Document:

<PAGE>

                                                                  EXHIBIT 10.34

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                           EXCLUSIVE LICENSE AGREEMENT

                                 BY AND BETWEEN

                              ELI LILLY AND COMPANY

                                       AND

                                  SEPRACOR INC.

<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>

                                                                       Page

<S>            <C>                                                      <C>
ARTICLE 1      DEFINITIONS...............................................5
      1.1      Affiliate.................................................5
      1.2      Basic Patent Rights.......................................6
      1.3      Business Day..............................................6
      1.4      Calendar Year.............................................6
      1.5      Change of Control.........................................6
      1.6      Combination Product.......................................6
      1.7      DDS Formulation...........................................6
      1.8      Dollars...................................................6
      1.9      Effective Date............................................7
      1.10     First Commercial Sale.....................................7
      1.11     HSR Act...................................................7
      1.12     Improvement...............................................7
      1.13     Improvement Patent Rights.................................7
      1.14     Licensed Technology.......................................7
      1.15     Native R-fluoxetine Product...............................7
      1.16     NDA.......................................................7
      1.17     Net Sales.................................................8
      1.18     Patent Rights.............................................9
      1.19     Payment Period............................................9
      1.20     Permitted Sublicensee.....................................9
      1.21     Phase I Clinical Study....................................9
      1.22     Phase III Clinical Study..................................9
      1.23     Product..................................................10
      1.24     Proprietary Information..................................10
      1.25     R-fluoxetine.............................................10
      1.26     Regulatory Application...................................10
      1.27     Sepracor Know-How........................................10
      1.28     United States............................................11
      1.29     Valid Claim..............................................11
ARTICLE 2      LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND
               COMMERCIALIZATION........................................11
      2.1      Exclusive License Grant..................................11
      2.2      Sepracor Transfers and Disclosure of Information.........12
      2.3      HSR Filing and Approvals.................................13
      2.4      Lilly's Development Obligations..........................14
      2.5      Independent Discoveries by Lilly.........................18
      2.6      Other Studies............................................18
      2.7      Progress Reports to Sepracor.............................19
      2.8      Conversion of License....................................19

                                       i
<PAGE>

ARTICLE 3      PAYMENTS; ROYALTIES AND REPORTS..........................19
      3.1      Consideration for License................................19
      3.2      Milestones for License...................................19
      3.3      Royalties, United States.................................20
      3.4      Royalties, Outside the United States.....................22
      3.5      Third Party Royalties....................................24
      3.6      Obligations and Licenses After Royalty Term Expiration...24
      3.7      Samples..................................................25
      3.8      One Royalty Payment......................................25
      3.9      Payment and Report Timing................................25
      3.10     Payments to Sepracor.....................................25
      3.11     Books and Records; Audits................................26
      3.12     No Reduction in Payments.................................27
ARTICLE 4      PATENTS & TRADEMARKS.....................................27
      4.1      Filing, Prosecution and Maintenance of Patent Rights.....27
      4.2      Lilly and Joint Inventions...............................27
      4.3      Enforcement of Patents...................................28
      4.4      Consent for Settlement...................................28
      4.5      Actions Against the Parties..............................29
      4.6      Trademarks...............................................29
      4.7      Studies and Information in Support of Patent Rights......29
ARTICLE 5      INFORMATION AND CONFIDENTIALITY..........................29
      5.1      Confidential Information and Nondisclosure...............29
      5.2      Public Announcements.....................................30
ARTICLE 6      NOTICES..................................................31
ARTICLE 7      TERM AND TERMINATION.....................................31
      7.1      Term.....................................................31
      7.2      Termination..............................................31
      7.3      Liquidation..............................................34
ARTICLE 8      FORCE MAJEURE............................................34
ARTICLE 9      REPRESENTATIONS & WARRANTIES, COVENANTS..................34
ARTICLE 10     INDEMNIFICATION..........................................36
      10.1     Lilly....................................................36
      10.2     Sepracor.................................................36
      10.3     Conditions of Indemnification............................36
ARTICLE 11     MISCELLANEOUS............................................37
      11.1     Modifications............................................37
      11.2     Assignments and Change of Control........................37
      11.3     Headings.................................................37
      11.4     Invalidity...............................................37
      11.5     Governing Law............................................37
      11.6     Waiver...................................................37
      11.7     No Other Relationship....................................38
      11.8     Entire Understanding.....................................38

                                       ii
<PAGE>

      11.9     Responsibility for Taxes.................................38
      11.10    Compliance With Laws.....................................38
      11.11    Counterparts.............................................38
      11.12    Exhibits and Appendices..................................38
</TABLE>

                                      iii
<PAGE>

APPENDIX 1.2
APPENDIX 1.13
APPENDIX 2.4(A)
APPENDIX 3.3
APPENDIX 5.2
APPENDIX 9.2

                                       iv
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                           EXCLUSIVE LICENSE AGREEMENT

         THIS EXCLUSIVE LICENSE AGREEMENT (the "Agreement") is by and between
Eli Lilly and Company, a corporation organized and existing under the laws of
Indiana and having its principal place of business at Lilly Corporate Center,
Indianapolis, Indiana 46285 (hereinafter referred to as "Lilly") and Sepracor
Inc., a Delaware corporation having its principal place of business at 111 Locke
Drive, Marlborough, Massachusetts 01752 (hereinafter referred to as "Sepracor").
Sepracor and Lilly are sometimes referred to herein individually as a party and
collectively as the parties. References to "Lilly" and "Sepracor" shall include
their respective Affiliates (which term is hereinafter defined).

         WHEREAS, Sepracor possesses certain intellectual property rights and
regulatory filings relating to R-fluoxetine; and

         WHEREAS, Lilly possesses extensive capabilities in marketing,
manufacturing, development and commercialization of pharmaceutical products,
including fluoxetine, on a worldwide basis; and

         WHEREAS, Lilly desires to engage in research, development, marketing
and sale of pharmaceutical products involving R-fluoxetine as an active
ingredient; and

         WHEREAS, Lilly desires to acquire from Sepracor, and Sepracor is
willing to grant to Lilly, an exclusive license under Sepracor's intellectual
property rights relating to R-fluoxetine, including patents and know-how, upon
the terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms and conditions hereafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lilly and Sepracor hereby agree as follows:

                                   ARTICLE 1
                                   DEFINITIONS

         As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the respective meanings set forth below:

         1.1      AFFILIATE. "Affiliate" shall mean any individual or entity
directly or indirectly controlling, controlled by or under common control with,
a party to this Agreement.

<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         For purposes of this Agreement, the direct or indirect ownership of
greater than [**] of the outstanding voting securities of an entity shall be
deemed to constitute control. An individual or entity shall be considered an
"Affiliate" only for so long as such control exists.

         1.2      BASIC PATENT RIGHTS. "Basic Patent Rights" shall mean rights
under any patents listed in Appendix 1.2 hereto, any and all substitutions,
divisions, continuations, continuations-in-part, reissues, renewals,
registrations, confirmations, re-examinations, extensions, supplementary
protection certificates or any like filing thereof, and provisional applications
of any such patents and patent applications, and any international equivalent of
any of the foregoing.

         1.3      BUSINESS DAY. "Business Day" shall mean a day on which banks
are open for business in both Marlborough, Massachusetts and Indianapolis,
Indiana.

         1.4      CALENDAR YEAR. "Calendar Year" shall mean each successive
period of twelve (12) months commencing on January 1 and ending on December 31,
for so long as this Agreement is in effect.

         1.5      CHANGE OF CONTROL. "Change of Control" shall mean acquisition
by a third party of [**] or more of the stock of a party to this Agreement, or
transfer to a third party of Effective Control of a party to this Agreement as a
result of any other transaction. "Effective Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the applicability of the
foregoing, an entity which shall be consolidated pursuant to United States
Generally Accepted Accounting Principles ("GAAP") with either Lilly or Sepracor
shall be deemed under Effective Control for purposes of this Agreement.

         1.6      COMBINATION PRODUCT. "Combination Product" shall mean Product
which comprises two (2) or more active ingredients at least one (1) of which is
R-fluoxetine.

         1.7      DDS FORMULATION. "DDS Formulation" shall mean Product based on
a drug delivery system that enables administration by a route other than oral
delivery, or which significantly alters release characteristics as compared to
conventional, non-controlled release oral formulations.

         1.8      DOLLARS. "Dollar" shall mean lawful money of the United States
of America.

                                      -6-
<PAGE>

         1.9      EFFECTIVE DATE. "Effective Date" shall mean the latest of (a)
the date on which Sepracor executes this Agreement; (b) the date on which Lilly
executes this Agreement; and (c) if applicable, the next Business Day following
the expiration or earlier termination of any notice and waiting period wider the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

         1.10     FIRST COMMERCIAL SALE. "First Commercial Sale" shall mean,
with respect to any Product, the first sale of Product by Lilly or Permitted
Sublicensee to an independent third party.

         1.11     HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.

         1.12     IMPROVEMENT. "Improvement" shall mean any enhancement in the
formulation, ingredients, preparation, presentation, means of delivery, dosage,
package of, manufacture, or any new or expanded therapeutic indications(s) for
or uses of, Product or R-fluoxetine, in each case which is developed prior to or
during the term of this Agreement by or on behalf of Sepracor, or conceived
jointly by employees or agents of Sepracor and Lilly.

         1.13     IMPROVEMENT PATENT RIGHTS. "Improvement Patent Rights" shall
mean rights under any patent or patent application listed in Appendix 1.13
hereto, and any and all substitutions, continuations, divisions,
continuations-in-part, reissues, renewals, registrations, confirmations,
reexaminations, extensions including supplementary protection certificates,
foreign equivalents or counterparts, and other filings thereof, and any patent
or patent application, and any and all substitutions, continuations, divisions,
continuations-in-part, reissues, renewals, registrations, confirmations,
reexaminations, extensions including supplementary protection certificates,
foreign equivalents or counterparts, and other filings thereof, containing
claims that cover an Improvement.

         1.14     LICENSED TECHNOLOGY. "Licensed Technology" shall mean Patent
Rights, Sepracor Know-How, and Improvements.

         1.15     NATIVE R-FLUOXETINE PRODUCT. "Native R-fluoxetine Product"
shall mean Product that is neither Combination Product nor DDS Formulation.

         1.16     NDA. "NDA" shall mean, with respect to the United States, a
New Drug Application filed with the United States Food and Drug Administration
seeking authorization to market Product in the United States, and with respect
to any country outside the United States, an application submitted to the
relevant drug regulatory authorities seeking authorization to market Product in
such country.

                                      -7-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         1.17     NET SALES. "Net Sales" shall mean, on a country by country
basis, with respect to a Product, the gross amount invoiced by Lilly or
Permitted Sublicensees to unrelated third parties, for the Product in the
country, less:

                  (a)   any normal and customary [**] and [**];

                  (b)   any [**], and [**] adjustments;

                  (c)   any actual [**] and [**];

                  (d)   any [**] of Product including, without limitation, [**];

                  (e)   any [**] separately itemized and shown in the invoice
for Product; and

                  (f)   any other similar and customary deductions which are
consistent with United States GAAP, or in the case of non-United States
Affiliates an Permitted Sublicensees, other applicable accounting standards,
regarding Net Sales.

         Such amounts shall be determined from the books and records of Lilly or
any United States Permitted Sublicensee maintained in accordance with United
States GAAP, or in the case of non- United States Permitted Sublicensees such
other similar applicable accounting standards, consistently applied. Lilly
further agrees in determining such amounts, it will use Lilly's then-current
standard procedures and methodology, including Lilly's then-current standard
exchange rate methodology for the translation of foreign currency sales into
Dollars or in the case of Permitted Sublicensees, similar methodology,
consistently applied. Lilly's standard exchange rate methodology will be
consistent with that used in Lilly's external financial reporting which shall be
GAAP compliant or, in the case of non-United States Affiliates and Permitted
Sublicensees, compliant with other similar applicable accounting standards.

                  (1)      In the event that Product is sold as a Combination
                           product which is labeled for [**] and [**]
                           substantially [**] the [**] of Native R-fluoxetine
                           Product, Net Sales of that combination product for
                           the purposes of determining royalty payments, shall
                           be determined by multiplying the [**] Net Sales price
                           per [**] by the number of [**] in a Payment Period.
                           [**] price [**] of Native R-fluoxetine Product shall
                           be calculated [**] to the [**] period. It shall be
                           calculated by dividing the [**] for all Native
                           R-fluoxetine Products sold in the applicable [**] by
                           the [**] of all Native R-fluoxetine Products for that
                           [**]. This calculation shall be performed on a
                           country-by-country basis for each country where
                           Combination Product is sold.

                                      -8-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                  (2)      In the event that Product is sold as a Combination
                           Product which is labeled for [**] substantially [**]
                           the [**] of Native R-fluoxetine Product, Net Sales of
                           that Combination Product, for the purposes of
                           determining royalty payments shall be determined by
                           first multiplying the [**] Net Sales price per [**]
                           by the number of [**] of the Combination Product and
                           then multiplying the product by the total [**] of the
                           Combination Product sold in a [**]. Weighted Average
                           Net Sales price per [**] of Native R-fluoxetine
                           Product shall be calculated [**] and applied to the
                           [**] period. It shall be calculated by dividing the
                           [**] for all Native R-fluoxetine in all Native
                           R-fluoxetine Products sold in that [**]. This
                           calculation shall be performed on a
                           country-by-country basis for each country where
                           Combination Product is sold.

                  (3)      In the event that Native R-fluoxetine Product is not
                           sold at all in a country, [**] of actual Net Sales of
                           Combination Product in that country shall be used for
                           the purpose of determining royalty payments.

                  (4)      Actual Net Sales of DDS Formulations shall be used
                           for the purpose of determining royalty payments.

         For the purposes of this Section 1.17, the term "unit" shall mean a
discrete manufactured unit, such as a tablet, capsule, caplet, soft elastic
gelatin capsule, and the like.

         1.18     PATENT RIGHTS. "Patent Rights" shall mean Basic Patent Rights
and Improvement Patent Rights.

         1.19     PAYMENT PERIOD. "Payment Period" shall mean a calendar quarter
ending on March 31st, June 30th, September 30th, or December 31st.

         1.20     PERMITTED SUBLICENSEE. "Permitted Sublicensee" shall mean the
holder of any sublicense granted in writing pursuant to Section 2.1(b) of this
Agreement.

         1.21     PHASE I CLINICAL STUDY. "Phase I Clinical Study" shall mean a
clinical study conducted in accordance with good clinical practice ("GCP") in a
small number of healthy volunteers or patients designed or intended to establish
an initial safety profile, pharmacodynamics or pharmacokinetics of Product.

         1.22     PHASE III CLINICAL STUDY. "Phase III Clinical Study" shall
mean a human clinical trial involving Product conducted in accordance with 21
C.F.R. ss. 312.21(c), or any successor thereto.

                                      -9-
<PAGE>

         1.23     PRODUCT. "Product" shall mean any form or dosage of
pharmaceutical composition or preparation in final form (including Combination
Product and DDS Formulation) labeled and packaged for sale by prescription,
over-the-counter or any other method, which contains R-fluoxetine as an active
ingredient.

         1.24     PROPRIETARY INFORMATION. "Proprietary Information" shall mean
all technical and scientific know-how and information, pre-clinical and clinical
trial results, computer programs, knowledge, technology, means, methods,
processes, practices, formulas, techniques, procedures, technical assistance,
designs, drawings, apparatus, written and oral representations of data,
specifications, assembly procedures, schematics and other valuable information
of whatever nature, whether confidential or not, and all other scientific,
clinical, regulatory, marketing, financial and commercial information or data,
whether communicated in writing, verbally or electronically, which is provided
by one party to the other party in connection with this Agreement. When
Proprietary Information is disclosed in a manner other than in writing, it shall
be reduced to written form, marked "Confidential" and transmitted to the
receiving party within thirty (30) Business Days of disclosure to the receiving
party.

         1.25     R-FLUOXETINE. "R-fluoxetine" shall mean any form (including,
without limitation, any salt, hydrate, crystalline structure or the like) of the
chemical compound known as the R(-) isomer of fluoxetine, also identified by the
chemical name (-)N-methyl-3-phenyl-3-[(oc,oc,oc-trifluoro-p-tolyl)-oxy]
-propylamine, or any metabolite thereof.

         1.26     REGULATORY APPLICATION. "Regulatory Application" shall mean
any application or request necessary for the development, manufacture,
distribution, marketing, promotion, offer for sale, use, import, export or sale
of Product, including but not limited to, any applications or requests for: (i)
approval of Product, including any NDAs, and supplements and amendments thereto;
(ii) pre- and post-approval marketing authorizations (including any applications
for prerequisite manufacturing approval or authorization related thereto); (iii)
labeling approval; (iv) technical, medical and scientific licenses; and (v)
registrations or authorizations from any national, regional, state or local
regulatory agency, department, bureau, commission, council or other governmental
entity necessary for the development, manufacture, distribution, marketing,
promotion, offer for sale, use, import, export or sale of Product.

SEPRACOR KNOW-HOW. "Sepracor Know-How" shall mean any of Sepracor's information
and materials, relating to the research, development, registration, manufacture,
marketing, use or sale of R-fluoxetine or Product which prior to or during the
term of this Agreement are developed by or at the request of Sepracor or in
Sepracor's possession or control through license or otherwise (provided that
Sepracor is permitted to make disclosure thereof to Lilly without violating the
terms of any third party agreement), and which are not generally known. Sepracor
Know-How shall include, without limitation, discoveries, practices, methods,
knowledge, processes, formulas, data, ideas, skill, experience, inventions,
technology, trade secrets,

                                      -10-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

manufacturing procedures, test procedures, purification and isolation
techniques, instructions, test data and other intellectual property (patentable
or otherwise) relating to R-fluoxetine or Product. Sepracor Know-How shall also
include, without limitation: (i) all biological, chemical, pharmacological,
toxicological, pharmaceutical, physical and analytical, clinical, safety,
manufacturing and quality control data and information related to R-fluoxetine;
(ii) assays and biological methodology necessary or useful for development,
manufacture, use or sale of R-fluoxetine or Product; and (iii) all applications,
registrations, licenses, authorizations, approvals and correspondences submitted
to or received from any regulatory authorities with jurisdiction over an
investigational drug containing R-fluoxetine created by or for Sepracor
(including, without limitation, minutes and official contact reports relating to
any communications with any regulatory authority with jurisdiction over an
investigational drug containing R-fluoxetine).

         1.27     UNITED STATES. "United States" shall mean the United States of
America and its territories and possessions.

         1.28     VALID CLAIM. "Valid Claim" shall mean, with respect to a
country, a claim of any unexpired patent, included within Patent Rights, in such
country which (i) has not been revoked or held unenforceable or invalid by a
decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal; or (ii) has not
been abandoned, disclaimed, or admitted to be invalid or unenforceable through
reissue.

                                   ARTICLE 2
      LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND COMMERCIALIZATION

         2.1      EXCLUSIVE LICENSE GRANT.

                  (a)   LICENSE. Sepracor hereby grants to Lilly, as of the
Effective Date, an exclusive, worldwide license (exclusive even as to Sepracor
except as may be required by Sepracor in order to comply with its obligations
under this Agreement) to discover, develop, make, have made, import, export,
use, distribute, market, promote, offer for sale and sell R-fluoxetine and
Product under Licensed Technology. In addition, Sepracor hereby grants to Lilly
a right of reference to Sepracor IND [**] as of the date this Agreement was
fully executed by the parties; provided, however, that such right of reference
shall be revoked in the event that this Agreement is not approved pursuant to
the HSR Act.

                                      -11-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                  (b)   RIGHT TO SUBLICENSE. Lilly shall have the right to
sublicense any of the licenses granted under Section 2.1(a) through written
sublicense agreements only provided that Lilly remains responsible to Sepracor
under this Agreement, and each party granted a sublicense hereunder confirms in
writing to Lilly that it agrees to be bound by all of the terms and conditions
contained in the Agreement; provided further that any sublicense in the United
States shall require Sepracor's prior written consent, which shall not be
unreasonably withheld. Lilly shall have no other right to sublicense.

         2.2      SEPRACOR TRANSFERS AND DISCLOSURE OF INFORMATION.

                  (a)   TRANSFER OF IND/ON-GOING STUDIES. Promptly after
completion of any on-going Phase I studies, Sepracor shall use reasonable
efforts to transfer Sepracor's IND [**] to Lilly. In addition, Sepracor shall
proceed with the orderly completion of any other on-going studies, including
toxicology studies, and transfer of any data or information arising therefrom,
necessary to timely and efficiently commence or complete any clinical studies.
This obligation shall also apply to any other Regulatory Application, data, or
information in Sepracor's possession or control for Product in any other
country.

                           (i)   With regard to Sepracor's on-going Phase I
study identified by Protocol [**], Lilly shall reimburse Sepracor for costs and
expenses incurred by Sepracor in connection with this study the amount of [**]
payable within [**] of the Effective Date. Prior to payment by Lilly, Sepracor
shall provide to Lilly the amount of and supporting documentation for any costs
and expenses incurred by Sepracor before the signing date of this Agreement, and
estimates of costs and expenses to be incurred after the signing date of this
Agreement.

                           (ii)  With regard to Sepracor's Phase I study
identified by Protocol [**], Lilly shall promptly reimburse Sepracor for
reasonable direct costs and expenses, including direct costs of time spent by
Sepracor employees, incurred by Sepracor in connection with this study. Sepracor
shall provide Lilly with an estimate of such costs and expenses. Sepracor shall
invoice Lilly for such costs and expenses, and shall provide documentation for
the invoice. The invoice shall be payable to Sepracor or its designee(s) [**]
after receipt by Lilly of the invoice and supporting documentation.

                  (b)   DISCLOSURE OF SEPRACOR KNOW-HOW.

                           (i)   Except as provided in Section 2.2(a) above,
promptly after the Effective Date, Sepracor shall, at its own cost, use good
faith reasonable efforts to disclose to Lilly in writing, or via mutually
acceptable electronic media, copies or reproductions of all written Sepracor
Know-How reasonably available to Sepracor not previously disclosed to Lilly in
order to enable Lilly to exploit the rights granted under Section 2.1 of this
Agreement.

                                      -12-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                           (ii)  In addition, during the term of this
Agreement, Sepracor shall promptly disclose to Lilly in writing, or via mutually
acceptable electronic media, on an ongoing basis copies or reproductions of all
new written Sepracor Know-How that is reasonably necessary to research, develop,
register, manufacture, market, use or sell R-fluoxetine or Product. Such new
Sepracor Know-How and other useful information shall be automatically deemed to
be within the scope of the licenses granted herein without payment of any
additional compensation.

                           (iii) Upon Lilly's request, Sepracor shall provide
reasonable technical assistance and materials available to Sepracor to enable
Lilly to utilize Sepracor Know-How, provided that Lilly shall promptly reimburse
Sepracor for reasonable direct costs and expenses, including direct costs of
time spent by Sepracor employees, incurred by Sepracor in providing such
technical assistance and materials. Sepracor shall invoice Lilly for such costs
and expenses, and shall provide documentation for the invoice. The invoice shall
be payable to Sepracor or its designee(s) [**] after receipt by Lilly of the
invoice and supporting documentation provided, however, that such costs and
expenses must be identified prior to being committed to by Sepracor and provided
to Lilly to determine whether Lilly agrees to have the technical assistance
provided at such cost and the final amount sought to be reimbursed shall not
exceed by [**] the estimated cost without Lilly's prior written consent. Lilly
shall be under no obligation to reimburse Sepracor for costs and expenses
incurred by Sepracor without Lilly's agreement. Lilly shall have the right to
use for all purposes in connection with any Regulatory Application for Product
all Sepracor Know-How and other information disclosed pursuant to this Section
and under this Agreement.

         2.3      HSR Filing and Approvals.

                  (a)   HSR FILING. To the extent necessary, each of Sepracor
and Lilly shall file, within [**] after the date of this Agreement with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice any notification and report form (the "Report") required
of it in the reasonable opinion of either or both parties under the HSR Act with
respect to the transactions as contemplated hereby and shall cooperate with the
other party to the extent necessary to assist the other party in the preparation
of its Report and to proceed to obtain necessary approvals under the HSR Act,
including but not limited to the expiration or earlier termination of any and
all applicable waiting periods required by the HSR Act.

                  (b)   SEPRACOR'S OBLIGATIONS. Sepracor shall use good faith
reasonable efforts to assist Lilly in eliminating any concern on the part of any
court or government authority regarding the legality of the transaction proposed
herein, including, if required by federal or state antitrust authorities,
Lilly's promptly taking all reasonable

                                      -13-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

steps to secure government antitrust clearance. Sepracor shall cooperate in
good faith at its own cost with any government investigation regarding the
legality of the transaction proposed herein and promptly produce documents,
witnesses, and information demanded by a request for documents and witnesses
if requested.

                  (c)   ADDITIONAL APPROVALS. Sepracor and Lilly will each
cooperate and use all reasonable efforts to make all other registrations,
filings and applications, to give all notices and to obtain as soon as
practicable all governmental or other consents, transfers, approvals, orders,
qualifications, authorizations, permits and waivers, if any, and to do all other
things reasonably necessary or desirable in Lilly's opinion for the consummation
of this Agreement as contemplated hereby including, without limitation, those
acts required to obtain necessary approvals under any foreign equivalent
antitrust statute to the HSR Act or regulation from any government or regulatory
authority having the requisite jurisdiction; provided, however, that Lilly shall
promptly reimburse Sepracor for reasonable direct costs and expenses, including
direct costs of time spent by Sepracor employees, incurred by Sepracor in
providing such cooperation. Sepracor shall invoice Lilly for such costs and
expenses, and shall provide documentation for the invoice. The invoice shall be
payable to Sepracor or its designee(s) [**] after receipt by Lilly of the
invoice and supporting documentation provided, however, that such cost and
expenses must be identified prior to being committed to by Sepracor and provided
to Lilly to determine whether Lilly agrees to have the assistance provided at
such cost and the final amount sought to be reimbursed shall not exceed by [**]
the estimated cost without Lilly's prior written consent. Lilly shall be under
no obligation to reimburse Sepracor for costs and expenses incurred by Sepracor
without Lilly's agreement.

                  (d)   COSTS OF FILINGS. Except as specifically provided in
Section 2.3(c), each party shall be responsible for its own costs, expenses, and
filing fees associated with any of its filings under the HSR Act and any foreign
equivalent thereof.

         2.4      LILLY'S DEVELOPMENT OBLIGATIONS.

                  (a)   LILLY DILIGENCE.

                           (i)   At its own cost and expense, and subject to
Sepracor's compliance with its obligations under Sections 2.2(a), 2.2(b)(i), and
2.3(a), Lilly shall conduct preclinical and clinical trials and apply for all
governmental approvals necessary to manufacture, sell, market, and distribute
Product, and to develop, submit Regulatory Applications for, manufacture and
commercialize Product (such activities cumulatively referred to as
"Development"), in accordance with the Development Plan appended hereto as
Appendix 2.4(a) and incorporated herein by reference. The parties acknowledge
that lack of diligence in Development of Product will diminish the value

                                      -14-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

of this Agreement to Sepracor; accordingly, Lilly shall at all times put forth
good faith commercially reasonable efforts in connection with Development of
Product. Adherence to the timeline set forth in the Development Plan is agreed
by the parties to represent good faith commercially reasonable efforts and sound
scientific judgment in Development of Product; provided, however, that the
parties understand and agree that the timeline may from time to time be subject
to reasonable adjustment by Lilly in response to extenuating circumstances not
in the complete control of Lilly including, but not limited to, force majeure,
documented changes in the requirements of regulatory agencies, failed or
inconclusive clinical studies, discovery of unanticipated toxicity or adverse
events of Product, or a need for additional clinical studies to achieve
appropriate labeling of Product. Lilly shall use good faith commercially
reasonable efforts and sound scientific judgment to fully exploit Product to the
extent of its commercial potential.

                           (ii)  Subject to Section 2.4(a)(i) above, the
parties acknowledge and agree that all decisions including, without limitation,
decisions relating to Lilly's research, development, registration, manufacture,
sale, commercialization, design, price, distribution, marketing and promotion of
Product covered under this Agreement, shall be within the sole discretion of
Lilly. Sepracor acknowledges that Lilly is in the business of developing,
manufacturing and selling pharmaceutical products and, subject to the provisions
of Section 2.4(a)(i), nothing in this Agreement shall be construed as
restricting such business or imposing on Lilly the duty to market and/or sell
and exploit R-fluoxetine or Product for which royalties are payable hereunder to
the exclusion of, or in preference to, any other product, or in any way other
than in accordance with its normal commercial practices.

                  (b)   OPPORTUNITY TO CO-PROMOTE IN THE UNITED STATES. If
there is no generic Product on the market in the United States, or if the only
generic Products on the market in the United States are authorized by or on
behalf of Lilly, then Sepracor shall have an opportunity to co-promote Product
in the United States subject to the following paragraphs (i) and (ii).

                           (i)   In the event that (A) Product is launched in
the United States and (B) Net Sales of Product worldwide is below [**] in any
year-long period commencing after the [**] of First Commercial Sale in the
United States, as calculated at the end of each Payment Period, before the [**]
of First Commercial Sale in the United States (the "Trigger Period"), then
Sepracor shall have the right (but not the obligation) to co-promote all forms
of Product that have been commercialized during each of the preceding [**] as of
the date Sepracor exercises its option to copromote during the Trigger Period
(hereinafter "Co-Promotion Product"). Such co-promote rights shall extend only
to the United States, and Sepracor shall use its own sales force. The
co-promotion rights, which may be exercised only once, shall commence
immediately

                                      -15-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

upon the close of the Trigger Period and shall terminate upon the earlier of:
(1) the [**] of First Commercial Sale in the United States; and (2) the launch
of third-party generic Product in the United States without authorization from
Lilly. Sepracor shall notify Lilly of its intent to exercise this right within
[**] after receiving Lilly's relevant reports for the fourth quarter of the
Trigger Period; if within this [**] period Sepracor does not provide Lilly with
notice of its intent to exercise its co-promotion right, the right to co-promote
shall terminate.

                           (ii)  All months or years referred to in this
subsection are months or years after First Commercial Sale in the United States.
For the purposes of determining Net Sales of Product worldwide during the [**],
the parties shall (1) meet promptly during the [**] to discuss sales levels of
Product during the [**], and (2) immediately upon the conclusion of the [**],
Lilly shall prepare a projection of Net Sales for the [**]. Such projection
shall comprise the actual Net Sales worldwide for [**], and a projection of Net
Sales worldwide for [**] based upon actual Net Sales worldwide for [**] and
taking into consideration trend tines, including historical demand and shipment
trends, normal and customary buying patterns, and Lilly's normal inventory
loading patterns, for Product.

                           (iii) If Sepracor exercises its right to
co-promote Co-Promotion Product in the United States, the parties shall
negotiate in good faith a co-promotion agreement, the terms of which shall
include the following:

                                    (A)   The amount of Net Sales of
Co-Promotion Product during the [**] Trigger Period shall be referred to
hereinafter as the "Sales Base". During the term of the co-promotion Sepracor
shall receive a royalty as per Section 3.3 on the Net Sales of Co-Promotion
Product up to the Sales Base. With regard to Product other than Co-Promotion
Product, Sepracor shall continue to receive royalties in accordance with Article
3.

                                    (B)   Sales shall be booked by Lilly and
Lilly shall continue to control Product pricing decisions.

                                    (C)   Lilly shall continue to promote
Product and both parties shall use commercially reasonable efforts, to be
defined in the co-promotion agreement, to promote Co-Promotion Product through
in-person presentations to physicians. Sepracor shall receive a co-promotion fee
equal to [**]; provided, however, that the parties shall agree to equitably
share the aggregate sales force and non-sales force promotional expenses
targeted to incremental sales of Co-Promotion Product in excess of the Sales
Base.

                                    (D)   Sales aids and any other materials
made available to Lilly's sales force for use in promoting Co-Promotion Product
or training of Lilly's sales

                                      -16-
<PAGE>

force shall be made available to Sepracor. If any such materials are created by
Sepracor they shall be subject to Lilly's prior written approval before use,
which approval shall not unreasonably be withheld. Sepracor shall use Lilly
trademarks in accordance with standards to be provided by Lilly.

                  (c)   RESEARCH AND DEVELOPMENT ACTIVITIES. Subject to and
in accordance with its diligence obligations set forth in Section 2.4(a),
following the Effective Date, Lilly shall be responsible, at its cost and
expense, and in its sole judgment, for all research and development activities
which are necessary to submit Regulatory Applications for and obtain marketing
authorization for, Product, and any post-approval studies required as a
condition of obtaining any marketing authorization for Product. In addition,
Lilly shall be responsible for any other studies (or portions of studies)
necessary or desirable, in its sole judgment, for maintaining any NDA, as well
as any pre-marketing studies prior to marketing authorization, and
post-marketing studies conducted following marketing authorization.

                  (d)   PRODUCT REGISTRATIONS: PRICING REIMBURSEMENT
APPROVALS. Subject to and in accordance with its diligence obligations set forth
in Section 2A(a), Lilly shall be responsible, at its cost and expense, and in
its sole judgment, for determining the appropriate regulatory strategy, for
submitting Regulatory Applications, obtaining and maintaining marketing
authorizations, and for obtaining and maintaining any pricing and reimbursement
approvals required for the sale of Product. Each Regulatory Application and each
pricing and reimbursement approval shall be placed in Lilly's name unless
applicable law requires, or Sepracor and Lilly otherwise agree, that an approval
be solely or jointly in the name of Sepracor. Sepracor agrees that
notwithstanding such Regulatory Application or pricing and reimbursement
approval in its name, Lilly retains the exclusive rights granted to Lilly in
Section 2.1.

                  (e)   DATA. Lilly shall own all data arising out of studies
performed by or on behalf of Lilly under this Article 2.

                  (f)   ASSISTANCE BY SEPRACOR. In connection with any NDA,
or other Regulatory Application relating to Product, Sepracor shall, at Lilly's
request but reasonably subject to Sepracor's other business requirements,
provide to Lilly in a prompt manner responses to questions which have been
raised by any regulatory authority in connection with such Regulatory
Application and further provide to Lilly estimates of Sepracor's costs for
rendering such assistance. Sepracor shall assist Lilly from time to time, at
Lilly's request but reasonably subject to Sepracor's other business
requirements, in the design and implementation of clinical studies. Lilly shall
reimburse Sepracor for its reasonable direct costs and expenses, including
direct costs of time spent by Sepracor employees, incurred in rendering
assistance under this Section 2.4(f). Sepracor shall invoice Lilly for such
costs and expenses, and shall provide documentation for the invoice. The invoice
shall be payable to Sepracor or its

                                      -17-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

designee(s) [**] after receipt by Lilly of the invoice and supporting
documentation, provided, however, that such costs and expenses must be
identified prior to being committed to by Sepracor and provided to Lilly to
determine whether Lilly agrees to have the assistance provided at such cost and
the final amount sought to be reimbursed shall not exceed by [**] the estimated
cost without Lilly's prior written consent. Lilly shall be under no obligation
to reimburse Sepracor for costs and expenses incurred by Sepracor without
Lilly's agreement.

         2.5      INDEPENDENT DISCOVERIES BY LILLY. Sepracor acknowledges that
Lilly has had long ongoing research programs which may now or in the future
independently discover or develop technologies or products relating to treatment
and prevention of any disease, disorder or condition in humans or animals
including those related to R-fluoxetine and its manufacture. Sepracor agrees
that such technologies and products, to the extent discovered by Lilly without
use of Sepracor Know-How or Improvements, will not be deemed to be Sepracor
Know-How or Improvements.

         2.6      Other Studies.

                  (a)   After the Effective Date and during the term of this
Agreement, Sepracor shall have the right to conduct process research,
formulation research, and preclinical studies involving R-fluoxetine in support
of Patent Rights, and to disclose the results of such studies pursuant to
Sections 5.1(a)(iv) or (v) and in furtherance of this Agreement, unless Lilly
shall establish to Sepracor's reasonable satisfaction that such disclosure would
materially adversely affect Lilly's interest in Product; provided that prior to
First Commercial Sale, disclosure of the results of any such studies are first
notified to Lilly; and provided, further that prior to initiating any
preclinical studies (whether conducted prior to or after First Commercial Sale),
Sepracor shall obtain Lilly's prior written approval, which will not be
unreasonably withheld.

                  (b)   Except as provided in Section 2.6(a), prior to First
Commercial Sale, Sepracor shall not initiate further studies, process research,
formulation research or preclinical or clinical trials with R-fluoxetine without
the express written consent of Lilly, including the prior written approval of
any protocols to be used and any amendments thereto. Sepracor shall request
Lilly's written consent by complying with the notice provisions of Article 6,
and Lilly may grant or withhold such consent in its sole discretion.

                  (c)   Sepracor and Lilly acknowledge that all Sepracor
research results under Sections 2.6(a) and (b) shall constitute Sepracor
Know-How; accordingly, Sepracor shall provide to Lilly the results from such
research and any background information requested, at no additional cost or
royalty. Sepracor shall be permitted to disclose such results to third parties
only as provided under Section 5.1 below. At the

                                      -18-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

option of Lilly, Lilly may have its representative(s) monitor or assist with any
preclinical, clinical or other studies approved by Lilly as provided in Section
2.6(b) and conducted by Sepracor.

                  (d)   Sections 2.6(a) and (b) notwithstanding, nothing in
this Agreement shall be construed to restrict or limit Sepracor's right to use
Product obtained from commercial sources in clinical trials following First
Commercial Sale provided that no Proprietary Information is utilized by Sepracor
in violation of this Agreement.

         2.7      PROGRESS REPORTS TO SEPRACOR. During the term of this
Agreement, Lilly shall provide Sepracor with quarterly written reports,
including a meaningful summary of Development (including summary results from
preclinical and clinical trials conducted on Product) and registration progress
under this Agreement. Such reports shall also detail progress of Development
against the timeline of the Development Plan, any adjustments to the timeline,
and the reasons for such adjustments.

         2.8      CONVERSION OF LICENSE. Any other provision in this Agreement
notwithstanding, upon the conversion of any of the licenses granted herein to
fully paid up non-exclusive licenses pursuant to Section 3.6 or Section 7.1, as
appropriate, Sepracor shall not engage in sale of Product for [**] from the date
of conversion of the license. In addition, Sepracor shall not use Lilly
Confidential Information in violation of this Agreement.

                                   ARTICLE 3
                         PAYMENTS; ROYALTIES AND REPORTS

         3.1      CONSIDERATION FOR LICENSE. In partial consideration for the
licenses and rights granted to Lilly hereunder, Lilly shall pay to Sepracor a
non-refundable, non-creditable license fee ("License Fee") of [**], which
payment shall be due within [**] following the Effective Date.

         3.2      MILESTONES FOR LICENSE. In partial consideration for the
licenses granted to Lilly hereunder, Lilly shall pay to Sepracor milestone
payments up to a total amount of [**] as set forth below:

                  (a)   [**] for initiation of the first Phase I Clinical
Study for Product payable within [**] following the Effective Date;

                  (b)   [**] within [**] following initiation of the first
Phase III Clinical Study for a Product; and (c) [**] within [**] following First
Commercial Sale in the United States.

                                      -19-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         All milestones shall be payable only once irrespective of the number of
Products that have achieved the milestone events set forth in (a), (b) and (c)
above, and once a milestone payment is due or paid it shall be non-refundable
and shall not be creditable against any payments that may become payable by
Sepracor to Lilly, subject to Section 3.13.

         3.3      ROYALTIES, UNITED STATES.

                  (a)   ROYALTY RATES. Lilly agrees to pay Sepracor, for the
rights granted to Lilly with respect to Product pursuant to Section 2.1 above, a
royalty for Product sold in the United States by or on behalf of Lilly,
Permitted Sublicensees or assigns. Such royalty shall be payable commencing upon
First Commercial Sale in the United States by or on behalf of Lilly, Permitted
Sublicensees or assigns. Such royalty for United States sales shall be:

                           (i)   [**] on that fraction of Net Sales of
Product in the United States in the relevant Calendar Year equal to the fraction
of worldwide Net Sales of product under [**] in that Calendar Year; and

                           (ii)  [**] on that fraction of Net Sales of
product in the United States in the relevant Calendar Year equal to the fraction
of worldwide Net Sales of Product in that Calendar Year between [**]; and

                           (iii) [**] on that fraction of Net Sales of
product in the United States in the relevant Calendar year equal to the fraction
of worldwide Net Sales of Product in that Calendar Year in excess of [**]. An
example royalty calculation is set forth in Appendix 3.3.

                  (b)   TERM OF ROYALTY OBLIGATIONS. Subject to Sections
3.3(c) and 3.3(d) below, the royalty described in Section 3.3(a) shall be
payable on Net Sales of a Product until the date upon which a generic equivalent
of such Product, approved without authorization of Lilly, is launched in the
United States; provided, however, that in the event that royalties are reduced
pursuant to Section 3.3(d) in respect of a Product, royalties on such Product
shall be payable until the date which is the earlier of(i) ten (10) years after
the First Commercial Sale of the first Product and (ii) the date upon which a
generic equivalent of such Product, approved without authorization of Lilly, is
launched in the United States.

                                      -20-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.
                  (c)   ROYALTY INCREASE DATE. The royalty described I
Section 3.3(a) shall be [**] until the Royalty Increase Date, which shall be the
earlier of (i) the date upon which a [**] product is [**] or (ii) [**]; provided
however if approval or launch of generic racemic fluoxetine is delayed or does
not occur due to actions by Lilly or an agreement involving Lily (except for
Lilly's defense of its own patents), then the Royalty Increase Date shall be the
later of (i) the date of either [**] and (ii) the date of either [**] as such
dates may be extended for the purposes of ANDA exclusivity pursuant to the food
and Drug Administration Modernization Act of 1997 but no later than [**]. Until
the Royalty Increase Date all royalties on Net Sales of Product in the United
States shall e calculated on the basis of the royalty rate of Section 3.3(a)(i),
irrespective of the amount of worldwide Net Sales of Product.

                  (d)   ROYALTY REDUCTIONS. In respect of those Products for
which no Valid Claim of Improvement Patent Rights covers such Product, the
royalty in Section 3.3(a) shall be reduced by [**] from and after the time, if
any, that Basic Patent Rights expire or are rendered invalid, unenforceable, or
not patentable to Sepracor as a result of an executed decision from an
administrative or legal action brought by or on behalf of a third party and with
no involvement of Lilly, but only for so long as such executed decision shall
remain in effect; provided, however, that such royalty shall not be reduced to
less than [**] of Net Sales of Product. Additionally, as regards Combination
Product not covered by a Valid Claim of Improvement Patent Rights but covered by
a Valid Claim of a patent owned or controlled by Lilly which claims, generically
or specifically, (i) a non-R-fluoxetine active ingredient of such Combination
Product as a composition of matter, (ii) the labeled use of a non-R-fluoxetine
active ingredient of such Combination Product, (iii) the Combination Product
itself as a composition of matter, or (iv) the labeled use of such Combination
Product, the royalty of Section 3.3(a) shall be eliminated from and after the
later of (A) the date that Basic Patent Rights expire or are rendered invalid,
unenforceable, or not patentable to Sepracor as a result of an executed decision
from an administrative or legal action brought by or on behalf of a third party
with no involvement of Lilly, and (B) the date of launch in the United States of
a third party generic equivalent of Native R-fluoxetine Product not authorized
by Lilly.

         The provisions of this Section 3.3 that call for reduction or
elimination of royalties when particular Patent Rights are rendered invalid,
unenforceable, or not patentable to Sepracor shall be referred to as "patent
invalidation royalty reduction provisions".

                                      -21-
<PAGE>

         For the avoidance of any doubt, the parties expressly agree that
royalties payable to Sepracor shall not be reduced or eliminated pursuant to the
patent invalidation royalty reduction provisions of this Section 3.3(d)
concerning Basic Patent Rights if Basic Patent Rights are rendered invalid,
unenforceable, or not patentable to Sepracor in an administrative or legal
action (including but not limited to reexamination, reissue, or interference)
brought by, on behalf of or at the direction of, or in whole or in part by,
Lilly or a Permitted Sublicensee, or involving Lilly or a Permitted Sublicensee
as a party provided that Lilly or Permitted Sublicensee is not made a party to
such administrative or legal action due to the actions of another party thereto.

         The parties further agree that royalties on a Product that at the time
of sale is not, but once was, covered by a Valid Claim of Improvement Patent
Rights shall not be reduced or eliminated pursuant to the patent invalidation
royalty reduction provisions of this Section 3.3(d) concerning Improvement
Patent Rights if such Valid Claim was rendered invalid, unenforceable, or not
patentable to Sepracor in an administrative or legal action (including but not
limited to reexamination, reissue, or interference) brought by, on behalf of or
at the direction of, or in whole or in part by, Lilly or a Permitted
Sublicensee, or involving Lilly or a Permitted Sublicense as a party provided
that Lilly or Permitted Sublicensee is not made a party to such administrative
or legal action due to the actions of another party thereto.

         For the purposes of this Section, a Valid Claim of Improvement Patent
Rights shall be deemed to cover a Product if the sale or use of such Product
would be within the scope of such Valid Claim in accordance with the established
principles of patent claim interpretation in the United States.

         3.4      ROYALTIES, OUTSIDE THE UNITED STATES.

                  (a)   ROYALTY RATE. Lilly agrees to pay Sepracor, for the
rights granted to Lilly with respect to Product pursuant to Section 2.1 above, a
royalty for Product sold outside the United States by or on behalf of Lilly or
its Permitted Sublicensees or assigns. Such royalty shall be payable on a
country by country basis commencing upon First Commercial Sale in such country
by or on behalf of Lilly or its Permitted Sublicensees or assigns. Such royalty
shall be, on a country by country basis:

                                      -22-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                  (i)   [**] on that fraction of Net Sales of Product in the
country in the relevant Calendar Year equal to the fraction of worldwide Net
Sales of Product under [**] in that Calendar Year[**]; and

                  (ii)  [**]on that fraction of Net Sales of Product in the
country in the relevant Calendar Year equal to the fraction of worldwide Net
Sales of Product in that Calendar Year between [**]; and

                  (iii) [**]on that fraction of Net Sales of Product in the
country in the relevant Calendar Year equal to the fraction of worldwide Net
Sales of Product in that Calendar Year in excess of [**].

                  (b)   TERM OF ROYALTY OBLIGATIONS. In the event that a Valid
Claim of Improvement Patent Rights covering a Product exists in a particular
country, the royalty described in Section 3.4(a) shall be payable for Net Sales
of such Product in a country until the earlier of the date upon which such Valid
Claim expires or is rendered invalid or deemed unpatentable to Sepracor in a
judicial or administrative proceeding from which no appeal can be taken or the
date upon which a generic equivalent of such Product, approved without
authorization of Lilly, is launched.

                  (c)   ROYALTY REDUCTION. In the event that, or from and after
the date after which, no Valid Claim of Improvement Patent Rights covering a
Product exists in a particular country, the royalty described in Section 3.4(a)
shall be reduced by [**] in such country (but shall not be reduced to less than
[**]) and be payable for Net Sales of such Product in such country until the
later of(i) the date which is five (5) years after the date of First Commercial
Sale of the first Product in such country, and (ii) the date of expiration of
Lilly's regulatory exclusivity in respect of such Product in such country.
Additionally, as regards Combination Product not covered by a Valid Claim of
Improvement Patent Rights but covered by a Valid Claim of a patent owned or
controlled by Lilly, which Valid Claim claims, generically or specifically, (i)
a non-R-fluoxetine active ingredient of such Combination Product as a
composition of matter, (ii) the labeled use of a non-R-fluoxetine active
ingredient of such Combination Product, (iii) the Combination Product itself as
a composition of matter, or (iv) the labeled use of such Combination Product,
the royalty of Section 3.4(a) shall be eliminated from and after the date of
launch in the country in question of a generic equivalent of Native R-fluoxetine
Product by a third party not authorized by Lilly.

                                      -23-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         The provisions of this Section 3.4 that call for reduction or
elimination of royalties when particular Patent Rights are rendered invalid,
unenforceable, or not patentable to Sepracor shall be referred to as "patent
invalidation royalty reduction provisions".

         The parties further agree that royalties on a Product that at the time
of sale is not, but once was, covered by a Valid Claim of Improvement Patent
Rights shall not be reduced or eliminated pursuant to the patent invalidation
royalty reduction provisions of this Section 3.4 concerning Improvement Patent
Rights if such Valid Claim was rendered invalid, unenforceable, or not
patentable to Sepracor in an administrative or legal action (including but not
limited to reexamination, reissue, opposition, or interference) brought by, on
behalf of or at the direction of, or in whole or in part by, Lilly or a
Permitted Sublicensee, or involving Lilly or a Permitted Sublicensee as a party
provided that Lilly or Permitted Sublicensee is not made a party to such
administrative or legal action due to the actions of another party thereto.

         For the purposes of this Section, a Valid Claim of Improvement Patent
Rights shall be deemed to cover a Product if the sale of such Product would be
within the scope of such Valid Claim in accordance with the established
principles of patent claim interpretation of the jurisdiction where the Valid
Claim applies.

         3.5      THIRD PARTY ROYALTIES. In the event that third party patent
licenses are required by Lilly or its Permitted Sublicensees in order to make,
have made, use or sell a DDS Formulation in any country, Lilly shall be solely
responsible for acquiring such licenses at Lilly's sole discretion and Lilly may
deduct [**] of any royalty actually paid for a third party license from the
earned royalty due Sepracor in any Payment Period for sales of such DDS
formulation in such country; provided, however, that Lilly may not deduct more
than [**] of the earned royalty due Sepracor for sales of such DDS Formulation
in any country in any Payment Period, and further provided, however, that such
reduction may be made by Lilly in respect of sales in a country only if there
exists no Valid Claim of Basic Patent Rights in such country, there exists no
Valid Claim of Improvement Patent Rights covering such DDS Formulation in such
country, and only from and after the time of launch in such country of a generic
equivalent of native R-fluoxetine Product by a third party not authorized by
Lilly.

         3.6      OBLIGATIONS AND LICENSES AFTER ROYALTY TERM EXPIRATION. On a
country by country and Product by Product basis, after the royalty term expires
under this Article 3 in a country, Lilly shall have no further obligation to pay
any royalty in such country on the Net Sales of such Product pursuant to Article
3 hereof, and the licenses granted to Lilly under this Agreement shall become
fully paid up non-exclusive licenses as regards such Product in such country.

                                      -24-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         3.7      SAMPLES. No royalties shall accrue on the disposition of
Product by Lilly or its Permitted Sublicensees free of charge as samples
(promotion or otherwise) or as donations (for example, to non-profit
institutions or government agencies for a non-commercial purpose) or for
clinical studies. Such dispositions by Lilly free of charge shall not be
included in the determination of Net Sales.

         3.8      ONE ROYALTY PAYMENT. Only one royalty will be due on Net Sales
even though the manufacture, use or sale of Product may be covered by more than
one of Basic Patent Rights or Improvement Patent Rights in a country as licensed
under this Agreement.

         3.9      PAYMENT AND REPORT TIMING. Lilly shall remit royalty payments
under this Article 3, in Dollars, within [**] of the end of each Payment Period,
beginning with the first Payment Period after First Commercial Sale; provided,
however, that if Lilly enters an agreement with a third-party having terms
similar to those in this Agreement, wherein the royalty remittance period is
less than [**], such shorter remittance period shall be automatically applied to
this Agreement. With each payment, Lilly shall deliver to Sepracor a written
report describing, for the applicable Payment Period:

                  (a)   the total worldwide Net Sales for Product;

                  (b)   the Net Sales for Product on a country by country
basis for the top eight countries, and the number and description of each
Product sold by or on behalf of Lilly or Permitted Sublicensees or assigns
during such Payment Period for each of the top eight countries, and the exchange
rate used to convert sales from local currency to Dollars; and

                  (c)   the total royalty due.

         3.10     PAYMENTS TO SEPRACOR.

                  (a)   All payments to Sepracor pursuant to this Agreement
shall be made by wire transfer, to Fleet Bank of Massachusetts, 75 State Street,
Boston, Massachusetts 02109 [**] or such other bank or account as Sepracor may
from time to time designate in writing. All such payments shall be made in
Dollars.

                  (b)   Whenever any payment hereunder shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.

                  (c)   Payments hereunder shall be considered to be made as
of the day on which they are received in Sepracor's designated bank account

                                      -25-
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Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                  (d)   All payments due to Sepracor hereunder but not paid by
Lilly on the due date thereof shall bear interest (in Dollars) at the rate which
is the lesser of: (i) [**]; and (ii) [**]. Such interest shall accrue on the
balance of unpaid amounts from time to time outstanding from the date on which
portions of such amounts become due and owing until payment thereof in full.

         3.11     BOOKS AND RECORDS; AUDITS.

                           (a)  Lilly shall keep and maintain, and shall cause
Permitted Sublicensees and assigns to keep and maintain, complete and accurate
records and books of account in sufficient detail and form so as to enable
amounts payable under Article 3 to be determined. Upon [**] prior written notice
from Sepracor, Lilly shall permit an independent certified public accounting
firm of nationally recognized standing selected by Sepracor, at Sepracor's
expense, to have access during normal business hours to audit pertinent books
and records of Lilly, its Permitted Sublicensees and assigns as may be
reasonably necessary to verify the accuracy of the royalty reports hereunder.
The audit shall be limited to pertinent books and records for any year ending
not more than [**] prior to the date of such request. Such audit shall be at
Sepracor's expense unless the examination should establish that Lilly's payment
of such royalties for the period examined were in error by [**] or more of the
royalties which should have been paid, in which case Lilly shall be responsible
for the reasonable expenses of such audit. An audit under this Section 3.11
shall not occur more than once in any calendar year. Lilly may designate
competitively sensitive information, which such auditor may not disclose to
Sepracor, provided, however, that such designation shall not encompass the
auditor's conclusions, whether the royalty reports are correct or incorrect, or
the specific details concerning any discrepancies.

                           (b)   Prompt adjustment shall be made by Lilly or
Sepracor, as appropriate, to compensate the other for any errors or omissions
revealed by an audit under this Section 3.11. Information obtained during the
course of such an audit shall be kept confidential by Sepracor and its agents,
except to the extent necessary to enforce Sepracor's rights hereunder.

                           (c)   REPORTS AND INVOICES CONCLUSIVELY CORRECT.
All reports, invoices and payments not disputed as to correctness by Sepracor
within three (3) years after receipt thereof shall thereafter conclusively be
deemed correct for all purposes.

                                      -26-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

         3.12     NO REDUCTION IN PAYMENTS. No part of any amount payable to
Sepracor under this Agreement may be reduced due to any counterclaim, set-off,
adjustment or other right which Lilly might have against Sepracor, any other
party or otherwise, except for adjustments pursuant to Section 3.11(b), or
amounts due from Sepracor to Lilly pursuant to a final judgment entered against
Sepracor arising from Sepracor's violation of the terms or conditions of this
Agreement.

                                   ARTICLE 4
                              PATENTS & TRADEMARKS

         4.1      FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.

                  (a)  PROSECUTION BY SEPRACOR. Sepracor agrees to diligently
file, prosecute and maintain, all Patent Rights owned in whole or in part by
Sepracor and licensed to Lilly under this Agreement. Sepracor shall supply Lilly
with a copy of the applications as filed, together with notice of its filing
date and serial number. Sepracor shall keep Lilly regularly advised of the
status of pending patent applications (including, without limitation, the grant
of any Patent Rights), and upon the written request of Lilly shall provide
copies of any substantive papers as filed related to the filing, prosecution and
maintenance of such patent filings. All information, papers, and other materials
provided by Sepracor in accordance with this section shall be subject to the
confidentiality provisions of this Agreement.

                  (b)  OPTION OF LILLY TO PROSECUTE AND MAINTAIN PATENTS.
Sepracor shall give [**] notice to Lilly of any desire to cease prosecution
and/or maintenance of a particular Patent Right and, in such case, shall permit
Lilly, at its sole discretion, to continue prosecution or maintenance at its own
expense. If Lilly elects to continue prosecution or maintenance, Sepracor shall
execute such documents and perform such acts, at Lilly's expense, as may be
reasonably necessary to effect an assignment of such Patent Rights to Lilly. Any
such assignment shall be completed in a timely manner to allow Lilly to continue
such prosecution or maintenance. Any patents or patent applications so assigned
shall not be considered Patent Rights.

         4.2      LILLY AND JOINT INVENTIONS. Any patentable inventions made by
Lilly in the course of performing its obligations under this Agreement will be
owned by and be the sole responsibility of Lilly. Any patentable inventions made
jointly as a result of the parties performing obligations under this Agreement
will be jointly owned by the parties, and each party may make, use, offer to
sell, or sell the invention without the consent of or accounting to the other
party, subject to the provisions of Section 2.1. The parties shall cooperate to
cause the filing of one or more patent applications covering any such joint
inventions, and counsel selected for preparation, filing, and prosecution of any
joint patent application(s) will be mutually acceptable to the respective
parties.

                                      -27-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

Expenses and costs for filing, prosecuting and maintaining any such joint patent
application(s) shall be shared.

         4.3      ENFORCEMENT OF PATENTS. In the event that either Lilly or
Sepracor becomes aware of any infringement of any issued patent within the
Sepracor Patent Rights, which infringement involves Product, it will notify the
other Party in writing to that effect. Any such notice shall include evidence to
support an allegation of infringement by such third party. Sepracor shall use
reasonable efforts to obtain a discontinuance of such infringement, which may
include filing suit, against the third party infringer. Sepracor shall bear all
expense of any suit brought by it Lilly shall have the right, prior to
commencement of the trial, suit or action brought by Sepracor, to join any such
suit or action, and in such event shall pay one-half of the costs of such suit
or action. In the event that Lilly has joined in the action and shared in the
costs thereof as set forth above, no settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the consent
of Lilly. In the event that Lilly has not joined the suit or action, Lilly will
reasonably cooperate with Sepracor in preparing and presenting any such suit or
action and shall have the right to consult with Sepracor and be represented by
its own counsel at Lilly's own expense. Any recovery or damages derived from a
suit which Lilly has joined and shared costs shall be used first to reimburse
each of Sepracor and Lilly for its documented out-of-pocket legal expenses
relating to the suit, with any remaining compensatory damages to be treated as
Net Sales and any punitive damages to be shared equally by the parties. Any
recovery or damages derived from a suit which Lilly has not joined shall be
retained by Sepracor.

         If the third party continues to infringe and Sepracor does not initiate
such action within [**] of the date of notice referred to in the immediately
preceding paragraph, then Lilly may at its option initiate and control action or
bring suit against the third party infringer. Lilly shall bear all the costs and
expenses of any such action or suit. Sepracor shall cooperate with Lilly in
preparing and presenting such action or suit, provided that Lilly shall
reimburse all Sepracor's direct cost and expenses, including direct costs of
time spent by Sepracor employees, incurred in providing such cooperation. Any
recovery or damages derived from such an action or suit shall be retained by
Lilly.

         4.4      CONSENT FOR SETTLEMENT. Neither party shall enter into any
settlement or compromise which would in any manner alter, diminish or be in
derogation of the other party's rights under this Agreement without the prior
written consent of such other party. Any settlement amounts paid by Lilly and as
mutually agreed upon by the parties will be deducted from Net Sales.

                                      -28-
<PAGE>

         4.5      ACTIONS AGAINST THE PARTIES. If any third party brings suits
or actions against either party asserting any patent infringement related to
Product, both parties will consult with each other to determine the measures of
defense.

         4.6      TRADEMARKS. Lilly will own and be responsible for all
trademarks related to the marketing of Product and will be responsible for
registering, defending and maintaining such trademarks.

         4.7      STUDIES AND INFORMATION IN SUPPORT OF PATENT RIGHTS.
Notwithstanding any provision to the contrary in this Agreement, Sepracor shall
have the right to use and disclose, in accordance with Section 5.1(a)(iv) or (v)
any Sepracor Know-How and Improvements at its sole option and discretion for the
limited purpose of filing, prosecuting, and supporting Patent Rights; provided,
however, that Sepracor provide prior written notification to Lilly of any such
disclosure.

                                   ARTICLE 5
                         INFORMATION AND CONFIDENTIALITY

         5.1      CONFIDENTIAL INFORMATION AND NONDISCLOSURE.

                  (a)  CONFIDENTIAL INFORMATION. All information generated and
relating to the research, development, registration for approval, marketing or
sale of R-fluoxetine or Product as well as the terms of this Agreement is
confidential information and will not be communicated by Lilly or Sepracor to
any third parties during the term of this Agreement without the express written
consent of the nondisclosing party except for information which:

                       (i)   is already known to the receiving party as
evidenced by their own written records prior to
receipt under this Agreement; or

                       (ii)  is disclosed to the receiving party by a third
party who has the right to make such disclosure; or

                       (iii) is or becomes part of the public domain through no
fault of the receiving party; or

                       (iv)  is disclosed to any institutional review board
of any entity conducting clinical trials or any governmental or other
regulatory agencies in order to obtain patents or to gain approval to conduct
clinical trials to market R-fluoxetine or Product, but such disclosure may be
made only to the extent reasonably necessary to obtain such patents or
authorizations; or

                                      -29-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                       (v)   world for legitimate commercial or legal
purposes, relating to, inter alia, drug registration, marketing, tax filings
and patent applications (including but not limited to filing and prosecution
thereof) provided the party required to make any such disclosure first
notifies the other party allowing for comment prior to disclosure, and
further provided that disclosures in connection with tax filings may be made
without prior notification to the other party.

         The parties agree to cooper is required to be disclosed to a government
agency anywhere in the ate in good faith to provide any information reasonably
necessary to any disclosure made pursuant Sections 5.1(a)(iv) and (v).

                  (b)  DISCLOSURE TO AGENTS. Notwithstanding the provisions of
Section 5.1(a) and subject to the other terms of this Agreement, each party
shall have the right to disclose confidential information to its Permitted
Sublicensees, agents, auditors, investment bankers, or consultants (collectively
"Agents") in accordance with this Section 5.1(b). Any such Agents must agree in
writing to be bound by confidentiality and non-use obligations essentially the
same as those contained in this Agreement. The term of confidentiality and
non-use obligations for such Agents shall be no less than the term of this
Agreement. As appropriate, each party shall be jointly and severally liable for
any disclosure of the other party's confidential information by Agents.

         5.2      PUBLIC ANNOUNCEMENTS. Neither party will issue any press
release, publication, or any other public announcement relating to this
Agreement without obtaining the other party's prior written approval, which
approval will not be unreasonably withheld. The parties shall issue a joint
press release regarding this Agreement, which has been agreed to by Sepracor and
Lilly and which is attached hereto as Appendix 5.2. During the term of this
Agreement Lilly shall publicly announce, or permit Sepracor to publicly
announce, commencement and completion of the major phases of clinical
development of Product, including but not limited to Phase II and Phase III
clinical trials, NDA submission, NDA filing, approvable and approval letters,
and launch; provided, however, that the parties shall cooperate in good faith to
prepare mutually acceptable announcements prior to release. The parties further
agree to use reasonable efforts to keep terms of this Agreement confidential
including with respect to public filings to the extent that confidential
treatment may be available through regulatory authorities. Lilly will have the
right to redact, to the extent permitted by law, the copy of the Agreement
provided to the SEC; provided, however, that Lilly shall provide Sepracor with
its proposed redacted copy of the Agreement within [**] of the Effective Date.
Notwithstanding any of the foregoing, each party may use the substance of
previously approved public announcements and the substance of other public
announcements of the other party without prior notice.

                                      -30-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                                    ARTICLE 6
                                     NOTICES

         Any notices, report or communication required or permitted to be given
by either party hereunder shall be deemed sufficiently given, if received in
person or received by facsimile transmission, followed by courier or mailed by
registered mail, return receipt requested, and addressed to the party to whom
notice is given and received as follows:

               If to Lilly:           Eli Lilly and Company
                                      Lilly Corporate Center
                                      Indianapolis, IN 46285
                                      Attn: V.P., General Counsel

               If to Sepracor:        Sepracor Inc.
                                      111 Locke Drive
                                      Marlborough, MA 01782
                                      Attn: General Manager, Pharmaceuticals

                                   ARTICLE 7
                              TERM AND TERMINATION

         7.1      TERM. This Agreement will start on the Effective Date and
remain in effect as follows:

                  (a)   until the later of the expiration of Patent Rights
(including extensions thereof) and the terms during which royalties are payable
pursuant to Article 3; or

                  (b)   until terminated under Section 7.2 or 7.3.

         Upon termination under Section 7.1(a) above, Lilly will have a paid-up,
royalty-free, non-exclusive license to use, sell, make or have made Product
under Sepracor Know-How.

         7.2      TERMINATION.

                  (a)  If either party commits a material breach of this
Agreement, the other party shall have the right to terminate this Agreement by
giving written notice of termination to the breaching party in sufficient detail
to ascertain and respond to the alleged breach. Termination shall take effect
[**] after receipt of such notice unless the breach is corrected within the same
time period, except as otherwise provided in Section 7.2(c).

                                      -31-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                  (b)  If Sepracor terminates because of a material breach by
Lilly which is not cured within [**] after written notification of breach, then
the following shall apply: All rights and licenses granted by Sepracor to Lilly
hereunder shall immediately be revoked and reconveyed to Sepracor, and Lilly
shall have no right to any continued use of Licensed Technology. Lilly, upon
request of Sepracor and free of charge, shall execute any document reasonably
necessary to return to Sepracor or any person or organization designated by
Sepracor, the Licensed Technology including documents submitted to any
governmental regulatory agency for purposes of seeking marketing authorization
for Product, or making, using or selling Product. Moreover, all written Sepracor
Know-How and written Proprietary Information communicated to Lilly shall be
reconveyed to Sepracor. Lilly shall, to the extent permitted under the same
terms and conditions as Lilly is licensed, grant Sepracor a sublicense to make,
have made, use, or sell Product under any third party patents covering
manufacture, use, or sale of R-fluoxetine that Lilly may be licensed under.
Lilly shall grant to Sepracor a royalty free, exclusive license to make, have
made, use, or sell Product under any patents that may be owned by Lilly covering
manufacture, use, or sale of R-fluoxetine. Lilly shall transfer and grant to
Sepracor a royalty free, exclusive license to all R-fluoxetine information,
including but not limited to, results, data, and reports containing the same,
generated or otherwise possessed by Lilly and created prior to termination of
this Agreement, including also the right to read and reference all Native
R-fluoxetine Regulatory Applications. Any studies in progress pursuant to the
Development Plan shall be transferred to Sepracor in a manner that allows such
studies to continue uninterrupted to the extent reasonable and practical. In the
event that Lilly does not have a toxicology package satisfactory to the U.S. FDA
for approval of Native R-fluoxetine, to transfer to Sepracor, and Lilly does not
have in progress the toxicology studies necessary for a such toxicology package,
then Lilly shall grant Sepracor the right to reference the preclinical
toxicology section of Lilly's NDA for fluoxetine only for the purpose of
regulatory bridging. Lilly shall not be liable to Sepracor for any reason
whatsoever as a consequence of Sepracor's utilizing any information or documents
(one copy of which shall be retained by Lilly for legal purposes only) conveyed
as provided in this paragraph. For avoidance of doubt, Sepracor shall not have
access to fluoxetine regulatory files, information or data belonging to Lilly
except as otherwise provided above.

                  (c) The provisions of Sections 7.2(a) and 7.2(b) above
notwithstanding, if Lilly fails to substantially adhere to the timeline set
forth in the Development Plan in accordance with Section 2.4(a) and sound
scientific judgment and commercial reasonableness, then Sepracor shall have
the right to give Lilly written notice thereof stating in reasonable detail
the particular diligence failure(s). Lilly shall have a period of [**] from
the receipt of such notice to meet with Sepracor to discuss the activities
that are being pursued to address the failure of diligence. In any event,
Lilly shall initiate a program to address the failure of diligence within [**]
 from Lilly's receipt of such notice,

                                      -32-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

and the period for Lilly to cure the lack of diligence shall not be longer than
[**] from Lilly's receipt of such notice. If Lilly is determined to have failed
to meet the diligence obligations of this Agreement, or to have unreasonably
adjusted the timeline for Development of Product, Sepracor shall have the right
to terminate this Agreement. At Sepracor's election, the provisions of Section
7.2(b) above shall apply.

                  (d)  If Lilly terminates because of a material breach by
Sepracor which is not cured within [**] after written notification of breach,
then Sepracor, upon request of Lilly and free of charge, shall execute any
document reasonably necessary to transfer to Lilly or any person or organization
designated by Lilly, the necessary rights in Licensed Technology concerning and
related to Product including documents submitted to any governmental regulatory
agency for purposes of making, using or selling Product, and Lilly shall have
the exclusive, royalty free, worldwide right to use such Licensed Technology as
Lilly deems appropriate to make, use and sell Products. Sepracor, upon request
of Lilly and free of charge, shall execute any document necessary to return to
Lilly or any person or organization designated by Lilly, the Licensed Technology
and rights thereto including documents submitted to any governmental regulatory
agency for purposes of supporting Product. Moreover, all written Lilly know-how
and written Proprietary Information communicated to Sepracor shall be promptly
returned to Lilly. Sepracor shall not be liable to Lilly for any reason
whatsoever as a consequence of Lilly's utilizing any information, documents (one
copy of which may be retained by Sepracor for legal purposes only) Patent Rights
or Sepracor Know-How as provided in this paragraph.

                  (e)  Lilly may terminate this Agreement it, in its sole
discretion, it determines to not develop, register or have developed or
registered Product by giving Sepracor [**] written notice. In the event of such
a termination, the provisions of Section 7.2(b) above shall apply. Lilly shall
not be liable to Sepracor for any reason whatsoever as a consequence of
Sepracor's utilization of any information, documents (one copy of which shall be
retained for legal purposes only) or Sepracor Know-How returned to Sepracor
under this paragraph.

         The right of either party to terminate this Agreement as herein above
provided shall not be affected in any way by its waiver of or failure to take
action with respect to any previous default. Any such termination shall be
without prejudice to any further rights and remedies vested in the parties. The
license rights granted herein shall survive the bankruptcy or reorganization of
either party.

                  (f)  Termination of this Agreement for any reason, except as
under Section 7.2, shall be without prejudice to:

                                      -33-
<PAGE>

                  (i)   the rights and obligations hereunder that survive
termination, such as Article 5;

                  (ii)  any other remedies which either party may then or
thereafter have hereunder; and

                  (iii) either party's obligation to make any payments due
pursuant to this Agreement which accrue prior to termination, and at the time of
termination, all such payments due shall be made in full.

         7.3      LIQUIDATION. If one of the parties shall go into liquidation,
other than for the purpose of a bona fide reorganization, or a receiver or
trustee be appointed for its property or estate, or if such party shall make an
assignment for the benefit of its creditors, and whether or not any of the
aforesaid acts be the outcome of a voluntary act of that party, the other party
shall be entitled to terminate this Agreement forthwith by written notice to the
first party.

                                   ARTICLE 8
                                  FORCE MAJEURE

         Neither of the undersigned parties shall be liable for failure to
perform its obligations under this Agreement when occasioned by contingencies
beyond its control, such as strikes or other work stoppages, lock-outs, riots,
wars, delay of third-party carriers, acts of God, such as fire, floods, storms,
and earthquakes. Each party will notify the other immediately should any such
contingency occur.

                                   ARTICLE 9
                     REPRESENTATIONS & WARRANTIES, COVENANTS

         9.1      Each Party represents and warrants that:

                  (i)   it is a corporation or entity duly organized and validly
existing under the law of the state of its incorporation;

                  (ii)  it has the full authority to enter into and perform all
of the duties and obligations contemplated under this Agreement;

                  (iii) the execution, delivery and performance of this
Agreement by it has been duly authorized by all requisite corporate action,
subject only to approval of its board of directors; and

                  (iv)  to the best of its knowledge there are no third party
patents or pending patent applications which if issued would preclude the use or
sale of R-fluoxetine or Product.

                                      -34-
<PAGE>

         9.2      Sepracor represents and warrants that, except as provided in
Appendix 9.2, it is the sole and exclusive owner or is exclusively licensed and
controls Patent Rights and Sepracor Know-How, and that such rights are not the
subject of any encumbrance, lien or claim of ownership by any third party.
Sepracor warrants and represents that it has no trade name, trademark or
trademark related material, such as USAN registrations, related to R-fluoxetine.

         9.3      Sepracor represents and warrants that it has no knowledge of
written third party opinions that Patent Rights are invalid or unenforceable and
that there are no proceedings instituted, threatened or pending in any court of
law or patent office which challenge Patent Rights, validity or enforceability
as applicable thereto. Further, Sepracor knows of no claims, judgments or
settlements against or amounts with respect thereto owed by Sepracor or pending
or threatened claims or litigation against Sepracor relating to Product or
Sepracor Know-How.

         9.4      Sepracor covenants that at no time during the term of this
Agreement shall Sepracor assign, transfer, encumber or grant rights in or with
respect to Patent Rights or Sepracor Know-How inconsistent with the grants and
other rights reserved to Lilly under this Agreement, provided, however, this
covenant shall not affect the absolute right of Sepracor to transfer title to
its exclusively owned Patent Rights or Sepracor Know-How to any successor to all
or substantially all of that portion of Sepracor's business.

         9.5      Sepracor represents and warrants to the best of its knowledge
that data summaries provided in writing to Lilly by Sepracor prior to the
Effective Date relating to pre-clinical and clinical studies of the Product
accurately represent the raw data underlying such summaries; and it has provided
to Lilly a summary of all material adverse events known to it relating to the
Product. Further, Sepracor has no knowledge of any scientific facts or
circumstances that would negate the intended commercial utility of R-fluoxetine
or Product.

         9.6      Sepracor represents and warrants that there are no marks or
trademarks proposed, filed or registered by Sepracor in connection with the
Product and that Sepracor will not seek to file or register any trademark or
mark in connection with Product.

         9.7      Lilly covenants that at no time during the term of this
Agreement shall Lilly assign, transfer, encumber or grant rights in or with
respect to Product inconsistent with the grants and other rights reserved to
Sepracor under this Agreement, provided, however, this covenant shall not affect
the absolute right of Lilly to transfer title to its exclusive licensed rights
under this Agreement to any successor to all or substantially all of that
portion of Lilly's business.

                                      -35-
<PAGE>

              Confidential Materials omitted and filed separately
                 with the Securities and Exchange Commission.
                             Asterisks denote omissions.

                                   ARTICLE 10
                                 INDEMNIFICATION

         10.1     LILLY. Lilly will indemnify (subject to Section 10.3), defend
and hold Sepracor harmless against any and all actions, suits, claims, demands,
prosecutions, liabilities, costs, and expenses based on or arising out of this
Agreement (including but not limited to claims of patent infringement),
resulting from Lilly's performance under this Agreement including, the
development, manufacture, packaging, use or sale of Products, or use of Sepracor
Know-How or Products by Lilly, its Permitted Sublicensees or its (or their)
customers or any representation made or warranty given by Lilly or its Permitted
Sublicensees with respect to Products.

         10.2     SEPRACOR. Sepracor will indemnify (subject to Section 10.3),
defend and hold Lilly harmless against any and all actions, suits, claims,
demands, prosecutions, liabilities, costs, and expenses based on or arising out
of this Agreement, resulting from Sepracor's activities under this Agreement and
activities related to the research and development, manufacture, packaging, use
or sale of Products by Sepracor, or use of Sepracor Know-How or Products by
Sepracor, its other licensees or its (or their) customers or any representation
made or warranty given by Sepracor or its other licensees with respect to
Products.

         10.3     CONDITIONS OF INDEMNIFICATION. If either party proposes to
seek indemnification from the other under Sections 10.1 or 10.2, it shall notify
the other party within [**] of receipt of notice of any such claim or suits and
shall cooperate fully with the other party in the defense of all such claims or
suits. Failure of an indemnified party to provide notice of a claim to the
indemnifying party shall affect the indemnified party's right to indemnification
only to the extent that such failure has a material adverse effect on the
indemnifying party's ability to defend or the nature or the amount of the
liability. The indemnifying party shall have the right to assume the defense of
any suit or claim related to the liability if it has assumed responsibility for
the suit or claim in writing; however, if in the reasonable judgment of the
indemnified party, such suit or claim involves an issue or matter which could
have a materially adverse effect on the business operations or assets of the
indemnified party, the indemnified party may waive its rights to indemnity under
this Agreement and control the defense or settlement thereof, but in no event
shall any such waiver be construed as a waiver of any indemnification rights
such party may have at law or in equity. If the indemnifying party defends the
suit or claim, the indemnified party may participate in (but not control) the
defense thereof at its sole cost and expense. No settlement or compromise shall
be binding on a party hereto without its prior written consent and no party
shall be responsible for damages resulting from the negligence of the other
party.

                                      -36-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                                   ARTICLE 11
                                  MISCELLANEOUS

         11.1     MODIFICATIONS. This Agreement supersedes all previous
agreements whether written or oral between the parties. No modifications or
amendment of this Agreement shall be of any force or effect unless it is in
writing signed by the parties to be bound thereby.

         11.2     ASSIGNMENTS AND CHANGE OF CONTROL. This Agreement shall be
bindings upon the inure to the benefit of the parties hereto and their
respective successors and assigns and provided that neither party shall assign
this Agreement or any of its rights, privileges or obligations without the prior
written consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that in the event of a Change of Control, written
notification will be required but not consent. Notwithstanding the two
immediately preceding sentences, in the event of a Change of Control of
Sepracor, [**] (I) [**] Sepracor's right to copromote pursuant to Section 2.4(b)
hereof (or any subsequent compromotion agreement) [**] to the party [**], or
(ii) [**] the right to copromote [**] the party [**]of all Net Sales of those
Products to which Sepracor's copromotion right may apply, such [**] until the
right to copromote would, if exercised, expire by its terms.

         11.3     HEADINGS. All titles, headings and captions in the Agreement
are for convenience only, do not constitute part of this Agreement, and shall
not be of any meaning or substance or employed in interpreting this Agreement.

         11.4     INVALIDITY. In the event that a court of competent
jurisdiction holds that a particular provision or requirement of this Agreement
is in violation of any law, such provision or requirement shall not be enforced
except to the extent that it is not in violation of such law and all other
provisions and requirements of this Agreement shall remain in full force and
effect. The parties shall replace such invalidated or unenforceable provision or
requirement by valid and enforceable provision or requirement which will
achieve, to the extent possible, the economic, business and other purposes of
the replaced provision.

         11.5     GOVERNING LAW. This Agreement shall be governed, interpreted
and construed in accordance with the laws of the State of New York, applicable
to agreements made and to be fully performed therein, without giving effect to
its principles of conflicts of laws.

         11.6     WAIVER. A waiver of any breach of any provision of this
Agreement shall not be construed as a continuing waiver of other breaches of the
same or other provisions of this Agreement.

                                      -37-
<PAGE>

         11.7     NO OTHER RELATIONSHIP. Nothing herein contained shall be
deemed to create a joint venture, agency or partnership relationship between the
parties hereto. Neither party shall have any power to enter into any contracts
or commitments in the name of, or on behalf of, the other party, or to bind the
other party in any respect whatsoever.

         11.8     ENTIRE UNDERSTANDING. This embodies the entire understanding
between the parties relating to the subject matter hereof, whether written or
oral, and there are no prior representations, warranties or agreements between
the parties not contained in this Agreement. In the event of any inconsistencies
or conflicts between the terms of this Agreement and any exhibit or appendix
referred to herein, the terms of this Agreement shall govern.

         11.9     RESPONSIBILITY FOR TAXES. Lilly shall be responsible for
payment of taxes arising out of or related to Product sales made by Lilly and
for submission of proper documentation with respect thereto to the tax
authorities. Lilly shall indemnify and hold Sepracor harmless from and against
any and all claims and losses (including but not limited to attorney fees)
arising out of Lilly's failure or delay in paying such taxes or submitting such
documentation.

         11.10    COMPLIANCE WITH LAWS. Each party covenants and agrees that all
of its activities under or pursuant to this Agreement shall comply with all
applicable laws, rules and regulations.

         11.11    COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original.

         11.12    EXHIBITS AND APPENDICES. All exhibits and appendices referred
to in this Agreement are attached hereto and incorporated herein by this
reference.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal and entered into by their duly authorized representatives.

SEPRACOR INC.                                 ELI LILLY AND COMPANY

By: /s/ Timothy J.  Barberich                 By: /s/ August M.  Watanabe
    ----------------------------              ----------------------------
    Timothy J. Barberich                          August M. Watanabe, M.D.
    President and Chief                           Executive V.P.,
     Executive Officer                             Science & Technology

Date: December 4, 1998                        Date: December 4, 1998

                                      -38-
<PAGE>

                                  APPENDIX 1.2

                               Basic Patent Rights

                   U.S. Patents                 Expires

                   5,708,035                    January 13, 2015

                                      -39-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                                 APPENDIX 1.13

                            Improvement Patent Rights

                   U.S. Patents                 Expires

                   5,648,396                    July 15, 2014

                   Patent Applications          Docket No.

                   [**]                         [**]

<PAGE>

                                 APPENDIX 2.4(a)

                   R-Fluoxetine Development Plan and Time Line

                                 (See Attached)

<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

                                 APPENDIX 2.4(a)

                          R-FLUOXETINE DEVELOPMENT PLAN

KEY PLAN ASSUMPTIONS:

--       A [**] will be acceptable in registering the Product in the US and
         other key OUS markets, which [**] to initiate the [**] as set forth in
         this Development Plan and to [**] as required by the FDA

--       [**] in the development of the [**]

--       The critical success factors for R-fluoxetine are [**] (described by
         [**]);

                   (1) Demonstrated [**]
                   (2) competitive [**] due to [**]

--       Several market [**] will be necessary to [**] in the [**] market

DEVELOPMENT PLAN ACTIVITIES

Sepracor has run a single dose human safety study, and plans to complete the
Phase I development with a multi-dose human safety study beginning early in
1999. In addition, Lilly is preparing protocols for [**] and additional [**] to
better understand the [**]. These studies are scheduled to start in early 1999.

Lilly anticipates that it will [**]the above planned or ongoing Phase I studies
to [**], [**]. Subject to FDA approval, Lilly believes that adequate safety
support and clinical rationale already exist based on extensive clinical and
research experience with Prozac. This dose require that [**] in these Phase II
studies to [**]that can be supported based on experience with Prozac
(pre-clinical and clinical testing along with experience in clinical practice).
Lilly plans to start these Phase II efficacy studies (designed to demonstrate
[**]) in Q1 1999. The studies, as currently designed, will require [**] to
complete, including all study reports (based on current best estimates of site
number, enrollment rates, required patient

<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

numbers, etc.). However, Lilly expect to be able to evaluate study results [**]
post-study start (described by Lilly as "Product Decision"), which is planned to
occur [**]. If the results of these Phase II efficacy studies are positive,
Lilly would plan to [**].

         The exact design of this [**] will be determined between now and
year-end 1999. The selection of [**] will be driven by 1) the information
collected about [**] studies, 2) the ongoing and planned [**], and 3) the need
to have data [**] in the market. However, based on the [**] data that is
currently available [**], Lilly anticipates that the [**] studies such as:

--       [**]

--       [**]

--       [**]

--       [**] studies

--       [**] studies

--       [**] comparisons

It is anticipated that many of these studies would be [**] in the [**] with
other [**], others would be [**]concurrent with [**] market support [**] studies
[**] of the Product. Lilly expects to complete the [**]studies to be included
[**] in the [**]. Much of the [**] would have been [**], thus allowing Lilly
[**] and [**]. Assuming a [**] minimal difficulties in finalizing the label and
completing [**], Lilly would anticipate [**].

Although no currently shown as [**]this development plan, there are
[**]indicated. Once the results of the above listed [**] and the [**], it may be
determined that [**] for the [**] that are [**]) may be needed to [**]. These
studies, if warranted, might be started [**] as part of a contingency plan. If
these [**] studies are required as part of the[**] in the [**] in this
development plan [**] are anticipated. This assumption is based on Sepracor's
experience with the [**] approved [**]and on the current guidance document
published by the FDA on this same topic. The [**] package that is planned for
submission includes: [**]. Of these, the [**] studies have already been
completed by Sepracor, and the [**] studies are underway at Sepracor and will be
completed [**]. Any remaining [**] studies required for the [**] will be [**].
In addition, [**] the longer term [**] that would be needed [**]. These longer
term [**] will be continued until [**].

                                     -43-
<PAGE>

Confidential Materials omitted and filed separately with the Securities and
                               Exchange Commission.
                           Asterisks denote omissions.

The expected effort needed to [**] is accommodated by this project timeline.
Plans are to first [**] for use in early clinical development. While this
Product form is being supplied [**] will be considered as a [**] form.
Approximately [**] to our anticipated earliest submission date [**]and Product
[**]. Concurrent with the [**](in the event that [**]and [**] will occur.

A timeline for the major activities that are included as part of this summary
development plan is attached to this appendix (Attachment 1)

                                     -44-
<PAGE>

                                  APPENDIX 5.2

                               Joint Press Release

                                 (See Attached)

<PAGE>

                    (317) 276-5795 - James P. Kappel (Lilly)

                 (508) 481-6700 - David P. Southwell (Sepracor)

            Lilly and Sepracor Announce Agreement on Next-Generation

                                 Antidepressant

         Eli Lilly and Company (NYSE: LLY) and Sepracor Inc. (Nasdaq: SEPR),
announced today that they have entered into a license agreement that will enable
Lilly to exclusively develop and globally commercialize R-fluoxetine.
R-fluoxetine, a new chemical entity patented by Sepracor, is a modified form of
an active ingredient found in Prozac. Prozac was the first selective serotonin
reuptake inhibitor (SSRI) to enter the U.S. market more than 10 years ago. It is
the world's most widely prescribed brand-name antidepressant, having been
prescribed to more than 35 million people in more than 100 countries with
worldwide sales of approximately $2.6 billion in 1997. R-fluoxetine is currently
in Phase I clinical development in the United States.

         "R-fluoxetine is an exciting molecule with a good chance of becoming an
important new advance in treating depression. Despite recent advances in
diagnosing and treating clinical depression, this illness remains a vastly
underdiagnosed and therefore undertreated disease affecting more than 18 million
adults in the U.S. alone," said Sidney Taurel, Lilly president and chief
executive officer. "This licensing agreement with Sepracor, coupled with our
internal progress in developing new antidepressants, will enable Lilly to
introduce new and advanced treatments for this debilitating illness and to build
upon our leadership position in neuroscience products."

         R-fluoxetine has been shown in preclinical studies to have the
potential to offer greater flexibility in treating depression compared to
currently marketed antidepressants. In addition, preclinical data suggest that
R-fluoxetine has the potential to provide treatment benefits in a broader range
of patients and for a broader range of indications than most currently available
antidepressants, including

         Prozac. Based on current regulatory guidelines, Lilly hopes to complete
the clinical studies needed to thoroughly evaluate R-fluoxetine by 2001 with
regulatory submissions taking place at that time.

         Under the terms of the agreement, Sepracor will receive an up-front
milestone payment and license fee of $20 million. The company will also receive
up to $70 million in additional milestone payments, based on the progression of
R-fluoxetine through development. In addition, Sepracor will receive royalties
on R-fluoxetine worldwide sales beginning at product launch. In exchange, Lilly
will receive exclusive, worldwide rights to R-fluoxetine for all indications and
uses. Lilly will be responsible for all subsequent development work on
R-fluoxetine, regulatory submissions, product manufacturing, marketing and
sales.

                                      -46-
<PAGE>

         "R-fluoxetine represents another significant opportunity to provide
important therapeutic advances through the development of single-isomer and
metabolite versions of existing pharmaceutical products," said Timothy J.
Barberich, Sepracor's president and chief executive officer.

         "We believe Sepracor has undertaken some very insightful research
toward the development of a single-isomer version of fluoxetine that may have
significant clinical and commercial potential," said August M. Watanabe, M.D.,
Lilly executive vice president, science and technology. "Our success in
developing and marketing Prozac, as well as our overall approach to discovering
novel antidepressants, uniquely qualifies us to take the development of
R-fluoxetine forward."

         Sepracor's patent portfolio for R-fluoxetine includes a U.S.
method-of-use patent covering R-fluoxetine as an antidepressant that expires in
2015 and several other patent filings, covering methods of treatment, unique
formulations and manufacturing processes.

         Sepracor is a speciality pharmaceutical company that develops and
commercializes potentially improved versions of widely prescribed drugs.
Referred to as improved chemical entities (ICE), Sepracor's ICE pharmaceuticals
are being developed as proprietary, single-isomer or active-metabolite versions
of leading drugs. ICE pharmaceuticals are designed to offer meaningful
improvements in patient outcomes through reduced side effects, increased
therapeutic efficiency, improved dosage forms and, in some cases, the
opportunity for additional indications.

         Lilly is a global research-based pharmaceutical corporation
headquartered in Indianapolis, Ind., that is dedicated to creating and
delivering innovative pharmaceutical-based health care solutions that enable
people to live longer, healthier and more active lives.

         This release contains forward-looking statements that reflect
management's current views of the scientific and commercial potential of the
R-fluoxetine molecule. The information is based on management's current
expectations but actual results may differ materially due to various factors. As
a product in the earliest stages of clinical development, its success is subject
to a number of risks and uncertainties, including the successful outcome of
clinical trials; the timely receipt of regulatory approvals; the clinical
profile and pricing of competitive products; market conditions; and those
outlined in Lilly and Sepracor filings with the SEC.

                                    #   #   #

                                      -47-
<PAGE>

                                  APPENDIX 9.2

         Exclusive License Agreement by and between Sepracor Inc. and McLean
Hospital Corporation which was previously provided to Lilly.

                                      -48-Prepared by MERRILL CORPORATION www.edgaradvantage.com

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  ADC TELECOMMUNICATIONS, INC.
       NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
       (As Amended through February 22, 2000)
 

Section 1. Purpose.  

    This plan shall be known as the "ADC Telecommunications, Inc. Nonemployee Director Stock Option Plan" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of ADC Telecommunications, Inc., a Minnesota corporation (the "Company"), by enhancing its ability to attract and retain the services of
experienced and knowledgeable outside directors and by providing additional incentive for such directors to increase their interest in the Company's long-term success and progress. 

Section 2. Administration.  

    The Plan shall be administered by a committee (the "Committee") of three or more persons appointed by the Board of Directors of the Company. Grants of stock
options under the Plan and the amount and nature of the awards to be granted shall be automatic as described in Section 6. However, all questions of interpretation of the Plan or of any options
issued under it shall be determined by the Committee and such determination shall be final and binding upon all persons having an interest in the Plan. 

Section 3. Participation in the Plan.  

    Each director of the Company shall be eligible to participate in the Plan unless such director is an employee of the Company or any subsidiary of the Company. 

Section 4. Stock Subject to the Plan.  

    Subject to the provisions of Section 11 hereof, the stock to be subject to options under the Plan shall be authorized but unissued shares of the
Company's common stock, par value $.20 per share (the "Common Stock"). Subject to adjustment as provided in Section 11 hereof, the maximum number of shares with respect to which options may be
exercised under this Plan shall be 840,000 shares. If an option under the Plan expires, or for any reason is terminated, any shares that have not been purchased upon exercise of the option prior to
the expiration or termination date shall again be available for options thereafter granted during the term of the Plan. 

Section 5. Nonqualified Stock Options.  

    All options granted under the Plan shall be nonqualified stock options which do not qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended. 

Section 6. Terms and Conditions of Options.  

    Each option granted under this Plan shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which agreements
shall comply with and be subject to the following terms and conditions: 

    (a) Initial Option Grants. An option to purchase 24,000 shares of Common Stock shall be granted automatically on the
first business day immediately following each meeting of the Company's shareholders or Board of Directors during the term of the Plan to each eligible director, if any, who is elected to the Board of
Directors for the first time at such meeting. 

1

    (b) Annual Option Grants. Subject to Section 6(c) hereof, an option to purchase 12,000 shares of Common Stock
shall be granted automatically on the first business day immediately following each annual
meeting of the Company's shareholders held during the term of the Plan beginning with the 2000 annual meeting of shareholders (the "Annual Option Grant Date") to each eligible director in office on
such Annual Option Grant Date who prior to such Annual Option Grant Date has received an option pursuant to Section 6(a) hereof; provided,
however, that, in the event that a director has attended less than 75% of the total meetings of the Board of Directors held in the calendar year immediately preceding such
Annual Option Grant Date, such director shall be granted an option to purchase 9,000 shares of Common Stock pursuant to this Section 6(b). 

    (c) Return on Equity Requirement. No options shall be granted pursuant to Section 6(b) hereof on any Annual
Option Grant Date if the Company's "return on equity" (as hereinafter defined) for the fiscal year ended immediately preceding such Annual Option Grant Date was less than 10%. "Return on equity" shall
mean the percentage determined by dividing (i) the net income of the Company for such fiscal year by (ii) the total stockholders' investment in the Company as of the end of the next
preceding fiscal year. Net income and total stockholders' investment shall be determined by reference to the Company's audited financial statements. If the Company does not have net income for any
fiscal year, the return on equity for such fiscal year shall be deemed to be less than 10%. 

    (d) Options Non-Transferable. No option granted under the Plan shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution as provided in Section 6(g) hereof; provided, however, that an optionee may, in
the manner established by the Committee, transfer an option to any member of such optionee's immediate family (which, for purposes of this clause (d) shall mean such optionee's children,
grandchildren, or current spouse) or to one or more trusts established for the exclusive benefit of one or more such immediate family members or one or more partnerships in which the Participant or
such immediate family members are the only partners, and provided further that (1) there is no consideration for such transfer, and
(2) the options held by such transferees continue to be subject to the same terms and conditions (including restrictions on subsequent transfers) as were applicable to such options immediately
prior to their transfer. During the lifetime of the optionee, the options shall be exercisable only by such optionee. No option or interest therein may be transferred, assigned, pledged or
hypothecated by the optionee during such optionee's lifetime, except as set forth at this section (d), whether by operation of law or otherwise, or be made subject to execution, attachment or
similar process. 

    (e) Period of Options. Options shall terminate upon the expiration of 10 years from the date on which they were
granted. 

    (f)  Exercise of Options. 

    (i)  Options
granted under the Plan shall not be exercisable for a period of one year after the date on which they were granted, but thereafter will be exercisable in
full at any time or from time to time during the term of the option. 

    (ii) The
exercise of any option granted hereunder shall only be effective at such time as counsel to the Company shall have determined that the issuance and delivery of
Common Stock pursuant to such exercise will not violate any federal or state securities or other laws. An optionee desiring to exercise an option may be required by the Company, as a condition of the
effectiveness of any exercise of an option granted hereunder, to agree in writing that all Common Stock to be acquired pursuant to such exercise shall be held for his or her own account without a view
to any distribution thereof, that the certificates for such shares shall bear an appropriate legend to that effect and that such shares will not be transferred or disposed of except in compliance with
applicable federal and state securities laws. 

2

    (iii) An optionee electing to exercise an option shall give written notice to the Company of such election and of the number of shares subject to such exercise. The
full purchase price of such shares shall be tendered with such notice of exercise. Payment shall be made to the Company in cash (including check, bank draft or money order). 

    (g) Effect of Death. If the optionee shall die prior to the time the option is fully exercised, such option may be
exercised at any time within two years after his or her death by the personal representatives or administrators of the optionee or by any person or persons to whom the option is transferred by will or
the applicable laws of descent and distribution, to the extent of the full number of shares the optionee was entitled to purchase under the option on the date of death and subject to the condition
that no option shall be exercisable after the expiration of the term of the option. 

Section 6A. One-Time Grant  

    On April 1, 1997, benefits accrued pursuant to the Company's Directors' Supplemental Retirement Plan prior to its termination, shall be converted to
options for the purchase of the Company's Common Stock to be issued pursuant to the Plan, in accordance with the following schedule: 

	Length of Service 12/96
	 	No. of Option Shares

	<1 year	 	900
	2 to 3 years	 	2,750
	3 to 4 years	 	3,650
	5 to 6 years	 	5,450
	6 to 7 years	 	6,350
	10 + years	 	9,100

    Each
such option shall have an exercise price equal to the market price of a share of the Common Stock as of the close of trading on April 1, 1997, and each such option shall
be exercisable on the earlier of the date on which a participant no longer is a member of the Board of Directors of the Company or 9.5 years from April 1, 1997, and each unexercised
option shall expire ten years from April 1, 1997. 

Section 7. Option Exercise Price.  

    The option exercise price per share for the shares covered by each option shall be equal to the "fair market value" of a share of Common Stock as of the date
on which the option is granted, as determined pursuant to Section 9 hereof. 

Section 8. Time for Granting Options.  

    Unless the Plan shall have been discontinued as provided in Section 13 hereof, the Plan shall terminate upon the expiration of 10 years from the
date upon which it takes effect as provided in Section 12 hereof. No option may be granted after such termination, but termination of the Plan shall not, without the consent of the optionee,
alter or impair any rights or obligations under any option theretofore granted. 

Section 9. Fair Market Value of Common Stock.  

    For purposes of the Plan, the fair market value of the Common Stock on a given date shall be (i) the last sale price of the Common Stock as reported on
the NASDAQ National Market System on such date, if the Common Stock is then quoted on the NASDAQ National Market System, or (ii) the closing price of the Common Stock on such date on a national
securities exchange, if the Common Stock is then being traded on a national securities exchange. If on the date as of which the fair market value is being determined the Common Stock is not publicly
traded, the Committee shall make a good faith attempt to 

3

determine such fair market value and, in connection therewith, shall take such actions and consider such factors as it deems necessary or advisable. 

Section 10. Limitation of Rights.  

    (a) No Right to Continue as a Director. Neither the Plan, nor the granting of an option nor any other action taken
pursuant to the Plan, shall constitute, or be evidence of, any agreement or understanding, express or implied, that the Company will retain a director for any period of time, or at any particular rate
of compensation. 

    (b) No Shareholder Rights for Options. An optionee shall have no rights as a shareholder with respect to the shares
covered by options until the date of the issuance to such optionee of a stock certificate therefor, and no adjustment will be made for cash dividends or other rights for which the record date is prior
to the date such certificate is issued. 

Section 11. Adjustments to Common Stock.  

    If there shall be any change in the Common Stock through merger, consolidation, reorganization, recapitalization, stock dividend (of whatever amount), stock
split or other change in the corporate structure, appropriate adjustments in the Plan and outstanding options shall be made. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the number of shares subject to outstanding options and the option exercise prices thereof in order to prevent dilution or
enlargement of option rights. 

Section 12. Effective Date of the Plan.  

    The Plan shall take effect immediately upon its approval by the affirmative vote of the holders of a majority of the shares present in person or by proxy and
voted at a duly held meeting of shareholders of the Company. 

Section 13. Amendment of the Plan.  

    The Board may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that without approval of the shareholders of
the Company no revision or amendment shall be made that (a) absent such shareholder approval, would cause Rule 16b-3, as promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation thereto, to become unavailable with respect to the Plan or (b) requires the approval of the Company's
shareholders under any rules or regulations of the National Association of Securities Dealers, Inc. or any securities exchange that are applicable to the Company. The Board shall not alter or
impair any option theretofore granted under the Plan without the consent of the holder of the option. 

Section 14. Governing Law.  

    The Plan and all determinations made and actions taken pursuant hereto shall be governed by the law of the State of Minnesota and construed accordingly. 

4

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ADC TELECOMMUNICATIONS, INC. NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (As Amended through February 22, 2000)

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