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, 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, 2014, 1,923,444 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, 2012 through December 31, 2014, 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:

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, 2014:

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
	2012		400,000		n/a		3 years	$	2,288		n/a
	2012		1,100,000		n/a		4 years	$	6,292		n/a
	2014		900,000	$	2.37		4 years	$	1,007		10 years
			2,400,000

Set forth below are grants made by the Company to employees (including related parties) during the three-year period ended December 31, 2014 (such grants appear in the table above):

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 Corporate Transaction or 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.

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.

The fair value of restricted stock granted during the year ended December 31, 2012 was $8.6 million 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, 2014 is approximately $1.4 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, 2012, 2013 and 2014 was approximately $1.2 million, $112,000 and $46,000, respectively. The Company did not realize any tax benefit in connection with these exercises.

During 2014, the Company issued 133,930 shares of Common Stock in connection with the exercise of 139,388 options by certain employees of the Company. The Company received cash proceeds equal to approximately $46,000 in connection with such exercises.

2. 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 and 2014. 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 2013 and 2014, no shares of Common Stock were issued in connection with the exercise of options by consultants of the Company.

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, 2012, 2013 and 2014 are as follows:

Options granted to employees:

	Year ended December 31,
	2012				2013				2014
			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		6,141,030	$	3.563		5,253,579	$	3.923		5,153,898	$	3.951
Changes during the year:
Granted										900,000		2.370
Forfeited and Expired		25,858		4.372		20,558		6.603		44,201		6.833
Exercised (*)		861,593		1.346		79,123		1.418		139,388		0.446
Outstanding at end of year		5,253,579	$	3.923		5,153,898	$	3.951		5,870,309	$	3.770
Exercisable at end of year		4,258,441	$	3.201		4,614,148	$	3.591		4,905,559	$	3.933

(*)	The total intrinsic value of options exercised during the years ended December 31, 2012, 2013 and 2014, was approximately $4.8 million, $306,000 and $447,000, respectively.

Restricted stock granted to employees:

	Year ended December 31,
	2012		2013		2014
	Number of Restricted Shares
Outstanding at beginning of year		-		1,394,708		970,208
Changes during the year:
Granted		1,500,000
Vested		102,084		406,666		398,375
Forfeited		3,208		17,834		185,709
Outstanding at end of year		1,394,708		970,208		386,124

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

	Year ended December 31,
	2012				2013				2014
			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		1,238,692	$	5.385		912,425	$	7.259		912,425	$	7.259
Changes during the year-
Granted										296,167		2.678
Exercised (*)		326,267		0.12
Outstanding at end of year		912,425	$	7.259		912,425	$	7.259		1,208,592		6.136
Exercisable at end of year		912,425	$	7.259		912,425	$	7.259		912,425	$	7.259

(*)	The total intrinsic value of options exercised during the year ended December 31, 2012 was approximately $2.3 million.

The following tables summarize information concerning outstanding and exercisable options and restricted stock as of December 31, 2014:

December 31, 2014
Options and restricted stock outstanding						Options exercisable
Exercise prices		Number of options and restricted stock outstanding at end of year		Weighted average remaining contractual life		Number of options exercisable		Weighted average remaining contractual life
	n/a (Restricted Stock)		490,624		n/a		n/a		n/a
$	0.001		719,207		0.54		719,207		0.54
$	0.120		308,801		2.00		308,801		2.00
$	0.972		995,853		1.44		995,853		1.44
$	2.350		40,000		3.82		40,000		3.82
$	2.370		900,000		9.75		56,250		9.75
$	2.650		345,082		3.49		345,082		3.49
$	3.020		50,000		3.10		50,000		3.10
$	3.370		150,000		9.56		-		9.56
$	5.000		1,708,000		2.66		1,708,000		2.66
$	6.810		150,000		5.10		150,000		5.10
$	6.900		991,916		4.32		829,249		4.32
$	7.550		160,000		5.66		160,000		5.66
$	9.660		68,000		5.83		68,000		5.83
$	16.700		387,542		1.99		387,542		1.99
			7,465,025				5,817,984

The aggregate intrinsic value of the total outstanding options and restricted stock and of total vested and exercisable options as of December 31, 2014 is approximately $3.6 million and $2.7 million, respectively.

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

	Year ended December 31,
(U.S. dollars in thousands)	2012		2013		2014
Cost of revenues	$	220
Research and development expenses		4,756	$	2,655	$	936
Marketing, General and administrative expenses		2,775		1,434		306
	$	7,751	$	4,089	$	1,242

c. Public and 144A Offerings

1. 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).

2. 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.