{"url_path":"/sec/forty/10-k/2026/item-10","section_key":"item-10","section_title":"Item 10 ADDITIONAL INFORMATION**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1045986/0001213900-26-055948-index.html","accession_number":"0001213900-26-055948","cik":"0001045986","ticker":"FORTY","issuer_name":"FORMULA SYSTEMS (1985) LTD","edgar_url":"https://www.sec.gov/Archives/edgar/data/1045986/0001213900-26-055948-index.html","primary_entity_key":"0001045986","primary_entity_name":"FORMULA SYSTEMS (1985) LTD"},"word_count":8872,"has_tables":true,"body_markdown":"**ITEM 10. ADDITIONAL INFORMATION**\n\n \n\n**A.**\n**Share Capital**\n\n \n\nNot applicable.\n\n \n\n**B.**\n**Memorandum and Articles of Association**\n\n \n\nThe\ninformation called for by this Item 10.B of Form 20-F has been provided in Exhibit 2.2 to this annual report. The content of Exhibit 2.2\nis incorporated by reference herein.\n\n \n\n**C.**\n**Material Contracts**\n\n \n\nBeyond the below-described\nagreements, Formula and the other companies that comprise the Formula Group are not party to, and have not been party to in the last two\nyears, any material contract entered into outside of their ordinary course of business. In addition, while our subsidiaries are party\nand have been party in the last two years to numerous contracts with customers, resellers and distributors, such contracts are entered\ninto in the ordinary course of business. Furthermore, other than as described below (with respect to the agreements related to the acquisition\nof Sapiens by an affiliate of Advent, and the merger of Matrix and Magic Software), we do not deem any other individual contract entered\ninto by any of our subsidiaries outside of the ordinary course of business (such as investment or acquisition agreements) during the last\ntwo years to be material to us on a consolidated basis.\n\n** **\n\n158\n\n \n\n** **\n\n**Merger Agreement for Acquisition of Sapiens\nby Advent**\n\n** **\n\nOn August 12, 2025, Sapiens\nentered into an Agreement and Plan of Merger, or the Sapiens merger agreement, by and among Sapiens, SI Swan UK Bidco Limited, or Bidco,\nSI Swan Guernsey Holdco Limited, or Parent, and SI Swan Cayman Merger Sub Ltd., or Merger Sub, a wholly owned subsidiary of Parent, and\non December 17, 2025, the merger of Sapiens was completed in accordance with the terms of that agreement. Upon the consummation of the\nmerger under that agreement, Sapiens became a wholly owned, privately-held subsidiary of affiliates of Advent, a private equity firm,\nwith Formula retaining an indirect minority interest in Sapiens, and Sapiens’ common shares were delisted from Nasdaq and the TASE\nand were deregistered under the Exchange Act.\n\n \n\nPursuant to the Sapiens\nmerger agreement, Merger Sub was merged with and into Sapiens, with Sapiens continuing as the surviving company. Following the completion\nof the Sapiens merger, Parent was liquidated and Sapiens became a wholly owned subsidiary of Bidco and a beneficially owned subsidiary\nprivately held by affiliates of Bidco and Formula. The Sapiens merger agreement, and the transactions contemplated thereby were described\nin the proxy statement, dated October 16, 2025, distributed by Sapiens to its shareholders and attached as Exhibit (a)-(1) to the transaction\nstatement on Sapiens’ amended Schedule 13E-3 that Sapiens filed with the SEC on October 16, 2025.\n\n \n\nUnder the Sapiens merger\nagreement, at the effective time of the merger, each issued and outstanding common share of Sapiens was cancelled and ceased to exist,\nin consideration and exchange for the right to receive $43.50 in cash per share, without interest and net of any applicable withholding\ntaxes, except for: (a) 6,896,552 common shares held by Formula, which remained outstanding (referred to as the rollover shares), (b) 17,418,214\ncommon shares other than the rollover shares (referred to as the non-rollover shares) which were transferred by Formula to Merger Sub\nimmediately prior to the effectiveness of the merger in exchange for a non-interest bearing loan note instrument, (c) common shares held\nby Parent, Merger Sub and any of their respective subsidiaries, and (d) all common shares held by Sapiens or any subsidiary of Sapiens\nor held in Sapiens’ treasury, in each case for (b), (c) and (d), issued and outstanding immediately prior to the effective time,\nwhich were cancelled at the effective time without payment of any consideration. Each ordinary share of Merger Sub issued and outstanding\nimmediately prior to the effective time of the merger was converted into one validly issued, fully paid and non-assessable common share,\nof Sapiens.\n\n* *\n\nThe Sapiens merger agreement\nprovided that options and RSUs with respect to Sapiens common shares were treated as follows:\n\n \n\n \n●\nImmediately prior to the effective time of the merger, Sapiens caused (i) 58% of the unvested portion of all remaining outstanding and unexpired options under Sapiens’ equity incentive plans to become vested and (ii) 58% of the unvested portion of all remaining outstanding and unexpired RSUs, to become vested. Any individual who provided or received a notice of termination of his or her employment or engagement with the Sapiens or any of its subsidiaries as of the date of the merger agreement did not receive the foregoing acceleration.\n\n  \n\n \n●\n\nAt the effective time of the merger, (i) each\nvested Sapiens RSU (which vested either previously or due to the 58% pro-rata acceleration described above) was cancelled and converted\ninto the right to receive the per share cash merger consideration ($43.50) in respect of each underlying Sapiens common share at the closing;\n(ii) each Sapiens RSU that did not vest (either previously or due to the 58% pro-rata acceleration described above) was cancelled and\nconverted into the right to receive the per share cash merger consideration ($43.50) in respect of each underlying Sapiens common share\nat the same time or times as the RSU would have vested pursuant to its terms, subject to the continued employment or service of the holder\nthrough each applicable vesting date; (iii) each vested Sapiens option (which vested either previously or due to the 58% pro-rata acceleration\ndescribed above) was cancelled and converted into the right to receive the excess (if any) of the per share cash merger consideration\n($43.50) over the applicable per share exercise price of such vested option in respect of each underlying Sapiens common share; and (iv)\neach Sapiens option that did not vest (either previously or due to the 58% pro-rata acceleration described above) was cancelled and converted\ninto the right to receive an amount in cash equal to the product of (x) the excess (if any) of the per share cash merger consideration\n($43.50) over the applicable per share exercise price of such unvested option and (y) the total number of Sapiens common shares underlying\nthe unvested option, which cash amount would vest and become payable at the same time(s) as the unvested option would have vested and\nbecome exercisable, subject to the continued employment or service of the holder through each applicable vesting date.\n\n \n\n●\n \nAny Sapiens option (whether vested or not) that had a per share exercise price that was equal to or greater than the per share merger cash consideration ($43.50) was cancelled as of the effective time of the merger without any cash payment or other consideration.\n\n \n\n159\n\n \n\n \n\nThe further terms of the\nSapiens merger agreement and the merger completed pursuant to that agreement are described in the definitive proxy statement for Sapiens’\nextraordinary general meeting of shareholders held on November 19, 2025, which served as Exhibit (a)(1) to Amendment No. 1 to the Schedule\n13E-3 filed by Sapiens, Advent and certain of its affiliates, and Formula with the SEC on October 16, 2025. The description of the Sapiens\nmerger agreement in that filing, as available at the following link, is incorporated by reference herein: https://www.sec.gov/Archives/edgar/data/885740/000121390025099320/ea026112001ex99-ai_sapiens.htm\n\n** **\n\n**Rollover Agreement for Formula’s Interest\nin Sapiens**\n\n \n\nIn connection with Sapiens’\nacquisition by Advent, which was completed on December 17, 2025 pursuant to the Sapiens merger agreement as described above, Formula entered\ninto a rollover agreement, dated August 12, 2025, which provided for a specific arrangement whereby Formula retained an indirect minority\ninterest in Sapiens.\n\n \n\nThe rollover agreement was\nentered into on August 12, 2025 at the time of the execution of the Sapiens merger agreement, and included, as parties, Formula, as a\nrollover shareholder of Sapiens, Parent, Merger Sub, Bidco, and SI Swan UK Topco Limited, or TopCo, the ultimate parent company of Bidco.\nUnder the rollover agreement, immediately prior to the effective time of the merger, Formula sold and transferred all shares of Sapiens\nheld by it (referred to as the non-rollover shares)— other than the rollover shares retained by Formula— to Merger Sub in\nexchange for a non-interest bearing loan note with an aggregate principal amount of $757,692,309. Merger Sub, in turn, issued to Parent\na number of shares of Merger Sub with an aggregate amount equal to the amount of the loan note. Immediately following the effective time\nof the merger, Parent sold and transferred to Bidco the number of issued and outstanding common shares of Sapiens held by Parent immediately\nfollowing the merger having an aggregate value equal to the aggregate amount of third party debt financing obtained by Bidco in connection\nwith the transactions contemplated by the merger agreement pursuant to a debt commitment letter, and in exchange, Bidco paid to Parent\ncash in an aggregate amount equal to the loan note amount, and any outstanding amount under the loan previously made by Bidco to Parent\non or around the closing date in connection with the transactions contemplated by the merger agreement was deemed to have been repaid\nin full. Parent then caused a paying agent to repay to Formula the aggregate amount outstanding under the loan note, and Formula contributed\nand assigned to Topco the rollover shares, and in exchange, Topco issued to a paying agent a number of ordinary shares in Topco with an\naggregate value equal to $300 million, which shares were transferred by the paying agent to Formula, thereby leaving Formula with an approximate\n18.68% equity interest in Topco (which is the ultimate parent company of Bido and, consequently, Bidco’s wholly-owned subsidiary,\nSapiens).\n\n** **\n\n**Matrix- Magic Software Merger Agreement**\n\n** **\n\nOn November 3, 2025, two\nof Formula’s publicly-traded subsidiaries— Matrix and Magic Software— entered into a merger agreement (referred to as\nthe Matrix-Magic Software merger agreement) with one another and with Matrix’s wholly-owned subsidiary, Magitrix Ltd., and on February\n24, 2026, the parties completed the reverse triangular merger contemplated by that agreement. Pursuant to the Matrix-Magic Software merger\nagreement, Matrix’s wholly-owned subsidiary merged with and into Magic Software, with Magic Software surviving as a wholly-owned\nsubsidiary of Matrix. As consideration for their shares of Magic Software surrendered in the merger, Magic Software shareholders received\nan aggregate of 28,861,564 ordinary shares of Matrix, representing 0.5878202 Matrix ordinary shares for each Magic\nSoftware ordinary share held by them. That exchange rate resulted in Matrix’s and Magic Software’s shareholders owning 68.875%\nand 31.125%, respectively, of Matrix’s issued and outstanding ordinary shares post-merger on a fully diluted basis.\n\n \n\n160\n\n \n\n \n\nUpon completion of the merger\npursuant to the Matrix-Magic Software merger agreement, Magic Software’s ordinary shares were delisted from Nasdaq and the TASE,\nwhereas Matrix’s ordinary shares continue to be listed on the TASE. The Matrix ordinary shares serving as consideration to Magic\nSoftware’s shareholders were listed for trading on the TASE pursuant to a shelf offering report, dated December 3, 2025.\n\n \n\nAs required by Israeli law\nand by the Matrix-Magic Software merger agreement, the merger transaction was approved by special general meetings of the shareholders\nof each of Matrix and Magic Software. The Matrix-Magic Software merger agreement also set as a condition to the completion of the merger\nthe receipt by the parties of a ruling from the Israel Tax Authority. Under the ruling, Magic Software’s shareholders’\nsurrender of their shares and their receipt of the Matrix shares serving as consideration in the merger will not be considered a “sale”\nunder the Israeli Tax Ordinance at the time of completion of the merger transaction, but rather only upon the actual sale of the Matrix\nshares received as consideration in the transaction, in accordance with the provisions of Section 103t of the Israeli Tax Ordinance.\n\n \n\nThe further terms of the\nMatrix-Magic Software merger agreement and the merger completed pursuant to that agreement are described in the Tender Offer/Rights Offering\nNotification Form on Form CB, as amended, originally filed by Matrix with the SEC on November 4, 2025 (with respect to Magic Software\nas the subject company). The description of the merger agreement in that filing, as available at the following link, is incorporated by\nreference herein: https://www.sec.gov/Archives/edgar/data/876779/000095010325014243/dp236802_cb.htm.\n\n** **\n\n**Agreements Related to Debentures**\n\n \n\nPlease see “*Item\n5. Operating and Financial Review and Prospects— B. Liquidity and Capital Resources— Company Commitments*” for a\ndescription of the terms of the trust agreements to which we are party in connection with our Series A Secured Debentures and Series C\nSecured Debentures.\n\n \n\n**Service Agreement with CEO**\n\n \n\nPlease see “*Item\n6. Directors, Senior Management and Employees— B. Compensation— Option Grants to, and Service Agreement with, Chief Executive\nOfficer*” for a description of our service agreement with our Chief Executive Officer, Mr. Guy Bernstein.\n\n \n\n**D.**\n**Exchange Controls**\n\n \n\nUnder current Israeli regulations,\nwe may pay dividends or other distributions in respect of our ordinary shares either in Israeli or non-Israeli currencies. If we make\nthese payments in Israeli currency, they will be freely converted, transferred and paid in non-Israeli currencies at the rate of exchange\nprevailing at the time of conversion. We expect, therefore, that dividends, if any, that we pay to holders of ADSs, will be paid in dollars,\nnet of conversion expenses, expenses of the depositary for our ADSs, the Bank of New York Mellon, and Israeli income taxes (if applicable).\nBecause exchange rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder will be subject to the risk of currency\nfluctuations between the date when we declare NIS-denominated dividends and the date when we pay them in NIS. See “*Item 3. Key\nInformation— Risk Factors*.”\n\n \n\nNon-residents of Israel may\nfreely hold and trade our ADSs or ordinary shares pursuant to the general permit issued under the Israeli Currency Control Law, 1978.\nNeither our articles nor the laws of the State of Israel restrict in any way the ownership of our ordinary shares by non-residents, except\nthat these restrictions may exist with respect to citizens of countries that are in a state of war with Israel.\n\n \n\n161\n\n \n\n \n\n**E.**\n**Taxation**\n\n* *\n\n*The following is a short\nsummary of the material provisions of the tax environment to which shareholders may be subject. This summary is based on the current provisions\nof tax law, including the provisions of the Economic Efficiency Law (Legislative Amendments for Achieving Budgetary Objectives for the\n2025 and 2026 Budget Years), 5785-2025, and the Minimum Corporate Tax on Multinational Groups Law, 2025. To the extent that the discussion\nis based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the\nviews expressed in the discussion will be accepted by the appropriate tax authorities or the courts.*\n\n \n\n*The summary does not address\nall of the tax consequences that may be relevant to all holders of our ordinary shares and ADSs in light of each holder’s particular\ncircumstances and specific tax treatment. For example, the summary below does not address the tax treatment of residents of Israel and\ntraders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders of our ordinary shares\nand ADSs should consult their own tax adviser as to the United States, Israeli or other tax consequences of the purchase, ownership and\ndisposition of ordinary shares and ADSs. The following is not intended, and should not be construed, as legal or professional tax advice\nand is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal adviser.*\n\n** **\n\n**Israeli Taxation Considerations for Our\nShareholders**\n\n \n\n**Tax Consequences Regarding Disposition of\nOur ADSs or Ordinary Shares**\n\n \n\nIsraeli law generally imposes\na capital gain tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets\nlocated in Israel, including shares of Israeli companies, by both residents and non-residents of Israel, unless a specific exemption is\navailable or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The Tax Ordinance\ndistinguishes between “Real Capital Gain” and “Inflationary Surplus”. The Inflationary Surplus is a portion of\nthe total capital gain which is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase\nin the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the\ndate of sale. The Real Capital Gain is the excess of the total capital gain over the Inflationary Surplus.\n\n \n\n**Capital gain**\n\n \n\n*Israeli Resident Individuals*\n\n \n\nAs of January 1, 2012, the\ntax rate applicable to Real Capital Gain derived by Israeli individuals from the sale of shares, whether or not listed on a stock exchange,\nis 25%, unless such shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding\nof such shares, in which case the gain will generally be taxed at a rate of 30%. However, if such shareholder is considered a Substantial\nShareholder (i.e., a person who holds, directly or indirectly, alone or together with another person who collaborates with such person\non a permanent basis, 10% or more of any of the company’s “means of control” (including, among other things, the right\nto receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint\na director)) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. Individual\nshareholders dealing in securities in Israel are taxed at their marginal tax rates applicable to business income (up to 47% in 2018 and\nthereafter, excluding excess tax, if applicable, as described below).\n\n \n\n162\n\n \n\n \n\n*Israeli Resident Corporations*\n\n \n\nUnder current Israeli tax\nlegislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the sale of shares of an Israeli\ncompany is the general corporate tax rate. As described above, the corporate tax rate since 2018 has been 23%.\n\n \n\n*Non-Israeli Resident Shareholders*\n\n \n\nIsraeli capital gain tax is\nimposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel; (ii) shares or rights\nto shares in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax\ntreaty between Israel and the seller’s country of residence provides otherwise. As mentioned above, Real Capital Gain is generally\nsubject to tax at the corporate tax rate (23% in 2018 and thereafter) if generated by a company, or at the rate of 25% if generated by\nan individual, or 30%, if generated by an individual who is a “substantial shareholder” (as defined under the Tax Ordinance)\n, at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction for interest and linkage\ndifferences expenses in connection with the purchase and holding of such shares) . A “substantial shareholder” is generally\na person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis,\nholds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control”\ngenerally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive assets upon\nliquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual and\ncorporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate\nfor a corporation and a marginal tax rate of up to 47% for an individual in 2018 and thereafter (excluding excess tax as discussed below))\nunless contrary provisions in a relevant tax treaty apply.\n\n \n\nNotwithstanding the foregoing,\nshareholders who are non-Israeli residents (individuals and corporations) generally should be exempt from Israeli capital gain tax on\nany gains derived from the sale, exchange or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a recognized stock\nexchange outside of Israel, provided, among other things, that (i) such gains are not generated through a permanent establishment that\nthe non-Israeli resident maintains in Israel, (ii) the shares were purchased after being listed on a recognized stock exchange. However,\nnon-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling interest of more\nthan 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of\nsuch non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains from selling or\notherwise disposing of the shares are deemed to be business income.\n\n \n\nIn addition, a sale of shares\nmay be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, under the U.S.-Israel Tax Treaty,\nor the U.S-Israel Treaty, the sale, exchange or disposition of shares of an Israeli company by a shareholder who is a U.S. resident (for\npurposes of the U.S.-Israel Treaty) holding the shares as a capital asset is exempt from Israeli capital gain tax unless either (i) the\nshareholder holds, directly or indirectly, shares representing 10% or more of the voting rights during any part of the 12-month period\npreceding such sale, exchange or disposition; (ii) the shareholder, if an individual, has been present in Israel for a period or periods\nof 183 days or more in the aggregate during the applicable taxable year; (iii) the capital gain arising from such sale are attributable\nto a permanent establishment of the shareholder which is maintained in Israel; (iv) the capital gain arising from such sale, exchange\nor disposition is attributed to real estate located in Israel; (v) the capital gain arising from such sale, exchange or disposition is\nattributed to royalties; or (vi) the shareholder is a U.S. resident (for purposes of the U.S.-Israel Treaty) and is not holding the shares\nas a capital asset. In each case, the sale, exchange or disposition of such shares would be subject to Israeli tax, to the extent applicable;\nhowever, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal\nincome tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax\ncredits. The U.S-Israel Treaty does not provide such credit against any U.S. state or local taxes.\n\n \n\n163\n\n \n\n \n\nIn some instances where our\nshareholders may be liable for Israeli tax on the sale of their ordinary shares and ADSs, the payment of the consideration may be subject\nto the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital\ngains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares\nof an Israeli resident company, in the form of a merger or otherwise, the ITA may require from shareholders who are not liable for Israeli\ntax to sign declarations in forms specified by this authority or obtain a specific exemption from the ITA to confirm their status as non-Israeli\nresident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.\n\n \n\n**Taxes Applicable to Dividends**\n\n \n\n*Israeli Resident Shareholders*\n\n \n\n*Israeli Resident Individuals*.\nIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our ordinary shares (other than\nbonus shares or share dividends) at 25%, or 30% if the recipient of such dividend is a Substantial Shareholder (as detailed above) at\nthe time of distribution or at any time during the preceding 12-month period.\n\n \n\n*Israeli Resident Corporations*.\nIsraeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on shares of Israeli resident corporations\n(like our ordinary shares and ADSs).\n\n \n\n*Non-Israeli Resident Shareholders*\n\n \n\nNon-Israeli residents (whether\nindividuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares or ADSs,\nat the rate of 25% or 30% (if the dividend recipient is a Substantial Shareholder at the time of distribution or at any time during the\npreceding 12-month period).\n\n \n\nA non-Israeli resident who\nreceives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such\nincome, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other\ntaxable sources of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not obliged to\npay excess tax (as further explained below).\n\n \n\n**Excess Tax**\n\n \n\nIndividuals who are subject\nto tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at\na rate of 3% on annual income exceeding NIS 721,560 for 2025 (approximately $226,194, based on an exchange rate of NIS 3.19 per U.S. dollar\nas of December 31, 2025), which amount is generally linked to the annual change in the Israeli consumer price index (with the exception\nthat based on Israeli legislation, such amount, and certain other statutory amounts, will not be linked to the Israeli consumer price\nindex for the years 2025-2027), including, but not limited to, dividends, interest and capital gain. According to legislation, in effect\nas of January 1, 2025, an additional 2% excess tax is imposed on Capital-Sourced Income (defined as income from any source other than\nemployment income, business income or income from “personal effort”), to the extent that an individual’s Capital Sourced\nIncome exceeds the specified threshold of NIS 721,560 (and regardless of the employment/business income amount of such individual). This\nadditional excess tax applies, among other things, to income from capital gains, dividends, interest, rental income, or the sale of real\nproperty.\n\n** **\n\n**Estate and gift tax**\n\n \n\nIsraeli law presently does\nnot impose estate or gift taxes.\n\n \n\n164\n\n \n\n \n\n**United States Federal Income Tax Considerations**\n\n \n\nSubject to the limitations\ndescribed herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of\nour ordinary shares or ADSs to a U.S. holder. A U.S. holder is a holder of our ordinary shares or ADSs who is:\n\n \n\n \n●\nAn individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes\n\n \n\n \n●\nA corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any political subdivision thereof, or the District of Columbia\n\n \n\n \n●\nAn estate, the income of which may be included in gross income for U.S. federal income tax purposes regardless of its source\n\n \n\n \n●\nA trust (i) if, in general, a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) an electing trust that was in existence on August 19, 1996 and was treated as a domestic trust on that date\n\n \n\nUnless otherwise specifically\nindicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (which we refer to as a non-U.S.\nholder) and considers only U.S. holders that will own our ordinary shares or ADSs as capital assets (generally, for investment).\n\n \n\nThis discussion is based on\ncurrent provisions of the Internal Revenue Code of 1986, as amended, or the Code, current and proposed Treasury Regulations promulgated\nunder the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to\nchange, possibly with a retroactive effect. This discussion takes into account the One Big Beautiful Bill Act, or the OBBBA, enacted on\nJuly 4, 2025, which permanently extended and modified numerous provisions of the Tax Cuts and Jobs Act of 2017. This discussion does not\naddress all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s\nparticular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who\nare broker-dealers, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, individual retirement\nand tax-deferred accounts, certain former citizens or long-term residents of the U.S., tax-exempt organizations, financial institutions,\n“financial service entities” or who own, directly, indirectly or constructively, 10% or more of the vote or value of our outstanding\nshares, U.S. holders holding our ordinary shares or ADSs as part of a hedging, straddle or conversion transaction, U.S. holders whose\nfunctional currency is not the U.S. dollar, U.S. holders that acquired our ordinary shares or ADSs upon the exercise of employee stock\noptions or otherwise as compensation, and U.S holders who are persons subject to the alternative minimum tax, who may be subject to special\nrules not discussed below.\n\n \n\nAdditionally, the tax treatment\nof persons who are, or hold our ordinary shares or ADSs through a partnership or other pass-through entity is not considered, nor is the\npossible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws.\n\n \n\nFurthermore, unless otherwise\nindicated, this discussion assumes that our company is not, and will not become, a “passive foreign investment company,” or\na PFIC, for U.S. federal income tax purposes. See “—*Tax Consequences if We Are a Passive Foreign Investment Company*”\nbelow.\n\n \n\n**Prospective investors should\nbe aware that this discussion does not address the tax consequences to investors who are not U.S. holders. Prospective investors should\nconsult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership and disposition\nof ordinary shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws**.\n\n \n\n**Taxation of Distributions\non our Ordinary Shares or ADSs**\n\n \n\nSubject to the discussion\nbelow under “*Tax Consequences if We Are a Passive Foreign Investment Company*,” a distribution paid by us with respect\nto our ordinary shares or ADSs to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed\nour current and accumulated earnings and profits, as determined for U.S. federal income tax purposes.\n\n \n\n165\n\n \n\n \n\nDividends that are received\nby U.S. holders that are individuals, estates or trusts generally will be taxed at the rate applicable to long-term capital gains, provided\nthose dividends meet the requirements of “qualified dividend income.” The maximum long-term capital gains rate is 20% for\nindividuals with annual taxable income that exceeds certain thresholds. In addition, higher income taxpayers must pay an additional 3.8%\ntax on net investment income to the extent certain threshold amounts of income are exceeded. See “Tax on Net Investment Income”\nin this Item below. For this purpose, qualified dividend income generally includes dividends paid by a foreign corporation if certain\nholding period and other requirements are met and either (a) the stock of the foreign corporation with respect to which the dividends\nare paid is “readily tradable” on an established securities market in the U.S. (e.g., the Nasdaq Global Select Market) or\n(b) the foreign corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information\nexchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. Dividends that fail to meet such requirements\nand dividends received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified\ndividend (i) if the U.S. holder held the ordinary share or ADS with respect to which the dividend was paid for less than 61 days during\nthe 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this\npurpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual\nobligation to sell, has made (and not closed) a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option\nto buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share or ADS (or substantially\nidentical securities); or (ii) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make\nrelated payments with respect to positions in property substantially similar or related to the ordinary share and ADS with respect to\nwhich the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code),\nor PFIC, for any taxable year, dividends paid on our ordinary shares or ADSs in such year or in the following taxable year would not be\nqualified dividends. See the discussion below regarding our PFIC status under “*Tax Consequences if We Are a Passive Foreign Investment\nCompany*.” In addition, a non-corporate U.S. holder will be able to take qualified dividend income into account in determining\nits deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case\nthe dividend income will be taxed at ordinary income rates.\n\n \n\nPursuant to the OBBBA, the individual income\ntax rates and brackets originally established under the Tax Cuts and Jobs Act of 2017, including the top marginal rate of 37%, have been\nmade permanent for tax years beginning after December 31, 2025. Additionally, for tax year 2025, the OBBBA provides a temporary deduction\nfor “qualified tips” and “qualified overtime” income for certain eligible workers, which may impact the effective\ntax rate for a subset of U.S. holders.\n\n \n\nThe amount of any distribution\nwhich exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s\ntax basis in our ordinary shares or ADSs to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares\nor ADSs. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares and ADSs.\n\n \n\nDistributions of current or\naccumulated earnings and profits paid in foreign currency to a U.S. holder will be includible in the income of a U.S. holder in a U.S.\ndollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. holder that receives a foreign\ncurrency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain or loss\nbased on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source\nordinary income or loss.\n\n \n\n166\n\n \n\n \n\n**Taxation of the Disposition of the Ordinary\nShares or ADSs**\n\n \n\nSubject to the discussion\nbelow under “*Tax Consequences if We Are a Passive Foreign Investment Company*,” upon the sale, exchange or other disposition\nof our ordinary shares or ADSs, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount\nrealized on the disposition and the U.S. holder’s tax basis in our ordinary shares or ADSs. The gain or loss recognized on the disposition\nof the ordinary shares or ADSs will be long-term capital gain or loss if the U.S. holder held the ordinary shares or ADSs for more than\none year at the time of the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders. Following\nthe enactment of the OBBBA, these preferential rates and the associated income thresholds are no longer subject to the previously scheduled\n2025 sunset. The maximum long-term capital gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds.\nIn addition, under the Patient Protection and Affordable Care Act, higher income taxpayers must pay an additional 3.8% tax on net investment\nincome to the extent certain threshold amounts of income are exceeded. See “*Tax on Net Investment Income*” in this Item\nbelow. Capital gain from the sale, exchange or other disposition of ordinary shares or ADSs held for one year or less is short-term capital\ngain and taxed as ordinary income. Gain or loss recognized by a U.S. holder, who does not have a tax home outside the United States, on\na sale, exchange or other disposition of our ordinary shares or ADSs generally will be treated as U.S. source income or loss. The deductibility\nof capital losses is subject to certain limitations.\n\n \n\nA U.S. holder that uses the\ncash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that the sale settles. However,\na U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade\ndate and may therefore realize foreign currency gain or loss. A U.S. holder that uses the accrual method may avoid realizing foreign currency\ngain or loss by electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency\ngain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of its ordinary shares or ADSs and converts the\nforeign currency into dollars after the settlement date or trade date (whichever date the U.S. holder is required to use to calculate\nthe value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the\nforeign currency against the dollar, which will generally be U.S. source ordinary income or loss.\n\n \n\n**Tax Consequences if We Are a Passive Foreign\nInvestment Company**\n\n \n\nWe would be a passive foreign\ninvestment company, or PFIC, for a taxable year if either (1) 75% or more of our gross income in the taxable year is passive income; or\n(2) the average percentage (by value determined on a quarterly basis) in a taxable year of our assets that produce, or are held for the\nproduction of, passive income is at least 50%. Passive income for this purpose generally includes, among other things, certain dividends,\ninterest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives\nrise to passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we would be treated\nfor purposes of the foregoing tests as owning our proportionate share of the other corporation’s assets and as directly earning\nour proportionate share of the other corporation’s income. As discussed below, we believe that we were not a PFIC for 2025.\n\n \n\nIf we were a PFIC, each U.S.\nholder would (unless it made one of the elections discussed below on a timely basis) be taxable on gain recognized from the disposition\nof our ordinary shares or ADSs (including gain deemed recognized if our ordinary shares or ADSs are used as security for a loan under\ncertain conditions) and upon receipt of certain excess distributions (generally, distributions that exceed 125% of the average amount\nof distributions in respect to such shares received during the preceding three taxable years or, if shorter, during the U.S. holder’s\nholding period prior to the distribution year) with respect to our ordinary shares or ADSs as if such income had been recognized ratably\nover the U.S. holder’s holding period for the shares. The U.S. holder’s income for the current taxable year would include\n(as ordinary income) amounts allocated to the current taxable year and to any taxable year prior to the first day of the first taxable\nyear for which we were a PFIC. Tax would also be computed at the highest ordinary income tax rate in effect for each other taxable year\nto which income is allocated, and an interest charge on the tax as so computed would also apply. The tax liability with respect to the\namount allocated to the taxable year prior to the taxable year of the distribution or disposition cannot be offset by any net operating\nlosses. Additionally, if we were a PFIC, U.S. holders who acquire our ordinary shares or ADSs from decedents (other than nonresident aliens)\nwould be denied the normally-available step-up in basis for such shares to fair market value at the date of death and, instead, would\nhave a tax basis in such shares equal to the lesser of the decedent’s basis or the fair market value of such shares on the decedent’s\ndate of death.\n\n \n\n167\n\n \n\n \n\nAs an alternative to the tax\ntreatment described above, a U.S. holder could elect to treat us as a “qualified electing fund” (a QEF), in which case the\nU.S. holder would be taxed, for each taxable year that we are a PFIC, on its pro rata share of our ordinary earnings and net capital gain\n(subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge). Special rules apply if a\nU.S. holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC. We have agreed to supply U.S.\nholders with the information needed to report income and gain under a QEF election if we were a PFIC. Amounts includable in income as\na result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions, if any, received\nfrom us. A U.S. holder’s basis in its ordinary shares or ADSs will increase by any amount included in income and decrease by any\namounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long as a U.S. holder’s\nQEF election is in effect with respect to the entire holding period for its ordinary shares or ADSs, any gain or loss realized by such\nholder on the disposition of its ordinary shares or ADSs held as a capital asset generally will be capital gain or loss. Such capital\ngain or loss ordinarily would be long-term if such U.S. holder had held such ordinary shares or ADSs for more than one year at the time\nof the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders. The maximum long-term\ncapital gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds. The QEF election is made on a shareholder-by-shareholder\nbasis, applies to all ordinary shares or ADSs held or subsequently acquired by an electing U.S. holder and can be revoked only with the\nconsent of the IRS. The QEF election must be made on or before the U.S. holder’s tax return due date, as extended, for the first\ntaxable year to which the election will apply.\n\n \n\nAs an alternative to making\na QEF election, a U.S. holder of PFIC stock that is “marketable stock” (e.g., “regularly traded” on the Nasdaq\nGlobal Select Market) may, in certain circumstances, avoid certain of the tax consequences generally applicable to holders of stock in\na PFIC by electing to mark the stock to market as of the beginning of such U.S. holder’s holding period for our ordinary shares\nor ADSs. Special rules apply if a U.S. holder makes a mark-to-market election after the first year in its holding period in which we are\na PFIC. As a result of such an election, in any taxable year that we are a PFIC, a U.S. holder would generally be required to report gain\nor loss to the extent of the difference between the fair market value of the ordinary shares or ADSs at the end of the taxable year and\nsuch U.S. holder’s tax basis in such shares at that time. Any gain under this computation, and any gain on an actual disposition\nof our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary income. Any loss under this computation,\nand any loss on an actual disposition of our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary\nloss to the extent of the cumulative net-mark-to-market gain previously included. Any remaining loss from marking our ordinary shares\nor ADSs to market will not be allowed, and any remaining loss from an actual disposition of our ordinary shares or ADSs generally would\nbe capital loss. A U.S. holder’s tax basis in its ordinary shares or ADSs is adjusted annually for any gain or loss recognized under\nthe mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to our ordinary shares\nor ADSs for the ordinary shares or ADSs to be considered “regularly traded” or that our ordinary shares or ADSs will continue\nto trade on the Nasdaq Global Select Market. Accordingly, there are no assurances that our ordinary shares or ADSs will be marketable\nstock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to\nall ordinary shares or ADSs held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS (except\nto the extent our ordinary shares or ADSs no longer constitute “marketable stock”).\n\n \n\nBased on an analysis of our\nassets and income, we believe that we were not a PFIC for 2025. We currently expect that we will not be a PFIC in 2026. The tests for\ndetermining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant\nto this determination. Accordingly, there can be no assurance that we will not become a PFIC in any future taxable years. U.S. holders\nwho hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be\na PFIC, subject to certain exceptions for U.S. holders who made QEF, mark-to-market or certain other special elections. U.S. holders are\nurged to consult their tax advisors about the PFIC rules, including the consequences to them of making a mark-to-market or QEF election\nwith respect to our ordinary shares or ADSs in the event that we qualify as a PFIC.\n\n \n\n168\n\n \n\n \n\n**U.S. holders are urged\nto consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability of\nmaking, the QEF election or the mark-to-market election.**\n\n \n\n**Tax on Net Investment Income**\n\n \n\nA U.S. holder that is an individual\nor estate, or a trust that does not fall into a special class of trusts that is exempt from the tax, will be subject to a 3.8% tax on\nthe lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the\nU.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will\nbe between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. holder’s net investment income generally\nwill include its dividends on our ordinary shares or ADSs and net gains from dispositions of our ordinary shares or ADSs, unless those\ndividends or gains are derived in the ordinary course of the conduct of trade or business (other than trade or business that consists\nof certain passive or trading activities). Net investment income, however, may be reduced by deductions properly allocable to that income.\nA U.S. holder that is an individual, estate or trust is urged to consult its tax adviser regarding the applicability of the Medicare tax\nto its income and gains in respect of its investment in the ordinary shares or ADSs.\n\n \n\n*Non-U.S. Holders of Ordinary Shares or ADSs*\n\n \n\nA non-U.S. holder of our ordinary\nshares or ADSs will not be subject to U.S. federal income or withholding tax on the receipt of dividends on, or the proceeds from the\ndisposition of, our ordinary shares or ADSs, unless, in the case of U.S. federal income taxes, that item is effectively connected with\nthe conduct by the non-U.S. holder of a trade or business in the United States and, in the case of a resident of a country which has an\nincome tax treaty with the United States, such item is attributable to a permanent establishment in the United States or, in the case\nof an individual, a fixed place of business in the United States. In addition, gain recognized on the disposition of our ordinary shares\nor ADSs by an individual non-U.S. holder will be subject to tax in the United States if the non-U.S. holder is present in the United States\nfor 183 days or more in the taxable year of the sale and certain other conditions are met.\n\n \n\n*Information Reporting and Backup Withholding*\n\n \n\nA U.S. holder generally is\nsubject to information reporting and may be subject to backup withholding at a rate of up to 24% (which rate was made permanent by the\nOBBBA) with respect to dividend payments on, or receipt of the proceeds from the disposition of, our ordinary shares or ADSs. Backup withholding\nwill not apply with respect to payments made to exempt recipients, including corporations and tax-exempt organizations, or if a U.S. holder\nprovides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding or otherwise establishes\nan exemption. Non-U.S. holders are not subject to information reporting or backup withholding with respect to dividend payments on, or\nreceipt of the proceeds from the disposition of, our ordinary shares or ADSs in the U.S., or by a U.S. payor or U.S. middleman, provided\nthat such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption.\nBackup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a holder,\nor alternatively, the holder may be eligible for a refund of any excess amounts withheld under the backup withholding rules, in either\ncase, provided that the required information is furnished to the IRS.\n\n \n\n*Information Reporting by Certain U.S. Holders*\n\n \n\nU.S. citizens and individuals\ntaxable as resident aliens of the United States that own “specified foreign financial assets” with an aggregate value in a\ntaxable year in excess of certain threshold (as determined under Treasury regulations) and that are required to file a U.S. federal income\ntax return generally will be required to file an information report with respect to those assets with their tax returns. IRS Form 8938\nhas been issued for that purpose. “Specified foreign financial assets” include any financial accounts maintained by foreign\nfinancial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or foreign deferred compensation\nplans. Under those rules, our ordinary shares or ADSs, whether owned directly or through a financial institution, estate or pension or\ndeferred compensation plan, would be “specified foreign financial assets”. Under Treasury regulations, the reporting obligation\napplies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties can apply if there is\na failure to satisfy this reporting obligation. A U.S. Holder is urged to consult his tax adviser regarding his reporting obligation.\n\n \n\n169\n\n \n\n \n\n**The above description is\nnot intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our Ordinary\nShares or ADSs. You should consult your tax advisor concerning the tax consequences of your particular situation.**\n\n \n\n**F.**\n**Dividends and Paying Agents**\n\n \n\nNot applicable.\n\n \n\n**G.**\n**Statement by Experts**\n\n \n\nNot applicable.\n\n \n\n**H.**\n**Documents on Display**\n\n \n\nWe are currently subject to\nthe information and periodic reporting requirements of the Exchange Act that are applicable to foreign private issuers. Although as a\nforeign private issuer we are not required to file periodic information as frequently or as promptly as United States companies, we generally\ndo publicly announce our quarterly and year-end results promptly and file periodic information with the United States Securities and Exchange\nCommission in reports of foreign private issuer on Form 6-K. As a foreign private issuer, we are also exempt from the rules under the\nExchange Act prescribing the furnishing and content of proxy statements and our principal shareholders are exempt from the reporting requirements,\nand our officers, directors and principal shareholders are exempt from the other provisions, of Section 16 of the Exchange Act. Our SEC\nfilings are filed electronically on the EDGAR reporting system and may be obtained through that medium. The SEC also maintains a web site\nthat contains reports, proxy and information statements and other information regarding registrants that file electronically with the\nSEC. The address of that web site is http://www.sec.gov. The Exchange Act file number for our SEC filings is 000-29442.\n\n \n\nCopies of our SEC filings\nand submissions are also submitted to the Israel Securities Authority, or ISA, and the TASE. Such copies can be retrieved electronically\nthrough the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (maya.tase.co.il).\n\n \n\nA copy of each report that\nwe submit in accordance with applicable United States law is available for public review at our principal executive offices, at 1 Yahadut\nCanada Street, Or Yehuda 6037501, Israel. Information about us is also available on our website at http://www.formulasystems.com. Such\ninformation is not part of this annual report.\n\n \n\n**I.**\n**Subsidiary Information**\n\n \n\nNot applicable.\n\n \n\n**J.**\n**Annual Report to Security Holders**\n\n \n\nNot applicable."}