NOTE 9 - SHARE CAPITAL

a. Rights of the Company’s Common Stock

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

b. Reverse stock split

On December 9, 2019, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation, as amended, to, among other things, effect a reverse stock split at a ratio of one-for-ten. The ratio was determined by the Company’s Board of Directors on December 5, 2019 and the reverse stock split became effective at midnight December 19, 2019. All share and per share amounts included in the consolidated financial statements have been adjusted retrospectively to reflect the effect of the reverse stock split.

c. 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 2,384,165 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 made to an Israeli citizen 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, 2019, 690,182 shares of Common Stock remain available for grant under the Plan.

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

From January 1, 2017 through December 31, 2019, the Company granted options and shares of restricted stock to certain employees and non-employees as follows:

1. Options and restricted stock unit granted to employees:

a) Below is a table summarizing all of the options grants to employees during the year ended December 31, 2019:


				Fair value
				at grant
				(U.S.
No. of options	Exercise			dollars in		Expiration
granted	price		Vesting period	thousands)		period
160,000	$	4.69	4 years	$	449	10 years
80,000	$	2.00	4 years	$	97	10 years

Set forth below are grants made by the Company to employees (including related parties) during the three-year period ended December 31, 2019 (a portion of such grants appear in the table above):

On September 13, 2018, the Company’s compensation committee approved the grant of 10‑year options to purchase, in the aggregate, 636,000 shares of Common Stock, of which options to purchase 400,000 shares of Common Stock were granted to the Company’s executive officers and options to purchase 236,000 shares of Common Stock were granted to other employees with an exercise price equal to $5.60 per share and $5.10 per share, respectively, under the Plan. The options vest over a four-year period in 16 equal quarterly increments. Vesting of the options granted to the 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, and are subject to certain other terms and conditions. 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: share price equal to $5.10; dividend yield of 0% for all years; expected volatility of 64.3%; risk-free interest rates of 2.9%; and expected life of six years.

In June 2019, the Company granted to its new chief executive officer 10-year options to purchase, in the aggregate, 160,000 shares of Common Stock under the Plan. The options have an exercise price equal to $4.69 per share, vest over a four-year period in 16 equal quarterly increments. Vesting of the options is subject to acceleration in full upon a Corporate Transaction or a Change in Control, as those terms are defined in the Plan, and are subject to certain other terms and conditions. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $449,000 based on the following weighted average assumptions: share price equal to $4.69; dividend yield of 0% for all years; expected volatility of 65.3%; risk-free interest rates of 1.8%; and expected life of six years.

In September 2019, the Company granted to its new chief financial officer 10-year options to purchase, in the aggregate, 80,000 shares of Common Stock under the Plan. The options have an exercise price equal to $2.00 per share and vest over a four-year period in 16 equal quarterly increments. Vesting of the options is subject to acceleration in full upon a Corporate Transaction or a Change in Control, and are subject to certain other terms and conditions. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option pricing model to be approximately $97,000 based on the following weighted average assumptions: share price equal to $2.00; dividend yield of 0% for all years; expected volatility of 66.48%; risk-free interest rates of 1.695%; and expected life of six years. In addition, contingent upon certain conditions, the new chief financial officer is entitled to a grant of restricted stock units with an aggregate value of $100,000, on an annual basis.

b) The total unrecognized compensation cost of employee stock options at December 31, 2019 is approximately $0.8 million. The unrecognized compensation cost of employee stock options is expected to be recognized over a weighted average period of 1.07 years.

During the three years ended December 31, 2019, no cash was received from employees as a result of employee stock option exercises and the Company did not realize any tax benefit in connection with any exercises.

2. A summary of share option plans, and related information, under all of the Company’s equity incentive plans for the years ended December 31, 2017, 2018 and 2019 is as follows:

a) Options granted to employees:


	Year ended December 31,
	2017			2018			2019
		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	488,421	$	36.17	472,962	$	36.04	1,000,068	$	15.47
Changes during the year:
Granted				636,000		5.41	240,000		3.79
Forfeited and Expired	15,459		40.04	108,894		46.04	199,871		14.14
Outstanding at end of year	472,962	$	36.04	1,000,068	$	15.47	1,040,197	$	13.03
Exercisable at end of year	445,746	$	36.96	394,486	$	30.65	532,322	$	21.04

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


	Year ended December 31,
	2017			2018			2019
	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	20,800	$	31.56	20,000	$	32.82	15,000	$	33.70
Changes during the year:
Expired	800		0.001	5,000		30.20
Outstanding at end of year	20,000		32.82	15,000		33.70	15,000		33.70
Exercisable at end of year	20,000	$	32.82	15,000	$	33.70	15,000	$	33.70

c) The following tables summarize information concerning outstanding and exercisable options and restricted stock as of December 31, 2019:


December 31, 2019
	Options outstanding			Options exercisable
		Number of	Weighted		Weighted
		options	average		average
		outstanding	remaining	Number of	remaining
	Exercise	at end of	contractual	options	contractual
	prices	year	life	exercisable	life
$	2.00	80,000	9.73	5,000	9.73
$	4.69	160,000	9.50	20,000	9.50
$	5.10	228,062	8.65	72,687	8.54
$	5.60	258,126	7.09	120,626	5.24
$	17.20	149,209	4.39	149,209	4.39
$	23.70	90,000	1.84	90,000	1.84
$	33.70	15,000	0.62	15,000	0.62
$	69.00	68,000	0.15	68,000	0.15
$	96.60	6,800	0.83	6,800	0.83
		1,055,197		547,322

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


	Year ended December 31,
(U.S. dollars in thousands)	2017		2018		2019
Research and development expenses	$	182	$	310	$	513
Selling, general and administrative expenses		155		204		322
	$	337	$	514	$	835

b. Private and 144A Offerings

2. On July 24, 2017, the Company entered into a Note Purchase Agreement with certain institutional investors relating to the private issuance and sale by the Company of $10.0 million in aggregate principal amount of its 2021 Notes. The 2021 Notes were issued pursuant to the base indenture dated December 7, 2016. Concurrently, the Company exchanged with certain existing note holders $9.0 million aggregate principal amount of the Company’s outstanding 2018 Notes for $8.55 million aggregate principal amount of newly issued 2022 Notes (as described in note 10c). See also note 10c.

3. On May 22, 2018, the Company agreed to a privately negotiated exchange with certain existing note holders to exchange $3,423,000 aggregate principal amount of the Company’s outstanding 2018 Notes for 261,363 shares of the Company’s common stock and $2.23 million in cash to cover outstanding principal and accrued interest on the exchanged 2018 Notes. See also note 10a.