-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S/bnhF7JnEOBzc+DZ4zyVhcuAzr+JO1hM+4wbpbgDAly4koXYPvWp7c6meIUstJm TQb9pPcPvk1fM1Txozz4Aw== 0000912057-02-024500.txt : 20020617 0000912057-02-024500.hdr.sgml : 20020617 20020617172709 ACCESSION NUMBER: 0000912057-02-024500 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20020617 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SEPRACOR INC /DE/ CENTRAL INDEX KEY: 0000877357 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222536587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: 1934 Act SEC FILE NUMBER: 005-42223 FILM NUMBER: 02680914 BUSINESS ADDRESS: STREET 1: 111 LOCKE DR CITY: MARLBOROUGH STATE: MA ZIP: 01757 BUSINESS PHONE: 5084816700 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SEPRACOR INC /DE/ CENTRAL INDEX KEY: 0000877357 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222536587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 111 LOCKE DR CITY: MARLBOROUGH STATE: MA ZIP: 01757 BUSINESS PHONE: 5084816700 SC TO-I 1 a2082196zscto-i.txt SC TO-I SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- SCHEDULE TO (RULE 13e-4) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------- SEPRACOR INC. (Name of Subject Company (Issuer) and Filing Person (Offeror)) ------------------- Options to Purchase Common Stock, $0.10 Par Value Per Share, Having an Exercise Price of $18.00 or more Per Share (Title of Class of Securities) ------------------- 817315 10 4 (CUSIP Number of Class of Securities) (Underlying Common Stock) ------------------- Timothy J. Barberich Chairman and Chief Executive Officer Sepracor Inc. 84 Waterford Drive, Marlborough, Massachusetts 01752 Telephone: (508) 481-6700 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing person) Copy to: Mark G. Borden, Esq. Susan W. Murley, Esq. Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Telephone: (617) 526-6000 Telecopy: (617) 526-5000 ------------------- CALCULATION OF FILING FEE =============================================================================== TRANSACTION VALUATION* AMOUNT OF FILING FEE - ------------------------------------------------------------------------------- $26,819,254 $2,467 =============================================================================== * Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 5,347,388 shares of common stock of Sepracor Inc. having a weighted average exercise price of $45.38 will be exchanged pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. The amount of the filing fee is calculated at $92 per $1,000,000 of the Transaction Value. |_| Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Filing party: Not applicable. Form or Registration No.: Not applicable. Date filed: Not applicable. |_| Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: |_| third party tender offer subject to Rule 14d-1. |X| issuer tender offer subject to Rule 13e-4. |_| going-private transaction subject to Rule 13e-3. |_| amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: |_| ITEM 1. SUMMARY TERM SHEET. The information set forth under "Summary Term Sheet" in the document entitled "Offer to Exchange Outstanding Stock Options", dated June 17, 2002 (as amended from time to time, the "Offer to Exchange"), attached hereto as Exhibit (a)(1), is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) The name of the issuer is Sepracor Inc., a Delaware corporation (the "Company"), and the address and telephone number of its principal executive offices is 84 Waterford Drive, Marlborough, Massachusetts 01752, (508) 481-6700. The information set forth in the Offer to Exchange under Section 9 ("Information About Sepracor; Summary Financial Information; Risk Factors") is incorporated herein by reference. (b) This Tender Offer Statement on Schedule TO relates to the solicitation (the "Offer") by the Company of requests to exchange options having an exercise price of $18.00 or more per share (the "Options") outstanding under the Company's 1991 Amended and Restated Stock Option Plan, as amended, the Company's 1997 Stock Option Plan (the "1997 Plan") and the Company's 2000 Stock Incentive Plan, as amended (the "2000 Plan"), to purchase shares (each, an "Option Share") of the Company's common stock, $0.10 par value per share (the "Common Stock"), for new options (the "New Options") that will be granted under and subject to the 1997 Plan, the 2000 Plan, or the 2002 Stock Incentive Plan, as the case may be, upon the terms and subject to the conditions described in the Offer to Exchange. This solicitation (the "Offer") excludes the class of options held by optionholders who are not employees of the Company or one of its wholly-owned subsidiaries on the date the Offer expires (the "Offer Period") and options held by the Company's officers as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended, and members of the board of directors of the Company. In the aggregate, there are 5,347,388 shares of Common Stock underlying the Options covered in this Offer. For each eligible Option Share surrendered, the Company will grant an option for one new Option Share to the optionee, subject to the terms and conditions of the Offer to Exchange. The information set forth in the Offer to Exchange under "Summary Term Sheet", Section 1 ("Number of Options; Expiration Date"), Section 5 ("Acceptance of Options for Exchange and Grant of New Options") and Section 8 ("Source and Amount of Consideration; Terms of New Options") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 7 ("Price Range of Common Stock") is incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a) The information set forth under Item 2(a) above and in Section 10 of the Offer to Exchange ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. The Company is both the filing person and the subject company. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Exchange under "Summary Term Sheet", Section 1 ("Number of Options; Expiration Date"), Section 3 ("Procedures for Surrendering Options"), Section 4 ("Change in Election"), Section 5 ("Acceptance of Options for Exchange and Grant of New Options"), Section 6 ("Conditions of This Offer"), Section 8 ("Source and Amount of Consideration; Terms of New Options"), Section 9 ("Information About Sepracor; Summary Financial Information; Risk Factors"), Section 11 ("Status of Options Acquired by Us in This Offer; Accounting Consequences of This Offer"), Section 12 ("Legal Matters; Regulatory Approvals"), Section 13 ("Material Federal Income Tax Consequences") and Section 14 ("Extension of This Offer; Termination; Amendment") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. 1 ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. (e) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (a) The Offer is being conducted for compensatory purposes as described in the Offer to Exchange. The information set forth in the Offer to Exchange under Section 2 ("Purpose of This Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 5 ("Acceptance of Options for Exchange and Grant of New Options") and Section 11 ("Status of Options Acquired by Us in This Offer; Accounting Consequences of This Offer") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 2 ("Purpose of This Offer") is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Offer to Exchange under Section 8 ("Source and Amount of Consideration; Terms of New Options") and Section 15 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 6 ("Conditions of This Offer") and Section 8 ("Source and Amount of Consideration; Terms of New Options") is incorporated herein by reference. (d) Not applicable. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 9. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (a) Not applicable. ITEM 10. FINANCIAL STATEMENTS. (a) The information set forth in the Offer to Exchange under Section 9 ("Information About Sepracor; Summary Financial Information; Risk Factors") and Section 16 ("Additional Information"), and in Exhibit 13 of the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2001 and the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2002 are incorporated herein by reference. The Company's book value per share was ($3.70) as of March 31, 2002. (b) Not applicable. 2 ITEM 11. ADDITIONAL INFORMATION. (a) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") and Section 12 ("Legal Matters; Regulatory Approvals") is incorporated herein by reference. (b) Not applicable. ITEM 12. EXHIBITS. (a) (1) Offer to Exchange Outstanding Stock Options, dated June 17, 2002, including Summary Term Sheet. (2) Form of Election Form. (3) Form of Notice of Withdrawal. (4) Form of Promise to Grant Stock Options. (5) Cover letter to Eligible Optionholders. (6) Form of Statement of Stock Option Grants. (b) Not applicable. (d) (1) Sepracor Inc. 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-19410). (2) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 1997 Stock Option Plan. (3) Sepracor Inc. 2000 Stock Incentive Plan, as amended is incorporated herein by reference to the Company's Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 22, 2002 (File No. 0-19410). (4) Form of Incentive Stock Option Agreement pursuant to the Sepracor Inc. 2000 Stock Incentive Plan, as amended. (5) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 2000 Stock Incentive Plan, as amended. (6) Sepracor Inc. 2002 Stock Incentive Plan. (7) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 2002 Stock Incentive Plan. (8) Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File No. 0-19410) is incorporated herein by reference. (9) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002 (File No. 0-19410) is incorporated herein by reference. (10) Current Report on Form 8-K filed with the SEC on June 4, 2002 (File No. 0-19410) is incorporated herein by reference. (g) Not applicable. (h) Not applicable. ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. (a) Not applicable. 3 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. SEPRACOR INC. /s/ Robert F. Scumaci ------------------------------------- Robert F. Scumaci Executive Vice President, Finance and Administration and Treasurer Date: June 17, 2002 4 EXHIBIT INDEX Exhibit NUMBER DESCRIPTION (a) (1) Offer to Exchange Outstanding Stock Options, dated June 17, 2002, including Summary Term Sheet. (2) Form of Election Form. (3) Form of Notice of Withdrawal. (4) Form of Promise to Grant Stock Options. (5) Cover letter to Eligible Optionholders. (6) Form of Statement of Stock Option Grants. (b) Not applicable. (d) (1) Sepracor Inc. 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-19410). (2) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 1997 Stock Option Plan. (3) Sepracor Inc. 2000 Stock Incentive Plan, as amended is incorporated herein by reference to the Company's Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 22, 2002 (File No. 0-19410). (4) Form of Incentive Stock Option Agreement pursuant to the Sepracor Inc. 2000 Stock Incentive Plan, as amended. (5) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 2000 Stock Incentive Plan, as amended. (6) Sepracor Inc. 2002 Stock Incentive Plan. (7) Form of Nonqualified Stock Option Agreement pursuant to the Sepracor Inc. 2002 Stock Incentive Plan. (8) Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File No. 0-19410) is incorporated herein by reference. (9) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002 (File No. 0-19410) is incorporated herein by reference. (10) Current Report on Form 8-K filed with the SEC on June 4, 2002 (File No. 0-19410) is incorporated herein by reference. (g) Not applicable. (h) Not applicable. 5 EX-99.(A)(1) 3 a2082196zex-99_a1.txt EXHIBIT (A)(1) EXHIBIT (A)(1) SEPRACOR INC. OFFER TO EXCHANGE OUTSTANDING STOCK OPTIONS - -------------------------------------------------------------------------------- YOUR RIGHT TO REQUEST THAT WE EXCHANGE YOUR OPTIONS AND YOUR RIGHT TO WITHDRAW SUCH REQUEST EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT TIME, ON JULY 17, 2002, UNLESS EXTENDED. - -------------------------------------------------------------------------------- We are offering our full-time and part-time employees and the full-time and part-time employees of our wholly-owned subsidiaries, other than our officers ("officers") as defined in Rule 16a-1(f) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and other than members of our board of directors, the opportunity to ask us to exchange their outstanding stock options for new options on the terms described herein. Only those outstanding stock options granted under our 1991 Amended and Restated Stock Option Plan, as amended (the "1991 plan"), 1997 Stock Option Plan (the "1997 plan") and 2000 Stock Incentive Plan, as amended (the "2000 plan") with exercise prices of $18.00 or more per share will be eligible for exchange (the "eligible options"). The new options will be exercisable for one share of common stock for every one share issuable upon exercise of a surrendered option. If you wish to exchange options, you do not need to surrender all of your eligible option grants. However, you do need to surrender all unexercised options of any eligible option grant that you elect to surrender. We will issue all new options surrendered from our 1991 plan under our 2002 Stock Incentive Plan (the "2002 plan"), all options surrendered from our 1997 plan under our 1997 plan and all options surrendered from our 2000 plan under our 2000 plan. IF YOU WERE GRANTED OPTIONS ON OR AFTER DECEMBER 17, 2001 AND YOU WISH TO SURRENDER ANY ELIGIBLE OPTIONS, YOU WILL BE REQUIRED TO SURRENDER ALL OPTIONS RECEIVED ON OR AFTER DECEMBER 17, 2001 THAT HAVE A LOWER EXERCISE PRICE THAN THE OPTION WITH THE HIGHEST EXERCISE PRICE YOU SURRENDER. The new options will be granted six months plus one day after the expiration of this offer, subject to the terms described in these materials. You will not receive a grant of new options if you are not still employed by us or one of our wholly-owned subsidiaries for any reason on both the date this offer expires and the date that the new options are granted. We are making this offer upon the terms and subject to the conditions described in the enclosed materials, including those we describe in Section 6. This offer is not conditioned upon a minimum number of options being surrendered for exchange. IMPORTANT To elect to exchange your eligible options pursuant to this offer, you must, in accordance with the terms of the accompanying election form, properly complete and deliver the election form to Melissa Klinkhamer by fax at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752. We must receive your properly completed election form before 5:00 p.m., Eastern Daylight Time, on July 17, 2002. Although we reserve the right to extend this offer at our sole discretion, we currently have no intention of doing so. Subject to our rights to extend, terminate and amend this offer, and subject to our right to reject all requests for exchange at our discretion, we expect that we will accept promptly after the expiration of this offer all properly surrendered options that are not validly withdrawn and we will notify you of our acceptance on the date this offer expires. Upon our acceptance of the options you surrender for exchange, the surrendered options will be cancelled and you will no longer have any right to purchase our common stock under those options. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD SURRENDER OR NOT SURRENDER YOUR OUTSTANDING STOCK OPTIONS FOR EXCHANGE THROUGH THIS OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THESE MATERIALS OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THESE MATERIALS. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. This document constitutes part of the Section 10(a) prospectus relating to our 1997 Stock Option Plan, our 2000 Stock Incentive Plan, as amended, and our 2002 Stock Incentive Plan, covering securities that have been, or will be, registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The date of this offer to exchange is June 17, 2002. 2 TABLE OF CONTENTS
PAGE NO. -------- SUMMARY TERM SHEET.................................................. 4 THE OFFER........................................................... 10 1. NUMBER OF OPTIONS; EXPIRATION DATE.......................... 10 2. PURPOSE OF THIS OFFER....................................... 11 3. PROCEDURES FOR SURRENDERING OPTIONS......................... 11 4. CHANGE IN ELECTION.......................................... 12 5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND GRANT OF NEW OPTIONS..................................................... 13 6. CONDITIONS OF THIS OFFER.................................... 13 7. PRICE RANGE OF COMMON STOCK................................. 15 8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS.... 15 9. INFORMATION ABOUT SEPRACOR; SUMMARY FINANCIAL INFORMATION; RISK FACTORS................................................ 21 10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS......................... 26 11. STATUS OF OPTIONS ACQUIRED BY US IN THIS OFFER; ACCOUNTING CONSEQUENCES OF THIS OFFER.................................. 27 12. LEGAL MATTERS; REGULATORY APPROVALS......................... 28 13. MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 28 14. EXTENSION OF THIS OFFER; TERMINATION; AMENDMENT............. 33 15. FEES AND EXPENSES........................................... 33 16. ADDITIONAL INFORMATION...................................... 33 17. MISCELLANEOUS............................................... 34
3 SUMMARY TERM SHEET THE FOLLOWING ARE ANSWERS TO SOME OF THE QUESTIONS THAT YOU MAY HAVE ABOUT OUR OFFER. WE URGE YOU TO READ ALL OF THESE MATERIALS CAREFULLY BECAUSE THE INFORMATION IN THIS SUMMARY IS NOT COMPLETE. WE HAVE INCLUDED REFERENCES TO THE RELEVANT SECTIONS FOLLOWING THIS SUMMARY WHERE YOU CAN FIND A MORE COMPLETE DESCRIPTION OF THE TOPICS IN THIS SUMMARY. Q.1. WHAT OPTIONS ARE COVERED BY THIS OFFER? We are offering you the opportunity to ask us to exchange any or all outstanding stock options having an exercise price of $18.00 or more per share. (See Section 1) Q.2. WHY ARE WE MAKING THIS OFFER? Many of our employees' outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our common stock. We are making this offer in order to provide these optionholders with the benefit of owning options that over time may have a greater potential to increase in value. We believe that this will create better performance incentives for these optionholders and thereby align the interests of our current employees with those of our stockholders in maximizing stockholder value. (See Section 2) Q.3. ARE THERE CONDITIONS TO THIS OFFER? This offer is not conditioned upon any minimum threshold number of options being surrendered for exchange by eligible optionholders. However, the offer is subject to a number of other conditions with regard to events that could occur before the expiration of the offer. These events include a change in accounting principles, a lawsuit challenging the offer and a third-party tender offer for our common stock or an acquisition proposal for Sepracor. These and various other conditions are more fully described in Section 6 of this Offer to Exchange. Q.4. WHAT IF I AM AN EMPLOYEE OF SEPRACOR OR ONE OF ITS WHOLLY-OWNED SUBSIDIARIES WHEN THIS OFFER EXPIRES, BUT I AM NOT AN EMPLOYEE ON THE GRANT DATE OF THE NEW OPTIONS? If you tender your options, you will only receive a grant of new options in this offer if you are an employee of Sepracor or one of our wholly-owned subsidiaries on the date this offer expires and on the date that we grant the new options. As discussed below, we will not grant the new options until on or after the first business day that is six months and one day following the date when we cancel the options accepted for exchange, currently scheduled to occur on or about January 20, 2003. IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF SEPRACOR OR ONE OF OUR WHOLLY-OWNED SUBSIDIARIES ON THE DATE THIS OFFER EXPIRES OR ON THE DATE THAT WE GRANT THE NEW OPTIONS, THEN YOU WILL NOT RECEIVE ANY NEW OPTIONS NOR WILL YOU RECEIVE ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR SURRENDERED OPTIONS. This means that if you die, become disabled, terminate your employment with or without a good reason or we terminate your employment with or without cause before the date that we grant the new options, then you will not receive anything for the options that you surrendered and we cancelled. Participation in the offer does not confer upon you the right to remain in the employment or other service of Sepracor or any of our subsidiaries. (See Section 1) Q.5. HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR THE OPTIONS I SURRENDER FOR EXCHANGE? For every one share for which your surrendered option is exercisable, you will receive an option to purchase one share. (See Section 1) 4 Q.6. WHEN WILL I RECEIVE MY NEW OPTIONS? We will grant the new options on the first business day that is at least six months plus one day following the date we cancel the options accepted for exchange. If the offer expires on July 17, 2002, as currently planned, new options will be granted on January 20, 2003. We expect to distribute the new option agreements within two weeks after the date of grant of the new options. As discussed above, you must be employed by us or one of our wholly-owned subsidiaries on the new grant date in order to receive the new options. (See Section 5) You may not receive new options if Sepracor enters into a merger or other similar transaction in which there is a change in control of Sepracor prior to the grant of new options. (See Question 16) Q.7. WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THIS OFFER? In order to avoid our being subject to the undesirable accounting consequences described below, the new options will not be issued immediately after the expiration date of this offer. If we grant the new options on any date earlier than six months plus one day after the date we cancel the options surrendered for exchange, we would be required for accounting purposes to treat the new options as variable awards. This means that we would be required periodically to reflect increases and decreases in the price of our common stock as a compensation expense (or credit) relating to the options. We would have to continue this variable accounting for these options until they were exercised, forfeited or terminated. The higher the market value of our common stock, the greater the compensation expense we would have to record. By deferring the grant of the new options for at least six months plus one day, we believe we will not have to treat the options as variable awards. (See Section 11) Q.8. WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE? The new options will have an exercise price equal to the per share closing price of our common stock on The Nasdaq National Market on the date the new options are granted. Because we will not grant new options until the first business day that is at least six months plus one day following the expiration of this offer, it is possible that the new options may have a higher exercise price than some or all of your current options. We recommend that you obtain current market quotations for our common stock before deciding whether to request that we exchange your options. (See Section 8) Q.9. WHEN WILL THE NEW OPTIONS VEST? The new options will have the same vesting schedule as the old options which are accepted in the offer and cancelled. This means that the percentage of new options to be vested and immediately exercisable on the date of grant will equal: - the percentage of the options tendered for exchange and accepted which were already vested in accordance with their original terms, plus - the percentage of options which would have vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted. For example: - If you tender an option for 100 shares and the entire option has already vested, then your new option will be for 100 vested shares. - If you tender an option for 100 shares, of which 60 shares are already vested, another 20 shares will vest on March 15, 2003 and another 20 shares will vest on March 15, 2004, then your new option will be for 100 shares, with 60 vested shares and 40 unvested shares. The unvested 5 portion of your new option will vest on the same schedule your tendered options would have vested. (See Section 1) Q.10. WILL I HAVE TO WAIT LONGER TO PURCHASE COMMON STOCK UNDER MY NEW OPTIONS THAN I WOULD UNDER THE OPTIONS I SURRENDER? Yes, to the extent that your surrendered options were vested before the grant date of the new options. If you surrender options that are vested, you could have exercised them at any time in accordance with their terms if you had not surrendered them. You will not be able to exercise your new vested options until, at the earliest, the new grant date. Q.11. WHEN WILL THE NEW OPTIONS EXPIRE? The new options will expire according to the term of the original option surrendered in exchange for the new option. (See Section 8) Q.12. IF I ELECT TO EXCHANGE OPTIONS, DO I HAVE TO EXCHANGE ALL OF MY ELIGIBLE OPTIONS OR CAN I JUST EXCHANGE SOME OF THEM? If you elect to exchange an option grant, you do not need to exchange all of your eligible option grants. For example, if you have three option grants at different exercise prices, $50.00, $24.00 and $12.00, and you elect to surrender options in this offer, you can exchange the $50.00 option grant and not exchange the $24.00 option grant (or vice versa). You must exchange all options subject to the option grant that you are surrendering for exchange. You will not be able to exchange the $12.00 option grant for a new option because it has an exercise price of less than $18.00 per share and, therefore, is not an eligible option. (See Section 3) In addition, because of accounting rules, if you decide to exchange any of your eligible options, then you must surrender all of the options that you received on or after December 17, 2001 and prior to the commencement date of this offering that have a lower exercise price than the highest exercise price of the options you elect to surrender for exchange. Q.13. CAN I CHANGE MY ELECTION REGARDING OPTIONS I SURRENDER? Yes, you may change your election regarding options at any time BEFORE the offer expires. If we extend the offer beyond that time, you may change your election before the offer, as extended, expires. To change your election you may fax Melissa Klinkhamer at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752 until the expiration of the offer. In order to change your election, you must deliver to Melissa Klinkhamer a new election form which is clearly dated after your original election form. If you change your election in order to request that we participate in the offer, you must include on the new election form the information regarding the eligible options you wish to participate in exchange. Once we receive a new election form submitted by you, your previously submitted election form will be disregarded. You may also completely withdraw from participation in the offer by delivering a notice of withdrawal to Melissa Klinkhamer at any time before the offer expires. (See Section 4) Q.14. WILL I BE REQUIRED TO GIVE UP ALL MY RIGHTS TO THE SURRENDERED OPTIONS? Yes. Once we have accepted options surrendered by you, those options will be cancelled and you will no longer have any rights under those options. Although we reserve the right to accept or reject surrendered options, in whole or in part, we expect that we will accept for exchange all eligible options which you properly surrender to us prior to the expiration of this offer and which you have not withdrawn. (See Section 9) 6 Q.15. IF I SURRENDER OPTIONS IN THIS OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION GRANTS BEFORE I RECEIVE MY NEW OPTIONS? No. If we accept options you surrender in this offer, you may not receive any other option grants during the six month and one day period from the date the offer expires to the date we grant your new options. This is necessary to avoid incurring any compensation expense against our earnings because of accounting rules that could apply to any interim option grants as a result of this offer. (See Section 9) Q.16. WHAT IF SEPRACOR ENTERS INTO A MERGER OR OTHER SIMILAR TRANSACTION IN WHICH THERE IS A CHANGE IN CONTROL OF SEPRACOR PRIOR TO THE GRANT OF NEW OPTIONS? While we are not currently negotiating any transactions which could reasonably be expected to lead to our acquisition, our Board of Directors has a duty to consider alternatives for maximizing stockholder value. We cannot ignore the possibility that a transaction could be proposed that our stockholders or our Board of Directors believe is in the best interests of Sepracor and our stockholders. We reserve the right to terminate the offer prior to its expiration upon the occurrence of certain events, including if a tender or exchange offer with respect to some or all of our common stock or a merger acquisition proposal for us is proposed, announced or made by another person or entity or is publicly disclosed. "It is possible that, prior to the grant of new options, we could enter into an agreement for a merger or other similar transaction that could result in a material change in our business or management. We expect that we will negotiate with such acquiring or surviving company to honor our promise to grant stock options. If we are not successful in these negotiations, you will not receive stock options nor will you receive any other consideration in exchange for your surrendered options." You should also note that depending on the structure or the type of the transaction, if you surrender options you might be deprived of any future price appreciation in the shares subject to the new options and you might receive an option to purchase a security other than our common stock. Q.17. WHAT HAPPENS IF THE STOCK PRICE INCREASES AFTER THE DATE MY SURRENDERED OPTIONS ARE CANCELLED? The exercise price of any new options granted by us to you in return for your surrendered options will be the fair market value of a share of our common stock on the date of grant, as determined by the closing price reported by The Nasdaq National Market on the date of grant. You will not benefit from any increase in our common stock price before the grant date of the new options. Before the date we grant the new options, our shares could increase or decrease in value, and the exercise price of the new options could be higher or lower than the exercise price of your surrendered options. You would not enjoy the benefit of any appreciation in the fair market value of our shares prior to the grant date of the new options. For example, if you surrender options with a $30.00 exercise price, and our common stock appreciates to $35.00 by the time the new option grants are made, your new option will have a higher exercise price than your surrendered option. Q.18. WILL I HAVE TO PAY U.S. FEDERAL INCOME TAXES IF I EXCHANGE MY OPTIONS IN THIS OFFER? If you request that we exchange your current options for new options, then we believe you will not be required under current U.S. tax law to recognize income for federal income tax purposes at the time of the exchange. Further, at the date of grant of the new options, we believe you will not be required under current U.S. tax law to recognize income for federal income tax purposes. However, if you are granted incentive stock options, the holding periods for favorable tax treatment will begin on the day of the grant of the new options regardless of the time you have held any incentive stock options tendered in the offer. State and local tax consequences may be different. OPTIONHOLDERS SUBJECT TO THE TAX LAWS OF OTHER COUNTRIES AND JURISDICTIONS MAY BE SUBJECT TO DIFFERENT TAX CONSEQUENCES IF THEY EXCHANGE THEIR 7 OPTIONS IN THE OFFER. We recommend that you consult with your own tax advisor to determine the tax consequences of tendering options in the offer. (See Section 13) Q.19. WHAT ARE THE TAX IMPLICATIONS IF I LIVE OUTSIDE OF THE U.S.? All Sepracor optionholders are subject to the applicable tax laws of their own countries and jurisdictions. OPTIONHOLDERS SUBJECT TO THE TAX LAWS OF COUNTRIES AND JURISDICTIONS OTHER THAN THE UNITED STATES MAY HAVE DIFFERENT TAX CONSEQUENCES THAN THOSE DESCRIBED ABOVE IF THEY EXCHANGE THEIR OPTIONS IN THE OFFER. Again, we strongly suggest that you consult with your tax advisor to determine how this offer would impact you. (See Section 13) Q.20. IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE INCENTIVE STOCK OPTIONS? Except as explained below, all new options that are issued upon surrender of cancelled incentive stock options originally issued under the 2000 plan are intended to be incentive stock options. One of the requirements to qualify as an incentive stock option is a limit on the amount of all incentive stock options received by you from us that can first become exercisable in any one calendar year. In particular, no more than $100,000 of incentive stock options can first become exercisable in any one calendar year. The $100,000 amount is determined on the date of grant and is based on the fair market value of the common stock on the date of grant (and includes all options first exercisable during the year in question whether or not the options are part of the same grant). Therefore, it is possible that a portion of your new incentive stock options will no longer satisfy the $100,000 limit. If a portion of your new options exceeds the $100,000 limit, then that portion will be deemed to be a nonqualified stock option. Please note that all new options issued under our 2002 plan upon surrender of cancelled incentive stock options originally issued under our 1991 plan will be nonqualified stock options. We strongly suggest that you consult with your tax advisor to evaluate the tax implications of exchanging incentive stock options for nonqualified stock options. (See Section 13) Q.21. WHAT HAPPENS IF I ELECT NOT TO SURRENDER ANY OPTIONS PURSUANT TO THIS OFFER? Options that you choose not to surrender for exchange or that we do not accept for exchange remain outstanding until they expire by their terms. These options will retain their current exercise price and current vesting schedule. Please note that through these materials, we are offering you the opportunity to ask us to exchange your options on the terms described in these materials, and that we have the right to reject any such request that you may make to us. We have reserved this right in an effort to protect the tax status of incentive stock options in view of the following IRS ruling. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of any incentive stock option that could be exchanged (whether or not it was exchanged). We believe that by reserving a right to reject any options surrendered for exchange we have structured this offer so as to mitigate the risk that the IRS would make a similar assertion with respect to this offer. However, we do not know if the IRS will assert the position that our solicitation of requests constitutes a "modification" of incentive stock options that can be, but are not, surrendered. A successful assertion by the IRS of this position could extend the options' requisite holding periods to qualify for favorable tax treatment and could also convert some incentive stock options into nonqualified stock options. (See Section 13) 8 Q.22. WHEN DOES THIS OFFER EXPIRE? CAN THIS OFFER BE EXTENDED, AND IF SO, HOW WILL I KNOW IF IT IS EXTENDED? This offer will expire on July 17, 2002, at 5:00 p.m., Eastern Daylight Time, unless we extend it. Although we do not currently intend to do so, we may, in our discretion, extend this offer at any time. If we extend this offer, we will notify you of the extension. (See Section 1) Q.23. WHAT DO I NEED TO DO? To elect to surrender your options for exchange, you need to properly complete the election form and deliver it to Melissa Klinkhamer by fax at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752 before 5:00 p.m. Eastern Daylight Time, on July 17, 2002. If we extend this offer beyond July 17, 2002, then you must deliver a properly completed election form and the other required documentation before the extended expiration date. Although we may reject all requests to exchange eligible options at our discretion, we expect to accept for exchange all eligible options which you request us to exchange promptly after this offer expires. IF YOU DO NOT PROPERLY COMPLETE AND DELIVER THE ELECTION FORM BEFORE THIS OFFER EXPIRES, IT WILL HAVE THE SAME EFFECT AS IF YOU REJECTED THIS OFFER. Q.24. WHAT DO WE RECOMMEND YOU DO IN RESPONSE TO THIS OFFER? Although our board of directors has approved this offer, it recognizes that your decision is an individual one that should be based on a variety of factors. As a result, you should consult with your personal legal and financial advisors before deciding whether to surrender your existing options. We are not making a recommendation as to whether or not you should ask us to exchange options pursuant to this offer. Q.25. WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THIS OFFER? If you have any questions regarding the offer please email exchangeprogram@sepracor.com. 9 THE OFFER 1. NUMBER OF OPTIONS; EXPIRATION DATE. We are offering you the opportunity to ask us to exchange eligible stock options held by you for new options. Eligible options are all outstanding stock options that have an exercise price of $18.00 or more per share under our 1991 plan, 1997 plan and 2000 plan, collectively, which we refer to as the "option plans." Except for members of our board of directors and for our officers, all of our full-time and part-time employees and all full-time and part-time employees of our wholly-owned subsidiaries are eligible to participate in this offer. YOU WILL ONLY RECEIVE GRANTS OF NEW OPTIONS IF YOU ARE EMPLOYED BY US OR ONE OF OUR WHOLLY-OWNED SUBSIDIARIES ON BOTH THE DATE THAT THIS OFFER EXPIRES AND THE DATE THAT THE NEW OPTIONS ARE GRANTED. THE NEW OPTIONS WILL BE GRANTED ON THE FIRST BUSINESS DAY THAT IS AT LEAST SIX MONTHS PLUS ONE DAY AFTER THE EXPIRATION OF THIS OFFER. FOR PURPOSES OF THIS OFFER, A WHOLLY-OWNED SUBSIDIARY IS A CORPORATION OF WHICH WE OWN ONE HUNDRED PERCENT (100%) OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK. YOU MAY NOT RECEIVE NEW OPTIONS IF SEPRACOR ENTERS INTO A MERGER OR OTHER SIMILAR TRANSACTION IN WHICH THERE IS A CHANGE IN CONTROL OF SEPRACOR PRIOR TO THE GRANT OF NEW OPTIONS. IF YOU WERE GRANTED OPTIONS ON OR AFTER DECEMBER 17, 2001 AND YOU REQUEST THAT WE EXCHANGE ANY ELIGIBLE OPTIONS, YOU WILL BE REQUIRED TO REQUEST THAT WE EXCHANGE ALL OPTIONS RECEIVED ON OR AFTER DECEMBER 17, 2001 THAT HAVE A LOWER EXERCISE PRICE THAN THE OPTION WITH THE HIGHEST EXERCISE PRICE YOU REQUEST THAT WE EXCHANGE. If you request that we exchange any of your eligible options, you must request that we exchange all unexercised options from an eligible option grant. Our offer is subject to the terms and conditions described in these materials. We will only consider exchanging options that are properly tendered and not withdrawn in accordance with Section 3. For every one share for which your surrendered eligible option is exercisable, you will receive an option to purchase one share. The new options will have the same vesting schedule, including having vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted, as the old options which we accept for exchange and cancel. The exact number of eligible option shares that you have now can be found by logging on to www.aststockplan.com or benefitaccess.com. Additionally, your most recent statement of stock option grants will be mailed to your home around June 17, 2002. We will issue all new options surrendered from our 1991 plan under our 2002 plan, all options surrendered from our 1997 plan under our 1997 plan and all options surrendered from our 2000 plan under our 2000 plan. In addition, we will enter into a new incentive stock option agreement and/or nonqualified stock option agreement with you, depending on the options you surrender and certain tax requirements. The term "expiration date" means 5:00 p.m., Eastern Daylight Time, on July 17, 2002, unless and until we extend the period of time during which this offer will remain open. If we extend the period of time during which this offer remains open, the term "expiration date" will refer to the latest time and date at which this offer expires. We will notify you if we decide to take any of the following actions: - increase or decrease what we will give you in exchange for your options; or - increase or decrease the option exercise price which serves as the threshold for options eligible to be exchanged in this offer. 10 If this offer is scheduled to expire within ten business days from the date we notify you of such an increase or decrease, we will also extend this offer for a period of ten business days after the date that we notify optionholders of such an increase. A "business day" means any day other than a Saturday, Sunday or United States federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Daylight Time. 2. PURPOSE OF THIS OFFER. We are making this offer for compensatory purposes and to create a performance-oriented environment for our employees. Many of our outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our common stock as quoted by The Nasdaq National Market. By making this offer we intend to enhance stockholder value by creating better performance incentives for, and thus increasing retention of, our employees. On June 3, 2002 our board of directors adopted a shareholder rights plan. Under the rights plan, each holder of our common stock as of the close of business on June 21, 2002, will receive one right for each share of common stock held. The rights will automatically trade with the underlying common stock and will not be exercisable. The rights will only become exercisable if a person acquires beneficial ownership of, or commences a tender offer for, 20 percent or more of our common stock, unless in either case, the transaction was approved by our board of directors. A summary of the rights plan is included in our Form 8-K filed with the SEC on June 4, 2002. Except as otherwise described in these materials or in our filings with the Securities and Exchange Commission, we presently have no plans further or proposals that relate to or would result in: - an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving us or any of our material subsidiaries; - any purchase, sale or transfer of a material amount of our assets or any subsidiary's assets; - any material change in our present dividend rate or policy, or our indebtedness or capitalization; - any change in our present board of directors or senior management, including a change in the number or term of directors or to fill any existing board vacancies or change any executive officer's material terms of employment; - any other material change in our corporate structure or business; - our common stock not being authorized for quotation on The Nasdaq National Market; - our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; - the suspension of our obligation to file reports pursuant to Section 15(d) of the Exchange Act; - the acquisition by any person of any of our securities or the disposition by any person of any of our securities, other than in connection with our stock option plans; or - any change to our certificate of incorporation or bylaws. NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD REQUEST THAT WE EXCHANGE YOUR OPTIONS, NOR HAVE WE AUTHORIZED ANYONE TO MAKE SUCH RECOMMENDATION. YOU ARE URGED TO EVALUATE CAREFULLY ALL OF THE INFORMATION IN THIS OFFER TO EXCHANGE AND THE RELATED LETTER OF TRANSMITTAL AND TO CONSULT YOUR OWN LEGAL, INVESTMENT AND TAX ADVISORS. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO REQUEST THAT WE EXCHANGE YOUR OPTIONS. 11 3. PROCEDURES FOR SURRENDERING OPTIONS. PROPER SURRENDER OF OPTIONS. To request that we exchange some or all of your eligible options for exchange, you must, in accordance with the terms of the election form, properly complete the election form and deliver the election form, along with any other required documents, to Melissa Klinkhamer by facsimile at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752. We must receive all of the required documents before 5:00 p.m., Eastern Daylight Time, on the expiration date. The expiration date is July 17, 2002, unless we extend the period of time during which this offer will remain open. We currently have no intention of extending the deadline, and in any case we cannot extend the deadline for any one person or group of people. However, in the event that we do extend this offer beyond July 17, 2002 then you must deliver a properly completed election form and other required documentation before the extended expiration date. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS AND ANY NOTICES TO CHANGE YOUR ELECTION FROM "ACCEPT" TO "REJECT" OR "REJECT" TO "ACCEPT" AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION AND RISK. YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. DETERMINATION OF VALIDITY; REJECTION OF OPTIONS; WAIVER OF DEFECTS; NO OBLIGATION TO GIVE NOTICE OF DEFECTS. We will determine, in our discretion, all questions as to the number of shares subject to eligible options and the validity, form, eligibility, including time of receipt, and acceptance of any surrender of options. Our determination of these matters will be final and binding on all parties. Furthermore, subject to our compliance with Rule 13e-4 under the Exchange Act, we reserve the right to reject any or all surrenders of options in our discretion. We further reserve the right to waive any of the conditions of this offer or any defect or irregularity in any surrender of any particular options or for any particular optionholder. This is a one-time offer, and we will strictly enforce this offer period, subject only to an extension which we may grant in our sole discretion. OUR ACCEPTANCE CONSTITUTES AN AGREEMENT. By requesting that we accept your options for exchange under this offer, you accept the terms and conditions of this offer. OUR ACCEPTANCE FOR EXCHANGE OF YOUR SURRENDERED OPTIONS THROUGH THIS OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS OFFER. THE PROMISE TO GRANT STOCK OPTIONS WHICH WE WILL GIVE YOU REFLECTS THIS COMMITMENT. Subject to our rights to extend, terminate and amend this offer, and subject to our right to reject all requests for exchange at our discretion, we expect that we will accept for exchange all eligible options which you properly surrender to us prior to the expiration of this offer and which you have not withdrawn. You may not receive new options if Sepracor enters into a merger or other similar transaction in which there is a change in control of Sepracor prior to the grant of new options. 4. CHANGE IN ELECTION. You may only change your election to request that we exchange your options by following the procedures described in this section. You may not request that we exchange partial option grants. If you request that we exchange your options and you later want to change your request, you must do so with respect to all eligible options of a particular grant. Similarly, if you elect not to request that we exchange your options and you later want to change your request, you must do so with respect to all eligible options of a particular grant. To change your election, you must deliver a new election form to Melissa Klinkhamer by facsimile at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752. The change in election form must be clearly dated after your original election form. If you are changing your election in order to accept the offer, the new election form must include the information regarding the eligible options you wish to surrender for exchange. Once we receive a new election form submitted by you, your previously submitted election form will be disregarded. 12 To withdraw a full option grant you previously requested that we exchange, you must deliver a notice of withdrawal to Melissa Klinkhamer as described above. The notice of withdrawal must be clearly dated after your original election form and any subsequent new election forms. You may change your election or withdraw your tendered options at any time before 5:00 p.m., Eastern Daylight Time, on the expiration date, July 17, 2002. If we extend this offer beyond that time, you may change your election or withdraw your tendered options at any time until the extended expiration of this offer. In addition, unless we accept your options for exchange prior to August 14, 2002, the date that is 40 business days from the commencement of the offer, you may withdraw your tendered options at any time after the expiration date. Neither we nor any other person is obligated to give notice of any defects or irregularities in any new election form or notice of withdrawal, and no one will be liable for failing to give notice of any defects or irregularities. We will determine, in our discretion, all questions as to the validity and form, including time of receipt, of new election forms and notices of withdrawal. Our determinations of these matters will be final and binding. 5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND GRANT OF NEW OPTIONS. Subject to our rights to extend, terminate and amend this offer, and subject to our right to reject all requests for exchange at our discretion, we expect that we will accept promptly after the expiration of this offer all eligible options which you properly surrender to us prior to the expiration date which you have not withdrawn and we will notify you of our acceptance on the date this offer expires. If we accept the options that you surrender for exchange in this offer, then you will not be granted any additional options during the six month and one day period from the date the offer expires to the date when we grant your new options. This is necessary to avoid incurring any compensation expense against our earnings because of accounting rules that could apply to interim option grants as a result of this offer. For purposes of this offer, we will be deemed to have accepted for exchange options that are validly tendered and not properly withdrawn when we give oral or written notice to the optionholders of our acceptance for exchange of such options, which may be by company-wide (including our wholly-owned subsidiaries) mail or email or by issuance of a press release. Subject to our rights to extend, delay, terminate or amend this offer, we currently expect that we will accept promptly following the expiration date all properly tendered options that are not validly withdrawn. As soon as reasonably practicable after we accept options surrendered for exchange, we will send each tendering optionholder a notice indicating the number of shares subject to the options that have been accepted for exchange and which have been cancelled, the corresponding number of shares that will be subject to the new options and the expected grant date of the new options. IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF SEPRACOR OR ONE OF OUR WHOLLY-OWNED SUBSIDIARIES ON THE DATE THE OFFER EXPIRES OR THE DATE WHEN WE GRANT THE NEW OPTIONS, THEN YOU WILL NOT RECEIVE ANY NEW OPTIONS OR ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR SURRENDERED OPTIONS. THIS MEANS THAT IF YOU DIE, BECOME DISABLED, TERMINATE YOUR EMPLOYMENT WITH OR WITHOUT GOOD REASON OR WE TERMINATE YOUR EMPLOYMENT WITH OUR WITHOUT CAUSE BEFORE THE DATE WHEN WE GRANT THE NEW OPTIONS, THEN YOU WILL NOT RECEIVE ANYTHING FOR THE OPTIONS THAT YOU SURRENDERED AND WE CANCELLED. YOU MAY NOT RECEIVE NEW OPTIONS IF SEPRACOR ENTERS INTO A MERGER OR OTHER SIMILAR TRANSACTION IN WHICH THERE IS A CHANGE IN CONTROL OF SEPRACOR PRIOR TO THE GRANT OF NEW OPTIONS. 6. CONDITIONS OF THIS OFFER. We will not be required to accept any options surrendered to us. We have reserved this right in an effort to protect the tax status of incentive stock options that are not surrendered, as further explained 13 in the Summary Term Sheet "Q.21--What happens if I elect not to surrender any options pursuant to this offer?" Additionally, we may terminate or amend this offer, or postpone our acceptance and cancellation of any options surrendered to us, in each case, subject to Rule 13e-4(f)(5) promulgated under the Exchange Act, if at any time prior to the expiration date, we determine that any of the following events has occurred, and, in our reasonable judgment, it is inadvisable for us to proceed with this offer: (a) any action or proceeding by any government agency, authority or tribunal or any other person, domestic or foreign, is threatened or pending before any court, authority, agency or tribunal that directly or indirectly challenges the making of this offer, the acquisition of some or all of the surrendered options, the issuance of new options, or otherwise relates to this offer or that, in our reasonable judgment, could materially and adversely affect our business, condition, financial or other, income, operations or prospects or materially impair the benefits we believe we will receive from this offer; (b) any action is threatened, pending or taken, or any approval is withheld, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (i) make it illegal for us to accept some or all of the surrendered options or to issue some or all of the new options or otherwise restrict or prohibit consummation of this offer or otherwise relate to this offer; (ii) delay or restrict our ability, or render us unable, to accept the surrendered options for exchange or to issue new options for some or all of the surrendered options; (iii) materially impair the benefits we believe we will receive from this offer; or (iv) materially and adversely affect our business, condition (financial or other), income, operations or prospects; (c) there is any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, whether or not mandatory; (d) there shall have occurred any change, development, clarification or position taken in generally accepted accounting principles which could or would require us to record a compensation expense against our earnings in connection with this offer for financial reporting purposes; (e) another person publicly makes or proposes a tender or exchange offer for some or all of our common stock, or an offer to merge with or acquire us, or we learn that: (i) any person, entity or "group", within the meaning of Section 13(d)(3) of the Exchange Act, has acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of our common stock, or any new group is formed that beneficially owns more than 5% of the outstanding shares of our common stock, other than any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC on or before the date of this offer; (ii) any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC on or before the date of this offer has acquired or proposed to acquire beneficial ownership of an additional 2% or more of the outstanding shares of our common stock; or 14 (iii) any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public announcement that it intends to acquire us or any of our assets or securities; or (f) any change or changes occurs in our business, condition (financial or other), assets, income, operations, prospects or stock ownership that in our reasonable judgment is or may be material to us. The conditions to this offer are for our benefit. We may assert them in our discretion prior to the expiration date and we may waive them at any time and from time to time prior to the expiration date, whether or not we waive any other condition to this offer. Our failure to exercise any of these rights is not a waiver of any of these rights, and the waiver of any of these rights with respect to particular facts and circumstances is not a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this section will be final and binding upon everyone. 7. PRICE RANGE OF COMMON STOCK. Our common stock is traded on The Nasdaq National Market under the symbol "SEPR". The following table shows, for the periods indicated, the high and low sales prices per share of our common stock.
HIGH LOW -------- -------- Fiscal Year Ended December 31, 2000 First Quarter............................................ $126.81 $45.06 Second Quarter........................................... $125.00 $57.75 Third Quarter............................................ $140.00 $90.50 Fourth Quarter........................................... $124.81 $61.50 Fiscal Year Ended December 31, 2001 First Quarter............................................ $ 81.88 $24.81 Second Quarter........................................... $ 46.20 $23.45 Third Quarter............................................ $ 46.28 $30.00 Fourth Quarter........................................... $ 60.05 $35.09 Fiscal Year Ending December 31, 2002 First Quarter............................................ $ 57.25 $17.15 Second Quarter (through June 14, 2002)................... $ 19.75 $ 9.18
As of June 14, 2002, the last reported sale price of our common stock as reported by The Nasdaq National Market was $10.14 per share. We recommend that you obtain current market quotations for our common stock before deciding whether to elect to surrender your eligible options. 8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS. CONSIDERATION. For every one share of common stock for which your surrendered option is exercisable, you will receive an option to purchase one share. The new options to be granted pursuant to this offer will have the same vesting schedule, including having vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted, as the old options which are accepted in this offer and cancelled. The exercise price of the new options will equal the closing price of a share of common stock as reported by The Nasdaq National Market on the date of grant, which will be six months plus one day after the expiration of this offer. 15 As of June 7, 2002, there were issued and outstanding options to purchase approximately 5,347,388 shares of our common stock that are eligible to participate in this offer. If all outstanding eligible options are exchanged, we will grant new options to purchase a total of approximately 5,348,238 shares of our common stock. Assuming all such options are issued, the common stock issuable upon exercise of the new options will equal approximately 6.4% of the total shares of our common stock outstanding as of June 7, 2002. We will issue the new options surrendered from our 1991 plan under our 2002 plan, all options surrendered from our 1997 plan under our 1997 plan and all options surrendered from our 2000 plan under our 2000 plan. 16 TERMS OF NEW OPTIONS. We will enter into a new option agreement with each optionholder who requests that we exchange his or her options in this offer and which we have elected to exchange. The terms and conditions of the new options may vary from the terms and conditions of the options surrendered for exchange. Because we will not grant new options until six months plus one day after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of the surrendered options. The issuance of new options under this offer will not create any contractual or other right of the recipients to receive any future grants of stock options or benefits in lieu of stock options. You may not receive options if Sepracor enters into a merger or other similar transaction in which there is a change in control of Sepracor prior to the grant of new options. The following descriptions of the 1997 plan, the 2000 plan, the 2002 plan and the form of the new option agreements are summaries and are not complete. Complete information about the option plan and the new options is included in the option plan and the form of the new option agreement to be entered into between you and us. The 1997 plan, the 2000 plan, the 2002 plan and the form of the new option agreements are on file with the SEC as exhibits to the Schedule TO which was filed in connection with this offer. Please contact Timothy Potter at (508) 357-7346 to request copies of the 1997 plan, the 2000 plan, the 2002 plan or the form of the new option agreements. We will provide copies promptly and at our expense. 1997 PLAN GENERAL. The maximum number of shares of common stock issuable in connection with options granted under the 1997 plan is 1,000,000 shares. No one person may receive options to purchase more than 500,000 shares under the 1997 plan in any one fiscal year. The 1997 plan only permits us to grant nonqualified options, which are options that do not qualify as incentive stock options. New options that are issued upon surrender of nonqualified stock options under our 1997 plan will be issued as nonqualified stock options under our 1997 plan. ADMINISTRATION. The 1997 plan is administered by our board of directors. The board has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the 1997 plan and to interpret the provisions of the 1997 plan. The board of directors may delegate authority under the 1997 plan to executive officers under certain conditions and to one or more committees of the board. The board has authorized the compensation committee to administer certain aspects of the 1997 plan, including the granting of options to employees. TERM. The term of each option granted under the plan is fixed by the board of directors, Compensation Committee or any other committee of the board to which the board delegates authority, as the case may be, at the time of grant, but may not exceed ten years. The new options to be granted in connection with the exchange will have the same term as the original option surrendered in exchange for the new option. TERMINATION. In the event you are granted a new option under the 1997 plan and your employment with us is terminated, your new option will be exercisable, to the extent of the number of shares then vested, (a) within one year of termination, if the termination is the result of your death or disability, or (b) within 30 days of termination for any other reason except your termination for cause. However, in no event will a new option be exercisable after its expiration date. The new option agreements will provide that an employee's options will terminate immediately if his or her employment terminates for "cause." "Cause" means willful misconduct by the optionee or willful failure by the optionee to perform his or her responsibilities for us (including, without limitation, breach by the optionee of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the optionee and us), as determined by us, which determination will 17 be conclusive. The optionee is considered to have been discharged for "cause" if we determine, within 30 days after the optionee's resignation, that discharge for cause was warranted. EXERCISE PRICE. The new options will have an exercise price equal to the closing price of our common stock as reported by The Nasdaq National Market on the date of grant of the new option. PAYMENT OF EXERCISE PRICE. Common stock purchased upon the exercise of a new option granted under the plan can be paid for as follows: - in cash or by check, payable to the order of Sepracor; - (i) by delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to Sepracor sufficient funds to pay the exercise price, or delivery by the optionee to Sepracor of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to Sepracor cash or a check sufficient to pay the exercise price, or (ii) by delivery of shares of common stock owned by the optionee valued at their fair market value as determined by the board of directors in good faith, which common stock was owned by the optionee at least six months prior to such delivery; - (i) by delivery of a promissory note of the optionee to Sepracor on terms determined by the board of directors, or (ii) by payment of such other lawful consideration as the board of directors may determine; or - any combination of the above permitted forms of payment. VESTING AND EXERCISE. The board of directors, compensation committee or any other committee of the board to which the board delegates authority, as the case may be, has the authority to determine the time or times at which options granted under the plan may be exercised and may also accelerate the exercisability of options. The new options will have the same vesting schedule, including having vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted, as the old options accepted in the offer and cancelled. ADJUSTMENTS UPON CERTAIN EVENTS. The plan contains provisions for the treatment of options in the event of a merger or consolidation or our complete liquidation. Upon a "Change of Control Event" all outstanding options immediately vest. As defined in the 1997 plan, a "Change of Control Events" means: (a) an individual, entity or group becomes the beneficial owner of 50% or more of our outstanding voting securities; (b) we are merged or consolidated with or into another corporation where, upon effectiveness of such merger or consolidation, our stockholders immediately prior to such merger or consolidation hold 50% or less of the voting securities of the corporation surviving such merger or consolidation; (c) any sale of all, or substantially all, of our assets; or (d) our complete liquidation. If the outstanding shares of common stock are changed by reason of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spinoff or other similar change in capitalization or event, or any distribution to holders of common stock other than a normal cash dividend, the board of directors will appropriately adjust the relevant terms and provisions of outstanding options to the extent it shall determine, in good faith, that such adjustment is necessary and appropriate. TAX CONSEQUENCES. You should refer to Section 13 below for a discussion of the material U.S. federal income tax consequences of the new options and the eligible options, as well as the consequences of this offer. We recommend that you consult with your own tax advisor to determine the specific tax consequences of this offer to you. 18 REGISTRATION OF OPTION SHARES. All shares of common stock issuable upon exercise of options under the 1997 plan have been, or prior issuance will be, registered under the Securities Act of 1933 on a registration statement on Form S-8 filed with the SEC. Unless you are considered an "affiliate" of Sepracor, you will be able to sell your option shares free of any transfer restrictions under applicable securities laws. 2000 PLAN GENERAL. The maximum number of shares of common stock issuable in connection with options granted under the 2000 plan is 4,000,000 shares. No one person may receive options to purchase more than 500,000 shares under the 2000 plan in any one fiscal year. The 2000 plan permits us to grant options intended to qualify as incentive stock options under the Internal Revenue Code and nonqualified options, which are options that do not qualify as incentive stock options. Subject to the limitations of the Internal Revenue Code, the new options that are issued upon surrender of incentive stock options are intended to qualify as incentive stock options. New options that are issued upon surrender of nonqualified stock options will be nonqualified stock options. ADMINISTRATION. The 2000 plan is administered by our 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. 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, 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 our 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, (iv) the number of shares of common stock subject to any restricted stock or other stock-based awards and (v) the terms and conditions of such awards, including conditions for repurchase, issue price and repurchase price. TERM. The term of each option granted under the plan is fixed by the board of directors, compensation committee or any other committee of the board to which the board delegates authority, as the case may be, at the time of grant, but may not exceed ten years. The new options to be granted in connection with the exchange will have the same term as the original option surrendered in exchange for the new option. TERMINATION. In the event you are granted a new option under the 2000 plan and your employment with us is terminated, your new option will be exercisable, to the extent of the number of shares then vested, (a) within one year of termination, if the termination is the result of your death or disability, or (b) within 30 days of termination for any other reason except your termination for cause. However, in no event will a new option be exercisable after its expiration date. The new option agreements will provide that an employee's options will terminate immediately if his or her employment terminates for "cause." "Cause" means willful misconduct by the optionee or willful failure by the optionee to perform his or her responsibilities for us (including, without limitation, breach by the optionee of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the optionee and us), as determined by us, which determination will be conclusive. The optionee is considered to have been discharged for "cause" if we determine, within 30 days after the optionee's resignation, that discharge for cause was warranted. EXERCISE PRICE. The new options will have an exercise price equal to the closing price of our common stock as reported by The Nasdaq National Market on the date of grant of the new option. 19 PAYMENT OF EXERCISE PRICE. Common stock purchased upon the exercise of a new option granted under the plan can be paid for as follows: - in cash or by check, payable to the order of Sepracor; - (i) by delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to Sepracor sufficient funds to pay the exercise price, or delivery by the optionee to Sepracor of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to Sepracor cash or a check sufficient to pay the exercise price, or (ii) by delivery of shares of common stock owned by the optionee valued at their fair market value as determined by the board of directors in good faith, which common stock was owned by the optionee at least six months prior to such delivery; - (i) by delivery of a promissory note of the optionee to Sepracor on terms determined by the board of directors, or (ii) by payment of such other lawful consideration as the board of directors may determine; or - any combination of the above permitted forms of payment. VESTING AND EXERCISE. The board of directors, compensation committee or any other committee of the board to which the board delegates authority, as the case may be, has the authority to determine the time or times at which options granted under the plan may be exercised and may also accelerate the exercisability of options. The new options will have the same vesting schedule, including having vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted, as the old options accepted in the offer and cancelled. ADJUSTMENTS UPON CERTAIN EVENTS. The plan contains provisions for the treatment of options in the event of a merger or consolidation or our complete liquidation. In the event of a "Change of Control" all outstanding options immediately vest. As defined in the 2000 plan, a "Change in Control" means: (a) any merger or consolidation which results in our voting securities 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 30% of the combined voting power of our voting securities or of such surviving or acquiring entity outstanding immediately after such merger or consolidation; (b) any sale or all, or substantially all of our assets; or (c) our complete liquidation. If the outstanding shares of common stock are changed by reason of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of common stock other than a normal cash dividend, the board of directors will appropriately adjust the relevant terms and provisions of outstanding options to the extent it shall determine, in good faith, that such adjustment is necessary and appropriate. TAX CONSEQUENCES. You should refer to Section 13 below for a discussion of the material U.S. federal income tax consequences of the new options and the eligible options, as well as the consequences of this offer. We recommend that you consult with your own tax advisor to determine the specific tax consequences of this offer to you. REGISTRATION OF OPTION SHARES. All shares of common stock issuable upon exercise of options under the 2000 plan have been, or prior to issuance will be, registered under the Securities Act of 1933 on a registration statement on Form S-8 filed with the SEC. Unless you are considered an "affiliate" of Sepracor, you will be able to sell your option shares free of any transfer restrictions under applicable securities laws. 20 2002 PLAN GENERAL. The maximum number of shares of common stock issuable in connection with options granted under the 2002 plan is 500,000 shares. The 2002 plan only permits us to grant nonqualified options, which are options that do not qualify as incentive stock options. New options that are issued upon surrender of either incentive stock options or nonqualified stock options under our 1991 plan will be nonqualified stock options under our 2002 plan. ADMINISTRATION. The 2002 plan is administered by our board of directors. The board has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the 2002 plan and to interpret the provisions of the 2002 plan. The board of directors may delegate authority under the 2002 plan to one or more committees of the board. The board has authorized the compensation committee to administer certain aspects of the 2002 plan, including the granting of options to employees. TERM. The term of each option granted under the plan is fixed by the board of directors, compensation committee or any other committee of the board to which the board delegates authority, as the case may be, at the time of grant, but may not exceed ten years. The new options to be granted in connection with the exchange will have the same term as the original option surrendered in exchange for the new option. TERMINATION. In the event you are granted an option under the 2002 plan and your employment with us is terminated, your new option will be exercisable, to the extent of the number of shares then vested, (a) within one year of termination, if the termination is the result of your death or disability, or (b) within 30 days of termination for any other reason except your termination for cause. However, in no event will a new option be exercisable after its expiration date. The new option agreements will provide that an employee's options will terminate immediately if his or her employment terminates for "cause." "Cause" means willful misconduct by the optionee or willful failure by the optionee to perform his or her responsibilities for us (including, without limitation, breach by the optionee of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the optionee and us), as determined by us, which determination will be conclusive. The optionee is considered to have been discharged for "cause" if we determine, within 30 days after the optionee's resignation, that discharge for cause was warranted. PAYMENT OF EXERCISE PRICE. Common stock purchased upon the exercise of a new option granted under the plan shall be paid for as follows: - in cash or by check, payable to the order of Sepracor; - (i) by delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to Sepracor sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the optionee to Sepracor of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to Sepracor cash or a check sufficient to pay the exercise price and any required tax withholding; - by delivery of shares of common stock owned by the optionee valued at their fair market value as determined by the board or directors in good faith, provided such method of payment is then permitted under applicable law and such common stock, if acquired directly from Sepracor was owned by the optionee at least six months prior to such delivery; - (i) by delivery of a promissory note of the optionee to Sepracor on terms determined by the board of directors, or (ii) by payment of such other lawful consideration as the board of directors may determine; or - by any combination of the above permitted forms of payment. 21 VESTING AND EXERCISE. The board of directors, compensation committee or any other committee of the board to which the board delegates authority, as the case may be, has the authority to determine the time or times at which options granted under the plan may be exercised and may also accelerate the exercisability of options. The new options will have the same vesting schedule, including having vested in accordance with their original terms during the period between the date this offer expires and the date when the new options are granted, as the old options accepted in the offer and cancelled. ADJUSTMENTS UPON CERTAIN EVENTS. The plan contains provisions for the treatment of options in the event of a merger or consolidation or our complete liquidation. In the event of a "Change of Control" all outstanding options immediately vest. As defined in the 2002 plan, a "Change in Control" means: (a) an individual, entity or group becomes the beneficial owner of 30% or more of either the then-outstanding shares of our common stock or the combined voting power of the then-outstanding of our securities entitled to vote generally in an election of our directors; (b) such time as our continuing directors do not constitute a majority of our board of directors or, if applicable, of the board of directors of our successor corporation; or (c) under certain conditions, the consummation of a merger, consolidation, recapitalization or statutory share exchange involving us or a sale or disposition of all or substantially all of our assets. If the outstanding shares of common stock are changed by reason of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of common stock other than a normal cash dividend, the board of directors will appropriately adjust the relevant terms and provisions of outstanding options to the extent it shall determine, in good faith, that such adjustment is necessary and appropriate. TAX CONSEQUENCES. You should refer to Section 13 below for a discussion of the material U.S. federal income tax consequences of the new options and the eligible options, as well as the consequences of this offer. We recommend that you consult with your own tax advisor to determine the specific tax consequences of this offer to you. REGISTRATION OF OPTION SHARES. All shares of common stock issuable upon exercise of options under the 2002 plan have been, or prior to issuance will be, registered under the Securities Act of 1933 on a registration statement on Form S-8 filed with the SEC. Unless you are considered an "affiliate" of Sepracor, you will be able to sell your option shares free of any transfer restrictions under applicable securities laws. 9. INFORMATION ABOUT SEPRACOR; SUMMARY FINANCIAL INFORMATION; RISK FACTORS Our principal corporate offices are located at 84 Waterford Drive, Marlborough, Massachusetts 01752. Our common stock is listed by The Nasdaq National Market under the symbol "SEPR". See "Additional Information" in Section 16 for instructions on how you can obtain copies of our SEC filings, including filings that contain our financial statements. FINANCIAL INFORMATION: The information set forth in Exhibit 13 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and the information set forth on pages 3 through 9 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 are incorporated herein by reference. SUMMARY FINANCIAL INFORMATION The following summary historical consolidated financial data should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2001 and our unaudited consolidated financial statements for the interim period ended March 31, 2002 incorporated by 22 reference in this document. The consolidated statements of operations data for the years ended December 31, 2001 and 2000, and the consolidated balance sheet data as of December 31, 2001 and 2000, have been derived from our audited consolidated financial statements incorporated by reference in this document. The consolidated statements of operations data for the three months ended March 31, 2002 and 2001, and the consolidated balance sheet data as of March 31, 2002, are derived from unaudited condensed consolidated financial statements incorporated by reference in this document. 23 Results for the three months ended March 31, 2002, are not necessarily indicative of the expected results for the full year.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------- --------------------- 2001 2000 2002 2001 ----------- ----------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues: Product sales........................................ $ 125,248 $ 57,160 $ 46,777 $ 28,449 Royalties and other.................................. 25,663 2,573 10,071 5,491 Collaborative research and development............... -- 3,573 -- -- License fees and other............................... 1,184 21,939 -- -- ========= ========= ========= ========= Total revenues......................................... 152,095 85,245 56,848 33,940 Costs and expenses: Cost of revenue...................................... 15,904 14,334 5,807 5,271 Research and development............................. 231,278 170,759 61,521 49,507 Selling, marketing, distribution and general and administrative and patent costs.................... 131,386 98,398 49,504 25,953 ========= ========= ========= ========= Total costs and expenses............................... 378,568 283,491 116,832 80,731 ========= ========= ========= ========= Loss from operations................................... (226,473) (198,246) (59,984) (46,791) Other income (expense): Interest income...................................... 25,669 41,919 5,134 9,124 Interest expense..................................... (47,793) (47,760) (18,215) (11,723) Debt conversion expense(1)........................... -- -- (40,956) -- Equity in investee gains (losses)(2)................. (1,601) 3,501 (612) -- Other(3)............................................. 997 (7,051) (172) 235 Gain on sale of affiliate stock(4)................... 23,034 -- -- -- ========= ========= ========= ========= Net loss before minority interest...................... (226,167) (207,637) (114,805) (49,155) Minority interest in subsidiary........................ 2,152 3,620 -- 1,125 ========= ========= ========= ========= Net loss............................................... $(224,015) $(204,017) $(114,805) $ (48,030) Basic and diluted net loss per common share............ $ (2.89) $ (2.80) $ (1.45) $ (0.63) Shares used in computing basic and diluted net loss per common share: Basic and diluted.................................... 77,534 72,757 79,295 76,473 ========= ========= ========= =========
DECEMBER 31, MARCH 31, ---------------------- ----------- 2001 2000 2002 --------- ---------- ----------- (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and short and long-term investments.................... $ 904,389 $ 634,479 $ 817,021 Total assets................................................ 1,093,531 750,958 1,006,749 Long-term debt.............................................. 1,260,817 853,922 1,163,780 Stockholders' equity (deficit).............................. $(313,702) $ (214,674) $ (293,381)
- -------------------------- (1) Represents non-cash inducement costs incurred from the exchange of convertible subordinated debt into shares of Sepracor common stock. 24 (2) Represents Sepracor's portion of BioSphere Medical Inc. losses for the three months ended March 31, 2002. Represents Sepracor's portion of BioSphere Medical, Inc. losses in 2001, Sepracor's portion of HemaSure Inc. losses and a gain of $5,000 resulting from the release of a HemaSure loan guarantee in 2000 as a result of HemaSure Inc.'s repayment in full of the loan. (3) Includes $7,497 in expenses relating to prepaid interest and fees for the conversion of 6.25% convertible subordinated debentures in 2000. (4) Represents Sepracor's gain on the sale of 2.6 million shares of BioSphere Medical Inc. common stock in 2001. 25 RISK FACTORS Participation in this offer involves a number of potential risks, including those described below. The risks described below, the risk factors under the heading entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed on April 1, 2002 and the risk factors under the heading entitled "Factors Affecting Future Operating Results" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 filed on May 13, 2002 highlight the material risks of participating in this offer. Eligible participants should carefully consider these risks and are encouraged to speak with an investment and tax advisor as necessary before deciding whether to surrender or not surrender options in this offer. In addition, we strongly urge you to read the rest of these materials for a fuller discussion of the risks which may apply to you before deciding whether to surrender or not surrender your options in this offer. ECONOMIC RISKS OF PARTICIPATING IN THIS OFFER IF OUR STOCK PRICE INCREASES AFTER THE DATE YOU SURRENDER YOUR EXISTING OPTIONS, YOUR SURRENDERED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE NEW OPTIONS THAT YOU RECEIVE IN EXCHANGE FOR THEM. The exercise price of any new options granted to you in return for your surrendered options will be the fair market value of a share of common stock on the date of grant, as determined by the closing price reported by The Nasdaq National Market on the date of grant. You will be at risk of any such increase in our common stock price before the grant date of the new options for these or any other reasons. Before the date we grant the new options, our shares could increase or decrease in value, and the exercise price of the new options could be higher or lower than the exercise price of options you elect to have cancelled as part of this offer. Among the factors that could cause our stock price to increase or decrease are: - quarterly variations in our operating results; - changes in revenue or earnings estimates or publication of research reports by analysts; - speculation in the press or investment community; - strategic actions by us or our competitors, such as acquisitions or restructurings; - developments, including results of clinical trials, timing of regulatory filings, regulatory actions and other developments, with respect to our product candidates; - general market conditions; and - domestic and international economic factors unrelated to our performance. IF WE ARE ACQUIRED BEFORE WE GRANT NEW OPTIONS AS PART OF THIS PROGRAM, DEPENDING ON THE TERMS OF THE ACQUISITION, YOU MAY NOT RECEIVE STOCK OPTIONS NOR WILL YOU RECEIVE ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR SURRENDERED OPTIONS AND/OR YOU MAY BE DEPRIVED OF ANY FUTURE PRICE APPRECIATION IN THE SHARES SUBJECT TO THE NEW OPTIONS. It is possible that, prior to the grant of new options, we could enter into an agreement for a merger or other similar transaction that could result in a material change in our business or management. We expect that we will negotiate with such acquiring or surviving company to honor our promise to grant stock options. If we are not successful in these negotiations, you will not receive stock options nor will you receive any other consideration in exchange for your surrendered options. In addition, depending on the structure or the type of the transaction, if you surrender options you might be deprived of any future price appreciation in the shares subject to the new options and you might receive an option to purchase a security other than our common stock. 26 IF YOU PARTICIPATE IN THIS OFFER, YOU WILL NOT BE ELIGIBLE TO RECEIVE ANY OPTION GRANTS UNTIL JANUARY 20, 2003 AT THE EARLIEST. Employees are generally eligible to receive option grants at any time that our board of directors or compensation committee chooses to make them. However, if you participate in this offer, you will not be eligible to receive any option grants until January 20, 2003 at the earliest because of potentially adverse accounting consequences to us if we grant options to you earlier. IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE GRANT OF THE NEW OPTIONS, YOU WILL RECEIVE NEITHER A NEW OPTION NOR THE RETURN OF YOUR SURRENDERED OPTION. Once your option is surrendered and accepted by us, it is gone for good. Accordingly, if your employment with us or one of our wholly-owned subsidiaries terminates for any reason prior to the grant date of the new options, you will have the benefit of neither the surrendered option nor the new options. The new options will be granted on the first business day that is at least six months plus one day after the expiration of this offer. TAX-RELATED RISKS OF RECEIVING AND PARTICIPATING IN THIS OFFER YOUR NEW OPTION MAY BE A NONQUALIFIED STOCK OPTION, WHEREAS YOUR SURRENDERED OPTION MAY HAVE BEEN AN INCENTIVE STOCK OPTION. If your surrendered option was an incentive stock option issued under the 2000 plan, your new option will be an incentive stock option, but only to the extent it qualifies as such under the Internal Revenue Code. For options to qualify as incentive stock options, the value of shares subject to the options and any other incentive stock options issued by us or our parent or subsidiary corporations that first become exercisable by you in any calendar year cannot exceed $100,000, as determined using the value of the shares on the grant date of the option. It is possible that by participating in this exchange, your options will exceed this limit and will be treated as nonqualified stock options to the extent of that excess. In general, nonqualified stock options may be less favorable to you from a tax perspective. All new options that are issued upon surrender of cancelled incentive stock options originally issued under the 1991 plan and granted under the 2002 plan will be nonqualified stock options. We strongly suggest that you consult with your tax advisor to evaluate the tax implications of exchanging incentive stock options for nonqualified stock options. EVEN IF YOU ELECT NOT TO PARTICIPATE IN THIS OFFER, YOUR INCENTIVE STOCK OPTIONS MAY BE AFFECTED. We believe that this offer will not change the U.S. federal income tax treatment of subsequent exercises of your incentive stock options (and sales of shares acquired upon exercise of such options) if you do not participate in this offer. However, there is a risk that the IRS may characterize this offer as a "modification" of your eligible incentive stock options, even if you decline to participate. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of any incentive stock option that could be exchanged (whether or not it was exchanged). This does not necessarily mean that our offer will be viewed the same way, and, in fact, we believe that we have structured this offer so as to mitigate this risk. Private letter rulings issued by the IRS contain the IRS's opinion regarding only the specific facts presented by a specific person or company. We therefore do not know if the IRS will assert the position that our offer constitutes a "modification" of incentive stock options that can be surrendered. A successful assertion by the IRS of this position could extend the options' requisite holding periods to qualify for favorable tax treatment and could also convert some incentive stock options into nonqualified stock options. 27 10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS. The following is a list of our directors and executive officers, their positions and offices held, and their beneficial ownership of our common stock and options as of May 31, 2002:
SHARES OF COMMON STOCK UNDERLYING PERCENT OF SHARES OF PERCENT OF OPTIONS TOTAL COMMON STOCK TOTAL COMMON BENEFICIALLY OPTIONS BENEFICIALLY STOCK NAME POSITION AND OFFICES HELD OWNED(#)(1) OUTSTANDING OWNED OUTSTANDING - ---- ------------------------- --------------- ----------- ------------ ------------ Timothy J. Barberich(2)..... Chairman of the Board and 1,530,513 12.4% 912,671 1.1% Chief Executive Officer William J. O'Shea........... President and Chief 380,833 3.1 4,367 * Operating Officer David P. Southwell(3)....... Executive Vice President; 463,833 3.8 124,370 * Chief Financial Officer and Secretary Paul D. Rubin, M.D.(4)...... Executive Vice President, 504,168 4.1 1,906 * Drug Development and ICE Research Robert F. Scumaci(5)........ Executive Vice President, 268,334 2.2 3,493 * Finance and Administration and Treasurer Douglas E. Reedich, Ph.D., Senior Vice President, 198,000 1.6 1,622 * J.D......................... Legal Affairs and Chief Patent Counsel James G. Andress............ Director 137,332 1.1 0 * Digby W. Barrios............ Director 118,666 * 2,000 * Robert J. Cresci............ Director 86,666 * 0 * Keith Mansford, Ph.D........ Director 102,666 * 200 * James F. Mrazek(6).......... Director 137,332 1.1 155,298 * Alan A. Steigrod............ Director 86,666 * 4,000 *
- ------------------------------ * Represents holdings of less than one percent. (1) The share amounts set forth the number of shares of our common stock which the person has the right to acquire within 60 days after May 31, 2002 upon exercise of outstanding stock options. (2) The number of shares of our common stock that Mr. Barberich is deemed to beneficially own includes an aggregate of 88,140 shares held in trust for Mr. Barberich's children, 62,708 shares held by Mr. Barberich's children, 70,000 shares held in trust for Mr. Barberich's wife and 1,742 shares held by Mr. Barberich's wife. (3) The number of shares of our common stock that Mr. Southwell is deemed to beneficially own includes 80,000 shares held in a trust for Mr. Southwell's children. (4) The number of shares of our common stock that Dr. Rubin is deemed to beneficially own includes 1,390 shares held by Dr. Rubin's children. (5) The number of shares of our common stock that Mr. Scumaci is deemed to beneficially own includes 800 shares held in a trust for Mr. Scumaci's two children. (6) The number of shares of our common stock that Mr. Mrazek is deemed to beneficially own including 155,298 shares held by a trust of which Mr. Mrazek is a trustee and beneficiary. The business address and telephone number of each director and executive officer is care of Sepracor Inc., 84 Waterford Drive, Marlborough, Massachusetts 01752, (508) 481-6700. All our full-time and part-time employees and the full-time and part-time employees of our wholly-owned subsidiaries other than members of our board of directors and our officers are eligible to 28 participate in this offer. As of May 31, 2002, our directors and executive officers as a group beneficially owned 1,209,927 shares of our common stock which represents 1.4% of the outstanding shares of our common stock, and options to purchase an aggregate of 4,015,009 shares of our common stock, or 32.6% of the total options outstanding to purchase shares of our common stock under the option plans. Other than as described below, there have been no agreements, arrangements or understandings between us and any other person involving the options or our common stock during the 60 days prior to this offer, and there are no such currently proposed agreements, arrangements or understandings other than this offer. In addition, neither we, nor to the best of our knowledge, any of our directors or executive officers, nor any of our affiliates or affiliates of our directors or executive officers, engaged in transactions involving the options or our common stock, during the 60 days prior to this offer, with the exception that such persons may have made periodic purchases pursuant to the provisions of our employee stock purchase plan. In addition, on June 3, 2002 our board of directors adopted a shareholder rights plan. Under the rights plan, each holder of our common stock as of the close of business on June 21, 2002, will receive one right for each share of common stock held. The rights will automatically trade with the underlying common stock and will not be exercisable. The rights will only become exercisable if a person acquires beneficial ownership of, or commences a tender offer for, 20 percent or more of our common stock, unless in either case, the transaction was approved by our board of directors. A summary of the rights plan is included in our Form 8-K filed with the SEC on June 4, 2002. 11. STATUS OF OPTIONS ACQUIRED BY US IN THIS OFFER; ACCOUNTING CONSEQUENCES OF THIS OFFER. Many of our optionholders hold options with exercise prices significantly higher than the current market price of our common stock. We believe that it is in our best interest to offer these optionholders an opportunity to more effectively participate in the potential growth in our stock price. We could accomplish this goal by repricing existing options, which would enable optionholders to immediately receive replacement options with a lower exercise price. However, the repriced options would be subject to variable accounting, which would require us to record additional compensation expense each quarter until the repriced options were exercised, cancelled or expired, which could have negative consequences on our earnings. Furthermore, if we were to cancel an option and grant another option with an exercise price that was lower than the exercise price of the cancelled option within the shorter of: - the six-month period immediately before the date when the option was cancelled, or - the period from the date of grant of the cancelled option to the date when the option was cancelled, then the cancellation and exchange would be deemed a repricing that would result in variable accounting. The cancellation of an existing option and the grant of another option within this time period would also be deemed a repricing, even if the grant of the second option occurs before the cancellation of the first option. We believe that we can accomplish our goals of providing optionholders with the benefit of choosing whether they want to receive options that over time may have a greater potential to increase in value, without incurring additional current or future compensation expense because: - we will not grant any new options to participating optionholders until the first business day that is at least six months plus one day after the expiration of this offer, - the exercise price of all new options will be at the fair market value of our common stock on the future date when we grant the new options, and 29 - we will not grant any new options to a participating optionholder unless that person tenders all options that have been granted to that optionholder within six months prior to the commencement of the offer and have an exercise price lower than the option with the highest exercise price tendered or as otherwise required under the accounting rules. Eligible options that are surrendered in connection with this offer will be cancelled if accepted for exchange. The shares of common stock underlying cancelled eligible options that had been granted under the option plans will be returned to the pool of shares available for grants of new awards or options under each such plan; PROVIDED, HOWEVER, that no further stock options or other awards will be granted under the 1991 plan. 12. LEGAL MATTERS; REGULATORY APPROVALS. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by this offer, or of any approval or other action by any government or regulatory authority or agency that is required for the acquisition or ownership of the options as described in this offer. If any such approval or other action should be required, we presently intend to seek the approval or take the action. This could require us to delay the exchange of options surrendered to us. We cannot assure you that we would be able to obtain any required approval or take any other required action. 13. MATERIAL FEDERAL INCOME TAX CONSEQUENCES. UNITED STATES: MATERIAL FEDERAL INCOME TAX CONSEQUENCES FOR EMPLOYEES WHO ARE TAX RESIDENTS IN THE UNITED STATES The following is a general summary of the material federal income tax consequences of the exchange of old options for new options pursuant to this offer under the federal income tax laws of the United States. This discussion is based on the tax laws as of this date, which are subject to change, possibly on a retroactive basis. This information may be out of date at the time that you tender your old options, receive your new options, exercise your options and/or sell the shares you acquire on such exercise. This discussion does not address all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of employees. Except as specifically set forth below, this summary does not address the tax consequences that may arise upon the sale of shares acquired by an optionholder under an option or upon the payment of any dividend on such shares. Further, this summary does not address the tax consequences that may arise as a result of a gift or other disposition (other than by sale) of shares acquired by an optionholder under an option. We recommend that you consult with your own tax advisor with respect to the tax consequences in your country of residence of participating in the offer to exchange, as well as any other federal, foreign, state, provincial or local tax consequences that may be applicable to you as a result of participating in the offer to exchange. Moreover, if you are a citizen or resident of a country other than the country in which you work, or are subject to the tax laws of more than one country, or change your residence or citizenship during the term of the options, the information contained below may not be applicable to you. All employees should consider obtaining professional advice regarding the applicability of tax laws. GENERAL. Optionholders who surrender outstanding options for new options should not be required to recognize income for federal income tax purposes at the time of the surrender of eligible options or at the time of the grant of the new options. We believe that the surrender of eligible options and the grant of the new options will be treated as a non-taxable exchange. Please note that through these materials, we are asking you whether you would like to make us an offer to exchange your options on the terms described in these materials, and that we have the right to 30 reject any such offer that you may make to us. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of any incentive stock option that could be exchanged (whether or not it was exchanged). We believe that we have structured this offer so as to mitigate the risk that the IRS would make a similar assertion with respect to this offer. However, we do not know if the IRS will assert the position that our solicitation of requests constitutes a "modification" of incentive stock options that can be surrendered. A successful assertion by the IRS of this position could extend the options' requisite holding periods to qualify for favorable tax treatment and could also convert some incentive stock options into nonqualified stock options. INCENTIVE STOCK OPTIONS. You will not have income upon the grant of an incentive stock option. Also, except as described below, you will not have income when you exercise an incentive stock option if you have been employed by Sepracor or its corporate parent or majority-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date you exercise the option. If you have not been so employed during that time, then you will be taxed as described below under "Nonstatutory Stock Options." You will have income if you sell stock acquired under an incentive stock option at a profit (your sales proceeds exceed your exercise price). The type of income will depend on when you sell the stock. If you sell the stock more than two years after the option was granted and more than one year after you exercised the option, then all of your profit will be long-term capital gain. If you sell the stock prior to satisfying these waiting periods, then you will have engaged in a disqualifying disposition and a portion of your profit will be ordinary income and a portion may be capital gain. Upon a disqualifying disposition, you will have compensation income equal to the lesser of: - the value of the stock on the day you exercised the option less your exercise price; and - your profit. If your profit exceeds the compensation income, then the excess profit will be capital gain. This capital gain will be long-term if you have held the stock for more than one year and otherwise will be short-term. If you sell the stock at a loss (your sales proceeds are less than your exercise price), then the loss will be a capital loss. This capital loss will be long-term if you have held the stock for more than one year and otherwise will be short-term. The alternative minimum tax treatment of incentive stock options differs from their treatment under the regular tax. You will have income for alternative minimum tax purposes when you exercise an incentive stock option. In many cases, this income will require you to pay taxes even though you have not sold the stock. In certain situations, you may be able to credit some of the alternative minimum tax you paid against your future regular taxes. The application of the alternative minimum tax and the use of any credit are complicated and depend upon your personal circumstances. We suggest that you consult your tax advisor. If your surrendered option was an incentive stock option issued under the 1997 plan or the 2000 plan, the new options will be granted as incentive stock options, to the maximum extent they qualify. For options to qualify as incentive stock options, however, the value of shares subject to the options and any other incentive stock options granted by us that first become exercisable in any calendar year cannot exceed $100,000, as determined using the grant date value of the shares. The excess will be deemed to be nonqualified stock options. You should note that, particularly if any of the new options will be treated as immediately vested, the new options may exceed the limit for incentive stock options. All new options issued upon surrender of cancelled incentive stock options originally issued under the Company's 1991 plan will be nonqualified stock options. 31 NONSTATUTORY, OR NONQUALIFIED, STOCK OPTIONS. You will not have income upon the grant of a nonstatutory stock option. You will have compensation income when you exercise a nonstatutory stock option equal to the value of the stock on the day you exercised the option less your exercise price. When you sell the stock, you will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day you exercised the option. This capital gain or loss will be long-term if you have held the stock for more than one year and otherwise will be short-term. TAX RATES. Long-term capital gain will be subject to lower tax rates than short-term capital gain and compensation income. Compensation income will also be subject to a medicare tax and a social security tax, as applicable. Until January 1, 2003, however, the Internal Revenue Service has imposed a moratorium on the imposition of medicare and social security taxes upon the exercise and sale of stock acquired under an incentive stock option. Your actual tax rates will depend upon your personal circumstances. WITHHOLDING. If you are our employee, then your compensation income will be subject to withholding for income, medicare and social security taxes, as applicable. Until January 1, 2003, however, the Internal Revenue Service has imposed a moratorium on the withholding of income, medicare and social security taxes upon the exercise and sale of stock acquired under an incentive stock option. We will require you to make arrangements to satisfy this withholding obligation. TAX CONSEQUENCES TO US. There will be no tax consequences to us except that we will be entitled to a deduction when you have compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Internal Revenue Code. CANADA: MATERIAL FEDERAL INCOME TAX CONSEQUENCES FOR EMPLOYEES WHO ARE TAX RESIDENTS IN CANADA The following summary is a general description of the principal Canadian federal income tax considerations generally applicable on the exchange of old options for new options pursuant to this offer. This summary is based on the current provisions of the INCOME TAX ACT (Canada) (the "Canadian Tax Act"), the regulations thereunder, and counsel's understanding of the current published administrative practices and policies of the Canada Customs and Revenue Agency, all in effect as of the date of this document. This summary takes into account all specific proposals to amend the Canadian Tax Act or the regulations publicly announced by the Minister of Finance (Canada) prior to the date of this document, although no assurances can be given that proposed amendments will be enacted in the form proposed, or at all. This summary does not take into account or anticipate any other changes in law, whether by judicial, governmental or legislative action or decision, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein. This information may be out of date at the time that you tender your old options, receive your new options, exercise your options and/or sell the shares you acquire on such exercise. This discussion does not address all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of employees. Except as specifically set forth below, this summary does not address the tax consequences that may arise upon the sale of shares acquired by an optionholder under an option or upon the payment of any dividend on such shares. Further, this summary does not address the tax consequences that may arise as a result of a gift or other disposition (other than by sale) of shares acquired by an optionholder under an option. We recommend that you consult with your own tax advisor with respect to the tax consequences in your country of residence of participating in the offer to exchange, as well as any other federal, foreign, provincial or local tax consequences that may be applicable to you as a result of participating in the offer to exchange. Moreover, if you are a citizen or resident of a country other than the country in which you work, or are subject to the tax laws of more than one country, or change your residence or 32 citizenship during the term of the options, the information contained below may not be applicable to you. All employees should consider obtaining professional advice regarding the applicability of tax laws. GENERAL. This summary is generally applicable to persons who are resident in Canada for the purposes of the Canadian Tax Act and who, together with any related persons, own less than 50% of the issued shares of Sepracor Inc. EXCHANGE OF OPTIONS. The exchange of your existing options for the new options may be governed by certain rules in the Income Tax Act (Canada) which provide for a non-taxable exchange of options. If those rules do not apply, the cancellation of your existing options will be considered a disposition for Canadian tax purposes and you will be required to include the value of the consideration received for the cancellation of your existing options in computing your income from employment. In our view the value of the consideration will be nil because the exercise price of the new options will be equal to the fair market value of our stock on the date that the new options are granted. GRANT OF OPTIONS. We do not believe that you will be subject to tax when the new options are granted to you. EXERCISE OF OPTIONS. Subject to the deferral provisions discussed below, you will recognize taxable income upon the exercise of the new options in an amount equal to the difference between the fair market value of our stock on the date of exercise and the exercise price. You may be able to defer the taxation of your stock option benefit until the year you dispose of your securities. This tax deferral is subject to several conditions, including a CDN$100,000 annual vesting limit. If you are eligible to defer the taxation of your employee stock option benefit, you will have to file an election for the deferral to apply. Generally, you will file the election with your employer, disclosing the amount of stock option benefit that has been deferred. The election will be due on or before January 15 of the year following the year in which you acquired our common stock by exercising your option. The deferred stock option benefit will be reported on your T4 slip for the period during which you exercised your options to acquire our stock (based on the information provided to your employer). However, you will not have to include the benefit in your employment income that year. Instead, you will be responsible for including it in income in the year that you dispose of the related Sepracor common stock. If you become a non-resident or die before the Sepracor common stock is disposed of, the benefit will have to be included in income in that year, rather than in the year of the disposition. TRACKING THE CDN$100,000 ANNUAL LIMIT. The CDN$100,000 annual limit on the amount of options that you can be granted that are eligible for the deferral applies to the value of the stock options that vest each year. For this rule, the value of the stock options is generally the fair market value of the underlying Sepracor common stock at the time you were granted the options. Where there has been an exchange of options, or the securities have been subject to splits or consolidations, the initial fair market value must be adjusted to take into account these events. 33 Complying with the CDN$100,000 annual vesting limit will be your responsibility. Therefore, you will be expected to track your usage of the limit. A CDN$100,000 annual limit has been designed so that there is only one CDN$100,000 limit for the employee for each vesting year, rather than a separate limit per corporate group. REVOCATION OF AN ELECTION. You may decide after you have made the election that you do not want the deferral to apply to the particular Sepracor common stock that you have elected upon. You are allowed to revoke the election by filing a written revocation with the person with whom you filed the election. The deadline for filing such a Notice of Revocation is January 15 of the year following the year in which you acquired the Sepracor common stock. If you revoke your election, you are deemed to have never made the election in the first place. This means that the stock option benefit will be taxed in the year the Sepracor common stock was acquired under the employee stock options, not in the year of disposition. If you revoke an election, you can reinstate all or part of the $100,000 vesting limit for a particular year. SALE OF SHARES. The tax consequences that result when you dispose of Sepracor common stock to which the deferral applies ("Deferral Securities") will depend on whether or not you hold securities that the deferral does not apply to ("Non-Deferral Securities"), in addition to your Deferral Securities. There are specific ordering rules to be applied when you dispose of securities acquired under stock options. Where you own only Deferral Securities, they will be disposed of on a first-in/first-out basis. Unless you designate which identical options are exercised first-in, the following rules will apply. Identical options are considered to have been exercised in the order in which they first became exercisable. Identical options that first become exercisable at the same time, but are granted on different dates, are considered to have been exercised in the order in which they were granted. To determine the capital gain or loss, the cost of the Deferral Securities is the amount you paid to acquire the securities, plus the stock option benefit related to the specific security sold. You will not need to consider the cost of any other identical securities of your employer that you may hold. If you own Deferral and Non-Deferral Securities, the ordering rules will work in a similar manner, except that the Non-Deferral Securities will be disposed of first. When determining the capital gain or loss on the disposition of Non-Deferral Securities, the cost will be determined on an average basis over all the identical Non-Deferral Securities you hold. However, there is an exception to this rule. An employee can designate the most recently acquired Non-Deferral Security that is identical to other securities owned by the taxpayer and acquired under an employee stock option agreement, to be disposed of first. Several conditions must be met, including the condition that the disposition must occur no later than 30 days after the employee acquired the security. If this designation is made, the cost will be determined in the same manner as for Deferral Securities. Once all Non-Deferral Securities are sold, the Deferral Securities will be disposed of as discussed above. OTHER REPORTING REQUIREMENTS. If you have deferred stock option benefits, you are required to file Form T1212, STATEMENT OF DEFERRED STOCK OPTION BENEFITS, with the Canada Customs and Revenue Agency on an annual basis. The form requires that you include information on transactions relating to the Sepracor common stock where the deferral applies, including acquisition of new Deferral Securities and dispositions of existing Deferral Securities. This form will assist you in complying with your obligation to include the deferred stock option benefit in employment income in the year that you dispose of the related Sepracor common stock. You are required to file this form with your tax return beginning with the 2000 taxation year, where employee benefits have been deferred. DIVIDENDS. If you acquire shares upon exercise, you may be entitled to receive dividends. You will be subject to income tax at your marginal rate on any dividends paid on our stock. You will generally 34 be entitled to a foreign tax credit equal to the amount of United States federal tax withheld at source on the dividend. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, PROVINCIAL, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. 14. EXTENSION OF THIS OFFER; TERMINATION; AMENDMENT. We may at any time and from time to time, extend the period of time during which this offer is open by giving you notice of the extension and making a public announcement of the extension. Prior to the expiration date, we may postpone accepting and canceling any eligible options if any of the conditions specified in Section 6 occur. In order to postpone, we must notify you and all other optionholders of the postponement. Our right to delay accepting and canceling eligible options is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that we must pay the consideration offered or return the surrendered options promptly after we terminate or withdraw this offer. We may amend this offer at any time by notifying you of the amendment. If we extend the length of time during which this offer is open, the amendment must be issued no later than 9:00 a.m., Eastern Daylight Time, on the next business day after the last previously scheduled or announced expiration date. Any announcement relating to this offer will be sent promptly to optionholders in a manner reasonably designed to inform optionholders of the change. If we materially change the terms of this offer or the information about this offer, or if we waive a material condition of this offer, we will extend this offer to the extent required by Rule 13e-4(d)(2) and Rule 13e-4(e)(3) promulgated under the Exchange Act. Under these rules, the minimum period an offer must remain open following material changes in the terms of this offer or information about this offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances. If we decide to take any of the following actions, we will give you notice of the action: - we increase or decrease what we will give you in exchange for your options; or - we increase or decrease the option exercise price which serves as the threshold for options eligible to be exchanged in this offer. If this offer is scheduled to expire within ten business days from the date we notify you of such an increase or decrease, we will also extend this offer for a period of ten business days after the date the notice is published. 15. FEES AND EXPENSES. We will not pay any fees or commissions to any broker, dealer or other person for asking optionholders whether they would like to elect to surrender their eligible options under this offer. 16. ADDITIONAL INFORMATION. This offer is a part of a Tender Offer Statement on Schedule TO that we have filed with the SEC. This offer does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials that we have filed with the SEC before making a decision on whether to surrender your eligible options: (a) our annual report on Form 10-K for our fiscal year ended December 31, 2001, filed with the SEC on April 1, 2002; 35 (b) our quarterly report on Form 10-Q for our fiscal quarter ended March 31, 2002, filed with the SEC on May 13, 2002; (c) our current report on Form 8-K, filed with the SEC on March 7, 2002; (d) our current report on Form 8-K, filed with the SEC on June 4, 2002; (e) the description of our common stock contained in our registration statement on Form 8-A, filed with the SEC on July 16, 1991, as amended by a Current Report on Form 8-K, filed with the SEC on June 4, 2002 and including any other amendments or reports we file for the purpose of updating that description; and (f) the description of our preferred stock purchase rights contained in our registration statement on Form 8-A filed with the SEC on June 4, 2002, including any amendments or reports we file for the purpose of updating that description. The SEC file number for these filings is 0-19410. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the SEC public reference room located at Judiciary Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov. We will also provide without charge to each person to whom we deliver a copy of these materials, upon their written or oral request, a copy of any or all of the documents to which we have referred you, other than exhibits to these documents (unless the exhibits are specifically incorporated by reference into the documents). Requests should be directed to: Sepracor Inc. 84 Waterford Drive Marlborough, Massachusetts 01752 Attn: Timothy Potter or by telephoning Timothy Potter at (508) 357-7346 between the hours of 9:00 a.m. and 5:00 p.m., Eastern Daylight Time. As you read the documents listed in this section, you may find some inconsistencies in information from one document to another. Should you find inconsistencies between the documents, or between a document and this offer, you should rely on the statements made in the most recently dated document. The information contained in this offer should be read together with the information contained in the documents to which we have referred you. 17. MISCELLANEOUS. If at any time, we become aware of any jurisdiction where the making of this offer violates the law, we will make a good faith effort to comply with the law. If we cannot comply with the law, this offer will not be made to, nor will exchanges be accepted from or on behalf of, the optionholders residing in that jurisdiction. 36 EX-99.(A)(2) 4 a2082196zex-99_a2.txt EXHIBIT (A)(2) EXHIBIT (A)(2) SEPRACOR INC. ELECTION FORM I acknowledge that a list of all of my options appears on the SalomonSmithBarney-Registered Trademark- website at www.aststockplan.com or www.benefitaccess.com. I wish to surrender for exchange those options with an exercise price of $18.00 or more per share (the "Eligible Options") listed in the table below subject to the terms and conditions of the Offer to Exchange Outstanding Stock Options dated June 17, 2002 (the "Offer to Exchange"). I have also indicated any options granted since December 17, 2001 which if they have an exercise price lower than the highest price Eligible Options I am surrendering, I am required to tender (the "Required Options"), if applicable. I acknowledge that Required Options will be automatically surrendered by me if Sepracor Inc. accepts any of my surrendered Eligible Options. I understand that if my offer is accepted, I will (1) have no right, title or interest to my surrendered Eligible Option(s) indicated in the table below and any Required Option(s) (whether or not indicated in the table below), and any certificates or other documentation evidencing such option grant(s) shall be void and of no further effect, and (2) receive a new option to purchase one share of common stock for every one share of common stock issuable upon the exercise of a surrendered option, as more fully explained in the Offer to Exchange. In addition, I am making the representations and acknowledgements to Sepracor Inc. that are set forth on page 2 of this Election Form.
NAME OF PLAN FROM WHICH ELIGIBLE GRANT DATE OF NUMBER OF ELIGIBLE EXERCISE PRICE OF OPTION NUMBER OPTIONS GRANTED ELIGIBLE OPTION OPTION SHARES* ELIGIBLE OPTION - ------------------------ ------------------- ------------------- ------------------- ------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
- ------------------------ * If you tender an Eligible Option you must tender all the shares covered by that option; partial tenders are not permitted and will be deemed to be a tender of all the shares covered by the tendered option. To validly surrender Eligible Options for exchange, you must complete and deliver this Election Form according to the instructions on page 3 of this Election Form and return it to Melissa Klinkhamer by facsimile at (508) 357-7498 or by hand delivery or regular overnight mail to 84 Waterford Drive, Marlborough, Massachusetts 01752. The deadline for receipt of this Election Form is no later than 5:00 P.M., Eastern Daylight Time, on July 17, 2002. Date: , 2002 ------------------------------------------- Signature ------------------------------------------- Name (please print) ------------------------------------------- Social Security Number ------------------------------------------- Telephone Number During Working Hours
1 To: Sepracor Inc. Pursuant to the Offer to Exchange, I have tendered the Eligible Options indicated on the reverse side of this Election Form. In addition to the representations and acknowledgements by me on this Election Form, I hereby represent and acknowledge the following to Sepracor Inc. (the "Company"): - Any Eligible Options tendered by me on the Election Form are tendered subject to the terms and conditions of the offer as set forth in the Offer to Exchange, a copy of which I acknowledge having received and read. - I have full power and authority to tender the Eligible Options indicated in my Election Form. - All authority conferred or agreed to be conferred in my Election Form regarding the option(s) I have tendered shall not be affected by, and shall survive, my death or incapacity, and all of my obligations hereunder shall be binding upon my heirs, personal representatives, successors and assigns. - The Company's acceptance for exchange of options tendered pursuant to the offer will constitute a binding agreement between the Company and me upon the terms and subject to the conditions of the Offer to Exchange. - If my offer to exchange Eligible Options is accepted, I acknowledge that I will have no right, title or interest to my tendered Eligible Option(s) indicated in the table on the reverse side of this Election Form and any Required Option(s) (whether or not indicated in the table), and any certificates or other documentation evidencing such option grant(s) shall be void and of no further effect. - If my offer to exchange Eligible Options is accepted, I acknowledge that the new option(s) I receive: - will constitute a right to purchase one share of common stock for each share of common stock issuable upon the exercise of a surrendered option; - will not be granted until on or after the first business day that is six months and one day after the date when my tendered options are accepted for exchange and canceled by the Company; and - will be subject to the terms and conditions of (i) the 2002 Stock Incentive Plan (the "2002 Plan") if the options surrendered were from the 1991 Amended and Restated Stock Option Plan; and (ii) the 1997 Stock Option Plan (the "1997 Plan") if the options surrendered were from the 1997 Plan; and (iii) the 2000 Stock Incentive Plan, as amended (the "2000 Plan") if the options surrendered were from the 2000 Plan; and (iv) the new option grant agreements between the Company and me that will be forwarded to me after the grant of the new options. - I also acknowledge that I must be an employee of the Company or one of its wholly-owned subsidiaries from the date when I tender options through the date when the new options are granted and otherwise be eligible under the 1997 Plan, the 2000 Plan or the 2002 Plan, as the case may be, on the date when the new options are granted in order to receive new options. I further acknowledge that if I do not remain such an employee, I will not receive any new options or any other consideration for the options that I tender and that are accepted for exchange pursuant to the offer. IF I PASS AWAY, BECOME DISABLED, TERMINATE WITH OR WITHOUT A GOOD REASON OR AM TERMINATED WITH OR WITHOUT CAUSE BEFORE THE DATE WHEN THE NEW OPTIONS ARE GRANTED, THEN I WILL NOT RECEIVE ANYTHING FOR THE OPTIONS THAT I TENDER AND THAT ARE ACCEPTED FOR EXCHANGE PURSUANT TO THE OFFER. 2 - I also acknowledge that I may not receive options if Sepracor enters into a merger or similar transaction in which there is a change in control of Sepracor prior to the grant of new options. - I recognize that as set forth in Section 6 of the Offer to Exchange, the Company may terminate or amend the offer and reject or postpone its acceptance and cancellation of any and all options tendered for exchange. - If my offer to exchange Eligible Options is accepted, I acknowledge that I will be ineligible to receive any new grants of options for a period of six months and one day after the expiration date of the offer. - - I have read, understand and agree to all of the terms and conditions of the offer as set forth in the Offer to Exchange dated June 17, 2002. * * * * 3 INSTRUCTIONS FORMING A PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. DELIVERY OF ELECTION FORM. A properly completed and duly executed Election Form (or an electronic copy or facsimile thereof) must be received by the Company at the address set forth on page 1 of this Election Form on or before the expiration date of the offer. The method by which you deliver any required documents (including this Election Form) is at your election and risk, and the delivery will be deemed made only when actually received by the Company. If you elect to deliver your documents by mail, the Company recommends that you use registered mail with return receipt requested. In all cases, you should allow sufficient time to ensure timely delivery. An election to surrender options for exchange pursuant to this offer may be changed or withdrawn at any time prior to the expiration date. If the offer is extended by the Company beyond that time, you may change or withdraw your election at any time until the extended expiration of the offer. To change your election to surrender options for exchange, you must deliver a new Election Form which is clearly dated after your original Election Form. Once the Company receives a new Election Form submitted by you, your previously submitted Election Form will be disregarded. To withdraw all options surrendered for exchange, you must deliver a properly completed Notice of Withdrawal, or an electronic copy or facsimile thereof, to the Company while you still have the right to withdraw the surrendered options. Withdrawals may not be rescinded, and any options withdrawn will thereafter be deemed not properly surrendered for exchange for purposes of the offer, unless such withdrawn options are properly re-surrendered prior to the expiration date of the offer by submitting a new Exchange Form in accordance with the procedures described above. The Company will not accept any alternative, conditional or contingent elections to surrender options for exchange. All employees surrendering options for exchange, by execution of this Election Form (or an electronic copy or facsimile of it), waive any right to receive any notice of the acceptance of their options for surrender, except as provided in the Offer to Exchange. 2. INADEQUATE SPACE. If the space provided in the table on page 1 of this Election Notice is inadequate, the information requested by the table regarding the options to be surrendered for exchange should be provided on a separate schedule attached to, or delivered with, this Election Form. 3. SURRENDER OF OPTIONS FOR EXCHANGE. If you intend to surrender options for exchange pursuant to the offer, you must complete the table on page 1 of this Election Form by providing the following information for each option that you intend to surrender: option number, grant date, the total number of option shares subject to the option and the exercise price. If you choose to surrender an option, you must surrender the full number of option shares subject to the option. If you received options on or after December 17, 2001, you must tender all options received on or after that date that have a lower exercise price than the options with the highest exercise price you surrender. 4. SIGNATURES ON THE ELECTION FORM. If this Election Form is signed by the holder of the options, the signature must correspond with the name as written on the face of the option award document(s) to which the options are subject without alteration, enlargement or any other change. If this Election Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact or any other person acting in a fiduciary or representative capacity, then such person's full title and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted with this Election Form. 4 5. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any requests for additional copies of the Offer to Exchange or this Election Form, may be directed to: Sepracor Inc. 84 Waterford Drive Marlborough, Massachusetts 01752 Attention: Timothy Potter or David Aubuchon Telephone: (508) 357-7346 or (508) 357-7617 Email: timothy.potter@sepracor.com or david.aubuchon@sepracor.com Any questions or requests for assistance should be sent to exchangeprogram@sepracor.com. 6. IRREGULARITIES. Any questions as to the number of option shares subject to options to be accepted for exchange, and any questions as to the validity (including eligibility and time of receipt), form and acceptance of any surrender of options for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding on all interested persons. The Company reserves the right to reject any or all options surrendered for exchange that the Company determines not to be in appropriate form or the acceptance of which would be unlawful. The Company also reserves the right to waive any of the conditions of the offer and any defect or irregularity with respect to any particular options surrendered for exchange or any particular optionholder, and the Company's interpretation of the terms of the offer (including these instructions) will be final and binding on all participants in the offer. No surrender of options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with the surrender of options for exchange must be cured prior to the expiration of the offer. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in the surrender of options for exchange, and neither the Company nor any other person will incur any liability for failure to give any such notice. 7. IMPORTANT TAX INFORMATION. You should refer to Section 13 of the Offer to Exchange, which contains important tax information. 5 EX-99.(A)(3) 5 a2082196zex-99_a3.txt EXHIBIT (A)(3) EXHIBIT (A)(3) NOTICE OF WITHDRAWAL If you previously elected to accept Sepracor Inc.'s offer to you to ask it to exchange your options, but you would like to change your decision and withdraw, you must sign this Notice of Withdrawal and return it to Melissa Klinkhamer by fax at (508) 357-7498 or by mail at 84 Waterford Drive, Marlborough, Massachusetts 01752 so that it is received on or before 5:00 p.m., Eastern Daylight Time, on July 17, 2002, unless the offer is extended. If you have questions, please send an email to exchangeprogram@sepracor.com. To Sepracor Inc. I previously received a copy of the Offer to Exchange outstanding stock options dated June 17, 2002 and the Election Form. I signed and returned the Election Form, in which I chose to accept Sepracor Inc.'s offer to ask it to exchange my options. I now wish to withdraw all of the options I surrendered for exchange. I understand that by signing this Notice of Withdrawal and delivering it to you, I will be withdrawing my previous acceptance of the offer and I will not be surrendering any options for exchange. I have read and understood all of the terms and conditions of the offer to exchange options, including the consequences of a withdrawal. I understand that in order to withdraw, I must sign, date and deliver this Notice of Withdrawal to you on or before 5:00 p.m. Eastern Daylight Time, on July 17, 2002, or if Sepracor Inc. extends the deadline to exchange options, before the extended expiration of the offer. By rejecting the offer to ask Sepracor Inc. to exchange options, I understand that I will not receive any new options and I will keep my old options (with the same exercise price as before). These options will continue to be governed by the stock option plan(s) under which they were granted and existing option grant documents between Sepracor Inc. and me. I have completed and signed the following exactly as my name appears on my original Letter of Transmittal. I do not accept the offer to exchange any of my options. X - -------------------------------------------------------------------------------- SIGNATURE Date: , 200_ Name: - ------------------------------------------------------------------------------ (PLEASE PRINT) Tax ID/Social Security No.: - ------------------------------------------------------------ 1 EX-99.(A)(4) 6 a2082196zex-99_a4.txt EXHIBIT (A)(4) EXHIBIT (A)(4) SEPRACOR INC. FORM OF PROMISE TO GRANT OPTIONS PURSUANT TO THE OFFER TO EXCHANGE OUTSTANDING STOCK OPTIONS DATED JUNE 17, 2002 To: Participants in the Sepracor Inc. Stock Option Exchange Offer In exchange for your surrender of certain outstanding stock options, Sepracor Inc. promises to grant to you a new stock option or options, as applicable, exercisable for shares of its common stock. Under the terms of the Offer to Exchange Outstanding Stock Options dated June 17, 2002, you will receive a new option to purchase one share of common stock for each share of common stock that was issuable upon exercise of a surrendered option. Each new option will vest, in accordance with its previous vesting schedule, subject to your continued employment with Sepracor Inc. The new options will be granted on January 20, 2003. The exercise price of each new option will be the closing price of our common stock as reported on The Nasdaq National Market on the date of grant of the new options. Each new option will be subject to the terms and conditions of the 1997 Stock Option Plan, the 2000 Stock Incentive Plan, as amended, or the 2002 Stock Incentive Plan, as the case may be, and applicable form of stock option agreement. This promise to grant stock options to you does not constitute a guarantee of employment with us for any period. Your employment with us remains "at will" and can be terminated by either you or us at any time, with or without cause or notice. If you voluntarily terminate your employment with us, or if we terminate your employment for any reason, before the grant of the new options, you will lose all rights to receive any new options and your surrendered options will not be returned to you. Notwithstanding the foregoing, you may not be granted new stock options if Sepracor enters into a merger or other similar transaction in which there is a change in control of Sepracor prior to the grant of new options. This promise is subject to all of the terms and conditions of the document entitled Offer to Exchange Outstanding Stock Options dated June 17, 2002, and the Election Form previously completed and submitted by you, both of which are incorporated herein by reference. The documents described herein reflect the entire agreement between you and Sepracor Inc. with respect to this transaction. SEPRACOR INC. [Name] [Title] Date: _____________, 2002 1 EX-99.(A)(5) 7 a2082196zex-99_a5.txt EXHIBIT (A)(5) EXHIBIT (a)(5) June 17, 2002 To All Sepracor Employees, The grant of stock options to employees has been one of the ways we ensure that our employees participate in the long-term success of Sepracor. In order to provide employees with the benefit of owning stock options that over time may have a greater potential to increase in value, I am pleased to make available to you the opportunity to exchange current stock option grants, which have a price of $18 and above, for future grants. If you choose to ask us to exchange any of your eligible options, you properly complete and deliver the election form and we do not reject requests for exchange (which we may do at our discretion), the current stock options you have selected will be cancelled and an equal number of stock options will be granted on or after the first business day six months and one day following the expiration of this offer on July 17, 2002. Currently, the grant date for the new options is scheduled to occur on January 20, 2003, with an exercise price equal to the per share closing price of our common stock on the Nasdaq National Market. The details and conditions of this voluntary offer are outlined in the attached document identified as the Offer to Exchange Outstanding Stock Options dated June 17, 2002. Please be sure to read through the attached document carefully. A special Tender Offer Email address: exchangeprogram@sepracor.com will be available for you to submit administrative questions with regard to this offer. You should seek independent financial advice if you have any questions relative to interpretation of this offer or whether you should participate. In order to review your stock option grants, you may access your current stock option statements from AST/Salomon Smith Barney in the following ways: 1. Internet Access at: www.aststockplan.com; or www.benefitaccess.com 2. Voice Response: 800-367-4777 3. Customer Service: 800-235-1205 ext. 9533 or 888-980-6456
Additionally, we have requested that AST/Salomon Smith Barney mail to your home a copy of your most recent statement of stock option grants. In order to elect an exchange of your current stock option grants, it is a requirement that you send a signed copy of the attached Election Form to Melissa Klinkhamer in Human Resources, by fax at 508-357-7498, or hand delivery or regular overnight mail to 84 Waterford Drive, Marlborough, MA 01752. The deadline for receipt of this Election Form is no later than 5:00 P.M., Eastern Daylight Time, on July 17, 2002. You will also have an opportunity to withdraw your election, by submission of a signed Withdrawal Form, which is also attached, by 5:00 P.M., Eastern Daylight Time, on July 17, 2002. If Human Resources does not receive a signed form from you by 5:00 P.M., Eastern Daylight Time, you will not be able to participate in this tender offer exchange. Please make note of the deadline, as no exceptions may be made to it. This special offering demonstrates our appreciation of your efforts and to acknowledge the value that we place on you. Again, thank you for your continued efforts to further the future of Sepracor. Best regards, Tim Barberich EX-99.(A)(6) 8 a2082196zex-99_a6.txt EXHIBIT (A)(6) EXHIBIT (a)(6) FORM OF STATEMENT OF STOCK OPTION GRANTS SEPRACOR INC. OPTIONEE ACTIVITY FOR ALL SHAREHOLDERS ALL TYPES--ALL PLANS, ALL GRANTS, AS OF JUNE 11, 2002
OPTION HOLDER NAME GRANT PLAN / NEXT VEST GRANT NO. TYPE DATE ------------------ --------- ----------------------------------------------------------- ----------------------------- [Insert Name and Address] (Tax ID) Plan / Next Vest: [--] [Insert Date] [Insert Type] [Insert Date] Plan / Next Vest: [--] [Insert Date] [Insert Type] [Insert Date] Plan / Next Vest: [--] [Insert Date] [Insert Type] [Insert Date] --------- ----------------------------------------------------------- ----------------------------- Totals for [Insert Name] EXPIRED OPTION HOLDER NAME SUBJECT TO CANCELLED PLAN / NEXT VEST SHARES PRICE VESTED EXERCISED REPURCHASE OR AMENDED OUTSTANDING ------------------ ------------------------ -------- -------- --------- ----------- ----------- ----------- [Insert Name and Address] Plan / Next Vest: [ ] $ Plan / Next Vest: [ ] $ Plan / Next Vest: [ ] $ ------------------------ -------- --- --- --- --- --- Totals for [Insert Na [ ] $ ======================== ======== === === === === === OPTION HOLDER NAME OUTSTANDING OUTSTANDING PLAN / NEXT VEST UN-VESTED EXERCISABLE ------------------ ----------- ----------- [Insert Name and Address] Plan / Next Vest: Plan / Next Vest: Plan / Next Vest: --- --- Totals for [Insert Na === ===
EX-99.(D)(2) 9 a2082196zex-99_d2.txt EXHIBIT (D)(2) EXHIBIT (D)(2) SEPRACOR INC. FORM OF NONSTATUTORY STOCK OPTION AGREEMENT GRANTED UNDER 1997 STOCK OPTION PLAN 1. GRANT OF OPTION. This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the "Company"), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the "Certificate") to an employee, consultant, or director of the Company (the "Participant"), of an option to purchase, in whole or in part, on the terms provided herein and in the Company's 1997 Stock Option Plan (the "Plan"), the number of shares (the "Shares") of common stock, $.10 par value per share, of the Company ("Common Stock") indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate ("Grant Expiration Date"). It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). Except as otherwise indicated by the context, the term "Participant", as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms. 2. VESTING SCHEDULE. This option will become exercisable ("vest") pursuant to the Vesting Schedule indicated on the Certificate ("Vesting Schedule"). The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan. 3. EXERCISE OF OPTION. (A) FORM OF EXERCISE. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share. (B) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an "Eligible Participant"). (C) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), PROVIDED THAT this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Grant Expiration Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation. (D) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for "cause" as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), PROVIDED THAT this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date. (E) DISCHARGE FOR CAUSE. If the Participant, prior to the Grant Expiration Date, is discharged by the Company for "cause" (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge. "Cause" shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for "Cause" if the Company determines, within 30 days after the Participant's resignation, that discharge for cause was warranted. 4. WITHHOLDING. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 5. NONTRANSFERABILITY OF OPTION. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 6. PROVISIONS OF THE PLAN. This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. SEPRACOR INC. PARTICIPANT'S ACCEPTANCE The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof. The Participant hereby acknowledges receipt of a copy of the Company's 1997 Stock Option Plan. 2 EX-99.(D)(4) 10 a2082196zex-99_d4.txt EXHIBIT (D)(4) EXHIBIT (D)(4) SEPRACOR INC. FORM OF INCENTIVE STOCK OPTION AGREEMENT GRANTED UNDER 2000 STOCK INCENTIVE PLAN 1. GRANT OF OPTION. This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the "Company"), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the "Certificate") to an employee of the Company (the "Participant"), of an option to purchase, in whole or in part, on the terms provided herein and in the Company's 2000 Stock Incentive Plan (the "Plan"), the number of shares (the "Shares") of common stock, $10 par value per share, of the Company ("Common Stock") indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (the "Grant Expiration Date"). It is intended that the option evidenced by this agreement shall be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). Except as otherwise indicated by the context, the term "Participant", as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms. 2. VESTING SCHEDULE. This option will become exercisable ("vest") pursuant to the Vesting Schedule indicated on the Certificate ("Vesting Schedule"). The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan. 3. EXERCISE OF OPTION. (A) FORM OF EXERCISE. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share. (B) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an "Eligible Participant"). (C) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), PROVIDED THAT this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Grant Expiration Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation. (D) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for "cause" as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), PROVIDED THAT this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date. (E) DISCHARGE FOR CAUSE. If the Participant, prior to the Grant Expiration Date, is discharged by the Company for "cause" (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge. "Cause" shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for "Cause" if the Company determines, within 30 days after the Participant's resignation, that discharge for cause was warranted. 4. WITHHOLDING. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 5. NONTRANSFERABILITY OF OPTION. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 6. DISQUALIFYING DISPOSITION. If the Participant disposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition. 7. PROVISIONS OF THE PLAN. This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. SEPRACOR INC. PARTICIPANT'S ACCEPTANCE The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof. The Participant hereby acknowledges receipt of a copy of the Company's 2000 Stock Incentive Plan. 2 EX-99.(D)(5) 11 a2082196zex-99_d5.txt EXHIBIT (D)(5) EXHIBIT (D)(5) SEPRACOR INC. FORM OF NONSTATUTORY STOCK OPTION AGREEMENT GRANTED UNDER 2000 STOCK INCENTIVE PLAN 1. GRANT OF OPTION. This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the "Company"), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the "Certificate") to an employee, consultant, or director of the Company (the "Participant"), of an option to purchase, in whole or in part, on the terms provided herein and in the Company's 2000 Stock Incentive Plan (the "Plan"), the number of shares (the "Shares") of common stock, $.10 par value per share, of the Company ("Common Stock") indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate ("Grant Expiration Date"). It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). Except as otherwise indicated by the context, the term "Participant", as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms. 2. VESTING SCHEDULE. This option will become exercisable ("vest") pursuant to the Vesting Schedule indicated on the Certificate ("Vesting Schedule"). The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan. 3. EXERCISE OF OPTION. (a) FORM OF EXERCISE. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share. (b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an "Eligible Participant"). (c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), PROVIDED THAT this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Grant Expiration Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation. (d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for "cause" as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), PROVIDED THAT this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date. (e) DISCHARGE FOR CAUSE. If the Participant, prior to the Grant Expiration Date, is discharged by the Company for "cause" (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge. "Cause" shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for "Cause" if the Company determines, within 30 days after the Participant's resignation, that discharge for cause was warranted. 4. WITHHOLDING. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 5. NONTRANSFERABILITY OF OPTION. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 6. PROVISIONS OF THE PLAN. This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. SEPRACOR INC. PARTICIPANT'S ACCEPTANCE The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof. The Participant hereby acknowledges receipt of a copy of the Company's 2000 Stock Incentive Plan. 2 EX-99.(D)(6) 12 a2082196zex-99_d6.txt EX-99.(D)(6) EXHIBIT (D)(6) SEPRACOR INC. 2002 STOCK INCENTIVE PLAN 1. PURPOSE The purpose of this 2002 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, 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 parent or subsidiary corporations as defined in Sections 424(e) or (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, a joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the "Board"). 2. ELIGIBILITY All of the Company's employees (and any individuals who have accepted an offer for employment), consultants and advisors, other than those who are also officers (within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder), or directors of the Company, 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 AND 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 officers referred to in Section 3(c) to the extent that the Board's powers or authority under the Plan have been delegated to such Committee or executive officers. (c) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to grant Awards to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such executive officers (including the exercise price of such Awards, -1- which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Awards that the executive officers may grant; provided further, however, that no executive officer shall be authorized to grant Awards to any "executive officer" of the Company (as defined by Rule 3b-7 under the Exchange Act) or to any "officer" of the Company (as defined by Rule 16a-1 under the Exchange Act). 4. STOCK AVAILABLE FOR AWARDS. Subject to adjustment under Section 8, Awards may be made under the Plan for up to 500,000 shares of common stock, $0.10 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 (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) 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. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. 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. Each Option granted under the Plan shall be a "nonstatutory stock option," not intended to qualify as an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option"). No Incentive Stock Options shall be granted under the Plan. (b) EXERCISE PRICE. The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable option agreement. (c) 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. (d) 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(e) for the number of shares for which the Option is exercised. (e) 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 and any required tax withholding 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 and any required tax withholding; (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 -2- Common Stock, if acquired directly from the Company 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. (f) 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 or in Section 2. 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. (c) STOCK CERTIFICATES. 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 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 -3- 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 Exchange Act) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within 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 -4- 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 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 -5- 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 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. -6- (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. 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 in such form (written, electronic or otherwise) 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 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; provided, however, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company's minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 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 and changing the date of exercise or realization, 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. Without intending to limit the generality of the preceding sentence, the Board may, without amending the Plan, modify Awards granted to Participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customers of such foreign jurisdiction with respect to tax, securities, currency, employee benefits or other matters. (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 -7- 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 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 Award shall become immediately exercisable in full or in part, 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 February 21, 2002, the date on which it was adopted by the Board (the "Effective Date"). No Awards shall be granted under the Plan after the completion of ten years from the Effective Date, 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. (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. Adopted by the Board of Directors on February 21, 2002. -8- EX-99.(D)(7) 13 a2082196zex-99_d7.txt EX-99.(D)(7) EXHIBIT (D)(7) SEPRACOR INC. FORM OF NONSTATUTORY STOCK OPTION AGREEMENT GRANTED UNDER 2002 STOCK INCENTIVE PLAN 1. GRANT OF OPTION. This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the "Company"), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the "Certificate") to an employee, consultant, or director of the Company (the "Participant"), of an option to purchase, in whole or in part, on the terms provided herein and in the Company's 2002 Stock Incentive Plan (the "Plan"), the number of shares (the "Shares") of common stock, $.10 par value per share, of the Company ("Common Stock"),indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate ("Grant Expiration Date"). It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). Except as otherwise indicated by the context, the term "Participant", as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms. 2. VESTING SCHEDULE. This option will become exercisable ("vest") pursuant to the Vesting Schedule indicated on the Certificate ("Vesting Schedule"). The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan. 3. EXERCISE OF OPTION. (a) FORM OF EXERCISE. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share. (b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an "Eligible Participant"). (c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Grant Expiration Date, violates the non-competition or confidentiality -1- provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation. (d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for "cause" as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date. (e) DISCHARGE FOR CAUSE. If the Participant, prior to the Grant Expiration Date, is discharged by the Company for "cause" (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge. "Cause" shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for "Cause" if the Company determines, within 30 days after the Participant's resignation, that discharge for cause was warranted. 4. WITHHOLDING. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 5. NONTRANSFERABILITY OF OPTION. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 6. PROVISIONS OF THE PLAN. This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. SEPRACOR INC. PARTICIPANT'S ACCEPTANCE The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof. The Participant hereby acknowledges receipt of a copy of the Company's 2002 Stock Incentive Plan. -2- -----END PRIVACY-ENHANCED MESSAGE-----