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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
May 7, 1997
(Date of earliest event reported)
Cephalon, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-19119 23-2484489
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) ID No.)
145 Brandywine Parkway
West Chester, Pennsylvania 19380
(Address of principal executive offices) (Zip Code)
(610) 344-0200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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ITEM 5. OTHER EVENTS.
GENERAL
Cephalon, Inc. (the "Company") has confirmed the terms of its
previously-announced arrangement for the purchase of capped call options with
respect to shares of its Common Stock. The Company has acquired capped call
options (the "Options") from Swiss Bank Corporation, London Branch ("SBC") on an
aggregate of 2,500,000 shares of Common Stock, pursuant to an ISDA Master
Agreement (the "Master Agreement"), dated as of May 2, 1997, between the Company
and SBC, and a Confirmation (the "Confirmation") executed pursuant to the Master
Agreement on May 7, 1997. In payment of the premium on such Options, the Company
will issue to SBC, on May 8, 1997, an aggregate of 490,000 shares of Common
Stock (the "Shares") pursuant to an Agreement in Regard to Premium Shares (the
"Share Agreement"), dated as of May 2, 1997, by and among the Company, SBC and
SBC Warburg Inc. The Shares are being issued to SBC in a private placement
transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and the Company has registered the resale of the Shares
by SBC and SBC Warburg under the Securities Act on a Registration Statement on
Form S-3, which was declared effective by the Securities and Exchange Commission
on May 1, 1997.
TERMS OF THE CALL OPTIONS
The Options, which are European-style, have been written on an aggregate
of 2,500,000 shares of Common Stock. The Options, which will expire on October
31, 1997, have a strike price of $21.50 per share (the "Strike Price") and a cap
price of $39.50 per share (the "Cap Price"). The aggregate purchase price for
the Options is being paid by the Company through the issuance of the Shares to
SBC.
Although at this time the Company expects that the Options will be settled
in cash, the Company may elect to physically settle the Options by requiring
delivery by SBC to the Company of shares of the Common Stock. In the event that
the Options are 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 the Options. In the event that the Options are
physically settled, SBC will deliver shares of the Common Stock to the Company,
which likely would include some or all of the Shares, upon payment by the
Company of the applicable exercise price.
COMPANY REASONS FOR THE OPTION TRANSACTION; RISKS TO THE COMPANY
The Company purchased the Options to allow the Company to benefit, subject
to the terms of the Options, from any appreciation in the market value of the
Company's Common Stock at expiration of the Options. If the Company elects cash
settlement, it will receive on exercise of each Option an amount in cash equal
to the excess, if any, of (i) an average of the market prices of the Common
Stock during a specified period prior to expiration, determined in accordance
with the Confirmation or (ii) the Cap Price, whichever is less, over the Strike
Price. If the Company elects settlement in stock, it will receive on exercise of
each Option one share of Common Stock against payment of an amount equal to the
sum of (x) the Strike Price and (y) the excess, if any, of the market price of
the Common Stock at expiration over the Cap Price. The Company's board of
directors has determined that the purchase of the Options, in exchange for the
Shares, is an appropriate method to take advantage of any stock price
appreciation.
The funds, if any, received from the exercise of the Options may be used
by the Company to fund a portion of its payment obligations related to Cephalon
Clinical Partners, L.P. (the "Partnership"). If MYOTROPHIN (rhIGF-I) were to be
approved for commercialization in the United States or certain other
territories, the Company is obligated to make a $16,000,000 milestone payment to
the Partnership. In addition, at a specified time following commercialization,
the Company is required to purchase the outstanding limited partnership
interests for approximately $40,000,000 plus royalties, in order to retain its
rights to commercialize MYOTROPHIN in the United States and Europe.
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As an alternative to making these payments, the Company may seek to
acquire some or all of the remaining limited partnership interests. Although the
Company has actively discussed this possibility with the General Partner of the
Partnership, there can be no assurance that any agreement can be reached with
the General Partner to acquire the limited partnership interests. Even if an
agreement can be reached, the Company estimates that to reach an agreement the
purchase price could be significant, possibly in the $125 million range. In
addition to using the proceeds, if any, from exercising the Options, the Company
would explore one or more additional financing alternatives, after the May 8th
meeting of the Advisory Committee referred to below, if it were to proceed with
an acquisition of limited partnership interests.
Any funds received from the exercise of the Options that are not used to
fund the Company's obligations related to the Partnership would be used to fund
the research and development activities of the Company and the acquisition of
technologies, and for other general corporate purposes.
Purchase of the Options by the Company involves certain risks.
Particularly, as described above, the purchase of the Options will benefit the
Company only if the market price of the Common Stock appreciates to a level
above the strike price of the Options during the term of the Options and remains
at such a level at the expiration of the Options. If the market price of the
Common Stock at expiration of the Options does not exceed the Strike Price, the
Company will have sold Shares for a consideration which, at expiration of the
Options, has no value. If the market price of the Common Stock at expiration of
the Options exceeds the Strike Price, but by less than the premium for the
Options, the Company will have issued Shares for a consideration which, at the
expiration of the Options, is worth less than the market value of the Shares
when they were sold. The benefit to the Company would, in each case, be affected
by applicable transaction costs. In any event, the number of the Company's
issued and outstanding shares of Common Stock will increase by 490,000 Shares,
representing a dilution of approximately 2% based on the number of shares of
Common Stock currently outstanding.
One near-term event that is expected to directly affect the value of the
Options is the scheduled meeting of the Peripheral and Central Nervous System
Drugs Advisory Committee (the "Advisory Committee") of the Food and Drug
Administration (the "FDA") on May 8, 1997 with respect to MYOTROPHIN (rhIGF-I).
The Company has not received any indication as to the outcome of the Advisory
Committee meeting or any subsequent FDA decision on the New Drug Application
with respect to MYOTROPHIN (rhIGF-I) (the "NDA"). If the Advisory Committee
recommends approval of MYOTROPHIN (rhIGF-I) and if the FDA subsequently approves
the commercialization of the product, the market price of the Company's Common
Stock may increase, in which case the Company could realize a financial benefit
from the Options. If the Advisory Committee does not recommend approval of the
NDA or if the FDA does not approve the NDA, the price of the Common Stock is
likely to decrease and the Options will have no value.
Because the Option financing is innovative and is structured to take
advantage of increases in the price of the Company's Common Stock, there is a
risk that a third party could assert that the Company has not fully complied
with its applicable disclosure obligations. Although the Company believes that
it has complied with its obligations under applicable securities laws, there can
be no assurance that such a claim will not be asserted. Defense of any such
claim could be costly to the Company and there can be no assurance that any such
defense would be successful.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired: None
(b) Pro Forma Financial Information: None
(c) Exhibits: Reference is made to the Exhibit Index annexed hereto and
made a part hereof.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEPHALON, INC.
Date: May 7, 1997 By: /s/ J. Kevin Buchi
-----------------------------------
J. Kevin Buchi
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
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<S> <C> <C>
10.1 Confirmation entered into on May 7, 1997, pursuant to ISDA
Master Agreement by and between Cephalon, Inc. and Swiss
Bank Corporation, London Branch
</TABLE>
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Exhibit 10.1
CONFIRMATION
Date: May 7, 1997
To: Cephalon, Inc. ("Party B")
Attention: J. Kevin Buchi
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.
This Confirmation constitutes a "Confirmation" as referred to in the 1992 ISDA
Master Agreement 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 May 2, 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 : May 7, 1997
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 : 2,500,000
Contract Multiplier : 1.00
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Strike Price : USD 21.50
Cap Price : USD 39.50
Total Premium : 490,000 shares of common stock of
Cephalon, Inc. (the "Premium Shares").
The Premium Shares are subject to the Agreement in
Regard to Premium Shares dated as of May 2, 1997
between Party A, Party B and SBC Warburg Inc.
Premium
Payment Date : May 8, 1997.
Expiration Date : October 31, 1997, 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
Price Point : A Price Point for which no Market Disruption Event has
occurred or is continuing.
Price Point : On any Exchange Business Day, each of 10:00 am, 12:00
noon and 3:00 pm local time in New York City.
Market
Disruption Event : The occurrence or existence during the Relevant Period
with respect to a particular Price Point of any
suspension of or limitation imposed on trading (by
reason of movements in price exceeding levels
permitted by the relevant exchange or otherwise),
which suspension or limitation is imposed for a period
in excess of the Disrupted Period, 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 option contracts
on the Shares.
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Relevant Period
and Disruption
Period : With respect to a Price Point taken at the following
times, the following periods (all times, local time in
New York City):
Time Relevant Period Disrupted Period
---- --------------- ----------------
10:00 am 9:30 am to 10:00 am 15 minutes
12:00 noon 10:00 am to 12:00 noon 1 hour
3:00 pm 12:00 noon to 3:00 pm 1 hour
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 or
its agent (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.
Telephone and
facsimile number
of Seller's agent
for purposes of
giving notice : Telephone: (312) 554-5249
Fax: (312) 554-6271
Attention: David P. Stowell
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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, the
Seller shall deliver to the Buyer the number of
Shares equal to the Contract Multiplier multiplied
by the number of Options, in three separate
deliveries of 833,334 Options on the first
Settlement Date and 833,333 Options on each of the
second and third Settlement Dates, against payment by
the Buyer to the Seller on each such Settlement Date
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 Shares to be delivered on such Settlement
Date. 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
payments and deliveries shall 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 60 Normal Price
Points, the Reference Price shall be the arithmetic
average of the Share Prices at those 60 Normal Price
Points.
(b) If the Valuation Period does not contain 60 Normal
Price Points, the parties shall jointly determine the
Share Price for the last Price Point on Valuation Date
and as many Price Points immediately preceding the
Valuation Date as shall be necessary, when such Share
Prices are taken together with the
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Share Prices on all Normal Price Points occurring
within the Valuation Period, to provide 60 Share
Prices, and in such case the Reference Price shall be
the arithmetic average of those 60 Share Prices.
Share Price : The bid price per Share as reported on the QRM screen
on Bloomberg at the relevant Price Point, or, if
there is no bid price at such time, the last previous
bid price as reported on the QRM screen on Bloomberg.
Valuation Period : The period from and including the nineteenth 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
include three Normal Price Points, the Valuation
Period shall be extended so that the Valuation Period
includes 60 Normal Price Points, but in no event shall
the last day of the Valuation Period be later than the
twentieth 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 Dates : If the Transaction is to be cash settled, there shall
be a single Settlement Date, which date shall be the
third Currency Business Day after the Valuation Date.
If the Transaction is to be physically settled, the
Settlement Dates shall be the third, fourth and
fifth 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
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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: Previously provided
Payments and deliveries to Party B: Previously provided
6
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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: /s/ Martin Perkins By: /s/ Karen Hayes
- ------------------------------ -------------------------------
Name: Martin Perkins Name: Karen Hayes
Title: Associate Director Title: Associate Director
Confirmed as of the 7th day
of May, 1997
CEPHALON, INC.
By: /s/ J. Kevin Buchi
- -------------------------------
Name: J. Kevin Buchi
Title: Senior Vice President and
Chief Financial Officer
7
