed for visual clarity from 1.3 ft. to 10 ft. Allows comfort for people working in closed environments.	Plastic, Glass, Polycarbonate
Shamir Piccolo	Designed to fit into any small frame.	Plastic, Glass, Polycarbonate
Shamir Attitude	Designed to fit “Wrap – Around” frames.	Plastic, Polycarbonate, Trivex
Shamir Creation	Flat lens fit for fashionable frames.	Plastic, Glass, Polycarbonate
Shamir Autograph	Customized back surface progressive lens. Produced using Freeform Technology.	Plastic, Polycarbonate, Trivex
Shamir Smart	Customized back surface aspheric single vision lens. Produced using Freeform Technology.	Plastic, Trivex, Polycarbonate

Design Services

Research and Development Services. We provide third party lens manufacturers with research and development services in which we develop new optical designs and related software tools designed for the production processes of lenses and for which we receive ongoing payments and future revenues from royalties. As such we operate as an outsourced research and development arm for third parties. See also “—Research and Development.”

Molds. We specialize in the design and manufacture of sophisticated progressive lens molds for use by plastic lens manufacturers. We believe our customers value our ability to design tailor-made optical molds to satisfy precise requirements regarding size, base curves, markings and other properties. We design and produce several different molds that can be easily adapted to customer needs by changing characteristics including invisible markings, edge configuration and thickness.

Research and Development

Our research and development group, which includes 59 engineers, mathematicians, physicists, chemists, programmers and optical technicians, is in our opinion one of the world’s preeminent research and development teams for development of progressive lenses, molds, and complementary technologies and tools. We constantly enhance our capabilities and invest resources in order to develop new innovative products and related tools designed to optimize the production processes. Innovation, technological sophistication and rigorous quality assurance practices have enabled us to position ourselves as a clear technology leader in the progressive lens segment of the lens market and contributed to our growth.

In addition to pure optical tools, we have developed complementary software tools specifically designed for our research and development requirements, including proprietary software that simulates human vision, and mathematical tools that optimize the design of progressive and aspheric lenses. These proprietary tools, and in particular our Eye Point Technology, enable us to maintain a competitive advantage.

Research and Development Teams

Our technologies are developed through a cooperative process among our integrated research and development teams that follow the generation of a new concept through to the completion of a new lens or mold design that is ready for production.

Algorithm and Software. Our algorithm and software team works to generate mathematical algorithms aimed to optimize lens design and integrate these algorithms into the optical design software that we build for creating our optical products.

Optical Design. Our optical design team uses our proprietary software to create innovative progressive lens and mold designs for us and our design services customers.

R&D Optical Laboratory. Our R&D optical laboratory team generates prototypes for experimentation and testing of each lens and mold designed by our optical design team, using similar manufacturing systems to those that are in place in our mass production facilities.

Optical Measurement. Our optical measurement team utilizes our advanced measurement capabilities to analyze the prototype and provide our optical designers with detailed information from the prototype that our optical laboratory team has produced.

Clinical Tests Team. Our clinical tests team is conducting clinical tests by fitting individuals with products in its development stage and collecting clinical feedback from those individuals. The feedback is used to fine tune the optical design of new products.

Proprietary Technologies

Optical Design Technology. We have developed a unique family of optical design software tools that enable us to create our lenses using unique mathematical algorithms to optimize the optical characteristics of the lens and minimize distortion. These algorithms are continually reviewed and improved to take into account new production methods and advances in raw materials to enable us to quickly integrate new technologies into our design and manufacturing operations.

Eye Point Technology. Our Eye Point Technology utilizes a dedicated ray-tracing program that we developed to compute optical properties and simulate human vision. Capable of calculating the optical performance of thousands of locations covering the surface of a lens, the ray-tracing program takes into account numerous vision parameters essential for developing progressive lenses. We believe this technology represents a significant departure from conventional lens analysis tools and enables us to optimally develop every lens point in order to create progressive lenses meeting precise individual requirements.

Direct Lens Technology. Direct Lens Technology is our Freeform production technology that uses dedicated optical machines that are capable of forming a uniquely designed optical lens by processing the raw material to meet the desired geometrical and surface characteristics. Our Direct Lens Technology creates a unique personal electronic file for a customized progressive lens by using our proprietary Prescriptor software to combine the patient’s exact vision requirements with our proprietary Eye Point Technology. This electronic file can be transferred to advanced cutting and polishing machinery for mold-free lens production. This single process yields a finished lens that contains both the progressive and prescription characteristics and does not require any further surfacing. In addition, this process allows the optical laboratory to place both the progressive and prescription characteristics on the back surface of the lens, which is closer to the patient’s eye, thereby enhancing the field of view.

Marketing and Distribution

Our marketing efforts focus on lenses and design services. Our progressive lenses are marketed to optical laboratories, retail chains, buying groups and opticians. Our research and development services, which include molds designed for the production of progressive lenses, are marketed primarily to other manufactures and designers of plastic lenses. We believe we have gained a reputation in the design services market as a quality leader.

Lenses

Our marketing strategy in the United States differs from our marketing strategy in Europe and the rest of the world. In the United States it is a customary practice for optical shops to determine for their patients the type of lens to be generated whereas in Europe and the rest of the world the optical laboratories generally make such determinations. Therefore, marketing semi -finished progressive lenses in the United States requires a larger marketing force and greater presence in order to reach as many optical shops as possible.

United States. The U.S. ophthalmic market is characterized by a large number of laboratories, independent and non-independent, as well as large national retail chains and buying groups, some of which own their own laboratories. We currently market and distribute our products in the United States directly to laboratories, using our marketing subsidiary Shamir Insight. Our marketing platform aims to build brand recognition for our lenses through its focus on progressive lenses and sponsorship of industry seminars attended by optometrists, opticians and ophthalmologists. To support our marketing efforts and further educate the market on progressive lenses, we developed our “ReCreating Perfect Vision” promotional campaign, in which many laboratories have joined into a special marketing effort urging customers to use Shamir lenses while presenting the “Eye-View” software, a proprietary program that illustrates differences in lens quality and design.

Europe. We market and sell our products through our European subsidiaries. Our European subsidiaries rely on two primary distribution channels. The first channel is comprised of our distribution centers and optical laboratories in Germany, Portugal, Italy and Turkey. From these locations, we distribute prescription, single vision, and progressive lenses and offer a variety of stock lenses that we source from other manufacturers in order to provide the market with a comprehensive offering of optical lenses. In each of our locations, we employ a professional, well trained sales force that builds our brand name through direct sales efforts and attendance at conventions, presentations and trade shows. Our distribution center in Germany maintains an inventory of several thousand varieties of semi-finished progressive, bifocal and single vision lenses and finished single vision lenses, has significant capacity, and enables us to provide just-in-time deliveries of nearly any size order to anywhere in Europe. The second channel we pursue consists of optical laboratories, chains and buying groups that market our products primarily under a private label. Due to our delivery capabilities, variety of finished and semi-finished lenses, and customer service provided by our laboratories and distribution centers, we believe we can increase our business with our existing customers while simultaneously obtaining business from new opticians, optical laboratories, retail chains and buying groups.

The Rest of the World and Other Lens Manufacturers. We sell our lenses to other lens manufacturers through our U.S. based subsidiary, Shamir USA. We market and sell our products in the rest of the world mainly through our partly owned subsidiaries in those regions and through local distributors and optical laboratories. We have established relationships with distributors in several markets, which we intend to develop so that they distribute only our products as we have done in Europe and the U.S. We also plan to explore opportunities for vertical acquisitions of optical laboratories or for establishing new laboratories or distribution platforms to maintain and increase our market share.

Design Services

We have established close technological relationships with other lens manufacturers worldwide for whom we design and to whom we sell molds and design services. We maintain these relationships through ongoing contacts between our research and development teams and the engineering departments of the lens manufacturers.

In 1994, we established Shamir USA as our marketing channel and distributor of research and development services in the United States. Since then, we have developed supplier-customer relationships with many lens manufacturers in the United States.

Customers

Our customers are optical laboratories, national retail chains, retail buying groups and opticians for spectacle lenses and third-party lens manufacturers for design services. During 2010, our five largest customers collectively accounted for 32.3% of our revenues. Our largest customer accounted for approximately 13.5% of our revenues during 2010. The remaining 67.7% of our revenues are spread across a large number of customers in various geographic locations, and no other customer, other than our five largest customers, accounted for more than 3.5% of our revenues.

Manufacturing Operations

We operate manufacturing and research and development facilities in Kibbutz Shamir in northern Israel and a manufacturing facility in Kibbutz Eyal in central Israel. These facilities produce molds and semi-finished lenses. We also produce finished lenses at our optical laboratories in Portugal, Italy, Thailand, Australia, Israel, Mexico and Turkey.

Raw Materials

The primary raw materials that we use in our production operations are glass blanks and monomers. The supply market for these raw materials is dominated by a small number of suppliers. See “Item 3. Key Information—Risk Factors — We are dependent on a small number of suppliers for raw materials.”

Production of Finished Lenses

Orders. Based on third party examination of a patient we receive an order that incorporates the corrective power needed, as well as fitting and frame details.

Production. The raw material used in the production of finished lenses is a blank manufactured from different materials. It has a known geometry and index of refraction. The concave side of the blank is machined to a specific form via grinding lapping and polishing machines. Surface must be of exceptional quality to achieve the transparency required. Geometry is also optimized in the process to ensure lenses are of high esthetic standard.

Lens Treatment. Coating and tinting have become during the recent years an integral part of lens products. We constantly improve the quality of coating used to make lenses scratch resistance. The two main coating processes that are implanted on the lens are hard coat, which protects the lens from scratches, and anti reflection coating, which improve the light transition and eliminate unwanted reflections.

Glazing . At the end of the process the lab cut the lens into the frame’s shape and mounts it into the selected frame.

In addition to the traditional production methods described above, we use our Freeform production method for the manufacturing of finished lenses. Freeform Technology refers to a relatively new lens production technology that incorporates special optical machines that are capable of accurately forming an optical surface defined by a computer data file. Using this technology, we surface lenses so that the lenses are made according to the prescription requested by the optometrist. We also provide this production method to several optical laboratory customers to allow the production of customized lenses with greater optical accuracy. Using this technology, a spherical semi-finished lens blank is processed on its concave side by a computer-controlled Freeform optical lathe. The lathe computer is loaded with a surface data file. The surface data file is specifically computed by our proprietary Prescriptor software to meet a desired prescription. After forming the surface topography by the lathe, the lens is polished by a Freeform polishing machine to achieve optical surface quality. Using a laser engraving system, we etch reference marks on the concave surface to enable the optician to properly fit the lens into the frame.

Production of Semi-Finished Plastic Lenses

Initial Processing of the Raw Material. We initially combine a mixture of raw materials to prepare the plastic for casting.

Mold Assembly. Two glass molds, one for forming the convex progressive surface of the lens and one for forming the concave surface of the lens are assembled in a plastic ring or tape. The volume between the two molds is sealed by this plastic ring or tape.

Casting. The volume between the two molds is filled with the plastic raw material and the two molds are inserted into an oven for polymerization, or hardening, after which time the molds are removed and separated leaving the plastic lens formed by the molds. Following each use, the glass molds are inspected and rinsed with specially designed detergents and chemicals to treat them for re-use.

Curing and Coating. After the lens is formed by the molds, it undergoes a curing process in order to alleviate internal stress and is coated in accordance with the customer’s request. In some cases, we use a third party subcontractor in order to turn the lens into a photo-chromatic lens, per client’s request.

Marking and Quality Assurance. Once the plastic lens is formed and coated, it is subjected to marking and quality assurance procedures similar to those utilized for glass lenses.

Production of Semi-Finished Polycarbonate Lenses

Raw Material. We purchase raw material from leading manufacturers of polycarbonate.

Process. The polycarbonate raw material is injected after heating into dedicated molds that are assembled in an injection machine. The material is cooled down in the mold and once it achieves a desired temperature, the molds are opened and the lenses are pulled out and transferred to a cleaning and hard coating system.

Marking and Quality Assurance. Once the polycarbonate lens is formed and coated, it is subjected to marking and quality assurance procedures similar to those utilized for plastic lenses.

Production of Glass Molds and Semi-Finished Glass Lenses

Initial Processing of the Raw Material. We receive raw material in the form of glass round blanks, which are then ground, lapped and polished in order to give them an accurate form and high optical quality surface.

Rinsing. The blanks are rinsed thorough a series of ultrasonic tanks to remove production residues from the surface and then dried.

Imprinting the Progressive Attributes. Each blank is laid on a ceramic block for imprinting the progressive attributes and passed through a special heating oven in order to relax its form. We produce the ceramic blocks using computerized milling equipment, which imprints topography of the progressive surface on the ceramic block using our proprietary software. When the glass softens, the ceramic block structure is copied onto the blank and the progressive attributes are retained on the surface.

Marking. Each lens is etched with semi visible and visible marks to aid with the precise adjusting and mounting of the lens in the eyeglass frame and other marks requested by customers, such as a customer’s logo.

Quality Assurance and Control. Lenses and molds undergo rigorous quality control for cosmetics, such as cracks or nicks, and optics, such as power and geometry.

The process for producing glass progressive lenses and molds is similar, but the production of molds involves additional edge processing to shape the mold’s edge so that it will fit the manufacturing systems of the customer to whom we sell the mold.

Freeform Production of Glass Molds

In addition to the traditional production methods described above, we use our Freeform production method for our internal glass molds production process. In this Freeform production method, advanced grinding and polishing machines are used to surface the mold in accordance with the topography of a surface that was computed by our optical design software. This production technology enables us to create a desired multifocal surface topography of the mold by machining the glass surface instead of forming it by heat. We grind a glass blank with a computer-controlled Freeform grinding machine. This process creates the needed surface topography. We then polish the lens with dedicated computer-controlled Freeform polishing machines. This production technology involves fewer steps and results in higher surface accuracy than traditional production.

Freeform Lens Calculation (Prescriptor)

Our software team, which is part of the R&D team, is writing a Freeform lens calculation software that computes a surface for processing a Freeform lens. The software gets as an input the prescription of lens as ordered by the optometrist as well as the frame shape that the customer selected. The software computes a file that represents the surface that needs to be formed on the lens and transfer it to a Freeform manufacturing line. A lens having the exact prescription and optimal optical and geometrical characteristics is produced by the Freeform line, using this file. We installed and keep installing this software at our customer’s facilities and we get paid based on the number of calculations made by the lab (DLT calculations), which is monitored and reported by the software.

During the last few years we have also started to provide our software in web form. Using this platform, a module that is installed at the customer site communicates with the engines on our servers and sends input for lens calculations, and outputs from the lens calculation engines to the machine. The target in this move is to improve technical assistance capability to our customers.

Extent of Dependency on Patents/Licenses

We seek to protect our intellectual property through patents, trademarks, trade secrets and other appropriate protective measures in the primary markets in which we are active. As of December 31, 2010, we hold six patents and four pending patent applications owned by us, two patents and one pending patent applications owned by SSOP, and five patents owned by our partially owned subsidiary Inray Ltd. These patents cover various aspects of our innovative algorithms, devices, and methods of designing multifocal surfaces.

We own rights directly or through our subsidiary Shamir Insight Inc., in the following trademarks in various jurisdictions world-wide: Shamir Ô, Shamir logo, Insight Ô, Shamir Genesis Ô , Genesis Ô , Shamir Piccolo Ô , Piccolo Ô , Shamir Office Ô , Shamir Creation Ô , Shamir Autograph Ô , Autograph Ô , Autograph II Ô, Autograph Attitude Ô, Shamir Attitude Ô , Attitude Ô , Shamir Attitude Golf Ô, Prescriptor Ô , Eye Point Technology Ô, Freeform Ô , Freeform Technology Ô, Panorama Ô , Direct Lens Technology Ô , Autograph Golf Ô , Autograph Short Ô , Autograph Everyday Ô , Piccolo Wrap Ô, The Progressive Lens Experts Ô , Titan Hardcoat Ô , Deskvision Ô , Individual Eyes Ô , Recreating Perfect Vision Ô , Multispace Ô , Shamir Nano Ô , Shamir Relax Ô , Autograph Relax Ô , Sport Attitude Ô , Shamir Smart Office™, Shamir Smart Attitude™, Autograph Single Vision™, Shamir Smart Single Vision™, Shamir Freeform Geometry™, Superlite Ô, Resultant Rx Ô, Polyplus Ô , RCPV Ô , Midview Ô, Prescriptor Ô, Prescriptor Optical Yield Optimizer Ô, Shamir Autograph Freeframe Ô and Shamir Freeform Cosmetics™ , Spectrum Proprioception™, Office Proprioception™, Relax Proprioception™, Autograph Proprioception™, Shamir Computer™, Shamir Imagine™, Shamir Workspace™, Glacier Plus™, Shamir First Pal™, Shamir Spectrum™.. Our main trademarks are registered or are in the process of being registered in the United States, the European Union, Canada and additional countries. We do not believe that our viability or profitability substantially depends on any single patent, trademark, trade secret or other piece of intellectual property.

Material Effects of Government Regulations

We are subject to regulatory requirements governing the manufacture and sale of spectacle lenses in all of the markets in which we operate. For example, in the United States our lenses—like those of our competitors—must comply with the so-called “drop-ball impact test” to satisfy the safety requirements of the U.S. Food and Drug Administration for the sale of lenses. The drop-ball impact test involves dropping a steel ball of specified size from a specified height onto the center of a lens with a specific size. The lens passes the test if it does not break.

In Europe our lenses must obtain certifications within the requirements of the Medical Device Directive 93/42 EEC. These certifications relate primarily to the adequacy of the procedures used in the manufacture, testing and sale of spectacle lenses.

In addition, our operations are subject to stringent environmental regulations throughout the world concerning, in particular, air emissions, waste water discharge and the generation, handling, storage, transport and disposal of hazardous wastes. These laws and regulations have for the most part become increasingly stringent over the years. In order to comply with these laws and regulations, we use non-hazardous materials and chemicals in our manufacturing processes where feasible. Certain of our processes, including cleaning lenses, assembling molds and coating lenses, require a variety of volatile and hazardous substances. Where use of these substances or other hazardous materials is essential, we develop manufacturing processes in compliance with relevant local, national and international environmental and safety standards.

Our policy is to meet or exceed all applicable environmental and health and safety laws and regulations. We believe that we possess all material permits and licenses necessary for the continuing operation of our business and that our operations are in substantial compliance with the terms of all applicable environmental laws and regulations. We cannot predict the impact of any new environmental laws or regulations or of changes in current environmental laws or regulations on our operations.

4.C ORGANIZATIONAL STRUCTURE

In furtherance of our focus on innovative research and development projects, we have acquired equity interests in companies in the optical field. The following chart shows the names and locations of our direct and indirect subsidiaries and equity investments, along with our ownership interest in each relevant subsidiary.

Shamir Optical Industry LTD.

Kibbutz Shamir, Israel

Shamir Eyal Ltd.

K. Eyal, Is.

100%

Shamir Special
Optical Products
Ltd.

K. Shamir, Is.

100%

Spherical Optics
(Pty) Ltd.

Joh., South Africa

51%

Shamir USA

Agora Hills, CA

100%

e-Vision LLC

Roanoke, VA

17.43%

ShamirLens

Thailand

Co., Ltd.

Bangkok, Thailand

51%

Inray Ltd.

K. Shamir, Is.

50%

(1)

Shamir Optic GmbH

Niederau, Ger.

100%

Shamir
Insight, Inc.

San Diego, CA

100%

Shamir UK Limited
Cambridge, UK

100%

Shamir Portugal, LDA

Vilar, Portugal

100%

Shamir Optical Espana, SL

Madrid, Spain

100%

Altra Optik Sanayi
ve Ticaret A.S.

Istanbul, Turkey

100%

Shamir France SARL

Paris, France

100%

Shamir Israel
Optical Marketing
Ltd.

K. Shamir, Is.

100%

Shamir Or Ltd.

K. Shamir, Is.

100%

Centro Integral
Optico

S.A. de C.V.

Mexico City, Mex.
51%

Shalens S.A.
C.V.

Mexico City,
Mex.

51%

Shamir Australia
(Pty) Ltd.

Br. Aus.

66%

Shamir Nederland
B.V.

Amsterdam, Holland

100%

Shamir RX Italia SRL

100%

(1) Shamir has a 50.03% ownership interest and holds 50% of the voting rights in Inray Ltd.

The subsidiaries and equity investments shown in the chart above engage in the following business activities:

Shamir Eyal Ltd. (formally known as “Eyal Optical Industries (1995) Ltd.”) manufactures Shamir plastic progressive and SV lenses.

Shamir Or Ltd. is a research and development company.

Shamir USA, is one of our marketing and distribution companies in the U.S.

Shamir Insight, Inc. is our main marketing and distribution company in the U.S.

Shamir Optic GmbH is a distribution company located in Germany.

Inray Ltd. is a research and development company.

e-Vision, LLC, through its partially owned affiliates is developing and marketing lenses.

Shamir France S.A.R.L. is our distributor in France.

Shamir Nederland B.V. is our distributor in the Netherlands.

Shamir Optical Espana, S.L. is our distributor in Spain.

Altra Optik Sanayi ve Ticaret A.S. is our laboratory and distributor in Turkey.

Spherical Optics (PTY) Ltd. is our local distributor in South Africa. Through Spherical we hold 25% of Optispeed Laboratory (PTY) Ltd., and 28% of Emerald Lens and Coating Technologies (PTY) Ltd., both local laboratories.

Shamir Portugal, LDA. is our optical laboratory and distributor in Portugal.

Shamir UK Limited is a distributor in the United Kingdom. Following recent changes in the structure of our European subsidiaries Shamir UK Limited is the holding company of most of our European subsidiaries.

Shamir Special Optical Products Ltd. is a distributor, optical laboratory and manufacturer of semi finished polycarbonate lenses located in Kibbutz Shamir.

Shamir Israel Optical Marketing Ltd. is our local distributor to the Israeli market.

Centro Integral Optico S.A. de C.V. is a laboratory and distributor in Mexico.

Shalens S.A. de C.V. is located in Mexico.

Shamirlens (Thailand) Co., Ltd. is our local laboratory and distributor in Thailand. Through SLT we hold 97.7% of K-T Optic Co., Ltd., our coating laboratory in Thailand.

Shamir Australia (Pty) Ltd. is our local laboratory and distributor in Australia.

Shamir Rx Italia S.r.l. is our local laboratory in Italy.

4.D PROPERTIES, PLANT AND EQUIPMENT

Our principal executive offices and our primary manufacturing facilities are located in Kibbutz Shamir in northern Israel and in Kibbutz Eyal in central Israel. At these facilities we produce molds, finished lenses and semi-finished glass, plastic and polycarbonate lenses. See “—Manufacturing Operations.” We sublease the facilities in Shamir from Kibbutz Shamir. See “ Item 7. Major Shareholders and Related Party Transactions. ” Together, the Shamir group facilities in Israel, in Kibbutz Eyal, Petach Tikva and in Kibbutz Shamir, cover approximately 18,601 square meters of manufacturing, warehouses and office space.

We also own optical laboratories in Portugal, Turkey, Mexico, Thailand, Italy and Australia, which occupy approximately 4,000 square meters, 1,335 square meters 2,758 square meters, 3,968 square meters, 1,338 square meters and 799 square meters of owned and leased manufacturing and office space, respectively.

Our distributors in France, Germany, Spain, United Kingdom, Netherlands and South Africa also lease or own storage and office facilities in which they conduct their operations.

The following table gives an overview of our material properties, plants and facilities:

Name/Location	Company	Primary Use	Size	Leased/Owned
			(in sq meters)
Kibbutz Shamir, Israel	Shamir Optical Industry Ltd.;	Headquarters; Research and Development manufacturing; Marketing;	13,486	Leased

	Shamir Special Optical Products Ltd.;	Optical Laboratory; Manufacturing; Distribution

	Shamir Israel Optical Marketing Ltd.;	Distribution

	Shamir Or Ltd.	Research and Development

Petach Tikva, israel	Shamir Israel Optical Marketing Ltd.;	Distribution	1,075	Leased

Kibbutz Eyal, Israel	Shamir Eyal Ltd.	Manufacturing;	4,040	Leased

Vilar, Portugal	Shamir Portugal, LDA	Optical laboratory, Distribution	4,000	Owned

Madrid, Spain	Shamir Optical Espana S.L.	Distribution	570	Leased

Collegien, France	Shamir France S.A.R.L.	Distribution	5,782	Capital Lease

Paris, France	Shamir France S.A.R.L..	Administration	250	Leased

Istanbul, Turkey	Altra Optik Sanayi ve Ticaret A.S.	Optical laboratory; Distribution	1,335	Owned

Niederau, Germany	Shamir Optic GmbH	Distribution warehouse	3,925	Owned

Cambridge, United Kingdom(*)	Shamir UK Limited	Distribution	1,001	Leased

Lelystad, Netherlands	Shamir Nederland B.V.	Distribution	220	Leased

Bergamo, Italy	Shamir Rx Italia S.r.l.	Optical laboratory; Distribution	600	Leased

Padua, Italy	Shamir Rx Italia S.r.l.	Optical laboratory; Distribution	738	Leased

San Diego, California	Shamir Insight, Inc.	Distribution	1,687	Leased

Agoura Hills, California	Shamir USA	Distribution	133	Leased

Mexico City, Mexico	Centro Integral Optico S.A. de C.V.	Optical laboratory, Distribution	2,758	Leased

Johannesburg, South Africa	Spherical Optics (Pty) Ltd.	Distribution	600	Leased

Brisbane, Australia	Shamir Australia (Pty) Ltd.	Optical laboratory, Distribution	799	Leased

Bangkok, Thailand	Shamirlens (Thailand) Co., Ltd	Optical laboratory, Distribution	3,968	Owned

(*) Net of sub-lease

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes, which appear elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-looking Statements.” Our actual results could differ materially from those anticipated in these forward-looking statements, including as a result of various factors discussed below and included elsewhere in this annual report, particularly under the heading “Key Information—Risk Factors.”

We prepare our financial statements in accordance with U.S. GAAP, and our reporting currency is the U.S. dollar. We generate revenues and incur expenses principally in dollars, Euros and NIS. Certain amounts in this annual report are subject to rounding adjustments.

Overview

We are a leading provider of innovative products and technology to the spectacle lens market, with a particular focus on the progressive and sophisticated lens market. Utilizing our proprietary technology, we develop, design, manufacture and market progressive lenses that we sell to the ophthalmic market. In addition, we sell all kind of lenses to opticians, and utilize our capabilities to provide design services to optical lens manufacturers under service, and royalty agreements. Our leading lenses are marketed under a variety of trade names, including Shamir Genesis, Shamir Piccolo, Shamir Office, Shamir Creation, Shamir Smart and Shamir Autograph.

We believe that we have one of the world’s preeminent research and development teams for progressive lenses, molds and complementary technologies and tools. We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses. We have also created software tools specifically designed for our research and development and production requirements.

5.A OPERATING RESULTS

Functional Currency and Exchange Rate Fluctuations

The functional currency of Shamir and certain of our subsidiaries is the U.S. dollar, as the dollar is the primary currency of the economic environment in which we and certain of our subsidiaries operate and expect to continue to operate in the foreseeable future.

The functional currency of most of our European subsidiaries is the Euro. In addition, we have certain worldwide subsidiaries with various local currencies as their functional currency. Accordingly, the assets and liabilities of these subsidiaries are translated at the year-end exchange rate, and statement of income items are translated at the average exchange rate during the reported period.

We generate our revenues primarily in Euros and U.S. dollars, and we incur a significant portion of our expenses in Euros and NIS (the latter principally in connection with salaries and related expenses of our staff in Israel). A fluctuation in the value of the Euro compared to the U.S. dollar may have a material impact on our revenues, which is often partially offset by expenses in Euro and by price adjustments for some of our Euro-priced products to compete with competitors’ U.S. dollar-priced products. In addition, a fluctuation in the value of the NIS compared to the U.S. dollar may have a material impact on our expenses. As of December 31, 2009, the NIS exchange rate appreciated against the U.S. dollar by 0.7% and the Euro exchange rate appreciated against the U.S. dollar by 3.4% compared to the beginning of the year. As of December 31, 2010, the NIS exchange rate appreciated against the U.S. dollar by 6.0% and the Euro exchange rate devaluated against the U.S. dollar by 8.0% compared to the beginning of the year.

In 2009 the NIS annual average rate devaluated against the U.S. dollar by 9.6% and the Euro annual average rate devaluated against the U.S. dollar by 5.4%. In 2010, the NIS annual average rate appreciated against the U.S. dollar by 5.1% and the Euro annual average rate devaluated against the U.S. dollar by 4.8%.

Revenues

We generate revenues both from selling semi-finished lenses, DLT calculation to laboratories, finished lenses to opticians and from providing design services to third party manufacturers. Our lenses are sold primarily under Shamir brands through distributors, including our majority owned subsidiaries. Design services are provided under contracts with other lens manufacturers and include research and development services, production of molds for lenses, and royalties from the sale of lenses made utilizing our designs. In the last few years, we have experienced growth in the sale of our lenses, as we have focused our efforts on the marketing and distribution of our own lenses and as our designs gain greater acceptance in the market. From 2006 to 2010, revenues from the sale of lenses increased by approximately 14.3% annually.

Lenses

Our primary source of revenues is the sale of semi-finished lenses, DLT calculations, finished progressive lenses and other lenses. Most of the semi-finished lenses and DLT calculations are sold through our principal subsidiaries in the U.S.; most of the finished lenses and other lenses are sold in Europe through our local subsidiaries. Revenues from lenses are recognized when delivery has occurred.

Design Services

We also generate revenues from design services that we provide to third party manufacturers. We generate revenue mainly in the period between the beginning of the project and the completion of the main prototype. Upon commencement of the production stage, we receive revenue from the sales of molds and royalties from sales of lenses made from our designs. Design service revenues are recognized at the time research and development services are provided, upon delivery of molds and when royalties are due.

The following table shows our revenues by product category, in thousands of dollars:

	Year Ended December 31,
	2008		2009		2010

Lenses and DLT	$	135,298	$	138,235	$	154,046
Design services		5,028		4,149		3,945
Total revenues, net	$	140,326	$	142,384	$	157,991

The increase in our revenues from the sale of lenses for the period of 2008 to 2010 was primarily due to the acquisition of the new subsidiaries SLT and Shamir Australia. In addition, we increased our sales of lenses and DLT calculations.

The following table shows our revenues by geographic region, in thousands of dollars:

	Year Ended December 31,
	2008		2009		2010

Europe	$	70,371	$	70,757	$	75,139
United States		40,796		40,988		45,118
Asia		10,769		9,552		7,539
Israel		3,255		4,352		5,092
Others (1)		15,135		16,735		25,103
Total revenues, net	$	140,326	$	142,384	$	157,991

(1)

Most of this increase is attributed to the sales of our Australian subsidiary which was consolidated commencing November 2009, and the increase in our Mexican operation.

Cost of Revenues

Our cost of revenues consists primarily of manufacturing costs incurred in the production of lenses, and is comprised mainly of raw materials, salaries and other personnel expenses for employees engaged in the manufacturing of our products. Other expenses include, inter alia, subcontractor services, depreciation on property and equipment, rent and utilities. Our cost of revenues also includes the cost of lenses purchased from other manufactures. Our cost of revenues is affected, directly or indirectly, by a number of factors, as follows: mixture of products, currency fluctuations, the establishment or purchase of new production facilities and increased focus on production technologies that have a high added value.

Gross Profit

Our gross profit margin was approximately 54% for each of the years ended December 31, 2008, 2009 and 54.8% for the year ended December 31, 2010. Due to a different mixture of the products we sold compared to prior years we have been able to increase our margins throughout this period. Our gross margin is affected, among other things, by the mixture of products sold, by production efficiency, by our penetration efforts to new markets and by currency fluctuations.

Research and Development

Our research and development costs consist primarily of salaries and other personnel-related expenses of employees, principally engaged in research and development activities. We also incur external engineering fees, materials costs and other overhead expenses in connection with the design and development of our products. Research and development expenses related to our design services are included in research and development costs. We expense all our research and development costs as incurred. As we expand our operations and the development of new products and technologies, we expect our research and development expenditures to increase in absolute dollar terms.

Selling and Marketing

Our selling and marketing expenses consist primarily of salaries, commissions and other personnel-related expenses for those of our employees principally engaged in the sale and marketing of our products. Compensation for sales managers and sales representatives is based to a significant extent on commissions related to performance. Additional expenses include advertising, trade shows, delivery, other promotional costs, and office expenses related to sales and marketing.

As we expand our operations, we expect our selling and marketing expenses to slightly decrease as a percentage of revenues.

General and Administrative

Our general and administrative expenses consist primarily of salaries and other personnel related expenses for executive officers, accounting and administrative personnel, doubtful accounts, professional fees, office expenses and other general corporate expenses. We expect our general and administrative expenses to slightly decrease as a percentage of our revenues.

Financial Expenses and other, Net

Financial expenses consist of interest income from our cash, cash equivalents and short term investments offset by interest expenses on borrowings and other bank fees. Financial expenses also incorporate adjustments due to exchange rate fluctuations and gains or losses from derivatives.

Taxes on Income

Our taxes on income consist of provisions for taxes on income resulting from the activities of our subsidiaries worldwide and changes in deferred tax assets or liabilities. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, currency fluctuation, changes to the valuation allowance, changes to local or foreign tax laws, future expansion into geographic areas with varying income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions, divestitures and reorganizations.

Equity in Gains (Losses) of Affiliates, Net

Equity in gains of affiliates is shown in our consolidated financial statements primarily to reflect our holdings in Shalens and CIO (until February 20, 2008, the date on which we acquired control in CIO and Shalens), SLT (until July 1, 2009, the date on which we acquired control in SLT), Optispeed Laboratory (PTY) Ltd. and Emerald Lens and Coating Technologies (PTY) Ltd. as of the purchase date.

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to non-controlling interest are reflected in our consolidated financial statements in order to reflect our non-wholly owned subsidiaries in Shalens and CIO (from February 20, 2008, the date on which we acquired control of 51% in CIO and Shalens), Inray, SLT (from July 1, 2009, the date on which we acquired control in SLT), Shamir GMBH (until July 1, 2008, the date on which we purchased the remaining 49% interest in Shamir GMBH).

Operating Results

The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:

	Year Ended December 31,
	2008			2009		2010

Revenues, net		100.00			100.00		100.00
Cost of revenues		45.9			46.0		45.2
Gross profit		54.1			54.0		54.8
Operating expenses:
Research and development		2.4			2.3		2.9
Selling and marketing		30.2			28.7		28.5
General and administrative		12.0			10.8		10.9
Total operating expenses		44.6			41.8		42.3
Operating income		9.5			12.2		12.5
Financial expenses and other, net		1.4			0.3		0.1
Income before taxes on income		8.1			11.9		12.4
Taxes on income		1.6			2.6		2.4
Income after taxes on income		6.5			9.3		10.0
Equity in gains (losses) of affiliates, net		0			0		(0.1	)
Net income		6.5			9.3		9.9
Net income (losses) attributable to non-controlling interests		(0	)		0.3		0.5
Net income attributable to Shamir Optical Industry Ltd. Shareholders		6.5			9.0		9.4

Year Ended December 31, 2010 Compared To Year Ended December 31, 2009

Revenues, Net. Total revenues were $158.0 million for the year ended December 31, 2010, an increase of $15.6 million or 11.0% compared to total revenues of $142.4 million for the year ended December 31, 2009. The increase was primarily attributable to the consolidation of the new acquisitions of SLT and Shamir Australia, an increase in the sales of DLT calculations and an increase in the sale of finished lenses in Europe, while we had a negative impact on our revenues from the change in the exchange rate of mainly the Euro versus the U.S. Dollar.

Cost of Revenues. Cost of revenues was $71.5 million for the year ended December 31, 2010, an increase of $6.1 million or 9.2% compared to cost of revenues of $65.4 million for the year ended December 31, 2009. The increase in cost of revenues was primarily due to the increase in sales. As a percentage of revenues, our cost of revenues decreased from 46.0% for 2009 to 45.2% for 2010 mainly due to the effect of changes in the mixture of products.

Research and Development. Research and development costs were $4.6 million for the year ended December 31, 2010, an increase of $1.4 million or 41.4% compared to research and development costs of $3.2 million for the year ended December 31, 2009, mainly due to the increase in our research and development efforts and recruitment of new personnel.

Selling and Marketing. Selling and marketing expenses were $44.9 million for the year ended December 31, 2010, an increase of $3.9 million or 9.7% compared to selling and marketing expenses of $41.0 million for the year ended December 31, 2009. Selling and marketing expenses increased primarily due to the increase in sales force and efforts, which was slightly offset by the devaluation of the Euro versus U.S. dollar. As a percentage of revenues, sales and marketing expenses decreased from 28.7% for 2009 to 28.5% for 2010.

General and Administrative . General and administrative expenses were $17.2 million for the year ended December 31, 2010, an increase of $1.8 million compared to general and administrative expenses of $15.4 million for the year ended December 31, 2009. The increase in the general and administrative expenses is attributed mainly to the costs related to the transaction with Essilor. As a percentage of revenues, general and administrative expenses slightly increased from 10.8% for 2009 to 10.9% for 2010.

Financial Expenses and Other, Net. Net financial expenses and other was $0.2 million for the year ended December 31, 2010, a decrease of $0.2 compared to net financial expenses and other of $0.4 million for the year ended December 31, 2009.

Taxes on Income. Taxes on income were $3.8 million for the year ended December 31, 2010, an increase of $0.1 million compared to $3.7 million for the year ended December 31, 2009. The effective tax rate for 2010 was 19.6% compared to 21.8% for the fiscal year 2009. The lower effective tax rate in 2010 compared to 2009 was favorably affected by the decrease in the Israeli tax rate and by the measurement of the taxable income in Israel in NIS due to the appreciation of the NIS versus the US dollar.

Equity in Gains of Affiliates, Net. Equity in gains of affiliates, net was changed from income of $0.03 million for the year ended December 31, 2009 to expenses of $0.1 million for the year ended December 31, 2010.

Net income attributable to non-controlling interest. Net income attributable to non-controlling interest were $0.8 million for the year ended December 31, 2010, an increase of $0.3 million compared to net income attributable to non-controlling interest of $0.5 million for the year ended December 31, 2009.

Year Ended December 31, 2009 Compared To Year Ended December 31, 2008

Revenues, Net. Total revenues were $142.4 million for the year ended December 31, 2009, an increase of $2.1 million or 1.5% compared to total revenues of $140.3 million for the year ended December 31, 2008. The increase was primarily attributable to the consolidation of the new acquisitions of SLT and Shamir Australia and an increase in the sales of DLT calculations, while we had a negative impact on our revenues from the change in the exchange rate of mainly the Euro and the Mexican Peso versus the U.S. Dollar.

Cost of Revenues. Cost of revenues was $65.4 million for the year ended December 31, 2009, an increase of $1.0 million or 1.6% compared to cost of revenues of $64.4 million for the year ended December 31, 2008. The increase in cost of revenues was primarily due to the increase in sales. As a percentage of revenues, our cost of revenues slightly increased from 45.9% for 2008 to 46.0% for 2009.

Research and Development. Research and development costs were $3.2 million for the year ended December 31, 2009, a decrease of $0.1 million or 3.8% compared to research and development costs of $3.4 million for the year ended December 31, 2008, mainly due to the devaluation of the NIS versus the U.S. dollar.

Selling and Marketing. Selling and marketing expenses were $41.0 million for the year ended December 31, 2009, a decrease of $1.4 million or 3.3% compared to selling and marketing expenses of $42.4 million for the year ended December 31, 2008. Selling and marketing expenses decreased primarily due to the devaluation of the Euro versus U.S. dollar. As a percentage of revenues, sales and marketing expenses decreased from 30.2% for 2008 to 28.8% for 2009.

General and Administrative . General and administrative expenses were $15.4 million for the year ended December 31, 2009, a decrease of $1.4 million compared to general and administrative expenses of $16.8 million for the year ended December 31, 2008. As a percentage of revenues, general and administrative expenses decreased from 12.0% for 2008 to 10.8% for 2009. The decrease in the general and administrative expenses is attributed mainly to devaluation of the Euro and NIS versus U.S. dollar.

Financial Expenses and other, Net. Net financial expenses and other was $0.4 million for the year ended December 31, 2009, a decrease of $1.7 compared to net financial expenses and other of $2.1 million for the year ended December 31, 2008. The decrease was primarily attributable to foreign exchange translation income, decrease of interest expenses related to a lower level of borrowings and a decrease in interest rate on certain other borrowings.

Taxes on Income. Taxes on income were $3.7 million for the year ended December 31, 2009, an increase of $1.5 million compared to $2.2 million for the year ended December 31, 2008. The effective tax rate for 2009 was 21.8% compared to 19.7% for the fiscal year 2008. The lower effective tax rate in 2008 compared to 2009 is attributable to an election we made in 2008 to re-measure the taxable income in Israel in NIS rather than US dollars. This tax saving has affected 2008 tax expenses.

Equity in Gains of Affiliates, Net. Equity in gains of affiliates, net slightly decreased from $0.04 million for the year ended December 31, 2008 to $0.03 million for the year ended December 31, 2009.

Net income (loss) attributable to non-controlling interest. Net income attributable to non-controlling interest were $0.5 million for the year ended December 31, 2009, an increase of $0.49 million compared to net losses attributable to non-controlling interest of $0.02 million for the year ended December 31, 2008.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates. Our significant accounting policies are described in Note 2 of our consolidated financial statements included elsewhere in this annual report.

Revenue Recognition

We recognize revenues in accordance with Accounting Standard Codification ("ASC") 985-605, "Revenue Recognition". Revenues include sales of lenses and DLT calculations.

Revenues from lens sales and DLT calculations, net of rebates and returns, are recognized when delivery has occurred, persuasive evidence of an agreement exists, the fee is fixed or determinable and collectability is probable.

We have various programs that allow opticians to earn rebates on their accumulated purchases. These rebates are recognized as a reduction of revenues based on the rebates earned and the estimated future payments in accordance with ASC 605-50, “Customers payments and incentives.”

Design services are provided to third party manufacturers and include development services, production of molds for lenses and royalties from sales of lenses by third party manufacturers. Revenues from research and development services are recognized at the time the services are provided. Revenues from production of molds are recognized upon delivery of the molds and when other criteria of ASC 985-605 are met. Revenues from minimum royalties are recognized when the royalties become due. Other royalties are recognized quarterly, based on sales data received from the third-party manufacturer customers.

Inventory Valuation

At each balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes analyses of sales levels by product line and projections of future demand. In addition, we write off inventories that are considered obsolete. Remaining inventory balances are adjusted to the lower of cost or market value. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of revenues in the period the revision is made. Significant unanticipated changes in demand could have a material and significant impact on the future value of our inventory and reported operating results. Inventory write-downs for 2008, 2009 and 2010 were $ 601, $ 423 and $ 716, respectively, and have been included in cost of revenues.

Impairment of Long-lived Assets

In accordance with ASC 360 “Property, Plant and Equipment”, we assess potential impairments to our long-lived assets, comprised of property, plant and equipment and other intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During 2010, 2009 and 2008, no impairment losses have been identified.

Income Taxes

We record income taxes using the asset and liability approach. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and net operating loss and tax credit carry-forwards.

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, currency fluctuations, changes to the valuation allowance, changes to state or foreign tax laws, future expansion into geographic areas with varying country, foreign and local income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions, divestitures and reorganizations.

Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have considered future taxable income, prudent and feasible tax planning strategies and other available evidence in determining the need for a valuation allowance. We evaluate all of these factors to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. If the realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period in which this determination was made.

We implement a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement

Business Combination

We applied the provisions of ASC 805 "Business Combination" on January 1, 2009, accordingly we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. In allocating the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, we used the required assumptions underlying the valuation work. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from customers, customer lists; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, utilizing a market participant approach, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. We were assisted by a third party appraiser in applying the required economic models (such as income approach and cost approach), in order to estimate the fair value of assets acquired and liabilities assumed in our material business combinations.

Goodwill

Under ASC 350, “Intangibles-Goodwill and Other”, goodwill is not amortized. ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired. ASC 350 prescribes a two-phase process for impairment testing of goodwill. In the first phase of impairment testing, goodwill attributable to each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second phase is then performed. The second phase of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

We compare the fair value of our single reporting unit as defined under ASC 350, to its carrying value. Fair value is determined using our market capitalization and the discounted cash flows method. We perform the impairment tests during the fourth fiscal quarter of each year. During 2008, 2009 and 2010, no impairment losses were identified.

Valuation of investment in marketable securities

Fair values of marketable securities are estimated using quoted market prices. As of December 31, 2010, we had no investments in illiquid markets. Based on our intent with respect to a particular investment at the time of investment, we are generally required to classify our investments into one of three investment categories under GAAP: (i) trading; (ii) held to maturity; or (iii) available for sale. The classification of the investment may affect our reported results. We classify the investments as available for sale. Available for sale investments are carried at fair value. Changes in the fair value of investments classified as available for sale are not recognized to income statement during the period, but rather are recognized as a separate component of equity until realized. We regularly review our investments for factors that may indicate that a decline in the fair value of an investment below its cost or amortized cost is other than temporary.

On April 1, 2009, we adopted a new guidance, ASC 320-10-65-1, “Recognition and Presentation of Other-Than-Temporary Impairments”, that changed the impairment and presentation model for its available for sale debt securities. Under the amended impairment model, an other-than-temporary impairment loss is recognized in earnings if the entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still needs to evaluate expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income.

Upon adoption of the new guidance, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings into accumulated other comprehensive income. The adoption of the new guidance had no impact on our consolidated financial position, results of operations or cash flows. During the fiscal years 2008, 2009 and 2010, no impairment losses were identified.

Contingencies

From time to time, we are defendant or plaintiff in various legal actions, which arise in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful and considered analysis of each individual action together with our legal advisors. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made.

5.B LIQUIDITY AND CAPITAL RESOURCES

In March 2005, we raised net proceeds of $42.2 million through the initial public offering of our ordinary shares. Other than that from the commencement of our business through December 31, 2010, we have self-funded and grown our business principally from cash flow from operations and loans.

As of December 31, 2010, we had working capital of $56.3 million, cash and cash equivalents and short term investments of $28.4 million, unused credit lines and loans of approximately $10.3 million.

The following table sets forth elements of our cash flows for the periods indicated, in thousands of U.S. dollars:

	Year Ended December 31,
	2008			2009			2010

Net cash provided by operating activities		16,617			23,636			23,160
Net cash used in investing activities		(1,142	)		(8,989	)		(9,800	)
Net cash used in financing activities		(15,673	)		(13,225	)		(17,866	)

We will finance acquisitions and purchases of significant fixed assets through loans, capital leases and working capital. We attempt to take these loans in the same currency in which the cash flow from the acquired assets will be generated.

We anticipate that we will be able to meet our short-term liquidity needs through our working capital and that we will be able to meet our long-term liquidity needs, which may include investments in facilities, acquisitions of new operations and fixed assets, through long-term loans and our working capital. Our operating activities provided cash of $16.6 million, $23.6 million and $23.2 million for the years ended December 31, 2008, 2009, and 2010, respectively. The change in net cash provided by operating activities reflects the increase in our net income and in 2010 was offset by the change in working capital.

Our investing activities used cash of $1.1 million, $9.0 million and $9.8 million for the years ended December 31, 2008, 2009 and 2010, respectively. The 2009 and 2010 figures include $4.4 million and $1.4 million, respectively, of investment in short term investments, net. The 2008 figures include $7.0 million of proceeds from the sale of short term investments, net. Over the last three years, cash used in investing activities was mainly driven by the purchase of equipment to increase our laboratory capacity, as well as the acquisition of subsidiaries and affiliates.

Our financing activities used cash of $15.7, $13.2 million and $17.9 million for the years ended December 31, 2008, 2009 and 2010, respectively. In 2010, we used the cash primarily for the distribution of a dividend and loans repayment offset by proceeds from exercise of options granted to employees.

In 2008, we received long-term loans of $2.9 million for financing the expansion of our production facility in Portugal and finance of our operations through our subsidiary in France.

In 2009, we received long-term loans of $8.1 million mainly for the replacement of loans we had in Europe

In 2010, we have not received any new long-term loans.

Borrowings

	Weighted Average Interest Rate			December 31,2010 (U.S. dollar in thousands)
Short-term bank credit and loans
Mainly denominated in Euro (1)		3.4	%		9,154

Non-controlling shareholders in subsidiaries:
Baht		4.0	%		330

Long-term loans:
Dollars (2)		2.7	%		6,922
Euro (3)		2.9	%		4,079
NIS		3.7	%		467
Baht		6.5	%		320

					11.788

Total bank credit and loans					21,272

_______________________

(1)

$7.5 million are linked to the Eurobur interest rate

(2)

Linked to the Libor interest rate

(3)

$2.5 million are linked to the Eurobur interest rate

As of December 31, 2010, we had aggregate short-term bank credit, short-term loans and long-term loans of $1.7 million, $7.5 million and $12.1 million, respectively ($1.3 million, $9.7 million and $18.0 million, respectively, in 2009). As of December 31, 2010, and 2009, we had aggregate capital leases of $2.2 million and $3.9 million, respectively. The decrease in borrowings is attributed to the continuing repayment of our borrowings mainly in our European subsidiaries.

5.C RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

We are focused on research and development, and the success of our business depends substantially on the results of our R&D activities. We conduct research and development both to enhance our existing proprietary technologies and to develop new technologies.

We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses for a variety of activities and environments. We have also created software tools specifically designed for our research and development and production requirements, including our Eye Point Technology software that simulates human vision. We believe that these proprietary tools, and in particular our optical design software and our Eye Point Technology, provide us with a competitive advantage in our market. To maintain this advantage, we have pursued investments in new technologies in the ophthalmic field and are developing product technologies in fields such as lens development, lens production and optical measurement and simulation.

For a more detailed discussion of our research and development activities, see “Item 4. Information on the Company—Competitive Strengths—Research and Development Expertise” and “—Research and Development.”

Research and development expenses for the fiscal years ended December 31, 2010, 2009 and 2008 were $4.6 million, $3.2 million and $3.4 million, respectively.

5.D TREND INFORMATION

For a discussion of trend information, see “Item 4. Information on the Company—Industry Overview—Market Growth.”

5.E OFF- BALANCE SHEET ARRANGEMENTS

None

5.F CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes our contractual and commercial obligations and commitments as of December 31, 2010, in thousands of U.S. dollars:

	Payments Due In
	Total		2011		2012		2013		2014		2015 and Thereafter
Contractual obligations:
Long-term debt (excluding loans from non-controlling shareholders in subsidiaries) (1)	$	11,788	$	4,019	$	2,143	$	2,143	$	1,167	$	2,316
Capital lease		2,190		953		467		171		150		449
Operating lease obligations		13,601		1,859		1,707		1,479		1,302		7,254
Loans from non-controlling shareholders in subsidiaries (2)		330		-		-		-		-		-
Tax reserve related to FIN 48 (3)		1,462		-		-		-		-		-
Other long-term liabilities (4)		1,536		1,242		100		125		69		-
Total contractual obligations	$	30,907	$	8,073	$	4,417	$	3,918	$	2,688	$	10,019

(1)

Does not include interest due.

(2)

No repayment date was set in connection with such loans.

(3)

See Note 15 to our consolidated financial statements included elsewhere in this annual report.

(4)

Mainly related to liabilities for payments for an acquisition and intangible assets.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A DIRECTORS, SENIOR MANAGEMENT

The following table lists the current members of our board of directors and our executive officers. The address for our directors is c/o Shamir Optical Industry Ltd, Kibbutz Shamir, Upper Galilee, 12135 Israel. There are no other family relationships among members of our board or our executive officers.

Name	Age	Position/Principal Occupation
Amos Netzer	55	President and Chief Executive Officer
Dan Katzman	56	Chief Technology Officer and Vice President of R&D
Dagan Avishai (1)(2)	51	Vice President of Sales
Yagen Moshe	41	Chief Financial Officer
Shai Michael	45	Vice President of Marketing
Hilaire van der Veen	57	Vice President of Business Development
Yaniv Hagai	36	Vice President of Operations
Ra’anan Naftalovich	46	Chief Executive Officer of Shamir Insight, Inc.
Uzi Tzur (1)(4)	71	Director and Chairman of the Board
Giora Ben-Ze’ev (1)(2)	70	Director
Efrat Cohen (2)	43	Director
Ami Samuels (5)	52	Director
Giora Yanay (5)	73	Director
Israel Oz (3)	55	Director

(1)

Member of Kibbutz Shamir.

(2)

Member of the management board of Kibbutz Shamir.

(3)

Independent board member.

(4)

Chairman of the management board of Kibbutz Shamir.

(5)

External and independent board member.

Amos Netzer . Mr. Netzer was appointed by our board of directors to serve as our President and Chief Executive Officer as of July 1, 2009. He also served as an External Director of our board of directors until April 26, 2007. Since July 2000 and until September 2007, he served as the managing director of Palram Industries Ltd., a public company traded on the Tel Aviv Stock Exchange. From 1998 until 2000, he was the managing director of SMS, a private company engaged in the production and distribution of plastic products to world markets. Between 1993 and 1997, he was president of Suntuf, Inc., a U.S. based company responsible for the establishment of the North and South American marketing and distribution network of Palram-Paltough Ltd. He serves as a board member of Spirit Economic Consultants Ltd. He holds a B.Sc. degree in industry and administrative engineering from the Technion Israeli Institute of Technology in Haifa and an MS degree in public policy from Tel Aviv University.

Dan Katzman. Mr. Katzman joined our Company in 1981 as an engineer and became Chief Technology Officer and Vice President of R&D in 1985. An internationally recognized expert in optical research and development, he has headed our research and development teams since that time. He holds a BSc degree in mechanical engineering from the Technion Israel Institute of Technology in Haifa.

Dagan Avishai. Mr. Avishai has been our Vice President of Sales since 2009 and has served as our Vice President of Marketing from 2003 until 2009. Prior to joining the Company in 1997, he served as financial manager of Kibbutz Shamir for three years. He is a director at Shalag Industries, Ltd. and a member of the management board of Kibbutz Shamir. He holds a BA degree in management and economics from the Ruppin Academic Center.

Yagen Moshe. Mr. Moshe has been our Chief Financial Officer since July 2006. Prior to this position he served as our Vice President of Finance, a position he held since March 2005. He served from 2001 to 2005 as the Chief Financial Officer of Comsec Ltd., an Israeli public company that is listed on the Tel Aviv Stock Exchange, and worked as a Senior Manager in Ernst & Young Israel from 1996 to 2000. Mr. Moshe holds a BA degree in accounting and management from the College of Management in Tel-Aviv, he is a certified public accountant in Israel, and holds a MA in law from Bar-Ilan University in Ramat-Gan.

Shai Michael. Mr. Michael joined our Company as our Vice President of Marketing in November 2009. Previously, he served as Vice President of Marketing at Palram Industry Ltd. from 2001 to 2006, and prior to that as its Vice President of Business Development. He holds a BA degree in economics and psychology and an MBA degree from the University of Haifa.

Yaniv Hagai. Mr. Hagai was appointed as Shamir’s Vice president of Operations as of September 2010. Mr. Hagai joined Shamir as an engineer in Shamir Eyal Ltd. in April 2003, and served in several positions in that subsidiary until his last position as Plant Manager. He holds a BS.c. degree from Shenkar, Ramat-Gan.

Hilaire van der Veen. Mr. van der Veen joined our Company in 1992 and, as of September 2009, has served as our Vice President of Business Development. From 2005 to 2009, he served as President at Shamir Insight and from 1999 to 2005 he served as the Chief Executive Officer and President of Shamir Insight. He holds a Bachelors degree from Maryland University.

Ra’anan Naftalovich. Mr. Naftalovich has been the Chief Executive Officer of Shamir Insight, Inc. since 2005. Prior to this position he served in various positions in Shamir Insight, Shamir Eyal and the Company, such as Marketing Vice President of Shamir Insight from 1997 until 2005, and Product Manager, Marketing Director, and International Regional Export Manager of the Company and Shamir Eyal from 1994 to 1997. Mr. Naftalovich holds a BA degree in business administration from the College of Management in Tel-Aviv.

Uzi Tzur. Mr. Tzur has been a member of our board of directors since its original establishment in 1997 and the chairman of our board of directors since April 2007. He is also the current chairman of the management board of Kibbutz Shamir, a position he has held since 1992. Mr. Tzur is currently a member of the board of directors of Shalag Industries, Ltd., and was a board member of N.R. Spuntech Industries Ltd., two companies that are located in Kibbutz Shamir and are listed on the Tel Aviv Stock Exchange. He served as the chairman of the boards of Mishkai Galil Elion, an umbrella organization of all kibbutzim in northern Israel, and of Hamashbir Hamercazi A.C.S. Ltd., an Israeli trading company. He holds a BA and an MBA degree in management and economics from the Ruppin Academic Center.

Giora Ben-Ze’ev. Mr. Ben-Ze’ev has been a member of our board of directors since its original establishment in 1997. Mr. Ben-Ze’ev was our President and Chief Executive Officer from 1994 to April 2, 2008. Mr. Ben-Ze’ev is a member of the management board of Kibbutz Shamir. He holds a BSc degree from the Technion Israel Institute of Technology in Haifa in industrial and management engineering.

Efrat Cohen. Ms. Cohen has been a member of our board of directors since 2001. Since 1997 she has been the Chief Financial Officer of Kibbutz Shamir. She is a director at Shalag Industries, Ltd. and a member of the management board of Kibbutz Shamir. Ms. Cohen holds a BA degree in economics and management from the Ruppin Academic Center.

Ami Samuels. Mr. Samuels has been a member of our board of directors since March 2005. He is currently a Managing Director, Private Equity, at Poalim Capital Markets Ltd., a wholly owned subsidiary of Bank Hapoalim B.M. From 2004 to 2006, Mr. Samuels was a Partner at Star Ventures, an international venture capital fund. From 2001 to 2003, he served as Senior Vice President and Chief Financial Officer of Satlynx, a company specializing in two-way satellite broadband services. From 1998 to 2001, he was Vice President for broadband networks at Gilat Satellite Networks Ltd., and from 1989 to 1998, he worked as an investment banker at Lehman Brothers. He holds a BA degree from Haifa University and a Masters degree in Management from Yale University.

Giora Yanai. Mr. Yanai was elected to serve as a member of our board of directors in June 2009. He is currently the managing director of Yanai Information Resources Ltd., a consulting firm providing economic research, strategic and marketing consulting and M&A services. Between 1994 and 1995 he served as management consultant at Friedman Turbidy Inc., a New York company engaged in strategic business and management consulting and finance. Between 1988 and 1992 he served as the economic director of Kibbutz Artzi Movement, where he managed and negotiated the major debt restructuring agreement with the Israeli government and major Israeli banks for Kibbutz organizations nationwide, and designed restructuring plans for dozens of Kibbutz settlements and industries. Between 1981 and 1987 he served as managing director of Mivrag Ltd., the cold forming metal factory of Kibbutz Ein Hashofet, as well as general manager of Kibbutz Ein Hashofet between the years 1968-1971 and between 1992 and 1993. From 1977 until 1980 he served as the representative of the Israel Kibbutz Industry Association in the U.S. From 1972 until 1977 Mr. Yanai served as managing director of Eltam Ltd., a producer of electrical products, lighting and electronics. Mr. Yanai studied as a visiting scholar and completed the coursework for an M.B.A. at Columbia Business School and has studied agriculture at the Hebrew University in Jerusalem.

Israel Oz. Mr. Oz has been elected to serve as a member of our board of directors in June 2009. He currently serves as chairman of the board of directors of the Lordan plant in Kfar Sold, Israel, which is engaged in manufacturing heat transfer equipment, chairman of the board of directors of Mishkai Galil Elion, and since 2003 has served as the chairman of the Administration of Kibbutzim Agreement Ltd. From 1996 until 2006, he served as the chairman of the board of directors of the holding company Neot Mordechai and of the Teva Neot shoe factory and the Palrig Neot plastics factory. Between 1996 and 2003, he served as a director at Bank Yahav, at Manpower, and at Blue Square Chain Investments & Properties Ltd. Between 1996 and 2003, he also served as chairman of the economic committee of Kibbutz Neot Mordechai and of Kibbutz Genosar. Between 1993 and 1995, he served as chief of staff of the Israeli Minister of Finance, Abraham Shohat. Between 1987 and 1993, he owned and served as the manager of Tmurot, a company engaged in organizational consulting. Mr. Oz holds a B.A. in economics and sociology from the Hebrew University in Jerusalem and has studied business administration and organizational behavior at the Hebrew University in Jerusalem.

Board of Directors

Under the Israeli Companies Law and our Articles of Association, our board of directors is responsible, among others, for establishing our policies and overseeing the performance and activities of our chief executive officer, convening shareholders’ meetings, preparing and approving our financial statements, reviewing and approving fundamental strategic, financial and organizational decisions, and issuing securities and distributing dividends. The board also appoints and may remove our chief executive officer.

Our board of directors currently consists of six directors. Two of these directors are “External Directors” in accordance with the Israeli Companies Law. See “—External Directors.” These two External Directors and one additional director qualify as independent directors for purposes of the listing requirements of The NASDAQ Global Market.

In reliance upon Section 5615(c)(2) of the NASDAQ Listing Rules, as a “controlled company”, the Company has elected not to follow the requirement that a majority of the members of our board of directors be independent, pursuant to Sections 5605(b)1 of the NASDAQ Listing Rules. The Company is considered a “controlled company” under the NASDAQ Listing Rules as over 50% of the voting power in the Company is held by Kibbutz Shamir. According to Section 5615(c)(2) of the NASDAQ Listing Rules, a controlled company is not required to comply with board independence requirements under Section 5605(b) (except for the requirements of subsection (b)(2) which pertain to executive sessions of Independent Directors). Accordingly, the Company’s board of directors is composed of six members, of whom to the Company’s best knowledge three meet the independence requirements of the NASDAQ Listing Rules, namely, Ami Samuels, Giora Yanai, and Israel Oz, and three are non-independent directors, namely Uzi Tzur, Giora Ben-Ze’ev and Efrat Cohen.

Under our Articles of Association, our board of directors must have at least two members and no more than eleven. The members of our board of directors, other than the External Directors, for whom special election requirements apply (see “—External Directors”), are elected and may in certain circumstances be removed by the majority of our shareholders. Our Articles of Association provide that our board of directors, other than the External Directors, will be divided into three classes. Each class of directors will serve for a term of three years. The term of office of the directors assigned to class B will expire at the annual meeting of shareholders, which will take place during the year of 2011, and at each third succeeding annual meeting thereafter. The term of office of the directors assigned to class C will expire at the annual meeting of shareholders, which will take place during the year of 2012, and at each third succeeding annual meeting thereafter. The term of office of the directors assigned to class A will expire at the next annual meeting of shareholders, which will take place during the year of 2013, and at each third succeeding annual meeting thereafter. Giora Ben-Ze’ev and Israel Oz serve as class A directors, Efrat Cohen serves as class B director and Uzi Tzur serves as class C director. This classification of the board of directors may delay or prevent a change of control of our company or in our management.

If a vacancy arises because of the death or resignation of a board member, the replacement can only be appointed at a general meeting of our shareholders. There is no limitation on the number of terms that a director (other than an External Director) may serve.

The board of directors appoints its chairman from among its members in accordance with our Articles of Association. Pursuant to our Articles of Association, the chairman convenes and presides over the meetings of the board. A quorum consists of two-thirds of the members of the board, and decisions are taken by a vote of the majority of the members present. A director may appoint an alternate director to attend a meeting in his or her place, but this alternate must be approved by the board prior to the relevant meeting.

Directors are required to comply with all applicable laws and with our Articles of Association. They may be jointly and severally liable for any actions that they take in violation of their fiduciary duty and duty of care toward the Company and/or others.

The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of duty of loyalty, but may exculpate in advance an office holder from liability to the company, in whole or in part, with respect to a breach of duties of care. Our Articles of Association provide that, subject to any restrictions imposed by applicable law, we may enter into a contract for the insurance of the liability of any of our officers and directors with regard to an act performed by them in their capacity as such and with regard to certain actions specified in the Israeli Companies Law and in our Articles of Association.

We have acquired directors’ and officers’ liability insurance covering our officers and directors and the officers and directors of our subsidiaries against certain claims.

External Directors

We are subject to the Israeli Companies Law. Under the Israeli Companies Law, Israeli companies whose shares have been offered to the public in or outside of Israel are required to appoint at least two External Directors to serve on their board of directors. Each committee of the board of directors entitled to exercise any powers of the board is required to include at least one External Director. The audit committee must include all of the External Directors. See “—Board Practices” below.

A person may not serve as an External Director if he is a relative of our controlling shareholder, or if, at the date of the person’s appointment or within the prior two years, such person or his or her relatives, partners, employers, employees or entities under the person’s control, have or had any affiliation with us, with our controlling shareholders or their relatives or any entity controlled by or under common control with us. Under the Companies Law, the term affiliation includes an employment relationship, a business or professional relationship maintained on a regular basis, control or service as an office holder.

A person may not serve as an External Director if that person’s position or other business activities create, or may create, a conflict of interest with the person’s service as an External Director or may otherwise interfere with the person’s ability to serve as an External Director. A director of one company may not be appointed as an External Director of another company if a director of the other company is acting as an External Director of the first company at such time. An individual may not be appointed as an External Director if he is an employee of the Israel Securities Authority or of a stock exchange in Israel. In addition, a person (i) who has professional or personal relationship with us, with our controlling shareholders or their relatives or any entity controlled by or under common control with us, (ii) whose relatives, partners, employers, employees or entities under such person’s have professional or personal relationship with our controlling shareholders or their relatives or any entity controlled by or under common control with us, or (iii) who received compensation not in accordance with Companies Law and the regulations promulgated thereunder, may not serve as an External Director. Until the lapse of two years after termination or expiration of an External Director’s membership on a board of directors, such company may not engage an External Director to serve as an executive officer or director and cannot employ or receive services from that person for pay, either directly or indirectly, including through a corporation controlled by that person. If at the time any External Director is appointed, all members of the board of directors are the same gender, then the External Director to be appointed must be of the other gender.

Under the Companies Law, a person may be appointed as an External Director if he or she has professional qualifications or if he or she has accounting and financial expertise. In addition, at least one of the External Directors must be determined by our board of directors to have accounting and financial expertise.

External Directors must be elected by a majority vote of the shares present and voting at a shareholders' general meeting, provided that either:

•

such majority includes at least a majority of the shares held by non-controlling shareholders or persons who do not have personal interest in the election (other than personal interest unrelated to connections with the controlling shareholders), present and voting at such meeting (in counting the total votes of such shareholders, abstentions shall not be taken into account); or

•

the total number of shares of non-controlling shareholders or persons who do not have personal interest in the election (other than personal interest unrelated to connections with the controlling shareholders), voted against the election of the External Director, does not exceed 2% of the aggregate voting rights of the company.

The Companies Law provides for an initial three-year term for an External Director which may be extended for two additional three-year term by a majority vote at a shareholders’ meeting, subject to certain conditions and thereafter, in the case of our company based on a relief available to companies listed on NASDAQ, for additional three-year terms, if both the audit committee and the board of directors confirm that in light of the expertise and contribution of the External Director, the extension of such External Director’s term would be in the interest of our company. External Directors may be removed from office only by the same special majority required for their election or by a court and, in each case, only if they have ceased to meet the statutory qualifications for appointment or if they have violated their duty of loyalty to the company. In the event of a vacancy created by an External Director, our board of directors is required under the Companies Law to call a shareholders’ meeting to appoint a new External Director as soon as practicable.

External Directors may be compensated only in accordance with regulations adopted under the Companies Law. The regulations provide two alternatives for cash compensation to External Directors: a fixed amount within a range prescribed in the regulations or an amount that is not higher than the average compensation of other directors who are not controlling shareholders of the company or employees or service providers of the company or its affiliates and not lower than the minimum compensation received by any such director. A company may also issue shares or options to an External Director at the average amount granted to directors who are not controlling shareholders of the company or employees or service providers of the company or its affiliates. Cash compensation at the fixed amount determined by the regulations does not require shareholder approval. Compensation determined in any other manner requires the approval of the company’s audit committee, board of directors and shareholders. The compensation of External Directors must be communicated to them prior to their consent to serve as External Directors

6.B COMPENSATION OF DIRECTORS AND MANAGEMENT

We have paid compensation to the members of our board of directors for their services as directors as described below. Directors are reimbursed for expenses incurred in order to attend board or committee meetings.

At the annual meeting of shareholders on April 26, 2007, our shareholders resolved that each of the current and future directors, including the External Directors but excluding our chairman and our chief executive officer at the time of the resolution, Mr. Giora Ben Ze’ev, shall be entitled to an annual fee of $15,000, paid in quarterly installments of $3,750 each. Each director who is a member of a committee of the board of directors shall be entitled to an additional annual fee of $5,000, paid in quarterly installments of $1,250 each. No additional fee will be paid for membership in more than one committee.

At a special meeting of our shareholders which took place on March 4, 2010, our shareholders approved the payment of standard directors fee to Mr. Ben-Ze’ev as detailed above.

At our special general meetings that took place on July 18, 2005, and on August 8, 2005, our shareholders approved the issuance of options to purchase 23,540 of our ordinary shares to each of our directors serving as of the date of the options grant, including the External Directors but excluding our chairman and our chief executive officer at the date of the options grant, Mr. Yair Shamir and Mr. Giora Ben-Ze’ev, respectively. In addition, at a special meeting of our shareholders which took place on March 4, 2010, our shareholders approved a grant of 23,540 options to each of Mr. Tzur, Mr. Ben-Ze’ev, Mr. Oz and Ms. Cohen, all under the terms of the Company’s 2005 General Share and Incentive Plan (the “Plan”). The options shall vest in accordance with the terms of the Plan with an exercise price of $8.99.

On October 11, 2007, our shareholders approved a proposal to grant to Mr. Uzi Tzur, the chairman of our board of directors, a monthly salary of $5,500 retroactively as of July 1, 2007. On December 5, 2007, our shareholders approved the grant of an additional 51,460 options to Mr. Tzur, following which he holds 75,000 options to purchase ordinary shares of the Company. In addition, at a special meeting of our shareholders which took place on March 4, 2010, our shareholders approved a new compensation arrangement under which Mr. Tzur is paid, as of January 1, 2010, a monthly salary of NIS 25,000. Mr. Tzur’s salary shall be linked to the Israeli Consumer Price Index (“CPI”) of January 2010, as published in February, 2010. Under the new compensation arrangement, Mr. Tzur is entitled to up to 50% participation in car maintenance and rental fees, commencing as of January 1, 2010.

The aggregate compensation we paid our directors as a group (six persons), excluding stock-based compensation, for the year ended December 31, 2010 was $0.2 million. This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses, or other benefits commonly reimbursed or paid by companies in Israel, or stock-based compensation. We have also granted options to purchase our ordinary shares to our directors as part of their overall compensation. See also“—Share Ownership.”

The aggregate compensation we paid to our officers as a group ( nine persons, including officers that retire or were appointed during 2010, for the period of their appointment), excluding stock-based compensation, for the year ended December 31, 2010, either directly or through Kibbutz Shamir as part of our working services agreement with Kibbutz Shamir (see “Item 7. Major Shareholders and Related Party Transactions.”), was approximately $2.1 million, including amounts set aside or accrued to provide for pension, retirement or similar benefits. This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses, or other benefits commonly reimbursed or paid by companies in Israel. We have also granted options to purchase our ordinary shares to our officers as part of their overall compensation. See “—Share Ownership.”

As of June 1, 2011, options granted to our current and former directors and officers to purchase a total of 847,253 of our ordinary shares were outstanding, at exercise prices ranging from $3.59 to $12.35 with a weighted average exercise price of $7.37 per share. See “— Share Ownership” for a description of the options granted to our officers.

6.C BOARD PRACTICES

Our board of directors has established three standing committees. The three committees are an audit committee, a compensation committee and a nominating and governance committee.

Audit Committee

Under the Israeli Companies Law, the audit committee must consist of at least three directors and must include both of the External Directors. In addition, the rules of The NASDAQ Global Market require that at least one member of our audit committee have experience or background that results in such member’s financial sophistication. Our audit committee is comprised of Ami Samuels as chairman, Giora Yanai and Israel Oz. Our board of directors has determined that Giora Yanai is financially sophisticated for purposes of the NASDAQ rules. The composition and function of the audit committee meet the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder, as well as The NASDAQ Global Market Listing Rules.

The audit committee provides assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audit efforts of our independent accountants and takes those actions it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee is also responsible for (i) identifying deficiencies in the administration of the Company, including by consulting with the internal auditor, and recommending remedial actions with respect to such deficiencies; (ii) reviewing and approving related party transactions, including, among others, determining whether or not such transactions are deemed material actions or extraordinary transactions; (iii) evaluating our company's internal audit programme and the performance of our company's internal auditor and the resources at his/her disposal; (iv) reviewing the scope of work of our company's external auditor and making recommendations regarding his/her salary; and (v) creating procedures relating to the employees' complaints regarding deficiencies in the administration of our company.

Pursuant to the Israeli Companies Regulations (Provisions and Conditions regarding the Financial Statements’ Authorization Process), 2010, a public company is required to establish a committee of the board of directors for the examination of financial statements. Commencing with the 2010 year-end financial statements, financial reports of a public company may be brought for discussion and authorization of the board of directors only after such committee for the examination of financial statements has discussed and formulated recommendations to the board of directors in connection with: the estimates used in connection with the financial statements; the internal audits related to financial reporting; the completeness and appropriateness of disclosure in the financial statements; the accounting policy adopted and accounting treatment applied in the material matters of the company; valuations, including the assumptions and estimates underlying them, on which bases data in the financial statements is provided. The members of the committee for examination of financial statements must be directors who meet certain independence requirements, and, among other things, must be able to read and understand financial statements, with at least one of the members being an accounting and financial expert (as defined under the regulations). Our audit committee also serves as the committee for the examination of financial statements under Israeli law.

Compensation Committee

The compensation committee makes recommendations to the board of directors with respect to the issuance of employee share options under our share option plan, determines salaries and bonuses for our executive officers and incentive compensation for our other employees. The members of our compensation committee are Israel Oz as chairman, Giora Yanai, and Ami Samuels. The composition and functions of the compensation committee meet the requirements of The NASDAQ Global Market rules.

Nominating and Governance Committee

The nominating and governance committee makes recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board regarding corporate governance matters. The members of the nominating and governance committee are Giora Yanai as chairman, Ami Samuels and Israel Oz. The composition and functions of the nominating and governance committee meet the requirements of The NASDAQ Global Market rules.

Internal Auditor

Under the Israeli Companies Law, the board of directors of a public company must appoint an internal auditor following the recommendation of its audit committee. The role of the internal auditor is to examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may be an employee of the company but may not be an interested party or officer in the company, or a relative of an interested party or officer, and may not be a member of the company’s independent accounting firm or its representative. The Israeli Companies Law defines an interested party as a shareholder of 5% or more of the company’s issued share capital or of voting rights, or a person or entity that has the power to appoint one or more directors or the general manager of the company, or a person who serves in the company as a director or as general manager of a company. We appointed an internal auditor in June 2005.

6.D EMPLOYEES

As of June 1, 2011, our worldwide workforce consisted of 1,764 people, which includes approximately 32 employees who provide services to us through our working service agreement with Kibbutz Shamir (see “Item 7. Major Shareholders and Related Party Transactions.”). The following table shows the breakdown of our workforce by main category of activity and geographic location for the past three years.

Department or location as of June 16,	2009		2010		2011
Research and development		45		52		59
Marketing and sales		407		429		514
Management and administration		150		172		193
Manufacturing and warehouse		590		809		998
Total		1,192		1,462		1,764

Israel		368		418		533
United States		69		77		79
Europe		446		473		552
Australia		-		40		51
Thailand		-		174		227
Mexico		301		271		312
South Africa		8		9		10
Total		1,192		1,462		1,764

We consider the changes in the numbers of employees in our various departments or geographic regions to be in line with our expectations for our company’s growth. We believe that our relations with our employees are good.

In Israel, we are subject to the instructions of the Extension Order in the Industrial Field for Extensive Pension Insurance 2006 according to the Israeli Collective Bargaining Agreements Law, 1957 (the “Extension Order”). The Extension Order ensures the pension insurance of certain employees which fall under its criteria, including the employees of Eyal, SSOP, Shamir Israel, Shamir Or and our company.

The Israeli government, as part of a program to encourage the employment in the peripheral parts of Israel, grants certain subsidies to companies to help finance salary expenses of new employees for a period of 5 years. Our company and SSOP are part of this program. In order to secure this subsidy, we granted the State of Israel a bank guarantee. If we fails to comply with certain conditions set by the government in this program it may have to return part or the entire subsidy it received.

6.E SHARE OWNERSHIP

Our executive officers and other certain employees, other than directors, hold options to purchase 772,024 of our ordinary shares as of June 1, 2011.

In February 2006, our board adopted the 2005 General Share and Incentive Plan, or the Plan. The Plan provides that 25% of the shares shall vest one year after the date of grant, and the remaining 75% shall vest on a monthly basis, with 1/36 of the remaining shares vesting on each month commencing at the end of the first anniversary of the date of grant. The Plan provides for an initial pool of 350,000 options to purchase our shares increased annually by an additional 280,000 options. On July 31, 2008, our shareholders approved an amendment to the Plan to provide that in the event we distribute a cash dividend and the record date for such distribution is subsequent to the date of grant of an award in the form of an option to purchase shares, but prior to its exercise or expiration, the exercise price of each such award will be reduced by the dividend amount per share. Further, at the above mentioned meeting, our shareholders resolved to adjust the exercise price of the outstanding options, including outstanding options previously granted to directors and External Directors in the Company, by reducing the exercise price by $0.243, the dividend per share declared by our company in January 2008.

Options granted prior to the adoption of the 2005 General Share and Incentive Plan during the years 2004 and 2005 have vested in four tranches of 25% per year. The first tranche vested on March 10, 2006.

Options are usually granted and authorized pursuant to Section 102 of the Israeli Income Tax Ordinance, which grants certain tax advantages to the employee grantees of options. In order for these tax advantages to take effect, the options must be held by a trustee, and the underlying shares cannot be sold until the end of the second fiscal year after the year in which they were granted.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A MAJOR SHAREHOLDERS

The following table and footnotes set forth information, as of June 1,2011, regarding the beneficial ownership of our ordinary shares by:

each person or entity that we know beneficially owns more than 5% of our outstanding ordinary shares; and

each of our directors or executive officers who beneficially owns one percent or more of our shares.

Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power and options currently exercisable or exercisable within 60 days of June 1, 2011.

Except as indicated in the footnotes to this table, each shareholder in the table has sole voting and investment power for the shares shown as beneficially owned by it. All of our shareholders have the same voting rights. Percentage ownership is based on 17,256,916 ordinary shares outstanding as of June 1,2011, Except as otherwise disclosed, the address of Kibbutz Shamir and of Dan Katzman is c/o Shamir Optical Industry Ltd., Kibbutz Shamir, Upper Galilee, 12135 Israel. Other than Dan Katzman, none of our directors or executive officers beneficially owns one percent or more of our outstanding share capital.

Name of Beneficial Owner	Percent of Shares		Number of Shares
Kibbutz Shamir (1)		58.1		10,599,958
Dan Katzman ( 2 )		1.5		267,292

(1)

Based on Schedule 13D filed on October 25, 2010 and other information provided to us by Kibbutz Shamir, other than 10,049,958 ordinary shares which are held by Shamir Optica Holdings ACS, Kibbutz Shamir holds shares in our company through Kibbutz Shamir ACS. The management board of Kibbutz Shamir manages the economic activities and strategy of Kibbutz Shamir and makes the voting and investment decisions of Kibbutz Shamir (by majority vote) with regard to our shares. The management board of Kibbutz Shamir has 15 members. Giora Ben-Ze’ev, Efrat Cohen, Dagan Avishai and Uzi Tzur are directors or officers of our company and also members of the management board of Kibbutz Shamir, and our shares held by Kibbutz Shamir may be attributed to them. The other members of the management board of Kibbutz Shamir are Rami Ben-Ze’ev, Edy Kudlash, Yitzchak Cahana, Nir Shmuel, Geva Aharon, Eyal Meron, Ze’ev Markman, Ilan Pickman, Yossi Michaeli, Maya Segal and Omry Rotem.

(2)

Consists of 260,000 ordinary shares and currently exercisable options to acquire 7,292 ordinary shares. The percentages of shares held by Dan Katzman are based on the number of our shares outstanding at the relevant time, partially diluted to include the number of shares corresponding to the options held by Dan Katzman. In connection with the merger agreement with Essilor Mr. Katzman has entered into a support agreement pursuant to which he agreed to certain restrictions on the transfer of his shares of Shamir and to vote in favor of the proposed transaction.

Based solely on information contained in Schedule 13G filed with the SEC by FIBI Investment House Ltd., or FIBI, on September 9, 2009, as of September 3, 2009, FIBI, who previously held 1,360,226 of our ordinary shares, or 8.28% of our outstanding share capital, no longer holds any of our shares.

Based solely on information contained in Schedule 13G filed with the SEC by Royce & Associates, LLC, or Royce & Associates, on October 7, 2010, as of September 30, 2010, Royce & Associates, who previously held 1,624,600 of our ordinary shares, or 9.68% of our outstanding share capital, holds 795,800 of our ordinary shares, or 4.53% of our outstanding share capital.

7.B RELATED PARTY TRANSACTIONS

We have, from time to time, entered into agreements with our shareholders and affiliates. We describe these relationships and related party transactions below.

Transaction with Essilor

On October 15, 2010 we signed a Merger Agreement with an indirect wholly-owned subsidiary of Essilor. Under the terms of the Merger Agreement, our shareholders will be entitled to receive $14.50 in cash, without interest and less any applicable withholding taxes, for each ordinary share of Shamir that the shareholders own as of the effective time of the merger, other than ordinary shares held directly or indirectly by (i) Kibbutz Shamir (ii) Shamir Holdings (iii) Essilor, or (iv) Merger Sub. The merger is being effected as an arrangement between Shamir and its shareholders under Sections 350 and 351 of the Israeli Companies Law and is subject to Israeli court approval. In connection with the transactions contemplated by the Merger Agreement, Kibbutz Shamir, Shamir Holdings and Essilor entered into a Share Purchase and Subscription Agreement, pursuant to which (i) simultaneously with and subject to the occurrence of the merger, Essilor will purchase from Kibbutz Shamir shares of Shamir held by Kibbutz Shamir, and (ii) immediately following the merger, Essilor will (x) subscribe for certain newly issued shares of Shamir Holdings, in exchange for cash, and (y) subscribe for additional newly issued shares of Shamir Holdings, in exchange for the contribution to Shamir Holdings by Essilor of all of the shares of Shamir then held directly by Essilor. Following the consummation of the merger and the other transactions contemplated by the Merger Agreement and the Share Purchase and Subscription Agreement, our shares will be delisted from The NASDAQ Global Market and the Tel Aviv Stock Exchange, or the TASE. We will be a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Following the merger, Kibbutz Shamir, Shamir Holdings, Shamir and Essilor intend to enter into certain other agreements, including a shareholders’ agreement, amended lease agreement and various commercial agreements. On June 13, 2011, such order has been issued by the court. The closing of the merger remains subject to the satisfaction of the remaining conditions specified by the Merger Agreement. Please see Exhibit a(2) to Schedule 13E-3/A we filed with the Securities and Exchange Commission on March 24, 2011 for more details on the Merger Agreement and the other transactions contemplated thereby.

Relationship with Kibbutz Shamir

Our majority shareholder is Kibbutz Shamir, a small communal society with approximately 300 members and approximately 600 total residents located in upper Galilee, in northern Israel. Established in 1944, Kibbutz Shamir is a largely self-governed community of members who share certain social ideals and professional interests and who live in a distinct geographic area, which they own and develop on a communal basis. Initially, the social idea behind the formation of the kibbutzim in Israel was to create a communal society in which all members share equally in all of the society’s resources and which provides for the needs of the community. Over the years, the structure of the kibbutzim has evolved, and as of the date hereof there are a number of different economic and social arrangements adopted by various kibbutzim. Kibbutz Shamir has moved toward more private ownership and voluntary participation in communal activities, although each member continues to own an equal part of the assets of Kibbutz Shamir. The members of Kibbutz Shamir are engaged in a number of economic activities, from farming to research and development of progressive spectacle lenses. In addition to being our majority shareholder, Kibbutz Shamir is the majority shareholder of Shalag Industries, Ltd., a company that, like us, is located on the grounds of Kibbutz Shamir. Shalag Industries, Ltd. is engaged in the manufacture and sale of non-woven cloth and is listed on the Tel Aviv Stock Exchange. The kibbutz community holds in common all land, buildings and production assets of these companies.

Most of the members of Kibbutz Shamir work in one of the production activities of Kibbutz Shamir, according to the requirements of the Kibbutz and the career objectives of the individual concerned. Some other members work outside of Kibbutz Shamir in businesses owned by other entities. Each member receives an income based on the position the member holds and his or her economic contribution to the community, as well as the size and composition of his or her family. Each member’s income depends on the income of Kibbutz Shamir from its economic activities. Each member has a personal pension fund that is funded by Kibbutz Shamir, and all accommodation, educational, health and old age care services, as well as social and municipal services, are provided either by or through Kibbutz Shamir and are subsidized by Kibbutz Shamir.

The economic activities and strategy of Kibbutz Shamir are managed by an elected management board. This board is the key economic decision-making body of Kibbutz Shamir. Its members are elected by the members of the council of Kibbutz Shamir for terms of three years. The chairman of the management board is elected for a term of four years directly by the members of Kibbutz Shamir. The council may remove a member of the management board by a simple majority vote. The boards of directors of Kibbutz Shamir’s companies operate independently from the management board of Kibbutz Shamir itself. The chairman of our board of directors, Uzi Tzur, is also the chairman of the management board of Kibbutz Shamir and a member of Kibbutz Shamir. Two of our board members, Giora Ben-Ze’ev and Efrat Cohen, and our executive officer, Dagan Avishai is also member of Kibbutz Shamir and of the management board of Kibbutz Shamir. Ms. Efrat Cohen is a member of the management board of Kibbutz Shamir but not a member of Kibbutz Shamir itself. As of June 1, 2011, 53 members of our workforce in Israel are also members of Kibbutz Shamir. Our headquarters and main production facilities, which we lease from Kibbutz Shamir, are located on the premises of Kibbutz Shamir, and we have entered into several professional agreements with Kibbutz Shamir that are described below. While these agreements have been negotiated on an arm’s length basis, they may contain terms that are different from the terms that would have been included had these agreements been negotiated with unaffiliated third parties.

Working Service Agreement with Kibbutz Shamir

We entered into a working service agreement with Kibbutz Shamir in February 2005. On July 19, 2007, we entered into a new working service agreement with Kibbutz Shamir which replaces the agreement from February 2005. The terms of the new working service agreement are substantially similar to the terms of the agreement from February 2005. Under the working service agreement Kibbutz Shamir undertakes on a best efforts basis (but is not strictly obligated) to provide us with individuals to fill the relevant positions for which we request staffing. In addition, we are obligated to grant Kibbutz Shamir a first opportunity to provide such individuals for any positions for which we seek staffing. Pursuant to the agreement, our chief executive officer at the time, Giora Ben-Ze’ev, and our executive vice president at the time, Dagan Avishai, each entered into individual employment agreements with the Company and are not part of the working service agreement.

We are entitled to determine, with respect to all kibbutz members who provide services to us, the type of position to be filled by kibbutz members, the number of positions, the scope of each position, as well as, with respect to new workers provided by Kibbutz Shamir, the fees to be paid in consideration for the member’s services. We may, for reasonable cause, refuse to accept workers referred to us by Kibbutz Shamir or demand the replacement of existing workers. The agreement sets the reimbursement rights of the Company for any liabilities that may arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services. In addition, the Company is entitled to determine at its discretion with respect to new workers provided by Kibbutz Shamir and current workers whose scope of position has changed since the date of the new working service agreement, the consideration to be paid by the Company. The agreement includes a non-disclosure undertaking by Kibbutz Shamir on its own behalf and on behalf of Kibbutz Shamir members through whom services are provided to us.

The agreement specifies that Kibbutz Shamir will indemnify us for any liabilities that might arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services.

The initial term of the agreement expires on August 1, 2012, with subsequent automatic extensions for additional periods of five years, unless one party notifies the other, in writing, at least 180 days before the end of the then current effective period.

In addition, from time to time we pay bonuses to our employees. These bonuses are not governed by the working services agreement. Employees who are members of the kibbutz receive these bonuses on the same terms as non-member employees.

On January 18, 2007, Kibbutz Shamir granted approval for our subsidiaries SSOP and Eyal to employ directly ( i.e. , not through the working service agreement) local members of Kibbutz Shamir.

In 2010, we paid a total of approximately $1.4 million to Kibbutz Shamir under the working service agreement.

Service Agreement with Kibbutz Shamir

In February 2005, we entered into a service agreement with Kibbutz Shamir, pursuant to which Kibbutz Shamir provides us with catering, laundry, switchboard and communications, maintenance and landscaping, trash removal services and water usage.

The fee for all of these services except water usage was initially fixed at NIS 92,000 per month. The fee is linked to the Israeli Consumer Price Index and reviewed every five years. In the event that the cost to Kibbutz Shamir of providing these services increases or decreases during the final year of the agreement’s five-year cycle as compared to the effective date of the agreement, the service fee shall be adjusted accordingly. If the costs increase or decrease by 30% or more in any particular year during the term of the agreement, the service fee will be adjusted for the following year. If Kibbutz Shamir provides additional services to us, the fee shall be adjusted accordingly. The fee for catering services is adjusted continuously based on the actual number of employees using these services.

The initial term of the agreement expired on March 10, 2010, and was automatic renewed for periods of five years, unless terminated earlier by either party upon 12 months written notice.

On July 19, 2007, we entered into an additional arrangement with Kibbutz Shamir. Under the additional service arrangement between the Company and Kibbutz Shamir, we and our subsidiaries will be entitled to purchase additional services not covered by the current service agreement. The consideration for a single transaction will be no greater than $7,000 (plus VAT, if required by law), and the aggregate consideration for services purchased by us and our subsidiaries during any calendar year will be no greater than $300,000 (plus VAT, if required by law). At least one additional proposal in writing from an unaffiliated third party shall be obtained prior to each service order.

On March 8, 2007, our shareholders at a special shareholders meeting approved a new service agreement between Kibbutz Shamir and our subsidiary, Shamir Special Optical Products Ltd., or SSOP, for the period commencing upon the acceptance of the new factory that is being built in Kibbutz Shamir for SSOP and ending on February 9, 2010, pursuant to which Kibbutz Shamir will provide administrative and maintenance services to SSOP to maintain the factory. SSOP shall pay Kibbutz Shamir a monthly fee of NIS 25,000 linked to the Israeli Consumer Price Index. In the event that the actual cost of services in any year is higher or lower by 30% or more compared to the service fee paid in the preceding calendar year, not taking into account extraordinary expenses not in the ordinary course of business, the service fee for the following year will be adjusted accordingly. The term of the service agreement will be extended automatically for additional periods of five years each unless either of the parties terminates the service agreement by giving 12-months’ advance notice prior to the scheduled expiration date The service fee will be adjusted at the end of the initial term of the service agreement and then every five years, assuming that the service agreement is extended, based on the actual cost of services in the year preceding the adjustment date.

In 2010, we paid a total of approximately $0.6 million to Kibbutz Shamir under the service agreement.

Lease and Sublease Agreements with Kibbutz Shamir

Our principal offices, manufacturing and research and development facilities are located on the premises of Kibbutz Shamir and include part of a building of approximately 4,786 square meters, and a yard of approximately 2,287 square meters (the “Facilities”). The Facilities are subleased from Kibbutz Shamir, which has a long-term lease on the property from the Israel Lands Administration, or ILA.

The lease agreement between Kibbutz Shamir and the ILA was signed on December 27, 1990 for a term of 49 years, with an option to extend for an additional 49 years. Pursuant to the lease, Kibbutz Shamir may use the lands for agricultural and residential purposes and services to members of Kibbutz Shamir and for commercial purposes, including the Company’s factory.

The ILA may cancel the lease in certain circumstances, including if Kibbutz Shamir commences proceedings to disband or liquidate or in the event that Kibbutz Shamir ceases to be a “kibbutz” as defined in the lease (i.e., a registered cooperative society classified as a kibbutz).

Pursuant to the lease, Kibbutz Shamir may, with permission from the ILA and without additional fees, sublease the parcel to a corporation under its control.

On January 5, 1999, we and Kibbutz Shamir signed a sublease agreement pursuant to which Kibbutz Shamir subleased to us the Facilities for a period of twenty years beginning on January 1, 1999. Annual rental payments are $1 for each square meter of yard and $4 for each square meter of building. At that time, the Facilities included a building of approximately 3,646 square meters and a yard of approximately 2,287 square meters. Kibbutz Shamir constructed an additional 1,149 square meters of an extension to our headquarters and manufacturing building at its own expense, for which we pay rent of $6 per square meter.

The rent is paid every six months in advance. Every two years, the rent will be adjusted in accordance with market rental prices for similar properties.

The agreement also states that any construction or changes in the building located on the property are subject to Kibbutz Shamir’s prior consent and all such construction will belong to Kibbutz Shamir. Kibbutz Shamir has the right of first refusal to carry out any construction work for us with respect to the subleased property. Kibbutz Shamir may demand that we finance the cost of the construction, and we are entitled to set off construction costs related only to buildings against our rental payments. Any additional internal construction work will be at our expense and is not subject to this offsetting. In the event of a disagreement between the parties with respect to the cost of construction, the cost shall be determined by a licensed appraiser.

In the event of additional construction, the rental fee for the property is increased to $6 for each additional square meter of building. We have insured the Facilities and added Kibbutz Shamir as a beneficiary in the insurance policy.

The sublease will be terminated in the event that Kibbutz Shamir holds, directly or indirectly, less than 50% of our share capital, unless the ILA agrees otherwise. We are entitled to terminate the sublease agreement by a prior written notice of 36 months.

On February 9, 2005, we entered into an amendment to the sublease agreement with Kibbutz Shamir governing the facilities we use that are located on the premises of Kibbutz Shamir. The amendment became effective upon the listing of our securities for trading on a U.S. stock exchange. Except as noted below, the operative terms of the new agreement remain unchanged from the prior agreement.

The term of the amended agreement is extended from 20 years to 24 years and 11 months. The base rent will be updated every five years rather than two years, to a level comparable to that of similar properties in the area. We will continue to be entitled to provide Kibbutz Shamir with a 36-month written termination notice after 10 years of lease.

Rental payments under the amended agreement are the same as under the prior agreement, except that the amended agreement specifies that any additional construction of industrial facilities will be charged a rent of $4 per square meter, while additional construction of the new offices will be charged $6 per square meter. The rent for any other additional construction will be negotiated in good faith. In addition, the rent for a specific production area identified in the agreement is reduced from $6 to $4 per square meter.

Except for these changes, we believe that the payments to be made under the amended agreement will for the foreseeable future be substantially similar to the amounts we have paid under the prior agreement.

If the agreement is terminated for any reason other than a breach by Kibbutz Shamir, Kibbutz Shamir shall not be obligated to repay any loans that we have provided for construction unless the newly constructed parts of the building are occupied by a third party or used by Kibbutz Shamir.

The ILA may, from time to time, change its regulations governing the lease agreement, and these changes could affect the terms of the sublease agreement, as amended, including the provisions governing its termination.

On November 18, 2009, in light of our intention to vacate certain office floors and yards of the leased property, we entered into a second amendment to the sublease agreement with Kibbutz Shamir pursuant to which Kibbutz Shamir shall afford us the following discount on rent: (1) between the years 2011 and 2014, an aggregate annual discount in the amount of US$18,500; and (2) from the year 2015 onwards, an aggregate annual discount in the amount of US$28,000.

On November 1, 2007, we and Kibbutz Shamir entered into an additional lease agreement pursuant to which we lease a newly constructed facility in the Kibbutz for our use until November 30, 2023. We are entitled to terminate the lease at any time; provided, however, that we have located an alternate tenant and Kibbutz Shamir has given its consent, which consent would not be reasonably withheld. The parcel of land underlying the facility is included in the long-term lease between Kibbutz Shamir and the ILA, pursuant to which Kibbutz Shamir may, with the consent of the ILA, sublease the parcel to a corporation under its control. The consent of the ILA for the lease, though, has not been obtained. In addition, the ILA may, from time to time, change its regulations governing such lease agreements, which could affect the terms of the lease, and may trigger the termination of the lease. Under the lease, Kibbutz Shamir is responsible for any expense resulting from actions of the ILA. The annual rental fees pursuant to the lease are payable quarterly, in an amount equal to 10% of the actual construction cost of the facility, excluding VAT and grants of the Investment Center, as certified by the board of directors, but in no event more than $500,000 per annum. The current annual lease payment to Kibbutz Shamir for the use of this facility is approximately $460,000.

In 2010, we paid a total of approximately $0.8 million to Kibbutz Shamir under the sublease agreement.

Registration Rights Agreement

Prior to the initial public offering of our shares in March 2005, we entered into a registration rights agreement with our then shareholders. See “Item 10. Additional Information – Shares Eligible for Future Sale – Registration Rights Agreement.”

Relationship with Kibbutz Eyal

Kibbutz Eyal held 3.95% of our shares prior to the March 2005 offering. We acquired our wholly-owned manufacturing subsidiary, Eyal Optical Industries (1995) Ltd., or Eyal, from Kibbutz Eyal in a series of transactions between 1997 and 2003. Eyal is located on the premises of Kibbutz Eyal pursuant to a lease agreement between Eyal and Kibbutz Eyal.

Kibbutz Eyal holds 1.81% of our shares through Haklaei Eyal Ha’Sharon A.C.S. Ltd., an agricultural collective society owned by Kibbutz Eyal, and 2.72% through Eyal Microwave Ltd. The options and agreements discussed in this sub-section have been granted to or entered into with Haklaei Eyal Ha’Sharon A.C.S. Ltd.

Relationship with Mr. Michael Oppenheimer

On July 1, 2008, we executed an agreement pursuant to which we purchased from Mr. Oppenheimer his entire holdings in our European operations. Under the terms of the agreement, we will pay an amount derived from our European subsidiaries consolidated net profit for the fiscal years ending December 31, 2008, 2009 and 2010, not to exceed the total amount of Euro 500,000. In addition, we have undertaken to repay the loans received from Mr. Oppenheimer from time to time in aggregate principal amount of Euro 1.2 million ($1.6 million) as of December 31, 2010. The loans will be repaid in several payments until June 30, 2011.

7.C INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION

8.A CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18 for a list of financial statements filed as part of this annual report.

Export Sales

In 2010, substantially, all of our mold and semi-finished lenses were produced in Israel. Production of finished lenses took place mostly outside of Israel. Most of our export sales from Israel abroad are to our subsidiaries. Our export sales from Israel abroad to external customers totaled approximately $7.1 million, which is 4.5% of our total sales volume.

Legal Proceedings

From time to time, we and our subsidiaries may be involved in lawsuits, claims, investigations or other legal or arbitral proceedings that arise in the ordinary course of our business. These proceedings may include general commercial disputes, claims regarding intellectual property or labor disputes with former employees. We are involved in two (2) disputes concerning allegations of breach of third parties’ intellectual property, as described below.

In September 2003, we received a notice from a large lens manufacturer regarding a claim of patent infringement relating to lenses produced using our software. We have denied any such infringement, and numerous discussions between the companies (and counsel) have ensued and are ongoing in order to resolve the matter without resorting to litigation.

In January 2008, we received a notice from Dymotech Ltd., our co-shareholder in Inray Ltd ,claiming unlawful use of Inray Ltd.'s' intellectual property and unjust enrichment. We denied any such infringement, and numerous discussions between the parties (and counsel) ensued in order to resolve the matter without resorting to litigation. In January, 2011, the company and Inray Ltd., were served with a lawsuit by Dymotech Ltd. The claim alleges, among others, that Shamir illegally used the intellectual property of the Technion Israel Institute of Technology to seek unjust enrichment. In addition to the request for an order to pay damages and other monetary orders, Dymotech requested a restraining order against future use of its alleged intellectual property. The total amount claimed (limited for court filing fee purposes) is NIS 100 million (approximately $ 28,500). In March 2011 we have filed a statement of defense on our behalf. We currently cannot predict the development or ultimate outcome of the discussions with regard to these claims.

Dividend Policy

On June 27, 2007, we declared a dividend of $4.0 million, which was paid in July 2007. On January 14, 2008, we declared a dividend of $4.0 million, which was paid in February 2008. On November 27, 2009, we declared a dividend of $10.0 million, which was paid in December 2009 and the beginning of 2010. On October 13, 2010, we declared a dividend of $13.5 million, which was paid in November 2010.

We may decide not to maintain the level of dividend payments made during prior years, or not to make any dividend payments at all. Any future decisions regarding the distribution of dividends will depend on our net income, our investment policy and our dividend policy at that time. As part of the shareholders agreement to be entered into pursuant to the terms of the merger agreement with Essilor a dividend policy for Shamir has been agreed to for the period following the consummation of the merger.

8.B SIGNIFICANT CHANGES

See Note 20 to our consolidated financial statements included elsewhere in this annual report.

ITEM 9. THE LISTING

9.A LISTING DETAILS

Our ordinary shares began trading publicly on March 11, 2005. Prior to that date, there was no public market for our ordinary shares. The table below shows the high and low sales prices of our ordinary shares on The NASDAQ Global Market for each of periods indicated below.

Year	High		Low
200 7	$	13.00	$	7.40
200 8	$	9.85	$	2.06
2009	$	9.10	$	2.62
2010	$	14.75	$	6.85

2009	High		Low
First Quarter	$	3.25	$	2.62
Second Quarter	$	5.91	$	2.99
Third Quarter	$	8.16	$	4.68
Fourth Quarter	$	9.10	$	6.84

2010	High		Low
First Quarter	$	10.74	$	7.88
Second Quarter	$	10.16	$	6.85
Third Quarter	$	11.04	$	7.78
Fourth Quarter	$	14.75	$	10.17

2011	High		Low
First Quarter	$	14.17	$	13.00
Second Quarter (through June 1,2011)	$	13.94	$	13.55

Month	High		Low
December 2010	$	14.10	$	13.30
January 2011	$	14.17	$	13.25
February 2011	$	13.85	$	13.15
March 2011	$	13.95	$	13.00
April 2011	$	13.94	$	13.55
May 2011	$	13.88	$	13.61
June 2011 (through June 1,2011)	$	13.83	$	13.55

Our ordinary shares began trading publicly on the Tel-Aviv Stock Exchange on May 2, 2005. The table below shows the high and low sales prices of our ordinary shares on the Tel Aviv Stock Exchange for each of the periods indicated below.

Year	High	Low
2007	NIS 54.64	NIS 31.32
2008	NIS 39.30	NIS 10.51
2009	NIS 34.68	NIS 11.11
2010	NIS 53.20	NIS 28.11

2009	High	Low
First Quarter	NIS 13.69	NIS 11.11
Second Quarter	NIS 21.70	NIS 13.44
Third Quarter	NIS 29.90	NIS 17.70
Fourth Quarter	NIS 34.68	NIS 27.02

2010	High	Low
First Quarter	NIS 41.92	NIS 28.80
Second Quarter	NIS 38.99	NIS 28.11
Third Quarter	NIS 41.00	NIS 29.67
Fourth Quarter	NIS 53.20	NIS 37.60

2011	High	Low
First Quarter	NIS 51.00	NIS 46.59
Second Quarter (through June 1,2011)	NIS 48.90	NIS 45.29

Month	High	Low
December 2010	NIS 50.24	NIS 47.11
January 2011	NIS 50.49	NIS 47.80
February 2011	NIS 51.00	NIS 47.10
March 2011	NIS 49.50	NIS 46.59
April 2011	NIS 48.03	NIS 46.10
May 2011	NIS 48.90	NIS 45.29
June 2011 (through June 1,2011)	NIS 46.80	NIS 46.63

9.B PLAN OF DISTRIBUTION

Not applicable.

9.C MARKETS

Our ordinary shares have been listed on The NASDAQ Global Market since March 11, 2005, under the symbol “SHMR”. Our ordinary shares have also been listed on the Tel Aviv Stock Exchange since May 2, 2005. The address of the website of the Tel Aviv Stock Exchange is www.tase.co.il.

9.D SELLING SHAREHOLDERS

Not applicable.

9.E DILUTION

Not applicable.

9.F EXPENSES OF THE ISSUE

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

10.A SHARE CAPITAL

Not applicable

10.B ARTICLES OF ASSOCIATION

Our registration number with the Israeli registrar of companies is 51-365956-5.

Our purpose is to engage, directly or indirectly, in any lawful business activity or occupation whatsoever; provided, however, that we may donate reasonable amounts to worthy causes, as our board of directors may determine at its discretion, even if such donations are not within the framework of business considerations. See Article 3 of our Articles of Association, which sets forth our purposes.

The following sections, to the extent they refer to our Articles of Association are qualified in their entirety by the articles themselves, filed as an exhibit to this annual report.

For a summary of the provisions of our Articles of Association with respect to the board of directors, see “Item 6. Directors Senior Management and Employees - Board of Directors.”

Transfer of Shares and Notices

Our fully paid ordinary shares are issued in registered form and are freely transferable under our Articles of Association. Under the Israeli Companies Law and our Articles of Association, shareholders’ meetings require prior notice of at least 21 days.

Anti-Takeover Provisions; Mergers and Acquisitions under Israeli Law

The Israeli Companies Law regulates mergers where the target company is dissolved into the acquiring company and allows such a merger to be effected if the merger receives the approval of the boards of directors of each of the merging companies and a majority of the shareholders present and voting at the general shareholders’ meeting of each of the merging companies, or by a majority of 75% of the shareholders present and voting on the proposed merger in case a company was incorporated under the Israeli Companies Ordinance. However, an approval of the general shareholders’ meeting of any of the following is not required (assuming the merging companies are not related): (a) in a target company wholly owned and controlled by the acquiring company; (b) in the acquiring company provided all of the following conditions are fulfilled: (i) the acquiring company is not required as a result of the merger to amend its articles and memorandum of association; and (ii) the acquiring company will not issue, as part of the merger, more than 20% of the voting rights in the acquiring company, and as a result of the issuance no shareholder becomes a holder of a controlling party as defined in the Israeli Companies Law. In addition to the approval of the merger by the requisite majority at the shareholders’ general meeting, in case the other party to the merger or a person holding 25% or more of the shares of the other party to the merger, then the majority must include a majority of the shares held by those shareholders participating in the vote (abstaining votes shall not be taken into account) who do not have an interest in the other party. Upon petition by a creditor of a merging company, the court may delay or prevent the consummation of the merger, if it deems there to be a reasonable concern that as a result of the merger, the surviving company will not be able to meet the obligation to creditors of either of the merging companies. A merger may not be completed until 30 days have passed from the time that the general shareholders’ meetings of each of the merging companies have approved the merger and 50 days have passed from the time that the merger proposal has been filed with the Israeli Registrar of Companies, including all approvals necessary for its completion. The Israeli Companies Law also provides that an acquisition of shares in a public company such as us must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. This rule does not apply if there is already another 25% shareholder of the company. Similarly, the Israeli 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 more than a 45% shareholder of the company, unless there is already a shareholder holding more than 45% of the voting rights of the company. These rules do not apply if: (a) the acquisition is made by way of a private issue, provided that the acquisition was approved by the general shareholders’ meeting as a private issue which will grant the offeree 25% or more of the shares of the company, if there is not a person holding 25% or more of the shares of the company, or as a private issue which will grant the offeree 45% of the voting rights of the company, provided there is no person holding 45% of the voting rights in the company; (b) the acquisition is from a person holding 25% or more of the voting rights in the company, and as a result of the acquisition the purchaser will hold 25% or more of the voting rights in the company; (c) the acquisition is from a person holding more than 45% of the voting rights of the company, and as a result of the acquisition the purchaser will hold more than 45% of the voting rights of the company. In order to be accepted, the special tender offer must be accepted by a majority of the offerees (excluding acceptances by certain shareholders) and result in the acquisition of no less than 5% of the voting rights in the company. These restrictions do not apply if according to the laws of the country where the securities are registered for trading there are restrictions in respect of an acquisition of certain control rights or the acquisition of certain control rights obligates the purchaser to also make a tender offer to the public.

An acquisition of shares following which the purchaser would become a holder of more than 90% of a public company’s shares must be made by a tender offer for the purchase of all the remaining shares (a full tender offer); if a full tender offer is accepted by (i) more than majority of the offerees with no personal interest in the offer and non-accepting holders hold less than 5% of the company’ s issued shares and accepted the offer, or (ii) holders to the extent non-accepting holders hold less than 2% of the company’s issued shares, then the holders of the remaining shares must sell their shares to the acquirer on the terms of the tender offer. However, if the acquirer is unsuccessful in completing a full tender offer, the acquirer will not be permitted to acquire tendered shares to the extent that the acquisition of those shares would bring the acquirer’s holdings to more than 90% of the target company’s shares. Offerees of a successful full tender offer may petition the courts to raise the purchase price on the basis that it is an “unfair” price.

In addition, a shareholder who holds more than 90% of the shares of a public company may not purchase additional shares as long as the shareholder holds more than 90%. Shares acquired in violation of these provisions become dormant and cease to confer any rights upon their holder as long as they are held by the acquirer.

Dividend and Liquidation Rights

Our board of directors may, without seeking shareholder approval, declare a dividend to be paid to the holders of ordinary shares out of our retained earnings or our earnings derived over the two most recent years, whichever is higher, as reflected in the last audited or reviewed financial report for a period ending less than six months prior to distribution (the “Profit Requirement”), provided that there is no reasonable concern that a payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. If we do not meet the Profit Requirement, a court may allow us to distribute a dividend, as long as the court is convinced that there is no reasonable concern that a distribution might prevent us from being able to meet our existing and anticipated obligations as they become due. Dividends are distributed to shareholders in proportion to the nominal value of their respective holdings.

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 the nominal value of their respective holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of any class of shares with preferential rights that may be authorized in the future. Our shareholders would need to approve any class of shares with preferential rights.

Tax Law

Israeli tax law treats some acquisitions, particularly stock-for-stock swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Israeli tax law may, for example, subject a shareholder who exchanges our shares for shares in a foreign corporation to immediate Israeli taxation. See “– Israeli Taxation.”

Modification of Class Rights

Unless otherwise provided by the Articles of Association, an amendment to the Articles of Association that prejudices the rights of a particular class of shares may be adopted by a resolution of the holders of a 75% majority of the shares of that class present at a separate class meeting, in addition to the approval of the general meeting of all classes of shares.

Election of Directors

Our ordinary shares do not have cumulative voting rights in the election of directors. Therefore, the holders of ordinary shares representing more than 50% of the voting power at the general meeting of the shareholders, in person or by proxy, have the power to elect all of the directors whose positions are being filled at that meeting, to the exclusion of the remaining shareholders. External Directors must be elected by a majority vote of the shares present and voting at a shareholders' general meeting, provided that either:

•

Our Articles of Association contain provisions providing for staggered terms for the members of our board of directors.

Voting, Shareholders’ Meetings and Resolutions

Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of the shareholders. These voting rights may be affected by the grant of special voting rights to the holders of any class of shares with preferential rights that may be authorized in the future; however, currently no holders of our shares have any special voting rights.

An annual meeting of the shareholders must be held every year, and not later than 15 months following the last annual meeting. A special meeting of the shareholders may be convened by the board of directors at its discretion or upon the demand of any of: (1) two of the directors or 25% of the then serving directors, whichever is fewer; (2) shareholders owning at least 10% of the issued share capital and at least 1% of the voting rights in the company; or (3) shareholders owning at least 10% of the voting rights in the company. If the board does not convene a meeting upon a valid demand of any of the above, then whoever made the demand, and in the case of shareholders, those shareholders holding more than half of the voting rights of the persons making the demand, may convene a meeting of the shareholders to be held within three months of the demand. Alternatively, upon petition by the individuals making the demand, a court may order that a meeting be convened.

The quorum required for any general meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 33 1 ¤ 3 % of the voting rights. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or to a later date specified in the summons or notice of the meeting. At the reconvened meeting, the required quorum consists of any number of shareholders present. In any shareholders’ meeting, a shareholder can vote either in person or by proxy. General meetings of shareholders will be held in Israel, unless decided otherwise by our board.

Under Israeli law, unless otherwise provided in the Articles of Association or applicable law, all resolutions of the shareholders require a simple majority. Under our Articles of Association, resolutions requiring special voting procedures include any amendments of a provision in our Articles of Association, which requires the approval of the holders of 75% of the voting rights represented at the meeting and voting on the resolution.

Under the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner in exercising his rights and duties towards the company and other shareholders, to refrain from prejudicing the rights of other shareholders and to refrain from abusing his power in the company. The rights and duties apply, among other things, to voting at the general meeting of the shareholders on any of the following matters: (1) amendments to the Articles of Association, (2) increasing our registered share capital, (3) a merger, or (4) an approval of those related party transactions that require shareholder approval.

In addition, shareholders who are one of the following are under a duty to act fairly toward the company: (1) a controlling shareholder; (2) a shareholder who knows that its vote will determine the outcome of a shareholder vote; or (3) a shareholder who, under the provisions of the articles, has the power to appoint or to prevent the appointment of an office holder in the company or holds other powers with respect to the company.

Transfer Agent and Registrar

We have appointed American Stock Transfer & Trust Company as the transfer agent and registrar for our ordinary shares.

Israeli Securities Law Requirements

According to the Israeli Securities Law, the publication of this annual report does not require the approval of the Israeli Securities Authority.

Listing

Our ordinary shares are listed on The NASDAQ Global Market under the symbol “SHMR” and on the Tel Aviv Stock Exchange.

10.C MATERIAL CONTRACTS

FOR A DESCRIPTION OF MATERIAL CONTRACTS OTHER THAN THE ONE DESCRIBED BELOW, SEE “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—RELATED PARTY TRANSACTIONS.”

Registration Rights Agreement

On February 9, 2005, we entered into a registration rights agreement with our shareholders, according to which these shareholders, who held a total of 12,711,332 shares prior to the offering and, as of June 1, 2011, currently hold a total of 10,361,842 shares, have the right, subject to some limited conditions, to demand that we file a registration statement on their behalf to register their shares under the U.S. Securities Act of 1933, as amended. Each of the shareholders has the right to make two such demands, with the exception of Vision Capital LLC, which had the right to make one such demand. To our knowledge, Vision Capital LLC does not hold any of our ordinary shares that are subject to the registration agreement. According to the agreement, we will bear the registration fees, filing fees and certain other costs incurred in connection with the registration resulting from the first of these demands by each shareholder, while the shareholders will bear the costs resulting from a second such demand. Under the agreement, the shareholders also have the right to demand that we include their shares in a registration statement that we file on our behalf or on behalf of other shareholders. These rights became effective in September 2005 and terminated either in February 2011, or with respect to any shareholder, at such a time as that shareholder either disposes of its shares or will be able to sell all of the registrable securities it holds without registration and without restrictions in compliance with Rule 144.

Transaction with Essilor

On October 15, 2010 we signed a Merger Agreement, which shall be referred to in this annual report on Form 20-F as the Merger Agreement, with an indirect wholly-owned subsidiary of Essilor International SA, a French société anonyme , or Essilor. Under the terms of the proposed merger, our shareholders will be entitled to receive $14.50 in cash, without interest and less any applicable withholding taxes, for each ordinary share of Shamir that the shareholders own as of the effective time of the merger, other than ordinary shares held directly or indirectly by (i) Kibbutz Shamir A.C.S., or Kibbutz Shamir, an Israeli agricultural cooperative society and our controlling shareholder, (ii) Shamir Optica Holdings A.C.S. Ltd., or Shamir Holdings, an Israeli agricultural cooperative society wholly owned by Kibbutz Shamir through which Kibbutz Shamir holds most of its ordinary shares of Shamir, (iii) Essilor, or (iv) Shamrock Acquisition Sub Ltd., or the Merger Sub, an Israeli company and an indirect wholly-owned subsidiary of Essilor. The merger is being effected as an arrangement between Shamir and its shareholders under Sections 350 and 351 of the Israeli Companies Law and is subject to Israeli court approval. In connection with the transactions contemplated by the Merger Agreement, Kibbutz Shamir, Shamir Holdings and Essilor entered into a Share Purchase and Subscription Agreement, dated as of October 15, 2010, or the Share Purchase and Subscription Agreement. Pursuant to the Share Purchase and Subscription Agreement, (i) simultaneously with and subject to the occurrence of the merger, Essilor will purchase from Kibbutz Shamir shares of Shamir held by Kibbutz Shamir, and (ii) immediately following the merger, Essilor will (x) subscribe for certain newly issued shares of Shamir Holdings, in exchange for cash, and (y) subscribe for additional newly issued shares of Shamir Holdings, in exchange for the contribution to Shamir Holdings by Essilor of all of the shares of Shamir then held directly by Essilor. Following the consummation of the merger and the other transactions contemplated by the Merger Agreement and the Share Purchase and Subscription Agreement, our shares will be delisted from The NASDAQ Global Market and the Tel Aviv Stock Exchange, or the TASE. We will be a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Following the merger, Kibbutz Shamir, Shamir Holdings, Shamir and Essilor intend to enter into certain other agreements, including a shareholders’ agreement, amended lease agreement and various commercial agreements. On April 26, 2011, our shareholders approved the Merger Agreement, the merger and related transactions. On May 5, 2011, we filed with the district court in Nazareth a motion requesting the court to issue an order approving the merger. On June 13, 2011, such order has been issued by the court. The closing of the merger remains subject to the satisfaction of the remaining conditions specified by the Merger Agreement. Please see Exhibit a(2) to Schedule 13E-3/A we filed with the Securities and Exchange Commission on March 24, 2011 for more details on the Merger Agreement and the other transactions contemplated thereby.

10.D EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding some transactions. However, legislation remains in effect under which currency controls can be imposed by administrative action at any time.

The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or Articles of Association or by the laws of the State of Israel.

10.E TAXATION

United States Taxation

The following discussion is a summary of certain material U.S. federal income tax considerations applicable to the ownership and disposition of shares by U.S. holders. In general, a “U.S. holder” means a beneficial owner of shares who or which is any of the following for U.S. federal income tax purposes:

a resident or citizen of the U.S. or someone treated as a U.S. resident or citizen of the U.S.,

a corporation or other entity treated as a corporation for U.S. federal income tax purposes created in or organized under the laws of the U.S., any state thereof, or the District of Columbia (and certain non-U.S. entities taxed as U.S. corporations under specialized sections of the Code),

an estate whose income is subject to U.S. federal income taxation regardless of its source, or

a trust, if (1) a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (2) it was in existence and treated as a U.S. person on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations (as defined below) to be treated as a U.S. person.

If a partnership (including for these purposes any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds shares, you are urged to consult your own tax advisor regarding the specific tax consequences of owning and disposing of your shares.

This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to any particular holder (or prospective holder), including tax considerations that arise from rules of general application or that are generally assumed to be known by U.S. holders. In addition, the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws is not considered. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations) (the “Treasury Regulations”), rulings, current administrative interpretations and official pronouncements by the Internal Revenue Service (the “IRS”), and judicial decisions, all as in effect as of the date of this annual report. All of the authorities are subject to change, possibly with retroactive effect, and to differing interpretations. Such changes could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.

This summary is directed solely to holders that hold their shares as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment. This discussion does not address all aspects of U.S. federal income taxation that may be applicable to any particular holder in light of its particular circumstances. It also does not address holders who are subject to special treatment under U.S. federal income tax law, including: insurance companies; dealers in stocks or securities; financial institutions; tax-exempt organizations; persons subject to the alternative minimum tax; persons having a functional currency other than the U.S. dollar; persons who hold the shares as part of a hedging, straddle or conversion transaction; persons who acquire their shares pursuant to the exercise of an employee stock option or otherwise as compensation for services; broker-dealers; regulated investment companies; real estate investment companies; traders who elect to mark-to-market their securities; and U.S. expatriates.

U.S. holders are urged to consult with their own tax advisors regarding the tax consequences of the ownership and disposition of shares, including the effects of U.S. federal, state, local, Israeli, foreign and other tax laws with respect to their particular circumstances.

The following discussion assumes that we will not be considered a passive foreign investment company, as discussed below.

HOLDER RELIANCE ON TAX STATEMENTS

THIS SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS WITH RESPECT TO ITS PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Distributions Paid on the Shares

Subject to the discussion below under “Passive Foreign Investment Company considerations, “if we make any distributions of cash or other property to you, you generally will be required to include in gross income as dividend income the amount of any distributions (including the amount of any Israeli taxes withheld), to the extent that the distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. In general, distributions in excess of our earnings and profits will be applied against and will reduce your tax basis in your shares (but not below zero) and, to the extent in excess of such tax basis, will be treated as gain from a sale or exchange of such shares. Dividends paid by us will not be eligible for the dividends-received deduction applicable in some cases to U.S. corporations.

Any dividend paid in Israeli shekels, including the amount of any Israeli taxes withheld therefrom, will be includible in your gross income in an amount equal to the U.S. dollar value of the Israeli shekels calculated by reference to the spot rate of exchange in effect on the date the dividend is received by you, regardless of whether the Israeli shekels are converted into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is received by you to the date such payment is converted into U.S. dollars will be treated as U.S. source ordinary income or loss.

Any dividends paid by us to you with respect to shares will generally be treated as foreign source income. Subject to the foreign tax credit rules, you may elect to claim a foreign tax credit against your U.S. federal income tax liability for Israeli income tax withheld from dividends received in respect of shares at a rate not in excess of the U.S. tax rate. The rules relating to the determination of the foreign tax credit are complex (and may also be affected by the income tax treaty between the U.S. and Israel, and by the foreign currency transaction rules under the Code). Accordingly, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit. If you do not elect to claim a foreign tax credit, you may instead claim a deduction for Israeli income tax withheld, but only for a year in which you elect to do so with respect to all foreign income taxes.

“Qualified dividend income” received by individuals in taxable years beginning on or before December 31, 2012, generally will be taxed at the rates applicable to capital gains (that is, currently a maximum rate of 15%) rather than the rates applicable to other items of ordinary income. For this purpose, “qualified dividend income” generally includes dividends paid on shares of U.S. corporations as well as dividends paid on shares of certain non-U.S. corporations if, among other requirements, (i) (a) the shares of the non-U.S. corporation are readily tradable on an established securities market in the U.S., or (b) the non-U.S. corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S. which contains an exchange of information program (the income tax treaty between the U.S. and Israel has been identified by the U.S. Treasury as a qualifying treaty), and (ii) certain holding period requirements are met. Dividends received from a PFIC are not eligible to be “qualified dividend income.” We do not believe that we are a PFIC and, consequently, dividends paid by us with respect to the shares should constitute “qualified dividend income” for U.S. federal income tax purposes and therefore U.S. holders who are individuals should, subject to applicable limitations, be entitled to the reduced rates of tax.

Sale or exchange of shares

Upon the sale or other disposition of shares, subject to the discussion below under “-Passive Foreign Investment Company considerations,” you generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and your adjusted tax basis in your shares. Gain or loss upon the disposition of shares generally will be U.S. source gain or loss for U.S. foreign tax credit purposes, subject to an election in certain circumstances to treat the gain on such a disposition as foreign source income.

The gain or loss recognized on the disposition of the shares will generally be long-term capital gain or loss if, at the time of the disposition, your holding period for the shares exceeds one year. If you are an individual, any capital gains generally will be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. For shares held for over one year and sold or exchanged in taxable years beginning on or before December 31, 2012, the maximum rate of tax for individuals generally will be 15% provided that we are not a passive foreign investment company (as discussed below) in the taxable year in which the dividend is paid or in any preceding taxable year. The deductibility of capital losses is subject to significant limitations.

Passive Foreign Investment Company considerations

Special U.S. federal income tax rules apply to U.S. holders owning shares of a passive foreign investment company (a “PFIC”). In general, a non-U.S. corporation will be considered a PFIC for any taxable year in which, after applying the relevant look-through rules, either (1) 75% or more of its gross income for the taxable year consists of specified types of passive income, or (2) 50% or more of the average value of its assets during the taxable year consists of passive assets, which generally means assets that generate, or are held for the production of, passive income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

Classification of a non-U.S. corporation as a PFIC may have significant adverse consequences to U.S. holders. If a U.S. holder disposes of shares of stock of a non-U.S. corporation that were held by the U.S. holder directly, indirectly or constructively during such time, if any, that the non-U.S. corporation was a PFIC, and the U.S. holder did not make one of the elections described below with respect to the shares, gain realized from the sale of the shares will be taxed under the “excess distribution” regime. Under that regime, gain, if any, realized on the disposition will be allocated ratably on a daily basis to each day of the U.S. holder’s holding period with respect to the shares. Gain allocated to any period preceding the first year in the holding period when the corporation was a PFIC and gain allocated to the year of disposition will be treated as gain arising in the year of disposition and taxed at ordinary U.S. federal income tax rates for the year of disposition. Gain allocated to each of the other years will be taxed at the highest ordinary income rates applicable to each of those years, without regard to the U.S. holder’s other items of income and loss for the year, and any such tax would be increased by an interest charge determined for each of those years at the rate generally applicable to underpayments of tax for such taxable year. The sum of the taxes and interest calculated for all such years will be in addition to the tax for the year in which the sale of the shares of the PFIC stock occurs.

The Company currently believes that it should not be considered as a PFIC for U.S. federal income tax purposes for the taxable year ending on December 31, 2010. However, because the Company’s belief that it will not be a PFIC is based upon its own factual determinations that must be made annually and its conclusions that it was not a PFIC in any prior taxable year, and because the tests for determining PFIC status are subject to a number of uncertainties, we cannot be certain that the Company will not be treated as a PFIC for the current year. Furthermore, the PFIC tests are applied annually and it is difficult to accurately predict future income and assets relevant to this determination. In addition, because the market price of our shares is likely to fluctuate and has fluctuated, the market price may affect the determination of whether we will be considered a PFIC. Accordingly, there can be no assurance that the Company will not be considered a PFIC for any taxable year in the future. Absent one of the elections described below, if the Company is a PFIC for any taxable year during which a U.S. holder holds Company shares, the Company generally will continue to be treated as a PFIC, regardless of whether the Company ceases to meet the PFIC tests in one or more subsequent years. U.S. holders should consult their own tax advisers about the PFIC rules and their potential applicability to the Company, currently and in the future.

If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. holder of the acquisition, ownership, and disposition of Company shares will differ from the PFIC consequences described above if the U.S. holder makes a timely and effective election to treat the Company as a qualified electing fund, or a “QEF”, or makes a timely and effective “mark-to-market election” with respect to its Company shares. A U.S. holder may make a QEF election only if the Company furnishes the U.S. holder with certain tax information. The Company has not determined if it will provide the requisite information to make a QEF election if it should determine that it is a PFIC or becomes a PFIC in the future.

A U.S. holder that makes a QEF election with respect to Company shares will be subject to U.S. federal income tax on the U.S. holder’s pro rata share of (a) the “net capital gain” of the Company, which will be taxed as long-term capital gain to the U.S. holder, and (b) the “ordinary earnings” of the Company, which will be taxed as ordinary income to the U.S. holder. A U.S. holder that makes a QEF election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to the U.S. holder by the Company. However, a U.S. holder that makes a QEF election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge.

A U.S. holder that makes a QEF election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that the distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. holder because of the QEF election and (b) will adjust the U.S. holder’s tax basis in his, her or its shares to reflect the amount included in income (resulting in an increase in basis) or allowed as a tax-free distribution (resulting in a decrease in basis) because of the QEF election. In addition, a U.S. holder that makes a QEF election generally will recognize capital gain or loss on the sale or other taxable disposition of the Company shares.

The procedure for making a QEF election, and the U.S. federal income tax consequences of making a QEF election, will depend on whether the QEF election is timely. A QEF election will be treated as “timely” if the QEF election is made for the first year in the U.S. holder’s holding period for the applicable shares in which the relevant corporation was a PFIC. A U.S. holder may make a timely QEF election by filing the appropriate QEF election documents at the time the U.S. holder files a U.S. federal income tax return for that first year. However, if the Company was a PFIC in a prior year during the U.S. holder’s holding period, then in order for a U.S. holder to avoid the adverse PFIC rules on a going-forward basis, in addition to filing the QEF election documents, a U.S. holder must elect to recognize gain, under the PFIC taxation regime first described above, as if the Company shares were sold on the first day of the first taxable year in which the Company was a QEF with respect to the U.S. holder. Alternatively, under limited circumstances, a U.S. holder may make a retroactive QEF election if the U.S. holder failed to file the QEF election documents in a timely manner. In certain circumstances, a U.S. holder’s ability to make a retroactive QEF election requires that the U.S. holder file a “protective statement” for its first taxable year of ownership of Company shares. Each U.S. holder should consult its own tax advisor regarding the availability of, procedure for making, and consequences of a QEF election with respect to the Company.

As an alternative to making a QEF election, a U.S. holder of PFIC stock that is publicly traded may in certain circumstances avoid certain of the tax consequences generally applicable to holders of a PFIC by electing to mark the stock to market annually (a “mark-to-market election”) and recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. holder’s adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. This election is available provided that the Company shares constitute “marketable stock,” which includes stock of a PFIC that is “regularly traded” on a “qualified exchange or other market.” Generally, a “qualified exchange or other market” includes a national market system established pursuant to Section 11A of the Exchange Act. A class of stock that is traded on one or more qualified exchanges or other markets is “regularly traded” on an exchange or market for any calendar year during which that class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Special rules apply if an election is made after the beginning of the taxpayer’s holding period in PFIC stock.

To the extent available, a mark-to-market election applies to the taxable year in which the mark-to-market election is made and to each subsequent taxable year, unless the Company shares cease to be “marketable stock” or the IRS consents to revocation of the election.

In addition, even if a mark-to-market election is made with respect to the Company shares, no such election may be made with respect to the stock of any subsidiary of the Company that a U.S. holder is treated as owning that is treated as a PFIC because the stock is not marketable. Therefore, a mark-to-market election will not be effective to eliminate the interest charge described above with respect to dispositions of any such subsidiary or distributions from any such subsidiary.

Each U.S. holder should consult its own tax advisor regarding the availability of, procedure for making, and consequences of a mark-to-market election with respect to the Company shares.

U.S. information reporting and backup withholding

Dividend payments with respect to shares and proceeds from the sale, exchange, redemption, or other disposition of shares may be subject to information reporting to the IRS and possible U.S. federal backup withholding at a current rate of 28%. Certain exempt recipients (such as corporations) are generally not subject to these information reporting and backup withholding requirements. Backup withholding will also not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and otherwise complies with all applicable requirements of the backup withholding rules. U.S. persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Under recently passed legislation, unless otherwise provided by the IRS, if the Company is a PFIC, a U.S. Holder is generally required to file an informational return annually to report its ownership interest in the PFIC.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

Israeli Taxation

The following summary describes the current tax structure applicable to companies in Israel, with special reference to its effect on us. It also discusses Israeli tax consequences material to persons purchasing our ordinary shares. To the extent that the summary is based on new tax legislation yet to be judicially or administratively interpreted, we cannot be sure that the views expressed will be consistent with any future interpretation. The summary is not intended, and should not be considered, to be legal or professional tax advice and does not exhaust all possible tax considerations. Therefore, you should consult your own tax advisor about the particular tax consequences of an investment in our ordinary shares.

General Corporate Tax Structure in Israel

Corporate tax rates in Israel were 27% in 2008, 26% in 2009 and 25% in 2010.

In July 2009, the Knesset passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%. Nevertheless, the effective tax rate payable by a company that derives income from an approved enterprise may be considerably less, as further discussed below.

Tax Benefits under the Law for the Encouragement of Capital Investments, 1959

The Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), provides that upon application to the Investment Center of the Ministry of Industry and Commerce of the State of Israel, a proposed capital investment in eligible facilities may be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources, and by its physical characteristics, such as the equipment to be purchased and utilized under the program. The tax benefits derived from any certificate of approval relate only to taxable income derived from growth in manufacturing revenues attributable to the specific Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits under the law are not available for income derived from products manufactured outside of Israel.

According to the grant track, taxable income of a company derived from an Approved Enterprise is subject to tax exemption or reduction to a rate of 10%-25% based on the level of foreign ownership and geographic location, rather than the usual rate described above, for the benefit period . This period is seven to ten years also based on the level of foreign ownership beginning with the year in which the Approved Enterprise first generates taxable income, and the reduced tax rate period is limited to 12 years from when production begins or 14 years from the date of approval, whichever is earlier. A company owning an Approved Enterprise may elect to receive an alternative package of benefits, which allows the Company to receive tax exemptions rather than grants. Under the alternative package, the Company’s undistributed income derived from an Approved Enterprise will be exempt from tax for a period of between two and ten years from the first year of taxable income, depending on the geographic location of the Approved Enterprise within Israel, and the Company will be eligible for the tax benefits under the law for the remainder of the benefit period.

A company that has an approved enterprise program is eligible for further tax benefits if it qualifies as a foreign investors’ company. A foreign investors’ company is a company that a non-Israeli resident invested, directly or indirectly, a sum greater than NIS 5,000,000 in it, equal to more than 25% of its share capital and combined share and loan capital. A company, which qualifies as a foreign investors’ company and has an approved enterprise program is eligible for tax benefits for a ten-year benefit period instead of the ordinary seven-year period. Income derived from the approved enterprise program will be exempt from tax for a specified period and will be taxed at a reduced rate for the rest of the period. The tax rate for the additional eight years is 25%, unless the level of foreign investment exceeds 49%, in which case the tax rate is 20% if the foreign investment is more than 49% and less than 74%, 15% if more than 74% and less than 90%, and 10% if 90% or more.

The Investment Center bases its decision of whether to approve or reject a company’s application for designation as an Approved Enterprise on criteria described in the law and related regulations, the then prevailing policy of the Investment Center and the specific objectives and financial criteria of the applicant. Therefore, a company cannot be certain in advance whether its application will be approved. In addition, the benefits available to an approved enterprise are conditional upon compliance with the conditions stipulated in the law and related regulations and the criteria described in the specific certificate of approval. If a company violates these conditions, in whole or in part, it would be required to refund the amount of tax benefits and any grants received plus an amount linked to the Israeli Consumer Price Index and interest.

A portion of our production operations has been granted the status of an Approved Enterprises under two programs of grants track that are still active. Income arising from our Approved Enterprise facilities is exempted from tax for two years and entitled to reduced tax rates based on the level of foreign ownership for a period of five to eight years. We have derived and expect to continue to derive a certain portion of the income from our Approved Enterprise facilities. Subject to compliance with applicable requirements and assuming that more than 25% of the shares of the Company are held by foreign residents. The Company has elected to adopt the new reform starting 2011 and therefore these two programs are no longer active.

A portion of the operations of Eyal has been granted the status of an Approved Enterprise under two programs of the alternative package of benefits. Income arising from our Approved Enterprise facilities in Eyal is exempted from tax for two years and entitled to reduced tax rates based on the level of foreign ownership for a period of five to eight years, under the assumption that 25% of the Company's shares are held by non Israeli residents. The benefits are contingent upon compliance with the terms of the approval and of the Encouragement Law. Eyal has elected to adopt the new reform starting 2011 and therefore these two programs are no longer active.

Dividends that are derived from Approved Enterprise are generally subject to 15% withholding tax rate. If we pay a cash dividend from tax-exempt income that is derived from our approved enterprise, we will be required to pay corporate tax on the amount intended to be distributed as dividends at the reduced tax rate (maximum 25%). We would also be required to withhold on behalf of the dividend recipient an additional 15% of the amount distributed as dividends (Unless the tax treaty between Israel and the recipient domicile states differently). The law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program.

On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions generally requiring that at least 25% of the Beneficiary Enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

A portion of our activities have been acting under the status of a Privileged Enterprise under the amendment to the Investment Law. Our status as a Privileged Enterprise is subject to the approval of the Israeli Tax Authorities.

The operations of SSOP, the polycarbonate and the finished lenses production facilities, received a pre-ruling from the ITA, under which they were declared as Privileged Enterprises (establishment), so that their entire income derived from the abovementioned facilities will be exempted from tax for a period of ten years beginning with the year in which they first had taxable income. As of December 31, 2010, SSOP has begun to enjoy the tax benefits. The period of tax benefits detailed above is subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval.

In addition, during the fiscal year 2007, a portion of Eyal’s activities have been classified under the status of a Privileged Enterprise under the amendment to the Investment Law. As stated above, Eyal’s status as a Privileged Enterprise is subject to the approval of the ITA.

Shamir has decided not to declare dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been imposed upon income attributable to the Company’s “Approved Enterprise” and “Privileged Enterprise”.

In December 2010, the Knesset enacted a reform to the Law, effective January 2011. According to the reform a flat tax rate would apply to companies eligible for the “Preferred Enterprise” status. In order to be eligible for a Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).

Israeli companies which currently benefit from an Approved or Privileged Enterprise status and meet the criteria for qualification as a Preferred Enterprise can elect to apply the new Preferred Enterprise benefits by waiving their benefits under the Approved and Privileged Enterprise status.

Benefits granted to a Preferred Enterprise include reduced and gradually decreasing tax rates. In peripheral regions (Development Area A) the reduced tax rate will be 10% in 2011 and 2012, 7% in 2013 and 2014 and 6% starting from 2015. In other regions the tax rate will be 15% in 2011 and 2012, 12.5% in 2013 and 2014 and 12% starting from 2015.

Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the applicable reduced tax rates.

A distribution from a Preferred Enterprise out of the “Preferred Income” would be subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates). A distribution from a Preferred Enterprise out of the “Preferred Income” would be exempt from withholding tax for an Israeli-resident company. A company electing to waive its Privileged Enterprise or Approved Enterprise status through June 30, 2015 may distribute “Approved Income” or “Privileged Income” subject to 15% withholding tax for Israeli resident individuals and non-Israeli residents (subject to applicable treaty rates) and exempt from withholding tax for an Israeli-resident company. Nonetheless, a distribution from income exempt under Privileged Enterprise and Approved Enterprise programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Privileged Enterprise and Approved Enterprise programs upon distribution, or complete liquidation in the case of a Privileged Enterprise’s exempt income.

We and Eyal have elected to adopt the reform from the beginning of 2011.

Inflationary Adjustments

In February 2008, the Israeli legislator adopted an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law until the end of 2007 and states transitional orders starting in 2008 and thereafter. Starting in 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Israeli Consumer Price Index carried out in the period up to December 31, 2007. The amended law includes, inter alia , the elimination of the inflationary additions and deductions and the additional deduction for depreciation starting in 2008.

Dollar Regulations

Results for tax purposes of Israeli entities are measured and reflected in real terms in accordance with the change in the Israeli Consumer Price Index or changes in the exchange rate of the NIS against the dollar for a “Foreign Investors” company. The company and its subsidiaries Eyal and SSOP have elected to measure their results for tax purposes on the basis of the changes in the exchange rate of NIS against the U.S. dollar. During 2008, Shamir and Eyal, elected to measure its Israeli taxable income in NIS rather than in the exchange rate of NIS against the U.S. dollar. This election is applicable for a four taxable years commencing on January 1, 2007. The Company was permitted to make such change pursuant to regulations published by the Israeli Minister of Finance, which provide the conditions for such change. Therefore, the Company and Eyal re-measured their 2007 taxable income during 2008. As of December 31, 2010, the company, Eyal and SSOP have elected to continue to measure its taxable income in NIS.

Tax Benefits for Research and Development

The Israeli tax law allows a tax deduction in the year incurred for expenditures, including capital expenditures, in scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry and the research and development is for the promotion of the enterprise. Expenditures not so approved are deductible over a three-year period.

Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969

According to the Law for the Encouragement of Industry (Taxes), 1969, an industrial company is a company resident in Israel, at least 90% of the income of which, exclusive of income from capital gains, direct real estate tax, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose primary activity in a given tax year is industrial production activity.

Under the law, industrial companies are entitled to the following preferred corporate tax benefits:

deduction of purchases of know-how and patents over an eight-year period for tax purposes;

the option to file a consolidated tax return with related Israeli industrial corporations that satisfy conditions described in the law; and

accelerated depreciation rates on equipment and buildings.

Shamir and certain of its Israeli subsidiaries currently qualify as “Industrial Companies” pursuant to the Industry Encouragement Law. Currently, Shamir files consolidated tax returns together with SSOP.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any government authority. The Israeli tax authorities may determine that we do not qualify as an Industrial Company, which would entail the loss of the benefits that relate to this status. In addition, we might not continue to qualify for Industrial Company status in the future, in which case the benefits described above might not be available to us in the future.

Taxation of our Shareholders

Capital Gain

Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, as defined for Israeli tax purposes , and on the disposal of such assets by a non- Israel resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation (iii) represent , directly or indirectly , rights to assets located in Israel. In calculating capital gain, the Israeli Tax Ordinance (the “Ordinance”) distinguishes between “Real Gain” and the “Inflationary Surplus”. The Inflationary Surplus is the portion of the total capital gain equal to the increase in the relevant asset’s value that is attributable to the increase in the Israeli Consumer Price Index between the date of the purchase and the date of sale. The Real Gain is the excess of the total capital gain over Inflationary Surplus. A non-resident that invests in taxable assets with foreign currency, or any individual that holds securities denominated in foreign currency, may elect calculate the amount of inflationary surplus in that foreign currency.

The capital gain accrued by individuals on the sale of an asset purchased on or after January 1, 2003, will be taxed at the rate of 20%. However, if the individual shareholder is a “Controlling Shareholder” ( i.e ., a person who holds, directly or indirectly, alone or together with other, 10% or more of one of the Israeli resident company’s means of control at the time of distribution or at any time during the preceding 12 months period) such gain will be taxed at the rate of 25%. In addition, capital gain derived by an individual claiming deduction of financing expenses in respect of such gain will be taxed at the rate of 25%. The real capital gain derived by corporation will be generally subject to tax at the rate of 25%. However, the real capital gain derived from sale of securities, as defined in Section 6 of the Inflationary Adjustment Law, by a corporation, which was subject upon December 31, 2005, to the provisions of the Inflationary Adjustment Law, will be taxed at the corporate tax rate (25% in 2010), only if such securities were held by such a corporation prior to December 31, 2005.

Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income (in 2010 – 25% tax rate for a corporation and a marginal tax rate of up to 45% for individual). Notwithstanding the foregoing, if the shareholder is a non-Israeli resident, then such taxation is subject to the provision of any applicable double tax treaty. Moreover, capital gain derived from the sale of non-registered shares by a non-Israeli shareholder may be exempt under the Israeli income tax ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the seller doesn’t have a permanent establishment in Israel to which the derived capital gain is attributed, and (ii) the seller of the share is not a Relative (as defined in the Ordinance) of the buyer. In case the shares are registered, the following conditions apply: (i) the shares were purchased upon or after the registration of the shares at the stock exchange, and; (ii) the seller doesn’t have a permanent establishment in Israel to which the derived capital gain is attributed. If the seller is a corporation, the condition is that less than 25% of its means of control are held by Israeli resident shareholders. In addition, the sale of the shares may be exempt from Israeli capital gain tax under an applicable tax treaty. Thus, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12-month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel.

Either the seller, the Israeli stockbrokers or financial institution through which the sold securities are held are obliged, subject to the above mentioned exemptions, to withhold tax upon the sale of securities from the real capital gain at the rate of 25% in respect of a corporation and 20% in respect of an individual.

Dividends

A distribution of dividend from income attributed to an “Approved Enterprise” and “Privileged Enterprise” will be subject to tax in Israel at the rate of 15%, subject to a reduced rate under any applicable double tax treaty. A distribution of dividend from income, which is not attributed to an “Approved Enterprise” to an Israeli resident individual, will generally be subject to income tax at a rate of 20%. However, a 25% tax rate will apply if the dividend recipient is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with other, 10% or more of one of the Israeli resident company’s means of control at the time of distribution or at any time during the preceding 12 months period). If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel.

Under the Israeli income tax ordinance, a non-Israeli resident (either individual or corporation) is generally subject to an Israeli income tax on the receipt of dividends at the rate of 20% (25% if the dividends recipient is a “Controlling Shareholder” (as defined above)); those rates are subject to a reduced tax rate under an applicable double tax treaty. Thus, under the Double Tax Treaty concluded between the State of Israel and the U.S. the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends – the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to an “approved enterprise” under the Israeli Law for the Encouragement of Capital Investments of 1959– the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.

An Israeli resident company whose shares are listed in a stock exchange is obligated to withhold tax, upon the distribution of a dividend attributed to an Approved Enterprise’s income, from the amount distributed, at the following rates: (i) Israeli resident corporation – 15%, (ii) Israeli resident individual – 15%, and (iii) non-Israeli resident – 15%, subject to a reduced tax rate under an applicable double tax treaty. If the dividend is distributed from an income not attributed to the Approved Enterprise, the following withholding tax rates will apply: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli resident – 20%, subject to a reduced tax rate under an applicable double tax treaty.

Taxation of Non-Resident Shareholders

Non-residents of Israel are subject to Israeli income tax on income accrued or derived from sources in Israel, including passive income such as dividends, royalties and interest. On distributions of dividends, other than bonus shares and stock dividends, income tax at the rate of 20% is withheld at the source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a Treaty U.S. Resident will be 25% or 12.5% for dividends not generated by an approved enterprise if the non-resident is a U.S. corporation and holds 10% or more of our voting power throughout a certain period; however, under the Investment Law, dividends generated by an approved enterprise are taxed at the rate of 15%.

Foreign Exchange Regulations

Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, freely reparable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative action.

10.F DIVIDENDS AND PAYING AGENTS

Not applicable.

10.G STATEMENTS BY EXPERTS

Not applicable.

10.H DOCUMENTS ON DISPLAY

We are subject to the reporting and informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In accordance with these requirements, we file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission (SEC). However, as we are a foreign private issuer, we and our shareholders are exempt from some of the Exchange Act reporting requirements. The reporting requirements that do not apply to us or our shareholders include the proxy solicitation rules and Section 16 short-swing profit reporting for our officers and directors and for holders of more than 10% of our shares. In addition, we are not required to file annual, quarterly or current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, as long as we are required to do so, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also intend to file periodic reports on Form 6-K. You may read and obtain copies, at the prescribed rate, of any document we file with the SEC at its public reference room at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. Our SEC filings are also available to you on the SEC’s web site at www.sec.gov .

10.I SUBSIDIARY INFORMATION

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not engage in trading market risk instruments or purchasing hedging or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, commodity price or equity price risk. From time to time we purchase options or enter forward contracts to hedge our foreign currency risk. We have also entered into an interest-rate swap. We do not use derivative instruments for speculative trading purposes.

Foreign Currency Risk

We conduct our business primarily in U.S. dollars and Euros but also in the currencies of the Israel, United Kingdom, South Africa, Turkey, Mexico, Thailand, Australia and other countries as well as other currencies. Thus, we are exposed to foreign exchange movements. We monitor foreign currency exposure and, from time to time, may enter into various derivative transactions intended to protect against changes in foreign currencies. We hedge, from time to time, some of our foreign currency exposure to offset the effects of changes in exchange rates. The derivative instruments were not designated as hedging instruments in accordance with Accounting Standard Codification 815, “Derivatives and Hedging”.

Our foreign currency exposures give rise to market risks associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, against the Euro and the NIS and other currencies. In 2010 we generated approximately 37% of our revenues in dollars and 38% in Euros, and we incurred approximately 17% of our operating expenses in NIS, 31% in dollars and 31% in Euros.

In Europe we operate through our European subsidiaries, which have most of their assets and liabilities in Euros. In the United States we operate through our subsidiaries Shamir Insight and Shamir USA, which have assets and liabilities in U.S. dollars. Shamir and our Israeli subsidiaries operate in Israel and have assets and liabilities mainly in dollars, as well as some assets and liabilities in Euros and NIS. In our other operations throughout the world our assets and liabilities are mainly in the local currency of the country in which we operate. We attempt to match our assets and liabilities in the same currency in order to counteract fluctuations in currency exchange rates.

As of December 31, 2010, we had $19.5 million in monetary current assets and $19.6 million in monetary current liabilities that are denominated in Euros. Additionally, we had $3.7 million in monetary current assets and $6.4 million in monetary current liabilities that are denominated in NIS.

Interest Rate Risk

Out of our borrowing $10.0 million are linked to the Eurobur interest rate and $6.9 million are linked to the Libor interest rate.

Credit Risk

Credit risk is the possibility that the value of our assets may become impaired if counterparties cannot meet their obligations in transactions involving financial instruments. Our financial instruments are potentially subject to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits, marketable securities and our customers.

The majority of our cash and cash equivalents and short-term deposits are invested mainly in U.S. dollar and Euro instruments with major banks in Israel, Germany and the U.S. Marketable securities include investments in corporate debentures and non-U.S. governments’ bonds. Our investment policy provides for a minimum grading of debentures in which we can invest, thereby reducing credit risk.

While we may in a small number of instances be exposed to credit risk with respect to our customers, we perform ongoing credit evaluations of our customers and believe that this risk is not material.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:

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

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010, based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2010.

(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered by this annual report that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Giora Yanai, member of our audit committee, qualifies as an audit committee financial expert in accordance with the terms of this item. All three members of our audit committee qualify as “Independent Directors” under the listing rules of The NASDAQ Global Market. See “Item 6. Directors, Senior Management and Employees.”

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics and business conduct that applies to our chief executive officer, our chief financial officer and our controller, as well as to the members of our board of directors, all of our other executive officers and all of our employees. This code of ethics is attached as an exhibit to this annual report and is incorporated by reference.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The fees for professional services rendered by our auditors Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, and to other global members of Ernst & Young Global, for the fiscal years ended December 31, 2009 and 2010, are set below:

Audit Fees Shamir	2009		2010
	(in $)
Audit fees		333,255		342,708
Audit-related fees		24,796		27,761
Tax fees		22,039		47,263
Other fees		-		-
Total		380,090		417,732

“Audit fees” consist of services that would normally be provided in connection with statutory and regulatory fillings or engagements, including services that generally only an independent auditor can reasonably provide. “Audit-related fees” relate to assurance and associated services that traditionally are performed by an independent auditor, including: accounting consultation and consultation concerning financial accounting and reporting standards. “Tax fees” are fees that relate to tax compliance, planning and advise.

On September 7, 2010, the annual meeting of our shareholders approved the re-nomination of Kost Forer Gabbay & Kasierer as our auditors for the period ending at the close of the next annual general meeting.

Our audit committee is responsible for assisting the board of directors in its oversight of, among others, the independent auditor’s qualifications and independence and the performance of the Company’s internal audit function and independent auditors. The committee is responsible for or shall make recommendations regarding the appointment, retention, evaluation, remuneration, independence, oversight and termination of the work of the independent auditor employed by the Company (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The charter of the audit committee provides for a process with respect to the prior approval of all services, including non-audit services, to be performed by the independent auditors for Shamir.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have not and do not expect to apply for any exemptions from the NASDAQ listing standards for audit committees.

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

None.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

There are no significant ways in which the corporate governance of our company, as a foreign private issuer, differ from those followed by domestic companies listed on The Nasdaq Global Market. For more information regarding the structure of our board of directors and the exemption available to our company as a “controlled company”, see “Item 6.A. Directors, Senior Management – Board of Directors”.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

The following financial statements, together with the reports of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for the fiscal years ended December 31, 2009 and 2010, are filed as part of this annual report:

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2009 and 2010	F-3 - F-4
Consolidated Statements of Income for the years ended December 31, 2008, 2009 and 2010	F-5
Statements of Equity for the years ended December 31, 2008, 2009 and 2010	F-6 - F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010	F-8 - F-11
Notes to Consolidated Financial Statements	F-12 - F-56

ITEM 19. EXHIBITS

See Exhibit Index.

SHAMIR OPTICAL INDUSTRY LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2010

IN U.S. DOLLARS

INDEX

	Page

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets	F-3 - F-4

Consolidated Statements of Income	F-5

Statements of Equity	F-6 - F-7

Consolidated Statements of Cash Flows	F-8 - F-11

Notes to Consolidated Financial Statements	F-12 - F-56

Kost Forer Gabbay & Kasierer

3 Aminadav St.

Tel-Aviv 67067, Israel

Tel: 972 (3)6232525

Fax: 972 (3)5622555

www.ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of Shamir Optical Industry Ltd. ("the Company") and its subsidiaries (collectively - "Shamir") as of December 31, 2009 and 2010, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Shamir's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shamir as of December 31, 2009 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
June 16, 2011	A Member of Ernst & Young Global

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SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2009		2010
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	19,929	$	15,360
Marketable securities		11,679		12,998
Trade receivables (net of allowance for doubtful accounts of $ 3,076 and $ 3,409 at December 31, 2009 and 2010, respectively) *)		33,648		34,223
Other receivables and prepaid expenses		7,918		8,190
Inventories		26,946		28,728

Total current assets		100,120		99,499

LONG-TERM ASSETS:
Severance pay fund		2,909		3,013
Long-term receivables		427		604
Investments in affiliates and others		1,306		1,245

Total long-term assets		4,642		4,862

PROPERTY, PLANT AND EQUIPMENT, NET		38,568		37,927

OTHER ASSETS		7,439		6,069

GOODWILL		12,945		13,942

Total assets	$	163,714	$	162,299

*)	As for transactions with related parties, see Note 17.

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

F - 3

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

	December 31,
	2009			2010
LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Short-term bank credit and loans	$	11,033		$	9,154
Current maturities of long-term loans and capital leases		6,879			4,972
Trade payables		11,680			13,133
Accrued expenses and other liabilities *)		15,447			15,937

Total current liabilities		45,039			43,196

LONG-TERM LIABILITIES:
Long-term loans		12,599			8,099
Capital leases		2,367			1,237
Accrued severance pay		3,270			3,411
Other long-term liabilities		2,763			353
Deferred tax liabilities		2,224			1,875

Total long-term liabilities		23,223			14,975

REDEEMABLE NON-CONTROLLING INTERESTS		690			2,248

COMMITMENTS AND CONTINGENT LIABILITIES

EQUITY:
Shamir Optical Industry Ltd. shareholders' equity:
Share capital -
Ordinary shares of NIS 0.01 par value -
Authorized: 100,000,000 shares at December 31, 2009 and 2010; Issued and outstanding: 16,592,345 and 17,132,267 shares at December 31, 2009 and 2010, respectively.		37			39
Additional paid-in capital		68,230			73,851
Accumulated other comprehensive loss		(1,122	)		(2,056	)
Retained earnings		24,795			26,107

Total Shamir Optical Industry Ltd. shareholders' equity		91,940			97,941
Non-controlling interests		2,822			3,939

Total Equity		94,762			101,880

Total liabilities and equity	$	163,714		$	162,299

*)	As for transactions with related parties, see Note 17.

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

F - 4

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

U.S. dollars in thousands (except per share data)

	Year ended December 31,
	2008			2009		2010

Revenues, net *)	$	140,326		$	142,384	$	157,991
Cost of revenues *)		64,415			65,448		71,485

Gross profit		75,911			76,936		86,506

Operating expenses:
Research and development		3,368			3,239		4,579
Selling and marketing		42,374			40,959		44,937
General and administrative		16,793			15,410		17,238

Total operating expenses *)		62,535			59,608		66,754

Operating income		13,376			17,328		19,752
Financial and other expenses, net *)		2,142			395		220

Income before taxes on income		11,234			16,933		19,532
Taxes on income		2,216			3,699		3,834

Income after taxes on income		9,018			13,234		15,698
Equity in gains (losses) of affiliates, net		44			31		(114	)

Net income		9,062			13,265		15,584
Net income (loss) attributable to non-controlling interest		(16	)		477		772

Net income attributable to Shamir Optical Industry Ltd.	$	9,078		$	12,788	$	14,812

Net earnings per share:
Basic	$	0.55		$	0.78	$	0.88

Diluted	$	0.55		$	0.77	$	0.87

*)	As for transactions with related parties, see Note 17.

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

F - 5

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

STATEMENTS OF EQUITY

U.S. dollars in thousands (except share and per share data)

	Number of shares		Share capital			Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings			Total comprehensive income			Non- controlling interest			Total equity

Balance as of January 1, 1008		16,423,740	$	37		$	66,629	$	1,628		$	16,929					$	800		$	86,023

Distribution of earnings to shareholders ($ 0.243 per share)		-		-			-		-			(4,000	)								(4,000	)
Dividend paid to non-controlling interests on subsidiary		-		-			-		-			-						(21	)		(21	)
Purchase of CIO shares from non-controlling interest		-		-			-		-			-						702			702
Purchase of Shamir Optic GmbH shares from non-controlling interest		-		-			-		-			-						299			299
Stock-based compensation related to options to employees		-		-			733		-			-						-			733
Comprehensive income:
Foreign currency translation adjustments		-		-			-		(4,230	)		-		$	(4,230	)		(514	)		(4,744	)
Unrealized loss on marketable securities, net of tax		-		-			-		(35	)		-			(35	)					(35	)
Net income		-		-			-		-			9,078			9,078			(16	)		9,062
Total comprehensive income														$	4,813

Balance as of December 31, 2008		16,423,740		37			67,362		(2,637	)		22,007						1,250			88,019

Reclassification of mandatorily non-controlling interest to other long-term liabilities		-		-			-		-			-						(735	)		(735	)
Distribution of earnings to shareholders ($ 0.602 per share)		-		-			-		-			(10,000	)					-			(10,000	)
Stock-based compensation related to options to employees		-		-			451		-			-						-			451
Exercise of options granted to employees		168,605		*	) -		417		-			-						-			417
Purchase of SLT shares from non-controlling interest		-		-			-		-			-						552			552
Issuance of shares to non-controlling interest of CIO		-		-			-		-			-						1,130			1,130
Comprehensive income:
Foreign currency translation adjustments		-		-			-		1,328			-		$	1,328			148			1,476
Unrealized gain on marketable securities, net of tax		-		-			-		187			-			187			-			187
Net income		-		-			-		-			12,788			12,788			477			13,265
Total comprehensive income														$	14,303

Balance as of December 31, 2009		16,592,345	$	37		$	68,230	$	(1,122	)	$	24,795					$	2,822		$	94,762

*)	Represent an amount lower than $ 1.

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

F - 6

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

STATEMENTS OF EQUITY

U.S. dollars in thousands (except share and per share data)

	Number of shares		Share capital		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings			Total comprehensive income			Non- controlling interest		Total equity

Balance as of January 1, 2010		16,592,345	$	37	$	68,230	$	(1,122	)	$	24,795					$	2,822	$	94,762

Distribution of earnings to shareholders ($ 0.804 per share)		-		-		-		-			(13,500	)					-		(13,500	)
Stock-based compensation related to options to employees		-		-		565		-			-						-		565
Exercise of options granted to employees		539,922		2		5,056		-			-						-		5,058
Issuance of shares to non-controlling interest of SLT		-		-		-		-			-						133		133
Comprehensive income:
Foreign currency translation adjustments		-		-		-		(953	)		-			(953	)		212		(741	)
Unrealized gain on marketable securities, net of tax		-		-		-		19			-			19			-		19
Net income		-		-		-		-			14,812			14,812			772		15,584
Total comprehensive income													$	13,878

Balance as of December 31, 2010		17,132,267	$	39	$	73,851	$	(2,056	)	$	26,107					$	3,939	$	101,880

As of December 31, 2008, 2009 and 2010, accumulated other comprehensive income (loss) represent an amount of $ (2,633), $ (1,305) and $ (2,258) in foreign currency translation adjustment and $ (4), $ 183 and $ 202 on short-term investment, net of tax, respectively.

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

F - 7

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2008			2009			2010
Cash flows from operating activities:

Net income	$	9,062		$	13,265		$	15,584
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,069			8,681			8,832
Stock based compensation		733			451			565
Accrued severance pay, net		254			(227	)		37
Currency fluctuations of long-term loans		11			10			(18	)
Decrease (increase) in deferred tax assets, net		201			(457	)		534
Equity in losses (gains) of affiliates, net		(44	)		(31	)		114
Interest receivable on marketable securities and other short-term investments		108			142			138
Foreign currency translation gains		(1,006	)		(852	)		(119	)
Decrease (increase) in trade receivables		1,984			(2,244	)		(1,245	)
Decrease (increase) in other receivables and prepaid expenses and in long term receivables		(1,024	)		2,029			(786	)
Decrease (increase) in inventories		1,573			1,075			(2,439	)
Increase (decrease) in trade payables		(2,718	)		389			960
Increase (decrease) in accrued expenses and other liabilities		(1,744	)		1,370			973
Other		158			35			30

Net cash provided by operating activities		16,617			23,636			23,160

Cash flows from investing activities:

Loans granted to affiliates		(302	)		(65	)		(9	)
Investment in affiliates		(273	)		(331	)		-
Distribution of earnings from affiliate		-			-			14
Considerations on Shamir Insight Inc. ("SII") share acquisitions (see Note 1b)		(725	)		(707	)		(999	)
Acquisition of CIO and Shalens (a)		(2,687	)		-
Acquisition of SLT (c)		-			(10	)		-
Acquisition of Shamir Australia (d)		-			(89	)		(478	)
Purchase of property, plant and equipment		(4,593	)		(3,401	)		(7,083	)
Purchase of intangible assets		(100	)		(100	)		(100	)
Government participation in purchase of property, plant and equipment		189			-			-
Proceeds from sale of property and equipment		228			98			286
Repayment of loan by related party		90			-
Purchase of marketable securities and other short-term investments		(4,853	)		(16,501	)		(5,771	)
Proceeds from sale of marketable securities and other short-term investments		11,884			12,117			4,340

Net cash used in investing activities		(1,142	)		(8,989	)		(9,800	)

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

F - 8

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2008			2009			2010
Cash flows from financing activities:

Distribution of earnings to shareholders		(4,000	)		(9,486	)		(14,014	)
Short-term bank credit and loans, net		(3,637	)		(1,653	)		(1,386	)
Issuance of shares to non-controlling interest		-			-			133
Proceeds from exercise of options granted to employees		-			417			4,098
Receipt of long-term loans		2,933			8,112			-
Repayment of long-term loans		(8,598	)		(8,311	)		(5,272	)
Repayment of capital lease obligations		(2,371	)		(2,304	)		(1,425	)

Net cash used in financing activities		(15,673	)		(13,225	)		(17,866	)

Effect of exchange rate differences on cash and cash equivalents		(479	)		231			(63	)

Increase (decrease) in cash and cash equivalents		(677	)		1,653			(4,569	)
Cash and cash equivalents at beginning of year		18,953			18,276			19,929

Cash and cash equivalents at end of year	$	18,276		$	19,929		$	15,360

Supplemental information and disclosures of non-cash investing and financing activities:

Purchase of property, plant and equipment by capital lease	$	1,776		$	26		$	193

Trade payables as of December 31, in respect of purchase of equipment	$	-		$	-		$	524

Consideration on SII share acquisitions (see Note 1b)	$	307		$	885		$	256

Consideration on acquisition of non-controlling interest in Shamir Optic GmbH (see Note 1d)	$	357		$	313		$	250

Withholding taxes on distribution of earnings to shareholders	$	-		$	514		$	-

Receivables on account of exercise of options granted to employees	$	-		$	-		$	960

Capitalization of CIO non-controlling interest loans	$	-		$	1,130		$	-

Cash paid during the year for:

Interest	$	2,498		$	1,305		$	913

Income taxes, net	$	4,140		$	3,199		$	4,438

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

F - 9

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

		Year ended December 31,
		2008			2009	2010
(a)	Acquisition of Centro Integral Optico S.A. de C.V.("CIO") and Shalens S.A. de C.V. ("Shalens")

	Fair value of assets acquired and liabilities assumed at the acquisition date:

	Working capital (excluding cash and cash equivalents)	$	1,814
	Long-term deferred tax assets		105
	Property and equipment		2,144
	Other intangible assets		2,208
	Goodwill		2,865
	Long-term loans and other long-term liabilities		(2,076	)
	Long-term deferred tax liabilities		(713	)

	Net assets acquired		6,347

	Investment in CIO and Shalens prior to acquisition that was accounted for by the equity method and shareholder's loans		(2,958	)
	Non-controlling interest		(702	)

		$	2,687

(b)	Acquisition of minority interests in Shamir Optic GmbH (formerly known as Altra Trading GMBH ("Shamir GmbH")):

	Fair value of assets acquired and liabilities assumed at the acquisition date:

	Property and equipment	$	1,186
	Customer relationships		346
	Goodwill adjustment		(915	)
	Other long-term liabilities		(36	)
	Long-term deferred tax liabilities, net		(224	)

		$	357

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

F - 10

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

		Year ended December 31,
		2008	2009			2010
(c)	Acquisition of Shamirlens Thailand Co., Ltd. (formerly known as Siam Optical Technology Company Ltd. ("SLT")) :

	Fair value of assets acquired and liabilities assumed at the acquisition date:

	Working capital (excluding cash and cash equivalents)		$	(535	)
	Property and equipment			2,468
	Other intangible assets			976
	Goodwill			224
	Long-term loans and other long-term liabilities			(918	)
	Long-term deferred tax liabilities			(293	)

	Net assets acquired			1,922

	Investment in SLT prior to acquisition that was accounted for by the equity method and shareholder's loans			(1,353	)
	Non-controlling interests			(559	)

			$	10
(d)	Acquisition of Shamir Australia Pty Ltd.:

	Fair value of assets acquired and liabilities assumed at the acquisition date:

	Working capital (excluding cash and cash equivalents)		$	(2,206	)
	Property and equipment			1,153
	Customer relationship			1,527
	Goodwill			1,204
	Long-term loans and other long-term liabilities			(662	)
	Long-term deferred tax liabilities			(232	)
	Redeemable non-controlling interests			(695	)

			$	89

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

F - 11

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL

General:

Shamir Optical Industry Ltd. ("the Company") was incorporated under the laws of the State of Israel in the early 1970s. The Company and its subsidiaries (collectively - "Shamir") design, develop, manufacture and market optical progressive and other lenses, Direct Lens Technology ("DLT") calculation and molds. As of December 31, 2010, Shamir had 20 subsidiaries around the world. Some of the subsidiaries engage in production of Shamir products, some are optical laboratories that process lenses for the opticians, and some engage in marketing and distribution of ophthalmic products.

The Company's shares are traded on the NASDAQ stock exchange and the Tel Aviv Stock Exchange ("TASE").

Most of the raw materials used in the manufacture of lenses, including Shamir's products, are available from a limited number of suppliers. Shamir purchases its raw materials from some of these suppliers. In addition, a certain part of the production process of Shamir's lenses is supplied by a limited number of worldwide sub-contractors. The loss of any one of these suppliers or sub-contractors, or a significant decrease in the supply of monomers or services, would require Shamir to obtain these raw materials or services elsewhere. If Shamir is unable to obtain monomers or services from its suppliers (or alternative suppliers) or sub-contractors at acceptable prices, Shamir may realize lower margins and experience difficulty in meeting its customers' requirements.

As for major customer data, see Note 18c.

Merger Agreement with Essilor:

On October 15, 2010 the Company signed a Merger Agreement ("the Merger Agreement"), with an indirect wholly-owned subsidiary of Essilor International SA, a French société anonyme, or Essilor. Under the terms of the proposed merger, the Company's shareholders will be entitled to receive $ 14.50 in cash, without interest and less any applicable withholding taxes, for each ordinary share of the Company that the shareholders own as of the effective time of the merger, other than ordinary shares held directly or indirectly by (i) Kibbutz Shamir A.C.S., or Kibbutz Shamir, an Israeli agricultural cooperative society and the Company's controlling shareholder, (ii) Shamir Optica Holdings A.C.S. Ltd., or Shamir Holdings, an Israeli agricultural cooperative society wholly owned by Kibbutz Shamir through which Kibbutz Shamir holds most of its ordinary shares of the Company, (iii) Essilor, or (iv) Shamrock Acquisition Sub Ltd., or the Merger Sub, an Israeli company and an indirect wholly-owned subsidiary of Essilor. The merger is being effected as an arrangement between the Company and its shareholders under Sections 350 and 351 of the Israeli Companies Law and is subject to Israeli court approval. In connection with the transactions contemplated by the Merger Agreement, Kibbutz Shamir, Shamir Holdings and Essilor entered into a Share Purchase and Subscription Agreement, dated as of October 15, 2010, or the Share Purchase and Subscription Agreement.

F - 12

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

Pursuant to the Share Purchase and Subscription Agreement, (i) simultaneously with and subject to the occurrence of the merger, Essilor will purchase from Kibbutz Shamir the shares of the Company and (ii) immediately following the merger, Essilor will (x) subscribe for certain newly issued shares of Shamir Holdings, in exchange for cash, and (y) subscribe for additional newly issued shares of Shamir Holdings, in exchange for the contribution to Shamir Holdings by Essilor of all of the shares of Shamir then held directly by Essilor. Following the consummation of the merger and the other transactions contemplated by the Merger Agreement and the Share Purchase and Subscription Agreement, the Company's shares will be delisted from The NASDAQ Global Market and the TASE.

The Company will be a wholly-owned subsidiary of Shamir Holdings and Shamir Holdings will be 50% beneficially owned by Kibbutz Shamir and 50% beneficially owned by Essilor. Following the merger, Kibbutz Shamir, Shamir Holdings the Company and Essilor intend to enter into certain other agreements, including a shareholders' agreement, amended lease agreement and various commercial agreements. On April 26, 2011, the Company's shareholders approved the Merger Agreement and related transactions. On May 5, 2011, the Company filed with the district court in Nazareth a motion requesting the court to issue an order approving the merger. On June 13, 2011, such order has been issued by the court. The closing of the merger remains subject to the satisfaction of the remaining conditions as specified in the Merger Agreement.

Additional acquisition of shares in Shamir Insight Inc. ("SII"):

On July 31, 2005, Shamir signed an agreement to purchase additional 31.3% of the outstanding shares of SII, increasing Shamir's ownership interest in SII to 90%. Under the terms of the agreement annual contingent cash payments were paid. The additional consideration regarding this agreement in respect of 2008 and 2009 was $ 488 and $ 896, respectively, which as of December 31, 2008 and 2009, increased the goodwill accordingly. No additional consideration is required under this agreement.

On July 17, 2007, Shamir signed an agreement to purchase additional 10% of the outstanding shares of SII, increasing Shamir's ownership interest in SII to 100%. Under the terms of the agreement there are annual contingent cash payments based on SII's revenues in the years 2007 through 2010. The additional consideration regarding this purchase in respect of 2008, 2009 and 2010 earnings is $ 189, $ 201 and $ 456, respectively, which as of December 31, 2008, 2009 and 2010 increased the goodwill accordingly. No additional consideration is required under this agreement.

F - 13

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

Acquisition of Centro Integral Optico S.A. de C.V. ("CIO") and Shalens S.A. de C.V. ("Shalens"):

On February 20, 2008, Shamir exercised its option and acquired additional 25% to a total of 51% in CIO and Shalens (a sister company of CIO located in Mexico) for a consideration of $ 2,860.

The acquisition was accounted for by the purchase method and accordingly, the purchase price has been allocated to the estimated fair value of the assets acquired and liabilities assumed of CIO and Shalens, with the remaining representing goodwill. The results of operations of CIO and Shalens have been included in the consolidated financial statements of Shamir commencing February 20, 2008.

With this acquisition of additional shares, Shamir obtained control of CIO and Shalens, and expanded its presence in the optical market in Mexico.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of February 20, 2008 (the acquisition date):

Current assets	$	3,991
Property and equipment		2,144
Long-term deferred tax assets		105
Customer relationships		2,208
Goodwill		2,865

Total assets acquired		11,313

Current liabilities		(1,931	)
Long-term loans and other liabilities		(2,149	)
Long-term deferred tax liability		(713	)

Total liabilities assumed		(4,793	)

Net assets acquired		6,520

Investments in CIO and Shalens prior to acquisition that was accounted for by the equity method and shareholder's loans		(2,958	)
Non-controlling interest		(702	)

Total purchase price	$	2,860

Customer relationships in the amount of $ 2,208 (including $ 1,081 amortized cost of customer relationships allocated at the acquisition of the first 26% in CIO) with definite life are amortized using the straight-line method at an average annual rate of approximately 10%.

Pro-forma information was not provided due to immateriality in the years presented.

F - 14

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

Acquisition of non-controlling interests of Shamir Optic GmbH ("Shamir GmbH"):

On July 1, 2008 Shamir acquired the remaining 49% of the outstanding shares of Shamir GmbH, increasing Shamir's ownership interest in Shamir GmbH and its subsidiaries to 100%. The total purchase price amounted to $ 357. In addition, Shamir will pay a contingent consideration based on Shamir GmbH consolidated net income for the years 2008 through 2010 up to a total of 500 thousands euro (approximately $ 721) that will be paid on June 30, 2011. The additional consideration in respect to 2008, 2009 and 2010 is $ 0, $ 451 and $ 250, respectively, which as of December 31, 2008, 2009 and 2010 increased the goodwill accordingly. With the acquisition of additional shares of Shamir GmbH, Shamir obtained full ownership of Shamir GmbH. No additional consideration is required under this agreement.

The acquisition was accounted for by the purchase method and accordingly, the purchase price has been allocated to the fair value of the identifiable assets acquired and identifiable liabilities assumed of Shamir GmbH and its subsidiaries, with the remaining representing goodwill.

T he following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date :

Property and equipment	$	1,186
Customer relationships		346
Goodwill adjustment		(915	)
Long-term other liabilities		(36	)
Long-term deferred tax liability, net		(224	)

Total purchase price	$	357

Customer relationships in the amount of $ 346 are amortized using the straight-line method at an average annual rate of approximately 17%.

Pro-forma information was not provided due to immateriality.

Acquisition of Shamirlens Thailand Co., Ltd. (formerly known as Siam Optical Technology Company Ltd. ("SLT")):

On November 27, 2008, Shamir acquired additional 14.6% of ownership interests and voting rights in SLT and increased its holdings in SLTs to 40.4%. On July 1, 2009, Shamir acquired an additional 8.6% of the ownership interests in SLT and 10.6% of its voting rights for the amount of $ 79. As a result, Shamir increased its holdings in SLT's shares and voting rights to a total of 49% and 51%, respectively , and gained control over SLT. The Company previously accounted for its holdings in SLT as an equity method investment.

F - 15

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

With the acquisition of SLT, Shamir expanded and increased its manufacturing capabilities.

As a result of Shamir obtaining control over SLT, Shamir's previously held 40.4% interest in SLT was re-measured to fair value, resulting in an immaterial gain. The fair value of the non-controlling interest of Shamir in SLT was estimated by applying the income approach and amounted to $ 559. The purchase price has been allocated to the estimated fair value of the assets acquired, liabilities assumed and any non-controlling interest in SLT, with the remaining representing goodwill.

SLT has a Thai subsidiary called K-T Optic Company Limited ("K-T"). As of December 31, 2010, SLT holds approximately 87% of the ownership interests and voting rights of K-T. The consolidated results of SLT and its subsidiary have been included in the consolidated financial statements of Shamir commencing July 1, 2009.

The following table summarizes the fair values of the assets acquired, liabilities assumed and non-controlling interest as of the acquisition date:

Current assets	$	1,929
Property and equipment		2,468
Customer relationships		976
Goodwill		224

Total assets acquired		5,597

Current liabilities		(2,395	)
Long-term loans and other liabilities		(918	)
Long-term deferred tax liability		(293	)

Total liabilities assumed		(3,606	)

Net assets acquired	$	1,991

Previously held equity interest re-measured at acquisition-date fair value		1,353
Non-controlling interest		559
Consideration in cash		79

Total purchase price	$	1,991

Customer relationships in the amount of $ 976 with definite live are amortized using the straight-line method at an average annual rate of approximately 16.7%.

Total effect on Shamir 2009 consolidated revenue and net income, as presented in the Company's consolidated statements of income, of consolidating SLT and its subsidiary from the acquisition date until December 31, 2009 amounted to $ 2,090 and $ 129, respectively.

F - 16

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

The goodwill of $ 224 pertains to the fair value of the expected synergies arising from the acquisition of SLT by the Company, which will increase the Shamir manufacturing capabilities.

Pro-forma information was not provided due to immateriality.

Acquisition of Shamir Australia Pty Ltd (formerly known as "Smyth & Perkins Pty Ltd ("Shamir Australia")):

On November 4, 2009, Shamir acquired 66.7% of Shamir Australia, an optical laboratory in Australia, for a total consideration of 1.6 million Australian dollars (approximately $ 1,450), which was all paid by the end of 2010. In addition, contingent payments will be made if certain financial performance criteria are met in the years 2010-2012, which were estimated in the amount of 199 thousands Australian dollars (approximately $ 180). The outstanding estimated contingent liability as of December 31, 2010, is $ 50. Should the estimation of the contingent payments will change in the future, it will be recorded in Shamir statements of income at the relevant period.

As part of the transaction the parties agreed on a put-call option that provides the Company the right to increase its holdings in Shamir Australia to 100% and on the other hand provides the non-controlling shareholder with a right to sell his holdings shares of Shamir Australia to the Company. The option will be exercisable for a period of 90 days after the approval of the annual financial statements of Shamir Australia for each of the years 2014, 2015 and 2016. The exercise price will be calculated based on certain financial performance criteria.

As a result of the put-call option the Company accounted for the non-controlling interest as a "Redeemable non-controlling interest" and presented it as a mezzanine account. The mezzanine account was calculated based on its fair value at the acquisition date and amounted to $ 695. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the redemption value at the end of each reporting period. Changes in the redemption value are recorded as an accretion of the redeemable non-controlling interest in Shamir's statements of income.

With the acquisition of Shamir Australia, Shamir expanded its presence in the optical market in Australia.

The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated to the estimated fair value of the assets acquired and liabilities assumed, with the remaining representing goodwill.

F - 17

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-

GENERAL (Cont.)

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

Current assets	$	2,120
Property and equipment		1,153
Customer relationships		1,527
Goodwill		1,204

Total assets acquired		6,004

Current liabilities		(3,237	)
Long-term loans and other liabilities		(248	)
Long-term deferred tax liability		(232	)

Total liabilities assumed		(3,717	)

Redeemable non-controlling interest		(695	)

Total purchase price	$	1,592

Customer relationships in the amount of $ 1,527 are amortized using the straight-line method at an average annual rate of approximately 16.7%.

Total effect on Shamir 2009 consolidated revenue and net income, as presented in the Company's consolidated statements of income, of consolidating Shamir Australia from the acquisition date until December 31, 2009 amounted to $ 991 and $ 60, respectively.

The goodwill of $ 1,204 pertains to the fair value of the expected synergies arising from the acquisition of Shamir Australia by the Company, which will increase Shamir's presence in the optical market in Australia.

Pro-forma information was not provided due to immateriality.

F - 18

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared according to U.S. generally accepted accounting principles ("U.S. GAAP").

Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgment and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, Shamir's management evaluates its estimates, including those related to revenues recognition, inventories, deferred tax assets estimates based on historical experience, applicable laws and various other assumptions that Shamir's management believes to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Financial statements in U.S. dollars:

A majority of the Shamir's revenues of the Company and certain subsidiaries are generated in United States dollars ("dollars"). The Company's management believes that the dollar is the currency of the primary economic environment in which the Company and certain subsidiaries operate. Thus, the functional and reporting currency of the Company and certain subsidiaries is the U.S. dollar.

The Company and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses of the re-measured monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of income as financial and other expenses, net, as appropriate.

For those subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and statements of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded in a separate component of equity in "accumulated other comprehensive income (loss)".

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside Shamir, have been eliminated upon consolidation.

F - 19

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Cash equivalents:

Cash equivalents are short-term unrestricted highly liquid investments that are readily convertible to cash, with maturities of three months or less at the date acquired.

Marketable securities:

Shamir accounts for investments in debt securities in accordance with ASC 320, "Investments - Debt and Equity Securities". Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determinations at each balance sheet date.

Shamir classifies all of its securities as "available-for-sale" which are carried at fair value based on quoted market prices. Unrealized gains and losses, net of tax, reported in a separate component of equity in "accumulated other comprehensive income (loss)" in shareholders' equity. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization along with interest on debt securities is included in financial and other expenses, net. Realized gains and losses on sale of debts securities are included in earnings and are derived using the specific identifications method for determining the cost of debt securities.

On April 1, 2009, Shamir adopted the updated guidance as codified in ASC 320-10-65 that changed the impairment and presentation model for its available for sale debt securities. Under the updated impairment model, other-than-temporary impairment loss is recognized in earnings if the entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still needs to evaluate expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income (loss), net of taxes. The adoption of the updated guidance had no impact on Shamir's consolidated financial position, results of operations or cash flows. During 2010, 2009 and 2008, no impairment losses were identified.

F - 20

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Inventories:

Inventories are stated at the lower of cost or market value. Cost is determined as follows:

Raw materials and work-in-progress - using the "first in - first out" method.

Finished products - finished products which are manufactured by Shamir are recorded on the basis of direct manufacturing costs with the addition of allocable indirect manufacturing costs, using the "first in - first out" method. Finished products that are purchased for commercial purposes are recorded using the "first in - first out" method.

Inventory write-downs are provided to cover risks arising from slow-moving items, and discontinued products and for product costs in excess of current market value to its net realizable value. At the point of the loss recognition, a new lower cost basis, based on the net realizable value for that inventory is established.

Inventory write-downs for 2008, 2009 and 2010 were $ 601, $ 423 and $ 716, respectively, and have been included in cost of revenues.

Investments in affiliates and others:

Affiliated companies are companies held to the extent of 20% or more (which are not subsidiaries), over whose operating and financial policies Shamir can exercise significant influence.

The investment in affiliated companies is accounted for by the equity method. Profits on inter-company sales, not realized outside Shamir, were eliminated. The excess of the purchase price over the proportional fair value of net tangible assets of the investee is attributed to goodwill and other identifiable intangible assets.

Investments in companies in which Shamir holds less than 20% are stated at cost, since Shamir does not have the ability to exercise significant influence over the operating and financial policies of those investees. Shamir's investments in these companies are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable, in accordance with ASC 323. As of December 31, 2010, no impairment losses have been identified.

Property, plant and equipment, net:

Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. Materials, payroll and other costs that are direct incremental costs necessary to bring an asset to the condition of its intended use incurred during the construction are capitalized to the cost of such assets.

F - 21

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates:

		%

Machinery and manufacturing equipment		7 - 40
Office equipment and furniture		7 - 33
Motor vehicles		15 - 25
Buildings		4 - 5

Leasehold improvements are depreciated by the straight-line method over the shorter of the lease or the estimated useful life of the improvements.

Shamir has accounted for its assets which are under a capital lease arrangement in accordance with ASC 840 "Leases". Accordingly, assets under a capital lease are stated as assets of Shamir on the basis of ordinary purchase prices (without the financing component), and depreciated according to the usual depreciation rates applicable to such assets. The lease payments payable in forthcoming years, net of the interest component included in them are included in liabilities. The interest in respect of such amounts is accrued on a current basis and is charged to earnings.

Other intangible assets, net:

Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are used, in accordance with ASC 350.

Amortization is calculated using the straight-line method over the estimated useful lives at the following annual rates:

		Weighted average % in 2010

Customer relationship		14
Distribution channels		20
Patents		10
Trade name		20

F - 22

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Impairment of long-lived assets:

Shamir's long-lived assets, and identifiable intangible assets that are subject to amortization, are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment", whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During 2008, 2009 and 2010, no impairment losses have been identified.

Goodwill:

Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets and identifiable intangibles acquired in the acquisition. Under ASC 350, goodwill is not amortized, but rather is subject to an annual impairment test or more frequently if impairment indicators arise.

ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value. Goodwill attributable to Shamir's single reporting unit was tested for impairment by comparing its fair value with its carrying value. Fair value is determined using the Company's market capitalization and the discounted cash flows method.

Shamir performs the impairment tests during the fourth fiscal quarter. During 2008, 2009 and 2010, no impairment losses were identified.

Revenue recognition:

Shamir derives its revenues from sales of optical progressive and other lenses, DLT calculation and to a lesser extent from design services to third party lens manufacturers.

Revenues from sale of lenses and DLT calculation, net of rebates and returns, are recognized in accordance with the criteria outlined in ASC 985-605, "Revenue Recognition ", when persuasive evidence of an agreement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

Shamir has various programs that allow opticians to earn rebates on their accumulated purchases. Rebates are recognized as a reduction of revenues, in accordance with ASC 605-50 "Customer payments and incentives".

F - 23

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Design services are provided to third party manufacturers and include development services, production of molds for lenses and royalties from sales of lenses by third party manufacturers. Revenues from development services are recognized at the time services are provided. Revenues from production of molds are recognized upon delivery of the molds when all other criteria outlined in ASC 985-605 are met. Revenues from minimum royalties are recognized when due. Other royalties are recognized quarterly, based on sales reports from the third party manufacturer customers.

Amounts billed to customers for shipping and handling costs are classified as revenues in the consolidated statements of income with the associated costs included as a component in the operating expenses.

Research and development costs:

Research and development costs are charged to the statements of income as incurred.

Income taxes:

Shamir accounts for income taxes in accordance with ASC 740 "Income Taxes". This topic prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Shamir provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Shamir implements a two-step approach to recognize and measure uncertain tax position. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.

The Company classifies interest as financial expenses and penalties as general and administrative expenses.

Advertising costs:

Advertising costs are expensed as incurred. Advertising expenses (net of marketing support from vendors) for the years ended December 31, 2008, 2009 and 2010, were $ 2,366, $ 2,453 and $ 2,865, respectively.

F - 24

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Concentrations of credit risk:

Financial instruments that potentially subject Shamir to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, trade receivables and foreign currency derivative contracts.

Shamir's cash and cash equivalents are invested in deposits mainly in dollar and Euro with major banks in Israel, Germany and the U.S. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions.

Shamir's marketable securities include investments in debentures of corporations and non-U.S. governments. Shamir's investment policy provides for a minimum grading of debentures in which Shamir can invest, thereby reducing credit risk.

Shamir's trade receivables are derived from sales to customers located mainly in the U.S. and Europe. Shamir performs ongoing credit evaluations of its customers and to date has not experienced any material losses. In certain circumstances, Shamir may require letters of credit or prepayments. An allowance for doubtful accounts is determined with respect to those amounts that Shamir has determined to be doubtful of collection. Provisions for doubtful accounts are recorded in general and administrative expenses.

Shamir from time to time enters into forward contracts and option strategies (together: "derivative instruments") intended to protect against changes in foreign currencies. Shamir has also entered into interest-rate swaps. The derivative instruments were not qualified for hedge accounting under ASC 815 "Derivatives and Hedging". All the derivatives are recognized on the balance-sheet at their fair value, with changes in the fair value carried to the statements of income and included in financial and other expenses, net.

Severance pay:

Shamir's liability for severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of Shamir's Israeli employees multiplied by the number of years of employment as of balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. Shamir's liability for these employees is fully provided by monthly deposits for insurance policies and by an accrual.

The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies.

F - 25

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company and its Israeli subsidiaries have entered into an agreement with certain employees implementing Section 14 of the Severance Pay Law and the General Approval of the Labor Minister dated June 30, 1998, issued in accordance to the said Section 14, mandating that upon termination of such employees' employment, the company shall release to them all the amounts accrued in their insurance policies. The severance pay liabilities and deposits covered by these plans are not reflected in the balance sheet as the severance pay risks have been irrevocably transferred to the severance funds.

From time to time the Company's foreign subsidiaries come to dismissal arrangements with certain employees, which results in severance expenses.

Severance expense for the years ended December 31, 2008, 2009 and 2010, amounted to $ 1,162, $ 583 and $ 1,413, respectively.

Fair value of financial instruments:

Shamir applies ASC 820, "Fair Value Measurements and Disclosures". Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, Shamir uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect Shamir's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels based on the inputs as follows:

Level 1 -

Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 -

Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 -

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

F - 26

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.

The Company's marketable securities are traded in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency and accordingly are categorized as Level 2.

Foreign currency and interest rate derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The following table presents the assets and liabilities measured at fair value on a recurring basis at December 31, 2009 and 2010:

	December 31, 2009
	Fair value measurements using input type
	Level 1		Level 2			Level 3		Total

Marketable securities:
Corporate debentures	$	-	$	8,568		$	-	$	8,568
Non-U.S. governments bonds		-		3,047			-		3,047
Derivatives:
Foreign currencies assets		-		164			-		164
Foreign currencies liabilities		-		(5	)		-		(5	)
Interest rates		-		(276	)		-		(276	)

Total	$	-	$	11,498		$	-	$	11,498

	December 31, 2010
	Fair value measurements using input type
	Level 1		Level 2			Level 3		Total

Marketable securities:
Corporate debentures	$	-	$	9,866		$	-	$	9,866
Non-U.S. governments bonds		-		3,022			-		3,022
Derivatives:
Foreign currencies assets		-		41			-		41
Foreign currencies liabilities		-		(12	)		-		(12	)
Interest rates		-		(198	)		-		(198	)

Total	$	-	$	12,719		$	-	$	12,719

F - 27

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables, other receivables, trade payables and other liabilities approximate their fair value due to the short-term maturities of such instruments.

Basic and diluted net earnings per share:

Basic net earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted net earnings per share are computed based on the weighted average number of shares outstanding during each year, plus dilutive potential shares considered outstanding during the year, in accordance with ASC 260 "Earnings per Share".

The weighted average number of shares related to the outstanding anti-dilutive options excluded from the calculations of diluted net earnings per share was 1,493,826, 1,278,081 and 796,850 for the years ended December 31, 2008, 2009 and 2010, respectively.

Legal contingencies:

Shamir may be involved in lawsuits, claims, investigations or other legal or arbitral proceedings that arise in the ordinary course of its business. These proceedings may include general commercial disputes and claims regarding intellectual property or labor disputes with former employees. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, Shamir accrues a liability for the estimated loss.

Accounting for stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation – stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements.

Shamir recognizes compensation expense for the value of its awards based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures at the time of grant. ASC 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

F - 28

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model at the date of grant. The Black-Scholes-Merton model requires a number of assumptions. Expected volatility was calculated based upon actual historical stock price movements. The risk-free interest rate is based on the yield from U.S. Federal Reserve zero-coupon bonds with an equivalent term.

The fair value of the Company's stock options granted to employees and directors for the years ended December 31, 2010 and 2009 was estimated using the following weighted average assumptions:

	Year ended December 31,
	2009	2010

Expected volatility	42.9%-44.1%	43.8%
Risk-free interest rate	2.4%	2.3%
Dividend yield *)	0%	0%
Expected term (years)	4.6	4.6

The exercise price is subject to adjustment when dividend is declared. See Note 16b.

Adoption of New Accounting Standards:

In January 2010, the FASB issued ASU 2010-06, updating the "Fair Value Measurements Disclosures" codified in ASC 820. This update requires (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value, and require disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. As applicable to Shamir, this update became effective in these annual financial statements. The adoption of the new guidance did not have an impact on the Shamir's consolidated financial statements.

F - 29

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 3:-

MARKETABLE SECURITIES

The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2009 and 2010:

	Amortized cost				Gross unrealized gains				Gross unrealized losses				Estimated fair value
	December 31,				December 31,				December 31,				December 31,
	2009		2010		2009		2010		2009		2010		2009		2010

Corporate debentures	$	8,369	$	9,666	$	199	$	208	$	-		8	$	8,568	$	9,866
Non-U.S. governments bonds		3,002		2,952		48		70		3		-		3,047		3,022

	$	11,371	$	12,618	$	247	$	278	$	3	$	8	$	11,615	$	12,888

Accrued Interest														64		110

													$	11,679	$	12,998

The scheduled maturities of available-for-sale marketable securities as of December 31, 2010 were as follows:

	December 31, 2010
	Amortized cost		Fair market value

Matures within one year	$	1,548	$	1,562
Matures after one year through five years		11,070		11,326

Total	$	12,618	$	12,888

NOTE 4:-

OTHER RECEIVABLES AND PREPAID EXPENSES

	December 31,
	2009		2010

Prepaid expenses	$	2,306	$	2,394
Government authorities		2,317		2,901
Deferred tax assets		1,922		1,127
Receivables on accounts of exercise of options granted to employees *)		-		960
Government grants and subsidies		265		141
Employees		75		55
Derivative instruments		164		41
Other		869		571

	$	7,918	$	8,190

Received on January 13, 2011.

F - 30

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 5:-

INVENTORIES

	December 31,
	2009		2010

Raw materials	$	6,151	$	6,130
Work-in-progress		237		385
Finished goods		20,558		22,213

	$	26,946	$	28,728

NOTE 6:-

INVESTMENTS IN AFFILIATES AND OTHERS

Affiliated companies are as follows:

	December 31,
	2009			2010
	Percentage of ownership of outstanding share capital

Optispeed Laboratory (PTY) Ltd. ("Optispeed")		25	%		25	%
Emerald Lens and Coating Technologies (PTY) Ltd. ("Emerald")*)		28	%		28	%
e-Vision LLC		**	)		**	)

On June 19, 2009, Shamir (through its subsidiary Spherical Optics (Pty) Ltd.) acquired 28% of the ownership interest and the voting power in Emerald, an optical laboratory in South Africa.

**)

Less than 20% ownership. Shamir does not have significant influence over operating and financial policy of the affiliate. The investment is accounted for according to the cost method.

Composition of investments:

	December 31,
	2009		2010

Optispeed	$	162	$	172
Emerald		468		397
e-Vision LLC		676		676

	$	1,306	$	1,245

F - 31

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 7:-

PROPERTY, PLANT AND EQUIPMENT, NET

	December 31,
	2009		2010
Cost:

Machinery and manufacturing equipment	$	50,369	$	53,322
Office equipment and furniture		9,366		9,683
Motor vehicles		1,021		1,140
Land, buildings and leasehold improvements		18,760		18,539

		79,516		82,684
Accumulated depreciation		40,948		44,757

Depreciated cost	$	38,568	$	37,927

Depreciation expense amounted to $ 7,778, $ 7,533 and $ 7,380 for the years ended December 31, 2008, 2009 and 2010, respectively.

At December 31, 2009 and 2010, property and equipment under capital leases consisted of assets with a depreciated cost of $ 6,551 and $ 3,759, respectively (see also Note 13).

Depreciation of property and equipment under capital leases totaled $ 1,592, $ 1,554 and $ 1,200 for the years ended December 31, 2008, 2009 and 2010, respectively.

As for pledges, see Note 14c.

NOTE 8:-

OTHER ASSETS

Other assets:

	December 31,
	2009		2010

Deferred tax assets	$	1,586	$	1,323
Other intangible assets, net (b)		5,853		4,746

Total other assets	$	7,439	$	6,069

F - 32

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 8:-

OTHER ASSETS (Cont.)

(1)

Other intangible assets, net:

	December 31,
	2009		2010
Original amounts:
Customer relationship	$	6,928	$	7,012
Distribution channels		1,200		1,200
Patents		895		895
Technology		277		-
Trade name		936		936

		10,236		10,043
Accumulated amortization:
Customer relationship		2,242		2,924
Distribution channels		943		1,179
Patents		224		314
Technology		277		-
Trade name		697		880

		4,383		5,297

Total other intangible assets, net	$	5,853	$	4,746

(2)

Amortization expense amounted to $ 1,291, $ 1,148 and $ 1,452 for the years ended December 31, 2008, 2009 and 2010, respectively.

(3)

Estimated amortization expenses for the following years:

2011	$	1,096
2012		1,019
2013		850
2014		791
2015		567
2016 and thereafter		423

	$	4,746

F - 33

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:-

GOODWILL

The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2010 are as follows:

Balance as of January 1, 2009	$	9,169
Additional goodwill in respect of prior years' acquisition		472
Goodwill acquired during the year		1,421
Additional consideration in respect of 2009 earnings *)		1,548
Foreign currency translation adjustments		335

Balance as of December 31, 2009		12,945

Additional consideration in respect of 2010 earnings *)		706
Foreign currency translation adjustments		291

Balance as of December 31, 2010	$	13,942

See Note 1c and 1e.

NOTE 10:-

SHORT-TERM BANK CREDIT AND LOANS

Short-term bank credit and loans are classified by currencies as follows:

	Weighted average interest rate
	December 31,				December 31,
	2009		2010		2009		2010
	%

Short-term bank loans *)		3.4		2.4	$	9,706	$	7,503
Short-term bank credit		5.4		8.1		1,327		1,651

Total short-term bank credit and loans		3.6		3.4	$	11,033	$	9,154

Mostly denominated in Euro.

As of December 31, 2010, Shamir had authorized unused credit lines from banks in the amount of approximately $ 4,322.

F - 34

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11:-

ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
	2009		2010

Employees and payroll accruals	$	4,253	$	5,106
Accrued expenses		5,247		5,346
Government authorities		2,743		3,098
Advances from customers		495		85
Related party		371		252
Former shareholders in SII		798		365
Amounts due on acquisition of intangible assets		100		100
Derivatives		281		210
Other		1,159		1,375

	$	15,447	$	15,937

NOTE 12:-

LONG-TERM LOANS

Long-term loans are classified by currencies as follows:

	Weighted average interest rate
	December 31,				December 31,
	2009		2010		2009		2010
	%
Banks:
Euro		2.0		1.7	$	4,889	$	2,497
Dollar		2.7		2.7		8,000		6,857
NIS		3.8		3.7		576		467
Baht		6.5		6.5		530		320

						13,995		10,141
Non-controlling interest in subsidiaries:
Dollar		5.2		-		50		-
Baht *)		-		4.0		332		330

						382		330
Others:
Dollar		3.0		5.9		157		65
Euro**)		4.9		4.9		3,448		1,582

						3,605		1,647

Total long-term loans						17,982		12,118
Less - current maturities						5,383		4,019

					$	12,599	$	8,099

As of December 31, 2010, no repayment date was set for the loans from non-controlling interest in a subsidiary.

**)

A loan from a former shareholder in Shamir GmbH.

F - 35

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 12:-

LONG-TERM LOANS (Cont.)

Long-term loans as of December 31, 2010, mature as follows (excluding loans from non-controlling interest in subsidiaries):

2011 (current maturities)	$	4,019
2012		2,143
2013		2,143
2014		1,167
2015 and thereafter		2,316

	$	11,788

Financial covenants

As security for various bank liabilities, Shamir and some of its subsidiaries undertook to comply with certain minimal financial ratios. As of the December 31, 2010, the Company and its subsidiaries are in compliance with the financial covenants.

NOTE 13:-

CAPITAL LEASES

Shamir enters from time to time into capital lease agreements to lease certain assets required for its operations. Capital leases mature as follows:

2011 (current maturities)	$	953
2012		467
2013		171
2014		150
2015 and thereafter		449

Total	$	2,190

For the leased assets that are included as part of "Property, plant and equipment, net" (see Note 7).

F - 36

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 14:-

COMMITMENTS AND CONTINGENT LIABILITIES

Legal proceedings:

In September 2003, Shamir received a notice from a large lens manufacturer regarding a claim of patent infringement relating to lens produced using Shamir software. Shamir has denied any such infringement, and numerous discussions between the companies (and counsel) ensued in order to resolve the matter without resorting to litigation. Shamir currently cannot predict the development or ultimate outcome of the discussions with regard to this claim, and as of December 31, 2010, has no provision for this contingent liability.

In January 2008, Shamir received a notice from Dymotech Ltd., Shamir's co-shareholder in Inray Ltd ,claiming unlawful use of Inray Ltd.'s' intellectual property and unjust enrichment. Shamir denied any such infringement, and numerous discussions between the parties (and counsel) ensued in order to resolve the matter without resorting to litigation. In January, 2011, The Company and Inray Ltd., were served with a lawsuit by Dymotech Ltd. The claim alleges, among others, that Shamir illegally used the intellectual property of the Technion Israel Institute of Technology to seek unjust enrichment. In addition to the request for an order to pay damages and other monetary orders, Dymotech requested a restraining order against future use of its alleged intellectual property. The total amount claimed (limited for court filing fee purposes) is NIS 100 million (approximately $ 28,500). In March 2011 the Company has filed a statement of defense on Shamir behalf. Shamir currently cannot predict the development or ultimate outcome of the discussions with regard to this claim, and as of December 31, 2010, has no provision for this contingent liability.

Shamir is involved in various other legal proceedings arising in the normal course of its business. Based upon the advice of counsel, Shamir does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Operating lease commitments:

The land and certain of Shamir's facilities are leased under operating lease agreements. Future minimum lease commitments under non-cancelable operating leases for the specified periods ending after December 31, 2010 are as follows:

2011	$	1,859
2012		1,707
2013		1,479
2014		1,302
2015		1,242
Thereafter		6,012

	$	13,601

F - 37

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 14:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Lease expenses, net, for the years ended December 31, 2008, 2009 and 2010 were approximately $ 1,299, $ 1,447 and $ 1,522, respectively.

Pledges and guarantees:

In order to secure Government grants received by the Company, under the "Approved Enterprise" programs pursuant to the Law for the Encouragement of Capital Investments, 1959, the Company granted pledges in favor of the State of Israel on all of its assets, by floating charges in an unlimited amount (see also Note 15a).

A subsidiary of the Company pledged its land and buildings in an aggregate amount of approximately $ 3,112 to secure its commitments to a bank.

In order to secure government subsidies received by the Company and a subsidiary, Shamir gave the State of Israel a bank guarantee in the amount of approximately $ 177.

In order to secure the VAT collection in Turkey, Shamir local subsidiary has granted the local tax office guarantees in the total aggregated amount of approximately $ 652. In order to secure those guarantees, the subsidiary pledged its land and building to banks.

The Company has granted to several banks guarantees and subordination on certain debts of its local subsidiaries in Germany and Portugal in the total aggregated sum of Euro 6 million against granted banking facilities of up to Euro 6 million.

In order to secure bank credits and invoice financing, a subsidiary of the Company granted pledges in favor of the bank on all of its assets, by floating charges in an unlimited amount.

F - 38

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME

Israeli taxation:

Corporate tax rates in Israel:

Corporate tax rates in Israel were 27% in 2008, 26% in 2009 and 25% in 2010.

Measurement of taxable income:

The Company and its subsidiaries Eyal Optical Industries (1995) Ltd. ("Eyal") and Shamir Special Optical Products Ltd. ("SSOP") had elected to measure their results for tax purposes on the basis of the changes in the exchange rate of NIS against the U.S. dollar. During 2008, the Company and Eyal, elected to measure their Israeli taxable income in NIS rather than in the exchange rate of NIS against the U.S. dollar. This election is applicable for a period of four taxable years commencing on January 1, 2007. The Company was permitted to make such change pursuant to regulations published by the Israeli Minister of Finance, which provide the conditions for such change. Therefore, the Company and Eyal re-measured their 2007 taxable income during 2008. In general, a company that elects to apply these regulations cannot change its resolution for a period of three years following the fiscal year of such election.

As result the Company's and Eyal's income for tax purposes are measured and reflected in accordance with the change in the Israeli Consumer Price Index ("CPI") in accordance with the Income Tax (Inflationary Adjustments) Law, 1985. As explained above in Note 2(B), the consolidated financial statements are presented in U.S. dollars. The differences between the change in the Israeli CPI and in the NIS/U.S. dollar exchange rate cause a difference between taxable income and the income before taxes reflected in the consolidated financial statements.

In February 2008, the Israeli legislator adopted an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law until the end of 2007 and states transitional orders starting in 2008 and thereafter. Starting in 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Israeli Consumer Price Index carried out in the period up to December 31, 2007. The amended law includes, inter alia, the elimination of the inflationary additions and deductions and the additional deduction for depreciation starting in 2008.

F - 39

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

In accordance with ASC 740, Shamir has not provided deferred income taxes on the above differences resulting from changes in exchange rates for tax purposes.

Tax benefits under Israel's Law for the Encouragement of Industry (Taxation), 1969:

The Company and certain of its Israeli subsidiaries currently qualify as "Industrial Companies" pursuant to the Industry Encouragement Law. As such, the Company and these subsidiaries are entitled to certain tax benefits, including the right to deduct public issuance expenses, accelerated depreciation rates for tax purposes and the option to file a consolidated tax return with related Israeli industrial corporations that satisfy conditions described in the law. Currently, the Company files consolidated tax returns together with SSOP.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any government authority, but is subject to their inspection. Shamir cannot assure that the Company or any of its Israeli subsidiaries that presently qualify as Industrial Companies will continue to qualify as such in the future, or that the benefits will be granted in the future.

Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 ("the Law"):

The Law empowers the Israeli Investment Center to grant Approved Enterprise status to capital investments in production facilities that meet certain relevant criteria ("Approved Enterprise"). In general, such capital investments will receive Approved Enterprise status if the enterprise is expected to contribute to the development of the productive capacity of the economy, absorption of immigrants, creation of employment opportunities, or improvement in the balance of payments.

The tax benefits derived from any such Approved Enterprise relate only to taxable income attributable to the specific program of investment to which the status was granted. To the extent that the Company or any of its subsidiaries has been granted Approved Enterprise status and operates under more than one approval, or that their capital investments are only partly approved, the effective corporate tax rate will be the result of a weighted combination of the various rates applicable.

As of December 31, 2010 , the Company has two existing programs that have been granted "Approved Enterprise" status under the Law. According to the Law, the Company is entitled to investment grants (up to 30% of investment cost) and also to a tax benefit, which grants Shamir a tax exemption for a period of two years and a reduced tax rate based on the level of foreign ownership for a period of five to eight years. Income derived from the first and second programs was tax-exempt for a period of two years, commencing in 2001, and 2005, respectively, and is taxed at the reduced corporate tax rate of 10%-25% for an additional period of five to eight years (based on the percentage of foreign ownership in each tax year).

F - 40

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

The Company's income from sources other than "Approved Enterprises" during the benefits period will be taxable at the regular corporate tax rate.

A portion of the facilities of the Company's subsidiary Eyal has also been granted status as an "Approved Enterprise" under two programs. For these programs, Eyal has elected the alternative benefits track, waiving grants in return for tax exemptions. Income derived from the first and second programs was tax-exempt for a period of two years, commencing 2004 and 2006, respectively, and after that period is taxed at the reduced corporate tax rate of 10%-25% (based on the percentage of foreign ownership in each tax year) for an additional period of five to eight years.

Eyal's income from sources other than the "Approved Enterprises" during the benefits period is taxable at the regular corporate tax rate.

The period of tax benefits detailed above is subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval. The Law also entitles the Company and Eyal to claim accelerated depreciation on equipment used by an "Approved Enterprise".

Should the Company or Eyal fail to meet the conditions stated in the law in the future, income attributable to their programs could be subject to the statutory Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits and grants already received, with respect to such program. The Company's management believes that the Company is meeting the aforementioned conditions.

On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Privileged Enterprise, such as provisions generally requiring that at least 25% of the Privileged Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

However, the Investment Law provides that terms and benefits included in any letter of approval already granted will remain subject to the provisions of the law as they were on the date of such approval.

A portion of the Company's activities have been acting under the status of a Privileged Enterprise under the amendment to the Investment Law. The Company's status as a Privileged Enterprise is subject to the approval of the Israeli Tax Authorities.

F - 41

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

The polycarbonate and the production of finished lenses facilities of the Company's subsidiary SSOP received a pre-ruling from the tax authorities in Israel, according to which the Company was declared as a "Privileged Enterprise" (establishment), so that all of its income from the abovementioned facilities will be exempted from tax for a period of 10 years beginning with the year in which the Company first had taxable income. As of December 31, 2010, SSOP has begun to enjoy the tax benefits. The period of tax benefits detailed above is subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval.

In addition, a portion of Eyal's activities have been acting under the status of a Privileged Enterprise under the amendment to the Investment Law. As stated above, Eyal's status as a Privileged Enterprise is subject to the approval of the Israeli Tax Authorities.

In the event of a distribution of dividends from tax-exempt income, a reduced tax rate (currently - 25%) in respect of the amount distributed would have to be paid. As of December 31, 2010, retained earnings included approximately $ 13,793 in tax-exempt profits earned by the Company's "Approved Enterprises" and "Privileged Enterprise".

The Company has decided not to declare dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company's "Approved Enterprise" and "Privileged Enterprise".

In December 2010, the Knesset enacted a reform to the Law, effective January 2011. According to the reform a flat tax rate would apply to companies eligible for the "Preferred Enterprise" status. In order to be eligible for a Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country's economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).

Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the applicable reduced tax rates.

F - 42

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

A distribution from a Preferred Enterprise out of the "Preferred Income" would be subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates). A distribution from a Preferred Enterprise out of the "Preferred Income" would be exempt from withholding tax for an Israeli-resident company. A company electing to waive its Privileged Enterprise or Approved Enterprise status through June 30, 2015 may distribute "Approved Income" or "Privileged Income" subject to 15% withholding tax for Israeli resident individuals and non-Israeli residents (subject to applicable treaty rates) and exempt from withholding tax for an Israeli-resident company. Nonetheless, a distribution from income exempt under Privileged Enterprise and Approved Enterprise programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Privileged Enterprise and Approved Enterprise programs upon distribution, or complete liquidation in the case of a Privileged Enterprise's exempt income.

The Company and Eyal have elected to adopt the reform from the beginning of 2011. The Company does not expect this reform to have material effect on its deferred tax assets and liabilities, net, as of December 31, 2010.

Income taxes on non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the Company's foreign subsidiaries. This is because the Company intends to permanently reinvest undistributed earnings in the foreign subsidiaries in which those earnings arose. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

Net operating losses carryforward:

As of December 31, 2010, Shamir had carry forward tax losses in certain tax jurisdictions, most of which are derived from subsidiaries in the U.K., Turkey and France, totaling approximately $ 12,975, out of which an amount of $ 10,785 can be carried forward indefinitely. The remainder of the balance can be carried forward for a period up to five years.

F - 43

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

Deferred tax assets and liabilities:

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Components of Shamir's deferred tax assets and liabilities are as follows:

	December 31,
	2009			2010

Deferred tax assets:

Unrealized gains and others	$	1,742		$	1,072
Operating losses carry forward		4,719			3,648

Total deferred tax assets		6,461			4,720

Deferred tax liabilities:

Property and equipment		(864	)		(756	)
Other intangible assets		(1,360	)		(1,126	)

Total deferred tax liabilities		(2,224	)		(1,882	)

Net deferred tax assets before valuation allowance		4,237			2,838

Valuation allowance		(2,953	)		(2,270	)

Deferred tax assets , net	$	1,284		$	568

	December 31,
	2009			2010

Current deferred tax assets	$	1,922		$	1,127
Long-term deferred tax assets		1,586			1,323
Current deferred tax liabilities		-			(7	)
Long-term deferred tax liabilities		(2,224	)		(1,875	)

Deferred tax assets, net	$	1,284		$	568

The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax loss carry forward and other reserves and allowances due to uncertainty concerning realization of these deferred tax assets.

F - 44

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

A reconciliation of Shamir's effective tax rate to the statutory tax rate in Israel is as follows:

	Year ended December 31,
	2008			2009			2010

Income before taxes on income	$	11,234		$	16,933		$	19,532

Statutory tax rate in Israel		27	%		26	%		25	%

Increase (decrease) in tax expenses resulting from:
"Approved and Privileged Enterprise" benefits		(5.7	)%		(4.1	)%		(3.4	)%
Net operating losses and temporary differences which are tax exempt or for which valuation allowance was created		7.1	%		-			(0.6	)%
Foreign subsidiaries with a different tax rate		3.6	%		0.8	%		2.1	%
Difference in the basis of measurement for financial reporting and tax return purposes		-			-			(2.8	)%
Taxes in respect of prior years		(12.5	)%		-			(1.4	)%
Other differences, net		0.2	%		(0.9	)%		0.7	%

Effective tax rate		19.7	%		21.8	%		19.6	%

Basic and diluted net earnings per share amounts of the benefit resulting from the "Approved Enterprise" status	$	0.04		$	0.04		$	0.04

Income before taxes on income is comprised as follows:

	Year ended December 31,
	2008		2009		2010

Domestic	$	8,934	$	9,631	$	11,316
Foreign		2,300		7,302		8,216

	$	11,234	$	16,933	$	19,532

F - 45

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 15:-

TAXES ON INCOME (Cont.)

Taxes on income are comprised as follows:

	Year ended December 31,
	2008			2009			2010

Current taxes	$	3,496		$	4,059		$	3,536
Taxes in respect of prior years		(1,400	)		-			(270	)
Deferred tax expenses (benefit)		120			(360	)		568

	$	2,216		$	3,699		$	3,834

Domestic	$	852		$	1,790		$	1,627
Foreign		1,364			1,909			2,207

	$	2,216		$	3,699		$	3,834

Uncertain tax positions:

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	December 31,
	2009			2010

Uncertain tax positions, beginning of year	$	1,251		$	1,345
Increases in tax positions for prior years		-			93
Decreases in tax positions for prior years		(112	)		(77	)
Increases in tax positions for current year		206			101

Uncertain tax positions, end of year	$	1,345		$	1,462

Out of the above unrecognized tax benefits an amount of $ 1,459 would result in a reduction of the company's effective tax rate, if recognized. The unrecognized tax benefits included an immaterial accrued interest as of December 31, 2010.

Tax jurisdictions examination years:

Shamir files income tax returns in multiple tax jurisdictions. Final tax assessments have been received by the Company up to and including the tax year ended December 31, 2006 and by certain subsidiaries, for the years between 2005 through 2008.

F - 46

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 16:-

EQUITY

Share rights:

The Ordinary shares of the Company are traded on the Tel-Aviv Stock Exchange and NASDAQ. Ordinary shares of the Company confer upon their holders the right to receive notice to participate and vote in the general meetings of the Company and the right to receive dividends when declared.

Share option plan:

In 2003 and on February 1, 2006, Shamir adopted employee share option plans ("the 2003 Option Plan" and "the 2005 General Share and Incentive Plan", respectively). Under the 2003 Option Plan, employees and officers of Shamir may be granted options to acquire Ordinary shares. The number of options to acquire Ordinary shares and the related exercise price are determined by the Board of Directors of Shamir and its compensation committee. Grants of options to directors require the approval of Shamir's shareholders according to the Israeli Companies Law. The 2005 General Share and Incentive Plan provides that 25% of the shares shall vest one year after the date of grant, and the remaining 75% shall vest on a monthly basis, with 1/36 of the remaining shares vesting each month commencing at the end of the first anniversary of the date of grant. According to the 2005 General Share and Incentive Plan, during 2006 the Company could grant 350,000 options to purchase Shamir's shares and in each following year, the option pool shall increase by an additional 280,000 options. Unless otherwise stated in the relevant award agreement, awards, to the extent not previously exercised, shall terminate forthwith upon the earlier of: (i) the date set forth in the award agreement; and (ii) the expiration of the relevant period in the case of voluntarily liquidation or dissolution of Shamir, or in the events set forth in the 2005 General Share and Incentive Plan; and (iii) the lapse of seven years from the date of grant. All of the options granted under the 2003 Option Plan have been exercised. The options that were granted prior to the adoption of the 2005 General Share and Incentive Plan during 2004 and 2005 will vest in four trenches of 25% per year.

On July 31, 2008 the Company's shareholders approved an amendment to the Company's 2005 General Share and Incentive Plan to provide that in the event that the Company distributes a cash dividend and the record date for such distribution is subsequent to the date of grant of an award in the form of an option to purchase shares, but prior to its exercise or expiration, the exercise price of each such award will be reduced by the dividend amount per share.

In accordance with the terms and conditions imposed by Section 102 of the Israel Income Tax Ordinance, grantees that receive options under the Company's Option Plans are afforded certain tax benefits. The Company has elected the benefits available under the "capital gains" alternative, under which the tax consequence shall be borne solely by the grantees.

F - 47

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 16:-

EQUITY (Cont.)

A summary of option activity under Shamir's stock option plans as of December 31, 2010, and changes during the year then ended are as follows:

	Number of options			Weighted- average exercise price		Weighted- average remaining contractual term (in years)		Aggregate intrinsic value as of December 31, 2010

Outstanding at January 1, 2010		1,615,016		$	8.75
Granted		94,160		$	8.99
Exercised		(539,922	)	$	9.37
Forfeited and expired		(56,341	)	$	10.06

Outstanding at December 31, 2010		1,112,913		$	7.42		4.23	$	6,151

Exercisable at December 31, 2010		617,394		$	8.16		3.06	$	2,957

Vested and expected to vest at December 31, 2010		1,112,913		$	7.42		4.23	$	6,151

As of December 31, 2010, there was $ 1,387 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under Shamir's stock option plans to employees and directors. That cost is expected to be recognized over a weighted average period of 1.28 years. The total fair value of options vested during the year ended December 31, 2010, was $ 510.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2008, 2009 and 2010, was $ 0.81, $ 3.26 and $ 4.28, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008, 2009 and 2010, was $ 0, $ 1,009 and $ 1,449, respectively.

F - 48

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 16:-

EQUITY (Cont.)

The options outstanding as of December 31, 2010, have been separated into exercise price categories as follows:

										Weighted
		Options		Weighted				Options		average
		outstanding		average		Weighted		exercisable		exercise
		as of		remaining		average		as of		price of
Ranges of		December 31,		contractual		exercise		December 31,		exercisable
exercise price		2010		life		price		2010		options
$				(Years)		$				$

	3.59		117,312		4.92		3.59		58,635		3.59
	5.34-6.94		467,389		5.64		6.31		155,077		6.33
	7.35-8.65		332,173		3.37		8.19		227,289		8.18
	9.41-10.78		125,419		2.04		10.34		105,773		10.51
	12.35		70,620		1.59		12.35		70,620		12.35

			1,112,913						617,394

Modification of options:

On July 31, 2008 the Company's shareholders approved an adjustment to the exercise price of the outstanding options, including outstanding options previously granted to directors and external directors in the Company, by reducing the exercise price by $ 0.243, the dividend per share declared by the Company in January 2008. As a result, Shamir recorded an additional compensation cost in the amount of $ 63 in 2008.

On June 17, 2009, the Company's audit committee and board of directors have approved an amendment to the terms of some of the options granted to Shamir's former Chief Executive Officer following his resignation from his position in the Company. The vesting period of 49,813 out of his unvested options as of July 1, 2009, was accelerated such that the options were fully vested as of that date. The rest of his unvested options were cancelled. The contractual term of the vested options (including those accelerated) was extended until March 31, 2010. Shamir recorded additional compensation cost in the amount of $ 64 in 2009.

Dividend:

On January 14, 2008, Shamir declared a dividend of $ 4,000 ($ 0.243 per share), which was paid in February 2008.

On November 27, 2009, Shamir declared a dividend of $ 10,000 ($ 0.602 per share), which was paid in December 2009, and the tax that was withheld by the Company on the dividend to Shamir's shareholders was paid to the tax authorities during January 2010.

On October 13, 2010, Shamir declared a dividend of $ 13,500 ($ 0.804 per share), which was paid in November 2010.

F - 49

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 17:-

TRANSACTIONS WITH RELATED PARTIES

Manpower agreement with Kibbutz Shamir (the "Kibbutz"):

On July 19, 2007, the Company entered into a new working service agreement with the Kibbutz which replaced all former engagements. The terms of the new working service agreement are substantially similar to the terms of the agreement from February 2005. The agreement sets the reimbursement rights of the Company for any liabilities that may arise under an imputed employer-employee relationship between the Company and the members of the Kibbutz who provide the services.

On January 18, 2007, the Kibbutz granted an approval to the Company's subsidiaries, SSOP and Eyal, to employ directly ( i.e. not through the working service agreement) local members of the Kibbutz.

Manpower service fees amounted to $ 1,340, $ 1,224 and $ 1,449 for the years ended December 31, 2008, 2009 and 2010, respectively

Services from the Kibbutz:

The Company executed a service agreement with the Kibbutz, pursuant to which the Kibbutz provides the Company with services that include catering, security, laundry, switchboard and communications, maintenance, landscaping and trash removal, and payment of local authority taxes. On February 9, 2005, the Company entered into a new agreement with the Kibbutz. Under the new agreement, the fees to be paid will be substantially similar to the amounts paid under the prior agreement. The fee for all of these services except water usage was initially fixed at NIS 92,000 per month. The fee is linked to the consumer price index and reviewed every five years. In the event that the cost to Kibbutz Shamir of providing these services increases or decreases during the final year of the agreement's five-year cycle as compared to the effective date of the agreement, the service fee shall be adjusted accordingly. If the costs increase or decrease by 30% or more in any particular year during the term of the agreement, the service fee will be adjusted for the following year. If Kibbutz Shamir provides additional services to the Company, the fee shall be adjusted accordingly. The fee for catering services is adjusted continuously based on the actual number of employees using these services.

On March 8, 2007, the Company's shareholders approved a new service agreement between the Kibbutz and SSOP for the period commencing upon the acceptance of the new facility that was built in the Kibbutz for SSOP and ended on February 9, 2010. The facility was delivered to SSOP on November 1, 2007. Pursuant to the terms of such agreement, the Kibbutz provides administrative and maintenance services to SSOP to maintain its facility. SSOP pays the Kibbutz a monthly fee of NIS 25,000 linked to the Consumer Price Index. In the event that the actual cost of services in any year is higher or lower by 30% or more compared to the service fee paid in the preceding calendar year, not taking into account extraordinary expenses not in the ordinary course of business, the service fee for the following year will be adjusted accordingly.

F - 50

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 17:-

TRANSACTIONS WITH RELATED PARTIES (Cont.)

The term of the service agreement will be extended automatically for additional periods of five (5) years each unless either of the parties terminates the service agreement by giving a 12-months' advance notice prior to the scheduled expiration date. The service fee will be adjusted at the end of the initial term of the service agreement and then every five (5) years, assuming that the service agreement is extended, based on the actual cost of services in the year preceding the adjustment date.

On July 19, 2007, following the approval of the Company's shareholders at their special shareholders meeting, the Company entered into a new additional arrangement with the Kibbutz. Under the new arrangement between the Company and the Kibbutz, the Company and its subsidiaries will be entitled to purchase additional services not covered by the current service agreements, as detailed above. The consideration for a single transaction will be no greater than $ 7 (plus VAT, if required by law), and the aggregate consideration for services purchased by the Company and its subsidiaries during any calendar year will be no greater than $ 300 (plus VAT, if required by law).

Shamir paid fees to the Kibbutz pursuant to the service agreement and for other services amounting to $ 573 , $ 508 and $ 559 for the years ended December 31, 2008, 2009 and 2010, respectively.

Lease and sub-lease agreement with the Kibbutz:

The Company's offices, manufacturing, and research and development facilities are located on the premises of the Kibbutz. The facilities are subleased from the Kibbutz, which has a long-term lease on the property from the Israel Lands Administration (the "ILA"). On January 5, 1999, the Company and the Kibbutz signed a sublease agreement, pursuant to which the Kibbutz subleased to the Company the facilities for a period of 20 years beginning on January 1, 1999. On February 9, 2005, the Company entered into an amendment to the sub-lease agreement. The term of the amended agreement was extended from 20 years to 24 years and 11 months. Rental payments under the amended agreement are the same as under the prior agreement. The ILA may cancel the lease under certain circumstances, including if the Kibbutz commences proceedings to disband or liquidate or in the event that the Kibbutz ceases to be a "kibbutz".

On March 8, 2007, the Company and the Kibbutz entered into a lease agreement pursuant to which the Company will lease a facility for Shamir from the Kibbutz until November 30, 2023 commencing on the earlier of the: (i) date of occupancy, or (ii) date of the completion of the construction. On November 1, 2007, such facility was delivered to Shamir by the Kibbutz. The Company is entitled to terminate the lease at any time; provided, however, that the Company has located an alternate tenant and the Kibbutz has given its consent, which consent would not be unreasonably withheld. The parcel of land underlying the facility is included in the long-term lease between the Kibbutz and the ILA, pursuant to which the Kibbutz may, with the consent of the ILA, sublease the parcel to a corporation under its control. The consent of the ILA for the lease, though, has not been obtained.

F - 51

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 17:-

TRANSACTIONS WITH RELATED PARTIES (Cont.)

In addition, the ILA may, from time to time, change its regulations governing such lease agreement, and these changes could affect the terms of the lease, and may trigger the termination of the lease. Under the lease, the Kibbutz is responsible for any expense resulting from actions of the ILA. The annual rental fees pursuant to the lease are paid quarterly and in amounts equal to 10% of the actual construction cost of the facility, excluding VAT and grants of the Investment Center, as certified by the board of directors, but in no event more than $ 500 per annum.

On November 18, 2009, in light of the Company's intention to vacate certain office floors and yards of the leased property, the Company entered into a second amendment to the sublease agreement with Kibbutz Shamir pursuant to which Kibbutz Shamir shall afford us the following discount on rent: (1) between the years 2011 and 2014, an aggregate annual discount in the amount of $ 18; and (2) from the year 2015 onwards, an aggregate annual discount in the amount of $ 28.

Rental payments amounted to $ 747, $ 756 and $ 754 for the years ended December 31, 2008, 2009 and 2010, respectively.

Shamir has, from time to time, entered into transactions with its shareholders and affiliates. The following table summarizes the transactions with related parties:

	Year ended December 31,
	2008			2009		2010

Revenues	$	719		$	710	$	815
Cost of revenues	$	809		$	633	$	691
Research and development	$	288		$	341	$	372
Selling and marketing	$	175		$	161	$	189
General and administrative	$	1,457		$	1,429	$	1,614
Financial and other expenses (income), net	$	(1	)	$	-	$	4

Balances with related parties:

	December 31
	2009		2010

Trade receivables (net of allowance for doubtful accounts of $ 0 and $ 191 at December 31, 2009 and 2010, respectively)	$	163	$	492
Accrued expenses and other liabilities	$	371	$	252

F - 52

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 18:-

MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION

Shamir manages its business on the basis of one reportable segment. The data is presented in accordance with ASC 280, "Segments Reporting". Total revenues are attributed to geographic areas based on the location of end customers.

The following table presents total revenues and long-lived assets for the years ended December 31, 2008, 2009 and 2010 and as of December 31, 2008, 2009 and 2010, respectively:

	2008				2009				2010
	Total		Long-lived		Total		Long-lived		Total		Long-lived
	revenues		assets		revenues		assets		revenues		assets

Israel	$	3,255	$	16,072	$	4,352	$	14,447	$	5,092	$	14,987
United States		40,796		544		40,988		530		45,118		2,148
Europe		70,371		20,227		70,757		18,156		75,139		14,560
Asia		10,769		-		9,552		2,360		7,539		2,612
Other		15,135		1,774		16,735		3,075		25,103		3,620

	$	140,326	$	38,617	$	142,384	$	38,568	$	157,991	$	37,927

Product lines:

Total revenues from external customers divided on the basis of Shamir's product lines are as follows:

	Year ended December 31,
	2008		2009		2010

Lenses and DLT	$	135,298	$	138,235	$	154,046
Design services		5,028		4,149		3,945

	$	140,326	$	142,384	$	157,991

Major customer data as a percentage of total revenues:

Customer A

13.5

15.4

13.5

F - 53

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 19:-

SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA

		Year ended December 31,
		2008			2009			2010
a.	Financial and other expenses, net

	Financial expenses:

	Interest in respect of long-term loans	$	1,417		$	689		$	694
	Interest in respect of short-term loans		898			601			352
	Changes in derivatives fair value		81			-			-
	Foreign currency translation, net		136			-			-
	Other		440			357			431

			2,972			1,647			1,477
	Financial income:

	Income in respect of cash and cash equivalents, marketable securities and other short-term investments		(609	)		(301	)		(533	)
	Changes in derivatives fair value		-			(54	)		(392	)
	Foreign currency translation, net		-			(638	)		(137	)
	Other		(234	)		(174	)		(205	)

			(843	)		(1,167	)		(1,267	)

	Other expenses (income), net		13			(85	)		10

	Financial and other expenses, net	$	2,142		$	395		$	220

Net earnings per share:

The following table sets forth the computation of basic and diluted net earnings per share:

1. Numerator:

	Year ended December 31,
	2008		2009		2010

Numerator for basic and diluted net earnings per share -
Net income available to shareholders	$	9,078	$	12,788	$	14,812

F - 54

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 19:-

SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA (Cont.)

2. Denominator (in thousands):

	Year ended December 31,
	2008		2009		2010

Denominator for basic net earnings per share -
Weighted average shares - shareholders' equity		16,424		16,438		16,771

Weighted average number of shares		16,424		16,438		16,771

Effect of dilutive securities:

Add - Employee stock options		98		92		174

Denominator for diluted net earnings per share - adjusted weighted average shares		16,522		16,530		16,945

Allowance for doubtful accounts:

The changes in the allowance for doubtful accounts for the years ended December 31, 2008, 2009 and 2010 are as follows:

	Year ended December 31,
	2008			2009			2010

Balance at the beginning of the year	$	2,140		$	2,066		$	3,076

Doubtful accounts provision		451			1,020			506
Bad-debts written-off		(113	)		(131	)		(57	)
Foreign currency translation adjustment		(412	)		121			(116	)

Balance at the end of the year	$	2,066		$	3,076		$	3,409

F - 55

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 20:-

SUBSEQUENT EVENTS

On January 18, 2011, Shamir purchased from Proposito.bis. B.V (a Dutch company) all rights, title, and interest in certain assets, for an initial consideration of € 281 thousand (approximately $ 377). This activity was purchased by a new Shamir's subsidiary in Netherland.

On March 1, 2011, Shamir purchased from S. T. International (Shem Tov) Ltd. (an Israeli company) all rights, title, and interest in certain assets, for a consideration of NIS 9.4 million (approximately $ 2,595), part of it will be paid in the year 2012. In addition, contingent payments will be made based on certain financial performance criteria in the years 2011-2015. With the acquisition of this activity, Shamir expanded its presence in the optical market in Israel.

On April 1, 2011, Shamir purchased from Visual Lenti S.R.L (an Italian company) all rights, title, and interest in certain assets, for an initial consideration of € 2,112 thousand (approximately $ 3,003). In addition, contingent payments will be made based on certain financial performance criteria in the years 2011-2015. This activity was purchased by a new Shamir subsidiary in Italy.

F - 56

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	SHAMIR OPTICAL INDUSTRY LTD.

	By:	/s/ Amos Netzer
		Name: Amos Netzer
		Title: Chief Executive Officer

	By:	/s/ Yagen Moshe
		Name: Yagen Moshe
		Title: Chief Financial Officer

Date: June 16, 2011

EXHIBIT INDEX

Exhibit Number		Description
1.1		Articles of Association of Shamir, as amended (incorporated by reference to Exhibit 3.1 to our registration statement on Form S-8 (File 333-137628), filed with the SEC on September 28, 2006)
4.1		Lease Agreement dated December 1, 2003, between Kibbutz Eyal and Eyal Optical Industries (1995) Ltd. (incorporated by reference to Exhibit 10.1 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.2		Working Service Agreement dated February 9, 2005, between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.2 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.3		Service Agreement dated February 9, 2005, between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.3 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.4		Lease Agreement dated December 27, 1990, between Kibbutz Shamir and the Israel Lands Administration (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.5		Sublease Agreement dated January 5, 1999 between Shamir and Kibbutz Shamir, as amended February 9, 2005 (incorporated by reference to Exhibit 10.5 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.6		Second Amendment dated November 18, 2009 to Sublease Agreement dated January 5, 1999 between Shamir and Kibbutz Shamir, as amended (English Translation) (incorporated by reference to Exhibit 4.6 to our annual report on Form 20-F, filed with SEC on June 28, 2010)
4.7		Loan Agreement between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.6 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.8		Shareholders’ Agreement dated February 9, 2005, among the shareholders of Shamir (incorporated by reference to Exhibit 10.7 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.9		Registration Rights Agreement dated February 7, 2005, between Shamir and certain of its shareholders (incorporated by reference to Exhibit 10.8 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005)
4.10		Lease Agreement dated March 8, 2007, between Shamir and Kibbutz Shamir (English translation) (incorporated by reference to Exhibit 4.9 to our annual report on Form 20-F, filed with the SEC on June 26, 2007)
4.11		Service Agreement dated March 8, 2007, between Shamir Special Optical Products Ltd. and Kibbutz Shamir (English translation) (incorporated by reference to Exhibit 4.10 to our annual report on Form 20-F, filed with the SEC on June 26, 2007)
4.12		Israeli Plan For The Allotment of Shares/Options For 2003 (English translation) (incorporated by reference to Exhibit 99.1 to our registration statement on Form S-8 (File No. 333-137628), filed with the SEC on September 28, 2006)
4.13		Summary of Stock Option Grant dated June 5, 2000 (incorporated by reference to Exhibit 99.2 to our registration statement on Form S-8 (File 333-137628), filed with the SEC on September 28, 2006)
4.14		2005 General Share and Incentive Plan, as amended (incorporated by reference to Exhibit 4.13 to our annual report on Form 20-F, filed with the SEC on June 18, 2009)
4.15		Working Service Agreement dated July 19, 2007, between Shamir and Kibbutz Shamir (English translation) (incorporated by reference to Exhibit 4.14 to our annual report on Form 20-F, filed with the SEC on June 28, 2008)
4.16		Agreement with Mr. Oppenheimer dated June 30, 2008 (English translation) (incorporated by reference to Exhibit 4.15 to our annual report on Form 20-F, filed with the SEC on June 18, 2009)
4.17		Agreement and Plan of Merger, by and among Essilor International SA, Shamrock Acquisition Sub Ltd. and Shamir Optical Industry Ltd., dated October 15, 2010 (incorporated by reference to Exhibit d(1) of the Schedule 13E-3, filed with the SEC on December 1, 2010).
8.1*		Table of subsidiaries of Shamir
11.1		Code of Ethics of Shamir (as amended) (incorporated by reference to Exhibit 11 to our annual report on Form 20-F, filed with the SEC on June 28, 2005, and on March 19, 2009)
12.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*		Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global

* filed herewith

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