NOTE 7 - SHARE CAPITAL

Rights of the Company’s Common Stock

The Company’s Common Stock is listed on the NYSE MKT and 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.

Stock based compensation

On December 14, 2006, the Board of Directors adopted the Protalix BioTherapeutics, Inc. 2006 Stock Incentive Plan, as amended (the “Plan”). The Plan has since been amended to, among other things, increase the number of shares of common stock available under the plan to 13,841,655 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, 2015, 760,844 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, 2013 through December 31, 2015, the Company granted options and shares of restricted stock to certain employees and non-employees as follows:

Options and restricted stock granted to employees:

Below is a table summarizing all of the options and restricted stock grants to employees for each year of the three-year period ended December 31, 2015:

							Fair value
							at grant
							(U.S.
Year of	No. of options		Exercise				dollars in		Expiration
grant	granted		price		Vesting period		thousands)		period
2014		900,000	$	2.37		4 years	$	1,007		10 years
2015		1,909,000	$	1.72		4 years	$	1,900		10 years
		2,809,000

Set forth below are grants made by the Company to employees (including related parties) during the three-year period ended December 31, 2015 (such grants appear in the table above):

On September 28, 2014, the Company’s Board of Directors approved, subject to certain terms and conditions, the grant of a 10-year option to purchase 900,000 shares of Common Stock to its then newly appointed President and Chief Executive Officer with an exercise price of $2.37 per share. The options vest over a four-year period in 16 equal quarterly increments. Vesting of the options will be accelerated in full upon a Corporate Transaction or a Change in Control, as those terms are defined in the Plan, as amended. The Company estimated the fair value of the options on the date of grant, using the Black-Scholes option-pricing model, to be approximately$1 million based on the following weighted average assumptions: dividend yield of 0% for all years; expected volatility of 62%; risk-free interest rate of 1.86%; and expected life of six years.

On March 23, 2015, the Company’s compensation committee approved the grant of a 10-year option to purchase 1,909,000 shares of Common Stock to its officers and other employees with an exercise price equal to $1.72 per share under the Company’s 2006 Employee Stock Incentive Plan, as amended (the “Plan”). The options vest over a four-year period; the first 25% shares vest on the first anniversary of the grant date and the remaining shares vest in 12 equal quarterly increments over the subsequent three-year period. Vesting of the options granted to certain executive officers is subject to acceleration in full upon a Corporate Transaction or a Change in Control, as those terms are defined in the Plan. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $1.9 million based on the following weighted average assumptions: dividend yield of 0% for all years; expected volatility of 61.7%; risk-free interest rates of 1.6%; and expected life of six years.

The total unrecognized compensation cost of employee stock options and restricted stock at December 31, 2015 is approximately $1.6 million (net of forfeiture rate). The unrecognized compensation cost of employee stock options is expected to be recognized over a weighted average period of 1.0 years.

The total cash received from employees as a result of employee stock option exercises for the years ended December 31, 2013, 2014 and 2015 was approximately $112,000, $46,000 and $534,000, respectively. The Company did not realize any tax benefit in connection with these exercises.

During 2015, the Company issued 550,000 shares of Common Stock in connection with the exercise of 550,000 options granted to a certain employee of the Company. The Company received cash proceeds equal to approximately $534,000 in connection with such exercises.

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

On July 24, 2014, the Company’s Board of Directors approved, subject to certain terms and conditions, the grant of a 10-year option to purchase 150,000 shares of Common Stock to its then newly elected chairman of the Board of Directors with an exercise price equal to $3.37 per share. The options vest over a three-year period; the first 50,000 shares vest on the first anniversary of the grant date and the remaining shares vest in eight equal quarterly increments over the subsequent two-year period. Vesting of the options are subject to acceleration in full upon a Corporate Transaction or a Change in Control, as those terms are defined in the Plan. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $193,000 based on the following weighted average assumptions: dividend yield of 0% for all years; expected volatility of 62%; risk-free interest rates of 1.9%; and expected life of six years.

No cash was received from consultants as a result of consultant stock option exercises for the years ended December 31, 2013, 2014 and 2015.

During 2014 and 2015, no shares of Common Stock were issued in connection with the exercise of options by consultants of the Company.

A summary of share option plans, and related information, under all of the Company’s equity incentive plans for the years ended December 31, 2013, 2014 and 2015 are as follows:

Options granted to employees:

	Year ended December 31,
	2013				2014				2015
			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		5,253,579	$	3.923		5,153,898	$	3.951		5,870,309	$	3.770
Changes during the year:
Granted						900,000		2.370		1,909,000		1.72
Forfeited and expired		20,558		6.603		44,201		6.833		277,016		5.395
Exercised (*)		79,123		1.418		139,388		0.446		550,000		0.972
Outstanding at end of year		5,153,898	$	3.951		5,870,309	$	3.770		6,952,293	$	3.363
Exercisable at end of year		4,614,148	$	3.591		4,905,559	$	3.933		4,477,043	$	4.182

(*) The total intrinsic value of options exercised during the years ended December 31, 2013, 2014 and 2015, was approximately $306,000, $447,000 and $675,000, respectively.

Restricted stock granted to employees:

	Year ended December 31,
	2013		2014		2015
	Number of Restricted Shares
Outstanding at beginning of year		1,394,708		970,208		386,124
Changes during the year:
Granted
Vested		406,666		398,375		255,749
Forfeited		17,834		185,709		2,501
Outstanding at end of year		970,208		386,124		127,874

Options and restricted stocks granted to consultants, directors, and other service providers:

	Year ended December 31,
	2013				2014				2015
	Number				Number				Number
	of		Weighted		of		Weighted		of		Weighted
	Options/		average		options/		average		options/		average
	restricted		exercise		restricted		exercise		restricted		exercise
	stock		price		stock		price		stock		price
Outstanding at beginning of year		912,425	$	7.259		912,425	$	7.259		1,208,592	$	6.136
Changes during the year-
Granted						296,167		2.678
Expired										466,883		0.001
Vested restricted stock										104,500		-
Outstanding at end of year		912,425	$	7.259		1,208,592		6.136		637,209		11.638
Exercisable at end of year		912,425	$	7.259		912,425	$	7.259		549,709	$	12.954

The following tables summarize information concerning outstanding and exercisable options and restricted stock as of December 31, 2015:

December 31, 2015
Options and restricted stock
outstanding						Options exercisable
		Number of
		options and		Weighted				Weighted
		restricted stock		average				average
		outstanding		remaining		Number of		remaining
Exercise		at end of		contractual		options		contractual
prices		year		life		exercisable		life
	n/a (*)		127,874		n/a		n/a		n/a
$	0.001		252,324		0.53		252,324		0.53
$	0.120		308,801		1.00		308,801		1.00
$	0.972		445,853		0.47		445,853		0.47
$	1.720		1,856,500		9.22		—		—
$	2.350		40,000		2.82		40,000		2.82
$	2.370		900,000		8.75		281,250		8.75
$	2.650		336,482		2.47		336,482		2.47
$	3.020		50,000		2.10		50,000		2.10
$	3.370		150,000		8.56		62,500		8.56
$	5.000		1,658,000		1.65		1,658,000		1.65
$	6.900		976,000		3.31		976,000		3.31
$	7.550		160,000		4.66		160,000		4.66
$	9.660		68,000		4.83		68,000		4.83
$	16.700		387,542		0.99		387,542		0.99
			7,717,376				5,026,752

(*) Represents restricted stock.

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

	Year ended December 31,
(U.S. dollars in thousands)	2013		2014		2015
Research and development expenses	$	2,655	$	936	$	904
Marketing, general and administrative expenses		1,434		306		898
	$	4,089	$	1,242	$	1,802

Private and 144A Offerings

On September 18, 2013, the Company completed a private offering of 4.50% convertible notes due 2018. The net proceeds from the offering, including net proceeds from the exercise in full by the initial purchaser of its option to purchase an additional $9.0 million in aggregate principal amount of the Notes, were $66.8 million (net of the initial purchaser’s discount and commission and offering expenses payable by the Company). See also note 8.

On October 12, 2015, the Company completed a private offering of 5,649,079 shares of the Company’s common stock to Pfizer. See also note 2.