Oscient Pharmaceuticals starts exchange offer for 3.5% convertibles

By Susanna Moon

Chicago, Oct. 21 - Oscient Pharmaceuticals Corp. said it began an offer to exchange up to $67.71 million principal amount of new 12.5% convertible senior notes due April 15, 2011 and common shares for the $225.7 million principal amount of outstanding 3.5% convertible senior notes due Jan. 15, 2011.

The exchange offer is scheduled to expire at 11:59 p.m. ET on Nov. 18.

In the exchange, Oscient will issue $300 principal amount of new 12.5% convertible senior notes due 2011 and common shares worth $200 for each $1,000 principal amount of the company's 3.5% convertible senior notes due 2011.

Oscient said on Sept. 11 that the 12.5% convertibles will have a conversion price equal to 110% of the average of the stock's daily volume-weighted average price for the five trading days prior to the second business day before the exchange offer's expiration date, provided that the conversion price be at least $1.10 per share.

The conversion price of the 3.5% convertibles is $13.50 per share. Oscient stock (Nasdaq: OSCI) closed at $1.17 on Sept. 9 and at $0.80 on Oct. 20.

The company will also pay accrued interest.

Interest on the 12.5% convertibles will be payable in cash or in kind. Interest on the 3.5% convertibles is payable only in cash.

The 12.5% convertibles will become callable at par on Oct. 15, 2010. The 3.5% convertibles become callable at par on May 10, 2010.

Like the 3.5% convertibles, the 12.5% notes are automatically convertible by the company if the share price exceeds 130% of the conversion price for 20 or more trading days during any 30-trading-day period.

The company said it believes the exchange offer is an important component of its plan to reduce its overall debt level and recalibrate its capital structure to better execute its business strategy.

An S-4 registration statement for the new convertibles was filed with the Securities and Exchange Commission on Oct. 8, and the offer may not begin until the registration has been declared effective.

Lazard Capital Markets LLC and MTS Securities, LLC will be the dealer managers for the exchange offer, and Altman Group, Inc. (866 751-6316) will be the information agent.

Oscient is a Waltham, Mass.-based pharmaceutical company.

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