EXHIBIT 10.34
 
 
 
EMPLOYEE STOCK OPTION GRANT LETTER
 
DELCATH SYSTEMS, INC.
 
2009 STOCK INCENTIVE PLAN
 
October 20, 2009
 
Krishna Kandarpa, MD, Ph.D.
34 Sears Road
Southborough, MA 01772
 
Dear Dr. Kandarpa:
 
This Grant Letter sets forth the terms and conditions of the stock option
granted to you by Delcath Systems, Inc. (the “Company”) on October 20, 2009 (the
“Grant Date”), in accordance with the provisions of its 2009 Stock Incentive
Plan (the “Plan”).  You have been granted an option (the “Option”) to purchase
100,000 shares of the Company’s Common Stock (“Common Stock”).  The Option is
not intended to be an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the “Code”).  You are a party
to an employment agreement entered into with the Company on September 30, 2009
(as the same may be amended or restated from time to time, the “Employment
Agreement”).
 
The Option is subject to the terms and conditions set forth in the Plan, any
rules and regulations adopted by the Committee (as defined in the Plan) from
time to time, and this Grant Letter.  Any terms used in this Grant Letter and
not defined herein have the meanings set forth in the Plan.
 
1. Option Price
 
The price at which you may purchase the shares of Common Stock covered by the
Option is $6.09 per share, which is the Fair Market Value of a share on the date
of grant of your Option.
 
2. Term of Option
 
Your Option expires on October 20, 2019.  However, your Option may terminate
prior to such expiration date as provided in paragraph 6 of this Grant Letter or
pursuant to the Plan.  Regardless of the provisions of paragraph 6 and the Plan,
in no event can your Option be exercised after the expiration date set forth in
this paragraph 2.
 
3. Exercisability of Option
 
 
(a)
Unless it becomes exercisable on an earlier date as provided in paragraph 6 or
pursuant to the Plan, your Option will become exercisable in installments as
follows, provided that you remain in continuous service as an employee of the
Company or its Subsidiaries on such date:

 

Period
Number of Shares Common Stock as to which the Option Becomes Exercisable
October 20, 2009
4,000
Each of the first 23 monthly anniversaries of the Grant Date, beginning November
20, 2009
4,000

 
 
(b)
If earlier than provided in Section 3(a) (and without duplication, reduced by
any shares that have previously become exercisable pursuant to Section 3(a)),
provided you remain in continuous service as an employee of the Company of its
Subsidaries on such date; (i) 25% of the shares subject to the Option shall
become exercisable upon receipt by the Company of financing from third party
investors of $15 million or more (gross proceeds), (ii) 25% of the shares
subject to the Option shall become exercisable on submission to the U.S. Food
and Drug Administration (“FDA”), with the consent of the Board, of a Premarket
Approval or New Drug Approval (as such terms are used by the FDA) for the
Company’s percutaneous hepatic perfusion treatment system, and (iii) 50% of the
shares subject to the Option shall become exercisable upon the FDA’s formal
written notice of such approval including FDA-approved labeling language for the
percutaneous hepatic perfusion treatment.

 
 
(c)
Notwithstanding the foregoing, all shares subject to the Option shall
immediately become exercisable upon (i) your Involuntary Termination (as defined
in the Employment Agreement) after the first anniversary of the Effective Date
as provided in the Employment Agreement or (ii) a Change of Control (as such
term is defined in subsections (a)-(d) of the definition of “Change of Control”
contained in the Plan).  Upon your Involuntary Termination between the Effective
Date and the first anniversary of your Effective Date, an additional number of
shares subject to the Option shall become exercisable such that the Option shall
be exercisable as to a total of 50% of the shares.

 
 
(d)
To the extent your Option has become exercisable, you may exercise the Option to
purchase all or any part of such shares at any time on or before the date the
Option expires or terminates.

 
4. Exercise of Option.
 
You may exercise your Option by giving written notice to the Company of the
number of shares of Common Stock you desire to purchase and paying the option
price for such shares. The notice must be in the form provided by the Company
from time to time (the “Option Exercise Form”), which may be obtained from the
Company’s Controller.  The notice must be hand delivered or mailed to the
Company at the address of its executive offices, 600 Fifth Avenue, 23rd Floor,
New York, NY 10020; Attention: Controller, or may be provided electronically to
the extent and in the manner provided under procedures adopted by the
Company.  Payment of the option price may be made in any manner permitted under
paragraph 5.  The cash, Common Stock, or documentation described in the
applicable provision of paragraph 5 must accompany the Option Exercise
Form.  Subject to Section 5, your Option will be deemed exercised on the date
the Option Exercise Form (and payment of the option price) is hand delivered,
received by electronic transmission (if permitted) received by overnight
courier, or, if mailed, postmarked.
 
5. Satisfaction of Option Price.
 
Your Option may be exercised by payment of the option price in cash (including
check, bank draft, money order, or wire transfer to the order of the
Company).  Unless prohibited by the Committee in its discretion (at any time
prior to completion of the desired Option exercise), your Option may also be
exercised using any of the following methods or a combination thereof:
 
 
(a)
Payment of Common Stock.  You may satisfy the option price by tendering shares
of Common Stock that you own.  For this purpose, the shares of Common Stock so
tendered shall be valued at the closing sales price of the Common Stock on The
Nasdaq Capital Market (or the exchange or market determined by the Committee to
be the primary market for the Common Stock) for the day before the date of
exercise or, if no such sale of Common Stock occurs on such date, the closing
sales price on the nearest trading date before such date.  The certificate(s)
evidencing shares tendered in payment of the option price must be duly endorsed
or accompanied by appropriate stock powers.  Only stock certificates issued
solely in your name may be tendered to exercise your Option.  Fractional shares
may not be tendered in satisfaction of the option price; any portion of the
option price that is in excess of the aggregate value (as determined under this
paragraph 5(a)) of the number of whole shares tendered must be paid in cash.  If
a certificate tendered in exercise of the Option evidences more shares than are
required pursuant to the immediately preceding sentence for satisfaction of the
portion of the option price being paid in Common Stock, an appropriate
replacement certificate will be issued to you for the number of excess shares.

 
 
 

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(b)
Broker-Assisted Cashless Exercise.  You may satisfy the option price by
delivering to the Company a copy of irrevocable instructions to a broker
acceptable to the Company to sell shares of Common Stock (or a sufficient
portion of such shares) acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sale proceeds to pay the total option price
and withholding tax obligation resulting from such exercise.  The broker must
agree to deposit the entire sale proceeds into a Company-owned account pending
delivery to the Company of the option price and tax withholding amount.  Shares
issued under this method of exercise will be issued to the designated brokerage
firm for your account.  The ability to use this method of exercise is subject to
the Company’s approval of the broker and of the specific mechanics of exercise.

 
 
(c)
Net Share Exercise.  You may satisfy the option price by delivering to the
Company an Option Exercise Form that directs the Company to withhold a
sufficient number of the shares acquired upon exercise to satisfy the aggregate
option price and tax withholding obligation with respect to the shares as to
which the Option is being exercised.  For purposes of this provision, the shares
of Common Stock applied to satisfy the option price and withholding obligation
shall be valued in the same manner as provided under paragraph 5(a).

 
6. Termination of Employment
 
(a)         General.  The following special rules apply to your Option in the
event of your death, disability, retirement, or other termination of
employment.  Following your employment termination, your Option will be
exercisable only with respect to the number of shares you were entitled to
purchase on the date of the termination of your employment and only for the
period of time specified below.  The Option shall terminate upon the date of the
termination of your employment with respect to any shares that were not
exercisable as of your employment termination date.
 
 
(i)
Termination of Employment for Cause.  If the Company or a Subsidiary terminates
your employment for Cause, your Option will terminate on the date of such
termination of employment.  For this purpose, “Cause” shall have the meaning set
forth in your Employment Agreement.

 
 
(ii)
Resignation.  If you resign from the Company or a Subsidiary other than upon
Retirement (as defined below), your Option will terminate 90 days after such
termination of employment.

 
 
(iii)
Termination Without Cause.  If the Company or a Subsidiary terminates your
employment without Cause or if the Subsidiary or division in which you are
employed is sold by the Company, your Option will terminate 90 days after such
termination of employment.

 
 
(iv)
Death or Disability.  If your employment terminates by reason of death or
Disability, your Option will terminate one year after such termination of
employment.  For purposes of this provision, “Disability” shall have the meaning
set forth in the Employment Agreement.

 
 
(v)
Retirement.  Upon your Retirement from the Company, except as provided in the
next sentence, you may exercise your Option for a period of one year following
your Retirement, but not beyond the term of the Option.  If you serve as a
director of the Company immediately following your Retirement, your Option will
terminate one year after the termination of your service as a director, but not
beyond the term of the Option.  For purposes of this provision, “Retirement”
means termination of your employment with the Company and its Subsidiaries after
you have attained age 60 and ten years of continuous employment with the Company
and/or its Subsidiaries.

 
 
 

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(vi)
Acceleration and Adjustments of Exercise Period.  The Committee may, in its
discretion, declare all or any portion of your Option immediately exercisable
and/or permit all or any part of your Option to remain exercisable for such
period designated by it after the time when the Option would have otherwise
terminated as provided in the applicable portion of this paragraph 6(a), but not
beyond the expiration date of your Option as set forth in paragraph 2 above.

 
 
(b)
Committee Determinations.  The Committee shall have absolute discretion to make
all determinations reserved to it under the Plan or this Grant Letter, including
without limitation the date and circumstances of termination of your employment,
and its determinations shall be final, conclusive and binding upon you and your
beneficiaries.

 
7. Tax Withholding.
 
You must make arrangements satisfactory to the Company to satisfy any applicable
federal, state, local or other withholding tax liability.  If you exercise your
Option by payment of cash or Common Stock, you can satisfy your withholding
obligation by making a cash payment to the Company of the required amount.  In
addition, unless the Committee in its discretion prohibits such method, you may
satisfy your withholding obligation by having the Company retain from the Common
Stock otherwise deliverable to you upon exercise of your Option shares of Common
Stock having a value equal to the minimum amount of any required tax withholding
with respect to the exercise.  If you exercise your Option using the
broker-assisted cashless option exercise method, the Committee may require that
any required tax withholding be retained by the Company from the proceeds of the
sale of your shares.  If you fail to satisfy your withholding obligation in a
time and manner satisfactory to the Company, the Company or a Subsidiary shall
have the right to withhold the required amount from your salary or other amounts
payable to you.
 
Any election to have shares withheld must be made on or before the date you
exercise your Option.  A copy of the withholding election form may be obtained
from the Company’s Controller.  The election form does not apply to exercises
under the cashless option exercise method or the net share exercise
method.  Share withholding is mandatory if you are using the net share method of
exercise.
 
The amount of withholding tax retained by the Company or paid by you to the
Company will be paid to the appropriate tax authorities in satisfaction of the
withholding obligations under the tax laws.  The total amount of income you
recognize by reason of exercise of the Option will be reported to the tax
authorities in the year in which you recognize income with respect to the
exercise.  Whether you owe additional tax will depend on your overall taxable
income for the applicable year and the total tax remitted for that year through
withholding or by estimated payments.
 
8. Administration of the Plan.
 
The Plan is administered by the Committee.  The Committee has authority to
interpret the Plan, to adopt rules for administering the Plan, to decide all
questions of fact arising under the Plan, and generally to make all other
determinations necessary or advisable for administration of the Plan.  All
decisions and acts of the Committee are final and binding on all affected Plan
participants.
 
9. Non-transferability of Option.
 
The Option granted to you by this Grant Letter may be exercised only by you, and
may not be assigned, pledged, or otherwise transferred by you, with the
exception that in the event of your  death the Option may be exercised (at any
time prior to its expiration or termination as provided in paragraphs 2 and 6)
by the executor or administrator of your estate or by a person who acquired the
right to exercise your Option by bequest or inheritance or  by reason of your
death.
 
10. Amendment and Adjustments to your Option.
 
The Plan authorizes the Board or the Committee to make amendments and
adjustments to outstanding awards, including the Option granted by this Grant
Letter, in specified circumstances, as provided in the Plan.
 
 
 
 

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11. Effect on Other Benefits.
 
Income recognized by you as a result of exercise of the Option will not be
included in the formula for calculating benefits under the Company’s other
benefit plans.
 
12. Regulatory Compliance.
 
Under the Plan, the Company is not required to deliver Common Stock upon
exercise of your Option if such delivery would violate any applicable law or
regulation or stock exchange requirement.  If required by law or regulation, the
Company may impose restrictions on your ability to transfer shares received
under the Plan.
 
13. Data Privacy.
 
By accepting this Option you expressly consent to the collection, use and
transfer, in electronic or other form, of your personal data by and among the
Company, its Subsidiaries and any broker or third party assisting the Company in
administering the Plan or providing recordkeeping services for the Plan, for the
purpose of implementing, administering and managing your participation in the
Plan.  By accepting this Option you waive any data privacy rights you may have
with respect to such information.  You may revoke the consent and waiver
described in this paragraph by written notice to the Company’s Controller;
however any such revocation may adversely affect your ability to participate in
the Plan and to exercise any stock options previously granted under the Plan.
 
14. Consent to Jurisdiction.
 
Your Option and the Plan are governed by the laws of the State of Delaware
without regard to any conflict of law rules.  Any dispute arising out of this
Option or the Plan may be resolved only in a state or federal court located
within New York County, New York State, U.S.A.  This Option is issued on the
condition that you accept such venue and submit to the personal jurisdiction of
any such court.
 
15.           Entire Agreement.
 
This Grant Letter embodies the entire agreement of the parties hereto respecting
the matters within its scope.  This Grant Letter supersedes all prior and
contemporaneous agreements of the parties hereto that directly or indirectly
bear upon the subject matter hereof, including, without limitation, the
Employment Agreement.  Any prior negotiations, correspondence, agreements,
proposals or understandings relating to the subject matter hereof shall be
deemed to have been merger into this Grant Letter, and to the extent
inconsistent herewith, such negotiations, correspondence, agreements, proposals,
or understandings shall be deemed to be of no force or effect.  There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as expressly set
forth herein.
 
 
*     *     *     *     *
 
If you have any questions regarding your Option or would like to obtain
additional information about the Plan or its administration, please contact the
Company’s Controller, Delcath Systems, Inc., 600 Fifth Avenue, 23rd Floor, New
York, NY 10020 (telephone (212) 489-2100).
 
This Grant Letter contains the formal terms and conditions of your award and
accordingly should be retained in your files for future reference.
 

 
Very truly yours,
 
/s/ Eamonn P. Hobbs
 
Eamonn P. Hobbs
 
President and Chief Executive Officer
     
Acknowledged and Agreed:
 
/s/ Krishna Kandarpa
 
Krishna Kandarpa, MD, Ph.D.