Note 9—Stockholders’ Equity

Common Stock

On April 4, 2015, we entered into a term sheet with Shenzhen Qianhai Taxus Capital Management Co., Ltd. (“Shenzhen Qianhai Taxus”), a company affiliated with Shanxi Taxus Pharmaceuticals Co. Ltd., 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. Shenzhen Qianhai Taxus did not complete this transaction. This subscription is committed and not refundable to Shenzhen Qianhai Taxus. Shenzhen Qianhai Taxus is eligible to apply this amount toward the purchase of common stock of the Company or its subsidiaries based on terms and conditions approved by the Company’s Board of Directors.

Preferred Stock

Taxus Cardium Series A Convertible Preferred Stock.

On April 4, 2013, we entered into a securities purchase agreement with Sabby Healthcare Volatility Master Fund, Ltd. (“Sabby”), pursuant to which we sold 4,012 shares of our newly authorized Series A Convertible Preferred Stock (the “Preferred Stock”) for $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 from $0.64 per share in exchange for a limited redemption right (which has now expired) and an increase in the limitation on certain indebtedness.

On September 23, 2016, we entered into a second Exchange and Redemption Agreement with Sabby covering the 1,000 shares of Preferred Stock outstanding at the time. Under the terms of the Exchange and Redemption Agreement, Taxus Cardium agreed to reduce the conversion price at which Sabby can convert shares of Preferred Stock to common shares to an effective price of $0.18 per share. The Exchange and Redemption Agreement granted Taxus Cardium a right to redeem any or all of the outstanding Preferred Stock for its Stated Value (approximately $1,000 per share) at any time after the date of the Agreement until November 29, 2016. As a result of the conversion price changing from $0.30 to $0.18 per share, the 1,000 shares of Preferred Stock outstanding are convertible to 5,554,667 shares of Taxus Cardium common stock, an additional 2,221,867 compared to before the conversion price change. A hypothetical conversion of all of the outstanding Preferred Stock into 5,154,674 shares of common stock would increase the common stock outstanding from 13,723,544 shares as of December 31, 2016, to 18,878,218, an increase of 37.6%. As a result of such holder entering into the Agreement, for which the fair value of preferred stock before and after the modification was substantially different, the modification was accounted for as an extinguishment. Consequently, we recorded a deemed dividend totaling $782,879 in the statement of operations in arriving at net loss to common shareholders.

Angionetics Series A Convertible Preferred Stock

On June 7, 2016, Taxus Cardium and Angionetics entered into a Share Purchase Agreement with Pineworld Capital Limited an entity affiliated with Huapont Life Sciences Co. Ltd, a China-based pharmaceutical, and active pharmaceutical ingredient company (“Huapont”). Pursuant to the Share Purchase Agreement, Angionetics agreed to sell 600,000, shares of its newly authorized Series A Convertible Preferred Stock (the “Shares”) to the Huapont affiliate in exchange for $3,000,000 in cash. The Shares represent an initial 15% equity interest in Angionetics, resulting in a post-money valuation of $20.0 million for Angionetics, subject to certain anti-dilution protection described below. The investment from the Huapont affiliate was made in two tranches. The closing of the initial tranche of 200,000 Shares for $1,000,000 occurred on July 5, 2016. The closing of the second tranche of 400,000 Shares for $2,000,000 was conditioned upon Angionetics securing FDA clearance to initiate a new U.S.-based Phase 3 clinical study (the AFFIRM study) to evaluate the safety and definitive efficacy of the Generx® [Ad5FGF-4] product candidate for the treatment of patients with ischemic heart disease and refractory angina. On September 28, 2016, following FDA clearance of the Phase 3 AFFIRM study, Angionetics received $2,000,000 from the closing of the second tranche.

The Angionetics Shares have the following rights, privileges and preferences:

•

Dividends. Holders of the Shares are entitled to receive dividends as, when and if declared by the Angionetics board of directors on the Angionetics common stock, on an as-converted basis.

•

Liquidation. In the event of a liquidation of Angionetics, including a change of control transaction, holders of the Shares are entitled to be paid an amount equal to their investment amount before any payment is made to Taxus Cardium or any other holders of Angionetics common stock.

•

Voting. The Shares generally vote with the Angionetics common stock as a single class on an as-converted basis. Holders of the Shares also have certain special voting rights as a separate class including (a) the right to appoint a member to the Angionetics board of directors, (b) the right to approve any increase or decrease in the number of authorized shares of the Shares or the common stock, any merger or acquisition involving Angionetics, any liquidation or winding up of Angionetics, any increase in the number of directors and any dividend or distribution, and (c) the right to approve any amendment to the Angionetics certificate of incorporation in a manner that adversely affects the rights of the Shares. The voting rights under (a) and (b) terminate if Huapont does not complete the second closing under the share purchase agreement.

•

Conversion. The Shares are convertible into shares of Angionetics common stock at any time at the holder’s election. The Shares automatically convert into common stock upon the closing of a firm commitment underwritten public offering of Angionetics common stock. The Shares are initially convertible on a one to one basis into Angionetics common stock. The Shares are subject to anti-dilution protection, such that in the event of a firm commitment underwritten public offering or a change in control each Share will be convertible into a pro rata portion of 15% of the outstanding Angionetics common stock at the time of the public offering or change in control.

The Angionetics Series A Convertible Preferred Stock is classified as permanent equity, since the triggering of a liquidation event to sell, merge, or consolidate Angionetics, or to sell all or substantially all of its assets (a “change in control”) is solely within Taxus Cardium’s’ control. The Certificate of Designation for the Series A Convertible Preferred Stock does not provide the holders of Series A Convertible Preferred Stock the right to initiate such a change in control, through special voting privileges, majority representation on the Angionetics board of directors, or other rights. In the absence of special provisions in the Certificate of Designation, Delaware law requires the approval of the full Angionetics board of directors to initiate a change in control transaction.

Also, given the Preferred holders have acquired a 15% equity position in Angionetics on and as a converted Common Stock basis, and given the Preferred Stock holders have immediate substantive rights of the Common shareholders, the equity investment in Angionetcis was recorded as noncontrolling interest. A noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The noncontrolling interest in a subsidiary is part of the equity of the consolidated group.

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 2015 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 could be amended or revoked by the Board of Directors at any time. The rights expired 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 the Company’s common stock were reserved for issuance to employees, non-employee directors and consultants. 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.

At December 31, 2016, 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

17,000

—

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 215% 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.

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.

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. 300,000 vested immediately and 250,000 warrants vested on the one year anniversary of the date of grant.

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 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 were cancelled per the terms of the consulting agreement and the warrant.

The following is a summary of stock option and warrant (employees and directors) activities issued during the years ended December 31, 2016 and 2015:

	Number of Options or Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2015		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
Granted		4,823,736			0.71		7.75
Exercised		—			—		—
Cancelled (unvested)		—			—		—
Expired (vested)		(45,000	)		0.73		—
Balance outstanding, December 31, 2016		12,116,334		$	0.73		7.67
Balance exercisable, December 31, 2016		12,110,078		$	0.73		7.67

We calculate the fair value of stock options using the Black-Scholes option-pricing model which approximates a bionomial lattice 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 below. 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, 2016 and 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
09/23/2016		2,501,511		3.7	$	0.80		114.76	%		0	%		1.01	%	$	0.09	$	225,136
09/23/2016		2,233,336		4.2	$	0.60		115.10	%		0	%		1.11	%	$	0.11	$	245,667
09/23/2016		88,889		7.4	$	0.80		108.45	%		0	%		1.49	%	$	0.13	$	10,355

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

During the years ended December 31, 2016 and 2015, we recognized $518,479 and $985,114 of stock-based compensation expense, respectively.

As of December 31, 2016 and 2015, there was an aggregate of $0 and $1,400 intrinsic value to the outstanding and exercisable options and warrants, respectively.

Warrants

The following table summarizes warrant activities for the years ended December 31, 2016 and 2015:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2015		873,336		$	17.79		1.0
Warrants issued		—			—		—
Warrants exercised		—			—		—
Warrants expired		(156,588	)		26.07		—
Warrants cancelled		—			—		—
Balance outstanding, December 31, 2016		716,748			15.98		0.22
Warrants issued		—			—		—
Warrants exercised		—			—		—
Warrants expired		(716,748	)		15.98		—
Warrants cancelled		—			—		—
Balance outstanding, December 31, 2016		—		$	—		—
Warrants exercisable at December 31, 2016		—		$	—		—