The information in this pricing supplement is not complete and may be changed.
We may not deliver these securities until a final pricing supplement is
delivered. This pricing supplement and the accompanying prospectus and
prospectus supplement do not constitute an offer to sell these securities and
we are not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Subject to Completion, Pricing Supplement dated September 20, 2000
PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 37 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated , 2000
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------------------
Convertible Note PERQS due October 31, 2001
Mandatorily Exchangeable For
7% Convertible Subordinated Notes due 2005
of SEPRACOR INC.
Performance Equity-linked Redemption Quarterly-pay Securities(sm) ("PERQS(sm)")
-----------------------
The Convertible Note PERQS will pay interest, computed as described below, but
do not guarantee any return of principal at maturity. Instead the Convertible
Note PERQS will pay at maturity a number of 7% Convertible Subordinated Notes
due 2005 of Sepracor Inc. based on the market price on the determination date
(which we expect to be October 26, 2001) of Sepracor common stock, into which
the Sepracor Notes are convertible, subject to a cap price.
o The issue price of each Convertible Note PERQS is $ , which
represents the value of one-half of a Sepracor Note based on the last
offer price for the Sepracor Notes, as determined on the day we offer
the Convertible Note PERQS for initial sale to the public, plus
accrued but unpaid interest on the Sepracor Notes to but not
including the issue date of the Convertible Note PERQS. The principal
amount of each Convertible Note PERQS is $1,000.
o We will pay interest on each Convertible Note PERQS. The interest
payable on the Convertible Note PERQS consists of two components.
o We will pay to the holder of each Convertible Note PERQS a
supplemental coupon at the rate of 10% per annum on the
principal amount of each Convertible Note PERQS, which will
result in supplemental coupon payments of $ per year for each
Convertible Note PERQS. Supplemental coupon payments will be
paid quarterly, beginning January 31, 2001.
o On December 30, 2000 and June 30, 2001, we will also pay to the
holder of each Convertible Note PERQS an underlying coupon equal
to one-half the amount of interest, if any, paid semi-annually
by Sepracor on one Sepracor Note since the preceding interest
payment date on which an underlying coupon was paid (or the
original issue date, as applicable) for the Convertible Note
PERQS. If Sepracor fails to pay interest on the Sepracor Notes,
we will discontinue payments of the underlying coupon and may at
our option accelerate the Convertible Note PERQS. We will resume
payments of the underlying coupon if, when and to the extent
that Sepracor cures its payment default on the Sepracor Notes
prior to the maturity or acceleration of the Convertible Note
PERQS.
o At maturity you will receive Sepracor Notes in exchange for each
Convertible Note PERQS at an exchange ratio. The initial exchange
ratio is one-half of a Sepracor Note per Convertible Note PERQS.
However, if, as of the determination date, the value of the number of
shares of Sepracor common stock into which one Sepracor Note is
convertible appreciates above % of the current value of those
shares, the exchange ratio will be adjusted downward, and you will
receive less than one-half of a Sepracor Note per Convertible Note
PERQS.
o Sepracor is not involved in this offering of Convertible Note PERQS
in any way and will have no financial obligation with respect to the
Convertible Note PERQS.
o Investing in Convertible Note PERQS is not equivalent to investing in
Sepracor Notes or Sepracor common stock.
o Application will be made to list the Convertible Note PERQS on the
American Stock Exchange LLC under the symbol "NPS," subject to
meeting its listing requirements.
You should read the more detailed description of the Convertible Note PERQS in
this pricing supplement. In particular, you should review and understand the
descriptions in "Summary of Pricing Supplement" and "Description of Convertible
Note PERQS." "Performance Equity-linked Redemption Quarterly-pay Securities"
and "PERQS" are our service marks.
The Convertible Note PERQS are riskier than ordinary debt securities.
See "Risk Factors" beginning on PS-6.
-----------------------
PRICE $ PER CONVERTIBLE NOTE PERQS
-----------------------
Price to Agent's Proceeds
Public1 Commissions to MSDW1
-------- ----------- --------
Per Convertible Note PERQS ........$ $ $
Total..............................$ $ $
1Plus accrued interest, if any, from the Original Issue Date.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Convertible Note PERQS we are offering
you in general terms only. You should read the summary together with the more
detailed information that is contained in the rest of this pricing supplement
and in the accompanying prospectus and prospectus supplement. You should
carefully consider, among other things, the matters set forth in "Risk
Factors."
Overview of the Convertible Note PERQS
The Convertible Note PERQS are medium-term debt securities of Morgan
Stanley Dean Witter & Co. mandatorily exchangeable for 7% Convertible
Subordinated Notes due 2005 of Sepracor Inc., which we refer to in this pricing
supplement as the Sepracor Notes. Sepracor Notes are subordinated, unsecured
obligations of Sepracor Inc. and are rated CCC+ by Standard & Poor's Rating
Services, a division of The McGraw Hill Companies, Inc. The number of Sepracor
Notes you will receive for each Convertible Note PERQS will depend in part on
the performance of the common stock, $.10 par value per share, of Sepracor
Inc., which we refer to in this pricing supplement as Sepracor Stock. If the
value of the number of shares of Sepracor Stock into which one Sepracor Note is
convertible, which we refer to as Parity, appreciates to more than % of its
current level, you will receive less than one-half of one Sepracor Note for
each Convertible Note PERQS you hold at maturity. In this pricing supplement,
"one Sepracor Note" means each $1,000 principal amount of the Sepracor Notes,
and "one Convertible Note PERQS" means each $1,000 principal amount of the
Convertible Note PERQS we are offering to you.
Each Convertible Note We, Morgan Stanley Dean Witter & Co.,
PERQS costs $ are offering Mandatorily Exchangeable
Notes due October 31, 2001, which we refer to
as the Convertible Note PERQS. The issue
price of each Convertible Note PERQS is $ ,
which represents the value of one-half of a
Sepracor Note based on the last offer price
for the Sepracor Notes, as determined on the
day we offer the Convertible Note PERQS for
initial sale to the public, plus accrued but
unpaid interest on the Sepracor Notes to but
not including the issue date of the
Convertible Note PERQS.
No guaranteed return Unlike ordinary debt securities, the
of principal Convertible Note PERQS do not guarantee any
return of principal at maturity. Instead the
Convertible Note PERQS are mandatorily
exchangeable for Sepracor Notes at an
exchange ratio that will be adjusted downward
if the aggregate market price of the number
of shares of Sepracor Stock into which one
Sepracor Note is convertible appreciates to
more than % of its current level, which we
refer to as the maximum parity amount.
Investing in the Convertible Note PERQS is
not equivalent to investing in Sepracor Notes
or in Sepracor Stock.
Interest on the Convertible We will pay interest on the Convertible
Note PERQS Note PERQS. The interest payable on the
Convertible Note PERQS consists of two
components.
o We will pay to the holder of each
Convertible Note PERQS a supplemental
coupon at the rate of 10% per annum on
the principal amount of each Convertible
Note PERQS, which will result in
supplemental coupon payments of $ per
year for each Convertible Note PERQS.
Supplemental coupon payments will be
paid quarterly, beginning January 31,
2001.
o On December 30, 2000 and June 30, 2001,
we will also pay to the holder of each
Convertible Note PERQS an underlying
coupon equal to the amount of interest,
if any, paid semi-annually by Sepracor
on one Sepracor Note since the preceding
interest payment date for the
Convertible Note PERQS on which an
underlying coupon was paid (or since the
original issue date, as applicable)
multiplied by the exchange ratio. If
Sepracor fails to pay interest on the
Sepracor Notes, we will discontinue
payments of the underlying coupon and
PS-3
<PAGE>
may at our option accelerate the
Convertible Note PERQS. We will resume
payments of the underlying coupon if,
when and to the extent that Sepracor
cures its payment default on the
Sepracor Notes prior to the maturity or
acceleration of the Convertible Note
PERQS. For additional information about
the acceleration of the Convertible Note
PERQS if there is an event of default
with respect to the Sepracor Notes, see
"Description of Convertible Note
PERQS--Certain Events Affecting the
Sepracor Notes."
Payment at Maturity
Your appreciation At maturity, for each Convertible Note PERQS
potential is capped you hold, we will deliver to you a number of
Sepracor Notes equal to the exchange ratio.
The value of the exchange ratio will depend
on whether final parity is greater than the
maximum parity amount. Parity at any date is
the aggregate market price of the number of
shares of Sepracor Stock into which one
Sepracor Note would be convertible on such
date. The maximum parity amount is $ ,
which is % of the aggregate value of the
number of shares of Sepracor Stock into which
one Sepracor Convertible Note PERQS was
convertible on the day we priced the
Convertible Note PERQS we are offering to
you.
o If final parity is less than or equal to
the maximum parity amount, the exchange
ratio will equal 0.5.
o If final parity is greater than the
maximum parity amount, the exchange
ratio will equal 0.5 minus the parity
excess fraction.
The parity excess fraction is a fraction
equal to:
final parity minus the maximum parity amount
-------------------------------------------- x 0.5
final note price
We will determine final parity based on the
market price of Sepracor Stock on the
determination date, which we expect will be
October 26, 2001, subject to certain market
disruption events. See "Description of
Convertible Note PERQS--Determination Date."
The final note price will be the highest bid
price for Sepracor Notes on the determination
date, subject to availability of a sufficient
number of bids on that date. See "Description
of Convertible Note PERQS--Final Note Price."
Sepracor Stock is currently Sepracor Stock is currently listed on the
$ per share NASDAQ National Market. As of the day we
priced the Convertible Note PERQS, the market
price of Sepracor Stock was $ and the last
offer price of the Sepracor Notes was $ .
You can review the historical prices of
Sepracor Stock and the Sepracor Notes in the
"Description of Convertible Note
PERQS--Historical Information" section of
this pricing supplement.
Sepracor Notes are not listed Sepracor Notes are not listed or traded on an
on an exchange organized securities exchange. Accordingly,
there are no published prices at which the
Sepracor Notes that you will receive at
maturity of the Convertible Notes PERQS may
be sold. We cannot assure you that there will
be any market for the Sepracor Notes.
PS-4
<PAGE>
The Calculation Agent We have appointed Morgan Stanley & Co.
Incorporated ("MS & Co.") to act as
calculation agent for The Chase Manhattan
Bank, the trustee for the Convertible Note
PERQS. As calculation agent, MS & Co. will
determine the market price of the Sepracor
Stock, the prices of the Sepracor Notes and
the number of Sepracor Notes that you receive
at maturity.
No Affiliation with Sepracor Inc. is not an affiliate of ours and
Sepracor Inc. is not involved with this offering in any way.
The obligations represented by the
Convertible Note PERQS are obligations of
Morgan Stanley Dean Witter & Co. and not of
Sepracor Inc. At maturity you will receive
Sepracor Notes in exchange for our
Convertible Notes PERQS. The Sepracor Notes
are rated CCC+ by Standard & Poor's Rating
Services, which is lower than the rating
assigned to our senior debt by that service.
More information on The Convertible Note PERQS are senior notes
the Convertible Note issued as part of our Series C medium-term
PERQS note program. You can find a general
description of our Series C medium-term note
program in the accompanying prospectus
supplement dated May 18, 2000. We describe
the basic features of this type of note in
the sections called "Description of
Notes--Fixed Rate Notes" and "--Exchangeable
Notes."
For a detailed description of the terms of
the Convertible Note PERQS including the
specific mechanics and timing of the payment
determinations, you should read the
"Description of Convertible Note PERQS"
section in this pricing supplement. You
should also read about some of the risks
involved in investing in Convertible Note
PERQS in the section called "Risk Factors."
The tax and accounting treatment of
investments in equity-linked notes such as
the Convertible Note PERQS may differ from
that of investments in ordinary debt
securities, convertible debt or common stock.
We urge you to consult with your investment,
legal, tax, accounting and other advisers
with regards to any proposed or actual
investment in the Convertible Note PERQS and
confirm that such an investment meets your
particular investment requirements.
More information on You can obtain information about Sepracor
Sepracor Inc., the Sepracor Inc., the Sepracor Notes and Sepracor Stock
Notes and Sepracor Stock from the sources listed under "Description of
Convertible Note PERQS--Public Information
Regarding Sepracor, the Sepracor Notes and
Sepracor Stock," including the Securities and
Exchange Commission (the "SEC"). In
particular, you should read the descriptions
of the Sepracor Notes and Sepracor Stock
contained in Sepracor Inc.'s SEC filings.
How to reach us Please contact our principal executive offices
at 1585 Broadway, New York, New York 10036,
telephone number (212) 761-4000.
PS-5
<PAGE>
RISK FACTORS
The Convertible Note PERQS are not secured debt and are riskier than
ordinary debt securities. Because they are exchangeable at maturity for
Sepracor Notes, there is no guaranteed return of principal. If the value of
Sepracor Notes decreases from the date we offer the Convertible Note PERQS for
initial sale to the public, investors may lose money on their investment. The
Convertible Note PERQS are not equivalent to investing directly in Sepracor
Stock or the Sepracor Notes. Among other differences, investors in the
Convertible Note PERQS will not receive any dividends paid on Sepracor Stock
and investors in the Convertible Note PERQS may receive less than one-half of a
Sepracor Note in exchange for each Convertible Note PERQS at maturity. This
section describes the most significant risks relating to the Convertible Note
PERQS. You should carefully consider whether the Convertible Note PERQS are
suited to your particular circumstances before you decide to purchase them.
The Convertible Note The Convertible Note PERQS combine features
PERQS are not Ordinary of equity and debt instruments. Because the
Senior Notes -- You May prices of the Sepracor Notes and the Sepracor
Lose Money Stock into which the Sepracor Notes are
convertible are each subject to market
fluctuations, the value of the Sepracor Notes
you receive upon exchange at maturity may be
less than the issue price of the Convertible
Note PERQS. An investment in the Convertible
Note PERQS may result in an investment loss
if the sum of (i) the total interest payments
on a Convertible Note PERQS and (ii) the
value of the Sepracor Notes delivered in
exchange for a Convertible Note PERQS is less
than the issue price of the Convertible Note
PERQS.
Sepracor Credit Risk Because our payment of the underlying coupon
on the Convertible Note PERQS is contingent
on Sepracor's payment of interest on the
Sepracor Notes, you will take credit risk
with respect to Sepracor on those interest
payments, as well as on the Sepracor Notes
that you will receive upon exchange at
maturity. In addition, if we become aware of
an event of default with respect to the
Sepracor Notes, we will have the right to
accelerate the Convertible Note PERQS, in
which case we will distribute to you Sepracor
Notes at the exchange ratio plus (a) any
amount paid to holders of Sepracor Notes by
Sepracor at the exchange ratio and any
accrued and unpaid supplemental coupon and
(b) the present value of any future
supplemental coupons. The Sepracor Notes are
rated CCC+ by Standard & Poor's Rating
Services.
Secondary Trading There may be little or no secondary market
May be Limited for the Convertible Note PERQS. Although we
will apply to list the Convertible Note PERQS
on the American Stock Exchange LLC, which we
refer to as the AMEX, we may not meet the
requirements for listing. Even if there is a
secondary market, it may not provide
significant liquidity. MS & Co. currently
intends to act as a market maker for
Convertible Note PERQS but is not required to
do so.
Market Price of the Several factors, many of which are beyond our
Convertible Note PERQS control, will influence the value of the
Influenced Convertible Note PERQS. We expect that
by Many Unpredictable generally the market price of the Sepracor
Factors Notes on any day will affect the value of the
Convertible Note PERQS more than any other
single factor. Other factors that may
influence the value of the Convertible Note
PERQS include:
o the market price of Sepracor Stock
o the creditworthiness of Sepracor
o the volatility (frequency and magnitude
of changes in price) of the Sepracor
Stock
o the dividend rate on Sepracor Stock
PS-6
<PAGE>
o economic, financial, regulatory and
political events that affect stock
markets generally and which may affect
the market price of the Sepracor Notes
and Sepracor Stock
o interest and yield rates in the market
o the time remaining to the maturity of
the Convertible Note PERQS
o our creditworthiness
Some or all of these factors will influence
the price you receive if you sell your
Convertible Note PERQS prior to maturity. For
example, you may have to sell your
Convertible Note PERQS at a substantial
discount from their issue price if the market
value of the Sepracor Notes is at or below
their initial market value.
You cannot predict the future performance of
the Sepracor Notes or Sepracor Stock based on
their historical performance. The price of
the Sepracor Notes may decrease so that you
will receive at maturity Sepracor Notes worth
less than the issue price of the Convertible
Note PERQS. We cannot guarantee that the
price of the Sepracor Notes will increase so
that you will receive at maturity Sepracor
Notes worth more than the issue price of the
Convertible Note PERQS or that parity will
not increase above the maximum parity amount.
If final parity is more than the maximum
parity amount, the exchange ratio will be
adjusted downward so that you will receive
less than one-half of a Sepracor Note for
each Convertible Note PERQS exchanged at
maturity.
Anti-dilution Adjustments The adjustments, if any, for corporate events
may be Incomplete or may affect Sepracor or the market price of the
Commercially Unreasonable Sepracor Stock (such as stock splits,
extraordinary dividends, tender offers and
mergers) are contained in the Sepracor Notes.
No such adjustments are contained in the
Convertible Note PERQS. We bear no
responsibility for the provisions for such
corporate events, even if those provisions
are incomplete in any material respect or
produce a commercially unreasonable result.
If, as a result of a merger or other
corporate event affecting Sepracor, the
Sepracor Notes become convertible into cash
or other property other than equity
securities (either entirely or above a
specified minimum level), we will accelerate
the Convertible Note PERQS, in which case we
will distribute to you only Sepracor Notes at
the exchange ratio and any accrued and unpaid
supplemental coupon. Upon an acceleration in
these circumstances, we will not pay to you
the present value of any future supplemental
coupons.
No Affiliation with We are not affiliated with Sepracor. Although
Sepracor Inc. we do not have any non-public information
about Sepracor as of the date of this pricing
supplement, we or our subsidiaries may
presently or from time to time engage in
business with Sepracor, including extending
loans to, or making equity investments in,
Sepracor or providing advisory services to
Sepracor, including merger and acquisition
advisory services. Moreover, we have no
ability to control or predict any actions of
Sepracor, including any corporate actions of
the type that would require the calculation
agent to adjust the exchange ratio at
maturity. Sepracor is not involved in the
offering of the Convertible Note PERQS in any
way and has no obligation to consider your
interest as a holder of Convertible Note
PERQS in taking any corporate actions that
might affect the value of your Convertible
Note PERQS. None of the money you pay for the
Convertible Note PERQS will go to Sepracor.
PS-7
<PAGE>
You Have No Rights as a As a holder of the Convertible Note PERQS,
Shareholder or Noteholder you will not be entitled to any rights with
of Sepracor respect to Sepracor Notes or Sepracor Stock
(including, without limitation, voting
rights, the rights to receive any dividends
or other distributions (other than interest
actually paid on the Sepracor Notes, to the
extent described herein) and the right to
tender or exchange Sepracor Stock or the
Sepracor Notes in any tender or exchange
offer by Sepracor or any third party) until
such time as we deliver the Sepracor Notes to
you at maturity or, thereafter, Sepracor
delivers Sepracor Stock to you upon
conversion of your Sepracor Notes. As a
holder of the Convertible Note PERQS, you
will not have the right to respond to any
consent solicitation made to holders of the
Sepracor Notes. Any such consent
solicitation, whether or not made in
connection with a tender or exchange offer,
may result in amendments to the indenture for
the Sepracor Notes. Such amendments could
adversely affect the rights of the holders of
Sepracor Notes and the market price of the
Sepracor Notes. For example, a consent
solicitation made in connection with an
exchange offer for the Sepracor Notes could
cause the holders of the Sepracor Notes to
lose the protection of many of the covenants
of Sepracor under the indenture for the
Sepracor Notes. Holding the Convertible Note
PERQS is not the same as owning the
underlying Sepracor Notes.
We May Exercise Rights as If we, or any of our affiliates, hold
a Holder of Sepracor Notes Sepracor Notes, including as a result of
hedging activities in connection with the
Convertible Note PERQS, we will have
the right, but not the obligation, to
exercise or to refrain from exercising our
rights as a noteholder, including, without
limitation, rights to tender or exchange
Sepracor Notes in any tender or exchange
offer and to respond to any consent
solicitation issued to holders of the
Sepracor Notes. Any exercise of our rights as
the holder of Sepracor Notes, or our
refraining from any such exercise, could
affect your rights as a holder of the
Sepracor Notes you will receive upon exchange
of the Convertible Note PERQS at maturity.
Potential Conflicts of As calculation agent, MS & Co. will calculate
Interest between You and the exchange ratio at maturity of the
the Calculation Agent Convertible Note PERQS. MS & Co. and other
affiliates may carry out hedging activities
related to Convertible Note PERQS, including
trading in Sepracor Stock or Sepracor Notes
as well as in other instruments related to
Sepracor Stock and Sepracor Notes. MS & Co.
and some of our other subsidiaries also trade
Sepracor Stock and the Sepracor Notes and
other financial instruments related to
Sepracor Stock and Sepracor Notes on a
regular basis as part of their general broker
dealer businesses. Any of these activities
could affect your payout on the Convertible
Note PERQS.
Convertible Note PERQS These Convertible Note PERQS are exchangeable
are not convertible into the exclusively into the Sepracor Notes at
common stock or the maturity.
convertible notes of Morgan
Stanley Dean Witter & Co.
Tax Treatment You should also consider the tax consequences
of investing in the Convertible Note PERQS.
There is no direct legal authority as to the
proper tax treatment of the Convertible Note
PERQS, and therefore significant aspects of
the tax treatment of the Convertible Note
PERQS are uncertain. We do not plan to
request a ruling from the Internal Revenue
Service ("IRS") regarding the tax treatment
of the Convertible Note PERQS, and the IRS or
a court may not agree with the tax treatment
described in this pricing supplement. Please
read carefully the section "Description of
Convertible Note PERQS--United States Federal
Income Taxation" in this pricing supplement.
PS-8
<PAGE>
DESCRIPTION OF CONVERTIBLE NOTE PERQS
Capitalized terms not defined herein have the meanings given to such terms
in the accompanying prospectus supplement. The term "Convertible Note PERQS"
refers to the $ aggregate principal amount of our Convertible Note PERQS due
October 31, 2001, Mandatorily Exchangeable for 7% Convertible Subordinated
Notes due 2005 of Sepracor Inc. The term "one Convertible Note PERQS" means
each $1,000 principal amount of the Convertible Note PERQS, and the term "one
Sepracor Note" means each $1,000 principal amount of the Sepracor Notes. In
this pricing supplement, "MSDW," "we," "us" and "our" refer to Morgan Stanley
Dean Witter & Co.
Principal Amount............... $1,000
Maturity Date.................. October 31, 2001; provided that if on the
Determination Date Final Parity is greater
than the Maximum Parity Amount and the Final
Note Price is not determined on the
Determination Date, as provided under
"--Final Note Price" below, the Maturity Date
shall be the second Trading Day following the
day on which the Calculation Agent determines
the Final Note Price.
Interest Payments.............. We will pay to the holder of each Convertible
Note PERQS (i) a Supplemental Coupon at the
rate of 10% per annum on the Principal Amount
of the Convertible Note PERQS on each
Interest Payment Date for the Supplemental
Coupons, which will result in Supplemental
Coupon payments of $ per year for each
Convertible Note PERQS and (ii) on each
Interest Payment Date for the Underlying
Coupon, an Underlying Coupon equal to the
amount of interest, if any, paid by Sepracor
on one Sepracor Note since the preceding
Interest Payment Date on which an Underlying
Coupon was paid (or since the Original Issue
Date, as applicable) multiplied by the
exchange ratio (subject to the terms
described under "Discontinuance of Underlying
Coupon Payments" below).
Interest Payment Dates for the
Supplemental Coupon.......... Each January 31, April 30, July 31 and
October 31, beginning January 31, 2001.
Interest Payment Dates for the
Underlying Coupon............ December 30, 2000 and June 30, 2001.
Specified Currency............. U.S. dollars
Issue Price.................... $ per Convertible Note PERQS, which
equals one-half of the last offer price for
the Sepracor Notes on the Pricing Date plus
accrued but unpaid interest on Sepracor Notes
to but not including the Original Issue Date.
Initial Sepracor Note Price.... $
Original Issue Date
(Settlement Date)............ September , 2000
Pricing Date................... September , 2000
CUSIP.......................... 61744Y736
Denominations.................. $1,000 and integral multiples thereof
PS-9
<PAGE>
Sepracor Notes................. 7% Convertible Subordinated Notes due 2005 of
Sepracor Inc., or any successor security
(CUSIP 817315AH7). The Sepracor Notes are
convertible into Sepracor Stock.
Sepracor Stock................. The common stock, par value $0.10 per share,
of Sepracor Inc., a Delaware corporation, or
any successor entity ("Sepracor").
Exchange at Maturity........... At maturity, upon delivery of each
Convertible Note PERQS to the Trustee, we
will, with respect to the principal amount of
each Convertible Note PERQS, deliver a number
of Sepracor Notes equal to the Exchange
Ratio.
Exchange Ratio................. If Final Parity is less than or equal to the
Maximum Parity Amount, the Exchange Ratio
will be 0.5. If Final Parity is greater than
the Maximum Parity Amount, the Exchange Ratio
will be 0.5 minus the Parity Excess Fraction.
Final Parity................... Parity on the Determination Date
Parity......................... Parity on any date means the aggregate Market
Price of the number of shares of Sepracor
Stock into which one Sepracor Note would be
convertible on such date, as determined by
the Calculation Agent.
Maximum Parity Amount.......... $ , equal to % of Initial Parity
Initial Parity................. $ , which is Parity on the Pricing
Date, as determined by the Calculation Agent
Parity Excess Fraction......... The Parity Excess Fraction is equal to 0.5
times a fraction, the numerator of which will
be Final Parity minus the Maximum Parity
Amount and the denominator of which will be
the Final Note Price.
Final Note Price............... The Final Note Price will be the highest bid
price for Sepracor Notes, plus accrued but
unpaid interest, obtained from as many
dealers or other institutional purchasers in
the Sepracor Notes (which may include MS &
Co. or any of our other subsidiaries or
affiliates), but not exceeding three, as will
make such bid prices available to the
Calculation Agent on the Determination Date;
provided that such bid prices shall be for a
number of Sepracor Notes, as determined by
the Calculation Agent, approximately equal in
value to the Parity Excess Fraction
multiplied by the aggregate principal amount
of Convertible Note PERQS then outstanding;
provided further that if the Calculation
Agent is unable to obtain at least two such
bid prices on the Determination Date, the
Final Note Price will be determined on the
next succeeding Trading Day on which the
Calculation Agent is able to obtain at least
two such bid prices; provided further that if
the Calculation Agent has not been able to
obtain two such bid prices by the fifth
Trading Day following the Determination Date,
then the Calculation Agent will determine the
Final Note Price on such day in good faith
using its reasonable judgment.
Determination Date............. October 26, 2001, or if such day is not a
Trading Day or if there is a Market
Disruption Event on such day, the
Determination Date
PS-10
<PAGE>
will be the immediately succeeding Trading
Day during which no Market Disruption Event
shall have occurred; provided that the
Determination Date will be no later than the
second scheduled Trading Day preceding the
scheduled Maturity Date, notwithstanding the
occurrence of a Market Disruption Event on
such second scheduled Trading Day. See also
"-Final Parity" above.
Market Price................... If Sepracor Stock (or any other security for
which a Market Price must be determined) is
listed on a national securities exchange, is
a security of the Nasdaq National Market or
is included in the OTC Bulletin Board Service
(the "OTC Bulletin Board") operated by the
National Association of Securities Dealers,
Inc. (the "NASD"), the Market Price for one
share of Sepracor Stock (or one unit of any
such other security) on any Trading Day means
(i) the last reported sale price, regular
way, of the principal trading session on such
day on the principal United States securities
exchange registered under the Securities
Exchange Act of 1934, as amended (the
"Exchange Act"), on which Sepracor Stock (or
such other security) is listed or admitted to
trading or (ii) if not listed or admitted to
trading on any such securities exchange or if
such last reported sale price is not
obtainable (even if Sepracor Stock (or such
other security) is listed or admitted to
trading on such securities exchange), the
last reported sale price of the principal
trading session on the over-the-counter
market as reported on the Nasdaq National
Market or OTC Bulletin Board on such day. If
the last reported sale price is not available
pursuant to clause (i) or (ii) of the
preceding sentence because of a Market
Disruption Event or otherwise, the Market
Price for any Trading Day will be the mean,
as determined by the Calculation Agent, of
the bid prices for Sepracor Stock (or any
such other security) obtained from as many
dealers in such security (which may include
MS & Co. or any of its affiliates), but not
exceeding three, as will make such bid prices
available to the Calculation Agent. The term
"securities traded on the Nasdaq National
Market" will include a security included in
any successor to such system and the term
"OTC Bulletin Board Service" will include any
successor service thereto.
Trading Day.................... A day on which trading is generally conducted
on the New York Stock Exchange ("NYSE"), the
AMEX, the Nasdaq National Market, the Chicago
Mercantile Exchange and the Chicago Board of
Options Exchange and in the over-the-counter
market for equity securities in the United
States, as determined by the Calculation
Agent.
Business Day................... Any day other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which
banking institutions are authorized or
required by law or regulation to close in The
City of New York.
Optional Redemption............ We will not redeem the Convertible Note PERQS
prior to the Maturity Date, and the
Convertible Note PERQS will not be
exchangeable by you prior to the Maturity
Date.
Discontinuance of Underlying
Coupon Payments.............. If there is a default by Sepracor with
respect to the payment of
PS-11
<PAGE>
interest on the Sepracor Notes, we will
discontinue payments of the Underlying Coupon
on the Convertible Note PERQS and we will
have the right to accelerate the maturity of
the Convertible Note PERQS, as described
under "--Certain Events Affecting the
Sepracor Notes." If we do not accelerate the
maturity of the Convertible Note PERQS, we
will resume payments of the Underlying Coupon
if, when and to the extent that such default
is cured by Sepracor prior to the earlier of
the Determination Date and the Early
Determination Date (as defined under "Certain
Events Affecting the Sepracor Notes" below).
Upon a cure by Sepracor of any such default,
we will promptly, but in no event later than
two Business Days following the date on which
holders of the Sepracor Notes receive a
payment of delinquent interest with respect
to the Sepracor Notes, pay to each holder an
amount per Convertible Note PERQS equal to
the amount of delinquent interest paid by
Sepracor to the holders of a Sepracor Note
multiplied by the Exchange Ratio. Payment of
the Underlying Coupon on the Convertible Note
PERQS will thereafter be paid on the next
applicable succeeding Interest Payment Date,
as described under "--Interest Payments"
above, subject to the conditions set forth in
this paragraph.
A discontinuance of payments of the
Underlying Coupon, whether or not resumed,
pursuant to the immediately preceding
paragraph will not constitute a default under
the Senior Debt Indenture for the Convertible
Note PERQS.
We will, or will cause the Calculation Agent
to, provide written notice to the Trustee at
its New York office, on which notice the
Trustee can conclusively rely, and to the
holders (i) no later than 10:00 a.m. on the
Business Day next succeeding an interest
payment date for the Sepracor Notes of any
default by Sepracor in the payment of
interest on the Sepracor Notes and (ii) no
later than 10:00 a.m. on the Business Day
next succeeding any payment of interest on
the Sepracor Notes by Sepracor to cure any
such default of the amount of interest to be
delivered per Convertible Note PERQS.
Certain Events Affecting
the Sepracor Notes............. Events of Default
If, on any date prior to the Maturity Date,
we become aware of an event of default with
respect to the Sepracor Notes (such date, the
"Default Notice Date"), we will have the
right, but not the obligation on the Default
Notice Date and on any succeeding Trading Day
(to and including the scheduled Trading Day
immediately preceding the Determination Date)
on which such event of default is continuing,
to (i) deliver to the Trustee and the holders
of the Convertible Note PERQS notice of such
event of default (such date, the
"Acceleration Notice Date") and (ii)
accelerate the maturity of the Convertible
Note PERQS and distribute, in exchange for
each Convertible Note PERQS, Sepracor Notes
at the Exchange Ratio, calculated as if the
Acceleration Notice Date were the
Determination Date (the "Early Determination
Date"), plus (a) any accrued and unpaid
PS-12
<PAGE>
Supplemental Coupons to such Early
Determination Date and (b) the present value
of any future Supplemental Coupons calculated
based on the interpolated U.S. dollar zero
swap rate, as determined by the Calculation
Agent (such distribution, an "Early
Distribution"); provided that if the
Acceleration Notice Date is not a Trading Day
or if there is a Market Disruption Event on
such date, the Early Determination Date will
be the next succeeding Trading Day during
which no Market Disruption Event shall have
occurred; provided further that if it is
necessary to determine a Final Note Price and
two bid prices (as described under "--Final
Note Price") are not available on such day,
the Calculation Agent will determine the
Final Note Price in good faith using its
reasonable judgment. We will make any such
Early Distribution on the second Business Day
next succeeding the Early Determination Date
(the "Early Distribution Date"). If the Early
Distribution Date falls after a record date
for the payment of interest on the Sepracor
Notes and prior to the immediately succeeding
interest payment date, we will not pay any
accrued but unpaid Underlying Coupon on the
Early Distribution Date; provided that we
will deliver, with the Sepracor Notes
delivered on the Early Distribution Date,
due-bills or other instruments with respect
to such Sepracor Notes evidencing the
transfer of title to any such interest
payments.
We will, or will cause the Calculation Agent
to (i) provide written notice to the Trustee
at its New York office, on which notice the
Trustee can conclusively rely, and to the
holders of the Convertible Note PERQS on or
prior to 10:30 a.m. on the Business Day
immediately preceding the Early Distribution
Date (A) of the number of Sepracor Notes (and
the amount of any cash) to be delivered per
Convertible Note PERQS and (B) that such
distribution is pursuant to a decision to
accelerate the Convertible Note PERQS as a
result of an event of default with respect to
the Sepracor Notes and (ii) deliver on the
Early Distribution Date the Early
Distribution to the Trustee for delivery to
the holders against delivery of the
Convertible Note PERQS to the Trustee.
If a "Fundamental Change," as described
below, occurs as a result of a liquidation or
other similar event that also constitutes an
event of default, any acceleration of the
Convertible Note PERQS will be made in
accordance with the procedures described
above, rather than in accordance with
procedures related to mergers or other
corporate events described below.
Mergers or Other Corporate Events
If, as a result of a merger or other
corporate event affecting Sepracor, the
Sepracor Notes become convertible solely into
equity securities other than Sepracor Stock,
Parity will be determined, and the Exchange
Ratio will be calculated, by reference to the
Market Price of such other equity securities
(unless such merger or other event
constitutes a Fundamental Change, as defined
below). The terms of the Convertible Note
PERQS will not otherwise change.
PS-13
<PAGE>
If, as the result of such an event, the
Sepracor Notes become convertible into (i)
equity securities other than Sepracor Stock
and (ii) cash or other property other than
equity securities ("Other Merger
Consideration"), then the Calculation Agent
will determine the total value (the "Merger
Consideration Value") of such equity
securities and such Other Merger
Consideration on the date holders of Sepracor
Stock receive such merger consideration (the
"Merger Valuation Date"); provided that if
such day is not a Trading Day, the Merger
Valuation Date will be the next succeeding
Trading Day. The Calculation Agent will make
such determination by reference to (a) the
Market Price of such securities, (b) the
amount of such cash and (c) the fair market
value, as determined by the Calculation
Agent, of any such other property.
If the value of the Other Merger
Consideration on the Merger Valuation Date is
less than or equal to 1% of the Merger
Consideration Value, Parity will be
determined, and the Exchange Ratio will be
calculated, by reference to the Market Price
of such equity securities and the value of
the Other Merger Consideration (unless such
merger or other event constitutes a
Fundamental Change, as defined below). The
terms of the Convertible Note PERQS will not
otherwise change.
If (i) the value of the Other Merger
Consideration on the Merger Valuation Date is
greater than 1% of the Merger Consideration
Value or (ii) such merger or other event
constitutes a "Fundamental Change" under the
terms of the Sepracor Notes, we will
accelerate the Convertible Note PERQS. A
"Fundamental Change" with respect to the
Sepracor Notes means an event which results
in all or substantially all of the shares of
common stock of Sepracor 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. We have derived
this information about the Sepracor Notes
entirely from the public disclosure on the
Sepracor Notes described under "--Public
Information Regarding Sepracor, the Sepracor
Notes and Sepracor Stock" below and have made
no due diligence inquiry with respect to such
information.
If, as a result of a merger or other
corporate event affecting Sepracor, the
Sepracor Notes become convertible solely into
Other Merger Consideration, we will
accelerate the Convertible Note PERQS.
If we accelerate the Convertible Note PERQS
as a result of a situation described in
either of the two immediately preceding
paragraphs, (i) Parity will be determined,
and the Exchange Ratio will be calculated, by
reference to the Merger Consideration Value
and (ii) we will distribute, in exchange for
each Convertible Note PERQS, Sepracor Notes
at the Exchange Ratio, calculated as if the
Merger Valuation Date were the Determination
Date, plus any accrued and unpaid
Supplemental Coupon to such Merger Valuation
Date (such distribution, an "Merger
Distribution"). We will make any such Merger
Distribution on the second Business Day next
succeeding the Merger Valuation Date (the
"Merger
PS-14
<PAGE>
Distribution Date"). If the Merger
Distribution Date falls after a record date
for the payment of interest on the Sepracor
Notes and prior to the immediately succeeding
interest payment date, we will not pay any
accrued but unpaid Underlying Coupon on the
Merger Distribution Date.
We will, or will cause the Calculation Agent
to (i) provide written notice to the Trustee
at its New York office, on which notice the
Trustee can conclusively rely, and to the
holders of the Convertible Note PERQS on or
prior to 10:30 a.m. on the Business Day
immediately preceding the Merger Distribution
Date (A) of the number of Sepracor Notes (and
the amount of any cash) to be delivered per
Convertible Note PERQS and (B) that such
distribution is pursuant to an acceleration
of the Convertible Note PERQS as a result of
a merger or other corporate event with
respect to Sepracor and (ii) deliver on the
Merger Distribution Date the Merger
Distribution to the Trustee for delivery to
the holders against delivery of the
Convertible Note PERQS to the Trustee.
You will not be entitled to tender or
exchange Sepracor Stock or the Sepracor Notes
in any tender or exchange offer by Sepracor
or any third party, nor will you be entitled
to respond to any consent solicitation made
to holders of the Sepracor Notes or have any
other rights, including, without limitation,
voting rights with respect to the Sepracor
Notes or Sepracor stock, until such time as
we deliver the Sepracor Notes to you at
maturity or Sepracor delivers Sepracor Stock
to you upon conversion of your Sepracor
Notes, as applicable.
Book Entry Note or
Certificated Note............ Book Entry
Senior Note or Subordinated
Note......................... Senior
Trustee........................ The Chase Manhattan Bank
Agent for this Underwritten
Offering of Convertible Note
PERQS........................ Morgan Stanley & Co. Incorporated
Calculation Agent.............. Morgan Stanley & Co. Incorporated and its
successors ("MS & Co.")
Because the Calculation Agent is our
affiliate, potential conflicts of interest
may exist between the Calculation Agent and
you as holder of the Convertible Note PERQS
with respect to its determinations of the
Exchange Ratio, the Market Price of Sepracor
Stock or the prices of the Sepracor Notes or
of whether a Market Disruption Event has
occurred. See "Market Disruption Event"
below. MS & Co. is obligated to carry out its
duties as Calculation Agent in good faith
using its reasonable judgment.
All percentages resulting from any
calculation on the Convertible Note PERQS
will be rounded to the nearest one hundred-
thousandth of a percentage point, with five
one-millionths of a percentage point rounded
upwards (e.g., 9.876545% (or .09876545) would
be rounded to 9.87655% (or .0987655)), and
all
PS-15
<PAGE>
dollar amounts used in or resulting from such
calculation will be rounded to the nearest
cent with one-half cent being rounded
upwards.
Market Disruption Event........ "Market Disruption Event" means, with respect
to Sepracor Stock:
(i) a suspension, absence or material
limitation of trading of Sepracor Stock on
the primary market for Sepracor Stock for
more than two hours of trading or during the
one-half hour period preceding the close of
trading in such market; or a breakdown or
failure in the price and trade reporting
systems of the primary market for Sepracor
Stock as a result of which the reported
trading prices for Sepracor Stock during the
last one-half hour preceding the closing of
trading in such market are materially
inaccurate; or the suspension, absence or
material limitation on the primary market for
trading in options contracts related to
Sepracor Stock, if available, during the
one-half hour period preceding the close of
trading in the applicable market, in each
case as determined by the Calculation Agent
in its sole discretion; and
(ii)a determination by the Calculation Agent
in its sole discretion that the event
described in clause (i) above materially
interfered with the ability of MSDW or any of
its affiliates to unwind all or a material
portion of the hedge with respect to the
Convertible Note PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to any applicable rule
or regulation enacted or promulgated by the
National Association of Securities Dealers
(or any other self-regulatory organization
with jurisdiction over the Nasdaq National
Market) on trading during significant market
fluctuations shall constitute a suspension,
absence or material limitation of trading,
(4) a suspension of trading in an options
contract on Sepracor Stock by the primary
securities market trading in such options, if
available, by reason of (x) a price change
exceeding limits set by such securities
exchange or market, (y) an imbalance of
orders relating to such contracts or (z) a
disparity in bid and ask quotes relating to
such contracts will constitute a suspension
or material limitation of trading in options
contracts related to Sepracor Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to Sepracor
Stock are traded will not include any time
when such securities market is itself closed
for trading under ordinary circumstances.
Alternative Determination
Date in case of an Event
of Default with respect to
the Convertible Note PERQS... In case an Event of Default with respect to
any Convertible Note PERQS shall have
occurred and be continuing, the number of
Sepracor Notes for which each Convertible
Note PERQS will be
PS-16
<PAGE>
exchangeable upon any acceleration of the
Convertible Note PERQS will be determined by
the Calculation Agent as though the
Determination Date were the date of
acceleration. In addition, an amount equal to
any accrued but unpaid Supplemental Coupon to
but not including such date of acceleration
will be due and payable. If the date of
acceleration falls after a record date for
the payment of interest on the Sepracor Notes
and prior to the immediately succeeding
interest payment date, we will not pay any
accrued but unpaid Underlying Coupon on the
date of acceleration.
Public Information Regarding
Sepracor, the Sepracor Notes
and Sepracor Stock........... Sepracor is 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. A
registration statement for the Sepracor Notes
has been filed under the Securities Act of
1933, as amended (the "Securities Act"), and
Sepracor Stock is registered under the
Exchange Act. Companies with securities
registered under the Exchange Act are
required to file periodically certain
financial and other information specified by
the SEC. Information provided to or filed
with the SEC can be inspected and copied at
the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its Regional
Office located at Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago,
Illinois 60661 and at Seven World Trade
Center, 13th Floor, New York, New York 10048,
and copies of such material can be obtained
from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition,
information provided to or filed with the SEC
electronically can be accessed through a
Website maintained by the SEC. The address of
the SEC's Website is http://www.sec.gov.
Information provided to or filed with the SEC
by Sepracor pursuant to the Exchange Act can
be located by reference to SEC file number
0-19410. In particular, information regarding
the Sepracor Notes can be found in
Registration Statement No. 333- 75561, and
the Prospectus dated July 25, 1999 contained
therein. According to such filed information,
The Chase Manhattan Bank was the trustee for
the Sepracor Notes at the time of their
issuance. In addition, information regarding
Sepracor may be obtained from other sources
including, but not limited to, press
releases, newspaper articles and other
publicly disseminated documents. We make no
representation or warranty as to the accuracy
or completeness of such reports.
This pricing supplement relates only to the
Convertible Note PERQS offered hereby and
does not relate to Sepracor Stock, the
Sepracor Notes or other securities of
Sepracor. We have derived all disclosures
contained in this pricing supplement
regarding Sepracor from the publicly
available documents described in the
preceding paragraph. Neither we nor the Agent
has participated in the preparation of such
documents or made any due diligence inquiry
with respect to Sepracor in connection with
the offering of the Convertible Note PERQS.
Neither we nor the Agent makes any
representation that such publicly available
documents or any other publicly available
PS-17
<PAGE>
information regarding Sepracor are accurate
or complete. Furthermore, we cannot give any
assurance that all events occurring prior to
the date hereof (including events that would
affect the accuracy or completeness of the
publicly available documents described in the
preceding paragraph) that would affect the
trading price of Sepracor Stock or the
Sepracor Notes have been publicly disclosed.
Subsequent disclosure of any such events or
the disclosure of or failure to disclose
material future events concerning Sepracor
could affect the value received at maturity
with respect to the Convertible Note PERQS
and therefore the trading prices of the
Convertible Note PERQS.
Neither we nor any of our affiliates make any
representation to any purchaser of
Convertible Note PERQS as to the performance
of Sepracor Stock or the Sepracor Notes.
We and/or our subsidiaries may presently or
from time to time engage in business with
Sepracor, including extending loans to, or
making equity investments in, Sepracor or
providing advisory services to Sepracor,
including merger and acquisition advisory
services. In the course of such business, we
or our affiliates may acquire non-public
information with respect to Sepracor and, in
addition, one or more of our affiliates may
publish research reports with respect to
Sepracor. The statement in the preceding
sentence is not intended to affect the right
of holders of the Convertible Note PERQS
under the securities laws. As a prospective
purchaser of Convertible Note PERQS, you
should undertake an independent investigation
of Sepracor and the terms of the Sepracor
Notes and Sepracor Stock as in your judgment
is appropriate to make an informed decision
with respect to an investment in Sepracor
Stock or the Sepracor Notes.
Historical Information......... The following tables set forth the high and
low Market Price of Sepracor Stock during
1998, 1999 and during 2000 through September
20, 2000 and the high and low mid-market
prices of Sepracor Notes from September 8,
1999 (the first date on which Bloomberg
Generic Prices for the Sepracor Notes were
made available) and during 2000 through
September 20, 2000. The Market Price of
Sepracor Stock on September 20, 2000 was $100
3/8. The bid and ask prices of the Sepracor
Notes on September 18, 2000 were $171.75 and
$172.75. We obtained the Market Prices for
Sepracor Stock and the prices of Sepracor
Notes listed below from Bloomberg Financial
Markets. The Sepracor Notes are not listed or
traded on an exchange. Accordingly the prices
at which sales of Sepracor Notes are made are
not publicly available. The historical prices
for the Sepracor Notes are the "Bloomberg
Generic Prices (BGN)" calculated by Bloomberg
by a proprietary process. The high and low
prices listed below represent a mid-market
price based on dealer prices contributed to
Bloomberg Financial Markets. No
representation is made that the Sepracor
Notes could have been sold or purchased at
the prices listed below. These prices may be
materially different from the prices paid or
received by us or our affiliates with respect
to the Sepracor Notes over the periods
described. You should not take
PS-18
<PAGE>
the historical prices of Sepracor Stock or
the Sepracor Notes as an indication of future
performance. The price of Sepracor Stock or
the Sepracor Notes may decrease so that you
will receive at maturity Sepracor Notes worth
less than Issue Price of the Convertible Note
PERQS. We cannot give you any assurance that
the price of Sepracor Notes will increase so
that at maturity you will receive Sepracor
Notes worth more than the principal amount of
the Convertible Note PERQS or that Final
Parity will not exceed the Maximum Parity
Amount, in which case you will receive less
than one-half of a Sepracor Note in exchange
for each Convertible Note PERQS at maturity.
Because the Convertible Note PERQS are
exchangeable at maturity for Sepracor Notes,
there is no guaranteed return of your
investment in the Convertible Note PERQS. To
the extent that the value of Sepracor Notes
drops below the Issue Price and the shortfall
is not offset by the coupon paid on the
Convertible Note PERQS, you will lose money
on your investment.
Sepracor Notes High Low
---------------------- ------ -----
(Cusip # 817315AH7)
1999
Third Quarter
(from September 8,
1999)............... $ 94.54 $ 89.42
Fourth Quarter....... $110.21 $ 90.13
2000
First Quarter........ $207.58 $103.53
Second Quarter....... $206.80 $122.67
Third Quarter
(through September
18, 2000)........... $228.83 $162.38
Sepracor Notes High Low
---------------------- ------ -----
(Cusip # 817315104)
1998
First Quarter........ $ 21 21/32 $ 17 9/16
Second Quarter....... $ 23 3/8 $ 18 3/8
Third Quarter ...... $ 35 1/4 $ 21 3/8
Fourth Quarter ...... $ 44 5/16 $ 26 1/2
1999
First Quarter........ $ 69 11/16 $ 44 15/16
Second Quarter....... $ 60 1/16 $ 30
Third Quarter........ $ 46 7/8 $ 32 11/16
Fourth Quarter....... $ 53 1/2 $ 35 1/8
2000
First Quarter........ $124 3/8 $ 47 1/4
Second Quarter....... $123 $ 67
Third Quarter
(through September
20, 2000)......... $137 25/64 $ 93 3/64
Historical prices of Sepracor Stock have been
adjusted for a 2 for 1 stock split of
Sepracor Stock, which became effective in the
first quarter of 2000.
PS-19
<PAGE>
Sepracor has not paid cash dividends on
Sepracor Stock to date. We make no
representation as to the amount of dividends,
if any, that Sepracor will pay in the future.
In any event, as a holder of the Convertible
Note PERQS, you will not be entitled to
receive dividends, if any, that may be
payable on Sepracor Stock.
Use of Proceeds and Hedging.... The net proceeds we receive from the sale of
the Convertible Note PERQS will be used for
general corporate purposes and, in part, by
us or by one or more of our subsidiaries in
connection with hedging our obligations under
the Convertible Note PERQS. See also "Use of
Proceeds" in the accompanying Prospectus.
On or prior to the date of this pricing
supplement, we, through our subsidiaries or
others, will hedge our anticipated exposure
in connection with the Convertible Note PERQS
by taking positions in Sepracor Notes,
Sepracor Stock and other instruments.
Purchase activity could potentially increase
the price of Sepracor Stock, and therefore
effectively increase the level to which
Sepracor Stock must rise before you would
receive at maturity Sepracor Notes worth an
amount that is equal to or greater than the
principal amount of the Convertible Note
PERQS. Through our subsidiaries, we are
likely to modify our hedge position
throughout the life of the Convertible Note
PERQS, including on the Determination Date,
by purchasing and selling Sepracor Notes,
Sepracor Stock, options contracts on Sepracor
Stock listed on major securities markets or
sold over-the-counter or positions in any
other instruments that we may wish to use in
connection with such hedging. Although we
have no reason to believe that our hedging
activity will have a material impact on the
price of the Sepracor Notes or Sepracor
Stock, we cannot give any assurance that we
will not affect such price as a result of our
hedging activities.
Supplemental Information
Concerning Plan of
Distribution................. In order to facilitate the offering of the
Convertible Note PERQS, the Agent may engage
in transactions that stabilize, maintain or
otherwise affect the price of the Convertible
Note PERQS, the Sepracor Notes or Sepracor
Stock. Specifically, the Agent may overallot
in connection with the offering, creating a
short position in the Convertible Note PERQS
for its own account. In addition, to cover
allotments or to stabilize the price of the
Convertible Note PERQS, the Agent may bid
for, and purchase, the Convertible Note
PERQS, the Sepracor Notes or Sepracor Stock
in the open market. See "Use of Proceeds and
Hedging" above.
We have agreed to indemnify the Agent against
certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
See also "Plan of Distribution" in the
accompanying Prospectus Supplement.
ERISA Matters for Pension
Plans and Companies.......... Each fiduciary of a pension, profit-sharing
or other employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") (a "Plan"), should
consider the fiduciary standards of ERISA in
the context of the Plan's
PS-20
<PAGE>
particular circumstances before authorizing
an investment in the Convertible Note PERQS.
Accordingly, among other factors, the
fiduciary should consider whether the
investment would satisfy the prudence and
diversification requirements of ERISA and
would be consistent with the documents and
instruments governing the Plan.
In addition, we and certain of our
subsidiaries and affiliates, including MS &
Co. and Dean Witter Reynolds Inc. ("DWR"),
are each considered a "party in interest"
within the meaning of ERISA, or a
"disqualified person" within the meaning of
the Internal Revenue Code of 1986, as amended
(the "Code") with respect to many Plans.
Prohibited transactions within the meaning of
ERISA or the Code would likely arise, for
example, if the Convertible Note PERQS are
acquired by or with the assets of a Plan with
respect to which MS & Co., DWR or any of
their affiliates is a service provider,
unless the Convertible Note PERQS are
acquired pursuant to an exemption from the
"prohibited transaction"rules. A violation of
these "prohibited transaction" rules may
result in an excise tax or other liabilities
under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is
available under an applicable statutory or
administrative exemption.
The U.S. Department of Labor has issued five
prohibited transaction class exemptions
("PTCEs") that may provide exemptive relief
for direct or indirect prohibited
transactions resulting from the purchase or
holding of the Convertible Note PERQS. Those
class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset
managers), PTCE 95-60 (for certain
transactions involving insurance company
general accounts), PTCE 91-38 (for certain
transactions involving bank collective
investment funds), PTCE 90-1 (for certain
transactions involving insurance company
separate accounts), and PTCE 84-14 (for
certain transactions determined by
independent qualified asset managers).
Because we are considered a party in interest
with respect to many Plans, the Convertible
Note PERQS may not be purchased or held by
any Plan, any entity whose underlying assets
include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset
Entity") or any person investing "plan
assets" of any Plan, unless such purchaser or
holder is eligible for exemptive relief,
including relief available under PTCE 96-23,
95-60, 91-38, 90-1, or 84-14 or such purchase
and holding is otherwise not prohibited. Any
purchaser, including any fiduciary purchasing
on behalf of a Plan, or holder of the
Convertible Note PERQS will be deemed to have
represented, in its corporate and fiduciary
capacity, by its purchase and holding thereof
that it either (a) is not a Plan or a Plan
Asset Entity and is not purchasing such
securities on behalf of or with "plan assets"
of any Plan or (b) is eligible for exemptive
relief or such purchase or holding is not
prohibited by ERISA or Section 4975 of the
Code.
Under ERISA, assets of a Plan may include
assets held in the general account of an
insurance company which has issued an
insurance policy to such plan or assets of an
entity in which the
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Plan has invested. Accordingly, insurance
company general accounts that include assets
of a Plan must ensure that one of the
foregoing exemptions is available. Due to the
complexity of these rules and the penalties
that may be imposed upon persons involved in
non-exempt prohibited transactions, it is
particularly important that fiduciaries or
other persons considering purchasing the
Convertible Note PERQS on behalf of or with
"plan assets" of any Plan consult with their
counsel regarding the availability of
exemptive relief under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14.
Purchasers of the Convertible Note PERQS have
exclusive responsibility for ensuring that
their purchase and holding of the Convertible
Note PERQS do not violate the prohibited
transaction rules of ERISA or the Code.
United States Federal Income
Taxation..................... The following summary is based on the advice
of Davis Polk & Wardwell, our special tax
counsel ("Tax Counsel"), and is a general
discussion of the principal potential U.S.
federal income tax consequences to initial
holders of the Convertible Note PERQS
purchasing the Convertible Note PERQS at the
Issue Price, who will hold the Convertible
Note PERQS as capital assets within the
meaning of Section 1221 of the Code. This
summary is based on the Code, administrative
pronouncements, judicial decisions and
currently effective and proposed Treasury
Regulations, changes to any of which
subsequent to the date of this pricing
supplement may affect the tax consequences
described herein. This summary does not
address all aspects of the U.S. federal
income taxation that may be relevant to a
particular holder in light of its individual
circumstances or to certain types of holders
subject to special treatment under the U.S.
federal income tax laws (e.g., certain
financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold Convertible
Note PERQS as part of a hedging transaction,
straddle, conversion or other integrated
transaction). As the law applicable to the
U.S. federal income taxation of instruments
such as the Convertible Note PERQS is
technical and complex, the discussion below
necessarily represents only a general
summary. Moreover, the effect of any
applicable state, local or foreign tax laws
is not discussed.
General
Pursuant to the terms of the Convertible Note
PERQS, we and every holder of Convertible
Note PERQS agree (in the absence of an
administrative determination or judicial
ruling to the contrary) to characterize
Convertible Note PERQS for all tax purposes
as an investment unit consisting of the
following components (the "Components"): (i)
a contract (the "Forward Contract") that
requires the holder of the Convertible Note
PERQS to purchase, and us to sell, for an
amount equal to $ (the "Forward Price"), the
Sepracor Notes at maturity, and (ii) a
deposit with us of a fixed amount of cash,
equal to the Issue Price, to secure the
holder's obligation to purchase the Sepracor
Notes (the "Deposit"), which Deposit bears an
annual yield of % per annum, which yield is
based on our cost of borrowing. Under this
characterization, less than the full periodic
payments on the Convertible Note PERQS,
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<PAGE>
consisting of the semiannual Underlying
Coupon payments and the quarterly
Supplemental Coupon payments, will be
attributable to the yield on the Deposit.
Accordingly, the excess of the quarterly
Supplemental Coupon payments on the
Convertible Note PERQS over the portion of
those payments attributable to the yield on
the Deposit, in addition to the entire
semiannual Underlying Coupon payments on the
Convertible Note PERQS, will represent
payments attributable to the holders' entry
into the Forward Contract (the "Contract
Fees"). Furthermore, based on our
determination of the relative fair market
values of the Components at the time of
issuance of the Convertible Note PERQS, we
will allocate 100% of the Issue Price of the
Convertible Note PERQS to the Deposit and
none to the Forward Contract.
Our allocation of the Issue Price among the
Components will be binding on a holder of the
Convertible Note PERQS, unless such holder
timely and explicitly discloses to the IRS
that its allocation is different from ours.
The treatment of the Convertible Note PERQS
described above and our allocation are not,
however, binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Convertible Note
PERQS or instruments similar to the
Convertible Note PERQS for U.S. federal
income tax purposes, and no ruling is being
requested from the IRS with respect to the
Convertible Note PERQS. Due to the absence of
authorities that directly address instruments
that are similar to the Convertible Note
PERQS, Tax Counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Convertible Note
PERQS. As a result, significant aspects of
the U.S. federal income tax consequences of
an investment in the Convertible Note PERQS
are not certain, and no assurance can be
given that the IRS or the courts will agree
with the characterization described herein.
Accordingly, you are urged to consult your
tax advisor regarding the U.S. federal income
tax consequences of an investment in the
Convertible Note PERQS (including alternative
characterizations of the Convertible Note
PERQS) and with respect to any tax
consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following
discussion is based on the treatment and the
allocation described above.
Tax Treatment of the Convertible Note PERQS
Assuming the characterization of the
Convertible Note PERQS, the allocation of the
periodic payments, and the allocation of the
Issue Price as set forth above, Tax Counsel
believes that the following U.S. federal
income tax consequences should result.
Periodic Payments on the Convertible Note
PERQS. To the extent attributable to the
interest on the Deposit, periodic payments on
the Convertible Note PERQS will generally be
taxable to a U.S. Holder as ordinary income
at the time accrued or received in accordance
with the U.S. Holder's method of accounting
for U.S. federal income tax purposes.
Although the federal income tax
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<PAGE>
treatment of the Contract Fees is uncertain,
we intend to take the position that the
Contract Fees constitute taxable income to
the holders at the time accrued or received
in accordance with the U.S. Holder's method
of accounting for U.S. federal income tax
purposes.
Tax Basis. Based on our determination set
forth above, the U.S. Holder's tax basis in
the Forward Contract will be zero, and the
U.S. Holder's tax basis in the Deposit will
be 100% of the Issue Price.
Settlement of the Forward Contract. Upon the
maturity of the Forward Contract, a U.S.
Holder would, pursuant to the Forward
Contract, be deemed to have applied the
Forward Price toward the purchase of Sepracor
Notes, and a U.S. Holder would not recognize
any gain or loss with respect to any Sepracor
Notes received thereon. With respect to any
cash received upon maturity, a U.S. Holder
would recognize gain or loss. The amount of
such gain or loss would be the extent to
which the amount of such cash received
differs from the pro rata portion of the
Forward Price allocable to the cash. Any such
gain or loss would generally be capital gain
or loss, as the case may be. With respect to
any Sepracor Notes received upon maturity,
the U.S. Holder would have an adjusted tax
basis in such Sepracor Notes equal to the pro
rata portion of the Forward Price allocable
thereto. The allocation of the Forward Price
between cash and Sepracor Notes should be
based on the amount of the cash received and
the relative fair market value, as of the
maturity, of the Sepracor Notes. The U.S.
Holder's holding period of any Sepracor Notes
received would start on the day after the
maturity of the Convertible Note PERQS.
Sale or Exchange of the Convertible Note
PERQS. Upon a sale or exchange of a
Convertible Note PERQS prior to the maturity
of the Convertible Note PERQS, a U.S. Holder
would recognize taxable gain or loss equal to
the difference between the amount realized on
such sale or exchange and such U.S. Holder's
tax basis in the Convertible Note PERQS so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss, as
the case may be. Such U.S. Holder's tax basis
in the Convertible Note PERQS would generally
equal the U.S. Holder's tax basis in the
Deposit. For these purposes, the amount
realized does not include any amount
attributable to accrued but unpaid interest
payments on the Deposit, which would be taxed
as described under "--Periodic Payments on
the Convertible Note PERQS" above. It is
uncertain whether the amount realized
includes any amount attributable to accrued
but unpaid Contract Fees. U.S. Holders should
consult their tax advisors regarding the
treatment of accrued but unpaid Contract Fees
upon the sale or exchange of Convertible Note
PERQS.
Possible Alternative Tax Treatments of an
Investment in the Convertible Note PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Convertible Note PERQS, no assurance
can
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<PAGE>
be given that the IRS will accept, or that a
court will uphold, the characterization and
tax treatment described above. MSDW will take
the position that the Convertible Note PERQS
are not treated as a single debt instrument
for tax purposes. If the IRS were successful
in asserting that the Convertible Note PERQS
are a single debt instrument for tax
purposes, the timing and character of income
thereon could be affected. Other alternative
federal income tax characterizations or
treatments of the Convertible Note PERQS are
also possible and, if applied, could also
affect the timing and the character of the
income or loss with respect to the
Convertible Note PERQS. It is possible, for
example, that Convertible Note PERQS could be
treated as constituting a prepaid forward
contract or a combination of a prepaid
forward contract and one or more options.
Other alternative characterizations are also
possible. Accordingly, prospective purchasers
are urged to consult their tax advisors
regarding the U.S. federal income tax
consequences of an investment in the
Convertible Note PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of Convertible Note PERQS may
be subject to information reporting and to
backup withholding at a rate of 31 percent of
the amounts paid to the U.S. Holder, unless
such U.S. Holder provides proof of an
applicable exemption or a correct taxpayer
identification number and otherwise complies
with applicable requirements of the backup
withholding rules. The amounts withheld under
the backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided the
required information is furnished to the IRS.
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