NOTE

: 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). 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

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 SAR activities and related information for the

nine

months ended

September 30, 2019,

are as follows:

	Number of options and SAR units (1)			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic- value
Outstanding as of December 31, 2018		702,817		$	19.88		4.3	$	2,708
Granted		—			—
Exercised		(54,114	)		16.73
Forfeited or expired		(730	)		21.83
Outstanding as of September 30, 2019 (2)		647,973		$	20.14		3.7	$	6,361
Exercisable as of September 30, 2019 (3)		611,677		$	19.62		3.6	$	6,313

(

)

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.

(

)

Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of

601,167

shares of the Company’s common stock issuable upon exercise.

(

)

Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of

565,070

shares of the Company’s common stock issuable upon exercise.

As of

September 30, 2019,

there was

$44

of unrecognized compensation expense related to unvested stock options and SARs. This amount is expected to be recognized over a weighted-average period of

1.0

years.

Starting in the

second

quarter of

2015,

the Company granted to employees, including executive officers, and non-employee directors, restricted stock units (“RSUs”) under the Company’s

2011

Stock Incentive Plan. A RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion thereof vests. RSUs granted to employees generally vest in

three

equal annual installments starting on the

first

anniversary of the grant date. Until the end of

2017,

RSUs granted to non-employee directors would generally vest in full on the

first

anniversary of the grant date. Starting in

2018,

RSUs granted to non-employee directors would generally vest in

two

equal annual installments starting on the

first

anniversary of the grant date. The fair value of each RSU is the market value as determined by the closing price of the common stock on the day of grant. The Company recognizes compensation expenses for the value of its RSU awards, based on the straight-line method over the requisite service period of each of the awards.

May 7, 2019,

the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company approved, effective immediately, an amendment to the RSU award granted to the Company’s Chief Executive Officer (the “CEO”) on

February 19, 2019,

consisting of

30,000

RSUs that vest in a

three

-year period (the “Prior RSU Award”). Based on feedback from stockholders during engagements with them prior to the Company’s

2019

annual meeting of stockholders, the Committee and the CEO mutually agreed to amend the Prior RSU Award. In lieu of the Prior RSU Award, the CEO would receive (

)

10,000

time-based RSUs with the same original

three

-year vesting schedule starting with

1/3

February 19, 2020,

and (

) an opportunity to receive up to

24,000

performance-based PSUs shares (the “PSUs”) based on the Company’s achievement of the

2019

license and related revenue goal approved by the Board (the

“2019

License Revenue Target”). If the Company’s results equal

100%

of the

2019

License Revenue Target, the CEO would receive

20,000

PSUs. If the Company’s results are between

90%

99%

of the

2019

License Revenue Target, the CEO would receive the same proportion of the

20,000

PSUs. If the Company’s results exceed

100%

of the

2019

License Revenue Target, every

increase of the

2019

License Revenue Target, up to

120%,

would result in an increase of

of the

20,000

PSUs to be awarded to the CEO. Subject to the Company achieving

90%

of the

2019

License Revenue Target, the PSUs would vest in a

three

-year period, with

1/3

of the PSUs vest on

February 19, 2020,

and thereafter

1/3

of the remaining PSUs would vest on each of

February 19, 2021

and

February 19, 2022.

A summary of the Company’s RSU and PSU activities and related information for the

nine

months ended

September 30, 2019,

are as follows:

	Number of RSUs and PSUs			Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2018		564,390		$	32.28
Granted		489,099			27.77
Vested		(266,820	)		29.78
Forfeited or expired		(49,117	)		31.19
Unvested as of September 30, 2019		737,552		$	30.27

As of

September 30, 2019,

there was

$16,238

of unrecognized compensation expense related to unvested RSUs and PSUs. This amount is expected to be recognized over a weighted-average period of

1.6

years.

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

	Nine months ended September 30,				Three months ended September 30,
	2019 (unaudited)		2018 (unaudited)		2019 (unaudited)		2018 (unaudited)
Cost of revenue	$	464	$	480	$	168	$	155
Research and development, net		4,314		3,874		1,494		1,246
Sales and marketing		1,112		1,246		362		369
General and administrative		1,957		2,483		728		697
Total equity-based compensation expense	$	7,847	$	8,083	$	2,752	$	2,467

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:

	Nine months ended September 30,						Three months ended September 30,
	2019 (unaudited)			2018 (unaudited)			2019 (unaudited)			2018 (unaudited)
Expected dividend yield		0%			0%			0	%		0	%
Expected volatility	42%	-	43%	35%	-	42%		42	%		38	%
Risk-free interest rate	2.0%	-	2.5%	0.7%	-	2.2%		2.0	%		2.2	%
Contractual term of up to (months)		24			24			24			24