SEC Filing - Delcath Systems, Inc.

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As filed with the Securities and Exchange Commission on October 12, 2000
Registration No. 333-39470

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 5

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DELCATH SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

Delaware 3841 06-1245881
---------------- ---------------- ----------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification No.)

1100 Summer Street
Stamford, Connecticut 06905
(203) 323-8668
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)

----------------
M. S. KOLY
Chief Executive Officer
Delcath Systems, Inc.
1100 Summer Street
Stamford, Connecticut 06905
(203) 323-8668
(Name, address, including zip code, and telephone number, including area code
of agent for service)
----------------
Copies to:

Stephen A. Zelnick, Esq. Robert J. Mittman, Esq.
Morse, Zelnick, Rose & Lander, LLP Blank Rome Tenzer Greenblatt LLP
450 Park Avenue 405 Lexington Avenue
New York, NY 10022 New York, NY 10174
(212) 838-8040 (212) 885-5000
(212) 838-9190 (Facsimile) (212) 885-5001 (Facsimile)
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
----------------

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /

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CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------

=============================================================================================================================
Proposed
Number of Offering Proposed
Units/Shares Price Aggregate Amount of
Title of Each class of To Be Per Offering Registration
Securities to be Registered Registered Security(1) Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------------

Units, consisting of one share of common stock par value,
$.01 per share and one redeemable warrant to purchase
one share of common stock (2) .............................. 1,380,000 $ 6.00 $ 8,280,000 $ 2,185.92
Shares of common stock underlying the common stock
purchase warrants included in the units (3) ................ 1,380,000 $ 6.60 $ 9,108,000 $ 2,405.51
Underwriter's warrants to purchase units (4) ................ 120,000 $ -- $ -- $ --
Units issuable upon exercise of the underwriter's
warrants (4)................................................ 120,000 $ 7.20 $ 864,000 $ --
Shares of common stock underlying the warrants issuable
upon exercise of the warrants underlying the underwriter's
warrants (3)(4) ............................................ 120,000 $ 6.60 $ 792,000 $ --
Total Registration Fee ...................................... 19,044,000 $ 5,028.62
Amount previously paid ...................................... $(4,165.92)
Amount Due .................................................. $ 862.70
- -----------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 180,000 units issuable upon exercise of underwriters'
over-allotment option.
(3) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the antidilution provisions of the warrants.
(4) No registration fee required pursuant to Rule 457(g) under the Securities
Act.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION

DATED OCTOBER 12, 2000

1,200,000 Units

[GRAPHIC OMITTED]

1,200,000 Shares of Common Stock and
Redeemable Warrants to Purchase Shares of Common Stock

$6.00 per Unit
Delcath Systems, Inc. is offering 1,200,000 units. Each unit consists of
one share of common stock and one redeemable warrant. The units will trade
until October , 2001, or an earlier date as to which the underwriter consents
to the shares and warrants becoming separately tradable. After that date, the
shares and the warrants will trade separately. Each warrant entitles the holder
to purchase one share of common stock at a price of $6.60, until October ,
2005. Delcath may redeem some or all of the warrants at a price of $.10 per
warrant, upon 30 days notice, at any time after they become separately
tradable, provided that the closing bid price of the common stock is at least
$9.90 and Delcath has received the underwriter's written consent for the
redemption.

This is our initial public offering and there currently is no public
market for the units, common stock or warrants. We expect that the initial
public offering price will be $6.00 per unit.

We anticipate that the units, common stock and warrants will be listed on
the Nasdaq SmallCap Market under the symbols "DCTHU," "DCTH" and "DCTHW" and on
the Boston Stock Exchange under the symbols "DCTU," "DCT" and "DCTW."

-------------------------

Investing in the common stock involves risks. See "Risk Factors" beginning
on page 7.
-------------------------

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Public Underwriting Proceeds
Offering Discounts and to
Price Commissions Company
- --------------------------------------------------------------------------------
Per Unit ......... $ 6.00 $ .60 $ 5.40
- --------------------------------------------------------------------------------
Total ............ $7,200,000 $720,000 $6,480,000

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-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.

We have granted Whale Securities Co., L.P. a 45-day option to purchase up
to an additional 180,000 units to cover over-allotments. The underwriter is
offering the units on a firm commitment basis. The underwriter expects to
deliver the units to purchasers against payment on ________, 2000.

-------------------------
Whale Securities Co., L.P.
, 2000

Notice to California investors: Each purchaser of units in California must
be an accredited investor as that term is defined in Rule 501(a) of Regulation
D promulgated under the Securities Act of 1933, or satisfy one of the following
suitability standards:

o minimum gross income of $65,000 and a net worth, exclusive of home, home
furnishings and automobiles, of $250,000; or

o minimum net worth, exclusive of home, home furnishings and automobiles, of
$500,000.

Notice to Ohio, South Carolina and Washington investors: Each purchaser of
units in Ohio, South Carolina and Washington must be an accredited investor as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.

Notice for New Jersey investors: Offers and sales in this offering in New
Jersey may only be made to accredited investors as defined in Rule 501(a) of
Regulation D under the Securities Act of 1933. Under Rule 501(a) to be an
accredited investor an individual must have (a) a net worth or joint net worth
with the individual's spouse of more than $1,000,000 or (b) income of more than
$200,000 in each of the two most recent years or joint income with the
individual's spouse of more than $300,000 in each of those years and a
reasonable expectation of reaching the same income level in the current year.
Other standards apply to investors who are not individuals. There will be no
secondary sales of the securities to persons who are not accredited investors
for 90 days after the date of this offering in New Jersey by the underwriter
and selected dealers.

PROSPECTUS SUMMARY

This is a summary of the information contained in this prospectus. To
understand this offering fully, you should read the entire prospectus,
especially the risk factors.

Our Business

Delcath has developed a drug-delivery system, to isolate the liver from
the general circulatory system and to administer chemotherapy and other
therapeutic agents directly to the liver. Using the Delcath system, blood
flowing into the liver is:

o infused with the chemotherapy agents;

o redirected out of the patient's body;

o passed through filters which remove most of the chemotherapy agents; and

o returned to the patient's general circulatory system.

Isolating the liver and cleansing the blood before it is returned to the
patient's circulatory system protects other parts of the body from the harmful
side effects of chemotherapy while allowing higher dosages of chemotherapy to
be administered.

The Delcath system is not currently approved for marketing by the United
States Food and Drug Administration, and it cannot be marketed in the United
States without FDA pre-marketing approval. With the proceeds of this offering,
we plan to conduct Phase III clinical trials to demonstrate the safety and
efficacy of the Delcath system in administering the chemotherapy agent,
doxorubicin, to treat cancerous tumors in the liver. We believe that the
Delcath system may provide cost savings in the treatment of liver cancer to the
extent that it can reduce treatment and hospitalization costs associated with
the side-effects of chemotherapy.

Corporate Information

On May 7, 1990 we changed our name to Delcath Systems, Inc. Our executive
offices are located at 1100 Summer Street, Stamford, Connecticut 06905. Our
telephone number at this location is (203) 323-8668. Our web site is located at
www.delcath.com. Information contained on our web site does not constitute a
part of this prospectus.

The Offering

Securities offered
by Delcath............... 1,200,000 units, each unit consisting of one share
of common stock and one redeemable warrant to
purchase one share of common stock. The Units will
trade until October , 2001, or an earlier date as
to which underwriter consents to the shares and
warrants becoming separately tradable.

Common stock to be outstanding
after this offering..... 3,900,000 shares

The number of shares of common stock outstanding
after this offering includes 1,520,931 shares to be
issued immediately before the closing of this
offering upon the conversion of all our outstanding
convertible preferred stock, including 687,058
shares issued as payment of accumulated dividends,
estimated through September 30, 2000;

The number of shares of common stock outstanding
after this offering does not include:

o 441,664 shares reserved for issuance upon the
exercise of options granted under our incentive
and non-incentive stock option plans, exercisable
at a weighted average exercise price of $4.13 per
share;

o 17,252 shares reserved for issuance upon the
exercise of non-plan options exercisable at a
price of $2.90 per share;

o 16,950 shares reserved for issuance upon exercise
of outstanding warrants with exercise prices of
$10.87 and $14.87 per share;

o 300,000 shares reserved for issuance upon exercise
of options available for future grant under our
2000 stock option plan;

o 240,000 shares reserved for issuance upon exercise
of the underwriter's warrants and the warrants
included in the units;

o 360,000 shares reserved for issuance in this
offering to cover over-allotments, if any, by the
underwriter, and the exercise of warrants included
in the units issued to cover over-allotments, if
any; and

o approximately 4,790 shares issuable as payment of
accumulated dividends on our outstanding
convertible preferred stock from October 1, 2000
through the closing of this offering.

Unless the context indicates to the contrary, all
per share data and information relating to our
common stock gives effect to a one-for-2.2881
reverse stock split of our common stock effected in
September 2000 and a one-for 1.26661 reverse stock
split of our common stock effected in October 2000.

Redeemable Warrants:

Number to be outstanding
after this offering ... 1,200,000, redeemable warrants. The number of
redeemable warrants outstanding after this offering
does not include:

o outstanding warrants to purchase 16,950 shares;

o 120,000 warrants included in the underwriter's
warrants; and

o 180,000 warrants reserved for issuance in this
offering to cover over-allotments, if any, by the
underwriter.

Exercise terms........... Exercisable at any time after the warrants become
separately tradable, each to purchase one share of
common stock at a price of $6.60, subject to
adjustment.

Expiration date.......... October , 2005

Redemption............... We may redeem some or all of the warrants at a
price of $.10 per warrant at any time after they
become separately tradable, provided that the
closing bid price of the common stock on all 20 days
ending on the third day prior to the day on which we
give notice has been at least 150% of the then
effective exercise price of the warrants, we provide
at least 30 days notice and we have received the
underwriter's written consent for the redemption.

Nasdaq SmallCap Market
symbols................. Units -- DCTHU
Common stock -- DCTH
Warrants -- DCTHW

Boston Stock
Exchange symbols.......... Units -- DCTU
Common stock -- DCT
Warrants -- DCTW

Summary Financial Data

The following summary financial data as of December 31, 1999, and for the
years ended December 31, 1998 and 1999, are derived from our audited financial
statements. The summary financial data as of June 30, 2000, and for the six
months ended June 30, 1999 and 2000 are derived from our unaudited financial
statements. This information should be read in conjunction with the financial
statements, including the notes, and "Plan of Operation" appearing elsewhere in
this prospectus.

Statement of Operations Data:

Six Months Ended
Years Ended December 31, June 30,
----------------------------- -----------------------------
1998 1999 1999 2000
-------------- ------------ ------------- -------------

Total costs and expenses ........... $ 2,124,443 $ 598,126 $ 206,182 $ 404,807
Operating loss ..................... (2,124,443) (598,126) (206,182) (404,807)
Net loss ........................... (2,049,980) (572,581) (200,410) (391,771)
Net loss per share ................. (2.54) (.68) (.24) (.40)
Weighted average number of shares of
common stock outstanding ......... 806,434 838,936 822,892 978,633

Balance Sheet Data:

The pro forma information gives effect to:

o the payment in cash of $496,390 in accumulated preferred stock dividends,
estimated through September 30, 2000; and

o the borrowing of $230,000 of short-term indebtedness in August and
September 2000.

The as adjusted information gives effect to:

o the pro forma adjustments and sale of the 1,200,000 units offered by this
prospectus, including the receipt of estimated net proceeds of $5,750,000
and the repayment of $230,000 of indebtedness.

As of
December 31, 1999 As of June 30, 2000
------------------- ----------------------------------------
Actual Pro Forma As Adjusted
----------- ----------- ------------

Cash and cash equivalents ......... $561,078 $417,549 $151,159 $5,962,522
Total assets ...................... 600,821 807,659 541,269 6,061,269
Total liabilities ................. 112,748 209,532 439,532 209,532
Stockholders' equity .............. 488,073 598,127 101,737 5,851,737

RISK FACTORS

The shares offered by this prospectus are speculative and involve a high
degree of risk. In addition to other information in this prospectus, you should
consider carefully the following risks before making an investment decision.

Risks related to our financial condition

Continuing losses may exhaust our capital resources and force us to terminate
operations.

We expect to incur significant and increasing losses while generating
minimal revenues over the next few years. From our inception on August 5, 1988
through June 30, 2000, we have incurred cumulative losses of $11,703,733,
substantially all of which were incurred in connection with our product
development efforts. For the years ended December 31, 1998 and December 31,
1999 we incurred net losses of $2,049,980 and $572,581. If we continue to incur
losses we may exhaust our capital resources, including those raised in this
offering. In that case, unless we raise additional capital, we may be forced to
terminate or curtail operations.

If the proceeds of this offering are not sufficient to complete our Phase III
clinical trials and our efforts to raise additional financing are unsuccessful,
we will likely be required to cease operations.

We cannot assure you that the proceeds of this offering will be sufficient
to enable us to complete our Phase III clinical trials and obtain FDA
pre-marketing approval for the use of doxorubicin with our Delcath system
because of unanticipated delays or expenses, increased regulatory requirements
by the FDA or other factors which we cannot foresee or control. If we do not
obtain any financing that we may require, we will not be able to complete Phase
III clinical trials or obtain FDA pre-marketing approval for the Delcath system
which could result in the cessation of our business and the loss of your entire
investment.

If we do not raise the additional capital required to commercialize the Delcath
system, our potential to generate future revenues will be significantly
limited.

The proceeds of this offering will be insufficient to fund the costs of
commercializing the Delcath system. We will require significant additional
capital to fund the costs associated with widescale marketing of the Delcath
system. We have no commitments for any additional financing. If we are unable
to obtain additional financing as needed, we will not be able to sell the
system on a commercial scale and our business will be adversely impacted.

Risks related to FDA and foreign regulatory approval

If the FDA refuses to grant marketing approval or limits the circumstances
under which the Delcath system may be used, our ability to market the Delcath
system will be greatly reduced.

Pre-marketing approval requires a determination by the FDA that the data
developed by our clinical trials show that the use of doxorubicin in our system
is safe and effective in the treatment of primary liver cancer and melanoma
which has spread to the liver. The FDA requires that we demonstrate, for each
of primary liver cancer and metastatic melanoma in a statistically rigorous
manner, increased patient survival times for approval of our pre-market
application. If regulatory approval is granted, approval may require
limitations on the indicated uses for which the Delcath system may be marketed.
If we fail to obtain FDA pre-marketing approval, we will not be able to market
the Delcath system. Additionally, if we obtain FDA pre-marketing approval with
substantial limitations on uses of the Delcath system, this would greatly
reduce our ability to market the system. Either of these results could result
in the cessation of our business and the loss of your entire investment.

If we do not obtain FDA pre-marketing approval, we may not be able to export
the Delcath system to foreign markets, which will limit our sales
opportunities.

If the FDA does not approve our pre-market application for the Delcath
system, we will not be able to export the Delcath system from the United States
unless approval has been obtained from one of a number of

developed industrialized nations. We have not begun to seek foreign regulatory
approval and may not be able to obtain approval from one of those designated
nations. If we are unable to market the Delcath system internationally, our
market opportunity will be materially limited.

Because of our limited experience, conduct of Phase III clinical trials and
obtaining FDA pre-marketing approval could be delayed, which may cause us to
exhaust our financial resources prior to launching our product.

We may experience delays in beginning, conducting and completing the
trials, caused by many factors, including our limited experience in arranging
for clinical trials and in evaluating and submitting the data gathered from
clinical trials. Any significant delay in completing clinical trials or in the
FDA responding to our submission or a requirement by the FDA for us to conduct
additional trials will delay the commercialization of the Delcath system and
our ability to generate revenues and may result in our exhausting our financial
resources prior to launching our product.

Third-party reimbursement may not be available to purchasers of the Delcath
system, or may be inadequate, which would hamper our sales efforts.

Physicians, hospitals and other health care providers may be reluctant to
purchase our products if they do not receive substantial reimbursement for the
cost of the procedures using our products from third-party payors, including
Medicare, Medicaid and private health insurance plans.

Because the Delcath system currently is characterized by the FDA as an
experimental device, its use is not reimbursable in the United States. We will
not begin to seek to have third-party payors reimburse the use of the Delcath
system until after its use is approved by the FDA. Each third-party payor
independently determines whether and to what extent to reimburse for a medical
procedure or product. We cannot assure you that third-party payors in the
United States or abroad will cover procedures using the Delcath system.
Further, third-party payors may deny reimbursement if they determine that the
Delcath system is not used in accordance with established payor protocols
regarding cost effective treatment methods, or is used for forms of cancer or
with drugs not specifically approved by the FDA.

Risks related to manufacturing, commercialization and market acceptance of the
Delcath system

We obtain necessary components from sole-source suppliers. Because
manufacturers must demonstrate compliance with FDA specifications, if we change
any supplier, the successful completion of the clinical trials and/or the
commercialization of the Delcath system could be jeopardized.

Many of the components of the Delcath system are manufactured by sole
source suppliers. If any of our suppliers fail to meet our needs, or if we are
forced for any reason to seek an alternate source of supply, we may be forced
to suspend or terminate our Phase III trials. Further, if we need a new source
of supply after commercial introduction of the Delcath system, we may face long
interruptions in obtaining necessary components, which interruptions could
jeopardize our ability to supply the Delcath system to the market. We must
ensure that the components of the Delcath system are manufactured in accordance
with manufacturing and performance specifications of the Delcath system on file
with the FDA.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance, objectives,
expectations and intentions. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of these terms or other comparable terminology. These statements
involve known and unknown risks, unknown certainties and other factors,
including the risks outlined under "Risk Factors," that may cause our or our
industry's actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. You should not place undue reliance on forward-looking statements
in this prospectus which speak only as of the date they are made.

USE OF PROCEEDS

The net proceeds to Delcath from the sale of shares being offered by this
prospectus, after deducting the underwriting discount and estimated expenses of
this offering, are estimated to be $5,750,000.

We expect to use these net proceeds approximately as follows:

Approximate
Approximate Percentage
Application of Net Proceeds Dollar Amount of Net Proceeds
- --------------------------- --------------- ----------------

Research and development:
Phase III clinical trials using the Delcath system with doxorubicin ..... $4,000,000 69.6%
Research and development stage clinical trials for other chemotherapy
agents ................................................................ 450,000 7.8
Repayment of indebtedness ................................................ 270,000 4.7
Working capital and general corporate purposes ........................... 1,030,000 17.9
---------- -----
Total ................................................................ $5,750,000 100.0%
========== =====

Phase III clinical trials using the Delcath system with doxorubicin. These
costs represent:

o the costs of recruiting medical centers to conduct the trials and patients
to participate in the trials;

o the costs of treating patients, including the costs of the Delcath system
and payments for unreimbursed medical expenses for patients receiving
treatment with the system; and

o the costs of approximately $950,000 for the fees and expenses of the
clinical research organization which we anticipate hiring to conduct the
trials, collect and process the data and prepare and file a pre-market
approval application and approximately $550,000 for associated overhead,
including the costs of additional personnel and consultants.

We estimate that the average costs to treat a patient will be under
$20,000, and we expect to treat up to 124 patients.

Research and development stage clinical trials for other chemotherapy
agents. This amount represents the costs of conducting research and development
stage clinical trials for the use of other chemotherapy agents with the Delcath
system for the treatment of liver cancer. These costs represent the costs of
non-animal testing, animal testing, testing with humans, monitoring the testing
and collecting and processing data. Additional financing will be required to
conduct Phase II and III clinical trials.

Repayment of indebtedness. Represents amounts to be used to repay $230,000
principal amount of promissory notes plus interest. These notes were issued in
August and September 2000, bear interest at an annual rate of 22% and are due
May 27, 2001. We are using the proceeds of these loans for working capital.

Working capital and general corporate purposes. These costs include
general and administrative costs, including the salaries of our executive
officers.

If the underwriter exercises the over-allotment option in full, we will
realize additional net proceeds of $939,600, which will be added to working
capital purposes.

The above allocation represents our best estimate of the allocation of the
net proceeds of this offering based upon the current status of our business. We
based this estimate on assumptions, including that the Delcath system will have
obtained FDA pre-marketing approval within 24 months from the closing of this
offering. If any of these factors change, we may find it necessary to
reallocate a portion of the proceeds within the above described categories or
use portions of the proceeds for other purposes. Our estimates may prove to be
inaccurate, new programs or activities may be undertaken which will require
considerable additional expenditures or unforeseen expenses may occur.

Based upon our current plans and assumptions relating to our business
plan, we anticipate that the net proceeds of this offering will satisfy our
capital requirements for at least 12 months following the closing of this
offering. If our plans change or our assumptions prove to be inaccurate, we may
need to seek additional

financing sooner than currently anticipated or curtail our operations. We
cannot assure you that the proceeds of this offering will be sufficient to fund
our clinical trials with respect to the use of the Delcath system with
doxorubicin to treat liver cancer. We also cannot assure you that additional
financing will become available if needed.

We will invest proceeds not immediately required for the purposes
described above principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term
interest-bearing investments.

DILUTION

The difference between the initial public offering price per share and the
net tangible book value per share of common stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share is determined by dividing total tangible assets less total
liabilities by the number of outstanding shares of common stock.

At June 30, 2000, we had a net tangible book value of $306,764 or $.28 per
share. At June 30, 2000, our net tangible book value deficit would have been
($189,626) or ($.07) per share after giving pro forma effect to:

o the conversion of all outstanding shares of our convertible preferred
stock into 833,873 shares of common stock;

o the payment of $1,489,170 of estimated accumulated dividends through
September 30, 2000 through the issuance of 687,058 shares of common stock
and the payment of $496,390 of estimated accumulated dividends in cash;

o the issuance of 85,000 shares to Morse, Zelnick, Rose and Lander LLP for
legal services, at the date of this prospectus.

After also giving effect to the sale of the 1,200,000 shares included in
the units being offered at an initial public offering price of $6.00 per share
and after deducting estimated underwriting discounts and expenses of this
offering, our adjusted net tangible book value at June 30, 2000 would have been
$5,851,737 or $1.50 per share, representing an immediate increase in net
tangible book value of $1.57 per share to the existing stockholders and an
immediate dilution of $4.50 or 75.0% per share to new investors.

The following table illustrates the above information with respect to
dilution to new investors on a per share basis:

Initial public offering price ..................................................... $ 6.00
Pro forma net tangible book value deficit at June 30, 2000 ...................... $(.07)
Increase in pro forma net tangible book value attributable to new investors ..... 1.57
-----
Adjusted pro forma net tangible book value after offering ......................... 1.50
-------
Dilution to new investors ......................................................... $ 4.50
=======

The following table sets forth, on a pro forma basis as of June 30, 2000,
with respect to our existing stockholders and new investors, a comparison of
the number of shares of common stock we issued, the percentage ownership of
those shares, the total consideration paid, the percentage of total
consideration paid and the average price per share.

Shares Purchased Total Consideration Average
----------------------- -------------------------- Price Per
Number Percent Amount Percent Share
----------- --------- -------------- --------- ----------

Existing stockholders ......... 2,700,000 69.2% $10,326,686 58.9% $ 3.82
New investors ................. 1,200,000 30.8 7,200,000 41.1 6.00
--------- ----- ----------- -----
Total ...................... 3,900,000 100.0% $17,526,686 100.0%
========= ===== =========== =====

The above table assumes no exercise of the underwriter's over-allotment
option. If the underwriter exercises the over-allotment option in full, we
estimate that the new investors will have paid $8,280,000 for the 1,380,000
shares of common stock, representing approximately 44.5% of the total
consideration for 33.8% of the total number of shares of common stock
outstanding. In addition, the above table does not give effect to the shares
issuable upon exercise of outstanding options and warrants. To the extent that
any of these options or warrants are exercised, there will be further dilution
to the new investors.

DIVIDEND POLICY

We have never declared or paid any dividends to the holders of our common
stock and we do not expect to pay cash dividends in the foreseeable future. We
currently intend to retain all earnings for use in connection with the
expansion of our business and for general corporate purposes. Our board of
directors will have the sole discretion in determining whether to declare and
pay dividends in the future. The declaration of dividends will depend on our
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by our board of directors. Our ability to pay
cash dividends in the future could be limited or prohibited by the terms of
financing agreements that we may enter into or by the terms of any preferred
stock that we may authorize and issue.

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

o on an actual basis;

o on a pro forma basis to reflect:

o the issuance of 833,873 shares upon conversion of all of our preferred
stock;

o the issuance of 687,058 shares as payment of $992,780 of estimated
accumulated dividends on our preferred stock, estimated through
September 30, 2000;

o the payment of $496,390 for the remaining accumulated dividends on our
preferred stock, estimated through September 30, 2000;

o the issuance of 85,000 shares to Morse, Zelnick, Rose and Lander LLP for
legal services, at the date of this prospectus which will be charged to
paid-in capital as an expense of this offering; and

o on an as adjusted basis to give effect to the pro forma adjustments and to
the sale of 1,200,000 units, at an assumed initial public offering price
of $6.00 per unit, after deducting the underwriting discounts and
estimated offering expenses payable by us.

The following table excludes from the common stock outstanding 475,866
shares of common stock reserved for issuance upon exercise of outstanding
options and warrants.

June 30, 2000
----------------------------------------------------
Actual Pro Forma As Adjusted
---------------- ---------------- ----------------

Long-term debt ................................................ $ 0 $ 0 $ 0
------------- ------------- -------------
Stockholders' equity:
Class A convertible preferred stock, par value $.01; 5,000,000
shares authorized, 2,000,000 issued and outstanding
(actual); no shares issued or outstanding (pro forma and as
adjusted) .................................................. 20,000 -- --
Class B convertible preferred stock, par value $.01; 5,000,000
shares authorized, 416,675 shares issued and outstanding
(actual); no shares issued or outstanding (pro forma and as
adjusted) .................................................. 4,167 -- --
Common stock, par value $.01; 15,000,000 shares authorized,
1,094,069 shares issued and outstanding (actual); 2,700,000
and 3,900,000 shares issued and outstanding (pro forma and
as adjusted) ............................................... 10,941 27,000 39,000
Additional paid-in capital ................................... 12,266,752 13,267,641 19,005,641
Accumulated deficit .......................................... (11,703,733) (13,192,904) (13,192,904)
------------- ------------- -------------
Total stockholders' equity ................................. $ 598,127 $ 101,737 $ 5,851,737
------------- ------------- -------------
Total capitalization ...................................... $ 598,127 $ 101,737 $ 5,851,737
============= ============= =============

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with Management's "Plan of Operation" included elsewhere in this prospectus.
The operating data for each of the years in the two-year period ended December
31, 1999 and for the period from inception through December 31, 1999, and the
balance sheet data at December 31, 1999, are derived from our financial
statements which have been audited by KPMG LLP, independent accountants, and
are included in this prospectus. The operating data for the six month periods
ended June 30, 1999 and 2000 and for the period from inception through June 30,
2000 and the balance sheet data as at June 30, 2000 are derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on substantially the same basis as the audited financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
results of operations for these periods. Historical results are not necessarily
indicative of the results to be expected in the future, and the results of
interim periods are not necessarily indicative of results for the entire year.

Operating Data:

Years Ended December 31,
------------------------------
1998 1999
--------------- -------------

Costs and expenses:
Legal, consulting and
accounting ....................... $ 574,299 $ 626,366
Stock option compensation
expense (reversal) ............... 759,229 (456,185)
Compensation and related
expenses ......................... 466,644 200,128
Other operating expenses ........... 324,271 227,817
------------- ----------
Total costs and expenses ......... 2,124,443 598,126
------------- ----------
Operating loss ................... (2,124,443) (598,126)
------------- ----------
Interest income ..................... 74,463 43,470
Interest expense .................... -- (17,925)
============= ==========
Net loss ......................... $ (2,049,980) $ (572,581)
============= ==========
Net loss per share .................. $ (2.54) $ (.68)
============= ==========
Weighted average number of
shares of common stock
outstanding ........................ 806,434 838,936
============= ==========

Cumulative from Cumulative from
Inception Six Months Ended June 30, Inception
(August 5, 1988) to ---------------------------- (August 5, 1988) to
December 31, 1999 1999 2000 June 30, 2000
--------------------- ------------- ------------- --------------------

Costs and expenses:
Legal, consulting and
accounting ....................... $ 4,517,169 $ 389,253 $ 172,926 $ 4,690,095
Stock option compensation
expense (reversal) ............... 2,520,170 (456,185) -- 2,520,170
Compensation and related
expenses ......................... 2,488,170 123,733 104,765 2,592,935
Other operating expenses ........... 2,191,276 149,381 127,116 2,318,392
------------- ---------- ---------- -------------
Total costs and expenses ......... 11,716,785 206,182 404,807 12,121,592
------------- ---------- ---------- -------------
Operating loss ................... (11,716,785) (206,182) (404,807) (12,121,592)
------------- ---------- ---------- -------------
Interest income ..................... 537,696 23,697 13,036 550,732
Interest expense .................... (132,873) (17,925) -- (132,873)
============= ========== ========== =============
Net loss ......................... $ (11,311,962) $ (200,410) $ (391,771) $ (11,703,733)
============= ========== ========== =============
Net loss per share .................. $ (.24) $ (.40)
========== ==========
Weighted average number of
shares of common stock
outstanding ........................ 822,892 978,633
========== ==========

Balance Sheet Data:
As of As of
December 31, 1999 June 30, 2000
------------------- ---------------
Cash and cash equivalents ......... $561,078 $417,549
Total assets ...................... 600,821 807,659
Total liabilities ................. 112,748 209,532
Stockholders' equity .............. 488,073 598,127

PLAN OF OPERATION
Background

We were founded in 1988 by a team of physicians. Since our inception, we
have been a development stage company engaged primarily in developing and
testing the Delcath system for the treatment of liver cancer. A substantial
portion of our historical expenses have been in support of the development and
the clinical trials of our product. To date, we have been dependent upon
venture capital financing to fund our activities. Without an FDA pre-marketing
approved product, we have generated minimal revenues from product sales. We
have been unprofitable to date and have had losses of $2,049,980 and $572,581
for the years ended December 31, 1998 and 1999 and $391,771 for the six months
ended June 30, 2000. Cumulative losses from inception through June 30, 2000
were $11,703,733. Losses have continued through the date of this prospectus. We
expect to incur additional losses over the next three years and anticipate
these losses will increase significantly in this period due to continued
requirements for product development, clinical studies, regulatory activities,
manufacturing and establishment of a sales and marketing organization. The
amount of future net losses and time required to reach profitability are
uncertain. Our ability to generate significant revenue and become profitable
will depend on our success in commercializing our device.

We incurred non-cash compensation expense in connection with the grants of
options to purchase common stock to founders, employees, and directors because
those options had a weighted average exercise price below the fair value of the
common stock at the dates of the grants. This compensation expense from
inception on August 5, 1988, through June 30, 2000 totaled $2,520,170.

Liquidity and Capital Resources

We have financed our operations to date primarily through private
placements of our common and preferred stock. Through June 30, 2000, we raised
$9,816,686 through the sale of our class A preferred stock, class B preferred
stock and common stock. Cash used to fund operations from inception through
June 30, 2000 was $8,981,127. Our cash and cash equivalents totaled $417,549 at
June 30, 2000, a decrease of $143,529 from December 31, 1999.

Since January 1, 1998, our principal source of cash has been the following
financing transactions:

o In January 1998, we sold 34,505 shares of common stock at a price of
$14.49 per share to Johnson & Johnson Development Corporation, and
received proceeds of $500,000.

o In April 1998, we issued 8,626 shares of common stock upon exercise of
options at a price of $7.83 per share for proceeds of $67,500.

o In September 1998, we sold 3,450 shares of common stock to an individual
at a price of $16.52 per share and received proceeds of $57,000.

o In April 1999, we issued 2,300 shares of common stock upon exercise of
warrants at a price of $10.87 per share, and received proceeds of $24,998.

o In June 1999, we sold 46,987 shares of common stock at a price of $16.52
per share and received proceeds of $776,192.

o In April 2000, we sold 230,873 shares of common stock at a price of $2.17
per share, as part of a rights offering to our existing stockholders and
option holders, and received proceeds of $501,825.

o In August and September 2000, we borrowed $230,000, for which we issued
$230,000 principal amount of promissory notes, which bear interest at an
annual rate of 22% and are due on May 27, 2001. Of these notes, $50,000
principal amount was to M.S. Koly, Chief Executive Officer, President and
a director of Delcath, and $40,000 principal amount was issued to the
mother of Samuel Herschkowitz, our Chairman of the Board and Chief
Technology Officer.

Over the next 12 months, we expect to continue to incur expenses related
to the research and development of our technology, including:

o phase III clinical trials using doxorubicin with the Delcath system.

o pre-clinical and clinical trials for the use of other chemotherapy agents
with the Delcath system for the treatment of liver cancer; and

o the development of additional products and components, in particular a
filter which will be more affordable than the third-party filter currently
used in the Delcath system.

We expect to begin doxorubicin trials during the first quarter of 2001.
These trials are expected to take 12 to 18 months to complete. The collation,
analysis and submission of the results of the trials to the FDA will take an
additional three months and we estimate that the FDA will respond to our
submission within three months;

We expect to incur significant additional operating losses over each of
the next several years and expect cumulative losses to increase significantly
as we continue to expand our research and development, clinical trials and
marketing efforts. During the next 12 months, we expect to purchase
approximately $50,000 in computer, laboratory and testing equipment. We also
expect to hire approximately five additional employees in the areas of research
and development, regulatory and clinical management, marketing and
administrative functions at an estimated annual expense of $325,000. The number
and timing of such hiring will vary depending upon the success of the
international marketing efforts and progress of the clinical trials.

Immediately prior to the closing of this offering, all of our preferred
stock will convert into shares of common stock. As part of this conversion, the
preferred stockholders will receive an estimated 687,058 shares of common stock
and $496,390 in cash as payment of accumulated dividends, estimated through
September 30, 2000.

We believe that existing cash and cash equivalents, together with net
proceeds of approximately $5,750,000 from this offering, will be sufficient to
finance our operations for at least twelve months from the date of this
prospectus. Our future liquidity and capital requirements, however, will depend
on numerous factors, including:

o the progress of our research and product development programs, including
clinical studies;

o the timing and costs of various United States and foreign regulatory
filings;

o the timing and effectiveness of product commercialization activities,
including marketing arrangements overseas;

o the timing and costs involved in obtaining regulatory approvals, if ever,
and complying with regulatory requirements;

o the timing and costs involved in preparing, filing, prosecuting,
defending and enforcing intellectual property rights; and

o the effect of competing technological and market developments.

If the proceeds of this offering, together with our currently available
funds, are not sufficient to satisfy our spending plans, we will be required to
revise our capital requirements or to seek additional funding through
borrowings and/or additional sales of securities. We cannot assure you that the
proceeds of this offering will be sufficient to fund our clinical trials with
respect to the use of the Delcath system with doxorubicin to treat liver
cancer. We also cannot assure you that additional financing will become
available if needed.

BUSINESS

Overview

Delcath has developed a system, the Delcath system, to isolate the liver
from the general circulatory system and to administer chemotherapy and other
therapeutic agents directly to the liver.

Delcath was originally formed by a team of physicians on August 5, 1988 as
BGH Medical Products, Inc., a Delaware corporation. On August 22, 1988, BGH
Medical Products Inc., a Connecticut corporation, was merged into it. On May 7,
1990, the surviving Delaware corporation changed its name to Delcath Systems,
Inc.

Strategy

Our objective is to establish the use of the Delcath system as the
standard technique for delivering chemotherapy agents to the liver and to
expand the Delcath technology so that it may be used in the treatment of other
liver diseases and of cancers in other parts of the body. Our strategy includes
the following:

o Complete clinical trials to obtain FDA pre-marketing approval for use of
the Delcath system with doxorubicin to treat malignant melanoma that has
spread to the liver. Our highest priority is completing the Phase III
clinical trials, data preparation, statistical analysis and regulatory
documents associated with an application for pre-market approval of
commercial sale of the Delcath system in the United States. FDA
pre-marketing approval of our application will permit us to market the
Delcath system to administer doxorubicin in the treatment of melanoma that
has spread to the liver.

o Obtain approval to market the Delcath system in the United States for the
treatment of other forms of liver cancer using other chemotherapy agents
and treatment of hepatitis using anti-viral drugs. In addition to
researching the use of other chemotherapeutic agents with the Delcath
system to treat cancer, we plan to research the use of other compounds
with the Delcath system to treat other diseases, such as hepatitis. Our
timing to begin these studies will depend on our ability to establish
strategic alliances with pharmaceutical manufacturers or other strategic
partners in conjunction with our research into other therapeutic compounds
or raise additional funds for these purposes. FDA pre-marketing approval
will be required to market the Delcath system for these uses.

o Introducing the Delcath system into foreign markets. We will seek to
establish strategic relationships with domestic and foreign firms that
have recognized presence or experience in foreign markets that we intend
to target. Our strategy is to focus on markets that have a high incidence
of liver cancer and the means to provide and pay for cancer treatments.
According to the World Health Organization, many Asian and European
countries, including China, Japan, Greece, Hong Kong, the Philippines,
France, Germany, Italy and Spain have a higher incidence of liver cancer
than the United States. We intend to seek to enter into arrangements with
strategic partners who have experience with obtaining regulatory approval
and marketing medical devices in those markets and are willing to bear the
cost of those activities.

The Cancer Treatment Market

The American Cancer Society projects that about 1,200,000 Americans will
be diagnosed with cancer in 2000. According to the American Cancer Society's
"Cancer Facts and Figures -- 2000", cancer remains the second leading cause of
death in the United States. While researchers continue to develop innovative
new treatments for some forms of this disease, surgical resection,
chemotherapy, radiation and hormone therapy continue to be the most commonly
used treatments.

The financial burden of cancer is great for patients, their families and
society. The National Cancer Institute, in the American Cancer Society's "Facts
and Figures," estimates the overall costs of cancer to be $107 billion,
including $37 billion in direct medical costs, $11 billion for indirect
morbidity costs attributable to lost productivity due to illness, and $59
billion for indirect mortality costs attributable to lost productivity due to
death.

The Liver Cancer Market

Liver cancer is one of the most prevalent and lethal forms of cancer
throughout the world. There are two forms of liver cancer: primary and
metastatic. Primary liver cancer originates in the liver. Secondary, or
metastatic, liver cancer results from the spread of cancer from other places in
the body to the liver. With our initial Phase III clinical trials, we will seek
to develop data on metastatic melanoma which has spread to the liver. In the
liver, tumors can be surgically removed only when they are located in one of
the liver's two lobes. According to a January 3, 2000 article on liver cancer
in the Houston Chronicle, an estimated 75% of cancerous liver tumors cannot be
surgically removed at the time of diagnosis. A significant number of patients
treated for primary and metastatic liver cancer will experience a recurrence of
their disease.

Metastatic liver cancer is characterized by microscopic pieces of other
forms of cancer that detach from the primary site and travel via the blood
stream and lymphatic system into the liver, where they grow into new tumors.
This growth often continues even after removal of the primary cancer or
cancerous organ. When cancer cells enter the liver and develop into tumors,
they tend to grow very quickly. In many cases, the patient dies not from the
primary cancer, but from the tumors in the liver; the liver becomes the "life
limiting organ." People cannot survive without a liver capable of performing
its critical biologic functions: facilitating the conversion of food into
energy and filtering toxic agents from the blood. The liver is one of the three
most common sites to which cancer may spread. Due to numerous factors,
including the absence of viable treatment options, metastatic liver cancer
often causes death.

According to a 1999 article in the Washington Post, liver cancer is the
third most common form of cancer worldwide. The worldwide incidence of primary
liver cancer is estimated to be 1,000,000 new patients each year and there are
an estimated 1,250,000 deaths worldwide caused by all forms of liver cancer.
According to a 1999 article in the New England Journal of Medicine, researchers
reported that annual new diagnoses of liver cancer increased from 1.4 cases per
100,000 persons in the late 1970s to 2.4 cases per 100,000 persons in the
1990s. The American Cancer Society has projected that in the United States
there will be approximately 15,300 new cases of primary liver cancer and 47,700
new cases of malignant melanoma in 2000.

Liver cancer is among the most virulent forms of cancer. In the United
States, five-year survival rates are usually less than 10%, according to the
National Cancer Institute.

Primary liver cancer is particularly prevalent in Southern Europe, Asia
and developing countries, where the primary risk factors for the disease are
present. These risk factors include: hepatitis-B, hepatitis-C, relatively high
levels of alcohol consumption, aflatoxin, cigarette smoking and exposure to
industrial pollutants.

Liver Cancer Treatments

The prognosis for primary and secondary liver cancers is poor. Although
limited treatment options are currently available for liver cancer, they are
typically ineffective, are generally associated with significant
side-effects and can even cause death. Traditional treatment options include
surgery, chemotherapy, cryosurgery, percutaneous ethanol injection and
radiation.

Surgery

While surgery is considered the "gold standard" treatment option to
address liver tumors, an estimated 75% of liver cancer patients are
unresectable, which means they do not qualify for surgical removal. This is
most often due to the following:

o Operative risk: limited liver function or poor patient heath threatens
survival as a result of the surgery; or

o Technical feasibility: the proximity of a cancerous tumor to a critical
organ or artery, or the size, location on the liver or number of tumors
makes surgery not feasible.

For the few patients who qualify for surgery, there are significant
complications related to the procedure. Recurrence of tumors is common and in
that event, surgery typically cannot be repeated.

We believe that delivery of drugs with the Delcath system may enable
surgical resection in some of the cases which are currently inoperable by
reducing the size and number of tumors sufficiently to make resection feasible.
Shrinking a tumor using chemotherapy and then removing the tumor is a procedure
known as adjuvant therapy. After resection, chemotherapy can be administered
through the Delcath system with the objective of destroying micrometastases in
the liver that may remain undetected, thus preventing or delaying any
recurrence of tumor growth.

Chemotherapy

The most prevalent form of liver cancer treatment is intravenous
chemotherapy. The effectiveness of this treatment, however, is limited by its
side effects. Generally, the higher the dosage of chemotherapy administered,
the greater its ability to kill cancer cells. However, due to the toxic nature
of chemotherapy agents, the higher the dosage administered, the greater damage
chemotherapy agents cause to healthy tissues. As a result, the dosage of
chemotherapy required to kill cancer cells can be lethal to patients.

The side effects caused by doxorubicin, the drug we are seeking to have
approved for use in the Delcath system, are representative of the side effects
associated with many chemotherapy agents. Doxorubicin causes irreversible heart
tissue damage. Depending on dosage levels, the damage caused by doxorubicin can
be serious and lead to congestive heart failure. Doxorubicin can also cause
severe mucositis leading to ulceration of the mouth and digestive organs,
damage to a patient's immune system through destruction of bone marrow cells,
as well as acute nausea, severe vomiting, dermatological problems and hair
loss. The use of doxorubicin can be fatal even when it is administered with
careful patient monitoring.

The limited effectiveness of intravenous chemotherapy treatment and its
debilitating, often life-threatening side effects makes the decision to undergo
chemotherapy treatment difficult. In some instances, in an attempt to shrink
tumors, a physician may prescribe a radically high-dose of chemotherapy,
despite its side effects. In other cases, recognizing the inevitable result of
liver cancer, the physician and patient choose only to manage the patient's
discomfort from cancer with pain killers while foregoing treatment.

To address this trade-off between the efficacy of intravenous chemotherapy
treatment and its dire side effects, physicians have experimented with
techniques to isolate the liver from the general circulatory system and to
achieve a targeted delivery of chemotherapy agents to the liver. In the 1980s, a
physician developed a procedure in which he surgically diverted the blood flow
from the liver while infusing high dosages of chemotherapy agents into the
liver. A filtration circuit reduced drug concentrations before returning the
diverted blood to the patient. The treatment, however, was not embraced by the
medical community because it is highly invasive, resulting in prolonged recovery
times, long hospital stays and excessive costs. Other physicians have
experimented with the delivery of chemotherapy agents to the liver by catheter,
attempting to use one or more catheters to remove chemotherapy agents before
they enter the general circulatory system. We are unaware of any system,
however, which contains the patented attributes of the Delcath design.

Cryosurgery

Cryosurgery is the destruction of cancer cells using sub-zero temperatures
in an open surgical procedure. During cryosurgery, multiple stainless steel
probes are placed into the center of the tumor and liquid nitrogen is
circulated through the end of the device, creating an iceball. Cryosurgery
involves a cycle of treatments in which the tumor is frozen, allowed to thaw
and then refrozen.

While cryosurgery is considered to be relatively effective, we believe
adoption of this procedure has been limited because:

o It is not an option for patients who cannot tolerate an open surgical
procedure;

o It involves significant complications which are similar to other open
surgical procedures, as well as liver fracture and hemorrhaging caused by
the cycle of freezing and thawing;

o It is associated with mortality rates estimated to be between one and
five percent; and

o It is expensive compared to other alternatives.

Percutaneous Ethanol Injection

Percutaneous ethanol injection, or PEI, involves the injection of alcohol
into the center of the tumor. The alcohol causes cells to dry out and cellular
proteins to disintegrate, ultimately leading to tumor cell death.

While PEI can be successful in treating some patients with primary liver
cancer, it is generally considered ineffective on large tumors as well as
metastatic tumors. Patients are required to receive multiple treatments, making
this option unattractive for many patients. Complications include pain and
alcohol introduction to bile ducts and major blood vessels. In addition, this
procedure can cause cancer cells to be deposited along the needle tract when
the needle is withdrawn.

Radiation Therapy

Radiation therapy uses high dose x-rays to kill cancer cells. Radiation
therapy is not considered an effective means of treating liver cancer and is
rarely used for this purpose. Radiation is often used as an adjunct to other
cancer treatments.

Implanted Infusion Pumps

Implanted Infusion Pumps can be used to better target the delivery of
chemotherapy agents to the tumor. Arrow International markets an implantable
pump typically used to treat colorectal cancer which has metastasized to the
liver. This pump, however, lacks a means of preventing the entry of
chemotherapy agents into the patient's general circulation after it passes
through the liver. This technique does not enable physicians to prescribe
higher doses of chemotherapy.

Other Methods of Treatment

Still other liver cancer treatments include: liver transplants,
embolization, tumor ablation through the use of radio frequency waves and the
use of biological response modulators, monoclonal antibodies and liposomes. The
effectiveness of these treatments is limited, many have dose limiting
side-effects, and none is widely used.

The Delcath System

The Delcath system is designed to address the critical shortcomings of
conventional intravenous chemotherapy delivery. The Delcath system isolates the
liver from the general circulatory system during liver cancer treatments with
chemotherapy and then returns the blood exiting the liver to the general
circulatory system only after the chemotherapy agent has been substantially
removed by filtration outside the body. We believe that such protection from
the side-effects of chemotherapy, that is provided by the Delcath system to
other parts of the body, allows for higher chemotherapy doses to be
administered to the liver than can be administered by conventional intravenous
delivery. By filtering out a substantial portion of the chemotherapy agent
before the blood is returned to the blood stream, other organs of the body
receive less exposure than the liver to the chemotherapy agent. Therefore,
these organs are less likely to suffer from the harmful side-effects of
chemotherapy, including the cumulative harmful effect that doxorubicin has on
the heart muscle.

The Delcath system kit includes the following disposable components:

o Infusion catheter -- a thin-walled arterial infusion catheter used to
deliver chemotherapy to the liver;

o Double balloon catheter -- a multi-passageway catheter used to isolate
and divert the drug-laden blood exiting the liver;

o Extracorporeal filtration circuit -- a blood tubing circuit incorporating
the disposable components used with a blood pump to push the isolated
blood through the system's filters and guide the cleansed blood back to
the patient;

o Filters -- activated carbon blood filters used to remove most of the
chemotherapy agent from the isolated blood after it has flowed through the
liver and before it returns to the patient's general circulation; and

o Return catheter -- a thin-walled blood sheath used to deliver the
filtered blood from the extracorporeal filtration circuit back into one of
the major veins returning blood to the right atrium of the heart.

The double balloon catheter has one large passageway and three smaller
passageways. Each of two low-pressure balloons is inflated through one of the
three smaller passageways. Blood flows out of the liver through the large
passageway to the filtration system. A separate access port attaches to the
large passageway and is designed for sampling fluid or flushing the system. The
third smaller passageway allows blood exiting the legs and kidneys to bypass
the liver and return to the heart.

The Delcath procedure involves a series of three catheter insertions, each
of which is made through the skin. During test procedures, patients are treated
with intravenous sedation and local anesthesia at catheter insertion sites. In
some cases general anesthesia has been used. An infusion catheter is inserted
into the artery through which blood normally flows to the liver. A second
catheter -- the Delcath double balloon catheter -- is inserted through the
inferior vena cava. The balloons on the double balloon catheter are then
inflated. This procedure prevents the normal flow of blood from the liver to
the heart through the inferior vena cava because the inferior vena cava has
been blocked. A chemotherapy agent is then infused into the liver through the
infusion catheter. The infused blood is prevented from flowing to the heart,
but exits the liver through perforations on the double balloon catheter and
flows through this catheter out of the body where the infused blood is pumped
through activated charcoal filters to remove most of the chemotherapy agent.
The filtered blood is returned to the patient through the jugular vein which
leads to the superior vena cava and the heart, thus restoring the cleansed
blood to normal circulation. Infusion is administered over a period of 30
minutes. Filtration occurs during infusion and for 30 minutes afterward. The
catheters are removed and manual pressure is maintained on the catheter
puncture sites for approximately 15 minutes. The entire procedure takes
approximately two to three hours to administer.

During Phase I and II clinical trials, patients remained in the hospital
overnight for observation after undergoing treatment with the Delcath system.
Once physicians become familiar with using the Delcath system, we expect the
procedure to be performed on an outpatient basis, with the patient resuming
normal activities the day after the procedure is performed. We expect a patient
to undergo an average of four treatments, one every three weeks. A new Delcath
system kit is used for each treatment.

Integral to our research and development efforts is our program of
clinical research with prominent researchers and physicians conducted at Yale
University, M.D. Anderson Cancer Center, and the Robert Wood Johnson Medical
School/Cancer Institute of New Jersey.

Our Phase III Clinical Trials

Phase III human clinical trials are a prerequisite for FDA pre-marketing
approval of Delcath's pre-marketing application. During these trials,
administration of doxorubicin through the Delcath system must be proven to be
safe and effective for the treatment of liver cancer. The FDA requires us to
demonstrate that delivering doxorubicin using the Delcath system results in
patient survival times that are longer than those obtained from administering
chemotherapy agents intravenously.

We have conducted Phase I and II human clinical trials at three United
States medical centers under investigational device and investigational new
drug exemptions granted by the FDA. The trials were designed

to demonstrate the system's "functionality," or its ability to administer to
and extract from the liver approved and marketed chemotherapy agents.
Forty-four patients participated in the trials. Twenty-one of these test
subjects had primary liver cancer or melanoma which had spread to the liver and
were treated with doxorubicin. The remaining 23 test subjects suffered from
other forms of liver cancer, and/or were treated with another chemotherapy
agent, 5-FU. These trials demonstrated that the Delcath system was capable of
extracting approximately 70% to 85% of the chemotherapy agent administered to
the liver. Therefore, the Delcath system permits the delivery of higher dosages
of chemotherapy agents to the cancer site.

We believe the results of the clinical trials we have conducted indicate
that the Delcath system delivered:

o more chemotherapy agent to the tumor site; and

o less chemotherapy agent to the general circulation than delivered by
administration of the same dose by intravenous means.

In addition, clinicians involved in the Phase I and Phase II clinical
trials observed:

o reduction in tumor size; and

o the safety of the system at higher dosage levels of chemotherapy than
those used in conventional intravenous chemotherapy delivery.

Further, though not demonstrated in a statistically significant manner
because of the limited number of patients, clinicians observed survival times
of patients treated with the Delcath system which exceeded those that would
generally be expected in patients receiving chemotherapy treatment through
conventional intravenous means of delivery.

Based on the results of our Phase I and Phase II clinical trials, we
submitted to the FDA our application for pre-market approval of the Delcath
system as a medical device. In response to our application, the FDA classified
the Delcath system as a drug delivery system and requires us to obtain approval
of a new drug application, or a supplemental new drug application, for the
chemotherapy agent being administered by the Delcath system. These applications
must demonstrate the efficacy of a particular drug when administered through
the Delcath system. To do so, we must demonstrate, in a statistically
meaningful manner, that administering chemotherapy agents with the Delcath
system results in survival times of patients that are longer than those
obtained from administering chemotherapy agents intravenously.

With a substantial portion of the proceeds from this offering, we intend
to conduct Phase III human clinical trials designed to demonstrate that
administering doxorubicin with the Delcath system to treat malignant melanoma
that has spread to the liver results in patient survival times that are longer
than those obtained from administering chemotherapy agents intravenously.

In December 1999, the FDA approved the protocols for conducting the Phase
III clinical trials.

We expect the Phase III clinical trials to be conducted in at least six
medical centers and to involve approximately 124 test subjects who will be
treated for malignant melanoma that has spread to the liver. Half of these test
subjects will be treated with doxorubicin administered using the Delcath system
and half, the control group, will be treated with chemotherapy agents delivered
intravenously. We have identified and approached a number of medical centers
that have expressed an interest in conducting the clinical trials. We expect
that within 90 days after the closing of this offering we will begin to enter
agreements with medical centers to conduct the clinical trials. As a result, we
expect clinical trials to begin during the fourth quarter of this year.
However, our timetable is subject to uncertainty and we cannot assure you that
we can meet our planned schedule. We cannot assure you that all of the medical
centers we have identified will be available to conduct the clinical trials
when we are in a position to have them commence or that we will be ready to
commence the trials within any particular time period.

We intend to hire a contract research firm to conduct these trials.
However, we have not begun negotiations with a contract research organization
and we cannot assure you that we will be able to engage an organization on
acceptable terms and conditions in a timely manner or at all. The contract
research organizations and physicians conducting the clinical trials are not
our employees. As a result, we have limited

control over their activities and can expect that only limited amounts of their
time will be dedicated to the clinical trials. They may fail to meet their
contractual obligations or fail to meet regulatory standards in the performance
of their obligations and we may not be able to prevent or correct their
failures. Failure to perform as expected or required, including their failure
to enroll a sufficient number of patients for our trials, could result in the
failure of the clinical trials and the failure to obtain FDA pre-marketing
approval.

We believe that we will acquire sufficient data to file a submission to
seek FDA pre-marketing approval of the Delcath system within 12 to 18 months of
the commencement of the clinical trials. However, we may experience delays in
beginning, conducting and completing the trials because of factors that
include, but are not limited to, delays in designing the trials to conform to
the trial protocols, complying with the requirements of institutional review
boards at the sites where the trials will be conducted, our ability to identify
clinical test sites and sponsoring physicians and the ability of the clinical
test sites to identify patients to enroll in the trials. The trials may also
take longer to complete because of difficulties we may encounter in entering
into agreements with clinical testing sites to conduct the trials and the
difficulties these sites may encounter in enrolling patients. Our ability to
conduct the trials may also be impaired by our limited experience in arranging
for clinical trials and in evaluating and submitting the data gathered from
clinical trials. Further, the FDA monitors the progress of the clinical trials
and may alter, suspend or terminate the trials based on the data that has been
accumulated to that point and its assessment of the relative risks and benefits
to the patients involved in the trials.

After acquiring sufficient data, we believe that our collation, analysis
and submission of the trial results to the FDA will take an additional three
months. Once we submit the data from the clinical trials to the FDA, we
estimate that the FDA will respond to our submission within three months. Given
the short life expectancy of liver cancer patients, we believe that the FDA
will review our pre-market application expeditiously and will respond to our
submission within three months. However, the FDA may take longer than three
months to evaluate our submission, may require that additional trials be
conducted or may not grant approval.

The FDA pre-marketing approval we are currently seeking is limited to
administration of doxorubicin with our Delcath system to treatment of patients
suffering from metastatic melanoma which has spread to the liver. If we are
granted this approval, we plan to subsequently seek additional FDA
pre-marketing approvals for using the Delcath system with other chemotherapy
agents for treatment of other liver cancers and with anti-viral drugs for
treatment of other diseases, such as hepatitis. In many instances, the process
of applying for and obtaining regulatory approvals involves rigorous
pre-clinical and clinical testing. The time, resources and funds required for
completing necessary testing and obtaining approvals is significant, and FDA
pre-marketing approval may never be obtained for some medical devices or drug
delivery systems. If we fail to raise the additional capital required or enter
into strategic partnerships to finance this testing or if we fail to obtain the
required approvals, our potential growth and the expansion of our business
would likely be limited.

Research for Hepatitis Treatment

Another disease which attacks the liver is viral hepatitis. The incidence
of viral hepatitis in the United States and worldwide is increasing. The
long-range effects of some forms of hepatitis can include massive death of
liver cells, chronic active hepatitis, cirrhosis and hepatoma. The current
treatment for viral hepatitis is limited and includes long-term injections of
interferon alpha, which is similar to chemotherapy in its toxicity and dosage
limitations. We plan to seek a strategic partner to conduct clinical trials to
determine the feasibility of using the Delcath system to administer anti-viral
drugs, including interferon alpha, in the treatment of viral hepatitis. We have
not entered into any arrangements, understandings or agreements with potential
strategic partners.

Sales and Marketing

We intend to focus our marketing efforts on the 34 comprehensive cancer
centers in the United States recognized by the National Cancer Institute,
beginning with the hospitals participating in the Phase III clinical trials. We
will focus these efforts on two distinct groups of medical specialists in these
comprehensive cancer centers:

o oncologists who have primary responsibility for the patient; and

o interventional radiologists who are members of the hospital staff and
work with catheter-based systems.

Upon diagnosis of cancer, a patient is usually referred to a medical
oncologist. This physician generally provides palliative treatments and refers
the patient to a surgical oncologist if surgery appears to be an option. Both
medical and surgical oncologists will be included in our target market.
Generally, oncologists do not position catheters, instead enlisting the
assistance of an interventional radiologist.

We plan to hire a marketing director at such time as we receive an
indication from the FDA that approval of the Delcath system is forthcoming and
then hire a sales manager and three sales representatives to market the system
in the United States. We have not previously sold, marketed or distributed any
products and currently do not have the personnel, resources, experience or
other capabilities to adequately market the Delcath system. Our success will
depend upon our ability to attract and retain skilled sales and marketing
personnel. Competition for sales and marketing personnel is intense, and we
cannot assure you that we will be successful in attracting or retaining such
personnel. Our inability to attract and retain skilled sales and marketing
personnel could materially adversely affect our business, financial condition
and results of operations.

In addition, if we can establish foreign testing and marketing
relationships, we plan to utilize one or more corporate partners to market
products outside the United States. We believe distribution or corporate
partnering arrangements will be cost effective, will be implemented more
quickly than a direct sales force established by us in such countries and will
enable us to capitalize on local marketing expertise in the countries we
target. However, any revenues we receive from the sale of the Delcath system in
foreign markets will depend upon the efforts of these parties and may be less
than we would otherwise receive if we marketed the product through our own
sales force.

Since we plan to sell the Delcath system to a large number of hospitals
and physician practices, we do not expect to be dependent upon one or a few
customers.

Market acceptance of the Delcath system will depend upon:

o the ability of our clinical trials to demonstrate a significant reduction
in the mortality rate for the kinds of cancers treated at a cost
effective price;

o our ability to educate physicians on the use of the system and its
benefits compared to other treatment alternatives; and

o our ability to convince healthcare payors that use of the Delcath system
results in reduced treatment costs of patients.

This will require substantial efforts and expenditures. We only have limited
experience in these areas and we cannot assure you that we will be successful
in achieving these goals. Moreover, the Delcath system replaces treatment
methods in which many hospitals have made a significant investment. Hospitals
may be unwilling to replace their existing technology in light of their
investment and experience with competing technologies. Many doctors and
hospitals are reluctant to use a new medical technology until its value has
been demonstrated. As a result, the Delcath system may not gain significant
market acceptance among physicians, patients and healthcare payors.

Nissho Agreement

In December 1996, we entered into an agreement with Nissho Corporation, a
large manufacturer and distributor of medical devices and pharmaceuticals based
in Osaka, Japan which grants to Nissho the exclusive right to distribute the
Delcath system in Japan, China, Korea, Hong Kong and Taiwan until December 31,
2004. Nissho, which has previously invested $1,000,000 in Delcath, has advised
us that it expects to commence the clinical trials in Japan by the end of 2000.
Nissho may also seek to conduct clinical trials in the other countries in the
territory.

Products covered by the agreement include the Delcath system for the
treatment of cancer in the liver and the lower extremities, as well as new
products which may be added by mutual agreement. Nissho is

required to purchase products from Delcath in connection with clinical trials
and for resale in its market at prices to be determined by mutual agreement.
Nissho has agreed, in its territory, not to engage in the business of
manufacturing, distributing or selling systems similar to the Delcath system
for the liver or other organs or body regions.

Third-Party Reimbursement

Currently, because the Delcath system is characterized by the FDA as an
experimental device, its use is not reimbursable in the United States. We will
not seek to have third-party payors, such as Medicare, Medicaid and private
health insurance plans, reimburse the use of the Delcath system until after its
use is approved by the FDA. Even if approved by the FDA, these payors may
require us, as a condition to reimbursement, to provide extensive supporting
scientific, clinical and cost effectiveness data for our Delcath system to the
American Medical Association. New products are under increased scrutiny with
respect to a determination as to whether or not they will be covered by the
various healthcare plans and with respect to the level of reimbursement which
will be applicable to respective covered products and procedures. Third-party
payors may deny reimbursement for the treatment and medical costs associated
with the Delcath system, notwithstanding FDA or other regulatory approval, if
it is determined that the Delcath system is unnecessary, inappropriate, not
cost effective, experimental or for a non-approved indication. Third-party
payors currently provide reimbursement for many of the components of the
Delcath system based on established general reimbursement codes, in connection
with their use in liver perfusion and other therapies.

We believe that the Delcath system will provide significant cost savings
to the extent that it can reduce treatment and hospitalization costs associated
with the side-effects of chemotherapy. Our planned wholesale price for the
Delcath system kit is $4,000. A patient normally undergoes four treatments with
the Delcath system, each requiring a new system kit. Each treatment with the
system costs approximately $12,000, resulting in a total treatment cost of
approximately $48,000. This compares to a total cost of conventional aggressive
chemotherapy treatment of approximately $160,000 to $180,000, which includes
the hospitalization and treatment costs associated with the side-effects of the
systemic delivery of chemotherapy agents.

Manufacturing

We plan to utilize contract manufacturers to produce the components of the
Delcath system. In order to maintain quality control, we plan to perform final
assembly and packaging in our own facility. If we undertake these operations
our facility will be required to comply with the FDA's good manufacturing
practice and quality system requirements. If we sell the Delcath system in some
foreign markets, our facility will also need ISO 9000 approval from the
European Union.

The double balloon catheter will be manufactured domestically by the
Burron OEM division of B. Braun Medical, Inc. of Germany. The double balloon
catheter must be manufactured in accordance with manufacturing and performance
specifications that are on file with the FDA. Burron has demonstrated that the
components it manufactures meet these specifications. Burron's manufacturing
facility is ISO 9000 approved, which will allow the use of the catheter in
European markets. B. Braun has experience in obtaining regulatory approval for
medical products in European markets and has indicated informally, that it will
assist us in this process. We have not entered into a written agreement with
Burron to manufacture the catheter either for the Phase III clinical trials or
for commercial sale. To ensure sufficient supply of catheters to complete the
clinical trials, we intend to purchase our total trial requirements before
commencement of the trials.

Medtronic USA, Inc. manufactures the components of the blood filtration
circuit located outside of the body, including the medical tubing through which
a patient's blood flows and various connectors, as well as the blood filtration
pump head. Medtronic is a manufacturer of components used for extracorporeal
blood circulation during cardiac surgery. The components manufactured by
Medtronic have been cleared by the FDA for other applications and can,
therefore, be sourced off the shelf. These components, however, must comply
with manufacturing and performance specifications for the Delcath system that
are on file with the FDA. Medtronic has demonstrated that the components it
manufactures meet these specifications. Medtronic's manufacturing facility is
also ISO 9000 approved and, thus, the components it manufactures may be used in
European markets.

The activated charcoal filters used in the Delcath system are manufactured
by Asahi Medical Products of Japan. These filters have been cleared by the FDA
for other applications and can be sourced off the shelf. Asahi has demonstrated
that the filters it supplies fall within the performance parameters and meet
the specifications on file with the FDA. We have not entered into a written
agreement with Asahi to supply the filters either for the Phase III clinical
trials or for commercial sale.

We do not have any contracts with suppliers for the manufacture of
components for the Delcath system. To date, we have only had components of the
Delcath system manufactured for us in small quantities for use in pre-clinical
studies and clinical trials. We will require greater quantities for the Phase
III clinical trials and significantly greater quantities to commercialize the
product. If we are unable to obtain adequate supplies of components from our
existing suppliers, or need to switch to an alternate supplier, the completion
of our clinical trials and commercialization of the Delcath system could be
delayed.

Competition

The healthcare industry is characterized by extensive research efforts,
rapid technological progress and intense competition from numerous
organizations, including biotechnology firms and academic institutions.
Competition in the cancer treatment industry, and specifically the markets for
systems and devices to improve the outcome of chemotherapy treatment for
cancer, is intense. We believe that the primary competitive factors for
products addressing cancer include safety, efficacy, ease of use, reliability
and price. We also believe that physician relationships, especially
relationships with leaders in the interventional radiology and oncology
communities, are important competitive factors.

Delcath competes with all forms of liver cancer treatments which are
alternatives to resection including radiation, intravenous chemotherapy and
chemotherapy through implanted infusion pumps, liver transplants, embolization,
cryosurgery, radiowave ablation and the use of biological response modulators,
monoclonal antibodies and liposomes. Many of our competitors have substantially
greater financial, technological, research and development, marketing and
personnel resources. In addition, some of our competitors have considerable
experience in conducting clinical trials and other regulatory approval
procedures. Our competitors may develop more effective or more affordable
products or treatment methods, or achieve earlier product development or patent
protection, in which case our chances to achieve meaningful revenues or
profitability will be substantially limited.

Many large pharmaceutical companies and research institutions are
developing systems and devices to improve the outcome of chemotherapy treatment
for cancer. Arrow International currently markets an implantable infusion pump,
which has been successful in facilitating regional drug delivery. However,
Arrow's pump lacks a means of preventing the entry of these agents into the
patient's general circulation after they pass through the liver. Other
companies, including Merck & Co., Inc., are developing various chemotherapy
agents with reduced toxicity, while other companies are developing products to
reduce the toxicity and side-effects of chemotherapy treatment. In addition,
gene therapy, vaccines and other minimally invasive procedures are currently
being developed as alternatives to chemotherapy.

Technological developments are expected to continue at a rapid pace in
both industry and academia which could result in a short product life cycle for
our Delcath system.

Government Regulation

United States Food and Drug Administration

General. The manufacture and sale of medical devices and drugs are subject
to extensive governmental regulation in the United States and in other
countries. The Delcath system is regulated in the United States as a drug
delivery system by the FDA under the Federal Food, Drug, and Cosmetic Act. As
such, it requires approval by the FDA of a pre-marketing application and a new
drug application prior to commercial distribution.

Doxorubicin, the drug that we are initially seeking to have approved for
delivery by the Delcath system, is a widely used chemotherapy agent which has
been approved by the FDA since 1974. Like all approved drugs, the approved
labeling includes indications for use, method of action, dosing, side-effects
and

contraindications. Because the Delcath system delivers doxorubicin through a
mode of administration and at dose strength which differ from those currently
approved, we must obtain approval for revised labeling of a doxorubicin product
permitting its use with the Delcath system. This will require the filing of a
supplemental or an original new drug application for the administration of
doxorubicin through the Delcath system.

Under the Federal, Food, Drug, and Cosmetic Act, the FDA regulates the
pre-clinical and clinical testing, design, manufacture, labeling, distribution,
sales, marketing, post-marketing reporting, advertising and promotion of
medical devices and drugs in the United States. Noncompliance with applicable
requirements could result in different sanctions such as:

o the refusal of the government to grant approvals;

o suspension or withdrawal of clearances or approvals;

o total or partial suspension of production, distribution, sales and
marketing;

o fines;

o injunctions;

o civil penalties;

o recall or seizure of products; and

o criminal prosecution of a company and its officers and employees.

Our contract manufacturers also are subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances.

Medical Devices. The Delcath system is a Class III medical device. It is
subject to the most stringent controls applied by the FDA to reasonably assure
safety and effectiveness. An application for pre-market approval must be
supported by data concerning the device and its components, including the
manufacturing and labeling of the device and typically including the results of
animal and laboratory testing and human clinical trials. The conducting of
Phase III trials is subject to regulations and to continuing oversight by
Institutional Review Boards and the FDA. These regulations include required
reporting of adverse events from use of the device during the trials. Before
commencing clinical trials, we obtained an investigational device exemption
providing for the initiation of clinical trials. We also obtained approval of
our investigational plan, including the proposed protocols and informed consent
statement that patients signed before undergoing treatment with the Delcath
system, by the institutional review boards at the sites where the trials were
conducted. Under the Federal Food, Drug, and Cosmetic Act, clinical studies for
"significant risk" Class III devices require obtaining such approval by
institutional review boards and the filing with the FDA of an investigational
device exemption at least 30 days before initiation of the studies.

Given the short life expectancy of patients suffering from metastatic
melanoma of the liver, we believe the FDA will review our pre-market
application expeditiously and respond to our submission of the Delcath system
for commercial sale within three months. However, approval of the Delcath
system may take longer if the FDA requests substantial additional information
or clarification, or if any major amendments to the application are filed. In
addition, the FDA may refer this matter to an advisory committee of experts to
obtain views about the Delcath system. This process is referred to as "panel
review", and could delay the approval of the Delcath system. The FDA will
usually inspect the applicant's manufacturing facility to ensure compliance
with quality systems regulations prior to approval of an application. The FDA
also may conduct bioresearch monitoring inspections of the clinical trial sites
and the applicant to ensure data integrity, and that the studies were conducted
in compliance with the applicable FDA regulations, including good clinical
practice regulations.

If the FDA's evaluations of the application, clinical study sites and
manufacturing facilities are favorable, the FDA will issue either an approval
letter, or an "approvable letter" containing a number of conditions that must
be met in order to secure approval of an application. If and when those
conditions have been fulfilled to the satisfaction of the FDA, the agency will
issue an order approving the application, authorizing commercial marketing of
the device under specified conditions of use. If the FDA's evaluation of the
application, the

clinical study sites or the manufacturing facilities are not favorable, the FDA
will deny approval of the application or issue a "not approvable letter." The
FDA may also determine that additional pre-clinical testing or human clinical
trials are necessary before approval, or that post-approval studies must be
conducted.

The FDA's regulations require agency approval of an application supplement
for changes to a device if they affect the safety and effectiveness of the
device, including new indications for use; labeling changes; the use of a
different facility or establishment to manufacture, process, or package the
device; changes in vendors supplying components for the device; changes in
manufacturing methods or quality control systems; and changes in performance or
design specifications. Changes in manufacturing procedures or methods may be
implemented and the device distributed 30 days after the FDA is provided with
notice of these changes unless the FDA advises the pre-market approval
application holder within 30 days of receipt of the notice that the notice is
inadequate or that preapproval of an application supplement is required.

Approved medical devices remain subject to extensive regulation.
Advertising and promotional activities are subject to regulation by the FDA and
by the Federal Trade Commission. Other applicable requirements include the
FDA's medical device reporting regulations, which require that we provide
information to the FDA on deaths or serious injuries that may have been caused
or contributed to by the use of marketed devices, as well as product
malfunctions that would likely cause or contribute to a death or serious injury
if the malfunction were to recur. If safety or efficacy problems occur after
the product reaches the market, the FDA may take steps to prevent or limit
further marketing of the product. Additionally, the FDA actively enforces
regulations prohibiting marketing or promotion of devices or drugs for
indications or uses that have not been cleared or approved by the FDA. Further,
the Food, Drug, and Cosmetic Act authorizes the FDA to impose post-market
surveillance requirements with respect to a Class III device which is
reasonably likely to have a serious adverse health consequence or which is
intended to be implanted in the human body for more than one year or to be a
life sustaining or life supporting device used outside a device user facility.

The Food, Drug, and Cosmetic Act regulates a device manufacturer's design
control, quality control and manufacturing procedures by requiring the
manufacturer to demonstrate and maintain compliance with quality systems
regulations including good manufacturing practices and other requirements.
These regulations require, among other things, that:

o there are in place design controls, including initial design and design
changes;

o the manufacturing process be regulated, controlled, and documented by the
use of written procedures; and

o the ability to produce devices which meet the manufacturer's
specifications be validated by extensive and detailed testing of every
aspect of the process. The FDA monitors compliance with quality systems
regulations, including good manufacturing practice requirements, by
conducting periodic inspections of manufacturing facilities. If
violations of the applicable regulations are found during FDA
inspections, the FDA will notify the manufacturer of such violations and
the FDA, administratively or through court enforcement action, can
prohibit further manufacturing, distribution, sales and marketing of the
device until the violations are cured. If violations are not cured within
a reasonable length of time after the FDA provides notification of such
violations, the FDA is authorized to withdraw approval of the pre-market
approval application.

Investigational devices that require FDA pre-marketing approval in the
United States but have not received such approval, may be exported to countries
belonging to the European Union, European Economic Area, and to some other
specified countries, provided that the device is intended for investigational
use in accordance with the laws of the importing country; has been manufactured
in accordance with the FDA's good manufacturing practices or ISO standards; is
labeled on the outside of the shipping carton "for export only," is not sold or
offered for sale in the United States; and complies with the specifications of
the foreign purchaser. The export of an investigational device for
investigational use to any other country requires prior authorization from the
FDA. An investigational device may be exported for commercial use only as
described below, under "Foreign Regulation."

Drugs. We, or a manufacturer of a chemotherapy agent, must obtain FDA
pre-marketing approval of a supplemental or original new drug application for a
chemotherapy product providing for its use with the

Delcath system before the system may be marketed in the United States to
deliver that agent to the liver or any other site. The FDA-approved labeling
for doxorubicin does not provide for its delivery with the Delcath system. We
must obtain aproval of a new drug application for that purpose or partner with
the holder of an approved new drug application for doxorubicin to make this
change to the labeling of doxorubicin. We are seeking to partner with a drug
company for this purpose, but we have no assurance that we will find a partner
or that the FDA will approve the application. If this approval is obtained, it
would not have a negative effect on the manufacturers of doxorubicin. Rather,
they will have the opportunity to expand the use of the drug as a result of
changing their label to include the Delcath labeling.

Clinical trials to support the relabeling of doxorubicin to provide for
its use with the Delcath system must be conducted in accordance with the FDA's
investigational new drug regulations. Phase III clinical trial protocols have
been approved by the FDA under the Company's investigational new drug
application. FDA regulations also require that prior to initiating the trials
the sponsor of the trials obtain institutional review board approval from each
investigational site that will conduct the trials. We have identified ten
medical centers that have expressed an interest in conducting the trials. The
institutional review boards at two of these medical centers have given their
approval to have the clinical trials conducted at their institutions. We are
seeking the approval of institutional review boards at additional medical
centers by assembling and providing them with information with respect to the
trials.

The FDA requires that, in order to obtain approval to relabel doxorubicin
for delivery using the Delcath system, we demonstrate that delivering
doxorubicin using the system results in patient survival times that are longer
than those obtained from administering chemotherapy agents intravenously.

The approved Phase III clinical trial protocols are designed to obtain
approval of both a new drug application, or a supplemental new drug
application, and a pre-marketing approval application providing for the use of
doxorubicin with the Delcath system. The trial protocols were approved by both
the FDA division that approves new drugs and the division that reviews
applications to market new devices. All of the data generated in the trials
will be submitted to both of these FDA divisions.

If we successfully complete the clinical trials, we believe the
manufacturer of doxorubicin will submit to the FDA a new drug application or
supplemental new drug application and pre-market approval to deliver
doxorubicin to the liver through the Delcath system. Under the Food, Drug, and
Cosmetic Act, the Delcath system cannot be marketed until the new drug
application, or supplemental new drug application, and the pre-marketing
approval application approvals are obtained, and then only in conformity with
conditions of use set forth in the approved labeling.

Foreign Regulation. In order for Nissho or any other foreign strategic
partner to market our products in Asia, Europe, Latin America and other foreign
jurisdictions, they must obtain required regulatory approvals or clearances and
otherwise comply with extensive regulations regarding safety and manufacturing
processes and quality. These regulations, including the requirements for
approvals or clearances to market, may differ from the FDA regulatory scheme.
In addition, there may be foreign regulatory barriers other than pre-market
approval or clearance.

In April 1996, FDA legislation was enacted that permits that a medical
device which requires FDA pre-marketing approval but which has not received
such approval to be exported to any country for commercial use, provided that
the device:

o complies with the laws of that country;

o has valid marketing authorization or the equivalent from the appropriate
authority in any of a list of industrialized countries including
Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa
and countries in the European Economic Union; and

o meets other regulatory requirements regarding labeling, compliance with
the FDA's good manufacturing practices or ISO manufacturing standards,
and notification to the FDA.

We must obtain a CE mark in order for us to market and sell the Delcath
system in the European Union, except for limited use as a clinical trial
device. Supplemental device approvals also might be required to market and sell
the Delcath system.

Patents, Trade Secrets and Proprietary Rights

Our success depends in large part on our ability to obtain patents,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. Because of the length of time and expense
associated with bringing new products through development and regulatory
approval to the marketplace, the health care industry has traditionally placed
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products and processes. We hold the following six
United States patents, as well as three corresponding foreign patents in
Canada, Europe and Japan:

Summary Description of Patents Patent No.
------------------------------ ----------------

Isolated perfusion method for cancer treatment U.S. #5,069,662
Isolated perfusion device -- catheter for use in isolated
perfusion in cancer treatment U.S. #5,411,479
Device and method for isolated pelvic perfusion U.S. #5,817,046
Catheter design to allow blood flow from renal veins and
limbs to bypass occluded segment of IVC U.S. #5,893,841
Balloon inside catheter to restrict blood flow or prevent
catheter from moving U.S. #5,897,533
Catheter with slideable balloon to adjust isolated segment U.S. #5,919,163

We plan to vigorously enforce our intellectual property rights. In
addition, we will conduct searches and other activity relating to the
protection of existing patents and filing of new applications.

Litigation may be necessary to enforce any patents issued or assigned to
us or to determine the scope and validity of third party proprietary rights.
Litigation would be costly and divert our attention from our business. If
others file patent applications with respect to inventions for which we already
have issued patents or have patent applications pending, we may be forced to
participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which would also be
costly and divert our attention from our business. If a third party violates
our intellectual property rights, we may be unable to enforce our rights
because of our limited resources.

In addition to patent protection, we rely on unpatented trade secrets and
proprietary technological expertise. We rely, in part, on confidentiality
agreements with our marketing partners, employees, advisors, vendors and
consultants to protect our trade secrets and proprietary technological
expertise. These agreements may not provide meaningful protection of our
proprietary technologies or other intellectual property if unauthorized use or
disclosure occurs.

Product Liability

Clinical trials, manufacturing, marketing and product sales may expose us
to liability claims from the use of the Delcath system. Though participants in
clinical trials are generally required to execute consents and waivers of
liability they may still be able to assert product liability claims against us.
Claims for damages, whether or not successful, could cause delays in the
clinical trials and result in the loss of physician endorsement. We do not
currently carry product liability insurance and we may not be able to acquire
product liability insurance at sufficient coverage levels or at an acceptable
cost. If we are unable to obtain sufficient insurance coverage at an acceptable
cost, we may not be able to commercialize the Delcath system. A successful
product liability claim or recall would have a material adverse effect on our
business, financial condition and results of operations.

Employees

As of August 31, 2000, we had four employees, three of whom were
compensated and full-time. We intend to recruit additional personnel in
connection with the research, development, manufacturing and

marketing of our products. None of our employees is represented by a union, and
we believe relationships with our employees are good. Our success will depend,
in large part, upon our ability to attract and retain qualified employees. We
face competition in this regard from other companies, research institutions and
other organizations.

In addition to our full time employees, we engage the services of medical
and scientific consultants.

Facilities

We occupy approximately 3,300 square feet of office space in Stamford,
Connecticut, pursuant to an informal arrangement with the landlord. According
to this agreement we prepaid our rent, which is approximately $7,500 a month,
through December 2000. We have occupied these facilities since 1992. We believe
that we will require additional space in 2001, and are beginning site selection
for rental property in the same building or nearby and believe that
satisfactory space is available at commercially reasonable rates.

Legal Proceedings

We are not involved in any legal proceedings and we are not aware of any
such proceedings being contemplated.

MANAGEMENT

Executive Officers and Directors

Our executive officers and directors and their respective ages are as
follows:

Name Age Positions
- ---- --- ---------

Samuel Herschkowitz, M.D. ........... 50 Chairman of the Board and Chief Technical Officer
M. S. Koly .......................... 64 Chief Executive Officer, President, Treasurer and
Director
Joseph P. Milana, CPA ............... 37 Chief Financial Officer
William I. Bergman .................. 68 Director
Frank G. Mancuso, Jr. ............... 41 Director
James V. Sorrentino, Ph.D. .......... 63 Director

Samuel Herschkowitz, M.D. has been Chairman of the Board of Delcath since
1998 and Delcath's Chief Technical Officer since 1991. In 1987, he co-founded
Venkol Ventures L.P. and Venkol Ventures, Ltd., two affiliated venture capital
funds specializing in medical technology investments, which are no longer
active. Dr. Herschkowitz is board certified in psychiatry and neurology. He is
an assistant professor at New York University Medical Center, and has held
academic positions at Beth Israel Hospital, Mount Sinai Medical School and
Downstate Medical Center. Dr. Herschkowitz graduated from Syracuse University
and received his medical degree from Downstate Medical Center College of
Medicine.

M. S. Koly has been Chief Executive Officer and Treasurer of Delcath since
1998 and has served as a Director since 1988. From 1987 until June 1998, Mr.
Koly managed Venkol Ventures, L.P. and Venkol Ventures, Ltd., firms he
co-founded with Dr. Herschkowitz. From 1983 to 1987, Mr. Koly was president of
Madison Consulting Corporation, a firm he founded. From 1978 to 1983, Mr. Koly
was president of Becton-Dickinson Respiratory Systems. Prior to that time, he
held various senior management positions at Abbott Laboratories, Stuart
Pharmaceuticals and National Patent Development Corp. He received a B.A. from
American University and an M.B.A. in marketing and finance from Northwestern
University.

Joseph P. Milana, CPA, has been the Controller of Delcath since 1995. From
1984 to 1995, Mr. Milana was with KPMG LLP, most recently as a senior tax
manager. He received a B.B.A. in accounting and an M.S. in taxation from Pace
University, and received a CPA designation from the state of New York. Mr.
Milana currently devotes one day a week to Delcath matters and will become a
full-time employee once Delcath becomes a public company.

William I. Bergman has been a director of Delcath since 1996. A retired
executive, Mr. Bergman was with Richardson-Vicks from 1956 through 1990 most
recently as Vice President-controller of North American Operations, vice
president-marketing of colds care business and Canadian operations, president
and general manager of Vicks health care division, assistant general manager of
Vicks International, and executive vice president of Richardson-Vicks Inc.
Following the acquisition of Vicks by The Procter & Gamble Company in 1986, he
became the president of Richardson-Vicks, U.S.A. and vice president of The
Procter & Gamble Company prior to retirement in 1990. He is also a director of
ZymeTx, Inc. a biotech company involved in the development of viral
diagnostics. His education includes a B.S. from Drexel University and the
advanced management program at Harvard University.

Frank G. Mancuso, Jr., has been a director of Delcath since 1998. Mr.
Mancuso has been President of FGM Entertainment since 1985. In the past five
years, he has produced numerous movies and television series within his own
companies and for Paramount Pictures and MGM/United Artists. He has a B.A. from
Upsala College.

James V. Sorrentino, Ph.D., has been a director of Delcath since 1996.
Since 1992, Dr. Sorrentino has been President of Healthcare Products
Development, Inc., a clinical research organization that designs, organizes and
manages clinical trials for the pharmaceutical and biological industry. From
1974 to 1992, he

held several research positions with Richardson-Vicks Inc., including director
of over-the-counter products, Vice President & director of research and
development. After Richardson-Vicks Inc. was acquired by The Procter & Gamble
Company, he served as director of worldwide clinical development,
non-prescription drug products of The Procter & Gamble Company. He received an
A.B. in Biology, an M.S. in bacteriology, and a Ph.D. in virology/immunology
from the Catholic University of America.

Our success will depend largely on the continuing efforts of Samuel
Herschkowitz, our Chief Technical Officer and M.S. Koly, our Chief Executive
Officer. Our business may be adversely affected if the services of either
officer become unavailable to us.

We have agreed, for a period of three years from the date of this
prospectus, if so requested by the underwriter, to nominate and use our best
efforts to elect a designee of the underwriter as a director of Delcath or, at
the underwriter's option, as a non-voting advisor to our board of directors.
The underwriter has not yet exercised its right to designate a person.

Classified Board of Directors

Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, together with the
provision of our amended and restated certificate of incorporation and by-laws,
allow the board of directors to fill vacancies on or increase the size of the
board of directors, and may deter a stockholder from removing incumbent
directors and filling such vacancies with its own nominees in order to gain
control of the board. The staggering of the election of our directors may have
the effect of delaying, deferring or discouraging a change of control.

Each of our directors has been elected to serve until his successor has
been elected and duly qualified. The directorship terms of Dr. Herschkowitz and
Mr. Koly will expire at the annual meeting of stockholders in 2002; the
directorship term of Mr. Mancuso will expire at the annual meeting of
stockholders in 2001; and the directorship terms of Dr. Sorrentino and Mr.
Bergman will expire at the annual meeting of stockholders in 2003.

Committees of the Board

We have established an audit committee and a stock option and compensation
committee.

The audit committee approves the selection of our independent accountants
and meets and interacts with the independent accountants to discuss questions
in regard to the financial reporting. In addition, the audit committee reviews
the scope and results of the audit with the independent accountants, reviews
with management and the independent accountants our annual operating results,
considers the adequacy of our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, fees to be paid to our independent auditors and the performance of our
independent auditors. After this offering, the audit committee will consist of
Messrs. Bergman and Mancuso and Dr. Sorrentino.

The stock option and compensation committee reviews and recommends to the
board of directors the salaries, benefits and stock option grants of all
employees, consultants, directors and other individuals compensated by us. The
stock option and compensation committee also administers our stock option and
other employee benefits plans. The compensation committee currently consists of
Mr. Koly, Dr. Sorrentino and Mr. Bergman. Mr. Bergman currently chairs the
compensation committee.

Director Compensation

Directors who are employees of Delcath do not currently receive any
compensation for serving on the board of directors. Following this offering
non-employee directors will receive $750 for each meeting of the board of
directors attended in person or participated in telephonically. Currently,
non-employee directors do not receive any compensation. A new compensation rate
for these directors will be established in our next shareholders meeting. In
addition, each non-employee director received a one-time grant in January 1999

of options to purchase 34,505 shares of common stock at a price of $4.93 per
share, all of which are vested. Each non-employee director received a separate
one-time grant in December 1999 of options to purchase 22,428 shares of common
stock at a price of $2.90 per share, half of which are vested, the remainder to
vest in December 2000.

Key Employees

Jonathan A. Foltz, CFA, 38, has been our Director Of Operations since
1992. Mr. Foltz was senior associate of Venkol Ventures from 1989 to 1992.
During 1988 to 1989, he provided investment and acquisition research,
consulting to corporations and brokerage firms including First Montauk
Securities, Inc., Gilford Securities Inc., Texas American Energy Corporation
and Computer Memories Inc. He was the research director of Nicholas, Lawrence
and Co., a regional stock brokerage firm, reorganizing and managing their
equity research department. Mr. Foltz earned a B.S. in finance and computer
science from Lehigh University, an M.B.A. from the University of Connecticut
and is a chartered financial analyst.

Scientific Advisors and Consultants

We seek to expand the breadth of expertise and experience available to us
through the use of consultants and advisors. We coordinate these advisors,
including nine M.D.s and Ph.D.s to organize, conduct, and monitor clinical and
pre-clinical testing, regulatory filings and responses, product development and
manufacturing, and publication and presentation of the results of our research.
These individuals bring a broad range of competencies to our operations. The
scientific advisors are independent professionals who meet on an individual
basis with management when so requested. We seek as scientific advisors
recognized experts in relevant sciences or clinical medicine to advise us about
present and long-term scientific planning, research and development.

There is no fixed term of service for the scientific advisors. Current
members may resign or be removed at any time, and additional members may be
appointed. Members do not serve on an exclusive basis with Delcath, are not
under contract, other than with respect to confidentiality obligations, and are
not obligated to present corporate opportunities to us. To our knowledge, none
of the members is working on the development of competitive products.
Inventions or products developed by a scientific advisor who is not otherwise
affiliated with us will not become our property.

Scientific advisors who are not affiliated with us are paid a per diem fee
for their services. All members receive reimbursement for expenses incurred in
traveling to and attending meetings on behalf of Delcath.

Our scientific advisors and collaborators include the following doctors in
the fields of surgical oncology and interventional radiology:

Relationship to
Name Title Specialty Delcath
- ------------------------ ------------------------- ------------------------ --------------------------

Morton G. Glickman, Associate Dean, Yale Cardiovascular and Founder and
M.D. University School of Interventional stockholder
Medicine Radiology

William N. Hait, M.D., Director, The Cancer Medical Consultant and Founder and
Ph.D. Institute of New Jersey Scientific Advisor stockholder

T.S. Ravikumar, M.D. Chairman, Department Surgical Oncology Principal Investigator of
of Surgery, Montefiore the Delcath system
Medical Center

Morton G. Glickman, M.D. was educated at Cornell University (B.A.) and
Washington University (M.D.). He also received an honorary M.A. from Yale. He
was a resident at the University of California. He served as the chief of neuro
and vascular radiology at San Francisco General Hospital from 1969 to 1973, and
has held numerous academic and professional appointments at Yale University
School of Medicine, currently serving as associate dean and vice chairman of
diagnostic radiology and surgery. Dr. Glickman is a founder of Delcath.

William N. Hait, M.D., Ph.D. was educated at the University of
Pennsylvania (B.A.) and The Medical College of Pennsylvania (M.D., Ph.D.). He
was a resident in internal medicine and held numerous academic and professional
appointments at Yale University School of Medicine, including chief of medical
oncology. Dr. Hait is currently director of The Cancer Institute of New Jersey.
Dr. Hait is a founder of Delcath.

T.S. Ravikumar, M.D. was educated in India at Madras University and Madras
Medical College. He was the associate director of The Cancer Institute of New
Jersey from 1993 through 1998. He also served as a resident in general surgery
at Maimonides Medical Center at S.U.N.Y. -- Downstate and was a fellow in
surgical oncology at the University of Minnesota. Dr. Ravikumar won a National
Reserve Service Award in surgical oncology, and served as a fellow at Brigham
and Women's Hospital and the Dana Farber Cancer Institute from 1982 through
1984. He has had a number of academic appointments, including at Harvard
Medical School, Yale University School of Medicine, and hospital appointments,
including at Yale Comprehensive Cancer Center and Robert Wood Johnson
University Hospital.

In addition, Delcath uses the services of the following medical and
scientific consultants for technical expertise:

Name Title Specialty
- ------------------------- --------------------------------- --------------------------------

Anil R. Diwan, Ph.D. Principal, Applied Biotech Filtration Consultant
Concepts

Harvey J. Ellis, C.C.P. Chief of Cardiac Perfusion, Perfusion Consultant
Bridgeport Hospital

Durmus Koch President, Bipore, Inc. Manufacturing

James H. Muchmore, M.D. Associate Professor of Surgery, Oncology and Perfusion
Tulane University School of Consultant
Medicine

Gabriela Nicolau, Ph.D. Director, Pharmacokinetics and Metabolism and Pharmacokinetics
Drug Metabolism, Innapharma

John Quiring, Ph.D. Principal, QST Consulting Biostatistician

Executive Compensation

The following table sets forth all compensation earned by our Chief
Executive Officer for the years ended December 31, 1998 and 1999. No other
executive officer of Delcath earned more than $100,000 during the year ended
December 31, 1999.

Summary Compensation Table

Long-Term
Compensation
-------------
Shares of
Common Stock
Annual Compensation Underlying
------------------------------ -------------
Name Year Salary Bonus Options
- ----- ------ ----------- ------- -------------

M.S. Koly, Chief Executive
Officer, President and Treasurer ......... 1999 $101,250 $0 139,746
1998 60,000 0 --

The following tables show information with respect to incentive and
non-qualified stock options granted during the fiscal year ended December 31,
1999 to the executives and the aggregate value at June 30, 2000 of those
options. The per share exercise price of all options was equal to the estimated
fair market value of a share of common stock on the date of grant. No options
granted to any named executives have been exercised.

Option/SAR Grants in Fiscal Year Ending December 31, 1999

Number of
Shares of Common Percent of Total Exercise
Stock Underlying Options Granted to Price
Name Option Employees in 1999 ($/Sh) Expiration Date
- ----------- ------------------ -------------------- --------- ----------------

M.S. Koly 60,867 22.5% 4.93 January 2004
M.S. Koly 25,396 9.4% 4.93 January 2004
M.S. Koly 53,483 19.7% 2.90 December 2004

Aggregated Fiscal Year End Option Values

Number of Shares of
Common Stock Underlying Value of Unexercised
Unexercised Options at In-the-Money
June 30, 2000 Options at June 30, 2000
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------- ------------- --------------- ------------- --------------

M.S. Koly 40,578 20,289 $43,418 $21,709
M.S. Koly 25,396 0 $27,174 0
M.S. Koly 26,742 26,741 $82,900 $82,897

Employment Agreements

Delcath has entered into employment agreements with M.S. Koly and Sam
Herschkowitz. Under the agreements, each officer will serve for a three-year
term, beginning on the closing of this offering, with an automatic one-year
renewal, unless either party provides notice of termination. Mr. Koly will
receive a base salary of $175,000 per year and Dr. Herschkowitz will receive a
base salary of $120,000 per year. Mr. Koly is required to devote his full
business time to our business and affairs, and Dr. Herschkowitz is required to
devote a substantial part of his business time to our business and affairs. In
addition to his responsibilities at Delcath, Dr. Herschkowitz lectures and
instructs students as an assistant professor at New York University on one day
per week basis and conducts a clinical medical practice prior to 8:30 a.m. in
the morning and after 6:00 p.m. in the evening. The remainder of his normal
business time is generally devoted to Delcath.

Key-man Life Insurance

We have obtained "key-man" life insurance on each of the lives of Mr. Koly
and Dr. Herschkowitz in the amount of $2,000,000.

Stock Option Plans

On October 15, 1992, our board of directors and stockholders adopted our
1992 incentive stock option plan and our 1992 non-incentive stock option plan.
On June 15, 2000, the board of directors adopted our 2000 stock option plan.
Our 2000 stock option plan will be submitted for stockholder approval at our
next annual meeting. We have reserved 236,359 shares of common stock for
issuance upon exercise of options granted from time to time under the 1992
incentive stock option plan, 205,305 shares of common stock for issuance upon
exercise of options granted from time to time under the 1992 non-incentive
stock option plan and 300,000 shares of common stock for issuance from time to
time under the 2000 stock option plan. The stock option plans are intended to
assist us in securing and retaining key employees, directors and consultants by
allowing them to participate in our ownership and growth through the grant of
incentive and non-qualified options.

Under the 1992 incentive stock option plan we may grant incentive stock
options only to key employees and employee directors. Under the 1992
non-incentive stock option plan, we may grant non-qualified options to our
employees, officers, directors, consultants, agents and independent
contractors. Under the 2000 stock option plan, we may grant incentive or
non-qualified options to our officers, employees, directors, consultants,
agents and independent contractors. The stock option plans are administered by
a committee, currently the stock option and compensation committee, appointed
by our board of directors.

Subject to the provisions of each of the stock option plans, the committee
will determine who shall receive options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices. The term of options granted under each of the
stock option plans may not exceed ten years, or five years for an incentive
stock option granted to an optionee owning more than 10% of our voting stock.
The exercise price for incentive stock options shall be equal to or greater
than 100% of the fair market value of the shares of the common stock at the
time granted; provided that incentive stock options granted to an optionee
owning more than 10% of our voting stock shall be exercisable at a price equal
to or greater than 110% of the fair market value of the common stock on the
date of the grant. The exercise price for non-qualified options will be set by
the committee, in its discretion, but in no event shall the exercise price be
less than the fair market value of the shares of common stock on the date of
grant. Shares of common stock received upon exercise of options granted under
each of the plans will be subject to restrictions on sale or transfer.

As of the date of this prospectus, we have granted incentive stock options
to purchase 236,359 shares of common stock under our 1992 incentive stock
option plan at a weighted average price of $4.02 and non-incentive stock
options to purchase 205,305 shares of common stock under our 1992 non-incentive
stock option plan at a weighted average price of $4.26. All of these options
have been granted to our officers and directors and terminate on the fifth
anniversary of their vesting date. We will not grant any additional options
under these plans. As of the date of this prospectus, we have not granted any
options under our 2000 stock option plan. For a period of one year following
the effective date of this offering, we will not grant options to our
employees, promoters or affiliates which, when added to options previously
granted, will exceed 15% of our then outstanding shares of common stock.

Each of our stock option plans includes a provision that an optionholder,
upon exercise of an option, must execute a stockholder's agreement containing
provisions to be determined by Delcath at the time of such exercise.

Limitation on Liability and Indemnification Matters

As authorized by the Delaware General Corporation Law, our certificate of
incorporation provides that none of our directors shall be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for:

o any breach of the director's duty of loyalty to Delcath or its
stockholders;

o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

o unlawful payments of dividends or unlawful stock redemptions or
repurchases; or

o any transaction from which the director derived an improper personal
benefit.

This provision limits our rights and the rights of our stockholders to recover
monetary damages against a director for breach of the fiduciary duty of care
except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care. In addition, our certificate of
incorporation provides that if the Delaware General Corporation Law is amended
to further limit the liability of a director, then the liability of the
directors shall be eliminated or limited to the fullest extent permitted by
such amendment. These provisions will not alter the liability of directors
under federal securities laws.

Our certificate of incorporation further provides for the indemnification
of any and all persons who serve as our director, officer, employee or agent to
the fullest extent permitted under the Delaware General Corporation Law.

We maintain a policy of insurance under which our directors and officers
are insured, subject to the limits of the policy, against certain losses
arising from claims made against our directors and officers by reason of any
acts or omissions covered under this policy in their capacities as directors or
officers, including liabilities under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons under
the above provisions, or otherwise, we have been advised that in the opinion of
the SEC, indemnification is against public policy as expressed in the
Securities Act, and is unenforceable.

PRINCIPAL STOCKHOLDERS

The following table presents information known to us, as of the date of
this prospectus and as adjusted to reflect the sale by us of 1,200,000 shares
of common stock included in the units offered under this prospectus, relating
to the beneficial ownership of common stock by:

o each person who is known by us to be the beneficial holder of more than
5% of our common stock;

o each of our directors; and

o our directors and executive officers as a group.

We believe that all persons named in the table have sole voting and
investment power with respect to all shares beneficially owned by them, except
as noted.

A person is deemed to be the beneficial owner of securities that can be
acquired by that person within 60 days from the date of this prospectus upon
the exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by dividing the number of shares
beneficially owned by that person by the base number of outstanding shares,
increased to reflect the shares underlying options, warrants or other
convertible securities included in that person's holdings, but not those
underlying shares held by any other person.

o a base of 2,700,000 shares outstanding before this offering; and

o a base of 3,900,000 shares outstanding immediately after this offering,
before any consideration is given to outstanding options or warrants.

The number of shares beneficially owned by each individual includes shares
to be issued in partial payment of accrued dividends.

The address for each listed director and officer is c/o Delcath Systems,
Inc., 1100 Summer Street, Stamford, Connecticut 06905.

Percentage of Shares
Number of Beneficially Owned
Shares ----------------------------
Beneficially Before
Name of Beneficial Owner Owned Offering After Offering
- ----------------------------------- -------------- ---------- ---------------

M.S. Koly ......................... 1,540,491 54.6% 38.3%
Venkol Trust ...................... 1,403,296 51.9 36.0
Samuel Herschkowitz, M.D. ......... 281,012 10.1 7.1
Frank G. Mancuso, Jr. ............. 111,779 4.1 2.8
James V. Sorrentino, Ph.D ......... 68,665 2.5 1.7
William I. Bergman ................ 63,834 2.3 1.6
All directors and executive
officers as a group (six
persons) ......................... 1,870,507 60.8% 43.7%

M.S. Koly's beneficially owned shares include;

o 6,007 shares of the 12,015 shares held by Venkol Inc. as nominee for M.S.
Koly;

o 11,732 shares held by M. Ted Koly, M.S. Koly's minor son;

o 119,456 shares issuable upon exercise of options; and

o 1,400,536 shares and 2,760 shares issuable upon exercise of warrants held
by Venkol Trust.

Mr. Koly is the trustee of Venkol Trust and is deemed the beneficial owner
of its shares.

Mr. Koly's beneficially owned shares exclude 20,289 shares issuable upon
exercise of options which become exercisable on January 28, 2001.

Samuel Herschkowitz's beneficially owned shares include;

o 6,008 shares of the 12,015 shares held by Venkol Inc. as nominee for Dr.
Herschkowitz;

o 180,449 shares held by Venkol Trust and 356 shares issuable upon the
exercise of warrants held by the Venkol Trust, as to which Dr.
Herschkowitz has a beneficial remainder interest; and

o 82,467 shares which are issuable upon exercise of options.

Dr. Herschkowitz's beneficially owned shares exclude 2,070 shares issuable
upon exercise of options which become exercisable on January 28, 2001.

Frank G. Mancuso's beneficially owned shares include;

o 14,441 shares held by Venkol Trust and 28 shares issuable upon the
exercise of warrants held by the Venkol Trust, as to which Mr. Mancuso
has a beneficial remainder interest;

o 56,933 shares issuable upon exercise of options; and

o 1,424 shares issuable upon exercise of warrants.

James V. Sorrentino's and William I. Bergman's beneficially owned shares
include 56,933 shares issuable upon exercise of options.

The number of shares beneficially owned by all directors and executive
officers as a group include 1,400,536 shares and 2,760 shares issuable upon
exercise of warrants held by Venkol Trust.

Upon the closing of this offering, our officers, directors and principal
stockholders will beneficially own approximately 43.7% of our outstanding
common stock, and 42.0% if the underwriter's over-allotment option is exercised
in full. Consequently, these persons, as a group, will be able to control the
outcome of all matters submitted for stockholder action, including the election
of members to our board of directors and the approval of significant
change-in-control transactions. Therefore, they will effectively control our
management and affairs. This may have the effect of delaying or preventing a
change in control.

CERTAIN TRANSACTIONS

From September 1997 through January 1998, we sold 87,988 shares of common
stock to 11 investors for an aggregate consideration to us of $1,275,000. One
of the investors was Johnson & Johnson Development Corporation, which invested
$500,000. As part of that offering, Venkol Ventures, L.P. and Venkol Ventures,
Ltd. purchased an aggregate of 20,703 shares of common stock for approximately
$300,000 and Mr. Mancuso, a director of Delcath, purchased 6,901 shares of
common stock for $100,000.

In November 1998, Venkol Ventures, L.P. and Venkol Ventures, Ltd.
distributed their shares in Delcath to their limited partners or their
designees. The majority of shares were transferred to the Venkol Trust, which
is managed by M.S. Koly, our Chief Executive Officer and a director. The shares
transferred to the trust include all of our shares of class A preferred stock,
117,650 shares of our class B preferred stock and 36,076 shares of common
stock.

All of our preferred stockholders have agreed to convert their preferred
stock into 833,873 shares of common stock. The preferred stockholders have also
agreed to accept 687,058 shares of common stock as payment of $992,780 of
estimated accumulated dividends, and a cash dividend of $496,390 as payment of
the balance of the accrued dividend, estimated through September 30, 2000.
Venkol Trust holds all 2,000,000 shares of our class A preferred stock and will
receive 690,099 shares of common stock on conversion of those shares, 612,799
shares of common stock in partial payment of accumulated dividends and a cash
dividend of $221,997 in payment of the balance of the accrued dividend,
assuming this offering closes on September 30, 2000. Frank Mancuso, Jr. and
Venkol Trust own 19,608 and 117,650 shares of our class B preferred stock and
will receive 6,766 and 40,595 shares of common stock, upon conversion of those
shares, 3,494 shares and 20,967 shares of common stock in payment of $25,825
and $154,952 of accumulated dividends and cash dividends of approximately
$12,912 and $77,476, as payment of the balance of the accrued dividends,
estimated through September 30, 2000.

In June 1999, we sold an aggregate of 46,987 shares of common stock and
three-year warrants to purchase an aggregate of 5,218 shares of common stock at
$14.87 per share for aggregate proceeds of $776,192. Mr. Mancuso made a $75,000
investment for which he received 4,540 shares of common stock and warrants to
purchase 504 shares of common stock.

In April 2000, we issued 230,873 shares of common stock to existing
security holders and their designees for proceeds of $501,825 in a rights
offering. Each of M.S. Koly, Samuel Herschkowitz, our Chairman and Chief
Technical Officer, and James Sorrentino, a director of Delcath, purchased
11,732 shares for $25,500, and William Bergman, a director of Delcath,
purchased 6,901 shares for $15,000.

In August and September 2000, Delcath borrowed an aggregate of $230,000
for which it issued promissory notes due on May 27, 2001. The promissory notes
bear interest at an annual rate of 22%. Of these loans, $205,000 was borrowed
from existing stockholders or relatives of existing stockholders of Delcath.
M.S. Koly, Chief Executive Officer, President and a director of Delcath, and
Mary Herschkowitz, the mother of Samuel Herschkowitz, M.D., Chairman and Chief
Technical Officer of Delcath, provided $50,000 and $40,000 of the loans.

We believe that each of the transactions with our officers, directors and
principal stockholders and their affiliates were on terms no less favorable
than could have been obtained from unaffiliated third parties. All future
transactions, including loans between us and our officers, directors and
stockholders beneficially owning 5% or more of our outstanding voting
securities, or their affiliates, will be on terms no less favorable to us than
could be obtained in arm's length transactions from unaffiliated third parties.
Further, all transactions and loans and any foregiveness of indebtedness owed
by any of our officers, directors and stockholders beneficially owning 5% or
more of our outstanding voting securities, or their affiliates, to us, must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who have access, at our expense, to either our legal
counsel or independent legal counsel.

DESCRIPTION OF SECURITIES

Upon the closing of this offering, the authorized capital stock of Delcath
will consist of 15,000,000 shares of common stock, $.01 par value per share,
and 10,000,000 shares of preferred stock, $.01 par value per share, whose
rights and designation have not yet been established. There will be no
preferred stock outstanding immediately after the closing of this offering. The
description in the sections below of Delcath's certificate of incorporation and
by-laws refers to Delcath's Amended and Restated Certificate of Incorporation
and Amended and Restated By-Laws, respectively, as they will be in effect upon
the closing of this offering.

Units

Each unit consists of one share of common stock and one redeemable warrant
to purchase one share of common stock. The units will trade until October __,
2001, or an earlier date as to which the underwriter consents to the shares and
warrants becoming separately tradable.

Common Stock

Immediately prior to the closing of this offering, there will be 2,700,000
shares of common stock outstanding. After giving effect to the issuance of the
1,200,000 shares of common stock included in the units offered by this
prospectus, assuming the underwriter does not exercise its over-allotment
option, there will be 3,900,000 shares of common stock outstanding upon the
closing of this offering. As of the date of this prospectus, we have
approximately 84 stockholders of record, assuming the conversion of all of our
preferred stock into common stock. There is currently no public market for our
common stock.

Holders of common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In any liquidation, dissolution or winding up of Delcath, each
outstanding share entitles its holder to participate pro rata in all assets
that remain after payment of liabilities and after providing for each class of
stock, if any, having preference over the common stock.

Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
common stock. The rights of the holders of common stock are subject to any
rights that may be fixed for holders of preferred stock, when and if any
preferred stock is issued. All outstanding shares of common stock are, and the
shares underlying all options and warrants will be, duly authorized, validly
issued, fully paid and non-assessable upon our issuance of these shares.

Redeemable Warrants

General. Each warrant will entitle the holder of the warrant to purchase
one share of common stock at a price of $6.60, subject to adjustment, at any
time after the warrants become separately tradable until October __, 2005.

The warrants will be issued in registered form under a warrant agreement
by and among Delcath, American Stock Transfer & Trust Company, as warrant
agent, and the underwriter. Reference is made to the warrant agreement, which
has been filed as an exhibit to the registration statement in which this
prospectus is included, for a complete description of the terms and conditions
therein.

Redemption. We may redeem some or all of the warrants at a price of $.10
per warrant, upon 30 days notice, at any time after they become separately
tradable, provided that the closing bid quotation of our common stock on all 20
trading days ending on the third day prior to the day on which we give notice
has been at least 150% of the then effective exercise price of the warrants and
we have received the written consent of the underwriter for the redemption. The
warrant holders shall have the right to exercise their warrants until the close
of business on the date fixed for redemption. Redemption of the warrants could
force

the holders to exercise the warrants and pay the exercise price at a time when
it may be disadvantageous for the holders to do so, to sell the warrants at the
then current market price when they might otherwise wish to hold the warrants
or to accept the redemption price, which is likely to be substantially less
than the market value of the warrants at the time of redemption.

Exercise. The warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by full payment of the
exercise price to the warrant agent for the number of warrants being exercised.
The warrant holders do not have the rights or privileges of holders of common
stock.

No warrant will be exercisable unless, at the time of exercise, Delcath
has filed a current registration statement with the Securities and Exchange
Commission covering the shares of common stock issuable upon exercise of the
warrant and the shares have been registered or qualified or deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the warrant. Delcath will use its best efforts to
have all the shares so registered or qualified on or before the exercise date
and to maintain a current prospectus relating thereto until the expiration of
the warrants, subject to the terms of the warrant agreement. We may not,
however, be able to have a prospectus in effect when this prospectus is no
longer current.

No fractional shares will be issued upon exercise of the warrants.
However, if a warrant holder exercises all warrants then owned of record by him
or her, we will pay to the warrant holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the common stock on the last trading day prior to the exercise
date.

Adjustment of Exercise Price. The exercise price and number of shares of
common stock or other securities issuable on exercise of the warrants are
subject to adjustment in specified circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation of
Delcath. However, the warrants are not subject to adjustment for issuances of
common stock at prices below the exercise price of the warrants.

Preferred Stock

Under Delcath's certificate of incorporation, Delcath's board of directors
is authorized, subject to limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of
10,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series. Each series may have different rights, preferences and
designations and qualifications, limitations and restrictions that may be
established by Delcath's board of directors without approval from the
stockholders. These rights, designations and preferences include:

o number of shares to be issued;

o dividend rights;

o right to convert the preferred stock into a different type of security;

o voting rights attributable to the preferred stock;

o right to set aside assets for payments relating to the preferred stock;
and

o prices to be paid upon redemption of the preferred stock or a bankruptcy
type event.

If Delcath's board of directors decides to issue any preferred stock, it
could have the effect of delaying or preventing a third-party from taking
control of Delcath. This is because the terms of the preferred stock could be
designed to make it prohibitively expensive for any unwanted third party to
make a bid for the shares of Delcath. In addition, the issuance of preferred
stock with voting or conversion rights could adversely affect the voting power
or other rights of the holders of our common stock. We have no present plans to
issue any new shares of preferred stock.

There are currently 2,000,000 shares of Class A preferred stock and
416,675 shares of Class B preferred stock outstanding which will all be
converted into shares of common stock immediately prior to the closing of this
offering. The holders of the Class A preferred stock and Class B preferred
stock are entitled to receive dividends on a cumulative basis at a rate of 11%
and 8%, per share per year, as and when declared by the Board of Directors.
Upon the conversion of the currently outstanding shares of Class A preferred
stock and Class B preferred stock, the holders of these shares will receive an
additional 687,058 shares of common stock and payment in cash of $496,390 as
accumulated dividends as of the date of this prospectus, based on an estimated
closing date of September 30, 2000. The holders of the Class A preferred stock
have a liquidation preference over the holders of the Class B preferred stock
and the common stockholders and the holders of the Class B preferred stock have
a liquidation preference over the common stockholders. In addition to special
voting rights to elect directors to the Board of Directors, each Class A
preferred stockholder is entitled to ten times the number of votes per share of
common stock into which the Class A preferred stock is convertible and each
Class B preferred stockholder is entitled to the number of votes per share of
common stock into which the Class B preferred stock is convertible.

Upon the closing of this offering and the payment of all accrued
dividends, all of the shares of the Class A preferred stock and the Class B
preferred stock will automatically convert into shares of common stock.

Options and Other Outstanding Warrants

We have reserved 17,252 shares of common stock for issuance upon exercise
of non-plan options. These options are exercisable at any time on or prior to
February 4, 2002 at a price of $2.90 per share. We have also reserved for
issuance 16,950 shares of common stock for issuance upon outstanding warrants
to purchase common stock at $10.87 and $14.87 per share which expire,
respectively, on January 16, 2001 and March 2, 2002. The exercise of any of
these options and warrants will dilute the percentage ownership of our other
stockholders.

Anti-Takeover Effects of Delaware Law and Delcath's Amended and Restated
Certificate of Incorporation and By-Laws

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. That section provides, with exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person or his affiliate or associate who is an owner of 15% or more of
the outstanding voting stock of the corporation for a period of three years
from the date that this person became an interested stockholder.

Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, when coupled with the
provisions of our amended and restated certificate of incorporation authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may deter a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by that removal with its own nominees.

Transfer Agent and Warrant Agent

The transfer agent for our common stock and warrants is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.

SHARES ELIGIBLE FOR FUTURE SALE

After the closing of this offering, we will have 3,900,000 shares of
common stock issued and outstanding of which the 1,200,000 shares included in
the units offered by this prospectus will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by any affiliate of us. An affiliate of us is generally a
person who has a controlling position with regard to us. Any shares purchased
by our affiliates will be subject to the resale limitations of Rule 144
promulgated under the Securities Act.

All of the approximately 2,700,000 remaining shares of common stock that
will be outstanding, are restricted securities as that term is defined under
Rule 144.

Approximately 1,587,366 of these shares are immediately eligible for sale
and the remaining 1,112,634 shares will become eligible, at various times,
beginning 90 days following the date of this prospectus, in each case, subject
to the contracted provisions below.

The holders of approximately 2,650,000 shares of our common stock,
including each of our officers, directors and principal stockholders, have
agreed not to sell or dispose of any of the shares of common stock held by
them, including in accordance with Rule 144, for a period of twelve months
following the date of this prospectus without the prior written consent of the
underwriter. For the second year following the closing, our officers, directors
and principal stockholders have agreed that, without the underwriter's written
consent, they will not sell any shares of common stock during any three-month
period in excess of the amount they would be allowed to sell if they were
deemed an affiliate of ours and the shares were deemed restricted as defined
under Rule 144 of the Securities Act. This volume is the greater of:

o 1% of the then outstanding common stock; and

o the average weekly trading volume of the common stock during the four
calendar weeks preceding a sale.

In general, under Rule 144, as currently in effect, beginning 90 days
after the date of this prospectus, a person or group of persons whose shares
are aggregated, who has beneficially owned restricted shares for at least one
year, including the holding period of any prior owner except an affiliate of
us, would be entitled to sell, within any three month period, a number of
shares that does not exceed the greater of:

o 1% of the then outstanding common stock; or

o The average weekly trading volume of our common stock during the four
calendar weeks preceding the sale, provided, that, public information
about us as required by Rule 144 is available and the seller complies
with manner of sale provisions and notice requirements.

The volume limitations described above, but not the one-year holding
period, also apply to sales of our non-restricted securities by affiliates of
us.

A person who is not an affiliate, has not been an affiliate within three
months before the sale and has beneficially owned the restricted securities for
at least two years, is entitled to sell the restricted shares under Rule 144
without regard to any of the limitations described above.

Before this offering, there was no public market for our common stock. We
cannot predict the effect, if any, that sales of, or the availability for sale
of, our common stock will have on the market price of our common stock
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of common stock in the public market, including shares issuable upon
the exercise of outstanding warrants or options, could adversely affect the
prevailing market price of our common stock and could impair our ability to
raise capital in the future through the sale of securities.

UNDERWRITING

Whale Securities Co., L.P., as underwriter, has agreed, subject to the
terms and conditions contained in the underwriting agreement relating to this
offering, to purchase the 1,200,000 units offered by us.

The underwriting agreement provides that the obligations of the
underwriter are subject to the delivery of an opinion of our counsel and to
various other conditions. The underwriter is committed to purchase and pay for
all of the units offered by this prospectus if any of those shares are
purchased.

The underwriter has advised us that it proposes to offer the units to the
public at the public offering price indicated on the cover page of this
prospectus. The underwriter may allow selected dealers who are members of the
National Association of Securities Dealers, Inc., known as the NASD,
concessions, not in excess of $.24 per unit, of which not in excess of $.15 per
unit may be reallowed to other dealers who are members of the NASD.

We have granted to the underwriter an option, exercisable not later than
45 days after the date of this prospectus, to purchase up to 180,000 additional
units at the public offering price indicated on the cover page of this
prospectus, less the underwriting discounts and commissions. The underwriter
may exercise this option only to cover over-allotments, if any, made in
connection with the sale of the units offered by this prospectus. If the
underwriter exercises its over-allotment in full, the total price to the public
would be $8,280,000, the total underwriting discounts and commissions would be
$828,000 and the total proceeds to us, before payment of the expenses of this
offering, would be $7,452,000.

We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds from the sale of the units offered
by us, including any securities sold pursuant to the underwriter's
over-allotment option, of which $50,000 has been paid as of the date of this
prospectus. We have also agreed to pay all expenses in connection with
qualifying the units offered under the laws of the states as the underwriter
may designate, including expenses of counsel retained for this purpose by the
underwriter. We estimate our expenses of this offering to be $1,450,000,
including the underwriter discounts and commission, or $1,590,400 if the
underwriter's over-allotment option is completely exercised.

At the closing of this offering, we will sell to the underwriter and its
designees, for an aggregate of $100, underwriter's warrants to purchase up to
120,000 units. The underwriter's warrants are exercisable at any time, in whole
or in part, during the five-year period commencing on the date of this
prospectus at an exercise price of $6.60 per share, 110% of the public offering
price per unit. The warrants included in the units issuable upon exercise of
the underwriter's warrants are identical to the warrants included in the units
offered by this prospectus but are exercisable at $10.50 per share. During the
first year following the date of this prospectus, underwriter's warrants may
not be sold, transferred, pledged or hypothecated, except that the
underwriter's warrants may be assigned or transferred only to officers and
partners of the underwriter or members of the selling group. During the
exercise period, the holders of the underwriter's warrants will have the
opportunity to profit from a rise in the market price of our securities, which
will dilute the interests of our stockholders. We expect that the underwriter's
warrants will be exercised when we would, in all likelihood be able to obtain
any needed capital on terms more favorable to us than those provided in the
underwriter's warrants. Any profit realized by the underwriter on the sale of
the underwriter's warrants or the underlying shares of common stock may be
deemed additional underwriting compensation. The underwriter's warrants contain
a cashless exercise provision. We have agreed that, upon the request of the
holders of the majority of the underwriter's warrants, we will, at our own
expense, on one occasion during the exercise period register the underwriter's
warrants and the shares underlying the underwriter's warrants under the
Securities Act. We have also agreed to include the underwriter's warrants and
all underlying shares in any appropriate registration statement which is filed
by us under the Securities Act during the seven years following the date of
this prospectus.

Beginning one year from the date of this prospectus, we will pay to the
underwriter a fee of 5% of the exercise price for each warrant exercised
pursuant to a warrant solicitation, provided however, that the underwriter will
not be entitled to receive this compensation in warrant exercise transactions
in which (a) the market price of common stock at the time of the exercise is
lower than the exercise price of the warrant; (b)

the warrants are held in any discretionary account; (c) disclosure of
compensation arrangements is not made, in addition to the disclosure provided
in this prospectus, in documents provided to holders of warrants at the time of
exercise; (d) the exercise of the warrants is unsolicited; or (e) the
transaction was in violation of Rule 10b-6 promulgated under the Exchange Act.

We have agreed, for a period of three years from the date of this
prospectus, if so requested by the underwriter, to nominate and use our best
efforts to elect a designee of the underwriter as a director of Delcath or, at
the underwriter's option, as a non-voting advisor to our board of directors.
Our officers, directors and current stockholders have agreed to vote their
shares in favor of the underwriter's designee. The underwriter has not yet
exercised its right to designate a person.

The holders of approximately 2,650,000 of our outstanding shares of common
stock, and all of our outstanding options and warrants have agreed not to sell
or dispose in another manner any of those securities in the public markets for
a period of twelve months from the date of this prospectus without the
underwriter's prior written consent. For the second year following the closing,
our officers, directors and principal stockholders have agreed that without the
underwriter's written consent they will not sell any shares of common stock
during any three-month period in excess of the amount they would be allowed to
sell if they were deemed an affiliate of ours and the shares were deemed
restricted as defined under Rule 144 of the Securities Act. This amount is the
greater of:

o 1% of the then outstanding common stock; and

o the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.

We have agreed to indemnify the underwriter against civil liabilities,
including liabilities under the Securities Act.

The underwriter has informed us that it does not expect sales of the
securities offered to discretionary accounts to exceed 1% of the shares offered
by this prospectus.

Before this offering, there has been no public market for our units,
common stock or warrants. Accordingly, the initial public offering price of the
units and the exercise price of the warrants have been determined by
negotiation between us and the underwriter and may not necessarily be related
to our asset value, net worth or other established criteria of value. Factors
considered in determining these prices include our financial condition and
prospects, an assessment of our management, market prices of similar securities
of comparable publicly-traded companies, financial and operating information of
companies engaged in activities similar to our business and the general
condition of the securities market. Additionally, the initial public offering
price of the units may not be indicative of the prices that may prevail in the
public market.

In connection with this offering, the underwriter may engage in passive
market making transactions in the shares on Nasdaq in accordance with Rule 103
of Regulation M promulgated under the Exchange Act.

In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or affect in another manner the price of
the units. These transactions may include stabilization transactions permitted
by Rule 104 of Regulation M, under which persons may bid for or purchase units
to stabilize the market price. Specifically, the underwriter may over-allot in
connection with this offering, creating a short position in the units for its
own account. In addition, to cover over-allotments or to stabilize the price of
the units, the underwriter may bid for, and purchase, units in the open market.
The underwriter may also reclaim selling concessions allowed to a dealer for
distributing the units in this offering, if the underwriter repurchased
previously distributed units in transactions to cover short positions, in
stabilization transactions or in another manner. Any of these activities may
stabilize or maintain the market price of the units above independent market
levels. The underwriter is not required to engage in these activities, and may
end any of these activities at any time.

LEGAL MATTERS

The validity of the units offered hereby will be passed upon for Delcath
by Morse, Zelnick, Rose & Lander, LLP, New York, New York. Morse, Zelnick, Rose
& Lander, LLP owns an aggregate 85,000 shares of our common stock. Blank Rome
Tenzer Greenblatt LLP, New York, New York, has served as counsel to the
underwriter in connection with this offering.

EXPERTS

The financial statements of Delcath Systems, Inc. as of December 31, 1999
and for each of the years in the two year period ended December 31, 1999 and
for the period from August 5, 1988 (inception) to December 31, 1999 included in
this prospectus have been so included in reliance on the report of KPMG LLP,
independent certified public accountants, given on the authority of such firm
as experts in auditing and accounting.

AVAILABLE INFORMATION

Delcath has filed with the Securities and Exchange Commission, a
registration statement on Form SB-2, including exhibits and schedules thereto,
under the Securities Act with respect to the shares to be sold in this
offering. This prospectus which constitutes a part of the registration
statement, does not contain all the information set forth in the registration
statement and the exhibits filed with it, portions of which have been omitted
as permitted by the rules and regulations of the SEC. For further information
with respect to Delcath and the shares to be sold in this offering, reference
is made to the registration statement and to the exhibits filed with it.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete. In each
instance we refer you to the copy of the contracts, agreements and or other
documents filed as exhibits to the registration statement, and these statements
are deemed qualified in their entirety by reference to the contract or
document.

You may inspect, without charge, all or any portion of the registration
statement or any reports, statements or other information Delcath files at the
SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of these documents may also be obtained from the SEC's Public Reference
Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 upon payment
of the prescribed fees. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

In addition, registration statements and other filings made with the SEC
through its electronic data gathering, analysis and retrieval systems are
publicly available through the SEC's site located at www.sec.gov. The
registration statement, including all exhibits and schedules and amendments,
has been filed with the commission through the Electronic Data Gathering,
Analysis and Retrieval system.

On the date of this prospectus, we will become subject to the reporting
requirements of the Exchange Act and in accordance with these requirements,
will file reports, proxy statements and other information with the SEC. We
intend to furnish our stockholders with annual reports containing audited
financial statements and other periodic reports as we deem appropriate or as
may be required by law.

Index to Financial Statements

Page
-----

Independent Auditor's Report .................................................. F-2
Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited) .......... F-3
Statements of Operations for each of the years in the two-year period ended
December 31, 1999, and cumulative from inception
(August 5, 1988) to December 31, 1999, and for the six-month periods
ended June 30, 1999 and 2000 (unaudited) and cumulative
from inception (August 5, 1988) to June 30, 2000 (unaudited) ................. F-4
Statements of Stockholders' Equity for each of the years in the two-year
period ended December 31, 1999 and cumulative from
inception (August 5, 1988) to June 30, 2000 (unaudited) ...................... F-5
Statements of Cash Flows for each of the years in the two-year period
ended December 31, 1999, and cumulative from
inception (August 5, 1988) to December 31, 1999, and the six-month
periods ended June 30, 1999 and 2000 (unaudited) and
cumulative from inception (August 5, 1988) to June 30, 2000
(unaudited) .................................................................. F-6
Notes to Financial Statements ................................................. F-7

F-1

Independent Auditors' Report

The Board of Directors
Delcath Systems, Inc.:

We have audited the accompanying balance sheet of Delcath Systems, Inc. (a
development stage enterprise) as of December 31, 1999 and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1999 and for the period from
August 5, 1988 (inception) to December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delcath Systems, Inc. (a
development stage enterprise) as of December 31, 1999 and the results of its
operations and its cash flows for each of the years in the two-year period
ended December 31, 1999 and for the period August 5, 1988 (inception) to
December 31, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP
---------------------
KPMG LLP

May 5, 2000 except as to Note 5
which is as of September 28, 2000
New York, New York

F-2

DELCATH SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)

Balance Sheets

December 31, June 30,
1999 2000
Assets ------------- -----------
(unaudited)

Current assets:
Cash and cash equivalents ....................................... $ 561,078 417,549
Interest receivable ............................................. 3,326 975
Prepaid rent .................................................... -- 43,689
Prepaid insurance ............................................... 4,167 23,333
Deferred IPO costs .............................................. -- 291,363
------------ -------
Total current assets .......................................... 568,571 776,909
Furniture and fixtures, net ...................................... 8,250 6,750
Due from affiliate ............................................... 24,000 24,000
------------ -------
Total assets .................................................. $ 600,821 807,659
============ =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................... $ 112,748 209,532
------------ -------
Total current liabilities ..................................... 112,748 209,532
------------ -------
Commitments and contingencies (note 4)
Stockholders' equity (note 2):
Class A preferred stock, $.01 par value: 5,000,000 shares
authorized; 2,000,000 shares issued and outstanding (liqui-
dation preference of $2,216,637 at December 31, 1999) ......... 20,000 20,000
Class B preferred stock, $.01 par value: 5,000,000 shares
authorized; 416,675 shares issued and outstanding (liquida-
tion preference of $1,625,033 at December 31, 1999) ........... 4,167 4,167
Common stock, $.01 par value: 15,000,000 shares authorized;
863,196 and 1,094,069 shares issued and outstanding ........... 8,632 10,941
Additional paid-in capital ...................................... 11,767,236 12,266,752
Deficit accumulated during development stage .................... (11,311,962) (11,703,733)
------------ -----------
Total stockholders' equity .................................... 488,073 598,127
------------ -----------
Total liabilities and stockholders' equity .................... $ 600,821 807,659
============ ===========

See accompanying notes to financial statements.

F-3

DELCATH SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

Statements of Operations

Years ended December 31,
--------------------------
1998 1999
----------- --------

Costs and expenses:
Legal, consulting and
accounting fees ............ $ 574,299 626,366
Stock option
compensation expense
(reversal) ................. 759,229 (456,185)
Compensation and related
expenses ................... 466,644 200,128
Other operating expenses ..... 324,271 227,817
----------- --------
Total costs and
expenses .................. 2,124,443 598,126
----------- --------
Operating income (loss)..... (2,124,443) (598,126)
Interest income .............. 74,463 43,470
Interest expense ............. -- (17,925)
----------- --------
Net income (loss) .......... $(2,049,980) (572,581)
=========== ========
Common share data:
Basic and diluted income
(loss) per share ........... $ (2.54) (0.68)
=========== ========
Weighted average number
of shares of common
stock outstanding .......... 806,434 838,936

[RESTUBED FOR ABOVE]

Cumulative Cumulative
from inception Six months ended from inception
(August 5, 1988) June 30, (August 5, 1988)
to ----------------------- to
December 31, 1999 1999 2000 June 30, 2000
----------------- ------------- -------- -----------------
(Unaudited) (Unaudited)

Costs and expenses:
Legal, consulting and
accounting fees ............ 4,517,169 389,253 172,926 4,690,095
Stock option
compensation expense
(reversal) ................. 2,520,170 (456,185) -- 2,520,170
Compensation and related
expenses ................... 2,488,170 123,733 104,765 2,592,935
Other operating expenses ..... 2,191,276 149,381 127,116 2,318,392
----------- -------- -------- -----------
Total costs and
expenses .................. 11,716,785 206,182 404,807 12,121,592
----------- -------- -------- -----------
Operating income (loss)..... (11,716,785) (206,182) (404,807) (12,121,592)
Interest income .............. 537,696 23,697 13,036 550,732
Interest expense ............. (132,873) (17,925) -- (132,873)
----------- -------- -------- -----------
Net income (loss) .......... (11,311,962) (200,410) (391,771) (11,703,733)
=========== ======== ======== ===========
Common share data:
Basic and diluted income
(loss) per share ........... (0.24) (0.40)
======== ========
Weighted average number
of shares of common
stock outstanding .......... 822,892 978,633

See accompanying notes to financial statements.

F-4

DELCATH SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)

Statements of Stockholders' Equity

Six months ended June 30, 2000 (unaudited) and years ended December 31, 1999
and 1998 and
cumulative from inception (August 5, 1988) to December 31, 1999 and June 30,
2000 (unaudited)

Common stock $.01 par value
---------------------------------------------------
Issued In treasury
--------------------- -----------------------
No. of No. of
shares Amount shares Amount
--------- ------- -------- ------

Shares issued in connection with the formation of
the Company as of August 22, 1988 .................. 621,089 $ 6,211 -- --
Sale of preferred stock, August 22, 1988 ............ -- -- -- --
Shares returned as of March 9, 1990 ................. -- -- (414,059) (4,141)
Sale of stock, October 2, 1990 ...................... -- -- 17,252 173
Sale of stock, January 23, 1991 ..................... -- -- 46,522 465
Sale of stock, August 30, 1991 ...................... -- -- 1,353 14
Sale of stock, December 31, 1992 .................... -- -- 103,515 1,035
Sale of stock, July 15, 1994 ........................ -- -- 103,239 1,032
Sale of stock, December 19, 1996 .................... -- -- 39,512 395
Shares issued in connection with conversion of
short-term borrowings as of December 22, 1996 ...... 58,491 585 98,388 984
Sale of stock, December 31, 1997 .................... 53,483 535 -- --
Exercise of stock options ........................... 13,802 138 3,450 35
Shares issued as compensation ....................... 2,345 23 828 8
Amortization of compensatory stock options
granted ............................................ -- -- -- --
Forfeiture of stock options ......................... -- -- -- --
Shares issued in connection with exercise of
warrants ........................................... 21,568 216 -- --
Deficit accumulated from inception to December
31, 1997 ........................................... -- -- -- --
--------- ------- -------- ------
Balance at December 31, 1997 ........................ 770,778 7,708 (0) (0)
Sale of stock, January 16, 1998 ..................... 34,505 345 -- --
Sale of stock, September 24, 1998 ................... 3,450 35 -- --
Shares returned, April 17, 1998 ..................... (3,450) (35) -- --
Amortization of compensatory stock options
granted ............................................ -- -- -- --
Forfeiture of stock options ......................... -- -- -- --
Exercise of stock options ........................... 8,626 86 -- --
Net loss for year ended December 31, 1998 ........... -- -- -- --
--------- ------- -------- ------
Balance at December 31, 1998 ........................ 813,909 8,139 (0) (0)
Sale of stock, June 30, 1999 ........................ 46,987 470 -- --
Amortization of compensatory stock options
granted ............................................ -- -- -- --
Forfeiture of stock options ......................... -- -- -- --
Shares issued in connection with exercise of
warrants ........................................... 2,300 23 -- --
Net loss for year ended December 31, 1999 ........... -- -- -- --
--------- ------- -------- ------
Balance at December 31, 1999 ........................ 863,196 8,632 (0) (0)
Sale of stock, April 14, 2000 ....................... 230,873 2,309 -- --
Net loss for six months ended June 30, 2000
(unaudited) ........................................ -- -- -- --
--------- ------- -------- ------
Balance at June 30, 2000 ............................ 1,094,069 $10.941 (0) (0)
========= ======= ======== ======

[RESTUBBED FOR ABOVE]

Class A Class B
preferred stock preferred stock
--------------------------- ---------------------- ---------------------
Outstanding $.01 par value $.01 par value
-------------------------- ---------------------- ---------------------
No. of No. of No. of
shares Amount shares Amount shares Amount
------------ ---------- ---------- ------- ------- ------

Shares issued in connection with the formation of
the Company as of August 22, 1988 .................. 621,089 $ 6,211 -- -- -- --
Sale of preferred stock, August 22, 1988 ............ -- -- 2,000,000 20,000 -- --
Shares returned as of March 9, 1990 ................. (414,059) (4,141) -- -- -- --
Sale of stock, October 2, 1990 ...................... 17,252 173 -- -- -- --
Sale of stock, January 23, 1991 ..................... 46,522 465 -- -- 416,675 4,167
Sale of stock, August 30, 1991 ...................... 1,353 14 -- -- -- --
Sale of stock, December 31, 1992 .................... 103,515 1,035 -- -- -- --
Sale of stock, July 15, 1994 ........................ 103,239 1,032 -- -- -- --
Sale of stock, December 19, 1996 .................... 39,512 395 -- -- -- --
Shares issued in connection with conversion of
short-term borrowings as of December 22, 1996 ...... 156,879 1,569 -- -- -- --
Sale of stock, December 31, 1997 .................... 53,483 535 -- -- -- --
Exercise of stock options ........................... 17,252 173 -- -- -- --
Shares issued as compensation ....................... 3,173 31 -- -- -- --
Amortization of compensatory stock options
granted ............................................ -- -- -- -- -- --
Forfeiture of stock options ......................... -- -- -- -- -- --
Shares issued in connection with exercise of
warrants ........................................... 21,568 216 -- -- -- --
Deficit accumulated from inception to December
31, 1997 ........................................... -- -- -- -- -- --
--------- ------- --------- ------- ------- ------
Balance at December 31, 1997 ........................ 770,778 7,708 2,000,000 20,000 416,675 4,167
Sale of stock, January 16, 1998 ..................... 34,505 345 -- -- -- --
Sale of stock, September 24, 1998 ................... 3,450 35 -- -- -- --
Shares returned, April 17, 1998 ..................... (3,450) (35) -- -- -- --
Amortization of compensatory stock options
granted ............................................ -- -- -- -- -- --
Forfeiture of stock options ......................... -- -- -- -- -- --
Exercise of stock options ........................... 8,626 86 -- -- -- --
Net loss for year ended December 31, 1998 ........... -- -- -- -- -- --
--------- ------- --------- ------- ------- ------
Balance at December 31, 1998 ........................ 813,909 8,139 2,000,000 20,000 416,675 4,167
Sale of stock, June 30, 1999 ........................ 46,987 470 -- -- -- --
Amortization of compensatory stock options
granted ............................................ -- -- -- -- -- --
Forfeiture of stock options ......................... -- -- -- -- -- --
Shares issued in connection with exercise of
warrants ........................................... 2,300 23 -- -- -- --
Net loss for year ended December 31, 1999 ........... -- -- -- -- -- --
--------- ------- --------- ------- ------- ------
Balance at December 31, 1999 ........................ 863,196 8,632 2,000,000 20,000 416,675 4,167
Sale of stock, April 14, 2000 ....................... 230,873 2,309 -- -- -- --
Net loss for six months ended June 30, 2000
(unaudited) ........................................ -- -- -- -- -- --
--------- ------- --------- ------- ------- ------
Balance at June 30, 2000 ............................ 1,094,069 $10,941 2,000,000 $20,000 416,675 $4,167
========= ======= ========= ======= ======= ======

[RESTUBBED FOR ABOVE]

Deficit
accumulated
Additional during
paid-in development
capital stage Total
----------- ------------ -----------

Shares issued in connection with the formation of
the Company as of August 22, 1988 .................. $ (5,211) $ -- $ 1,000
Sale of preferred stock, August 22, 1988 ............ 480,000 -- 500,000
Shares returned as of March 9, 1990 ................. 4,141 -- --
Sale of stock, October 2, 1990 ...................... 24,827 -- 25,000
Sale of stock, January 23, 1991 ..................... 1,401,690 -- 1,406,322
Sale of stock, August 30, 1991 ...................... 9,987 -- 10,001
Sale of stock, December 31, 1992 .................... 1,013,969 -- 1,015,004
Sale of stock, July 15, 1994 ........................ 1,120,968 -- 1,122,000
Sale of stock, December 19, 1996 .................... 999,605 -- 1,000,000
Shares issued in connection with conversion of
short-term borrowings as of December 22, 1996 ...... 1,703,395 -- 1,704,964
Sale of stock, December 31, 1997 .................... 774,465 -- 775,000
Exercise of stock options ........................... 30,827 -- 31,000
Shares issued as compensation ....................... 34,454 -- 34,485
Amortization of compensatory stock options
granted ............................................ 2,496,347 -- 2,496,347
Forfeiture of stock options ......................... (279,220) -- (279,220)
Shares issued in connection with exercise of
warrants ........................................... 234,182 -- 234,398
Deficit accumulated from inception to December
31, 1997 ........................................... -- (8,689,401) (8,689,401)
----------- ------------ -----------
Balance at December 31, 1997 ........................ 10,044,426 (8,689,401) 1,386,900
Sale of stock, January 16, 1998 ..................... 499,655 -- 500,000
Sale of stock, September 24, 1998 ................... 56,965 -- 57,000
Shares returned, April 17, 1998 ..................... (4,965) -- (5,000)
Amortization of compensatory stock options
granted ............................................ 1,166,418 -- 1,166,418
Forfeiture of stock options ......................... (407,189) -- (407,189)
Exercise of stock options ........................... 67,414 -- 67,500
Net loss for year ended December 31, 1998 ........... -- (2,049,980) (2,049,980)
----------- ------------ -----------
Balance at December 31, 1998 ........................ 11,422,724 (10,739,381) 715,649
Sale of stock, June 30, 1999 ........................ 775,722 -- 776,192
Amortization of compensatory stock options
granted ............................................ 98,186 -- 98,186
Forfeiture of stock options ......................... (554,371) -- (554,371)
Shares issued in connection with exercise of
warrants ........................................... 24,975 -- 24,998
Net loss for year ended December 31, 1999 ........... -- (572,581) (572,581)
----------- ------------ -----------
Balance at December 31, 1999 ........................ 11,767,236 (11,311,962) 488,073
Sale of stock, April 14, 2000 ....................... 499,516 -- 501,825
Net loss for six months ended June 30, 2000
(unaudited) ........................................ -- (391,771) (391,771)
----------- ------------ -----------
Balance at June 30, 2000 ............................ $12,266,752 $(11,703,733) $ 598,127
=========== ============ ===========

See accompanying notes to financial statements.

F-5

DELCATH SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

Statement of Cash Flows

Years ended December 31,
----------------------------
1998 1999
----------- ----------

Cash flows from operating activities:
Net income (loss) ............................ $(2,049,980) (572,581)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Stock option compensation expense
(reversal) ................................. 759,229 (456,185)
Stock compensation expense .................. -- --
Depreciation expense ........................ 3,000 3,000
Amortization of organization costs .......... -- --
(Increase) decrease in prepaid
expenses ................................... 7,966 867
(Increase) decrease in interest
receivable ................................. 32,932 1,797
Due from affiliate .......................... -- --
(Decrease) increase in accounts
payable and accrued expenses ............... (174,369) (69,323)
----------- --------
Net cash used in operating
activities ............................... (1,421,222) (1,092,425)
----------- ----------
Cash flows from investing activities:
Purchase of furniture and fixtures ........... -- --
Purchase of short-term investments ........... -- --
Proceeds from maturities of short-term
investments ................................. -- --
Organization costs ........................... -- --
----------- ----------
Net cash provided by (used in)
investing activities ..................... -- --
----------- ----------
Cash flows from financing activities:
Net proceeds from sale of stock and
exercise of stock options and warrants 624,500 801,190
Deposits ..................................... (304,991) --
Deferred IPO costs ........................... -- --
Proceeds from short-term borrowings .......... -- --
----------- ----------
Net cash provided by financing
activities ............................... 319,509 801,190
----------- ----------
Increase (decrease) in cash and cash
equivalents .............................. (1,101,713) (291,235)
Cash and cash equivalents at beginning of
period ....................................... 1,954,026 852,313
----------- ----------
Cash and cash equivalents at end of period $ 852,313 561,078
=========== ==========
Supplemental cash flow activities:
Conversion of debt to common stock ........... $ -- --
=========== ==========
Cash paid for interest ....................... $ -- 17,925
=========== ==========

[RESTUBBED FOR TABLE ABOVE]

Cumulative Cumulative
from inception from inception
(August 5, 1988) Six months ended (August 5, 1988)
to June 30, June 30, to
December 31, 1999 1999 2000 June 30, 2000
------------------- ------------- ------------- -----------------
(Unaudited) (Unaudited)

Cash flows from operating activities:
Net income (loss) ............................ (11,311,962) (200,410) (391,771) (11,703,733)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Stock option compensation expense
(reversal) ................................. 2,520,171 (456,185) -- 2,520,171
Stock compensation expense .................. 34,485 -- -- 34,485
Depreciation expense ........................ 6,750 1,500 1,500 8,250
Amortization of organization costs .......... 42,165 -- -- 42,165
(Increase) decrease in prepaid
expenses ................................... (4,167) (11,633) (62,855) (67,022)
(Increase) decrease in interest
receivable ................................. (3,326) 3,900 2,351 (975)
Due from affiliate .......................... (24,000) -- -- (24,000)
(Decrease) increase in accounts
payable and accrued expenses ............... 112,748 61,580 96,784 209,532
----------- --------- -------- -----------
Net cash used in operating
activities ............................... (8,627,136) (601,248) (353,991) (8,981,127)
----------- --------- -------- -----------
Cash flows from investing activities:
Purchase of furniture and fixtures ........... (15,000) -- -- (15,000)
Purchase of short-term investments ........... (1,030,000) -- -- (1,030,000)
Proceeds from maturities of short-term
investments ................................. 1,030,000 -- -- 1,030,000
Organization costs ........................... (42,165) -- -- (42,165)
----------- --------- -------- -----------
Net cash provided by (used in)
investing activities ..................... (57,165) -- -- (57,165)
----------- --------- -------- -----------
Cash flows from financing activities:
Net proceeds from sale of stock and
exercise of stock options and warrants 7,540,415 801,190 501,825 8,042,240
Deposits ..................................... -- -- -- --
Deferred IPO costs ........................... -- -- (291,363) (291,363)
Proceeds from short-term borrowings .......... 1,704,964 -- -- 1,704,964
----------- --------- -------- -----------
Net cash provided by financing
activities ............................... 9,245,379 801,190 210,462 9,455,841
----------- --------- -------- -----------
Increase (decrease) in cash and cash
equivalents .............................. 561,078 199,942 (143,529) 417,549
Cash and cash equivalents at beginning of
period ....................................... -- 852,313 561,078 --
----------- --------- -------- -----------
Cash and cash equivalents at end of period 561,078 1,052,255 417,549 417,549
=========== ========= ======== ===========
Supplemental cash flow activities:
Conversion of debt to common stock ........... 1,704,964 -- -- 1,704,964
=========== ========= ======== ===========
Cash paid for interest ....................... 114,948 -- -- 114,948
=========== ========= ======== ===========

See accompanying notes to financial statements.

F-6

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998

(1) Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

Delcath Systems, Inc. (the "Company") is a development stage company which
was founded in 1988 for the purpose of developing and marketing a proprietary
drug delivery system capable of introducing, and removing, high dose
chemotherapy agents to a diseased organ system while greatly inhibiting their
entry into the general circulation system. It is hoped that the procedure will
result in a meaningful treatment for cancer. In November 1989, the Company was
granted an IDE (Investigational Device Exemption) and an IND status
(Investigational New Drug) for its product by the FDA (Food and Drug
Administration).

(b) Basis of Financial Statement Presentation

The accounting and financial reporting policies of the Company conform to
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make assumptions and estimates that impact the amounts reported in
those statements. Such assumptions and estimates are subject to change in the
future as additional information becomes available or as circumstances are
modified. Actual results could differ from these estimates.

Furniture and fixtures are recorded at cost and are being depreciated over
the estimated useful lives of the assets.

(d) Income Taxes

The Company accounts for income taxes following the asset and liability
method in accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." Under such method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The Company's income tax returns
are prepared on the cash basis of accounting. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years that the asset is expected to be recovered or the liability
settled.

(e) Stock Option Plan

The Company has historically accounted for its employee stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense is recorded on the date of grant only if the
current fair market value of the underlying stock exceeds the exercise price.
Fair market values of the Company's common stock at the dates options were
granted were based on third party sales of stock at or around the dates options
were granted, or in the absence of such transactions, based on a determination
by the board of directors based on current available information. In 1996, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 (see note 2(e)).

F-7

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(1) Description of Business and Summary of Significant Accounting Policies
-- (Continued)

(f) Earnings Per Share

Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
share reflect the dilutive effect of common stock equivalents using the
treasury stock method.

(g) Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. At December 31, 1999 cash equivalents included commercial
paper of $557,000.

(h) Interim Financial Information

The financial statements and notes related thereto as of June 30, 2000 and
for the six months ended June 30, 1999 and 2000 are unaudited, but in the
opinion of management, include all normal recurring adjustments necessary for a
fair presentation of financial position and results of operations. The operating
results for the interim periods are not necessarily indicative of a full year's
operations.

(2) Stockholders' Equity

The common stock and per share data for all periods gives effect to
reverse stock splits of 1 for 2.2881 shares on September 28, 2000 and 1 for
1.2666 shares on October 11, 2000 described in note 5.

(a) Stock Issuances

BGH Medical Products, Inc. (name later changed to Delcath Systems, Inc.), a
Delaware corporation (BGH - Delaware), was formed on August 5, 1988. As of
August 22, 1988, BGH Medical Products, Inc., a Connecticut corporation (BGH -
Conn.), was merged into BGH -Delaware, the surviving corporation. As of the
merger date, the authorized capital stock of BGH - Conn. consisted of 5,000
shares of common stock, par value $.01 per share, of which 1,000 shares were
issued and outstanding. Upon the merger, each BGH - Conn. common share
outstanding was exchanged into 621.089 shares of BGH - Delaware common stock. As
a result of the conversion, BGH - Delaware issued 621,089 shares of common stock
at $.01 par value. The aggregate amount of the par value of all shares of common
stock issued as a result of the exchange, $6,211, was credited as the common
stock capital of BGH - Delaware, and the difference in respect to the capital
account deficiency was charged to additional paid-in capital.

On August 22, 1988, BGH - Delaware then sold in a private placement
2,000,000 shares of class A preferred stock, with a par value of $.01, to two
affiliated venture capital funds for an aggregate amount of $500,000 in cash.

On March 8, 1990, 414,059 shares of common stock were returned to the
Company as treasury stock due to relevant technology milestones not being fully
achieved within the specified time period, in accordance with provisions of a
stockholders' agreement.

Effective May 7, 1990, the Company changed its name to Delcath Systems, Inc.

On October 2, 1990, the Company sold 17,252 shares of common stock held in
its treasury, at $.01 par value, for an aggregate amount of $25,000.

On January 23, 1991, the Company offered in a private placement shares of
common stock and/or class B preferred stock at $7.39 and $2.55 per share,
respectively, for an aggregate maximum amount of

F-8

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(2) Stockholders' Equity -- (Continued)

$2,000,000. Under the terms of the private placement, 46,522 shares of common
stock held in its treasury and 416,675 shares of class B preferred stock were
sold, yielding net proceeds to the Company of $1,406,322. The common stock and
class B preferred stock sold each has a par value of $.01, resulting in an
increase in additional paid-in capital of $1,401,690. The two affiliated
venture capital funds that owned the class A preferred stock purchased 117,650
of the class B preferred stock sold in the private placement.

On August 30, 1991, the Company sold an additional 1,353 shares of common
stock held in its treasury at $7.39 per share, yielding proceeds to the Company
of $10,001. The shares have a par value of $.01, resulting in an additional
paid-in capital amount of $9,987.

In a December 1992 private placement, the Company sold 103,515 shares of
common stock held in our treasury at $10.14 per share for a total placement of
$1,050,000 ($1,015,004 after expenses). The shares issued have a par value of
$.01, resulting in an additional paid-in capital amount of $1,048,965
($1,013,969 after expenses). The two affiliated venture capital funds that owned
the class A preferred stock purchased 27,604 of the shares of common stock in
its treasury which were sold.

Effective January 1, 1994, the Company issued 1,725 shares of common stock
held in its treasury at $1.45 per share for a total price of $2,500 upon the
exercise of stock options by an employee of the Company.

During the first quarter of 1994, the Company increased its authorized
number of shares of common stock from 5,000,000 to 15,000,000.

On July 15, 1994, the Company sold through a private placement offering,
units at a price of $51,000 per unit. Each unit consisted of approximately 4,693
common shares and 469 warrants, each of which entitled the holder to purchase
one share of common stock for $10.87. In connection therewith, the Company sold
twenty-two (22) units (103,239 common shares and 10,324 warrants expiring August
30, 1997) for total proceeds of $1,122,000. The two affiliated venture capital
funds that owned the class A preferred stock purchased six (6) of the units
sold. During August 1997, the holders of warrants exercised 8,916 warrants to
purchase 8,916 shares of common stock at $10.87 each for total proceeds of
$96,900. The remaining warrants expired unexercised.

Effective January 1, 1995, the Company issued 1,725 shares of common stock
held in its treasury at $1.45 per share for a total price of $2,500 upon the
exercise of stock options by an employee of the Company.

Effective January 1, 1996, the Company issued 828 shares of common stock,
valued at $10.87 per share for a total of $9,000, as compensation for consulting
services.

On December 19, 1996, the Company sold through a private transaction 39,512
shares of common stock for total proceeds of $1,000,000. In connection with the
offering, the purchaser obtained sole distribution rights for the Company's
products for a limited period of time in Japan, Korea, China, Taiwan, and Hong
Kong. No value was attributed to the distribution rights. In addition, the
purchaser will be required to buy certain products from the Company.

On April 26, 1996, the Company entered into short-term borrowing agreements
with 26 investors under which it borrowed $1,704,964 bearing interest at 10.25%
per annum. Under the terms of the agreements, on December 22, 1996, the
short-term borrowings were converted into 156,879 shares of common stock, based
on a conversion price of $10.87 per share, and 78,438 warrants, expiring April
25, 1999, entitling the holders to purchase 78,438 additional shares of common
stock at $10.87 per share. The two affiliated venture capital funds discussed
above provided $250,000 of the short-term loan, converting that debt into
approximately

F-9

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(2) Stockholders' Equity -- (Continued)

23,003 shares and 11,502 warrants. From April 26, 1996 through December 22,
1996, interest of $114,948 accrued on the borrowings. Such interest was paid in
January 1997. During September 1997, the holders of warrants exercised 1,150
warrants to purchase 1,150 shares of common stock at $10.87 each for total
proceeds of $12,499. During December 1997, the two affiliated venture capital
funds exercised their 11,502 warrants to purchase 11,502 common shares at
$10.87 each for total proceeds of $124,999. During April 1999, the holders of
warrants exercised 2,300 warrants to purchase 2,300 common shares at $10.87
each for total proceeds of $24,998. The remaining warrants expired unexercised.

In 1997, the Company issued 2,345 shares of common stock, valued at $10.87
per share based on a 1996 agreement, for a total cost of $25,485, as
compensation for consulting services.

From September 1997, through December 31, 1997, the Company issued 53,483
shares of common stock. During January 1998, the Company received an additional
$500,000 and issued another 34,505 shares. In April 1998, under the terms of the
restricted stock sales agreements, the Company issued to the purchasers of the
87,988 shares of common stock 11,732 three year warrants entitling the holders
to purchase 11,732 shares of common stock at $10.87 per share.

In December 1997, the holder of non-incentive stock options exercised 13,802
options to purchase 13,802 shares of common stock at $1.88 each for total
proceeds of $26,000.

At the end of December 1997, the holders of 28,063 shares of common stock
agreed to sell those shares to the two affiliated venture capital funds
discussed above at $10.87 per share. The venture capital funds deposited
$304,991 with the Company pending transfer of the shares. At the time of
transfer, the Company paid the funds to the sellers.

In April 1998, a venture capital firm exercised 8,626 non-incentive stock
options to purchase 8,626 restricted common shares at $7.83 each for total
proceeds of $67,500.

In April 1998, in connection with the settlement of a dispute with a former
director, the Company cancelled 3,450 shares of common stock previously held by
the former director in return for $1.45 per share, the price originally paid by
the former director.

In September 1998, the Company sold 3,450 shares of common stock to an
individual for $16.52 per share, yielding proceeds to the Company of $57,000.

In June 1999, the Company sold 46,987 shares of common stock to individual
investors for $16.52 per share and warrants entitling the holders to purchase
5,218 common shares at $14.87 per share (which warrants expire April 30, 2002),
yielding proceeds to the Company of $776,192.

In April 2000, the Company sold 230,873 shares at $2.17 per share to
existing stockholders in a rights offering yielding proceeds to the Company of
$501,825.

The two affiliated venture capital firms discussed above were liquidated in
1998 and the shares of the Company then owned by the funds were distributed to
the individual investors of the funds, or their nominee, if so directed.

(b) Voting Rights

Each holder of common stock is entitled to one vote. Each share of class A
preferred stock and each share of class B preferred stock is convertible into
shares of common stock on a one for .3450 basis, subject to antidilution
adjustments. In addition to special voting rights to elect directors to the
Board of Directors,

F-10

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(2) Stockholders' Equity -- (Continued)

each class A preferred stockholder is entitled to ten times the number of votes
per share of common stock into which the class A preferred stock is convertible
and each class B preferred stockholder is entitled to the number of votes per
share of Common Stock into which the class B preferred stock is convertible.

In the event of any liquidation, dissolution or winding up of the Company,
after provision for payment of debts and other liabilities, the holders of the
class A preferred stock shall be entitled to receive, prior to any distribution
of any of the assets or surplus funds of the Company to the holders of class B
preferred stock and common stock, an amount equal to the sum of (a) 150% of the
issue price (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares) plus (b) a sum
equal to that amount of interest that would have accrued if a sum equal to 150%
of the issue price had been invested at a compounded annual interest rate of 10%
at the original issue date. After the satisfaction of the class A preferred
stockholders, the holders of class B preferred stock will be entitled to a
liquidation sum, in preference to the common stockholders, of $3.90 per share.
Common stockholders will be entitled to share ratably with the class A and class
B preferred stockholders (on an as-converted basis) in the remaining assets of
the Company.

(d) Dividends

The holders of class A and class B preferred stock are entitled to receive
dividends on a cumulative basis at the rate of 11% and 8%, respectively, per
share per annum as and when declared by the Board of Directors, before any
dividend or distribution is declared, set apart for, or paid upon the common
stock of the Company. As of December 31, 1999, class A preferred stock and class
B preferred stock had dividends in arrears of $624,740 ($.31 per share) and
$759,429 ($1.82 per share), respectively. Dividends declared but unpaid, at the
option of the holder, are payable in cash or may be converted into common stock
subject to antidilution adjustments. The class A dividends may be converted at
the rate of $.72 per share, while the class B dividends may be converted at the
rate of $7.39 per share.

The Company has entered into agreements with the preferred shareholders
providing that if the Company completes a public offering of its common stock
prior to September 30, 2001, the Board will, immediately prior to the offering,
declare as payable all dividends in arrears. In such event, the preferred
shareholders have agreed to accept one-third of such dividends in cash and then
immediately convert all of their outstanding preferred stock into common stock
as well as convert the balance of their declared but unpaid preferred stock
dividends into common stock at the applicable conversion price.

(e) Stock Option Plans

The Company established an Incentive Stock Option Plan and a Non-Incentive
Stock Option Plan under which stock options may be granted. Additionally, the
Company has entered into separate contracts apart from the Incentive Stock
Option Plan and the Non-Incentive Stock Option Plan under which options to
purchase common shares have been granted. A stock option granted allows the
holder of the option to purchase a share of the Company's common stock in the
future at a stated price. The Plans are administered by the Board of Directors
which determines the individuals to whom the options shall be granted as well as
the terms and conditions of each option grant, the option price and the duration
of each option.

The Company's Incentive and Non-Incentive Stock Plans were approved and
became effective on November 1, 1992. The Incentive Stock Options vest as
determined by the Company and expire over varying terms, but not more than five
years from the date of grant.

F-11

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(2) Stockholders' Equity -- (Continued)

Stock option activity for the period January 1, 1998 through December 31,
1999 is as follows:

Non-Incentive and
Grants Incentive Option Plans Other Option
- ----------------------- ------------------------- -------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------ ---------- ------------ -------------

Outstanding at
December 31, 1997 201,341 $ 7.74 17,252 $ 2.90
Granted during 1998 17,252 7.83 -- --
Forfeited during 1998 (41,406) 7.83 -- --
Expired during 1998 (94,544) 7.83 -- --
Exercised during 1998 (8,626) 7.83 -- --
------- ------
Outstanding at
December 31, 1998 74,017 7.56 17,252 2.90
Granted during 1999 441,664 4.13 17,252 2.90
Canceled during 1999 (34,505) 7.56 -- --
Forfeited during 1999 (39,512) 7.56 -- --
Expired during 1999 -- -- (17,252) 2.90
------- -------
Outstanding at
December 31, 1999 441,664 $ 4.13 17,252 $ 2.90
======= =======

The following summarizes information about shares subject to option at
December 31, 1999:

Options outstanding Options exercisable
- ---------------------------------------------------------------------- -------------------------------
Weighted
Weighted average Weighted
Number Range of average remaining Number average
outstanding exercise prices exercise price life in years exercisable exercise price
- ------------- ----------------- ---------------- --------------- ------------- ---------------

189,777 $2.90 $2.90 3.76 103,515 $2.90
269,139 4.93 4.93 4.00 269,139 4.93
- ------- ------------- ----- ---- ------- -----
458,916 $2.90 - $4.93 $4.09 3.90 372,654 $4.38
======= =======

The Company applies APB 25 and related interpretations in accounting for its
plans. As such, compensation cost is measured at the date of grant as the
excess, if any, of the fair market value of the underlying stock over the
exercise price. Such cost is then recognized over the period the recipient is
required to perform services to earn such compensation. If a stock option is not
exercised because an employee fails to fulfill an obligation, the estimate of
compensation expense recorded in previous periods is adjusted by decreasing
compensation expense in the period of forfeiture. In 1998 and 1999, former
employees of the Company resigned and forfeited all of their non vested options.
As a result, the expense previously accrued for such option grants was reversed.
Accordingly, stock option compensation expense/(reversal) associated with the
Incentive and Non-Incentive Stock Plans for the years ended December 31, 1998
and 1999 was $759,229 and ($456,185), respectively, net of forfeitures of
$407,189 and $554,371, respectively. Had compensation cost for the Company's
stock option grants been determined based on the fair value at the grant dates
consistent with the methodology of SFAS 123, the Company's net loss for the
years ended December 31, 1998 and 1999 would have been increased to the pro
forma amounts indicated as follows:

F-12

DELCATH SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements

December 31, 1999 and 1998 -- (Continued)

(2) Stockholders' Equity -- (Continued)

1998 1999
----------------- -------------
Net loss:
As reported $ (2,049,980) (572,581)
Pro forma (2,132,139) (944,303)

The per share weighted average fair value of stock options granted during
1999 and 1998 was $.92, estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
the grants for both years: no dividend yield, risk free interest rate of 5.5%,
expected lives of five years and no volatility.

(3) Income Taxes

As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $8,542,000 which are available
to offset future federal taxable income, if any, through 2019. The net operating
loss carryforwards resulted in a deferred tax asset of approximately $2,904,000
at December 31, 1999. Management does not expect the Company to be taxable in
the near future and has established a 100% valuation allowance against the
deferred tax asset created by the net operating loss carryforwards.

(4) Prepaid Rent and Due From Affiliate

The Company occupies office space pursuant to an informal arrangement with
the landlord according to which the Company prepaid its rent for the period
through December 31, 2000. In addition, the landlord is holding a $24,000
deposit provided by the Company.

(5) Initial Public Offering

In March 2000, the Company engaged an investment banker for the purpose of
issuing its stock in an initial public offering. In connection therewith, on
September 28, 2000 the Company declared the preferred stock dividends as
described in note 2(d), approved a resolution to convert the outstanding
preferred stock to common stock as described in note 2(d) and effected a reverse
split of the common shares of 1 for 2.2881 shares. On October 11, 2000, the
Company effected an additional reverse split of the common shares of 1 for
1.2666.

F-13

The Delcath System Procedure
Isolating the Liver For Chemotherapy Treatment

[Diagram of interior cross section of a human torso showing the liver, heart
and major arteries and veins. The Delcah system is shown with the Delcath
catheters fully inserted in place. Arrows with numbers keyed to text at the
bottom trace the flow of chemotherapy through the liver as directed by the
Delcath system.]

1. An infusion catheter is inserted into the artery through which blood
normally flows to the liver.

2. A second catheter -- the Delcath double balloon catheter -- is inserted
through the inferior vena cava. Blood normally flows from the liver into the
inferior vena cava to the heart which circulates the blood throughout the body.

3. The balloons on the double balloon catheter are then inflated using the
caudal and cephalad extensions. The balloons prevent the normal flow of blood
from the liver to the heart because the inferior vena cava is blocked. Once the
balloons are inflated, the activated charcoal filters are opened and the priming
line, which is used during catheter positioning, is clamped.

4. A chemotherapeutic agent is infused into the liver through the infusion
catheter.

5. The blood in the liver, which is now infused with a chemotherapeutic
agent, cannot flow to the heart. Blood exits the liver through perforations on
the double balloon catheter and flows into this catheter out of the body. During
the procedure, samples of the isolated blood can be obtained through the
sampling extension.

6. Once out of the body, the infused blood is circulated through activated
charcoal filters to remove most of the chemotherapeutic agent.

7. The filtered blood is returned to the patient through the jugular vein
which leads to the superior vena cava and the heart. The heart restores the
cleansed blood to normal circulation.

This diagram illustrates normal
blood flow.
Blood normally travels from the
hepatic (liver) veins into the inferior vena cava and towards the heart.

This diagram illustrates the blood flow
using the Delcath system.
During drug delivery, the Delcath double balloon catheter isolates the hepatic
blood for 60 minutes. The two balloons obstruct the normal flow and divert the
hepatic blood through openings in the catheter. This blood travels through the
catheter to the filtration system outside the patient's body.

CT scans showing the results of
treatment using the Delcath system
on a single patient.

[CT scan of liver of patient before treatment, with the tumors marked in red]

Pre-Treatment. Two large metastatic tumors in the liver.

[CT scan of same patient after treatment showing the reduction of tumors]

Post-Treatment. Significant reduction in size of tumors.

The above CT scans show the results of treatment using the Delcath System on a
single patient, as reported in "Percutaneous hepatic vein isolation and
high-dose hepatic arterial infusion chemotherapy for unresectable liver
tumors," by Dr. T.S. Ravikumar and associates in the Journal of Clinical
Oncology, December 1994. The scans should not be viewed as evidence that the
Delcath system will generally shrink tumors in patients, but are presented
because they highlight the reason Delcath is sponsoring Phase III clinical
trials designed to demonstrate whether results seen in some Phase I/II patients
will be repeated in a statistically relevant number of new patients.

================================================================================
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this prospectus.
You must not rely on any unauthorized information. This prospectus does not
constitute an offer to sell or buy any shares in any jurisdiction where it is
unlawful.

-----------------------------------

TABLE OF CONTENTS

Page
----
Prospectus Summary ................................................. 3
Risk Factors ....................................................... 7
Cautionary Statement Regarding
Forward-Looking Statements ...................................... 8
Use of Proceeds .................................................... 9
Dilution ........................................................... 11
Dividend Policy .................................................... 12
Capitalization ..................................................... 12
Selected Financial Data ............................................ 13
Plan of Operation .................................................. 14
Business ........................................................... 16
Management ......................................................... 31
Principal Stockholders ............................................. 38
Certain Transactions ............................................... 40
Description of Securities .......................................... 41
Shares Eligible for Future Sale .................................... 44
Underwriting ....................................................... 45
Legal Matters ...................................................... 46
Experts ............................................................ 47
Available Information .............................................. 47
Index to Financial Statements ...................................... F-1

-----------------------------------

Until ________, 2000 (25 days after the date of this prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
================================================================================

================================================================================

1,200,000 Units

[GRAPHIC OMITTED]

1,200,000 Shares of Common Stock
and
Redeemable Warrants to Purchase
1,200,000 Shares of Common Stock

----------------------------------------
PROSPECTUS
----------------------------------------

Whale Securities Co., L.P.

, 2000

================================================================================

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 24. Indemnification of Directors and Officers

Section 145 of the General Corporation Law of the State of Delaware provides
for the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim and
authorizes a Delaware corporation to indemnify its officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director.

Section 102(b) of the Delaware General corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit a director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following:

o breaches of the director's duty of loyalty to the corporation or its
stockholders;

o acts or omissions not made in good faith or which involve intentional
misconduct of knowing violations of law;

o liability for dividends paid or stock repurchased or redeemed in violation
of the Delaware General Corporation law; or

o any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the
ability of the company or its stockholders to obtain injunctive relief,
specific performance or other equitable relief against directors.

Article Seventh of the Registrant's Certificate of Incorporation provides
that the personal liability of the directors of the Registrant be eliminated to
the fullest extent permitted under Section 102(b) of the Delaware General
Corporation law.

Article Eighth of the Registrant's Certificate of Incorporation and the
Registrant's By-laws provides that all persons whom the Registrant is empowered
to indemnify pursuant to the provisions of Section 145 of the Delaware General
Corporation law (or any similar provision or provisions of applicable law at the
time in effect), shall be indemnified by the Registrant to the full extent
permitted thereby. The foregoing right of indemnification shall not be deemed to
be exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.

Insofar as indemnification for liabilities under the Securities Act of 1933,
as amended (the "Securities Act") may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefor unenforceable.

Reference is made to the Underwriting Agreement, the proposed form of
which is filed as Exhibit 1.1, pursuant to which the underwriters agree to
indemnify the directors and certain officers of the Registrant and certain
other persons against certain civil liabilities.

Item 25. Other Expenses of Issuance and Distribution

The following table sets forth the expenses (other than the underwriting
discounts and commissions and the underwriter's non-accountable expense
allowance) expected to be incurred in connection with the issuance and
distribution of the securities being registered. All of such expenses are
estimates, other than the filing fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.

II-1

Filing Fee - Securities and Exchange Commission ....................... $ 5,028.82
Filing Fee - National Association of Securities Dealers, Inc. ......... $ 2,405.00
Fees and Expenses of Accountants ...................................... $ 75,000.00
Fees and Expenses of Counsel .......................................... $ 225,000.00*
Printing and Engraving Expenses ....................................... $ 115,000.00
Blue Sky Fees and Expenses ............................................ $ 85,000.00
Transfer Agent Fees ................................................... $ 5,000.00
Miscellaneous Expenses ................................................ $ 1,566.18
------------
Total: .............................................................. $ 514,000.00
============

* In addition, counsel will receive 125,000 common shares at the consummation
of this offering.

Item 26. Recent Sales of Unregistered Securities

Since January 1997, the Registrant has issued securities without
registration under the Securities Act in the following transactions:

1. From September 1997 through January 1998, the Registrant issued an aggregate
of 87,988 shares of common stock to eleven investors, including Venkol Ventures
LP, Venkol Ventures Ltd. and a director of the Registrant for aggregate
proceeds of $1,275,000. In April 1998, the eleven investors also received
three-year warrants to purchase 11,732 shares of common stock at $10.87 per
share.

2. In December 1997, the Registrant issued an aggregate of 13,802 shares of
common stock to an employee upon the exercise of non-incentive stock options
for aggregate proceeds of $26,000.

3. In December 1997, the Registrant issued an aggregate of 2,345 shares of
common stock valued at $25,485 to a consultant as compensation for consulting
services.

4. In April 1998, the Registrant issued an aggregate of 8,626 shares of common
stock to a venture capital firm upon the exercise of non-incentive stock
options for aggregate proceeds of $67,500.

5. In September 1998, the Registrant issued an aggregate of 3,450 shares of
common stock to an investor for aggregate proceeds of $57,000.

6. In April 1999, the Registrant issued an aggregate of 2,300 shares of common
stock to a venture capital firm upon the exercise of warrants for aggregate
proceeds of $24,998.

7. In June 1999, the Registrant issued an aggregate of 46,987 shares of common
stock and warrants entitling the holders thereof to purchase an aggregate of
5,218 shares of common stock to twelve investors, at $14.87 per share,
including a director of the Registrant, for aggregate proceeds of $776,192.

8. In April 2000, the Registrant issued an aggregate of 230,873 shares of
common stock to 14 security holders and their designees for aggregate proceeds
of $501,825

The sales and issuances of the common stock, options and warrants in each
transaction described above were deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act as
transactions not involving a public offering. In addition, the issuance of
common stock and warrants described in items 7 and 8 were exempt from
registration under Regulation D Rules 506 and 504, respectively. The Registrant
made a determination that each of the purchasers was a sophisticated investor
who had access to the same type of information typically available in a
registration statement. The purchasers in such private offerings represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in each transaction. All purchasers had
adequate access, through their employment or other relationships, to sufficient
information about the Registrant to make an informed investment decision. None
of the securities was sold through an underwriter and, accordingly, there were
no underwriting discounts or commissions involved.

II-2

Item 27. Exhibits

Exhibit
No. Description
- -------- -----------

1.1 Form of Underwriting Agreement
3.1 Revised form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Revised form of By-Laws of the Registrant*
4.1 Specimen Stock Certificate*
4.2 Form of Underwriter's Warrant Agreement
4.3 Warrant Agreement among Registrant, Underwriter and Transfer Agent
4.4 Specimen Redeemable Warrant**
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1992 Incentive Stock Option Plan*
10.2 1992 Non-Incentive Stock Option Plan*
10.3 2000 Stock Option Plan*
10.4 Employment Agreement between the Registrant and M.S Koly, as amended*
10.5 Employment Agreement between the Registrant and Samuel Herschkowitz, M.D., as amended*
10.6 Distributorship Agreement with Nissho Corporation*
10.7 Form of Lock-up Agreement*
10.8 Form of Promissory Note*
23.1 Consent of KPMG LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1).*
23.3 Consents from the following scientific advisors and consultants: Morton G. Glickman, William N.
Hait, M.D., Ph.D., T.S. Ravikumar, M.D., Anil R. Diwan, Ph.D., Harvey J. Ellis, C.C.P., Durmus
Koch, James H. Muchmore, M.D., Gabriela Nicolau, Ph.D., and John Quiring, Ph.D.*
24 Power of Attorney (included in signature page).*
27.1 Financial Data Schedule*

* previously filed
** to be provided by amendment

Item 28. Undertakings.

The undersigned Registrant hereby undertakes to:

(1) file, during any period in which it offers or sells securities, a post
effective amendment to this Registration Statement to:

o include any prospectus required by Section 10(a)(3) of the Securities
Act;

o reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and

o include any additional or changed material information on the plan of
distribution;

(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.

The undersigned Registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by

II-3

the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement
herein, and treat the offering of the securities at that time as the initial
bona fide offering of those securities.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on October 12, 2000.

DELCATH SYSTEMS, INC.

By: /s/ M. S. Koly
------------------------------------
M. S. Koly, President

ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints M. S. Koly and Stephen A. Zelnick, or any one of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre- or post-effective amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any one of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on October 12, 2000.

Signature Title
- ------------------------------------- -----------------------------------------------

M. S. Koly*
- -------------------------------------
M. S. Koly President, Chief Executive Officer and Director

Joseph P. Milana*
- -------------------------------------
Joseph P. Milana Chief Financial Officer

Samuel Herschkowitz*
- -------------------------------------
Samuel Herschkowitz Director

William I. Bergman*
- -------------------------------------
William I. Bergman Director

Frank G. Mancuso, Jr.*
- -------------------------------------
Frank G. Mancuso, Jr. Director

James V. Sorrentino*
- -------------------------------------
James V. Sorrentino Director

*By: /s/ M.S. Koly
---------------------------
M.S. Koly, attorney-in-fact

II-4

EXHIBIT INDEX

Exhibit
No. Description
- -------- -----------

* previously filed
** to be provided by amendment




                              Delcath Systems, Inc.
                          1,200,000 Units consisting of
                        1,200,000 Shares of Common Stock
                           (Par Value $.01 Per Share)
                                       and
                         Redeemable Warrants to Purchase
                        1,200,000 Shares of Common Stock

                             UNDERWRITING AGREEMENT
                             ----------------------


Whale Securities Co., L.P.                                    New York, New York
650 Fifth Avenue                                              October   , 2000
New York, New York 10019

Dear Sirs:

         Delcath Systems, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to Whale Securities Co., L.P. (the "Underwriter") an aggregate
of one million two hundred thousand (1,200,000) units (the "Offered Units") at a
price of $6.00 per Offered Unit, consisting of an aggregate of one million two
hundred thousand (1,200,000) shares of common stock of the Company, par value
$.01 per share (the "Offered Shares"), which Offered Shares are presently
authorized but unissued shares of the common stock, par value $.01 per share
(individually, a "Common Share" and collectively the "Common Shares"), of the
Company, and one million two hundred thousand (1,200,000) Common Share purchase
warrants (the "Offered Warrants"), entitling the holder of each Offered Warrant
to purchase, at any time commencing on the Separation Date (as hereinafter
defined) until October , 2005, one (1) Common Share, at an exercise price of Six
Dollars Sixty Cents ($6.60) (subject to adjustment in certain circumstances).
The Offered Shares and the Offered Warrants will be offered to the public in
Offered Units consisting of one Offered Share and one Offered Warrant at a
public offering price of Six Dollars ($6.00) per Offered Unit. The securities
comprising the Offered Units will become detachable and separately transferable
commencing one year from the Effective Date (as hereinafter defined) or such
earlier date as to which the Underwriter consents (the "Separation Date"). The
Company shall have the right to call each Offered Warrant for redemption upon
not less than thirty (30) days' written notice at any time commencing on the
Separation Date at a redemption price of Ten Cents ($.10) per Offered Warrant;
provided, that the closing bid quotation of the Common Stock on all twenty (20)
of the trading days ending on the third trading day prior to the day on which
the Company gives notice (the "Call Date") of redemption has been at least 150%
(currently $9.90, subject to adjustment) of the then effective exercise price of
the Warrants and the Company obtains the written consent of the Underwriter with
respect to such redemption prior to the Call Date. In addition, the Underwriter,
in order to cover over-allotments in the sale of the Offered Units, may purchase
up to an aggregate of one hundred eighty thousand (180,000) Units (the "Optional
Units"), each Optional Unit consisting of one Common Share (collectively, the
"Optional Shares") and one Common Share purchase warrant identical to the
Offered Warrants (collectively, the "Optional Warrants"). The Offered Units and
the Optional Units are sometimes collectively referred to as the "Units"; the
Offered Shares and the Optional Shares are hereinafter sometimes collectively
referred to as the "Shares"; and the Offered Warrants and the Optional Warrants
are hereinafter sometimes collectively referred to as




the "Warrants." The Warrants will be issued pursuant to a Warrant Agreement
filed as Exhibit 4.3 to the Registration Statement (the "Warrant Agreement") to
be dated as of the Closing Date (as hereinafter defined) by and among the
Company, the Underwriter and American Stock Transfer & Trust Company, as warrant
agent (the "Warrant Agent").

         The Company also proposes to issue and sell to the Underwriter, for its
own account and the accounts of its designees, warrants (the "Underwriter's
Warrants") to purchase up to an aggregate of one hundred twenty thousand
(120,000) units (the "Underlying Units"), the Underlying Unit consisting of one
Common Share (collectively, the "Underlying Shares") and/or one warrant similar
but not identical to the Warrants (collectively, the "Underlying Warrants"),
which sale will be consummated in accordance with the terms and conditions of
the form of Underwriter's Warrant Agreement filed as an exhibit to the
Registration Statement (as hereinafter defined). The Underlying Shares, the
Underlying Warrants and the Common Shares issuable upon exercise of the
Underlying Warrants (the "Underlying Warrant Shares") are hereinafter sometimes
referred to as the "Underlying Securities". The Units, Shares, the Warrants, the
Common Shares issuable upon exercise of the Warrants (the "Warrant Shares"), the
Underwriter's Warrants, the Underlying Securities (collectively, the
"Securities") are more fully described in the Registration Statement and the
Prospectus, as defined below.

         The Company hereby confirms its agreement with the Underwriter as
follows:

         1. Purchase and Sale of Offered Units. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered Units
to the Underwriter, and the Underwriter agrees to purchase the Offered Units
from the Company, at a purchase price of $5.40 per Offered Unit. The Underwriter
plans to offer the Offered Units to the public at a public offering price of
$6.00 per Offered Unit.

         2. Payment and Delivery.

         (a) Payment for the Offered Units will be made to the Company by wire
transfer or certified or official bank check or checks payable to its order in
New York Clearing House funds, at the offices of the Underwriter, 650 Fifth
Avenue, New York, New York 10019, against delivery of the Offered Units to the
Underwriter. Such payment and delivery will be made at 10:00 A.M., New York City
time, on the third business day following the Effective Date (as hereinafter
defined) (the fourth business day following the Effective Date in the event that
trading of the Offered Units commences on the day following the Effective Date),
the date and time of such payment and delivery being herein called the "Closing
Date." The certificates representing the Offered Units to be delivered will be
in such denominations and registered in such names as the Underwriter may
request not less than two full business days prior to the Closing Date, and will
be made available to the Underwriter for inspection, checking and packaging at
the office of the Company's transfer agent or correspondent in New York City,
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005 not less than one full business day prior to the Closing Date.

         (b) On the Closing Date, the Company will sell the Underwriter's
Warrants to the Underwriter or to the Underwriter's designees limited to
officers and partners of the Underwriter, members of the selling group and/or
their officers or partners (collectively, the

                                       2




"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant attached as
an exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is One Hundred Dollars ($100.00). The Underwriter's
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one (1) year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company by
check or checks payable to its order on the Closing Date against delivery of the
certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as the Underwriter may request prior to the Closing Date.

         3. Option to Purchase Optional Units.

         (a) For the purposes of covering any over-allotments in connection with
the distribution and sale of the Offered Units as contemplated by the
Prospectus, the Underwriter is hereby granted an option to purchase all or any
part of the Optional Shares from the Company. The purchase price to be paid for
the Optional Units will be the same price per Optional Unit as the price per
Offered Unit set forth in Section 1 hereof. The option granted hereby may be
exercised by the Underwriter as to all or any part of the Optional Units at any
time within 45 days after the Effective Date. The Underwriter will not be under
any obligation to purchase any Optional Units prior to the exercise of such
option.

         (b) The option granted hereby may be exercised by the Underwriter by
giving oral notice to the Company, which must be confirmed by a letter, telex or
telegraph setting forth the number of Optional Units to be purchased, the date
and time for delivery of and payment for the Optional Units to be purchased and
stating that the Optional Units referred to therein are to be used for the
purpose of covering over-allotments in connection with the distribution and sale
of the Offered Units. If such notice is given prior to the Closing Date, the
date set forth therein for such delivery and payment will not be earlier than
either two full business days thereafter or the Closing Date, whichever occurs
later. If such notice is given on or after the Closing Date, the date set forth
therein for such delivery and payment will not be earlier than two full business
days thereafter. In either event, the date so set forth will not be more than 15
full business days after the date of such notice. The date and time set forth in
such notice is herein called the "Option Closing Date." Upon exercise of such
option, through the Underwriter's delivery of the aforementioned notice, the
Company will become obligated to convey to the Underwriter, and, subject to the
terms and conditions set forth in Section 3(d) hereof, the Underwriter will
become obligated to purchase, the number of Optional Units specified in such
notice.

         (c) Payment for any Optional Units purchased will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, at the office of the Underwriter,
against delivery of the Optional Units purchased to the Underwriter. The
certificates representing the Optional Units to be delivered will be in such
denominations and registered in such names as the Underwriter requests not less
than two full business days prior to the Option Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to the Option Closing Date.

                                       3






         (d) The obligation of the Underwriter to purchase and pay for any of
the Optional Units is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in Section
3(b) hereof, and to the delivery to the Underwriter of opinions, certificates
and letters dated the Option Closing Date substantially similar in scope to
those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with each
reference to "Offered Units" and "Closing Date" to be, respectively, to the
Optional Units and the Option Closing Date.

         4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:

         (a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power and
authority, corporate and other, to own or lease, as the case may be, and operate
its properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement and to execute, deliver and perform this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement described in Section 5(r) hereof (the "Consulting
Agreement") and to consummate the transactions contemplated hereby and thereby.
The Company has no subsidiaries. The Company is duly qualified to do business as
a foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company. The Company has no equity interests in any entity.

         (b) This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, and each of the
Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement, when executed and delivered by the Company on the Closing Date, will
be the valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms. The execution, delivery and
performance of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement, the Consulting Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement have been duly
authorized by all necessary corporate action and do not and will not, with or
without the giving of notice or the lapse of time, or both, (i) result in any
violation of the Certificate of Incorporation or By-Laws, each as amended, of
the Company; (ii) result in a breach of or conflict with any of the terms or
provisions of, or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to any indenture, mortgage, note, contract, commitment or other
agreement or instrument to which the Company is a party or by which the

                                       4





Company or any of its properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company, or any of its properties or business; or (iv) have any effect
on any permit, certification, registration, approval, consent order, license,
franchise or other authorization (collectively, the "Permits") necessary for the
Company to own or lease and operate any of its properties and to conduct its
business.

         (c) No Permits of any court or governmental agency or body, other than
under the Securities Act of 1933, as amended (the "Act"), the Regulations (as
hereinafter defined) and applicable state securities or Blue Sky laws, are
required (i) for the valid authorization, issuance, sale and delivery of the
Shares to the Underwriter, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement, the Consulting Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement.

         (d) The conditions for use of a registration statement on Form SB-2 set
forth in the General Instructions to Form SB-2 have been satisfied with respect
to the Company, the transactions contemplated herein and in the Registration
Statement. The Company has prepared in conformity with the requirements of the
Act and the rules and regulations (the "Regulations") of the Securities and
Exchange Commission (the "Commission") and filed with the Commission a
registration statement (File No. 333-39470) on Form SB-2 and has filed one or
more amendments thereto, covering the registration of the Shares under the Act,
including the related preliminary prospectus or preliminary prospectuses (each
thereof being herein called a "Preliminary Prospectus") and a proposed final
prospectus. Each Preliminary Prospectus was endorsed with the legend required by
Item 501(a)(5) of Regulation S-B of the Regulations and, if applicable, Rule
430A of the Regulations. Such registration statement including any documents
incorporated by reference therein and all financial schedules and exhibits
thereto, as amended at the time it becomes effective, and the final prospectus
included therein are herein, respectively, called the "Registration Statement"
and the "Prospectus," except that, (i) if the prospectus filed by the Company
pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term
"Prospectus" will also include the prospectus filed pursuant to Rule 424(b), and
(ii) if the Registration Statement is amended or such Prospectus is supplemented
after the date the Registration Statement is declared effective by the
Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.

         (e) Neither the Commission nor, to the best of the Company's knowledge
after due investigation, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge after due investigation, threatened
to institute any proceedings with respect to such an order.

         (f) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of the Closing Date
and the Option Closing Date, referred to below, will contain all statements
which are required to be stated therein in accordance with the Act and the
Regulations and will in all material respects conform to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue


                                       5




statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter expressly for use therein.

         (g) The Company had at the date or dates indicated in the Prospectus a
duly authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus. Based on the assumptions stated in the
Registration Statement and the Prospectus, the Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in
the Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.

         (h) The descriptions in the Registration Statement and the Prospectus
of contracts and other documents are accurate and present fairly the information
required to be disclosed, and there are no contracts or other documents required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement under the Act or the Regulations which
have not been so described or filed as required.

         (i) KPMG LLP, the accountants who have certified certain of the
financial statements filed and to be filed with the Commission as part of the
Registration Statement and the Prospectus, are independent public accountants
within the meaning of the Act and Regulations. The financial statements and
schedules and the notes thereto filed as part of the Registration Statement and
included in the Prospectus are complete, correct and present fairly the
financial position of the Company as of the dates thereof, and the results of
operations and changes in financial position of the Company for the periods
indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated in the Registration Statement and the Prospectus. The
selected financial data set forth in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.

         (j) The Company has filed with the appropriate federal, state and local
governmental agencies, and all appropriate foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same have become due; and the provisions
for income taxes payable, if any, shown on the financial statements filed with
or as part of the Registration Statement are sufficient for all accrued and
unpaid foreign and domestic taxes, whether or not disputed, and for all periods
to and including the dates of such financial state-ments. Except as disclosed in
writing to the Underwriter, the Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period for


                                       6



assess-ment or collection of any income taxes and is not a party to any pending
action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company.

         (k) The outstanding Common Shares and outstanding options and warrants
to purchase Common Shares have been duly authorized and validly issued. The
outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. The
Company has duly reserved a sufficient number of Common Shares from its
authorized but unissued Common Shares for issuance upon exercise of the
outstanding options and warrants. None of the outstanding Common Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any stockholder of the Company. None of the holders of
the outstanding Common Shares is subject to personal liability solely by reason
of being such a holder. The offers and sales of the outstanding Common Shares
and outstanding options and warrants to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options and warrants to purchase Common
Shares conform to the descriptions thereof contained in the Registration
Statement and Prospectus. Except as set forth in the Registration Statement and
the Prospectus, on the Effective Date and the Closing Date, there will be no
outstanding options or warrants for the purchase of, or other outstanding rights
to purchase or acquire, Common Shares or securities convertible into Common
Shares.

         (l) No securities of the Company have been sold by the Company or by or
on behalf of, or for the benefit of, any person or persons controlling,
controlled by, or under common control with the Company within the three years
prior to the date hereof, except as disclosed in the Registration Statement.

         (m) The issuance and sale of the Units have been duly authorized. When
the Units have been issued and duly delivered against payment therefor as
contemplated by this Agreement. The Units and the Shares will be validly issued,
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. None of the Units,
Shares, Warrants or Warrant Shares will be subject to preemptive rights of any
stockholder of the Company.

         (n) The issuance and sale of the Underlying Shares and Underlying
Warrant Shares have been duly authorized and, when such Common Shares have been
duly delivered against payment therefor, as contemplated by the Underwriter's
Warrant Agreement, such Common Shares will be validly issued, fully paid and
nonassessable. Holders of Underlying Shares and Underlying Warrant Shares
issuable upon the exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Underlying Shares or Underlying Warrant Shares
issuable upon exercise thereof will be subject to preemptive rights of any
stockholder of the Company. The Company has reserved a sufficient number of
Common Shares from its authorized but unissued Common Shares for issuance upon
exercise of the Underwriter's Warrants and the Underlying Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement and the Underlying
Warrants. The Underwriter's Warrants conform to the

                                       7






descriptions thereof contained in the Registration Statement and the Prospectus.

         (o) The Company is not in violation of, or in default under, (i) any
term or provision of its Certificate of Incorporation or By-Laws, each as
amended; (ii) any material term or provision or any financial covenants of any
indenture, mortgage, contract, commitment or other agreement or instrument to
which it is a party or by which it or any of its property or business is or may
be bound or affected; or (iii) any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of the Company's properties
or businesses. The Company owns, possesses or has obtained all governmental and
other (including those obtain-able from third parties) Permits, necessary to own
or lease, as the case may be, and to operate its properties, whether tangible or
intangible, and to conduct its respective business and operations as presently
conducted and all such Permits are outstanding and in good standing, and there
are no proceedings pending or, to the best of the Company's knowledge after due
investigation, threatened, or any basis therefor, seeking to cancel, terminate
or limit such Permits.

         (p) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's
knowledge after due investigation, threatened against the Company or involving
the Company's properties or business which, if determined adversely to the
Company, would, individually or in the aggregate, result in any material adverse
change in the financial position, stockholders' equity, results of operations,
properties, business, management or affairs or business prospects of the Company
or which question the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to, or
in connection with, this Agreement; nor, to the best of the Company's knowledge
after due investigation, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company and enjoining the Company from taking, or requiring the
Company to take, any action, or to which the Company, or the Company's
properties or business is bound or subject.

         (q) Neither the Company nor any of its affiliates has incurred any
liability for any finder's fees or similar payments in connection with the
transactions herein contemplated.

         (r) The Company owns or possesses adequate and enforceable rights to
use all patents, patent applications, trademarks, service marks, copyrights,
rights, trade secrets, confidential information, processes and formulations used
or proposed to be used in the conduct of its business as described in the
Prospectus (collectively the "Intangibles"); to the best of the Company's
knowledge, after due investigation the Company has not infringed nor is
infringing upon the rights of others with respect to the Intangibles; and the
Company has not received any notice of conflict with the asserted rights of
others with respect to the Intangibles which could, singly or in the aggregate,
materially adversely affect its business as presently conducted or the
prospects, financial condition or results of operations of the Company, and the
Company knows of no basis therefor; and, to the best of the Company's knowledge,
no others have infringed upon the Intangibles of the Company.

                                       8





         (s) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus and the Company's latest financial
statements, the Company has not incurred any material liability or obligation,
direct or contingent, or entered into any material transaction, whether or not
incurred in the ordinary course of business, and has not sustained any material
loss or interference with its business from fire, storm, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree; and since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there have not been, and prior to the Closing Date referred to below
there will not be, any changes in the capital stock or any material increases in
the long-term debt of the Company or any material adverse change in or affecting
the general affairs, management, financial condition, stockholders' equity,
results of operations or prospects of the Company, otherwise than as set forth
or contemplated in the Prospectus.

         (t) The Company does not own any real property. The Company has good
title to all personal property (tangible and intangible) owned by it, free and
clear of all security interests, charges, mortgages, liens, encumbrances and
defects, except such as are described in the Registration Statement and
Prospectus or such as do not materially affect the value or transferability of
such property and do not interfere with the use of such property made, or
proposed to be made, by the Company. The leases, licenses or other contracts or
instruments under which the Company leases, holds or is entitled to use with
respect to any property, real or personal, are valid, subsisting and enforceable
only with such exceptions as are not material and do not interfere with the use
of such property made, or proposed to be made, by the Company, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and the Company, to the best of the
Company's knowledge after due investigation, is not aware of any other party in
default thereunder and, to the best of the Company's knowledge after due
investigation, no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default thereunder. The Company
has not received notice of any violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties. The
Company has adequately insured its properties against loss or damage by fire or
other casualty and maintains, in adequate amounts, such other insurance as is
usually maintained by companies engaged in the same or similar businesses
located in its geographic area.

         (u) Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its properties or
businesses is or may be bound or affected and to which reference is made in the
Prospectus has been duly and validly executed, is in full force and effect in
all material respects and is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and the Company, to the best of the Company's knowledge
after due investigation is not, and any other party is not, in default
thereunder and, to the best of the Company's knowledge after due investigation,
no event has occurred which, with the lapse of time or the giving of notice, or
both, would constitute a default thereunder.

         None of the material provisions of such contracts or instruments
violates any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any of its respective assets or businesses, including, without limitation,
the United States Food and Drug Administration (the "FDA") and the United States
Federal Trade Commission (the "FTC"), and comparable foreign state

                                       9





and local regulatory authorities.

         (v) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees, consultants and any
other third parties described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforce-ability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.

         (w) Except as set forth in the Prospectus, the Company does not have
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the pro-visions of the Employee Retirement Income Security Act of 1974.

         (x) To the best of the Company's knowledge after due investigation, no
labor problem exists with any of the Company's employees or is imminent which
could adversely affect the Company.

         (y) The Company has not directly or indirectly, at any time (i) made
any contributions to any candidate for political office, or failed to disclose
fully any such contribution in violation of law or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.

         (z) The Shares have been approved for listing on the Nasdaq SmallCap
Market and the Boston Stock Exchange.

         (aa) Neither the Company nor any of its officers or directors has
distributed, and will not distribute prior to the later of (i) the Closing Date
or any date on which Optional Shares are to be purchased, as the case may be, or
(ii) the expiration of the period during which dealers effecting transactions in
the Shares may be required to deliver a Prospectus, any offering material in
connection with the offering and sale of the Shares, other than any Preliminary
Prospectus, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.

         (ab) The Preliminary Prospectus and the Prospectus delivered to the
Underwriters for use in connection with the offering of the Shares were
identical to the versions of the Preliminary Prospectus and Prospectus filed
with the Commission via the Commission's Electronic Data Gathering Analysis and
Retrieval System, except to the extent permitted by Regulation S-T.

         (ac) The Company has provided to Blank Rome Tenzer Greenblatt LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information in its
possession and/or available to it requested by such counsel's Corporate Review
Memorandum dated April 3, 2000 (the "Memorandum") and the Company's response to
such Memorandum is accurate and complete in all material respects.

                                       10





      Any certificate or questionnaire signed by an officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel shall be deemed to be a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.

      5. Certain Covenants of the Company. The Company covenants with the
Underwriter as follows:

         (a) The Company will not at any time, whether before the Effective Date
or thereafter during such period as the Prospectus is required by law to be
delivered in connection with the sales of the Units, Shares and Warrants by the
Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.

         (b) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Underwriter immediately, and,
if requested by the Underwriter, confirm such advice in writing, (i) when the
Registration Statement, or any post-effective amendment to the Registration
Statement or any supplemented Prospectus is filed with the Commission; (ii) of
the receipt of any comments from the Commission; (iii) of any request of the
Commission for amendment or supplementation of the Registration Statement or
Prospectus or for additional information; and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of the Units, Shares
and/or Warrants for offering or sale in any jurisdiction, or of the initiation
of any proceedings for any of such purposes. The Company will use its best
efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.

         (c) The Company will deliver to the Underwriter, without charge, from
time to time until the Effective Date, as many copies of each Preliminary
Prospectus as the Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the Act. The
Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
a signed copy of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, a copy of all exhibits filed therewith and a signed copy of
all consents and certificates of experts.

         (d) The Company will comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to


                                       11





make the statements therein, in light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement the
Registration Statement and Prospectus to comply with the Act or the regulations
thereunder, the Company will promptly file with the Commission, subject to
Section 5(a) hereof, an amendment or supplement which will correct such
statement or omission or which will effect such compliance.

         (e) The Company will furnish such proper information as may be required
and otherwise cooperate in qualifying the Shares for offering and sale under the
securities or Blue Sky laws relating to the offering in such jurisdictions as
the Underwriter may reasonably designate, provided that no such qualification
will be required in any jurisdiction where, solely as a result thereof, the
Company would be subject to service of general process or to taxation or
qualification as a foreign corporation doing business in such jurisdiction.

         (f) The Company will make generally available to its securityholders,
in the manner specified in Rule 158(b) under the Act, and deliver to the
Underwriter and Underwriter's Counsel as soon as practicable and in any event
not later than 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earning statement meeting the requirements of Rule 158(a) under the Act covering
a period of at least 12 consecutive months beginning after the effective date of
the Registration Statement.

         (g) For a period of five years from the Effective Date, the Company
will deliver to the Underwriter and to Underwriter's Counsel on a timely basis
(i) a copy of each report or document, including, without limitation, reports on
Forms 8-K, 10-K (or 10-KSB), 10-Q (or 10-QSB) and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
securityholders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time; (iv)
monthly statements setting forth such information regarding the Company's
results of operations and financial position (including balance sheet, profit
and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company; and (v) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its stockholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.

         (h) Neither the Company nor any person that controls, is controlled by
or is under common control with the Company will take any action designed to or
which might be reasonably expected to cause or result in the stabilization or
manipulation of the price of the Units, Common Shares or Warrants.

         (i) If the transactions contemplated by this Agreement are consummated,
the Underwriter shall retain the $50,000 previously paid to it, and the Company
will pay or cause to be paid the following: all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including, but not limited to, the fees and

                                       12



expenses of accountants and counsel for the Company; the preparation, printing,
mailing and filing of the Registration Statement (including financial statements
and exhibits), Preliminary Prospectuses and the Prospectus, and any amendments
or supplements thereto; the printing and mailing of the Selected Dealer
Agreement, the issuance and delivery of the Shares to the Underwriter; all
taxes, if any, on the issuance of the Shares; the fees, expenses and other costs
of qualifying the Shares for sale under the Blue Sky or securities laws of those
states in which the Shares are to be offered or sold, including fees and
disbursements of counsel in connection therewith, and including those of such
local counsel as may have been retained for such purpose; the filing fees
incident to securing any required review by the NASD and either the Boston Stock
Exchange or Pacific Stock Exchange; the cost of printing and mailing the "Blue
Sky Survey"; the cost of furnishing to the Underwriter copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of placing "tombstone advertisements" in any publications
which may be selected by the Underwriter; and all other costs and expenses
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).

         In addition, at the Closing Date or the Option Closing Date, as the
case may be, the Underwriter will deduct from the payment for the Offered Units
or any Optional Units three percent (3%) of the gross proceeds of the offering
(less the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).


         (j) If the transactions contemplated by this Agreement or related
hereto are not consummated because the Company decides not to proceed with the
offering for any reason or because the Underwriter decides not to proceed with
the offering as a result of a breach by the Company of its representations,
warranties or covenants in the Agreement or as a result of adverse changes in
the affairs of the Company, then the Company will be obligated to reimburse the
Underwriter for its accountable expenses up to the sum of $75,000, inclusive of
the $50,000 previously paid to the Underwriter by the Company. In all cases
other than those set forth in the preceding sentence, if the Company or the
Underwriter decide not to proceed with the offering, the Company will only be
obligated to reimburse the Underwriter for its accountable expenses up to
$25,000, and inclusive of the amounts previously paid to the Underwriter by the
Company. In no event, however, will the Underwriter, in the event the offering
is terminated, be entitled to retain or receive more than an amount equal to its
actual accountable out-of-pocket expenses.

         (k) The Company intends to apply the net proceeds from the sale of the
Units for the purposes set forth in the Prospectus. Except as set forth in the
Prospectus, no portion of the net proceeds from the sale of the Shares will be
used to repay any indebtedness.

         (l) During the period of twelve (12) months from the Effective Date
hereof, neither the Company nor any of its officers, directors or
securityholders will offer for sale or sell or otherwise dispose of, directly or
indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise, and no holder

                                       13



of registration rights relating to securities of the Company will exercise any
such registration rights, in either case, without the prior written consent of
the Underwriter. During the 12-month period commencing one year from the date
hereof, no officer, director or securityholder who beneficially owns or holds 5%
or more of the outstanding Common Shares (calculated in accordance with Rule
13d-3(d)(i) under the Exchange Act) may sell any Common Shares in excess of the
amount that they would be allowed to sell if they were deemed "affiliates" of
the Company and their shares were deemed "restricted," as those terms are
defined in Rule 144 promulgated under the Securities Act, without the prior
written consent of the Underwriter.

         (m) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the twelve (12) months from the Effective Date,
without the Underwriter's prior written consent.

         (n) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

         (o) The Company will use its best efforts to maintain the listing of
the Units, Shares and Warrants on the Nasdaq SmallCap Market and will, if so
qualified, list the Units, Shares and Warrants, and maintain such listing for so
long as qualified, on the Nasdaq National Market System.

         (p) The Company will, concurrently with the Effective Date, register
the classes of equity securities of which the Units, Shares and Warrants are a
part under Section 12(b) or 12(g) of the Exchange Act and the Company will
maintain such registration for a minimum of five (5) years from the Effective
Date.

         (q) Subject to the sale of the Offered Units, the Underwriter and its
successors will have the right to designate a nominee for election, at its or
their option, either as a member of or a non-voting advisor to the Board of
Directors of the Company (which board, during such period, shall meet at least
quarterly, have no members who are related (by marriage or otherwise) to any of
its Board members, and be comprised of members, a majority of which are not
otherwise affiliated with the Company, its management or its founders), and the
Company will use its best efforts to cause such nominee to be elected and
continued in office as a director of the Company or as such advisor until the
expiration of three (3) years from the Effective Date. Each of the Company's
current officers, directors and stockholders agree to vote all of the Common
Shares owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to

                                       14




indemnify and hold such director or advisor harmless, to the maximum extent
permitted by law, against any and all claims, actions, awards and judgments
arising out of his service as a director or advisor and, in the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, to include such director or advisor as an insured
under such policy. The rights and benefits of such indemnification and the
benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director or advisor.

         If the Underwriter does not exercise its option to designate a member
of or advisor to the Company's Board of Directors, the Underwriter shall
nonetheless have the right to send a representative (who need not be the same
individual from meeting to meeting) to observe each meeting of the Board of
Directors. The Company agrees to give the Underwriter notice of each such
meeting and to provide the Underwriter with an agenda and minutes of the meeting
no later than it gives such notice and provides such items to the directors.

         (r) The Company agrees to employ the Underwriter or a designee of the
Underwriter as a financial consultant for a period of two (2) years from the
Closing Date, pursuant to a separate written consulting agreement between the
Company and the Underwriter and/or such designee (the "Consulting Agreement"),
which will provide that the Company will pay the Underwriter (exclusive of any
accountable out-of-pocket expenses) a finder's fee in the event the Underwriter
originates a financing, merger, acquisition, joint venture or other transaction
to which the Company is a party. The Company further agrees to deliver a duly
and validly executed copy of said Consulting Agreement, in form and substance
acceptable to the Underwriter, on the Closing Date.

         (s) Subject to the provisions of applicable law, the Underwriter shall
be entitled to receive a warrant solicitation fee of five percent (5%) of the
aggregate exercise price of the Warrants for each Warrant exercised during the
period commencing one year after the Effective Date; provided, however, that the
Underwriter will not be entitled to receive such compensation in Warrant
exercise transactions in which (i) the market price of the Common Shares at the
time of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretionary account; (iii) disclosure of compensation
arrangements is not made in the Registration Statement and in documents provided
to holders of Warrants at the time of exercise; (iv) the holder thereof has not
confirmed in writing that the Underwriter solicited the exercise of the
Warrants; or (v) the solicitation or exercise of the Warrants was in violation
of Regulation M promulgated under the Exchange Act.

         (t) The Company shall retain a transfer agent for the Units, Common
Shares and Warrants, reasonably acceptable to the Underwriter, for a period of
three (3) years from the Effective Date. In addition, for a period of three (3)
years from the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's securityholders, including a list
of the beneficial owners of securities held by a depository trust company and
other nominees.

         (u) The Company hereby agrees, at its sole cost and expense, to supply
and deliver to the Underwriter and Underwriter's Counsel, within a reasonable
period from the date hereof, four bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.


                                       15





         (v) The Company shall, as of the date hereof, have applied for listing
in Standard & Poor's Corporation Records Service (including annual report
information) or Moody's Industrial Manual (Moody's OTC Industrial Manual not
being sufficient for these purposes) and shall use its best efforts to have the
Company listed in such manual and shall maintain such listing for a period of
five (5) years from the Effective Date.

         (w) For a period of five (5) years from the Effective Date, the Company
shall provide the Underwriter, on a not less than annual basis, with internal
forecasts setting forth projected results of operations for each quarterly and
annual period in the two (2) fiscal years following the respective dates of such
forecasts. Such forecasts shall be provided to the Underwriter more frequently
than annually if prepared more frequently by management, and revised forecasts
shall be prepared and provided to the Underwriter when required to reflect more
current information, revised assumptions or actual results that differ
materially from those set forth in the forecasts.

         (x) For a period of three (3) years from the Effective Date, or until
such earlier time as the Common Shares are listed on the New York Stock Exchange
or the American Stock Exchange, the Company shall cause its legal counsel to
provide the Underwriter with a list, to be updated at least annually, of those
states in which the Common Shares may be traded in non-issuer transactions under
the Blue Sky laws of the 50 states.

         (y) For a period of three (3) years from the Effective Date, the
Company shall continue to retain KPMG LLP (or such other nationally recognized
accounting firm acceptable to the Underwriter) as the Company's independent
public accountants.

         (z) For a period of three (3) years from the Effective Date, the
Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(y) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.

         (aa) For a period of twenty-five (25) days from the Effective Date, the
Company will not issue press releases or engage in any other publicity without
the Underwriter's prior written consent, other than normal and customary
releases issued in the ordinary course of the Company's business or those
releases required by law.

         (bb) The Company will not increase or authorize an increase in the
compensation of its five (5) most highly paid employees greater than those
increases provided for in their employment agreements with the Company in effect
as of the Effective Date and disclosed in the Registration Statement, without
the prior written consent of the Underwriter, for a period of three (3) years
from the Effective Date.

         (ab) For a period of three (3) years from the Effective Date, the
Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.

                                       16





         (ac) For a period of two (2) years from the Effective Date, the Company
will not offer or sell any of its securities (i) pursuant to Regulation S
promulgated under the Act or (ii) at a discount to market or in a discounted
transaction, without the prior written consent of the Underwriter, other than
the issuance of Common Shares upon exercise of options and warrants outstanding
on the Closing Date and described in the Prospectus.

         (ad) For a period of three (3) years from the Effective Date, the
Company will provide to the Underwriter ten (10) day's written notice prior to
any issuance by the Company or its subsidiaries of any equity securities or
securities exchangeable for or convertible into equity securities of the
Company, except for (i) Common Shares issuable upon exercise of currently
outstanding options and warrants or conversion of currently outstanding
convertible securities and (ii) options available for future grant pursuant to
any stock option plan in effect on the Effective Date and the issuance of shares
of Common Shares upon the exercise of such options.

         (ae) Prior to the Effective Date and for a period of two (2) years
thereafter, the Company will retain a financial public relations firm reasonably
acceptable to the Underwriter.

         (af) For a period of five (5) years from the Effective Date, the
Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
stockholder's meeting at least once per annum.

         (ag) Prior to the Effective Date, the Company shall have obtained
Director's and Officer's insurance naming the Underwriter as an additional
insured party, in an amount equal to twenty-five percent (25%) of the gross
proceeds of the offering, and the Company will maintain such insurance for a
period of at least three (3) years from the Closing Date.

         6. Conditions of the Underwriter's Obligation to Purchase the Offered
Units from the Company. The obligation of the Underwriter to purchase and pay
for the Offered Units which it has agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy of the statements of the Company or its
officers made pursuant hereto, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:

         (a) The Registration Statement will have become effective not later
than 10:00 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Underwriter may
agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.

                                       17





         (b) At the time that this Agreement is executed and at the Closing
Date, there will have been delivered to the Underwriter a signed opinion of each
of Morse, Zelnick, Rose & Lander LLP, Covington & Burling and Kirkpatrick &
Lockhart LLP, counsels for the Company (individually and collectively, "Company
Counsel"), dated as of the date hereof or the Closing Date, as the case may be
(and any other opinions of counsel referred to in such opinion of Company
Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:

               (i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with full power
and authority, corporate and other, and with all Permits necessary to own or
lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement. To the best of Company Counsel's knowledge, the Company has no
subsidiaries. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company.

               (ii) The Company has full power and authority, corporate and
other, to execute, deliver and perform this Agreement, the Consulting Agreement,
the Warrant Agreement, the Warrants and the Underwriter's Warrant Agreement and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement, the Consulting Agreement, the
Warrant Agreement, the Warrants and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement, the Warrants and the
Underwriter's Warrant Agreement have been duly authorized by all necessary
corporate action, and this Agreement has been duly executed and delivered by the
Company. This Agreement is (assuming for the purposes of this opinion that it is
valid and binding upon the other party thereto) and, when executed and delivered
by the Company on the Closing Date, each of the Consulting Agreement, the
Warrant Agreement, the Warrants and the Underwriter's Warrant Agreement will be,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.

               (iii) The execution, delivery and performance of this Agreement,
the Consulting Agreement, the Warrant Agreement, the Warrants and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of this Agreement, the Consulting Agreement, the Warrant
Agreement, the Warrants and the Underwriter's Warrant Agreement do not, and will
not, with or without the giving of notice or the lapse of time, or both, (A)
result in a violation of the Certificate of Incorporation or By-Laws, each as
amended, of the Company, (B) result in a breach of or conflict with any terms or
provisions of, or constitute a default under, or result in the modification or
termination of, or

                                       18



result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company pursuant to any
indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company is a party or by which the Company, or any of
the Company's properties or assets are or may be bound or affected; (C) violate
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company, or any of the Company's properties or business; or (D) have any effect
on any Permit necessary for the Company to own or lease, as the case may be, and
operate its properties or conduct its business or the ability of the Company to
make use of its properties or business.

               (iv) To the best of Company Counsel's knowledge, no Permits of
any court or governmental agency or body (other than under the Act, the
Regulations and applicable state securities or Blue Sky laws) are required for
the valid authorization, issuance, sale and delivery of the Units or the
Underwriter's Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement, the Consulting Agreement,
the Warrant Agreement, the Warrants or the Underwriter's Warrant Agreement.

               (v) The Registration Statement has become effective under the
Act; to the best of Company Counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending, threatened or contemplated
under the Act or applicable state securities laws.

               (vi) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its effective or
issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.

               (vii) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
13 of Form SB-2 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.

         None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company, or any of its assets or
businesses, including, without limitation, the FDA and FTC and comparable
foreign, state and local regulatory authorities.


                                       19



               (viii) The outstanding Common Shares and outstanding options and
warrants to purchase Common Shares have been duly authorized and validly issued.
The outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. None of
the outstanding Common Shares or options or warrants to purchase Common Shares
has been issued in violation of the preemptive rights of any stockholder of the
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. To the best of Company
Counsel's knowledge, except as set forth in the Prospectus, no holders of any of
the Company's securities has any rights, "demand", "piggyback" or otherwise, to
have such securities registered under the Act.

               (ix) The issuance and sale of the Units, Shares and Warrants have
been duly authorized and, when the Shares and Warrant Shares have been issued
and duly delivered against payment therefor as contemplated by this Agreement,
the Shares and Warrant Shares will be validly issued, fully paid and
nonassessable, and the holders thereof will not be subject to personal liability
solely by reason of being such holders. Neither the Shares nor the Warrant
Shares are subject to preemptive rights of any stockholder of the Company. The
Company has reserved a sufficient number of Common Shares from its authorized
but unissued Common Shares for issuance upon exercise of the Warrants in
accordance with the provisions of the Warrant Agreement. The certificates
representing the Shares and the Warrants are in proper legal form.

               (x) The issuance and sale of the Underlying Shares and Underlying
Warrant Shares have been duly authorized and, when such Common Shares have been
duly delivered against payment therefor, as contemplated by the Underwriter's
Warrant Agreement, such Common Shares will be validly issued, fully paid and
nonassessable. Holders of Underlying Shares and Underlying Warrant Shares will
not be subject to personal liability solely by reason of being such holders.
Neither the Underwriter's Warrants nor the Underlying Shares or Underlying
Warrant Shares issuable upon exercise thereof will be subject to preemptive
rights of any stockholder of the Company. The Company has reserved a sufficient
number of Common Shares from its authorized, but unissued, Common Shares for
issuance upon exercise of the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Underwriter's Warrant Agreement. The
Underwriter's Warrants conform to the descriptions thereof in the Registration
Statement and Prospectus.

               (xi) Upon delivery of the Offered Units to the Underwriter
against payment therefor as provided in this Agreement, the Underwriter
(assuming it is a bona fide purchaser within the meaning of the Uniform
Commercial Code) will acquire good title to the Offered Units, free and clear of
all liens, encumbrances, equities, security interests and claims.

               (xii) Assuming that the Underwriter exercises the over-allotment
option to purchase any of the Optional Units and makes payment therefor in
accordance with the terms of this Agreement, upon delivery of the Optional Units
to the Underwriter hereunder, the Underwriter (assuming it is a bona fide
purchaser within the meaning of the Uniform Commercial Code) will acquire good
title to such Optional Units, free and clear of any liens, encumbrances,
equities, security interests and claims.

                                       20




               (xiii) To the best of Company Counsel's knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against the
Company, or involving the Company's properties or businesses, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material.

               (xiv) The Company owns or possesses adequate and enforceable
rights to use all patents, patent applications, trademarks, service marks,
copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of
Company Counsel's knowledge, the Company has not infringed nor is infringing
with the rights of others with respect to the Intangibles; and, to the best of
Company Counsel's knowledge, the Company has not received any notice that it has
or may have infringed, is infringing upon or is conflicting with the asserted
rights of others with respect to the Intangibles which might, singly or in the
aggregate, materially adversely affect its business, results of operations or
financial condition and such counsel is not aware of any licenses with respect
to the Intangibles which are required to be obtained by the Company other than
those licenses which the Company has obtained. The opinions described in this
Section 6(b)(xiv) may be given by Company Counsel in reliance on the opinion of
an attorney, reasonably acceptable to Underwriter's Counsel, practicing in the
patent area.

         Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each counsel giving an opinion must give the opinion set
forth in this paragraph as to such subject matter of its opinion.

         In rendering its opinion pursuant to this Section 6(b), Company Counsel
may rely upon the certificates of government officials and officers of the
Company as to matters of fact, provided that Company Counsel shall state that
they have no reason to believe, and do not believe, that they are not justified
in relying upon such opinions or such certificates of government officials and
officers of the Company as to matters of fact, as the case may be.

                                       21




               The opinion letters delivered pursuant to this Section 6(b) shall
state that any opinion given therein qualified by the phrase "to the best of our
knowledge" is being given by Company Counsel after due investigation of the
matters therein discussed.

         (c) At the Closing Date, there will have been delivered to the
Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing
Date, to the effect that the opinions delivered pursuant to Section 6(b) hereof
appear on their face to be appropriately responsive to the requirements of this
Agreement, except to the extent waived by the Underwriter, specifying the same,
and with respect to such related matters as the Underwriter may require.

         (d) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.

                                       22




         (e) At the time that this Agreement is executed and at the Closing
Date, the Underwriter will have received a signed letter from KPMG LLP, dated
the date such letter is to be received by the Underwriter and addressed to it,
confirming that it is a firm of independent public accountants within the
meaning of the Act and Regulations and stating that: (i) insofar as reported on
by them, in their opinion, the financial statements of the Company included in
the Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Regulations; (ii) on the
basis of procedures and inquiries (not constituting an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company, if more recent than that appearing
in the Registration Statement and Prospectus, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the date of the latest audited financial statements of
the Company, and a reading of the minutes of meetings of the stockholders, the
Board of Directors of the Company and any committees of the Board of Directors,
as set forth in the minute books of the Company, nothing has come to their
attention which, in their judgment, would indicate that (A) during the period
from the date of the latest financial statements of the Company appearing in the
Registration Statement and Prospectus to a specified date not more than three
business days prior to the date of such letter, there have been any decreases in
net current assets or net assets as compared with amounts shown in such
financial statements or decreases in net sales or decreases [increases] in total
or per share net income [loss] compared with the corresponding period in the
preceding year or any change in the capitalization or long-term debt of the
Company, except in all cases as set forth in or contemplated by the Registration
Statement and the Prospectus, and (B) the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited financial
statements included in the Registration Statement or the Prospectus; and (iii)
they have compared specific dollar amounts, numbers of shares, numerical data,
percentages of revenues and earnings, and other financial information pertaining
to the Company set forth in the Prospectus (with respect to all dollar amounts,
numbers of shares, percentages and other financial information contained in the
Prospectus, to the extent that such amounts, numbers, percentages and
information may be derived from the general accounting records of the Company,
and excluding any questions requiring an interpretation by legal counsel) with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter, and found them to be in agreement.

         (f) There shall have been duly tendered to the Underwriter certificates
representing the Offered Units to be sold on the Closing Date.

         (g) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Units by the
Underwriter.

                                       23




         (h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute transactions (as principal or as agent) in the Units, Shares or
Warrants, and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.

         (i) The Company meets the current and any existing and proposed
criteria for inclusion of the Units, Shares and Warrants on Nasdaq SmallCap
Market.

         (j) All proceedings taken at or prior to the Closing Date or the Option
Closing Date, as the case may be, in connection with the authorization, issuance
and sale of the Units, Shares and Warrants shall be reasonably satisfactory in
form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.

         (k) As of the date hereof, the Company will have delivered to the
Underwriter the written undertakings of its officers, directors and
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).

         If any of the conditions specified in this Section 6 have not been
fulfilled, this Agreement may be terminated by the Underwriter on notice to the
Company.

         7. Indemnification.

         (a) The Company agrees to indemnify and hold harmless the Underwriter,
each officer, director, partner, employee and agent of the Underwriter, and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Underwriter and each such person, if
any, for any legal or other expenses reasonably incurred by them or any of them
in connection with investigating or defending any actions, whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, in any Preliminary Prospectus or in the Prospectus (or the
Registration Statement or Prospectus as from time to time amended or

                                       24



supplemented) or (ii) in any application or other document executed by the
Company, or based upon written information furnished by or on behalf of the
Company, filed in any jurisdiction in order to qualify the Units under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Units which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Units to such
person; and (C) the Prospectus did not contain any untrue statement or alleged
untrue statement or omission or alleged omission giving rise to such cause,
claim, damage, expense or liability.

         (b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against
any and all losses, claims, damages, expenses or liabilities, joint or several
(and actions in respect thereof), to which they or any of them may become
subject under the Act or under any other statute or at common law or otherwise,
and, except as hereinafter provided, will reimburse the Company and each such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in the Registration Statement, in any Preliminary Prospectus
or in the Prospectus (or the Registration Statement or Prospectus as from time
to time amended or supplemented) or (ii) in any application (including any
application for registration of the Units under state securities or Blue Sky
laws), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, in light of the
circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
expressly for use therein.

         (c) Promptly after receipt of notice of the commencement of any action
in respect of which indemnity may be sought against any indemnifying party under
this Section 7, the indemnified party will notify the indemnifying party in
writing of the commencement thereof, and the indemnifying party will, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel satisfactory to the indemnified party and the payment
of expenses) insofar as such action relates to an alleged liability in respect
of which indemnity may be sought against the indemnifying party. After notice
from the indemnifying party of its election to assume the defense of such claim
or action, the indemnifying party shall no longer be liable to the indemnified
party under this Section 7 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the reasonable
judgment of the indemnified party or parties, it is advisable for the


                                       25



indemnified party or parties to be represented by separate counsel, the
indemnified party or parties shall have the right to employ a single counsel to
represent the indemnified parties who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified parties
thereof against the indemnifying party, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. Any party
against whom indemnification may be sought under this Section 7 shall not be
liable to indemnify any person that might otherwise be indemnified pursuant
hereto for any settlement of any action effected without such indemnifying
party's consent, which consent shall not be unreasonably withheld.

         8. Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section 7
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed the Registration Statement and any controlling person of the Company) as
one entity and the Underwriter (including, for this purpose, any contribution by
or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter) as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discount per Unit set forth on the cover page of the Prospectus
represents of the initial public offering price per Unit set forth on the cover
page of the Prospectus and the Company is responsible for the remaining portion;
provided, however, that if applicable law does not permit such allocation, then,
if applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each


                                       26



officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary not-withstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.

         9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Units.

         10. Termination of Agreement.


               (a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Units for public offering. The time when the
Underwriter "releases the Offered Units for public offering" for the purposes of
this Section 10 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Offered Units, or the time when the Underwriter releases for delivery to members
of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Units, whichever will first occur.

               (b) This Agreement, including without limitation, the obligation
to purchase the Units and the obligation to purchase the Optional Units after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Units or such
Optional Units, as the case may be, if, prior to such time, any of the following
shall have occurred: (i) the Company withdraws the Registration Statement from
the Commission or the Company does not or cannot expeditiously proceed with the
public offering; (ii) the representations and warranties in Section 4 hereof are
not materially correct or cannot be complied with; (iii) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange will
have been suspended; (iv) limited or minimum prices will have been established
on either such Exchange; (v) a banking moratorium will have been declared either
by federal or New York State authorities; (vi) any other restrictions on
transactions in securities materially affecting the free market for securities
or the payment for such securities, including the Offered Units or the Optional
Units, will be established by either of such Exchanges, by the Commission, by
any other federal or state agency, by action of the Congress or by Executive
Order; (vii) trading in any securities of the Company shall have been suspended
or halted by any national securities exchange, the NASD or the Commission;
(viii) there has been a materially adverse change in the condition (financial or
otherwise), prospects or obligations of the Company; (ix) the Company will have
sustained a material loss, whether or not insured, by reason of fire, flood,
accident or other calamity; (x) any action has been taken by the government of
the United States or any department or agency thereof which, in the judgment of
the Underwriter, has had a material adverse effect upon the market or potential
market for securities in general; or (xi) the market for securities in general
or political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Units or the Optional Units, as the case may be.

                                       27





               (c) If this Agreement is terminated pursuant to Section 6 hereof
or this Section 10 or if the purchases provided for herein are not consummated
because any condition of the Underwriter's obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.

         11. Information Furnished by the Underwriter to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8
hereof, the only information given by the Underwriter to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the information in the third paragraph on page 44
with respect to concessions and reallowances, the information in the third
sentence of the third paragraph on page 45 with respect to the determination of
the public offering price and the statements appearing in the fifth and sixth
paragraphs on page 45 with respect to stabilizing the market price of Units, as
such information appears in any Preliminary Prospectus and in the Prospectus.

         12. Confidentiality.

               (a) The Underwriter agrees to treat as confidential the
information which is delivered to it by the Company pursuant to Section 5(v)
hereof (the "Information"). All Information shall be kept in confidence and not
disclosed to a third party or used by the Underwriter, except as required for
the consummation of the transactions contemplated by this Agreement or as
provided in Section 12(b) hereof. The Underwriter further agrees to reveal the
Information only to those of its representatives who need to know the
Information for the purposes of consummating the transactions contemplated by
this Agreement and who are informed of and agree to be bound by the confidential
nature of the Information.

               (b) The restrictions set forth in Section 12(a) hereof do not
apply to any Information which: (i) is or becomes generally available to the
public; (ii) was known to the Underwriter prior to its receipt of Information
from the Company; (iii) the Underwriter obtained from an independent third party
who obtained such Information lawfully and was under no obligation of
confidentiality; or (iv) is disclosed when such disclosure is compelled pursuant
to legal, judicial or administrative proceedings, or otherwise required by law,
subject to the Underwriter giving reasonable prior notice to the Company to
allow the Company to participate in such proceedings.

                                       28




         13. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Underwriter, to Whale Securities Co., L.P., Attention:
William G. Walters, 650 Fifth Avenue, New York, New York 10019, with a copy to
Blank Rome Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405
Lexington Avenue, New York, New York 10174; if to the Company, addressed to it
at Delcath Systems, Inc., 1100 Summer Street, Stamford, Connecticut 06905,
Attention: M.S. Koly, with a copy to Morse, Zelnick, Rose & Lander, LLP, 450
Park Avenue, New York, New York 10022, Attention: Stephen A. Zelnick, Esq.

         This Agreement shall be deemed to have been made and delivered in New
York City and shall be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of New York.
The Company (1) agrees that any legal suit, action or proceeding arising out of
or relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding.

         14. Parties in Interest. This Agreement is made solely for the benefit
of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Units from the
Underwriter, as such purchaser.


                                       29






         If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.

                                              Very truly yours,

                                              DELCATH SYSTEMS, INC.


                                              By______________________________
                                                Name:  M.S. Koly
                                                Title: Chief Executive Officer

Confirmed and accepted in
New York, N.Y., as of the
date first above written:

WHALE SECURITIES CO., L.P.

By:  Whale Securities Corp.,
         General Partner


By__________________________
   Name:  William G. Walters
   Title: Chairman







                            CERTIFICATE OF AMENDMENT

                                       TO

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                              DELCATH SYSTEMS, INC.


                  Delcath Systems, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:

                  FIRST: That, by written consent of all the Directors and the
holders of a majority of the issued and outstanding capital stock of the
Corporation, the following resolution proposing an amendment to the Amended and
Restated Certificate of Incorporation of said Corporation was duly adopted. The
resolution setting forth the amendment is as follows:

RESOLVED:           That Article FOURTH of the Amended and Restated Certificate
                    of Incorporation be amended by adding the following
                    paragraph of Article FOURTH thereof so that, as amended,
                    said article FOURTH shall be and read as follows:

                 "Each 1.26661011 shares of the Corporation's Common Stock, par
value $.01 per share, issued and outstanding as of the close of business on
October 11, 2000 shall be converted and reclassified into one (1) share of the
Corporation's Common Stock, par value $.01 per share, so that each share of the
Corporation's Common Stock $.01 par value per share, issued and outstanding is
hereby converted and reclassified. No fractional interests resulting from such
conversion shall be issued, but in lieu thereof, the Corporation will pay cash
for each currently issued and outstanding share of Common Stock, par value $.01
per share, representing such fractional interest at a price equal to the per
share price of the Corporation's Common Stock on October 11, 2000."





                  SECOND: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.


                  IN WITNESS WHEREOF, said Delcath Systems, Inc. has caused this
certificate to be signed by M.S. Koly, its President and Chief Executive
Officer, this 11th day of October, 2000.

                                DELCATH SYSTEMS, INC.


                                By: /s/ M.S. Koly
                                   --------------------------------------------
                                      M.S. Koly, President and
                                       Chief Executive Officer



     WARRANT AGREEMENT dated as of _________, 2000 between Delcath Systems,
Inc., a Delaware corporation (the "Company"), and Whale Securities Co., L.P.
(hereinafter referred to as the "Underwriter").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS, the Company proposes to issue to the Underwriter warrants (the
"Warrants") to purchase up to 120,000 (as such number may be adjusted from time
to time pursuant to Article 8 of this Agreement) "Units" (as herewith defined in
Article 1 hereof); and

     WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement
(the "Underwriting Agreement") dated ____________, 2000 between the Underwriter
and the Company, to act as the underwriter in connection with the Company's
proposed public offering (the "Public Offering") of 1,200,000 Units at an
initial public offering price of $6.00 per Public Share; and

     WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to the Underwriter or to its designees who are officers and partners
of the Underwriter or to members of the selling group participating in the
distribution of the Public Shares to the public in the Public Offering and/or
their respective officers or partners (collectively, the "Designees"), in
consideration for, and as part of the Underwriter's compensation in connection
with, the Underwriter acting as the Underwriter pursuant to the Underwriting
Agreement;

     NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of ONE HUNDRED DOLLARS ($100.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:



     1. Grant.

     The Underwriter and/or the Designees are hereby granted the right to
purchase, at any time from ____________, 2000 until 5:00 P.M., New York time, on
_______, 2005 (the "Warrant Exercise Term"), up to 120,000 Units at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of $6.60
per Unit. Each Unit consists of 120,000 fully-paid and non-assessable shares
(the "Shares") of the Company's Common stock, $.01 par value ("Common Stock"),
and 120,000 Common Stock Purchase Warrants (the "Unit Warrants"). The Unit
Warrants are each exercisable to purchase one fully-paid and non-assessable
share of Common Stock at a price of $10.50 per share (the "Unit Warrant
Shares"). The Unit Warrants are exercisable commencing October __, 2001 (or such
earlier date as to which the Underwriter consents to the Units becoming
detachable and separately transferable) (the "Separation Date") until 5:00 P.M.,
New York City time on _______, 2005. Except as provided in Section 13 hereof,
the Units and the Unit Warrants are in all respects identical to the units and
warrants being sold to the public pursuant to the terms and provisions of the
Underwriting Agreement.

     2. Warrant Certificates.

     The warrant certificates delivered and to be delivered pursuant to this
Agreement (the "Warrant Certificates") shall be in the form set forth in Exhibit
A attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.

                                       2


     3. Exercise of Warrant.

     3.1. Cash Exercise. The Warrants initially are exercisable at a price of
$6.60 per Unit, payable in cash or by check to the order of the Company, or any
combination thereof, subject to adjustment as provided in Article 8 hereof. Upon
surrender of the Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares purchased, at the Company's principal
offices in New York (currently located at 1100 Summer Street, Stamford,
Connecticut 06905) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Shares so purchased and a certificate or certificates for the Unit Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional Shares or fractional Unit Warrants). In the case of the purchase
of less than all the Units purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Units purchasable thereunder.

     3.2. Cashless Exercise. At any time during the Warrant Exercise Term, the
Holder may, at the Holder's option, exchange, in whole or in part, the Warrants
represented by such Holder's Warrant Certificate (a "Warrant Exchange"), into
the number of shares of Common Stock determined in accordance with this Section
3.2, by surrendering such Warrant Certificate at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Units to be so
exchanged and the date on which the Holder requests that such Warrant Exchange

                                       3


occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock issuable upon such Warrant Exchange and, if applicable, a
new Warrant Certificate of like tenor representing the Warrants which were
subject to the surrendered Warrant Certificate and not included in the Warrant
Exchange, shall be issued as of the Exchange Date and delivered to the Holder
within three (3) days following the Exchange Date. In connection with any
Warrant Exchange, the Holder shall be entitled to subscribe for and acquire the
number of shares of Common Stock (rounded to the next higher integer) equal to
the sum of (i) (A) the number of Units specified by the Holder in its Notice of
Exchange (the "Total Number") less (B) the number of Units equal to the quotient
obtained by dividing (I) the product of the Total Number and the existing
Exercise Price (as hereinafter defined) by (II) the Market Price (as hereinafter
defined) of a share of Common Stock, plus (ii) the Total Number less (B) the
number of Units equal to the quotient obtained by dividing (I) the product of
the Total Number and the exercise price of the Unit Warrant by (II) the current
Market Price (as hereinafter defined) of a share of Common Stock. "Market Price"
at any date shall be deemed to be the last reported sale price, or, in case no
such reported sales takes place on such day, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the NASDAQ National Market
System, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the NASDAQ National Market System, the
closing bid

                                       4


price as furnished by (i) the National Association of Securities Dealers, Inc.
through Nasdaq or (ii) a similar organization if Nasdaq is no longer reporting
such information.

     4. Issuance of Certificates.

     Upon the exercise of the Warrants, the issuance of certificates for the
Shares purchased and certificates for the Unit Warrants purchased, and upon
exercise of the Unit Warrants, the issuance of certificates for the Unit Warrant
Shares purchased shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.

     The Warrant Certificates and the certificates representing the Shares and
the Unit Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman or Vice Chairman of
the Board of Directors, Chief Executive Officer or President or Vice President
of the Company under its corporate seal reproduced thereon, attested to by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.

                                       5


     Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares and the Unit Warrants purchased, and upon exercise, in
whole or in part, of the Unit Warrants, certificates representing the Unit
Warrant Shares purchased (collectively, the "Warrant Securities"), shall bear a
legend substantially similar to the following:

     "The securities represented by this certificate have not been registered
     for purposes of public distribution under the Securities Act of 1933, as
     amended (the "Act"), and may not be offered or sold except (i) pursuant to
     an effective registration statement under the Act, (ii) to the extent
     applicable, pursuant to Rule 144 under the Act (or any similar rule under
     such Act relating to the disposition of securities), or (iii) upon the
     delivery by the holder to the Company of an opinion of counsel, reasonably
     satisfactory to counsel to the Company, stating that an exemption from
     registration under such Act is available."


     5. Restriction on Transfer of Warrants.

     The Holder of a Warrant Certificate, by the Holder's acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof, and that the Warrants may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for a period of one (1) year from the date hereof, except to the
Designees.

     6. Price.

     6.1. Initial and Adjusted Exercise Price. The initial exercise price of
each Warrant shall be $6.60 per Unit. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Article 8 hereof.

     6.2. Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.

                                       6


     7. Registration Rights.

     7.1. Registration Under the Securities Act of 1933. None of the Warrants,
Shares, Unit Warrants or Unit Warrant Shares have been registered for purposes
of public distribution under the Securities Act of 1933, as amended (the "Act").

     7.2. Registrable Securities. As used herein the term "Registrable Security"
means each of the Warrants, the Shares, the Unit Warrants, the Unit Warrant
Shares and any shares of Common Stock issued upon any stock split or stock
dividend in respect of such Shares or Unit Warrant Shares; provided, however,
that with respect to any particular Registrable Security, such security shall
cease to be a Registrable Security when, as of the date of determination, (i) it
has been effectively registered under the Act and disposed of pursuant thereto,
(ii) registration under the Act is no longer required for the subsequent public
distribution of such security or (iii) it has ceased to be outstanding. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Article 7.

     7.3. Piggyback Registration. If, at any time during the seven (7) years
following the effective date of the Public Offering, the Company proposes to
prepare and file one or more post-effective amendments to the registration
statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its

                                       7


stockholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) business days prior to the filing of each such Registration Statement, to
all holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) business days after
receipt of the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect the
registration under the Act of the Registrable Securities which it has been so
requested to register ("Piggyback Registration"), at the Company's sole cost and
expense and at no cost or expense to the Requesting Holders (except as provided
in Section 7.5(b) hereof).

     7.4. Demand Registration.

          (a) At any time during the Warrant Exercise Term, any "Majority
Holder" (as such term is defined in Section 7.4(c) below) of the Registrable
Securities shall have the right (which right is in addition to the piggyback
registration rights provided for under Section 7.3 hereof), exercisable by
written notice to the Company (the "Demand Registration Request"), to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, at the sole expense of the Company (except as
provided in Section 7.5(b) hereof), a Registration Statement and such other
documents, including a prospectus, as may be necessary (in the opinion of both
counsel for the Company and counsel for such Majority Holder), in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of the Registrable Securities by the holders thereof. The Company shall use
its

                                       8


best efforts to cause the Registration Statement to become effective under the
Act, so as to permit a public offering and sale of the Registrable Securities by
the holders thereof. Once effective, the Company will use its best efforts to
maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the Registrable Securities have been sold or (ii) the
date that the holders of the Registrable Securities receive an opinion of
counsel to the Company that all of the Registrable Securities may be freely
traded (without limitation or restriction as to quantity or timing and without
registration under the Act) under Rule 144(k) promulgated under the Act or
otherwise.

          (b) The Company covenants and agrees to give written notice of any
Demand Registration Request to all holders of the Registrable Securities within
ten (10) business days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to have such securities included within ten (10) days of their receipt
of the Company's notice.

          (c) The term "Majority Holder" as used in Section 7.4 hereof shall
mean any holder or any combination of holders of Registrable Securities, if
included in such holders' Registrable Securities are that aggregate number of
shares of Common Stock (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants, Unit Warrant Shares already
issued and Unit Warrant Shares issuable pursuant to the exercise of outstanding
Unit Warrants) as would constitute a majority of the aggregate number of Shares

                                       9


(including Shares already issued and Shares issuable pursuant to the exercise of
outstanding Warrants, Unit Warrant Shares already issued and Unit Warrant Shares
issuable pursuant to the issue of outstanding Unit Warrants) included in all the
Registrable Securities.

     7.5. Covenants of the Company With Respect to Registration. The Company
covenants and agrees as follows:

          (a) In connection with any registration under Section 7.4 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in any event no later than twenty (20) days following receipt of any demand
therefor, shall use its best efforts to have any such Registration Statement
declared effective at the earliest possible time, and shall furnish each holder
of Registrable Securities such number of prospectuses as shall reasonably be
requested.

          (b) The Company shall pay all costs, fees and expenses (other than
underwriting fees, discounts and nonaccountable expense allowance applicable to
the Registrable Securities and the fees and expenses of counsel retained by the
holders of Registrable Securities) in connection with all Registration
Statements filed pursuant to Sections 7.3 and 7.4(a) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, and blue
sky fees and expenses.

          (c) The Company will take all necessary action which may be required
in qualifying or registering the Registrable Securities included in the
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities.

                                       10


          (d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter as set forth in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.

          (e) Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and such holder's successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such holder, or such holder's
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions pursuant to which the
Underwriter has agreed to indemnify the Company as set forth


                                       11


in Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.

          (f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise the Warrants or the Unit Warrants included in
the Units underlying such Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.

          (g) If the Company shall fail to comply with the provisions of this
Article 7, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.

          (h) The Company shall promptly deliver copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the Registration Statement to each holder of Registrable Securities included
for such registration in such Registration Statement pursuant to Section 7.3
hereof or Section 7.4 hereof requesting such correspondence and memoranda and to
the managing underwriter, if any, of the offering in connection with which such
holder's Registrable Securities are being registered and shall permit each
holder of Registrable Securities and such underwriter to do such reasonable
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. Such investigation shall include access
to

                                       12


books, records and properties and opportunities to discuss the business of the
Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such holder of
Registrable Securities or underwriter shall reasonably request.

     8. Adjustments of Exercise Price and Number of Units.

     8.1. Computation of Adjusted Price. In case the Company shall at any time
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution
the Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:

          (a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Exercise Price in effect immediately prior to such dividend or distribution, by

          (b) the total number of shares of Common Stock outstanding immediately
after such issuance or sale.

     For the purposes of any computation to be made in accordance with the
provisions of this Section 8.1, the Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the date following the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution.

     8.2. Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.

                                       13


     8.3. Adjustment in Number of Units. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Article 8, the number of Units issuable
upon the exercise of each Warrant shall be adjusted to the nearest full number
of Units by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Units issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

     8.4. Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants and the Unit Warrant Shares contained in the Unit
Warrants underlying such Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares of Common Stock issuable
upon exercise of the Warrants and the Unit Warrants underlying such

                                       14


Warrants and (y) the Exercise Price in effect immediately prior to the record
date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holders had exercised the Warrants and the Unit Warrants
underlying such Warrants.

     8.5. Adjustment of Unit Warrants Exercise Price and Securities on Exercise
of Unit Warrant. With respect to any of the Unit Warrants underlying the
Warrants, whether or not the Warrants have been exercised and whether or not the
Warrants are issued and outstanding, the exercise price for, and the number of,
shares of Common Stock issuable upon exercise of the Unit Warrants shall be
automatically adjusted in accordance with Section 9 of the Unit Warrant
Agreement, upon the occurrence of any of the events described therein.
Thereafter, the underlying Unit Warrants shall be exercisable at such adjusted
exercise price and for such adjustment number of underlying shares of Common
Stock.

     8.6. Determination of Outstanding Shares of Common Stock. The number of
shares of Common Stock at any one time outstanding shall include the aggregate
number of shares of Common Stock issued and the aggregate number of shares of
Common Stock issuable upon the exercise of options, rights, warrants and upon
the conversion or exchange of convertible or exchangeable securities.

     8.7. Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants make any distribution of its assets to holders of its
Common Stock as a liquidating or a partial liquidating dividend, then the holder
of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Warrant Price per

                                       15


Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith) which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of his Warrant on the record date for the determination of those
entitled to such distribution. At the time of any such dividend or distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this Subsection 8.6.

     8.8. Subscription Rights for Shares of Common Stock or Other Securities. In
the case that the Company or an affiliate of the Company shall at any time after
the date hereof and prior to the exercise of all the Warrants issue any rights,
warrants or options to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the stockholders of the
Company, the Holders of unexercised Warrants on the record date set by the
Company or such affiliate in connection with such issuance of rights, warrants
or options shall be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise of the Warrants, to receive such rights,
warrants or options that such Holders would have been entitled to receive had
they been, on such record date, the holders of record of the number of whole
shares of Common Stock then issuable upon exercise of their outstanding Warrants
(assuming for purposes of this Section 8.8), that the exercise of the Warrants
is permissible immediately upon issuance).

     9. Exchange and Replacement of Warrant Certificates.

     Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new

                                       16


Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender.

     Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.

     10. Elimination of Fractional Interests.

     The Company shall not be required to issue certificates representing
fractions of Shares, nor shall it be required to issue scrip or pay cash in lieu
of fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of Shares and Unit Warrants.

     11. Reservation and Listing of Securities.

     The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Unit Warrants, such number of shares of Common
Stock as shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all Shares issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. The Company further covenants and agrees that upon exercise of
the Unit Warrants

                                       17


underlying the Warrants and payment of the Unit Warrant exercise price therefor,
all Unit Warrant Shares issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants and Unit Warrants underlying the Warrants to be listed
on or quoted by Nasdaq or listed on such national securities exchange, in the
event the Common Stock is listed on a national securities exchange.

     12. Notices to Warrant Holders.

     Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:

          (a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or

          (b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or

                                       18


          (c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; or

          (d) reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or a sale or
conveyance to another corporation of the property of the Company as an entirety
is proposed; or

          (e) The Company or an affiliate of the Company shall propose to issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company;

then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to

                                       19


give such notice or any defect therein shall not affect the validity of any
action taken in connection with the declaration or payment of any such dividend
or distribution, or the issuance of any convertible or exchangeable securities
or subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.

     13. Unit Warrants

     The form of the certificates representing the Unit Warrants (and the form
of election to purchase shares of Common Stock upon the exercise of the Unit
Warrants and the form of assignment printed on the reverse thereof) shall be
substantially as set forth in Exhibit "A" to the Unit Warrant Agreement;
provided, however, (i) each Unit Warrant issuable upon exercise of the Warrants
shall evidence the right to initially purchase one fully paid and non-assessable
share of Common Stock in respect of the Unit Warrant at an initial purchase
price of $10.50 per share from the Separation Date until ______________, 2005
and (ii) the Target Redemption Price (as defined in the Public Warrant
Agreement) of the Unit Warrants is 150% of the then effective exercise price of
the Unit Warrants. As set forth in Section 8.5 of this Agreement, the exercise
price of the Unit Warrants and the number of shares of Common Stock issuable
upon the exercise of the Unit Warrants are subject to adjustment, whether or not
the Warrants have been exercised and the Unit Warrants have been issued, in the
manner and upon the occurrence of the events set forth in Section 9 of the Unit
Warrant Agreement, which is hereby incorporated herein by reference and made a
part hereof as is set forth in its entirety herein. Subject to the provisions of
this Agreement and upon issuance of the Unit Warrants underlying the Warrants,
each registered holder of such Unit Warrants shall have the right to purchase
from the Company (and the Company shall issue to such registered holders) up to
the number of fully paid and non-assessable shares of Common Stock underlying
such Unit Warrants (subject to adjustment as provided herein and in the Unit
Warrant Agreement), free and

                                       20


clear of all preemptive rights of shareholders, provided that such registered
holder complies with the terms governing exercise of the Unit Warrants set forth
in the Unit Warrant Agreement, and pays the applicable exercise price,
determined in accordance with the terms of the Unit Warrant Agreement. Upon
exercise of the Unit Warrants, the Company shall forthwith issue to the
registered holder of any such Unit Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock and the
number of Unit Warrants so purchased. Except as otherwise provided in Section
8.5 hereof, the Unit Warrants underlying the Warrants shall be governed in all
respects by the terms of the Unit Warrant Agreement. The Unit Warrants shall be
transferable in the manner provided in the Unit Warrant Agreement, and upon any
such transfer, a new Unit Warrant shall be issued promptly to the transferee.
The Company covenants to, and agrees with, each Holder that without the prior
written consent of all the Holders, the Unit Warrant Agreement will not be
modified, amended, cancelled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Unit Warrant Agreement to be sent
to holders of the Unit Warrants.

     14. Notices.

     All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:

          (a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or

                                       21


          (b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.

     15. Supplements and Amendments.

     The Company and the Underwriter may from time to time supplement or amend
this Agreement without the approval of any Holders of Warrant Certificates
and/or Warrant Securities in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates and/or
Warrant Securities.

     16. Successors.

     All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.

     17. Termination.

     This Agreement shall terminate at the close of business on __________,
2008. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Section 7 shall survive any termination pursuant to this
Section 16 until the close of business on _________, 2011.

                                       22


     18. Governing Law.

     This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State.

     19. Benefits of This Agreement.

     Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
holder or holders of the Warrant Certificates or Warrant Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other holder or holders of the Warrant Certificates or Warrant Securities.

     20. Counterparts.

     This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.

                                       23



     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.

                                         DELCATH SYSTEMS, INC.


                                         By: __________________________________
                                             Name: M.S. Koly
                                             Title: Chief Executive Officer



                                         WHALE SECURITIES CO., L.P.

                                         By: Whale Securities Corp.,
                                             General Partner


                                         By: __________________________________
                                             Name: William G. Walters
                                             Title: Chairman


                                       24



                                                                       EXHIBIT A

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

                            EXERCISABLE ON OR BEFORE
                    5:00 P.M., NEW YORK TIME, _________, 2005

No. W-                                                        _______ Warrants

                               WARRANT CERTIFICATE

     This Warrant Certificate certifies that _______________ ___________________
or registered assigns, is the registered holder of ____________ (________)
Warrants to purchase, at any time from ____________, 2000 until 5:00 P.M. New
York City time on ___________, 2005 ("Expiration Date"), up to _________ units
("Units"), each consisting of one fully-paid and non-assessable share of common
stock, par value $.01 per share (the "Common Stock"), of Delcath Systems, Inc.,
a Delaware corporation (the "Company"), and one Common Stock Purchase Warrant,
each Common Stock Purchase Warrant entitling the holder thereof to purchase one
share of Common Stock (collectively, the "Unit Warrants") at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $6.60 per Unit upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of
____________, 2000 between the Company and Whale Securities Co., L.P. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination thereof.

     Each Unit Warrant issuable upon the exercise of a Warrant is initially
exercisable from the Separation Date through ________, 2005, for one fully-paid
and non-assessable share of Common Stock at an initial exercise price of $10.50
per share. The Unit Warrants are issuable pursuant to the terms and provisions
of a certain agreement dated as of ________, 2000



by and among the Company, the Underwriter and American Stock Transfer & Trust
Company (the "Unit Warrant Agreement"). The Unit Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to (except as otherwise provided in the Warrant Agreement) for a
description of the rights, limitations of rights, manner of exercise,
anti-dilution provisions and other provisions with respect to the Unit Warrants.

     No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.

     The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.

     The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.

     Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.

     Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.

     The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.

     All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.

                                       2


     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.

Dated:  ___________, 2000

                                          DELCATH SYSTEMS, INC.


                                          By: __________________________
                                              Name: M.S. Koly
                                              Title: Chief Executive Officer


                                       3



                         [FORM OF ELECTION TO PURCHASE]

     The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Units and
herewith tenders in payment for such securities cash or a certified or official
bank check payable in New York Clearing House Funds to the order of Delcath
Systems, Inc. in the amount of $ _____, all in accordance with the terms hereof.
The undersigned requests that a certificate for such securities be registered in
the name of __________, whose address is __________________, and that such
Certificate be delivered to __________________, whose address is _____________.



Dated:                        Signature: _______________________________

                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Warrant Certificate.)


                        --------------------------------

                        --------------------------------
                        (Insert Social Security or Other
                          Identifying Number of Holder)




                              [FORM OF ASSIGNMENT]

             (To be executed by the registered holder if such holder
                  desires to transfer the Warrant Certificate.)


            FOR VALUE RECEIVED _________________

hereby sells, assigns and transfers unto


- ---------------------------------------------
(Please print name and address of transferee)

this Warrant Certificate, together with all right, title and interest therein,

and does hereby irrevocably constitute and appoint _______________, Attorney, to

transfer the within Warrant Certificate on the books of the within-named

Company, with full power of substitution.


Dated:                        Signature: ________________________________

                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Warrant Certificate)


- -------------------------------

- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)



                              DELCATH SYSTEMS, INC.

                             a Delaware corporation


                                       and


                     American Stock Transfer & Trust Company
                                  Warrant Agent


                                       and

                           Whale Securities Co., L.P.
                                   Underwriter




                                WARRANT AGREEMENT






                                         Table of Contents
                                         -----------------







Section                                                                                                        Page
- -------                                                                                                        ----

                                                                                                            
1.  Appointment of Warrant Agent.................................................................

2.  Form of Warrant .............................................................................

3.  Countersignature and Registration............................................................

4.  Transfers and Exchanges .....................................................................

5.  Exercise of Warrants; Payment of Warrant Solicitation Fee....................................

6.  Payment of Taxes ............................................................................

7.  Mutilated or Missing Warrants Warrants ......................................................

8.  Reservation of Common Stock .................................................................

9.  Warrant Price; Adjustments ..................................................................

10.  Fractional Interest ........................................................................

11.  Notices to Warrantholders ..................................................................

12.  Disposition of Proceeds on Exercise of Warrants.............................................

13.  Redemption of Warrants......................................................................

14.  Merger or Consolidation or Change of Name of
         Warrant Agent...........................................................................

15.  Duties of Warrant Agent.....................................................................

16.  Change of Warrant Agent.....................................................................

17.  Identity of Transfer Agent .................................................................

18.  Notices ....................................................................................

20.  New York Contract ..........................................................................

21.  Benefits of this Agreement .................................................................

22.  Successors .................................................................................

           Exhibit A - Form of Warrant ..........................................................






     WARRANT AGENT AGREEMENT dated as of October , 2000, by and among Delcath
Systems, Inc., a Delaware corporation (the "Company"), Whale Securities Co.,
L.P. (the "Underwriter") and American Stock Transfer & Trust Company, as warrant
agent (hereinafter called the "Warrant Agent").

     WHEREAS, the Company proposes to issue and sell to the public up to
1,380,000 units (the "Units") each Unit consisting of one share of the common
stock of the Company, par value $.01 per share (hereinafter, together with the
stock of any other class to which such shares may hereafter have been changed,
called "Common Stock"), and one Common Stock Purchase Warrant (the "Warrants");

     WHEREAS, each Warrant will entitle the holder to purchase one share of
Common Stock;

     WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:

     Section 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.




     Section 2. Form of Warrant. The text of the Warrants and of the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto. Each Warrant shall
entitle the registered holder thereof to purchase one share of Common Stock at a
purchase price of Six Dollars Sixty Cents ($6.60), at any time commencing on the
Separation Date (as hereinafter defined) until 5:00 p.m. Eastern time, on
October , 2005 (the "Warrant Exercise Period"). The securities comprising the
Units will become detachable and separately transferable commencing October ,
2005, or such earlier date as to which the Underwriter consents (the "Separation
Date"). The warrant price and the number of shares of Common Stock issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future Chief Executive Officer, President or Vice President of the Company,
attested to by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company.

     Warrants shall be dated as of the issuance by the Warrant Agent either upon
initial issuance or upon transfer or exchange.

     In the event the aforesaid expiration dates of the Warrants fall on a
Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange
is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on the next
succeeding business day.

     Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or

                                      -2-


by any successor to the Warrant Agent then acting as warrant agent under this
Agreement) and shall not be valid for any purpose unless so countersigned.
Warrants may, however, be so countersigned by the Warrant Agent (or by its
successor as Warrant Agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.

     Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock.

     Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.

     (a) Subject to the provisions of this Agreement, each registered holder of
Warrants shall have the right, which may be exercised commencing at the opening
of business on the first day of the Warrant Exercise Period, to purchase from
the Company (and the Company shall issue and sell to such registered holder of
Warrants) the number of fully paid and non-assessable shares of Common Stock
specified in such Warrants upon surrender of such Warrants to the Company at the
office of the Warrant Agent, with the form of election to purchase on the
reverse

                                      -3-


thereof duly filled in and signed, and upon payment to the Company of the
warrant price, determined in accordance with the provisions of Sections 9 and 10
of this Agreement, for the number of shares of Common Stock in respect of which
such Warrants are then exercised. Payment of such warrant price shall be made in
cash or by certified check or bank draft to the order of the Company. Subject to
Section 6, upon such surrender of Warrants and payment of the warrant price, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued, and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock, as of
the date of the surrender of such Warrants and payment of the warrant price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for a portion of the shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
shares of Common Stock specified therein at any time prior to the date of
expiration of the Warrants, a new Warrant or Warrants will be issued to the
registered holder for the remaining number of shares of Common Stock specified
in the Warrant so surrendered, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrants pursuant to
the provisions of this Section and of Section 3 of this Agreement and the
Company, whenever requested by the Warrant Agent, will supply the Warrant Agent
with Warrants duly executed on behalf of the Company for such purpose. Anything
in the foregoing to the contrary notwithstanding, no Warrant will be exercisable
unless at the time of exercise the Company has

                                      -4-


filed with the Securities and Exchange Commission a registration statement under
the Securities Act of 1933, as amended (the "Act"), covering the shares of
Common Stock issuable upon exercise of such Warrant and such shares have been so
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of such Warrant. The Company shall use its best
efforts to have all shares so registered or qualified on or before the date on
which the Warrants become exercisable.

     (b) If at the time of exercise of any Warrant after October , 2001 [one
year after the Effective Date] (i) the market price of the Company's Common
Stock is equal to or greater than the then purchase price of the Warrant, (ii)
the exercise of the Warrant is solicited by the Underwriter at such time while
the Underwriter is a member of the National Association of Securities Dealers,
Inc. ("NASD"), (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in documents provided to the
holders of the Warrants; and (v) the solicitation of the exercise of the Warrant
is not in violation of Regulation M (as such regulation or any successor
regulation or rule may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Underwriter shall be
entitled to receive from the Company upon exercise of each of the Warrant(s) so
exercised a fee of five percent (5%) of the aggregate price of the Warrants so
exercised (the "Exercise Fee"). The procedures for payment of the warrant
solicitation fee are set forth in Section 5(c) below.

     (c) (1) Within five (5) days of the last day of each month commencing with
October , 2001, the Warrant Agent will notify the Underwriter of each Warrant
Certificate which has been properly completed for exercise by holders of
Warrants during the last month. The Company and Warrant Agent shall determine,
in their sole and absolute discretion, whether a Warrant Certificate has been
properly completed. The Warrant Agent will provide the

                                      -5-


Underwriter with such information, in connection with the exercise of each
Warrant, as the Underwriter shall reasonably request.

         (2) The Company hereby authorizes and instructs the Warrant Agent to
deliver to the Underwriter the Exercise Fee promptly after receipt by the
Warrant Agent from the Company of a check payable to the order of the
Underwriter in the amount of the Exercise Fee. In the event that an Exercise Fee
is paid to the Underwriter with respect to a Warrant which the Company or the
Warrant Agent determines is not properly completed for exercise or in respect of
which the Underwriter is not entitled to an Exercise Fee, the Underwriter will
promptly return such Exercise Fee to the Warrant Agent which shall forthwith
return such fee to the Company.

     The Underwriter and the Company may at any time, after October , 2001, and
during business hours, examine the records of the Warrant Agent, including its
ledger of original Warrant certificates returned to the Warrant Agent upon
exercise of Warrants. Notwithstanding any provision to the contrary, the
provisions of paragraphs 5(b) and 5(c) may not be modified, amended or deleted
without the prior written consent of the Underwriter.

     Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of any certificates of shares of Common Stock in a name other
than that of the registered holder of Warrants in respect of which such shares
are issued, and in such case neither the Company nor the Warrant Agent shall be
required to issue or deliver any certificate for shares of Common Stock or any
Warrant until the person requesting the same has paid to the Company the amount
of such tax or has established to the Company's satisfaction that such tax has
been paid.

                                      -6-


     Section 7. Mutilated or Missing Warrants. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant,
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.

     Section 8. Reservation of Common Stock. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the shares of Common Stock and every subsequent transfer
agent for any shares of the Company's Common Stock issuable upon the exercise of
any of the rights of purchase aforesaid are irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares of Common
Stock as shall be required for such purpose. The Company agrees that all shares
of Common Stock issued upon exercise of the Warrants shall be, at the time of
delivery of the certificates of such shares, validly issued and outstanding,
fully paid and nonassessable and listed on any national securities exchange upon
which the other shares of Common Stock are then listed. So long as any unexpired
Warrants remain outstanding, the Company will file such post-effective
amendments to the registration statement (Form SB-2, Registration No. 333-39470)
(the "Registration

                                      -7-


Statement") filed pursuant to the Act with respect to the Warrants (or other
appropriate registration statements or post-effective amendment or supplements)
as may be necessary to permit it to deliver to each person exercising a Warrant,
a prospectus meeting the requirements of Section 10(a)(3) of the Act and
otherwise complying therewith, and will deliver such a prospectus to each such
person. To the extent that during any period it is not reasonably likely that
the Warrants will be exercised, due to market price or otherwise, the Company
need not file such a post-effective amendment during such period. The Company
will keep a copy of this Agreement on file with the transfer agent for the
shares of Common Stock and with every subsequent transfer agent for any shares
of the Company's Common Stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.

     Section 9. Warrant Price; Adjustments.

     (a) The warrant price at which Common Stock shall be purchasable upon the
exercise of the Warrants shall be $6.60 per share or after adjustment, as
provided in this Section, shall be such price as so adjusted (the "Warrant
Price").

                                      -8-


     (b) The Warrant Price shall be subject to adjustment from time to time as
follows:

         (i) In case the Company shall at any time after the date hereof pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, then upon such dividend or distribution the Warrant Price in effect
immediately prior to such dividend or distribution shall forthwith be reduced to
a price determined by dividing:

             (A) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Warrant Price in effect immediately prior to such dividend or distribution, by

             (B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.

     For the purposes of any computation to be made in accordance with the
provisions of this Section 9(b)(i), the following provisions shall be
applicable: Common Stock issuable by way of dividend or other distribution on
any stock of the Company shall be deemed to have been issued immediately after
the opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution.

         (ii) In case the Company shall at any time subdivide or combine the
outstanding Common Stock, the Warrant Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination to
the nearest one cent. Any such adjustment shall become effective at the time
such subdivision or combination shall become effective.

                                      -9-


         (iii) Within a reasonable time after the close of each quarterly fiscal
period of the Company during which the Warrant Price has been adjusted as herein
provided, the Company shall:

             (A) file with the Warrant Agent a certificate signed by the Chief
Executive Officer, President or Vice President of the Company and by the
Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of
the Company, showing in detail the facts requiring all such adjustments
occurring during such period and the Warrant Price after each such adjustment;
and

             (B) the Warrant Agent shall have no duty with respect to any such
certificate filed with it except to keep the same on file and available for
inspection by holders of Warrants during reasonable business hours, and the
Warrant Agent may conclusively rely upon the latest certificate furnished to it
hereunder. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making any such adjustment, or with respect to
the nature or extent of the property or securities deliverable hereunder. In the
absence of a certificate having been furnished, the Warrant Agent may
conclusively rely upon the provisions of the Warrants with respect to the Common
Stock deliverable upon the exercise of the Warrants and the applicable Warrant
Price thereof.

         (iv) Notwithstanding anything contained herein to the contrary, no
adjustment of the Warrant Price shall be made if the amount of such adjustment
shall be less than $.05, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to not less than $.02.

                                      -10-


         (v) In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in Common Stock or by a subdivision of
the outstanding Common Stock, then, from and after the time at which the
adjusted Warrant Price becomes effective pursuant to Subsection (b) of this
Section by reason of such dividend or subdivision, the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares. In the event that the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding Common Stock, then, from and after the time at which the adjusted
Warrant Price becomes effective pursuant to this Section 9(b) by reason of such
combination, the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be decreased in proportion to such decrease in the
outstanding shares of Common Stock.

         (vi) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant shall then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring between the date of this Warrant Agreement and the date of exercise of
such Warrant.

                                      -11-


         (vii) Subject to the provisions of this Section 9, in case the Company
shall, at any time prior to the exercise of the Warrants, make any distribution
of its assets to holders of its Common Stock as a liquidating or a partial
liquidating dividend, then the holder of Warrants who exercises its Warrants
after the record date for the determination of those holders of Common Stock
entitled to such distribution of assets as a liquidating or partial liquidating
dividend shall be entitled to receive for the Warrant Price per Warrant, in
addition to each share of Common Stock, the amount of such distribution (or, at
the option of the Company, a sum equal to the value of any such assets at the
time of such distribution as determined by the Board of Directors of the Company
in good faith), which would have been payable to such holder had he been the
holder of record of the Common Stock receivable upon exercise of its Warrant on
the record date for the determination of those entitled to such distribution.

         (viii) In case of the dissolution, liquidation or winding up of the
Company, all rights under the Warrants shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.

         (ix) In case the Company shall, at any time prior to the expiration of
the Warrants and prior to the exercise thereof, offer to the holders of its
Common Stock any rights to subscribe for additional shares of any class of the
Company, then the Company shall

                                      -12-


give written notice thereof to the last registered holder thereof not less than
thirty (30) days prior to the date on which the books of the Company are closed
or a record date is fixed for the determination of the stockholders entitled to
such subscription rights. Such notice shall specify the date as to which the
books shall be closed or record date fixed with respect to such offer of
subscription and the right of the holder thereof to participate in such offer of
subscription shall terminate if the Warrant shall not be exercised on or before
the date of such closing of the books or such record date.

         (x) Any adjustment pursuant to the aforesaid provisions of this Section
9 shall be made on the basis of the number of shares of Common Stock which the
holder thereof would have been entitled to acquire by the exercise of the
Warrant immediately prior to the event giving rise to such adjustment.

         (xi) Irrespective of any adjustments in the Warrant Price or the number
or kind of shares purchasable upon exercise of the Warrants, Warrants previously
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the similar Warrants initially issuable pursuant to
this Warrant Agreement.

         (xii) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make any
computation required under this Section 9, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 9.

         (xiii) If at any time, as a result of an adjustment made pursuant to
Section 9(b)(vi) above, the holders of a Warrant or Warrants shall become
entitled to purchase any securities other than shares of Common Stock,
thereafter the number of such securities so

                                      -13-


purchasable upon exercise of each Warrant and the Warrant Price for such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Sections 9(b)(ii) through (v).

     Section 10. Fractional Interest. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrant holder exercises all Warrants then owned of record by it and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrant holder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the market value of the Common
Stock of the Company on the last trading day prior to the exercise date.

     Section 11. Notices to Warrantholders.

     (a) Upon any adjustment of the Warrant Price and the number of shares of
Common Stock issuable upon exercise of a Warrant, then and in each such case the
Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. The Company
shall also mail such notice to the holders of the Warrants at their addresses
appearing in the Warrant register. Failure to give or mail such notice, or any
defect therein, shall not affect the validity of the adjustments.

     (b) In case at any time:

         (i) the Company shall pay dividends payable in stock upon its Common
Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock; or

                                      -14-


         (ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
or

         (iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale or substantially all of its assets to, another corporation; or

         (iv) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; then in any one or more of such cases, the Company
shall give written notice in the manner set forth in Section 11(a) of the date
on which (A) a record shall be taken for such dividend, distribution or
subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 11(b).

     (c) The Company shall cause copies of all financial statements and reports,
proxy statements and other documents that are sent to its stockholders to be
sent by first-class mail, postage prepaid, on the date of mailing to such
stockholders, to each registered holder of Warrants at his address appearing in
the warrant register as of the record date for the determination of the
stockholders entitled to such documents.

                                      -15-


     Section 12. Disposition of Proceeds on Exercise of Warrants.

         (i) The Warrant Agent shall promptly forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock through
the exercise of such Warrants; provided, however, that the Warrant Agent may
retain an amount equal to the Exercise Fee, if any, until the Company has
satisfied its obligations under Section 5(c)(2).

         (ii) The Warrant Agent shall keep copies of this Agreement available
for inspection by holders of Warrants during normal business hours.

     Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company, in whole or in part, on not less than thirty (30) days' prior written
notice at a redemption price of $.10 per Warrant at any time commencing on the
Separation Date; provided that (i) the closing bid quotation of the Common Stock
on all twenty (20) trading days ending on the third trading day prior to the day
on which the Company gives notice (the "Call Date") of redemption has been at
least 150% of the then effective exercise price of the Warrants (the "Target
Redemption Price") and the Company obtains the written consent of the
Underwriter with respect to such redemption prior to the Call Date and (ii) the
Warrants are currently exercisable. The redemption notice shall be mailed to the
holders of the Warrants at their addresses appearing in the Warrant register.
Holders of the Warrants will have exercise rights until the close of business on
the date fixed for redemption.

     Section 14. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company which may succeed to the corporate trust business of the
Warrant Agent by any merger or consolidation or otherwise shall be the successor
to the Warrant Agent

                                      -16-


hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible to serve as a successor Warrant Agent under the provisions of Section
16 of this Agreement. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement, any of the Warrants shall
have been countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent and deliver
such Warrants so countersigned.

     In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in the Agreement.

     Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:

         (a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.

         (b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants in this Agreement or in the Warrants
to be complied with by the Company.

                                      -17-


         (c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.

         (d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.

         (e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.

         (f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expenses unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights

                                      -18-


of action under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding, and any such action, suit
or proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrants, as their respective rights and interests
may appear.

         (g) The Warrant Agent and any stockholder, director, officer, partner
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.

         (h) The Warrant Agent shall act hereunder solely as agent and its
duties shall be determined solely by the provisions hereof.

         (i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.

         (j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its Chief Executive Officer, President or a Vice President or its
Secretary or an Assistant

                                      -19-


Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company.

         Section 16. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and the like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or after the
Company has received such notice from a registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company), then
the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under New York
or federal law. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
cancelled Warrants, records and property at the time held by it

                                      -20-


hereunder, and execute and deliver any further assurance or conveyance necessary
for the purpose. Failure to file or mail any notice provided for in this
Section, however, or any defect therein, shall not affect the validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
Warrant Agent, as the case may be.

         Section 17. Identity of Transfer Agent. Forthwith upon the appointment
of any transfer agent for the shares of Common Stock or of any subsequent
transfer agent for the shares of Common Stock or other shares of the Company's
Common Stock issuable upon the exercise of the rights of purchase represented by
the Warrants, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.

         Section 18. Notices. Any notice pursuant to this Agreement to be given
by the Warrant Agent, by the Underwriter or by the registered holder of any
Warrant to the Company, shall be sufficiently given if sent by first-class mail,
postage prepaid, addressed (until another is filed in writing by the Company
with the Warrant Agent) as follows:

                                         Delcath Systems, Inc.
                                         51100 Summer Street
                                         Stamford, Connecticut  06905

                                         Attention: M.S. Koly
                                             Chief Executive Officer

                  and a copy thereof to:

                                         Morse, Zelnick, Rose & Lander LLP
                                         450 Park Avenue
                                         New York, New York 10022

                                         Attention: Stephen A. Zelnick, Esq.

                  Any notice pursuant to this Agreement to be given by the
Company, by the Underwriter or by the registered holder of any Warrant to the
Warrant Agent shall be sufficiently

                                      -21-


given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:

                                         American Stock Transfer & Trust Company
                                         40 Wall Street
                                         New York, New York 10005

                                         Attention:  Michael Karfunkel

         Any notice pursuant to this Agreement to be given by the Warrant Agent
or by the Company to the Underwriter shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address if filed in
writing with the Warrant agent) as follows:


                                         Whale Securities Co., L.P.
                                         650 Fifth Avenue
                                         New York, New York 10019
                                         Attention: William G. Walters

                  and a copy thereof to:

                                         Blank Rome Tenzer Greenblatt LLP
                                         405 Lexington Avenue
                                         New York, New York 10174
                                         Attention: Robert J. Mittman, Esq.

         Section 19. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interest of the holders of Warrants.

         Section 20. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and

                                      -22-


shall be construed in accordance with the laws of New York applicable to
agreements to be performed wholly within New York.

         Section 21. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.

         Section 22. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrant Agent or the
Underwriter shall bind and inure to the benefit of their respective successors
and assigns hereunder.

         IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

                                 DELCATH SYSTEMS, INC.

                                 By:
                                    --------------------------------------------
                                      Name:
                                      Title:

                                 AMERICAN STOCK TRANSFER & TRUST COMPANY

                                 By:
                                    --------------------------------------------
                                      Name:
                                      Title:

                                 WHALE SECURITIES CO., L.P.

                                 By: Whale Securities Corp.,
                                       General Partner

                                 By:
                                    --------------------------------------------
                                      Name:
                                      Title:





                                                                     Exhibit 5.1


                       Morse, Zelnick, Rose & Lander, LLP
                           450 Park Avenue - Room 902
                               New York, NY 10022
                               Tel: (212) 838-1177
                               Fax: (212) 838-9190


                                                                  (212) 838-1177

                                October 12, 2000


Delcath Systems, Inc.
1100 Summer Street
Stamford, CT  06905

Dear Sirs:

         We have acted as counsel to Delcath Systems, Inc., a Delaware
corporation (the "Company") in connection with the preparation of a registration
statement on Form SB-2, (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), to register the offering by (a) the Company of (i) 1,200,000 Units, each
Unit consisting of one share of Common Stock and one Warrant to purchase a share
of Common Stock (the "Warrants") (and the offering of an additional 180,000
Units if the over-allotment option is exercised); (ii) 1,200,000 shares of
Common Stock included in the Units (and an additional 180,000 shares if the over
allotment Option is exercised), (iii) 1,200,000 Warrants included in the Units
(and an additional 180,000 Warrants if the over-allotment option is exercised),
(iv) 1,800,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Units (and an additional 180,000 shares if the over-allotment
option is exercised), (v) an option (the "Underwriter's Option) to purchase
180,000 Units, (vi) 120,000 Units issuable on exercise of the Underwriter's
Option, (vii) 120,000 shares of Common Stock included in the Units underlying
the Underwriter's Option, (viii) 120,000 Warrants included in Units underlying
Underwriter's Option, (ix) 120,000 shares of Common Stock issuable upon exercise
of the Warrants included in the Units underlying the Underwriter's Option, and
any and all amendments to the Registration Statement, and any Registration
Statements for any additional Units, shares of Common Stock, Warrants, Common
Stock underlying the Units, Warrants underlying the Units, Common Stock
underlying the Warrants, Underwriter's Option, Units underlying the
Underwriter's Option, Common Stock underlying such Units, Warrants underlying
such Units and Common Stock underlying such Warrants, pursuant to Rule 462(b) of
the Act.

         In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the proposed form of the Warrants and the
Underwriter's Option, the other exhibits to the Registration Statement and such
other records, documents, statutes and decisions as we have deemed relevant in
rendering this opinion. Based upon the foregoing, we are of the opinion that:




         Each Unit, each share of Common Stock included in the Units being
offered, each Warrant included in the Units being offered, each share of Common
Stock underlying such Warrants, (and as for any over-allotment option each Unit
issued upon the exercise of such option, share of Common Stock included in such
Units, each Warrant included in the Units being offered, and each share of
Common Stock underlying such Warrants) the Underwriter's Option, the Units
issuable upon exercise of the Underwriter's option, the Common Stock underlying
those Units, the Warrants underlying those Units, and the Common Stock
underlying those Warrants being offered pursuant to the Registration Statement
and all amendments thereto and any Registration Statements pursuant to Rule
462(b) of the Act for additional Units, shares of Common Stock underlying such
Units, Warrants underlying such Units, shares of Common Stock underlying such
Warrants, the Underwriter's Option, the Units issuable upon the exercise of such
option, the Common Stock underlying those Units, the Warrants underlying those
Units, and the Common Stock underlying those Warrants have been duly and validly
authorized for issuance and when issued as contemplated by the Registration
Statement or upon exercise of the Warrants or the Underwriter's Option, will be
legally issued, fully paid and non-assessable.

         We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and any and all amendments thereto, and any Registration
Statements pursuant to Rule 462(b) of the Act for any additional Units, shares
of Common Stock, Warrants, shares of Common Stock underlying the Warrants and
Underwriter's Option (including the Units issuable upon the exercise of the
Underwriter's Option, the Common Stock underlying these Units, the Warrants
underlying these Units and the shares of Common Stock underlying these Warrants.
In giving such opinion, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act or the
rules or regulations of the Securities and Exchange Commission thereunder.
Members of this firm or their affiliates own an aggregate of 85,060 shares of
Common Stock of the Company.

                                            Very truly yours,



                                            MORSE, ZELNICK, ROSE & LANDER, LLP



                                                                    EXHIBIT 23.1

                         Consent of Independent Auditors

The Board of Directors
Delcath Systems, Inc.

We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.

                                                                KPMG LLP
New York, New York
October 12, 2000