NOTE 4:–

STOCKHOLDERS’ EQUITY

a. 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. 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”) which was subsequently approved by the Company’s stockholders. The Company initially 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 was increased on January 1, 2016 and will be increased 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. As of September 30, 2016, the share reserve under the 2013 Plan was 2,947,399 shares of common stock. Awards 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.

The fair value of stock option grants for the nine months ended September 30, 2016 was estimated using the following weighted average assumptions:

	Nine Months Ended September 30, 2016
	(unaudited)

Expected dividend yield		0	%
Expected volatility		62	%
Risk-free interest rate		1.42	%
Expected term (years)		6.25

A summary of employees’ stock options activities during the nine months ended September 30, 2016 is as follows:

	Nine Months Ended September 30, 2016 (unaudited)
	Number			Average exercise price		Aggregate intrinsic value (in thousands)		Average remaining contractual life (years)

Options outstanding as of January 1, 2016		2,782,560		$	14.026	$	21,337		6.246
Granted		135,000		$	16.870
Exercised		(324,992	)	$	6.661
Forfeited		(75,834	)	$	26.334

Options outstanding as of September 30, 2016		2,516,734		$	14.759	$	40,122		5.927

Vested and expected to vest		2,444,514		$	14.531	$	39,511		5.856

Options exercisable at the end of the period		1,784,407		$	11.569	$	34,033		5.046

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 months ended September 30, 2016 was $6,261.

b. The options outstanding as of September 30, 2016 (unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price			Options outstanding as of September 30, 2016		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of September 30, 2016		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable

$0.901	-	$1.576		805,988		2.516	$	1.281		805,988		2.516	$	1.281
$6.230	-	8.800		90,873		5.222	$	6.951		90,873		5.222	$	6.951
$12.470	-	16.870		459,166		7.299	$	13.764		275,764		6.414	$	12.470
$19.510	-	21.660		554,457		7.873	$	21.207		278,018		7.803	$	21.204
$22.010	-	24.230		297,128		7.551	$	22.277		173,799		7.541	$	22.317
	$29.880			154,200		8.397	$	29.880		61,045		8.397	$	29.880
	$39.860			154,922		7.477	$	39.860		98,920		7.477	$	39.860

				2,516,734		5.927	$	14.759		1,784,407		5.046	$	11.569

Options issued to consultants:

The Company’s outstanding options granted to consultants for sales and pre-marketing services as of September 30, 2016 (unaudited) were as follows:

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

February 2013		1,500	$	12.470		1,344		February 2023
August 2013		4,250	$	21.140		3,104		August 2023
October 2013		750	$	24.230		547		October 2023
March 2014		13,494	$	39.860		8,581		March 2024
May 2014		6,912	$	22.010		3,704		May 2024
November 2014		10,321	$	21.660		4,364		November 2024
May 2015		5,250	$	19.510		1,750		May 2025
February 2016		2,500	$	16.870		--		February 2026

		44,977				23,394

d. Restricted stock units:

A summary of restricted stock units for employees, consultants and non-employee directors of the Company for the nine months ended September 30, 2016 is as follows:

	Number of shares underlying outstanding restricted stock units			Weighted- average grant date fair value
Unvested balance - January 1, 2016		643,506		$	23.38
Granted		897,244		$	18.17
Vested		(159,585	)	$	23.98
Forfeited		(46,924	)	$	19.07
Unvested balance – September 30, 2016		1,334,241		$	19.96

e. As of September 30, 2016, there was $8,593 and $18,869 of total unrecognized compensation cost related to unvested stock options and unvested restricted stock units, respectively. This cost is expected to be recognized over a period of approximately 1.960 and 3.048 years for stock options and restricted stock units, respectively.

2015 Employee Stock Purchase Plan

On May 5, 2015, the Company’s stockholders approved the Varonis Systems, Inc. 2015 Employee Stock Purchase Plan (the “ESPP”), which the Company’s board of directors had adopted on March 19, 2015. The ESPP became effective as of June 30, 2015. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value of the Company’s common stock on the first day or last trading day in the offering period, subject to any plan limitations. The Company initially reserved 500,000 shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP was increased on January 1, 2016, and will be increased on each January 1 thereafter, by an amount equal to the lesser of (i) one percent (1%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase, except that the amount of each such 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 issuance under the ESPP to two percent (2%) of the number of shares of common stock issued and outstanding on each such December 31, or (ii) 400,000 shares of common stock. As of September 30, 2016, the share reserve under the ESPP was 521,383 shares of common stock. The ESPP will continue in effect until the earlier of (i) the date when no shares of common stock are available for issuance thereunder or (ii) June 30, 2025; unless terminated prior thereto by the Company’s board of directors or compensation committee, each of which has the right to terminate the ESPP at any time.

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:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
	(in thousands)				(in thousands)

Cost of revenues	$	186	$	98	$	504	$	300
Research and development		805		524		2,263		1,535
Sales and marketing		1,613		756		4,416		2,195
General and administrative		854		679		2,272		1,674

Total	$	3,458	$	2,057	$	9,455	$	5,704