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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] 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)
-----------------------------------------
(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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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 29, 2004
---------------------------------
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 the 2004 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, 11,498,626 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, will first be mailed to stockholders along with these proxy
materials on or about May 7, 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 Joined
Nominee Board Age Current Position
------- ----- --- ----------------
Daniel Isdaner 2001 39 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. Paul M. Feinstein joined the company as Chief Financial
Officer in October, 2003. From 1991-2002 he was Vice President/Finance for the
New York Road Runners in New York, New York. From 1988-1990 he was the
Controller of Mechanical Plastics, Inc. Prior to that he held senior financial
positions with Holmes Protection Services, Jewelers Protection Services and
Parade Publications and was with Coopers & Lybrand, the international accounting
services firm. He is licensed to practice law in New York State. He holds a
B.B.A. from Pace College, an LL.M. in Taxation from NYU School of Law and
graduated from Albany Law School of Union University.
BOARD AND COMMITTEE MEETINGS AND FUNCTIONS
Attendance
The Board of Directors met five 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.
4
Functions of the Audit Committee include:
o the selection, evaluation and, where appropriate, replacement of the
Company's outside auditors;
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 Audit Committee Charter 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
5
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.
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, Connecticut 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 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),
6
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 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 29, 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 $100,000 (the "Named Executive Officers").
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation
--------------------------- ---- ---------- --------- ----------- ------------
M. S. Koly, President, 2003 229,500 15,000 (1) 120,000 0
Chief Executive Officer and 2002 187,500 0 100,000 0
Treasurer 2001 164,750 17,500 (2) 100,000 0
Samuel Herschkowitz, 2003 142,083 5,000 (1) 90,000 0
Chairman of the Board 2002 136,667 0 30,000 0
and Chief Technical Officer 2001 120,000 10,000 (2) 30,000 0
(1) Bonuses were declared payable in January 2004.
(2) Bonuses were declared payable in January 2002.
Option Grants in Last Fiscal Year
Stock options were granted to the Named Executive Officers during the 2003
fiscal year as follows:
7
Number of Shares of Percent of Total
Common Stock Options Granted to
Name Underlying Option Employees in 2002 Exercise Price ($/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
------------------
(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 0 391,745/170,000 41,000/10,000
S. Herschkowitz 0 0 189,836/105,000 4,800/3,000
-------------------
(1) Calculated based on the fair market value of $0.91 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
8
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). 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.
In each case, at the election of the employee, the Company will also 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 each 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) 1,454,138 12.3%
Venkol Trust (5) 1,072,649 9.3%
Samuel Herschkowitz, M.D. (6) 138,079 1.2%
Mark A. Corigliano (8) 58,000 0.5%
Daniel Isdaner (9) 60,500 0.5%
Victor Nevins (10) 67,100 0.6%
All directors and executive officers
as a group (six persons) (1) 1,777,817 14.7%
* Less than 1% of total voting securities
9
(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
owned by the person or entity holding such options or warrants.
(3) Percentage of beneficial ownership is calculated on the basis of the amount
of outstanding securities (Common Stock) at the Record Date (11,498,626
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 76,007 shares held by Mr. Koly
and 1,072,649 shares held by the Venkol Trust of which Mr. Koly has a
pecuniary interest in approximately 181,000. The figure above also includes
the vested portion (305,482 shares) of stock options to purchase shares of
the Common Stock.
(5) Mr. Koly is the trustee of the 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 592,561 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.
10
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 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 and the terms
of our Stockholder Rights Agreement, 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
------ -----------
11,498,626 Shares outstanding
1,788,705 Warrants that were issued prior to December 31, 2002 that
remain outstanding
2,575,480 Warrants that were issued in connection with our public
offering in 2003 that remain outstanding
371,872 Warrants that were issued in connection with our private
placements in 2004 that remain outstanding
1,251,549 Shares reserved for purposes of options that are
outstanding or may be granted under our option plans
17,486,232 Shares reserved for potential issuance pursuant to our
Stockholder Rights Agreement
------------
34,972,464
============
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.
11
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.
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 issued prior to the
earliest of the Distribution Date, the Redemption Date or 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 rights 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
12
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.
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 five
years (or as of the date of termination of employment to the extent exercisable
at that date if the participant terminates employment) and will become
exercisable ratably over five 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. Stock appreciation rights (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 five years in which to exercise an SAR or by the date of
termination of employment to the extent exercisable at that date if 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.
Stock Grants. Stock Grants are shares 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, Stock Grants
may be awarded, the number of shares covered by the Stock Grant 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 Stock Grant.
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.
13
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
o any restrictions and deferral limitations applicable to any shares of
Restricted Stock and shares covered by Stock Grants will lapse, and
such shares of Restricted Stock and shares covered by the Stock Grants
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, of 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
14
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 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.
15
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.
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-QSB 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 for other fees. 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 14, 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 December 31, 2004. 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 March 23, 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.
16
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 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
17
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 By-laws, 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
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
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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
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.
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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, By-laws 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.
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.
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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. "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.
2.15. "Effective Date" means March 25, 2004.
2.16. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.17. "Extraordinary Termination of Employment" means the Termination of
Employment of the Participant due to death, Disability or Retirement.
2.18. "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.
2.19. "Grant Date" means the date that as of which an Award is granted
pursuant to this Plan.
2.20. "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.
2.21. "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.
2.22. "Option Period" means the period during which the Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.23. "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.24. "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
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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.
2.25. "Plan" means this Delcath Systems, Inc. 2004 Stock Incentive Plan, as
the same may be amended from time to time.
2.26. "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.
2.27. "Restricted Stock" means an award of Common Stock under Article VIII
that is subject to certain restrictions and a risk of forfeiture.
2.28. "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.
2.29. "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.
2.30. "Stock Appreciation Right" means a right granted under Article VII.
2.31. "Stock Grant" means an award made pursuant to Article IX to receive
Common Stock either upon grant or at the end of a specified period.
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
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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);
(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;
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(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.
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,
provided, however, that the Company shall have no obligation to effect any such
registration or qualification; 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
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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.
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.
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:
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(a) Option Period. Unless otherwise fixed by the Committee at the time
of grant, the Option Period of each Stock Option shall be five (5) years from
the date of grant and may not exceed five (5) years in the case of an Incentive
Stock Option granted to 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).
(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 twenty percent (20%) of the shares covered thereby on each of
the first five 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 that are then exercisable, 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, with the
approval of the Committee, 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 shares
acquired in a Stock Grant , the number of shares of Common Stock to be received
upon such exercise equal to the number of shares of Restricted Stock or shares
acquired in a Stock Grant used for payment of the Option Price shall be subject
to the same forfeiture restrictions or deferral limitations to which such
Restricted Stock or shares acquired in a Stock Grant were 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 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 shares acquired in a Stock Grant, and subject to the provisions of the
following paragraph in the case of Stock Options exercised as of a future date,
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.
Notwithstanding the foregoing but otherwise subject to the provisions
of this Article VI, a Participant may exercise a Stock Option as of a future
date by delivering a written notice irrevocably exercising such Stock Option as
to the number of shares specified in such written notice. The written notice
shall be accompanied by payment in full of the purchase price by cash or check.
Such Stock Option shall be exercised as of the date specified in such written
notice, provided, that such Stock Option will be exercised on the date specified
in such written notice only to the extent the Participant would otherwise be
entitled to exercise such Stock Option on such date. If, because of the
limitation contained in the proviso to the preceding sentence, any portion of
the Stock Option is not exercised on the date specified in the written notice,
the Participant shall be entitled to a refund, without interest, of the excess
of the amount paid at the
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time of giving a written notice in accordance with the first sentence of this
paragraph over the exercise price of the portion of the Stock Option that is
exercised.
(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 exercisable to the extent exercisable on
the date of Termination of Employment for a period of ninety (90) days (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 exercisable to the extent
exercisable on the date of Termination of Employment by the Participant for the
period of ninety (90) days (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.
6.6. Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
(but not a Termination of Employment due to death or Disability) , any Stock
Option held by such Participant shall terminate upon such Termination of
Employment. . 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 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
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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 five ( 5) years and shall become exercisable as to twenty percent
(20%) of the Stock Appreciation Rights on each of the first five 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.
(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.
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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 30 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 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
STOCK GRANTS
9.1. General. The Committee shall have authority to award Stock Grants
under this Plan at any time or from time to time. Shares under a Stock Grant 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
Stock Grants will be awarded, the number of shares to be awarded to any
Participant under a Stock Grant, the duration of the period (the "Deferral
Period"), if any, prior to which the shares subject to a Stock Grant will be
delivered, and the conditions under which receipt of shares subject to a Stock
Grant will be deferred and any other terms and conditions of the Awards. In the
discretion of the Committee, a grant of shares under a Stock Grant may provide
that the Deferred Stock will be delivered at the time the Award thereof is made.
Each Award shall be confirmed by, and be subject to the terms
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of, an Agreement. The Committee may condition the grant of shares under a Stock
Grant 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 Stock Grants need not be the same with respect to
any Participant.
9.2. Terms and Conditions. Stock Grants 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 the shares
subject to a Stock Grant , 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 Stock
Grant. .
(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
Stock Grant shall be automatically deferred and reinvested in additional shares
subject to the Stock Grant , and dividends on the Common Stock that is the
subject of the Stock Grant payable in Common Stock shall be paid in the form of
additional shares subject to the Stock Grant. .
(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
shares under a Stock Grant and waive the deferral limitations for all or any
part of such Stock Grant.
(d) Termination of Employment. . Unless otherwise provided in an
Agreement or determined by the Committee, if the Participant incurs a
Termination of Employment during the Deferral Period, the Deferral Period for
shares subject to a Stock Grant shall terminate in accordance with the original
terms of the Stock Grant; provided, however, that if the Participant's
Termination of Employment is by the Company for Cause, any shares subject to a
Stock Grant for which the Deferral Period has not expired as of the
Participant's Termination of Employment shall be forfeited by the Participant.
Notwithstanding the foregoing, 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 the shares subject to such Participant's Stock Grants. .
(e) Election. A Participant may elect to further defer receipt of the
shares subject to a Stock Grant (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.
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.
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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, any shares subject to a Stock Grant or any
other Award shall lapse, and such Restricted Stock, shares subject to a Stock
Grant 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 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 11.2;
(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,
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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 the 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 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.
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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
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
Restricted Stock or shares subject to a Stock Grant 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.
B-14
12.5. 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.
12.6. 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 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.
12.7. 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.
12.8. 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.
12.9. 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
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.
12.10. Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
12.11. 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.
12.12. 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.
B-15
ANNUAL MEETING OF STOCKHOLDERS OF
DELCATH SYSTEMS, INC.
June 15, 2004
Please mark, date, sign and mail
your proxy card in the
envelope provided as soon
as possible
Please detach and mail in the envelope provided
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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 MARK, DATE, SIGN AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS
SHOWN HERE [X]
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1. Election of Director: 2. Amendment of the Certificate of |_| FOR |_| AGAINST |_| ABSTAIN
Incorporation to increase the number
NOMINEE: of authorized shares of common stock
|_| FOR DANIEL ISDANER to 70 million
as a Class I Director
|_| WITHHOLD AUTHORITY 3. Approval of 2004 Stock Incentive Plan [_] FOR [_] AGAINST |_| ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS MADE, THE PROXY SHALL BE VOTED FOR THE ELECTION OF THE LISTED NOMINEE AS
DIRECTOR, THE APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION,
THE APPROVAL OF THE 2004 STOCK INCENTIVE PLAN AND, IN THE CASE OF OTHER MATTERS
THAT LEGALLY COME BEFORE THE MEETING, AS SAID ATTORNEY(S) MAY DEEM ADVISABLE.
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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. [_]
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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
a duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by an 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