<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CEPHALON, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[Cephalon Logo]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 16, 2000
------------------------
TO THE STOCKHOLDERS OF CEPHALON, INC.:
Notice is hereby given that the annual meeting of stockholders of CEPHALON,
INC., a Delaware corporation (the "Company" or "Cephalon"), will be held at The
Desmond Great Valley Hotel & Conference Center, One Liberty Boulevard, Malvern,
Pennsylvania, on Tuesday, May 16, 2000, at 9:30 a.m. Philadelphia time, for the
following purposes:
1. To elect seven directors;
2. To approve an amendment to, and restatement of, the Company's
Equity Compensation Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record as of the close of business on March 21, 2000
will be entitled to notice of the annual meeting and to vote at the annual
meeting and any adjournment thereof. A list of stockholders of the Company
entitled to vote at the meeting will be available for inspection by a
stockholder at the Company's office, for the ten days prior to the annual
meeting and during normal business hours.
By Order of the Board of Directors,
JOHN E. OSBORN
Secretary
West Chester, Pennsylvania
April 11, 2000
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. IF A STOCKHOLDER
DECIDES TO ATTEND THE MEETING, HE OR SHE MAY, IF SO DESIRED,
REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
<PAGE> 3
[Cephalon Logo]
CEPHALON, INC.
145 BRANDYWINE PARKWAY
WEST CHESTER, PENNSYLVANIA 19380-4245
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of Cephalon, Inc. (the "Company" or
"Cephalon"), for use at the 2000 annual meeting of stockholders to be held at
The Desmond Great Valley Hotel & Conference Center, One Liberty Boulevard,
Malvern, Pennsylvania, on Tuesday, May 16, 2000, at 9:30 a.m. Philadelphia time,
and at any adjournment thereof. This proxy statement and the accompanying proxy
card are expected to be first distributed to stockholders on or about April 11,
2000.
In addition to the use of the mails, proxies may be solicited by telephone
by officers, directors and a small number of regular employees of the Company
who will not be specially compensated for such services. The Company also has
retained the services of MacKenzie Partners, Inc. as the Company's proxy
solicitation agent for the 2000 annual meeting, at a cost of approximately
$5,000. The Company also will request banks, brokers and other custodians,
nominees and fiduciaries to solicit proxies from beneficial owners, where
appropriate, and will reimburse such persons for reasonable expenses incurred in
that regard.
The Company's annual report to stockholders for the fiscal year ended
December 31, 1999, including financial statements, is being mailed to
stockholders with this proxy statement but does not constitute a part of this
proxy statement.
<PAGE> 4
VOTING AT THE MEETING
Only holders of shares of common stock of the Company, par value $.01 per
share ("Common Stock"), of record at the close of business on March 21, 2000 are
entitled to vote at the meeting and at any adjournment thereof. As of that date,
there were 33,264,686 shares of Common Stock outstanding. Each stockholder
entitled to vote shall have the right to one vote for each share outstanding
held in the name of such stockholder. The Company presently has no other class
of stock outstanding and entitled to be voted at the meeting. The presence in
person or by proxy of stockholders entitled to cast a majority of all votes
entitled to be cast at the meeting shall constitute a quorum.
Shares cannot be voted at the meeting unless the holder of record is
present in person or by proxy. The enclosed proxy card is a means by which a
stockholder may authorize the voting of his or her shares at the meeting. The
shares of Common Stock represented by each properly executed proxy card will be
voted at the meeting in accordance with the directions specified by each
stockholder. Stockholders are urged to specify their choices by marking the
appropriate boxes on the enclosed proxy card; if no choice has been specified,
the shares will be voted as recommended by the board of directors. If any other
matters are properly presented to the meeting for action, the proxy holders will
vote the proxies (which confer discretionary authority to vote on such matters)
in accordance with their judgment. However, execution of the accompanying proxy
will not affect the right of a stockholder to attend the meeting and vote in
person. Any stockholder granting a proxy has the right to revoke it by giving
written or oral notice of revocation to the Secretary of the Company, or by
delivering a subsequently executed proxy card, at any time before the proxy is
voted.
A plurality of the votes cast is required for the election of directors.
Votes may be cast in favor of or withheld from any or all nominees. Votes that
are withheld from a nominee(s) will be excluded entirely from this vote and will
have no effect on the election of any such nominee(s).
The proposal to amend and restate the Company's Equity Compensation Plan
(the "Plan") requires for its approval the affirmative vote of a majority of the
shares present or represented by proxy at the meeting and entitled to vote. Any
abstentions will have the effect of votes against the proposal. Any broker
non-votes will not have any effect on the proposal.
Brokers who hold shares in street name for customers have the authority
under the rules of the various stock exchanges to vote on certain items when
they have not received instructions from beneficial owners. Where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not provided voting instructions (commonly referred to as "broker
non-votes"), those shares will not be included in the vote totals. Any broker
non-votes on the proposal to amend and restate the Plan will have no effect on
the outcome of this proposal, because such broker non-votes are not treated as
shares present and entitled to vote under Delaware law.
Your vote is important. Accordingly, you are asked to complete, sign and
return the accompanying proxy card whether or not you plan to attend the
meeting. If you plan to attend the meeting to vote in person and your shares are
registered with the Company's transfer agent in the name of a broker or bank,
you must secure a proxy card from the broker or bank assigning voting rights to
you for your shares.
2
<PAGE> 5
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
Seven directors are to be elected at the 2000 annual meeting. The term of
each director expires at the next annual meeting of stockholders and each person
shall hold office until the election and qualification of his respective
successor or until his earlier death, removal or resignation. The board of
directors consists of such number of directors as is fixed from time to time by
resolution adopted by the board of directors. The board of directors currently
is authorized to have seven members.
The nominees for election as directors of the Company are Drs. Baldino,
Feeney and Witzel and Messrs. Egan, Greenacre, King and Moley. All nominees are
presently directors of the Company whose current terms expire at the time of the
2000 annual meeting of stockholders. All nominees have consented to be named,
and have agreed to serve if elected.
The seven directors are to be elected by a plurality of the votes cast.
Unless otherwise instructed by the stockholders, the persons named in the
proxies will vote the shares represented thereby for the election of all such
nominees. The board of directors believes all nominees will be able to serve as
directors. If this should not be the case, however, the proxies may be voted for
a substitute nominee to be designated by the board of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES.
---------------------------------
NOMINEES FOR ELECTION
---------------------------------
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATIONS DURING PAST FIVE BECAME
NAME OF DIRECTOR AGE YEARS AND CERTAIN DIRECTORSHIPS DIRECTOR
---------------- --- -------------------------------------- ----------
<S> <C> <C> <C>
Frank Baldino, Jr., 1987
Ph.D. .................... 46 Dr. Baldino, founder of the Company, has served as
Chief Executive Officer and director since the
Company's inception. He was appointed Chairman of the
Board of Directors in 1999. He currently serves as a
director of Adolor Corporation, a pharmaceutical
company, Pharmacopeia, Inc., a developer of
proprietary technology platforms for pharmaceutical
companies, and ViroPharma, Inc., a biopharmaceutical
company. Dr. Baldino holds several adjunct academic
appointments.
William P. Egan............. 55 Since 1979, Mr. Egan has served as President of Burr, 1988
Egan, Deleage & Co., a venture capital company. Mr.
Egan also is a general partner of ALTA Communications
VI, L.P., ALTA Communications VII, L.P. and ALTA
Communications VIII, L.P., venture capital firms, and
a director of Cypress Communications, a
communications service provider.
Robert J. Feeney, Ph.D. .... 74 From October 1987 to August 1997, Dr. Feeney served 1988
as a general partner of Hambrecht & Quist Life
Science Technology Fund, a life sciences venture
capital fund affiliated with Hambrecht & Quist
Incorporated. For 37 years prior thereto, Dr. Feeney
was employed at Pfizer Inc., a pharmaceutical
company, and last served as its Vice President of
Licensing and Development. Dr. Feeney currently
serves as a director of QLT PhotoTherapeutics Inc., a
Canadian biotechnology company.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATIONS DURING PAST FIVE BECAME
NAME OF DIRECTOR AGE YEARS AND CERTAIN DIRECTORSHIPS DIRECTOR
---------------- --- -------------------------------------- ----------
<S> <C> <C> <C>
Martyn D. Greenacre......... 58 Since June 1997, Mr. Greenacre has been President, 1992
Chief Executive Officer and director of Delsys
Pharmaceutical Corporation, a formulation and drug
delivery system company. From 1993-96, Mr. Greenacre
served as President and Chief Executive Officer and
as a director of Zynaxis Inc., a biopharmaceutical
company. From 1989-92, Mr. Greenacre was Chairman
Europe, SmithKline Beecham Pharmaceuticals. He joined
SmithKline & French in 1973 where he held positions
of increasing responsibility in commercial operations
and management. Mr. Greenacre currently serves as a
director of Creative Biomolecules, Inc., a
biotechnology company, and Genset s.a., a human
genome sciences company.
David R. King............... 50 Since 1981, Mr. King has been a partner in the 1999
Business and Finance Section of the law firm of
Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Mr. King's practice focuses on
biotechnology and emerging growth companies and he
has extensive experience in corporate and securities
law matters.
Kevin E. Moley.............. 53 From November 1998 to December 1999, Mr. Moley served 1994
as Chairman of the Board of Directors of Patient Care
Dynamics LLC, a provider of computer hardware and
software to physicians. From January 1996 to February
1998, Mr. Moley was President and Chief Executive
Officer of Integrated Medical Systems, Inc., where he
served as a director since 1994. From February 1993
to December 1995, Mr. Moley was Senior Vice President
of PCS Health Systems, a provider of prescription
management services. From 1989-92, Mr. Moley served
in the Bush administration as an Assistant Secretary
of the U.S. Department of Health and Human Services
("HHS"), and from 1992-93 as Deputy Secretary of HHS.
Mr. Moley also serves as a director of Innovative
Clinical Solutions, Ltd., a site management company,
Merge Technologies, Inc., a medical imaging software
company, Perse Technologies, a medical billing
company and ProxyMed, a medical claims clearing house
company.
Horst Witzel, Dr.-Ing....... 72 From 1986 until his retirement in 1989, Dr. Witzel 1991
served as the Chairman of the Board of Executive
Directors of Schering AG, a German pharmaceutical
company, and, prior to 1986, was a member of the
Board of Executive Directors in charge of Production
and Technology. Dr. Witzel currently serves as a
director of The Liposome Company, Inc., a
biotechnology company.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
The board of directors of the Company met on six occasions in the fiscal
year ended December 31, 1999. The Bylaws of the Company provide that the board
of directors, by resolution adopted by a majority of the entire board of
directors, may designate committees, each of which shall consist of one or more
directors. The board of directors annually elects from its members the Audit
Committee and the Stock Option and Compensation Committee (the "Compensation
Committee"). Each director attended all of the meetings of the board of
directors and the respective committee or committees on which he served during
such period.
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<PAGE> 7
Audit Committee. The Audit Committee is presently composed of three
non-employee directors, Messrs. Egan, Greenacre and Moley. This committee meets
with the Company's independent public accountants to review the scope and
results of auditing procedures and the Company's accounting procedures and
controls. The Audit Committee also provides general oversight with respect to
the accounting principles employed in the Company's financial reporting. The
Audit Committee met two times during 1999.
Stock Option and Compensation Committee. The Compensation Committee is
presently composed of two non-employee directors, Dr. Witzel and Dr. Feeney. The
Compensation Committee annually reviews the performance and total compensation
package for the Company's executive officers, including the Chief Executive
Officer; considers the modification of existing compensation and employee
benefit programs and the adoption of new plans; administers the terms and
provisions of the Equity Compensation Plan and the Cephalon, Inc. 401(k) Profit
Sharing Plan; and reviews the compensation and benefits of non-employee
directors. The administration of such plans includes the determination, subject
to the respective plan provisions, of the individuals eligible to receive
awards, the individuals to whom awards are granted, the nature of the awards to
be granted, the number of awards to be granted, and the exercise price, vesting
schedule, term and all other conditions and terms of the awards to be granted.
The Compensation Committee met five times during 1999.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO, AND RESTATEMENT OF, THE
EQUITY COMPENSATION PLAN
At the meeting, there will be presented to the stockholders a proposal to
approve an amendment to, and restatement of, the Company's Equity Compensation
Plan (the "Plan"). The purpose of the Plan is to provide designated employees of
the Company and its subsidiaries, as well as certain consultants and advisors
who provide valuable services to the Company or its subsidiaries ("Key
Advisors") and non-employee members ("Non-Employee Directors") of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants of
incentive stock options ("ISOs"), nonqualified stock options ("NQSOs") and stock
awards ("Stock Awards"). The Company believes that the Plan encourages
participants to contribute significantly to the growth of the Company, thereby
benefitting the Company's stockholders. It is the Company's view that the Plan
aligns the economic interests of the participants with those of the
stockholders. The Plan was adopted in 1995 and will expire by its terms in 2005.
On February 22, 2000, the Board adopted an amendment to, and restatement
of, the Plan to effect certain substantive changes, to provide additional
flexibility in administering the Plan, and to modify the Plan to reflect changes
in applicable tax and securities laws. The following is a summary of the
material features of the amended and restated Plan, including proposed changes
to the existing Plan which are highlighted in bold text below.
MATERIAL FEATURES OF THE PLAN
General. The Plan provides for the grant of ISOs or NQSOs, (collectively,
"Stock Options") and Stock Awards. The Plan currently authorizes up to 4,700,000
shares of Common Stock of the Company for issuance pursuant to the terms of the
Plan. The maximum share limits are subject to adjustment in the event of stock
dividend, spinoff, recapitalization, split, combination, exchange,
reclassification, merger or other corporate change. If and to the extent Stock
Options granted under the Plan terminate, expire or are canceled without being
exercised, or if any shares subject to a Stock Award are forfeited, the shares
subject to such option or award will become available again for purposes of the
Plan. No grantee may receive grants of Stock Options for more than fifty-percent
(50%) of the aggregate number of shares of Common Stock issued or available for
issuance under the Plan. The stockholders are not being asked to approve any
increase in the number of shares of Common Stock available for issuance under
the Plan.
Administration. Currently, the Plan is administered and interpreted by a
Committee, which consists of not less than two persons appointed by the Board
from among its members, each of whom must be a "disinterested person" as
previously required by Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). THE STOCKHOLDERS ARE BEING ASKED TO CONSIDER AND
APPROVE AN AMENDMENT WHICH WOULD CONFORM THE COMPOSITION OF THE COMMITTEE TO THE
CURRENT TAX AND SECURITIES LAW RULES. Accordingly, under the amended and
restated Plan, the Committee will consist of not less than two persons appointed
by the Board
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<PAGE> 8
from among its members, each of whom may be "outside directors" as defined under
section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
related Treasury regulations, and "non-employee directors" as defined in Rule
16b-3 of the Exchange Act. The Committee has the sole authority to determine (i)
the persons to whom Stock Options and Stock Awards (collectively "Grants") may
be granted under the Plan, (ii) the type, size and other terms and conditions of
each Grant, (iii) the time when the Grants are to be made and the duration of
any applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting, and (iv) any other matters arising
under the Plan. The Committee's interpretations and determinations will be
conclusive and binding on all persons having an interest in the Plan or in any
Grants awarded.
Grants. All Grants are subject to the terms and conditions set forth in
the Plan and to those other terms and conditions consistent with the Plan as the
Committee deems appropriate and as are specified in writing by the Committee to
the designated individual (the "Grant Letter"). Grants under the Plan need not
be uniform as among other recipients of the same type of Grant.
Eligibility. All employees of the Company and its subsidiaries are
eligible to participate in the Plan (including officers and employees who are
members of the Board). In addition, Non-Employee Directors and Key Advisors are
eligible to participate in the Plan.
Currently, the Committee selects the employees and Key Advisors of the
Company and its subsidiaries, who are eligible for Grants under the Plan. As of
March 1, 2000, approximately 384 employees and 12 Key Advisors were eligible for
grants under the Plan. The Committee is authorized, in its discretion, to select
the employees and Key Advisors who will receive Grants (the "Grantees") from
among those eligible and to determine the number of shares of Common Stock that
are subject to each Grant. Non-Employee Directors are only eligible to receive
NQSOs under the Plan as described below.
Grants to Non-Employee Directors. Currently, Non-Employee Directors of the
Company automatically receive, without the exercise of discretion of the
Committee, formula grants of NQSOs. Under the Plan, each new Non-Employee
Director receives a Grant of an NQSO to purchase 15,000 shares of Common Stock
immediately upon his or her first becoming a member of the Board. In addition,
on each date that the Company holds its annual meeting of stockholders, each
Non-Employee Director in office immediately after the annual meeting,
automatically receives a Grant of an NQSO to purchase 10,000 shares of Common
Stock. Currently, six Non-Employee Directors are entitled to and have received
grants of NQSOs under the Plan. Currently, the Plan provides that a Non-Employee
Director will not be eligible to receive, in the aggregate, under the Plan,
Stock Options to purchase in excess of 50,000 shares of Common Stock (subject to
certain adjustments). The terms of the Stock Options granted to Non-Employee
Directors are also fixed by the terms of the Plan such that the Stock Options
have a per share exercise price equal to the fair market value of a share of
Common Stock on the date of grant and the Stock Options become exercisable with
respect to 25% of the shares of Common Stock underlying such options on each
anniversary following the date of grant. THE STOCKHOLDERS ARE BEING ASKED TO
CONSIDER AND APPROVE AN AMENDMENT THAT WOULD ELIMINATE THE 50,000 SHARE
LIMITATION ON THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE SUBJECT
TO STOCK OPTIONS GRANTED TO A NON-EMPLOYEE DIRECTOR AND THAT WOULD ALLOW THE
BOARD TO MAKE DISCRETIONARY GRANTS OF NQSOS TO NON-EMPLOYEE DIRECTORS IN
ADDITION TO THE PRESCRIBED FORMULA GRANTS. THE AMENDMENT WOULD ALSO AUTHORIZE
THE BOARD TO DETERMINE THE TERMS, INCLUDING THE EXERCISE PRICE AND VESTING
SCHEDULE OF THE FORMULA GRANTS AND ANY DISCRETIONARY GRANTS TO NON-EMPLOYEE
DIRECTORS.
Stock Options. The Committee may grant Stock Options intended to qualify
as ISOs within the meaning of section 422 of the Code or NQSOs, that are not
intended to so qualify, or any combination of ISOs and NQSOs. Non-Employee
Directors and Key Advisors may only receive NQSOs.
The Committee fixes the exercise price per share on the date of grant. The
exercise price per share of an NQSO may be greater than, less than or equal to
the fair market value of the underlying shares of Common Stock on the date of
grant. The option exercise price of any ISO granted under the Plan may not be
less than the fair market value of the underlying shares of Common Stock on the
date of grant. The current measure of fair market value on a particular date is
the closing price of a share of Common Stock as reported on the NASDAQ National
Market on that date. However, if the Grantee of an ISO is a person who holds
more than 10% of the combined voting power of all classes of outstanding stock
of the Company, the option price per share of an ISO must be at
6
<PAGE> 9
least 110% of the fair market value of a share of Common Stock on the Date of
Grant. To the extent that the aggregate fair market value of shares of Common
Stock, determined on the date of grant, with respect to which ISOs become
exercisable for the first time by a Grantee during any calendar year exceeds
$100,000, such ISOs are treated as NQSOs.
The Committee determines the term of each Stock Option; provided, however,
that the option term may not exceed ten years from the date of grant and, if the
Grantee of an ISO is a person who holds more than 10% of the combined voting
power of all classes of outstanding stock of the Company, the option term may
not exceed five years from the date of grant. The exercise period for Stock
Options commences on the date of grant and ends on such date as is determined by
the Committee, in its sole discretion, which is specified in the Grant Letter. A
Grantee may exercise a Stock Option by delivering notice of exercise to the
Committee with accompanying payment of the option price. Currently, the Grantee
may pay the option exercise price in cash, by delivering shares of Common Stock
already owned by the Grantee and having a fair market value on the date of
exercise equal to the option exercise price, or with a combination of cash and
shares of Common Stock. THE STOCKHOLDERS ARE BEING ASKED TO CONSIDER AND APPROVE
AN AMENDMENT THAT WOULD MAKE THE METHODS BY WHICH A GRANTEE MAY SATISFY THE
OPTION EXERCISE PRICE UNDER THE PLAN SUBJECT TO COMMITTEE APPROVAL AND AFFORD
THE COMMITTEE FLEXIBILITY TO APPROVE OTHER METHODS OF EXERCISE. ACCORDINGLY,
UNDER THE AMENDED AND RESTATED PLAN, AT THE COMMITTEE'S DISCRETION, A GRANTEE
WOULD BE PERMITTED TO EXERCISE HIS OR HER STOCK OPTIONS WITH CASH, TENDERING
SHARES OF COMMON STOCK ALREADY OWNED BY THE GRANTEE, ATTESTATION (ON A FORM
PROVIDED BY THE COMMITTEE) TO OWNERSHIP OF SUCH SHARES OR A COMBINATION OF BOTH
CASH AND SHARES, OR BY ANY OTHER METHOD OF SATISFACTION OF THE OPTION EXERCISE
PRICE THE COMMITTEE MAY APPROVE.
Stock Awards. The Committee may issue or transfer shares of Common Stock
pursuant to a Stock Award to employees or Key Advisors under the Plan. Shares
may be issued or transferred for cash consideration or for no cash
consideration, as the Committee determines. The number of shares of Common Stock
granted to each Grantee is determined by the Committee. The Grant Letter may
provide for a period (the "Restriction Period") during which the Grant will
remain subject to certain restrictions ("Restricted Stock Award"), including
restrictions on transferability. During the Restriction Period, a Grantee may
not sell, assign, transfer, pledge, or otherwise dispose of the shares of Common
Stock to which the Restriction Period applies, except to a successor grantee in
the event of the Grantee's death. If a Grantee's employment terminates or if a
Grantee who is a Key Advisor ceases to perform services for the Company during
the Restriction Period, the Stock Award terminates with respect to all of the
shares of Common Stock covered by the Stock Award as to which the restrictions
have not lapsed, and those shares of Common Stock shall be forfeited and if
issued, immediately returned to the Company. All restrictions imposed under the
Stock Award lapse upon the expiration of the applicable Restriction Period. In
addition, the Committee may determine as to any or all Stock Awards that all
restrictions will lapse under such other circumstances as it deems appropriate.
The Grantee does not have the right to vote, or receive dividends in respect of
any shares of Common Stock until the applicable Restriction Period has expired,
unless otherwise determined by the Committee. The Committee may determine that
the Company will retain possession of certificates for Stock Awards until all
restrictions on such shares have lapsed.
Withholding Tax. Currently, all Grants under the Plan are subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require that the Grantee or other person receiving
or exercising Grants pay to the Company the amount of any federal, state or
local taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants. The Plan also
allows, if the Committee so permits, a Grantee to elect, in a form and manner
prescribed by the Committee, to satisfy the Company's income tax withholding
obligation with respect to a Grant by having shares withheld up to an amount
that does not exceed the Grantee's maximum marginal tax rate for federal
(including FICA), state and local tax liabilities. If the Grantee is an officer
or director within the meaning of 16a-1(f) under the Exchange Act, such election
must be irrevocable and must be made six months prior to (1) the exercise of any
Stock Option or (2) the date all restrictions lapse with respect to such shares.
THE APPLICABLE TAX LAWS AND SECURITIES LAW RELATING TO A GRANTEE'S ELECTION TO
SATISFY INCOME TAX WITHHOLDING OBLIGATION HAS CHANGED. ACCORDINGLY, THE AMENDED
AND RESTATED PLAN COMPLIES WITH SUCH CHANGES IN THE TAX LAW REGARDING THE
MINIMAL APPLICABLE WITHHOLDING
7
<PAGE> 10
TAX RATE AND ELIMINATES THE PRIOR ELECTION AND PRIOR APPROVAL REQUIREMENTS FOR
OFFICERS AND DIRECTORS AS WAS MANDATED UNDER PRIOR SECURITIES LAW.
Section 162(m). Under section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 paid to the Chief Executive Officer or to any of the other
four most highly compensated officers in any year. Total remuneration includes
amounts received upon the exercise of Stock Options granted under the Plan and
the value of shares received when shares subject to Stock Awards became
transferable (or such other time when income is recognized). However, an
exception is available for "qualified performance-based compensation" that meets
certain requirements. The Plan is structured to permit Stock Options to meet the
requirements of "qualified performance-based compensation" under section 162(m).
Generally, Stock Awards will not meet the requirements of "qualified
performance-based compensation."
Transferability. Grants are generally not transferable by the Grantee,
except in the event of death, or, if permitted by the Committee with respect to
NQSOs or Stock Awards, pursuant to a domestic relations order. THE STOCKHOLDERS
ARE BEING ASKED TO CONSIDER AND APPROVE AN AMENDMENT THAT WOULD ALLOW THE
COMMITTEE, IN ITS SOLE DISCRETION, TO PERMIT A GRANTEE TO TRANSFER NQSOS TO
FAMILY MEMBERS OR TRUSTS OR PARTNERSHIPS FOR FAMILY MEMBERS, ON SUCH TERMS AS
THE COMMITTEE DEEMS APPROPRIATE, PROVIDED THAT THE GRANTEE RECEIVES NO
CONSIDERATION AND THE OPTION CONTINUES TO BE SUBJECT TO THE SAME TERMS AND
CONDITIONS AFTER THE TRANSFER.
Amendment and Termination. Currently, the Board may amend or terminate the
Plan at any time, provided, however, that any amendment that materially
increases the benefits accruing to Grantees under the Plan, or increases the
number (or individual limit for any Grantee) of shares of Common Stock that may
be issued under the Plan, or materially modifies the requirements as to
eligibility for participation will be subject to approval by the stockholders of
the Company. The foregoing stockholder approval requirements were designed to
comply with requirements no longer applicable under Rule 16b-3 under the
Exchange Act and applicable tax rules. THE STOCKHOLDERS ARE BEING ASKED TO
CONSIDER AND APPROVE AN AMENDMENT THAT WOULD ALLOW THE BOARD TO AMEND OR
TERMINATE THE PLAN AT ANY TIME; PROVIDED, HOWEVER, THAT THE BOARD MAY NOT MAKE
ANY AMENDMENT WITHOUT STOCKHOLDER APPROVAL IF SUCH APPROVAL IS REQUIRED IN ORDER
TO COMPLY WITH THE CODE OR OTHER APPLICABLE LAWS, OR TO COMPLY WITH APPLICABLE
STOCK EXCHANGE REQUIREMENTS. The Plan will terminate on February 1, 2005, unless
terminated earlier by the Board or extended by the Board with approval of the
stockholders. The termination of the Plan will not impair the Committee's power
and authority with respect to outstanding grants.
Amendment and Termination of Outstanding Grants. The termination or
amendment of the Plan after a Grant is made may not materially impair the rights
of a Grantee unless (1) the Grantee consents, (2) the Committee revokes the
Grant because it is contrary to law, or (3) the Committee modifies the Grant to
comply with a valid and mandatory government regulation. Whether or not the Plan
has terminated, an outstanding grant may be terminated or amended by the
Committee in accordance with the preceding sentence or may be amended by
agreement of the Company and the Grantee.
Corporate Transactions/Change of Control of the Company. In the event of a
"Corporate Transaction" all outstanding Stock Options will automatically
accelerate and become immediately exercisable and all restrictions with respect
to Stock Awards will lapse unless, and only to the extent that, such Grants and
options are assumed or replaced by the successor corporation (or parent thereof)
with options or awards meeting certain requirements as specified in the Plan.
The Plan defines "Corporate Transaction" to mean the occurrence of either
of the following stockholder-approved transactions to which the Company is a
party: (i) a merger or consolidation in which more than 50% of the combined
voting power of the Company's outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately prior
to such transaction, or (ii) the sale, transfer or other disposition of more
than 75% of the Company's assets in a single or related series of transactions.
In the event an employee ceases employment by reason of an "Involuntary
Termination" within 36 months after a Corporate Transaction in which his or her
outstanding Stock Options were assumed or replaced or Stock Awards were
replaced, or within 36 months after a "Change of Control," each Stock Option (or
replacements
8
<PAGE> 11
thereof) will automatically accelerate and become fully exercisable and all
restrictions applicable to Stock Awards (or replacements thereof) will lapse.
"Change of Control" is generally defined in the Plan as a change in ownership or
control of the Company through (i) the acquisition of more than 30% of the
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders which the
Board does not recommend such stockholders accept; or (ii) a change in the
composition of the Board over a 24 month or shorter period such that a majority
of the Board's members cease to continue as members subject to certain
conditions described in the Plan.
The Plan defines "Involuntary Termination" to mean the termination of
service of any Grantee of the Company or any successor thereto which occurs by
reason of (i) such individual's involuntary dismissal or discharge by the
Company or the successor thereto for reasons other than the commission of any
act of fraud, embezzlement or dishonesty by the Grantee, any unauthorized use or
disclosure by such individual of confidential information or trade secrets of
the Company or its successor, or any other intentional misconduct by such
individual adversely affecting the business or affairs of the Company or its
successor in a material manner, or (ii) such individual's voluntary resignation,
in either case following: (a) a change in his or her position with the Company
or the successor thereto which materially reduces his or her level of
responsibility, (b) a reduction in his or her level of compensation (including
base salary, significant fringe benefits or any non-discretionary and
objective-standard incentive payment or bonus award) by more than 10% in the
aggregate, or (c) a relocation of such individual's place of employment by more
than 50 miles, only if such change, reduction or relocation is effected by the
Company or the successor thereto without the individual's consent.
Upon the occurrence of a Corporate Transaction or upon Involuntary
Termination of a Non-Employee Director within 36 months following a Change of
Control, all outstanding Stock Options granted to Non-Employee Directors will
automatically accelerate and become fully exercisable and will remain fully
exercisable until the expiration of the option term or earlier surrender of such
Stock Option.
Option and Stock Award Information. As of March 1, 2000, an aggregate of
767,061 shares of Common Stock had been awarded subject to Stock Awards under
the Plan, and options to purchase 2,985,212 shares of Common Stock (net of
cancellation) had been granted as of such date under the Plan, of which
2,575,600 were outstanding.
FEDERAL INCOME TAX CONSEQUENCES OF GRANTS UNDER THE PLAN
The current federal income tax treatment of grants under the Plan is
generally described below. Local and state tax authorities may also tax
incentive compensation awarded under the Plan, and tax laws are subject to
change. Grantees are urged to consult with their personal tax advisors
concerning the application of the general principles discussed below to their
own situations and the application of state and local tax laws.
There are no federal income tax consequences to a Grantee or to the Company
upon the grant of an NQSO under the Plan. Upon the exercise of an NQSO, a
Grantee will recognize ordinary compensation income in an amount equal to the
excess of the fair market value of the shares at the time of exercise over the
exercise price of the NQSO, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares acquired by
the exercise of an NQSO, a Grantee will have a capital gain or loss in an amount
equal to the difference between the amount realized upon the sale and the
Grantee's adjusted tax basis in the shares (the exercise price plus the amount
of ordinary income recognized by the Grantee at the time of exercise of the
NQSO). The capital gain tax rate will depend upon the length of time the shares
are held and certain other factors.
A Grantee who is granted an ISO will not recognize taxable income for
purposes of the regular federal income tax, upon either the grant or exercise of
the ISO. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an ISO is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income in the year of exercise. A
Grantee who disposes of the shares acquired upon exercise of an ISO after two
years from the date the ISO was granted and after one year from the date such
shares were transferred to him or her upon exercise of the ISO will recognize
9
<PAGE> 12
capital gain or loss in the amount of the difference between the amount realized
on the sale and the exercise price (or the Grantee's other tax basis in the
shares), and the Company will not be entitled to any tax deduction by reason of
the grant or exercise of the ISO.
Generally, if a Grantee disposes of the shares acquired upon exercise of an
ISO before satisfying both holding period requirements (a "disqualifying
disposition"), his or her gain recognized on such a disposition will be taxed as
ordinary income to the extent of the difference between the fair market value of
such shares on the date of exercise and the exercise price, and the Company will
be entitled to a deduction in that amount. The gain, if any, in excess of the
amount recognized as ordinary income on such a disqualifying disposition will be
capital gain, depending upon the length of time the Grantee held his or her
shares prior to the disposition and certain other factors.
A Grantee normally will not recognize taxable income upon receiving
Restricted Stock, and the Company will not be entitled to a deduction, until
such stock is transferable by the Grantee or no longer subject to a substantial
risk of forfeiture for federal tax purposes, whichever occurs earlier. When the
stock is either transferable or no longer subject to a substantial risk of
forfeiture, the Grantee will recognize ordinary compensation income in an amount
equal to the fair market value of the shares (less any amount paid for such
shares) at that time, and the Company generally will be entitled to a deduction
in the same amount. A Grantee may, however, elect to recognize ordinary
compensation income in the year the Restricted Stock is awarded in an amount
equal to the fair market value of the shares subject to the Restricted Stock
Grant (less any amount paid for such shares) at that time, determined without
regard to the restrictions. In such event, the Company generally will be
entitled to a corresponding deduction in the same year. Any gain or loss
recognized by the Grantee upon subsequent disposition of the shares will be
capital gain or loss.
The Company's income tax deduction in any of the foregoing cases may be
limited by the $1,000,000 limit of Code section 162(m) if the grant does not
qualify as "qualified performance-based compensation" under Code section 162(m)
(see "Section 162(m)" above).
VOTE REQUIRED FOR APPROVAL
The proposal to amend and restate the Plan requires for its approval the
affirmative vote of a majority of the shares present or represented by proxy at
the meeting and entitled to vote. Any abstentions will have the effect of votes
against the proposal. Any broker non-votes will not have any effect on the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE OF APPROVAL FOR PROPOSAL 2.
10
<PAGE> 13
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table summarizes the compensation for the periods ended
December 31, 1999, 1998 and 1997 of those persons who were, at any time during
the last completed fiscal year, the Company's Chief Executive Officer and who
were, at December 31, 1999, the other four executive officers who earned the
highest compensation during the last completed fiscal year (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- ------------------------------------------
AWARDS
-------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS COMPEN-
NAME YEAR SALARY($) BONUS($)(1) SATION($)(2) AWARDS($)(3) GRANTED(#) SATION($)(4)
---- ---- --------- ----------- ------------ ------------ ---------- ------------
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank Baldino Jr., Ph.D. ............ 1999 $450,000 $314,500 $20,968 $1,132,625 41,000 $9,600
Chairman and Chief 1998 $416,000 $235,000 $20,999 $ 157,500 70,000 $9,600
Executive Officer 1997 $385,000 $173,300 $22,912 $ 0 60,000 $9,500
----------------------------------------------------------------------------
Jeffry L. Vaught, Ph.D. ............. 1999 $254,400 $ 76,300 $14,106 $ 276,250 10,000 $9,600
Senior Vice President and 1998 $240,000 $ 72,000 $13,570 $ 31,500 20,000 $9,600
President, Research and 1997 $209,000 $ 37,600 $12,913 $ 42,000 11,400 $9,500
Development
----------------------------------------------------------------------------
Robert P. Roche, Jr. ................ 1999 $210,833 $ 96,000 $12,095 $ 517,191 15,000 $9,600
Senior Vice President, 1998 $179,000 $ 59,617 $ 0 $ 23,625 10,000 $9,600
Sales and Marketing 1997 $169,000 $ 32,273 $ 0 $ 31,500 7,400 $9,500
----------------------------------------------------------------------------
J. Kevin Buchi....................... 1999 $229,438 $ 74,900 $15,465 $ 506,005 13,000 $9,600
Senior Vice President and 1998 $202,500 $ 50,000 $15,133 $ 31,500 20,000 $9,600
Chief Financial Officer 1997 $191,000 $ 34,400 $14,706 $ 42,000 10,300 $9,500
----------------------------------------------------------------------------
Earl W. Henry, M.D.(5) .............. 1999 $245,700 $ 53,100 $14,767 $ 248,625 9,000 $9,600
Senior Vice President, 1998 $224,916 $ 45,000 $ 6,537 $ 31,500 20,000 $9,600
Clinical Research and 1997 $ 75,803 $ 24,000 $ 1,350 $ 31,500 24,900 $5,146
Regulatory Affairs
</TABLE>
- ---------------
(1) Bonuses for 1999 performance were paid on January 14, 2000.
(2) The amounts shown for certain officers include:
(a) Automobile allowances in 1999, as follows: Dr. Baldino $11,700; Dr.
Vaught $10,200; Mr. Roche $5,950; Mr. Buchi $10,200; and Dr. Henry
$10,200.
(b) Financial estate planning advice in 1999, as follows: Dr. Baldino
$3,117; Dr. Vaught $900; Mr. Roche $3,745; and Mr. Buchi $3,745.
(c) Supplemental long-term disability insurance in 1999, as follows: Dr.
Baldino $4,773; Dr. Vaught $1,755; Mr. Roche $2,400; Mr. Buchi $1,520;
and Dr. Henry $1,925.
(d) Deferred compensation amounts above the 120% applicable federal rate are
as follows: Dr. Baldino $1,378 and Dr. Vaught $1,251.
(e) Relocation reimbursement in 1999, as follows: Dr. Henry $2,642.
(3) Dollar amount shown equals number of shares subject to each Restricted Stock
Award, multiplied by the per share stock price on the award date. This
amount does not take into account the diminution in value attributable to
the restrictions applicable to the shares. The Restricted Stock Awards
reported in this table were made on November 21, 1997, December 16, 1998,
June 11, 1999, and December 15, 1999 and the restrictions on such shares
will lapse over four years at the rate of 25% per year, on each anniversary
of the award. The shares subject to the Restricted Stock Awards made on
December 15, 1999, based on a closing price of the Common Stock on December
15, 1999 of $27.625, had the following dollar values: Dr. Baldino -- 41,000
shares for a dollar value of $1,132,625; Dr. Vaught -- 10,000 shares for a
dollar value of $276,250; Mr. Roche -- 15,000 shares for a dollar value of
$414,375; Mr. Buchi -- 13,000 shares for a dollar value of $359,125; Dr.
Henry -- 9,000 shares for a dollar value of $248,625. The shares subject to
the Restricted Stock Awards made on June 11, 1999, based on a closing price
of the Common Stock on June 11, 1999, of $14.688, had the following dollar
values: Mr. Roche -- 7,000 shares for a dollar value of $102,816; Mr.
Buchi -- 10,000 shares for a dollar value of $146,880. Such shares on March
1, 2000, based on a closing price of the Common Stock on that date of
$69.969 had a dollar value of: Dr. Baldino -- $2,868,729; Mr.
Buchi -- $1,609,287; Mr. Roche -- $1,539,318; Dr. Vaught -- $699,690; and
Dr. Henry -- $629,721. No dividends will be paid on such shares until the
applicable restrictions have lapsed. After the lapse of the applicable
restrictions on the shares underlying these awards, any dividends would be
paid at the same rate as on other shares of Common Stock. However, the
Company has never declared or paid cash dividends on the Common Stock and
does not anticipate paying any cash dividends in the foreseeable future.
(4) The amounts shown represent Company matching contributions during calendar
years 1997, 1998 and 1999 under the Cephalon, Inc. 401(k) Profit Sharing
Plan which covers all of the Company's eligible employees.
(5) Dr. Henry commenced employment with the Company in August 1997. In August
1997, Dr. Henry received 22,500 Stock Options priced at $10.725 per share.
On November 21, 1997, Dr. Henry received 2,400 Stock Options priced at
$10.50 per share, and 3,000 shares of Restricted Common Stock. The closing
price of the stock on November 21, 1997 was $10.50 per share. Dr. Henry
received a sign-on bonus of $10,000 and a 1997 year-end bonus of $14,000.
11
<PAGE> 14
The following table summarizes Stock Options granted during the fiscal year
ended December 31, 1999 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTION EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL 1999 ($/SHARE) DATE 5%($) 10%($)
---- ------------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank Baldino, Jr., Ph.D. ...... 41,000 5.7% $27.625 Dec. 2009 $712,302 $1,805,113
- ---------------------------------------------------------------------------------------------------------------
Jeffry L. Vaught, Ph.D. ........ 10,000 1.4% $27.625 Dec. 2009 $173,732 $ 440,271
- ---------------------------------------------------------------------------------------------------------------
Robert P. Roche, Jr. ........... 15,000 2.1% $27.625 Dec. 2009 $260,598 $ 660,407
- ---------------------------------------------------------------------------------------------------------------
J. Kevin Buchi.................. 13,000 1.8% $27.625 Dec. 2009 $225,852 $ 572,353
- ---------------------------------------------------------------------------------------------------------------
Earl W. Henry, M.D. ............ 9,000 1.3% $27.625 Dec. 2009 $156,359 $ 396,244
</TABLE>
- ---------------
(1) Consists of options granted in December 1999. These options have a ten-year
term, commencing December 1999, are exercisable in cumulative 25% annual
installments beginning in December 2000, with full vesting occurring by
December 2003. The options are subject to acceleration in the case of a
Change in Control or a Corporate Transaction, as defined under the Plan.
(2) Potential Realizable Values assume that the price of the Common Stock is
equal to the exercise price shown for each particular option on the date of
grant and appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the ten-year term of the option. These
amounts are reported net of the option exercise price, but before any taxes
associated with exercise or subsequent sale of the underlying stock. The
actual value, if any, an optionholder may realize will depend on the extent,
if any, to which the stock price exceeds the exercise price on the date the
option is exercised and also will depend on the optionholder's continued
employment by the Company throughout the vesting period. The actual value to
be realized by the optionholder may be greater or less than the values
estimated in this table.
The following table summarizes option exercises during the fiscal year
ended December 31, 1999 and the value of vested and unvested unexercised options
for the Named Executive Officers at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED VALUE DECEMBER 31, 1999(#) AT DECEMBER 31, 1999(2)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank Baldino, Jr., Ph.D. ...... 0 $0 435,000 136,000 $9,998,533 $2,617,495
Jeffry L. Vaught, Ph.D. ........ 0 $0 109,075 32,325 $2,301,469 $ 634,148
Robert P. Roche, Jr. ........... 0 $0 33,450 27,950 $ 671,124 $ 422,658
J. Kevin Buchi.................. 0 $0 82,825 34,775 $1,683,016 $ 641,725
Earl W. Henry, M.D. ............ 0 $0 17,450 36,450 $ 431,601 $ 760,904
</TABLE>
- ---------------
(1) Market value of underlying securities at exercise date minus the exercise
price of all options.
(2) For "in-the-money" options, these amounts are the market value of underlying
shares of Common Stock at December 31, 1999, minus the exercise price. These
amounts are reported before any taxes associated with exercise or subsequent
sale of the underlying stock.
The Company does not currently grant any long-term incentives other than
Stock Options and Restricted Stock to its executive officers or other employees.
The Company does not sponsor any defined benefit or actuarial plans at this
time.
12
<PAGE> 15
COMPENSATION OF DIRECTORS
Non-employee directors receive a fee of $3,000 for each meeting of the
board of directors attended as well as reimbursement of their expenses incurred
to attend such meetings. In addition to the meeting fee, non-employee directors
receive an annual retainer of $18,000. Non-employee directors who are members of
a committee of the board of directors receive a $3,000 annual retainer for each
such committee membership. Dr. Baldino receives no additional remuneration for
his service as a director. Under the Equity Compensation Plan (the "Plan"), new
non-employee directors will receive on the effective date they first become a
member of the board of directors, a grant of an option to purchase 15,000 shares
of the Company's Common Stock. In addition, under the current terms of the Plan,
each non-employee director will receive a grant of an option to purchase 10,000
shares of the Company's Common Stock on the date of each annual meeting of
stockholders at which he or she is re-elected. The Plan provides that
non-employee directors are not eligible to receive in the aggregate options to
purchase in excess of 50,000 shares; if Proposal 2 is approved by the
stockholders this limit will no longer apply. All options granted to a
non-employee director vest over a four-year period with an exercise price equal
to the closing market price of the Company's Common Stock on the date of grant.
With respect to non-employee directors, upon the occurrence of a Corporate
Transaction (as defined in the Plan) or upon Involuntary Termination (as defined
in the Plan) of a non-employee director within 36 months following a Change in
Control (as defined in the Plan), each option of such non-employee director will
automatically accelerate and become fully exercisable and will remain
exercisable until the expiration of the option term or earlier surrender of such
option. In 1999, Mr. Egan, Dr. Feeney, Mr. Greenacre, Mr. Moley, and Dr. Witzel
each received an annual grant of options, under the Plan, to purchase 10,000
shares of Common Stock at an exercise price of $11.187 per share. Mr. King, on
September 27, 1999, his effective date of appointment to the Board of Directors,
received an option grant under the Plan of 15,000 shares of Common Stock at an
exercise price of $18.156 per share.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee annually reviews the performance and total
compensation package for all executive officers, considers the modification of
existing compensation and employee benefit programs and the adoption of new
plans, administers the Plan and reviews the compensation and benefits of
non-employee members of the board of directors.
COMPENSATION PHILOSOPHY
The Compensation Committee believes that a well designed compensation
program should align the goals of the stockholder with the goals of the
executive and that a significant part of an executive's compensation, over the
long term, should be dependent upon the value created for the stockholder.
However, the Compensation Committee recognizes that, in the short-term, the
market price of the Company's stock will be affected by many factors, some of
which may be transient in nature and beyond the control of the Company's
executives. This is especially true in the biotechnology industry, which is
characterized by a large number of small companies, long product lead times,
highly volatile stock prices and, currently, few commercial products. In such an
environment, external events, such as negative financial and clinical reports
from other members of the biotechnology industry, can have a marked adverse
effect on the stock prices of companies within the industry, including Cephalon.
In order to attract and retain qualified executives in such an environment, the
Compensation Committee attempts to create a balanced compensation package by
combining components based upon the achievement of long-term value to
stockholders with components based upon the execution of shorter-term strategic
goals. These goals include progress in research and drug development programs,
success in financings, corporate collaborations, the development of the
organization, and the achievement of product sales targets. The Compensation
Committee expects that the achievement of these shorter-term goals ultimately
will contribute to the long-term success of the enterprise.
13
<PAGE> 16
OVERVIEW OF 1999
The Compensation Committee believes that the management team took positive
action in 1999 to position the Company for long-term stockholder value and
future challenges. Specifically, accomplishments in each of the following areas
contributed to achieving the strategic goals outlined above:
Sales Revenue
- Successfully launching the Company's first product -- PROVIGIL(R)
(modafinil) Tablets [C-IV] in the United States, Ireland, and Austria
- Continuation of the following co-promotion or co-marketing agreements
with: Bristol-Myers Squibb Company to sell in the United States STADOL
NS(R) (butorphanol tartrate) to neurologists; Laboratoire Aguettant to
promote and market in France APOKINON(R) (apomorphine hydrochloride) for
the treatment of Parkinson's disease; and Zeneca Limited to promote and
market in the United Kingdom ZOMIG(R) (zolmitriptan) tablets for the
treatment of migraine
PROVIGIL Clinical Trial Plan
- Expansion of the PROVIGIL clinical program to other disorders
characterized by excessive daytime sleepiness or fatigue, and attention
deficit hyperactivity disorder (ADHD)
Collaborative Agreements
- Initiation of a licensing agreement with Schwarz Pharma to develop and
market certain Cephalon compounds in Europe and several other territories
outside the United States for the treatment of prostate and other cancers
- Initiation of a collaborative agreement with H. Lundbeck A/S to discover,
develop and market products to treat neurodegenerative diseases and begin
clinical trials for CEP-1347
- Continuation of the collaboration with TAP Holdings Inc., and the
completion of Phase I cancer studies for CEP-2563 and CEP-701
Corporate Financings
- Completion of a debt offering totaling $30,000,000, raised through the
private sales of revenue-sharing notes
- Completion of an offering totaling $125,000,000, raised through the
private sale of 2,500,000 shares of Convertible Exchangeable Preferred
Stock at $50 per share
Expense Budget
- Management of expenses within budget
Research and Development Plan
- Identification of additional pre-development candidates
- Initiation of clinical studies in CEP-1347
- Advancing CEP-5214 into development in oncology
- Obtaining U.S. and foreign patents on various products and processes
14
<PAGE> 17
In-licensing/co-promoting a new product
- Initiation of a collaborative agreement with Abbott Laboratories to
market and further develop in the United States GABITRIL(R) (tiagabine
hydrochloride) for the treatment of partial seizures associated with
epilepsy
Considerable progress in organizational development also was made to expand
the management team through the addition of experienced executives to the
Clinical Research staff and to the U. S. Sales and Marketing and Commercial
organizations.
The Compensation Committee believes that the accomplishments listed above
and the achievement of individual objectives justified increases to executives'
base salaries as well as the grant of annual bonuses.
Cephalon has assembled a senior team with considerable biotechnology and
pharmaceutical industry experience, and the Compensation Committee believes that
executive retention and incentive will be critical in the years ahead as the
Company seeks to move additional product candidates toward commercialization.
The market for such executives is becoming increasingly competitive. With the
increased hiring in the pharmaceutical industry and continued attempts by
competitors to recruit management from the Company, the Committee felt that
additional Stock Option Grants should be made to provide an additional retention
incentive. For these reasons, and after comparisons with the level of option
holdings of executives at biotechnology companies of similar size and stage of
development, the Compensation Committee granted additional Stock Options and
Restricted Stock to the Chief Executive Officer, the Senior Vice Presidents and
other key employees in 1999.
COMPENSATION COMPONENTS
The Company competes against other biotechnology companies as well as major
pharmaceutical companies in the market for qualified personnel. The Compensation
Committee has established three categories of compensation for executives: base
salary, annual incentive bonus and long-term incentives consisting of Stock
Options and Restricted Stock Awards. Salaries for experienced executives of
biotechnology companies in the Philadelphia metropolitan area are heavily
influenced by the salaries paid by the major pharmaceutical companies which
maintain executive staffs in the region. The Company routinely competes against
these companies in trying to attract qualified candidates and has successfully
induced most of its current executives to leave such organizations. The salaries
of Cephalon's executives are set below those levels which would be achieved by
executives with similar levels of authority and experience in larger
pharmaceutical companies. To compensate for this shortfall and remain
competitive in the market for qualified executives, the Company places a
correspondingly greater weight on variable pay incentives and longer-term
compensation. The Compensation Committee believes that by putting an increased
emphasis on variable pay amounts and long-term incentives, the Company is able
to attract executives who are willing to sacrifice current earnings and the
retirement benefits generally offered by larger employers for potential
long-term gains in a less stable and more risky environment. The Compensation
Committee believes that stockholders in Cephalon share a similar risk profile.
To ensure that the elements of an executive's compensation remain
competitive with other biotechnology companies, the Company conducts and
subscribes to a number of compensation surveys. The surveys used for these
purposes are provided by outside consultants and do not identify the names of
participating companies. Using these surveys, the Company focuses primarily on
companies of similar size and stage of development in the biotechnology
industry, with the objective of setting a base salary which is generally above
average when compared with these companies. Because the number of Cephalon
employees exceeded 380 during the year, primary comparisons were made with
companies at a similar stage of product development with between 150 and 499
employees. Because the Company has controlled internal headcount by outsourcing
many positions relating to supply chain, reimbursement, customer service,
manufacturing, distribution, and accounting, the salaries of biotechnology
companies with over 500 employees were also considered. Many of the survey
participants are included in the Index of NASDAQ Pharmaceutical Stocks used in
the Comparative Stock Performance Graph on page 20 of this proxy statement.
15
<PAGE> 18
Base Salary. Executive salaries are reviewed by the Compensation Committee
at the end of each year, with any adjustments to base salary becoming effective
on January 1 of the succeeding year. During this review, the Compensation
Committee considers, in addition to the information provided by the salary
surveys, the individual executive's contribution to the Company's achievements
and changes in role and responsibility of the executive during the year. Because
the Company is experiencing rapid growth and internal change, particular care is
taken to ensure that expanded responsibilities are recognized in the calculation
of base pay. Executive salary increases in 1999 ranged from 5.5% to 11% of base
salary.
In December 1999, the base salary of Dr. Baldino, the Company's Chairman
and Chief Executive Officer, was increased to $500,000 from $450,000, effective
January 2000. The Compensation Committee reviewed the results of a survey of
executive salaries of other biotechnology companies of similar size, focus, and
stage of development and established Dr. Baldino's salary within the upper half
of the range of the comparison group. The Compensation Committee made this
adjustment after reviewing the progress made by the Company during 1999, as
described in this report under the caption "Overview of 1999." The Compensation
Committee noted that Cephalon increased both in its worldwide operations and
complexity during the year, and that Dr. Baldino's role had expanded in scope
and importance commensurately. The Compensation Committee also noted that there
was considerable progress in organizational development with the strengthening
of the management team through the addition of experienced executives in the
Sales and Marketing and Clinical Research staffs.
Annual Incentive Bonus. Corporate and individual goals and milestones are
established at the beginning of the year, and include targets for progress in
the Company's research and drug development efforts and in entering into
corporate collaborations, financings, and organizational development and sales
goals. The Compensation Committee provides bonus incentives for achievement of
these goals because it believes that attainment of these goals will ultimately
lead to the successful commercialization of the Company's product candidates and
will be in the best long-term interests of the Company's stockholders.
The granting of an annual incentive bonus is discretionary. In 1999 the
Compensation Committee approved a Management Incentive Compensation Program
which bases bonuses directly on the achievement of corporate and individual
objectives. The 1999 bonus award levels were 69.9% of base salary for Dr.
Baldino and as much as 43.6% for Senior Vice Presidents. Under the deferred
compensation plan for executives, individuals holding the title of Vice
President or higher may defer receipt to a future year of all, or a portion, of
any annual bonus. Interest on the deferred amounts is determined by the
Compensation Committee on an annual basis. In 1999, the rate of interest was 10%
and will continue at that rate in 2000.
During 1999, Dr. Baldino was granted an annual incentive bonus in cash in
the amount of $314,500. The Compensation Committee reviewed achievements against
objectives in determining that Dr. Baldino should be granted this bonus.
Specifically, the Compensation Committee noted the progress made by the Company
as described above under the captions "Overview of 1999" and "Compensation
Components."
Long-Term Incentives. Long-term incentives have been provided by means of
periodic grants of Stock Options and Restricted Stock under the Plan.
Stock Options: The options generally have exercise prices equal to
the fair market value of the underlying shares of Common Stock on the date
of grant, vest over a four-year period and expire ten years from the date
of grant. The Compensation Committee considers Stock Options to be a
valuable and necessary compensation tool that aligns the long-term
financial interests of the Company's executives with the financial
interests of its stockholders. Further, the vesting provisions of the Plan
serve to retain qualified employees, providing continuing benefits to the
Company beyond those achieved in the year of grant. Stock Options are
generally granted at the time of employment, and may be granted
periodically at the discretion of the Compensation Committee. The
Compensation Committee determines the number of options to be granted by
comparison to other biotechnology companies at similar stages of
development. A survey of competitors reviewed by the Compensation Committee
consisted of publicly traded biotechnology firms. Some, but not all, of
these companies are included in the Index of NASDAQ Pharmaceutical Stocks
in the Comparative Stock Performance Graph. A secondary objective is to
ensure that valued executives have significant numbers of unvested options
as an incentive to continue their employment and investment in the Company.
16
<PAGE> 19
Restricted Stock Awards: Restricted Stock Awards have also been
granted periodically at the discretion of the Compensation Committee.
Restrictions on the transfer of shares granted under Restricted Stock
Awards of Company Stock are based on service, performance and/or such other
factors or criteria as the Compensation Committee may determine in its sole
discretion. The Compensation Committee considers Restricted Stock Awards to
be a valuable and necessary compensation tool and an important component of
the Company's long-term incentives. The vesting provisions of the
Restricted Stock Awards serve to retain qualified employees, providing
continuing benefits to the Company beyond those achieved in the year of
grant.
In December 1999, the Compensation Committee granted Dr. Baldino a Stock
Option Grant of 41,000 shares and a Restricted Stock Grant of 41,000 shares.
Both the Stock Option and the Restricted Stock Grants vest over four years, at a
rate of 25% per year, on the anniversary of the award. In granting these awards,
the Compensation Committee considered it important that the Company provide a
continuing long-term incentive for retention of Dr. Baldino's services. In
addition, the Compensation Committee believes that the achievement of both short
and long-term objectives over the next few years will place considerable demands
on the executive team, and that their retention and motivation are crucial to
building long-term corporate value. Accordingly, in December 1999 the
Compensation Committee also granted to the Senior Vice Presidents Restricted
Stock Grants of 9,000 to 15,000 shares of Common Stock and Stock Option Grants
of 9,000 to 15,000 shares. These awards were made based on their performance
during the year, recognizing that their retention and motivation are crucial to
the long-term value of the Company.
Other Compensation. The Compensation Committee continued the matching
contributions made by the Company under the Cephalon, Inc. 401(k) Profit Sharing
Plan covering all of the Company's eligible employees. The match consists of
$0.50 in cash and $0.50 in Common Stock for each $1.00 of employee contribution
under the plan. This matching contribution is made only on the first 6% of
employee contributions. In the absence of a defined benefit pension plan, this
matching contribution allows Cephalon to remain competitive with other companies
in the biotechnology and pharmaceutical industries in providing for retirement
savings.
Payments during 1999 to the Company's executives under the various programs
discussed above were made with regard to the provisions of section 162(m) of the
Internal Revenue Code which became effective on January 1, 1994. Section 162(m)
limits the deduction that may be claimed by a "public company" for compensation
paid to certain individuals to $1 million except to the extent that any excess
compensation is "performance-based compensation". In accordance with current
regulations, the amounts received upon the exercise of Stock Options under the
Plan will qualify as "performance-based compensation," but the value of the
shares received when the shares of Restricted Stock become transferable will not
qualify as "performance-based compensation."
Respectfully submitted,
Stock Option and Compensation
Committee:
Robert J. Feeney, Ph.D.
Horst Witzel, Dr.-Ing.
17
<PAGE> 20
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY HOLDINGS OF CERTAIN BENEFICIAL OWNERS
The following information indicates the beneficial owners of five percent
or more of the outstanding shares of Common Stock of the Company as of December
31, 1999, and the number of shares and percentage of all outstanding shares
beneficially owned by such persons.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
------------------- ----------------------- -----------
<S> <C> <C>
FMR Corp.(3)................................................ 4,378,170 13.466%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) Except as indicated below, each beneficial owner named in this table has
sole voting and investment power with respect to all shares of Common Stock
set forth opposite its name above. The information in this table is
presented in reliance on information contained in the stock records of the
Company or disclosed by the beneficial owners in Schedules 13D and 13G
reporting as of December 31, 1999, as filed with the Company.
(2) The percentage for each beneficial owner is calculated based on (i) the
aggregate number of all shares reported to be beneficially owned by such
group or individual (including all shares issuable to such group or
individual upon the exercise of outstanding Stock Options or warrants
beneficially owned by them to the extent that such options or warrants are
exercisable within sixty days of the date as to which such information is
provided); and (ii) the aggregate number of shares of Common Stock
outstanding as of December 31, 1999 (32,476,524).
(3) FMR Corp. ("FMR"), Fidelity Management & Research Company ("Fidelity"),
Fidelity International Limited ("FIL"), and Edward C. Johnson III and
Abigail P. Johnson state in a Schedule 13G that: (i) Fidelity, a
wholly-owned subsidiary of FMR, is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; (ii) Fidelity is the
beneficial owner of 3,911,040 of the shares reported in the Schedule 13G;
(iii) Mr. Johnson and FMR each has sole dispositive power of the 3,911,040
shares owned by Fidelity. Voting power over these shares resides with
Fidelity's Board of Trustees; (iv) Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR, is the beneficial owner of 298,100 of the
shares reported in the Schedule 13G; (v) Mr. Johnson and FMR each has sole
voting and dispositive power over these 298,100 shares; and (vi) FIL is the
beneficial owner of 169,030 of the shares reported in the Schedule 13G and
has sole voting and dispositive power over these shares; FMR and FIL are of
the view that they are not acting as a "group" under rule 13d-5 and that
they are not otherwise required to attribute to each other the "beneficial
ownership" of securities "beneficially owned" by the other. Therefore, they
are of the view that the shares held by the other need not be aggregated for
purposes of Section 13(d). However, FMR has made the filing on Schedule 13G
on a voluntary basis as if all of the shares are beneficially owned by FMR
and FIL on a joint basis.
18
<PAGE> 21
SECURITY HOLDINGS OF EXECUTIVE OFFICERS AND DIRECTORS
The following table summarizes the beneficial ownership of the Company's
Common Stock by the Company's executive officers and directors as of March 1,
2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(1)(2) OF CLASS(3)
---- ----------------- -----------
<S> <C> <C>
Frank Baldino, Jr., Ph.D. .................................. 773,247 2.3%
William P. Egan(4).......................................... 88,322 *
J. Kevin Buchi.............................................. 98,379 *
Jeffry L. Vaught, Ph.D. .................................... 83,712 *
Robert J. Feeney, Ph.D. .................................... 56,566 *
Kevin E. Moley.............................................. 41,000 *
Martyn D. Greenacre......................................... 36,000 *
Robert P. Roche, Jr. ....................................... 34,587 *
Earl W. Henry, M.D. ........................................ 33,579 *
Horst Witzel, Dr.-Ing....................................... 30,000 *
David R. King............................................... 0 *
All executive officers and directors as a group (14
persons).................................................. 1,485,197 4.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated below, the individual or groups named in this table have
sole voting and investment power with respect to all shares of Common Stock
indicated above.
(2) Includes shares which may be acquired upon the exercise of outstanding
options and warrants that were exercisable as of March 1, 2000 as follows:
Dr. Baldino 435,002 shares; Mr. Buchi 62,826 shares; Mr. Egan and Dr. Feeney
45,000 shares each; Mr. Greenacre 35,000 shares; Dr. Henry 17,451 shares;
Mr. Moley 40,000 shares; Mr. Roche 6,200 shares; Dr. Vaught 60,575 shares;
Dr. Witzel 30,000 shares and all executive officers and directors as a group
917,029 shares.
(3) The percentage for each group or individual is based on the aggregate of the
shares outstanding as of March 1, 2000 (33,210,636) and all shares issuable
to such group or individual upon the exercise of outstanding Stock Options
to the extent that such options are exercisable by March 1, 2000.
(4) Includes 21,661 shares of Common Stock held by trusts for the benefit of Mr.
Egan's children. Mr. Egan is not a trustee of these trusts. Also includes
21,661 shares of Common Stock held by trusts of which Mr. Egan is a trustee
and over which he shares voting and investment control. Mr. Egan disclaims
beneficial ownership as to all of such shares held in trusts.
RELATED TRANSACTIONS
In 1998, the disinterested members of the board of directors authorized a
loan by the Company to Dr. Baldino in the amount of up to $150,000. The entire
amount of the loan has been used by Dr. Baldino as of the date of this proxy
statement. The interest (which accrues at the mid-term rate imputed for federal
income tax purposes) and principal will be payable in four years. The loan has
been made on a non-recourse basis and the principal and accrued interest have
been secured by a pledge of shares of Common Stock of the Company owned by Dr.
Baldino.
INFORMATION CONCERNING INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the Company's independent public
accountants since 1987, and is expected to continue to serve in such capacity
during 2000. The Company has requested that a representative from Arthur
Andersen LLP attend the 2000 annual meeting of stockholders. Such representative
will have an opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions from stockholders.
19
<PAGE> 22
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock with the cumulative total stockholder return of (i) the NASDAQ
Stock Market (U.S.) Index (the "NASDAQ Index"), and (ii) the Index of NASDAQ
Pharmaceutical Stocks (the "Pharmaceutical Index"), assuming an investment of
$100 on December 31, 1994 in each of: the Common Stock of the Company; the
stocks comprising the NASDAQ Index; and the stocks comprising the Pharmaceutical
Index.
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET NASDAQ PHARMACEUTICAL
CEPHALON, INC. (US) INDEX INDEX
-------------- ------------------- ---------------------
<S> <C> <C> <C>
1994 100.0 100.0 100.0
1995 494.0 141.3 182.9
1996 248.5 173.9 184.0
1997 137.9 213.1 190.0
1998 109.1 300.2 241.7
1999 418.9 542.4 451.6
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that each director and executive officer of the Company, and any other person
who owns more than ten percent of the Company's Common Stock, file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock of the Company. Such directors, executive
officers and stockholders are required by regulation to furnish the Company with
copies of such reports. To the knowledge of the Company, based solely upon its
review of these reports, as well as written representations to the effect that
no other such reports were required to be filed, each covered person met all
fiscal 1999 Section 16(a) filing requirements.
OTHER MATTERS
The board of directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at annual meetings in accordance with regulations adopted by the
Securities and Exchange Commission. To be considered for inclusion in the proxy
statement and form of proxy card relating to the 2001 annual meeting of
stockholders, such proposals must be received by the Company not later than
December 12, 2000. Proposals should be directed to the attention of the
Secretary of the Company.
20
<PAGE> 23
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON THE REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES THERETO, BUT EXCLUDING EXHIBITS. REQUESTS FOR
COPIES OF SUCH REPORT SHOULD BE DIRECTED TO INVESTOR RELATIONS, CEPHALON, INC.,
145 BRANDYWINE PARKWAY, WEST CHESTER, PENNSYLVANIA 19380-4245, (610) 344-0200.
BY ORDER OF THE BOARD OF DIRECTORS,
JOHN E. OSBORN
Secretary
West Chester, Pennsylvania
April 11, 2000
21
<PAGE> 24
PROXY
CEPHALON, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 16, 2000
The undersigned hereby appoints Frank Baldino, Jr., Ph.D. and John E.
Osborn, or either one of them acting singly in the absence of the other, with
full power of substitution, the proxy or proxies of the undersigned to attend
the Annual Meeting of Stockholders of Cephalon, Inc. to be held on May 16, 2000,
and any adjournment thereof, to vote all shares of stock that the undersigned
would be entitled to vote if personally present in the manner indicated below
and on any other matters properly brought before the meeting or any adjournment
thereof, all as set forth in the April 11, 2000 proxy statement.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CEPHALON, INC.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 25
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE. [X]
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR.
<TABLE>
<C> <S> <C> <C>
FOR WITHHOLD
all nominees for all nominees
1. ELECTION OF DIRECTORS [ ] [ ]
Nominees: Frank Baldino, Jr., Ph.D., William P. Egan, Robert J. Feeney, Ph.D., Martyn D.
Greenacre, David R. King, Kevin E. Moley and Horst Witzel, Dr.-Ing.
WITHHOLD for the following only: (Write in the name of the nominee(s) in the space below)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
2. APPROVAL OF AMENDMENT TO, AND RESTATEMENT OF, THE EQUITY FOR AGAINST ABSTAIN
COMPENSATION PLAN. [ ] [ ] [ ]
I PLAN TO ATTEND MEETING [ ]
THE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED AS DIRECTED BY THE STOCKHOLDER.
WHERE NO DIRECTION IS GIVEN WHEN THE DULY
EXECUTED PROXY IS RETURNED SUCH SHARES
WILL BE VOTED AT THE MEETING FOR ALL
NOMINEES NAMED IN THE PROPOSAL 1 AND FOR
ADOPTION OF PROPOSAL 2.
THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF
CEPHALON, INC.
</TABLE>
Signature(s) __________________________________________________________________
Date ______________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE> 26
CEPHALON, INC.
INSTRUCTIONS TO CEPHALON, INC. 401(k) PROFIT SHARING PLAN TRUSTEE
REGARDING VOTE OF EMPLOYER STOCK AT
ANNUAL MEETING OF STOCKHOLDERS, MAY 16, 2000
The undersigned hereby instructs Wilmington Trust Company, the trustee of
the Cephalon, Inc. 401(k) Profit Sharing Plan (the "Plan"), to vote all shares
of employer stock allocated to the undersigned's account under the Plan in the
manner indicated below and on any other matters properly brought before the
meeting or any adjournment thereof, all as set forth in the April 11, 2000 proxy
statement.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 27
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE. [X]
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR.
<TABLE>
<C> <S> <C> <C>
FOR WITHHOLD
all nominees for all nominees
1. ELECTION OF DIRECTORS [ ] [ ]
Nominees: Frank Baldino, Jr., Ph.D., William P. Egan, Robert J. Feeney, Ph.D., Martyn D.
Greenacre, David R. King, Kevin E. Moley, and Horst Witzel, Dr.-Ing.
WITHHOLD for the following only: (Write in the name of the nominee(s) in the space below)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
2. APPROVAL OF AMENDMENT TO, AND RESTATEMENT OF, THE EQUITY FOR AGAINST ABSTAIN
COMPENSATION PLAN [ ] [ ] [ ]
THE SHARES REPRESENTED BY THIS VOTING
INSTRUCTION WILL BE VOTED BY THE TRUS-
TEE OF THE CEPHALON, INC. 401(k) PROFIT
SHARING PLAN AS DIRECTED BY THE PAR-
TICIPANT. WHERE NO DIRECTION IS GIVEN
SUCH SHARES WILL NOT BE VOTED BY THE
TRUSTEE.
THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF
CEPHALON, INC.
</TABLE>
Signature(s) __________________________________________________________________
Date ______________________________
NOTE: Please sign as name appears hereon.
