Full Press Release Details
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
| IN RE DELCATH SYSTEMS, INC | 13 Civ. 3494 (LGS) | |
| DERIVATIVE SHAREHOLDER LITIGATION | 13 Civ. 4002 (LGS) |
NOTICE OF PROPOSED SETTLEMENT OF DERIVATIVE
ACTION, HEARING THEREON, AND RIGHT TO APPEAR
Notice is hereby provided to you of the proposed Settlement in the above-captioned derivative lawsuit. This Notice is provided
by order of the United States District Court for the Southern District of New York (the Court ). It is not an expression of any opinion by the Court. It is to notify current shareholders of the terms of the proposed Settlement of the
action. The Court has made no findings or determinations concerning the merits of this Action. The recitation of the background and circumstances of the Settlement contained herein does not constitute the findings of the Court. It is based on
representations made to the Court by counsel for the parties.
The Settlement is based on changes to the Company s governance practices and
procedures. There will be no cash recovery or distribution from this Settlement. Included in this Settlement, and part of the release, is a related derivative action pending in New York State Court captioned, Howard D. Weinstein, derivatively on
behalf of Delcath Systems, Inc. v. Harold S. Koplewicz, et al., Case No. 652030/2013 (Sup. Ct. N.Y.).
A hearing will be held at 11:30 a.m. on
October 19, 2015, before the Honorable Lorna G. Schofield, United States District Judge, at the Courthouse for the United States District Court, Southern District of New York, 40 Foley Square, Courtroom 1106, New York, New York, 10007, for
the purpose of determining, among other things, whether to approve the proposed Settlement of the claims against the Defendants, which is based on changes to the Company s governance practices and procedures. Plaintiffs Counsel request
attorneys fees and reimbursement of expenses of $495,000 for this consolidated action and the state court action. Plaintiffs also request a Service Award in the aggregate amount of $6,500 to be paid from the $495,000, subject to Court
approval. A further description of the Settlement can be found below and through filings in the pending action styled In re Delcath Systems, Inc. Derivative Shareholder Litigation, Civil Action No. 1:13-CV-03494-LGS (S.D.N.Y.).
Please read this Notice carefully and in its entirety. This Notice relates to a proposed Settlement and dismissal of litigation and contains important
information regarding your rights. Your rights may be affected by these legal proceedings. If the Court approves the Settlement, you will be forever barred from contesting the approval of the proposed Settlement and from pursuing the settled claim.
Any shareholders that wish to object to this Settlement must do so in writing by September 28, 2015 and
it must contain the information as set forth in Section XIII of this notice. The Court will not consider any objection that does not substantially comply with these requirements. Written objections must be sent by hand or by first class mail,
postage pre-paid to Lead Counsel: William B. Federman, Federman & Sherwood, 10205 N. Pennsylvania Avenue, Oklahoma City, Oklahoma 73120.
hold Delcath Common Stock for the benefit of another, please promptly transmit this document to such beneficial owner.
This Notice is sent in connection with the above-referenced consolidated
shareholder derivative action against certain former and current members of Delcath s board of directors and nominally against Delcath. The action relates to corporate decisions/disclosures regarding Delcath s chemosaturation system with
melphalan known as the Melblez Kit and the U.S. Food and Drug Administration s denial of Delcath s New Drug Application for the Melblez Kit. The amended complaint in the action includes six causes of action against current and
former directors of Delcath for breach of fiduciary duty (dissemination of false and misleading information), breach of fiduciary duty (failing to properly oversee/manage), gross mismanagement, contribution/ indemnification, abuse of control, and
waste of corporate assets.
The parties have agreed to a proposed non-monetary settlement in which Delcath will make changes to its
corporate governance practices, policies and procedures, which are described in detail in Paragraph IV of this Notice.1
The proposed settlement has obtained preliminary court approval and a final approval hearing will be held at 11:30 a.m. on October 19,
2015 at the United States District Courthouse for the Southern District of New York, 40 Foley Square, Courtroom 1106, New York, New York, 10007. As described in more detail in Paragraph IX.B of this Notice, any shareholders that wish to object
to this Settlement must do so in writing by September 28, 2015. WRITTEN OBJECTIONS MUST BE SENT BY HAND OR BY FIRST CLASS MAIL, POSTAGE PRE-PAID TO LEAD COUNSEL: WILLIAM B. FEDERMAN, FEDERMAN & SHERWOOD, 10205 N. PENNSYLVANIA
AVENUE, OKLAHOMA CITY, OKLAHOMA 73120. THE WRITTEN OBJECTIONS MUST BE POSTMARKED NO LATER THAN SEPTEMBER 28, 2015.
This Notice is intended to notify all Delcath shareholders
affected by the Settlement2 of a consolidated shareholder derivative action styled In re Delcath Systems, Inc. Derivative Shareholder Litigation., Civil Action No. 1:13-CV-03494-LGS
(S.D.N.Y.) (the Action ) of the Proposed Settlement of Derivative Litigation, Hearing Thereon, and Right to Appear (the Notice ). Plaintiffs Vincent J. Orlando and Carol Orlando, derivatively on behalf of Delcath, ( Lead
Plaintiffs ), plaintiff Howard Warsett derivatively on behalf of Delcath, plaintiff Patricia Griesi derivatively on behalf of Delcath, and Howard Weinstein derivatively on behalf of Delcath (collectively Plaintiffs ), Defendants
Eamonn Hobbs, Harold Koplewicz, Laura A. Brege, Tasos G. Konidaris, Douglas G. Watson, Laura A. Philips, Roger G. Stoll, and Gabriel Leung (the Individual Defendants ), and Delcath (Delcath and the Individual Defendants collectively, the
Settling Defendants ) have agreed upon terms to settle the Action and have signed a written Stipulation of Settlement (the Stipulation ) setting forth the terms of the Settlement. This Notice also includes the Settlement of the
Weinstein Action as defined in the Stipulation.
On October 19, 2015, at 11:30 a.m., the Court will hold a hearing (the
Settlement Hearing ). The purpose of the Settlement Hearing is to determine: (i) whether the Settlement of the Action on the terms and conditions provided for in the Stipulation is fair, reasonable, and adequate to Delcath and
Current Delcath Stockholders, and should be finally approved by the Court; (ii)
whether a Judgment as provided in, and attached as Exhibit C to the Stipulation should be entered; (iii) the amount of compensation and reimbursement to Plaintiffs Counsel for their
efforts in connection with the litigation; (iv) whether, and in what amount, to compensate Plaintiffs for their efforts in connection with the litigation; and (v) such other matters as may be necessary or proper in the circumstances.
On May 23, 2013, the action Vincent J.
Orlando, et al. v. Harold S. Koplewicz, et al., Case No. 1:13-CV-03494-LGS (the Orlando Action ) was filed in the United States District Court of the Southern District of New York, purportedly on behalf of the Company, alleging
the Individual Defendants breached their fiduciary duties by disseminating false and misleading statements and omissions, wasted corporate assets, and grossly mismanaged the Company. The complaint in the Orlando Action also alleged the
Company is entitled to indemnification and contribution. The Orlando Action sought damages, costs and disbursements and reasonable attorneys fees, and other such relief the Court deems proper.
On June 11, 2013, a second related derivative action was filed in the United States District Court for the Southern District of
New York, captioned Howard Warsett v. Harold Koplewicz, et al., Case No. 1:13-CV-04002-LGS (the Warsett Action ). The Warsett Action alleged claims substantially similar to those alleged in the Orlando
Action, including breach of fiduciary duty, unjust enrichment, abuse of control and gross mismanagement.
2013, a third derivative action was filed in the United States District Court for the Southern District of New York, captioned Patricia Griesi v. Harold Koplewicz, et al., Case No. 13-CV-5024 (the Griesi Action ),
alleging similar alleged breaches of fiduciary duty as those alleged in the Orlando Action and the Warsett Action. The Griesi Action also alleged unjust enrichment, abuse of control, gross mismanagement and violation of
Section 14(a) of the
Securities Exchange Act of 1934. The Griesi Action sought damages and demanded that the Company take all necessary actions to reform and improve its corporate governance and
internal procedures to comply with applicable laws and to protect the Company and its shareholders from a repeat of the damaging events described herein, awarding to Delcath restitution from the Individual Defendants, and ordering disgorgement
of all profits, benefits and other compensation obtained by the Individual Defendants, and awarding to Plaintiff costs, disbursements and reasonable attorneys fees.
Each of these cases was brought by holders of Delcath common stock against certain directors and officers of Delcath on behalf of nominal
defendant Delcath alleging breaches of fiduciary duty arising out of events taking place during the period of April 10, 2010 through the present (the Relevant Period ).
On June 25, 2013, the Court entered an order consolidating the Orlando Action and the Warsett Action and on
August 2, 2013, entered an order appointing Vincent Orlando and Carol Orlando as Lead Plaintiffs and Federman & Sherwood as Lead Counsel. On August 1, 2013, the Griesi Action was consolidated with the Action, under the
caption In re Delcath Systems, Inc. Derivative Shareholder Litigation.
Lead Plaintiffs filed a Verified Consolidated
Amended Complaint ( Complaint ) on September 12, 2014. The Complaint alleges that Delcath s Board of Directors failed in their duty to properly oversee the Company and thus allowed Delcath to disseminate false and misleading
statements to the public regarding the Company s proprietary drug/device, the Melblez Kit, and its prospects for FDA approval. On January 12, 2015, the parties submitted briefing on defendants Motion to Dismiss the Complaint. Per the
request of the parties, on March 12, 2015, April 8, 2015, May 11, 2015, and June 29, 2015, the Court agreed to hold defendants Motion in abeyance while the parties explored whether they could reach an agreement to
resolve the litigation.
On June 7, 2013, another derivative action was filed in New York State Court
captioned Howard D. Weinstein, derivatively on behalf of Delcath Systems, Inc. v. Harold S. Koplewicz, et al., Case No. 652030/2013 (Sup. Ct. N.Y.). The Weinstein Action asserted claims substantially similar to those set forth in
the Action, and all such claims are included as part of the Settlement. The Weinstein Action was stayed pending resolution of the Action. The plaintiff in the Weinstein Action agrees to be bound by the terms of the Stipulation, and
further agrees to voluntarily dismiss the Weinstein Action with prejudice within ten (10) days of the entry of Final Judgment by the Court in this Action approving the Settlement.
On March 31, 2015, the parties voluntarily participated in full day mediation sessions presided over by Bruce Friedman, Esq. of Judicial
Arbitration and Mediation Services ( JAMS ). Although a resolution of the Action and the Weinstein Action was not reached at that time, the negotiations continued for several weeks following the mediation, and eventually, the
parties agreed to resolve the claims asserted in the Action and the Weinstein Action. The Plaintiffs and Settling Defendants (collectively, the Settling Parties ), by and through their undersigned attorneys, have engaged in good
faith, arm s-length discussions with regard to the possible settlement of the Action and the Weinstein Action and the Settling Parties have reached an agreement in principle providing for the proposed settlement of the Action and the
Weinstein Action (the Settlement ) on the terms and conditions set forth in the Stipulation. The Settling Parties believe that the Settlement is in the best interests of Delcath and Current Delcath Stockholders.
The principal terms, conditions and other
matters that are part of the Settlement, which is subject to approval by the Court, are summarized below. This summary should be read in conjunction with, and is qualified in its entirely by reference to, the text of the Stipulation, which has been
filed with the Court and is also available for viewing on the website of Delcath at www.delcath.com and the website of Federman & Sherwood at http://www.federmanlaw.com/.
The Settling Parties acknowledge and agree that the filing, pendency, and prosecution of the Action or the Weinstein Action were
material factors in causing the Company to adopt or to agree to adopt certain changes to its corporate governance, internal controls and stock option granting practices as set forth below. The Settling Parties further acknowledge and agree that
these changes confer a substantial benefit on the Company and that the settlement of the Action or the Weinstein Action on the terms set forth herein is in the best interests of the Company and its Current Delcath Stockholders. As a result of
the Settlement, Delcath has made, or agreed to make, the following changes to its corporate governance practices, policies and procedures:
The Stipulation also provides for the entry of judgment dismissing the Action against Delcath and the Individual Defendants
with prejudice and, as explained in more detail in the Stipulation, barring and releasing certain known or unknown claims that have been or could have been brought in any court by the Plaintiffs in the Action or Weinstein Action or by
Delcath, or any of its shareholders, against Delcath and the Individual Defendants relating to any of the claims or matters that were or could have been alleged or asserted in any of the pleadings or papers filed in the Action or Weinstein
Action or any amendment thereof. The Stipulation further provides that the entry of judgment will bar and release any known or unknown claims that have been or could have been brought in any court by the Settling Defendants against Plaintiffs or
Plaintiffs Counsel related to any of the claims or matters that were or could have been alleged or asserted in any of the pleadings or papers filed in the Action or Weinstein Action or any amendment thereof or based upon or arising out
of the institution, prosecution, assertion, settlement, or resolution of the Action or Weinstein Action.
After completing negotiations of the material terms of the Settlement, Delcath and Plaintiffs Counsel engaged in an arm s-length
negotiation regarding attorneys fees and reimbursement of expenses to be paid to Plaintiffs Counsel for the substantial benefits conferred upon the Company and its shareholders as a part of the Settlement. As a result of those
negotiations, Delcath s Insurers has agreed to pay to Plaintiffs Counsel an agreed-to fee and expense award in the amount of $495,000, subject to Court approval (the Fees and Expenses Award ). The Fees and Expenses Award
includes fees and expenses incurred by Plaintiffs Counsel in connection with the prosecution and settlement of the Action. To date, Plaintiffs Counsel have not received any payments for their efforts on behalf of Delcath shareholders nor
have Plaintiffs Counsel been reimbursed for their out-of-pocket litigation expenses. The Fees and Expenses Award will compensate Plaintiffs Counsel for the substantial benefits achieved in the Action, and the risks of undertaking the
prosecution of the Action on a contingent basis.
Lead Plaintiffs intend to apply for a Court-approved service award in the total amount
of $6,500 (the Service Award ) for Plaintiffs. The Service Award shall be funded from the Fees and Expenses Award, to the extent that agreement is approved in whole or part. Settling Defendants take no position on the Service Award.
Counsel for the Parties believe that the