| EMPLOYEE OPTION PLANS | Note
18:- Employee Option Plans
a) Formula and its subsidiaries grant, from time to time, options, restricted share units or restricted shares
to their officers and employees to purchase shares in the respective companies. In general, the options expire ten years after grant.
The following table sets forth the breakdown of share-based compensation expense resulting from such grants, as included in the consolidated
statements of profit or loss:
Year ended December 31,
2022 2021 2020
General and administrative expenses 14,953 14,767 7,856
$ 14,953 $ 14,767 $ 7,856
b) Formula In March 2011, the
Company’s board of directors adopted Formula’s 2011 Share Incentive Plan (the “2011 Plan”). Pursuant to the 2011
Plan, the Company may grant from time to time to its employees, office holders and consultants’ options to purchase, share based
awards or restricted shares with respect to, up to an aggregate of 545,000 ordinary shares of the Company. The 2011 Plan is administered
by the Company’s board of directors. The 2011 Plan provides that options, restricted shares or other stock-based awards may be granted,
from time to time, to such grantees to be determined by the Company’s board of directors, at such exercise prices and with such
vesting or other terms as shall be determined by the board at its sole and absolute discretion. In March 2012, the Company’s board
of directors increased the amount of ordinary shares reserved for issuance under the 2011 Share Incentive Plan by 1,200,000 shares. Upon
the lapse of ten years following the adoption of the 2011 Plan, no further grants could be made under the plan. Consequently, in August
2021, the Company adopted its 2021 Share Incentive Plan (the “2021 Plan”). Pursuant to the 2021 Plan, we may grant from time
to time to the Company’s employees, office holders and consultants’ options to purchase, share-based awards or restricted
shares with respect to, up to an aggregate of 350,000 Ordinary shares (including 48,378 Ordinary shares that were reserved for issuance
under the 2011 Plan and not subject to outstanding grants and transferred to the 2021 Plan). The 2021 Plan is administered by the Company’s
board of directors. The 2021 Plan provides that options, restricted shares, or other stock-based awards may be granted, from time to time,
to such grantees to be determined by the Company’s board of directors, at such exercise prices and with such vesting or other terms
as shall be determined by the Company’s board of directors at its sole and absolute discretion. Of the awards available
for grant under the 2011 Plan, the Company approved the grant, in March 2011, of options to purchase 1,122,782 ordinary shares to the
Company’s Chief Executive Officer, each to be exercisable for NIS 0.01 per share. The Company also approved the grant of 10,000
restricted shares to its Chief Financial Officer on each of November 13, 2014 and August 17, 2017 and the grant of 10,000 restricted shares
to its Chief Operational Officer on November 19, 2017, in each case under the 2011 Plan. In August 2017,
Formula’s board of directors, following the approval by Formula’s compensation committee, awarded its chief financial
officer 10,000 restricted shares under the 2011 Plan (the “new restricted shares”). These restricted shares vest on a
quarterly basis over a three-year period, commencing on August 17, 2017 and concluding on August 17, 2020, provided that during such
time the chief financial officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the
directly held affiliates, except that if he fails to meet the service condition due to the request of the board of directors of
either Formula or any of its directly held affiliates (other than a termination of his provision of services which is based on
actions or omissions by him that will constitute “cause” under his grant agreement with Formula), then, the chief
financial officer will be deemed to have complied with clauses (i) or (ii) above. Notwithstanding the foregoing, if a change of
control of the Company occurs, then all unvested new restricted shares will immediately become vested. Total fair value of the grant
was calculated based on the Formula share price on the grant date and equaled $371 ($37.1 per share). In March 2022, Formula’s
board of directors, following the approval by Formula’s compensation committee, awarded its chief financial officer 21,000 restricted
shares under the 2021 Plan (the “new restricted shares”). These restricted shares vest on a quarterly basis over a six-year
period, commencing on March 15, 2022 and concluding on December 31, 2027, provided that during such time the chief financial officer will
continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates, except that if he fails
to meet the service condition due to the request of the board of directors of either Formula or any of its directly held affiliates (other
than a termination of his provision of services which is based on actions or omissions by him that will constitute “cause”
under his grant agreement with Formula), then, the chief financial officer will be deemed to have complied with clauses (i) or (ii) above.
Notwithstanding the foregoing, if a change of control of the Company occurs, then all unvested new restricted shares will immediately
become vested. Total fair value of the grant was calculated based on the Formula share price on the grant date and equaled $232 ($96.7
per share). The total compensation
expense that the Company recorded in its statement of profit or loss for the years ended December 31, 2022 and 2021 in respect of its
chief financial officer was $973 and $0, respectively. As of December 31, 2022, Formula’s chief financial officer holds 31,834 Ordinary
shares, of which 16,834 are fully vested. In March 2022, Formula’s
board of directors, following the approval by Formula’s compensation committee, awarded employees of the Company 2,400 restricted
shares under the 2021 Plan (the “new restricted shares”). These restricted shares vest at certain
points in time In November 2018,
Formula’s board of directors, following the approval by Formula’s compensation committee, awarded its chief operational officer
10,000 restricted shares under the 2011 plan (the “restricted shares”). These restricted shares vest on an annual basis over
a four-year period, commencing on November 19, 2018 and concluding on November 19, 2022, provided that during such time the chief operational
officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates. The total
fair value of the grant was calculated based on the Formula share price on the grant date and equaled $382 ($38.2 per share). The total
compensation expense the Company recorded in its statement of profit or loss for the years ended December 31, 2022, 2021 and 2020 was
$21, $52 and $98, respectively. As of December 31, 2022 Formula’s chief operational officer holds 10,000 restricted shares from
this grant. In November
2020, Formula’s board of directors, following the approval by Formula’s compensation committee, awarded Emil Sharvit
(2001) Consulting and Project Management Ltd., through which its chief executive officer provides services to Formula, 611,771
restricted stock units (“RSUs”) in respect of ordinary shares of the Company. 66.67% of the RSUs (i.e., 407,847 RSUs)
are subject to time-based vesting that shall start as of the grant date and shall end at December 31, 2027, subject to the continued
engagement of Formula’s chief executive officer with the Company as of that date (the “Vesting Period”); and up to
33.33% of the RSUs (i.e., 203,924 RSUs as of the date hereof) are subject to performance-based vesting, and shall vest at December
31, 2027 on a pro-rata basis with respect to each fiscal year (starting as of January 1, 2020) during the Vesting Period in which
the Target EBITDA (as defined below) is achieved, subject to the continued engagement of Formula’s chief executive officer
with the Company. At the end of the vesting period, the number of performances-based RSUs that vests shall be equal to (i) the
number of fiscal years in which the Target EBITDA was achieved multiplied by (ii) 25,490.50 RSUs (rounded to the nearest whole
number, up to a cap of 203,924 RSUs in total). The “Target EBITDA” in a given fiscal year during the Vesting Period
means the Company’s EBITDA in that certain fiscal year (as reflected in the Company’s annual audited consolidated
financial statements), excluding the cost attributed to the applicable portion of the RSUs in the Company’s annual audited
consolidated financial statements for the applicable fiscal year (as to which the review of performance is made to determine whether
one-eighth of the Performance Based RSUs (i.e., 25,490.50 RSUs) shall become vested at the end of the Vesting Period). The Target
EBITDA shall be not less than 105% of 75% of the Company’s EBITDA in the previous fiscal year, excluding the cost attributed
to the applicable portion of the RSUs in the Company’s annual audited consolidated financial statements for such previous
fiscal year (the “Previous Year”). Such examination of EBITDA shall be made on the basis of the Company’s annual
audited consolidated financial statements as reflected in the Company’s annual report on Form 20-F, and in the event that the
Company sells any of its operations, the Target EBITDA shall be adjusted as applicable for future reference by removing the results
of the operations that were sold. In the event that
with respect to any specific fiscal year (the “Specific Year”), the Target EBITDA is not achieved, the Target EBITDA with
respect to such Specific Year will still be deemed to have been met for the purpose of vesting of RSUs in the event that either: (i) the
EBITDA in the fiscal year immediately following the Specific Year was at least 110.25% of 75% of the Company’s EBITDA in the year
preceding the Specific Year, or (ii) in case that the condition in the foregoing clause (i) was not met, then the EBITDA in the second
fiscal year following the Specific Year was at least 115.7625% of 75% of the Company’s EBITDA in the year preceding the Specific
Year. Accordingly, in case
that either clause (i) or (ii) was met for a certain Specific Year, then the vesting with respect to such Specific Year shall be deemed
to have been achieved, and those RSUs shall become vested as of the end of the Vesting Period. In the event that neither of the conditions
described in clauses (i) or (ii) was met, the portion of RSUs for the applicable Specific Year shall automatically expire and terminate. Notwithstanding the
foregoing, in case the Target EBITDA is met (in accordance with the above terms) in a certain fiscal year, yet the Target EBITDA is less
than 105% of 75% of the average EBITDA for the three fiscal years that consist of the subject fiscal year and the two preceding years
(excluding the cost attributed to the applicable portion of the RSUs in Company’s annual audited consolidated financial statements
for such applicable fiscal years), then regardless of meeting the Target EBITDA, the number of performance-based RSUs that vests shall
be reduced by 20%. The total fair value of the grant was calculated based on the Formula
share price on the grant date and equaled NIS 170,684, or $50,054 ($81.8 per share). The total compensation expense the Company recorded
in its statement of profit or loss in respect of this grant, in accordance with accounting principles, for the year ended December 31,
2022, was approximately $7,089. In addition to the
RSU grant terms described above, Formula’s board of directors has approved, following the approval by Formula’s compensation
committee, an adjustment to the above-described RSU grant based on dividends that the Company distributes to its shareholders. During
the vesting period of the RSUs, in the event that any dividend, in cash or in kind, is distributed to the shareholders of the Company,
then in addition to the distribution to all shareholders, there will be an equivalent payment to Formula’s chief executive officer
with respect to all RSUs that were not converted into shares (whether or not vested) in an amount equal to the pro-rata portion of the
overall dividend amount that the RSUs constitute out of the issued and outstanding share capital of the Company as of the date of the
distribution. For those purposes, the RSUs will be counted as if they are already vested and converted into shares. These special RSU
dividend amounts shall be paid and/or set aside by the Company for the benefit of its chief executive officer, all as described below. For the purpose of
payment of the dividend amounts to Formula’s chief executive officer, the vesting period shall be regarded as if it has commenced
on January 1, 2020 (other than with respect to distributions and any related dividend amount which were made prior to the grant of the
RSUs and which are explicitly excluded), and will be divided into 32 fiscal quarters (each, referred to as a Fiscal Quarter). The dividend
amount within each dividend distributed by the Company to its shareholders will be released to, or set aside for, Formula’s chief
executive officer together with the distribution of the dividend. The portion of the Dividend Amount to be released to Formula’s
chief executive officer will in each case be based on the number of Fiscal Quarters that have lapsed at the time of distribution of the
dividend. The remainder of the Dividend Amount will be set aside and paid to Formula’s chief executive officer on a pro-rata basis
upon the expiration of each Fiscal Quarter until the Dividend Amount is released in full at the end of the Vesting Period for the RSUs. In the event of termination
of Formula’s chief executive officer services agreement with the Company, by the Company for Cause (as defined in the services
agreement), the RSUs will immediately terminate and become null and void, and all interests and rights of Formula’s chief executive
officer in and to the same will expire. In case of termination of Formula’s chief executive officer services agreement by the Company
not for Cause, or due to the resignation of Formula’s chief executive officer for Good Reason 1 In the event of
resignation by Formula’s chief executive officer not for Good Reason, Formula’s chief executive officer RSUs will vest,
in an accelerated manner, in such portion equal to the pro-rata portion of the Vesting Period that has already lapsed (based on the
full number of Fiscal Quarters that have lapsed form January 1, 2020 until the actual resignation date, including notice period).
However, any Performance Based RSUs for which the applicable target was not achieved up until the resignation date (including the
notice period) will expire and terminate.
1 “Good Reason” is a termination due to: (i) a
material reduction in Formula chief executive representative’s scope of authorities and responsibilities (excluding, for the avoidance
of doubt, as a result of changes in legislation or other legal restrictions which affect the scope of Services under its service agreement),
(ii) a material breach by the Company of any provision of the service agreement or its exhibits, or (iii) any acceleration event, in
each of (i) to (iii) which is not cured (if curable) by the Company within thirty (30) days of receipt of a written notice about such
breach from Formula chief executive officer, provided that during the three (3) months prior notice period with respect to resignation
for Total unrecognized
compensation costs related to non-vested share-based compensation arrangements granted under the Formula equity incentive plan as of December
31, 2022 and 2021 were $34,972 and $45,973, respectively. In December 2020,
a motion to certify a derivative suit, referred to as the Motion, was filed against the Company by a shareholder, who is also referred
to as the Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors,
as well as our chief executive officer and chief financial officer as defendants. The suit challenged
the legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer. On January 12, 2023, the Company held
a special general meeting of shareholders for its shareholders to re-affirm the subject grant of RSUs (reflecting the adjusted 66.67%-33.33%
ratio of time-based-vesting to performance-based-vesting RSUs) to the Company’s chief executive officer. Although the Company believes
that the legal challenge to the original re-approval, in November 2020, by the compensation committee and the board of directors of this
RSUs grant were without merit, the Company nevertheless brought the re-affirmation to its shareholders. The January 12, 2023 special general
shareholders meeting did not re-affirm the RSUs grant. On January 15, and 16, 2023, the Company’s compensation committee and board
of directors, respectively, acting in accordance with the Companies Law, re-affirmed the RSUs grant once again. Since such additional
re-affirmation by the Company’s shareholders, compensation committee and board of directors was not required by law, the Company
considered November 2020 as the grant date for accounting purposes, in accordance with IFRS 2.
c) Matrix IT In December 2017,
Matrix IT extended its agreement with Revava Management Company Ltd. through which its chief executive officer, Mr. Moti Gutman, provides
services to Matrix IT, for five years’ term starting on January 1, 2018. As part of the new agreement in January 2018, Matrix IT
awarded Mr. Gutman 256,890 (RSUs), which vest on an annual basis over a five-year period, commencing on January 16, 2018 and concludes
on December 31, 2022, but not before the publication of Matrix IT’s financial statements for each respective year, and subject to
certain conditions. In 2022, 51,378 restricted share units (RSU) were vested and exercised. As of December 31, 2022 Mr. Gutman holds 51,378
restricted share units (RSUs)
from this grant. In December 2022,
Matrix IT entered into a new employment agreement with its chief executive officer, Mr. Moti Gutman, for the provision of management services
for a term of five years starting on January 1, 2023. As part of the new employment agreement, Matrix IT awarded Mr. Gutman 375,000 Matrix
restricted shares. 40% of the options will be vested on December 31, 2024 with the remaining amount vesting in equal parts on December
31, 2025, 2026 and 2027 but any case not before the publication of Matrix IT’s financial statements for each respective year. The fair value of the restricted shares
amounted on the date of grant to NIS 27,851 (approximately $7,914). In January 2019, Matrix IT’s
board of directors approved, following the approval by Matrix IT’s compensation committee, the grant of 1,440,000 options which
are exercisable into up to 1,440,000 ordinary shares of Matrix IT of NIS 1 par value each, to 20 senior officers of Matrix IT. The exercise
price of the options was NIS 41.7 at the date of their grant, subject to adjustments, including upon the distribution of dividends. 50%
of the options will be vested on January 1, 2021 with the remaining amount vesting in equal parts on January 1, 2022 and 2023. When the
actual exercise will take place, shares will be allotted, according to a net exercise mechanism resulting with Matrix IT not receiving
any cash consideration for the issuance of its shares. In February 2019, the general shareholder
meeting of Matrix IT approved, after obtaining the approval of Matrix IT’s compensation committee and Matrix IT’s board of
directors the grant of 80,000 options which are exercisable into up to 80,000 ordinary shares of Matrix IT of NIS 1 par value, to the
President and Vice Chairman of the Matrix IT board. The exercise price of the options was NIS 43.16 at the date of their grant, subject
to adjustments, including upon the distribution of dividends. 50% of the options will vest on January 1, 2021, with the remaining amount
vesting in equal parts on January 1, 2022 and 2023. When the actual exercise will take place, shares will be allotted, according to a
net exercise mechanism resulting with Matrix IT not receiving any cash consideration for the issuance of its shares. In January 2022,
the general shareholder meeting of Matrix IT approved, after obtaining the approval of Matrix IT’s compensation committee and Matrix
IT’s board of directors the acceleration of the third tranche so that tranche will vest on January 31, 2022, Matrix IT’s President
and Vice Chairman of the Matrix IT expected retirement date, instead of January 1, 2023. The fair value of the options was estimated
on the date of grant using the Binomial model based on the terms which are: risk-free interest rate is 0.5% -1.6%, early exercise factor
is 70% and expected volatility is 24%. The contractual life of the options is 5 years from the date of grant. The following table
summarizes Matrix IT’s employee stock-based compensation activity during the year ended December 31, 2022:
Number of options Weighted Weighted average (in years) Aggregate
Outstanding at January 1, 2022 862,756 10.07 1.93 17,513
Expired and forfeited (12,500 ) 10.08
Exercised (451,378 ) 10.11 - 7,786
Outstanding at December 31, 2022 398,878 7.66 0.9 5,144
Exercisable at December 31, 2022 51,378 - - 1,056 The aggregate intrinsic
value provided in the table above represents the total intrinsic value that would have been received by the option holders had all option
holders exercised their options on the respective dates. This value would change based on the change in the market value of Matrix IT’s
ordinary shares and the change in the exchange rate between the New Israeli Shekel and dollar. Total unrecognized compensation costs related
to non-vested share-based compensation arrangements granted under the Matrix IT equity incentive plan as of December 31, 2022 and 2021
were $0 and $428, respectively.
d) Sapiens: The following table
summarizes Sapiens’ stock-based compensation activity during the year ended December 31, 2022:
Year ended December 31, 2022
Amount of Weighted average exercise price Weighted Aggregate
Outstanding at January 1, 2022 1,835,385 22.27 3.77 22,374
Granted 404,500 21.19
Exercised (21,253 ) 10.65 250
Expired and forfeited (85,869 ) 24.07
Outstanding at December 31, 2022 2,132,763 21.51 3.30 5,531
Exercisable at December 31, 2022 1,010,513 16.21 1.95 4,305 In 2022, 2021 and
2020, Sapiens granted 404,500, 847,000 and 315,000 stock options, respectively, to its employees and directors to purchase its shares.
The weighted average grant date fair values of the options granted during the years ended December 31, 2022, 2021 and 2020 were $7.22,
$10.35 and $7.99, respectively. The aggregate intrinsic value provided on the table above represents the total intrinsic value that would
have been received by the option holders had all option holders exercised their options on the respective dates. This value would change
based on the change in the market value of Sapiens’ common shares. The total intrinsic value of options exercised during the years
ended December 31, 2022, 2021 and 2020 was $250, $8,505 and $11,658, respectively. The options outstanding
under Sapiens’ stock option plans as of December 31, 2022 have been separated into ranges of exercise price 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, Options
exercise price 2022 Term price 2022 Exercisable
$ (Years) $ $
8 2,000 1.18 8 2,000 8
8.37-10.02 590,097 0.82 9.96 590,097 9.96
10.78-18.77 220,416 4.30 16.49 62,916 11.99
22.54-24.33 423,250 4.42 23.10 141,250 23.69
27.79-31.57 830,000 4.03 29.27 197,500 29.46
33.99 67,000 4.92 33.99 16,750 33.99
2,132,763 3.30 21.51 1,010,513 16.21 The total equity-based
compensation expense related to all of Sapiens’ equity-based awards, recognized for the years ended December 31, 2022, 2021 and
2020, after being adjusted to comply with IFRS, was $4,317, $5,421 and $4,318, respectively. As of December 31, 2022, there was $5,550
of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a weighted-average period
of 1.84 years. In connection with
Sapiens’ acquisition of sum.cumo on February 6, 2020, Sapiens issued an aggregate of 173,005 RSUs to certain employees of sum.cumo
in connection with the acquisition. The value of these grants was not included in the purchase price of sum.cumo, since their vesting
is subject to both continued employment and other performance criteria . Sapiens recorded
compensation costs related to RSUs of $794 and $1,130 for the years ended December 31, 2022 and 2021, respectively which were included
in Selling, marketing, general and administrative expenses in the Company’s consolidated statements of profit or loss. A summary of the
RSU activities in Sapiens in the year ended on December 31, 2022, is as follows:
Weighted Average
Amount of Grant-Date Fair
options value
Unvested at January 1, 2022 203,756 26.46
Granted 7,500 23.24
Vested (53,948 ) 26.32
Expired and forfeiture (18,164 ) 24.73
Unvested at December 31, 2022 139,144 26.56
e) Magic Software The following table
summarizes Magic Software stock-based compensation activity during the year ended December 31, 2022:
Number of options Weighted Weighted average (in years) Aggregate
Outstanding at January 1, 2022 66,250 0.45 7.96 1,360
Granted - -
Exercised (20,000 ) -
Forfeited (20,000 ) -
Outstanding at December 31, 2022 26,250 0.91 5.99 394
Exercisable at December 31, 2022 6,250 3.81 0.6 76 The aggregate intrinsic
value provided on the table above represents the total intrinsic value that would have been received by the option holders had all option
holders exercised their options on the respective dates. This value would change based on the change in the market value of Magic Software’s
ordinary shares. Total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020, was $344, $628
and $765 respectively. As of December 31, 2022, there was $112 of unrecognized compensation cost related to non-vested share-based compensation
arrangements granted under Magic Software’s plans, which is expected to be recognized in full during 2023. The options outstanding
as of December 31, 2022, have been separated into ranges of exercise price categories, as follows:
Ranges of Exercise Options Weighted Weighted Options Weighted
$ (Years) $ $
0 20,000 7.67 - - -
3.81 6,250 0.6 3.81 6,250 3.81
26,250 5.99 $ 0.91 6,250 $ 3.81 Stock Option Plan
of Comm-IT Technology Solutions Ltd (“Comm-IT Solutions”), a subsidiary of Magic Software: Under the Comm-IT
Solutions’ 2022 Stock Option Plan, (“Comm-IT Solutions 2022 Plan”), options may be granted to employees, officers, directors
and consultants of Comm-IT Solutions and its subsidiaries. Pursuant to Comm-IT Solutions 2022 Plan, Comm-IT Solutions shall reserve in
its registered and reserved capital, such sufficient number of shares (subject to any adjustment in the capital under the Comm-IT Solutions
2022 Plan) required in order to consummate the Comm-IT Solutions 2022 Plan. In December 2022,
Comm-IT Solutions, awarded 12 of its senior officers 4,028 options to purchase 4,028 shares of Comm-IT Solutions. 827 of the options have
fully vested upon their grant, whereas the vesting of the remainder of the options are subject to Comm-IT
Solutions and its subsidiaries meeting certain EBITDA targets for the years 2023-2024. Subject to the EBITDA targets to be met, as well
as the officers continued employment with Comm-IT Solutions throughout 2027, the options will vest at certain points in time throughout
the years 2023 to
2027. A summary of employee
option activity under the Comm-IT Solutions 2022 Plan as of December 31, 2022 and changes during the year ended December 31, 2022 are
as follows:
Number of options Weighted Weighted average (in years) Aggregate
Outstanding at January 1, 2022 - $ - - $ -
Granted 4,028 264.67
Outstanding at December 31, 2022 4,028 $ 264.67 7.94 $ 7,499
Exercisable at December 31, 2022 827 $ 0.28 7.92 $ 1,839 As of December 31,
2022, there was $2,885 of total unrecognized compensation cost related to non-vested options of Comm-IT Solutions, which is expected to
be recognized in full over a weighted average period of 1.13 years. The options outstanding
as of December 31, 2022, have been separated into exercise price categories, as follows:
Ranges of Options Weighted Weighted Options Weighted
$ (Years) $ $
0.28 3,238 7.92 - 827 0.28
469.45 297 7.99 - -
1,877.81 493 7.99 3.81 - -
4,028 7.94 $ 0.91 827 $ 0.28 |
