NOTE

STOCKHOLDERS’ EQUITY (DEFICIENCY)

Composition of common stock capital:

	Authorized				Issued and outstanding
	Number of shares
	December 31,				December 31,
	2016		2015		2016		2015
Stock of $0.001 par value:
Common stock		200,000,000		200,000,000		26,821,762		26,069,154

Common stock rights:

The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue

200,000,000

shares of common stock, par value

$0.001

per share.

The common stock confers upon its holders the right to participate in the general meetings of the Company, to vote at such meetings (each share represents

one

vote), to elect board members and to participate in any distribution of dividends or any other distribution of the Company’s property, including the distribution of surplus assets upon liquidation.

Stock option plans:

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.

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.

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 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

2016

and will be increased on each

January

thereafter by

four

percent

(4%)

of the number of shares of common stock issued and outstanding on each

December

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.

January

2016

and

2017,

the share reserve under the

2013

Plan was automatically increased by

1,042,766

and

1,072,870

shares, respectively. 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.

A summary of employees’ stock options activities during the year ended

December

31,

2016

is as follows:

	Year ended December 31, 2016
	Number			Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding at the beginning of the year		2,782,560		$	14.026	$	21,337		6.246
Granted		135,000		$	16.870
Exercised		(445,535	)	$	5.901
Forfeited		(83,677	)	$	27.126
Options outstanding at the end of the period		2,388,348		$	15.243	$	30,025		5.861
Vested and expected to vest		2,331,800		$	15.074	$	29,689		5.806
Options exercisable at the end of the period		1,752,416		$	12.583	$	26,473		5.119

A summary of employees’ stock options activities during the years ended

December

31,

2015

and

2014

is as follows:

	Year ended December 31, 2015
	Number			Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding at the beginning of the year		4,080,611		$	9.697	$	95,855		6.092
Granted		191,200		$	28.253
Exercised		(1,334,351	)	$	1.521
Forfeited		(154,900	)	$	25.265
Options outstanding at the end of the period		2,782,560		$	14.026	$	21,337		6.246
Vested and expected to vest		2,677,503		$	13.623	$	21,284		6.156
Options exercisable at the end of the period		1,794,249		$	8.841	$	20,496		5.035

The weighted average grant date fair values of options granted during the years ended

December

31,

2016,

2015

and

2014

were

$16.870,

$28.637

and

$14.087,

respectively.

	Year ended December 31, 2014
	Number			Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding at the beginning of the year		3,233,235		$	4.033	$	65,723		5.700
Granted		1,111,940		$	25.077
Exercised		(213,174	)	$	1.663
Forfeited		(51,390	)	$	19.449
Options outstanding at the end of the period		4,080,611		$	9.697	$	95,855		6.092
Vested and expected to vest		3,965,741		$	9.318	$	94,581		6.000
Options exercisable at the end of the period		2,620,454		$	2.638	$	79,117		4.359

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 years ended

December

31,

2016,

2015

and

2014

were

$9,418,

$27,885

and

$4,800,

respectively. As of

December

31,

2016

and

2015,

there were

$3,380

and

$11,779,

respectively, 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

1.774

and

2.416

years, respectively.

The options outstanding as of

December

31,

2016

have been separated into ranges of exercise price as follows:

Range of exercise price			Options outstanding as of December 31, 2016		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of December 31, 2016		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable
$0.901	-	1.576		710,562		2.482	$	1.317		710,562		2.482	$	1.317
$6.230	-	8.800		89,373		4.963	$	6.953		89,373		4.963	$	6.953
$12.470	-	16.870		442,507		7.078	$	13.812		279,863		6.163	$	12.470
$19.510	-	21.660		546,959		7.622	$	21.205		307,302		7.558	$	21.200
$22.010	-	24.230		295,513		7.299	$	22.278		191,891		7.289	$	22.316
	$29.88			154,200		8.145	$	29.880		70,684		8.145	$	29.880
	$39.86			149,234		7.225	$	39.860		102,741		7.225	$	39.860
				2,388,348		5.861	$	15.243		1,752,416		5.119	$	12.583

The options outstanding as of

December

31,

2015

have been separated into ranges of exercise price as follows:

Range of exercise price			Options outstanding as of December 31, 2015		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of December 31, 2015		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable
$0.901	-	1.576		978,178		2.923	$	1.224		978,178		2.923	$	1.224
$6.230	-	8.800		145,693		5.92	$	6.786		137,391		5.895	$	6.785
	$12.47			378,149		7.177	$	12.470		261,065		7.159	$	12.470
$19.510	-	21.660		640,743		8.609	$	21.219		211,571		8.477	$	21.237
$22.010	-	24.230		309,222		8.298	$	22.293		127,326		8.280	$	22.365
	$29.88			154,200		9.148	$	29.880		—		0.000	$	0.000
	$39.86			176,375		8.227	$	39.860		78,718		8.227	$	39.860
				2,782,560		6.246	$	14.026		1,794,249		5.035	$	8.841

Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of

December

31,

2016

were as follows:

Issuance date	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		4,188	$	21.140		3,104	August 2023
October 2013		750	$	24.230		547	October 2023
March 2014		13,100	$	39.860		8,187	March 2024
May 2014		6,850	$	22.010		3,704	May 2024
November 2014		10,246	$	21.660		4,364	November 2024
May 2015		5,250	$	19.510		1,750	May 2025
February 2016		2,500	$	16.870		—	February 2026
		44,384				23,000

The Company’s outstanding options granted to consultants for services as of

December

31,

2015

were as follows:

Issuance date	Options for shares of common stock		Exercise price per share		Options exercisable		Exercisable through
	(number)				(number)
February 2013		3,000	$	12.470		2,125	February 2023
August 2013		5,000	$	21.140		2,917	August 2023
October 2013		823	$	24.230		479	October 2023
March 2014		14,438	$	39.860		6,422	March 2024
May 2014		8,700	$	22.010		3,444	May 2024
August 2014		219	$	21.000		354	August 2024
November 2014		12,000	$	21.660		3,250	November 2024
May 2015		5,250	$	19.510		—	May 2025
		49,430				18,991

Restricted stock units:

The following provides a summary of the restricted stock unit activity for the Company for the year ended

December

31,

2016:

	Number of Shares Underlying Outstanding Restricted Stock Units			Weighted- Average Grant Date Fair Value
Outstanding as of January 1, 2016		643,506		$	23.38
Granted		1,038,044		$	19.67
Vested		(199,074	)	$	22.82
Forfeited		(83,349	)	$	20.21
Unvested as of December 31, 2016		1,399,127		$	19.96

The following provides a summary of the restricted stock unit activity for the Company for the year ended

December

31,

2015:

	Number of Shares Underlying Outstanding Restricted Stock Units			Weighted- Average Grant Date Fair Value
Outstanding as of January 1, 2015		27,470		$	21.00
Granted		685,065		$	23.30
Vested		(36,789	)	$	19.90
Forfeited		(32,240	)	$	23.56
Unvested as of December 31, 2015		643,506		$	23.38

2015

Employee Stock Purchase Plan

May

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

2016,

and will increase each

January

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

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. On

January

2016

and

2017,

the share reserve under the ESPP was automatically increased by

21,383

and

158,695

shares, respectively. 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 (in thousands):

	Year ended December 31,
	2016		2015		2014
Cost of revenues	$	699	$	419	$	192
Research and development		3,052		1,954		1,198
Sales and marketing		6,104		3,041		2,478
General and administrative		3,083		2,380		796
Total	$	12,938	$	7,794	$	4,664