SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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PAINEWEBBER R&D PARTNERS II, L.P.
(Name of Subject Company)
PAINEWEBBER R&D PARTNERS II, L.P.
(Name of Person(s) Filing Statement)
---------------
LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
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Dhananjay M. Pai
President
PaineWebber Development Corporation
1285 Avenue of the Americas
New York, New York 10019
(212) 713-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
with a copy to:
James M. Dubin, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company to which this Solicitation/
Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9") relates is
PaineWebber R&D Partners II, L.P., a Delaware limited partnership (the
"Partnership"). The address of the principal executive offices of the
Partnership is 1285 Avenue of the Americas, New York, New York 10019. The equity
securities to which this Schedule 14D-9 relates are the limited partnership
units (the "Units") of the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer by PharmaInvest,
L.L.C., a Delaware limited liability company (the "Offeror"), on behalf of
Pharmaceutical Royalties, L.L.C., a Delaware limited liability company and
Pharmaceuticals Royalty Investments Ltd., a Bermuda company (together, the
"Funds"), to purchase up to 3,000 outstanding Units (representing approximately
36.3% of the Units) at a price per Unit of $6,000, net to the seller in cash,
which price will be automatically reduced by the aggregate amount of any cash or
asset distributions made or declared by the Partnership on or after March 3,
1999 and prior to either the date on which the Offeror pays the purchase price
for the Units in the case of a distribution in cash or, in the case of a
distribution of assets, the date the assets are to be assigned to the Offeror
(on March 15, 1999, the Partnership made a cash distribution of $175 per Unit),
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated March 3, 1999, and the related Letter of Transmittal (which together
constitute the "Offer").
According to the Tender Offer Statement on Schedule 14D-1, dated March
3, 1999, filed by the Offeror with the Securities and Exchange Commission (the
"Commission"), the address of the principal executive offices of the Offeror is
70 East 55th Street, New York, NY 10022.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership, which is the
person filing this Schedule 14D-9, are set forth in Item 1 above. PWDC Holding
Company (the "Manager") is the general partner of PaineWebber Technologies II,
L.P. (the "General Partner"), which is the general partner of the Partnership.
The Manager is a wholly-owned subsidiary of PaineWebber Development Corporation
("PWDC"), an indirect wholly-owned subsidiary of Paine Webber Group Inc.
(b) Each material contract, agreement, arrangement or understanding and
actual or potential conflict of interest between the Partnership and its
affiliates and (i) its executive officers, directors or affiliates and (ii) the
Offeror, its executive officers, directors or affiliates, is set forth below.
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(i) Arrangements with Executive Officers, Directors and
affiliates of the Partnership.
Prior to July 1, 1996, the Manager received an annual management fee
for management and administrative services provided to the Partnership in an
amount equal to 2% of the aggregate gross proceeds received by the Partnership,
reduced by the Partnership's capital commitment in projects that have been
concluded, and the final proceeds of which, if any, have been distributed to the
General Partner and the limited partners in the Partnership (the "Limited
Partners"). The management fee was payable quarterly in advance and was adjusted
annually on the first day of each fiscal year in an amount proportionate to the
increase in the prior year in the Consumer Price Index by the United States
Department of Labor. Commencing July 1, 1996, the Manager elected to discontinue
the management fee charged to the Partnership.
PaineWebber Capital, Inc. and ATL Inc., which are affiliates of the
Partnership, own 77 and 17.5 Units, respectively, and do not intend to tender
their Units in the Offer.
In July 1996, PaineWebber Incorporated ("PWI") entered into a
settlement agreement (the "Settlement") in connection with a class action
lawsuit against 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. Under the terms of the Settlement, PWI has, among other things,
agreed to pay the class $125 million (which had previously been deposited in
escrow with the United States Court for the Southern District of New York) and
certain additional consideration. The additional consideration includes the
assignment of fees and income attributable to the general partnership interest
of the Partnership as well as guarantees of certain minimum returns to class
members. PWI will guarantee that members of the plaintiff class will receive in
distributions and fair market value as of December 31, 2000 at least the par
value (of $10,000) per Unit. To date, the Partnership has distributed $10,713
per Unit in cash and in kind. Accordingly, no payments will be made by PWI under
the guarantee provided for in the Settlement with respect to the Units.
(ii) Arrangements with Executive Officers, Directors and
affiliates of the Offeror.
The Offer states that Stephen Evans-Freke, Rory Riggs and David Madden
are members of Pharmaceutical Partners, L.L.C., which manages the Offeror and is
the sole member of the Offeror. Mr. Evans-Freke was President of PWDC until May
1990; Mr. Riggs was a Managing Director of PWI until November 1990; and Mr.
Madden was an associate at PWDC until February 1992. Messrs. Evans- Freke and
Madden were directly involved in and responsible for identifying and selecting
the investments in which the Partnership invested. In addition, Messrs.
Evans-Freke and Madden were directly involved in structuring, negotiating
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and managing the Partnership and its assets. Since the termination of their
employment as indicated, none of Mr. Evans-Freke, Mr. Riggs or Mr. Madden has
been associated with, or employed by, PWDC, PWI or any of their affiliates.
Under the PaineWebber Development Corporation Carried Interest Sharing
Plan (the "CISP"), fixed percentages of certain warrants and the cash
distributions received by PWDC in respect of certain partnerships in which PWDC
has invested are awarded to participants in the CISP, including Mr. Evans-Freke
and Mr. Madden. Mr. Evans-Freke and Mr. Madden are entitled to receive between
5% and 7% and between 0.85% and 4%, respectively, of amounts distributed to CISP
participants in respect of such partnership investments. Since the respective
dates of their termination of employment with PWDC through December 31, 1998,
Messrs. Evans-Freke and Madden received $2,038,419.77 and $196,472.02,
respectively, in respect of distributions under the CISP.
Pursuant to a confidentiality agreement, dated May 13, 1997 (the "1997
Confidentiality Agreement"), between an affiliate of the Offeror and the
Partnership, the Partnership agreed to make available to such affiliate, in
connection with its consideration of the 1997 Offer (as defined in Item 4(b)
below), and such affiliate of the Offeror agreed to keep confidential, certain
information concerning the Partnership's pending action (the "Centocor
Litigation") against Centocor, Inc. ("Centocor") and Centocor Development
Corporation III in the Chancery Court of Delaware (the "Court") arising from the
Partnership's former partnership interest in Centocor Partners III, L.P.
("CPIII") and currently represented by CPIII Contingent Payment Rights ("CPRs"),
and certain agreements entered into by Centocor and Eli Lilly & Company (which
is more fully described in the Partnership's Form 10-Q for the quarter ended
September 30, 1998). The 1997 Confidentiality Agreement expired by its terms on
August 15, 1997.
By letter to the General Partner, dated February 18, 1999 (the "List
Undertaking") (the terms of which letter had been agreed to with representatives
of the General Partner), an affiliate of the Offeror requested use of the list
(the "List") of the names, addresses and security positions of the Limited
Partners. In support of the request for the List, representatives of the Offeror
stated in such letter, among other things, that such affiliate (i) will hold the
List in strict confidence, and will not give any information derived from the
List to any third party for any purpose whatsoever, except that it may provide
the List to any information or other agent retained to act on its behalf in
connection with any tender offer for the Units so long as such information or
other agent is advised of the confidential nature of the List and agrees to use
the List solely in connection with such proposed tender offer (with the Offeror
responsible for any breach of these undertakings by such information or other
agent); (ii) will comply fully with the requirements of the Securities Exchange
Act of 1934 and the rules of the Commission thereunder, including full
disclosure of all material facts and, in the case of any tender offer, rights of
proration and withdrawal rights, irrespective of the number of Units sought to
be acquired in such tender offer;
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(iii) acknowledges that the Partnership's Agreement of Limited Partnership
provides that, prior to the transfer of any Units, the General Partner shall
have consented in writing to the assignment, which consent may be withheld in
the absolute discretion of the General Partner; (iv) acknowledges that the
General Partner may withhold consent, if, among other reasons, the General
Partner concludes based upon the advice of counsel, that such acquisition would
increase the risk of adverse tax consequences to the Partnership or its partners
and that in the event the General Partner withholds its consent for any number
of Units sought to be purchased, it will refrain from acquiring Units of the
number so withheld (see Item 8); (v) undertakes not to solicit directly, and
will instruct its information and other agents not to solicit directly, any
PaineWebber broker with respect to the tender offer, provided that if a
PaineWebber broker contacts the Offeror or its information agent, either may
provide such person with the same information as is provided to any other person
who contacts the Offeror or its information agent with respect to such tender
offer; (vi) within 30 days after the completion of such tender offer, will
return the List including any and all copies of the List and any related summary
material together with any other materials provided by the Partnership; and
(vii) will ensure that any solicitation of Limited Partners that will be
undertaken by it or its information or other agents will be conducted in a
professional and reasonable manner which will respect the privacy and rights of
Limited Partners. A copy of the List Undertaking is attached to this Schedule
14D-9 as Exhibit 3 and is incorporated herein by reference.
Effective as of October 8, 1997, the General Partner consented to the
transfer of 849 Units to a person the General Partner has been advised is an
affiliate of the Offeror in connection with the 1997 Offer. From October 9, 1997
through October 1, 1998, the General Partner consented to the transfer of 46
Units by persons the General Partner has been advised are affiliates of the
Offeror. Effective January 1, 1999, the General Partner consented to the
transfer of 614 Units to persons the General Partner has been advised are
affiliates of the Offeror. In addition, the General Partner has received from
persons it believes are affiliates of the Offeror requests for the transfer of
six additional Units. At the date of the Offer, the Offeror and persons the
Partnership has been advised are affiliates of the Offeror owned 1,521.5 Units
or 18.43% of the outstanding Units.
The Partnership charges each purchaser of Units a $50 processing fee
for each purchase of Units, which fee was charged in connection with the
purchases described above and will be charged to the Offeror with respect to
each purchase of Units by the Offeror pursuant to the Offer.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the General Partner.
AS MORE FULLY DESCRIBED BELOW, THE GENERAL PARTNER RECOMMENDS THAT THE
LIMITED PARTNERS REJECT THE OFFER AND NOT TENDER THEIR UNITS PURSUANT TO THE
OFFER.
(b) Background of the Offer.
On March 26, 1997, the Partnership received an unsolicited letter from
a person the General Partner has been advised is an affiliate of the Offeror in
which such affiliate offered to purchase for $23 million in cash all of the
assets of the Partnership reported in the Partnership's Form 10-Q for the
quarter ended September 30, 1996. The affiliate of the Offeror also stated in
such letter that in "lieu of acquiring all of the assets of the Partnership,
[it] would consider an offer of equivalent value (taking into account the then
existing and potential liabilities of the Partnership) in a negotiated merger
transaction in which [it] would acquire for cash all of the outstanding" Units.
During April 1997, representatives of the Partnership, including Mr.
Dhananjay Pai, the President of PWDC, had several telephone conversations with
representatives of a person the General Partner has been advised is an affiliate
of the Offeror in which the representatives of the Partnership stated that a
material development concerning the Centocor Litigation might occur shortly and
the Partnership's requirement that before any further information concerning
such settlement could be disclosed to such affiliate, the affiliate would be
required to enter into a confidentiality agreement. On May 13, 1997, the
affiliate and the Partnership entered into the 1997 Confidentiality Agreement
and certain information concerning the Centocor Litigation was disclosed to the
affiliate of the Offeror.
In a meeting on June 9, 1997 between representatives of the
Partnership, including Mr. Pai and counsel to the Partnership, and the
representatives of the affiliate of the Offeror, the affiliate of the Offeror
advised the Partnership that it believed that adequate consideration for the
purchase by the affiliate of the Offeror of all of the Partnership's assets
described in the Partnership's Form 10-K for the year ended December 31, 1996
would be $29 million in cash, or approximately $3,500 per Unit. Representatives
of the affiliate of the Offeror stated that if their indication of value of the
Partnership's assets was in accord with the Partnership's valuation of its
assets, the affiliate of the Offeror would proceed with a definitive offer for
such assets. Representatives of the Partnership responded that the Partnership
would consider the affiliate's indication of value of the Partnership's assets
and would reexamine the valuation of the Partnership's assets that it had
prepared in preparation for such meeting, but that based on such valuation, the
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affiliate's indication of value of the Partnership's assets was substantially
below the Partnership's valuation of its assets.
By letter, dated June 10, 1997, to the General Partner, the affiliate
of the Offeror outlined certain assumptions used by it in arriving at its
valuation of the Partnership's assets. On June 19, 1997, the Board of Directors
of the Manager (the "Board") met to consider the affiliate's indication of value
of the Partnership's assets and the valuation issues addressed in the letter of
June 10, 1997. At this meeting, the Board, together with representatives of the
Manager and PWDC, reviewed the valuation prepared by such representatives
following the June 9, 1997 meeting, including the assumptions and methodologies
used in the valuation of each of the Partnership's assets, and unanimously
determined that the affiliate's indication of value of $29 million for the
Partnership's assets was financially inadequate. Subsequent to the Board meeting
of June 19, 1997, representatives of the Partnership informed the affiliate of
the Offeror of the Board's determination.
On July 23, 1997, following certain discussions between representatives
of the Partnership and the affiliate of the Offeror, the affiliate furnished an
undertaking to the General Partner substantially similar to the List Undertaking
and on August 8, 1997, the General Partner provided the then current List to the
affiliate of the Offeror.
On August 15, 1997, a person the General Partner has been advised is an
affiliate of the Offeror commenced a tender offer (the "1997 Offer") to purchase
any and all outstanding Units (which was subsequently amended to an offer to
purchase only up to 4,000 Units) at a price per Unit of $3,650, net to the
Seller in cash. On August 18, 1997, following the making of the 1997 Offer, the
Board considered the terms of the 1997 Offer, and for the reasons discussed in
the Partnership's Schedule 14D-9, dated August 19, 1997, as amended on September
29, 1997, determined that the 1997 Offer was financially inadequate and that the
Partnership should recommend to the Limited Partners that they reject the 1997
Offer and not tender their Units to the affiliate of the Offeror in the 1997
Offer. In connection with the 1997 Offer, management of the General Partner
concluded that a reasonable range of values at that time for the Partnership's
assets on a per Unit basis to be $5,555 to $6,965. See Item 4(c)(1) below.
Pursuant to the 1997 Offer, the affiliate of the Offeror purchased 849 Units, or
approximately 10% of the Units then outstanding.
In August 1998, the Offeror made a tender offer for any and all of the
outstanding CPIII Class A CPRs, including the 22 Class A CPRs owned by the
Partnership, at a price of $205,000 in cash for each Class A CPR, with tenderors
receiving the CPR distributions for the quarter ended June 30, 1998 and the
Offeror receiving any subsequent distributions, including any distributions
arising out of the Centocor Litigation. By letter, dated August 14, 1998, to the
Manager from a person the General Partner has been advised is an affiliate of
the Offeror, such affiliate stated
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that it "would be willing to acquire the Class C CPRs owned by the" Partnership
at a price which would be "equivalent" to the Class A tender offer price, but
would take "into account the greater cash flow payable on the Class C CPRs." At
a meeting of the Board on August 27, 1998, the Board determined not to tender
its Class A CPRs or sell its Class C CPRs to the Offeror because, in the opinion
of the Board, the price being offered was financially inadequate.
On February 10, 1999, a representative of a person the Partnership has
been advised is an affiliate of the Offeror orally requested the List. By
letter, dated February 11, 1999, such representative again requested the List
and stated that the request was being made with the intention of the Offeror
"launching a registered tender offer for Units in the Partnership very shortly
. . . at close to three times" the price offered by SkyRise Investors LLC
("SkyRise"). On February 8, 1999, SkyRise had commenced a tender offer for 4.9%
of the Units at a price of $2,200 per Unit.
On February 18, 1999, the General Partner received the List
Undertaking. On February 24, 1999, the General Partner provided the List to the
Offeror pursuant to the List Undertaking. By letter, dated March 1, 1999, an
affiliate of the Offeror furnished the General Partner with a draft of the Offer
documents. By letter, dated March 3, 1999, the General Partner stated to the
affiliate of the Offeror that the disclosure obligations with respect to the
Offer documents were the Offeror's and, therefore, the Partnership would not, at
such time, be passing or commenting on the Offer documents.
On March 3, 1999, the Offeror commenced the Offer.
On March 8, 1999, the Board considered the terms of the Offer, and
primarily because of uncertainty at that time regarding the Court's approval of
the settlement of the Centocor Litigation, the Board determined that the
Partnership should not express any opinion about and should remain neutral
toward the Offer.
On March 15, 1999, the Court approved the settlement of the Centocor
Litigation. On March 16, 1999 the Board again considered the terms of the Offer
in light of the Court's approval of the settlement, and determined that the
Offer was financially inadequate and that the Partnership should recommend to
the Limited Partners that they reject the Offer and not tender their Units to
the Offeror in the Offer.
(c) Factors Considered by the Board.
The Board's determination that the Offer is financially inadequate and
its recommendation that the Limited Partners reject the Offer and not tender
their Units to the Offeror in the Offer are based on a number of factors
including, but not limited to, the following:
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1. The opinion of management of PWDC and the Manager that the
Offer is financially inadequate.
As previously disclosed to the Limited Partners, the parties to the
Centocor Litigation entered into an agreement in June 1997 to settle the
Centocor Litigation. In June 1997, the Court entered an order preliminary
approving the settlement agreement. Two limited partners of CPIII objected to
the proposed settlement. On September 4, 1997, the Court held a hearing to
determine whether the proposed settlement should be approved and reserved
decision. On March 15, 1999, the Court approved the settlement, the terms of
which are described below. The Court's approval of the settlement becomes
effective when the Court's order and final judgment are either finally affirmed
on appeal by the Supreme Court of the State of Delaware or, by lapse of time or
otherwise, shall no longer be subject to appeal to the Supreme Court of
Delaware.
In response to the Offer, management undertook a valuation of each of
the Partnership's assets. To arrive at a possible value for the CP III - related
assets owned by the Partnership, management utilized the terms of the settlement
of the Centocor Litigation, which provides that Centocor will pay to CPIII
investors (including the Partnership) (A) in the aggregate $10.8 million, net of
attorneys' fees and expenses as may be awarded by the Court, (B) an additional
$5.0 million, if and when cumulative world-wide sales of ReoPro exceed $600
million, (C) possible additional payments totaling $2.2 million, depending upon
regulatory developments in Japan, and (D) a revision to the royalties payable by
Centocor to CPIII investors with respect to ReoPro through 2007 (as revised for
1997 and 1998, Centocor would pay an aggregate of 6.5% of the first $175 million
of United States end-sales revenues, 3.25% of such revenues above $175 million
and 3.25% of foreign end-sales revenues and for 1997 through 2007 Centocor would
pay an aggregate of 6.5% of the first $250 million of United States end-sales
revenues, 4.0% of such revenues above $250 million and 3.25% of foreign
end-sales revenues). To determine possible future sales levels of ReoPro,
management utilized the median of sales projections for ReoPro prepared by Wall
Street analysts not affiliated with the Partnership (for the accuracy of which
none of the General Partner, the Manager, the Partnership nor any of their
affiliates assumes responsibility). To arrive at a present value of the CPIII
related assets, the resulting value was discounted by rates ranging from 14% to
20%. Based on this analysis, management estimated that a reasonable range of
present values of the CPIII - related assets owned by the Partnership, to be
$6,077 to $7,327 per Unit.
Management estimated that a reasonable value for the remaining assets
of the Partnership (which includes certain securities and cash held by the
Partnership) on a per Unit basis to be approximately $500. Based on the
foregoing, management concluded that a reasonable range of present values for
all the Partnership's assets on a per Unit basis to be $6,585 to $7,835, making
the Offer a discounted amount of approximately 9% to 23% of such range of
present values.
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The estimated range of present values of the CPIII - related assets
owned by the Partnership arrived at by management in connection with the Offer
is higher than the range of present values arrived at by management in response
to the 1997 Offer of $4,496 to $5,535 per Unit. This difference arises primarily
because the Wall Street analysts have significantly increased their sales
projections for ReoPro. The median of the Wall Street sales projections for
ReoPro examined by management in connection with the 1997 Offer ranged from a
low of $433 million in 1999 to a peak of $724 million for 2003 through 2007. The
median of the Wall Street sales projections for ReoPro examined by management in
connection with the Offer ranged from a low of $450 million in 1999, to a peak
of $961 million in 2004 and to a final median sales projection for 2007 of $824
million.
Management noted that while there is a limited secondary market for
Units, the prices realized by sellers in such market are generally significantly
discounted from the values of the assets underlying the Units and have
historically been significantly lower than the price offered in the Offer. While
the price being offered in the Offer is below the reasonable range of values
estimated by management for the Partnership's assets, management noted that the
Offer may be the best short-term opportunity for liquidity available to holders
who wish to liquidate their Units.
Management also noted that in arriving at the estimated range of
present values of $6,585 to $7,835 per Unit, it was generally required to make
certain assumptions regarding product sales, competitive products and general
company conditions, many of which assumptions are based on factors beyond the
control of the General Partner, the Partnership or any of their affiliates. It
is possible that the actual value of the Partnership's assets may be more or
less than indicated, and management, the General Partner and the Partnership are
unable to provide any assurance that the actual value that may be realized by
the Partnership or any Limited Partner would be as indicated by such range of
values.
2. The possibility that the Offeror and its affiliates could
acquire control of the Partnership through the Offer.
At the date of the Offer, the Offeror and persons the Partnership has
been advised are affiliates of the Offeror, owned 1,521.5 Units, or 18.43% of
the outstanding Units. While the Offeror has stated in its Offer documents that
the Offeror "does not currently intend to make any effort to change the
management or operations of the Partnership and has no current plans for any
extraordinary transaction regarding the Partnership", and the General Partner
will withhold its consent to any transfer of Units under the circumstances
described in Item 8 below, the Offeror could change its intentions. Should the
Offeror acquire more than 31.56% of the outstanding Units (or 2,606 Units), the
Offeror and its affiliates would own more than 50% of the outstanding Units.
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The Partnership's Agreement of Limited Partnership provides that the
holders of a majority of the outstanding Units can (i) cause the sale of all the
Partnership's assets, (ii) amend any provision of the Partnership's Agreement of
Limited Partnership and (iii) remove the General Partner.
3. The General Partner's belief that in order for the Offeror
to realize any significant return on its investment, the Offeror is required to
purchase the Units at a substantial discount from fair market value.
The General Partner bases this belief on the passive nature of the
assets held by the Partnership, which consist primarily of product royalty
rights whose value is derived from product sales and whose value cannot be
affected by the holder of the royalty right.
4. The General Partner's commitment to protecting the
interests of the Limited Partners.
Neither the General Partner nor any of its affiliates currently
receives any fees or other economic benefit from the Partnership, and the
General Partner is making its recommendation to the Limited Partners not to
tender their Units in the Offer based solely on its commitment to protect the
interests of the Limited Partners (See Item 3(b)(i)).
5. The fact that the General Partner is in the process of
winding-up the Partnership's operations.
The General Partner anticipates that the winding-up of the
Partnership's operations will be substantially completed within the next several
years, and that the Limited Partners should receive substantial value in
connection therewith, including pro rata distributions of the proceeds of the
settlement of the Centocor Litigation.
The Board of Directors did not assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Board arrived at its position based on the totality of the
information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Neither the Partnership nor any person acting on its behalf has
employed, retained or compensated any other person to make solicitations or
recommendations to Limited Partners in connection with the Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) There have been no transactions in the Units during the past 60
days by the Partnership or, to the best of the Partnership's knowledge, by any
executive officer, director, affiliate or subsidiary of the Partnership.
(b) To the best of the Partnership's knowledge, none of its executive
officers, directors, affiliates or subsidiaries currently intends to tender,
pursuant to the Offer, any Units held of record or beneficially owned by such
persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) On March 12, 1998, the Manager received a letter from a third party
not affiliated with the Partnership or the General Partner, or, to the knowledge
of the General Partner, the Offeror, in which such third party outlined "certain
general terms and conditions" on which it "would be prepared" to purchase all of
the Partnership's CP III-related assets for $47 million in cash. The letter
stated that the closing of any such purchase would be subject to (i) approval of
the board of directors of such third party, (ii) there being no "material
adverse developments" in the proposed settlement of the Centocor Litigation, as
determined in such third party's sole discretion, (iii) such third party
obtaining "appropriate financing" and (iv) negotiation and execution of a
satisfactory purchase agreement. The price stated in the letter for the
Partnership's CP III-related assets of $47 million equates to $5,692 per Unit.
The General Partner responded to the third party that the terms
contained in the letter were not attractive to the Partnership because they were
highly conditional and the price was below the range of reasonable values of the
Partnership's CP III-related assets estimated by the General Partner of $6,077
to $7,327 per Unit. The General Partner cannot predict whether the third party
will modify the terms contained in the letter or whether there will be further
discussions with the third party.
Other than as set forth above, the Partnership is not currently engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Partnership; (ii) a purchase, sale or transfer of a material amount of
assets by the Partnership; (iii) a tender offer for or other acquisition of
securities by or of the Partnership; or (iv) any material change in the present
capitalization or distribution policy of the Partnership.
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(b) There are no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer which relate to or would
result in one or more of the matters referred to in paragraph (a) of this Item
7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Pursuant to the Partnership's Agreement of Limited Partnership, the
General Partner cannot in any event consent to any transfer of Units which would
result in a termination of the Partnership for federal income tax purposes. Such
a termination results from a sale or exchange of 50% or more of the Units within
a 12-month period. If the General Partner consents to the transfer of more than
13.6% of the outstanding Units (or 1,123 Units) during the 12-month period prior
to the purchase of Units by the Offeror in the Offer, the General Partner cannot
consent to any transfer of Units in the Offer which, when aggregated with all
Units transferred during the 12-month period prior to such purchase by the
Offeror, would aggregate 50% or more of the outstanding Units. During the
12-month period preceding the date of the Offer, 7.96% of the outstanding Units
were sold or exchanged.
Other than any consent prohibited by the foregoing or by the provision
contained in the List Undertaking and described in clause (iv) of the summary of
the List Undertaking in Item 3(b)(ii), the General Partner has no current
intention of withholding its consent to the transfer of any Units tendered to
the Offeror for purchase pursuant to the Offer. If the General Partner
concludes, based upon the advice of counsel, that any transfer of Units would
increase the risk of adverse tax consequences to the Partnership or its
partners, the General Partner may, however, condition the transfer of such Units
on an appropriate opinion of counsel. The General Partner also reserves the
right to withhold its consent to the transfer of Units in the Offer if it comes
to the attention of the General Partner that any Limited Partner was induced to
tender its Units on the basis of any omission or misstatement of material fact.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1. Letter, dated March 17, 1999, from the General Partner to
the Limited Partners, concerning the Offer (included with the Schedule 14D-9)
Exhibit 2. Letter, dated March 17, 1999, to PaineWebber Financial
Advisors
Exhibit 3. List Undertaking
Exhibit 4. CISP
<PAGE>
13
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
PAINEWEBBER R&D PARTNERS II, L.P.
By: PaineWebber Technologies II, L.P., its
general partner
By: PWDC Holding Company, its general
partner
By: /s/ Dhananjay M. Pai
--------------------
Name: Dhananjay M. Pai
Title: President
Dated: March 17, 1999
Exhibit 1
March 17, 1999
TO: The Limited Partners of PaineWebber R&D Partners II, L.P.
An entity by the name of PharmaInvest, L.L.C. (the "Offeror") has made
an offer (the "Offer") to purchase up to 3,000 Limited Partner units ("Units"),
or approximately 36.3% of the outstanding Units, in PaineWebber R&D Partners II,
L.P. ("R&D II" or the "Partnership") at a purchase price per Unit of $6,000, net
to the seller in cash. This price will be automatically reduced by the aggregate
amount of any cash or asset distributions made or declared by the Partnership on
or after March 3, 1999, and prior to either the date on which the Offeror pays
the Purchase Price for the Units in the case of a distribution in cash or, in
the case of a distribution of assets, the date the assets are to be assigned to
the Offeror (since March 3, 1999, the Partnership has made a cash distribution
of $175 per Unit). The Offer commenced without the endorsement or approval of
the general partner of R&D II (the "General Partner"). The Offeror is not an
affiliate of R&D II, its General Partner or PaineWebber Incorporated.
THE GENERAL PARTNER BELIEVES THE OFFEROR'S OFFER OF $6,000 PER UNIT (AS
ADJUSTED AS DESCRIBED ABOVE) TO BE FINANCIALLY INADEQUATE AND RECOMMENDS THAT
LIMITED PARTNERS NOT TENDER THEIR UNITS IN THE OFFER.
As described in the attached Schedule 14D-9 prepared by the General
Partner, which we urge you to read in its entirety, as a Limited Partner, you
should be aware of and consider the following:
o The General Partner estimates a reasonable range of value of
the assets underlying the Units to be $6,585 to $7,835, as
described in the attached Schedule 14D-9. On March 15, 1999,
the court approved the settlement of the Centocor litigation.
The lump-sum payments and financial enhancements to R&D II's
Class A and Class C Centocor Partners III contingent payment
rights provided for in the settlement of the Centocor
litigation represent a significant part of the value of R&D
II's assets.
o The estimated reasonable range of values of the Partnership's
assets of $6,585 to $7,835 is higher than the reasonable range
of value of the assets of $5,555 to $6,965 estimated by the
General Partner in response to a tender offer in August 1997
by an affiliate of the Offeror primarily because the sales
projections for ReoPro arrived at by Wall Street analysts
<PAGE>
2
and utilized by the General Partner in its analyses have
increased significantly as specified in the attached Schedule
14D-9.
o The Offeror and its affiliates currently own 18.43% of the
outstanding Units. As a result of the Offer, the Offeror and
its affiliates could acquire more than 50% of the outstanding
Units thereby allowing them, without the consent of the
General Partner or any other Limited Partner, to cause the
sale of all of the Partnership's assets, amend any provision
of the Partnership's Agreement of Limited Partnership and
remove the General Partner. While the Offeror states it "does
not currently intend" to acquire control of the Partnership,
it could change its intentions.
o The General Partner believes that in order for the Offeror to
realize any significant return on its investment, the Offeror
is required to purchase Units at a substantial discount from
fair market value (based on the above- stated range of values,
the Offer represents between a 9% to 23% discount). The
General Partner bases this belief on the passive nature of the
assets held by the Partnership, which consist primarily of
product royalty rights whose value cannot be affected by the
holder of the royalty right.
The Offeror states that its reason for making the Offer is it believes
"that the Units represent an attractive investment at the price offered." Most
of the principals of the Offeror, including Mr. Stephen Evans-Freke, are former
employees of PaineWebber Development Corporation ("PWDC"), an affiliate of the
Partnership, who were involved in identifying and selecting the Partnership's
investments; accordingly, they are familiar with and understand the value of the
Partnership's assets.
You may be hearing directly from the Offeror regarding the Offer. You
have a right not to be bothered or harassed by them, and the Offeror has agreed
with the General Partner to respect your privacy. Please contact PWDC's Investor
Services Group if you feel that the Offeror is not abiding by its commitment, or
if you would prefer that they not solicit you directly.
Each Unit represents an original investment of $10,000. To date,
Limited Partners have received cash distributions of $3,507 and distributions of
securities totaling $7,206 per Unit, as valued on the date of distribution (or
$15,900, valued at their peak value), for a total of $10,713.
The Units were intended to be a long-term investment. The Units are
illiquid, so there is no efficient trading market for your Units. There is a
limited secondary market for the Units, but the prices which may be realized by
a seller in such market are generally significantly discounted from the values
of the assets underlying such Units and have historically been significantly
lower than the price the Offeror is offering. While the price being offered in
the Offer is below the reasonable range of values estimated by the General
Partner for the Partnership's assets, the Offer may be the best short-term
<PAGE>
3
opportunity for liquidity available for holders who wish to liquidate their
Units. Before making a decision with regard to the Offer, please review the
matters disclosed in the attached Schedule 14D-9 filed by the Partnership with
the Securities and Exchange Commission, and please consult with your tax advisor
regarding the possible sale of your Units.
If you have any further questions, please contact Robin Stanley of
PaineWebber Development Corporation Investor Services at 1-800-433-8901.
Sincerely,
PaineWebber Development Corporation,
on behalf of the General Partner
cc: Financial Advisors
Exhibit 2
To: Financial Advisors with clients in PaineWebber
R&D Partners II, L.P.
From: PaineWebber Development Corporation
Re: Notice of Offer to Purchase Limited Partnership Units of PaineWebber
R&D Partners II, L.P. (the "Partnership")
Date: March 17, 1999
PharmaInvest, L.L.C. ("PI") has commenced a tender offer to purchase up to 3,000
outstanding limited partner units of the Partnership, or approximately 36.3% of
the outstanding Units, at a price of $6,000 per Unit, net to the seller in cash
(each Unit representing an original investment of $10,000). This price will be
automatically reduced by the aggregate amount of any cash or asset distribution
made or declared by the Partnership on or after March 3, 1999 and prior to
either the date on which PI pays the purchase price for the Units in the case of
a distribution in cash or, in the case of a distribution of assets, the date the
assets are to be assigned to PI (distributions since March 3, 1999, have totaled
$175 per Unit). PI is not an affiliate of the Partnership, its general partner
(the "General Partner") or PaineWebber Incorporated. The offer was commenced
without the endorsement or approval of the General Partner.
THE GENERAL PARTNER BELIEVES THE OFFER TO BE FINANCIALLY INADEQUATE AND
RECOMMENDS THAT LIMITED PARTNERS REJECT THE OFFER.
For your information, we are enclosing a copy of our letter to the limited
partners and the Schedule 14D-9 prepared by the General Partner in response to
the tender offer.
Please note that PI is not authorized to solicit directly any PaineWebber
Financial Advisor (unless such advisor is also a limited partner), make any
in-person presentations or visit any PaineWebber offices. If you are contacted
directly by a representative of PI, please contact us as soon as possible.
If you have any questions, please call PaineWebber Development Investor Services
at 1-800-433-8901.
Enclosure
Exhibit 3
PHARMACEUTICAL PARTNERS, L.L.C.
February 18, 1999
PaineWebber Technologies II, L.P.
c/o PaineWebber Development Corporation
1285 Avenue of the Americas
New York, New York 10023
Attention: Eileen McLaughlin
Dear Eileen:
Further to our letter dated February 11, 1999, as per Rule 14d-5(e) under the
Securities Exchange Act of 1934, Content of Bidder's Request, Pharmaceutical
Partners, LLC ("PPLLC") is requesting use of the list of the names, addresses
and security positions (the "List") of the limited partners in PaineWebber R&D
Partners II, L.P. ("R&D Partners II"). PPLLC and two funds it manages,
Pharmaceutical Royalties, LLC and Pharmaceutical Royalty Investments Ltd. are
limited partners in R&D Partners II. The purpose of the request for the List is
to increase such investment in R&D Partners II through a tender offer, and PPLLC
agrees to use the List for no other purpose.
In support of PPLLC's request for the List, PPLC hereby gives the following
assurances:
1. PPLLC will hold the List in strict confidence, and will not give any
information derived from the List to any third party for any purpose
whatsoever, except that PPLLC may provide the List to any information
or other agent retained to act on PPLLC's behalf in connection with the
tender offer so long as such information or other agent is advised of
the confidential nature of the List and agrees to use such List solely
in connection with the proposed tender offer (it being understood that
PPLLC shall be responsible for any breach of this undertaking by such
information or other agent).
2. PPLLC will reimburse R&D Partners II for costs incurred in connection
with the request and for the List, including confirming compliance with
these undertakings (it being understood that such costs will not exceed
$1,000 in the aggregate except in the case of breach by PPLLC of its
obligations pursuant to these undertakings).
<PAGE>
2
3. PPLLC will submit to the jurisdiction of the courts of the State of
Delaware in any dispute arising in connection with this request for the
List and hereby appoints and will maintain RL & F Service Corp., One
Rodney Square, Tenth Floor, Wilmington, New Castle County, Delaware
19801 as its agent in the State of Delaware for acceptance of legal
process in connection with any such action.
4. PPLLC will comply fully with the requirements of the Securities and
Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder, including full disclosure of all material facts
and, in the case of any tender offer, rights of proration and
withdrawal rights, irrespective of the number of units sought to be
acquired in such tender offer.
5. PPLLC acknowledges that Section 8.03(a)(iii) provides that, prior to
the transfer of any limited partnership interest in the Partnership,
the General Partner shall have consented in writing to the assignment,
which consent may be withheld in the absolute discretion of the General
Partner. Accordingly, PPLLC acknowledges that the General Partner may
withhold consent if, among other reasons, the General Partner
concludes, based upon the advice of counsel, that such acquisition
would increase the risk of adverse tax consequences to the Partnership
or its partners. In the event the General Partner withholds its consent
for any number of units sought to be purchased, PPLLC will refrain from
acquiring interests or units of the number so withheld.
6. PPLLC is acting on behalf of itself, certain accounts it manages and
two funds under management, namely Pharmaceutical Royalties, LLC and
Pharmaceutical Royalty Investments Ltd., and not on behalf of any other
third party. As is customary in tender offers, PPLLC will be making the
offer through PharmaInvest, LLC, a nominee company acting on its
behalf.
7. PPLLC undertakes not to solicit directly, and will instruct its
information and other agents not to solicit directly, any PaineWebber
broker with respect to the tender offer. However, if a PaineWebber
broker contacts PPLLC or its information agent, either may provide such
person with the same information as is provided to any other person who
contacts PPLLC or its information agent with respect to the tender
offer. This undertaking excludes any PaineWebber broker who holds an
interest who is contacted in the normal course because he or she is an
investor.
8. PPLLC undertakes not to make any in-person presentations to any
PaineWebber brokers or to visit PaineWebber offices with a view to
meeting with brokers. PPLLC will similarly instruct its information and
other agents.
9. Within 30 days after the completion of the tender offer, PPLLC agrees
to return the Lists, including any and all copies of such lists and any
related summary material, together with any other materials provided by
R&D Partners II.
<PAGE>
3
10. Any solicitation of limited partners that will be undertaken by PPLLC
or its information or other agents will be conducted in a professional
and reasonable manner which will respect the privacy and rights of
limited partners.
11. Provision of the List pursuant to this letter shall be deemed to
constitute compliance by R&D Partners II and its General Partner of
their obligations pursuant to Rule 14d-5 under the Securities Exchange
Act of 1934, and PPLLC shall comply with the provisions of Rule
14d-5(f)(4) of the Act.
We trust that these undertakings will satisfy your concerns regarding the
proposed offer.
Very truly yours,
Pharmaceutical Partners, LLC
By: /s/ Pablo Legoretta
-------------------
Name: Pablo Legoretta
Title: Managing Member
By: /s/ Dave Madden
---------------
Name: Dave Madden
Title: Managing Member
Exhibit 4
PAINEWEBBER DEVELOPMENT CORPORATION
REVISED CARRIED INTEREST PLAN
1. Purpose. This Plan is intended to provide an incentive to key employees of
PaineWebber Development Corporation ("PWDC") and members of its Advisory Board.
PWDC shall award to Participants Incentive Shares representing in aggregate 42%
of the Cash Distributions and Warrants in respect of Public Partnerships and in
aggregate 15% of the Cash Distributions and Warrants in respect of Private
Partnerships. Key employees of PWDC and members of the Advisory Board shall be
eligible to participate in the Plan. Capitalized terms are defined in Exhibit I.
2. Allocations. (a) Allocations of Incentive Shares will be made by the Chairman
of the Board of PWDC based on recommendations by the President of PWDC and
subject to the approval of the Director of Human Resources of PaineWebber. Such
allocations will be awarded promptly following the final closing of each
Partnership.
(b) The Incentive Shares awarded to a Participant pursuant to Section
2(a) may be increased from time to time to the extent that unallocated Cash
Distributions and Warrants exist.
(c) Prior to the end of the vesting period for each Partnership, Cash
Distributions and Warrants not yet allocated shall be allocated according to
Section 2(a); provided that if such allocations are not made within twenty days
of the end of the vesting period, such allocations shall be made pro rata to the
Account of each Participant who has not died or become Disabled. The
Participant's pro rata portion shall equal that proportion which the Incentive
Share already awarded to the Participant bears to the Incentive Shares awarded
to all other Participants in respect of that Partnership (excluding any
Participant who has died or become Disabled).
3. Vesting. (a) One-sixth of any Incentive Share shall vest for each Year of
Service for Partnerships with an Effective Date in 1990 or 1991.
(b) for Partnerships with an Effective Date in 1992 or later,
one-seventh of the Cash Distribution portion of any Incentive Share and
one-sixth of the Warrant portion of any Incentive Share shall vest for each Year
of Service.
(c) In the event that a Participant's Incentive Share with respect to a
Partnership is increased under Sections 2(b-c), the vesting period for the newly
allocated Incentive Share shall match that of the Participant's original
allocation.
<PAGE>
2
(d) If a Participant shall die or become Disabled after the Effective
Date, he or his beneficiary shall become 100% vested in his Incentive Shares and
shall be entitled to receive all distributions of the amounts in his Account
pursuant to Section 4(a).
4. Distribution from Accounts. (a) Following the end of each calendar quarter,
PWDC shall distribute the vested portions of the Incentive Shares credited to
each Participant's account during such quarter plus the increase in the vested
portions, if any, of the Incentive Shares credited to each Participant's Account
and not previously distributed. Participants shall not be allowed to defer
distributions.
(b) The amounts of the Cash Distributions available for distribution to
Participants' Accounts shall be calculated, as long as the Plan Incentive Share
in existence and in respect of each Partnership individually, as 42% PWDC's
general partnership interest Incentive Share each Public Partnership on the
Effective Date of such Partnership, and as 15% of PWDC's Class B partnership
interest in each Private Partnership on the Effective Date of such Partnership.
(c) The Board may make special distributions to a Participant from his
Account upon a showing by that Participant of a hardship arising from causes
beyond his control.
5. Termination. (a) Upon a Participant's Termination Date, the Participant shall
forfeit to PWDC any Incentive Shares awarded to him in which he is not vested.
The vested percentage of the cash portion of the Participant's Incentive Share
shall continue to be credited to his Account, and shall be distributed to him
pursuant to Section 4(a). Vested Warrants which have not yet been distributed
shall be distributed upon a Participant's termination.
(b) If a Participant is terminated for Cause, the Participant shall
forfeit to PWDC the unvested cash portion of his Incentive Share, all vested and
unvested Warrants previously undistributed and any balance in his Account, all
as of his Termination Date.
6. Administration. (a) The Plan shall be administered by the Board. The Chairman
of the Board is authorized, subject to the provisions of the Plan, in his
discretion and upon recommendations put forth by the President of PWDC, to grant
awards of Incentive Shares under the Plan; to establish, modify, or rescind such
rules and regulations as he deems necessary for the proper administration of the
Plan; and to make such determinations and interpretations and to take such steps
in connection with the Plan or the awards of Incentive Shares granted thereunder
as he deems necessary or advisable.
(b) PWDC shall indemnify and hold harmless each of the members of the
Board acting in good faith from and against any loss, liability, cost or expense
arising from the performance of their duties under the Plan.
<PAGE>
3
(c) Subject to approval by the Board, reasonable legal and other costs
associated with the administration of the Plan (including costs incurred in the
collection of distributions) will be reimbursed by the Plan.
7. Accounts. (a) The vested and unvested amounts of each Participant's Incentive
Share shall be credited to the Participant's Account.
(b) Each Account shall constitute only a bookkeeping account for the
purpose of computing the benefits to which such Participant may become entitled
under the Plan, and the Participant interest in his benefits under the Plan
shall be only that of an unsecured creditor of PWDC. No assets of PWDC shall in
any way be held in trust for, or be subject to, any prior claim by any
Participant.
(c) Incentive Shares shall be evidenced by allocation letters
substantially in the form as that found in Exhibit II (see attached).
8. Effective Date; Amendments. (a) The Plan shall be effective (in perpetuity
until terminated by the Board) with respect to all Partnerships having an
Effective Date after October 1, 1990.
(b) The Board may amend, modify or terminate the Plan; provided,
however, that without the consent of the affected Participants no amendment,
modification or termination shall reduce a Participant's rights in respect of
his allocated Incentive Shares.
9. Miscellaneous. (a) Cash received in respect of PWDC's (i) general partnership
interest in each Publish Partnership and (ii) Class B limited partnership
interest in each Private Partnership shall become distributable as a Cash
Distribution only when and to the extent that the aggregate amount of cash so
received by PaineWebber in respect of each such interest exceeds the amount of
cash contributed by PaineWebber to each Partnership in exchange for PWDC's right
to such interest.
(b) No interest of any Participant (or his beneficiary) shall be
transferred, assigned, pledged, anticipated or alienated by the Participant (or
his beneficiary) in any manner (except by will or the laws of descent and
distribution) nor shall it be subject to attachment, bankruptcy proceedings or
to any other legal process or the interference or control of creditors of the
Participant (or any beneficiary); provided, however, that PWDC may offset any
amounts payable by such Participant to PaineWebber from any amount due to a
Participant (or his beneficiary) under the Plan.
(c) Each Participant may designate any person or legal entity as his
beneficiary to receive the amounts in his Account upon his death.
(d) PWDC shall be entitled to deduct and withhold from all payments
from any Account all Federal, state and local income, employment, or withholding
taxes required to be deducted or withheld. For any terminated employee, all tax
obligations
<PAGE>
4
will be paid by the employee prior to the distribution of the terminated
employee's vested Incentive Share.
(e) Nothing contained in the Plan shall be construed as a contract of
employment between PaineWebber and any Participant, or as creating a right of
any Participant to be retained in the employ of, or as a consultant to,
PaineWebber or as a member of the Advisory Board or as a limitation on the right
of PaineWebber to discharge any Participant with or without Cause.
(f) PWDC shall have no fiduciary duty to any Participant to (i) cause
any distributions to be made by any Partnership or (ii) exercise its judgment as
to the time of any distributions from the Partnership. PWDC shall not have any
obligation to any Participant to maximize the amount of Cash Distributions or
Warrants from any Partnership.
(g) This plan shall be governed by, and construed in accordance with,
the laws of the State of New York.
(h) This Plan shall replace the PWDC Carried Interest Sharing Plan with
respect to Partnerships whose Effective Date is after October 1, 1990.
<PAGE>
EXHIBIT I: DEFINED TERMS
(a) "Account" shall mean the bookkeeping account established for each
Participant in respect of his Incentive Shares.
(b) "Advisory Board" shall mean the Advisory Board of PWDC.
(c) "Board" shall mean the Board of Directors of PWDC.
(d) "Cash Distributions" shall mean the money or property (other than
Warrants) distributed to PWDC in respect of PWDC's general partnership interests
in Public Partnerships or of PWDC's Class B limited partnership interest in
Private Partnerships. Amounts paid to PWDC as compensation, sales commissions,
project fees, annual management fees or other similar payments shall not
constitute Cash Distributions.
(e) "Cause" shall mean the Participant's being charged by any
governmental authority or administrative tribunal with (i) any crime or offense
involving money or other property of PaineWebber or a Partnership, or any
customer or client of PaineWebber or a Partnership, (ii) any crime or offense
involving securities or transactions effected on any organized securities
exchange or (iii) any other crime that, if the Participant were convicted of it,
would constitute a felony if committed in the State of New York or in the
jurisdiction in which any elements of the crime were committed.
(f) "Disabled" shall mean any medically determinable physical or mental
impairment which precludes engaging in any substantial gainful activity and
which is expected to last for a continuous period of not less than twelve months
or to result in death.
(g) "Effective Date" shall mean, with respect to any Public
Partnership, the date of the first prospectus, and in the case of any Private
Partnership, the date of the first private placement memorandum.
(h) "Incentive Share" shall mean that percentage of the Cash
Distributions and Warrants awarded to each Participant.
(i) "PaineWebber" shall mean Paine Webber Group Inc. and any
corporation more than 50% of whose voting power or value at the time of
reference is owned, directly or indirectly, by Paine Webber Group Inc.
(j) "Participant" shall mean an eligible person who has been selected
to receive an award of an Incentive Share.
(k) "Partnership" shall mean any partnership, trust or investment
company (as defined in the Investment Company Act of 1940) which is originated
or managed by PWDC.
<PAGE>
2
(l) "Plan" shall mean this Revised Carried Interest Plan as described
herein and as amended from time to time.
(m) "Private Partnership" shall mean any Partnership not registered
with the Securities and Exchange Commission.
(n) "Public Partnership" shall mean any Partnership registered with the
Securities and Exchange Commission.
(o) "Termination Date" shall mean the date on which a Participant
ceases to be an employee of PWDC or PaineWebber or a member of the Advisory
Board.
(p) "Warrants" shall mean the warrants, options or other similar
property distributed to PWDC by a Partnership.
(q) "Year of Service" shall mean each consecutive twelve month period
beginning on the later of (i) the Effective Date and (ii) the date the
Participant becomes an employee of PWDC or the date of his election to the
Advisory Board, and ending on his Termination Date. In the event that any person
becomes an employee of PWDC or is appointed to the Advisory Board within six
months of the Effective Date, such person shall be treated as if his Year of
Service began on the Effective Date.
