Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
We are soliciting your consents, for the following purpose (the Proposals):
We have decided to seek the written consent of stockholders through a consent solicitation process rather than a special
meeting of stockholders, in order to save the costs and management time of holding a special meeting.
These items of business are more
fully described in the Consent Solicitation Statement which accompanies this Notice of Consent Solicitation.
The Board of Directors has
fixed the close of business on February 9, 2018 as the record date for the Consent Solicitation. Only stockholders of record of Delcath common stock at the close of business on that date are entitled to notice of and to provide written consent
to the matter submitted for consent as set forth in this Notice.
The enclosed consent is solicited (Consent Solicitation) by the Board of Directors of Delcath Systems, Inc. (Delcath,
we, our, us or the Company). This Consent Solicitation Statement and the accompanying Notice of Consent Solicitation and consent card are being first mailed on or about February 26, 2018, to our
stockholders entitled to vote in the Consent Solicitation.
PROPOSAL 1: INCREASE IN AUTHORIZED SHARES
Background of the Authorized Share Increase Proposal
Our
Board has determined that it is advisable and in our and our stockholders best interests to increase the number of authorized shares of common stock from 500,000,000 to 1,000,000,000 shares, par value $0.01 per share. Accordingly, stockholders
are asked to approve an amendment to our Articles of Incorporation to effectuate such increase.
The Board strongly believes that the increase in the
number of authorized shares of common stock is necessary to provide us with sufficient authorized shares so that the holders of the Series D warrants issued in conjunction with our February 9, 2018 public offering may exercise their warrants.
The number of authorized shares of common stock following the amendment of our Articles of Incorporation as a result of the approval of this Proposal 1
will not be reduced by the reverse stock split which is anticipated to occur after this authorized share increase.
Accordingly, the Board has unanimously
approved a resolution proposing such amendment to our Articles of Incorporation and directed that it be submitted for approval in this consent.
The text
of the form of the proposed amendment to our Articles of Incorporation to effect the Authorized Share Increase, which assumes the approval of this Proposal 1, is attached hereto as
Annex A
.
Of the 500,000,000 shares of common stock currently authorized, 434,981,824 shares of common stock were outstanding as of February 9, 2018, in addition
to the following:
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129 shares issuable upon the exercise of stock options at a weighted average exercise price of $8,771.60 per share;
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7.0 million shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $3.14 per share;
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76 shares reserved for future issuance under our 2009 Equity Incentive Plan, as amended;
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500,000,000 Warrant Shares underlying the Series D warrants; and
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38,000,000 shares underlying the
pre-funded
warrants issued in our February 9, 2018 public offering.
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Reason for the Proposed Increase in Number of Authorized Shares of Common Stock
We do not have sufficient authorized shares for exercise of the Series D warrants which were sold as part of our February 9, 2018 public offering.
As part of the February 9, 2018 public offering, we sold investors Series D warrants to purchase two shares of common stock for each share of
common stock
or pre-funded warrant
purchased in that offering, for a total of warrants to purchase 500,000,000 shares of our common stock. We currently do not have sufficient shares authorized for
exercise of the Series D warrants and the Series D warrants will not be exercisable unless the Company files an amendment to its certificate of incorporation (the Authorized Share Amendment), approved by its stockholders, to
increase the number of authorized shares of the Companys common stock such that all of the Warrants may be exercised in full by the holders thereof. So the increase of authorized shares of common stock from 500,000,000 to 1,000,000,000 will
yield sufficient shares of common stock authorized and reserved to cover exercise all of the Series D warrants.
Principal Effects of Increase in
Number of Authorized Shares of Common Stock
If stockholders approve this Proposal 1, the additional authorized common stock will have rights identical
to the currently outstanding shares of our common stock. The proposed amendment will not affect the par value of the common stock, which will remain at $0.01 per share. Approval of this Proposal 1 and issuance of the additional authorized shares of
common stock would not affect the rights of the holders of currently outstanding shares of our common stock, except for effects incidental to increasing the number of shares of our common stock outstanding, such as dilution of any earnings per share
and voting rights of current holders of common stock.
The additional shares of common stock authorized by the approval of this Proposal 1 could be issued
by our Board without further vote of our stockholders except as may be required in particular cases by our Certificate of Incorporation, the DGCL or other applicable law, regulatory agencies or OTCQB rules. Stockholders do not have preemptive rights
to subscribe to additional securities that we may issue, which means that current stockholders do not have a prior right thereunder to purchase any new issue of common stock, or securities that are convertible into common stock, in order to maintain
their proportionate ownership interests in the Company.
Our stockholders are not entitled to dissenters or appraisal rights under the DGCL with
respect to the proposed amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock and we will not independently provide the stockholders with any such right if the increase is implemented.
The proposed amendment to our Certificate of Incorporation to increase the number of authorized shares of our common stock could, under certain circumstances,
have an anti-takeover effect. The additional shares of common stock that would become available for issuance if this Proposal 1 is approved could also be used by us to oppose a hostile
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takeover attempt or to delay or prevent changes in control or our management. For example, without further stockholder approval, the Board could adopt a poison pill which would, under
certain circumstances related to an acquisition of our securities not approved by the Board, give certain holders the right to acquire additional shares of common stock at a low price, or the Board could strategically sell shares of common stock in
a private transaction to purchasers who would oppose a takeover or favor the current Board.
Although this proposal to increase the authorized capital and
common stock has been prompted by business and financial considerations and not by the threat of any hostile takeover attempt (nor is the Board currently aware of any such attempts directed at us), nevertheless, stockholders should be aware that
approval of this Proposal 1 could facilitate future efforts by us to deter or prevent changes in control, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.
Vote Required
The affirmative vote of the holders of
shares of common stock representing a majority of the common stock issued and outstanding on the Record Date will be required for approval of the Authorized Share Increase Proposal.
The Board recommends that you vote FOR the approval of the Authorized Share Increase Proposal.
PROPOSAL 2: 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-100
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 April 6, 2019). 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 reason:
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.
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 by consent in lieu of a special meeting of shareholders.
The Board of Directors 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. We expect to need at least $20.0 million of cash to fund our operations and
clinical trials for the remainder of 2018. Even with the net $4.65 million we just received from our follow on offering, it is unclear whether we will be able to continue as a going concern after May 31, 2018. We do not have access to
other sources of debt 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.
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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 OTCQB 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 Reverse Split 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 100 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 April 6, 2019, 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 April 6, 2019 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 possibly regain 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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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 100 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.
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Reasons for the Reverse Stock Split
To provide us with resources and flexibility with respect to our capital sufficient to execute our business plans and strategy.
As
of February 9, 2018, we had 434,981,824 shares of Common Stock outstanding (and an additional 38,000,000 shares of our common stock reserved for issuance upon exercise of
pre-funded
warrants as described
in this paragraph and an additional 7,000,000 shares reserved for issuance for exercise of other options and warrants we have outstanding), resulting primarily from (i) our December 28, 2017 exchange of 2016 senior secured convertible
notes for common stock and rights to purchase common stock pursuant to which we issued a total of 123,708,735 shares of our common stock and (ii) our February 9, 2018 registered direct offering of 250,000,000 shares of our common stock and
pre-funded
warrants to purchase our common stock and warrants. In the February 9, 2018 offering, we also issued warrants to purchase 500,000,000 shares of our common stock for which we agreed to request
shareholder approval to increase our authorized shares as described in the Proposal 1Authorized Share Increase Authorization set forth above in this consent solicitation statement.
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Thus, even taking into account the Authorized Share Increase, if approved by our shareholders, we have reached
the limit of shares of stock we have available to issue, and 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 may 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.
Risks of the Proposed Reverse Stock Split
We cannot assure you that the proposed reverse stock split will increase our stock price or that any increase will be maintained over any
significant period of time
. The Board of Directors expects that a reverse stock split of our Common Stock will increase the market price of our Common Stock. 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 does not indicate a likelihood that our stock price will be maintained at any higher level. 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 did not closed over $1.00 since that time. On November 6, 2017, the first day on which our common stock traded, post our 1:350 reverse stock split, our closing price per share was
$6.69, and on November 16, 2017, our closing price per share was $0.86, and continued to decline from that point and closed at $0.0382 on February 9, 2018. 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 at any specified
level 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.
Current stockholders will likely experience dilution as a result of the Reverse Stock Split.
There is a
trend for our stock price to decrease after a reverse stock split. This is likely as a result of the availability of more shares issued as a result of our anticipated future financing needs. As the number of shares available in the market increases,
the price tends to decrease. 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.
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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 Nasdaq share price maintenance requirements and also 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 February 9, 2018, the warrants had an exercise price of $0.02 and there were 225 warrants outstanding.
As a
result of conversions of the Companys July 2016 senior secured convertible notes, we issued 496,631,935 shares of our common stock between January 1, 2017 and November 5, 2017 on a pre-split bases, and the closing price of the Common
Stock was less than $0.80 per share on each trading day since January 6, 2017 until the 1:350 reverse split was effected on November 6, 2017. On November 6, 2017, the first day on which our common stock traded, post our 1:350 reverse
stock split, our closing price per share was $6.69, and on November 16, 2017, our closing price per share was $0.86, and continued to decline from that point and closed at $0.0382 on February 9, 2018. Between November 6, 2017 and
December 28, 2017, the date on which we consummated the full conversion of those notes into stock or rights to issues shares of common stock, we issued 221,156,807 additional shares of our common stock (post 1:350 reverse split numbers) as a
result of those full satisfactions of the notes.
Accordingly, the 2016 Reverse Stock Split the 2017 Reverse Stock Split are the most
significant contributing factors to the Companys ability to consummate the dilutive issuances described above.
In addition, the
2016 Reverse Stock Split and 2017 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 February 9, 2018, there were
434,981,824 (post 1:350 split numbers) shares of Common Stock issued and outstanding predominantly as a result of the dilutive financings described above.
Although we do not have 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.
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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 February 9, 2018 (and without giving effect to the Authorized Share Increase):
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Status
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Number of
Shares of
Common
Stock
Authorized
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Number of
Shares of
Common
Stock
Issued and
Outstanding
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Number of
Shares of
Common
Stock
Authorized
but Unissued
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Pre-Reverse
Stock Split
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500,000,000
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434,981,824
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65,018,176
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Post-Reverse Stock Split 1:100
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500,000,000
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4,349,819
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495,650,181
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Post-Reverse Stock Split 1:250
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500,000,000
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1,739,928
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498,260,072
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Post-Reverse Stock Split 1:500
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500,000,000
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869,964
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499,130,036
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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 OTCQB under the
symbol DCTH, although the OTCQB 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.
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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 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.
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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).
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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 Consent and Recommendation of the Board of Directors
Approval of this proposal requires the affirmative consent of the holders of a majority of our issued and outstanding shares of common stock on
the Record Date.
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 consent card will have no effect on the outcome of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL.
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