Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables contain information regarding the beneficial ownership of our common stock as of
July 11, 2017, held by: (i) each of our directors; (ii) each of our named executive officers in the Summary Compensation Table; (iii) all of our directors and executive officers as a group; and (iv) each person or group
known by us to own beneficially more than 5% of the outstanding common stock. We are not aware of any 5% or more holders of our Common Stock as of July 11, 2017. The information set forth in the table below excludes shares issuable upon
exercise of our outstanding warrants held by certain investors that are presently exercisable, subject to limitations on exercisability for more than 4.9% or 9.9% of our outstanding shares of common stock, depending upon the particular investor.
Except as indicated in the footnotes below, the address of the persons or groups named below is c/o Delcath Systems, Inc., 1633 Broadway, Suite 22C, New York, New York 10019.
Directors and Officers
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Shares
Beneficially
Owned
(1)
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Name of Beneficial Owner:
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Number
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Percent
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Named Executive Officers and Directors:
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Jennifer K. Simpson, Ph.D.
(2)
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46,987
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*
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John Purpura, M.S.
(3)
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38,827
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*
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Barbra C. Keck, M.B.A.
(4)
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26,158
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*
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Harold S. Koplewicz, M.D.
(5)
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4,688
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*
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Roger G. Stoll, Ph.D.
(6)
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6,637
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*
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William D. Rueckert
(7)
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5,625
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*
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Marco Taglietti, M.D.
(8)
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16,875
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*
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All directors and executive officers as a group (7 people)
(9)
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145,797
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*
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(1)
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Except as indicated in these footnotes: (i) the persons named in this table have sole voting and investment power with respect to all shares of common stock
beneficially owned; (ii) the number of shares beneficially owned by each person as of July 11, 2017, includes any vested and unvested shares of restricted stock and any shares of common stock that such person or group has the right to
acquire within 60 days of July 11, 2017, upon the exercise of stock options; and (iii) for each person or group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or
group by the sum of the 490,022,209 shares of common stock outstanding on July 11, 2017, plus the number of shares of common stock that such person or group has the right to acquire within 60 days of July 11, 2017.
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(2)
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Includes 5,079 shares of common stock, which Dr. Simpson has the right to acquire upon exercise of outstanding options exercisable within 60 days of July 11,
2017.
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(3)
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Includes 3,429 shares of common stock, which Mr. Purpura has the right to acquire upon exercise of outstanding options exercisable within 60 days of July 11,
2017.
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(4)
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Includes 2,271 shares of common stock, which Ms. Keck has the right to acquire upon exercise of outstanding options exercisable within 60 days of July 11,
2017, and 4 shares held in a joint account with her spouse.
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(5)
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Includes 1,875 shares of common stock, which Dr. Koplewicz has the right to acquire upon exercise of outstanding options exercisable within 60 days of
July 11, 2017.
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(6)
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Includes 3,688 shares of common stock, which Dr. Stoll has the right to acquire upon exercise of outstanding options exercisable within 60 days of July 11,
2017
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(7)
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Includes 3,125 shares of common stock, which Mr. Rueckert has the right to acquire upon exercise of outstanding options exercisable within 60 days of July 11,
2017.
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(8)
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Includes 3,125 shares of common stock, which Dr. Taglietti has the right to acquire upon exercise of outstanding options exercisable within 60 days of
July 11, 2017.
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(9)
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Includes 22,592 shares of common stock, which certain directors and executive officers have the right to acquire upon exercise of outstanding options exercisable within
60 days of July 11, 2017.
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4
FIVE PERCENT HOLDERS
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Title of Class
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Address of
Beneficial Owner
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Amount and
nature
of
beneficial
ownership
(Common
Stock)
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Percent of
Class
(Common
Stock)
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Amount
and
nature
of
beneficial
ownership
(Series A
Preferred
Stock)
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Percent of
Class
(Series A
Preferred
Stock)
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Amount
and
nature of
beneficial
ownership
(Series B
Preferred
Stock)
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Percent of
Class
(Series B
Preferred
Stock)
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Hudson Bay Master Fund Ltd.
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Common Stock, Series A Preferred Stock and Series B Preferred Stock
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777 Third Avenue,
30
th
Floor
New York, NY
10017
Attention:
George
Antonopoulos
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40,000,000
(1)
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8.2
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%
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4,200
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(1)
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100
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%
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2,006
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(1)
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85
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%
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Alto Opportunity Master Fund, SPC- Segregated Master Portfolio A.
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Common Stock and Series B Preferred Stock
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1180 Avenue
of the Americas,
Suite 842
New York,
NY
10036
Attn: Waqas Khatri
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45,623,003
(2)
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9.3
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%
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354
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(2)
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15
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%
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(1)
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Hudson Bay Capital Management, L.P., the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the
managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management, L.P. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities. Amount of Common Stock
beneficially owned includes 40,000,000 shares of Common Stock and 13,111,111 shares of Common Stock issuable upon conversion of the Series B Preferred Stock or the 2016 Note within 60 days of July 12, 2017, each of which is subject to
beneficial ownership limitations on conversion of 19.99% and 9.99%, respectively, of the total issued and outstanding Common Stock immediately following conversion. The Series A Preferred Stock votes along with the common stock with 1,141,304 votes.
The Series B Preferred Stock votes along with the common stock with 9,105,517 votes.
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(2)
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Ayrton Capital LLC serves as the investment manager of Alto Opportunity Master Fund, SPC- Segregated Master Portfolio A and has voting and investment power over these
securities. Waqas Khatri is the manager of Ayrton Capital LLC. Each of Alto Opportunity Master Fund, SPC - Segregated Master Portfolio A and Waqas Khatri disclaims beneficial ownership over the securities, except to the extent of its pecuniary
interest therein. Amount of Common Stock beneficially owned includes 45,623,003 shares of Common Stock and 2,313,725 shares of Common Stock issuable upon conversion of the Series B Preferred Stock or the 2016 Note within 60 days of July 12,
2017, each of which is subject to beneficial ownership limitations on conversion of 19.99% and 9.99%, respectively, of the total issued and outstanding Common Stock immediately following conversion. The Series B Preferred Stock votes along with the
common stock with 1,606,855 votes.
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5
PROPOSAL: REVERSE STOCK SPLIT
Overview
Our Board of
Directors has determined that it is advisable and in our and our stockholders best interests that the Board of Directors be granted the authority to implement, in its sole discretion, a reverse stock split of the outstanding and treasury
shares of our common stock at a specific exchange ratio set by the Board of Directors, at a range of ratios from 1-for-20 to 1-for-500, in the discretion of the Board of Directors and to be announced by press release, and to grant authorization to
the Board of Directors to determine, in its sole discretion, whether to implement the reverse stock split, as well as its specific timing (but not later than [●], 2018). Accordingly, stockholders are asked to approve an amendment to our
amended and restated certificate of incorporation to effect a reverse stock split consistent with such terms and to grant authorization to the Board of Directors to determine, in its sole discretion, whether to implement the reverse stock split, as
well as its specific timing and ratio (within the set of ratios listed above).
The Board of Directors strongly believes that
the reverse stock split is necessary for the following reasons:
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1.
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To enable repayment of certain senior secured convertible notes (the Notes) in shares of Common Stock
we are permitted to repay amounts due
under the Notes in shares of our Common Stock based upon certain formulae set forth in the Notes, and we do not have sufficient authorized and unissued shares available with which to repay those obligations with shares of our common stock.
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2.
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To provide us with resources and flexibility with respect to our capital sufficient to execute our business plans and strategy
we do not have sufficient
capital with which to run our business and meet our obligations and will need to raise further capital through sale of our equity securities.
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3.
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To maintain our listing on The NASDAQ Capital Market
our stock price is below the $1.00 minimum price required by NASDAQ, and we will need the Reverse
Stock Split in order to have a minimum bid price which meets this requirement.
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This Proposal is substantially
the same as Proposal 5 contained in our Definitive Proxy Statement for our Annual Meeting of Stockholders originally scheduled for June 5, 2017 and held on June 16, 2017. Although a majority of the shares of our outstanding common stock
that were actually cast on such proposal voted for such proposal, the number of votes cast in favor of the proposal was less than the majority of total outstanding shares of common stock as of the record date for that meeting, which is required for
approval under Delaware law. As of the record date for our Annual Meeting of Stockholders, we had 167,883,213 shares of our common stock issued and outstanding. As of July 11, 2017, we have 490,022,209 shares issued and outstanding, which
represents a 191.9% increase since the previous record date. As the Board of Directors continues to believe that the reverse stock split is necessary and appropriate and as a result of the significant recent changes to our stockholder base, the
Board of Directors has determined to call another meeting of stockholders of record as of a more recent record date for the purpose of considering the approval thereof.
Accordingly, the Board of Directors has unanimously approved a resolution proposing an amendment to our amended and restated certificate of incorporation to allow for the reverse stock split and directed
that it be submitted for approval at the Special Meeting.
The Board of Directors strongly believes that it is critical to
the future viability of the Company that you vote FOR the Proposal. Failure to effect a reverse stock split will have a material adverse effect on the Company and its capital structure, including its ability to issue any common stock. If
we are unable to repay our obligations under the Notes in shares of common stock and otherwise comply with our obligations thereunder, we will not be able to access the $11.8 million of cash held in the restricted account. As of June 1, 2017,
we only had $2.5 million of unrestricted cash. We expect to need at least $9.0 million of cash to fund our operations and clinical trials for the remainder of 2017. Even with the $1.9 million in unrestricted cash we received by issuing Series B
Preferred Stock, it is unclear whether we will be able to continue as a going concern after September 2017. We do not have access to other sources of debt
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financing and, without the implementation of a reverse stock split or increasing the number of authorized and unissued shares of our common stock, we are unable to raise a significant amount of
equity financing.
If we do not implement a reverse stock split. we will be likely to have insufficient cash to fund
our operations and clinical trials, and our business will likely fail, and among other things, the outstanding shares of our common stock may become both illiquid and worthless and result in a delisting from Nasdaq among other consequences.
Furthermore, if we have insufficient cash to fund our operations and clinical trials, we may have no alternative to filing for bankruptcy protection. If we file a bankruptcy petition, our creditors will have priority over holders of shares of our
common stock. It is likely that holders of shares of our common stock would receive little or no value for their shares as a result of any bankruptcy proceeding.
Should we receive the required stockholder approval for the Proposal, the Board of Directors will have the sole authority to elect, without the need for any further action on the part of our stockholders:
(1) whether or not to effect a reverse stock split, and (2) if so, the number of whole shares, from 20 through 500, in the discretion of the Board of Directors, which will be combined into one share of our common stock. Notwithstanding
approval of the reverse stock split by the stockholders, the Board of Directors may, in its sole discretion, abandon the proposed amendment and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware
not to effect the reverse stock split on or prior to [●], 2018, as permitted under Section 242(c) of the Delaware General Corporation Law. If the Board of Directors does not implement a reverse stock split on or prior to [●], 2018
stockholder approval again would be required prior to implementing any reverse stock split.
In determining which reverse
stock split ratio to implement, if any, following receipt of stockholder approval, the Board of Directors may consider, among other things, various factors, such as:
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the historical trading price and trading volume of our Common Stock;
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the then-prevailing trading price and trading volume of our Common Stock and the expected impact of the reverse stock split on the trading market for
our Common Stock in the short- and long-term;
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our ability to continue our listing on The NASDAQ Capital Market;
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which reverse stock split ratio would result in the least administrative cost to us; and
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prevailing general market and economic conditions.
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Failure to approve the amendment will have serious, adverse effects on us and our stockholders.
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Without a sufficient number of authorized shares available for issuance for future equity investments, we will be unable to raise additional capital
for operations and to grow our business either through establishment of strategic relationships with other companies or acquisitions.
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Without a sufficient number of authorized shares available, we will be in default of the terms of our Notes and be unable to repay our obligations
thereunder. As described in more detail under Reasons for the Reverse Stock Split To enable repayment of the Notes in shares of common stock, the conversion price of the Notes (as defined below) is subject to a floor of $0.05 per
share, As a result of the requirements under the terms of the Notes that a number of shares determined by reference to the conversion price be reserved for issuance for conversion thereof, substantially all of our remaining authorized shares of
Common Stock are reserved for issuance upon conversion thereof, and at current market prices, those shares do not constitute the required reserve. Since December 13, 2016, the date on which our Notes first became convertible, we have issued
487.6 million shares of our common stock as a result of conversions of the Notes. Our ability to repay the Notes through issuances of shares of Common Stock is dependent upon the satisfaction or waiver of certain conditions, which we expect
will only be satisfied or waived if the trading price of our shares of Common Stock is greater than the conversion price floor. The closing price of our Common Stock on The NASDAQ Capital Market has been below $0.40 per share since January 26,
2017 and was [●] per share on [●], 2017. Repayment of amounts due under the Notes through the issuance of shares of Common Stock would ensure that we
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are not required to repay such amounts in cash and would reduce the number of shares that we are required to reserve for issuance thereunder but would correspondingly increase the number of
issued and outstanding shares of our common stock.
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In addition, we could be delisted from The NASDAQ Capital Market because shares of our Common Stock may continue to trade below the requisite $1.00 per
share price needed to maintain our listing. If The NASDAQ Capital Market delists our Common Stock, our shares may then trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets. In that event, our Common Stock could
trade thinly as a microcap or penny stock, adversely decrease to nominal levels of trading and become avoided by retail and institutional investors, resulting in the impaired liquidity of our shares.
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The text of the form of the proposed amendment to our amended and restated certificate of incorporation, which assumes the approval of
the Proposal and that the Board of Directors decides to implement the reverse stock split, is attached hereto as Annex A. By approving this Proposal, stockholders will approve a series of amendments to our amended and restated certificate of
incorporation pursuant to which any whole number of outstanding and treasury shares, a number from 20 shares to 500 shares, could be combined into one share of Common Stock, and authorize the Board of Directors to file only one such amendment, as
determined by the Board of Directors in the manner described herein, and to abandon each amendment not selected by the Board of Directors. The Board of Directors may also elect not to undertake any reverse stock split.
Certain of our officers and directors have an interest in the reverse stock split as a result of their ownership of Common Stock, as set
forth in the section entitled Security Ownership of Certain Beneficial Owners and Management.
Recent Preferred Stock Issuances
Series A Preferred Stock
On June 29, 2017, our Board authorized the establishment of a new series of preferred stock designated as Series A Preferred Stock, $0.01 par value, the terms of which are set forth in the
certificate of designations for such series of Preferred Stock (the Series A Certificate of Designations) which was filed with the State of Delaware on June 30, 2017 (together with any preferred shares issued in replacement thereof
in accordance with the terms thereof, the Series A Preferred Stock). On July 2, 2017, we entered into an exchange agreement (the Exchange) with one of our investors which had purchased certain senior secured convertible
notes (the Notes), convertible into shares of our common stock pursuant to a certain June 6, 2016 securities purchase agreement, of $4.2 million aggregate principal amount of such Notes for 4,200 shares of Series A Preferred Stock
(the Series A Preferred Shares). The Exchange is being made in reliance upon the exemption from registration provided by Rule 3(a)(9) of the Securities Act of 1933, as amended. The Series A Preferred Shares shall be entitled to the whole
number of votes equal to $4.2 million divided by $3.68 (the closing bid price on June 13, 2016, the date of issuance of the Notes as adjusted for the reverse stock split effected in July 2016,) or 1,141,304 votes. The Series A Preferred Stock
has no dividend, liquidation or other preferential rights to our common stock, and each share of Series A Preferred Stock shall be redeemable for the amount of $0.001, payable in cash, per share at our written election.
Series B Preferred Stock
On June 29, 2017, our Board authorized the establishment of a new series of preferred stock designated as Series B Preferred Stock,
$0.01 par value, the terms of which are set forth in the certificate of designations for such series of Preferred Stock (the Series B Certificate of Designations) which was filed with the State of Delaware on June 30, 2017 (together with
any preferred shares issued in replacement thereof in accordance with the terms thereof, the Series B Preferred Stock). On July 11, 2017, we entered into a securities purchase agreement with existing holders of Notes pursuant to
which the investors purchased $2,360,000 of Series B
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Preferred Stock for a cash purchase price of $2,000,000 in a private placement. The Series B Preferred Shares shall be entitled to the whole number of votes equal to $2.0 million divided by
$0.1867 (the closing bid price on July 5, 2017, the date of the original securities purchase agreement for the Series B Preferred Stock), or 10,712,372 votes. The Series B Preferred Stock has no dividend, liquidation or other preferential
rights (but has the redemption rights described below) to our common stock and may be converted into shares of our common stock at a price equal to $0.153 per share (85% of the closing bid price of our common stock on July 5, 2017 or 15,424,837
shares of common stock in total) upon the earlier of the date of closing to the extent that the holder thereof reallocates shares of our common stock reserved for issuance under its Notes to conversion of the Series B Preferred Shares and otherwise
upon receipt of shareholder approval of the Reverse Stock Split. Upon the occurrence of any financing (as defined in the Series B preferred stock certificate of designations, which includes any further release of cash from the controlled accounts in
conjunction with the Notes), we must redeem from each holder of Series B preferred stock a number of shares of Series B preferred stock equal to the lesser of the aggregate number of preferred shares then held by such holder and the quotient of the
financing amount, divided by the stated value of the Series B preferred stock by instructing the control account bank, purchaser of securities, placement agent or underwriter, as applicable, to wire or release the applicable financing amount to the
holder of Series B preferred stock in question.
Effect of Issuance of Both Series of Preferred Stock on Approval of the Reverse Stock
Split
On June 16, 2017, we held an Annual Meeting of Stockholders at which, among other things, we sought approval of
the Reverse Stock Split. Although more shares voted in favor of the Reverse Stock Split than against it, we failed to receive the affirmative vote of a majority of the total number of outstanding shares of our common stock which was necessary to
approve the Reverse Stock Split under Delaware law, falling short by 7.5 million shares. Combined, the holders of Series A Preferred Shares and Series B Preferred Shares will be entitled to 11,853,676 votes, which will be entitled to vote with
respect to the Reverse Stock Split. Assuming those votes are all cast in favor of the Reverse Stock Split and assuming all shares which voted in favor of the Reverse Stock Split were to do so again, we would have 81,981,084 shares voted in favor out
of [ ] issued and outstanding as of the Record Date (including counting each vote of Series A Preferred Shares and Series B Preferred Shares as a share of common stock), which is
[ ]% in favor of the Reverse Stock Split.
Reasons for the Reverse
Stock Split
To enable repayment of the Notes in shares of common stock
. The Notes may be converted at the option of
the holders thereof. In addition, we are required to make periodic repayments of the principal amount thereof in either shares of common stock or cash. Any repayment of the Notes in shares of common stock is at a discount to the then current trading
price, subject to a minimum price floor of $0.05 per share. Our ability to make repayments in shares of common stock is subject to the satisfaction or waiver of certain conditions in the terms of the Notes. Despite the 2016 Reverse Stock Split (as
defined below), the Companys ability to issue shares in payment of installments of principal has been dependent upon waivers of certain of such conditions. If the trading price of our common stock is near or below $0.05 per share, we may not
satisfy such conditions, the holders of the Notes may have no economic incentive to waive such conditions and the holders of the Notes may require us to repay the Notes in cash. We may not have sufficient funds for such repayment in cash, which
could result in the acceleration of the Notes and foreclosure and repossession of the cash proceeds from the original issuance of the Notes held in a restricted account. Any loss of such funds would materially adversely affect our ability to fund
our operations.
To provide us with resources and flexibility with respect to our capital sufficient to execute our
business plans and strategy.
As of July 11, 2017, we had 490,022,209 shares of Common Stock outstanding, and, as a result of requirements under the terms of the Notes that a number of shares determined by reference to the conversion price be
reserved for issuance for conversion thereof, all of our remaining authorized shares of Common Stock are reserved for issuance upon conversion thereof. As described above, approval of the proposed reverse stock split is vital to our ability to repay
the Notes through the issuance of shares of Common Stock. In
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turn, our ability to issue additional shares in capital raising transactions is dependent upon the repayment of the Notes in shares of Common Stock, resulting in a reduction in the number of
shares of Common Stock required to be reserved for issuance upon future conversions thereof. Nevertheless, such issuances in repayment of the Notes will result in a greater number of shares of Common Stock outstanding and correspondingly fewer
shares of Common Stock that are authorized and unissued. The Board of Directors wishes to increase the number of unused authorized common shares by decreasing the outstanding shares through the reverse stock split without a corresponding decrease in
the number of authorized shares. This increase in unused authorized common shares will provide us greater flexibility with respect to our capital structure for various purposes as the need may arise from time to time. These purposes may include:
raising capital, establishing strategic relationships with other companies, expanding our business through the acquisition of other businesses or products and providing equity incentives to employees, officers or directors. As we expect that we will
seek to raise significant additional capital in future years to fund our clinical trials, we may need to issue a substantial number of shares in connection therewith.
The Board of Directors also believes that the increased market price of the Common Stock expected as a result of implementing a reverse stock split could improve the marketability and liquidity of the
Common Stock and will encourage interest and trading in the Common Stock. A reverse stock split could allow a broader range of institutions to invest in our stock (namely, funds that are prohibited from buying stocks whose price is below a certain
threshold), potentially increasing trading volume and liquidity of our Common Stock. A reverse stock split could help increase analyst and broker interest in our stock as their policies can discourage them from following or recommending companies
with low stock prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or
tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because
brokers commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, a low average price per share of Common Stock can result in individual stockholders paying
transaction costs representing a higher percentage of their total share value than would be the case if the share price were higher.
The Board of Directors does not intend for this transaction to be the first step in a series of plans or proposals of a going private transaction within the meaning of Rule 13e-3 of the
Securities Exchange Act.
To maintain our listing on The NASDAQ Capital Market.
By potentially increasing our stock
price, a reverse stock split would reduce the risk that our stock could be delisted from The NASDAQ Capital Market. To continue our listing on The NASDAQ Capital Market, we must comply with NASDAQ Marketplace Rules, which requirements include a
minimum bid price of $1.00 per share. On February 13, 2017, we were notified by the NASDAQ Listing Qualifications Department that we do not comply with the $1.00 minimum bid threshold as our Common Stock has traded below the $1.00 minimum bid
price for 30 consecutive business days. We were automatically provided with a 180-calendar day period within which to regain compliance, which ends on August 14, 2017. To regain compliance, our Common Stock must close at or above the $1.00
minimum bid price for at least 10 consecutive days or more at the discretion of NASDAQ. If we do not regain compliance by that date in accordance with terms of the notice, NASDAQ will provide written notice that our securities will be subject to
delisting from The NASDAQ Capital Market or eligible for an additional 180-day grace period. Following the expiration of any such additional grace period and any such delisting determination, we may appeal the decision to a NASDAQ Listing
Qualifications Panel. In the event of an appeal, our securities would remain listed on the NASDAQ Capital Market pending a written decision by the Panel following a hearing. In the event that the NASDAQ Listing Qualifications Panel determines not to
continue our listing and we are delisted from The NASDAQ Capital Market, our Common Stock may be delisted and trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets.
The Board of Directors has considered the potential harm to us and our stockholders should NASDAQ delist our Common Stock from The NASDAQ
Capital Market. Delisting could adversely affect the liquidity of our
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Common Stock since alternatives, such as the OTC Bulletin Board and the pink sheets, are generally considered to be less efficient markets. An investor likely would find it less convenient to
sell, or to obtain accurate quotations in seeking to buy, our Common Stock on an over-the-counter market. Many investors likely would not buy or sell our Common Stock due to difficulty in accessing over-the-counter markets, policies preventing them
from trading in securities not listed on a national exchange or other reasons.
The Board of Directors believes that a reverse
stock split is a potentially effective means for us to maintain compliance with NASDAQ Marketplace Rules and to avoid, or at least mitigate, the likely adverse consequences of our Common Stock being delisted from The NASDAQ Capital Market by
producing the immediate effect of increasing the bid price of our Common Stock.
Risks of the Proposed Reverse Stock Split
We cannot assure you that the proposed reverse stock split will increase our stock price and have the desired effect of maintaining
compliance with NASDAQ Marketplace Rules
. The Board of Directors expects that a reverse stock split of our Common Stock will increase the market price of our Common Stock so that we are able to regain and maintain compliance with the NASDAQ
minimum bid price listing standard. However, the effect of a reverse stock split upon the market price of our Common Stock cannot be predicted with any certainty, and the history of similar stock splits for companies in like circumstances is varied.
Our own 2016 Reverse Stock Split enabled us to regain compliance with the NASDAQ $1.00 minimum bid price requirement for less than a year and to effectively raise additional capital for period of similarly short duration; however, on
December 27, 2016, our stock closed below $1.00 for the first time since the July 2016 Reverse Stock Split and has not closed over $1.00 since that time. It is possible that the per share price of our Common Stock after the reverse stock split
will not rise in proportion to the reduction in the number of shares of our Common Stock outstanding resulting from the reverse stock split, and the market price per post-reverse stock split share may not exceed or remain in excess of the $1.00
minimum bid price for a sustained period of time, and the reverse stock split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks. Even if we effect a reverse stock split, the market
price of our Common Stock may decrease due to factors unrelated to the stock split. In any case, the market price of our Common Stock may also be based on other factors which may be unrelated to the number of shares outstanding, including our future
performance. If the reverse stock split is consummated and the trading price of the Common Stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the
absence of the reverse stock split. Even if the market price per post-reverse stock split share of our Common Stock remains in excess of $1.00 per share, we may be delisted due to a failure to meet other continued listing requirements, including
NASDAQ requirements related to the minimum number of shares that must be in the public float, the minimum market value of the public float and the minimum number of round lot holders.
Current stockholders will likely experience dilution as a result of the Reverse Stock Split.
The principal reason for
implementation of the reverse stock split in the short term is to enable us to be able to have shares available to repay our obligations under the Notes in shares of Common Stock in order for restricted cash to be released to us for working capital
purposes. Historically, in companies with convertible note structures, there is a trend for the stock price to decrease after a reverse stock split. This is likely as a result of the availability of more shares to satisfy obligations under these
notes through conversions of the notes into shares. As the number of shares available in the market increases, the price tends to decrease. Due to the conversion price formula for the Notes, more shares of stock are issued per conversion of dollar
amount of Note as the conversion price decreases. We are unable to predict if, when and to what magnitude dilution will occur; however, there is a substantial likelihood that significant dilution will occur based on historical data.
The proposed reverse stock split may decrease the liquidity of our stock
. The liquidity of our capital stock may be harmed by the
proposed reverse stock split given the reduced number of shares that would be outstanding after the reverse stock split, particularly if the stock price does not increase as a result of the reverse stock split.
11
In addition, investors might consider the increased proportion of unissued authorized shares
to issued shares to have an anti-takeover effect under certain circumstances, since the proportion allows for dilutive issuances which could prevent certain stockholders from changing the composition of the Board of Directors or render tender offers
for a combination with another entity more difficult to successfully complete. The Board of Directors does not intend for the reverse stock split to have any anti-takeover effects.
Recent Prior Reverse Stock Split and Other Transactions
On July 19,
2016, at our 2016 annual meeting of stockholders, our stockholders approved a reverse stock split at one of six ratios of 1-for-10, 1-for-12, 1-for-14, 1-for-16, 1-for-18 or 1-for-20, in the discretion of our board of directors. On the same date,
the Board of Directors determined to effect a reverse stock split of the Companys common stock at a 1-for-16 ratio (the 2016 Reverse Stock Split). The 2016 Reverse Stock Split became effective as of 9:00 a.m. EDT on July 21,
2016. At the same meeting, our stockholders approved an amendment to our Certificate of Incorporation to increase the number of our authorized shares of Common Stock to 500,000,000.
The Company effected the 2016 Reverse Stock Split for some of the same reasons for which the Board of Directors is recommending the
proposed reverse stock split. The trading price of the Common Stock was below the $1.00 minimum bid price required under the NASDAQ Marketplace Rules for 30 consecutive business days. On July 22, 2016, the first trading day after the
effectiveness of the 2016 Reverse Stock Split, the closing price of the Common Stock on the NASDAQ Capital Market was $3.60 per share.
On September 29, 2016, the closing price of the Common Stock on the NASDAQ Capital Market was $3.45 per share. On September 30, 2016, the Company announced the pricing of a public offering of
425,000 shares of Common Stock and 148,750 warrants to purchase shares of Common Stock at an exercise price of $3.00 per share, with such shares of Common Stock and warrants sold at a combined price of $3.00 per share and accompanying warrant. The
trading price of the Common Stock has remained below $3.00 per share thereafter. However, the warrants have certain anti-dilution provisions resulting in the reduction of the exercise price thereof. As of December 31, 2016, the warrants had an
exercise price of $1.61. During the year ended December 31, 2016, 70,000 of such warrants had been exercised.
Pursuant
to the terms of the Notes, the Company is required to repay the principal amount thereunder in installments of cash or shares of Common Stock beginning on January 12, 2017 and on each 20th trading day thereafter until the maturity thereof on
December 29, 2017. The terms of the Notes require that installment payments in shares of Common Stock be made at a discount to the volume-weighted average trading price during a 20 trading day period prior to such payment. The Company issued
shares of Common Stock as installment payments of principal (including certain early repayments at the option of the holders) under the Notes as follows:
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Date
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Number of
Shares of
Common
Stock
|
|
|
Applicable
Conversion
Price
|
|
|
Reduction in
Principal
|
|
January 12, 2017
|
|
|
4,113,520
|
|
|
$
|
0.36
|
|
|
$
|
1,478,318
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February 10, 2017
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|
|
15,358,864
|
|
|
$
|
0.20
|
|
|
$
|
3,045,817
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March 13, 2017
|
|
|
41,054,082
|
|
|
$
|
0.11
|
|
|
$
|
4,417,830
|
|
April 10, 2017
|
|
|
59,171,335
|
|
|
$
|
0.06
|
|
|
$
|
3,621,286
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May 9, 2017
|
|
|
38,278,294
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|
|
$
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0.05
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|
|
$
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1,913,915
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From January 26, 2017 until February 1, 2017, the Company and the holders of the Notes agreed
to a temporary reduction in the conversion price thereof to $0.32 per share in order to encourage voluntary conversion of Notes by the holders thereof. The Company issued an aggregate of 1,700,000 shares of Common Stock as a result of such
conversions.
12
From February 23, 2017 until March 2, 2017, the Company and the holders of the
Notes agreed to a temporary reduction in the conversion price thereof to $0.14 per share in order to encourage voluntary conversion of Notes by the holders thereof. The Company issued an aggregate of 900,000 shares of Common Stock as a result of
such conversions.
The Notes contain a conversion price floor of $0.05 per share, which was not subject to adjustment in
connection with the 2016 Reverse Stock Split, thus after the 2016 Reverse Stock Split, which was in a 1 for 16 ratio, the conversion price floor did not adjust upwards by a factor of 16, as did the market price of our common stock, thus likely
adding to the downward pressure on our stock price. In the absence of the 2016 Reverse Stock Split, it is likely that the Common Stock would have been de-listed, resulting in the breach of various provisions of the Notes and prohibiting the Company
from satisfying certain conditions of the Notes permitting the payment of installments of principal through share issuances. Despite the 2016 Reverse Stock Split, the Companys ability to issue shares in payment of installments of principal has
been dependent upon waivers of certain of such conditions. Accordingly, on any trading day during which the closing price of the Common Stock was at or below $0.80 per share, assuming the 2016 Reverse Stock Split did not occur, such closing price
would have been below the $0.05 per share conversion price floor and the holders of the Notes would have had no economic incentive to waive such conditions to receive shares of Common Stock at a price greater than or equal to the price at which they
could be resold in the public market. As of the date of this proxy statement, the closing price of the Common Stock on NASDAQ has been less than $0.80 per share on each trading day since January 6, 2017.
Accordingly, the 2016 Reverse Stock Split was the most significant contributing factor to the Companys ability to consummate the
dilutive issuances described above.
In addition, the 2016 Reverse Stock Split did not, and the proposed reverse stock split,
if approved by our stockholders, will not, affect our total number of authorized shares of Common Stock. As of July 11, 2017, there were 490,022,209 shares of Common Stock issued and outstanding, including 487,627,669 shares of Common Stock
issued in the dilutive transactions described above (which includes shares issued in connection with upcoming installment payment dates), and 9,977,791 shares required to be reserved for issuance upon conversion of the Notes or exercise of
outstanding warrants. Accordingly, of the 500,000,000 shares of Common Stock authorized under our Certificate of Incorporation, none are currently available for issuance.
Although we have not implemented any specific capital raising transaction planned, we expect to continue to explore opportunities to raise capital to fund our operations. The Board of Directors believes
that the consummation of the proposed reverse stock split is essential to our ability to maintain the listing of the Common Stock, satisfy our obligations under the Notes and raise sufficient capital to satisfy our liquidity requirements.
Nevertheless, such capital raising transactions are likely to include the issuance of shares of Common Stock and/or securities convertible, exchangeable or exercisable for shares of Common Stock at a discount to prevailing market prices. Such
transactions are likely to result in substantial further dilution to current holders of shares of Common Stock and erosion of our stock price.
Principal Effects of the Reverse Stock Split
After the effective date of the proposed reverse stock split, each stockholder will own a reduced number of shares of Common Stock. Except to the extent that whole shares will be exchanged in lieu of
fractional shares as described below, the proposed reverse stock split will affect all stockholders uniformly and will not affect any stockholders percentage ownership interest in us and proportionate voting rights and other rights and
preferences of the holders of Common Stock will not be affected by the proposed reverse stock split. The number of stockholders of record also will not be affected by the proposed reverse stock split, except to the extent that whole shares will be
exchanged in lieu of fractional shares as described below.
13
The following table contains approximate information relating to the Common Stock under the
low end, high end and midpoint of the proposed range of reverse stock split ratios, without giving effect to any adjustments for fractional shares of Common Stock, as of July 11, 2017:
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Status
|
|
Number of
Shares of
Common
Stock
Authorized
|
|
|
Number of
Shares of
Common
Stock
Issued and
Outstanding
|
|
|
Number of
Shares of
Common
Stock
Authorized
but Unissued
|
|
Pre-Reverse Stock Split
|
|
|
500,000,000
|
|
|
|
490,022,209
|
|
|
|
9,977,791
|
|
Post-Reverse Stock Split 1:20
|
|
|
500,000,000
|
|
|
|
24,501,110
|
|
|
|
475,498,890
|
|
Post-Reverse Stock Split 1:250
|
|
|
500,000,000
|
|
|
|
1,960,089
|
|
|
|
498,039,911
|
|
Post-Reverse Stock Split 1:500
|
|
|
500,000,000
|
|
|
|
980,044
|
|
|
|
499,019,956
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We maintain a 2009 Stock Incentive Plan (the Plan) pursuant to which we have granted stock
options and restricted shares that are presently outstanding, and additional equity incentive compensation awards may be granted in the future under the Plan. Pursuant to the terms of the Plan, the Board of Directors or a committee thereof, as
applicable, will adjust the number of shares available for future grant under the Plan, the number of shares underlying outstanding awards, the exercise price per share of outstanding stock options and other terms of outstanding awards issued
pursuant to the Plan to equitably reflect the effects of the reverse stock split.
In addition, proportionate adjustments will
be made to the per share exercise price of all outstanding warrants to purchase shares of our Common Stock and to the conversion price floor of our Notes.
If the proposed reverse stock split is implemented, it will increase the number of our stockholders who own odd lots of fewer than 100 shares of Common Stock. Brokerage commission and other
costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of Common Stock.
After the effective date of the reverse stock split, our Common Stock would have a new committee on uniform securities identification
procedures (CUSIP) number, a number used to identify our Common Stock.
The Common Stock is currently registered
under Section 12(b) of the Securities Exchange Act, and we are subject to the periodic reporting and other requirements of the Securities Exchange Act. The proposed reverse stock split will not affect the registration of the Common Stock under
the Securities Exchange Act. Our Common Stock would continue to be reported on The NASDAQ Capital Market under the symbol DCTH, although NASDAQ will add the letter D to the end of the trading symbol for a period of twenty
trading days after the effective date of the reverse stock split to indicate that the reverse stock split had occurred.
Effective Date
The proposed reverse stock split would become effective on the date of filing of a certificate of amendment to our amended
and restated certificate of incorporation with the office of the Secretary of State of the State of Delaware. On the effective date, shares of Common Stock issued and outstanding and the shares of Common Stock held in treasury, in each case,
immediately prior thereto will be combined and converted, automatically and without any action on the part of the stockholders, into new shares of Common Stock in accordance with the reverse stock split ratio determined by the Board of Directors
within the limits set forth in this proposal.
Treatment of Fractional Shares
No fractional shares would be issued if, as a result of the reverse stock split, a registered stockholder would otherwise become entitled
to a fractional share. Instead, stockholders who otherwise would be entitled to receive
14
fractional shares because they hold a number of shares not evenly divisible by the ratio of the reverse stock split will automatically be entitled to receive an additional share of Common Stock.
In other words, any fractional share will be rounded up to the nearest whole number.
Record and Beneficial Stockholders
If the reverse stock split is authorized by the stockholders and the Board of Directors elects to implement the reverse stock split,
stockholders of record holding some or all of their shares of our Common Stock electronically in book-entry form under the direct registration system for securities will receive a transaction statement at their address of record indicating the
number of shares of our Common Stock they hold after the reverse stock split. Non-registered stockholders holding Common Stock through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different
procedures for processing the consolidation than those that would be put in place by us for registered stockholders. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you are encouraged to
contact your nominee.
If the reverse stock split is authorized by the stockholders and the Board of Directors elects to
implement the reverse stock split, stockholders of record holding some or all of their shares in certificate form will receive a letter of transmittal, as soon as practicable after the effective date of the reverse stock split. Our transfer agent
will act as exchange agent for the purpose of implementing the exchange of stock certificates. Holders of pre-reverse stock split shares will be asked to surrender to the exchange agent certificates representing pre-reverse stock split
shares in exchange for post-reverse stock split shares, including whole shares to be issued in lieu of fractional shares (if any) in accordance with the procedures to be set forth in the letter of transmittal. Until surrender, each certificate
representing shares before the reverse stock split would continue to be valid and would represent the adjusted number of shares based on the exchange ratio of the reverse stock split rounded up to the nearest whole share. No new post-reverse stock
split share certificates, including those representing whole shares to be issued in lieu of fractional shares, will be issued to a stockholder until such stockholder has surrendered such stockholders outstanding certificate(s) together with
the properly completed and executed letter of transmittal to the exchange agent.
STOCKHOLDERS SHOULD NOT DESTROY ANY
PRE-SPLIT STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.
Accounting Consequences
The par value per share of Common Stock would remain unchanged at $0.01 per share after the reverse stock split. As a
result, on the effective date of the reverse stock split, the stated capital on our balance sheet attributable to the Common Stock will be reduced proportionally, based on the exchange ratio of the reverse stock split, from its present amount, and
the additional paid-in capital account shall be credited with the amount by which the stated capital is reduced. The per share Common Stock net income or loss and net book value will be increased because there will be fewer shares of Common Stock
outstanding. The shares of Common Stock held in treasury will also be reduced proportionately based on the exchange ratio of the reverse stock split. We will reclassify prior period per share amounts and the Consolidated Statements of
Stockholders Equity for the effect of the reverse stock split for any prior periods in our financial statements and reports such that prior periods are comparable to current period presentation. We do not anticipate that any other accounting
consequences would arise as a result of the reverse stock split.
No Appraisal Rights
Our stockholders are not entitled to dissenters or appraisal rights under the Delaware General Corporation Law with respect to the
proposed amendments to our amended and restated certificate of incorporation to allow for the reverse stock split and we will not independently provide the stockholders with any such right if the reverse stock split is implemented.
15
Certain Material U.S. Federal Income Tax Consequence of the Reverse Stock Split
The following is a summary of certain material United States federal income tax consequences of the reverse stock split to our
stockholders who are United States holders, as defined below. This summary is general in nature and does not purport to be a complete discussion of all of the possible federal income tax consequences of the reverse stock split and is included for
general information only. Further, it does not address any U.S. federal non-income, state, local or foreign income or other tax consequences. Also, it does not address the tax consequences to stockholders that are subject to special tax rules, such
as banks, insurance companies, regulated investment companies, personal holding companies, real estate investment trusts, real estate mortgage investment conduits, foreign entities, nonresident alien individuals, broker-dealers, stockholders whose
functional currency is not the U.S. dollar, partnerships (or other entities classified as partnership for U.S. federal income tax purposes, S corporations or other flow-through entities for U.S. federal income tax purposes, and tax-exempt entities.
Other stockholders may also be subject to special tax rules, including but not limited to: stockholders that received Common Stock as compensation for services or pursuant to the exercise of an employee stock option, or stockholders who have held,
or will hold, stock as part of a straddle, hedging constructive sale or conversion transaction for federal income tax purposes. This summary also assumes that you are a United States holder (defined below) who has held, and will hold, shares of
Common Stock as a capital asset, as defined in the Internal Revenue Code of 1986, as amended (the Code), i.e., generally, property held for investment. Finally, the following discussion does not address the tax consequences
of transactions occurring prior to or after the reverse stock split (whether or not such transactions are in connection with the reverse stock split), including, without limitation, the exercise of options or rights to purchase Common Stock in
anticipation of the reverse stock split.
The tax treatment of a stockholder may vary depending upon the particular facts and
circumstances of such stockholder. You should consult with your own tax advisor with respect to the tax consequences of the reverse stock split. As used herein, the term United States holder means a stockholder that is, for federal income tax
purposes: a citizen or resident of the United States; a corporation or other entity taxed as a corporation created or organized in or under the laws of the United States or any state, including the District of Columbia; an estate the income of which
is subject to federal income tax regardless of its source; or a trust that (i) is subject to the primary supervision of a U.S. court and of which one or more U.S. persons (as defined in the Code) has the authority to control all
substantial decisions, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
The following discussion is based on the Code, applicable Treasury Regulations promulgated thereunder, judicial authority and administrative rulings and practice, all as of the date hereof, all of which
are subject to change, potentially with retroactive effect which could adversely affect the accuracy of the statements and conclusions set forth herein. No ruling from the Internal Revenue Service or opinion of counsel has been obtained in
connection with the reverse stock split, and there can be no assurance that the Internal Revenue Service would not take a position contrary to that discussed herein, nor that such contrary position would not be sustained.
Other than in respect of a fractional share that is rounded up to a full share, no gain or loss should be recognized by a United States
holder upon such stockholders exchange of pre-reverse stock split shares of Common Stock for post-reverse stock split shares of Common Stock pursuant to the reverse stock split. The aggregate tax basis of the post-reverse stock split shares
received in the reverse stock split (including any whole share received in exchange for a fractional share) will be the same as the stockholders aggregate tax basis in the pre-reverse stock split shares exchanged therefore. The United States
holders holding period for the post-reverse stock split shares will include the period during which the stockholder held the pre-reverse stock split shares surrendered in the reverse stock split. Although the matter is not clear, it us
possible that United States holders whose fractional shares resulting from the reverse stock split are rounded up to the nearest whole share will recognize gain, which may be characterized as either a capital gain or as a dividend, to the extent of
the value of such rounded-up amount (i.e., less than one share).
16
No gain or loss will be recognized by us as a result of the reverse stock split.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK
SPLIT AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE REVERSE
STOCK SPLIT IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES.
Required Vote and Recommendation of the Board of Directors
Approval of this proposal requires the affirmative vote of the holders of a majority of our issued and outstanding shares of common stock.
Abstentions will be counted for the purposes of determining the presence or absence of a quorum. Abstentions will have the
effect of a vote AGAINST the proposal. A failure to vote by not returning a signed proxy will have no effect on the outcome of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL.