<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the fiscal year ended December 31, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______ to ______
Commission File Number 2-98260
PAINEWEBBER R&D PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3304143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 713-2000
______________
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------ ------------------------
None None
________________
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
No voting stock has been issued by the Registrant. Neither a public nor
other market exists for the Units, and no such market is expected to develop,
therefore there was no quoted market price for the 37,799 Units.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K (X).
<PAGE>
PART I
ITEM 1. BUSINESS.
PaineWebber R&D Partners, L.P. (the "Partnership" or "Registrant"), is a
Delaware limited partnership that commenced operations on March 6, 1986. PWDC
Holding Company (the "Manager") is the general partner of PaineWebber
Technologies, L.P. (the "General Partner"), which is the general partner of the
Partnership. PWDC Holding Company is a wholly owned subsidiary of PaineWebber
Development Corporation ("PWDC"), an indirect wholly owned subsidiary of Paine
Webber Group Inc. ("PWG"). The principal objective of the Partnership was to
provide long-term capital appreciation to investors through investing in the
development and commercialization of new products (the "Projects") with
technology companies, which were expected to address significant market
opportunities. The Partnership will terminate on December 31, 1998, unless its
term is extended or reduced by the General Partner.
On November 14, 1994, the General Partner commenced with the dissolution of
the Partnership's assets. The General Partner does not intend to terminate
the Partnership until the contingent payment rights ("CPR") (now owned directly
by the Partners (hereinafter defined) and serviced by the Partnership) due from
Amgen, Inc. ("Amgen") from the sale of Neupogen<reg-trade-mark> has been
fully paid and a lawsuit with Centocor, Inc. ("Centocor") has been fully
resolved. Amgen is required to make CPR payments through the year 2005. On
April 21, 1995, the Partnership distributed the CPR to its General Partner and
limited partners (the "Limited Partners"; together with the General Partner,
the "Partners"). The Partnership received its final CPR payment for income
accrued as of March 31, 1995, in June 1995, but continues to receive CPR
payments on account of, and for distribution to, the Partners. On July 12,
1995, the Partnership commenced an action against Centocor in the Supreme Court
of New York arising from certain agreements entered into by Centocor and Eli
Lilly & Company ("Lilly") in July 1992. The Partnership's complaint seeks
damages, interest and expenses. There is no assurance that the Partnership's
claim will be successful. See Item 3, Legal Proceedings - "Action Against
Centocor, Inc.", for a discussion on the current status of the action. At
December 31, 1995, the Partnership's assets consisted primarily of cash and a
money market fund. The Partnership was not engaged in any Projects, nor will
it do so in the future.
PARTNERSHIP MANAGEMENT
The Partnership has delegated to the Manager, pursuant to a management
agreement (the "Management Contract"), responsibility for management and
administrative services necessary for the operation and dissolution of the
Partnership. Under the Management Contract, the Manager was entitled to
receive an annual management fee for management and administrative services
provided to the Partnership. As of January 1, 1994, the Manager elected to
discontinue charging a management fee to the Partnership.
DISTRIBUTIONS
All distributions to the Partners from the Partnership have been made
pro rata in accordance with their respective net capital contributions.
The following table sets forth the proportion of each distribution to be
received by Limited Partners and the General Partner, respectively:
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL PARTNER
<S> <C> <C> <C>
I. Until the value of the aggregate distributions for each limited
partnership unit ("Unit") equals $1,850 plus interest on such
amount accrued at 5% per annum, compounded annually 99% 1%
("Contribution Payout")
II. After Contribution Payout and until the value of the aggregate
distributions for each Unit equals $9,250 ("Final Payout") 80% 20%
III. After Final Payout 75% 25%
</TABLE>
<PAGE>
(ITEM 1 CONTINUED)
At December 31, 1995, the Partnership has made cash and security
distributions, as valued on the date of distribution, since inception of $889
and $593 per Unit, respectively. The security distributions of $593 do not
include the distribution of the CPR in April 1995.
OTHER
At December 31, 1995, the Partnership and the General Partner had no employees,
and PWDC Holding Company, the general partner of the General Partner, had no
employees other than its executive officers (see Item 10. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT). The Partnership is in dissolution and
was engaged in one primary business segment, the management of investments in
technology products and companies.
ITEM 2. PROPERTIES.
The Partnership does not own or lease any office, manufacturing or laboratory
facilities.
ITEM 3. LEGAL PROCEEDINGS.
IN RE: PAINEWEBBER LIMITED PARTNERSHIP LITIGATION
As previously disclosed on the Partnership's Form 10-K for the year ended
December 31, 1994, PaineWebber Technologies, L.P., the General Partner of the
Partnership, was named as one of several defendants in a class action lawsuit
against PaineWebber Incorporated ("PWI") and a number of its affiliates
relating to PWI's sale of 70 direct investment offerings, including the
offering of interests in the Partnership. In January 1996, PWI signed a
memorandum of understanding with the plaintiffs in the class action outlining
the terms under which the parties have agreed to settle the case. Pursuant to
that memorandum of understanding, PWI irrevocably deposited $125 million into
an escrow fund under the supervision of the United States District Court for
the Southern District of New York (the "Court") to be used to resolve the
litigation in accordance with a definitive settlement agreement and a plan of
allocation which the parties expect to submit to the Court for its
consideration and approval within the next several months. Until a definitive
settlement and plan of allocation is approved by the Court, there can be no
assurance what, if any, payment or non-monetary benefits will be made available
to the Partnership.
In February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PWI and various affiliated
entities, including the General Partner of the Partnership, concerning the
plaintiffs' purchases of various limited partnership interests. The complaint
alleges, among other things, that PWI and its related entities committed fraud
and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
ACTION AGAINST CENTOCOR, INC.
In July 1995, the Partnership commenced an action in the Supreme Court of
the State of New York against Centocor arising out of Centocor's July 1992
transaction with Lilly.
<PAGE>
(ITEM 3 CONTINUED)
In 1986, the Partnership and others purchased limited partnership interests
in Centocor Partners II, L.P. ("CP II"), a limited partnership formed to
develop and sell Centoxin, a Centocor drug. On February 21, 1992, Centocor
exercised its option to purchase all of the limited partnership interests in CP
II, including those held by the Partnership. The purchase agreement provided
that Centocor would thereafter pay to the former limited partners 50% of
Centocor's revenues from the licensing or sublicensing of Centoxin and 8% of
Centocor's revenues from Centoxin sales, with such payments to be made on the
last business day of the calendar quarter in which they were earned.
In July 1992, Centocor entered into a set of agreements with Lilly for the
stated purposes of Lilly making an equity investment in Centocor and furthering
the testing and eventual distribution of Centoxin. Pursuant to those
agreements, Lilly paid Centocor a total of $100 million, and Centocor conveyed
to Lilly, among other things, two million shares of Centocor common stock,
exclusive marketing rights to Centoxin and an option to acquire exclusive
marketing rights to CentoRx (now ReoPro), another Centocor drug.
The Partnership's complaint alleges, among other things, that part of
the $100 million paid by Lilly constitutes revenues to Centocor from the
licensing, sublicensing and/or sale of Centoxin, and that Centocor is obligated
to pay a percentage of that part to the former limited partners of CP II,
including the Partnership. Centocor has taken the position that it is not
obligated to make any such payment. The Partnership is seeking to proceed on
behalf of itself and all other former limited partners of CP II whose interests
were acquired by Centocor in February 1992 (the "Class"). The complaint seeks
damages, interest and expenses. Centocor has moved to dismiss the complaint on
the grounds that New York is allegedly an inconvenient forum.
PWDC has been advancing, and may continue to advance, the funds necessary
to pay the Partnership's legal fees and expenses relating to this action. In
the event of a recovery on behalf of the Class, the court may award legal fees
and expenses to the Partnership's counsel, to be paid out of the recovery. It
is anticipated that: the net proceeds of any recovery will be distributed to
the members of the Class, including the Partnership, on a pro rata basis; the
Partnership and/or its counsel will reimburse PWDC; and any remaining
Partnership proceeds will be distributed to the Partners of the Partnership on
a pro rata basis.
In February 1996, another former limited partner of CP II commenced a
purported class action in the Court of Common Pleas of the State of
Pennsylvania against Centocor and Lilly. The claims in that action are
similar to those asserted in the Partnership's complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no existing public market for the Units, and no such market is
expected to develop. Effective February 1995, the General Partner discontinued
the right of Limited Partners to transfer Units, except for transfers that may
occur as a result of the laws of descent and distribution or by operation of
law. As of December 31, 1995, there were 6,932 limited partners.
The Partnership distributes to its Partners, when available, the net
proceeds, if any, from royalty distributions, interest payments on portfolio
securities and from disposition of portfolio securities and any other cash or
other unrestricted securities of the Partnership in excess of amounts that are
necessary for the dissolution of the Partnership. The Partnership distributed
to its Partners $2,481,752 ($65 per Unit; $24,818 to the general partnership
interest) and $6,185,290 ($162 per Unit; $61,853 to the general partnership
interest) for the years ended December 31, 1995 and 1994, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
See the "Selected Financial Data (Unaudited)" on Page F-2 in this filing.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Partners' capital was $0.1 million at December 31, 1995, compared to $1.7
million at December 31, 1994, a decrease of $1.6 million. The reduction in
partners' capital was principally a result of cash distributions to the
Partners of $2.4 million that were offset by net income of $0.8 million (as
discussed in Results of Operations below).
The Partnership's working capital is invested in a money market fund.
Liquid assets at December 31, 1995 totaled $0.2 million, a decrease of $0.4
million from the balance of $0.6 million at December 31, 1994. The decrease is
due to payment of general and administrative expenses and the excess of
distributions paid to Partners over the income received from Projects by the
Partnership. The balance of working capital will be used for the payment of
administrative costs related to the dissolution of the Partnership and
distributions to the Partners, if any.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994:
Net income for the year ended December 31, 1995 was $0.8 million compared to
net income of $4.3 million for the year ended December 31, 1994, a decrease of
$3.5 million resulting from the dissolution of the Partnership including the
satisfaction of Partnership liabilities.
<PAGE>
(ITEM 7 CONTINUED)
Revenues for the year ended December 31, 1995 were $1.1 million compared to
$4.6 million for the same period in 1994. Revenues consisted primarily of
income accrued or received from Amgen with respect to the CPR as a result of
the product sales of Neupogen, until the CPR was distributed to the Partners.
In 1995, revenues from Amgen decreased by $3.9 million from 1994. Effective
April 1, 1995, the Partnership distributed to its Partners the CPR, which
constitutes the rights to receive future income from Amgen to its Partners.
The Partnership received its final CPR payment in June 1995 attributable to the
first quarter of 1995. In 1994, the Partnership recognized a loss on sale of
an investment of $0.4 million (see Results of Operations - Year ended December
31, 1994 compared to year ended December 31, 1993). Expenses for the
Partnership consisted solely of general and administrative costs of $0.3
million for 1995 and 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993:
Net income for the year ended December 31, 1994 was $4.3 million compared
to net income of $4.0 million for the year ended December 31, 1993, an increase
of $0.3 million. The variance of $0.3 million is due to a decrease of $3.0
million in expenses offset by a decrease of $2.7 million in revenues.
Revenues for the year ended December 31, 1994 were $4.6 million compared to
$7.3 million for the same period in 1993, a decrease of $2.7 million. The
unfavorable variance is primarily attributable to a decrease in revenues from
the Partnership's product development projects of $2.2 million and a loss on
the sale of an investment of $0.4 million. The product development income
earned during 1994 and 1993 consisted primarily of distributions received from
Amgen. In 1994, the Partnership recognized a loss of $0.4 million resulting
from the exchange of its investment in DAVID Systems, Inc. ("DSI") pursuant to
the terms of a merger between DSI and Chipcom Corporation.
Expenses for the year ended December 31, 1994 were $0.3 million compared
to $3.3 million for the same period in 1993, a decrease of $3.0 million. The
variance is primarily attributable to a $2.4 million writedown in the
Partnership's investment in DSI in 1993 and a decrease of $0.6 million in
management fees. In 1993, the investment in DSI was written down from $3.2
million to $0.8 million. As of January 1, 1994, the Manager elected to
discontinue the management fee charged to the Partnership (See ITEM 1.
BUSINESS). The management fee for 1993 was $0.6 million.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item may be found under the following
captions included in this filing on Form 10-K:
Report of Independent Auditors (F-4)
Statements of Financial Conditions (Page F-5)
Statements of Operations (Page F-6)
Statements of Changes in Partners' Capital (Page F-6)
Statements of Cash Flows (Page F-7)
Notes to Financial Statements (Pages F-8 to F-13)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no directors or executive officers. The Registrant
is managed by PWDC Holding Company (the "Manager"), the general partner of
PaineWebber Technologies, L.P. (the "General Partner"), which is the general
partner of the Partnership.
The Partnership has delegated to the Manager, pursuant to the Management
Contract, responsibility for management and administrative services necessary
for the operation of the Partnership. The Manager has sole responsibility for
the dissolution of the Partnership.
The following table sets forth certain information with respect to the
persons who are directors and executive officers of the Manager, as well as
PWDC, the parent company of the Manager. On December 31, 1991, the Manager
succeeded PWDC as the general partner of the General Partner. The following
table sets forth such persons' positions as directors and executive officers of
PWDC at December 31, 1995.
<TABLE>
<CAPTION>
NAME AGE POSITION AND DATE APPOINTED
<S> <C> <C>
Directors (1)
Eugene M. Matalene, Jr. 48 Director since June 1993
Gerald F. Goertz, Jr. 38 Director since April 1995
Pierce R. Smith 52 Director since June 1993
James M. Voytko 45 Director since May 1994
EXECUTIVE OFFICERS (2)
Eugene M. Matalene, Jr. 48 President since June 1993
James M. Voytko 45 Executive Vice President since May 1994
Pierce R. Smith 52 Treasurer since August 1988
Dorothy F. Haughey 71 Secretary since July 1985
</TABLE>
The directors have a one-year term of office. The officers are elected by a
majority of the directors and hold office until their successors are chosen by
the directors.
(1) Mr. Matalene and Mr. Smith were appointed to these positions at PWDC
Holding Company in September 1993; Mr. Voytko was appointed to this position
at PWDC Holding Company in May 1994; Mr. Goertz was appointed to this position
at PWDC Holding Company in April 1995.
(2) Mr. Matalene was appointed to this position at PWDC Holding Company in
September 1993; Mr. Voytko was appointed to this position at PWDC Holding
Company in May 1994; Mr. Smith and Ms. Haughey were appointed to these
positions at PWDC Holding Company in December 1991.
<PAGE>
(ITEM 10 CONTINUED)
DIRECTORS
MR. MATALENE is a Managing Director of PWI. Mr. Matalene joined the Invest-
ment Banking Division of PWI in 1987. Prior to joining PWI, Mr. Matalene worked
at Drexel Burnham Lambert in the Investment Banking Division from 1986 to 1987.
Before joining Drexel Burnham Lambert, he worked at Kidder, Peabody & Co. in
the Corporate Finance Department from 1979 through 1986. Mr. Matalene is a
Director of PaineWebber Properties, Incorporated, American Bankers Insurance
Group, Bankers American Life Insurance Company and Empire of Carolina, Inc.
His Bachelor of Arts degree is from University of North Carolina at Chapel
Hill. Mr. Matalene received a Master's degree in Business Administration with
honors from Columbia University.
MR. GOERTZ is a Senior Vice President and Director of Private Investments
of PWI. Prior to joining PWI in December 1990, Mr. Goertz was with CG Realty
Advisors and the Freeman Company. He received his Bachelor of Arts degree in
Business Administration in 1979 from Vanderbilt University and his Juris
Doctorate and Masters of Business Administration from Memphis State University
in 1982.
MR. SMITH is Treasurer of PWG and Executive Vice President and Treasurer of
PWI. Mr. Smith joined PWG in 1987. From 1982 to 1987, Mr. Smith was Senior
Vice President and Treasurer for Norwest Corporation, a multibank holding
company in Minneapolis. From 1980 to 1982, Mr. Smith was Vice President of the
Treasury Department for Mellon Bank in Pittsburgh and from 1973 to 1980 was
Vice President for various subsidiaries of Commercial Credit Company. Mr.
Smith received a Bachelor of Science degree in Electrical Engineering from Yale
University and a Master's degree in Business Administration from Stanford
University. He also served as a lieutenant in the United States Coast Guard.
MR. VOYTKO is Deputy Director and Chief Operating Officer of the Investment
Banking Division of PWI. He joined PWI in 1981 as a research analyst and
became Director of Research in 1988 overseeing equity, credit, high yield and
derivatives research. Prior to joining PWI he was director of the office of
the Chairman of the Interstate Commerce Commission in Washington, D.C. Mr.
Voytko is currently a director of Nexgen Microsystems and PaineWebber
Properties, Incorporated. Mr. Voytko received a Bachelor of Arts degree from
Carnegie Mellon University, a Master's degree in Public Administration from the
University of Washington and a Master's degree in Public Policy from Harvard
University.
<PAGE>
(Item 10 continued)
Executive Officers
MR. MATALENE, President, see "Directors" above.
MR. VOYTKO, Executive Vice President, see "Directors" above.
MR. SMITH, Treasurer, see "Directors" above.
MS. HAUGHEY, Secretary, joined PWI in 1962. She is Assistant Secretary
of PWG.
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
No Compensation was paid to executives of PWDC Holding Company by the
Registrant. PWDC Holding Company serves as the Manager for the Registrant, and
pursuant to a Management Contract, is entitled to receive an annual management
fee for management and administrative services provided to the Partnership. As
of January 1, 1994 the Manager elected to discontinue the management fee
charged to the Partnership. See the section entitled "Related Party
Transactions" under the caption "Notes to Financial Statements" on pages F-8
through F-13 included in this filing on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below lists all investors who are known to be beneficial owners
at March 1, 1996 of more than five percent of the Registrant's Units.
<TABLE>
<CAPTION>
CLASS NAME AND ADDRESS AMOUNT PERCENT OF CLASS
<S> <C> <C> <C>
Limited Partnership Lincoln National Life 2,875 Units 7.61%
Units Insurance Company
Fort Wayne, IN 46801-0214
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item may be found in the section entitled
"Related Party Transactions" under the caption "Notes to Financial Statements"
on pages F-8 through F-13 included in this filing on Form 10-K.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as part of the filing on Form 10-K.
FINANCIAL STATEMENTS
The financial statements, together with the report of Ernst & Young LLP, are
listed in the accompanying index to financial statements and notes to financial
statements appearing on page F-1.
Report of Independent Auditors (Page F-4)
Statements of Financial Condition (Page F-5)
Statements of Operations (Page F-6)
Statements of Changes in Partners' Capital (Page F-6)
Statements of Cash Flows (Page F-7)
Notes to Financial Statements (Pages F-8 to F-13)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 29th day of March
1996.
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(General partner of the General Partner)
By: Eugene M. Matalene, Jr. /s/
------------------------------------------
Eugene M. Matalene, Jr.
President and Principal Executive Officer
By: Pierce R. Smith/s/
------------------------------------------
Pierce R. Smith
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated*, each on this 29th day of March
1996.
Eugene M. Matalene, Jr. /s/
------------------------------------------
Eugene M. Matalene, Jr.
President (principal executive officer) and Director
Pierce R. Smith /s/
------------------------------------------
Pierce R. Smith
Principal Financial and Accounting Officer and Director
Gerald F. Goertz, Jr./s/
------------------------------------------
Gerald F. Goertz, Jr.
Director
James M. Voytko/s/
------------------------------------------
James M. Voytko
Director
* The capacities listed are with respect to PWDC Holding Company, the Manager,
as well as the general partner of the General Partner of the Registrant.
<PAGE> Page F-1
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Index to Financial Statements
DESCRIPTION PAGE
Index to Financial Statements F-1
Selected Financial Data (Unaudited) F-2
Quarterly Financial Information (Unaudited) F-3
Report of Independent Auditors F-4
Statements of Financial Condition, at December 31, 1995 and 1994 F-5
Statements of Operations, for the years ended December 31, 1995,
1994 and 1993 F-6
Statements of Changes in Partners' Capital, for the years ended
December 31, 1995, 1994 and 1993 F-6
Statements of Cash Flows, for the years ended December 31, 1995,
1994 and 1993 F-7
Notes to Financial Statements F-8 to F-13
All schedules are omitted either because they are not applicable or the
information required to be submitted has been included in the financial
statements or notes thereto.
<PAGE> Page F-2
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
<TABLE>
<CAPTION>
Selected Financial Data (Unaudited)
Years ended December 31, 1995 1994 1993 1992 1991
Operating Results:
<S> <C> <C> <C> <C> <C>
Revenues $ 1,092,017 $ 4,569,297 $ 7,297,680 $ 8,423,202 $ 4,299,251
Net income $ $842,826 $ 4,293,920 $ 3,954,638 $ 7,409,758 $ 1,734,537
Net income (loss) per
partnership unit:
Limited partners (A) $ 22.07 $ 112.46 $ 103.58 $ 194.07 $ 45.98
General partner $ 8,428.26 $ 42,939.20 $ 39,546.38 $ 74,097.58 $ (3,367.63)
Financial Condition:
Total assets $ 182,437 $ 1,884,535 $ 3,717,440 $ 8,178,175 $ 8,807,066
Partners' capital $ 90,065 $ 1,728,991 $ 3,620,361 $ 8,080,774 $ 8,561,462
Distributions to partners $ 2,481,752 $ 6,185,290 $ 8,415,051 $ 7,890,446 $ 4,801,236
</TABLE>
(A) Based on 37,799 partnership units.
<PAGE> Page F-3
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
<TABLE>
<CAPTION>
Quarterly Financial Information (Unaudited)
Net Income (Loss)
Net Income Per Partnership Unit (A)
Revenues (Loss) Limited Partners General Partner
<S> <C> <C> <C> <C>
Calendar 1995
4th Quarter $ 6,116 $ (64,130) $ (1.68) $ (641.30)
3rd Quarter 6,283 (75,202) (1.97) (752.02)
2nd Quarter (64,864) (110,917) (2.91) (1,109.17)
1st Quarter 1,144,482 1,093,075 28.63 10,930.75
Calendar 1994
4th Quarter $ 1,634,691 $ 1,542,254 $ 40.38 $ 15,422.54
3rd Quarter 1,315,022 1,268,596 33.23 12,685.96
2nd Quarter 1,319,643 1,210,365 31.71 12,103.65
1st Quarter (B) 299,941 272,705 7.14 2,727.05
Calendar 1993
4th Quarter $ 1,639,962 $ (1,066,949) $ (27.94) $ (10,669.49)
3rd Quarter 1,925,081 1,723,172 45.13 17,231.72
2nd Quarter 1,830,863 1,600,744 41.93 16,007.44
1st Quarter 1,901,774 1,697,671 44.46 16,976.71
</TABLE>
(A) Based on 37,799 limited partnership units and a 1% general partnership
interest.
(B) Revenues have been restated from the amount reported at March 31, 1994.
<PAGE> Page F-4
Report of Independent Auditors
To the Partners of PaineWebber R&D Partners, L.P.:
We have audited the accompanying statements of financial condition of
PaineWebber R&D Partners, L.P. as of December 31, 1995 and 1994, and the
related statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PaineWebber R&D Partners, L.P.
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young, LLP
New York, New York
March 29, 1996
<PAGE> Page F-5
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
- ------------------------------------------------------------------------------
December 31, December 31,
1995 1994
- ------------------------------------------------------------------------------
Assets:
Cash $ 74,542 $ 25,667
Marketable securities, at market value 105,814 526,502
Interest receivable 581 1,566
Royalty income receivable 1,500 1,330,800
---------- ------------
Total assets $ 182,437 $ 1,884,535
========== ============
- ------------------------------------------------------------------------------
Liabilities and partners' capital:
Accrued liabilities $ 92,372 $ 155,544
Partners' capital 90,065 1,728,991
----------- ------------
Total liabilities and partners' capital $ 182,437 $ 1,884,535
=========== ============
- ------------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page F-6
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
- -------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 26,706 $ 39,390 $ 111,585
Income from product development projects 1,075,767 4,976,776 7,221,316
Unrealized depreciation of marketable
securities - (61,454) (6,250)
Realized loss on sale of marketable
securities (10,456) - (28,971)
Realized loss on sale of investment - (385,415) -
--------- --------- ---------
1,092,017 4,569,297 7,297,680
---------- --------- ---------
Expenses:
Management fees - - 613,948
General and administrative costs 249,191 275,377 273,096
Write-down of investment - - 2,455,998
---------- --------- ---------
249,191 275,377 3,343,042
---------- --------- ---------
Net income $ 842,826 $4,293,920 $3,954,638
========== ========== ==========
Net income per partnership unit:
Limited partners (based on 37,799 units) $ 22.07 $ 112.46 $ 103.58
General partner $ 8,428.26 $42,939.20 $39,546.38
- -------------------------------------------------------------------------------
See notes to financial statements.
Statements of Changes in Partners' Capital
Years ended December 31, 1995, 1994 and 1993
- -------------------------------------------------------------------------------
Limited General
Partners Partner Total
- -------------------------------------------------------------------------------
Balance at January 1, 1993 $ 8,020,699 $ 60,075 $ 8,080,774
Net income 3,915,092 39,546 3,954,638
Cash distributions to partners (8,330,900) (84,151) (8,415,051)
---------- --------- ----------
Balance at December 31, 1993 3,604,891 15,470 3,620,361
Net income 4,250,981 42,939 4,293,920
Cash distributions to partners (6,123,437) (61,853) (6,185,290)
---------- --------- ----------
Balance at December 31, 1994 1,732,435 (3,444) 1,728,991
Net income 834,398 8,428 842,826
Cash distributions to partners (2,456,934) (24,818) (2,481,752)
---------- --------- ----------
Balance at December 31, 1995 $ 109,899 $ (19,834) $ 90,065
========== ========= ==========
- -------------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page F-7
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 842,826 $4,293,920 $3,954,638
Adjustments to reconcile net income to cash
provided by operating activities:
Unrealized depreciation of marketable securities - 61,454 6,250
Realized loss on sale of investment - 385,415 -
Write-down of investment - - 2,455,998
Decrease (increase) in operating assets:
Marketable securities 420,688 947,265 1,516,025
Investments - 364,585 -
Investments in product development projects - - 1,804,945
Interest receivable 985 3,315 4,057
Royalty income receivable 1,329,300 (147,304) (1,183,496)
(Decrease) increase in accrued liabilities (63,172) 58,465 (322)
--------- ------- ---------
Cash provided by operating activities 2,530,627 5,967,115 8,558,095
--------- ------- ---------
Cash flows from financing activities:
Distributions to partners (2,481,752) (6,185,290) (8,415,051)
--------- ------- ---------
Increase (decrease) in cash 48,875 (218,175) 143,044
Cash at beginning of year 25,667 243,842 100,798
--------- ------- ---------
Cash at end of year $ 74,542 $ 25,667 $ 243,842
========== ========= ==========
</TABLE>
- -------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the years ended
December 31, 1995, 1994 and 1993.
- -------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page F-8
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business
PaineWebber R&D Partners, L.P. (the "Partnership"), is a Delaware limited
partnership that commenced operations on March 6, 1986. PWDC Holding Company
(the "Manager") is the general partner of PaineWebber Technologies, L.P. (the
"General Partner"), which is the general partner of the Partnership. PWDC
Holding is a wholly owned subsidiary of PaineWebber Development Corporation
("PWDC"), an indirect wholly owned subsidiary of PaineWebber Group Inc. The
Partnership will terminate on December 31, 1998, unless its term is extended or
reduced by the General Partner.
The principal objective of the Partnership was to provide long-term capital
appreciation to investors through investing in the development and
commercialization of new products with technology companies ("Sponsor
Companies"), which were expected to address significant market opportunities.
In connection with product development projects (the "Projects"), the
Partnership sought to obtain warrants to purchase the common stock of Sponsor
Companies.
On November 14, 1994, the General Partner commenced with the dissolution of
the Partnership's assets. The General Partner does not intend to terminate the
Partnership until the contingent payment rights ("CPR") (now owned directly by
the Partners (hereinafter defined) and serviced by the Partnership) due from
Amgen, Inc. ("Amgen") from the sale of Neupogen<reg-trade-mark> have been fully
paid and a lawsuit with Centocor, Inc. ("Centocor") has been fully resolved
(see Note 7). Amgen is required to make CPR payments through the year 2005.
On April 21, 1995, the Partnership distributed the CPR to its General Partner
and limited partners (the "Limited Partners"; together with the General
Partner, the "Partners"). The distribution of the CPR had no impact on the
financial statements of the Partnership. The Partnership received its final
CPR payment for income accrued as of March 31, 1995, in June 1995, but
continues to receive CPR payments on account of, and for distribution to, the
Partners.
All distributions to the Partners from the Partnership have been made pro
rata in accordance with their respective net capital contributions. The
following table sets forth the proportion of each distribution to be received
by the Limited Partners and the General Partner, respectively:
LIMITED GENERAL
PARTNERS PARTNER
I. Until the value of the aggregate distributions
for each limited partnership unit ("Unit")
equals $1,850 plus interest on such amount
accrued at 5% per annum, compounded annually
("Contribution Payout") 99% 1%
II. After Contribution Payout and until the value
of the aggregate distributions for each Unit
equals $9,250 ("Final Payout") 80% 20%
III. After Final Payout 75% 25%
<PAGE> Page F-9
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 1 CONTINUED)
During 1995, the Partnership made aggregate cash distributions of $2,481,752
($65 per Unit; $24,818 to the General Partner). At December 31, 1995, the
Partnership has made cash and security distributions since inception of $889
and $593 per Unit, respectively. The security distributions of $593 do not
include the distribution of the CPR in April 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally accepted
accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Partnership adopted the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115") for investments held as of or acquired after
January 1, 1994. In accordance with Statement No. 115, prior period financial
statements have not been restated to reflect the change in accounting method.
There was no financial statement impact as of January 1, 1994 of adopting
Statement No. 115.
Marketable securities consist of readily marketable securities that are
valued at market value. Marketable securities are not considered cash
equivalents for the Statements of Cash Flows.
The Partnership's investments consisting of convertible preferred stock were
not publicly traded and were subject to fluctuations in value dependent on the
underlying value of the issuing company. Non-publicly traded securities were
valued at cost, except when a decrease was required based on the Manager's
evaluations. These evaluations were based on available information and did not
necessarily represent the amount which might ultimately be realized, since such
an amount depended on future circumstances and could not reasonably be
determined until the position was actually liquidated.
Realized and unrealized gains or losses are determined on a specific
identification method and are reflected in the Statements of Operations during
the period in which the change in value occurs.
The Partnership had investments in Projects, as more fully described in Note
5, through one of the following two vehicles:
<circle>Product Development Contracts
The Partnership paid amounts to Sponsor Companies under product
development contracts. Such amounts were expensed by the Partnership
when incurred by the Sponsor Companies. Income from the Sponsor
Companies is reflected in the Statements of Operations for the period
in which the income is earned.
<circle>Product Development Limited Partnerships
The Partnership participated as a limited partner in product development
limited partnerships formed to develop specific products. The
Partnership accounted for its investments in limited partnerships using
the equity method. Such partnerships expensed product development costs
when incurred.
<PAGE> Page F-10
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 2 CONTINUED)
The Partnership carried warrants at a zero value in cases where the
Sponsor Company's stock was not publicly traded or the exercise period had not
been attained. To the extent that the Partnership's warrant was currently
exercisable and the Sponsor Company's stock was publicly traded, the warrant
was carried at intrinsic value (the excess of market price per share over the
exercise price per share), which approximated fair value.
3. MARKETABLE SECURITIES AND INVESTMENTS
MARKETABLE SECURITIES:
The money market fund consists of obligations with maturities of one
year or less that are subject to fluctuations in value.
At December 31, 1995 and 1994, the Partnership held the following
marketable securities, at market value:
1995 1994
-------- -------
Money Market Fund $105,814 $469,211
41,666 shares of AgriDyne Technologies Inc.
common stock --- 57,291
-------- --------
$105,814 $526,502
======== ========
In June 1995 the Partnership sold its investment of 41,666 shares of
AgriDyne Technologies, Inc. ("AgriDyne") at $1.125 per share resulting in a
loss (net of expenses) of $10,456 for the year ended December 31, 1995. The
common shares had a cost basis of zero. At December 31, 1994, the market value
per share was $1.375.
In November 1993, 33,921 shares of AgriDyne common stock were sold at a
market price of $5.00 per share. The total market value of such shares of
AgriDyne common stock on the date of the sale was approximately $170,000
compared to the original cost of $500,000. An unrealized loss (net of sales
commission) of approximately $330,000 was recognized by the Partnership in
prior years.
In November 1993, 1,152 shares of Amgen common stock, with an original cost
of approximately $9,000 and a book value of $81,000, were sold for
approximately $53,000 ($46.00 per share). An unrealized gain of approximately
$72,000 was recognized by the Partnership in prior years resulting in a
realized loss upon sale of approximately $29,000.
INVESTMENTS:
At December 31, 1994, the Partnership had an investment of 9,000,000 shares
of Applied Diagnostics, Inc. (a subsidiary of Teknowledge Corporation
("Teknowledge") (formerly Cimflex Teknowledge Corpration)) Series A Convertible
Preferred Stock with a carrying value of zero. As of December 31, 1995,
<PAGE> Page F-11
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 3 CONTINUED)
the Partnership had been advised of the dissolution of Applied Diagnostics,
Inc. The Partnership received no distributions as a result of the dissolution.
In addition, the Partnership had one warrant to purchase 1,050,000 shares of
Teknowledge common stock with an exercise price of $3.83 which expired in
September 1995. The warrant was carried at a cost basis of zero.
In 1993, based on the Manager's evaluation of the current and projected
financial performance of DAVID Systems, Inc. ("DSI"), a decision was made to
write down the Partnership's investment in DSI from an aggregate value of
$3,205,998 to $750,000. In August 1994, the merger of DSI into Chipcom
Corporation ("Chipcom") was approved at a special meeting of shareholders.
According to the terms of the merger, the Partnership exchanged its DSI
preferred stock for cash in the amount of $364,585 resulting in the recognition
of a loss of $385,415 for the year ended December 31, 1994 in the accompanying
Statements of Operations.
4. RELATED PARTY TRANSACTIONS
Prior to January 1, 1994, the Manager received an annual management fee for
management and administrative services provided to the Partnership calculated
pursuant to the terms of a management agreement. As of January 1, 1994, the
Manager elected to discontinue the management fee charged to the Partnership.
The management fee paid by the Partnership to the Manager for the year ended
December 31, 1993 was $613,948.
The Partnership's portfolio which consists of a money market fund is
managed by Mitchell Hutchins Institutional Investors ("MHII"), an affiliate of
PWDC. PWDC pays MHII a fee with respect to such money management services.
PWDC and PaineWebber Incorporated, and its affiliates, have acted in an
investment banking capacity for several of the Sponsor Companies. In addition,
PWDC and its affiliates have had direct limited partnership interests in the
same product development limited partnerships as the Partnership.
5. PRODUCT DEVELOPMENT PROJECTS
The Partnership has completed funding its eight Projects. If the
Projects had produced any product for commercial sale, the Sponsor Companies
had the option to enter into joint ventures or royalty arrangements with the
Partnership to manufacture and market the products developed. In addition, the
Sponsor Companies had the option to purchase the Partnership's interest in the
technology. In consideration for granting such purchase options, the
Partnership received warrants to purchase shares of common stock of the Sponsor
Companies. As of January 1, 1995, the Partnership had one warrant to purchase
1,050,000 shares of Teknowledge Corporation ("Teknowledge") (formerly Cimflex
Teknowledge Corporation) with an exercise price of $3.83 and a cost basis of
zero. The warrant expired in September 1995 and was not exercised because the
exercise price exceeded the market price of the stock.
<PAGE> Page F-12
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 5 CONTINUED)
The Partnership's warrant to purchase 231,000 shares of Bolt Beranek and
Newman Inc. common stock at $31.00 per share expired in May 1994. In addition,
the Partnership's warrant to purchase 75,000 shares of AgriDyne at $22.50 per
share expired in June 1994. The warrants were not exercised because the
warrants' exercise prices exceeded the market prices of the stock. The
Partnership's warrant to purchase 454,919 shares of DSI was cancelled due to
DSI's merger with Chipcom.
In 1993, the Partnership's warrant for 61,742 shares of Centocor common
stock, exercisable at $21.50 per share, expired. The warrant was not exercised
by the Partnership or distributed to the Partners because the warrant's
exercise price was greater than the market price of the stock.
In 1993, Amgen exercised its partnership purchase option to buy back the
Partnership's interest in a Project. The Partnership received $2,200,000 on
March 23, 1993 in return for a lower royalty rate subsequent to the purchase
option. In April 1995, the Partnership distributed its rights to future
payments from Amgen to its Partners.
6. INCOME TAXES
The Partnership is not subject to federal, state or local income taxes.
Accordingly, the individual Partners are required to report their distributive
shares of realized income or loss on their individual federal and state income
tax returns.
7. LEGAL PROCEEDING
On July 12, 1995, the Partnership commenced an action against Centocor in
the Supreme Court of New York arising from certain agreements entered into by
Centocor and Eli Lilly & Company ("Lilly") in July 1992.
In 1986, the Partnership and others purchased limited partnership interests
in Centocor Partners II, L.P. ("CP II"), a limited partnership formed to
develop and sell Centoxin, a Centocor drug. On February 21, 1992, Centocor
exercised its option to purchase all of the limited partnership interests in CP
II, including those held by the Partnership. The purchase agreement provided
that Centocor would thereafter pay to the former limited partners 50% of
Centocor's revenues from the licensing or sublicensing of Centoxin and 8% of
Centocor's revenues from Centoxin sales, with such payments to be made on the
last business day of the calendar quarter in which they were earned.
In July 1992, Centocor entered into a set of agreements with Lilly for the
stated purposes of Lilly making an equity investment in Centocor and furthering
the testing and eventual distribution of Centoxin. Pursuant to those
agreements, Lilly paid Centocor a total of $100 million, and Centocor conveyed
to Lilly, among other things, two million shares of Centocor common stock,
exclusive marketing rights to Centoxin and an option to acquire exclusive
marketing rights to CentoRx (now ReoPro), another Centocor drug.
<PAGE> Page F-13
(Note 7 Continued)
The Partnership's complaint alleges, among other things, that part of the
$100 million paid by Lilly constitutes revenues to Centocor from the licensing,
sublicensing and/or sale of Centoxin, and that Centocor is obligated to pay a
percentage of that part to the former limited partners of CP II, including the
Partnership. Centocor has taken the position that it is not obligated to make
any such payment. The Partnership is seeking to proceed on behalf of itself
and all other former limited partners of CP II whose interests were acquired by
Centocor in February 1992 (the "Class"). The Partnership seeks damages,
interest and expenses. There is no assurance that the Partnership's claim will
be successful.
PWDC has been advancing, and may continue to advance, the funds necessary
to pay the Partnership's legal fees and expenses relating to this action. In
the event of a recovery on behalf of the Class, the court may award legal fees
and expenses to the Partnership's counsel, to be paid out of the recovery. It
is anticipated that: the net proceeds of any recovery will be distributed to
the members of the Class, including the Partnership, on a pro rata basis; the
Partnership and/or its counsel will reimburse PWDC; and any remaining
Partnership proceeds will be distributed to the Partners of the Partnership on
a pro rata basis.
8. SUBSEQUENT EVENT
In March 1996, the General Partner restored its deficit capital account
balance as of December 31, 1995, to appropriately reflect a 1% investment
in the Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000770470
<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 74,542
<SECURITIES> 105,814
<RECEIVABLES> 2,081
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 182,437
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 182,437
<CURRENT-LIABILITIES> 92,372
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 90,065
<TOTAL-LIABILITY-AND-EQUITY> 182,437
<SALES> 0
<TOTAL-REVENUES> 1,092,017
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 249,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 842,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 842,826
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
