As filed with the Securities and Exchange Commission on November 6, 2002
(S-3) Registration No. 333- /(S-4) Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(with respect to the additional 6.52% Convertible Senior Subordinated Notes
due December , 2009 being offered for cash)
___________________
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(with respect to 6.52% Convertible Senior Subordinated Notes due
December , 2009 being issued in the exchange offer)
___________________
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 2834 23-2472830
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
88 Sidney Street, Cambridge, Massachusetts 02139-4136
Telephone: (617) 494-0171
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive
offices)
Richard F. Pops, Chief Executive Officer, Alkermes, Inc.
88 Sidney Street, Cambridge, Massachusetts 02139-4234
Telephone: (617) 494-0171
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copies to:
Morris Cheston, Jr., Esq. Abigail Arms, Esq. Mitchell S. Bloom, Esq.
Ballard Spahr Andrews & Ingersoll, LLP Shearman & Sterling Testa, Hurwitz & Thibeault, LLP
1735 Market Street, 51st Floor 801 Pennsylvania Avenue, N.W. 125 High Street
Philadelphia, Pennsylvania 19103 Washington, D.C. 20004 Boston, Massachusetts 02110
Telephone: (215) 665-8900 Telephone: (202) 508-8000 Telephone: (617) 248-7000
__________________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Aggregate Amount of
be Registered Registered(1) Price Per Unit Offering Price Registration Fee
-------------------------------------------------------------------------------------------------------------------------------
6.52% Convertible Senior Subordinated $115,000,000 100% $115,000,000(1) $10,580(2)
Notes due December , 2009
-------------------------------------------------------------------------------------------------------------------------------
6.52% Convertible Senior Subordinated $50,000,000 100% $50,000,000 $4,600(2)
Notes due December , 2009 (3)
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Common Stock, par value $.01 per share 2,294,243 shares(4) $9.38(5) 21,520,000(5) $1,980
-------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee $17,160
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(1) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, this amount is
the market value as of November 5, 2002 of the maximum amount of 3.75%
Convertible Subordinated Notes due 2007 (the "existing notes") that may be
received by the Registrant from tendering holders in the exchange offer.
(2) The registration fee has been calculated pursuant to Rule 457(f) under the
Securities Act of 1933.
(3) We are registering an additional amount of new notes to be offered for cash
to holders of existing notes who participate in the exchange offer.
(4) The 2,294,243 shares of common stock that are being registered represent an
estimate of the number of shares that would be issued if the Registrant
elects to pay the two-year interest make-whole provision in common stock
instead of cash under the terms of the new notes. Also includes such
indeterminate number of shares of common stock as shall be issuable upon
conversion of the new notes being registered hereunder. No additional
consideration shall be received for the common stock issuable upon
conversion of the new notes and therefore no registration fee is required
pursuant to Rule 457 under the Securities Act.
(5) Estimated in accordance with Rule 457(c) and Rule 457(d) solely for the
purpose of calculating the amount of the registration fee based on the
average of the high and low price of the Registrant's common stock as
reported on The Nasdaq National Market on October 31, 2002.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SEC ACTING PURSUANT TO SECTION 8(A) MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 2002
PROSPECTUS
[ALKERMES LOGO]
EXCHANGE OFFER
6.52% Convertible Senior Subordinated Notes due December , 2009 for its
3.75% Convertible Subordinated Notes due 2007
AND THE SALE OF
up to $50,000,000 of its 6.52% Convertible Senior Subordinated Notes
due December , 2009
_________________
If you elect to participate, for each $1,000 principal amount of our 3.75%
Convertible Subordinated Notes due 2007, you will receive from us $575 principal
amount of our 6.52% Convertible Senior Subordinated Notes due December , 2009.
The new notes will be issued in denominations of $1,000 and any integral
multiples of $1,000. Alkermes will pay any fractional existing notes in cash. If
you tender existing notes in the exchange offer, you will have the right to
participate in the cash offer in which we are offering up to $50 million of
additional 6.52% Convertible Senior Subordinated Notes due December , 2009.
The exchange offer will expire at 5:00 p.m., New York City time, on [ ],
2002, unless we extend the offer.
Our common stock is traded on The Nasdaq National Market under the symbol
"ALKS." On November 5, 2002, the last reported sale price of our common stock on
The Nasdaq National Market was $10.73 per share.
We are mailing this prospectus and the letter of transmittal on
[ ], 2002.
_________________
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF FACTORS YOU
SHOULD CONSIDER BEFORE DECIDING TO PARTICIPATE IN THIS EXCHANGE OFFER OR
PURCHASE ADDITIONAL 6.52% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE DECEMBER ,
2009.
We have retained Georgeson Shareholder Communications Inc. as our
information agent to assist you in connection with the exchange offer. You may
call Georgeson Shareholder Communications Inc. at (866) 318-0506 (toll free), to
receive additional documents and to ask questions.
___________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________________
The Dealer Manager for the Exchange Offer:
U.S. BANCORP PIPER JAFFRAY
THIS PROSPECTUS IS DATED __________ __, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS.
______________
TABLE OF CONTENTS
Summary........................................................................3
Risk Factors..................................................................16
Special Note Regarding Forward-Looking Statements.............................30
Use of Proceeds...............................................................31
Price Range of Common Stock...................................................31
Dividend Policy...............................................................31
Ratio of Earnings to Fixed Charges............................................31
Capitalization................................................................32
Selected Historical Consolidated Financial Data...............................33
The Exchange Offer............................................................34
Cash Offer of Additional New Notes............................................42
Description of New Notes......................................................43
Description of Existing Notes.................................................57
Description of Capital Stock..................................................69
Book-Entry System - The Depository Trust Company..............................71
United States Federal Income Tax Considerations...............................73
Plan of Distribution..........................................................80
Legal Matters.................................................................81
Experts.......................................................................81
Where You Can Find More Information...........................................82
2
SUMMARY
This summary does not contain all of the information you should
consider before exchanging your existing notes for the new notes or investing in
additional new notes. For a more complete understanding of us and this exchange
offer, we encourage you to read this entire prospectus and the documents to
which we refer you. The term "new notes" refers to the 6.52% Convertible Senior
Subordinated Notes due December , 2009 offered by this prospectus. The term
"existing notes" refers to our existing 3.75% Convertible Subordinated Notes due
2007 to be exchanged for the new notes in the exchange offer. You should read
this entire prospectus carefully. Unless otherwise indicated, "we," "us," "our"
and similar terms refer to Alkermes, Inc. and its subsidiaries.
OUR COMPANY
We are an emerging pharmaceutical company that develops therapeutic
products based on our formulation expertise and proprietary drug delivery
technologies. Our product development strategy is twofold. We partner with many
of the world's finest pharmaceutical companies and we also develop novel,
proprietary drug candidates for our own account. We have a broad pipeline of
products and product candidates, including two marketed products, several
product candidates at various stages of clinical development and others at
earlier stages of development. Our products are based on controlled,
extended-release dosage forms of injectable drugs using our ProLease(R) and
Medisorb(R) delivery systems, and the development of inhaled pharmaceuticals
based on our proprietary Advanced Inhalation Research, Inc. ("AIR(TM)")
pulmonary delivery system. In addition to our Cambridge, Massachusetts
headquarters and research and manufacturing facilities, we operate research and
manufacturing facilities in Ohio. Some of our key products include:
o Risperdal Consta(TM)is a long-acting formulation of Janssen
Pharmaceutica Inc.'s ("Janssen") anti-psychotic drug RISPERDAL(R)based
on our Medisorb technology. RISPERDAL is the most commonly prescribed
drug for the treatment of schizophrenia in the world and had sales of
over $1.8 billion in 2001. In August 2001, Janssen filed a New Drug
Application, or NDA, for Risperdal Consta with the U.S. Food and Drug
Administration ("FDA") and similar regulatory filings have been
submitted in more than 30 countries around the world. On June 28,
2002, Johnson & Johnson PRD ("J&J PRD"), an affiliate of Janssen,
received a non-approvable letter for Risperdal Consta from the FDA and
is currently working to respond to the FDA's concerns. There can be no
assurance that the issues raised in the letter will be resolved on a
timely basis, if at all. Since August 2002, Risperdal Consta has been
approved in seven countries around the world and launched in Austria,
Germany and the United Kingdom. We are the exclusive manufacturer of
Risperdal Consta for Janssen.
o Nutropin Depot(R)is a long-acting ProLease formulation of rhGH that we
developed in collaboration with Genentech, the leading supplier of
rhGH in the United States. rhGH is approved for use in the treatment
of children with growth hormone deficiency, or GHD, which results in
short stature and potentially other developmental deficits, Turner's
syndrome, chronic renal insufficiency and other indications. Our
extended-release formulation, approved by the FDA in December 1999 for
use in GHD children and commercially launched by Genentech in June
2000, requires only one or two doses per month compared to current
growth hormone therapies that require multiple doses per week. We and
Genentech have also agreed to continue the clinical development for
Nutropin Depot in adults with GHD, and have initiated a Phase III
clinical trial with Genentech, which commenced in December 2001.
o Vivitrex(TM), our most advanced proprietary product candidate, is a
long-acting Medisorb formulation of naltrexone, an FDA-approved
treatment for alcoholism and opiate abuse.
3
Naltrexone is currently available in a daily oral-dosage form. There
are over 2.5 million people in the United States who seek treatment
for alcoholism each year. We believe there is a significant need for a
product that will help improve compliance in this patient population.
In October 2001, we completed a second trial, which was a multi-center
clinical trial, of Vivitrex, the data from which was presented at the
Annual Meeting of the American College of Neuropsychopharmacology.
This trial tested the safety, tolerability and pharmacokinetics of
repeat doses of Vivitrex administered monthly to alcohol-dependent
patients. In March 2002, we initiated a Phase III clinical trial in
alcohol-dependent patients testing the safety and efficacy of repeat
doses of Vivitrex. We plan to manufacture Vivitrex for both clinical
trials and commercial sales, if any.
o Inhaled epinephrine is our leading proprietary product based on our
AIR pulmonary delivery technology that we are developing for the
treatment of anaphylaxis, which is a sudden, often severe, systemic
allergic reaction. Currently, patients self-administer epinephrine by
injection. We believe that an inhaled dosage form of epinephrine may
offer patients significant advantages over the injection method, such
as ease of use and titration of doses. In August 2002, we completed
our second Phase I study of inhaled epinephrine.
We have additional products in clinical trials with our partners,
including a long-acting injectable form of r-hFSH, recombinant human follicle
stimulating hormone, for the treatment of infertility, with Serono S.A., a
long-acting injectable form of AC2993 (synthetic Exendin-4), for the treatment
of Type II diabetes, with Amylin Pharmaceuticals, Inc. and pulmonary
formulations of insulin and rhGH with Eli Lilly and Company.
Below is a summary of our key proprietary and collaborators' product
candidates and their respective stages of clinical development.
------------------------------------------------------------------------------------------------------------
PRODUCT PHASE OF CLINICAL
CANDIDATE INDICATION DEVELOPMENT (1)
------------------------------------------------------------------------------------------------------------
Nutropin Depot Pediatric growth hormone deficiency Marketed
Risperdal Consta Schizophrenia (2)
Vivitrex Alcohol dependence Phase III
Vivitrex Opioid dependence Phase II
Nutropin Depot Adult growth hormone deficiency Phase III
Medisorb AC2993 (Exendin-4) Diabetes Phase II
AIR Epinephrine Anaphylaxis Phase I completed
ProLease r-hFSH Infertility Phase I completed
AIR Insulin Diabetes Undisclosed
AIR hGH Growth hormone deficiency Phase I completed
AIR small molecule products Respiratory disease Phase I completed/Preclincal
------------------------------------------------------------------------------------------------------------
_______________
(1) "Phase II" clinical trials indicates that the trial is being conducted in
patients and is to provide information on dosing and is testing for safety and
preliminary evidence of efficacy. "Phase III" clinical trials indicates that the
trial is being conducted in patients and is testing the safety and efficacy of
the compound. "Preclinical" indicates that we or our partners are conducting
formulation, efficacy, pharmacology and/or toxicology testing of a compound in
animal models or biochemical assays.
(2) Approved for marketing in the United Kingdom, Germany, Mexico, Austria, New
Zealand, Switzerland and the Netherlands. An affiliate of our collaborative
partner received a non-approvable letter from the FDA.
4
Our principal executive offices are located at 88 Sidney Street,
Cambridge, Massachusetts 02139 and our telephone number is (617) 494-0171.
_________________________
Alkermes(R), the Alkermes logo, ProLease(R) and Medisorb(R) are
registered trademarks of Alkermes, Inc. AIR(TM) and Vivitrex(TM) are trademarks
of Alkermes, Inc. Nutropin Depot(R) is a registered trademark of Genentech, Inc.
RISPERDAL(R) is a registered trademark, and Risperdal Consta(TM) is a trademark
of Janssen Pharmaceutica Products, LP.
5
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We have summarized the terms of the exchange offer in this section.
Before you decide whether to tender your existing notes in this offer, you
should read the detailed description of the offer under "The Exchange Offer" and
of the new notes under "Description of New Notes" for further information.
TERMS OF THE EXCHANGE OFFER........ We are offering up to $115,000,000
principal amount of new notes for up to
an aggregate principal amount of
$200,000,000 of our existing notes. We
are offering to exchange $575 principal
amount of new notes for each $1,000
principal amount of our existing notes.
New notes will be issued in denominations
of $1,000 and any integral multiple of
$1,000. Any fractional existing notes
tendered in this offer will be settled in
cash.
You may tender all, some or none of your
existing notes. We may pay interest on
the new notes in cash or shares of our
common stock, solely at our option.
CONVERSION PRICE................... The new notes will be convertible into
our common stock at any time prior to
maturity at a conversion price equal to a
17 1/2% premium over the daily
volume-weighted average closing price of
our common stock for the five trading
days immediately preceding the second
trading day prior to the expiration date
of the exchange offer, subject to
adjustment upon certain events.
EXPIRATION DATE;
EXTENSION; TERMINATION............. The exchange offer and withdrawal rights
will expire at 5:00 p.m., New York City
time on [ ], 2002, or any subsequent date
to which we extend it. We may extend the
expiration date for any reason. In the
case of an extension, we will issue a
press release or other public
announcement no later than 9:00 a.m. New
York City time, on the next business day
after the previously scheduled expiration
date. If we extend the expiration date,
you must tender your existing notes prior
to the date identified in the press
release or public announcement if you
wish to participate in the exchange
offer. We have the right to:
o extend the expiration date of the
exchange offer and retain all
tendered existing notes, subject to
your right to withdraw your tendered
existing notes; and
o waive any condition or otherwise
amend the terms of the exchange
offer in any respect, other than the
condition that the registration
statement be declared effective.
6
CONDITIONS TO THE
EXCHANGE OFFER..................... The exchange offer is subject to the
registration statement and any
post-effective amendment to the
registration statement covering the new
notes being effective under the
Securities Act of 1933. The exchange
offer also is subject to customary
conditions, which we may waive.
WITHDRAWAL RIGHTS.................. You may withdraw a tender of your
existing notes at any time before the
exchange offer expires by delivering a
written notice of withdrawal to State
Street Bank and Trust Company, the
exchange agent, before the expiration
date. If you change your mind, you may
retender your existing notes by again
following the exchange offer procedures
before the exchange offer expires. In
addition, if you tender existing notes
and we have not accepted them for
exchange by [ ], 2002, you may therefore
withdraw your existing notes at any time
in the period beginning on that date and
ending on the date we do accept your
existing notes for exchange.
PROCEDURES FOR TENDERING
OUTSTANDING EXISTING
NOTES.............................. If you hold existing notes through a
broker, dealer, commercial bank, trust
company or other nominee, you should
contact that person promptly if you wish
to tender your existing notes. Tenders of
your existing notes will be effected by
book-entry transfers through The
Depository Trust Company.
If you hold existing notes through a
broker, dealer, commercial bank, trust
company or other nominee, you also may
comply with the procedures for guaranteed
delivery.
Please do not send letters of transmittal
to us. You should send those letters to
State Street Bank and Trust Company, the
exchange agent, at one of its offices as
indicated under "The Exchange Offer," at
the end of this prospectus or in the
letters of transmittal. The exchange
agent can answer your questions regarding
how to tender your existing notes.
ACCRUED INTEREST ON
EXISTING NOTES..................... Existing note holders will receive
accrued and unpaid interest on any
existing notes accepted in the exchange
offer. The amounts of accrued interest
will be calculated from the last interest
payment date up to but excluding the
closing date of the exchange offer.
7
INTEREST ON NEW NOTES.............. Interest on the new notes will be payable
in cash or shares of our common stock,
solely at our option, at a rate of 6.52%
per year, payable on June and December
of each year, commencing on June ,
2003. If we elect to pay interest in
common stock, the shares of common stock
will be valued at 90% of the average of
the closing price for each of the five
trading days immediately preceding the
second trading day prior to the interest
payment date. Interest on new notes will
begin to accrue as of the closing date of
the exchange offer.
INFORMATION AGENT.................. Georgeson Shareholder Communications Inc.
EXCHANGE AGENT..................... State Street Bank and Trust Company
DEALER MANAGER..................... U.S. Bancorp Piper Jaffray
RISK FACTORS....................... You should carefully consider the matters
described under "Risk Factors," as well
as other information set forth in or
incorporated by reference in this
prospectus and in the letter of
transmittal, including the information
about us as referred to under "Where You
Can Find More Information."
DECIDING WHETHER TO
PARTICIPATE IN THE
EXCHANGE OFFER..................... Neither we nor our officers or directors
make any recommendation as to whether you
should tender or refrain from tendering
all or any portion of your existing notes
in the exchange offer. Further, we have
not authorized anyone to make any such
recommendation. You must make your own
decision whether to tender your existing
notes in the exchange offer and, if so,
the aggregate amount of existing notes to
tender after reading this prospectus and
the letter of transmittal and consulting
with your advisers, if any, based on your
own financial position and requirements.
CONSEQUENCES OF NOT
EXCHANGING EXISTING
NOTES.............................. If you do not exchange your existing
notes in the exchange offer, your
existing notes will be subordinated to
the new notes. Further, the liquidity and
trading market for existing notes not
tendered in the exchange offer could be
adversely affected to the extent a
significant number of the existing notes
are tendered and accepted in the exchange
offer.
CASH OFFER......................... If you tender some or all of your
existing notes, and you would be
interested in participating in the cash
offer of additional new notes, you should
contact the placement agent.
TAX CONSEQUENCES................... Please see "United States Federal Income
Tax Considerations."
8
INSUFFICIENCY OF EARNINGS
TO COVER FIXED CHARGES............. Earnings were insufficient to cover fixed
charges in the following amounts: $9.9
million in fiscal 1998; $30.0 million in
fiscal 1999; $53.4 million in fiscal
2000; $49.1 million in fiscal 2002; and
$108.3 million in the three months ended
June 30, 2002. In fiscal 2001, earnings
were sufficient to cover fixed charges
and the ratio of earnings to fixed
charges was 0.13x.
THE CASH OFFER
TERMS OF THE CASH OFFER
We are separately offering up to $50 million aggregate principal amount of
additional new notes for cash to holders of existing notes who participate in
the exchange offer.
CASH OFFER FOR ADDITIONAL
NEW NOTES.......................... The discussion under the heading "Cash
Offer of Additional New Notes" provides
further information regarding the cash
offer.
USE OF PROCEEDS.................... We intend to use the net proceeds, if
any, received from the sale for cash of
the additional new notes for general
corporate purposes, including research,
development and clinical trial
activities, especially for proprietary
compounds, and for manufacturing
facilities and equipment.
PLACEMENT AGENT.................... U.S. Bancorp Piper Jaffray
9
COMPARISON OF NEW NOTES AND EXISTING NOTES
The following is a brief summary of the terms of the new notes and the
existing notes. For a more detailed description of the new notes, see
"Description of New Notes."
NEW NOTES EXISTING NOTES
---------------------------------------- -----------------------------------------------
SECURITIES........................ Up to $165,000,000 principal amount of $200,000,000 principal amount of 3.75%
6.52% Convertible Senior Subordinated Convertible Subordinated Notes due 2007.
Notes due December , 2009, of which up
to $115,000,000 are being offered in the
exchange offer and up to $50,000,000 are
being offered in the cash offer. The
new notes will be issued in principal
amounts of $1,000 and integral multiples
of $1,000.
ISSUER............................ Alkermes, Inc. Alkermes, Inc.
MATURITY.......................... December , 2009. February 15, 2007.
INTEREST.......................... The new notes will bear interest at an The existing notes bear interest at an
annual rate of 6.52% payable in cash or, annual rate of 3.75%. Interest is
at our option, in common stock. If we payable on February 15 and August 15 of
elect to pay interest in common stock, each year, beginning August 15, 2000.
the shares of common stock will be valued
at 90% of the average of the closing
price for each of the five days
immediately preceding the second trading
day prior to the interest payment date.
Interest will be payable on June and
December of each year, beginning
June , 2003.
10
NEW NOTES EXISTING NOTES
---------------------------------------- -----------------------------------------------
CONVERSION - GENERAL.............. The new notes will be convertible into The existing notes are convertible into
common stock at any time prior to maturity common stock at any time prior to
at a conversion price equal to a 17 1/2% maturity at a conversion price of $67.75
premium over the daily volume-weighted per share, subject to adjustment upon
average closing price of our common stock certain events.
for the five trading days immediately
preceding the second trading day prior to
the expiration date of the exchange offer,
subject to adjustment upon certain events.
AUTO-CONVERSION................... We may elect to automatically convert None.
some or all of the new notes on or prior
to maturity if the closing price of our
common stock has exceeded 150% of the
conversion price for at least 20 trading
days during any 30-day trading period,
ending within five trading days prior to
the notice of automatic conversion.
PROVISIONAL
REDEMPTION........................ None. We may redeem some or all of the existing
notes at any time prior to February 19,
2003 if the price of our common stock
exceeds 200% of the conversion price for
at least 20 out of 30 trading days prior
to redemption.
OPTIONAL REDEMPTION............... We may redeem some or all of the new We may redeem some or all of the existing
notes on or after January , 2005 at notes on or after February 19, 2003 at
declining redemption prices plus accrued declining redemption prices plus accrued
and unpaid interest. and unpaid interest.
11
NEW NOTES EXISTING NOTES
---------------------------------------- -----------------------------------------------
INTEREST MAKE-WHOLE
PROVISIONS DURING FIRST
TWO YEARS
UPON AUTO-CONVERSION........ If an automatic conversion occurs on or None.
prior to December , 2004, we will pay
additional interest in cash or, at our
option, in common stock equal to two full
years of interest on the converted new
notes, less any interest paid or provided
for on the new notes prior to automatic
conversion. If we elect to pay the
additional interest in common stock, the
shares of common stock will be valued at
90% of the average closing price of our
common stock for the five trading days
immediately preceding the second trading
day prior to the conversion date.
UPON VOLUNTARY CONVERSION... If you elect to voluntarily convert your None.
new notes prior to December , 2004 and
prior to notice of auto-conversion, we
will pay additional interest in cash or,
at our option, in common stock equal to
two full years of interest on the
converted new notes, less any interest
paid or provided for on the new notes
prior to voluntary conversion. If we
elect to pay the additional interest in
common stock, the shares of common stock
will be valued at 90% of the average
closing price of our common stock for the
five days preceding the second trading day
prior to the voluntary conversion date,
subject to a minimum valuation equal to
the conversion price.
12
NEW NOTES EXISTING NOTES
---------------------------------------- -----------------------------------------------
REPURCHASE AT HOLDER'S
OPTION UPON A REPURCHASE
EVENT............................. You may require us to repurchase your new You may require us to repurchase your
notes upon a repurchase event in cash, or existing notes upon a repurchase event in
at our option, in common stock at 105% of cash, or at our option, in common stock
the principal amount, plus accrued and at 105% of the principal amount, plus
unpaid interest. Provided however, that accrued and unpaid interest.
for two years following issuance of the
new notes, we will be required to
repurchase the new notes at a price
of % of par value upon a change of
control, as defined.
RANKING........................... The new notes are subordinated to our The existing notes are subordinated to
senior indebtedness, but will rank senior our senior indebtedness. The indenture
in right of payment to the existing for the existing notes does not limit our
notes. The indenture for the new notes ability to incur additional indebtedness,
does not limit our ability to incur senior or otherwise. The existing notes
additional indebtedness, senior or are also structurally subordinated to the
otherwise. indebtedness and other liabilities of our
subsidiaries.
PROHIBITION ON PRIVATE
TRANSACTIONS INVOLVING
EXISTING NOTES.................... For a period of two years following the None.
issuance of the new notes, we will
be prohibited from engaging in any
private repurchases, debt-for-equity
swaps or similar transactions with
respect to the existing notes.
13
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
WHY ARE WE DOING THE EXCHANGE OFFER AND THE CASH OFFER?
We believe that this exchange offer is an important step in re-calibrating our
capital structure to be better suited for the current market environment. If the
exchange offer is fully subscribed, it will:
o eliminate $85 million principal amount of convertible notes;
o position us to automatically convert substantially all our debt into equity
at stock prices approximately 75% above the current market price;
o leave the aggregate annual interest expense unchanged, while allowing us the
flexibility to make interest payments, at our option, in common stock; and
o raise up to $50 million of additional capital through the cash offer.
HOW DO I PURCHASE ADDITIONAL NOTES FOR CASH?
If you tender existing notes in the exchange offer, you will have the
opportunity to indicate your interest for additional new notes in the cash
offer. Allocations of additional new notes will be made by the placement agent
in its sole discretion.
If you decide to purchase additional new notes for cash, you may
indicate your interest in purchasing new notes by contacting Jeffrey Winaker or
Brian Sullivan at U.S. Bancorp Piper Jaffray at (877) 420-2321.
IF I PARTICIPATE IN THE EXCHANGE OFFER, HOW MANY NEW NOTES AM I ELIGIBLE TO
PURCHASE FOR CASH?
If you tender existing notes in the exchange offer, there is no
limitation on the number of new notes you may indicate you are interested in
purchasing for cash. If indications of interest exceed the total amount of new
notes that are being offered for cash, allocations will be made at the
discretion of the placement agent.
IS THE EXCHANGE OFFER CONDITIONED UPON A MINIMUM NUMBER OF EXISTING NOTES BEING
TENDERED IN THE EXCHANGE OR NEW NOTES BEING PURCHASED FOR CASH?
No, the exchange offer is not conditioned upon any minimum number of
existing notes being tendered or new notes being purchased for cash. The
exchange offer and the cash offer are subject to customary conditions, which we
may waive.
HOW SOON MUST I ACT IF I DECIDE TO PARTICIPATE?
Unless we extend the expiration date, the exchange offer and the cash
offer will expire on [____], 2002 at 5:00 p.m., New York City time. The exchange
agent must receive all required documents and instructions before that time or
you will not be able to participate in either the exchange offer or the cash
offer. In addition, U.S. Bancorp Piper Jaffray must also receive indications of
interest in purchasing new notes for cash prior to that date.
14
WHAT HAPPENS IF I DO NOT PARTICIPATE IN THE EXCHANGE OFFER?
If you do not participate in the exchange offer, you will not be
eligible to purchase additional new notes in the cash offer. If a significant
number of the existing notes are tendered and accepted in the exchange offer,
the liquidity and the trading market for existing notes will likely be impaired.
Also, the new notes will be senior in right of payment and preference to your
existing notes.
HOW WILL FRACTIONAL EXISTING NOTES BE SETTLED?
We will exchange $575 principal amount of new notes for each $1,000
principal amount of our existing notes that are tendered in the exchange. We
will issue new notes only in denominations of $1,000 and integral multiples of
$1,000. We will settle any fractional existing notes in cash. For example, if
you tender ten existing notes ($10,000 aggregate face value), you will receive
five new notes ($5,000 aggregate face value) and $750 in cash.
WHAT SHOULD I DO IF I HAVE ADDITIONAL QUESTIONS ABOUT THE EXCHANGE OFFER OR THE
CASH OFFER?
If you have any questions, need additional copies of the offering
material, or otherwise need assistance, please contact the information agent for
this offering.
Georgeson Shareholder Communications, Inc.
17 State Street, 10th Floor
New York, New York 10004
(866) 318-0506
To receive copies of our recent SEC filings, you can contact us by mail
or refer to the other sources described under "Where You Can Find More
Information."
15
RISK FACTORS
You should carefully consider the risks described below before you
decide to exchange your existing notes for new notes or buy for cash additional
new notes. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties that we do not presently
know or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, they could materially
adversely affect our business, financial condition or operating results. In that
case, the trading price of our common stock and the existing notes could
decline.
RISKS RELATED TO ALKERMES
J&J PRD RECEIVED A NON-APPROVABLE LETTER FOR RISPERDAL CONSTA FROM THE FDA AND
THE FUTURE OF RISPERDAL CONSTA IN THE UNITED STATES IS UNCERTAIN.
On June 28, 2002, J&J PRD, an affiliate of our collaborative partner
Janssen, received a non-approvable letter for Risperdal Consta from the FDA. The
issues raised in the letter may not be resolved on a timely basis, if at all,
and Risperdal Consta may not be approved for any commercial use in the United
States. The FDA's response to and issues with the New Drug Application, or NDA,
submitted with respect to Risperdal Consta may impact the response of regulatory
agencies in other countries where filings are pending. Even if Risperdal Consta
is approved in the United States or elsewhere, the timing of the approvals is
uncertain and there may be significant delays. It is uncertain whether the FDA's
issues with the NDA will impact the labeling of Risperdal Consta in the United
States or in other countries, if it is approved. The NDA was filed by an
affiliate of J&J PRD and Janssen, and they are responsible for obtaining
regulatory approvals. We cannot control the activity of any of our collaborative
partners, and we are dependent upon Janssen's efforts to resolve the FDA's
issues with the NDA for Risperdal Consta. Janssen may terminate our
collaboration, including the license and manufacturing agreements, based on its
right to do so on short notice under such agreements. If any of the foregoing
events were to occur, it would have a material adverse effect on our business,
results of operations and financial position.
OUR DELIVERY TECHNOLOGIES OR PRODUCT DEVELOPMENT EFFORTS MAY NOT PRODUCE SAFE,
EFFICACIOUS OR COMMERCIALLY VIABLE PRODUCTS.
Many of our product candidates require significant additional research
and development, as well as regulatory approval. To be profitable, we must
develop, manufacture and market our products, either alone or by collaborating
with others. It can take several years for a product candidate to be approved
and we may not be successful in bringing additional product candidates to the
market. A product candidate may appear promising at an early stage of
development or after clinical trials and never reach the market, or it may reach
the market and not sell, for a variety of reasons. The product candidate may:
o be shown to be ineffective or to cause harmful side effects during
preclinical testing or clinical trials;
o fail to receive regulatory approval on a timely basis or at all;
o be difficult to manufacture on a large scale;
o be uneconomical;
o not be prescribed by doctors or accepted by patients;
16
o fail to receive a sufficient level of reimbursement from
government or third-party payors; or
o infringe on proprietary rights of another party.
If our delivery technologies or product development efforts fail to
generate product candidates that lead to the successful development and
commercialization of products, or if our collaborative partners decide not to
pursue our product candidates or if new products do not perform as anticipated,
our business and financial condition will be materially adversely affected.
WE RELY HEAVILY ON COLLABORATIVE PARTNERS.
Our arrangements with collaborative partners are critical to our
success in bringing our products and product candidates to the market and
promoting such marketed products profitably. In some cases, we depend on these
parties to conduct preclinical testing and clinical trials and to provide
funding for product candidate development programs. Most of our collaborative
partners can terminate their agreements with us for no reason and on limited
notice. We cannot guarantee that any of these relationships will continue.
Specifically, GlaxoSmithKline ("Glaxo") has an option to develop products in two
designated fields in the respiratory disease market that expires at the end of
November 2002. We do not expect to extend Glaxo's option in these two fields
and, therefore, rights to those fields will revert to us. In addition, Glaxo has
rights to two other fields and it is uncertain whether they will elect to fund
product development programs in these fields. Failure to make or maintain these
arrangements or a delay in a collaborative partner's performance may materially
adversely affect our business and financial condition.
We cannot control our collaborative partners' performance or the
resources they devote to our programs. If a collaborative partner fails to
perform, or perform on a timely basis, the research, development or
commercialization program on which it is working will be delayed. If this
happens, we may have to use funds, personnel, laboratories and other resources
that we have not budgeted, and consequently, we may not be able to continue the
program. The failure of a collaborative partner to perform or a loss of a
collaborative partner may materially adversely affect our business and financial
condition.
Disputes may arise between us and a collaborative partner and may
involve the issue of which of us owns the technology that is developed during a
collaboration or other issues arising out of the collaborative agreements. Such
a dispute could delay the program on which the collaborative partner or we are
working. It could also result in expensive arbitration or litigation, which may
not be resolved in our favor.
A collaborative partner may choose to use its own or other technology
to develop a way to deliver its drug and withdraw its support of our product
candidate.
Our collaborative partners could merge with or be acquired by another
company or experience financial or other setbacks unrelated to our collaboration
that could, nevertheless, adversely affect us.
None of our drug delivery systems can be commercialized as stand-alone
products but must be combined with a drug. To develop any new proprietary
product candidate using one of these drug delivery systems, we often must obtain
the drug from another party. We cannot assure you that we will be able to obtain
any such drugs on reasonable terms, if at all.
17
THE RETURN FROM OUR INVESTMENT IN RELIANT IS UNCERTAIN.
In December 2001, we made a $100 million investment in Series C
Preferred Units of Reliant Pharmaceuticals, LLC ("Reliant") in exchange for
approximately a 19% interest in Reliant, and entered into a strategic
relationship with Reliant. Reliant is a privately held pharmaceutical company
marketing branded, prescription pharmaceutical products to primary care
physicians in the United States. Our investment in Reliant is illiquid and
requires us to take noncash charges. We recorded equity losses of approximately
$24.2 million at June 30, 2002 related to our Reliant investment, and we
anticipate that our investment in Reliant will result in continuing losses for
the foreseeable future. We may not see a return on this investment. In addition,
there can be no assurance that we will be able to successfully implement our
strategic relationship with Reliant.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our partners must demonstrate through preclinical testing and
clinical trials that our product candidates are safe and effective for use in
humans. We have incurred and we will continue to incur, substantial expense for,
and devote a significant amount of time to, preclinical testing and clinical
trials.
Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new drugs have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. To date, our proprietary product candidate, Vivitrex, has
only been tested in a small number of patients and there can be no assurance
that our Phase III clinical trial will produce results sufficient to obtain
regulatory approval. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
Clinical trials conducted by us, by our collaborative partners or by
third parties on our behalf may not demonstrate sufficient safety and efficacy
to obtain the requisite regulatory approvals for our product candidates.
Regulatory authorities may not permit us to undertake any additional clinical
trials for our product candidates.
Clinical trials of each of our product candidates involve a drug
delivery technology and a drug. This makes testing more complex because the
outcome of the trials depends on the performance of technology in combination
with a drug.
We have other product candidates in preclinical development. We have
not submitted Investigational New Drug Applications, or INDs, or begun clinical
trials for these product candidates. Preclinical and clinical development
efforts performed by us may not be successfully completed. We may not file
further INDs. We or our collaborative partners may not begin clinical trials as
planned.
Completion of clinical trials may take several years or more. The
length of time can vary substantially with the type, complexity, novelty and
intended use of the product candidate. The commencement and rate of completion
of clinical trials may be delayed by many factors, including the:
o inability to recruit clinical trial participants at the expected
rate;
o failure of clinical trials to demonstrate a product candidate's
safety or efficacy;
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o inability to follow patients adequately after treatment;
o unforeseen safety issues;
o inability to manufacture sufficient quantities of materials used
for clinical trials; and
o unforeseen governmental or regulatory delays.
If a product candidate fails to demonstrate safety and efficacy in
clinical trials, this failure may delay development of other product candidates
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of these failures, we may also be unable to find additional
collaborative partners or to obtain additional financing. Our business and
financial condition may be materially adversely affected by any delays in, or
termination of, our clinical trials.
WE WILL NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE.
We will need to spend substantial amounts of money before we can be
profitable, and there can be no assurance we will achieve profitability. The
amount we will spend and when we will spend it depends, in part, on:
o the progress of our research and development programs for
proprietary and collaborative product candidates, including
clinical trials;
o the time and expense that will be required to pursue FDA or
foreign regulatory approvals for our product candidates, and
whether such approvals are obtained;
o the cost of building, operating and maintaining manufacturing and
research facilities;
o how many product candidates we pursue, particularly proprietary
product candidates;
o the time and expense required to prosecute, enforce and/or
challenge patent and other intellectual property rights;
o how competing technological and market developments affect our
product candidates;
o the cost of possible acquisitions of drug delivery technologies,
compounds, product rights or companies; and
o the cost of obtaining licenses to use technology owned by others
for proprietary products and otherwise.
If we require additional funds to complete any of our programs, we may
seek funds through arrangements with collaborative partners, by issuing
securities, through debt or bank financing or other financing structures. We
will continue to pursue opportunities to obtain additional financing in the
future. Such financing may be sought through various sources, including debt and
equity offerings, corporate collaborations, bank borrowings, lease arrangements
relating to fixed assets or other financing methods. The source, timing and
availability of any financings will depend on market conditions, interest rates
and other factors. Our future capital requirements will also depend on many
factors, including continued scientific progress in our research and development
programs (including our proprietary product candidates), the magnitude of these
programs, progress with preclinical testing and clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and
19
enforcing patent claims, competing technological and market developments, the
establishment of additional collaborative arrangements, the cost of
manufacturing facilities and of commercialization activities and arrangements
and the cost of product in-licensing and any possible acquisitions. If we are
unable to raise additional funds on terms that are favorable to us, we may have
to cut back significantly on one or more of our programs, give up some of our
rights to our technologies, product candidates or licensed products or agree to
reduced royalty rates from collaborative partners.
WE ANTICIPATE THAT WE WILL INCUR SUBSTANTIAL LOSSES IN THE FORESEEABLE FUTURE.
We have had net operating losses since being founded in 1987. At June
30, 2002, our accumulated deficit was $389.1 million. These losses principally
consisted of the costs of research and development and general and
administrative expenses, as well as noncash compensation costs and noncash
charges related to our share of Reliant Pharmaceuticals, LLC's losses. We expect
to incur substantial additional expenses over the next several years as our
research and development activities, including clinical trials, increase and as
we continue to manufacture products. In addition, we expect these costs to
increase over prior years as we expand development of our collaborators' and our
own product candidates.
Our future profitability depends, in part, on our ability to:
o obtain and maintain regulatory approval for our products in the
United States and in foreign countries;
o enter into agreements to develop and commercialize products;
o develop and expand our capacity to manufacture and market products
or enter into agreements with others to do so;
o obtain adequate reimbursement coverage for our products from
insurance companies, government programs and other third party
payors;
o obtain additional research and development funding from
collaborative partners; and
o achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, we cannot
provide assurances that we will ever be profitable or achieve significant
revenues. Even if we do achieve some or all of these goals, we may not achieve
significant commercial success.
OUR MANUFACTURING EXPERIENCE IS LIMITED.
We currently manufacture Nutropin Depot, Risperdal Consta and all of
our product candidates, except Cereport. The manufacture of drugs for clinical
trials and for commercial sale is subject to regulation by the FDA under
then-current good manufacturing practices regulations and by other regulators
under other laws and regulations. We have manufactured product candidates for
use in clinical trials but have limited experience manufacturing products for
commercial sale. We cannot assure you that we can successfully manufacture our
products under current good manufacturing practices regulations or other laws
and regulations in sufficient quantities for commercial sale, or in a timely or
economical manner.
20
Our manufacturing facilities in Massachusetts and Ohio require
specialized personnel and are expensive to operate and maintain. Any delay in
the regulatory approval or market launch of product candidates to be
manufactured in these facilities will require us to continue to operate these
expensive facilities and retain specialized personnel, which may increase our
expected losses.
We have a number of manufacturing facilities, including good
manufacturing practices facilities for Nutropin Depot and Risperdal Consta, and
facilities for future ProLease product candidates, Medisorb product candidates
and AIR pulmonary drug delivery product candidates. We are currently expanding
our facility in Ohio for Risperdal Consta and our Medisorb technology product
candidates and constructing a facility in Massachusetts for our AIR technology
product candidates. To date, the FDA has inspected and approved our
manufacturing facility for Nutropin Depot and inspected our manufacturing
facility for Risperdal Consta and issued an approvable letter. We cannot
guarantee that the FDA or foreign regulatory agencies will approve any of the
other facilities or, once they are approved, that such facilities will remain in
compliance with current good manufacturing practices regulations.
If more of our product candidates progress to mid- to late-stage
development, we will incur significant expenses in the expansion and/or
construction of manufacturing facilities and increases in personnel in order to
manufacture product candidates. The development of a commercial-scale
manufacturing process is complex and expensive. We cannot assure you that we
will be able to develop this manufacturing infrastructure in a timely or
economical manner, or at all.
Currently, many of our product candidates, including Vivitrex, are
manufactured in small quantities for use in clinical trials. We cannot assure
you that we will be able to successfully scale-up the manufacture of each of our
product candidates in a timely or economical manner, or at all. If any of these
product candidates are approved by the FDA or other drug regulatory authorities
for commercial sale, we will need to manufacture them in larger quantities. If
we are unable to successfully scale-up our manufacturing capacity, the
regulatory approval or commercial launch of such product candidate may be
delayed or there may be a shortage in supply of such product candidate.
If we fail to develop manufacturing capacity and experience, fail to
continue to contract for manufacturing on acceptable terms, or fail to
manufacture our product candidates economically on a commercial scale or in
accordance with cGMP regulations, our development programs will be materially
adversely affected. This may result in delays in receiving FDA or foreign
regulatory approval for one or more of our product candidates or delays in the
commercial production of a product that has already been approved. Any such
delays could materially adversely affect our business and financial condition.
THE FDA OR FOREIGN REGULATORY AGENCIES MAY NOT APPROVE OUR PRODUCT CANDIDATES.
Approval from the FDA is required to manufacture and market
pharmaceutical products in the United States. Regulatory agencies in foreign
countries have similar requirements. The process that pharmaceutical products
must undergo to obtain this approval is extensive and includes preclinical
testing and clinical trials to demonstrate safety and efficacy and a review of
the manufacturing process to ensure compliance with current good manufacturing
practices regulations. This process can last many years and be very costly and
still be unsuccessful. FDA or foreign regulatory approval can be delayed,
limited or not granted at all for many reasons, including:
o a product candidate may not be safe or effective;
o data from preclinical testing and clinical trials may be
interpreted by the FDA or foreign regulatory agencies in different
ways than we or our partners interpret it;
21
o the FDA or foreign regulatory agencies might not approve our
manufacturing processes or facilities;
o the FDA or foreign regulatory agencies may change their approval
policies or adopt new regulations;
o a product candidate may not be approved for all the indications we
or our partners request; and
o the FDA may not agree with our or our partners' regulatory
approval strategies or components of our or our partners' filings,
such as clinical trial designs.
For some product candidates, the drug used has not been approved at all
or has not been approved for every indication it is targeting. Any delay in the
approval process for any of our product candidates will result in increased
costs that could materially and adversely affect our business and financial
condition.
Regulatory approval of a product candidate is limited to specific
therapeutic uses for which the product has demonstrated safety and efficacy in
clinical testing. Approval of a product candidate could also be contingent on
post-marketing studies. In addition, any marketed drug and its manufacturer
continue to be subject to strict regulation after approval. Any unforeseen
problems with an approved drug or any violation of regulations could result in
restrictions on the drug, including its withdrawal from the market.
OUR PRODUCT CANDIDATES MAY NOT GENERATE SIGNIFICANT REVENUES.
Even if a product receives regulatory approval for commercial use, the
revenues received or to be received from the sale of such products may not be
significant and will depend on numerous factors outside of our control,
including, in many instances, our collaborators' decisions on pricing and
discounting, the reliance on third-party marketing partners outside the United
States, the ability to obtain reimbursement from third-party payors, the market
size for the product, the reaction of companies that market competitive products
and general market conditions. In addition, if certain volume levels are not
achieved, the costs to manufacture our products may be higher than anticipated.
Risperdal Consta
An NDA for Risperdal Consta was submitted to the FDA in August 2001 by
Janssen Pharmaceutica Products, LP. A number of similar filings have been
submitted with drug regulatory authorities worldwide by Janssen. On June 28,
2002, J&J PRD, an affiliate of Janssen, received a non-approvable letter for
Risperdal Consta from the FDA. There can be no assurance that the NDA or other
foreign regulatory filings will be approved in a timely fashion, if at all. If
there is a significant delay in resolving the issues raised by the FDA, we may
incur significant expenses without receipt of the corresponding royalty and
manufacturing revenues. The revenues received from the sale of Risperdal Consta
may not be significant and may depend on numerous factors outside of our
control, including those outlined above. In addition, the costs to manufacture
Risperdal Consta may be higher than anticipated if certain volume levels are not
achieved. If Risperdal Consta does not produce significant revenues or if the
manufacturing costs are higher than anticipated, our business, results of
operations and financial condition would be materially adversely affected.
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Vivitrex
We are currently conducting a Phase III clinical trial in
alcohol-dependent patients testing the safety and efficacy of repeat doses of
Vivitrex, an injectable extended-release formulation of naltrexone. To date, our
proprietary product candidate, Vivitrex, has only been tested in a small number
of patients and there can be no assurance that the Phase III clinical trial will
produce results sufficient to obtain regulatory approvals. Even if the Phase III
clinical trial is successful and we submit an NDA to the FDA, there can be no
assurance that the FDA will accept our data or that the NDA will be approved. We
are relying on data from the original approval of oral naltrexone under Section
505(b)(2) of the U.S. Food, Drug and Cosmetic Act. While we believe only one
Phase III efficacy study will be required for approval, the FDA will require
that additional safety data be collected on Vivitrex's long-term use before
approval. Even if an NDA is approved, we will have to market it ourselves or
enter into co-promotion or sales and marketing arrangements with other
companies. We currently have no sales force or any marketing experience and
arrangements with other companies will result in dependence on such other
companies for revenues. In either event, a market for Vivitrex may not develop
as expected. There are manufacturing risks that come with the manufacture of
Vivitrex. See "Our manufacturing experience is limited." In addition, naltrexone
is made using controlled substances and, therefore, we may be unable to obtain
commercial-quantity supplies of naltrexone on commercially reasonable terms.
IF AND WHEN APPROVED, THE COMMERCIAL USE OF OUR PRODUCTS MAY CAUSE UNINTENDED
SIDE EFFECTS OR ADVERSE REACTIONS, OR INCIDENCE OF MISUSE MAY APPEAR.
We cannot predict whether the commercial use of products (or product
candidates in development if and when they are approved for commercial use) will
produce undesirable or unintended side effects that have not been evident in the
use of or clinical trials conducted for such products (and product candidates)
to date. Additionally, incidents of product misuse may occur. These events,
among others, could result in product recalls or withdrawals or additional
regulatory controls.
PATENT PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN.
The following factors are important to our success:
o receiving and maintaining patent protection for our products and
product candidates and for those of our collaborative partners;
o maintaining our trade secrets;
o not infringing the proprietary rights of others; and
o preventing others from infringing our proprietary rights.
Patent protection only provides exclusive rights for the term of the
patent. We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We know of several U.S. patents issued to third parties that relate to
our product candidates. One of those third parties has asked us to compare our
Medisorb technology to that third party's patented technology. Another such
third party has asked a collaborative partner to substantiate how our ProLease
microspheres are different from that third party's patented technology. The
manufacture, use, offer for sale, sale or importing of any of these product
candidates might be found to infringe on the claims of
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these third party patents. A third party might file an infringement action
against us. Our cost of defending such an action is likely to be high and we
might not receive a favorable ruling.
We also know of patent applications filed by other parties in the
United States and various foreign countries that may relate to some of our
product candidates if such patents are issued in their present form. If patents
are issued to any of these applicants, we may not be able to manufacture, use,
offer for sale, or sell some of our product candidates without first getting a
license from the patent holder. The patent holder may not grant us a license on
reasonable terms or it may refuse to grant us a license at all. This could delay
or prevent us from developing, manufacturing or selling those of our product
candidates that would require the license.
We try to protect our proprietary position by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. Because the
patent position of pharmaceutical and biotechnology companies involves complex
legal and factual questions, enforceability of patents cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that we own or license from others may not provide any
protection against competitors. Our pending patent applications, together with
those we may file in the future, or those we may license from third parties, may
not result in patents being issued. Even if issued, such patents may not provide
us with sufficient proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
The laws of certain foreign countries do not protect our intellectual property
rights to the same extent as do the laws of the United States.
We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our collaborative partners, licensors, employees and
consultants. Any of these parties may breach the agreements and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be disclosed to or independently developed by a competitor,
our business and financial condition could be materially adversely affected.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS AND RECALLS.
We may be exposed to liability claims arising from the commercial sale
of our products, Nutropin Depot or Risperdal Consta, or the use of our product
candidates in clinical trials and those awaiting regulatory approval. These
claims may be brought by consumers, our collaborative partners or third parties
selling the products. We currently carry product liability insurance coverage in
such amounts as we believe are sufficient for our business. However, we cannot
provide any assurance that this coverage will be sufficient to satisfy any
liabilities that may arise. As our development activities progress and we
continue to have commercial sales, this coverage may be inadequate; we may be
unable to obtain adequate coverage at an acceptable cost or we may be unable to
get adequate coverage at all. This could prevent or limit our commercialization
of our product candidates or commercial sales of our products. Even if we are
able to maintain insurance that we believe is adequate, our financial condition
may be materially adversely affected by a product liability claim.
Additionally, product recalls may be issued at our discretion or at the
direction of the FDA, other government agencies or other companies having
regulatory control for pharmaceutical product sales. We cannot assure you that
product recalls will not occur in the future or that, if such recalls occur,
such recalls will not adversely affect our business, financial condition or
reputation.
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WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT OF PRODUCTS FOR OUR OWN ACCOUNT.
In addition to our development work with collaborative partners, we are
developing proprietary product candidates for our own account by applying drug
delivery technologies to off-patent drugs. Because we will be funding the
development of such programs, there is a risk that we may not be able to
continue to fund all such programs to completion or to provide the support
necessary to perform the clinical trials, obtain regulatory approvals or market
any approved products on a worldwide basis. We expect the development of
products for our own account to consume substantial resources. If we are able to
develop commercial products on our own, the risks associated with these programs
may be greater than those associated with our programs with collaborative
partners.
IF WE ARE NOT ABLE TO DEVELOP NEW PRODUCTS, OUR BUSINESS MAY SUFFER.
We compete with other pharmaceutical companies, including large
pharmaceutical companies with financial resources and capabilities substantially
greater than our resources and capabilities, in the development of new products.
We cannot assure you that we will be able to:
o develop or successfully commercialize new products on a timely
basis or at all; or
o develop new products in a cost effective manner.
Further, other companies may develop products or may acquire technology
for the development of products that are the same as or similar to the product
candidates we have in development. Because there is rapid technological change
in the industry and because other companies have more resources than we do,
other companies may:
o develop their products more rapidly than we can;
o complete any applicable regulatory approval process sooner than we
can; or
o offer their newly developed products at prices lower than our
prices.
Any of the foregoing may negatively impact our sales of newly developed
products. Technological developments or the FDA's approval of new therapeutic
indications for existing products may make our existing products or those
product candidates we are developing obsolete or may make them more difficult to
market successfully, any of which could have a material adverse effect on our
business and financial condition.
WE FACE COMPETITION IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES.
We can provide no assurance that we will be able to compete
successfully against the competitive forces in developing our product and
product candidates.
We face intense competition from academic institutions, government
agencies, research institutions and biotechnology and pharmaceutical companies,
including other drug delivery companies. Some of these competitors are also our
collaborative partners. These competitors are working to develop and market
other drug delivery systems, pharmaceutical products, vaccines and other methods
of preventing or reducing disease, and new small-molecule and other classes of
drugs that can be used without a drug delivery system.
25
There are other companies developing extended-release drug delivery
systems and pulmonary delivery systems. In many cases, there are products on the
market or in development that may be in direct competition with our products or
product candidates. In addition, we know of new chemical entities that are being
developed that, if successful, could compete against our product candidates.
These chemical entities are being designed to work differently than our product
candidates and may turn out to be safer or to be more effective than our product
candidates. Among the many experimental therapies being tested in the U.S. and
Europe, there may be some that we do not now know of that may compete with our
drug delivery systems or product candidates. Our collaborative partners could
choose a competing drug delivery system to use with their drugs instead of one
of our drug delivery systems.
Many of our competitors have much greater capital resources,
manufacturing, research and development resources and production facilities than
we do. Many of them also have much more experience than we do in preclinical
testing and clinical trials of new drugs and in obtaining FDA and foreign
regulatory approvals.
Major technological changes can happen quickly in the biotechnology and
pharmaceutical industries, and the development by competitors of technologically
improved or different products or drug delivery technologies may make our
product candidates or platform technologies obsolete or noncompetitive.
Further, our product candidates may not gain market acceptance among
physicians, patients, healthcare payors and the medical community. The degree of
market acceptance of any product candidates that we develop will depend on a
number of factors, including:
o demonstration of their safety and clinical efficacy;
o their cost-effectiveness;
o their potential advantage over alternative treatment methods;
o the marketing and distribution support they receive; and
o reimbursement policies of government and third-party payors.
Our product candidates, if successfully developed and approved for
commercial sale, will compete with a number of drugs and therapies currently
manufactured and marketed by major pharmaceutical and other biotechnology
companies. Our product candidates may also compete with new products currently
under development by others or with products which may cost less than our
product candidates. Physicians, patients, third-party payors and the medical
community may not accept or utilize any of our product candidates that may be
approved. If our products do not achieve significant market acceptance, our
business and financial condition will be materially adversely affected.
WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL.
Our success depends on the services of key employees in executive,
research and development, manufacturing, and regulatory positions. The loss of
the services of key employees could have a material adverse effect on our
business. On August 26, 2002, we reduced our workforce by 122 employees,
representing approximately 23% of our employees. This reduction in workforce
reduced the total number of our employees to 419 from 541 employees. We can
provide no assurance that further reductions in force will not occur.
26
IF WE ISSUE ADDITIONAL COMMON STOCK, YOU MAY SUFFER DILUTION OF YOUR INVESTMENT
AND A DECLINE IN STOCK PRICE.
As discussed above under "We will need to spend substantial funds to
become profitable," we may issue additional equity securities to raise funds,
thus reducing the ownership share of the current holders of our common stock,
which may adversely affect the market price of the common stock. In addition, we
were obligated, at June 30, 2002, to issue 11,368,201 shares of common stock
upon the vesting and exercise of stock options and vesting of stock awards. Any
of our shareholders could sell all or a large number of their shares, which
could adversely affect the market price of our common stock.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.
The realization of any of the risks described in these "Risk Factors"
or other unforeseen risks could have a dramatic and adverse effect on the market
price of our common stock. Additionally, market prices for securities of
biotechnology and pharmaceutical companies, including ours, have historically
been very volatile. The market for these securities has from time to time
experienced significant price and volume fluctuations for reasons that were
unrelated to the operating performance of any one company. In particular and in
addition to circumstances described elsewhere under "Risk Factors," the
following factors can adversely affect the market price of our common stock:
o non-approval or set-backs in development of our product candidates
and success of our research and development programs;
o public concern as to the safety of drugs developed by us or
others;
o announcements of issuances of common stock or acquisitions by
Alkermes;
o developments of our corporate partners;
o announcements of technological innovations or new therapeutic
products by us or others;
o changes in government regulations or patent decisions; and
o general market conditions.
WE MAY ENCOUNTER DIFFICULTIES INTEGRATING FUTURE ACQUISITIONS.
We have in the past and may again acquire novel technologies, compounds
or the rights to certain products through acquisitions of such technologies and
intellectual property rights or through the acquisition of businesses or
companies. We cannot assure you that any such future acquisition will be
completed, successfully integrated with our current businesses, will achieve
revenues or will be profitable. We may have difficulty assimilating the
operations, technology and personnel of any acquired businesses.
If we make significant acquisitions for stock consideration, the
current holders of our common stock may be significantly diluted. If we make
significant acquisitions for cash consideration, we may be required to use a
substantial portion of our available cash.
27
ANTI-TAKEOVER PROVISIONS MAY NOT BENEFIT SHAREHOLDERS.
We are a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a person or group to acquire
control of us, even if the change in control would be beneficial to
shareholders. Our articles of incorporation and bylaws also contain certain
provisions that could have a similar effect. The articles provide that our board
of directors may issue, without shareholder approval, preferred stock having
such voting rights, preferences and special rights as the board of directors may
determine. The issuance of such preferred stock could make it more difficult for
a third party to acquire us.
RISKS RELATED TO THE NEW NOTES
THE NEW NOTES ARE SUBORDINATED TO OUR SENIOR DEBT, BUT SENIOR IN PAYMENT TO THE
EXISTING NOTES.
The new notes will be unsecured and subordinated in right of payment to
senior debt, including our existing bank loan. The new notes are senior to the
existing notes. As a result of such subordination, in the event of our
liquidation or insolvency, a payment default with respect to senior debt, a
covenant default with respect to designated senior debt or upon acceleration of
the new notes due to an event of default, our assets will be available to pay
obligations on the new notes only after all senior debt has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the new notes then outstanding. Neither we nor our subsidiaries are
prohibited under the new notes indenture from incurring additional debt.
OUR SUBSIDIARIES WILL NOT BE PROHIBITED FROM INCURRING DEBTS IN THE FUTURE THAT
WOULD BE SENIOR TO THE NEW NOTES.
At June 30, 2002, we had approximately $10.7 million of outstanding
senior indebtedness.
The new notes are effectively subordinate to all indebtedness and other
liabilities of our subsidiaries. Substantially all of our operations are
conducted through our subsidiaries. Because substantially all of our operations
are conducted through subsidiaries, claims of holders of indebtedness of such
subsidiaries, as well as claims of regulators and creditors of such
subsidiaries, will have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of Alkermes, including the new note
holders.
The new notes are obligations exclusively of Alkermes, Inc. Our
subsidiaries are separate and distinct legal entities. Our subsidiaries have no
obligation to pay any amounts due on the new notes or to provide us with funds
for our payment obligations, whether by dividends, distributions, loans or other
payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations.
WE MAY NOT HAVE THE FINANCIAL RESOURCES TO REPURCHASE THE NEW NOTES IN THE EVENT
OF A CHANGE IN CONTROL.
We may be unable to repurchase the new notes in the event of a change
in control. Upon a change in control, you may require us to repurchase all or a
portion of your new notes. If a change in control were to occur, we may not have
enough funds to pay the repurchase price for all tendered new notes. Any future
credit agreements or other debt agreements may prohibit repurchase of the new
notes for cash, or expressly prohibit the repurchase of the new notes upon a
change in control or may provide that a change in control constitutes an event
of default under that agreement. If a change in control occurs
28
at a time when we are prohibited from repurchasing the new notes, we could seek
the consent of our lenders to repurchase the new notes or could attempt to
refinance the debt agreements. If we do not obtain consent, we could not
repurchase the new notes. Our failure to repurchase the new notes would
constitute an event of default under the new notes indenture, which might
constitute an event of default under the terms of our other debt. Our obligation
to offer to repurchase the new notes upon a change in control would not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction.
IF AN ACTIVE MARKET FOR THE NEW NOTES FAILS TO DEVELOP, THE TRADING PRICE AND
LIQUIDITY OF THE NEW NOTES COULD BE MATERIALLY ADVERSELY AFFECTED.
Prior to the offering there has been no trading market for the new
notes. The dealer manager has advised us that it currently intends to make a
market in the new notes. The liquidity of the trading market for the new notes
will depend in part on the level of participation of the holders of existing
notes in the exchange offer. The greater the participation in the exchange
offer, the greater the liquidity of the trading market for the new notes and the
lesser the liquidity of the trading market for the existing notes not tendered
in the exchange offer. However, U.S. Bancorp Piper Jaffray is not obligated to
make a market and may discontinue this market making activity at any time
without notice. In addition, market making activity by U.S. Bancorp Piper
Jaffray will be subject to the limits imposed by the Securities Act and the
Exchange Act. As a result, we cannot assure you that any market for the new
notes will develop or, if one does develop, that it will be maintained. If an
active market for the new notes fails to develop or be sustained, the trading
price and liquidity of the new notes could be materially adversely affected.
WE EXPECT THE TRADING PRICE OF THE NEW NOTES AND THE UNDERLYING COMMON STOCK TO
BE HIGHLY VOLATILE, WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR NEW
NOTES AND UNDERLYING COMMON STOCK.
The trading price of the new notes and the underlying common stock will
fluctuate in response to variations in:
o our operating results;
o announcements by us or our competitors of technological
innovations or new products; and
o general economic and market conditions.
In addition, stock markets have experienced extreme price volatility in
recent years, particularly for biotechnology companies. In the past, our common
stock has experienced volatility not necessarily related to announcements of our
financial performance. Broad market fluctuations may also adversely affect the
market price of our new notes and underlying common stock.
IF WE AUTOMATICALLY CONVERT THE NEW NOTES, YOU SHOULD BE AWARE THAT THERE IS A
SUBSTANTIAL RISK OF FLUCTUATION IN THE PRICE OF OUR COMMON STOCK FROM THE DATE
WE ELECT TO AUTOMATICALLY CONVERT TO THE CONVERSION DATE.
We may elect to automatically convert the new notes on or prior to
maturity if our common stock price has exceeded 150% of the conversion price for
at least 20 trading days during a 30-day trading period ending within five
trading days prior to the notice of automatic conversion. You should be aware
that there is a risk of fluctuation in the price of our common stock between the
time when we may first elect to automatically convert the new notes and the
automatic conversion date. This time period may
29
extend up to 30 calendar days from the time we elect to automatically convert
the new notes until the conversion date.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Summary" and "Risk
Factors," contains forward-looking information. This forward-looking information
is subject to risks and uncertainties including the factors listed under "Risk
Factors," as well as elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and may be
inaccurate. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
30
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the existing
notes for the new notes pursuant to the exchange offer. We also are offering up
to $50,000,000 aggregate principal amount of additional new notes for cash. We
intend to use the net proceeds, if any, from the sale of the additional new
notes for research, development and clinical trial activities, especially for
proprietary compounds, and for manufacturing facilities and equipment. We may
also use the proceeds to license or otherwise acquire additional drug delivery
technologies or compounds for use in proprietary products, although no such
actions are currently contemplated. In addition, we expect to use the net
proceeds for working capital and other corporate purposes. We have not yet
determined the amount of net proceeds to be used specifically for each of these
purposes. Pending such use, we intend to invest the net proceeds in cash
equivalents, U.S. government obligations, high-grade corporate notes and
commercial paper.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the
symbol ALKS. As of November 5, 2002, our common stock was held by 642 holders.
Set forth below for the indicated periods are the high and low sale prices for
our common stock. The closing share price of our common stock on November 5,
2002 was $10.73.
HIGH LOW
---- ---
Fiscal year ending March 31, 2001
First Quarter......................................................... $55.00 $21.56
Second Quarter........................................................ 49.38 29.00
Third Quarter......................................................... 43.50 25.69
Fourth Quarter........................................................ 33.50 18.75
Fiscal year ending March 31, 2002
First Quarter......................................................... $37.75 $20.38
Second Quarter........................................................ 35.36 17.39
Third Quarter......................................................... 28.90 18.22
Fourth Quarter........................................................ 31.39 23.67
Fiscal year ending March 31, 2003
First Quarter......................................................... $26.65 $14.65
Second Quarter........................................................ 10.68 3.55
Third Quarter (through November __, 2002).............................
DIVIDEND POLICY
No dividends have been paid on the common stock or non-voting common
stock to date and we do not expect to pay cash dividends thereon in the
foreseeable future.
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended March 31, Three Months Ended June 30,
------------------------------------------------------- ----------------------------------
1998 1999 2000 2001 2002 2002
------------------------------------------------------- ----------------------------------
Ratio of earnings to fixed
charges(1)................... --- --- --- 0.13x --- ---
============================================================================================
(1) For the fiscal years ended March 31, 1998, 1999, 2000 and 2002 and for the
three months ended June 30, 2002, earnings were insufficient to cover fixed
charges by $9,868,000, $30,034,000, $53,439,000, $49,129,000 and
$108,327,000, respectively. For this reason, no ratios are provided for
those periods.
31
CAPITALIZATION
The following table sets forth the consolidated unaudited
capitalization of Alkermes:
o at June 30, 2002:
o as adjusted to give effect to the issuance of the new notes in the
exchange offer on the assumption that all of the outstanding
existing notes were validly tendered and accepted for exchange;
o as adjusted to give effect to the issuance for cash of an
additional $50 million of new notes; and
o as adjusted to reflect a net gain of $80.7 million on the assumed
early extinguishment of all outstanding existing notes. This
extinguishment of debt will result in recognition of gain in our
statement of operations in the period in which the exchange offer
is consummated.
To the extent that existing notes are not validly tendered or accepted
in the exchange offer, the amount attributed to the new notes would decrease,
the amount attributed to the existing notes would increase and the accumulated
deficit would increase. The financial data at June 30, 2002 in the following
table are derived from our unaudited financial statements for the quarter ended
June 30, 2002.
June 30, 2002
--------------------------------------------
Actual As Adjusted
------ -----------
(unaudited)
(dollars in thousands)
Current portion of long-term debt .......................... $ 3,900 $ 3,900
--------- ---------
Long term debt, less current portion:
6.52% Convertible senior subordinated notes
(new notes) ...................................... -- 165,000
3.75% Convertible subordinated notes
(existing notes) ................................. 200,000 --
Other long-term debt ....................................... 6,825 6,825
--------- ---------
Total long-term debt .......................... 206,825 171,825
--------- ---------
Shareholders' equity:
Preferred stock, par value $.01 per share: authorized,
3,000,000 shares; none issued .................... -- --
Common stock, par value $.01 per share: authorized,
160,000,000; issued and outstanding, 64,290,178
shares at June 30, 2002(1) ....................... 643 643
Non-voting common stock, par value $.01 per share:
authorized, 450,000; issued and outstanding,
382,632 shares at June 30, 2002 .................. 3 3
Additional paid-in capital ........................... 444,852 444,852
Deferred compensation ................................ (2,587) (2,587)
Accumulated other comprehensive income ............... 692 692
Accumulated deficit .................................. (389,117) (308,417)
--------- ---------
Total shareholders' equity ........................... 54,486 135,186
--------- ---------
Total capitalization ......................... $ 265,211 $ 310,911
========= =========
(1) Outstanding shares exclude the shares reserved for issuance upon conversion
of the new notes and 11,368,201 shares issuable under our stock award plans.
32
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
Alkermes. The consolidated statements of operations data for the years ended
March 31, 2002, 2001 and 2000, and the consolidated balance sheet data as of
March 31, 2002 and 2001, have been derived from our consolidated financial
statements, which are incorporated by reference into this prospectus, and which
have been audited by Deloitte & Touche LLP, independent auditors. The
consolidated statement of operations data for the years ended March 31, 1999 and
1998 and the consolidated balance sheet data as of March 31, 2000, 1999 and
1998, are derived from audited consolidated financial statements not included in
or incorporated by reference in this prospectus. The financial data for the
three-month periods ended June 30, 2002 and 2001 are derived from unaudited
financial statements incorporated by reference in this prospectus. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which Alkermes considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended June 30, 2002 are not necessarily indicative
of the results that may be expected for the entire year ending March 31, 2003.
The data should be read in conjunction with the consolidated financial
statements, related notes, and other financial information incorporated by
reference herein. See "Where You Can Find More Information."
ALKERMES, INC. AND SUBSIDIARIES
(in thousands, except per share data)
THREE MONTHS
CONSOLIDATED STATEMENT OF ENDED
OPERATIONS DATA: YEAR ENDED MARCH 31, JUNE 30,
-------------------------------------------------------------- ------------------------
2002 2001 2000 1999 1998 2002 2001
-------------------------------------------------------------- ------------------------
Revenues:
Revenue under collaborative
arrangements ................. $ 54,102 $ 56,030 $ 22,920 $ 33,892 $ 25,585 $ 10,291 $ 15,527
-------------------------------------------------------------- ------------------------
Expenses:
Research and development ....... 92,092 68,774 54,483 48,457 31,762 24,600 20,710
General and administrative ..... 24,387 19,611 14,878 14,556 8,375 6,016 5,374
Noncash compensation (income)
expense attributed to research
and development .............. -- (2,448) 29,493 16,239 2,183 -- --
-------------------------------------------------------------- ------------------------
Purchase of in-process research
and development ................. -- -- -- 3,221 -- -- --
-------------------------------------------------------------- ------------------------
Total expenses .................. 116,479 85,937 98,854 82,473 42,320 30,616 26,084
-------------------------------------------------------------- ------------------------
Net operating loss ................ (62,377) (29,907) (75,934) (48,581) (16,735) (20,325) (10,558)
-------------------------------------------------------------- ------------------------
Total other income (expense) ... 6,426 13,038 7,887 7,525 4,153 (715) 2,215
-------------------------------------------------------------- ------------------------
Equity in losses of Reliant
Pharmaceuticals, LLC ............ (5,403) -- -- -- -- (24,213) --
-------------------------------------------------------------- ------------------------
Net loss .......................... (61,355) (16,869) (68,047) (41,056) (12,582) (45,253) (8,343)
Preferred stock dividends ......... -- 7,268 9,389 7,455 -- -- --
-------------------------------------------------------------- ------------------------
Net loss attributable to common
shareholders .................... ($ 61,355) ($ 24,137) ($ 77,436) ($ 48,514) ($ 12,582) ($ 45,253) ($ 8,343)
============================================================== ========================
Basic and diluted loss per common
share ........................... ($ 0.96) ($ 0.43) ($ 1.52) ($ 0.99) ($ 0.27) ($ 0.70) ($ 0.13)
============================================================== ========================
Weighted average number of
common shares outstanding ....... 63,669 55,746 51,015 49,115 46,038 64,261 63,237
============================================================== ========================
CONSOLIDATED BALANCE SHEET DATA: AT MARCH 31, AT JUNE 30,
-------------------------------------------------------------- ------------------------
2002 2001 2000 1999 1998 2002
-------------------------------------------------------------- ------------------------
Cash and cash equivalents and
short-term investments ......... $ 152,347 $ 254,928 $ 337,367 $ 163,419 $ 194,258 $ 109,828
Other current assets .............. 24,290 16,678 8,474 5,745 8,562 25,149
Total assets ...................... 350,350 391,297 413,961 213,452 220,977 297,603
Current liabilities ............... 42,886 31,062 22,487 28,500 19,517 36,292
Long-term obligations ............. 207,800 211,825 222,792 28,417 12,933 206,825
Shareholders' equity .............. 99,664 148,410 167,967 156,206 181,455 54,486
33
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
We are offering to exchange your existing notes for new notes as
follows:
o $575 principal amount of new notes for each $1,000 principal amount of
existing notes for up to 100% of the aggregate outstanding principal
amount of existing notes. The new notes will be issued in denominations
of $1,000 and any integral multiple of $1,000. We will pay cash for any
fractional portion of existing notes tendered.
Based on the principal amounts outstanding as of the date of this
prospectus, we are offering to acquire up to $200,000,000 aggregate principal
amount of existing notes that are validly tendered on the terms and subject to
the conditions set forth in this prospectus and in the accompanying letter of
transmittal. In addition, if you elect to tender existing notes in the exchange
offer, you will have the right to participate in the cash offering of up to $50
million principal amount of additional new notes.
You may tender all, some or none of your existing notes, subject to the
terms and conditions of the exchange offer. Holders of existing notes must
tender their existing notes in a minimum $1,000 principal amount and multiples
thereof.
The exchange offer is not being made to, and we will not accept tenders
for exchange from, holders of existing notes in any jurisdiction in which the
exchange offer or the acceptance of the offer would not be in compliance with
the securities or blue sky laws of that jurisdiction.
OUR BOARD OF DIRECTORS AND OFFICERS DO NOT MAKE ANY RECOMMENDATION TO
THE HOLDERS OF EXISTING NOTES AS TO WHETHER OR NOT TO EXCHANGE ALL OR ANY
PORTION OF THEIR EXISTING NOTES. IN ADDITION, WE HAVE NOT AUTHORIZED ANYONE TO
MAKE ANY RECOMMENDATION. YOU MUST MAKE YOUR OWN DECISION WHETHER TO TENDER YOUR
EXISTING NOTES FOR EXCHANGE AND, IF SO, THE AMOUNT OF EXISTING NOTES TO TENDER.
Expiration date
The expiration date for the offer is 5:00 p.m., New York City time, on
[_____], 2002, unless we extend the offer. We may extend this expiration date
for any reason. The last date on which tenders will be accepted, whether on
[______], 2002 or any later date to which the exchange offer may be extended, is
referred to as the expiration date.
Extensions; Amendments
We expressly reserve the right, in our discretion, for any reason to:
o delay the acceptance of existing notes tendered for exchange, subject
to the requirement that we promptly issue new notes or return tendered
existing notes after expiration or withdrawal of the exchange offer;
o extend the time period during which the exchange offer is open, by
giving oral or written notice of an extension to the holders of
existing notes in the manner described below; during any extension, all
existing notes previously tendered and not withdrawn will remain
subject to the exchange offer;
34
o waive any condition or amend the terms of the exchange offer other than
the condition that the registration statement becomes effective under
the Securities Act; and
o terminate the exchange offer, as described under "Conditions for
completion of the exchange offer" below.
If we consider an amendment to the exchange offer to be material, or if
we waive a material condition of the exchange offer, we will promptly disclose
the amendment in a prospectus supplement, and if required by law, we will extend
the exchange offer for a period of five to ten business days.
We will give oral or written notice of any (1) extension, (2)
amendment, (3) non-acceptance or (4) termination to the holders of the existing
notes as promptly as practicable. In the case of any extension, we will issue a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
Procedures for tendering existing notes
Your tender to us of existing notes and our acceptance of your tender
will constitute a binding agreement between you and us upon the terms and
subject to the conditions set forth in this prospectus and in the accompanying
letter of transmittal.
Tender of Existing Notes Held Through a Custodian. If you are a
beneficial holder of the existing notes that are held of record by a custodian
bank, depository institution, broker, dealer, trust company or other nominee,
you must instruct the custodian, or such other record holder, to tender the
existing notes on your behalf. Your custodian will provide you with their
instruction letter which you must use to give these instructions.
Tender of Existing Notes Held Through DTC. Any beneficial owner of
existing notes held of record by The Depository Trust Company ("DTC") or its
nominee, through authority granted by DTC may direct the DTC participant through
which the beneficial owner's existing notes are held in the DTC to tender on
such beneficial owner's behalf. To effectively tender existing notes that are
held through DTC, DTC participants should transmit their acceptance through the
Automated Tender Offer Program ("ATOP"), for which the transaction will be
eligible, and the DTC will then edit and verify the acceptance and send an
agent's message to the exchange agent for its acceptance. Delivery of tendered
existing notes must be made to the exchange agent pursuant to the book-entry
delivery procedures set forth below or the tendering DTC participant must comply
with the guaranteed delivery procedures set forth below. No letters of
transmittal will be required to tender existing notes through ATOP.
In addition, the exchange agent must receive:
o a completed and signed letter of transmittal or an electronic
confirmation pursuant to DTC's ATOP system indicating the principal
amount of existing notes to be tendered and any other documents, if
any, required by the letter of transmittal; and
o prior to the expiration date, a confirmation of book-entry transfer of
such existing notes, into the exchange agent's account at DTC, in
accordance with the procedure for book-entry transfer described below;
or
o the holder must comply with the guaranteed delivery procedures
described below.
35
Your existing notes must be tendered by book-entry transfer. The
exchange agent will establish an account with respect to the existing notes at
DTC for purposes of the exchange offer within two business days after the date
of this prospectus. Any financial institution that is a participant in DTC must
make book-entry delivery of existing notes by having DTC transfer such existing
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Although your existing notes will be tendered through
the DTC facility, the letter of transmittal, or facsimile, or an electronic
confirmation pursuant to DTC's ATOP system, with any required signature
guarantees and any other required documents, if any, must be transmitted to and
received or confirmed by the exchange agent at its address set forth below under
"Exchange agent," prior to 5:00 p.m., New York City time, on the expiration
date. You or your broker must ensure that the exchange agent receives an agent's
message from DTC confirming the book-entry transfer of your existing notes. An
agent's message is a message transmitted by DTC and received by the exchange
agent that forms a part of the book-entry confirmation which states that DTC has
received an express acknowledgement from the participant in DTC tendering
existing notes that such participant agrees to be bound by the terms of the
letter of transmittal. Delivery of documents to DTC in accordance with its
procedures does not constitute delivery to the exchange agent.
If you are an institution which is a participant in DTC's book-entry
transfer facility, you should follow the same procedures that are applicable to
persons holding existing notes through a financial institution.
Do not send letters of transmittal or other exchange offer documents to
us or to U.S. Bancorp Piper Jaffray, the dealer manager.
It is your responsibility that all necessary materials get to State
Street Bank and Trust Company, the exchange agent, before the expiration date.
If the exchange agent does not receive all of the required materials before the
expiration date, your existing notes will not be validly tendered.
Any existing notes not accepted for exchange for any reason will be
returned without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
We will have accepted the validity of tendered existing notes if and
when we give oral or written notice to the exchange agent. The exchange agent
will act as the tendering holders' agent for purposes of receiving the new notes
from us. If we do not accept any tendered existing notes for exchange because of
an invalid tender or the occurrence of any other event, the exchange agent will
return those existing notes to you without expense, promptly after the
expiration date via book-entry transfer through DTC.
Our interpretations are binding
We will determine in our sole discretion, all questions as to the
validity, form, eligibility and acceptance of existing notes tendered for
exchange. Our determination will be final and binding. We reserve the absolute
right to reject any and all tenders of any particular existing notes not
properly tendered or to not accept any particular existing notes which
acceptance might, in our judgment or our counsel's judgment, be unlawful. We
also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular existing notes either
before or after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender existing notes in the exchange
offer. Our interpretation of the terms and conditions of the exchange offer as
to any particular existing note either before or after the expiration date,
including the letter of transmittal and the instructions to such letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of existing notes for
exchange must be cured within such reasonable period of time as we shall
determine. Neither we, the exchange agent nor any other
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person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of existing notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
Acceptance of existing notes for exchange; Delivery of new notes
Once all of the conditions to the exchange offer are satisfied or
waived, we will accept, promptly after the expiration date, all existing notes
properly tendered, and will issue the new notes promptly after acceptance of the
existing notes. The discussion under the heading "Conditions for completion of
the exchange offer" provides further information regarding the conditions to the
exchange offer. For purposes of the exchange offer, we shall be deemed to have
accepted properly tendered existing notes for exchange when, as and if we have
given oral or written notice to the exchange agent, with written confirmation of
any oral notice to be given promptly after giving such notice.
For each $1,000 principal amount of existing notes accepted for
exchange, the holder of the existing notes will receive new notes having a
principal amount of $575. The new notes will be issued in denominations of
$1,000 and any integral multiples of $1,000. We will pay cash for any fractional
amount of new notes. In addition, you will have the opportunity to provide
indications of interest of participating in the cash offering of up to $50
million principal amount of new notes. The new notes will bear interest from the
closing date of the exchange offer. Existing notes accepted for exchange will
accrue interest up to but excluding the closing date of the exchange offer. We
will pay such accrued and unpaid interest at closing to holders whose existing
notes are tendered in the exchange offer and accepted by us.
In all cases, issuance of new notes for existing notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of:
o a timely book-entry confirmation of such existing notes into the
exchange agent's account at the DTC book-entry transfer facility;
o a properly completed and duly executed letter of transmittal or an
electronic confirmation of the submitting holder's acceptance through
DTC's ATOP system; and
o all other required documents, if any.
If we do not accept any tendered existing notes for any reason set
forth in the terms and conditions of the exchange offer, or if existing notes
are submitted for a greater principal amount than the holder desires to
exchange, the unaccepted or non-exchanged existing notes tendered by book-entry
transfer into the exchange agent's account at the book-entry transfer facility
will be returned in accordance with the book-entry procedures described above,
and the existing notes that are not to be exchanged will be credited to an
account maintained with DTC, as promptly as practicable after the expiration or
termination of the exchange offer.
Guaranteed delivery procedures
If you desire to tender your existing notes and you cannot complete the
procedures for book-entry transfer set forth above on a timely basis, you may
still tender your existing notes if:
o your tender is made through an eligible institution;
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o prior to the expiration date, the exchange agent received from the
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile of such letter of transmittal or an
electronic confirmation pursuant to DTC's ATOP system and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, that:
(a) sets forth the name and address of the holder of existing
notes tendered;
(b) states that the tender is being made thereby; and
(c) guarantees that within three trading days after the
expiration date a book-entry confirmation and any other
documents required by the letter of transmittal, if any, will
be deposited by the eligible institution with the exchange
agent; and
o book-entry confirmation and all other documents, if any, required by
the letter of transmittal are received by the exchange agent within
three trading days after the expiration date.
Withdrawal rights
In addition, if you tender existing notes and we have not accepted them
for exchange by [_______], 2002, you may withdraw your existing notes at any
time after that date until we do accept your existing notes for exchange.
For a withdrawal to be effective, the exchange agent must receive a
written notice of withdrawal at the address or, in the case of eligible
institutions, at the facsimile number, set forth below under the heading
"Exchange agent" prior to 5:00 p.m., New York City time, on the expiration date.
Any notice of withdrawal must:
o specify the name of the person who tendered the existing notes to be
withdrawn;
o contain a statement that you are withdrawing your election to have your
existing notes exchanged;
o be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the existing notes were tendered,
including any required signature guarantees; and
o if you have tendered your existing notes in accordance with the
procedure for book-entry transfer described above, specify the name and
number of the account at DTC to be credited with the withdrawn existing
notes and otherwise comply with the procedures of such facility.
Any existing notes that have been tendered for exchange, but which are
not exchanged for any reason, will be credited to an account maintained with the
book-entry transfer facility for the existing notes, as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn existing notes may be retendered by following the procedures
described under the heading "Procedures for tendering existing notes" above, at
any time on or prior to 5:00 p.m., New York City time, on the expiration date.
Conditions for completion of the exchange offer
We will not accept existing notes for new notes and may terminate or
not complete the exchange offer if the registration statement covering the
exchange offer is not effective under the Securities Act.
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We may not accept existing notes for exchange and may terminate or not
complete the exchange offer if:
o any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the exchange offer or otherwise relating in any
manner to the exchange offer is instituted or threatened;
o any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order
or injunction shall have been proposed, enacted, enforced or deemed
applicable to the exchange offer, any of which would or might restrain,
prohibit or delay completion of the exchange offer or impair the
contemplated benefits of the exchange offer to us;
o any of the following occurs and the adverse effect of such occurrence
shall, in our reasonable judgment, be continuing:
o any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market in the United States;
o any extraordinary or material adverse change in U.S.
financial markets generally, including, without limitation, a
decline of at least twenty percent in either the Dow Jones
Average of Industrial stocks or the Standard & Poor's 500
Index from the date of this prospectus;
o a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States;
o any material disruption has occurred in commercial banking or
securities settlement or clearance services in the United
States;
o any limitation, whether or not mandatory, by any governmental
entity on, or any other event that would reasonably be
expected to materially adversely affect, the extension of
credit by banks or other lending institutions;
o a commencement of a war or other national or international
calamity directly or indirectly involving the United States,
which would reasonably be expected to affect materially and
adversely, or to delay materially, the completion of the
exchange offer; or
o if any of the situations described above existed at the time
of commencement of the exchange offer and that situation
deteriorates materially after commencement of the exchange
offer;
o any tender or exchange offer, other than this exchange offer by us,
with respect to some or all of our outstanding common stock or any
merger, acquisition or other business combination proposal involving us
shall have been proposed, announced or made by any person or entity;
o any event or events occur that have resulted or may result, in our
judgment, in an actual or threatened change in our business condition,
income, operations, stock ownership or prospects and our subsidiaries,
taken as a whole; or
39
o as the term "group" is used in Section 13(d)(3) of the Securities
Exchange Act;
o any person, entity or group acquires more than 5% of our
outstanding shares of common stock, other than a person,
entity or group which had publicly disclosed such ownership
with the SEC prior to the expiration date of the exchange
offer;
o any such person, entity or group which had publicly disclosed
such ownership prior to such date shall acquire additional
common stock constituting more than 2% of our outstanding
shares; or
o any new group shall have been formed that beneficially owns
more than 5% or our outstanding shares of common stock which
in our judgment in any such case, and regardless of the
circumstances, makes it inadvisable to proceed with the
exchange offer or with such acceptance for exchange of
shares.
If any of the above events occur, we may:
o terminate the exchange offer and promptly return all tendered existing
notes to tendering existing note holders;
o extend the exchange offer and, subject to the withdrawal rights
described in "Withdrawal rights," above, retain all tendered existing
notes until the extended exchange offer expires;
o amend the terms of the exchange offer; or
o waive the unsatisfied condition and, subject to any requirement to
extend the period of time during which the exchange offer is open,
complete the exchange offer.
The conditions are for our sole benefit. We may assert these conditions
with respect to all or any portion of the exchange offer regardless of the
circumstances giving rise to them. We may waive any condition in whole or in
part in our discretion. Our failure to exercise our rights under any of the
above conditions does not represent a waiver of these rights. Each right is an
ongoing right which may be asserted at any time. Any determination by us
concerning the conditions described above will be final and binding upon all
parties. All such conditions to the exchange offer, other than those subject to
applicable law, will be either satisfied or waived by us on or before the
expiration of the exchange offer. There are no federal or state regulatory
requirements that must be met, except for requirements under applicable
securities laws.
If we consider an amendment to the exchange offer to be material, or if
we waive a material condition of the exchange offer, we will promptly disclose
the amendment in a prospectus supplement, and if required by law, we will extend
the exchange offer for a period of five to ten business days.
If a stop order issued by the SEC is in effect with respect to the
registration statement of which this document is a part, we will not accept any
existing notes tendered and we will not exchange for any new notes.
Fees and expenses
U.S. Bancorp Piper Jaffray is acting as the dealer manager in
connection with the exchange offer. U.S. Bancorp Piper Jaffray will receive a
fee in the manner described below for its services as dealer manager.
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U.S. Bancorp Piper Jaffray's fee will be calculated based on a sliding
scale based on the principal amount of existing notes tendered. Based on the
foregoing fee structure, if all of the existing notes are exchanged in the
exchange offer, U.S. Bancorp Piper Jaffray will receive an aggregate fee of
approximately $1.5 million. U.S. Bancorp Piper Jaffray's fees will be payable if
and when the exchange offer is completed.
U.S. Bancorp Piper Jaffray will also be reimbursed for its reasonable
out-of-pocket expenses incurred in connection with the exchange offer (including
the reasonable fees and disbursements of counsel), whether or not the
transaction closes.
We have agreed to indemnify U.S. Bancorp Piper Jaffray against
specified liabilities relating to or arising out of the offer, including civil
liabilities under the federal securities laws, and to contribute to payments
which U.S. Bancorp Piper Jaffray may be required to make in respect thereof.
However, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. U.S.
Bancorp Piper Jaffray may from time to time hold existing notes, new notes and
our common stock in its proprietary accounts, and to the extent it owns existing
notes in these accounts at the time of the exchange offer, U.S. Bancorp Piper
Jaffray may tender these existing notes.
We have retained Georgeson Shareholder Communications Inc. to act as
information agent and State Street Bank and Trust Company to act as the exchange
agent in connection with the exchange offer. The information agent may contact
holders of existing notes by mail, telephone, facsimile transmission and
personal interviews and may request brokers, dealers and other nominee existing
note holders to forward materials relating to the exchange offer to beneficial
owners. The information agent and the exchange agent will receive reasonable
compensation for their respective services, will be reimbursed for reasonable
out-of-pocket expenses and will be indemnified against liabilities in connection
with their services, including liabilities under the federal securities laws.
Neither the information agent nor the exchange agent has been retained
to make solicitations or recommendations. The fees they receive will not be
based on the principal amount of existing notes tendered under the exchange
offer.
We will not pay any fees or commissions to any broker or dealer, or any
other person, other than U.S. Bancorp Piper Jaffray for soliciting tenders of
existing notes under the exchange offer. Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by us for reasonable and
necessary costs and expenses incurred by them in forwarding materials to their
customers.
The aggregate fees and expenses to be incurred in connection with the
exchange offer and the cash offer, assuming maximum existing note holder
participation, we estimate will be approximately $3.3 million and will be paid
by us.
Legal limitation
The above conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition, or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver or any such right and each such right shall be
deemed an ongoing right which may be asserted at any time, and from time to
time.
In addition, we will not accept for exchange any existing notes
tendered, and no new notes will be issued in exchange for any such existing
notes, if at such time any stop order shall be threatened or in
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effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939.
Exchange agent
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of its addresses as set forth below.
Questions, requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
FOR REGISTERED EXISTING NOTES
By Mail or Overnight Courier:
Mr. Ralph Jones
State Street Bank and Trust Company
Corporate Trust, 5th Floor
2 Avenue de Lafayette
Boston, MA 02111
By Facsimile Transmission:
(617) 662-1452
Confirm by Telephone:
(617) 662-1548
If you deliver the letter of transmittal to an address other than as
set forth above or transmission of instructions via facsimile other than as set
forth above, then such delivery or transmission does not constitute a valid
delivery of such letter of transmittal.
CASH OFFER OF ADDITIONAL NEW NOTES
In addition to the exchange offer, we are offering to those holders of
existing notes which are tendered and accepted in the exchange offer the right
to purchase up to $50 million aggregate principal amount of additional new notes
for cash (the "cash offer"). The new notes in the cash offer are identical in
all respects to the new notes provided in the exchange offer as described in
this document under the heading "Description of New Notes."
If a holder's tender of existing notes is withdrawn, we will not sell
any additional new notes for cash to that holder. Offers to purchase additional
new notes must be in denominations of principal amount of $1,000 and any
integral multiple of $1,000.
You may indicate your interest in purchasing additional new notes by
giving your indication of interest to U.S. Bancorp Piper Jaffray at (877)
421-2321, attention Jeffrey Winaker or Brian Sullivan.
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DESCRIPTION OF NEW NOTES
Alkermes will issue the new notes under an indenture dated as of
December , 2002 between us and State Street Bank and Trust Company, as new
notes trustee. The following summarizes the material provisions of the new notes
and the new notes indenture. This summary is subject to and is qualified by
reference to all the provisions of the new notes indenture. As used in this
description, the words "we," "us" or "our" do not include any current or future
subsidiary of Alkermes, Inc.
GENERAL
We are offering to issue up to $165,000,000 aggregate principal
amount of new notes, which amount includes:
o $115,000,000 aggregate principal amount to be issued in the
exchange offer assuming 100% of the outstanding existing
notes are tendered and accepted in the exchange offer; and
o up to an additional $50,000,000 aggregate principal amount
of new notes to be issued for cash to holders of existing
notes tendered and accepted in the exchange offer.
The new notes will be unsecured senior subordinated obligations of
Alkermes that are subordinate in right of payment as described under
"Subordination." The new notes will be convertible into common stock as
described under "Conversion Rights." The new notes will be issued in
denominations of $1,000 and multiples of $1,000. The new notes will mature on
December , 2009 unless earlier converted, redeemed or repurchased.
The new notes will bear interest at the rate of 6.52% per year.
Interest will be paid on June and December of each year, commencing on June ,
2003, subject to limited exceptions if the new notes are converted, redeemed or
repurchased prior to the applicable interest payment date. The record dates for
payment of interest will be June and December of each year. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Interest will be payable in cash or common stock at our option. If we
elect to pay interest in common stock, the shares of common stock will be valued
at 90% of the average of the closing price for each of the five trading days
immediately preceding the second trading day prior to the interest payment date.
We will provide holders notice of our election to pay interest in common stock
instead of cash no later than the record date prior to such interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
We will pay principal and interest on the new notes at the office or
agency we maintain for such purpose in the Borough of Manhattan, The City of New
York, which shall initially be the office or agency of the new notes trustee. At
our option, however, we may pay interest by check mailed to your address as it
appears in the new notes register. However, holders of more than $2,000,000 in
principal amount of new notes may elect in writing to be paid by wire transfer;
provided that any payment to The Depository Trust Company ("DTC") or its nominee
will be made by wire transfer of immediately available funds to the account of
DTC or its nominee.
If we elect to make a payment in common stock instead of cash with
respect to any payment under the terms of the new notes indenture that permits
such election, we may either pay cash for any fractional shares or round the
fractional share up to the nearest whole share.
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We will not be restricted from paying dividends or repurchasing
securities or incurring indebtedness under the new notes indenture. The new
notes indenture has no financial covenants. Holders of the new notes are not
protected in the event of a highly leveraged transaction or a change in control
of Alkermes except as described under "Repurchase at Option of Holders upon a
Repurchase Event" below.
You are not required to pay a service charge for registration or
transfer of new notes. We may, however, require you to pay any tax or other
governmental charge in connection with the transfer. We are not required to
exchange or register the transfer of:
o any new note for a period of 15 days before selection for
redemption;
o any new note or portion selected for redemption;
o any new note or portion surrendered for conversion; or
o any new note or portion surrendered for repurchase but not
withdrawn in connection with a repurchase event.
The new notes will be issued:
o in fully-registered form; and
o in denominations of $1,000 and multiples of $1,000.
BOOK-ENTRY SYSTEM
Global Security
The new notes will be issued in the form of a global security held in
book-entry form. Except as noted below under "Certificated Notes," DTC or its
nominee will be the sole registered holder of the new notes for all purposes
under the new notes indenture. Owners of beneficial interests in the new notes
represented by the global security will hold these interests pursuant to the
procedures and practices of DTC. Owners of beneficial interests must exercise
any rights in respect of their interests, including any right to convert or
require repurchase of their interests, in accordance with DTC's procedures and
practices. Beneficial owners are not holders, and are not entitled to any rights
under the global security or the new notes indenture with respect to the global
security. We and the trustee may treat DTC as the sole holder and owner of the
global security.
Certificated Notes
Certificated new notes may be issued in exchange for new notes
represented by the global security if DTC no longer serves as the depositary and
no successor depositary is appointed by us.
VOLUNTARY CONVERSION
You may voluntarily convert your new notes into our common stock
prior to maturity.
You may, at your option, convert some or all of your new notes at any
time prior to maturity into our common stock at a conversion price equal to a 17
1/2% premium over the daily volume-weighted average closing price of our common
stock for the five trading days immediately preceding the second
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trading day prior to the expiration date of the exchange offer, subject to
adjustment upon certain events. You may convert new notes in denominations of
$1,000 and multiples of $1,000. The conversion price is subject to adjustment as
described below. If the new notes are called for redemption, the conversion
rights on the new notes called for redemption will expire at the close of
business of the last business day before the redemption date, unless we default
in payment of the redemption price. If you have submitted your new notes for
repurchase after a repurchase event, you may only convert your new notes if you
deliver a withdrawal notice before the close of business on the last business
day before the repurchase date.
If you convert your new notes after a record date and prior to the
next interest payment, you will have to pay us interest, unless the new notes
have been called for redemption under the new notes indenture. We will pay a
cash adjustment for any fractional shares based on the market price of our
common stock on the last business day before the conversion date.
You can convert your new notes by delivering the new notes to an
office or agency of the new notes trustee in the Borough of Manhattan, The City
of New York, along with a duly signed and completed notice of conversion, a form
of which may be obtained from the new notes trustee. In the case of a global
security, DTC will effect the conversion upon notice from the holder of a
beneficial interest in the global security in accordance with DTC's rules and
procedures. The conversion date will be the date on which the new notes and the
duly signed and completed notice of conversion are delivered. As promptly as
practicable on or after the conversion date, but no later than three business
days after the conversion date, we will issue and deliver to the conversion
agent certificates for the number of full shares of common stock issuable upon
conversion, together with any cash payment for fractional shares. In the event
we fail to convert any tendered new notes into common stock in accordance with
the terms of the indenture, the holder may bring an action to enforce its right
to convert.
You will not be required to pay any stamp, transfer, documentary or
similar taxes or duties upon conversion but will be required to pay any stamp or
transfer tax or duty if the common stock issued upon conversion of the new notes
is in a name other than your name. Certificates representing shares of common
stock will not be issued or delivered unless all stamp or transfer taxes and
duties, if any, payable by the holder have been paid.
Additional payment upon conversion during first two years.
If you elect to convert your new notes at any time on or prior to the
second anniversary date of the initial issuance of the new notes, you will
receive a payment of additional interest upon conversion so long as we have not
previously mailed an automatic conversion notice to holders. We will pay
additional interest upon conversion equal to two years of interest, less any
interest actually paid or provided for on the new notes prior to the conversion,
payable, in cash or, at our option, in common stock, valued at 90% of the
average of the closing price of our common stock for each of the five trading
days immediately preceding the second trading day preceding the conversion date,
subject to a minimum valuation equal to the conversion price. Our ability to pay
additional interest in common stock will be subject to certain conditions set
forth in the new notes indenture.
Adjustment to the conversion price.
The conversion price will be adjusted if:
(1) we dividend or distribute shares of our common stock to our
common stock holders;
(2) we split, subdivide or combine our common stock;
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(3) we issue rights or warrants to all holders of our common
stock to purchase common stock at less than the current
market price;
(4) we dividend or distribute to all holders of our common stock
capital stock or evidences of indebtedness or assets, but
excluding:
o dividends, distributions and rights or warrants referred
to in (3) above or to be exercised in connection with
certain trigger events;
o dividends and distributions paid exclusively in cash or
paid in connection with our liquidation, dissolution or
winding up; or
o capital stock, evidence of indebtedness, cash or assets
distributed in a merger or consolidation.
(5) we make a dividend or distribution consisting exclusively of
cash to all holders of common stock if the aggregate amount
of these distributions combined together with (A) all other
all-cash distributions made within the preceding 12 months
in respect of which we made no adjustment plus (B) any cash
and the fair market value of other consideration payable in
any tender offers by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in
respect for which we made no adjustment, exceeds 10% of our
market capitalization, being the product of the then current
market price of the common stock multiplied by the number of
shares of our common stock then outstanding;
(6) the purchase of common stock pursuant to a tender offer
made by us or any of our subsidiaries involves an aggregate
consideration that, together with (A) any cash and the fair
market value of any other consideration payable in any
other tender offer by us or any of our subsidiaries for
common stock expiring within the 12 months preceding such
tender offer plus (B) the aggregate amount of any such
all-cash distributions referred to in (5) above to all
holders of common stock within the 12 months preceding the
expiration of the tender offer for which we have made no
adjustment, exceeds 10% of our market capitalization on the
expiration of such tender offer; or
(7) payment on tender offers or exchange offers by a third
party other than Alkermes or our subsidiaries if, as of the
closing date of the offer, our board of directors does not
recommend rejection of the offer. We will only make this
adjustment if a tender offer increases the person's
ownership to more than 25% of our outstanding common stock
and the payment per share is greater than the current
market price of the common stock. We will not make this
adjustment if the tender offer is a merger or transaction
described below under "Consolidation, Merger or Transfer of
Assets."
The conversion adjustment provisions apply to the conversion price
for both voluntary conversions and automatic conversions.
If we implement a stockholders' rights plan, we will be required
under the new notes indenture to provide that the holders of new notes will
receive the rights upon conversion of the new notes, whether or not these rights
were separated from the common stock prior to conversion.
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If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each existing note then outstanding will, without
the consent of the holder of any existing note, become convertible only into the
kind and amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the existing note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a consolidation, merger or combination that
does not result in any reclassification, conversion, exchange or cancellation of
our common stock.
We are permitted to reduce the conversion price of the new notes for
limited periods of time, if our board of directors deems it advisable. Any such
reduction shall be effective for not less than 20 days. We are required to give
at least 15 days' prior notice of any such reduction. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event.
No adjustment in the conversion price of the new notes will be
required unless it would result in a change in the conversion price of at least
one percent. Any adjustment not made will be taken into account in subsequent
adjustments.
AUTOMATIC CONVERSION
We may elect to automatically convert the new notes if our stock
price hits specific targets.
We may elect to automatically convert some or all of the new notes at
any time on or prior to maturity if the closing price of our common stock has
exceeded 150% of the conversion price for at least 20 trading days during a
consecutive 30-day trading period ending within five trading days prior to the
notice of automatic conversion. We refer to this as an "automatic conversion."
The notice of automatic conversion must be given not more than 30 and not less
than 20 days prior to the date of automatic conversion.
If an automatic conversion occurs on or prior to the second
anniversary date of the issuance of the new notes we will pay additional
interest in cash or, at our option, in shares of our common stock to holders of
new notes being converted. If we elect to pay the additional interest in shares
of our common stock, the shares of common stock will be valued at 90% of the
average of the closing price of our common stock for each of the five trading
days immediately preceding the second trading day preceding the conversion date.
This additional interest shall be equal to two years' worth of interest less any
interest actually paid or provided for prior to the date of automatic
conversion. We will specify in the automatic conversion notice whether we will
pay the additional interest in cash or common stock. We will not issue
fractional shares for any additional interest upon conversion but will instead
make a cash adjustment for any fractional share interest.
You will not be required to pay any stamp, transfer, documentary or
similar taxes or duties upon conversion but will be required to pay any stamp or
transfer tax or duty if the common stock issued upon conversion of the new notes
is in a name other than your name. Certificates representing shares of common
stock will not be issued or delivered unless all stamp or transfer taxes and
duties, if any, payable by the holder have been paid.
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OPTIONAL REDEMPTION
At any time on or after January , 2005, we may redeem some or all of
the new notes, at our option, upon not less than 20 nor more than 60 days' prior
notice by mail, at the redemption prices specified below. The redemption price,
expressed as a percentage of the principal amount, is as follows for the
12-month periods beginning January , 2005:
REDEMPTION
PERIOD PRICE
------ -----
January , 2005 to December , 2005............................... 104.657%
December , 2005 to December , 2006.............................. 103.726%
December , 2006 to December , 2007.............................. 102.794%
December , 2007 to December , 2008.............................. 101.863%
December , 2008 to December , 2009.............................. 100.931%
December , 2009 (maturity)....................................... 100.000%
In each case we will also pay accrued and unpaid interest to, but excluding, the
redemption date. If the redemption date is an interest payment date, we will pay
interest to the record holders as of the relevant record date.
No sinking fund will be provided for the new notes, which means that
the new notes indenture will not require us to redeem or retire the new notes
periodically. We may not redeem the new notes if there is a default under the
new notes indenture. See "Events of Default and Remedies."
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
If a repurchase event occurs after issuance of the new notes, you
will have the right, at your option, to require us to repurchase all or any
portion of your new notes 40 days after we mail holders a notice of the
repurchase event, in cash or, at our option, common stock equal to 105% of the
principal amount of the new notes to be repurchased, together with accrued and
unpaid interest to, but excluding, the repurchase date. If a repurchase date is
an interest payment date, we will pay the interest that is due and payable on
such date to the record holder on the applicable record date.
At our option, instead of paying the repurchase price in cash, we may
pay the repurchase price in common stock, valued at 95% of the average of the
closing price for each of the five trading days immediately before and including
the third trading day preceding the repurchase date. We may only pay the
repurchase price in common stock if we satisfy conditions provided in the new
notes indenture.
If within two years following issuance of the new notes, a "change of
control" (as defined below) occurs, we will be required to repurchase the new
notes at a price of % of par value. The repurchase price upon a change in
control will be determined by the following formula:
(principal amount of existing notes tendered in the exchange offer +
principal amount of new notes sold in the cash offer)
--------------------------------------------------------------------
(principal amount of new notes issued in exchange offer +
principal amount of new notes sold in the cash offer)
A repurchase event will be considered to have occurred if:
o our common stock or other common stock into which the new
notes are convertible is neither listed for trading on a
United States national securities exchange nor approved for
trading on an established automated over-the-counter trading
market in the United States; or
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o one of the following "change in control" events occurs:
1. any person or group becomes the beneficial owner of more
than 50% of the voting power of our outstanding
securities entitled to generally vote for directors;
2. our shareholders approve any plan or proposal for our
liquidation, dissolution or winding up;
3. we consolidate with or merge into, or participate in a
share exchange with any other corporation, partnership,
limited liability company or other entity or any other
corporation, partnership, limited liability company or
other entity merges into us, and, in the case of any
such merger, consolidation or share exchange, our
outstanding common stock is changed or exchanged into
other assets or securities as a result;
4. we convey, transfer or lease all or substantially all of
our assets to any person; or
5. the continuing directors do not constitute a majority of
our board of directors at any time.
However, a change in control will not be deemed to have occurred if:
o the last sale price of our common stock for any five trading
days during the ten trading days immediately before the
change in control is equal to at least 105% of the
conversion price;
o in the event of a transaction specified in (1), (3) or (4)
above, if our shareholders immediately before such
transaction constituting the change in control own, directly
or indirectly, immediately following such transaction, at
least 51% of the combined voting power of our outstanding
voting securities resulting from such change in control in
substantially the same proportion as their ownership of the
voting stock immediately before such transaction; or
o in the event of a transaction specified in (3) or (4) above,
all of the consideration, excluding cash payments for
fractional shares in the transaction constituting the change
in control, consists of common stock traded on a United
States national securities exchange or quoted on the Nasdaq
National Market, and as a result of the transaction the new
notes become convertible solely into that common stock.
The term "continuing director" means at any date a member of our
board of directors:
o who was a member of our board of directors on November 5,
2002; or
o who was nominated or elected by at least a majority of the
directors who were continuing directors at the time of the
nomination or election or whose election to our board of
directors was recommended by at least a majority of the
directors who were continuing directors at the time of the
nomination or election or by the nominating committee
comprised of our independent directors.
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Under the above definition of continuing director, if the current
board of directors approved a new director or directors and then resigned, no
change in control would occur. The interpretation of the phrase "all or
substantially all" used in the definition of change in control would likely
depend on the facts and circumstances existing at such time. As a result, there
may be uncertainty as to whether or not a sale or transfer of "all or
substantially all" of our assets has occurred.
We will be required to mail holders of new notes a notice within 15
days after the occurrence of a repurchase event. The notice must describe, among
other things, the repurchase event, the holder's right to elect repurchase of
the new notes and the repurchase date. We must deliver a copy of the notice to
the trustee and cause a copy, or a summary of the notice, to be published in a
newspaper of general circulation in New York, New York. You may exercise your
repurchase rights by delivering written notice to us and the new notes trustee.
The notice must be accompanied by the new notes duly endorsed for transfer to
us. You must deliver the exercise notice on or before the close of business on
the thirty-fifth calendar day after the mailing date of the repurchase notice.
You may require us to repurchase all or any portion of your new notes
upon a repurchase event. We may not have sufficient cash funds to repurchase the
new notes upon a repurchase event. We may elect, subject to certain conditions,
to pay the repurchase price in common stock. Certain of our existing debt
agreements, as well as future debt agreements, may prohibit us from paying the
repurchase price in either cash or common stock. If we are prohibited from
repurchasing the new notes, we could seek consent from our lenders to repurchase
the new notes. If we are unable to obtain their consent, we could attempt to
refinance the new notes. If we were unable to obtain a consent or refinance, we
would be prohibited from repurchasing the new notes. If we were unable to
repurchase the new notes upon a repurchase event, it would result in an event of
default under the new notes indenture. An event of default under the new notes
indenture could result in a further event of default under our other
then-existing debt. In addition, the occurrence of the repurchase event may be
an event of default under our other debt. As a result, we would be prohibited
from paying amounts due on the new notes under the subordination provisions of
the new notes indenture.
The change in control feature may not necessarily afford you with
protection in the event of a highly leveraged transaction, a change in control
or similar transactions involving us. We could, in the future, enter into
transactions, including recapitalizations, that would not constitute a change in
control but that would increase the amount of our senior indebtedness or other
debt. We are not prohibited from incurring senior indebtedness or debt under the
new notes indenture. If we incur significant amounts of additional debt, this
could have an adverse effect on our ability to make payments on the new notes.
o In addition, our management could undertake leveraged
transactions that could constitute a change in control. The
Board of Directors will not have the right under the new
notes indenture to limit or waive the repurchase right in
the event of these types of leveraged transaction. Our
requirement to repurchase new notes upon a repurchase event
could delay, defer or prevent a change of control. As a
result, the repurchase right may discourage:
o a merger, consolidation or tender offer;
o the assumption of control by a holder of a large
block of our shares; and
o the removal of incumbent management.
The repurchase feature is not the result of any specific effort to
accumulate shares of common stock or to obtain control of us by means of a
merger, tender offer or solicitation, or part of a plan by us to
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adopt a series of anti-takeover provisions. We have no present intention to
engage in a transaction involving a change of control, although it is possible
that we would decide to do so in the future.
The Securities Exchange Act and the SEC rules thereunder require the
distribution of specific types of information to security holders in the event
of issuer tender offers. These rules may apply in the event of a repurchase. We
will comply with these rules to the extent applicable.
SUBORDINATION
The new notes will be unsecured and subordinated to the prior payment
in full of all existing and future senior indebtedness as provided in the new
notes indenture. However, the new notes will be senior in right of payment to
the existing notes. Upon any distribution of our assets upon our dissolution,
winding up, liquidation or reorganization, payments on the new notes will be
subordinated to the prior payment in full of all senior indebtedness. If the new
notes are accelerated following an event of default under the new notes
indenture, the holders of any senior indebtedness will be entitled to payment in
full before the holders of the new notes are entitled to receive any payment on
the new notes.
We may not make any payments on the new notes if:
o we default in the payment on senior indebtedness beyond any
grace period; or
o any other default occurs and is continuing under any
designated senior indebtedness that permits holders of the
designated senior indebtedness to accelerate its maturity,
and we and the trustee receive a notice, known as a payment
blockage notice, from a person permitted to give this notice
under the new notes indenture.
We may resume making payments on the new notes:
o in the case of a payment default, when the default is cured
or waived or ceases to exist; and
o in the case of a nonpayment default, the earlier of when the
default is cured or waived or ceases to exist or 179 days
after receipt of the payment blockage notice.
No new period of payment blockage may be commenced unless:
o 365 days have elapsed since our receipt of the prior payment
blockage notice; and
o all scheduled payments on the new notes have been paid in
full, or the new notes trustee or the holders of new notes
shall not have begun proceedings to enforce the right of the
holders to receive payments.
No default that existed on any senior indebtedness on the date of
delivery of any payment blockage notice may be the basis for a subsequent
payment blockage notice.
The term "senior indebtedness" means the principal, premium, if any,
and interest on, including bankruptcy interest, and any other payment on the
following current or future incurred:
o indebtedness for money borrowed or evidenced by new notes,
debentures, bonds or other securities;
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o reimbursement obligations under letters of credit, bank
guarantees or bankers' acceptances;
o indebtedness under interest rate and currency swap
agreements, cap, floor and collar agreements, currency spot
and forward contracts and other similar agreements and
arrangements;
o indebtedness consisting of commitment or standby fees under
our credit facilities or letters of credit;
o obligations under leases required or permitted to be
capitalized under generally accepted accounting principles;
o obligations of the type listed above that have been assumed
or guaranteed by us or in effect guaranteed, directly or
indirectly, by us through an agreement to purchase; and
o any amendment, modification, renewal, extension, refunding
or deferral of any indebtedness or obligation of type listed
in the bullet points above.
Senior indebtedness will not include:
o any indebtedness or amendment or modification that expressly
provides that it is subordinate to or is not senior to or is
on the same basis as the new notes;
o any indebtedness to any subsidiary;
o indebtedness for trade payables or the deferred purchase
price of assets or services incurred in the ordinary course
of business; or
o the new notes.
If the trustee or any holder of the new notes receives any payment or
distribution of our assets of any kind on the new notes in contravention of any
of the terms of the new notes indenture, then such payment or distribution will
be held by the recipient in trust for the benefit of the holders of senior
indebtedness, and will be immediately paid or delivered to the holders of senior
indebtedness or their representative or representatives.
In the event of our insolvency, liquidation, reorganization or
payment default on senior indebtedness, we will not be able to make payments on
the new notes until we have paid in full all of our senior indebtedness. We may,
therefore, not have sufficient assets to pay the amounts due on the new notes.
Neither we nor our subsidiaries are prohibited from incurring debt under the new
notes indenture. If we incur additional debt, our ability to pay amounts due on
the new notes could be adversely affected. At June 30, 2002, we had
approximately $10.7 million of senior indebtedness. We may also incur additional
debt in the future. The subordination provisions will not prevent the occurrence
of any default or event of default or limit the rights of any holder of new
notes to pursue any other rights or remedies with respect to the new notes.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the new notes may receive less than other creditors on a
ratable basis.
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EVENTS OF DEFAULT AND REMEDIES
The following events constitute "events of default" under the new
notes indenture:
o we fail to pay the principal or premium, if any, on any of
the new notes when due, whether or not prohibited by the
subordination provisions of the new notes indenture;
o we fail to pay interest or additional interest on the new
notes when due if such failure continues for 30 days,
whether or not prohibited by the subordination provisions of
the new notes indenture;
o we fail to perform any covenant in the new notes indenture
if such failure continues for 45 days after notice is given
in accordance with the new notes indenture;
o we fail to repurchase any new notes after a repurchase
event;
o we fail to provide timely notice of a repurchase event;
o we fail or any of our significant subsidiaries fail to make
any payment at maturity on any indebtedness, including any
applicable grace periods, in an amount in excess of
$7,500,000, and such amount has not been paid or discharged
within 30 days after notice is given in accordance with the
new notes indenture;
o a default by us or any significant subsidiary on any
indebtedness that results in the acceleration of
indebtedness in an amount in excess of $7,500,000, without
this indebtedness being discharged or the acceleration being
rescinded or annulled for 30 days after notice is given in
accordance with the new notes indenture; or
o certain events involving bankruptcy, insolvency or
reorganization of us or any significant subsidiary.
The new notes trustee is generally required under the new notes
indenture, within 90 days after its becoming aware of a default, to provide
holders written notice of all incurred default. However, the new notes trustee
may, except in the case of a payment default on the new notes, withhold this
notice of default if it determines that withholding the notice is in the best
interest of the holders.
If an event of default has occurred and is continuing, the new notes
trustee or the holders of not less than 25% in principal amount of outstanding
new notes, may declare the principal and premium, if any, on the new notes to be
immediately due and payable. After acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
of outstanding new notes may, under circumstances set forth in the new notes
indenture, rescind the acceleration of the principal of and premium, if any, on
the new notes, other than the payment of principal of the new notes that has
become due other than because of the acceleration. If an event of default
arising from events of bankruptcy, insolvency or reorganization occurs and is
continuing with respect to us, all unpaid principal of and accrued interest on
the outstanding new notes would become due and payable immediately without any
declaration or other act on the part of the new notes trustee or holders of new
notes.
Holders of a majority in principal amount of outstanding new notes
may direct the time, method and place of conducting any proceeding for any
remedy available to the new notes trustee or exercising any trust or power
conferred on the new notes trustee, subject to specified limitations. Before
exercising
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any right or power under the new notes indenture at the direction of the
holders, the new notes trustee will be entitled to receive from such holders
reasonable security or indemnity against any costs, expenses and liabilities
that it might incur as a result.
Before the holder of a new note may take any action to institute any
proceeding relating to the new notes indenture, or to appoint a receiver or a
trustee, or for any other remedy, each of the following must occur:
o the holder must have given the new notes trustee written
notice of a continuing event of default;
o the holders of at least 25% of the aggregate principal
amount of all outstanding new notes must make a written
request of the new notes trustee to take action because of
the default;
o holders must have offered reasonable indemnification to the
new notes trustee against the cost, expenses and liabilities
of taking action; and
o the new notes trustee must not have taken action for 60 days
after receipt of such notice and offer of indemnification.
These limitations do not apply to a suit for the enforcement of
payment of the principal of or any premium or interest on a new note or the
right to convert the new note in accordance with the new notes indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding new notes may waive any default or event of
default, except if:
o we fail to pay the principal of, premium or interest on any
new note when due;
o we fail to convert any new note into common stock; or
o we fail to comply with any of the provisions of the new
notes indenture that would require the consent of the holder
of each outstanding new note affected.
We will send the new notes trustee annually a statement as to whether
we are in default and the nature of any default under the new notes indenture.
CONSOLIDATION, MERGER OR TRANSFER OF ASSETS
We may not consolidate or merge into another person or sell, lease,
convey or transfer all or substantially all of our assets to another person,
whether in a single or series of related transactions, unless:
o either (A) we are the surviving entity, or (B) the resulting
entity is a U.S. corporation, limited liability company,
partnership or trust and expressly assumes in writing all of
our obligations under the new notes and the new notes
indenture;
o no default or event of default exists or would occur; and
o other conditions specified in the new notes indenture are
satisfied.
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MODIFICATION AND WAIVER
The consent of the holders of a majority in principal amount of the
outstanding new notes affected is required to make a modification or amendment
to the new notes indenture. However, a modification or amendment requires the
consent of the holder of each outstanding new note affected if it would:
o extend the fixed maturity of any new note;
o reduce the interest rate or extend the time of payment of
interest on any new note;
o reduce the principal amount or any premium of any new note;
o reduce any amount payable upon redemption or repurchase of
any new note;
o adversely change our obligation to repurchase any new note
upon a repurchase event;
o adversely change the holder's right to institute suit for
the payment of any new note;
o change the currency in which any new note is payable;
o adversely modify the right to convert the new notes;
o adversely modify the subordination provisions of the new
notes; or
o change the percentage required to consent to modifications
and amendments.
Holders of a majority in principal amount of the new notes may
approve the release of the two-year prohibition on our ability to engage in any
private repurchases, debt-for-equity swaps or similar transactions with respect
to any existing notes that remain outstanding after the exchange offer is
completed.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the new notes indenture while
new notes remain outstanding if:
o all new notes will become due in one year or are scheduled
for redemption in one year; and
o we deposit sufficient funds to pay all outstanding new notes
on their scheduled maturity or redemption date.
PROHIBITION ON PRIVATE TRANSACTIONS INVOLVING EXISTING NOTES
For a period of two years following the issuance of the new notes,
and as long as the new notes remain outstanding during such two-year period, we
will be prohibited from engaging in any private repurchases, debt-for-equity
swaps, or similar transactions with respect to the existing notes.
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GOVERNING LAW
The new notes and the new notes indenture are governed by the laws of
the State of New York, without regard to conflicts of laws principles.
CONCERNING THE NEW NOTES TRUSTEE
We have appointed the new notes trustee as the initial paying agent,
conversion agent, registrar and custodian for the new notes. The new notes
trustee also is the trustee, initial paying agent, conversion agent, registrar
and custodian for our existing notes. We may maintain deposit accounts and
conduct other banking transactions with the new notes trustee or its affiliates
in the ordinary course of business. In addition, the new notes trustee and its
affiliates may in the future provide banking and other services to us in the
ordinary course of their business.
If the new notes trustee becomes one of our creditors, the new notes
indenture and the Trust Indenture Act of 1939 may limit the right of the new
notes trustee to obtain payment on or realize on security for its claims. If the
new notes trustee develops any conflicting interest with the holders of new
notes or us, it must eliminate the conflict or resign.
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DESCRIPTION OF EXISTING NOTES
We issued the existing notes under an indenture dated as of February
18, 2000, between us and State Street Bank and Trust Company, as existing notes
trustee. The following summarizes the material provisions of the existing notes
and the existing notes indenture. This summary is subject to and is qualified by
reference to all the provisions of the existing notes indenture. As used in this
description, the words "we," "us" or "our" do not include any current or future
subsidiary of Alkermes, Inc.
GENERAL
The existing notes are unsecured general obligations of Alkermes that
are subordinate in right of payment as described under "Subordination." The
existing notes are convertible into common stock as described under "Conversion
by Holders." The aggregate principal amount of the existing notes is limited to
$200,000,000. The existing notes are issued in fully registered form and
denominated in integral multiples of $1,000. The existing notes will mature on
February 15, 2007 unless earlier converted, redeemed or repurchased.
The existing notes bear interest at the rate of 3.75% per year.
Interest is paid on February 15 and August 15 of each year, subject to limited
exceptions if the existing notes are converted, redeemed or repurchased prior to
the applicable interest payment date. The record dates for payment of interest
are February 1 and August 1 of each year. Interest is computed on the basis of a
360-day year consisting of twelve 30-day months.
We maintain an office in the Borough of Manhattan in New York, New
York where the existing notes may be presented for registration, transfer,
exchange or conversion. Initially, this will be an office or agency of the
existing notes trustee. We may, at our option, pay interest on the existing
notes by check mailed to the registered holders of existing notes. However,
holders of more than $2,000,000 in principal amount of existing notes may elect
in writing to be paid by wire transfer; provided that any payment to The
Depository Trust Company ("DTC") or its nominee will be made by wire transfer of
immediately available funds to the account of DTC or its nominee.
We are not restricted from paying dividends or repurchasing
securities or incurring indebtedness under the existing notes indenture. The
existing notes indenture has no financial covenants. Holders of the existing
notes are not protected in the event of a highly leveraged transaction or a
change in control of Alkermes except as described under "Repurchase at Option of
Holders upon a Repurchase Event" below.
Holders of the existing notes are not required to pay a service
charge for registration or transfer of existing notes. We may, however, require
holders of existing notes to pay any tax or other governmental charge in
connection with the transfer. We are not required to exchange or register the
transfer of:
o any existing note for a period of 15 days before selection
for redemption;
o any existing note or portion selected for redemption;
o any existing note or portion surrendered for conversion; or
o any existing note or portion surrendered for repurchase but
not withdrawn in connection with a repurchase event.
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BOOK-ENTRY SYSTEM
Global Security
The existing notes were issued in the form of a global security held
in book-entry form. Except as noted below under "Certificated Notes," DTC, or
its nominee, is the sole registered holder of the existing notes for all
purposes under the existing notes indenture. Owners of beneficial interests in
the existing notes represented by the global security hold these interests
pursuant to the procedures and practices of DTC. Owners of beneficial interest
must exercise any rights in respect of their interests, including any right to
convert or require repurchase of their interests, in accordance with DTC's
procedures and practices. Beneficial owners are not holders, and are not
entitled to any rights under the global security or the existing notes indenture
with respect to the global security. We and the trustee may treat DTC as the
sole holder and owner of the global security.
Certificated Notes
Qualified institutional buyers may request that certificated existing
notes be issued in exchange for existing notes represented by the global
security. In addition, certificated existing notes may be issued in exchange for
existing notes represented by the global security if DTC no longer serves as the
depositary and no successor depositary is appointed by us.
CONVERSION BY HOLDERS
Holders of existing notes may, at their option, convert their
existing notes, in whole or in part, at any time prior to maturity into our
common stock at a conversion price of $67.75 per share. Holders may convert
existing notes in denominations of $1,000 and multiples of $1,000. The
conversion price is subject to adjustment as described below. If the existing
notes are called for redemption, the conversion rights on the existing notes
called for redemption will expire at the close of business of the last business
day before the redemption date, unless we default in payment of the redemption
price. If a holder has submitted its existing notes for repurchase after a
repurchase event, such holder may only convert its existing notes if it delivers
a withdrawal notice before the close of business on the last business day before
the repurchase date.
Except as described below, we will not make any adjustment for
accrued interest or dividends on common stock upon conversion of the existing
notes. If a holder converts its existing notes after a record date and prior to
the next interest payment, the holder will have to pay us interest, unless the
existing notes have been called for redemption under the existing notes
indenture. We will pay a cash adjustment for any fractional shares based on the
market price of our common stock on the last business day before the conversion
date.
Holders can convert existing notes by delivering the existing notes
to an office or agency of the existing notes trustee in the Borough of
Manhattan, The City of New York, along with a duly signed and completed notice
of conversion, a form of which may be obtained from the existing notes trustee.
In the case of a global security, DTC will effect the conversion upon notice
from the holder of a beneficial interest in the global security in accordance
with DTC's rules and procedures. The conversion date will be the date on which
the existing notes and the duly signed and completed notice of conversion are
delivered. As promptly as practicable on or after the conversion date, but no
later than three business days after the conversion date, we will issue and
deliver to the conversion agent certificates for the number of full shares of
common stock issuable upon conversion, together with any cash payment for
fractional shares. In the event we fail to convert any tendered existing notes
into common stock in accordance with the terms of the indenture, the holder may
bring an action to enforce its right to convert.
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If a holder delivers an existing note for conversion, the holder will
not be required to pay any taxes or duties for the issue or delivery of common
stock on conversion. However, we will not pay any transfer tax or duty payable
as a result of the issuance or delivery of the common stock in a name other than
that of the holder of the existing note. We will not issue or deliver common
stock certificates unless we have been paid the amount of any transfer tax or
duty or we have been provided satisfactory evidence that the transfer tax or
duty has been paid.
The conversion price of $67.75 per share will be adjusted if:
(1) we dividend or distribute shares of our common stock to our
common stock holders;
(2) we split, subdivide or combine our common stock;
(3) we issue rights or warrants to all holders of our common
stock to purchase common stock at less than the current
market price;
(4) we dividend or distribute to all holders of our common stock
capital stock or evidences of indebtedness or assets, but
excluding:
o dividends, distributions and rights or warrants referred
to in (3) above or to be exercised in connection with
certain trigger events;
o dividends and distributions paid exclusively in cash or
paid in connection with our liquidation, dissolution or
winding up; or
o capital stock, evidence of indebtedness, cash or assets
distributed in a merger or consolidation.
(5) we make a dividend or distribution consisting exclusively of
cash to all holders of common stock if the aggregate amount
of these distributions combined together with (A) all other
all-cash distributions made within the preceding 12 months
in respect of which we made no adjustment plus (B) any cash
and the fair market value of other consideration payable in
any tender offers by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in
respect for which we made no adjustment, exceeds 10% of our
market capitalization, being the product of the then current
market price of the common stock multiplied by the number of
shares of our common stock then outstanding;
(6) the purchase of common stock pursuant to a tender offer made
by us or any of our subsidiaries involves an aggregate
consideration that, together with (A) any cash and the fair
market value of any other consideration payable in any other
tender offer by us or any of our subsidiaries for common
stock expiring within the 12 months preceding such tender
offer plus (B) the aggregate amount of any such all-cash
distributions referred to in (5) above to all holders of
common stock within the 12 months preceding the expiration
of the tender offer for which we have made no adjustment,
exceeds 10% of our market capitalization on the expiration
of such tender offer; or
(7) payment on tender offers or exchange offers by a third party
other than Alkermes or our subsidiaries if, as of the
closing date of the offer, our board of directors does not
recommend rejection of the offer. We will only make this
adjustment if a tender offer increases the person's
ownership to more than 25% of our outstanding common stock
and
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the payment per share is greater than the current market
price of the common stock. We will not make this adjustment
if the tender offer is a merger or transaction described
below under "Consolidation, Merger or Transfer of Assets."
If we implement a stockholders' rights plan, we will be required
under the existing notes indenture to provide that the holders of existing notes
will receive the rights upon conversion of the existing notes, whether or not
these rights were separated from the common stock prior to conversion.
If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each existing note then outstanding will, without
the consent of the holder of any existing note, become convertible only into the
kind and amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the existing note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a consolidation, merger or combination that
does not result in any reclassification, conversion, exchange or cancellation of
our common stock.
We are permitted to reduce the conversion price of the existing notes
for limited periods of time, if our board of directors deems it advisable. Any
such reduction shall be effective for not less than 20 days. We are required to
give at least 15 days' prior notice of any such reduction. We may also reduce
the conversion price to avoid or diminish income tax to holders of our common
stock in connection with a dividend or distribution of stock or similar event.
No adjustment in the conversion price of the existing notes will be
required unless it would result in a change in the conversion price of at least
one percent. Any adjustment not made will be taken into account in subsequent
adjustments.
PROVISIONAL REDEMPTION
We may redeem some or all of the existing notes at any time prior to
February 19, 2003, at a redemption price equal to $1,000 per existing note plus
accrued and unpaid interest to the redemption date if the closing price of our
common stock has exceeded 200% of the conversion price for at least 20 trading
days in the consecutive 30-trading day period ending on the trading day
immediately prior to the mailing of the notice of redemption.
OPTIONAL REDEMPTION
At any time on or after February 19, 2003, we may redeem some or all
of the existing notes, at our option, at the redemption prices specified below.
The redemption price, expressed as a percentage of the principal amount, is as
follows for the 12-month periods beginning on February 15 of the year indicated
(February 19, 2003 through February 14, 2004, in the case of the first such
period):
Year Redemption Price
---- ----------------
2003 102.14%
2004 101.61%
2005 101.07%
2006 100.54%
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and 100% of the principal amount on February 15, 2007. In each case we will also
pay accrued and unpaid interest to, but excluding, the redemption date. If the
redemption date is an interest payment date, we will pay interest to the record
holders as of the relevant record date. We are required to give notice of
redemption not more than 60 and not less than 30 days before the redemption date
under the existing notes indenture.
No sinking fund is provided for the existing notes, which means that
the existing notes indenture does not require us to redeem or retire the
existing notes periodically. We may not redeem the existing notes if there is a
default under the existing notes indenture. See "Events of Default and
Remedies."
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
If a repurchase event occurs, a holder of an existing note will have
the right, at its option, to require us to repurchase all or any portion of its
existing notes 40 days after we mail holders a notice of repurchase event. The
repurchase price we are required to pay will be 105% of the principal amount of
the existing notes submitted for repurchase, plus accrued and unpaid interest
to, but excluding, the repurchase date. If a repurchase date is an interest
payment date, we will pay to the record holder on the record date.
At our option, instead of paying the repurchase price in cash, we may
pay the repurchase price in common stock, valued at 95% of the average of the
closing prices for the five trading days immediately before and including the
third trading day preceding the repurchase date. We may only pay the repurchase
price in common stock if we satisfy conditions provided in the existing notes
indenture.
A repurchase event will be considered to have occurred if:
1. our common stock or other common stock into which the
existing notes are convertible is neither listed for trading
on a United States national securities exchange nor approved
for trading on an established automated over-the-counter
trading market in the United States; or
2. one of the following "change in control" events occurs:
o any person or group becomes the beneficial owner of more
than 50% of the voting power of our outstanding
securities entitled to generally vote for directors;
o our shareholders approve any plan or proposal for our
liquidation, dissolution or winding up;
o we consolidate with or merge into any other corporation
or any other corporation merges into us and, as a
result, our outstanding common stock is changed or
exchanged for other assets or securities unless our
shareholders immediately before the transaction own,
directly or indirectly, immediately following the
transaction at least 51% of the combined voting power of
the corporation resulting from the transaction in
substantially the same proportion as their ownership of
our voting stock immediately before the transaction;
o we convey, transfer or lease all or substantially all of
our assets to any person; or
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o the continuing directors do not constitute a majority of
our board of directors at any time.
However, a change in control will not be deemed to have occurred if:
o the last sale price of our common stock for any five
trading days during the ten trading days immediately
before the change in control is equal to at least 105%
of the conversion price; or
o all of the consideration, excluding cash payments for
fractional shares in the transaction constituting the
change in control, consists of common stock traded on a
United States national securities exchange or quoted on
the Nasdaq National Market, and as a result of the
transaction the existing notes become convertible solely
into that common stock.
The term "continuing director" means at any date a member of our
board of directors:
o who was a member of our board of directors on December
31, 1999; or
o who was nominated or elected by at least a majority of
the directors who were continuing directors at the time
of the nomination or election or whose election to our
board of directors was recommended by at least a
majority of the directors who were continuing directors
at the time of the nomination or election or by the
nominating committee comprised of our independent
directors.
Under the above definition of continuing director, if the current
board of directors approved a new director or directors and then resigned, no
change in control would occur. The interpretation of the phrase "all or
substantially all" used in the definition of change in control would likely
depend on the facts and circumstances existing at such time. As a result, there
may be uncertainty as to whether or not a sale or transfer of "all or
substantially all" of our assets has occurred.
We will be required to mail holders of existing notes a notice within
15 days after the occurrence of a repurchase event. The notice must describe,
among other things, the repurchase event, the holder's right to elect repurchase
of the existing notes and the repurchase date. We must deliver a copy of the
notice to the trustee and cause a copy, or a summary of the notice, to be
published in a newspaper of general circulation in New York, New York. The
holder may exercise its repurchase rights by delivering written notice to us and
the existing notes trustee. The notice must be accompanied by the existing notes
duly endorsed for transfer to us. The holder must deliver the exercise notice on
or before the close of business on the thirty-fifth calendar day after the
mailing date of the repurchase notice.
The holders of the existing notes may require us to repurchase all or
any portion of their existing notes upon a repurchase event. We may not have
sufficient cash funds to repurchase the existing notes upon a repurchase event.
We may elect, subject to certain conditions, to pay the repurchase price in
common stock. Certain of our existing debt agreements, as well as future debt
agreements, may prohibit us from paying the repurchase price in either cash or
common stock. If we are prohibited from repurchasing the existing notes, we
could seek consent from our lenders to repurchase the existing notes. If we are
unable to obtain their consent, we could attempt to refinance the existing
notes. If we were unable to obtain a consent or refinance, we would be
prohibited from repurchasing the existing notes. If we were unable to repurchase
the existing notes upon a repurchase event, it would result in an event of
default under the existing notes indenture. An event of default under the
existing notes indenture could result in a further event of default under our
other then-existing debt. In addition, the occurrence of the
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repurchase event may be an event of default under our other debt. As a result,
we would be prohibited from paying amounts due on the existing notes under the
subordination provisions of the existing notes indenture.
The change in control feature may not necessarily afford holders of
the existing notes with protection in the event of a highly leveraged
transaction, a change in control or similar transactions involving us. We could,
in the future, enter into transactions, including recapitalizations, that would
not constitute a change in control but that would increase the amount of our
senior indebtedness or other debt. We are not prohibited from incurring senior
indebtedness or debt under the existing notes indenture. If we incur significant
amounts of additional debt, this could have an adverse effect on our ability to
make payments on the existing notes.
o In addition, our management could undertake leveraged
transactions that could constitute a change in control. The
Board of Directors does not have the right under the
existing notes indenture to limit or waive the repurchase
right in the event of these types of leveraged transaction.
Our requirement to repurchase existing notes upon a
repurchase event could delay, defer or prevent a change of
control. As a result, the repurchase right may discourage:
o a merger, consolidation or tender offer;
o the assumption of control by a holder of a large block
of our shares; and
o the removal of incumbent management.
The repurchase feature was a result of negotiations between us and
the initial purchasers of the existing notes. The repurchase feature is not the
result of any specific effort to accumulate shares of common stock or to obtain
control of us by means of a merger, tender offer or solicitation, or part of a
plan by us to adopt a series of anti-takeover provisions. We have no present
intention to engage in a transaction involving a change of control, although it
is possible that we would decide to do so in the future.
The Securities Exchange Act and the SEC rules thereunder require the
distribution of specific types of information to security holders in the event
of issuer tender offers. These rules may apply in the event of a repurchase. We
will comply with these rules to the extent applicable.
SUBORDINATION
The existing notes are unsecured and subordinated to the prior
payment in full of all existing and future senior indebtedness as provided in
the existing notes indenture. Upon any distribution of our assets upon our
dissolution, winding up, liquidation or reorganization, payments on the existing
notes will be subordinated to the prior payment in full of all senior
indebtedness. If the existing notes are accelerated following an event of
default under the existing notes indenture, the holders of any senior
indebtedness will be entitled to payment in full before the holders of the
existing notes are entitled to receive any payment on the existing notes.
We may not make any payments on the existing notes if:
o we default in the payment on senior indebtedness beyond any
grace period; or
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o any other default occurs and is continuing under any
designated senior indebtedness that permits holders of the
designated senior indebtedness to accelerate its maturity,
and we and the trustee receive a notice, known as a payment
blockage notice, from a person permitted to give this notice
under the existing notes indenture.
We may resume making payments on the existing notes:
o in the case of a payment default, when the default is cured
or waived or ceases to exist; and
o in the case of a nonpayment default, the earlier of when the
default is cured or waived or ceases to exist or 179 days
after receipt of the payment blockage notice.
No new period of payment blockage may be commenced unless:
o 365 days have elapsed since our receipt of the prior payment
blockage notice; and
o all scheduled payments on the existing notes have been paid
in full, or the existing notes trustee or the holders of
existing notes shall not have begun proceedings to enforce
the right of the holders to receive payments.
No default that existed on any senior indebtedness on the date of
delivery of any payment blockage notice may be the basis for a subsequent
payment blockage notice.
The term "senior indebtedness" means the principal, premium, if any,
and interest on, including bankruptcy interest, and any other payment on the
following current or future incurred:
o indebtedness for money borrowed or evidenced by existing
notes, debentures, bonds or other securities;
o reimbursement obligations under letters of credit, bank
guarantees or bankers' acceptances;
o indebtedness under interest rate and currency swap
agreements, cap, floor and collar agreements, currency spot
and forward contracts and other similar agreements and
arrangements;
o indebtedness consisting of commitment or standby fees under
our credit facilities or letters of credit;
o obligations under leases required or permitted to be
capitalized under generally accepted accounting principles;
o obligations of the type listed above that have been assumed
or guaranteed by us or in effect guaranteed, directly or
indirectly, by us through an agreement to purchase; and
o any amendment, modification, renewal, extension, refunding
or deferral of any indebtedness or obligation of type listed
in the bullet points above.
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Senior indebtedness will not include:
o any indebtedness or amendment or modification that expressly
provides that it is subordinate to or is not senior to or is
on the same basis as the existing notes;
o any indebtedness to any subsidiary;
o indebtedness for trade payables or the deferred purchase
price of assets or services incurred in the ordinary course
of business; or
o the existing notes.
If the trustee or any holder of the existing notes receives any
payment or distribution of our assets of any kind on the existing notes in
contravention of any of the terms of the existing notes indenture, then such
payment or distribution will be held by the recipient in trust for the benefit
of the holders of senior indebtedness, and will be immediately paid or delivered
to the holders of senior indebtedness or their representative or
representatives.
In the event of our insolvency, liquidation, reorganization or
payment default on senior indebtedness, we will not be able to make payments on
the existing notes until we have paid in full all of our senior indebtedness. We
may, therefore, not have sufficient assets to pay the amounts due on the
existing notes. Neither we nor our subsidiaries are prohibited from incurring
debt under the existing notes indenture. If we incur additional debt, our
ability to pay amounts due on the existing notes could be adversely affected. At
June 30, 2002, we had approximately $10.7 million of senior indebtedness. We may
also incur additional debt in the future. The subordination provisions will not
prevent the occurrence of any default or event of default or limit the rights of
any holder of existing notes to pursue any other rights or remedies with respect
to the existing notes.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the existing notes may receive less than other creditors
on a ratable basis.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute "events of default" under the
existing notes indenture:
o we fail to pay the principal or premium, if any, on any of
the existing notes when due, whether or not prohibited by
the subordination provisions of the existing notes
indenture;
o we fail to pay interest or liquidated damages on the
existing notes when due if such failure continues for 30
days, whether or not prohibited by the subordination
provisions of the existing notes indenture;
o we fail to perform any covenant in the existing notes
indenture if such failure continues for 45 days after notice
is given in accordance with the existing notes indenture;
o we fail to repurchase any existing notes after a repurchase
event;
o we fail to provide timely notice of a repurchase event;
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o we fail or any of our significant subsidiaries fail to make
any payment at maturity on any indebtedness, including any
applicable grace periods, in an amount in excess of
$7,500,000, and such amount has not been paid or discharged
within 30 days after notice is given in accordance with the
existing notes indenture;
o a default by us or any significant subsidiary on any
indebtedness that results in the acceleration of
indebtedness in an amount in excess of $7,500,000, without
this indebtedness being discharged or the acceleration being
rescinded or annulled for 30 days after notice is given in
accordance with the existing notes indenture; or
o certain events involving bankruptcy, insolvency or
reorganization of us or any significant subsidiary.
The existing notes trustee is generally required under the existing
notes indenture, within 90 days after its becoming aware of a default, to
provide holders written notice of all incurred default. However, the existing
notes trustee may, except in the case of a payment default on the existing
notes, withhold this notice of default if it determines that withholding the
notice is in the best interest of the holders.
If an event of default has occurred and is continuing, the existing
notes trustee or the holders of not less than 25% in principal amount of
outstanding existing notes, may declare the principal and premium, if any, on
the existing notes to be immediately due and payable. After acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of outstanding existing notes may, under
circumstances set forth in the existing notes indenture, rescind the
acceleration of the principal of and premium, if any, on the existing notes,
other than the payment of principal of the existing notes that has become due
other than because of the acceleration. If an event of default arising from
events of bankruptcy, insolvency or reorganization occurs and is continuing with
respect to us, all unpaid principal of and accrued interest on the outstanding
existing notes would become due and payable immediately without any declaration
or other act on the part of the existing notes trustee or holders of existing
notes.
Holders of a majority in principal amount of outstanding existing
notes may direct the time, method and place of conducting any proceeding for any
remedy available to the existing notes trustee or exercising any trust or power
conferred on the existing notes trustee, subject to specified limitations.
Before exercising any right or power under the existing notes indenture at the
direction of the holders, the existing notes trustee will be entitled to receive
from such holders reasonable security or indemnity against any costs, expenses
and liabilities that it might incur as a result.
Before the holder of an existing note may take any action to
institute any proceeding relating to the existing notes indenture, or to appoint
a receiver or a trustee, or for any other remedy, each of the following must
occur:
o the holder must have given the existing notes trustee
written notice of a continuing event of default;
o the holders of at least 25% of the aggregate principal
amount of all outstanding existing notes must make a written
request of the existing notes trustee to take action because
of the default;
o holders must have offered reasonable indemnification to the
existing notes trustee against the cost, expenses and
liabilities of taking action; and
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o the existing notes trustee must not have taken action for 60
days after receipt of such notice and offer of
indemnification.
These limitations do not apply to a suit for the enforcement of
payment of the principal of or any premium or interest on an existing note or
the right to convert the existing note in accordance with the existing notes
indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding existing notes may waive any default or event of
default, except if:
o we fail to pay the principal of, premium or interest on any
existing note when due;
o we fail to convert any existing note into common stock; or
o we fail to comply with any of the provisions of the existing
notes indenture that would require the consent of the holder
of each outstanding existing note affected.
We will send the existing notes trustee annually a statement as to
whether we are in default and the nature of any default under the existing notes
indenture.
CONSOLIDATION, MERGER OR TRANSFER OF ASSETS
We may not consolidate or merge into another person or sell, lease,
convey or transfer all or substantially all of our assets to another person,
whether in a single or series of related transactions, unless:
o either (A) we are the surviving entity, or (B) the resulting
entity is a U.S. corporation, limited liability company,
partnership or trust and expressly assumes in writing all of
our obligations under the existing notes and the existing
notes indenture;
o no default or event of default exists or would occur; and
o other conditions specified in the existing notes indenture
are satisfied.
MODIFICATIONS OF THE EXISTING NOTES INDENTURE
The consent of the holders of a majority in principal amount of the
outstanding existing notes affected is required to make a modification or
amendment to the existing notes indenture. However, a modification or amendment
requires the consent of the holder of each outstanding existing note affected if
it would:
o extend the fixed maturity of any existing note;
o reduce the interest rate or extend the time of payment of
interest on any existing note;
o reduce the principal amount or any premium of any existing
note;
o reduce any amount payable upon redemption or repurchase of
any existing note;
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o adversely change our obligation to repurchase any existing
note upon a repurchase event;
o adversely change the holder's right to institute suit for
the payment of any existing note;
o change the currency in which any existing note is payable;
o adversely modify the right to convert the existing notes;
o adversely modify the subordination provisions of the
existing notes; or
o change the percentage required to consent to modifications
and amendments.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the existing notes indenture
while existing notes remain outstanding if:
o all existing notes will become due in one year or are
scheduled for redemption in one year; and
o we deposit sufficient funds to pay all outstanding existing
notes on their scheduled maturity or redemption date.
GOVERNING LAW
The existing notes and the indenture are governed by the laws of the
State of New York, without regard to conflicts of laws principles.
CONCERNING THE EXISTING NOTES TRUSTEE
We have appointed the existing notes trustee as the initial paying
agent, conversion agent, registrar and custodian for the existing notes. We may
maintain deposit accounts and conduct other banking transactions with the
existing notes trustee or its affiliates in the ordinary course of business. In
addition, the existing notes trustee and its affiliates may in the future
provide banking and other services to us in the ordinary course of their
business.
If the existing notes trustee becomes one of our creditors, the
existing notes indenture and the Trust Indenture Act of 1939 may limit the right
of the existing notes trustee to obtain payment on or realize on security for
its claims. If the existing notes trustee develops any conflicting interest with
the holders of existing notes or us, it must eliminate the conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
Alkermes is authorized to issue 165,000,000 shares of capital stock,
$0.01 par value per share, of which 160,000,000 shares have been designated as
common stock par value $0.01 per share; 3,000,000 shares have been designated as
preferred stock, par value $0.01 per share, none of which are issued and
outstanding; 450,000 shares have been designated as non-voting common stock,
382,632 of which are issued and outstanding; and 1,550,000 shares are
undesignated capital stock. The following description of Alkermes capital stock
is subject to and qualified in its entirety by the provisions of Alkermes' Third
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
and by the provisions of applicable Pennsylvania law. As used in this
description, the words "we," "us" or "our" do not include any current or future
subsidiary of Alkermes, Inc.
COMMON STOCK
The majority of our authorized capital stock consists of common
stock, par value $.01 per share. The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferences applicable to any series or class of
capital stock with superior dividend rights that may be outstanding, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors out of funds legally available therefor.
In the event of our liquidation, dissolution or winding up, holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any series or class of
capital stock with superior liquidation rights that may be outstanding. The
outstanding shares of common stock are, and the common stock to be issued upon
conversion of the new notes will be, fully paid and nonassessable. No
pre-emptive rights, conversion rights, redemption rights or sinking fund
provisions are applicable to the common stock.
The 1988 Pennsylvania Business Corporation Law, as amended, ("1988
BCL") includes certain shareholder protection provisions, which apply to us.
The following is a description of those provisions of the 1988 BCL
that apply to us and that may have an anti-takeover effect. This description of
the 1988 BCL is only a summary thereof, does not purport to be complete and is
qualified in its entirety by reference to the full text of the 1988 BCL.
(i) Upon a control-share acquisition (acquiring person
acquires or proposes to acquire 20%, 33 1/3% or 50% or more of the
voting power of our common stock) the 1988 BCL operates to suspend
the voting rights of the control shares (the newly acquired shares
upon such an acquisition, plus any shares acquired within 180 days of
exceeding a threshold) held by an acquiring person upon a control
share acquisition. The acquiring person can regain his right to vote
such control shares upon the approval of a majority of the
outstanding disinterested shares and a majority of all common stock.
(ii) The disgorgement provisions require a controlling
person (a person who acquired, offered to acquire or publicly
disclosed the intention of acquiring at least 20% of the voting power
of Alkermes) to disgorge "greenmail" profits, or profits realized
from the disposition of our securities within 18 months after
becoming a controlling person and the security was acquired by the
controlling person within 24 months before or 18 months after
becoming a controlling person.
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(iii) The control transaction provisions of the 1988 BCL
allow holders of voting shares of a corporation to "put" their stock
to an acquiror for fair value in the event of a control transaction
(the acquisition of 20% of voting power over our common stock). Fair
value is defined as not less than the highest price paid by the
acquiror during a certain 90 day period.
(iv) An interested shareholder (the beneficial owner of 20%
of the voting stock either of a corporation or of an affiliate of the
corporation who was at any time within the five-year period
immediately prior to the date in question the beneficial owner of 20%
of the voting stock of the corporation) cannot engage in a business
combination with the corporation for a period of five years unless:
(a) the board approves the business combination prior to the
interested shareholder becoming such or approves the acquisition of
shares in advance, or (b) if the interested shareholder owns 80% of
such stock, the business combination is approved by a majority of the
disinterested shareholders and the transaction satisfies certain
"fair price" provisions. After the five-year period, the same
restrictions apply, unless the transaction either is approved (a) by
a majority of the disinterested shareholders and satisfies the fair
price provisions or (b) by all shareholders.
(v) Corporations may adopt shareholders' rights plans with
discriminatory provisions (sometimes referred to as poison pills)
whereby options to acquire shares or corporate assets are created and
issued which contain terms that limit persons owning or offering to
acquire a specified percentage of outstanding shares from exercising,
converting, transferring or receiving options and allows the exercise
of options to be limited to shareholders or triggered based upon
control transactions. Such poison pills take effect only in the event
of a control transaction. Pursuant to the 1988 BCL, such poison pills
may be adopted by the Board without shareholder approval.
(vi) Shareholders of a corporation do not have a statutory
right to call special meetings of shareholders or to propose
amendments to the articles under the provisions of the 1988 BCL.
(vii) In discharging the duties of their respective
positions, the board of directors, committees of the board and
individual directors may, in considering the best interests of the
corporation, consider to the extent they deem appropriate, (i) the
effects of any action upon shareholders, employees, suppliers,
customers and creditors of the corporation and the community in which
the corporation is located, (ii) the short-term and long-term
interests of the corporation, including benefits that may accrue to
the corporation from its long-term plans and the possibility that
these interests may be best served by the continued independence of
the corporation, (iii) the resources, intent and conduct (past,
stated and potential) of any person seeking to acquire control of the
corporation and (iv) all other pertinent factors. Further, the board
of directors, committees of the board and individual directors are
not required, in considering the best interests of the corporation or
the effects of any action, to regard any corporate interest or the
interests of any particular group affected by such action as a
dominant or controlling interest or factor. The consideration of the
foregoing factors shall not constitute a violation of the applicable
standard of care.
NON-VOTING COMMON STOCK
We have designated 450,000 shares of its capital stock as non-voting
common stock of which 382,632 are currently outstanding. The holder of
non-voting common stock is not entitled to vote on any matters submitted to a
vote of shareholders except for (a) such statutory voting rights provided under
the 1988 BCL or (b) any matter submitted to a vote of the shareholders which
would amend, alter or repeal
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any provision of our Articles of Incorporation or the Bylaws so as to adversely
affect the rights of the non-voting common stock.
The holders of non-voting common stock (a) shall be entitled to
receive the same dividends or distributions, in cash, shares of stock or other
property, as the holders of common stock receive; (b) shall be entitled to the
same liquidation rights as, and on a parity with, the holders of common stock;
and (c) shall be entitled to any other rights or privileges as, and on a parity
with, the holders of the common stock.
The non-voting common stock is convertible, at the option of the
holder, on a one-for-one basis into common stock. Additionally, each share of
non-voting common stock shall automatically be converted into one share of
common stock immediately upon the transfer of ownership by the initial holder or
an "affiliate" of the initial holder to a third party which is not an
"affiliate" of such holder.
PREFERRED STOCK
Our board of directors has the authority, from time to time and
without further action by the shareholders, to divide the designated and
unissued preferred stock into one or more classes and one or more series within
any class and to make determinations of the designation and number of shares of
any class or series and determinations of the voting rights, preferences,
limitations and special rights, if any, of the shares of any class or series.
The rights, preferences, limitations and special rights of different classes of
capital stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters.
BOOK-ENTRY SYSTEM - THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as depository for the
new notes. The certificates representing the new notes will be in fully
registered, global form without interest coupons registered in the name of Cede
& Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. Ownership of beneficial interests in a global
note will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in a global note will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of
the global notes, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the new notes represented by such global
notes for all purposes under the new notes indenture. No beneficial owner of an
interest in the global notes will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the new notes indenture.
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 pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. DTC holds the new notes that its
participants deposit with DTC. DTC also facilitates the settlement among
participants of new notes transactions, such as transfers and pledges, in
deposited new notes through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
new notes certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
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organizations. DTC is owned by a number of its participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC, 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
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of new notes under the DTC system must be made by or
through participants, which will receive a credit for the new notes on DTC's
records. The beneficial ownership interest of each actual purchaser of each new
note is in turn to be recorded on the participants' records. Beneficial owners
will not receive written confirmation from DTC of their purchase, but they are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the new notes are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interests in new notes,
except in the event that use of the book-entry system for the new notes is
discontinued.
To facilitate subsequent transfers, all new notes deposited by
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of new notes with DTC and their registration
in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the new notes; DTC's records reflect only the identity of the participants to
whose accounts such new notes are credited, which may or may not be the
beneficial owners. The participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to participants
and by participants to beneficial owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time. Beneficial owners of new notes may wish to take certain steps
to augment transmission to them of notices of significant events with respect to
the new notes, such as redemptions, tenders, defaults, and proposed amendments
to the new notes documents. Beneficial owners of new notes may wish to ascertain
that the nominee holding the new notes for their benefit has agreed to obtain
and transmit notices to beneficial owners, or in the alternative, beneficial
owners may wish to provide their names and addresses to the registrar and
request that copies of the notices be provided directly to them.
Payments of the principal of and interest on the global notes will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
We understand that DTC's practice is to credit participants' accounts, upon
DTC's receipt of funds and corresponding detail information from us or the new
notes trustee on payable date in accordance with their respective holdings shown
on DTC's records. Payments by participants to beneficial owners will be governed
by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participant and not of DTC, the
new notes trustee, or us, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of redemption proceeds,
distributions, and dividends to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) is our responsibility or the
responsibly of the new notes trustee, disbursement of such payments to
participants shall be the responsibility of DTC, and disbursement of such
payments to the beneficial owners shall be the responsibility of participants.
We will send any redemption notices to Cede & Co. We understand that
if less than all of the new notes are being redeemed, DTC's practice is to
determine by lot the amount of the holdings of each
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participant to be redeemed. We also understand that neither DTC nor Cede & Co.
will consent or vote with respect to the new notes. We have been advised that
under its usual procedures, DTC will mail an "omnibus proxy" to us as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those participants to whose accounts the new
notes are credited on the record date identified in a listing attached to the
omnibus proxy.
A beneficial owner shall give notice to elect to have its new notes
purchased or tendered, through its participant, to the new notes trustee, and
shall effect delivery of such new notes by causing the participant to transfer
the participant's interest in the new notes, on DTC's records, to the new notes
trustee. The requirement for physical delivery of new notes in connection with
an optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the new notes are transferred by participants on DTC's
records and followed by a book-entry credit of tendered new notes to the new
notes trustee DTC account.
DTC may discontinue providing its services as new notes depositary
with respect to the new notes at any time by giving reasonable notice to us or
the new notes trustee. If DTC is at any time unwilling or unable to continue as
a depositary for the global notes and a successor depositary is not appointed
within 90 days, we will issue definitive, certificated original new notes in
exchange for the global notes.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be reliable, but we
take no responsibility for the accuracy thereof.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal
income tax consequences relating to the exchange offer and the ownership and
disposition of the new notes and common stock received upon a conversion of new
notes. This discussion does not purport to address all aspects of U.S. federal
income taxation that may be relevant to particular holders in light of their
personal circumstances and the U.S. federal income tax consequences to certain
types of holders subject to special treatment under the Internal Revenue Code of
1986 (the "Code"). This discussion does not address the tax considerations
arising under the laws of any foreign, state or local jurisdiction, or under
U.S. federal estate or gift tax laws (except as specifically described below
with respect to non-U.S. holders). In addition, this discussion does not address
all tax considerations that may be applicable to a holder's particular
circumstances or to holders that may be subject to special tax rules: holders
subject to the alternative minimum tax; banks, insurance companies, or other
financial institutions; foreign persons or entities (except to the extent
specifically set forth below); tax-exempt organizations; dealers in securities
or commodities; traders in securities that elect to use a mark-to-market method
of accounting for their securities holdings; holders whose "functional currency"
is not the U.S. dollar; holders that hold the existing notes or the new notes as
a position in a hedging transaction, "straddle," "conversion transaction" or
other risk reduction transaction; or persons deemed to sell the existing notes
or the new notes under the constructive sale provisions of the Code. The
discussion assumes that the existing notes are held, and the new notes will be
held, as "capital assets" within the meaning of Section 1221 of the Code. The
discussion also assumes that the new notes will be treated as debt for U.S.
federal income tax purposes.
This discussion is based upon provisions of the Code, the Treasury
Regulations, and judicial and administrative interpretations of the Code and
Treasury Regulations, all as in effect as of the date hereof, and all of which
are subject to change (possibly on a retroactive basis) or different
interpretation. There can be no assurance that the Internal Revenue Service (the
"Service") will not challenge one or more of the tax consequences described
herein, and we have not obtained, nor do we intend to obtain, a ruling from the
Service with respect to the U.S. federal income tax consequences of the exchange
offer.
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As used herein, a "U.S. holder" means a beneficial owner of existing
notes or new notes received in the exchange offer that is a citizen or resident
(within the meaning of Section 7701(b) of the Code) of the United States, a
corporation (including a non-corporate entity taxable as a corporation), formed
under the laws of the U.S. or any political subdivision thereof, an estate the
income of which is subject to U.S. federal income taxation regardless of its
source and a trust subject to the primary supervision of a court within the
United States and the control of a United States fiduciary as described in
Section 7701(a)(30) of the Code or any other person whose income or gain with
respect to a new note is effectively connected with the conduct of a U.S. trade
or business. If an entity treated as a partnership for Federal income tax
purposes holds existing or new notes, the tax treatment of a partner depends
upon the status of the partner and the activities of the partnership. A
"non-U.S. holder" is any beneficial owner of existing notes or new notes other
than a U.S. holder.
We intend to treat the new notes as indebtedness for U.S. federal
income tax purposes. Such characterization is binding on us (but not the Service
or a court). Each holder of a new note also must treat the new notes as
indebtedness unless the holder makes adequate disclosure on its income tax
return; however, by participating in the exchange, a holder of a new note agrees
to treat the new note as indebtedness under these rules.
INVESTORS CONSIDERING THE EXCHANGE OF EXISTING NOTES IN THE EXCHANGE
OFFER OR PURCHASING NEW NOTES IN THE CASH OFFER ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE
OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES UNDER FEDERAL AND
APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.
TREATMENT OF EXCHANGE OFFER
The tax treatment of a U.S. holder's exchange of existing notes for
new notes pursuant to the exchange offer will depend on whether that exchange is
treated as a "recapitalization" as provided in Section 368(a)(1)(E) of the Code.
The exchange will be treated as a recapitalization only if both the existing
notes and the new notes constitute "securities" within the meaning of the
provisions of the Code governing reorganizations. This, in turn, depends upon
the facts and circumstances surrounding the origin and nature of these debt
instruments and upon the interpretation of numerous judicial decisions.
If the exchange of existing notes for new notes constitutes a
recapitalization, since the principal amount of the existing notes exceeds the
principal amount of the new notes, a U.S. holder: (a) will not recognize gain or
loss on the exchange; (b) will have a tax basis in the new notes equal to the
U.S. holder's adjusted tax basis in the existing notes exchanged for the new
notes; and (c) will have a holding period for the new notes that includes the
period during which the U.S. holder held the existing notes. A U.S. holder who
receives cash for a fractional existing note, generally will recognize gain or
loss on the payment for such fractional existing note. See "Tax Treatment of the
Ownership and Disposition of New Notes and Common Stock - Sale, exchange or
retirement of the new notes" below for a more complete discussion of the
treatment of any such payment.
If the exchange of existing notes for new notes does not constitute a
recapitalization, a U.S. holder: (a) generally will recognize gain or loss on
the exchange of existing notes for new notes equal to the difference between (i)
the issue price of the new notes received (which, since the new notes will be
publicly traded as defined in the regulations under Code Section 1273, will be
the fair market value of the new notes on the issue date) and (ii) the U.S.
holder's adjusted tax basis in the existing notes; (b) will have a tax basis in
the new notes equal to the fair market value of the new notes; and (c) will have
a holding period for the new notes commencing on the day after the expiration
date. Any gain or loss recognized by a U.S. holder will be long-term capital
gain or loss if the U.S. holder has held the existing notes as capital assets
for more than one year, except to the extent attributable to accrued interest
which
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will be taxable as ordinary income. However, under the market discount rules,
any gain recognized by a U.S. holder will be ordinary income to the extent of
any accrued market discount which has not previously been included in income.
A non-U.S. holder generally will not recognize gain or loss for U.S.
federal income tax purposes on the exchange of existing notes for new notes,
except in the instances comparable to those described in "Non-U.S. holders--Gain
on disposition of the new notes and common stock" with respect to sales of the
new notes and common stock.
For tax purposes, the exchange generally should be considered to take
place on the expiration date.
TAX TREATMENT OF THE OWNERSHIP AND DISPOSITION OF NEW NOTES AND COMMON STOCK
STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON THE NEW NOTES
As described above, the new notes provide that we may pay stated
interest on the notes by delivering shares of our common stock equal to the
number obtained by dividing the interest due by 90% of the average of the common
stock's closing price for each of the five trading days immediately preceding
the second trading day prior to the interest payment date. If we elect this
option, the amount of interest received by a U.S. holder of a new note on any
interest payment date may not exactly equal the note's stated return. It is
possible that the Service could seek to analyze the U.S. federal income tax
consequences of owning a new note under Treasury Regulations governing
contingent payment debt instruments (the "Contingent Payment Debt Regulations").
As discussed below under "Potential contingent payment treatment," we intend to
take the position that the Contingent Debt Regulations do not apply to the new
notes. The discussion in this section assumes such regulations do not apply to
the new notes.
The stated interest on the existing notes will be includable in a
U.S. holder's gross income as ordinary income for U.S. federal income tax
purposes at the time it is paid or accrued in accordance with the U.S. holder's
regular method of tax accounting. In addition, if any interest is paid in our
common stock, a U.S. holder's interest income will be equal to the fair market
value of the stock received on the payment date.
We do not anticipate that the new notes will be issued with original
issue discount. As a result, we anticipate that a U.S. holder will not be
subject to tax on original issue discount but instead will be subject to tax
only on stated interest (or our shares received as interest) on the new notes.
If, however, the issue price of the new notes, which for this purpose is their
fair market value, is determined to be significantly less than the stated
redemption price at maturity of the new notes so that the original issue
discount on the new notes is not considered to be de minimis, the U.S. federal
income tax consequences set forth below will apply.
The amount of original issue discount on a debt instrument generally
is equal to the difference between the stated redemption price at maturity of
the debt instrument and the debt instrument's issue price. However, if the
original issue discount on a debt instrument is less than 1/4 of 1 percent of
the stated redemption price at maturity of the debt instrument multiplied by the
number of complete years to maturity, the original issue discount on the debt
instrument is considered de minimis and will be deemed to be zero. The stated
redemption price at maturity of a debt instrument will equal the sum of all
amounts provided under the debt instrument, regardless of whether denominated as
principal or interest, other than "qualified stated interest" payments. For such
purposes, "qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property, other than debt instruments of the
issuer, at
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least annually at a single fixed rate. The stated interest on the new notes will
constitute "qualified stated interest."
A U.S. holder, other than holders with amortizable bond premium or
offsetting acquisition premium, must include any original issue discount on the
new notes as ordinary interest income as it accrues (in advance of the receipt
of any cash payments attributable to such income) in accordance with a constant
yield method based on a compounding of interest, regardless of such U.S.
holder's regular method of tax accounting. Subject to making an appropriate
election, a U.S. holder generally will be permitted to include all interest that
accrues or is to be paid on the new notes in income under the constant yield
method applicable to original issue discount, subject to certain limitations and
exceptions.
POTENTIAL CONTINGENT PAYMENT DEBT TREATMENT
For purposes of the Contingent Payment Debt Regulations, a payment is
not a contingent payment if the payment is subject to a remote or incidental
contingency. A contingency is "remote" if there is a remote likelihood that the
contingency will occur. A contingency is "incidental" if the potential amount of
the payment under all reasonably anticipated market conditions is insignificant
relative to the total expected payments on the debt instrument. Payments on a
debt instrument are not contingent merely because the instrument is convertible
into stock of the issuer. Where an option is exercisable by an issuer of notes,
original issue discount initially will be calculated based on the assumption
that the issuer will take the position that minimizes the yield on such debt
instruments.
We intend to take the position that the possibility of payment of one
or more interest payments in stock is either remote or incidental. In the
alternative, because the yield on the new notes would likely increase if we
exercise the option to pay in stock, we believe that our option to pay in stock
should be disregarded at the outset. The Service could, however, adopt a
different position and assert that contingent original issue discount should be
imputed on the new notes, and such position could potentially be sustained. As a
result, the amount includible in income by U.S. holders could be increased as
described above. If we actually do exercise our option to pay in stock, the new
notes will be deemed reissued with a new payment schedule which could have a
similar result of increasing the amount includible in income by U.S. holders.
Our determination that a contingency is either remote or incidental
is binding on all holders.
AMORTIZABLE BOND PREMIUM AND ACQUISITION PREMIUM
As discussed above, a U.S. holder's initial tax basis in the new
notes will depend in part on the tax treatment of the exchange offer to such
U.S. holder, including whether the U.S. holder reports a gain as a result
thereof. If a U.S. holder's initial tax basis in the new notes is greater than
the stated redemption price at maturity, such U.S. holder generally will not be
required to include original issue discount, if any, in income. In addition,
such U.S. holder will have "amortizable bond premium" with respect to the new
notes, to the extent that the premium is not attributable to the conversion
feature on the new note, which may be deductible to the U.S. holder over the
term of the new notes.
If a U.S. holder's initial tax basis in the new notes is greater than
the issue price of the new notes but less than the stated redemption price at
maturity, such U.S. holder generally will be considered to have "acquisition
premium" with respect to the new notes, which may reduce the amount of original
issue discount, if any, that the U.S. holder is required to include in income.
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SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES
A U.S. holder generally will recognize gain or loss on the sale,
exchange or retirement of new notes equal to the difference between the amount
realized on the sale, exchange or retirement of the new notes and the U.S.
holder's adjusted tax basis in the new notes. Any gain or loss recognized on the
sale, exchange or retirement of new notes will generally be long-term capital
gain or loss if the U.S. holder has held the new notes as capital assets for
more than one year, other than amounts attributable to accrued interest.
However, under the market discount rules, any gain recognized by a U.S. holder
will be ordinary income to the extent of the accrued market discount which has
not previously been included in income. For these purposes, if the exchange
constitutes a recapitalization, any accrued market discount that the U.S. holder
had in the existing notes that had not been previously included in income will
be considered to be market discount with respect to the new notes. The amount
realized on a redemption by us of a new note for stock is the fair market value
of the stock on the redemption payment date. To the extent any cash is received
by the holder of a new note in lieu of fractional shares, the cash will be
treated as if received in exchange for the fractional share.
CONSTRUCTIVE DIVIDEND
If at any time we make a distribution of property to shareholders
that would be taxable to such shareholders as a dividend for U.S. federal income
tax purposes and, pursuant to the anti-dilution provisions of the indenture, the
conversion rate of the new notes is increased, such increase may be deemed to be
the payment of a taxable dividend to U.S. holders of new notes. If the
conversion rate is increased at our discretion, this increase may be deemed to
be the payment of a taxable dividend to U.S. holders of new notes.
CONVERSION OF NEW NOTES INTO COMMON STOCK
A U.S. holder's conversion of a new note into common stock generally
will not be a taxable event. The U.S. holder's tax basis in the common stock
received on conversion of new notes will be the same as the U.S. holder's
adjusted tax basis in the new notes at the time of conversion, exclusive of any
tax basis allocable to a fractional share for which the holder receives cash.
The holding period for the common stock received on conversion will include the
holding period of the new notes converted. The receipt of cash in lieu of
fractional shares of common stock should generally result in capital gain or
loss. This capital gain or loss will be measured by the difference between the
cash received for the fractional share interest and the U.S. holder's tax basis
in the fractional share interest.
COMMON STOCK
Distributions, if any, paid on the common stock after a conversion,
to the extent made from our current or accumulated earnings and profits, will be
included in a U.S. holder's income as ordinary income as they are paid.
Distributions in excess of our current and accumulated earnings and profits will
reduce a U.S. holder's basis for the common stock until the basis is zero and
any additional distributions in excess of our current and accumulated earnings
and profits will be short term or long term capital gain, depending upon whether
the U.S. holder's holding period for the common stock exceeds one year. Gain or
loss realized on a sale or exchange of common stock will equal the difference
between the amount realized on such sale or exchange and the holder's adjusted
tax basis in such stock. Such gain or loss will generally be long-term capital
gain or loss if the U.S. holder's holding period in the common stock is more
than one year. However, under the market discount rules, any gain recognized by
a U.S. holder will be ordinary income to the extent of the accrued market
discount that has not previously been included in income. For these purposes,
any market discount that the U.S. holder had in the existing notes that
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carried over to the new notes, and has not been previously included in income,
will be considered to be market discount with respect to the common stock.
NON-U.S. HOLDERS
The following discussion is a summary of the principal U.S. federal
income and estate tax consequences resulting from the ownership of the new notes
or common stock by non-U.S. holders.
WITHHOLDING TAX ON PAYMENTS OF PRINCIPAL AND INTEREST ON NEW NOTES
The payment of principal and interest on new notes to a non-U.S.
holder will not be subject to U.S. federal withholding tax if:
o such interest is not effectively connected with an office or
other fixed place of business in the U.S.;
o the non-U.S. holder does not actually or constructively own
10% or more of the total voting power of all of our voting
stock, including any common stock that may be received as a
result of the conversion of new notes, and is not a
controlled foreign corporation that is related to us within
the meaning of the Code; and
o the beneficial owner of the new notes certifies to us or our
agent, under penalties of perjury, that it is not a U.S.
holder and provides its name and address on United States
Treasury Form W-8 BEN (or a suitable substitute form) or a
securities clearing organization, bank or other qualified
financial institution that holds customers' securities in
the ordinary course of its trade or business (a "financial
institution") and holds the new note certifies under
penalties of perjury that such a Form W-8 BEN (or suitable
substitute form) has been received from the beneficial owner
by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy
thereof.
GAIN ON DISPOSITION OF THE NEW NOTES AND COMMON STOCK
Provided that we are at no time a United States real property holding
corporation within the meaning of Section 897(c) of the Code (a "USRPHC"), a
non-U.S. holder generally will not be subject to U.S. federal income tax on gain
or income realized on the sale, exchange or redemption of new notes, including
the conversion of new notes for common stock, or the sale or exchange of common
stock unless in the case of an individual non-U.S. holder:
o such holder is present in the U.S. for 183 days or more in
the year of such sale, exchange or redemption;
o has a "tax home" in the U.S. and the gain or income is not
attributable to an office or other fixed place of business
maintained by such non-U.S. holder outside of the U.S.; or
o the gain from the disposition is attributable to an office
or other fixed place of business in the U.S.
Even if we are determined to be a USRPHC, a non-U.S. holder not
described in the preceding sentence will not be subject to U.S. federal income
tax on any such gain or income provided that such holder does not actually or
constructively own more than 5% of the common stock, including any common stock
that may be received as a result of the conversion of new notes and does not
own, on any
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date on which the holder acquires new notes, new notes with an aggregate value
of 5% or more of the aggregate value of the outstanding common stock on such
date. Under present law we would not at any time within a specified (generally
five-year) period be a USRPHC so long as during a specified (generally
five-year) period:
o the fair market value of our U.S. real property interests is
less than 50% of the sum of the fair market value of our
U.S. real property interests, our interests in real property
located outside the U.S. and other of our assets that are
used or held for use in a trade or business.
We believe that we are not presently a USRPHC, but there can be no
assurance that we will not become a USRPHC in the future.
COMMON STOCK
Dividends, if any, paid on the common stock to a non-U.S. holder
generally will be subject to a 30% U.S. federal withholding tax, subject to
reduction for non-U.S. holders eligible for the benefits of certain income tax
treaties. Common stock held by an individual who at the time of death is not a
citizen or resident of the U.S. (as specially defined for U.S. federal estate
tax purposes) will be included in the individual's gross estate subject to
reduction of such estate tax if the individual is eligible for the benefits of
an estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments on the new notes, and payments of dividends on the common
stock to certain non-corporate holders generally will be subject to information
reporting and possible to "backup withholding" at a rate of 30% (29% in 2003 and
28% beginning January 1, 2004). Information reporting and backup withholding
will not apply, however, to payments made on a new note if the certification
described under "Non-U.S. Holders - Withholding tax on payments of principal and
interest on new notes" above is received, provided in each case that the payor
does not have actual knowledge that the holder is a U.S. holder, or to payments
made on the common stock if such payments are subject to the 30% or lower rate
as described above (or reduced treaty rate) withholding tax described above
under "Non-U.S. holders - Common stock."
Payment of proceeds from the sale of a new note or common stock to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
non-U.S. status or otherwise establishes an exemption from information reporting
and backup withholding. Payment outside the U.S. of the proceeds of the sale of
a new note or common stock to or through a foreign office of a "broker" (as
defined in applicable Treasury Regulations) will not be subject to information
reporting or backup withholding, except that, if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes or a foreign person 50
percent or more of whose gross income is from a U.S. trade or business,
information reporting will apply to such payment unless the broker has
documentary evidence in its records that the beneficial owner is not a U.S.
holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption.
Any amounts withheld from a payment to a non-U.S. holder under the
backup withholding rules will be allowed as a credit against such holder's U.S.
federal income tax, and may entitle such holder to a refund, provided that the
required information is furnished to the Service.
79
TAX CONSEQUENCES TO US
We anticipate recognizing taxable income from discharge of
indebtedness in the amount that the principal amount of the existing notes
exchanged for new notes exceeds the issue price (in this instance, fair market
value) of the new notes. We have net operating losses and current operating loss
carryovers that will off set this income for federal income tax purposes. As a
result, we do not anticipate paying any federal income tax; however, we may be
required to pay income tax in certain states in which we do business. Also,
because we can pay the interest on the new notes, at our option, in shares of
our common stock, we will not be able to deduct the interest we pay on the new
notes.
PLAN OF DISTRIBUTION
We have engaged U.S. Bancorp Piper Jaffray, Inc. to use its best
efforts to find purchasers for any or all of the $50 million of additional new
notes, which will be offered to holders of existing notes which are tendered and
accepted for exchange in the exchange offer. U.S. Bancorp Piper Jaffray, Inc. is
not obligated to take or pay for any of the additional new notes. The purchase
price for the additional new notes is 100% of the principal amount of the new
notes, plus accrued interest from the issue date. As compensation for its
services, we have agreed to pay U.S. Bancorp Piper Jaffray, Inc. a selling
commission, payable in cash equal to 3 1/2% of the aggregate principal amount of
new notes sold in the cash offer. U.S. Bancorp Piper Jaffray, as placement agent
in the cash offer, may allow, and dealers may reallow, a discount not in excess
of [$ ] per new note to other dealers. We also will pay U.S. Bancorp Piper
Jaffray, Inc. its costs and expenses relating to the performance of its
obligation in connection with the offer of additional new notes, including fees
and expenses of U.S. Bancorp Piper Jaffray, Inc.'s counsel. We are also paying
U.S. Bancorp Piper Jaffray, Inc., a dealer manager fee of up to $1.5 million in
connection with the exchange offer which is discussed under the heading "The
Exchange Offer--Fees and expenses."
The placement agreement provides that the obligations of U.S. Bancorp
Piper Jaffray, Inc. are subject to enumerated conditions.
U.S. Bancorp Piper Jaffray, Inc. has advised us that it proposes to
offer for sale the additional new notes to holders submitting their existing
notes in the exchange offer that wish to purchase new notes in addition to those
received in exchange for their existing notes.
Indemnity. The dealer manager agreement and the placement agreement
provide that we will indemnify U.S. Bancorp Piper Jaffray, Inc. against certain
liabilities, including liabilities under the Securities Act.
Lock-up agreements. All of our executive officers and directors have
agreed, for a period of 90 days after the expiration date of the exchange offer,
not to offer, sell, contract to sell or otherwise transfer, dispose of, loan,
pledge, assign or grant (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law) any rights to, or interests
in, any shares of common stock, any options or warrants to purchase any shares
of common stock, any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or subsequently acquired
directly by the holders or to which they have or subsequently acquire the power
of disposition, without the prior written consent of U.S. Bancorp Piper Jaffray,
Inc. Our executive officers and directors also have agreed or will agree not to
enter into any transaction (including a derivative transaction) having an
economic effect similar to that of a sale of new notes, any shares of common
stock or any securities of ours which are substantially similar to the new notes
or the shares of common stock or which are convertible into or exchangeable for,
or represent the right to receive, shares of common stock or securities that are
substantially similar to the shares of common stock, subject to certain
exceptions,
80
without the prior consent of U.S. Bancorp Piper Jaffray, Inc. There are no
agreements between U.S. Bancorp Piper Jaffray, Inc. and any of our directors and
officers providing consent by U.S. Bancorp Piper Jaffray, Inc. to the sale of
securities prior to the expiration of the lock-up period.
Future sales. In addition, we have agreed that during the period of
90 days after the date of this prospectus, we will not, without the prior
written consent of U.S. Bancorp Piper Jaffray, Inc., issue, sell, contract to
sell or otherwise dispose of any shares of any common stock, any options or
warrants to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock, other than our
sale of new notes in this offering, the issuance of shares of common stock upon
the exercise of outstanding options or warrants and the grant of options to
purchase shares of common stock under our existing stock and incentive award
plans or the issuance of shares of common stock upon conversion of the existing
notes and the new notes. We also have agreed not to enter into any transaction
(including a derivative transaction) having an economic effect similar to that
of an issuance of, any of our securities which are substantially similar to the
shares or which are convertible into or exchangeable for, or represent the right
to receive, shares or securities that are substantially similar to the shares,
subject to certain exceptions, without the prior consent of U.S. Bancorp Piper
Jaffray, Inc.
No prior market for new notes. Prior to this offering, there has been
no market for the new notes. Consequently, the offering price for the additional
new notes to be sold in this offering was determined through negotiations
between us and U.S. Bancorp Piper Jaffray, Inc. Among the factors considered in
those negotiations were prevailing market conditions, our financial information,
the price of the existing notes, market valuations of other companies that we
and U.S. Bancorp Piper Jaffray, Inc. believe to be comparable to us, estimates
of our business potential and the present state of our development.
We do not intend to list the new notes for trading on any securities
exchange. We have been advised by U.S. Bancorp Piper Jaffray, Inc. that it
presently intends to make a market in the new notes as permitted by applicable
laws and regulations. U.S. Bancorp Piper Jaffray, Inc. has no obligation,
however, to make a market in the new notes and may discontinue market making at
any time without notice.
Stabilization. We have been advised by U.S. Bancorp Piper Jaffray,
Inc. that certain persons participating in this offering may engage in
transactions, including stabilizing bids that may have the effect of stabilizing
or maintaining the market price of the new notes. Stabilization bids are bids
for, or the purchase of, new notes on behalf of U.S. Bancorp Piper Jaffray, Inc.
for the purpose of fixing or maintaining the price of the new notes.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania
will pass upon the validity of the new notes. Morris Cheston, Jr., a partner at
Ballard Spahr Andrews & Ingersoll, LLP, is corporate secretary of Alkermes.
Customary legal matters will be passed upon for the dealer manager by Shearman &
Sterling, Washington, D.C. and Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of Alkermes, Inc. and its
subsidiaries as of March 31, 2002 and 2001 and for each of the three years in
the period ended March 31, 2002 incorporated by reference in this prospectus
from Alkermes, Inc.'s Annual Report on Form 10-K for the year ended March 31,
2002, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
81
WHERE YOU CAN FIND MORE INFORMATION
Alkermes, Inc. is a reporting company and files annual, quarterly and
current reports, proxy statements, and other information with the Securities and
Exchange Commission. You may read and copy these reports, proxy statements, and
other information at the Securities and Exchange Commission's public reference
room located at 450 Fifth Street, N.W., Washington, DC 20549. You can request
copies of these documents by writing to the Securities and Exchange Commission
and paying a fee for the copying cost. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for more information about the operation of the
public reference rooms. Our Securities and Exchange Commission filings are also
available at the Securities and Exchange Commission's web site at
"http://www.sec.gov". In addition, you can read and copy our filings at the
office of the National Association of Securities Dealers, Inc. at 1735 K Street,
Washington, DC 20006.
The Securities and Exchange Commission allows us to "incorporate by
reference" information that we file with them, which means that we can disclose
important information to you by referring you to those other documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act:
o Annual Report on Form 10-K for the fiscal year ended March
31, 2002;
o Quarterly Report on Form 10-Q for the period ended June 30,
2002;
o Current report on Form 8-K filed June 28, 2002;
o Current Report on Form 8-K filed August 27, 2002; and
o Item 1 of Registration Statement of Alkermes on Form 8-A
dated June 28, 1991, as amended by a Report on Form 8-A/A
dated January 17, 1997.
Upon written or oral request, Alkermes will provide without charge to
each person, including any beneficial owner, to whom this prospectus is
delivered a copy of any or all of such documents which are incorporated herein
by reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents that this prospectus
incorporates). Written or oral requests for copies should be directed to
Investor Relations, 88 Sidney Street, Cambridge, Massachusetts 02139 or (617)
494-0171.
82
The exchange agent:
STATE STREET BANK AND TRUST COMPANY
By Mail or Overnight Courier
Mr. Ralph Jones
State Street Bank and Trust Company
Corporate Trust, 5th Floor
2 Avenue de Lafayette
Boston, MA 02111
By Facsimile Transmission:
(617) 662-1452
Confirm by Telephone:
(617) 662-1548
The information agent:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, New York 10004
Banks and Brokers Call Collect: (212) 440-9800
Call Toll Free: (866) 318-0506
Any questions or requests for assistance or additional copies of this
prospectus and the letter of transmittal may be directed to the information
agent at its telephone number and location set forth above. You may also contact
your broker, dealer, commercial bank or trust company or other nominee for
assistance concerning the exchange offer.
The dealer manager for the exchange offer:
U.S. BANCORP PIPER JAFFRAY
345 California Street, Suite 2200
San Francisco, CA 94104
(877) 420-2321
Attention: Convertible Securities Desk
Jeff Winaker or Brian Sullivan
83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 through 1750 of the Pennsylvania Business Corporation
Law of 1988, as amended, permits, and in some cases requires, the
indemnification of officers, directors and employees of the Registrant. Section
5.1 of the Registrant's bylaws provides that the Registrant shall indemnify any
director or officer of the Registrant against expenses (including legal fees),
damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by him or her, to the fullest
extent now or hereafter permitted by law in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, brought or threatened to be brought against him
or her, including actions or suits by or in the right of the Registrant, by
reason of the fact that he or she is or was a director or officer of the
Registrant or any of its subsidiaries or acted as a director or officer or in
any other capacity on behalf of the Registrant or any of its subsidiaries or is
or was serving at the request of the Registrant as a director, officer, partner,
fiduciary or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
The Registrant will pay the expenses (including attorneys' fees and
disbursements) actually and reasonably incurred in defending a proceeding on
behalf of any officer or director entitled to indemnification in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of such officer or director to repay such amount if it shall ultimately
be determined that such officer or director is not entitled to be indemnified by
the Registrant as authorized. The financial ability of such officer or director
to make such repayment shall not be prerequisite to the making of an advance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Number Description
1.1 Form of Dealer Manager Agreement*
1.2 Form of Placement Agreement.*
3.1 Third Amended and Restated Articles of Incorporation as
filed with the Pennsylvania Secretary of State on June 7,
2001 (Incorporated by reference to Exhibit 3.1 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2001).
3.2 Amended and Restated Bylaws of Alkermes, Inc., effective as
of February 11, 2002 (Incorporated by reference to Exhibit
3.2 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 2001).
4.1 Form of Indenture between Registrant and State Street Bank
and Trust Company, as trustee, relating to the Registrant's
6.52% Convertible Senior Subordinated Notes due December ,
2009.*
4.2 Form of 6.52% Convertible Senior Subordinated Note due
December , 2009 (Included as Exhibit A to Exhibit 4.1).*
II-1
4.3 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, as amended (Registration
No. 33-40250)).
4.4 Indenture, dated February 18, 2000, between the Registrant
and State Street Bank and Trust Company (relating to the
existing notes) (Incorporated by reference to Exhibit 4.6 to
the Registrant's Registration Statement on Form S-3
(Registration No. 333-31354)).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.*
10.1 License Agreement, dated as of April 14, 1999, by and
between Genentech, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit
10.18 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1999.)**
10.2 Manufacture and Supply Agreement, entered into April 5,
2001, by and between Alkermes, Inc. and Genentech, Inc.
(Incorporated by reference to Exhibit 10.16 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2001.)***
10.3 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States) (assigned to
Alkermes Controlled Therapeutics Inc. II in March 1996).
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.)***
10.4 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States)
(assigned to Alkermes Controlled Therapeutics Inc. II in
March 1996). (Incorporated by reference to Exhibit 10.20 to
the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1996.)***
10.5 Manufacturing and Supply Agreement, dated August 6, 1997, by
and among Alkermes Controlled Therapeutics Inc. II, Janssen
Pharmaceutica International and Janssen Pharmaceutica Inc.
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2002).****
10.5(a) Letter Agreement and Exhibits to Manufacturing and Supply
Agreement, dated February 1, 2002, by and among Alkermes
Controlled Therapeutics Inc. II, Janssen Pharmaceutica
International and Janssen Pharmaceutica Inc. (Incorporated
by reference to Exhibit 10.19(a) to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 2002).****
10.5(b) Addendum to Manufacturing and Supply Agreement, dated August
2001, by and among Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen
Pharmaceutica Inc. (Incorporated by reference to Exhibit
10.19(b) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 2002).****
12.1 Statement regarding computation of ratio of earnings to
fixed charges.
II-2
21.1 Subsidiaries of Alkermes, Inc.*
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1).*
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of State Street Bank and Trust
Company.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Form of Letter to Clients.*
_______________
* To be filed by amendment.
** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted August 19, 1999. Such
provisions have been filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
**** Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed July 1, 2002. Such
provisions have been filed separately with the Commission.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is
II-3
used in connection with an offering of securities subject to Rule 415(ss.230.415
of this chapter), will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-4 and Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on November 6, 2002.
ALKERMES, INC.
By: /s/ Richard F. Pops
------------------------------------------
Richard F. Pops, Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard F. Pops and James M. Frates and
each or any one of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 and Registration Statement on Form S-3 has
been signed by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
------------------------- Director and Chairman of the November _, 2002
Michael A. Wall Board
/s/ Richard F. Pops Director and Chief Executive November 6, 2002
------------------------- Officer (Principal Executive
Richard F. Pops Officer)
/s/ James M. Frates Director and Vice President and November 6, 2002
------------------------- Treasurer (Principal Financial
James M. Frates Officer and Principal Accounting
Officer)
/s/ Floyd E. Bloom Director November 6, 2002
-------------------------
Floyd E. Bloom
II-5
Signature Title Date
--------- ----- ----
/s/ Robert A. Breyer Director November 6, 2002
-------------------------
Robert A. Breyer
/s/ John K. Clarke Director November 6, 2002
-------------------------
John K. Clarke
------------------------- Director November _, 2002
Alexander Rich
/s/ Paul Schimmel Director November 6, 2002
-------------------------
Paul Schimmel
II-6
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
1.1 Form of Dealer Manager Agreement.*
1.2 Form of Placement Agreement.*
3.1 Third Amended and Restated Articles of Incorporation as
filed with the Pennsylvania Secretary of State on June 7,
2001 (Incorporated by reference to Exhibit 3.1 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2001).
3.2 Amended and Restated Bylaws of Alkermes, Inc., effective as
of February 11, 2002 (Incorporated by reference to Exhibit
3.2 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 2001).
4.1 Form of Indenture between Registrant and State Street Bank
and Trust Company, as trustee, relating to the Registrant's
6.52% Convertible Senior Subordinated Notes due December ,
2009.*
4.2 Form of 6.52% Convertible Senior Subordinated Notes due
December , 2009 (Included as Exhibit A to Exhibit 4.1).*
4.3 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, as amended (Registration
No. 33-40250)).
4.4 Indenture, dated February 18, 2000, between the Registrant
and State Street Bank and Trust Company (relating to the
existing notes) (Incorporated by reference to Exhibit 4.6 to
the Registrant's Registration Statement on Form S-3
(Registration No. 333-31354)).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.*
10.1 License Agreement, dated as of April 14, 1999, by and
between Genentech, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit
10.18 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1999.)**
10.2 Manufacture and Supply Agreement, entered into April 5,
2001, by and between Alkermes, Inc. and Genentech, Inc.
(Incorporated by reference to Exhibit 10.16 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2001.)***
10.3 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States) (assigned to
Alkermes Controlled Therapeutics Inc. II in March 1996).
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.)***
10.4 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States)
(assigned to Alkermes Controlled Therapeutics Inc. II in
March 1996). (Incorporated by reference to Exhibit 10.20 to
the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1996.)***
10.5 Manufacturing and Supply Agreement, dated August 6, 1997, by
and among Alkermes Controlled Therapeutics Inc. II, Janssen
Pharmaceutica International and Janssen Pharmaceutica Inc.
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 2002).****
10.5(a) Letter Agreement and Exhibits to Manufacturing and Supply
Agreement, dated February 1, 2002, by and among Alkermes
Controlled Therapeutics Inc. II, Janssen Pharmaceutica
International and Janssen Pharmaceutica Inc. (Incorporated
by reference to Exhibit 10.19(a) to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 2002).****
10.5(b) Addendum to Manufacturing and Supply Agreement, dated August
2001, by and among Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen
Pharmaceutica Inc. (Incorporated by reference to Exhibit
10.19(b) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 2002).****
12.1 Statement regarding computation of ratio of earnings to
fixed charges.
21.1 Subsidiaries of Alkermes, Inc.*
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1).*
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of State Street Bank and Trust
Company.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Form of Letter to Clients.*
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* To be filed by amendment.
** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted August 19, 1999. Such
provisions have been filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
**** Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed July 1, 2002. Such
provisions have been filed separately with the Commission.