UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A INFORMATION
Consent
Solicitation Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
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Preliminary
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Soliciting
Material Pursuant to §240.14a-12
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DELCATH
SYSTEMS, INC.
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(Name
of Registrant as Specified In Its Charter)
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ROBERT
B. LADD
JONATHAN
A. FOLTZ
MICHAEL
KARPF, M.D.
PAUL
WILLIAM FREDERICK NICHOLLS
FRED
S. ZEIDMAN
LADDCAP
VALUE ASSOCIATES LLC
LADDCAP
VALUE PARTNERS LP
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Laddcap
Value Partners LP
650
Fifth
Avenue, Suite 600
New
York,
NY 10019
September
12, 2006
Dear
Fellow Delcath Stockholders:
As
you
know, Laddcap Value Partners LP (“Laddcap”)
is
Delcath Systems, Inc. (“Delcath”
or
the
“Company”)
largest stockholder. We are currently undertaking a consent solicitation
campaign to remove Delcath’s existing directors and to replace them with our
slate of nominees.
One
of
Delcath’s responses to our consent solicitation campaign was to initiate a
lawsuit against Laddcap and certain of its affiliates in federal court
in the
Southern District of New York (No. 06-CV-6420 (LAP)) (the “Lawsuit”).
The
Lawsuit alleges, among other things, that Laddcap has made a series of
material
misstatements and omissions in violation of the Securities Exchange Act
of 1934.
Delcath further alleges that Laddcap has failed to comply with their obligation
under the federal securities laws to disclose the identity of and nature
of
their relationship with persons and entities with whom they are acting
together
as a group for the purpose of acquiring, holding, voting or disposing of
Delcath
stock.
Laddcap
believes that Delcath’s allegations of material omissions and misrepresentations
(the “Allegations”)
are
without merit; and Laddcap intends to vigorously defend itself against
the
Allegations. In order for Delcath to prevail in its Lawsuit, Delcath needs
to
prove its Allegations in court. We are confident that Delcath will be unable
to
prove its Allegations because Laddcap has neither misrepresented any material
fact nor has Laddcap omitted any material information from its definitive
consent solicitation statement filed with the Securities and Exchange Commission
(“SEC”)
on
August 17, 2006 (the “Consent
Statement”),
in
any other solicitation materials filed with the SEC, or in any other
manner.
Notwithstanding
the fact that Delcath has yet to prove its Allegations in court, Delcath
has
extensively and aggressively publicized the Allegations to Delcath stockholders
via (i) Delcath’s own consent revocation statement filed with the SEC on August
21, 2006, (ii) additional solicitation materials filed with the SEC, (iii)
a two
hour town hall meeting and webcast conducted by Mr. Koly, Delcath’s CEO on
September 8, 2006, (iv) postings on Delcath’s website (www.delcath.com), (v)
press releases, and (vi) a direct mail campaign to Delcath’s stockholders.
Attached as Exhibit
A,
please
find a list of filings (the “Filings”)
that
Delcath has made with the SEC in which it seeks support from Delcath
stockholders in its consent revocation campaign, discloses to Delcath
stockholders the Allegations or other matters concerning the consent
solicitation. All the Filings are available on the SEC website at
www.sec.gov.
In
addition to publicizing the Allegations against Laddcap via SEC filings
and
other means, Delcath has also cooperated with certain mass media outlets
to
further publicize the Allegations against Laddcap. For example, Mr. Koly,
Delcath’s CEO, is quoted in a newspaper article in the Stamford Advocate
(September 9, 2006). The quote by Mr. Koly further publicizes one of Delcath’s
Allegations that Laddcap is simply seeking to gain control of Delcath to
force a
sale of the company. This is but one of the Allegations that Delcath has
publicized and disclosed, yet it is directly contravened by the facts.
Laddcap
has stated in its Consent Statement and elsewhere that it does not have
a
current intention to compel an immediate sale of Delcath should Laddcap
be
successful in the consent solicitation.
Moreover,
some of the facts contained in the Allegations are very different than
what
Delcath would like you to believe and we have provided below what we believe
are
correct facts.
While
Delcath has already widely publicized the Allegations against Laddcap,
we are
taking this opportunity to once again disclose some of Delcath’s more notable
Allegations. But, are also providing a further explanation, one that is
not
required pursuant to the securities laws. We are providing this further
disclosure of Delcath’s Allegations and Laddcap’s responsive statements so that
Delcath’s stockholders can decide for themselves if there is a substantial
likelihood that a stockholder would consider it important in deciding how
to
vote. In other words, each stockholder should decide if there is a substantial
likelihood that the disclosure of the Allegations is viewed as having
significantly altered the total mix of information made available, and
based on
such information, whether to support the Laddcap slate or to support
Delcath.
With
respect to each and every Allegation below, Laddcap does not believe that
any of
these disclosures are material, because we do not believe that such disclosures
would have been viewed by you as having significantly altered the total
mix of
information made available to you in deciding how to vote. Moreover, the
Allegations below have been heavily publicized in the Filings (as to many
Allegations, as early as August 7, 2006) and by other means. Kindly review
the
information previously available to you as well as the information set
forth
below and decide for yourself whether such information is material.
THE
ALLEGATIONS AND LADDCAP’S RESPONSES
Delcath’s
Allegations Relating to Paul Nicholls:
| · |
Delcath
alleges that Laddcap initially failed to disclose in its consent
solicitation materials that Mr. Nicholls filed for Chapter 7 personal
bankruptcy in 2002. Delcath further charges that Laddcap has never
disclosed that (i) Mr. Nicholls’ bankruptcy petition indicated that Mr.
Nicholls had amassed debt of $105,349.75 on 9 credit cards, including
credit cards issued by Bloomingdale's, Bergdorf Goodman and Macy's;
(ii)
Mr. Nicholls’ bankruptcy petition indicated that Mr. Nicholls paid monthly
rent of $2,500, but did not report that he resided in a Manhattan
apartment building owned in his wife's name; and (iii) the apartment
building owned in Mr. Nicholls’ wife's name was appraised in 2004 at $3.6
million.
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| · |
Delcath
further alleges that Laddcap misled shareholders by stating in
its consent
solicitation materials that Mr. Nicholls’ bankruptcy filing resulted from
Mr. Nicholls’ inability to work because he became ill with cancer. Delcath
alleges that Mr. Nicholls ran in 19 New York Road Runners’ Club races in
2002, including a 10K race that Mr. Nicholls ran at a brisk pace
of 7
minutes 37 seconds per mile, about a month before he filed for
bankruptcy.
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-2-
| · |
Delcath
further alleges that Laddcap failed to disclose that (i) Mr. Nicholls
served as the sole paid director of United Cancer Charities, Inc.
(“UCCI”),
a charitable foundation; (ii) at a charity auction produced by
Mr.
Nicholls in November 2003, UCCI spent $149,245 to raise $71,511;
(iii) in
its 2003 tax return filed in July 2005, UCCI reported that the
IRS had
determined UCCI to be ineligible for tax exempt status; and (iv)
UCCI was
dissolved after only 15 months because of Mr. Nicholls’ incompetence at
fundraising. Delcath further alleges that Laddcap failed to disclose
that
Mr. Nicholls has worked for Laddcap in the past.
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Laddcap’s
Response:
The
fact
of Mr. Nicholls’ bankruptcy was disclosed in our Consent Statement that was
delivered to Delcath’s stockholders.
For
a
period of approximately six months in 2002, Mr. Nicholls’ consulting business
struggled and he amassed a large amount of credit card debt. Due to his
business
difficulties, he had trouble paying his credit card bills on time, and
therefore
interest and penalties on the credit cards began to multiply.
On
or
about September 15, 2002, Mr. Nicholls broke his arm. In connection with
the
treatment of that injury, his doctors discovered that he had cancer. The
ensuing
medical investigations and extensive tests confirmed a diagnosis of Stage
IIIA
Multiple Myeloma, a cancer occurring in his bone marrow.
Prior
to
breaking his arm and being diagnosed with cancer, Mr. Nicholls felt absolutely
fine and was able to enjoy his hobby of running. Up until he was diagnosed
with
cancer, he was able to participate in races with the New York Road Runners’
Club, and in 2002, he ran in 19 New York Road Runners’ Club races, including a
10K race held on August 31, 2002 that he ran at a brisk pace of 7 minutes
37
seconds per mile.
When
he
learned that he had cancer, Mr. Nicholls realized that he was not going
to be
able to hold down a job while he battled cancer, and he would be unable
to pay
off his credit card debt. Mr. Nicholls consulted with a lawyer who advised
him
to declare personal bankruptcy. Accordingly, on October 8, 2002, Mr. Nicholls
filed for personal bankruptcy. In his bankruptcy filing, he disclosed that
he
had amassed debt of $105,349.75 on 9 credit cards, including credit cards
issued
by Bloomingdale’s, Bergdorf Goodman and Macy’s.
Mr.
Nicholls began his first course of treatment for cancer in December of
2002. He
went through an aggressive course of treatment, including chemotherapy,
radiation, and stem cell transplant. During the course of his treatment,
he
realized that many cancer patients were not getting the care they needed.
He
decided to use his contacts and skills in business development to attempt
to
raise money for cancer patient care.
-3-
Through
one of his contacts at Amgen Pharmaceutical, Mr. Nicholls became involved
with a
cancer charity known as United Cancer Charities, Inc. He was paid a consulting
fee by UCCI for attempting to attract sponsors to raise money for the charity.
He understood that his title within the company was “Executive Director.” He did
not believe that he was a “Director” of the company in the formal corporate
sense of the word. In fact, we have obtained a copy of the articles of
incorporation of UCCI, and there are three directors listed. Mr. Nicholls
is not
one of them. We are not aware if these articles have ever been
amended.
In
November 2003, Mr. Nicholls organized a fundraising event for UCCI. The
charity
spent approximately $149,245 for the event and was able to raise $71,511
the
night of the event. In addition to the money raised at the event, Mr. Nicholls
was successful in convincing the drug company Amgen to make a donation
of
$200,000 in connection with the November 2003 fundraising event. Amgen
delivered
a $200,000 check to UCCI in February of 2004.
In
or
about April 2004, Mr. Nicholls determined that he wanted to focus his efforts
on
another cancer charity organization because UCCI was mainly focused on
supporting programs in Idaho, where the company was incorporated. Accordingly,
Mr. Nicholls resigned as the Executive Director of UCCI and ceased his
affiliation with the company. During the time period that he was involved
with
UCCI, Mr. Nicholls understood that the charity was seeking a determination
by
the IRS that it qualified for Section 501(c)(3) status. He was not responsible
for and did not have any substantive role in the application process. He
did not
become aware that UCCI may have been determined to be ineligible for tax
exempt
status until the filing of the Lawsuit; nor was he aware that UCCI was
administratively dissolved in December of 2004, an event that took place
months
after Mr. Nicholls stopped working for the company. Mr. Nicholls does not
know
the reason that the company was dissolved. However, he does not believe
that the
company was dissolved because of the failure of any of his fundraising
efforts.
In
January of 2006, Mr. Nicholls was engaged by Laddcap on a consulting project.
Mr. Ladd requested that Mr. Nicholls attempt to introduce persons and entities
in the medical field to Delcath’s product in order to garner support for the
product with a view to increasing FDA Phase III Trial sites and patient
recruitment. Mr. Nicholls was successful in raising the interest of several
hospitals in Delcath’s product. Laddcap paid Mr. Nicholls a single fee of $8,000
in connection with this consulting project.
Mr.
Nicholls currently resides in a five floor brownstone in Manhattan. His
wife
owns 1/3 of the building. Other than the Nicholls’ apartment, the remaining
apartments in the building are maintained by Mr. Nicholls’ wife and rented to
tenants as a source of income for his wife and her business partner. Each
month,
Mr. Nicholls pays $2,500 in the form of rent to his wife, which comprises
the
majority of his contribution to their monthly expenses. Mr. Nicholls disclosed
in his bankruptcy filing that he paid monthly rent of $2,500. He did not
report
that he resided in a building that is partially owned by his wife or the
appraised value of the building, because he has no ownership in the building
and
therefore did not believe that such a disclosure was required. Mr. Nicholls
and
his wife do not share money; they keep their finances separate.
-4-
Delcath’s
Allegations Relating to Fred Zeidman:
| · |
Delcath
alleges that Laddcap’s consent solicitation materials fail to disclose
that (i) Fred Zeidman served on the Audit Committee of Seitel Corporation
during each of the seven fiscal quarters for which financial results
were
restated because of premature revenue recognition on contracts;
(ii) the
restatement resulted in a reduction of more than $68 million in
revenues;
(iii) in 2001, Seitel stock peaked at $22.72; (iv) following Seitel's
announcement in April 2002 that it would be restating earnings,
Seitel’s
stock dropped to a low of $0.49 in the fourth quarter of 2002;
(v) in
March 2003, Seitel’s stock was delisted from trading on the New York Stock
Exchange; and (vi) in July 2003, Seitel went into bankruptcy. Delcath
further alleges that Laddcap failed to disclose that Mr. Zeidman
was named
as a defendant in seven shareholder derivative suits relating to
the
accounting issues that led to the restatement.
|
| · |
Delcath
further alleges that Laddcap’s consent solicitation materials fail to
disclose that Mr. Zeidman is Chairman of the Board of Directors
of Emerge
Capital Corporation, a company that has twice in 2006 been forced
to admit
that it has significant deficiencies in its accounting processes
constituting material weaknesses as defined by the Public Company
Accounting Oversight Board. Those weaknesses resulted in the company
improperly accounting for financial transactions on the books of
a
predecessor company with whom it merged in August 2005, and forced
the
combined company in May 2006 to restate its consolidated financial
statements for fiscal year 2004 and interim periods in 2004 and
2005.
Delcath further claims that the material weaknesses in the company's
accounting procedures were exacerbated by the failure of Emerge’s board
members to hire a full time CFO until June 2006.
|
Laddcap’s
Response:
Mr.
Zeidman was appointed Chairman of the Board of Directors of Seitel in 2002
specifically
to lead a restructuring effort.
When he
was first appointed as Chairman of the Board of Seitel, its market
capitalization was under $15 million. Since he became Chairman of the Board,
Seitel has been successfully shepherded through a financial restructuring
that
included Seitel filing for bankruptcy. Following extensive negotiations,
every
pre-petition creditor of Seitel was paid 100% of their claim.
Seitel
is
once again a publicly traded stock on the OTC bulletin board. In addition,
Seitel’s stock price has bounced back to $3.85 per share as of September 8,
2006, and the company has a current market capitalization of nearly $600
million. On August 8, 2006, Seitel announced that its revenue has grown
35% year
on year and its net income is 86% higher than the first quarter of
2006.
The
fact
of Mr. Zeidman serving on the Board of Emerge Capital Corporation was disclosed
in our Consent Statement that was delivered to Delcath’s stockholders.
-5-
Delcath’s
Allegations to Relating to Jonathan Foltz:
| · |
Delcath
alleges that Laddcap has failed to disclose the alleged arrangement
or
understanding which induced Jonathan Foltz to resign from Delcath
to join
Laddcap’s slate of directors. Delcath claims that it “defies belief” that
Mr. Foltz would have resigned from Delcath after 14 years without
any
understanding with us regarding future employment. In addition,
Delcath
claims that we fail to explain how Mr. Foltz can “step in to manage the
affairs of Delcath” when there is currently a Connecticut state court
injunction prohibiting Mr. Foltz from “disclosing, disseminating and/or
using” any non-public company
information.
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| · |
Delcath
further alleges that Laddcap has failed to disclose that Mr. Foltz
engaged
in the “unauthorized destruction of information on his Delcath work
computer just before his resignation.” In addition, Delcath claims that
prior to his resignation on July 27, 2006, Mr. Foltz provided non-public
company information to Laddcap. Delcath claims that Laddcap’s consent
solicitation materials contain information that was proprietary
to the
Company and known only by a few individuals, including Mr. Foltz.
|
Laddcap’s
Response:
From
2001
until July 27, 2006, Mr. Foltz was an independent consultant who worked
three
days a week for Delcath and devoted his remaining time to other business.
He
ceased providing services as a consultant to Delcath on July 27,
2006.
Prior
to
July 27, 2006, Mr. Foltz had no understanding whatsoever with Laddcap concerning
his future employment with Delcath, other than the fact that he agreed
to be
included in the slate of directors proposed by Laddcap in its consent
solicitation campaign.
Laddcap
has orally agreed to reimburse Mr. Foltz for certain legal fees he incurs
as a
result of the lawsuit brought against him by Delcath in Connecticut State
court.
Additionally, Laddcap has orally agreed to pay him, over a two-month period,
a
consulting fee totaling $40,000 and to reimburse him a total of $1,800
for
certain office expenses. On August 1, 2006 and August 10, 2006, Laddcap
paid
$20,000 and $1,800 respectively as partial payments for these consulting
fees
and expenses. Mr. Foltz is expected to consult with Laddcap on the medical
device industry, to review certain public filings and to consult on the
capital
markets.
Mr.
Koly
(Delcath’s current President and CEO) has indicated in the Delcath’s public
filings that he would quit as an employee of Delcath should the current
board be
removed. If this consent solicitation is successful and Mr. Koly quits
as he
stated he would, Mr. Foltz has indicated that he would be willing to immediately
step in to manage the affairs of Delcath on an interim or permanent basis
as the
new board may determine. Ultimately, the new board will have the authority
and
duty to manage the affairs of Delcath as it deems to be in the best interests
of
Delcath and its stockholders.
-6-
In
February 2006, which was approximately six months before Mr. Foltz ceased
providing services for Delcath, Delcath was considering donating some surplus
personal computers to local schools. Mr. Foltz was offered the opportunity
to
try out a so-called erasure software program for a limited period for free
by a
software vendor. He tried it out on the computer that was assigned to him
and
only on that one. He experimented with it by deleting some obsolete document
drafts. He did not delete any other materials. This process was completed
with
the knowledge and consent of Delcath’s CEO, M.S. Koly, who was concerned about
the unintended sharing of confidential information if the computer was
donated
to charity. When the trial period ended for the free software, he allowed
it to
lapse. To the best of Mr. Foltz’s knowledge, the computer was no longer operable
when he left the Company. The forensic computer expert that was hired by
Delcath
in the Connecticut litigation has submitted an affidavit that confirms
that Mr.
Foltz used the “eraser” program on his computer in February 2006 -- six months
before he resigned from Delcath.
Moreover,
Mr. Foltz does not believe that he has ever provided any trade secrets
or
confidential information of Delcath to anyone, including Laddcap.
Delcath’s
Allegations Relating to Michael Karpf, M.D.:
| · |
Delcath
alleges that Laddcap’s consent solicitation materials fail to disclose the
financial woes that the UCLA hospital system suffered while Michael
Karpf,
M.D. served as the University’s Vice Provost from 1996 to 2003. Delcath
alleges that according to The Wall Street Journal, between 1998
and 2000,
the net income of the UCLA hospital system dropped from $51 million
to
less than $5 million. In 2002, despite being the largest medical
system in
the University of California chain, UCLA reported net income of
only $7.2
million as compared with $36.5 million for Irvine, $35.3 million
for
Davis, $30.3 million for San Diego and $29.0 million for San Francisco.
Despite these poor financial results, UCLA awarded bonuses totaling
about
$1.4 million to top hospital officials between 2000 and 2004. Dr.
Karpf’s
base salary in 2002 was $436,600, higher than his counterparts
at the
other University of California medical systems. In October 2002,
The
Hunter Group was hired to conduct a review of the UCLA hospital
system. In
March 2003, UCLA announced that it had received a preliminary report
from
The Hunter Group recommending that the UCLA hospital system overhaul
its
unprofitable clinics and reduce staff by 475 positions. By October
2003,
Dr. Karpf had left the UCLA hospital system for the University
of
Kentucky.
|
Laddcap’s
Response:
Laddcap
does not believe that any of these disclosures concerning Dr. Karpf’s service as
the Vice Provost of the UCLA hospital system are material, because we do
not
believe that such disclosures would have been viewed by you as having
significantly altered the total mix of information made available to you
in
deciding how to vote. Moreover, the above Allegations have been publicized
in
the Filings and by other means. Kindly review the information previously
available to you as well as the information set forth above and decide
for
yourself whether such information is material.
-7-
Delcath’s
Allegations Relating to Robert Ladd:
| · |
Delcath
alleges that Laddcap failed to disclose the performance of the
hedge fund
run by Robert Ladd. Delcath notes that the annual return in 2004
for the
Laddcap fund was 0.7%, whereas the annual return in 2004 for the
S&P
SmallCap 600 was 21.59%. The annual return in 2005 for the Laddcap
fund
was -1.7%, whereas the annual return in 2005 for the S&P SmallCap 600
was 6.65%.
|
Laddcap’s
Response:
Laddcap
does not believe that any of these disclosures are material, because we
do not
believe that such disclosures would have been viewed by you as having
significantly altered the total mix of information made available to you
in
deciding how to vote. Moreover, the above Allegations have been publicized
in
the Filings and by other means. Kindly review the information previously
available to you as well as the information set forth above and decide
for
yourself whether such information is material.
Delcath’s
Allegations Relating to Investment Bank Valuation
| · |
Delcath
alleges that Laddcap has failed to disclosed in its consent solicitation
materials that the two investment banks from whom they obtained
a
valuation of the Company were neither independent nor experienced.
Delcath
further alleges that Laddcap failed to disclose any of the underlying
assumptions and projections that were relied upon in making the
valuation.
In addition, Delcath alleges that the Laddcap did not disclose
that after
issuing the valuation, one of the investment banks, Fulcrum, accumulated
at least 32,600 shares of Delcath stock in advance of the July
27, 2006
record date for the Laddcap consent solicitation to remove Delcath’s
directors.
|
Laddcap’s
Response:
While
Laddcap’s prior proxy solicitation materials -- which were disseminated in
connection with Laddcap’s proxy solicitation conducted in connection with
Delcath’s annual meeting in June 2006 -- did contain a valuation calculated by
these two firms, such valuation is nowhere mentioned in Laddcap’s current
consent solicitation materials including its Consent Statement. Accordingly,
such valuation is not part of the materials that have been disseminated
to
Delcath’s stockholders in this consent solicitation process.
Moreover,
notwithstanding that the valuation is not included in Laddcap’s consent
solicitation materials, the valuation itself explicitly sets forth (i)
the
information that was reviewed in arriving at the valuation (ii) the analyses
that were performed to arrive at the valuation and (iii) the factors that
were
considered to arrive at the valuation. In addition, the letter setting
forth the
valuation sets forth in explicit detail the assumptions, qualifications
and
limitations of the valuation. Accordingly, Delcath’s Allegations that Laddcap
failed to disclose any of the underlying assumptions and projections that
were
relied upon in making the valuation are not accurate.
-8-
In
addition, Laddcap disputes the allegation that the two firms that completed
the
valuation were not experienced or independent. Indeed, Laddcap hired these
firms
to complete the valuations because it was familiar with the principals
at the
firms and knew that the individuals who would be overseeing the completion
of
the valuation had many years of experience in investment banking. Moreover,
other than retaining them to do the valuation work, Laddcap has made no
promises
to or agreements whatsoever with either of these firms on any other matter
involving Delcath.
The
Allegations Relating to Laddcap’s Discussions With The
Company:
| · |
Delcath
alleges that Laddcap’s consent solicitation materials falsely represent
that Delcath “rejected” the Laddcap’s efforts to “engage in a meaningful
dialogue” and mischaracterize the discussions between Mr. Ladd and Mr.
Koly which led to the Laddcap agreement to withdraw their demand
for a
special shareholder meeting to vote on a proposal to remove Delcath’s
directors.
|
Laddcap’s
Response:
Laddcap’s
disclosure regarding its discussions with Delcath is accurate. Indeed,
since
October 2005, Laddcap wrote to Delcath and Mr. Koly on numerous occasions
with
observations and suggestions on how the affairs of Delcath can be better
managed. Laddcap never received an answer to any of these letters. Moreover,
Laddcap has tried on numerous occasions, to schedule a meeting with Mr.
Koly.
For example, in December 2005, a meeting between Laddcap and Mr. Koly was
scheduled but only on the condition, imposed by Mr. Koly, that Laddcap
execute a
confidentiality agreement that provided, among other things, that Laddcap
pay
Delcath $50,000 in liquidated damages should the confidentiality agreement
be
breached in any respect. Obviously, Laddcap could not execute such an onerous
confidentiality agreement, thereby precluding any meeting or meaningful
dialogue
with Mr. Koly. Therefore, because of Delcath’s refusal to engage in a
constructive dialogue, Laddcap was left with no choice but to state publicly
its
frustrations concerning Delcath via its proxy solicitation in June 2006
in
connection with Delcath’s annual meeting.
In
addition, shortly after the annual meeting in June 2006 -- at which
approximately 59% of the shares actually voted by Delcath stockholders
were
voted to withhold support for Messrs. Corigliano and Nevins for re-election
as
directors -- Laddcap approached Delcath with a simple proposition: remove
Mark
Corigliano, Victor Nevins and Daniel Isdaner as directors and replace them
with
three mutually agreeable independent directors with professional experience
from
which Delcath can draw as it looks toward FDA approval of its delivery
system.
Mr. Ladd and Mr. Koly exchanged phone calls during a two-week period and
discussed the proposal and various modifications proposed by Mr. Koly.
Mr. Ladd
considered Mr. Koly’s counter-proposals, which consisted of adding two new
director posts to the Board, but ultimately concluded that Mr. Koly’s proposals
were lacking in substance. In their last conversation, on or about June
27,
2006, regarding the composition of the Board, Mr. Koly stated for the first
time
to Mr. Ladd that his preferred course of action was approved by the current
Board and that Delcath would not agree to have new independent directors
replace
any of Delcath’s current directors. Instead, the current Board would at some
unspecified point in the future nominate and elect two additional independent
directors. Mr. Koly thus refused to budge and stood by his current Board,
and in
particular, Messrs. Corigliano and Nevins, even though over half of Delcath’s
stockholders essentially gave a vote of no-confidence to them at the annual
meeting.
-9-
Laddcap
made many efforts to engage in a constructive dialogue with Delcath, and
Delcath
effectively rejected these efforts. The history of these interactions is
fully
disclosed in Laddcap’s Consent Statement and other solicitation materials.
Accordingly, Delcath’s Allegation that Laddcap mischaracterized its discussions
with the Company is not accurate.
The
Allegations Relating to Laddcap’s Motive For The Consent
Solicitation:
| · |
Delcath
also alleges that Laddcap’s consent solicitation material is materially
misleading because it allegedly fails to disclose Laddcap’s underlying
motive for undertaking the consent solicitation. Delcath claims
that
Laddcap’s consent solicitation is “but another step in the Ladd
Defendants’ continuing campaign to force a sale of the Company so that
they can extract a quick profit and boost the short-term performance
of
the under-performing Laddcap hedge fund.”
|
Laddcap’s
Response:
As
fully
disclosed in Laddcap’s Consent Statement and elsewhere, Laddcap’s motive for the
consent solicitation is not an immediate sale of Delcath, but rather the
election of a new slate of directors who have the experience and skills
necessary to properly manage the Company. While Laddcap had recommended
Delcath’s engagement of an investment banking firm, such recommendation did not
mean that it wants an immediate sale of Delcath. Rather, Laddcap believes
that
Delcath’s current Board lacks any material independent experience regarding
public companies and/or the medical device industry. Accordingly, Laddcap
contends that gaining the perspective of qualified financial and medical
device
industry professionals would provide Delcath’s directors with information and
options that it otherwise would not be provided.
Moreover,
the fact that Laddcap previously put forward a precatory stockholder proposal
to
retain an investment banking firm -- which proposal was approved by 60%
of the
shares actually voted by Delcath’s stockholders -- does not mean that the Board
is compelled to sell or merge Delcath immediately or at any time in the
future.
Rather, the engagement of an investment bank would merely allow Delcath
and the
Board to be provided with expert advice. Laddcap believes that the cost/benefit
ratio of retaining such a firm would manifest itself in many ways, including
more favorable capital raising opportunities, more visibility with research
analysts, and more visibility within the medical device industry.
The
Allegations Relating to the Supposed “Groups” Under Section
13(d):
| · |
Delcath
alleges that Laddcap has failed to disclose the group of persons
and
entities with whom Laddcap is acting together for the purpose of
acquiring, holding, voting or disposing of Delcath stock, including
the
nature of our relationship with (i) John Codling, an individual
who
allegedly stated that he represents in excess of 15% of the outstanding
shares of Delcath stock and, with Mr. Ladd, “controls the entire float” of
Delcath stock; (ii) Fulcrum Global Partners LLC, one of the investment
banks that issued a valuation of the Company in connection with
Laddcap’s
proxy solicitation for the 2006 annual meeting, which allegedly
accumulated at least 32,600 shares of Delcath stock in advance
of the
record date for the Ladd Defendants’ consent solicitation to remove
Delcath’s directors; and (iii) Thomas Mowry, a Delcath shareholder who
has
indicated that he is acting as an “unofficial representative” and “proxy”
for Mr. Ladd, in order to avoid triggering a distribution of rights
under
the Company’s Rights Agreement that would significantly undermine their
efforts to seize control of the Company.
|
-10-
Laddcap’s
Response:
Laddcap
has no understanding or agreement, formal of informal, with Mr. Codling,
Fulcrum
or Mr. Mowry or any other person regarding the acquiring, holding, voting
or
disposing of Delcath stock.
Mr.
Codling is a broker. He is one of the many brokers that Mr. Ladd speaks
to every
business day. While Mr. Codling and Mr. Ladd may be like-minded with respect
to
the best way to enhance Delcath stockholder value, they have never entered
into
any understanding or agreement, formal or informal, regarding the acquiring,
holding, voting or disposing of Delcath stock.
Fulcrum
is one of the investment banks that Laddcap hired to perform a valuation
of the
Company in connection with Laddcap’s proxy solicitation for the annual meeting
in June. That is the only arrangement, understanding or agreement, formal
or
informal associated with Delcath, that has ever been made between Fulcrum
and
Laddcap. There is no agreement or understanding whatsoever regarding the
acquiring, holding, voting or disposing of Delcath stock.
Finally,
Mr. Ladd has never even met Thomas Mowry. Mr. Ladd and Mr. Mowry have spoken
on
the telephone, and Mr. Mowry and Mr. Ladd often agree with respect to the
best
way to enhance stockholder value for Delcath. However, Mr. Ladd has never
entered into any type of agreement or understanding with Mr. Mowry regarding
the
acquiring, holding, voting or disposing of Delcath stock. Moreover, the
evidence
which Delcath relies on to claim that Laddcap and Mr. Mowry are acting
together
as a group explicitly disclaims such relationship. The e-mail is dated
December
13, 2005, and in the e-mail, Mr. Mowry explicitly states that “I do not
represent Robert Ladd as a legal entity, and have only been given permission
to
solicit as an unofficial representative of a potential meeting of common
shareholders of DCTH.” This e-mail is dated more than seven months before
Laddcap initiated its consent solicitation.
-11-
RIGHT
TO REVOKE
IN
CONNECTION WITH OUR CONSENT SOLICITATION, PLEASE NOTE THAT EXECUTED WRITTEN
CONSENTS MAY BE REVOKED AT ANY TIME, PROVIDED THAT A WRITTEN, DATED REVOCATION
THAT CLEARLY IDENTIFIES THE CONSENT BEING REVOKED IS EXECUTED AND DELIVERED
TO
THE ALTMAN GROUP, INC. AT 1200 WALL STREET WEST, 3RD FLOOR, LYNDHURST,
NJ 07071
PRIOR TO THE TIME THAT THE LADDCAP PROPOSALS BECOME EFFECTIVE UNDER THE
DELAWARE
GENERAL CORPORATION LAW. A REVOCATION MAY BE IN ANY WRITTEN FORM VALIDLY
SIGNED
BY THE RECORD HOLDER AS OF THE RECORD DATE AS LONG AS IT CLEARLY STATES
THAT THE
WRITTEN CONSENT PREVIOUSLY GIVEN IS NO LONGER EFFECTIVE.
Thank
you.
LADDCAP
VALUE PARTNERS LP
By: ___________________________________
Robert
B.
Ladd, in his capacity as the
managing
member of Laddcap Value
Associates
LLC, the general partner of
Laddcap
Value Partners LP
In
connection with our consent solicitation, on August 17, 2006 we filed a
definitive consent solicitation statement with the Securities and Exchange
Commission (the “SEC”).
In
addition, we may file other consent solicitation materials regarding this
consent solicitation. STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE CONSENT
SOLICITATION STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION. Definitive
consent solicitation statements and blue consent cards have been mailed
to
Delcath stockholders. Stockholders are also able to obtain a free copy
of the
definitive consent solicitation statement at the SEC’s website, www.sec.gov. The
definitive consent solicitation statement may also be obtained free of
charge
from our offices by contacting us via the contact information set forth
above.
-12-
Exhibit
A
Delcath’s
Filings as of September 11, 2006
|
Date
of Filing
|
SEC
Form Type
|
Description of SEC Form
|
|
7/28/2006
|
8-K
|
Current
report, items 8.01 and 9.01
|
|
8/7/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/7/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/7/2006
|
PRE
14C
|
Other
preliminary information statements
|
|
8/7/2006
|
PRE
14C
|
Other
preliminary information statements
|
|
8/7/2006
|
PREC14A
|
Preliminary
proxy statements, contested solicitations
|
|
8/8/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/14/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/15/2006
|
PRER14A
|
Preliminary
Proxy Soliciting materials
|
|
8/16/2006
|
8-K
|
Current
report, item 8.01
|
|
8/16/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/21/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/21/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/21/2006
|
DEFC14A
|
Definitive
proxy statement, contested solicitations
|
|
8/22/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/22/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/23/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/25/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
8/31/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/6/2006
|
8-K
|
Current
report, items 8.01 and 9.01
|
|
9/6/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/6/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/7/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/8/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/8/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
|
9/8/2006
|
DEFA14A
|
Additional
definitive proxy soliciting materials and Rule 14(a)(12)
material
|
Source:
www.sec.gov
-13-