NOTE

7: COMMON STOCK AND STOCK-BASED COMPENSATION PLANS

The Company grants stock options and stock appreciation rights (“SARs”) capped with a ceiling to employees and stock options to non-employee directors of the Company and its subsidiaries and provides the right to purchase common stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries. The SAR unit confers the holder the right to stock appreciation over a preset price of the Company’s common stock during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares of the Company’s common stock. The ceiling limits the maximum income for each SAR unit. SARs are considered an equity instrument as it is a net share settled award capped with a ceiling (400% for SAR grants made during both the three and nine months ended September 30, 2013). The options and SARs granted under the company’s stock incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Options granted to non-employee directors vest 25% of the shares underlying the option on each anniversary of the option grant. A summary of the Company’s stock option and SARs activities and related information for the nine months ended September 30, 2013, are as follows:


	Number of options and SAR units			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic- value
Outstanding as of December 31, 2012		2,546,117		$	15.88
Granted (1)		810,250			16.72
Options/SAR units exercised		(139,192	)		8.15
Options/SAR units forfeited or expired		(65,538	)		22.63

Outstanding as of September 30, 2013 (2)		3,151,637		$	16.30		5.0	$	9,438,131

Exercisable as of September 30, 2013 (3)		1,535,800		$	14.51		3.4	$	7,871,821

(1)

Included 678,250 SAR units which are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant.

(2)

Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 2,848,877 shares of the Company’s common stock issuable upon exercise.

(3)

Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 1,499,082 shares of the Company’s common stock issuable upon exercise.

The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of operations:


	Nine months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Cost of revenue	$	223	$	177	$	73	$	73
Research and development, net		1,489		1,327		634		468
Sales and marketing		1,021		723		393		284
General and administrative		1,691		1,461		660		541

Total equity-based compensation expense	$	4,424	$	3,688	$	1,760	$	1,366

The fair value for the Company’s stock options and SARs (other than share issuances in connection with the employee stock purchase plan, as detailed below) granted to employees and non-employees directors was estimated using the following assumptions:


	Nine months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Expected dividend yield		0%		0%		0%		0%
Expected volatility		38%-54%		47%-58%		39%-53%		47%-55%
Risk-free interest rate		0.1%-2.5%		0.1%-1.2%		0.1%-2.0%		0.2%-1.0%
Expected forfeiture (employees)		10%		10%		10%		10%
Expected forfeiture (executives)		5%		5%		—		5%
Contractual term of up to		10 Years		10 Years		7 Years		7 Years
Suboptimal exercise multiple (employees)		2.1		2.1		2.1		2.1
Suboptimal exercise multiple (executives)		2.4		2.4		—		2.4

The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan was estimated on the date of grant using the following assumptions:


	Nine months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Expected dividend yield		0%		0%		0%		0%
Expected volatility		34%-53%		41%-61%		34%-52%		47%-55%
Risk-free interest rate		0.1%-0.2%		0.1%-0.6%		0.1%-0.2%		0.2%-1.0%
Expected forfeiture		0%		0%		0%		0%
Contractual term of up to		24 months		24 months		24 months		24 months

As of September 30, 2013, there was $7,104 of unrecognized compensation expense related to unvested equity awards. This amount is expected to be recognized over a weighted-average period of 1.4 years. To the extent the actual forfeiture rate is different from what the Company has estimated equity-based compensation related to these awards will be different from the Company’s expectations.