NOTE

STOCKHOLDERS’ EQUITY

a. Common stock:

Holders of common stock are entitled to

one

vote per share on all matters to be voted upon by the Company’s stockholders. In the event of a liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all of the Company’s assets. The Board of Directors

may

declare a dividend out of funds legally available therefore and the holders of common stock are entitled to receive ratably any such dividends. Holders of common stock have

preemptive rights or other subscription rights to convert their shares into any other securities.

b. Preferred stock:

The Company is authorized to issue up to

5,000,000

shares of “blank check” preferred stock, par value

$0.001

per share. Such preferred stock

may

be issued by the Board of Directors from time to time in

one

or more series. These series

may

have designations, preferences and relative, participating, optional or other special rights and any qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, exchange rights, voting rights, redemption rights (including sinking and purchase fund provisions), and dissolution preferences as

may

be determined by the Company’s Board of Directors.

c. Share repurchase program:

August

2008,

the Company announced that its Board of Directors approved a share repurchase program for up to

one

million shares of common stock which was further extended by an additional

five

million

shares in

2010,

2013

and

2014.

May 2018,

the Company’s Board of Directors authorized the repurchase by the Company of an additional

700,000

shares of common stock.

As of

December

31,

2019,

there were

shares of common stock available for repurchase under the Company’s share repurchase program.

2017,

the Company did

not

repurchase any shares of its common stock. In

2018,

the Company repurchased

655,876

shares of common stock at an average purchase price of

$30.51

per share for an aggregate purchase price of

$20,008.

2019,

the Company repurchased

355,180

shares of common stock at an average purchase price of

$25.66

per share for an aggregate purchase price of

$9,113.

d. Employee and non-employee stock plans:

The Company grants a mix of stock options, SARs capped with a ceiling and RSUs to employees and non-employee directors of the Company and its subsidiaries under the Company’s equity plans 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 all SAR grants made in years prior to

2016.

Starting in

2016,

the Company ceased to grant SAR units). 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.

In connection with the Company’s acquisition of RivieraWaves, on

July 7, 2014,

the Company issued an aggregate of

113,000

SARs to

employees of RivieraWaves who joined the Company in connection with the acquisition. The value of these grants was

not

included in the acquisition price of RivieraWaves. The SARs were granted outside of the Company’s existing equity plans and were granted as a material inducement to such individuals entering into employment with the Company, in accordance with NASDAQ Listing Rule

5635

(c)(

). All of the SARs were priced at

$15.17,

the fair market value on the grant date, and vest over

four

years, with

25%

of the SARs vesting after

one

year and the remaining vest in equal portions over the following

months, such that all such SARs vested as of

December 31, 2018,

subject to the employee's continuous service through each vesting date. The SARs have a ceiling limit for maximum income capped at

400%,

expire

seven

years from the grant date and are subject to the terms and condition of the individual SAR agreements. The SAR grants were approved by the compensation committee of the Board of Directors of the Company.

A summary of the Company’s stock option and SARs activities and related information for the year ended

December 31, 2019,

is as follows:

	Number of options and SAR units (1)			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic-value
Outstanding at the beginning of the year		702,817		$	19.88		4.3	$	2,708
Granted		—			—
Exercised		(54,834	)		16.71
Forfeited or expired		(5,730	)		20.08
Outstanding at the end of the year (2)		642,253		$	20.14		3.5	$	4,718
Exercisable at the end of the year (3)		616,253		$	19.80		3.4	$	4,718

(

)

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

596,877

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

570,877

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

2017,

2018

and

2019,

the Company did

not

grant options and/or SARs.

The total intrinsic value of options and SARs exercised during the years ended

December 31, 2017,

2018

and

2019

was

$15,188,

$384

and

$629,

respectively.

The options and SARs granted to employees of the Company and its subsidiaries and the options granted to non-employee directors of the Company which were outstanding as of

December 31, 2019

have been classified into a range of exercise prices as follows:

			Outstanding					Exercisable
Exercise price (range)			Number of options and SARs		Weighted average remaining contractual life (years)	Weighted average exercise price		Number of options and SARs		Weighted average remaining contractual life (years)	Weighted average exercise price
14.16	-	18.62		299,836	2.5	$	15.64		299,836	2.5	$	15.64
19.36	-	19.83		172,166	4.1	$	19.42		172,166	4.1	$	19.42
24.86	-	30.60		170,251	4.8	$	28.81		144,251	4.4	$	28.88
				642,253	3.5	$	20.14		616,253	3.4	$	19.80

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.

May 7, 2019,

the Compensation Committee (the “Committee”) of the Board of Directors 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”). The Committee and the CEO mutually agreed to amend the Prior RSU Award. In lieu of the Prior RSU Award, the CEO received (

)

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 based on the Company’s achievement of the

2019

license and related revenue goal approved by the Board of Directors (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 were 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 exceeded

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. In

2019,

the Company achieved

116%

of the

2019

License Revenue Target, so based on the PSU award conditions, the CEO received

23,200

PSUs. The PSUs vest in a

three

-year period, with

1/3

of the PSUs vested on

February 19, 2020,

and thereafter

1/3

of the remaining PSUs would vest on each of

February 19, 2021

and

February 19, 2022.

July 19, 2019,

the Company issued a total of

52,000

RSUs to

employees who joined the Company in connection with the Company's acquisition of the Hillcrest Labs business. The RSUs were granted outside of the Company’s existing equity plans and were granted as inducements to employment in accordance with NASDAQ Listing Rule

5635

(c)(

). The RSUs were priced at

$25.41,

the fair market value on the grant date, and would vest over

three

years, with

34%

of the RSUs vesting after

one

year and the remaining vest in equal portions over the following

months, such that all RSUs vest after

three

years, subject to the employee's continuous service through each vesting date.

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

December 31, 2019,

is as follows:

	Number of RSUs and PSUs			Weighted average Grant-Date fair value
Unvested as at the beginning of the year		564,390		$	32.28
Granted		509,309			27.74
Vested		(282,557	)		29.94
Forfeited		(58,578	)		31.18
Unvested at the end of the year		732,564		$	30.11

Stock Plans

As of

December 31, 2019,

the Company maintains the Company’s

2003

Director Stock Option Plan (the “Director Plan”) and the

2011

Stock Incentive Plan (the

“2011

Plan” and together with the Director Plan, the “Stock Plans”).

As of

December

31,

2019,

options, SARs, RSUs and PSUs to purchase

671,132

shares of common stock were available for grant under the Stock Plans.

2011

Stock Incentive Plan

The

2011

Plan was adopted by the Company’s Board of Directors in

February 2011

and stockholders on

May 17, 2011.

Up to

2,350,000

shares of common stock (subject to adjustment in the event of future stock splits, future stock dividends or other similar changes in the common stock or the Company’s capital structure), plus the number of shares that remain available for grant of awards under the Company’s

2002

Stock Incentive Plan (the

“2002

Plan), plus any shares that would otherwise return to the

2002

Plan as a result of forfeiture, termination or expiration of awards previously granted under the

2002

plan (subject to adjustment in the event of stock splits and other similar events), are reserved for issuance under the

2011

Plan. The

2002

Plan was automatically terminated and replaced and superseded by the

2011

Plan, except that any awards previously granted under the

2002

Plan shall remain in effect pursuant to their term. As of

December 31, 2019,

there were

outstanding equity awards remaining in the

2002

Plan.

The

2011

Plan provides for the grant of incentive stock options intended to qualify under Section

422

of the Internal Revenue Code, nonqualified stock options, restricted stock, RSUs, dividend equivalent rights and stock appreciation rights. Officers, employees, directors, outside consultants and advisors of the Company and those of the Company’s present and future parent and subsidiary corporations are eligible to receive awards under the

2011

Plan. Under current U.S. tax laws, incentive stock options

may

only be granted to employees. The

2011

Plan permits the Company's Board of Directors or a committee thereof to determine how grantees

may

pay the exercise or purchase price of their awards.

Unless sooner terminated, the

2011

Plan is effective until

February 2021.

The Company’s Board of Directors or a committee thereof has authority to administer the

2011

Plan. The Company’s Board of Directors has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the

2011

Plan and to interpret its provisions.

2003

Director Stock Option Plan

Under the Director Plan,

1,350,000

The Director Plan provides for the grant of nonqualified stock options to non-employee directors. Options must be granted at an exercise price equal to the fair market value of the common stock on the date of grant. Options

may

not

be granted for a term in excess of

ten

years.

Under the original terms of the Director Plan, (a) any person who becomes a non-employee director of the Company was automatically granted an option to purchase

38,000

shares of common stock, (b) on

June 30

of each year, beginning in

2004,

each non-employee director who had served on the Company’s Board of Directors for at least

six

(

) months as of such date was automatically granted an option with the exercise price being the fair market value of the Company’s common stock as of

July 1

of each year to purchase

13,000

shares of common stock, and each non-employee director would receive an option with the exercise price being the fair market value of the Company’s common stock as of

July 1

of each year to purchase

13,000

shares of common stock for each committee on which he or she had served as chairperson for at least

six

months prior to such date, and (c) the Chairman of the Board was granted an additional option with the exercise price being the fair market value of the Company’s common stock as of

July 1

of each year to purchase

15,000

shares of common stock on an annual basis. In

February 2015,

the Board suspended the automatic grant of stock options to each non-employee director and the Chairman of the Board under the Director Plan. In lieu of the automatic stock option grants under the Director Plan, the Board approved an equity award to all current directors of the Company consisting solely of RSUs granted under the

2011

Plan. From

February 2015

2017,

the Chairman of the Board of Directors would receive a RSU award with an annualized value of

$268,520,

directors with a chairperson position on any committee of the Board of Directors would receive a RSU award with an annualized value of

$249,340

and all other directors would receive a RSU award with an annualized value of

$124,670.

In response to market trends, in lieu of the prior annualized values of the RSU awards to directors, starting in

July 2018,

each director was granted shares of RSUs based on an annualized value of

$124,670,

which vest

50%

on the

first

year anniversary of the grant date and the remaining

50%

on the

second

year anniversary of the grant date. In

July 2018

and

2019,

based on the new parameters, the directors of the Company received a grant of RSUs in the aggregate amount of

28,896

RSUs and

35,399

RSUs, respectively. In

February 2019,

the Board determined that each new director of the Company, in lieu of an option to purchase

38,000

shares of common stock, would receive a RSU award with an annualized value of

$124,670.

The Company’s Board of Directors or a committee thereof

may

grant additional options to purchase common stock with a vesting schedule to be determined by the Board of Directors in recognition of services provided by a non-employee director in his or her capacity as a director.

The Company’s Board of Directors or a committee thereof has authority to administer the Director Plan. The Company’s Board of Directors or a committee thereof has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the Director Plan and to interpret its provisions.

2002

Employee Stock Purchase Plan (“ESPP”)

The ESPP was adopted by the Company’s Board of Directors and stockholder in

July 2002.

The ESPP is intended to qualify as an “Employee Stock Purchase Plan” under Section

423

of the U.S. Internal Revenue Code and is intended to provide the Company’s employees with an opportunity to purchase shares of common stock through payroll deductions. An aggregate of

2,700,000

December

31,

2019,

109,123

shares of common stock were available for future issuance under the ESPP.

All of the Company’s employees who are regularly employed for more than

five

months in any calendar year and work

hours or more per week are eligible to participate in the ESPP. Non-employee directors, consultants, and employees subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical their participation in an employee stock purchase plan are

not

eligible to participate in the ESPP.

The ESPP designates offer periods, purchase periods and exercise dates. Offer periods generally will be overlapping periods of

months. Purchase periods generally will be

six

-month periods. Exercise dates are the last day of each purchase period. In the event the Company merges with or into another corporation, sells all or substantially all of the Company’s assets, or enters into other transactions in which all of the Company’s stockholders before the transaction own less than

50%

of the total combined voting power of the Company’s outstanding securities following the transaction, the Company’s Board of Directors or a committee designated by the Board

may

elect to shorten the offer period then in progress.

The price per share at which shares of common stock

may

be purchased under the ESPP during any purchase period is the lesser of:

●

85%

of the fair market value of common stock on the date of grant of the purchase right, which is the commencement of an offer period; or

●

85%

of the fair market value of common stock on the exercise date, which is the last day of a purchase period.

The participant’s purchase right is exercised in the above noted manner on each exercise date arising during the offer period unless, on the

first

day of any purchase period, the fair market value of common stock is lower than the fair market value of common stock on the

first

day of the offer period. If so, the participant’s participation in the original offer period will be terminated, and the participant will automatically be enrolled in the new offer period effective the same date.

The ESPP is administered by the Board of Directors or a committee designated by the Board, which will have the authority to terminate or amend the plan, subject to specified restrictions, and otherwise to administer and resolve all questions relating to the administration of the plan.

e. Dividend policy:

The Company has never declared or paid any cash dividends on its capital stock and does

not

anticipate paying any cash dividends in the foreseeable future.