Document:

20-F

Exhibit 4.20  

Nova Measuring Instruments Ltd.

STOCK OPTION PLAN 7C

	
 

	
 

	
 

	
 

	
1.

	
Purposes of the Plan. The purposes of this Stock Option Plan
  (hereinafter: “the Plan”) are to attract and retain the best available
  personnel for positions of substantial responsibility, to provide additional
  incentive to such individuals of the Company and to promote the success of
  the Company’s business, by providing Employees of the Company with the
  opportunities to purchase shares of the Company, pursuant to the Plan
  approved by the Board of Directors of the Company, and the Company’s Shareholders’
  General Meeting which is designed to benefit from, and is made, subject to
  Article 21 below, pursuant to, the provisions of Section 102 of the Israeli
  Income Tax Ordinance [New Version], 1961 and the rules promulgated there
  under.

	
 

	
 

	
 

	
 

	
2.

	
Definitions

	
 

	
 

	
 

	
 

	
 

	
2.1

	
“Board” shall
  mean the Board of Directors of the Company.

	
 

	
 

	
 

	
 

	
 

	
2.2

	
“Committee” shall mean a committee appointed by the
  Board in accordance with Article 4.1 of this Plan or the Board, in case no
  such committee is appointed.

	
 

	
 

	
 

	
 

	
 

	
2.3

	
“Company” shall mean Nova Measuring Instruments
  Ltd., an Israeli corporation, Nova Inc., a corporation registered in the
  U.S.A., and Nova K.K., a corporation registered in Japan, Nova Measuring
  Instruments Netherlands B.V, a corporation registered in the Netherlands and
  Nova Measuring Instruments Taiwan Ltd., a corporation registered in the ROC. 

	
 

	
 

	
 

	
 

	
2.4

	
“Continuous Status as an
  Employee” shall
  mean the absence of any interruption or termination of service as an Employee
  or Consultant. Continuous Status as an Employee or Consultant shall not be
  considered interrupted in the case of sick leave, military leave, or any
  other leave of absence not exceeding 90 days, or in case reemployment upon
  the expiration of such leave is guaranteed by contract or statute.

	
 

	
 

	
 

	
 

	
2.5

	
“Employee” shall mean any person, including
  officers and directors, employed by or serving for the Company or Subsidiary
  of the Company. 

	
 

	
 

	
 

	
 

	
 

	
2.6

	
“Exercise Price” shall mean the Fair Market
  Value of the Ordinary Shares of the Company at the time such option is
  granted to the Employee, unless resolved otherwise by the Board.

	
 

	
 

	
 

	
 

	
 

	
2.7

	
“Fair Market Value” of an Ordinary Share as
  of a particular date shall mean:

	
 

	
 

	
 

	
 

	
 

	
(i) So long as the
  Company’s shares are traded on the NASDAQ National Market, the Fair Market
  Value shall be deemed to be the closing price of the Ordinary Shares of the
  Company on the NASDAQ National Market on the last business day immediately
  prior to the date of grant. If the Company’s shares are traded on a security
  exchange other than NASDAQ National Market and are not traded in the NASDAQ
  National Market, the Fair Market Value shall be deemed to be the closing
  price of the Ordinary Shares of the Company on such security exchange on the
  last business day immediately prior to the date of grant. 

	
 

	
 

	
 

	
 

	
 

	
(ii) If actively traded
  over-the-counter, the Fair Market Value shall be deemed to be the average of
  the closing bid prices over the 30-day period ending immediately prior to the
  applicable date of valuation; 

	
 

	
 

	
 

	
 

	
2.8

	
“Option” shall mean a stock option granted
  pursuant to the Plan.

	
 

	
 

	
 

	
 

	
2.9

	
“Optionee” shall mean an Employee
  who receives an Option.

E-4

	
 

	
 

	
 

	
 

	
2.10

	
“Ordinary Stock” shall mean the
  Ordinary Shares of the Company.

	
 

	
 

	
 

	
 

	
2.11

	
“Plan” shall mean this Stock
  Option Plan.

	
 

	
 

	
 

	
 

	
2.12

	
“Share” shall mean a share of Ordinary Stock,
  as adjusted in accordance with Article 12 below.

	
 

	
 

	
 

	
3.

	
Stock Subject to the
  Plan. Subject to
  the provisions of Article 12 of the Plan, the maximum aggregate number of
  shares that may be optioned and sold under the Plan is 250,000 shares of
  Ordinary Stock. The shares may be authorized, but unissued, share of Ordinary
  Stock.

	
 

	
 

	
 

	
 

	
If an Option should
  expire or become unexercisable, for any reason, without having been exercised
  in full, the unpurchased Shares subject thereto shall become available for
  future grant under the Plan, unless the Plan shall have been terminated.

	
 

	
 

	
 

	
4.

	
Administration of the
  Plan.

	
 

	
 

	
 

	
 

	
4.1

	
Procedure. The Plan shall be administered by the
  Board

	
 

	
 

	
 

	
 

	
 

	
          (i)
  Subject to sub article (ii), the Board may appoint a Committee consisting of
  not less than two independent Board members to administer the Plan on behalf
  of the Board, subject to such terms and conditions as decided by the Board.
  Once appointed, the Committee shall continue to serve until otherwise
  directed by the Board.

	
 

	
 

	
 

	
 

	
 

	
          (ii)
  The Board may increase the size of the Committee and appoint additional
  members thereof, remove members (with or without cause) and appoint new
  members in substitution therefore, fill in vacancies however caused or remove
  all members of the Committee and thereafter administer the Plan.

	
 

	
 

	
 

	
 

	
4.2

	
Powers of the Committee. Subject to the provisions of the Plan,
  the Committee shall have the authority: (i) to grant Stock Options; (ii) to
  determine the fair market value of the Ordinary Stock; (iii) to determine the
  exercise price per share of Options to be granted; (iv) to determine the
  Employees or Consultants to whom, and the time or times at which, Options
  shall be granted and the number of shares to be represented by each Option;
  (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and
  regulations relating to the Plan; (vii) to determine the terms and provisions
  of each Option granted (which need not be identical) and, subject the consent
  of the holder thereof, modify or amend each Option; (viii) to accelerate or
  defer (subject to Optionee’s consent) the exercise date of any Option,
  consistent with the provisions of Article 6 below; (ix) to authorize any
  person to execute on behalf of the Company any instrument required to
  effectuate the grant of an option previously granted by the Board; and (x) to
  make all other determinations deemed necessary or advisable for the
  administration of the Plan. No member of the Committee shall be held liable
  for any act or determination made in good faith in respect to the Plan. 

	
 

	
 

	
 

	
 

	
4.3

	
Effect of the
  Committee’s Decision
  All decisions, determinations and interpretations of the Committee shall be
  final and binding to all Optionees and any other holders of any Options
  granted under the Plan, unless otherwise determined by the Board.

	
 

	
 

	
5.

	
Eligibility

	
 

	
 

	
 

	
5.1

	
Stock Options may be
  granted to Employees.

	
 

	
 

	
 

	
 

	
5.2

	
Nothing in this Plan or
  any Option granted hereunder shall confer upon any Optionee any right with
  respect to continuation of employment or consulting relationship with the
  Company, nor shall it interfere in any way with the Optionee`s right or the
  Company’s right to terminate his employment relationship at any time, with or
  without cause.

- 2 -

	
 

	
 

	
 

	
6.

	
Term of Plan.

	
 

	
 

	
The plan shall become
  effective upon its adoption by the Board or its approval by the shareholders
  of the Company, as described in Article 18 of the Plan, whichever is earlier.
  It shall continue in effect for a term of 10 years from that date unless
  sooner terminated in accordance with the provisions of this Plan.

	
 

	
 

	
 

	
7.

	
Term of Option 

	
 

	
 

	
 

	
 

	
The term of each Stock
  Option shall be no more than 7 years from date of grant.

	
 

	
 

	
 

	
8.

	
Trustee

	
 

	
 

	
 

	
 

	
 

	
Subject to the provisions
  of Article 21 below, the Option Awards and/or Shares of the Company issued
  upon exercise of the Options will be held in trust, by a Trustee (the
  “Trustee”) who will hold the same pursuant to the Company’s instructions from
  time to time. The Trustee shall not use the voting rights vested in any such
  shares and shall not exercise said rights in any way whatsoever, except in
  cases when, at his discretion and after consulting with the Committee, the
  Trustee believes that the said rights should be exercised for the protection
  of the Optionees as a minority among the Company’s Shareholders.

	
 

	
 

	
9.

	
Exercise Price and
  Consideration

	
 

	
 

	
 

	
9.1

	
The consideration to be
  paid for the exercise of the Option shall be the Exercise Price multiplied by
  the number of shares to which are allotted to each Optionee.

	
 

	
 

	
 

	
 

	
9.2

	
The consideration to be
  paid for the Shares issued upon exercise of an Option, shall consist entirely
  of cash, check, or such other consideration that may be approved from time to
  time by the Committee.

	
 

	
 

	
 

	
10.

	
Exercise of Option

	
 

	
 

	
 

	
 

	
The exercise of an Option by an Employee shall be
  governed by the following provisions:

	
 

	
 

	
 

	
 

	
10.1

	
The Trustee shall be solely entitled to exercise an
  Option, provided that the shares be held in Trust for a period of not less
  than two (2) years from the date of approval of this Plan.

	
 

	
 

	
 

	
 

	
10.2

	
The exercise of an Option shall be subject to the
  schedules, numbers and amounts as stipulated in the Option certificate, and
  provided, however, that no Employee shall have the right to exercise more
  than as set forth in the following vesting schedule:

	
 

	
 

	
 

	
 

	
10.2.1

	
25% of the Optioned Stock shall be exercisable after
  12 month of the date of grant (the “Initial vesting Date”);

	
 

	
 

	
 

	
 

	
10.2.2

	
the remainder of the Optioned Stock shall be exercisable
  on a monthly basis so that at the end of each month after the Initial Vesting
  Date the Optionee shall be entitled to exercise 2.083% of the optioned stock;

	
 

	
 

	
 

	
 

	
10.2.3

	
Notwithstanding anything herein to the contrary, the
  Board shall have sole discretion to determine that the vesting schedule may
  be shortened and that the vesting process shall be accelerated.

	
 

	
 

	
 

	
 

	
10.3

	
Exercise Procedure. The Option
  granted hereunder shall be exercisable at such times and under such
  conditions as determined by the Committee at the time of grant, including
  performance criteria relating to the Company and/or the Optionee, and as
  shall be permissible under the terms of the Plan. An Option may not be
  exercised for a fraction of a Share.

	
 

	
 

	
 

	
 

	
10.4

	
An Option shall be deemed to be exercised when a
  written notice of such exercise has been submitted to the Company in
  accordance with the terms of the Option by the person entitled to exercise
  the Option and provided that full consideration for the Shares with respect
  to which the Option is being exercised has been received by the Company. Full
  consideration may, as authorized by the Committee, consist of any
  consideration and method of payment allowable under the Plan.

- 3 -

	
 

	
 

	
 

	
 

	
10.5

	
The Trustee shall not exercise the Option and/or
  Shares to any Optionee unless the Optionee, prior to or concurrently with
  such exercise provides the Trustee with written evidence satisfactory in form
  and substance to the Trustee that all taxes, if any, required to be paid upon
  such exercise have, in fact, been paid, to the tax authorities or to the
  Company as the case may be.

	
 

	
 

	
 

	
 

	
10.6

	
Until the issuance (as evidenced by the appropriate
  entry on the books of the Company or of a duly authorized transfer agent of
  the Company) of the stock-certificate evidencing such Shares, no right to
  vote or receive dividends or any other rights as a shareholder shall exist
  with respect to the Optioned Stock, notwithstanding the exercise of the
  Option. The Company shall issue (or cause to be issued) such stock certificate
  promptly upon exercise of the Option.

	
 

	
 

	
 

	
 

	
10.7

	
Termination of Status as an Employee.
  In the event of termination of an Optionee’s Continuous Status as an
  Employee, such Optionee may exercise Options to the extent exercisable by the
  date of termination within a period of one
  month therefrom (or shorter time as may be specified at the
  grant), but in no event later than the date of expiration of the term of such
  Option as set forth in the Option Agreement). To the extent that the Optionee
  was not entitled to exercise the Option at the date of such termination, or
  does not exercise such Option within the time specified herein, the Option
  shall terminate. In the event that the Optionee’s employment is terminated by
  the Company under circumstances which do not entitle such Optionee with the
  right to receive compensation for termination and/or in the event that the
  Optionee breaches any fiduciary duty and/or confidentiality and/or obligation
  towards the Company and is dismissed as a result of such breach, all Options
  including exercisable Options shall expire immediately upon the date in which
  a notice sent by the Company to the Optionee notifying the Optionee of its
  termination.

	
 

	
 

	
 

	
 

	
10.8

	
Disability of Optionee.
  Notwithstanding the provision of Article 10.7 above, in the event of
  termination of an Optionee’s Continuous Status as an Employee as a result of
  his total and permanent disability, he may exercise his Option to the extent
  he was entitled to exercise it at the date of such termination within three
  (3) months (or such shorter period as is specified in the grant) from the
  date of such termination (but in no event later than the date of expiration
  of the term of such Option as set forth in the Option Agreement). To the
  extent that the Optionee was not entitled to exercise the Option at the date
  of termination, or does not exercise such Option (to the extent exercisable)
  within the time specified herein, the Option shall terminate. The Board shall
  have the exclusive discretion, in exceptional cases, to decide whether an
  extension to the aforesaid periods is to be granted, and under which terms.

	
 

	
 

	
 

	
 

	
10.9

	
Death of Optionee. Notwithstanding
  the provisions of Section 10.7 and 10.8 above, in the event of the death of
  an Optionee during the term of the Option who shall have been in Continuous
  Status as an Employee since the date of grant of the Option, the Option may
  be exercised, at any time within six (6) months (or such shorter period as is
  specified in the grant) following the date of death (but in no event later
  than the date of expiration of the term of such Option as set forth in the
  Option Agreement), by the Optionee’s estate or by a person who acquired the
  right to exercise the Option by bequest or inheritance, but only to the
  extent of the right to exercise that would have accrued had the Optionee
  continued living and remained in Continuous Status as an Employee or
  Consultant six (6) months after the date of death. The Board shall have the
  exclusive discretion, in exceptional cases, to decide whether an extension to
  the aforesaid periods is to be granted, and under which terms.

	
 

	
 

	
 

	
11.

	
Non-Transferability of
  Options and Stock Purchase Rights. The Option may not be sold, pledged, assigned, hypothecated,
  transferred, or disposed of in any manner other than by will or by the laws
  of descent or distribution and may be exercised, during the lifetime of the
  Optionee, only by the Optionee. Notwithstanding the aforementioned the
  Committee may, at its sole discretion, approve the transfer of the Option by the
  Optionee to any entity under the Optionee’s control (the “Transferee”)
  provided inter alia that: (i) the Transferee has agreed in writing to be
  bound by all obligations by which the Optionee is bound including without
  limitation the Company’s right to cancel options which would otherwise be
  exercisable in the events described in Section 10.7 above; (ii) that the
  Optionee shall provide assurances, to the satisfaction of the Committee that
  all taxes applicable with regard to such transfer were paid, or an approval
  from the tax authority that the Company’s and/or the Trustee, as the case may
  be, are exempt from performing any withholding and/or any other liability
  with regard to such transfer and further that any of the Company’s
  liabilities under Section 102 of the Income Tax Ordinance shall expire
  immediately upon consummation of such transfer with regards to the options so
  transferred; and (iii) that the issuance of shares issuable in the event of exercise of the Option
  by the Transferee is compliant with the requirements of the applicable
  securities law including, without limitation, the rules applicable to the
  registration of shares issuable under option plans.

- 4 -

	
 

	
 

	
 

	
12.

	
Adjustments Upon Changes in Capitalization or
  Merger.

	
 

	
 

	
 

	
12.1

	
Changes in Capitalization. Subject
  to any required action by the shareholders of the Company, the number of
  shares of Ordinary Stock covered by each
  outstanding Option, and the number of shares of Ordinary Stock which
  have been authorized for issuance under the Plan but as to which no Options
  have yet been granted or which have been returned to the Plan upon
  cancellation or expiration of an Option, as well as the Exercise Price shall
  be proportionately adjusted for any increase or decrease in the number of
  issued shares of Ordinary Stock resulting from a stock split, reverse stock
  split, stock dividend, combination or reclassification of the Ordinary Stock,
  or any other increase or decrease in the number of issued shares of Ordinary
  Stock effected without receipt of consideration by the Company; provided,
  however, that conversion of any convertible securities of the Company shall
  not be deemed to have been “effected without receipt of consider­ation.” Such
  adjustment shall be made by the Committee, whose determination in that
  respect shall be final, binding and conclusive. Except as expressly provided
  herein, no issuance by the Company of shares of stock of any class, or
  securities convertible into shares of stock of any class, shall affect, and
  no adjustment by reason thereof shall be made with respect to, the number or
  price of shares of Ordinary Stock subject to an Option.

	
 

	
 

	
 

	
 

	
12.2

	
Dissolution or
  Liquidation.
  Other than with respect to the events described in Section 12.3 herein, in
  the event of the proposed dissolution or liquidation of the Company, the
  Option will terminate immediately prior to the consummation of such proposed
  action, unless otherwise provided by the Committee. The Committee may, in the
  exercise of its sole discretion in such instances, declare that any Option
  shall terminate as of a date fixed by the Committee and give each Optionee
  the right to exercise his Option as to all or any part of the Optioned Stock,
  including Shares as to which the Option would not otherwise be exercisable.

	
 

	
 

	
 

	
 

	
12.3

	
Merger, Sale of Assets,
  Change of Control.

	
 

	
 

	
 

	
 

	
12.3.1

	
Acceleration Events: In the event of a (i) proposed sale of
  all or substantially all of the assets of the Company or; (ii) a proposed
  merger of the Company with or into another corporation, which after such
  transaction the Company hold less than fifty per cent (50%) of the shares of
  the surviving entity., or (iii) a proposal to purchase the Company’s shares
  so that after such purchase the purchaser will hold 50% or more of the
  Company’s shares or; (iv) a Special Purchase Offer as such term is defined in
  Section 328 of the Company’s Law – 1999, (“Acceleration Event”) the vesting
  process shall be accelerated so that each Optionee, who maintains Continuous
  Status as an Employee at the date of occurrence of an Acceleration Event
  shall be deemed to have held the Option for a period which is 12 month longer
  than the actual period in which the Optionee had actually held the Option,
  and the amount of Shares exercisable in such an event shall be calculated
  accordingly.

	
 

	
 

	
 

	
 

	
12.3.2

	
Upon the occurrence of
  an Acceleration Event the Company shall notify all Optionees of their right
  to exercise the Option, and each Optionee shall be entitled to exercise the
  Option, with regard to the such amount of Shares exercisable under the Plan,
  including such Shares exercisable due to the acceleration of the vesting
  process within 15 days of such notice, by way of sending a notice of exercise
  to the Company.

	
 

	
 

	
 

	
 

	
12.3.3

	
The right to exercise
  any portion of the Option granted which would not otherwise be exercisable,
  is subject to the completion and perfection of any of the transactions
  described under Section 12.3.1 above, including the attainment of all
  regulatory and any other approval required under applicable law. It is specifically
  stated that in the event that any of the transactions described under Section
  12.3.1 above is not completed and perfected for any reason whatsoever, such
  right shall be null and void. In such an event the Optionee shall be entitled
  either to cancel his notice of exercise with respect to all the stock
  exercised under the notice of exercise described in Section 12.3.2 above, or
  exercise that part of the Optioned Stock which would have been exercisable by
  the Optionee according to the terms of the Plan if the relevant Acceleration
  Event was not to occur, or any part thereof.

- 5 -

	
 

	
 

	
 

	
 

	
12.3.4

	
Cashless Exercise: The
  Committee at its sole discretion may determine that the exercise of the
  Option in the events described in Sections 12.3.1(ii) and (iv) (in the event
  that the consideration payable for the Shares purchasable under such
  transaction is for cash), may be made by way of deduction of the Exercise
  Price from the price payable for the Shares purchasable by the purchaser of
  the Share which would be exercised under the terms of such transaction. The
  Committee shall be entitled to condition such form of exercise described in
  this Section 12.3.4 in any terms it may deem fit in order to secure payment
  of the exercise price of such Option.

	
 

	
 

	
 

	
13.

	
Time of Granting Options. The date of grant of an Option shall,
  for all purposes, be the date on which the Committee determines granting such
  Option. Notice of the determination shall be given to each Employee or
  Consultant to whom an Option is so granted within a reasonable time after the
  date of such grant.

	
 

	
 

	
 

	
14.

	
Amendment and
  Termination of the Plan

	
 

	
 

	
 

	
14.1

	
Amendment and
  Termination. The
  Committee may at any time amend, alter, suspend or discontinue the Plan from
  time to time in such respects as the Committee may deem advisable provided
  that the following revisions or amendments shall require approval of the
  Board.

	
 

	
 

	
 

	
 

	
14.2

	
Effect of Amendment or
  Termination. Any
  such amendment or termination of the Plan shall not affect Options already
  granted, and such Options shall remain in full force and effect as if this
  Plan had not been amended or terminated, unless mutually agreed otherwise
  between the Optionee and the Board, which agreement must be in writing and
  signed by the Optionee and the Company.

	
 

	
 

	
 

	
15.

	
Conditions Upon Issuance
  of Shares. Shares
  shall not be issued pursuant to the exercise of an Option unless the exercise
  of such Option and the issuance and delivery of such Shares pursuant thereto
  shall comply with all relevant provisions of law, and the requirements of any
  stock exchange upon which the Shares may then be listed, and shall be further
  subject to the approval of counsel for the Company with respect to such
  compliance.

	
 

	
 

	
 

	
 

	
As a condition to the
  exercise of an Option, the Company may require the person exercising such
  Option to represent and warrant at the time of any such exercise that the
  Shares are being purchased only for investment and without any present
  intention to sell or distribute such Shares if, in the opinion of counsel for
  the Company, such a representation is required by any of the aforementioned
  relevant provisions of law.

	
 

	
 

	
 

	
16.

	
Reservation of Shares. The Company, during the term of this
  Plan, will at all times reserve and keep available such number of Shares as
  shall be sufficient to satisfy the requirements of the Plan.

	
 

	
 

	
 

	
The inability of the
  Company to obtain authority from any regulatory body having jurisdiction,
  which authority is deemed by the Company’s counsel to be necessary to the
  lawful issuance and sale of any Shares hereunder, shall relieve the Company
  of any liability in respect of the failure to issue or sell such Shares as to
  which such requisite authority shall not have been obtained.

	
 

	
 

	
17.

	
Agreements. Options shall be evidenced by written
  agreements in such form as the Committee shall approve from time to time.

	
 

	
 

	
18.

	
Shareholders Approval 

	
 

	
 

	
 

	
Continuance of the Plan shall be subject to approval
  by the shareholders of the Company within twelve (12) months before or after
  the date of grant. To remove any doubt if the plan is not approved by the
  Company’s shareholders within 12 month of the date of grant it shall be
  deemed null and void and all options granted under the Plan prior to the date
  in which such approval was to be granted shall be invalidated and may not be
  exercised under any circumstance. It is further clarified that shareholders
  approval is condition precedent to the validity of each option granted and no
  Optionee shall be entitled to any right in lieu of any option cancelled or
  invalidated as a result of failure to obtain shareholder approval for the
  plan regardless of the reasons which brought about such failure.

- 6 -

	
 

	
 

	
 

	
19.

	
Governing Law

	
 

	
 

	
 

	
The Plan and all
  instruments issued there under or in connection therewith shall be governed by,
  and interpreted in accordance with, the Laws of the State of Israel.

	
 

	
 

	
 

	
20.

	
Application of funds

	
 

	
 

	
 

	
The proceeds received by
  the Company from the sale of shares pursuant to the Options granted under the
  Plan will be used for general corporate purposes of the Company or any
  subsidiary thereof.

	
 

	
 

	
 

	
21.

	
Tax Consequences

	
 

	
 

	
 

	
This plan shall be
  governed by Section 102 of the Israeli Income Tax Ordinance [New version]
  1961 and the rules promulgated there under. Any tax consequences arising from
  the grant or the exercise of any Option, from payment for shares covered
  thereby or from any other event or act (of the Company or the Optionee)
  hereunder, shall be borne solely by the Optionee. Furthermore, the Optionee
  shall agree to indemnify the Company and the Trustee and hold them harmless
  against and from any and all liability for any such tax or interest or
  penalty.

	
 

	
 

	
Notwithstanding the provisions of the preceding
  paragraph the Company’s management may determine with respect to each grant
  and under its sole discretion that the Option granted under such grant shall
  not be made in accordance with Section 102 described above, and determine the
  relevant taxation mechanism with respect to each grant under Section 102 or
  otherwise (including any alternative which may be available under the
  applicable tax laws at the time of grant) Such determination shall be made
  with respect to the entire Plan (subject to applicable law) or with respect
  to each particular grant by stating the same on the document of grant furnished
  to each such Employee.

- 7 -20-F

FORMULA SYSTEMS (1985)
LTD. 

LETTER OF
INDEMNIFICATION 

_________, 2005 

Dear _____________ [director, officer and/or employee]

        This
Letter of Indemnification (this “Letter”) is written to you in
recognition that it is in the best interest of Formula Systems (1985) Ltd. (the
“Company”) to retain and attract as directors, officers and/or employees
the most capable persons available. 

        You
are or have been appointed a director, officer and/or employee of the Company, and in
order to enhance your service to the Company in an effective manner, the Company desires
to provide hereunder for your indemnification to the fullest extent permitted by law. 

        In
consideration of your continuing to serve the Company, the Company hereby agrees as
follows: 

    1.        The
Company hereby undertakes to indemnify you to the maximum extent permitted           by
applicable law in respect of the following in respect of any act or omission           (“action”)
taken or made by you in your capacity as a director,           officer and/or employee of
the Company:  

	 	
anyfinancial
obligation imposed on, or incurred by you in favor of another person by a court judgment,
including a settlement or an arbitrator’s award approved by court,  

	 	
all
reasonable litigation expenses, including attorney’s fees, expended by you as a
result of an investigation or proceeding instituted against you by a competent authority,
provided that such investigation or proceeding concluded without the filing of an
indictment against you and either (A) without the imposition of any financial liability
in lieu of criminal proceedings or (B) with the imposition of a financial liability in
lieu of criminal proceeding but relates to a criminal offense that does not require proof
of mens rea  (criminal intent); and 

	 	
all
reasonable litigation expenses, including attorney’s fees, expended by you or
imposed on you by a court in a proceeding instituted against you by any another person,
or in any criminal proceedings in which you are acquitted, or in any criminal proceedings
of a crime which does not require proof of mens rea (criminal intent) in which you
are convicted, all in respect of actions taken by you in your capacity as a director,
officer and/or employee of the Company.  

        The
above indemnification will also apply to any action taken by you in your capacity as a
director, officer and/or employee of any other company controlled, directly or
indirectly, by the Company (a “Subsidiary”), or in your capacity as a
director, or observer at board of directors’ meetings of a company not controlled by
the Company but where your appointment as a director or observer results from the Company’s
holdings in such company (“Affiliate”).  

    2.        The
Company will not indemnify you for any amount you may be obligated to pay in
          respect of:  

	 	
a
breach of your duty of loyalty, except, to the extent permitted by law, for a breach of
your duty of loyalty to the Company, a Subsidiary or an Affiliate while acting in good
faith and having reasonable cause to assume that such act would not prejudice the
interests of the Company, Subsidiary or Affiliate, as applicable;  

	 	
a
willful breach of your duty of care or reckless disregard for the circumstances or to the
consequences of a breach of your duty of care, except if such breach of your duty of care
is solely due to negligence; 

	 	
an
action taken or not taken with the intent of unlawfully realizing personal gain;  

	 	
a
fine or penalty imposed upon you for an offense; and  

	 	
a
counterclaim made by the Company or in its name in connection with a claim against the
Company filed by you.  

    3.        The
Company will make available all amounts needed in accordance with Section 1
          above on the date on which such amounts are first payable by you (“Time of
          Indebtedness”), and with respect to items referred to in Section 1.2
above,           even prior to a court decision. Advances given to cover legal expenses
in           criminal proceedings will be repaid by you to the Company if you are found
          guilty of a crime which requires proof of criminal intent. Other advances will
          be repaid by you to the Company if it is determined that you are not lawfully
          entitled to such indemnification.  

	 	        As
part of the aforementioned undertaking, the Company will make available to you any
security or guarantee that you may be required to post in accordance with an interim
decision given by a court or an arbitrator, including for the purpose of substituting
liens imposed on your assets. 

    4.        The
Company will indemnify you even if at the relevant Time of Indebtedness you           are
no longer a director, officer or employee of the Company or of a Subsidiary           or
a director or board observer of an Affiliate, as applicable, provided, that           the
obligations are in respect of actions taken by you while you were a           director,
officer, employee and/or board observer, as aforesaid, and in such           capacity,
including if taken prior to the above resolutions.  

    5.        The
indemnification will be limited to the expenses mentioned in Section 1.2 and
          1.3 (pursuant and subject to Section 3 and insofar as indemnification with
          respect thereto is not restricted by law or by the provisions of Section 2
          above) and to the matters mentioned in Section 1.1 above, insofar as they
result           from your actions in the following matters or in connection therewith,
which the           Company’s Board of Directors has resolved are foreseeable in
light of the           actual activities of the Company:  

	 	
The
offering of securities by the Company and/or by a shareholder to the public and/or to
private investors or the offer by the Company to purchase securities from the public
and/or from private investors or other holders pursuant to a prospectus, agreements,
notices, reports, tenders and/or other proceedings;  

	 	
Occurrences
resulting from the Company’s status as a public company, and/or from the fact that
the Company’s securities were offered to the public and/or are traded on the
National Association of Securities Automated Quotation (NASDAQ) and on the Tel-Aviv stock
exchange; 

	 	
Occurrences
in connection with investments the Company and/or Subsidiaries and/or Affiliates make in
other corporations whether before and/or after the investment is made, entering into the
transaction, the execution, development and monitoring thereof, including actions taken
by you in the name of the Company and/or a Subsidiary and/or an Affiliate as a director,
officer, employee and/or board observer of the corporation the subject of the transaction
and the like;  

	 	
The
sale, purchase and holding of negotiable or non negotiable securities or other
investments for or in the name of the Company, a Subsidiary and/or an Affiliate;  

	 	
Actions
in connection with the merger of the Company, a Subsidiary and/or an Affiliate with or
into another entity;  

	 	
Actions
in connection with the sale of the operations and/or business, or part thereof, of the
Company, a Subsidiary and/or an Affiliate;  

	 	
Actions
taken in connection with the sale, purchase and/or holding of securities (whether
negotiable or not) and any other assets on behalf of or in the name of the Company;  

	 	
A
change of structure of the Company or the reorganization of the Company or any decision
pertaining to these issues, including, but not limited to, split, merger, a change in the
Company’s capital, the establishment of subsidiaries and their liquidation or sale,
an allotment or Distribution (as defined in the Companies Law);  

	 	
An
announcement, a statement, including position taken, or an opinion made in good faith by
an officer, in the course of his duties and in conjunction with his duties, including
during a meeting of the Board of Directors of the Company or any committee thereof;  

	 	
Actions
taken in connection with labor relations and/or employment matters in the Company,
Subsidiaries and/or Affiliates and trade relations of the Company, Subsidiaries and/or
Affiliates, including with employees, independent contractors, customers, suppliers and
various service providers, including stock options granted or promised (or allegedly
promised) thereto or exchanges of such options with other securities;  

	 	
Actions
taken in connection with the intellectual property of the Company, Subsidiaries and/or
Affiliates, and its protection, including the registration or assertion of rights to
intellectual property and the defense of claims related to intellectual property;  

	 	
Actions
taken pursuant to or in accordance with the policies and procedures of the Company,
Subsidiaries and/or Affiliates, including but not limited to implementation relating to
the Sarbanes Oxley Act, whether or not such policies and procedures are published;  

	 	
Actions
taken in connection with the financial reporting of the Company or any of its
Subsidiaries or Affiliates, and in providing guidance to the public regarding future
performance thereof;  

	 	
Violations
of laws requiring the Company to obtain regulatory and governmental licenses, permits and
authorizations in any jurisdiction, including but not limited to antitrust authorizations
and/or exemptions;  

	 	
Actions
relating to the operations and management of the Company and/or any of its Subsidiaries
and/or Affiliates;  

	 	
Actions
relating to agreements and transactions of the Company and/or any of its Subsidiaries
and/or Affiliates with others, including, for example: customers, suppliers, contractors,
etc;  

	 	
Actions
concerning the approval of transactions of the Company and/or its Subsidiaries and/or
Affiliates with officers and/or directors and/or holders of controlling interests in the
Company and/or its Subsidiaries and/or Affiliates and/or the approval of corporate
actions, including the approval of acts of the Company’s and/or its Subsidiaries
and/or Affiliates management, their guidance and their supervision; and  

	 	
Occurrences
in connection with the lenders or other creditors or for money borrowed by, or other
indebtedness of, the Company, including monetary liabilities to third parties relating to
the return of loans.  

    6.        The
total amount of indemnification that the Company undertakes under Section 1
          above, towards all persons whom it has resolved to indemnify for the matters
and           in the circumstances described herein, jointly and in the aggregate, shall
not           exceed an amount equal to twenty-five percent (25%) of the Company’s
total           shareholders equity according to the Company’s most recent financial
          statements as of the time of for the actual payment of indemnification.  

    7.        Notwithstanding
anything contained herein to the contrary, the Company will not           indemnify you
for any liability with respect to which you have received payment           by virtue of
an insurance policy or another indemnification agreement other than           for amounts
which are in excess of the amounts actually paid to you pursuant to           any such
insurance policy or other indemnity agreement (including deductible           amounts not
covered by insurance policies), within the limits set forth in           Section 6 above.  

    8.        Subject
to the provisions of Sections 6 and 7 above, the indemnification           hereunder
will, in each case, cover all sums of money (100%) that you will be           obligated
to pay, in those circumstances for which indemnification is permitted           under the
law.  

    9.        The
Company will be entitled to any amount collected from a third party in
          connection with liabilities indemnified hereunder.  

    10.        In
all indemnifiable circumstances indemnification will be subject to the
          following:  

	 	
You
shall promptly notify the Company of any legal proceedings initiated against you and of
all possible or threatened legal proceedings without delay following your first becoming
aware thereof, and that you deliver to the Company, or to its designee, without delay all
documents you receive in connection with these proceedings.  

	 	
Similarly,
you must advise the Company on an ongoing and current basis concerning all events which
you suspect may give rise to the initiation of legal proceedings against you. 

	 	
Other
than with respect to proceedings that have been initiated against you by the Company or
in its name, the Company shall be entitled to undertake the conduct of your defense in
respect of such legal proceedings and/or to hand over the conduct thereof to any attorney
which the Company may choose for that purpose, except to an attorney who is not, upon
reasonable grounds, acceptable to you. The Company and/or the attorney as aforesaid shall
be entitled, within the context of the conduct as aforesaid, to conclude such
proceedings, all as it shall see fit, including by way of settlement. At the request of
the Company, you shall execute all documents required to enable the Company and/or its
attorney as aforesaid to conduct your defense in your name, and to represent you in all
matters connected therewith, in accordance with the aforesaid. For the avoidance of
doubt, in the case of criminal proceedings the Company and/or the attorneys as aforesaid
will not have the right to plead guilty in your name or to agree to a plea-bargain in
your name without your consent. Furthermore, in a civil proceeding (whether before a
court or as a part of a compromise arrangement), the Company and/or its attorneys will
not have the right to admit to any occurrences that are not indemnifiable pursuant to
this Letter and/or pursuant to law, without your consent. However, the aforesaid will not
prevent the Company and/or its attorneys as aforesaid, with the approval of the Company,
to come to a financial arrangement with a plaintiff in a civil proceeding without your
consent so long as such arrangement will not be an admittance of an occurrence not
indemnifiable pursuant to this Letter and/or pursuant to law.  

	 	
You
will fully cooperate with the Company and/or any attorney as aforesaid in every
reasonable way as may be required of you within the context of their conduct of such
legal proceedings, including but not limited to the execution of power(s) of attorney and
other documents, provided that the Company shall cover all costs incidental thereto such
that you will not be required to pay the same or to finance the same yourself. 

	 	
If,
in accordance with Section 10.3, the Company has taken upon itself the conduct of your
defense, the Company will have no liability or obligation pursuant to this Letter or the
above resolutions to indemnify you for any legal expenses, including any legal fees, that
you may expend in connection with your defense, except to which the Company in its
absolute discretion shall agree.  

	 	
The
Company will have no liability or obligation pursuant to this Letter or the above
resolutions to indemnify you for any amount expended by you pursuant to any compromise or
settlement agreement reached in any suit, demand or other proceeding as aforesaid without
the Company’s consent to such compromise or settlement.  

	 	
That,
if required by law, the Company’s authorized governing organs will consider the
request for indemnification and the amount thereof and will determine if you are entitled
to indemnification and the amount thereof.  

    11.        If
for the validation of any of the undertakings in this Letter any act,
          resolution, approval or other procedure is required, the Company undertakes to
          cause them to be done or adopted in a manner which will enable the Company to
          fulfill all its undertakings as aforesaid.  

    12.        For
the avoidance of doubt, it is hereby clarified that nothing contained in           this
Letter or in the above resolutions derogate from the Company’s right           to
indemnify you post factum for any amounts which you may be obligated           to
pay as set forth in Section 1 above without the limitations set forth in
          Sections 5 and 6 above. The Company may, in its discretion, following receipt
of           necessary corporate approvals, and subject to applicable law, indemnify you
          retroactively for actions committed prior to the date of this Letter.  

    13.        If
any undertaking included in this Letter is held invalid or unenforceable,           such
invalidity or unenforceability will not affect any of the other           undertakings
which will remain in full force and effect. Furthermore, if such           invalid or
unenforceable undertaking may be modified or amended so as to be           valid and
enforceable as a matter of law, such undertakings will be deemed to           have been
modified or amended, and any competent court or arbitrator are hereby
          authorized to modify or amend such undertaking, so as to be valid and
          enforceable to the maximum extent permitted by law.  

    14.        This
Letter and the agreements contained herein shall be governed by and           construed
and enforced in accordance with the laws of the State of Israel.  

        This
Letter is being issued to you pursuant to the resolutions adopted by the Company’s
Audit Committee on ____________, 2005, Board of Directors on ____________, 2005, and the
shareholders of the Company on ________ __, 2005. 

        Kindly
sign in the space provided below to acknowledge your agreement to the contents hereof, and
return this Letter to the Company. 

			Very truly yours,

FORMULA SYSTEMS (1985) LTD

By: 
——————————————

Name:
Title:

Agreed:

___________________

Name: _____________

Title: ______________

Date: ______________

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