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 Confidential, for use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-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)(4) and 0-11.
1. Title of each class of securities to which transaction applies: ___________
2. Aggregate number of securities to which transaction applies: ______________
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): ______________________________
4. Proposed maximum aggregate value of transaction: __________________________
5. Total fee paid: ___________________________________________________________
[ ] Fee paid previously with preliminary materials: ___________________________
<PAGE>
[ ] 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>
SEPRACOR INC.
111 Locke Drive
Marlborough, Massachusetts 01752
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 19, 1999
The 1999 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 19, 1999 at 9:00 a.m., local time, to
consider and act upon the following matters:
1. To elect two Class II Directors for the ensuing three years;
2. To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, increasing from 80,000,000 to 140,000,000
the number of authorized shares of Common Stock;
3. To approve the 1999 Director Stock Option Plan;
4. To approve an amendment to the Company's 1991 Restated Stock Option
Plan; and
5. 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 7, 1999 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 15, 1999
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>
[This page intentionally left blank]
<PAGE>
SEPRACOR INC.
111 Locke Drive
Marlborough, Massachusetts 01752
Proxy Statement for the 1999 Annual Meeting of Stockholders
To Be Held on May 19, 1999
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 1999 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 19, 1999 and at any
adjournments of that meeting. All proxies will be voted in accordance with the
instructions of the stockholder. 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, 1998 is being
mailed to stockholders with the mailing of this Notice and Proxy Statement on
or about April 15, 1999.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission,
without exhibits, will be furnished without charge to any stockholder upon
written request to Investor Relations, Sepracor Inc., 111 Locke Drive,
Marlborough, Massachusetts 01752.
Voting Securities and Votes Required
On April 7, 1999, 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 32,793,644 shares of Common Stock of the
Company, $.10 par value per share (the "Common Stock"). Holders of shares of
Common Stock are entitled to one vote per share.
Under the Company's Amended and Restated By-laws (the "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
shares of Common Stock outstanding on the record date is required for the
approval of the proposed amendment to the Company's Restated Certificate of
Incorporation, as amended. The affirmative vote of the holders of a majority of
the votes cast by the stockholders is required for the approval of each of the
other matters to be voted on.
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 cast or shares voting on such matter.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on each matter that requires the affirmative vote of a certain
percentage of the votes cast or shares voting on a matter, and will have the
effect of a vote against the proposed amendment to the Company's Restated
Certificate of Incorporation, as amended.
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of January 31,
1999, with respect to the beneficial ownership of: (i) the Company's Common
Stock by each person known by the Company to own beneficially more than 5% of
the outstanding shares of Common Stock; and (ii) the Company's Common Stock,
the Common Stock of BioSepra Inc. ("BioSepra Common Stock"), a publicly held
subsidiary company of Sepracor ("BioSepra"), and the Common Stock of HemaSure
Inc. ("HemaSure Common Stock"), a publicly held subsidiary company of Sepracor
("HemaSure"), by (A) each director and nominee for director of the Company; (B)
each executive officer named in the Summary Compensation Table under the
heading "Compensation of Executive Officers" below; and (C) all directors and
executive officers of the Company as a group.
The number of shares of the Company's Common Stock, BioSepra Common Stock
and HemaSure 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 which
the individual has the right to acquire within 60 days after January 31, 1999
through the exercise of any stock option or other right or upon conversion of
the Company's 6-1/4% Convertible Subordinated Debentures due 2005 (the "6-1/4%
Debentures") and the Company's 7% Convertible Subordinated Debentures due 2005
(the "7% 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.
The directors and executive officers of Sepracor disclaim beneficial
ownership of the shares of BioSepra Common Stock and HemaSure Common Stock
which are owned by Sepracor.
<TABLE>
<CAPTION>
Shares of Shares of
BioSepra HemaSure
Common Stock Percentage of Common Stock Common Stock
Beneficially Sepracor Common Beneficially Beneficially
Name and Address Owned Stock Outstanding Owned(1) Owned(1)
- ---------------------------------------------------- ------------------ ------------------- -------------- -------------
5% Stockholders
<S> <C> <C> <C> <C>
Putnam Investments, Inc. and related entities ...... 3,606,805(2) 11.0% N/A N/A
One Post Office Square
Boston, MA 02109
FMR Corp. and related entities ..................... 3,378,240(3) 10.3% N/A N/A
82 Devonshire Street
Boston, MA 02109
Soros Fund Management LLC and related entities ..... 2,182,500(4) 6.7% N/A N/A
888 Seventh Avenue
33rd Floor
New York, NY 10106
Citigroup Inc. and related entities ................ 1,821,328(5) 5.6% N/A N/A
153 East 3rd Street
Legal Dept. 20th Floor
New York, NY 10043
Capital Research and Management Company ............ 1,659,720(6) 5.1% N/A N/A
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
BioSepra HemaSure
Common Stock Percentage of Common Stock Common Stock
Beneficially Sepracor Common Beneficially Beneficially
Name Owned Stock Outstanding Owned(1) Owned(1)
- --------------------------------------------- -------------------- ------------------- ------------------ ------------------
Directors
<S> <C> <C> <C> <C>
Timothy J. Barberich(7) ..................... 864,855 2.7% 45,000 116,750
James G. Andress ............................ 35,333(8) * -- --
Digby W. Barrios ............................ 35,333(9) * -- --
Robert J. Cresci ............................ 35,333(10) * -- --
Robert F. Johnston .......................... 675,171(11) 2.1% 90,000 70,000
Keith Mansford, Ph.D ........................ 35,433(12) * -- --
James F. Mrazek ............................. 185,882(13) * -- 5,500
Alan A. Steigrod ............................ 26,000(14) * -- --
Other Named Executive Officers
David S. Barlow(15) ......................... 380,798 1.2% -- 31,125
Paul D. Rubin, M.D .......................... 719(16) * -- 2,400
David P. Southwell .......................... 141,736(17) * 5,000 2,500
James R. Hauske, Ph.D ....................... 10,000(18) * -- --
All directors and executive officers ........ 2,426,593(19) 7.4% 140,000(20) 228,275(21)
as a group (14 persons)
</TABLE>
- ----------------
* Represents holdings of less than one percent.
(1) As of January 31, 1999, no officer or director of Sepracor beneficially
owned more than 1% of the BioSepra Common Stock or HemaSure Common Stock,
except Mr. Johnston who owns approximately 1.1% of the outstanding
BioSepra Common Stock and Mr. Barberich who owns approximately 1.3% of the
outstanding HemaSure Common Stock. All directors and executive officers as
a group beneficially own approximately 1.7% of the outstanding BioSepra
Common Stock and 2.5% of the outstanding HemaSure Common Stock.
(2) This information is taken from a Schedule 13G/A dated February 11, 1999,
filed by Putnam Investments, Inc. ("PII") on behalf of itself and its
affiliates. Of the 3,606,805 shares of Common Stock deemed beneficially
owned, PII and Putnam Investment Management, Inc. report shared
dispositive power as to 3,475,236 of such shares of Common Stock of the
Company and PII and Putnam Advisory Company Inc. report shared voting
power of 59,153 of such shares of Common Stock and shared dispositive
power of 131,569 of such shares of Common Stock.
(3) This information is taken from a Schedule 13D dated February 10, 1999. FMR
Corp. ("FMR") beneficially owns 3,378,240 shares of Common Stock of the
Company (the "FMR Shares"). Fidelity Management & Research Company
("Fidelity") beneficially owns 2,826,790 of the FMR Shares as a result of
its serving as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940 and to
certain other funds which are generally offered to limited groups of
investors (collectively the "Fidelity Funds"). Fidelity Management Trust
Company ("FMTC") beneficially owns 59,400 of the FMR Shares as a result of
its serving as trustee or managing agent for various private investment
accounts, primarily employee benefit plans and serving as investment
adviser to certain other funds which are generally offered to limited
groups of investors. Fidelity International Ltd. beneficially owns 492,500
of the FMR Shares as a result of its serving as investment advisor or
parent of the investment adviser to various non-U.S. investment companies
or instrument trusts. FMR, through its control of Fidelity,
investment-adviser to the Fidelity Funds, and the Fidelity Funds each has
sole power to dispose of the
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<PAGE>
2,826,790 of the FMR shares owned by the Fidelity Funds. FMR does not have
the sole power to vote or direct the voting of the shares owned directly by
the Fidelity Funds, which power resides with the funds' Boards of Trustees.
FMR, through its control of FMTC, has sole dispositive power and sole power
to vote or direct the voting of 59,400 of the FMR Shares.
(4) This information is taken from a Schedule 13G/A dated September 4, 1998.
George Soros may be deemed to have the sole power to direct the voting and
disposition of 450,000 shares of Common Stock (1.38% of the total number
of outstanding shares) held for his personal account. Each of Winston
Partners L.P. ("Winston Partners") and Chatterjee Fund Management, L.P.
may be deemed to have the sole power to direct the voting and disposition
of 172,500 shares of Common Stock (.53% of the total number of outstanding
shares) held for the account of Winston Partners. Winston Partners II LDC
("Winston LDC") may be deemed to have the sole power to direct the voting
and disposition of 303,500 shares of Common Stock (.93% of the total
amount number of outstanding shares) held for its own account. Winston
Partners II LLC ("Winston LLC") may be deemed to have the sole power to
direct the voting and disposition of 159,000 shares of Common Stock (.49%
of the total number of outstanding shares) held for its account. Each of
the Chatterjee Management Company ("Chatterjee Management") and Chatterjee
Advisors LLC ("Chatterjee Advisors") may be deemed to have the sole power
to direct the voting and disposition of 462,500 shares of Common Stock
(1.42% of the total number of outstanding shares). This number consists of
(i) 303,500 shares of Common Stock held for the account of Winston LDC and
(ii) 159,000 shares of Common Stock held for the account of Winston LLC.
Dr. Purnendu Chatterjee may be deemed to have the sole power to direct the
voting and disposition of 635,000 shares of Common Stock (1.95% of the
total number of outstanding shares). This number consists of (i) 462,500
shares of Common Stock which Chatterjee Management and Chatterjee Advisors
may be deemed to own beneficially and (ii) 172,500 shares of Common Stock
held for the account of Winston Partners
(5) This information is taken from a Schedule 13G dated February 12, 1999.
Mutual Management Corp. reports shared voting and dispositive power over
1,560,840 shares of Common Stock. Salomon Smith Barney Holdings Inc.
("SSBH") reports shared voting and dispositive power over 1,783,928 shares
of Common Stock which SSBH has the right to acquire upon conversion of the
7% Debentures held by SSBH. Citigroup Inc. reports shared voting and
dispositive power over 1,821,328 shares of Common Stock which Citigroup
Inc. has the right to acquire upon conversion of the 7% Debentures held by
Citigroup Inc.
(6) This information is taken from a Schedule 13G dated February 10, 1999.
Capital Research and Management Company ("CR&MC") reports sole dispositive
power and no voting power over 1,659,720 shares of Common Stock of the
Company. CR&MC is deemed to be the beneficial owner of the 1,659,720
shares as a result of acting as investment adviser to various investment
companies registered under Section 8 of the Investment Company Act of
1940. Shares reported by CR&MC includes 232,200 shares which CR&MC has the
right to acquire upon conversion of $11,000,000 principal amount of the
Company's 61/4% Debentures.
(7) The number of shares of Sepracor Common Stock that Mr. Barberich is deemed
to beneficially own includes 367,472 shares of Common Stock of the Company
which Mr. Barberich has the right to acquire within 60 days after January
31, 1999 upon exercise of outstanding stock options, an aggregate of
30,000 shares of Common Stock of the Company held in trust for Mr.
Barberich's daughter, 107 shares of Common Stock of the Company held by
Mr. Barberich's wife and 1,048 shares of Common Stock of the Company held
by Mr. Barberich's daughter, as to which Mr. Barberich disclaims
beneficial ownership. The number of shares of BioSepra Common Stock that
Mr. Barberich is deemed to beneficially own includes 43,000 shares of
BioSepra Common Stock which Mr. Barberich has the right to acquire within
60 days after January 31, 1999 upon exercise of outstanding stock options.
The number of shares of HemaSure
4
<PAGE>
Common Stock that Mr. Barberich is deemed to beneficially own includes
87,750 shares of HemaSure Common Stock which Mr. Barberich has the right to
acquire within 60 days after January 31, 1999 upon exercise of outstanding
stock options.
(8) Represents 35,333 shares of Common Stock of the Company which Mr. Andress
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(9) Represents 35,333 shares of Common Stock of the Company which Mr. Barrios
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(10) Represents 35,333 shares of Common Stock of the Company which Mr. Cresci
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(11) Includes 35,333 shares of Common Stock of the Company which Mr. Johnston
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options and 30,000 shares of Common Stock of
the Company held by a trust of which Mr. Johnston is a beneficiary. Also
includes an aggregate of 247,700 shares of Common Stock of the Company
held in trust for Mr. Johnston's children, and 160,000 shares held by Mr.
Johnston's wife; Mr. Johnston disclaims beneficial ownership of all such
shares.
(12) Represents 35,333 shares of Common Stock of the Company which Dr. Mansford
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(13) Includes 35,333 shares of Common Stock of the Company which Mr. Mrazek has
the right to acquire within 60 days after January 31, 1999 upon exercise
of outstanding stock options and 150,549 shares of Common Stock held by a
trust of which Mr. Mrazek is a trustee and beneficiary.
(14) Includes 24,000 shares of Common Stock of the Company which Mr. Steigrod
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(15) The number of shares of Sepracor Common Stock Mr. Barlow is deemed to
beneficially own includes 175,201 shares of Common Stock of the Company
which Mr. Barlow has the right to acquire within 60 days after January 31,
1999 upon exercise of outstanding stock options. The number of shares of
HemaSure Common Stock Mr. Barlow is deemed to beneficially own represents
31,125 shares of HemaSure Common Stock which Mr. Barlow has the right to
acquire within 60 days after January 31, 1999 upon exercise of outstanding
stock options.
(16) Includes 100 shares of Common Stock of the Company held by Dr. Rubin's
son.
(17) Includes 141,000 shares of Common Stock of the Company which Mr. Southwell
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options. Also includes 13,000 shares as to
which Mr. Southwell's ex-wife, pursuant to a divorce decree, can direct
the sale and is entitled to the proceeds.
(18) Represents 10,000 shares of Common Stock of the Company which Dr. Hauske
has the right to acquire within 60 days after January 31, 1999 upon
exercise of outstanding stock options.
(19) Includes an aggregate of 964,671 shares of Common Stock which all
executive officers and directors have the right to acquire within 60 days
after January 31, 1999 upon exercise of outstanding stock options.
(20) Includes an aggregate of 43,000 shares of BioSepra Common Stock which all
directors and executive officers have the right to acquire within 60 days
after January 31, 1999 upon exercise of outstanding stock options.
(21) Includes an aggregate of 118,875 shares of HemaSure Common Stock which all
directors and executive officers have the right to acquire within 60 days
after January 31, 1999 upon exercise of outstanding stock options.
5
<PAGE>
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 meeting of
stockholders to be held in 2000, 1999 and 2001, 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
Timothy J. Barberich and Keith Mansford, the Class II 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. Robert F. Johnston, currently
a Class II Director, is not standing for re-election to the Board of Directors.
Each nominee for Class II Director will be elected to hold office until
the Annual Meeting of Stockholders in 2002 and until his successor is duly
elected and qualified. Each of the nominees has indicated his 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 II
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, 1999, appears under the heading
"Stock Ownership of Certain Beneficial Owners and Management."
Nominees for Terms Expiring in 2002 (Class II Directors)
Timothy J. Barberich, age 51, 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 and HemaSure, publicly held subsidiaries of the Company.
Keith Mansford, Ph.D., age 67, 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. He also serves as a director of SkyePharma PLC.
Directors Whose Terms Expire in 2001 (Class III Directors)
Digby W. Barrios, age 61, 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, Roberts Pharmaceutical Corporation, Sheffield
Pharmaceuticals and Ribogene, Inc.
Alan A. Steigrod, age 61, has been a director since 1995.
Since January 1996, Mr. Steigrod has been Managing Director of Newport
HealthCare Ventures, which provides consulting services in 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 busi-
6
<PAGE>
ness consultant. From March 1981 to March 1991, Mr. Steigrod served as
Executive Vice President of Marketing/ Sales of Glaxo Inc., a
pharmaceutical corporation. Mr. Steigrod also serves as a director of
Cellegy Pharmaceuticals, Inc. and NeoRx Corp.
Directors Whose Terms Expire in 2000 (Class I Directors)
James G. Andress, age 60, has been a director since 1991.
Since November 1996, Mr. Andress has been Chief Executive Officer of
Warner Chilcott, PLC, a publicly 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., OptionCare Corporation, The
Liposome Company, Inc. and Xoma Corporation.
Robert J. Cresci, age 55, 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 Arcadia Financial Ltd., Bridgeport
Machines, Inc., Candlewood Hotel Co., Castle Dental Centers, Inc., EIS
International, Inc., Film Roman, Inc., Hitox, Inc., Aviva Petroleum Ltd.,
Quest Education Corporation, SeraCare, Inc. and several private companies.
James F. Mrazek, age 58, 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.
Director Whose Term Expires in 1999 (Class II Director)
Robert F. Johnston, age 62, has been a director since 1984.
Mr. Johnston has served as managing Director of Johnston Associates,
Inc., a venture capital firm ("Johnston Associates"), since 1969. He also
serves as a director of Envirogen, Inc.
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 1998. 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 three meetings during 1998. 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.
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<PAGE>
The Board of Directors held five meetings during 1998. 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
"Non-Employee Directors") receive $18,000 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
"1991 Director Plan") which provides for annual, automatic grants of
non-statutory stock options to Non-Employee Directors. Messrs. Andress,
Barrios, Cresci, Johnston, Mrazek and Steigrod and Dr. Mansford each received
stock options in 1998 under the 1991 Director Plan to purchase 8,000 shares of
Common Stock at a price of $42.50 and under the 1991 Restated Stock Option Plan
to purchase 2,000 shares of Common Stock at a price of $36.75. All options were
granted at the closing price of the Company's Common Stock on the Nasdaq
National Market on the date of grant. If the 1999 Director Stock Option Plan
(the "1999 Director Plan") is approved by the stockholders, no additional
option grants will be made to Non-Employee Directors under the 1991 Director
Plan. Under the 1999 Director Plan, Non-Employee Directors will be entitled to
annual, automatic grants of non-statutory stock options to purchase 10,000
shares of Common Stock. Options granted under the 1991 Director Plan will be
assumed under the 1999 Director Plan if the 1999 Director Plan is approved by
the Company's stockholders. See "Proposal 3 -- Approval of the 1999 Director
Stock Option Plan."
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 royalty arrangement with Johnston Associates,
an affiliate of Mr. Johnston, a director of the Company, under which the
Company would be required to pay certain additional fees to Johnston Associates
in the event that the Company enters into a license agreement for certain
pharmaceutical products with specified customers. There were no payments under
this agreement in 1998.
The Company was a party to a consulting agreement with Mr. Steigrod, a
director of the Company. Under this consulting agreement, as amended, Mr.
Steigrod performed such consulting services as the Company reasonably requested
in the areas of potential Company acquisitions, the upper respiratory markets
and specialty sales and marketing capabilities and organizations. Under this
agreement, the Company paid Mr. Steigrod $250 an hour for his services, not to
exceed $2,000 per day plus expenses. Under this consulting agreement, the
Company paid Mr. Steigrod $21,000 for services rendered in 1998.
The Company is a party to a consulting agreement with Mr. Barrios, a
director of the Company, under which the Company paid Mr. Barrios $6,000 for
consulting services in 1998.
8
<PAGE>
Compensation of Executive Officers
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three years of the Company's President and Chief Executive Officer and
the Company's four other most highly compensated executive officers during 1998
(the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------- ------------------
Number of
Other Annual Shares All Other
Name and Compensation Underlying Stock Compensation
Principal Position Year Salary ($) Bonus ($) ($)(1) Options (2) ($)
- -------------------------------- ------ ------------ ---------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich ........... 1998 284,849 125,000 0 300,000 6,138(3)
President and Chief Executive 1997 261,250 125,000 0 105,000 2,794(4)(5)
Officer 1996 251,730 85,000 0 0 2,099(6)
David S. Barlow ................ 1998 212,092 70,000 0 140,000 2,697(3)
Executive Vice President and 1997 192,326 90,000 0 80,000 2,418(4)(5)
President, Pharmaceuticals 1996 184,577 80,000 0 0 1,879(6)(7)
David P Southwell .............. 1998 195,814 90,000 0 180,000 2,220(3)
Executive Vice President, Chief 1997 191,100 95,000 0 75,000 1,594(4)(5)
Financial Officer and Secretary 1996 183,403 80,000 0 0 1,114(6)(7)
Paul D. Rubin, M.D.(8) ......... 1998 259,264 120,000 0 240,000 4,033(3)
Senior Vice President, 1997 241,662 120,000 10,218 75,000 2,418(4)(5)
Development 1996 180,000 170,000(9) 51,465 200,000 1,714(6)(7)
James R. Hauske, Ph.D. ......... 1998 188,826 40,000 0 75,000 3,299(3)
Senior Vice President, 1997 166,057 42,000 0 35,000 3,066(4)(5)
Discovery 1996 151,154 30,000 0 100,000 1,493(6)(7)
</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 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
1996, 1997 and 1998.
(3) Includes $4,638, $1,197, $720, $2,533 and $1,799 which is the taxable
portion of insurance premiums paid by the Company on behalf of Mr.
Barberich, Mr. Barlow, Mr. Southwell, Dr. Rubin and Dr. Hauske,
respectively, during 1998 with respect to group life insurance for the
benefit of the Named Executive Officer. Also includes $1,500 contributed
by the Company on behalf of each of the Named Executive Officers pursuant
to the Company's 401(k) Plan in 1998.
(4) Includes $1,566, $918, $594, $918 and $1,566 which is the taxable portion
of insurance premiums paid by the Company on behalf of Mr. Barberich, Mr.
Barlow, Mr. Southwell, Dr. Rubin and Dr. Hauske, respectively, in 1997
with respect to group life insurance for the benefit of the Named
Executive Officer.
9
<PAGE>
(5) Includes $1,228, $1,500, $1,000, $1,500 and $1,500 contributed by the
Company on behalf of Mr. Barberich, Mr. Barlow, Mr. Southwell, Dr. Rubin
and Dr. Hauske, respectively, pursuant to the Company's 401(k) Plan in
1997.
(6) Includes $2,099, $879, $576, $714 and $663 which is the taxable portion of
insurance premiums paid by the Company on behalf of Mr. Barberich, Mr.
Barlow, Mr. Southwell, Dr. Rubin and Dr . Hauske, respectively, in 1996
with respect to group life insurance for the benefit of the Named
Executive Officer.
(7) Includes $1,000, $550, $1,000 and $830 contributed by the Company on behalf
of Mr. Barlow, Mr. Southwell, Dr. Rubin and Dr. Hauske, respectively,
pursuant to the Company's 401(k) Plan in 1996.
(8) Dr. Rubin joined the Company in April 1996.
(9) Includes a $50,000 signing bonus.
Option Grant Table. The following table sets forth certain information
regarding stock options granted during the year ended December 31, 1998 by the
Company to the Named Executive Officers.
Option Grants in Last Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
-------------------------------------------------------------- Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise Option Term(3)
Options Employees in or Base Price Expiration --------------------------
Name Granted(#)(1) Fiscal Year (%) ($/Sh)(2) Date 5% ($) 10% ($)
- ------------------------------- --------------- ----------------- --------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich .......... 300,000(4) 14 36.75 06/04/2008 6,933,563 17,571,011
David S. Barlow ............... 140,000(4) 7 36.75 06/04/2008 3,235,663 8,199,805
David P. Southwell ............ 180,000(4) 9 36.75 06/04/2008 4,160,138 10,542,606
Paul D. Rubin, M.D. ........... 140,000(4) 7 36.75 06/04/2008 3,235,663 8,199,805
100,000 5 84.75 12/10/2008 5,329,882 13,506,967
James R. Hauske, Ph.D ......... 75,000(4) 4 36.75 06/04/2008 1,733,391 4,392,753
</TABLE>
- ----------------
(1) Stock options granted by the Company generally vest in five equal annual
installments commencing one year from the date of grant. See, however,
footnote 4 below.
(2) The exercise price is equal to the closing price of the Company's Common
Stock as reported by the Nasdaq National Market on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for stock
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 stock 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 stock options are exercised.
(4) The stock options granted to the Named Executive Officers on June 4, 1998
vest (a) as to 50% of the options granted in three equal annual
installments commencing on the date the price per share of the Company's
Common Stock reaches or exceeds $75.00 per share for thirty consecutive
business days and (b) as to the remaining 50% of the stock options granted
in three equal annual installments commencing on the date the price per
share of the Company's Common Stock reaches or exceeds $100.00 per share
for thirty consecutive business days; provided, however, that if the price
per share objectives are not achieved, the stock options will vest in full
on June 4, 2008.
10
<PAGE>
Option Exercises and Year-End Option Values Table. The following table
sets forth certain information regarding the aggregate shares of Common Stock
acquired upon stock option exercises by the Named Executive Officers and the
value realized upon such exercises during the year ended December 31, 1998, as
well as the number and value of unexercised stock options held by the Named
Executive Officers as of December 31, 1998.
Aggregate Option Exercises in Last Fiscal Year
and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Shares Options at Year-End (#) Year-End($)(2)
Acquired on Value ----------------------------- ----------------------------
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- -------------- ----------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich ....... 0 0 367,472 584,368 28,774,510 35,874,940
David S. Barlow ............ 205,597 7,196,695 143,200 371,203 10,749,100 24,053,648
David P. Southwell ......... 165,000 7,036,968 141,000 379,000 11,131,385 23,773,385
Paul D. Rubin, M.D. ........ 65,000 2,657,069 0 440,000 0 21,758,125
James R. Hauske, Ph.D. ..... 28,500 1,063,921 10,000 170,000 726,250 10,487,500
</TABLE>
- ----------------
(1) Based on the closing sales price of the Common Stock as reported by the
Nasdaq National Market on the date of exercise less the option exercise
price.
(2) Value based on the closing sales price of the Company's Common Stock as
reported by the Nasdaq National Market on December 31, 1998 ($88.125), the
last trading day of 1998, 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 Mr. Barberich, the Chief Executive Officer of the
Company, and the Company's three Executive Vice Presidents, Messrs. Barlow and
Southwell and Dr. Rubin. In addition, Mr. Barberich recommends compensation
packages for the remaining 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 1998 as they affected Mr. Barberich and the
Company's other 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 are expected
to contribute to the long-term success of the Company. The Company's executive
compensation philosophy is based on the following principles:
11
<PAGE>
o 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.
o 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 executive officer's performance, the Company generally
conforms to the following process:
o Company and individual goals and objectives are set for each
performance cycle.
o At the end of the performance cycle, the accomplishment of the
executive's goals and objectives and his contributions to the Company are
evaluated.
o The executive's performance is then compared with peers within the
Company and the results are communicated to the executive.
o 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
three elements -- salary, bonus and stock options. In late 1997, the Committee
established an executive bonus plan for 1998 pursuant to which executives were
entitled to receive bonuses based on achievement of individual performance
goals. Bonuses totaling $525,000 were paid to the executive officers for 1998.
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.
Compensation for 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
stockholders 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 employ-
12
<PAGE>
ees 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 an executive officer of corporate, business
group or individual performance goals. In 1998, the Company granted stock
options to purchase an aggregate of 1,000,000 shares of the Company's Common
Stock to executive officers at an exercise price of $36.75 per share and
100,000 shares at an exercise price of $84.75 per share. All stock options
granted to executive officers in 1998 were granted at fair market value on the
date of grant.
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 was reapproved by the
stockholders in 1997 with the intent of preserving the availability of tax
deductions to the Company that might otherwise be unavailable under Section
162(m) of the Code.
Mr. Barberich's 1998 Compensation
Mr. Barberich is eligible to participate in the same executive
compensation plans available to the other 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 1998 increased from $261,250 to $284,849. Mr.
Barberich received a bonus of $125,000 in 1999 for 1998 performance. In
determining Mr. Barberich's bonus compensation, the Compensation Committee
considered the Company's completion of two convertible subordinated debt
financings resulting in net proceeds to the Company of approximately
$473,451,000, receipt by the Company of an approvable letter for Xopenex(TM),
the Company's short-acting bronchodilator product and the Company's completion
of collaborative agreements with respect to its ICE Pharmaceuticals.
Compensation Committee
James G. Andress
Digby W. Barrios
James F. Mrazek
13
<PAGE>
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 1998, or formerly, an officer or employee of 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, 1993 through the year ended December 31, 1998 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, 1993
and reinvestment of all dividends). Measurement points are on the last trading
day of the Company's years ended December 31, 1993, 1994, 1995, 1996, 1997 and
1998.
[Linear representation of graph]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------ ---------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Sepracor Inc. $ 100.00 $ 69.23 $ 282.69 $ 255.77 $ 616.35 $ 1,355.77
Nasdaq Composite Index $ 100.00 $ 92.62 $ 135.44 $ 166.20 $ 202.16 $ 282.27
Nasdaq Pharmaceutical Index $ 100.00 $ 110.42 $ 173.81 $ 213.27 $ 320.49 $ 470.95
</TABLE>
14
<PAGE>
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
accrued interest at prime plus 75 basis points and were secured by Mr. Barlow's
options for Common Stock of the Company and by Mr. Barlow's house. Mr. Barlow
repaid the loan in full in August 1998.
On January 22, 1998, the Company loaned $150,000 to Dr. Rubin, Senior Vice
President, Development, to assist with a house purchase. The loan, which was
represented by a promissory note, was non-interest bearing and was secured by
Dr. Rubin's options for Common Stock of the Company. In March 1998, Dr. Rubin
repaid the loan in full.
Employment Agreements
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 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 February 23, 1996, between the Company and
Dr. Rubin, Dr. Rubin is entitled to an annual salary of $240,000. 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
the stock options granted to Dr. Rubin, upon commencement of his employment,
Dr. Rubin is entitled to receive a severance payment equal to one year's
salary.
In the event of a change in ownership or control of the Company, if any of
the payments or benefits received by any executive officer of the Company
constitute "parachute payments" and are therefore subject to the excise tax
imposed by Section 4999 of the Code, the Company shall pay to such executive
officer an additional gross-up payment so that the executive officer will be
placed in the same after-tax financial position he would have been in if the
executive officer had not incurred any tax liability under Section 4999 of the
Code.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
On February 25, 1999, the Board of Directors adopted, subject to
stockholder approval, an amendment to the Company's Restated Certificate of
Incorporation, as amended, providing for an increase from 80,000,000 to
140,000,000 in the number of authorized shares of Common Stock (the "Charter
Amendment"). As of March 15, 1999, the Company had a total of approximately
32,739,935 shares of Common Stock outstanding, 5,468,313 shares of Common Stock
reserved for issuance upon conversion of stock options outstanding under its
stock option and stock purchase plans, approximately 4,000,000 shares of Common
Stock reserved for issuance upon conversion of the 6-1/4% Debentures and
approximately 2,402,000 shares of Common Stock reserved for issuance upon
conversion of the 7% Debentures.
If the Charter Amendment is approved, the additional authorized shares of
Common Stock would be available for issuance in the future for corporate
purposes, including without limitation, stock splits, stock dividends,
financings, acquisitions, and management incentive and employee benefit plans,
as the Board of Directors may deem advisable, without the necessity of further
stockholder action. The issuance of additional shares of Common Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, would have the effect of diluting the Company's
current stockholders and could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Other than in connection with its existing
stock option plans, upon conversion of the outstanding debentures and upon sale
of shares purchased pursuant to employee stock purchase plans, the Company has
no present intention or plans to issue any shares of Common Stock.
15
<PAGE>
Board Recommendation
The Board of Directors believes that the approval of the Charter Amendment
increasing the number of shares of authorized Common Stock is in the best
interests of the Company and its stockholders and therefore recommends a vote
FOR this proposal.
PROPOSAL 3 -- APPROVAL OF THE
1999 DIRECTOR STOCK OPTION PLAN
On February 25, 1999, the Board of Directors adopted the 1999 Director
Stock Option Plan, subject to stockholder approval. Under the 1999 Director
Plan, the Non-Employee Directors are eligible to receive stock options. There
are currently seven Non-Employee Directors on the Board of Directors.
The Board of Directors believes that the success of the Company depends in
large part on its ability to attract and retain directors with relevant and
beneficial experience who are motivated to exert their best efforts on behalf
of the Company. The Board of Directors believes that a program permitting the
grant of stock options to Non-Employee Directors promotes the long-term
financial success of the Company by further aligning the interests of
Non-Employee Directors with the interests of the Company and its stockholders.
The purpose of the 1999 Director Plan, therefore, is (i) to encourage equity
ownership in the Company by outside directors of the Company whose continued
services are considered essential to the Company's success and progress and
(ii) to provide such directors with incentive to remain as directors.
Summary of the 1999 Director Plan
The 1999 Director Plan provides that each Non-Employee Director who
becomes a director after the date of approval of the 1999 Director Plan by the
stockholders of the Company (the "Effective Date") is entitled to receive an
Initial Option to purchase 10,000 shares of Common Stock on the date that he or
she first becomes a member of the Board of Directors. In addition, the 1999
Director Plan provides that each Non-Employee Director who is serving on the
Board at the adjournment of each annual meeting of stockholders and has served
on the Board for at least six months is entitled to receive a non-statutory
stock option (the "Annual Option") to purchase 10,000 shares of Common Stock.
Initial Options are exercisable in equal annual installments of 2,000 shares,
with the first of such installments becoming exercisable one year after the
date of the grant (provided that, for each such installment, the optionee
continues to serve as a director on such date). Annual Options are exercisable
in full on the day prior to the first annual meeting of stockholders following
the date of grant (provided that the optionee continues to serve as a director
on such date).
The 1999 Director Plan provides for the grant of stock options for up to
500,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events). To date, no stock options to purchase shares
of Common Stock have been granted under the 1999 Director Plan. If the 1999
Director Plan is approved by the Company's stockholders, no further stock
options will be granted under the Company's 1991 Director Plan. Stockholder
approval of the 1999 Director Plan will also constitute approval that stock
options to purchase an aggregate of 400,000 shares of Common Stock granted
under the 1991 Director Plan will be assumed under the 1999 Director Plan and
will be treated as if those stock options had originally been granted under the
1999 Director Plan. Accordingly, if the 1999 Director Plan is approved by the
stockholders, an aggregate of 900,000 shares of Common Stock will be reserved
for issuance under the 1999 Director Plan, including 500,000 shares of Common
Stock for the grant of new stock options and 400,000 shares of Common Stock for
the options granted under the 1991 Director Plan. The closing price of the
Common Stock on the Nasdaq Stock Exchange on March 15, 1999 was $134.
All stock options granted under the 1999 Director Plan will be granted at
price equal to the fair market value of the Common Stock on the date of grant
and require that the exercise price be paid in full. Stock options granted
under the 1999 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 in accordance with certain circumstances set
forth below. No stock option is exercisable more than ten years
16
<PAGE>
after the date of grant. If a director dies or becomes disabled while he or she
is serving as a director of the Company, the stock option is exercisable, to
the extent exercisable at the time of such death or disability, for a one-year
period thereafter. In the event that (i) a director's service is terminated by
the Company under certain circumstances or (ii) the director ceases to serve as
a director for any other reason, the stock option is exercisable, to the extent
exercisable at the time of such cessation of service, for ten days and 180
days, respectively, from the date of such cessation of service.
In most circumstances, the Board of Directors may suspend, terminate,
discontinue or amend the 1999 Director Plan in any respect. Without the
approval of the stockholders, however, no amendment may (i) change the number
of shares subject to the 1999 Director Plan (with certain exceptions in the
case of mergers, recapitalizations and related transactions), (ii) materially
modify eligibility requirements under the 1999 Director Plan, or (iii)
materially increase the benefits accruing to participants under the 1999
Director Plan.
In the event of an "Acquisition Event" all outstanding options immediately
vest. As defined in the 1999 Director Plan, an "Acquisition Event" means: (a)
any merger or consolidation which results in the voting securities of the
Company outstanding immediately prior thereto representing immediately
thereafter (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or consolidation;
(b) any sale of all or substantially of all the assets of the Company; or (c)
the complete liquidation of the Company.
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 1999 Director Plan and with respect to the sale of Common Stock acquired
under the 1999 Director Plan.
Tax Consequences to Participants. A participant will not recognize taxable
income upon the grant of an option under the 1999 Director Plan. Nevertheless,
a participant generally will recognize ordinary compensation income upon the
exercise of the stock option in an amount equal to the excess of the fair
market value of the Common Stock acquired through the exercise of the stock
option (the "Option Stock") on the exercise date over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option Stock for more than one year prior to the date of the sale and will be a
short-term capital gain or loss if the participant has held the Option Stock
for a shorter period.
Tax Consequences to the Company. The grant of a stock option under the
1999 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 compensation income recognized by a participant under
the 1999 Director Plan.
Board Recommendation
The Board of Directors believes that the approval of the 1999 Director
Plan is in the best interests of the Company and its stockholders and therefore
recommends a vote FOR this proposal.
17
<PAGE>
PROPOSAL 4 -- APPROVAL OF AMENDMENT TO THE 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 7,500,000 shares of Common Stock to officers, directors and
employees of, and consultants to, the Company. As of March 15, 1999, there were
252,974 shares available for future grant under the 1991 Plan. Accordingly, as
of February 25, 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to the 1991 Plan, that increased from 7,500,000 to
9,000,000 the number of shares of Common Stock available for issuance upon
exercise of options granted under the 1991 Plan (subject to adjustment for
certain changes in the Company's capitalization) (the "Option Plan Amendment").
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,
directors and employees of and consultants to the Company and its subsidiaries.
Under the 1991 Plan, the Company may grant stock options that are intended to
qualify as incentive stock options within the meaning of Section 422 of the
Code, or stock options not intended to qualify as incentive stock options. The
1991 Plan provides that the maximum number of shares of Common Stock with
respect to which stock options may be granted to any employee may not exceed
500,000 during any calendar year. 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 stock
options are granted and determine the terms of each stock option, including (i)
the number of shares of Common Stock covered by the stock option, (ii) when the
stock option becomes exercisable (generally over a five-year period), (iii) the
stock 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 stock option (which, in the
case of incentive stock options, may not exceed ten years). Except as otherwise
provided in the relevant stock 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 stock options then
outstanding under the 1991 Plan shall be accelerated in full.
Payment of the stock 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. Stock 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 March 15, 1999, substantially all of the
employees of the Company and its subsidiaries were eligible to participate in
the 1991 Plan. On March 15, 1999, the closing sales price of the Company's
Common Stock on the Nasdaq National Market was $134.
If the Option Plan Amendment is approved by the stockholders, the number
of shares of Common Stock available for issuance upon exercise of stock options
granted under the 1991 Plan will increase from 7,500,000 to 9,000,000.
The exercise price of stock 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 stock 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 1998, all
current executive officers as a group received stock options to purchase 1.1
million shares
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of Common Stock, at a weighted average exercise price of $41.11 per share, and
all employees, excluding all current executive officers as a group, received
stock options to purchase 986,600 shares of Common Stock at a weighted average
exercise price of $58.09 per share. During 1998, each non-employee director of
the Company received stock options to purchase 2,000 shares of Common Stock at
an exercise price of $36.75 per share under the 1991 Plan.
Federal Income Tax Consequences
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Common Stock acquired through the
exercise of the stock option ("ISO Stock"). The exercise of an incentive stock
option, however, may subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant 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 participant
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 participant 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 participant 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 participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant 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 participant 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,
a participant will not recognize taxable income upon the grant of a
non-statutory stock option. Unlike the case of an incentive stock option,
however, a participant 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
stock option ("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant 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 participant generally will recognize capital
gain or loss in an amount equal to the excess of the sale price of the NSO
Stock over the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term gain or loss if the participant 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 a stock 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 a participant 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.
Board Recommendation
The Board of Directors believes that the Option Plan Amendment is in the
best interests of the Company and its stockholders and therefore recommends
that the stockholders vote FOR this proposal.
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP is currently serving as the Company's
independent accountants. PricewaterhouseCoopers LLP has served as the Company's
independent accountants since 1985. Representatives of PricewaterhouseCoopers
LLP 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 1998 its officers, directors and holders of
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements, with the following exceptions: Mr. Mrazek and his wife
transferred 160,649 shares to a trust in March 1995, and the Form 5 reporting
this transaction was filed on April 8, 1998; and a trust of which Mr. Johnston
is a beneficiary sold 5,000 shares in December 1997, and the amendment to Form
5 reporting this transaction was filed on April 16, 1998.
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. The
Company's directors, officers and regular employees, without additional
remuneration, may solicit proxies by mail, courier, telephone, facsimile and
personal interviews. In addition, the Company has retained D.F. King & Co.,
Inc. to solicit proxies by mail, courier, telephone and facsimile and to
request brokers, custodians and fiduciaries to forward proxy soliciting
material to the owners of stock held in their names. For these services the
Company will pay a fee of approximately $2,000 plus expenses. The Company will
reimburse brokers, custodians and fiduciaries for their reasonable
out-of-pocket expenses incurred in connection with the distribution of proxy
materials.
Deadline for Submission of Stockholder Proposals for the 2000 Annual Meeting
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Marlborough, Massachusetts not later than December 16, 1999 for inclusion in
the proxy statement for that meeting.
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In addition, the Company's By-laws require that the Company be given
advance notice of stockholder nominations for election to the Company's Board
of Directors and of other matters which stockholders wish to present for action
at an annual meeting of stockholders (other than matters included in the
Company's proxy statement in accordance with Rule 14a-8). The required notice
must be delivered to the Secretary of the Company at the principal offices of
the Company not later than 30 days prior to the first anniversary date of the
initial written notice delivered to stockholders for the previous year's annual
meeting of stockholders, provided that such notice need not be provided more
than 60 days prior to the annual meeting of stockholders. The advance notice
provisions of the Company's By-laws supersede the notice requirements contained
in recent amendments to Rule 14a-4 under the Exchange Act.
By Order of the Board of Directors,
DAVID P. SOUTHWELL
Secretary
April 15, 1999
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.
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1074-PS-99
<PAGE>
Appendix A
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SEPRACOR INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders - May 19, 1999
P Those signing on the reverse side, revoking any prior proxies, hereby
R appoint(s) Timothy J. Barberich and David P. Southwell, or each of them
O with full power of substitution, as proxies for those signing on the
X reverse side to act and vote at the 1999 Annual Meeting of Stockholders of
Y 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, 4 and 5.
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>
<TABLE>
<S> <C>
[X] Please mark
votes as in
this example.
A vote FOR the director nominees and FOR proposal numbers 2, 3, 4 and 5 is
recommended by the Board of Directors.
1. Election of Class II Directors Nominees: FOR AGAINST ABSTAIN
Timothy J. Barberich 2. Approval of amendment to the [ ] [ ] [ ]
Keith Mansford Company's Restated Certificate of
FOR all Incorporation increasing from
nominees 80,000,000 to 140,000,000 the number
(except as WITHHELD of authorized shares of Common Stock
indicated to from all
the contrary) nominees 3. Approval of the 1999 [ ] [ ] [ ]
Director Stock Option Plan.
[ ] [ ]
4. Approval of amendment to the [ ] [ ] [ ]
Company's 1991 Restated Stock Option
Plan.
5. To transact such other business [ ] [ ] [ ]
as may properly come before
the meeting.
INSTRUCTIONS: To withhold authority to vote for MARK HERE
individual nominee(s) strike a line through each FOR ADDRESS CHANGE [ ]
such nominee's name. Your shares will be voted OR COMMENTS AND
for the remaining nominee(s). NOTE ON REVERSE
o 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.
Signature: __________________________ Date: _________________ Signature: ________________________ Date: _________________
</TABLE>
