8. WARRANTS

January 2007 Private Placement

In connection with the closing of its January 2007 private placement, the investors were issued five-year warrants to purchase up to an aggregate of 736,870 shares of its common stock, at an initial exercise price of $11.25. The warrants are callable by the Company when the trailing 10-day average of the closing market share price of its common stock equals or exceeds $13.75. As of December 31, 2011, 597,684 warrants remain outstanding.

In connection with the closing of its January 2007 private placement, the Company issued five-year warrants to the brokers as partial compensation for acting as placement agent in the transaction. These January 2007 private placement agent warrants are exercisable in whole or in part, at an exercise price of $7.50 per share, before January 19, 2012 for up to 147,294 shares of common stock. These warrants contain provisions that protect the holders thereof against dilution by adjustment of the purchase price in certain events, such as stock splits or reverse stock splits, stock dividends, recapitalizations or similar events. The holders of these warrants will not possess any rights as stockholders unless and until they exercise their warrants. The January 2007 placement agent warrants do not confer upon holders any voting or any other rights as stockholders. As of December 31, 2011, 120,839 placement agent warrants remain outstanding.

October 2007 Public Offering

In connection with the closing of the Company’s October 31, 2007 public offering of common shares, the investors were issued five-year warrants to purchase up to an aggregate of 1,064,755 shares of its common stock, at an initial exercise price of $17.50 per share and a market price of $0.50 per warrant. The warrants contain a subsequent equity sales provision that provides for repricing of the warrants if subsequent warrants or options are sold at with an exercise price of less than $17.50 per share. The exercise price would be reduced to the greater of (a) the price of the new warrants or (b) $12.50 per share and the total warrants outstanding would be increased such that the total aggregate exercise price shall be equal to the aggregate exercise price prior to the adjustment. The closing of its October 7, 2009 public offering triggered the subsequent equity sales provision of the investor warrants issued on October 31, 2007. As such, the 1,064,755 warrants outstanding at an exercise price of $17.50 were cancelled and 1,490,661 warrants were issued with an exercise price of $12.50. As of December 31, 2011, all 1,490,661 warrants remain outstanding.

October 2009 Public Offering

In connection with the closing of the Company’s October 7, 2009 public offering of common shares, the investors were issued five-year warrants to purchase up to an aggregate 5,864,922 shares of the Company’s common stock at an initial exercise price of $4.25 per share. In addition, the Company granted the placement agent 309,332 warrants, each warrant entitling the holder to purchase one share of common stock at $4.85 per share at any time for a period commencing six months after the date of the closing, and continuing for five years following the closing date of the offering. The warrants may also be executed on a cashless basis, in accordance with the terms of the warrant. As of December 31, 2011, all October 2009 investor warrants and related placement agent warrants remain outstanding.

October 2010 Private Placement

In connection with the closing of the Company’s October 6, 2010 registered direct offering of common shares, the investors were issued five-year warrants to purchase up to an aggregate 2,045,451 shares of the Company’s common stock at an exercise price of $1.64 per share. The warrant agreements include a provision that provides the warrant holders with an option to require the Company (or its successor) to purchase their warrants for cash in an amount equal to their Black-Scholes value, in the event of a change in control of the Company. The warrants may also be executed on a cashless basis, in accordance with the terms of the warrant. As of December 31, 2011, all of the October 2010 warrants remain outstanding.

February 2011 Public Offering

In connection with the closing of the Company’s February 2, 2011 public offering of common shares, the investors were issued five-year warrants to purchase up to an aggregate 15,015,600 shares of the Company’s common stock at an exercise price of $1.30 per share. In addition, the Company granted the placement agent 900,936 warrants, each warrant entitling the holder to purchase one share of common stock at $1.63 per share at any time for a period commencing six months after the date of the closing, and continuing for five years following the closing date of the offering. The warrant agreements include a provision that provides the warrant holders with an option to require the Company (or its successor) to purchase their warrants for cash in an amount equal to their Black-Scholes value, in the event of a change in control of the Company. The warrants may also be executed on a cashless basis, in accordance with the terms of the warrant. As of December 31, 2011, all investor warrants and related placement agent warrants remain outstanding.

The following table provides a rollforward of warrant activity for the year ended December 31, 2011:


	Number of Shares (in thousands)		Weighted Average Exercise Price		Aggregate Price (in thousands)
Balance at December 31, 2010		10,428	$	5.37	$	56,044
Warrants granted		15,917		1.32		20,984
Warrants exercised		—		—		—
Warrants cancelled or forfeited		—		—		—
Balance at December 31, 2011		26,345	$	2.92	$	77,028

As of December 31, 2011, there were 26.3 million warrants to purchase Bionovo shares outstanding with a weighted average price of $2.92 and an aggregate price of $77.0 million.

The following table summarizes information about all warrants outstanding as of December 31, 2011:


Issue Date	Expiration Date		Number Outstanding (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
January 2007		January 2012		718	$	10.62		0.05
October 2007		October 2012		1,491		12.50		0.84
October 2009		October 2014		6,174		4.28		2.77
October 2010		October 2015		2,045		1.64		3.77
February 2011		February 2016		15,917		1.32		4.09
				26,345		2.92		3.46

As described in Note 7 — Shareholders’ Equity and Share-Based Compensation, in connection with the Socius Securities Purchase Agreement with Socius, the Company issued Socius a warrant to purchase up to 7,608,696 shares of common stock on December 30, 2011. The Warrant becomes partially vested and exercisable only upon the Company’s issuance of a Tranche Notice to the Investor. Issuance of the Tranche Notice is at the Company’s sole discretion. As of December 31, 2011, no portion of this warrant was vested and exercisable and accordingly is not included in the table above or in the total number of warrants outstanding.

The estimated fair value of warrants granted in January 2007, October 2007 and October 2009 is included in additional paid-in capital along with the proceeds from issuance of common stock. The estimated fair value of the warrants was calculated using the Black-Scholes Model. The following assumptions were used: (i) no expected dividends, (ii) risk free interest rates of 2.2% – 4.0%, (iii) expected volatility of 90% – 187%, and (iv) expected life in the stated life of the warrant. The fair value of the warrants ranged from $0.50 to $4.45.

Warrant Liability

As discussed above and in Note 2, “Summary of Significant Accounting Policies,” the warrants issued in the October 2010 Private Placement (“October 2010 warrants”) and the February 2011 Public Offering (“February 2011 warrants”) include provisions that provide the warrant holders with an option to require the Company (or its successor) to purchase their warrants for cash in an amount equal to their Black-Scholes value, in the event of a change in control of the Company. Accordingly, the fair value of the warrants at the issuance date was estimated using the Black-Scholes Model and the Company initially recorded a warrant liability of $1.7 million for the October 2010 warrants and a liability of $10.8 million for the February 2011 warrants. The Company remeasured the warrant liability resulting from these two issuances at December 31, 2010, March 31, 2011, June 30, 2011, September 30, 2011 and December 31, 2011. For the twelve months ended December 31, 2011, the Company recorded adjustments resulting in a net decrease to the warrant liability of approximately $10.1 million with a corresponding entry to record a gain in other income (expense) in the Company’s consolidated statements of operations. For the year ended December 31, 2010, the Company recorded a net increase to the warrant liability of approximately $94,000 with a corresponding entry to record a loss in other income (expense). Additional disclosures regarding assumptions used in calculating the fair value of the warrant liability are included in Note 4, “Fair Value.”

The public offering completed on February 2, 2011 did not result in a change of control as defined in the warrant agreements or trigger the cash settlement provisions in relation to the warrants issued in the October 2010 financing transaction.

Employee Benefit Plan

The Company has a 401(k) Plan that covers substantially all of its employees. Under the 401(k) Plan, eligible employees may contribute up to 15 percent of their eligible compensation, subject to certain Internal Revenue Service restrictions. The Company does not match employee contributions in the 401(k) Plan.

BIONOVO INC 10-K