PARS » Topics » SECTION 14. SECTION 102 OF THE ISRAELI TAX ORDINANCE.

This excerpt taken from the PARS DEF 14A filed Aug 5, 2005.

SECTION 14. SECTION 102 OF THE ISRAELI TAX ORDINANCE.

         The provisions of this Section shall govern all grants of Stock Options, Restricted Stock and Restricted Stock Units under Section 102 of the Israeli Income Tax Ordinance [new version] - 1961 (“Section 102”) and the Income Tax Rules (Tax Relief for Issuance of Shares to Employees), 2003 (“Section 102 Rules”) to Israeli Employees and Directors of the Company or any of its affiliates (provided such Employee or Director does not control the Company, as such term is defined in Section 102 (respectively the “Israeli Award” and “Israeli Awardee”). Except as detailed below, all other provisions, definitions, terms and conditions of the Plan shall continue to be valid and in full force and effect.

14.1

Trust Arrangement and Holding Period


         The Company may grant Israeli Awards to Israeli Awardees under the provisions of one of three tax tracks provided for in Section 102 as detailed below (“Tax Track”).

         (a) Trustee Tax Tracks

         If the Company elects to grant an Israeli Award through (i) the Capital Gains Track Through a Trustee, or (ii) the Income Tax Track Through a Trustee, then, in accordance with the requirements of Section 102, the Company shall appoint a Trustee who will hold in trust on behalf of each Awardee the Israeli Award.

         The holding period (the “Holding Period”) for the Israeli Award will be as follows:

         (i) The Capital Gains Tax Track Through a Trustee - if the Company elects to grant the Israeli Award according to the provisions of this track, then the Holding Period will be 24 months from the end of the tax year

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in which the Israeli Award was allocated to the Trustee on behalf of the Israeli Awardee, or such shorter period as may be legislated or approved by the Israeli Authorities.

         (ii) The Income Tax Track Through a Trustee - if the Company elects to grant the Israeli Award according to the provisions of this track, then the Holding Period will be 12 months from the end of the tax year in which the Options were allocated to the Trustee on behalf of the Israeli Awardee, or such shorter period as may be legislated or approved by the Israeli Authorities.

         Subject to Section 102, Israeli Awardees shall not be able to receive from the Trustee, nor shall they be able to sell or dispose of shares issued upon exercise of Stock Options (the “Underlying Shares”) before the end of the applicable Holding Period. However, if an Israeli Awardee sells or removes the Israeli Award or the Underlying Shares form the Trustee before the end of the applicable Holding Period (“Breach”), the Israeli Awardee shall pay all applicable taxes imposed on such Breach by rule 7 of the Section 102 Rules.

         In the event of a distribution of rights, including an issuance of bonus shares, in connection with the Israeli Award originally allocated to the Trustee (the “Additional Rights”), all such Additional Rights shall be allocated and/or issued to the Trustee for the benefit of Israeli Awardee and shall be held by the Trustee for the remainder of the Holding Period applicable to the Israeli Award originally allocated. Such Additional Rights shall be treated in accordance with the provisions of the applicable Tax Track.

         (b) Income Tax Track Without a Trustee

         If the Company elects to grant an Israeli Award according to the provisions of this track, then the Israeli Award will not be subject to a Holding Period.

14.2

Track Selection


         The Company, in its sole discretion, shall elect under which of above three Tax Tracks each Israeli Award is granted and shall notify the Israeli Awardee in the Grant Agreement or the Stock Option Agreement (as the case may be), which Tax Track applies to each Israeli Award.

14.3

Concurrent Conditions


         The Holding Period, if any, is in addition to any vesting period specified in the Plan or the Grant Agreement. The Holding Period and vesting period may run concurrently, but neither is a substitute for the other, and each are independent terms and conditions for Israeli Awards.

14.4

Trust Agreement


         The terms and conditions applicable to the trust relating to the Tax Track selected by the Company, as appropriate, shall be set forth in an agreement signed by the Company and the Trustee (the “Trust Agreement”).

14.5

Tax Matters


         Israeli Awards shall be governed by, and shall conform with and be interpreted so as to comply with, the requirements of Section 102 and any written approval from the Israeli Tax Authorities. All tax consequences under any applicable law (other than stamp duty) which may arise from the award of Israeli Awards, from the exercise thereof or from the holding or sale of Underlying Shares (or other securities issued under the Plan) by or on behalf of the Israeli awardee, shall be borne solely on the Israeli Awardee. The Israeli Awardee shall indemnify the Company and/or Affiliate and/or Trustee, as the case may be, and hold them harmless, against and from any liability for any such tax or any penalty, interest or indexing.

         If the Company elects to grants Israeli Awards according to the provisions of the Income Tax Track Without a Trustee (Section 14.1(b) of this Plan), and if prior to the exercise of any and/or all of this Israeli Award, such Israeli Awardee ceases to be an employee, director, or officer of the Company or Affiliate, the Israeli Awardee shall deposit with the Company a guarantee or other security as required by Section 102, in order to ensure the payment of applicable taxes upon the exercise of such Israeli Award.

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14.6

Withholding Taxes


         Whenever an amount with respect to withholding tax relating to Israeli Awards granted to a Israeli Awardees and/or Underlying Shares due from the Israeli Awardee and/or the Company and/or an Affiliate and/or the Trustee, the Company and/or an Affiliate and/or the Trustee shall have the right to demand from an Israeli Awardee such amount sufficient to satisfy any applicable withholding tax requirements related thereto, and whenever Shares or any other non-cash assets are to be delivered pursuant to the exercise of an Israeli Award, or transferred thereafter, the Company and/or an Affiliate and/or the Trustee shall have the right to require the Israeli Awardee to remit to the Company and/or to the Affiliate, or to the Trustee an amount in cash sufficient to satisfy any applicable withholding tax requirements related thereto, and if such amount is not timely remitted, the Company and/or the Affiliate or the Trustee shall have the right to withhold or set-off (subject to Law) such Shares or any other non-cash assets pending payment by the Israeli Awardee of such amounts.

         Until all taxes have been paid in accordance with Rule 7 of the section 102 Rules, Israeli Awards, Underlying Shares and Additional Rights may not be sold, transferred, assigned, pledged, encumbered, or otherwise willfully hypothecated or disposed of, and no power of attorney or deed of transfer, whether for immediate or future use may be validly given. Notwithstanding the foregoing, the Israeli Awards, Underlying Shares and Additional Rights may be validly transferred in a transfer made by will or laws of descent, provided that the transferee thereof shall be subject to the provisions of Section 102 and the Section 102 Rules as would have been applicable to the deceased Israeli Awardee were he or she to have survived.

14.7

Israeli Awardee Undertakings


         By accepting an Israeli Award, the Israeli Awardee (1) agrees and acknowledges that he or she have received and read the Plan and the Grant Agreement or Stock Option agreement (as the case may be); (2) undertakes all the provisions set forth in: Section 102 (including provisions regarding the applicable Tax Track that the Company has selected), the 102 Rules, the Plan, the Grant Agreement and the Trust Agreement; and (3) undertakes not to sell or release the Shares from trust before the end of the Holding Period, subject to the provisions of Section 102 and the Rules.

  PHARMOS CORPORATION


/s/ GAD RIESENFELD
Gad Riesenfeld
President and Chief Operating Officer

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This excerpt taken from the PARS 10-K filed Mar 10, 2005.

SECTION  14.   SECTION 102 OF THE ISRAELI TAX ORDINANCE.

                The provisions of this Section shall govern all grants of Stock Options, Restricted Stock and Restricted Stock Units under Section 102 of the Israeli Income Tax Ordinance [new version] - 1961 (“Section 102”) and the Income Tax Rules (Tax Relief for Issuance of Shares to Employees), 2003 (“Section 102 Rules”) to Israeli Employees and Directors of the Company or any of its affiliates (provided such Employee or Director does not control the Company, as such term is defined in Section 102 (respectively the “Israeli Award” and “Israeli Awardee”). Except as detailed below, all other provisions, definitions, terms and conditions, of the Plan shall continue to be valid and in full force and effect.

14.1         Trust Arrangement and Holding Period

                The Company may grant Israeli Awards to Israeli Awardees under the provisions of one of three tax tracks provided for in Section 102 as detailed below (“Tax Track”).

                (a) Trustee Tax Tracks

                If the Company elects to grant an Israeli Award through (i) the Capital Gains Track Through a Trustee, or (ii) the Income Tax Track Through a Trustee, then, in accordance with the requirements of Section 102, the Company shall appoint a Trustee who will hold in trust on behalf of each Awardee the Israeli Award.


10




                The holding period (the “Holding Period ”) for the Israeli Award will be as follows:

                (i) The Capital Gains Tax Track Through a Trustee  – if the Company elects to grant the Israeli Award according to the provisions of this track, then the Holding Period will be 24 months from the end of the tax year in which the Israeli Award was allocated to the Trustee on behalf of the Israeli Awardee, or such shorter period as may be legislated or approved by the Israeli Authorities.

                (ii) The Income Tax Track Through a Trustee – if the Company elects to grant the Israeli Award according to the provisions of this track, then the Holding Period will be 12 months from the end of the tax year in which the Options were allocated to the Trustee on behalf of the Israeli Awardee, or such shorter period as may be legislated or approved by the Israeli Authorities.

                Subject to Section 102, Israeli Awardees shall not be able to receive from the Trustee, nor shall they be able to sell or dispose of shares issued upon exercise of Stock Options (the “Underlying Shares”) before the end of the applicable Holding Period. However, if an Israeli Awardee sells or removes the Israeli Award or the Underlying Shares form the Trustee before the end of the applicable Holding Period (“Breach”), the Israeli Awardee shall pay all applicable taxes imposed on such Breach by rule 7 of the Section 102 Rules.

                In the event of a distribution of rights, including an issuance of bonus shares, in connection with the Israeli Award originally allocated to the Trustee (the “Additional Rights”), all such Additional Rights shall be allocated and/or issued to the Trustee for the benefit of Israeli Awardee and shall be held by the Trustee for the remainder of the Holding Period applicable to the Israeli Award originally allocated. Such Additional Rights shall be treated in accordance with the provisions of the applicable Tax Track.

(b)           Income Tax Track Without a Trustee

                If the Company elects to grant an Israeli Award according to the provisions of this track, then the Israeli Award will not be subject to a Holding Period.

14.2         Track Selection

                The Company, in its sole discretion, shall elect under which of above three Tax Tracks each Israeli Award is granted and shall notify the Israeli Awardee in the Grant Agreement or the Stock Option Agreement (as the case may be), which Tax Track applies to each Israeli Award.

14.3         Concurrent Conditions

                The Holding Period, if any, is in addition to any vesting period specified in the Plan or the Grant Agreement. The Holding Period and vesting period may run concurrently, but neither is a substitute for the other, and each are independent terms and conditions for Israeli Awards.

14.4         Trust Agreement


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                The terms and conditions applicable to the trust relating to the Tax Track selected by the Company, as appropriate, shall be set forth in an agreement signed by the Company and the Trustee (the “Trust Agreement”).

14.5         Tax Matters

                Israeli Awards shall be governed by, and shall conform with and be interpreted so as to comply with, the requirements of Section 102 and any written approval from the Israeli Tax Authorities. All tax consequences under any applicable law (other than stamp duty) which may arise from the award of Israeli Awards, from the exercise thereof or from the holding or sale of Underlying Shares (or other securities issued under the Plan) by or on behalf of the Israeli awardee, shall be borne solely on the Israeli Awardee. The Israeli Awardee shall indemnify the Company and/or Affiliate and/or Trustee, as the case may be, and hold them harmless, against and from any liability for any such tax or any penalty, interest or indexing.

                If the Company elects to grants Israeli Awards according to the provisions of the Income Tax Track Without a Trustee (Section 14.1(b) of this Plan), and if prior to the exercise of any and/or all of this Israeli Award, such Israeli Awardee ceases to be an employee, director, or officer of the Company or Affiliate, the Israeli Awardee shall deposit with the Company a guarantee or other security as required by Section 102, in order to ensure the payment of applicable taxes upon the exercise of such Israeli Award.

14.6         Withholding Taxes

                Whenever an amount with respect to withholding tax relating to Israeli Awards granted to a Israeli Awardees and/or Underlying Shares due from the Israeli Awardee and/or the Company and/or an Affiliate and/or the Trustee, the Company and/or an Affiliate and/or the Trustee shall have the right to demand from an Israeli Awardee such amount sufficient to satisfy any applicable withholding tax requirements related thereto, and whenever Shares or any other non-cash assets are to be delivered pursuant to the exercise of an Israeli Award, or transferred thereafter, the Company and/or an Affiliate and/or the Trustee shall have the right to require the Israeli Awardee to remit to the Company and/or to the Affiliate, or to the Trustee an amount in cash sufficient to satisfy any applicable withholding tax requirements related thereto, and if such amount is not timely remitted, the Company and/or the Affiliate or the Trustee shall have the right to withhold or set-off (subject to Law) such Shares or any other non-cash assets pending payment by the Israeli Awardee of such amounts.

                Until all taxes have been paid in accordance with Rule 7 of the Section 102 Rules, Israeli Awards, Underlying Shares and Additional Rights may not be sold, transferred, assigned, pledged, encumbered, or otherwise willfully hypothecated or disposed of, and no power of attorney or deed of transfer, whether for immediate or future use may be validly given. Notwithstanding the foregoing, the Israeli Awards, Underlying Shares and Additional Rights may be validly transferred in a transfer made by will or laws of descent, provided that the transferee thereof shall be subject to the provisions of Section 102 and the Section 102 Rules as would have been applicable to the deceased Israeli Awardee were he or she to have survived.


12



14.7         Israeli Awardee Undertakings

                By accepting an Israeli Award, the Israeli Awardee (1) agrees and acknowledges that he or she have received and read the Plan and the Grant Agreement or Stock Option agreement (as the case may be); (2) undertakes all the provisions set forth in: Section 102 (including provisions regarding the applicable Tax Track that the Company has selected), the 102 Rules, the Plan, the Grant Agreement and the Trust Agreement; and (3) undertakes not to sell or release the Shares from trust before the end of the Holding Period, subject to the provisions of Section 102 and the Rules.

 
  PHARMOS CORPORATION
 
 
  /s/  GAD RIESENFELD

  Gad Riesenfeld
  President and Chief Operating Officer
   

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