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

three

months ended

March 31, 2020,

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, 2019		642,253		$	20.14		3.5	$	4,718
Granted		—			—
Exercised		(161,001	)		17.55
Forfeited or expired		—			—
Outstanding as of March 31, 2020 (2)		481,252		$	21.01		3.4	$	2,524
Exercisable as of March 31, 2020 (3)		455,252		$	20.59		3.2	$	2,524

(

)

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

452,564

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

426,564

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

As of

March 31, 2020,

there was

$11

of unrecognized compensation expense related to unvested stock options and SARs. This amount is expected to be recognized over the next

quarters of

2020.

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 (the

“2011

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”). 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 stock units (“PSUs”) based on the Company’s achievement of the

2019

license and related revenue goal of

$41

million that was 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 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 vest over

three

years, with

34%

of the RSUs vesting after

one

year and the remaining vesting 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.

February 20, 2020,

the Committee granted

17,045,

5,113,

4,545

and

4,545

PSUs to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the

2011

Plan (collectively, the “Short-Term Executive PSUs”). The performance goals for the Short-Term Executive PSUs with specified weighting are as follows:

Weighting	Goals
50%	Vesting of the full 50% of the PSUs occurs if the Corporation achieves the 2020 license and related revenue amount in the budget approved by the Board (the “2020 License Revenue Target”). The vesting threshold is achievement of 90% of 2020 License Revenue Target. If the Corporation’s actual result is above 90% but less than 99% of the 2020 License Revenue Target, 91% to 99% of the eligible PSUs would be subject to vesting. If the Corporation’s actual result exceeds 100% of the 2020 License Revenue Target, every 1% increase of the 2020 License Revenue Target, up to 110%, would result in an increase of 2% of the eligible PSUs.
50%	Vesting of the full 50% of the PSUs occurs if the Corporation achieves positive total shareholder return whereby the return on the Corporation’s stock for 2020 is greater than the S&P500 index. The vesting threshold is if the return on the Corporation’s stock for 2020 is at least 90% of the S&P500 index. If the return on the Corporation’s stock, in comparison to the S&P500, is above 90% but less than 99% of the S&P500 index, 91% to 99% of the eligible PSUs would be subject to vesting. If the return on the Corporation’s stock exceeds 100% of the S&P500 index, every 1% increase in comparison to the S&P500 index, up to 110%, would result in an increase of 2% of the eligible PSUs.

Additionally, PSUs representing an additional

20%,

meaning an additional

3,410,

1,023,

909

and

909

PSUs, would be eligible for vesting for each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, if the performance goals set forth above are exceeded.

Subject to achievement of the thresholds for the above performance goals for

2020,

the Short-Term Executive PSUs vest

33.4%

February 20, 2021,

33.3%

February 20, 2022

and

33.3%

February 20, 2023.

Also, on

February 20, 2020,

the Committee granted

56,818,

35,511,

28,409

and

28,409

long-term PSUs to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the

2011

Plan (collectively, the “Long-Term Executive PSUs”). The Long-Term Executive PSUs shall vest upon the achievement of either of the following performance goals:

●

If the Company’s non-GAAP EPS on or before the end of

2022

is tripled from the Company’s non-GAAP EPS in

2018.

●

If the Company’s market cap reaches at least

billion for at least

days of trading based on the market cap information set forth on Yahoo Finance.

Furthermore, on

February 20, 2020,

the Committee granted an aggregate of

18,500

PSUs to certain key employees of the Company. The PSUs shall vest over

three

years upon the achievement of the following performance goals, with

34%

of the PSUs vesting after

one

year and the remaining vesting in equal portions over the following

months, such that all PSUs shall vest after

three

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

Weighting	Goals
50%	Achievement of specified bookings in 2020 (“Specified Bookings”) for licensing and related revenues associated with certain of the Corporation’s technologies (the “Specified Booking Target”) in specific geographic region. If 90% of the Specified Booking Target is achieved, 90% of the bonus amount under this component would be payable with every 1% increase resulting in a corresponding increase in the bonus amount under this component.
30%	Execution of definitive license agreements for pre-determined software with at least five of seven original equipment manufacturers. If five such agreements are executed, 71% of the bonus amount under this component, which is subject to a 6% weighting, would be payable. If six agreements are executed, 86% of the bonus amount under this component, which is subject to a 6% weighting, would be payable.
20%	Execution of definitive license agreements with at least two customers in a predetermined strategic market.

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

three

months ended

March 31, 2020,

are as follows:

	Number of RSUs and PSUs			Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2019		732,564		$	30.11
Granted		386,237			27.46
Vested		(222,006	)		32.21
Forfeited or expired		(14,741	)		28.74
Unvested as of March 31, 2020		882,054		$	28.45

As of

March 31, 2020,

there was

$21,160

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

1.5

years.

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

	Three months ended March 3 1 ,
	20 20 (unaudited)		201 9 (unaudited)
Cost of revenue	$	158	$	136
Research and development, net		1,623		1,362
Sales and marketing		451		356
General and administrative		875		562
Total equity-based compensation expense	$	3,107	$	2,416

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 3 1 ,
	20 20 (unaudited)			201 9 (unaudited)
Expected dividend yield		0%			0	%
Expected volatility	32%	-	42%		43	%
Risk-free interest rate	1.5%	-	1.9%		2.5	%
Contractual term of up to (months)		24			24