<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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
Sepracor 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)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
...............................................................
<PAGE> 2
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> 3
SEPRACOR INC.
111 LOCKE DRIVE
MARLBOROUGH, MASSACHUSETTS 01752
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
The 1997 Annual Meeting of Stockholders of Sepracor Inc. (the "Company")
will be held at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, on Wednesday, May 14, 1997 at 9:00 a.m., local time, to
consider and act upon the following matters:
1. To elect three Class I Directors for the ensuing three years;
2. To approve an amendment to the Company's 1991 Director Stock Option
Plan (the "Director Plan") extending the period during which options may be
granted under the Director Plan until July 31, 1999;
3. To reapprove the 1991 Restated Stock Option Plan (the "1991 Plan")
to comply with Section 162(m) of the Internal Revenue Code of 1986, as
amended; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on April 1, 1997 are
entitled to notice of, and to vote at, the meeting. The stock transfer books of
the Company will remain open for the purchase and sale of the Company's Common
Stock.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
DAVID P. SOUTHWELL
Secretary
Marlborough, Massachusetts
April 14, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE> 4
SEPRACOR INC.
111 LOCKE DRIVE
MARLBOROUGH, MASSACHUSETTS 01752
PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Sepracor Inc. ("Sepracor" or the "Company")
for use at the 1997 Annual Meeting of Stockholders (the "Annual Meeting") to be
held at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109 at 9:00 a.m. on Wednesday, May 14, 1997 and at any adjournment or
adjournments of that meeting. All proxies will be voted in accordance with the
instructions contained therein, and if no choice is specified, the proxies will
be voted in favor of the matters set forth in the accompanying Notice of
Meeting. Any proxy may be revoked by a stockholder at any time before it is
exercised by delivery of written revocation to the Secretary of the Company.
The Company's Annual Report for the year ended December 31, 1996 is being
mailed to stockholders with the mailing of this Notice and Proxy Statement on or
about April 14, 1997.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCEPT
FOR EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST TO THE CHIEF FINANCIAL OFFICER, SEPRACOR INC., 111 LOCKE DRIVE,
MARLBOROUGH, MASSACHUSETTS 01752.
VOTING SECURITIES AND VOTES REQUIRED
On April 1, 1997, the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting, there were outstanding
and entitled to vote an aggregate of 27,422,723 shares of Common Stock of the
Company, $.10 par value per share (the "Common Stock"). Each share of Common
Stock is entitled to one vote.
The Company has outstanding 312,500 shares of Series B Redeemable
Exchangeable Preferred Stock, $1.00 par value per share (the "Series B Preferred
Stock"). Except as otherwise required by law, the holders of Series B Preferred
Stock are not entitled to any voting rights and are not entitled to vote on any
matter being considered at the Annual Meeting.
Under the Company's Amended and Restated By-laws, the holders of a majority
of the shares of Common Stock issued, outstanding and entitled to vote on any
matter shall constitute a quorum with respect to that matter at the Annual
Meeting. Shares of Common Stock present in person or represented by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the election
of directors. The affirmative vote of the holders of a majority of the votes
cast by the stockholders is required for the approval of the amendment to the
Director Plan and the reapproval of the 1991 Plan.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees, who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes
<PAGE> 5
cast or shares voting on such matter. Accordingly, abstentions and "broker
non-votes" will have no effect on the voting on a matter that requires the
affirmative vote of a certain percentage of the votes cast or shares voting on a
matter, such as the election of directors, the approval of the amendment to the
Director Plan and the reapproval of the 1991 Plan.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information, as of January 31, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each director and nominee for director;
(iii) each executive officer named in the Summary Compensation Table under the
heading "Compensation of Executive Officers" below (the "Named Executive
Officers") and (iv) all directors and executive officers of the Company as a
group.
The number of shares of Common Stock beneficially owned by each person is
determined under the rules of the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares of Common Stock which the individual has the right to acquire within 60
days after January 31, 1997 through the exercise of any stock option or other
right or upon conversion of the Company's 7% Convertible Subordinated Debentures
due 2002 (the "Debentures"). Unless otherwise indicated, each person has sole
investment and voting power (or shares such power with his or her spouse) with
respect to the shares set forth in the following table. The inclusion herein of
any shares deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares.
<CAPTION>
SHARES OF COMMON PERCENTAGE OF
STOCK COMMON
BENEFICIALLY STOCK
NAME AND ADDRESS OWNED OUTSTANDING
- ---------------- ---------------- -------------
<S> <C> <C>
5% STOCKHOLDERS
FMR Corp................................................... 3,224,100(1) 11.8%
82 Devonshire Street
Boston, MA 02109
Mellon Bank Corporation.................................... 1,567,000(2) 5.7%
One Mellon Bank Center
Pittsburgh, PA 15258
DIRECTORS
Timothy J. Barberich....................................... 566,393(3) 2.0%
James G. Andress........................................... 19,333(4) *
Digby W. Barrios........................................... 16,333(5) *
Robert J. Cresci........................................... 19,333(6) *
Robert F. Johnston......................................... 727,971(7) 2.7%
Keith Mansford, Ph.D....................................... 17,433(8) *
James F. Mrazek............................................ 169,882(9) *
Alan A. Steigrod........................................... 8,000(10) *
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF
STOCK COMMON
BENEFICIALLY STOCK
NAME AND ADDRESS OWNED OUTSTANDING
- ---------------- ---------------- -------------
<S> <C> <C>
OTHER NAMED EXECUTIVE OFFICERS
David S. Barlow............................................ 190,397(11) *
Paul D. Rubin, M.D......................................... 193 *
David P. Southwell......................................... 153,800(12) *
Robert F. Scumaci.......................................... 18,081(13) *
All directors and executive officers as a group (13 1,907,149(14) 6.8%
persons).................................................
</TABLE>
- ---------------
* Represents holdings of less than one percent.
(1) This information is taken from a Schedule 13G/A dated February 14, 1997.
(2) This information is taken from a Schedule 13G dated January 30, 1997.
(3) Includes 353,671 shares of Common Stock which Mr. Barberich has the right
to acquire within 60 days after January 31, 1997 upon exercise of
outstanding options. Includes an aggregate of 30,000 shares of Common Stock
held in trust for Mr. Barberich's daughter and 8,000 shares held by Mr.
Barberich's wife, as to which shares Mr. Barberich disclaims beneficial
ownership.
(4) Consists of 19,333 shares of Common Stock which Mr. Andress has the right
to acquire within 60 days after January 31, 1997 upon exercise of
outstanding stock options.
(5) Includes 15,333 shares of Common Stock which Mr. Barrios has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
stock options.
(6) Represents 19,333 shares of Common Stock which Mr. Cresci has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
options. Does not include 7,778 shares issuable upon exercise of warrants
held of record by the State Employees' Retirement Fund of the State of
Delaware (the "Fund"), 2,100 shares issuable upon exercise of warrants held
of record by ICI American Holdings, Inc. ("ICI") and 1,789 shares issuable
upon exercise of warrants held of record by Zeneca Holdings, Inc.
("Zeneca"). Also excludes 467,478 shares of the Company's Common Stock
issuable upon the conversion of the Debentures held by ICI (36,839 shares),
Zeneca (24,644 shares), the Fund (112,042 shares), Thermo Electron Balance
Investment Fund ("Thermo Investment") (27,947 shares) and General Motors
Employees Domestic Group Trust ("GM Trust") (266,006 shares). The warrants
held by ICI, Zeneca and the Fund and the Debentures held by ICI, Zeneca,
the Fund, Thermo Investment and GM Trust are managed by Pecks Management
Partners Ltd. Mr. Cresci, a Managing Director of Pecks Management Partners
Ltd., has shared voting and investment power with respect to shares
issuable upon exercise of such warrants and the Debentures and disclaims
beneficial ownership of all such shares.
(7) Includes 19,333 shares of Common Stock which Mr. Johnston has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
options. Also includes an aggregate of 279,000 shares of Common Stock held
in trust for Mr. Johnston's children, 190,000 shares held by Mr. Johnston's
wife and 7,500 shares held in charitable trusts, as to all of which such
shares Mr. Johnston disclaims beneficial ownership.
(8) Includes 17,333 shares of Common Stock which Dr. Mansford has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
options.
(9) Includes 19,333 shares of Common Stock which Mr. Mrazek has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
options.
3
<PAGE> 7
(10) Includes 4,000 shares of Common Stock which Mr. Steigrod has the right to
acquire within 60 days of January 31, 1997 upon exercise of outstanding
options.
(11) Consists of 190,397 shares of Common Stock which Mr. Barlow has the right
to acquire within 60 days after January 31, 1997 upon exercise of
outstanding options.
(12) Includes 150,000 shares of Common Stock which Mr. Southwell has the right
to acquire within 60 days after January 31, 1997 upon exercise of
outstanding options.
(13) Includes 17,000 shares of Common Stock which Mr. Scumaci has the right to
acquire within 60 days after January 31, 1997 upon exercise of outstanding
options.
(14) Includes an aggregate of 825,066 shares of Common Stock which all executive
officers and directors have the right to acquire within 60 days after
January 31, 1997 upon exercise of outstanding options.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class I
Directors, three Class II Directors and two Class III Directors. The Class I,
Class II and Class III Directors will serve until the annual meetings of
stockholders to be held in 1997, 1999 and 1998, respectively, and until their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those whose terms are expiring.
The persons named in the enclosed proxy will vote to elect as directors
James G. Andress, Robert J. Cresci and James F. Mrazek, the Class I nominees
named below, unless the proxy is marked otherwise. Each of the nominees is
currently a member of the Board of Directors of the Company. Each Class I
Director will be elected to hold office until the Annual Meeting of Stockholders
in 2000 and until his successor is duly elected and qualified. The nominees have
indicated their willingness to serve, if elected; however, if any nominee should
be unable to serve, the shares of Common Stock represented by proxies may be
voted for a substitute nominee designated by the Board of Directors.
There are no family relationships between or among any officers or
directors of the Company.
Set forth below are the names and ages of each member of the Board of
Directors (including those who are nominees for election as Class I directors),
and the positions and offices held by him, his principal occupation and business
experience during the past five years, the names of other publicly held
companies of which he serves as a director and the year of the commencement of
his term as a director of the Company. Information with respect to the number of
shares of Common Stock beneficially owned by each director, directly or
indirectly, as of January 31, 1997, appears under the heading "Stock Ownership
of Certain Beneficial Owners and Management."
NOMINEES FOR TERMS EXPIRING IN 2000 (CLASS I DIRECTORS)
JAMES G. ANDRESS, age 58, has been a director since 1991.
Since November 1996, Mr. Andress has been Chief Executive Officer of
Warner Chilcott, Plc, a privately held pharmaceutical company. From
November 1995 to October 1996, Mr. Andress was a management consultant. Mr.
Andress served as President and Chief Executive Officer of Information
Resources, Inc., a market research and computer software company, from 1989
to November 1995. He also serves as a director of Allstate Insurance
Company, Inc., Information Resources, Inc., NeoRx Corporation, OptionCare
Corporation, The Liposome Company, Inc., Source International and Xoma
Corporation.
4
<PAGE> 8
ROBERT J. CRESCI, age 53, has been a director since 1990.
Mr. Cresci has served as Managing Director of Pecks Management
Partners Ltd., an investment management firm, since September 1990. Mr.
Cresci currently serves as a director of Bridgeport Machines, Inc.,
Educational Medical, Inc., EIS International, Inc., Film Roman, Inc.,
Garnet Resources Corporation, GeoWaste, Inc., HarCor Energy, Inc., Hitox,
Inc., Meris Laboratories, Inc., Natures Elements, Inc., Olympic Financial,
Ltd., Serv-Tech, Inc., Vestro Natural Foods, Inc. and several private
companies.
JAMES F. MRAZEK, age 56, has been a director since 1984.
Since April 1996, Mr. Mrazek has served as President and Managing
Partner of the Four Corners Venture Fund, a venture capital and management
consulting firm. From January 1990 to March 1996, Mr. Mrazek was President
of Carnegie Venture Resources, a venture capital and management consulting
firm. He also serves as a director of Photon Technology International, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS III DIRECTORS)
DIGBY W. BARRIOS, age 59, has been a director since 1992.
Since July 1992, Mr. Barrios has been a management consultant. Mr.
Barrios served as President and Chief Executive Officer of Boehringer
Ingelheim Corporation, a fine chemical and pharmaceutical company, from
1988 until June 1992. Mr. Barrios also serves as a director of Cypros
Pharmaceutical Corporation and Roberts Pharmaceutical Corporation.
ALAN A. STEIGROD, age 59, has been a director since February 1995.
Since January 1996, Mr. Steigrod has been President and Chief
Executive Officer of Newport HealthCare Ventures, which provides consulting
services in connection with the biopharmaceutical industry. From January
1993 to November 1995, Mr. Steigrod served as President and Chief Executive
Officer of Cortex Pharmaceuticals, Inc., a development-stage neuroscience
company. From March 1991 to January 1993, Mr. Steigrod was an independent
biotechnology/pharmaceutical business consultant. Mr. Steigrod also serves
as a director of Cellegy, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS II DIRECTORS)
TIMOTHY J. BARBERICH, age 49, has been a director since 1984.
Mr. Barberich has served as President and Chief Executive Officer of
the Company since 1984. He also serves as Chairman of the Board and a
director of BioSepra Inc. and HemaSure Inc., publicly held subsidiaries of
the Company.
ROBERT F. JOHNSTON, age 60, has been a director since 1984.
Mr. Johnston has served as Managing Director of Johnston Associates,
Inc., a venture capital firm, since 1988. He also serves as a director of
Envirogen, Inc.
KEITH MANSFORD, PH.D., age 65, has been a director since 1993.
Dr. Mansford has served as the Principal of Mansford Associates, a
pharmaceutical consulting firm, since 1992. Dr. Mansford served as a
Chairman, Research & Development, of SmithKline Beecham plc from July 1989
to January 1992.
5
<PAGE> 9
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
accountants and the Board. The Audit Committee has responsibility for
recommending the appointment of the Company's independent accountants, reviewing
the scope and results of audits and reviewing the Company's internal accounting
control policies and procedures. The Audit Committee held one meeting in 1996.
The members of the Audit Committee are Messrs. Cresci, Johnston and Steigrod.
The Company also has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company. The Compensation Committee is responsible for
establishing and modifying the compensation of all corporate officers of the
Company, adoption and amendment of all stock option and other employee benefit
plans, and the engagement of, terms of any employment agreements and
arrangements with, and termination of, all corporate officers of the Company.
The Compensation Committee held two meetings during 1996. The members of the
Compensation Committee are Messrs. Andress, Barrios and Mrazek. See "Report of
the Compensation Committee" below.
The Company does not have a nominating committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.
The Board of Directors held six meetings, including two telephonic
meetings, during 1996. Each director attended at least 75% of the total number
of meetings of the Board of Directors and all committees of the Board on which
he served.
COMPENSATION FOR DIRECTORS
Directors who are neither officers nor employees of the Company (the
"Outside Directors") receive $12,000 per year for their services as directors
plus $1,200 for each Board and Committee meeting attended, receive expense
reimbursement for attending Board and Committee meetings and are entitled to
participate in the Company's 1991 Director Stock Option Plan (the "Director
Plan") which provides for automatic grants of non-statutory stock options to
Outside Directors. For a description of the terms of the Director Plan, see
"Approval of Amendment to the Company's 1991 Director Stock Option Plan" below.
Under the Director Plan, Messrs. Johnston, Cresci and Mrazek were each granted
an option to purchase 10,000 shares of Common Stock on December 31, 1991. Mr.
Barrios, Dr. Mansford and Mr. Steigrod were each granted an option to purchase
10,000 shares of Common Stock upon their initial election to the Board of
Directors in November 1992, March 1993 and February 1995, respectively. In
addition, Messrs. Johnston, Cresci, Mrazek, Barrios and Andress and Dr. Mansford
were each granted an option to purchase 3,333 shares of Common Stock in May
1994, an option to purchase 6,000 shares of Common Stock in May 1995 and an
additional option to purchase 8,000 shares of Common Stock in May 1996.
Directors who are officers or employees of the Company do not receive any
additional compensation for their services as directors.
The Company is a party to a consulting agreement with Mr. Barrios, a
director of the Company, under which Mr. Barrios provides consulting services to
the Company for $1,500 per month. Mr. Barrios received $18,000 in consulting
fees in 1996.
The Company is a party to a consulting arrangement with Johnston
Associates, Inc., an affiliate of Mr. Johnston, a director of the Company, under
which the Company pays a retainer fee of $1,000 per month and would be required
to pay certain additional fees to Johnston Associates in the event the Company
enters
6
<PAGE> 10
into a license agreement for certain pharmaceutical products with specified
customers. Under this consulting agreement, the Company paid Johnston
Associates, Inc. $12,000 in 1996.
The Company is a party to a consulting agreement with Mr. Steigrod, a
director of the Company, which expires December 31, 1997. Under this consulting
agreement, as amended, Mr. Steigrod performs such consulting services as the
Company reasonably requests in the areas of potential Company acquisitions, the
upper respiratory markets and specialty sales and marketing capabilities and
organizations. Under this agreement the Company pays Mr. Steigrod $250 an hour
for his services, not to exceed $2,000 per day or an aggregate of $42,000 for
1997. The Company also reimburses Mr. Steigrod for his expenses incurred in
connection with the performance of services requested pursuant to the consulting
agreement. Under this consulting agreement the Company paid Mr. Steigrod $8,000
for services rendered in 1996.
Under a consulting agreement between the Company and Dr. Mansford, a
director of the Company, Dr. Mansford provides consulting services to the
Company in the area of the development of chiral and pharmaceutical products.
Under this agreement the Company pays Dr. Mansford a retainer fee of $1,000 per
month and an additional $500 for each half day of services rendered by Dr.
Mansford in excess of 12 days per year, up to a yearly maximum of $15,000 for
such additional services. Under this consulting agreement the Company paid Dr.
Mansford $12,000 for services rendered in 1996.
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three years of the Company's President and Chief Executive Officer and
the Company's four other most highly compensated executive officers during 1996
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
---------------------------------- NUMBER OF
OTHER ANNUAL SHARES ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING STOCK COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS (2) ($)(3)
- ------------------ ----- -------- -------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich............... 1996 $251,730 $ 85,000 $ 0 0 $2,099
President and Chief Executive 1995 225,813 80,000 0 300,000 1,675
Officer 1994 216,185 0 0 240,000 522
David S. Barlow.................... 1996 184,577 80,000 0 0 1,879
Executive Vice President and 1995 175,251 70,000 32,531 400,000(4) 448
President, Pharmaceuticals 1994 164,796 50,000 33,653 100,000 198
David P. Southwell(5).............. 1996 183,403 80,000 0 0 1,564
Executive Vice President, Chief 1995 160,001 70,000 0 130,000 364
Financial Officer and Secretary 1994 71,375 100,000(6) 0 300,000 68
Paul D. Rubin, M.D.(7)............. 1996 180,000 170,000(8) 51,465 200,000 1,714
Senior Vice President, Development
Robert F. Scumaci(9)............... 1996 145,924 30,000 8,077 0 1,421
Senior Vice President, Finance 1995 111,070 28,350 43,534 65,000 196
and Treasurer
</TABLE>
- ---------------
(1) Amounts shown represent reimbursement received for relocation expenses.
Other Compensation in the form of perquisites and other personal benefits
has been omitted in those instances where such perquisites
7
<PAGE> 11
and other personal benefits constituted less than the lesser of $50,000 or
10 percent of the total salary and bonus for each Named Executive Officer
for such year.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts during
1994, 1995 and 1996.
(3) Represents the taxable portion of group life insurance paid by the Company
and/or the value of 401(k) matching contributions made by the Company.
(4) The number of options awarded in 1995 includes options for 200,000 shares
which were repriced in 1995.
(5) Mr. Southwell joined the Company as Senior Vice President and Chief
Financial Officer in July 1994.
(6) Includes a signing bonus of $50,000 in lieu of payments for relocation.
(7) Dr. Rubin joined the Company in April 1996.
(8) Includes a $50,000 signing bonus.
(9) Mr. Scumaci joined the Company as Vice President and Corporate Controller in
March 1995.
<TABLE>
Option Grant Table. The following table sets forth certain information
regarding options granted during the year ended December 31, 1996 by the Company
to the Named Executive Officers.
OPTION GRANTS IN LAST YEAR
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME #(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich.......... 0 0 N/A N/A N/A N/A
David S. Barlow............... 0 0 N/A N/A N/A N/A
David P. Southwell............ 0 0 N/A N/A N/A N/A
Paul D. Rubin, M.D............ 200,000 35 $ 12.62 4/17/2006 $1,587,330 $4,022,606
Robert F. Scumaci............. 0 0 N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Options granted by the Company generally vest in five equal annual
installments commencing one year from the date of grant. Of the options
granted to Dr. Rubin in 1996, options for 150,000 shares vest in accordance
with this schedule. The vesting of the options for the remaining 50,000
shares is contingent upon the achievement of specified goals by Dr. Rubin.
(2) The exercise price is equal to the fair market value of the Company's Common
Stock on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from the
date options are granted. Actual gains, if any, on stock option exercises
will depend on the future performance of the Common Stock on the date on
which the options are exercised.
8
<PAGE> 12
<TABLE>
Option Exercises and Year-End Option Values Table. The following table
sets forth certain information regarding the aggregate shares of Common Stock
acquired upon option exercises by the Named Executive Officers and the value
realized upon such exercises during the year ended December 31, 1996, as well as
the number and value of unexercised stock options held by the Named Executive
Officers as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END AT YEAR-END
(#) ($)(2)
SHARES --------------------- ---------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Timothy J. Barberich...... 33,300 $ 323,838 353,671/410,104 $3,812,065/$2,416,608
David S. Barlow........... 0 0 158,398/341,602 1,401,786/2,334,214
David P. Southwell........ 0 0 150,000/280,000 1,368,880/2,077,120
Paul D. Rubin............. 0 0 0/200,000 0/800,000
Robert F. Scumaci......... 0 0 13,000/52,000 83,600/334,400
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock on the date of exercise
less the option exercise price.
(2) Value based on the closing sales price of the Company's Common Stock on
December 31, 1996 ($16.62), the last trading day of 1996, less the
applicable option exercise price.
REPORT OF THE COMPENSATION COMMITTEE
The executive compensation program of the Company is administered by the
Compensation Committee which is composed of three non-employee directors.
The Company's executive compensation program is designed to retain and
reward executives who are capable of leading the Company in achieving its
business objectives in the competitive and rapidly changing industries in which
the Company competes. The Compensation Committee establishes the compensation
policies of the Company for Timothy J. Barberich, the Chief Executive Officer of
the Company, and the Company's two Executive Vice Presidents, Messrs. Barlow and
Southwell. In addition, Mr. Barberich recommends compensation packages for the
remaining Named Executive Officers which the Compensation Committee reviews and
approves. All decisions by the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board.
This report is submitted by the Compensation Committee and addresses the
Company's compensation policies for 1996 as they affected Mr. Barberich and the
Company's other Named Executive Officers.
Compensation Philosophy
The objectives of the executive compensation program are to align
compensation with business objectives and individual performance, and to enable
the Company to attract, retain and reward executive officers who
9
<PAGE> 13
are expected to contribute to the long-term success of the Company. The
Company's executive compensation philosophy is based on the following
principles:
- COMPETITIVE AND FAIR COMPENSATION
The Company is committed to providing an executive compensation
program that helps attract and retain highly qualified executives. To
ensure that compensation is competitive, the Company regularly compares its
compensation practices with those of other companies in the industry and
sets its compensation guidelines based on this review. The Company also
seeks to achieve a balance of the compensation paid to a particular
individual and the compensation paid to other executives at the Company.
- SUSTAINED PERFORMANCE
Executive officers are rewarded based upon corporate performance,
business group performance and individual performance. Corporate
performance and business group performance are evaluated by reviewing the
extent to which strategic and business plan goals are met, including such
factors as achievement of operating budgets, establishment of strategic
licensing and development alliances with third parties, timely development
and introduction of new processes and products, and performance relative to
competitors. Individual performance is evaluated by reviewing attainment of
specified individual objectives and the degree to which teamwork and
Company values are fostered.
In evaluating each Named Executive Officer's performance, the Company
generally conforms to the following process:
- Company and individual goals and objectives are set at or prior to the
beginning of the performance cycle.
- At the end of the performance cycle, the accomplishment of the
executive's goals and objectives and his contributions to the Company are
evaluated.
- The executive's performance is then compared with peers within the
Company and the results are communicated to the executive.
- The comparative results, combined with comparative compensation practices
of other companies in the industry, are then used to determine salary and
stock compensation levels.
Annual compensation for the Company's executives generally consists of two
elements -- salary and stock options. In early 1996, the Committee established
an executive bonus plan for 1996 pursuant to which executives were entitled to
receive bonuses based on achievement of individual performance goals. Bonuses
totaling $445,000 were paid to the Named Executive Officers for 1996.
The salary for executives is generally set by reviewing compensation for
competitive positions in the market and the historical compensation levels of
the executives. Increases in annual salaries are based on actual corporate and
individual performance against targeted performance and various subjective
performance criteria. Targeted performance criteria vary for each executive
based on his business group or area of responsibility, and may include
achievement of the operating budget for the Company as a whole or of a business
group of the Company, continued innovation in development and commercialization
of the Company's technology, timely development and introduction of new products
or processes, implementation of financing strategies and establishment of
strategic licensing and development alliances with third parties. Subjective
performance criteria include an executive's ability to motivate others, develop
the skills necessary to grow as the Company matures, recognize and pursue new
business opportunities and initiate programs to enhance the Company's growth and
success.
10
<PAGE> 14
Compensation for Named Executive Officers also includes the long-term
incentives afforded by stock options. The stock option program is designed to
promote the identity of long-term interests between the Company's employees and
its shareholders and assist in the retention of executives. The size of option
grants is generally intended to reflect the executive's position with the
Company and his contributions to the Company, including his success in achieving
the individual performance criteria described above. The option program
generally uses a five-year vesting period to encourage key employees to continue
in the employ of the Company. From time to time, the Compensation Committee
chooses to align more closely the vesting of stock options with the achievement
by a Named Executive Officer of corporate, business group or individual
performance goals. In 1996, the Company granted stock options to purchase an
aggregate of 200,000 shares of the Company's Common Stock to Named Executive
Officers at an exercise price of $12.62 per share. All stock options granted to
Named Executive Officers in 1996 were granted at fair market value on the date
of grant.
Named Executive Officers are also eligible to participate in the Company's
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan is
available to virtually all employees of the Company and generally permits
participants to purchase shares at a discount of approximately 15% from the fair
market value at the beginning or end of the applicable purchase period.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), generally disallows
a tax deduction to public companies for compensation over $1 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The Company
intends to structure the performance-based portion of the compensation of its
executive officers (which currently consists of stock option grants) in a manner
that complies with Section 162(m) of the Code so as to mitigate any disallowance
of deductions. The Company's 1991 Plan was amended in 1995 and is being
submitted for stockholder reapproval to preserve the availability of tax
deductions to the Company that might otherwise be unavailable under Section
162(m) of the Code.
Mr. Barberich's 1996 Compensation
Mr. Barberich is eligible to participate in the same executive compensation
plans available to the other Named Executive Officers. The Compensation
Committee believes that Mr. Barberich's annual compensation, including the
portion of his compensation based upon the Company's stock option program, has
been set at a level competitive with other companies in the industry.
Mr. Barberich's salary for 1996 increased from $225,813 to $251,730. Mr.
Barberich received a bonus of $85,000 in 1997 for 1996 performance.
Compensation Committee
James G. Andress
Digby W. Barrios
James F. Mrazek
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Andress,
Barrios and Mrazek. No member of the Compensation Committee was at any time
during 1996, or formerly, an officer or employee of
11
<PAGE> 15
the Company or any subsidiary of the Company, nor has any member of the
Compensation Committee had any relationship with the Company requiring
disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
No executive officer of the Company has served as a director or member of
the Compensation Committee (or other committee serving an equivalent function)
of any other entity, one of whose executive officers served as a director of or
member of the Compensation Committee of the Company.
COMPARATIVE STOCK PERFORMANCE
The comparative stock performance graph below compares the cumulative
stockholder return on the Common Stock of the Company for the period from
December 31, 1991 through the year ended December 31, 1996 with the cumulative
total return on (i) the Total Return Index for the Nasdaq Stock Market (U.S.
Companies) (the "Nasdaq Composite Index"), and (ii) the Nasdaq Pharmaceutical
Index (assuming the investment of $100 in the Company's Common Stock, the Nasdaq
Composite Index and the Nasdaq Pharmaceutical Index on December 31, 1991 and
reinvestment of all dividends). Measurement points are on the last trading day
of the Company's years ended December 31, 1991, 1992, 1993, 1994, 1995 and 1996.
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD NASDAQ COMPOSITE PHARMACEUTICAL
(FISCAL YEAR COVERED) SEPRACOR INC. INDEX INDEX
<S> <C> <C> <C>
12/31/91 100 100 100
12/31/92 112 116 83
12/31/93 76 134 74
12/31/94 48 131 56
12/31/95 216 185 102
12/31/96 196 227 102
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1993 and July 1994, the Company loaned to Mr. Barlow, Executive
Vice President and President, Pharmaceuticals, $124,000 and $75,000,
respectively, in connection with his relocation to Massachusetts. The loans
accrue interest at prime plus 75 basis points and are secured by Mr. Barlow's
options for Common Stock of the Company. Originally the loans were payable in
June 1996 but in 1996 the Company extended repayment of the loans to June 1997.
12
<PAGE> 16
On May 23, 1996 the Company loaned $175,000 to Dr. Rubin to assist with his
relocation expenses. The loan was represented by a promissory note. The note was
non-interest bearing for the first six months and bore interest at prime plus 75
basis points thereafter compounded and reset quarterly. The note was secured by
Dr. Rubin's options for Common Stock of the Company. The note was repayable in
full upon the earlier of (i) the termination of Dr. Rubin's employment with the
Company or (ii) the sale of Dr. Rubin's existing residence. In August 1996, Dr.
Rubin repaid $110,000 of the outstanding amount on the note. A new note
representing the remaining outstanding indebtedness of $65,000 was issued. The
new note was non-interest bearing for six months and thereafter accrued interest
at prime plus 75 basis points. The new note was repayable in full upon the
earlier of the (i) termination of Dr. Rubin's employment with the Company or
(ii) payment of Dr. Rubin's 1996 bonus in 1997. The second note was repaid in
full by Dr. Rubin in February 1997.
In March 1996, SepraChem Inc. ("SepraChem"), a wholly owned subsidiary of
Sepracor and a supplier of chiral fine chemical intermediates that are used by
pharmaceutical companies in the production of single isomer drugs, and Sterling
Organics, a United Kingdom manufacturer of fine chemicals, were each contributed
to ChiRex Inc. ("ChiRex"), a Delaware corporation formed for the purpose of
effecting the contributions. In consideration for its contribution of SepraChem
the Company received shares of the common stock of ChiRex. In March 1997, the
Company sold all of its shares of ChiRex common stock, resulting in net proceeds
to the Company of approximately $31,125,000. In addition, in connection with the
contributions, Messrs. Barberich and Southwell received options to purchase
25,039 shares and 6,589 shares, respectively, of the common stock of ChiRex upon
the conversion of options to purchase the common stock of SepraChem held by them
personally. Subsequently, during 1996, Messrs. Barberich and Southwell exercised
all of these options at an exercise price of $1.48 per share and sold all of
their shares of the common stock of ChiRex for $257,739 and $70,832,
respectively.
EMPLOYMENT AGREEMENTS
Under a letter agreement, dated June 10, 1994, between the Company and Mr.
Southwell, the Company has agreed to pay Mr. Southwell one year's salary plus
bonus in the event of termination of Mr. Southwell's employment.
Under a letter agreement, dated June 14, 1993, between the Company and Mr.
Barlow, the Company has agreed to pay Mr. Barlow six months' salary in the event
of termination of Mr. Barlow's employment without cause.
Under a letter agreement, dated February 23, 1995, between the Company and
Mr. Scumaci, the Company has agreed to pay Mr. Scumaci nine months' salary plus
bonus in the event of termination of Mr. Scumaci's employment by the Company.
After five years with the Company, Mr. Scumaci's severance payment, in the event
of termination by the Company, will increase to one year's salary plus bonus.
Under a letter agreement, dated February 23, 1996, between the Company and
Dr. Rubin, Dr. Rubin is entitled to an annual salary of $240,000 and a $50,000
signing bonus. In addition, Dr. Rubin received stock options to purchase 200,000
shares of the Company's common stock, the vesting of options to purchase 50,000
of which begin upon the achievement of certain goals and the vesting of the
other 150,000 of which occur equally over the first five anniversaries of the
date of grant. Furthermore, under the letter agreement, Dr. Rubin was eligible
to receive, and in 1997 received, a bonus of $120,000 for his 1996 performance.
If Dr. Rubin is terminated by the Company without cause, or if the Company is
acquired by a third party for a price per share of $2.00 or less above the
exercise price of Dr. Rubin's stock options, Dr. Rubin receives a severance
payment of one year's salary.
13
<PAGE> 17
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO THE COMPANY'S
1991 DIRECTOR STOCK OPTION PLAN
The 1991 Director Stock Option Plan (as amended, the "Director Plan") was
adopted by the Board of Directors on June 24, 1991, and approved by the
stockholders in July 1991. The Director Plan provided that the then current
directors of the Company who were not officers or employees of the Company
("Outside Directors") were entitled to receive non-statutory stock options (the
"Initial Options") to purchase 10,000 shares of Common Stock on December 31,
1991. The Director Plan further provides that Outside Directors who join the
Company's Board after December 31, 1991 are entitled to receive Initial Options
to purchase 10,000 shares of Common Stock on the date that they first become
members of the Company's Board of Directors. In addition, the Director Plan
provides that non-statutory options (the "Additional Options") to purchase 8,000
shares of Common Stock will be granted to Outside Directors on an annual basis
immediately following each annual meeting of stockholders (the "Annual Grant
Date"). Each Initial Option is exercisable in equal installments of 2,000 shares
beginning on the first anniversary of the date of grant and each Additional
Option is exercisable in full immediately prior to the annual meeting of
stockholders next following the Annual Grant Date. Only Outside Directors who
have served as directors for at least six months prior to an Annual Grant Date
shall be eligible to receive an Additional Option under the Director Plan on
such date.
The purpose of the Director Plan is to encourage equity ownership in the
Company by Outside Directors of the Company whose continued services are
considered essential to the Company's future progress, to provide them with
further incentive to remain as directors and to compensate them for their
services as directors.
The Director Plan currently provides that no options may be granted
pursuant to the Director Plan after July 1997, the six year anniversary of the
approval of the Director Plan by the Company's stockholders. On March 21, 1997
the Board of Directors adopted, subject to stockholder approval, an amendment to
the Director Plan extending the period of time during which option grants may be
made under the Director Plan to July 31, 1999. If this amendment to the Director
Plan is approved by the stockholders, the period of time during which option
grants may be made under the Director Plan will be extended to July 31, 1999.
Summary of the Director Plan. The Director Plan provides for the grant of
stock options for up to 275,000 shares of the Company's Common Stock. All
options granted under the Director Plan are granted at the fair market value of
the Company's Common Stock on the date of grant and require that the exercise
price be paid in cash. Options granted under the Director Plan generally are not
transferable by the option holder except by will or by the laws of descent and
distribution and are exercisable during the lifetime of the director only while
he or she is serving as a director of the Company or within 90 days after he or
she ceases to serve as a director of the Company. No option is exercisable more
than 10 years from the date of grant. If a director dies or becomes disabled
while he or she is serving as a director of the Company, the option is
exercisable for a one-year period thereafter.
The Board of Directors may suspend or discontinue the Director Plan or
amend it in any respect; provided, however, that without the approval of the
stockholders, no amendment may change the number of shares subject to the
Director Plan, change the directors eligible to receive options or materially
increase the benefits accruing to participants under the Director Plan.
For a description of outstanding options under the Director Plan, see
"Compensation for Directors" above.
Federal Income Tax Consequences. All options granted under the Director
Plan shall be nonstatutory options not entitled to special tax treatment under
Section 422 of the Code (applicable to incentive stock options). Directors will
not recognize taxable income upon the grant of a nonstatutory stock option.
Nevertheless, directors who exercise a nonstatutory stock option generally will
recognize ordinary income in
14
<PAGE> 18
an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the exercise date
over the exercise price.
With respect to any NSO Stock, a director will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a director generally will recognize capital gain or loss
in an amount equal to the excess of the sale price of the NSO Stock over the
director's tax basis in the NSO Stock. This capital gain or loss will be a
long-term gain or loss if the director has held the NSO Stock for more than one
year prior to the date of the sale.
The grant of an option under the Director Plan will have no tax
consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary income
recognized by a director under the Director Plan.
BOARD RECOMMENDATION
The Board of Directors believes that the approval of the amendment to the
Director Plan is in the best interests of the Company and its stockholders and
therefore recommends a vote FOR this proposal.
PROPOSAL 3 -- REAPPROVAL OF COMPANY'S
1991 RESTATED STOCK OPTION PLAN
In the opinion of the Board of Directors, the future success of the Company
depends, in large part, on its ability to maintain a competitive position in
attracting, retaining and motivating key employees with experience and ability.
Under the Company's 1991 Restated Stock Option Plan (the "1991 Plan"), the
Company is currently authorized to grant options to purchase up to an aggregate
of 5,000,000 shares of Common Stock to officers and employees of, and
consultants to, the Company. The 1991 Plan was adopted by the Board of Directors
and approved by the stockholders in 1991.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for certain compensation in excess of $1 million dollars paid to the
Company's chief executive officer and four other most highly compensated
executive officers. Certain compensation, including "performance-based
compensation," is not included in compensation subject to the $1 million dollar
limitation. In particular, income recognized upon the exercise of a stock option
is not subject to the deduction limit if the option was issued under a plan
approved by the stockholders that provides a limit to the number of shares that
may be issued under the plan to any individual.
In order to preserve the tax deductions to the Company that might otherwise
have been unavailable under Section 162(m) of the Code with respect to certain
option awards, in 1996 the Board of Directors and the stockholders of the
Company approved an amendment to the 1991 Plan limiting to 500,000 the number of
shares for which options could be granted under the 1991 Plan to any employee in
any year. Under a transitional rule, the adoption of such a limit brought the
1991 Plan into compliance with the requirements of Section 162(m) of the Code
through December 31, 1996, the expiration of the transitional period. In order
to continue to comply with the requirements of Section 162(m) of the Code the
Company is submitting the 1991 Plan, as it currently exists without any
additional amendments, to its stockholders for their reapproval. If the
stockholders do not vote to reapprove the 1991 Plan, the Company will not grant
any further options under the 1991 Plan.
15
<PAGE> 19
SUMMARY OF THE 1991 PLAN
The following is a summary of the material provisions of the 1991 Plan.
The 1991 Plan provides for the grant of stock options to officers,
employees (including directors who are also employees) and consultants of the
Company and its subsidiaries. Under the 1991 Plan, the Company may grant options
that are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, or options not intended to qualify as incentive stock
options. Incentive stock options may be granted only to employees of the
Company.
The 1991 Plan is administered by the Compensation Committee of the Board of
Directors, which has the authority to select the employees to whom options are
granted and determine the terms of each option, including (i) the number of
shares of Common Stock covered by the option, (ii) when the option becomes
exercisable (generally over a five-year period), (iii) the option exercise
price, which, in the case of incentive stock options generally must be at least
100% of the fair market value of the Common Stock as of the date of grant, and
(iv) the duration of the option (which, in the case of incentive stock options,
may not exceed ten years). Except as otherwise provided in the relevant option
agreement, in the event of the sale of all or substantially all of the business
or assets of the Company by merger, sale of assets or otherwise, the exercise
dates of all options then outstanding under the 1991 Plan shall be accelerated
in full.
Payment of the option exercise price may be made in cash, by delivery of
shares of Common Stock held by the optionee, by any other means determined by
the Compensation Committee or by any combination of such methods of payment.
Options are generally non-transferable other than by will or by the laws of
descent and distribution or, in some cases, pursuant to certain domestic
relations orders. As of April 1, 1997, 134 employees of the Company were
eligible to participate in the 1991 Plan. On April 1, 1997, the closing sales
price of the Company's Common Stock on the Nasdaq National Market was $22.75.
The exercise price of options granted under the 1991 Plan can be greater
than, less than or equal to the fair market value of the Common Stock on the
date of grant except that for incentive stock options the exercise price
generally must be at least 100% of the fair market value of the Common Stock on
the date of grant.
Because option grants under the 1991 Plan are determined on a case-by-case
basis by the Compensation Committee of the Board of Directors, the benefits to
be received by any particular current executive officer, by all current
executive officers as a group, or by non-executive officer employees as a group
cannot be determined by the Company at this time. During 1996, all current
executive officers as a group received options to purchase 200,000 shares of
Common Stock, at a weighted average exercise price of $12.62 per share, and all
employees, excluding all current executive officers as a group, received options
to purchase 372,500 shares of Common Stock at a weighted average exercise price
of $9.34 per share. During 1996, no current director of the Company received
options under the 1991 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1991 Plan and with respect to the sale of Common Stock acquired under the 1991
Plan.
Incentive Stock Options
In general, an optionee will not recognize taxable income upon the grant or
exercise of an incentive stock option. Instead, an optionee will recognize
taxable income with respect to an incentive stock option only upon
16
<PAGE> 20
the sale of Common Stock acquired through the exercise of the option ("ISO
Stock"). The exercise of an incentive stock option, however, may subject the
optionee to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the optionee has owned the ISO Stock at the time it is sold.
If the optionee sells ISO Stock after having owned it for at least two years
from the date the option was granted (the "Grant Date") and one year from the
date the option was exercised (the "Exercise Date"), then the optionee will
recognize long-term capital gain in an amount equal to the excess of the sale
price of the ISO Stock over the exercise price.
If the optionee sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from the
Exercise Date (a "Disqualifying Disposition"), then all or a portion of the gain
recognized by the optionee will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the optionee has held the ISO Stock for more than one
year prior to the date of sale.
If an optionee sells ISO Stock for less than the exercise price, then the
optionee will recognize capital loss equal to the excess of the exercise price
over the sale price of the ISO Stock. This capital loss will be a long-term
capital loss if the optionee has held the ISO Stock for more than one year prior
to the date of sale.
Non-statutory Stock Options
As in the case of an incentive stock option, an optionee will not recognize
taxable income upon the grant of a non-statutory stock option. Unlike the case
of an incentive stock option, however, an optionee who exercises a non-statutory
stock option generally will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock acquired
through the exercise of the option ("NSO Stock") on the Exercise Date over the
exercise price.
With respect to any NSO Stock, an optionee will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, an optionee generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the optionee's tax basis in the NSO Stock. This capital gain or loss will be a
long-term gain or loss if the optionee has held the NSO Stock for more than one
year prior to the date of the sale.
Tax Consequences to the Company
The grant of an option under the 1991 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 1991 Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by an optionee under the 1991 Plan, including as a result of
the exercise of a non-statutory stock option or a Disqualifying Disposition. Any
such deduction will be subject to the limitations of Section 162(m) of the Code.
The Company will have a withholding obligation with respect to any ordinary
compensation income recognized by optionees under the 1991 Plan who are
employees or are otherwise subject to withholding.
BOARD RECOMMENDATION
The Board of Directors believes that the reapproval of the 1991 Plan is in
the best interests of the Company and its stockholders and therefore recommends
that the stockholders vote FOR such reapproval.
17
<PAGE> 21
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. is currently serving as the Company's independent
accountants. Coopers & Lybrand L.L.P. has served as the Company's independent
accountants since 1985. Representatives of Coopers & Lybrand L.L.P. are expected
to be present at the Annual Meeting and will have the opportunity to make a
statement if they desire to do so and will also be available to respond to
appropriate questions from stockholders.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Based solely on its review of copies of Section 16(a) reports
furnished to the Company and representations made to the Company, the Company
believes that during 1996 its officers, directors and holders of more than 10%
of the Company's Common Stock complied with all Section 16(a) filing
requirements.
MATTERS TO BE CONSIDERED AT THE MEETING
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and the Company will reimburse them for their reasonable
out-of-pocket expenses incurred in connection with the distribution of proxy
materials.
18
<PAGE> 22
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Marlborough, Massachusetts not later than December 15, 1997 for inclusion in
the proxy statement for that meeting.
By Order of the Board of Directors,
DAVID P. SOUTHWELL
Secretary
April 14, 1997
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THIS MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
19
<PAGE> 23
1074-PS-97
<PAGE> 24
Appendix A
SEPRACOR INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders - May 14, 1997
P Those signing on the reverse side, revoking any prior proxies,
R hereby appoint(s) Timothy J. Barberich and David P. Southwell, or each
O of them with full power of substitution, as proxies for those signing
X on the reverse side to act and vote at the 1997 Annual Meeting of
Y Stockholders of Sepracor Inc. and at any adjournments thereof as
indicated upon all matters referred to on the reverse side and
described in the Proxy Statement for the Meeting, and, in their
discretion, upon any other matters which may properly come before the
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER
INDICATION IS MADE, THE PROXIES SHALL VOTE "FOR" PROPOSAL NUMBERS 1, 2,
3 AND 4.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
SEE REVERSE
SIDE
<PAGE> 25
[X] Please mark
votes as in
this example.
A vote FOR the director nominees and FOR proposal numbers 2, 3 and 4 is
recommended by the Board of Directors.
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Class I Directors Nominees:
FOR all James G. Andress FOR AGAINST ABSTAIN
nominees 2. Approval of amendment [ ] [ ] [ ]
(except as WITHHELD Robert J. Cresci to the Company's 1991
indicated to from all Director Stock Option Plan.
the countrary) nominees James F. Mrazek
[ ] [ ] 3. Reapproval of the [ ] [ ] [ ]
Company's 1991 Restated
INSTRUCTIONS: To withhold authority to vote for Stock Option plan.
individual nominee(s) strike a line through each
such nominee's name. Your shares will be voted 4. To transact such other [ ] [ ] [ ]
for the remaining nominee(s). business as may properly
come before the meeting.
MARK HERE [ ]
FOR ADDRESS CHANGE
OR COMMENTS AND
NOTE ON REVERSE
Please sign this proxy exactly as your name
appears hereon. Joint owners should each sign
personally. Trustees and other fiduciaries should
indicate the capacity in which they sign. If a
corporation or partnership, this signature should
be that of an authorized officer who should state
his or her title.
</TABLE>
Signature:_______________ Date:______ Signature:_______________ Date:______
<PAGE> 26
Appendix B
SEPRACOR INC.
1991 DIRECTOR STOCK OPTION PLAN, AS AMENDED AND RESTATED
1. Purpose
-------
The purpose of this 1991 Director Stock Option Plan (the "Plan") of
Sepracor Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration
--------------
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan,
provided, however, that James G. Andress shall not be entitled to receive an
Initial Option (as defined below).
4. Stock Subject to the Plan
-------------------------
(a) The maximum number of shares which may be issued under the Plan
shall be 275,000 shares of the Company's Common Stock, par value $.10 per share
("Common Stock"), subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
<PAGE> 27
of 1986, as amended to date and as it may be amended from time to time (the
"Code").
5. Terms Conditions and Form of Options
------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES. Options shall be granted (i) on the effective
date of the Plan, to all eligible directors who are directors as of such date,
and to all other eligible directors upon his or her election as a director, and
(ii) thereafter to all eligible directors immediately following each annual
meeting of stockholders (an "Annual Grant Date"), provided that only eligible
directors who have served as directors for at least six months or more prior to
an Annual Grant Date shall be entitled to an option pursuant to this subsection
(ii). An option granted pursuant to subsection (i) herein shall be referred to
herein as an "Initial Option" 'and an option granted pursuant to subsection (ii)
herein shall be referred to herein as a "Reelection Option".
(b) SHARES SUBJECT TO OPTION. Each Initial Option granted under the Plan
shall be exercisable for 10,000 shares of Common Stock. Each Reelection Option
granted under the Plan shall be exercisable for 8,000 shares of Common Stock."
(c) OPTION EXERCISE PRICE. The option exercise price per share for each
option granted under the Plan shall equal (i) the last reported sales price per
share of the Company's Common Stock on the Nasdaq National Market (or, if the
Company is traded on a nationally recognized securities exchange on the date of
grant, the reported closing sales price per share of the Company's Common Stock
by such exchange) on the date of grant (or if no such price is reported on such
date such price as reported on the nearest preceding day) or (ii) if the Common
Stock is not traded on Nasdaq or an exchange, the fair market value per share on
the date of grant as determined by the Board of Directors.
(d) TRANSFERABILITY OF OPTIONS. Except as the Board of Directors may
otherwise determine or provide in the applicable option agreement, options shall
not be sold, assigned, transferred, pledged or otherwise encumbered by the
optionee to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the life of
the optionee, shall be exercisable only by the optionee.
-2-
<PAGE> 28
(e) Exercise Period.
---------------
(i) INITIAL OPTION. Each Initial Option may be exercised on a
cumulative basis as to one-fifth of the shares subject to the option on each of
the first, second, third, fourth and fifth anniversaries of the date of grant of
such option; and
(ii) REELECTION OPTION. Each Reelection Option may be exercised in
full immediately prior to the annual meeting of stockholders next following the
date of grant.
(f) EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding the
provisions of Section 5(e), an option granted under the Plan may be exercised,
to the extent then exercisable, by an optionee who becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision thereto)
while acting as a director of the Company, or may be exercised, to the extent
then exercisable, upon the death of such optionee while a director of the
company by the person to whom it is transferred by will, by the laws of descent
and distribution, or by written notice filed pursuant to Section 5(h), in each
case within the period of one year after the date the optionee ceases to be such
a director by reason of such disability or death; provided that, no option shall
be exercisable after the expiration of ten years from the date of grant.
(g) EXERCISE PROCEDURE. Options may be exercised only by written notice
to the Company at its principal office accompanied by payment in cash or the
full consideration for the shares as to which they are exercised.
(h) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. A director,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation) including his legal representative, who,
by reason of the director's death, shall acquire the right to exercise all or a
portion of the option. If the person or persons so designated wish to exercise
any portion of the option, they must do so within the term of the option as
provided herein. Any exercise by a representative shall be subject to the
provisions of the Plan.
6. Assignments
-----------
Except as the Board of Directors may otherwise determine or provide in
the applicable option agreement, the rights and benefits under the Plan may not
be assigned except for the designation of a beneficiary as provided in Section
5.
7. Effective Date and Time for Granting Options
--------------------------------------------
(a) The Plan shall become effective December 31, 1991.
-3-
<PAGE> 29
(b) All options for shares subject to the Plan shall be granted, if at
all, not later than six (6) years after the approval of the Plan by the
Company's stockholders.
8. Limitation rights
-----------------
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued.
9. Changes in Common Stock
-----------------------
(a) If the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number of kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, dale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect so such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in (i) the maximum number and kind or shares reserved for issuance under
the Plan, (ii) the number and kind or shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company is acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all
-4-
<PAGE> 30
unexercised options will terminate immediately prior to the consummation of such
merger, consolidation, acquisition, reorganization or liquidations unless
exercised by the optionee within a specified number of days following the date
of such notice.
10. Amendment of the Plan
---------------------
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the number
of shares subject to the Plan (except as provided in Section 9), change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan.
11. Notice
------
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
-5-
<PAGE> 31
AMENDMENT NO. 1
TO THE AMENDED AND RESTATED
1991 DIRECTOR STOCK OPTION PLAN
1. That Section 7 of the Company's 1991 Director Stock Option Plan, as amended
and restated (the "Director Plan") be amended, subject to stockholder approval,
to delete subsection 7(b) of the Director Plan and replace it in its entirety
with the following:
"(b) All options for shares subject to the Plan shall be granted, if at all,
not later than July 31, 1999."
Adopted by the Board of
Directors on March 21, 1997
Submitted to the Stockholders
for their approval at the
May 14, 1997 Annual Meeting
<PAGE> 32
SEPRACOR INC.
1991 RESTATED STOCK OPTION PLAN
-------------------------------
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Sepracor Inc. (the
"Company") and its shareholders the benefits arising from capital stock
ownership by employees and officers of, and consultants or advisors to, the
Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success. Except where the context
otherwise requires, the term "Company" shall include the parent and all present
and future subsidiaries of the Company as defined in Sections 424(e) and 424(f)
of the Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan which make express reference to
Section 422 of the Code shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
The Plan shall be treated as an amendment to and restatement of the
Company's 1985 Stock Option Plan, a copy of which is attached hereto as EXHIBIT
A. As amended and restated, the Plan shall apply to all options granted by the
Company on or after June 24, 1991, but shall apply, as so amended and restated,
to any option granted prior to such date if and only to the extent that the
agreement pursuant to which such option was granted is expressly amended in
writing to adopt the terms of the Plan. Any options granted prior to June 24,
1991 not so expressly amended shall continue to be governed by the terms set
forth in EXHIBIT A.
2. Type of Options and Administration.
----------------------------------
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-qualified options which are not intended to meet the requirements of
Section 422 of the Code.
(b) ADMINISTRATION. The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock, par value $.10 per share ("Common Stock"), and issue shares upon exercise
of such
-1-
<PAGE> 33
options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to construe the respective option agreements and
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations in the
judgment of the Board of Directors necessary or desirable for the administration
of the Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No director
or person acting pursuant to authority delegated by the Board of Directors shall
be liable for any action or determination made in good faith. The Board of
Directors may, to the full extent permitted by or consistent with applicable
laws or regulations (including, without limitation, applicable state law and
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any successor rule ("Rule 16b-3")), delegate any or all of its powers
under the Plan to a committee (the "Committee") appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock or another class of equity security is registered
under the Exchange Act, and then only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
----------
(a) GENERAL. Options may be granted to persons who are, at the time of
grant, employees or officers of, or consultants or advisors to, the Company;
PROVIDED, that Incentive Stock Options may be granted only to persons who are
eligible to receive such options under Section 422 of the Code. In addition, no
person shall be granted any Incentive Stock Option under the Plan who, at the
time such option is granted, owns, directly or indirectly, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, unless the requirements of Section 11(b) are satisfied. The attribution
of stock ownership provisions of Section 424(d) of the Code, and any successor
provisions thereto, shall be applied in determining the shares of stock owned by
a person for purposes of applying the foregoing percentage limitation. A person
who has been granted an option may, if he or she is otherwise eligible, be
granted an additional option or options if the Board of Directors shall so
determine. Subject to adjustment as provided in Section 15 below, the maximum
number of shares with respect to which options may be granted to any employee
under the Plan Shall not exceed 500,000 shares of common stock during any
calendar year. For the purpose of calculating such maximum number, (a) an option
shall continue to be treated as outstanding
-2-
<PAGE> 34
notwithstanding its repricing, cancellation or expiration and (b) the repricing
of an outstanding option or the issuance of a new option in substitution for a
cancelled option shall be deemed to constitute the grant of a new additional
option separate from the original grant of the option that is repriced or
cancelled.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of an officer (as the term "officer" is defined for the purposes of
Rule 16b-3) as a recipient of an option, the timing of the option grant, the
exercise price of the option and the number of shares subject to the option
shall be determined either (i) by the full Board of Directors or (ii) by a
committee composed solely of two or more "Non-Employee Directors" having full
authority to act in the matter. For the purposes of the Plan, a director shall
be deemed to be a "Non-Employee Director" only if such person qualifies as a
"Non-Employee Director" within the meaning of Rule 16b-3, as such term is
interpreted from time to time.
4. Stock Subject to Plan.
---------------------
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan (including the Plan as in effect prior to this amendment and restatement)
is 5,000,000 shares. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall (i)
the total number of shares issued pursuant to the exercise of Incentive Stock
Options under the Plan, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence or (ii) the total number of shares issued
pursuant to the exercise of options by persons who are required to file reports
under Section 16(a) of the Exchange Act, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Each option agreement
shall specifically state whether the options granted thereby are intended to be
Incentive Stock Options or non-qualified options. Such option agreements may
differ among recipients.
-3-
<PAGE> 35
6. Purchase Price.
--------------
(a) GENERAL. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, PROVIDED,
HOWEVER, that (i) in the case of an Incentive Stock Option, the exercise price
shall not be less than 100% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b), and (ii) in the case of a non-qualified option, the exercise
price shall not be less than 50% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as the
Board of Directors shall determine, except that (i) in the case of an Incentive
Stock Option, such date shall not be later than ten years after the date on
which the option is granted, (ii) in the case of an Incentive Stock Option
described in Section 11(b), such date shall not be later than five years after
the date on which the option is granted and (iii) in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
-4-
<PAGE> 36
9. Transferability of Options.
--------------------------
Except as the Board of Directors may otherwise determine or provide in the
applicable option agreement, options shall not be sold, assigned, transferred,
pledged, or otherwise encumbered by the optionee to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee.
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, the Board of Directors shall determine the period of time during which
an optionee may exercise an option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value of
one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not
-5-
<PAGE> 37
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate fair market value (determined as of the
respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the Company
(or within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a non-qualified option under the
Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is transferred
by will or the laws of descent and distribution within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ of
the Company, the Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an employee because of
such disability (or within such lesser period as may be specified in the
applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
---------------------
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any option agreement covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or
-6-
<PAGE> 38
such other provisions as shall be determined by the Board of Directors; PROVIDED
THAT such additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. General Restrictions.
--------------------
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
-----------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be
-7-
<PAGE> 39
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) GENERAL. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable, provided that no adjustment shall be made pursuant
to this Section 15 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
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(a) GENERAL. Subject to subsection (c) below, in the event of a
consolidation or merger or sale of all or substantially all of the assets of
the Company in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity
or in the event of a liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding options: (i) provide that such options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), PROVIDED that any such
options substituted for Incentive Stock Options shall meet the requirements of
Section 425(a) of the Code, (ii) upon written notice to the optionees, PROVIDE
that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company will
receive upon consummation thereof a cash payment for
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each share surrendered in the merger (the "Merger Price"), make or provide for a
cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
(c) Notwithstanding any other provision of the Plan and except as
otherwise provided in the relevant option agreement, in the event of the sale
of all or substantially all of the business or assets of the Company by merger,
sale of assets or otherwise, the exercise dates of all options then outstanding
shall be accelerated in full and any restrictions on exercising outstanding
options issued pursuant to the Plan prior to any given date shall terminate.
17. No Special Employment Rights.
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Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
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Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
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(a) The Plan was initially adopted by the Board of Directors on July 15,
1985, was amended on April 9, 1986, January 1, 1987, January 30, 1990 and August
27, 1990 and was readopted by the Board of Directors as a new Plan on June 24,
1991, each time subject to its becoming effective upon approval by the holders
of a majority of the outstanding shares of Common Stock of the Company.
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(b) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options or under Rule 16b-3
or with respect to options held by persons who are required to file reports
pursuant to Section 16(a) of the Exchange Act, the Board of Directors may not
effect such modification or amendment without such approval.
(c) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
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(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a director or officer, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
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The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
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(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no further Incentive Stock Options shall be granted. Amendments to the Plan
not requiring shareholder approval shall become effective when adopted by the
Board of Directors; amendments requiring shareholder approval (as provided in
Section 19) shall become effective when adopted by the Board of Directors, but
no Incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options granted under the
Plan. Unless sooner terminated in accordance with Section 16, the Plan shall
terminate with respect to options which are not Incentive Stock Options on the
date specified in (ii) above. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
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23. Provision for Foreign Participants.
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The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
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