SCHEDULE 14A INFORMATION
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[X] Soliciting Material Pursuant to Section 240.14a-12
DELCATH SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
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[GRAPHIC OMITTED]
Company Contact: Investor Contacts:
Delcath Systems, Inc. Todd Fromer / Garth Russell
M. S. Koly, Chief Executive Officer KCSA Worldwide
203-323-8668 (212) 896-1215 / (212) 896-1250
www.delcath.com tfromer@kcsa.com / grussell@kcsa.com
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Media Contact:
Lewis Goldberg
KCSA Worldwide
(212) 896-1216
lgoldberg@kcsa.com FOR IMMEDIATE RELEASE
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DELCATH SYSTEMS ISSUES LETTER TO SHAREHOLDERS
STAMFORD, Conn., August 7, 2006 -- Delcath Systems, Inc. (NASDAQ: DCTH) today
issued the following letter to shareholders:
DO NOT SIGN ANY BLUE CONSENT CARD SENT TO YOU BY
LADDCAP VALUE PARTNERS LP
August 7, 2006
Dear fellow Delcath Shareholder:
As you may know, merely three weeks after Laddcap Value Partners LP and its
principal Robert Ladd agreed to end its attempt to remove all of the directors
of Delcath Systems, Inc., Laddcap is again seeking to remove your Board of
Directors. Now, Laddcap is seeking to solicit written consents from Delcath
shareholders in order to remove your duly-elected Board and replace them with a
slate of nominees handpicked by Laddcap with suspect qualifications, including
one nominee who filed for personal bankruptcy and another nominee who served on
the board of directors of a public company during the period in which that
company misstated earnings and subsequently filed for bankruptcy.
Notwithstanding any other issues Laddcap has tried to manufacture to disparage
Delcath and your Board, we believe Laddcap's actions are driven by a singular
purpose: to facilitate its own short-term interests and its selfish desire to
extract a "quick profit" by selling the Company NOW - before the value of
Delcath's key product can be properly realized.
Your Board believes Laddcap's actions are not in the best interests of the
Company's shareholders, and we are committed to acting in the best interests of
all of the Company's shareholders. For the reasons detailed below, we believe
that your current Board is better positioned than Laddcap's handpicked nominees
to maximize long-term shareholder value. Based on its experience and familiarity
with the Delcath system, your Board believes that, if the Company obtains
pre-market approval from the United States Food and Drug Administration (the
"FDA"), the value of the Company's technology (and therefore the value of the
Company) will be substantially increased beyond what could reasonably be
expected to be obtained in a sale of the Company TODAY. You are urged to
consider the following points carefully.
Your experienced management and Board have a proven track record of
delivering results to its shareholders and increasing
shareholder value
The Company's results to date speak for themselves. Between May 15, 2003 and
July 26, 2006 (the last trading day before Laddcap commenced its latest attempt
to take control of Delcath), the market value of the Company's stock has
increased by approximately 916%(1). This increase reflects the market's reaction
to the Company's achievements and its steady progress toward FDA approval during
this period. For example, on May 11, 2005, the Company announced that the FDA
had granted rare fast-track status to Delcath's novel cancer treatment system.
Subsequently, on February 21, 2006, the Company entered into a Special Protocol
Assessment and Agreement with the FDA, which allowed the Company to begin active
patient enrollment immediately, representing a significant step toward obtaining
final FDA approval. The Company currently is undertaking its final clinical
studies on the way to obtaining FDA approval and continues to successfully
recruit both new patients and new clinical test sites for its Phase III trial.
Laddcap has neglected to disclose the dubious qualifications
of its handpicked Board nominees
The Company believes that Laddcap's slate of handpicked nominees is less
concerned about the long-term prospects of the Company and more focused on
seizing control of, and selling, the Company for a "quick profit" at the
earliest opportunity. While Laddcap's consent solicitation statement describes
its proposed slate of nominees as "unaffiliated," your Board believes that all
of them are ill-suited to run Delcath's business for the long-term and that they
have been handpicked by Laddcap simply to facilitate Laddcap's attempt to force
an ill-advised sale of the Company.
Mr. Robert Ladd. Laddcap is asking you to elect its principal, Robert Ladd, to
the Company's Board of Directors. Mr. Ladd has no discernible expertise in
research and clinical trials and has no discernible experience in the clinical
field or with medical device or development stage companies. In fact, Mr. Ladd
appears to lack "any demonstrable experience regarding public companies and/or
the medical device industry," the exact criticism that Laddcap has of Delcath's
current directors. Shareholders should understand that, notwithstanding Mr.
Ladd's purported 20 years of experience in the equities markets and despite the
fact that Mr. Ladd has approximately 33% of the Laddcap fund invested in
Delcath's successful stock, the annual return for Mr. Ladd's fund for 2006
through April 2006 was 5.1%, for all 2005 was -1.7%, and for all 2004 was 0.7%,
each considerably below the performance of the rest of the market.
Mr. Jonathan Foltz. Mr. Foltz was, until recently, a consultant to Delcath and
prior to that an employee for approximately 10 years. On July 27, 2006, the same
day that Laddcap announced its intention to launch a consent solicitation, Mr.
Foltz abruptly resigned from the Company and appeared on the slate of directors
handpicked by Laddcap. The Board believes that it cannot be a coincidence that
the day Mr. Foltz resigns from Delcath he appears as Laddcap's handpicked
nominee. Yet, Laddcap has not disclosed what arrangements, if any, it has with
Mr. Foltz.
Mr. Paul William Frederick Nicholls. Mr. Nicholls filed for personal bankruptcy
in 2002. Shareholders should question why Laddcap would propose a nominee, whose
responsibilities will include the oversight of Delcath's finances and business
affairs, who himself has recently declared personal bankruptcy. In contrast,
none of Delcath's current directors has ever declared personal bankruptcy.
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(1) In contrast, the annual return for Mr. Ladd's fund for 2006 through April
2006 was 5.1%, for all 2005 was -1.7%, and for all 2004 was 0.7%, each
considerably below the performance of the rest of the market. Source:
Laddcap Value Partners LP April 2006 update to investors. The annual return
for S&P SmallCap 600 for 2006 through April 2006 is 12.52% and for all 2005
was 6.65%. The annual return for S&P SmallCap 600 for all 2004 was 21.59%.
2
Mr. Fred S. Zeidman. Mr. Zeidman served as a member of the audit and
compensation committees of the board of directors of Seitel Corporation during
the period in which Seitel misstated its earnings for seven quarters and
subsequently filed for bankruptcy. Mr. Zeidman was named in seven shareholder
derivative suits stemming from Seitel's aforementioned earnings misstatements
and eventual bankruptcy.
Mr. Michael Karpf, M.D. Mr. Karpf was vice provost of the UCLA Hospital System
from January 1996 until September 2003, during which time the UCLA Hospital
System's net income dropped from $51 million in 1998 to under $5 million in
2000. By 2002, despite being the largest University of California medical
system, UCLA reported net income of only $7.2 million as compared with between
$29.0 million and $36.5 million for other University of California hospital
systems. Despite these poor financial results, Mr. Karpf's base salary in 2002
was $436,600, higher than his counterparts at the other University of California
hospital systems.
Laddcap's takeover attempt will destabilize the Company and
its stock price and will result in NO EXPERIENCED
MANAGEMENT IN PLACE TO RUN THE COMPANY
Mr. Koly and Dr. Herschkowitz have each been associated with Delcath as members
of the Board for over 15 years and served as officers of Delcath for over seven
years. Each of Mr. Koly and Dr. Herschkowitz has over 15 years of experience
interacting with, and guiding products through, the FDA, while, on the other
hand, Laddcap's handpicked nominees appear to lack any discernible experience
with the FDA process. Under the guidance of your current Board, Mr. Koly and Dr.
Herschkowitz have led Delcath on a stable, consistent, and deliberate path to
FDA approval of an effective treatment for liver cancer, developing deep, long
standing relationships with the National Cancer Institute ("NCI") and
administrators of the various Delcath trial sites along the way.
Even Laddcap acknowledges that Mr. Koly and Dr. Herschkowitz are critical to the
continued effective execution of Delcath's business strategy, including
sheparding Delcath's novel system through the regulatory approval regime, and
that none of Laddcap's nominees is capable of running the daily affairs of the
Company. Laddcap's own consent solicitation statement is careful to note "that
Mr. Ladd, by virtue of this consent solicitation, is not seeking to change the
current management of Delcath," and that even if the consent solicitation is
successful, at least in the near-term, "Mr. Koly would remain as the President
and CEO of Delcath and Dr. Herschkowitz would remain as Delcath's Chief
Technical Officer."
This is absolutely not the case. If Laddcap's handpicked nominees succeed in
taking control of the Board, both Mr. Koly and Dr. Herschkowitz have indicated
to the Board that they would not remain as employees of Delcath effective
immediately upon removal of the Board. Mr. Koly and Dr. Herschkowitz both feel
that at that point, they will no longer have the support and confidence of the
Board necessary to continue to pursue Delcath's long term business strategy.
Their departure will leave NO EXPERIENCED MANAGEMENT IN PLACE TO PURSUE THE
CONTINUED DEVELOPMENT OF THE DELCATH SYSTEM.
Laddcap's business plans for the Company offer nothing new
and reflect a lack of understanding of and experience with the
FDA regulatory process
Your Board believes that unlike your current, experienced management and Board,
Laddcap and its handpicked nominees do not have a sufficient grasp of Delcath's
business and the mechanics of its clinical trials to be able to successfully run
your Company once your Board and management depart. The business plans outlined
by Laddcap in its consent solicitation materials represent either regurgitations
of the Company's current business strategies or, more disturbingly, fundamental
misunderstandings of the Company's business.
For example, in its consent solicitation statement, Laddcap states that with the
support of the NCI, Laddcap will seek "to establish at least two additional
sites for Delcath's ongoing Phase III trial using melphalan." What Laddcap fails
to realize is that adding additional sites is not something that can be forced
upon the NCI. Under the guidance of your current Board, the Company's management
has worked hard to develop long-standing relationships with the NCI and the
principal investigators and other personnel at potential test sites, and these
critical relationships likely would disappear upon the departure of the current
management.
3
Laddcap's consent solicitation statement further states that its nominees will
review "whether continuing to devote resources to the Doxorubucin Phase III
trials undermines the Melphalan Phase III trial treating the same patient
population." This statement reflects a fundamental misunderstanding of the
relationship between the two trials. The NCI has no control over the Doxorubucin
trials and the Doxorubucin trials are an effective parallel, not conflicting,
track that are being used to show the effectiveness of the Delcath system. In
fact, the Phase I and II Doxorubucin trials have produced compelling results in
melanoma.
DO NOT BE FOOLED
The Company believes that Laddcap's true intention is to seize
control of your Company and facilitate a quick sale of the Company
in order to bolster the returns of Laddcap's underperforming hedge fund
In its Schedule 13D filed with the SEC on October 17, 2005, Laddcap indicated
that it may, among other things, "seek to cause the Company to merge with or
into, consolidate with, transfer all or substantially all of its assets to, or
otherwise engage in any business combination with, one or more parties.
On January 5, 2006, Laddcap submitted a shareholder proposal for inclusion in
the Company's Proxy Statement for its Annual Meeting recommending that the Board
immediately retain the services of a nationally recognized investment banking
and/or merger advisory firm with expertise in the medical device industry to
assist the Company in exploring a potential sale to or business combination with
a third party.
On June 9, 2006, Laddcap sent a letter to shareholders announcing its engagement
of Glocap Funding LLC ("Glocap") and Fulcrum Global Partners LLC ("Fulcrum") to
provide a valuation of the Company, which the Company believes was designed to
facilitate its sale. Laddcap described Glocap and Fulcrum as "investment banking
firms" with "decades of experience," specializing in, among other things,
"mergers and acquisitions." However, at least one of the firms, Fulcrum, did
not, in fact, have "decades of experience"; rather, its press releases indicated
that it was formed in 2001 and did not even engage in traditional investment
banking activities. In fact, on June 6, 2006, one day before Fulcrum issued its
valuation opinion on the Company, the New York Post reported that Fulcrum had
"shut its books and resigned from the National Association of Securities
Dealers." Additionally, since neither Fulcrum nor Glocap requested or were
provided access to the Company's confidential books and records, the valuations
prepared by Fulcrum and Glocap are based on incomplete information.
Your Board listened to shareholder comments at the Company's 2006
Annual Meeting and has responded with results and new initiatives
As previously disclosed in press releases issued by the Company on June 27, 2006
and July 17, 2006, the Company has taken concrete steps to address shareholder
comments received at the Company's 2006 Annual Meeting and will continue to
carefully consider and respond to any additional comments that it receives.
YOUR SUPPORT IS IMPORTANT
Do not sign any BLUE Consent Card sent to you by Laddcap Value Partners LP
If you have any questions, please call MacKenzie Partners, Inc., toll-free at
(800) 322-2885 or collect at (212) 929-5500.
Thank you in advance for your support.
Sincerely,
Samuel Herschkowitz, M.D.
Chairman of the Board
4
This letter contains forward-looking statements, which are subject to certain
risks and uncertainties that can cause actual results to differ materially from
those described. Factors that may cause such differences include, but are not
limited to, uncertainties relating to our ability to successfully complete Phase
III clinical trials and secure regulatory approval of our current or future
drug-delivery system and uncertainties regarding our ability to obtain financial
and other resources for any research, development and commercialization
activities. These factors, and others, are discussed from time to time in our
filings with the Securities and Exchange Commission. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
they are made. We undertake no obligation to publicly update or revise these
forward-looking statements to reflect events or circumstances after the date
they are made.
On August 1, 2006, Laddcap filed a preliminary consent solicitation statement
with the SEC relating to Laddcap's proposal to, among other things, remove the
current Board of Directors and replace them with Laddcap's nominees. In
response, on August 7, 2006, Delcath will be filing a preliminary consent
revocation statement on Form PREC14A with the SEC in opposition to Laddcap's
consent solicitation. Delcath shareholders should read the preliminary consent
revocation statement (including any amendments or supplements thereto) when it
is filed with the SEC because it will contain additional information important
to the shareholders' interests in Laddcap's consent solicitation.
The preliminary consent revocation materials on form PREC14A (when filed), the
definitive consent revocation materials (when filed) and other public filings
made by Delcath with the SEC are available free of charge at the SEC's website
at www.sec.gov. Delcath also will provide a copy of these materials free of
charge upon request to Delcath Systems, Inc., Attention: M. S. Koly, Chief
Executive Officer, (203) 323-8668.
Delcath has engaged MacKenzie Partners, Inc., who may be deemed to be a
participant in the solicitation of Delcath shareholders, to assist in connection
with Delcath's communications with shareholders regarding Laddcap's consent
solicitation. Information regarding the interests of MacKenzie Partners, Inc.
will be contained in the preliminary consent revocation materials (including any
amendments or supplements thereto) when filed. In addition, certain of Delcath's
directors, officers and employees may be deemed to be participants in the
solicitation of Delcath's shareholders. Information regarding the names and
interests of these other persons will be contained in the preliminary consent
revocation materials (including any amendments or supplements thereto) when
filed.
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