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SHARE CAPITAL
 12 Months Ended
Dec. 31, 2012
SHARE CAPITAL [Abstract]  
SHARE CAPITAL

NOTE 7 - SHARE CAPITAL

 

  a. Rights of the Company's Common Stock

 

The Company's common stock is listed on the NYSE MKT and, since September 6, 2010, on the Tel Aviv Stock Exchange. Each share of Common Stock is entitled to one vote. The holders of shares of Common Stock are also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. Since its inception, the Company has not declared any dividends.

 

  b. Stock based compensation

 

On December 14, 2006, the Board of Directors adopted the Protalix BioTherapeutics, Inc. 2006 Stock Incentive Plan (the "Plan"). The Plan was amended on June 17, 2012 to increase the number of shares of common stock available under the plan from 9,741,655 shares to 11,341,655 shares. The grant of options to Israeli employees under the Plan is subject to the terms stipulated by Sections 102 and 102A of the Israeli Income Tax Ordinance. Each option grant is subject to the track chosen by the Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and pursuant to the terms thereof, the Company is not allowed to claim, as an expense for tax purposes, the amounts credited to employees as a benefit, including amounts recorded as salary benefits in the Company's accounts, in respect of options granted to employees under the Plan, with the exception of the work-income benefit component, if any, determined on the grant date. For Israeli non-employees, the share option plan is subject to Section 3(i) of the Israeli Income Tax Ordinance.

 

As of December 31, 2012, 176,986 shares of Common Stock remain available for grant under the Plan.

 

For purposes of determining the fair value of the options and restricted stock granted to employees and non-employees, the Company's management uses the fair value of the Common Stock.

 

From January 1, 2010 through December 31, 2012, the Company granted options and shares of restricted stock to certain employees and non-employees as follows:

 

  1. Options and restricted stock granted to employees:

 

  a) Below is a table summarizing all of the options and restricted stock grants to employees for each of the three years in the three-year period ended December 31, 2012:

 

Year of
grant		     No. of options
or restricted
stock granted		     Exercise
price range		     Vesting period   Fair value
at grant
(U.S.
dollars in
thousands)		     Expiration
period		  
  2010       1,016,000       $6.90     3 years commencing
upon achievement of a
certain milestone		   $ 5,673       10 years  
  2010       428,000       $6.32-$9.66     4 years   $ 2,147       10 years  
  2012       400,000       n/a     3 years   $ 2,288       n/a  
  2012       1,100,000       n/a     4 years   $ 6,292       n/a  
          2,944,000                              

 

Set forth below are grants made by the Company to employees (including related parties) during the three-year period ended December 31, 2012 (such grants appear in the table above):

 

  1. In February 2010, the Company's Board of Directors approved the grant of options to purchase 1,016,000 shares of Common Stock, in the aggregate, to the Company's Chief Executive Officer and certain officers and employees of the Company with an exercise price equal to $6.90 per share. The options vest quarterly over a three-year period commencing upon the FDA's approval of taliglucerase alfa. The Company treated the awards as performance-based awards and, given that the performance condition is outside the Company's control, concluded that the performance condition was not probable until the performance condition actually occurred. Upon the FDA's approval of taliglucerase alfa on May 1, 2012, the Company started recognizing share based compensation expenses related to such options. Share based compensation related to services performed from the date of grant of the respective options through the FDA approval date, were recognized on that date.

 

  2. In February 2010, the Company's Board of Directors approved the grant of options to purchase 160,000 shares of Common Stock with an exercise price equal to $6.81 per share to a new executive officer of the Company. The options expire on the tenth anniversary of the date of grant, unless terminated earlier. The first 25% of the options vest on the first anniversary of the date of grant and the remaining 75% vest in 12 equal tranches on a quarterly basis for three years thereafter.

 

  3. In September 2010, the Company's Board of Directors approved the grant of options to purchase 160,000 shares of Common Stock to a new executive officer of the Company with an exercise price equal to $7.55 per share and options to purchase 40,000 shares of Common Stock to a new employee of the Company with an exercise price equal to $6.32 per share. The options vest over a four-year period, with the first 25% vesting on the first anniversary of the applicable date of the grant and the remaining 75% vesting in equal tranches on a quarterly basis for a three-year period thereafter. The options expire on the tenth anniversary of the date of grant, unless terminated earlier.

 

 

  4. In November 2010, the Company's Board of Directors approved the grant of options to purchase 68,000 shares of Common Stock to a new officer of the Company with an exercise price equal to $9.66 per share. The options vest over a four-year period, with the first 25% vesting on the first anniversary of the applicable date of the grant and the remaining 75% vesting in equal tranches on a quarterly basis for a three-year period thereafter. The options expire on the tenth anniversary of the date of grant, unless terminated earlier.

 

  5. In September 2010, the Company's Board of Directors modified the terms of the options previously granted to an executive in 2001, by extending the life of the options until 2016. At the date of modification, all of the options were fully vested. The Company concluded that there was no incremental increase in the value of the awards and therefore no accounting charges need to be recorded in connection with the modifications.

 

  6. On July 16, 2012, the Company's Board of Directors approved the grant of 1,500,000 shares of restricted Common Stock to its officers and certain other employees. Of such restricted stock, 1,100,000 of the shares were issued to the Company's named executive officers and vest in 16 equal, quarterly increments over a four-year period, commencing upon the date of grant, and are subject to a 24-month lock-up period, commencing upon the applicable vesting dates. Immediately and automatically in the event of a Change in Control, as such term is defined in the Plan, as amended, all of the shares of restricted Common Stock issued to the named executive officers shall vest, and the lock-up periods shall terminate, subject to certain exceptions. The remaining 400,000 shares of restricted Common Stock were issued to other employees of the Company and vest in 12 equal, quarterly increments over a three-year period, commencing upon the date of grant. The Company estimated the fair value of the restricted stock on the date of grant to be approximately $8.6 million.

 

  b) The fair value of options and restricted stock granted during the years ended December 31, 2010 and 2012 were $7.8 million and $8.6 million respectively. The fair value of each option granted in 2010 is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:

 

    2010  
Dividend yield     0 %
Expected volatility     75 %
Risk-free interest rate     3.23 %
Expected life - in years     8.8  

 

The expected volatility is based on the historical volatility of the Common Stock and those of comparable companies. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock options granted in dollar terms. The Company's management uses the contractual term or its expectations, based on historical incidence of option exercises, as applicable (during 2010 - using the simplified method), of each option as its expected life. The pre-vesting forfeiture rate of approximately 6.1% is estimated based on pre-vesting forfeiture experience.

 

The fair value of the restricted stock is based on the Company's share price on the NYSE MKT on the grant date.

 

The total unrecognized compensation cost of employee stock options and restricted stock at December 31, 2012 is approximately $7.0 million (net of forfeiture rate). The unrecognized compensation cost of employee stock options is expected to be recognized over a weighted average period of 1.1 years.

 

The total cash received from employees as a result of employee stock option exercises for the years ended December 31, 2010, 2011 and 2012 was approximately $501,000, $277,000 and $1.2 million, respectively. The Company did not realize any tax benefit in connection with these exercises.

 

During 2012, the Company issued 861,593 shares of Common Stock in connection with the exercise of 861,593 options by certain employees of the Company. The Company received cash proceeds equal to approximately $1.2 million in connection with such exercises.

 

  2. Options granted to consultants, directors, and other service providers:

 

As of December 31, 2012, the Company has recognized and recorded all compensation costs related to outstanding options for consultants, directors and other services providers.

 

No cash was received from consultants as a result of consultant stock option exercises for the years ended December 31, 2010, and 2011 and approximately $39,000 was received during the year ended December 31, 2012. The Company did not realize any tax benefits in connection with these exercises.

 

During 2012, the Company issued 326,267 shares of Common Stock in connection with the exercise of 326,267 options by consultants of the Company. The Company received cash proceeds equal to approximately $39,000 in connection with such exercise.

 

  3. A summary of share option plans, and related information, under all of the Company's equity incentive plans for the years ended December 31, 2010, 2011 and 2012 are as follows:

 

  a. Options granted to employees:

 

    Year ended December 31,  
    2010     2011     2012  
          Weighted           Weighted           Weighted  
    Number     average     Number     average     Number     average  
    of     exercise     of     exercise     of     exercise  
    options     price     options     price     options     price  
Outstanding at beginning of year     5,366,729     $ 2.476       6,367,979     $ 3.576       6,141,030     $ 3.563  
Changes during the year:                                                
Granted     1,444,000       7.076                                  
Forfeited and Expired     13,441       3.551       44,856       6.207       25,858       4.372  
Exercised (*)     429,309       1.602       182,093       1.652       861,593       1.346  
Outstanding at end of year     6,367,979     $ 3.576       6,141,030     $ 3.563       5,253,579     $ 3.923  
Exercisable at end of year     4,267,850     $ 2.183       4,647,834     $ 2.581       4,258,441     $ 3.201  

 

  (*) The total intrinsic value of options exercised during the years ended December 31, 2010, 2011 and 2012, was approximately $3.1 million, $1.3 million and $4.8 million, respectively.

 

  b. Restricted stock granted to employees:

 

Year ended December 31, 2012
    Number of
Restricted Shares		  
Outstanding at beginning of year      
Changes during the year:        
Granted     1,500,000  
Forfeited     3,208  
Outstanding at end of year     1,496,792  
Exercisable at end of year     102,084  

 

  c. Options granted to consultants, directors, and other service providers:

 

    Year ended December 31,  
    2010     2011     2012  
          Weighted           Weighted           Weighted  
    Number     average     Number     average     Number     average  
    of     exercise     of     exercise     of     exercise  
    options     price     options     price     options     price  
Outstanding at beginning of year     1,438,692     $ 4.697       1,438,692     $ 4.697       1,238,692     $ 5.385  
Changes during the year- Exercised (*)                     200,000       0.001       326,267       0.12  
Outstanding at end of year     1,438,692     $ 4.697       1,238,692     $ 5.385       912,425     $ 7.259  
Exercisable at end of year     1,421,734     $ 4.653       1,235,567     $ 5.385       912,425     $ 7.259  

 

  (*) The total intrinsic value of options exercised during the years ended December 31, 2010, 2011 and 2012, was approximately $0, $1.9 million and $2.3 million, respectively.

 

  d. The following tables summarize information concerning outstanding and exercisable options and restricted stock as of December 31, 2012:

 

December 31, 2012  
Options and restricted stock
outstanding		     Options exercisable and
restricted stock vested		  
Exercise
prices		     Number of
Options and
restricted stock
outstanding
at end of
year		     Weighted
average
remaining
contractual
life		     Number of
options
exercisable and
restricted stock
vested at end of
year		     Weighted
average
remaining
contractual
life		  
  n/a (Restricted Stock)       1,496,792      

n/a

       102,084      

n/a

  
$ 0.001       719,207       2.54       719,207       2.54  
$ 0.120       447,850       1.05       447,850       1.05  
$ 0.399       23,087       1.92       23,087       1.92  
$ 0.972       996,353       3.44       996,353       3.44  
$ 2.350       40,000       5.82       40,000       5.82  
$ 2.650       402,882       6.15       396,744       6.15  
$ 3.020       50,000       5.10       50,000       5.10  
$ 5.000       1,708,000       5.10       1,708,000       5.10  
$ 6.810       160,000       7.10       110,000       7.10  
$ 6.900       1,003,083       7.15       168,083       7.15  
$ 7.550       160,000       7.66       90,000       7.66  
$ 9.660       68,000       7.83       34,000       7.83  
$ 16.700       387,542       3.99       387,542       3.99  
          7,662,796               5,272,950          

 

The aggregate intrinsic value of the total outstanding and of total vested and exercisable options and restricted stock as of December 31, 2012 is approximately $19.7 million and $12.4 million, respectively.

 

  e. The following table illustrates the effect of share-based compensation on the statement of operations:

 

    Year ended December 31,  
(U.S. dollars in thousands)   2010     2011     2012  
Cost of revenues                   $ 220  
Research and development expenses   $ 630     $ 422       4,756  
General and administrative expenses     652       464       2,775  
    $ 1,282     $ 886     $ 7,751  

 

  c. Public Offerings

 

  1. On March 23, 2011, the Company issued and sold 4,000,000 shares of Common Stock in an underwritten public offering at a price to the public of $5.50 per share. The net proceeds to the Company were approximately $20.6 million (net of underwriting commissions and issuance costs of $1.4 million)

 

  2. On February 22, 2012, the Company issued and sold 5,175,000 shares of Common Stock in an underwritten public offering at a price to the public of $5.25 per share. The net proceeds to the Company were approximately $25.4 million (net of underwriting commissions and issuance costs of $1.8 million).