NOTE 8:

COMMON STOCK AND STOCK-BASED COMPENSATION PLANS

The Company grants stock options and stock appreciation rights (“SARs”) capped with a ceiling to employees and stock options to non-employee directors of the Company and its subsidiaries and provides the right to purchase common stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries. The SAR unit confers the holder the right to stock appreciation over a preset price of the Company’s common stock during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares of the Company’s common stock. The ceiling limits the maximum income for each SAR unit. SARs are considered an equity instrument as it is a net share settled award capped with a ceiling (400% for SAR grants made during the three months ended March 31, 2015). The options and SARs granted under the Company’s stock incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Options granted to non-employee directors vest 25% of the shares underlying the option on each anniversary of the option grant. A summary of the Company’s stock option and SARs activities and related information for the three months ended March 31, 2015, are as follows:


	Number of options and SAR units			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic- value
Outstanding as of December 31, 2014		3,316,380		$	16.50
SAR units granted (1)		37,500			19.59
Options/SAR units exercised		(436,806	)		10.20
Options/SAR units forfeited or expired		(36,594	)		18.62

Outstanding as of March 31, 2015 (2)		2,880,480		$	17.47		4.7	$	14,188,392

Exercisable as of March 31, 2015 (3)		1,690,821		$	18.17		3.5	$	8,100,340

(1)	The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant.

(2)	Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 2,524,973 shares of the Company’s common stock issuable upon exercise.

(3)	Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 1,548,456 shares of the Company’s common stock issuable upon exercise.

The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of income:


	Three months ended March 31,
	2015		2014
	(unaudited)		(unaudited)
Cost of revenue	$	35	$	58
Research and development, net		391		601
Sales and marketing		79		302
General and administrative		344		552

Total equity-based compensation expense	$	849	$	1,513

The fair value for the Company’s SARs (other than share issuances in connection with the employee stock purchase plan, as detailed below) granted to employees was estimated using the following assumptions:


	Three months ended March 31,
	2015		2014
	(unaudited)		(unaudited)
Expected dividend yield		0%		0%
Expected volatility		33%-49%		37%-52%
Risk-free interest rate		0.2%-1.6%		0.1%-2.2%
Expected forfeiture		10%		10%
Contractual term of up to		7 Years		7 Years
Suboptimal exercise multiple (employees)		2.1		2.1

The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan was estimated on the date of grant using the following assumptions:


	Three months ended March 31,
	2015		2014
	(unaudited)		(unaudited)
Expected dividend yield		0%		0%
Expected volatility		36%		43%-52%
Risk-free interest rate		0.1%		0.1%-0.2%
Expected forfeiture		0%		0%
Contractual term of up to		24 months		24 months

As of March 31, 2015, there was $3,294 of unrecognized compensation expense related to unvested equity awards. This amount is expected to be recognized over a weighted-average period of 1.4 years. To the extent the actual forfeiture rate is different from what the Company has estimated, equity-based compensation related to these awards will be different from the Company’s expectations.