RETALIX LTD.

Options granted under our Second 1998 Plan are not generally transferable by the optionee, and each option is exercisable during the lifetime of the
optionee only by such optionee. Options granted under the Second 1998 Plan must generally be exercised within three months of the end of the optionee’s
status as our employee or consultant or within twelve months after such optionee’s termination by death or disability, but in no event later than the
expiration of the option’s term. The exercise price of all incentive and nonstatutory share options granted under the Second 1998 Plan must be at least
equal to the fair market value of our ordinary shares on the date of grant, except in the event of options granted in connection with certain merger and
acquisition transactions. With respect to any participant who owns shares possessing more than 10% of the voting power of all classes of our outstanding
share capital, the exercise price of any incentive share option granted must equal at least 110% of the fair market value on the grant date and the term of
such incentive share option must not exceed five years. The term of all other options granted under the Second 1998 Plan may not exceed ten years. Some
holders of share options granted under the Second 1998 Plan are entitled to participate in rights offerings that may be made by us to our shareholders.
Our Second 1998 Plan provides that in the event we merge with or into another corporation or sale of substantially all of our assets, each outstanding
option will be assumed or an equivalent option will be substituted by the successor corporation. If the successor corporation refuses to assume or substitute
for our options as described in the preceding sentence, the options will terminate as of the closing.
2004 Israeli Share Option Plan
Our 2004 Israeli Share Option Plan provides for the granting of options to employees, directors and consultants under either Section 102 or Section 3
(9) of the Israeli Income Tax Ordinance. As of June 30, 2006, options to purchase 764,000 ordinary shares were granted under the 2004 Israeli Share
Option Plan. 600,000 options were granted at an exercise price of $18.56, of which one-third vested on December 31, 2004, two-ninths vested on
December 31, 2005 and the remaining four-ninths will vest in two equal portions on December 31, 2006 and December 31, 2007. These options will expire
on June 30, 2008. In addition, options to purchase 164,000 shares were granted at an exercise price of $23.02, of which one-third vested on December 31,
2005 and the remaining two-thirds will vest in three equal portions on December 31, 2006, December 31, 2007 and December 31, 2008. These options will
expire on June 30, 2009. The options granted under our 2004 Israeli Share Option Plan are all subject to the “capital gains taxation route” under Section
102 of the Income Tax Ordinance [New Version], 1961, which generally provides for a reduced tax rate of 25% on gains realized upon the exercise of
options and sale of underlying shares, subject to the fulfillment of certain procedures and conditions including the deposit of such options (or shares issued
upon their exercise) for a requisite period of time with a trustee approved by the Israeli tax authorities. For as long as the shares issued upon exercise of
such options are registered in the name of the trustee, the voting rights with respect to such shares shall remain with the trustee. Under the “capital gains
taxation route,” we are not entitled to recognize a deduction for tax purposes on the gain recognized by the employee upon sale of the shares underlying the
options. As of June 30, 2006, 25,289 options granted under our 2004 Israeli Share Option Plan have been exercised, 30,747 options were forfeited and
707,964 options remained outstanding..
The 2004 Israeli Share Option Plan is administered by our board of directors or by a share incentive committee or other committee of the board,
subject to applicable law. The plan administrator has the power to determine the terms of the options granted, including the exercise price, the number of
shares subject to each option, the exercisability of the option and the form of consideration payable upon such exercise. In the event of a merger or sale of
substantially all of our assets or stock, our board or a committee administrating the plan has discretion as to whether to cause outstanding options to be
assumed by the successor company, substituted for successor company options or automatically vested in full. Subject to applicable law and regulations,
our board of directors has the authority to amend, suspend or terminate the 2004 Israeli Share Option Plan, provided that no such action may affect any
ordinary share previously issued and sold or any option previously granted under the plan.
Options granted under our 2004 Israeli Share Option Plan are not generally transferable by the optionee, and each option is exercisable during the
lifetime of the optionee only by such optionee. Options granted under the 2004 Israeli Share Option Plan may generally be exercised in circumstances of
termination by the grantee until the termination date and in certain circumstances in which the termination was initiated by the employer, within a period of
fifteen days following termination, or within six months after such optionee’s termination by death or disability, but in no event later than the expiration of
the option’s term and all to the extent that such options are vested at such dates. The term of other options granted under the 2004 Israeli Share Option Plan
may not exceed ten years.
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