SHARE CAPITAL

12 Months Ended

Dec. 31, 2011

SHARE CAPITAL

NOTE 7 - SHARE CAPITAL

a. Rights of the Company’s Common Stock

The Company’s common stock is listed on the NYSE Amex 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 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, 2011, 47,920 shares of Common Stock remain available for grant under the Plan.

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

From January 1, 2009 through December 31, 2011, the Company granted options to certain employees and non-employees as follows:

1. Options granted to employees:

a) Below is a table summarizing all of the option grants to employees for each of the three years in the period ended December 31, 2011:

Year of Grant	No. of options granted		Exercise price range		Vesting period	Fair value at grant		Expiration Period
2009*		504,000	$	2.65	Upon achievement of certain milestones*	$	1,068		10 years
2009		120,400	$	2.65	4 years	$	212		10 years
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
		2,068,400

* The milestone was achieved as of December 31, 2009 and the options vested in full.

Set forth below are grants made by the Company to employees (including related parties) during the three-year period ended December 31, 2011 (such grants appear in the table above):

1. In February, 2009, the Company’s Board of Directors approved the grant of options to purchase 624,400 shares of Common Stock to the Company’s Chief Executive Officer and certain officers and employees of the Company with an exercise price equal to $2.65 per share. The options vest as follows:

(i) 504,000 of the options vest immediately upon the achievement of certain clinical and operational performance milestones, which milestones must be achieved within one year of the date of grant or the options will be forfeited. The options expire within a period of 10 years from the date of grant. The vesting conditions of these options were satisfied prior to December 31, 2009. Accordingly, these options were fully vested at December 31, 2009 and the Company recognized all of the expenses for these options during 2009.

(ii) 120,400 of the options vest as follows: 25% within one year from the date of grant, with the remainder vesting in 12 equal quarterly tranches over 36 months. The options expire within a period of 10 years from the date of grant. The Company’s management assumed the simplified method to reflect the expected life regarding these options. The Company used the simplified method in 2009 as the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded.

2. 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, if at all. 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 occurs. As a result, no share-based compensation expense was recognized as of December 31, 2011.  The Company will start recording these expenses following the FDA’s marketing approval of taliglucerase alfa, if at all.

3. 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.

4. 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.

5. 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.

6. 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.

b) The fair value of options granted during the years ended December 31, 2009 and 2010 were $1,280 and $7,820 respectively. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:

	2009		2010
Dividend yield		0%		0%
Expected volatility		75%		75%
Risk-free interest rate		2.74%		3.23%
Expected life – in years		9.2		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 2009 - using the simplified method), of each option as its expected life. The pre-vesting forfeiture rate of approximately 6.3% is estimated based on pre-vesting forfeiture experience.

The total unrecognized compensation cost of employee stock options at December 31, 2011 is $6,218 (net of forfeiture rate) out of which $5,639 is expected to be recognized over a three-year period commencing upon the FDA’s approval of taliglucerase alfa, if at all. The remaining compensation cost of $579 is expected to be recognized over a weighted average period of 0.9 years.

The total cash received from employees as a result of employee stock option exercises for the years ended December 31, 2009, 2010 and 2011 was $293, $501 and $277, respectively. The Company did not realize any tax benefit in connection with these exercises.

During 2011, the Company issued 181,685 shares of Common Stock in connection with the exercise of 182,093 options by certain employees of the Company. The Company received cash proceeds equal to $268 in connection with such exercises. Of such options, 2,132 options were exercised on a “net-exercise” basis.

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

As of December 31, 2011, 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, 2009, 2010, and $0.2 was received in 2011. The Company did not realize any tax benefits in connection with these exercises.

During 2009, the Company issued 3,853,441 shares of Common Stock in connection with the exercise of 3,866,093 options by certain consultants, directors, and other service providers of the Company. The Company did not receive cash proceeds in connection with such exercises as all of such options were exercised on a “net-exercise” basis.

During 2011, the Company issued 200,000 shares of Common Stock in connection with the exercise of 200,000 options by certain consultant of the Company. The Company received cash proceeds equal to $0.2 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, 2009, 2010 and 2011 are as follows:

a. Options granted to employees:

	Year ended December 31,
	2009				2010				2011
			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		5,890,641	$	2.118		5,366,729	$	2.476		6,367,979	$	3.576
Changes during the year:
Granted		624,400		2.650		1,444,000		7.076
Forfeited and Expired		1,400		2.650		13,441		3.551		44,856		6.207
Exercised (*)		1,146,912		0.733		429,309		1.602		182,093		1.652
Outstanding at end of year		5,366,729	$	2.476		6,367,979	$	3.576		6,141,030	$	3.563
Exercisable at end of year		3,680,382	$	1.785		4,267,850	$	2.183		4,647,834	$	2.581

(*) The total intrinsic value of options exercised during the years ended December 31, 2009, 2010 and 2011, was $7,258, $3,050 and $1,252, respectively.

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

	Year ended December 31,
	2009				2010				2011
			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		5,304,785	$	1.285		1,438,692	$	4.697		1,438,692	$	4.697
Changes during the year-Exercised (*)		3,866,093		0.016						200,000		0.001
Outstanding at end of year		1,438,692	$	4.697		1,438,692	$	4.697		1,238,692	$	5.385
Exercisable at end of year		1,407,234	$	4.674		1,421,734	$	4.653		1,235,567	$	5.385

(*) The total intrinsic value of options exercised during the years ended December 31, 2009, 2010 and 2011, was $41,281, $0 and $1,886, respectively.

c. The following tables summarize information concerning outstanding and exercisable options as of December 31, 2011:

December 31, 2011
Options outstanding					Options exercisable
		Number of		Weighted	Number of		Weighted
		options		average	options		average
		outstanding		remaining	exercisable		remaining
Exercise		at end of		contractual	at end of		contractual
prices		year		life	year		life
$	0.001		719,207	3.54		719,207		3.54
$	0.120		987,356	2.30		987,356		2.30
$	0.399		26,673	3.35		26,673		3.35
$	0.972		1,325,988	4.47		1,325,988		4.47
$	2.350		160,000	6.82		120,000		6.82
$	2.650		604,956	7.15		573,550		7.15
$	3.020		50,000	6.10		46,875		6.10
$	5.000		1,720,000	6.10		1,559,210		6.10
$	6.810		160,000	8.10		70,000		8.10
$	6.900		1,010,000	8.15
$	7.550		160,000	8.66		50,000		8.66
$	9.660		68,000	8.84		17,000		8.84
$	16.700		387,542	5.00		387,542		5.00
			7,379,722			5,883,401

The aggregate intrinsic value of the total outstanding and of total vested and exercisable options as of December 31, 2011 is $15,551 and $15,371, respectively.

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

	Year ended December 31,
	2009		2010		2011
Research and development expenses	$	1,489	$	630	$	422
General and administrative expenses		1,194		652		464
	$	2,683	$	1,282	$	886

c. Public Offering

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 $20,590 (net of underwriting commissions and issuance costs of $1,410).

In February 2012, the Company issued and sold 5,175,000 shares of Common Stock. See Note 11b.