Note 10—Stockholders’ Equity

Common Stock

On February 28, 2014, we entered into a strategic collaboration and funding arrangement with Shanxi Taxus Pharmaceuticals Co., Ltd., which is based in the Peoples Republic of China (PRC) and is affiliated with Shenzhen Forntsea Taxus Industry Capital Management (“Shanxi Taxus”), to support the worldwide clinical and commercial development of Cardium’s advanced regenerative medicine therapeutics products, including the Generx product candidate and Excellagen. In connection with this arrangement, we entered into a Stock Purchase Agreement with Shanxi Taxus, pursuant to which, Shanxi Taxus agreed to purchase up to $5 million of shares of our unregistered common stock in multiple tranches, each at a 10% premium to the then-current trailing average market prices of our common stock at the time of each closing. In February 2014, we closed the initial tranche of funding by selling 714,286 shares of common stock at $0.70 per share. On May 12, 2014, Shanxi Taxus acquired a second tranche of $1.5 million by purchasing 2,330,278 shares of common stock at $0.6437 per share a mutually agreed upon price. In December 2014, Shanxi Taxus acquired a portion of the third tranche of $300,000 by purchasing 466,056 shares of common stock at $0.6437 per share a mutually agreed upon price. Although Shanxi Taxus originally had a right to purchase the third, fourth and fifth tranches of $1.0 million each, with the third tranche not timely closed for the full amount, it no longer has a contractual right to purchase additional shares pursuant to the terms of the Stock Purchase Agreement.

The common stock purchased by Shanxi Taxus is unregistered, but in the event that we file a registration statement for other shares of common stock, then we agreed to supplement such registration statement to provide “piggyback” registration rights for the shares purchased by the Shanxi Taxus. No warrants were issued in connection with the transaction.

On April 4, 2015 we entered into a term sheet with Shenzhen Qianhai Taxus, whereby we proposed to sell Shenzhen Qianhai Taxus 600,000 shares of common stock in our Angionetics subsidiary in exchange for $3.0 million in cash. The $3.0 million was to be paid in tranches that were to be completed by May 31, 2015. Shenzhen Qianhai Taxus paid $600,000 of the financing, which was recorded as common stock issuable. Since Shenzhen Qianhai Taxus did not complete this transaction, instead Huapont agreed to fund the investment. Shenzhen Qianhai Taxus is eligible to apply this amount toward the purchase of common stock of the Company or its subsuduaries based on terms and conditions approved by the Company’s Board of Directors. This contribution is committed and not refundable to Shenzhen Qianhai Taxus.

Preferred Stock

Exchange and Redemption Agreement with Sabby Healthcare Volatility Master Fund, Ltd.

On April 4, 2013, we entered into a securities purchase agreement with Sabby Healthcare Volatility Master Fund, Ltd. (“Sabby”) to purchase up to 4,012 shares of our newly authorized Series A Convertible Preferred Stock (the “Preferred Stock”) for maximum proceeds of $4.0 million. The Preferred Stock was convertible into shares of our common stock at an initial conversion price of $0.6437 per share. The conversion price is subject to downward adjustment if we issue common stock or common stock equivalents at a price less than the then effective conversion price. Sabby is limited to hold no more than 10% of Taxus Cardium’s issued and outstanding common stock at any time. As long as the Preferred Stock is outstanding, we have also agreed not to incur specified indebtedness without the consent of the holders of the Preferred Stock. These factors may restrict our ability to raise capital through equity or debt offerings in the future.

On July 22, 2015, we entered into an Exchange and Redemption Agreement with Sabby relating to the 1,176 outstanding shares of Preferred Stock that remained outstanding at that time. Under the terms of the Exchange and Redemption Agreement, we agreed to reduce the conversion price of the Preferred Stock to $0.30 per share. The Agreement grants Taxus Cardium (1) a right to redeem any or all of the outstanding Preferred Stock for its stated value (approximately $1,000 per share) at any time during a 120 day period after the date of the Agreement, and (2) increases the limitation on certain indebtedness contained in the Certificate of Designation for the Preferred Stock to allow Taxus Cardium to borrow up to $250,000. We entered into the Agreement to increase our options for retiring the outstanding Preferred Stock and financing our continued business operations. As a result of the effective conversion price changing from $0.64 to $0.30 per share, the 1,176 shares of Preferred Stock outstanding are convertible to 3,918,667 shares of Taxus Cardium common stock, an additional 2,092,350 shares compared to before the conversion price change. A hypothetical conversion of all of the outstanding Preferred Stock into 3,468,804 common shares would increase the common stock outstanding from 13,187,544 shares as of December 31, 2015, to 16,656,348, an increase of 26%. As a result of such holder entering into the Agreement, for which the fair value of preferred stock before and after the modification was a substantially different, the modification was accounted for as an extinguishment. As a result, the Company recorded a deemed dividend totaling $627,705 in the statement of operations in arriving at net loss to common shareholders.

This reduction of the conversion price under the Exchange and Redemption Agreement triggered an anti-dilution protection in 3,585,908 previously granted common stock purchase warrants not held by Sabby, resulting in an additional 3,749,692 warrant shares to be granted for a total of 7,235,600 common stock purchase warrants with anti-dilutive provisions outstanding. The exercise price per common share in these warrants remains unchanged as the original common stock purchase warrant, a weighted average price of $0.71. Stock-based compensation expense of $693,801 related to this anti-dilution provision was recorded during the year ended December 31, 2015.

Stockholder Rights Plan

On July 10, 2006, our Board of Directors approved the adoption of a Stockholder Rights Plan (“Rights Plan”). Pursuant to the Rights Plan, we issued a dividend of one right for each share of our common stock held by stockholders of record as of the close of business on July 21, 2006. The rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. In general, if a person or group acquires, or announces a tender or exchange offer that would result in the acquisition of, 15% or more of our common stock while the Rights Plan remains in place, then, unless the Board of Directors elects to redeem the rights for $0.001 per right, the rights will become exercisable by all rights holders except the acquiring person or group, for 0.001 of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.00. Until the rights become exercisable, the rights are represented by, and automatically trade with, our common stock certificates.

The Rights Plan was reviewed in 2012 and will be evaluated every three years by a committee of independent directors of the Company’s Board of Directors to consider whether the plan continues to be in the best interests of Cardium and its stockholders. The Rights Plan may be amended or revoked by the Board of Directors at any time and unless earlier terminated or amended, the rights will expire on July 10, 2016.

Stock Options and Other Equity Compensation Plans

We have an equity incentive plan that was established in 2005 under which 283,058 shares of our common stock have been reserved for issuance to employees, non-employee directors and consultants.

At December 31, 2015, the following shares were outstanding and available for future issuance under the option plan:

Plan

Shares Outstanding

Shares Available

for Issuance

2005 Equity Incentive Plan

62,000

—

The 2005 Equity Incentive Plan expired on October 20, 2015, ten years after its adoption, and we are no longer able to issue share or awards under that plan. All options or other awards issued under the 2005 Equity Incentive plan prior to its expiration remain outstanding in accordance with their terms.

On February 28, 2014, outside of the 2005 Equity Incentive Plan, we issued 1,457,100 common stock warrants to directors, officers and chief medical advisor. The warrants were approved by our Board of Directors, have a ten year term and an exercise price of $0.80 per share, which represented a 57% premium to the closing stock price on the date of issuance. The common stock warrants had a fair value of $0.34 per share and vested immediately. We recorded $505,057 of stock-based compensation related to these common stock warrants. These warrants carry a preemptive anti-dilution right which is activated if shares are sold at a price below the $0.80 exercise price of the warrant. This feature increases the number of common shares in which these warrants are exercisable into, but the exercise price still remains at $0.80 per share. As a result of the final tranche of the Shanxi Taxus equity transaction completed in December 2014 and the Exchange and Redemption Agreement with Sabby, the 1,457,100 common stock warrants are now exercisable into 3,885,598 shares of common stock at a price of $0.80 per share. We recorded $371,770 and $505,057 of stock-based compensation during the years ended December 31, 2015 and 2014, respectively related to the additional common stock warrants.

On March 23, 2015, outside of the 2005 Equity Incentive Plan, we issued 1,125,000 common stock warrants to directors, officers and chief medical advisor. The warrants were approved by our Board of Directors, have a ten year term and an exercise price of $0.60 per share, which represented a 216% premium to the closing stock price on the date of issuance. The warrants had a fair value of $0.10 per share and vested immediately. We recorded $117,375 of stock-based compensation related to these common stock warrants. These warrants carry a preemptive anti-dilution right which is activated if shares are sold at a price below the $0.60 exercise price of the warrant. This feature increases the number of common shares in which these warrants are exercisable into, but the exercise price still remains at $0.60 per share. As a result of the Exchange and Redemption Agreement with Sabby, the 1,125,000 common stock warrants are now exercisable into 2,250,000 shares of common stock at a price of $0.60 per share. We recorded $215,893 in stock-based compensation related to the additional warrants.

On March 23, 2015, we issued 10,000 non-qualified stock options to directors. The options were approved by our Board of Directors, have a seven year term and an exercise price of $0.19 per share, which equaled the closing stock price on the date of issuance. The stock options had a fair value of $0.14 per share. We recorded $262 of stock-based compensation related to these stock options.

On May 1, 2015, outside of the 2005 Equity Incentive Plan, we issued 550,000 common stock warrants to directors and employees. The warrants were approved by our Board of Directors, have a ten year term and an exercise price of $0.60 per share, which represented a 20% premium to the closing stock price on the date of issuance. The warrants had a fair value of $0.37 per share and 300,000 vested immediately. 250,000 warrants have a 1 year cliff vesting. We recorded $166,627 of stock-based compensation related to these common stock warrants. These warrants carry a preemptive anti-dilution right which is activated if shares are sold at a price below the $0.60 exercise price of the warrant. This feature increases the number of common shares in which these warrants are exercisable into, but the exercise price still remains at $0.60 per share. As a result of the Exchange and Redemption Agreement with Sabby, the 550,000 common stock warrants are now exercisable into 1,100,000 shares of common stock at a price of $0.60 per share. We recorded $106,138 in stock-based compensation related to the additional warrants.

On May 8, 2015, outside of the 2005 Equity Incentive Plan, we issued 100,000 common stock warrants to a consultant. The warrants were approved by our Board of Directors, have a ten year term and an exercise price of $0.60 per share, which represented a 33% premium to the closing stock price on the date of issuance. The commons stock warrants had a fair value of $0.41 per share. 40,000 warrants vested immediately, and the remaining 60,000 warrants vested over three quarters. On August 4, 2015, the consulting agreement was terminated and the remaining 60,000 unvested warrants cancelled per the terms of the consulting agreement and the common stock purchase warrant. We recorded $6,868 of stock-based compensation related to these common stock warrants.

The following is a summary of stock option and warrant activities under our equity incentive plan and warrants issued outside of the plan to employees and consultants, during the years ended December 31, 2015 and 2014:

	Number of Options or Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2014		144,000		$	31.74		2.10
Granted		1,812,906			0.80		9.1
Exercised
Cancelled (unvested)		(42,000	)		32.02		—
Expired (vested)		—			—		—
Balance outstanding, December 31, 2014		1,914,906			2.44		8.74
Granted		5,534,692			0.67		8.85
Exercised
Cancelled (unvested)		(60,000	)		0.60		—
Expired (vested)		(52,000	)		28.76		—
Balance outstanding, December 31, 2015		7,337,598		$	0.94		8.62
Balance exercisable, December 31, 2015		7,078,342		$	0.95		8.60

We calculate the fair value of stock options using the Black-Scholes option-pricing model. In determining the expected term, we separate groups of employees that have historically exhibited similar behavior with regard to option exercises and post-vesting cancellations. The option-pricing model requires the input of subjective assumptions, such as those included in the table above. The volatility rates are based principally on our historical stock prices and expectations of the future volatility of its common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The total expense to be recorded in future periods will depend on several variables, including the number of share-based awards and expected vesting.

The following table summarizes the stock options and warrants that we granted during the year ended December 31, 2015:

Grant Date	Quantity Issued		Expected Life (Years)		Strike Price		Volatility			Dividend Yield			Risk-Free Interest Rate			Grant Date Fair Value Per Option		Aggregate Fair Value
03/23/2015		1,125,000		5.0	$	0.60		96.32	%		0	%		1.42	%	$	0.10	$	117,683
03/23/2015		10,000		4.5	$	0.19		98.09	%		0	%		1.36	%	$	0.14	$	1,354
05/01/2015		550,000		5.2	$	0.60		99.45	%		0	%		1.47	%	$	0.37	$	203,500
05/08/2015		100,000		4.8	$	0.60		106.91	%		0	%		2.18	%	$	0.41	$	33,000
07/22/2015		71,192		8.6	$	0.80		95.11	%		0	%		2.23	%	$	0.23	$	16,328
07/22/2015		2,003,500		4.3	$	0.80		105.07	%		0	%		1.54	%	$	0.18	$	360,630
07/22/2015		1,675,000		4.8	$	0.60		100.05	%		0	%		1.69	%	$	0.19	$	318,250

As of December 31, 2015, we had $30,444 unvested stock-based compensation at fair value remaining to be expensed. During the years ended December 31, 2015 and 2014, we recognized $985,114 and $508,628 of stock-based compensation expense, respectively.

As of December 31, 2015 and 2014, there was an aggregate of $1,400 and $0 intrinsic value to the outstanding and exercisable options and warrants, respectively.

Warrants

The following table summarizes warrant activities for the years ended December 31, 2015 and 2014:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2014		978,830		$	19.82		1.9
Warrants issued		—			—
Warrants exercised		—			—
Warrants expired		(105,494	)		32.68
Warrants cancelled
Balance outstanding, December 31, 2014		873,336			17.79		1.0
Warrants issued		—			—
Warrants exercised		—			—
Warrants expired		(156,588	)		26.07
Warrants cancelled
Balance outstanding, December 31, 2015		716,748		$	15.98		0.22
Warrants exercisable at December 31, 2015		716,748		$	15.98		0.22