NOTE 9: 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 the nine months ended September 30, 2015). 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, 2015, 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, 2014		3,316,380		$	16.50
Granted (1)		172,500			19.42
Exercised		(538,490	)		10.54
Forfeited or expired		(196,142	)		21.13

Outstanding as of September 30, 2015 (2)		2,754,248		$	17.52		4.4	$	7,355,416

Exercisable as of September 30, 2015 (3)		1,820,312		$	18.06		3.5	$	5,187,686

(1)	The SAR units 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 2,405,770 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 1,643,348 shares of the Company’s common stock issuable upon exercise.

As of September 30, 2015, there was $2,596 of unrecognized compensation expense related to unvested stock options and SARs. 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.

Starting in the second quarter of 2015, the Company granted to employees, including executive officers and non-employee directors of the Company, restricted stock units (“RSUs”) under the Company’s 2011 Stock Incentive Plan. A RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion thereof vests. RSUs granted to employees generally vest in three equal annual installments starting on the first anniversary of the grant date. RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. The fair value of each RSU is the Market value as determined by the closing price of the common stock on the day of grant. The Company recognizes compensation expenses for the value of its RSU awards, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. A summary of the Company’s RSU activities and related information for the nine months ended September 30, 2015, are as follows:


	Number of RSUs			Weighted average Grant-Date fair value
Unvested as of December 31, 2014		—		$	—
Granted		238,000			19.74
Vested		—			—
Forfeited or expired		(7,000	)		19.83

Unvested as of September 30, 2015		231,000		$	19.74

Expected to vest after September 30, 2015		214,500		$	19.74

As of September 30, 2015, there was $3,790 of unrecognized compensation expense related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of 1.8 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.

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


	Nine months ended September 30,				Three months ended September 30,
	2015		2014		2015		2014
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Cost of revenue	$	111	$	159	$	34	$	45
Research and development, net		1,323		1,575		438		441
Sales and marketing		395		753		151		185
General and administrative		966		1,496		496		451

Total equity-based compensation expense	$	2,795	$	3,983	$	1,119	$	1,122

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,
	2015			2014			2015			2014
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Expected dividend yield		0	%		0	%		0	%		0	%
Expected volatility		33%-49	%		36%-52	%		35%-49	%		36%-51	%
Risk-free interest rate		0.2%-2.4	%		0.1%-2.5	%		0.3%-2.4	%		0.1%-2.2	%
Expected forfeiture (employees)		10	%		10	%		10	%		10	%
Expected forfeiture (executives)		5	%		5	%		5	%		—
Contractual term of up to		10 Years			10 Years			10 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,
	2015		2014		2015		2014
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Expected dividend yield		0%		0%		0%		0%
Expected volatility		35%-36%		29%-52%		35%-36%		29%
Risk-free interest rate		0.1%-0.3%		0.1%-0.2%		0.2%-0.3%		0.1%
Expected forfeiture		0%		0%		0%		0%
Contractual term of up to		24 months		24 months		24 months		24 months