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PROSPECTUS Filed pursuant to Rule 424(b)(3)
Registration No. 333-36958
SEPRACOR INC.
$460,000,000
PRINCIPAL AMOUNT OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2007
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4,979,432 SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE
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The principal terms of the debentures include the following:
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- Interest:...................................... accrues from February 14, 2000 at the rate of 5% per year,
payable semi-annually on each August 15 and February 15,
beginning August 15, 2000
- Maturity Date:................................ February 15, 2007, unless earlier redeemed or repurchased
- Conversion Rate:.............................. $92.38 in principal amount per share of common stock,
subject to adjustment
- Subordination:................................ ranks on parity with $93.0 million of Sepracor's 6-1/4%
convertible subordinated debentures due 2005 and $300
million of Sepracor's 7% convertible subordinated debentures
due 2005; effectively subordinated to all other Indebtedness
and liabilities of Sepracor; no restriction on incurrence of
additional Indebtedness
- Redemption:................................... redeemable by Sepracor or the holders
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The debentures are currently designated for trading on the Private
Offerings, Resales and Trading through Automated Linkages, or PORTAL, Market.
The debentures are issued in $1,000 principal amount and integral multiples
of $1,000. On June 26, 2000, the closing bid price of the debentures on the
PORTAL Market was $1,418.80 per $1,000 principal amount of debenture.
Sepracor's common stock is traded on the Nasdaq National Market under the
symbol "SEPR". On June 26, 2000, the last reported sale price for the common
stock on the Nasdaq National Market was $116.00 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 DEBENTURES OR OUR COMMON STOCK INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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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 June 28, 2000
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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..........................................................................1
RISK FACTORS......................................................................3
USE OF PROCEEDS..................................................................12
DESCRIPTION OF DEBENTURES........................................................12
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.........................25
SELLING SECURITYHOLDERS..........................................................33
PLAN OF DISTRIBUTION.............................................................36
LEGAL MATTERS....................................................................38
EXPERTS..........................................................................38
ADDITIONAL FILINGS AND COMPANY INFORMATION.......................................38
WHERE YOU CAN FIND MORE INFORMATION..............................................38
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION......................39
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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 parent compounds that
are chiral compounds. Chiral compounds, which account for approximately 500
currently available drugs, are 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
therapeutic uses, 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:
- discovery efforts for our ICEs;
- 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;
- 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
- some 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 composition-of-matter patents, which are patents covering the chemical
composition of the drug. 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.
When seeking to license or 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
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use patents or filed patent applications 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
third-party patent is invalid, unenforceable or not infringed.
We affected a two-for-one stock split in the form of a 100% stock
dividend on February 25, 2000 to stockholders of record on February 1, 2000.
As a result, the information in this prospectus is presented on a post-split
basis.
Sepracor, ICE and Xopenex are trademarks of Sepracor. Other trademarks used
in this prospectus are the property of their respective owners.
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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 disclosed below.
WE HAVE NEVER BEEN PROFITABLE AND WE MAY NOT BE ABLE TO GENERATE REVENUES
SUFFICIENT TO ACHIEVE PROFITABILITY.
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 $54.0 million for the three
months ended March 31, 2000, $183.1 million for the year ended December 31,
1999 and $93.4 million for the year ended December 31, 1998. We expect to
continue to incur operating and capital expenditures. As a result, we will
need to generate significant revenues to achieve and maintain profitability.
We cannot assure you that we will achieve significant revenues or that we
will ever achieve profitability. Even if we do achieve profitability, we
cannot assure you that we can sustain or increase profitability on a
quarterly or annual basis in the future. If revenues grow more slowly than we
anticipate or if operating expenses exceed our expectations or cannot be
adjusted accordingly, our business, results of operations and financial
conditions will be materially and adversely affected. Our ability to generate
profitability will depend in large part on successful commercialization of
our initial products and successful development and commercialization of
principal products under development. Failure to successfully commercialize
these products may have a material adverse effect on our business.
WE WILL BE REQUIRED TO EXPEND SIGNIFICANT RESOURCES FOR RESEARCH, DEVELOPMENT,
TESTING AND REGULATORY APPROVAL OF OUR DRUGS UNDER DEVELOPMENT AND THESE DRUGS
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 in 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:
- be developed successfully;
- be proven safe and efficacious in clinical trials;
- offer therapeutic or other improvements over comparable drugs;
- meet applicable regulatory standards;
- be capable of being produced in commercial quantities at acceptable
costs; or
- be successfully marketed.
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IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, THEN WE COULD LOSE
VALUABLE INTELLECTUAL PROPERTY RIGHTS, BE LIABLE FOR SIGNIFICANT DAMAGES OR BE
PREVENTED FROM COMMERCIALIZING OUR PRODUCTS.
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. In the absence of patent and trade secret protection, competitors may
adversely affect our business by independently developing and marketing
substantially equivalent products and technology and preventing us from
marketing our products. It is also possible that we could incur substantial
costs in litigation if we are required to defend ourselves in patent suits
brought by third parties, or if we are required to initiate litigation against
others to protect our intellectual property rights.
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. However, 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. Any patents we have obtained, or obtain in the
future, may be challenged, invalidated or circumvented. Moreover, the PTO may
commence interference proceedings involving our patents or patent applications.
Any challenge to, or invalidation or circumvention of, our patents or patent
applications could have a material adverse effect on our business.
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 of these cases, 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.
IF OUR PRODUCTS DO NOT RECEIVE GOVERNMENT APPROVAL, THEN WE WILL NOT BE ABLE TO
COMMERCIALIZE THEM.
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. These agencies impose substantial requirements on
the manufacture and marketing of drugs. Our failure to obtain regulatory
approval on a timely basis and any unanticipated significant expenditures on
preclinical and clinical studies could adversely affect the funds we will
require to advance our products to commercialization and the timing of the
commercial introduction of, or our ability to, market and sell our products.
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:
- results of clinical trials may not be consistent with preclinical
study results;
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- results from later phases of clinical trials may not be consistent
with the results from earlier phases; and
- products may not be shown to be safe and efficacious.
Even if the FDA or similar foreign agencies grant us regulatory approval of
a product, the 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. Moreover, 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.
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS COULD BE DELAYED OR
TERMINATED IF OUR COLLABORATIVE PARTNERS TERMINATE, OR FAIL TO PERFORM THEIR
OBLIGATIONS UNDER, THEIR AGREEMENTS WITH US OR IF ANY OF OUR COLLABORATION
AGREEMENTS IS SUBJECT TO LENGTHY GOVERNMENT REVIEW.
We have entered into collaboration arrangements with pharmaceutical
companies. Our revenues under these collaboration arrangements will consist
primarily of milestone payments and royalties on sales of products. Any such
payments and royalties will depend in large part on the efforts of our
collaboration partners. If any of our collaboration partners does not devote
sufficient time and resources to its collaboration arrangement with us, the
potential commercial benefits of the arrangement may not be realized by us, and
our results of operations may be adversely affected. In addition, 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 our financial
condition and results of operations because we may be required to expend
additional funds to bring our products to commercialization, and milestone or
royalty payments from collaborative partners or revenue from product sales, if
any, could be delayed or terminated. Any failure or inability by us to perform
some of our obligations under a collaboration agreement could reduce or
extinguish the benefits to which we are otherwise entitled under the agreement.
We are required to file a notice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 for certain agreements containing exclusive license
grants and to delay the effectiveness of any such exclusive license until the
expiration or earlier termination of the notice and waiting period under the HSR
Act. If the expiration or termination of the notice and waiting period under the
HSR Act is delayed because of lengthy government review, or if the Federal Trade
Commission or Department of Justice successfully challenges such a license,
development and commercialization could be delayed or precluded and our business
could be adversely affected.
Development and commercialization of some of our product candidates may
depend on our ability to enter into additional collaboration agreements with
pharmaceutical companies to fund all or part of the costs of development and
commercialization of such product candidates. There can be no assurance that we
will be able to enter into collaboration agreements for ICEs in the future or
that the terms of the collaboration agreements, if any, will be favorable to us.
The inability to enter into collaboration agreements in the future could delay
or preclude the development, manufacture and/or marketing of some of our drugs
and could have a material adverse effect on our financial condition and results
of operations because:
- we may be required to expend additional funds to advance the drugs to
commercialization;
- revenue from product sales could be delayed; or
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- we may elect not to commercialize the drugs.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND EXPECT TO INCUR SIGNIFICANT
EXPENSES IN DEVELOPING A SALES FORCE. IN ADDITION, OUR LIMITED SALES AND
MARKETING EXPERIENCE MAY RESTRICT OUR SUCCESS IN COMMERCIALIZING OUR PRODUCTS.
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 Xopenex(TM), our single isomer form
of albuterol. 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 limited experience in developing, maintaining and expanding a
direct specialty sales force may restrict our success in commercializing our
products.
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 and competition for these persons is
intense. 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. We may also need to enter into additional
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 co-promotion
arrangements, and the terms of any co-promotion arrangements may not be
favorable to us. We cannot control the level of effort and quality of service
provided by co-promoters or any third party sales force. If the level of
effort provided by these third parties is not adequate, our revenues may be
adversely affected.
IF WE DO NOT MAINTAIN CURRENT GOOD MANUFACTURING PRACTICES, THEN THE FDA COULD
REFUSE TO APPROVE MARKETING APPLICATIONS. WE DO NOT HAVE THE CAPABILITY TO
MANUFACTURE IN SUFFICIENT QUANTITIES ALL OF THE PRODUCTS WHICH MAY BE APPROVED
FOR SALE AND DEVELOPING AND OBTAINING THIS CAPABILITY WILL BE TIME CONSUMING AND
EXPENSIVE.
The FDA and other regulatory authorities require that our products be
manufactured according to their Good Manufacturing Practices standards. Our
failure to maintain current Good Manufacturing Practices compliance and/or scale
up our manufacturing processes could lead to refusal by the FDA to approve
marketing applications. Failure in either respect could also be the basis for
action by the FDA to withdraw approvals previously granted and for other
regulatory action.
Failure to increase our manufacturing capabilities may mean that even if we
develop promising new products, we may not be able to produce them. 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. However, we will not have the capability to manufacture in
sufficient quantities all of the products which may be approved for sale.
Accordingly, we will 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. If ChiRex
experiences delays or difficulties in producing, packaging or delivering the
drugs, market introduction and subsequent sales of the drugs that we market
through our specialty sales force could be adversely
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affected. Under this supply agreement, however, we retain the right to
manufacture commercial quantities of our drugs in our Nova Scotia manufacturing
plant.
IF WE OR OUR COLLABORATION PARTNERS FAIL TO OBTAIN AN ADEQUATE LEVEL OF
REIMBURSEMENT FOR OUR FUTURE PRODUCTS OR SERVICES BY THIRD PARTY PAYORS, THERE
MAY BE NO COMMERCIALLY VIABLE MARKETS FOR OUR PRODUCTS OR SERVICES.
The availability and levels of reimbursement by governmental and other
third party payors affects the market for any pharmaceutical product or service.
These third party payors continually attempt to contain or reduce the costs of
healthcare by challenging the prices charged for medical products and services.
In certain foreign countries, particularly the countries of the European Union,
the pricing of prescription pharmaceuticals is subject to governmental control.
We may not be able to sell our products profitably if reimbursement is
unavailable or limited in scope or amount.
In both the United States and certain foreign jurisdictions, there have
been a number of legislative and regulatory proposals to change the healthcare
system. Further proposals are likely. The potential for adoption of these
proposals affects or will affect our ability to raise capital, obtain additional
collaboration partners and market our products.
We expect to experience pricing pressure for our existing products and any
future products for which marketing approval is obtained due to the trend toward
managed healthcare, the increasing influence of health maintenance organizations
and additional legislative proposals.
WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS THAT COULD PREVENT OR
INTERFERE WITH OUR PRODUCT COMMERCIALIZATION EFFORTS.
We may be subjected to product liability claims that are inherent in the
testing, manufacturing, marketing and sale of human health care products. These
claims could expose us to significant liabilities that could prevent or
interfere with our product commercialization efforts. Product liability claims
could require us to spend significant time and money in litigation or to pay
significant damages. Although we maintain 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 our insurance coverage may not provide
adequate coverage against all potential claims.
WE HAVE SIGNIFICANT LONG-TERM DEBT AND WE MAY NOT BE ABLE TO MAKE INTEREST OR
PRINCIPAL PAYMENTS WHEN DUE.
As of March 31, 2000, our total long-term debt was approximately $854.2
million and our stockholders' equity (deficit) was $(96.5) million. None of
the 6-1/4% convertible subordinated debentures due 2005 issued by us in
February 1998, the 7% convertible subordinated debentures due 2005 issued by
us in December 1998 nor the 5% Debentures restrict our ability or our
subsidiaries ability to incur additional Indebtedness, as defined on page 24,
including debt that ranks senior to the 6-1/4% convertible subordinated
debentures due 2005, the 7% convertible subordinated debentures due 2005 and
the 5% Debentures. Additional Indebtedness that we incur may rank senior to
or on parity with these debentures 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 any of our outstanding debentures. Moreover, we may
be unable to repay any of our outstanding debentures at maturity or otherwise
in accordance with the debt instruments.
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IF SUFFICIENT FUNDS TO FINANCE OUR BUSINESS ARE NOT AVAILABLE TO US WHEN NEEDED
OR ON ACCEPTABLE TERMS, THEN WE MAY BE REQUIRED TO DELAY, SCALE BACK, ELIMINATE
OR ALTER OUR STRATEGY FOR OUR PROGRAMS.
We may require additional funds for our research and product development
programs, operating expenses, the pursuit of regulatory approvals, license or
acquisition opportunities and the expansion of our production, sales and
marketing capabilities. Historically we have satisfied our funding needs
through collaboration 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:
- increased research and development expenses;
- patent developments;
- licensing or acquisition opportunities;
- relationships with collaboration partners;
- the FDA regulatory process;
- our capital requirements; and
- selling and marketing expenses in connection with commercialization of
products.
WE EXPECT TO FACE INTENSE COMPETITION AND OUR COMPETITORS HAVE GREATER RESOURCES
AND CAPABILITIES THAN WE HAVE. DEVELOPMENTS BY OTHERS MAY RENDER OUR PRODUCTS OR
TECHNOLOGIES OBSOLETE OR NONCOMPETITIVE.
We expect to encounter intense competition in the sale of our future
products. If we are unable to compete effectively, our financial condition and
results of operations could be materially adversely affected because we may use
our financial resources to seek to differentiate ourselves from our competition
and because we may not achieve our product revenue objectives. Many of our
competitors and potential competitors, which include pharmaceutical companies,
biotechnology firms, universities and other research institutions, have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than we have. The
fields in which we compete are subject to rapid and substantial technological
change. Our competitors may be able to respond more quickly to new or emerging
technologies or to devote greater resources to the development, manufacture and
marketing of new products and/or technologies than we can. As a result, any
products and/or technologies that we develop may become obsolete or
noncompetitive before we can recover expenses incurred in connection with their
development.
FLUCTUATIONS IN THE DEMAND FOR PRODUCTS, THE TIMING OF COLLABORATIVE
ARRANGEMENTS, EXPENSES AND THE RESULTS OF OPERATIONS OF OUR SUBSIDIARIES WILL
CAUSE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE
VOLATILITY IN OUR STOCK PRICE.
Our quarterly operating results are likely to fluctuate significantly,
which could cause our stock price to be volatile. These fluctuations will depend
on factors which include:
- the timing of collaboration agreements for development of our
pharmaceutical candidates and development costs for those
pharmaceuticals;
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- the timing of receipt of upfront, milestone or royalty payments under
collaboration agreements;
- the timing of product sales and market penetration;
- the timing of operating expenses, including selling and marketing
expenses and the costs of expanding and maintaining a direct sales
force;
- the timing of expenses we may incur with respect to any license or
acquisitions of products or technologies; and
- the losses of Biosphere, a 59% owned consolidated subsidiary of
Sepracor, and of HemaSure, a 22%-owned affiliate of Sepracor.
FAILURE BY US TO IDENTIFY AND REMEDIATE ALL YEAR 2000 RISKS COULD CAUSE A
DISRUPTION IN OUR BUSINESS.
In prior periods and years, we discussed the progress of our plans to
prepare for any system or processing failures which could result from
computer programs recognizing dates represented as "00" as the year 1900
rather than the year 2000. There have been no significant disruptions in
critical information technology and non-information technology systems and we
believe those systems successfully responded to the Year 2000 date change.
Costs relating to this Year 2000 issue have not been material. We are not
aware of any material problems resulting from Year 2000 issues, either with
our internal systems, or with the products and services of third parties. We
will continue to monitor our mission critical computer applications and those
of vendors and suppliers throughout the year 2000 to ensure that we promptly
address any issues that may arise. In the event that we experience
disruptions as a result of the year 2000 problem, our business could be
seriously harmed.
THE DEBENTURES ARE SUBORDINATED TO SENIOR RANKING DEBT AND IN SOME EVENTS WE
WILL NOT BE ABLE TO PAY OUR OBLIGATIONS WITH RESPECT TO THE DEBENTURES UNTIL ALL
OF OUR DEBT RANKING SENIOR TO THE DEBENTURES HAS BEEN FULLY REPAID.
The 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
debentures, including:
- all of our Indebtedness, whenever created or incurred, that is not
made subordinate to or on parity with the debentures by the debt
instrument;
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- our obligations under a put agreement to purchase $2.0 million of
Indebtedness of Versicor, in the event of a default by Versicor; and
- our obligations under a guarantee of up to $5.0 million of
Indebtedness of HemaSure. See "Description of Debentures."
In the event of bankruptcy, liquidation, or reorganization or upon
acceleration of the debentures due to an event of default and in certain
other events, we will not be able to pay our obligations with respect to the
debentures until all our debt ranking senior to the 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 debentures then outstanding. At March
31, 2000, the aggregate amount of obligations that rank senior to the
debentures outstanding was approximately $8.4 million, of which approximately
$7 million represents indebtedness related to our subsidiaries. The
aggregate amount of our indebtedness that would be on parity with the
debentures was approximately $393 million. The debentures do not limit the
amount of additional Indebtedness, including debt ranking senior, that we can
create, incur, assume or guarantee. We anticipate that, on occasion, we will
incur additional Indebtedness, including debt ranking senior to the
debentures which could adversely affect our ability to pay our obligations on
the debentures. See "Description of Debentures."
In addition, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any of our
subsidiaries, creditors of the subsidiary generally will have the right to be
paid in full before any distribution is made to us or the holders of the
debentures. Accordingly, holders of the debentures are effectively subordinated
to the claims of our subsidiaries' creditors to the extent of the assets of the
indebted subsidiary. This subordination could adversely affect our ability to
pay our obligations on the debentures. We anticipate that our subsidiaries will
occasionally incur additional Indebtedness that could adversely affect our
ability to pay our obligations on the debentures. See "Description of
Debentures."
WE MAY BE LIMITED BY THE TERMS OF OUR INDEBTEDNESS, THE AVAILABILITY OF
SUFFICIENT FUNDS AND COMPLIANCE WITH APPLICABLE LAWS TO REPURCHASE THE
DEBENTURES UPON A FUNDAMENTAL CHANGE.
In the event of a Fundamental Change, each holder of the debentures will
have the right to require us to repurchase all or some of their debentures. In
summary, Fundamental Change, which is defined on page 24, means an event which
results in all or substantially all of the shares of our common stock being
exchanged for consideration which is not all or substantially all common stock
which is listed on a national securities exchange or automated quotation system.
However, our ability to repurchase debentures upon a Fundamental Change
- may be limited by the subordination provisions of any current or
future Indebtedness and related obligations that rank senior to the
debentures. The indenture refers to the Indebtedness and related
obligations that rank senior to the debentures as Senior Obligations.
Senior Obligations are further discussed on page 25.
- may be limited by any other terms of any current or future Senior
Obligations or Indebtedness.
- will depend upon whether we have sufficient funds to pay the
redemption price for all the debentures tendered by the holders.
- will be subject to compliance with applicable laws.
-10-
<PAGE>
If we fail to repurchase any debentures upon a Fundamental Change, this
failure would result in an event of default under the indenture and could result
in the acceleration of the payment of other Indebtedness.
The term "Fundamental Change" is limited to certain specified transactions.
We could, in the future, enter into other transactions that would not constitute
a Fundamental Change but that could adversely affect our financial condition.
Even though we are required to repurchase the 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."
THERE IS A LIMITED MARKET FOR THE DEBENTURES AND INVESTORS MAY NOT BE ABLE TO
SELL THEIR DEBENTURES AT A PRICE ACCEPTABLE TO THEM.
There is a limited market for the debentures. We cannot assure you as to
the liquidity of any markets that may develop for the debentures, your ability
to sell your debentures or the price at which you may be able to sell your
debentures. Future trading prices of the debentures will depend on many factors,
including:
- prevailing interest rates;
- our operating results;
- the price of our common stock; and
- the market for similar securities.
The 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 debentures on any securities exchange.
-11-
<PAGE>
USE OF PROCEEDS
All of the debentures and the shares of our common stock issuable upon
conversion of the debentures are being sold by the selling securityholders or by
their pledgees, donees, transferees or other successors in interest. We will not
receive any proceeds from the sale of the debentures or the shares of our common
stock issuable upon conversion of the debentures.
DEFICIENCY OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
We have not recorded earnings for any of the five years ended December
31, 1999 or for the three months ended March 31, 2000 and therefore are
unable to cover fixed charges. Earnings (loss) consists of net (loss) from
operations before minority interest and equity in investee losses plus fixed
charges. Fixed charges consist of interest expense, amortization of deferred
financing costs, accrued dividends on preferred stock and a portion of rental
expense that we believe to be representative of interest. The following table
discloses our dollar coverage deficiency. The ratio of earnings to fixed
charges is not disclosed since it is a negative number in each year and
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------------------- ------------------
1995 1996 1997 1998 1999 MARCH 31, 2000
-------- -------- -------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges ................ -- -- -- -- -- --
Coverage deficiency to attain a ratio of 1:1 ...... ($29,298) ($43,879) ($22,122) ($86,124) ($180,906) ($54,274)
</TABLE>
DESCRIPTION OF DEBENTURES
GENERAL
We issued the debentures under an indenture dated as of February 14, 2000
between Sepracor and The Chase Manhattan Bank, as trustee. We have summarized
selected provisions of the indenture, the debentures and the registration rights
agreement relating to the registration of the debentures below. This is a
summary and is not complete. It does not contain certain exceptions and
qualifications contained in the indenture, the debentures and the registration
rights agreement. You should read the indenture, form of debenture and
registration rights agreement which we have filed with the SEC for provisions
that may be important to you. Please read "Where You Can Find More Information"
on page 38. The following capitalized terms are defined on pages 23 to 25:
Designated Senior Obligations, Fundamental Change, Indebtedness and Senior
Obligations.
The debentures will mature on February 15, 2007. The debentures bear
interest at a rate of 5% per year. We will:
- pay interest semi-annually on August 15 and February 15 of each
year, commencing August 15, 2000
- pay interest to the person in whose name the note is registered
at the close of business on the July 31 or January 31 preceding the
interest payment date
-12-
<PAGE>
- compute interest on the basis of a 360-day year consisting of
twelve 30-day months
- make payments by wire transfer for debentures held by the
Depository Trust Company, or DTC, or its nominee or by check mailed to
the address of the person entitled to payment as it appears on the
debenture register provided that a holder of debentures with an
aggregate principal amount in excess of $2.0 million shall, at the
written election of that holder, be paid by wire transfer
BOOK ENTRY; DELIVERY AND FORM
The debentures will initially be represented by one or more permanent
debentures in definitive, fully registered book-entry form and which are
referred to as global debentures. The global debentures will be registered in
the name of Cede & Co., as DTC's nominee. Qualified institutional buyers, as
defined in Rule 144A under the Securities Act, who purchased debentures in
reliance on Rule 144A may hold their interest in the global debentures through a
custodian or DTC for credit to the respective accounts of the acquirors or to
other accounts as they may direct DTC. Investors who are not "United States
persons" (as defined under Regulation S under the Securities Act) who acquired
debentures in reliance on Regulation S may hold their interest in the global
debentures directly or indirectly through Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the Euroclear System, or Clearstream
Banking. Euroclear, through its depositary The Chase Manhattan Bank, and
Clearstream Banking, through its depositary Citibank, N.A., will hold the
interest of the Regulation S investors in the global debentures on the books of
DTC.
THE GLOBAL DEBENTURES
We expect that under procedures established by DTC
- upon deposit of the global debentures with DTC or its custodian, DTC
will credit on its internal system applicable portions of the global
debentures to the respective accounts of persons who have accounts
with the depositary; and
- ownership of the debentures will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by
DTC or its nominee, with respect to interests of persons who have
accounts ("participants") with DTC, and the records of participants in
DTC, with respect to interests to persons other than participants in
DTC.
So long as DTC or its nominee is the registered owner or holder of any of
the debentures, DTC or its nominee will be considered the sole owner or holder
of the debentures represented by the global debentures for all purposes under
the indenture and under the debentures represented thereby. No beneficial owner
of an interest in the global debentures will be able to transfer the interest
except in accordance with the applicable procedures of DTC, Clearstream Banking
or Euroclear in addition to those provided for under the indenture.
Payments on the debentures represented by the global debentures will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
None of Sepracor, the trustee or any paying agent under the indenture will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
debentures or for maintaining, supervising nor reviewing any records relating to
the beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment on the
debentures represented by the global debentures, will credit participants'
accounts with payment in amounts proportionate to their
-13-
<PAGE>
respective beneficial interests in the global debentures as shown in the records
of DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in the global debentures held through these participants
will be governed by standing instructions and customary practice as is now the
case with securities held for the accounts of customers registered in the names
of nominees for the customers. This payment to the beneficial owner will be the
responsibility of the participant holding the beneficial interest.
Transfer between participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated security for any reason, including
to sell debentures to persons in states that require physical delivery of the
security or to pledge the securities, the holder must transfer its interest in
the global debentures in accordance with the normal procedures of DTC and the
procedures in the indenture. Transfers between participants in Euroclear and
Clearstream Banking will be effected in accordance with the applicable rules and
operating procedures of Euroclear and Clearstream Banking.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through participants in Euroclear or Clearstream Banking, on the
other, will be effected in DTC in accordance with DTC rules on behalf of
Euroclear or Clearstream Banking, as the case may be, by its depositary.
However, cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the counterparty in
the system in accordance with its rules and procedures and within its
established deadlines (Brussels time). Euroclear or Clearstream Banking, as
the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in a global
debenture in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Participants in
Euroclear and Clearstream Banking may not deliver instructions directly to
the depositaries for Euroclear or Clearstream Banking.
Because of time zone differences, the securities accounts of
participants in Euroclear or Clearstream Banking purchasing an interest in a
global debenture from a participant in DTC will be credited during the
securities settlement processing day (which must be a business day for
Euroclear or Clearstream Banking, as the case may be) immediately following
the DTC settlement date. The credit of any transactions interests in a global
debenture settled during the processing day will be reported to the
participant in Euroclear or Clearstream Banking on that day. Cash received in
Euroclear or Clearstream Banking as a result of sales of interests in a
global debenture by or through a participant in Euroclear or Clearstream
Banking to a participant in DTC will be received with value on the DTC
settlement date, but will be available in the Euroclear or Clearstream
Banking cash account only as of the business day following settlement in DTC.
None of Sepracor, the Trustee or any registrar, paying agent or conversion
agent under the indenture will be responsible for the performance by DTC,
Euroclear or Clearstream Banking or any of their respective participants or
indirect participants of their obligations under the rules and procedures
governing their operations.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of debentures, including the presentation of debentures for exchange as
described below, only at the direction of one or more participants to whose
account the DTC interests in the global debentures are credited and only in
respect of the aggregate principal amount as to which the participant or
participants has or have given direction. However, if there is an event of
default under the indenture, DTC will exchange the global debentures for
certificated securities that it will distribute to its participants.
-14-
<PAGE>
DTC has advised us as follows:
- DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered under the provisions of
Section 17A of the Securities Exchange Act of 1934
- DTC holds securities that its participants deposit with DTC and
facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of
securities certificates
- Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations
- DTC is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
- Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct
participant, either directly or indirectly
- The rules applicable to DTC and its participants are on file with the
SEC
Although DTC is expected to follow these procedures in order to facilitate
transfers of interests in the global debentures among participants of DTC, it is
under no obligation to perform these procedures, and these procedures may be
discontinued at any time. Neither Sepracor nor the trustee will have any
responsibility for the performance by DTC or its direct or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED DEBENTURES
Interest in the global debentures will be exchanged for certificated
securities if:
- DTC or any successor depositary notifies us that it is unwilling or
unable to continue as depository for the global debentures, or DTC
ceases to be a "clearing agency" registered under the Securities
Exchange Act of 1934, and a successor depositary is not appointed by
us within 90 days
- an event of default has occurred and is continuing with respect to the
debentures and the registrar has received a request from the
depositary to issue certificated securities in lieu of all or a
portion of the global debentures, in which case we will deliver
certificated securities within 30 days of the request
- we determine not to have the debentures represented by global
debentures
Upon the occurrence of any of the events described in the preceding
sentence, we will cause the appropriate certificated securities to be delivered.
-15-
<PAGE>
Neither Sepracor nor the trustee will be liable for any delay by the
depositary or its nominee in identifying the beneficial owners of the related
debentures. Each beneficial owner may conclusively rely on, and will be
protected in relying on, instructions from the depositary or nominee for all
purposes, including the registration and delivery, and the respective principal
amounts, of the debentures to be issued.
RESTRICTIONS ON TRANSFER
The debentures will be subject to certain transfer restrictions and will
bear a legend to that effect.
CONVERSION OF DEBENTURES
The holders of debentures will be entitled at any time between May 14, 2000
and February 15, 2007 to convert any debentures or any portions of any
debentures, into shares of our common stock, at a conversion price of $92.38 per
share, subject to adjustment as described below.
Except as described below, we will not make any interest or dividend
payment or other adjustment on conversion of any debentures.
If a debenture is converted to common stock between a record date for an
interest payment and the next interest payment date then
- if the debenture is to be redeemed during this period, we will not be
required to pay interest on the interest payment date, or
- if otherwise, when submitted for conversion the debenture must be
accompanied by funds equal to the interest payable on the interest
payment date.
-16-
<PAGE>
We are not required to issue fractional shares of common stock upon
conversion of debentures. Instead of issuing fractional shares, we will pay a
cash adjustment based upon the market price of our common stock on the last
business day prior to the date of conversion.
If the debentures are called for redemption, conversion rights will expire
at the close of business on the business day preceding the day fixed for
redemption unless we default in the payment of the redemption price. If a holder
is exercising its option to require redemption of a debenture upon a Fundamental
Change, then the debenture may be converted only if the holder properly
withdraws its election to exercise its redemption option.
The initial conversion price is subject to adjustment in certain events,
including:
- if we issue shares of our common stock as a dividend or distribution
on our common stock,
- if we make certain subdivisions and combinations of our common stock,
- if we issue to all holders of our common stock certain rights or
warrants to purchase shares of our common stock,
- if we distribute to all holders of our common stock shares of capital
stock, other than common stock, evidences of Indebtedness or assets,
- if we make distributions consisting of cash, but excluding quarterly
cash dividends that do not exceed certain prescribed amounts,
- if we or any of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for all or any portion of our common
stock, if the tender offer or exchange offer is
- for more than 15% of the outstanding shares of our common stock
and
- the payment exceeds the current market price per share of our
common stock on the next trading day after the last date on which
tenders or exchanges may be made.
- if a third party makes a payment to holders of our common stock in
respect of a tender offer or exchange offer by a person other than us
or of any of our subsidiaries 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 will only be made if
the tender offer or exchange offer
- is for an amount that increases the offeror's ownership of our
common stock to more than 25%
- the payment exceeds the current market price per share of our
common stock on the next trading day after the last date on which
tenders or exchanges may be made, and
- if, as of the closing of the offer, the offering documents do not
disclose a plan or intention to cause us to consolidate, merge or
sell all or substantially all of our assets and no consolidation,
merger or asset sale occurs within 12 months of the closing of
the offer.
We will not be required to adjust the conversion price unless the
adjustment would require a change of at least 1% in the conversion price then in
effect. However, any adjustment that would otherwise be required to be made will
be carried forward and taken into account in any subsequent adjustment.
-17-
<PAGE>
If our common stock is reclassified or if we consolidate, merge, engage in
a combination or sell all or substantially all of our assets, and as a result
holders of our common stock are entitled to receive securities, property or
assets, including cash, in exchange for their shares of common stock then the
holders of the debentures will generally be entitled to convert their debentures
into the securities, property or assets which holders of our common stock
receive in the transaction.
If a distribution we make to holders of our common stock is taxable, or
in certain other circumstances requiring conversion price adjustments, the
holders of 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 our common stock. See "Material United
States Federal Income Tax Considerations" below.
We may from time to time, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 days, if the
board of directors has determined that this reduction would be in our best
interest. Any determination by the board of directors will be conclusive. If
we decide to reduce the conversion price, we will give holders of the
debentures at least 15 days' notice of the reduction. We may, at our option,
make any reductions in the conversion price, in addition to those set forth
above, as our board of directors deems advisable to avoid or diminish any
income tax to holders of our common stock resulting from any dividend or
distribution of stock, or rights to acquire stock, or from any event treated
that way for income tax purposes. See "Material United States Federal Income
Tax Considerations."
REDEMPTION AT OUR OPTION
At any time prior to February 15, 2003, we may redeem the debentures in
whole or, from time to time, in part at our option on at least 30 days'
notice if the trading price of our common stock for 20 trading days in a
period of 30 consecutive trading days exceeds 150% of the conversion price of
the debentures. If we redeem the debentures under these circumstances, we
will make an additional "make-whole" payment on the redeemed debentures equal
to $230.77 per $1,000 debenture, minus the amount of any interest paid on the
debenture prior to or in connection with the redemption.
On or after February 15, 2003 we may redeem the debentures if the trading
price of our common stock for 20 trading days in a period of 30 consecutive
trading days exceeds 120% of the conversion price of the debentures. The
redemption price, expressed as a percentage of the principal amount, will be as
follows:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ -----------
<S> <C>
February 15, 2003 through February 14, 2004.................................. 102%
February 15, 2004 through February 14, 2005.................................. 101
</TABLE>
The redemption price will be 100% on or after February 15, 2005.
If we redeem less than all of the outstanding debentures, the trustee will
select debentures for redemption on a proportionate basis or by another method
the trustee considers fair and appropriate. No debentures of a principal amount
less than $1,000 or multiples thereof will be redeemed in part. If we select a
debenture to be redeemed in part only and the holder then converts a portion of
the debenture, we will deem the converted portion of the debenture to be the
portion we have selected for redemption.
-18-
<PAGE>
The trustee will not redeem any debentures or mail any notice of optional
redemption if we are in default in payment of interest or premium on the
debentures or if the trustee knows an event of default has occurred.
The debentures are not entitled to any sinking fund, which means that we
are not required to set aside in a custodial account funds to redeem the
debentures.
REDEMPTION AT HOLDER'S OPTION
If a Fundamental Change occurs at any time prior to February 14, 2007, each
holder of debentures will have the right to require us to redeem any or all of
that holder's debentures.
We will:
- set a date to redeem the debentures that is 30 days after we receive
notice of the Fundamental Change
- within ten days after the Fundamental Change, mail to all holders a
notice of the Fundamental Change and the redemption rights arising
because of the Fundamental Change
- deliver a copy of the notice to the trustee
- redeem the debentures in principal amounts of $1,000 or multiples
thereof
- redeem the debentures at a price equal to 100% of the principal, plus
accrued interest up to the date of redemption. If, however, the
redemption date is also an interest payment date, then we will pay
interest to the holder of record on the applicable record date
- make payment for all properly surrendered debentures promptly after
the date for redemption, and
- comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act.
To exercise the redemption right, a holder of debentures must deliver
written notice of the holder's exercise of its right. The notice must be
delivered to us, or to an agent designated by us, on or before the 30th day
after our notice of a Fundamental Change and must be accompanied by the
debentures to be redeemed, duly endorsed for transfer.
The redemption rights of the holders of debentures could discourage a
potential acquiror of Sepracor. The Fundamental Change redemption feature,
however, is not the result of our 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 us to adopt a series of anti-takeover
provisions.
SUBORDINATION OF DEBENTURES
The debentures are subordinated to the prior payment in full of all of our
Senior Obligations. The debentures also are effectively subordinated to all
Indebtedness of our subsidiaries. The subordination of the debentures will not
prevent the occurrence of any event of default under the indenture. In addition,
the debentures are equal in right of payment with our 6-1/4% convertible
subordinated debentures due 2005 and 7% convertible subordinated debentures due
2005.
-19-
<PAGE>
In the event of any acceleration of the debentures because of an event of
default under the indenture, the holders of any Senior Obligations then
outstanding would be entitled to payment in full before the holders of the
debentures are entitled to receive any payment or distribution. The indenture
requires that we promptly notify holders of Senior Obligations if payment of the
debentures is accelerated because of an event of default under the indenture.
We also may not make any payment upon or in respect of the debentures,
including upon redemption, if:
- we are in default in the payment of the principal, premium, if any,
interest, rent or other obligations in respect of Senior Obligations
or
- we are in default with respect to Designated Senior Obligations, the
default permits a holder of the Designated Senior Obligation to
accelerate its maturity and the trustee receives a written notice of
payment blockage from us or another person permitted to give the
notice under the indenture.
If we are in default on a Senior Obligation, we will resume payment on the
debentures on the date on which the default is cured, waived or otherwise ceases
to exist.
If we are in default on a Designated Senior Obligation, we will resume
payment on the earlier of
- the date on which the default is cured, waived or ceases to exist or
- 179 days after the date on which the applicable payment blockage
notice is received by the trustee,
so long as the maturity of the Designated Senior Obligations has not been
accelerated and no default on a Senior Obligation has occurred. If a default on
a Senior Obligation has occurred, then we will resume payment on the debentures
on the date on which the default on the Senior Obligations is cured, waived or
otherwise ceases to exist.
We may not commence any new period of payment blockage pursuant to a
payment blockage notice unless and until 365 days have elapsed since the initial
effectiveness of the immediately preceding payment blockage notice. No default
on a Designated Senior Obligation that existed or was continuing on the date of
delivery of any payment blockage notice to the trustee shall be the basis for a
subsequent payment blockage notice.
In the event that any holder of the debentures receives any kind of payment
or distribution of our assets in contravention of any of the subordination
provisions of the indenture before all Senior Obligations are paid in full, then
the 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.
Any right that we have to receive the assets of any of our subsidiaries
upon that subsidiary's liquidation or reorganization, and the consequent right
of the holders of the debentures to receive a portion of these assets, will be
effectively subordinated to the claims of that subsidiary's creditors, including
trade creditors, unless we ourselves are recognized as a creditor of the
subsidiary. Even if we are recognized as a creditor of any subsidiary, our
claims would still be subordinate to any security interests in the assets of
that subsidiary and any indebtedness of that subsidiary which is senior to that
held by Sepracor.
-20-
<PAGE>
Our subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
debentures or to make any funds available for any payment. In addition, the
payment of dividends and the making of loans and advances by our subsidiaries to
us 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, we may be unable to
gain access to the cash flow or assets of our subsidiaries.
We have approximately $93 million in aggregate principal amount of 6-1/4%
convertible subordinated debentures due 2005, $300 million 7% convertible
subordinated debentures due 2005 and, as of March 31, 2000, we had
approximately $8.4 million of Senior Obligations. The indenture does not limit
the amount of additional Indebtedness, including Senior Obligations, which we
can create, incur, assume or guarantee, nor does the indenture limit the amount
of indebtedness or other liabilities that any of our subsidiaries can create,
incur, assume or guarantee.
We are 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 debentures. The trustee's
claims for these payments will generally be senior to those of the holders of
the debentures in respect of all funds collected or held by the trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following are events of default under the indenture with respect to the
debentures:
- our failure to pay any interest on the debentures for 30 days
- our failure to pay principal of or premium on the debentures
- our failure to observe or perform any other covenants in the indenture
or the debentures for 60 days after notice
- bankruptcy, insolvency or reorganization events for either us or any
of our significant subsidiaries.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the debentures then outstanding may
declare the principal of, premium, if any, and accrued interest, on the
debentures to be due and payable immediately. In the case of certain events of
our bankruptcy or insolvency, the principal of, premium, if any, and accrued
interest, on the debentures will automatically become immediately due and
payable. However, if we cure all defaults except the nonpayment of principal of,
premium, if any, and interest on any of the debentures which shall have become
due by acceleration, and certain other conditions are met, with certain
exceptions, the declaration may be canceled and past defaults may be waived by
the holders of a majority of the principal amount of the debentures then
outstanding.
Any payment of principal, premium, if any, or interest that is not made
when due, will accrue interest, to the extent legally permissible, at the annual
rate set forth on the cover page of this prospectus from the date on which the
payment was required under the terms of the indenture until the date of payment.
If a default occurs, is continuing and is known to the trustee, the trustee
will give to the holders of the debentures notice of that default or event of
default within 90 days after it occurs. Except in the case of a default in any
payment on the debentures, the trustee may withhold notice if it in good faith
determines that withholding notice is in the interest of the holders of the
debentures.
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A holder of a debenture may pursue any remedy under the indenture or the
debenture only if:
- the trustee has received from the holder written notice of a
continuing event of default
- the trustee has received from holders of at least 25% in principal
amount of the outstanding debentures a written request to pursue the
remedy
- the trustee has been offered indemnity reasonably satisfactory to it
- the trustee has failed to act for a period of 60 days after receipt of
notice and offer of indemnity
- during that 60-day period, the holders of a majority in principal
amount of the outstanding debentures have not given the trustee a
direction inconsistent with the written request
The holders of a majority in principal amount of the outstanding notes have
the right in most cases to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee under the indenture or
exercising any trust or power conferred on the trustee with respect to the
debentures.
MODIFICATION OF THE INDENTURE
We may amend or supplement the indenture or modify the rights of the
holders of the debentures with the consent of the holders of a majority in
principal amount of outstanding debentures that are issued under the indenture.
Without the consent of each holder of a debenture so affected, no
modification shall:
- extend the fixed maturity of any debenture
- reduce the principal amount or premium, if any,
- change our obligation to redeem any debenture upon the happening of
any Fundamental Change in a manner adverse to the holders of the
debentures
- change the currency in which the debentures are payable
- modify the provisions of the indenture with respect to the
subordination of the debentures in a manner adverse to the holders of
the debentures in any material respect
- reduce the rate or extend the time for payment of interest
- reduce any amount payable upon redemption
- impair the right of a holder to institute suit for payment; or
- impair the right to convert the debentures into shares of our common
stock subject to the terms set forth in the indenture
In addition, without the consent of the holders of all of the debentures
then outstanding, no modification shall reduce the percentage of debentures
whose holders are required to consent to any modification of the indenture or
any supplemental indenture.
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The indenture also provides for certain modifications of its terms without
the consent of the holders of the debentures.
REGISTRATION RIGHTS OF THE DEBENTUREHOLDERS
In connection with the issuance of the debentures and the shares of our
common stock underlying the debentures, we entered into a registration rights
agreement. Under the registration rights agreement, we agreed to:
- file the registration statement by May 14, 2000
- use reasonable best efforts to keep the registration statement
effective until the earlier of the sale of all of the registered
securities or the expiration of the Rule 144(k) holding period
- pay all expenses of the registration statement
- provide to each registered holder copies of this prospectus
- notify each registered holder when the registration statement has
become effective
- take the actions required to permit unrestricted sales of the
registered securities
We 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. We have agreed to pay predetermined
liquidated damages to those holders of debentures and those holders of common
stock issued upon conversion of the 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. We have further agreed, if the 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
debentures and all holders of shares of our common stock issued upon conversion
of the debentures, whether or not the holder has requested to sell pursuant to
the shelf registration statement.
A holder who sells the debentures or the common stock issued upon
conversion of the debentures pursuant to the shelf registration statement
generally will be required to be named as a selling securityholder in this
prospectus. The selling holder will also be required to deliver this prospectus
to purchasers and be bound by those provisions of the registration rights
agreement which are applicable to the holder, including certain indemnification
provisions.
INFORMATION CONCERNING THE TRUSTEE
We have appointed The Chase Manhattan Bank, as trustee under the indenture,
as paying agent, conversion agent, registrar and custodian with regard to the
debentures.
DEFINITIONS
We have provided below a summary of capitalized terms used in this summary
description of the debentures. The indenture contains a full definition of all
these terms.
"DESIGNATED SENIOR OBLIGATIONS" means:
(a) Senior Obligations under our existing revolving credit facility
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(b) our obligations under a put agreement to purchase $2.0 million of
indebtedness of Versicor in the event of a default by Versicor
(c) our guarantee of repayment by HemaSure of amounts borrowed under a
$5.0 million revolving line of credit with a commercial bank
(d) any other Senior Obligations which are expressly deemed Designated
Senior Obligations
"FUNDAMENTAL CHANGE" means an event which results in all or substantially
all of the shares of our common stock being exchanged for consideration which is
not all or substantially all common stock which is listed on a national
securities exchange or automated quotation system. A Fundamental Change would
include a transaction which occurs through:
- an exchange offer
- liquidation
- tender offer
- consolidation
- merger
- combination
- reclassification
- recapitalization
"INDEBTEDNESS" means, with respect to any person, and without duplication:
(a) all indebtedness or obligations for borrowed money
(b) all indebtedness or obligations evidenced by bonds, debentures, notes
or similar instruments except accounts payable and accrued liabilities
incurred in the ordinary course of business in connection with
obtaining materials or services
(c) all reimbursement obligations with respect to letters of credit, bank
guarantees or bankers' acceptances
(d) all obligations in respect of leases of real or personal property or
assets which are required to be accounted for as capital lease
obligations under generally accepted accounting principles
(e) all obligations with respect to interest rates, swaps, caps, collar
agreements, foreign currency hedges, exchanges, purchase or similar
agreements
(f) all indebtedness of others guaranteed by us
(g) all indebtedness secured by a lien on our assets
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"SENIOR OBLIGATIONS" means any principal, premium, interest, rent
payable on or in connection with, and all fees and expenses in connection
with our Indebtedness. This includes any Indebtedness outstanding on the date
of the indenture or incurred, assumed or guaranteed by us thereafter.
However, if any instrument evidencing Indebtedness or the assumption or
guarantee of Indebtedness specifically provides that the Indebtedness is not
senior to the debentures, or provides that it is equal to or junior to the
debentures, then that Indebtedness will not constitute Senior Obligations. In
addition, our 6-1/4% convertible subordinated debentures due 2005, 7%
convertible subordinated debentures due 2005 and any Indebtedness of any
majority-owned subsidiary of ours does not constitute Senior Obligations.
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 debentures and the shares of our common stock into which debentures may be
converted. This summary is not a complete analysis of all the potential tax
considerations relating to these considerations.
We have based this summary on the provisions of the Internal Revenue Code
of 1986, applicable Treasury regulations, 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 debentures and the
common stock 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 debentures as a position in a hedging transaction, "straddle or
conversion transaction" for tax purposes, or persons that have a "functional
currency" other than the United States dollar.
We have not sought any ruling from the Internal Revenue Service with
respect to the statements made and the conclusions reached in the following
summary. The IRS may not agree with our 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 debenture or the shares of our common stock acquired upon
the conversion of a debenture that for United States federal income tax purposes
is:
- a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof,
- an estate the income of which is subject to United States federal
income taxation regardless of its source, or
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- 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 debenture generally will be includable in the income of a
United States holder as ordinary income at the time the interest is received or
accrued, in accordance with the holder's method of accounting for United States
federal income tax purposes. We are obligated to pay liquidated damages to
holders of the debentures in certain circumstances described under "Description
of Debentures --Registration Rights of the Debentureholders." We believe that
any payment of liquidated damages should be treated as subject to an "incidental
contingency" for purposes of the original issue discount rules because the
amount of these payments, if required to be made, is expected to be
insignificant relative to the total expected amount of remaining payments on the
debentures. Accordingly, any liquidated damage payments should be taxable to
holders as payments of interest. The debentures do not have original issue
discount.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
Upon the sale, exchange or redemption of a debenture, a United States
holder generally will recognize capital gain or loss equal to the difference
between:
- the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption, except to the extent the
amount is attributable to accrued interest income, which is taxable as
ordinary income, and
- the holder's adjusted tax basis in the debenture.
A United States holder's adjusted tax basis in a debenture generally will equal
the cost of the debenture to the holder, less any principal payments received by
the holder. The 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.
MARKET DISCOUNT
The market discount rules discussed below apply to a debenture purchased at
a price less than its stated redemption price at maturity.
A United States holder that purchases a debenture at a market discount
generally will be required to treat any principal payments on, or any gain on
the disposition on maturity of, that debenture as ordinary income to the extent
of the accrued market discount (not previously included in income) at the time
of such payment or disposition. In general, subject to a de minimis exception,
market discount is the amount by which the debenture's stated redemption price
at maturity exceeds the United States holder's basis in the debenture
immediately after the debenture is acquired. A debenture is not treated as
purchased at a market discount, however, if the market discount is less than
.25% of the stated redemption price at maturity of the debenture multiplied by
the number of complete years to maturity from the date when the United States
holder acquired the debenture. Market discount on a debenture will accrue on a
straight-line basis, unless the United States holder elects to accrue such
discount on a constant yield to maturity
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basis. This election is irrevocable and applies only to the debenture for which
it is made. The United States holder may also elect to include market discount
in income currently as it accrues. This election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS. If a United States holder of a debenture acquired at a
market discount disposes of such debenture in any non-taxable transaction (other
than a nonrecognition transaction defined in Section 1276(c) of the Code),
accrued market discount will be includible as ordinary income to the holder as
if such holder had sold the debenture at its fair market value. A United States
holder may be required to defer until the maturity of the debenture or, in
certain circumstances, its earlier disposition the deduction or all or a portion
of the interest expense attributable to debt incurred or continued to purchase
or carry a debenture with market discount, unless an election to include the
market discount on a current basis is made.
AMORTIZABLE BOND PREMIUM
A United States holder that purchases a debenture for an amount in excess
of its stated redemption price at maturity will generally be considered to have
purchased the debenture with "amortizable bond premium." A United States holder
generally may elect to amortize such premium using the constant yield to
maturity method. The amount amortized in any year will generally be treated as a
reduction of the United States holder's interest income on the debenture. If the
amortizable bond premium allocable to a year exceeds the amount of interest
allocable to that year, the excess would be allowed as a deduction for that year
but only to the extent of the United States holder's prior interest inclusions
on the debenture. The premium on a debenture held by a United States holder that
does not make such an election will decrease the gain or increase the loss
otherwise recognized on the sale, redemption, retirement or other disposition of
the debenture. The election to amortize the premium on a constant yield to
maturity method, once made, generally applies to all bonds held or subsequently
acquired by the electing United States holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.
CONSTRUCTIVE DIVIDENDS ON DEBENTURES
If at any time:
- we make a distribution of cash or property to our stockholders or
purchase common stock and this distribution or purchase would be
taxable to our stockholders as a dividend for United States federal
income tax purposes, and, pursuant to the anti-dilution provisions of
the indenture, the conversion rate of the debentures is increased, or
- the conversion rate of the debentures is increased at the discretion
of Sepracor,
then in either case, the increase in conversion rate may be deemed to be the
payment of a taxable dividend to United States holders of debentures pursuant to
Section 305 of the Internal Revenue Code. These holders of 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 debenture into shares of our common stock, except with
respect to cash received in lieu of a fractional share of common stock. A
holder's tax basis in the common stock received on conversion of a debenture
will be the same as the holder's adjusted tax basis in the debenture at the time
of conversion, reduced by
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any basis allocable to a fractional share interest. The holding period for the
shares of common stock received on conversion will generally include the holding
period of the debenture converted.
Cash received in lieu of a fractional share of our common stock upon
conversion will be treated as a payment in exchange for the fractional share of
common stock. Accordingly, the receipt of cash in lieu of a fractional share of
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 us in respect of our common stock will be
equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of our
current or accumulated earnings and profits, then as a tax-free return of
capital to the extent of the holder's tax basis in our common stock and
thereafter as gain from the sale or exchange of the 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 our 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 our 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 shares of our common stock, a United States
holder generally will recognize capital gain or loss equal to the difference
between:
- the amount of cash and the fair market value of any property received
upon the sale or exchange and
- the holder's adjusted tax basis in the common stock.
The 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. A United States holder's basis and holding
period in the shares of common stock received upon conversion of a debenture are
determined as discussed above under "-- United States Holders -- 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 debenture, payments of dividends
on our common stock, payments of the proceeds of the sale of a debenture and
payments of the proceeds of the sale of our common stock to certain noncorporate
United States holders.
The payor will be required to withhold backup withholding tax at the rate
of 31% if:
- the payee fails to furnish a taxpayer identification number to the
payor or establish an exemption from backup withholding,
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- the IRS notifies the payor that the taxpayer identification number
furnished by the payee is incorrect,
- 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
- 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.
Any amounts withheld under the backup withholding rules from a payment to a
United States holder will be allowed as a credit against the 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 debenture or the shares of common stock acquired upon conversion of a
debenture 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 debenture by us 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 the 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:
- does not actually or constructively own, pursuant to the conversion
feature of the debentures or otherwise, 10% or more of the combined
voting power of all classes of our stock entitled to vote,
- is not a controlled foreign corporation related to us actually or
constructively through stock ownership,
- is not a bank which acquired the debentures in consideration for an
extension of credit made pursuant to a loan agreement entered into in
the ordinary course of business and
- either (a) provides a Form W-8BEN, 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 us or our agent under
penalties of perjury in which it certifies that a Form W-8BEN or
W-8IMY, or a suitable substitute, has been received by it from the
non-United States holder or qualifying intermediary and furnishes us
or our agent with a copy thereof.
Treasury regulations, which are effective for payments made after December
31, 2000, provide alternative methods for satisfying the certification
requirements described above.
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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 this effectively connected interest is subject to income 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 W-8ECI.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
A non-United States holder of a 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 debenture, including the receipt of cash in
lieu of fractional shares upon conversion of a debenture into shares of our
common stock, unless:
- the gain is effectively connected with a United States trade or
business of the non-United States holder,
- in the case of a non-United States holder who is an individual, the
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
- 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 debenture into shares of our 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 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
common stock unless any of the conditions described above under "--
Non-United States Holders -- Sale, Exchange or Redemption of the Debentures"
is satisfied.
DIVIDENDS
Distributions by us with respect to shares of our common stock that are
treated as dividends paid, or deemed paid, as described above under "-- United
States Holders -- Constructive Dividends on Debentures" 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 the 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
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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 tax if the holder delivers IRS Form
W-8ECI to the payor.
Under currently applicable Treasury regulations, dividends paid before
January 1, 2001 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, 2000, however, non-United States holders of
shares of our 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 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 the 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 our stock entitled to
vote, and provided that, at the time of death, payments with respect to the
debenture would not have been effectively connected with the conduct by the
non-United States holder of a trade or business within the United States.
Shares of our 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 debenture to a non-United States holder if the
statement described in " -- Non-United States Holders -- Payment of Interest" is
duly provided by the 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 debenture, or any payment
of the proceeds of the sale of shares of the common stock underlying the
debenture effected outside the United States by a foreign office of a "broker,"
as defined in applicable Treasury regulations; unless the broker:
- is a United States person,
- 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
- is a controlled foreign corporation for United States federal income
tax purposes.
Payment of the proceeds of any sale effected outside the United States by a
foreign office of any broker that is described in the bullets of the preceding
sentence will not be subject to backup withholding tax, but will be subject to
information reporting requirements unless the 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 sale of this type to
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or through the United States office of a broker is subject to information
reporting and backup withholding requirements, unless the beneficial owner of
the 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 shares of our
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, 2000.
UNITED STATES REAL PROPERTY HOLDING CORPORATIONS
The discussion of the United States taxation of non-United States holders
of debentures and the shares of common stock underlying these debentures assumes
that we are 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,
we would not be a United States real property holding corporation so long as the
fair market value of our United States real property interests is less than 50%
of the sum of
- the fair market value of our United States real property interests,
- our interests in real property located outside the United States and
- our other assets which are used or held for use in a trade or
business.
We believe that we are not a United States real property holding corporation and
do not expect to become a United States real property holding corporation.
If we become a United States real property holding corporation, gain
recognized on a disposition of debentures or the shares of common stock
underlying the debentures would be subject to United States federal income tax
unless:
- the common stock is "regularly traded on an established securities
market" within the meaning of the Internal Revenue Code and
- either
(a) the non-United States holder disposing of our common
stock did not own, actually or constructively, at any
time during the five-year period preceding the
disposition, more than 5% of our common stock, or
(b) in the case of a disposition of debentures, the
non-United States holder did not own, actually or
constructively, debentures which, as of any date on
which this holder acquired debentures, had a fair
market value greater than that of 5% of our common
stock.
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SELLING SECURITYHOLDERS
We originally sold the debentures on February 14, 2000 to Deutsche Banc
Securities, Inc. The initial purchaser of the debentures has advised us that
the debentures were resold in transactions exempt from the registration
requirements of the Securities Act to (1) "qualified institutional buyers,"
as defined in Rule 144A of the Securities Act, and (2) outside the United
States to certain non-United States person in reliance on Regulation S 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
debentures and/or shares of the common stock issuable upon conversion of the
debentures pursuant to this prospectus.
The debentures and the shares of common stock issuable upon conversion
of the debentures have been registered in accordance with to the registration
rights agreement. Pursuant to the registration rights agreement, we are
required to file a registration statement with regard to the debentures and
the shares of our common stock issuable upon conversion of the debentures and
to keep the registration statement effective until the earlier of:
(1) the sale of all the securities registered pursuant to the
registration rights agreement and
(2) the expiration of the holding period applicable to these
securities under Rule 144(k) under the Securities Act or any
successor provision.
The selling securityholders may choose to sell debentures and/or the shares
of common stock issuable upon conversion of the debentures from time to time.
See "Plan of Distribution."
The following table sets forth:
(1) the name of each selling securityholder who has provided us with
notice as of the date of this prospectus pursuant to the
registration rights agreement of their intent to sell or
otherwise dispose of debentures and/or shares of common stock
issuable upon conversion of the debentures pursuant to the
registration statement,
(2) the principal amount of debentures and the number of shares of
our common stock issuable upon conversion of the debentures which
they may sell from time to time pursuant to the registration
statement, and
(3) the amount of outstanding debentures and our common stock
beneficially owned by the selling securityholder prior to the
offering, assuming no conversion of the debentures.
To our knowledge, 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 us or our affiliates, during the three years prior to
the date of this prospectus.
A selling securityholder may offer all or some portion of the debentures
and shares of the common stock issuable upon conversion of the debentures.
Accordingly, no estimate can be given as to the amount or percentage of
debentures or our 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 debentures since the date on which they provided the
information regarding their holdings in transactions exempt from the
registration requirements of the Securities Act.
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<PAGE>
The information contained under the column heading "Shares That May be
Sold" assumes conversion of full amount of the debentures held by the holder at
the initial rate of $92.38 in principal amount of the debentures per share of
the common stock.
<TABLE>
<CAPTION>
AMOUNT OF 5% SHARES OF
AMOUNT OF 5% DEBENTURES COMMON STOCK
DEBENTURES THAT OWNED BEFORE SHARES THAT MAY OWNED BEFORE
NAME MAY BE SOLD OFFERING BE SOLD OFFERING
------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
AIG/National Union Fire Insurance......... $ 600,000 600,000 6,494 20,055(1)
Argent Classic Convertible
Arbitrage Fund.......................... 3,000,000 3,000,000 32,474 0
Argent Convertible Arbitrage Fund Ltd..... 1,000,000 1,000,000 10,824 0
Aristeia International Ltd................ 5,000,000 5,000,000 54,124 0
Aristeia Trading, L.P..................... 3,000,000 3,000,000 32,474 0
Bank Austria Cayman Island, Ltd........... 1,500,000 1,500,000 16,237 0
Bear, Stearns & Co. Inc................... 3,500,000 3,500,000 37,886 64,064(2)
Black Diamond Offshore, Ltd. ............. 1,344,000 1,344,000 14,548 0
Chrysler Corporation Master
Retirement Trust........................ 3,385,000 3,385,000 36,642 0
CIBC World Markets........................ 8,000,000 8,000,000 86,598 0
Clinton Riverside Convertible Portfolio
Limited................................. 4,000,000 4,000,000 43,299 0
Credit Suisse First Boston
Corporation............................. 5,000,000 5,000,000 54,124 0
Deutsche Bank Securities.................. 184,025,000 184,025,000 1,992,043 0
Double Black Diamond
Offshore, LDC........................... 4,315,000 4,315,000 46,709 0
Goldman Sachs and Company................. 500,000 500,000 5,412 0
Grace Brothers, Ltd....................... 2,000,000 2,000,000 21,649 0
Highbridge International.................. 7,500,000 7,500,000 81,186 0
ICI American Holdings..................... 850,000 850,000 9,201 0
Island Holdings........................... 30,000 30,000 324 422(1)
JMG Capital Partners, L.P................. 2,750,000 2,750,000 29,768 0
KBC Financial Products.................... 3,500,000 3,500,000 37,886 0
LDG Limited............................... 425,000 425,000 4,600 27,916(1)(2)
Merrill Lynch, Pierce, Fenner and
Smith Inc............................... 2,250,000 2,250,000 24,355 21,973(2)
Motion Picture Industry Health
Plan - Active Member Fund............... 705,000 705,000 7,631 0
Motion Picture Industry Health
Plan - Retiree Member Fund.............. 355,000 355,000 3,842 0
Nalco Chemical Company.................... 225,000 225,000 2,435 7,607(2)
Nomura Securities
International Inc....................... 7,000,000 7,000,000 75,773 75,500
OCM Convertible Trust..................... 2,995,000 2,995,000 32,420 0
Partner Reinsurance Company Ltd........... 430,000 430,000 4,654 0
Q Investments, L.P........................ 3,000,000 3,000,000 32,474 24,024(2)
R2 Investments, LDC....................... 7,000,000 7,000,000 75,773 56,356(3)
Starvest Combined Portfolio............... 700,000 700,000 7,577 11,610(1)
State Employees' Retirement Fund
of the State of Delaware................ 3,070,000 3,070,000 33,232 0
State of Connecticut Combined
Investment Fund......................... 7,175,000 7,175,000 77,668 0
State of Oregon Equity.................... 5,100,000 5,100,000 55,206 0
TQA Master Plus Fund, Ltd................. 1,750,000 1,750,000 18,943 0
TQA Master Fund, Ltd...................... 1,750,000 1,750,000 18,943 0
Vanguard Convertible Securities
Fund, Inc............................... 6,730,000 6,730,000 72,851 0
White River Securities LLC................ 3,500,000 3,500,000 37,886 0
Worldwide Transactions, Ltd. ............. 341,000 341,000 3,691 2,642(2)
Zeneca Holdings Trust..................... 650,000 650,000 7,036 0
Unknown(4)................................ 160,050,000 160,050,000 1,732,517 --
</TABLE>
----------------
(1) Assumes conversion of the full amount of 6.25% convertible subordinated
debentures due 2005 held by the holder at the rate of $23.6845 in
principal amount of the debentures per share of the common stock.
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<PAGE>
(2) Assumes conversion of the full amount of 7% convertible subordinated
debentures due 2005 held by the holder at the rate of $62.4375 in principal
amount of the debentures per share of the common stock.
(3) Assumes conversion of $3,500,000 of 7% convertible subordinated
debentures due 2005 held by R2 Investments, LDC at the rate of $62.4375 in
principal amount of the debentures per share of the common stock.
(4) The name "Unknown" represents the remaining selling securityholders. We are
unable to provide the names of these securityholders because certain of
these debentures are currently evidenced by a global debenture which has
been deposited with DTC and registered in the name of Cede & Co. as
DTC's nominee.
If, after the date of this prospectus, a securityholder notifies us
pursuant to the registration rights agreement of its intent to dispose of
debentures pursuant to the registration statement, we may supplement this
prospectus to include that information.
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<PAGE>
PLAN OF DISTRIBUTION
We are registering the debentures and the shares of our common stock
issuable upon conversion of the debentures to permit public secondary trading of
these securities by the holders from time to time after the date of this
prospectus. We have agreed, among other things, to bear all expenses, other than
underwriting discounts and selling commissions, in connection with the
registration and sale of the debentures and the shares of our common stock
issuable upon conversion of the debentures covered by this prospectus.
We will not receive any of the proceeds from the offering of the debentures
or the shares of our common stock issuable upon conversion of the debentures by
the selling securityholders. The debentures and shares of common stock issuable
upon conversion of the debentures may be sold from time to time directly by any
selling securityholder or, alternatively, through underwriters, broker-dealers
or agents. If debentures or shares of common stock issuable upon conversion of
the debentures are sold through underwriters or broker-dealers, the selling
securityholder will be responsible for underwriting discounts or commissions or
agents' commissions.
The debentures or shares of common stock issuable upon conversion of the
debentures may be sold:
- in one or more transactions at fixed prices,
- at prevailing market prices at the time of sale,
- at varying prices determined at the time of sale or
- at negotiated prices.
Such sales may be effected in transactions, which may involve block trades
or transactions in which the broker acts as agent for the seller and the buyer:
- on any national securities exchange or quotation service on which the
debentures or shares of common stock issuable upon conversion of the
debentures may be listed or quoted at the time of sale,
- in the over-the-counter market,
- in transactions otherwise than on a national securities exchange or
quotation service or in the over-the-counter market or
- through the writing of options.
In connection with sales of the debentures or shares of common stock
issuable upon conversion of the 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 debentures or shares of common
stock issuable upon conversion of the debentures in the course of
hedging the positions they assume,
(2) sell short and deliver debentures or shares of common stock
issuable upon conversion of the debentures to close out the short
positions or
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<PAGE>
(3) loan or pledge debentures or shares of common stock issuable upon
conversion of the debentures to broker-dealers that in turn may
sell the securities.
The outstanding common stock is publicly traded on the Nasdaq National
Market. The initial purchasers of the debentures have advised us that certain
of the initial purchasers are making and currently intend to continue making
a market in the debentures; however, they are not obligated to do so and any
market-making of this type may be discontinued at any time without notice, in
the sole discretion of the initial purchasers. We do not intend to apply for
listing of the debentures on Nasdaq or any securities exchange. Accordingly,
we cannot assure that any trading market will develop or have any liquidity.
The selling securityholders and any broker-dealers, agents or underwriters
that participate with the selling securityholders in the distribution of the
debentures or the shares of common stock issuable upon conversion of the
debentures may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by these broker-dealers,
agents or underwriters and any profits realized by the selling securityholders
on the resales of the 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, Regulation S or any other available
exemption from registration under the Securities Act may be sold under Rule 144,
Rule 144A, Regulation S or any of the other available exemptions rather than
pursuant to this prospectus.
There is no assurance that any selling securityholder will sell any or all
of the debentures or shares of common stock issuable upon conversion of the
debentures described in this prospectus, and any selling securityholder may
transfer, devise or gift the securities by other means not described in this
prospectus.
We originally sold the debentures to the initial purchaser in February
2000 in a private placement. We agreed to indemnify and hold the initial
purchaser of the debentures harmless against certain liabilities under the
Securities Act that could arise in connection with the sale of the debentures
by their initial purchaser. The registration rights agreement provides for us
and the selling securityholders to indemnify each other against certain
liabilities arising under the Securities Act.
We agreed pursuant to the registration rights agreement to use our 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 of all the securities registered pursuant to the
registration rights agreement and
(2) the expiration of the holding period applicable to the securities
under Rule 144(k) under the Securities Act or any successor
provision.
The registration rights agreement provides that we may suspend the use of
this prospectus in connection with sales of debentures and shares of common
stock issuable upon conversion of the 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. We will bear the expenses of preparing and
filing the registration statement and all post-effective amendments.
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<PAGE>
LEGAL MATTERS
The validity of the debentures and the shares of common stock issuable upon
conversion of the 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 financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K/A for Sepracor Inc. for the year ended December
31, 1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, except as it relates to
BioSphere Medical, Inc., for which it references the report of Arthur
Andersen, LLP, independent accountants, given on the authority of said firms
as experts in auditing and accounting.
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.
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 debentures and shares of our
common stock described in this prospectus. This prospectus is part of that
registration statement, and provides you with a general description of the
debentures and shares of 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 debentures and the shares of 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, 1999,
filed with the Commission on March 30, 2000 (file number
000-19410)
(2) Annual Report on Form 10-K/A for the year ended December 31,
1999 filed with the Commission on April 18, 2000 (file
number 000-19410)
(3) Current Report on Form 8-K dated January 26, 2000
(4) Current Report on Form 8-K dated February 14, 2000
(5) Current Report on Form 8-K dated February 22, 2000
(6) Current Report on Form 8-K dated March 16, 2000
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<PAGE>
(7) Current Report on Form 8-K dated April 20, 2000, file number
000-19410;
(8) Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, file number 000-19410; and
(9) The description of the common stock contained in our registration
statement on Form 8-A dated July 16, 1991, file number 000-19410,
registering our 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 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 forward looking statements.
Factors which could cause actual results to differ from expectations include
those set forth under "Risk Factors."
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