Note 10—Stockholders’ Equity

Common Stock

On September 28, 2010, the Company entered into a Sales Agreement (“Sales Agreement”) with Brinson Patrick Securities Corporation to enable the Company to use Brinson Patrick as a sales manager to sell shares of its common stock from time to time in “at-the-market” transactions pursuant to the Company’s shelf registration statement on a best efforts basis. During the first quarter of 2013, the Company raised net proceeds of $65,743 through the sale of 17,187 shares of common stock under at-the-market transactions.

On February 28, 2014, the Company 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, the Company entered into a Stock Purchase Agreement with Shanxi Taxus, pursuant to which, Shanxi Taxus agreed to purchase up to $5 million of shares of the Company’s unregistered common stock in multiple tranches, each at a 10% premium to the then-current trailing average market prices of the Company’s common stock at the time of each closing. In February 2014, the Company 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 Shanxhi Taxus is unregistered, but in the event that the Company files a registration statement for other shares of common stock, then the Company 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.

Preferred Stock

In April 2013, the Company entered into a securities purchase agreement with Sabby Healthcare, one of the Company’s institutional investors pursuant to which the Company agreed to sell to the investor an aggregate of 4,012 shares of its newly authorized Series A Convertible Preferred Stock, for a total purchase price of $4.0 million. No warrants were issued in connection with this offering, other than 44,087 placement agent warrants with an exercise price of $2.275 per share and an expiration date of August 27, 2015.

The initial closing under the securities purchase agreement took place in April 2013, at which the Company sold 2,356 shares of Series A Convertible Preferred Stock for aggregate net proceeds of $2,160,000. A second closing for the remaining 1,656 shares of Series A Convertible Preferred Stock for aggregate net proceeds of $1,532,000 took place on July 18, 2013. At December 31, 2014 the investor had converted 2,836 shares of Series A Convertible Preferred Stock into 2,786,652 shares of common stock. After giving effect to these conversions, 1,176 shares of Series A Convertible Preferred Stock were outstanding at December 31, 2014.

The holders of our Series A Convertible Preferred Stock are entitled, on an as-converted basis, to dividends equal to and in the same form as any dividends declared and issued on the Company’s common stock. Except as required by law, holders of Series A Convertible Preferred Stock are not entitled to voting rights. Upon any liquidation, dissolution or winding up, holders of the Series A Convertible Preferred Stock will be entitled to a liquidation preference above the holders of common stock or any other junior stock in an amount equal to the original purchase price of $1,000, plus any fees, damages or dividends arising. The Series A Convertible Preferred Stock is convertible into shares of the Company’s common stock at the option of the holder, subject to a beneficial ownership limitation of 9.99%. The initial conversion price was $1.82 per share after giving effect to the reverse stock split, but was subsequently reset and is currently $0.6437 per share; the conversion price is subject to downward adjustment if the Company issue common stock or common stock equivalents at a price less than the then effective conversion price. The Company have the right to force conversion if the volume weighted average price for its common stock exceeds $12.00 per share for 25 trading days during a 30 consecutive trading day period and certain other equity conditions are met.

As long as any shares of Series A Convertible Preferred Stock are outstanding, the Company has agreed that it will not, without the consent of the holders of two-thirds of the Series A Convertible Preferred Stock, incur indebtedness other than specified “Permitted Indebtedness”, incur any liens other than specified “Permitted Liens”, amend our Certificate of Incorporation in any manner that adversely affects the Series A Convertible Preferred Stock, repurchase or redeem any common stock or common stock equivalents, pay dividends on the Company’s common stock, or enter into any related party transactions.

The Company determined the Series A Convertible Preferred Stock contained a beneficial conversion feature at the date of issuance. This beneficial conversion feature amounted to $233,011 for the first closing and was recorded as a deemed preferred dividend in April 2013. The beneficial conversion feature on the second closing amounted to $172,861 and was recorded as a deemed preferred dividend in July 2013.

Stockholder Rights Plan

On July 10, 2006, the Company’s Board of Directors approved the adoption of a Stockholder Rights Plan (“Rights Plan”). Pursuant to the Rights Plan, the Company 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 the Company’s 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, the Company’s 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

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

At December 31, 2014 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		104,000		179,058

There were no equity grants awarded during the year ended December 31, 2013. On February 28, 2014, outside of the 2005 Equity Incentive Plan, the Company issued 1,457,100 common stock warrants to directors, officers and our chief medical advisor. The warrants were approved by the 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. These warrants have an anti-dilution feature 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 the 1,457,100 common stock warrants are now exercisable into 1,810,906 shares of common stock at a price of $0.80 per share. Of the 1,457,100 common stock warrants, 50,000 common stock warrants were issued to non-employees. These warrants are required to be marked to market. The amount was not considered material and was not booked to the consolidated financial statements.

The following is a summary of stock option and warrant activity under the Company’s equity incentive plan and warrants issued outside of the plan to employees and consultants, during the years ended December 31, 2014 and 2013:


	Number of Options or Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2013		177,750		$	33.40		2.8
Granted		—			0.80
Exercised
Cancelled (unvested)		(2,844	)		14.80		—
Expired (vested)		(30,906	)		41.70		—

Balance outstanding, December 31, 2013		144,000			31.74		2.1
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

Balance exercisable, December 31, 2014		1,912,906		$	2.44		8.74

The Company calculates the fair value of stock options using the Black-Scholes option-pricing model. In determining the expected term, the Company separates 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 the Company’s 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 the Company granted during the year ended December 31, 2014:


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
02/28/14		1,810,906		5.00	$	0.80		98	%		0	%		1.49	%	$	0.34	$	499,931
08/04/14		2,000		4.40	$	0.80		93	%		0	%		1.49	%	$	0.32	$	632

As of December 31, 2014, the Company had $360 unvested stock-based compensation at fair value remaining to be expensed. During the year ended December 31, 2014 and 2013, the Company recognized $508,629 and $40,750 of stock option compensation expense, respectively.

As of December 31, 2014 there was no intrinsic value to the outstanding and exercisable options and warrants.

Warrants

The following table summarizes warrant activity for the years ended December 31, 2014 and 2013:


	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2013		1,369,321		$	19.00		2.1
Warrants issued		44,088			2.28
Warrants exercised		(137	)		5.60
Warrants expired		(434,579	)		15.72
Warrants cancelled

Balance outstanding, December 31, 2013		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 exercisable at December 31, 2014		873,336		$	17.79		1.0

As of December 31, 2014 there was no intrinsic value to the outstanding and exercisable options.