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As filed with the Securities and Exchange Commission on April 9, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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CEPHALON, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
23-2484489
(I.R.S. Employer Identification No.)
145 Brandywine Parkway
West Chester, PA 19380
(610) 344-0200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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BARBARA S. SCHILBERG
Cephalon, Inc.
Senior Vice President and General Counsel
145 Brandywine Parkway
West Chester, PA 19380
(610) 344-0200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
David R. King, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
(215) 963-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE PRICE REGISTRATION FEE
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Common Stock, $.01 par value........ 500,000 $18.6875 (1) $9,343,750.00 $2,832.00
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</TABLE>
(1) Based on the average of the reported high and low sale prices of the Common
Stock reported on the Nasdaq National Market on April 4, 1997, estimated
solely for the purpose of calculating the registration fee pursuant to Rule
457(c).
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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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED APRIL 9, 1997
PROSPECTUS
500,000 SHARES
CEPHALON, INC.
COMMON STOCK
Cephalon, Inc. ("Cephalon" or the "Company") is offering hereby up to
500,000 shares (the "Shares") of its Common Stock, $.01 par value per share (the
"Common Stock").
Swiss Bank Corporation, London Branch ("SBC") has advised the Company that
the Shares may be sold from time to time to or through its affiliate SBC Warburg
Inc. ("SBC Warburg") primarily in transactions (which may include block
transactions) in the over-the-counter market at prices then prevailing, or in
negotiated transactions. SBC and SBC Warburg and any other brokers and dealers
through whom sales of Shares may be made may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and their commissions or discounts and other compensation may be regarded
as underwriters' compensation. See "Plan of Distribution."
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "CEPH." On April 4, 1997, the last reported sale price of the Common
Stock was $19.625 per share.
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 4 THROUGH 16 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
regional offices of the Commission: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Commission by mail at prescribed rates. Requests should be directed to the
Commission's Public Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material also may be accessed electronically by
means of the Commission's home page on the Internet (http://www.sec.gov). In
addition, such reports, proxy statements and other information concerning the
Company can be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-19119) with the Commission are incorporated herein by reference.
(a) Annual Report on Form 10-K/A-2 for the fiscal year ended December 31,
1996 filed with the Commission on April 4, 1997.
(b) Current Report on Form 8-K dated January 16, 1997.
(c) Current Report on Form 8-K dated April 8, 1997.
(d) The Company's Proxy Statement related to its 1997 Annual Meeting of
Stockholders filed under the Exchange Act on March 26, 1997.
(e) The description of the Company's Common Stock which is contained in
its Registration Statement on Form 8-A filed under the Exchange Act on
March 15, 1991, including any amendment or reports filed for the purpose
of updating such description.
(f) The description of rights to purchase Series A Junior Participating
Preferred Shares, par value $.01 per share, which is contained in the
Company's Registration Statement on Form 8-A filed under the Exchange
Act on November 22, 1993, including any amendment or reports filed for
the purpose of updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities remaining unsold, shall be
deemed incorporated by reference herein and to be a part hereof from the date of
the filing of such reports and documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Jason Rubin, Vice President, Corporate Communications, Cephalon,
Inc., 145 Brandywine Parkway, West Chester, PA 19380, (610) 344-0200.
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Myotrophin(R) and Provigil(R) are trademarks of Cephalon, Inc. Cephalon has
registered or filed applications to register the trademarks in the United States
and certain other countries. All other trademarks and registered marks in this
Prospectus are the property of their respective holders.
Unless the context otherwise requires, "Cephalon" or the "Company" refers
to Cephalon, Inc. and its wholly-owned subsidiaries.
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THE COMPANY
Cephalon seeks to discover and develop pharmaceutical products for the
treatment of neurological disorders. The Company's research and development
efforts focus primarily on neurodegenerative diseases, which are characterized
by the death of neurons, the specialized conducting cells of the nervous system.
The Company utilizes its technical expertise in molecular biology, molecular
pharmacology, biochemistry, cell biology and chemistry to develop products in
four core technology areas: neurotrophic factors, protease inhibitors, signal
transduction modulators and regulators of gene transcription. Cephalon believes
that its multidisciplinary technology approach provides the basis for the
development of a portfolio of potential products for the treatment of
neurodegenerative disorders such as amyotrophic lateral sclerosis ("ALS" or "Lou
Gehrig's disease"), peripheral neuropathies, Alzheimer's disease and stroke.
Cephalon's business strategy includes forming alliances with other
pharmaceutical companies where collaborations can provide strategic advantages
in technological, financial, marketing, manufacturing and other areas. In these
arrangements, the Company seeks, where appropriate, to retain the rights to
co-promote or otherwise share in the marketing of products, particularly to
neurologists. The Company also seeks to selectively in-license late stage
compounds for development.
The Company has established a 36-person sales organization in the United
States focusing on neurologists, which is presently co-promoting two
Bristol-Myers Squibb Company ("BMS") proprietary products, Stadol NS(R)
(butorphanol tartrate), for the management of pain when the use of an opioid
analgesic is appropriate and Serzone(R) (nefazodone hydrochloride), which is
indicated for the treatment of depression.
The Company has not received approval from any regulatory authority to
market any drug candidate. Two new drug applications ("NDA") have been submitted
by the Company to the U.S. Food and Drug Administration ("FDA"): one for the use
of MYOTROPHIN(R) (rhIGF-I) in treating ALS, and one for the use of PROVIGIL(R)
(modafinil) in treating the excessive daytime sleepiness associated with
narcolepsy. Additionally, marketing applications for PROVIGIL (modafinil) are
pending in the United Kingdom and the Republic of Ireland, and a marketing
authorization application for MYOTROPHIN (rhIGF-I) is being prepared for filing
in Europe. There can be no assurance that the applications will be approved or
that the Company will successfully commercialize any of its potential products.
Cephalon was incorporated in Delaware in August 1987. The Company's
executive offices and research facility are located at 145 Brandywine Parkway,
West Chester, PA 19380, and its telephone number is (610) 344-0200.
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider the following factors in evaluating the Company and
its business before purchasing any of the Common Stock offered hereby.
UNCERTAINTIES RELATED TO MYOTROPHIN(R) (RHIGF-I) PHASE III REGULATORY
SUBMISSIONS
In 1995, the Company submitted to the FDA a treatment investigational new
drug application ("T-IND") to permit expanded access to MYOTROPHIN (rhIGF-I) by
patients in the United States suffering from ALS. The FDA referred the
application to the Peripheral and Central Nervous System Drugs Advisory
Committee (the "Advisory Committee"), which held a public hearing in June 1996
to review data from two Phase III studies, one conducted in North America and
one in Europe, for purposes of recommending to the FDA whether there was
sufficient evidence to support use of MYOTROPHIN (rhIGF-I) under a T-IND. At the
hearing, representatives of the FDA indicated their disagreement with the
Company's various analyses of the European study and their opinion that the
study failed to support the results of the North American study. At the
conclusion of the Advisory Committee hearing, the panel members unanimously
recommended approval of the T-IND.
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The FDA approved the T-IND application on June 19, 1996. The FDA's approval
letter noted the views of several Advisory Committee members expressed at the
hearing, including the chairman, concerning the need for an additional study to
support an NDA, and invited Cephalon and Chiron Corporation ("Chiron") to work
with the FDA to develop plans for future studies. The Company continues to
believe that the two completed studies show the beneficial treatment effect of
MYOTROPHIN (rhIGF-I) in ALS patients particularly those with more rapidly
progressing disease and, in collaboration with Chiron, filed an NDA with the FDA
in February 1997 requesting that MYOTROPHIN (rhIGF-I) be approved for the
treatment of ALS in the United States. There can be no assurance that the FDA
will ultimately grant authorization to commercialize MYOTROPHIN (rhIGF-I) in the
United States on the basis of the results of the two completed studies. The FDA
has scheduled a meeting of the Advisory Committee to be held on May 8, 1997 to
review the NDA for MYOTROPHIN (rhIGF-I). The Company has indicated its
willingness to conduct additional studies of MYOTROPHIN (rhIGF-I) as a
post-approval activity. If the FDA were to require additional data prior to
approval of MYOTROPHIN (rhIGF-I) for commercialization, there can be no
assurance that the Company and Chiron would be willing or able to conduct any
study as a Phase III activity or that the results of such study, if conducted,
would be positive. A new study also would be expensive and would take several
years to complete.
Because ALS is a fatal disease, it is expected that some mortalities will
occur while conducting clinical trials in ALS patients. During the double-blind
portion of the European study, an imbalance in death rates was observed in the
drug-treated group compared to the placebo-treated group. The Company believes
that mortalities observed in the North American and European clinical studies
are due to the normal progression of the disease or other circumstances not
attributable to MYOTROPHIN (rhIGF-I). The Company is continuing to furnish
MYOTROPHIN (rhIGF-I) to patients who participated in the ALS studies, to
patients in its Phase II program in peripheral neuropathies, and to patients
under the recently initiated T-IND program. FDA regulations require the
reporting of all patient adverse events (including deaths) experienced in
ongoing trials. There can be no assurance that any such event previously
reported by the Company, or which may occur in the future, will not delay or
prevent the approval of MYOTROPHIN (rhIGF-I) or result in any subsequent FDA
action adverse to the interests of the Company.
The efficacy and safety data from the North American and European studies
of MYOTROPHIN (rhIGF-I) have not yet been formally reviewed by any regulatory
authority outside the United States. The companies are preparing a marketing
authorization application for filing in Europe. If foreign regulatory
authorities do not agree with the Company's interpretation of the results from
the two studies, one or more additional positive studies might be required to be
completed and submitted before MYOTROPHIN (rhIGF-I) could be marketed in such
territories.
There can be no assurance that any regulatory authority will accept the
North American and European studies as evidence of sufficient safety and
efficacy to support marketing approval or that MYOTROPHIN (rhIGF-I) will receive
marketing approval in any jurisdiction for any indication. A delay in obtaining
approval or a failure to obtain any approval for MYOTROPHIN (rhIGF-I) would
materially adversely affect the Company's business and the price of the Common
Stock. See "Volatility of Stock Price; No Dividends".
UNCERTAINTIES RELATED TO PROVIGIL(R) (MODAFINIL) PHASE III REGULATORY
SUBMISSIONS
The Company recently submitted an NDA with the FDA requesting that PROVIGIL
(modafinil) be approved for the treatment of the excessive daytime sleepiness
associated with narcolepsy, based on the results of two Phase III studies
conducted in the United States. There can be no assurance that the FDA or other
regulatory authorities will determine that the results generated from the
Company's clinical trials demonstrate sufficient safety and efficacy to permit
marketing approval.
The Company also is pursuing applications seeking authorization to market
PROVIGIL (modafinil) in the Republic of Ireland and the United Kingdom, which
are other territories licensed from Laboratoire L. Lafon ("Lafon"). The
regulatory authorities in both countries have requested that additional
information be provided with respect to the applications (which were filed by
Lafon under the multi-state procedures of the Committee for Proprietary
Medicinal Products ("CPMP")). There can be no assurance that the Company
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will be able to provide sufficient additional information in order to permit
approval of the applications. Even if those applications are approved, the
Company must also request permission to vary the applications with respect to
certain manufacturing procedures and other matters. There can be no assurance
that any regulatory approvals or variations will be obtained at all or in a
timely manner. The Company is in the process of establishing a sales force in
the U.K. and the Republic of Ireland to sell PROVIGIL (modafini1). Any delays in
accomplishing these activities could delay launch of the product, if it is
approved. The Company is required, under the terms of its license with Lafon, to
launch the product no later than three months after approval.
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT, REGULATORY APPROVAL AND
MARKETABILITY
The success of the Company depends to a large degree upon obtaining FDA and
foreign regulatory approval to market products currently under development.
Cephalon has had only limited experience in filing and pursuing applications
necessary to gain regulatory approvals. The Company's analysis and
interpretation of the results of the Company's clinical studies is subject to
confirmation and interpretation by regulatory authorities, which may differ from
the Company's analysis. There can be no assurance that the data or the Company's
interpretation of data will be accepted by any regulatory authority. In
addition, there can be no assurance that any application by the Company to
market a product will be reviewed in a timely manner or that approval to market
a product will be received from the appropriate regulatory authority.
TAP Holdings Inc. ("TAP") has begun a Phase I clinical study of a compound
being developed in collaboration with the Company for the treatment of various
cancers, including prostate cancer. The objective of the multi-center study is
to examine the drug's pharmacokinetic and safety profile in patients with
advanced cancer. Because the compound has never been tested in humans, the risk
of safety problems is unknown. There can be no assurance that the compound will
prove to be safe in humans, or that it will show any therapeutic benefit.
The results of preclinical and initial clinical trials of products under
development by the Company are not necessarily predictive of results that will
be obtained from large-scale clinical testing, and there can be no assurance
that clinical studies of products under development will demonstrate the safety
and efficacy of such products or will result in a marketable product. The safety
and efficacy of a therapeutic product under development by the Company generally
must be supported by statistically significant positive results from Phase III
clinical trials, and the failure to obtain such results could prevent regulatory
approval of the product, which would have a material adverse effect on the
Company.
Even if MYOTROPHIN (rhIGF-I) and PROVIGIL (modafinil) are approved for
commercialization, the Company can not predict at this time the potential
revenues to be received from sales of MYOTROPHIN (rhIGF-I) for use in treating
ALS or from sales of PROVIGIL (modafinil) for use in connection with narcolepsy.
Once approved, there can be no assurance that such products will be accepted and
prescribed by physicians. Moreover, ALS and narcolepsy each qualify as orphan
diseases under the Orphan Drug Law, which generally means that the potential
patient population for each indication is limited.
The administration of any product developed by the Company may produce
undesirable side effects in humans. The occurrence of such side effects could
interrupt or delay clinical studies of such products and could ultimately
prevent their approval by the FDA or foreign regulatory authorities for any or
all targeted indications. The Company or the FDA may suspend or terminate
clinical trials at any time if it is believed that the people participating in
such trials are being exposed to unacceptable health risks. Even after approval
by the FDA and foreign regulatory authorities, products may later exhibit
adverse effects that prevent their widespread use or necessitate their
withdrawal from the market. There can be no assurance that any products under
development by the Company will be safe when administered to patients.
The results of clinical studies of product candidates under development by
the Company which are conducted by collaborators of the Company, including
studies of rhIGF-I being conducted by the Company's licensee in Japan and
clinical studies of modafinil being conducted by Lafon and its licensees in
other countries, are required to be reported by the Company to the FDA and other
regulatory authorities. The reporting of the results of these other studies, if
negative, could adversely affect the regulatory review of the Company's product
approval applications. Negative results from trials by third parties or negative
assessments
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from regulatory authorities would adversely affect the Company's business and
the price of its Common Stock. See "Volatility of Stock Price; No Dividends."
NEED FOR ADDITIONAL FUNDS
The Company expects its negative cash flow to continue due to funding of
research, development, clinical trial, regulatory filing and other costs. In
addition, selling, general and administrative activities in the United States
and Europe may be expanded as the Company evaluates the potential for obtaining
regulatory approvals of MYOTROPHIN (rhIGF-I) and PROVIGIL (modafinil). Any such
expansion would require substantial funding. The Company may also build
inventories of MYOTROPHIN (rhIGF-I) and PROVIGIL (modafinil), which also would
require substantial funding. The capital required to fund the Company's
operations for 1997 may be greater than that of the prior year. The amount
needed to fund operations will depend upon many factors, including the success
of the Company's research and development programs, the extent of any
collaborative research or other funding arrangements, the costs and timing of
seeking regulatory approvals, if any, of its products, technological changes,
competition and the success of the Company's sales and marketing activities.
Schering-Plough Corporation ("Schering") recently decided to conclude its
funding of the research program with the Company related to amyloid protease
inhibitors and Alzheimer's disease. The Company intends to continue the program
using its own resources. Under the terms of its agreement with Schering, the
Company may not conduct the same research program with a third party until the
end of 1997.
In August 1992, Cephalon exclusively licensed to Cephalon Clinical
Partners, L.P. (the "Partnership") rights to MYOTROPHIN (rhIGF-I) for human
therapeutic use within the United States, Canada and Europe (the "Territory") in
return for a non-refundable license fee of $500,000. Through a concurrent
offering of 900 limited partnership interests, the Partnership raised
approximately $38,714,000 in net proceeds (payable to the Partnership in annual
installments, the last of which was paid in August 1995) which it used to fund
the development of MYOTROPHIN (rhIGF-I). The Partnership exhausted its available
funding in 1995. Since that time, the Company has been funding the continued
development of MYOTROPHIN (rhIGF-I) from its own cash resources. The Partnership
granted the Company an exclusive license (the "Interim License") to manufacture
and market MYOTROPHIN (rhIGF-I) within the Territory in return for certain
royalty payments and a payment of approximately $16,000,000 (the "Milestone
Payment") that is to be made if MYOTROPHIN (rhIGF-I) receives regulatory
approval in the United States or certain other countries within the Territory.
The Company has a contractual option to purchase all of the limited partnership
interests in the Partnership (the "Purchase Option").
If the Company is required to make the Milestone Payment and elects to do
so in cash, or if it elects to exercise its contractual option to purchase the
limited partnership interests in the Partnership for cash, as described below
under "Partnership Purchase Option," the Company will be required to make a
substantial cash payment. The Company may consider the purchase of some or all
of the remaining partnership interests other than through exercise of the
Purchase Option. The Company expects that the cost per interest associated with
any such purchase would be substantially greater than the cost incurred in the
1995 purchase of 67 limited partner interests and that, if the Company were to
elect to purchase some or all of the partnership interests in cash, significant
funds could be required.
If the Company does not exercise the Purchase Option or continue funding
the development of MYOTROPHIN (rhIGF-I), its license will terminate and all
rights to manufacture or market MYOTROPHIN (rhIGF-I), in the Territory will
revert to the Partnership, which may then commercialize MYOTROPHIN (rhIGF-I)
itself or license or assign its rights to a third party. The Company would not
receive any benefits from such commercialization.
The Company is obligated under various debt instruments to make principal
and interest payments to various state agencies and banks. Many of these
agreements contain restrictive covenants relating to, among other things, the
maintenance of minimum levels of working capital and limitations on the
incurrence of additional indebtedness that may limit the Company's flexibility
in utilizing its existing financial resources.
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To satisfy its capital requirements, including its continued funding of
MYOTROPHIN (rhIGF-I) and other programs, the Company may seek to access the
public or private equity markets whenever conditions are favorable. The Company
also intends to seek additional funding through corporate collaborations and
other financing vehicles, potentially including "off-balance sheet" financings
through limited partnerships or corporations. There can be no assurance that
such funding will be available at all or on terms acceptable to the Company. If
adequate funds are not available, the Company may be required to significantly
curtail one or more of its research or development programs or obtain funds
through arrangements with existing or future collaborative partners or others
that may require the Company to relinquish rights to certain of its
technologies, product candidates or products.
HISTORY OF OPERATING LOSSES
The Company has not received revenue from the sale of any product developed
by the Company, and has accumulated aggregate losses of $157,967,000 from
inception through December 31, 1996. The Company expects to continue to incur
operating losses unless and until such time as product approvals are obtained
and product sales, if any, exceed operating expenses. The revenues to be
received and costs to be incurred by the Company depend to a large degree on the
results of regulatory actions with respect to the two NDAs recently filed with
the FDA with respect to MYOTROPHIN (rhIGF-I) and PROVIGIL (modafinil) and other
product programs. A majority of the Company's revenues to date have been under
agreements with collaborative partners and the Partnership. The Company expects
to have significant fluctuations in quarterly results based on the level and
timing of recognition of contract revenues and the incurrence of expenses. See
"Dependence on Collaborative Partners." Since the formation of the Partnership,
the Partnership has funded a significant portion of the expenses related to the
development of MYOTROPHIN (rhIGF-I). Due to the funding limitations of the
Partnership, the Company has not recognized revenue from this source since 1995.
Therefore, during that period, the Company funded the development of MYOTROPHIN
(rhIGF-I). In addition, if the Company were to make the Milestone Payment,
exercise the Purchase Option or purchase additional interests outside of the
Purchase Option, a material charge to earnings could result, depending upon the
development status of the underlying technology.
The Company and Chiron are currently developing MYOTROPHIN (rhIGF-I) for
the treatment of ALS and certain peripheral neuropathics. The costs of the
program generally are shared equally by the partners. Revenue or expense to be
recognized by the Company under the collaboration with Chiron will depend on the
relative costs incurred by the two companies.
The Company receives funding to support its research and development
activities conducted in collaboration with SmithKline Beecham plc ("SB") related
to calpain inhibitors, and with TAP, related to the use of certain compounds in
the treatment of cancers, including prostate disease. The funding levels under
these agreements are based on a contract rate for each Cephalon employee
assigned to the program, subject to annual budgetary maximums. The continuation
of the research funding under the agreements with SB and TAP are subject to the
achievement of certain development milestones by the Company and periodic review
by these companies and may be terminated without cause with prior notice. There
can be no assurance that these research programs will be continued or that the
Company's expenses incurred in any of these programs will be fully reimbursed by
its collaborator. Should a collaborator elect to terminate a research program,
the Company's ability to recover costs and expenses proportionately is limited,
because a significant portion of the Company's research expenses, including
depreciation and facility costs, are fixed.
MANUFACTURING UNCERTAINTIES AND RELIANCE ON THIRD-PARTY SUPPLIERS
The Company's ability to conduct clinical trials on a timely basis, to
obtain regulatory approvals and to commercialize its products will depend in
part upon its ability to manufacture its products, either directly or through
third parties, at a competitive cost and in accordance with applicable FDA and
other regulatory requirements, including Good Manufacturing Practice ("GMP")
regulations. SB is responsible for the manufacture of any products developed
under its arrangement with the Company. Cephalon currently has no manufacturing
facilities of its own for clinical or commercial production of any products
under development.
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Cephalon will need to either construct and operate facilities for these products
or will have to find other manufacturing sources.
The MYOTROPHIN (rhIGF-I) currently being used in ongoing clinical trials
was produced at the Company's pilot-scale manufacturing facility in Beltsville,
Maryland (the "Beltsville Facility"). In November 1996, Cephalon sold the
Beltsville Facility. Chiron has completed a U.S. manufacturing facility (the
"Chiron Facility") to produce recombinant proteins at which the collaboration is
producing MYOTROPHIN (rhIGF-I). Once the existing inventory of material from the
Beltsville Facility has been depleted, the Chiron Facility will be the sole
source of supply for any commercial or clinical needs of MYOTROPHIN (rhIGF-I),
including any material which Cephalon may have to supply for use in Japan, as
well as for use in the Company's ongoing clinical trials. There can be no
assurance that Chiron will be able to produce adequate quantities of MYOTROPHIN
(rhIGF-I) in a cost-effective manner or, in the case of material purchased by
Cephalon for use outside the collaboration, on terms satisfactory to Cephalon.
The Company and Chiron will be required to demonstrate that the material
produced from the Chiron Facility is equivalent to the material used in the ALS
clinical trials, which was manufactured at the Beltsville Facility. Although,
based on the results of a bioequivalency study, the companies believe that the
material is equivalent, if regulatory authorities do not agree with that
assessment, regulatory approval of MYOTROPHIN (rhIGF-I) could be delayed.
The manufacturing facilities and operations of the Company and Chiron used
to produce MYOTROPHIN (rhIGF-I) are required to comply with all applicable FDA
requirements, including GMP regulations, and are subject to FDA inspection, both
before and after NDA approval, to determine compliance with those requirements.
The GMP regulations are complex, and failure to be in compliance could lead to
the need for remedial action, penalties and delay- in production of material
acceptable to the FDA. The Company has only limited experience in manufacturing
activities. There can be no assurance that the facilities for MYOTROPHIN
(rhIGF-I) have complied and will continue to comply with applicable
requirements. Should the Chiron Facility fail to operate for any reason or not
be able to produce sufficient quantities of MYOTROPHIN (rhIGF-I) in accordance
with applicable regulations, the collaboration would have to obtain MYOTROPHIN
(rhIGF-I) from another source. There can be no assurance that Cephalon or the
collaboration would be able to locate an alternative, cost-effective source of
supply of MYOTROPHIN (rhIGF-I).
If Chiron ceases its participation in the collaboration, Cephalon, under
certain circumstances, would have the right to purchase supplies of these
products from Chiron or it could have the manufacturing technology transferred
to Cephalon on a royalty basis. There can be no assurance that supplies of
products could be obtained from Chiron on a cost-effective basis, that Cephalon
would be able to manufacture the products itself in a cost-effective manner and
without an interruption of supplies or that a suitable alternative source of
MYOTROPHIN (rhIGF-I) could be located. Failure to locate an alternative supply
of MYOTROPHIN (rhIGF-I) could result in significant costs and delays to the
program, damage the commercial prospects for MYOTROPHIN (rhIGF-I) and have a
material adverse effect on the Company. Furthermore, the Company is aware of
patents and patent applications owned by third parties that may cover certain
aspects of the collaboration's current method of manufacturing MYOTROPHIN
(rhIGF-I). See "Patents and Proprietary Technology".
Kyowa Hakko Kogyo Co. Ltd. ("Kyowa Hakko") and Lafon are responsible for
manufacturing bulk compounds under the Company's respective agreement with each
company. The facilities used for manufacture of drug substance are required to
comply with all applicable FDA requirements, and are subject to FDA inspection
both before and after NDA approval. There can be no assurance that the
facilities or the material produced by Kyowa Hakko or Lafon will comply with
regulatory standards or that sufficient quantities will be available to meet the
Company's needs. If either Lafon or Kyowa Hakko were unable to supply the
Company with the applicable compound, Cephalon is permitted to make such
compound itself or to purchase it from third parties. There can be no assurance
that Cephalon would be able to manufacture any such compound, that a third-party
manufacturer could be located or that either alternative would be cost-
effective.
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The Company will be responsible for producing tablets or other forms of
finished product from the bulk compounds produced by Lafon and Kyowa Hakko.
There can be no assurance that a cost-effective commercial manufacturing process
can be developed. The Company has also entered into an agreement with a third
party to manufacture tablets for commercial use from bulk modafinil provided by
Lafon. There can be no assurance that such manufacturer will be able to make
sufficient quantities of tablets in accordance with appropriate FDA guidelines.
including GMP, and in a cost effective manner. Should such a manufacturer be
unable to supply tablets for any reason, there can be no assurance that the
Company would be able to identify a suitable alternative supplier at all or
without delaying the commercial launch of PROVIGIL (modafinil).
Under the Company's agreement with TAP, the Company is obligated to provide
finished product for use in clinical trials and ultimately for commercial
purposes. The Company has contracted with a third-party supplier to manufacture
material for use in clinical trials. The Company has not contracted for
synthesis of product for commercial use. There can be no assurance that the
Company can contract with a facility to manufacture finished products or enter
into a suitable third-party manufacturing arrangement for its commercial needs.
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company's collaborations with Chiron, SB, Kyowa Hakko, TAP and others
provide the Company with research funding, rights to technology and development,
marketing and manufacturing resources. These arrangements are subject to certain
rights of termination by the collaborator.
There can be no assurance that any funds received under these arrangements
will be sufficient, individually or in the aggregate, to cover the costs
incurred by the Company in support of the related collaborative programs.
Moreover, the amount and timing of resources to be devoted to these activities
by such partners is not within the control of the Company. There can be no
assurance that the interests of the Company will continue to coincide with those
of its collaborators or that the collaborators will not develop products
independently or with third parties which could compete with the Company's
products, or that disagreements over rights to technology or other proprietary
information will not occur. Further, there can be no assurance that the
collaborative agreements will be extended at the end of their respective terms.
If any of the Company's collaborators breaches or terminates its agreement with
the Company, or otherwise fails to conduct its collaborative activities in a
timely manner, the development or commercialization of the product candidate or
research program under such collaborative agreement may be delayed, the Company
may be required to undertake additional responsibilities or to devote previously
unanticipated additional resources to such development or commercialization, or
such development or commercialization could be terminated. Further, termination
of the agreements could result in the loss of certain technology rights. Any
such event could adversely affect the Company.
LIMITED SALES AND MARKETING EXPERIENCE; UNCERTAIN PRODUCT MARKETING AND
DISTRIBUTION ARRANGEMENTS
Cephalon has limited experience in the distribution, marketing and sale of
products. The Company has established a sales force in the United States which
initially is being used to co-promote Stadol NS and Serzone, approved products
of BMS, to neurologists in the United States. The co-promotion agreement expires
at the end of 1998 unless BMS and Cephalon elect to renew the arrangements.
There can be no assurance that additional products will be available for sale by
the Company's sales force or that Cephalon's sales and marketing efforts will be
successful. With respect to those products under development by Cephalon for
which it has retained marketing rights, Cephalon may choose to augment any of
its own sales efforts through sales and marketing arrangements with other
pharmaceutical companies. There can be no assurance that such marketing
arrangements will be available at all or on terms satisfactory to Cephalon or
that such arrangements will lead to the successful commercialization of
products.
Cephalon does not have a sales, marketing or distribution organization
outside the United States. The Company is in the process of establishing a sales
and marketing capability focusing on neurology in certain countries in Europe.
The Company's agreement with Lafon requires the Company to commence sales and
marketing activities within three months after receiving approval to market
PROVIGIL (modafinil) in the
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United Kingdom and the Republic of Ireland. If the Company fails to initiate
such activities within the specified time frame, its license could be terminated
by Lafon in the applicable country. There can be no assurance that the Company
will be able to establish a commercially viable sales, marketing and
distribution capability outside the United States in a timely or cost-effective
manner or at all.
Under the collaborative agreement with Chiron, the Company believes that
the existing Chiron distribution infrastructure will be used for MYOTROPHIN
(rhIGF-I). The Company is evaluating alternatives for the distribution of its
other product candidates.
PATENTS AND PROPRIETARY TECHNOLOGIES
An important part of the Company's product development strategy is to seek,
when appropriate protection for its product candidates and proprietary
technology through the use of various U.S. and foreign patents, trademarks and
contractual arrangements. The degree of the Company's success depends in part on
its ability to obtain patents, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. The Company
believes that patent protection of products or processes that may result from
the research and development efforts of the Company, its licensees or its
collaborators also is important
to the potential commercialization of the Company's product candidates. The
Company has filed various applications for U.S. and foreign patents, has
licensed various U.S. and foreign patent applications from third parties, and
owns or licenses certain U.S. and foreign patents.
With regard to MYOTROPHIN (rhIGF-I), the Company believes that the
composition of rhIGF-I is in the public domain and therefore cannot be patented
under a composition-of-matter patent. Cephalon has filed patent applications in
the United States, Canada, Europe and Japan covering the use of IGF-I in the
peripheral neuropathies and other neurological disorders. The issued patents and
all patent applications relating to IGF-I in the United States, Canada and
Europe have been licensed to the Partnership.
There can be no assurance that any of the Company's patent applications for
rhIGF-I uses will issue, that patents, if obtained, will be as broad in scope as
such patent applications or that the claims of any issued patents will withstand
challenge. Even in those jurisdictions where rhIGF-I is or may be covered by the
claims of a use patent, "off-label" sales by a third party might occur,
especially if another company markets rhIGF-I for other uses at a price that is
less than the price of MYOTROPHIN (rhIGF-I), thereby potentially reducing sales
of MYOTROPHIN (rhIGF-I). It is not always possible to detect "off-label" sales
and therefore enforcement of use patents can be difficult. Furthermore, some
jurisdictions outside of the United States restrict the manner in which patents
claiming uses of a product may be enforced.
Under its collaboration with Chiron, Chiron has the primary responsibility
for manufacturing commercial supplies of MYOTROPHIN (rhIGF-I). The Company has
obtained a license under certain patent rights of Chiron related to rhIGF-I,
including patents and patent applications covering the manufacture of
recombinant proteins such as rhIGF-I. One of Chiron's issued patents related to
certain methods for the manufacture of recombinant proteins, including rhIGF-I,
is currently the subject of an interference proceeding before the U.S. Patent
and Trademark Office ("USPTO") involving patent applications owned by an
unrelated third party. It is not known when or how the USPTO will ultimately
conclude the interference proceeding. Another related patent application of
Chiron, which may cover the current process for manufacturing rhIGF-I, was the
subject of another interference proceeding. Chiron prevailed in the interference
proceeding and thereafter prevailed in a district court appeal brought by the
other party. That decision has been appealed to the Court of Appeals for the
Federal Circuit by the other party. There can be no assurance that Chiron will
prevail in any appeal of the decision. The Company is aware of other patents and
patent applications owned by third parties, which patents and patent
applications, if issued with the claims as filed, may cover certain aspects of
the current method of manufacturing rhIGF-I. The Company and Chiron intend to
either seek licenses under any valid patents related to the manufacturing of
rhIGF-I as required or, alternatively, modify the manufacturing process. There
can be no assurance that, if required, such licenses can be obtained at all or
on acceptable terms or that a modified manufacturing process can be implemented
at all or without substantial cost or delay. If neither approach were feasible,
the Company could be subject to a claim of patent infringement which, if
successful,
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could prevent the Company from manufacturing or selling MYOTROPHIN (rhIGF-I) in
the United States. In such event, the Company could be materially adversely
affected.
Even if patents issue on the pending applications owned or licensed by the
Company, there can be no assurance that applications filed by others will not
result in patents that would be infringed by the manufacture, use or sale of
MYOTROPHIN (rhIGF-I). The Company is aware of a published application filed
under the Paris Convention Treaty, designating the United States, that relates
to the use of IGF-I in treating certain disorders of the nervous system. The
Company believes that even if the subject matter were deemed to overlap the
subject matter of a patent application filed by the Company in the United
States, based on the filing date of the third party's application, it would not
take priority over the Company's application. Further, the Company believes that
a third party has filed a U.S. patent application which may contain a claim
which, if issued, might broadly cover the use of rhIGF-I to treat many
neurological conditions, including ALS and peripheral neuropathies. Clark &
Elbing LLP, patent counsel to the Company, has advised the Company that, in its
opinion, such a claim would not be patentable. If such a claim should issue, the
Company could be prevented from selling MYOTROPHIN (rhIGF-I) in the United
States for use in treating ALS or peripheral neuropathy unless it obtained a
license to the patent. The third-party patent application might also contain a
narrower claim covering the use of rhIGF-I to treat diabetic neuropathy. If such
a claim should issue, the Company could be prevented from selling MYOTROPHIN
(rhIGF-I) in the United States for use in treating diabetic neuropathy unless it
obtained a license to the patent. The owner of such third-party patent
application has asserted for several years that the subject matter claimed in
its application interferes with claims of the Company's patent with respect to
the use of rhIGF-l in treating ALS. Clark & Elbing LLP has advised the Company
that, in its opinion, no interference should be declared between such
third-party patent application and the Company's patent, but there can be no
assurance that the USPTO will agree with that opinion. If an interference were
declared and the third party prevailed, the Company could be prevented from
selling MYOTROPHIN (rhIGF-I) in the United States for use in treating ALS and
peripheral neuropathies unless it obtained a license to the patent. There can be
no assurance that any such licenses could be obtained from the third party at
all or on acceptable terms. Furthermore, one or more claims of the Company's
existing patent could be declared invalid.
PROVIGIL (modafinil), which the Company has exclusively licensed from Lafon
for the United States, Mexico, the United Kingdom, the Republic of Ireland and
Japanese markets, is covered by the claims of a composition-of-matter patent in
the United States that expires in 1998 (under the transitional provisions of the
General Agreement on Tariffs and Trade ("GATT")). The Company may also seek an
extension of the patent under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "DPC Act") equal to one-half the period of time
elapsed between the filing of an IND for PROVIGIL (modafinil) and the filing of
the corresponding NDA, plus the period of time between the filing of the NDA for
PROVIGIL (modafinil) and FDA approval. However, to obtain the full length of any
such extension, the Company must receive FDA approval of PROVIGIL (modafinil)
before expiration of the original term of the patent. There can be no assurance
that the Company will be able to take advantage of the marketing exclusivity or
patent extension benefits of the DPC Act.
No assurance can be given that any additional patents will issue on any of
the patent applications owned by the Company or licensed from third parties.
Furthermore, even if such patents issue, there can be no assurance that any
issued patents will provide protection against competitive products or otherwise
be commercially valuable, or that applications filed by others will not result
in patents that would be infringed by the manufacture, use or sale of the
Company's products. In addition, patent law relating to the scope of claims in
the biotechnology field is still evolving and the biotechnology patent rights of
the Company are subject to this additional uncertainty. There can be no
assurance that others will not independently develop similar products, duplicate
any of the Company's products, or, if patents are issued to the Company, design
around any products developed by the Company.
The products of the Company could infringe the patent rights of others. If
licenses required under any such patents or proprietary rights of third parties
are not obtained, the Company could encounter delays in product market
introductions, or could find that the development, manufacture or sale of
products requiring such licenses is foreclosed. In addition, patent litigation
is both costly and time-consuming, even if the
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outcome is favorable to the Company. In the event that the Company is a
defendant in such litigation, an adverse outcome would subject the Company to
significant liabilities to third parties, require the Company to license
disputed rights from third parties, or require the Company to cease selling its
products.
The Company also relies upon trade secrets and other unpatented proprietary
information in its product development activities. All of the Company's
employees have entered into agreements providing for confidentiality and the
assignment of rights to inventions made by them while employed by the Company.
The Company also has entered into non-disclosure agreements to protect its
confidential information delivered to third parties in conjunction with possible
corporate collaborations and other purposes. There can be no assurance that
these types of agreements will effectively prevent disclosure of the Company's
confidential information.
PARTNERSHIP PURCHASE OPTION
The Partnership has licensed to the Company the exclusive rights to
manufacture and market MYOTROPHIN (rhIGF-I) in the Territory in return for
certain royalty payments and the Milestone Payment if MYOTROPHIN (rhIGF-l)
receives regulatory approval in certain countries in the Territory. The
Milestone Payment is payable by the Company in cash, Common Stock or any
combination of the two.
The Company has a contractual option to purchase all of the limited
partnership interests in the Partnership. In order to exercise the Purchase
Option, Cephalon is required to make an advance payment of $40,275,000 in cash
or, at Cephalon's election, $42,369,000 in shares of Common Stock, valued at the
market price at the time the Purchase Option is exercised. The Purchase Option
will become exercisable for a 45-day period commencing on the date which is the
earlier of (a) the date which is the later of (i) the last day of the first
month in which the Partnership shall have received Interim License payments
equal to fifteen percent (15%) of the limited partners' capital contributions
(excluding the Milestone Payment), and (ii) the last day of the 24th full month
after the date of the Company's first commercial sale, if any, of Myotrophin
within the Territory that generates a payment to the Partnership, and (b) the
last day of the 48th full month after the date of such first commercial sale, if
any, in the Territory. A payment in cash would have a significant adverse effect
on the Company's capital resources. A payment in shares of Common Stock would
result in a decrease in the percentage ownership of the Company's stockholders
at that time. If the Company were to make the Milestone Payment, exercise the
Purchase Option, or purchase additional interests outside of the Purchase
Option, a material charge to earnings could result, depending upon the
development status of the underlying technology.
If the Company does not exercise the Purchase Option, its license will
terminate and all rights to manufacture or market MYOTROPHIN (rhIGF-I) in the
Territory will revert to the Partnership, which may then commercialize
MYOTROPHIN (rhIGF-I) itself or license or assign its rights to a third party.
The Company would not receive any benefits from such commercialization. There
can be no assurance that disputes will not arise between the Company and the
Partnership over the parties' respective rights to technology or their other
rights and obligations under these arrangements.
TECHNOLOGICAL CHANGE AND COMPETITION
Competition in the Company's fields of interest from large and small
companies is intense and is expected to increase. Furthermore, academic
institutions, governmental agencies, and other public and private research
organizations will continue to conduct research, seek patent protection, and
establish collaborative arrangements for product development. Products developed
by any of these entities may compete directly with those developed by the
Company. Many of these companies and institutions have substantially greater
capital resources, research and development staffs and facilities than the
Company, and substantially greater experience in conducting clinical trials,
obtaining regulatory approvals and manufacturing and marketing pharmaceutical
products. These entities represent significant competition for the Company. In
addition, competitors developing products for the treatment of neurodegenerative
disorders might succeed in developing technologies and products that are more
effective than any being developed by the Company or that would render its
technology and products obsolete or noncompetitive. There can be no assurance
that competition
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and innovation from these or other sources will not materially adversely affect
any sales of products which might be developed by the Company or make them
obsolete. Advances in current treatment methods may also adversely affect the
market for such products. The approval and introduction of therapeutic products
that compete with compounds being developed by the Company could also adversely
affect the Company's ability to attract and maintain patients in clinical
studies for the same indication or otherwise successfully complete its clinical
studies.
With respect to MYOTROPHIN (rhIGF-I), Rilutek(R) (Riluzole) has been
approved and is being marketed by Rhone-Poulenc Rorer in the U.S. and certain
countries in Europe for the treatment of ALS. In addition, the Company believes
that other companies are developing therapeutic agents for the treatment of ALS
and peripheral neuropathies. Because the potential patient population for ALS is
limited, competition from other products may adversely affect potential sales of
MYOTROPHIN (rhIGF-I).
Other companies are developing rhIGF-I as a therapeutic product for
disorders other than ALS or peripheral neuropathy, including Genentech, Inc.
which is evaluating IGF-I in diabetes. Notwithstanding the patents and patent
applications relating to MYOTROPHIN (rhIGF-I), if the sale of rhIGF-I by third
parties is approved for other indications, such products might be used in
competition with MYOTROPHIN (rhIGF-I) through "off-label" use, especially if
such product is priced below MYOTROPHIN (rhIGF-I).
With respect to PROVIGIL (modafinil), there are presently several products
used in the United States to treat narcolepsy, all of which are available
generically and have been available for a number of years. There can be no
assurance that PROVIGIL (modafinil) possesses benefits over such other products,
or that the Company will be able to demonstrate the value of any such benefits
to prescribing physicians and their patients.
Lafon has licensed rights to modafinil to third parties in Canada as well
as certain countries in Europe, and may license other territories to other third
parties in the future. There is no contractual requirement that the licensees
and Lafon coordinate their marketing activities related to modafinil.
Furthermore, individual reimbursement policies in each country and applicable
antitrust laws prohibit the coordination of the pricing of modafinil in various
jurisdictions. The marketing activities of the other licensees therefore may
adversely affect the Company's marketing of PROVIGIL (modafinil) in its
territories.
Cephalon is marketing two proprietary products of BMS to neurologists in
the United States: Stadol NS, indicated for the management of pain, including
migraine pain; and Serzone, indicated for the treatment of depression. A number
of therapeutic agents are currently approved and are being marketed both for the
treatment of migraine and for the treatment of depression. Stadol NS also
competes directly with other pain medications, including narcotics, and
indirectly with medications approved explicitly for treatment of migraine. The
Company also believes that other products to treat migraine with a nasal spray
delivery system may be introduced into the U.S. market in 1997 and may compete
directly with Stadol NS.
There are significant efforts by others, including many large
pharmaceutical companies and academic institutions, to develop therapeutic
products which may compete with the products being developed by the Company to
treat neurological disorders, including Alzheimer's disease, head and spinal
injury and stroke. Some of these products may be at a more advanced stage of
development than the Company's products.
LITIGATION
The Company and certain of its officers have been named as defendants in a
number of civil actions filed in the U.S. District Court for the Eastern
District of Pennsylvania, which have been consolidated. Several of the
plaintiffs have been designated by the Court, collectively, as the "lead
plaintiff" for purposes of the Private Securities Litigation Reform Act of 1995.
The consolidated complaint, filed in October 1996 by the lead plaintiffs,
extended and expanded the class period to include purchasers of the Company's
securities as well as options to purchase or sell those securities during the
period between June 12, 1995 and June 7, 1996. Plaintiffs allege, based in part
on statements and opinions expressed at the June 7, 1996 meeting of the Advisory
Committee, that earlier statements by the Company about the North American and
European trial results were misleading. The plaintiffs seek unspecified damages
and other relief. The Company's motion to
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dismiss the case is pending, and discovery related to the merits of the
allegations in the complaint has been postponed until the motion is decided. The
Company intends to vigorously defend the action. However, management believes
that it is too early in the proceedings to predict the outcome of this action
with any certainty.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends, in large part, upon the Company's
ability to attract and retain highly qualified scientific and management
personnel. The Company faces competition for such personnel from other
companies, research and academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful in
hiring or retaining key personnel.
NO ASSURANCE OF ADEQUATE REIMBURSEMENT
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third-party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend towards managed health care in the United States and the concurrent growth
of organizations such as HMOs, which could control or significantly influence
the purchase of health care services and products as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices for the Company's products. The cost containment measures
that health care providers are instituting and the effect of any health care
reform could affect the Company's ability to sell its products and may have a
material adverse effect on the Company.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company. Moreover, the
Company is unable to forecast what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future or what effect such legislation or regulation would
have on the Company's business.
POTENTIAL PRODUCT LIABILITY
The Company faces an inherent risk of exposure to product liability claims
if the use of its products is alleged to have resulted in an injury or adverse
effect on patients. Such risk exists with respect to products being tested in
human clinical trials, as well as products being developed by the Company, if
any, that receive regulatory approval for commercial sale. The Company maintains
product liability insurance for clinical studies. However, there can be no
assurance that such coverage will be adequate to cover claims, or that adequate
insurance coverage for future clinical or commercial activities will be
available at acceptable costs. There can be no assurance that the Company will
not experience a significant product liability claim or recall, which if
uninsured could have a material adverse effect on the Company.
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market price for shares of the Company's Common Stock has historically
been highly volatile. Future negative announcements concerning the Company, its
competitors or other companies in the biopharmaceutical industry, including the
results of testing and clinical trials, regulatory hearings and decisions,
technological innovations or commercial products, patents, government
regulations, developments concerning proprietary rights, litigation or public
concern as to the safety or commercial value of the Company's products may have
a significant adverse effect on the market price of the Common Stock. The
Company has not paid any cash dividends on its Common Stock and does not
anticipate paying any dividends in the foreseeable future.
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EFFECT OF EXERCISE OF OPTIONS AND WARRANTS
The Company grants stock options to employees, directors and consultants.
As of December 31, 1996, the Company had 3,181,020 outstanding options at
exercise prices ranging from $0.15 to $31.00 per share. In addition, at December
31, 1996 warrants to purchase 2,898,104 shares of Common Stock were outstanding
at exercise prices ranging from $11.32 to $18.50 per share. Options and warrants
granted represent approximately 25% of the shares of Common Stock currently
outstanding. If all or substantially all such options and warrants were
exercised, the subsequent sale of the shares of Common Stock could adversely
affect the price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors of the Company to issue shares of
preferred stock without stockholder approval and a shareholder rights plan
adopted by the Company may, alone or in combination, have certain anti-takeover
effects. The Company also is subject to provisions of the Delaware General
Corporation Law which may make certain business combinations more difficult.
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ISSUANCE OF THE SHARES
The Shares are being issued by the Company, and being acquired by SBC, in
one or more transactions, in exchange for one or more capped call options (the
"Options") to be written by SBC on up to an aggregate of 2,500,000 shares of
Common Stock of the Company. The price (the "Option Price") paid by the Company
for each Option (which will be paid in the form of Shares), as well as the
strike price, the cap price and certain other terms of each Option will be
determined following the effectiveness of the Registration Statement of which
this Prospectus forms a part based on a number of factors, including the market
price of the Common Stock when the Option is issued. This Prospectus covers the
issuance and sale of an assumed maximum number of Shares to be issued by the
Company in payment of the aggregate Option Price, making certain assumptions
regarding the share price of the Common Stock at the time or times the Options
are purchased by the Company.
The Options will be exercisable at their expiration dates. The scheduled
expiration date of each Option will be approximately six months from the date of
its issuance. Upon exercise of an Option, the Company may elect to settle the
Option in cash or may elect to pay the exercise price in cash and receive the
shares of Common Stock underlying the Option. In the event that an Option is
settled in cash, SBC or its affiliates would likely sell shares of the Common
Stock, which may include some or all of the Shares, then held by them as a hedge
with respect to that Option. Copies of the forms of agreements with SBC relating
to the Options have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part, and reference is made to the exhibits for
the complete terms of the agreements.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by SBC, or by transferees or
successors in interest, including one or more affiliates of SBC. SBC plans to
sell the Shares principally to or through SBC Warburg, a registered
broker-dealer that is a wholly-owned subsidiary of Swiss Bank Corporation. SBC
Warburg may sell Shares directly or to or through unaffiliated brokers and
dealers, and SBC Warburg and such other brokers and dealers may receive
compensation from SBC or SBC Warburg, as the case may be, in the form of
discounts, concessions or commissions (which compensation is not expected to be
in excess of customary amounts). Such sales may be made in the over-the-counter
market or otherwise at prices then prevailing, or in negotiated transactions.
Such sales may be deemed to constitute an at-the-market offering on behalf of
the Company of all or a portion of the Shares on a continuous or delayed basis
pursuant to Rule 415(a)(4) under the Securities Act. Under such circumstances,
SBC and SBC Warburg would be deemed to be "underwriters" with respect to the
Shares being so offered.
SBC has advised the Company that it may from time to time engage in
transactions to hedge all or part of its risk relating to the Options. Such
hedging activities may include the sale or the retention by SBC or its
affiliates of all or a portion of the Shares and purchases and sales, including
short sales, in the over-the-counter market or otherwise of other shares of
Common Stock and may include entering into derivative instruments relating to
the Common Stock, such as options and equity swaps.
Upon exercise by the Company of the Options, the Company may elect to
receive shares of Common Stock. See "Issuance of the Shares." In such event, all
or a portion of the Shares may, to the extent they are still held by SBC, be
transferred by SBC to the Company in satisfaction of such exercise.
SBC, SBC Warburg and any dealers through whom sales of the Shares may be
made may be deemed to be "underwriters" within the meaning of the Securities
Act, and commissions or discounts and other compensation received by them may be
regarded as underwriters' compensation.
The Company has agreed to indemnify SBC and SBC Warburg against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments SBC or SBC Warburg may be required to make in respect thereof.
17
<PAGE> 19
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The financial statements incorporated by reference in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
18
<PAGE> 20
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Risk Factors.......................... 4
Issuance of the Shares................ 17
Plan of Distribution.................. 17
Legal Opinion......................... 18
Experts............................... 18
</TABLE>
======================================================
======================================================
500,000 SHARES
CEPHALON, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
, 1997
======================================================
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.......................... $ 2,832
Legal Fees and Expenses...................................................... 25,000
Nasdaq Listing Fees.......................................................... 10,000
Miscellaneous................................................................ 5,000
-------
Total........................................................................ $42,832
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. Article
VII of the Registrant's Bylaws, requires the Registrant to indemnify directors
and officers of the Registrant or any other authorized representative against
expenses, judgments and any settlement amounts incurred in a third party
proceeding brought by reason of the fact that the person is an authorized
representative of the Registrant. The Bylaws also permit indemnification of
expenses incurred by an authorized representative in connection with a
proceeding brought in the name of the corporation. The Bylaws further specify
procedures for such indemnification. Section 145 also empowers the Registrant to
purchase and maintain insurance that protects its officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND INDEX TO SUCH EXHIBITS AND
SCHEDULES
The exhibits filed as part of this registration statement are as follows:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being
registered.
10.1 Form of ISDA Master Agreement by and between the Registrant and Swiss Bank
Corporation, London Branch, together with form of Schedule thereto.
10.2 Form of Confirmation to be entered into pursuant to ISDA Master Agreement by
and between the Registrant and Swiss Bank Corporation, London Branch.
10.3 Form of Agreement in Regard to Premium Shares by and among the Registrant,
Swiss Bank Corporation, London Branch and SBC Warburg Inc.
23.1 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as
Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Clark & Elbing LLP
24.1 Powers of Attorney (included on the signature page).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforce-
II-1
<PAGE> 22
able. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against a public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraph (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be 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) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Chester, Commonwealth of Pennsylvania on the 7th
day of April, 1997.
CEPHALON, INC.
By: /s/ FRANK BALDINO, JR.,
PH.D.
------------------------------------
Frank Baldino, Jr., Ph.D.
Director, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person in so signing also makes,
constitutes and appoints Frank Baldino, Jr. and Bruce A. Peacock, and each of
them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, to execute and cause to be filed with the Securities and Exchange
Commission, any and all amendments or post-effective amendments to this
Registration Statement, with exhibits thereto and other documents in connection
therewith, as the Registrant deems appropriate.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ---------------------------------------- ---------------
<C> <S> <C>
/s/ FRANK BALDINO, JR., PH.D. Director, President and Chief Executive April 7, 1997
- ------------------------------------- Officer (Principal Executive Officer)
Frank Baldino, Jr., Ph.D.
/s/ BRUCE A. PEACOCK Director, Executive Vice President and April 7, 1997
- ------------------------------------- Chief Operating Officer
Bruce A. Peacock
/s/ WILLIAM P. EGAN Director April 7, 1997
- -------------------------------------
William P. Egan
/s/ ROBERT J. FEENEY, PH.D. Director April 7, 1997
- -------------------------------------
Robert J. Feeney, Ph.D.
/s/ MARTYN D. GREENACRE Director April 7, 1997
- -------------------------------------
Martyn D. Greenacre
/s/ KEVIN E. MOLEY Director April 7, 1997
- -------------------------------------
Kevin E. Moley
/s/ HORST WITZEL, DR.-ING. Director April 7, 1997
- -------------------------------------
Horst Witzel, Dr.-Ing.
/s/ J. KEVIN BUCHI Senior Vice President, Finance and Chief April 7, 1997
- ------------------------------------- Financial Officer (Principal
J. Kevin Buchi Financial and Accounting Officer)
</TABLE>
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT PAGE
-------------- --------------------------------------------------------------------- ----
<C> <S> <C>
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered
10.1 Form of ISDA Master Agreement by and between the Registrant and Swiss
Bank Corporation, London Branch, together with form of Schedule
thereto.
10.2 Form of Confirmation to be entered into pursuant to ISDA Master
Agreement by and between the Registrant and Swiss Bank Corporation,
London Branch.
10.3 Form of Agreement in Regard to Premium Shares by and among the
Registrant, Swiss Bank Corporation, London Branch and SBC Warburg
Inc.
23.1 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed
as Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Clark & Elbing LLP
24.1 Powers of Attorney (included on the signature page)
</TABLE>
<PAGE> 1
Exhibit 5.1
Morgan, Lewis & Bockius LLP
Counselors at Law
2000 One Logan Square
Philadelphia, Pennsylvania 19103-6993
Telephone: (215) 963-5000
Fax: (215) 963-5299
April 9, 1997
Cephalon, Inc.
145 Brandywine Parkway
West Chester, Pennsylvania 19380
Re: Cephalon, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Cephalon, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of a registration statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the public offering of an aggregate of 500,000 shares (the "Shares") of the
common stock, par value $.01 per share, of the Company (the "Common Stock").
In this connection, we have reviewed (a) the Registration Statement; (b) the
Company's Restated Certificate of Incorporation and Bylaws; (c) the form of
Agreement in Regard to Premium Shares, filed as Exhibit 10.3 to the Registration
Statement, to be executed by the Company and Swiss Bank Corporation, London
Branch and SBC Warburg, Inc. (the "Share Agreement") and; (e) certain records of
the Company's corporate proceedings as reflected in its minute books. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity with the
original of all documents submitted to us as copies thereof.
Our opinion set forth below is limited to the General Corporation Law of the
State of Delaware.
In our opinion, the Shares, when, and to the extent, they are issued as
described in the Registration Statement and pursuant to the terms of the Share
Agreement, 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 to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby
<PAGE> 2
Cephalon, Inc.
April 8, 1997
Page 2
admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act and the rules and regulations of the
Securities and Exchange Commission thereunder.
The opinion expressed herein is solely for your benefit and may be relied upon
only by you.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
Exhibit 10.1
(MULTICURRENCY--CROSS BORDER)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of ...........
..................................... and ......................................
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
<PAGE> 2
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is, other
than by payment), such delivery will be made for receipt on the due
date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been
effectively designated and (3) each other applicable condition
precedent specified in this Agreement.
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
2
<PAGE> 3
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that
party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required
to be deducted or withheld (including the full amount required
to be deducted or withheld from any additional amount paid by
X to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
3
<PAGE> 4
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition
to the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure
that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will
equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that
it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d); or
(B) the failure of a representation made by Y
pursuant to Section 3(f) to be accurate and true
unless such failure would not have occurred but for
(I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or
after the date on which a Transaction is entered into
(regardless of whether such action is taken or
brought with respect to a party to this Agreement) or
(II) a Change in Tax Law.
(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to
make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the amount
of such liability (including any related liability for interest, but
including any related liability
4
<PAGE> 5
for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws
of the jurisdiction of its organisation or incorporation, and if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorize such execution, delivery and
performance;
5
<PAGE> 6
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its
assets or any contractual restriction binding on or affecting it or any
of its assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and effect and all conditions of any such consents
have been complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and true.
6
<PAGE> 7
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment
under this Agreement or any applicable Credit Support Document without
any deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and
to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document
7
<PAGE> 8
to which it is a party and will use all reasonable efforts to obtain any that
may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d) to be complied with
or performed by the party in accordance
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with this Agreement if such failure is not remedied on or before the
thirtieth day after notice of such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of
such party to comply with or perform any agreement or
obligation to be complied with or performed by it in
accordance with any Credit Support Document if such failure is
continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of
this Agreement (in either case other than in accordance with
its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit Support
Document relates without the written consent of the other
party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated
or deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after giving
effect to any applicable notice requirement or grace period, there
occurs a liquidation of, an acceleration of obligations under, or any
early termination of, that Specified Transaction, (2) defaults, after
giving effect to any applicable notice requirement or grace period, in
making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least
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three Local Business Days if there is no applicable notice requirement
or grace period) or (3) disaffirms, disclaims, repudiates or rejects,
in whole or in part, a Specified Transaction (or such action is taken
by any person or entity appointed or empowered to operate it or act on
its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness of
any of them (individually or collectively) in an aggregate amount of
not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in
an aggregate amount of not less than the applicable Threshold Amount
under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors'
rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding
or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making
of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5)
has a resolution passed for its winding-up, official
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management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its
assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied,
enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any
such process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter; (8) causes
or is subject to any event with respect to it which, under the
applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in,
any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit
Support Provider under this Agreement or any Credit Support
Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its
obligations under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv)
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below or an Additional Termination Event if the event is specified pursuant to
(v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction
of any applicable law after such date, it becomes unlawful (other than
as a result of a breach by the party of Section 4(b)) for such party
(which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other
material provision of this Agreement relating to such
Transaction; or
(2) to perform, or for any Credit Support Provider of such
party to perform, any contingent or other obligation which the
party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will,
or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not
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required to pay an additional amount (other than by reason of Section
2(d)(i)(4)(A) or (B)), in either case as a result of a party
consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity
(which will be the Affected Party) where such action does not
constitute an event described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event of Default.
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the
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time immediately preceding the institution of the relevant proceeding or the
presentation of the relevant petition upon the occurrence with respect to such
party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent
analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition to
its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such party
to incur a loss, excluding immaterial, incidental expenses) to transfer
within 20 days after it gives notice under Section 6(b)(i) all its
rights and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1)
or a Tax Event occurs and there are two Affected Parties, each party
will use all reasonable efforts to reach agreement within 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
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(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event
Upon Merger or an Additional Termination Event occurs, or a
Tax Event Upon Merger occurs and the Burdened Party is not the
Affected Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day such
notice is effective as an Early Termination Date in respect of all
Affected Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or nor the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
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(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is to
be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the date
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, from (and including)
the relevant Early Termination Date to (but excluding) the date such
amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of
days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
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(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party over (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to
the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if
a positive number, the Non-defaulting Party's Loss in respect
of this Agreement.
(3) Second Method and Market Quotation. If the Second Method
and Market Quotation apply, an amount will be payable equal to
(A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party less (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to
the Defaulting Party. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if
it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that
amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event: --
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section
6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-
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defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in
respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will
determine a Settlement Amount in respect of the
Terminated Transactions, and an amount will be
payable equal to (I) the sum of (a) one-half of the
difference between the Settlement Amount of the party
with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower
Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the
Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its
Loss in respect of this Agreement (or, if fewer than
all the Transactions are being terminated, in respect
of all Terminated Transactions) and an amount will
be payable equal to one-half of the difference
between the Loss of the party with the higher Loss
("X") and the Loss of the party with the lower Loss
("Y").
If the amount payable is a positive number, Y will pay it to
X; if it is negative number, X will pay the absolute value of
that amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted by
law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Sections 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this
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Agreement neither party will be entitled to recover any additional
damages as a consequence of such losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
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(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations form the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
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(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
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10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payment or deliveries for the purpose of a Transaction without the prior written
consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
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(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex, or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION.
(a) GOVERNING LAW.This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings
relating to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court
23
<PAGE> 24
located in the Borough of Manhattan in New York City, if this Agreement
is expressed to be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to other Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent to the other
party. The parties irrevocably consent to service of process given in the manner
provided for notices in Section 12. Nothing in this Agreement will affect the
right of either party to serve process in any other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachments of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
24
<PAGE> 25
14. DEFINITIONS
As used in this Agreement.
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means: --
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-defaulting Rate; and
(d) in all other cases, the Terminating Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
25
<PAGE> 26
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
26
<PAGE> 27
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations
27
<PAGE> 28
from Reference Market-makers. Each quotation will be for an amount, if any, that
would be paid to such party (expressed as a negative number) or by such party
(expressed as a positive number) in consideration of an agreement between such
party (taking into account any existing Credit Support Document with respect to
the obligations of such party) and the quoting Reference Market-maker to enter
into a transaction (the "Replacement Transaction") that would have the effect of
preserving for such party the economic equivalent of any payment or delivery
(whether the underlying obligation was absolute or contingent and assuming the
satisfaction of each applicable condition precedent) by the parties under
Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated
Transactions that would, but for the occurrence of the relevant Early
Termination Date, have been required after that date. For this purpose, Unpaid
Amounts in respect of the Terminated Transaction or group of Terminated
Transactions are to be excluded but, without limitation, any payment or delivery
that would, but for the relevant Early Termination Date, have been required
(assuming satisfaction of each applicable condition precedent) after that Early
Termination Date is to be included. The Replacement Transaction would be subject
to such documentation as such party and the Reference Market-maker may, in good
faith, agree. The party making the determination (or its agent) will request
each Reference Market-maker to provide its quotation to the extent reasonably
practicable as of the same day and time (without regard to different time zones)
on or as soon as reasonably practicable after the relevant Early Termination
Date. The day and time as of which those quotations are to be obtained will be
selected in good faith by the party obliged to make a determination under
Section 6(e), and, if each party is so obliged, after consultation with the
other. If more than three quotations are provided, the Market Quotation will be
the arithmetic mean of the quotations, without regard to the quotations having
the highest and lowest values. If exactly three such quotations are provided,
the Market Quotation will be the quotation remaining after disregarding the
highest and lowest quotations. For this purpose, if more than one quotation has
the same highest value or lowest value, then one of such quotations shall be
disregarded. If fewer than three quotations are provided, it will be deemed that
the Market Quotation in respect of such Terminated Transaction or group of
Terminated Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
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<PAGE> 29
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
29
<PAGE> 30
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
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<PAGE> 31
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid
31
<PAGE> 32
or performed to (but excluding) such Early Termination Date, at the Applicable
Rate. Such amounts of interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. The fair market value of any
obligation referred to in clause (b) above shall be reasonably determined by the
party obliged to make the determination under Section 6(e) or, if each party is
so obliged, it shall be the average of the Termination Currency Equivalents of
the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
................................... ..................................
(Name of Party) (Name of Party)
By:................................ By: ..............................
Name: Name:
Title: Title:
Date: Date:
32
<PAGE> 33
SCHEDULE
to the Master Agreement
dated as of _________________
between
SWISS BANK CORPORATION, CEPHALON, INC., a corporation
LONDON BRANCH and organized under the laws of the
State of Delaware
("Party A") ("Party B")
PART 1
TERMINATION PROVISIONS
In this Agreement:
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v), NONE
Section 5(a)(vi), NONE
Section 5(a)(vii), NONE
Section 5(b)(iv), NONE
and in relation to Party B for the purpose of:
Section 5(a)(v), NONE
Section 5(a)(vi), NONE
Section 5(a)(vii), NONE
Section 5(b)(iv), NONE
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement.
(c) The "CROSS DEFAULT" provisions of Section 5 (a)(vi) will not apply to
Party A or Party B
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5 (b)(iv) will
not apply to Party A or Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6 (a) will not
apply to Party A or Party B.
<PAGE> 34
(f) "PAYMENTS ON EARLY TERMINATION". For the purpose of Section 6 (e) of
this Agreement:
(i) Market Quotation will apply; provided, however, that in
respect of an Event of Default pursuant to Section
5(a)(ix) of this Agreement, Loss will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) "ADDITIONAL TERMINATION EVENT" will not apply.
2
<PAGE> 35
PART 2
TAX REPRESENTATIONS
(a) Payer Representation. For the purpose of Section 3(e) of this Agreement,
Party A will make the following representation and Party B will make the
following representation:-
It is not required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, of any
Relevant Jurisdiction to make any deduction or withholding for or on
account of any Tax from any payment (other than interest under
Section 2(e), 6 (d) (ii) or 6 (e) of this Agreement) to be made by it
to the other party under this Agreement. In making this
representation, it may rely on (i) the accuracy of any
representations made by the other party pursuant to Section 3 (f) of
this Agreement, (ii) the satisfaction of the agreement contained in
Section 4 (a)(iii) of this Agreement and the accuracy and
effectiveness of any document provided by the other party pursuant to
Section 4 (a)(i) or 4 (a)(iii) of this Agreement and (iii) the
satisfaction of the agreement of the other party contained in Section
4 (d) of this Agreement, provided that it shall not be a breach of
this representation where reliance is placed on clause (ii) and the
other party does not deliver a form or document under Section 4
(a)(iii) by reason of material prejudice to its legal or commercial
position.
(b) Payee Representations. For the purpose of Section 3 (f) of this Agreement,
Party A makes the following representation:
Each payment received or to be received by it in connection with this Agreement
will be effectively connected with its conduct of a trade or business in the
United States of America.
3
<PAGE> 36
PART 3
AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Sections 4(a) (i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are:
<TABLE>
<CAPTION>
PARTY REQUIRED TO DATE BY WHICH TO
DELIVER DOCUMENT FORM/DOCUMENT/CERTIFICATE BE DELIVERED
<S> <C> <C>
Party A Department of the Treasury On or before execution of this
Internal Revenue Service Agreement and on an annual
Form 4224 basis thereafter
Party B Department of the Treasury On or before execution of this
Internal Revenue Service Agreement
Form W-9
</TABLE>
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
PARTY REQUIRED COVERED BY
TO DELIVER DATE BY WHICH TO SECTION 3(d)
DOCUMENT FORM/DOCUMENT/CERTIFICATE BE DELIVERED REPRESENTATION
<S> <C> <C> <C>
Party A and Signature authentication On or before YES
Party B satisfactory to the other party execution of this
hereto Agreement
Party B Copy (certified by an officer) On or before YES
of the board resolution (or execution of this
equivalent authorizing Agreement
documentation) permitting the
entering into of this
Agreement and Transactions
hereunder
Party A 1995 Annual Report On or before YES
execution of this
Agreement
Party A 1996 Annual Report Upon Party B's YES
request, promptly
after such report
is available to the
public
</TABLE>
4
<PAGE> 37
PART 4
MISCELLANEOUS
(a) ADDRESSES FOR NOTICES. For the purposes of Section 12(a) of this
Agreement:
Address for notices or communications to Party A:-
Address: Swiss Bank Corporation, London Branch
1 High Timber Street
London EC4V 3SB
Attention: Swaps Group
Telex: 887434 Answerback: SBCO G
Address for notices or communications to Party B:-
Address: 145 Brandywine Parkway
Building #300
West Chester, Pennsylvania 19380-4245
Attention: J. Kevin Buchi
Facsimile: (610) 344-7563 Telephone No: (610) 344-0200
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:
Party A appoints as its Process Agent: Swiss Bank Corporation, New York Branch
222 Broadway, New York, NY 10038
Attention: Legal Affairs
Party B appoints as its Process Agent: NOT APPLICABLE.
(c) OFFICES. The provisions of Section 10(a) will apply to Party A and Party B,
it being the understanding of the parties that while obligations entered into by
an Office of a party pursuant to this Agreement constitute obligations of the
company (and not merely of such Office), each party will, in respect of any
Transaction and in the ordinary course of business, send payments and notices to
and receive payments and notices from the Office of the other party specified in
the Confirmation of such Transaction rather than any other office of such party.
A party (the "owed party") may seek payment from the head office of the other
party (the "owing party") with respect to this Agreement in the event that an
amount payable to the owed party by the owing party pursuant to this Agreement
(including any amount payable as a result of the occurrence or designation of an
Early Termination Date) has not been paid in full when due.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement
neither Party A nor Party B is a Multibranch Party.
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<PAGE> 38
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document: NONE
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means: NOT APPLICABLE
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE
OF LAW DOCTRINE).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will apply.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement.
6
<PAGE> 39
PART 5
OTHER PROVISIONS
(a) SET-OFF. Without affecting the provisions of the Agreement requiring the
calculation of certain net payment amounts, all payments under this Agreement
will be made without set-off or counterclaim; provided, however, that upon the
designation of any Early Termination Date as a result of an Event of Default, in
addition to and not in limitation of any other right or remedy (including any
right to set off, counterclaim, or otherwise withhold payment or any recourse to
any Credit Support Document) under applicable law the Non-defaulting Party or
Non-affected Party (in either case, "X") may without prior notice to any person
set off any sum or obligation (whether or not arising under this Agreement,
whether matured or unmatured, whether or not contingent and irrespective of the
currency, place of payment or booking office of the sum or obligation) owed by
the Defaulting Party or Affected Party (in either case, "Y") to X or any
Affiliate of X against any sum or obligation (whether or not arising under this
Agreement, whether matured or unmatured, whether or not contingent and
irrespective of the currency, place of payment or booking office of the sum or
obligation) owed by X or any Affiliate of X to Y and, for this purpose, may
convert one currency into another at a market rate determined by X. If any sum
or obligation is unascertained, X may in good faith estimate that sum or
obligation and set-off in respect of that estimate, subject to X or Y, as the
case may be, accounting to the other party when such sum or obligation is
ascertained.
(b) PAYMENT AND DELIVERY OBLIGATIONS. Section 2(a)(iii) is hereby modified by
adding the following at the end thereof:
"provided, however, that if on any date that Party A is required to make a
payment or delivery to Party B pursuant to Section 2(a)(i), Party B has
satisfied in full all its payment and delivery obligations under Section
2(a)(i) and has no future payment or delivery obligations to Party A under
such Section, whether matured or unmatured, absolute or contingent (including
but not limited to the case in which the Transactions consist only of call
options on Party B's common stock purchased and fully paid for by Party B),
Section 2(a)(iii)(1) shall not apply."
(c) REPRESENTATIONS AND WARRANTIES. Section 3(a) is amended by adding the
following paragraphs (vi) and (vii):
"(vi) NO AGENCY. It is entering into this Agreement and each Transaction as
principal (and not as agent or in any other capacity, fiduciary or otherwise).
(vii) ELIGIBLE SWAP PARTICIPANT. It is an "eligible swap participant" as that
term is defined by the United States Commodity Futures Trading Commission in
17 C.F.R. Section 35.1(b)(2) and it has entered into this Agreement and it is
entering into each Transaction in connection with its line of business
(including financial intermediation services) or the financing of its
business; and the material terms of this Agreement and such Transaction have
been individually tailored and negotiated."
(d) RELATIONSHIP BETWEEN PARTIES. Each party will be deemed to represent to the
other party on the date on which it enters into a Transaction that (absent a
written agreement
7
<PAGE> 40
between the parties that expressly imposes affirmative obligations to the
contrary for that Transaction):
(i) NON-RELIANCE. It is acting for its own account, and it has made its own
independent decisions to enter into that Transaction and as to whether that
Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisers as it has deemed necessary. It is not relying
on any communication (written or oral) of the other party as investment advice
or as a recommendation to enter into that Transaction; it being understood
that information and explanations related to the terms and conditions of a
Transaction shall not be considered investment advice or a recommendation to
enter into that Transaction. No communication (written or oral) received from
the other party shall be deemed to be an assurance or guarantee as to the
expected results of that Transaction.
(ii) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of
and understanding (on its own behalf or through independent professional
advice), and understands and accepts the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the risks of that
Transaction.
(iii) STATUS OF PARTIES. The other party is not acting as a fiduciary for or
an adviser to it in respect of that Transaction.
(e) ADDITIONAL EVENTS OF DEFAULT AND COLLATERALIZATION EVENT. Section 5 of the
Agreement is amended as follows:
(i) The title of such section is amended to read "Events of Default,
Termination Events and Collateralization Event".
(ii) The following Section 5(a)(ix) is added thereto:
"(ix) Failure to Deliver Premium Shares. In connection with any Transaction
covered by the Agreement in Regard to Premium Shares dated as of
_________, 1997 among Party A, Party B and SBC Warburg Inc. (the
"Agreement") which Transaction by its terms calls for the delivery by
Party B of shares of its common stock (the "Premium Shares") in
payment of the premium owed by Party B for such Transaction, failure
by Party B to deliver, when due, the required number of Premium
Shares, or the non-satisfaction of one or more of the conditions set
forth in Section 6 of the Agreement and Party A declines to accept
Party B's tender of delivery of such shares."
(iii) The following Section 5(e) is added thereto:
"(e) Collateralization Event. The occurrence at any time with respect to
Party A of the following event constitutes a collateralization event
(a "Collateralization Event"):
At any time the senior unsecured long term indebtedness of Party A is
rated (1) lower than BBB+ by Standard and Poor's ("S&P") or (2) lower
than Baa1 by Moody's Investors Service, Inc. ("Moody's").
If a Collateralization Event shall have occurred, Party A shall
execute and deliver to Party B a security agreement, in a form to be
mutually agreed upon in good faith
8
<PAGE> 41
by the parties, pursuant to which Party A shall pledge collateral to
Party B in an amount and of a type sufficient to fully collateralize
the Net Obligation of Party A to Party B. The "Net Obligation" of
Party A to Party B on any day shall be the amount (if any) that Party
A would owe to Party B under Section 6(e) of this Agreement if such
day were an Early Termination Date resulting from a Termination Event
with Party A as Affected Party. The failure to deliver such a
security agreement within thirty (30) days of a written request by
Party B after the occurrence of a Collateralization Event shall
constitute an Event of Default with respect to Party A, unless such
failure is a proximate result of Party B's failure to negotiate in
good faith as to the form of security agreement."
(f) RIGHT TO TERMINATE. Section 6(a) is hereby modified by adding the following
at the end of the first sentence thereof:
"provided, however, that if Party B is the Defaulting Party, such date shall
in no event be later than the nearest following day on which Party A has a
payment or delivery obligation to Party B under Section 2(a)(i) hereof."
(g) TRANSFER. Section 7 is amended by the deletion of "and" at the end of
paragraph (a), the deletion of the full stop at the end of paragraph (b) and the
insertion of a semi-colon followed by "and" in its place, and the insertion of a
new paragraph after paragraph (b) at the end thereof "(c) Party A may transfer
its rights and obligations under this Agreement in whole (but not in part) to
any branch of Swiss Bank Corporation provided that as a result of such transfer:
(i) it does not become unlawful for either party to perform any
obligation under this Agreement;
(ii) neither party is required to pay to the other party an additional
amount under Section 2(d)(i)(4) or to receive a payment from which
an amount is required to be deducted or withheld for or on account
of a Tax and no additional amount is required to be paid in respect
of such Tax under Section 2(d)(i)(4); and
(iii) no Event of Default occurs in respect of either party."
(h) EXPENSES. Section 11 shall not apply to Party B as Defaulting Party.
(i) WAIVER OF JURY TRIAL. Each party hereby irrevocably waives any and all right
to trial by jury in any suit, action or proceeding arising out of or relating to
this Agreement or any Transaction and acknowledges that this waiver is a
material inducement to the other party's entering into this Agreement.
(j) CONSENT TO RECORDING. The parties agree that each may electronically record
all telephonic conversations between them and that any such recordings may be
submitted in evidence to any court or in any Proceedings for the purpose of
establishing any matters pertinent to any Transaction.
(k) ONE-WAY TRANSACTION. Party B agrees that in the event the parties enter into
a Transaction where Party B has future payment obligations, other than an
obligation to pay the premium of a purchased option within five Business Days of
the trade date of such option,
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<PAGE> 42
whether absolute or contingent, under Section 2(a)(i) of this Agreement, then
Party B will amend or restate this Agreement, in either case in a form
satisfactory to Party A and Party B.
(l) SEVERANCE. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, such
provisions shall be severed from this Agreement to the extent of such
invalidity, illegality or unenforceability, unless such severance shall
substantially impair the benefits of the remaining portions of this Agreement.
The Agreement after such severance shall remain the valid, binding and
enforceable obligation of the parties hereto.
(m) NETTING PROVISIONS. If an Early Termination Date occurs, amounts determined
in respect of all Terminated Transactions shall be aggregated with and netted
against one another in performing the calculations contemplated by Section 6(e).
If the calculation of the amount payable pursuant to Section 6(e) in respect of
an Early Termination Date would involve the aggregation or netting of amounts
determined in respect of Transactions of different types, and under applicable
law amounts determined in respect of one or more types of Transactions hereunder
may not be aggregated with or netted against amounts determined in respect of
one or more other types of Transactions in performing such calculation, then,
notwithstanding the foregoing or any other provision of this Agreement,
aggregation and netting will be performed within and between types of
Transactions to the fullest extent permitted by law in performing such
calculation, and the set-off provisions of this Agreement and applicable law
shall be applied to the resulting amount or amounts.
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<PAGE> 43
PART 6
ADDITIONAL TERMS FOR EQUITY AND EQUITY INDEX TRANSACTIONS
Notwithstanding anything to the contrary in this Agreement, the following
provisions will apply for the purposes of any Transaction which is an option on
a single security, a basket of securities or an index, including any Transaction
which contemplates by its terms the physical delivery of shares, participation
certificates or other equity securities ("Shares"):
(a) DIVIDENDS AND EXPENSES. The following provision shall be included as Section
2(f):
"(f) DIVIDENDS AND EXPENSES ON DELIVERY: All dividends on the Shares to be
delivered shall be payable to and all costs and expenses incurred in connection
with the delivery of Shares (including, without prejudice to Section 2(d), any
Tax or Stamp Tax and any interest or penalties payable in connection therewith)
shall be payable by the party who would customarily receive such dividend or
bear such costs or expenses under a contract for the purchase of the Shares by
the deliveree through the clearance system specified in the relevant
Confirmation."
(b) REPRESENTATIONS. Each party acknowledges that (i) certain Transactions may
be securities that have not been registered under the Securities Act of 1933 of
the United States of America, as amended (the "1933 Act"), or under the laws of
any state, (ii) no federal or state agency has passed upon such Transactions or
made any finding or determination as to the fairness of such Transactions and
(iii) such Transactions are intended to be exempt from registration under the
1933 Act. In addition to the representations made pursuant to Section 3 of this
Agreement,each party represents to the other party with respect to any such
Transaction that (i) it is an "accredited investor," as such term is defined in
Regulation D promulgated under the 1933 Act, (ii) it has had access to such
information regarding such Transaction and the other party as it requested,
(iii) it has knowledge and experience in financial and business matters and is
capable of evaluating the merits and risks of such Transaction and is able to
bear the economic risk of its investment, including without limitation the risk
of complete loss on the investment, (iv) it acquired its interest in such
Transaction for its own account for investment and not with a view to, or in
connection with, any distribution of such interests, (v) it will not sell,
transfer, assign or otherwise dispose such Transaction or interests herein and
therein in violation of the 1933 Act and the rules and regulations promulgated
thereunder, and (vi) with respect to any Transaction which contemplates by its
terms the physical delivery of Shares, at the time of the delivery of any such
Shares to the other party, it possesses full legal and beneficial title thereto
and it is delivering the same free and clear of any lien, claim, encumbrance or
security interest of any kind whatsoever created by the deliveror.
11
<PAGE> 1
Exhibit 10.2
FORM OF CONFIRMATION
Date:
To: Cephalon, Inc. ("Party B")
Attention:
From: Swiss Bank Corporation, London Branch ("Party A")
Re: Equity Option Confirmation
Reference Number ____________
- --------------------------------------------------------------------------------
The purpose of this communication is to confirm the terms and conditions of the
transaction (the "Transaction") to be entered into between us on the Trade Date
specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc. (formerly
known as the International Swap Dealers Association, Inc.) ("ISDA")) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
This Confirmation supplements, forms part of, and is subject to, the ISDA Master
Agreement dated as of _________, 1997, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement govern this Confirmation except as expressly modified below.
The terms of the Transaction to which this Confirmation relates are as follows:
Trade Date :
Buyer : Party B
Seller : Party A
Option Style : European Option
Option Type : Capped Call
Shares : Common Stock of Cephalon, Inc. (Symbol: CEPH)
Number of Options :
Contract Multiplier : 1.00
<PAGE> 2
Notional Amount : USD
Strike Price : USD
Cap Price : USD
Trade Price : [to be determined]
Total Premium : A number (rounded to the nearest whole Share) of
Shares (the "Premium Shares"), determined by the
Calculation Agent in accordance with the following
formula: [to be determined]
The Premium Shares are subject to the Agreement in
Regard to Premium Shares dated as of ________, 1997
between Party A, Party B and SBC Warburg Inc.
Premium
Payment Date : ____ Exchange Business Days after the Trade Date.
Expiration Date : ___________, or, if that date is not an Exchange
Business Day, the following day that is an Exchange
Business Day.
Currency
Business Day : Any day on which commercial banks are open for
business (including dealings in foreign exchange and
foreign currency deposits) in the cities from which
and in which a payment is to be made.
Exchange
Business Day : A day that is (or but for the occurrence of a Market
Disruption Event, would have been) a trading day on
the Exchange and the American Stock Exchange (other
than a day on which trading on any such exchange is
scheduled to close prior to its regular weekday
closing time, first announced on the day of such
closing).
Normal
Trading Day : An Exchange Business Day on which no Market Disruption
Event has occurred or is continuing.
Market
Disruption Event : The occurrence or existence on any Exchange Business
Day during the one-half hour period that ends at the
close of
2
<PAGE> 3
business of any suspension of or limitation imposed on
trading (by reason of movements in price exceeding
levels permitted by the relevant exchange or
otherwise), provided that any such event is material
in the joint determination of the parties, on: (i) the
Exchange in the Shares; or (ii) the American Stock
Exchange in options contracts on the Shares.
Exchange : NASDAQ National Market System
Clearance System
Business Day : Any day on which the Clearance System is open for the
acceptance and execution of settlement instructions.
Clearance System : Depository Trust Company, or any successor to or
transferee of such clearance system.
Calculation Agent : Party A, whose calculations shall be binding absent
manifest error.
Procedure for Exercise
- ----------------------
Exercise Date : The Expiration Date.
Expiration Time : 5:00 p.m. local time in New York City
Automatic Exercise : The Transaction will be deemed to be automatically
exercised if it is In-the-Money on the Expiration
Date, unless (i) the Buyer has notified the Seller (by
telephone or in writing) prior to 5:00 p.m. local time
in New York City on the Expiration Date that it does
not wish to exercise the Transaction; or (ii) the
Closing Value cannot be determined on the Expiration
Date. If the Transaction is to be cash settled,
"In-the-Money" means that the Cash Settlement Amount
is greater than zero. If the Transaction is to be
physically settled, "In-the-Money" means that the
Closing Value is greater than the Strike Price.
"Closing Value" means the closing price of the Shares,
as reported on the Exchange, on the Expiration Date.
Seller's telephone
or facsimile number
for purposes of
giving notice : Telephone:
Fax:
Attention:
3
<PAGE> 4
Settlement Terms
- ----------------
Settlement : The Transaction will be cash settled; provided,
however, that Party B may elect to physically settle
the Transaction by giving notice to Party A no later
than 30 Exchange Business Days before the Expiration
Date.
Physical Settlement : If the Transaction is to be physically settled, on the
Settlement Date, the Seller shall deliver to the Buyer
the number of Shares equal to the Contract Multiplier
multiplied by the number of Options exercised against
payment by the Buyer to the Seller of an amount equal
to the product of (a) the Strike Price, adjusted as
hereinafter provided, multiplied by (b) the Contract
Multiplier multiplied by (c) the number of Options
exercised. If the Closing Value exceeds the Cap Price,
the Strike Price shall be increased by the amount by
which the Closing Value exceeds the Cap Price; if the
Closing Value is equal to or less than the Cap Price,
no adjustment will be made to the Strike Price. Such
payment and such delivery will be made through the
Clearance System at the accounts specified below, on a
delivery versus payment basis.
Cash Settlement : If the Transaction is to be cash settled, on the
Settlement Date, Party A shall pay to Party B the Cash
Settlement Amount, if any. The "Cash Settlement
Amount" shall be the greater of (a) zero and (b) an
amount calculated by the Calculation Agent equal to
(i) the Contract Multiplier multiplied by (ii) the
number of Options exercised multiplied by (iii) the
Price Differential. "Price Differential" means (x) if
the Reference Price exceeds the Cap Price, the result
of subtracting the Strike Price from the Cap Price,
and (y) if the Reference Price is equal to or less
than the Cap Price, the result of subtracting the
Strike Price from the Reference Price.
Reference Price : (a) If the Valuation Period contains 15 Normal Trading
Days, the Reference Price shall be the arithmetic
average of the Share Prices on those 15 Normal Trading
Days.
(b) If the Valuation Period does not contain 15 Normal
Trading Days, the parties shall jointly determine the
Share Price for the Valuation Date and as many
Exchange Business Days immediately preceding the
Valuation Date as shall be necessary, when such Share
Prices are taken together with the
4
<PAGE> 5
Share Prices on all Normal Trading Days occurring
within the Valuation Period, to provide 15 Share
Prices, and in such case the Reference Price shall be
the arithmetic average of those 15 Share Prices.
Share Price : The volume weighted average price of the Shares as
reported on the Exchange.
Valuation Period : The period from and including the fourteenth Exchange
Business Day immediately preceding the Expiration Date
(the "Initial Date") to and including the Expiration
Date, provided that if any Exchange Business Day in
the Valuation Period as so determined, shall not be a
Normal Trading Day, the Valuation Period shall be
extended so that the Valuation Period includes 15
Normal Trading Days, but in no event shall the last
day of the Valuation Period be later than the tenth
Exchange Business Day after the Expiration Date, and
in no event shall the Valuation Period include any day
before the Initial Date.
Valuation Date : The last day of the Valuation Period.
Settlement Date : If the Transaction is to be cash settled, the
Settlement Date shall be three Currency Business Days
after the Valuation Date. If the Transaction is to be
physically settled, the Settlement Date shall be three
Clearance System Business Days after the Exercise
Date.
Adjustment Events
- -----------------
Adjustments : During the life of the Transaction, if any adjustment
is made by The Options Clearing Corporation or its
successors ("OCC") in the terms of outstanding
OCC-issued options ("OCC Options") on the Shares which
are the subject of the Transactions, an equivalent
adjustment shall be made in the terms of the
Transaction. Except as provided in the following
paragraph, no adjustment shall be made in the terms of
the Transaction for any event that does not result in
an adjustment to the terms of outstanding OCC Options
on the Shares. Without limiting the generality of the
foregoing, NO ADJUSTMENT SHALL BE MADE IN THE TERMS OF
THE TRANSACTIONS FOR ORDINARY CASH DIVIDENDS ON THE
SHARES.
If at any time during the life of the Transaction
there shall be no outstanding OCC Options on the
Shares, and an event shall
5
<PAGE> 6
occur for which an adjustment might otherwise be made
under the By-Laws, Rules, and stated policies of the
OCC applicable to the adjustment of OCC Options (the
"OCC Adjustment Rules"), the parties shall use their
best efforts, applying the principles set forth in the
OCC Adjustment Rules, to jointly determine whether to
adjust the terms of the Transaction and the nature of
any such adjustment.
Miscellaneous
- -------------
Transfer : Neither party may transfer the Transaction, in whole
or in part, without the prior written consent of the
non-transferring party.
Account Details
- ---------------
Payments and deliveries to Party A:
Account for payments:
Delivery instructions:
Payments and deliveries to Party B:
Account for payments:
Delivery instructions:
6
<PAGE> 7
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us or by sending to us a letter or telex substantially
similar to this letter, which letter or telex sets forth the material terms of
the Transaction to which this Confirmation relates and indicates your agreement
to those terms.
Yours sincerely,
SWISS BANK CORPORATION, LONDON BRANCH
By: ______________________ By: _____________________
Name: Name:
Title: Title:
Confirmed as of the ___ day
of ____________, 1997
CEPHALON, INC.
By: __________________________________
Name:
Title:
7
<PAGE> 1
Exhibit 10.3
AGREEMENT IN REGARD TO PREMIUM SHARES
This Agreement in Regard to Premium Shares (this "Agreement"), dated as
of April __, 1997, is entered into by and among Cephalon, Inc. ("Issuer"), Swiss
Bank Corporation, London Branch ("Seller") and SBC Warburg Inc., a registered
U.S. broker-dealer ("Selling Agent"; Seller and Selling Agent are sometimes
referred to collectively herein as the "Sellers").
WHEREAS, Issuer intends to purchase from Seller (although being under
no obligation to do so), and Seller intends to sell to Issuer upon Issuer's
request (although being under no obligation to do so) up to five capped call
options (the "Call Options") on up to 2,500,000 shares, in the aggregate, of
Issuer's common stock ("Issuer Common Stock") on terms and at times to be
arranged (any such transaction being hereinafter referred to as a "Call Option
Transaction");
WHEREAS, Issuer and Seller intend to enter into an ISDA Master
Agreement to which any Call Option Transactions will be subject (the "Master
Agreement") and to document the particular terms of each Call Option Transaction
by means of a confirmation (each a "Confirmation");
WHEREAS, Issuer wishes to pay to Seller the premiums for the Call
Options in the form of up to 500,000 shares of Issuer Common Stock (the "Premium
Shares"), and Seller is willing to accept payment in such form, but only if
under applicable law Seller is able to offer and sell the Premium Shares to the
public in the United States in market transactions on a continuous or delayed
basis, using Selling Agent as its selling agent (all such offers and sales
collectively, the "Offering") and certain other conditions are met; and
WHEREAS, to enable Seller to conduct the Offering in compliance with
applicable law, Issuer is willing to register the Premium Shares under the
Securities Act of 1933, as amended (such act together with the rules and
regulations thereunder collectively, the "Act") as a shelf registration pursuant
to Rule 415 thereunder, and to maintain such registration in effect during the
Prospectus Delivery Period (as defined below);
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the parties hereto agree as follows:
1. REGISTRATION STATEMENT AND PROSPECTUS.
Issuer has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the Act, a
registration statement on Form S-3 (No. 333- ) under the Act, including a
prospectus subject to completion relating to the Premium Shares, in respect of
the Offering. The term "Registration Statement" as used in this Agreement means
such registration statement (including all financial schedules and exhibits), as
amended or supplemented, together with any Rule 462(b) Registration Statement.
The term "Rule 462(b) Registration Statement" means a registration statement
filed pursuant to Rule 462(b) under the Act relating to the offering covered by
the aforementioned registration statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement at the time it became effective, or, if a prospectus is filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used
in this Agreement means the prospectus in the form included in the Registration
Statement at the time it became effective, as supplemented by the prospectus
filed with the Commission pursuant to Rule 424(b), in either case together with
any post-effective
<PAGE> 2
amendments thereto and Prospectus Supplements prepared and filed with the
Commission from time to time. Any reference in this Agreement to the
Registration Statement or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of the Registration Statement or the Prospectus,
as the case may be, and any reference to any amendment or supplement to the
Registration Statement or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
herein, the term "Incorporated Documents" means the documents which at the time
are incorporated by reference in the Registration Statement, the Prospectus, or
any amendment or supplement thereto.
2. ENTRY INTO AND CONSUMMATION OF CALL OPTION TRANSACTIONS.
If the parties enter into any Call Option Transaction, the relevant
Call Option will be effective on the trade date as set forth in the relevant
Confirmation or on such later date as may be specified in the Confirmation (the
"Effective Date"), subject to Issuer's tender of delivery of the required number
of Premium Shares on the premium payment date as set forth in the relevant
Confirmation (the "Premium Payment Date") and satisfaction of, or waiver by
Seller of, the conditions set forth in Section 7 hereof. If all such conditions
are satisfied on the Premium Payment Date, Seller shall accept Issuer's tender
of delivery. The Call Option Transaction shall be consummated when and only when
Seller accepts Issuer's tender of delivery and Issuer has delivered the Premium
Shares to Seller in accordance with Seller's instructions.
3. AGREEMENTS OF ISSUER.
Issuer agrees with Seller as follows:
(a) Issuer shall advise Seller promptly and, if requested by Seller,
shall confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement or the Prospectus or
for additional information; (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Premium Shares for offering or sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (iii)
during the Prospectus Delivery Period (as defined in subsection (d) below), of
any change in Issuer's condition (financial or other), business, prospects,
properties, net worth or results of operations, or of the happening of any
event, which makes any statement of a material fact made in the Registration
Statement or the Prospectus (as then amended or supplemented) untrue or which
requires the making of any additions to or changes in the Registration Statement
or the Prospectus (as then amended or supplemented) in order to state a material
fact required by the Act to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time during the Prospectus Delivery Period the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, Issuer shall make every reasonable effort to obtain the withdrawal of
such order at the earliest possible time.
(b) Issuer shall furnish to Seller without charge (i) four signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, together with any Rule 462(b) Registration Statement,
including financial statements and all exhibits thereto, (ii) such number of
conformed copies of the Registration Statement as originally filed and of each
amendment thereto, together
2
<PAGE> 3
with any Rule 462(b) Registration Statement, but without exhibits, as Seller may
request, (iii) such number of copies of the Incorporated Documents, without
exhibits, as Seller may request, and (iv) one copy of the exhibits to the
Incorporated Documents.
(c) Issuer shall not file any amendment to the Registration Statement
or make any amendment or supplement to the Prospectus of which Seller shall not
previously have been advised or to which, after Seller shall have received a
copy of the document proposed to be filed, Seller shall reasonably object. Until
the end of the Prospectus Delivery Period (as defined in subsection (d) below),
Issuer shall provide a copy to Seller, upon or substantially contemporaneously
with its filing, of any document which upon filing becomes an Incorporated
Document.
(d) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel to Seller a prospectus is required by the Act to be delivered in
connection with sales of Premium Shares by Sellers (the "Prospectus Delivery
Period"), Issuer shall expeditiously deliver to Sellers, without charge until
one year after the expiration by its terms of the last Call Option to expire, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
Sellers may request. Issuer consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Premium Shares are offered by Sellers and by all dealers to whom Premium Shares
may be sold. If during the Prospectus Delivery Period any event shall occur that
in the judgment of Issuer or in the opinion of counsel to Seller is required to
be set forth in the Prospectus (as then amended or supplemented) or should be
set forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus, or to file under the Exchange Act any
document which, upon filing, becomes an Incorporated Document, in order to
comply with the Act or any other law, Issuer shall forthwith notify Sellers and
prepare and, subject to the provisions of subsection (c) above, file an
appropriate supplement or amendment to the Prospectus, or file such document,
with the Commission and shall expeditiously furnish to Sellers such reasonable
number of copies thereof as Sellers may request. (The period of time from the
receipt of such notice by Sellers until receipt by Sellers of such supplement or
amendment, or until the filing of such document with the Commission, as the case
may be, is hereinafter referred to as a "Selling Pause.")
(e) Issuer shall cooperate with Seller and its counsel in connection
with the registration or qualification of the Premium Shares for offering and
sale by Sellers under the securities or Blue Sky laws of such jurisdictions as
Seller may designate and shall file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall Issuer be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Premium Shares, in any jurisdiction
where it is not now so subject.
(f) Issuer shall make generally available to its security holders a
consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section ll (a) of the Act.
(g) During the period of four years hereafter, Issuer shall furnish to
Seller (i) as soon as available, a copy of each report of Issuer mailed to
stockholders or filed with the Commission, and (ii) from
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time to time while any of Sellers holds Premium Shares for sale, such other
information concerning Issuer as Seller may request.
(h) If Rule 430A of the Act is employed, Issuer shall timely file the
Prospectus pursuant to Rule 424(b) under the Act and shall advise Seller of the
time and manner of such filing.
(i) Except as stated in this Agreement and the Prospectus, Issuer shall
not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Issuer Common Stock to facilitate the sale or resale of the
Premium Shares.
(j) Issuer shall use its best efforts to have the Premium Shares made
eligible for quotation in the NASDAQ National Market System on or before the
first Effective Date.
(k) For so long as this Agreement shall be in effect, Issuer shall
timely file all reports that it is required to file pursuant to the Exchange
Act.
4. AGREEMENTS OF SELLER AND SELLING AGENT.
Seller and Selling Agent agree with Issuer as follows:
(a) Seller and Selling Agent each agrees that it will not effect any
disposition of the Premium Shares that would constitute a sale within the
meaning of the Act except in compliance with applicable securities laws, and
that it will promptly notify Issuer of any material changes in the information
set forth in the Registration Statement regarding Seller or Selling Agent or the
plan of distribution.
(b) Seller and Selling Agent each acknowledges that there may
occasionally be Selling Pauses. Seller and Selling Agent each hereby covenants
that it will not sell any Premium Shares pursuant to the Prospectus during a
Selling Pause.
(c) Seller and Selling Agent each agrees not to make any sale or other
transfer of the Premium Shares pursuant to the Registration Statement without
effectively causing the prospectus delivery requirements under the Act to be
satisfied.
(d) Seller shall advise Issuer at such time as a prospectus is no
longer required by the Act to be delivered in connection with sales of Premium
Shares by Sellers.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER.
Issuer represents and warrants to Sellers on and as of (i) the date
hereof, (ii) each Effective Date, (iii) each Premium Payment Date and (iv) in
respect of subsections (a), (b) and (c) below, the date of each offer and sale
of Premium Shares hereunder (other than any offers and sales that might be made
during a Selling Pause) that:
(a) The Registration Statement has (i) been prepared by Issuer in
conformity with the requirements of the Act, (ii) been filed with the Commission
under the Act and (iii) become effective under the Act. Copies of such
Registration Statement have been delivered by Issuer to Seller. The Commission
has not issued any order preventing or suspending the use of any Prospectus.
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(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the Act
and do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the applicable
filing date (as to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information furnished
to Issuer by or on behalf of either of Sellers specifically for inclusion
therein.
(c) The Incorporated Documents, when they became effective or were
filed with the Commission, as the case may be, conformed in all material
respects to the requirements of the Act or the Exchange Act, as applicable, and
none of such documents contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and any further documents filed and
incorporated by reference in the Prospectus, when such documents become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange Act, as
applicable, and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that no representation or warranty
is made as to information contained in or omitted from any document incorporated
by reference in the Prospectus in reliance upon and in conformity with written
information furnished by or on behalf of either Seller to Issuer specifically
for inclusion therein; and provided further that, for purposes of this
subsection (c), any statement contained in any such document shall be deemed to
be modified or superseded to the extent that a statement in any Incorporated
Document prepared or filed with the Commission on a later date modifies or
replaces such statement, whether or not such later prepared and filed document
so states.
(d) Issuer and each of its Subsidiaries (such term having the meaning
set forth in Rule 405 under the Act) have been duly incorporated or organized
and are validly existing as corporations or partnerships in good standing (or
the legal equivalent) under the laws of their respective jurisdictions of
incorporation or organization, are duly qualified to do business and are in good
standing as foreign corporations or partnerships in each jurisdiction in which
their respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the condition, financial
or otherwise, or in the earnings or business affairs of Issuer and its
Subsidiaries considered as one enterprise (a "Material Adverse Effect"); Issuer
and each of its Subsidiaries have full corporate power and authority necessary
to own or hold their respective properties and to conduct the businesses in
which they are engaged.
(e) Issuer has an authorized capitalization as set forth in the
Prospectus, and all outstanding shares of Issuer Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; and all of the issued
shares of capital stock or partnership interests of each Subsidiary of Issuer
have been duly authorized and validly issued, are fully paid and non-assessable
and (except for directors' qualifying shares or as disclosed in the Prospectus)
are owned directly or indirectly by Issuer, free and clear of all liens,
encumbrances, equities or claims, except as disclosed in the Prospectus.
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(f) The Premium Shares have been duly authorized and, when issued and
delivered against payment therefor as provided herein will be validly issued,
fully paid and non-assessable and will conform to the description thereof
contained in the Prospectus.
(g) The execution, delivery and performance of this Agreement by Issuer
and the consummation of the transactions contemplated hereby will not conflict
with or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which Issuer or any
of its Subsidiaries is a party or by which Issuer or any of its Subsidiaries is
bound or to which any of the property or assets of Issuer or any of its
Subsidiaries is subject, nor will such actions result in any violation of the
provisions of the charter or by-laws or other organizational documents of Issuer
or any of its Subsidiaries or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over Issuer or any
of its Subsidiaries or any of their properties or assets; and except for the
registration of the Premium Shares under the Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Premium Shares by Seller, no consent, approval,
authorization or order of, or filing or registration with, any such court or
governmental agency or body (except such as have been obtained) is required for
the execution, delivery and performance of this Agreement by Issuer and the
consummation by Issuer of the transactions contemplated hereby.
(h) There are no contracts, agreements or understandings between Issuer
and any person granting such person the right to require Issuer to file a
registration statement under the Act with respect to any securities of Issuer
owned or to be owned by such person or to require Issuer to include such
securities in the securities registered pursuant to the Registration Statement.
(i) Except as referred to in the Prospectus, Issuer has not sold or
issued any shares of Issuer Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Act, other than shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee compensation plans
or pursuant to outstanding options, rights or warrants.
(j) Neither Issuer nor any of its Subsidiaries has sustained, since the
date of the latest audited financial statements included or incorporated by
reference in the Prospectus, any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
except for such losses or interferences that have not had, whether individually
or in the aggregate, a Material Adverse Effect; and, since such date, there has
not been any Material Adverse Effect in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
Issuer and its Subsidiaries, otherwise than as set forth or contemplated in the
Prospectus; and, during the period from such date to the date of this Agreement,
there has not been any change in the capital stock or long-term debt of Issuer
or any of its Subsidiaries that is material to the Issuer and its Subsidiaries
taken as a whole.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus present fairly, in all material
respects, the financial position of the entities purported to be shown thereby,
at the dates and for the periods indicated, in conformity with generally
accepted accounting principles.
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(l) Arthur Andersen, LLP, who have certified certain financial
statements of Issuer, whose report appears in the Prospectus or is incorporated
by reference therein and who have delivered the initial letter referred to in
Section 7(d) hereof, are independent public accountants as required by the Act.
(m) Except as set forth in the Registration Statement, Issuer and each
of its Subsidiaries have good and marketable title to all real property owned by
them and reflected in the Issuer's consolidated financial statements, and good
and marketable title to all personal property owned by them, in each case free
and clear of all liens, encumbrances and defects, except for such liens,
encumbrances and defects that, individually or in the aggregate, would not have
a Material Adverse Effect and do not materially interfere with the use made
thereof by Issuer and its Subsidiaries; and all real property and buildings held
under lease by Issuer and its Subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are not material to
the Issuer and its Subsidiaries taken as a whole and do not interfere with the
use made thereof by Issuer and its Subsidiaries.
(n) Issuer and its Subsidiaries maintain insurance in such amounts and
covering such risks as Issuer believes is commercially reasonable.
(o) Except as described or referred to in the Prospectus, there are no
legal or governmental proceedings pending to which Issuer or any of its
Subsidiaries is a party or of which any property or assets of Issuer or any of
its Subsidiaries is the subject wherein an unfavorable decision, ruling or
finding is reasonably likely and would be reasonably expected to have a Material
Adverse Effect; and to the best of Issuer's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others.
(p) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration Statement
by the Act which have not been described in the Prospectus or filed as exhibits
to the Registration Statement or incorporated therein by reference as permitted
by the Act.
(q) No relationship, direct or indirect, exists between or among Issuer
on the one hand, and the directors, officers, stockholders, customers or
suppliers of Issuer on the other hand, which is required to be described in the
Prospectus which is not so described in the Prospectus.
(r) No labor disturbance by the employees of Issuer or any of its
Subsidiaries exists or, to the knowledge of Issuer, is imminent which is
reasonably expected to have a Material Adverse Effect and Issuer is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which is reasonably expected
to have a Material Adverse Effect.
(s) Issuer has filed or caused to be filed all federal, state and local
income and franchise tax returns required to be filed through the date hereof
and has paid all taxes due thereon, except where the failure to do so would not
have a Material Adverse Effect, and no tax deficiency has been determined
adversely to Issuer or any of its Subsidiaries which has had (nor does Issuer
have any knowledge of any tax deficiency that has been or could reasonably be
asserted against Issuer or any of its Subsidiaries which is reasonably expected,
individually or in the aggregate, to have) a Material Adverse Effect.
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(t) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, Issuer has not declared or paid any dividend on its capital stock.
(u) Issuer maintains a system of internal accounting controls meeting
the requirements of Section 13(b)(2) of the Exchange Act in all material
respects.
(v) Neither Issuer nor any of its Subsidiaries (i) is in violation of
its respective charter, by-laws or other organizational documents, (ii) is in
default in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other material agreement
or instrument to which it is a party or by which it is bound or to which any of
its properties or assets is subject, except for such defaults that would not,
whether individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect, (iii) is in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject, except for such violations that would not have a Material
Adverse Effect or (iv) has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit necessary
to the ownership of its property or to the conduct of its business as presently
conducted, except for such failures that would not, whether individually or in
the aggregate, have a Material Adverse Effect.
(w) Neither Issuer nor any Subsidiary is an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
(x) Issuer has not taken, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of any
security of Issuer to facilitate the sale or resale of the Premium Shares,
except for any actions that do not constitute a violation of any law, rule,
regulation or ordinance.
(y) This Agreement has been duly authorized, executed and delivered by
Issuer and constitutes a legal, valid and binding obligation of Issuer
enforceable against Issuer in accordance with the terms herein.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) Issuer (subject to the last sentence of this Section 6(a)) agrees
to indemnify and hold harmless Seller and Selling Agent and each person, if any,
who directly or indirectly controls either of them 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, liabilities and expenses, including reasonable costs of
investigation (collectively, "Claims"), arising out of or based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the Claims arise out of or are based upon (x)
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with information furnished in writing to Issuer by Seller or Selling Agent or on
their behalf expressly for use in connection therewith, (y) any untrue statement
or omission or alleged untrue statement or omission in a Prospectus delivered to
an offeree or purchaser of Premium Shares during a Selling Pause, or (z) any
untrue statement or omission or alleged untrue statement
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or omission in a Prospectus which was corrected in a subsequent Prospectus that
was delivered to the indemnified party in sufficient time and in requisite
quantity prior to the pertinent sales by the indemnified party. The foregoing
indemnity agreement shall be in addition to any liability which Issuer may
otherwise have.
(b) If any action, suit or proceeding shall be brought against Seller
or Selling Agent or any person controlling either of them in respect of which
indemnity may be sought against Issuer, then Seller, Selling Agent or such
controlling person shall promptly notify Issuer, and Issuer shall assume the
defense thereof, including the employment of counsel and payment of all fees and
expenses. Seller, Selling Agent and any such controlling person shall have the
right to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of Seller, Selling Agent or such controlling person
unless (i) Issuer has agreed in writing to pay such fees and expenses, (ii)
Issuer has failed to assume the defense and employ counsel, or (iii) the named
parties to any such action, suit or proceeding (including any impleaded parties)
include Issuer and Seller, Selling Agent or such controlling person, and Seller,
Selling Agent or such controlling person shall have been advised by its counsel
that representation of such indemnified party and Issuer by the same counsel
would be inappropriate under applicable standards of professional conduct
(whether or not such representation by the same counsel has been proposed) due
to actual or potential differing interests between them, in which case Issuer
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of Seller, Selling Agent or such controlling person. It is
understood, however, that Issuer shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for Seller, Selling Agent and persons controlling either of them, which
firm shall be designated in writing by Seller or Selling Agent and shall be
reasonably acceptable to Issuer, and that all such fees and expenses shall be
reimbursed as they are incurred. Issuer shall not be liable for any settlement
of any such action, suit or proceeding effected without its written consent,
which consent shall not be unreasonably withheld, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, Issuer agrees to indemnify and hold harmless Seller
and Selling Agent, to the extent provided in the preceding subsection (a), and
any such controlling person from and against any loss, claim, damage, liability
or expense by reason of such settlement or judgment.
(c) Seller and Selling Agent agree to indemnify and hold harmless
Issuer, its directors, its officers who sign the Registration Statement and any
person who controls Issuer within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from Issuer to Seller and Selling Agent, but only with respect to information
furnished in writing by or on behalf of Seller or Selling Agent expressly for
use in the Registration Statement, the Prospectus or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against Issuer, any
of its directors, any such officer or any such controlling person based on the
Registration Statement, the Prospectus or any amendment or supplement thereto,
and in respect of which indemnity may be sought against Seller or Selling Agent
pursuant to this subsection (c), Seller and Selling Agent shall have the rights
and duties given to Issuer by subsection (b) above (except that if Issuer shall
have assumed the defense thereof Seller and Selling Agent shall not be required
to do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at their expense),
and Issuer, its directors, any such officer and any such controlling person
shall have the rights and duties given to Seller and Selling Agent by subsection
(b) above. The foregoing indemnity agreement shall be in addition to any
liability which Seller and Selling Agent may otherwise have.
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(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under subsection (a) hereof, although
applicable in accordance with its terms, in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then an indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by Issuer on the one hand
and Seller and Selling Agent on the other hand from the offering of the Premium
Shares, or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
Issuer on the one hand and Seller and Selling Agent on the other in connection
with the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by Issuer on the one hand and Seller and Selling
Agent on the other shall be deemed to be in the proportion of 90% of the
benefits by the Issuer and 10% of the benefits by the Seller and Selling Agent.
The relative fault of Issuer on the one hand and Seller and Selling Agent on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Issuer on
the one hand or by Seller or Selling Agent on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) Issuer, Seller and Selling Agent agree that it would not be just
and equitable if contribution pursuant to this Section 6 were determined by a
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in subsection (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in subsection (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 6, Seller and Selling
Agent collectively shall not be required to contribute any amount in excess of
the amount by which the total price of the Premium Shares obtained from sales
pursuant to the Offering exceeds the amount of any damages which Seller and
Selling Agent will have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, which shall not be unreasonably withheld, effect any
settlement of any pending or threatened action, suit or proceeding in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 6 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of Issuer set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of Seller, Selling Agent or any person
controlling either of them, Issuer, its directors or officers or any person
controlling Issuer, (ii) acceptance of any Premium Shares and payment therefor
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hereunder, and (iii) any termination of this Agreement. A successor to Seller or
Selling Agent or any person controlling either of them, or to Issuer, its
directors or officers or any person controlling Issuer, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 6.
7. CONDITIONS OF CONSUMMATION.
Seller's obligation to consummate any Call Option Transaction on its
Premium Payment Date is subject to the following conditions:
(a) The Registration Statement shall have become effective, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of Issuer or Seller, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to their satisfaction.
(b) Sellers shall have received an opinion of Morgan, Lewis & Bockius
LLP, counsel for Issuer, dated the relevant Premium Payment Date and addressed
to Sellers in the form heretofore approved by Sellers.
(c) Sellers shall have received an opinion of Barbara S. Schilberg,
General Counsel to Issuer, dated the relevant Premium Payment Date and addressed
to Sellers, in the form heretofore approved by Sellers.
(d) Sellers shall have received letters addressed to Sellers and dated
the date hereof and the relevant Premium Payment Date from Arthur Andersen, LLP,
independent certified public accountants, substantially in the forms heretofore
approved by Sellers.
(e) (i) there shall not have been any change in the capital stock of
Issuer nor any material increase in the short-term or long-term debt of Issuer
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (ii) there shall not have been, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of operations of
Issuer and the Subsidiaries taken as a whole; (iii) Issuer and the Subsidiaries
shall not have any liabilities or obligations, direct or contingent (whether or
not in the ordinary course of business), that are material to Issuer and the
Subsidiaries, taken as a whole, other than those reflected or referred to in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); and (iv) all the representations and warranties of Issuer contained in
this Agreement shall be true and correct in all material respects on and as of
the relevant Premium Payment Date as if made on and as of such Premium Payment
Date, and Seller shall have received a certificate on the relevant Premium
Payment Date dated such Premium Payment Date and signed on behalf of Issuer by
the chief executive officer and the chief financial officer of Issuer (or such
other officers as are acceptable to Seller), to the effect set forth in this
Section 7(e) and in Section 7(f) hereof.
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(f) Issuer shall not have failed to perform or comply with any of its
agreements herein contained and required to be performed or complied with by it
hereunder.
(g) The Premium Shares shall have become eligible for quotation in
NASDAQ National Market System.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to Seller and its counsel.
Any certificate or document signed by any officer of Issuer and
delivered to Seller, Selling Agent or their counsel shall be deemed a
representation and warranty by Issuer to Seller as to the statements made
therein.
8. EXPENSES.
Issuer agrees to pay the following costs and expenses and all other
costs and expenses incident to the performance by it of its obligations
hereunder: (i) the preparation, printing or reproduction, and filing with the
Commission of the Registration Statement (including financial statements and
exhibits thereto), the Prospectus and each amendment or supplement to any of
them; (ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
Registration Statement, the Prospectus, the Incorporated Documents, and all
amendments or supplements to any of them, as may be reasonably requested for use
in connection with the offering and sale of the Premium Shares; (iii) the
preparation, printing, authentication, issuance and delivery of certificates for
the Premium Shares, including any stamp taxes in connection with the original
issuance and sale of the Premium Shares; (iv) the printing (or reproduction) and
delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda
and all other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Premium Shares; (v) obtaining eligibility of
the Premium Shares for quotation on the NASDAQ National Market System; (vi) the
registration or qualification of the Premium Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 3(e)
hereof (including the reasonable fees, expenses and disbursements of Sellers'
counsel relating to the preparation, printing or reproduction, and delivery of
the preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of Sellers'
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.; and (viii) the fees and expenses of
Issuer's accountants and the fees and expenses of counsel (including local and
special counsel) for Issuer.
9. EFFECTIVE DATE OF AGREEMENT.
This Agreement shall become effective upon the execution and delivery
hereof by the parties hereto.
10. TERMINATION OF AGREEMENT.
This Agreement shall be subject to termination in Seller's absolute
discretion, without liability on its part to Issuer, by notice to Issuer if
before the consummation of the first Call Option Transaction (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange, or the NASDAQ National Market System shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Pennsylvania shall have been declared by
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either federal or state authorities, or (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in Seller's reasonable judgment, impracticable to commence or continue the
Offering. Notice of such termination may be given to Issuer by telegram,
telecopy or telephone and shall be subsequently confirmed by letter.
11. INFORMATION FURNISHED BY SELLER AND SELLING AGENT.
The statements set forth in the second paragraph on the cover page of
the Prospectus and the statements under the caption "Plan of Distribution" in
the Prospectus constitute, as of the date hereof, the only information furnished
by Seller or Selling Agent or on their behalf as such information is referred to
in Sections 5(c) and 6 hereof.
12. SEVERABILITY.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
13. MISCELLANEOUS.
(a) Except as otherwise provided in Sections 3 and 10 hereof, notice
given pursuant to any provision of this Agreement shall be in writing and shall
be delivered (i) if to Issuer, at the office of Issuer at 145 Brandywine
Parkway, West Chester, PA 19380, Attention: Barbara S. Schilberg, Senior Vice
President and General Counsel; (ii) if to Seller, in care of Selling Agent at
its office at 222 Broadway, New York, NY 10038, Attention, Robert C. Errico,
Executive Director, Legal Affairs; and (iii) if to Selling Agent, at its office
at 222 Broadway, New York, NY 10038, Attention, Robert C. Errico, Executive
Director, Legal Affairs.
(b) This Agreement has been and is solely for the benefit of Sellers,
Issuer, its directors and officers, and the other controlling persons referred
to in Section 6 hereof and their respective successors and assigns, to the
extent provided herein, and no other person shall acquire or have any right
under or by virtue of this Agreement. Neither the term "successor" nor the term
"successors and assigns" as used in this Agreement shall include a purchaser
from Seller of any of the Premium Shares in his status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS; ENTIRE AGREEMENT.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed within the State of New York.
(b) This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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(c) This Agreement, the Master Agreement and each Confirmation
constitute the entire agreement among the parties and supersede any previous
agreements or understandings with respect to the subject matter hereof and
thereof.
[End of page]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CEPHALON, INC. (Issuer)
By:____________________________________
Name:__________________________________
Title:_________________________________
SWISS BANK CORPORATION,
LONDON BRANCH (Seller)
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
SBC WARBURG INC. (Selling Agent)
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
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<PAGE> 1
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 3, 1997
included in Cephalon, Inc.'s Form 10-K/A-2 for the year ended December 31, 1996
and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
April 7, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF COUNSEL
Clark & Elbing LLP hereby consents to the use of its name under the caption
"Risk Factors - Patents and Proprietary Technologies" in the Registration
Statement of Cephalon, Inc. (the "Company") on Form S-3 filed with the
Securities and Exchange Commission on April 9, 1997.
In giving such consent, Clark & Elbing LLP does not thereby admit that it
is acting with the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Paul T. Clark
Clark & Elbing LLP
By: Paul T. Clark
Dated: April 8, 1997
