Item 14. Indemnification of directors and officers
Section 102(b)(7) of the DGCL allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be
personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation provides for this
limitation of liability.
Section 145 of the DGCL, or Section 145, provides that a Delaware corporation may indemnify any person who was, is or
is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporations best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the corporations best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be
liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and
reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by
him in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145.
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Our amended and restated bylaws provides that we must indemnify our directors and officers to the fullest extent
permitted by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should
be determined ultimately that such person is not entitled to be indemnified.
We have entered into indemnification agreements with certain of our
executive officers and directors pursuant to which have agreed to indemnify such persons against all expenses and liabilities incurred or paid by such person in connection with any proceeding arising from the fact that such person is or was an
officer or director of our company, and to advance expenses as incurred by or on behalf of such person in connection therewith.
The indemnification
rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our certificate of incorporation, our bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
We maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from
claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
The proposed form of Placement Agency Agreement to be filed as Exhibit 1.1 to this Registration Statement will provide for indemnification of our directors
and officers by the placement agent party thereto against certain liabilities. See Item 17. Undertakings for a description of the SECs position regarding such indemnification provisions.
Item 15. Recent sales of unregistered securities
On
June 6, 2016, the Company completed a private placement, exempt for registration purposes under Section 4(a)(2) of the Securities Act, of $35 million aggregate principal amount of senior secured convertible notes (the
Notes) pursuant to a Securities Purchase Agreement dated June 6, 2016 (the SPA) between the Company and certain institutional investors as set forth in the Schedule of Buyers attached to the SPA, as described in the
Companys
Form 8-K filed
with the Securities and Exchange Commission on June 7, 2016.
The
Notes were issued at an 8 percent original issue discount to the principal amount of Notes (a purchase price of $920 for each $1,000 principal amount of Notes and related warrants) for aggregate proceeds of $32.2 million. The Notes do not
bear any ordinary interest and provide that the Company will repay the principal amount of the Notes in equal monthly installments beginning seven months after the original date of issuance.
The Company also issued warrants to purchase 6.8 million additional shares of common stock to such institutional investors concurrently with the issuance
of the Notes. The Company repurchased all of such warrants for cash, effective as of March 31, 2017.
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 was 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 were entitled to the whole number of votes equal to $4.2 million divided by $1,288.00 (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 3,261 votes. The Series A Preferred Stock had no dividend, liquidation or other preferential rights to our common stock, and
each share of Series A Preferred Stock was redeemed for the amount of $0.01 on August 28, 2017.
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On July 11, 2017, we entered into an Amended and Restated Securities Purchase Agreement (the Amended
Purchase Agreement) with certain institutional investors for the sale by the Company of 2,360 shares of Series B Preferred Stock (the Series B Preferred Stock) at a purchase price of $1,000 per share, in a private placement. The
aggregate gross proceeds for the sale of the Series B Preferred Stock is $2.0 million. The Company intends to use the proceeds from the transaction for general corporate purposes. The restricted shares of Series B Preferred Stock have no
registration rights and thus will not be eligible for legend removal for a period of at least six months from the date of closing. This Amended Purchase Agreement amends the July 5, 2017 Securities Purchase Agreement (the Purchase
Agreement) into which we entered with certain institutional investors (the Investors) for the sale by the Company of 2,360 shares of Series B Preferred Stock in a registered direct offering. The Series B Preferred Stock shall be
entitled to the whole number of votes equal to $2.0 million divided by $65.35 (the closing bid price on July 5, 2017, the date of sale of the Series B Preferred Stock), or 30,607 votes. The Series B Preferred Stock has no liquidation or
other rights which are preferential to our common stock. The Series B Preferred Stock was redeemed for $2,360,000 in August 2017.
On August 28,
2017, the Company entered into a Restructuring Agreement (the Agreement) with one of the institutional investors (the Investor) who was a party to the SPA. As of the date the Agreement was entered into, the Investor held
$11,444,637 aggregate principal amount of Notes of which there was $10,092,857 aggregate Restricted Principal, (as defined in the Notes) of Notes (the Restricted Notes), secured by such aggregate cash amount held in a collateral account
of the Company in the same amount (the Restricted Cash) and (y) $1,351,780 principal of Notes (the Unrestricted Notes), (ii) 4,200 shares of Series A Preferred Stock and (iii) 2,006 shares of Series B Convertible Preferred
Stock.
Pursuant to the Agreement, (a) on the date thereof the Company and the Investor took the following actions (the Initial
Restructuring): (i) the Investor released restrictions on $1,650,000 of Restricted Cash (the Initial Release), (ii) the Investor consented to the use of additional Restricted Cash to effect redemptions of the Series A Preferred
Shares and the Series B Preferred Shares, (iii) the Investor cancelled $1,200,000 aggregate principal of the Notes (such portion of the Notes, the Cancellation Note), (iv) the Company redeemed all the Series A Preferred Shares
outstanding for a cash payment to the Investor of $4.20 and (v) the Company redeemed the Series B Preferred Shares for a cash payment to the Investor of $2,006,000 and (b) upon the consummation of a reverse stock split of our Common Stock
of at least twenty to one (the Reverse Stock Split Event, and such date, the Reverse Stock Split Date) by September 15, 2017, the Company and the Investor shall have taken the following actions (the Additional
Restructuring, and together with the Initial Restructuring, the Restructuring): (i) the Investor shall consent to the use of Restricted Cash to effect redemptions of $4,000,000 aggregate Restricted Principal of the Restricted Notes
(such portion of the Restricted Notes, the Redemption Notes), (ii) the Company shall redeem the Redemption Notes for a redemption price of $6,436,852.80 (the Redemption Price) and (iii) the Company shall exchange (the
Exchange), pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, $2,436,852.80 aggregate Restricted Principal of the Restricted Notes (such portion of the Restricted Notes, the Exchange Notes, and
together with the Redemption Notes, the Restructured Notes) for new warrants to purchase 114,286 shares of its Common Stock (the New Warrants, as exercised, the New Warrant Shares). The New Warrants expire on the
42 month anniversary of the date of issuance and bear an exercise price of $122.50 per share (which shall be adjusted to the new lower purchase price per share if there is a subsequent down round financing). The Investor, in lieu of an
exercise of the New Warrants pursuant to a cash payment of the aggregate exercise price of the number of New Warrants being exercised, may exercise the New Warrants, in whole or in part, by electing instead to receive upon such exercise two shares
and one hundred and twenty-five thousandths of a share of the Companys Common Stock for each Warrant Share exercised pursuant to this provision. The transactions set forth herein were being made in reliance upon the exemption from registration
provided by Rule 4(a)(2) of the Securities Act of 1933, as amended (the 1933 Act) and Rule 144(d)(3)(ii) of the 1933 Act. As a result of not having effected a reverse stock split by September 15, 2017, the Additional Restructuring
did not occur.
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Amendment to Restructuring Agreement
As a result of the lack of requisite approval by Delcath stockholders for the Companys proposed reverse stock split, the parties and the two investors in
the Notes entered into an amendment to the August restructuring agreement on October 10, 2017 as follows: (i) on the date that the Company effects a reverse split of its common stock, (x) the Company will exchange, pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended, an aggregate principal amount of those notes equal to $279,015 for new warrants to purchase an aggregate of 127,551 shares of Common Stock, and the Company shall redeem all the Series C
Preferred Shares then outstanding for a cash payment of $590,000 and (ii) upon the initial consummation, on or prior to December 15, 2017, by the Company of the offering contemplated by the registration statement on
Form S-1 that
was filed with the SEC on October 11, 2017 the following shall occur: (i) pursuant to Section 3(b) of the Restricted Notes, the Company shall be deemed (as adjusted downward by
the Black-Scholes value of the warrants being issued in this offering) to have automatically, and irrevocably, adjusted the conversion price of the Notes to 200% of the purchase price of a share of our common stock in the offering contemplated by
the registration statement, (ii) the maturity date (as defined in the notes) shall automatically be extended to the earlier to occur of (x) the first anniversary of the date of consummation of the offering contemplated by the registration
statement and (y) December 30, 2018, (iii) until the earlier of (x) this maturity date and (y) the 75th calendar day after the date of consummation of the offering contemplated by the registration statement, all installments to
be made under the notes shall be deemed automatically deferred with no conversions during that 75 day period, (iv) the Company agreed to redeem any portion of the outstanding notes at any time requested by either investor thereto with
$7.3 million in cash to be reduced by $0.6 million to redeem the Series C Preferred Stock remaining in the restricted accounts with respect to the 2016 convertible notes and (v) the conversion floor price on the notes is $0.05 and not
subject to adjustments.
On September 21, 2017, we entered into a securities purchase agreement (the SPA) with two 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 $0.5 million aggregate purchase price for 590
shares of Series C Preferred Stock (the Series C Preferred Shares). The purchase of the Series C Preferred Stock is being made in reliance upon the exemption from registration provided by Rule 4(a)(2) of the Securities Act of 1933, as
amended. The Series C Preferred Shares shall be entitled to 1,484,061 votes and may only vote on approval of a reverse split of our outstanding common stock. The Series C Preferred Stock has no dividend, liquidation or other preferential rights to
our common stock, and each share of Series C Preferred Stock shall be redeemable for the amount of $1,000.00, payable in cash, per share at our written election, and must be redeemed by us no later than December 21, 2017. The Series C Preferred
Stock was redeemed for $590,000 in November 2017.
On November 15, 2017, Delcath Systems, Inc. (the Company) entered into exchange
agreements (Exchange Agreements) with each of the two investors from its June 2016 private placement of senior secured convertible notes as contemplated by that certain Securities Purchase Agreement, dated June 6, 2016, by and among
the Company and such investors. As of November 15, 2017, those investors held $11,157,970 aggregate principal amount of investor notes (the Investor Notes), including (a) such aggregate principal amount of the Investor Notes as
set forth on the signature page of the Investor hereto that does not include Restricted Principal as of the date hereof and all accrued and unpaid interest under the Investor Notes (such portion of the Investor Notes, the Unrestricted Investor
Notes) and such aggregate principal amount of the Investor Notes as set forth on the signature page of the investors hereto that solely consists of Restricted Principal as of the date hereof (such portion of the Investor Notes, the
Restricted Investor Notes).
On November 15, 2017, the Company authorized a new series of senior secured convertible notes of the
Company, in the aggregate original principal amount as set forth above (the Exchange Notes), which Exchange Notes shall be convertible into shares of Common Stock in accordance with the terms of the Exchange Notes. Subject to the terms
and conditions of the Exchange Agreements, the Company and the investors exchanged (the Exchange) the Unrestricted Investor Notes for (a) $10,562,425 aggregate principal amount of the Exchange
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Notes (the New Notes, and the shares of Common Stock issuable pursuant to the terms of the New Notes, including, without limitation, upon conversion or otherwise, collectively, the
New Conversion Shares) and (b) warrants to purchase an aggregate of 7,000,000 shares of Common Stock (the New Warrants, as exercised, the New Warrant Shares).
The New Conversion Shares and the New Warrant Shares are collectively referred to herein as the New Underlying Securities and, together with the
New Notes and the New Warrants, the New Securities.
The New Notes, which were satisfied in full on December 28, 2017, bore the following
terms:
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The New Notes did not bear interest except upon the occurrence of an event of default upon which the interest
rate is 15% per annum.
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The initial conversion price was $1.50 per share for an optional conversion and at any time, an investor could
have instead engaged in an alternate conversion for which the conversion price is 82% (75% if an event of default) of the lowest volume weighted average price for the Companys common stock on the three trading days prior to and including the
date of the conversion. All conversions attributable to the Restricted Notes could have been converted at the lower of the optional conversion price and the alternate conversion price, then in effect.
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The obligation to prepay the Notes was extended to March 31, 2018, except in the case of an event of default
or change in control.
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Assuming equity conditions as stated in the New Notes are met, the investors would consent to release cash to the
Company from the existing controlled accounts upon conversion of the New Notes.
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The New Notes contained provisions waiving Section 8 of the Restricted Investor Notes, including, without
limitation, any requirements for the Company to effect installment conversions or redemptions.
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The New Notes contained customary and usual terms including but not limited to, events of default upon failure to
trade on an eligible market, failure to timely deliver shares upon conversion, failure to maintain converted share reserve, for conversions, failure to make payments thereunder when due, failure to remove legends, cross defaults to other
indebtedness, bankruptcy and the like, and any material adverse effect in the Companys financial condition, as well as remedies and negative covenants substantially similar to those in the Investor Notes.
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The New Warrants bear the following terms:
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The Warrants will be exercisable for five years from the date of issuance.
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The initial exercise price of the warrants is 115% of the closing bid price of the Companys common stock as
of the trading day ended immediately prior to the time of execution of the Exchange Agreement.
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The Warrants contain full antidilution ratchet protection from lowered price securities issuances subsequent to
the date of issuance for six months from the date of issuance and most favored nations protection for a year from the date of issuance.
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The Warrants are exercisable on a cashless basis to the extent at any time commencing on the one year anniversary
of the date of issuance the issuance of underlying securities is not covered by an effective registration statement.
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To the extent the investors elect to apply any amounts in their controlled accounts to the balances of the New
Notes, the number of shares into which the applicable New Warrant is exercisable shall be reduced by a formula set forth in the New Warrants.
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On December 28, 2017, we entered into exchange agreements (collectively, Exchange Agreements), each by and between us and an investor from
its June 2016 private placement of senior secured convertible notes (as
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further exchanged, the Notes) originally issued pursuant to that certain Securities Purchase Agreement, dated June 6, 2016, by and among us and such investors. Pursuant to the
Exchange Agreements, we (i) extinguished our remaining $3,027,408 in outstanding obligations under the Notes in full, (ii) obtained a release of restrictions on $2,046,897.66 in restricted cash held in our control accounts,
(iii) issued to the investors shares (the Shares) of our common stock (or rights (Rights) to receive common stock to the extent such issuance of Shares would otherwise result in the beneficial ownership by any such
investor of more than 4.9% or 9.9% of our issued and outstanding stock), as applicable, of an aggregate of 123,708,735 shares of our common stock (in each case, subject to trading restrictions set forth in leak out agreements we separately entered
into with each investor (collectively,
the Leak-Out Agreements))
and (iv) a cash payment to the investors of $829,830.54 from the restricted cash held in our control accounts. The
number of shares of our issued and outstanding common stock immediately following issuance of the initial Shares to the investors is 114,054,852.
The
Rights may be exercised in whole or in part by an investor, without payment of additional consideration, at any time an investor would not beneficially own more than 4.9% or 9.9% (as set forth in the applicable Exchange Agreement) of our common
stock (along with any shares of our common stock owned by any Attribution Parties) outstanding immediately after giving effect to such exercise. The Shares and Rights were issued in transactions exempt from registration under Section 4(a)(2) of
the Securities Act of 1933, as amended, and the Shares and Rights were also issued in compliance with Section 3(a)(9) thereunder such that for Rule 144 purposes the holding period for the Shares and Rights and shares of our common stock
underlying the Rights may be tacked onto the holding period of the Notes.
The transactions set forth herein were being made in reliance upon the
exemption from registration provided by Rule 4(a)(2) of the Securities Act of 1933, as amended (the 1933 Act). As of the date of this Prospectus, all of the Rights have been exercised, and neither investor owns more than 4.9% of the
issued and outstanding shares of our common stock.