As filed with the Securities and Exchange Commission on April 1, 1999
Registration Statement No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SEPRACOR INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 22-2536587
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
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111 Locke Drive
Marlborough, Massachusetts 01752
(508) 481-6700
(Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Registrant's Principal
Executive Offices)
Timothy J. Barberich
Chief Executive Officer
Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
(508) 481-6700
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent For Service)
----------------------
Copy to:
Mark G. Borden, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000
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<PAGE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Proposed
Amount Aggregate Maximum Amount of
Title of Each Class of Securities to be to be Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee(1)
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<S> <C> <C> <C> <C>
7% Convertible Subordinated Debentures Due $300,000,000 100% $300,000,000 $83,400
2005.........................................
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Common Stock, $0.10 par value per share...... 2,402,402 shares(2) N/A N/A N/A
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(1) The shares of Common Stock registered hereunder are issuable upon
conversion of the 7% Debentures registered hereunder. Pursuant to Rule
457(i) under the Securities Act, there is no filing fee with respect to the
shares of Common Stock issuable upon conversion of the exercise of the
conversion privilege.
(2) Plus such additional indeterminate number of shares as may become issuable
upon conversion of the 7% Debentures registered hereunder by means of
adjustment to the conversion price applicable thereto.
The Company hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities, and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion, Dated April 1, 1999
Prospectus
Sepracor Inc.
$300,000,000 Principal Amount of 7% Convertible
Subordinated Debentures Due 2005
(Interest payable June 15 and December 15)
--------------------------------
2,402,402 Shares of Common Stock
($0.10 par value per share)
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On December 15, 1998, Sepracor Inc. issued and sold $300,000,000 principal
amount of 7% Convertible Subordinated Debentures due 2005 in a private offering.
The initial purchasers of the 7% Debentures subsequently transferred their 7%
Debentures to various other holders. In connection with the private offering,
Sepracor agreed to register the 7% Debentures and the shares of Sepracor common
stock into which the 7% Debentures are convertible to facilitate secondary
trading by these holders, who we refer to as selling securityholders. This
prospectus is part of a registration statement which fulfills that obligation.
All securities offered by this prospectus are offered by selling
securityholders. The principal terms of the 7% Debentures include the following:
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<S> <C>
o Aggregate Principal Amount: $300,000,000
o Interest Rate: 7% per year
o Maturity Date: December 15, 2005, unless earlier redeemed
o Conversion Rate: $124.875 in principal amount per share of common
stock, for a total of 2,402,402 shares
</TABLE>
In addition, at certain times and under certain circumstances the 7% Debentures
may be redeemed by Sepracor or by the holders of the 7% Debentures. You can find
a more extensive description of the 7% Debentures beginning on page 14.
The 7% Debentures are not secured and are subordinated to all present and
future senior indebtedness of Sepracor. As of December 31, 1998, Sepracor had
obligations of approximately $12.4 million that ranked senior to the 7%
Debentures. In addition, the 7% Debentures are effectively subordinated to all
indebtedness and liabilities of Sepracor. The 7% Debentures do not restrict
Sepracor or its subsidiaries from incurring additional debt.
The 7% Debentures are currently designated for trading on the Private
Offerings, Resales and Trading through Automated Linkages, or PORTAL, Market.
Sepracor's common stock is traded on the Nasdaq National Market under the symbol
"SEPR". On March 31, 1999, the last reported sale price for the common stock on
the Nasdaq National Market was $112.25 per share. The securities offered by
this prospectus may be offered in negotiated transactions or otherwise, at
negotiated prices or at the market prices prevailing at the time of sale.
Investing in the 7% Debentures or our common stock involves risks. See
"Risk Factors" beginning on page 5.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
---------------------
The date of this Prospectus is April __, 1999.
<PAGE>
This prospectus incorporates important business information about Sepracor
that is not included or delivered with this document. This information is
available without charge to stockholders upon written or oral request. Please
contact Sepracor at 111 Locke Drive, Marlborough, Massachusetts 01752,
attention: Chief Financial Officer, 508-481-6700. Also see "Where You Can Find
More Information" in this prospectus.
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TABLE OF CONTENTS
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Page
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Sepracor ................................................................... 3
Risk Factors................................................................ 5
Use of Proceeds.............................................................14
Ratio of Earnings to Fixed Charges .........................................14
Description of Debentures...................................................14
Material United States Federal Income Tax Considerations....................28
Selling Securityholders.....................................................35
Plan of Distribution........................................................40
Legal Matters...............................................................42
Experts.....................................................................42
Additional Filings and Company Information .................................42
Where You Can Find More Information.........................................43
Cautionary Statement Concerning Forward-Looking Information.................43
</TABLE>
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2
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Sepracor
We are a specialty pharmaceutical company focused on the cost-effective
development of safer, purer and more effective drugs that are improved versions
of widely prescribed pharmaceutical compounds. We refer to these improved drugs
as Improved Chemical Entities, or ICEs. We select for development widely sold
drugs with potential for improved efficacy, reduced side-effects, or both. The
existing compounds we seek to improve are referred to as the parent compounds.
We have focused much of our development efforts on chiral compounds, which
account for approximately 500 currently available drugs. Chiral compounds
frequently exist as mixtures of mirror image molecules known as isomers. When a
chiral compound contains equal amounts of both isomers, it is a racemic mixture,
and the two isomers are generally referred to as an S-isomer and an R-isomer.
Although these isomers are identical in chemical composition, their three
dimensional structures differ and, as a result, they often have different
biological activity. For example, sometimes only one isomer of the pair is
responsible for a drug's efficacy while the other produces undesirable side
effects. We seek to purify racemic mixtures to produce drugs with improved
efficacy and/or reduced side effects.
We also seek to improve existing drugs by developing compounds in their
active metabolite form. An active metabolite is a by-product of a drug. Like the
different isomers of a chiral drug, the activity of the metabolites and the
isomers of metabolites may vary from the activity of the parent compound. By
studying active metabolites, we are seeking to produce drugs with new
indications, improved efficacy and/or reduced side effects.
We believe that we may be able to develop our ICEs in less time, at lower
cost and at reduced risk than that required for typical drug development. We
believe we can reduce:
o discovery efforts for our ICEs;
o the cost and duration of clinical trials if we can rely on preclinical
and clinical trial data used in the course of obtaining regulatory
approval for the parent drug;
o the risk that we will not be able to obtain regulatory approval of an
ICE, because the FDA has already approved the parent drug; and
o certain of the marketing risks, due to an existing market for the
parent drug.
We have filed, and expect to continue to file, applications for patents for
our ICEs under development. Typically, a parent compound is covered by one or
more patents for the chemical composition of the drug. These patents are
referred to as composition-of-matter patents. Our patent applications typically
cover the use of the single-isomer or active-metabolite forms of a parent
compound for specific therapeutic indications. These patents are referred to as
method-of-use or use patents. We have a two-part strategy for commercializing
our ICEs:
(1) We are seeking licensing or co-promotion collaborations with
major pharmaceutical companies.
(2) For selected prescription products, we intend to develop a sales
force to market ICEs independently.
3
<PAGE>
When licensing or seeking to co-promote our products, we typically seek partners
that have marketing and distribution strength in the market served by the drug.
Most of the ICEs for which we have obtained use patents or filed patent
applications, such as (S)-doxazosin, fexofenadine, (R)-fluoxetine,
(S)-fluoxetine, (S)-lansoprazole, norcisapride, (-)pantoprazole, (S)-zopiclone,
and (+)- desmethylsibutramine, are covered by composition-of-matter or other
patents or patent applications typically held by third-party drug companies. We
may not commercialize an ICE until the expiration of any relevant third-party
patent, unless we obtain a license or a court determines the patent is invalid,
unenforceable or not infringed.
---------------------
Sepracor, ICE and Xopenex are trademarks of Sepracor. Other trademarks
used in this prospectus are the property of their respective owners.
4
<PAGE>
Risk Factors
You should carefully consider the following risks before making an
investment decision. You should also refer to the other information set forth in
this prospectus, and incorporated by reference in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could vary significantly from the results
discussed in the forward-looking statements. Some risks that could cause our
results to vary are discussed below.
We Have Operating Losses
We have not been profitable since inception, and it is possible that we
will not achieve profitability. We incurred net losses applicable to common
shares on a consolidated basis of approximately $93.4 million for the year ended
December 31, 1998 and $26.7 million for the year ended December 31, 1997. These
net losses include dividends paid on Sepracor's Series B Preferred Stock
totaling $150,000 for the year ended December 31, 1998 and $600,000 for the year
ended December 31, 1997. We expect to continue to incur losses in future
periods.
Many of Our Products are in the Early Stage of Product Development and may not
be Developed Successfully
We are focused on the development of improved versions of widely prescribed
pharmaceutical compounds which we refer to as improved chemical entities, or
ICEs. Most of our ICEs are still undergoing clinical trials or are at the early
stages of development. Our drugs may not provide greater benefits or fewer side
effects than the original versions of these drugs and our research efforts may
not lead to the discovery of new drugs with improved characteristics. All of our
drugs under development will require significant additional research,
development, preclinical and/or clinical testing, regulatory approval and a
commitment of significant additional resources prior to their commercialization.
Our potential products may not:
o be developed successfully;
o be proven safe and efficacious in clinical trials;
o offer therapeutic or other improvements over comparable drugs;
o meet applicable regulatory standards;
o be capable of being produced in commercial quantities at acceptable
costs; or
o be successfully marketed.
There are Uncertainties Involved with Patents
Our success depends in part on our ability to obtain and maintain patents,
protect trade secrets and operate without infringing upon the proprietary rights
of others. We have filed various patent applications covering the composition
of, and the methods of using, single-isomer or active-metabolite forms of
various compounds for specific applications.
We may not be issued patents in respect of the patent applications already
filed or that we file in the future. Moreover, the patent position of companies
in the pharmaceutical industry generally involves complex legal and factual
questions, and recently has been the subject of much litigation. No consistent
policy has emerged from the U.S. Patent and Trademark Office, generally known as
the PTO, or the courts regarding the breadth of claims allowed or the degree of
protection afforded under patents and other proprietary rights. Therefore, any
patents we have obtained, or obtain in the future, may be challenged,
invalidated or circumvented.
5
<PAGE>
Our ability to commercialize successfully any ICE will largely depend upon
our ability to obtain and maintain use patents of sufficient scope to prevent
third parties from developing similar or competitive products. Third parties,
typically drug companies, hold patents or patent applications covering the
composition of matter for most of the ICEs for which we have use patents or
patent applications. In each such case, unless we have or obtain a license
agreement, we generally may not commercialize the ICE until the expiration of
these third-party patents. Licenses may not be available to us on acceptable
terms, if at all. In addition, it would be costly for us to contest the validity
of a third-party patent or defend any claim that we infringe a third-party
patent. Moreover, litigation involving third-party patents may not be resolved
in our favor.
Developing new products and processes is expensive and time consuming.
Therefore, it is important for us to obtain patent and trade secret protection
for significant new technologies, products and processes. Protection of our
proprietary rights from unauthorized third-party use requires that the rights
either be covered by valid and enforceable patents or be maintained in
confidence as trade secrets. Some of the technology that we use in our products
is not covered by any patents or patent applications. In the absence of patent
protection, competitors may adversely affect our business by developing
independently substantially equivalent technology. This independent development
may circumvent any trade secret protection applicable to our products.
We Are Involved in a Patent Interference
In July 1997, the PTO informed us that it had declared an interference
between our use patent on fexofenadine to treat allergic rhinitis and another
similar use patent application filed by us, and Hoechst Marion Roussel, Inc.'s
use patent application on the anti-histaminic effects of fexofenadine on
hepatically impaired patients. The primary objective of a patent interference,
which only the PTO can declare, is to determine which party first invented the
overlapping subject matter claimed by more than one party. In the course of an
interference, the parties typically present evidence relating to their invention
of the overlapping subject matter. The PTO then reviews the evidence and issues
a patent in the overlapping subject matter to the party it believes has the
earliest legally sufficient date of invention.
The process to resolve an interference can take many years and the outcome
of interferences varies considerably. If we lose the interference, Hoechst
Marion Roussel will be issued a U.S. patent for the overlapping subject matter.
Further, Hoechst Marion Roussel may not be obligated to pay the milestone or
royalty payments called for in the existing agreement in which we license our
U.S. patent rights covering fexofenadine to Hoechst Marion Roussel. If we
prevail in the interference, we will retain all of our claims in our issued
patent. A favorable decision, however, does not ensure meaningful protection of
our proprietary rights.
We are using arbitration to resolve the interference, and the arbitration
proceeding is ongoing. The arbitrator may or may not render a decision during
the first half of 1999. Once rendered, the arbitrator's decision must be
submitted to the PTO for final approval.
There is no Certainty That We will Obtain Government Approvals; The Approval
Process is Costly and Lengthy.
The U.S. Food and Drug Administration, or FDA, and similar foreign agencies
must approve the marketing and sale of pharmaceutical products developed by us
or our development partners. The regulatory process to obtain marketing approval
requires clinical trials of a product to establish its safety and efficacy.
Problems that may arise during clinical trials include:
o results of clinical trials may not be consistent with pre-clinical
study results;
6
<PAGE>
o results from later phases of clinical trials may not be consistent
with the results from earlier phases; and
o products may not be shown to be safe and efficacious.
The clinical trial and regulatory approval process can take many years and
require substantial expenditures. We may not obtain regulatory approval for
products on a timely basis, if at all. With respect to certain of our ICEs, we
have been able to shorten the regulatory approval process by relying on the
parent drug's preclinical and clinical toxicology data already on file with the
FDA. However, it is possible that the FDA will not permit us to use this
strategy in the future. Accordingly, we may be required to expend significant
resources to complete preclinical and clinical studies for our other ICEs which
would significantly delay the regulatory approval process.
Our failure to obtain regulatory approval on a timely basis and any
unanticipated significant expenditures on preclinical and clinical studies could
adversely affect our financial condition. Even if the FDA grants us regulatory
approval of a product, such approval may be subject to limitations on the
indicated uses for which the product may be marketed or contain requirements for
costly post-marketing follow-up studies.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
Risks Due to Our Limited Sales and Marketing Experience
We currently have very limited sales and marketing experience. If we
successfully develop and obtain regulatory approval for the products we are
currently developing, we expect to license some of them to large pharmaceutical
companies and market and sell others through our direct specialty sales forces
or through other arrangements, including co-promotion arrangements. We have
established a direct sales force to market our single isomer form of albuterol,
Xopenex(TM), in anticipation of commercial introduction of this drug in 1999.
Further, as we begin to enter into co-promotion arrangements or market and sell
additional products directly, we will need to significantly expand our sales
force. We expect to incur significant expense in expanding our direct sales
force.
Our ability to realize significant revenues from direct marketing and sales
activities depends on our ability to attract and retain qualified sales
personnel in the pharmaceutical industry. If we are unable to attract and retain
qualified sales personnel, we will not be able to successfully expand our
marketing and direct sales force on a timely or cost effective basis. Further,
our sales and marketing efforts may not be successful, and the need to comply
with FDA limits on drug product marketing, including limits on claims of
comparative safety or efficacy, may inhibit the effectiveness of such marketing.
In addition, we will need to enter into co-promotion arrangements with third
parties where our own direct sales force is neither well situated nor large
enough to achieve maximum penetration in the market. We may not be successful in
entering into any such arrangements, and the terms of any such arrangements may
not be favorable to us.
7
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Manufacturing Uncertainties
We currently operate a manufacturing plant that is compliant with current
Good Manufacturing Practices that we believe can produce commercial quantities
of Xopenex and support the production of our other possible products in amounts
needed for our clinical trials. We believe we have the capability, without
additional expansion, to scale up our manufacturing processes and manufacture
sufficient amounts of the products which may be approved for sale. However, we
will not have the capability to manufacture in sufficient quantities all of the
products which may be approved for sale. Accordingly, we may be required to
spend money to expand our current manufacturing facility, build an additional
manufacturing facility or contract the production of these drugs to third-party
manufacturers.
We currently have a supply contract with ChiRex Inc. that commits us to
purchase through December 31, 2001 all of our annual requirements of those drugs
that we will market directly through our specialty sales force, provided ChiRex
meets certain pricing, supply and quality control conditions. Under this supply
agreement, however, we retain the right to manufacture commercial quantities of
our drugs in our Nova Scotia manufacturing plant.
We may not successfully scale up our manufacturing processes or maintain
current Good Manufacturing Practices compliance. Failure in either respect can
lead to refusal by the FDA to approve marketing applications. Failure to
maintain current Good Manufacturing Practices compliance may also be the basis
for action by the FDA to withdraw approvals previously granted and for other
regulatory action.
We Will be Exposed to Product Liability Claims and Maintain Product Liability
Insurance
Our business exposes us to the risk of product liability claims that are
inherent in the testing, manufacturing, marketing and sale of human health care
products. We maintain limited product liability insurance coverage for both the
clinical trials and commercialization of our products. It is possible that we
will not be able to obtain further product liability insurance on acceptable
terms, if at all, and that insurance subsequently obtained will not provide
adequate coverage against all potential claims. If we are unable to obtain
insurance at acceptable costs or otherwise protect against potential product
liability claims, we could be exposed to significant liabilities. These
liabilities could prevent or interfere with our product commercialization
efforts.
We Depend on Collaborative Partners
Our ability to commercialize certain drugs that we develop is likely to
depend significantly on our continued ability to enter into collaborative
agreements with pharmaceutical companies to fund all or part of the costs to
complete the development of such drugs and to manufacture and/or market such
drugs. To date, we have entered into five such collaborative agreements. We have
licensed to Hoechst Marion Roussel our U.S. patent rights to fexofenadine, which
is marketed by Hoechst Marion Roussel as Allegra(R), and are entitled to receive
royalties on all U.S. sales of Allegra when the patent on the parent drug
expires. We, however, are currently party to an interference involving Allegra
which, if decided against us, could result in the loss of all or substantially
all of the royalties to which we are entitled under the license agreement on
future sales of Allegra. See " -- We are Involved in a Patent Interference." We
have also licensed our worldwide patent rights in desloratadine to
Schering-Plough Ltd., pursuant to which we are entitled to receive royalties
from Schering-Plough upon the initial sale of the product. We have entered into
an agreement with Janssen Pharmaceutical N.V., a wholly owned subsidiary of
Johnson & Johnson, with respect to the joint development and co-promotion of
norastemizole. We have exclusively licensed our norcisapride rights to Janssen,
and are entitled to receive royalties on product sales beginning upon the first
commercial sale. These
8
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royalties will escalate upon achievement of sales volume milestones. We have
exclusively licensed our R-fluoxetine rights to Eli Lilly and Company, and, in
addition to up-front license and development milestone payments, are entitled to
receive royalties on product sales beginning upon the first commercial sale.
This agreement will be effective on the next business day following the
expiration or earlier termination of the notice and waiting period under the
Hart Scott Rodino Antitrust Improvements Act of 1976. Under the HSR Act, we have
received a request from the Federal Trade Commission for additional information
in connection with the R-fluoxetine agreement. We plan to fully respond to the
request and expect the agreement to become effective as soon as the Federal
Trade Commission completes its review.
In each of these collaborative arrangements and, to the extent that we
enter into additional collaborative arrangements, we depend upon the efforts of
our collaboration partners, and these efforts may not be successful. If any of
our collaboration partners were to breach or terminate their agreements with us
or fail to perform their obligations to us in a timely manner, the development
and commercialization of the products could be delayed or terminated. Any delay
or termination of this type could have a material, adverse effect on the our
financial condition and results of operation. Any failure or inability by us to
perform certain of our obligations under a collaborative agreement could reduce
or extinguish the benefits to which we are otherwise entitled under the
agreement. We cannot assure you that we will be able to enter into collaborative
agreements for ICEs in the future or that the terms of the collaborative
agreements, if any, will be favorable to us.
We are Highly Leveraged
As of December 31, 1998, our total long-term debt was approximately $492.1
million and our stockholders' equity was $4.4 million. Neither the 6 1/4%
Debentures nor the 7% Debentures due 2005 restrict our ability or our
subsidiaries' ability to incur additional indebtedness, including debt that
ranks senior to the 6 1/4% Debentures or the 7% Debentures due 2005. Additional
indebtedness of Sepracor may rank senior to or pari passu with the 6 1/4%
Debentures or the 7% Debentures due 2005 in certain circumstances. See
"Description of Debentures." Our ability to satisfy our obligations will depend
upon our future performance, which is subject to many factors, including factors
beyond our control. It is possible that we will be unable to meet our debt
service requirements on the 6 1/4% Debentures or the 7% Debentures due 2005.
Moreover, we may be unable to repay the 6 1/4% Debentures or 7% Debentures due
2005 at maturity or otherwise in accordance with the debt instruments.
We May Need Additional Funds
We may require additional funds for our research and product development
programs, operating expenses, the pursuit of regulatory approvals and the
expansion of our production, sales and marketing capabilities. Historically we
have satisfied our funding needs through collaborative arrangements with
corporate partners, equity or debt financing. We cannot assure you that these
funding sources will be available to us when needed in the future, or, if
available, will be on terms acceptable to us. Insufficient funds could require
us to delay, scale back or eliminate certain of our research and product
development programs or to license third parties to commercialize products or
technologies that we would otherwise develop or commercialize ourself. Our cash
requirements may vary materially from those now planned because of factors
including:
o increased research and development expenses
o patent developments
o relationships with collaborative partners
o the FDA regulatory process
o our capital requirements
9
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We Face Intense Competition
We expect to encounter intense competition in the sale of our future
products. Our competitors include pharmaceutical companies, biotechnology firms,
universities and other research institutions. The fields in which we compete are
subject to rapid and substantial technological change. Developments by others
may render our products or technologies obsolete or noncompetitive. Many of our
competitors and potential competitors have substantially greater resources,
manufacturing and marketing capabilities, research and development staff and
production facilities than we have.
There Will be Fluctuations in Our Quarterly Operating Results
Our quarterly operating results are likely to fluctuate significantly.
These fluctuations will depend on factors which include:
o the timing of collaborative agreements for our pharmaceutical
development candidates and development costs for those pharmaceuticals
o the timing of product sales and market penetration
o the timing of operating expenses, including marketing expenses and the
costs of expanding and maintaining a direct sales force
o the timing of significant orders for the products of BioSepra Inc., a
64%-owned subsidiary of Sepracor
o the losses of HemaSure Inc., a 33%-owned subsidiary of Sepracor (as of
December 31, 1998), and Versicor Inc., a 22%-owned subsidiary of
Sepracor, to the extent we are required to recognize these losses
Year 2000 issue
The year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in miscalculation or system
failures. In 1996, we began a comprehensive project, fully supported by senior
management, to determine the risks and impacts of the Year 2000, or Y2K,
computer problem on our ability to operate into the next century. This plan took
into account our status as a pharmaceutical research and development company,
and our transition to a fully-developed pharmaceutical company, with research
and development, manufacturing, distribution and sales functions. The project
relates to the following areas: (i) our internal systems (including information
technology systems, such as financial systems, and non-information technology
systems, such as telephones and facilities); and (ii) the readiness of our
vendors. As an emerging pharmaceutical company, direct customers are not
expected to play a critical role in our Y2K analysis. In addition, our products
under development will not require Y2K compliance.
Department managers in every business area participate in the project,
under the leadership of a Y2K Project Manager. We began this project in 1996 so
as to incorporate Y2K readiness into our business strategy, and to identify and
replace non-compliant systems and procedures as part of our normal operating
plan and budget.
Our goal is to be fully Y2K ready, in respect to both our own systems and
those of our key vendors and strategic alliance partners, no later than July
1999.
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To date, we have spent $145,000 to retrofit or replace computer-cased
systems, which were identified as lacking compliance. This included the
migration of all of our desktop computers to an operating status we consider to
be Y2K certified, through software upgrades or full system replacements. Our key
telecommunications systems were also upgraded and/or replaced. These costs have
been minimal due to the fact that Y2K compliance has been a prerequisite to all
new systems acquisitions and maintenance upgrades.
We estimate approximately $400,000 in additional direct costs will be
expended to complete our Y2K certification efforts. This funding will be used to
contract with an independent testing firm to perform a platform and system
review of our IT-based systems. At this time, we also plan to contract with an
independent auditor to perform a full review of our compliance efforts,
including contingency planning. This funding will also be used to address any
system or process replacement requirements that may be identified as these
reviews progress.
Areas that need further attention include vendor compliance certification,
which is in progress at this time, and contingency planning. Completion of the
vendor compliance certification is impacted by vendors' respective Y2K efforts.
We expect to have initial vendor responses completed by April 1999, and will
determine what follow-up is required at that time. We rely on third party
suppliers and service providers. If these or other third parties experience Year
2000 failures or malfunctions, there could be an adverse impact on our ability
to conduct operations, including conducting continued pharmaceutical development
efforts and manufacturing pharmaceutical products. We have minimal Year 2000
related contingency plans because we have virtually no legacy systems and
because very few potential issues have surfaced to date. A review of these plans
will be held once vendor certification is completed.
Our focus for the coming months will be to determine the exact level of
exposure with outside vendors/customers, and to complete independent
verification of internal compliance efforts. Based on the activities described
above, we do not believe that the Year 2000 problem will have a material adverse
effect on our business or results of operations.
The Debentures are Subordinated to Senior Obligations
The 7% Debentures are not secured by our assets and are subordinate in
right of payment to all of our current and future debt that ranks senior to the
7% Debentures, including:
o all of our indebtedness, whenever created or incurred, that is not
made subordinate to or pari passu with the 7% Debentures by the debt
instrument;
o our obligations under a put agreement to purchase $2.0 million of
indebtedness of Versicor, in the event of a default by Versicor; and
o our obligations under a guarantee of up to $5.0 million of
indebtedness of HemaSure. See "Description of Debentures."
At December 31, 1998, the aggregate amount of obligations that rank senior
to the 7% Debentures outstanding was approximately $12.4 million and the
aggregate amount of our indebtedness that would be pari passu with the 7%
Debentures was approximately $189.5 million. The 7% Debentures do not limit the
amount of additional indebtedness, including debt ranking senior, that we can
create, incur, assume or guarantee. The incurrence of additional indebtedness by
us could adversely affect our ability to pay our obligations on the 7%
Debentures. In the event of bankruptcy, liquidation, or reorganization or upon
acceleration of the 7% Debentures due to an event of default and in certain
other events, we will not be able to pay our obligations with respect to 7%
Debentures until all our
11
<PAGE>
debt ranking senior to the 7% Debentures has been fully repaid. It is possible
that there may not be sufficient assets remaining to pay amounts due on any or
all of the 7% Debentures then outstanding. See "Description of Debentures."
Holders of the 7% Debentures are also effectively subordinated to the
claims of our subsidiaries' creditors to the extent of the assets of such
subsidiaries. In the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any of our
subsidiaries, creditors of such subsidiary generally will have the right to be
paid in full before any distribution is made to us or the holders of the 7%
Debentures. See "Description of Debentures."
We anticipate that, on occasion, we will incur additional indebtedness,
including debt ranking senior, and that we and our subsidiaries will
occasionally incur other additional indebtedness and liabilities.
There Are Limitations on Repurchase of the Debentures Upon a Fundamental Change
In the event of a Fundamental Change, each holder of the 7% Debentures will
have the right to require us to repurchase all or some of their 7% Debentures.
See page 21 under the heading "Description of Debentures -- Redemption at Option
of the Holder." Our ability to repurchase the 7% Debentures upon a Fundamental
Change may be limited by the terms of any debt ranking senior to the 7%
Debentures and the subordination provisions of the debt instruments. Further,
our ability to repurchase 7% Debentures upon a Fundamental Change will depend on
the availability of sufficient funds and compliance with applicable securities
laws. Accordingly, we may be unable to repurchase the 7% Debentures upon a
Fundamental Change. Our failure to repurchase any 7% Debentures upon a
Fundamental Change at the request of the holder would constitute an event of
default under the 7% Debentures, which could result in the acceleration of our
obligation to pay our obligation under the 7% Debentures and all of our other
outstanding indebtedness.
The term "Fundamental Change" means the occurrence of any event in which
all or substantially all Sepracor common stock is or will be exchanged for
consideration which is not all or substantially all Sepracor common stock
listed, or, upon consummation of or immediately following such event which will
be listed, on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of
automated dissemination of quotations of securities prices. The Fundamental
Change would include a transaction or event which occurs through an:
o exchange offer
o liquidation
o tender offer
o consolidation
o merger
o combination
o reclassification
o recapitalization
The term "Fundamental Change" is limited to certain specified transactions
and may not include other events that might adversely affect our financial
condition. Even though we are required to repurchase the 7% Debentures upon a
Fundamental Change, holders still may not be protected in the event of a highly
leveraged reorganization, merger or similar transaction involving us. See
"Description of Debentures."
12
<PAGE>
Absence of Public Market; Transfer Restrictions
There is a limited market for the 7% Debentures. We cannot assure you as to
the liquidity of any markets that may develop for the 7% Debentures, your
ability to sell your 7% Debentures or the price at which you may be able to sell
your 7% Debentures. Future trading prices of the 7% Debentures will depend on
many factors, including:
o prevailing interest rates
o our operating results
o the price of the Sepracor common stock
o the market for similar securities
The 7% Debentures are eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages, or PORTAL, Market; however, we
do not intend to apply for listing of the 7% Debentures on any securities
exchange.
13
<PAGE>
Use Of Proceeds
All of the 7% Debentures and the shares of Sepracor common stock issuable
upon conversion of the 7% Debentures are being sold by the selling
securityholders or by their pledgees, donees, transferees or other successors in
interest. Sepracor will not receive any proceeds from the sale of the 7%
Debentures or the shares of Sepracor common stock issuable upon conversion of
the 7% Debentures.
Ratio Of Earnings To Fixed Charges
We have not recorded earnings for any of the five years ended December 31,
1998 and therefore are unable to cover fixed charges and unable to disclose the
ratio of earnings to fixed charges. However, the following table discloses our
net loss applicable to common shares and our amount of fixed charges for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(in thousands) 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net loss applicable to
common shares(1) ................... (20,343) (33,412) (60,710) (26,723) (93,433)
Fixed charges(1)(2) ................ -- 565 989 989 1,241
</TABLE>
(1) The net loss applicable to common shares and the fixed charges shown have
not been adjusted for interest expense on indebtedness of $832, $2,077,
$6,140 and $16,969 for the years ended 1994, 1995, 1996, 1997 and 1998
respectively.
(2) Fixed charges consist of the amortization of deferred financing costs
relating to the 7% subordinated convertible debentures due 2002, the 6 1/4%
subordinated convertible debentures due 2005 and the 7% subordinated
convertible debentures due 2005 and accrued dividends on Sepracor's Series
B Preferred Stock.
Description Of Debentures
The 7% Debentures were issued under an Indenture dated as of December 15,
1998 between Sepracor and The Chase Manhattan Bank, as Trustee. Registered
holders of the 7% Debentures may request copies of the form of Indenture.
Registered holders may also request from the Trustee copies of the registration
rights agreement between Sepracor and the initial purchasers of the 7%
Debentures which relates to the registration under the Securities Act of 1933 of
the 7% Debentures and the shares of Common Stock underlying the 7% Debentures.
The following description is a summary of the material provisions of the 7%
Debentures, the Indenture and the registration rights agreement. It is not a
complete description and does not restate those documents either in part or in
their entirety. We urge you to read the Global Debenture, the Indenture and the
registration rights agreement. The Global Debenture is a 7% Debenture issued in
the name of Depository Trust Company which represents the beneficial interests
owned by many purchasers of the 7% Debentures. The Global Debenture, the
Indenture and the registration rights agreement, and not the following
description, define your rights as holders of the 7% Debentures. Copies of the
Global Debenture, the Indenture and the registration rights agreement are filed
as exhibits to the registration statement of which this prospectus is a part.
14
<PAGE>
Brief Description of the Debentures
o Aggregate Principal Amount:
---------------------------
$300,000,000
o Interest:
---------
Interest is paid on each June 15 and December 15 through maturity at
an annual rate of 7%.
o Maturity:
--------
The 7% Debentures mature and must be repaid by Sepracor on December
15, 2005. This maturity is subject to any redemptions at the option of
either a registered holder or Sepracor.
o Subordination:
-------------
The 7% Debentures are not secured and are subordinate to all present
and future Senior Obligations, as defined below, of Sepracor. The 7%
Debentures are effectively subordinated to all indebtedness and
liabilities of Sepracor's subsidiaries.
o Conversion:
----------
The 7% Debentures are convertible into Sepracor's common stock at any
time from now through maturity. The conversion price is $124.875 per
share. Conversions are subject to any redemptions at the option of
either a registered holder or Sepracor.
o Redemption:
----------
By Sepracor. On December 20, 2001, through maturity, the 7% Debentures
are redeemable at Sepracor's option. This redemption option may be
exercised for some or all of the 7% Debentures, but Sepracor must
provide 30 days' prior notice. The redemption price applicable to
redemptions by Sepracor ranges between 104% and 100% of the principal
amount, plus accrued interest, depending upon how close to maturity
the redemption occurs.
By a Registered Holder. Upon a Fundamental Change, as defined below,
each registered holder of 7% Debentures may require Sepracor to redeem
its 7% Debentures at 100% of the principal amount, plus accrued
interest.
General
The 7% Debentures represent unsecured general obligations of Sepracor
subordinate in right of payment to certain other obligations of Sepracor as
described under "Subordination of Debentures" and convertible into Sepracor
common stock as described under "Conversion of Debentures." The 7% Debentures
rank equally, or pari passu, in right of payment with Sepracor's 6 1/4%
convertible subordinated debentures due 2005. The 7% Debentures are limited to
$300.0 million aggregate principal amount, have issued only in denominations of
$1,000 and integral multiples of $1,000 and will mature on December 15, 2005
unless earlier redeemed at the option of Sepracor or at the option of the holder
upon a Fundamental Change.
15
<PAGE>
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Obligations, as defined in
"Subordination of Debentures" on page 22, or the issuance or repurchase of other
outstanding securities of Sepracor. The Indenture contains no covenants or other
provisions to afford protection to holders of the 7% Debentures in the event of
a highly leveraged transaction or a change in control of Sepracor except to the
extent described under "Redemption at Option of the Holder."
The 7% Debentures bear interest at the annual rate of 7% from December 15,
1998, payable twice per year on June 15 and December 15, beginning on June 15,
1999, to holders of record at the close of business on the preceding May 31 and
November 30, respectively, except (a) that the interest payable upon redemption,
unless the date of redemption is an interest payment date, will be payable to
the person to whom principal is payable and (b) as set forth in the next
succeeding sentence. In the case of any 7% Debenture, or portion of a 7%
Debenture, which is converted into common stock of Sepracor during the period
between a record date for any interest payment date and the next interest
payment date (but excluding the record date and the interest payment date)
either:
(1) if such 7% Debenture, or portion of a 7% Debenture, has been called
for redemption on a redemption date which occurs during such period,
or is to be redeemed in connection with a Fundamental Change on a
repurchase date, as defined, which occurs during such period, Sepracor
shall not be required to pay interest on such interest payment date in
respect of any such 7% Debenture, or portion of the 7% Debenture, or
(2) if otherwise, any 7% Debenture, or portion of a 7% Debenture,
submitted for conversion during this period shall be accompanied by
funds equal to the interest payable on such interest payment date on
the principal amount so converted. See "Conversion of Debentures."
Interest may, at Sepracor's option, be paid either:
(1) by check mailed to the address of the person entitled to the interest
payment as it appears in the 7% Debenture register, provided that a
holder of 7% Debentures with an aggregate principal amount in excess
of $2.0 million shall, at the written election of such holder, be paid
by wire transfer in immediately available funds, or
(2) by transfer to an account maintained by such person located in the
United States; provided that payments to The Depository Trust Company,
New York, New York, or DTC, will be made by wire transfer of
immediately available funds to the account of DTC or its nominee.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Form, Denomination and Registration
The 7% Debentures have issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and integral multiples of $1,000.
Global Debentures, Book-Entry Form. The 7% Debentures were offered and sold
solely to "qualified institutional buyers," or QIBs, as defined in Rule 144A
under the Securities Act and are currently evidenced by one or more global 7%
Debentures, each referred to as a Global Debenture, which have been deposited
with, or on behalf of, DTC and registered in the name of Cede & Co. as DTC's
nominee. Except as set forth below, a Global Debenture may be transferred, in
whole or in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
16
<PAGE>
QIBs may hold their interests in the applicable Global Debenture directly
through DTC if such holder is a participant in DTC, or indirectly through
organizations which are participants in DTC. Transfers between participants in
DTC will be effected in the ordinary way in accordance with DTC rules and will
be settled in clearing house funds.
QIBs who are not participants in DTC may beneficially own interests in
Global Debentures held by DTC only through participants in DTC or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant in DTC, either directly or
indirectly. So long as Cede & Co., as the nominee of DTC, is the registered
owner of a Global Debenture, Cede & Co. for all purposes will be considered the
sole holder of such Global Debenture. Except as provided below, owners of
beneficial interests in a Global Debenture will not be entitled to have
certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive registered form, and
will not be considered the holders thereof.
Payment of interest on and the redemption price or repurchase price of a
Global Debenture will be made to Cede & Co., the nominee for DTC, as the
registered owner of such Global Debenture by wire transfer of immediately
available funds on each interest payment date or redemption date or Repurchase
Date, as the case may be. Neither Sepracor, the Trustee nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a Global
Debenture or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Sepracor has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, a Global Debenture, DTC's practice is
to credit the accounts of participants in DTC on the payment date therefor with
payments in amounts proportionate to their respective beneficial interests in
the principal amount represented by such Global Debenture as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by participants in DTC to owners of
beneficial interests in the principal amount represented by a Global Debenture
held through such participants in DTC will be the responsibility of such
participants in DTC, as is now the case with securities held for the accounts of
customers registered in "street name."
Because DTC can only act on behalf of participants in DTC, who in turn act
on behalf of indirect participants in DTC and certain banks, the ability of a
person having a beneficial interest in the principal amount represented by a
Global Debenture to pledge such interest to persons or entities that do not
participate in the DTC system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither Sepracor nor the Trustee, or any registrar, paying agent or
conversion agent under the Indenture, will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised Sepracor that it will take any action permitted to
be taken by a holder of 7% Debentures, including, without limitation, the
presentation of 7% Debentures for exchange as described below, only at the
direction of one or more participants in DTC to whose account with DTC interests
in a Global Debenture are credited, and only in respect of the principal amount
of the 7% Debentures represented by such Global Debenture as to which such
participant in DTC or participants in DTC has or have given such direction.
DTC has advised Sepracor as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for
17
<PAGE>
its participants in DTC and to facilitate the clearance and settlement of
securities transactions between participants in DTC through electronic
book-entry changes to the accounts of its participants in DTC, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the initial purchasers of
the 7% Debentures. Certain of such participants in DTC, or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with a
participant in DTC, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Debentures among participants in DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
Sepracor within 90 days, Sepracor will cause 7% Debentures to be issued in
definitive registered form in exchange for Global Debentures.
Certificated Debentures. QIBs may request that certificated 7% Debentures
be issued in exchange for 7% Debentures represented by a Global Debenture.
Furthermore, certificated 7% Debentures may be issued in exchange for 7%
Debentures represented by Global Debentures if no successor depositary is
appointed by Sepracor as set forth above under "Global Debentures, Book-Entry
Form."
Restrictions on Transfer; Legends. The 7% Debentures will be subject to
certain transfer restrictions as described below under "Transfer Restrictions"
and certificates evidencing the 7% Debentures will bear a legend to such effect.
Conversion of Debentures
The holders of 7% Debentures will be entitled at any time after March 10,
1999 through the close of business on the final maturity date of the 7%
Debentures, subject to prior redemption, to convert any 7% Debentures or
portions thereof, in denominations of $1,000 or multiples of $1,000, into common
stock of Sepracor, at a conversion price of $124.875 per share, subject to
adjustment as described below. Except as described below, no payment or other
adjustment will be made on conversion of any 7% Debentures for interest accrued
thereon or for dividends on any Sepracor common stock issued. If any 7%
Debentures not called for redemption are converted during the period from, but
excluding, a record date for any interest payment date to, but excluding, such
interest payment date, such 7% Debentures must be accompanied by funds equal to
the interest payable on such interest payment date on the principal amount so
converted. Sepracor is not required to issue fractional shares of Sepracor
common stock upon conversion of 7% Debentures and, instead, will pay a cash
adjustment based upon the market price of Sepracor common stock on the last
business day prior to the date of conversion.
In the case of 7% Debentures called for redemption, conversion rights will
expire at the close of business on the business day preceding the day fixed for
redemption unless Sepracor defaults in the payment of the redemption price. A 7%
Debenture in respect of which a holder is exercising its option to require
redemption upon a Fundamental Change may be converted only if such holder
withdraws its election to exercise its option in accordance with the terms of
the Indenture.
The initial conversion price of $124.875 per share of Sepracor common stock
is subject to adjustment under formulae as set forth in the Indenture in certain
events, including:
(1) the issuance of Sepracor common stock as a dividend or distribution on
the Sepracor common stock,
18
<PAGE>
(2) certain subdivisions and combinations of the Sepracor common stock,
(3) the issuance to all holders of Sepracor common stock of certain rights
or warrants to purchase Sepracor common stock,
(4) the distribution to all holders of Sepracor common stock of capital
stock, other than common stock, or evidences of Indebtedness, as
defined in the Indenture of Sepracor, or of assets, including
securities, but excluding those rights, warrants, dividends and
distributions referred to above or paid in cash,
(5) distributions consisting of cash, excluding any quarterly cash
dividend on the Sepracor common stock to the extent that the aggregate
cash dividend per share of Sepracor common stock in any fiscal quarter
does not exceed the greater of:
(a) the amount per share of Sepracor common stock of the next
preceding quarterly cash dividend on the Sepracor common stock to
the extent that such preceding quarterly dividend did not require
an adjustment of the conversion price pursuant to this clause
(5), as adjusted to reflect subdivisions or combinations of the
Sepracor common stock, and
(b) 3.75% of the average of the last reported sales price of the
Sepracor common stock during the ten trading days immediately
prior to the date of declaration of such dividend, and excluding
any dividend or distribution in connection with the liquidation,
dissolution or winding up of Sepracor.
If an adjustment is required to be made as set forth in this clause
(5) as a result of a distribution that is a quarterly dividend, such
adjustment would be based upon the amount by which such distribution
exceeds the amount of the quarterly cash dividend permitted to be
excluded pursuant to this clause (5). If an adjustment is required to
be made as set forth in this clause (5) as a result of a distribution
that is not a quarterly dividend, such adjustment would be based upon
the full amount of the distribution,
(6) payment in respect of a tender offer or exchange offer by Sepracor or
any subsidiary of Sepracor for all or any portion of the Sepracor
common stock, other than tender offers or exchange offers for less
than fifteen percent (15%) of the outstanding shares of common stock
of Sepracor, to the extent that the cash and value of any other
consideration included in such payment per share of Sepracor common
stock exceeds the Current Market Price, as defined in the Indenture,
per share of Sepracor common stock on the trading day next succeeding
the last date on which tenders or exchanges may be made pursuant to
such tender or exchange offer, and
(7) payment in respect of a tender offer or exchange offer by a person
other than Sepracor or any subsidiary of Sepracor in which, as of the
closing date of the offer, the Board of Directors is not recommending
rejection of the offer. The adjustment referred to in this clause (7)
will only be made if the tender offer or exchange offer is for an
amount that increases the offeror's ownership of Sepracor common stock
to more than 25% of the total shares of Sepracor common stock
outstanding, and if the cash and value of any other consideration
included in such payment per share of Sepracor common stock exceeds
the Current Market Price per share of Sepracor common stock on the
business day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer. The
adjustment referred to in this clause (7) will generally not be made,
however, if, as of the closing of the offer, the
19
<PAGE>
offering documents with respect to such offer disclose a plan or an
intention to cause Sepracor to engage in a consolidation or merger of
Sepracor or a sale of all or substantially all of Sepracor's assets
and such consolidation, merger or sale is consummated within twelve
(12) months of the closing of the offer.
In the case of:
(1) any reclassification of the Sepracor common stock or
(2) a consolidation, merger or combination involving Sepracor or a sale or
conveyance to another person of the property and assets of Sepracor as
an entirety or substantially as an entirety,
in each case as a result of which holders of Sepracor common stock shall be
entitled to receive stock, other securities, other property or assets, including
cash, with respect to or in exchange for such Sepracor common stock, the holders
of the 7% Debentures then outstanding will generally be entitled thereafter to
convert such 7% Debentures into the kind and amount of shares of stock, other
securities or other property or assets which they would have owned or been
entitled to receive upon such reclassification, consolidation, merger,
combination, sale or conveyance had such 7% Debentures been converted into
Sepracor common stock immediately prior to such reclassification, consolidation,
merger, combination, sale or conveyance assuming that a holder of 7% Debentures
would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Sepracor common stock
or in certain other circumstances requiring conversion price adjustments, the
holders of 7% Debentures may, in certain circumstances, be deemed to have
received a distribution subject to United States income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Sepracor common stock. See "Certain United
States Federal Income Tax Considerations" below.
Sepracor from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
Sepracor shall give at least 15 days' notice of such reduction, if the Board of
Directors has made a determination that such reduction would be in the best
interests of Sepracor, which determination shall be conclusive. Sepracor may, at
its option, make such reductions in the conversion price, in addition to those
set forth above, as the Board of Directors deems advisable to avoid or diminish
any income tax to holders of Sepracor common stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain United States Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Sepracor common stock or any securities convertible into or
exchangeable for Sepracor common stock or carrying the right to purchase any of
the foregoing.
Optional Redemption by Sepracor
The 7% Debentures are not entitled to any sinking fund, which means that
Sepracor is not required to set aside in a custodial account funds to redeem the
7% Debentures. At any time on or
20
<PAGE>
after December 20, 2001, the 7% Debentures will be redeemable at Sepracor's
option on at least 30 days' notice as a whole or, from time to time, in part at
the following prices, expressed as a percentage of the principal amount,
together with accrued interest to, but excluding, the date fixed for redemption:
If redeemed during the period beginning December 20, 2001 and ending on
December 14, 2002 at a redemption price of 104%, and if redeemed during the
12-month period beginning December 15:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- --------------------
<S> <C>
2002.......................................................... 103%
2003.......................................................... 102
2004.......................................................... 101
</TABLE>
and 100% at December 15, 2005, provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
record on the relevant record date of the 7% Debentures being redeemed.
If less than all of the outstanding 7% Debentures are to be redeemed, the
Trustee shall select the 7% Debentures to be redeemed in principal amounts of
$1,000 or multiples thereof by lot, pro rata or by another method the Trustee
considers fair and appropriate. If a portion of a holder's 7% Debentures is
selected for partial redemption and such holder converts a portion of such 7%
Debentures, such converted portion shall be deemed to be of the portion selected
for redemption.
The Trustee shall not redeem any 7% Debentures or mail any notice of
optional redemption during the continuance of a default in payment of interest
or premium on the 7% Debentures or of certain other Events of Default of which
the Trustee has actual knowledge.
Redemption at Option of the Holder
If a Fundamental Change occurs at any time prior to December 15, 2005, each
holder of 7% Debentures shall have the right, at the holder's option, to require
Sepracor to redeem any or all of such holder's 7% Debentures on the date (the
"Repurchase Date") that is 30 days after the date of Sepracor's notice of such
Fundamental Change. The 7% Debentures will be redeemable in multiples of $1,000
principal amount.
Sepracor shall redeem such 7% Debentures at a price equal to 100% of the
principal amount to be redeemed plus accrued interest to, but excluding, the
date of redemption; provided that, if such Repurchase Date is an interest
payment date, then the interest payable on such date shall be paid to the holder
of record of the 7% Debentures on the relevant record date.
Sepracor is required to mail to all holders of record of the 7% Debentures
a notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result of any Fundamental Change on or before the tenth day after
the occurrence of such Fundamental Change. Sepracor is also required to deliver
to the Trustee a copy of such notice. To exercise the redemption right, a holder
of 7% Debentures must deliver, on or before the 30th day after the date of
Sepracor's notice of a Fundamental Change, written notice of the holder's
exercise of such right, together with the 7% Debentures to be so redeemed, duly
endorsed for transfer, to Sepracor, or an agent designated by Sepracor for such
purpose. Payment for 7% Debentures properly surrendered for redemption, and not
withdrawn, will be made promptly following the Repurchase Date.
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The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all Sepracor common stock is
or will be exchanged for, be converted into, be acquired for, or constitute in
all material respects solely the right to receive, consideration which is not
all or substantially all Sepracor common stock listed, or, upon consummation of
or immediately following such transaction or event which will be listed, on a
United States national securities exchange or approved for quotation on the
Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices. The Fundamental Change would
include a transaction or event which occurs through an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise.
Sepracor will comply with the provisions of Rule 13e-4 and any other tender
offer rules under the Exchange Act to the extent then applicable in connection
with the redemption rights of the holders of 7% Debentures in the event of a
Fundamental Change.
The redemption rights of the holders of 7% Debentures could discourage a
potential acquiror of Sepracor. The Fundamental Change redemption feature,
however, is not the result of management's knowledge of any specific effort to
obtain control of Sepracor by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions.
The term "Fundamental Change" is limited to certain specified transactions
and, accordingly Sepracor could, in the future, enter into other transactions,
including certain recapitalizations of Sepracor, that would not constitute a
Fundamental Change, but that would increase the amount of Senior Obligations
outstanding at such time or otherwise adversely affect the financial condition
of Sepracor. In addition, the payment of the Fundamental Change redemption price
on the 7% Debentures may be subordinated to the prior payment of Senior
Obligations as described under "Subordination of Debentures" below. There are no
restrictions in the Indenture on the creation of additional Senior Obligations
or other indebtedness. Under certain circumstances, the incurrence of additional
indebtedness could have an adverse effect on Sepracor's ability to service its
indebtedness, including the 7% Debentures. A default of Sepracor on its
obligations to pay the Fundamental redemption price could result in acceleration
of the payment of other indebtedness of Sepracor at the time outstanding
pursuant to cross-default provisions. Sepracor's failure to redeem tendered 7%
Debentures in connection with a Fundamental Change would in any event constitute
an Event of Default, as defined below under "Event of Default; Notice and
Waiver" on page 26, under the Indenture. If a Fundamental Change were to occur,
there can be no assurance that Sepracor would have sufficient funds to pay the
redemption price for all the 7% Debentures tendered by the holders thereof.
Further, the ability of Sepracor to repurchase 7% Debentures upon a Fundamental
Change will be dependent on compliance with applicable laws.
Subordination of Debentures
The Indebtedness evidenced by the 7% Debentures is subordinated to the
extent provided in the Indenture to the prior payment in full of all Senior
Obligations of Sepracor and in effect is equal in right of payment with
Sepracor's 6 1/4% convertible subordinated debentures due 2005. The 7%
Debentures also are effectively subordinated to all indebtedness and other
liabilities, including trade payables and lease obligations, if any, of
Sepracor's subsidiaries.
Upon any distribution of assets of Sepracor as a result of any dissolution,
winding up, liquidation or reorganization, the payment of the principal of, or
premium, if any, and interest, including liquidated damages, if any, on the 7%
Debentures is to be subordinated to the extent provided in the Indenture in
right of payment to the prior payment in full in cash of all Senior Obligations.
In the event of any acceleration of the 7% Debentures because of an Event of
Default, the holders of any Senior Obligations then outstanding would be
entitled to payment in full in cash of all
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obligations in respect of such Senior Obligations before the holders of the 7%
Debentures are entitled to receive any payment or distribution in respect
thereof. The Indenture will require that Sepracor promptly notify holders of
Senior Obligations if payment of the 7% Debentures is accelerated because of an
Event of Default.
Sepracor also may not make any payment upon or in respect of the 7%
Debentures, including upon redemption at the option of the holder of any 7%
Debenture or at the option of Sepracor, if:
(1) A default in the payment of the principal, premium, if any, interest,
rent or other obligations in respect of Senior Indebtedness occurs and
is continuing. This is called a Payment Default.
(2) Any other default occurs and is continuing with respect to certain
Senior Obligations, referred to as Designated Senior Obligations, that
permits a holder of the Designated Senior Obligation as to which such
default relates to accelerate its maturity and the Trustee receives a
written notice of such default, referred to as a payment blockage
notice, from Sepracor or other person permitted to give such notice
under the Indenture. This is called a Non-Payment Default.
Payments on the 7% Debentures may and shall be resumed:
(1) in case of a Payment Default, upon the date on which such default is
cured or waived or ceases to exist; and
(2) in case of a Non-Payment Default, the earlier of the date on which
such Non-Payment Default is cured or waived or ceases to exist or 179
days after the date on which the applicable Payment Blockage Notice is
received by the Trustee if the maturity of such Designated Senior
Obligations has not been accelerated and no Payment Default with
respect to any Senior Obligations has occurred which has not been
cured or waived or ceases to exist (in which case clause (1) shall
apply.
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless and until 365 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice. No Non-Payment
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or shall be made, the basis for a
subsequent Payment Blockage Notice.
Notwithstanding the foregoing, in the event that the or any holder of the
7% Debentures receives any payment or distribution of assets of Sepracor of any
kind in contravention of any of the subordination provisions of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the 7% Debentures before all Senior
Obligations are paid in full, then such payment or distribution will be held by
the recipient in trust for the benefit of holders of Senior Obligations or their
representatives to the extent necessary to make payment in full of all Senior
Obligations remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the benefit of the holders of
Senior Obligations.
By reason of the subordination provisions described above, in the event of
Sepracor's bankruptcy, dissolution or reorganization, holders of Senior
Obligations may receive more, ratably, and holders of the 7% Debentures may
receive less, ratably, than the other creditors of Sepracor. Such subordination
will not prevent the occurrence of any Event of Default under the Indenture.
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The term "Senior Obligations" means
o the principal of,
o the premium, if any,
o the interest, including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such
proceeding,
o the rent payable on or in connection with, and
o all fees, costs, expenses and other amounts accrued or due on or in
connection with,
Indebtedness of Sepracor, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed, guaranteed or in effect guaranteed by
Sepracor (including all deferrals, renewals, extensions or refundings of, or
amendments, modifications or supplements to, the foregoing), unless in the case
of any particular Indebtedness the instrument creating or evidencing the same or
the assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to the 7% Debentures or expressly
provides that such Indebtedness is pari passu or junior to the 7% Debentures.
Notwithstanding the foregoing, the term Senior Obligations shall not include
Sepracor's 6 1/4% convertible subordinated debentures due 2005 or any
Indebtedness of Sepracor to any subsidiary of Sepracor, a majority of the voting
stock of which is owned, directly or indirectly, by Sepracor.
The term "Indebtedness" means, with respect to any Person (as defined in
the Indenture) and without duplication:
(1) all indebtedness, obligations and other liabilities, contingent or
otherwise, of such Person for borrowed money, including obligations of
Sepracor in respect of overdrafts, foreign exchange contracts,
currency exchange agreements, interest rate protection agreements, and
any loans or advances from banks, whether or not evidenced by notes or
similar instruments, and all commitment, standby and other fees due
and payable to financial institutions with respect to credit
facilities available to such Person, or evidenced by bonds,
debentures, notes or similar instruments, whether or not the recourse
of the lender is to the whole of the assets of such Person or to only
a portion thereof, other than any account payable or other accrued
current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services,
(2) all reimbursement obligations and other liabilities, contingent or
otherwise, of such Person with respect to letters of credit, bank
guarantees or bankers' acceptances,
(3) all obligations and liabilities, contingent or otherwise, in respect
of leases of real or personal property or other assets of such Person
required, in conformity with generally accepted accounting principles,
to be accounted for as capitalized lease obligations on the balance
sheet of such Person and all obligations and other liabilities,
contingent or otherwise, under any lease or related document,
including a purchase agreement, in connection with the lease of real
property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to
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the lessor and the obligations of such Person under such lease or
related document to purchase or to cause a third party to purchase
such leased property,
(4) all obligations of such Person, contingent or otherwise, with respect
to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement,
(5) all direct or indirect guaranties or similar agreements by such Person
in respect of, and obligations or liabilities, contingent or
otherwise, of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in
clauses (1) through (4),
(6) any indebtedness or other obligations described in clauses (1) through
(5) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless
of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person, and
(7) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (1) through
(6).
The term "Designated Senior Obligations" means:
o Senior Obligations under Sepracor's existing revolving credit
facility,
o Sepracor's obligations under a put agreement to purchase $2.0 million
of indebtedness of Versicor in the event of a default thereof by
Versicor,
o Sepracor's guarantee of repayment by HemaSure of amounts borrowed
under a $5.0 million revolving line of credit with a commercial bank,
o or any other Senior Obligations in which the instrument creating or
evidencing the same or the assumption or guarantee thereof, or related
agreements or documents to which Sepracor is a party, expressly
provides that such Senior Obligations shall be "Designated Senior
Obligations" for purposes of the Indenture;
provided that such instrument, agreement or other document may place limitations
and conditions on the right of such Senior Indebtedness to exercise the rights
of Designated Senior Obligations.
The 7% Debentures are effectively subordinated to all liabilities,
including trade payables and lease obligations, if any, of Sepracor's
subsidiaries. Any right of Sepracor to receive the assets of any of its
subsidiaries upon the liquidation or reorganization thereof, and the consequent
right of the holders of the 7% Debentures to participate in these assets, will
be effectively subordinated to the claims of that subsidiary's creditors,
including trade creditors, except to the extent that Sepracor is itself
recognized as a creditor of such subsidiary, in which case the claims of
Sepracor would still be subordinate to any security interests in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
Sepracor.
Sepracor's subsidiaries are separate and distinct legal entities and have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
7% Debentures or to make any funds available therefor, whether by dividends,
loans or other payments. In addition, the payment of dividends and
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the making of loans and advances to Sepracor by its subsidiaries may be subject
to statutory, contractual or other restrictions and are dependent upon the
earnings or financial condition of those subsidiaries and subject to various
business considerations. As a result, Sepracor may be unable to gain access to
the cash flow or assets of its subsidiaries.
Sepracor has approximately $189.5 million in aggregate principal amount of
6 1/4% convertible subordinated debentures due 2005, and, as of December 31,
1998, Sepracor had approximately $12.4 million of Senior Obligations. The
Indenture does not limit the amount of additional indebtedness, including Senior
Obligations, which Sepracor can create, incur, assume or guarantee, nor does the
Indenture limit the amount of indebtedness or other liabilities that any
subsidiary can create, incur, assume or guarantee.
Sepracor is obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against certain losses, liabilities or expenses incurred
by it in connection with its duties relating to the 7% Debentures. The Trustee's
claims for such payments will generally be senior to those of the holders of the
7% Debentures in respect of all funds collected or held by the Trustee.
Events of Default; Notice and Waiver
An Event of Default is defined in the Indenture as being:
(1) default in payment of the principal of or premium, if any, upon
redemption or otherwise, on the 7% Debentures, whether or not such
payment is permitted to be made under the subordination provisions
described above,
(2) default for 30 days in payment of any installment of interest,
including Liquidated Damages, if any, on the 7% Debentures, whether or
not such payment is permitted to be made under the subordination
provisions described above,
(3) default by Sepracor for 60 days after notice in the observance or
performance of any other covenants in the 7% Debentures or the
Indenture, or
(4) certain events involving bankruptcy, insolvency or reorganization of
Sepracor or any of its Significant Subsidiaries.
The Indenture provides that the Trustee may withhold notice to the holders
of the 7% Debentures of any default, except in payment of principal or premium,
if any, or interest, including Liquidated Damages, if any, with respect to the
7% Debentures, if the Trustee in good faith considers it in the interest of the
holders of the 7% Debentures to do so.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the 7% Debentures then outstanding may declare the principal
of, premium, if any, and accrued interest, including Liquidated Damages, if any,
on the 7% Debentures to be due and payable immediately. In the case of certain
events of bankruptcy or insolvency of Sepracor, the principal of, premium, if
any, and accrued interest, including Liquidated Damages, if any, on the 7%
Debentures shall automatically become and be immediately due and payable.
However, if Sepracor shall cure all defaults, (except the nonpayment of
principal of, premium, if any, and interest (including Liquidated Damages, if
any) on any of the 7% Debentures which shall have become due by acceleration,
and certain other conditions are met, with certain exceptions, such declaration
may be canceled and past defaults may be waived by the holders of a majority of
the principal amount of the 7% Debentures then outstanding.
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The Indenture provides that any payment of principal, premium, if any, or
interest, including Liquidated Damages, if any, that is not made when due,
whether or not such payment is permitted to be made under the subordination
provisions described above, will accrue interest, to the extent legally
permissible, at the annual rate set forth on the cover page hereof from the date
on which such payment was required under the terms of the Indenture until the
date of payment.
The holders of a majority in principal amount of the 7% Debentures then
outstanding shall have the right to direct in writing the time, method and place
of conducting any proceedings for any remedy available to the Trustee, subject
to certain limitations specified in the Indenture.
The Indenture provides that, subject to certain exceptions, no holder of
the 7% Debentures may pursue any remedy under the Indenture unless such holder
shall have previously given to the Trustee written notice of a continuing Event
of Default, and the holders of at least 25% in principal amount of the
outstanding 7% Debentures shall have made a written request, and offered
reasonable indemnity, to the Trustee to pursue the remedy, and the Trustee shall
not have received from the holders of a majority in principal amount of the
outstanding 7% Debentures a direction inconsistent with such request and shall
have failed to comply with such request within 60 days after receipt of such
request.
Modification of the Indenture
The Indenture contains provisions permitting Sepracor and the Trustee, with
the consent of the holders of a majority in principal amount of the 7%
Debentures at the time outstanding, to modify the Indenture or any supplemental
indenture or the rights of the holders of the 7% Debentures, except that no such
modification shall:
(1) extend the fixed maturity of any 7% Debenture, reduce the rate or
extend the time for payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, change the obligation of Sepracor to redeem
any 7% Debenture upon the happening of any Fundamental Change in a
manner adverse to the holders of the 7% Debentures, impair the right
of a holder to institute suit for the payment thereof, change the
currency in which the 7% Debentures are payable, impair the right to
convert the 7% Debentures into Sepracor common stock subject to the
terms set forth in the Indenture, or modify the provisions of the
Indenture with respect to the subordination of the 7% Debentures in a
manner adverse to the holders of the 7% Debentures in any material
respect, without the consent of each holder of a 7% Debenture so
affected or
(2) reduce the aforesaid percentage of 7% Debentures whose holders are
required to consent to any such modification of the Indenture or any
such supplemental indenture, without the consent of the holders of all
of the 7% Debentures then outstanding.
The indenture also provides for certain modifications of its terms without the
consent of the holders of the 7% Debentures.
Registration Rights of the Debentureholders
Sepracor has filed with the Commission a registration statement, of which
this prospectus is a part, covering resales by holders of the 7% Debentures and
the common stock issuable upon conversion of the 7% Debentures within 90 days
after the closing date of the original issuance of the 7% Debentures. Sepracor
has agreed to use reasonable best efforts to keep the shelf registration
statement effective until the earlier of:
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(1) the sale pursuant to the shelf registration statement of all the
securities registered thereunder or the sale to the public of all
securities pursuant to Rule 144 and
(2) the expiration of the holding period applicable to such securities
pursuant to Rule 144(k) under the Securities Act or any successor
provision, calculated assuming the holder is not an affiliate of
Sepracor.
Sepracor will be permitted to suspend the use of this prospectus for a
period not to exceed an aggregate of 60 days in any 365 day period under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. Sepracor has agreed to pay predetermined
liquidated damages to those holders of 7% Debentures and those holders of common
stock issued upon conversion of the 7% Debentures who have requested to sell
pursuant to the registration statement if this prospectus is unavailable for a
period in excess of that permitted above. Sepracor has further agreed, if such
failure to file or unavailability continues for a period of 30 days in excess of
that permitted above, to pay predetermined liquidated damages to all holders of
7% Debentures and all holders of Sepracor common stock issued upon conversion of
the 7% Debentures, whether or not such holder has requested to sell pursuant to
the shelf registration statement.
A holder who sells the 7% Debentures or the Sepracor common stock issued
upon conversion of the 7% Debentures pursuant to the shelf registration
statement generally will be required to be named as a selling stockholder in
this prospectus, deliver this prospectus to purchasers and be bound by those
provisions of the registration rights agreement which are applicable to such
holder, including certain indemnification provisions. Sepracor will pay all
expenses of the registration statement, provide to each registered holder who
has requested to sell pursuant to the shelf registration statement copies of
this prospectus, notify each registered holder who has requested to sell
pursuant to the shelf registration statement when the shelf registration
statement has become effective and take certain other actions as are required to
permit, subject to the foregoing, unrestricted resales of the 7% Debentures or
the Sepracor common stock.
Information Concerning the Trustee
The Chase Manhattan Bank, as Trustee under the Indenture, has been
appointed by Sepracor as paying agent, conversion agent, registrar and custodian
with regard to the 7% Debentures.
Material United States Federal Income Tax Considerations
The following is a summary of material United States federal income and
estate tax considerations relating to the purchase, ownership and disposition of
the 7% Debentures and of Sepracor common stock into which 7% Debentures may be
converted. This summary is not a complete analysis of all the potential tax
considerations relating to such considerations.
This summary is based on the provisions of the Internal Revenue Code of
1986, as amended, the applicable Treasury Regulations promulgated or proposed
thereunder, judicial authority and current administrative rulings and practice.
All of these sources of authority are subject to change, possibly on a
retroactive basis.
This summary deals only with holders that will hold 7% Debentures and
Sepracor common stock into which 7% Debentures may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code). It
does not address tax considerations applicable to investors that may be subject
to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, persons that will hold 7%
Debentures as a position in a hedging
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transaction, "straddle or conversion transaction" for tax purposes, or persons
that have a "functional currency" other than the United States dollar.
This summary discusses the tax considerations applicable to the initial
purchasers of the 7% Debentures who purchase the 7% Debentures at their "issue
price" as defined in Section 1273 of the Internal Revenue Code and does not
discuss the tax considerations applicable to subsequent purchasers of the 7%
Debentures. Sepracor has not sought any ruling from the Internal Revenue Service
with respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree with such
statements and conclusions.
We urge investors considering the purchase of debentures to consult their
own tax advisors with respect to the application of the United States federal
income and estate tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or under any applicable tax treaty.
United States Holders
As used in this prospectus, the term "United States Holder" means the
beneficial owner of a 7% Debenture or Sepracor common stock that for United
States federal income tax purposes is:
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source, or
(4) a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one
or more United States persons have the authority to control all
substantial decisions of the trust.
Payment of Interest
Interest on a 7% Debenture generally will be includable in the income of a
United States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United States
federal income tax purposes. Sepracor is obligated to pay liquidated damages to
holders of the 7% Debentures in certain circumstances described under
"Description of Debentures -- Registration Rights of the Debentureholders."
Sepracor believes that any such payment should be treated as subject to an
"incidental contingency" for purposes of the original issue discount rules
because the amount of such payments, if required to be made, is expected to be
insignificant relative to the total expected amount of remaining payments on the
7% Debentures. Accordingly, any such amounts should be taxable to holders as
payments of interest. Sepracor expects that the 7% Debentures will not have
original issue discount.
Sale, Exchange or Redemption of the Debentures
Upon the sale, exchange or redemption of a 7% Debenture, a United States
Holder generally will recognize capital gain or loss equal to the difference
between:
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(1) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent
such amount is attributable to accrued interest income, which is
taxable as ordinary income) and
(2) such Holder's adjusted tax basis in the 7% Debenture.
A United States Holder's adjusted tax basis in a 7% Debenture generally
will equal the cost of the 7% Debenture to such Holder, less any principal
payments received by such Holder. Such capital gain or loss will be long-term if
the United States Holder's holding period is more than 12 months and will be
short-term if the holding period is equal to or less than 12 months. Long-term
capital gains are taxed at a maximum rate of 20%, and short-term capital gains
are taxed at a maximum rate of 39.6%. In taxable years beginning after December
31, 2000, the rate of tax applicable to long-term capital gains in certain
circumstances may be reduced below 20% for property held for more than five
years.
Constructive Dividends on Debentures
If at any time:
(1) Sepracor makes a distribution of cash or property to its stockholders
or purchases common stock and such distribution or purchase would be
taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness
or assets of Sepracor, but generally not stock dividends or rights to
subscribe for common stock) and, pursuant to the anti-dilution
provisions of the Indenture, the Conversion Rate of the 7% Debentures
is increased, or
(2) the Conversion Rate of the 7% Debentures is increased at the
discretion of Sepracor,
such increase in Conversion Rate may be deemed to be the payment of a taxable
dividend to United States Holders of 7% Debentures pursuant to Section 305 of
the Internal Revenue Code. Such Holders of 7% Debentures could therefore have
taxable income as a result of an event pursuant to which they received no cash
or property.
Conversion of the Debentures
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a 7% Debenture into Sepracor common stock, except with
respect to cash received in lieu of a fractional share of Sepracor common stock.
Such Holder's tax basis in the Sepracor common stock received on conversion of a
7% Debenture will be the same as such Holder's adjusted tax basis in the 7%
Debenture at the time of conversion, reduced by any basis allocable to a
fractional share interest, and the holding period for the Sepracor common stock
received on conversion will generally include the holding period of the 7%
Debenture converted.
Cash received in lieu of a fractional share of Sepracor common stock upon
conversion will be treated as a payment in exchange for the fractional share of
Sepracor common stock. Accordingly, the receipt of cash in lieu of a fractional
share of Sepracor common stock generally will result in capital gain or loss,
measured by the difference between the cash received for the fractional share
and the United States Holder's adjusted tax basis in the fractional share.
Dividends on Common Stock
The amount of any distribution by Sepracor in respect of the Sepracor
common stock will be equal to the amount of cash and the fair market value, on
the date of distribution, of any property
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distributed. Generally, distributions will be treated as a dividend, subject to
tax as ordinary income, to the extent of Sepracor's current or accumulated
earnings and profits, then as a tax-free return of capital to the extent of the
Holder's tax basis in the Sepracor common stock and thereafter as gain from the
sale of exchange of such stock.
In general, a dividend distribution to a corporate United States Holder
will qualify for the 70% dividends received deduction if the Holder owns less
than 20% of the voting power and value of Sepracor's stock, other than any
non-voting, non-convertible, non-participating preferred stock. A corporate
United States Holder that owns 20% or more of the voting power and value of
Sepracor's stock, other than any non-voting, non-convertible, non-participating
preferred stock, generally will qualify for an 80% dividends received deduction.
The dividends received deduction is subject, however, to certain holding period,
taxable income and other limitations.
Sale of Common Stock
Upon the sale or exchange of Sepracor common stock, a United States Holder
generally will recognize capital gain or loss equal to the difference between:
(1) the amount of cash and the fair market value of any property received
upon the sale or exchange and
(2) such Holder's adjusted tax basis in the Sepracor common stock.
Such capital gain or loss will be long-term if the United States Holder's
holding period is more than 12 months and will be short-term if the holding
period is equal to or less than 12 months. Long-term capital gains are taxed at
a maximum rate of 20% and short-term capital gains are taxed at a maximum rate
of 39.6%. In taxable years beginning after December 31, 2000, the rate of tax
applicable to long-term capital gains in certain circumstances may be reduced
below 20% for property held for more than five years. A United States Holder's
basis and holding period in Sepracor common stock received upon conversion of a
7% Debenture are determined as discussed above under "Conversion of the
Debentures."
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a 7% Debenture, payments of
dividends on Sepracor common stock, payments of the proceeds of the sale of a 7%
Debenture and payments of the proceeds of the sale of Sepracor common stock to
certain noncorporate United States Holders. The payor will be required to
withhold backup withholding tax at the rate of 31% if:
(1) the payee fails to furnish a taxpayer identification number ("TIN") to
the payor or establish an exemption from backup withholding,
(2) the IRS notifies the payor that the TIN furnished by the payee is
incorrect,
(3) there has been a notified payee underreporting with respect to
interest, dividends or original issue discount described in Section
3406(c) of the Internal Revenue Code or
(4) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to backup withholding under the
Internal Revenue Code.
31
<PAGE>
Any amounts withheld under the backup withholding rules from a payment to a
United States Holder will be allowed as a credit against such Holder's United
States federal income tax and may entitle the Holder to a refund, provided that
the required information is furnished to the IRS.
Non-United States Holders
As used herein, the term "Non-United States Holder" means any beneficial
owner of a 7% Debenture or Sepracor common stock that is not a United States
Holder.
Payment of Interest
Generally, interest income of a Non-United States Holder that is not
effectively connected with a United States trade or business will be subject to
a withholding tax at a 30% rate, or, if applicable, a lower treaty rate.
However, interest paid on a 7% Debenture by Sepracor or any Paying Agent to a
Non-United States Holder will qualify for the "portfolio interest exemption" and
therefore will not be subject to United States federal income tax or withholding
tax, provided that such interest income is not effectively connected with a
United States trade or business of the Non-United States Holder and provided
that the Non-United States Holder:
(1) does not actually or constructively own, pursuant to the conversion
feature of the 7% Debentures or otherwise, 10% or more of the combined
voting power of all classes of stock of Sepracor entitled to vote,
(2) is not a controlled foreign corporation related to Sepracor actually
or constructively through stock ownership,
(3) is not a bank which acquired the 7% Debentures in consideration for an
extension of credit made pursuant to a loan agreement entered into in
the ordinary course of business and
(4) either (a) provides a Form W-8, or a suitable substitute form, signed
under penalties of perjury that includes its name and address and
certifies as to its non-United States status, or (b) is a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
and provides a statement to Sepracor or its agent under penalties of
perjury in which it certifies that a Form W-8, or a suitable
substitute, has been received by it from the Non-United States Holder
or qualifying intermediary and furnishes Sepracor or its agent with a
copy thereof.
Treasury Regulations, which are effective for payments made after December
31, 1999, provide alternative methods for satisfying the certification
requirements described in clause (4) above. Generally, any certification
provided on a Form W-8 that is validly in effect prior to January 1, 2000 will
be treated as a valid certification until it expires under the Treasury
Regulations or, if earlier, until December 31, 2000. Accordingly, the
alternative methods of satisfying the certification requirements will generally
not be effective until January 1, 1999, and subsequent years.
Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate, or, if applicable, a lower treaty rate. Even
though such effectively connected interest is subject to income
32
<PAGE>
tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the Holder delivers a properly executed IRS Form 4224 to the
payor. The Form 4224 is replaced with the Form W- 8 for payments made after
December 31, 1999.
Sale, Exchange or Redemption of the Debentures
A Non-United States Holder of a 7% Debenture will generally not be subject
to United States federal income tax or withholding tax on any gain realized on
the sale, exchange or redemption of the 7% Debenture, including the receipt of
cash in lieu of fractional shares upon conversion of a 7% Debenture into
Sepracor common stock, unless:
(1) the gain is effectively connected with a United States trade or
business of the Non-United States Holder,
(2) in the case of a Non-United States Holder who is an individual, such
Holder is present in the United States for a period or periods
aggregating 183 days or more during the taxable year of the
disposition and certain other conditions are met or
(3) the Holder is subject to tax pursuant to the provisions of the
Internal Revenue Code applicable to certain United States expatriates.
Conversion of the Debentures
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a 7% Debenture into Sepracor common stock by a
Non-United States Holder except with respect to the receipt of cash in lieu of
fractional shares by Non-United States Holders upon conversion of a 7% Debenture
where any of the conditions described above under "Non-United States Holders --
Sale, Exchange or Redemption of the Debentures" is satisfied.
Sale or Exchange of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Sepracor common
stock unless any of the conditions described above under "Non-United States
Holder -- Sale, Exchange or Redemption of the Debentures" is satisfied.
Dividends
Distributions by Sepracor with respect to the Sepracor common stock that
are treated as dividends paid, or deemed paid, as described above under "United
States Holders -- Dividends; -- Constructive Dividends" to a Non-United States
Holder, excluding dividends that are effectively connected with the conduct of a
trade or business in the United States by such Holder and are taxable as
described below, will be subject to United States federal withholding tax at a
30% rate, or lower rate provided under any applicable income tax treaty. Except
to the extent that an applicable tax treaty otherwise provides, a Non-United
States Holder generally will be taxed in the same manner as a United States
Holder on dividends paid, or deemed paid, that are effectively connected with
the conduct of a trade or business in the United States by the Non-United States
Holder. If such Non-United States Holder is a foreign corporation, it may also
be subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. Even though such effectively connected dividends are subject
to income tax, and may be subject to the branch profits tax, they will not be
subject to U.S. withholding
33
<PAGE>
tax if the Holder delivers IRS Form 4224 to the payor. The Form 4224 is replaced
with the Form W-8 for payments made after December 31, 1999.
Under currently applicable Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the
withholding discussed above and, under the current interpretation of Treasury
Regulations, for purposes of determining the applicability of a tax treaty rate.
Under Treasury Regulations applicable for payments made after December 31, 1999,
however, Non-United States Holders of Sepracor common stock who wish to claim
the benefit of an applicable treaty rate would be required to satisfy certain
certification requirements.
Death of a Non-United States Holder
A 7% Debenture held by an individual who is not a citizen or resident of
the United States at the time of death will not be includable in the decedent's
gross estate for United States estate tax purposes, provided that such Holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of stock of Sepracor
entitled to vote, and provided that, at the time of death, payments with respect
to such 7% Debenture would not have been effectively connected with the conduct
by such Non-United States Holder of a trade or business within the United
States.
Sepracor common stock actually or beneficially held by an individual who is
a Non-United States Holder at the time of his or her death, or previously
transferred subject to certain retained rights or powers, will be subject to
United States federal estate tax unless otherwise provided by an applicable
estate tax treaty.
Information Reporting and Backup Withholding Tax
United States information reporting requirements and backup withholding tax
will not apply to payments on a 7% Debenture to a Non-United States Holder if
the statement described in "Non-United States Holders -- Payment of Interest" is
duly provided by such Holder, provided that the payor does not have actual
knowledge that the Holder is a United States person.
Information reporting requirements and backup withholding tax, will not
apply to any payment of the proceeds of the sale of a 7% Debenture, or any
payment of the proceeds of the sale of Sepracor common stock effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury Regulations); unless such broker:
(1) is a United States person,
(2) is a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States or
(3) is a controlled foreign corporation for United States federal income
tax purposes.
Payment of the proceeds of any such sale effected outside the United States by a
foreign office of any broker that is described in (1), (2) or (3) of the
preceding sentence will not be subject to backup withholding tax, but will be
subject to information reporting requirements unless such broker has documentary
evidence in its records that the beneficial owner is a Non-United States Holder
and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker is subject to
34
<PAGE>
information reporting and backup withholding requirements, unless the beneficial
owner of the 7% Debenture provides the statement described in "Non-United States
Holders -- Payment of Interest" or otherwise establishes an exemption.
If paid to an address outside the United States, dividends on Sepracor
common stock held by a Non-United States Holder will generally not be subject to
the information reporting and backup withholding requirements described in this
section. However, under recently issued Treasury Regulations, dividend payments
will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. The new Treasury
Regulations apply to dividend payments made after December 31, 1998.
United States Real Property Holding Corporations
The discussion of the United States taxation of Non-United States Holders
of 7% Debentures and Sepracor common stock assumes that Sepracor is at no time a
United States real property holding corporation within the meaning of Section
897(c) of the Internal Revenue Code. Under present law, Sepracor would not be a
United States real property holding corporation so long as [(a)] the fair market
value of its United States real property interests is less than [(b)] 50% of the
sum of the fair market value of its United States real property interests, its
interests in real property located outside the United States, and its other
assets which are used or held or use in a trade or business. Sepracor believes
that it is not a United States real property holding corporation and does not
expect to become such a corporation.
If Sepracor becomes a "United States real property holding corporation,"
gain recognized on a disposition of 7% Debentures or Sepracor common stock would
be subject to United States federal income tax unless:
(1) the Sepracor common stock is "regularly traded on an established
securities market" within the meaning of the Internal Revenue Code and
(2) either (a) the Non-United States Holder disposing of Sepracor common
stock did not own, actually or constructively, at any time during the
five-year period preceding the disposition, more than 5% of the
Sepracor common stock, or (b) in the case of a disposition of 7%
Debentures, the Non-United States Holder did not own, actually or
constructively, 7% Debentures which, as of any date on which such
holder acquired 7% Debentures, had a fair market value greater than
that of 5% of the Sepracor common stock.
Selling Securityholders
The 7% Debentures were originally purchased from Sepracor on December 15,
1998. The initial purchasers of the 7% Debentures have advised Sepracor that the
7% Debentures were resold in transactions exempt from the registration
requirements of the Securities Act to "qualified institutional buyers," defined
in Rule 144A of the Securities Act. These subsequent purchasers, or their
transferees, pledgees, donees or successors, may from time to time offer and
sell any or all of the 7% Debentures and/or shares of Sepracor common stock
issuable upon conversion of the 7% Debentures pursuant to this prospectus.
The 7% Debentures and the shares of Sepracor common stock issuable upon
conversion of the 7% Debentures have been registered pursuant to the
registration rights agreement. Pursuant to the
35
<PAGE>
registration rights agreement, Sepracor is required to file a registration
statement with regard to the 7% Debentures and the shares of Sepracor common
stock issuable upon conversion of the 7% Debentures within 90 days of the date
of original issuance of the 7% Debentures. Sepracor is also required to keep
such registration statement effective until the earlier of:
(1) the sale pursuant to the registration statement of all the securities
registered pursuant to the registration rights agreement thereunder,
and
(2) the expiration of the holding period applicable to such securities
under Rule 144(k) under the Securities Act or any successor provision.
The selling securityholders may choose to sell 7% Debentures and/or shares of
Sepracor common stock issuable upon conversion of the 7% Debentures from time to
time. See "Plan of Distribution."
The following table sets forth:
(1) the name of each selling securityholder who has provided Sepracor with
notice as of the date of this prospectus pursuant to the registration
rights agreement of their intent to sell or otherwise dispose of 7%
Debentures and/or shares of Sepracor common stock issuable upon
conversion of the 7% Debentures pursuant to the registration
statement,
(2) the principal amount of 7% Debentures and the number of shares of
Sepracor common stock issuable upon conversion of the 7% Debentures
which they may sell from time to time pursuant to the registration
statement, and
(3) the amount of outstanding 7% Debentures and Sepracor common stock
beneficially owned by the selling securityholder prior to the offering
(assuming no conversion of the 7% Debentures).
No selling securityholder nor any of its affiliates has held any position
or office with, been employed by or otherwise has had any material relationship
with Sepracor or Sepracor's affiliates, during the three years prior to the date
of this prospectus.
A selling securityholder may offer all or some portion of the 7% Debentures
and shares of Sepracor common stock issuable upon conversion of the 7%
Debentures. Accordingly, no estimate can be given as to the amount or percentage
of 7% Debentures or Sepracor common stock that will be held by the selling
securityholders upon termination of sales pursuant to this prospectus. In
addition, the selling securityholders identified below may have sold,
transferred or disposed of all or a portion of their 7% Debentures since the
date on which they provided the information regarding their holdings in
transactions exempt from the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
Amount of 7% Shares of
Amount of 7% Debentures Common Stock
Debentures that Owned Before Shares That May Owned Before
Name May be Sold Offering be Sold(1) Offering
- ------------------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Aloha Airlines Non-
Pilots Pension Trust $185,000 $185,000 1,481 0
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Aloha Airlines Pilots
Retirement Trust 100,000 100,000 800 0
Aloha Airlines Non-
Pilots Pension Trust 185,000 185,000 1,481 0
Amoco Corporation
Mater Trust for
Employee Pension
Plans 962,000 962,000 7,703 0
Arkansas Teachers
Retirement 3,605,000 3,605,000 28,868 0
Associated Electric
& Gas Services
Limited 1,200,000 1,200,000 9,609 0
Baptist Health of
South Florida 368,000 368,000 2,946 0
Bear Stearns & Co. 4,000,000 4,000,000 32,032 0
Boston Museum of
Fine Arts 255,000 255,000 2,042 0
CA Public Employees'
Retirement System 4,000,000 4,000,000 32,032 0
Castle Convertible
Fund, Inc. 250,000 250,000 2,002 0
C&H Sugar Company,
Inc. 250,000 250,000 2,002 0
Capital Market
Transactions Inc. 4,000,000 4,000,000 32,032 0
Delaware PERS 1,375,000 1,375,000 11,011 0
Dunham & Associates
III 216,000 216,000 1,729 0
Engineers Joint
Pension Fund 694,000 694,000 5,557 0
Greyhound Lines 100,000 100,000 800 0
Hamilton Partners
Limited 2,000,000 2,000,000 16,016 0
Hawaiian Airlines
Employees Pension
Plan - IAM 155,000 155,000 1,241 0
Hawaiian Airlines
Pension Plan for
Salaried Employees 40,000 40,000 320 0
Hawaiian Airlines
Pilots Retirement Plan 240,000 240,000 1,921 0
Highbridge Capital
Corporation 7,000,000 7,000,000 56,056 0
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Hotel Union & Hotel
Industry of Hawaii 290,000 290,000 2,322 0
ICI American
Holdings Trust 585,000 585,000 4,684 0
Jackson Investment 2,000,000 2,000,000 16,016 0
Fund Ltd.
Jeffries & Company
Inc. 8,000 8,000 64 0
J.M. Hull Associates,
L.P. 250,000 250,000 2,002 0
Julius Baer Securities 675,000 675,000 5,405 0
Kapiolani Health 50,000 50,000 400 0
Kapiolani Medical
Center 340,000 340,000 2,722 0
LDG Limited 250,000 250,000 2,002 0
Lincoln National
Convertible Securities
Fund 1,000,000 1,000,000 8,008 0
Mag & Co., as
Nominee for Fidelity
Financial Trust:
Fidelity Convertible
Securities(2) 5,000,000 5,000,000 40,040 0
MainStay Convertible
Fund 3,000,000 3,000,000 24,024 500
Minnesota Power Inc. 2,000 2,000 16 0
Morgan Stanley
Dean Witter 30,000,000 30,000,000 240,240 0
Nalco Chemical
Company 315,000 315,000 2,522 0
Nicholas Applegate
Convertible Fund 6,920,000 6,920,000 55,415 0
Paloma Securities LLC 250,000 250,000 2,002 0
Paloma Strategic
Securities Limited 250,000 250,000 2,002 0
Pell Rudman Trust
Co., N.A. 1,375,000 1,375,000 11,011 0
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Pepperdine University
PoolA#1 95,000 95,000 760 0
Physicians Life 640,000 640,000 5,125 0
Queens Health Plan 65,000 65,000 520 0
San Diego City
Retirement 1,942,000 1,942,000 15,551 0
S.G. Cowen Securities
Corporation 3,000,000 3,000,000 24,024 0
San Diego County
Convertible 5,649,000 5,649,000 45,237 0
Southern Farm Bureau
Life Insurance - FRIC 875,000 875,000 7,007 0
Starvest Combined
Portfolio 250,000 250,000 2,002 0
State of Oregon Equity 7,050,000 7,050,000 56,456 0
TQA Arbitrage Fund,
L.P. 1,150,000 1,150,000 9,209 0
TQA Leverage Fund,
L.P. 1,800,000 1,800,000 14,414 0
TQA Vantage Fund,
Ltd. 4,200,000 4,200,000 33,633 0
TQA Vantage Plus
Fund, Ltd. 500,000 500,000 4,004 0
Tracor Inc., Employee
Retirement Plan 145,000 145,000 1,161 0
Transamerica
Insurance Corporation
of California 3,000,000 3,000,000 24,024 0
Transamerica Life
Insurance & Annuity
Company 12,000,000 12,000,000 96,096 0
Viacom Pension Plan
Master Trust 50,000 50,000 400 0
Wake Forest
University 1,515,000 1,515,000 12,132 0
Zeneca Holdings Trust 585,000 585,000 4,684 0
Unknown(3) 171,749,000 171,749,000 1,375,367 0
</TABLE>
- -----------------
(1) Assumes conversion of full amount of the 7% Debentures held by such holder
at the initial rate of $124.875 in principal amount of the 7% Debentures
per share of Sepracor common stock.
39
<PAGE>
(2) The entity is either an investment company or portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940,
as amended, or a private investment account advised by Fidelity Management
& Research Company, or FMR Co. FMR Co. is a Massachusetts corporation and
an investment advisor registered under Section 203 of the Investment
Advisers Act of 1940, as amended, and provides investment advisory services
to each of such Fidelity entities identified above, and to other registered
investment companies and to certain other funds which are generally offered
to a limited group of investors. FMR Co. owns 10.34% of Sepracor's
outstanding common stock. FMR Co. is a wholly owned subsidiary of FMR
Corp., a Massachusetts corporation.
(3) Certain of the 7% Debentures are currently evidenced by a global 7%
Debenture which has been deposited with DTC and registered in the name of
Cede & Co. as DTC's nominee. Therefore, Sepracor is unable to provide the
names of the remaining selling stockholders.
If, after the date of this prospectus, a securityholder notifies Sepracor
pursuant to the registration rights agreement of its intent to dispose of 7%
Debentures pursuant to the registration statement, Sepracor may supplement this
prospectus to include that information.
Plan Of Distribution
Sepracor is registering the 7% Debentures and the shares of Sepracor common
stock issuable upon conversion of the 7% Debentures to permit public secondary
trading of such securities by the holders from time to time after the date of
this prospectus. Sepracor has agreed, among other things, to bear all expenses
(other than underwriting discounts and selling commissions) in connection with
the registration and sale of the 7% Debentures and the shares of Sepracor common
stock issuable upon conversion of the 7% Debentures covered by this prospectus.
Sepracor will not receive any of the proceeds from the offering of the 7%
Debentures or the shares of Sepracor common stock issuable upon conversion of
the 7% Debentures by the selling securityholders. The 7% Debentures and shares
of Sepracor common stock issuable upon conversion of the 7% Debentures may be
sold from time to time directly by any selling securityholder or, alternatively,
through underwriters, broker-dealers or agents. If 7% Debentures or shares of
Sepracor common stock issuable upon conversion of the 7% Debentures are sold
through underwriters or broker-dealers, the selling securityholder will be
responsible for underwriting discounts or commissions or agents' commissions.
The 7% Debentures or shares of Sepracor common stock issuable upon
conversion of the 7% Debentures may be sold:
o in one or more transactions at fixed prices,
o at prevailing market prices at the time of sale,
o at varying prices determined at the time of sale, or
o at negotiated prices.
Such sales may be effected in transactions (which may involve crosses or
block transactions):
40
<PAGE>
o on any national securities exchange or quotation service on which the
7% Debentures or shares of Sepracor common stock issuable upon
conversion of the 7% Debentures may be listed or quoted at the time of
sale,
o in the over-the-counter market,
o in transactions otherwise than on such exchanges or services or in the
over-the-counter market, or
o through the writing of options.
In connection with sales of the 7% Debentures or shares of Sepracor common
stock issuable upon conversion of the 7% Debentures or otherwise, any selling
securityholder may:
(1) enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the 7% Debentures or shares of Sepracor
common stock issuable upon conversion of the 7% Debentures in the
course of hedging the positions they assume,
(2) sell short and deliver 7% Debentures or shares of Sepracor common
stock issuable upon conversion of the 7% Debentures to close out such
short positions, or
(3) loan or pledge 7% Debentures or shares of Sepracor common stock
issuable upon conversion of the 7% Debentures to broker-dealers that
in turn may sell such securities.
The outstanding common stock is publicly traded on Nasdaq. The initial
purchasers of the 7% Debentures have advised Sepracor that certain of the
initial purchasers are making and currently intend to continue making a market
in the 7% Debentures; however, they are not obligated to do so and any such
market-making may be discontinued at any time without notice, in the sole
discretion of the initial purchasers. Sepracor does not intend to apply for
listing of the 7% Debentures on Nasdaq or any securities exchange. Accordingly,
Sepracor cannot assure that any trading market will develop or have any
liquidity. See "Risk Factors -- Absence of Public Market; Transfer
Restrictions."
The selling securityholders and any broker-dealers, agents or underwriters
that participate with the selling securityholders in the distribution of the 7%
Debentures or the shares of Sepracor common stock issuable upon conversion of
the 7% Debentures may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by such broker-dealers,
agents or underwriters and any profits realized by the selling securityholders
on the resales of the 7% Debentures or the shares may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the Securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this prospectus. There is
no assurance that any selling securityholder will sell any or all of the 7%
Debentures or shares of Sepracor common stock issuable upon conversion of the 7%
Debentures described herein, and any selling securityholder may transfer, devise
or gift such securities by other means not described herein.
Sepracor originally sold the 7% Debentures to the initial purchasers in
December 1998 in a private placement. We agreed to indemnify and hold the
initial purchasers of the 7% Debentures harmless against certain liabilities
under the Securities Act that could arise in connection with the sale
41
<PAGE>
of the 7% Debentures by their initial purchasers. The registration rights
agreement provides for Sepracor and the selling securityholders to indemnify
each other against certain liabilities arising under the Securities Act.
Sepracor agreed pursuant to the registration rights agreement to use its
best efforts to cause the registration statement to which this prospectus
relates to become effective as promptly as is practicable and to keep the
registration statement effective until the earlier of:
(1) the sale pursuant to the registration statement of all the securities
registered pursuant to the registration rights agreement thereunder
and
(2) the expiration of the holding period applicable to such securities
under Rule 144(k) under the Securities Act or any successor provision.
The registration rights agreement provides that Sepracor may suspend the
use of this prospectus in connection with sales of 7% Debentures and shares of
Sepracor common stock issuable upon conversion of the 7% Debentures by holders
for a period not to exceed an aggregate of 60 days in any 365 day period, under
certain circumstances relating to pending corporate developments, public filings
with the Commission and similar events. Sepracor will bear the expenses of
preparing and filing the registration statement and all post-effective
amendments.
Legal Matters
The validity of the 7% Debentures and the shares of Sepracor common stock
issuable upon conversion of the 7% Debentures offered hereby will be passed upon
for Sepracor by Hale and Dorr LLP, a limited liability partnership including
professional corporations, 60 State Street, Boston, Massachusetts 02109.
Experts
The consolidated balance sheets as of December 31, 1998 and 1997 and the
consolidated statements of operations, stockholder's equity and comprehensive
income, and cash flows for each of the three years in the period ended December
31, 1998, incorporated by reference in this prospectus, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants. In that report, that firm states that with respect to one
subsidiary its opinion is based on the report of other independent public
accountants, namely Arthur Andersen LLP. The financial statements referred to
above have been included herein in reliance upon the authority of those firms as
experts in accounting and auditing.
Additional Filings and Company Information
We file reports, proxy statements, information statements and other
information with the Securities and Exchange Commission. You may read and copy
this information, for a copying fee, at the Commission's public reference
facilities at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Please call the Commission at
1-800-SEC-0330 for more information on its public reference rooms. Our
Commission filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
42
<PAGE>
Our common stock is traded on the Nasdaq National Market and, therefore,
the information we file with the Commission may also be inspected at the offices
of the National Association of Securities Dealers, Inc., located at 1735 K
Street, N.W., Washington, D.C. 20006.
We have filed with the Commission a registration statement on Form S-3 to
register with the Commission the resale of the 7% Debentures and shares of
Sepracor common stock described in this prospectus. This prospectus is part of
that registration statement, and provides you with a general description of the
7% Debentures and shares of Sepracor common stock being registered, but does not
include all of the information you can find in the registration statement or the
exhibits. You should refer to the registration statement and its exhibits for
more information about Sepracor, the 7% Debentures and the shares of Sepracor
common stock being registered.
Where You Can Find More Information
The Commission allows us to "incorporate by reference" information into
this prospectus, which means that we can disclose important information to you
by referring to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this prospectus,
except for information superseded by this prospectus. The prospectus
incorporates by reference the documents set forth below that we have previously
filed with the Commission. These documents contain important information about
Sepracor and its finances.
(1) Annual Report on Form 10-K for the year ended December 31, 1998;
(2) The description of the Sepracor common stock contained in our
Registration Statement on Form 8-A dated July 16, 1991 registering the
Sepracor common stock under Section 12(g) of the Exchange Act.
We are also incorporating by reference additional documents that we may
file with the Commission under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act prior to the termination of this offering.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Commission. Documents incorporated by reference are available from us without
charge, except exhibits, unless we have specifically incorporated by reference
an exhibit in this prospectus. Stockholders may obtain documents incorporated by
reference in this prospectus by requesting them in writing or by telephone from:
Sepracor Inc.
Attention: Chief Financial Officer
111 Locke Drive
Marlborough, MA 01752
Telephone: (508) 481-6700
---------------------
Cautionary Statement Concerning Forward-looking Information
Certain statements in this prospectus and in the documents incorporated by
reference may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform
43
<PAGE>
Act of 1995. These statements are subject to risks and uncertainties and are
based on beliefs and assumptions of Sepracor, based on information currently
available to each company's management. For this purpose, any statements
contained herein or incorporated herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. Actual results may vary
materially from those we express in such forward looking statements. Factors
which could cause actual results to differ from expectations include those set
forth under "Risk Factors".
44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Registrant (except expenses incurred
by the Selling Securityholders for brokerage fees, selling commissions,
underwriting discounts and selling commissions and expenses incurred by the
Selling Securityholders for legal services). All amounts shown are estimates
except the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
<S> <C>
Filing Fee - Securities and Exchange $ 83,400
Commission........................................
Nasdaq Listing Fee................................ 17,500
Legal fees and expenses of the 40,000
Company...........................................
Accounting fees and expenses...................... 41,000
Printing expenses................................. 32,700
Total Expenses.................................... $214,600
=========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article NINTH of the Registrant's Restated Certificate of Incorporation (as
amended, the "Certificate of Incorporation") provides that no director of the
Registrant shall be liable for any breach of a fiduciary duty, except to the
extent that the General Corporation Law of the State of Delaware (the "DGCL")
prohibits the elimination or limitation of liability of directors for breach of
fiduciary duty.
Article THIRTEENTH of the Certificate of Incorporation provides that a
director or officer of the Registrant (a) shall be indemnified by the Registrant
against all costs, charges, expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all costs, charges and expenses (including
attorneys' fees) incurred in connection with any action by or in the right of
the Registrant brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
such matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice or the settlement of an
action without admission of liability, he is required to be indemnified by the
Registrant against all costs, charges and expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that the is not entitled to indemnification for
such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Board of Directors or
independent legal counsel determines that the applicable standard of conduct
required for indemnification has not been met. In the event of a determination
by the Board of Directors or independent legal counsel that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make the applicable standard of
conduct required for indemnification, or if the Registrant fails to make an
indemnification payment within 60 days after such payment is claimed by such
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the defense
thereto.
Article THIRTEENTH of the Certificate of Incorporation further provides
that the indemnification provided therein is not exclusive, and provides that in
the event that the DGCL is amended to expand the indemnification permitted to
directors or officers the Registrant must indemnify those persons to the fullest
extent permitted by such law as so amended.
Section 145 of the DGCL provides that a corporation has the power to
indemnify a director, officer, employee or agent of the corporation and certain
other persons serving at the request of the corporation in related capacities
against amounts paid and expenses incurred in connection with an action or
proceeding to which he is or is threatened to be made a party by reason of such
position, if such person shall have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in any criminal proceeding, if such person had no reasonable
cause to believe his conduct was unlawful; provided that, in the case of actions
brought by or in the right of the corporation, no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the adjudicating
court determines that such indemnification is proper under the circumstances.
The Registrant maintains a general liability insurance policy which covers
certain liabilities of directors and officers of the Registrant arising out of
claims based on acts or omissions in their capacities as directors or officers.
II-2
<PAGE>
Item 16. List of Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
5 Opinion of Hale and Dorr LLP.
23.1 Consent of Hale and Dorr LLP, included in Exhibit 5 filed herewith.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Arthur Andersen LLP.
24 Power of Attorney, included on page II-5 of this Registration Statement.
25 Statement of Eligibility of the Trustee on Form T-1.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any derivation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the Registration Statement; and
II-3
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that are incorporated by reference
in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Marlborough, Commonwealth of Massachusetts, on this
31st day of March 1999.
SEPRACOR INC.
By: /s/ TIMOTHY J. BARBERICH
-------------------------------------
Timothy J. Barberich
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Sepracor Inc., hereby
severally constitute Timothy J. Barberich, David P. Southwell and Mark G.
Borden, Esq., and each of them singly, our true and lawful attorneys with full
power to any of them, and to each of them singly, to sign for us and in our
names in the capacities indicated below the Registration Statement on Form S-3
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement and generally to do all such things in our name and
behalf in our capacities as officers and directors to enable Sepracor Inc. to
comply with the provisions of the Securities Act and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ TIMOTHY J. BARBERICH President; Chief Executive Officer and March 31, 1999
- ------------------------------------ Director (Principal Executive Officer)
Timothy J. Barberich
/s/ DAVID P. SOUTHWELL Executive Vice President; Chief March 31, 1999
- ------------------------------------ Financial Officer (Principal Financial
David P. Southwell Officer)
/s/ ROBERT F. SCUMACI Senior Vice President, Finance and March 31, 1999
- ------------------------------------ Administration and Treasurer
Robert F. Scumaci (Principal Accounting Officer)
/s/ JAMES G. ANDRESS Director March 31, 1999
- ------------------------------------
James G. Andress
/s/ DIGBY W. BARRIOS Director March 31, 1999
- ------------------------------------
Digby W. Barrios
/s/ ROBERT J. CRESCI Director March 31, 1999
- ------------------------------------
Robert J. Cresci
Director March __, 1999
- ------------------------------------
Robert F. Johnston
/s/ KEITH MANSFORD, PH.D. Director March 31, 1999
- ------------------------------------
Keith Mansford, Ph.D.
/s/ JAMES F. MRAZEK Director March 31, 1999
- ------------------------------------
James F. Mrazek
/s/ ALAN A. STEIGROD Director March 31, 1999
- ------------------------------------
Alan A. Steigrod
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
5 Opinion of Hale and Dorr LLP.
23.1 Consent of Hale and Dorr LLP, included in Exhibit 5 filed
herewith.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Arthur Andersen LLP.
24 Power of Attorney, included on page II-5 of this Registration
Statement.
25 Statement of Eligibility of the Trustee on Form T-1.
II-7
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
April 1, 1999
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of (i) $300,000,000
principal amount of 7% Convertible Subordinated Debentures due 2005
("Debentures") and (ii) an aggregate of 2,402,402 shares of Common Stock, $0.10
par value per share, issuable upon conversion of the Debentures (the "Conversion
Shares"), of Sepracor Inc., a Delaware corporation (the "Company"), all of which
Debentures and Conversion Shares, if and when sold, will be sold by certain
securityholders of the Company (the "Selling Securityholders").
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified, facsimile or photostatic copies, the authenticity of the
originals of such latter documents and the legal competence of all signatories
to such documents.
We assume that the appropriate action will be taken, prior to the
offer and sale of the Debentures and the Conversion Shares under the
Registration Statement, to register and qualify the Debentures and the
Conversion Shares for sale under all applicable state securities or "blue sky"
laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the Delaware General Corporation Law statute, the state
laws of the Commonwealth of Massachusetts and the federal laws of the United
States of America. To the extent that any other laws govern the matters as to
which we are opining herein, we have assumed that such laws are identical to the
state laws of the Commonwealth of Massachusetts, and we are expressing no
opinion herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Debentures have been duly and validly authorized and issued;
and
2. The Conversion Shares have been duly and validly authorized
and, when issued upon conversion of the Debentures in
accordance with the terms of such Debentures, will be
validly issued, fully paid and non-assessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Debentures or the Conversion Shares while the
Registration Statement is in effect.
<PAGE>
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of
our name therein and in the related Prospectus under the caption "Legal
Matters." In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our reports dated February 19, 1999, except as to the information in
Note W for which the date is February 25, 1999, on our audits of the financial
statements and financial statement schedule of Sepracor Inc. which are
incorporated by reference and included in, respectively, the 1998 Annual Report
on Form 10-K. We also consent to the reference to our firm under the caption
"Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 1999
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 2, 1999 on
the financial statements of BioSepra, Inc. and subsidiaries included in
Sepracor's Form 10-K for the year ended December 31, 1998 and to all references
to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
March 30, 1999
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
Sepracor Inc.
(Exact name of obligor as specified in its charter)
Delaware 22-2536586
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
111 Locke Drive
Marlborough, MA 01752
(Address of principal executive offices) (Zip Code)
-----------------------------------------------------------------
7% Convertible Subordinated Debentures Due December 15, 2005
------------------------------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Banking Department, State House, Albany, New
York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C.,
20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
-2-
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to
Commence Business (see Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 33-50010, which is incorporated by reference. On July
14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan
Bank (National Association), Chemical Bank, the surviving corporation, was
renamed The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 8th day of March, 1999.
THE CHASE MANHATTAN BANK
By /s/ Sheik Wiltshire
-----------------------------------------------
Sheik Wiltshire, Assistant Vice President
-----------------------------------------------
-3-
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business September 30, 1998, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Millions
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ........................................................ $ 11,951
Interest-bearing balances ................................................ 4,551
Securities:
Held to maturity securities..................................................... 1,740
Available for sale securities................................................... 48,537
Federal funds sold and securities purchased under
agreements to resell ..................................................... 29,730
Loans and lease financing receivables:
Loans and leases, net of unearned income $127,379
Less: Allowance for loan and lease losses 2,719
Less: Allocated transfer risk reserve ......... 0
---------
Loans and leases, net of unearned income,
allowance, and reserve ................................................... 124,660
Trading Assets ................................................................. 51,549
Premises and fixed assets (including capitalized
leases)................................................................... 3,009
Other real estate owned ........................................................ 272
Investments in unconsolidated subsidiaries and
associated companies...................................................... 300
Customers' liability to this bank on acceptances
outstanding .............................................................. 1,329
Intangible assets .............................................................. 1,429
Other assets ................................................................... 13,563
------
TOTAL ASSETS ................................................................... $292,620
=========
</TABLE>
-4-
<PAGE>
LIABILITIES
<TABLE>
<S> <C>
Deposits
In domestic offices ...................................................... $98,760
Noninterest-bearing ..................... $39,071
Interest-bearing ........................ 59,689
------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's ................................................... 75,403
Noninterest-bearing ..................... $ 3,877
Interest-bearing ........................ 71,526
Federal funds purchased and securities sold under agree-
ments to repurchase ............................................................ 34,471
Demand notes issued to the U.S. Treasury ....................................... 1,000
Trading liabilities ............................................................ 41,589
Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less ............................ 3,781
With a remaining maturity of more than one year .
through three years................................................ 213
With a remaining maturity of more than three years....................... 104
Bank's liability on acceptances executed and outstanding........................ 1,329
Subordinated notes and debentures .............................................. 5,408
Other liabilities .............................................................. 12,041
TOTAL LIABILITIES .............................................................. 274,099
---------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................... 0
Common stock ................................................................... 1,211
Surplus (exclude all surplus related to preferred stock)....................... 10,441
Undivided profits and capital reserves ......................................... 6,287
Net unrealized holding gains (losses)
on available-for-sale securities ............................................... 566
Cumulative foreign currency translation adjustments ............................ 16
TOTAL EQUITY CAPITAL ........................................................... 18,521
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ........................................... $292,620
========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
-5-
