CyberArk Software
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F ¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-36625 CYBERARK SOFTWARE LTD.(Exact name of Registrant as specified in its charter) ISRAEL(Jurisdiction of incorporation or organization) 94 Em-Ha’moshavot RoadPark Ofer, P.O. Box 3143Petach Tikva 4970602, Israel(Address of principal executive offices)  Donna Rahav, Adv.General Counsel & Corporate SecretaryTelephone: +972 (3) 918-0000CyberArk Software Ltd.94 Em-Ha’moshavot RoadPark Ofer, P.O. Box 3143Petach Tikva 4970602, Israel(Name, telephone, e-mail and/or facsimile number and address of company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredOrdinary shares, par value NIS 0.01 per share NASDAQ Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act: None. Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:As of December 31, 2015, the registrant had outstanding 33,289,839 ordinary shares, par value NIS 0.01 per share. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See the definitions of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Indicate by check mark which basis for accounting the registrant has used to prepare the financing statements included in this filing: U.S. GAAP x International Financial Reporting Standards as issuedby the International Accounting Standards Board ¨Other ¨ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. ¨ Item 17 ¨ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x  CYBERARK SOFTWARE LTD. FORM 20-FANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENTS Introduction1Special Note Regarding Forward-Looking Statements1 PART I Item 1.Identity of Directors, Senior Management and Advisers3Item 2.Offer Statistics and Expected Timetable3Item 3.Key Information3Item 4.Information on the Company26Item 4A.Unresolved Staff Comments36Item 5.Operating and Financial Review and Prospects36Item 6.Directors, Senior Management and Employees58Item 7.Major Shareholders and Related Party Transactions83Item 8.Financial Information87Item 9.The Offer and Listing88Item 10.Additional Information89Item 11.Quantitative and Qualitative Disclosures About Market Risk101Item 12.Description of Securities Other Than Equity Securities102 PART II Item 13.Defaults, Dividend Arrearages and Delinquencies103Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds103Item 15.Controls and Procedures103Item 16.[Reserved]104Item 16A.Audit Committee Financial Expert104Item 16B.Code of Ethics104Item 16C.Principal Accountant Fees and Services105Item 16D.Exemptions from the Listing Standards for Audit Committees105Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers105Item 16F.Change in Registrant’s Certifying Accountant105Item 16G.Corporate Governance106Item 16H.Mine Safety Disclosure106 PART III Item 17.Financial Statements107Item 18.Financial Statements107Item 19.Exhibits107  INTRODUCTION In this annual report, the terms “CyberArk,” “we,” “us,” “our” and “the company” refer to CyberArk Software Ltd. and its subsidiaries. This annual report includes statistical, market and industry data and forecasts, which we obtained from publicly available information and independentindustry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that theyobtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Althoughwe believe that these sources are reliable, we have not independently verified the information contained in such publications. Certain estimates and forecastsinvolve uncertainties and risks and are subject to change based on various factors, including those discussed under the headings “Special Note RegardingForward-Looking Statements” and “Item 3.D Risk Factors” in this annual report. Throughout this annual report, we refer to various trademarks, service marks and trade names that we use in our business. The “CyberArk” design logo is theproperty of CyberArk Software Ltd. CyberArk® is our registered trademark in the United States. We have several other trademarks, service marks and pendingapplications relating to our products. In particular, although we have omitted the “®” and “™” trademark designations in this annual report from eachreference to our Privileged Account Security Solution, Enterprise Password Vault, SSH Key Manager, Privileged Session Manager, Privileged ThreatAnalytics, Application Identity Manager, On-Demand Privileges Manager, secure Digital Vault, Web Management Interface, Master Policy Engine andDiscovery Engine, DNA and Viewfinity, all rights to such names and trademarks are nevertheless reserved. Other trademarks and service marks appearing inthis annual report are the property of their respective holders. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS In addition to historical facts, this annual report contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, asamended, or the Securities Act, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and the safe harbor provisions ofthe U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, and include informationabout possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you canidentify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,”“predict,” “potential,” or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking by their nature: ·our expectations regarding revenues generated by our hybrid sales model; ·our expectations regarding our operating and net profit margins; ·our expectations regarding significant drivers of our future growth; ·our plans to continue to invest in research and development to develop technology for both existing and new products; ·our plans to invest in sales and marketing efforts and expand our channel partnerships; ·our plans to hire additional new employees; ·our plans to leverage our global footprint in existing and new industry verticals to further expand our market share; ·our plans to pursue incremental sales by further expanding our customer success team; ·our expectations regarding our tax classifications; 1 ·our ability to successfully integrate the operations, products and personnel of Cybertinel Ltd. and Viewfinity, Inc., which we recently acquired; and ·our plans to pursue additional strategic acquisitions. The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs,assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictionsbased upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity,performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks provided under “Item 3.D Risk Factors” in this annual report. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in theforward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-lookingstatements for any reason after the date of this annual report, to conform these statements to actual results or to changes in our expectations. 2 PART I ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3.KEY INFORMATION A.Selected Financial Data The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunctionwith “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and related notes included elsewhere in this annualreport. Historical results are not necessarily indicative of the results that may be expected in the future. Our financial statements have been prepared inaccordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. The selected consolidated statements of operations data for each of the years in the three-year period ended December 31, 2015 and the consolidated balancesheet data as of December 31, 2014 and 2015 are derived from our audited consolidated financial statements appearing elsewhere in this annual report. Theconsolidated statements of operations data for the years ended December 31, 2011 and 2012 and the consolidated balance sheet data as of December 31,2011, 2012 and 2013 are derived from our audited consolidated financial statements that are not included in this annual report. Year ended December 31, 2011 2012 2013 2014 2015 (in thousands except share and per share data) Consolidated Statements of Operations: Revenues: License $21,125 $27,029 $38,907 $61,320 $100,113 Maintenance and professional services 15,240 20,179 27,250 41,679 60,699 Total revenues 36,365 47,208 66,157 102,999 160,812 Cost of revenues: License 899 1,002 1,216 2,654 5,088 Maintenance and professional services 4,517 5,922 7,860 12,053 17,572 Total cost of revenues(1) 5,416 6,924 9,076 14,707 22,660 Gross profit 30,949 40,284 57,081 88,292 138,152 Operating expenses: Research and development(1) 6,272 7,273 10,404 14,400 21,734 Sales and marketing(1) 15,929 22,081 32,840 44,943 66,206 General and administrative(1) 3,077 3,297 4,758 8,495 16,990 Total operating expenses 25,278 32,651 48,002 67,838 104,930 Operating income 5,671 7,633 9,079 20,454 33,222 Financial income (expenses), net (190) 4 (1,124) (5,988) (1,479)Income before taxes on income 5,481 7,637 7,955 14,466 31,743 Tax benefit (taxes on income) 392 225 (1,320) (4,512) (5,949)Net income $5,873 $7,862 $6,635 $9,954 $25,794 Basic net income per ordinary share(2) $0.43 $0.51 $0.25 $0.46 $0.80 Diluted net income per ordinary share(2) $0.26 $0.31 $0.14 $0.34 $0.73 Weighted average number of ordinary shares used incomputing basic net income per ordinary share(2) 4,969,489 6,592,997 6,900,433 13,335,059 32,124,772 Weighted average number of ordinary shares used incomputing diluted net income per ordinary share(2) 22,791,354 25,245,790 10,765,914 29,704,730 35,322,716 3 As of December 31, 2011 2012 2013 2014 2015 (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and short-term bank deposits $33,353 $45,995 $65,368 $177,181 $238,252 Deferred revenue, current and long term 9,302 15,068 24,478 32,160 54,389 Working capital(3) 28,234 38,908 48,900 156,829 197,095 Total assets 47,654 64,379 89,632 210,552 334,424 Preferred share warrant liability 512 688 2,134 — — Total shareholders’ equity 30,290 38,494 45,846 155,008 246,670 (1)Includes share-based compensation expense as follows: Year ended December 31, 2011 2012 2013 2014 2015 (in thousands) Cost of revenues $70 $32 $39 $137 $499 Research and development 481 58 73 172 1,507 Sales and marketing 432 81 126 347 2,214 General and administrative 693 113 165 917 2,829 Total share-based compensation expenses $1,676 $284 $403 $1,573 $7,049 (2)Basic and diluted net income per ordinary share is computed based on the weighted average number of ordinary shares outstanding during each period.For additional information, see note 11 to our consolidated financial statements included elsewhere in this annual report. (3)We define working capital as total current assets minus total current liabilities. In November 2015, the Financial Accounting Standards Board or theFASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17),which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balancesheet. We early adopted this standard retrospectively and reclassified all of our current deferred tax assets to noncurrent deferred tax assets which hasresulted in a change to previously published working capital amounts for the years ended December 31, 2011, 2012, 2013 and 2014. 4 Non-GAAP operating income and non-GAAP net income are non-GAAP financial measures. We define non-GAAP operating income and non-GAAP netincome as operating income and net income, respectively, which each exclude (i) share-based compensation expense, (ii) expenses related to the March 2015public offering of ordinary shares by certain of our shareholders and to the June 2015 public offering of ordinary shares by us and certain of our shareholders,(iii) expenses related to acquisitions and (iv) amortization of intangible assets related to acquisitions. Non-GAAP net income also excludes (i) financialexpenses resulting from the revaluation of warrants to purchase preferred shares and (ii) tax effects related to the non-GAAP adjustments set forth above. Thefollowing tables reconcile operating income and net income, the most directly comparable U.S. GAAP measures, to non-GAAP operating income and non-GAAP net income for the periods presented: 2011 2012 2013 2014 2015 Reconciliation of Operating Income to Non-GAAPOperating Income: Operating income $5,671 $7,633 $9,079 $20,454 $33,222 Share-based compensation 1,676 284 403 1,573 7,049 Public offering related expenses – – – – 1,568 Acquisition related expenses – – – – 677 Amortization of intangible assets – Cost of revenues – – – – 359 Amortization of intangible assets – Research and development – – – – 749 Amortization of intangible assets – Sales and marketing – – – – 17 Non-GAAP operating income $7,347 $7,917 $9,482 $22,027 $43,641 Year ended December 31, 2011 2012 2013 2014 2015 (in thousands) Reconciliation of Net Income to Non-GAAP Net Income: Net income $5,873 $7,862 $6,635 $9,954 $25,794 Share-based compensation 1,676 284 403 1,573 7,049 Warrant adjustment 179 176 1,446 4,309 – Public offering related expenses – – – – 1,568 Acquisition related expenses – – – – 677 Amortization of intangible assets – Cost of revenues – – – – 359 Amortization of intangible assets – Research and development – – – – 749 Amortization of intangible assets – Sales and marketing – – – – 17 Taxes on income related to non-GAAP adjustments – – – – (951) Non-GAAP net income $7,728 $8,322 $8,484 $15,836 $35,262 For a description of how we use non-GAAP operating income and non-GAAP net income to evaluate our business, see “Item 5. Operating and FinancialReview and Prospects—Key Financial Metrics.” We believe that these non-GAAP financial measures are useful in evaluating our business because of varyingavailable valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash expenses andbecause they exclude one-time cash expenditures that do not reflect the performance of our core business. We believe that providing non-GAAP operatingincome and non-GAAP net income that exclude, as appropriate, share-based compensation expenses, expenses relating to public offerings of our ordinaryshares, financial expenses resulting from the valuation of warrants to purchase preferred shares, expenses related to acquisitions, amortization of intangibleassets related to acquisitions and the tax effects related to these non-GAAP adjustments allows for more meaningful comparisons between our operatingresults from period to period. Share-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expensein our business and an important part of the compensation we provide to employees. Additionally, excluding financial expenses with respect to revaluationof warrants to purchase preferred shares allows for more meaningful comparison between our net income from period to period. As these warrants wereexercised in connection with our initial public offering, they are no longer revalued at each balance sheet date. We also believe that expenses related to thepublic offerings of our ordinary shares in March 2015 and June 2015, expenses related to our acquisitions and amortization of intangible assets related toacquisitions do not reflect the performance of our core business and would impact period-to-period comparability. 5 Other companies, including companies in our industry, may calculate non-GAAP operating income and non-GAAP net income differently or not at all, whichreduces their usefulness as a comparative measure. You should consider non-GAAP operating income and non-GAAP net income along with other financialperformance measures, including operating income and net income, and our financial results presented in accordance with U.S. GAAP. B.Capitalization and Indebtedness Not applicable. C.Reasons for the Offer and Use of Proceeds Not applicable. D.Risk Factors Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with theUnited States Securities and Exchange Commission, or the SEC, including the following risk factors which we face and which are faced by our industry.Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. In that event, the trading priceof our ordinary shares would likely decline and you might lose all or part of your investment. This report also contains forward-looking statements thatinvolve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factorsincluding the risks described below and elsewhere in this report and our other SEC filings. See “Special Note Regarding Forward-Looking Statements” onpage i. Risks Related to Our Business and Our Industry The IT security market is rapidly evolving within the increasingly challenging cyber threat landscape. If the industry does not continue to develop as weanticipate, our sales may not continue to grow at current rates or may decline, and our share price could decline. We operate in a rapidly evolving industry focused on securing organizations’ IT systems and sensitive data. Our solutions focus on safeguarding privilegedaccounts, which are those accounts within an organization that give the user high levels of access, or “privileged” access, to IT systems, infrastructure,industrial control systems, applications and data. While breaches of such privileged accounts have gained media attention in recent years, IT securityspending within enterprises is often concentrated on endpoint and web security products designed to stop threats from penetrating corporate networks.Organizations that use these security products may allocate all or most of their IT security budgets to these products and may not adopt our solutions inaddition to such products. Further, security solutions such as ours, which are focused on disrupting cyber attacks by insiders and external perpetrators thathave penetrated the organization’s perimeter, is a relatively new technology that has been developed to respond to advanced threats and more rigorouscompliance standards and audit requirements. However, advanced cyber attackers are skilled at adapting to new technologies and developing new methodsof gaining access to organizations’ sensitive data. Changes in the nature of advanced cyber threats could result in a shift in IT budgets away from solutionssuch as ours. In addition, any changes in compliance standards or audit requirements that deemphasize the types of controls, storage, monitoring and analysisthat our solutions provide would adversely impact demand for our offerings. It is therefore difficult to predict how large the market will be for our solutions. Ifsolutions such as ours are not viewed by organizations as necessary, or if customers do not recognize the benefit of our solutions as a critical layer of aneffective security strategy, then our revenues may not continue to grow at their current rate or may decline, and our share price could suffer. 6 Our business and operations will be negatively affected if we fail to effectively manage our growth. We have experienced significant growth in a relatively short period of time and intend to continue to aggressively grow our business. Our revenues grew from$66.2 million in 2013 to $160.8 million in 2015. Our headcount has increased from 317 as of December 31, 2013 to 644 as of December 31, 2015, in partattributable to 49 employees who were hired in connection with our acquisitions of Viewfinity and Cybertinel in 2015. We plan to hire additional employeesin 2016 across all areas of the organization. In addition, the number of customers that we serve has grown significantly over the same period. Our rapidgrowth has placed significant demands on our management, sales and operational and financial infrastructure, and our growth will continue to placesignificant demands on these resources. Further, in order to manage our current and future growth effectively, we must continue to improve and expand our ITand financial infrastructure, operating and administrative systems and controls and efficiently manage headcount, capital and processes. We may not be ableto successfully scale or implement these improvements in a manner that keeps pace with our growth, is timely or efficient, and our failure to do so maymaterially impact our projected growth rate. As we invest in the growth of our business, we expect our operating and net profit margins and our revenue growth rate to decline in the near-term. As we invest in the growth of our business, we expect our operating and net profit margins and our operating and net income to decline compared to priorperiod. During the year ended December 31, 2015, we did not experience such declines due to an increase in revenue at a rate that exceeded the increase inexpenses; however, in future periods, we expect our operating and net profit margins to decline, primarily as a result of the costs associated with expandingour direct and indirect sales forces and marketing activities, our increased rate of investment in research and development and our increased administrativecosts associated with scaling our business and improving internal processes, including with relation to operating as a public company. We expect that theseinvested costs will adversely impact our operating and net profit margins as we may not be able to increase our revenue at a rate sufficient to offset theexpected increase in our costs. It will take time and resources to train and integrate new sales force members and to implement such infrastructureimprovements across our global operations. In addition, costs associated with adding new personnel to our sales force are expensed before their positiveimpact on our sales is recognized, and even then a significant portion of any revenues that they generate from maintenance and professional services aredeferred over the delivery period of those services. Further, for the year ended December 31, 2011 to the year ended December 31, 2015 our revenue grewfrom $36.4 million to $160.8 million, which represents a compounded annual growth rate of approximately 45%. We expect that our revenue growth rate willdecline as we continue to grow. A failure to meet market expectations regarding our revenue growth rate or profitability could have an adverse effect on ourshare price. Our reputation and business could be harmed based on real or perceived shortcomings, defects or vulnerabilities in our solutions or the provision of ourservices, or due to the failure of our customers or channel partners to correctly implement, manage and maintain our solutions, which may subject us tolawsuits and financial losses. Organizations are facing increasingly sophisticated and targeted cyber threats, including the growing threat of cyber terrorism throughout the world. If we failto identify and respond to new and increasingly complex methods of attack on privileged accounts and update our products to detect or prevent such threats,which will require significant resources, our business and reputation will suffer. In particular, we may suffer significant adverse publicity and reputationalharm if our solutions (or the services we provide in relation to our solutions) are associated, or are believed to be associated, with a significant breach or abreach at a high profile customer network, or in the event of a breach in third party systems utilized by us as part of our cloud-based security solution. Inaddition, we may need to devote more resources to address security vulnerabilities in our solutions, and the cost of addressing these vulnerabilities couldreduce our operating margins. If we do not address security vulnerabilities, or otherwise provide adequate security features in our products, certain customers,particularly government customers, may delay or stop purchasing our products. 7 False detection of threats, while typical in our industry, may reduce perception of the reliability of our products and may therefore adversely impact marketacceptance of our products. If our solutions restrict legitimate privileged access by authorized personnel to IT systems and applications by falsely identifyingthose users as an attack or otherwise unauthorized, our customers’ businesses could be harmed. There can be no assurance that, despite testing by us, errorswill not be found in existing and new versions of our products, resulting in loss of or delay in market acceptance. In such an event, we may be required, ormay choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. As our solutions not only reinforce but also rely on the common security concept of placing multiple layers of security controls throughout an IT system, thefailure of our customers or our channel partners to correctly implement and effectively manage and maintain our solutions, or to consistently implement andutilize generally accepted and comprehensive, multi-layered security measures and processes in the customer networks, may lessen the efficacy of oursolutions. Additionally, our customers or our channel partners may independently develop plug-ins or change existing plug-ins or APIs that we provided tothem for interfacing purposes in an incorrect or insecure manner. Such failure or these other customer and partner actions may lead to breaches of ourcustomers’ IT systems and loss of sensitive data, and potentially to a perception that our solutions failed. Further, our failure to provide our customers andchannel partners with adequate services related to the use, implementation and maintenance of our solutions, could lead to claims against us. An actual or perceived security breach or theft of our customers’ data, regardless of whether the breach or theft is attributable to the failure of our products (orthe services we provided in relation to our products), could adversely affect the market’s perception of the efficacy of our solutions and current or potentialcustomers may look to our competitors for alternatives to our solutions. An actual or perceived failure of our products, or our failure to provide adequateservices to our customers and channel partners, may also subject us to lawsuits, indemnity claims and financial losses, as well as the expenditure ofsignificant financial resources to analyze, correct or eliminate any vulnerabilities. It could also cause us to suffer reputational harm, lose existing customers,or deter new and existing customers from purchasing our solutions, additional products or our services. Our quarterly results of operations may fluctuate for a variety of reasons, including our failure to close significant sales before the end of a particularquarter. A meaningful portion of our revenues is generated by significant sales to new customers and sales of additional products to existing customers. Purchases ofour products and services often occur at the end of each quarter, particularly in the last quarter of the year. In addition, our sales cycle can last several monthsfrom proof of concept to delivery of our solutions to our customers, and this sales cycle can be even longer, less predictable and more resource-intensive forlarger sales. Customers may also require additional internal approvals or seek to test our products for a longer trial period before deciding to purchase oursolutions. As a result, the timing of individual sales can be difficult to predict. In some cases, sales have occurred in a quarter subsequent to those weanticipated, or have not occurred at all, which can significantly impact our quarterly results and make it more difficult to meet market expectations.Furthermore, even if we close a sale during a given quarter we may be unable to recognize the revenues derived from such sale during the same period due toour revenue recognition policy. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Application of Critical AccountingPolicies and Estimates—Revenue Recognition.” In addition to the sales cycle-related fluctuations noted above, our results of operations will continue to vary as a result of a number of factors, many of whichare outside of our control and may be difficult to predict, including: ·our ability to attract and retain new customers; ·our ability to sell additional products to current customers; ·the ability of our service operation to keep pace with license sales to new and existing customers; ·changes in customer or channel partner requirements or market needs; ·changes in the growth rate of the information security market; 8 ·the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of theinformation security market, including consolidation among our customers or competitors; ·a disruption in, or termination of, our relationship with channel partners; ·our ability to successfully expand our business globally; ·reductions in maintenance renewal rates; ·changes in our pricing policies or those of our competitors; ·general economic conditions in our markets; ·future accounting pronouncements or changes in our accounting policies or practices; ·the amount and timing of our operating costs; ·a change in our mix of products and services; and ·increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates. Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our financial and other operating results from period toperiod. These fluctuations could result in our failure to meet our operating plan or the expectations of investors or analysts for any period. If we fail to meetsuch expectations for these or other reasons, the market price of our ordinary shares could fall substantially, and we could face costly lawsuits, includingsecurities class action suits. If we are unable to acquire new customers, our future revenues and operating results will be harmed. Our success depends on our ability to acquire new customers. The number of customers that we add in a given period impacts both our short-term and long-term revenues. If we are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The IT securitymarket is competitive and many of our competitors have substantial financial, personnel, and other resources that they utilize to develop products and attractcustomers. As a result, it may be difficult for us to add new customers to our customer base. Competition in the marketplace may also lead us to win fewer newcustomers or result in us providing discounts and other commercial incentives. Additional factors that impact our ability to acquire new customers includethe perceived need for IT security, the size of our prospective customers’ IT budgets, the utility and efficacy of our existing and new offerings, whetherproven or perceived, and general economic conditions. These factors may have a meaningful negative impact on future revenues and operating results. If we are unable to sell additional products and services to our existing customers, our future revenues and operating results will be harmed. A significant portion of our revenues are generated from sales to existing customers. Our future success depends, in part, on our ability to continue to sell newlicenses and incremental licenses to our existing customers. We devote significant efforts to developing, marketing and selling additional licenses andassociated maintenance and support to existing customers and rely on these efforts for a portion of our revenues. These efforts require a significant investmentin building and maintaining customer relationships, as well as significant research and development efforts in order to provide product upgrades and launchnew products. The rate at which our existing customers purchase additional products and services depends on a number of factors, including the perceivedneed for additional IT security, the efficacy of our solutions and the utility of our new offerings, whether proven or perceived, our customers’ IT budgets,general economic conditions, our customers’ overall satisfaction with the maintenance and professional services we provide and the continued growth andeconomic health of our customer base. If our efforts to sell additional products and services to our customers are not successful, our future revenues andoperating results will be harmed. 9 We face intense competition from IT security vendors, some of which are larger and better known than we are, and we may lack sufficient financial orother resources to maintain or improve our competitive position. The IT security market in which we operate is characterized by intense competition, constant innovation and evolving security threats. We compete withcompanies that offer a broad array of IT security products. Our current and potential future competitors include CA, Inc., Dell Inc., International BusinessMachines Corporation, Microsoft Corporation and Oracle Corporation in the access and identity management market, and may also include providers ofadvanced threat protection solutions such as Hewlett-Packard Company, EMC Corporation (which has signed an agreement to be acquired by Dell Inc.),International Business Machines Corporation, FireEye, Inc., Splunk Inc., Check Point Software Technologies Ltd. and Palo Alto Networks, Inc. and othersmaller companies that offer point solutions with a more limited range of functionality than our own offerings. Some of our competitors are large companiesthat have the technical and financial resources and broad customer bases needed to bring competitive solutions to the market and already have existingrelationships as a trusted vendor for other products. Such companies may use these advantages to offer products and services that are perceived to be aseffective as ours at a lower price or for free as part of a larger product package or solely in consideration for maintenance and services fees. They may alsodevelop different products to compete with our current solutions and respond more quickly and effectively than we do to new or changing opportunities,technologies, standards or client requirements. Additionally, from time to time we may compete with smaller regional vendors that offer products with a morelimited range of capabilities that purport to perform functions similar to our solutions. Such companies may enjoy stronger sales and service capabilities intheir particular regions. Our competitors may enjoy potential competitive advantages over us, such as: ·greater name recognition, a longer operating history and a larger customer base, notwithstanding the increased visibility of our brand following ourinitial public offering; ·larger sales and marketing budgets and resources; ·broader distribution and established relationships with channel and distribution partners and customers; ·increased effectiveness in protecting, detecting and responding to cyber attacks. ·greater customer support resources; · greater speed at which a solution can be deployed; ·greater resources to make acquisitions; ·larger intellectual property portfolios; and ·greater financial, technical and other resourcesOur current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance theirresources. Current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions, our current orpotential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of theirproducts and services, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expand theirproduct and service offerings more quickly than we do. Larger competitors with more diverse product offerings may reduce the price of products that competewith ours in order to promote the sale of other products or may bundle them with other products, which would lead to increased pricing pressure on ourproducts and could cause the average sales prices for our products to decline. In addition, other IT security technologies exist or could be developed in the future by current or future competitors, and our business could be materiallyand adversely affected if such technologies are widely adopted. 10 We may not be able to successfully anticipate or adapt to changing technology or customer requirements on a timely basis, or at all. If we fail to keep up withtechnological changes or to convince our customers and potential customers of the value of our solutions even in light of new technologies, our business,results of operations and financial condition could be materially and adversely affected. If our internal network system is compromised by cyber attackers or other data thieves, public perception of our products and services will be harmed. We will not succeed unless the marketplace is confident that we provide effective IT security protection. We provide privileged account security products,and as such we may be an attractive target for attacks by cyber attackers or other data thieves since a breach of our system could provide data informationregarding not only us, but potentially regarding the customers that our solutions protect. As a result of our initial public offering in September 2014, we haveenjoyed increased visibility as a company, which could have the effect of attracting the attention of more hackers than would otherwise target us for datatheft. Further, we may be targeted by cyber terrorists because we are an Israeli company. If we experience an actual or perceived breach of our network orprivileged account security in our systems, it could adversely affect the market perception of our products and services. Further, a security breach couldimpair our ability to operate our business, including our ability to provide maintenance and support services to our customers. If this happens, our revenuescould decline and our business could suffer. If we do not effectively expand, train and retain our sales and marketing personnel, we may be unable to acquire new customers or sell additional productsand services to existing customers, and our business will suffer. We depend significantly on our sales force to attract new customers and expand sales to existing customers. We generate approximately 40% of our revenuesfrom direct sales. As a result, our ability to grow our revenues depends in part on our success in recruiting, training and retaining sufficient numbers of salespersonnel to support our growth, particularly in the United States. The number of our sales and marketing personnel increased from 202 as of December 31,2014 to 294 as of December 31, 2015. We expect to continue to expand our sales and marketing personnel significantly and face a number of challenges inachieving our hiring and integration goals. There is intense competition for individuals with sales training and experience. In addition, the training andintegration of a large number of sales and marketing personnel in a short time requires the allocation of significant internal resources. We invest significanttime and resources in training new sales force personnel to understand our solutions and growth strategy. Based on our past experience, it takes an average ofapproximately six to nine months before a new sales force member operates at target performance levels. However, we may be unable to achieve or maintainour target performance levels with large numbers of new sales personnel as quickly as we have done in the past. Our failure to hire a sufficient number ofqualified sales force members and train them to operate at target performance levels may materially and adversely impact our projected growth rate. We rely on channel partners, including systems integrators, distributors and value-added resellers, to generate a significant portion of our revenue. If wefail to maintain successful relationships with our channel partners, or if our channel partners fail to perform, our ability to market, sell and distribute oursolutions will be limited, and our business, financial position and results of operations will be harmed. In addition to our direct sales force, we rely on our channel partners to sell and support our solutions, particularly in Europe and the Asia Pacific and Japanregions. We expect that sales through our channel partners will continue to account for a significant percentage of our revenue. We generate approximately60% of our revenues from sales to channel partners and we expect that channel partners will represent a substantial portion of our revenues for the foreseeablefuture. Our agreements with channel partners are non-exclusive, meaning our partners may offer customers IT security products from other companies,including products that compete with our solutions. If our channel partners do not effectively market and sell our solutions, or choose to use greater efforts tomarket and sell their own products and services or the products and services of our competitors, our ability to grow our business will be adversely affected.Our channel partners may cease or deemphasize the marketing of our solutions with limited or no notice and with little or no penalty. Further, new channelpartners require training and may take several months or more to achieve productivity. The loss of a substantial number of our channel partners, the inabilityto replace them or the failure to recruit additional channel partners could materially and adversely affect our results of operations. Our reliance on channelpartners could also subject us to lawsuits or reputational harm if, for example, a channel partner misrepresents the functionality of our solutions to customersor violates laws or our corporate policies. Our ability to grow revenues in the future will depend in part on our success in maintaining successful relationshipswith our channel partners and training our channel partners to independently sell and install our solutions. If we are unable to maintain our relationship withchannel partners or otherwise develop and expand our indirect sales channel, or if our channel partners fail to perform, our business, financial position andresults of operations could be adversely affected. 11 If our products fail to help our customers achieve and maintain compliance with certain government regulations and industry standards, our business andresults of operations could be materially and adversely affected. We generate a substantial portion of our revenues from our products and services because they enable our customers to achieve and maintain compliancewith certain government regulations and industry standards, and we expect that will continue for the foreseeable future. Examples of industry standards andgovernment regulations include the Payment Card Industry Data Security Standard (PCI-DSS); the Federal Information Security Management Act (FISMA);the Sarbanes-Oxley Act; the North American Electric Reliability Corporation Critical Infrastructure Protection Plan (NERC-CIP);; and the MonetaryAuthority of Singapore’s Technology Risk Management Notices (MAS TRM). These industry standards may change with little or no notice, includingchanges that could make them more or less onerous for businesses. In addition, governments may also adopt new laws or regulations, or make changes toexisting laws or regulations, that could impact whether our solutions enable our customers to maintain compliance with such laws or regulations. If we areunable to adapt our solutions to changing government regulations and industry standards in a timely manner, or if our solutions fail to expedite ourcustomers’ compliance initiatives, our customers may lose confidence in our products and could switch to products offered by our competitors. In addition, ifgovernment regulations and industry standards related to IT security are changed in a manner that makes them less onerous, our customers may viewcompliance as less critical to their businesses, and our customers may be less willing to purchase our products and services. In either case, our sales andfinancial results would suffer. Our model for long-term growth depends upon the introduction of new products. If we are unable to develop new products or if these new products are notadopted by customers, our growth will be adversely affected. Our business depends on the successful development and marketing of new products, including adding complementary offerings to our current products. Forexample, we introduced our first behavioral analytics product, Privileged Threat Analytics, in December 2013, continued the expansion of our proactive,controls monitoring and management product line with the introduction of SSH Key Manager in November 2014 and added Viewfinity to that same productline following our acquisition of Viewfinity, Inc. in October 2015. Development and marketing of new products requires significant up-front research,development and other costs, and the failure of our new products to gain market acceptance may result in a failure to achieve future sales and adversely affectour competitive position. There can be no assurance that any of our new or future products will achieve market acceptance or generate revenues at forecastedrates or that the margins generated from their sales will allow us to recoup the costs of our development efforts. If we are unable to hire, retain and motivate qualified personnel, our business will suffer. Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. Our inability to attract or retain qualifiedpersonnel or delays in hiring required personnel may seriously harm our business, financial condition and results of operations. Any of our employees mayterminate their employment at any time. Additionally, two of our U.S. executive officers have not signed non-compete agreements with us. Competition forhighly skilled personnel is frequently intense, especially in Israel, where we are headquartered. Further, certain of our employees are substantially vested insignificant equity incentive plans, and their ability to exercise those options and sell their shares in a public market may result in a larger than normal turn-over rate. We may struggle to retain employees because our profile, which has been raised since our initial public offering, may attract competitors who maythen actively seek to hire skilled personnel away from us. In addition, to the extent we hire personnel from competitors, we may be subject to allegations thatthey have been improperly solicited or divulged proprietary or other confidential information. 12 Failure by us or our channel partners to maintain sufficient levels of customer support could have a material adverse effect on our business, financialcondition and results of operations. Our customers depend in large part on customer support and professional services delivered through our channel partners or by us to resolve issues relating tothe use of our solutions. However, even with our support and that of our channel partners, our customers are ultimately responsible for effectively using oursolutions and ensuring that their IT staff is properly trained in the use of our products and complementary security products and processes. The failure of ourchannel partners to support and train our customers in the correct use of our solutions, or their failure to effectively assist customers in installing our solutionsand providing effective ongoing support, may result in an increase in the vulnerability of our customers’ IT systems and sensitive data. Additionally, if ourchannel partners do not effectively provide support and professional services to the satisfaction of our customers, we may be required to provide support tosuch customers, which would require us to invest in additional personnel, which requires significant time and resources. We may not be able to keep up withdemand, particularly if the sales of our solutions exceed our internal forecasts. To the extent that we or our channel partners are unsuccessful in hiring,training and retaining adequate support resources, our ability and the ability of our channel partners to provide adequate and timely support to our customerswill be negatively impacted, and our customers’ satisfaction with our products will be adversely affected. Accordingly, our failure to provide satisfactorymaintenance and technical support services could have a material and adverse effect on our business and results of operations. If we do not successfully anticipate market needs and enhance our existing products or develop new products that meet those needs on a timely basis, wemay not be able to compete effectively and our ability to generate revenues will suffer. Our customers operate in markets characterized by rapidly changing technologies and business plans, which require them to adapt to increasingly complex ITinfrastructures that incorporate a variety of hardware, software applications, operating systems and networking protocols. As our customers’ technologies andbusiness plans grow more complex, we expect them to face new and increasingly sophisticated methods of attack. We face significant challenges in ensuringthat our solutions effectively identify and respond to these advanced and evolving attacks without disrupting the performance of our customers’ IT systems.As a result, we must continually modify and improve our products in response to changes in our customers’ IT and industrial control infrastructures. We cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to develop product enhancements or new products tomeet such needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and commercially introduce enhancements and newproducts, there can be no assurance that enhancements or new products will achieve widespread market acceptance. Our product enhancements or new products could fail to attain sufficient market acceptance for many reasons, including: ·delays in releasing product enhancements or new products; ·failure to accurately predict market demand and to supply products that meet this demand in a timely fashion; ·inability to interoperate effectively with the existing or newly introduced technologies, systems or applications of our existing and prospectivecustomers; ·inability to protect against new types of attacks or techniques used by cyber attackers or other data thieves; ·defects in our products, errors or failures of our solutions to secure privileged accounts; ·negative publicity about the performance or effectiveness of our products; ·introduction or anticipated introduction of competing products by our competitors; ·installation, configuration or usage errors by our customers; ·easing or changing of regulatory requirements related to security; and 13 ·reluctance of customers to purchase products incorporating open source software. If we fail to anticipate market requirements or fail to develop and introduce product enhancements or new products to meet those needs in a timely manner, itcould cause us to lose existing customers and prevent us from gaining new customers, which would significantly harm our business, financial condition andresults of operations. We may fail to fully integrate, or realize the benefits expected from, our recent acquisitions and future acquisitions, which may require significantmanagement attention, disrupt our business, dilute shareholder value and adversely affect our results of operations. As part of our business strategy and in order to remain competitive, we continue to evaluate acquiring or making investments in complementary companies,products or technologies, such as the acquisitions we have made during the year ended December 31, 2015 of Viewfinity, a provider of Windows leastprivilege management and application control software, and Cybertinel, a cyber security company specializing in cyber threat detection technology. We maynot be able to find suitable acquisition candidates or be able to complete such acquisitions on favorable terms. If we complete acquisitions, we may notultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers,analysts and investors. In addition, if we are unsuccessful at integrating our recent or future acquisitions or the technologies associated with such acquisitionsor to fully attain the expected benefits of these acquisitions, our revenues and results of operations could be adversely affected. Any integration process mayrequire significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquiredtechnology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. In addition, despite ourreview of acquired technology, we could become subject to infringement claims from third parties as a result of our use of such acquired technology. Thesale of equity or issuance of debt to finance any such acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result inincreased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. If our products do not effectively interoperate with our customers’ existing or future IT infrastructures, installations could be delayed or cancelled, whichwould harm our business. Our products must effectively interoperate with our customers’ existing or future IT infrastructures, which often have different specifications, utilize multipleprotocol standards, deploy products from multiple vendors and contain multiple generations of products that have been added over time. If we find errors inthe existing software or defects in the hardware used in our customers’ infrastructure or problematic network configurations or settings, we may have tomodify our software so that our products will interoperate with our customers’ infrastructure and business processes. In addition, to stay competitive withincertain markets, we may be required to make software modifications in future releases to comply with new statutory or regulatory requirements. These issuescould result in longer sales cycles for our products and order cancellations, either of which would adversely affect our business, results of operations andfinancial condition. Our research and development efforts may not produce successful products or enhancements to our solutions that result in significant revenue or otherbenefits in the near future, if at all. We expect to continue to dedicate significant financial and other resources to our research and development efforts in order to maintain our competitiveposition. For example, in 2015, we increased our dedicated research and development personnel by 48% compared to 2014. However, investing in researchand development personnel, developing new products and enhancing existing products is expensive and time consuming, and there is no assurance that suchactivities will result in significant new marketable products or enhancements to our products, design improvements, cost savings, revenues or other expectedbenefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our businessand results of operations may be materially and adversely affected. We are subject to a number of risks associated with global sales and operations. Business practices in the global markets that we serve may differ from those in the United States and may require us to include non-standard terms incustomer contracts, such as extended payment or warranty terms. To the extent that we enter into customer contracts that include non-standard terms relatedto payment, warranties, or performance obligations, our results of operations may be adversely impacted. 14 Additionally, our global sales and operations are subject to a number of risks, including the following: ·greater difficulty in enforcing contracts and managing collections, as well as longer collection periods; ·higher costs of doing business globally, including costs incurred in maintaining office space, securing adequate staffing and localizing ourcontracts; ·fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business (See “—We are exposed tofluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations”); ·management communication and integration problems resulting from cultural and geographic dispersion; ·risks associated with trade restrictions and foreign legal requirements, including any importation, certification, and localization of our platform thatmay be required in foreign countries; ·greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties; ·compliance with anti-bribery laws, including, without limitation, compliance with the U.S. Foreign Corrupt Practices Act and the UK Anti-BriberyAct; ·heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impactfinancial results and result in restatements of, or irregularities in, financial statements; ·reduced or uncertain protection of intellectual property rights in some countries; ·social, economic and political instability, terrorist attacks and security concerns in general; and ·potentially adverse tax consequences. These and other factors could harm our ability to generate future global revenues and, consequently, materially impact our business, results of operations andfinancial condition. If we are unable to adequately protect our proprietary technology and intellectual property rights, our business could suffer substantial harm. The success of our business depends on our ability to protect our proprietary technology, brands and other intellectual property and to enforce our rights inthat intellectual property. We attempt to protect our intellectual property under patent, trademark, copyright and trade secret laws, and through a combinationof confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection.As of December 31, 2015, we had three issued patents in the United States, three provisional U.S. patent applications and 15 pending U.S. patentapplications. We also had two issued patents and 16 applications pending for examination in non-U.S. jurisdictions, all of which are counterparts of our U.S.patent applications. We may file additional patent applications in the future. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patentapplications at a reasonable cost or in a timely manner all the way through to the successful issuance of a patent. We may choose not to seek patentprotection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Furthermore, it is possible that our patentapplications may not issue as granted patents, that the scope of our issued patents will be insufficient or not have the coverage originally sought, that ourissued patents will not provide us with any competitive advantages, and that our patents and other intellectual property rights may be challenged by others orinvalidated through administrative processes or litigation. In addition, issuance of a patent does not guarantee that we have an absolute right to practice thepatented invention. Our policy is to require our employees (and our consultants and service providers that develop intellectual property included in ourproducts) to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scopeof their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property), but we cannot be certainthat we have adequately protected our rights in every such agreement or that we have executed an agreement with every such party. Finally, in order tobenefit from the protection of patents and other intellectual property rights, we must monitor and detect infringement and pursue infringement claims incertain circumstances in relevant jurisdictions, all of which are costly and time-consuming. As a result, we may not be able to obtain adequate protection or toeffectively enforce our issued patents or other intellectual property rights. 15 In addition to patents, we rely on trade secret rights, copyrights and other rights to protect our unpatented proprietary intellectual property and technology.Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties, including our employees, consultants,service providers or customers, may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. Wegenerally enter into confidentiality agreements with our employees, consultants, service providers, vendors, channel partners and customers, and generallylimit access to and distribution of our proprietary information and proprietary technology through certain procedural safeguards. These agreements may noteffectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the event ofunauthorized use or disclosure of our intellectual property or technology. We cannot be certain that the steps taken by us will prevent misappropriation ofour intellectual property or technology or infringement of our intellectual property rights. In addition, the laws of some foreign countries where we sell ourproducts do not protect intellectual property rights and technology to the same extent as the laws of the United States, and these countries may not enforcethese laws as diligently as government agencies and private parties in the United States. Based on the 2015 report on intellectual property rights protectionand enforcement published by the Office of the United States Trade Representative, such countries included Ukraine, Chile, China, India, Indonesia, Russiaand Thailand (designated as priority watch list countries). If we are unable to protect our intellectual property, we may find ourselves at a competitivedisadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to besuccessful to date. Intellectual property claims may increase our costs or require us to cease selling certain products, which could adversely affect our financial condition andresults of operations. The IT security industry is characterized by the existence of a large number of relevant patents and frequent claims and related litigation regarding patent andother intellectual property rights. In particular, leading companies in the IT security industry have extensive patent portfolios. From time to time, third-partieshave asserted and may assert their patent, copyright, trademark and other intellectual property rights against us, our channel partners or our customers.Furthermore, we may be subject to indemnification obligations with respect to third-party intellectual property rights pursuant to our agreements with ourchannel partners or customers. Such indemnification provisions are customary for our industry. Successful claims of infringement or misappropriation by athird-party against us or a third-party that we indemnify could prevent us from distributing certain products or performing certain services or could require usto pay substantial damages (including, for example, treble damages if we are found to have willfully infringed patents and increased statutory damages if weare found to have willfully infringed copyrights), royalties or other fees. Such claims also could require us to cease making, licensing or using solutions thatare alleged to infringe or misappropriate the intellectual property of others, to expend additional development resources to attempt to redesign our productsor services or otherwise to develop non-infringing technology, to enter into potentially unfavorable royalty or license agreements in order to obtain the rightto use necessary technologies or intellectual property rights, and to indemnify our partners and other third parties, including our customers and channelpartners whom we typically indemnify against such claims. Even if third parties may offer a license to their technology, the terms of any offered license maynot be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, results of operations or financialcondition to be materially and adversely affected. Defending against claims of infringement or being deemed to be infringing the intellectual property rightsof others could impair our ability to innovate, develop, distribute and sell our current and planned products and services. If we are unable to ensure that weare not violating the intellectual property rights of others, our financial position may be adversely affected. 16 Prolonged economic uncertainties or downturns could materially adversely affect our business. Our business depends on our current and prospective customers’ ability and willingness to invest money in IT security, which in turn is dependent upon theiroverall economic health. Negative economic conditions in the global economy, including conditions resulting from financial and credit market fluctuations,could cause a decrease in corporate spending on information security software. We generated 31.5% of our revenues from Europe, the Middle East and Africaand 11.3% from the rest of the world, including countries in North and South America other than the United States and countries in the Asia Pacific region, in2015. Continuing economic challenges throughout Europe, the Asia Pacific region and other parts of the world may cause our customers in those locations toreevaluate decisions to purchase our solutions or to delay their purchasing decisions, which could adversely impact our results of operations due to theimportance of that region to us. In addition, a significant portion of our revenues is generated from customers in the financial services industry, including banking and insurance. Negativeeconomic conditions may cause customers generally and in that industry in particular to reduce their IT spending. Customers may delay or cancel IT projects,choose to focus on in-house development efforts or seek to lower their costs by renegotiating maintenance and support agreements. To the extent purchasesof licenses for our software are perceived by customers and potential customers to be discretionary, our revenues may be disproportionately affected bydelays or reductions in general IT spending. If the economic conditions of the general economy or industries in which we operate worsen from present levels,our results of operation could be adversely affected. We rely significantly on revenues from maintenance and support contracts, which we recognize ratably over the term of the associated contract and, to alesser extent, from professional services contracts, which we recognize as services are delivered, and downturns in sales of these contracts are notimmediately reflected in full in our quarterly operating results. Maintenance and support and professional services revenues accounted for 37.7% of our total revenues in 2015. Sales of maintenance and support andprofessional services may decline or fluctuate as a result of a number of factors, including the number of product licenses we sell, our customers’ level ofsatisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors orreductions in our customers’ spending levels. If our sales of maintenance and support and professional services contracts decline, our revenues or revenuegrowth may decline and our business will suffer. We recognize revenues from maintenance and support contracts ratably on a straight-line basis over the termof the related contract which is typically one year and, to a lesser extent, three years, and from professional services as services are performed. As a result, ameaningful portion of the revenues we report each quarter results from the recognition of deferred revenues from maintenance and support and professionalservices contracts entered into during previous quarters. Consequently, a decline in the number or size of such contracts in any one quarter will not be fullyreflected in revenues in that quarter, but will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns inmaintenance and support and professional services contracts would not be reflected in full in our results of operations until future periods. We are subject to governmental export and import controls that could subject us to liability in the event of non-compliance or impair our ability tocompete in international markets. We incorporate encryption capabilities into certain products and these products are subject to U.S. export control requirements. We are also subject to Israeliexport controls on encryption technology since our product development initiatives are primarily conducted in Israel. If the applicable U.S. or Israelirequirements regarding the export of encryption technology were to change or if we change the encryption means in our products, we may need to satisfyadditional requirements in the United States or Israel. There can be no assurance that we will be able to satisfy any additional requirements under thesecircumstances in either the United States or Israel. Furthermore, various other countries regulate the import of certain encryption products and technology,including import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit ourcustomers’ ability to implement our products in those countries. 17 We are also subject to U.S. and Israeli export control and economic sanctions laws, which prohibit the shipment of certain products to embargoed orsanctioned countries, governments and persons. Our products could be exported to these sanctioned targets by our channel partners despite the contractualundertakings they have given us and any such export could have negative consequences, including government investigations, penalties and reputationalharm. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, orchange in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in ourdecreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products orlimitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations. In addition, in the future we may be subject to defense-related export controls. For example, currently our solutions are not subject to supervision under theIsraeli Defense Export Control Law, 5767-2007, but if they were used for purposes that are classified as defense-related or if they fall under “dual-use goodsand technology” as referred to below, we could become subject to such regulation. In particular, under the Israeli Defense Export Control Law, 5767-2007, anIsraeli company may not conduct “defense marketing activity” without a defense marketing license from the Israeli Ministry of Defense (MOD) and may besubject to a requirement to obtain a specific license from the MOD for any export of defense related products and/or knowhow. The definition of defensemarketing activity is broad and includes any marketing of “defense equipment,” “defense knowhow” or “defense services” outside of Israel, which includes“dual-use goods and technology,” (material and equipment intended in principle for civilian use and that can also be used for defensive purposes, such as ourcybersecurity solutions) that is specified in the list of Goods and Dual-Use Technology annexed to the Wassenaar Arrangement on Export Controls forConventional Arms and Dual-Use Goods and Technologies, if intended for defense use only, or is specified under Israeli legislation. “Dual-use goods andtechnology” will be subject to control by the Ministry of Economy if intended for civilian use only. In December 2013, regulations under the WassenaarArrangement included for the first time a chapter on cyber-related matters, which chapter was last amended in December 2015. We believe that our productsdo not fall under this chapter; however, in the future we may become subject to this regulation or similar regulations, which would limit our sales andmarketing activities and could therefore have an adverse effect on our results of operations. Similar issues could arise under the U.S. defense/military exportcontrols under the Arms Export Control Act and the International Traffic in Arms Regulations.Further, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a proposed rule on May 20, 2015 on new export regulations for“cybersecurity items.” The proposed rule was subject to public comment until July 20, 2015. At a congressional hearing in January 2016, BIS indicated thatthe proposed rule would be revised before formal issuance in light of the comments received during the comment period. As a result, there can be noassurance whether our solutions would be impacted by these potential new regulations and what impact the new regulations would have on our sales or ourcosts relating to compliance. In December 2015, the Israeli Ministry of Defense also issued a preliminary draft proposing certain cyber-export regulationsseeking industry input and views on such proposal. The adoption of regulations is subject to their finalization by the relevant ministry, and then to furtherreview, discussion and possibly revision by the Foreign Affairs and Defense Committee of Israel’s Parliament. At this time we believe that such regulations –if adopted as is – are not likely to have an adverse effect on our results of operations; however there can be no assurance that the proposed regulations wouldnot be revised, or whether our solutions would be subject to any additional requirements which could result in additional administrative cost or affect salecycles. We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations. Our functional and reporting currency is the U.S. dollar and we generate a majority of our revenues in U.S. dollars. In 2015, the majority of our revenues weredenominated in U.S. dollars and the remainder primarily in euros and British pounds sterling. In 2015, the substantial majority of our cost of revenues andoperating expenses were denominated in U.S. dollars and New Israeli Shekels (NIS), and the remainder primarily in euros and British pounds sterling. Ourforeign currency-denominated expenses consist primarily of personnel, rent and other overhead costs. Since a significant portion of our expenses is incurredin NIS and is substantially greater than our revenues in NIS, any appreciation of the NIS relative to the U.S. dollar would adversely impact our net loss or netincome, as applicable. In addition, since the portion of our revenues generated in euros and British pounds sterling is greater than our expenses incurred ineuros and British pounds sterling, respectively, any depreciation of the euro or the British pounds sterling relative to the U.S. dollar would adversely impactour net loss or net income, as relevant. We estimate that a 10% strengthening or weakening in the value of the NIS against the U.S. dollar would haveincreased or decreased, respectively, our net income by approximately $2.1 million in 2015. We estimate that a 10% strengthening or weakening in the valueof the euro against the U.S. dollar would have increased or decreased, respectively, our net income by approximately $1.3 million in 2015. We estimate that a10% strengthening or weakening in the value of the British pounds sterling against the U.S. dollar would have increased or decreased, respectively, our netincome by approximately $0.6 million in 2015. These estimates of the impact of fluctuations in currency exchange rates on our historic results of operationsmay be different from the impact of fluctuations in exchange rates on our future results of operations since the mix of currencies comprising our revenues andexpenses may change. We evaluate periodically the various currencies to which we are exposed and take hedging measures to reduce the potential adverseimpact from the appreciation or the depreciation of our non U.S. dollar-denominated operations, as appropriate. We expect that the majority of our revenueswill continue to be generated in U.S. dollars with the balance in euros and British pounds sterling for the foreseeable future and that a significant portion ofour expenses will continue to be denominated in NIS, U.S. dollars, British pounds sterling and in euros. We cannot provide any assurances that our hedgingactivities will be successful in protecting us from adverse impacts from currency exchange rate fluctuations. See “Item 11—Quantitative and QualitativeDisclosures About Market Risk—Foreign Currency Risk.” 18 A portion of our revenues is generated by sales to government entities, which are subject to a number of challenges and risks. A portion of our revenues is generated by sales to U.S. and foreign federal, state and local governmental agency customers, and we may in the future increasesales to government entities. Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive,expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will complete a sale. Government demandand payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delaysadversely affecting public sector demand for our products. Finally, for purchases by the U.S. government, the government may require certain products to bemanufactured in the United States and other high cost manufacturing locations, and we may not manufacture all products in locations that meet therequirements of the U.S. government. Our use of open source software, third-party software and other intellectual property may expose us to risks. We use open source software and expect to continue to use open source software in the future. Some open source software licenses require users whodistribute or make available as a service open source software as part of their own software product to publicly disclose all or part of the source code of theusers’ software product or to make available any derivative works of the open source code on unfavorable terms or at no cost. We may face ownership claimsof third parties over, or seeking to enforce the license terms applicable to, such open source software, including by demanding the release of the open sourcesoftware, derivative works or our proprietary source code that was developed using such software. In addition, if the license terms for the open source codechange, we may be forced to re-engineer our software or incur additional costs. Further, some of our products and services include software or other intellectual property licensed from third parties, and we otherwise use software and otherintellectual property licensed from third parties in our business. This exposes us to risks over which we may have little or no control. For example, a licensormay have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property that it licenses to us. Therecan be no assurance that the licenses we use will be available on acceptable terms, if at all. In addition, a third party may assert that we or our customers are inbreach of the terms of a license, which could, among other things, give such third party the right to terminate a license or seek damages from us, or both. Ourinability to obtain or maintain certain licenses or other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage inlitigation regarding these matters, could result in delays in releases of new products, and could otherwise disrupt our business, until equivalent technologycan be identified, licensed or developed. 19 Risks Related to Our Ordinary Shares Our share price may be volatile, and you may lose all or part of your investment. Our ordinary shares were first offered publicly in our initial public offering in September 2014, at a price of $16.00 per share. Certain of our shareholders soldour ordinary shares in a public offering in March 2015. Subsequently, we issued and sold our ordinary shares and certain of our shareholders sold additionalordinary shares in a public offering in June 2015. Since our initial public offering in September 2014, our ordinary shares have traded as high as $76.35 pershare and as low as $22.12 per share through February 29, 2016. In addition, the market price of our ordinary shares could be highly volatile and mayfluctuate substantially as a result of many factors, some of which are beyond our control, including, but not limited to: ·actual or anticipated fluctuations in our results of operations and the results of other similar companies; ·variance in our financial performance from the expectations of market analysts; ·announcements by us or our competitors of significant business developments, changes in service provider relationships, acquisitions or expansionplans; ·changes in the prices of our products and services; ·our involvement in litigation; ·our sale of ordinary shares or other securities in the future; ·market conditions in our industry; ·changes in key personnel; ·speculation in the press or the investment community; ·the trading volume of our ordinary shares; ·changes in the estimation of the future size and growth rate of our markets; ·any merger and acquisition activities; and ·general economic and market conditions. In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the marketprice of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities,securities class action litigation has often been instituted against that company. If we were involved in any similar litigation we could incur substantial costsand our management’s attention and resources could be diverted. If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research reports about our business, our share price andtrading volume could decline. The trading price for our ordinary shares is affected by any research or reports that securities or industry analysts publish about us or our business. If one ormore of the analysts who cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular, if they downgradetheir evaluations of our ordinary shares, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company,we could lose visibility in the market for our ordinary shares, which in turn could cause our share price to decline. 20 As a foreign private issuer whose shares are listed on the NASDAQ Stock Market, or NASDAQ, we may follow certain home country corporate governancepractices instead of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rulesapplicable to domestic U.S. issuers. As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted to follow certain home country corporategovernance practices instead of certain rules of NASDAQ. We currently follow Israeli home country practices with regard to the quorum requirement forshareholder meetings and NASDAQ requirements relating to distribution of our annual report to shareholders. As permitted under the Israeli Companies Law,5759-1999, or the Companies Law, our articles of association provide that the quorum for any meeting of shareholders shall be the presence of at least twoshareholders present in person or by proxy who hold at least 25% of the voting power of our shares instead of 33 1/3% of our issued share capital. Further, aspermitted by the Companies Law and in accordance with the generally accepted business practice in Israel, we do not distribute our annual report toshareholders but make it available through a public website. We may in the future elect to follow Israeli home country practices with regard to other matterssuch as the formation and composition of the nominating and corporate governance committee, separate executive sessions of independent directors and therequirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensationplans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or moreinterest in the company and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the sameprotection as provided under NASDAQ corporate governance rules. Following our home country governance practices as opposed to the requirements thatwould otherwise apply to a United States company listed on NASDAQ may provide less protection than is accorded to investors of domestic issuers. See“Item16.G. Corporate Governance.” As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Actreports. As a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public companies that are not foreign privateissuers. In particular, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and ourofficers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of theExchange Act. In addition, we are not required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequentlyor as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reportswith the SEC under the Exchange Act. We are also exempt from the provisions of Regulation FD, which prohibits issuers from making selective disclosure ofmaterial nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonablyforeseeable that the holder will trade in the company’s securities on the basis of the information. Even though we intend to comply voluntarily withRegulation FD, these exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, althoughpursuant to the Companies Law, we disclose the annual compensation of our five most highly compensated office holders (as defined under the CompaniesLaw) on an individual basis, including in this annual report. Since a majority of our voting securities are either directly or indirectly owned of record by residents of the United States, we would lose our foreign privateissuer status if any of the following were to occur:(i) the majority of our executive officers or directors were United States citizens or residents, (ii) more than50 percent of our assets were located in the United States, or (iii) our business was administered principally in the United States. Although we have elected tocomply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory andcompliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will berequired to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the formsavailable to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose moredetailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify certain of ourpolicies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. Inaddition, we would lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available toforeign private issuers. 21 The market price of our ordinary shares could be negatively affected by future sales of our ordinary shares. If our existing shareholders, particularly our largest shareholders, or our directors or executive officers sell a substantial number of our ordinary shares in thepublic market, the market price of our ordinary shares could decrease significantly. The perception in the public market that these shareholders might sell ourordinary shares could also depress the market price of our ordinary shares and could impair our future ability to obtain capital, especially through an offeringof equity securities. Additionally, as of December 31, 2015, the holders of approximately 5.0 million of our ordinary shares are entitled to require that we register their sharesunder the Securities Act for resale into the public markets on a registration statement on Form F-3, subject to cutback for marketing reasons and certain otherconditions. All shares sold pursuant to a public offering would be freely transferable. See “Item 7.B—Related Party Transactions—Registration Rights.”Further, we have filed registration statements on Form S-8 under the Securities Act to register 5,472,500 ordinary shares issuable under our equity incentiveplans. Such registration statements became effective immediately upon filing. Ordinary shares issued upon exercise of a share option or vesting of restrictedstock units and registered pursuant to the corresponding registration statement on Form S-8 may be freely sold in the public market upon issuance, subject tovesting provisions and certain restrictions on sale by affiliates. As of December 31, 2015, 3,755,785 ordinary shares underlying options and restricted stockunits were outstanding under our equity incentive plans.Sales by us or our shareholders of a substantial number of ordinary shares in the public market, or the perception that these sales might occur, could cause themarket price of our ordinary shares to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equitysecurities. Our U.S. shareholders may suffer adverse tax consequences if we are classified as a passive foreign investment company. Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which maybe measured in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, wewould be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on our gross income and gross assets,and the nature of our business, we believe that we were not classified as a PFIC for the taxable year ended December 31, 2015. Because PFIC status is basedon our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our 2016 taxableyear until after the close of the year. There can be no assurance that we will not be considered a PFIC for any taxable year. Our characterization as a PFICcould result in material adverse tax consequences for you if you are a U.S. investor, including having gains realized on the sale of our ordinary shares treatedas ordinary income, rather than a capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who areU.S. holders, and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some of theadverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares. ProspectiveU.S. investors should consult their own tax advisers regarding the potential application of the PFIC rules to them. Prospective U.S. investors should refer to“Item 10.E. Taxation—Certain United States Federal Income Tax Consequences” for discussion of additional U.S. income tax considerations applicable tothem based on our treatment as a PFIC.If we are unable to satisfy the requirements of Sections 404(a) and 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, or if our internalcontrol over financial reporting is not effective, investors may lose confidence in the accuracy and the completeness of our financial reports and thetrading price of our ordinary shares may be negatively affected.Pursuant to Section 404(a) of the Sarbanes-Oxley Act, beginning with our annual report for the fiscal year ended December 31, 2015, we are required tofurnish a report by management on the effectiveness of our internal control over financial reporting. Accordingly, during the fiscal year ended December 31,2015, our management commenced the process of determining whether our internal control over financial reporting systems is effective under Section 404(a).Additionally, pursuant to Section 404(b) of the Sarbanes-Oxley Act, beginning with our annual report for the fiscal year ended December 31, 2015, as we areno longer an emerging growth company and qualify as a large accelerated filer, we must include an auditor attestation on our internal control over financialreporting. 22 To maintain the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, we expect that we will need tocontinue enhancing existing, and implement new, financial reporting and management systems, procedures and controls to manage our business effectivelyand support our growth in the future. The process of evaluating our internal control over financial reporting will require an investment of substantial time andresources, including by our Chief Financial Officer and other members of our senior management. As a result, this process may divert internal resources andtake a significant amount of time and effort to complete.Additionally, as part of management assessments of the effectiveness of our internal control overfinancial reporting required by Section 404(a), our management may conclude that our internal control over financial reporting is not effective due to ourfailure to cure any identified material weakness or otherwise, which would require us to employ remedial actions to implement effective controls. If weidentify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404(a) or 404(b) in atimely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable toexpress an opinion or issues an adverse opinion in its attestation as to the effectiveness of our internal control over financial reporting required by Section404(b), investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our ordinary shares could benegatively affected. We could also become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatoryauthorities, which could require additional financial and management resources. Irrespective of compliance with Sections 404(a) and 404(b), any failure of our internal control could have a material adverse effect on our stated results ofoperations and harm our reputation.In order to implement changes to our internal control over financial reporting triggered by a failure of those controls, wecould experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of thesechanges. As a public company we may become subject to further compliance obligations, which may strain our resources and divert management’s attention.Changing laws, regulations and standards in the United States relating to corporate governance and public disclosure and other matters may be implementedin the future, which may increase our legal and financial compliance costs, make some activities more time consuming and divert management’s time andattention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from theactivities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against usand our business may be harmed. Being a publicly traded company in the United States and being subject to U.S. rules and regulations may make it moreexpensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs toobtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serveon our audit committee, and qualified executive officers. Risks Relating to Our Incorporation and Location in Israel Our headquarters, research and development activities and other significant operations are located in Israel and, therefore, our results may be adverselyaffected by political, economic and military instability in Israel. Our headquarters and principal research and development facilities are located in Israel. In addition, the majority of our key employees, officers and directorsare residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the Stateof Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilitiesbetween Israel and Hezbollah in Lebanon and Hamas in the Gaza strip, both of which resulted in rockets being fired into Israel causing casualties anddisruption of economic activities. In addition, Israel faces threats from more distant neighbors, including, in particular, Iran. Our commercial insurance doesnot cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currentlycommitted to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this governmentcoverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us couldhave a material adverse effect on our business. Any armed conflict involving Israel could adversely affect our operations and results of operations. 23 Further, our operations could be disrupted by the obligations of personnel to perform military service. As of December 31, 2015, we had 272 employees basedin Israel, certain of which may be called upon to perform up to 54 days in each three year period (and in the case of non-officer commanders or officers, up to70 or 84 days, respectively, in each three year period) of military reserve duty until they reach the age of 40 (and in some cases, depending on their specificmilitary profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. Ouroperations could be disrupted by the absence of a significant number of employees related to military service, which could materially adversely affect ourbusiness and results of operations. Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictionson doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased effortsby activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become morewidespread, may adversely impact our ability to sell our products. The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which couldincrease our costs and taxes. We were granted Approved Enterprise status under the Israeli Law for the Encouragement of Capital Investments, 1959, referred to as the Investment Law. Wehad elected the alternative benefits program, pursuant to which income derived from the Approved Enterprise program is tax-exempt for two years and enjoysa reduced tax rate of 10.0% to 25.0% for up to a total of eight years, subject to an adjustment based upon the foreign investors’ ownership. We were alsoeligible for certain tax benefits provided to Benefited Enterprises under the Investment Law. In March 2013, we notified the Israel Tax Authority that weapply the new tax regime under the Investment Law instead of our Approved Enterprise and Benefited Enterprise. We are eligible for certain tax benefitsprovided to Preferred Enterprises under the Investment Law. If we do not meet the conditions stipulated in the Investment Law, any tax benefits will becanceled and we would be required to refund the amount of the benefits, in whole or in part, including interest and CPI linkage (and other monetary penalties,if imposed on us). Further, in the future these tax benefits may be reduced or discontinued. If these tax benefits are reduced, cancelled or discontinued, ourIsraeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies in 2013 was 25.0%, wasincreased to 26.5% for 2014 and 2015, and was reduced to 25.0% for 2016 and thereafter. Additionally, if we increase our activities outside of Israel throughacquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Item 5. Operating andFinancial Review and Prospects—Operating Results—Israeli Tax Considerations and Government Programs—Law for the Encouragement of CapitalInvestments, 5719-1959.” We may be required to pay monetary remuneration to employees who invented inventions during and as a consequence of their employment, even if theproprietary rights to such inventions have been assigned to us. We enter into assignment-of-invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventionscreated in the scope of their employment or engagement with us. A significant portion of our intellectual property has been developed by our employeesduring the course of their employment by us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during thescope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between theemployee and employer giving the employee service invention rights. Although our employees have agreed to assign to us service invention rights, as aresult of uncertainty under Israeli law with respect to the efficacy of waivers of service invention rights, we may face claims demanding remuneration inconsideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our currentand/or former employees, or be forced to litigate such claims, which could negatively affect our business. 24 Provisions of Israeli law and our articles of association may delay, prevent or otherwise impede a merger with or an acquisition of us, even when the termsof such a transaction are favorable to us and our shareholders. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tenderoffer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% ofthe issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tenderoffer, unless at least 98% of the company’s outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance ofthe tender offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights), may, at any timewithin six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. See “Item 10.B. Articlesof Association—Acquisitions under Israeli Law” for additional information. Our articles of association provide that our directors (other than external directors) are elected on a staggered basis, such that a potential acquirer cannotreadily replace our entire board of directors at a single annual general shareholder meeting. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have atax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extentas U.S. tax law. With respect to mergers involving an exchange of shares, Israeli tax law allows for tax deferral in certain circumstances but makes the deferralcontingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during whichsales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, thetax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. In order to benefit fromthe tax deferral, a pre-ruling from the Israel Tax Authority might be required. It may be difficult to enforce a judgment of a U.S. court against us, our officers and directors or the Israeli auditors named in this annual report in Israel orthe United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these auditors. We are incorporated in Israel. The majority of our directors and executive officers, and the Israeli auditors listed in this annual report reside outside of theUnited States, and most of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained againstus, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in theUnited States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States orto assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S.securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear aclaim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. lawmust be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israelilaw. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgmentagainst us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court. Your rights and responsibilities as a shareholder are, and will continue to be, governed by Israeli law which differs in some material respects from therights and responsibilities of shareholders of U.S. companies. The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights andresponsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder ofan Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company andother shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders onmatters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and relatedparty transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of ashareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. Thereis limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpretedto impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations. 25 ITEM 4.INFORMATION ON THE COMPANY A.History and Development of the Company Our History We were founded in 1999 with the vision of protecting high-value business data and pioneered our Digital Vault technology, which is the foundation of ourplatform. That same year, we began offering our first product, the Sensitive Information Management Solution (previously called the Sensitive DocumentVault), which provides a secure platform through which our customers’ employees can share sensitive files. We believe our early innovation in vaultingtechnology enabled us to evolve into a company that provides a comprehensive security solutions built for privileged accounts. In 2005, we introduced ourPrivileged Account Security Solution, which has become our leading offering and reflects our emphasis on protecting privileged accounts across anorganization. In September 2014, we listed our ordinary shares on the NASDAQ Global Select Market. In 2015, we acquired Viewfinity, a provider ofWindows least privilege management and application control software, as well as Cybertinel, a cyber security company specializing in cyber threat detectiontechnology. Our Privileged Account Security Solution consists of several products: Enterprise Password Vault, SSH Key Manager, Privileged Session Manager, PrivilegedThreat Analytics, Application Identity Manager, Viewfinity and On-Demand Privileges Manager. We are a company limited by shares organized under the laws of the State of Israel. We are registered with the Israeli Registrar of Companies. Our registrationnumber is 51-229164-2. Our principal executive offices are located at 94 Em-Ha’moshavot Road, Park Ofer, P.O. Box 3143, Petach Tikva 4970602, Israel,and our telephone number is +972 (3) 918-0000. Our website address is www.cyberark.com. Information contained on, or that can be accessed through, ourwebsite is not part of this annual report and is not incorporated by reference herein. We have included our website address in this annual report solely forinformational purposes. Our agent for service of process in the United States is Cyber-Ark Software, Inc., located at 60 Wells Avenue, Suite 103, Newton, MA02459, and our telephone number is (617) 965-1544. Principal Capital Expenditures Our capital expenditures for fiscal years 2013, 2014 and 2015 amounted to $0.8 million, $1.4 million and $2.1 million, respectively. Capital expendituresconsist primarily of investments in leasehold improvements for our office space and the purchase of computers and related equipment. We anticipate ourcapital expenditures in fiscal year 2016 to be in a range of $4 million and $5 million. We anticipate our capital expenditures in 2016 will be financed withcash on hand and cash flow generated from operating activities. B.Business Overview We are a global leader and pioneer of a new layer of IT security solutions that protects organizations from cyber attacks that have made their way inside thenetwork perimeter to strike at the heart of the enterprise. Our software solutions are focused on protecting privileged accounts, which have become a criticaltarget in the lifecycle of today’s cyber attacks. Privileged accounts are pervasive and act as the “keys to the IT kingdom,” providing complete access to, andcontrol of, all parts of IT infrastructure, industrial control systems and critical business data. In the hands of an external attacker or malicious insider,privileged accounts allow attackers to take control of and disrupt an organization’s IT and industrial control infrastructures, steal confidential informationand commit financial fraud. Our comprehensive solutions proactively protect privileged accounts, monitor privileged activity and detect maliciousprivileged behavior. Our customers use our innovative solutions to introduce this new security layer to protect against, detect and respond to cyber attacksbefore they strike vital systems and compromise sensitive data. 26 Organizations worldwide are experiencing an unprecedented increase in the sophistication, scale and frequency of cyber attacks. The challenge this presentsis intensified by the growing adoption of new technologies, such as cloud computing, virtualization, software-defined networking, enterprise mobility andsocial networking, which has resulted in increasingly complex and distributed IT environments with significantly larger attack surfaces. Organizations havehistorically relied upon perimeter-based threat protection solutions such as network and web security tools as the predominant defense against cyber attacks,yet these traditional solutions have a limited ability to stop today’s advanced threats. According to a 2015 special report issued by FireEye, Inc., 96% of thesystems of more than 1,600 FireEye network and email sensors deployed in real-world networks had suffered a network security breach. Organizations are inthe early stages of adapting their security strategies to address this new threat environment and are evolving their approaches based on the assumption thattheir network perimeter has been or will be breached. They are therefore increasingly implementing new layers of security inside the network to disruptattacks before they result in the theft of confidential information or other serious damage. Regulators are also continuing to mandate rigorous compliancestandards and audit requirements in response to this evolving threat landscape. We believe that the implementation of a privileged account security solution is one of the most critical layers of an effective security strategy. Privilegedaccounts represent one of the most vulnerable aspects of an organization’s IT infrastructure. Privileged accounts are used by system administrators, third-party and cloud service providers, applications and business users, and they exist in nearly every connected device, server, hypervisor, operating system,database, application and industrial control system. Due to the broad access and control they provide, exploiting privileged accounts has become a criticalstage of the cyber attack lifecycle. The typical cyber attack involves an attacker effecting an initial breach, escalating privileges to access target systems,moving laterally through the IT infrastructure to identify valuable targets, and exfiltrating, or stealing, the desired information. According to Mandiant,credentials of authorized users were hijacked in 100% of the breaches that Mandiant investigated, and privileged accounts were targeted whenever possible. We have architected our solutions from the ground up to address the challenges of protecting privileged accounts and an organization’s sensitiveinformation. Our solutions provide proactive protection against cyber attacks from both external and internal sources and allow for real-time detection andneutralization of such threats. They can be deployed in traditional on-premise data centers, cloud environments and industrial control systems. Ourinnovative software solutions are the result of over 16 years of research and expertise, combined with valuable knowledge we have gained from working withour diverse population of customers and from our recent acquisitions of Viewfinity and Cybertinel. Our comprehensive, purpose-built Privileged Account Security Solution enables our customers to secure, manage and monitor privileged account access andactivities. Our Privileged Account Security Solution consists of our Enterprise Password Vault, SSH Key Manager, Privileged Session Manager, PrivilegedThreat Analytics, Application Identity Manager, Viewfinity and On-Demand Privileges Manager. These products leverage a common technology platformthat includes our secure Digital Vault, Web Management Interface, Master Policy Engine and Discovery Engine, and integrates out of the box with over 100types of IT assets in the datacenter or the cloud. Our solutions complement network, endpoint, web and other security tools and enhances the effectiveness ofother security defenses by preventing the misuse of privileged accounts that are built into these products. As of December 31, 2015, we had approximately 2,500 customers, including over 40% of the Fortune 100 and approximately 20% of the Global 2000. Wedefine a customer to include a distinct entity, division or business unit of a company. Our customers include leading organizations in a diverse set ofindustries, including energy and utilities, financial services, healthcare, manufacturing, retail, technology and telecommunications, as well as governmentagencies. We sell our solutions through a high touch, channel fulfilled hybrid sales model that combines the leverage of channel sales with the accountcontrol of direct sales, and therefore provides us with significant opportunities to grow our current customer base. This approach allows us to maintain closerelationships with our customers and benefit from the global reach of our channel partners. Additionally, we continue to enhance our product offerings andgo-to-market strategy by establishing technology alliances within the IT infrastructure and security vendor ecosystem. 27 Our business has rapidly grown in recent years. During 2013, 2014 and 2015, our revenues were $66.2 million, $103.0 million and $160.8 million,respectively, representing year-over-year growth of 55.7% and 56.1% in 2014 and 2015, respectively. Our net income for 2013, 2014 and 2015 was $6.6million, $10.0 million and $25.8 million, respectively. Industry Background The recent increase in sophisticated, targeted security threats by both external attackers and malicious insiders, along with an increase in the attack surfacedue to the growing complexity and distributed nature of IT environments, have made it extremely challenging for enterprises and governments around theworld to protect their sensitive information. These challenges are driving the need for a new layer of security that complements traditional threat protectiontechnologies by securing access to privileged accounts and preventing the exploitation of organizations’ critical systems and data. Our Products Our products secure organizations’ high-value data and critical IT assets by providing proactive protection against external and internal cyber threats andenabling real-time detection and neutralization of attacks. Privileged Account Security Solution 28 Our comprehensive, purpose-built Privileged Account Security Solution provides our customers a set of products that enable them to secure, manage andmonitor privileged account access and activities. Our Privileged Account Security Solution consists of our Enterprise Password Vault, SSH Key Manager,Privileged Session Manager, Privileged Threat Analytics, Application Identity Manager, Viewfinity and On-Demand Privileges Manager. These productsshare a common technology platform that includes our secure Digital Vault, Web Management Interface, Master Policy Engine and Discovery Engine, andintegrates out of the box with over 100 types of IT assets in the datacenter or the cloud. Enterprise Password Vault. Our Enterprise Password Vault provides customers with a powerful tool to manage and protect all privileged accounts across anentire organization, including physical, virtual or cloud-based assets. Customers can control how often to require scheduled password changes for differentprivileged accounts or grant passwords solely for one-time use based on operational needs and regulatory requirements. This automated process reduces thetime-consuming and error-prone task of manually tracking and updating privileged credentials thereby enhancing system security and facilitatingobservance of audit and compliance standards. SSH Key Manager. Our SSH Key Manager product securely stores, rotates and controls access to SSH keys to prevent unauthorized access to privilegedaccounts. This includes the protection of keys at rest and in transit, granular access controls and integration with strong authentication solutions. Detailedaudit logs and reporting capabilities provide visibility into key usage to meet audit and compliance requirements. SSH keys are used as an alternative topassword credentials, commonly used for administrative access for users, devices and applications to UNIX and Linux systems. SSH Key Manager is a logicalextension to our Privileged Account Security Solution, leveraging our shared technology platform infrastructure, enabling organizations to protect allprivileged credentials with a single integrated platform that can be built out over time in accordance with business needs. Privileged Session Manager. Our Privileged Session Manager protects IT assets including servers, applications, databases and hypervisors from malware andprovides command-level monitoring and recording of all privileged activity. Privileged Session Manager prevents malware on an infected workstation fromcapturing a privileged credential and spreading to additional assets. It also provides a single point of control, forcing all privileged access to pass through ourserver, ensuring that all privileged activity is monitored and recorded. The single point of control also allows for real-time viewing of privileged activities,enabling customers to terminate privileged sessions in real-time as a threat is detected. In addition, Privileged Session Manager records complete privilegedsessions and stores the recordings in the Digital Vault to prevent tampering. Auditors, forensics team and others are able to view and quickly search throughan entire session recording for specific activities. Privileged Session Manager does not impact the privileged account session and can operate entirely in thebackground, although customers can opt to deter privileged account users from prohibited conduct by alerting users that their sessions are being recorded.We offer customers the choice of licensing Privileged Session Manager based on the number of devices secured or the number of concurrent sessions itmonitors. Our Privileged Session Manager and Enterprise Password Vault serve complementary functions and are part of a shared platform. As such, wefrequently sell them together. Privileged Threat Analytics. Our Privileged Threat Analytics product allows organizations to detect, alert, and respond to anomalous privileged activitywhile attacks are in progress. Privileged Threat Analytics uses proprietary algorithms to profile and analyze individual privileged user behavior and createsprioritized alerts when abnormal activity is detected. For example, our product can be used to detect privileged account access at unusual times or access toan abnormal quantity of privileged assets. Privileged Threat Analytics can automatically contain an attack by invalidating a stolen credential to block anattacker from further penetrating the network perimeter. Privileged Threat Analytics uses historical data collected by our Privileged Account SecuritySolution, Digital Vault and other network data sources to create and maintain a current profile of each privileged user’s behavior. It allows incident responseteams to investigate the details that triggered the alert in order to prioritize and respond to the threat. We specialize in analyzing behavior related toprivileged user behavior, thus providing vital intelligence on the most critical attack vector. This intelligence can be integrated into an organization’sexisting systems and incident response processes enabling a faster response time. Application Identity Manager. Our Application Identity Manager addresses the challenges of hard-coded, embedded credentials and cryptographic keysbeing hijacked and exploited by malicious insiders or external cyber attackers. This is enabled by our proprietary Digital Vault application providertechnology, which eliminates the need to store such credentials in applications, scripts or configuration files. Instead, Application Identity Manager allowsfor secure, programmatic retrieval of needed credentials only at run-time and based on master policy control and monitoring. 29 Viewfinity. CyberArk Viewfinity, which we added to our product offerings following our acquisition of Viewfinity, Inc. in 2015, is intended to addressproblems that businesses face with local administrator rights and application control on endpoints and can be deployed on-premise or as a cloud-basedsolution. Removing local administrator rights for business users on endpoints can significantly reduce the attack surface, but it can also result in unintendedproductivity tradeoffs and high help desk costs, as users attempt to regain privileges necessary for day-to-day tasks. Viewfinity is designed to helporganizations reduce the attack surface by removing local administrative privileges for business users, granularly controlling IT administrator privileges onWindows Servers based on role and elevating privileges when necessary and authorized. Viewfinity’s application control features also enable organizationsto closely control and monitor all applications within the environment, identify the original source and instances of malicious applications in theenvironment for incident response, or supporting forensic investigations. Malicious applications may be immediately blocked, unknown applications may be“grey” listed and restricted pending further analysis and trusted applications may seamlessly run without frustrating business or IT users. On-Demand Privileges Manager. Our On-Demand Privileges Manager allows customers to limit the breadth of access of Unix/Linux administrative accountsand granularly restrict them from performing certain commands and functions. We also offer this product to customers using Windows through softwarelicensed from an outside vendor. Shared Technology Platform. Our shared technology platform is the foundation of our Privileged Account Security Solution and includes our secure DigitalVault, Web Management Interface, Master Policy Engine and Discovery Engine. Our Digital Vault is an encrypted server that only responds to preset vaultprotocols to ensure security throughout an organization’s network. Our Privileged Account Security Solution’s products use our Digital Vault to safely store,audit and manage passwords, privileged credentials, policy information and privileged account session data. Our Web Management Interface provides asingle, user-friendly interface for customers to set, manage and monitor privileged account security policies across an entire organization in a matter ofminutes while allowing for granular level exceptions to meet the organization’s unique operational needs. Our Master Policy Engine and Discovery Engineenable organizations to understand the scope of privileged account risk and helps to ensure that all privileged account activity is accounted for byautomatically discovering new privileged accounts or changes to existing accounts. Our platform integrates out of the box with over 100 types of IT assets inthe datacenter or the cloud, including leading operating systems, databases, network devices, security appliances, hypervisors, applications, industrialcontrol systems and application servers. Our platform further leverages our proprietary vault protocol technology to enable distributed deployments acrossglobal networks for central management and auditing while providing enterprise-wide global coverage. Sensitive Information Management Solution Our Sensitive Information Management Solution provides a secure platform through which our customers’ employees can share sensitive files while enablingthe customer to monitor who is sharing these files. This allows organizations to isolate, store, share and track sensitive files and documents, such as customercredit card information, human resource records, intellectual property documents and legal information in a secure, internal environment. It also allowsorganizations to exchange sensitive information securely and efficiently with their business partners, customers, suppliers and subcontractors. Our SensitiveInformation Management Solution integrates with an organization’s existing applications and can be deployed on-premise or as a cloud-based solution forfaster audit readiness without the need for significant upfront cost. Our Services Maintenance and Support Our customers typically purchase one year or, to a lesser extent, three years, of software maintenance and support in conjunction with their initial purchase ofour products (other than our cloud-based Viewfinity product, which include these services as part of the annual subscription fee). Thereafter, they can renewsuch maintenance and support for additional one or three-year periods. These two alternative maintenance and support periods are common in the softwareindustry. Customers pay for each alternative in full at the beginning of their terms. The substantial majority of our contracts sold are for a one-year term. Forexample, for the years 2013 through 2015 more than 90% of the renewal contracts were for a one year term. 30 Our global customer support organization has expertise in our software and how it interacts with complex IT environments. When sales are made to customersdirectly, we typically also provide any necessary maintenance and support pursuant to a maintenance and support contract directly with the customer. Whensales are made through channels, primarily in the EMEA and Asia Pacific and Japan regions, the channel partner typically provides the first and second levelsupport and we typically provide third level support if the issue cannot be resolved by the channel partner. Our maintenance and support program provides customers the right to software bug repairs, the latest system enhancements and updates on an if-and-whenavailable basis during the maintenance period, and access to our technical support services. Our technical support services are provided via our onlinesupport center, which enables customers to submit new support queries and monitor the status of open and past queries. Our online support system alsoprovides customers with access to our CyberArk Knowledge Base, an online user-driven information repository that provides customers the ability to addresstheir own queries. Additionally, we offer email and telephone support during business hours to customers that purchase a standard support package and 24/7availability to customers that purchase a premium support package. Professional Services Our products are designed for customers to be able to download, install and deploy our software on their own. They are highly configurable and manycustomers will select either one of our many trained channel partners or our professional services team to provide services. Our professional services team canbe contracted to assist customers in planning, installing and configuring their solution to meet the needs of their security and IT environment. Ourprofessional services team provides ongoing consulting services regarding best practices in privileged account security, and recommended ways toimplement our solutions to meet specific customer requirements. Additionally, they share best practices associated with use of our software and educatecustomers on alternative ways to use our product through CyberArk University, which offers in-person and WebEx courses globally. Our Technology Our comprehensive Privileged Account Security Solution relies on a set of proprietary technologies that provide a high level of security, scalability andreliability. The core technologies included in our solution are as follows: Secure Digital Vault Technology. Our proprietary Digital Vault technology provides a highly secure, isolated environment, independent of other software,and is engineered with multiple layers of security. Our Digital Vault provides a data encryption mechanism that eliminates the need for encryption keymanagement by the end user, while each object in our Digital Vault is encrypted with its own unique encryption key. To ensure security throughout thenetwork, our Digital Vault communicates within an organization’s network and over the internet through a proprietary and highly protected Vault Protocol,enabling an organization to implement the centrally managed Privileged Account Security Solution with products located in multiple datacenters andgeographic locations. Our Digital Vault provides an additional level of protection by preventing the vault administrator from accessing or discoveringprotected data stored within it. In addition, our Digital Vault database is embedded, isolated and self-managed as part of our Digital Vault software, therebyblocking database administrator access to our Digital Vault database to further eliminate threats. Our Privileged Account Security Solution’s additionalproducts use the highly secured Digital Vault to safely store, audit and manage passwords, privileged credentials, policy information and privileged accountsession data. Sophisticated Threat Analytics Algorithms. Our team of cyber experts and development engineers has developed proprietary algorithms that are at the coreof our Privileged Threat Analytics product. These algorithms were developed using our deep understanding of cybersecurity and cyber attack techniques,together with over a decade of rich experience in analyzing privileged account activities. Our Privileged Threat Analytics product uses these proprietaryalgorithms to construct a behavioral profile for privileged users within an organization and continuously updates the profile based on normal changes inbehavior. Once a behavioral profile is established, the threat analytics algorithms provide the ability to look for deviations from that profile in order toidentify anomalies in user behavior. It then scores each individual anomaly and determines the level of threat based on the correlation of such anomalousevents. Alerts with full details of the incident, including the probability of malicious intent, can be raised immediately, allowing an organization’s incidentresponse team to review the potential threat and take action when necessary. 31 Strong Application Authentication and Credential Management. Our Application Identity Manager product’s architecture allows an organization toeliminate hard-coded application credentials, such as passwords and encryption keys, from applications and scripts. Our secure, proprietary product permitsauthentication of an application during run-time, based on any combination of the application’s signature, executable path, or IP address, and operatingsystem user. Following application authentication, the authenticated application uses a secure application programming interface, or API, to requestprivileged account credentials during run-time and, based on the application permissions in our Privileged Account Security Solution, up-to-date credentialsare provided to the application. To ensure business continuity, and high availability and performance even within complex and distributed networkenvironments, our advanced product architecture provides a secure local credentials cache on the application server, eliminating the dependency on networkavailability and traffic during a run-time application credential request. Our proprietary architecture provides even higher value in application serverenvironments, allowing an organization to eliminate application credentials without the need to perform any code changes and without impactingapplication availability. Privileged Session Recording and Controls. Our innovative privileged session recording and control mechanisms provide the ability to isolate anorganization’s IT systems from end-user desktops, while monitoring and recording the privileged session activities. Our proprietary architecture provides ahighly secure, proxy-based solution that does not require agent installation on the target systems and provides a single-access control point to the targetsystems. The architecture blocks direct communication between an end-user’s desktop and a target system, thus preventing potential malware on the desktopfrom infiltrating the target system. This architecture further ensures that privileged credentials will remain protected and will not be exposed to the end-useror reach the desktop. Comprehensive recording capabilities provide the ability to record every keystroke and mouse click on the privileged session, and alsoprovide DVR-like recordings with search, locate and alert capabilities. Viewfinity Server and Endpoint Agents. Following the acquisition of Viewfinity, Inc. in 2015, we began offering Viewfinity endpoint agent technology,which provides policy-based privilege management and application control capabilities. The agent is able to detect the privileged commands, andapplication installation or invocation on the endpoint and validate whether permissible by the organization’s security policy, otherwise blocking theoperation. Having users operate in a least privilege mode together with the Viewfinity agent technology effectively reduces the surface that attackers ormalware can exploit. The Viewfinity server provides policy-based agent management and consolidated reporting, which allows organizations to manageprivileges and handle application control. The Viewfinity server can also leverage third party threat and reputation information to enrich the policy andblack-list definitions to further strengthen controls and block bad or malicious applications based on such security intelligence. Our Customers As of December 31, 2015, we had approximately 2,500 customers, including over 40% of the Fortune 100 and approximately 20% of the Global 2000. Ourcustomers include leading organizations in a diverse set of industries, including energy and utilities, financial services, healthcare, manufacturing, retail,technology and telecommunications, as well as government agencies. Our business is not dependent on any particular customer. No customer or channel partner accounted for more than 10% of our revenues in any of the lastthree years. Our diverse global footprint is evidenced by the fact that in 2015, we generated 57.2% of our revenues from customers in the United States,31.5% from the EMEA region and 11.3% from the rest of the world, including countries in North and South America other than the United States andcountries in the Asia Pacific region. 32 Sales and Marketing Sales We believe that our hybrid sales model, which combines the leverage of high touch, channel sales with the account control of direct sales, has played animportant role in the growth of our customer base to date. We maintain a highly trained sales force that is responsible for developing and closing newbusiness, the management of relationships with our channel partners and the support and expansion of relationships with existing customers. Our salesorganization is organized by geographic regions, consisting of the Americas, EMEA and Asia Pacific and Japan regions. As of December 31, 2015, our globalnetwork of channel partners consisted of approximately 250 resellers and distributors. Our channel partners generally complement our sales efforts by helpingto identify potential sales targets, maintaining relationships with certain customers and introducing new products to existing customers and offering post-saleprofessional services and technical support. In 2015, we generated approximately 40% of our revenues from direct sales from our field offices locatedthroughout the world. Approximately 50% of our sales in the United States are direct while the substantial majority of our sales in the EMEA region and therest of the world are through channel partners. We work with many global systems integration partners, such as Hewlett-Packard Company and WiproLimited, and several leading regional security value added resellers, such as Optiv Security Inc., Computacenter PLC, Orange S.A., Business Services (OrangeCyberdefense), Carahsoft Technology Corp and Forsythe Solutions Group, Inc. These companies were each among our top 15 channel partners in 2015 byrevenues and we have derived a meaningful amount from sales to each of them during the last two years. Our sales cycle varies by size of the customer, the number of products purchased and the complexity of the customer’s IT infrastructure, ranging from severalweeks for incremental sales to existing customers to many months for sales to new customers or large deployments. To support our broadly dispersed globalchannel and customer base, as of December 31, 2015, we had sales personnel in 26 countries. We plan to continue investing in our sales organization tosupport both the growth of our channel partners and our direct sales organization. Marketing Our marketing strategy is focused on building our brand strength, communicating the benefits of our solutions, developing leads and increasing sales toexisting customers. We market our software as a solution to stop cyber threats before they have the chance to stop business. We execute our strategy byleveraging a combination of internal marketing professionals and a network of channel partners to communicate the value proposition and differentiation forour products, generating qualified leads for our sales force and channel partners. Our marketing efforts also include public relations in multiple regions andextensive content development available through our website. We are focused on an ongoing thought-leadership campaign to further establish ourselves as aleader in the cybersecurity market. Our marketing team is expanding its efforts by investing in analytics-driven lead development, stronger globalcoordination, quick response to current events and proactive and consistent communication with market analysts. Research and Development Continued investment in research and development is critical to our business. Our research and development efforts are focused primarily on improving andcontinuing to enhance existing products and services, as well as developing new products, features and functionality. We believe the timely development ofnew products is essential to maintaining our competitive position. We regularly release new versions of our software which incorporate new features andenhancements to existing ones. We also maintain a dedicated team that researches reported advanced cyber attacks, the attackers’ techniques and methodsthat lead to new security development initiatives for our products and provide thought-leadership on targeted attack mitigation. As of December 31, 2015, we had 176 employees focused on research and development. We conduct our research and development activities in Israel and webelieve this provides us with access to world class engineering talent. Our research and development expenses were $10.4 million, $14.4 million and $21.7million in 2013, 2014 and 2015, respectively. Intellectual Property We rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality procedures and contractual provisions to protect ourtechnology and the related intellectual property. 33 As of December 31, 2015, we had three issued patents in the United States, three provisional U.S. patent applications and 15 pending U.S. patentapplications. We also had two issued patents and 16 applications pending for examination in non-U.S. jurisdictions, all of which are counterparts of our U.S.patent applications. The claims for which we have sought patent protection relate to several elements in our technology, including the Digital Vault, Discovery & Audit tool,Privileged Threat Analytics, Privileged Session Manager and Application Identity Manager. We generally enter into confidentiality agreements with our employees, consultants, service providers, resellers and customers and generally limit internaland external access to, and distribution of, our proprietary information and proprietary technology through certain procedural safeguards. These agreementsmay not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the eventof unauthorized use or disclosure of our intellectual property or technology. Our industry is characterized by the existence of a large number of relevant patents and frequent claims and related litigation regarding patent and otherintellectual property rights. In particular, leading companies in the security industry have extensive patent portfolios. If we become more successful, webelieve that competitors will be more likely to try to develop products that are similar to ours and that may infringe our proprietary rights. It may also be morelikely that competitors or third parties will claim that our products infringe their proprietary rights. From time to time, third parties have asserted and mayassert their patent, copyright, trademark and other intellectual property rights against us, our channel partners, users or customers, whom our standard licenseand other agreements obligate us to indemnify against such claims under certain circumstances. Successful claims of infringement or misappropriation by athird party could prevent us from distributing certain products or performing certain services or could require us to pay substantial damages (including, forexample, treble damages if we are found to have willfully infringed patents and increased statutory damages if we are found to have willfully infringedcopyrights), royalties or other fees. Such claims also could require us to cease making, licensing or using solutions that are alleged to infringe ormisappropriate the intellectual property of others, or to expend additional development resources to attempt to redesign our products or services or otherwiseto develop non-infringing technology; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessarytechnologies or intellectual property rights; and to indemnify our partners or other third parties. Even if third parties may offer a license to their technology,the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business,results of operations or financial condition to be materially and adversely affected. Competition The IT security market in which we operate is characterized by intense competition, constant change and innovation. We believe that none of ourcompetitors offer a fully comprehensive and integrated privileged account security solution; however, we do compete with companies that offer a broad arrayof IT security products. Our current and potential future competitors include CA, Inc., Dell Inc., International Business Machines Corporation, MicrosoftCorporation and Oracle Corporation, in the access and identity management market, as well as providers of advanced threat protection solutions such asHewlett-Packard Company, EMC Corporation (which has signed an agreement to be acquired by Dell Inc.), International Business Machines Corporation,FireEye, Inc., Splunk Inc., Check Point Software Technologies Ltd. and Palo Alto Networks, Inc. and other smaller companies that offer products with a morelimited range of functionality than our own offerings. The principal competitive factors in our market include: ·the breadth and completeness of a security solution; ·reliability and effectiveness in protecting, detecting and responding to cyber attacks; ·analytics and accountability at an individual user level; ·ability of customers to achieve and maintain compliance with compliance standards and audit requirements; 34 ·strength of sale and marketing efforts, including distribution and channel relationships; ·global reach and customer base; ·scalability and ease of integration with an organization’s existing IT infrastructure and security investments; ·brand awareness and reputation; ·innovation and thought leadership; ·quality of customer support; ·speed at which a solution can be deployed; and ·price of a solution and cost of maintenance and professional services. We believe we compete favorably with our competitors on the basis of these factors. However, some of our current and potential future competitors may enjoypotential competitive advantages, such as greater name recognition, longer operating history, larger market share, larger existing user base and greaterfinancial, technical and other resources. Properties Our corporate headquarters are located in Petach Tikva, Israel in an office consisting of approximately 47,200 square feet. In February 2015, we signed a newlease with our current landlord for different premises in Petach Tikva consisting of up to approximately 90,000 square feet. This new lease is scheduled tocommence in July 2017, at which time our current lease would expire. The new lease expires in June 2022. Our U.S. headquarters are located in Newton,Massachusetts in an office consisting of approximately 21,000 square feet. The lease for this office expires in April 2022 with the option to extend for twosuccessive five-year periods. We maintain additional sales offices in England, France, Germany, Singapore, Australia, Italy, Netherlands and Turkey, and asecond research and development office in Israel of approximately 4,300 square feet following the acquisition of Cybertinel and Viewfinity. We believe thatour facilities are sufficient to meet our ongoing needs and that if we require additional space to accommodate our growth we will be able to obtain additionalfacilities on commercially reasonable terms. Legal Proceedings See “Item 8.A. Financial Information—Consolidated Financial Statements and Other Financial Information—Legal proceedings.” C.Organizational Structure The legal name of our company is CyberArk Software Ltd. and we are organized under the laws of the State of Israel. We have three wholly-ownedsubsidiaries: Cyber-Ark Software, Inc., Cyber-Ark Software (UK) Limited and CyberArk Software (Singapore) PTE. LTD. Our wholly-owned United Kingdomsubsidiary, Cyber-Ark Software (UK) Limited, has two wholly-owned subsidiaries, which are incorporated in Germany and Italy, respectively: Cyber-ArkSoftware (DACH) GmbH and CyberArk Software Italy S.r.l. Our United Kingdom subsidiary also operates a branch office in Paris, France. Following the acquisitions conducted in 2015, Viewfinity Ltd. and Cybertinel Ltd., companies incorporated in Israel, became wholly-owned subsidiaries ofCyberArk Software Ltd., and Viewfinity, Inc., a company incorporated in Delaware, United States, became a wholly-owned subsidiary of Cyber-Ark Software,Inc. We expect to merge these companies into CyberArk Software Ltd. and our U.S. subsidiary, respectively. 35 D.Property, Plants andEquipment See “Item 4.B.—Business Overview—Properties” for a discussion of property, plants and equipment. ITEM 4A.UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS Company Overview We are a global leader and pioneer of a new layer of IT security solutions that protects organizations from cyber attacks that have made their way inside thenetwork perimeter to strike at the heart of the enterprise. Our software solutions are focused on protecting privileged accounts, which have become a criticaltarget in the lifecycle of today’s cyber attacks. Privileged accounts act as the “keys to the IT kingdom,” providing complete access to, and control of, all partsof IT infrastructure, industrial control systems and critical business data. In the hands of an external attacker or malicious insider, privileged accounts allowattackers to take control of and disrupt an organization’s IT and industrial control infrastructures, steal confidential information and commit financial fraud.Our comprehensive solutions proactively protect privileged accounts, monitor privileged activity and detect malicious privileged behavior. Our customersuse our innovative solutions to introduce this new security layer to protect against, detect and respond to cyber attacks before they strike vital systems andcompromise sensitive data.We have a history of innovation. We started operations in 1999 with the vision of protecting high-value business data and pioneered our Digital Vaulttechnology, which is the foundation of our platform. That same year, we began offering our first product, the Sensitive Information Management Solution(previously called the Sensitive Document Vault), which provides a secure platform through which our customers’ employees can share sensitive files. Webelieve our early innovation in vaulting technology enabled us to evolve into a company that provides comprehensive security solutions built for privilegedaccounts. In 2005, we introduced our Privileged Account Security Solution, which has become our leading offering and reflects our emphasis on protectingprivileged accounts across an organization. Our Privileged Account Security Solution leverages a shared technology platform and consists of severalproducts: Enterprise Password Vault, SSH Key Manager, Privileged Session Manager, Privileged Threat Analytics, Application Identity Manager, Viewfinityand On-Demand Privileges Manager. We derive our revenues from licensing our cybersecurity software, selling maintenance and support contracts, and providing professional services to theextent requested by customers. Our license revenues consist primarily of revenues from sales of our Privileged Account Security Solution. Our customerstypically purchase one year and, to a lesser extent, three years, of maintenance and support in conjunction with their initial purchase of our products.Thereafter, they can renew such maintenance and support for additional one or three-year periods. We seek to foster long-term relationships with our customers. We have a significant opportunity to generate additional revenues from our existing customersby helping them identify and address gaps in their current privileged account security strategy. Our platform provides our customers flexibility to initiallydeploy one or more of our products for a single use case and then expand usage over time to address more use cases, to add incremental licenses for moreusers or systems or to license additional products from our comprehensive platform. We measure the perpetual license maintenance renewal rate for ourcustomers over a 12-month period, based on a dollar renewal rate of contracts expiring during that time period. Our renewal rate for each of the years endedDecember 31, 2013, 2014 and 2015 was over 90%. Our key strategies to maintain our renewal rate include focusing on the quality and reliability of ourproduct updates and our technical support services. We sell our products directly and through a global network of channel partners, including distributors and resellers, who then sell to their end customers. In2015, we generated approximately 60% of our revenues through sales made by our global network of channel partners, with the balance being generatedthrough our direct sales force. We refer to end customers as our customers throughout this annual report. We believe that our hybrid sales model, whichcombines the leverage of channel sales with the account control of direct sales, will continue to play an important role in the growth of our customer base.Our hybrid sales model has aided our global growth by allowing us to partner with local distributors while being able to use our direct sales team in locationswhere that approach is advantageous to our business. 36 We market and sell our solutions to organizations in a variety of industries and geographies. As of December 31, 2015, we had approximately 2,500customers, including approximately 40% of the Fortune 100 and approximately 20% of the Global 2000. We define a customer to include a distinct entity,division or business unit of a company. The growth of our business and our future success depend on our ability to expand our customer base and increaseour sales to existing customers, which depend on many factors, including our ability to expand our sales force, introduce new products and grow ourrelationships with channel partners. While each of these areas presents significant opportunities for us, they also pose important challenges and risks that wemust successfully address in order to sustain the growth of our business and improve our results of operations. Additionally, the IT security market in whichwe operate is characterized by intense competition, constant innovation and evolving security needs, each of which may impact our ability to grow ourbusiness. We have experienced strong growth over the last several years, as evidenced by a compound annual growth rate in revenues of 55.9% from 2013 to 2015. Wehave also increased our number of employees and subcontractors from 317 as of December 31, 2013 to 644 as of December 31, 2015. We intend to continueto aggressively grow our business to meet the needs of our customers and to pursue opportunities in new and existing verticals, geographies and products. Weintend to continue to invest in the development of our sales and marketing teams, with a particular focus on expanding our channel partnerships, targetingnew customers, creating technology partnerships and solidifying relationships with existing customers. We also plan to continue to invest in research anddevelopment in order to continue to develop technology for both existing and new products. During the years ended December 31, 2013, 2014 and 2015, our revenues were $66.2 million, $103.0 million and $160.8 million, respectively, representingyear-over-year growth of 55.7% and 56.1% in 2014 and 2015, respectively, and with maintenance and professional services comprising over 37% of ourrevenues each year. Our net income for the years ended December 31, 2013, 2014 and 2015 was $6.6 million, $10.0 million and $25.8 million, respectively. Key Financial Metrics We monitor several key financial metrics to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing effortsand assess operational efficiencies. The key financial metrics that we monitor are as follows: Year ended December 31, 2013 2014 2015 (in thousands) Revenues $66,157 $102,999 $160,812 Non-GAAP operating income(1) 9,482 22,027 43,641 Non-GAAP net income(1) 8,484 15,836 35,262 Net cash provided by operating activities 20,159 23,195 59,160 Total deferred revenues (as of period-end) 24,478 32,160 54,389 (1)For a reconciliation of non-GAAP operating income to operating income and of non-GAAP net income to net income, the nearest comparable GAAPmeasures, see “Item 3.A. Selected Financial Data.” Revenues. We derive our revenues from licensing our cybersecurity software, selling maintenance and support contracts, and providing professional servicesto the extent requested by customers. We review our revenues generally to assess the overall health of our business and our license revenues in particular toassess the adoption of our software and our growth in the markets we serve. 37 We consider our license revenues to be particularly important in assessing our results of operations because license fees, particularly from new customers,impact both our short-term and long-term revenues. New customers impact our revenues favorably in the short-term because we recognize substantially alllicense fees immediately upon delivery. New customers contribute significantly to our revenues in the long term because the size of our maintenance andsupport contracts is directly related to our licenses revenues, but revenues from maintenance and support contracts are recognized on a straight-line basis overthe term of the related contract. This fact, coupled with the high renewal rate for our maintenance and support contracts, means that a meaningful portion ofthe revenues we report each period are recognized from deferred revenues generated by maintenance and support contracts entered into during previousquarters. The amount that a customer pays for a license can vary from a few thousand dollars to many millions of dollars depending on its scope. We generally licenseour products on a price per user or price per server basis; however, our license agreements with a small number of our largest customers do not contain anylimit on the number of users or servers in recognition of the size of the overall agreement. We also license certain of our products based on the number ofconcurrent sessions monitored or endpoints secured. As a result, we do not track, and are unable to track, the amount of license revenues we generate on a peruser or per server basis. We do, however, maintain internal price guidelines for different size transactions and, since our cost of license revenues is negligible,we generate incremental profit from every license. Although we are focused on growing our customer base, we also do not focus on the exact number ofcustomers that we add in a given period because our revenues are also a function of the size of initial sales to new customers and the size of upsells to existingcustomers. We seek to increase the number of large transactions that we enter into because they better leverage our operating expense base, and particularlyour sales and marketing expenses, and also generate larger maintenance and support contracts to drive future revenues and margins. Because the size of our maintenance and support contracts is directly related to our licenses revenues and because the rates that we charge for professionalservices fluctuate very little, the drivers of changes in these sources of revenues have to date been volume-based. Historically, there has been little fluctuationin price when we renew a contract for maintenance and support or for professional services. While the demand for professional services is expected to increaseas our customers and license base grow, we expect that our channel partners will increase the amount of such services that they provide. Therefore, while weexpect an increase in the dollar amount of our professional services revenue, we do not expect our professional services revenues to increase materially as apercentage of total revenues. See “—Components of Statements of Operations—Revenues” for more information. Non-GAAP Operating Income and Non-GAAP Net Income. Non-GAAP operating income and non-GAAP net income are non-GAAP financial measures. Wedefine non-GAAP operating income and non-GAAP net income as operating income and net income, respectively, which each exclude (i) share-basedcompensation expense, (ii) expenses related to the March 2015 public offering of ordinary shares by certain of our shareholders and to the June 2015 publicoffering of ordinary shares by us and certain of our shareholders, (iii) expenses related to acquisitions and (iv) amortization of intangible assets related toacquisitions. Non-GAAP net income also excludes (i) financial expenses resulting from the revaluation of warrants to purchase preferred shares and (ii) taxeffects related to the non-GAAP adjustments set forth above. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cashexpense, we believe that providing non-GAAP operating income and non-GAAP net income that exclude, as appropriate, share-based compensationexpenses, expenses relating to public offerings of our ordinary shares, financial expenses resulting from the valuation of warrants to purchase preferred shares,expenses related to acquisitions, amortization of intangible assets related to acquisitions and the tax effects related to these non-GAAP adjustments allows formore meaningful comparisons between our operating results from period to period. Share-based compensation expense has been, and will continue to be forthe foreseeable future, a significant recurring expense in our business and an important part of the compensation we provide to employees. Additionally,excluding financial expenses with respect to revaluation of warrants to purchase preferred shares allows for more meaningful comparison between our netincome from period to period. As these warrants were exercised in connection with our initial public offering, they are no longer revalued at each balancesheet date. We also believe that expenses related to the public offerings of our ordinary shares in March 2015 and June 2015, expenses related to ouracquisitions and amortization of intangible assets related to acquisitions, do not reflect the performance of our core business and would impact period-to-period comparability. Each of our non-GAAP financial measures is an important tool for financial and operational decision making and for evaluating ourown operating results over different periods of time. In particular, these financial measures reflect our operating expenses, the largest of which is currentlysales and marketing. Accordingly, we assess the effectiveness of our sales and marketing efforts in part by considering whether increases in such expendituresare reflected in increased revenues and increased non-GAAP operating income and non-GAAP net income. The material factors driving changes in thesefinancial measures are discussed under the subheading “Revenues” within “—Comparison of Period to Period Results of Operations.” 38 Net Cash Provided by Operating Activities. We monitor net cash provided by operating activities as a measure of our overall business performance. Our netcash provided by operating activities is driven in large part by net income and from up-front payments for maintenance and support contracts andprofessional services. Monitoring net cash provided by operating activities enables us to analyze our financial performance as it includes our deferredrevenues and removes the non-cash effects of certain items such as depreciation and share-based compensation expense, thereby allowing us to betterunderstand and manage the cash needs of our business. Substantially all of the increase in our net cash provided by operating activities has been from growthin our net income (as adjusted for non-cash items) and in our deferred revenues. The material factors driving changes in our net income and our deferredrevenues (which are driven by growth of our license revenues) are discussed under “—Comparison of Period to Period Results of Operations.” Total Deferred Revenues. Our total deferred revenues consist of amounts that have been collected but that have not yet been recognized as revenues becausethey do not meet the applicable criteria. The substantial majority of our deferred revenues consists of the unrecognized portion of upfront paymentsassociated with maintenance and support contracts. The remaining balance of our deferred revenues consists of payments for licenses, and, to a lesser extent,professional services that could not yet be recognized. We monitor our total deferred revenues because it represents a significant portion of revenues to berecognized in future periods. Substantially all of the increase in our total deferred revenues has been from growth in our maintenance and support contractswhich, in turn, is driven by growth of our license revenues. The material factors driving changes in our license revenues are discussed under “—Comparisonof Period to Period Results of Operations.” A.Operating Results The following discussion and analysis should be read in conjunction with the section titled “Item 3.A. Selected Financial Data” of this annual report andour consolidated financial statements and the related notes contained elsewhere in this annual report. This discussion and analysis may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated inthese forward-looking statements as a result of various factors, including those set forth in “Item 3.D. Risk Factors” of this annual report. Our financialstatements have been prepared in accordance with U.S. GAAP. Components of Statements of Operations Revenues Our revenues are comprised of the following: ·License Revenues. License revenues are generated from sales of perpetual licenses for our cybersecurity software: Privileged Account SecuritySolution and Sensitive Information Management Solution. oPrivileged Account Security Solution—The substantial majority of our license revenues has been from sales of our Privileged AccountSecurity Solution. Customers can purchase Enterprise Password Vault, SSH Key Manager, Privileged Session Manager, Privileged ThreatAnalytics, Application Identity Manager, Viewfinity and On-Demand Privileges Manager. We license our Enterprise Password Vault to ourcustomers based on the number of privileged account users. We offer customers the choice of licensing our Privileged Session Managerbased on the number of devices secured or the number of concurrent sessions it monitors. We license our SSH Key Manager, ApplicationIdentity Manager and On-Demand Privileges Manager to our customers based on the number of servers that each such product protects. Welicense our Privileged Threat Analytics to customers based on the number of protected endpoints, such as servers, desktops, databases ormobile devices. We license our Viewfinity to our customers based on the number of protected endpoints such as servers and desktops. 39 oSensitive Information Management Solution—We generate additional license revenues through sales of our Sensitive InformationManagement Solution, our first product to market. Customers license the Sensitive Information Management Solution based on thepermitted number of users of the software. ·Maintenance and Professional Services Revenues. Maintenance revenues are generated from maintenance and service contracts purchased by ourcustomers in order to gain access to the latest software enhancements and updates on an ‘if and when available’ basis and to telephone and emailtechnical support. We also offer professional services focused on both deployment and training our customers to fully leverage the use of ourproducts. Geographic Breakdown of Revenues The United States is our biggest market, with the balance of our revenues generated from the EMEA region and the rest of the world, including North andSouth America (excluding the United States) as well as countries in the Asia Pacific region. The following table sets forth the geographic breakdown of ourrevenues by region for the periods indicated: Year ended December 31, 2013 2014 2015 (in thousands) United States $32,041 48.4% $60,761 59.0% $92,034 57.2%EMEA 25,796 39.0% 33,198 32.2% 50,644 31.5%Rest of World 8,320 12.6% 9,040 8.8% 18,134 11.3% Total revenues $66,157 100.0% $102,999 100.0% $160,812 100.0% Cost of Revenues Our total cost of revenues is comprised of the following:·Cost of License Revenues. Cost of license revenues consists primarily of shipping costs associated with delivery of our software and license payments tothird-party software vendors. We expect the absolute cost of license revenues to increase as our license revenues increase.·Cost of Maintenance and Professional Services Revenues. Cost of maintenance and professional services revenues is primarily comprised of personnelcosts for our global customer support organization. Personnel costs associated with customer support consist of salaries, benefits, bonuses and share-based compensation. We expect the absolute cost of maintenance and professional services revenues to increase as our customer base grows and as wehire additional professional services and technical support personnel. Gross Profit and Gross Margin Gross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Our gross margin hashistorically fluctuated slightly from period to period as a result of changes in the mix of license revenues and maintenance and professional services revenuesand we expect this pattern to continue. 40 Operating Expenses Our operating expenses are classified into three categories: research and development, sales and marketing and general and administrative. For each category,the largest component is personnel costs, which consists of salaries, employee benefits (including commissions and bonuses) and share-based compensationexpense. Operating expenses also include allocated overhead costs for facilities and foreign currency hedging contracts gains and losses. Allocated costs forfacilities primarily consist of rent, depreciation and office maintenance and utilities. Operating expenses are generally recognized as incurred. We expectpersonnel and all allocated costs to continue to increase in absolute dollars as we hire new employees and add facilities to continue to grow our business. Weexpect operating margins to decline in the near term compared to prior periods as we further increase our headcount to support the future growth of ourbusiness. Research and Development. Research and development expenses consist primarily of personnel costs attributable to our research and development personneland consultants as well as allocated overhead costs. We expense research and development expenses as incurred. We expect that our research anddevelopment expenses will continue to increase in absolute dollars and, in the near term, as a percentage of revenues as we increase our research anddevelopment headcount to further strengthen our technology platform and invest in the development of both existing and new products. Sales and Marketing. Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, includingvariable compensation, as well as marketing and business development costs, product certifications, travel expenses and allocated overhead costs. We expectthat sales and marketing expenses will continue to increase in absolute dollars and, in the near term, as a percentage of our revenues as we plan to expand oursales and marketing efforts globally. We expect sales and marketing expenses to be our largest category of operating expenses. General and Administrative. General and administrative expenses consist primarily of personnel costs for our executive, finance, human resources, legal andadministrative personnel. General and administrative expenses also include external legal, accounting and other professional service fees. We expect thatgeneral and administrative expense will increase in absolute dollars as we grow and expand our operations and operate as a public company, includinghigher legal, corporate insurance, investor relations and accounting expenses, and the additional costs of achieving and maintaining compliance with theSarbanes-Oxley Act and related regulations. Financial Income (Expenses), Net Financial income (expenses), net consists of interest income, foreign currency exchange gains or losses, foreign exchange forward transactions and warrantliability expenses. Interest income consists of interest earned on our cash, cash equivalents and short-term bank deposits. We expect interest income to varydepending on our average investment balances and market interest rates during each reporting period. Foreign currency exchange changes reflect gains orlosses related to transactions denominated in currencies other than the U.S. dollar. Warrant liability changes relate to our preferred share warrants. Ourpreferred share warrants are classified as a liability on our consolidated balance sheets and, as such, are remeasured to fair value each period with acorresponding expense from the adjustment recorded as financial income (expenses), net. Immediately prior to the completion of our initial public offering,all of our preferred share warrants were exercised and, accordingly, we no longer record any financial expenses in respect of them on our statement ofoperations. As of the most recent reporting period, we did not have any indebtedness for borrowed amounts. Taxes on Income The standard corporate tax rate in Israel is currently 25.0%, and was 26.5% for 2014 and 2015. As discussed in greater detail below under “Israeli Tax Consideration and Government Programs”, we have received various tax benefits under the InvestmentLaw. Under the Investment Law, our effective tax rate to be paid with respect to our Israeli taxable income under these benefits programs is 16.0%. 41 Under the Investment Law and other Israeli legislation, we are entitled to certain additional tax benefits, including accelerated depreciation and amortizationrates for tax purposes on certain assets, deduction of public offering expenses in three equal annual installments. Our non-Israeli subsidiaries are taxed according to the tax laws in their respective jurisdictions of organization. Due to our multi-jurisdictional operations, weapply significant judgment to determine our consolidated income tax position. Comparison of Period to Period Results of Operations The following table sets forth our results of operations in dollars and as a percentage of revenues for the periods indicated: Year ended December 31, 2013 2014 2015 Amount % ofRevenues Amount % ofRevenues Amount % ofRevenues (in thousands, except for %) Revenues: License $38,907 58.8% $61,320 59.5% $100,113 62.3%Maintenance and professional services 27,250 41.2 41,679 40.5 60,699 37.7 Total revenues 66,157 100.0 102,999 100.0 160,812 100.0 Cost of revenues: License 1,216 1.8 2,654 2.6 5,088 3.2 Maintenance and professional services 7,860 11.9 12,053 11.7 17,572 10.9 Total cost of revenues 9,076 13.7 14,707 14.3 22,660 14.1 Gross profit 57,081 86.3 88,292 85.7 138,152 85.9 Operating expenses: Research and development 10,404 15.7 14,400 14.0 21,734 13.5 Sales and marketing 32,840 49.7 44,943 43.6 66,206 41.2 General and administrative 4,758 7.2 8,495 8.2 16,990 10.6 Total operating expenses 48,002 72.6 67,838 65.8 104,930 65.3 Operating income 9,079 13.7 20,454 19.9 33,222 20.6 Financial expenses, net (1,124) (1.7) (5,988) (5.8) (1,479) (0.9) Income before taxes on income 7,955 12.0 14,466 14.1 31,743 19.7 Taxes on income (1,320) (2.0) (4,512) (4.4) (5,949) (3.7) Net income $6,635 10.0% $9,954 9.7% $25,794 16.0% 42 Year Ended December 31, 2014 Compared to Year Ended December 31, 2015 Revenues Year ended December 31, 2014 2015 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Revenues: License $61,320 59.5% $100,113 62.3% $38,793 63.3% Maintenance and professional services 41,679 40.5 60,699 37.7 19,020 45.6 Total revenues $102,999 100.0% $160,812 100.0% $57,813 56.1% Revenues increased by $57.8 million, or 56.1%, from $103.0 million in 2014 to $160.8 million in 2015. This increase was due to increased sales of oursolutions. This increase was also driven by growth in both our license revenues and our maintenance and professional services revenue. This growth was mostpronounced in the United States where revenues increased by $31.3 million compared to increases of $17.4 million in EMEA and $9.1 million in the rest ofthe world. The significant increase in revenues from the United States primarily resulted from a higher volume of deals including large transactions of greaterthan $1.0 million each that together accounted for $11.7 million. Multiple large transactions or even a single large transaction in a specific period couldmaterially impact relative growth rates among our different regions for a particular period. We increased our number of customers from approximately 1,800as of December 31, 2014 to approximately 2,500 as of December 31, 2015. License revenues increased by $38.8 million, or 63.3%, from $61.3 million in 2014 to $100.1 million in 2015. In 2015, approximately 50% of licenserevenues were generated from sales to customers from whom we had generated revenues before this period. Substantially all of the license revenue growthresulted from increased sales of our Privileged Account Security Solution, driven by increased demand for our Enterprise Password Vault and PrivilegedSession Manager. Maintenance and professional services revenues increased by $19.0 million, or 45.6%, from $41.7 million in 2014 to $60.7 million in 2015. Maintenancerevenues increased by $15.0 million from $33.1 million in 2014 to $48.1 million in 2015, with renewals accounting for approximately $4.7 million andinitial maintenance contracts for approximately $10.3 million, respectively, of this increase. Professional services revenues increased by $4.0 million from$8.6 million in 2014 to $12.6 million in 2015 due to the provision of more services to customers. 43 Cost of Revenues and Gross Profit Year ended December 31, 2014 2015 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Cost of revenues: License $2,654 2.6% $5,088 3.2% $2,434 91.7%Maintenance and professional services 12,053 11.7 17,572 10.9 5,519 45.8 Total cost of revenues $14,707 14.3% $22,660 14.1% $7,953 54.1% Gross profit $88,292 85.7% $138,152 85.9% $49,860 56.5% Cost of license revenues increased by $2.4 million, or 91.7%, from $2.7 million in 2014 to $5.1 million in 2015. The increase in cost of license revenues wasdriven primarily by an increase in license revenue and amortization of intangible assets from our recent acquisitions. Cost of maintenance and professional services revenues increased by $5.5 million, or 45.8%, from $12.1 million in 2014 to $17.6 million in 2015. Theincrease in cost of maintenance and professional services revenues was driven primarily by a $3.5 million increase in personnel costs and related expenses asour technical support and professional services headcount grew from 76 at the end of 2014 to 118 at the end of 2015. Gross profit increased by $49.9 million, or 56.5%, from $88.3 million in 2014 to $138.2 million in 2015. Gross margins increased from 85.7% in 2014 to85.9% in 2015. This increase was driven by our revenue growth outpacing the growth of our cost of revenue. Operating Expenses Year ended December 31, 2014 2015 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Operating expenses: Research and development $14,400 14.0% $ 21,734 13.5% $7,334 50.9%Sales and marketing 44,943 43.6 66,206 41.2 21,263 47.3 General and administrative 8,495 8.2 16,990 10.6 8,495 100.0 Total operating expenses $67,838 65.8% $ 104,930 65.3% $ 37,092 54.7% Research and Development. Research and development expenses increased by $7.3 million, or 50.9%, from $14.4 million in 2014 to $21.7 million in 2015.This increase was primarily attributable to a $5.7 million increase in personnel costs and related expenses as we increased our research and development teamheadcount from 119 at the end of 2014 to 176 at the end of 2015 to support continued investment in our future product and service offerings. The increasewas also attributable to a $0.7 million increase related to amortization of intangible assets from our recent acquisitions. Sales and Marketing. Sales and marketing expenses increased by $21.3 million, or 47.3%, from $44.9 million in 2014 to $66.2 million in 2015. This increasewas primarily attributable to a $17.5 million increase in expenses for salaries and related expenses due to increased headcount in all regions to expand oursales and marketing organization coupled with a $1.6 million increase in expenses related to our marketing programs and a $0.7 million increase in traveland related expenses. Our sales and marketing headcount grew from 202 at the end of 2014 to 294 at the end of 2015. 44 General and Administrative. General and administrative expenses increased by $8.5 million, or 100.0%, from $8.5 million in 2014 to $17.0 million in 2015.This increase was primarily attributable to an increase of $4.0 million in payroll expenses, including variable compensation to executive management, due toincreased headcount coupled with a $3.5 million increase in legal and accounting fees of which $2.2 million was expenses related to acquisitions andexpenses related to the public offerings of our ordinary shares in March 2015 and June 2015. Financial Expenses, Net. Financial expenses decreased by $4.5 million from $6.0 million in 2014 to $1.5 million in 2015. This decrease resulted primarilyfrom expenses associated with the revaluation of fair value of warrants to purchase series B3 preferred shares of $4.3 million in 2014. Taxes on Income. Taxes on income increased from $4.5 million in 2014 to $5.9 million in 2015. This increase was attributable to the increase in pre-taxincome partially offset by tax benefits we had from our recent acquisitions Year Ended December 31, 2013 Compared to Year Ended December 31, 2014 Revenues Year ended December 31, 2013 2014 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Revenues: License $38,907 58.8% $61,320 59.5% $22,413 57.6% Maintenance and professional services 27,250 41.2 41,679 40.5 14,429 53.0 Total revenues $66,157 100.0% $102,999 100.0% $36,842 55.7% Revenues increased by $36.8 million, or 55.7%, from $66.2 million in 2013 to $103.0 million in 2014. This increase was due to increased sales volume ofour solutions. This increase was also driven by growth in both our license revenues and our maintenance and professional services revenue. This growth wasmost pronounced in the United States where revenues increased by $28.7 million compared to increases of $7.4 million in the EMEA and $0.7 million in therest of the world. The significant increase in revenues from the United States primarily resulted from large transactions of greater than $1.0 million each thattogether accounted for $14.9 million. Multiple large transactions or even a single large transaction in a specific period could materially impact relativegrowth rates among our different regions for a particular period. We increased our number of customers from approximately 1,500 as of December 31, 2013 toapproximately 1,800 as of December 31, 2014. License revenues increased by $22.4 million, or 57.6%, from $38.9 million in 2013 to $61.3 million in 2014. In 2014, approximately 40% of licenserevenues were generated from sales to customers from whom we had generated revenues before this period. Substantially all of the license revenue growthresulted from increased sales of our Privileged Account Security Solution, driven by increased demand for our Enterprise Password Vault, Privileged SessionManager and our Application Identity Manager. Maintenance and professional services revenues increased by $14.4 million, or 53.0%, from $27.3 million in 2013 to $41.7 million in 2014. Maintenancerevenues increased by $10.8 million from $22.3 million in 2013 to $33.1 million in 2014, with renewals accounting for approximately $5.9 million andinitial maintenance contracts for approximately $4.9 million, respectively, of this increase. Professional services revenues increased by $3.6 million from$5.0 million in 2013 to $8.6 million in 2014 due to the provision of more services to customers. 45 Cost of Revenues and Gross Profit Year ended December 31, 2013 2014 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Cost of revenues: License $1,216 1.8% $2,654 2.6% $1,438 118.3% Maintenance and professional services 7,860 11.9 12,053 11.7 4,193 53.3 Total cost of revenues $9,076 13.7% $14,707 14.3% $5,631 62.0% Gross profit $57,081 86.3% $88,292 85.7% $31,211 54.7% Cost of license revenues increased by $1.4 million, or 118.3%, from $1.2 million in 2013 to $2.6 million in 2014. The increase in cost of license revenueswas driven primarily by an increase in license revenues. Cost of maintenance and professional services revenues increased by $4.2 million, or 53.3%, from $7.9 million in 2013 to $12.1 million in 2014. Theincrease in cost of maintenance and professional services revenues was driven primarily by a $3.5 million increase in personnel costs and related expenses asour technical support and professional services headcount grew from 60 at the end of 2013 to 76 at the end of 2014. Gross profit increased by $31.2 million, or 54.7%, from $57.1 million in 2013 to $88.3 million in 2014. Gross margins decreased from 86.3% in 2013 to85.7% in 2014. This decrease was driven by increase in costs associated with sales of licenses. Operating Expenses Year ended December 31, 2013 2014 Change Amount % ofRevenues Amount % ofRevenues Amount % ($ in thousands) Operating expenses: Research and development $10,404 15.7% $14,400 14.0% $3,996 38.4% Sales and marketing 32,840 49.7 44,943 43.6 12,103 36.9 General and administrative 4,758 7.2 8,495 8.2 3,737 78.5 Total operating expenses $48,002 72.6% $67,838 65.8% $19,836 41.3% Research and Development. Research and development expenses increased by $4.0 million, or 38.4%, from $10.4 million in 2013 to $14.4 million in 2014.This increase was primarily attributable to a $3.6 million increase in personnel costs and related expenses as we increased our research and development teamheadcount from 95 at the end of 2013 to 119 at the end of 2014 to support continued investment in our future product and service offerings. The increase wasalso attributable to a $0.4 million increase related to allocated overhead costs. Sales and Marketing. Sales and marketing expenses increased by $12.1 million, or 36.9%, from $32.8 million in 2013 to $44.9 million in 2014. This increasewas primarily attributable to a $9.8 million increase in expenses for salaries and related expenses due to increased headcount in all regions to expand oursales and marketing organization coupled with a $0.8 million increase in expenses related to our marketing programs and a $0.8 million increase in traveland related expenses. Our sales and marketing headcount grew from 135 at the end of 2013 to 202 at the end of 2014. The remainder of the increase isattributable to increased costs related to facilities and overhead allocation. 46 General and Administrative. General and administrative expenses increased by $3.7 million, or 78.5%, from $4.8 million in 2013 to $8.5 million in 2014.This increase was primarily attributable to an increase of $1.8 million in payroll expenses, including variable compensation to executive management, anddue to increased headcount coupled with a $1.9 million increase in other expenses such as legal, accounting, facilities, directors’ fees, travel expenses andshare-based compensation expenses, and other administrative expenses. Financial Expenses, Net. Financial expenses increased by $4.9 million from $1.1 million in 2013 to $6.0 million in 2014. This increase resulted primarilyfrom expenses associated with the revaluation of fair value of warrants to purchase series B3 preferred shares of $2.9 million coupled with losses of$2.0 million due to exchange rate fluctuations. Taxes on Income. Taxes on income increased from $1.3 million in 2013 to $4.5 million in 2014. This increase was attributable to an increase of $1.4 millionin tax expenses in Israel and an increase of $1.8 million in tax expenses in foreign locations, mainly the United States. Application of Critical Accounting Policies and Estimates Our accounting policies and their effect on our financial condition and results of operations are more fully described in our consolidated financial statementsincluded elsewhere in this annual report. We have prepared our financial statements in conformity with U.S. GAAP, which requires management to makeestimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, revenues and expenses and disclosure ofcontingent assets and liabilities. These estimates are prepared using our best judgment, after considering past and current events and economic conditions.While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannotguarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimatesincludes internally generated financial and operating information, external market information, when available, and when necessary, information obtainedfrom consultations with third-parties. Actual results could differ from these estimates and could have a material adverse effect on our reported results. See“Item 3.D. Risk Factors” for a discussion of the possible risks which may affect these estimates. We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, asthese policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if:(1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we weremaking our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations. Revenue Recognition We account for our software licensing sales in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, orASC, 985-605, “Software Revenue Recognition.” ASC 985-605 generally requires revenues earned on software arrangements involving multiple elements tobe allocated to each element based on the relative fair value of the elements when Vendor Specific Objective Evidence, or VSOE, of fair value exists for allelements and to be allocated to the different elements in the arrangement under the “residual method” when VSOE of fair value exists for all undeliveredelements and no VSOE exists for the delivered elements. Maintenance and professional services are sold separately and therefore the selling price (VSOE) is based on stand-alone transactions. Under the residual method, at the outset of the arrangement with the customer, we defer revenues for the fair value of our undelivered elements and recognizerevenues for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (software product) when all other criteriain ASC 985-605 have been met. Any discount in the arrangement is allocated to the delivered element. 47 We recognize software license revenues when persuasive evidence of an arrangement exists, the software license has been delivered, there are no uncertaintiessurrounding product acceptance, there are no significant future performance obligations, the license fees are fixed or determinable and collection of thelicense fee is considered probable. Fees for arrangements with payment terms extending beyond customary payment terms are considered not to be fixed ordeterminable, in which case revenues are deferred and recognized when payments become due from the customer provided that all other revenue recognitioncriteria have been met. Revenues from maintenance and support contracts are recognized ratably on a straight-line basis over the term of the related contract which is typically oneyear and, to a lesser extent, three years, and from professional services as services are performed. Our agreements with distributors and resellers are non-exchangeable, non-refundable, non-returnable and carry no rights of price protection. Accordingly, weconsider distributors as end-users. We do not generally grant a right of return to our customers. In transactions where a customer’s contractual terms include a provision for customer acceptance,revenues are recognized when such acceptance has been obtained or as the acceptance provision has lapsed. Deferred revenues include unearned amounts received under maintenance and support contracts, professional services and amounts received from customersfor licenses but not recognized as revenues due to the fact that these transactions did not meet the revenue recognition criteria as of the balance sheet date. Derivative instruments ASC No. 815, “Derivative and Hedging”, requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement offinancial position at fair value. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate thehedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that isattributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensiveincome and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on thederivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earningsduring the period of change. To hedge against the risk of overall changes in cash flows resulting from foreign currency salary payments during the year, we have instituted a foreigncurrency cash flow hedging program. We hedge a portion of our forecasted expenses denominated in NIS. These forward and option contracts are designatedas cash flow hedges, as defined by ASC 815, and are all effective, as their critical terms match underlying transactions being hedged. In addition to the derivatives that are designated as hedges as discussed above, we also enter into certain foreign exchange forward transactions toeconomically hedge certain account receivables in euros. Gains and losses related to such derivative instruments are recorded in financial expenses, net. Share-Based Compensation Option Valuations Under U.S. GAAP, we account for share-based compensation for employees in accordance with the provisions of the FASB’s ASC Topic 718 “Compensation—Stock Based Compensation,” or ASC 718, which requires us to measure the cost of options based on the fair value of the award on the grant date. 48 We selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of options. Theresulting cost of an equity incentive award is recognized as an expense over the requisite service period of the award, which is usually the vesting period. Werecognize compensation expense over the vesting period using the straight-line method and classify these amounts in the consolidated financial statementsbased on the department to which the related employee reports. The determination of the grant date fair value of options using the Black-Scholes-Merton option pricing model is affected by estimates and assumptionsregarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise, cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows: ·Fair Value of our Ordinary Shares. Because our shares were not publicly traded before September 24, 2014, we estimated the fair value of ordinaryshares based on a number of objective and subjective factors consistent with the methodologies outlined in the American Institute of CertifiedPublic Accountants Practice Aid, Valuation of Privately-Held-Companies Equity Securities Issued as Compensation, and based on independentthird-party valuations that we obtained on a periodic basis. Following our initial public offering on September 24, 2014, our ordinary shares arepublicly traded, and therefore we currently base the value of our ordinary shares on their market price. ·Expected Term. The expected term of options granted represents the period of time that options granted are expected to be outstanding, and isdetermined based on the simplified method in accordance with ASC No. 718-10-S99-1, (SAB No. 110), as adequate historical experience is notavailable to provide a reasonable estimate. ·Volatility. The expected share price volatility was based on the historical equity volatility of the ordinary shares of comparable companies that arepublicly traded. ·Risk-free Rate. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life ofthe options. ·Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we used an expected dividend yield of zero. Warrants to Purchase Preferred Shares Prior to our initial public offering, we accounted for freestanding warrants to purchase our preferred shares as a liability on our balance sheet at fair value. Werecorded warrants to purchase preferred shares as a liability because the underlying preferred shares were contingently redeemable (upon a deemedliquidation event) and, therefore, could have required us to transfer assets. The warrants were subject to re-measurement to fair value at each balance sheetdate and any change in fair value was recognized as a component of financial income (expense), net, on the consolidated statements of comprehensiveincome. We recorded the warrants at their estimated fair value utilizing the option pricing model with changes in the fair value of the warrant liability reflected infinancial income (expense), net. Upon the completion of our initial public offering, the warrants were exercised to Series B3 preferred shares and laterconverted to ordinary shares. We re-measured the warrants as of the conversion date using the intrinsic value based on the initial public offering price. The following assumptions were used to estimate the value of the Series B3 preferred share warrants as of December 31, 2013: Year endedDecember 31, 2013 Expected volatility 45%Expected dividends 0 Expected term (in years) 2 Risk free rate 0.31% During the years ended December 31, 2013 and 2014, we recognized financial expenses in the amount of $1.4 million and $4.3 million, respectively, fromthe re-measurement of the fair value of the warrants. 49 Goodwill and other Intangible Assets Goodwill and certain other purchased intangible assets have been recorded in our financial statements as a result of acquisitions. Goodwill represents excessof the costs over the net tangible and intangible assets acquired of businesses acquired Under ASC topic 350, “Intangible - Goodwill and other,” (“ASC 350”)according to which goodwill is not amortized. In addition, the costs of intangible assets that were purchased from others for use in research and developmentactivities were recorded as assets to the extent that they have alternative future use. ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired.We operate as one reporting unit. Therefore, goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value. Weelect to perform an annual impairment test of goodwill as of October 1 of each year, or more frequently if impairment indicators are present. Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives ofthe respective assets which range from one to 13. Acquired customer relationship and backlog are amortized over their estimated useful lives in proportion tothe economic benefits realized. Other intangible assets consist primarily of technology are amortized over their estimated useful lives on a straight-line basis. During the year ended December 31, 2015, no impairment losses were recognized. Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our taxes in each of the jurisdictions in which we operate.We account for income taxes in accordance with ASC Topic 740, “Income Taxes,” or ASC Topic 740. ASC Topic 740 prescribes the use of an asset andliability method whereby deferred tax asset and liability account balances are determined based on the difference between book value and tax bases of assetsand liabilities and carryforward tax losses. Deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences areexpected to reverse. We exercise judgment and provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value ifit is more likely than not that some portion or all of the deferred tax asset will not be realized. In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes(ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on thebalance sheet. The updated standard is effective beginning on January 1, 2017, with early application permitted as of the beginning of any interim or annualreporting period. The Company early adopted this standard retrospectively, and reclassified $3,788 of current deferred tax assets to noncurrent deferred taxassets as of December 31, 2014. We account for uncertain tax positions in accordance with ASC 740 and recognize the tax benefit from an uncertain tax position only if it is more likely thannot that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognizedin the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized uponultimate settlement. Accordingly, we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in atax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in tax expense. 50 Israeli Tax Considerations and Government Programs The following is a brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs that benefit us. To the extent thatthe discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that theappropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due toamendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the taxconsequences described below. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income. As of 2016, the corporate tax rate is 25.0% (in 2014 and 2015, the corporatetax rate was 26.5%). However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Benefited Enterprise or aPreferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to tax at the prevailingregular corporate tax rate. Tax Benefits and Grants for Research and Development Israeli tax law allows, under certain conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year inwhich they are incurred if: ·the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; ·the research and development is for the promotion or development of the company; and ·the research and development is carried out by or on behalf of the company seeking the deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of suchscientific research and development projects. Expenditures not so approved are deductible over a three-year period from the first year that the expenditureswere made if the research or development is for the promotion or development of the company. Law for the Encouragement of Industry (Taxes), 5729-1969 The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies”. The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company which was incorporated in Israel, of which 90% or more ofits income in any tax year, other than income from certain government loans, is derived from an “Industrial Enterprise” owned by it and located in Israel. An“Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production. The following tax benefits, among others, are available to Industrial Companies: ·deduction of the cost of purchased know-how, patents and rights to use a patent and know-how which are used for the development or promotion ofthe Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised; ·under limited conditions, an election to file consolidated tax returns together with Israeli Industrial Companies controlled by it; and ·expenses related to a public offering are deductible in equal amounts over three years commencing on the year of offering. Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority. We believe that wequalify as an Industrial Company within the meaning of the Industry Encouragement Law. The Israel Tax Authority may determine that we do not qualify asan Industrial Company, which could entail our loss of the benefits that relate to this status. There can be no assurance that we will continue to qualify as anIndustrial Company or that the benefits described above will be available in the future. 51 Law for the Encouragement of Capital Investments, 5719-1959 The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law). The Investment Law was significantly amended effective April 1, 2005, or the 2005 Amendment, and further amended as of January 1, 2011, or the 2011Amendment. Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005Amendment remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendmentintroduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However,companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits,provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. Tax Benefits Prior to the 2005 Amendment An investment program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred to as an“Approved Enterprise”, is entitled to certain benefits. A company that wished to receive benefits as an Approved Enterprise must have received approval fromthe Investment Center of the Israeli Ministry of Economy (formerly the Ministry of Industry, Trade and Labor), or the Investment Center. Each certificate ofapproval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment, including sources offunds, and by the physical characteristics of the facility or other assets. In general, an Approved Enterprise is entitled to receive a cash grant from the Government of Israel or an alternative package of tax benefits, known as thealternative benefits track. The tax benefits available under any certificate of approval relate only to taxable income attributable to the specific program andare contingent upon meeting the criteria set out in such certificate. Income derived from activity that is not integral to the activity of the Approved Enterprisewill not enjoy tax benefits. The tax benefits under the alternative benefits track include an exemption from corporate tax on undistributed income which was generated from anApproved Enterprise for between two and ten years from the first year of taxable income, depending on the geographic location of the Approved Enterprisefacility within Israel, and the taxation of income generated from an Approved Enterprise at a reduced corporate tax rate of between 10% to 25% for theremainder of the benefits period, depending on the level of foreign investment in the company in each year, as detailed below. The benefits commence on thedate in which that taxable income is first earned. The benefits period under Approved Enterprise status is limited to 12 years from the year in which theproduction commenced (as determined by the Investment Center), or 14 years from the year of receipt of the approval as an Approved Enterprise, whicheverends earlier. If a company has more than one Approved Enterprise program or if only a portion of its capital investments are approved, its effective tax rates isthe result of a weighted combination of the applicable tax rates. The entitlement to the above benefits is subject to fulfillment of certain conditions,according to the law and related regulations. In addition, a company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors’ Company, or an FIC,which is a company with a level of foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment is measured asthe percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital,that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to whether a company qualifies as an FIC is made on anannual basis. A company that qualifies as an FIC and has an Approved Enterprise program is eligible for an extension of the period during which it is to taxbenefits under its Approved Enterprise status (so that the benefits period may be up to ten years) and for further tax benefits if the level of foreign investmentis 49% or more. If a company that has an Approved Enterprise program is a wholly owned subsidiary of another company, then the percentage of foreigninvestments is determined based on the percentage of foreign investment in the parent company. As specified above, depending on the geographic locationof the Approved Enterprise within Israel, income derived from the Approved Enterprise program may be exempt from tax on its undistributed income for aperiod of between two to ten years, and will be subject to a reduced corporate tax rate for the remainder of the benefits period. The tax rate for the remainderof the benefits period will be 25%, unless the level of foreign investment is at least 49% (20% if the foreign investment is 49% or more but less than 74%;15% if 74% or more but less than 90%; and 10% if 90% or more). 52 If a company elects the alternative benefits track and subsequently distributes a dividend out of income derived by its Approved Enterprise during the taxexemption period it will be subject to corporate tax in respect of the amount of the distributed dividend (grossed-up to reflect the pre-tax income that itwould have had to earn in order to distribute the dividend) at the corporate tax rate which would have been otherwise applicable if such income had not beentax-exempted under the alternative benefits track. This rate generally ranges from 10% to 25%, depending on the level of foreign investment in the companyin each year, as explained above. In addition, dividends paid out of income attributed to an Approved Enterprise (or out of dividends received from acompany whose income is attributed to an Approved Enterprise) are generally subject to withholding tax at source at the rate of 15% or such lower rate asmay be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced taxrate). The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 yearsthereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at the lower rate under an applicable tax treaty (subject to the receipt inadvance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). In the case of an FIC, the 12-year limitation on reducedwithholding tax on dividends does not apply.The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in anApproved Enterprise program during the first five years in which the equipment is used. This benefit is an incentive granted by the Israeli governmentregardless of whether the alternative benefits program is elected. The benefits available to an Approved Enterprise are subject to the continued fulfillment of conditions stipulated in the Investment Law and its regulationsand the criteria in the specific certificate of approval, as described above. If a company does not meet these conditions, it would be required to refund theamount of tax benefits, adjusted to the Israeli consumer price index, and interest, or other monetary penalties. Until 2013 tax year, we had Approved Enterprise programs under the Investment Law, which, we believe, entitled us to certain tax benefits. Tax Benefits Subsequent to the 2005 Amendment The 2005 Amendment applies to new investment programs commencing after 2004, but does not apply to investment programs approved prior to April 1,2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment becameeffective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval. Pursuant to the 2005Amendment, the Investment Center will continue to grant Approved Enterprise status to qualifying investments. The 2005 Amendment, however, limits thescope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise. An enterprise that qualifies under the new provisions is referred to as a “Benefited Enterprise”, rather than “Approved Enterprise”. The 2005 Amendmentprovides that a certificate of approval from the Investment Center will only be necessary for receiving cash grants. As a result, it was no longer necessary for acompany to obtain the advance approval of the Investment Center in order to receive the tax benefits previously available under the alternative benefitstrack. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria fortax benefits set forth in the 2005 Amendment. A company that has a Benefited Enterprise may, at its discretion, approach the Israel Tax Authority for a pre-ruling confirming that it is in compliance with the provisions of the Investment Law. 53 Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities) which are generally required to derive more than25% of their business income from export to specific markets with a population of at least 14 million in 2012 (such export criteria will further be increased inthe future by 1.4% per annum). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets certainconditions set forth in the amendment for tax benefits, including exceeding a minimum investment amount specified in the Investment Law. Such investmententitles a company to receive a “Benefited Enterprise” status with respect to the investment, and may be made over a period of no more than three years fromthe end of the year in which the company chose to have the tax benefits apply to its Benefited Enterprise. Where a company requests to have the tax benefitsapply to an expansion of existing facilities, only the expansion will be considered to be a Benefited Enterprise and the company’s effective tax rate will bethe weighted average of the applicable rates. In such case, the minimum investment required in order to qualify as a Benefited Enterprise must exceed acertain percentage of the value of the company’s production assets before the expansion. The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depends on, among other things, thegeographic location in Israel of the Benefited Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefitsinclude an exemption from corporate tax on undistributed income generated by the Benefited Enterprise for a period of between two to ten years, dependingon the geographic location of the Benefited Enterprise in Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefitsperiod, depending on the level of foreign investment in the company in each year, as explained above. The benefits period is limited to 12 or 14 years fromthe year the company first chose to have the tax benefits apply, depending on the location of the company. A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Benefited Enterprise during the taxexemption period will be subject to corporate tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it wouldhave had to earn in order to distribute the dividend) at the corporate tax rate which would have otherwise been applicable. Dividends paid out of incomeattributed to a Benefited Enterprise (or out of dividends received from a company whose income is attributed to a Benefited Enterprise) are generally subjectto withholding tax at source at the rate of 15% or at a lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a validcertificate from the Israel Tax Authority allowing for a reduced tax rate). The reduced rate of 15% is limited to dividends and distributions out of incomeattributed to a Beneficiary Enterprise during the benefits period and actually paid at any time up to 12 years thereafter except with respect to an FIC, in whichcase the 12-year limit does not apply. The benefits available to a Benefited Enterprise are subject to the continued fulfillment of conditions stipulated in the Investment Law and its regulations. Ifa company does not meet these conditions, it would be required to refund the amount of tax benefits, adjusted to the Israeli consumer price index, andinterest, or other monetary penalties. Until the 2013 tax year, we had Approved Enterprise programs under the Investment Law, which, we believe, entitled us to certain tax benefits. Tax Benefits Under the 2011 Amendment The 2011 Amendment canceled the availability of the benefits granted to companies in accordance with the provisions of the Investment Law prior to 2011and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not wholly-owned by agovernmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the 2011Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its preferred income derived by its Preferred Enterprise in2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 10%. Such corporate tax rate wasreduced from 15% and 10%, respectively, to 12.5% and 7%, respectively in 2013, and then increased to 16% and 9% in 2014 and thereafter, respectively. Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate asmay be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced taxrate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed toindividuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply). 54 The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. Thesetransitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted to anApproved Enterprise which chose to receive grants before the 2011 Amendment became effective will remain subject to the provisions of the Investment Lawas in effect on the date of such approval, and subject to certain other conditions; (ii) the terms and benefits included in any certificate of approval that wasgranted to an Approved Enterprise which had participated in an alternative benefits track before the 2011 Amendment became effective will remain subjectto the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Benefited Enterprise canelect to continue to benefit from the benefits provided to it before the 2011 Amendment became effective, provided that certain conditions are met. From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination orsubstantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities. We have examined the possible effect, if any, of the provisions of the 2011 Amendment on our financial statements and have decided to apply the newbenefits under the 2011 Amendment instead of the benefits provided to our Approved Enterprise and Benefited Enterprise as of 2013 tax year. Recently Issued Accounting Pronouncements In February 2016, the FASB issued an Accounting Standards Update (“ASU”) 2016-02. ASU 2016-02 changes the current lease accounting standard byrequiring the recognition of lease assets and lease liabilities for all leases, including those currently classified as operating leases. This new guidance is to beapplied under a modified retrospective application to the earliest reporting period presented for reporting periods beginning after December 15, 2018. Earlyadoption is permitted. We are currently evaluating the potential impact of this new guidance on our financial statements. In September 2015, the FASB issued an ASU on simplifying the accounting for measurement-period adjustments related to business combination. The ASUeliminates the requirement to restate prior period financial statements for measurement-period adjustments and requires that the cumulative impact of ameasurement-period adjustment be recognized in the reporting period in which the adjustment is identified. This ASU will be effective for us with respect tomeasurement-period adjustments that occur after October 1, 2017. In May 2014, the FASB issued an accounting standard update on revenue from contracts with customers, which requires an entity to recognize the amount ofrevenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance will replace most existing revenuerecognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted.The standard permits the use of either the retrospective or cumulative effect transition method. On April 1, 2015 the FASB proposed deferring the effectivedate by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of thestandard, but not before the original effective date of December 15, 2016.We are currently evaluating the effect that the new guidance will have on ourconsolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard onour ongoing financial reporting for annual reporting periods. 55 B.Liquidity and Capital Resources We fund our operations with cash generated from operating activities. We have also raised capital through the sale of equity securities in public offerings andin private placements and, to a lesser extent, through exercised options. Our primary current uses of our cash are ongoing operating expenses and capitalexpenditures. As of December 31, 2015, we had $238.3 million of cash, cash equivalents and short-term bank deposits. This compared with cash, cash equivalents andshort-term bank deposits of $177.2 million and $65.4 million as of December 31, 2014 and 2013, respectively. We believe that our existing cash, cashequivalents and short-term bank deposits will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Our future capitalrequirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent ofspending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products andenhancements to existing software products and the continuing market acceptance of our software offerings. The following table presents the major components of net cash flows for the periods presented: Year Ended December 31, 2013 2014 2015 (in thousands) Net cash provided by operating activities $20,159 $23,195 $59,160 Net cash used in investing activities (826) (51,445) (7,012) Net cash provided by financing activities 159 90,055 58,207 A substantial source of our net cash provided by operating activities is our deferred revenues, which is included on our consolidated balance sheet as aliability. The majority of our deferred revenues consist of the unrecognized portion of upfront payments associated with maintenance and professionalservices, with the remainder consisting of payments for licenses that could not yet be recognized. We assess our liquidity, in part, through an analysis of ourshort and long term deferred revenues that have not yet been recognized as revenues together with our other sources of liquidity. Deferred revenues forlicenses are recognized when all applicable revenue criteria are met. Revenues from maintenance and support contracts are recognized ratably on a straightline basis over the term of the related contract which is typically one year and, to a lesser extent, three years, and from professional services as services areperformed. Thus, since we frequently recognize revenues in subsequent periods to when certain payments may be received, an increase in deferred revenuesadds to the liquidity of our operations. Net Cash Provided by Operating Activities Our cash flows historically have reflected our net income coupled with changes in our non-cash working capital. During the year ended December 31, 2015,operating activities provided $59.2 million in cash as a result of $25.8 million net income combined with a decrease of $21.2 million in our non-cashworking capital, adjusted by $9.3 million of non-cash charges related to share-based compensation expenses of $7.0 million and depreciation andamortization of $2.3 million coupled with an approximately $7.0 million increase in other long-term assets and liabilities and long-term deferred revenuesfrom three-year maintenance contracts for which we collected payment up front which were partially offset by an increase of $4.1 million in deferred taxassets. The decrease of $21.2 million in our non-cash working capital was due to a $14.5 million increase in short-term deferred revenues, a $2.5 millionincrease in accrued expenses and other current liabilities, and an increase of $5.0 million in employees and payroll accruals which were partially offset by anincrease of $0.8 million in other current assets . Our days’ sales outstanding, or DSO, was 46 days for the year ended December 31, 2015. During the year ended December 31, 2014, operating activities provided $23.2 million in cash as a result of $10.0 million net income combined with adecrease of $3.1 million in our non-cash working capital, adjusted by $6.6 million of non-cash charges related to a $4.3 million change in the fair value ofwarrants to purchase preferred shares, share-based compensation expenses of $1.6 million and depreciation of $0.7 million coupled with a $3.3 millionincrease in long-term deferred revenues from three-year maintenance contracts for which we collected payment up front and a $0.2 million increase in long-term liabilities. The decrease of $3.1 million in our non-cash working capital was due to a $4.4 million increase in short-term deferred revenues and a $5.5million increase in employees and payroll accruals and other current liabilities, which were partially offset by a $6.5 million increase in trade receivables andan increase of $0.3 million in trade payables and prepaid expenses and other current assets. Our DSO was 68 days for the year ended December 31, 2014. 56 During the year ended December 31, 2013, operating activities provided $20.2 million in cash as a result of a decrease of $10.0 million in our non cashworking capital combined with net income of $6.6 million, adjusted by $2.3 million of non cash charges related to a $1.4 million change in the fair value ofwarrants to purchase preferred shares, depreciation of $0.5 million and share based compensation expenses of $0.4 million coupled with a $1.8 millionincrease in long term deferred revenues from three year maintenance contracts for which we collected payment up front which were partially offset by anincrease of $0.5 million in deferred tax assets. The decrease in our non cash working capital was due to a $7.6 million increase in short term deferredrevenues and a $6.6 million increase in trade payables and employee related accruals which were partially offset by increases of $3.3 million in tradereceivables and $0.9 million in other current assets. Our DSO was 70 days for the year ended December 31, 2013. Net Cash Used in Investing Activities Net cash used in investing activities was $0.8 million, $51.4 million and $7.0 million for the years ended December 31, 2013, 2014 and 2015 respectively.Investing activities have consisted primarily of investment in and proceeds from short-term deposits, acquisitions and purchase of property and equipment. Net Cash Provided by Financing Activities Our financing activities have primarily consisted of proceeds from the issuance and sale of our securities, excess tax benefit from stock-based compensationand proceeds from the exercise of share options. Net cash provided by financing activities was $0.2 million, $90.1 million and $58.2 million for the yearsended December 31, 2013, 2014 and 2015, respectively. C.Research and Development, Patents and Licenses, etc. We conduct our research and development activities in Israel. As of December 31, 2015, our research and development department was comprised of 176employees and contractors. In 2015, research and development costs accounted for 13.5% of our total revenues. We employ a strategy of seeking patent protection for some of our technologies. As of December 31, 2015, we have obtained five issued patents for certain ofour technologies in various jurisdictions, including the United States and have 31 pending patent applications that were filed in various jurisdictions,including the United States. No patent application is material to the overall conduct of our business. For a description of our research and development policies, see “Item 4.B. Business Overview—Research and development.” D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period fromJanuary 1, 2015 to December 31, 2015 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity orcapital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition. 57 E.Off-Balance Sheet Arrangements We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interestentities, which includes special purposes entities and other structured finance entities. F.Contractual Obligations The following summarizes our contractual obligations as of December 31, 2015: Payments Due by Period Total 2016 2017 2018 2019 2020 2021 andthereafter (in thousands) Operating leaseobligations(1) $14,845 $3,190 $2,591 $2,749 $2,722 $2,733 $860 Uncertain taxobligations(2) 362 — — — — — — Severance pay(3) 4,667 — — — — — — Total $19,874 $3,190 $2,591 $2,749 $2,722 $2,733 $860 (1)Operating lease obligations consist of our contractual rental expenses under operating leases of facilities and certain motor vehicles.(2)Consists of accruals for certain income tax positions under ASC 740 that are paid upon settlement, and for which we are unable to reasonably estimatethe ultimate amount and timing of settlement. See Note 9(j) to our consolidated financial statements included elsewhere in this annual report for furtherinformation regarding our liability under ASC 740. Payment of these obligations would result from settlements with tax authorities. Due to thedifficulty in determining the timing of resolution of audits, these obligations are only presented in their total amount.(3)Severance pay relates to accrued severance obligations to our Israeli employees as required under Israeli labor laws. These obligations are payable onlyupon the termination, retirement or death of the respective employee and may be reduced if the employee’s termination is voluntary. These obligationsare partially funded through accounts maintained with financial institutions and recognized as an asset on our balance sheet. Of this amount, $1.4million is unfunded. See Note 2(k) to our consolidated financial statement included elsewhere in this report for further information. ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.Directors and Senior Management The following table sets forth the name, age and position of each of our executive officers and directors as of March 11, 2016: Name Age PositionExecutive Officers Ehud (Udi) Mokady 47 Chief Executive Officer, President, Founder and DirectorChen Bitan 46 General Manager, EMEA, Asia Pacific and JapanJoshua Siegel 52 Chief Financial OfficerRonen (Ron) Zoran 41 Vice President, Americas SalesNick Baglin 41 Vice President, EMEA SalesVincent Goh 44 Vice President, Asia Pacific and Japan SalesRoy Adar 44 Senior Vice President, Product ManagementJohn Worrall 57 Chief Marketing OfficerDirectors Gadi Tirosh(3)(4) 49 Chairman of the BoardDavid Campbell(1)(3)(4) 53 DirectorRon Gutler(1)(2)(3)(4)(5) 58 DirectorRaphael (Raffi) Kesten(4) 62 DirectorKim Perdikou(1)(2)(4)(5) 58 DirectorDavid Schaeffer(4) 59 DirectorAmnon Shoshani(2)(4) 52 Director (1)Member of our compensation committee. 58 (2)Member of our audit committee.(3)Member of our nominating and governance committee.(4)Independent director under the rules of the NASDAQ Stock Market.(5)External director under the Companies Law. Executive Officers Ehud (Udi) Mokady is one of our founders, has served as our President and Chief Executive Officer since 2005 and previously served as our Chief OperatingOfficer from 1999 to 2005. Mr. Mokady has also served as a member of our board since November 2004. From 1997 to 1999, Mr. Mokady served as generalcounsel at Tadiran Spectralink Ltd., a producer of secure wireless communication systems. From 1986 to 1989, Mr. Mokady served in a military intelligenceunit in the Israel Defense Forces. Mr. Mokady was honored by a panel of independent judges with the New England EY Entrepreneur Of The Year™ 2014Award in the Technology Security category. Mr. Mokady holds a Bachelor of Laws (LL.B.) from Hebrew University in Jerusalem, Israel and a Master ofScience Management (MSM) from Boston University in Massachusetts. Chen Bitan has served as our General Manager of EMEA, Asia Pacific and Japan since 2005 and as Head of Research & Development since 1999. FromMarch 1998 to April 1999, Mr. Bitan worked as Project Manager for Amdocs Software Ltd., leading the development of billing and customer care systems fortelecommunications providers. From 1995 to 1998, he worked for Magic Software Enterprises Ltd. as Research and Development Group Manager leading thedevelopment of their 4GL products for the Asia Pacific market. From 1988 to 1995, Mr. Bitan served in a software engineering unit in the Israel DefenseForces (IDF) in various research and development roles, finally leading the programming education department as Department Manager at the ComputerStudies Academy (Mamram). Mr. Bitan holds a Bachelor of Science in computer science and political science from Bar-Ilan University in Ramat-Gan, Israel. Joshua Siegel has served as our Chief Financial Officer since May 2011. Prior to joining CyberArk, Mr. Siegel served as Chief Financial Officer for VoltaireLtd., a provider of InfiniBand and Ethernet connectivity solutions, from December 2005 to February 2011, and as Director of Finance and then Vice Presidentof Finance from April 2002 to December 2005. Voltaire completed an initial public offering and listing on NASDAQ in 2007 and was acquired by MellanoxTechnologies, Ltd. in 2011. From 2000 to 2002, he was Vice President of Finance at KereniX Networks Ltd., a terabit routing and transport system company.From 1995 to 2000, Mr. Siegel served in various positions at Lucent Technologies Networks Ltd. (formerly Lannet Ltd.). From 1990 to 1995, he served invarious positions at SLM Corporation (Sallie Mae—Student Loan Marketing Association). Mr. Siegel holds a Bachelor of Arts in economics and a Master ofBusiness Administration (MBA) with a concentration in finance from the University of Michigan in Ann Arbor. Ronen (Ron) Zoran has served as our Vice President of Americas Sales since January 2015 and has worked at CyberArk since our founding in 1999. Mr. Zoranhas held several sales leadership positions at the Company, including Vice President of North America Sales from July 2013 to December 2014, RegionalDirector and Senior Director of Channels from January 2005 to June 2013, as well as research and development positions, such as R&D Group Manager andDirector of Technical Services. From 1993 to 1999, Mr. Zoran served as an Officer and R&D Group Manager at the Technological Computer Center of theIsraeli Defense Forces. He holds an MBA from Northeastern University and a Bachelor of Arts in Computer Science from Bar-Ilan University. 59 Nick Baglin has served as our Vice President of EMEA Sales since May 2012. Prior to joining CyberArk, Mr. Baglin worked for HP Enterprise SecurityServices, as EMEA General Manager and Global Sales Director from May 2011 to May 2012 and as Global Sales Director from December 2010 to May 2011.From January 2001 to December 2010, he worked for Vistorm Ltd., a provider of information assurance and managed security services, in various positions,including Director of Sales. Mr. Baglin holds a Bachelor of Science from the Manchester Metropolitan University in the United Kingdom. Vincent Goh has served as our Vice President of Asia Pacific and Japan Sales since January 2016. Prior to joining CyberArk, Mr. Goh worked for RSA, TheSecurity Division of EMC, as Vice President, Asia Pacific and Japan from July 2010 to October 2015 and Managing Director, South East Asia from February2008 to June 2010. From May 2001 to January 2008, Mr. Goh worked for EMC Corporation in various positions. Mr. Goh holds a Bachelor of Science inInformation Technology from the National University of Ireland in Dublin and an executive certificate in Management and Leadership from the M.I.T. SloanSchool of Management in Cambridge, Massachusetts. Roy Adar has served as our Senior Vice President of Product Management since 2015 and previously served as our Vice President of Product Managementfrom 2006 to 2015. Prior to joining CyberArk, Mr. Adar held the position of Product Manager at NICE Systems Ltd., an Israeli software company, from 2002through 2005. From 1997 to 2001, he worked at Integrity Systems, Inc., an Israeli IT integrator, in several roles, including development group manager,technical consultant and product manager. Mr. Adar holds an MBA from the Kellogg School of Management at Northwestern University in Illinois and aBachelor of Arts in computer science from Open University in Tel Aviv, Israel. John Worrall has served as our Chief Marketing Officer since December 2012. From May 2011 to December 2012, Mr. Worrall served as the Executive VicePresident for CounterTack, Inc., a threat detection solutions company. From May 2010 to June 2011, Mr. Worrall was the Chief Marketing Officer forActivIdentity, a cybersecurity group of HID Global Corporation, an enterprise security company. From January 2010 to April 2010, he carried outindependent consulting projects. From November 1997 to August 2008, Mr. Worrall worked in various positions at RSA Security, Inc., including serving asVice President and General Manager from January 2007 to August 2008, as Senior Vice President in Marketing from October 2005 to December 2006 and asVice President of Global Marketing from January 2002 to September 2005. Mr. Worrall holds a Bachelor of Arts in economics from St. Lawrence Universityin New York. Directors Gadi Tirosh has served as a member of our board of directors since June 2011 and as chairman of the board since July 2013. Since 2005, Mr. Tirosh hasserved as Managing Partner at Jerusalem Venture Partners, an Israeli venture capital firm that focuses, among other things, on cyber-security companies andoperates the JVP Cyber Labs incubator. From 1999 to 2005, he served as Corporate Vice President of Product Marketing and as a member of the executivecommittee for NDS Group Ltd. (later acquired by Cisco Systems, Inc.) a provider of end-to-end software solutions to the pay-television industry, includingcontent protection and video security. Mr. Tirosh holds a Bachelor of Science in computer science and mathematics and an Executive MBA from the HebrewUniversity in Jerusalem, Israel. David Campbell has served as a member of our board of directors since 2011. Mr. Campbell joined the Goldman Sachs’ Merchant Banking Division in 2004,where he currently serves as a Managing Director. Prior to this he held senior roles within Goldman Sachs’ Technology Group, including being elected toTechnology Fellow in 2002. Additionally, Mr. Campbell serves on the boards of several technology companies, including Applause Inc., AppSense Inc.,AvePoint, Inc., BackOffice Associates, LLC, MetricStream Inc., ScienceLogic, Inc. and Spiceworks Inc. Mr. Campbell also served on the boards of APT Inc.,Nimsoft Inc. and SilverSky Inc. Mr. Campbell received a Bachelor of Engineering (Electrical) and a Bachelor of Arts from the University of Queensland inAustralia. Ron Gutler has served as a member of our board of directors since July 2014 and serves as an external director under the Companies Law. From May 2002through February 2013, Mr. Gutler served as the Chairman of NICE Systems Ltd., a public company specializing in voice recording, data security, andsurveillance. Between 2000 and 2011, Mr. Gutler served as the Chairman of G.J.E. 121 Promoting Investment Ltd., a real estate company. Between 2000 and2002, Mr. Gutler managed the Blue Border Horizon Fund, a global macro fund. Mr. Gutler is a former Managing Director and a Partner of Bankers TrustCompany, which is currently part of Deutsche Bank. He also established and headed the Israeli office of Bankers Trust. Mr. Gutler is currently a director ofWix.com Ltd. (NASDAQ: WIX). Mr. Gutler holds a Bachelor of Arts in economics and international relations and an MBA, both from the Hebrew Universityin Jerusalem, Israel. 60 Raphael (Raffi) Kesten has served as a member of our board of directors since April 2014. Since February 2015, Mr. Kesten has served as Managing Partner atJerusalem Venture Partners as well as executive adviser to the Chairman and CEO of Cisco Systems, Inc. and to the Service Provider Video Security, Software& Solutions Group at Cisco Systems, Inc. He has served as the Vice President of Service Provider Video Security, Software & Solutions Group at CiscoSystems, Inc. from 2012 to 2014. From 2000 to February 2015, Mr. Kesten has served as a Venture Partner for Jerusalem Venture Partners. He served as SeniorVice President and Chief Operating Officer at NDS Group Holdings Ltd. (later acquired by Cisco Systems, Inc.) from 2006 to 2012. From 1996 to 2006,Mr. Kesten worked as Vice President and General Manager of NDS Technologies Israel Limited. From 1991 to 1995, he served as Vice President ofOperations and Production of Imaging Products at Indigo N.V. (later acquired by Hewlett-Packard Company). Between the years 1982 to 1991, Mr. Kestenheld several engineering and managerial positions with Intel, Inc. Mr. Kesten holds a Bachelor of Science in chemical engineering from Ben-GurionUniversity of the Negev in Beer-Sheva, Israel and he completed the certificate program in Senior Business Management at the Hebrew University inJerusalem, Israel.Kim Perdikou has served as a member of our board of directors since July 2014 and serves as an external director under the Companies Law. Ms. Perdikouserves as the Chairman of iPhotonix, LLC, which she joined May 2015, a private optical access company delivering open source and virtualized accesssolutions. Ms. Perdikou serves as Chairman of REBBL Inc., which she joined June 2014, a private beverage company delivering taste, function andnutrition. Ms. Perdikou served as the Juniper Networks, Inc. board observer on two of Juniper’s portfolio companies from January 2013 to July 2014. From2010 to August 2013, Ms. Perdikou served as the Executive Vice President for the Office of the Chief Executive Officer at Juniper Networks, Inc. Before thatshe served as the Executive Vice President and General Manager of Infrastructure Products Group and as Chief Information Officer at Juniper Networks, Inc.from 2006 to 2010 and from August 2000 to January 2006, respectively. Ms. Perdikou served on the board of directors and audit committee of Lam ResearchCorporation, a major provider of wafer fabrication equipment and services, from May 2011 to November 2012. Ms. Perdikou served in leadership positionsat Women.com, Readers Digest, Knight Ridder, and Dun & Bradstreet. Ms. Perdikou holds a Bachelor of Science in Computing Science with OperationalResearch from Paisley University in Paisley, Scotland, a Post-Graduate degree in Education from Jordanhill College in Glasgow, Scotland and a Masters inInformation Systems from Pace University in New York. David Schaeffer has served as a member of our board of directors since May 2014. Mr. Schaeffer has served as the Chairman, Chief Executive Officer andPresident of Cogent Communications, Inc. (NASDAQ: CCOI), an internet service provider based in the United States that is listed on NASDAQ, since hefounded the company in August 1999. Mr. Schaeffer was the founder of Pathnet, Inc., a broadband telecommunications provider, where he served as ChiefExecutive Officer from 1995 until 1997 and as Chairman from 1997 until 1999. Mr. Schaeffer holds a Bachelor of Science in Physics from the University ofMaryland. Amnon Shoshani has served as a member of our board of directors since November 2009. Since February 1995, Mr. Shoshani has served as the Founder andManaging Partner of Cabaret Holdings Ltd. and, since March 1999, he has also served as Managing Partner of Cabaret Security Ltd. and Cabaret HoldingsLtd. and ArbaOne Inc. ventures activities where he had a lead role in managing the groups’ portfolio companies. From 1994 to April 2005, Mr. Shoshaniowned a Tel-Aviv boutique law firm engaged in entrepreneurship, traditional industries and high tech, which he founded. Mr. Shoshani holds an LL.B. fromTel Aviv University in Israel. B.Compensation Compensation of Directors and Executive Officers The aggregate compensation expensed, including share-based compensation and other compensation expensed by us and our subsidiaries, to our directorsand executive officers with respect to the year ended December 31, 2015 was $8.2 million. This amount includes approximately $0.6 million set aside oraccrued to provide pension, severance, retirement, or similar benefits. 61 The table below sets forth the compensation paid to our five most highly compensated office holders (as defined in the Companies Law and described under“Board Practices—External Directors” below) during or with respect to the year ended December 31, 2015, in the disclosure format of Regulation 21 of theIsraeli Securities Regulations (Periodic and Immediate Reports), 1970. We refer to the five individuals for whom disclosure is provided herein as our“Covered Executives.” For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertakingto provide such compensation. Summary Compensation Table Information Regarding the Covered Executive(1) Name and Principal Position(2) BaseSalary Benefits andPerquisites(3) VariableCompensation(4) Equity-BasedCompensation(5) Total Ehud (Udi) Mokady, President & CEO $350,000 $169,326 $700,000 $1,483,799 $2,703,125 Joshua Siegel, Chief Financial Officer 225,415 112,566 298,874 531,757 1,168,612 Ronen (Ron) Zoran, Vice President Sales, Americas 210,000 52,489 345,599 206,276 814,364 Chen Bitan, General Manager, EMEA, Asia Pacific andJapan 184,659 134,841 219,081 216,224 754,805 John Worrall, Chief Marketing Officer 230,000 46,501 220,000 214,746 711,247 (1)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(2)All current executive officers listed in the table are full-time employees. Cash compensation amounts denominated in currencies other than the U.S.dollar were converted into U.S. dollars at the average conversion rate for the year ended December 31, 2015.(3)Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites mayinclude, to the extent applicable to each executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car orcar allowance, medical insurances and benefits, risk insurances (such as life, disability and accident insurances), convalescence pay, payments for socialsecurity, tax gross-up payments and other benefits and perquisites consistent with our guidelines.(4)Amounts reported in this column refer to Variable Compensation such as commission, incentive and bonus payments as recorded in our financialstatements for the year ended December 31, 2015.(5)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2015 with respect toequity-based compensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 8 to ouraudited consolidated financial statements, which are included in this annual report. 62 Employment Agreements with Executive Officers We have entered into written employment agreements with all of our executive officers. Most of these agreements contain provisions regarding non-competition and all of these agreements contain provisions regarding confidentiality of information and ownership of inventions. The non-competitionprovision applies for a period that is generally 12 months following termination of employment. The enforceability of covenants not to compete in Israel, theUnited States and the United Kingdom is subject to limitations. In addition, we are required to provide one to six months’ notice prior to terminating theemployment of our executive officers, other than in the case of a termination for cause. Directors’ Service Contracts Other than with respect to Ehud (Udi) Mokady, our director who is also an executive officer, there are no arrangements or understandings between us, on theone hand, and any of our directors, on the other hand, providing for benefits upon termination of their service as directors of our company, except thatdirectors are permitted to exercise vested options for one year following the termination of their service. Equity Incentive Plans 2014 Share Incentive Plan Effective Date and Shares Reserved. On June 10, 2014, our board of directors adopted the 2014 Share Incentive Plan, or the 2014 SIP, and the 2014 SIPbecame effective. Our shareholders approved the 2014 SIP on July 10, 2014. The 2014 SIP generally allows for the grant of options, restricted shares,restricted share units and other share-based awards to our employees, directors, officers, consultants, advisors and any other person providing services to us orour affiliates. The 2014 SIP is intended to enable us to issue awards under varying tax regimes, including Section 102 and Section 3(9) awards pursuant to theIsraeli Income Tax Ordinance and incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code. The maximum aggregatenumber of shares that may be issued pursuant to awards under this 2014 SIP is the sum of (a) 422,000 shares plus (b) an increase of 1,220,054 shares as ofJanuary 1, 2015 plus (c) on January 1 of each calendar year commencing in 2016, a number of shares equal to the lesser of: (i) an amount determined by ourboard of directors, if so determined prior to the January 1 of the calendar year in which the increase will occur, (ii) 4% of the total number of sharesoutstanding on December 31 of the immediately preceding calendar year, and (iii) 4,000,000 shares. Additionally, any share underlying an award that iscancelled or terminated or forfeited for any reason without having been exercised will automatically be available for grant under the 2014 SIP. As ofDecember 31, 2015, 1,335,789 ordinary shares underlying share-based awards were outstanding under the 2014 SIP and 367,055 ordinary shares werereserved for future grant under the 2014 SIP. 63 Plan Administration. Either our board or a committee established by our board administers the 2014 SIP, and such administrator will have full authority in itsdiscretion to determine (i) eligible grantees, (ii) grants of awards and setting the terms and provisions of award agreements (which need not be identical) andany other agreements or instruments under which awards are made, including, but not limited to, the number of shares underlying each award and the class ofshares underlying each award (if more than one class was designated by our board of directors), (iii) the time or times at which awards shall be granted, (iv) theterms, conditions and restrictions applicable to each award (which need not be identical) and any shares acquired upon the exercise or (if applicable) vestingthereof, (v) to accelerate, continue, extend or defer the exercisability of any award or the vesting thereof, including with respect to the period following agrantee’s termination of employment or other service, (vi) the interpretation of the 2014 SIP and any award agreement and the meaning, interpretation andapplicability of terms referred to in applicable laws, (vii) policies, guidelines, rules and regulations relating to and for carrying out the 2014 SIP, and anyamendment, supplement or rescission thereof, as it may deem appropriate, (viii) to adopt supplements to, or alternative versions of, the 2014 SIP, including,without limitation, as it deems necessary or desirable to comply with the laws of, or to accommodate the tax regime or custom of, foreign jurisdictions whosecitizens or residents may be granted awards, (ix) the fair market value of the shares or other property, (x) the tax track (capital gains, ordinary income track orany other track available under the Section 102 of the Ordinance) for the purpose of Section 102 to the Israeli Income Tax Ordinance, (xi) the authorizationand approval of conversion, substitution, cancellation or suspension under and in accordance with the 2014 SIP of any or all awards or shares, (xii) theamendment, modification, waiver or supplement of the terms of each outstanding award (with the consent of the applicable grantee, if such amendments refersto the increase of the exercise price of awards or reduction of the number of shares underlying an award (but, in each case, other than as a result of anadjustment or exercise of rights in accordance with the provisions of the 2014 SIP described under “Adjustment Provisions” below)) unless otherwiseprovided under the terms of the 2014 SIP, (xiii) without limiting the generality of the foregoing, and subject to the provisions of applicable law, to grant to agrantee who is the holder of an outstanding award, in exchange for the cancellation of such award, a new award having an exercise price lower than thatprovided in the award so canceled and containing such other terms and conditions as the committee may prescribe in accordance with the provisions of the2014 SIP or to set a new exercise price for the same award lower than that previously provided in the award, (xiv) to correct any defect, supply any omissionor reconcile any inconsistency in the 2014 SIP or any award agreement and all other determinations and take such other actions with respect to the 2014 SIPor any award as it may deem advisable to the extent not inconsistent with the provisions of the 2014 SIP or applicable law, (xv) to designate any of ourofficers or other persons to manage the day to day administration of the awards granted under the 2014 SIP or authorize any of them to act on behalf of thecommittee with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the committee herein,(xvi) to determine that awards, shares issuable upon the exercise or (if applicable) vesting of awards and/or any securities issued or distributed with respectthereto, shall be allocated or issued to, or held by, the representative in trust for the benefit of the grantees; and (xvii) any other matter which is necessary ordesirable for, or incidental to, the administration of the 2014 SIP and any award thereunder. The board and the committee need not take the same action ordetermination with respect to all awards, with respect to certain types of awards, with respect to all service providers or any certain type of service providersand actions and determinations may differ as among the grantees, and as between the grantees and any other holders of our securities. The board may, at anytime, suspend, terminate, modify, or amend the 2014 SIP, whether retroactively or prospectively. Types and Terms and Conditions of Awards. The committee may grant awards intended to qualify as an incentive stock option, non-qualified stock option,Section 102 award, Section 3(9) award, or other designations under other regimes. The 2014 SIP generally requires that incentive stock options have anexercise price that is not less than 100% of the fair market value of a share underlying such options or 110% in case of an employee who at the time of thegrant owns shares possessing more than 10% of the total combined voting power of all classes of our shares or of any parent or subsidiary of the company onthe date of grant of such options or such other price as may be determined pursuant to the Code. The exercise price of any other awards granted will bedetermined by the committee. Unless otherwise stated in the applicable award agreement, awards under the 2014 SIP will vest and become exercisable asfollows: 25% of the shares covered by the awards will vest on the first anniversary of the vesting commencement date, and 6.25% of the shares covered by theaward will vest at the end of each subsequent three-month period over the course of the following three years; provided that the grantee remains continuouslyas our or our affiliates service provider throughout such vesting dates. The exercise period of an award will be ten years from the date of grant of the awardunless otherwise determined by the committee, but subject to the vesting and the early termination provisions, provided that the period of an incentive stockoption granted to an employee who at the time of the grant owns shares possessing more than 10% of the total combined voting power of all classes of ourshares or of any parent or subsidiary of the company, shall not exceed five years from the date of grant. Except as described below, an award generally maynot be exercised unless the grantee is then in our employ or service and unless the grantee has remained continuously so employed since the date of grant ofthe award and throughout the vesting dates. In the event that the employment or service of a grantee terminates (other than by reason of death, disability orretirement), all awards of such grantee that are unvested at the time of such termination shall terminate on the date of such termination, and all awards of suchgrantee that are vested and exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within up tothree months after the date of such termination (or such different period as the committee will prescribe), but in any event no later than the date of expirationof the award’s term as set forth in the award agreement or pursuant to this 2014 SIP. In the event of a grantee’s death during employment or service or withinthree months following such grantee’s termination, or in the event of a grantee’s termination due to disability, all of the grantee’s vested awards may beexercised at any time within one year after such death or disability. In the event of a grantee’s retirement, all of the grantee’s vested awards, unless earlierterminated in accordance with their terms, may be exercised at any time within the three month period following such retirement. 64 If we (or our affiliate, when applicable) terminate the grantee’s employment or service for cause (as defined in the 2014 SIP), or if at any time during theexercise period (whether prior to and after termination of employment or service, and whether or not the grantee’s employment or service is terminated byeither party as a result thereof), facts or circumstances arise or are discovered with respect to the grantee that would have constituted cause, all awardstheretofore granted to such grantee (whether vested or not) shall, to the extent not theretofore exercised, terminate on the date of such termination (or on suchsubsequent date on which such facts or circumstances arise or are discovered, as the case may be) unless otherwise determined by the committee. Section 102 of the Israeli Income Tax Ordinance allows employees, directors and officers of an Israeli company, who are not controlling shareholders, toreceive favorable tax treatment for compensation in the form of shares or other awards. Section 102 of the Israeli Income Tax Ordinance includes twoalternatives for tax treatment involving the issuance of awards to a trustee for the benefit of the grantees and also includes an additional alternative for theissuance of awards directly to the grantee. Section 102(b)(2) of the Israeli Income Tax Ordinance, the most favorable tax treatment for grantees, permits theissuance to a trustee under the “capital gain track.” In order to comply with the terms of the capital gain track, all awards granted under a specific plan andsubject to the provisions of Section 102 of the Israeli Income Tax Ordinance, as well as the shares issued upon exercise of such awards and any rights grantedthereunder, including bonus shares, must be registered in the name of a trustee selected by the board and held in trust for the benefit of the relevant granteefor the requisite period prescribed by the Ordinance or such longer period as set by the committee. The trustee may release these awards or shares to theholders thereof after the expiration of the required statutory holding period, provided that the trustee has received an acknowledgment from the IsraeliIncome Tax Authority that the grantee paid all applicable taxes, or the trustee and/or us and/or our affiliate withholds all applicable taxes and compulsorypayments due. Our non-employee service providers and controlling shareholders may only be granted options under Section 3(9) of the Israeli Income TaxOrdinance, which does not provide for similar tax benefits. The committee may grant restricted shares under the 2014 SIP. The award agreement for any restricted shares granted will provide the vesting schedule andpurchase price, if any, for the restricted shares. If a grantee’s employment or services to the company or any affiliate thereof shall terminates for any reasonprior to the vesting of such grantee’s restricted shares, any shares that remain subject to vesting will be forfeited by such grantee. The committee may grant restricted share units, or RSUs, under the 2014 SIP, which is an award covering a number of shares that is settled, if vested, byissuance of those shares. No payment of exercise price (subject to applicable law and the terms of the award agreement) will be required as consideration forRSUs. The committee may grant other awards under the 2014 SIP, including shares (which may, but need not, be restricted shares), cash, a combination of cash andshares, awards denominated in share units, share appreciation rights, and/or the opportunity to purchase our shares in connection with any public offerings ofour securities. Adjustment Provisions. In the event of a division or subdivision of our outstanding share capital, any distribution of bonus shares (stock split), consolidationor combination of our share capital (reverse stock split), reclassification with respect to our shares or any similar recapitalization events, a merger (including,a reverse merger and a reverse triangular merger), consolidation, amalgamation or like transaction of us with or into another corporation, reorganization(which may include a combination or exchange of shares, spin-off or other corporate divestiture or division, or other similar occurrences, the committee shallhave the authority to make, without the need for a consent of any holder of an award, such adjustments as determined by the committee to be appropriate, inits discretion, in order to adjust (i) the number and class of shares reserved and available for grants of awards, (ii) the number and class of shares covered byoutstanding awards, (iii) the exercise price per share covered by any award, (iv) the terms and conditions concerning vesting and exercisability and the termand duration of the outstanding awards, and (v) any other terms of the award that in the opinion of the committee should be adjusted. 65 In the event of (i) a sale of all or substantially all of our assets, or a sale (including an exchange) of all or substantially all of our shares, to any person, or apurchase by any of our shareholders or by an affiliate of such shareholder, of all or substantially all of our shares held by all or substantially all othershareholders or by other shareholders who are not affiliated with such acquiring party; (ii) a merger (including, a reverse merger and a reverse triangularmerger), consolidation, amalgamation or like transaction of us with or into another corporation; (iii) a scheme of arrangement for the purpose of effectingsuch sale, merger, consolidation, amalgamation or other transaction; (iv) Change in Board Event, which means any time at which individuals who, as of theeffective date of the 2014 SIP, constitute the board, or the Incumbent Board, cease for any reason to constitute at least a majority of the board; provided,however, that any individual becoming a director subsequent to the effective date of the 2014 SIP whose election, or nomination for election by ourshareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though suchindividual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a resultof an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consentsby or on behalf of a person other than the board; (v) approval by our shareholders of a complete liquidation or dissolution of the company, or (vi) such othertransaction or set of circumstances that is determined by the board (being the Incumbent Board in case of a Change in Board Event), in its discretion, to be atransaction subject to these provisions of the 2014 SIP; excluding any of the above transactions in clauses (i) through (v) if the board (being the IncumbentBoard in case of a Change in Board Event) determines that such transaction should be excluded from the definition hereof and the applicability of thisprovision of the 2014 SIP (any of such transactions, a “Change in Control”), any award then outstanding will be assumed or will be substituted by us or bythe successor corporation in such Change in Control or by any affiliate thereof, as determined by the committee in its discretion, under terms as determinedby the committee or the terms of the 2014 SIP applied by the successor corporation to such assumed or substituted award, unless otherwise determined by thesole and absolute discretion of the Committee. Regardless of whether or not awards are assumed or substituted the committee may (but will not be obligatedto), in its sole discretion: (1) provide for grantees to have the right to exercise their awards or otherwise for the acceleration of vesting of award in respect ofall or part of the shares covered by the awards which would not otherwise be exercisable or vested, under such terms and conditions as the committee willdetermine, including the cancellation of all unexercised awards (whether vested or unvested) upon or immediately prior to the closing of the Change inControl; and/or (2) provide for the cancellation of each outstanding and unexercised award at or immediately prior to the closing of the Change in Control,and payment to the grantees of an amount in cash, our shares, the acquirer or of a corporation or other business entity which is a party to the Change inControl or other property, as determined by the committee to be fair in the circumstances, and subject to such terms and conditions as determined by thecommittee. Notwithstanding the foregoing, in the event of a Change in Control, the committee may determine, in its sole discretion, that upon completion ofsuch Change in Control, the terms of any award be otherwise amended, modified or terminated, as the committee deems in good faith to be appropriate. Miscellaneous Provisions. Awards under the 2014 SIP are not transferable other than by will or by the laws of descent and distribution or to a grantee’sdesignated beneficiary, unless, in the case of awards other than incentive stock options, otherwise determined by our committee or under the 2014 SIP, andgenerally expire ten years following the grant date. Awards may be granted pursuant to the 2014 SIP from time to time within a period of ten years from theeffective date of the 2014 SIP, which period may be extended from time to time by our board. 2011 Share Incentive Plan Effective Date and Shares Reserved. On July 14, 2011, our board of directors adopted, and on December 20, 2011 our shareholders approved, the 2011 ShareIncentive Plan, or the 2011 SIP. The 2011 SIP generally allows for the grant of options, restricted shares and other share-based awards to our employees,directors, officers, consultants, advisors and any other person whose services are considered valuable to us or our affiliates. The 2011 SIP is intended toenable us to issue awards under varying tax regimes, including Section 102 and Section 3(i) awards pursuant to the Israeli Income Tax Ordinance andincentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code. The 2011 SIP provides that the number of shares reserved forthe grant of awards under the 2011 SIP will be such number as may be reserved for such purposes by the board from time to time. Any share underlying anaward that is cancelled or terminated or forfeited for any reason without having been exercised will automatically be available for grant under the 2011 SIP.As of December 31, 2015, 1,685,460 options to purchase ordinary shares remained outstanding under the 2011 SIP. 66 Plan Administration. Either our board or a committee established by our board administers the 2011 SIP, and such administrator will determine (i) eligiblegrantees, (ii) the grant of awards and the terms and provisions of any award agreements, including the number of shares underlying each award, (iii) the timeor times at which awards will be granted, (iv) the schedule and conditions on which awards may be exercised, (v) the exercise price of options granted underthe 2011 SIP, (vi) the interpretation of the 2011 SIP, (vii) how or whether to prescribe, amend and rescind rules and regulations relating to and for carrying outthe 2011 SIP, (viii) the fair market value of our shares, (ix) the tax track (capital gains, ordinary income track or any other track available for the purpose ofSection 102 awards), and (x) any other matter which is necessary or desirable for, or incidental to, the administration of the 2011 SIP or any award thereunder.The board may, at any time, suspend, terminate, modify, or amend the 2011 SIP, whether retroactively or prospectively, however an amendment whichrequires shareholder approval in order for the 2011 SIP to continue to comply with any applicable law will not be effective unless approved by the requisitevote of shareholders, and no suspension, termination, modification or amendment of the 2011 SIP may adversely affect any award previously granted,without the written consent of the grantees holding a majority of the awards so affected. Types and Terms and Conditions of Awards. The committee may grant options to purchase our ordinary shares under the 2011 SIP. Each option will bedesignated in the applicable award agreement as an incentive stock option, non-qualified stock option, Section 102 award (with such designation to includethe relevant tax track), Section 3(i) award, or other designations under other regimes. The 2011 SIP generally requires that incentive stock options have anexercise price that is not less than 100% of the fair market value of the shares underlying such options on the grant date. The exercise price of any otheroptions granted will be determined by the committee, though in no event will the exercise price be less than the par value of the shares underlying an option.Unless otherwise stated in the applicable award agreement, options under the 2011 SIP will vest and become exercisable as follows: 25% of the sharescovered by an option will vest on the first anniversary of the date on which such option was granted, provided that the grantee remains continuouslyemployed by or in the service of us or any subsidiary or affiliate of ours for that one year, and 6.25% of the shares covered by the option will vest at the end ofeach subsequent quarter over the course of the following three years, subject to continued employment by or service to us or any subsidiary or affiliate ofours. The exercise period of an option will be ten years from the date of grant of the option unless otherwise determined by the committee, provided that theperiod of an Incentive Stock Option granted to a party who at the time of the grant owns shares possessing more than 10% of the total combined voting powerof all classes of our shares or of any parent or subsidiary of the company, shall not exceed five years from the date of grant. An option generally may not beexercised unless the grantee is then in our employ or service. In the event that the employment or service of a grantee terminates (other than by reason ofdeath, disability or retirement), all options of such grantee that are vested and exercisable at the time of such termination may, unless earlier terminated inaccordance with their terms, be exercised within up to 90 days after the date of such termination (or such different period as the committee will prescribe);however if we terminate the grantee’s employment or service for cause (as defined in the 2011 SIP), all options granted to such grantee (whether vested or not)will terminate on the date of such termination unless otherwise determined by the committee. In the event of a grantee’s death during employment or serviceor within three months following such grantee’s termination, or in the event of a grantee’s termination due to disability, all of the grantee’s vested optionsmay be exercised at any time within one year after such death or disability. In the event of a grantee’s retirement, all of the grantee’s vested options may beexercised at any time within the three month period following such retirement. Section 102 of the Israeli Income Tax Ordinance allows employees, directors and officers of an Israeli company, who are not controlling shareholders, toreceive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Israeli Income Tax Ordinance includes two alternativesfor tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for theissuance of options or shares directly to the grantee. Section 102(b)(2) of the Israeli Income Tax Ordinance, the most favorable tax treatment for grantees,permits the issuance to a trustee under the “capital gain track.” In order to comply with the terms of the capital gain track, all options granted under a specificplan and subject to the provisions of Section 102 of the Israeli Income Tax Ordinance, as well as the shares issued upon exercise of such options and othershares received subsequently following any realization of rights with respect to such options, such as share dividends and share splits, must be registered inthe name of a trustee selected by the board of directors and held in trust for the benefit of the relevant grantee. The trustee may not release these options orshares to the holders thereof before the second anniversary of the issuance and deposit of the options with the trustee. However, under such track, we are notallowed to deduct an expense with respect to the issuance of the options or shares. 67 The 2011 SIP provides that options granted to employees, directors and officers of our Israeli companies who are not controlling shareholders are intended toqualify for special tax treatment under the “capital gain track” provisions of Section 102(b)(2) of the Israeli Income Tax Ordinance. Our non-employeeservice providers and controlling shareholders may only be granted options under Section 3(i) of the Israeli Income Tax Ordinance, which does not providefor similar tax benefits. The committee may grant restricted shares under the 2011 SIP. The award agreement for any restricted shares granted will provide the vesting schedule andpurchase price, if any, for the restricted shares. If a grantee’s employment terminates for any reason prior to the vesting of such grantee’s restricted shares, anyshares that remain subject to vesting will be forfeited by such grantee. The committee may grant RSUs under the 2011 SIP, which are an award covering a number of shares that is settled by issuance of those shares. No payment ofcash (other than par value of the shares) will be required as consideration for RSUs, and the RSUS may or may not be subject to vesting. The committee may grant other awards under the 2011 SIP including shares (which may, but need not, be restricted shares), cash, a combination of cash andshares, awards denominated in share units, share appreciation rights, and/or the opportunity to purchase our shares in connection with any public offerings ofour securities. Adjustment Provisions. In the event of a subdivision of our outstanding share capital, any payment of a share dividend (distribution of bonus shares), arecapitalization, a reorganization (which may include a combination or exchange of shares), a consolidation, a share split, a reverse share split, a spin-off orother corporate divestiture or division, a reclassification or other similar occurrence, the committee will make such adjustments as it deems appropriate inorder to adjust (i) the number of shares available for grants of awards, (ii) the number of shares covered by outstanding awards, and (iii) the exercise price pershare covered by any award. In the event of (i) a sale of all or substantially all of our assets; or (ii) a sale (including an exchange) of all or substantially all of our shares, or an acquisitionby our shareholder (or our shareholder’s affiliate) of all of our shares held by other shareholders or by other shareholders who are not affiliated with suchacquiring party; (iii) a merger, consolidation, amalgamation or like transaction of us with or into another corporation; (iv) a scheme of arrangement for thepurpose of effecting such sale, merger or amalgamation; or (v) such other transaction or set of circumstances that is determined by the committee, in itsdiscretion, to be a transaction having a similar effect then, unless otherwise determined by the committee in its sole discretion, any award then outstandingwill be assumed or an equivalent award will be substituted by such successor corporation under substantially the same terms as such award. In the event thatthe awards are not assumed or substituted by an equivalent award, then the committee may (but will not be obligated to), (x) provide for grantees to have theright to exercise their awards or otherwise for the acceleration of vesting of such awards, as to all or part of the shares, including shares covered by the awardswhich would not otherwise be exercisable or vested, under such terms and conditions as the committee will determine, including the cancellation of allunexercised awards upon closing of the transaction; and/or (y) provide for the cancellation of each outstanding award at the closing of such transaction, andpayment to the grantees of an amount in cash as determined by the committee to be fair in the circumstances, and subject to such terms and conditions asdetermined by the committee. Notwithstanding the foregoing, in the event of such transaction, the committee may determine, in its sole discretion, that uponcompletion of such transaction, the terms of any award be otherwise amended, modified or terminated, as the committee deems in good faith to beappropriate, and if an option, that the option will confer the right to purchase or receive any other security or asset, or any combination thereof, or that itsterms be otherwise amended, modified or terminated. Miscellaneous Provisions. Awards under the 2011 SIP are not transferable other than by will or by the laws of descent and distribution, unless otherwisedetermined by the board or under the 2011 SIP, and generally expire ten years following the grant date. The 2011 SIP will terminate on the tenth anniversaryof the effective date, other than with respect to those awards outstanding under the 2011 SIP at the time of such termination. 2001 Stock Option Plan and 2001 Section 102 Stock Option Plan Effective Date and Shares Reserved. On March 27, 2001, our board of directors adopted, and on March 22, 2002 our shareholders approved, the 2001 StockOption Plan, or the 2001 SOP, and the 2001 Section 102 Stock Option Plan, as amended March 5, 2003, or the 2001 Section 102 SOP. The 2001 SOP and the2001 Section 102 SOP generally allow for the grant of options to our employees, officers, directors, consultants and advisors of us or our affiliates. If anoption granted under the 2001 SOP expires or terminates for any reason without having been exercised in full, the unpurchased shares subject to such optionwill be available for subsequent grants under the 2014 SIP. In the event an employee’s rights under the 2001 Section 102 SOP do not vest in any options,such options may be reissued under the 2014 SIP. As of December 31, 2015, a total of 734,536 options to purchase ordinary shares remained outstandingunder the 2001 SOP and the 2001 Section 102 SOP. 68 Plan Administration. The 2001 SOP and the 2001 Section 102 SOP are administered by a committee appointed by the board. The committee has full andmaximum authority in its discretion to grant, or recommend to the board, as applicable, the employees to whom options will be granted, to determine orrecommend the number of shares to be covered by each option, the time at which each option shall be granted, the terms and conditions of optionagreements, the purchase price of each share subject to an option, the term during which each option may be exercised, and to authorize the share allotmentpursuant to the exercise of each option. The board may at any time amend, alter, suspend or terminate the 2001 SOP in any respect, except that if at any timethe approval of our shareholders of the company is required under the federal tax code, the board may not effect such modification or amendment withoutsuch approval. The termination or any modification or amendment of the 2001 SOP will not, without the consent of a grantee, affect his or her rights under anoption previously granted to him or her. With the consent of the affected grantee, the board or the committee may amend outstanding option agreements in amanner not inconsistent with the 2001 SOP. The board may, at any time, amend, alter, suspend or terminate the 2001 Section 102 SOP, provided, however,that any such action will not adversely affect any options granted under the 2001 Section 102 SOP. Types and Terms and Conditions of Awards. The 2001 SOP provides for the grant of incentive stock options and non-qualified stock options. The terms ofsuch options (including vesting provisions and the treatment of such options upon a grantee’s termination of employment or service or death or disability)are generally set forth in the applicable award agreement, however an incentive stock option may be exercised for at least three months following thecessation of a grantee’s employment (or for one year following a cessation due to the grantee’s death or disability). The 2001 SOP generally requires thatincentive stock options have an exercise price that is not less than 100% of the fair market value of the shares underling such option on the grant date. Theexercise period of an option is set forth in the applicable option agreement, but will not be more than ten years from the date of grant of the option, in the caseof an incentive stock option. Under the 2001 Section 102 SOP, the committee may grant options only to employees, officers and directors. Each option agreement states the tax track(capitals gains, income tax track with a trustee or income tax track without a trustee) as elected by us. The exercise price of any option and the times at whichoptions may be exercised in whole or in part is determined by the board or committee and is set forth in the applicable option agreement. No exercise ofoptions by a single grantee, however, will be made for an aggregate exercise price of less than $1,000, unless the exercise is of all of such grantee’s optionsthat are vested as of the date of exercise. Generally, the term of any option may not be for more than ten years from the date of grant of the option. Pursuant toa May 30, 2013 board resolution, however, it was resolved to extend the respective term of the options that were granted by us to certain employees of us andour U.K. subsidiary from ten years to 15 years, subject to obtaining a ruling or tax determination from the Israeli Tax Authorities with respect to such optionsgranted under Section 102 of the Income Tax Ordinance. As a result, the term of the applicable non-Section 102 options were extended, while the terms of theapplicable Section 102 options were extended subject to the ruling, which has since been obtained. Each option agreement specifies the extent to which anoption may be exercised if we terminate the grantee’s employment or other relationship with us or our parent or any subsidiary, or in the event of the death ordisability of the grantee. If a grantee dies while employed by us, his or her estate, personal representative or beneficiary has the right to exercise the totalnumber of shares in the option to which the grantee would have been entitled to exercise at the date of his death as set forth in the applicable optionagreement. Adjustment Provisions. If, through or as a result of any merger, consolidation, sale of all or substantially all of our assets, reorganization, recapitalization,reclassification, share dividend, share split, reverse share split or other similar transaction, (i) the number of outstanding shares is increased, decreased orexchanged for a different number or kind of our shares or other securities, or (ii) additional shares or new or different shares or other securities of ours or othernon-cash assets are distributed with respect to such shares or other securities, an appropriate and proportionate adjustment will be made in (x) the maximumnumber and kind of shares reserved for issuance under the 2001 SOP and/or under the 2001 Section 102 SOP, (y) the number and kind of shares or othersecurities subject to any then outstanding options under the 2001 SOP and/or under the 2001 Section 102 SOP, and (z) the exercise price for each sharesubject to any then outstanding options under the 2001 SOP and/or under the 2001 Section 102 SOP, without changing the aggregate purchase price as towhich such options remain exercisable. 69 Upon the occurrence of an acquisition event (i.e., (a) any merger or consolidation which results in our voting securities immediately prior thereto representingimmediately thereafter less than 50% of the combined voting power of our voting securities or such surviving or acquiring entity outstanding immediatelyafter such merger or consolidation, (b) any sale of all or substantially all of our assets or (c) our complete liquidation), the board will take any one or more ofthe following actions with respect of the then outstanding options: (i) provide that such options shall be assumed, or equivalent options will be substituted,by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to the grantees, provide that all the then-unexercised options willbecome exercisable in full as of a specified time prior to the acquisition event and will terminate immediately prior to the consummation of such acquisitionevent, (iii) in the event of a merger under the terms of which holders of our outstanding ordinary shares will receive upon consummation thereof a cashpayment for each share surrendered in the merger, make or provide for a cash payment to the grantees equal to the difference between (A) the merger pricetimes the number of ordinary shares subject to such outstanding options and (B) the aggregate exercise price of all such outstanding options in exchange forthe termination of such options, or (iv) upon written notice to the grantees, provide that all the then vested and unvested outstanding options will terminateimmediately prior to the consummation of such acquisition event, and to the extent the vested options will have not been exercised prior to the acquisitionevent, all such options will become null and void at the consummation of such acquisition event. Miscellaneous Provisions. Awards under the 2001 SOP and 2001 Section 102 SOP are generally not transferable other than by will or by the laws of descentand distribution, unless otherwise determined by the board. Only the grantee may exercise options granted under the 2001 Section 102 SOP during his or herlifetime. The 2001 SOP and the 2001 Section 102 SOP terminated on March 27, 2011, other than with respect to those awards outstanding under the 2001SOP and the 2001 Section 102 SOP at the time of such termination. C.Board Practices Board of Directors Under the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may takeall actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management andhave individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our boardof directors, subject to the employment agreement that we have entered into with him. All other executive officers are also appointed by our board ofdirectors, and are subject to the terms of any applicable employment agreements that we may enter into with them. We comply with the rule of the NASDAQ Stock Market that a majority of our directors be independent. Our board of directors has determined that all of ourdirectors, other than our Chief Executive Officer, are independent under such rules. The definition of independent director under NASDAQ rules and externaldirector under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving as external directors tosatisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that must be satisfied,including criteria whose aim is to ensure that there be no factor which would impair the ability of the external director to exercise independent judgment. Thedefinition of independent director specifies similar, although less stringent, requirements in addition to the requirement that the board consider any factorwhich would impair the ability of the independent director to exercise independent judgment. In addition, both external directors and independent directorsserve for a period of three years, with external directors serving pursuant to the requirements of the Companies Law and independent directors servingpursuant to the staggered board provisions of our articles of association. However, external directors must be elected by a special majority of shareholderswhile independent directors may be elected by an ordinary majority. See “—External Directors” for a description of the requirements under the CompaniesLaw for a director to serve as an external director. 70 Under our articles of association, our board of directors must consist of at least four and not more than 11 directors, including at least two external directorsrequired to be appointed under the Companies Law. At any time, the minimum number of directors may not fall below four. Our board of directors consists ofeight directors, including our two external directors. Other than external directors, for whom special election requirements apply under the Companies Law,as detailed below, our directors are divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors (other than the external directors). At each annual general meeting of ourshareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors is for a term of officethat expires on the third annual general meeting following such election or re-election, such that from 2016 and after, on each annual general meeting theterm of office of only one class of directors will expire. Each director will hold office until the annual general meeting of our shareholders in which his or herterm expires, unless he or she is removed by a vote of 65% of the total voting power of our shareholders at a general meeting of our shareholders or upon theoccurrence of certain events, in accordance with the Companies Law and our articles of association. Our directors are divided among the three classes as follows: (i) the Class I directors are Ehud (Udi) Mokady and David Schaeffer, and their terms expire at the annual general meeting of shareholders to be held in 2018and when their successors are elected and qualified; (ii) the Class II directors, are Raphael (Raffi) Kesten and Amnon Shoshani, and their terms expire at the annual general meeting of shareholders to be held in2016 and when their successors are elected and qualified; and (iii) the Class III directors are Gadi Tirosh and David Campbell, and their terms expire at the annual general meeting of shareholders to be held in 2017 andwhen their successors are elected and qualified. In addition, our articles of association allow our board of directors to appoint directors, create new directorships or fill vacancies on our board of directors upto the maximum number of directors permitted under our articles of association. In case of an appointment by our board of directors to fill a vacancy on ourboard of directors due to a director no longer serving, the term of office shall be equal to the remaining period of the term of office of the director(s) whoseoffice(s) have been vacated, and in case of a new appointment where the number of directors serving is less than the maximum number stated in our articles ofassociation, our board of directors shall determine at the time of appointment the class to which the new director shall be assigned. External directors areelected for an initial term of three years and may be elected for up to two additional three-year terms under the circumstances described below. Externaldirectors may be removed from office only under the limited circumstances set forth in the Companies Law. See “—External Directors” below. Under the Companies Law and our articles of association, nominations for directors may be made by any shareholder(s) holding together at least 1% of ouroutstanding voting power. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make suchnomination has been timely and duly given to our Secretary (or, if we have no Secretary, our Chief Executive Officer), as set forth in our articles ofassociation. Any such notice must include certain information regarding the proposing shareholder and the proposed director nominee, the consent of theproposed director nominee(s) to serve as our director(s) if elected and a declaration signed by the proposed director nominee(s) as required by under theCompanies Law and that all of the information that is required to be provided to us in connection with such election under the Companies Law and under ourarticles of association has been provided. Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financialexpertise. See “—External Directors.” In determining the number of directors required to have such expertise, a board of directors must consider, among otherthings, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number ofdirectors of our company who are required to have accounting and financial expertise is one. 71 External Directors Under the Companies Law, our board is required to include at least two members who qualify as external directors. Ron Gutler and Kim Perdikou serve as ourexternal directors. The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either: ·such majority includes at least a majority of the shares held by all shareholders who are non-controlling shareholders and who lack a personalinterest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that arevoted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or ·the total number of shares voted by non-controlling, disinterested shareholders (as described in the previous bullet point) against the election of theexternal director does not exceed 2% of the aggregate voting rights in the company. The term controlling shareholder, as used in the Companies Law for purposes of all matters related to external directors and for certain other purposes (such asthe requirements related to appointment to the audit committee or compensation committee, as described below), means a shareholder with the ability todirect the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if theshareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its generalmanager (chief executive officer). The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional three-year terms, provided that either: ·his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights andis approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterestedshareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company, provided that the external director recommendedfor reelection is not (i) the recommending shareholder himself or herself or (ii) a significant (5%) shareholder (a) that is himself, herself or itself,(b) that is its controlling shareholder or (c) that is under common control with an entity, that either carries out business with the company or is incompetition with the company; or ·his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the samemajority required for the initial election of an external director (as described above). The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Global Select Market, maybe extended indefinitely in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of thecompany confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, thereelection for such additional period(s) is beneficial to the company, and provided that the external director is reelected subject to the same shareholder voterequirements (as described above regarding the reelection of external directors). Prior to the approval of the reelection of the external director at a generalshareholders meeting, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why the board of directorsand audit committee recommended the extension of his or her term. External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissalby the same shareholder vote percentage required for their election or by a court, in each case, only under limited circumstances, including ceasing to meetthe statutory qualifications for appointment, or violating their duty of loyalty to the company. If an external directorship becomes vacant and there are fewerthan two external directors on the board of directors at the time, then the board of directors is required under the Companies Law to call a shareholders’meeting as soon as practicable to appoint a replacement external director. 72 Each committee of the board of directors that exercises the powers of the board of directors must include at least one external director, except that the auditcommittee and the compensation committee must include all external directors then serving on the board of directors and an external director must serve asthe chair thereof. Under the Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation from thecompany other than for their services as external directors pursuant to the Companies Law and the regulations promulgated thereunder. Compensation of anexternal director is determined prior to his or her appointment and may not be changed during his or her term subject to certain exceptions. The Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling shareholder of thecompany, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subordinate, or any entityunder the person’s control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation or otherdisqualifying relationship with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled byor under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date ofappointment as an external director, any affiliation or other disqualifying relationship with a person then serving as chairman of the board or chief executiveofficer, a holder of 5% or more of the issued share capital or voting power in the company or the most senior financial officer. The term relative is defined as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of theforegoing persons. The term affiliation and the similar types of disqualifying relationships include (subject to certain exceptions): ·an employment relationship; ·a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships); ·control; and ·service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director wasappointed as a director of the private company in order to serve as an external director following the initial public offering. The term “office holder” is defined under the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager,any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager directly subordinateto the general manager. In addition, no person may serve as an external director if that person’s position or professional or other activities create, or may create, a conflict of interestwith that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as an external director or if the person is an employeeof the Israel Securities Authority or of an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she receiveddirect or indirect compensation from the company including amounts paid pursuant to indemnification and/or exculpation contracts or commitments andinsurance coverage for his or her service as an external director, other than as permitted by the Companies Law and the regulations promulgated thereunder. Following the termination of an external director’s service on a board of directors, such former external director and his or her spouse and children may not beprovided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’s control. This includesengagement as an office holder or director of the company or a company controlled by its controlling shareholder or employment by, or provision of servicesto, any such company for consideration, either directly or indirectly, including through a corporation controlled by the former external director. Thisrestriction extends for a period of two years with regard to the former external director and his or her spouse or child and for one year with respect to otherrelatives of the former external director. 73 If at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives of controllingshareholders of the company are of the same gender, the external director to be appointed must be of the other gender. A director of one company may not beappointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time. According to regulations promulgated under the Companies Law, a person may be appointed as an external director only if he or she has professionalqualifications or if he or she has accounting and financial expertise (each, as defined below). In addition, at least one of the external directors must bedetermined by our board of directors to have accounting and financial expertise. However, if at least one of our other directors (i) meets the independencerequirements under the Exchange Act, (ii) meets the standards of the Listing Rules of the NASDAQ Stock Market for membership on the audit committee and(iii) has accounting and financial expertise as defined under Companies law, then neither of our external directors is required to possess accounting andfinancial expertise as long as each possesses the requisite professional qualifications. A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and anunderstanding of, financial and accounting matters and financial statements, such that he or she is able to understand the financial statements of the companyand initiate a discussion about the presentation of financial data. A director is deemed to have professional qualifications if he or she has any of (i) anacademic degree in economics, business management, accounting, law or public administration, (ii) an academic degree or has completed another form ofhigher education in the primary field of business of the company or in a field which is relevant to his/her position in the company, or (iii) at least five years ofexperience serving in one of the following capacities, or at least five years of cumulative experience serving in two or more of the following capacities: (a) asenior business management position in a company with a significant volume of business; (b) a senior position in the company’s primary field of business; or(c) a senior position in public administration or service. The board of directors is charged with determining whether a director possesses financial andaccounting expertise or professional qualifications. Our board of directors has determined that each of Ron Gutler and Kim Perdikou possesses accounting expertise, financial expertise and professionalqualifications, as defined under the Companies Law. Audit Committee Our audit committee consists of our two external directors, Ron Gutler (Chairperson) and Kim Perdikou, and Amnon Shoshani. Israeli Companies Law Requirements Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all ofthe external directors and one of whom must serve as chairman of the committee. The audit committee may not include the chairman of the board, acontrolling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis to thecompany, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director who derives most of his or her income from acontrolling shareholder. In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria: ·he or she meets the qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident(which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) therequirement for accounting and financial expertise or professional qualifications; and 74 ·he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two yearsin the service shall not be deemed to interrupt the continuation of the service. Listing Requirements Under NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whomis financially literate and one of whom has accounting or related financial management expertise. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and NASDAQcorporate governance rules. Our board of directors has determined that Ron Gutler and Kim Perdikou are audit committee financial experts as defined by SECrules and have the requisite financial experience as defined by NASDAQ corporate governance rules. Each of the members of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from thegeneral test for independence of board members and members of other committees. Audit Committee Role Our board of directors has an audit committee charter that sets forth the responsibilities of the audit committee consistent with the rules of the SEC and thelisting requirements of the NASDAQ Stock Market, as well as the requirements for such committee under the Companies Law, including the following: ·oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement ofour independent registered public accounting firm to the board of directors in accordance with Israeli law; ·recommending the engagement or termination of the person filling the office of our internal auditor; and ·recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by ourboard of directors. Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting,auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants andreviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees theaudit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent ofmanagement. Under the Companies Law, our audit committee is responsible for: ·determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditoror the independent auditor, and making recommendations to the board of directors to improve such practices; ·determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest andwhether such transaction is material or extraordinary under the Companies Law) (see “—Approval of Related Party Transactions under Israeli Law”); ·determining standards and policies for determining whether a transaction with a controlling shareholder or a transaction in which a controllingshareholder has a personal interest is deemed extraordinary and the approval requirements for transactions that are not extraordinary but also notinsignificant (including, potentially, the approval of the audit committee); 75 ·where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to the board ofdirectors and proposing amendments thereto; ·examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools todispose of its responsibilities; ·examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors orshareholders, depending on which of them is considering the appointment of our auditor; and ·establishing procedures for the handling of employees’ complaints as to the deficiencies in the management of our business and the protection to beprovided to such employees. Our audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions under Israeli Law”), unless at thetime of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one externaldirector. Compensation Committee Our compensation committee consists of Kim Perdikou (Chairperson), David Campbell and Ron Gutler. Israeli Companies Law Requirements Under the Companies Law, the board of directors of a public company must appoint a compensation committee. The compensation committee must becomprised of at least three directors, including all of the external directors, who must constitute a majority of the members of, and include the chairman of, thecompensation committee. However, subject to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as NASDAQ, andwho do not have a controlling shareholder, do not have to meet this majority requirement; provided, however, that the compensation committee meets otherCompanies Law composition requirements, as well as the requirements of the jurisdiction where the company’s securities are traded. Each compensationcommittee member who is not an external director must be a director whose compensation does not exceed an amount that may be paid to an externaldirector. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to who may not be a member of thecommittee. The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and must be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation (as defined below under “—Approval of Related Party Transactions under Israeli Law—Fiduciary Duties of Directors andExecutive Officers”). The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment, obligation of payment or other benefit in respect of employment or engagement. Thecompensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-termstrategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and thenature of its operations. The compensation policy must include certain principles, such as: a link between variable compensation and long-term performanceand measurable criteria; the relationship between variable and fixed compensation; and the minimum holding or vesting period for variable, equity-basedcompensation. 76 The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (andsubsequent approval by our shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well asfunctions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders,including: ·recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than five years (approval ofeither a new compensation policy or the continuation of an existing compensation policy must in any case occur within five years of the date of acompany’s initial public offering, and every three years thereafter); ·recommending to the board of directors periodic updates to the compensation policy; ·assessing implementation of the compensation policy; ·determining whether the compensation terms of the chief executive officer of the company need not be brought to the shareholders for approval; ·approving compensation terms of executive officers, directors and employees affiliated with controlling shareholders (as such term is specificallydefined in the relevant section of the Companies Law, as described in below under “—Approval of Related Party Transactions under Israeli Law”);and ·exempting certain compensation arrangements from the requirement to obtain shareholder approval under the Companies Law. In keeping with the foregoing requirements, following the recommendation of our compensation committee, on November 12, 2014 and December 18, 2014,our board of directors and shareholders, respectively, approved our compensation policy. Listing Requirements Under NASDAQ corporate governance rules, we are required to maintain a compensation committee consisting of at least two independent directors. Each ofthe members of the compensation committee is required to be independent under NASDAQ rules relating to compensation committee members, which aredifferent from the general test for independence of board and committee members. Each of the members of our compensation committee satisfies thoserequirements. Compensation Committee Role Our board of directors has a compensation committee charter that sets forth the responsibilities of the committee, which include: ·the responsibilities set forth in the compensation policy; ·reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and ·reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. Nominating and Governance Committee Our nominating and governance committee consists of Gadi Tirosh (Chairperson), David Campbell and Ron Gutler. Our board of directors has a nominatingand governance committee charter that sets forth the responsibilities of the nominating and governance committee, which include: ·overseeing and assisting our board in reviewing and recommending nominees for election as directors; ·assessing the performance of the members of our board; and 77 ·establishing and maintaining effective corporate governance policies and practices, including, but not limited to, developing and recommending toour board a set of corporate governance guidelines applicable to our company. Disclosure of Compensation of Executive Officers For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, including therequirement applicable to certain domestic issuers that do not qualify as emerging growth companies to disclose on an individual, rather than an aggregate,basis, the compensation of our named executive officers as defined in Item 402 of Regulation S-K. Nevertheless, a recent amendment to the Companies Lawrequires that we disclose the annual compensation of our five most highly compensated office holders (as defined under the Companies Law) on anindividual basis, rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas. Under the Companies Lawregulations, this disclosure is required to be included in the annual proxy statement for our annual meeting of shareholders each year, which we will furnishto the SEC under cover of a Report of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we are also including suchinformation in this annual report, pursuant to the disclosure requirements of Form 20-F. Compensation of Directors Under the Companies Law, compensation of directors requires the approval of a company’s compensation committee, the subsequent approval of the board ofdirectors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. Wherethe director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply, as described below under “—Approval of Related Party Transactions Under Israeli Law—Disclosure of Personal Interests of Controlling Shareholder and Approval of CertainTransactions.” The directors are also entitled to be paid reasonable travel, hotel and other expenses expended by them in attending board meetings and performing theirfunctions as directors of the company, all of which is to be determined by the board of directors. External directors are entitled to remuneration subject to the provisions and limitations set forth in the regulations promulgated under the Companies Law. For additional information, see “—Compensation of Officers and Directors.” Internal Auditor Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee. Aninternal auditor may not be: ·a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; ·a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; ·an office holder (including a director) of the company (or a relative thereof); or ·a member of the company’s independent accounting firm, or anyone on his or her behalf. The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committeeis required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Chaikin, Cohen,Rubin & Co. serves as our internal auditor. 78 Approval of Related Party Transactions Under Israeli Law Fiduciary Duties of Directors and Executive Officers The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Item 6.A.—Directors andSenior Management” is an office holder under the Companies Law. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act ingood faith and in the best interests of the company. The duty of care includes a duty to use reasonable means to obtain: ·information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and ·all other important information pertaining to any such action. The duty of loyalty includes a duty to: ·refrain from any conflict of interest between the performance of his or her duties to the company and his or her duties or personal affairs; ·refrain from exploiting any business opportunity of the company in order to receive a personal gain for himself or herself or others; and ·disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or herposition as an office holder. Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and allrelated material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure mustbe made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includesan interest of any person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which suchperson or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least onedirector or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermoreincludes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or hervote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however,obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered anextraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following: ·a transaction other than in the ordinary course of business; ·a transaction that is not on market terms; or ·a transaction that may have a material impact on a company’s profitability, assets or liabilities. 79 If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Further, so long as an office holder has disclosed his or her personal interest in atransaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, acompany may not approve a transaction or action that is not in the best interests of the company or that is not performed by the office holder in good faith.An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently bythe board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by thecompany’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify orinsure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number of specificexceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders (as defined in “Disclosure ofPersonal Interests of Controlling Shareholders and Approval of Certain Transactions” below) and do not have a personal interest in such compensationarrangement; or (b) the total number of shares of non-controlling shareholders who do not have a personal interest in the compensation arrangement and whovote against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval for Compensation.Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directorsand shareholders by ordinary majority, in that order, and under certain circumstances, a Special Approval for Compensation. Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not bepresent at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors (as applicable) determines that he or sheshould be present in order to present the transaction that is subject to approval, in which case such person may present the transaction but not vote on thematter. If a majority of the members of the audit committee or the board of directors (as applicable) has a personal interest in the approval of a transaction,then all directors may participate in discussions of the audit committee or the board of directors (as applicable) on such transaction and the voting onapproval thereof, but shareholder approval is also required for such transaction. Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions Pursuant to the Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to acontrolling shareholder of a public company. The Companies Law provides a broader definition of a controlling shareholder solely with respect to theprovisions pertaining to related party transactions. For such purposes, a controlling shareholder is a shareholder that has the ability to direct the activities of acompany, including by holding 50% or more of the voting rights in a company or by having the right to appoint the majority of the directors of the companyor its general manager (chief executive officer), and furthermore, by holding 25% or more of the voting rights if no other shareholder holds more than 50% ofthe voting rights. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. An extraordinary transaction between a public company and a controlling shareholder, or in which a controlling shareholder has a personal interest, and theterms of any compensation arrangement of a controlling shareholder who is an office holder or his relative, require the approval of a company’s auditcommittee (or compensation committee with respect to compensation arrangements), board of directors and shareholders, in that order. In addition, theshareholder approval must fulfill one of the following requirements: ·at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at themeeting approves the transaction, excluding abstentions; or ·the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at themeeting do not exceed 2% of the voting rights in the company. To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every threeyears, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstancesrelated thereto. Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders, in that order, by a Special Majority and the terms thereof may not beinconsistent with the company’s stated compensation policy. 80 Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, thatwould otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committeeand board of directors. Under these regulations, a shareholder holding at least 1% of the issued share capital of the company may require, within 14 days ofthe publication of such determinations, that despite such determinations by the audit committee and the board of directors, such transaction will requireshareholder approval under the same majority requirements that would otherwise apply to such transactions. Shareholder Duties Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings withrespect to the following matters: ·an amendment to the company’s articles of association; ·an increase of the company’s authorized share capital; · a merger; or ·the approval of related party transactions and acts of office holders that require shareholder approval. In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, certain shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder whoknows that he or she has the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or to prevent theappointment of an office holder of the company or other power towards the company. The Companies Law does not define the substance of the duty offairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness. Exculpation, Insurance and Indemnification of Directors and Officers Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company mayexculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty ofcare but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. Thecompany may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders. Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by himor her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include aprovision authorizing such indemnification: ·financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved bya court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertakingmust be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking toindemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and suchundertaking shall detail the abovementioned foreseen events and amount or criteria; 81 ·reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding institutedagainst him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against suchoffice holder as a result of such investigation or proceeding; and (ii) no financial liability was imposed upon him or her as a substitute for thecriminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to anoffense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and ·reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him orher by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as aresult of a conviction for an offense that does not require proof of criminal intent. Under the Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an officeholder if and to the extent provided in the company’s articles of association: ·a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the actwould not harm the company; ·a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and ·a financial liability imposed on the office holder in favor of a third party. Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following: ·a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that theoffice holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; ·a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; ·an act or omission committed with intent to derive illegal personal benefit; or ·a civil or criminal fine or forfeit levied against the office holder. Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensationcommittee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval ofRelated Party Transactions under Israeli Law.” We have entered into indemnification agreements with our office holders to exculpate, indemnify and insure our office holders to the fullest extent permittedor to be permitted by our articles of association and applicable law (including without limitation), the Companies Law, the Israeli Securities Law, 5728-1968and the Israeli Restrictive Trade Practices Law, 5758-1988. We have obtained directors and officers liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law. 82 D.Employees As of December 31, 2015, we had 644 employees and subcontractors with 272 located in Israel, 217 in the United States, 49 in the United Kingdom and 106across 23 other countries. The following table shows the breakdown of our global workforce of employees and subcontractors by category of activity as of thedates indicated: As of December 31, Department 2013 2014 2015 Sales and marketing 135 202 294 Research and development 95 119 176 Services and support 60 76 118 General and administrative 27 33 56 Total 317 430 644 With respect to our Israeli employees, Israeli labor laws govern the length of the workday, minimum wages for employees, procedures for hiring anddismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement,death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. SocialSecurity Administration. Our employees have pension plans that comply with the applicable Israeli legal requirements and we make monthly contributions toseverance pay funds for all employees, which cover potential severance pay obligations.None of our employees work under any collective bargaining agreements, except for our employees in Italy who work under the national collectivebargaining agreement for trade and commerce sector (CCNL Commercio) which affects matters such as length of working, annual holidays entitlement, sickleave, travel expenses and pension rights, and our employees in France who work under the collective bargaining agreement for offices of technical studies,offices of consulting engineers and consulting firms (SYNTEC CBA). Extension orders issued by the Israeli Ministry of Economy and Industry (formerly the Israeli Ministry of Industry, Trade and Labor) apply to our employeesis Israel and affect matters such as cost of living adjustments to salaries, length of working hours and week, recuperation pay, travel expenses, and pensionrights. We have never experienced labor-related work stoppages or strikes and believe that our relations with our employees are satisfactory. E.Share Ownership For information regarding the share ownership of our directors and executive officers, please refer to “Item 6.B. Compensation” and “Item 7.A. MajorShareholders.” ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.Major Shareholders The following table sets forth information with respect to the beneficial ownership of our shares as of February 1, 2016 by: ·each person or entity known by us to own beneficially 5% or more of our outstanding shares; ·each of our directors and executive officers individually; and ·all of our executive officers and directors as a group. 83 The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which aperson exercises sole or shared voting or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below, wedeem shares subject to options that are currently exercisable or exercisable within 60 days of February 1, 2016, to be outstanding and to be beneficiallyowned by the person holding the options for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding forthe purpose of computing the percentage ownership of any other person. The percentage of shares beneficially owned is based on 33,312,235 ordinary sharesoutstanding as of February 1, 2016. As of February 1, 2016, we had 15 holders of record of our ordinary shares in the United States, including Cede & Co., the nominee of The Depository TrustCompany. These shareholders held in the aggregate 30,610,699 of our outstanding ordinary shares, or 91.9% of our outstanding ordinary shares asof February 1, 2016. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative ofwhere such beneficial holders are resident since many of these ordinary shares were held by brokers or other nominees. All of our shareholders, including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “Item 10.B. Memorandumand Articles of Association.” None of our principal shareholders or our directors and executive officers have different or special voting rights with respect totheir ordinary shares. Unless otherwise noted below, each shareholder’s address is CyberArk Software Ltd. 94 Em-Ha’moshavot Road, Park Ofer, P.O. Box3143, Petach Tikva 4970602, Israel. A description of any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the past three years isincluded under “Item 7B. Related Party Transactions.” Shares Beneficially Owned Name of Beneficial Owner Number % Principal Shareholders (1) Entities affiliated with Jerusalem Venture Partners(2) 3,852,587 11.6%Entities affiliated with Wells Fargo & Company(3) 3,013,336 9.0%FMR LLC(4) 2,848,650 8.6%Executive Officers and Directors Ehud (Udi) Mokady(5) 1,008,363 2.9%Chen Bitan * * Joshua Siegel * * Ronen (Ron) Zoran * * Nick Baglin * * Vincent Goh * * Roy Adar * * John Worrall * * Gadi Tirosh(6) 3,868,587 11.6% David Campbell * * Ron Gutler * * Raphael (Raffi) Kesten(7) 3,868,587 11.6% Kim Perdikou * * David Schaeffer * * Amnon Shoshani(8) 1,069,618 3.2% All executive officers and directors as a group (15 persons) 6,576,037 18.9% *Less than 1%. (1)Certain shareholders that reported greater than 5% beneficial ownership on a Schedule 13G filed with respect to their share ownership as ofDecember 31, 2015 have not been included in the table as their percentage ownership is less than 5% based on the number of shares outstandingas of February 1, 2016. 84 (2) Based on a Schedule 13G/A filed with the SEC on February 9, 2016, as of December 31, 2015, shares beneficially by venture capital fundsassociated with Jerusalem Venture Partners, a firm founded by Erel Margalit, consist of 1,961,475 shares held by Jerusalem Venture Partners IV,L.P., 1,453,361 shares held by JVP Opportunity VI, L.P., 283,397 shares held by JVP Opportunity VI-A, L.P., 47,190 shares held by JerusalemVenture Partners IV (Israel), L.P.,72,917 shares held by JVP Opportunity VI Entrepreneur Fund, L.P., 17,566 shares held by Jerusalem VenturePartners Entrepreneurs Fund IV, L.P., and 16,681 shares held by Jerusalem Venture Partners IV-A, L.P. Jerusalem Partners IV, L.P., the generalpartner of Jerusalem Venture Partners IV, L.P., Jerusalem Venture Partners IV-A, L.P. and Jerusalem Venture Partners Entrepreneurs Fund IV, L.P.(collectively, the “JVP IV Funds”), and JVP Corp IV, the general partner of Jerusalem Partners IV, L.P. may be deemed to beneficially own theshares held directly by the JVP IV Funds. Jerusalem Partners-Venture Capital, L.P., the general partner of Jerusalem Venture Partners IV (Israel),L.P., and JVP Corp IV, the general partner of Jerusalem Partners IV -Venture Capital, L.P., may be deemed to beneficially own the shares held byJerusalem Venture Partners IV (Israel), L.P. JP Opportunity VI, L.P., the general partner of JVP Opportunity VI, L.P., JVP Opportunity VIEntrepreneur Fund, L.P. and JVP Opportunity VI-A, L.P., or, collectively, the JVP VI Funds, and JVP Corp IV, the general partner of JPOpportunity VI, L.P., may be deemed to beneficially own the shares held by the JVP VI Funds. Control over voting and disposition of the sharesheld by the JVP IV and JVP VI Funds is shared among a group of individuals appointed by the trust of Erel Margalit consisting of Gadi Tirosh,Kobi Rozengarten, Raffi Kesten and Haim Kopans. The address of the foregoing entities and individuals is c/o Jerusalem Venture Partners, 41Madison Avenue, 31st Floor, New York, NY 10010. (3) Based on a Schedule 13G filed by Wells Fargo & Company (“Wells”) with the SEC on January 25, 2016 on behalf of Wells’s subsidiaries WellsCapital Management Incorporated (“Wells Management”), Wells Fargo Bank, National Association, Wells Fargo Advisors Financial Network,LLC, Wells Fargo Funds Management, LLC (“Wells Funds”) and Wells Fargo Advisors, LLC, as of December 31, 2015, shares beneficially ownedconsist of 3,013,336 shares beneficially owned by Wells, 2,841,218 shares beneficially owned by Wells Management, an investment adviser, and1,717,971 shares beneficially owned by Wells Funds, an investment adviser. The address of Wells is 420 Montgomery Street, San Francisco, CA94104. The address of Wells Management is 525 Market St., 10th Floor, San Francisco, CA 94105. The address of Wells Funds is 525 MarketStreet, San Francisco, CA 94105. (4)Based on a Schedule 13G filed by FMR LLC (“FMR”), as of December 31, 2015, shares beneficially owned consist of 2,848,650 sharesbeneficially owned by FMR LLC, certain of its affiliates and subsidiaries. FMR LLC has sole voting power over 418,450 shares and soledispositive power over 2,848,650 shares. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly orthrough trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family groupand all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will bevoted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common sharesand the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct thevoting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”)advised by Fidelity Management & Research Company (“FMR Co”), a wholly owned subsidiary of FMR LLC, which power resides with theFidelity Funds' Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelinesestablished by the Fidelity Funds’ Boards of Trustees. The address of FMR LLC is 245 Summer Street, Boston, MA 02210. (5)Mr. Mokady’s shares include 45,000 shares held in trust for family members over which Mr. Mokady is the beneficial owner. (6)Shares beneficially owned consists of 3,852,587 shares beneficially owned by entities affiliated with Jerusalem Venture Partners over whichMr. Tirosh may be deemed to share voting and investment power, as well as vested options to purchase 16,000 ordinary shares that are helddirectly by Mr. Tirosh. See footnote (1). (7)Shares beneficially owned consists of 3,852,587 shares beneficially owned by entities affiliated with Jerusalem Venture Partners over whichMr. Kesten may be deemed to share voting and investment power as well as vested options to purchase 16,000 ordinary shares that are helddirectly by Mr. Kesten. See footnote (1). (8)Shares beneficially owned consists of 1,053,618 shares beneficially owned by Cabaret Security Ltd. over which Mr. Shoshani holds voting andinvestment power, as well as vested options to purchase 16,000 ordinary shares that are held directly by Mr. Shoshani. The address of CabaretSecurity Ltd. is 7 Chalamish Street, PO Box 3557, Caesarea 30889, Israel. 85 Significant Changes Prior to our September 2014 initial public offering, Jerusalem Venture Partners and its affiliates owned 11,182,562 ordinary shares, The Goldman SachsGroup, Inc. and its affiliates owned 5,726,317 ordinary shares and Vertex Venture Capital and its affiliates owned 2,772,863 ordinary shares, representing atthat time 46.6%, 24.1% and 11.6%, respectively, of our ordinary shares at such time. As a result of their sales of our shares in public offerings in March 2015 and June 2015 and in regular market transactions, as of December 31, 2015, JerusalemVenture Partners and its affiliates own 3,852,587 ordinary shares which constitute 11.6% of our ordinary shares, and The Goldman Sachs Group, Inc. and itsaffiliates do not hold any ordinary shares. Following our initial public offering and its sales of shares in the above-mentioned March 2015 and June 2015public offerings, upon the closing of the June 2015 public offering, Vertex Venture Capital and its affiliates’ holdings fell below 5%, as it owned 1,109,123ordinary shares, representing 3.5% of our ordinary shares at that time. B.Related Party Transactions Our policy is to enter into transactions with related parties on terms that, on the whole, are no more favorable, or no less favorable, than those available fromunaffiliated third parties. Based on our experience in the business sectors in which we operate and the terms of our transactions with unaffiliated third parties,we believe that all of the transactions described below met this policy standard at the time they occurred. The following is a description of materialtransactions, or series of related material transactions, since January 1, 2015, to which we were or will be a party and in which the other parties included orwill include our directors, executive officers, holders of more than 10% of our voting securities or any member of the immediate family of any of theforegoing persons. Registration Rights Our investor rights agreement entitles our shareholders to certain registration rights. The only shareholders that are currently entitled to registration rights areentities affiliated with Jerusalem Venture Partners and Cabaret Security Ltd. Form F-3 Demand Rights. We are required to file a registration statement on Form F-3, if we are eligible to use such form, in respect of the ordinary sharesheld by our shareholders holding registration rights. Following a request to effect such a registration, we are required to give notice of the request to the otherholders of registrable securities and offer them an opportunity to include their shares in the registration statement. We are not required to effect a registrationon Form F-3 more than twice in any 12-month period and are only required to do so if the aggregate proceeds from any such registration are estimated ingood faith to be in excess of $1.0 million. Piggyback registration rights. Shareholders holding registrable securities also have the right to request that we include their registrable securities in anyregistration statement filed by us in the future for the purposes of a public offering for cash, subject to specified exceptions. Holders of registrable securitiescontinue to have the right to include any registrable securities in subsequent piggyback registration statements regardless of whether the holder has opted outof such past registration statements. Cutback. In the event that the managing underwriter advises the registering shareholders that marketing factors require a limitation on the number of sharesthat can be included in a registered offering, the shares will be included in the registration statement in an agreed order of preference among the holders ofregistration rights. The same preference also applies in the case of a piggyback registration, but we have first preference and the number of shares of series Bpreferred shareholders that are included may not be reduced below 10% of the total number of shares included in the offering. 86 Termination. Registration rights terminate with respect to any holder of registrable securities that is not our affiliate and that holds less than 5% of ouroutstanding shares. Expenses. We will pay all expenses in carrying out the foregoing registrations other than any underwriting discounts and commissions.Agreements with Directors and Officers Employment and Related Agreements. We have entered into written employment agreements with each of our executive officers. These agreements providefor notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer willcontinue to receive base salary and benefits. These agreements also contain customary provisions regarding confidentiality of information and ownership ofinventions. Equity Awards. Since our inception we have granted options to purchase, and restricted share units underlying, our ordinary shares to our officers and certainof our directors. Such award agreements contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe ouroption plans under “Item 6.B. Compensation—Equity Incentive Plans” and the equity-based compensation received by certain of our executive officers in“Item 6.B. Compensation—Compensation of Directors and Executive Officers.” If the relationship between us and an executive officer, or a director, isterminated, except for cause (as defined in the various option plan agreements), all options that are vested will remain exercisable for ninety days after suchtermination in the case of our executive officers, or one year in the case of our directors. Exculpation, Indemnification and Insurance. Our articles of association permit us to exculpate, indemnify and insure certain of our office holders to thefullest extent permitted by Israeli law. We have entered into agreements with certain of our office holders, including our directors, exculpating them from abreach of their duty of care to us to the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, subject tocertain exceptions, including with respect to liabilities resulting from our initial public offering to the extent that these liabilities are not covered byinsurance. See “Item 6.C. Board Practices—Exculpation, Insurance and Indemnification of Directors and Officers.” C.Interests of Experts and Counsel Not applicable. ITEM 8.FINANCIAL INFORMATION A.Consolidated Statements and Other Financial Information Consolidated Financial Statements We have appended as part of this annual report our consolidated financial statements starting at page F-1. Legal Proceedings From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any materiallitigation. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of managementresources and other factors. Dividend Policy We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying any cash dividends in the foreseeable future. Wecurrently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to paydividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capitalrequirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant. The distribution ofdividends may also be limited by Israeli law, which permits the distribution of dividends only out of retained earnings or otherwise upon the permission of anIsraeli court. 87 B.Significant Changes No significant changes have occurred since December 31, 2015, except as otherwise disclosed in this annual report. ITEM 9.THE OFFER AND LISTING A.Offer and Listing Details Our ordinary shares have been quoted on NASDAQ under the symbol “CYBR” since September 24, 2014. Prior to that date, there was no public tradingmarket for our ordinary shares. Our IPO was priced at $16.00 per share on September 24, 2014. The following table sets forth for the periods indicated thehigh and low sales prices per ordinary share as reported on NASDAQ: Low High Annual: 2015 $33.00 $76.35 2014 (beginning September 24, 2014) 22.12 47.01 Quarterly: First Quarter 2016 (through March 1, 2016) $31.50 $49.27 Fourth Quarter 2015 37.51 54.74 Third Quarter 2015 40.63 65.50 Second Quarter 2015 51.16 76.35 First Quarter 2015 33.00 70.48 Fourth Quarter 2014 26.66 47.01 Third Quarter 2014 (beginning September 24, 2014) 22.12 37.20 Most Recent Six Months: March 2016 (through March 1, 2016) $ 37.47 $38.35 February 2016 31.50 45.16 January 2016 36.33 49.56 December 2015 38.00 46.86 November 2015 37.51 51.95 October 2015 45.03 54.74 September 2015 44.70 54.74 B.Plan of Distribution Not applicable. C.Markets See “—Listing Details” above. D.Selling Shareholders Not applicable. E.Dilution Not applicable. 88 F.Expenses of the Issue Not applicable. ITEM 10.ADDITIONAL INFORMATION A.Share Capital Not applicable. B.Memorandum and Articles of Association Certain information related to our articles of association and memorandum of association is disclosed in our Registration Statement on Form F-1, as amended(Registration No. 333-204516), and is incorporated by reference. Registration Number and Purposes of the Company. Our registration number with the Israeli Registrar of Companies is 51-229164-2. Our purpose, as set forthin article 3 of our articles of association, is to engage in any lawful activity. Voting Rights and Conversion. All ordinary shares have identical voting and other rights in all respects. Transfer of Shares. Our fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association, unless thetransfer is restricted or prohibited by another instrument, applicable law or the rules of a stock exchange on which the shares are listed for trade. Theownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel,except for ownership by nationals of some countries that are, or have been, in a state of war with Israel. Election of Directors. Our ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of thevoting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for externaldirectors described under “Item 6.C. Board Practices—Board of Directors—External Directors.”Under our articles of association, our board of directors must consist of not less than four but no more than 11 directors, including two external directors asrequired by the Companies Law. Pursuant to our articles of association, other than the external directors, for whom special election requirements apply underthe Companies Law, the vote required to appoint a director is a simple majority vote of holders of our voting shares, participating and voting at the relevantmeeting. In addition, our directors, other than the external directors, are divided into three classes that are each elected at the third annual general meeting ofour shareholders, in a staggered fashion (such that one class is elected each annual general meeting), and serve on our board of directors unless they areremoved by a vote of 65% of the total voting power of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, inaccordance with the Companies Law and our articles of association. In addition, our articles of association allow our board of directors to fill vacancies on theboard of directors or to appoint new directors up to the maximum number of directors permitted under our articles of association. Such directors serve for aterm of office equal to the remaining period of the term of office of the directors(s) whose office(s) have been vacated or in the case of new directors, for a termof office according to the class to which such director was assigned upon appointment. External directors are elected for an initial term of three years, may beelected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See“Item 6.C. Board Practices—Board of Directors—External Directors.” Dividend and Liquidation Rights. We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings.Under the Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a companyunless the company’s articles of association provide otherwise. Our articles of association do not require shareholder approval of a dividend distribution andprovide that dividend distributions may be determined by our board of directors. 89 Pursuant to the Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous two years,according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to thedate of the distribution, or we may distribute dividends that do not meet such criteria only with court approval. In each case, we are only permitted todistribute a dividend if our board of directors and the court, if applicable, determines that there is no reasonable concern that payment of the dividend willprevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion totheir shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to theholders of a class of shares with preferential rights that may be authorized in the future. Exchange Controls. There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale ofthe shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of warwith Israel. Shareholder Meetings. Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held nolater than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred toin our articles of association as special general meetings. Our board of directors may call special general meetings whenever it sees fit, at such time and place,within or outside of Israel, as it may determine. In addition, the Companies Law provides that our board of directors is required to convene a special generalmeeting upon the written request of (i) any two of our directors or one-quarter of the members of our board of directors or (ii) one or more shareholdersholding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% of our outstanding voting power or (b) 5% or more of ouroutstanding voting power. Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at generalmeetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of themeeting. Furthermore, the Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders: ·amendments to our articles of association; ·appointment or termination of our auditors; ·appointment of external directors; ·approval of certain related party transactions; ·increases or reductions of our authorized share capital; ·certain merger transactions; and ·the exercise of our board of director’s powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any ofits powers is required for our proper management. The Companies Law requires that notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to themeeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested orrelated parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting. Under the Companies Law, shareholders are not permitted to take action via written consent in lieu of a meeting. 90 Voting Rights Quorum requirements. Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matterssubmitted to a vote before the shareholders at a general meeting. As a foreign private issuer, the quorum required for our general meetings of shareholdersconsists of at least two shareholders present in person or by proxy who hold or represent between them at least 25% of the total outstanding voting rights. Ameeting adjourned for lack of a quorum is generally adjourned to the same day in the following week at the same time and place, to such time and date if sospecified in the notice of the meeting, or to such time and date as the chairman of the general meeting shall determine (which may be earlier or later than theforgoing dates). At the reconvened meeting, any one shareholder present in person or by proxy shall constitute a lawful quorum, generally, regardless of thenumber of shares held by such shareholder. Vote Requirements. Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by theCompanies Law or by our articles of association. Under the Companies Law, each of (i) the approval of an extraordinary transaction with a controllingshareholder and (ii) the terms of employment or other engagement of the controlling shareholder of the company or such controlling shareholder’s relative(even if not extraordinary) requires, the approval described above under “Item 6.C. Board Practices—Approval of Related Party Transactions under IsraeliLaw—Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions.” Under our articles of association, the alteration ofthe rights, privileges, preferences or obligations of any class of our shares requires the ordinary majority vote of all classes of shares voting together as asingle class at a shareholder meeting. Our articles of association also require that the removal of any director from office (other than our external directors) orthe amendment of the provisions of our articles of association relating to our staggered board requires the vote of 65% of the total voting power of ourshareholders. Another exception to the simple majority vote requirement is a resolution for the voluntary winding up, or an approval of a scheme ofarrangement or reorganization, of the company pursuant to Section 350 of the Companies Law, which requires the approval of holders of 75% of the votingrights represented at the meeting, in person, by proxy or by voting deed and voting on the resolution. Access to Corporate Records. Under the Companies Law, shareholders are provided access to: minutes of our general meetings; our shareholders register andprincipal shareholders register, articles of association and annual financial statements; and any document that we are required by law to file publicly with theIsraeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may request to be provided with any document related to an action ortransaction requiring shareholder approval under the related party transaction provisions of the Companies Law. We may deny this request if we believe ithas not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent. Acquisitions under Israeli Law Full Tender Offer. A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issuedand outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of theissued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of theissued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevantclass for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issuedand outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in theoffer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer willalso be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of theapplicable class of shares. Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted thetender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli court to determine whether the tender offer wasfor less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may include in theterms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above. 91 If (a) the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of theapplicable class or the shareholders who accept the offer constitute less than a majority of the offerees that do not have a personal interest in the acceptance ofthe tender offer, or (b) the shareholders who did not accept the tender offer hold 2% or more of the issued and outstanding share capital of the company (or ofthe applicable class), the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued andoutstanding share capital or of the applicable class from shareholders who accepted the tender offer. Special Tender Offer. The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tenderoffer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company. This requirement does notapply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition ofshares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company,subject to certain exceptions. A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of thevoting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may beconsummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer (excluding the purchaser, controlling shareholders, holders of25% or more of the voting rights in the company or any person having a personal interest in the acceptance of the tender offer). If a special tender offer isaccepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may notmake a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of oneyear from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer. Merger. The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under theCompanies Law are met, by a majority vote of each party’s shares, and, in the case of the target company, a majority vote of each class of its shares, voted onthe proposed merger at a shareholders meeting. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the votes of shares represented atthe shareholders meeting that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds(or hold, as the case may be) 25% or more of the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger.If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger,then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders (asdescribed under “Management—Approval of related party transactions under Israeli law—Disclosure of personal interests of controlling shareholders andapproval of certain transactions”). If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of thevotes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of acompany, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered tothe shareholders of the company. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonableconcern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the merging entities, and may further giveinstructions to secure the rights of creditors. 92 In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed byeach party with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders ofeach party. Anti-takeover Measures under Israeli Law The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certainpreferred rights with respect to voting, distributions or other matters and shares having preemptive rights. No preferred shares are authorized under our articlesof association. In the future, if we do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights thatmay be attached to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium overthe market value of their ordinary shares. The authorization and designation of a class of preferred shares will require an amendment to our articles ofassociation, which requires the prior approval of the holders of a majority of the voting power attaching to our issued and outstanding shares at a generalmeeting. The convening of the meeting, the shareholders entitled to participate and the majority vote required to be obtained at such a meeting will besubject to the requirements set forth in the Companies Law as described above in “—Voting Rights.” Transfer Agent and Registrar The transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust Company, LLC. Its address is 6201 15th Avenue, Brooklyn, NewYork 11219, and its telephone number is (800) 937-5449. Listing Our ordinary shares are listed on the NASDAQ Global Select Market under the symbol “CYBR.” C.Material Contracts For a description of the registration rights that we granted under our Fourth Amended Investor Rights Agreement, please refer to “Item 7.B. Related PartyTransaction—Registration Rights.” We entered into an underwriting agreement between us, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., as representatives of the underwriters,on September 23, 2014, with respect to the ordinary shares sold in our initial public offering. Additionally, we entered into an underwriting agreementbetween us, Goldman, Sachs & Co. and Deutsche Bank Securities Inc., as representatives of the underwriters, with respect to the ordinary shares sold bycertain of our shareholders in a public offering of ordinary shares, on March 11, 2015. We also entered into an underwriting agreement between us, Goldman,Sachs & Co., Deutsche Bank Securities Inc. and Barclays Capital Inc., as representatives of the underwriters, with respect to the ordinary shares sold by us andcertain of our shareholders in a public offering of ordinary shares, on June 10, 2015. Under each of the three underwriting agreements described above, we have agreed to indemnify the underwriters covered by the corresponding agreementagainst certain liabilities, including liabilities under the Securities Act, and to contribute to payments such underwriters may be required to make in respectof such liabilities. D.Exchange Controls In 1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreignassets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances ofdividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains ineffect pursuant to which currency controls can be imposed by administrative action at any time. Non-residents of Israel may freely hold and trade our securities. Neither our articles of association nor the laws of the State of Israel restrict in any way theownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to citizens of countries which are in a state of warwith Israel. Israeli residents are allowed to purchase our ordinary shares. 93 E.Taxation The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition ofour ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequencesthat may arise under the laws of any state, local, foreign or other taxing jurisdiction. This summary does not discuss all of the aspects of Israeli tax law thatmay be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatmentunder Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in thisdiscussion. Certain Israeli Tax Consequences Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders A non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed fortrading on a stock exchange outside of Israel should be exempt from Israeli tax so long as the shares were not held through a permanent establishment that thenon-resident maintains in Israel and that such shareholders are not subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985. However,non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25% or more in such non-Israelicorporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly orindirectly. Such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be a business income. Additionally, a sale of shares by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. Forexample, under the United States-Israel Tax Treaty, the disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the treaty), (ii) holdsthe shares as a capital asset, and (iii) is entitled to claim the benefits afforded to such person by the treaty, is generally exempt from Israeli capital gains tax.Such exemption will not apply if: (i) the capital gain arising from the disposition can be attributed to a permanent establishment of the shareholder which ismaintained in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-monthperiod preceding such sale, exchange or disposition, subject to certain conditions; or (iii) such U.S. resident is an individual and was present in Israel for aperiod or periods aggregating to 183 days or more during the relevant taxable year. In such case, the sale, exchange or disposition of our ordinary shareswould be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, a U.S. resident would be permitted to claim acredit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. lawapplicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to U.S. state or local taxes. In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject tothe withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoidwithholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of amerger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by thisauthority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli resident, and, in the absence of such declarationsor exemptions, may require the purchaser of the shares to withhold taxes at source. 94 Taxation of Non-Israeli Shareholders on Receipt of Dividends Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, unless relief isprovided in a treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder” at the time ofreceiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantial shareholder” is generally a personwho alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, atleast 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director oran executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right.Dividends paid on publicly traded shares, which are registered with and held by a nominee company, to non-Israeli residents are generally subject to Israeliwithholding tax at a rate of 25% (whether the recipient is a substantial shareholder or not), unless a reduced tax rate is provided under an applicable taxtreaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. However, a distribution ofdividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an ApprovedEnterprise or a Benefited Enterprise or 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate isprovided under an applicable tax treaty(subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate).Dividends paid on publicly traded shares, which are registered with and held by a nominee company, to non-Israeli residents are generally subject to Israeliwithholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authorityallowing for a reduced withholding tax rate is obtained in advance. Under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source inIsrael on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, themaximum rate of withholding tax on dividends, not generated from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, that are paid to aUnited States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well asduring the previous tax year, is 12.5%, provided that no more than 25% of the gross income for such preceding year consists of certain types of dividends andinterest. Notwithstanding the foregoing, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if thedividend is distributed from income attributed to an Approved Enterprise or a Benefited Enterprise for such U.S. corporation shareholder, provided that thecondition related to our gross income for the previous year (as set forth in the previous sentence) is met. We cannot assure you that in the event we declare adividend we will designate the income out of which the dividend is paid in a manner that will reduce shareholders’ tax liability. If the dividend is attributable partly to income derived from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly to other sourcesof income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. U.S. residents who are subject to Israeliwithholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes in the amount of the taxes withheld,subject to detailed rules contained in U.S. tax legislation. Excess Tax Individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax atthe rate of 2% on annual taxable income exceeding NIS 810,720 (in 2015) which amount is linked to the annual change in the Israeli consumer price index,including, but not limited to, dividends, interest and capital gain. Estate and Gift Tax Israeli law presently does not impose estate or gift taxes. Certain United States Federal Income Tax Consequences The following is a description of certain United States federal income tax consequences relating to the acquisition, ownership and disposition of our ordinaryshares by a U.S. Holder (as defined below). This description addresses only the United States federal income tax consequences to U.S. Holders that hold suchordinary shares as capital assets. This description does not address tax considerations applicable to U.S. Holders that may be subject to special tax rules,including, without limitation: · banks, financial institutions or insurance companies; 95 ·real estate investment trusts, regulated investment companies or grantor trusts; ·brokers, dealers or traders in securities, commodities or currencies; ·tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code,respectively; ·certain former citizens or long-term residents of the United States; ·persons that receive our shares as compensation for the performance of services; ·persons that hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for United States federalincome tax purposes; ·partnerships (including entities classified as partnerships for United States federal income tax purposes) or other pass-through entities, or indirectholders that hold our shares through such an entity; ·S corporations; ·holders that acquire ordinary shares as a result of holding or owning our preferred shares; ·holders whose “functional currency” is not the U.S. Dollar; or ·holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares. Moreover, this description does not address the United States federal estate, gift or alternative minimum tax consequences, or any state, local or foreign taxconsequences, of the acquisition, ownership and disposition of our ordinary shares. This description is based on the Code, existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretationsthereof, in each case as in effect and available on the date hereof. All of the foregoing is subject to change, which change could apply retroactively and couldaffect the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service, or IRS, will not take a different positionconcerning the tax consequences of the ownership and disposition of our ordinary shares or that such a position would not be sustained. Holders shouldconsult their own tax advisors concerning the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinaryshares in their particular circumstances. For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is: ·a citizen or individual resident of the United States; ·a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of theUnited States or any state thereof, including the District of Columbia; ·an estate the income of which is subject to United States federal income taxation regardless of its source; or ·a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within theUnited States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to controlall of the substantial decisions of such trust. If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of apartner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consultits tax advisor as to the particular United States federal income tax consequences of acquiring, owning and disposing of our ordinary shares in its particularcircumstance 96 You should consult your tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning anddisposing of our ordinary shares. Distributions Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder, the gross amount of any distributionmade to you with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of ourordinary shares distributed pro rata to all our shareholders, generally will be includible in your income as dividend income to the extent such distribution ispaid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. We do not expect to maintaincalculations of our earnings and profits under United States federal income tax principles. Therefore, if you are a U.S. Holder you should expect that the entireamount of any distribution generally will be reported as dividend income to you. Subject to applicable limitations, dividends paid to certain non-corporateU.S. Holders may qualify for the preferential rates of taxation with respect to dividends on ordinary shares if certain requirements, including stock holdingperiod requirements, are satisfied by the recipient and we are eligible for the benefits of the United States-Israel Tax Treaty. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent that the amountof any distribution by us exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it will betreated first as a return of your adjusted tax basis in our ordinary shares and thereafter as either long-term or short-term capital gain depending upon whetherthe U.S. Holder has held our ordinary shares for more than one year as of the time such distribution is received. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your UnitedStates federal income tax liability. If you are a U.S. Holder, dividends paid to you with respect to our ordinary shares will generally be treated as foreignsource income, which may be relevant in calculating your foreign tax credit limitation. However, for periods in which we are a “United Stated-owned foreigncorporation,” a portion of dividends paid by us may be treated as U.S. source solely for purposes of the foreign tax credit. We would be treated as a UnitedStates-owned foreign corporation if 50% or more of the total value or total voting power of our stock is owned, directly, indirectly or by attribution, byUnited States persons. To the extent any portion of our dividends is treated as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim aforeign tax credit for any Israeli withholding taxes payable in respect of our dividends may be limited. A U.S. Holder entitled to benefits under the UnitedStates-Israel Tax Treaty may, however, elect to treat any dividends as foreign source income for foreign tax credit purposes if the dividend income isseparated from other income items for purposes of calculating the U.S. Holder’s foreign tax credit. U.S. Holders should consult their own tax advisors aboutthe impact of, and any exception available to, the special sourcing rule described in this paragraph, and the desirability of making, and the method ofmaking, such an election. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that wedistribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit forforeign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to thedetermination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled tothis credit. Sale, Exchange or Other Taxable Disposition of Ordinary Shares Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder, you generally will recognize gain orloss on the sale, exchange or other taxable disposition of our ordinary shares equal to the difference between the amount realized on such sale, exchange orother taxable disposition and your adjusted tax basis in our ordinary shares, and such gain or loss will be capital gain or loss. The adjusted tax basis in anordinary share generally will be equal to the cost of such ordinary share. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or othertaxable disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period for suchordinary shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for United States federal income tax purposes issubject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreigntax credit limitation purposes. 97 Passive Foreign Investment Company Considerations If we were to be classified as a “passive foreign investment company,” or PFIC, in any taxable year, a U.S. Holder would be subject to special rules generallyintended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. companythat does not distribute all of its earnings on a current basis. A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look-through ruleswith respect to the income and assets of subsidiaries, either: ·at least 75% of its gross income is “passive income”; or ·at least 50% of the average quarterly value of its total gross assets (which may be measured in part by the market value of our ordinary shares, whichis subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gainsover losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raisedin offerings of our ordinary shares. If a non-U.S. corporation owns directly or indirectly at least 25% by value of the stock of another corporation, the non-U.S.corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly itsproportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ordinary shares,we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary shares,regardless of whether we continue to meet the tests described above. Based on our gross income and gross assets, and the nature of our business, we believe that we were not classified as a PFIC for the taxable year endedDecember 31, 2015. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether wewill be characterized as a PFIC for the taxable year ending December 31, 2016, or for any subsequent year, until after the close of the year. There can be noassurance that we will not be considered a PFIC for any taxable year. Under certain attribution rules, as a PFIC, U.S. Holders may be deemed to own their proportionate share of our PFIC subsidiaries, such subsidiaries referred toas “lower-tier PFICs,” and will be subject to U.S. federal income tax in the manner discussed below on (1) a distribution to us on the shares of a “lower-tierPFIC” and (2) a disposition by us of shares of a “lower-tier PFIC,” both as if the holder directly held the shares of such “lower-tier PFIC.” If an entity is treated as a PFIC for any taxable year during which a U.S. Holder holds (or, as discussed in the previous paragraph, is deemed to hold) itsordinary shares, such holder will be subject to adverse U.S. federal income tax rules. In general, if a U.S. Holder disposes of shares of a PFIC (including anindirect disposition or a constructive disposition of shares of a “lower-tier PFIC”), gain recognized or deemed recognized by such holder would be allocatedratably over such holder’s holding period for the shares. The amounts allocated to the taxable year of disposition and to years before the entity became aPFIC, if any, would be treated as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for such taxable year for individuals or corporations, asappropriate, and an interest charge would be imposed on the tax attributable to such allocated amounts. Further, any distribution in respect of shares of aPFIC (or a distribution by a lower-tier PFIC to its shareholders that is deemed to be received by a U.S. Holder) in excess of 125% of the average of the annualdistributions on such shares received or deemed to be received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter,would be subject to taxation in the manner described above. In addition, dividend distributions made to you will not qualify for the preferential rates oftaxation applicable to long-term capital gains discussed above under “Distributions.” 98 Where a company that is a PFIC meets certain reporting requirements, a U.S. Holder can avoid certain adverse PFIC consequences described above by makinga “qualified electing fund, or QEF, election to be taxed currently on its proportionate share of the PFIC’s ordinary income and net capital gains. If we are a PFIC and our ordinary shares are “regularly traded” on a “qualified exchange,” a U.S. Holder may make a mark-to-market election with respect toour ordinary shares (but not the shares of any lower-tier PFICs), which may help to mitigate the adverse tax consequences resulting from our PFIC status (butnot that of any lower-tier PFICs). Our ordinary shares will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity ofthe ordinary shares are traded on a qualified exchange on at least 15 days during each calendar quarter (subject to the rule that trades that have as one of theirprincipal purposes the meeting of the trading requirement are disregarded). The NASDAQ Global Select Market is a qualified exchange for this purpose and,consequently, if the ordinary shares are regularly traded, the mark-to-market election will be available to a U.S. Holder; however, there can be no assurancethat trading volumes will be sufficient to permit a mark-to-market election. In addition, because a mark-to-market election with respect to us does not applyto any equity interests in “lower-tier PFICs” that we own, a U.S. Holder generally will continue to be subject to the PFIC rules with respect to its indirectinterest in any investments held by us that are treated as equity interests in a PFIC for U.S. federal income tax purposes. If a U.S. Holder makes the mark-to-market election, for each year in which we are a PFIC, the holder will generally include as ordinary income the excess, ifany, of the fair market value of ordinary shares at the end of the taxable year over their adjusted tax basis, and will be permitted an ordinary loss in respect ofthe excess, if any, of the adjusted tax basis of our ordinary shares over their fair market value at the end of the taxable year (but only to the extent of the netamount of previously included income as a result of the mark-to-market election). A U.S. Holder that makes a valid mark-to-market election will not includemark-to-market gain or loss in income for any taxable year that we are not classified as a PFIC (although cessation of our status as a PFIC will not terminatethe mark-to-market election). Thus, if we are classified as a PFIC in a taxable year after a year in which we are not classified as a PFIC, the U.S. Holder’soriginal election (unless revoked or terminated) continues to apply and the U.S. Holder must include any mark-to-market gain or loss in such year. If a U.S.Holder makes the election, the holder’s tax basis in our ordinary shares will be adjusted to reflect any such income or loss amounts. Any gain recognized on asale or other disposition of our ordinary shares will be treated as ordinary income. Any losses recognized on a sale or other disposition of our ordinary shareswill be treated as ordinary loss to the extent of any net mark-to-market gains for prior years. U.S. Holders should consult their own tax advisors regarding theavailability and consequences of making a mark-to-market election in their particular circumstances. In particular, U.S. Holders should consider carefully theimpact of a mark-to-market election with respect to our ordinary shares if we have “lower-tier PFICs” for which such election is not available. Once made, themark-to-market election cannot be revoked without the consent of the IRS unless our ordinary shares cease to be “regularly traded.” If a U.S. Holder owns ordinary shares during any year in which we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (InformationReturn by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to the company (regardless of whether a QEF ormark-to-market election is made), generally with the U.S. Holder’s federal income tax return for that year. If our company were a PFIC for a given taxable year,then you should consult your tax advisor concerning your annual filing requirements. U.S. Holders should consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules. Medicare Tax Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include allor a portion of their dividend income and net gains from the disposition of ordinary shares. Each U.S. Holder that is an individual, estate or trust is urged toconsult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares. 99 Backup Withholding Tax and Information Reporting Requirements United States backup withholding tax and information reporting requirements may apply to certain payments to certain holders of stock. Informationreporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the UnitedStates, or by a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a payee that isnot a United States person that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding taxfrom any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor orUnited States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwisefails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding ruleswill be allowed as a credit against the beneficial owner’s United States federal income tax liability, if any, and any excess amounts withheld under the backupwithholding rules may be refunded, provided that the required information is timely furnished to the IRS. Foreign Asset Reporting Certain U.S. Holders who are individuals are required to report information relating to an interest in our ordinary shares, subject to certain exceptions(including an exception for shares held in accounts maintained by U.S. financial institutions) by filing IRS Form 8938 (Statement of Specified ForeignFinancial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, ifany, with respect to their ownership and disposition of our ordinary shares. The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of ourordinary shares. You should consult your tax advisor concerning the tax consequences of your particular situation. F.Dividends and Paying Agents Not applicable. G.Statement by Experts Not applicable. H.Documents on Display We are subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements file reportswith the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we areexempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholderswill be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not requiredunder the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United Statescompanies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each subsequentfiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independentregistered public accounting firm, and will submit to the SEC reports on Form 6-K containing unaudited quarterly financial information within 60 days afterthe end of each fiscal quarter. You may read and copy any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington,D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E.,Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintainsan internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are alsoavailable to the public through the SEC’s website at http://www.sec.gov. 100 I.Subsidiary Information Not applicable. ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency,interest rate and inflation risks to minimize any adverse effects on our business as a result of those factors. Foreign Currency Risk Our results of operations and cash flows are affected by fluctuations due to changes in foreign currency exchange rates. In 2015, the majority of our revenueswere denominated in U.S. dollars and the remainder in other currencies, primarily euros and British pounds sterling. In 2015, the majority of our cost ofrevenues and operating expenses were denominated in U.S. dollars and NIS and the remainder in other currencies, primarily euros and British pounds sterling.Our foreign currency-denominated expenses consist primarily of personnel, rent and other overhead costs. Since a significant portion of our expenses isincurred in NIS and is substantially greater than our revenues in NIS, any appreciation of the NIS relative to the U.S. dollar would adversely impact our netloss or net income, as relevant. In addition, since the portion of our revenues generated in euros and British pounds sterling is greater than our expensesincurred in euros and British pounds sterling, respectively, any depreciation of the euro or British pounds sterling relative to the U.S. dollar would adverselyimpact our net loss or net income, as relevant. The following table presents information about the changes in the exchange rates of the NIS against the U.S. dollar: Period Change in Average ExchangeRate of the NISAgainst the U.S. dollar (%) 2015 8.6 2014 (0.9) 2013 (6.4) The figures above represent the change in the average exchange rate in the given period compared to the average exchange rate in the immediately precedingperiod. Negative figures represent depreciation of the U.S. dollar compared to the NIS. A 10% strengthening or weakening in the value of the NIS against theU.S. dollar would have increased or decreased, respectively, our net income by approximately $2.1 million in 2015. We estimate that a 10% strengthening orweakening in the value of the euro against the U.S. dollar would have increased or decreased, respectively, our net income by approximately $1.3 million in2015. We estimate that a 10% strengthening or weakening in the value of the British pounds sterling against the U.S. dollar would have increased ordecreased, respectively, our net income by approximately $0.6 million in 2015. These estimates of the impact of fluctuations in currency exchange rates onour historic results of operations may be different from the impact of fluctuations in exchange rates on our future results of operations since the mix ofcurrencies comprising our revenues and expenses may change. For purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on thebalance sheet date and local currency revenues and expenses are translated at the exchange rate at the date of the transaction or the average exchange ratedollar during the reporting period to the United States. To protect against the increase in value of forecasted foreign currency cash flow resulting from expenses paid in NIS during the year, we have instituted aforeign currency cash flow hedging program. We hedge portions of the anticipated payroll of our Israeli employees in NIS for a period of one to twelvemonths with forward contracts and other derivative instruments. We do not use derivative financial instruments for speculative or trading purposes. 101 Other Market Risks We do not believe that we have material exposure to interest rate risk due to the fact that we have no long-term borrowings. We do not believe that we have any material exposure to inflationary risks. ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 102 PART II ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Initial Public Offering The effective date of the registration statement (File no. 333-196991) for our IPO of ordinary shares, par value NIS 0.01, was September 23, 2014. Our IPOcommenced on September 10, 2014 and was closed on September 29, 2014. J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Barclays CapitalInc. were joint book-running managers for the IPO, with J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. acting as representatives of theunderwriters. William Blair & Company, L.L.C., Nomura Securities International, Inc. and Oppenheimer & Co. Inc. were co-managers for the IPO. Weregistered 5,360,000 ordinary shares in the IPO and granted the underwriters a 30-day over-allotment option to purchase up to 804,000 additional shares fromus to cover over-allotments. The over-allotment was exercised in whole by the underwriters and these shares were closed on September 29, 2014. As a result, we issued and sold a total of 6,164,000 ordinary shares at a price per share of $16.00 with aggregate gross proceeds of approximately $98.6million (including the over-allotment option). Under the terms of the IPO, we incurred aggregate underwriting discounts of approximately $6.9 million(including the over-allotment option) and expenses of approximately $3.3 million in connection with the IPO, resulting in net proceeds to us ofapproximately $88.4 million. From the effective date of the registration statement and until December 31, 2015, we used $54.1 million of the net proceeds of the IPO for the acquisitions ofCybertinel, Viewfinity and certain assets of Agata Ltd., which we completed in 2015. None of the net proceeds of the IPO was paid directly or indirectly to any director or officer of ours or to their associates, persons owning 10% or more of anyclass of our equity securities, or to any of our affiliates. ITEM 15.CONTROLS AND PROCEDURES Disclosure controls and procedures Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2015, have concluded that, as of such date, our disclosure controls and procedures wereeffective and ensured that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding requireddisclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. 103 Management annual report on internal control over financial reporting and attestation report of the registered public accounting firmOur management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is aprocess to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: ·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; ·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our managementand directors; and ·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements. Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2015 based on the criteria established in “InternalControl-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,management has concluded that our internal control over financial reporting was effective as of December 31, 2015. Our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, has audited the consolidated financialstatements included in this annual report on Form 20-F, and as part of its audit, has issued its audit report on the effectiveness of our internal control overfinancial reporting as of December 31, 2015. The report of Kost Forer Gabbay & Kasierer is included with our consolidated financial statements includedelsewhere in this annual report and is incorporated herein by reference. Changes in internal control over financial reporting There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) thatoccurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal controlover financial reporting. ITEM 16.[RESERVED] ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Ron Gutler and Kim Perdikou are audit committee financial experts as defined by the SEC rules, have the requisitefinancial experience as defined by NASDAQ corporate governance rules and are “independent” as such term is defined in Rule 10A-3(b)(1) under theExchange Act. ITEM 16B.CODE OF ETHICS We have adopted a code of ethics and business conduct applicable to our executive officers, directors and all other employees. A copy of the code isdelivered to every employee of CyberArk Software Ltd. and all of its subsidiaries, and is available to investors and others on our website athttp://investors.cyberark.com or by contacting our investor relations department. Any waivers of this code for executive officers or directors will be disclosedthrough the filing of a Form 6-K or on our website. We have also implemented a training program for employees concerning the code of ethics and businessconduct. 104 ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES Principal Accountant Fees and Services We have recorded the following fees for professional services rendered by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independentregistered public accounting firm, for the years ended December 31, 2014 and 2015: 2014 2015 (in thousands) Audit Fees $985 $886 Audit-Related Fees 55 75 Tax Fees 77 171 All Other Fees — 95 Total $1,117 $1,227 “Audit fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independentaccountant provides, such as consents and assistance with and review of documents filed with the SEC as well as fees related to audits in connection with ourinitial public offering in September 2014 and public offerings of our ordinary shares in March 2015 and June 2015. “Audit-related fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are notreported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the regularcourse of business, implications of new accounting pronouncements and other accounting issues that occur from time to time. “Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice on actualor contemplated transactions. “All other fees” include fees for services rendered by our independent registered public accounting firm with respect to government incentives and othermatters. Our audit committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services.Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approvesannually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed byour independent accountants. Our audit committee pre-approved all the audit services and all of the non-audit services provided to us and to our subsidiariessince our pre-approval policy was adopted in November 2014. ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. 105 ITEM 16G.CORPORATE GOVERNANCE As a foreign private issuer, we are permitted to comply with Israeli corporate governance practices instead of the NASDAQ Listing Rules, provided that wedisclose those NASDAQ Listing Rules with which we do not comply and the equivalent Israeli requirements that we follow instead. We currently rely on this“foreign private issuer exemption” with respect to the quorum requirement for meetings of our shareholders and NASDAQ requirements relating todistribution of our annual report to shareholders. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for anordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 25% of thevoting power of our shares (and, with respect to an adjourned meeting, generally one or more shareholders who hold or represent any number of shares),instead of 33 1/3% of the issued share capital provided under the NASDAQ Listing Rules. Further, as opposed to NASDAQ Listing Rule 5250(d), whichrequires listed issuers to make annual reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distributesuch reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make suchreports available through a public website. In addition, we will make our annual report containing audited financial statements available to our shareholdersat our offices (in addition to a public website). ITEM 16H.MINE SAFETY DISCLOSURE Not applicable. 106 PART III ITEM 17.FINANCIAL STATEMENTS See pages F-2 through F-40 of this annual report.ITEM 18.FINANCIAL STATEMENTS Not applicable. ITEM 19.EXHIBITS See exhibit index incorporated herein by reference. 107 CYBERARK SOFTWARE LTD. AND ITS SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2015 INDEX Page Reports of Independent Registered Public Accounting FirmF-2- F-3 Consolidated Balance SheetsF-4 – F-5 Consolidated Statements of Comprehensive IncomeF-6 Statements of Changes in Shareholders' EquityF-7 - F-8 Consolidated Statements of Cash FlowsF-9 - F- 10 Notes to Consolidated Financial StatementsF-11– F-40  Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, IsraelTel: +972-3-6232525Fax: +972-3-5622555ey.com Reportof Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders ofCYBERARK SOFTWARE LTD.We have audited the accompanying consolidated balance sheets of CyberArk Software Ltd. and its subsidiaries (the "Company") as of December 31,2014 and 2015, and the related consolidated statements of comprehensive income, changes in shareholders' equity and cash flows for each of the three yearsin the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility isto express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position ofthe Company as of December 31, 2014 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the periodended December 31, 2015, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 10, 2016 expressed an unqualified opinion thereon. /s/ Kost Forer Gabbay & KasiererTel-Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 10, 2016A Member of Ernst & Young Global F - 2 Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, IsraelTel: +972-3-6232525Fax: +972-3-5622555ey.comReport of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders ofCYBERARK SOFTWARE LTD. We have audited CyberArk Software Ltd. and its subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2015,based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(2013 framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and forits assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s report on internal control overfinancial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of December 31, 2015, basedon the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets of the Company as of December 31, 2014 and 2015, and the related consolidated statements of comprehensive income, changes inshareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015, and our report dated March 10, 2016, expressed anunqualified opinion thereon. /s/ Kost Forer Gabbay & KasiererTel-Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 10, 2016A Member of Ernst & Young Global F - 3 CYBERARK SOFTWARE LTD. CONSOLIDATEDBALANCE SHEETSU.S. dollars in thousands December 31, 2014 2015 ASSETS CURRENT ASSETS: Cash and cash equivalents $124,184 $234,539 Short-term bank deposits 52,997 3,713 Trade receivables 19,263 20,410 Prepaid expenses and other current assets 2,078 3,293 Total current assets 198,522 261,955 LONG-TERM ASSETS: Property and equipment, net 2,148 3,584 Intangible assets, net - 18,558 Goodwill - 35,145 Severance pay fund 3,060 3,230 Prepaid expenses and other long-term assets 1,021 1,954 Deferred tax asset 5,801 9,998 Total long-term assets 12,030 72,469 TOTAL ASSETS $210,552 $334,424 The accompanying notes are an integral part of the consolidated financial statements. F - 4 CYBERARK SOFTWARE LTD. CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands (except share and per share data) December 31, 2014 2015 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables $1,835 $2,530 Employees and payroll accruals 10,322 15,860 Deferred revenues 22,594 37,104 Accrued expenses and other current liabilities 6,942 9,366 Total current liabilities 41,693 64,860 LONG-TERM LIABILITIES: Deferred revenues 9,566 17,285 Other long-term liabilities 184 188 Accrued severance pay 4,101 4,667 Deferred tax liabilities - 754 Total long-term liabilities 13,851 22,894 TOTAL LIABILITIES 55,544 87,754 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary shares of NIS 0.01 par value – Authorized: 250,000,000 shares at December 31, 2014 and 2015; Issued and outstanding: 30,501,352 shares and 33,289,839 shares at December 31, 2014 and 2015, respectively; 79 86 Additional paid-in capital 134,486 200,107 Accumulated other comprehensive loss (333) (93)Retained earnings 20,776 46,570 Total shareholders' equity 155,008 246,670 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $210,552 $334,424 The accompanying notes are an integral part of the consolidated financial statements. F - 5 CYBERARK SOFTWARE LTD. CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOMEU.S. dollars in thousands (except per share data) Year endedDecember 31, 2013 2014 2015 Revenues: License $38,907 $61,320 $100,113 Maintenance and professional services 27,250 41,679 60,699 66,157 102,999 160,812 Cost of revenues: License 1,216 2,654 5,088 Maintenance and professional services 7,860 12,053 17,572 9,076 14,707 22,660 Gross profit 57,081 88,292 138,152 Operating expenses: Research and development 10,404 14,400 21,734 Sales and marketing 32,840 44,943 66,206 General and administrative 4,758 8,495 16,990 Total operating expenses 48,002 67,838 104,930 Operating income 9,079 20,454 33,222 Financial expenses, net (1,124) (5,988) (1,479) Income before taxes on income 7,955 14,466 31,743 Taxes on income (1,320) (4,512) (5,949) Net income $6,635 $9,954 $25,794 Basic net income per ordinary share $0.25 $0.46 $0.80 Diluted net income per ordinary share $0.14 $0.34 $0.73 Other comprehensive income (loss) Unrealized gain (loss) on foreign currency cash flow hedges 155 (488) 240 Other comprehensive income (loss) for the period 155 (488) 240 Total comprehensive income $6,790 $9,466 $26,034 The accompanying notes are an integral part of the consolidated financial statements. F - 6 CYBERARK SOFTWARE LTD.STATEMENTSOF CHANGES IN SHAREHOLDERS' EQUITYU.S. dollars in thousands (except share data) Accumulatedother Preferred shares Ordinary shares Additionalpaid-in comprehensiveincome Retained Totalshareholders' Shares Amount Shares Amount capital (loss) earnings equity Balance as of January 1,2013 15,958,290 $41 6,707,680 $16 $34,250 $- $4,187 $38,494 Exercise of options grantedto employees - - 311,672 1 158 - - 159 Other comprehensive income - - - - - 155 - 155 Share-based compensationexpenses related to options granted to employees and non-employees - - - - 403 - - 403 Net income - - - - - - 6,635 6,635 Balance as of December 31,2013 15,958,290 41 7,019,352 17 34,811 155 10,822 45,846 Exercise of options grantedto employees - - 255,562 1 189 - - 190 Other comprehensive loss - - - - - (488) - (488)Share-based compensationexpenses related to options granted to employees - - - - 1,573 - - 1,573 Exercise of warrants forpreferred shares 493,360 1 - - 7,194 - - 7,195 Conversion of preferredshares (16,451,650) (42) 17,062,438 44 (2) - - - Issuance of ordinary sharesupon initial publicoffering, net - - 6,164,000 17 88,451 - - 88,468 Tax benefit related to share-based compensation andissuance expenses - - - - 2,270 - - 2,270 Net income - - - - - - 9,954 9,954 Balance as of December 31,2014 - $- 30,501,352 $79 $134,486 $(333) $20,776 $155,008 The accompanying notes are an integral part of the consolidated financial statements. F - 7 CYBERARK SOFTWARE LTD.STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYU.S. dollars in thousands (except share data) Accumulated Preferred shares Ordinary shares Additionalpaid-in othercomprehensive Retained Totalshareholders' Shares Amount Shares Amount capital income (loss) earnings equity Balance as of December 31,2014 - $- 30,501,352 $79 $134,486 $(333) $20,776 $155,008 Exercise of options andvested RSU’s granted toemployees - - 1,888,487 5 1,819 - - 1,824 Other comprehensive income - - - - - 240 - 240 Share-based compensationexpenses related to optionsand RSU’s granted toemployees - - - - 7,049 - - 7,049 Issuance of ordinary sharesupon public offering, net - - 900,000 2 52,573 - - 52,575 Tax benefit related to share-based compensation andissuance expenses - - - - 4,180 - - 4,180 Net income - - - - - - 25,794 25,794 Balance as of December 31,2015 - $- 33,289,839 $86 $200,107 $(93) $46,570 $246,670 The accompanying notes are an integral part of the consolidated financial statements. F - 8 CYBERARK SOFTWARE LTD.CONSOLIDATEDSTATEMENTS OF CASH FLOWSU.S. dollars in thousands Year endedDecember 31, 2013 2014 2015 Cash flows from operating activities: Net income $6,635 $9,954 $25,794 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 475 746 2,254 Share-based compensation expenses 403 1,573 7,049 Tax benefit related to share-based compensation - (645) (3,808)Deferred income taxes, net (769) 45 (4,093)Increase in trade receivables (3,257) (6,535) (187)Increase in prepaid expenses and other current and long-term assets (920) (159) (1,183)Increase (decrease) in trade payables 651 (145) 322 Changes in fair value of warrants to purchase preferred shares 1,446 4,309 - Increase in short term and long term deferred revenues 9,410 7,682 21,254 Increase in employees and payroll accruals 2,651 3,501 5,011 Increase in accrued expenses and other current and long-term liabilities 3,191 2,827 6,353 Increase in accrued severance pay, net 243 42 394 Net cash provided by operating activities 20,159 23,195 59,160 Cash flows from investing activities: Proceeds from short and long term deposits 8,735 2,533 49,329 Investment in short and long term deposits (8,809) (52,570) (619)Purchase of property and equipment (752) (1,408) (2,066)Payments for business acquisitions, net of cash acquired (Schedule A) - - (53,656) Net cash used in investing activities (826) (51,445) (7,012) Cash flows from financing activities: Issuance of shares, net - 88,468 52,575 Tax benefit related to share-based compensation - 645 3,808 Proceeds from exercise of options and warrants 159 942 1,824 Net cash provided by financing activities 159 90,055 58,207 Increase in cash and cash equivalents 19,492 61,805 110,355 Cash and cash equivalents at the beginning of the period 42,887 62,379 124,184 Cash and cash equivalents at the end of the period $62,379 $124,184 $234,539 Non-cash activities: Purchase of property and equipment in credit $90 $304 $338 Supplemental disclosure of cash flow activities: Cash paid during the year for taxes $287 $981 $4,760 The accompanying notes are an integral part of the consolidated financial statements. F - 9 CYBERARK SOFTWARE LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousandsSchedule A - payments for business acquired (See note 1.e.) Estimated fair value of assets acquired and liabilities assumed at the date of Viewfinity's acquisition was as follows: Year endedDecember 31, 2015 Working capital, net (excluding cash and cash equivalents) $497 Property and equipment, net 124 Other long-term assets 62 Goodwill 20,765 Other intangible assets 9,990 Deferred revenues (931) $30,507 Estimated fair value of assets acquired and liabilities assumed at the date of Cybertinel's acquisition was as follows: Year endedDecember 31, 2015 Working capital, net (excluding cash and cash equivalents) $(245)Property and equipment, net 340 Other long-term assets 34 Goodwill 13,201 Other intangible assets 7,760 Deferred tax (1,009)Deferred revenues (44) $20,037 Estimated fair value of assets acquired and liabilities assumed at the date of Agata's acquisition was as follows: Year endedDecember 31, 2015 Goodwill $1,179 Other intangible assets 1,933 $3,112 The accompanying notes are an integral part of the consolidated financial statements. F - 10 CYBERARK SOFTWARE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 1:GENERAL a.CyberArk Software Ltd. (together with its subsidiaries, the “Company”) is an Israeli company that develops, markets and sells software-based security solutions. The Company's solutions enable organizations to safeguard and monitor their privileged accounts, which arethose accounts within an organization that have access to the organization's high value assets and are located across its ITinfrastructure. The Company's software provides customers with the ability to protect, detect, monitor and control access to privilegedaccounts in order to break the lifecycle of a targeted cyber attack before it can cause damage to an organization. b.In September 2014, the Company completed its initial public offering ("IPO") in which the Company issued and sold 6,164,000 ordinaryshares at a public offering price of $16.00 per share (including pursuant to the underwriters option to purchase additional ordinaryshares). The net proceeds received from the IPO were $88,468 after deducting underwriting discounts of $6,904 and other offeringexpenses of $3,846. Refer also to note 8.b. c.In March 2015, the Company completed a public offering in which certain shareholders sold 4,600,000 ordinary shares (includingpursuant to the underwriters option to purchase additional ordinary shares) at a public offering price of $51.00 per share. The Companydid not receive any proceeds from the sale of ordinary shares by the selling shareholders and the related offering expenses were recordedin the statements of comprehensive income. d.In June 2015, the Company completed an additional public offering in which the Company issued and sold 900,000 ordinary shares at apublic offering price of $61.00 per share. The total net proceeds received were $52,575 after deducting underwriting discounts of $2,196and other offering expenses of $129. Another 4,000,000 shares were sold by certain selling shareholders. The Company did not receiveany of the proceeds from the sales of shares by the selling shareholders and the related offering expenses were recorded in the statementsof comprehensive income. Refer also to note 8.b. e.In August 2015, the Company acquired all of the share capital of Cybertinel Ltd. (“Cybertinel”) for total consideration of $20,515.Cybertinel, an Israeli company, specializes in cyber threat detection technology. In October 2015, the Company acquired all of the sharecapital of Viewfinity, Inc. ("Viewfinity") for total consideration of $30,500. Viewfinity is a provider of Windows least privilegemanagement and application control. In September 2015, the Company acquired certain assets of Agata Ltd (“Agata”) for totalconsideration of $3,112. The Company accounted for the acquisition of Agata as a purchase of a business. The Company expensed therelated acquisitions costs of $677 in general and administrative expenses. F - 11 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 1:GENERAL (Cont.) f.Unaudited pro forma result of operating The following table presents our unaudited pro forma revenue, net income and basic and diluted net income (loss) for periods presentedassuming the acquisitions of Cybertinel, Viewfinity and Agata occurred on January 1, 2014. The pro forma information is not necessarilyindicative of the results of operations, which actually would have occurred has the acquisitions been consummated on those dates, nordoes it purport to represent the results of operations for future periods: December 31, 2014 2015 Pro forma revenue $ 108,517 $165,924 Pro forma net income $76 $18,725 Basic net income (loss) per ordinary share $(0.28) $0.58 Diluted net income (loss) per ordinary share $(0.28) $0.53 F - 12 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). a.Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments andassumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Companyevaluates on an ongoing basis its assumptions, including those related to contingencies, income taxes, deferred taxes and liabilities,share-based compensation cost, value of intangible assets and goodwill as well as in estimates used in applying the revenuerecognition policy. The Company's management believes that the estimates, judgment and assumptions used are reasonable basedupon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and thereported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. b.Principles of consolidation: The consolidated financial statements include the accounts of CyberArk Software Ltd. and its wholly-owned subsidiaries.Intercompany transactions and balances, have been eliminated upon consolidation. c.Financial statements in U.S. dollars: A majority of the Company's revenues are generated in U.S. dollars. In addition, the equity investments were in U.S. dollars andsubstantial portion of the Company costs are incurred in U.S. dollars and New Israeli Shekels (“NIS”). The Company's managementbelieves that the U.S. dollar is the currency of the primary economic environment in which the Company operates. Thus, the functionaland reporting currency of the Company is the U.S. dollar.Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars in accordancewith Statement of the Accounting Standard Codification ("ACS") No. 830 "Foreign Currency Matters" ("ASC No. 830"). All transactiongains and losses of the re-measured monetary balance sheet items are reflected in the statement of comprehensive income as financialincome or expenses, as appropriate.The functional currency of the Company’s foreign subsidiaries is the U.S. dollar as these subsidiaries' revenues, intercompanytransactions, budgets and financing are denominated in U.S. dollars. d.Cash and cash equivalents: Cash equivalents are short-term highly liquid deposits that are readily convertible to cash with original maturities of three months orless, at the date acquired. F - 13 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) e.Short-term bank deposits: Short-term bank deposits are deposits with maturities of up to one year. As of December 31, 2014 and 2015 the Company's bankdeposits were denominated in U.S. dollars, Euros and NIS and bore interest at weighted average deposits rates of 0.6%, and 0.4%,respectively. Short-term bank deposits are presented at their cost, including accrued interest. A portion of these deposits is used assecurity for the rental of premises and as a security for the Company's hedging activities. f.Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line methodover the estimated useful lives of the assets at the following annual rates: % Computers and related equipment25 - 33Office furniture and equipment7 - 20Leasehold improvementsOver the shorter of the related lease period or the life of the asset g.Long-lived assets: The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, "Property, Plant and Equipment"("ASC No. 360"), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the futureundiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to berecognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the yearsended December 31, 2013, 2014 and 2015, no impairment losses have been identified. h.Business Combination: The Company accounts for its business acquisitions in accordance with Accounting Standards Codification (ASC) No. 805, BusinessCombinations. The Company uses its best estimates and assumptions as part of the purchase price allocation process to value assetsacquired and liabilities assumed at the business combination date. The total purchase price allocated to the tangible assets acquired isassigned based on the fair values as of the date of the acquisition. F - 14 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) i.Goodwill and other intangible assets: Goodwill and certain other purchased intangible assets have been recorded in the Company's financial statements as a result ofacquisitions. Goodwill represents excess of the costs over the net tangible and intangible assets acquired of businesses acquired UnderASC topic 350, "Intangible—Goodwill and other", ("ASC 350") according to which goodwill is not amortized. In addition, the costs ofintangible assets that were purchased from others for use in research and development activities were recorded as assets to the extentthat they have alternative future use. ASC 350 requires goodwill to be tested for impairment at least annually and, in certain circumstances, between annual tests. TheCompany operates as one reporting unit. Therefore, goodwill is tested for impairment by comparing the fair value of the reporting unitwith its carrying value. The Company elects to perform an annual impairment test of goodwill as of October 1 of each year, or morefrequently if impairment indicators are present. Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over theestimated useful lives of the respective assets which range from one to 13. Acquired customer relationship and backlog are amortizedover their estimated useful lives in proportion to the economic benefits realized. Other intangible assets consist primarily oftechnology are amortized over their estimated useful lives on a straight-line basis. During the year ended December 31, 2015, no impairment losses were recognized. j.Derivative instruments: ASC No. 815, "Derivative and Hedging", requires companies to recognize all of their derivative instruments as either assets orliabilities in the statement of financial position at fair value.For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedginginstrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreignoperation.For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expectedfuture cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument isreported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which thehedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in thepresent value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. F - 15 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) To hedge against the risk of overall changes in cash flows resulting from foreign currency salary payments during the year, theCompany has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted expensesdenominated in NIS. These forward and option contracts are designated as cash flow hedges, as defined by ASC 815, and are alleffective, as their critical terms match underlying transactions being hedged.As of December 31, 2014 and 2015, the amount recorded in accumulated other comprehensive loss from the Company's currencyforward and option transactions was $333 (net of tax in the amount of $63) and $93 (net of tax in the amount of $18), respectively. AtDecember 31, 2015, the notional amounts of foreign exchange forward and options contracts into which the Company entered were$13,432. The foreign exchange forward and options contracts will expire by the end of December 2016. The fair value of derivativeinstruments assets balance as of December 31, 2015 totaled $16. The fair value of derivative instruments liabilities balance as ofDecember 31, 2014 and 2015, totaled $399 and $130, respectively.In addition to the derivatives that are designated as hedges as discussed above, the Company enters into certain foreign exchangeforward transactions to economically hedge certain account receivables in Euros. Gains and losses related to such derivativeinstruments are recorded in financial expenses, net. As of December 31, 2015, the notional amounts of foreign exchange forwardcontracts into which the Company entered were $4,903. The foreign exchange forward contracts will expire by the end of October2016. The fair value of derivative instruments assets balance as of December 31, 2015 totaled $139. The fair value of derivativeinstruments liabilities balance as of December 31, 2014 and 2015 totaled $20 and $13, respectively.In the years ended December 31, 2013, 2014 and 2015, the Company recorded net financial income (loss), net from hedgingtransactions in the amount of $(1), $35 and $260, respectively. k.Severance pay: The Israeli Severance Pay Law, 1963 ("Severance Pay Law"), specifies that employees are entitled to severance payment, following thetermination of their employment. Under the Severance Pay Law, the severance payment is calculated as one month salary for each yearof employment, or a portion thereof.Part of the Company's liability for severance pay is covered by the provisions of Section 14 of the Severance Pay Law ("Section 14").Under Section 14 employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, continued on their behalf totheir insurance funds. Payments in accordance with Section 14 release the Company from any future severance payments in respect ofthose employees. As a result, the Company does not recognize any liability for severance pay due to these employees and the depositsunder Section 14 are not recorded as an asset in the Company's balance sheet. F - 16 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) For the Company's employees in Israel who are not subject to Section 14, the Company calculated the liability for severance paypursuant to the Severance Pay Law based on the most recent salary of these employees multiplied by the number of years ofemployment as of the balance sheet date. The Company's liability for these employees is fully provided for via monthly deposits withseverance pay funds, insurance policies and an accrual. The value of these deposits is recorded as an asset on the Company's balancesheet.Severance expense for the years ended December 31, 2013, 2014 and 2015, amounted to $1,057, $1,187 and $1,794, respectively. l. U.S. employees defined contribution plan: The U.S. subsidiary has a 401(K) defined contribution plan covering certain full time employees in the U.S. All eligible employeesmay elect to contribute up to an annual maximum, of lesser of 60% of their annual compensation to the plan through salary deferrals,subject to Internal Revenue Service limits but not greater than $18 per year (for certain employees over 50 years of age the maximumcontribution is $24 per year).The U.S. subsidiary matches amount equal to 100% of the first 3% of the employees Compensation that they contribute to the Planand 50% of the next 2% of their Compensation that they contribute to the Plan with a limit of $9.8 a year. During the years endedDecember 31, 2013, 2014 and 2015 the U.S. subsidiary recorded expenses for matching contributions in amounts of $372, $544 and$907, respectively. m.Revenue recognition: The Company generates revenues from licensing the rights to use its software products and from maintenance and professionalservices. The Company sells its products through its direct sales force and indirectly through resellers.The Company accounts for its software licensing sales in accordance with ASC 985-605, "Software Revenue Recognition". ASC 985-605 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based onthe relative fair value of the elements when Vendor Specific Objective Evidence ("VSOE") of fair value exists for all elements and to beallocated to the different elements in the arrangement under the "residual method" when VSOE of fair value exists for all undeliveredelements and no VSOE exists for the delivered elements.Maintenance and professional services are sold separately and therefore the selling price (VSOE) is based on stand-alone transactions.Under the residual method, at the outset of the arrangement with the customer, the Company defers revenue for the fair value of itsundelivered elements and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially deliveredin the arrangement (software element) when all other criteria in ASC 985-605 have been met. Any discount in the arrangement isallocated to the delivered element. F - 17 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) Software license revenues are recognized when persuasive evidence of an arrangement exists, the software license has been delivered,there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the license fees arefixed or determinable and collection of the license fee is considered probable. Fees for arrangements with payment terms extendingbeyond customary payment terms are considered not to be fixed or determinable, in which case revenue is deferred and recognizedwhen payments become due from the customer provided that all other revenue recognition criteria have been met.Revenues from maintenance and support contracts are recognized ratably, on a straight-line basis over the term of the related contractand revenues from professional services consist mostly of time and material services and accordingly, are recognized as the services areperformed.Professional service is not considered to be essential to the functionality of the software.The Company generally does not grant a right of return to its customers.The Company's software license, maintenance and professional services sold through distributors are non-exchangeable, non-refundable, non-returnable and without any rights of price protection. Accordingly, the Company considers distributors as end-users.In transactions where a customer's contractual terms include a provision for customer acceptance, revenues are recognized when suchacceptance has been obtained or when the acceptance provision has lapsed.Deferred revenue includes unearned amounts received under maintenance and support contracts, professional services and amountsreceived from customers for licenses but not recognized as revenues due to the fact that these transactions did not meet the revenuerecognition criteria, as of the balance sheet date. n.Research and development costs: Research and development costs are charged to the statements of comprehensive income as incurred. ASC 985-20, "Software - Costs ofSoftware to Be Sold, Leased, or Marketed", requires capitalization of certain software development costs subsequent to theestablishment of technological feasibility.Based on the Company's product development process, technological feasibility is established upon completion of a working model.Costs incurred by the Company between completion of the working models and the point at which the products are ready for generalrelease, have been insignificant. Therefore, all research and development costs are expensed as incurred. F - 18 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) o.Marketing expenses: Marketing expenses consist primarily of marketing campaigns and tradeshows. Marketing expenses are charged to the statement ofcomprehensive income, as incurred. Marketing expenses for the years ended December 31, 2013, 2014 and 2015, amounted to $5,155,$5,896 and $7,498, respectively. p.Share-based compensation: The Company accounts for share-based compensation in accordance with ASC 718, "Compensation - Stock Compensation" ("ASC No.718"). ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisiteservice periods in the Company's consolidated statements of comprehensive income.The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over therequisite service period of each of the awards, net of estimated forfeitures. ASC No. 718 requires forfeitures to be estimated at the timeof grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.The Company has selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its optionawards. The option-pricing model requires a number of assumptions, of which the most significant are the expected share price,volatility and the expected option term.The fair value of ordinary share underlying the options has historically been determined by management and approved by theCompany's board of directors. Because there has been no public market for the Company's ordinary shares, management hasdetermined fair value of an ordinary share at the time of grant of the option by considering a number of objective and subjectivefactors including financing investment rounds, operating and financial performance, the lack of liquidity of share capital and generaland industry specific economic outlook, amongst other factors. The Company's management determined the fair value of ordinaryshares based on valuations performed using the Option Pricing Method ("OPM") for the year ended December 31, 2013 and for theperiod from January 1, 2014 and up to September 24, 2014. Since September 24, 2014, the ordinary shares have been publicly traded. F - 19 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) q.Income taxes: The Company accounts for income taxes in accordance with ASC No. 740, "Income Taxes". This codification prescribes the use of theasset and liability method whereby deferred tax asset and liability account balances are determined based on differences betweenfinancial reporting and tax bases of assets and liabilities and for carry-forward tax losses. Deferred taxes are measured using the enactedtax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, ifnecessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of thedeferred tax asset will not be realized.In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17, IncomeTaxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferredincome taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The updated standardis effective beginning on January 1, 2017, with early application permitted as of the beginning of any interim or annual reportingperiod. The Company early adopted this standard retrospectively, and reclassified $3,788 of current deferred tax assets to noncurrentdeferred tax assets as of December 31, 2014.The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, "Income Taxes". Accountingguidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded inthe consolidated financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it ismore likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits ofthe position.The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largestbenefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, the Company reports aliability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. TheCompany recognizes interest and penalties, if any, related to unrecognized tax benefits in tax expense. r.Basic and diluted net income per share: The Company applies the two class method as required by ASC No. 260-10, "Earnings Per Share" ("ASC No. 260-10"). ASC 260-10requires the income per share for each class of shares (ordinary and preferred shares) to be calculated assuming 100% of the Company'searnings are distributed as dividends to each class of shares based on their contractual rights. No dividends were declared or paidduring the reported periods. F - 20 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) Basic and diluted net income per share is computed based on the weighted-average number of shares of ordinary shares outstandingduring each year. Diluted income per share is computed based on the weighted average number of ordinary shares outstanding duringthe period, plus dilutive potential shares considered outstanding during the period, in accordance with ASC 260-10. The totalweighted average number of shares related to outstanding options, RSU’s, warrants and preferred shares that have been excluded fromthe calculations of diluted net earnings per share was 17,062,890, 437,176 and 484,726 for the years ended December 31, 2013, 2014and 2015, respectively. s.Comprehensive income (loss): The Company accounts for comprehensive income (loss) in accordance with Accounting Standards Codification No. 220,"Comprehensive Income" ("ASC No. 220"). This statement establishes standards for the reporting and display of comprehensiveincome (loss) and its components in a full set of general purpose financial statements. Comprehensive income (loss) generallyrepresents all changes in shareholders' equity during the period except those resulting from investments by, or distributions toshareholders. t.Concentration of credit risks: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cashequivalents, short-term bank deposits and trade receivables.The majority of the Company's cash and cash equivalents and short-term bank deposits are invested with major banks in Israel and theUnited States. Such investments in the United States may be in excess of insured limits and are not insured in other jurisdictions.Generally, these investments may be redeemed upon demand and, therefore, bear minimal risk.The trade receivables of the Company are mainly derived from sales to customers located primarily in the United States, Europe andAsia. The Company performs ongoing credit evaluations of its customers and to date has not experienced any significant losses. u.Fair value of financial instruments: The estimated fair value of financial instruments has been determined by the Company using available market information andvaluation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not beindicative of the amounts the Company could realize in a current market exchange. F - 21 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) The following methods and assumptions were used by the Company in estimating the fair value of their financial instruments:The carrying values of cash and cash equivalents, short-term bank deposits, trade receivables, prepaid expenses and other currentassets, trade payables, employees and payroll accruals and accrued expenses and other current liabilities approximate fair values dueto the short-term maturities of these instruments.The Company applies ASC No. 820, "Fair Value Measurements and Disclosures" ("ASC No. 820"), with respect to fair valuemeasurements of all financial assets and liabilities.The fair value of foreign currency contracts (used for hedging purposes) is estimated by obtaining current quotes from banks and thirdparty valuations.Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants. As such, fair value is a market-based measurement that should be determined based onassumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as abasis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: Level 1 -Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 -Include other inputs that are directly or indirectly observable in the marketplace. Level 3 -Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputswhen measuring fair value.In accordance with ASC 820, the Company measures its foreign currency derivative contracts, at fair value using the market approachvaluation technique. Foreign currency derivative contracts as detailed in note 2.j are classified within Level 2 value hierarchy, as thevaluation inputs are based on quoted prices and market observable data of similar instruments. Warrants to purchase preferred shares asdetailed in note 2.v are classified within Level 3 value hierarchy, which is determined using a valuation model completed by a thirdparty valuation firm. F - 22 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.) v.Warrants to purchase preferred shares: The Company accounted for freestanding warrants to purchase shares of its preferred shares as a liability on its consolidated balancesheet at fair value. The warrants to purchase preferred shares were recorded as a liability as the underlying preferred shares werecontingently redeemable (upon a deemed liquidation event) and, therefore, could have obligated the Company to transfer assets in thefuture. The warrants were subject to re-measurement to fair value at each balance sheet date and any change in fair value wasrecognized as a component of financial expense, net, on the consolidated statements of comprehensive income. During the yearsended December 31, 2013 and 2014, the Company recorded financial expenses from change in the warrants’ fair value in the amountof $1,446, $4,309, respectively.Upon the IPO, the warrants were exercised for Series B3 preferred shares which were later converted into ordinary shares. See also note8.c.2. The Company re-measured the warrants as of the conversion date using the intrinsic value based on the IPO price.The following assumptions were used to estimate the value of the Series B3 preferred shares warrants as of December 31, 2013: Year endedDecember31, 2013 Expected volatility 45%Expected dividends 0 Expected term (in years) 2 Risk free rate 0.31% w.The impact of recently issued accounting standards still not effective for the Company as of December 31, 2015 is as follows: In February 2016, the FASB issued an Accounting Standards Update (“ASU”) 2016-02. ASU 2016-02 changes the current leaseaccounting standard by requiring the recognition of lease assets and lease liabilities for all leases, including those currently classifiedas operating leases. This new guidance is to be applied under a modified retrospective application to the earliest reporting periodpresented for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluatingthe potential impact of this new guidance on its financial statements. In September 2015, the FASB issued an ASU on simplifying the accounting for measurement-period adjustments related to businesscombination. The ASU eliminates the requirement to restate prior period financial statements for measurement-period adjustments andrequires that the cumulative impact of a measurement-period adjustment be recognized in the reporting period in which the adjustmentis identified. This ASU will be effective for the Company with respect to measurement-period adjustments that occur after October 1,2017. In May 2014, the FASB issued an accounting standard update on revenue from contracts with customers, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The newguidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard iseffective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either theretrospective or cumulative effect transition method. On April 1, 2015 the FASB proposed deferring the effective date by one year toDecember 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of thestandard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the effect that the newguidance will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transitionmethod nor has it determined the effect of the standard on its ongoing financial reporting for annual reporting periods. F - 23 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 3:PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2014 2015 Government authorities $18 $694 Hedging transaction assets - 155 Prepaid expenses 1,793 2,154 Other current assets 267 290 $2,078 $3,293 NOTE 4: PROPERTY AND EQUIPMENTThe composition of property and equipment is as follows: December 31, 2014 2015 Cost: Computers and related equipment $2,293 $3,712 Leasehold improvements 557 1,092 Office furniture and equipment 687 1,095 3,537 5,899 Less accumulated depreciation 1,389 2,315 Depreciated cost $2,148 $3,584 Depreciation expense amounted to $475, $746 and $1,129 for the years ended December 31, 2013, 2014 and 2015, respectively. F - 24 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 5: INTANGIBLE ASSETS, NET The composition of intangible assets is as follows: December31, 2015 Original amount: Technology $14,073 Customer relationship 5,120 Other 490 19,683 Accumulated amortization: Technology 1,053 Customer relationship 2 Other 70 1,125 Intangible assets, net $18,558 Amortization expense amounted to $1,125 for the year ended December 31, 2015. The estimated future amortization expense of intangible assets as of December 31, 2015 is as follows:2016 $4,586 2017 4,320 2018 4,047 2019 3,077 2020 1,404 Thereafter 1,124 $18,558 F - 25 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 6: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES December 31, 2014 2015 Government authorities $5,015 $7,131 Accrued expenses 1,186 1,730 Uncertain tax position 322 362 Hedging transaction liabilities 419 143 $6,942 $9,366 NOTE 7:COMMITMENTS AND CONTINGENT LIABILITIES a.Lease commitments: The Company rent its facilities under various operating lease agreements, which expire through 2022. In addition, the Company leasescertain motor vehicles under certain car operating lease agreement which expire through 2018. The minimum rental payments underoperating leases as of December 31, 2015 are as follows: Rental ofpremises Lease ofmotorvehicles 2016 $2,856 $334 2017 2,431 160 2018 2,724 25 2019 2,722 - 2020 2,733 - Thereafter 860 - $14,326 $519 Total rent expenses for the years ended December 31, 2013, 2014 and 2015 were approximately $1,303, $2,309 and $2,653,respectively.Total motor vehicle lease expenses for the years ended December 31, 2013, 2014 and 2015 were approximately $386, $369 and $435,respectively. b.Pledges and Bank guarantees: The Company pledged a bank deposit in the amount of $1,571 mainly in respect of an office lease agreement and hedgingtransactions, this amount is presented as part of short-term bank deposits and other long-term assets. The Company obtained a bank guarantee in the amount of $916, in connection with an office lease agreement. F - 26 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 7:COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) c.Legal contingencies: The Company is not currently a party, as plaintiff or defendant, to any legal proceedings that, individually or in the aggregate areexpected by the Company to have a material effect on its consolidated financial statements. The Company reviews the status of eachmatter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable andthe amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at leastquarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information andevents pertaining to a particular matter. NOTE 8:SHAREHOLDERS' EQUITY a.Composition of shares capital of the Company: December 31, 2014 December 31, 2015 Authorized Issued andoutstanding Authorized Issued andoutstanding Number of shares Ordinary shares of NIS 0.01 par value each 250,000,000 30,501,352 250,000,000 33,289,839 b.Public Offering: In September 2014, the Company completed an IPO in which the Company issued and sold 5,360,000 ordinary shares at a publicoffering price of $16.00 per share.As part of the IPO, the underwriters received an option to purchase 804,000 ordinary shares of the Company at the price of $16.00 for aperiod of one month following the IPO date. The total value of the underwriters options based on the Black-Scholes-Merton optionpricing model amounted to $592 which was included in the additional paid-in capital balance and as IPO offering expenses.During September 2014, the underwriters fully exercised their option.The total net proceeds received from the IPO were $88,468 after deducting underwriting discounts of $6,904 and other offeringexpenses of $3,846. In June 2015, the Company completed an additional public offering in which the Company issued and sold 900,000 ordinary shares ata public offering price of $61.00 per share. The total net proceeds received were $52,575 after deducting underwriting discounts of$2,196 and other offering expenses of $129. F - 27 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 8:SHAREHOLDERS' EQUITY (Cont.) c.1.Ordinary shares: The ordinary shares of the Company confer upon the holders the right to receive notices of and to participate and vote ingeneral meetings of the Company, rights to receive dividends and rights to participate in distribution of assets upon liquidationafter all the preferred shares received their preference amount in full as detailed below. 2.Preferred shares: Following the Company's IPO, as described in note 8.b, all of the Company’s preferred shares were automatically converted intoordinary shares based on the conversion ratios set forth in the Company's Articles of Association, which are as follows: ConversionRatio Series A preferred Shares 1.094 Series A1 preferred Shares 1.485 Series B preferred Shares 1 Series B1 preferred Shares(*) 1 Series B2 preferred Shares 1 Series B3 preferred Shares 1 (*)with respect only to the Series B1 preferred shares, serial numbers 226,503 to 257,565 (inclusive), the ConversionPrice was 1.543, which results in a Conversion Ratio of 1.001451717. d.Share-based compensation: Under the Company's 2001 equity incentive plan, as amended March 5, 2003, and its 2011 and 2014 equity incentive plans(collectively, the "Plans"), options and restricted share units ("RSUs") may be granted to employees, officers, non-employeesconsultants and directors of the Company.Under the Plans, as of December 31, 2015, an aggregate of 367,055 shares were still available for future grant. Each option grantedunder the Plans expires no later than 10 years from the date of grant. The vesting period of the options is generally four years, unlessthe Board of Directors or the Board's Compensation Committee determines otherwise. Any option which is forfeited or cancelledbefore expiration becomes available for future grants. F - 28 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 8:SHAREHOLDERS' EQUITY (Cont.)The total share-based compensation expense related to all of the Company's equity-based awards, recognized for the years endedDecember 31, 2013, 2014 and 2015 was comprised as follows: Year endedDecember 31, 2013 2014 2015 Cost of revenues $39 $137 $499 Research and development 73 172 1,507 Sales and marketing 126 347 2,214 General and administrative 165 917 2,829 Total share-based compensation expense $403 $1,573 $7,049 The total unrecognized compensation cost amounted to $33,559 as of December 31, 2015, and is expected to be recognized over aweighted average period of 2.99 years.In August 2013, the Company donated 15,000 warrants for ordinary shares with an exercise price of $2.21 to "Tmura", a non-profitorganization. The Company recorded compensation expenses related to these warrants in the amount of $19. In March 2015, thewarrants were exercised for ordinary shares. F - 29 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 8:SHAREHOLDERS' EQUITY (Cont.) e.Options granted to employees: A summary of the activity in options granted to employees for the year ended December 31, 2015 is as follows: Amountofoptions Weightedaverageexerciseprice Weightedaverageremainingcontractualterm(in years) Aggregateintrinsicvalue Balance as of December 31, 2014 4,564,764 $2.57 5.96 $169,410 Granted 702,566 $55.73 Exercised (1,855,773) $0.98 Forfeited (52,682) $21.82 Balance as of December 31, 2015 3,358,875 $14.27 6.54 $111,093 Exercisable as of December 31, 2015 2,156,965 $3.12 5.28 $91,108 Vested and expected to vest as of December 31, 2015 3,324,648 $14.05 6.52 $110,492 The computation of expected volatility is based on actual historical share price volatility of comparable companies. The expectedoption term represents the period of time that options granted are expected to be outstanding. For stock-option awards which were atthe money when granted (plain vanilla stock-options), it is determined based on the simplified method in accordance with SAB No.110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to applyuntil enough historical experience is available to provide a reasonable estimate of the expected term. For stock-option awards whichwere in the money when granted, a binomial model was used to determine the expected term as an input to the Black-Scholes-Mertonoption pricing model. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore,uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasurybonds with equivalent terms. F - 30 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 8:SHAREHOLDERS' EQUITY (Cont.) The following table set forth the parameters used in computation of the options compensation to employees for the years endedDecember 31, 2013, 2014 and 2015: Year endedDecember 31, 2013 2014 2015 Expected volatility 45% 45% 45%Expected dividends 0 0 0Expected term (in years) 6.11 5.81-6.11 5.78-6.12Risk free rate 1.15%-2.64% 1.55%-2.02% 1.37%-1.68%A summary of options data for the years ended December 31, 2013, 2014 and 2015, is as follows: Year endedDecember 31, 2013 2014 2015 Weighted-average grant date fair value of options granted $2.03 $6.95 $24.56 Total intrinsic value of the options exercised $1,858 $9,943 $110,191 Total fair value of options vested $340 $925 $2,054 The aggregate intrinsic value is calculated as the difference between the per-share exercise price and the deemed fair value of anordinary share for each share subject to an option multiplied by the number of shares subject to options at the date of exercise. The fairvalue of the Company's ordinary shares was $45.14 per share as of December 31, 2015. F - 31 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 8:SHAREHOLDERS' EQUITY (Cont.) The following tables summarize information about the Company's outstanding and exercisable options granted to employees as ofDecember 31, 2015:Exercise price Optionsoutstandingas ofDecember 31,2015 Weightedaverageremainingcontractualterm Optionsexercisableas ofDecember 31,2015 Weightedaverageremainingcontractualterm (years) (years) $0.20 108,555 5.53 108,555 5.53 $0.41 683,146 2.12 683,146 2.12 $1.06 179,776 5.55 179,776 5.55 $1.46 782,832 6.39 714,733 6.39 $1.78 161,818 7.04 94,017 7.06 $2.21 70,890 7.42 33,577 7.42 $6.47 323,916 7.97 154,076 7.97 $8.84 50,000 8.09 37,500 8.09 $9.93 59,063 8.32 22,077 8.32 $14.00 224,000 8.70 93,338 8.70 $42.33 22,100 9.95 - - $44.37 26,913 8.88 9,680 8.88 $47.40 186,400 9.70 - - $49.42 12,331 9.80 - - $55.30 28,022 9.70 - - $58.55 229,255 9.53 - - $58.86 22,000 9.14 3,000 9.14 $59.14 45,188 9.62 - - $63.37 125,270 9.45 23,490 9.45 $64.93 17,400 9.33 - - 3,358,875 6.54 2,156,965 5.28 f.A summary of RSU activity for the year ended December 31, 2015, is as follows: AmountofRSU’s Weightedaveragegrant datefair value Unvested as of December 31, 2014 27,960 $44.37 Granted 399,006 $54.14 Vested (18,426) $56.14 Forfeited (11,630) $51.65 Unvested as of December 31, 2015 396,910 $53.44 F - 32 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES CyberArk Software Ltd. subsidiaries are separately taxed under the domestic tax laws of the jurisdiction of incorporation of each entity. a.Corporate tax in Israel: In July 2009, the Israeli Parliament, known as the Knesset, passed the Law for Economic Efficiency (Amended Legislation forImplementing the Economic Plan for 2009 and 2010), 2009, which prescribed, among others, a gradual reduction in the rates of theIsraeli corporate tax and real capital gains tax starting 2011. The tax rate in effect for 2011 was 24%.The Law for Change in the Tax Burden (Legislative Amendments) (Taxes), 5772-2011, (the "Tax Burden Law 2011"), was publishedby the Government of Israel. The Tax Burden Law 2011 cancelled the scheduled progressive reduction of the corporate tax rate thatwas approved in 2009 and instead set the corporate tax rate at 25% from 2012 and thereafter.On July 30, 2013, the Knesset approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget Law")which consists, among others, of fiscal changes whose main aim is to enhance long-term collection of taxes.These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, cancelling the lowering of the tax ratesapplicable to preferred enterprises (9% in development area A and 16% in other areas), taxing revaluation gains and increasing the taxrates on dividends within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014.Commencing January 1, 2016, the Israeli regular tax rate was reduced from 26.5% to 25%. F - 33 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES (Cont.) b.Income before taxes on income is comprised as follows: Year ended December 31, 2013 2014 2015 Domestic $6,304 $13,194 $28,285 Foreign 1,651 1,272 3,458 $7,955 $14,466 $31,743 c.Deferred income taxes: Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts recorded for tax purposes. Significant components of the Company's deferred tax assets andliabilities are as follows: Year endedDecember 31, 2014 2015 Deferred tax assets: Net operating loss carry-forwards $50 $5,584 Capital losses carry-forwards 52 52 Research and development expenses 2,116 2,945 Deferred revenues 1,824 3,760 Issuance expenses 1,083 790 Share-based compensation 97 549 Other 807 1,590 Deferred tax assets before valuation allowance 6,029 15,270 Valuation allowance 52 52 Deferred tax asset $5,977 $15,218 Deferred tax liabilities: Intangible assets $- $5,761 Property and equipment depreciation and other 176 213 Deferred tax liabilities $176 $5,974 The Company has provided valuation allowances in respect of certain deferred tax assets resulting from capital loss carry-forwards dueto uncertainty concerning realization of these deferred tax assets. F - 34 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES (Cont.) d.Income taxes are comprised as follows: Year endedDecember 31, 2013 2014 2015 Current $2,089 $4,467 $10,042 Deferred (769) 45 (4,093) $1,320 $4,512 $5,949 Year endedDecember 31, 2013 2014 2015 Domestic $1,096 $2,485 $5,208 Foreign 224 2,027 741 $1,320 $4,512 $5,949 e.A reconciliation of the Company's theoretical income tax expense to actual income tax expense as follows: Year endedDecember 31, 2013 2014 2015 Income before income taxes $7,955 $14,466 $31,743 Statutory tax rate 25% 26.5% 26.5% Theoretical income tax expense 1,989 3,833 8,412 Utilization of tax losses and deferred taxes for which valuation allowance wasprovided, net 4 (143) (771)Deferred taxes on losses for which valuation allowance was provided, net (91) 834 (1,713)Non-deductible expenses 251 1,165 2,295 Increase in other uncertain tax positions—net 175 19 8 Tax adjustment in respect of different tax rate (979) (838) (2,303)Other (29) (358) 21 Income tax expense $1,320 $4,512 $5,949 F - 35 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES (Cont.) f.Net operating loss carry-forwards As of December 31, 2015, the Company had net operating and capital tax losses totaling approximately $15,250 and $197,respectively, out of which approximately $3,142 and $197 of losses, respectively, were attributed to Israel and can be carried forwardindefinitely and $12,108 were attributed to the U.S. subsidiary and can be carried forward for up to 20 years. Utilization of some ofU.S. net operating losses are subject to annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. Inaddition the U.S. subsidiary had tax benefit related to share-based compensation in the amount of $15,814 that can be carried forwardand offset against taxable income. Excess tax benefit will be credited to additional paid-in capital when realized. g.Tax benefits under the Law for the Encouragement of Capital Investments, 1959: The Company has been granted "Approved Enterprise" Status, under the above Law. The Company has elected the alternative benefitsprogram, waiver of grants in return for tax exemptions. Pursuant thereto, the income of the Company derived from the "ApprovedEnterprise" program is tax-exempt for two years and will enjoy a reduced tax rate of 10%-25% for up to a total of eight years (subjectto an adjustment based upon the foreign investors' ownership of the Company).The period of tax benefits detailed above is subject to limits of 12 years from the year of commencement of production, or 14 yearsfrom granting of approval, whichever is earlier.The tax-exempt income attributable to the "Approved Enterprise" can be distributed to shareholders, without subjecting the Companyto taxes, only upon the complete liquidation of the Company. If these retained tax-exempt profits are distributed, they would be taxedat the corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits program (currentlybetween 10% to 25% for an "Approved Enterprise").Entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the above law, regulationspublished thereunder and the letters of approval for the specific investments in "approved enterprises". In the event of failure tocomply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, inwhole or in part, including interest and CPI linkage.Income not eligible for "approved enterprise" benefits mentioned above is taxed at the regular rate. F - 36 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES (Cont.) On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") and has significantly changed theprovisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center bysetting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of theApproved Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner inwhich tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order toqualify for tax benefits. However, the Investment Law provides that terms and benefits included in any letter of approval already granted will remain subject tothe provisions of the law as they were on the date of such approval. Therefore, the Company's existing Approved Enterprise willgenerally not be subject to the provisions of the Amendment.Such an enterprise is a "Beneficiary Enterprise", rather than the previous terminology of Approved Enterprise. The period of taxbenefits for a new Beneficiary Enterprise commences in the "Year of Commencement". This year is the later of: (1) the year in whichtaxable income is first generated by the company, or (2) the Year of Election.The Company has elected the status of a Beneficiary Enterprise for the year ended in 2006 and 2008.As of December 31, 2015, approximately $13,034 was derived from tax exempt profits earned by the Company's "ApprovedEnterprises" and "Beneficiary Enterprise". The Company and its Board of Directors have determined that such tax-exempt income willnot be distributed as dividends and intends to reinvest the amount of its tax exempt income earned by the Company. Accordingly, noprovision for deferred income taxes has been provided on income attributable to the Company's "Approved Enterprises" and"Beneficiary Enterprise" as such income is essentially permanently reinvested.If the Company's retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate as if it hadnot elected the alternative tax benefits under the Investment Law and an income tax liability of up to $3,200 would have beenincurred as of December 31, 2015.On December 29, 2010, the Knesset approved an additional amendment to the Law for the Encouragement of Capital Investments,1959. According to the amendment, a reduced uniform corporate tax rate for exporting industrial enterprises (over 25%) wasestablished. The reduced tax rate will not be program dependent and will apply to the industrial enterprise's entire income. The taxrates for industrial enterprises have been reduced gradually over a period of five years as follows: - In 2011-2012, the reduced tax ratefor development area A will be 10% and for the rest of the country - 15%. In 2013 - 2014, the reduced tax rate for development area Awill be 7% and for the rest of the country - 12.5%. Starting 2015 and thereafter, the reduced tax rate for development area A will be 6%and for the rest of the country - 12%. See also note 9.a to additional amendment to the Law related to tax rate. On March 2013, the Company notified the Israeli Tax Authorities that it had transferred from Beneficiary Enterprise status to PreferredEnterprise status. F - 37 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 9: INCOME TAXES (Cont.) h.Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969: Management believes that the Company currently qualifies as an "industrial company" under the above law and as such, is entitled tocertain tax benefits including accelerated depreciation, deduction of public offering expenses in three equal annual installments andamortization of other intangible property rights for tax purposes. i.Tax assessments: CyberArk Software Ltd. tax years until December 31, 2011 are subject to statutes of limitation as of December 31, 2015 (The tax yearended in December 31, 2011 is subject to the Tax Authorities to extend for another year). In addition, the Company is currently underexamination by the Israeli Tax Authorities for up to and including the 2014 tax year. The U.K. subsidiary’s tax years until December31, 2011 are subject to statutes of limitation as of December 31, 2015. The U.S. subsidiary’s tax years ended December 31, 2002, 2004,2005, 2006, 2008, 2009 and 2011 through 2015 are still open, as the statutes of limitation have not yet expired. Viewfinity’s tax yearssince inception are still open, as the statutes of limitation have not yet expired. j.Uncertain tax positions: A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows: Year endedDecember 31, 2014 2015 Opening balance $272 $322 Increase (decrease) related to prior year tax positions (5) 4 Increase related to current year tax positions 55 36 Closing balance $322 $362 As of December 31, 2015, the entire amount of the unrecognized tax benefits could affect the Company’s income tax provision and taxexpenses. F - 38 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data)NOTE 10: FINANCIAL INCOME (EXPENSES), NET Year endedDecember 31, 2013 2014 2015 Bank charges $(62) $(63) $(86)Changes in fair value of warrants to purchase preferred shares (1,446) (4,309) - Exchange rate gain (loss), net 307 (1,817) (1,723) Total expenses (1,201) (6,189) (1,809) Interest income 77 201 330 Total financial expenses, net $(1,124) $(5,988) $(1,479) NOTE 11: BASIC AND DILUTED NET INCOME PER SHARE Year endedDecember 31, 2013 2014 2015 Numerator: Net income $6,635 $9,954 $25,794 Dividends accumulated for the period (4,879) (3,815) - Net income available to shareholders of ordinary shares $1,756 $6,139 $25,794 Denominator: Shares used in computing net income per ordinary shares, basic 6,900,433 13,335,059 32,124,772 Year endedDecember 31, 2013 2014 2015 Numerator: Net income $6,635 $9,954 $25,794 Dividends accumulated for the period (4,879) - - Net income available to shareholders of ordinary shares $1,756 $9,954 $25,794 Denominator: Shares used in computing net income per ordinary shares, diluted 10,765,914 29,704,730 35,322,716 F - 39 CYBERARK SOFTWARE LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands (except share and per share data) NOTE 12: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION a.The Company applies ASC topic 280, "Segment Reporting" ("ASC No. 280"). The Company operates in one reportable segment. Totalrevenues are attributed to geographic areas based on the location of the end customer. b.The following tables present total revenues for the years ended December 31, 2013, 2014 and 2015 and long-lived assets as ofDecember 31, 2014 and 2015: Revenues: Year endedDecember 31, 2013 2014 2015 United States $32,041 $60,761 $92,034 Israel 3,383 4,234 5,203 United Kingdom 6,862 12,220 16,746 EMEA (*) 15,551 16,744 28,695 Other 8,320 9,040 18,134 $66,157 $102,999 $160,812 long-lived assets: December 31, 2014 2015 United States $606 $929 Israel 1,336 2,418 United Kingdom 143 155 EMEA (*) 15 22 Other 48 60 $2,148 $3,584 *) Europe, the Middle East and Africa excluding United Kingdom and Israel F - 40 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to signthis annual report on its behalf. CyberArk Software Ltd. Date: March 10, 2016By:/s/ Ehud Mokady Ehud Mokady Chief Executive Officer, President, Founder andDirector 108 INDEX OF EXHIBITS Exhibit No. Description 1.1 Articles of Association of the Registrant (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form F-1, as amended (Registration No. 333-196991)) 2.1 Specimen share certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form F-1, as amended(Registration No. 333-196991)) 2.2 Fourth Amended Investor Rights Agreement, dated July 10, 2014, by and among the Registrant and the other parties thereto(incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form F-1, as amended (Registration No. 333-196991)) 4.1 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form F-1,as amended (Registration No. 333-196991)) 4.2 Office Lease Agreement and amendments thereto, dated September 5, 2004, between the Registrant and Azorei Melal Industries Ltd., asamended. ¥ 4.3 Office Lease Agreement, dated October 28, 2013, between Cyber-Ark Software, Inc. and Wells 60 Realty LLC (incorporated by referenceto Exhibit 10.4 to the Registrant’s Registration Statement on Form F-1, as amended (Registration No. 333-196991)) 4.4 First Amendment of Lease, dated October 23, 2014, between Cyber-Ark Software, Inc. and Wells 60 Realty LLC (incorporated byreference to Exhibit 10.6 to the Registrant’s Registration Statement on Form F-1, as amended (Registration No. 333-202329)) 4.5 Office Lease Agreement, dated February 26, 2015, between the Registrant and Azorei Melal Industries Ltd. (incorporated by reference toExhibit 10.4 to the Registrant’s Registration Statement on Form F-1, as amended (Registration No. 333-202329 )) ¥ 4.6 2001 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form F-1, as amended(Registration No. 333-196991)) 4.7 Section 102 2001 Stock Option Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form F-1,as amended (Registration No. 333-196991)) 4.8 First Amendment to Section 102 2001 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s RegistrationStatement on Form F-1, as amended (Registration No. 333-196991)) 4.9 2011 Share Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form F-1, asamended (Registration No. 333-196991)) 4.10 CyberArk Software Ltd. 2014 Share Incentive Plan, as amended 4.11 CyberArk Executive Compensation Policy (incorporated by reference to Appendix A of Exhibit 99.1 to the Registrant’s Report ofForeign Private Issuer on Form 6-K filed with the SEC on November 20, 2014) 8.1 List of subsidiaries of the Registrant 109 12.1 Certification of Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications) 12.2 Certification of Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications) 13.1 Certification of Principal Executive Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906 Certifications) 13.2 Certification of Principal Financial Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906 Certifications) 15.1 Consent of Kost Forer Gabbay & Kasierer (a member of Ernst & Young Global) 101.INS XBRL Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document ¥English summary of original Hebrew document110 Exhibit 4.2 English Summary of the Office Lease Agreement dated as of May 30, 2004 by and between Azorei Mallal Industries Ltd. (the “Landlord”) and Cyber-ArkSoftware Ltd. (the “Company”) (the “Original Lease”), as amended by those certain Addendum dated May 3, 2007, Addendum to Lease Agreement datedMarch 29, 2009, Addendum to Lease Agreement dated September 16, 2009, Addendum to Lease Agreement dated January 11, 2010, Addendum to LeaseAgreement dated March 16, 2010, Addendum to Lease Agreement dated August 5, 2012, Addendum to Lease Agreement dated December 7, 2010,Addendum to Lease Agreement dated March 7, 2011, Addendum to Lease Agreement dated May 25, 2011, Addendum to Agreement dated January 9, 2012,Addendum to Agreement dated February 16, 2012, Addendum to Lease Agreement dated September 10, 2012, Addendum to Lease Agreement datedOctober 11, 2012, Addendum to Lease Agreement dated January 29, 2013, the Addendum to Lease Agreement dated December 12, 2013, the Addendum toLease Agreement dated November 15, 2015 and the Addendum to Lease Agreement dated January 7, 2016 (collectively, the “Lease Agreement”). •Subject Matter of the Lease Agreement: Unprotected Lease of Office Space and Parking Spaces for the purpose of conducting business in the Hi-Techfield. Premises are located in Petach-Tikva, Israel. •Term of Original Lease: •The term of the Original Lease was thirty-six (36) months commencing on July 1, 2004, with the Company’s right for early termination (which wasnot exercised by the Company). Under the Original Lease, the Company was given two options to extend the term of the lease, each by a twelve(12)-month period (subject to certain prior notices to the Landlord). •The term of the lease was extended several times over the years. Currently, the lease is set to expire on the later of June 30, 2017 and the date onwhich the Company receives control of the new premises it is leasing from the Landlord (with no right for early termination by the Company). •The term of the lease of all parking spaces leased by the Company from time to time is linked to the lease term of the main premises. •Premises Covered by the Lease Agreement: •Property – Under the Original Lease, the Company leased 843 square meters (gross) (approximately 9,074 square feet). Since then the Companyhas leased additional premises as follows: 550 square meters (gross) (approximately 5,920 square feet) under the May 3, 2007 Addendum, 630square meters (gross) (approximately 6,781 square feet) under the February 16, 2012 Addendum, 867 square meters (gross) (approximately 9,332square feet) under the January 29, 2013 Addendum, 670 square meters (gross) (approximately 7,212 square feet) under the December 12, 2013Addendum, 250 square meters (gross) (approximately 2,691 square feet) under the November 15, 2015 Addendum and 579 square meters (gross)(approximately 6,232 square feet) under the January 7, 2016 Addendum. In total, the Company currently leases 4,389 square meters (gross)(approximately 47,243 square feet). •Parking – The Company originally leased ten (10) parking spaces, and currently leases one hundred thirty-six (136) parking spaces. •Rental Fees: •Property – Under the Original Lease, during the original lease term the Company was to pay monthly rental fees of US $10 per square meter(gross). Such rental fees were to increase to US $10.75 for the two option periods under the Original Lease. All rental fees under the Original Leasewere based on a fixed 4.587 NIS/Dollar exchange rate, exclusive of VAT and index-linked to the Consumer Price Index published by the CentralBureau of Statistics (the “Index”); provided that the rental fees shall not be less than the nominal values listed above.  Currently, the monthly rental fee for the premises leased by the Company is NIS 67.87 per square meter (gross), plus VAT and linkedto the Consumer Price Index published by the Central Bureau of Statistics and known on December 6, 2012 (and shall not be reducedbelow such amount); provided that the rental fees per square meter shall not be less than the nominal values listed above andprovided further that, with respect to the premises leased under the November 15, 2015 Addendum, the monthly rental fee is NIS71.00 per square meter and with respect to premises leased under the January 7, 2016 Addendum, the monthly rental fee is NIS 65.00per square meter. In the event that the lease is extended until December 31, 2018, the monthly rental fee shall be increased by 5%compared to the monthly rental fee actually paid by the Company for the December 2017 lease. •Parking – The monthly rental fee for the parking spaces currently leased by the Company ranges from NIS 360 to NIS 434 per parking space, ineach case plus VAT and Index-linked. •Management Fees – The management fees currently being paid by the Company with respect of an aggregate of 2,023 square meters (gross)(approximately, 21,775 square feet) equal to NIS 15.5 per square meter (gross) and with respect of the remaining 2,366 square meters (gross)(approximately, 25,467 square feet) paid on a cost plus 15% basis (approximately NIS 20 per square meter), in each case plus VAT and Index-linked. •Guarantees – •An autonomous un-conditioned bank guarantee, for three (3) months’ rental fee plus VAT, to be extended from time to time by the Company toremain in effect for the duration of the term of lease and for thirty (30) days thereafter. •Dispute Resolution – •The Lease Agreement shall be governed by an agreed-upon arbitrator, the identity of which shall be determined between the parties (and withrespect to legal disputes – by the parties’ legal counsels). In the lack of such agreement, the identity of the arbitrator shall be decided by theChairman of the Israeli Bar Association or the Chairman of the Engineers and Architects’ Association, as applicable. •Other Terms under the Lease Agreement: •The Company has a right to sub-lease the premises (or any portion thereof), subject to the Landlord’s prior written consent (not to be unreasonablywithheld). The Company may also transfer its rights to the premises to an affiliate, subject to the Landlord’s prior written consent (not to beunreasonably withheld). •Similar to other lease agreements, the Company agreed to assume responsibility for all fees, municipal or local taxes, utility payments,etc.; provided that the Landlord shall bear any and all taxes and fees, which by their nature are levied on property owners. •Similar to other lease agreements, each party has agreed to assume responsibility for any damage, injury or loss (bodily or otherwise) resultingfrom any act, omission or negligence on its part, and with respect of the Company – relating to its use of the property being leased. •The Lease Agreement further includes terms concerning the following non-material matters: •Renovations – Generally, the Company may not perform any major renovations on the premises without prior written authorization from theLandlord. Subject to such advance approval by the Landlord, the Company may invest certain amounts on renovations for which theLandlord has agreed to reimburse the Company for a certain percentage of the costs. •Late Rental Fees – In the event the Company fails to pay any of its rental fees on time, the amount overdue accrues interest based on BankHapoalim Ltd.’s standard rate for unauthorized overdrafts starting from the tenth day following the payment due date until the actual date ofpayment. If the amount due is for rental, management or electricity fees, the Landlord is entitled to stop any of these services other thandisconnecting water and power, provided it shall notify the Company in writing seven days in advance.  •Utilities – The Company is responsible for paying for water, power and telephone utility bills, in addition to any taxes or fees, tolls, levies,property taxes and any other payments owed to governmental or local authorities relating to the property during the term of the LeaseAgreement, unless such fees are specifically designated for the property owner. •No Right of set-off – The parties have agreed that any amounts owed shall not be subject to a set-off right. •Termination of the lease, vacating of premises and fixtures – Upon the termination of the Lease Agreement, the Company shall vacate thepremises from any person or object which is not owned by the Landlord and return it to the Landlord in an undamaged, usable state. TheCompany has sole discretion to remove any fixtures, provided such removal does not damage the premises and provided that the Landlordwill have no duty to compensate the Company for fixtures which it decides to leave. •Early termination rights and taxes with respect to parking spaces – The Company is entitled to park its vehicles on the premises during theterm of the Lease Agreement, although the Landlord may terminate such right at any time upon 60 days advance notice. The Company hasagreed to allow the Landlord to use the extra parking spaces at the premises on an as available basis. The fees that the Company pays forparking spaces under the Lease Agreement include maintenance and management fees but do not include property tax or any other feesimposed by local authorities and for which the Company shall be liable immediately upon demand. •Payment Method– The rental fees shall be paid three months in advance by no later than the fifth day of the month during which a payment ismade. The Company has agreed to sign a direct debit with respect to the rental and management fees. In the event the Company is over-charged, that extra amount shall be remitted to the Company within five business days. Exhibit 4.10CYBER-ARK SOFTWARE LTD. ________________________________________________ 2014 SHARE INCENTIVE PLAN _________________________________________________ __________________________________ Adopted: June 10, 2014 __________________________________  TABLE OF CONTENT 1.Purpose; Types of Awards; Construction.12.Definitions.23.Administration.64.Eligibility.95.Shares.96.Terms and Conditions of Awards.107.Nonqualified Stock Options.158.Incentive Stock Options.159.102 Awards.1710.3(9) Awards.2011.Restricted Shares.2112.Restricted Share Units.2213.Other Share or Share-Based Awards.2314.Effect of Certain Changes.2315.Non-Transferability of Awards; Surviving Beneficiary.2716.Conditions Upon Issuance of Shares; Governing Provisions.2717.Market Stand-Off2918.Agreement Regarding Taxes; Disclaimer.3019.Rights as a Shareholder; Voting and Dividends.3220.No Representation by Company.3321.No Employment or Retention Rights.3322.Period During Which Awards May Be Granted.3323.Amendment of this Plan and Awards.3424.Approval.3425.Rules Particular to Specific Countries; Section 409a.3426.Governing Law; Jurisdiction.3627.Non-Exclusivity of this Plan.3628.Miscellaneous.36  ________________________________________________ CYBER-ARK SOFTWARE LTD.2014 SHARE INCENTIVE PLAN_________________________________________________ Unless otherwise defined, terms used herein shall have the meaning ascribed to them in Section 2 hereof. 1.PURPOSE; TYPES OF AWARDS; CONSTRUCTION. 1.1. Purpose. The purpose of this 2014 Share Incentive Plan (as amended, this “Plan”) is to afford an incentive to Service Providers of Cyber-Ark Software Ltd., an Israeli company (together with any successor corporation thereto, the “Company”), or any Affiliate of the Company, which now existsor hereafter is organized or acquired by the Company or its Affiliates, to continue as Service Providers, to increase their efforts on behalf of the Company orits Affiliates and to promote the success of the Company's business, by providing such Service Providers with opportunities to acquire a proprietary interestin the Company by the issuance of Shares or restricted Shares (“Restricted Shares”) of the Company, and by the grant of options to purchase Shares(“Options”), Restricted Share Units (“RSUs”) and other Share-based Awards pursuant to Sections ​11 through ​13 of this Plan. 1.2. Types of Awards. This Plan is intended to enable the Company to issue Awards under various tax regimes, including: (i) pursuant and subject to the provisions of Section 102 of the Ordinance (or the corresponding provision of anysubsequently enacted statute, as amended from time to time), and all regulations and interpretations adopted by any competentauthority, including the Israeli Income Tax Authority (the “ITA”), including the Income Tax Rules (Tax Benefits in StockIssuance to Employees) 5763-2003 or such other rules so adopted from time to time (the “Rules”) (such Awards that are intended tobe (as set forth in the Award Agreement) and which qualify as such under Section 102 of the Ordinance and the Rules, “102Awards”); (ii) pursuant to Section 3(9) of the Ordinance or the corresponding provision of any subsequently enacted statute, asamended from time to time (such Awards, “3(9) Awards”); (iii) Incentive Stock Options within the meaning of Section 422 of the Code, or the corresponding provision of anysubsequently enacted United States federal tax statute, as amended from time to time, to be granted to Employees who are deemedto be residents of the United States, for purposes of taxation, or are otherwise subject to U.S. Federal income tax (such Awards thatare intended to be (as set forth in the Award Agreement) and which qualify as an incentive stock option within the meaning ofSection 422(b) of the Code, “Incentive Stock Options”); and (iv) Awards not intended to be (as set forth in the Award Agreement) or which do not qualify as an Incentive StockOption to be granted to Service Providers who are deemed to be residents of the United States for purposes of taxation, or areotherwise subject to U.S. Federal income tax (“Nonqualified Stock Options”). - 1 - In addition to the issuance of Awards under the relevant tax regimes in the United States of America and the State of Israel, and without derogating from thegenerality of Section ​25, this Plan contemplates issuances to Grantees in other jurisdictions or under other tax regimes with respect to which the Committee isempowered, but is not required, to make the requisite adjustments in this Plan and set forth the relevant conditions in an appendix to this Plan or in theCompany’s agreement with the Grantee in order to comply with the requirements of such other tax regimes. 1.3. Company Status. This Plan contemplates the issuance of Awards by the Company, both as a private and public company. 1.4. Construction. To the extent any provision herein conflicts with the conditions of any relevant tax law, rule or regulation which are reliedupon for tax relief in respect of a particular Award to a Grantee, the Committee is empowered, but is not required, hereunder to determine that the provisionsof such law, rule or regulation shall prevail over those of this Plan and to interpret and enforce such prevailing provisions. 2.DEFINITIONS. 2.1. Terms Generally. Except when otherwise indicated by the context, (i) the singular shall include the plural and the plural shall include thesingular; (ii) any pronoun shall include the corresponding masculine, feminine and neuter forms; (iii) any definition of or reference to any agreement,instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated,supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth therein or herein),(iv) references to any law, constitution, statute, treaty, regulation, rule or ordinance, including any section or other part thereof shall refer to it as amendedfrom time to time and shall include any successor thereof, (v) reference to a “company” or “entity” shall include a, partnership, corporation, limited liabilitycompany, association, trust, unincorporated organization, or a government or agency or political subdivision thereof, and reference to a “person” shall meanany of the foregoing or an individual, (vi) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Plan inits entirety, and not to any particular provision hereof, (vii) all references herein to Sections shall be construed to refer to Sections to this Plan; (viii) the words“include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; and (ix) use of the term “or” is not intended to beexclusive. 2.2. Defined Terms. The following terms shall have the meanings ascribed to them in this Section 2: 2.3. “Affiliate” shall mean either: (i) with respect to any person, any other person that, directly or indirectly through one or moreintermediaries, controls, is controlled by, or is under common control with, such person (with the term “control” or “controlled by” within themeaning of Rule 405 of Regulation C under the Securities Act), including, without limitation, any Parent or Subsidiary, or (ii) for the purpose of 102Awards, solely an “employing company” within the meaning and subject to the conditions of Section 102(a) of the Ordinance. 2.4. “Applicable Law” shall mean any applicable law, rule, regulation, statute, pronouncement, policy, interpretation, judgment, order ordecree of any federal, provincial, state or local governmental, regulatory or adjudicative authority or agency, of any jurisdiction, and the rules andregulations of any stock exchange, over-the-counter market or trading system on which the Company's shares are then traded or listed. - 2 - 2.5. “Award” shall mean any Option, Restricted Share, RSUs or any other Share-based award granted under this Plan. 2.6. “Board” shall mean the Board of Directors of the Company. 2.7. “Change in Board Event” shall mean any time at which individuals who, as of the Effective Date, constitute the Board (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequentto the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of thedirectors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, butexcluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest withrespect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other thanthe Board. 2.8. “Code” shall mean the United States Internal Revenue Code of 1986, and any applicable regulations promulgated thereunder, all asamended. 2.9. “Committee” shall mean a committee established or appointed by the Board to administer this Plan, subject to Section ​3.1. 2.10. “Companies Law” shall mean the Israel Companies Law, 5759-1999, and the regulations promulgated thereunder, all as amended fromtime to time. 2.11. “Controlling Shareholder” shall have the meaning set forth in Section 32(9) of the Ordinance. 2.12. “Disability” shall mean (i) the inability of a Grantee to engage in any substantial gainful activity or to perform the major duties of theGrantee’s position with the Company or its Affiliates by reason of any medically determinable physical or mental impairment, as determined by aqualified doctor acceptable to the Company, that can be expected to last or has already lasted for a continuous period of which can be expected toresult in death or which has already lasted or can be expected to last for a continuous period of not less than 12 months, (ii) if applicable, a“permanent and total disability” as defined in Section 22(e)(3) of the Code or Section 409A(a)(2)(c)(i) of the Code, as amended from time to time, or(iii) as defined in a policy of the Company that the Committee deems applicable to this Plan, or that makes reference to this Plan, for purposes of thisdefinition. 2.13. “employee” shall mean any person treated as an employee (including an officer or a director who is also treated as an employee) in therecords of the Company or any of its Affiliates (and in the case of 102 Awards, subject to Section ​9.3 or in the case of Incentive Stock Options, whois an employee for purposes of Section 422 of the Code); provided, however, that neither service as a director nor payment of a director’s fee shall besufficient to constitute employment for purposes of this Plan. The Company shall determine in the exercise of its discretion whether an individualhas become or has ceased to be an employee and the effective date of such individual’s employment or termination of employment, as the case maybe. For purposes of a person’s rights, if any, under this Plan as of the time of the Company’s determination, all such determinations by the Companyshall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes acontrary determination. - 3 - 2.14. “employment”, “employed” and words of similar import shall be deemed to refer to the employment of employees or to the services ofany other Service Provider, as the case may be. 2.15. “exercise” “exercised” and words of similar import, when referring to an Award that does not require exercise or that is settled uponvesting (such as may be the case with RSUs or Restricted Shares, if so determined in their terms), shall be deemed to refer to the vesting of such anAward (regardless of whether or not the wording included reference to vesting of such an Awards explicitly). 2.16. “Exercise Period” shall mean the period, commencing on the date of grant of an Award, during which an Award shall be exercisable,subject to any vesting provisions thereof (including any acceleration thereof, if any) and subject to the termination provisions hereof. 2.17. “Exercise Price” shall mean the exercise price for each Share covered by an Option or the purchase price for each Share covered by anyother Award. 2.18. “Fair Market Value” shall mean, as of any date, the value of a Share or other property as determined by the Committee, in its solediscretion, with full authority to determine the method for making such determination and which determination shall be conclusive and binding onall parties, and shall be made after such consultations with outside legal, accounting and other experts as and if the Committee deems advisable;provided, however, that, if applicable, the Fair Market Value of the Shares shall be determined (a) with respect to Non-Qualified Stock Options, in amanner that satisfies the applicable requirements of, and subject to the applicable exemption from, Section 409A of the Code, if applicable, (b) withrespect to Incentive Stock Options, in a manner that satisfies the applicable requirements of and subject to Section 422 of the Code, if applicable,and (c) with respect to 102 Awards in accordance with the Section 102, if applicable. 2.19. “Grantee” shall mean a person who has been granted an Award(s) under this Plan. 2.20. “IPO” shall mean the closing of an initial public offering of the Shares pursuant to an effective registration statement filed under theSecurities Act or equivalent law in another jurisdiction as a result of which the Shares become listed on one or more nationally recognized securitiesexchange(s). 2.21. “Ordinance” shall mean the Israeli Income Tax Ordinance (New Version) 1961, and the regulations and rules (including the Rules)promulgated thereunder, all as amended from time to time. 2.22. “Parent” shall mean any company (other than the Company), which now exists or is hereafter organized, (i) in an unbroken chain ofcompanies ending with the Company if, at the time of granting an Award, each of the companies (other than the Company) owns stock possessingfifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain, or (ii) if applicableand for purposes of Incentive Stock Options, that is a “parent corporation” of the Company, as defined in Section 424(e) of the Code. 2.23. “Prior Plan” shall mean each of the Company’s 2001 Section 102 Stock Option Plan, 2001 Stock Option Plan and 2011 Share IncentivePlan, in each case, as amended. - 4 - 2.24. “Retirement” shall mean a Grantee's retirement pursuant to Applicable Law or in accordance with the terms of any tax-qualifiedretirement plan maintained by the Company or any of its Affiliates in which the Grantee participates or is subject to. 2.25. “SEC” shall mean the U.S. Securities and Exchange Commission. 2.26. “Securities Act” shall mean the U.S. Securities Act of 1933, and the rules and regulations promulgated thereunder, all as amended fromtime to time. 2.27. “Service Provider” shall mean an Employee, director, officer, consultant, advisor and any other person or entity who provides services tothe Company or any Parent, Subsidiary or Affiliate of the Company. Service Providers shall include prospective Service Providers to whom Awardsare granted in connection with written offers of an employment or other service relationship with the Company or any Parent, Subsidiary or Affiliateof the Company, provided however that such employment or service shall have actually commenced. 2.28. “Shares” shall mean Ordinary Shares, par value NIS 0.01, of the Company (as adjusted for stock split, reverse stock split, bonus shares,combination or other recapitalization events), or shares of such other class of shares of the Company as shall be designated by the Board in respect ofthe relevant Award(s). “Shares” include any securities or property issued or distributed with respect thereto. 2.29. “Subsidiary” shall mean any company (other than the Company), which now exists or is hereafter organized or acquired by theCompany, (i) in an unbroken chain of companies beginning with the Company if, at the time of granting an Award, each of the companies other thanthe last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stockin one of the other companies in such chain, or (ii) if applicable and for purposes of Incentive Stock Options, that is a “subsidiary corporation” of theCompany, as defined in Section 424(f) of the Code. 2.30. “Ten Percent Shareholder” shall mean a Grantee who, at the time an Option is granted to the Grantee, owns shares possessing more thanten percent (10%) of the total combined voting power of all classes of shares of the Company or any Parent or Subsidiary, within the meaning ofSection 422(b)(6) of the Code. 2.31. “Trustee” shall mean the trustee appointed by the Committee to hold the Awards (and, in relation with 102 Awards, approved by theITA), if so appointed. - 5 - 2.32. Other Defined Terms. The following terms shall have the meanings ascribed to them in the Sections set forth below: TermSection102 Awards​1.2(i)102 Capital Gains Track Awards​9.1102 Non-Trustee Awards​9.2102 Ordinary Income Track Awards​9.1102 Trustee Awards​9.13(9) Awards​1.2(ii)Award Agreement​6Cause​6.6.4.4Company​1.1Effective Date​24.1Election​9.2Eligible 102 Grantees​9.3.1Incentive Stock Options​1.2(iii)ISO Share Issuance Limit​5ITA​1.1​(i)Market Stand-Off​17.1Market Stand-Off Period​17.1Nonqualified Stock Options​1.2​(iv)Plan​1.1Recapitalization​14.1Required Holding Period​9.5Restricted Period​11.2Restricted Share Agreement​11Restricted Share Unit Agreement​12Restricted Shares​1.1RSUs​1.1Rules​1.1(i)Securities​17.1Successor Corporation​14.2.1Withholding Obligations​18.4 3.ADMINISTRATION. 3.1. To the extent permitted under Applicable Law, the Articles of Association and any other governing document of the Company, this Planshall be administered by the Committee. In the event that the Board does not appoint or establish a committee to administer this Plan, this Plan shall beadministered by the Board. In the event that an action necessary for the administration of this Plan is required under Applicable Law to be taken by theBoard without the right of delegation, or if such action or power was explicitly reserved by the Board in appointing, establishing and empowering theCommittee, then such action shall be so taken by the Board. In any such event, all references herein to the Committee shall be construed as references to theBoard. Even if such a Committee was appointed or established, the Board may take any actions that are stated to be vested in the Committee, and shall notbe restricted or limited from exercising all rights, powers and authorities under this Plan or Applicable Law. - 6 - 3.2. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee,and shall fill vacancies in the Committee, however caused, provided that the composition of the Committee shall at all times be in compliance with anymandatory requirements of Applicable Law, the Articles of Association and any other governing document of the Company. The Committee may select oneof its members as its Chairman and shall hold its meetings at such times and places as it shall determine. The Committee may appoint a Secretary, who shallkeep records of its meetings, and shall make such rules and regulations for the conduct of its business as it shall deem advisable and subject to mandatoryrequirements of Applicable Law. 3.3. Subject to the terms and conditions of this Plan, any mandatory provisions of Applicable Law and any provisions of any Company policyrequired under mandatory provisions of Applicable Law, and in addition to the Committee's powers contained elsewhere in this Plan, the Committee shallhave full authority, in its discretion, from time to time and at any time, to determine any of the following, or to recommend to the Board any of the followingif it is not authorized to take such action according to Applicable Law: (i) eligible Grantees, (ii) grants of Awards and setting the terms and provisions of Award Agreements (which need not be identical) andany other agreements or instruments under which Awards are made, including, but not limited to, the number of Sharesunderlying each Award and the class of Shares underlying each Award (if more than one class was designated by the Board), (iii) the time or times at which Awards shall be granted, (iv) the terms, conditions and restrictions applicable to each Award (which need not be identical) and any Sharesacquired upon the exercise or (if applicable) vesting thereof, including, without limitation, (1) designating Awards under Section​1.2; (2) the vesting schedule, the acceleration thereof and terms and conditions upon which Awards may be exercised or becomevested, (3) the Exercise Price, (4) the time of the expiration of the Awards, (5) the effect of the Grantee’s termination ofemployment with the Company or any of its Affiliates, and (6) all other terms, conditions and restrictions applicable to theAward or the Shares not inconsistent with the terms of this Plan, (v) to accelerate, continue, extend or defer the exercisability of any Award or the vesting thereof, including withrespect to the period following a Grantee’s termination of employment or other service, (vi) the interpretation of this Plan and any Award Agreement and the meaning, interpretation and applicability ofterms referred to in Applicable Laws, (vii) policies, guidelines, rules and regulations relating to and for carrying out this Plan, and any amendment,supplement or rescission thereof, as it may deem appropriate, (viii) to adopt supplements to, or alternative versions of, this Plan, including, without limitation, as it deemsnecessary or desirable to comply with the laws of, or to accommodate the tax regime or custom of, foreign jurisdictions whosecitizens or residents may be granted Awards, (ix) the Fair Market Value of the Shares or other property, - 7 - (x) the tax track (capital gains, ordinary income track or any other track available under the Section 102 of theOrdinance) for the purpose of 102 Awards, (xi) the authorization and approval of conversion, substitution, cancellation or suspension under and in accordancewith this Plan of any or all Awards or Shares, (xii) the amendment, modification, waiver or supplement of the terms of each outstanding Award (with the consentof the applicable Grantee, if such amendments refers to the increase of the Exercise Price of Awards or reduction of the number ofShared underlying an Award (but, in each case, other than as a result of an adjustment or exercise of rights in accordance withSection ​14)) unless otherwise provided under the terms of this Plan, (xiii) without limiting the generality of the foregoing, and subject to the provisions of Applicable Law, to grant to aGrantee, who is the holder of an outstanding Award, in exchange for the cancellation of such Award, a new Award having anExercise Price lower than that provided in the Award so canceled and containing such other terms and conditions as theCommittee may prescribe in accordance with the provisions of this Plan or to set a new Exercise Price for the same Award lowerthan that previously provided in the Award, (xiv) to correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award Agreementand all other determinations and take such other actions with respect to this Plan or any Award as it may deem advisable to theextent not inconsistent with the provisions of this Plan or Applicable Law, (xv) to designate any of the Company’s officer or other persons to manage the day to day administration of theAwards granted under the Plan (such designation shall initially include the Company’s finance, legal and human resourcesdepartments and the Representative(s) pursuant to Section ​3.7) or authorize any of them to act on behalf of the Committee withrespect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to theCommittee herein; (xvi) to determine that Awards, Shares issuable upon the exercise or (if applicable) vesting of Awards and/or anysecurities issued or distributed with respect thereto, shall be allocated or issued to, or held by, the Representative in trust for thebenefit of the Grantees; and (xvii) any other matter which is necessary or desirable for, or incidental to, the administration of this Plan and anyAward thereunder. 3.4. The authority granted hereunder includes the authority to modify Awards to eligible individuals who are foreign nationals or areindividuals who are employed outside Israel to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of this Plan butwithout amending this Plan. 3.5. The Board and the Committee shall be free at all times to make such determinations and take such actions as they deem fit. The Boardand the Committee need not take the same action or determination with respect to all Awards, with respect to certain types of Awards, with respect to allService Providers or any certain type of Service Providers and actions and determinations may differ as among the Grantees, and as between the Grantees andany other holders of securities of the Company. - 8 - 3.6. All decisions, determinations, and interpretations of the Committee, the Board and the Company under this Plan shall be final andbinding on all Grantees (whether before or after the issuance of Shares pursuant to Awards), unless otherwise determined by the Committee, the Board or theCompany, respectively. The Committee shall have the authority (but not the obligation) to determine the interpretation and applicability of ApplicableLaws to any Grantee or any Awards. No member of the Committee or the Board shall be liable to any Grantee for any action taken or determination made ingood faith with respect to this Plan or any Award granted hereunder. 3.7. Any officer or authorized manager of the Company or other persons designated by the Company from time to time (including, withoutlimitation, the Trustee) (any such person, the “Representative”) shall have the authority to act on behalf of the Company with respect to any matter, right,obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided such Representative has apparentauthority with respect to such matter, right, obligation, determination or election. The Representative shall not be liable to any Grantee for any action taken,omission or determination made in good faith with respect to this Plan or any Award granted hereunder. 4.ELIGIBILITY. Awards may be granted to Service Providers of the Company or any Affiliate thereof, taking into account (at the Committee’s full discretion), thequalification under each tax regime pursuant to which such Awards are granted, subject to the limitation on the granting of Incentive Stock Options set forthin Section ​8.1. A person who has been granted an Award hereunder may be granted additional Awards, if the Committee shall so determine, subject to thelimitations herein. However, eligibility in accordance with this Section ​4 shall not entitle any person to be granted an Award, or, having been granted anAward, to be granted an additional Award. Awards may differ in number of Shares covered thereby, the terms and conditions applying to them or on the Grantees or in any other respect (including, thatthere should not be any expectation (and it is hereby disclaimed) that a certain treatment, interpretation or position granted to one shall be applied to theother, regardless of whether or not the facts or circumstances are the same or similar). 5.SHARES. 5.1. The maximum aggregate number of Shares that may be issued pursuant to Awards under this Plan (the “Pool”) shall be the sum of (a)422,000 Shares, plus (b) an increase of 1,220,054 Shares as of January 1, 2015, plus (c) on January 1 of each calendar year commencing in 2016, a number ofShares equal to the lesser of: (i) an amount determined by the Board, if so determined prior to the January 1 of the calendar year in which the increase willoccur, (ii) 4% of the total number of Shares outstanding on December 31 of the immediately preceding calendar year, and (iii) 4,000,000 Shares; in all eventssubject to adjustment as provided in Section 14.1. The Board may, at its discretion, reduce the number of Shares that may be issued under the Plan at any time(provided that such reduction does not adversely impact then outstanding Awards). 5.2. Any Shares (a) underlying an Award granted hereunder or an award granted under any Prior Plan (in an amount not to exceed 4,472,001Shares under the Prior Plans) that has expired, or was cancelled, terminated, forfeited, repurchased or settled in cash in lieu of issuance of Shares, for anyreason without having been exercised; (b) tendered to pay the Exercise Price of an Award (or the exercise price or other purchase price of any option or otheraward under the Prior Plans), or withholding tax obligations with respect to an Award (or any awards under the Prior Plans); or (c) subject to an Award (or anyaward under the Prior Plans) that are not delivered to a Grantee because such Shares are withheld to pay the Exercise Price of such Award (or of any awardunder the Prior Plans), or withholding tax obligations with respect to such Award (or such other award) shall automatically, and without any further action onthe part of the Company or any Grantee, again be available for grant of Awards and Shares issued upon exercise of (if applicable) vesting thereof for thepurposes of this Plan (unless this Plan shall have been terminated) or unless the Board determines otherwise. Such Shares may, in whole or in part, beauthorized but unissued Shares, treasury shares (dormant shares) or Shares otherwise that shall have been or may be repurchased by the Company (to theextent permitted pursuant to the Companies Law). - 9 - 5.3. Any Shares under the Pool that are not subject to outstanding or exercised Awards at the termination of this Plan shall cease to bereserved for the purpose of this Plan. 5.4. The total number of Shares that may be issued pursuant to Incentive Stock Options granted under this Plan shall be the number of Sharesdetermined in accordance with the Section 5.1, as adjusted in accordance with Section 5.2. 5.5. From and after the Effective Date, no further grants or awards shall be made under the Prior Plans; however, grants or awards made underthe Prior Plans before the Effective Date shall continue in effect in accordance with their terms. 6.TERMS AND CONDITIONS OF AWARDS. Each Award granted pursuant to this Plan shall be evidenced by a written or electronic agreement between the Company and the Grantee or a written orelectronic notice delivered by the Company (the “Award Agreement”), in substantially such form or forms and containing such terms and conditions, as theCommittee shall from time to time approve. The Award Agreement shall comply with and be subject to the following general terms and conditions and theprovisions of this Plan (except for any provisions applying to Awards under different tax regimes), unless otherwise specifically provided in such AwardAgreement, or the terms referred to in other Sections of this Plan applying to Awards under such applicable tax regimes, or terms prescribed by ApplicableLaw. Award Agreements need not be in the same form and may differ in the terms and conditions included therein. 6.1. Number of Shares. Each Award Agreement shall state the number of Shares covered by the Award. 6.2. Type of Award. Each Award Agreement may state the type of Award granted thereunder, provided that the tax treatment of any Award,whether or not stated in the Award Agreement, shall be as determined in accordance with Applicable Law. 6.3. Exercise Price. Each Award Agreement shall state the Exercise Price, if applicable. Unless otherwise set forth in this Plan, an ExercisePrice of an Award of less than the par value of the Shares shall comply with Section 304 of the Companies Law, 1999, as amended. Subject to Section 3 andto the foregoing and Sections 7.2 and 8.2, the Committee may reduce the Exercise Price of any outstanding Award, on terms and subject to such conditions asit deems advisable. The Exercise Price shall also be subject to adjustment as provided in Section ​14 hereof. - 10 - 6.4. Manner of Exercise. An Award may be exercised, as to any or all Shares as to which the Award has become exercisable, by: (a) writtennotice delivered in person or by mail (or such other methods of delivery prescribed by the Company) to the Representative, and in the absence thereof to theSecretary and the VP Finance and Accounting of the Company or to such other person as determined by the Committee, or in any other manner as theCommittee shall prescribe from time to time, specifying the number of Shares with respect to which the Award is being exercised (which may be equal to orlower than the aggregate number of Shares underlying Options that have become exercisable at such time, subject to the last sentence of this Section); and (b)payment of the aggregate Exercise Price for such Shares in the manner specified in the following sentence. The Exercise Price shall be paid in full withrespect to each Share, either in (i) cash, (ii) if the Company’s shares are listed for trading on any securities exchange or over-the-counter market, and if theCommittee so determines, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) ofan irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company, theRepresentative and/or to the Trustee, as applicable, (iii) if the Company’s shares are listed for trading on any securities exchange or over-the-counter market,and if the Committee so determines, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by theCompany) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all orpart of the loan proceeds to the Company, the Representative and/or Trustee, as applicable, or (iv) in such other manner as the Committee shall determine,which may include procedures for cashless exercise. 6.5. Term and Vesting of Awards. 6.5.1. Each Award Agreement shall provide the vesting schedule for the Award as determined by the Committee. The Committeeshall have the authority to determine the vesting schedule and accelerate the vesting of any outstanding Award at such time and under suchcircumstances as it, in its sole discretion, deems appropriate. Unless otherwise resolved by the Committee and stated in the Award Agreement, andsubject to Sections ​6.6 and ​6.7 hereof, Awards shall vest and become exercisable under the following schedule: twenty-five percent (25%) of theShares covered by the Award, on the first anniversary of the vesting commencement date determine by the Committee (and in the absence of suchdetermination, of date on which such Award was granted), and six and one-quarter percent (6.25%) of the Shares covered by the Award at the end ofeach subsequent three-month period thereafter over the course of the following three (3) years; provided that the Grantee remains continuously as aService Provider of the Company or its Affiliates throughout such vesting dates. 6.5.2. The Award Agreement may contain performance goals and measurements (which, in case of 102 Awards, shall, if thenrequired, be subject to obtaining a specific tax ruling or determination from the ITA), and the provisions with respect to any Award need not be thesame as the provisions with respect to any other Award. Such performance goals may include, but are not limited to, sales, earnings before interestand taxes, return on investment, earnings per share, any combination of the foregoing or rate of growth of any of the foregoing, as determined by theCommittee. The Committee may adjust performance goals pursuant to Awards previously granted to take into account changes in law andaccounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or the exclusion ofthe impact of extraordinary or unusual items, events or circumstances. 6.5.3. The Exercise Period of an Award will be ten (10) years from the date of grant of the Award, unless otherwise determined bythe Committee and stated in the Award Agreement, but subject to the vesting provisions described above and the early termination provisions setforth in Sections ​6.6 and ​6.7 hereof. At the expiration of the Exercise Period, any Award, or any part thereof, that has not been exercised within theterm of the Award and the Shares covered thereby not paid for in accordance with this Plan and the Award Agreement shall terminate and becomenull and void, and all interests and rights of the Grantee in and to the same shall expire. - 11 - 6.6. Termination. 6.6.1. Unless otherwise determined by the Committee, and subject to Section ​6.7 hereof, an Award may not be exercised unlessthe Grantee is then a Service Provider of the Company or an Affiliate thereof or, in the case of an Incentive Stock Option, a company or a parent orsubsidiary company of such company issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies, and unless theGrantee has remained continuously so employed since the date of grant of the Award and throughout the vesting dates. 6.6.2. In the event that the employment or service of a Grantee shall terminate (other than by reason of death, Disability orRetirement), all Awards of such Grantee that are unvested at the time of such termination shall terminate on the date of such termination, and allAwards of such Grantee that are vested and exercisable at the time of such termination may be exercised within up to three (3) months after the dateof such termination (or such different period as the Committee shall prescribe), but in any event no later than the date of expiration of the Award’sterm as set forth in the Award Agreement or pursuant to this Plan; provided, however, that if the Company (or its Affiliate, when applicable) shallterminate the Grantee’s employment or service for Cause (as defined below) or if at any time during the Exercise Period (whether prior to and aftertermination of employment or service, and whether or not the Grantee’s employment or service is terminated by either party as a result thereof), factsor circumstances arise or are discovered with respect to the Grantee that would have constituted Cause, all Awards theretofore granted to suchGrantee (whether vested or not) shall, to the extent not theretofore exercised, terminate on the date of such termination (or on such subsequent dateon which such facts or circumstances arise or are discovered, as the case may be) unless otherwise determined by the Committee. 6.6.3. Notwithstanding anything to the contrary, the Committee, in its absolute discretion, may, on such terms and conditions asit may determine appropriate, extend the periods for which Awards held by any Grantee may continue to vest and be exercisable; it being clarifiedthat such Awards may lose their entitlement to certain tax benefits under Applicable Law as a result of the modification of such Awards and/or in theevent that the Award is exercised beyond the later of: (i) three (3) months after the date of termination of the employment or service relationship; or(ii) the applicable period under Section ​6.7 below with respect to a termination of the employment or service relationship because of the death,Disability or Retirement of Grantee. 6.6.4. For purposes of this Plan: 6.6.4.1. a termination of employment or service of a Grantee shall not be deemed to occur (except to the extentrequired by the Code with respect to the Incentive Stock Option status of an Option) in case of (i) a transition or transfer of a Grantee among theCompany and its Affiliates, (ii) a change in the capacity in which the Grantee is employed or renders service to the Company or any of its Affiliatesor a change in the identity of the employing or engagement entity among the Company and its Affiliates, provided, in case of (i) and (ii) above, thatthe Grantee has remained continuously employed by and/or in the service of the Company and its Affiliates since the date of grant of the Award andthroughout the vesting period or (iii) if the Grantee takes any unpaid leave as set forth in Section ​6.8(i) below. - 12 - 6.6.4.2. An entity or an Affiliate thereof assuming an Award or issuing in substitution thereof in a transaction to whichSection 424(a) of the Code applies or in a Change in Control in accordance with Section ​14 shall be deemed as an Affiliate of the Company forpurposes of this Section ​6.6, unless the Committee determines otherwise. 6.6.4.3. In the case of a Grantee whose principal employer or service recipient is an Affiliate of the Company, theGrantee’s employment shall also be deemed terminated for purposes of this Section 6.6 as of the date on which such principal employer or service recipientceases to be an Affiliate of the Company. 6.6.4.4. The term “Cause” shall mean (irrespective of, and in addition to, any definition included in any otheragreement or instrument applicable to the Grantee, and unless otherwise determined by the Committee) any of the following: (i) any theft, fraud,embezzlement, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, falsification of any documents or records of theCompany or any of its Affiliates, felony or similar act by the Grantee (whether or not related to the Grantee’s relationship with the Company); (ii) anact of moral turpitude by the Grantee, or any act that causes significant injury to, or is otherwise adversely affecting, the reputation, business, assets,operations or business relationship of the Company (and its Affiliate, when applicable); (iii) any breach by the Grantee of any material agreementwith or of any material duty of the Grantee to the Company or any Affiliate thereof (including breach of confidentiality, non-disclosure, non-usenon-competition or non-solicitation covenants towards the Company or any of its Affiliates) or failure to abide by code of conduct or other policies(including, without limitation, policies relating to confidentiality and reasonable workplace conduct); or (iv) any act which constitutes a breach of aGrantee’s fiduciary duty towards the Company or its Affiliate, including disclosure of confidential or proprietary information thereof or acceptanceor solicitation to receive unauthorized or undisclosed benefits, irrespective of their nature, or funds, or promises to receive either, from individuals,consultants or corporate entities that the Company or its Affiliate does business with; (v) the Grantee’s unauthorized use, misappropriation,destruction, or diversion of any tangible or intangible asset or corporate opportunity of the Company or any of its Affiliates (including, withoutlimitation, the improper use or disclosure of confidential or proprietary information); or (vi) any circumstances that constitute grounds fortermination for cause under the Grantee’s employment or service agreement with the Company or its Affiliate, to the extent applicable. For theavoidance of doubt, the determination as to whether a termination is for Cause for purposes of this Plan, shall be made in good faith by theCommittee and shall be final and binding on the Grantee. 6.7. Death, Disability or Retirement of Grantee. 6.7.1. If a Grantee shall die while employed by, or performing service for, the Company or its Affiliates, or within the three (3)month period (or such longer period of time as determined by the Board, in its discretion) after the date of termination of such Grantee's employmentor service (or within such different period as the Committee may have provided pursuant to Section ​6.6 hereof), or if the Grantee's employment orservice shall terminate by reason of Disability, all Awards theretofore granted to such Grantee may (to the extent otherwise vested and exercisableand unless earlier terminated in accordance with their terms) be exercised by the Grantee or by the Grantee's estate or by a person who acquired thelegal right to exercise such Awards by bequest or inheritance, or by a person who acquired the legal right to exercise such Awards in accordance withApplicable Law in the case of Disability of the Grantee, as the case may be, at any time within one (1) year (or such longer period of time asdetermined by the Board, in its discretion) after the death or Disability of the Grantee (or such different period as the Committee shall prescribe), butin any event no later than the date of expiration of the Award’s term as set forth in the Award Agreement or pursuant to this Plan. In the event that anAward granted hereunder shall be exercised as set forth above by any person other than the Grantee, written notice of such exercise shall beaccompanied by a certified copy of letters testamentary or proof satisfactory to the Committee of the right of such person to exercise such Award. - 13 - 6.7.2. In the event that the employment or service of a Grantee shall terminate on account of such Grantee's Retirement, allAwards of such Grantee that are exercisable at the time of such Retirement may, unless earlier terminated in accordance with their terms, be exercisedat any time within the three (3) month period after the date of such Retirement (or such different period as the Committee shall prescribe). 6.8. Suspension of Vesting. Unless the Committee provides otherwise, vesting of Awards granted hereunder shall be not suspended duringunpaid leave of absence. 6.9. Voting Proxy. Until immediately after the listing for trading on a stock exchange or market or trading system of the Company’s (or theSuccessor Corporation’s) shares, the Shares subject to an Award or to be issued pursuant to an Award or any other Securities, shall, unless otherwisedetermined by the Committee, be subject to an irrevocable proxy and power of attorney by the Grantee, the Representative or the Trustee (if so requested bythe Company), as the case may be, to the Company, which shall designate such person or persons (with a right of substitution) from time to time asdetermined by the Committee (and in the absence of such determination, the CEO or Chairman of the Board, ex officio). Each of the Trustee and theRepresentative is deemed to be instructed by the Grantee to sign such proxy, as requested by the Company. The proxy shall entitle the holder thereof toreceive notices, vote and take such other actions in respect of the Shares or other Securities. Any person holding or exercising such voting proxies shall do sosolely in his capacity as the proxy holder and not individually. All Awards granted hereunder shall be conditioned upon the execution of such irrevocableproxy in substantially the form prescribed by the Committee from time to time. So long as any such Shares are subject to such irrevocable proxy and powerof attorney or held by a the Representative or the Trustee (and unless a proxy was given by them as aforesaid), (i) in any shareholders meeting or writtenconsent in lieu thereof, such Shares shall be voted by the proxy holder (or the Trustee or Representative, as applicable),unless directed otherwise by theBoard, in the same proportion as the result of the vote at the shareholders’ meeting (or written consent in lieu thereof) in respect of which the Shares are beingvoted (whether an extraordinary or annual meeting, and whether of the share capital as one class or of any class thereof), and (ii) or in any act or consent ofshareholders under the Company’s Articles of Association or otherwise, such Shares shall be cast by the proxy holder (or the Trustee or Representative, asapplicable), unless directed otherwise by the Board, in the same proportion as the result of the shareholders’ act or consent. The provisions of this Sectionshall apply to the Grantee and to any purchaser, assignee or transferee of any Shares. 6.10. Other Provisions. The Award Agreement evidencing Awards under this Plan shall contain such other terms and conditions notinconsistent with this Plan as the Committee may determine, at or after the date of grant, including provisions in connection with the restrictions ontransferring the Awards or Shares covered by such Awards, which shall be binding upon the Grantees and any purchaser, assignee or transferee of any Awards,and other terms and conditions as the Committee shall deem appropriate. Awards shall be subject to any other governing documents of the Company, allpolicies, manuals and internal regulations adopted by the Company from time to time, in each case, as may be amended from time to time, including anyprovisions included therein concerning restrictions or limitations on exercise of Awards (such as, but not limited to, lock up/market stand-off), any provisionsconcerning restrictions on the use of inside information and other provisions deemed by the Company to be appropriate. Each Grantee shall promptlyexecute (and authorizes any person designated by the Company to so execute) such separate agreement(s) or confirmations as may be requested by theCompany relating to matters set forth in this Section ​16.26.10. The execution of such separate agreement(s) may be a condition by the Company to grant orexercise of any Award. - 14 - 7.NONQUALIFIEDSTOCK OPTIONS. Options granted pursuant to this Section ​7 are intended to constitute Nonqualified Stock Options and shall be subject to the general terms and conditionsspecified in Section ​6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws orregulations. In the event of any inconsistency or contradictions between the provisions of this Section ​7 and the other terms of this Plan with respect toNonqualified Stock Options, this Section ​7 shall prevail. 7.1. Certain Limitations on Eligibility for Nonqualified Stock Options. Nonqualified Stock Options may not be granted to a Service Providerwho is deemed to be a resident of the United States for purposes of taxation or who is otherwise subject to United States federal income tax unless the Sharesunderlying such Options constitute “service recipient stock” under Section 409A of the Code or unless such Options comply with the payment requirementsof Section 409A of the Code. 7.2. Exercise Price. The Exercise Price of a Nonqualified Stock Option shall not be less than 100% of the Fair Market Value of a Share on thedate of grant of such Option unless the Committee specifically indicates that the Option will have a lower Exercise Price and, the Option complies withSection 409A of the Code. Notwithstanding the foregoing, a Nonqualified Stock Option may be granted with an exercise price lower than the minimumexercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that complies with Section1.409A-1(b)(5)(v)(D) of the U.S. Treasury Regulations or any successor guidance. 8.INCENTIVE STOCK OPTIONS. Options granted pursuant to this Section 8 are intended to constitute Incentive Stock Options and shall be granted subject to the following special terms andconditions, the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying toAwards under different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section 8 and the otherterms of this Plan with respect to Incentive Stock Options, this Section 8 shall prevail. 8.1. Eligibility for Incentive Stock Options. Incentive Stock Options may be granted only to Employees of the Company, or to Employees ofa Parent or Subsidiary of the Company, determined as of the date of grant of such Options. An Incentive Stock Option granted to a prospective Employeeupon the condition that such person become an Employee shall be deemed granted effective on the date such person commences employment, with anexercise price determined as of such date in accordance with Section ​8.2. 8.2. Exercise Price. The Exercise Price of an Incentive Stock Option shall not be less than one hundred percent (100%) of the Fair MarketValue of a Share on the date of grant of such Option or such other price as may be determined pursuant to the Code. Notwithstanding the foregoing, anIncentive Stock Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to anassumption or substitution for another option in a manner that complies with the provisions of Section 424(a) of the Code. - 15 - 8.3. Date of Grant. Notwithstanding any other provision of this Plan to the contrary, no Incentive Stock Options may be granted under thisPlan after 10 years from the date this Plan is adopted, or the date this Plan is approved by the shareholders, whichever is earlier. 8.4. Exercise Period. No Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant ofsuch Award, subject to Section ​8.6. No Incentive Stock Option granted to a prospective Employee may become exercisable prior to the date on which suchperson commences employment. 8.5. $100,000 Per Year Limitation. The aggregate Fair Market Value (determined as of the date the option is granted) of the Shares withrespect to which all Incentive Stock Options granted under this Plan and all other “incentive stock option” plans of the Company, or of any Parent orSubsidiary, become exercisable for the first time by each Grantee during any calendar year shall not exceed one hundred thousand United States dollars($100,000) with respect to such Grantee. To the extent that the aggregate Fair Market Value of Shares with respect to which such Incentive Stock Optionsand any other such incentive stock options are exercisable for the first time by any Grantee during any calendar year exceeds one hundred thousand UnitedStates dollars ($100,000), such options shall be treated as Nonqualified Stock Options. The foregoing shall be applied by taking options into account in theorder in which they were granted. If the Code is amended to provide for a different limitation from that set forth in this Section ​8.5, such different limitationshall be deemed incorporated herein effective as of the date and with respect to such Awards as required or permitted by such amendment to the Code. If anOption is treated as an Incentive Stock Option in part and as a Nonqualified Stock Option in part by reason of the limitation set forth in this Section ​8.5, theGrantee may designate which portion of such Option the Grantee is exercising. In the absence of such designation, the Grantee shall be deemed to haveexercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion may be issued upon the exercise of theOption. 8.6. Ten Percent Shareholder. In the case of an Incentive Stock Option granted to a Ten Percent Shareholder, (i) the Exercise Price shall notbe less than one hundred and ten percent (110%) of the Fair Market Value of a Share on the date of grant of such Incentive Stock Option, and (ii) the ExercisePeriod shall not exceed five (5) years from the effective date of grant of such Incentive Stock Option. 8.7. Payment of Exercise Price. Each Award Agreement evidencing an Incentive Stock Option shall state each alternative method by whichthe Exercise Price thereof may be paid. 8.8. Leave of Absence. Notwithstanding Section ​6.8, a Grantee’s employment shall not be deemed to have terminated if the Grantee takesany leave as set forth in Section ​6.8(i); provided, however, that if any such leave exceeds three (3) months, on the day that is six (6) months following thecommencement of such leave any Incentive Stock Option held by the Grantee shall cease to be treated as an Incentive Stock Option and instead shall betreated thereafter as a Nonqualified Stock Option, unless the Grantee’s right to return to employment is guaranteed by statute or contract. 8.9. Exercise Following Termination for Disability. Notwithstanding anything else in this Plan to the contrary, Incentive Stock Options thatare not exercised within three (3) months following termination of the Grantee’s employment with the Company or its Parent or Subsidiary or a corporationissuing or assuming an Option in a transaction to which Section 424(a) of the Code applies, or within one year in case of termination of the Grantee’semployment with the Company or its Parent or Subsidiary due to a Disability (within the meaning of Section 22(e)(3) of the Code), shall be deemed to beNonqualified Stock Options. - 16 - 8.10. Adjustments to Incentive Stock Options. Any Awards Agreement providing for the grant of Incentive Stock Options shall indicate thatadjustments made pursuant to this Plan with respect to Incentive Stock Options could constitute a “modification” of such Incentive Stock Options (as thatterm is defined in Section 424(h) of the Code) or could cause adverse tax consequences for the holder of such Incentive Stock Options and that the holdershould consult with his or her tax advisor regarding the consequences of such “modification” on his or her income tax treatment with respect to the IncentiveStock Option. 8.11. Notice to Company of Disqualifying Disposition. Each Grantee who receives an Incentive Stock Option must agree to notify theCompany in writing immediately after the Grantee makes a Disqualifying Disposition of any Shares received pursuant to the exercise of Incentive StockOptions. A “Disqualifying Disposition” is any disposition (including any sale) of such Shares before the later of (i) two years after the date the Grantee wasgranted the Incentive Stock Option, or (ii) one year after the date the Grantee acquired Shares by exercising the Incentive Stock Option. If the Grantee diesbefore such Shares are sold, these holding period requirements do not apply and no disposition of the Shares will be deemed a Disqualifying Disposition. 9.102 AWARDS. Awards granted pursuant to this Section ​9 are intended to constitute 102 Awards and shall be granted subject to the following special terms and conditions,the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awardsunder different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section ​9 and the other terms of thisPlan, this Section ​9 shall prevail. 9.1. Tracks. Awards granted pursuant to this Section ​9 are intended to be granted pursuant to Section 102 of the Ordinance pursuant to either(i) Section 102(b)(2) or Section 102(b)(3) thereof, as applicable, under the capital gain track (“102 Capital Gain Track Awards”), or (ii) Section 102(b)(1)thereof under the ordinary income track (“102 Ordinary Income Track Awards”, and together with 102 Capital Gain Track Awards, “102 TrusteeAwards”). 102 Trustee Awards shall be granted subject to the special terms and conditions contained in this Section ​9, the general terms and conditionsspecified in Section ​6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Options under different tax laws orregulations. 9.2. Election of Track. Subject to Applicable Law, the Company may grant only one type of 102 Trustee Awards at any given time to allGrantees who are to be granted 102 Trustee Awards pursuant to this Plan, and shall file an election with the ITA regarding the type of 102 Trustee Awards itelects to grant before the date of grant of any 102 Trustee Awards (the “Election”). Such Election shall also apply to any other securities, including bonusshares, received by any Grantee as a result of holding the 102 Trustee Awards. The Company may change the type of 102 Trustee Awards that it elects togrant only after the expiration of at least twelve (12) months from the end of the year in which the first grant was made in accordance with the previousElection, or as otherwise provided by Applicable Law. Any Election shall not prevent the Company from granting Awards, pursuant to Section 102(c) of theOrdinance without a Trustee (“102 Non-Trustee Awards”). - 17 - 9.3. Eligibility for Awards. 9.3.1. Subject to Applicable Law, 102 Awards may only be granted to an "employee" within the meaning of Section 102(a) of theOrdinance (which as of the date of the adoption of this Plan means (i) individuals employed by an Israeli company being the Company or any of itsAffiliates, and (ii) individuals who are serving and are engaged personally (and not through an entity) as “office holders” by such an Israelicompany), but may not be granted to a Controlling Shareholder (“Eligible 102 Grantees”). Eligible 102 Grantees may receive only 102 Awards,which may either be granted to a Trustee or granted under Section 102 of the Ordinance without a Trustee. 9.4. 102 Award Grant Date. 9.4.1. Each 102 Award will be deemed granted on the date determined by the Committee, subject to Section ​9.4.2, provided that(i) the Grantee has signed all documents required by the Company or pursuant to Applicable Law, and (ii) with respect to 102 Trustee Award, theCompany has provided all applicable documents to the Trustee in accordance with the guidelines published by the ITA. 9.4.2. Unless otherwise permitted by the Ordinance, any grants of 102 Trustee Awards that are made on or after the date of theadoption of this Plan or an amendment to this Plan, as the case may be, that may become effective only at the expiration of thirty (30) days after thefiling of this Plan or any amendment thereof (as the case may be) with the ITA in accordance with the Ordinance shall be conditional upon theexpiration of such 30-day period, such condition shall be read and is incorporated by reference into any corporate resolutions approving such grantsand into any Award Agreement evidencing such grants (whether or not explicitly referring to such condition), and the date of grant shall be at theexpiration of such 30-day period, whether or not the date of grant indicated therein corresponds with this Section. In the case of any contradiction,this provision and the date of grant determined pursuant hereto shall supersede and be deemed to amend any date of grant indicating in anycorporate resolution or Award Agreement. 9.5. 102 Trustee Awards. 9.5.1. Each 102 Trustee Award, each Share issued pursuant to the exercise of any 102 Trustee Award, and any rights grantedthereunder, including bonus shares, shall be issued to and registered in the name of the Trustee and shall be held in trust for the benefit of theGrantee for the requisite period prescribed by the Ordinance or such longer period as set by the Committee (the “Required Holding Period”). In theevent that the requirements under Section 102 of the Ordinance to qualify an Award as a 102 Trustee Award are not met, then the Award may betreated as a 102 Non-Trustee Award or 3(9) Award, all in accordance with the provisions of the Ordinance. After expiration of the Required HoldingPeriod, the Trustee may release such 102 Trustee Awards and any such Shares, provided that (i) the Trustee has received an acknowledgment fromthe ITA that the Grantee has paid any applicable taxes due pursuant to the Ordinance, or (ii) the Trustee and/or the Company and/or its Affiliatewithholds all applicable taxes and compulsory payments due pursuant to the Ordinance arising from the 102 Trustee Awards and/or any Sharesissued upon exercise or (if applicable) vesting of such 102 Trustee Awards. The Trustee shall not release any 102 Trustee Awards or Shares issuedupon exercise or (if applicable) vesting thereof prior to the payment in full of the Grantee’s tax and compulsory payments arising from such 102Trustee Awards and/or Shares or the withholding referred to in (ii) above. - 18 - 9.5.2. Each 102 Trustee Award shall be subject to the relevant terms of the Ordinance, the Rules and any determinations, rulingsor approvals issued by the ITA, which shall be deemed an integral part of the 102 Trustee Awards and shall prevail over any term contained in thisPlan or Award Agreement that is not consistent therewith. Any provision of the Ordinance, the Rules and any determinations, rulings or approvalsby the ITA not expressly specified in this Plan or Award Agreement that are necessary to receive or maintain any tax benefit pursuant to Section 102of the Ordinance shall be binding on the Grantee. The Grantee granted a 102 Trustee Awards shall comply with the Ordinance and the terms andconditions of the trust agreement entered into between the Company and the Trustee. The Grantee shall execute (and authorizes any persondesignated by the Company to so execute) any and all documents that the Company and/or its Affiliates and/or the Trustee determine from time totime to be necessary in order to comply with the Ordinance and the Rules. 9.5.3. During the Required Holding Period, the Grantee shall not release from trust or sell, assign, transfer or give as collateral, theShares issuable upon the exercise or (if applicable) vesting of a 102 Trustee Awards and/or any securities issued or distributed with respect thereto,until the expiration of the Required Holding Period. Notwithstanding the above, if any such sale, release or other action occurs during the RequiredHolding Period it may result in adverse tax consequences to the Grantee under Section 102 of the Ordinance and the Rules, which shall apply to andshall be borne solely by such Grantee. Subject to the foregoing, the Trustee may, pursuant to a written request from the Grantee, but subject to theterms of this Plan, release and transfer such Shares to a designated third party, provided that both of the following conditions have been fulfilledprior to such release or transfer: (i) payment has been made to the ITA of all taxes and compulsory payments required to be paid upon the release andtransfer of the Shares, and confirmation of such payment has been received by the Trustee and the Company, and (ii) the Trustee has received writtenconfirmation from the Company that all requirements for such release and transfer have been fulfilled according to the terms of the Company’scorporate documents, any agreement governing the Shares, this Plan, the Award Agreement and any Applicable Law. 9.5.4. If a 102 Trustee Award is exercised or (if applicable) vested, the Shares issued upon such exercise or (if applicable) vestingshall be issued in the name of the Trustee for the benefit of the Grantee. 9.5.5. Upon or after receipt of a 102 Trustee Award, if required, the Grantee may be required to sign an undertaking to release theTrustee from any liability with respect to any action or decision duly taken and executed in good faith by the Trustee in relation to this Plan, or any102 Trustee Awards or Share granted to such Grantee thereunder. 9.6. 102 Non-Trustee Awards. The foregoing provisions of this Section ​9 relating to 102 Trustee Awards shall not apply with respect to 102Non-Trustee Awards, which shall, however, be subject to the relevant provisions of Section 102 of the Ordinance and the applicable Rules. The Committeemay determine that 102 Non-Trustee Awards, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Awards and/or anysecurities issued or distributed with respect thereto, shall be allocated or issued to, or held by, the Trustee or the Representative, who shall hold such 102Non-Trustee Awards and all accrued rights thereon (if any), in trust for the benefit of the Grantee and/or the Company, as the case may be, until the fullpayment of tax arising from the 102 Non-Trustee Awards, the exercise thereof, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Awards and/or any securities issued or distributed with respect thereto. Alternatively, if no trust is implemented with respect to 102 Non-TrusteeAwards, then the Grantee, at the request of the Company or any of its Affiliates or the Representative, shall extend to the Company, its Affiliates or theRepresentative a security or guarantee for due and timely payment of all taxes and other compulsory payments due at the time of sale of Shares, to thesatisfaction of each of the Company, its Affiliates or the Representative. - 19 - 9.7. Israeli Index Base for 102 Awards. Each 102 Award will be subject to the Israeli index base of the Value of Benefit, as defined in Section102(a) of the Ordinance, as determined by the Committee in its discretion, pursuant to the Rules, from time to time. The Committee may amend (which mayhave a retroactive effect) the Israeli index base, pursuant to the Ordinance, without the Grantee’s consent. 9.8. Written Grantee Undertaking. To the extent and with respect to any 102 Trustee Award, and as required by Section 102 of the Ordinanceand the Rules, by virtue of the receipt of such Award, the Grantee is deemed to have undertaken and confirm in writing the following (and such undertakingis deemed incorporated into any documents signed by the Grantee in connection with the employment or service of the Grantee and/or the grant of suchAward). The following written undertaking shall be deemed to apply and relate to all 102 Awards granted to the Grantee, whether under this Plan or otherplans maintained by the Company, and whether prior to or after the date hereof. 9.8.1. The Grantee shall comply with all terms and conditions set forth in Section 102 of the Ordinance with regard to the“Capital Gain Track” or the “Ordinary Income Track”, as applicable, and the applicable rules and regulations promulgated thereunder, as amendedfrom time to time; 9.8.2. The Grantee is familiar with, and understands the provisions of, Section 102 of the Ordinance in general, and the taxarrangement under the “Capital Gain Track” or the “Ordinary Income Track” in particular, and its tax consequences; the Grantee agrees that the 102Awards and Shares that may be issued upon exercise or (if applicable) vesting of the 102 Awards (or otherwise in relation to the 102 Awards), will beheld by a trustee appointed pursuant to Section 102 of the Ordinance for at least the duration of the Holding Period (as such term is defined inSection 102) under the "Capital Gain Track" or the “Ordinary Income Track”, as applicable. The Grantee understands that any release of suchAwards or Shares from trust, or any sale of the Share prior to the termination of the Holding Period, as defined above, will result in taxation atmarginal tax rate, in addition to deductions of appropriate social security, health tax contributions or other compulsory payments; and 9.8.3. The Grantee agrees to the trust deed signed between the Company, his employing company and the trustee appointedpursuant to Section 102 of the Ordinance. 10.3(9) AWARDS. Awards granted pursuant to this Section ​10 are intended to constitute 3(9) Awards and shall be granted subject to the general terms and conditions specifiedin Section ​6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws or regulations. In theevent of any inconsistency or contradictions between the provisions of this Section ​10 and the other terms of this Plan, this Section ​10 shall prevail. 10.1. To the extent deemed by the Committee to be advisable or if required by Applicable Law, the 3(9) Awards and/or any shares or othersecurities issued or distributed with respect thereto granted pursuant to this Plan shall be allocated or issued to, or held by, the Trustee or the Representativewho shall hold the same and all accrued rights thereon (if any), in trust for the benefit of the Grantee and/or the Company, as the case may be, until the fullpayment of tax arising from the 3(9) Awards, the exercise thereof, Shares issuable upon the exercise or (if applicable) vesting thereof and/or any securitiesissued or distributed with respect thereto. , pursuant to the Company's instructions from time to time as set forth in a trust agreement, which will have beenentered into between the Company and the Trustee. If determined by the Board or the Committee, and subject to such trust agreement, the Trustee or theRepresentative shall be responsible for withholding any taxes to which a Grantee may become liable upon issuance of Shares, whether due to the exercise or(if applicable) vesting of Awards. Alternatively, if no trust is implemented with respect to 3(9) Awards, then the Grantee, at the request of the Company orany of its Affiliates or the Representative, shall extend to the Company, its Affiliates or the Representative a security or guarantee for due and timely paymentof all taxes and other compulsory payments due at the time of exercise of Awards and sale of Shares, to the satisfaction of each of the Company, its Affiliatesor the Representative. - 20 - 10.2. Shares pursuant to a 3(9) Award shall not be issued, unless the Grantee delivers to the Company payment in cash or by bank check orsuch other form acceptable to the Committee of all withholding taxes due, if any, on account of the Grantee acquired Shares under the Award or gives otherassurance satisfactory to the Committee of the payment of those withholding taxes. 11.RESTRICTED SHARES. The Committee may award Restricted Shares to any eligible Grantee, including under Section 102 of the Ordinance. Each Award of Restricted Shares underthis Plan shall be evidenced by a written agreement between the Company and the Grantee (the “Restricted Share Agreement”), in such form as theCommittee shall from time to time approve. The Restricted Shares shall be subject to all applicable terms of this Plan, which in the case of Restricted Sharesgranted under Section 102 of the Ordinance shall include Section ​9 hereof, and may be subject to any other terms that are not inconsistent with this Plan. Theprovisions of the various Restricted Shares Agreements entered into under this Plan need not be identical. The Restricted Share Agreement shall comply withand be subject to Section ​6, with the necessary changes, and the following terms and conditions, unless otherwise specifically provided in such Agreementand not inconsistent with this Plan, or Applicable Law: 11.1. Purchase Price. Section ​6.4 shall not apply. Each Restricted Share Agreement shall state an amount of Exercise Price to be paid by theGrantee, if any, in consideration for the issuance of the Restricted Shares and the terms of payment thereof, which may include, payment in cash or, subject tothe Committee’s approval, by issuance of promissory notes or other evidence of indebtedness on such terms and conditions as determined by it. 11.2. Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will orthe laws of descent and distribution (in which case they shall be transferred subject to all restrictions then or thereafter applicable thereto), until suchRestricted Shares shall have vested (the period from the date on which the Award is granted until the date of vesting of the Restricted Share thereunder beingreferred to herein as the “Restricted Period”). The Committee may also impose such additional or alternative restrictions and conditions on the RestrictedShares, as it deems appropriate, including the satisfaction of performance criteria. Such performance criteria may include, but are not limited to, sales,earnings before interest and taxes, return on investment, earnings per share, any combination of the foregoing or rate of growth of any of the foregoing, asdetermined by the Committee or pursuant to the provisions of any Company policy required under mandatory provisions of Applicable Law. Certificates forshares issued pursuant to Restricted Share Awards, if issued, shall bear an appropriate legend referring to such restrictions, and any attempt to dispose of anysuch shares in contravention of such restrictions shall be null and void and without effect. Such certificates may, if so determined by the Committee, be heldin escrow by an escrow agent appointed by the Committee, or, if a Restricted Share Award is made pursuant to Section 102 of the Ordinance, by theTrustee. In determining the Restricted Period of an Award the Committee may provide that the foregoing restrictions shall lapse with respect to specifiedpercentages of the awarded Restricted Shares on successive anniversaries of the date of such Award. To the extent required by the Ordinance or the ITA, theRestricted Shares issued pursuant to Section 102 of the Ordinance shall be issued to the Trustee in accordance with the provisions of the Ordinance and theRestricted Shares shall be held for the benefit of the Grantee for at least the Required Holding Period. - 21 - 11.3. Forfeiture; Repurchase. Subject to such exceptions as may be determined by the Committee, if the Grantee's continuous employmentwith or service to the Company or any Affiliate thereof shall terminate for any reason prior to the expiration of the Restricted Period of an Award or prior tothe timely payment in full of the Exercise Price of any Restricted Shares, any Shares remaining subject to vesting or with respect to which the purchase pricehas not been paid in full, shall thereupon be forfeited, transferred to, and redeemed, repurchased or cancelled by, as the case may be, in any manner as set forthin Section ​6.6.2(i) through (v), subject to Applicable Laws and the Grantee shall have no further rights with respect to such Restricted Shares. 11.4. Ownership. During the Restricted Period the Grantee shall possess all incidents of ownership of such Restricted Shares, subject toSection ​6.9 and Section ​11.2, including the right to vote and receive dividends with respect to such Shares and with respect to 102 Awards, all in accordancewith the provisions of Section 102 and the Rules. All securities, if any, received by a Grantee with respect to Restricted Shares as a result of any stock split,stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Award. 12.RESTRICTED SHARE UNITS. An RSU is an Award covering a number of Shares that is settled, if vested and (if applicable) exercised, by issuance of those Shares. An RSU may be awardedto any eligible Grantee, including under Section 102 of the Ordinance, provided that, to the extent required by Applicable Laws, a ruling is obtained from theITA to grant RSUs as 102 Trustee Awards. The Award Agreement relating to the grant of RSUs under this Plan (the “Restricted Share Unit Agreement”),shall be in such form as the Committee shall from time to time approve. The RSUs shall be subject to all applicable terms of this Plan, which in the case ofRSUs granted under Section 102 of the Ordinance shall include Section ​9 hereof, and may be subject to any other terms that are not inconsistent with thisPlan. The provisions of the various Restricted Share Unit Agreements entered into under this Plan need not be identical. RSUs may be granted inconsideration of a reduction in the recipient’s other compensation. 12.1. Exercise Price. No payment of Exercise Price shall be required as consideration for RSUs, unless included in the Award Agreement or asrequired by Applicable Law (including, Section 304 of the Companies Law, 1999, as amended), and Section ​6.4 shall apply, if applicable. 12.2. Shareholders’ Rights. The Grantee shall not possess or own any ownership rights in the Shares underlying the RSUs and no rights as ashareholder shall exist prior to the actual issuance of Shares in the name of the Grantee. No rights as a shareholder shall exist prior to the actual issuance ofShares in the name of the Trustee, in case of 102 Trustee Awards. 12.3. Settlements of Awards. Settlement of vested RSUs shall be made in the form of Shares. Distribution to a Grantee of an amount (oramounts) from settlement of vested RSUs can be deferred to a date after settlement as determined by the Committee and is further subject to the provisions ofSection ​18. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until the grant of RSUs is settled, thenumber of Shares underlying such RSUs shall be subject to adjustment pursuant hereto. - 22 - 12.4. Section 409A Restrictions. Notwithstanding anything to the contrary set forth herein, any RSUs granted under this Plan that are notexempt from the requirements of Section 409A of the Code shall contain such restrictions or other provisions so that such RSUs will comply with therequirements of Section 409A of the Code, if applicable to the Company. Such restrictions, if any, shall be determined by the Committee and contained inthe Restricted Share Unit Agreement evidencing such RSU. For example, such restrictions may include a requirement that any Shares that are to be issued ina year following the year in which the RSU vests must be issued in accordance with a fixed, pre-determined schedule. 13.OTHER SHARE OR SHARE-BASED AWARDS. 13.1. The Committee may grant other Awards under this Plan pursuant to which Shares (which may, but need not, be Restricted Sharespursuant to Section 11 hereof), cash (in settlement of Share-based Awards) or a combination thereof, are or may in the future be acquired or received, orAwards denominated in stock units, including units valued on the basis of measures other than market value. 13.2. The Committee may also grant stock appreciation rights without the grant of an accompanying option, which rights shall permit theGrantees to receive, at the time of any exercise of such rights, cash equal to the amount by which the Fair Market Value of the Shares in respect to which theright is so exercised exceed the exercise price thereof. The exercise price of any such stock appreciation right granted to a Grantee who is subject to U.S.federal income tax shall be determined in compliance with Section 7.2. 13.3. Such other Share-based Awards as set forth above may be granted alone, in addition to, or in tandem with any Award of any typegranted under this Plan. 14.EFFECT OF CERTAIN CHANGES. 14.1. General. In the event of a division or subdivision of the outstanding share capital of the Company, any distribution of bonus shares(stock split), consolidation or combination of share capital of the Company (reverse stock split), reclassification with respect to the Shares or any similarrecapitalization events (each, a "Recapitalization"), a merger (including, a reverse merger and a reverse triangular merger), consolidation, amalgamation orlike transaction of the Company with or into another corporation, a reorganization (which may include a combination or exchange of shares, spin-off or othercorporate divestiture or division, or other similar occurrences, the Committee shall have the authority to make, without the need for a consent of any holder ofan Award, such adjustments as determined by the Committee to be appropriate, in its discretion, in order to adjust (i) the number and class of shares reservedand available for grants of Awards, (ii) the number and class of shares covered by outstanding Awards, (iii) the Exercise Price per share covered by any Award,(iv) the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding Awards, and (v) any other terms of theAward that in the opinion of the Committee should be adjusted. Any fractional shares resulting from such adjustment shall be treated as determined by theCommittee, and in the absence of such determination shall be rounded to the nearest whole share, and the Company shall have no obligation to make anycash or other payment with respect to such fractional shares. No adjustment shall be made by reason of the distribution of subscription rights or rightsoffering to outstanding shares or other issuance of shares by the Company, unless the Committee determines otherwise. The adjustments determined pursuantto this Section ​14.1 (including a determination that no adjustment is to be made) shall be final, binding and conclusive. - 23 - 14.2. Change in Control. In the event of (i) a sale of all or substantially all of the assets of the Company, or a sale (including an exchange) ofall or substantially all of the shares of the Company, to any person, or a purchase by a shareholder of the Company or by an Affiliate of such shareholder, ofall or substantially all the shares of the Company held by all or substantially all other shareholders or by other shareholders who are not Affiliated with suchacquiring party; (ii) a merger (including, a reverse merger and a reverse triangular merger), consolidation, amalgamation or like transaction of the Companywith or into another corporation; (iii) a scheme of arrangement for the purpose of effecting such sale, merger, consolidation, amalgamation or othertransaction; (iv) Change in Board Event, (v) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, or (vi)such other transaction or set of circumstances that is determined by the Board (being the Incumbent Board in case of a Change in Board Event), in itsdiscretion, to be a transaction subject to the provisions of this Section ​14.2; excluding any of the above transactions in clauses (i) through (v) if the Board(being the Incumbent Board in case of a Change in Board Event) determines that such transaction should be excluded from the definition hereof and theapplicability of this Section ​14.2 (any of such transactions, a “Change in Control”), then, without derogating from the general authority and power of theBoard or the Committee under this Plan, without the Grantee’s consent and action and without any prior notice requirement: 14.2.1. Unless otherwise determined by the Committee in its sole and absolute discretion, any Award then outstanding shall beassumed or be substituted by the Company, or by the successor corporation in such Change in Control or by any Affiliate thereof, as determined bythe Committee in its discretion (the “Successor Corporation”), under terms as determined by the Committee or the terms of this Plan applied by theSuccessor Corporation to such assumed or substituted Awards. For the purposes of this Section 14.2.1, the Award shall be considered assumed or substituted if, following a Change in Control, the Award conferson the holder thereof the right to purchase or receive, for each Share underlying an Award immediately prior to the Change in Control, either (i) theconsideration (whether stock, cash, or other securities or property, or any combination thereof) distributed to or received by holders of Shares in theChange in Control for each Share held on the effective date of the Change in Control (and if holders were offered a choice or several types ofconsideration, the type of consideration as determined by the Committee), or (ii) regardless of the consideration received by the holders of Shares inthe Change in Control, solely shares or any type of awards (or their equivalent) of the Successor Corporation at a value to be determined by theCommittee in its discretion, or a certain type of consideration (whether stock, cash, or other securities or property, or any combination thereof) asdetermined by the Committee. Any of the above consideration referred to in clauses (i) and (ii) may be subject to vesting, expiration and other termsas determined by the Committee in its discretion and may differ from the vesting, expiration and other terms applying on the Awards immediatelyprior to the Change in Control. The foregoing shall not limit the Committee's authority to determine, in its sole discretion, that in lieu of suchassumption or substitution of Awards for Awards of the Successor Corporation, such Award will be substituted for any other type of asset or property,including as set forth in Section 14.2.2 hereunder. 14.2.2. Regardless of whether or not Awards are assumed or substituted the Committee may (but shall not be obligated to), in itssole discretion: 14.2.2.1. provide for the Grantee to have the right to exercise the Award or otherwise for the acceleration of vestingof the Award in respect of all or part of the Shares covered by the Award which would not otherwise be exercisable or vested, under such terms andconditions as the Committee shall determine, and the cancellation of all unexercised (whether vested or unvested) Awards upon or immediately priorto the closing of the Change in Control; and/or - 24 - 14.2.2.2. provide for the cancellation of each outstanding and unexercised Awards at or immediately prior to theclosing of such Change in Control, and payment to the Grantee of an amount in cash, shares of the Company, the acquirer or of a corporation orother business entity which is a party to the Change in Control or other property, as determined by the Committee to be fair in the circumstances,and subject to such terms and conditions as determined by the Committee. The Committee shall have full authority to select the method fordetermining the payment (being the Black-Scholes model or any other method). The Committee’s determination may further provide that paymentshall be set to zero if the value of the Shares is determined to be less than the Exercise Price or in respect of Shares covered by the Award whichwould not otherwise be exercisable or vested, or that payment may be made only in excess of the Exercise Price. 14.2.3. The Committee may determine that any payments made in respect of Awards shall be made or delayed to the same extentthat payment of consideration to the holders of the Shares in connection with the Change in Control is made or delayed as a result of escrows,indemnification, earn outs, holdbacks or any other contingencies; and the terms and conditions applying to the payment made to the Grantees,including participation in escrow, indemnification, releases, earn-outs, holdbacks or any other contingencies. 14.2.4. Notwithstanding the foregoing, in the event of a Change in Control, the Committee may determine, in its sole discretion,that upon completion of such Change in Control the terms of any Award shall be otherwise amended, modified or terminated, as the Committee shalldeem in good faith to be appropriate and without any liability to the Company or its Affiliates and to their respective officers, directors, employeesand representatives, and the respective successors and assigns of any of the foregoing, in connection with the method of treatment or chosen courseof action permitted hereunder. 14.2.5. Neither the authorities and powers of the Committee under this Section 14.2, nor the exercise or implementation thereof,shall (i) be restricted or limited in any way by any adverse consequences (tax or otherwise) that may result to any holder of an Award, and (ii) as,inter alia, being a feature of the Award upon its grant, be deemed to constitute a change or an amendment of the rights of such holder under thisPlan, nor shall any such adverse consequences (as well as any adverse tax consequences that may result from any tax ruling or other approval ordetermination of any relevant tax authority) be deemed to constitute a change or an amendment of the rights of such holder under this Plan, and maybe effected without consent of any Grantee and without any liability to the Company or its Affiliates and to their respective its officers, directors,employees and representatives and the respective successors and assigns of any of the foregoing. The Committee need not take the same action withrespect to all Awards or with respect to all Service Providers. The Committee may take different actions with respect to the vested and unvestedportions of an Award. The Committee may determine an amount or type of consideration to be received or distributed in a Change in Control whichmay differ as among the Grantees, and as between the Grantees and any other holders of shares of the Company. 14.2.6. The Committee’s determinations pursuant to this Section ​14 shall be conclusive and binding on all Grantees. - 25 - 14.2.7. If determined by the Committee, the Grantees shall be subject to the definitive agreement(s) in connection with theChange in Control as applying to holders of Shares including, such terms, conditions, representations, undertakings, liabilities, limitations, releases,indemnities, participating in transaction expenses and escrow arrangement, in each case as determined by the Committee. Each Grantee shallexecute (and authorizes any person designated by the Company to so execute) such separate agreement(s) or instruments as may be requested by theCompany, the Successor Corporation or the acquiror in connection with such in such Change in Control and in the form required by them. Theexecution of such separate agreement(s) may be a condition to the receipt of assumed or substituted Awards, payment in lieu of the Award or theexercise of any Award. 14.3. Reservation of Rights. Except as expressly provided in this Section ​14 (if any), the Grantee of an Award hereunder shall have no rightsby reason of any Recapitalization of shares of any class, any increase or decrease in the number of shares of any class, or any dissolution, liquidation,reorganization (which may include a combination or exchange of shares, spin-off or other corporate divestiture or division, or other similar occurrences) orChange in Control. Any issue by the Company of shares of any class, or securities convertible into shares of stock of any class, shall not affect, and noadjustment by reason thereof shall be made with respect to, the number, type or price of shares subject to an Award. The grant of an Award pursuant to thisPlan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or businessstructures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets or engage in any similar transactions. - 26 - 15.NON-TRANSFERABILITY OF AWARDS; SURVIVING BENEFICIARY. 15.1. All Awards granted under this Plan by their terms shall not be transferable other than by will or by the laws of descent and distribution,unless otherwise determined by the Committee or under this Plan, provided that with respect to Shares issued upon exercise or (if applicable) the vesting ofAwards the restrictions on transfer shall be the restrictions referred to in Section 16 (Conditions upon Issuance of Shares) hereof. Subject to the aboveprovisions, the terms of such Award, this Plan and any applicable Award Agreement shall be binding upon the beneficiaries, executors, administrators, heirsand successors of such Grantee. Awards may be exercised or otherwise realized, during the lifetime of the Grantee, only by the Grantee or by his guardian orlegal representative, to the extent provided for herein. Any transfer of an Award not permitted hereunder (including transfers pursuant to any decree ofdivorce, dissolution or separate maintenance, any property settlement, any separation agreement or any other agreement with a spouse) and any grant of anyinterest in any Award to, or creation in any way of any direct or indirect interest in any Award by, any party other than the Grantee shall be null and void andshall not confer upon any party or person, other than the Grantee, any rights. A Grantee may file with the Committee a written designation of a beneficiary,who shall be permitted to exercise such Grantee’s Award or to whom any benefit under this Plan is to be paid, in each case, in the event of the Grantee’s deathbefore he or she fully exercises his or her Award or receives any or all of such benefit, on such form as may be prescribed by the Committee and may, fromtime to time, amend or revoke such designation. If no designated beneficiary survives the Grantee, the executor or administrator of the Grantee's estate shallbe deemed to be the Grantee's beneficiary. Notwithstanding the foregoing, upon the request of the Grantee and subject to Applicable Law the Committee, atits sole discretion, may permit the Grantee to transfer the Award to a trust whose beneficiaries are the Grantee and/or the Grantee’s immediate family members(all or several of them). 15.2. Notwithstanding any other provisions of the Plan to the contrary, no Incentive Stock Option may be sold, transferred, pledged, assignedor otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or in accordance with a beneficiary designation pursuantto Section 15.1. Further, all Incentive Stock Options granted to a Grantee shall be exercisable during his or her lifetime only by such Grantee. 15.3. As long as the Shares are held by the Trustee or the Representative in favor of the Grantee, all rights possessed by the Grantee over theShares are personal, and may not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution. 15.4. The provisions of this Section ​15 shall apply to the Grantee and to any purchaser, assignee or transferee of any Shares. 16.CONDITIONS UPON ISSUANCE OF SHARES; GOVERNING PROVISIONS. 16.1. Legal Compliance. The grant of Awards and the issuance of Shares upon exercise or settlement of Awards shall be subject tocompliance with all Applicable Laws as determined by the Company, including, applicable requirements of federal, state and foreign law with respect to suchsecurities. The Company shall have no obligations to issue Shares pursuant to the exercise or settlement of an Award and Awards may not be exercised orsettled, if the issuance of Shares upon exercise or settlement would constitute a violation of any Applicable Laws as determined by the Company, including,applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which theShares may then be listed. In addition, no Award may be exercised unless (i) a registration statement under the Securities Act or equivalent laws of otherapplicable jurisdictions shall at the time of exercise or settlement of the Award be in effect with respect to the shares issuable upon exercise of the Award, or(ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Award may be issued in accordance with the terms of anapplicable exemption from the registration requirements of the Securities Act or equivalent laws of other applicable jurisdictions. The inability of theCompany to obtain authority from any regulatory body having jurisdiction, if any, deemed by the Company to be necessary to the lawful issuance and sale ofany Shares hereunder, and the inability to issue Shares hereunder due to non-compliance with any Company policies with respect to the sale of Shares, shallrelieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority or compliance shall not havebeen obtained or achieved. As a condition to the exercise of an Award, the Company may require the person exercising such Award to satisfy anyqualifications that may be necessary or appropriate, to evidence compliance with any Applicable Law or regulation and to make any representation orwarranty with respect thereto as may be requested by the Company, including to represent and warrant at the time of any such exercise that the Shares arebeing purchased only for investment and without any present intention to sell or distribute such Shares, all in form and content specified by the Company. - 27 - 16.2. Provisions Governing Shares. Shares issued pursuant to an Award shall be subject to the Articles of Association of the Company, anylimitation, restriction or obligation included in any shareholders agreement applicable to all or substantially all of the holders of shares (regardless of whetheror not the Grantee is a formal party to such shareholders agreement), any other governing documents of the Company, all policies, manuals and internalregulations adopted by the Company from time to time, in each case, as may be amended from time to time, including any provisions included thereinconcerning restrictions or limitations on disposition of Shares (such as, but not limited to, right of first refusal and lock up/market stand-off) or grant of anyrights with respect thereto, forced sale and bring along provisions, any provisions concerning restrictions on the use of inside information and otherprovisions deemed by the Company to be appropriate in order to ensure compliance with Applicable Laws. Each Grantee shall execute (and authorizes anyperson designated by the Company to so execute) such separate agreement(s) as may be requested by the Company relating to matters set forth in this Section16.2. The execution of such separate agreement(s) may be a condition by the Company to the grant and/or exercise of any Award. 16.3. Forced Sale. In the event the that Board approves a Change in Control effected by way of a forced or compulsory sale (whetherpursuant to the Company’s Articles of Association or pursuant to Section 341 of the Companies Law), then, without derogating from such provisions and inaddition thereto, the Grantee shall be obligated, and shall be deemed to have agreed to the offer to effect the Change in Control on the terms approved by theBoard (and the Shares held by or for the benefit of the Grantee shall be included in the shares of the Company approving the terms of such Change in Controlfor the purpose of satisfying the required majority), and shall sell all of the Shares held by or for the benefit of the Grantee on the terms and conditionsapplying to the holders of Shares, in accordance with the instructions then issued by the Board, whose determination shall be final. No Grantee shall contest,bring any claims or demands, or exercise any appraisal rights related to any of the foregoing. The proxy pursuant to Section ​6.9 includes an authorization ofthe holder of such proxy to sign, by and on behalf of any Grantee, such documents and agreements as are required to affect the sale of Shares in connectionwith such Change in Control. 16.4. Share Transfer Rstrictions. Any transfer or other disposition of Shares or any interest therein is subject to the prior approval of theCommittee, which, if granted (without any obligation to do so), may be subject to such terms, conditions and restrictions, as it deems appropriate. The terms,conditions and restrictions of any approval may differ from one Grantee to another, and need not be the same. Any transfer or otherwise grant of any interestin any Shares to any third party that does not comply with this Section shall be null and void and shall not confer upon any person, other than the Grantee,any rights. This Section 16.4 shall terminate immediately after the IPO. This Section shall apply in addition to any other limitation, restriction and/orcondition in this Plan (including, without limitation, after the application of Section ​16), any Award Agreement, shareholders agreement, Company’s Articlesof Association or other instrument between the Grantee and the Company or by which the Grantee is bound. This Section shall not apply to a transfer ofShares in a sale of all or substantially all of the shares of the Company which was approved by the Board or pursuant to the Company’s Articles ofAssociation or upon a Change in Control. - 28 - 17.MARKET STAND-OFF 17.1. In connection with any underwritten public offering of equity securities of the Company pursuant to an effective registration statementfiled under the Securities Act or equivalent law in another jurisdiction, the Grantee shall not directly or indirectly, without the prior written consent of theCompany or its underwriters, (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grantany option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Shares or other Awards, any securities of the Company(whether or not such Shares were acquired under this Plan), or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Sharesor securities of the Company and any other shares or securities issued or distributed in respect thereto or in substitution thereof (collectively, “Securities”), or(ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Securities,whether any such transaction described in clauses (i) or (ii) is to be settled by delivery of Securities, in cash or otherwise. The foregoing provisions of thisSection ​17.1 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. Such restrictions (the “Market Stand-Off”)shall be in effect for such period of time (the “Market Stand-Off Period”): (A) following the first public filing of the registration statement relating to theunderwritten public offering until the extirpation of 180 days following the effective date of such registration statement relating to the IPO or 90 daysfollowing the effective date of such registration statement relating to any other public offering, in each case, provided, however, that if (1) during the last 17days of the initial Market Stand-Off Period, the Company releases earnings results or announces material news or a material event or (2) prior to the expirationof the initial Market Stand-Off Period, the Company announces that it will release earnings results during the 15-day period following the last day of theinitial Market Stand-Off Period, then in each case the Market Stand-Off Period will be automatically extended until the expiration of the 18-day periodbeginning on the date of release of the earnings results or the announcement of the material news or material event; or (B) such other period as shall berequested by the Company or the underwriters. Notwithstanding anything herein to the contrary, if the underwriter(s) and the Company agree on atermination date of the Market Stand-Off Period in the event of failure to consummate a certain public offering, then such termination shall apply also to theMarket Stand-Off Period hereunder with respect to that particular public offering. 17.2. In the event of a subdivision of the outstanding share capital of the Company, the distribution of any securities (whether or not of theCompany), whether as bonus shares or otherwise, and whether as dividend or otherwise, a recapitalization, a reorganization (which may include acombination or exchange of shares or a similar transaction affecting the Company’s outstanding securities without receipt of consideration), a consolidation,a spin-off or other corporate divestiture or division, a reclassification or other similar occurrence, any new, substituted or additional securities which are byreason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shallimmediately be subject to the Market Stand-Off. - 29 - 17.3. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired underthis Plan until the end of the applicable Market Stand-Off period. 17.4. The underwriters in connection with a registration statement so filed are intended third party beneficiaries of this Section 17 and shallhave the right, power and authority to enforce the provisions hereof as though they were a party hereto. Without derogating from the provisions of thisSection 17 and their applicability to the Grantees, each Grantee shall execute (and authorizes any person designated by the Company to so execute) suchseparate agreement(s) as may be requested by the Company or the underwriters in connection with such registration statement and in the form required bythem, relating to Market Stand-Off (which need not be identical to the provisions of this Section 17, and may include such additional provisions andrestrictions as the underwriters deem advisable) or that are necessary to give further effect thereto. The execution of such separate agreement(s) may be acondition by the Company to the exercise of any Award. 17.5. Without derogating from the above provisions of this Section 17 or elsewhere in this Plan, the provisions of this Section 17 shall applyto the Grantee and the Grantee’s heirs, legal representatives, successors, assigns, and to any purchaser, assignee or transferee of any Awards or Shares. 18.AGREEMENT REGARDING TAXES; DISCLAIMER. 18.1. TAX LIABILITY. ALL TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANYAWARDS OR THE EXERCISE THEREOF, THE SALE OR DISPOSITION OF ANY SHARES GRANTED HEREUNDER OR ISSUED UPON EXERCISE OR(IF APPLICABLE) THE VESTING OF ANY AWARD, THE ASSUMPTION, SUBSTITUTION, CANCELLATION OR PAYMENT IN LIEU OF AWARDS ORFROM ANY OTHER ACTION IN CONNECTION WITH THE FOREGOING (INCLUDING WITHOUT LIMITATION ANY TAXES AND COMPULSORYPAYMENTS, SUCH AS SOCIAL SECURITY OR HEALTH TAX PAYABLE BY THE GRANTEE OR THE COMPANY IN CONNECTION THEREWITH)SHALL BE BORNE AND PAID SOLELY BY THE GRANTEE, AND THE GRANTEE SHALL INDEMNIFY THE COMPANY, ITS AFFILIATES, THETRUSTEE AND THE REPRESENTATIVE, AND SHALL HOLD THEM HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH TAX ORPAYMENT OR ANY PENALTY, INTEREST OR INDEXATION THEREON. EACH GRANTEE AGREES TO, AND UNDERTAKES TO COMPLY WITH,ANY RULING, SETTLEMENT, CLOSING AGREEMENT OR OTHER SIMILAR AGREEMENT OR ARRANGEMENT WITH ANY TAX AUTHORITY INCONNECTION WITH THE FOREGOING WHICH IS APPROVED BY THE COMPANY. 18.2. NO TAX ADVICE. THE GRANTEE IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAXCONSEQUENCES OF RECEIVING, EXERCISING OR DISPOSING OF AWARDS HEREUNDER. THE COMPANY DOES NOT ASSUME ANYRESPONSIBILITY TO ADVISE THE GRANTEE ON SUCH MATTERS, WHICH SHALL REMAIN SOLELY THE RESPONSIBILITY OF THE GRANTEE,AND NO INFORMATION PROVIDED BY THE COMPANY, ITS AFFILIATES, THE TRUSTEE OR THE REPRESENTATIVE AND ANY PERSONSASSOCIATED WITH ANY OF THE FOREGOING, IN CONNECTION WITH THIS PLAN SHALL BE DEEMED TO BE TAX ADVICE TO THE GRANTEE. - 30 - 18.3. TAX TREATMENT. THE COMPANY DOES NOT UNDERTAKE OR ASSUME ANY LIABILITY OR RESPONSIBILITY TO THEEFFECT THAT ANY AWARD SHALL QUALIFY WITH ANY PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT,OR BENEFIT FROM ANY PARTICULAR TAX TREATMENT OR TAX ADVANTAGE OF ANY TYPE AND THE COMPANY SHALL BEAR NO LIABILITYIN CONNECTION WITH THE MANNER IN WHICH ANY AWARD IS EVENTUALLY TREATED FOR TAX PURPOSES, REGARDLESS OF WHETHERTHE AWARD WAS GRANTED OR WAS INTENDED TO QUALIFY UNDER ANY PARTICULAR TAX REGIME OR TREATMENT. THIS PROVISIONSHALL SUPERSEDE ANY TYPE OF AWARDS OR TAX QUALIFICATION INDICATED IN ANY CORPORATE RESOLUTION OR AWARD AGREEMENT,WHICH SHALL AT ALL TIMES BE SUBJECT TO THE REQUIREMENTS OF APPLICABLE LAW. THE COMPANY DOES NOT UNDERTAKE ANDSHALL NOT BE REQUIRED TO TAKE ANY ACTION IN ORDER TO QUALIFY THE AWARD WITH THE REQUIREMENT OF ANY PARTICULAR TAXTREATMENT. NO INDICATION IN ANY DOCUMENT TO THE EFFECT THAT ANY AWARD IS INTENDED TO QUALIFY FOR ANY TAX TREATMENTSHALL IMPLY SUCH AN UNDERTAKING. NO ASSURANCE IS MADE BY THE COMPANY OR ANY OF ITS AFFILIATES THAT ANY PARTICULARTAX TREATMENT ON THE DATE OF GRANT WILL CONTINUE TO EXIST OR THAT THE AWARD WOULD QUALIFY AT THE TIME OF GRANT,EXERCISE OR DISPOSITION THEREOF WITH ANY PARTICULAR TAX TREATMENT. THE COMPANY AND ITS AFFILIATES SHALL NOT HAVE ANYLIABILITY OR OBLIGATION OF ANY NATURE IN THE EVENT THAT AN AWARD DOES NOT QUALIFY FOR ANY PARTICULAR TAX TREATMENT,REGARDLESS WHETHER THE COMPANY COULD HAVE OR SHOULD HAVE TAKEN ANY ACTION TO CAUSE SUCH QUALIFICATION TO BE METAND SUCH QUALIFICATION REMAINS AT ALL TIMES AND UNDER ALL CIRCUMSTANCES AT THE RISK OF THE GRANTEE. THE COMPANYDOES NOT UNDERTAKE OR ASSUME ANY LIABILITY TO CONTEST A DETERMINATION OR INTERPRETATION (WHETHER WRITTEN ORUNWRITTEN) OF ANY TAX AUTHORITIES, INCLUDING IN RESPECT OF THE QUALIFICATION UNDER ANY PARTICULAR TAX REGIME ORRULES APPLYING TO PARTICULAR TAX TREATMENT. IF THE AWARDS DO NOT QUALIFY UNDER ANY PARTICULAR TAX TREATMENT ITCOULD RESULT IN ADVERSE TAX CONSEQUENCES TO THE GRANTEE. 18.4. If the Company shall so require, as a condition of exercise of an Award, the release of Shares by the Trustee or the Representative (asapplicable) or the expiration of the Required Holding Period, the Grantee will, no later than the date of such occurrence, pay to the Company (or the Trustee,or the Representative, as applicable) or make arrangements satisfactory to the Company, the Representative and the Trustee (if applicable) regarding paymentof any applicable taxes and compulsory payments of any kind required by Applicable Law to be withheld or paid. The Company, any Affiliate thereof, theTrustee or the Representative (as applicable) may take such action as it may deem necessary or appropriate, in its discretion, for the purpose of or inconnection with withholding of any taxes and compulsory payments which the Trustee, the Company or any Affiliate thereof, or the Representative (asapplicable) is required by any Applicable Law to withhold in connection with any Awards (collectively, “Withholding Obligations”). Such actions mayinclude (i) requiring a Grantee to remit in cash an amount sufficient to satisfy such Withholding Obligations and any other taxes and compulsory payments,payable by the Company any Affiliate thereof, the Trustee and the Representative (as applicable) in connection with the Award or the exercise or (ifapplicable) the vesting thereof; (ii) deducting (or authorizing to deduct) an amount sufficient to satisfy such Withholding Obligations from anycompensation otherwise payable to a Grantee by the Company or its Affiliate, whether or not under the Plan; (iii) allowing the Grantees to provide Shares tothe Company, the Trustee or the Representative (as applicable), in an amount that at such time, reflects a value sufficient to satisfy such WithholdingObligations; (iv) withholding Shares otherwise issuable upon the exercise of an Award sufficient to satisfy such Withholding Obligations; or (v) anycombination of the foregoing. The Company shall not be obligated to allow the exercise of any Award by or on behalf of a Grantee until all taxconsequences arising from the exercise of such Award are resolved in a manner acceptable to the Company. - 31 - 18.5. Each Grantee shall notify the Company in writing promptly and in any event within ten (10) days after the date on which such Granteefirst obtains knowledge of any tax bureau inquiry, audit, assertion, determination, investigation, or question relating in any manner to the Awards granted orreceived hereunder or Shares issued thereunder and shall continuously inform the Company of any developments, proceedings, discussions and negotiationsrelating to such matter, and shall allow the Company and its representatives to participate in any proceedings and discussions concerning such matters. Uponrequest, a Grantee shall provide to the Company any information or document relating to any matter described in the preceding sentence, which theCompany, in its discretion, requires. 18.6. For the purpose hereof “tax(es)” means (a) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments,including all income, capital gains, transfer, withholding, payroll, employment, social security, national security, health tax, wealth surtax, stamp,registration and estimated taxes, customs duties, fees, assessments and charges of any similar kind whatsoever (including under Section 280G of the Code),(b) all interest, indexation differentials, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connection with any itemdescribed in clause (a), (c) any transferee or successor liability in respect of any items described in clauses (a) or (b) payable by reason of contract, assumption,transferee liability, successor liability, operation of Applicable Law, or as a result of any express or implied obligation to assume Taxes or to indemnify anyother person, and (d) any liability for the payment of any amounts of the type described in clause (a) or (b) payable as a result of being a member of anaffiliated, consolidated, combined, unitary or aggregate group for any taxable period, including under U.S. Treasury Regulations Section 1.1502-6(a) (or anypredecessor or successor thereof of any analogous or similar provision under Law) or otherwise. 18.7. If a Grantee makes an election under Section 83(b) of the Code to be taxed with respect to an Award as of the date of transfer of Sharesrather than as of the date or dates upon which the Grantee would otherwise be taxable under Section 83(a) of the Code, such Grantee shall deliver a copy ofsuch election to the Company upon or prior to the filing such election with the U.S. Internal Revenue Service. Neither the Company nor any Affiliate thereofshall have any liability or responsibility relating to or arising out of the filing or not filing of any such election or any defects in its construction. 19.RIGHTS AS A SHAREHOLDER; VOTING AND DIVIDENDS. 19.1. Subject to Section ​11.4, a Grantee shall have no rights as a shareholder of the Company with respect to any Shares covered by an Awarduntil the Grantee shall have exercised the Award, paid the Exercise Price therefor and becomes the record holder of the subject Shares. In the case of 102Awards or 3(9) Awards (if such Awards are being held by a Trustee), the Trustee shall have no rights as a shareholder of the Company with respect to theShares covered by such Award until the Trustee becomes the record holder for such Shares for the Grantee’s benefit, and the Grantee shall not be deemed to bea shareholder and shall have no rights as a shareholder of the Company with respect to the Shares covered by the Award until the date of the release of suchShares from the Trustee to the Grantee and the transfer of record ownership of such Shares to the Grantee (provided however that the Grantee shall be entitledto receive from the Trustee any cash dividend or distribution made on account of the Shares held by the Trustee for such Grantee’s benefit, subject to any taxwithholding and compulsory payment). No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property)or distribution of other rights for which the record date is prior to the date on which the Grantee or Trustee (as applicable) becomes the record holder of theShares covered by an Award, except as provided in Section 14 hereof. - 32 - 19.2. With respect to all Awards issued in the form of Shares hereunder or upon the exercise or (if applicable) the vesting of Awardshereunder, any and all voting rights attached to such Shares shall be subject to Section 6.9, and the Grantee shall be entitled to receive dividends distributedwith respect to such Shares, subject to the provisions of the Company’s Articles of Association, as amended from time to time, and subject to any ApplicableLaw. 19.3. The Company may, but shall not be obligated to, register or qualify the sale of Shares under any applicable securities law or any otherApplicable Law. 20.NO REPRESENTATION BY COMPANY. By granting the Awards, the Company is not, and shall not be deemed as, making any representation or warranties to the Grantee regarding the Company, itsbusiness affairs, its prospects or the future value of its Shares. The Company shall not be required to provide to any Grantee any information, documents ormaterial in connection with the Grantee’s considering an exercise of an Award. To the extent that any information, documents or materials are provided, theCompany shall have no liability with respect thereto. Any decision by a Grantee to exercise an Award shall solely be at the risk of the Grantee. 21.NO EMPLOYMENT OR RETENTION RIGHTS. Nothing in this Plan, any Award Agreement or in any Award granted or agreement entered into pursuant hereto shall confer upon any Grantee the right to be(or be treated as) an employee of, or continue in the employ of, or be in the service of the Company or any Affiliate thereof as a Service Provider or to beentitled to any remuneration or benefits not set forth in this Plan or such agreement, or to interfere with or limit in any way the right of the Company or anysuch Affiliate to terminate such Grantee's employment or service (including, any right of the Company or any of its Affiliates to immediately cease theGrantee’s employment or service or to shorten all or part of the notice period, regardless of whether notice of termination was given by the Company or itsAffiliates or by the Grantee). Awards granted under this Plan shall not be affected by any change in duties or position of a Grantee, subject to Sections ​6.6through ​6.8. No Grantee shall be entitled to claim and the Grantee hereby waives any claim against the Company or any Affiliate thereof that he or she wasprevented from continuing to vest Awards as of the date of termination of his or her employment with, or services to, the Company or any Affiliatethereof. No Grantee shall be entitled to any compensation in respect of the Awards which would have vested had such Grantee’s employment or engagementwith the Company (or any Affiliate thereof) not been terminated. 22.PERIOD DURING WHICH AWARDS MAY BE GRANTED. Awards may be granted pursuant to this Plan from time to time within a period of ten (10) years from the Effective Date, which period may be extended fromtime to time by the Board. From and after such date (as extended) no grants of Awards may be made and this Plan shall continue to be in full force and effectwith respect to Awards or Shares issued thereunder that remain outstanding. - 33 - 23.AMENDMENT OF THIS PLAN AND AWARDS. 23.1. The Board at any time and from time to time may suspend, terminate, modify or amend this Plan, whether retroactively orprospectively. Any amendment effected in accordance with this Section shall be binding upon all Grantees and all Awards, whether granted prior to or afterthe date of such amendment, and without the need to obtain the consent of any Grantee. No termination or amendment of this Plan shall affect any thenoutstanding Award unless expressly provided by the Board. 23.2. Subject to changes in Applicable Law that would permit otherwise, without the approval of the Company’s shareholders, there shall be(i) no increase in the maximum aggregate number of Shares that may be issued under this Plan as Incentive Stock Options (except by operation of theprovisions of Section ​14.1), (ii) no change in the class of persons eligible to receive Incentive Stock Options, and (iii) no other amendment of this Plan thatwould require approval of the Company’s shareholders under any Applicable Law. With respect to Incentive Stock Option, unless not permitted byApplicable Law, if the grant of an Award is subject to approval by shareholders, the date of grant of the Award shall be determined as if the Award had notbeen subject to such approval, and failure to obtain approval by the shareholders shall not in any way derogate from the valid and binding effect of any grantof an Award, which is not an Incentive Stock Option. 23.3. The Board or the Committee at any time and from time to time may modify or amend any Award theretofore granted, including anyAward Agreement, whether retroactively or prospectively. 24.APPROVAL. 24.1. This Plan shall take effect upon its adoption by the Board (the “Effective Date”). 24.2. Solely with respect to grants of Incentive Stock Options, this Plan shall also be subject to shareholders’ approval, within one year of theEffective Date, by a majority of the votes cast on the proposal at a meeting or a written consent of shareholders (however, if the grant of an Award is subject toapproval by shareholders, the date of grant of the Award shall be determined as if the Award had not been subject to such approval). Failure to obtain suchapproval by the shareholders within such period shall not in any way derogate from the valid and binding effect of any grant of an Award, except that anyOptions previously granted under this Plan shall not qualify as Incentive Stock Options but, rather, shall constitute Nonqualified Stock Options. Uponapproval of this Plan by the shareholders of the Company as set forth above, all Incentive Stock Options granted under this Plan on or after the Effective Dateshall be fully effective as if the shareholders of the Company had approved this Plan on the Effective Date. 24.3. 102 Awards are conditional upon the filing with or approval by the ITA, if required, as set forth in Section ​9.4. Failure to so file orobtain such approval shall not in any way derogate from the valid and binding effect of any grant of an Award, which is not a 102 Award. 25.RULES PARTICULAR TO SPECIFIC COUNTRIES; SECTION 409A. 25.1. Notwithstanding anything herein to the contrary, the terms and conditions of this Plan may be supplemented or amended with respectto a particular country or tax regime by means of an appendix to this Plan, and to the extent that the terms and conditions set forth in any appendix conflictwith any provisions of this Plan, the provisions of such appendix shall govern. Terms and conditions set forth in such appendix shall apply only to Awardsgranted to Grantees under the jurisdiction of the specific country or such other tax regime that is the subject of such appendix, and solely for as long as suchAwards and/or Grantees remain subject to such jurisdiction or regime, to the extent required under the same. The adoption of any such appendix shall besubject to the approval of the Board or the Committee, and if determined by the Committee to be required in connection with the application of certain taxtreatment, pursuant to applicable stock exchange rules or regulations or otherwise, then also the approval of the shareholders of the Company at the requiredmajority. - 34 - 25.2. This Section 25.2 shall only apply to Awards granted to Grantees who are subject to United States Federal income tax. 25.2.1. It is the intention of the Company that no Award shall be deferred compensation subject to Code Section 409A unlessand to the extent that the Committee specifically determines otherwise as provided in paragraph 25.2.2, and the Plan and the terms and conditions ofall Awards shall be interpreted and administered accordingly. 25.2.2. The terms and conditions governing any Awards that the Committee determines will be subject to Section 409A of theCode, including any rules for payment or elective or mandatory deferral of the payment or delivery of Shares or cash pursuant thereto, and any rulesregarding treatment of such Awards in the event of a Change in Control, shall be set forth in the applicable Award Agreement and shall be intendedto comply in all respects with Section 409A of the Code, and the Plan and the terms and conditions of such Awards shall be interpreted andadministered accordingly. 25.2.3. The Committee shall not extend the period to exercise an Option or stock appreciation right granted under the Plan tothe extent that such extension would cause the Option or stock appreciation right to become subject to Code Section 409A. 25.2.4. The Company shall have complete discretion to interpret and construe the Plan and any Award Agreement in any mannerthat establishes an exemption from (or compliance with) the requirements of Code Section 409A. If for any reason, such as imprecision in drafting,any provision of the Plan and/or any Award Agreement does not accurately reflect its intended establishment of an exemption from (or compliancewith) Code Section 409A, as demonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguousas to its exemption from (or compliance with) Code Section 409A and shall be interpreted by the Company in a manner consistent with such intent,as determined in the discretion of the Company. If, notwithstanding the foregoing provisions of this Section 25.2.4, any provision of the Plan or anysuch agreement would cause a Grantee to incur any additional tax or interest under Code Section 409A, the Company shall reform such provision ina manner intended to avoid the incurrence by such Grantee of any such additional tax or interest; provided that the Company shall maintain, to theextent reasonably practicable, the original intent and economic benefit to the Grantee of the applicable provision without violating the provisionsof Code Section 409A. 25.2.5. Notwithstanding the provisions of Section 14 to the contrary, (1) any adjustments made pursuant to Section 14 to Awardsthat are considered “deferred compensation” subject to Section 409A of the Code shall be made in compliance with the requirements of Section409A of the Code; (2) any adjustments made pursuant to Section 14 to Awards that are not considered “deferred compensation” subject to Section409A of the Code shall be made in such a manner as to ensure that after such adjustment, the Awards either (A) continue not to be subject to Section409A of the Code or (B) comply with the requirements of Section 409A of the Code; and (3) in any event, neither the Committee nor the Board shallhave any authority to make any adjustments, substitutions or changes pursuant to Section 14 to the extent the existence of such authority wouldcause an Award that is not intended to be subject to Section 409A of the Code at the grant date thereof to be subject to Section 409A of the Code. - 35 - 25.2.6. If any Award is subject to Section 409A of the Code, the provisions of Section 14.2 shall be applicable to such Awardonly to the extent specifically provided in the Award Agreement and permitted pursuant to paragraph 25.2.2. 25.2.7. Notwithstanding any other provision in the Plan, any Award Agreement, or any other written document establishing theterms and conditions of an Award, if any Grantee is a “specified employee,” within the meaning of Section 409A of the Code, as of the date of his orher “separation from service” (as defined under Section 409A of the Code), then, to the extent required by Treasury Regulation Section 1.409A-3(i)(2) (or any successor provision), any payment made to such Grantee on account of his or her separation from service shall not be made before a datethat is six months after the date of his or her separation from service. The Committee may elect any of the methods of applying this rule that arepermitted under Treasury Regulation Section 1.409A-3(i)(2)(ii) (or any successor provision). 25.2.8. Notwithstanding any other provision of this Section 25.2 to the contrary, although the Company intends to administerthe Plan so that Awards will be exempt from, or will comply with, the requirements of Code Section 409A, the Company does not warrant that anyAward under the Plan will qualify for favorable tax treatment under Code Section 409A or any other provision of federal, state, local, or non-UnitedStates law. The Company shall not be liable to any Grantee for any tax, interest, or penalties the Grantee might owe as a result of the grant, holding,vesting, exercise, or payment of any Award under the Plan. 26.GOVERNING LAW; JURISDICTION. This Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Israel, except with respect to mattersthat are subject to tax and securities laws, regulations and rules of any specific jurisdiction, which shall be governed by the respective laws, regulations andrules of such jurisdiction. Certain definitions, which refer to laws other than the laws of such jurisdiction, shall be construed in accordance with such otherlaws. The competent courts located in Tel-Aviv-Jaffa, Israel shall have exclusive jurisdiction over any dispute arising out of or in connection with this Planand any Award granted hereunder. By signing any Award Agreement or any other agreement relating to an Award, each Grantee irrevocably submits to suchexclusive jurisdiction. 27.NON-EXCLUSIVITY OF THIS PLAN. The adoption of this Plan shall not be construed as creating any limitations on the power or authority of the Company to adopt such other or additionalincentive or other compensation arrangements of whatever nature as the Company may deem necessary or desirable or preclude or limit the continuation ofany other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees,which the Company or any Affiliate thereof now has lawfully put into effect, including any retirement, pension, savings and stock purchase plan, insurance,death and disability benefits and executive short-term or long-term incentive plans. 28.MISCELLANEOUS. 28.1. Survival. The Grantee shall be bound by and the Shares issued upon exercise or (if applicable) the vesting of any Awards grantedhereunder shall remain subject to this Plan after the exercise or (if applicable) the vesting of Awards, in accordance with the terms of this Plan, whether or notthe Grantee is then or at any time thereafter employed or engaged by the Company or any of its Affiliates. - 36 - 28.2. Additional Terms. Each Award awarded under this Plan may contain such other terms and conditions not inconsistent with this Plan asmay be determined by the Committee, in its sole discretion. 28.3. Fractional Shares. No fractional Share shall be issuable upon exercise or vesting of any Award and the number of Shares to be issuedshall be rounded down to the nearest whole Share, with in any Share remaining at the last vesting date due to such rounding to be issued upon exercise atsuch last vesting date. 28.4. Severability. If any provision of this Plan, any Award Agreement or any other agreement entered into in connection with an Awardshall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable andenforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. In addition, if any particular provisioncontained in this Plan, any Award Agreement or any other agreement entered into in connection with an Award shall for any reason be held to be excessivelybroad as to duration, geographic scope, activity or subject, it shall be construed by limiting and reducing such provision as to such characteristic so that theprovision is enforceable to fullest extent compatible with Applicable Law as it shall then appear. 28.5. Captions and Titles. The use of captions and titles in this Plan or any Award Agreement or any other agreement entered into inconnection with an Award is for the convenience of reference only and shall not affect the meaning or interpretation of any provision of this Plan or suchagreement. 28.6. Non-certificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer ofsuch Shares may nevertheless be effected on a non-certificated basis, to the extent not prohibited by Applicable Law or the rules of any stock exchange. - 37 - Exhibit 8.1 List of Subsidiaries of CyberArk Software Ltd. Name of SubsidiaryPlace of IncorporationCyber-Ark Software, Inc.Delaware, United StatesCyber-Ark Software (UK) LimitedUnited KingdomCyberArk Software (Singapore) PTE. LTD.SingaporeCyber-Ark Software (DACH) GmbHGermanyCyberArk Software Italy S.r.l.ItalyViewfinity Ltd.IsraelCybertinel Ltd.IsraelViewfinity, Inc.Delaware, United States Exhibit 12.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TOEXCHANGE ACT RULE 13A-14(A)/15D-14(A)AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Ehud Mokady, certify that: 1.I have reviewed this Annual Report on Form 20-F of CyberArk Software Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. /s/ Ehud MokadyEhud MokadyChief Executive Officer, President, Founder and Director Date: March 10, 2016 Exhibit 12.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TOEXCHANGE ACT RULE 13A-14(A)/15D-14(A)AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Joshua Siegel, certify that: 1.I have reviewed this Annual Report on Form 20-F of CyberArk Software Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. /s/ Joshua SiegelJoshua SiegelChief Financial Officer Date: March 10, 2016 Exhibit 13.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CyberArk Software Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2015 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Ehud Mokady, do certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ehud MokadyEhud MokadyChief Executive Officer, President, Founder and Director Date: March 10, 2016 Exhibit 13.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CyberArk Software Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2015 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Joshua Siegel, do certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joshua SiegelJoshua SiegelChief Financial OfficerDate: March 10, 2016Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors of CyberArk Software Ltd.: We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-200367 and 333-202850) of CyberArk SoftwareLtd. of our reports dated March 10, 2016 with respect to the consolidated financial statements of CyberArk Software Ltd. and its subsidiaries and theeffectiveness of internal control over financial reporting of CyberArk Software Ltd. and its subsidiaries included in CyberArk Software Ltd.’s annual report onForm 20-F for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on March 10, 2016. /s/ Kost Forer Gabbay & KasiererKOST, FORER, GABBAY & KASIERERA Member of Ernst & Young Global Tel-Aviv, Israel March 10, 2016

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