UNITES
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT
REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 10, 2018
NEPHROS, INC.
(Exact name of Registrant as Specified in its Charter)
|
Delaware
of incorporation) |
001-32288
File Number) |
13-3971809
Identification No.) |
|
380
Lackawanna Place, South Orange, New Jersey 07079
(Address of principal executive offices, including ZIP code) |
|
(201)
343-5202
(Registrant’s telephone number, including area code) |
n/a
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
| Item 8.01. | Other Events. |
On December 10, 2018, Specialty Renal Products, Inc. (“SRP”), a majority-owned subsidiary corporation of Nephros, Inc. (the “Company”), amended its Amended and Restated Certificate of Incorporation (the “Restated Certificate”) pursuant to a certificate of amendment filed with the Secretary of State of Delaware (the “Amendment”).
Prior to the effectiveness of the Amendment, the Restated Certificate provided that, upon the occurrence of a Subsidiary Merger or an Asset Sale (as such terms are defined below), the holders of SRP’s Series A Preferred Stock had the right under certain circumstances to require SRP to redeem their shares of Series A Preferred for an amount per share equal to the amount that each such share would be paid in a liquidation or dissolution of SRP. After giving effect to the Amendment, the holders of the SRP Series A Preferred no longer have any right to require SRP to redeem their shares of Series A Preferred following the occurrence of a Subsidiary Merger or Asset Sale. Instead, after the occurrence of any Subsidiary Merger or Asset Sale, SRP is required to effect a liquidation and dissolution of the corporation. Under any such liquidation and dissolution, the holders of SRP’s capital stock (including the Series A Preferred) would be entitled to receive a distribution from SRP’s net assets as would be made in connection with any ordinary liquidation and dissolution.
A “Subsidiary Merger” means a merger or consolidation in which a subsidiary of SRP is a constituent party and SRP issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation in which the shares of capital stock of SRP outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation. An “Asset Sale” means the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by SRP or any subsidiary of SRP of all or substantially all the assets of SRP and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of SRP if substantially all of the assets of SRP and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of SRP.
Prior to the Amendment, the Company accounted for the outstanding shares of Series A Preferred as non-permanent equity, which was presented in a mezzanine section of the Company’s consolidated condensed balance sheet as of September 30, 2018, included in the Company’s Quarterly Report for the quarter ended September 30, 2018. As a result of the modification to the rights of the Series A Preferred, the Company will account for the shares of Series A Preferred as permanent equity and will reflect such shares in the stockholders’ equity section of its consolidated balance sheet. For illustration of the accounting effect of the Amendment, the Company has prepared a pro forma balance sheet as of September 30, 2018, as if the Amendment had been effective as of such date. A copy of the pro forma balance sheet is attached to this current report as Exhibit 99.1.
The foregoing description is qualified in its entirety by the Amendment, a copy of which is filed herewith and incorporated by reference herein as Exhibit 10.1.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
| Nephros, Inc. | ||
| Dated: December 10, 2018 | By: | /s/ Andrew Astor |
| Andrew Astor | ||
| Chief Financial Officer | ||
Index to Exhibits Filed with this Report
EXHIBIT 10.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SPECIALTY RENAL PRODUCTS, INC.
It is hereby certified that:
FIRST: Specialty Renal Products, Inc. is a corporation formed under the laws of the State of Delaware, and its Certificate of Incorporation was initially filed in the office of the Secretary of State on July 2, 2018, and amended and restated on September 5, 2018.
SECOND: This Amendment to the Certificate of Incorporation has been duly adopted by the directors and the stockholders of the Corporation in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.
THIRD: The Certificate of Incorporation is hereby amended as follows:
A. Section 2 of Article FOURTH is hereby deleted in its entirety and replaced with the following:
“2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
2.1 Preferential Payments to Holders of Series A Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (including any liquidation and dissolution following a Subsidiary Merger or Asset Sale, as such terms are defined below), the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders or, in the case of a Constituent Merger or the Available Proceeds (as defined below), before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to one times (1x) the Series A Original Issue Price, plus any Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or any Constituent Merger, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Section 2.1 , the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.2 Payments to Holders of Common Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (including any liquidation and dissolution following a Subsidiary Merger or Asset Sale, as such terms are defined below), after the payment in full of all Series A Liquidation Amounts required to be paid to the holders of shares of Series A Preferred Stock the remaining assets of the Corporation available for distribution to its stockholders or, in the case of a Constituent Merger, the consideration not payable to the holders of shares of Series A Preferred Stock pursuant to Section 2.1 or the remaining Available Proceeds, as the case may be, shall be distributed among the holders of the shares of Series A Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of this Amended and Restated Certificate of Incorporation immediately prior to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Series A Preferred Stock is entitled to receive under Subsections 2.1 and 2.2 is hereinafter referred to as the “ Series A Liquidation Amount .”
2.3 Other Liquidation Matters .
2.3.1 Definitions .
(a) The term “ Constituent Merger ” means a merger or consolidation in which the Corporation is a constituent party, except any such merger or consolidation in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation.
(b) The term “ Subsidiary Merger ” means a merger or consolidation in which a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation.
(c) The term “ Asset Sale ” means the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
| 2 |
2.3.2 Effecting a Constituent Merger . The Corporation shall not have the power to effect a Constituent Merger unless the agreement or plan of merger or consolidation for such transaction (the “ Merger Agreement ”) provides that the consideration payable to the stockholders of the Corporation in such Constituent Merger shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 .
2.3.3 Events Triggering Liquidation . In the event of a Subsidiary Merger or an Asset Sale, the Board shall effect a dissolution and liquidation of the Corporation under the General Corporation Law as soon as practicable thereafter (any assets available for distribution to the stockholders of the Corporation, together with the consideration referred to in the immediately preceding sentence, the “ Available Proceeds ”), and distribute any assets available for distribution in accordance with Subsections 2.1 and 2.2 (taking into account any distribution already made pursuant to the immediately preceding sentence). Prior to the full distribution provided for in this Subsection 2.3.2 , the Corporation shall not expend or dissipate the consideration received, if any, in any such Subsidiary Merger or Asset Sale, except to discharge expenses or liabilities (a) incurred in connection with, or existing as of the consummation of, such Subsidiary Merger or Asset Sale, or (b) incurred in the winding up and liquidation of the Corporation.
2.3.4 Amount Deemed Paid or Distributed . The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any Constituent Merger shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity in connection with such merger. The value of such property, rights or securities shall be determined in good faith by the Board (including at least one Series A Director if then in office).
2.3.5 Allocation of Escrow and Contingent Consideration . In the event of a Constituent Merger, if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “ Additional Consideration ”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Constituent Merger; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.5 , consideration placed into escrow or retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection with such Constituent Merger shall be deemed to be Additional Consideration.”
| 3 |
B. Subsection 3.3.1 of Article FOURTH is hereby deleted in its entirety and replaced with the following:
“3.3.1 liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any merger, consolidation, reorganization, statutory plan of exchange, sale of all or substantially all of the assets or license substantially all of the key technology or intellectual property of the Company or any subsidiary, including any Constituent Merger, Subsidiary Merger or Asset Sale, or consent to any of the foregoing;”
C. Subsection 4.1.2 of Article FOURTH is hereby deleted in its entirety and replaced with the following:
“4.1.2 Termination of Conversion Rights . In the event of a liquidation, dissolution or winding up of the Corporation or a Constituent Merger, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Stock. In the event that such Constituent Merger is not consummated or if such Constituent Merger is consummated and such amounts distributable on such event are not paid on such date with respect to any shares of Preferred Stock, the Conversion Rights with respect to such shares shall remain in full force and effect.”
D. Paragraph (b) of Subsection 4.10 of Article FOURTH is hereby deleted in its entirety and replaced with the following:
“(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Constituent Merger, Subsidiary Merger or Asset Sale; or”
IN WITNESS WHEREOF, this Certificate of Amendment has been executed by a duly authorized officer of this corporation on this 9th day of December, 2018.
| SPECIALTY RENAL PRODUCTS, INC. | ||
| By: | /s/ Daron Evans | |
| Daron Evans | ||
| President & Chief Executive Officer | ||
| 4 |
EXHIBIT 99.1
Unaudited Pro Forma Consolidated Balance Sheet of Nephros, Inc. as of September 30, 2018
In July 2018, Nephros, Inc. (the “Company”) formed a new, wholly-owned subsidiary, Specialty Renal Products, Inc. (“SRP”), to drive the development of its 2 nd generation HDF system and other products focused on improving therapies for patients with renal disease. On September 5, 2018, SRP entered into a Series A Preferred Stock Purchase Agreement with certain purchasers pursuant to which SRP sold 600,000 shares of its Series A Preferred Stock (“Series A Preferred”) for $5.00 per share. The aggregate purchase price was $3,000,000. SRP incurred transaction-related expenses of approximately $30,000, which are included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations and comprehensive loss . The net proceeds from the issuance of the Series A Preferred are restricted to SRP expenses, and may not be used for the benefit of the Company or other affiliated entities, except to reimburse for expenses directly attributable to SRP. Following the Series A Preferred transaction, the Company retained a 62.5% ownership interest in SRP, holding 100% of the outstanding common shares, and holders of Series A Preferred retained a 37.5% interest in SRP on a fully diluted basis, holding 100% of the outstanding preferred shares. Of the 600,000 shares of Series A Preferred issued, the shares purchased by related parties comprised of persons controlled by members of management and by Lambda Investors LLC, a significant stockholder of the Company, amounted to 18,000 and 400,000 shares, respectively.
Each share of Series A Preferred is initially convertible into one share of SRP common stock, subject to adjustment for stock splits and recapitalization events. Subject to customary exempt issuances, in the event SRP issues additional shares of its common stock or securities convertible into common stock at a per share price that is less than the original Series A Preferred price, the conversion price of the Series A Preferred will automatically be reduced to such lower price.
Under the Series A Preferred Stock Purchase Agreement, in the event of any voluntary or involuntary liquidation, dissolution or winding up of SRP, the holders of the Series A Preferred are entitled to be paid out of the assets of SRP available for distribution to its stockholders or, in the case of a deemed liquidation event, out of the consideration payable to stockholders in such deemed liquidation event or the available proceeds, before any payment shall be made to the holders of SRP common stock by reason of their ownership thereof, an amount per share equal to one times (1x) the Series A Preferred original issue price, plus any accruing dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “Series A Liquidation Preference”). If upon any such liquidation, dissolution or winding up of SRP or deemed liquidation event, the assets of SRP available for distribution to its stockholders shall be insufficient to pay the Series A Liquidation Preference in full, the holders of Series A Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. After the full payment of the Series A Liquidation Preference, the holders of the Series A Preferred and the holders of common stock will share ratably in any remaining proceeds available for distribution on an as-converted to common stock basis. If SRP completes certain deemed liquidation events and if SRP does not thereafter liquidate and dissolve within 60 days, then the holders of the Series A Preferred have a right to have their shares redeemed for an amount equal to the Series A Liquidation Preference (the “Redemption Right”).
The noncontrolling interest in SRP held by the holders of Series A Preferred was classified as mezzanine equity on the unaudited consolidated balance sheet filed on the Quarterly Report on Form 10-Q as of September 30, 2018 as the noncontrolling interest was redeemable upon the occurrence of events that are not solely within the control of the Company.
The unaudited pro forma financial information included herein gives effect to the amendment filed to the Amendment and Restated Certificate of Incorporation of SRP on December 10, 2018, which amended the rights of the holders of the Series A Preferred to eliminate their Redemption Right following the occurrence of certain deemed liquidation events. Instead, upon the occurrence of such events, SRP is required to effect an ordinary liquidation and dissolution of the corporation and the holders of the Series A Preferred would be entitled to to receive the Series A Liquidation Preference from any assets available for distribution it SRP’s stockholders. As a result of the amendment, the noncontrolling interest will no longer be classified as non-permanent/mezzanine equity, but will instead be classified as permanent stockholders’ equity.
The Proforma Consolidated Balance Sheet as of September 30, 2018 has been prepared based on available information, using assumptions that our management believes are reasonable. The Proforma Consolidated Balance Sheet is not necessarily indicative of the results that may be achieved in the future. The adjustment made in preparing the Consolidated Balance Sheet is described in the Note.
NEPHROS, INC. AND SUBSIDIARIES
UNAUDITED HISTORICAL AND PROFORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
(In thousands, except share amounts)
| Pro forma | ||||||||||||||||
| Historical | Adjustment | Notes | Pro Forma | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 5,322 | $ | 5,322 | ||||||||||||
| Accounts receivable, net | 1,508 | 1,508 | ||||||||||||||
| Investment in lease, net-current portion | 24 | 24 | ||||||||||||||
| Inventory, net | 1,459 | 1,459 | ||||||||||||||
| Prepaid expenses and other current assets | 63 | 63 | ||||||||||||||
| Total current assets | 8,376 | 8,376 | ||||||||||||||
| Property and equipment, net | 20 | 20 | ||||||||||||||
| Investment in lease, net-less current portion | 26 | 26 | ||||||||||||||
| License and supply agreement, net | 971 | 971 | ||||||||||||||
| Other asset | 11 | 11 | ||||||||||||||
| Total assets | $ | 9,404 | $ | 9,404 | ||||||||||||
| LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Secured revolving credit facility | $ | 163 | $ | 163 | ||||||||||||
| Current portion of secured note payable | 191 | 191 | ||||||||||||||
| Accounts payable | 562 | 562 | ||||||||||||||
| Accrued expenses | 524 | 524 | ||||||||||||||
| Deferred revenue, current portion | - | - | ||||||||||||||
| Total current liabilities | 1,440 | 1,440 | ||||||||||||||
| Secured note payable, net of current portion | 897 | 897 | ||||||||||||||
| Unsecured long-term note payable, net of debt issuance costs and debt discount of $0 and $233, respectively | - | - | ||||||||||||||
| Long-term portion of deferred revenue | - | - | ||||||||||||||
| Total liabilities | 2,337 | 2,337 | ||||||||||||||
| Commitments and Contingencies | ||||||||||||||||
| Noncontrolling interest | 3,000 | $ | (3,000 | ) | A | - | ||||||||||
| Stockholders’ equity: | ||||||||||||||||
| Preferred stock, $.001 par value; 5,000,000 shares authorized at September 30, 2018 and December 31, 2017; no shares issued and outstanding at September 30, 2018 and December 31, 2017 | - | - | ||||||||||||||
| Common stock, $.001 par value; 90,000,000 shares authorized at September 30, 2018 and December 31, 2017; 64,166,988 and 55,293,267 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 64 | 64 | ||||||||||||||
| Additional paid-in capital | 127,419 | 127,419 | ||||||||||||||
| Noncontrolling interest | - | 3,000 | A | 3,000 | ||||||||||||
| Accumulated other comprehensive income | 73 | 73 | ||||||||||||||
| Accumulated deficit | (123,489 | ) | (123,489 | ) | ||||||||||||
| Total stockholders’ equity | 4,067 | 7,067 | ||||||||||||||
| Total liabilities, noncontrolling interest and stockholders’ equity | $ | 9,404 | $ | 9,404 | ||||||||||||
A. Reclassification of noncontrolling interest from mezzanine to stockholders’ equity.