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, 1997
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 Paine Webber
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. The General Partner does not
intend to terminate the Partnership until a lawsuit with Centocor, Inc.
("Centocor") has been fully resolved.
On November 14, 1994, the General Partner commenced with the dissolution
of the Partnership's assets. 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. On April 1, 1995, the Partnership distributed its
contingent payment rights ("CPR") due from Amgen Inc. ("Amgen") through the year
2005 from the sale of Neupogen(R) to its General Partner and limited partners
(the "Limited Partners," collectively, the "Partners"). Such CPR payments are no
longer available to pay any expenses of the Partnership. At December 31, 1997,
the Partnership's sole asset consisted of cash. During 1997, the Partnership was
not engaged in any Projects, nor will it do so in the future. Currently, the
Partnership does not have available sufficient cash flow to meet working capital
requirements (consisting primarily of expenses relating to the dissolution of
the Partnership). The General Partner is making, and intends to continue to
make, capital contributions to the Partnership to fund working capital deficits
until such time as the Partnership is terminated.
At a meeting of the Board of Directors of PWDC in January 1997, the Policy
Regarding Requests for Partner Lists attached as Exhibit B was adopted for the
Partnership.
PARTNERSHIP MANAGEMENT
The Partnership has contracted with 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. As of January 1, 1994, the Manager elected to discontinue charging
a management fee for services rendered 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:
<PAGE>
(ITEM 1 CONTINUED)
<TABLE>
<CAPTION>
Limited General
Partners Partner
-------- -------
<S> <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 ("Contribution Payout"). At
December 31, 1997, Contribution Payout was $3,283 per Unit . . . . . . . . . . . . 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%
</TABLE>
As of December 31, 1997, the Partnership has made cash and security
distributions, as valued on the dates of distribution, since inception of $889
and $593 per Unit, respectively. The cash and security distributions do not
include distributions made in connection with the CPR through December 31, 1997,
in the amount of $338 per Unit.
OTHER
At December 31, 1997, 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, 1996, PaineWebber Technologies, L.P., the General Partner of the
Partnership, was named as a defendant in a class action lawsuit against
PaineWebber Incorporated ("PWI") and a number of its affiliates in the United
States District Court for the Southern District of New York (the "U.S. Court")
relating to PWI's sale of approximately 50 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 agreed to settle the case. Under a
settlement, PWI agreed to pay the class $125 million and certain additional
consideration. The additional consideration included the assignment of fees and
income attributable to the general partnership interest in the Partnership as
well as guarantees of certain minimum returns to class members. In March 1997,
the U.S. Court approved the settlement as fair and that order was affirmed by
the United States Court of Appeals for the Second Circuit in July 1997.
Distribution of the settlement fund to the class awaits the U.S. Court's
determination of the amount of plaintiffs' counsel's fees and disbursements to
be awarded from the settlement fund.
<PAGE>
ITEM 3 (CONTINUED)
In February 1996, approximately 150 plaintiffs filed an action entitled
ABBATE V. PAINEWEBBER INC. 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 alleged, 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 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 sought compensatory damages of $15 million plus
punitive damages. In June 1996, additional complaints similar to the ABBATE
action, but involving fewer plaintiffs, were filed in Sacramento, San Diego and
Arizona. In September 1996, the California Superior Court dismissed many of the
ABBATE plaintiffs' claims as barred by the applicable statutes of limitation.
Certain of the other complaints were also dismissed with prejudice while others
remained pending. In March 1997, all of these actions were settled. The
settlement had no effect on the Partnership or the General Partner.
ACTION AGAINST CENTOCOR, INC.
As previously disclosed in the Partnership's Form 10-K for the year ended
December 31, 1996, the Partnership commenced an action in the Supreme Court of
the State of New York in July 1995 against Centocor arising out of Centocor's
July 1992 transaction with Lilly. In April 1996, the Supreme Court of the State
of New York dismissed the action on the grounds that New York was an
inconvenient forum. Accordingly, the Partnership refiled its claims in Delaware
Superior Court (the "Court").
In 1986, PWDC acted as sales agent for the sale of limited partnership
interests in Centocor Partners II, L.P. ("CP II"), a limited partnership formed
by Centocor for the research and development of Centoxin. The Partnership was
among those who purchased limited partnership interests in CP II.
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 of CP II 50% of Centocor's revenues from the licensing or
sublicensing of Centoxin and 8% of Centocor's revenues from Centoxin sales.
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 50%
of that part to the former limited partners of CP II, including the Partnership.
In or about February 1996, Jerome Petrisko, another former limited partner
of CP II, commenced an action against Centocor on behalf of a class of former
limited partners of CP II in the Pennsylvania Court of Common Pleas. His
complaint was similar to the Partnership's complaint. In April 1996, Mr.
Petrisko amended his complaint to add purported claims against PWDC and PWG. In
February 1997, Mr. Petrisko entered into an agreement with PWDC and PWG pursuant
to which PWDC and PWG agreed to toll the statute of limitations and Mr. Petrisko
agreed to dismiss his claims against them without prejudice. On March 27, 1997,
Mr. Petrisko moved to intervene as a plaintiff in the Partnership's action. The
Court granted that motion on April 7, 1997. On July 7, 1997, Mr. Petrisko
discontinued his Pennsylvania action against PWDC and PWG without prejudice.
<PAGE>
ITEM 3 (CONTINUED)
On September 30, 1997, the Court granted the motions of the Partnership
and Mr. Petrisko for class certification, designating the Partnership and Mr.
Petrisko as the representatives of a class of the former limited partners of CP
II whose interests were acquired by Centocor in February 1992 (the "Class").
On November 7, 1997, Centocor moved for summary judgment.
On February 13, 1998, the Court entered an order granting in part and
denying in part Centocor's motion for summary judgment. The Court held that no
part of the $100 million paid by Lilly to Centocor was for a license or
sublicense. The Court further held that there appeared to be a triable issue
whether some part of that $100 million was for the sale or other disposition of
Centoxin, as to which the Class would be entitled to an 8% royalty.
This action is presently scheduled for trial in June 1998.
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. The
amounts of any recovery and award of legal fees and expenses cannot be estimated
at this time. 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 in accordance with the distribution criteria as outlined under the
section entitled "Distributions" included in this filing on Form 10-K.
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 January 1, 1998, 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, 1997, there were 6,927 limited partners.
The Partnership distributed to its Partners, when available, the net
proceeds from royalty distributions, interest payments on portfolio securities,
net proceeds from dispositions of portfolio securities and any other cash in
excess of amounts that were necessary for the operation and dissolution of the
Partnership. The Partnership made no cash or security distributions for the
years ended December 31, 1997 and 1996. For the year ended December 31, 1995,
the Partnership distributed to its Partners $2,481,752 ($65 per Unit; $24,818 to
the general partnership interest).
ITEM 6. SELECTED FINANCIAL DATA.
See the "Selected Financial Data" 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' deficit approximated $14,000 at December 31, 1996, compared to
approximately $36,000 at December 31, 1997. The increase in partners' deficit
was a result of a net loss of $108,000 (as discussed in Results of Operations
below) offset by a capital contribution from the General Partner of $86,000. The
Partnership does not have available sufficient cash flow to meet working capital
requirements consisting primarily of expenses relating to the dissolution of the
Partnership. Therefore, the General Partner is making, and intends to continue
to make, capital contributions to the Partnership to fund working capital
deficits.
RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year ended December 31, 1996:
Net loss for the years ended December 31, 1997 and 1996 was $108,000 and
$125,000, respectively, resulting from the dissolution of the Partnership
including the satisfaction of Partnership operating liabilities. Revenues for
the Partnership consisted of minimal amounts received from a product development
project and interest income earned on cash balances. Expenses consisted of
general and administrative costs incurred in connection with the dissolution of
the Partnership.
Year ended December 31, 1996 compared to the year ended December 31, 1995:
For the year ended December 31, 1996 the Partnership recognized a net loss
of $0.1 million as compared to net income of $0.9 million for the year ended
December 31, 1995. The decrease of $1.0 million resulted from a decrease in
income from product development projects of $1.1 million offset by a decrease in
expenses of $0.1 million. In 1995, income from product development projects of
$1.1 million consisted primarily of income received from Amgen with respect to
the CPR. On April 1, 1995, the Partnership distributed to its Partners the CPR,
which constituted rights to receive future income from Amgen. The Partnership
received its final CPR payment for the quarter ended March 31, 1995, in the
amount of $1.1 million. The decrease in expenses from $0.2 million in 1995 to
$0.1 million in 1996 was reflective of the decreased activity of the Partnership
resulting from its plan of dissolution.
<PAGE>
ITEM 7 (CONTINUED)
Year 2000
Like other financial and business organizations around the world, the
Partnership could be adversely affected if the computer systems utilized by the
Partnership and other service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Partnership intends to work with the software
vendors to ensure that the Partnership's software is year 2000 compliant. The
Partnership does not expect the incremental expenses associated with the year
2000 and the potential disruption to operations to be significant.
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 Condition (Page F-5)
Statements of Operations (Page F-6)
Statements of Changes in Partners' Capital (Deficit) (Page F-6)
Statements of Cash Flows (Page F-7)
Notes to Financial Statements (Pages F-8 to F-11)
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 and PWDC Holding Company at December 31, 1997.
NAME Age Position and Date Appointed
---- --- ---------------------------
Directors
Dhananjay M. Pai 35 Director since December 1996
Gerald F. Goertz, Jr. 40 Director since April 1995
William J. Nolan 50 Director since February 1997
Executive Officers
Dhananjay M. Pai 35 President since December 1996
William J. Nolan 50 Treasurer since February 1997
Dorothy F. Haughey 73 Secretary since July 1985 for PWDC
Secretary since December 1991 for PWDC
Holding Co.
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.
<PAGE>
(ITEM 10 CONTINUED)
Directors
MR. PAI is a Managing Director of PWI. Before joining the Principal
Transactions Group of PWI in 1990, Mr. Pai was a Vice President in the
Investment Banking Division of Drexel Burnham Lambert from 1988 to 1990. From
1983 to 1988, Mr. Pai held various positions within the Finance Division of
Drexel Burnham Lambert. Mr. Pai is a Director and President of PaineWebber
Capital, an Advisory Board Member of Rifkin Acquisition Partners LLLP, and
either a Director or Officer of certain affiliates of PWI. He holds a Bachelor
of Science degree from Wharton School of Business and a Master of Business
Administration from New York University.
MR. GOERTZ is a Senior Vice President and Director of Specialized
Investment Services of PWI. Prior to joining PWI in December 1990, Mr. Goertz
was with CG Realty Advisors and the Freeman Company. Mr. Goertz received his
Bachelor of Arts degree in Business Administration in 1979 from Vanderbilt
University and his Juris Doctorate and Master of Business Administration from
Memphis State University in 1982.
MR. NOLAN is Treasurer of PaineWebber Group Inc. and Executive Vice
President and Treasurer of PWI. He is a member of PaineWebber's Asset/Liability
Management Commitee. Prior to his employment with PWI in 1984, Mr. Nolan was
with Becker-Paribas and Bankers Trust Company. Mr. Nolan received a Bachelor of
Arts degree from Colgate University and a Master of Business Administration from
Stanford University Graduate School of Business.
EXECUTIVE OFFICERS
MR. PAI, President, see "Directors" above.
MR. NOLAN, Treasurer, see "Directors" above.
MS. HAUGHEY, Secretary, joined PWI in 1962. She is the Secretary of PWI.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
No compensation was paid to executive officers 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.
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, 1998 of more than five percent of the Registrant's Units.
CLASS NAME AND ADDRESS AMOUNT PERCENT OF CLASS
- ----- ---------------- ------ ----------------
Limited Lincoln National Life 2,875 Units 7.61%
Partnership Insurance Company
Units Fort Wayne, IN 46801-0214
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-11 included in this filing on Form 10-K.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT 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 (Deficit) (Page F-6)
Statements of Cash Flows (Page F-7)
Notes to Financial Statements (Pages F-8 to F-11)
REPORTS ON FORM 8-K
None.
<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 31st day of
March 1998.
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(General partner of the General Partner)
By: /s/ Dhananjay M. Pai
--------------------
Dhananjay M. Pai
President and Principal Executive Officer
By: /s/ Anthony M. DiIorio
----------------------
Anthony M. DiIorio
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 31st day of March
1998.
/s/ Dhananjay M. Pai
-----------------------------
Dhananjay M. Pai
President (principal executive officer) and Director
/s/ William J. Nolan
-----------------------------
William J. Nolan
Director
/s/ Gerald F. Goertz, Jr.
-----------------------------
Gerald F. Goertz, Jr.
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>
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 F-2
Quarterly Financial Information (Unaudited) F-3
Report of Independent Auditors F-4
Statements of Financial Condition
at December 31, 1997 and 1996 F-5
Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 F-6
Statements of Changes in Partners' Capital (Deficit)
for the years ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 F-7
Notes to Financial Statements F-8 to F-11
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.
F-1
<PAGE>
<TABLE>
<CAPTION>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Selected Financial Data
- -------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 2,079 $ 14,339 $ 1,092,017 $ 4,569,297 $ 7,297,680
Net income (loss) $ (107,926) $ (124,705) $ 842,826 $ 4,293,920 $ 3,954,638
Net income (loss) per partnership unit:
Limited partners (A) $ - $ (2.91) $ 22.07 $ 112.46 $ 103.58
General partner $(107,926.00) $ (14,806.00) $ 8,428.26 $ 42,939.20 $ 39,546.38
Financial Condition:
Total assets $ 12,245 $ 24,834 $ 182,437 $ 1,884,535 $ 3,717,440
Partners' capital (deficit) $ (35,741) $ (13,927) $ 90,065 $ 1,728,991 $ 3,620,361
Distributions to partners $ - $ - $ 2,481,752 $ 6,185,290 $ 8,415,051
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Based on 37,799 partnership units.
F-2
<PAGE>
<TABLE>
<CAPTION>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
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 1997
4th Quarter $ (423) $ (21,435) $ - $ (21,435.00)
3rd Quarter 286 (20,963) - (20,963.00)
2nd Quarter 958 (30,181) - (30,181.00)
1st Quarter 1,258 (35,347) - (35,347.00)
- -------------------------------------------------------------------------------------------------------------
Calendar 1996
4th Quarter $ 5,561 $ (24,037) $ (0.28) $ (13,799.32)
3rd Quarter 2,550 (43,558) (1.14) (435.58)
2nd Quarter 3,510 (26,004) (0.68) (260.04)
1st Quarter 2,718 (31,106) (0.81) (311.06)
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Based on 37,799 limited partnership units and a 1% general partnership
interest.
F-3
<PAGE>
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, 1997 and 1996, and the related
statements of operations, changes in partners' capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young
New York, New York
March 23, 1998
F-4
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
- --------------------------------------------------------------------------------
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
Assets:
Cash $ 12,245 $ 22,634
Royalty income receivable - 2,200
--------------- ---------------
Total assets $ 12,245 $ 24,834
=============== ===============
- --------------------------------------------------------------------------------
Liabilities and partners' deficit:
Accrued liabilities $ 47,986 $ 38,761
Partners' deficit (35,741) (13,927)
--------------- ---------------
Total liabilities and partners' deficit $ 12,245 $ 24,834
=============== ===============
- --------------------------------------------------------------------------------
See notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
- ---------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest income $ 819 $ 4,602 $ 26,706
Income from product development
projects 1,260 9,737 1,075,767
Realized loss on sale of
marketable securities - - (10,456)
------------ ------------- --------------
2,079 14,339 1,092,017
------------ ------------- --------------
Expenses:
General and administrative costs 110,005 139,044 249,191
------------ ------------- --------------
Net income (loss) $ (107,926) $ (124,705) $ 842,826
============ ============= ============
Net income (loss) per partnership unit:
Limited partners (based on 37,799
units) $ - $ (2.91) $ 22.07
General partner $(107,926.00) $ (14,806.00) $ 8,428.26
- ---------------------------------------------------------------------------------------------------------
Statements of Changes in Partners' Capital (Deficit)
Years ended December 31, 1997, 1996 and 1995
- ---------------------------------------------------------------------------------------------------------
Limited General
Partners Partner Total
- ---------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 $ 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
Net loss (109,899) (14,806) (124,705)
Capital contribution - 20,713 20,713
------------- ------------- ------------
Balance at December 31, 1996 - (13,927) (13,927)
Net loss - (107,926) (107,926)
Capital contribution - 86,112 86,112
------------- ------------- ------------
Balance at December 31, 1997 $ - $ (35,741) $ (35,741)
============= ============= ============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
- ---------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (107,926) $ (124,705) $ 842,826
Decrease (increase) in operating assets:
Marketable securities - 105,814 420,688
Interest receivable - 581 985
Royalty income receivable 2,200 (700) 1,329,300
Increase (decrease) in accrued liabilities 9,225 (53,611) (63,172)
------------- ------------- ------------
Cash (used for) provided by operating
activities (96,501) (72,621) 2,530,627
------------- ------------- ------------
Cash flows from financing activities:
Partner contributions 86,112 20,713 -
Distributions to partners - - (2,481,752)
------------- ------------- ------------
Cash provided by (used for) financing
activities 86,112 20,713 (2,481,752)
------------- ------------- ------------
(Decrease) increase in cash (10,389) (51,908) 48,875
Cash at beginning of year 22,634 74,542 25,667
------------- ------------- ------------
Cash at end of year $ 12,245 $ 22,634 $ 74,542
============= ============= =============
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the years ended
December 31, 1997, 1996 and 1995.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
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 with a total of $62.1
million available for investment. PWDC Holding Company 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
Paine Webber Development Corporation ("PWDC"), an indirect, wholly owned
subsidiary of Paine Webber 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.
The General Partner has commenced with the dissolution of the
Partnership's assets but does not intend to terminate the Partnership until a
lawsuit with Centocor, Inc. ("Centocor") has been fully resolved (see Note 5).
On April 1, 1995, the Partnership distributed its contingent payment rights
("CPR") due from Amgen Inc. ("Amgen") through the year 2005 from the sale of
Neupogen(R) to its General Partner and limited partners (the "Limited Partners",
collectively, the "Partners"), but continued to receive CPR payments on account
of, and for payment to, the Partners. Such continuing CPR payments are no longer
available to pay any expenses of the Partnership. In December 1996, the
Partnership and Amgen entered into a Consent Agreement permitting PWDC to assume
the ongoing responsibility for receiving the CPR payments and making the
corresponding payments to the Partners. Currently, the Partnership does not have
available sufficient cash flow to meet working capital requirements (consisting
primarily of expenses relating to the dissolution of the Partnership). The
General Partner is making, and intends to continue to make, capital
contributions to the Partnership to fund working capital deficits until such
time as the Partnership is terminated.
F-8
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 1 CONTINUED)
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:
<TABLE>
<CAPTION>
Limited General
Partners Partner
-------- -------
<S> <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 ("Contribution Payout"). At
December 31, 1997, Contribution Payout was $3,283 per Unit . . . . . . . . . . . . 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%
</TABLE>
During the year ended December 31, 1997, the Partnership made no cash or
security distributions. As of December 31, 1997, the Partnership has made cash
and security distributions, as valued on the dates of distribution, since
inception of $889 and $593 per Unit, respectively. The cash and security
distributions do not include distributions made in connection with the CPR
through December 31, 1997, in the amount of $338 per Unit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally accepted
accounting principles which require management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
PWDC and PaineWebber Incorporated ("PWI") 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.
The money market fund invested in by the Partnership is managed by an
affiliate of PWI.
F-9
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. 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.
5. LEGAL PROCEEDING
ACTION AGAINST CENTOCOR, INC.
The Partnership commenced an action in the Supreme Court of the State of
New York in July 1995 against Centocor arising out of Centocor's July 1992
transaction with Eli Lilly & Company ("Lilly"). In April 1996, the Supreme Court
of the State of New York dismissed the action on the grounds that New York was
an inconvenient forum. Accordingly, the Partnership refiled its claims in
Delaware Superior Court (the "Court").
In 1986, PWDC acted as sales agent for the sale of limited partnership
interests in Centocor Partners II, L.P. ("CP II"), a limited partnership formed
by Centocor for the research and development of Centoxin. The Partnership was
among those who purchased limited partnership interests in CP II.
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 of CP II 50% of Centocor's revenues from the licensing or
sublicensing of Centoxin and 8% of Centocor's revenues from Centoxin sales.
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 50%
of that part to the former limited partners of CP II, including the Partnership.
In or about February 1996, Jerome Petrisko, another former limited partner
of CP II, commenced an action against Centocor on behalf of a class of former
limited partners of CP II in the Pennsylvania Court of Common Pleas. His
complaint was similar to the Partnership's complaint. In April 1996, Mr.
Petrisko amended his complaint to add purported claims against PWDC and PWG. In
February 1997, Mr. Petrisko entered into an agreement with PWDC and PWG pursuant
to which PWDC and PWG agreed to toll the statute of limitations and Mr. Petrisko
agreed to dismiss his claims against them with prejudice. On March 27, 1997, Mr.
Petrisko moved to intervene as a plaintiff in the Partnership's action. The
Court granted that motion on April 7, 1997. On July 7, 1997, Mr. Petrisko
discontinued his Pennsylvania action against PWDC and PWG without prejudice.
F-10
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(NOTE 5 CONTINUED)
On September 30, 1997, the Court granted the motions of the Partnership
and Mr. Petrisko for class certification, designating the Partnership and Mr.
Petrisko as the representatives of a class of the former limited partners of CP
II whose interests were acquired by Centocor in February 1992 (the "Class").
On November 7, 1997, Centocor moved for summary judgment.
On February 13, 1998, the Court entered an order granting in part and
denying in part Centocor's motion for summary judgment. The Court held that no
part of the $100 million paid by Lilly to Centocor was for a license or
sublicense. The Court further held that there appeared to be a triable issue
whether some part of that $100 million was for the sale or other disposition of
Centoxin, as to which the Class would be entitled to an 8% royalty.
This action is presently scheduled for trial in June 1998.
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. The
amounts of any recovery and award of legal fees and expenses cannot be estimated
at this time. 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 in accordance with the distribution criteria as outlined in Note 1.
F-11
<PAGE>
EXHIBIT A
PAINEWEBBER R&D PARTNERS, L.P. ANNUAL REPORT 1997
- --------------------------------------------------------------------------------
LETTER TO LIMITED PARTNERS
To Our Limited Partners:
PaineWebber R&D Partners, L.P. ("R&D Partners" or the "Partnership") was formed
in 1986 to provide long term capital appreciation to investors through investing
in the development and commercialization of new products. The dissolution of the
Partnership commenced in October 1994 and it is anticipated that the Partnership
will terminate upon the conclusion of the litigation involving the Partnership
and Centocor, Inc. ("Centocor"). Currently, the Partnership has no material
assets and the expenses incurred with the dissolution are being funded by the
general partner, Paine Webber Development Corporation ("PWDC").
In July 1995, R&D Partners commenced an action against Centocor arising out of
Centocor's transaction with Eli Lilly & Co. ("Lilly"). Centocor entered into a
set of agreements with Lilly in 1992 for the stated purposes of Lilly making an
equity investment in Centocor and furthering the testing and eventual
distribution of Centoxin, a Centocor drug. R&D Partners claims that former
limited partners of Centocor Partners II, L.P. ("CP II"), including R&D
Partners, are entitled to a percentage of the payments that Lilly made to
Centocor pursuant to those agreements.
On September 30, 1997, the court granted the motions of the Partnership and a
former limited partner of CP II for class certification, designating the
Partnership and the former limited partner as the representatives of a class of
the former limited partners of CP II, whose interests were acquired by Centocor
in February, 1992 (the "Class"). On November 7, 1997, Centocor moved for summary
judgment. */1
In April 1995, the Partnership distributed the contingent payment rights
("CPRs") from Amgen Inc. ("Amgen") to the limited partners of R&D Partners.
Holders of the CPRs are entitled to receive quarterly payments from Amgen
through 2005 which are derived from sales of Amgen's drug, Neupogen(R). Neupogen
is a FDA-approved drug for the broad use in the cancer chemotherapy setting to
decrease the incidence of infection in patients receiving certain anti-cancer
drugs that suppress blood cell protection. Neupogen is also used for the
reduction in the duration of neutropenia (low white blood cell count) in
patients with malignancies undergoing chemotherapy followed by bone marrow
transplantation. In addition, there are current applications for chronic
administration to reduce the incidence and duration problems related to
neutropenia in patients with severe chronic neutropenia. Neupogen is currently
being evaluated for other indications in clinical trials. For 1997, Amgen
reported Neupogen sales of $1.06 billion, a four percent increase over 1996.
In December 1996, PWDC assumed from the Partnership the ongoing obligations for
the distribution to the CPR holders of quarterly cash payments arising from the
Amgen CPRs through 2005. PWDC's obligation to facilitate the Amgen CPR quarterly
cash payments is independent of the Partnership and will extend beyond the
termination of the Partnership.
- -----------------------------------------
*/1 On February 13, 1998, the court entered an order granting in part and
denying in part Centocor's motion for summary judgment. The court held that no
part of the $100 million paid by Lilly to Centocor was for a license or
sublicense. The court further held that there appeared to be a triable issue
whether some part of the $100 million was for the sale or other disposition of
Centoxin, as to which the Class would be entitled to an 8% royalty. This action
is presently scheduled for trial in June, 1998.
<PAGE>
Through December 31, 1997, for every $3,700 (*/2) investment in R&D Partners,
limited partners have received cash distributions totaling $2,455, including
distributions from the CPRs totaling $677.
In addition, limited partners received warrants to purchase 96 shares of Amgen
common stock at a price of $8.20 per share through June 1992 and at a price of
$9.03 from July 1992 through June 1994. The available gain from the Amgen
warrants ranged from $713 at distribution to $6,725 for each $3,700 investment
in R&D Partners. Limited partners also received warrants to purchase 24 shares
of Centocor common stock at a price of $18.995 per share through November 1991
and at a price of $21.495 per share from December 1991 through November 1993.
The available gain from the Centocor warrants ranged from $474 at distribution
to $990 for each $3,700 investment in R&D Partners.
R&D Partners originally invested in a portfolio of eight product development
programs. Six of those programs were either terminated or concluded by the end
of 1993. Please refer to prior R&D Partners Annual Reports for a detailed
history of the Partnership's investments.
Thank you for your continued interest in R&D Partners.
Sincerely,
Robin Stanley
Vice President
- -----------------------------------------
*/2 R&D Partners was sold in $2,500 units, of which $1,850 was invested in R&D
Partners and $650 was invested in zero coupon bonds. The minimum investment was
$5,000, of which $3,700 was invested in R&D Partners.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000770470
<NAME> PAINEWEBBER R&D PARTNERS, L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,245
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,245
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,245
<CURRENT-LIABILITIES> 47,986
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (35,741)
<TOTAL-LIABILITY-AND-EQUITY> 12,245
<SALES> 0
<TOTAL-REVENUES> 2,079
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 110,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (107,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,926)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
