UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
 
SCHEDULE 14A 
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. 5)

Filed by the Registrant
þ
Filed by a Party other than the Registrant
o 
Check the appropriate box:
 

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

Xcorporeal, Inc. 
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ  
No fee required.
   
o  
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
     
 
(1)  
Title of each class of securities to which transaction applies:
 
   
 
 
(2)  
Aggregate number of securities to which transaction applies:
 
   
 
 
(3)  
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
   
 
 
(4)  
Proposed maximum aggregate value of transaction:
 
   
 
 
(5)  
Total fee paid:
     
o  
Fee paid previously with preliminary materials.
   
 
o  
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
     
 
(1)  
Amount Previously Paid:
 
   
 
 
(2)  
Form, Schedule or Registration Statement No.:
 
   
 
 
(3)  
Filing Party:
 
   
 
 
(4)  
Date Filed:
 
 

 

Xcorporeal, Inc.
12121 Wilshire Blvd., Suite 350
Los Angeles, California 90025 
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 
TO BE HELD ON MARCH 20, 2009 
 
Dear Fellow Stockholders:

Our annual meeting of stockholders will be held at the offices of Brownstein Hyatt Farber Schreck, LLP, located at 2029 Century Park East, 21st Floor, Los Angeles, California 90067, on Friday, March 20, 2009, beginning at 10:00 a.m. local time. At the annual meeting (the “Annual Meeting”), stockholders will vote on the following matters:

 
1.
Adoption of an amendment to our certificate of incorporation to provide for a classified board of directors, for stockholder action to be taken only at stockholder meetings and for our directors to be removed from office only for cause;
     
 
2.
Election of directors to hold office until our next annual meeting and until their successors are duly elected and qualified;
     
 
3.
Approval of the issuance of shares of our common stock to effectuate a technology transaction to acquire intellectual property rights relating to a wearable artificial kidney;
     
 
4.
Approval of an amendment to our certificate of incorporation to increase the number of authorized shares;
     
 
5.
Ratification of our ability to reprice stock options issued under our 2007 Incentive Compensation Plan; and
     
 
6.
Any other matters that properly come before the Annual Meeting.
 
Stockholders of record as of the close of business on March 4, 2009 are entitled to vote their shares by proxy or at the Annual Meeting or any postponement or adjournment thereof.
 
The enclosed proxy statement is issued in connection with the solicitation of a proxy on the enclosed form by our board of directors for use at our Annual Meeting. The proxy statement not only describes the items that our stockholders are being asked to consider and vote on at the Annual Meeting, but also provides you with important information about our company. Financial and other important information concerning our company is also contained in our 2007 Annual Report for the fiscal year ended December 31, 2007, and any amendments thereto filed by us with the U.S. Securities and Exchange Commission.

Pursuant to rules promulgated by the Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. This Proxy Statement and our 2007 Annual Report are available under “Investors”, sub-category “SEC Filings”, section of our web site at www.xcorporeal.com. We began distributing this proxy statement, a form of proxy and the 2007 Annual Report on or about March 9, 2009.
 
   
By order of the board of directors,
     
   
Kelly McCrann
   
Chairman of the Board and Chief Executive Officer
Los Angeles, California
   
March 9, 2009
   
 
 

 
 
IMPORTANT
 
Your vote is important. Whether or not you expect to be present at the Annual Meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed return envelope. No postage is required if mailed in the United States. Stockholders who execute a proxy card may nevertheless attend the Annual Meeting, revoke their proxy and vote their shares in person.  

Important Notice Regarding the Availability of Proxy Materials for Our
Annual Meeting of Stockholders to be Held on March 20, 2009
 
The proxy statement and 2007 Annual Report are available at
[http://www.xcorporeal.com/htmls/sec_filings.html]. Information on our
website does not constitute a part of this proxy statement.

 

 

Summary Term Sheet for Technology Transaction (Proposal No. 3)
 
The following is a summary of the principal terms of Proposal No. 3, for approval of the issuance of shares of our common stock to effectuate a technology transaction to acquire intellectual property rights relating to a wearable artificial kidney. The proposal is being made in accordance with an interim award (the “Award”) made by the arbitrator in our current arbitration with National Quality Care, Inc. (“NQCI”), as modified by the Amended Order Re Interim Relief Etc. issued by the arbitrator on January 30, 2009 (the “Order”), in order to minimize the risk that the arbitrator will issue an alternative award that could have a material adverse effect on our financial condition and operations. This summary does not contain all information that may be important to you. We encourage you to read carefully this proxy statement, including the attached appendices, in their entirety.
 
The most material terms of the proposed transaction are summarized as follows:
 
 
  ·
Subject to the satisfaction of the terms of the Award, as modified by the Order, NQCI will grant, transfer and assign to our wholly-owned subsidiary Xcorporeal Operations, Inc. (“Operations”) all of the Technology defined in the License Agreement currently in effect between NQCI and Operations;
 
  ·
The Technology includes all patents and patent applications related to a Wearable Artificial Kidney (“WAK”), and other portable or continuous dialysis methods or devices;
 
  ·
We will issue and deliver 9,230,000 shares of our common stock to NQCI in consideration for the Technology. As a result, NQCI will own approximately 39% of our outstanding common stock and become our largest stockholder;
 
  ·
Except for its definition, indemnification, representation and warranty provisions, the License Agreement shall thereafter be terminated and of no further force or effect; and
 
  ·
After the transfer of the Technology by NQCI to us, under the Award, as modified by the Order, we will be required to file a registration statement to register the shares issued to NQCI for resale.
 
A more detailed discussion of the Technology Transaction, the Award and the Order is contained under the heading “Proposal No. 3: Approval of Issuance of Stock for Technology Transaction,” beginning on page 15 of this proxy statement.

 

 
TABLE OF CONTENTS
 
ANNUAL MEETING OF STOCKHOLDERS OF XCORPOREAL, INC.
 
   
 
What is the Purpose of the Annual Meeting?
 1
     
 
Who Is Entitled to Vote?
 1
     
 
Who Can Attend the Annual Meeting?
 1
     
 
What Is the Difference Between Holding Shares as a Stockholder of Record and as a Beneficial Owner?
 1
     
 
What Constitutes a Quorum?
 2
     
 
How Do I Vote?
 2
     
 
Can I Change My Vote After I Return My Proxy Card?
 2
     
 
What Are the Boards Recommendations?
 2
     
 
What Vote Is Required to Approve Each Item?
 3
     
 
Who Pays for the Preparation of the Proxy?
 3
     
 
How Can I Obtain Additional Copies?
3
     
 
Annual Report and Other Matters
 3
     
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 4
     
 
Section 16(A) Beneficial Ownership Reporting Compliance
 5
     
PROPOSAL NO. 1: AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS, FOR STOCKHOLDER ACTION TO BE TAKEN ONLY AT STOCKHOLDER MEETINGS AND FOR OUR DIRECTORS TO BE REMOVED FROM OFFICE ONLY FOR CAUSE
 5
   
 
Consideration In Support of the Proposal
 5
     
 
Other Considerations
 6
     
 
Vote Required for Approval
 6
     
 
Recommendation of the Board
 6
     
PROPOSAL NO. 2: ELECTION OF DIRECTORS
 6
   
 
Nominees Standing for Election
 6
     
 
Recommendation of the Board
7
     
 
Information Concerning Our Board Of Directors and Our Nominees to the Board of Directors
 7
     
 
How Are Directors Compensated?
 8
     
 
How Often Did The Board Meet During 2008?
8
     
 
Annual Meeting Attendance
 9
     
 
Which Directors Are Independent?
 8
     
 
What Committees Has the Board Established?
 8
     
 
Audit Committee
9
     
 
Compensation Committee
 9
     
 
Nominating Committee
 9
     
 
Do We Have a Code of Ethics?
 9
     
 
How Can Stockholders Communicate With Our Board of Directors?
 10
 

 
DIRECTOR COMPENSATION
10
     
EXECUTIVE COMPENSATION
 10
     
 
Executive Employment Agreements
11
     
 
Confidentiality Agreements
 12
     
 
Limitation on Liability and Indemnification Matters
 13
     
GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2008
13
   
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 13
   
OPTIONS EXERCISES AND STOCK VESTED
 14
   
PENSION BENEFITS
 14
   
NON-QUALIFED DEFERRED COMPENSATION
 14
   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
15
   
 
Related Party Transactions
15
     
PROPOSAL NO. 3: APPROVAL OF ISSUANCE OF STOCK FOR TECHNOLOGY TRANSACTION
15
   
 
Summary
 15
     
 
Background of the Technology Transaction
 16
     
 
Shares to be Issued
 18
     
 
The Technology
 19
     
 
Accounting for the Transaction
 19
     
 
Federal Income Tax Consequences
 20
     
 
Interests of a Director and Officer
 20
     
 
Vote Required for Approval
 21
     
 
Recommendation of the Board
 21
     
PROPOSAL NO. 4: APPROVAL OF INCREASE IN NUMBER OF OUR AUTHORIZED SHARES
 22
   
 
Authorized But Unissued Shares
 23
     
 
Considerations In Support of the Proposal
 23
     
 
Other Considerations
 23
     
 
Anti-Takeover Effects of Certain Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws
 24
     
 
Effectiveness of Increase in Number of Authorized Shares
 25
     
 
Vote Required for Approval
 25
     
 
No Dissenters Rights
 25
     
 
Recommendation of the Board
 25
     
PROPOSAL NO. 5: RATIFICATION OF OUR ABILITY TO REPRICE STOCK OPTIONS ISSUED UNDER OUR 2007 INCENTIVE COMPENSATION PLAN
 25
   
 
Authorized But Unissued Shares
 23
     
 
Considerations In Support of the Proposal
 23
     
 
Other Considerations
 23
     
 
Accounting Consequences
26
     
 
Summary of 2007 Incentive Compensation Plan
26
 

 
 
Stock Options Eligible for Repricing
31
     
 
Vote Required for Approval
 32
     
 
Recommendation of the Board
 32
     
COMPENSATION, DISCUSSION AND ANALYSIS
 32
   
 
General Executive Compensation Philosophy
 32
     
 
Board Determination of Compensation Awards
 33
     
 
Components of Executive Compensation
 33
     
 
Chief Executive Officer Compensation
 35
     
 
Severance and Change of Control Arrangements
 35
     
 
Internal Revenue Code Limits on Deductibility of Compensation
 35
     
 
Compensation Committee Interlocks and Insider Participation
 36
     
COMPENSATION COMMITTEE REPORT
 37
   
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 37
   
 
Audit Fees
 37
     
 
Audit Related Fees
 37
     
 
Tax Fees
 37
     
 
All Other Fees
 38
     
 
Audit Committees Pre-Approval Policies and Procedures
 38
     
2007 ANNUAL REPORT ON FORM 10-KSB
 38
   
AUDIT COMMITTEE REPORT
 38
   
OTHER BUSINESS
 39
   
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
 39
   
Appendix A Amended and Restated Certificate of Incorporation of Xcorporeal, Inc.
 
   
Appendix B  License Agreement
 
   
Appendix C Merger Agreement
 
   
Appendix D  Second Interim Award
 
   
Appendix E  Amended Order Re Interim Relief Etc.
 
   
Appendix F  2007 Incentive Compensation Plan
 
 

 
ANNUAL MEETING OF STOCKHOLDERS
OF
XCORPOREAL, INC. 
 
PROXY STATEMENT

The enclosed proxy is solicited on behalf of Xcorporeal, Inc., a Delaware corporation, for use at our annual meeting of stockholders (the “Annual Meeting”) to be held on Friday, March 20, 2009, at the offices of Brownstein Hyatt Farber Schreck, LLP, located at 2029 Century Park East, 21st Floor, Los Angeles, California 90067, beginning at 10:00 a.m. local time.
 
The approximate date that this proxy statement, the accompanying Notice of Annual Meeting and the enclosed form of proxy are being mailed to our stockholders is March 9, 2009 (the “Mailing Date”). You should review this information in conjunction with our 2007 Annual Report on Form 10-KSB, which accompanies this proxy statement.

The Merger

On August 10, 2007, we and our wholly-owned subsidiary entered into a merger agreement with Xcorporeal Operations, Inc., formerly known as Xcorporeal, Inc. (“Operations"). The merger (the “Merger”) became effective on October 12, 2007. Operations became our wholly-owned subsidiary and changed its name to Xcorporeal Operations, Inc. We changed our name from CT Holdings Enterprises, Inc. to Xcorporeal, Inc. Information in this proxy statement for the fiscal year ended December 31, 2006 includes only our pre-merger information. Information provided for any date after October 12, 2007 reflects changes that occurred as a result of the Merger. References to the “company,” “we,” “us” and “our” includes both us and Operations, our wholly-owed subsidiary.

ANNUAL MEETING OF STOCKHOLDERS

What is the purpose of the Annual Meeting? 

At the Annual Meeting, our stockholders will vote on an amendment to our certificate of incorporation to provide for a classified board of directors, for stockholder action to be taken only at stockholder meetings and for our directors to be removed from office only for cause, the election of directors, approval of the issuance of stock to effectuate the Technology Transaction (as defined below), approval of an increase in the number of our authorized shares, ratification of our ability to reprice stock options issued under our 2007 Incentive Compensation Plan and any other matters that properly come before the Annual Meeting. In addition, our management will report on our performance and respond to questions from our stockholders.

Who is entitled to vote? 

Only stockholders of record at the close of business on the record date, March 4, 2009 (the “Record Date”), are entitled to receive notice of the Annual Meeting and to vote the shares of common stock that they held on that date at the Annual Meeting, or any postponement or adjournment of the Annual Meeting. Each outstanding share of common stock entitles its holder to cast one vote on each matter to be voted upon.

Who can attend the Annual Meeting? 

All stockholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting. Please note that if you hold shares in “street name” (that is, through a broker or other nominee), you will need to bring evidence of your share ownership, such as a copy of a brokerage statement, reflecting your stock ownership as of the Record Date and valid picture identification.

What is the difference between holding shares as a stockholder of record and as a beneficial owner? 

Many of our stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some differences between shares held of record and those beneficially owned.

If our shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the stockholder of record with regard to those shares. As the stockholder of record, you have the right to grant your proxy directly to us to vote your shares on your behalf at the Annual Meeting, or the right to vote in person at the Annual Meeting. We have enclosed or sent a proxy card for you to use.

 
1

 
 
If you hold our shares in a stock brokerage account or your shares are held by a bank or other nominee, you are considered the beneficial owner of the shares held in “street name,” and these materials have been forwarded to you by your broker or nominee, which is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker or nominee how to vote, and are also invited to attend the Annual Meeting so long as you bring a copy of a brokerage statement reflecting your ownership as of the Record Date. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a signed proxy from your broker or nominee giving you the right to vote the shares. Your broker or nominee has enclosed or provided a voting instruction card for you to use to direct your broker or nominee how to vote these shares.

What constitutes a quorum? 

The presence at the Annual Meeting, in person or by proxy duly authorized, of the holders of a majority of our outstanding shares of stock entitled to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of business at the Annual Meeting. We will count abstentions and “broker non-votes” only for the purpose of determining the presence or absence of a quorum. “Broker non-votes” occur when a person holding shares through a bank or brokerage account does not provide instructions as to how his or her shares should be voted and the broker does not exercise discretion to vote those shares on a particular matter. Under the rules of the American Stock Exchange (“AMEX”), brokers may exercise discretion to vote shares as to which instructions are not given with respect to the ratification of our ability to reprice stock options issued under our 2007 Incentive Compensation Plan proposal. If you do not vote or do not instruct your broker how to vote, it will not count as a vote “FOR” or a vote “AGAINST”, and therefore it will have no effect on the outcome of the voting with respect to, the amendment to our certificate of incorporation to provide for a classified board of directors, for stockholder action to be taken only at stockholder meetings and for our directors to be removed from office only for cause, approval of the issuance of stock to effectuate the Technology Transaction and ratification of our ability to reprice stock options issued under our 2007 Incentive Compensation Plan proposals, assuming that a quorum for the Annual Meeting is present. However, if you do not vote, “abstain” or do not instruct your broker how to vote, it will have the same effect as voting against the proposal to approve an increase in the number of our authorized shares.

As of March 4, 2009, there were __________ shares of our common stock issued and outstanding, held by approximately ____ stockholders of record. If less than a majority of outstanding shares entitled to vote are represented at the Annual Meeting, a majority of the shares present at the Annual Meeting may adjourn the Annual Meeting without further notice.

How do I vote? 

If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct. If you are a registered stockholder and you attend the Annual Meeting, you may deliver your completed proxy card in person. “Street name” stockholders who wish to vote at the Annual Meeting will need to obtain a proxy from the institution that holds their shares.

Can I change my vote after I return my proxy card? 

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with our Secretary either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the Annual Meeting in person and so request, although attendance at the Annual Meeting will not by itself revoke a previously granted proxy.

What are the board of directors’ recommendations? 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors (the “Board”). The Board recommends a vote FOR adopting a classified board of directors, allowing stockholder action only at stockholder meetings and allowing for our directors to be removed from office only for cause, FOR the election of each of the nominated directors, FOR the approval of the issuance of stock to effectuate the Technology Transaction (as defined below), FOR the approval of the increase in the number of authorized shares, and FOR the ratification of our ability to reprice stock options issued under our 2007 Incentive Compensation Plan proposals. See “Classified Board of Directors, Stockholder Action to be Taken Only at Stockholder Meetings and Removal of Our Directors Only For Cause,” “Election of Directors,” “Technology Transaction” and “Increase in Our Authorized Shares” below.

The board does not know of any other matters that may be brought before the Annual Meeting nor does it foresee or have reason to believe that the proxy holders will have to vote for substitute or alternate board nominees. In the event that any other matter should properly come before the Annual Meeting or any nominee is not available for election, the proxy holders will vote as recommended by the board of directors or, if no recommendation is given, in accordance with their best judgment.

 
2

 

What vote is required to approve each item? 

Election of Directors. The affirmative vote of a plurality of the votes cast, either in person or by proxy, at the Annual Meeting by the holders of common stock is required for the election of directors.

Increase in Our Authorized Shares. The affirmative vote of a majority of our shares of common stock issued and outstanding as of the Record Date is required for the approval increase our authorized shares.

Other Items. For each other item being presented to our stockholders at the Annual Meeting, the affirmative vote of a majority of the votes cast, either in person or by proxy, at the Annual Meeting by the holders of common stock is required for approval.

Who pays for the preparation of the proxy? 

We will pay the cost of preparing, assembling and mailing the notice of meeting, proxy statement and enclosed proxy card. In addition to the use of mail, our employees may solicit proxies personally and by telephone. Our employees will receive no compensation for soliciting proxies other than their regular salaries. We may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy materials to their principals and to request authority for the execution of proxies. We may reimburse such persons for their expenses incurred in connection with these activities.

Our principal executive offices are located at 12121 Wilshire Boulevard, Suite 350, Los Angeles, California 90025, and our telephone number is (310) 923-9990. A list of our stockholders entitled to vote at the Annual Meeting will be available at our offices, during normal business hours, for a period of ten days prior to the Annual Meeting and at the Annual Meeting itself for examination by any stockholder.

How can I obtain additional copies? 

If you need additional copies of this proxy statement or the enclosed proxy card, you should contact:

Xcorporeal, Inc.
Computershare Trust Company, N.A.
12121 Wilshire Blvd., Suite 350
350 Indiana Street, Suite 800
Los Angeles, California 90025
Golden, Colorado 80401
Telephone: (310) 923-9990
Telephone: (303) 262-0600
Attn: Investor Relations
 
 
We will provide free of charge to those persons that make a request in writing our (i) 2007 Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, any amendments thereto and the financial statements and any financial statement schedules filed by us with the U.S. Securities and Exchange Commission, or the SEC, under Section 16(a) of the Securities Exchange Act of 1934, as amended, (ii) Audit Committee Charter, and (iii) Codes of Ethics. Our annual reports and other periodic reports and any amendments thereto are also available on the SEC website at http://www.sec.gov by searching the IDEA database for our filings.   
 
Annual report and other matters 
 
Our 2007 Annual Report on Form 10-KSB, including amendments thereto, which was mailed to our stockholders with or preceding this proxy statement, contains financial and other information about our company, but is not incorporated into this proxy statement and is not to be considered a part of these proxy soliciting materials or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act. The information contained in the “Audit Committee Report” below shall not be deemed filed with the SEC, or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

 
3

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the shares of common stock beneficially owned as of December 31, 2008 by: (i) each person known to us to be the beneficial owner of more than 5% of our common stock, (ii) each of our directors, (iii) our chief executive officer and the two most highly compensated executive officers other than the chief executive officer, who were serving as executive officers at the end of our last fiscal year (collectively, the “named executive officers”) and other executive officers named in the Summary Compensation Table set forth in the “Executive Compensation” section, and (iv) all such directors and executive officers as a group.

Name and Address 
of Beneficial Owner (1)
 
Title of Class of Shares
Owned
 
Amount and Nature of
Beneficial Ownership
   
Percent of
Class
 
Terren S. Peizer (2)
 
common stock
    6,512,596       43.3 %
Marc G. Cummins (3)
 
common stock
    1,557,158       10.6 %
Jay A. Wolf (4)
 
common stock
    397,143       2.7 %
Victor Gura (5)
 
common stock
    250,000       1.7 %
Kelly J. McCrann (6)
 
common stock
    120,000       *  
Hans-Dietrich Polaschegg
 
common stock
           
Robert Weinstein (7)
 
common stock
    95,000       *  
All directors and named executive officers as a group (7 persons)
 
common stock
    8,931,897       58.9 %

*
Represents beneficial ownership of less than 1%.
 
(1)
Unless otherwise indicated, the address of all of the above named persons is c/o Xcorporeal, Inc., 12121 Wilshire Blvd., Suite 350, Los Angeles, California 90025.
   
(2)
Includes 6,232,596 shares held of record by Consolidated National, LLC, of which Mr. Peizer is the sole managing member and beneficial owner. As of December 31, 2008, 280,000 shares of Mr. Peizer’s stock options were vested and exercisable within 60 days.
   
(3)
Includes 1,557,158 shares held of record by Prime Logic Capital, LLC, CPS Opportunities, and GPC LXI, LLC. Mr. Cummins is a Managing Partner of Prime Capital, LLC. He disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein. Excludes warrants to purchase 150,000 shares held by OGT, LLC, an affiliate of Prime Logic which Mr. Cummins disclaims beneficial ownership in such shares except to the extent of his pecuniary interest therein.
   
(4)
Includes 357,143 shares held of record by Trinad Capital Master Fund Ltd. (the “Master Fund”), that may be deemed to be beneficially owned by Trinad Management, LLC, the investment manager of the Master Fund and Trinad Capital LP; a controlling stockholder of the Master Fund; Trinad Advisors GP, LLC, the general partner of Trinad Capital LP; and Jay Wolf a director of the issuer and a managing director of Trinad Management, LLC and a managing director of Trinad Advisors GP, LLC. Mr. Wolf disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein. As of December 31, 2008, 40,000 shares of Mr. Wolf’s stock options were vested and exercisable within 60 days.
   
(5)
As of December 31, 2008, 250,000 shares of Dr. Gura’s stock options were vested and exercisable within 60 days.
   
(6)
As of December 31, 2008, 20,000 shares of Mr. McCrann’s stock options were vested and exercisable within 60 days.
   
(7)
As of December 31, 2008, 75,000 shares of Mr. Weinstein’s stock options were vested and exercisable within 60 days.

 
4

 

Unless otherwise indicated, we believe that all persons named in the above table have sole voting and investment power with respect to all shares of our common stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date on which beneficial ownership is to be determined, upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and which are exercisable, convertible or exchangeable within such 60 day period, have been so exercised, converted or exchanged.

Section 16(a) Beneficial Ownership Reporting Compliance 
 
Section 16(a) of the Exchange Act requires that directors, executive officers, and persons who own more than ten percent of any registered class of a company’s equity securities, or “reporting persons,” file with the SEC initial reports of beneficial ownership and report changes in beneficial ownership of common stock and other equity securities. Such reports are filed on Form 3, Form 4 and Form 5 under the Exchange Act, as appropriate. Reporting persons holding our stock are required by the Exchange Act to furnish us with copies of all Section 16(a) reports they file.

To our knowledge, based solely on our review of copies of these reports, and written representations from such reporting persons, that we have received, we believe that all filings required to be made by reporting persons holding the Company’s stock were timely filed for the year ended December 31, 2008, in accordance with Section 16(a).
 
PROPOSAL NO. 1: AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO PROVIDE
FOR A CLASSIFIED BOARD OF DIRECTORS, FOR STOCKHOLDER ACTION TO BE TAKEN ONLY AT
STOCKHOLDER MEETINGS AND FOR OUR DIRECTORS TO BE REMOVED FROM OFFICE ONLY FOR CAUSE

Our current certificate of incorporation and bylaws provide that the number of directors shall be fixed from time to time by our Board. The Board has fixed the current number of directors at five. The election and removal of directors is governed by our bylaws which provide that each director serves until the next annual meeting of stockholders and until his successor has been elected and duly qualified. Additionally, a director may be removed from office with or without cause by a majority vote of our stockholders, and stockholders may act by written consent.

The Board has proposed to institute a classified board of directors consisting of three classes of directors. Each class must contain one-third of the total number of directors, or as near thereto as possible. The initial Class I and Class II will each consist of one director and the initial Class III will consist of three directors. The directors proposed to be in each class are identified in the “Nominees Standing for Election” section under “Proposal No. 2: Election of Directors” of this proxy statement. The term of the Class I directors will expire at the next annual meeting of stockholders. The term of the Class II directors will expire at the second annual meeting following adoption of a classified board and the term of the Class III directors will expire at the third annual meeting following adoption of the classified board. Following the expiration of their initial terms, directors will be elected for terms of three years to succeed those whose terms expire. Directors appointed to full vacancies created by the resignation or termination of a director will serve for the remainder of the term of the resigning or terminated director. Because our directors will be directly affected by the classified board proposal, they may be deemed to have an interest in the outcome of the proposal.

The amended certificate of incorporation would also eliminate the ability of our stockholders to act by written consent, and provide that stockholder action can only be taken at an annual or special meeting called by the Board.

In addition, the amended certificate of incorporation would also provide that our directors may be removed from office only for cause.

The full text of the amended and restated certificate of incorporation that is the subject of this proposal is set forth in Appendix A attached to this proxy statement. If the proposal is adopted, the Board will adopt a corresponding amendment to our bylaws, without separate stockholder consent.

Considerations in support of the proposal

The Board believes that the proposal will enhance its ability to protect stockholders against attempts to acquire control of our company by means of unfair or abusive tactics that exist in many unsolicited takeover attempts. The proposal would encourage persons seeking to acquire control of the company to engage in good faith, arms-length negotiations with the board regarding the structure of their proposal, rather than waging a hostile proxy contest, and would permit the Board to engage in such negotiations from a stronger position. In addition, the proposal would facilitate our ability to attract and retain qualified Board members and hire and retain competent management personnel by increasing the likelihood of a stable corporate environment. The Board also believes that ensuring continuity of service among Board members and three-year commitments for Board service is desirable.

 
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Other considerations

The proposal could have the effect of deterring third parties from initiating proxy contests or from acquiring substantial blocks of our shares. Such proxy contests and acquisitions of substantial blocks of shares tend to increase, at least temporarily, market prices for the target company's stock. Consequently, if the proposal is approved, our stockholders could be deprived of temporary opportunities to sell their shares at higher market prices. Moreover, by possibly deterring proxy contests or acquisitions of substantial blocks of our common stock, a classified board might have the incidental effect of inhibiting changes in incumbent management, some or all of whom may be replaced in the course of a change in control. The overall effect of the classified board, stockholder meeting requirement and requirement that our directors may be removed from office only for cause would be to render more difficult the accomplishment of acquisitions of control by hostile third parties.
 
Vote required for approval
 
Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting, at which a quorum is present.
 
Recommendation of the board 

The Board unanimously recommends that you vote “FOR” amendment of our certificate of incorporation to provide for a classified board of directors, “FOR” allowing stockholder action only at stockholder meetings and “FOR” allowing our directors to be removed from office only for cause.
 
PROPOSAL NO. 2: ELECTION OF DIRECTORS
 
Our amended and restated bylaws, adopted upon the effectiveness of the Merger, provide that the number of members on the Board shall be determined from time to time by resolution of the Board. At present, our Board consists of five members. If Proposal No. 1, the classified board of directors proposal to be voted on at this Annual Meeting, is approved the Board will be divided into three classes, Class I, Class II and Class III. The initial Class I directors will be elected for one year, the initial Class II directors for 2 years, and the initial Class III directors for three years. Upon the expiration of the initial staggered terms, directors will be elected for terms of three years, to succeed those whose terms have expired. If Proposal No. 1 is not approved, all nominees will be elected for a one-year term expiring at the next annual meeting of our stockholders and until their successors are duly elected and qualified.

Nominees standing for election 

The nominees for our Board are current directors Marc G. Cummins, Kelly J. McCrann, Terren S. Peizer, Hans-Dietrich  Polaschegg, Ph. D., and Jay A. Wolf. All of the directors’ terms expire at the Annual Meeting and until their successors are duly elected and qualified. If Proposal No. 1 is approved, Dr. Polaschegg will be elected as a Class I director, Mr. McCrann will be elected as a Class II director, and Messrs. Cummins, Peizer and Wolf will be elected as Class III directors. The Board has no reason to believe that any nominee will refuse to act or be unable to accept election. However, if any of the nominees for director is unable to accept election or if any other unforeseen contingencies should arise, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board.

No arrangement or understanding exists between any nominee and any other person or persons pursuant to which any nominee was or is to be selected as a director.

 
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Recommendation of the Board 

The Board unanimously recommends that you vote “FOR” the election as director of each of the nominees named above.

Information Concerning Our Board of Directors and Our Nominees to the Board Of Directors

Our current directors and director nominees, the director class into which they will be elected if Proposal No. 1 passes, and their ages as of December 31, 2008, are as follows:
 
Name
 
Class
 
Age
 
Position
 
Director
Since
                 
Marc G. Cummins
 
III
 
49
 
Director
 
2007
Kelly J. McCrann
 
II
 
53
 
Chairman of the Board and Chief Executive Officer
 
2007
Terren S. Peizer
 
III
 
49
 
Director
 
2007
Han Polaschegg, Ph.D.
 
I
 
66
 
Director
 
2007
Jay A. Wolf
 
III
 
36
 
Director
 
2007
 
Marc G. Cummins became a member of Operations’ board of directors in November 2006. He is a Managing Partner of Prime Capital, LLC, a private investment firm focused on consumer companies. Prior to founding Prime Capital, Mr. Cummins was managing partner of Catterton Partners, a private equity investor in consumer products and service companies with over $1 billion of assets under management. He has served as a director of Hythiam, Inc. since 2004. Prior to joining Catterton in 1998, Mr. Cummins spent fourteen years at Donaldson, Lufkin & Jenrette Securities Corporation where he was Managing Director of the Consumer Products and Specialty Distribution Group, and was also involved in leveraged buyouts, private equity and high yield financings. Mr. Cummins received a B.A. in Economics, magna cum laude, from Middlebury College, where he was honored as a Middlebury College Scholar and is a member of Phi Beta Kappa. He also received an M.B.A. in Finance with honors from The Wharton School at University of Pennsylvania.

Kelly J. McCrann was appointed as a member of Operations’ board of directors in August 2007. In October 2008, Mr. McCrann was appointed our Chairman of the Board and Chief Executive Officer. Mr. McCrann is a senior healthcare executive with extensive experience in board governance, strategic leadership, profit and loss management and strategic transactions. He was most recently Senior Vice President of DaVita Inc., where he was responsible for all home based renal replacement therapies for the United States’ second largest kidney dialysis provider. Prior to that, Mr. McCrann was the Chief Executive Officer and President of PacifiCare Dental and Vision, Inc. Mr. McCrann has held positions of increasing responsibility at Professional Dental Associates, Inc., Coram Healthcare Corporation, HMSS, Inc. and American Medical International. He is a graduate of the Harvard Business School and began his career as a consultant for KPMG and McKinsey & Company.

Terren S. Peizer served as our Executive Chairman until October 2008. He became the Chairman of Operations’ board of directors in August 2006 and our Executive Chairman in August 2007. From April 1999 to October 2003, Mr. Peizer served as Chief Executive Officer of Clearant, Inc., which he founded to develop and commercialize a universal pathogen inactivation technology. He served as Chairman of its board of directors from April 1999 to October 2004 and a Director until February 2005. From February 1997 to February 1999, Mr. Peizer served as President and Vice Chairman of Hollis-Eden Pharmaceuticals, Inc. In addition, from June 1999 through May 2003 he was a Director, and from June 1999 through December 2000 he was Chairman of the Board, of supercomputer designer and builder Cray Inc., and remains its largest beneficial stockholder. Mr. Peizer has been the largest beneficial stockholder and held various senior executive positions with several technology and biotech companies. In these capacities he has assisted the companies with assembling management teams, boards of directors and scientific advisory boards, formulating business and financial strategies, investor and public relations, and capital formation. Mr. Peizer has been a Director, Chairman of the Board and Chief Executive Officer of Hythiam, Inc., a healthcare services management company focused on delivering solutions for those suffering from alcoholism and other substance dependencies, since September 2003. Mr. Peizer has a background in venture capital, investing, mergers and acquisitions, corporate finance, and previously held senior executive positions with the investment banking firms Goldman Sachs, First Boston and Drexel Burnham Lambert. He received his B.S.E. in Finance from The Wharton School of Finance and Commerce.

 
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Hans-Dietrich Polaschegg, PhD. serves as a consultant to the medical device industry. From 1979 to 1994, Dr. Polaschegg held positions of increasing responsibility at Fresenius AG, a global leader in the manufacture of dialysis products. As Head of Research and Development of the medical systems division of Fresenius, he designed three hemodialysis machines. Dr. Polaschegg holds 88 medical technology patents and is credited with inventing electrolyte balancing, thermal energy balancing, safe dialysate filtering, blood volume monitoring by ultrasound density, and safe on-line hemodiafiltration. He is a member of several international American and European standard committees including Chairman of the Extracorporeal Circulation and Infusion and Technology Committee. Dr. Polaschegg received his PhD in Nuclear Physics from Technical University of Vienna in Austria.

Jay A. Wolf became a member of Operations’ Board of Directors in November 2006. He has over a decade of investment and operations experience in a broad range of industries. His investment experience includes: senior and subordinated debt, private equity (including leveraged transactions), mergers & acquisitions and public equity investments. Since 2003, Mr. Wolf has served as a Managing Director of Trinad Capital. From 1999 to 2003, he served as the Executive Vice President of Corporate Development for Wolf Group Integrated Communications Ltd. where he was responsible for our acquisition program. From 1996 to 1999, Mr. Wolf worked at Canadian Corporate Funding, Ltd., a Toronto-based merchant bank in the senior debt department and subsequently for Trillium Growth, the firm’s venture capital Fund. He sits on the boards of Shells Seafood Restaurants, Prolink Holdings Corporation, Optio Software, Inc. and Starvox Communications, Inc. Mr. Wolf received a Bachelor of Arts from Dalhousie University.

Family Relationships

There are no family relationship between any of our directors, executive officers, or persons nominated or chosen by us to become directors or executive officers of our company.

How Often Did the Board Meet During 2008? 

During the fiscal year 2008, there were five meetings of the Board. None of the incumbent directors attended fewer than 75 percent of the aggregate of (i) the total number of meetings (whether regular or special meetings) of the Board (held during the period for which such person was a director), and (ii) the total number of meetings held by all committees of the Board on which the director served (during the period that such director served).

Annual Meeting Attendance 

Mr. Peizer was the only director who attended our annual meeting of stockholders in 2007. Upon effectiveness of the Merger, we adopted a policy for attendance by the members of the Board at our annual stockholder meetings which encourages directors, if practicable and time permitting, to attend our annual stockholder meetings.

Which Directors Are Independent? 

After review of all of the relevant transactions or relationships of each director and his family members, the Board has determined that Messrs. Cummins and Wolf and Dr. Polaschegg are independent as defined by the applicable AMEX listing standards, including that each such director or nominee is free of any relationship that would interfere with his individual exercise of independent judgment.

What Committees Has the Board Established? 

As of the effective date of the Merger, the Board established an audit committee, compensation committee, and nominating committee. The board also adopted written corporate governance guidelines for the Board and a written committee charter for each of the Board’s committees, describing the authority and responsibilities delegated to each committee by the Board. A copy of our audit committee charter, compensation committee charter and nominating committee charter can be found on our website at http://www.xcorporeal.com.

 
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Audit Committee 

The audit committee currently consists of Marc G. Cummins and Jay A. Wolf, with Mr. Wolf serving as the chairman. The Board has determined that each of the members is independent as defined by the applicable AMEX rules, meet the applicable requirements for audit committee members, including Rule 10A-3(b) under the Securities and Exchange Act of 1934, as amended, and, that Mr. Wolf qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of SEC Regulation S-K. The duties and responsibilities of the audit committee include: (i) selecting, evaluating and, if appropriate, replacing our independent registered accounting firm, (ii) reviewing the plan and scope of audits, (iii) reviewing our significant accounting policies, any significant deficiencies in the design or operation of internal controls or material weakness therein and any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, and (iv) overseeing related auditing matters. The audit committee held four meetings during 2008. A copy of our audit committee charter, can be found under the “Company”, sub-category “Corporate Governance”, section of our website at www.xcorporeal.com.

Compensation Committee 

The compensation committee currently consists of Hans-Dietrich Polaschegg, PhD., and Jay A. Wolf, with Mr. Polaschegg serving as the chairman, each of whom is independent as defined by the applicable AMEX rules. The compensation committee reviews and recommends to the board of directors for approval the compensation of our executive officers. The compensation committee held no formal meetings during 2008. A copy of our compensation committee charter can be found under the “Company”, sub-category “Corporate Governance”, section of our website at www.xcorporeal.com.

Nominating Committee 

The nominating committee currently consists of Marc. G. Cummins and Hans-Dietrich Polaschegg, PhD., with Mr. Cummins serving as the chairman. The nominating committee nominates new directors and oversees corporate governance matters.

The nominating committee will consider director candidates that are suggested by members of the board, as well as by our management and stockholders. The nominating committee may also retain a third-party executive search firm to identify candidates. The process for identifying and evaluating nominees for director involves reviewing potentially eligible candidates, conducting background and reference checks, interviewing the candidate and others (as schedules permit), meeting to consider and approve the candidate and, as appropriate, preparing and presenting to the full board an analysis with regard to particular recommended candidates. The nominating committee considers a potential candidate’s experience, areas of expertise, and other factors relative to the overall composition of the board. The committee endeavors to identify director nominees who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment, and, together with other director nominees and members, are expected to serve the long term interest of our stockholders and contribute to our overall corporate goals.

While the compensation committee and the nominating committee did not hold separate meetings during 2008, each of these committees met at the same times as meetings of the Board were held during 2008. A copy of our nominating committee charter can be found under the “Company”, sub-category “Corporate Governance”, section of our website at www.xcorporeal.com.

Do We Have a Code of Ethics? 

Upon effectiveness of the Merger, we adopted a Code of Ethics that applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, and others performing similar functions. A copy of our Code of Ethics can be found under the “Company”, sub-category “Corporate Governance”, section of our website at www.xcorporeal.com.

 
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How Can Stockholders Communicate with Our Board of Directors? 

Our Board believes that it is important for our stockholders to have a process to send communications to the Board. Accordingly, stockholders desiring to send a communication to the Board or a specific director may do so by sending a letter addressed to the Board or any individual director at the address listed in this proxy statement. All such letters must identify the author as a stockholder. Our Corporate Secretary will open the communications, make copies and circulate them to the appropriate director or directors.

DIRECTOR COMPENSATION
 
Compensation. Some of our directors have been granted warrants or options to purchase shares of our common stock. Our directors do not receive cash compensation for their services as directors. All members of the Board receive reimbursement for actual travel-related expenses incurred in connection with their attendance at meetings of the Board or committees.

Options. Directors are eligible to receive options under our 2007 Incentive Compensation Plan.

Director Compensation Table

The following table provides information regarding compensation that was paid to the individuals who served as directors during the year ended December 31, 2008. Except as set forth in the table, directors did not earn nor receive cash compensation or compensation in the form of stock awards, option awards or any other form.

The following table reflects the compensation of directors for our fiscal year ended December 31, 2008:

Name
 
Fees Earned
or Paid in
Cash ($)
   
Stock 
Awards ($)
   
Option 
Awards 
($) (1)
   
Non-Equity
Incentive 
Plan
Compensation 
($)
   
Change in
Pension Value and
Nonqualified
Deferred
Compensation
Earnings ($)
   
All Other
Compensation ($)
   
Total ($)
 
Terren S. Peizer
    281,250 (2)           822,582                         1,103,832  
Marc G. Cummins
                                         
Kelly J. McCrann
                120,960                         120,960  
Hans-Dietrich Polaschegg
    60,000 (3)                                   60,000  
Jay A. Wolf
                120,818                         120,818  
Daniel Goldberger (4)
                                         
Dr. Victor Gura (5)
                                         

(1) Represents the dollar (unaudited) amount recognized for financial statement reporting purposes with respect to fiscal year 2008 in accordance with SFAS 123(R), and includes amounts from awards granted in and prior to 2008.
(2) Represents compensation that Mr. Peizer received for his services as Executive Chairman. Mr. Peizer was paid pursuant to his Executive Chairman Agreement and as an independent consultant. Mr. Peizer served as our Executive Chairman until October 2008.
(3) Represents compensation that Dr. Polaschegg received for his research and development consulting services. Dr. Polaschegg was compensated in accordance with his month to month consulting agreement and paid as an independent consultant.
(4) On October 6, 2008, Mr. Goldberger resigned as our interim CEO, and on October 7, 2008, Mr. Goldberger resigned as a member of the Board. Other than the options granted to him, which he voluntarily forfeited on September 8, 2008, Mr. Goldberger did not receive any other compensation for his services as director.
(5) On October 7, 2008, Dr. Gura resigned as a member of the Board. Dr. Gura did not receive any compensation or options for his services as a director.

Executive Officers 

Our executive officers are elected annually by the board of directors and serve at the discretion of the board of directors. We consider Kelly McCrann, Victor Gura, M.D., and Robert Weinstein to be our executive officers.

The following sets forth certain information with respect to our executive officers (other than director information which was disclosed under “Information Concerning our Board of Directors and Nominees to the Board of Directors” above):

Name
 
Age
 
Position
Robert Weinstein
 
48
 
Chief Financial Officer and Secretary
         
Victor Gura, M.D.
 
66
 
Chief Medical and Scientific Officer

Robert Weinstein was appointed our Chief Financial Officer in October 2007. He also serves on the board of directors of Operations. He was appointed as Chief Financial Officer of Operations in August 2007. Prior to joining us, Mr. Weinstein served as Vice President, Director of Quality Control & Compliance of Citi Private Equity Services (formerly BISYS Private Equity Services) New York, NY, a worldwide private equity fund administrator and accounting service provider. In 2005, Mr. Weinstein was the Founder, Finance & Accounting Consultant for EB Associates, LLC, Irvington, NY, an entrepreneurial service organization. From December 2002 to November 2004, Mr. Weinstein served as the Chief Financial Officer for Able Laboratories, Inc., which filed Chapter 11 bankruptcy in July 2005. In 2002, he served as Acting Chief Financial Officer of Eutotech, Ltd., Fairfax, VA, a distressed, publicly traded early-stage technology transfer and development company. Mr. Weinstein received his M.B.A., Finance & International Business from the University of Chicago, Graduate School of Business, and a B.S. in Accounting from the State University of New York at Albany. Mr. Weinstein is a Certified Public Accountant (inactive) in the State of New York.

Victor Gura, M.D. became Operations’ Chief Medical and Scientific Officer in December 2006, and became a member of the Board in October 2006. He resigned as a director in October 2008. Dr. Gura continues to serve as a member of our Board of Advisors. He served as Chief Scientific Officer of National Quality Care, Inc. from 2005 to November 2006. He was formerly its Chairman of the Board, President and Chief Executive Officer. Dr. Gura is board certified in internal medicine/nephrology. He has been a director and principal stockholder of Medipace Medical Group, Inc. in Los Angeles, California, since 1980. Dr. Gura has been an attending physician at Cedars-Sinai Medical Center since 1984 and the medical director of Los Angeles Community Dialysis since 1985. He also serves as a Clinical Assistant Professor at UCLA School of Medicine. He was a fellow at the nephrology departments at Tel Aviv University Medical School and USC Medical Center. Dr. Gura received his M.D. from School of Medicine, Buenos Aires University.

 
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EXECUTIVE COMPENSATION

The following table sets forth the total compensation received by the named executive officer during the fiscal years ended December 31, 2008 and 2007:

Summary Compensation Table

Name and Principal
Position
Year
 
Salary
($)
   
Bonus 
($)
   
Stock 
Awards
($)
   
Option 
Awards 
($)(1)
   
Non-Equity
Incentive Plan
Compensation
($)
   
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
   
All Other
Compensation
($)
   
Total
($)
 
Kelly J. McCrann,
2008
    80,000                   17,842                         97,842  
Chairman of the Board & CEO (2)
                                                                 
Robert Weinstein,
2008
    307,900                   449,346                         757,246  
CFO & Secretary
2007
    100,128       21,400             175,564                         297,092  
Victor Gura,
2008
    437,600                   858,246                   18,000 (3)     1,313,845  
Chief Medical &
2007
    455,000                   855,901                   19,500 (3)     1,330,401  
Scientific Officer
                                                                 
Daniel S. Goldberger,
2008
                                        152,500 (5)     152,500  
Former President,
2007
    219,898                   238,457                         458,355  
COO & Interim CEO (4)
                                                                 
 

(1) Represents the dollar amount (unaudited) recognized for financial statement reporting purposes with respect to fiscal years 2008 and 2007 in accordance with SFAS 123(R), and includes amounts from awards granted in and prior to 2008 and 2007.  Additional information concerning the Company’s accounting for stock awards may be found in Note 14 to our consolidated financial statements in our Annual Report on Form 10-KSB for 2007.
(2) Mr. McCrann was appointed as the Chairman of the Board and our CEO on October 2, 2008.
(3) Represents auto allowance that Dr. Gura received in the respective fiscal year pursuant to his employment agreement .
(4) Mr. Goldberger resigned as our President and COO on August 10, 2007. Mr. Goldberger also served as our interim CEO from January to October 2008 and was paid as an independent consultant.
(5) Represents compensation that Mr. Goldberger received pursuant to his consulting agreement as an independent consultant while serving as our interim CEO from January to October 2008 and providing consulting services thereafter until December 31, 2008.

 
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Employment Agreements
 
The employment agreements for Dr. Victor Gura, Kelly McCrann, and Robert Weinstein were in effect during the year ended December 31, 2008, with only Dr. Gura’s and Mr. Weinstein’s employment agreements in effect during the year ended December 31, 2007. 

Chief Executive Officer - On October 6, 2008, we entered into an employment agreement with Kelly J. McCrann, effective October 2, 2008, for a term of two years at an initial annual base salary of $325,000. Mr. McCrann is eligible to receive discretionary bonuses based on achieving designated individual goals and milestones, overall performance and profitability. Additionally, Mr. McCrann was granted 700,000 stock options as an exercise price of $1.50 per share under our 2007 Incentive Compensation Plan, which vests 25% on each of the first, second, third and fourth anniversaries of the grant date, with anti-dilution protections. He will be included in our medical, dental, disability and life insurance, pensions and retirement plans, and other benefit plans and programs. If he is terminated without good reason or resigns for good reason, as defined in his employment agreement, we will be obligated to pay Mr. McCrann twelve month's base salary.
 
Chief Financial Officer - On August 10, 2007, Robert Weinstein entered into an employment agreement with Operations with an initial term of three years, with automatic one year renewals, which agreement has been assumed by us. His initial base salary is $275,000. Mr. Weinstein will be entitled to receive an annual bonus at the discretion of the board based on performance goals and targeted at 50% of his annual salary. In addition to any perquisites and other fringe benefits provided to other executives, Mr. Weinstein received options to purchase 300,000 shares of common stock under the Operations 2006 Incentive Compensation Plan at an exercise price of $7.00 per share and vesting at a rate of 25% per year, which options have been assumed under our 2007 Incentive Compensation Plan. In the event Mr. Weinstein is terminated by us without good cause or he resigns for good reason, as such terms are defined in his employment agreement, we will be obligated to pay Mr. Weinstein in a lump sum an amount equal to 12 months salary and benefits.
 
Chief Medical and Scientific Officer - On November 30, 2006, Victor Gura, M.D. entered into an employment agreement with Operations for a term of four years, which agreement has been assumed by us. In October 2007, Dr. Gura became our Chief Medical and Scientific Officer, which position he has held with Operations since December 2006. Dr. Gura has been a member of our board of directors since October 2007, and was appointed as a member of the board of directors of Operations in October 2006. His initial annual base salary is $420,000. Dr. Gura is eligible to receive discretionary bonuses on an annual basis targeted at 50% of his annual salary. Additionally, Dr. Gura was granted 500,000 stock options at an exercise price of $5 per share under the Operations 2006 Incentive Compensation Plan. These options, which were assumed under our 2007 Incentive Compensation Plan, will vest 20% on each of the first, second, third, fourth and fifth anniversaries of the original grant date and expire November 14, 2011. He will also be granted options to purchase an additional 500,000 shares of our common stock upon FDA approval of our first product. Dr. Gura is eligible to receive reimbursement of reasonable and customary relocation expenses as well as health, medical, dental insurance coverage and insurance for accidental death and disability. In the event he is terminated by us without good cause or if he resigns for good reason, as such terms as are defined in his employment agreement, we will be obligated to pay Dr. Gura in a lump sum an amount equal to two year’s salary plus 200% of the targeted bonus. In addition all stock options granted to Dr. Gura will vest immediately.

Dr. Gura’s agreement provides for medical insurance and disability benefits, severance pay if his employment is terminated by us without cause or due to change in our control before the expiration of the agreement, and allows for bonus compensation and stock option grants as determined by our board of directors. Dr. Gura’s employment agreement also contains a restrictive covenant preventing competition with us and the use of confidential business information, except in connection with the performance of his duties for us, for a period of two years following the termination of his employment with us.
 
Confidentiality Agreements
 
Each of our employees is required to enter into a confidentiality agreement. These agreements provide that for so long as the employee works for us, and after the employee’s termination for any reason, the employee may not disclose in any way any of our proprietary confidential information.

 
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Limitation on Liability and Indemnification Matters

Our certificate of incorporation and amended and restated bylaws limit the liability of directors and executive officers to the maximum extent permitted by Delaware law. The limitation on our directors’ and executive officers’ liability may not apply to liabilities arising under the federal securities laws. Our certificate of incorporation and amended and restated bylaws provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to our directors and executive officers pursuant to our certificate of incorporation and amended and restated bylaws, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.

GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2008

The following table presents information regarding grants of plan-based awards to our named executive officers during the fiscal year ended December 31, 2008.
 
     
Estimated Possible Payouts
Under
Non-Equity Incentive Plan
Awards(1)
   
Estimated Future Payouts
Under
Equity Incentive Plan Awards(2)
     
All
Other
Stock
Awards:
Number
     
All
Other
Option
Awards
Number
of
     
Exercise
     
Grant
Date
Fair
Value of
 
Name
Grant Date
 
Threshold
($)
   
Target
($)
   
Maximum
($)
   
Threshold
($)
   
Target
($)
   
Maximum
($)
   
of
Shares of
Stock
or Units
(#)
   
Securities
Under-
lying
Option
(#)
   
or Base
Price of
Option
Awards
($/Sh)
   
Stock
and
Option
Awards
($)(1)
 
Kelly J. McCrann,
                                                             
Chairman of the
10/02/08
                                              700,000       1.50       286,454  
Board & CEO
                                                                                 
 
(1)
Represents the total grant date fair value (unaudited) determined for financial statement reporting purposes in accordance with SFAS 123(R) for awards granted in 2008.

OUTSTANDING EQUITY AWARDS AT LAST FISCAL YEAR-END

The following table sets forth information concerning unexercised options; stock that has not vested; and equity incentive plan awards for each named executive officer outstanding as of December 31, 2008:

   
OPTION AWARDS
 
STOCK AWARDS
 
Name
 
Number of 
Securities 
Underlying 
Unexercised 
Options (#) 
Exercisable
 
Number of 
Securities 
Underlying 
Unexercised 
Options (#) 
Unexercisable
 
Equity 
Incentive Plan 
Awards: 
Number of 
Securities 
Underlying 
Unexercised 
Unearned 
Options (#)
 
Option 
Exercise 
Price ($)
 
 Option 
Expiration 
Date
 
Number 
of 
Shares 
or Units 
of Stock 
That 
Have 
Not 
Vested 
(#)
 
Market 
Value of 
Shares 
or Units 
of Stock 
That 
Have 
Not 
Vested 
($)
 
Equity 
Incentive 
Plan 
Awards: 
Number of
Unearned 
Shares, 
Units or 
Other Rights
That Have 
Not Vested
(#)
 
Equity 
Incentive 
Plan 
Awards: 
Market or 
Payout 
Value of 
Unearned
 Shares, 
Units, or 
Other Rights 
That Have 
Not Vested 
(#)
 
      
 
 
 
 
 
 
 
 
  
                 
Kelly J. McCrann,
Chairman of the
Board & CEO
            700,000       700,000       1.50  
10/02/18
                         
Robert Weinstein,
CFO & Secretary
      75,000       225,000       300,000       7.00  
08/10/17
                         
Victor Gura,
Chief Medical &
Scientific Officer
      250,000       250,000       500,000       5.00  
11/14/16
                         
Daniel S. Goldberger,
Former President, COO
& Interim CEO (1)
                         
                         

(1) Mr. Goldberger resigned as our President & COO on August 10, 2007. From January to October 2008, Mr. Goldberger served as our interim CEO. Mr. Goldberger also resigned from his position as a member of the Board in October 2008. On September 8, 2008, Mr. Goldberger voluntarily forfeited his remaining 200,000 options.

 
13

 

OPTIONS EXERCISES AND STOCK VESTED IN 2008
 
No options were exercised during the fiscal year ended December 31, 2008. During the fiscal year ended December 31, 2008, an aggregate of 1,544,721 shares of our common stock underlying our outstanding options, warrants, stock awards, restricted stock unit awards and similar instruments vested. We granted options to purchase an aggregate of 905,000 shares of our common stock and options to purchase an aggregate of 825,000 shares of our common stock were forfeited by the departed employees and consultants whose services were terminated during the fiscal year ended December 31, 2008.

PENSION BENEFITS

We did not have a defined benefit pension plan or a defined contribution plan and the named executive officers received no benefits under any retirement plan during the year ended December 31, 2008.

NON-QUALIFED DEFERRED COMPENSATION

We had no deferred compensation plans during the year ended December 31, 2008.

 
14

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Related-party transactions have the potential to create actual or perceived conflicts of interest between our company and our directors and executive officers or their immediate family members. The Board reviews such matters as they pertain to related-party transactions as defined by Item 404(b) of the SEC’s Regulation S-K. In deciding whether to continue to allow these related-party transactions involving a director, executive officer, or their immediate family members, the Board considered, among other factors:
 
 
·
information about the services proposed to be or being provided by or to the related party or the nature of the transactions;
 
 
·
the nature of the transactions and the costs to be incurred by our company or payments to us;
 
 
·
an analysis of the costs and benefits associated with the transaction and a comparison of comparable or alternative services that are available to us from unrelated parties;
 
 
·
the business advantage that we would gain by engaging in the transaction; and
 
 
·
an analysis of the significance of the transaction to our company and to the related party.
 
The Board determined that the related party transactions disclosed herein are on terms that are fair and reasonable to us, and which are as favorable to our company as would be available from non-related entities in comparable transactions. The Board believes that there is a business interest to our company in supporting the transactions and the transactions meet the same standards that we apply to comparable transactions with unaffiliated entities. Although the aforementioned controls are not written, each determination was made by the Board and reflected in its minutes.
 
Below are the transactions that occurred since the beginning of the fiscal year 2008, or any currently proposed transactions, in which, to our knowledge, we were or are a party, in which the amount involved exceeded $120,000, and in which any of our directors, director nominees, executive officers, holders of more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

In connection with the contribution of the assets to our company, on August 31, 2006 we issued to Consolidated National, LLC (“CNL”), of which Terren Peizer, our former Executive Chairman and current member of the Board, who beneficially owns 43.3% of our outstanding common stock, is the sole managing member and beneficial owner, an aggregate of 9,600,000 shares of common stock of which 6,232,596 shares are still held by CNL.

Our Chief Medical and Scientific Officer, Dr. Victor Gura, owns 15,497,250 shares of common stock of National Quality Care, Inc. (or approximately 24.2% of National Quality Care, Inc.'s common stock outstanding as of November 14, 2008) with whom we entered into the License Agreement. Such shares include 800,000 shares owned by Medipace Medical Group, Inc., an affiliate of Dr. Gura (or approximately 1.3% of NQCI's common stock outstanding as of November 14, 2008), and 250,000 shares subject to warrants held by Dr. Gura which are currently exercisable (or approximately less than 1% of NQCI's common stock outstanding as of November 14, 2008).

Pursuant to a consulting agreement effective December 1, 2007, Daniel S. Goldberger, then a director, provided consulting services as interim CEO. In consideration of the services, we paid Mr. Goldberger $15,000 per month during the first two months and $12,500 per month thereafter during the term of the consulting agreement. From the date of his consulting agreement through September 30, 2008, Mr. Goldberger was compensated $130,000 for his services. Mr. Goldberger resigned as interim CEO on October 6, 2008, and as a director on October 7, 2008, and remained as a strategic consultant to our company through the end of 2008. Mr. Goldberger received an additional $22,500 in compensation for such services.

Dr. Gura maintains an office located in Beverly Hills, California. Pursuant to a reimbursement agreement effective January 29, 2008, we reimburse 50% of the rental and 50% of his monthly parking. The term of the agreement commenced on April 23, 2007, the date of the office lease agreement, and continue until the date on which he ceases to use the remote office to perform his duties as our Chief Medical and Scientific Officer. From commencement through December 31, 2008, we reimbursed our Chief Medical and Scientific Officer $1,710 and $37,988 for 50% of the monthly parking and rental, respectively.

PROPOSAL NO. 3: APPROVAL OF ISSUANCE OF STOCK FOR TECHNOLOGY TRANSACTION

Summary

We are seeking approval from our stockholders to issue 9,230,000 shares of our common stock in order to obtain ownership of intellectual property rights relating to medical technologies currently licensed by our wholly-owned subsidiary Xcorporeal Operations, Inc. ("Operations"). The proposal is being made in accordance with an interim award (the “Award”) made by the arbitrator in our current arbitration with National Quality Care, Inc. ("NQCI"), as modified by the Amended Order Re Interim Relief Etc. issued by the arbitrator on January 30, 2009 (the “Order”), in order to minimize the risk that the arbitrator will issue an alternative award that could have a material adverse effect on our financial condition and operations. The arbitrator has refused to issue a final award until this proposal has been submitted to our stockholders, which may effectively prevent us from obtaining effective court review of the arbitrator’s actions. This risk and the reasons this proposal is being submitted for stockholder approval prior to the issuance of a final award are more fully discussed below under caption “Recommendation of the board”.  We encourage you to read and review carefully this proxy statement, including the attached appendices, in their entirety. The most material terms of the proposed transaction are summarized as follows:

 
15

 


 
·
Subject to the satisfaction of the terms of the Award, as modified by the Order, NQCI will grant, transfer and assign to Operations all of the Technology defined in the License Agreement currently in effect between NQCI and Operations;
     
 
·
The Technology includes all patents and patent applications related to a Wearable Artificial Kidney ("WAK"), and other portable or continuous dialysis methods or devices;
     
 
·
Under the terms of the Award, as modified by the terms of the Order, we are required, among other things, to promptly file this proxy statement with the U.S. Securities and Exchange Commission, obtain stockholder approval for the issuance of shares of our common stock to acquire the Technology and issue to NQCI 9,230,000 shares of our common stock;
     
 
·
We will issue and deliver 9,230,000 shares of our common stock to NQCI  in consideration for the Technology. As a result, NQCI will own approximately 39% of our outstanding common stock and become our largest stockholder;
     
 
·
Except for its definition, indemnification, representation and warranty provisions, the License Agreement shall thereafter be terminated and of no further force or effect; and
     
 
·
After the transfer of the Technology by NQCI to us, under the Award, as modified by the Order, we will be required to file a registration statement to register the shares issued to NQCI for resale.
 
Background of the Technology Transaction

We are a medical device company developing an innovative extra-corporeal platform technology to be used in devices to replace the function of various human organs. These devices will seek to provide patients with improved, efficient and cost effective therapy. The platform leads to three initial products:

 
·
a Portable Artificial Kidney (PAK) for hospital Renal Replacement Therapy (RRT);
     
 
·
a PAK for home hemodialysis; and
     
 
·
a WAK for continuous ambulatory hemodialysis.

We have completed functional prototypes of our hospital and home PAKs that we plan to commercialize after 510(k) notification clearance from the Food and Drug Administration (FDA) which we plan to seek by next year. We have demonstrated a feasibility prototype of the WAK which we plan to continue to develop; commercialization of the WAK will require development of a functional prototype and likely a full pre-market approval by the FDA, which could take several years or longer.

Our rights to the WAK derive in part from a License Agreement dated September 1, 2006 between Operations and NQCI, pursuant to which we obtained the exclusive rights to the technology designated therein. A copy of the License Agreement is attached as Appendix B to this proxy statement.

We have focused much of our efforts on development of the PAK, which has not been derived from the technology covered by the License Agreement. Once the Technology Transaction has closed and the results of the arbitration proceeding are final, we will determine whether to devote additional resources to development of the WAK. Because neither product is yet at a stage where it can be marketed commercially, we are not able to predict the portion of our future business which will be derived from each.

On September 1, 2006, Operations also entered into a Merger Agreement with NQCI which contemplated that we would acquire NQCI as a wholly owned subsidiary pursuant to a triangular merger, or we would issue shares of our common stock to NQCI stockholders in consideration of the assignment of the technology relating to our WAK and other medical devices (the “Technology Transaction”). The agreement provided in Section 6(A)(4) that Operations had no obligation to issue or deliver any shares after December 31, 2006, unless the Parties mutually agreed to extend such date, which they did not. In addition, on December 29, 2006, NQCI served us with written notice that it was terminating the Merger Agreement, which we accepted. Accordingly, the merger was not consummated. A copy of the Merger Agreement is attached as Appendix C to this proxy statement.

 
16

 

On December 1, 2006, Operations initiated arbitration proceedings against NQCI for its breach of the License Agreement, which remains pending. NQCI claimed the License Agreement was terminated, and we sought a declaration that the License Agreement remained in effect until the Closing of the Merger or the Technology Transaction. We later amended our claims to seek damages for NQCI’s failure to perform its obligations under the License Agreement. NQCI filed counterclaims seeking to invalidate the License Agreement and claiming monetary damages against us. NQCI also filed claims against Dr. Gura, claiming he breached his obligations to NQCI by agreeing to serve on our board of directors. Following a hearing and extensive briefing, the arbitrator denied both parties’ claims for damages. Although NQCI never filed an amendment to its counterclaims to seek specific performance, on June 9, 2008, the arbitrator, Richard C. Neal (Ret), issued an Interim Award granting specific performance of the Technology Transaction.

The Interim Award stated that the total aggregate shares of stock to be received by NQCI stockholders at the Closing should equal 48% of all Operations shares outstanding as of the date of the Merger Agreement. On September 1, 2006, there were 10,000,000 shares of Operations common stock outstanding. NQCI proposed four possible share interest awards, arguing that it was entitled to shares representing a 48% or 54% interest based on Operations shares outstanding at the time of the Merger Agreement or our present number of outstanding shares.

On August 4, 2008, the arbitrator issued a Second Interim Award, modifying the initial Interim Award, stating that, if we desire to close the Technology Transaction, we must obtain approval from a majority of our stockholders and issue 9,230,000 shares of our common stock to NQCI. It is our understanding that the arbitrator based his decision as to the number of shares that we must issue on the factors set forth below. Our understanding set forth below is derived from the terms of the Award and we strongly encourage you to read and review carefully the Award, annexed to this proxy statement as Appendix D, and the Order, annexed to this proxy statement as Appendix E.

 
·
In accordance with the second paragraph of page 7 of the Award, under the Merger Agreement, the number of shares of our common stock which NQCI was to receive at the closing of the transaction contemplated by the Merger Agreement was based on the number of shares or our common stock outstanding as of the date of the Merger Agreement, or 10,000,000 shares.
 
 
·
If the Merger Agreement was terminated, resulting in the closing of the Technology Transaction, (i) pursuant to Section 6(B)(2)(i) of the Merger Agreement, NQCI was to receive a 48% share of the aggregate amount of our shares of common stock if we terminated the Merger Agreement for NQCI’s breach or either party terminated under the December 1 or December 29 deadlines, and (ii) pursuant to Section 6(B)(2)(ii) of the Merger Agreement, NQCI was to get a 54% share if we terminated for dissatisfaction with our due diligence, or NQCI terminated for our breach (as more fully described in the Merger Agreement).
 
 
·
The arbitrator determined that NQCI was not entitled to terminate the Merger Agreement outright and that its notice of termination was improper. Therefore, the arbitrator determined that, since NQCI was at fault, NQCI is entitled to receive the lesser of the two alternatives (48% instead of 54%).
 
 
·
Therefore, according to the arbitrator, in order to award a 48% share to NQCI, assuming that there were 10,000,000 shares of our common stock outstanding on the date of the Merger Agreement, we must issue to NQCI 9,230,000 shares of our common stock, which would represent 48% of the aggregate total of 19,230,000 shares of our common stock which would have been outstanding after giving effect to such issuance.

As a result of issuances by the Company subsequent to the date of the Merger Agreement, as of March 4, 2009, there were __________ shares of our common stock issued and outstanding. Accordingly, following the closing of the Technology Transaction, NQCI would own approximately 39% of our total outstanding shares, making NQCI our largest stockholder. The arbitrator found that, with the exception of stockholder approval, virtually all conditions to Closing the Technology Transaction have been waived, including virtually all of NQCI’s representations and warranties concerning the Technology.

The Second Interim Award also states that, contrary to the assertions made by NQCI, the License Agreement will remain in full force and effect until the Technology Transaction closes or the arbitrator determines that it will never close. Upon Closing of the Technology Transaction and satisfaction of the terms of the Award, as modified by the Order, the License Agreement will terminate and we will own all of the Technology.

On January 3, 2008, the arbitrator issued an order denying NQCI’s motion to amend its counterclaim to add us as a successor company following the Merger. However, in the Second Interim Award, the arbitrator found that we are the successor to Operations as a result of the merger, even though we are not a party to any of the agreements or the arbitration, and ordered that our shares should be issued to NQCI rather than shares of Operations.

The arbitrator has not ordered us to close the Technology Transaction. However, the Second Interim Award states that, if our stockholders fail to approve the issuance of stock to effectuate the Technology Transaction, all of the Technology covered by the License shall be declared the sole and exclusive property of NQCI, and the arbitrator shall schedule additional hearings to address two questions: whether the PAK technology is included within that Technology, and whether NQCI is entitled to compensatory damages and the amount of damages under these circumstances. During the arbitration, NQCI took the position that we had misappropriated trade secrets regarding the WAK and used them to create the PAK. The arbitrator found that we had not misappropriated NQCI’s trade secrets. However, should the Technology Transaction not close for any reason, and the arbitrator rules that the licensed Technology must be returned to NQCI, the arbitrator could find that the PAK is derived in whole or in part from licensed Technology, and could rule that Operations must “return” the PAK technology to NQCI or that NQCI is entitled to compensatory damages or both.

 
17

 

On August 15, 2008, the arbitrator awarded NQCI $1.87 million of over $4 million it claimed in attorneys’ fees and costs, stating that NQCI’s lack of success and other factors warranted a substantial reduction in the sums claimed. The arbitrator stated in pertinent part: “National’s success in the arbitration has been only partial and this is directly relevant to the question of the quantum of attorneys’ fees which should be awarded. … National sought eight or nine figure damages, but was awarded none. … Further, National asserted claims for fraud, interference with contract, and other torts, all of which were rejected. His lack of success warrants a substantial reduction in the sums claimed.” NQCI asked for a total of $4.04 million in attorneys’ fees and costs. The arbitrator awarded NQCI a total of $1.87 million. The award has no effect on the additional amount of approximately $690,000 claimed by NQCI in unpaid royalties and alleged expenses under the License Agreement. The arbitrator has not yet ruled on this claim.

In an August 29, 2008 Order Re Issuance of Xcorporeal Shares, the arbitrator stated that the shares should be issued directly to NQCI’s stockholders. However, on September 4, 2008, the arbitrator issued an order that we should issue and deliver the 9,230,000 shares directly to NQCI, rather than directly to NQCI stockholders, if we obtain stockholder approval and elect to proceed with the Technology Transaction.

The Second Interim Award required that we file a registration statement under the Securities Act to register for resale the shares to be issued to NQCI within 30 days after the closing of the Technology Transaction. The arbitrator acknowledged that our obligation is to file the registration statement and to use reasonable efforts to have the shares registered and not to guarantee registration and resultant actual public tradability. However, the arbitrator nevertheless ordered that the registration statement must be declared effective within 90 days.

On January 30, 2009, the arbitrator issued the Order, in which the arbitrator modified the Second Interim Award by reserving on what the final terms of our obligation to file the resale registration statement will be and stating that such registration obligation shall be in accordance with applicable laws and subject to all required SEC approvals. While the arbitrator also retained jurisdiction to monitor our compliance with such obligation, to award any appropriate relief to NQCI if we fail to comply with such obligation and to render a decision on any other matters contested in this proceeding, the time periods set forth in the Second Interim Award and summarized in the preceding paragraph are no longer applicable. The order also provides, among other things, that if we file this proxy statement, obtain stockholder approval to issue to NQCI 9,230,000 shares of our common stock as consideration for the closing of the Technology Transaction and issue such shares to NQCI, the arbitrator anticipates confirming that all of the Technology covered by the License shall be declared our sole and exclusive property.

The arbitrator has stated that he has not yet issued a final award that may be confirmed or challenged in a court of competent jurisdiction. A party to the arbitration could challenge the interim award in court, even after stockholders approve the transaction. In addition, the arbitrator could again change the award by granting different or additional remedies, even after stockholders approve the transaction. We cannot guarantee that the arbitrator would order that stockholders be given another opportunity to vote on the transaction, even if such changes are material. Arbitrators have broad equitable powers, and arbitration awards are difficult to challenge in court, even if the arbitrator makes rulings that are inconsistent or not in accordance with the law or the evidence.

Should the arbitrator order a material change to the Second Interim Award, as modified by the Order, after the vote of stockholders on this Proposal No. 3, and further order that our stockholders not be given another opportunity to vote on this Proposal No. 3 or on such material change, such order could conflict with applicable federal securities laws or American Stock Exchange rules to which we are subject. In such event, we would ask the arbitrator to amend such changed award or attempt to seek review of the changed award in a court of competent jurisdiction. The closing of the Technology Transaction may render any court review or appeal moot, effectively preventing us from challenging any of the arbitrator’s awards in court.

Shares to be Issued
 
We are seeking approval from our stockholders to issue 9,230,000 shares of our common stock to NQCI, under the exemption set forth in Section 4(2) of the Securities Act which we believe is available to us, in order to obtain ownership of intellectual property rights described above. As of March 4, 2009, there were __________ shares of our common stock issued and outstanding. Accordingly, following Closing of the Technology Transaction, NQCI would own approximately 39% of our total outstanding shares of common stock. As set forth under Security Ownership of Certain Beneficial Owners and Management on page 4 of this proxy statement, Consolidated National, LLC (“CNL”), of which our former Executive Chairman and current member of the Board, Mr. Peizer, is the sole managing member, owns 6,232,596 shares, or approximately 43% of our currently outstanding shares of common stock, and investment funds for which Prime Logic Capital, LLC (“Prime Logic”), of which our director, Mr. Cummins, is a managing partner and an investment manager, beneficially own 1,557,158 shares, or approximately 11% of our currently outstanding shares of common stock. Following the closing of the Technology Transaction, CNL and Prime Logic would beneficially own or control approximately 27% and 7% of our outstanding shares, respectively.
 
As a result, NQCI may have the ability to substantially influence the outcome of issues submitted to our stockholders. The interests of NQCI may not coincide with our interests or the interests of other stockholders, and it may act in a manner that advances its best interests and not necessarily those of other stockholders. One consequence to this substantial interest is that it may deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

 
18

 

The Technology
 
Section 6.B(1) of the Merger Agreement provides that, at the Closing of the Technology Transaction, NQCI shall absolutely, unconditionally, validly and irrevocably sell, transfer, grant and assign to Operations all of the Technology, including, but not limited to, the inventions embodied or described in the Licensor Patents and Patent Applications as defined in the License Agreement.
 
“Technology” includes all existing and hereafter developed Intellectual Property, Know-How, Licensor Patents, Licensor Patent Applications, Derivative Works, and any other technology invented, improved or developed by NQCI, or as to which NQCI owns or holds any rights, arising out of or relating to the research, development, design, manufacture or use of:
 
 
(a)
any medical device, treatment or method as of September 1, 2006;

 
(b)
any portable or continuous dialysis methods or devices, specifically including any wearable artificial kidney, or Wearable Kidney, and related devices;

 
(c)
any device, methods or treatments for congestive heart failure; and

 
(d)
any artificial heart or coronary device.
 
“Intellectual Property” includes:
 
 
(a)
patents, patent applications, and patent rights;

 
(b)
trademarks, trademark registrations and applications;

 
(c)
copyrights, copyright registrations, and applications; and

 
(d)
trade secrets, confidential information and know-how.
 
“Licensed Products” includes all products based on or derived from the Technology, including, but not limited to the Wearable Kidney and all related devices, whether now-existing or hereafter developed.
 
Under the License Agreement, NQCI grants to us an exclusive license for 99 years (or, if earlier, until the expiration of NQCI's proprietary rights in the Technology) for an annual royalty of 7% of net sales, with a minimum annual royalty of $250,000. We are required to “make commercially reasonable efforts to develop and commercially exploit the Technology to generate revenues” during the term of the License Agreement. The License Agreement does not provide for termination in the event the Merger Agreement is terminated; instead it provides for an adjustment of the royalty to 6.5%, 7.5% or 8.5% depending on the grounds on which the Merger Agreement was terminated. Either party has the right to terminate the License Agreement in the event of a material breach by the other party which remains uncured for a period of 30 days after notice. In the event of a termination of the License Agreement, we are required to cease all use of the Technology and return all “Licensee Confidential Information” to NQCI. The Technology relates primarily to the WAK. As is typical with licenses of technology, the License Agreement also covers “Derivative Works,” which, in general, includes an original work that is based upon one or more pre-existing works and which, if prepared, used or exploited in the absence of the License Agreement would constitute infringement or misappropriation of NQCI's rights under applicable law.

Accounting for the Transaction

The Technology Transaction will be accounted for as a purchase of the Technology in exchange for shares of our common stock. In accordance with FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements, the intellectual property rights we will acquire in the Technology Transaction will be measured based on the fair value of the shares surrendered on the date of issuance, which is clearly more evident than the fair value of the intellectual property. Through the evaluation of the components of the intellectual property and information pursuant to the arbitration suggesting it may not be proprietary, we have determined the intellectual property is not economically viable. However, continuing research on the technology will be useful in developing the prototype of our Wearable Artificial Kidney. In accordance with FASB 2, Accounting for Research and Development Costs, and its related interpretations, we will expense the value of the intellectual property, determined in process research and development, at the date of acquisition.
 
As of September 30, 2008, we accrued for the 9,230,000 shares of our common stock to be issued to NQCI in accordance with FASB 5, Accounting for Contingencies, with the initial fair value of the shares measured on August 4, 2008, the date of the Second Interim Award. Until issuance, these shares will be marked to market in accordance with Emerging Issues Task Force No. 00-19 Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock. These shares were accrued under “Shares issuable” and expensed to “Research and development” on our financial statements. The net resulting change in fair value of these shares from marking to market was recognized as “Change in fair value of shares issuable” to the statement of operations.
 
 
19

 
Material United States Federal Income Tax Consequences of the Technology Transaction

The following general discussion summarizes the material United States federal income tax consequences of the Technology Transaction that are generally applicable to the stockholders. This discussion is based on the Internal Revenue Code of 1986, as amended (referred to as the Code), existing, temporary, and proposed Treasury regulations thereunder, current administrative rulings and judicial decisions, all as currently in effect and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. The discussion set forth below does not address all U.S. federal income tax considerations that may be relevant to stockholders in light of their particular circumstances, and does not apply to stockholders that are subject to special rules under U.S. federal income tax laws. This discussion assumes that the transaction will be considered a taxable sale of assets by NQCI. However, we have not requested nor will we request a ruling from the Internal Revenue Service or an opinion of counsel with regard to any of the tax consequences of the Technology Transaction. The Internal Revenue Service may assert a contrary position, and it is possible that the Internal Revenue Service may successfully assert a contrary position in litigation or other proceedings.
____________________________________

IRS CIRCULAR 230 DISCLOSURE:  TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT REGULATIONS, YOU ARE HEREBY NOTIFIED THAT:  (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS INFORMATION STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THIS REGISTRATION STATEMENT; AND (C) YOU SHOULD SEEK ADVICE BASED ON YOUR OWN PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
________________________________________
 
For federal income tax purposes, we believe the Technology Transaction will be considered a taxable sale of assets by NQCI. As a result, NQCI will be required to recognize gain or loss equal to the difference between: (i) the sum of the fair market value of our common stock received by NQCI and the amount of any NQCI liabilities assumed by us in connection with the transaction, and (ii) NQCI's tax basis in the assets surrendered.  If the Technology Transaction is treated as a taxable sale of assets, then we will have a tax basis in the assets equal to the amount paid therefor (i.e., the sum of the fair market value of our common stock  transferred to NQCI and the amount of any NQCI liabilities assumed by us in connection with the acquisition).   If the Technology Transaction were to be considered part of a tax-free reorganization, then NQCI would not recognize taxable gain or loss and we would inherit NQCI’s tax basis in the assets acquired.  We do not believe that we or any of our stockholders will incur any tax liability as a result of the Technology Transaction. We expect that there will be no material federal income tax consequences of the Technology Transaction on our stockholders.

Each stockholder is strongly urged to consult its tax advisor with respect to the particular tax consequences of the Technology Transaction to such holder based on the holder’s specific circumstances, applicable state, local and foreign tax consequences and potential changes in applicable tax laws.
 
Interests of a Director and Officer

According to NQCI’s most recent annual report, Dr. Victor Gura, one of our directors and our Chief Medical and Scientific Officer, owns 14,253,250 shares of NQCI’s common stock, approximately 22.3% of its total outstanding shares as of November 14, 2008. Before becoming a director and our Chief Medical and Scientific Officer in 2006, Dr. Gura served as NQCI's Chief Scientific Officer and was a member of NQCI's board of directors. He resigned from those positions before taking his positions with us. He was not directly involved in negotiating the merger or license agreement with us. These negotiations were handled by NQCI's Chief Executive Officer, Robert Snukal and unanimously approved by NQCI's board of directors, including Dr. Gura. When the dispute which is the subject of the arbitration arose, NQCI filed suit against us and several members of our board of directors, including Dr. Gura. Dr. Gura participated in limited settlement discussions with NQCI in his capacity as an individually named defendant, but those discussions were not successful. The disputes between NQCI and Dr. Gura were arbitrated concurrently with disputes between NQCI and us. The arbitrator denied all of NQCI's claims against Dr. Gura. Our board of directors considered Dr. Gura’s ownership interest in NQCI in recommending that stockholders approve the issuance of stock to effectuate the Technology Transaction.

 
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Vote Required for Approval

Our common stock is publicly traded on the AMEX under the symbol XCR. Section 7.12 of the AMEX Company Guide requires stockholder approval as a prerequisite to listing additional shares issued as consideration for an acquisition of the assets of another company if any individual director or officer of the listed company has a 5% or greater interest, directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction; or where the issuance of common stock would result in an increase in outstanding common shares of 20% or more.
 
In addition, stockholder approval is one of the conditions to closing the Technology Transaction set forth in the Merger Agreement, and the arbitrator has held that consent of a majority of our stockholders must approve the Technology Transaction, if we desire to effectuate it.
  
Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting, at which a quorum is present. Consummation and effectiveness of the Technology Transaction may be subject to issuance of a final arbitration award and court approval thereof.
 
In connection with the Merger Agreement, CNL executed a written agreement agreeing to vote all of its shares in favor of the Merger Agreement, a proposal to approve the issuance of Operations stock pursuant to and upon the terms and subject to the conditions set forth in the Merger Agreement, and any other matter necessary to approve the transactions contemplated by the Merger Agreement. CNL, whose sole managing member is our former Executive Chairman and current member of the Board, beneficially owns approximately 43% of our currently outstanding common shares. Another member of our board is a managing partner of Prime Logic, which is the investment manager for funds beneficially owning approximately 11% of our currently outstanding shares. We believe that both CNL and Prime Logic’s managed funds will vote their shares in favor of the transaction. If both of these stockholders retain their ownership as of the record date and vote their shares in favor of the transaction, that would be sufficient to constitute the majority necessary for stockholder approval of the transaction. In making a final decision on whether to proceed with the transaction, our board of directors may take into account the number or percentage of our other stockholders who vote for or against the proposal, though no approval is required beyond a majority of the total shares voting at the Annual Meeting.
 
Recommendation of the Board

In recommending that stockholders approve the issuance of our stock to effectuate the Technology Transaction, the Board considered primarily the following:
 
 the risk that, if our stockholders do not vote to approve the transaction, the arbitrator might impose some form of alternative relief, which may include taking all of our technology, including our PAK even though it was not developed based on Licensed Technology;
 
 the risk that the arbitrator could order us to pay monetary damages in an unknown amount we cannot afford;
 
 the refusal of the arbitrator to issue a final award that would be subject to court review and appeal; and
 
 the fact that the arbitrator has structured the interim award in a way that effectively prevents us from seeking any court review.

 
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The board also considered factors militating in favor of approval, including the following:
 
• the nature and effect of the interim awards;
 
•  the fair market value of the 9,230,000 shares to be issued to close the transaction, taking into account the $0.17 per share closing price on December 31, 2008;
 
•  the approximately $13 million expended as of September 30, 2008 in developing the WAK, ownership of which we would obtain by closing the transaction, and the PAK, rights to which might be placed in jeopardy if the transaction does not close;
 
• the potential long-term business opportunity of the WAK, and
 
• the fact that the terms of the License Agreement and Merger Agreement were the result of vigorous arms-length negotiations among sophisticated business persons represented by experienced counsel.
 
The board also considered factors militating against approval, including the following:
 
• revisions made to the merger agreement by the arbitrator, such as eliminating NQCI’s representations and warranties regarding the Technology;
 
• the concern that the arbitrator will require that a resale registration statement be declared effective at some point in time in the future, which the arbitrator has acknowledged is not within our control;
 
•  uncertainty regarding the finality of the interim awards;
 
•  the fundamental unfairness and uncertainly of the arbitration process;
 
•  that fact that the shares to be issued represent approximately 39% of the total shares that will be outstanding immediately upon closing, and will make an opposing party in arbitration our largest stockholder;
 
•  uncertainty in the value of the Technology and the business opportunity of the WAK;
 
•  the risks and uncertainties in developing the WAK; and
 
• the stock ownership of Dr. Gura in NQCI.
 
The Board believes that the Technology that would be obtained by us in the Technology Transaction may not be commercially viable or legally protectable, and may not be worth the number of shares to be issued, even at our relatively lower current market price. However, the Board believes that the risk of losing all of our technology or being subjected to a large monetary claim in some form of alternative award issued by the arbitrator due to a perceived failure to comply with the Second Interim Award, as modified by the Order, is too great not to go forward with the share issuance to NQCI. If the arbitrator issues a final award, we intend to seek review of that decision by a court of competent jurisdiction. However, since the arbitrator may order us to issue shares before a final award, obtaining effective court review may not be possible. In addition, once the Technology Transaction closes, NQCI will be our largest stockholder may be able to influence our actions. Any appeal, therefore, may be moot.
 
The Board unanimously recommends that you vote “FOR” approval of issuance of stock for the Technology Transaction.
 
PROPOSAL NO. 4: APPROVAL OF INCREASE IN NUMBER OF OUR AUTHORIZED SHARES
 
Our current certificate of incorporation authorizes us to issue a total of 50,000,000 shares, 40,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of preferred stock, $0.0001 par value. The Board has proposed to amend the current certificate of incorporation to authorize us to issue a total of 200,000,000 shares, 190,000,000 shares of common stock. $0.0001 par value, and 10,000,000 shares of preferred stock, $0.0001 par value.

 
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The full text of the amended and restated certificate of incorporation that is the subject of this proposal is set forth in Appendix A attached to this proxy statement. If the proposal is adopted, the Board will adopt a corresponding amendment to our bylaws, without separate stockholder consent.

Authorized But Unissued Shares 

The authorized but unissued shares of common and preferred stock are available for future issuance without stockholder approval, unless otherwise required by law or applicable stock exchange rules. These additional shares may be used for a variety of corporate purposes, including future public offering to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares could hinder or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Considerations In Support of the Proposal

As of March 4, 2009, there were ___________ shares of our common stock outstanding; approximately 4,000,000 shares reserved for issuance upon the exercise of currently outstanding warrants and employee stock options; and, if approved by stockholders, 9,230,000 shares that may be issued in connection with the Technology Transaction described in Proposal No. 3 above. No shares of preferred stock are currently outstanding. The Board believes that the increase in the number of authorized shares is appropriate to permit the board to reserve shares for issuance upon the conversion or exercise of any convertible debt, warrants or stock options that may be outstanding in the future, and to provide us with the flexibility to act in the future with respect to financings, acquisitions, stock splits, stock option plans and other corporate purposes, without the delay and expense of obtaining stockholder approval each time an opportunity requiring the issuance of shares may arise.
 
The Board is not currently considering any transactions which would necessitate the issuance of additional shares of our common stock above the number of shares of stock currently authorized. However, the Board believes that having additional shares of authorized common stock available for issuance increases our ability to pursue opportunities for future financings, acquisitions and other transactions, when necessary or appropriate. We would also help ensure our ability to effectuate the grant of warrants, options or convertible securities, future stock splits or stock dividends.
 
Other considerations

An increase in the authorized shares of common stock could, under certain circumstances, have an anti-takeover effect, for example, by diluting the stock of a person seeking to effect a change in the composition of the board of directors or contemplating a tender offer or other transaction for a combination of our company with another company. However, this action is not in response to any current effort of which we are aware to accumulate our common stock or to obtain control of our company.
 
Authorizing the issuance of additional shares could have an effect on the potential realizable value of a stockholder's investment. In the absence of a proportionate increase in earnings and book value, an increase in the aggregate number of outstanding shares caused by the issuance of additional shares would dilute the earnings per share and book value per share of all our outstanding shares of capital stock. If such factors were reflected in the price per share of the common stock, the potential realizable value of a stockholder's investment could be adversely affected.
 
The additional shares of common stock to be authorized by adoption of the amendment to our certificate of incorporation would have rights identical to the currently outstanding shares of common stock, and adoption of the amendment to our certificate of incorporation will not affect the rights of the holders of our currently outstanding shares of common stock.

 
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Anti-Takeover Effects of Certain Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws
 
Our certificate of incorporation and bylaws contain a number of provisions that could make our acquisition by means of a tender or exchange offer, a proxy contest or otherwise more difficult. These provisions are summarized below.
 
Removal of Directors. Our certificate of incorporation currently provides that our directors may only be removed from office by the affirmative vote of our stockholders. Our proposed amended certificate further provides that directors may be removed from office only for cause. Although our bylaws do not give the Board the power to approve or disapprove stockholder nomination for the election of directors or any other business stockholders desire to conduct at an annual or any other meeting, the bylaws may have the effect of precluding a nomination for the election of directors or precluding the conduct of business at a particular meeting if the proper procedures are not followed, or discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control, even if the conduct of that solicitation or attempt might be beneficial to our stockholders.
 
Special Meetings and Consents. Our bylaws provide that special meetings of stockholders can be called by the President, the Chairman or the Board at any time. Our proposed amended certificate further provides that stockholder action may not be taken by written consent, and may only be taken at an annual or special meeting of stockholders.
 
Undesignated Preferred Stock, The ability to authorize undesignated preferred stock makes it possible for the Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of the company.
 
Delaware Anti-Takeover Statute. We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging under certain circumstances in a business combination with an interested stockholder for a period of three years following the date such person became an interested stockholder unless, prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction, which resulted in the stockholder becoming an interested stockholder.
 
Upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned as least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (i) shares owned by the persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer.
 
On or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
 
Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates owns or, within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions the board does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over market price of the shares of common stock held by stockholders.

 
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The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
 
Effectiveness of Increase in Number of Authorized Shares
 
If the proposal is adopted by stockholders, the increase in the number of authorized shares will become effective on the filing of the amendment to the certificate of incorporation with the Secretary of State of Delaware.
 
Vote Required for Approval
 
Approval of this proposal requires the affirmative vote of a majority of our shares of common stock issued and outstanding as of the Record Date. Abstentions and “broker non-votes” will have same effect as voting against the proposal.
 
No Dissenter's Rights
 
Under Delaware law, our dissenting stockholders are not entitled to appraisal rights with respect to the amendments to our certificate of incorporation, and we will not independently provide our stockholders with any such right.
 
Recommendation of the Board  

The Board unanimously recommends that you vote “FOR” approval of the increase in number of our authorized shares.

PROPOSAL NO. 5: RATIFICATION OF OUR ABILITY TO REPRICE STOCK OPTIONS
ISSUED UNDER OUR 2007 INCENTIVE COMPENSATION PLAN
 
Our Board has approved and recommended that our stockholders ratify our ability to reprice stock options issued under our 2007 Incentive Compensation Plan (the “Plan”).

Considerations In Support of the Proposal

We issue stock options under the Plan to attract and retain the services of our management, key employees, outside directors and consultants, and to align long-term pay-for-performance incentive compensation with our stockholders' interests. However, the Board has determined that many of our directors, officers and employees have outstanding stock options with exercise prices that are significantly higher than the current market price of our common stock. As a result, these stock options have little or no current value as an incentive to retain and motivate our directors, officers and employees.

As a result, our compensation committee and the Board have determined that it would be in the best interests of our company and our stockholders to conduct an option repricing under which the Board or our compensation committee would have the discretion to reprice (i.e.  lower the exercise price) stock options currently held by, or that may be issued in the future to, our existing directors, officers and employees. The Board believes that the proposed option repricing would create better incentives for our directors, officers and employees to remain with us and contribute to our business and financial objectives. Our failure to reprice eligible stock options for our active directors, officers and employees, may force us to consider cash alternatives to provide a market-competitive total compensation package necessary to attract, retain and motivate the individual talent critical to our future success. These cash replacement alternatives may then reduce the cash available for investment in innovation and technology.

 
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Our stockholders approved the Plan on September 21, 2007. The Plan expressly permits us to waive any conditions or rights under or amend, alter, reprice, suspend, discontinue or terminate any award theretofore granted under the Plan and any award agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected participant, we may not take any action that may materially and adversely affect the rights of such participant under such award. Therefore, we are not required to submit to a vote of our stockholders this proposal to ratify our ability to reprice stock options issued or to be issued under the Plan. However, the Board has determined that it would be prudent and a good corporate governance practice to submit this Proposal No. 5 for ratification by our stockholders. Provided that this Proposal No. 5 is approved by stockholders, the Board or the compensation committee will continue to have sole discretion as to which currently outstanding stock options to reprice. Options selected for repricing will have then-current exercise price replaced with a new exercise price equal to the closing price of our common stock on the date of the repricing. All other terms of the repriced stock options will remain unchanged.
 
If a majority of votes cast on this matter are not cast in favor of this Proposal No. 5, the Board and the compensation committee will reconsider repricing stock options issued under our 2007 Incentive Compensation Plan; however, even if our stockholders vote on an advisory basis against this Proposal No. 5, the Board or the compensation committee may, in its discretion, nevertheless determine that repricing stock options issued under our 2007 Incentive Compensation Plan is in the best interests of our company and our stockholders.
 
Other Considerations

In making its recommendation with respect to this Proposal No. 5, the Board considered that some stockholder advocacy groups have been critical of stock option repricing in that directors, officers and employees, who may be at least partially responsible for a decrease in the market price of a company's stock, may be deemed to have been rewarded by the repricing of their options. In addition, the Board considered that the incentive aspect of stock options may be lessened if employees come to expect a repricing of their stock options whenever there is a material decrease in the market price of the stock underlying the options.

Accounting Consequences

We have adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised), or FAS 123(R), Share-Based Payment. According to FAS 123(R), “a modification of the terms or conditions of an equity award shall be treated as an exchange of the original award for a new award.” As such, any repriced stock options, new options, pursuant to the stockholders approval of this Proposal No. 5, will be treated as an exchange of the new options for the original options, eligible options, incurring additional compensation cost for any incremental value. We will recognize the incremental compensation cost of the stock options granted in the option exchange in addition to the remaining unrecognized expense of the eligible options, if any, that is required to be recognized under FAS 123(R). The incremental compensation cost will be measured as the excess, if any, of the fair value of each new option granted to employees in exchange for the surrendered eligible options, measured as of the date the new options are granted, over the fair value of the eligible options surrendered in exchange for the new options, measured immediately prior to the cancellation. The sum of the remaining unrecognized expense for the eligible options and the incremental compensation cost of the new options will be recognized ratably over the vesting period of the new options. As would be the case with eligible options, in the event that any of the new options are forfeited prior to their vesting due to termination of service, the compensation cost for the forfeited new options will not be recognized.

Summary of 2007 Incentive Compensation Plan

As of December 31, 2008, there were 3,900,000 shares of our common stock authorized for issuance upon the exercise of options granted or to be granted under the Plan, of which options to purchase 977,500 shares of our common stock have already been granted.
 
The purpose of the Plan is to attract and retain the services of management, key employees, outside directors and consultants, and to align long-term pay-for-performance incentive compensation with our stockholders’ interests. An equity compensation plan aligns employees’ interests with those of its stockholders, because an increase in stock price after the date of award results in increased value, thus rewarding employees for improved stock price performance. Stock option grants under the Plan may be intended to qualify as incentive stock options under Section 422 of the Code, may be non-qualified stock options governed by Section 83 of the Code, restricted stock units, or other forms of equity compensation. Subject to earlier termination by our Board, the Plan will remain in effect until all awards have been satisfied or terminated under the terms of the Plan.
 
We believe that a broad-based incentive compensation plan is a valuable employee incentive and retention tool that benefits all of our stockholders, and that the Plan is necessary in order to provide appropriate incentives for achievement of our company’s performance objectives and to continue to attract and retain the most qualified employees, directors and consultants in light of our ongoing growth and expansion. Without sufficient equity incentives available for grant, we may be forced to consider cash replacement alternatives to provide a market-competitive total compensation package necessary to attract, retain and motivate the employee talent important to the future success of the company. These cash replacement alternatives would then reduce the cash available for operations.

 
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While we believe that employee equity ownership is a significant contributing factor in achieving superior corporate performance, we recognize that increasing the number of available shares under our option plans may lead to an increase in our stock overhang and potential dilution. We believe that our Plan will be integral to our ability to achieve superior performance by attracting, retaining and motivating the employee talent important to attaining long-term improved company performance and stockholder returns.
 
Overview
 
The terms of the Plan provide for grants of stock options, stock appreciation rights, restricted stock, deferred stock, bonus stock, dividend equivalents, other stock-related awards and performance awards that may be settled in cash, stock or other property.
 
Shares Available for Awards
 
The total number of shares of our common stock that may be subject to awards under the Plan after the date hereof is equal to 2,922,500 shares, plus the number of shares with respect to which awards previously granted under the Plan terminate without being exercised, and the number of shares that are surrendered in payment of any awards or any tax withholding requirements. Awards that are granted to replace awards assumed pursuant to the acquisition of a business are not subject to this limit.
 
Limitations on Awards
 
No more than 2,000,000 shares of stock may be granted to an individual during any fiscal year under the Plan. The maximum amount that may be earned by any one participant for any fiscal year is $10,000,000 and the maximum amount that may be earned by any one participant for a performance period is $10,000,000.
 
Eligibility
 
Our employees, officers, directors and consultants are eligible for awards under the Plan. However, incentive stock options may be granted only to our employees.
 
Plan Administrator
 
Our Board administers the Plan, and has delegated authority to make grants under the Plan to our compensation committee, whose members are “non-employee directors” as defined by Rule 16b-3 of the Exchange Act, “outside directors” for purposes of Section 162(m) of the Code, and “independent” as defined by the rules and regulations promulgated by AMEX and SEC. The Board and our compensation committee, referred to collectively as the administrator, determine the type, number, terms and conditions of awards granted under the Plan.
 
Stock Options and Stock Appreciation Rights
 
The administrator may grant stock options, both incentive stock options, or ISOs, and non-qualified stock options, or NS0s. In addition, the administrator may grant stock appreciation rights, or SARs, which entitle the participant to receive the appreciation in our common stock between the grant date and the exercise date. These may include “limited” SARs exercisable for a period of time after a change in control or other event. The exercise price per share and the grant price are determined by the administrator, but must not be less than the fair market value of a share of our common stock on the grant date. The terms and conditions of options and SARs generally are fixed by the administrator, except that no stock option or SAR may have a term exceeding ten years. Stock options may be exercised by payment of the exercise price in cash, shares that have been held for at least six months, outstanding awards or other property having a fair market value equal to the exercise price.

 
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Restricted and Deferred Stock
 
The administrator may grant restricted stock, which is a grant of shares of our common stock that may not be sold or disposed of, and may be forfeited if the recipient’s service ends before the restricted period. Restricted stockholders generally have all of the rights of a stockholder.
 
The administrator may grant deferred stock, which confers the right to receive shares of our common stock at the end of a specified deferral period, that may be forfeited if the recipient’s service ends before the restricted period. Prior to settlement, an award of deferred stock generally carries no rights associated with share ownership.
 
Dividend Equivalents
 
The administrator may grant dividend equivalents conferring the right to receive awards equal in value to dividends paid on a specific number of shares of our common stock. These may be granted alone or in connection with another award, subject to terms and conditions specified by the administrator.
 
Bonus Stock And Awards
 
The administrator may grant shares of our common stock free of restrictions as a bonus or in lieu of other obligations, subject to such terms as the administrator may specify.
 
Other Stock-Based Awards
 
The administrator may grant awards under the Plan that are based on or related to shares of our common stock. These might include convertible or exchangeable debt securities, rights convertible into common stock, purchase rights, payment contingent upon our performance or other factors. The administrator determines the terms and conditions of such awards.
 
Performance Awards
 
The right to exercise or receive a grant or settlement of an award may be subject to performance goals and subjective individual goals specified by the administrator. In addition, performance awards may be granted upon achievement of pre-established performance goals and subjective individual goals during a fiscal year. Performance awards to our chief executive officer and four highest compensated officers, or covered employees, should qualify as deductible performance based compensation under Section 162(m). The administrator will determine the grant amount, terms and conditions for performance awards.
 
One or more of the following business criteria will be used by our compensation committee in establishing performance goals for performance awards and annual incentive awards to covered employees: (1) total stockholder return; (2) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Russell 2000 Small Cap Index and Russell Healthcare Index; (3) net income; (4) pretax earnings; (5) pretax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special items; (6) earnings per share; (7) operating earnings; and (8) ratio of debt to stockholders’ equity.
 
After the end of each performance period, the administrator (which will be the Compensation Committee for awards intended to qualify as performance based for purposes of Section 162(m)) will determine the amount of any pools, the maximum amount of potential performance awards payable to each participant, and the amount of any other potential performance awards payable to participants in the Plan.
 
Acceleration of Vesting; Change in Control
 
The administrator may accelerate vesting or other restrictions of any award in the event we undergo a change in control as defined in the Plan. In addition, performance goals relating to any performance-based award may be deemed met upon a change in control. Stock options and limited stock appreciation rights may be cashed out based on a defined “change in control price.”

 
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In the event of a “corporate transaction” (as defined in the Plan), the acquiror may assume or substitute for each outstanding stock option.
 
Amendment and Termination
 
Our Board may amend, alter, reprice options, suspend, discontinue or terminate the Plan or the administrator’s authority to grant awards without further stockholder approval, except stockholder approval must be obtained for any amendment or alteration required by law, regulation or applicable exchange rules. Unless earlier terminated by our Board, the Plan will terminate ten years after its adoption, or when no shares of our common stock remain available for issuance under the Plan and we have no further rights or obligations with respect to outstanding awards under the Plan. Amendments to any award that have a material adverse effect on a participant require their consent.
 
Federal Income Tax Consequences
 
The information set forth above is a summary only and does not purport to be complete. In addition, the information is based upon current Federal income tax rules and therefore is subject to change when those rules change. Moreover, because the tax consequences to any recipient may depend on his or her particular situation, each recipient should consult their tax adviser as to the Federal, state, local and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award. The Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
 
Non Qualified Stock Options
 
Generally, there is no taxation upon the grant of a nonqualified stock option. On exercise, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionee is our employee or an employee of an affiliate, that income will be subject to withholding tax. The optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and his capital gain holding period for those shares will begin on that date.
 
Subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionee.
 
Incentive Stock Options
 
The Plan provides for the grant of options that qualify as incentive stock options, or ISOs, as defined in Section 422 of the Code. An optionee generally is not subject to ordinary income tax upon the grant or exercise of an ISO. If the optionee holds a share received on exercise of an ISO for a required holding period of at least two years from the date the option was granted and at least one year from the date the option was exercised, the difference between the amount realized on disposition and the holder’s tax basis will be long-term capital gain.
 
If an optionee disposes of a share acquired on exercise of an ISO before the end of the required holding period, the optionee generally will recognize ordinary income equal to the excess of the fair market value of the share on the date the ISO was exercised over the exercise price. If the sales proceeds are less than the fair market value, the amount of ordinary income recognized will not exceed the gain realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share, the excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

 
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For purposes of the alternative minimum tax, or AMT, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price generally will be an adjustment included in the optionee’s AMT income. If there is a disqualifying disposition of the share in the year in which the option is exercised, there will be no adjustment for AMT purposes with respect to that share. If there is a disqualifying disposition in a later year, no income is included in the optionee’s AMT income for that year. The tax basis of a share acquired on exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for AMT purposes.
 
We are not allowed an income tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired on exercise of an ISO after the required. holding period. If there is a disqualifying disposition of a share, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, provided that amount constitutes an ordinary and necessary business expense for us and is reasonable in amount, and either the employee includes that amount in income or we timely satisfy our reporting requirements.
 
Stock Awards
 
Generally, the recipient of a stock award will recognize ordinary compensation income at the time the stock is received, equal to the excess of the fair market value over any amount paid for the stock. If the stock is not vested when received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess of the fair market value of the stock over any amount paid for the stock. A recipient may file an election with the Internal Revenue Service within 30 days of receipt of the stock, to recognize ordinary compensation income as of the date the recipient receives the award, equal to the excess of the fair market value over any amount paid for the stock.
 
The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired as stock awards will be the amount paid for the shares plus any ordinary income recognized when the stock is received or becomes vested.
 
Subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.
 
Stock Appreciation Rights
 
The administrator may grant stock appreciation rights, or SARs, separate or stand-alone of any other awards, or in tandem with options.
 
With respect to stand-alone SARs, if the recipient receives the appreciation inherent in the SARs in cash, it will be taxable as ordinary compensation income when received. If the recipient receives the appreciation in shares of stock, the recipient will recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day it is received over any amounts paid for the stock.
 
With respect to tandem stock appreciation rights, if the recipient elects to surrender the underlying option in exchange for cash or shares of stock equal to the appreciation inherent in the underlying option, the tax consequences to the recipient will be the same as discussed above. If the recipient elects to exercise the underlying option, the holder will be taxed at the time of exercise as if he or she had exercised a nonqualified stock option.
 
Subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of our tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the SAR.
 
Dividend Equivalents
 
Generally, the recipient of a dividend equivalent award will recognize ordinary compensation income equal to the fair market value of the award when it is received. Subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of our tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinal), income realized by the recipient of the dividend equivalent.

 
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Section 162 Limitations
 
Section 162(m) denies a deduction to any publicly held corporation for compensation paid to our chief executive officer and four highest compensated officers, to the extent that compensation exceeds $1 million. It is possible that compensation attributable to stock awards, when combined with all other types of compensation received by a covered employee may cause this limitation to be exceeded in any particular year.
 
Certain kinds of compensation, including qualified performance based compensation, are disregarded for purposes of the Section 162(m) deduction limitation. Compensation attributable to some stock awards will qualify as performance-based compensation if granted by a committee of the board of directors comprised solely of “outside directors” only upon the achievement of an objective performance goal established in writing by the committee while the outcome is substantially uncertain, and the material terms of the plan under which the award is granted is approved by stockholders.
 
A stock option or stock appreciation right may be considered performance based compensation if the plan contains a per-employee limitation on the number of shares for which stock options and stock appreciation rights may be granted during a specified period, the material terms of the plan are approved by the stockholders, and the exercise price of the option or right is no less than the fair market value of the stock on the date of grant.

The full text of the amended Plan that is the subject of this Proposal No. 5 is set forth in Appendix F attached to this proxy statement.
 
There were 977,500 stock options outstanding under the Plan as of December 31, 2008, which were all held by our current directors, officers and employees and would be eligible for options repricing.
 
Stock Options Eligible for Repricing

If stockholders approve this Proposal No. 5 to ratify our ability to reprice stock options issued under the Plan, the Board has sole discretion as to which current option holders will have their options repriced and how many options will be repriced. Neither the Board nor our compensation committee has determined which currently outstanding options will be repriced under the Plan.

 
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Vote Required for Approval
 
Approval of this Proposal No. 5 requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting, at which a quorum is present.
 
Recommendation of the Board 

The Board unanimously recommends that you vote “FOR” ratification of our ability to reprice stock options issued or to be issued under our 2007 Incentive Compensation Plan.

COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

We believe our long term success is dependent on a leadership team with the integrity, skills, and dedication necessary to oversee a growing organization on a day-to-day basis. In addition, the leadership must have the vision to anticipate and respond to future market and regulatory developments. Our executive compensation program is designed to enable us to attract, motivate and retain a senior management team with the collective and individual abilities to meet these challenges. The program's primary objective is to align executives' efforts with the long term interests of stockholders by enhancing our reputation, financial success and capabilities.

General Executive Compensation Philosophy

We compensate our executives, including our named executive officers who are identified in the Summary Compensation Table, through a combination of base salary, cash bonus incentives, long-term equity incentive compensation, and related benefits. These components are designed, in aggregate, to be competitive with comparable organizations and to align the financial incentives for the executives with the short and long term interests of stockholders.

Our compensation committee receives our management’s recommendations and then discusses, reviews and considers management's recommendations with respect to the compensation of those members of senior management whose compensation the committee considers. The committee then makes its recommendation to the board which discusses and then decides raises, bonuses and options. Although their advice may be sought and they may be questioned by the committee, executive members of the Board do not participate in the committee's or the Board's discussion and vote. Prior to the committee making its recommendations, the members of the compensation committee have several discussions among themselves and meet to discuss, among other things, the performance and contributions of each of the members of senior management whose compensation they are considering as well as expectations (of the individual for the year and the future and those of our company), results, responsibilities, and desire to retain such executive. In addition, the compensation committee may have conversations with certain others before making its recommendations.

Our philosophy is to provide a compensation package that attracts, motivates and retains executive talent, and delivers rewards for superior performance as well as consequences for underperformance. Specifically, our executive compensation program is designed to:

 
·
provide a competitive total compensation package that is competitive within the medical device industry in which we compete for executive talent, and will assist in the retention of our executives and motivate them to perform at a superior level;

 
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·
link a substantial part of each of our executive's compensation to the achievement of our financial and operating objectives and to the individual's performance;

 
·
provide long-term incentive compensation that focuses our executives' efforts on building stockholder value by aligning their interests with our stockholders; and

 
·
provide incentives that promote executive retention.

Each year, our management and the Board approve financial and non-financial objectives for our company and our executive officers, which may be reflected in our executive employment agreements and incentive compensation plans. We design our incentive compensation plans to reward company-wide performance. In addition, we also consider the individual performance of each executive officer and other relevant criteria, such as the accomplishments of the management team as a whole. In designing and administering our executive compensation programs, we attempt to strike an appropriate balance among these elements.

The major compensation elements for our named executive officers are base salary, performance-based bonuses, stock options, insurance benefits and perquisites. Each of these elements is an integral part of and supports our overall compensation objectives. Base salaries (other than increases), insurance benefits and perquisites form stable parts of our executive officers' compensation packages that are not dependent on our performance during a particular year. We set these compensation elements at competitive levels so that we are able to attract, motivate and retain highly qualified executive officers. Consistent with our performance-based philosophy, we reserve the largest potential compensation awards for performance- and incentive-based programs. These programs include awards that are based on our financial performance and provide compensation in the form of both cash and equity to provide incentives that are tied to both our short-term and long-term performance. Our performance-based bonus program rewards short-term and long-term performance, while our equity awards, in the form of stock options, reward long-term performance and align the interests of management with our stockholders.

Board Determination of Compensation Awards

Our compensation committee recommends and the Board determines the compensation awards to be made to our executive officers. Our compensation committee recommends and the Board determines the total compensation levels for our executive officers by considering several factors, including each executive officer's role and responsibilities, how the executive officer is performing against those responsibilities, our performance, and the competitive market data applicable to the executive officers’ positions.

In arriving at specific levels of compensation for executive officers, the board has relied on:

 
·
the recommendations of management;
     
 
·
benchmarks provided by generally available compensation surveys; and
     
 
·
the experience of board members and their knowledge of compensation paid by comparable companies or companies of similar size or generally engaged in the healthcare services business.

We seek an appropriate relationship between executive pay and our corporate performance. Our executive officers are entitled to customary benefits generally available to all of our employees, including group medical, dental and life insurance and a 401(k) plan. We have employment agreements (which include severance arrangements) with three of our key executive officers to provide them with the employment security and severance deemed necessary to retain them.
 
Components of Executive Compensation

Base salary. Base salaries provide our executive officers with a degree of financial certainty and stability. We seek to provide base salaries sufficient to attract and retain highly qualified executives. Whenever management proposes to enter into a new employment agreement or to renew an existing employment agreement, the compensation committee reviews and recommends, and the board determines, the base salaries for such persons, including our chief executive officer and our other executive officers. Salaries are also reviewed in the case of executive promotions or other significant changes in responsibilities. In each case, the compensation committee and the Board each take into account competitive salary practices, scope of responsibilities, the results previously achieved by the executive and his or her development potential.

 
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On an individual basis, a base salary increase, where appropriate and as contemplated by the individual's employment agreement, is designed to reward performance consistent with our overall financial performance in the context of competitive practice. Performance reviews, including changes in an executive officer's scope of responsibilities, in combination with general market trends determine individual salary increases. Aside from contractually provided minimum cost of living adjustments, no formulaic base salary increases are provided to the named executive officers.

In addition to complying with the executive compensation policy and to the requirements of applicable employment agreements, compensation for each of the our executive officers for 2008 was based on the executive's performance of his or her duties and responsibilities, our performance, both financial and otherwise, and the success of the executive in managing, developing and executing our business development, sales and marketing, financing and strategic plans, as appropriate. No merit raises or bonuses were approved or recommended for our executive officers for 2008.

Bonus. Executive officers are eligible to receive cash bonuses based on the degree of our achievement of financial and other objectives and the degree of achievement by each such officer of his or her individual objectives. Within such guidelines the amount of any bonus is discretionary.

The primary purpose of our performance incentive awards is to motivate our executives to meet or exceed our company-wide short-term performance objectives. Our cash bonuses are designed to reward management-level employees for their contributions to individual and corporate objectives. Regardless of our performance, the Board retains the discretion to adjust the amount of our executives’ bonus based upon individual performance or circumstances.

At the beginning of 2008, the management and the board established performance objectives for the payment of incentive awards to each of our named executive officers and other senior management employees. Performance objectives were based on corporate objectives established as part of the annual operating plan process. Year end bonus awards were based on attainment of these performance objectives as adjusted to reflect changes in our business and industry throughout the year. Our compensation committee recommended and the Board determined that bonuses in the amounts set forth in the Summary Compensation Table above were appropriate. Each individual's bonus was determined based upon the individual's attainment of performance objectives pre-established for that participant by the Board, senior management, or the executive's supervisor. Our management and the Board established our chief executive officer's performance objectives.

In general, each participant set for himself or herself (subject to his or her supervisor's review and approval or modification) a number of objectives for 2008 and then received a performance evaluation against those objectives as a part of the year-end compensation review process. The individual objectives varied considerably in detail and subject matter depending on the executive's position. By accounting for individual performance, we were able to differentiate among executives and emphasize the link between individual performance and compensation.

Stock options. Equity participation is a key component of our executive compensation program. Under the incentive compensation plan, we are permitted to grant stock options to our officers, directors, employees and consultants. To date, stock options have been the sole means of providing equity participation to executive officers. Stock options are granted to our executive officers primarily based on the officer's actual and expected contribution to our development. Options are designed to retain our executive officers and motivate them to enhance our stockholder value by aligning their financial interests with those of the our stockholders. Stock options are intended to enable us to attract and retain key personnel and provide an effective incentive for management to create stockholder value over the long term since the option value depends on appreciation in the price of our common stock.

 
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Our employees, including our executive officers, are eligible to participate in the award of stock options under our 2007 Incentive Compensation Plan, as amended. Option grant dates for newly hired or promoted officers and other eligible employees have typically been approved on the first Board meeting date following the date of employment or in the new position. Employees who have demonstrated outstanding performance during the year may be awarded options during or following the year. Such grants provide an incentive for our executives and other employees to increase our market value, as represented by our market price, as well as serving as a method for motivating and retaining our executives.

In determining to provide long-term incentive awards in the form of stock options, the board considered cost and dilution impact, market trends relating to long-term incentive compensation and other relevant factors. The board determined that an award of stock options more closely aligns the interests of the recipient with those of our stockholders because the recipient will only realize a return on the option if our stock price increases over the term of the option.

Perquisites and Other Benefits.  We also provide other benefits to our executive officers that are not tied to any formal individual or our performance criteria and are intended to be part of a competitive overall compensation program. For 2008, these benefits included payment of term life insurance premiums and solely with respect to Mr. Gura, automobile allowance. We also offer 401(k) retirement plans and medical plans, for which our executives are generally charged the same rates as all other of our employees.

Chief Executive Officer Compensation

Our compensation committee, at least annually, reviews and recommends to the Board the compensation of Kelly McCrann, our Chairman of the Board and Chief Executive Officer, in accordance with the terms of his employment agreement, as well as any variations in his compensation the committee feels are warranted. Mr. McCrann, as a member of the Board, does not participate in and abstains from all discussions and decisions of the Board with regard to his compensation. The Board believes that in the highly competitive healthcare industry in which we operate, it is important that Mr. McCrann receive compensation consistent with compensation received by chief executive officers of competitors and companies in similar stages of development. Mr. McCrann was a Board member and did not receive a bonus in 2008. His base salary for 2008 is currently $325,000, prorated for his October 2, 2008 start date. See “Employment Agreements” for a description of the material terms and conditions of Mr. McCrann's employment agreement.

Severance and Change of Control Arrangements

We have entered into change of control employment agreements with certain of our named executive officers, as described in “Employment Agreements.” These agreements provide for severance payments to be made to our named executive officers if their employment is terminated under specified circumstances following a change of control. We also provide benefits to these executive officers upon qualifying terminations. The agreements are designed to retain our named executive officers and provide continuity of management in the event of an actual or threatened change of control and to ensure that our named executive officers’ compensation and benefits expectations would be satisfied in such event.

Internal Revenue Code Limits on Deductibility of Compensation

Section 162(m) generally disallows a Federal income tax deduction to public companies for certain compensation in excess of $1 million paid to a corporation’s chief executive officer or any of its four other most highly compensated executive officers. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Board is of the opinion that our incentive compensation plan has been structured to qualify the compensation income deemed to be received upon the exercise of stock options granted under the plans as performance-based compensation. The Board will review with appropriate experts or consultants as necessary the potential effects of Section 162(m) periodically and in the future may decide to structure additional portions of compensation programs in a manner designed to permit unlimited deductibility for federal income tax purposes.

 
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We are not currently subject to the limitations of Section 162(m) because no executive officers received cash payments during 2008 in excess of $1 million. To the extent that we may be subject to the Section 162(m) limitation in the future, the effect of this limitation on earnings may be mitigated by net operating losses, although the amount of any deduction disallowed under Section 162(m) could increase alternative minimum tax by a portion of such disallowed amount. For information relating to our net operating losses, see the consolidated financial statements included in our 2007 Annual Report on Form 10-KSB.
 
All members of our compensation committee qualify as outside directors. The Board considers the anticipated tax treatment to our company and our executive officers when reviewing executive compensation and our compensation programs. The deductibility of some types of compensation payments can depend upon the timing of an executive's vesting or exercise of previously granted rights. Interpretations of and changes in applicable tax laws and regulations, as well as other factors beyond the board's control, also can affect the deductibility of compensation.

While the tax impact of any compensation arrangement is one factor to be considered, such impact is evaluated in light of our overall compensation philosophy. The Board will consider ways to maximize the deductibility of executive compensation, while retaining the discretion it deems necessary to compensate officers in a manner commensurate with performance and the competitive environment for executive talent. From time to time, the Board may award compensation to our executive officers which is not fully deductible if it determines that such award is consistent with its philosophy and is in our and our stockholders’ best interests, or as part of initial employment offers, such as grants of nonqualified stock options.

Sections 280G and 4999 of the Code impose certain adverse tax consequences on compensation treated as excess parachute payments. An executive is treated as having received excess parachute payments for purposes of Sections 280G and 4999 if he or she receives compensatory payments or benefits that are contingent on a change in the ownership or control of a corporation, and the aggregate amount of such contingent compensatory payments and benefits equal or exceeds three times the executive's base amount. If the executive's aggregate contingent compensatory payments and benefits equal or exceed three times the executive's base amount, the portion of the payments and benefits in excess of one times the base amount are treated as excess parachute payments. Treasury Regulations define the events that constitute a change in ownership or control of a corporation for purposes of Sections 280G and 4999 and the executives subject to Sections 280G and 4999.

An executive's base amount generally is determined by averaging the executive's Form W-2 taxable compensation from the corporation and its subsidiaries for the five calendar years preceding the calendar year in which the change in ownership or control occurs. An executive's excess parachute payments are subject to a 20% excise tax under Section 4999, in addition to any applicable federal income and employment taxes. Also, the corporation's compensation deduction in respect of the executive's excess parachute payments is disallowed under Section 280G. If we were to be subject to a change of control, certain amounts received by our executives (for example, amounts attributable to the accelerated vesting of stock options) could be excess parachute payments under Sections 280G and 4999. We provide our chief executive officer with tax gross up payments in event of a change of control.

Section 409A of the Code imposes distribution requirements on nonqualified deferred compensation plans and arrangements. If a nonqualified deferred compensation plan or arrangement fails to comply with Section 409A of the Code, an executive participating in such plan or arrangement will be subject to adverse tax consequences (including an additional 20% income tax on amounts deferred under the plan or arrangement). Our nonqualified deferred compensation plans and arrangements for our executive officers are intended to comply with Section 409A of the Code, or to be exempt from the requirements of Section 409A of the Code.

Compensation Committee Interlocks and Insider Participation

No member of the compensation committee was at any time during the past fiscal year an officer or employee of the Company, was formerly an officer of the Company or any of our subsidiaries, or had any employment relationship with us.

 
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During the last fiscal year, none of our executive officers served as:

 
·
a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our compensation committee;

 
·
a director of another entity one of whose executive officers served on our compensation committee; or

 
·
a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of the Company.
 
COMPENSATION COMMITTEE REPORT

The following report of the compensation committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act.
 
Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis section set forth in this proxy with management and, based on such discussions, the compensation committee recommended to the Board that the Compensation Discussion and Analysis section be included herein.
 
Submitted by the compensation committee:

Dr. Hans-Dietrich Polaschegg, Chairman
Jay A. Wolf

Dated: March 9, 2009
 
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BDO Seidman has served as the independent registered public accounting firm for Operations, and as of the effective date of the Merger, BDO Seidman has served as our independent registered public accounting firm, and will continue to do so for the remainder of the 2009 fiscal year unless our audit committee deems it advisable to make a substitution. We anticipate that representatives of BDO Seidman will attend the Annual Meeting, and will be available to respond to appropriate questions.1
 
Audit Fees
 
Total fees for professional services rendered by our principal accountant for the audit and review of our financial statements included in our Form 10-Q/10-QSBs and Form 10-K/10-KSBs, and services provided in connection with our other SEC filings for the years ended December 31, 2007 and 2008 were $_______ and $_______, respectively.

Audit Related Fees
 
Audit-related fees are for accounting technical consultations and totaled $0 in 2008 and $24,000 in 2007.
 
Tax Fees
 
We paid no fees for professional services with respect to tax compliance, tax advice, or tax planning to our auditor in 2007 or 2008, however, we paid $59,501 for tax related services to a third party firm.


1 Is this correct, will BDO attend the annual meeting?

 
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All Other Fees
 
Our principal accountant did not bill us any other fees during 2007 or 2008.
 
Audit committee’s pre-approval policies and procedures
 
Our audit committee has responsibility for the approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by BDO Seidman, LLP are pre-approved by our audit committee before the engagement of the auditors for such services. Our pre-approval policy expressly provides for the annual pre-approval of all audits, audit-related and all non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, such annual pre-approval to be performed by our audit committee.
 
2007 ANNUAL REPORT ON FORM 10-KSB

We will mail with this proxy statement a copy of our annual report on Form 10-KSB for the fiscal year ended December 31, 2007 to each stockholder of record as of March 4, 2009. If a stockholder requires an additional copy of our annual report, we will provide one, without charge, on the written request of any such stockholder addressed to us at 12121 Wilshire Blvd., Suite 350, Los Angeles, California 90025, Attn: Investor Relations.
 
AUDIT COMMITTEE REPORT 
 
The following report of the audit committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act  or the Exchange Act.
 
Our audit committee has the sole authority to select, evaluate and, if appropriate, replace our independent registered public accounting firm, and to pre-approve all auditing and permitted non-auditing services performed by them for the Company including their fees and other terms. BDO Seidman, LLP was engaged as the independent registered public accounting firm for the Company in October 2007. Our audit committee currently consists of Messrs. Wolf and Cummins. The Board has determined that the members of our audit committee are financially literate and independent within the requirements of AMEX, the SEC and our audit committee charter.
 
Our management, not our audit committee, is responsible for the preparation, presentation, accuracy and integrity of our financial statements, establishing, maintaining and evaluating the effectiveness of internal controls and disclosure controls and procedures, and evaluating any change in internal control over our financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. Our independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements and expressing an opinion as to their conformity with U.S. Generally Accepted Accounting Principles. The audit committee's responsibility is to oversee these processes. Members of the audit committee rely on the information provided to them and on the representations made by our management and our independent registered public accounting firm.
 
In fulfilling its responsibilities, our audit committee met with our management and BDO Seidman, including sessions at which our management was not present, and reviewed and discussed the unaudited financial statements contained in our quarterly reports on Form 10-Q for each of the quarters ended in 2008, and the audited financial statements contained in our 2007 Annual Report on Form 10-KSB, prior to their filing with the SEC. Our audit committee discussed with BDO Seidman the matters required to be discussed by Statement on Auditing Standards No. 61, Communications with Audit Committees, as currently in effect, including the independent registered public accounting firm's overall evaluations of the quality, not just the acceptability, of our accounting principles, the critical accounting policies and practices used in the preparation of the financial statements, the reasonableness of significant judgments, and such other matters as are required to be discussed with the committee under generally accepted auditing standards. Our audit committee also received the written disclosures and the letter from BDO Seidman required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the audit committee concerning independence and reviewed with BDO Seidman its independence.
 
 
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Based on the review and discussions with our management and our independent accountants, and subject to the limitations on its role and responsibilities described above and in the audit committee charter, the audit committee recommended to the Board that our audited financial statements be included in our Annual Report on Form 10-KSB for the year ended December 31, 2007, previously filed with the SEC.

Submitted by the audit committee:

 Jay A. Wolf, Chairman
Marc G. Cummins

Dated: March 9, 2009

OTHER BUSINESS
 
We know of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will vote proxies as in their discretion they may deem appropriate, unless they are directed by a proxy to do otherwise.
 
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
 
Stockholders interested in presenting a proposal for consideration at our next annual meeting of stockholders may do so by following the procedures prescribed in Rule 14a-8 under the Exchange Act. To be eligible for inclusion in our proxy statement and form of proxy relating to the annual meeting, stockholder proposals must be received in writing by our corporate Secretary, Xcorporeal, Inc., 12121 Wilshire Blvd., Suite 350, Los Angeles, California 90025, no later than November 8, 2009 (120 days preceding the one year anniversary of the Mailing Date).
 
If the date of next year’s annual meeting is changed by more than 30 days, then any proposal must be received not later than ten days after the new date is disclosed in order to be included in our proxy materials.
 
In order for a stockholder proposal not intended to be subject to Rule 14a-8 (and thus not subject to inclusion in our proxy statement) to be considered “timely” within the meaning of Rule 14a-4 under the Securities Exchange Act of 1934, as amended, notice of any such stockholder proposals must be given to us in writing not less than 45 days preceding the one year anniversary of the Mailing Date, which is set forth on page 1 of this proxy statement (or within a reasonable time prior to the date on which we mail our proxy materials for the Annual Meeting if the date of that meeting is changed more than 30 days from the prior year).
 
A stockholder’s notice to us must set forth for each matter proposed to be brought before the annual meeting (a) a brief description of the matter the stockholder proposes to bring before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and recent address of the stockholder proposing such business, (c) the class and number of shares of our stock which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business.
 
If a stockholder proposal is received after January 25, 2010, we may vote in our discretion as to the proposal all of the shares for which we have received proxies for the annual meeting.
 
     
   
Kelly McCrann
   
Chairman of the Board and Chief Executive Officer
     
Los Angeles, California
   
March 9, 2009
   

 
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Appendix A
 
AMENDED AND RESTATED
 
CERTIFICATE OF INCORPORATION
OF
XCORPOREAL, INC.
 
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify in accordance with §245 of the General Corporation Law of Delaware:

That the original name of the corporation was Apollo Resources, Inc. and the original Certificate of Incorporation was filed August 29, 1988;

that at a meeting of the board of directors of Xcorporeal, Inc., resolutions were duly adopted setting forth an Amended and Restated Certificate of Incorporation of the corporation, declaring said Amended and Restated Certificate of Incorporation to be advisable; and

that a majority of the outstanding shares of Xcorporeal, Inc. duly adopted resolutions setting forth an Amended and Restated Certificate of Incorporation of the corporation, declaring said Amended and Restated Certificate of Incorporation to be advisable.

The resolutions of the Board of Directors and the shareholders set forth the proposed Amended and Restated Certificate of Incorporation as follows:

1.  The name of the corporation is Xcorporeal, Inc. (the “Corporation”).

2.  The address of the Corporation’s registered office in the State of Delaware is 615 South DuPont Highway, Dover, Delaware 19901, County of Kent. The name of its registered agent at such address is National Corporate Research, Ltd.
 
3.  The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (“DGCL”).
 
4.  Capital Stock.

(a)  Authorized Capital Stock. The total number of shares of capital stock that the Corporation is authorized to issue is Two Hundred Million (200,000,000) shares, consisting of One Hundred and Ninety Million (190,000,000) shares of common stock, par value $0.0001 per share (“Common Stock”), and Ten Million (10,000,000) shares of preferred stock, par value of $0.0001 per share (“preferred stock”).

(b)  Preferred Stock. The Board of Directors of the Corporation is hereby expressly authorized, by resolution or resolutions thereof, to provide out of the unissued shares of preferred stock for one or more series of preferred stock, and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the powers (including voting powers), if any, of the shares of such series and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions of the shares of such series. The designations, powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, if any, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series of preferred stock at any time outstanding. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

 

 

(c)  Common Stock.

(i)  Voting Rights. Except as otherwise required by law, or as otherwise fixed by resolution or resolutions of the Board of Directors with respect to one or more series of preferred stock, the entire voting power and all voting rights shall be vested exclusively in the Common Stock, and each stockholder of the Corporation who at the time possesses voting power for any purpose shall be entitled to one vote for each share of such stock standing in his or her name on the books of the Corporation.

(ii) Action by Written Consent. Any election of directors or other action by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders and may not be effected by written consent without a meeting.

(iii)  Dividends. Subject to the rights, preferences, privileges, restrictions and other matters pertaining to the preferred stock that may, at that time be outstanding, the holders of the Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefore, such dividends as may be declared from time to time by the Board of Directors.

(iv)  Liquidation; Dissolution. In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation available for distribution after payments to creditors and to the holders of any preferred stock of the Corporation that may at the time be outstanding, in proportion to the number of shares held by them, respectively, without regard to class.

5.  Board of Directors.

(a)  Management. The management of the business and the conduct of the affairs of the Corporation shall be vested in the Board of Directors. The number of directors that shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by the Board of Directors.
 
(b) Classified Board. Except to the extent otherwise provided in any certificate of designations filed under Section 151(g) of the Delaware General Corporation Law (or its successor statute as in effect from time to time), the Board of Directors shall be and is divided into three classes, Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as reasonably possible. Each director shall serve for a term ending on the third annual meeting following the annual meeting at which such director was elected, provided, however, that the directors first elected to Class I shall serve for a term ending on the annual meeting date next following the end of calendar year 2008, the directors first elected to Class II shall serve for a term ending on the second annual meeting date next following the end of calendar year 2008, and the directors first elected to Class III shall serve for a term ending on the third annual meeting date next following the end of calendar year 2008. The foregoing notwithstanding, each director shall serve until his successor shall have been duly elected and qualified unless he shall resign, become disqualified or shall otherwise be removed.
 
At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class of the directors they succeed unless, by reason of any intervening changes in the authorized number of directors, the designated board shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. If a director dies, resigns or is removed, the director chosen to fill the vacant directorship shall be of the same class as the director he or she succeeds, unless, by reason of any previous changes in the authorized number of directors, the Board shall designate such vacant directorship as a directorship of another class in order more nearly to achieve equality in the number of directors among the classes.
 
Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as reasonably possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term or his prior death, resignation or removal. If any newly created directorship may, consistently with the rule that the three classes shall be as nearly equal in number of directors as reasonably possible, be allocated to one of two or more classes, the Board shall allocate it to that of the available classes whose term of office is due to expire at the earliest date following such allocation.

 

 

Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may, unless the Board of Directors determines otherwise, only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; provided, however, that if the holders of any class or classes of stock or series thereof are entitled to elect one or more directors, vacancies and newly created directorships of such class or classes or series may only be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

(c)  Term of Office. A director shall hold office until his or her successor shall be elected and qualified or until such director’s earlier death, resignation, retirement or removal from office.

(d)  Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board, may be removed from office at any time only for cause, and only by the affirmative vote of the holders of a majority of shares of Common Stock then outstanding.
 
(e) Vacancies. Subject to any limitation imposed by law or any rights of holders of preferred stock, any vacancies (including newly created directorships) shall be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Directors appointed to fill vacancies created by the resignation or termination of a director will serve the remainder of the term of the resigning or terminated director.
  
(f)  No Written Ballot. Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

(g)  Amendment of Bylaws. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, amend and repeal the bylaws of the Corporation, subject to the power of the stockholders of the Corporation to alter, amend or repeal any bylaw whether adopted by them or otherwise, in accordance with the bylaws.

6.  Special Meetings of Stockholders. Except as otherwise required by law and subject to the rights, if any, of the holders of any series of preferred stock, special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time only by the Chairman of the Board of Directors, the Chief Executive Officer, the President or the Secretary of the Corporation, in each case pursuant to a resolution of the Board of Directors, and special meetings of stockholders of the Corporation may not be called by any other person or persons.

7.  Amendment of Certificate of Incorporation. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

8.  Indemnification; Limitation of Liability. Except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director. No amendment to or repeal of this Section 8 of the relevant provisions of the DGCL shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

The foregoing Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of Xcorporeal, Inc. in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

 

The stockholders of Xcorporeal, Inc. approved the Amended and Restated Certificate of Incorporation of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
  
IN WITNESS WHEREOF, Xcorporeal, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer this ___ day of ____________, 2009.

 
XCORPOREAL, INC.,
a Delaware corporation
     
 
By:  
/s/  
 
Kelly McCrann
Chief Executive Officer
 
 

 

Appendix B
 
LICENSE AGREEMENT 

This License Agreement (“Agreement”) is entered into as of September 1, 2006, by and between National Quality Care, Inc., a Delaware corporation (“ Licensor ”), and Xcorporeal, Inc. (“ Licensee ”) (each, a “ Party ;” collectively, the “ Parties ”). The Parties hereby agree as follows:

1. Defined Terms. 
 
For purposes of this Agreement, the following definitions will apply:
 
Affiliate” means, when applied to a Party, any entity that is controlled by, controls, or is under common control with, such Party.
 
Confidential Information” means and includes any non-public information relating to or concerning a Party hereto (the “ Disclosing Party ”), or any of its Affiliates, that is provided or made available to the other Party (the “ Receiving Party ”), either before or after the Effective Date of this Agreement, directly or indirectly, in any form whatsoever, including in writing, orally, and in electronic or other machine readable form, including, but not be limited to, designs, know-how, inventions, technical data, ideas, uses, processes, methods, formulae, research and development records and materials, work in process, scientific, engineering and/or manufacturing records or materials, marketing plans, business plans, financial or personnel records or materials, present or future products, sales, suppliers, customers, employees, investors or business, information about this Agreement, and any other non-public business records and information, the use or disclosure of which might reasonably be construed to be contrary to the interests of the Disclosing Party or any of its Affiliates, including non-public information of third parties that is possessed by the Disclosing Party is subject to confidentiality obligations and that the Disclosing Party is lawfully allowed to disclose to the Receiving Party.

Derivative Works” means (a) for Licensor material subject to copyright or mask work right protection, any work that as a whole represents an original work of authorship, and is based upon one or more pre-existing works, such as a revision, modification, translation, abridgment, condensation, expansion, collection, compilation or any other form in which such pre-existing works may be recast, transformed or adapted; (b) for Licensor patentable materials, any adaptation, subset, addition, improvement or combination of such materials; (c) for Licensor material subject to trade secret protection, any new material, information or data relating to and derived from such material, including new material that may be protectable by copyright, patent or other proprietary rights; and (d) with respect to each of the above, any material the preparation, use and/or distribution of which, in the absence of this Agreement or other authorization from Licensor, would constitute infringement or misappropriation under applicable law.

Gross Sales” means the total amount actually received by Licensee as revenue from the exploitation of the Technology (as defined below) by Licensee, its Affiliates and sub licensees, collectively, less separately stated freight payable to third parties, commercially reasonable special packaging, and duties, sales, use, excise, value added and other taxes, discounts, returns, and allowances.

 
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Intellectual Property Rights” means all of the following worldwide legal rights owned, held or controlled by Licensor: (a) patents, patent applications, and patent rights; (b) trademarks, trademark registrations and applications thereof, trade names, rights in trade dress and packaging; (c) rights associated with works of authorship (including audiovisual works), including copyrights, copyright applications, and copyright registrations; (d) rights relating to the protection of trade secrets, confidential information, technical information, know-how, ideas, concepts, processes, procedures, techniques, discoveries, and inventions; (e) Moral Rights (as defined below); (f) design rights; (g) rights in name, likeness and other rights of commercial publicity; (h) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property; and (i) divisions, continuations, renewals, reissues, and extensions of the foregoing (as applicable) now existing or hereafter filed, issued, or acquired.

Know-How” means all (i) information and data possessed by Licensor, exclusive of any of the independent claims contained in the Licensor Patents (but including all other information and data contained in, or related to, any patent application filed by or on behalf of Licensor), relating to the exploitation and/or use of the Licensed Products (as defined below), including without limitation: (a) sources of materials; (b) methods, processes and procedures (and related test results and design data) for the extraction, isolation, creation, purification, and/or chemical modification of materials used in the production of the Licensed Products; (c) methods, processes and procedures used in the design, development, creation, modification, manufacture, production, processing, storage, packaging, testing and/or evaluation of the Licensed Products, including without limitation all biological and toxicological tests (and results thereof) together with all correspondence, notes, memoranda, and other information and/or data provided to, or received from, all health regulatory authorities; and (ii) trade secrets, data, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, program proposals, presentations, inventions and ideas, past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, market studies, business plans, computer software and programs, systems, structures and architectures (and related processes, formulae, composition, improvements, devices, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is not generally known to the public or that constitutes a trade secret under any applicable trade secret law.

Licensed Products” means all products based on or derived from the Technology (as defined below), and any products sold in connection with the use of such products, including, but not limited to the Wearable Kidney and all related devices, whether now-existing or hereafter developed, that where sold, would infringe or misappropriate one or more of Licensor’s Intellectual Property Rights or Know-How, including, without limitation, the Licensor Patents or Licensor Patent Applications.

 
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Licensor Patents” means the patents (and all re-issues and extensions) listed on the Schedule attached hereto and the patents, when issued, based upon the Licensor Patent Applications and in all divisions, continuations and continuations in part relating thereto.

Licensor Patent Applications” means the patent applications listed on the Schedule attached hereto and any substitutions and continuations together with any patent applications based on, or related to, the Technology that may be filed by Licensor from the date hereof.

Moral Rights” means any rights of paternity or integrity, any right to claim authorship, to object to or prevent any distortion, mutilation or modification of, or other derogatory action in relation to the subject work, whether or not such would be prejudicial to the author’s honor or reputation, to withdraw from circulation or control the publication or distribution of the subject work, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a “moral right.”

Net Sales” means Gross Sales less the following: (a) all direct costs and expenses of Licensee attributable to the research, development, production, marketing, sale and exploitation of the Licensed Products, including, without limitation, costs of materials and direct labor costs; and (b) all indirect costs of Licensee properly allocated under generally accepted accounting principles to the research, development, production, marketing, sale and/or exploitation of the Licensed Products, including, without limitation, overhead and selling, general and administrative expenses.

Technology” means and includes all existing and hereafter developed Intellectual Property, Know-How, Licensor Patents, Licensor Patent Applications, Derivative Works, and any other technology invented, improved or developed by Licensor, or as to which Licensor owns or holds any rights, arising out of or relating to the research, development, design, manufacture or use of: (a) any medical device, treatment or method as of the date of this Agreement, (b) any portable or continuous dialysis methods or devices, specifically including any wearable artificial kidney, or Wearable Kidney, and related devices, (c) any device, methods or treatments for congestive heart failure, and (d) any artificial heart or coronary device.

Territory” means anywhere in the universe.

2. Grant Of Exclusive License. Subject to Licensee’s continuing full compliance and complete and timely performance of all of the material obligations, terms and conditions imposed on it by this Agreement, Licensor hereby grants to Licensee, with right to grant sublicenses, the sole and exclusive license, during the Term and throughout the Territory, to use, improve, expand and otherwise exploit the Technology, to make (and have made), use, and sell the Licensed Products, and otherwise to practice the inventions and the art that is embodied or described in the Licensor Patents, the Licensor Patent Applications, and any improvements thereto made in whole or in part by Licensor (whether or not patented) in connection with the Technology (the “ License ”), provided, however , that the terms of any sublicense shall expressly conform and be made subject to the terms and conditions of this Agreement.

 
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3. License Fees, Reports And Records. 

     A. License Fees.
 
          (1) During the Term of this Agreement, Licensee shall pay to Licensor a license fee of seven percent (7.0 %) of Net Sales (the “ Royalty ”);  provided, however , that Licensee shall pay to Licensor a minimum aggregate annual Royalty of two hundred fifty thousand dollars ($250,000.00) (the “ Minimum Royalty ”). Within ninety (90) days of each anniversary of the date of this Agreement, Licensee shall pay Licensor the remaining difference, if any, between the Minimum Royalty and the aggregate of all Royalty payments for the preceding year. All payments due hereunder will be paid by wire transfer or check payable in United States currency. Whenever conversion of payments from any foreign currency is required, such conversion will be made at the rate of exchange reported in The Wall Street Journal on the last business day of the applicable reporting period. Unless earlier terminated as provided hereinafter, the obligation of Licensee to pay Royalties to Licensor shall expire upon the date that none of the Licensed Products infringe any of the Licensor Patents.
 
     (2) Notwithstanding the foregoing Section 3(A)(1), in the event that the Merger Agreement of even date herewith among the Parties and NQCI Acquisition Corporation, a Delaware corporation (the “ Merger Agreement ”) is terminated pursuant to Section 6(A) thereof, the Royalty pursuant to this Agreement will thereafter be as follows:
 
     (a) If notice of termination is given pursuant to Section 6(A)(3), six and one-half percent (6.5%) of Gross Sales;
 
     (b) If notice of termination is given pursuant to Section 6(A)(1), (5) or (6), seven and one-half percent (7.5%) of Gross Sales; and
 
     (c) If notice of termination is given pursuant to Section 6(A)(2) or (4), eight and one-half percent (8.5%) of Gross Sales;
 
provided, however, that if it is later determined by an arbitrator or court of competent jurisdiction that a notice of termination was improper, or that the Merger Agreement was terminated on a different basis or pursuant to a different provision, the Royalty rate will be retroactively adjusted to the correct rate pursuant to one of the foregoing subsections, and any difference between the Royalty paid and the Royalty rate determined to be correct will be paid by the appropriate Party to the other within ninety (90) days of any such final determination.
 
     B. Reports. Within thirty (30) days following the end of each fiscal quarter, Licensee shall deliver to Licensor a report setting forth the calculation of the Royalty for the applicable fiscal period, including the number of Licensed Products sold by Licensee and all sublicensees (if any), the Gross Sales and Net Sales, as applicable, a reasonable breakdown of expenses in arriving at the foregoing, any other transactions involving Licensed Products, and the Gross Sales or Net Sales, as applicable, resulting from all such transactions during such fiscal quarter, and accompanied by payment of the Royalty due thereon.

 
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     C. Records. Licensee and its sublicensees (if any) shall maintain records of the transactions involving Licensed Products, Gross Sales, Net Sales, permitted expense deductions, and all Royalties paid thereon for a period of four (4) years following the end of the quarter following sale.
 
          (a) Audits. Licensor may appoint an independent certified public accountant, who shall have the right to examine the records required under this  Section 3.C  during normal business hours on reasonable notice. Licensee shall, as a condition to the grant of any sublicense, obtain the agreement of the sublicensee to make such records available for inspection by Licensor’ independent auditor.
 
          (b) Audit Expenses. Licensor shall initially bear all costs and expenses of any audit conducted by Licensor’s independent accountant. If there is an underpayment of Royalties in excess of five percent (5%), Licensee shall remit the amount of such underpayment to Licensor, together with a reimbursement for the reasonable costs and expenses of Licensor in connection with the audit. If there is an overpayment of Royalties in excess of five percent (5%), Licensor shall remit the amount of such overpayment to Licensee, together with reimbursement for the reasonable costs and expenses of Licensee in connection with the audit. Any disputes concerning Royalty amounts due will be resolved by expedited, final offer (baseball style) arbitration.
 
4. Term. 
 
     A. Term. This Agreement and the License granted hereby shall, subject to all terms and conditions set forth herein, remain in full force and effect for ninety-nine (99) years from the date hereof (the “ Term ”); provided, however, that the Term shall end as to each of the Licensor Patents and copyrights upon the expiration of the term thereof, and as to each other item of Intellectual Property Rights when, if and as they cease to be protectable or fall into the public domain through no fault, action or inaction on the part of either of the Parties.
 
     B. Termination. Either Party shall have the right to terminate this Agreement: (1) for uncured material breach of a material term of this Agreement by the other Party, by giving formal written notice specifying the breach, and such breach has continued without cure for a period of (a) thirty (30) days after such notice or (b) if the Party receiving such a notice (i) concludes in good faith that there the conduct alleged to be occurring is not occurring or does not constitute a material breach of this Agreement, and (ii) timely initiates an arbitration proceeding in accordance with  Section 9.H , thirty (30) days after entry of the arbitration award; or (2) in the event that the other Party files for protection under the U.S. Bankruptcy Code, or makes an assignment for the benefit of creditors. Upon termination of this Agreement pursuant to this  Section 4.B , (a) Licensee, and all sublicensees (if any), shall cease to use the Technology in any way, (b) Licensee, and all sublicensees (if any), shall return to Licensor all Licensor Confidential Information, and (c) the Parties shall remain liable for all of their respective obligations under this Agreement that accrued prior to the date of termination.

 
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5. Intellectual Property Rights. 
 
     A. Prosecution of Patent Applications. Licensor shall diligently prosecute all of the Licensor Patent Applications at its own expense including, without limitation, in those foreign countries described in the  Schedule  attached hereto. If, at any time, Licensor intends to allow any Licensor Patent Application or Licensor Patent to lapse or to become abandoned or forfeited, Licensor shall notify Licensee, in writing, of its intention at least sixty (60) days before the date upon which said patent or application is due to lapse or become abandoned or forfeited. In the event that Licensee desires itself to continue to prosecute any such Licensor Patent Application, or to take the necessary action to maintain in force any such Licensor Patents, then Licensee shall, within thirty (30) days following Licensor’s written notice of intent to abandon, give written notice to Licensor of Licensee’s intent to prosecute and/or maintain such patent rights and Licensor shall thereupon promptly assign the entire right, title and interest, legal and equitable, in and to that patent or application to Licensee. Licensee shall be under no obligation to prosecute or maintain in force any Licensor Patents, Licensor Patent Applications or other Intellectual Property Rights.
 
     B. Option to Purchase Limited Patent and Intellectual Property Rights. In the event that Licensor files a petition in Bankruptcy under the U.S. Bankruptcy Code, or has filed against it a petition of involuntary bankruptcy that is not dismissed with 60 days thereafter, Licensor will be deemed to have sold to Licensee, the day prior to the filing of said petition, the Licensor Patents and Licensor Patent Applications and all other Intellectual Property Rights pertaining to the Technology for a purchase price equal to the amount of the Royalties paid to that time and the further Royalties that would otherwise have become payable by Licensee to Licensor over the remainder of the then-current Term of this Agreement. The prospective portion of the purchase price shall be paid in the same manner and at the same time as the future Royalties would otherwise have been paid hereunder.
 
     C. Infringement.
 
          (1) If Licensor discovers that a third party is manufacturing or selling products in the Territory that infringe the Licensor Patents or any other legally enforceable Intellectual Property Rights pertaining to the Technology, it shall notify Licensee of such infringement and give such Party all appropriate information in its possession relating to the infringement. This section shall not impose any obligation on either Licensor or Licensee to maintain any ongoing investigative program to detect any third party infringement.
 
          (2) Licensee shall have the sole right and authority to take such steps as it deems reasonable and appropriate in its sole discretion to determine whether actionable infringement is occurring and, if it is, to stop the infringement in the Territory during the Term, including but not limited to filing a legal action against the alleged infringer in its own name.
 
          (3) Licensee shall have the sole right to direct and control the prosecution of such an action, including selection of counsel and deciding to settle, dismiss or continue the prosecution of the action on such terms and in the manner it deems reasonable and appropriate in its sole discretion, and shall, subject to  Section 5.C(4) , bear all costs and expenses of such action, and shall retain all damages and other remedies recovered in such action.

 
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          (4) Licensee shall have the right to offset all damages and losses awarded by any Court of competent jurisdiction relating to any infringement of the Intellectual Property Rights or the sale or use of the Licensed Products, including Licensee’s legal fees, costs and expenses, against any Royalty otherwise payable to Licensor.
 
     D. Development and Expenses.
 
          (1) Development. Licensee shall make commercially reasonable efforts to develop and commercially exploit the Technology to generate revenues during the Term.
  
          (2) Requested Expenses. Upon Licensee’s request, Licensor shall make commercially reasonable efforts to continue and advance the research and development program to prepare the Technology for commercial exploitation, and Licensee shall pay all reasonable and necessary research and development costs and expenses arising therefrom.
 
          (3) Monthly Expenses. No later than the earlier of (i) thirty (30) days after the date on which Licensee has obtained total debt or equity investment of at least three million five hundred thousand dollars ($3,500,000.00) or (ii) ninety (90) days after the date hereof, Licensee shall reimburse Licensor’s reasonable and necessary expenses incurred in the ordinary course of business consistent with past practices (“ Licensor Expenses ”), during the period from the date hereof to the Closing (as defined therein) or termination of the Merger Agreement. All such Licensor Expenses shall: (a) be only for the specific persons, services and expenses listed in reasonable detail on the Budget contained in the Company Disclosure Schedule to the Merger Agreement, (b) be payable hereunder only to the extent not paid pursuant to the Merger Agreement, (c) be mutually agreed upon in advance of being reimbursed with regard to all Professional Fees set forth in the Budget, and (d) include, but not be limited to, expenses already paid or accrued relating to human clinical trials carried out or to be carried out on behalf of Licensor in Italy and the United Kingdom as set forth in the Budget.
 
6. Confidentiality.
 
     A. Each Party agrees that during the performance of this Agreement, it may disclose to the other Confidential Information of such Disclosing Party. Each Receiving Party shall not, at any time or in any manner, disclose, copy, modify, distribute or otherwise transfer the Disclosing Party’s Confidential Information, or any part thereof, to any other person, except as permitted by this Agreement.
 
     B. A Receiving Party may disclose Confidential Information (1) to professional advisors of the Receiving Party in accordance with customary business practices in connection with the Agreement, and (2) to the Disclosing Party’s employees who have a specific need to know in order to perform that Party’s obligations hereunder, provided, however , that all such permitted disclosures shall be required to maintain the confidentiality of the Confidential Information in accordance with this Agreement, and each Receiving Party shall be responsible for all of its employees’ actions. Each Party shall use the other Party’s Confidential Information only to properly fulfill its obligations hereunder, and not for any other purpose. Upon request of a Party, and in any event promptly following termination of this Agreement under  Section 4.C  above, each Receiving Party shall immediately return the originals and all copies of any Confidential Information to the Disclosing Party.

 
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     C. The obligations and restrictions set forth in this Section 6 shall not apply to any Confidential Information that falls within any of the following exceptions:
 
          (1) is or becomes part of the public domain without breach of this Agreement by a Receiving Party;
 
          (2) is lawfully in the possession of a Receiving Party prior to receiving it from the Disclosing Party hereunder;
 
          (3) is independently developed by or for a Receiving Party completely apart from the disclosures hereunder;
 
          (4) is received from a third party who lawfully acquires such information without restriction, and without breach of this Agreement by a Receiving Party; or
 
          (5) is released to the public or to a third party without a duty of confidentiality, pursuant to a binding court order or government regulation, provided that the Receiving Party delivers a copy of such order or action to the Disclosing Party and cooperates with the Disclosing Party if it elects to contest such disclosure.
 
Nothing provided for in this Section 6 shall be construed to preclude or inhibit Licensee’s rights to exploit any of its rights under the License.
 
7. Representations And Warranties. 
 
     A. Representations and Warrants by Licensor. Licensor represents and warrants, as of the date first set forth above and upon the Effective Date and upon the date each Licensor Patent issues that:
 
          (1) Licensor has the right to enter into this Agreement and there are no outstanding assignments, grants, licenses, encumbrances, obligations or agreements, whether written, oral or implied, that are inconsistent with this Agreement;
 
          (2) Licensor is the owner of the entire right, title and interest in and to invention and the art claimed in the Licensor Patent Applications and the claims contained in any Licensor Patent Rights that issues and that it has the sole right to grant the licenses granted to Licensee herein;
 
          (3) The Licensor Patents will not have been fraudulently procured, and Licensor has no reason to believe that the claims contained in the Licensor Patent Applications will not be issued in a manner that will protect sales of the Licensed Products in the Territory from competitors utilizing the invention or its equivalent;

 
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          (4) Licensor has no knowledge of any circumstances that would render the Licensor Patents, when issued, invalid; and
 
          (5) Licensor has not granted any license to or under the Technology to any other person or entity for its use within the Territory.
 
     B. Representations by Licensee. Licensee represents and warrants that it has the right enter into and deliver this Agreement and undertake the duties provided for in this Agreement.
 
8. Indemnification. 
 
     A. Indemnification by Licensor. Licensor agrees to hold harmless, defend and indemnify each of Licensee and its officers, directors, shareholders, employees, members, partners, managers, attorneys and agents, from and against any liability, claims, demands, actions, costs, expenses, including reasonable attorneys’ fees, or causes of action whatsoever (collectively, “ Claims ”) arising on account of:
 
          (1) Any breach by Licensor of its representations and warranties contained herein;
 
          (2) Licensee’s lawful and non-negligent use of any Intellectual Property Rights licensed by Licensor hereunder;
 
          (3) Any Claims that Licensee’s use of the Intellectual Property Rights in conformity of this Agreement infringes upon or misappropriates the intellectual property rights of any third party; or
 
          (4) Licensor’s operations or conduct prior to the date of this Agreement with regard to the research, development, or production of the Technology and/or Licensed Products. Such Claims shall include, without limitation, any product liability claims or Claims on account of any injury or death of persons or damage to property based on alleged defects in the Technology existing as of the effective date of this Agreement or based on actions or omissions of Licensor, regardless of whether such Claims are made prior to or at any time after the date of this Agreement.
 
     B. Indemnification by Licensee. Licensee agrees to hold harmless, defend and indemnify each of Licensor and its officers, directors, shareholders, employees, members, partners, managers, attorneys and agents, from and against any Claims arising on account of any breach by Licensee of it representations and warranties contained herein.
 
9. General. 
 
     A. Reformation/Severability. If any provision of this Agreement is declared invalid by any tribunal, then such provision shall be deemed automatically adjusted to the minimum extent necessary to conform to the requirements for validity as declared at such time and, as so adjusted, shall be deemed a provision of this Agreement as though originally included herein. In the event that the provision invalidated is of such a nature that it cannot be so adjusted, the provision shall be deemed deleted from this Agreement as though such provision had never been included herein. In either case, the remaining provisions of this Agreement shall remain in effect.

 
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     B. Binding Effect. All of the terms of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by, the Parties and their successors and permitted assigns, if any.
 
     C. Schedules. All schedules attached hereto and referred to herein, are an integral part of this Agreement and are incorporated herein by reference hereby.
 
     D. Subject Headings. The subject headings of the sections of this Agreement are included solely for purposes of convenience and reference only, and shall not be deemed to explain, modify, limit, amplify or aid in the meaning, construction or interpretation of any of the provisions of this Agreement.
 
     E. Interpretations and Definitions. In this Agreement whenever the context so requires, the gender includes the neuter, feminine and masculine and the number includes the singular and the plural and the words “person” and “party” include individuals, corporations, partnerships, firms, trusts or associations.
 
     F. Waiver. Any waiver by any Party of any breach of any term or condition of this Agreement shall not be deemed a waiver of any other breach of such term or of any other term or condition, nor shall the failure of any Party to enforce such provision constitute a waiver of such provision or any other provision, nor shall such action be deemed a waiver or release of the other Party for any claims arising out of or connected with this Agreement.
 
     G. Choice of Law. This Agreement and all matters or issues collateral hereto shall be construed in accordance with, and governed by, the laws of the State of Delaware.
 
     H. Arbitration. Any dispute, controversy or claim arising out of or relating to this Agreement, shall be resolved by final and binding arbitration before a retired judge at JAMS or its successor in Santa Monica, California. The expenses of arbitration, the reasonable fees and costs of legal counsel, experts, and evidence shall be awarded to the prevailing Party. Any interim or final award of the arbitrator may be entered in any court of competent jurisdiction.
 
     I. Successors and Assigns. Neither this Agreement nor any of the rights or obligations hereunder shall be assignable by any Party hereto without the written consent of the other Party first obtained and any attempted assignment without such written consent shall be void and confer no rights upon any third party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective representatives, successors and permitted assigns.
 
     J. No Joint Venture. This Agreement does not constitute and shall not be construed to constitute an agency, a partnership or a joint venture between the Parties. Neither Party shall have any power or right, nor shall it represent itself as having any power or right to obligate or bind the other Party in any manner whatsoever and nothing contained in this Agreement shall give or is intended to give any rights of any nature to third party. This is an agreement between separate entities and neither is the agent of the other for any purpose whatsoever.

 
10

 

     K. Notice. All written notices or other written communications required under this Agreement shall be deemed properly given when provided to the parties entitled thereto by personal delivery (including delivery by commercial services such as messengers and airfreight forwarders), by electronic means (such as by electronic mail, telex or facsimile transmission) or by mail sent registered or certified mail, postage prepaid at the following addresses (or to such other address of a Party designated in writing by such Party to the others):
 
If to Licensee:
 
Xcorporeal, Inc.
Attn: Terren S. Peizer
c/o Greenberg Traurig, LLP
2450 Colorado Avenue, Suite 400E
Santa Monica, California 90404
Attn: John C. Kirkland, Esq.
Fax: (310) 586-0286
 
With a copy to:
 
Greenberg Traurig, LLP
2450 Colorado Avenue, Suite 400E
Santa Monica, California 90404
Attn: John C. Kirkland, Esq.
Fax: (310) 586-0286
 
If to Licensor:
 
National Quality Care, Inc.
9033 Wilshire Boulevard, Suite 501
Beverly Hills, California 90211
Attention: Robert M. Snukal
Fax: (310) 840-5681
 
With a copy to:
 
Jenkins & Gilchrist, LLP
12100 Wilshire Boulevard, 15th Floor
Los Angeles, California 90025
Attn: Jeffrey P. Berg, Esq.
Fax: (310) 820-8859
 
All notices given by electronic means shall be confirmed by delivering to the Party entitled thereto a copy of said notice by certified or registered mail, postage prepaid, return receipt requested. All written notices shall be deemed delivered and properly received upon the earlier of two (2) days after mailing the confirmation notice or upon actual receipt of the notice provided by personal delivery or electronic means.

 
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     L. Further Documents. Each Party shall execute and deliver, at any time and from time to time, upon the request of the other such further instruments, papers or documents as may be necessary or appropriate to consummate the transactions contemplated hereby and to take such other action as the other Party may reasonably request to effectuate the purposes of this Agreement.
 
     M. Amendment. This Agreement may only be amended, modified or changed by a written document executed by both Parties.
 
     N. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
     O. Entire Agreement. This instrument contains the entire agreement between the Parties, and supersedes all prior or contemporaneous understandings or agreements, whether written or oral. Neither Party has relied upon any promise, representation or undertaking not expressly set forth herein.
 
     IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and date first set forth above.
 
LICENSOR: 
 
NATIONAL QUALITY CARE, INC.
 
By:
/s/ Victor Gura
Name:
Victor Gura, M.D.
Title:
Chief Scientific Officer
   
By:
/s/ Robert M. Snukal
Name:
Robert M. Snukal
Title:
Chief Executive Officer

LICENSEE:
   
XCORPOREAL, INC.
   
By:
/s/ Terren S. Peizer
Name:
Terren S. Peizer
Title:
Chairman of the Board

 
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NATIONAL QUALITY CARE, INC.
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