NOTE 4:–

STOCKHOLDERS’ EQUITY (DEFICIENCY)

On December 30, 2005, the Company’s board of directors adopted the Varonis Systems, Inc. 2005 Stock Plan (the “2005 Stock Plan”). As of December 31, 2013, the Company had reserved 4,713,319 shares of common stock available for issuance to employees, directors, officers and consultants of the Company and its subsidiaries. As of December 31, 2013, the Company granted options with respect to 4,656,855 shares of common stock under the 2005 Stock Plan. The options generally vest over four years. No awards were granted under the 2005 Stock Plan subsequent to December 31, 2013, and no further awards will be granted under the 2005 Stock Plan.

On November 14, 2013, the Company’s board of directors adopted the Varonis Systems, Inc. 2013 Omnibus Equity Incentive Plan (the “2013 Plan”). As of September 30, 2014, the Company had reserved 1,904,633 shares of common stock available for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2013 Plan will be increased on January 1, 2016 and on each January 1 thereafter by four percent (4%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase (rounded down to the nearest whole share), but the amount of each increase will be limited to the number of shares of common stock necessary to bring the total number of shares of Common Stock available for grant and issuance under the 2013 Plan to five percent (5%) of the number of shares of common stock issued and outstanding on each December 31. Options granted under the 2013 Plan generally vest over four years. Any award that is forfeited or canceled before expiration becomes available for future grants under the 2013 Plan.

A summary of employees’ stock options activities during the nine months ended September 30, 2014 is as follows:


	Nine Months Ended September 30, 2014 (unaudited)
	Number			Average exercise price		Aggregate intrinsic value (in thousands)		Average remaining contractual life (years)

Options outstanding at the beginning of the year		3,233,235		$	4.033	$	65,723		5.700
Granted		838,940		$	26.189
Exercised		(94,674	)	$	2.369
Forfeited		(40,530	)	$	18.360


Options outstanding at the end of the period		3,936,971		$	8.647	$	56,768		5.975


Vested and expected to vest		3,839,163		$	8.287	$	56,523		5.889


Options exercisable at the end of the period		2,674,799		$	2.284	$	53,004		4.428

The aggregate intrinsic value in the table above represents the total intrinsic value that would have been received by the option holders had all option holders exercised their options on the last date of the exercise period. Total intrinsic value of options exercised for the nine month period ended September 30, 2014 was $2,239. As of September 30, 2014, there was $15,354 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005 Stock Plan and 2013 Plan. This cost is expected to be recognized over a period of approximately 3.3 years.

The options outstanding as of September 30, 2014 (unaudited) have been separated into ranges of exercise price as follows:


Range of exercise price	Options outstanding as of September 30, 2014		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of September 30, 2014		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable

$ 0.070 - 0.901		693,467		2.682	$	0.752		693,467		2.682	$	0.752
$ 1.039 - 1.576		1,669,345		4.495	$	1.260		1,665,478		4.492	$	1.259
$ 6.230 - 8.800		174,596		7.138	$	6.723		125,290		7.063	$	6.756
$12.470		415,711		8.425	$	12.470		159,613		8.398	$	12.470
$21.14 - 24.23		774,902		9.586	$	21.591		30,951		8.953	$	21.131
$39.86		208,950		9.479	$	39.860		—		—	$	—


		3,936,971		5.975	$	8.647		2,674,799		4.428	$	2.284

The fair value of stock option grants for the period ended September 30, 2014 was estimated using the following weighted average assumptions:


	Period Ended September 30, 2014
	Unaudited

Expected dividend yield		0	%
Expected volatility		60	%
Risk-free interest rate		2.22	%
Expected term (years)		6.25

Options issued to consultants:

The Company’s outstanding options granted to consultants for sales and pre-marketing services as of September 30, 2014 (unaudited) were as follows:


	Options for shares of common stock		Exercise price per share		Options exercisable		Exercisable through
	(number)				(number)

December 2006		15,000	$	0.901		15,000	December 2016
February 2013		4,000	$	12.470		1,581	February 2023
August 2013		5,000	$	21.140		1,351	August 2023
October 2013		1,250	$	24.230		—	October 2023
March 2014		17,050	$	39.860		—	March 2024
May 2014		8,700	$	22.010		—	May 2024
August 2014		36,250	$	21.000		—	August 2024


		87,250				17,932

Stock-based compensation expense for employees and consultants:

The Company recognized non-cash stock-based compensation expense in the consolidated statements of operations as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(unaudited) (In thousands)				(unaudited) (In thousands)

Cost of revenues	$	55	$	9	$	121	$	20
Research and development		319		151		790		336
Sales and marketing		614		252		1,473		517
General and administrative		226		98		454		253


Total	$	1,214	$	510	$	2,838	$	1,126

Restricted stock units for non-employee directors:

The following provides a summary of the restricted stock unit activity for the Company for the nine months ended September 30, 2014:


	Number of Shares Underlying Outstanding Restricted Stock Units			Weighted- Average Grant Date Fair Value		Average Intrinsic Value

Outstanding as of January 1, 2014		—		$	—
Granted		31,905		$	21.00
Vested		(1,770	)	$	21.00
Forfeited		—		$	—


Unvested as of September 30, 2014		30,135		$	21.00	$	3