<PAGE>
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. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / 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)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
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</TABLE>
<PAGE>
PRELIMINARY COPY
SEPRACOR INC.
111 LOCKE DRIVE
MARLBOROUGH, MASSACHUSETTS 01752
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 2000
The 2000 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 24, 2000 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 Restated Certificate of
Incorporation, as amended, increasing from 140,000,000 to 240,000,000 the
authorized shares of Common Stock;
3. To approve the 2000 Stock Incentive Plan; 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 12, 2000 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 , 2000
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>
PRELIMINARY COPY
SEPRACOR INC.
111 LOCKE DRIVE
MARLBOROUGH, MASSACHUSETTS 01752
PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 2000
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 2000 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 24, 2000 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.
Except as specifically provided herein, all information contained in this
Proxy Statement has been adjusted to reflect the two-for-one stock split of the
Company's Common Stock effected on February 25, 2000.
The Company's Annual Report for the year ended December 31, 1999 is being
mailed to stockholders with the mailing of this Notice and Proxy Statement on or
about April , 2000.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, 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 12, 2000, 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 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
<PAGE>
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
scheduled 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.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 31, 2000,
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 BioSphere Medical, Inc. ("BioSphere Common Stock"), a publicly
held subsidiary company of Sepracor ("BioSphere"), 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, BioSphere 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, 2000
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.
2
<PAGE>
The directors and executive officers of Sepracor disclaim beneficial
ownership of the shares of BioSphere Common Stock and HemaSure Common Stock
which are owned by Sepracor.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
PERCENTAGE OF BIOSPHERE HEMASURE
COMMON STOCK SEPRACOR COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OUTSTANDING OWNED(1) OWNED (1)
- ---------------- -------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
FMR Corp.
and related entities................................ 9,962,568(2) 14.7% N/A N/A
82 Devonshire Street
Boston, MA 02109
Janus Capital Corporation........................... 8,598,840(3) 12.7% N/A N/A
100 Fillmore Street
Denver, Colorado 80206-4923
Putnam Investments Inc.
and related entities................................ 7,302,830(4) 10.8% N/A N/A
One Post Office Square
Boston, MA 02109
Soros Fund Management
LLC and related entities............................ 4,365,000(5) 6.4% N/A N/A
888 Seventh Avenue
33(rd) Floor
New York, NY 10106
Citigroup, Inc.
and related entities................................ 4,257,266(6) 6.3% N/A N/A
153 East 3rd Street
Legal Dept. 20th Floor
New York, NY 10043
DIRECTORS
Timothy J. Barberich(7)............................. 1,808,206 2.6% 74,777 138,500
James G. Andress.................................... 70,666(8) * -- --
Digby W. Barrios.................................... 72,666(9) * -- --
Robert J. Cresci.................................... 64,000(10) * -- --
Keith Mansford, Ph.D................................ 70,866(11) * -- --
James F. Mrazek..................................... 290,964(12) * -- 5,500
Alan A. Steigrod.................................... 52,000(13) * -- --
OTHER NAMED EXECUTIVE OFFICERS
David S. Barlow(14)................................. 142,666 * -- 31,125
Paul D. Rubin, M.D.................................. 125,804(15) * -- --
David P. Southwell.................................. 339,884(16) * 0 18,000
Robert F. Scumaci(17)............................... 40,176 * 30,000 --
All directors and executive officers as a group (14
persons)............................................ 3,130,771(18) 4.5% 104,777(19) 193,125(20)
</TABLE>
- ------------------------------
* Represents holdings of less than one percent.
(1) As of January 31, 2000, no officer or director of Sepracor beneficially
owned more than 1% of the BioSphere Common Stock or HemaSure Common Stock.
All directors and executive officers as a group beneficially own
approximately 1.2% of the outstanding BioSphere Common Stock and 1.2% of the
outstanding HemaSure Common Stock.
3
<PAGE>
(2) This information is taken from a Schedule 13G/A dated February 14, 2000. FMR
Corp. ("FMR") beneficially owns 9,962,568 shares of Common Stock of the
Company (the "FMR Shares"). Fidelity Management & Research Company
("Fidelity") beneficially owns 9,818,168 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 Growth Company Fund ("FGCF")
beneficially owns 5,807,160 of the FMR Shares. Fidelity Management Trust
Company ("FMTC") beneficially owns 144,400 of the FMR Shares as a result of
its serving as investment manager of the institutional accounts. Edward C.
Johnson, 3d, Chairman of FMR, and FMR, through its control of Fidelity, and
the Fidelity Funds, each has sole power to dispose of the 9,818,168 shares
owned by the Fidelity Funds. Neither FMR nor Edward C. Johnson, 3d has 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.
Edward C. Johnson 3d and FMR, through its control of FMTC, each has sole
dispositive power and sole power to vote or direct the voting of 144,400 of
the FMR Shares.
(3) This information is taken from a Schedule 13G dated February 11, 2000. Janus
Capital is a registered investment adviser which furnishes investment advice
to several investment companies registered under Section 8 of the Investment
Company Act of 1940 and individual and institutional clients (collectively
referred to as "Managed Portfolios"). As a result of its role as investment
adviser or sub-adviser to the Managed Portfolios, Janus Capital may be
deemed to be the beneficial owner of the shares of Sepracor Common Stock
held by such Managed Portfolios. However, Janus Capital does not have the
right to receive any dividends from, or the proceeds from the sale of, the
securities held in the Managed Portfolios and disclaims any ownership
associated with such rights.
(4) This information is taken from a Schedule 13G/A dated February 18, 2000,
filed by Putnam Investments, Inc. ("PII") on behalf of itself and its
affiliates. Of the 7,302,830 shares of Common Stock deemed beneficially
owned, PII and Putnam Investment Management, Inc. report shared dispositive
power as to 7,024,368 of such shares of Common Stock of the Company, and PII
and Putnam Advisory Company Inc. report shared voting power of 80,502 of
such shares of Common Stock and shared dispositive power of 278,462 of such
shares of Common Stock. Securities reported as being beneficially owned by
PII consist of securities beneficially owned by subsidiaries of PII which
are registered investment advisers, which in turn include securities
beneficially owned by clients of such investment advisers, which clients may
include investment companies registered under the Investment Company Act
and/or employee benefit plans, pension funds, endowment funds or other
institutional clients.
(5) 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 900,000 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 345,000
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
607,000 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 318,000 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 925,000 shares of Common Stock (1.42% of the total
number of outstanding shares). This number consists of (i) 607,000 shares of
Common Stock held for the account of Winston LDC and (ii) 318,000 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
1,270,000 shares of Common Stock (1.95% of the total number of outstanding
shares). This number consists of (i) 925,000 shares of Common Stock which
Chatterjee Management and Chatterjee Advisors may be deemed to own
beneficially and (ii) 345,000 shares of Common Stock held for the account of
Winston Partners.
(6) This information is taken from a Schedule 13G/A dated February 14, 2000. SSB
CitiFund Management LLC reports shared voting and dispositive power over
3,452,616 shares of Common Stock. Salomon Smith Barney Holdings Inc.
("SSBH") reports shared voting and dispositive power over 4,204,416 shares
of Common Stock. Citigroup Inc. reports shared voting and dispositive power
over 4,257,266 shares of Common Stock.
(7) The number of shares of Sepracor Common Stock that Mr. Barberich is deemed
to beneficially own includes 715,680 shares of Common Stock of the Company
which Mr. Barberich has the right to acquire within 60 days after
January 31, 2000 upon exercise of outstanding stock options, an aggregate of
23,200 shares of Common Stock of the Company held in trust for
Mr. Barberich's children, 70,000 shares of Common Stock of the Company held
in trust for Mr. Barberich's wife, 214 shares
4
<PAGE>
of Common Stock of the Company held by Mr. Barberich's wife and 62,408
shares of Common Stock of the Company held by Mr. Barberich's children. The
number of shares of BioSphere Common Stock that Mr. Barberich is deemed to
beneficially own includes 45,000 shares of BioSphere Common Stock which
Mr. Barberich has the right to acquire within 60 days after January 31, 2000
upon exercise of outstanding stock options. The number of shares of HemaSure
Common Stock that Mr. Barberich is deemed to beneficially own includes
109,500 shares of HemaSure Common Stock which Mr. Barberich has the right to
acquire within 60 days after January 31, 2000 upon exercise of outstanding
stock options.
(8) Represents 70,666 shares of Common Stock of the Company which Mr. Andress
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options.
(9) Includes 70,666 shares of Common Stock of the Company which Mr. Barrios has
the right to acquire within 60 days after January 31, 2000 upon exercise of
outstanding stock options.
(10) Represents 64,000 shares of Common Stock of the Company which Mr. Cresci
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options.
(11) Includes 70,666 shares of Common Stock of the Company which Dr. Mansford
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options.
(12) Includes 90,666 shares of Common Stock of the Company which Mr. Mrazek has
the right to acquire within 60 days after January 31, 2000 upon exercise of
outstanding stock options and 200,298 shares of Common Stock held by a trust
of which Mr. Mrazek is a trustee and beneficiary.
(13) Includes 48,000 shares of Common Stock of the Company which Mr. Steigrod
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options.
(14) The number of shares of Sepracor Common Stock Mr. Barlow is deemed to
beneficially own includes 78,666 shares of Common Stock of the Company which
Mr. Barlow has the right to acquire within 60 days after January 31, 2000
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, 2000 upon exercise of outstanding stock
options.
(15) Represents 123,332 shares of Common Stock of the Company which Dr. Rubin
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options and 2,472 shares of Common Stock of the Company
held by Dr. Rubin's children.
(16) Includes 262,000 shares of Common Stock of the Company which Mr. Southwell
has the right to acquire within 60 days after January 31, 2000 upon exercise
of outstanding stock options.
(17) The number of shares of Sepracor Common Stock that Mr. Scumaci is deemed to
beneficially own includes 36,332 shares of Common Stock of the Company which
Mr. Scumaci has the right to acquire within 60 days after January 31, 2000
upon exercise of outstanding stock options and 800 shares of Sepracor Common
Stock held in a trust for Mr. Scumaci's two children. The number of shares
of BioSphere Common Stock that Mr. Scumaci is deemed to beneficially own
represents 30,000 shares of BioSphere Common Stock which Mr. Scumaci has the
right to acquire within 60 days after January 31, 2000.
(18) Includes an aggregate of 1,682,274 shares of Common Stock which all
executive officers and directors have the right to acquire within 60 days
after January 31, 2000 upon exercise of outstanding stock options.
(19) Includes an aggregate of 75,000 shares of BioSphere Common Stock which all
directors and executive officers have the right to acquire within 60 days
after January 31, 2000 upon exercise of outstanding stock options.
(20) Includes an aggregate of 140,625 shares of HemaSure Common Stock which all
directors and executive officers have the right to acquire within 60 days
after January 31, 2000 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, two 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, 2002 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
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 nominee for Class I Director will be elected to hold office until the
Annual Meeting of Stockholders in 2003 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 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, 2000, appears under the heading "Stock Ownership
of Certain Beneficial Owners and Management."
NOMINEES FOR TERMS EXPIRING IN 2003 (CLASS I DIRECTORS)
JAMES G. ANDRESS, age 61, 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 56, 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., Candlewood Hotel Co.,
Castle Dental Centers, Inc., Film Roman, Inc., Aviva Petroleum Ltd., Quest
Education Corporation, SeraCare, Inc., JFax.com, Inc., E-Stamp Corporation and
several private companies.
JAMES F. MRAZEK, age 59, has been a director since 1984.
Since March 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.
6
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CLASS III DIRECTORS)
DIGBY W. BARRIOS, age 62, 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 Questcor Pharmaceuticals,
Drug Royalty Corporation, Inc. and Sheffield Pharmaceuticals.
ALAN A. STEIGROD, age 62, has been a director since 1995.
Since January 1996, Mr. Steigrod has been Managing Director 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. 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 Corporation.
DIRECTORS WHOSE TERMS EXPIRE IN 2002 (CLASS II DIRECTORS)
TIMOTHY J. BARBERICH, age 52, has been a director since 1984.
Mr. Barberich has served as Chief Executive Officer of the Company since
1984. From 1984 to October 1999, Mr. Barberich also served as President of the
Company. He also serves as Chairman of the Board of HemaSure and as a director
of BioSphere, publicly held subsidiaries of the Company.
KEITH MANSFORD, PH.D., age 68, 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 and Proteome PLC.
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 1999.
The members of the Audit Committee are Messrs. Cresci, Mrazek 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 1999. 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 five meetings during 1999. 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.
7
<PAGE>
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, receive expense reimbursement for attending Board and committee
meetings and are entitled to participate in the Company's 1999 Director Stock
Option Plan (the "1999 Director Plan") which provides for annual, automatic
grants of non-statutory stock options to Non-Employee Directors.
Messrs. Andress, Barrios, Cresci, Mrazek and Steigrod and Dr. Mansford each
received stock options in 1999 under the 1999 Director Plan to purchase 20,000
shares of Common Stock at a price of $39.0625. All options were granted at the
closing price of the Company's Common Stock on the Nasdaq National Market on the
date of grant.
Directors who are officers or employees of the Company do not receive any
additional compensation for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three years of the Company's Chief Executive Officer and the Company's
four other most highly compensated executive officers during 1999 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION -----------------
-------------------- OTHER ANNUAL NUMBER OF SHARES ALL OTHER
NAME AND SALARY COMPENSATION UNDERLYING STOCK COMPENSATION
PRINCIPAL POSITION YEAR ($) BONUS ($) ($)(1) OPTIONS (2) ($)
- -------------------------------------------- -------- -------- --------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999 349,329 135,000 0 200,000 5,761(3)
Timothy J. Barberich........................ 1998 284,849 125,000 0 600,000 6,138(4)
Chief Executive Officer 1997 261,250 125,000 0 210,000 2,794(5)(6)
David S. Barlow(7).......................... 1999 234,969 20,000 0 100,000 2,562(3)
Former Executive Vice President and 1998 212,092 70,000 0 280,000 2,697(4)
President, Pharmaceuticals 1997 192,326 90,000 0 160,000 2,418(5)(6)
David P. Southwell.......................... 1999 234,969 100,000 0 120,000 2,286(3)
Executive Vice President, Chief Financial 1998 195,814 90,000 0 360,000 2,220(4)
Officer and Secretary 1997 191,100 95,000 0 150,000 1,594(5)(6)
1999 270,751 120,000 0 120,000 3,514(3)
Paul D. Rubin, M.D.......................... 1998 259,264 120,000 0 480,000 4,033(4)
Senior Vice President, Development 1997 241,662 120,000 10,218 150,000 2,418(5)(6)
Robert F. Scumaci........................... 1999 208,862 52,250 51,104 120,000 2,435(3)
Senior Vice President, Finance and 1998 185,483 45,000 0 170,000 2,169(4)
Administration and Treasurer 1997 157,871 46,000 0 130,000 2,068(5)(6)
</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
1997, 1998 and 1999.
8
<PAGE>
(3) Includes $4,262, $1,062, $786, $2,014 and $935 of the taxable portion of
insurance premiums paid by the Company on behalf of Mr. Barberich,
Mr. Southwell, Dr. Rubin and Mr. Scumaci, respectively, during 1999 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
1999.
(4) Includes $4,638, $1,197, $720, $2,533 and $669 of the taxable portion of
insurance premiums paid by the Company on behalf of Mr. Barberich,
Mr. Barlow, Mr. Southwell, Dr. Rubin and Mr. Scumaci, 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.
(5) Includes $1,566, $918, $594, $918 and $568 of the taxable portion of
insurance premiums paid by the Company on behalf of Mr. Barberich,
Mr. Barlow, Mr. Southwell, Dr. Rubin and Mr. Scumaci, respectively, during
1997 with respect to group life insurance for the benefit of the Named
Executive Officer.
(6) Includes $1,228, $1,500, $1,000, $1,500 and $1,500 contributed by the
Company on behalf of Mr. Barberich, Mr. Barlow, Mr. Southwell, Dr. Rubin and
Mr. Scumaci, respectively, pursuant to the Company's 401(k) Plan in 1997.
(7) Mr. Barlow resigned from the Company on January 24, 2000.
OPTION GRANT TABLE. The following table sets forth certain information
regarding stock options granted during the year ended December 31, 1999 by the
Company to the Named Executive Officers.
OPTION GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR (%) ($/SH)(2) DATE 5%($) 10%($)
- ---- -------------- --------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich................. 200,000(4) 6 59.125 02/25/2006 7,436,679 18,846,005
David S. Barlow...................... 100,000(4) 3 59.125 02/25/2006 3,718,339 9,423,002
David P. Southwell................... 120,000(4) 4 59.125 02/25/2006 4,462,007 11,307,603
Paul D. Rubin, M.D................... 120,000(4) 4 59.125 02/25/2006 4,462,007 11,307,603
Robert Scumaci....................... 120,000(4) 4 59.125 02/25/2006 4,462,007 11,307,603
</TABLE>
- ------------------------------
(1) Stock options granted by the Company generally vest in five equal annual
installments commencing one year from the date of grant. See also 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 February 25,
1999 vest in three equal annual installments commencing on the date the
price per share of the Company's Common Stock reaches or exceeds $100.00 per
share for 20 consecutive business days; provided, however, that if the price
per share objectives are not achieved, the stock options will vest in full
on February 25, 2006, subject to the terms of the option agreement and the
plan.
OPTION EXERCISES AND YEAR-END OPTION VALUES TABLE. The following table sets
forth certain information regarding the aggregate shares of Common Stock
acquired upon stock option exercises by the Named Executive Officers and the
value realized upon such exercises during the year ended December 31, 1999, as
well as the number and value of unexercised stock options held by the Named
Executive Officers as of December 31, 1999.
9
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END (#) YEAR-END ($)(2)
ACQUIRED ON VALUE REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Barberich................. 400,000 16,623,837 715,680 988,000 29,403,505 26,978,175
David S. Barlow...................... 200,000 8,951,190 387,472 541,334 15,997,178 15,463,906
David P. Southwell................... 306,000 13,393,390 262,000 592,000 10,977,613 16,060,630
Paul D. Rubin, M.D................... 110,000 4,409,448 147,332 742,668 2,370,912 19,668,151
Robert F. Scumaci.................... 108,000 4,372,303 36,334 381,666 1,222,822 9,127,905
</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 Common Stock as reported by
the Nasdaq National Market on December 31, 1999 ($49.59), the last trading
day of 1999, 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 Chairman of the Board and Chief
Executive Officer of the Company, Mr. O'Shea, the President and Chief Operating
Officer 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 1999 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:
- 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.
10
<PAGE>
- 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:
- Company and individual goals and objectives are set for each 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 three
elements--salary, bonus and stock options. In late 1998, the Committee
established an executive bonus plan for 1999 pursuant to which executives were
entitled to receive bonuses based on achievement of individual performance
goals. Bonuses totaling $545,000 were paid to the executive officers for 1999.
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, development and implementation of successful marketing and
commercialization strategies, 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 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 an executive officer of corporate, business
group or individual performance goals. In 1999, the Company granted stock
options to
11
<PAGE>
purchase an aggregate of 800,000 shares of the Company's Common Stock to
executive officers at an exercise price of $59.125 per share and 1,000,000
shares at an exercise price of $35.44 per share. All stock options granted to
executive officers in 1999 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 1999 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 1999 increased from $284,849 to $349,329.
Mr. Barberich received a bonus of $135,000 in 2000 for 1999 performance. In
determining Mr. Barberich's bonus compensation, the Compensation Committee
considered the successful commercial introduction by the Company of Xopenex, the
first product developed and commercialized by the Company, the Company's
progress in its drug development program and the Company's continued success
with corporate collaborative partners with respect to development and
commercialization of its products.
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 1999, 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.
12
<PAGE>
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, 1994 through the year ended December 31, 1999 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, 1994 and
reinvestment of all dividends). Measurement points are the last trading days of
each of the years ended December 31, 1994, 1995, 1996, 1997, 1998 and 1999.
STOCK PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Sepracor Inc. $100.00 $445.45 $403.03 $971.21 $2,136.36 $2,404.55
Nasdaq Composite Index $100.00 $139.92 $171.69 $208.83 $291.60 $541.16
Nasdaq Pharmaceutical Index $100.00 $154.69 $187.88 $278.98 $407.54 $366.49
</TABLE>
EMPLOYMENT AGREEMENTS
Under a letter agreement, dated June 14, 1993, between the Company and
Mr. Barlow, the Company agreed to pay Mr. Barlow six months' salary in the event
of termination of Mr. Barlow's employment without cause. Mr. Barlow resigned
from the Company on January 24, 2000.
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, 1995, between the Company and
Mr. Scumaci, the Company has agreed to pay Mr. Scumaci six months' salary plus
pro rata bonus in the event of termination of Mr. Scumaci's employment during
his first year of employment, nine months' salary plus pro rata bonus in the
event of termination of Mr. Scumaci's employment during his second to fifth year
13
<PAGE>
of employment and one year's salary plus bonus in the event of termination of
Mr. Scumaci's employment after his fifth year of employment.
Under a letter agreement, dated February 23, 1996, between the Company and
Dr. Rubin, Dr. Rubin is entitled to a minimum 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.
Under a letter agreement, dated September 10, 1999, between the Company and
Mr. O'Shea, the Company has agreed to pay Mr. O'Shea one year's salary in the
event of termination of Mr. O'Shea's employment.
In February 1999, the Board of Directors approved a plan concerning the
payment of gross-up payments to officers and employees of the Company. 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, AS AMENDED
On February 24, 2000, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Company's Restated Certificate of Incorporation,
as amended (the "Restated Certificate of Incorporation"), providing for an
increase from 140,000,000 to 240,000,000 in the number of authorized shares of
Common Stock (the "Charter Amendment"). As of March 15, 2000, the Company had a
total of approximately 72,230,347 shares of Common Stock outstanding,
approximately 9,852,000 shares of Common Stock reserved for issuance upon
conversion of stock options outstanding under its stock option and stock
purchase plans, approximately 3,929,000 shares of Common Stock reserved for
issuance upon conversion of the 6 1/4% Debentures, approximately 4,805,000
shares of Common Stock reserved for issuance upon conversion of the 7%
Debentures and 4,980,000 shares of Common Stock reserved for issuance upon
conversion of the 5% 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 plan to issue any shares of Common Stock.
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.
14
<PAGE>
PROPOSAL 3--APPROVAL OF THE 2000 STOCK INCENTIVE PLAN
On February 24, 2000, the Board of Directors of the Company adopted, subject
to stockholder approval, the 2000 Stock Incentive Plan (the "2000 Plan"). Up to
2,500,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 2000 Plan.
The 2000 Plan is intended to replace the Company's 1991 Stock Option Plan
(the "1991 Plan"), which expires by its terms on June 24, 2001. As of
January 31, 2000, options to purchase 9,109,120 shares of Common Stock were
outstanding under the 1991 Plan and an additional 1,939,508 shares were reserved
for future option grants. Upon the expiration date of the 1991 Plan on June 24,
2001, all then outstanding options will remain in effect, but no additional
option grants may be made under the 1991 Plan.
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
SUMMARY OF THE 2000 STOCK INCENTIVE PLAN
The following summary of the 2000 Plan is qualified in its entirety by
reference to the 2000 Plan, a copy of which is attached as Appendix B to this
Proxy Statement.
DESCRIPTION OF AWARDS
The 2000 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based upon certain conditions,
the grant of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
INCENTIVE STOCK OPTIONS AND NONSTATUTORY STOCK OPTIONS. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. All options granted under the
2000 Plan will be granted at an exercise price equal to or greater than the fair
market value of the Common Stock on the date of grant. Under present law,
however, incentive stock options may not be granted to optionees holding more
than 10% of the voting power of the Company at an exercise price less than 110%
of the fair market. Options may not be granted for a term in excess of ten
years. The 2000 Plan permits the Board to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note, or by any other lawful means.
In the event of an "Acquisition Event" all outstanding options immediately
vest. As defined in the 2000 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;
15
<PAGE>
(b) any sale of all, or substantially all, the assets of the Company; or
(c) the complete liquidation of the Company.
RESTRICTED STOCK AWARDS. Restricted Stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
OTHER STOCK-BASED AWARDS. Under the 2000 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
ELIGIBILITY TO RECEIVE AWARDS
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 2000 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the 2000 Plan may not exceed 500,000 shares per calendar
year. It is expected that stock options will generally become exercisable over a
five-year period and expire ten years after the date of grant (subject to
earlier termination in the event of the termination of the optionee's employment
or other relationship with the Company).
As of January 31, 2000, approximately 350 persons were eligible to receive
Awards under the 2000 Plan, including the Company's 7 executive officers and 6
non-employee directors. The granting of Awards under the 2000 Plan is
discretionary, and the Company cannot now determine the number or type of Awards
to be granted in the future to any particular person or group.
On March 31, 2000, the last reported sale price of the Company Common Stock
on the Nasdaq National Market was $72.8125.
ADMINISTRATION
The 2000 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2000 Plan and to interpret the provisions of the 2000
Plan. Pursuant to the terms of the 2000 Plan, the Board of Directors may
delegate authority under the 2000 Plan to one or more committees of the Board.
The Board has authorized the Compensation Committee to administer certain
aspects of the 2000 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 2000 Plan, the
Board of Directors, the Compensation Committee, or any other committee to whom
the Board delegates authority, as the case may be, selects the recipients of
Awards and determines (i) the number of shares of Common Stock covered by
options and the dates upon which such options become exercisable, (ii) the
exercise price of options, (iii) the duration of options and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 2000 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. If any
16
<PAGE>
Award expires or is terminated, surrendered, canceled or forfeited, the unused
shares of Common Stock covered by such Award will again be available for grant
under the 2000 Plan.
AMENDMENT OR TERMINATION
No Award may be made under the 2000 Plan after February 24, 2010, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2000 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment shall have been approved by the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
2000 Plan and with respect to the sale of Common Stock acquired under the 2000
Plan.
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 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 in an amount 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.
NONSTATUTORY STOCK OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a
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participant who exercises a nonstatutory 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, 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.
RESTRICTED STOCK AWARDS
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under
Section 83(b) of the Code (a "Section 83(b) Election"). If the participant makes
a Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the Award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the Award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between the
fair market value of the Common Stock at the time of such lapse and the original
purchase price paid for the Common Stock. The participant will have a basis in
the Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
OTHER STOCK-BASED AWARDS
The tax consequences associated with any other stock-based Award granted
under the 2000 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the Award and the participant's holding
period and tax basis for the Award or underlying Common Stock.
TAX CONSEQUENCES TO THE COMPANY
The grant of an Award under the 2000 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 2000 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 2000 Plan, including in connection
with a
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restricted stock Award or as a result of the exercise of a nonstatutory 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 adoption of the 2000 Plan is in the best
interests of the Company and its stockholders and therefore recommends a vote
FOR this proposal.
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 1999 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: .
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.
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DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Marlborough, Massachusetts not later than December 20, 2000 for inclusion in
the proxy statement for that meeting.
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.
<TABLE>
<S> <C> <C>
BY ORDER OF THE BOARD OF DIRECTORS,
DAVID P. SOUTHWELL
SECRETARY
</TABLE>
April , 2000
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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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<PAGE>
PRELIMINARY COPY
APPENDIX A
SEPRACOR INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - MAY 24, 2000
Those signing on the reverse side, revoking any prior proxies, hereby
appoint(s) Timothy J. Barberich and David P. Southwell, or each of them with
full power of substitution, as proxies for those signing on the reverse side to
act and vote at the 2000 Annual Meeting of 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>
[X] Please mark votes as in this example.
A VOTE FOR THE DIRECTOR NOMINEES AND FOR PROPOSAL NUMBERS 2 AND 3 IS
RECOMMENDED BY THE BOARD OF DIRECTORS.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Election of Class I Directors NOMINEES: FOR AGAINST ABSTAIN
James G. Andress 2. Approval of an amendment to [ ] [ ] [ ]
Robert J. Cresci the Company's Restated
James F. Mrazek Certificate of Incorporation
increasing from 140,000,000 to
240,000,000 the number of
authorized shares of Common
Stock.
3. Approval of the 2000 [ ] [ ] [ ]
Stock Incentive Plan
[ ] [ ]
FOR all WITHHELD
nominees from all 4. To transact such [ ] [ ] [ ]
(except as nominees other business as may
indicated to properly come before
the contrary) the meeting.
INSTRUCTIONS: TO WITHHOLD AUTHORITY MARK HERE
TO VOTE FOR INDIVIDUAL NOMINEE(S) STRIKE FOR ADDRESS CHANGE [ ]
A LINE THROUGH EACH SUCH NOMINEE'S NAME. OR COMMENTS AND
YOUR SHARES WILL BE VOTED NOTE ON REVERSE
FOR THE REMAINING NOMINEE(S).
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>
<PAGE>
APPENDIX B
SEPRACOR INC.
2000 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 2000 Stock Incentive Plan (the "Plan") of
Sepracor Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a significant interest, as determined by the Board of
Directors of the Company (the "Board").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award 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. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
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4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 2,500,000 shares of common stock, $.10 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which Awards may be granted to any Participant
under the Plan shall be 500,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code ("Section 162(m)").
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no liability to a Participant,
or any other party, if an Option (or any part thereof) which is intended to be
an Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement,
provided, however, that the exercise price shall not be less than 100% of the
fair market value of the Common Stock, as determined by the Board, at the time
the Option is granted.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided however, that no Option will be granted
for a term in excess of ten years.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
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<PAGE>
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide in
an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the exercise price or
(ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker
to deliver promptly to the Company cash or a check sufficient to pay
the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by (or in a manner approved by)
the Board in good faith ("Fair Market Value"), provided (i) such
method of payment is then permitted under applicable law and
(ii) such Common Stock was owned by the Participant at least six
months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company
on terms determined by the Board, or (ii) payment of such other
lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) SUBSTITUTE OPTIONS. In connection with a merger or consolidation of an
entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant Options in substitution for any options or
other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the
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absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION AND CHANGE IN CONTROL EVENTS
(1) DEFINITIONS
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash,
securities or other property; or
(ii) any exchange of shares of the Company for cash, securities
or other property pursuant to a statutory share exchange
transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership of any capital
stock of the Company if, after such acquisition, such Person
beneficially owns (within
B-4
<PAGE>
the meaning of Rule 13d-3 promulgated under the Exchange
Act) 30% or more of either (x) the then-outstanding shares
of common stock of the Company (the "Outstanding Company
Common Stock") or (y) the combined voting power of the
then-outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions
shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding an
acquisition pursuant to the exercise, conversion or exchange
of any security exercisable for, convertible into or
exchangeable for common stock or voting securities of the
Company, unless the Person exercising, converting or
exchanging such security acquired such security directly
from the Company or an underwriter or agent of the Company),
(B) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (C) any
acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses
(x) and (y) of subsection (iii) of this definition; or
(ii) such time as the Continuing Directors (as defined below) do
not constitute a majority of the Board (or, if applicable,
the Board of Directors of a successor corporation to the
Company), where the term "Continuing Director" means at any
date a member of the Board (x) who was a member of the
Board on the date of the initial adoption of this Plan by
the Board or (y) who was nominated or elected subsequent to
such date by at least a majority of the directors who were
Continuing Directors at the time of such nomination or
election or whose election to the Board was recommended or
endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or
election; provided, however, that there shall be excluded
from this clause (y) any individual whose initial
assumption of office occurred as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share
exchange involving the Company or a sale or other
disposition of all or substantially all of the assets of
the Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following
two conditions is satisfied: (x) all or substantially all
of the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of
common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in
the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination
(which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or
substantially all of the Company's assets either directly
or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the
"Acquiring
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Corporation") in substantially the same proportions as
their ownership of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no
Person (excluding the Acquiring Corporation or any employee
benefit plan (or related trust) maintained or sponsored by
the Company or by the Acquiring Corporation) beneficially
owns, directly or indirectly, 30% or more of the
then-outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to
vote generally in the election of directors (except to the
extent that such ownership existed prior to the Business
Combination).
(2) EFFECT ON OPTIONS
(a) ACQUISITION EVENT. Upon the occurrence of an Acquisition Event
(regardless of whether such event also constitutes a Change in
Control Event), or the execution by the Company of any agreement
with respect to an Acquisition Event (regardless of whether such
event will result in a Change in Control Event), the Board shall
provide that all outstanding Options shall be assumed, or
equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof); provided that
if such Acquisition Event also constitutes a Change in Control
Event, except to the extent specifically provided to the contrary
in the instrument evidencing any Option or any other agreement
between a Participant and the Company, such assumed or
substituted options shall be immediately exercisable in full upon
the occurrence of such Acquisition Event. For purposes hereof, an
Option shall be considered to be assumed if, following
consummation of the Acquisition Event, the Option confers the
right to purchase, for each share of Common Stock subject to the
Option immediately prior to the consummation of the Acquisition
Event, the consideration (whether cash, securities or other
property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held
immediately prior to the consummation of the Acquisition Event
(and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if
the consideration received as a result of the Acquisition Event
is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the
consent of the acquiring or succeeding corporation, provide for
the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in fair market
value to the per share consideration received by holders of
outstanding shares of Common Stock as a result of the Acquisition
Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume,
or substitute for, such Options, then the Board shall, upon
written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the Participants before the
consummation of
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such Acquisition Event; provided, however, in the event of an
Acquisition Event under the terms of which holders of Common
Stock will receive upon consummation thereof a cash payment for
each share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then the Board may
instead provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and that each Participant
shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (A) the Acquisition Price multiplied by
the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options.
(b) CHANGE IN CONTROL EVENT THAT IS NOT AN ACQUISITION EVENT. Upon
the occurrence of a Change in Control Event that does not also
constitute an Acquisition Event, except to the extent
specifically provided to the contrary in the instrument
evidencing any Option or any other agreement between a
Participant and the Company, all Options then-outstanding shall
automatically become immediately exercisable in full.
(3) EFFECT ON RESTRICTED STOCK AWARDS
(a) ACQUISITION EVENT THAT IS NOT A CHANGE IN CONTROL EVENT. Upon the
occurrence of an Acquisition Event that is not a Change in
Control Event, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted
into or exchanged for pursuant to such Acquisition Event in the
same manner and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.
(b) CHANGE IN CONTROL EVENT. Upon the occurrence of a Change in
Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided
to the contrary in the instrument evidencing any Restricted Stock
Award or any other agreement between a Participant and the
Company, all restrictions and conditions on all Restricted Stock
Awards then-outstanding shall automatically be deemed terminated
or satisfied.
(4) EFFECT ON OTHER AWARDS
(a) ACQUISITION EVENT THAT IS NOT A CHANGE IN CONTROL EVENT. The
Board shall specify the effect of an Acquisition Event that is
not a Change in Control Event on any other Award granted under
the Plan at the time of the grant of such Award.
(b) CHANGE IN CONTROL EVENT. Upon the occurrence of a Change in
Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided
to the contrary in the instrument evidencing any other Award or
any other agreement between a Participant and the Company, all
other Awards shall become exercisable, realizable or vested in
full, or shall be free of all conditions or restrictions, as
applicable to each such Award.
(5) LIMITATIONS. Notwithstanding the foregoing provisions of this
Section 8(c), if the Change in Control Event is intended to be
accounted for as a "pooling of interests" for financial accounting
purposes, and if the acceleration to be effected by the foregoing
provisions of this Section 8(c) would preclude accounting for the
Change in Control Event as a
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"pooling of interests" for financial accounting purposes, then no
such acceleration shall occur upon the Change in Control Event.
9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person 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 Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has
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executed and delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.
(h) ACCELERATION. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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