Incredimail 2009 Annual Report Download - page 55

Under the 2003 Plan, we may grant to our directors, officers, employees, service providers and controlling shareholders options to
purchase our ordinary shares. Following an increase in the number of shares available for grant approved by our board of directors and
shareholders in December 2007, as of December 31, 2009 a total of 1,897,318 ordinary shares are subject to the 2003 Plan. Any expired or
cancelled options are available for reissuance under the 2003 Plan. Our employees, officers and directors may only be granted options under
Section 102 of the Israeli Income Tax Ordinance (the " Tax Ordinance "), which provides for a beneficial tax treatment, and our non-
employees
(such as service providers) and controlling shareholders may only be granted options under another section of the Tax Ordinance, which does not
provide for similar tax benefits. To be eligible for tax benefits under Section 102, options or ordinary shares must be issued through a trustee,
and if held by the trustee for the minimum required period, the employees and directors are entitled to defer any taxable event with respect to the
options until the earlier of (i) the transfer of the options or underlying shares from the trustee to the employee or director or (ii) the sale of the
options or underlying shares to any other third party. Based on elections made by us, our employees and directors will only be subject to capital
gains tax of 25% on the sale of the options or the underlying shares, provided the trustee holds their options or, upon their exercise, the
underlying shares for the lesser of (i) 30 months, or (ii) 24 months following the re-pricing of any options and for options without re-
pricing for
24 months following the end of the calendar year in which the options were granted, and if granted after January 1, 2006, for only 24 months.
We may not deduct expenses pertaining to the options for tax purposes.
The tax treatment with respect to options granted to employees and directors under the 2003 Plan is the result of our election of the
capital gains tax track under Section 102 of the Tax Ordinance. Section 102 also provides for an income tax track, under which, among other
things, the benefit to the employees will be taxed as income, the issuer will be allowed to recognize expenses for tax purposes, and the minimum
holding period for the trustee will be 12 months from the date upon which such options are granted. We are able to change our election with
respect to future grants under the 2003 Plan as of the close of 2004.
Our board of directors has the authority to administer the 2003 Plan and to grant options under the plan. However, the compensation
committee appointed by the board provides recommendations to the board with respect to the administration of the plan and also has full power,
among other things, to alter any restrictions and conditions of the options, accelerate the rights of an optionee to exercise options and determine
the exercise price of the options.
Options granted to date under the 2003 Plan in the past generally vest in three equal parts annually. One of the grants to the directors
vested in four equal parts annually. Options under the 2003 Plan prior our initial public offering were generally granted at an exercise price of
$1.72 per share. Since the Company’
s initial public offering all options are granted with an exercise price equal to the closing market price, on
the day the grant is approved. However, on February 21, 2008 the board of directors of the Company approved the re-
pricing of all the existing
options, granted to employees under the 2003 Plan and with an exercise price greater than $3.00, to $3.00, which was confirmed by the Israeli
Tax Authorities on July 3, 2008. See Note 10 to the Company's Consolidated Financial Statements. These changes did not apply to the options
held by our directors. See “Item 6.B Compensation” for a description of options granted under the 2003 Plan to our directors.
Options granted to date
under the 2003 Plan generally expire within five years of the grant date unless extended as provided by the plan.
Options may be exercised only if vested and provided that the holder is employed by us or provides us services continuously from the time of
granting of the option until the date of exercise. However, if termination of employment is without cause, vested options may be exercised for a
period of 90 days from the date of termination of employment; and if termination is the result of death or disability, vested options may be
exercised for a period of 12 months after the date of termination. In addition, the board or a compensation committee may extend the exercise
period of options held by employees whose employment was terminated for a period not exceeding their expiration date. At the extraordinary
shareholder meeting on July 9, 2009, it was resolved that; (a) The recurring annual stock option grants to the directors, for board service, will
have a vesting period applicable to one term of office of a director, which under the Company's articles of association is a term of three (3) years
(instead of a vesting period of four (4) years as was formerly approved by the shareholders) from the date of grant; (b) the stock options granted
to a director shall retain their original expiration dates specified upon the date of grant, and shall not terminate 90 days after the Termination
Date as set forth in the directors' option agreements, provided that the termination or expiration is not "for Cause" and not resulting from the
director's resignation; and (c) the next upcoming tranche of stock options, of each grant, that are scheduled to vest immediately subsequent to the
Termination Date, if any, shall automatically vest and become exercisable immediately prior to that Termination Date. In addition, to avoid a
possible conflict of interest with respect to a potential Change of Control of the Company (which may result in the termination of the director’
s
term of office), all unvested options held by a director, shall automatically vest and become exercisable upon a "Change of Control"
event. "Change of Control" was defined for these purposes as: (i) merger, acquisition or reorganization of the Company with one or more other
entities in which the Company is not the surviving entity, (ii) a sale of all or substantially all of the assets of the Company; (iii) a transaction or a
series of related transactions as a result of which more than 50% of the outstanding shares or the voting rights of the Company are held by any
party (whether directly or indirectly).
The 2003 Plan does not provide for any other acceleration of the vesting period upon the occurrence of certain corporate transactions.
However, the board or compensation committee may provide in individual option agreements that if the options are not substituted or exchanged
by a successor company, then the vesting of the options shall accelerate.
Adjustments to the number of options or exercise price shall not be made in the event of rights offering on outstanding shares.
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