UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1998
[ ] 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: 038593
RENAISSANCE CAPITAL PARTNERS II, LTD.
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2407159
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(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
8080 North Central Expressway, Dallas, Texas 75206-1857
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(Address of principal executive offices) (Zip Code)
214/891-8294
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(Registrant's telephone number, including area code)
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
---------- ----------
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
--------------------
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF ASSETS, LIABILITIES,
AND PARTNERS' EQUITY
<TABLE>
ASSETS <S> <S>
September 30,
December 31, 1998
1997 (Unaudited)
------------ -------------
<C> <C>
Cash and cash equivalents $ 755,755 $ 249,829
Short term investments 992,400 759,042
Investments at market value,
cost of $22,780,273 and $22,801,434 at
December 31, 1997 and Sept. 30, 1998,
respectively 12,829,070 9,742,524
Interest receivable 54,140 231,247
----------- -----------
$14,631,365 $10,982,642
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities: <C> <C>
Accounts payable $ 23,943 $ 3,497
Accounts payable - related parties 120,554 77,707
----------- -----------
Total liabilities 144,497 81,204
----------- -----------
Partners' equity (deficit):
General partner (197,969) -0-
Limited partners (43,304.01 units at
December 31, 1997 and 43,254.01
units at September 30, 1998 14,684,837 10,901,438
----------- -----------
Total partners' equity 14,486,868 10,901,438
----------- -----------
$14,631,365 $10,982,642
=========== ===========
Limited partners' equity per limited
partnership unit $339 $252
==== ====
See accompanying notes to financial statements.
</TABLE>
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS, II, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <S>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1998 1997 1998
------------- -------------- ------------ --------------
<C> <C> <C> <C>
Income:
Interest $ 106,168 $ 113,291 $ 659,669 $ 314,460
Dividends 9,529 -0- 38,439 6,732
----------- ----------- ----------- -----------
Total income 115,697 113,291 698,108 321,192
----------- ----------- ----------- -----------
Expenses:
Operating expenses 75,365 47,529 187,838 210,440
Management fees 103,954 54,781 335,050 251,199
----------- ----------- ----------- -----------
Total expenses 179,319 102,310 522,888 461,639
----------- ----------- ----------- -----------
Net income (loss)
from operations (63,622) 10,981 175,220 (140,447)
Net realized gain (loss)
on investments 540,517 (330,834) (520,959) (310,833)
Net unrealized loss
on investments (1,530,203) (4,990,676) (4,560,899) (3,107,707)
----------- ----------- ----------- ----------
Net loss $(1,053,308) $(5,310,529) $(4,906,638) $(3,558,987)
=========== =========== ============ ===========
Net loss per
limited partner-
ship unit $ (24.08) $ (122.78) $ (113.19) $ (82.63)
========== =========== ============ ===========
Weighted average
limited partner-
ship units 43,304.01 43,254.01 43,347.34 43,284.57
========== =========== =========== ==========
See accompanying notes to financial statements.
</TABLE>
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
Nine Months Ended September 30, 1997 and September 30, 1998
<TABLE>
<S> <S> <S>
General Limited
Partner Partners Total
------- ---------- ---------
<C> <C> <C>
Balance at December 31, 1997 $(197,969) $14,684,837 $14,486,868
Net income (loss) (unaudited) 17,515 (3,576,502) (3,558,987)
Dissolution Adjustment (Note 5)
(unaudited) 180,454 (180,454) -0-
Limited partner withdrawal
(unaudited) -0- (26,443) (26,443)
---------- ----------- -----------
Balance at September 30, 1998
(unaudited) $ -0- $10,901,438 $10,901,438
========== ============ ============
See accompanying notes to financial statements.
</TABLE>
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S>
Nine Months Ended Sept. 30,
1997 1998
------------ ------------
<C> <C>
Cash flows from operating
activities:
Net loss $ (4,906,638) $(3,558,987)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Net realized and unrealized
loss on investments 5,081,858 3,418,540
Increase in accounts receivable (34,849) (177,107)
Decrease in accounts payable (104,661) (63,293)
---------- ------------
Net cash provided by (used in)
operating activities 35,710 (380,847)
---------- -----------
Cash flows from investing activities:
Principal payments of notes receivable 1,000 -0-
Proceeds from sale of investments 3,766,017 1,062,902
Purchase of investments (3,048,423) (1,161,538)
Decrease in other assets 102,630 -0-
---------- -----------
Net cash provided by (used in)
investing activities 821,224 (98,636)
---------- -----------
Cash flows from financing activities:
Limited partner withdrawal (79,376) (26,443)
Cash distributions to limited partners (1,000,000) -0-
---------- -----------
Net cash used in financing
activities (1,079,376) (26,443)
---------- -----------
Net decrease in cash (222,442) (505,926)
Cash and cash equivalents at the
beginning of the period 2,673,170 755,755
---------- -----------
Cash and cash equivalents at the
end of the period $2,450,728 $ 249,829
========== ===========
See accompanying notes to financial statements.
</TABLE>
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
September 30, 1998
(Unaudited)
1. Organization and Business Purpose
---------------------------------
Renaissance Capital Partners II, Ltd. (the "Partnership"), a
Texas limited partnership, was formed on January 14, 1991. The
Partnership seeks to achieve current income and capital
appreciation principally by making direct investments primarily
in private placement convertible debt securities of small to
medium size public companies.
The Partnership elected to be treated as a business development
company under the Investment Company Act of 1940, as amended.
The Partnership will terminate upon liquidation of all of its
investments, but no later than eight years from the final
closing of the sale of units, subject to the right of the
Independent General Partners to extend the term for up to two
additional one-year periods if they determine that such
extension is in the best interest of the Partnership. The
Independent General Partners and the Managing General Partner
have agreed to begin the liquidation of the Partnership in 1998.
2. Summary of Significant Accounting Policies
------------------------------------------
A. Cash and Cash Equivalents - for purposes of the statements
of cash flows, cash and cash equivalents include cash in
checking and savings accounts and all instruments on hand
with original maturities of three months or less. The
Partnership paid no interest for the period ended September
30, 1998 and 1997.
B. Federal Income Taxes - no provision has been made for
federal income taxes as any liability for such taxes is
that of the partners rather than the Partnership.
C. Net Income (Loss) Per Limited Partnership Unit - net income
(loss) per limited partnership unit is based on the
weighted average of the limited partnership units
outstanding during the period and net income (loss)
allocated to the limited partners.
D. Management estimates - the financial statements have been
prepared in conformity with generally accepted accounting
principles. The preparation of the accompanying financial
statements requires estimates and assumptions made by
management of the Partnership that affect the reported
amounts of assets and liabilities as of the date of the
statements of assets, liabilities and partners' equity and
income and expenses for the periods presented. Actual
results could differ significantly from those estimates.
PAGE
<PAGE>
Renaissance Capital Partners II, Ltd.
Notes to Financial Statements (Continued)
September 30, 1998
(Unaudited)
E. Interest income - interest income is accrued on all debt
securities owned by the partnership on a quarterly basis.
When it is determined that the interest accrued will not be
collected, the income for that period is reduced to reflect
the estimated interest expected to be collected during the
period.
F. Financial Instruments - In accordance with the reporting
requirements of Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of its
financial instruments and includes this additional
information in the notes to the financial statements when
the fair value is different than the carrying value of
those financial instruments. When the fair value
reasonably approximates the carrying value, no additional
disclosure is made.
3. Basis of Presentation
---------------------
The accompanying financial statements have been prepared
without audit, in accordance with the rules and regulations of
the Securities and Exchange Commission and do not include all
disclosures normally required by generally accepted accounting
principles or those normally made in annual reports on Form 10-
K. All material adjustments, consisting only of those of a
normal recurring nature, which, in the opinion of management,
were necessary for a fair presentation of the results for the
interim periods have been made.
4. Management Agreement and Fees
-----------------------------
The Partnership has entered into a management agreement with
the Managing General Partner. The Managing General Partner is
entitled to receive a management fee and incentive fee as
defined in the Investment Advisory Agreement amended and
ratified on 4/21/94. Fees paid to the Managing General Partner
during the three months ended September 30, 1998, were $54,781.
Pursuant to the Management Agreement, the Partnership owed the
Managing General Partner $61,279 at September 30, 1998, which
includes the third quarter management fee.
At September 30, 1998, the Partnership owed the two Independent
General Partners $16,428 for the Independent General Partner
fee as defined in the Partnership Agreement.
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
September 30, 1998
(Unaudited)
Pursuant to the Partnership's plan of liquidation, a former
Independent General Partner became Liquidation Trustee as of
October 1, 1998 and the remaining Independent General Partner
has resigned.
5. Partnership Agreement
---------------------
Pursuant to the terms of the partnership agreement, all items
of income, gain, loss and deduction of the Partnership, other
than any Capital Transaction, as defined, will be allocated 1%
to Renaissance and 99% to the Limited Partners. All items of
gain of the Partnership resulting from Capital Transactions
shall be allocated such that the Limited Partners receive a
cumulative simple annual return of 10% on their capital
contributions and any remaining gains shall be allocated 20% to
Renaissance and 80% to the Limited Partners. All items of loss
resulting from Capital Transactions shall be allocated 1% to
Renaissance and 99% to the Limited Partners.
The above allocations resulted in the capital account of
Renaissance having a balance of $(180,454) at the time of the
appointment of the Liquidation Trustee. This appointment ceases
the end of Renaissance's year as it relates to the Partnership's
income and expense and the negative balance has been allocated
to the other partners in accordance with Section 4.8 of the
Limited Partnership Agreement.
6. Investments
-----------
Investments of the Partnership are carried in the statements of
assets, liabilities and partners' equity at quoted market or
fair value, as determined in good faith by the Managing General
Partner and approved by the Independent General Partners.
For securities that are publicly traded and for which
quotations are available, the Partnership will value the
investments based on the closing sale as of the last day of the
fiscal quarter, or in the event of an interim valuation, as of
the date of the valuation. If no sale is reported on such
date, the securities will be valued at the average of the
closing bid and asked prices.
Generally debt securities will be valued at their face value.
However, if the debt is impaired, an appropriate valuation
reserve will be established or the investment discounted to
estimated realizable value. Conversely, if the underlying
stock has appreciated in value and the conversion feature
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
September 30, 1998
(Unaudited)
justifies a premium value, such premium will of necessity be
recognized.
The Managing General Partner, subject to the approval and
supervision of the Independent General Partners, will be
responsible for determining fair value.
The financial statements include securities of publicly-held
companies valued at $12,829,070 (88% of total assets) and
$9,742,524 (89% of total assets) as of December 31, 1997,
and September 30, 1998, respectively, whose values have been
estimated by the Managing General Partner and approved by the
Independent General Partners in the absence of readily
ascertainable market values. Because of the inherent uncertainty
of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for
the investments existed and the difference could be material.
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
September 30, 1998
(Unaudited)
<TABLE> INVESTMENT VALUATION SUMMARY
<S> <S> <S>
CONVERSION FAIR
COST OR FACE VALUE VALUE
<C> <C> <C>
Coded Communications Corporation
Preferred Stock $ 4,654,588 $ 4,654,588 $ -0-
Common Stock 517,025 71,021 -0-
Promissory Note 311,060 311,060 311,060
Consolidated Health Care Assoc., Inc.
Preferred Stock 1,695,984 1,695,984 -0-
Common Stock 2,500,000 -0- -0-
Promissory Notes 1,182,938 1,182,938 263,000
Protech, Inc.
Promissory Notes 67,500 67,500 -0-
Scientific Software, Inc.
Promissory Note 1,300,000 1,300,000 1,300,000
Total Choice, Inc.
Preferred Stock 300,000 300,000 -0-
Common Stock 700,000 700,000 -0-
Tricom Corporation
Promissory Note 50,000 50,000 -0-
Common Stock 2,203,600 2,203,600 -0-
Tutogen Medical, Inc. (Biodynamics
International, Inc.)
Convertible Debentures 2,574,081 7,461,961 6,964,243
Common stock 4,744,658 961,689 904,221
Warrants -0- -0- -0-
----------- ----------- ------------
$22,801,434 $20,960,341 $9,742,524
=========== =========== ==========
The fair value of debt securities convertible into common stock is the sum of
(a) the value of such securities without regard to the conversion feature, and
(b) the value, if any, of the conversion feature. The fair value of debt
securities without regard to conversion features is determined on the basis of
the terms of the debt security, the interest yield and the financial condition
of the issuer. The fair value of the conversion features of a security, if any,
are based on fair values as of this date less an allowance, as appropriate, for
costs of registration, if any, and selling expenses. Publicly traded
securities, or securities that are convertible into publicly traded securities,
are valued at the last sale price, or at the average closing bid and asked
price, as of the valuation date. While these valuations are believed to
represent fair value, these values do not necessarily reflect amounts which may
be ultimately realized upon disposition of such securities.
</TABLE>
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(1) Material Changes in Financial Condition
For the third quarter ended September 30, 1998, total Partners'
Equity decreased $5,310,529 due to lowered valuations of the
Partnership's portfolio assets.
The following portfolio transactions are noted for the quarter
ended September 30, 1998 (portfolio companies are herein referred to
as the "Company"):
Coded Communications Corp. In the third quarter, the
Partnership provided an additional valuation reserve of $360,000 on
its investment in the Company's Series A & Series B Preferred Stock.
The Partnership's investment in the preferred and common stock of
the Company has now fully been reserved.
Consolidated Healthcare Associates, Inc. In the third quarter,
the Partnership provided an additional valuation reserve of $500,000
on this investment, reducing the fair value of the Partnership's
entire investment to $263,000 at September 30, 1998.
Scientific Software, Inc. On July 30, 1998, a majority of the
Company's Shareholders approved the Company's Definitive Agreement
to sell all outstanding common shares to Baker Hughes Inc. for $0.44
per share. As part of that Definitive Agreement, the Partnership
agreed to exchange its $1,500,000 Promissory Note owed by the
Company for a $1,300,000 7% Promissory Note from Baker Hughes Inc.
All accrued and outstanding interest owed on or before July 30, 1998
was forgiven, and interest was to be paid on October 31, 1998, April
30, 1999, with all remaining principal and interest outstanding due
on or before June 30, 1999. On September 21, 1998, Baker Hughes
paid $174,775.92, or $0.44 per share, to the Partnership in exchange
for its 397,218 shares of common stock.
Subsequent to September 30, 1998, Baker Hughes paid the
Partnership $1,324,931.51 constituting payment in full of the $1.3
million principal balance owed under the Promissory Note, together
with interest owed thereon through November 6, 1998 of $24,931.51.
The Partnership has fully liquidated this investment.
Tricom Corporation. In the third quarter of 1998, the
Partnership fully reserved its investment in the Company, which
includes a $50,000 reserve on the Partnership's investment in the
Promissory Note due from the Company, as well as an additional
$100,000 reserve on the Partnership's investment in the Company's
common stock.
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Tutogen Medical, Inc. Subsequent to September 30, 1998, the
Company paid its interest obligations on the $2,074,081 Debentures
by issuing 69,327 shares of common stock at $1.35 per share, and
additionally paid its interest obligation on the $500,000 Debentures
by issuing 16,713 shares of common stock at $1.35 per share. The
Company's interest obligations on both Debentures were brought
current through September 30, 1998 by issuing the Partnership a
total of 144,550 shares of Tutogen common stock.
(2) Material Changes in Operations
The Partnership currently is not actively considering additional
Portfolio Investments. Therefore, no significant further amount of
income from closing fees and commitment fees is anticipated.
For the quarter ended September 30, 1998, the Partnership
recorded a loss of $5,310,529, which loss resulted primarily from
lowered valuations of the Partnership's portfolio assets. Interest
income continued to decline as a result of not accruing certain
past-due payments from Portfolio companies because the likelihood of
receiving such payments appears to be in question. In addition,
income has declined in the past as a result of payment defaults and
as the Partnership has converted debentures into common and
preferred stock that traditionally have lower current yields in
comparison to debentures.
Portfolio Investments still held as Debentures require interest
payments generally on either a monthly or quarterly basis. At
September 30, 1998, the following Companies are in arrears on
interest payments: Coded Communications Corp. is in arrears on
interest payments owed to the Partnership in the amount of $7,854;
Consolidated Health Care Associates, Inc. is in arrears on interest
payments owed to the Partnership in the amount of $65,517; and
Tutogen Medical, Inc. is in arrears on interest payments owed to the
Partnership in the amount of $106,165.
YEAR 2000
- ---------
Many computer software systems in use today cannot process
date-related information from and after January 1, 2000. The
Partnership's Managing General Partner has taken steps to review and
modify their computer systems as necessary and are prepared for the
Year 2000. In addition, the Partnership has inquired of its major
service providers as well as its portfolio companies to determine if
they are in the process of reviewing their systems with the same
goals. The majority of all providers and portfolio companies have
represented that they are either taking the necessary steps to be
prepared or are currently prepared for the Year 2000. Should any of
the computer systems employed by the major service providers, or
companies in which the Partnership has an investment, fail to
process this type of information properly, that could have a
negative impact on the Partnership's operations and the services
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
provided to the Limited Partners. It is anticipated that the
Partnership will incur no material expenses related to the Year 2000
issues.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None other than what has been previously disclosed.
ITEM 5. OTHER INFORMATION
-----------------
Effective October 1, 1998, Renaissance Capital Group Inc. is no
longer the Managing General Partner of Renaissance Capital Partners
II, Ltd. Pursuant to a Directive by the Managing General Partner
and Independent General Partners of the Partnership, Mr. Thomas W.
Pauken, who had served as an Independent General Partner, has agreed
to become the Liquidation Trustee pursuant to the Liquidation
Trustee Agreement, which is filed as an exhibit to this report.
This action was taken consistent with priority of the General
Partners to reduce expenses of the Partnership while attempting to
maximize the return to investors.
Mr. Pauken is an Attorney who is experienced in venture capital
and small company investments and is familiar with the Partnership
portfolio through his involvement as an Independent General Partner.
Ernest C. Hill resigned as an Independent General Partner effective
October 1, 1998.
ITEM 6. EXHIBITS
--------
Exhibit 6.1 Liquidation Trustee Agreement
PAGE
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
RENAISSANCE CAPITAL PARTNERS II, LTD.
By RENAISSANCE CAPITAL GROUP, INC.,
Managing General Partner
November 19, 1998 By \S\ Russell Cleveland
---------------------------------------
Russell Cleveland, President
November 19, 1998 By \S\ Barbe Butschek
---------------------------------------
Barbe Butschek, Chief Financial Officer
PAGE
<PAGE>
Exhibit 6.1 Liquidation Trustee Agreement
AGREEMENT FOR ENGAGING THE SERVICES OF
THOMAS W. PAUKEN AS LIQUIDATION TRUSTEE OF
RENAISSANCE CAPITAL PARTNERS II, LTD.
THIS AGREEMENT (the "Agreement") is made and entered into as of
September 11, 1998, to be effective beginning October 1, 1998,
between and among Renaissance Capital Group, Inc. (the "Company"),
a Texas corporation, the Managing General Partner of, and investment
advisor to, Renaissance Capital Partners II, Ltd; Renaissance
Capital Partners II, Ltd. (the "Partnership") and Thomas W. Pauken,
the Liquidation Trustee (the "Trustee").
In consideration of the mutual covenants contained herein, the
Company, the Partnership, and the Trustee hereby agree as follows:
1. Dissolution of Partnership. Effective as of close of
business September 30, 1998, the Company has withdrawn as the
managing general partner of the Partnership and the Partnership has
appointed Thomas W. Pauken as the Liquidation Trustee.
2. Procedures Followed Upon Dissolution, Liquidation and
Termination. Effective October 1, 1998, there is a transfer of
authority for the managment of Renaissance Capital Partners II,
Ltd., from the Company to the Trustee. The Company has withdrawn as
Managing General Partner of the Partnership and, by resolution, the
Board of the Partnership has appointed Thomas W. Pauken as the
Trustee for purposes of winding down the Partnership. The Trustee
shall assume all responsibilities and have the authority of the
Managing General Partner as provided for in the Investment Advisory
Agreement of the Partnership. The Trustee shall have the full right
and unlimited discretion to determine the time required and used for
liquidation, including sale of assets, distribution of assets
in-kind, and exchange of assets for other assets for the purpose of
obtaining, in its opinion, fair value for such assets, having due
regard to the activity and condition of the relevant matters of
general financial and economic conditions. To the extent that such
assets cannot be liquidated, the Trustee, subject to the 33 Act and
the 1940 Act, may effectuate an in-kind distribution if it would be
in the best interests of the Partners and if in accordance with the
Partnership Agreement. To the extent permitted by the Advisers Act,
for all purposes of this Agreement, assets distributed in-kind shall
be deemed to have been sold for their fair market value as
determined pursuant to Section 13 of the original Partnership
Agreement, and the proceeds of such sale shall be deemed to have
been distributed as of the date of the in-kind distribution.
3. Trustee Services. The Trustee will be responsible for
managing all aspects of the affairs of the Partnership beginning
October 1, 1998, including but not limited to financial, accounting,
and control matters. The Trustee agrees that he will devote such
time and effort as is necessary to properly perform the Trustee
Services but that he shall not be precluded from performing services
for others.
PAGE
<PAGE>
4. Persons Performing Services. In addition to devoting a
substantial amount of his own time to managing and overseeing the
liquidation and termination of the Partnership, the Trustee shall
engage other personnel to perform necessary services for the
Partnership at the expense of the Partnership. Trustee is cognizant
of the limited resources available to wind up the affairs of the
Partnership and will use his best efforts to control costs during
this liquidation process.
5. Terms. This Agreement shall continue in full force and
effect from the date signed and shall continue in effect until the
termination of the Partnership.
6. Compensation. The Partnership shall pay the Trustee, as
compensation for his services, $6,000 per month beginning on October
1, 1998 and continuing thereafter during the windup of the
Partnership. Trustee shall engage personnel to perform the
necessary administrative services for the Partnership for a monthly
charge of $4,000.00. Any other expenses will be charged to the
Partnership on a cost basis. At the same time, however, Company and
Partnership understand and agree that Trustee has the right and duty
to engage attorneys and accountants to protect the assets of the
Partnership and to fulfill the reporting requirements of the
Investment Company Act of 1940. In an effort to hold down costs,
Trustee will provide legal services on behalf of the Partnership in
addition to his duties as Trustee. Any such legal fees must be
approved by the Company and the Partnership.
7. Expenses. The Trustee shall be reimbursed by the
Partnership promptly for all reasonable and necessary out-of-pocket
expenses incurred by him or the Personnel in performing the services
upon submission to the Partnership of receipts for such expenses or
such other information as the Partnership may reasonably request.
8. Limitation on Liability of the Liquidation Trustee. (1)
This Agreement provides that the Trustee and/or his employees or
agents shall not be liable to the Partnership or any other General
Partner or to persons who have acquired interests in the Units,
whether as Limited Partners, assignees or otherwise, for errors in
judgment or for any acts or omission that do not constitute gross
negligence or willful or wanton misconduct.
(2) The Trustee shall not be liable for any of the actions,
obligations, and liabilities of the Company during the time period
in which the Company managed the Partnership other than those
obligations that may have arisen out of Trustee's role as an
Independent General Partner of the Partnership.
9. Indemnification of the Liquidation Trustee by the
Partnership. The Partnership Agreement provides that, to the extent
permitted by law, the Partnership will indemnify the General
Partners and their directors, officers, employees, and agents (and
persons serving on behalf of the Partnership in similar capacities
with other entities) against liabilities, costs, and expenses
(including legal fees and expenses and amounts paid in settlement)
incurred by the General Partner or any such person in connection
PAGE
<PAGE>
with litigation or threatened litigation, if the General Partner or
such person was successful on the merits in defending such action or
acted in good faith and in a manner it reasonably believed to be in
or, in certain circumstances, not opposed to the best interests of
the Partnership, and the General Partners' or such other person's
conduct did not constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties of such person's
office, and with respect to the Company or any Affiliate of the
Company was not guilty of the foregoing, negligence or misconduct
with respect to such act or omission. These same indemnification
provisions are provided to Thomas W. Pauken as Liquidation Trustee
of the Partnership. These indemnification provisions also apply to
derivative actions that are instituted on behalf of the Partnership,
but in those cases, indemnification is limited to reasonable
expenses actually incurred. Subject to certain conditions, the
Partnership shall advance funds to persons to whom indemnification
may be available pursuant to the Partnership Agreement prior to the
final disposition of any such proceeding. Any indemnification under
these provisions will be limited to the assets of the Partnership
and will be allowed only to the extent permitted by applicable law.
The Partnership is authorized to purchase insurance against
liabilities asserted against and expenses incurred by such persons
in connection with the Partnership's activities, pursuant to the
Partnership Agreement. These indemnification provisions continue to
be in effect for all prior actions or omissions of the General
Partners. Effective October 1, 1998, Thomas W. Pauken, as
Liquidation Trustee, is entitled to the identical indemnification
provisions that were set forth for the Independent General Partner
in the aforesaid Partnership Agreement.
10. Incapacity of the Liquidation Trustee. In the event of
the incapacity of the Trustee, then the Company and Ernest Hill
shall have all the rights to appoint a substitute Liquidation
Trustee for the purpose of winding down the Partnership.
11. Notices. Any notice, demand, or request required or
permitted to be given or made under this Agreement shall be in
writing (other than requests from the Trustee) and shall be
personally delivered or mailed, certified with first class postage
prepaid, to the address set forth below:
If to the Company: Renaissance Capital Group, Inc.
8080 N. Central Expwy., #210, LB 59
Dallas, Texas 75206-1857
If to the Trustee: Thomas W. Pauken
P.O. Box 595808
Dallas, Texas 75359
If to the Partnership: Renaissance Capital Partners II, Ltd.
Attn: Ernest C. Hill
3556 Ridge Oak Way
Dallas, Texas 75234
PAGE
<PAGE>
12. Entirety and Amendments. This Agreement constitutes the
entire understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings
related to the subject matter hereof and may be modified or amended
only by an instrument in writing executed by each of the parties
hereto.
13. Paragraph Headings. The paragraph headings contained in
this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
14. Severability. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under the present or future
laws effective during the term of this Agreement, such provision
shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had
never comprised a part of this Agreement; and the remaining
provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision
as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
Notwithstanding the foregoing sentence, if this Agreement, as it
would be reformed pursuant to the foregoing sentence, would
materially fail to effect the intent of the parties, this Agreement
shall not be so reformed but shall instead be terminated.
15. Multiple Counterparts. This Agreement may be executed in
a number of identical counterparts and it shall not be necessary for
each party to execute each of such counterparts, but when all of the
parties have executed and delivered one or more of such
counterparts, the several parts, when taken together, shall be
deemed to constitute one and the same instrument, enforceable
against each party in accordance with its terms. In making proof of
this Agreement, it shall not be necessary to produce or account for
more than one such counterpart executed by the party against whom
enforcement of this Agreement is sought.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
17. Parties Bound; Assignment. Each party represents to the
other that this Agreement has been duly authorized, executed, and
delivered by such party and that this Agreement is such party's
valid and binding agreement, enforceable against such party. This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, neither party may assign its rights
hereunder without the prior written consent of the other party.
18. Amendment: Waiver. No modification or amendment hereof
shall be valid and binding unless it is in writing and signed by the
parties hereto. The waiver of any provision hereof shall be
PAGE
<PAGE>
effective only if in writing and signed by the parties hereto and
then only in the specific instance and for the particular purpose
for which it was given. No failure to exercise, and no delay in
exercising, any right or power hereunder shall operate as a waiver
thereof.
IN WITNESS WHEREOF, the parties hereby have executed this
Agreement on the date first written above, to be effective as of
October 1, 1998.
Renaissance Capital Group, Inc.,
Managing General Partner
By: \S\ Russell Cleveland
---------------------------------
Russell Cleveland, President
Thomas W. Pauken,
Liquidation Trustee
By: \S\ Thomas W. Pauken
---------------------------------
Thomas W. Pauken
Renaissance Capital Partnership II, Ltd.
By: \S\ Ernest C. Hill
---------------------------------
Ernest C. Hill, Independent General Partner
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 22,801,434
<INVESTMENTS-AT-VALUE> 9,742,524
<RECEIVABLES> 231,247
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,008,871
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<REALIZED-GAINS-CURRENT> (310,834)
<APPREC-INCREASE-CURRENT> (3,107,706)
<NET-CHANGE-FROM-OPS> (3,558,987)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 26,443
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 50
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<NET-CHANGE-IN-ASSETS> (3,585,430)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 2,650,498
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