SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-12
DELCATH SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
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applies:
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(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):
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[_] Fee paid previously with preliminary materials.
[_] 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:
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PRELIMINARY COPY
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DELCATH SYSTEMS, INC.
1100 Summer Street
Stamford, Connecticut 06905
(203) 323-8668
---------------------------------
Notice of Annual Meeting of Stockholders
To Be Held on June 15, 2004
Notice is hereby given that an Annual Meeting of Stockholders of Delcath
Systems, Inc., a Delaware corporation, will be held on Tuesday, June 15, 2004 at
11:00 a.m. (Eastern Time) at the Sheraton Stamford Hotel, 2701 Summer Street,
Stamford, Connecticut, for the following purpose:
1. To elect one Class I director to serve until the 2007 Annual Meeting
of Stockholders and until his successor is duly elected and qualified;
2. To vote on a proposed amendment to our certificate of incorporation to
increase the authorized number of shares of our Common Stock, par
value $0.01 per share, from 35 million to 70 million;
3. To vote on the approval of our 2004 Stock Incentive Plan; and
4. To transact such other business as may properly come before the
meeting or adjournment thereof.
Only stockholders of record of our Common Stock, $0.01 par value per share,
at the close of business on April 15, 2004 will be entitled to notice of, and to
vote at, the Annual Meeting of Stockholders or any adjournment thereof. A list
of our stockholders will be open for examination ten days prior to the meeting
by any stockholder at our executive offices, 1100 Summer Street, Stamford,
Connecticut 06905.
A copy of our Annual Report to Stockholders for the year ended December 31,
2003, which contains financial statements and other information of interest to
stockholders, accompanies this Notice and the enclosed Proxy Statement.
All stockholders are cordially invited to attend the Annual Meeting of
Stockholders. Whether or not you expect to attend the Annual Meeting of
Stockholders, please complete, sign, date, and return the enclosed proxy card in
the enclosed envelope in order to ensure representation of your shares.
By Order of the Board of Directors
M. S. KOLY
President and Chief Executive Officer
Stamford, Connecticut
April [ ], 2004
PRELIMINARY COPY
---------------------------------
DELCATH SYSTEMS, INC.
1100 Summer Street
Stamford, Connecticut 06905
(203) 323-8668
---------------------------------
Proxy Statement
---------------------------------
Proxies in the form enclosed with this Proxy Statement are being solicited
by the Board of Directors of Delcath Systems, Inc., a Delaware corporation, for
use at an Annual Meeting of Stockholders of Delcath to be held at 11:00 a.m.
(Eastern Time) on Tuesday, June 15, 2004, at the Sheraton Stamford Hotel, 2701
Summer Street, Stamford, Connecticut, and at any adjournment thereof.
Only stockholders of record as of the close of business on April 15, 2004
(the "Record Date"), of our Common Stock, $0.01 par value per share (the "Common
Stock"), will be entitled to notice of, and to vote at, the meeting. As of the
Record Date, [_________] shares of Common Stock were issued and outstanding.
Holders of Common Stock are entitled to one vote per share held by them.
Stockholders may vote in person or by proxy. Granting a proxy does not in any
way affect a stockholder's right to attend the Annual Meeting and vote in
person. Any stockholder giving a proxy has the right to revoke that proxy by (i)
filing a later-dated proxy or a written notice of revocation with our Secretary
at the address set forth above at any time before the original proxy is
exercised or (ii) voting in person at the meeting.
Each of M. S. Koly and Samuel Herschkowitz, M.D. are named as attorneys in
the proxy. Mr. Koly is our President, Chief Executive Officer and Treasurer and
is also a member of our Board of Directors. Dr. Herschkowitz is our Chief
Technical Officer and is also the Chairman of our Board of Directors. Mr. Koly
or Dr. Herschkowitz will vote all shares represented by properly executed
proxies returned in time to be counted at the Annual Meeting, as described below
under "Voting Procedures." Any stockholder granting a proxy has the right to
withhold authority to vote for the nominee to the Board of Directors. Where a
vote has been specified in the proxy with respect to the matters identified in
the Notice of the Annual Meeting, including the election of directors, the
shares represented by the proxy will be voted in accordance with those voting
specifications. Shares represented by proxies will be voted for each proposal
identified in the Notice of Annual Meeting if no voting instructions are
indicated.
The stockholders will consider and vote upon proposals (i) to elect one
Class I director to serve until the 2007 Annual Meeting of Stockholders; (ii) to
approve a proposed amendment to our Certificate of Incorporation to increase the
authorized number of shares of Common Stock from 35 million to 70 million and
(iii) to approve our 2004 Stock Incentive Plan. Stockholders will also consider
and act upon such other business as may properly come before the meeting.
A copy of our Annual Report to Stockholders for the year ended December 31,
2003, which contains financial statements and other information of interest to
stockholders, was mailed to stockholders along with these proxy materials on or
about May [ ], 2004.
VOTING PROCEDURES
Mr. Koly or Dr. Herschkowitz will vote all shares represented by properly
executed proxies returned in time to be counted at the meeting. The presence, in
person or by proxy, of at least a majority of the issued and outstanding shares
of Common Stock entitled to vote at the meeting is necessary to establish a
quorum for the transaction of business. Shares represented by proxies pursuant
to which votes have been withheld for the nominee for director, or which contain
one or more abstentions, as well as broker non-vote shares (i.e., shares held in
street name which cannot be voted by a broker on specific matters in the absence
of instructions from the beneficial owner of the shares) are counted as present
for purposes of determining the presence or absence of a quorum for the meeting.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the meeting as specified in such proxies. As noted
above, proxies will be voted for each proposal identified in the Notice of
Annual Meeting and will be voted in the discretion of the proxy holder on any
other matters that properly come before the meeting, if no voting instructions
are indicated.
The director will be elected by a plurality of the votes cast, in person or
by proxy, at the meeting. The nominee receiving the highest number of
affirmative votes of the shares voting on the election of the director will be
elected as a director. Only shares that are voted in favor of a particular
nominee will be counted toward that nominee's achievement of a plurality. Shares
present at the meeting that are not voted for a particular nominee or shares
present by proxy where the stockholder properly withheld authority to vote for
such nominee will not be counted toward that nominee's achievement of a
plurality.
The affirmative vote of a majority of the shares entitled to vote at the
meeting is required for approval of the amendment to our Certificate of
Incorporation. Because the vote required to approve the amendment is a majority
of the votes entitled to be cast, abstentions and broker non-votes have the same
effect as a vote against approval of the amendment.
For all other matters that may be submitted to stockholders at the meeting,
including the proposal to approve the 2004 Stock Incentive Plan, the affirmative
vote of the majority of shares present (in person or represented by proxy) and
voting on that matter will be required for approval. Shares abstaining and
broker non-votes, since they are not voting on a matter, will not have the same
effect as votes against the matter.
Votes at the meeting will be tabulated by one or more inspectors of
election appointed by the President and Chief Executive Officer.
ELECTION OF DIRECTOR
(PROXY ITEM 1)
Delcath's Board of Directors is divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of the
Board of Directors will be elected each year. These provisions, together with
the provisions of our Certificate of Incorporation and by-laws, allow only the
Board of Directors to fill vacancies on or increase the size of the Board of
Directors and would prevent a stockholder from removing incumbent directors and
filling such vacancies with its own nominees in order to gain control of the
Board of Directors. The staggering of the election of our directors may have the
effect of delaying, deferring or discouraging a change of control. Delcath's
by-laws provide that its Board of Directors will consist of not fewer than three
members. The Board of Directors has fixed the current number of directors at
five.
A plurality of the votes cast by the holders of Common Stock present or
represented by proxy and entitled to vote at the meeting is required for the
election of a nominee. Proxies cannot be voted for a greater number of persons
than the number of nominees named or for persons other than the named nominees.
2
Delcath's Board of Directors has nominated the following person for
election as the Class I director of Delcath at the Annual Meeting. The nominee
is currently a member of Delcath's Board of Directors. The nominee and the year
he first joined the Board of Directors is:
Year First
Nominee Age Joined Board Current Position
------- --- ------------ ----------------
Daniel Isdaner 39 2001 Director
Background of Nominee for the Board of Directors
Daniel Isdaner, 39, was appointed a Class I director of Delcath in 2001.
His term expires at the 2004 Annual Meeting. Since 1994, Mr. Isdaner has been
the owner and director of Camp Mataponi, Inc., a children's summer camp located
in Naples, Maine. He also serves on the Board of Directors of the American
Camping Association-New England Division and the Jewish Community Center of
Southern New Jersey. Mr. Isdaner holds a B.S.B.A. degree from the Boston
University School of Management.
The Board of Directors unanimously recommends that you vote for the
election of the nominee as a director of Delcath.
The following individuals are currently directors of Delcath whose terms of
office do not expire this year and who consequently are not nominees for
re-election at the Meeting:
Mark A. Corigliano, 40, was appointed a Class III director of Delcath in
2001. His term expires at the 2006 Annual Meeting. Since 1991, Mr. Corigliano
has been Managing Director of Coast Cypress Associates, a company that designs
and implements microcomputer systems. Since 1993, he has served as Officer and
Manager of Special Projects for DC Associates, a restaurant management
organization located in New York City. Mr. Corigliano also serves as Treasurer
of Rolls Royce Owners' Club, a non-profit organization with 8,500 members
worldwide. He holds a B.S. degree from Seton Hall University.
Samuel Herschkowitz, M.D., 54, has been Chairman of the Board of Delcath
since 1998 and Delcath's Chief Technical Officer since 1991. His term expires at
the 2005 Annual Meeting. In 1987, he co-founded Venkol Ventures L.P. and Venkol
Ventures, Ltd., two affiliated venture capital funds specializing in medical
technology investments, which are no longer active. Dr. Herschkowitz is board
certified in psychiatry and neurology. He is an assistant professor at New York
University Medical Center and has held academic positions at Beth Israel
Hospital, Mount Sinai Medical School and Downstate Medical Center. Dr.
Herschkowitz graduated from Syracuse University and received his medical degree
from Downstate Medical Center College of Medicine.
M. S. Koly, 63, has been President, Chief Executive Officer and Treasurer
of Delcath since 1998 and has served as a Director since 1988. His term expires
at the 2005 Annual Meeting. From 1987 until June 1998, Mr. Koly managed Venkol
Ventures, L.P. and Venkol Ventures, Ltd., firms he co-founded with Dr.
Herschkowitz. From 1983 to 1987, Mr. Koly was president of Madison Consulting
Corporation, a firm he founded. From 1978 to 1983, Mr. Koly was president of
Becton-Dickinson Respiratory Systems. Prior to that time, he held various senior
management positions at Abbott Laboratories, Stuart Pharmaceuticals and National
Patent Development Corp. He received an M.B.A. in marketing and finance from
Northwestern University.
Victor Nevins, 82, was appointed a Class III director of Delcath in 2001.
His term expires at the 2006 Annual Meeting. Since 1957, Mr. Nevins has been
Chief Executive Officer of Max Abramson Enterprises, a medium size conglomerate
headquartered in Flushing, New York. He also is a licensed real estate broker
and, since 1962, has been the owner of Victor Nevins Realty. From 1968-1997, he
served on the Board of Directors
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of Flushing Hospital and Medical Center as Vice President of the Board, member
of the Finance Committee, Chairman of both the House and Grounds and Human
Resources Committees and liaison to the Medical Board. He currently is a
Director and past President of the Flushing Chamber of Commerce, a Director of
the Flushing Merchants Association and a Director of the American Red Cross,
North Shore Chapter.
The following table provides information concerning the executive officers of
Delcath.
Name Age Office Currently Held
---- --- ---------------------
M. S. Koly 63 President, Chief Executive Officer and
Treasurer
Samuel Herschkowitz, M.D. 54 Chief Technical Officer, Chairman of the
Board and Secretary
Paul M. Feinstein 56 Chief Financial Officer
A brief description of the business experience of Mr. Koly and Dr.
Herschkowitz is set forth above. The following is a brief description of the
business experience of Mr. Feinstein:
Paul M. Feinstein. [INSERT BIOGRAPHICAL INFORMATION.]
BOARD AND COMMITTEE MEETINGS AND FUNCTIONS
Attendance
The Board of Directors met [ __] times during year ended December 31,
2003. During 2003, each of the directors attended at least 75% of the aggregate
of (i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board of Directors on which he
served.
It is the Company's policy that, absent unusual or unforeseen
circumstances, all of the directors are expected to attend annual meetings of
stockholders. All of the directors attended the Company's 2003 Annual Meeting of
Stockholders.
Compensation
The Compensation and Stock Option Committee of the Board of Directors
reviews the salaries and benefits of all officers and stock option grants to all
employees, consultants, directors and other individuals compensated by the
Company. The Compensation and Stock Option Committee is empowered by the Board
of Directors to act independently. The Compensation and Stock Option Committee
also administers the Company's stock option and other employee benefits plans.
Currently, the members of the Compensation and Stock Option Committee are Daniel
Isdaner and Mark A. Corigliano, each of whom is independent, as "independence"
is defined in Rule 4200(a)(15) of the National Association of Securities
Dealers. During 2003, the Compensation and Stock Option Committee met three
times.
Audit
The Audit Committee of the Board of Directors provides assistance to the
Board in fulfilling its oversight responsibilities with respect to the Company's
financial statements, the Company's system of internal accounting and financial
controls and the independent audit of the Company's financial statements.
Functions of the Audit Committee include:
o the selection, evaluation and, where appropriate, replacement of the
Company's outside auditors;
4
o an annual review and evaluation of the qualifications, performance and
independence of the Company's outside auditors;
o the approval of all auditing services and permitted non-audit services
provided by the Company's outside auditors;
o the receipt of an annual communication from the Company's outside
auditors as required by Independence Standards Board Standard No. 1;
o the review of the adequacy and effectiveness of the Company's
accounting and internal controls over financial reporting;
o the review and discussion with management and the outside auditors of
the Company's financial statements to be filed with the Securities and
Exchange Commission; and
o the preparation of a report for inclusion in the Company's annual
proxy statement.
All members of the Audit Committee must satisfy the independence and
experience requirements of the Nasdaq Stock Market, Inc. and be free of any
relationship which, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment.
A copy of the charter of the Audit Committee as currently in effect is
attached as Appendix A to this proxy statement.
The Board has determined that at least one member of the Audit Committee is
an audit committee financial expert (as defined in applicable rules of the
Securities and Exchange Commission) based on such member's understanding of
generally accepted accounting principles and financial statements, ability to
assess the application of such principles in connection with accounting for
estimates, accruals and reserves, experience in preparing, analyzing and
evaluating financial statements, understanding of internal control over
financial reporting and understanding of audit committee functions. The Board
has determined that Mark A. Corigliano is an audit committee financial expert.
Nominating
The Company does not have a separate nominating committee; the functions of
selecting the nominees of the Board for election as directors is a function of
the Board of Directors. The Board has determined that, in light of the Company's
size, the number of its directors and the nature of its business, a separate
nominating committee is not needed and that such procedures are appropriate. The
Board believes that the specialized knowledge of the Company's President and
Chief Executive Officer and its Chief Technical Officer (both of whom are also
directors of the Company) enable them to provide substantial assistance to the
Board in evaluating the qualifications of potential candidates for election as
directors. The Board has, however, adopted a policy that no nominee for election
as a director will be chosen by the Board unless the selection of such nominee
is approved by a vote which includes the vote of a majority of the directors who
are independent (as independence is defined in the rules of the Nasdaq Stock
Market, Inc.).
Recommendations by Stockholders of Director Nominees
The Board of Directors will consider any recommendation by a stockholder of
a candidate for nomination as a director. If a stockholder wants to recommend a
candidate for the Board to consider nominating for election as a director, the
stockholder may submit the name of the proposed nominee, together with the
reasons why the stockholder believes the election of the candidate would be
beneficial to the Company and its stockholders and the information about the
nominee that would be required in a proxy statement requesting proxies to vote
in favor of the candidate.
The stockholder's submission must be accompanied by the written consent of
the candidate to being nominated by the Board and the candidate's agreement to
serve if nominated and elected.
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Any such submission should be directed to the Company's Board of Directors
at its principal office, 1100 Summer Street, Stamford, Connecticut 06905. Copies
of any recommendation received in accordance with these procedures will be
distributed to each of the Company's directors. One or more of the Company's
directors may contact the proposed candidate to request additional information.
At the request of any director, the candidacy of the proposed nominee will
be considered by the full Board. The Company will not, however, be obligated to
notify a stockholder who has recommended a candidate for election as a director
of the reasons for any action the Board may or may not take with respect to such
recommendation.
Stockholder Communications with the Board of Directors
The Board of the Company welcomes questions, comments and observations from
stockholders concerning the policies and operation of the Board and about the
general business and operation of the Company.
Any stockholder wishing to communicate with the Board or with any specified
director should address his or her communication to the Board of Directors or to
the particular director(s) and send it to the Company's principal office at 1100
Summer Street, Stamford, CT 06905. Unless otherwise requested by a stockholder
in a separate written request accompanying the communication, stockholder
communications to the Board or to specified director(s) will be initially
reviewed by the Company's Chief Executive Officer or Chief Financial Officer.
Communications that the reviewing officer determines relate to the Company's
ordinary course of business will be responded to by the officer or his designee.
Communications that the Chief Executive Officer or Chief Financial Officer
determine do not relate to the Company's ordinary course of business or that he
otherwise believes are appropriate for review by the directors will be forwarded
to each of the directors. Actions, if any, to be taken in response to any
stockholder communication will be in the discretion of the Board. At the request
of the Board, the Chief Executive Officer will summarize any stockholder
communications that are not forwarded on the basis that such communications
relate to the ordinary course of the Company's business.
The process for stockholder communication with the Board of Directors or
with specified director(s) has been approved by the Company's Board, including
by a majority of the Company's independent directors.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee, at the direction of the Board of Directors, has
prepared the following report for inclusion in this Proxy Statement. The Audit
Committee is comprised of Mark A. Corigliano and Victor Nevins, two non-employee
directors who are "independent" within the meaning of Rule 4200(a)(15) of the
National Association of Securities Dealers ("NASD") listing standards. The Audit
Committee has the responsibility for reviewing the Company's accounting
practices, internal accounting controls and financial results and [is
responsible for; oversees] the engagement of the Company's independent auditors.
The Audit Committee has reviewed and discussed the audited financial statements
with the Company's management.
The Audit Committee has discussed with the independent auditors the matters
required to be discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU Section 380), as may be modified or supplemented.
The Audit Committee has received the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), as may be modified or
supplemented, and has discussed with the independent auditors the independent
auditors' independence.
Based on the review and discussions referred to in the foregoing three
paragraphs, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's
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Annual Report on Form 10-KSB for the year ended December 31, 2003 for filing
with the Securities and Exchange Commission.
MARK A. CORIGLIANO
VICTOR NEVINS
Dated: April [__], 2004
THE REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY REFERENCE
INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934, EXCEPT TO THE EXTENT THAT DELCATH SPECIFICALLY INCORPORATES IT BY
REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED TO BE FILED UNDER SUCH ACTS.
COMPENSATION AND OTHER INFORMATION CONCERNING DIRECTORS AND OFFICERS
Executive Compensation
The following table sets forth, for the years ended December 31, 2003, 2002
and 2001, certain compensation paid by the Company, including salary, bonuses
and certain other compensation, to its Chief Executive Officer and all other
executive officers whose annual compensation (including bonuses) for the year
ended December 31, 2003 exceeded $100,000 (the "Named Executive Officers").
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Name and Principal Position Securities
Underlying All Other
Year Salary ($) Bonus ($) Options (#) Compensation
M. S. Koly, President, 2003 229,500 15,000 (1) 120,000 0
Chief Executive Officer and 2002 187,500 0 100,000 0
Treasurer 2001 164,750 17,500 (2) 100,000 0
Samuel Herschkowitz, 2003 142,083 5,000 (1) 90,000 0
Chairman of the Board 2002 136,667 0 30,000 0
and Chief Technical Officer 2001 120,000 10,000 (2) 30,000 0
(1) Bonuses were declared payable in January 2004.
(2) Bonuses were declared payable in January 2002.
Option Grants in Last Fiscal Year
Stock options were granted to the Named Executive Officers during the 2003
fiscal year as follows:
Number of Shares of Percent of Total
Common Stock Options Granted to
Name Underlying Option Employees in 2002 Exercise Price ($/Sh.) Expiration Date
---- ----------------- ----------------- ---------------------- ---------------
M. S. Koly 120,000 (1) 57,1% 1.03 August 25, 2008
S. Herschkowitz 90,000 (1) 42.9% 1.03 August 25, 2008
7
------------------
(1) Options vest equally over two years on anniversary dates and have a term of
five years.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year ended
December 31, 2003 and unexercised options held as of the end of 2003.
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Shares Options at FY- FY-End ($) (1)
Received Value Realized End Exercisable/ Exercisable/
Name on Exercise ($) Unexercisable Unexercisable
---- ----------- -------------- ---------------- -------------
M. S. Koly 0 0
S. Herschkowitz 0 0
-------------------
(1) Calculated based on the fair market value of $[_____] per share at the
close of trading on December 31, 2003 as reported by The Wall Street
Journal, minus the exercise price of the option.
Director Compensation
Directors who are employees of Delcath do not currently receive any
compensation for serving on the Board of Directors. Non-employee directors
receive $750 for each meeting of the Board of Directors attended in person or
participated in telephonically and are reimbursed for their expenses. For
services in 2003, each of Mr. Corigliano, Mr. Isdaner and Mr. Nevins received a
bonus of $1,000 that was paid in 2004.
On August 25, 2003, Delcath's Compensation and Stock Option Committee
granted stock options to the non-employee directors of Delcath, at an exercise
price equal to $1.03 per share, the fair market value at the close of trading on
that date as reported by The Wall Street Journal. Each of Mr. Corigliano, Mr.
Isdaner and Mr. Nevins received a non-qualified stock option to purchase 75,000
shares. These options vest equally over two years on the anniversary of grant
and have a term of five years. Information about options granted during 2003 to
Mr. Koly and Dr. Herschkowitz, who are also Named Executive Officers is included
above under "Option Grants in Last Fiscal Year."
Key Employee Agreements
On October 1, 2003, Delcath amended and restated the employment agreements
with M. S. Koly and Samuel Herschkowitz, M.D. Mr. Koly's amended employment
agreement provides for a base salary of $275,000, and Dr. Herschkowitz's amended
employment agreement provides for a base salary of $155,000 per annum. Both
agreements have an initial term of three years. Thereafter, the term
automatically renews for successive one-year periods unless Mr. Koly or Dr.
Herschkowitz, as the case may be, gives notice of non-renewal.
In the event of termination by the Company without cause, whether or not
due to a change in control (as defined in the employment agreement), Mr. Koly is
entitled to a lump sum severance payment equal to twice the sum of his then
effective base salary, the average of his bonuses for the three years preceding
termination and the annual cost of his fringe benefits (other than stock options
and similar benefits).
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In the event Dr. Herschkowitz's employment is terminated by the Company
without cause or by Dr. Herschkowitz following a material change without his
consent, in his duties or responsibilities, Dr. Herschkowitz will be entitled to
a lump sum severance payment equal to twice the sum of his then effective base
salary, the average of his bonuses for the three years preceding termination and
the annual cost of his fringe benefits. The Company will also continue Dr.
Herschkowitz's participation in certain insurance benefit plans. Upon Dr.
Herschkowitz's election, the Company will be obligated to pay him the excess of
the aggregate fair market of shares subject to options held by him over the
aggregate exercise price of such options. Termination payments to Dr.
Herschkowitz would be reduced to the extent such payments would be subject to an
excise tax as "excess parachute payments" under applicable federal tax law.
Change of Control Payments
In 2004, the Compensation and Stock Option Committee approved payments to
its directors (including officers who are also directors) in the case of a
hostile takeover of the Company. The payment would, in each case be determined
by multiplying the excess of the price per share paid in the takeover
transaction over the fair market value per share on December 11, 2003 multiplied
by a number of shares (that would be subject to adjustment in the event of stock
dividends, stock splits or recapitalizations). Such numbers are 500,000 in the
case of Mr. Koly and 300,000 each in the case of Dr. Herschkowitz, Mr.
Corigliano, Mr. Isdaner and Mr. Nevins. In the event of a hostile takeover, each
non-employee director would also receive a $100,000 cash payment in recognition
of past service. See also, "Key Employee Agreements," above.
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, certain information
regarding the ownership of Delcath's voting securities by (i) each person who,
to the knowledge of Delcath, beneficially owned more than 5% of Delcath's voting
securities outstanding on such date, (ii) each director (or nominee for
director) of Delcath, (iii) each Named Executive Officer and (iv) all directors
and executive officers as a group.
Directors, Shares Percentage of
Executive Officers Beneficially Common Shares
and 5% Stockholders (1): Owned (2) Outstanding (3)
------------------------ ------------ ---------------
M. S. Koly (4) 1,456,369 ___%
Venkol Trust (5) 1,072,649 ___%
Samuel Herschkowitz, M.D. (6) 138,079 ___%
Mark A. Corigliano (8) 58,000 ___%
Daniel Isdaner (9) 60,500 ___%
Victor Nevins (10) 67,100 ___%
All directors and executive officers as a group
(six persons) (1) _________ ___%
* Less than 1% of total voting securities
---------------------
(1) Except as otherwise noted in the footnotes to this table, each person or
entity named in the table has sole voting and investment power with respect
to all shares owned, based on the information provided to us by the persons
or entities named in the table.
(2) Shares of Common Stock subject to options or warrants exercisable within 60
days of the Record Date are deemed outstanding for computing the percentage
of the person or entity holding such options or warrants.
9
(3) Percentage of beneficial ownership is calculated on the basis of the amount
of outstanding securities (Common Stock) at the Record Date ([________]
common shares) plus, for each person or entity, any securities that person
or entity has the right to acquire within 60 days pursuant to stock options
or other rights.
(4) Mr. Koly is a director of Delcath. Includes [______] shares held by Mr.
Koly and approximately 181,000 shares held by the Venkol Trust in which Mr.
Koly has a pecuniary interest. The figure above also includes the vested
portion ([________] shares) of stock options to purchase shares of the
Common Stock.
(5) Mr. Koly is the trustee of Venkol Trust and is deemed the beneficial owner
of its shares because of his voting power. Mr. Koly has a pecuniary
interest in approximately 181,000 of such shares.
(6) Dr. Herschkowitz is the Chairman of the Board of Directors of Delcath. The
figure above excludes approximately 181,000 shares held by the Venkol Trust
in which Dr. Herschkowitz has a pecuniary interest. The figure consists of
the vested portion (138,079 shares) of stock options to purchase shares of
Common Stock.
(7) Mr. Corigliano is a director of Delcath. The figure above represents 11,500
shares owned directly by him, and 1,500 shares issuable upon exercise of
warrants. The figure above also includes the vested portion (45,000 shares)
of stock options to purchase shares of Common Stock.
(8) Mr. Isdaner is a director of Delcath. The figure above represents 8,000
shares directly owned by him or jointly with his wife, and 7,500 shares
issuable upon exercise of warrants. The figure above also includes the
vested portion (45,000 shares) of stock options to purchase shares of
Common Stock.
(9) Mr. Nevins is a director of Delcath. The figure above represents 16,100
shares owned directly by him, and 4,000 shares issuable upon exercise of
warrants. The above figure also represents 1,000 shares owned directly by
his wife, and 1,000 shares issuable upon exercise of warrants owned by her.
The figure above also includes the vested portion (45,000 shares) of stock
options to purchase shares of Common Stock.
(10) The number of shares beneficially owned by all directors and executive
officers as a group includes [________] shares of Common Stock issuable
within 60 days of the Record Date upon exercise of stock options granted to
directors and executive officers pursuant to our various stock option plans
and 14,000 shares of Common Stock issuable upon exercise of warrants.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, officers, and persons who are beneficial owners of more than ten
percent of the Company's Common Stock to file with the Securities and Exchange
Commission (the "Commission") reports of their ownership of the Company's
securities and of changes in that ownership. To the Company's knowledge, based
upon a review of copies of reports filed with the Commission with respect to the
fiscal year ended December 31, 2003, and except as noted below, all reports
required to be filed under Section 16(a) by the Company's directors and officers
and persons who were beneficial owners of more than ten percent of the Company's
Common Stock were timely filed.
Each of the directors and officers was late in reporting the grant of
options to him in August 2003. In addition, Dr. Herschkowitz was late in filing
one report relating to two transactions that occurred in 2003.
AMENDMENT OF CERTIFICATE OF INCORPORATION
(PROXY ITEM 2)
Under our Certificate of Incorporation, as currently in effect, we are
authorized to issue up to 35 million shares of Common Stock. On March 25, 2004,
the Board of Directors approved an amendment to our
10
Certificate of Incorporation to increase the authorized shares of Common Stock
to 70 million, subject to stockholder approval at the Annual Meeting. Under our
Certificate of Incorporation, we are also authorized to issue up to 10 million
shares of preferred stock. As of the date hereof, we have no shares of our
preferred stock outstanding. If the proposed amendment to our Certificate of
Incorporation is approved and becomes effective, the number of shares of
preferred stock we are authorized to issue would remain unchanged at 10 million.
The par value of both the Common Stock and the preferred stock would also remain
unchanged.
If the proposal to amend our Certificate of Incorporation is approved, the
first paragraph of Article FOURTH of our Certificate of Incorporation would be
restated to read as follows
FOURTH: The total number of all classes of shares of stock
which the Corporation shall have authority to issue is
eighty million (80,000,000) shares, consisting of ten
million (10,000,000) shares of Preferred Stock with a par
value of $0.01 per share, and seventy million (70,000,000)
shares of Common Stock with a par value of $0.01 per share.
Principally as a result of our public offering of Common Stock
and warrants to purchase Common Stock in 2003, our private placements
of Common Stock and warrants to purchase Common Stock in 2004 and
related transactions, the number of shares of our Common Stock
outstanding or reserved for issuance has increased significantly. The
following table presents information as of the Record Date with
respect to our Common Stock outstanding or reserved for issuance.
Number of Shares Explanation
---------------- -----------
11,252,746 Shares outstanding
1,768,440 Warrants that were issued prior to December 31, 2002 that
remain outstanding
2,841,985 Warrants that were issued in connection with our public
offering in 2003 that remain outstanding
446,946 Warrants that were issued in connection with our private
placements in 2004 that remain outstanding
1,520,678 Shares reserved for purposes of options that are
outstanding or may be granted under our option plans
17,830,795 Shares reserved for potential issuance pursuant to our
Stockholder Rights Agreement
-----------
35,661,590
===========
If the 2004 Stock Incentive Plan is approved at the Annual
Meeting, an additional 3,000,000 shares will be reserved for possible
issuance pursuant to that Plan and an equal number would need to be
reserved under our Stockholder Rights Agreement.
We currently have no specific plans to issue additional shares
other than as may be required upon the exercise of outstanding options
and warrants. Nevertheless, the Board of Directors believes that in
the future the Company will need additional capital and that the sale
of additional common equity will likely be the preferable way of
obtaining such capital. The Board is requesting approval of the
proposed amendment at this time so that the Company may take advantage
of favorable financing opportunities that may become available to it.
11
Holders of our Common Stock are entitled to one vote per share on
all matters to be voted on by stockholders and to receive such
dividends, if any, that are declared by the Board of Directors. The
Common Stock has no other rights and there are no preemptive or
sinking fund provisions applicable to the Common Stock.
Pursuant to our Stockholder Rights Agreement, rights to purchase
Common Stock will accompany each additional share of Common Stock
issues prior to the earliest of the Distribution Date, the Redemption
Date and the Final Expiration Date (as those terms are defined in the
Stockholder Rights Agreement). The Stockholder Rights Agreement also
provides that at all times, we must reserve for issuance that number
of shares of Common Stock that would be issuable upon the exercise of
the right to purchase Common Stock in accordance with the terms of the
Stockholder Rights Agreement.
Once authorized, the additional shares of Common Stock may be
issued with approval of the Board of Directors but without further
approval of our stockholders unless stockholder approval is required
by applicable law, rule or regulation. If the proposed amendment
becomes effective, it could, under certain circumstances, have an
anti-takeover effect, although that is not its intention. For example,
if we were the subject of a hostile takeover attempt, we could try to
impede the takeover by issuing shares of Common Stock, thereby
diluting the voting power of the other outstanding shares and
increasing the potential cost of the takeover. The Board of Directors
is not aware of any attempt or plan to acquire control of Delcath, and
this proposal is not being presented as an anti-takeover device.
In the event the stockholders vote in favor of this proposal, we
intend to amend our Certificate of Incorporation promptly thereafter
to provide for the increase in authorized common stock. If the
stockholders do not approve the amendment, then the number of
authorized shares of common stock will remain at 35 million.
Recommendation of the Board of Directors
The Board of Directors, which unanimously approved the amendment
to our Certificate of Incorporation, recommends a vote `FOR" this
proposal.
APPROVAL OF 2004 STOCK INCENTIVE PLAN
(PROXY ITEM 3)
Effective March 25, 2004, subject to stockholder approval at the
Annual Meeting, the Board of Directors adopted the 2004 Stock
Incentive Plan pursuant to which various opportunities to acquire up
to 3,000,000 shares of Common Stock would be available pursuant to the
grant or exercise of stock options, stock appreciation rights,
restricted stock or deferred stock on the terms described below. The
Stock Incentive Plan will not be implemented if it is not approved by
a majority of the votes cast, in person or by proxy, at the Annual
Meeting.
The Board of Directors believes that the well-recognized benefits
of stock incentive plans outweigh any burden on or dilution of the
Common Stock as a result of awards under the Stock Incentive Plan,
including (i) encouraging the acquisition by key officers, directors,
employees and consultants of a proprietary interest in the Company,
(ii) the ability to fashion attractive incentive awards based upon the
performance of the Company and the price of the Common Stock and (iii)
a better alignment of the interests of officers, directors, employees
and consultants with the interests of the Company's stockholders.
The Board believes that the size of the Stock Incentive Plan is
appropriate.
12
The following brief summary of certain features of the Stock
Incentive Plan is qualified in its entirety by reference to the full
text of the Stock Incentive Plan, which is attached as Appendix B.
Summary of the Stock Incentive Plan
Stock Options. Stock options may be either "incentive stock
options" (within the meaning of Section 422 of the Internal Revenue
Code) or nonstatutory stock options. The exercise price per share that
may be acquired on exercise of a stock option will be determined by
the Compensation and Stock Option Committee at the time of grant and
generally will be not less than the fair market value per share on the
date of grant. Generally, options will have a term of [10] years (or a
shorter period for vested stock options if the participant terminates
employment) and will become exercisable ratably over [three] years,
but the Committee has the authority of provide for other terms or
other exercise schedules. Payment may be made in cash or in the form
of unrestricted shares the participant already owns or by other means
as determined by the Committee including "cashless" exercises. The
right to exercise an option may be conditioned on the completion of a
period of service or other conditions.
Stock Appreciation Rights (SAR's). SAR's entitle a participant to
receive an amount in cash, shares or both, equal to (i) the excess of
the fair market value of one share on the date of exercise over the
fair market value on the date of grant multiplied by (ii) the number
of shares to which the SAR relates. The right to exercise an SAR may
be conditioned on the completion of a period of service or other
conditions. Generally, participants will be given [10] years in which
to exercise an SAR or a shorter period once a participant terminates
employment.
SAR's may be granted independently or in conjunction with the
grant of a stock option. If an SAR is granted in conjunction with a
stock option, the exercise of either the SAR or the stock option will
reduce the number of shares covered by the related stock option or
SAR, as the case may be.
Shares of Restricted Stock. Restricted Stock may also be awarded
under the Stock Incentive Plan, which is the grant of shares of Common
Stock that requires the completion of a period of service or the
attainment of specified performance goals by the participant or the
Company or such other criteria as the Compensation and Stock Option
Committee may determine in order to retain the shares. Upon a
participant's Termination of Employment (as defined in the Stock
Incentive Plan), the restricted stock still subject to restriction
generally will be forfeited by the participant. The Compensation and
Stock Option Committee may waive these restrictions in the event of
hardship or other special circumstances.
Deferred Stock. Deferred stock is stock that can be awarded to a
participant that may be delivered immediately or in the future, at a
specified time and under specified circumstances. The Compensation and
Stock Option Committee will determine the participants to whom, and
the time or times at which, Deferred Stock may be awarded, the number
of shares of Deferred Stock to be awarded to any participant, the
duration of the period, if any, during which, and the conditions under
which, receipt of the shares will be deferred and any other terms and
conditions of the Deferred Stock.
Amendments and Modifications. The Stock Incentive Plan is not
limited as to its duration. The Board of Directors may amend, alter or
discontinue the Stock Incentive Plan, subject to certain limits.
Change in Control. In the event of a Change in Control (as
defined in the Stock Incentive Plan) of the Company:
o all SAR's and Stock Options outstanding as of the date of
such Change in Control which are not then exercisable and
vested will become fully exercisable and vested to the full
extent of the original grant; and
13
o the restrictions and deferred limitations applicable to any
shares of Restricted Stock and Deferred Stock will lapse,
and such shares of Restricted Stock and Deferred Stock will
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant.
For purposes of the Stock Incentive Plan, a Change in Control
includes any transaction which would result in any person's acquiring
ownership, directly or indirectly, 20% or more of the Company's
outstanding Common Stock or the voting power of the Company other than
as a result of specified transactions, certain changes in the members
of the Board of Directors, certain corporate transactions (such as a
merger) and the sale of substantially all of the Company's assets.
Certain Federal Income Tax Consequences
The following summary of tax consequences with respect to awards
granted under the Stock Incentive Plan is not comprehensive and is
based upon laws and regulations in effect on the date hereof. Such
laws and regulations are subject to change. The summary is intended
for the information of stockholders in considering how to vote and not
as tax guidance to participants in the Stock Incentive Plan.
Participants in the Stock Incentive Plan should consult their own tax
advisors as to the tax consequences of participation in the Stock
Incentive Plan.
Stock Options. Stock options granted under the Stock Incentive
Plan may be either stock options qualified under Section 422 of the
Internal Revenue Code ("ISO's") or options that are not ISO's,
referred to herein as "NQSO's." There are generally no federal income
tax consequences either to the option holder or to the Company upon
the grant of a stock option. On exercise of an ISO, the option holder
will not recognize any income and the Company will not be entitled to
a deduction for tax purposes, although such exercise may give rise to
liability for the option holder under the alternative minimum tax
provisions of the Internal Revenue Code. Generally, if the option
holder disposes of shares acquired upon exercise of an ISO within two
years from the date of grant or one year from the date of exercise,
the option holder will recognize compensation income and the Company
will be entitled to a deduction for tax purposes in the amount of the
excess of the fair market value of the shares on the date of exercise
over the option exercise price (or the gain on sale, if less).
Otherwise, the Company will not be entitled to any deduction for tax
purposes upon disposition of such shares, and the entire gain for the
option holder will be treated as a capital gain.
On exercise of a NQSO, the amount by which the fair market value
of the shares on the date of exercise exceeds the option exercise
price will generally be taxable to the option holder as compensation
subject to income and payroll taxes and will generally be deductible
for tax purposes by the Company. The disposition of shares acquired
upon exercise of a NQSO will generally result in a capital gain or
loss for the option holder with the holding period commencing on the
date of the exercise but will have no consequences for the Company.
Stock Appreciation Rights. Upon the grant of an SAR, the
participant will not recognize any taxable income and the Company will
not be entitled to a deduction. Upon the exercise of an SAR, the
consideration paid to the participant will constitute compensation
taxable to the participant as ordinary income. The amount of the
consideration paid to the participant upon exercise of an SAR for
Common Stock of the Company is the fair market value of the shares on
the date of exercise less the fair market value on the date of grant.
The Company generally will be entitled to a deduction for federal
income tax purposes in an amount equal to the compensation taxable to
the participant (including payroll taxes thereon).
Other Awards. With respect to awards granted under the Stock
Incentive Plan that result in the payment or issuance of cash or
shares of Common Stock or other property that is either not restricted
as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income
equal to the cash or the fair market value of shares or other property
received on the date any such restrictions lapse. Thus, deferral of
the time of payment or issuance will generally result in the deferral
of the time the participant
14
will be liable for income taxes with respect to such payment or
issuance. The Company generally will be entitled to a deduction in an
amount equal to the ordinary income received by the participant. With
respect to awards involving the issuance of shares of Common Stock of
the Company or other property that is restricted as to transferability
and subject to a substantial risk of forfeiture, the participant must
generally recognize ordinary income equal to the fair market value of
the shares or other property received as of the first time the shares
or other property becomes transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier. The Company will be
entitled to a deduction in an amount equal to the ordinary income
received by the participant. A participant may elect to be taxed at
the time of receipt of shares or other property rather than upon lapse
of restrictions on transferability or the substantial risk of
forfeiture, but if the participant subsequently forfeits such shares
or property, he would not be entitled to any tax deduction, including
a capital loss, for the value of the shares or property on which he
previously paid tax. The participant must file such election with the
Internal Revenue Service within 30 days of the receipt of the shares
or other restricted property.
Parachute Payments. In the event any payments or rights accruing
to a participant upon a Change in Control, or any other payments
awarded under the Incentive Stock Plan, constitute "parachute
payments" under Section 280G of the Internal Revenue Code, depending
upon the amount of such payments accruing and the other income of the
participant from the Company, the participant may be subject to an
excise tax (in addition to ordinary income tax) and the Company may be
disallowed a deduction for the amount of the actual payment.
Plan Benefits to Executive Officers and Directors
Since the grant of awards under the Stock Incentive Plan is
within the discretion of the Compensation and Stock Option Committee,
the Company cannot determine the amount of awards that may be made to
the Company's executive officers named in the Summary Compensation
table, its executive officers as a group, its non-executive directors
or its non-executive officer employees as a group.
Value of Common Stock Reserved under the Stock Incentive Plan
Based on the closing price of the Company's Common Stock on April
14, 2004, the fair market value of the shares reserved for the 2004
Stock Incentive Plan was $8,220,000.
Recommendation of the Board of Directors
The Board of Directors, which unanimously approved the adoption
of the 2004 Stock Incentive Plan, recommends a vote `FOR" this
proposal.
INDEPENDENT AUDITORS
Eisner LLP, New York, New York, has audited the Company's
financial statements for the years ended December 31, 2002 and 2003.
A representative of Eisner LLP is expected to be in attendance at
the Annual Meeting, to have an opportunity to make a statement if the
representative desires to do so and to be available to respond to
appropriate questions.
15
Audit Fees
Audit Fees. Eisner LLP billed Delcath $65,500 for professional
services rendered for the audit of Delcath's annual financial
statements for each of 2002 and 2003, and the reviews of the financial
statements included in the Delcath's Quarterly Reports on Form 10-Q
filed for the first three quarters of 2002 and 2003.
Audit Related Fees. During the years 2002 and 2003, Eisner LLP
did not provide audit related services to the Company.
Tax Fees. During 2002 and 2003, Eisner LLP did not provide tax
services to the Company.
All Other Fees. Eisner LLP billed Delcath $69,500 for 2002 and
$19,775 for 2003. These fees were for professional services rendered
in connection with the Registration Statement we filed in December
2002 with the Securities and Exchange Commission and subsequent
amendments which Registration Statement became effective in 2003.
As previously reported, on April 12, 2002, KPMG LLP resigned as
Delcath's independent auditors. The report of KPMG on Delcath's
balance sheet as of December 31, 2001 and the related statements of
operations, stockholders' equity and cash flows for each of the years
in the two-year period ended December 31, 2001 and for the period from
August 5, 1988 (inception) to December 31, 2001 did not contain any
adverse opinion or disclaimer of opinion, nor were they modified as to
uncertainty, audit scope or accounting principles. During 2002, the
Company paid $11,000 in fees to KPMG LLP.
In connection with the audits of the periods described above, and
the subsequent interim period through April 12, 2002, there were no
disagreements between Delcath and KPMG on any matter of accounting
principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to KPMG's
satisfaction, would have caused KPMG to make reference to the subject
matter of the disagreement(s) in connection with its reports.
On April 25, 2002, Delcath engaged Eisner LLP as its independent
auditors.
STOCKHOLDER PROPOSALS
It is contemplated that the next Annual Meeting of Stockholders
will be held on or about June [__] 2005. To be eligible for inclusion
in the proxy statement to be furnished to all stockholders entitled to
vote at the 2005 Annual Meeting of Stockholders, proposals must be
addressed to the Secretary of Delcath and must be received at
Delcath's principal executive offices not later than [__________],
2005. In order to avoid controversy as to the date on which a proposal
was received by Delcath, it is suggested that any stockholder who
wishes to submit a proposal submit such proposal by Certified Mail,
Return Receipt Requested.
If any stockholder proposes to make any proposal at the 2005
Annual Meeting of Stockholders which proposal will not be included in
Delcath's proxy statement for such meeting, such proposal must be
received by [__________], 2005 to be considered timely for purposes of
Rule 14a-4(c) under the Securities Exchange Act of 1934. The form of
proxy distributed by the Board of Directors for such meeting will
confer discretionary authority to vote on any such proposal not
received by such date. If any such proposal is received by such date,
the proxy statement for the meeting will provide advice on the nature
of the matter and how Delcath intends to exercise its discretion to
vote on each such matter if it is presented at that meeting.
EXPENSES AND SOLICITATION
The costs of printing and mailing proxies will be borne by
Delcath. In addition to soliciting stockholders by mail or through its
regular employees, Delcath may request banks, brokers and other
custodians, nominees and fiduciaries to solicit their customers who
have stock of Delcath registered in the name of a nominee and, if so,
will reimburse such banks, brokers and other custodians, nominees and
fiduciaries for their
16
reasonable out-of-pocket costs. Solicitation by officers and employees
of Delcath may also be made of some stockholders following the
original solicitation.
OTHER BUSINESS
The Board of Directors knows of no other items that are likely to
be brought before the meeting except those that are set forth in the
foregoing Notice of Annual Meeting of Stockholders. If any other
matters properly come before the meeting, the persons designated on
the enclosed proxy will vote in accordance with their judgment on such
matters.
By Order of the Board of Directors
M. S. KOLY,
President and Chief Executive Officer
APPENDIX A
DELCATH SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
(adopted June 15, 2000,
revised March 25, 2004)
This charter (this "Charter") governs the operations of the audit committee
(the "Committee") of the board of directors (the "Board") of Delcath Systems,
Inc., a Delaware corporation (the "Company").
Purpose of the Audit Committee
------------------------------
The Committee is a part of the Board. Its primary function is to provide
assistance to the Board in fulfilling its oversight responsibilities with
respect to (i) the annual financial information to be provided to stockholders
and filed with the Securities and Exchange Commission (the "SEC"); (ii) the
system of internal accounting and financial controls that management has
established; and (iii) the independent audit of the Company's financial
statements.
The Committee will have the authority and perform the specific functions
described below. It is the responsibility of the Committee, in performing its
functions, to provide available avenues of communication among the Company's
independent audit firm (the "Outside Auditors"), the Company's management and
the Board. The Committee should have a clear understanding with the Outside
Auditors that they must maintain an open relationship with the Committee and
that the ultimate accountability of the Outside Auditors is to the Committee and
to the Board, as representatives of the Company's stockholders.
Composition of the Committee
----------------------------
The Committee shall be comprised of such number of directors as may be
determined by the Board; provided, however, that the number of members of the
Committee shall not be fewer than the number required from time by applicable
rules of the SEC or any registered securities exchange or national securities
association on which any securities of the Company are listed or quoted. Each
member of the Committee shall: (a) satisfy the independence and experience
requirements of the Nasdaq Stock Market, Inc. ("Nasdaq"), the listing standards
of any other securities exchange or association on which the Company's
securities are traded and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations of the SEC adopted thereunder and (b) be
free from any relationship which, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the
Committee.
All members of the Committee must be able to read and understand
fundamental financial statements at the time of their appointment to the
Committee, and at least one member shall have accounting or related financial
management expertise which results in the member's financial sophistication. To
the extent reasonably feasible, at least one member of the Committee shall
qualify as an "audit committee financial expert" as defined by the SEC, as
determined annually by the Board.
The members of the Committee will be designated no less frequently than
annually by the Board. One of the members of the Committee will be designated
Committee Chairman by the Board. The determination of the "independence" of each
Committee member and the designation of one or more Committee members as "audit
committee financial experts," shall be made by the Board at least annually.
Meetings; Organization; Attendance
----------------------------------
The Committee shall meet at least four times annually and as many
additional times as the Chairman or the Committee deems necessary or at the
request of the Outside Auditors. The Committee shall meet in separate executive
sessions with the Chief Financial Officer of the Company and the
Outside Auditors (and may meet separately with the Outside Auditors if the
Committee so chooses) at least once a year and at other times when considered
appropriate.
The operations of the Committee shall be subject to the provisions of the
Company's Certificate of Incorporation and Bylaws, as each shall be in effect
from time to time. The Committee is authorized and empowered to adopt its own
rules of procedure not inconsistent with (a) any provision of this Charter; (b)
any provision of the Company's Certificate of Incorporation or By-laws or (c)
Delaware or any other applicable law.
Committee members will strive to be present at all meetings of the
Committee. As necessary or desirable, the Committee Chairman may request that
members of management, outside legal counsel and the Outside Auditors be present
at Committee meetings and provide information to the Committee.
Committee Authority and Specific Functions
------------------------------------------
In assisting the Board in its oversight role, the Committee shall have full
access to all books, records, facilities and personnel of the Company and shall
have the authority, to the extent it deems necessary or appropriate, to retain
special legal, accounting or other consultants and approve their retention
terms. The Company shall provide appropriate funding, as determined by the
Committee, for payment of compensation to the Outside Auditors for the purpose
of rendering or issuing an audit report or related work and to any outside
advisors retained by the Committee.
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible, in order to react appropriately to changing
conditions and to ensure to the Board and the Company's stockholders that the
accounting and financial reporting practices of the Company are in accordance
with all requirements and are of the highest quality. In carrying out these
responsibilities, the Committee shall, to the extent it deems necessary and
appropriate, perform the following functions:
o The Committee shall have the sole authority and responsibility to
select, evaluate and, where appropriate, replace the Outside Auditors.
The Committee shall be directly responsible for approving the level of
compensation to be paid to the Outside Auditors and the oversight of
the work of the Outside Auditors (including resolution of
disagreements between management and the Outside Auditors regarding
financial reporting) for the purpose of preparing or issuing an audit
report or related work. The Outside Auditors shall report directly to
the Committee.
o The Committee shall annually review and evaluate the qualifications,
performance and independence of the Outside Auditors' lead audit
partner and assure regular rotation of the lead audit partner and
reviewing partner as required by law and evaluate the appropriateness
of rotating the independent audit firm and provide its conclusions to
the Board. The Committee shall review and approve the Company's hiring
of employees and former employees of the Company's current and former
Outside Auditors.
o The Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be
performed for the Company by the Outside Auditors, subject to the de
minimis exceptions for non-audit services described in the Exchange
Act which are approved by the Committee prior to the completion of the
audit. The Committee may form and delegate authority to subcommittees
consisting of one or more members, including the authority to grant
preapprovals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant preapprovals shall be
presented to the Committee at its next scheduled meeting.
o On at least an annual basis, the Committee shall obtain from the
Outside Auditors a written communication delineating all their
relationships and professional services as required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit
Committee. In addition, the Committee shall review with the Outside
Auditors the nature and scope of any disclosed
A-2
relationships or professional services and take appropriate action, if
necessary, to ensure the continuing independence of the Outside
Auditors.
o The Committee shall meet with the Outside Auditors and management of
the Company to review the scope and general intent of the proposed
audit and timely quarterly reviews for the current year and the
procedures to be utilized during the course of the audit. The
Committee shall determine whether any limitations have been placed on
the scope or nature of the Outside Auditors' audit procedures and
shall also inquire about the cooperation received by the Outside
Auditors from Company personnel during their audit, including their
access to all requested Company records, data and information. At the
conclusion of the annual audit, the Committee shall review such audit,
including any comments or recommendations of the Outside Auditors.
o The Committee shall review with the Outside Auditors and management
the adequacy and effectiveness of the accounting and internal controls
over financial reporting of the Company and elicit any recommendations
for the improvement of such internal controls or particular areas
where new or more detailed controls or procedures are desirable. At
such times as may be required under applicable laws and regulations,
the Committee shall also review and discuss with management and the
Outside Auditors (a) any annual report prepared by management with
respect to the Company's internal control over financial reporting and
(b) any attestation report pertaining thereto delivered by the Outside
Auditors. The Committee shall also obtain from the Outside Auditors
periodic assurances that they are complying with all provisions of
applicable law which require the Outside Auditors, if they detect or
become aware of any illegal act, to assure that the Committee is
adequately informed and to provide a report if they have reached
specified conclusions with respect to such illegal acts.
o The Committee shall discuss in advance with management the Company's
practices with respect to the types of information to be disclosed and
the types of presentations to be made in earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information
(if any), and financial information and earnings guidance; and shall
also discuss with management and the Outside Auditors the effect of
off-balance sheet structures, if any.
o The Committee shall review and discuss the quarterly financial
statements with management and the Outside Auditors prior to the
filing of each quarterly report on Form 10-QSB (and prior to the press
release of results, if possible) to determine that the Outside
Auditors do not take exception to the disclosure and content of the
financial statements, and shall also discuss any other matters
required to be communicated to the Committee by the Outside Auditors
under generally accepted accounting standards. The Chairman of the
Committee may represent the entire Committee for purposes of this
review.
o The Committee shall review and discuss with management and the Outside
Auditors the financial statements to be included in the Company's
annual report under the Exchange Act, to determine that the Outside
Auditors are satisfied with the disclosure and content thereof. The
Committee shall also review and discuss with management and the
Outside Auditors: (a) the results of their analysis of significant
financial reporting issues and practices including changes in, or
adoptions of, accounting principles and disclosure practices; (b) the
Outside Auditors' judgment about the quality, not just the
acceptability, of accounting principles and the clarity of the
financial disclosure practices used or proposed to be used, and
particularly, the degree of aggressiveness or conservatism of the
Company's accounting principles and underlying estimates, and other
significant decisions made in preparing the financial statements; (c)
any matters required to be communicated to the Committee by the
Outside Auditors under generally accepted auditing standards and (d)
any other reports of the Outside Auditors required by law or
professional auditing standards, including reports on: (i) critical
accounting policies and practices used in preparing the financial
statements; (ii) alternative treatments of financial information
discussed with management, ramifications of such alternative
disclosures and treatments, and the treatment preferred by the Outside
Auditors; and (iii) other significant written
A-3
communications between the Outside Auditors and Company management,
such as any management letter issued or proposed to be issued, and a
schedule of unadjusted differences, if any.
o The Committee must be satisfied that adequate procedures are in place
for the review of the Company's disclosure (whether in filings with
the SEC, press releases or other published documents) of financial
information derived or extracted from the Company's financial
statements. The Committee shall consider whether the information
contained in these documents is consistent with the information
contained in the financial statements.
o The Committee shall review disclosures, if any, made by the Company's
Chief Executive Officer and Chief Financial Officer during their
certification process for the Company's periodic reports regarding:
(a) all significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to affect adversely the Company's ability to record,
process, summarize and report financial information; and (b) any
fraud, whether or not material, that involves management or other
employees who have a role in the Company's internal controls over
financial reporting.
o The Committee shall prepare and publish a Committee report for
inclusion in the Company's annual proxy statement and provide any
additional disclosures in the proxy statement or the Company's annual
report under the Exchange Act or as may be required to be made under
the rules and regulations of the SEC or Nasdaq.
o The Committee shall discuss with the Outside Auditors the quality of
the Company's financial and accounting personnel and shall also elicit
the comments of management regarding the responsiveness of the Outside
Auditors to the Company's needs.
o The Committee shall review and approve any "related-party"
transactions (as defined in SEC regulations) involving the Company and
officers, directors or stockholders beneficially owning more than 10%
of any class of equity security of the Company.
o Generally as part of its review of the annual financial statements,
the Committee shall have access to and receive oral reports, if
desired, from the Company's outside counsel concerning legal and
regulatory matters that may have a material impact on the financial
statements.
o The Committee shall consider such other matters in relation to the
financial affairs of the Company and in relation to the audit of the
Company's financial statements as the Committee may, in its
discretion, determine to be advisable and shall perform any other
duties consistent with this Charter, the Company's Certificate of
Incorporation, Bylaws and governing laws as the Committee or the Board
deems necessary.
o The Committee shall obtain the Board's approval of this Charter,
review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.
o The Committee shall annually review the Committee's own performance
and present a report to the Board of the performance evaluation of the
Committee.
Receipt and Treatment of Complaints
-----------------------------------
The Committee shall establish and oversee procedures for the receipt,
retention, and treatment of complaints received by the Company regarding
accounting, internal accounting controls, auditing or other matters, and for the
confidential or anonymous submission by employees of the Company of concerns
regarding questionable accounting, auditing or other matters.
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Limitation of Committee's Role
------------------------------
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles and applicable
rules and regulations. Management is responsible for the financial reporting
process, including the system of internal control over financial reporting and
for the preparation of financial statements in accordance with generally
accepted accounting principles. The Company's Outside Auditors are responsible
for auditing those financial statements and expressing an opinion as to their
conformity with generally accepted accounting principles. The Committee's
responsibility is to oversee and review these processes. The members of the
Committee are not, however, professionally engaged in the practice of accounting
or auditing and do not provide any expert or other special assurance as to such
financial statements concerning compliance with laws, regulations or generally
accepted accounting principles or as to auditor independence. Each member of the
Committee shall be entitled to rely on information, opinions, reports or
statements, including financial statement and other financial data, prepared or
presented by officers and employees of the Company, legal counsel, the Outside
Auditors or other persons with professional or expert competence.
A-5
APPENDIX B
DELCATH SYSTEMS, INC.
2004 Stock Incentive Plan
ARTICLE I
ESTABLISHMENT
1.1. Purpose. The Delcath Systems, Inc. 2004 Stock Incentive Plan is hereby
established by Delcath Systems, Inc. (the "Company"). The purpose of this Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in this Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms are defined as set forth
below:
2.1. "Affiliate" means any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2. "Agreement" or "Award Agreement" means any agreement entered into
pursuant to this Plan pursuant to which an Award is granted to a Participant.
2.3. "Award" means any Stock Option, Stock Appreciation Right, Restricted
Stock, Deferred Stock or Performance Share granted to a Participant under the
Plan.
2.4. "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.5. "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6. "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean (a) any act or failure to act deemed to constitute cause
under the Company's established practices, policies or guidelines applicable to
the Participant or (b) the Participant's act or omission constituting gross
misconduct with respect to the Company or an Affiliate in any material respect.
2.7. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 11.2 and 11.3, respectively.
2.8. "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.9. "Commission" means the Securities and Exchange Commission or any
successor agency.
2.10. "Committee" means the person or persons appointed by the Board of
Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "disinterested"
persons or "non-employees" within the meaning of Rule 16b-3 and each of whom is
an "outside" director under Section 162(m) of the Code
2.11. "Common Stock" means the shares of the Common Stock, $0.01 par value
per share, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of this Plan.
2.12. "Company" means Delcath Systems, Inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.13. "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.14. "Deferred Stock" means an award made pursuant to Article IX to
receive Common Stock at the end of a specified period.
2.15. "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability shall be made by the Committee. The determination of Disability for
purposes of this Plan shall not be construed to be an admission of disability
for any other purpose.
2.16. "Effective Date" means March 25, 2004.
2.17. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.18. "Extraordinary Termination of Employment" means the Termination of
Employment of the Participant due to death, Disability or Retirement.
2.19. "Fair Market Value" means the fair market value of Common Stock,
Awards or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value per share by Common Stock as of any date shall be the closing
bid or sale price per share, as the case may be, reported on a consolidated
basis for stock listed on the principal stock exchange or market on which the
Common Stock is traded on the date as of which such value is being determined
or, if there is no bid or sale, as the case may be, on that date, then on the
last previous day on which a sale or bid, as the case may be, was reported.
2
2.20. "Grant Date" means the date that as of which an Award is granted
pursuant to this Plan.
2.21. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.22. "Non-Qualified Stock Option" means an Option to purchase Common Stock
in the Company granted under this Plan the taxation of which is pursuant to
Section 83 of the Code.
2.23. "Option Period" means the period during which the Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.24. "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.25. "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Award has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is by or for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with the Rule 16b-3 or the status of the Option as an Incentive
Stock Option to the extent intended. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
employee.
2.26. "Plan" means this Delcath Systems, Inc. 2004 Stock Incentive Plan, as
the same may be amended from time to time.
2.27. "Representative" means (a) a person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of such Participant or pursuant to the laws of the jurisdiction in
which such Participant had such Participant's primary residence at the date of
such Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of such Participant; (c) the person or entity which is the
Beneficiary of such Participant upon or following such Participant's death; or
(d) any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.28. "Restricted Stock" means an award of Common Stock under Article VIII
that is subject to certain restrictions and a risk of forfeiture.
2.29. "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65.
2.30. "Rule 16b-3 and Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to this Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.31. "Stock Appreciation Right" means a right granted under Article VII.
3
2.32. "Stock Option" or "Option" means a right to purchase stock on
specified conditions granted under Article VI.
2.33. "Termination of Employment" means the occurrence of any act or event
whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including
without limitation, death, Disability, dismissal, severance at the election of
the person, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate, the
Agreement shall establish what act or event shall constitute a Termination of
Employment for purposes of this Plan. A transfer of employment from the Company
to an Affiliate, or from an Affiliate to the Company, shall not be a Termination
of Employment, unless expressly determined by the Committee. A Termination of
Employment shall occur to an employee who is employed by an Affiliate if the
Affiliate shall cease to be an Affiliate and the employee shall not immediately
thereafter become an employee of the Company or an Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. This Plan shall be administered by
the Committee which shall be comprised of one or more persons. The Committee
shall be the Compensation and Stock Option Committee of the Board of Directors,
unless such committee does not exist or the Board establishes a committee whose
purpose is the administration of this Plan. In the absence of an appointment,
the Board or the portion that qualifies as the Committee shall be the Committee.
A majority of the Committee shall constitute a quorum at any meeting thereof
(including telephonic meetings) and the acts of a majority of the members
present shall be the acts of the Committee for purposes of this Plan. The
Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member of
the Committee shall not exercise any discretion respecting himself or herself
under this Plan. The Board shall have the authority to remove, replace or fill
any vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
Board. The Committee may allocate among one or more of it members, or may
delegate to one or more of its agents, such duties and responsibilities as it
determines.
Among other things, the Committee shall have the authority, subject to the
terms of this Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the Option Price, the Option Period, any
exercise restriction or limitation; any exercise acceleration or forfeiture
waiver or any performance criteria regarding any Award and the shares of Common
Stock relating thereto);
4
(e) to adjust the terms and conditions, at any time or from time to time,
of any Award, subject to the limitations of Section 12.1;
(f) to determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in cash
or Common Stock;
(h) to provide for the form of any Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability or a Retirement;
(j) to determine what securities law requirements are applicable to this
Plan, the Awards, and the issuance of shares of Common Stock and to require of a
Participant that appropriate action be taken with respect to such requirements;
(k) to cancel, with the consent of the Participant or as otherwise provided
in this Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require as a condition of the exercise of an Award or the issuance
or transfer of a certificate for Common Stock, the withholding from a
Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a deduction
or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has incurred at
Termination of Employment;
(o) to determine whether the Company or any other person has a right or
obligation to purchase Common Stock from a Participant and, if so, the terms and
conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of Common
Stock;
(q) to determine whether an Award is to be adjusted, modified or purchased,
or is to become fully exercisable, under this Plan or the terms of an Agreement;
(r) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
5
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable to interpret the terms and provisions of this
Plan and any Award issued under this Plan (and any Agreement) and otherwise to
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of this
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of such Award or,
unless in contravention of any express terms of this Plan or the Agreement
relating to such Award, at any time thereafter. All decisions made by the
Committee pursuant to the provisions of this Plan shall be final and binding on
all persons, including the Company and Participants. Any determination shall not
be subject to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under this Plan shall be 3,000,000 shares of Common Stock.
4.2 Release of Shares. The Committee shall have full authority to determine
the number of shares of Common Stock available for Award, and in its discretion
may include (without limitation) as available for distribution any shares of
Common Stock that have ceased to be subject to an Award, any shares of Common
Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock or payment of cash being
made to the Participant.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Award to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder as
to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have a
reasonable time in which to issue the shares, and the Participant will not be
treated as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
applicable Agreement.
6
4.5 Anti-Dilution. In the event of any Company stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, partial or complete
liquidation, or any other corporate transaction, or event involving the Company
and having an effect similar to any of the foregoing, then the Committee may
adjust or substitute, as the case may be, the number of shares of Common Stock
available for Awards under this Plan, the number of shares of Common Stock
covered by outstanding Awards, the exercise price per share of outstanding
Awards, and any other characteristics or terms of the Awards as the Committee
shall deem necessary or appropriate to reflect equitably the effects of such
changes to the Participants; provided, however, that the Committee may limit any
such adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code, and that any fractional shares resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
shares with appropriate payment for such fractional share as shall reasonably be
determined by the Committee.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in this Plan and to be granted Awards shall be those
persons who are officers, directors, employees or consultants of the Company or
any subsidiary, who shall be in a position, in the opinion of the Committee, to
make contributions to the growth, management, protection and success of the
Company and its subsidiaries. Of those persons described in the preceding
sentence, the Committee may, from time to time, select persons to be granted
Awards and shall determine the terms and conditions with respect thereto. In
making any such selection and in determining the form of the Award, the
Committee may give consideration to the functions and responsibilities of the
person, the person's contributions to the Company and its subsidiaries, the
value of the individual's service to the Company and its subsidiaries and such
other factors deemed relevant by the Committee.
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Options under this
Plan at any time or from time to time. Stock Options may be granted alone or in
addition to other Awards and may be either Incentive Stock Options or
Non-Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in the form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in this Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Company, any parent corporation of the Company or a subsidiary
(as such terms are defined in Section 424 of the Code) on the Grant date shall
be eligible to be granted an Option which is intended to be and is an Incentive
Stock Option. To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option.
7
6.3 Terms and Conditions. Stock Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. Unless otherwise fixed by the Committee at the time
of grant, the Option Period of each Stock Option shall be (10) years from
the date of grant or five (5) years in the case of an individual who owns
more than ten percent (10%) of the combined voting power of all classes of
stock of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section 424 of
the Code). No Option which is intended to be an Incentive Stock Option
shall be granted more than ten (10) years from the date of this Plan is
adopted by the Company or the date this Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) Option Price. Unless otherwise fixed by the Committee at the time
of grant, Option Price per share of the Common Stock purchasable under an
Option shall be the Fair Market Value per share on the date the Option is
granted; provided, however, that in no event may the exercise price per
share be less than the Fair Market value per share on the date the Option
is granted. If an Option intended to qualify as an Incentive Stock Option
is granted to an individual who owns or who is deemed to own stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), the exercise price per share shall be
one hundred ten percent (110%) of such Fair Market Value per share or such
higher price per share as may be fixed by the Committee at the time of
grant.
(c) Exercisability. Unless otherwise fixed by the Committee at the
time of grant and subject to Section 11.1, Stock Options shall become
exercisable as to one-third of the shares covered thereby on each of the
first, second and third anniversaries of the date of grant. Notwithstanding
the foregoing, if the Committee intends that an Option be an Incentive
Stock Option, the Committee shall provide that the aggregate Fair Market
Value (determined at the Grant Date) of all Incentive Stock Options held by
the person to whom such Incentive Stock Option is granted that first become
exercisable during any calendar year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee (including approval at the
time of exercise), payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal to the Option Price;
(ii) by authorizing the Company to retain shares of Common Stock which
would otherwise be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the Option Price; (iii) by
the delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise indicated
an intent to exercise an Option (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (iv) by any combination of the foregoing. If payment of the
Option Price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Deferred Stock, the number of shares of
Common Stock to be received upon such exercise equal to the number of
shares of Restricted Stock or Deferred Stock used for payment of the Option
Price shall be subject to the same forfeiture restrictions or deferral
limitations to which such Restricted Stock or Deferred Stock was subject,
unless otherwise determined by the Committee. In the case of an Incentive
Stock Option, the right to make a payment in the form of already owned
shares of Common Stock may be authorized only at the time
8
the Stock Option is granted. No shares of Common Stock shall be issued
until full payment therefor, as determined by the Committee, has been made.
Subject to any forfeiture restrictions or deferral limitations that may
apply if a Stock Option is exercised using Restricted Stock or Deferred
Stock, a Participant shall have all of the rights of a stockholder of the
Company holding Common Stock (including, if applicable, the right to vote
the shares and the right to receive dividends), when the Participant has
given written notice of exercise, has paid in full for such shares and such
shares have been recorded on the Company's official stockholder records as
having been issued and transferred.
(e) Non-transferability of Options. Except as provided herein or in an
Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option, no Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent and distribution or by a designation of beneficiary effective upon
the death of the Participant, and all Stock Options shall be exercisable
during the Participant's lifetime only by the Participant. If and to the
extent transferability is permitted by Rule 16b-3 and except as otherwise
provided herein or by an Agreement, every Option granted hereunder shall be
freely transferable, but only if such transfer does not result in liability
under Section 16 of the Exchange Act to the Participant or other
Participants and is consistent with registration of the Option and sale of
Common Stock on Form S-8 (or a successor form) or the Committee's waiver of
such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one (1)
year (or such other period or no period as the Committee may specify with
respect to such Stock Option) immediately following the date of such death or
until the expiration of the Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of one (1) year (or such other period or no period as
the Committee may specify with respect to such Stock Option) immediately
following the date of such Termination of Employment or until the expiration of
the Option Period, whichever period is shorter, and the Participant's death at
any time following such Termination of Employment due to Disability shall not
affect the foregoing. In the event of Termination of Employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the three-month period commencing with the date of such Termination of
Employment or until the expiration of the Option Period. Unless otherwise
provided in an Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment which is either (a) voluntary on the part of
the Participant (and is not due to Retirement) or (b) with Cause, the Option
shall terminate immediately. Unless otherwise provided in an Agreement or
determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the
exercisability of the time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
by paying the Participant an amount, in cash or
9
Common Stock, equal to the excess of the Fair Market Value of the Common Stock
that is subject to the Option over the Option Price times the number of shares
of Common Stock subject to the Option on the effective date of such cash out.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Committee shall have authority to grant Stock Appreciation
Rights under this Plan at any time or from time to time. Subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with all
or part of any Stock Option granted under this Plan in which case the exercise
of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of the Stock Option
will result in cancellation of a corresponding portion of the Stock Appreciation
Right. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right may also be granted on a
stand-alone basis. The grant of a Stock Appreciation Right shall occur as of the
date the Committee determines. Each Stock Appreciation Right granted under this
Plan shall be evidenced by an Agreement, which shall embody the terms and
conditions of such Stock Appreciation Right and which shall be subject to the
terms and conditions set forth in this Plan.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. Unless otherwise fixed by the Committee
at the time of grant, a Stock Appreciation Right which is granted on a
stand alone basis shall be for a period of ten (10) years and shall become
exercisable as to one-third of the Stock Appreciation Rights on each of the
first, second and third anniversaries of the date of Grant. Stock
Appreciation Rights shall be exercised by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the portion of the Stock Appreciation Right to be
exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair Market
Value per share of Common Stock over the Option Price per share of Common
Stock specified in the related Agreement multiplied by the number of shares
in respect of which the Stock Appreciation Right is exercised. In the case
of a Stock Appreciation Right granted on a stand-alone basis, the Fair
Market Value per share of the Common Stock on the date of grant or such
other amount as may be specified by the Committee at the time of grant of
the Stock Appreciation Right shall be the value to be used in lieu of the
Option Price per share of Common Stock. The Fair Market Value per share of
the Common Stock shall be determined as of the date of the exercise of such
Stock Appreciation Right.
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(c) Special Rules. In the case of Stock Appreciation Rights relating
to Stock Options held by Participants who are actually or potentially
subject to Section 16(b) of the Exchange Act to the extent required by Rule
16b-3, the Committee may require that such Stock Appreciation Rights be
exercised only in accordance with the provisions of Rule 16b-3.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under this Plan unless otherwise
provided in an Agreement.
ARTICLE VIII
RESTRICTED STOCK
8.1 General. The Committee shall have authority to grant Restricted Stock
under this Plan at any time or from time to time. Shares of Restricted Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares of Restricted
Shares to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee shall determine. The provisions
of Restricted Stock Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance of
shares of Common Stock otherwise provided in this Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Award as determined by the
Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. The purchase price for shares of
Restricted Stock shall be set by the Committee and may be zero. Subject to
the provisions of this Plan and the Agreement, during a period set by the
Committee, commencing with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber any interest in shares of Restricted Stock.
Unless otherwise determined by the Committee, awards of Restricted Stock
must be accepted by a Participant within a period of 60 days (or such
shorter periods as the Committee may specify at grant) after the Grant
Date, by executing a Restricted Stock Agreement and paying whatever price,
if any, is required. The Participant shall not have any rights with respect
to such Award, unless and until such Participant has executed an agreement
evidencing the Award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and
conditions of such award.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the Common Stock that is the
subject of the Restricted Stock, including, if applicable, the right to
11
vote the shares and the right to receive any cash dividends. Unless
otherwise determined by the Committee and subject to this Plan, cash
dividends on the Common Stock that is the subject of the Restricted Stock
shall be automatically deferred and reinvested in additional Restricted
Stock, and dividends on the Common Stock that is the subject of the
Restricted Stock payable in Common Stock shall be paid in the form of
additional Restricted Stock.
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award of Restricted Stock and waive the restrictions for all or
any part of such Award of Restricted Stock.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the applicable
Agreement and this Plan, upon a Participant's Termination of Employment for
any reason during the Restriction Period other than death or Disability,
all shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, certificates for such shares bearing no legend referring to the
terms, conditions and restrictions applicable pursuant to the applicable
Award shall be delivered to the Participant.
(f) Election. A Participant may elect to further defer receipt of the
Restricted Stock payable under an Award (or an installment of an Award) for
a specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at least one (1) year prior to completion of the Restriction Period
for the Award (or applicable installment of the Award).
ARTICLE IX
DEFERRED STOCK
9.1 General. The Committee shall have authority to grant Deferred Stock
under this Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period"),
if any, prior to which the Deferred Stock will be delivered, and the conditions
under which receipt of the Deferred Stock will be deferred and any other terms
and conditions of the Awards. In the discretion of the Committee, a grant of
Deferred Stock under this Plan may provide that the Deferred Stock will be
delivered at the time the grant thereof is made. Each Award shall be confirmed
by, and be subject to the terms of, an Agreement. The Committee may condition
the grant of Deferred Stock upon the attainment of specified performance goals
by the Participant or by the Company or an Affiliate, including a division or
department of the Company or an Affiliate for or within which the Participant is
primarily employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
12
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
following terms and conditions.
(a) Limitations on Transferability. Subject to the provisions of this
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
transferred, pledged or otherwise encumbered during any Deferral Period. At
the expiration of the Deferral Period (or the Deferral Period determined as
provided in Section 9.2(e), where applicable), the Committee may elect to
deliver Common Stock, cash equal to the Fair Market Value of such Common
Stock or a combination of cash and Common Stock to the Participant for the
shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
to this Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of additional Deferred Stock.
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award of Deferred Stock and waive the deferral
limitations for all or any part of such Award of Deferred Stock.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award of Deferred Stock shall be
forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining deferral
limitations with respect to any or all of such Participant's Deferred
Stock.
(e) Election. A Participant may elect to further defer receipt of the
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at least one (1) year prior to completion of the Deferral Period for
the Award (or applicable installment of the Award).
ARTICLE X
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
10.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
13
10.2 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation affirmatively to disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XI
CHANGE IN CONTROL PROVISIONS
11.1 Impact of Event. Notwithstanding any other provision of this Plan to
the contrary, in the event of a Change in Control (as defined in Section 11.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
(a) to provide that the Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change in Control which are not then
exercisable shall become fully exercisable to the full extent of the
original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock or other Award shall
lapse, and such Restricted Stock, Deferred Stock or other Award shall
become free of all restrictions and become fully vested and transferable to
the full extent of the original grant;
(c) to cause any Award to be cancelled, provided notice of at least 15
days thereof is provided before the date of cancellation;
(d) to provide that the securities of another entity be substituted
hereunder for the Common Stock and to make equitable adjustment with
respect thereto;
(e) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to surrender
all or part of a stock-based Award to the Company and to receive cash in an
amount equal to the amount by which the "Change in Control Price" (as
defined in Section 11.3) per share of the Common Stock on the date of the
election exceeds the amount the Participant must pay to exercise the Award
per share of Common Stock under the Award (the "Spread") multiplied by the
number of shares of Common Stock granted under the Award; and
(f) to take any other action the Committee determines to take.
11.2 Definition of Change in Control. For purposes of this Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person"),
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty percent (20%) or more of either (i) the
then-outstanding shares of Common Stock (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (a), the following acquisitions shall
not constitute a
14
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any acquisition by a lender to
the Company pursuant to a debt restructuring of the Company, or (v) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 13.2;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board.
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the
then-outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty percent
(20%) or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
11.3 Change in Control Price. For purposes of this Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or The Nasdaq Stock Market during the 60-day period prior to
and including the date of a Change in Control or (b) if the Change in Control is
the result of a tender or exchange offer or a Business Combination, the highest
price per share of Common Stock paid in such tender or exchange offer or a
Business Combination, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in
15
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
ARTICLE XII
MISCELLANEOUS
12.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law, agreement or the rules of any stock
exchange or national securities association on which the Common Stock is then
listed or quoted. The Committee may amend, alter or discontinue the terms of any
Award theretofore granted, prospectively or retroactively, on the same
conditions and limitations (and exceptions to limitations) as the Board and
further subject to any approval or limitations the Board may impose.
12.2 Unfunded Status of Plan. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under this Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of this
Plan.
12.3 Status of Awards Under Code Section 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any Agreement does not comply or
is inconsistent with the requirements of Code Section 162(m), such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements.
12.4 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in this Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any federal, state, local or foreign
taxes of any kind required by law to be
16
withheld with respect to such amount or required in order for the Company
or an Affiliate to obtain a current deduction. To the extent permitted by
the Committee, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement provided that any applicable requirements under
Section 16 of the Exchange Act are satisfied. The obligations of the
Company under this Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to a Participant. If a Participant disposes of shares of
Common Stock acquired pursuant to an Incentive Stock Option in any
transaction considered to be a disqualifying transaction under the Code,
such Participant must give written notice of such transfer and the Company
shall have the right to deduct any taxes required by law to be withheld
from any amounts otherwise payable to such Participant.
(d) Reinvestment. The reinvestment of dividends in additional Deferred
Stock or Restricted Stock at the time of any dividend payment shall only be
permissible if sufficient shares of Common Stock are available under this
Plan for such reinvestment (taking into account then outstanding Options
and other Awards).
(e) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. This Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law).
This Plan shall be construed to comply with all applicable law, and to
avoid liability to the Company, an Affiliate or a Participant, including,
without limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by a
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to such Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
such Participant have been fully and finally resolved and such Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of this Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event this Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into this Plan with respect to Participants
subject to Section 16.
(i) Right to Capitalize. The grant of an Award shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
12.5 Mitigation of Excise Tax. Subject to any other agreement between a
Participant and the Company or an Affiliate, if any payment or right accruing to
such Participant under this Plan (without the application of this Section 12.5),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as
17
defined in Section 280G of the Code and regulations thereunder), such payment or
right shall be reduced to the largest amount or greatest right that will result
in no portion of the amount payable or right accruing under this Plan being
subject to an excise tax under Section 4999 of the Code or being disallowed as a
deduction under Section 280G of the Code. The determination of whether any
reduction in the rights or payments under this Plan is to apply shall be made by
the Committee in good faith after consultation with the Participant, and such
determination shall be conclusive and binding on the Participant. The
Participant shall cooperate in good faith with the Committee in making such
determination and providing the necessary information for this purpose. The
foregoing provisions of this Section 12.5 shall apply with respect to any person
only if after reduction for any applicable federal excise tax imposed by Section
4999 of the Code and federal income tax imposed by the Code, the Total Payments
accruing to such person would be less than the amount of the Total Payments as
reduced, if applicable, under the foregoing provisions of this Plan and after
reduction for only federal income taxes.
12.6 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain a Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate a Participant's employment or service as existed prior
to the individual's becoming a Participant in this Plan.
12.7 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
12.8 Procedure for Adoption. Any Affiliate of the Company may by resolution
of such Affiliate's board of directors, with the consent of the Board of
Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt this Plan for the benefit of its employees as of the date
specified in the board resolution.
12.9 Procedure for Withdrawal. Any Affiliate which has adopted this Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of this Plan.
12.10 Delay. If at the time a Participant incurs a termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in this Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee shall have the discretion to suspend
18
the application of the provisions of this Plan required solely to comply with
Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to
this Plan.
12.11 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
12.12 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
12.13 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
19
PRELIMINARY COPY
ANNUAL MEETING OF STOCKHOLDERS OF
DELCATH SYSTEMS, INC.
June 15, 2004
Please complete, date, sign and mail
your proxy card in the
envelope provided as soon
as possible
Please detach and mail in the envelope provided
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE DIRECTOR, THE
APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION AND THE APPROVAL
OF THE 2004 STOCK INCENTIVE PLAN. PLEASE COMPLETE, SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS
SHOWN HERE [X]
--------------------------------------------------------------------------------
1. Election of
|_| FOR DANIEL ISDANER AS A
CLASS I DIRECTOR
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
|_| WITHHOLD AUTHORITY DIRECTION IS MADE, THE PROXY SHALL BE VOTED
FOR DANIEL ISDANER AS A FOR THE ELECTION FOR THE ELECTION OF THE LISTED NOMINEES
CLASS I DIRECTOR AS DIRECTOR, THE APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION, THE APPROVAL OF THE 2004 STOCK INCENTIVE PLAN AND,
2. Amendment of the Certificate of IN THE CASE OF OTHER MATTERS THAT LEGALLY COME BEFORE THE MEETING, AS
Incorporation to increase the number SAID ATTORNEY(S) MAY DEEM ADVISABLE.
of authorized shares of common stock
to 70 million
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of 2004 Stock Incentive Plan.
|_| FOR [_] AGAINST |_| ABSTAIN
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To change the address on your account, please check PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING
the box at right and indicate your new address OF STOCKHOLDERS ON TUESDAY, JUNE 15, 2004 AT 11:00 A.M.
in the space above. Please note that changes to AT THE SHERATON STAMFORD HOTEL, 2701 SUMMER STREET, |_|
the registered name(s) on the account may be STAMFORD, CONNECTICUT.
submitted via this method. [_]
---------------------------------------------------
Signature of Stockholder ___________________ Date: ______ Signature of Stockholder ___________________ Date: _______________
Note: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
DELCATH SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 15, 2004
Revoking all prior proxies, the undersigned, a stockholder of DELCATH
SYSTEMS, INC. (the "Company"), hereby appoints M. S. Koly and Samuel
Herschkowitz, M.D., or either of them, as attorneys and agents of the
undersigned, with full power of substitution, to vote all of the shares of the
Company's Common Stock, par value $0.01 per share ("Common Stock") owned by the
undersigned at the Annual Meeting of the Stockholders of the Company to be held
on June 15, 2004 at the SHERATON STAMFORD HOTEL, 2701 SUMMER STREET, STAMFORD,
CONNECTICUT, AT 11:00 a.m. local time, and at any adjournment thereof, as fully
and effectively as the undersigned could do if personally present and voting,
hereby approving, ratifying, and confirming all that said attorney and agent or
his substitute may lawfully do in place of the undersigned as indicated on the
reverse.
IMPORTANT: SIGNATURE REQUIRED ON THE REVERSE SIDE