ITEM 2 - APPROVAL OF THE GRANT TO THE COMPANY'S CEO OF OPTIONS IN THE FRAMEWORK OF THE COMPANY'S EQUITY-BASED PLAN
Pursuant to the Companies Law the terms of office and employment of the chief executive officer of an Israeli publicly traded company such as the Company, should generally be consistent with the compensation policy of that company and should be approved by the compensation committee, the board of directors and the shareholders of that Company by a Special Uninterested Majority. An equity-based award is considered under the Companies Law as part of the terms of office and employment.
The Approved Terms of Employment of the Company's CEO, Mr. Bezhalel Machlis, included a provision to the effect that, in case the Company adopts at any time after April 1, 2016 any new equity-based plan for the Company's Office Holders (as defined in the Companies Law), the Company will grant the Company's CEO, subject to any approval required by applicable law, up to fifteen percent (15%) of the equity-based awards provided under such plan. (For additional information with regard to the Approved Terms of Employment of the CEO - see Item 1 of the proxy statement for the Company's Extraordinary General Meeting of Shareholders held on March 8, 2016.)
On February 27, 2018, the Board adopted an equity-based compensation plan for the Company's Executive Officers (the "Company's Equity-Based Plan”).
Following the approval by the Compensation Committee, the Board approved, on February 27, 2018 ("Date of the Board's Resolution"), subject to the approval of the New Compensation Policy under Item 1 of this Proxy Statement (whether by the Company's shareholders or, to the extent not approved by the shareholders, by the Compensation Committee and the Board, as set forth in Item 1 of this Proxy Statement), the grant to the Company's CEO of options under the Company's Equity-Based Plan as follows:
Type - A one-time grant of one hundred fifty thousand (150,000) options to purchase Shares of the Company, exercisable using a "Net-Exercise Mechanism" (the "Options"). The Options will be granted pursuant to the terms of the capital gains route under Section 102 of The Israeli Income Tax Ordinance [New Version], 1961, as amended from time to time (the "Ordinance"), which includes, among other things, a requirement that the Options and the underlying Shares be held by a trustee with lock-up conditions as set forth in the Ordinance.
Grant Date - In accordance with the Company's Equity-Based Plan and the New Compensation Policy. the grant date of the Options (the "Grant Date") will be the later of: (i) the Date of the Board's Resolution; (ii) the first trading day after a period of thirty (30) days has elapsed from the date the Company files the Company's Equity-Based Plan with the Israeli Tax Authorities; or (iii) the date on which the New Compensation Policy is approved in accordance with the Companies Law.
Vesting - the Options will vest gradually over a five (5)-year period, forty percent (40%) thereof after two (2) years from the Grant Date and the remaining sixty percent (60%) in three (3) tranches of twenty percent (20%) each, at the end of the third, fourth and fifth years after the Grant Date.
Exercise Price - In accordance with the provisions of the New Compensation Policy and the Company's Equity Based Plan, the exercise price of an Option is one hundred forty-three dollars and ninety-five cents ($143.95), which is the higher of (a) the average price of the Company's Shares listed on the TASE in the thirty (30) days prior to the Date of the Board's Resolution or (b) the price of the Company's Shares listed on the TASE on the last trading day preceding the Date of the Board's Resolution.
Value of Benefit- The value of the benefit embedded in the Options on the Date of the Board's Resolution, calculated in accordance with an acceptable valuation method, is seven hundred fifty thousand dollars ($750,000) per year.
Other Terms - The Options are subject to the terms of the Company's Equity-Based Plan, which sets forth customary terms such as adjustments for capital modifications (reverse stock split, stock split, etc.), rights offering restructuring (split, merger, etc.), and the like. Pursuant to the Company's Equity-Based Plan the vesting of the Options will be accelerated in case the CEO's employment is terminated by the Company without cause within a period of twelve (12) months following any change of control over the Company. The Company's Equity-Based Plan also allows, subject to approvals by the Compensation Committee and the Board, acceleration, continued vesting and exercisability of the Options, as well as post-termination exercise periods, in case of termination of employment not for cause, or as a result of death or disability.
In making their recommendations regarding the grant of the Options to the Company's CEO, the Compensation Committee and the Board considered, among other factors, the Approved Employment Terms of the CEO, as well as the need to link the Company's CEO’s compensation package, which includes the Options, to the Company's long-term targets and business strategy and the responsibilities and duties to be performed by the Company's CEO.