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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13E-3/A
Amendment No. 1
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
ALZA TTS RESEARCH PARTNERS, LTD.
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(Name of the Issuer)
ALZA DEVELOPMENT CORPORATION and ALZA CORPORATION
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(Name of Person(s) Filing Statement)
Class A Limited Partnership Interests
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(Title of Class of Securities)
Not Applicable
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(CUSIP Number of Class of Securities)
David R. Hoffmann Bruce C. Cozadd
President Senior Vice President and
ALZA Development Corporation Chief Financial Officer
950 Page Mill Road ALZA Corporation
P.O. Box 10950 950 Page Mill Road
Palo Alto, CA 94303-0802 P.O. Box 10950
(650) 494-5300 Palo Alto, CA 94303-0802
(650) 494-5000
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
(a) [_] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
(b) [_] The filing of a registration statement under the Securities
Act of 1933.
(c) [_] A tender offer.
(d) [X] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [_]
Calculation of Filing Fee
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Transaction Valuation/1/: $91,176,592.48 Amount of Filing Fee/2/: $18,236
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/1/ For purposes of calculating the filing fee only. This calculation is
based upon the purchase price of $91,176,592.48 million for all issued and
outstanding limited partnership interests to be acquired pursuant to this
transaction.
/2/ The amount of the filing fee, calculated in accordance with Rule
0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th of one
percent of the aggregate value of cash to be paid by the general partner of ALZA
TTS Research Partners, Ltd. for such limited partnership interests. The filing
fee was paid in connection with the filing of the Schedule 13E-3 with the
Securities and Exchange Commission on June 30, 1998.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: Filing party:
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Form or registration no.: Date filed:
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Instruction. Eight copies of this statement, including all exhibits,
should be filed with the Commission.
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INTRODUCTION.
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This Schedule 13E-3 Transaction Statement (the "Statement") relates to the
exercise by ALZA Development Corporation, a California corporation ("ADC"), of
its option to purchase all issued and outstanding limited partnership interests
of ALZA TTS Research Partners, Ltd., a California limited partnership (the
"Issuer"). ADC is the general partner of the Issuer (referred to herein, in
such capacity, as the "General Partner") and a wholly owned subsidiary of ALZA
Corporation, a Delaware corporation ("ALZA"). This Statement is being filed by
ALZA and ADC. Notwithstanding this Statement, ALZA and ADC do not admit that the
transaction described herein is subject to Rule 13e-3 under the Securities
Exchange Act of 1934, as amended.
Item 1. Issuer and Class of Security Subject to the Transaction.
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(a) The issuer of the class of equity security which is the subject of
this filing and the address of its principal executive offices is:
ALZA TTS Research Partners, Ltd.
c/o ALZA Development Corporation
950 Page Mill Road
P.O. Box 10950
Palo Alto, California 94303-0802
(b) The exact title of the class of security which is the subject of this
filing is the Class A Limited Partnership Interests of ALZA TTS
Research Partners, Ltd. As of March 31, 1998 (the most recent
practicable date), there were (i) 3,200 Class A Limited Partnership
Interests (the "Class A Limited Partnership Interests") and (ii) one
Class B Limited Partnership Interest (the "Class B Limited Partnership
Interest" and collectively with the Class A Limited Partnership
Interests, the "Limited Partnership Interests") issued and
outstanding. As of March 31, 1998 (the most recent practicable date),
there were approximately 1,972 holders of record of Class A Limited
Partnership Interests and one holder of record of the Class B Limited
Partnership Interest. The rights of the Class A Limited Partnership
Interests and the Class B Limited Partnership Interest are the same
except that the holder of the Class B Limited Partnership Interest has
a right to consult with ADC with respect to certain matters.
(c) There is no established trading market for the Limited Partnership
Interests.
(d) The Issuer has not paid any dividends on the Limited Partnership
Interests in the past two years, except for distributions made to the
holders of
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Limited Partnership Interests pursuant to the terms of the Agreement
of Limited Partnership, as amended (the "Limited Partnership
Agreement"), by and among the General Partner and the limited partners
of the Issuer (the "Limited Partners"). For information with respect
to distributions made by the Issuer in the past two fiscal years, see
Item 3 below.
(e) Not applicable.
(f) Not applicable.
Item 2. Identity and Background.
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The Statement is being filed by ADC and ALZA. ADC is the general partner
of the Issuer and a wholly owned subsidiary of ALZA.
ALZA's principal business is the development and commercialization of
pharmaceutical products. ALZA is incorporated in the State of Delaware and the
address of its principal executive offices is 950 Page Mill Road, P.O. Box
10950, Palo Alto, CA 94303-0802.
ADC's principal business is acting as general partner of the Issuer. ADC
is incorporated in the State of California and the address of its principal
executive offices is 950 Page Mill Road, P.O. Box 10950, Palo Alto, CA 94303-
0802.
During the last five years, neither ALZA nor ADC has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, neither ALZA nor ADC has been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining further violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws.
Information with Respect to Executive Officers and Directors of ALZA.
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Name: Dr. Ernest Mario (Chairman and Chief Executive Officer)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Chief Executive Officer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Name: William G. Davis (Director)
Business Address: 3532 Bay Road, South Drive, Indianapolis, IN 49240
Principal Occupation: Independent Business Consultant
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. William R. Brody (Director)
Business Address: 3400 North Charles Street, 242 Garland Hall, Baltimore, MD
21218
Principal Occupation: President of The John Hopkins University (from 1996 to
present); Provost of The University of Minnesota Academic Health Center (from
1994 to 1996); and Martin Donner Professor and Director of the Department of
Radiology at The John Hopkins University (from 1987 to 1994)
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Robert J. Glaser, M.D. (Director)
Business Address: 1 Elm Place, Atherton, CA 94027
Principal Occupation: Director (retired) for Medical Science and Trustee of the
Lucille P. Markey Charitable Trust
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Name: Dean O. Morton (Director)
Business Address: 3200 Hillview Avenue, Palo Alto, CA 94304
Principal Occupation: Executive Vice President and Chief Operating Officer
(Retired in 1992) of Hewlett-Packard Corporation
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Denise M. O'Leary (Director)
Business Address: c/o Vivra, Inc., 1850 Gateway Drive, Suite 5000, San Mateo,
CA 94404
Principal Occupation: Special Limited Partner with Menlo Ventures
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Isaac Stein (Director)
Business Address: 525 University Avenue, Suite 700, Palo Alto, CA 94301
Principal Occupation: President of Waverley Associates, Inc.
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Julian N. Stern (Director and Secretary)
Business Address: 525 University Avenue, Suite 1100, Palo Alto, CA 94301
Principal Occupation: Partner of Heller Ehrman White & McAuliffe
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Name: James Butler (Senior Vice President of Sales and Marketing)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Sales and Marketing of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Bruce C. Cozadd (Senior Vice President and Chief Financial Officer)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President and Chief Financial Officer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Harold Fethe (Vice President of Human Resources)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President of Human Resources of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. Gary V. Fulscher (Senior Vice President of Commercial Services)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Commercial Services of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Name: Dr. Samuel R. Saks (Senior Vice President of Medical Affairs)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Medical Affairs of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Peter D. Staple (Senior Vice President and General Counsel)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President and General Counsel of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. Felix Theeuwes (President of New Ventures)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: President of New Ventures of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: Belgium
Name: Janne Wissel (Senior Vice President of Operations)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Operations of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Name: Dr. James W. Young (Senior Vice President of Research and Development)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Research and Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Information with Respect to Executive Officers and Directors of ADC.
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Name: David R. Hoffmann (President, Chief Financial Officer, Secretary and
Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President and Treasurer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Robert M. Myers (Vice President and Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President, Commercial Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. James W. Young (Vice President and Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President, Research and Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
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Item 3. Past Contacts, Transactions or Negotiations.
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(a) (1) The nature and approximate amount in dollars of any transaction
which has occurred since the commencement of the Issuer's second full
fiscal year preceding the date of this Statement between ALZA and ADC
on one hand and the Issuer on the other hand are as follows:
As part of its initial organization and funding, the Issuer
granted ALZA an option (the "License Option") to acquire a license
for any or all of the products (the "Issuer Products") for which
development was funded by the Issuer under its Research and
Development Agreement with ALZA. In 1990, ALZA exercised its License
Option for two Issuer Products: (i) a transdermal fentanyl product
sold in the United States under the name Duragesic(R) and (ii) a
transdermal testosterone product sold under the name Testoderm(R).
Under each license, ALZA makes payments to the Issuer based on
ALZA's and its affiliates' and sublicensees' sales of the licensed
product. ALZA paid the Issuer $2,644,646, $8,776,814 and $6,265,401
for the three months ended March 31, 1998 and the years ended
December 31, 1997 and December 31, 1996, respectively, of which
approximately 97.5%, 95% and 96% were attributed to Duragesic(R) for
the three months ended March 31, 1998 and fiscal 1997 and 1996,
respectively.
The administrative, accounting, contract management and record
keeping services required by the Issuer have been provided in the past
and are currently being provided by ALZA and are billed to the Issuer
at ALZA's standard administrative services rate. The Issuer paid ALZA
$18,835, $105,512 and $86,548 for the three months ended March 31,
1998 and the years ended December 31, 1997 and December 31, 1996,
respectively.
(2) On November 20, 1997, PharmaInvest, L.L.C. ("PharmaInvest") on
behalf of Pharmaceutical Royalties L.L.C., Pharmaceutical Royalty
Investments Ltd. and Pharmaceutical Partners L.L.C. ("Pharmaceutical
Partners") made an unsolicited tender offer (the "Tender Offer") to
purchase up to 1,400 Class A Limited Partnership Interests,
representing approximately 44% of the total outstanding Class A
Limited Partnership Interests, for cash consideration per Class A
Limited Partnership Interest of $12,000. In response to the Tender
Offer, the General Partner filed a Schedule 14D-9 (the "Schedule 14D-
9") with the Securities and Exchange Commission (the "Commission"), in
which the General Partner expressed no opinion with respect to the
Tender Offer to the holders of the Class A Limited Partnership
Interests and stated that the General Partner would remain neutral as
to whether the Limited Partners should tender or refrain from
tendering their Class A Limited Partnership Interests. In its letter
to
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the Limited Partners advising them of its neutrality with respect to
the Tender Offer, the General Partner drew the attention of the
Limited Partners to certain facts, including, (i) the dates on which
ALZA's exclusive rights with respect to Duragesic(R) and Testoderm(R)
were scheduled to expire, (ii) the General Partner's expectation of
the growth of sales of Duragesic(R) and (iii) the report of Securities
Pricing and Research, Inc., an independent appraisal firm ("SPAR"),
estimating that the rounded net asset value and fair market value of a
Class A Limited Partnership Interest as of December 31, 1996 were
$21,200 and $15,900, respectively. None of ADC, ALZA or the Issuer has
any affiliation with SPAR, nor does any of them endorse the report
prepared by SPAR (the "SPAR Report"). In addition, neither the General
Partner nor the Issuer engaged SPAR to prepare the SPAR Report or
participated in the preparation of the SPAR Report. The SPAR Report
was not related to the Tender Offer and is not related to the Purchase
Option.
Also on November 20, 1997, Pharmaceutical Partners, an
affiliate of PharmaInvest, in a letter addressed to ALZA, set forth
its views about the Purchase Option and its effects on the Limited
Partners, the Issuer, the General Partner and ALZA. In connection
with the Issuer's consideration and evaluation of the Tender Offer,
ALZA, on December 2, 1997, advised the Issuer of the matters raised in
Pharmaceutical Partners' letter to ALZA and informed the Issuer of
ALZA's position regarding such matters. A copy of such letter was,
with ALZA's permission, included as an exhibit to the Schedule 14D-9
and sent to the holders of the Limited Partnership Interests. On
January 16, 1998, PharmaInvest amended its offer by increasing the
purchase price of each Class A Limited Partnership Interest from
$12,000 to $13,200. In connection with the increase in the purchase
price, the General Partner filed an amendment to its Schedule 14D-9
stating that the General Partner continued to express no opinion to
the holders of the Class A Limited Partnership Interests and that the
General Partner would continue to remain neutral as to whether the
Limited Partners should tender or refrain from tendering their Class A
Limited Partnership Interests. In addition, the General Partner
informed the Limited Partners that in reaching its conclusion with
respect to the Tender Offer, the General Partner had taken into
account (i) that SPAR had reduced its estimates of the rounded net
asset value and fair market value of the Class A Limited Partnership
Interests as of December 31, 1996, and (ii) the General Partner's
expectation of the growth of sales of Duragesic. On February 2, 1998,
PharmaInvest announced that the Tender Offer had expired and that 72
Class A Limited Partnership Interests were tendered in connection with
the Tender Offer.
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(b) As described in Section (a)(2) above, in November 1997, PharmaInvest
made the Tender Offer. In the last fiscal year, PharmaInvest contacted
the General Partner to make it aware of its possible interest in the
Issuer as an investment opportunity. PharmaInvest sent letters on July
11 and 17, 1997 continuing to express its interest in the Issuer. In
October 1997, PharmaInvest had a conversation with the General Partner
reiterating its interest in the Issuer. Following the conversation,
PharmaInvest acquired two Class A Limited Partnership Interests, and
on October 22, 1997 made a written request to receive a list of names
and addresses of Limited Partners (the "List"). PharmaInvest received
the List on November 2, 1997 and commenced the Tender Offer on
November 20, 1997.
Item 4. Terms of Transaction.
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(a) Pursuant to the terms of the Limited Partnership Agreement, ADC has an
option to purchase all (but not less than all) of the Limited
Partnership Interests (the "Purchase Option"). The exercise price for
exercise of the Purchase Option is $120 million less an amount equal
to all cash distributed to the Limited Partners by the Issuer (the
"Exercise Price"). As of the date hereof, the Exercise Price is
$91,176,592.48. The Exercise Price will be allocated among the
Limited Partners based on their pro rata contributions to the Issuer.
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At the closing (the "Closing"), the holders of record of Class A
Limited Partnership Interests as of the Closing date will receive
$27,216.21 per Class A Limited Partnership Interest (purchased in the
original offering for $5,000 each) and the holder of the Class B
Limited Partnership Interest will receive $4,084,720.48 for its Class
B Limited Partnership Interest. The Exercise Price will be paid by
check to each holder of the Limited Partnership Interests.
In accordance with the terms of the Limited Partnership Agreement, the
Limited Partners are not required to take any steps to approve the
exercise of the Purchase Option or the consummation of the
transactions pursuant to the Purchase Option. Title to the Limited
Partnership Interests automatically vests in ADC no later than 30 days
after notice of the exercise of the Purchase Option is given to the
Limited Partners, upon payment of the Purchase Price for the Limited
Partnership Interests. The exact date of Closing will be set forth in
the Notice to Limited Partners of the Issuer to be distributed to the
Limited Partners.
(b) Not applicable.
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Item 5. Plans or Proposals of the Issuer or Affiliate.
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Exercise of the Purchase Option will result in ADC owning all of the
Limited Partnership Interests. Upon purchase of all of the Limited Partnership
Interests by ADC, the Issuer will terminate as a limited partnership and the
General Partner will take all appropriate and necessary actions to suspend the
Issuer's public reporting obligations by filing a Form 15 with the Commission
and to wind up the affairs of the Issuer in accordance with California law. ADC
will continue as a wholly owned subsidiary of ALZA. Although ALZA and ADC have
no specific intentions with respect to the operations of the business of the
Issuer following the exercise of the Purchase Option, ALZA and ADC intend to
operate the business of the Issuer in a manner best designed, in the judgment of
ALZA, to realize the benefit of that business to ALZA and its stockholders.
Item 6. Source and Amount of Funds or Other Consideration.
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(a) In accordance with the terms of the Limited Partnership Agreement, the
Exercise Price is $91,176,592.48. ALZA intends to contribute to ADC
the amount of cash necessary to exercise the Purchase Option, which
contribution ALZA intends to finance with its cash and marketable
securities.
(b) The following tables set forth an estimate (except for the filing fee)
of expenses for the transaction:
Filing fees............................................ $ 18,236
Accounting fees and expenses........................... 5,000
Legal fees and expenses................................ 25,000
Printing expenses...................................... 3,500
Total.............................................. $ 51,736
All of the expenses and fees will be paid by ALZA.
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
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(a) The purpose of this transaction is for ALZA, through ADC, to acquire
all rights, on an exclusive basis, to the Issuer Products. ALZA
believes that it is in the best interests of ALZA and ALZA's
stockholders to exercise the Purchase Option at this time. ALZA has
worldwide licenses, including the
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right to sublicense, to make, use and sell Testoderm(R) and
Duragesic(R) products. Such licenses are currently exclusive; however,
ALZA's exclusive rights with respect to Testoderm(R) and Duragesic(R)
would end on July 26, 1998 and December 4, 1998, respectively. Because
ALZA's exclusive rights are limited in duration, ALZA believes that
exercising the Purchase Option is the most effective and comprehensive
method of acquiring continued exclusive rights to Testoderm(R),
Duragesic(R) and other Issuer Products. In addition, because ALZA's
obligations to pay royalties to the Issuer under the licenses for
Testoderm(R) and Duragesic(R) will terminate upon exercise of the
Purchase Option, ALZA will benefit by retaining the full royalty
received on sales of Duragesic(R) and the full margin on ALZA's sales
of Testoderm(R).
(b) ADC and ALZA did not consider alternative means to accomplish the
transaction because of the previously granted Purchase Option.
(c) The structure of the transaction is in accordance with the terms of
the previously granted Purchase Option as set forth in the Limited
Partnership Agreement. The transaction is being undertaken at this
time because of the timing of the expiration of ALZA's exclusive
rights discussed in Item 7(a) above.
(d) As a result of the transaction described herein, the Issuer will
terminate as a limited partnership and the General Partner will take
all appropriate and necessary actions to suspend the Issuer's public
reporting obligations and to wind up the affairs of the Issuer in
accordance with California law. The General Partner will continue as a
wholly owned subsidiary of ALZA. For federal income tax purposes the
Issuer will be treated as terminating on the date of the transaction
and as distributing all of its assets, subject to all of its
liabilities, to the General Partner on that date. The Issuer will not
have taxable gain or loss as a result of the transaction described
herein.
The transaction described herein will cause each Limited Partner to
dispose of its Limited Partnership Interests for consideration equal
to such holder's pro rata share of the Exercise Price. The following
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discussion sets forth general federal income tax considerations under
the Internal Revenue Code (the "Code") for the Limited Partners with
respect to cash received by the Limited Partners for the Limited
Partnership Interests. This discussion is intended only to provide
general information to the Limited Partners that are subject to United
States federal income tax; it may not address all relevant federal
income tax consequences to such persons or to other categories of the
Limited Partners (e.g., foreign persons, dealers in
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securities, and persons that are exempt from federal income tax). This
discussion is based upon present federal income tax laws and does not
attempt to anticipate changes, including changes in tax rates, that
may be made under currently pending legislative proposals. This
discussion assumes that the Limited Partnership Interests were at all
relevant times capital assets of the Limited Partners. This discussion
does not address state, local or foreign tax considerations. ALL
LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
The holder of a Limited Partnership Interest should generally have a
capital gain or loss due to ADC's exercise of the Purchase Option
equal to the difference between (i) the amount of cash received and
(ii) the holder's basis in the Limited Partnership Interest. A Limited
Partner's basis in a Limited Partnership Interest is the Limited
Partner's initial purchase price decreased by any partnership
deductions taken by the Limited Partner and any cash distributed by
the Issuer to the Limited Partner and increased by the Limited
Partner's share of the Issuer's income. Under current law, capital
gain or loss will be: (a) long-term if the Limited Partnership
Interest has been held at least 18 months at the time the Purchase
Option is exercised, (b) mid-term if the holding period is more than
one year but less than (or equal to) 18 months, and (c) short term if
the holding period is a year or less. Pending federal legislation
would reduce the holding period for long-term gain to one year.
Limitations may apply to deduction of capital loss. Under Section 751
of the Code, the difference between the portion of the cash received
by the holder that is attributable to "unrealized receivables" and
"inventory" of the Issuer (together, "Section 751 Property") over the
portion of the holder's adjusted tax basis in the Limited Partnership
Interest allocable to Section 751 Property will be treated as ordinary
income or loss, rather than capital gain or loss. Although this
conclusion is not entirely free from doubt, ADC believes that the
Issuer will have no "unrealized receivables" as of the date of the
transaction described above.
To the extent that any holder of a Limited Partnership Interest has
not provided an appropriate taxpayer identification number on IRS Form
W-9 or a substitute therefor, the holder may be subject to backup
withholding by ALZA or ADC.
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(e) The Purchase Price will be amortized by ALZA over a number of
years.
Item 8. Fairness of the Transaction.
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(a) Each of ADC and ALZA reasonably believes that the transaction reported
herein is fair to the Limited Partners. None of ALZA's or the General
Partner's directors dissented to or abstained from voting on such
transaction.
(b) Each of ADC and ALZA has based its respective belief that the
transaction is fair to the holders of the Limited Partnership
Interests on the fact that the Limited Partners were fully aware of
the Purchase Option, which was an essential economic term of the
Limited Partnership Interests, when they purchased their Limited
Partnership Interests. The prospectus, pursuant to which the Limited
Partnership Interests were offered and sold, fully described the
Purchase Option. The terms of the Purchase Option are contained in the
Limited Partnership Agreement, which was also publicly filed with the
Commission. The Limited Partners were also advised of the Purchase
Option in each Form 10-K and each recent Form 10-Q public filing made
by the Issuer with the Commission. In addition, the Limited Partners
were reminded of the Purchase Option in connection with the Tender
Offer and in evaluating whether or not to tender their Limited
Partnership Interests in the Tender Offer. Accordingly, the Purchase
Option was present in the initial public sale, was disseminated in the
Issuer's charter documents and was discussed in the Issuer's periodic
filings. As a result, every Limited Partner received substantial
notice as to the terms of the Purchase Option prior to making any
investment decision with respect to the Limited Partnership Interests.
In addition, in its most recent filings the Issuer has indicated that
ALZA's exclusive rights with respect to Duragesic(R) and Testoderm(R)
would expire soon and that such expiration could lead to the exercise
of the Purchase Option. In connection with its decision whether to
exercise the Purchase Option, ALZA commissioned Frost & Sullivan, an
independent market research firm ("Frost & Sullivan"), to prepare a
market research report (the "Report") of revenue forecasts for
Duragesic(R) (see Item 9 below). ALZA took into account the
information contained in the Report in deciding whether the exercise
of the Purchase Option was in the best interests of ALZA and ALZA's
stockholders; however, because the Report did not assess the fairness
of the exercise price of the Purchase Option, neither ALZA nor ADC
considers that the Report is relevant with respect to the fairness of
the transaction to the Limited Partners.
14
<PAGE>
(c) The exercise of the Purchase Option and the consummation of the
transactions thereunder do not require approval of the Limited
Partners.
(d) No director of ALZA or the General Partner has retained an
unaffiliated representative to act solely on behalf of the Limited
Partners. As a limited partnership, the Issuer does not have any
directors. Each director of the General Partner is an officer of the
General Partner and an employee and officer or vice-president of ALZA.
(e) See Item 8(d) above.
(f) On November 20, 1997, PharmaInvest made the Tender Offer. For further
information with respect to the Tender Offer see Item 3(a)(2) above.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
- ---------------------------------------------------------------
(a) In February of 1998, ALZA engaged Frost & Sullivan to prepare the
Report.
(b) ALZA engaged Frost & Sullivan to prepare the Report because of Frost &
Sullivan's expertise with respect to analyzing sales and marketing
information and trends of product sales in the pharmaceutical
industry. Prior to engaging Frost & Sullivan, ALZA contacted several
other market research firms, but chose Frost & Sullivan because of its
availability and experience. ALZA has engaged Frost & Sullivan for
other market research engagements from time to time and has paid
normal service fees in connection with such engagements. The
objectives of the Report were to (i) assess the revenue potential for
Duragesic(R) during the period from 1997 to 2006, (ii) analyze the
market opportunity for the same period, (iii) identify key competitive
factors in the current and future market environment and (iv) identify
key drivers of and restraints to market growth. After research using
both primary and secondary sources, the key findings provided by the
Report were (a) if a second transdermal product does not emerge on the
market, Duragesic(R) is expected to continue to experience substantial
growth throughout the forecast period due to an increased penetration
into an expanding market, increased pricing and increased acceptance
in key foreign markets, and (b) if a second transdermal product
emerges on the market, in order to be competitive, a competitor would
need to undercut the price of Duragesic(R).
(c) A copy of the Report is available for inspection and copying at the
principal executive offices of ALZA during its regular business hours
by any interested Limited Partner or his or her representative who has
been so designated in writing. A copy of the Report will be
transmitted by ALZA
15
<PAGE>
to any interested Limited Partner or his or her
representative who has been so designated in writing upon written
request and at the expense of the requesting Limited Partner. A copy
of the Report is also attached hereto as Exhibit (b).
Item 10. Interest in Securities of the Issuer.
- ----------------------------------------------
(a) None of ADC, ALZA or any of their respective directors or officers own
any Limited Partnership Interests. ALZA is the sole shareholder of the
General Partner and each officer and director of the General Partner
is an employee and officer or vice-president of ALZA. As described in
this Statement, the General Partner may at any time, pursuant to the
Purchase Option, purchase all of the outstanding Limited Partnership
Interests.
(b) None.
Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's
- -------------------------------------------------------------------------------
Securities.
----------
Article Seven of the Limited Partnership Agreement grants ADC the Purchase
Option. The Purchase Option states that ADC may purchase all (but not less than
all) of the issued and outstanding Limited Partnership Interests at any time
after January 1, 1987 and prior to dissolution of the Issuer. ADC may exercise
the Purchase Option by mailing a notice of exercise to the Limited Partners.
Item 12. Present Intention and Recommendation of Certain Persons With Regard
- -----------------------------------------------------------------------------
to the Transaction.
------------------
(a) Not applicable.
(b) Not applicable.
Item 13. Other Provisions of the Transaction.
- ---------------------------------------------
(a) Appraisal rights are not afforded under applicable law in respect of
the exercise of the Purchase Option and none will be afforded. Neither
ALZA nor the General Partner is aware of any rights available to
objecting holders of the Limited Partnership Interests under
applicable law.
16
<PAGE>
(b) None of ALZA, the General Partner or Issuer is aware of any grant of
access to unaffiliated security holders to the corporate files of the
Issuer or the appointment of counsel or appraisal services for
unaffiliated security holders at the expense of the Issuer.
(c) Not applicable.
Item 14. Financial Information.
- -------------------------------
(a) The Issuer's financial data is attached to this Statement as Exhibits
(g)(1), (g)(2) and (g)(3). The Issuer has no material fixed charges
for the two most recent fiscal years and the appropriate interim
period. Book value per Class A Limited Partnership Interest at
December 31, 1997 was $25.58 and at March 31, 1998 was $23.13. Book
value per Class B Limited Partnership Interest at December 31, 1997
was $8,864 and at March 31, 1998 was $8,500. Book value per General
Partner interest at December 31, 1997 was $900 and at March 31, 1998
was $849.
(b) The Issuer does not believe the pro forma disclosure required by this
Item 14(b) is applicable because the Issuer would terminate upon
giving effect to the transaction contemplated by this Schedule 13E-3.
Item 15. Persons and Assets Employed, Retained or Utilized.
- -----------------------------------------------------------
(a) Not applicable.
(b) None.
Item 16. Additional Information.
- --------------------------------
Not applicable.
Item 17. Material to be filed as Exhibits.
- ------------------------------------------
(a) Not applicable.
(b) Frost & Sullivan Report, "A Market Opportunity Assessment for the
Duragesic Transdermal Patch", dated March 2, 1998.*
(c) Agreement of Limited Partnership dated December 30, 1982.*
17
<PAGE>
(d)(1) Form of Notice to the Holders of Limited Partnership Interests of
ALZA TTS Research Partners, Ltd., advising the Limited Partners of
the exercise of the Purchase Option.
(d)(2) Form of Letter to Class A Limited Partners dated July __, 1998.
(e) Not applicable.
(f) Not applicable.
(g)(1) Financial Statements extracted from the Issuer's Form 10-Q for the
quarterly period ended March 31, 1998.*
(g)(2) Financial Statements and Additional Information extracted from the
Issuer's Form 10-K for the year ended December 31, 1997.*
(g)(3) Financial Statements and Additional Information extracted from the
Issuer's Form 10-K for the year ended December 31, 1996.*
_____________
* Previously filed.
18
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
ALZA CORPORATION
<TABLE>
<S> <C>
Date: July 13, 1998 By: /s/ Bruce C. Cozadd
----------------------------------------
Bruce C. Cozadd, Senior Vice President
and Chief Financial Officer
ALZA DEVELOPMENT CORPORATION
Date: July 13, 1998 By: /s/ David R. Hoffmann
----------------------------------------
David R. Hoffmann, President
and Chief Financial Officer
</TABLE>
19
<PAGE>
EXHIBIT (D)(1)
--------------
- --------------------------------------------------------------------------------
ALZA DEVELOPMENT CORPORATION
PURCHASE OF CLASS A LIMITED
PARTNERSHIP INTERESTS OF
ALZA TTS RESEARCH PARTNERS, LTD.
----------------------------
NOTICE TO LIMITED PARTNERS OF
ALZA TTS RESEARCH PARTNERS, LTD.
----------------------------
This information is disseminated pursuant to Rule 13e-3 of the Securities
Exchange Act of 1934, as amended.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
D-1
<PAGE>
THE TRANSACTION
---------------
ALZA Development Corporation ("ADC"), a wholly owned subsidiary of ALZA
Corporation ("ALZA"), and the general partner (the "General Partner") of ALZA
TTS Research Partners, Ltd., a California limited partnership (the
"Partnership") wishes to advise the holders of Class A Limited Partnership
Interests and the Class B Limited Partnership Interest that on
____________, 1998, the General Partner exercised its option to purchase all of
the issued and outstanding Limited Partnership Interests (the "Purchase Option")
as provided in the Agreement of Limited Partnership (the "Agreement of Limited
Partnership"). The Class A Limited Partnership Interests and the Class B Limited
Partnership Interest are referred to collectively in this Notice to Limited
Partners (the "Notice") as the "Limited Partnership Interests".
The purchase price for all issued and outstanding Limited Partnership
Interests is $91,176,592.48 (the "Purchase Price") or $27,216.21 per Class A
Limited Partnership Interest and $4,084,720.48 for the Class B Limited
Partnership Interest. ALZA intends to contribute to ADC the amount of cash
necessary to exercise the Purchase Option, which contribution ALZA intends to
finance with its cash and marketable securities. The closing (the "Closing") of
the purchase of the Limited Partnership Interests will take place on _______,
1998 (the "Closing Date"). Upon the Closing, the General Partner will forward to
each holder of record of a Limited Partnership Interest as of the Closing Date a
check equal to such holder's pro rata interest in the Purchase Price.
--------
D-2
<PAGE>
INTRODUCTION
------------
This Notice relates to the exercise by ADC of its option to purchase all
issued and outstanding Limited Partnership Interests of the Partnership. ADC is
the General Partner of the Partnership and is a wholly owned subsidiary of ALZA.
This Notice is being given by ALZA and ADC.
SPECIAL FACTORS
---------------
Purpose.
The purpose of this transaction is for ALZA, through ADC, to acquire all
rights, on an exclusive basis, to products (the "Partnership Products") for
which development was funded by the Issuer under its Research and Development
Agreement (the "Development Agreement") with ALZA. ALZA believes that it
is in the best interests of ALZA and ALZA's stockholders to exercise the
Purchase Option at this time. ALZA has worldwide licenses, including the right
to sublicense, to make, use and sell (i) a transdermal fentanyl product sold
in the United States under the name Duragesic(R) and (ii) a transdermal
testosterone product sold under the name Testoderm(R). Such licenses are
currently exclusive; however, ALZA's exclusive rights with respect to
Testoderm(R) and Duragesic(R) would end on July 26, 1998 and December 4, 1998,
respectively. Because ALZA's exclusive rights are limited in duration, ALZA
believes that exercising the Purchase Option is the most effective and
comprehensive method of acquiring continued exclusive rights to Testoderm(R),
Duragesic(R) and other Partnership Products. In addition, because ALZA's
obligations to pay royalties to the Partnership under the licenses for
Testoderm(R) and Duragesic(R) will terminate upon exercise of the Purchase
Option, ALZA will benefit by retaining the full royalty received on sales of
Duragesic(R) and the full margin on ALZA's sales of Testoderm(R).
The structure of the transaction is in accordance with the terms of the
previously granted Purchase Option as set forth in the Limited Partnership
Agreement. The transaction is being undertaken at this time because of the
timing of the expiration of ALZA's exclusive rights described above. ADC and
ALZA did not consider alternative means to accomplish the transaction because of
the previously granted Purchase Option.
D-3
<PAGE>
1997 Tender Offer.
On November 20, 1997, PharmaInvest, L.L.C. ("PharmaInvest") on behalf of
Pharmaceutical Royalties L.L.C., Pharmaceutical Royalty Investments Ltd. and
Pharmaceutical Partners L.L.C. ("Pharmaceutical Partners") made an unsolicited
tender offer (the "Tender Offer") to purchase up to 1,400 Class A Limited
Partnership Interests, representing approximately 44% of the total outstanding
Class A Limited Partnership Interests, for cash consideration per Class A
Limited Partnership Interest of $12,000. In response to the Tender Offer, the
General Partner filed a Schedule 14D-9 (the "Schedule 14D-9") with the
Securities and Exchange Commission (the "Commission"), in which the General
Partner expressed no opinion with respect to the Tender Offer to the holders of
the Class A Limited Partnership Interests and stated that the General Partner
would remain neutral as to whether the Limited Partners should tender or refrain
from tendering their Class A Limited Partnership Interests. In its letter to the
Limited Partners advising them of its neutrality with respect to the Tender
Offer, the General Partner drew the attention of the Limited Partners to certain
facts, including, (i) the dates on which ALZA's exclusive rights with respect to
Duragesic(R) and Testoderm(R) were scheduled to expire, (ii) the General
Partner's expectation of the growth of sales of Duragesic(R) and (iii) the
report of Securities Pricing and Research, Inc., an independent appraisal firm
("SPAR"), estimating that the rounded net asset value and fair market value of a
Class A Limited Partnership Interest as of December 31, 1996 were $21,200 and
$15,900, respectively. None of ADC, ALZA or the Partnership has any affiliation
with SPAR, nor does any of them endorse the report prepared by SPAR (the "SPAR
Report"). In addition, neither the General Partner nor the Partnership engaged
SPAR to prepare the SPAR Report or participated in the preparation of the SPAR
Report. The SPAR Report was not related to the Tender Offer and is not related
to the Purchase Option.
Also on November 20, 1997, Pharmaceutical Partners, an affiliate of
PharmaInvest, in a letter addressed to ALZA, set forth its views about the
Purchase Option and its effects on the Limited Partners, the Partnership, the
General Partner and ALZA. In connection with the Partnership's consideration
and evaluation of the Tender Offer, ALZA, on December 2, 1997, advised the
Partnership of the matters raised in Pharmaceutical Partners' letter to ALZA and
informed the Partnership of ALZA's position regarding such matters. A copy of
such letter was, with ALZA's permission, included as an exhibit to the Schedule
14D-9 and sent to the holders of the Limited Partnership Interests. On January
16, 1998, PharmaInvest amended its offer by increasing the purchase price of
each Class A Limited Partnership Interest from $12,000 to $13,200. In
connection with the increase in the purchase price, the General Partner filed an
amendment to its Schedule 14D-9 stating that the General Partner continued to
express no opinion to the holders of the Class A Limited Partnership Interests
and that the General Partner would continue to remain neutral as to whether the
Limited Partners should tender or refrain from tendering their Class A Limited
Partnership Interests. In addition, the General Partner informed the Limited
Partners that in reaching its
D-4
<PAGE>
conclusion with respect to the Tender Offer, the General Partner had taken into
account (i) that SPAR had reduced its estimates of the rounded net asset value
and fair market value of the Class A Limited Partnership Interests as of
December 31, 1996, and (ii) the General Partner's expectation of the growth of
sales of Duragesic(R). On February 2, 1998, PharmaInvest announced that the
Tender Offer had expired and that 72 Class A Limited Partnership Interests were
tendered in connection with the Tender Offer.
As described above, in November 1997, PharmaInvest made the Tender Offer.
In the last fiscal year, PharmaInvest contacted the General Partner to make it
aware of its possible interest in the Partnership as an investment opportunity.
PharmaInvest sent letters on July 11 and 17, 1997 continuing to express its
interest in the Partnership. In October 1997, PharmaInvest had a conversation
with the General Partner reiterating its interest in the Partnership. Following
the conversation, PharmaInvest acquired two Class A Limited Partnership
Interests, and on October 22, 1997 made a written request to receive a list of
names and addresses of Limited Partners (the "List"). PharmaInvest received the
List on November 2, 1997 and commenced the Tender Offer on November 20, 1997.
Consequences.
As a result of the transaction described herein, the Partnership will
terminate as a limited partnership and the General Partner will take all
appropriate and necessary actions to suspend the Partnership's public reporting
obligations and to wind up the affairs of the Partnership in accordance with
California law. The General Partner will continue as a wholly owned subsidiary
of ALZA. For federal income tax purposes the Partnership will be treated as
terminating on the date of the transaction and as distributing all of its
assets, subject to all of its liabilities, to the General Partner on that date.
The Partnership will not have taxable gain or loss as a result of the
transaction described herein.
D-5
<PAGE>
The transaction described herein will cause each Limited Partner to dispose
of its Limited Partnership Interests for consideration equal to such holder's
pro rata share of the Exercise Price. The following discussion sets forth
- --------
general federal income tax considerations under the Internal Revenue Code of
1986, as amended (the "Code") for the Limited Partners with respect to cash
received by the Limited Partners for the Limited Partnership Interests. This
discussion is intended only to provide general information to the Limited
Partners that are subject to United States federal income tax; it may not
address all relevant federal income tax consequences to such persons or to other
categories of the Limited Partners (e.g., foreign persons, dealers in
----
securities, and persons that are exempt from federal income tax). This
discussion is based upon present federal income tax laws and does not attempt to
anticipate changes, including changes in tax rates, that may be made under
currently pending legislative proposals. This discussion assumes that the
Limited Partnership Interests were at all relevant times capital assets of the
Limited Partners. This discussion does not address state, local or foreign tax
considerations. ALL LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
The holder of a Limited Partnership Interest should generally have a
capital gain or loss due to ADC's exercise of the Purchase Option equal to the
difference between (i) the amount of cash received and (ii) the holder's basis
in the Limited Partnership Interest. A Limited Partner's basis in a Limited
Partnership Interest is the Limited Partner's initial purchase price decreased
by any partnership deductions taken by the Limited Partner and any cash
distributed by the Partnership to the Limited Partner and increased by the
Limited Partner's share of the Partnership's income. Under current law, capital
gain or loss will be: (a) long-term if the Limited Partnership Interest has been
held at least 18 months at the time the Purchase Option is exercised, (b) mid-
term if the holding period is more than one year but less than (or equal to) 18
months, and (c) short term if the holding period is a year or less. Pending
federal legislation would reduce the holding period for long-term gain to one
year. Limitations may apply to deduction of capital loss. Under Section 751 of
the Code, the difference between the portion of the cash received by the holder
that is attributable to "unrealized receivables" and "inventory" of the
Partnership (together, "Section 751 Property") over the portion of the holder's
adjusted tax basis in the Limited Partnership Interest allocable to Section 751
Property will be treated as ordinary income or loss, rather than capital gain or
loss. Although this conclusion is not entirely free from doubt, ADC believes
that the Issuer will have no "unrealized receivables" as of the date of the
transaction described above.
To the extent that any holder of a Limited Partnership Interest has not
provided an appropriate taxpayer identification number on IRS Form W-9 or a
substitute therefor, the holder may be subject to backup withholding by ALZA or
ADC.
D-6
<PAGE>
The Purchase Price will be amortized by ALZA over a number of years.
Fairness.
Each of ADC and ALZA reasonably believes that the transaction described
herein is fair to the Limited Partners. None of ALZA's or the General Partner's
directors dissented to or abstained from voting on such transaction.
Each of ADC and ALZA has based its respective belief that the transaction
is fair to the holders of the Limited Partnership Interests on the fact that the
Limited Partners were fully aware of the Purchase Option, which was an essential
economic term of the Limited Partnership Interests, when they purchased their
Limited Partnership Interests. The prospectus, pursuant to which the Limited
Partnership Interests were offered and sold, fully described the Purchase
Option. The terms of the Purchase Option are contained in the Limited
Partnership Agreement, which was also publicly filed with the Commission. The
Limited Partners were also advised of the Purchase Option in each Form 10-K and
each recent Form 10-Q public filing made by the Partnership with the Commission.
In addition, the Limited Partners were reminded of the Purchase Option in
connection with the Tender Offer and in evaluating whether or not to tender
their Limited Partnership Interests in the Tender Offer. Accordingly, the
Purchase Option was present in the initial public sale, was disseminated in the
Partnership's charter documents and was discussed in the Partnership's periodic
filings. As a result, every Limited Partner received substantial notice as to
the terms of the Purchase Option prior to making any investment decision with
respect to the Limited Partnership Interests. In addition, in its most recent
filings the Partnership has indicated that ALZA's exclusive rights with respect
to Duragesic(R) and Testoderm(R) would expire soon and that such expiration
could lead to the exercise of the Purchase Option.
In connection with its decision whether to exercise the Purchase Option, in
February of 1998 ALZA commissioned Frost & Sullivan, an independent market
research firm ("Frost & Sullivan"), to prepare a market research report (the
"Report") of revenue forecasts for Duragesic. ALZA took into account the
information contained in the Report in deciding whether the exercise of the
Purchase Option was in the best interests of ALZA and ALZA's stockholders;
however, because the Report did not assess the fairness of the exercise price of
the Purchase Option, neither ALZA nor ADC considers that the Report is relevant
with respect to the fairness of the transaction to the Limited Partners. ALZA
engaged Frost & Sullivan to prepare the Report because of Frost & Sullivan's
expertise with respect to analyzing sales and marketing information and trends
of product sales in the pharmaceutical industry. Prior to engaging Frost &
Sullivan, ALZA contacted several other market research firms, but chose Frost &
Sullivan because of its availability and experience. ALZA has engaged Frost &
Sullivan for other market research engagements from time to time and has paid
normal service fees in connection with such engagements. The objectives of the
Report were to (i) assess the revenue potential for Duragesic(R) during the
period from 1997 to 2006, (ii) analyze the market opportunity for the same
period, (iii) identify key
D-7
<PAGE>
competitive factors in the current and future market environment and (iv)
identify key drivers of and restraints to market growth. After research using
both primary and secondary sources, the key findings provided by the Report were
(a) if a second transdermal product does not emerge on the market, Duragesic(R)
is expected to continue to experience substantial growth throughout the forecast
period due to an increased penetration into an expanding market, increased
pricing and increased acceptance in key foreign markets, and (b) if a second
transdermal product emerges on the market, in order to be competitive, a
competitor would need to undercut the price of Duragesic(R). A copy of the
Report is available for inspection and copying at the principal executive
offices of ALZA during its regular business hours by any interested Limited
Partner or his or her representative who has been so designated in writing. A
copy of the Report will be transmitted by ALZA to any interested Limited Partner
or his or her representative who has been so designated in writing upon written
request and at the expense of the requesting Limited Partner.
The exercise of the Purchase Option and the consummation of the
transactions thereunder do not require approval of the Limited Partners.
No director of ALZA or the General Partner has retained an unaffiliated
representative to act solely on behalf of the Limited Partners. As a limited
partnership, the Partnership does not have any directors. Each director of the
General Partner is an officer of the General Partner and an employee and officer
or vice-president of ALZA.
BACKGROUND AND SUMMARY OF TRANSACTION
-------------------------------------
Identification of Partnership and ALZA.
This Notice is being given by ADC in accordance with the terms of the
Limited Partnership Agreement. ADC is the general partner of the Partnership and
a wholly owned subsidiary of ALZA.
ALZA's principal business is the development and commercialization of
pharmaceutical products. ALZA is incorporated in the State of Delaware and the
address of its principal executive offices is 950 Page Mill Road, P.O. Box
10950, Palo Alto, CA 94303-0802.
ADC's principal business is acting as general partner of the Partnership.
ALZA is incorporated in the State of Delaware and the address of its principal
executive offices is 950 Page Mill Road, P.O. Box 10950, Palo Alto, CA 94303-
0802.
During the last five years, neither ALZA nor ADC has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, neither ALZA nor ADC has been a party to a civil
proceeding of a judicial
D-8
<PAGE>
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
Information with Respect to Executive Officers and Directors of ALZA.
- --------------------------------------------------------------------
Name: Dr. Ernest Mario (Chairman and Chief Executive Officer)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Chief Executive Officer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: William G. Davis (Director)
Business Address: 3532 Bay Road, South Drive, Indianapolis, IN 49240
Principal Occupation: Independent Business Consultant
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. William R. Brody (Director)
Business Address: 3400 North Charles Street, 242 Garland Hall, Baltimore, MD
21218
Principal Occupation: President of The John Hopkins University (from 1996 to
present); Provost of The University of Minnesota Academic Health Center (from
1994 to 1996); and Martin Donner Professor and Director of the Department of
Radiology at The John Hopkins University (from 1987 to 1994)
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
D-9
<PAGE>
Name: Robert J. Glaser, M.D. (Director)
Business Address: 1 Elm Place, Atherton, CA 94027
Principal Occupation: Director (retired) for Medical Science and Trustee of the
Name: Lucille P. Markey Charitable Trust
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dean O. Morton (Director)
Business Address: 3200 Hillview Avenue, Palo Alto, CA 94304
Principal Occupation: Executive Vice President and Chief Operating Officer
(Retired in 1992) of Hewlett-Packard Corporation
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Denise M. O'Leary (Director)
Business Address: c/o Vivra, Inc., 1850 Gateway Drive, Suite 5000, San Mateo,
CA 94404
Principal Occupation: Special Limited Partner with Menlo Ventures
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Isaac Stein (Director)
Business Address: 525 University Avenue, Suite 700, Palo Alto, CA 94301
Principal Occupation: President of Waverley Associates, Inc.
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Julian N. Stern (Director and Secretary)
Business Address: 525 University Avenue, Suite 1100, Palo Alto, CA 94301
Principal Occupation: Partner of Heller Ehrman White & McAuliffe
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
D-10
<PAGE>
Name: James Butler (Senior Vice President of Sales and Marketing)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Sales and Marketing of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Bruce C. Cozadd (Senior Vice President and Chief Financial Officer)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President and Chief Financial Officer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Harold Fethe (Vice President of Human Resources)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President of Human Resources of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. Gary V. Fulscher (Senior Vice President of Commercial Services)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Commercial Services of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. Samuel R. Saks (Senior Vice President of Medical Affairs)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Medical Affairs of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
D-11
<PAGE>
Name: Peter D. Staple (Senior Vice President and General Counsel)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President and General Counsel of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. Felix Theeuwes (President of New Ventures)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: President of New Ventures of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: Belgium
Name: Janne Wissel (Senior Vice President of Operations)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Operations of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. James W. Young (Senior Vice President of Research and Development)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President of Research and Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Information with Respect to Officers and Directors of ADC.
- ---------------------------------------------------------
Name: David R. Hoffmann (President, Chief Financial Officer, Secretary and
Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President and Treasurer of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
D-12
<PAGE>
Name: Robert M. Myers (Vice President and Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Vice President, Commercial Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Name: Dr. James W. Young (Vice President and Director)
Business Address: 950 Page Mill Road, Palo Alto, CA 94304
Principal Occupation: Senior Vice President, Research and Development of ALZA
Criminal Convictions During Proceeding Five Years: None
Judgments, Decrees or Orders Under Federal or State Securities Laws
During Preceding Five Years: None
Citizenship: United States of America
Securities of the Partnership.
The exact title of the class of security which is the subject of this
Notice is the Class A Limited Partnership Interests of ALZA TTS Research
Partners, Ltd. As of March 31, 1998 (the most recent practicable date), there
were (i) 3,200 Class A Limited Partnership Interests and (ii) one Class B
Limited Partnership Interest issued and outstanding. As of March 31, 1998 (the
most recent practicable date), there were approximately 1,972 holders of record
of Class A Limited Partnership Interests and one holder of record of the Class B
Limited Partnership Interest. The rights of the Class A Limited Partnership
Interests and the Class B Limited Partnership Interest are the same except that
the holder of the Class B Limited Partnership Interest has a right to consult
with ADC with respect to certain matters.
There is no established trading market for the Limited Partnership
Interests.
The Partnership has not paid any dividends on the Class A Limited
Partnership Interests or on the Class B Limited Partnership Interest in the past
two years, except for distributions made to the holders of Limited Partnership
Interests pursuant to the terms of the Limited Partnership Agreement.
Past Contracts, Transactions or Negotiations.
As part of its initial organization and funding, the Partnership granted
ALZA an option (the "License Option") to acquire a license for the Partnership
Products. In 1990, ALZA exercised its License Option for two Partnership
Products: (i)
D-13
<PAGE>
Duragesic(R) and (ii) Testoderm(R). Under each license, ALZA makes payments to
the Partnership based on ALZA's and its affiliates' and sublicensees' sales of
the licensed product. ALZA paid the Partnership $2,644,646, $8,776,814 and
$6,265,401 for the three months ended March 31, 1998 and the years ended
December 31, 1997 and December 31, 1996, respectively, of which approximately
97.5%, 95% and 96% were attributed to Duragesic(R) for the three months ended
March 31, 1998 and fiscal 1997 and 1996, respectively.
The administrative, accounting, contract management and record keeping
services required by the Partnership have been provided in the past and are
currently being provided by ALZA and are billed to the Partnership at ALZA's
standard administrative services rate. The Partnership paid ALZA $18,835,
$105,512 and $86,548 for the three months ended March 31, 1998 and the years
ended December 31, 1997 and December 31, 1996, respectively.
Terms of Transaction.
Pursuant to the terms of the Limited Partnership Agreement, ADC has the
Purchase Option which allows ADC to purchase all (but not less than all) of the
Limited Partnership Interests. The exercise price for exercise of the Purchase
Option is $120 million less an amount equal to all cash distributed to the
Limited Partners by the Partnership (the "Exercise Price"). As of the date
hereof, the Exercise Price is $91,176,592.48. The Exercise Price will
be allocated among the Limited Partners based on their pro rata contributions
---------
to the Issuer. At the Closing, the holders of record of Class A Limited
Partnership Interests as of the Closing Date will receive $27,216.21 per Class A
Limited Partnership Interest (purchased in the original offering for $5,000
each) and the holder of the Class B Limited Partnership Interest will receive
$4,084,720.48 for its Class B Limited Partnership Interest. The Exercise Price
will be paid by check to each holder of the Limited Partnership Interests.
In accordance with the terms of the Limited Partnership Agreement, the
Limited Partners are not required to take any steps to approve the exercise of
the Purchase Option or the consummation of the transactions pursuant to the
Purchase Option. Title to the Limited Partnership Interests automatically vests
in ADC no later than 30 days after notice of the exercise of the Purchase Option
is given to the Limited Partners, upon payment of the purchase price for the
Limited Partnership Interests. The Closing Date is _______________, 1998.
Exercise of the Purchase Option will result in ADC owning all of the
Limited Partnership Interests. Upon purchase of all of the Limited Partnership
Interests by ADC, the Partnership will terminate as a limited partnership and
the General Partner will take all appropriate and necessary actions to suspend
the Partnership's public reporting obligations by filing a Form 15 with the
Commission and to wind up the affairs
D-14
<PAGE>
of the Partnership in accordance with California law. ADC will continue as a
wholly owned subsidiary of ALZA. Although ALZA and ADC have no specific
intentions with respect to the operations of the business of the Partnership
following the exercise of the Purchase Option, ALZA and ADC intend to operate
the business of the Partnership in a manner best designed, in the judgment of
ALZA, to realize the benefit of that business to ALZA and its stockholders.
ALZA intends to contribute to ADC the amount of cash necessary to exercise
the Purchase Option, which contribution ALZA intends to finance with its cash
and marketable securities. All of the fees and expenses of the transaction will
be paid by ALZA.
Interests in Securities of Partnership.
None of ADC, ALZA or any of their respective directors or officers own any
Limited Partnership Interests. ALZA is the sole shareholder of the General
Partner and each officer and director of the General Partner is an employee and
officer or vice-president of ALZA. As described in this Notice, the General
Partner may at any time, pursuant to the Purchase Option, purchase all of the
outstanding Limited Partnership Interests.
Contracts, Arrangements or Understandings with Respect to Partnership's
Securities.
Article Seven of the Limited Partnership Agreement grants ADC the Purchase
Option. The Purchase Option states that ADC may purchase all (but not less than
all) of the issued and outstanding Limited Partnership Interests at any time
after January 1, 1987 and prior to dissolution of the Partnership. ADC may
exercise the Purchase Option by mailing a notice of exercise to the Limited
Partners.
OTHER PROVISIONS OF THE TRANSACTION
-----------------------------------
Appraisal rights are not afforded under applicable law in respect of the
exercise of the Purchase Option and none will be afforded. Neither ALZA nor ADC
is aware of any rights available to objecting holders of the Limited Partnership
Interests under applicable law.
None of ALZA, ADC or the Partnership is aware of any grant of access to
unaffiliated security holders to the corporate files of the Partnership or the
appointment of counsel or appraisal services for unaffiliated security holders
at the expense of the Partnership.
D-15
<PAGE>
SUMMARY OF FINANCIAL STATEMENTS
-------------------------------
Selected Consolidated Financial Data
Set forth below is a summary of the Partnership's selected consolidated
financial data, which has been excerpted or derived from the information
contained in the Partnership's Annual Reports on Form 10-K for the years ended
December 31, 1997 and 1996, and its Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998. More comprehensive information is
included in such reports and other documents filed by the Partnership with the
Commission, and the following information should be read in conjunction with
such reports and other documents and the financial information (including any
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations) contained therein.
STATEMENTS OF REVENUE COLLECTED AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1997 1996 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUE $9,058,501 $6,294,396 $2,655,991 $2,089,580
NET INCOME 8,952,989 6,207,848 2,618,740 2,049,577
ALLOCATION OF NET INCOME
GENERAL PARTNER 89,530 62,079 26,187 20,496
CLASS A LIMITED PARTNERS 8,469,527 6,035,020 2,477,328 1,938,900
CLASS B LIMITED PARTNER 393,932 110,749 115,225 90,181
</TABLE>
STATEMENTS OF ASSETS, LIABILITIES AND PARTNER'S CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 MARCH 31, 1998
---- ---- --------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS $109,262 $ 77,586 $120,454
CURRENT LIABILITIES 17,635 146,381 37,098
PARTNERS' CAPITAL (DEFICIT)
CLASS A LIMITED PARTNERS (3,200 UNITS) 81,863 (69,904) 74,007
CLASS B LIMITED PARTNER 8,864 1,805 8,500
GENERAL PARTNER 900 (696) 849
</TABLE>
FIXED CHARGES AND BOOK VALUE.
The Partnership has no material fixed charges for the two most recent
fiscal years and the three months ended March 31, 1998.
D-16
<PAGE>
Book value per Class A Limited Partnership Interest at December 31, 1997
was $25.58 and at March 31, 1998 was $23.13. Book value per Class B Limited
Partnership Interest at December 31, 1997 was $8,864 and at March 31, 1998 was
$8,500. Book value per General Partner interest at December 31, 1997 was $900
and at March 31, 1998 was $849.
CONCLUSION
----------
If you have any questions with respect to this transaction, please
contact Patty Eisenhaur, Investor Relations Representative, at (650) 494-5300.
ADC and ALZA wish to thank you for your investment and interest in the
Partnership. We sincerely hope that your are pleased with your return on this
investment.
D-17
<PAGE>
Exhibit (D)(2)
950 Page Mill Road
P O Box 10950
Palo Alto, CA 94303-0802
(650) 494-5300
July __, 1998
To All Class A Limited Partners of ALZA TTS Research Partners, Ltd:
I am pleased to send you the attached Notice of Limited Partners notifying you
that ALZA Development Corporation ("ADC") is exercising its option to acquire
all of the outstanding Class A and Class B limited partnership interests of ALZA
TTS Research Partners, Ltd. (the "Partnership"), and has established a closing
date of __________ for the purchase. As previously disclosed, the aggregate
purchase price for the Class A and Class B limited partners' interests is
$120,000,000 in cash, less all "Excess Cash" distributed to the limited partners
by the Partnership. Excess Cash distributed through June 29, 1998 was
$28,823,407.52. As a result, the purchase price is $91,176,592.48. Each Class A
limited partner (or its transferee) of record as of the closing date will
receive $27,216.21 per Unit. Each Unit was purchased in the original offering
for $5,000. NEITHER THE NOTICE TO LIMITED PARTNERS NOR THE CLOSING OF THE
PURCHASE REQUIRES YOU TO TAKE ANY ACTION IN ORDER TO RECEIVE THE PURCHASE PRICE
FOR YOUR UNITS.
While the tax consequences of receipt of the purchase price will vary for each
limited partner, the general federal income tax consequences associated with
the purchase are described in the Notice to Limited Partners. In general, on
the sale of any limited partnership interest, a portion of the purchase price in
excess of basis is treated as capital gain and a portion (reflecting "unrealized
receivables" of the partnership) is treated as ordinary income. However, due to
the Partnership's accrual method of accounting, the Partnership anticipates that
it will have no unrealized receivables. Instead, the limited partners of the
Partnership will have ordinary income from accrued royalties and this income
will be included in each limited partner's basis in its partnership interest, as
reflected on each partner's IRS Schedule K-1. Prior to the end of 1998, or early
next year, ADC will, on behalf of the Partnership, distribute to all limited
partners a final Schedule K-1. The Schedule K-1 will show tax information for
1998, including ordinary income, and the closing of each partners's capital
account. EACH PARTNER'S TAX SITUATION MAY BE DIFFERENT AND YOU SHOULD CONSULT
WITH YOUR OWN TAX ADVISOR.
We thank you again for your support and participation in ALZA TTS Research
Partners, Ltd., a partnership that has been successful in fulfilling its goals
of generating substantial value for its limited partners and creating
innovative and beneficial pharmaceutical products.
Sincerely,
David R. Hoffmann
President
