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.

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

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

three

months ended

March

31,

2017

is as follows:

	Three Months Ended March 31, 2017 (unaudited)
	Number			Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)

Options outstanding as of January 1, 2017		2,388,348		$	15.243	$	30,025		5.861
Granted		-		$	-
Exercised		(126,070	)	$	7.417
Forfeited		(5,749	)	$	26.634

Options outstanding as of March 31, 2017		2,256,529		$	15.654	$	37,625		5.689

Options exercisable at the end of the period		1,750,759		$	13.536	$	32,869		5.113

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

three

months ended

March

31,

2017

was

$2,690.

The options outstanding as of

March

31,

2017

(unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price			Options outstanding as of March 31, 2017		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of March 31, 2017		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable

$1.039	-	$1.576		640,966		2.183	$	1.323		640,966		2.183	$	1.323
$6.230	-	8.800		82,174		4.732	$	6.991		82,174		4.732	$	6.991
$12.470	-	16.870		413,768		6.897	$	13.906		305,515		6.282	$	12.997
$19.510	-	21.660		529,192		7.392	$	21.205		326,929		7.340	$	21.202
$22.010	-	24.230		288,474		7.050	$	22.287		203,947		7.040	$	22.327
	$29.880			154,200		7.899	$	29.880		80,322		7.899	$	29.880
	$39.860			147,755		6.978	$	39.860		110,906		6.978	$	39.860

				2,256,529		5.689	$	15.654		1,750,759		5.113	$	13.536

Options issued to consultants:

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

March

31,

2017

(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		1,500	February 2023
August 2013		4,188	$	21.140		3,297	August 2023
March 2014		13,100	$	39.860		9,727	March 2024
May 2014		6,387	$	22.010		4,261	May 2024
November 2014		9,821	$	21.660		5,390	November 2024
May 2015		5,000	$	19.510		2,294	May 2025
February 2016		2,500	$	16.870		675	February 2026

		42,496				27,144

Restricted stock units:

A summary of restricted stock units for employees, consultants and non-employee directors of the Company for the

three

months ended

March

31,

2017

(unaudited) is as follows:

	Number of shares underlying outstanding restricted stock units			Weighted- average grant date fair value
Unvested balance - January 1, 2017		1,399,127		$	19.96
Granted		898,950		$	28.17
Vested		(241,931	)	$	20.23
Forfeited		(15,787	)	$	22.05
Unvested balance – March 31, 2017		2,040,359		$	24.18

As of

March

31,

2017,

there was

$6,203

and

$46,547

of total unrecognized compensation cost related to unvested employee stock options and unvested restricted stock units, respectively. This cost is expected to be recognized over a period of approximately

1.565

and

3.400

years for stock options and restricted stock units, respectively.

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:

	Three Months Ended March 31,
	2017		2016
	(unaudited)
	(in thousands)

Cost of revenues	$	227	$	146
Research and development		1,130		665
Sales and marketing		2,059		1,175
General and administrative		988		638

Total	$	4,404	$	2,624

Since the Company is in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all the periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. There are

4,339,384

and

4,202,714

potentially dilutive shares from the conversion of outstanding RSUs and stock options that were not included in the calculation of diluted net loss per share as of

March

31,

2017

and

2016,

respectively.