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.

awards were granted under the

2005

Stock Plan subsequent to

December

31,

2013,

and

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 (

) 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 (

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

December

31.

January 1, 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

nine

months ended

September 30, 2017

is as follows:

	Nine Months Ended September 30, 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		(563,461	)	$	10.689
Forfeited		(88,536	)	$	20.319

Options outstanding as of September 30, 2017		1,736,351		$	16.451	$	44,188		5.169

Options exercisable at the end of the period		1,467,826		$	15.116	$	39,315		4.808

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, 2017

was

$13,993.

b. The options outstanding as of

September 30, 2017 (

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

Range of exercise price			Options outstanding as of September 30, 2017		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of September 30, 2017		Weighted average remaining contractual life (years)		Weighted average exercise price of options exercisable

$1.039	-	$1.576		474,009		1.585	$	1.300		474,009		1.585	$	1.300
$6.230	-	8.800		66,929		4.211	$	7.072		66,929		4.211	$	7.072
$12.470	-	16.870		247,589		6.027	$	13.359		217,379		5.699	$	12.871
$19.510	-	21.660		434,529		6.891	$	21.215		309,082		6.839	$	21.211
$22.010	-	24.230		233,602		6.555	$	22.261		190.129		6.546	$	22.296
	$29.880			140,209		7.397	$	29.880		87.906		7.397	$	29.880
	$39.860			139,484		6.361	$	39.860		122.392		6.344	$	39.860
				1,736,351		5.169	$	16.451		1,467,826		4.808	$	15.116

c. Options issued to consultants:

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

September 30, 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		3,821	August 2023
March 2014		13,100	$	39.860		11,365	March 2024
May 2014		6,187	$	22.010		4,974	May 2024
November 2014		8,272	$	21.660		5,170	November 2024
May 2015		2,833	$	19.510		1,168	May 2025
February 2016		2,500	$	16.870		987	February 2026
		38,580				28,985

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, 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		1,176,153		$	30.10
Vested		(352,136	)	$	21.24
Forfeited		(222,938	)	$	22.33
Unvested balance – September 30, 2017		2,000,206		$	26.10

e. As of

September 30, 2017,

there was

$3,246

and

$44,664

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

1.051

years and

2.946

years for stock options and restricted stock units, respectively.

2015

Employee Stock Purchase Plan

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 increase each

January 1

thereafter, by an amount equal to the lesser of (i)

one

percent (

) 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 (

) 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 1, 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

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.

g. 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,
	2017		2016		2017		2016
	(unaudited)				(unaudited)
	(in thousands)				(in thousands)

Cost of revenues	$	283	$	186	$	783	$	504
Research and development		1,374		805		3,805		2,263
Sales and marketing		1,856		1,613		6,277		4,416
General and administrative		1,269		854		3,580		2,272

Total	$	4,782	$	3,458	$	14,445	$	9,455

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 were

3,775,137

and

3,895,952

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

September 30, 2017

and

2016,

respectively.