UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________________________________________________
FORM 8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
___________________________________________________________________
Date of
Report (Date of earliest event reported):
December
14
, 2
009
XCORPOREAL,
INC.
(Exact
Name of Registrant as Specified in Charter)
|
Delaware
|
001-33874
|
75-2242792
|
|
(State
or other jurisdiction of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
80
Empire Drive, Lake Forest, CA 92630
(Address
of principal executive offices) (Zip Code)
(949)
600-4640
(Registrant's
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 1.01 Entry into a
Material Definitive Agreement.
Asset
Purchase Agreement
On
December 14, 2009, Xcorporeal, Inc., a Delaware corporation (the
“Company”), and Xcorporeal Operations, Inc., a Delaware corporation and the
Company’s wholly-owned subsidiary (“Operations”), entered into an asset purchase
agreement (the “APA”) with National Quality Care, Inc., a Delaware corporation
(“NQCI”, and collectively with the Company and Operations, the “Sellers”), and
Fresenius USA, Inc. (the “Purchaser”), a Massachusetts corporation and a
wholly owned subsidiary of Fresenius Medical Care Holdings, Inc., providing for
the sale of substantially all of the assets of the Sellers (the “Purchased
Assets”) to the Purchaser (the “Asset Sale”) for an aggregate cash purchase
price of $8,000,000 (the “Cash Purchase Price”), and certain other royalty
payment rights (as more fully discussed below). The Asset Sale is an
important step in a contemplated liquidation of the Company.
Subject
to the terms and conditions of the APA, the Cash Purchase Price shall be paid to
the Sellers as follows: (a) an exclusivity fee in the amount of $200,000
previously paid by Purchaser to the Company, (b) $3,800,000 on the date of
closing (the “Closing Date”) of the transactions (the “Transactions”)
contemplated under the APA (the “Closing”), of which the Company and NQCI shall
receive $1,650,000 and $2,150,000, respectively, (c) $2,000,000 on April 1,
2010, of which the Company and NQCI shall receive $375,000 and $1,625,000,
respectively, and (d) $2,000,000 on April 1, 2011, of which the Company and NQCI
shall receive $75,000 and $1,925,000, respectively. Of the cash
proceeds being paid to NQCI, approximately $1.87 million of that is being paid
to satisfy the Company’s liability to NQCI for NQCI’s attorneys’ fees and costs
awarded by the arbitrator pursuant to the terms of the Partial Final Award
issued on April 13, 2009.
In
addition, during the life of the patents included in the HD WAK Technology (as
defined in the APA) (the “HD WAK Patents”) the Company will be entitled to
royalty payments equal to 60% of (i) 2% of the net revenues received by
Purchaser from the sale of wearable hemodialysis (“HD WAK”) devices in each
country where such sales infringe valid and issued claims of the Sellers’ HD WAK
Patents issued in such country (“HD WAK Devices Royalty”) plus (ii) $0.75 per
treatment for the attendant disposables that incorporate the HD WAK Technology
(“Attendant Disposables”), not to exceed a maximum of $1.50 per patient per week
in a country where such sales infringe valid and issues claims of the HD WAK
Patents issued in such country (the “Attendant Disposables Royalty”, and
together with the HD WAK Devices Royalty, the “HD WAK Royalty”). The
parties further agreed that such payment for Attendant Disposables shall not be
payable with regard to Attendant Disposables that incorporate any technology for
which a Supersorbent Royalty (as defined below) is paid by Purchaser to any
Seller or any of their affiliates. NQCI will be entitled to the
remaining 40% share of the HD WAK Royalty.
Additionally,
during the life of any patents included in the Supersorbent Technology (as
defined in the APA) (the “Supersorbent Patents”), the Company will be entitled
to royalty payments equal in an amount to 40% of (i) the lesser of $0.75 per
supersorbent cartridge or $1.50 per patient per week in each country where such
sales infringe valid and issued claims of the Supersorbent Patents issued in
such country less (B) any and all royalties payable to The Technion Research and
Development Foundation Ltd. (“TRDF”) pursuant to that certain Research Agreement
and Option for License, dated June 16, 2005 (the “Research Agreement”), or any
subsequently executed license agreement between TRDF and Purchaser. The
parties further agreed that such payment for supersorbent cartridges shall not
be payable with regard to supersorbent cartridges that incorporate any HD WAK
Technology for which a HD WAK Royalty is paid by Purchaser to any Seller or any
of their affiliates (the “Supersorbent Royalty,” and together with the HD WAK
Royalty, the “Royalty Payments”). NQCI will be entitled to the
remaining 60% share of the Supersorbent Royalty.
The
Purchaser also granted to the Sellers an option to obtain a perpetual worldwide
license to the supersorbent technology in the healthcare fields other than
renal. The option will be exercisable during the twelve-month period
following the Purchaser’s receipt of regulatory approval for the sale of a
supersorbent product in the United States or European Union, which the Company
expects will require further development of the supersorbent technology with
TRDF and successful completion of clinical trials by the
Purchaser. The consideration for the exercise of the option is
$7,500,000 payable in immediately available funds and an ongoing royalty in the
amount equal to the lesser of $0.75 per supersorbent cartridge or $1.50 per
patient per week in each country where such sales infringe valid and issued
claims of the Supersorbent Patents issued in such country.
The
Company’s board of directors has unanimously
approved the APA, the
Side Agreement (as defined below) and the Transactions. The Closing is
subject to certain closing conditions, including (i) that the representations
and warranties of the parties contained in the APA are true and correct in all
respects as of the date of the APA and as of the Closing Date, (ii) approval of
the APA and the Transactions by a majority of each of the Seller’s stockholders
(the “Stockholder Approvals”), (iii) that certain consents are obtained by the
Sellers, (iv) that no Material Adverse Effect (as defined in the APA) shall have
occurred with respect to the Purchased Assets or, recognizing the constraints of
the Sellers’ financial situation, the Business (as defined in the APA) of the
Sellers since the date of the APA and no fact or circumstance shall have
occurred or arisen since the date of the APA that would reasonably be expected
to have such a Material Adverse Effect, (v) that the Research Agreement shall
have been validly assigned to Purchaser and the exclusive license for use of the
Supersorbent Technology in any and all medical applications, as contemplated by
the Research Agreement, shall have been executed and delivered on terms and
conditions substantially as set forth in Appendix C to the Research Agreement
and otherwise on terms and conditions reasonably satisfactory to Purchaser, and
(vi) various other customary conditions. The Closing is scheduled to occur
on or before February 28, 2010, unless such date is extended by the parties,
assuming all closing conditions have been satisfied or waived by the applicable
party at such time. Subject to satisfaction of all closing
conditions, the Company anticipates that the Asset Sale will close soon after
each of the Sellers’ stockholders approve the Asset Sale.
Each of
the Sellers has made customary representations, warranties and covenants in the
APA including, among others, a covenant to use commercially reasonable efforts
to conduct the operations of its operating subsidiaries in the ordinary course
during the period between the execution of the APA and the Closing. The
APA contains a “no solicitation” restriction on each Seller’s ability to solicit
third party proposals and on its ability to provide information and engage in
discussions and negotiations with unsolicited third parties. The no
solicitation provision is subject to a “fiduciary out” provision that allows the
Sellers to provide information and participate in discussions and negotiations
with respect to unsolicited third party acquisition proposals submitted after
the date of the APA that the Company’s board of directors determines in good
faith constitutes a “Superior Proposal,” as defined in the APA, and otherwise
complies with certain terms of the APA.
The APA
may be terminated under certain circumstances, including (i) by the mutual
agreement of the Purchaser and the Sellers, (ii) by the Sellers or the Purchaser
if any governmental authority shall have issued a final order, decree or ruling
or taken any other action, which has the effect of permanently restraining,
enjoining or otherwise prohibiting the Transactions, (iii) by Sellers if
the board of directors of either Seller determines in good faith that it
has received a Superior Proposal and that it is required to terminate the APA in
order to comply with its fiduciary duties, and otherwise complies with certain
terms of the APA, (iv) by Purchaser if the Stockholder Approvals have not
been obtained on or before February 28, 2010 and (v) subject to certain
limitations, by Purchaser or any Seller, if the Closing has not occurred on or
before February 28, 2010 and the APA has not previously been
terminated. In connection with the termination as a result of any
Seller proceeding with a Superior Proposal, contemporaneously with the closing
of a transaction contemplated by a Superior Proposal, such terminating
Seller shall be obligated to pay a termination fee of $2,500,000 to the
Purchaser. In the event such terminating Seller is the Company, the
Company also agreed to reimburse the Purchaser for all its
reasonably incurred development expenses in connection with the provision
of the Services, (as defined below under “Side Agreement”).
The
Sellers have also jointly and severally agreed to indemnify the Purchaser with
respect to damages the Purchaser suffers related to or resulting from any
breach of the Sellers’ representations, warranties, covenants or agreements or
any liability or obligation relating to any Seller or the Purchased Assets,
other than Assumed Liabilities (as defined in the APA). The Sellers
aggregate liability for such losses will in no event exceed $2,000,000, plus the
amount of the Royalty Payments that have been paid, or are due and payable, to
the Sellers under the APA. In addition, no Seller will have any
indemnification liability until the aggregate amount of all damages actually
incurred or suffered by Purchaser under the APA exceeds $50,000 and then only
for the amount of the damages exceeding such amount.
The
Company has filed a copy of the APA as Exhibit 2.1 to this Current Report
on Form 8-K and the summary of the terms of the APA herein is
qualified in its entirety by reference to the APA itself and the APA is
incorporated by reference herein.
Side
Agreement
In
connection with the APA, the Company entered into a side agreement,
dated December 14, 2009 (the “Side Agreement”), with the Purchaser
pursuant to which (i) subject to the approval of the lessor, the
Purchaser agreed on the Closing Date to assume the Company’s lease of
its operating facility located at 80 Empire Drive, Lake Forest, California 92630
(the “Lease”) and in consideration of such assumption, the Company agreed to pay
to the Purchaser on the Closing Date the amount of $175,000, representing
approximately six months of rent and common area expenses that are expected to
be incurred by the Purchaser under the Lease following the Closing Date, (ii)
the Purchaser engaged the Company to perform such consulting, advisory and
related services through certain Key Personnel (as defined in the Side
Agreement) to and for the Purchaser as may be reasonably requested from time to
time by the Purchaser and its affiliates (the “Services”), for the period
beginning on November 16, 2009 and ending on the Closing Date, unless sooner
terminated in accordance with the terms of the Side Agreement, and in
consideration for the Services rendered by the Company during such term, the
Purchaser agreed to pay to the Company a cash fee, payable in semi-monthly
installments, at the annual rate for the full-time services of each of the Key
Personnel, as more fully described in the Side Agreement, and (iii) in
consideration of the Purchaser having incurred and continuing to incur certain
expenses on behalf of the Company, the Company agreed to repay
certain reasonably incurred expenses of the Purchaser in the event the
Closing does not take place as a result of the Company consummating a Superior
Proposal. The summary of the terms of the Side Agreement herein is
qualified in its entirety by reference to the Side Agreements itself, a copy of
which is filed as Exhibit 10.1 to this Current Report, and the Side
Agreement is incorporated by reference herein.
Voting
Agreement
In
connection with the execution of the APA, certain of the Sellers’ executive
officers and/or directors executed a Stockholder Voting Agreement (the “Voting
Agreement”). Under the Voting Agreement, such directors and/or executive
officers of the Company have committed (i) to vote all of the shares of the
Company’s common stock owned by them as of the date of the APA, together
with all shares of the Company’s common stock acquired by them as a result
of the exercise of any options owned by them as of the date of the APA, in favor
of the adoption of the APA and the approval of the Asset Sale, and (ii) subject
to certain exceptions, not to enter into discussions concerning or provide
confidential information in connection with alternative business combination
transactions. The shares subject to the Voting Agreement constitute
approximately 41.9% of the outstanding common stock of the Company as of
November 12, 2009, and more than 50% of NQCI’s outstanding voting
securities. The summary of the terms of the Voting Agreement herein is
qualified in its entirety by reference to the Voting Agreements itself, a copy
of which is filed as Exhibit 4.1 to this Current Report, and the Voting
Agreement is incorporated by reference herein.
The foregoing descriptions of the APA,
the Side Agreement and the Voting Agreement do not purport to be complete and
are qualified in their entirety by the terms and conditions of the APA, the Side
Agreement and the Voting Agreement. The APA, the Side Agreement and
the Voting Agreement have been included to provide stockholders with information
regarding their respective terms and are not intended to provide any other
factual information about the Sellers, Purchaser or their affiliates. Each
of the APA, the Side Agreement and the Voting Agreement contains representations
and warranties the parties thereto made to, and solely for the benefit of, one
another. The assertions embodied in those representations and
warranties are qualified by information in confidential disclosure
schedules that the parties have exchanged in connection with signing the
APA and that modifies, qualifies and creates exceptions to the representations
and warranties contained in the APA. Accordingly, stockholders should
not rely on the representations and warranties as characterizations of the
actual state of facts of any Seller, the Purchaser or any of their
respective subsidiaries or affiliates, since (i) they were made only as of
the date of the APA, (ii) in some cases they are subject to qualifications
with respect to materiality, knowledge and/or other matters, (iii) in some
cases they are intended solely to allocate certain risks among the parties, and
(iv) they are modified in important part by the underlying disclosure schedules.
This disclosure schedules contain information that has been included in
the Company’s prior public disclosures, as well as non-public information.
Moreover, information concerning the subject matter of the representations,
warranties and covenants may have changed since the date of the APA, which
subsequent information may or may not be fully reflected in the Company’s public
disclosures.
Item 8.01 Other
Events.
The Asset Sale is a critical step in
the Company’s Plan of Liquidation and Dissolution (the “Plan of Liquidation”),
which will be disclosed in further detail in the Company’s Proxy Statement on
Schedule 14A (the “Proxy Statement”) to be filed with the Securities and
Exchange Commission (“SEC”) in connection with the solicitation of stockholder
approval of the Asset Sale and the Plan of Liquidation.
In order to be able to take advantage
of the SEC’s no-action positions taken by the staff of the SEC in several
No-Action Letters allowing registrants whose securities are registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and who are otherwise not eligible to deregister under applicable rules
of the Exchange Act, to deregister from their Section 13(a) and Section 15
reporting obligations, assuming stockholder approval of the Asset Sale and the
Plan of Liquidation and the consummation of the Asset Sale, contemporaneously
with the closing of the Asset Sale, the Company plans to establish a liquidating
trust for the benefit of all of its stockholders (the “Liquidating Trust”) for
the limited purpose of effecting liquidation of all of its assets and
liabilities. The Company anticipates transferring to the Liquidating
Trust all of its assets and liabilities remaining after the consummation of the
Asset Sale, any part of the Company’s share of the Cash Purchase Price remaining
after the satisfaction of its liabilities and obligations and all of its rights
to its share of the Royally Payments (collectively, the “Remaining Assets
and Liabilities”).
The terms of the Liquidating Trust will
be disclosed in further detail in the Company’s Proxy Statement to be filed with
the SEC. The Company anticipates that the transfer of the Remaining
Assets and Liabilities to the Liquidating Trust will be made as soon as the
Company’s board of directors deems appropriate after the Closing. Pursuant
to the terms of the Liquidating Trust, the trustee will pay or adequately
provide for the payment of all of the Company’s known obligations and
liabilities prior to any distributions to its stockholders. The trustee
will be then authorized to convert all of the Remaining Assets into cash, on
such terms and to such parties, as the trustee determines in its sole discretion
without requiring further stockholder approval, in order to pay off all of the
Company’s liabilities and distribute any remaining cash proceeds from the
Liquidating Trust to the Company’s stockholders. The Company hopes
that after the payment of its liabilities and obligations by the trustee of the
Liquidating Trust, there will be cash available for distribution by the
trustee from the Liquidating Trust over time to the Company’s stockholders, with
the actual distribution amount(s) to be determined and the final distribution
made by the Trustee after the realization over-time of the cash value, if any,
of the Royalty Payments. The term of the Liquidating Trust will be 10
years and the interests in the trust will be non-transferable, subject to
certain exceptions as required by law. The ultimate amount of such
distributions, if any, is directly tied to the future cash value of the Royalty
Payments that the trustee is able to realize from such rights, if any, and such
amounts cannot be determined at this time.
There
can be no assurances that even if the Asset Sale is consummated, there will be
sufficient assets for the trustee to make eventual distributions to the
Company’s stockholders. Further, the Company’s board of directors has
the right to abandon or amend the Plan of Liquidation to the extent permitted by
the General Corporation Law of the State of Delaware. If the Company’s
board of directors determines that the abandonment or amendment of the Plan of
Liquidation would be in the best interest of its stockholders and therefore
abandons or amends the terms of the Plan of Liquidation, transfer and
distribution of liquidation proceeds and other rights may be significantly
delayed and may not occur as currently contemplated in the Plan of
Liquidation.
In connection with stockholder approval
of the Asset Sale and the Plan of Liquidation, the Company intends to file
the Proxy Statement and other materials with the SEC. The
Company’s stockholders are advised to carefully read the Proxy Statement and any
other relevant documents filed with the SEC when they become available because
those documents will contain important information about the Asset Sale and the
Plan of Liquidation. Stockholders may obtain a free copy of the Proxy
Statement when it becomes available, and other documents filed with the SEC, at
the SEC’s web site at http://www.sec.gov. Free copies of the Proxy
Statement, when it becomes available, and the Company’s other filings with the
SEC, may also be obtained from the Company by directing a request to Kelly
McCrann, the Company’s Chief Executive Officer, at Xcorporeal, Inc., 80 Empire
Drive, Lake Forest, CA 92630.
On December 18, 2009, the Company
issued a press release in which it announced that it had entered into the APA.
A copy of the press release is attached hereto as
Exhibit 99.1.
Forward-Looking
Information Is Subject to Risk and Uncertainty
A number
of the matters discussed in this Current Report on Form 8-K that are not
historical or current facts deal with potential future circumstances and
developments, in particular, whether and when the Asset Sale will be
consummated. The discussion of such matters is qualified by the inherent
risks and uncertainties surrounding future expectations generally and also may
materially differ from actual future experience involving any one or more of
such matters. Such risks and uncertainties include, among others: approval
of the Asset Sale and the Plan of Liquidation by the Sellers’ stockholders; the
timing of the Company’s stockholders meeting; satisfaction of various other
conditions to the closing of the Asset Sale; termination of the APA pursuant to
its terms; the timing and amount of cash distributed to stockholders, if any;
and the risks that are described from time to time in the Company’s reports
filed with the SEC, including its Annual Report on Form 10-K for the year
ended December 31, 2008, subsequent Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K. This Current Report on Form 8-K speaks only as
of its date, and the Company disclaims any duty to update the information
herein.
Item 9.01
Financial
Statements and Exhibits.
(d)
Exhibits
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Exhibit
No.
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Description
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2.1
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Asset
Purchase Agreement, dated December 14, 2009, by and among Xcorporeal,
Inc., Xcorporeal Operations, Inc., National Quality Care, Inc. and
Fresenius USA, Inc. * †
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4.1
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Stockholder
Voting Agreement, dated December 14, 2009, by and among Fresenius USA,
Inc. and the stockholders of Xcorporeal, Inc. identified on Schedule A
attached thereto. *
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10.1
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Agreement,
dated December 14, 2009, by and between Xcorporeal, Inc. and Fresenius
USA, Inc. * †
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99.1
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Press
Release, dated December 18, 2009, issued by Xcorporeal, Inc.
*
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* Filed
herewith.
†
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company undertakes to furnish supplementally copies of
any of the omitted schedules and exhibits upon request by the SEC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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XCORPOREAL,
INC.
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Date:
December 18, 2009
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By:
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/s/
Robert
Weinstein
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Robert
Weinstein
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Chief
Financial Officer
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Xcorporeal (CE) (USOTC:XCRP)
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