Exhibit 10.5

 

NON-EMPLOYEE DIRECTOR

NON-QUALIFIED STOCK OPTION

 

GRANT AGREEMENT

 

THIS AGREEMENT is made as of the          day of         , 200   (“Grant Date”)
by and between Cephalon, Inc. (“Company”) and                     (“Grantee”).

 

RECITALS

 

A.                                   Grantee, as a non-employee member of the
Board of Directors of the Company (“Board”), has been granted an option to
purchase shares of the common stock of the Company pursuant to Section 6(b) of
the Cephalon, Inc. 2004 Equity Compensation Plan (“Plan”).

 

B.                                     The option granted to the Grantee is
intended to be a non-qualified stock option (“NQSO”), which does not satisfy
Section 422 of the Internal Revenue Code of 1986, as amended.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       Grant of Option.

 

Subject to the terms and conditions set forth in this Agreement and the Plan,
the Company hereby grants to Grantee, as of the Grant Date, a NQSO to purchase
the number of shares of the common stock of the Company (“Option Shares”)
specified on the attached Notice of Grant of Stock Options (“Notice”), at the
exercise price per share set forth in the Notice.

 

This option shall become null and void unless the Grantee accepts this Agreement
by executing this Agreement in the space provided on the last page of the
Agreement and returning it to the Company.

 

2.                                       Option Term.

 

Unless sooner terminated in accordance with the provisions of the Plan or this
Agreement, this option will terminate at the close of business on the date
specified on the Notice, but in no event shall the option terminate later than
ten years from the Grant Date, (“Expiration Date”).

 

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3.                                       Option Nontransferable.

 

(a)                                  Except as described in subparagraph
(b) below, this option is not transferable or assignable by the Grantee other
than by will or by the laws of descent and distribution, and during the lifetime
of the Grantee, this option is exercisable only by the Grantee.

 

(b)                                 Anything contained in subparagraph (a) above
notwithstanding, the Grantee may transfer this option to family members, or one
or more trusts or other entities for the benefit of or owned by family members,
consistent with applicable securities laws and in accordance with such
procedures as the Company may prescribe; provided that the Grantee receives no
consideration for the transfer of the option and the transferred option
continues to be subject to the same terms and conditions as were applicable to
the option immediately before the transfer.

 

4.                                       Date of Exercise.

 

The option is fully exercisable on the Grant Date.  The option may be exercised
in whole or in part, and will remain exercisable until the sooner of the
Expiration Date or termination of the option as described in Paragraph 5 below.

 

5.                                       Termination of Director Status.

 

(a)                                  Should the Grantee cease to be a member of
the Board (other than by reason of retirement (as defined below), death,
permanent disability (as defined below), termination for cause (as defined
below) or Involuntary Termination within thirty-six (36) months of a Change of
Control (as provided in Paragraph 8)), this option will, solely to the extent
that it is exercisable immediately prior to such cessation of membership on the
Board, remain exercisable during the three-month period following the date of
such cessation of such membership on the Board; provided, however, in no event
will this option be exercisable at any time after the Expiration Date.

 

(b)                                 Should the Grantee cease to be a member of
the Board on account of retirement, this option will, solely to the extent that
it is exercisable immediately prior to such cessation of membership on the
Board, remain

 

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exercisable until the Expiration Date.  The Grantee will be deemed to cease to
be a member of the Board on account of retirement if the Grantee resigns from
the Board on or after serving at least 3 years as a member of the Board.

 

(c)                                  Should the Grantee become permanently
disabled and cease by reason thereof to be a member of the Board, this option
will, solely to the extent that it is exercisable immediately prior to such
cessation of membership on the Board, remain exercisable during the one-year
period following the date of such cessation of membership on the Board;
provided, however, in no event will this option be exercisable at any time after
the Expiration Date.  The Grantee will be deemed to be permanently disabled if
the Grantee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than one year, unable to engage in any substantial gainful employment.

 

(d)                                 Should the Grantee die while a member of the
Board (or during the three-month period referred to in subparagraph (a) or
during the one-year period referred to in subparagraph (c)), this option, to the
extent it is at the time outstanding under the Plan, shall remain exercisable
until the Expiration Date or earlier surrender of this option.  The executors or
administrators of the Grantee’s estate or the Grantee’s heirs or legatees (as
the case may be) will have the right to exercise this option, during the
remainder of the option term.

 

(e)                                  Should the Grantee’s membership on the
Board be terminated for cause (including, but not limited to, any act of
dishonesty, unethical conduct, willful misconduct, fraud or embezzlement, or any
unauthorized disclosure of confidential information or trade secrets), this
option will immediately terminate and cease to be exercisable when notice of
such termination is given to the Grantee.

 

6.                                       Privilege of Stock Ownership.

 

The holder of this option will have none of the rights of a stockholder with
respect to the Option Shares until such individual has exercised the option and
has been issued a stock certificate for the Option Shares.

 

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7.                                       Manner of Exercising Option.

 

In order to exercise this option with respect to all or any part of the Option
Shares for which this option is at the time exercisable, Grantee (or in the case
of exercise after Grantee’s death, Grantee’s executor, administrator, heir or
legatee, as the case may be) must take the following actions:

 

(a)                                  Execute and deliver to the Senior Vice
President & Chief Administrative Officer of the Company a stock purchase
agreement in substantially the form of Exhibit A to this Agreement (the
“Purchase Agreement”), specifying the number of Option Shares with respect to
which the option is being exercised;

 

(b)                                 Pay the aggregate exercise price for the
purchased shares as specified by the Board in one or more of the following
alternative forms:  (i) full payment, in cash or by check payable to the
Company’s order, in the amount of the exercise price for the Option Shares being
purchased; (ii) full payment in shares of common stock of the Company held for
at least six months and having an aggregate fair market value on the day of
exercise (as determined under the terms of the Plan) equal to the exercise price
for the Option Shares being purchased; (iii) a combination of shares of common
stock of the Company held for at least six months and valued at fair market
value on the day of exercise (as determined under the terms of the Plan) and
cash or check payable to the Company’s order, equal in the aggregate to the
exercise price for the Option Shares being purchased; or (iv) to the extent
permitted by applicable law, by such other method as the Board may approve; and

 

(c)                                  Furnish the Company with appropriate
documentation that the person or persons exercising the option, if other than
the Grantee, have the right to exercise this option.

 

8.                                       Certain Company Transactions.

 

(a)                                  “Change of Control” shall mean a change in
ownership or control of the Company effected through either of the following
transactions: (i) the direct or indirect acquisition by any person or related
group of persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended of securities possessing more than thirty
percent (30%) of the combined voting power of the Company’s outstanding
securities pursuant to a tender or exchange offer made directly to the

 

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Company’s stockholders which the Board does not recommend such stockholders to
accept; or (ii)  a change in the composition of the Board over a period of
twenty-four (24) months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (1) have been Board members continuously
since the beginning of such period, or (2) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (1) who were still in office at the time such
election or nomination was approved by the Board.

 

(b)                                 “Corporate Transaction” shall mean either of
the following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which securities possessing more than fifty
percent (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.

 

c)                                      “Involuntary Termination” shall mean the
termination of the service of the Grantee which occurs by reason of (i) such
individual’s involuntary dismissal or discharge by the Company or the successor
thereto for reasons other than Misconduct (as defined below), or (ii) such
individual’s voluntary resignation, in either case following: (a) a change in
the Grantee’s position with the Company or the successor thereto which
materially reduces the Grantee’s level of responsibility, (b) a reduction in the
Grantee’s level of compensation (including base salary, significant fringe
benefits or any non-discretionary and objective-standard incentive payment or
bonus award) by more than ten percent (10%) in the aggregate or (c) a relocation
of the Grantee’s place of employment by more than fifty (50) miles, only if such
change, reduction or relocation is effected by the Company or the successor
thereto without the Grantee’s consent.  For purposes of this definition, the
term “Misconduct” means 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.  The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Company or its successor may consider as grounds for the
dismissal or discharge of the Grantee.

 

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(d)                                 Upon the occurrence of a Corporate
Transaction or upon Involuntary Termination of the Grantee within thirty-six
(36) months following a Change of Control, this option shall remain exercisable
until the Expiration Date or earlier surrender of this option.

 

(e)                                  Immediately following the consummation of a
Corporate Transaction, this option shall terminate and cease to remain
outstanding, except to the extent assumed by the successor corporation or its
parent company.

 

9.                                       Compliance with Laws and Regulations.

 

(a)                                  The exercise of this option and the
issuance of Option Shares upon such exercise is subject to compliance by the
Company and Grantee with all applicable requirements of law relating thereto and
with all applicable regulations of any stock exchange on which shares of the
Company’s common stock may be listed at the time of such exercise and issuance.

 

(b)                                 In connection with the exercise of this
option, Grantee will execute and deliver to the Company such representations in
writing as may be requested by the Company so that it may comply with the
applicable requirements of federal and state securities laws.

 

10.                                 Liability of Company.

 

(a)                                  If the Option Shares exceed, as of the
Grant Date, the number of shares that may without stockholder approval be issued
under the Plan, then this option will be void with respect to such excess shares
unless stockholder approval of an amendment sufficiently increasing the number
of shares issuable under the Plan is obtained in accordance with the provisions
of the Plan.

 

(b)                                 The inability of the Company to obtain
approval from any regulatory body having authority deemed by the Company to be
necessary to the lawful issuance and sale of any common stock pursuant to this
option will relieve the Company of any liability with respect to the
non-issuance or sale of the common stock as to which such approval is not
obtained.

 

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11.                                 No Employment Contract.

 

Nothing in this Agreement, the Notice or in the Plan confers upon Grantee any
right to continue membership on the Board or interferes with or restricts in any
way the rights of the Company (or any subsidiary), which are hereby expressly
reserved, to discharge the Grantee at any time for any reason or no reason, with
or without cause.  Except to the extent the terms of any written contract
between the Company and the Grantee may expressly provide otherwise, neither the
Company nor any of its subsidiaries is under any obligation to continue the
Grantee’s membership on the Board for any period of specified duration.

 

12.                                 Withholding.

 

Grantee hereby agrees to make appropriate arrangements with the Company for the
satisfaction of any federal, state or local income tax withholding requirements
applicable to the exercise of this option.

 

13.                                 Notices.

 

Any notice required to be given or delivered to the Company under the terms of
this Agreement will be in writing and addressed to the Company in care of its
Senior Vice President & Chief Administrative Officer at its corporate office at
41 Moores Road, Frazer, Pennsylvania, 19355.  Any notice required to be given or
delivered to the Grantee will be in writing and addressed to the Grantee at the
address indicated below the Grantee’s signature line on the Agreement.  All
notices will be deemed to have been given or delivered upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.

 

14.                                 Construction.

 

This Agreement, the Notice and the option evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the
express terms and provisions of the Plan.  Capitalized terms not otherwise
defined herein that are defined in the Plan shall have the meaning specified in
the Plan.

 

All decisions of the Committee or the Board, as applicable, with respect to any
question or issue arising under the Plan or this Agreement will be conclusive
and binding on all persons having an interest in this option.

 

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15.                                 Governing Law.

 

The interpretation, performance and enforcement of this Agreement will be
governed by the laws of the Commonwealth of Pennsylvania.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and the Grantee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.

 

 

 

For Cephalon, Inc.

 

 

 

 

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Date:

 

 

 

I hereby accept the option described in this Agreement and the Notice, and I
agree to be bound by the terms of the Plan, this Agreement and the Notice.  I
hereby further agree that all of the decisions and determinations of the
Committee and the Board, as applicable, shall be final and binding.

 

 

Grantee:

 

 

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date:

 

 

 

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