SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PruTech Research and Development Partnership II
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $2,500
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2) Form, Schedule or Registration Statement No.: 14A
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3) Filing Party: PruTech Research and Development Partnership II
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4) Date Filed: August 2, 1996
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PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
440 MISSION COURT, SUITE 250
FREMONT, CALIFORNIA 94539
SEPTEMBER 4, 1996
Dear Limited Partners:
Since its formation in October 1984, PruTech Research and Development
Partnership II (the "Partnership") has invested substantially all of its
available capital (net of working capital reserves) in research and development
projects. To maximize returns, the General Partner has already liquidated many
of the investments of the Partnership and distributed net proceeds to the
partners. The General Partner continues to manage the remaining investments.
Under the terms of the Agreement of Limited Partnership (the "Partnership
Agreement"), the Partnership may continue through the year 2004. An alternative
to continuing in existence through the year 2004 would be for the Partnership to
commence the process of liquidating its remaining investments in an orderly
manner and dissolve at an earlier date. Once the liquidation is complete and
the available net proceeds of liquidation have been distributed to the partners
in accordance with the provisions of the Partnership Agreement, the Partnership
would cease operations and incur no further expenses.
Having analyzed the Partnership's investments and future prospects, the
General Partner believes that the latter alternative is in the best interests of
the Limited Partners. ACCORDINGLY, THE GENERAL PARTNER IS RECOMMENDING TO THE
LIMITED PARTNERS THAT THE PARTNERSHIP BE DISSOLVED PURSUANT TO THE PLAN OF
DISSOLUTION AND LIQUIDATION (THE "PLAN") DESCRIBED IN THE ACCOMPANYING CONSENT
SOLICITATION STATEMENT.
The principal advantages from the adoption of the Plan are:
- Limited Partners will receive available cash as the Partnership's
remaining investments are liquidated.
- The Partnership will, after the final liquidation of the Partnership's
assets and the final dissolution of the Partnership, avoid incurring
management fees and general and administrative expenses which would
otherwise reduce amounts available for distribution.
- After the final distribution of liquidation proceeds from the
Partnership's investments and the final dissolution of the
Partnership, the Limited Partners will no longer have Federal and
state income tax reporting requirements with respect to their
investment in units evidencing ownership of limited partnership
interests (the "Units").
The principal disadvantage from the adoption of the Plan is:
- As the Partnership's remaining investments are liquidated, Limited
Partners will forego the opportunity to receive future income
generated by these investments or potential appreciation in the value
of these investments.
See "The Plan - Advantages and Disadvantages of Adopting the Plan" contained in
the accompanying Consent Solicitation Statement.
As detailed in the attached Consent Solicitation Statement, if the Plan is
approved, the General Partner will attempt to liquidate the Partnership's
remaining investments (other than investments that the General Partner has
determined to have no value) by endeavoring, among other things, to (i) sell, in
an orderly manner, the Partnership's publicly traded equity securities, subject
to market conditions and applicable Federal and state securities regulations,
(ii) identify purchasers for, and sell in private transactions, the
Partnership's equity securities which are not publicly traded, and (iii) obtain
cash payments for the transfer of the Partnership's rights to royalties under
technology license agreements.
Due to the nature of the Partnership's investments, the General Partner is
not able to predict with any degree of certainty the timing of any sales, the
total proceeds that will be received or the timing of and the cash amounts that
might ultimately be available for distribution by the Partnership. Upon
adoption of the Plan, the General Partner estimates that final liquidation of
the remaining investments of the Partnership may take as long as one year;
however, due to the nature of the investments, liquidation of the remaining
investments may take longer than estimated.
THE GENERAL PARTNER BELIEVES THAT THE ADOPTION OF THE PLAN IS IN THE BEST
INTERESTS OF THE LIMITED PARTNERS AND RECOMMENDS THAT YOU VOTE FOR ADOPTION OF
THE PLAN. THE PLAN IS FULLY DESCRIBED IN THE ATTACHED CONSENT SOLICITATION
STATEMENT. YOU ARE URGED TO READ CAREFULLY THE CONSENT SOLICITATION STATEMENT
IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE PLAN. In accordance with the
terms of the Partnership Agreement, the General Partner is soliciting the
written consent of each of the Limited Partners to the adoption of the Plan.
ADOPTION OF THE PLAN REQUIRES THE AFFIRMATIVE WRITTEN CONSENT OF THE HOLDERS OF
A MAJORITY OF THE OUTSTANDING UNITS BY OCTOBER 30, 1996, UNLESS EXTENDED.
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Please mark, sign and date the enclosed consent form and return the consent
form promptly in the enclosed stamped envelope. By executing and returning the
consent form, you will ensure that your vote is counted and reduce any
Partnership expenses associated with follow-up mailings. Because the consent of
Limited Partners holding a majority of the outstanding Units is required to
approve the Plan, Limited Partners who do not return their consent form will, in
essence, be voting against the Plan. If you have any questions regarding the
Plan and the accompanying Consent Solicitation Statement, you may contact Morrow
& Co., Inc. at (800) 662-5200.
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
By: R&D FUNDING CORP,
Its General Partner
/s/ Michael S. Hasley
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Michael S. Hasley
President
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PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
440 MISSION COURT, SUITE 250
FREMONT, CALIFORNIA 94539
NOTICE OF CONSENT SOLICITATION
Dear Limited Partners:
Notice is hereby given that the written consent of the holders of units
(the "Units") evidencing ownership of limited partnership interests (the
"Limited Partners") in PruTech Research and Development Partnership II (the
"Partnership") is being solicited for the purpose of approving the Plan of
Dissolution and Liquidation (the "Plan") described in the attached Consent
Solicitation Statement. Only owners of Units of record at the close of business
on August 15, 1996 are entitled to notice of the solicitation of consents and
are entitled to consent to the adoption of the Plan.
Under the terms of the Partnership Agreement, Quarterly Reports are to be
delivered to the Limited Partners. Appendix C of the enclosed Consent
Solicitation Statement contains the Quarterly Report for the quarter ended
June 30, 1996; a separate Quarterly Report will not be mailed to you.
You are urged to mark, sign and date the accompanying consent form and
return it promptly in the enclosed envelope. Consent forms must be received
prior to October 30, 1996, unless extended (the "Termination Date"). Your
consent form may be revoked by delivering to Morrow & Co., Inc. a written
revocation or later dated consent form on or prior to the Termination Date.
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
By: R&D FUNDING CORP,
Its General Partner
/s/ Michael S. Hasley
--------------------------------
Michael S. Hasley
President
September 4, 1996
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
440 MISSION COURT, SUITE 250
FREMONT, CALIFORNIA 94539
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is furnished to the holders ("Limited
Partners") of units ("Units") evidencing the ownership of limited partnership
interests in PruTech Research and Development Partnership II, a California
limited partnership (the "Partnership"), in connection with the solicitation of
written consents ("Consents") by R&D Funding Corp (the "General Partner"), to
approve the dissolution of the Partnership and the winding-up of its business
and affairs pursuant to the Plan of Dissolution and Liquidation attached hereto
as Appendix A (the "Plan"). For a more complete description of the Plan, see
"The Plan - Terms of the Plan." The close of business on August 15, 1996 (the
"Record Date") has been fixed by the General Partner for determining the Limited
Partners entitled to notice of the solicitation of consents and entitled to
consent to the adoption of the Plan. This Consent Solicitation Statement and
the enclosed consent form are first being mailed to Limited Partners on or about
September 4, 1996.
Pursuant to the terms of the Agreement of Limited Partnership, dated as of
October 4, 1984, as amended (the "Partnership Agreement"), the Consent of
Limited Partners owning a majority of the outstanding Units is required to
approve the Plan. No meeting of Limited Partners will be held. Each Unit is
entitled to one vote on the Plan. Abstentions from the proposal to approve the
Plan will be treated as votes against the Plan. Morrow & Co., Inc. will accept
consent forms received from Limited Partners on or before October 30, 1996,
unless extended by the General Partner to not later than December 30, 1996 (the
"Termination Date"), at which time a determination will be made as to whether
the Plan has been adopted. Limited Partners will be notified if the Termination
Date is extended. Consent forms should be returned to Morrow & Co., Inc. in the
enclosed stamped envelope.
As of the Record Date, there were 100,000 outstanding Units, of which 340
were owned by the General Partner and affiliates of the General Partner. All
Units held by the General Partner and affiliates of the General Partner will be
voted FOR the Plan.
All duly executed consent forms received prior to the Termination Date will
be voted and they will be voted in accordance with the instructions specified
thereon. If a duly executed consent form does not specify a choice, the Units
represented thereby will be voted FOR the Plan. A consent form may be revoked
at any time before the Termination Date. To be effective, a written notice of
revocation of a consent form must be received by Morrow & Co., Inc. prior to the
Termination Date and mailed to Morrow & Co., Inc. at the following address: 909
Third Avenue, New York, New York 10022.
Any notice of revocation must specify the Limited Partner's name AND number of
Units. Additionally, a Limited Partner may revoke a consent form by executing
and dating a later dated consent form and delivering it to Morrow & Co., Inc.
prior to the Termination Date. All questions as to the validity, form,
eligibility and time of receipt of consent forms or revocations of consent forms
and voting of consents will be determined by the General Partner. Any such
determination will be final and binding, absent manifest error. The General
Partner reserves the right to waive, without notice, any irregularities as to
the manner of voting on the Plan.
Pursuant to the terms of the Partnership Agreement, the cost of soliciting
consents, including the cost of the preparation and distribution of this Consent
Solicitation Statement, will be borne by the Partnership. In addition to
solicitation by mail through the use of this Consent Solicitation Statement,
certain employees of the General Partner and its affiliates may solicit consents
by telephone, facsimile or in person, but will not receive any additional
compensation for doing so. The General Partner has also retained Morrow & Co.,
Inc. to assist the General Partner in soliciting consents at an estimated cost
of $18,000, plus reimbursement of out-of-pocket expenses. The Partnership will,
upon request, reimburse brokers and other persons holding Units in their names
or in the names of their nominees for their reasonable expenses incurred in
sending this Consent Solicitation Statement and the accompanying materials to
the beneficial owners of such Units. The General Partner estimates that the
cost to the Partnership of preparing this Consent Solicitation Statement and
soliciting consents will be approximately $169,000.
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TABLE OF CONTENTS
PAGE
THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background and Reasons for the Plan . . . . . . . . . . . . . . . . 1
Terms of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 5
Disposition of Partnership Investments. . . . . . . . . . . . . . . 6
Liquidating Distributions . . . . . . . . . . . . . . . . . . . . . 7
Recommendation of the General Partner . . . . . . . . . . . . . . . 8
Advantages and Disadvantages of Adopting the Plan . . . . . . . . . 8
Consequences if the Plan is not Adopted . . . . . . . . . . . . . . 8
Exchange Act Deregistration and Termination of Filings. . . . . . . 9
No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . 9
THE PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Formation and Contributions to the Partnership. . . . . . . . . . . 9
Distributions from the Partnership. . . . . . . . . . . . . . . . . 9
Market Information with Respect to Units. . . . . . . . . . . . . . 10
Principal Holders of Units. . . . . . . . . . . . . . . . . . . . . 10
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . 11
PARTNERSHIP INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN. . . . . . . . . . . . . . . 16
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Flow Through" of Tax Items from the Partnership. . . . . . . . . . 17
Taxation Upon Completion of Liquidation . . . . . . . . . . . . . . 18
Certain State Income Tax Consequences . . . . . . . . . . . . . . . 19
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
APPENDIX A: PLAN OF DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . A-1
APPENDIX B: PARTNERSHIP'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1995
APPENDIX C: PARTNERSHIP'S QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996
THE PLAN
BACKGROUND AND REASONS FOR THE PLAN
Since its formation in October 1984, the Partnership has invested
substantially all of its available capital (net of working capital reserves) in
research and development projects. To maximize returns, the General Partner has
already liquidated many of the investments of the Partnership in the ordinary
course of business and, because the Partnership Agreement does not allow the
reinvestment of net proceeds from the disposition of Partnership investments,
distributed the net proceeds to the partners. In some cases, where investments
have proved unsuccessful, no funds have been available for distribution and the
investments have little or no value. The General Partner continues to manage
the remaining investments.
Recent transactions include: (i) the sale of 645,792 shares of common
stock of Biocompatibles International plc for $3,042,000 in October 1995 (as
described in the Partnership's Form 10-K for the year ended December 31, 1995
which is attached hereto); (ii) the sale of 48,608 shares of common stock of
Biocompatibles International plc for $396,000 in February 1996 (as described in
the Partnership's Form 10-Q for the quarter ended June 30, 1996 which is
attached hereto); (iii) the transfer to Boston Scientific Corporation of the
Partnership's rights, titles and interests in certain technologies licensed to
Boston Scientific for $3,472,000 in January 1996 (which is described in the
Partnership's Form 10-K for the year ended December 31, 1995); (iv) the sale of
113,692 shares of common stock of Somatix Therapy Corporation for $765,000 in
March 1996 (which is described in the Partnership's Form 10-Q for the quarter
ended June 30, 1996); (v) the sale of the Partnership's right of participation
in a Biocompatible's rights issue in May 1996 for $289,000 (which is described
in the Partnership's Form 10-Q for the quarter ended June 30, 1996); and (vi)
the collection of $586,000 between April and July 1996 from the release of an
escrow account held as a guarantee of a bank loan made to Optical Specialties,
Inc. (which is described in the Partnership's Form 10-Q for the quarter ended
June 30, 1996).
Under the terms of the Partnership Agreement, the Partnership could operate
through the year 2004, continuing to incur management fees and administrative
and overhead expenses. The General Partner considered two alternatives: (i)
reducing the level of the Partnership's expenses and (ii) dissolving and
liquidating the Partnership.
In analyzing the first alternative, the General Partner examined the
ongoing expenses of the Partnership; this analysis indicated that the fixed
costs of managing the Partnership (including the production of annual and
quarterly reports, tax return preparation, audit and other professional fees)
would soon exceed the anticipated revenues from continuing the Partnership.
The General Partner has, therefore, considered liquidating the
Partnership's remaining investments in an orderly manner and dissolving the
Partnership. Upon completion of the liquidation of the Partnership's remaining
investments and the distribution of the available net proceeds to the partners
in accordance with the terms of the Partnership Agreement, the Partnership would
then cease operations and incur no further expenses.
Management of the General Partner delivered its evaluation to each member
of the Board of Directors of the General Partner prior to a meeting of the Board
on June 18, 1996.
The General Partner engaged Scott-Macon Securities, Inc. ("Scott-Macon") to
review the process by which management of the General Partner concluded that
dissolution of the Partnership was in the best interest of the Limited Partners.
Scott-Macon was not retained by the General Partner to render a fairness opinion
or to make an independent valuation of the Partnership's assets and,
accordingly, did not review or appraise the Partnership's investments or other
assets. Rather, under the terms of its engagement letter, dated February 21,
1996, Scott-Macon was instructed to assume that all valuations and other
information provided to it by the General Partner reflected the best available
estimates and prospects.
Scott-Macon was selected on the basis of its investment banking
qualifications and the General Partner's prior experience with that firm and its
affiliates. Scott-Macon is an investment banking firm located in New York which
provides investment banking services in the areas of mergers, acquisitions,
divestitures, private placements and general corporate advice. In the past two
years, Scott-Macon and its affiliates have been retained by the General Partner
and its affiliates in several business transactions. During the past two years,
Scott-Macon has received compensation from the General Partner and its
affiliates totaling $285,000, including $80,000 for this engagement by the
General Partner and $80,000 for a prior engagement by the General Partner for
another partnership. In addition, the General Partner has agreed to engage
Scott-Macon in connection with a review of one other partnership for an
additional total consideration of $80,000.
In connection with its review of the methodology supporting management's
recommendation to liquidate and dissolve the Partnership, Scott-Macon examined
an analysis prepared by management of the General Partner which contained
estimates of future revenues which the Partnership could expect to receive from
(i) the sale of its holdings of common stock and options in publicly traded and
privately held companies; and (ii) the sale of its royalty positions. In
addition, Scott-Macon reviewed the anticipated expenses of continuing to operate
the Partnership and a projection of the working capital of the Partnership as of
July 1, 1996. In reviewing the history of the Partnership, Scott-Macon reviewed
(i) the original Prospectus of the Partnership, (ii) the Partnership's Agreement
of Limited Partnership, (iii) Forms 10-K and 10-Q filed by the
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Partnership during the past three years and (iv) summaries of revenues and
expenses of the Partnership for the past three years.
Management's analysis provided for a most likely scenario (the "Base Case")
under which management estimated cash flow from the sale of the Partnership's
common stock holdings based on share prices at April 23, 1996 and a sale of the
Partnership's royalty positions based on a net present value calculation of the
estimated stream of royalty income through December 31, 2004, the time of the
royalty expiration.
Scott-Macon updated the Base Case to reflect the current share prices of
the publicly traded securities as of June 13, 1996. Scott-Macon reviewed
management's projections and, based on discussions with management, performed a
variance analysis by constructing a favorable variance analysis and an
unfavorable variance analysis. For the favorable variance analysis, Scott-Macon
increased the future revenue stream of the Partnership by (i) using the highest
stock price achieved for a particular investment during the past three years (or
for a shorter period if the particular stock was not publicly traded for three
years) for the publicly traded shares; (ii) increasing management's estimate of
the sale of its common stock holdings in a privately traded company by 20%;
(iii) increasing management's estimate of revenue from an incentive clause
received as a result of a previously completed transaction by 20%; and (iv)
increasing management's estimate of the sale of a royalty position by 50%.
Under its favorable variance analysis, Scott-Macon also assumed the Partnership
would receive management's Base Case estimate of proceeds from the proposed sale
of another royalty position to the company currently licensing the technology.
The Partnership had reached a general understanding with the company; however,
no formal written agreement had been agreed to by the parties.
For the unfavorable variance analysis, Scott-Macon decreased the future
revenue stream of the Partnership by (i) reducing the current share price for
the publicly traded shares by 20%; (ii) decreasing management's estimate of the
sale of its common stock holdings in a privately traded company by 20%; (iii)
decreasing management's estimate of revenue from an incentive clause received as
a result of a previously completed transaction by 20%; (iv) decreasing
management's estimate of the sale of a royalty position to zero which reflects
the possibility of the Partnership's inability to sell the royalty position; and
(v) reducing to zero the estimate of the proceeds anticipated to be generated
from the transaction with the company with which a general understanding exists,
which reflects the possibility of the inability of the parties to reach a
written agreement.
Scott-Macon then incorporated the proceeds realized in management's Base
Case and the favorable and unfavorable variance analysis in an analysis that
involved liquidating the Partnership (the "Liquidation Analysis") and in an
analysis that involved continuing the operations of the Partnership (the
"Continued Operations Analysis"). For the Liquidation Analysis, each investment
was sold based on management's estimates of optimal timing and based on
securities restrictions for certain investments. Scott-Macon
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deducted the Partnership expenses projected by management during the liquidation
period. The projected net cash flow from the three cases were then discounted
at rates of 20%, 25% and 30% and added to working capital estimated at July 1,
1996 to determine the net present value of liquidating the Partnership. This
resulted in nine different net present value calculations for the Liquidation
Analysis.
For the Continued Operations Analysis, Scott-Macon assumed that (i) the
Partnership made a distribution from its estimated working capital at July 1,
1996 and continued to operate the Partnership with a lower amount of working
capital, (ii) the working capital would continue to be used to pay Partnership
expenses and (iii) when working capital was reduced to a level that was
insufficient to pay current Partnership expenses, investments were sold in the
same order as the investments were sold in the liquidation analysis. The same
prices for these investments were assumed for management's Base Case, the
favorable variance analysis and unfavorable variance analysis in the Liquidation
Analysis and the Continued Operations Analysis. This process continued until
June 2000 when the remaining investments were sold and the proceeds from the
sale were added to working capital existing at that time. This working capital
balance was assumed to be distributed at that time and was then discounted at
rates of 25%, 30% and 35% and added to the working capital distribution assumed,
for purposes of the Continued Operations Analysis, to be made on July 1, 1996 to
determine the net present value of continuing the operations of the Partnership.
This resulted in nine different net present value calculations for the Continued
Operations Analysis. The higher discount rates used in the Continued Operations
Analysis as compared to the Liquidation Analysis reflected the increased risk of
operating the Partnership for a longer period of time than liquidating the
Partnership due to the type of investments held by the Partnership.
Because liquidating the Partnership and continuing the Partnership are
mutually exclusive events, management's Base Case, along with Scott-Macon's
favorable and unfavorable variance analysis, produced a total of 27 separate
scenarios which were analyzed. Scott-Macon then compared the net present values
of the Liquidation Analysis to the net present value of the Continued Operations
Analysis for all discount rates. In all 27 cases, the net present value of the
Liquidation Analysis was higher than the net present value of the Continued
Operations Analysis.
At the June 18, 1996 meeting of the Board of Directors of the General
Partner, a representative of Scott-Macon presented the analysis to the Board of
Directors. He then answered questions of the directors on the methodology
supporting management's recommendation and orally confirmed, from a financial
point of view, management's conclusion that the Limited Partners will benefit if
the Partnership liquidates its assets and thereby ceases to incur the costs of
continuing to operate the Partnership with the remaining assets. He also stated
that with the same analysis and excluding the Partnership's $2,000,000 annual
management fee, he would continue to confirm management's recommendation to
dissolve the Partnership. Scott-Macon distributed certain exhibits to the Board
of Directors which were prepared on the basis of information
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provided by management but did not prepare a written report or opinion and its
participation in the meeting of the Board of Directors, as agreed in its
engagement letter, did not involve rendering a fairness opinion or an
independent valuation of the assets of the Partnership. Subsequent to the June
18 meeting, Scott-Macon updated its analysis to reflect stock prices as of the
date of the meeting, which update did not alter the conclusions of their
analysis.
On the basis of management's evaluation, and the confirmation thereof by
Scott-Macon, the Board of Directors of the General Partner at the June 18
meeting unanimously determined that the sale of the Partnership's assets and the
subsequent liquidation of the Partnership was in the best interests of the
Limited Partners, approved the solicitation of the Limited Partners' consent to
the dissolution and liquidation of the Partnership as described in the Plan and
authorized, upon approval of the Limited Partners, the dissolution and
liquidation of the Partnership pursuant to the Plan. Accordingly, the General
Partner is recommending to the Limited Partners that the Partnership be
dissolved and liquidated pursuant to the Plan.
If the Plan is approved by the Limited Partners, the General Partner will
attempt to sell the Partnership's remaining investments as described under
"Disposition of Partnership Investments," below.
TERMS OF THE PLAN
The approval of the Plan by the holders of a majority of the outstanding
Units will result in the dissolution of the Partnership for purposes of
California law. Pursuant to the terms of the Plan, following the consent of the
holders of a majority of the outstanding Units, the remaining investments will
be sold by the General Partner in accordance with the Partnership Agreement and
applicable provisions of California law. The Plan provides that the General
Partner will sell or otherwise dispose of all of the Partnership's remaining
investments to such person or persons (other than the General Partner or its
affiliates) as the General Partner may determine and on such terms and
conditions as the General Partner determines to be in the best interests of the
Limited Partners. The terms of the Partnership Agreement prohibit the General
Partner and its affiliates from purchasing the Partnership's investments.
The Plan and the terms of the Partnership Agreement provide that the net
proceeds from the eventual sale of the Partnership's remaining investments will
be distributed to creditors of the Partnership, in the order of priority as
provided by law, with the balance being distributed in accordance with the
Partner's capital accounts under the terms of the Partnership Agreement. Such
capital accounts will reflect adjustments for gains and losses recognized in
connection with the disposition of assets, with losses being allocated 90% to
Limited Partners and 10% to the General Partner, and gains being allocated 90%
to Limited Partners and 10% to the General Partner until such time as total net
profits equal all losses previously allocated whereupon the General Partner will
be allocated an additional amount pursuant to the terms of the Partnership
Agreement. No
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assurance can be given that total net profits will ultimately exceed losses
allocated to date.
Upon adoption of the Plan, the General Partner estimates that final
liquidation of the remaining investments of the Partnership may take as long as
one year; however, due to the nature of the Partnership's investments as
described below under "Disposition of Partnership Investments," the General
Partner is unable to determine with any degree of certainty the timing of the
liquidation of the Partnership's remaining investments.
Pursuant to the terms of the Plan, the General Partner intends to
distribute the net proceeds received from the sale of the Partnership's
remaining investments following the retention of a working capital reserve for
use in satisfying any contingent or unaccrued liabilities of the Partnership.
To the extent that the Partnership has existing working capital, the amount
required to be retained from the net proceeds from the sale of the Partnership's
remaining investments will be reduced. After the satisfaction of these
obligations or liabilities, any remaining amounts will be distributed in
accordance with the Partnership Agreement.
DISPOSITION OF PARTNERSHIP INVESTMENTS
If the Plan is approved by the Limited Partners, the General Partner will
attempt to dispose of the Partnership's remaining investments (other than
investments the General Partner has determined are without value) as follows:
PUBLICLY TRADED EQUITY SECURITIES. The General Partner will
attempt to dispose of publicly traded equity securities on the exchanges or
other markets on which the respective securities are traded. To the extent
the Partnership holds any securities convertible into publicly traded
equity securities, such securities will be converted or otherwise sold. To
the extent that the Partnership holds any "in the money" options or
warrants to acquire publicly traded equity securities, such options or
warrants will be exercised or otherwise sold. The timing of the
Partnership's dispositions of publicly traded equity securities will be
based on market conditions and the business judgment of the General Partner
and will be subject to applicable Federal and state securities laws and
regulations.
NON-PUBLICLY TRADED EQUITY SECURITIES. The General Partner will
attempt to identify purchasers for equity securities which are not publicly
traded on any national exchange or other market and to sell such securities
in private transactions. The timing of the Partnership's dispositions of
equity securities which are not publicly traded will be based on market
conditions and the business judgment of the General Partner and will be
subject to applicable Federal and state securities laws and regulations.
-6-
ROYALTIES. The General Partner will attempt to obtain cash
payments for the transfer of the Partnership's rights to royalties under
technology license agreements. In connection with the sale of such rights,
the General Partner will either (i) attempt to sell the Partnership's
technology rights to the company to which such rights were originally
licensed under the respective license agreements or (ii) upon the consent
of such licensed company, attempt to sell the Partnership's technology
rights to an unrelated third party. In valuing such assets, the General
Partner will consider the costs which would be incurred by the Partnership
to collect such royalties.
Due to the nature of the Partnership's investments, the General Partner is
not able to predict with any degree of certainty the timing of any sales, the
total proceeds that will be received or the timing of or the cash amounts that
may ultimately be available for distribution by the Partnership. The General
Partner will continue to assess all of the Partnership's investments to
determine whether each investment is salable and, if so, whether the potential
proceeds from the sale of such investment would exceed transaction costs
associated with the sale of such investment. If the General Partner determines
that an investment is not salable or that the sale of any such investment is not
economically feasible, the General Partner, in its business judgment, may
surrender or abandon such investment on behalf of the Partnership.
LIQUIDATING DISTRIBUTIONS
The amount of any liquidating distributions to Limited Partners will depend
upon a number of factors, including, without limitation, the amounts received
from the sale of the Partnership's remaining investments, the transaction costs
associated with selling the Partnership's investments, the actual expenses
associated with obtaining Limited Partner approval of the Plan and completing
the winding-up of the Partnership, as well as the management fees and general
and administrative expenses incurred by the Partnership until the termination of
the Partnership. As a result of the uncertainty of the foregoing, the General
Partner is unable to include in the Consent Solicitation Statement a pro forma
balance sheet prepared on a liquidation basis or pro forma book value per Unit
information with respect to the Partnership.
The General Partner has estimated that approximately $169,000 in expenses
will be incurred in connection with obtaining the approval of the Limited
Partners to the Plan. The Partnership will continue to incur management fees
and general and administrative expenses (including expenses associated with
disposing of the Partnership's investments) until the liquidation of the
Partnership's investments is completed (estimated at one year which estimate is
subject to significant uncertainty due to the nature of the investments). To
the extent that the actual expenses incurred by the Partnership in connection
with soliciting Limited Partner approval are greater than those estimated by the
General Partner, or an extended period is required for the disposition of the
Partnership's investments, any amount available for distribution to Limited
Partners will be reduced.
-7-
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner recommends that Limited Partners vote FOR the adoption
of the Plan. The General Partner and affiliates of the General Partner intend
to vote all Units owned by them FOR adoption of the Plan.
ADVANTAGES AND DISADVANTAGES OF ADOPTING THE PLAN
The principal advantages to Limited Partners from the adoption of the Plan
are as follows:
- Limited Partners will receive available cash as the Partnership's
remaining investments are liquidated.
- The Partnership will, after the final liquidation of the Partnership's
assets and the final dissolution of the Partnership, avoid incurring
management fees and general and administrative expenses which would
otherwise reduce amounts available for distribution.
- After the final distribution of liquidation proceeds from the
Partnership's investments and the final dissolution of the
Partnership, the Limited Partners will no longer have Federal and
state income tax reporting requirements with respect to their
investment in the Units.
The principal disadvantage from the adoption of the Plan is:
- As the Partnership's remaining investments are liquidated, Limited
Partners will forego the opportunity to receive future income
generated by these investments or potential appreciation in the value
of these investments.
CONSEQUENCES IF THE PLAN IS NOT ADOPTED
If the Plan is not adopted, the General Partner will continue managing the
business and affairs of the Partnership, including from time to time disposing
of Partnership investments, in accordance with the terms of the Partnership
Agreement, and will make distributions, to the extent possible, from available
cash of the Partnership. If the Plan is not adopted, the General Partner may,
in the future, again seek the approval of Limited Partners for the liquidation
of the Partnership. The General Partner believes that, as a result of the on-
going management fees and general and administrative costs (for example, costs
incurred in connection with the preparation and mailing of tax returns and
quarterly and annual reports as well as annual audit and tax professional fees),
distributions to Limited Partners resulting from the continued operation of the
Partnership (which under the Partnership Agreement may continue until the year
2004) may be
-8-
significantly less when compared to amounts that are estimated to be available
if the Plan is approved at this time.
EXCHANGE ACT DEREGISTRATION AND TERMINATION OF FILINGS
The Units are currently registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Following the approval of the Plan, the
Partnership will continue to file with the Securities and Exchange Commission
(the "SEC") Annual Reports on Form 10-K, containing audited financial
statements, and Quarterly Reports on Form 10-Q containing unaudited interim
financial statements. In addition, the Partnership will also file with the SEC
reports on Form 8-K and report material events as circumstances warrant to
Limited Partners. Upon the liquidation of the Partnership's assets and payment
of the final liquidating distribution to Limited Partners, such registration
will be terminated and no additional reports will be filed by the Partnership
with the SEC.
NO APPRAISAL RIGHTS
There are no appraisal or dissenters' rights in connection with the
approval of the Plan and the liquidation and dissolution of the Partnership.
THE PARTNERSHIP
FORMATION AND CONTRIBUTIONS TO THE PARTNERSHIP
The Partnership was organized by the General Partner on October 4, 1984.
An aggregate $100,000,000 of capital was contributed by Limited Partners who
purchased 100,000 Units, and the General Partner contributed an additional
$10,000,000, constituting 10% of the Limited Partner's capital contributions.
The Partnership's objective was to seek cash flow from the research and
development of new technologies with potential commercial applications. For
information regarding distributions to the partners, see "Distributions from the
Partnership" below.
The Partnership has no officers, directors or employees. The business of
the Partnership is managed by the General Partner. The General Partner is a
wholly-owned subsidiary of Prudential Securities Group Inc. ("PSGI").
DISTRIBUTIONS FROM THE PARTNERSHIP
The Partnership has made distributions to its Partners from available
Partnership cash. The following is a summary of aggregate cash distributions
paid by the Partnership during the years ended December 31, 1993, 1994, 1995 and
for the six months ended June 30, 1996:
-9-
Six Months Ended
1993 1994 1995 June 30, 1996
---- ---- ---- -------------
Limited Partners $0 $2,000,000 $3,000,000 $4,000,000
General Partner 0 222,222 333,333 444,444
---- ---------- ---------- -------------
Total $0 $2,222,222 $3,333,333 $4,444,444
---- ---------- ---------- -------------
---- ---------- ---------- -------------
The following is a summary of cash distributions paid by the Partnership on
a per Unit basis during the years ended December 31, 1993, 1994 and 1995 and for
the six months ended June 30, 1996.
Six Months Ended
1993 1994 1995 June 30, 1996
---- ---- ---- -------------
Distributions per Unit $0 $20.00 $30.00 $40.00
--- ------ ------ ------
--- ------ ------ ------
From the date of the inception of the Partnership through June 30, 1996,
Limited Partners have received distributions of $262.50 per $1,000 Unit.
MARKET INFORMATION WITH RESPECT TO UNITS
The Units were originally sold for $1,000 per Unit. The Units are not
listed or traded on any securities exchange. The General Partner is aware of
certain resales of Units between Limited Partners and third parties on an
informal secondary market. As of the Record Date, there were 9,176 Limited
Partners and 100,000 Units outstanding.
PRINCIPAL HOLDERS OF UNITS
There are no individual Limited Partners who were known to the General
Partner to own beneficially more than 5% of the Units as of the Record Date. No
officer or director of the General Partner owns, beneficially or of record, any
Units. There are no arrangements known to the General Partner which may result
in a change in control of the Partnership. As of the Record Date, affiliates of
the General Partner owned 340 Units. All such Units will be voted FOR the Plan.
-10-
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
conjunction with the financial statements and related notes thereto appearing in
the Annual Report on Form 10-K for the year ended December 31, 1995 and the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 attached to
this Consent Solicitation Statement.
(See Table on next page)
-11-
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1996 1995
--------------------------------------------------------------------------------------------------
Gain on sale of investments
in equity securities $ 5,058,228 $ --- $ 1,346,953 $ 3,932,657 $ 13,232,555 $ 814,818 $ 1,939,643
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Royalty income $ 1,516,735 $ 474,663 $ 493,252 $ 525,353 $ 363,095 $ 289,415 $ 478,730
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Termination of royalty
rights $ 983,130 $ --- $ --- $ --- $ --- $ 3,472,000 $ 983,130
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 7,859,432 $ 1,670,074 $ 2,982,778 $ 5,970,952 $ 15,345,379 $ 5,080,405 $ 3,593,574
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Write-off of investments in
equity securities $ --- $ 1,489,410 $ 1,417,712 $ --- $ --- $ --- $ ---
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Net income (loss) $ 5,570,951 $ (2,130,645) $ (651,120) $ 3,765,143 $ 13,078,146 $ 3,902,593 $ 2,429,352
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Net income (loss) per Unit $ 50.14 $ (19.18) $ (5.86) $ 33.89 $ 117.70 $ 35.12 $ 21.86
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Total assets(1) $ 8,142,500 $ 6,837,750 $ 12,039,000 $ 10,029,026 $ 11,739,087 $ 7,589,228 $ 9,655,022
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Total limited partner
distributions $ 3,000,000 $ 2,000,000 $ --- $ 4,050,000 $ 8,100,000 $ 4,000,000 $ ---
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
Limited partner distributions
per Unit $ 30.00 $ 20.00 $ --- $ 40.50 $ 81.00 $ 40.00 $ ---
------------ ------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------ ------------- ------------ ------------
- ------------------------------
(1)Includes $2,357,754, $1,798,977 and $3,423,329 of unrealized gain on
investments in equity securities as of December 31, 1995, 1994 and 1993,
respectively, and $2,273,696 and $1,689,535 as of June 30, 1996 and 1995,
respectively.
-12-
PARTNERSHIP INVESTMENTS
Set forth below is a description of the Partnership's position in each
investment considered by the General Partner to have value, as of August 19,
1996.
BIOCOMPATIBLES INTERNATIONAL plc (BII, LONDON EXCHANGE)
942,045 shares of common stock. Of these shares, 920,080 shares are
restricted from sale under the terms of a lock-up agreement entered
into at the time of Biocompatibles' initial public offering, and will
be released in April 1997.
On August 19, 1996, the common stock of Biocompatibles, a publicly
traded company on the London Stock Exchange, closed at L4.08 per share
($6.31, at an exchange rate of $1.5456); the 12 month high and low
closing prices of the common stock were L5.4025 and L1.7175,
respectively.
ECOGEN INC. (EECN)
102,165 shares of common stock.
Royalty rights on several genetically engineered pesticide products
which expire December 2004. Royalties generated during 1995 and 1994
totaled $149,000 and $145,000, respectively, and approximately
$100,000 of royalties was generated in 1996 through June 30. A credit
balance from a prepayment of royalties was exhausted during the second
quarter of 1995; royalties collected by the Partnership in 1995
totaled $64,000.
On August 19, 1996, the common stock of Ecogen, a publicly traded
company on the NASDAQ, closed at $2-3/4 per share; the 12 month high
and low closing prices of the common stock were $10 and $2-5/8,
respectively.
An officer of the General Partner is a member of the Board of
Directors of Ecogen; as a result, the Partnership's sale of the common
stock of Ecogen is subject to certain SEC regulations restricting the
sale of securities by affiliates of the issuer of the securities.
-13-
NAVIGATION TECHNOLOGIES CORPORATION
2,284,541 shares of common stock.
As of the date hereof, the common stock of Navigation Technologies is
not publicly traded, and, as a result, there can be no assurance that
a market can be found for such shares.
In July 1996, Navigation Technologies filed an S-1 Registration
Statement with the SEC for the initial public sale of shares of its
common stock (an initial public offering, or "IPO"). Prior to the
completion of this proposed IPO, a 1 for 12 reverse stock split is
planned which would result in the Partnership holding 190,379 post-
split shares. The current proposed offering price range as stated on
the S-1 registration statement is $12-$14 per share; however, there is
no assurance that this proposed IPO will take place or that any
offering will be completed within the proposed offering price range.
The Partnership has agreed to a lock-up agreement with the
underwriters whereby the Partnership's shares will be restricted from
sale for 180 days following the IPO.
An officer of the General Partner is a member of the Board of
Directors of Navigation Technologies; as a result, the Partnership's
sale of the common stock of Navigation Technologies is subject to
certain SEC regulations restricting the sale of securities by
affiliates of the issuer of the securities.
OPTICAL SPECIALTIES, INC. (OPSL)
125,589 shares of common stock.
144,666 shares of Series D Preferred Stock.
Warrant to purchase 173,600 shares of common stock, exercisable at
$.02 per share, expiring on December 31, 1996.
Royalties on semiconductor quality control equipment, expiring in
December 1999. The Partnership is currently negotiating to sell its
royalty-bearing technology which it licenses to Optical Specialties,
Inc. (and a related License Agreement with Toray Industries, Inc.) to
Optical Specialties, Inc. (and Toray Industries, Inc.); while the
Partnership has reached a general understanding with the companies
regarding this sale, no agreements have been executed.
-14-
On August 19, 1996, the common stock of Optical Specialties, Inc., a
publicly traded company, closed at $1 per share; the 12 month high and
low prices of the common stock were $3 and $1, respectively. However,
shares of common stock of Optical Specialties, Inc. are thinly traded,
and, as a result, the Partnership may not be able to liquidate its
equity holdings at quoted market prices.
SILICON VALLEY RESEARCH, INC. (SVRI)
146,805 shares of common stock.
Warrant to purchase 37,350 shares of common stock exercisable at $.50
per share, expiring March 22, 1997. If the warrant is exercised by
net issuance, the resulting shares would be available for sale under
Rule 144 volume restrictions.
Warrant to purchase 75,000 shares of common stock exercisable at $1.50
per share, expiring September 15, 1997. If the warrant is exercised by
net issuance, the resulting shares would be available for sale subject
to Rule 144 volume restrictions beginning September 15, 1996.
On August 19, 1996, the common stock of Silicon Valley Research, Inc.,
a publicly traded company on the NASDAQ, closed at $4-3/4 per share;
the 12 month high and low closing prices of common stock were $12-1/2
and $3-5/8, respectively.
SYNBIOTICS CORPORATION (SBIO)
458,003 shares of common stock.
On August 19, 1996, the common stock of Synbiotics Corporation, a
publicly traded company on the NASDAQ, closed at $4-1/8 per share; the
12 month high and low closing prices of the common stock were $5-1/2
and $1-7/8, respectively. However, shares of common stock of
Synbiotics are thinly traded, and, as a result, the Partnership may
not be able to liquidate its equity holdings at quoted market prices.
An officer of the General Partner is a member of the Board of
Directors of Synbiotics Corporation; as a result, the Partnership's
sale of the common stock of Synbiotics Corporation is subject to
certain SEC regulations restricting the sale of securities by
affiliates of the issuer of the securities.
In addition to the foregoing investments, the Partnership has investments
which the General Partner has determined have marginal or no market value.
-15-
The General Partner will continue to assess all of the Partnership's
investments to determine whether each investment is salable, and if so, whether
the potential proceeds from a sale of such investment would exceed the
transaction costs associated with the sale. In determining the potential value
of the Partnership's investments, the General Partner will also consider the
Partnership's on-going management fees and general and administrative costs. If
the General Partner determines that the sale of any such investment is not
economically feasible, the General Partner, in its business judgment, may
surrender or abandon such investment on behalf of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
GENERAL
The following summarizes certain federal income tax consequences to the
Limited Partners arising from the Partnership's proposed sale of its assets and
liquidation pursuant to the Plan. Statements of legal conclusions regarding tax
consequences reflect the opinion of Coffield Ungaretti & Harris, counsel to the
Partnership, and are based upon relevant provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and accompanying Treasury regulations, as in
effect on the date hereof, upon reported judicial decisions and published
positions of the Internal Revenue Service (the "Service"), and upon further
assumptions that the Partnership constitutes a partnership for federal tax
purposes, that allocations made and to be made pursuant to the Partnership
Agreement have substantial economic effect as provided in the Treasury
regulations, and that the Partnership will be liquidated as described herein,
distributing only cash proceeds in complete liquidation of the Partners'
interests. The laws, regulations, administrative rulings and judicial decisions
which form the basis for conclusions with respect to the tax consequences
described herein are subject to change (including change which may have
retroactive effect) at any time.
This summary is directed to individual Limited Partners who are citizens or
residents of the United States for federal income tax purposes and who hold
Units as capital assets (generally, property held for investment). Except as
otherwise specifically set forth herein, this summary does not address foreign,
state or local tax consequences, and is inapplicable to corporations, trusts,
estates, partnerships, limited liability companies, tax-exempt entities,
investment companies, nonresident aliens, or debtors under the jurisdiction of a
court in a case under federal bankruptcy laws or in a receivership, foreclosure
or similar proceeding. Moreover, it is impossible to describe all the tax
consequences of the Plan upon Limited Partners because the tax consequences may
vary depending upon the individual circumstances of a Limited Partner. All
Limited Partners are strongly encouraged to consult their own tax advisors as to
the tax issues which may be specifically applicable to them.
-16-
OVERVIEW
Limited Partners may anticipate two types of tax consequences from the
proposed liquidation. Certain tax consequences will "flow through" to the
Limited Partners from the Partnership during the period required to complete the
sale or other disposition of its assets and distribution of the liquidation
proceeds. In addition, certain tax consequences will result when the
Partnership completes the liquidation of its assets and terminates its
existence.
"FLOW THROUGH" OF TAX ITEMS FROM THE PARTNERSHIP
IN GENERAL
The Partnership will have certain items of income, expense, gain and loss
during the period of time required for it to dispose of its assets and make
liquidating distributions. These items will include operating income and
expenses, and will also include expenses, gains and losses specifically relating
to the disposition of its assets. All such items will be allocated among the
Partners in the manner described in the Partnership Agreement. As was true
throughout the life of the Partnership, each Limited Partner must continue to
recognize and report his allocable share of the Partnership's items of income,
gain, loss, deduction and credit, including those items relating to the
disposition of assets in connection with the liquidation.
DISPOSITION OF ASSETS
The Partnership will realize and recognize gain or loss, or a combination
of both, upon the disposition of its assets. The amount of gain with respect to
each asset will be the excess of the amount realized (i.e., cash and other
consideration received, including relief of indebtedness) over the Partnership's
adjusted tax basis for such asset. Conversely, the amount of loss with respect
to each asset will be the excess of the Partnership's tax basis for such asset
over the amount realized.
Net long-term capital gains of individuals, trusts and estates are taxed at
a maximum rate of 28%, while ordinary income is currently taxed at rates of up
to 39.6%. Capital losses recognized in a given taxable year can be utilized to
offset capital gains during that taxable year, plus up to $3,000 of ordinary
income ($1,500 in the case of a married individual filing a separate return).
Any capital loss that is not deducted because of this limitation may be carried
forward and utilized in subsequent years subject to the same limitation.
In connection with the liquidation, the Partnership will attempt to sell
certain royalty rights. The royalty rights have zero basis in the hands of the
Partnership, so the entire amount realized in connection with this sale will
represent taxable gain. It is anticipated that such gain will be treated as
"section 1231 gain" from assets used in the Partnership's trade or business.
Such gain is generally treated as long-term capital gain.
-17-
To the extent a taxpayer has unrecaptured section 1231 losses in the five
preceding taxable years, however, such gains may be treated as ordinary income.
In the case of a partnership, the determination of whether there are
unrecaptured section 1231 losses is made based on the circumstances of each
individual partner.
The Partnership also intends to dispose of certain securities. Some of
these securities will be sold; others, having little or no value, may be
abandoned. These dispositions will result in long term capital gains or losses.
Consistent with the goal of maximizing the Limited Partners' overall return from
the liquidation, the General Partner, to the extent possible, will attempt to
cause the Partnership to recognize losses in the same year as gains, but there
can be no assurance that such matching will be possible.
TAXATION UPON COMPLETION OF LIQUIDATION
GAIN OR LOSS UPON COMPLETION OF LIQUIDATION
The Partnership itself will not realize gain or loss upon the distribution
of cash to its partners in liquidation. Each Limited Partner, however, will be
treated as having sold his Units for an amount equal to the cash distributed to
such Limited Partner in liquidation. If such amount exceeds the Limited
Partner's adjusted tax basis in his Units, the difference will be a capital
gain; if such amount is less than the Limited Partner's basis, the difference
will be a capital loss. The tax consequences of the liquidation to a Limited
Partner will therefore depend in part on his basis in his Units.
A Limited Partner's basis in his Units is affected by allocations and
distributions made during the period of time he held the Units. Allocations of
income and gain to a Limited Partner, including gain from the sale of
Partnership investments, increase such Limited Partner's adjusted tax basis in
his Units. Conversely, allocations of losses and deductions to a Limited
Partner, including losses from the sale of Partnership investments, reduce such
Limited Partner's adjusted tax basis in his Units. A Limited Partner's adjusted
tax basis in his Units is also reduced (but not below zero) by distributions to
such Limited Partner. Distributions in excess of basis are taxed in the same
manner as gain from the sale of a Unit (i.e., as capital gain). Because of the
many factors affecting the basis of Units (including differing initial bases for
Limited Partners who obtained their Units at different times), it is not
possible to state in general whether the liquidation will result in a gain or
loss to the Limited Partners or the likely extent of such gain or loss.
PASSIVE LOSS LIMITATION
Limited Partners that are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitation rules that were
enacted as part of the Tax Reform Act of 1986. These rules generally provide
that losses resulting from a passive activity may not be used to offset income
unless such income also results from a passive activity.
-18-
A Limited Partner's allocable share of Partnership income, gain, loss, and
deduction is treated as derived from a passive activity, except to the extent of
the Partnership's portfolio income, which includes interest, dividends and gains
from the sale of portfolio investments. A Limited Partner's allocable share of
any Partnership gain realized on sale of its investments (other than investments
that are classified as portfolio investments) will be passive activity income
that may be offset by passive activity losses from other passive activity
investments.
Liquidation of the Partnership will result in a complete, taxable
disposition of the Limited Partners' interests. When an owner of a passive
activity makes a complete, taxable disposition of the owner's interest in the
activity, all passive activity losses of that activity for the taxable year of
disposition and all previous taxable years, to the extent not used to offset
passive activity income for previous years, are treated as losses which are not
from a passive activity, and may offset other income subject to other applicable
limitations. Depending upon individual circumstances, a Limited Partner may
achieve tax savings as a result of the liquidation through the use of losses
that were allocated in previous years but suspended by reason of the passive
loss limitation.
CERTAIN STATE INCOME TAX CONSEQUENCES
State income tax consequences are generally beyond the scope of this
discussion, and Limited Partners should rely upon their own tax advisors for
information regarding such consequences. Limited Partners should note, however,
that some or all of the Partnership's income and losses may be considered to
arise from California sources. California law may require income tax
withholding with respect to certain distributions made to Limited Partners
residing outside California.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS INTENDED TO
BE ONLY A SUMMARY OF CERTAIN INCOME TAX CONSEQUENCES OF THE DISPOSITION OF THE
PARTNERSHIP'S INVESTMENTS AND THE LIQUIDATION OF THE PARTNERSHIP PURSUANT TO THE
PLAN. IT IS NOT INTENDED AS AN ALTERNATIVE TO INDIVIDUAL TAX PLANNING. EACH
LIMITED PARTNER SHOULD CONSULT HIS OWN TAX ADVISOR CONCERNING SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES APPLICABLE TO HIM.
LITIGATION
On April 15, 1994, a multiparty petition captioned MACK ET AL. V.
PRUDENTIAL SECURITIES INCORPORATED ET AL. (Cause No. 94-17695) was filed in the
80th Judicial District Court of Harris County, Texas, purportedly on behalf of
investors in the Partnership against the Partnership, the General Partner,
Prudential Securities Incorporated, the Prudential Insurance Company of America
and a number of other defendants. The
-19-
petition alleges common law fraud, fraud in the inducement and negligent
misrepresentation in connection with the offering of the Partnership; negligence
and breach of fiduciary duty in connection with the operation of the
Partnership; civil conspiracy; and violations of the federal Securities Act of
1933 (sections 11 and 12) and of the Texas Securities and Deceptive Trade
Practices statutes. The suit seeks, among other things, compensatory and
punitive damages, costs and attorneys' fees. The ultimate outcome of this
litigation as well as the impact on the Partnership cannot presently be
determined.
The General Partner believes that the litigation discussed above will not
have an adverse impact on its ability to liquidate the Partnership in accordance
with the Plan and in the time frame currently contemplated by the General
Partner.
-20-
APPENDIX A
PLAN OF DISSOLUTION AND LIQUIDATION
OF
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
This Plan of Dissolution and Liquidation (the "Plan") is intended to effect
the complete, voluntary dissolution and liquidation of PruTech Research and
Development Partnership II, a California limited partnership (the
"Partnership"), in accordance with Article 9 of the Agreement of Limited
Partnership, dated as of October 4, 1984, as amended (the "Partnership
Agreement"), and Article 8 of the California Revised Uniform Limited Partnership
Act. Capitalized terms used herein without other definition shall have the
meanings ascribed to them in the Partnership Agreement.
1. This Plan shall be effective on the date (the "Effective Date") on
which it is adopted by the affirmative vote of the holders of a majority of the
outstanding Units in accordance with the terms of the Partnership Agreement.
2. Following the Effective Date, the General Partner shall act as
"Liquidating Agent" with respect to the Partnership's assets and shall proceed
to complete the following actions to liquidate the Partnership's assets and to
effect the complete and voluntary dissolution of the Partnership:
(a) The Liquidating Agent shall sell or otherwise dispose of the
assets of the Partnership, other than cash, pursuant to the transactions
described in the Consent Solicitation Statement distributed to the Limited
Partners in connection with the approval of the Plan or in such other
transactions and upon such terms and conditions as the Liquidating Agent
deems to be in the best interests of Limited Partners to any person or
persons (other than the General Partner or its Affiliates).
(b) The assets of the Partnership shall be distributed to the Limited
Partners and the General Partner in accordance with the Partnership
Agreement in one or a series of distributions, at any time or from time to
time, and in any manner that the Liquidating Agent may determine.
(c) The Liquidating Agent shall, in addition, (i) cause the
Partnership to withdraw from all jurisdictions in which the Partnership is
qualified to do business, (ii) wind up the Partnership's business and
affairs, and (iii) complete the formal dissolution of the Partnership and
cancellation of the Certificate of Limited Partnership under California
law.
3. Implementation of this Plan shall be under the direction of the
Liquidating Agent who shall have full authority to carry out the provisions of
this Plan or such other actions it deems appropriate without further action by
the partners.
A-1
APPENDIX B
1995
- -------------------------------------------------------------------------------
PRUTECH RESEARCH AND ANNUAL
DEVELOPMENT PARTNERSHIP II REPORT
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
April 1996
To the Limited Partners:
This 1995 Annual Report includes the Partnership's financial statements for
1995, Management's Discussion and Analysis of Financial Condition and Results
of Operations, and information about each of the entities in which the
Partnership has an active investment.
Should you have any questions, please contact Prudential Securities' Client
Services Department at 1-(800)-535-2077.
Very truly yours,
/s/ Russell L. Allen
Russell L. Allen
President
R&D Funding Corp
General Partner
PRUTECH II PORTFOLIO
The following investments and/or royalty rights were active during the year, or
had value at the end of the year. The Partnership's position in each investment
and/or royalty right is as of December 31, 1995. However, the Partnership's
positions in Ecogen Inc. and Silicon Valley Research, Inc. reflect a reverse
stock split which occurred subsequent to December 1995. Additionally, certain
of these securities have been sold subsequent to December 31, 1995. Certain of
the securities held by the Partner ship have restrictions on resale due to
contractual obligations and/or Federal securities laws and regulations.
BIOCOMPATIBLES INTERNATIONAL plc (BLL, LONDON EXCHANGE)
Position: 968,688 shares of common stock; $87,685 Promissory Note due from
Lombart Lenses Limited, Inc. ("Lombart")
In April 1995, Biocompatibles completed a public offering of stock on the
London stock exchange, and the Partnership's Biocompatibles preferred stock
(held by a company wholly owned by the Partnership and an affiliate) converted
into common stock. In June 1995, this wholly-owned company was dissolved, and
the Biocompatibles common stock was distributed on a pro-rata basis to the
Partnership and its affiliate. In March and September of 1995, shares which had
been held in escrow (from the 1994 acquisition of Lombart's assets by
Biocompatibles) were released without any claims. As a result of the above
transactions the Partnership held 1,614,480 shares of Biocompatibles common.
Additional shares may be issued to the Partnership as part of the 1994 merger
consideration if certain 1995 performance thresholds are met by the Lombart
business.
In October 1995, the Partnership sold 645,792 shares of Biocompatibles
common stock, generating $3,042,00 for the Partnership. Subsequent to December
1995, the Partnership sold an additional 48,608 shares for $396,00. The stock
price of Biocompatibles was $7.45 per share as of March 26, 1996.
The promissory note matured March 23, 1996 at which time all principal and
interest was collected.
BOSTON SCIENTIFIC CORPORATION (BSX)
Position: Royalties on catheters designed for use in ultrasound imaging systems
which expire in 1999
The Partnership received royalties of $580,000 in 1995 from Boston
Scientific's sales of the Partnership's products compared to $326,000 in 1994.
Subsequent to December 1995, the Partnership and its affiliate transferred to
Boston Scientific all of their rights, titles and interests in these licensed
technologies in exchange for a cash payment, of which the Partnership's portion
was $3,472,000.
ECOGEN INC. (EECN)
Position: 102,165 (post-split) shares of common stock; director's
options for 3,400 shares at exercise prices ranging from $17.82
to $53.05 per share; royalty rights on several genetically
engineered pesticide products which expire in 2004
Sales of the Partnership's royalty-bearing products increased slightly in
1995, creating royalties of $149,000 during 1995 as compared to $145,000 in
1994. A credit balance from a prepayment of royalties was exhausted in the
second quarter of 1995, and the Partnership is now receiving quarterly royalty
payments. Royalties received during 1995 totaled $64,000. Subsequent to
December 1995, Ecogen completed a 1 for 5 reverse stock split. As a result, the
Partnership now holds 102,165 shares of Ecogen common and the option amounts and
related exercise prices were adjusted accordingly. The stock price (post-split)
of Ecogen was $5.00 per share as of March 26, 1996.
MACNEAL-SCHWENDLER CORPORATION (MNS)
Position: None
In March 1995, the Partnership and MacNeal-Schwendler Corporation ("MNS")
agreed to terminate the Partnership's contractual rights with respect to MNS
software and to transfer the technology relating to that software to MNS in
exchange for approximately $983,000. Royalties received by the Partnership
relating to this technology were $27,000 in 1995 and $194,000 in 1994. No
further royalty payments will be received by the Partnership from MNS as a
result of this agreement.
2
NAVIGATION TECHNOLOGIES CORPORATION
Position: 2,284,541 shares of common stock
In June 1995, the Partnership sold 2,284,542 shares of Navigation
Technologies stock for $1,942,000. Navigation Technologies, a private company,
develops high quality navigable map databases.
OPTICAL SPECIALTIES, INC. (OSI)
Position: 108,229 shares of common stock; 144,666 shares of Series D preferred
stock; warrant for 173,600 shares of common stock, exercisable at $.02
per share; contingency warrant for 412,300 shares of common stock
exercisable at $.02 per share tied to the Partnership's guarantee of
an OSI loan; royalties on technology and products licensed to OSI and
to Toray Industries, a Japanese manufacturer which expire in 1999.
The Partnership received payments of $777,000 from OSI in 1995, as compared
to $43,000 in 1994. The 1995 payments were primarily past-due royalties and
accumulated interest payments. The Partnership's other licensee, Toray
Industries, generated $81,000 of royalties for the Partnership during 1995, as
compared to $55,000 during 1994. Negotiations are in process to transfer the
Partnership's technology positions to OSI. The stock price of OSI was $1.37 per
share as of March 27, 1996.
SILICON VALLEY RESEARCH, INC. (SVRI)
Position: 146,806 (post-split) shares of common stock; warrant for 37,350 shares
exercisable at $.50 per share; warrant for 75,000 shares exercisable
at $1.50 per share
In July 1995, the Partnership partially exercised a warrant to acquire, on
a net issuance basis, 11,865 shares (23,731 pre-split shares) of SVRI stock.
During July and August 1995, the Partnership sold 27,500 shares (55,000 pre-
split shares) of SVRI common stock generating $227,000 for the Partnership.
Subsequent to December 1995, SVRI completed a 1 for 2 reverse stock split. As a
result, the Partnership now holds 146,806 shares of SVRI common and the warrant
share amounts and related exercise prices were adjusted accordingly. The stock
price (post-split) of SVRI was $3.875 per share as of March 26, 1996.
SOMATIX THERAPY CORPORATION (SOMA)
Position: 113,692 shares of common stock
From the period January 1, 1996 through March 27, 1996, the Partnership
sold its remaining 113,692 shares for $765,000.
SYNBIOTICS CORPORATION (SBIO)
Position: 460,303 shares of common stock; director's options for 33, 418 shares
of common stock exercisable at prices ranging from $2.63 to $4.00 per
share
The stock price of Synbiotics was $2.875 per share as of March 26, 1996.
TRIDOM CORPORATION
Position: None
In June 1995, the Partnership received $1,954,000 of principal and related
interest upon the maturity of its promissory note.
3
DELOITTE & TOUCHE LLP
(LOGO)
- ----------------------------------------------------------------
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of
PruTech Research and Development Partnership II
We have audited the accompanying statements of financial condition of PruTech
Research and Development Partnership II (a California limited partnership)
as of December 31, 1995 and 1994, and the related statements of operations,
changes in partners' capital and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the General Partner. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of PruTech Research and Development
Partnership II as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 12, 1996
- ---------------
Deloitte Touche
Tohmatsu
International
- ---------------
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------
1995 1994
- ------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $2,936,616 $ 628,469
Investments in equity securities 3,911,066 3,504,652
U.S. Treasury bills held in escrow, at amortized cost 585,707 582,524
Due from affiliate 462,586 --
Royalties receivable 147,560 161,101
Notes receivable, net 19,031 956,643
Interest receivable 5,585 930,012
Stock warrants 74,349 74,349
---------- ----------
Total Assets $8,142,500 $6,837,750
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued management fee $ 500,000 $2,000,000
Accrued expenses and other liabilities 102,103 93,748
---------- ----------
Total liabilities 602,103 2,093,748
---------- ----------
CONTINGENCIES AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners (100,000 units issued and outstanding) 4,595,879 2,582,023
General partner 586,764 363,002
Unrealized gain on investments in equity securities 2,357,754 1,798,977
---------- ----------
Total partners' capital 7,540,397 4,744,002
---------- ----------
Total liabilities and partners' capital $8,142,500 $6,837,750
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
5
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
REVENUES
Royalty income $1,516,735 $ 474,663 $ 493,252
Gain on sale of investments in equity securities 5,058,228 -- 1,346,953
Termination of royalty rights 983,130 -- --
Interest and other income 301,339 503,557 339,337
Recovery of R&D commitment -- 691,854 577,742
Monitoring fee income -- -- 225,494
---------- ----------- ----------
7,859,432 1,670,074 2,982,778
---------- ----------- ----------
EXPENSES
Management fee 2,000,000 2,000,000 2,000,000
General and administrative 288,481 311,309 206,186
Write-down of investments in equity securities -- 1,489,410 1,417,712
Write-off of stock warrants -- -- 10,000
---------- ----------- ----------
2,288,481 3,800,719 3,633,898
---------- ----------- ----------
Net income (loss) $5,570,951 $(2,130,645) $ (651,120)
---------- ----------- ----------
---------- ----------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $5,013,856 $(1,917,580) $ (586,008)
---------- ----------- ----------
---------- ----------- ----------
General partner $ 557,095 $ (213,065) $ (65,112)
---------- ----------- ----------
---------- ----------- ----------
Net income (loss) per limited partnership unit $ 50.14 $ (19.18) $ (5.86)
---------- ----------- ----------
---------- ----------- ----------
- ----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
UNREALIZED
LIMITED GENERAL GAIN ON
PARTNERS PARTNER INVESTMENTS TOTAL
- -------------------------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1992 $7,085,611 $863,401 $ -- $7,949,012
Net loss (586,008) (65,112) -- (651,120)
Unrealized gain on investments in equity
securities -- -- 3,423,329 3,423,329
---------- -------- ---------- ----------
Partners' capital--December 31, 1993 6,499,603 798,289 3,423,329 10,721,221
Net loss (1,917,580) (213,065) -- (2,130,645)
Distribution (2,000,000) (222,222) -- (2,222,222)
Change in unrealized gain on investments in
equity securities -- -- (1,624,352) (1,624,352)
---------- -------- ---------- ----------
Partners' capital--December 31, 1994 2,582,023 363,002 1,798,977 4,744,002
Net income 5,013,856 557,095 -- 5,570,951
Distributions (3,000,000) (333,333) -- (3,333,333)
Change in unrealized gain on investments in
equity securities -- -- 558,777 558,777
---------- -------- ---------- ----------
Partners' capital--December 31, 1995 $4,595,879 $586,764 $2,357,754 $7,540,397
---------- -------- ---------- ----------
---------- -------- ---------- ----------
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
6
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Royalty income received $ 1,530,276 $ 617,789 $ 448,806
R&D recoveries received -- 650,000 577,742
Interest and other income received 1,190,780 127,681 209,502
General and administrative expenses paid (280,126) (343,486) (165,087)
Management fee paid (3,500,000) (500,000) (2,000,000)
Cash (paid) received for other assets, net (462,586) 4,065 3,296
------------ ------------ ------------
Net cash (used in) provided by operating activities (1,521,656) 556,049 (925,741)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of investments in equity securities 5,210,591 -- --
Proceeds from the termination of royalty rights 983,130 -- --
Collection of noted receivable 937,612 4,340 95,480
Proceeds from the sale of technology 27,418 -- --
Purchase of U.S. Treasury bills held in escrow (1,167,415) (1,739,831) (577,205)
Redemption of U.S. Treasury bills held in escrow 1,171,800 1,757,700 585,900
Investments in equity securities -- (770) (498,661)
------------ ------------ ------------
Net cash provided by (used in) investing activities 7,163,136 21,439 (394,486)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (3,333,333) (2,222,222) --
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,308,147 (1,644,734) (1,320,227)
Cash and cash equivalents at beginning of year 628,469 2,273,203 3,593,430
------------ ------------ ------------
Cash and cash equivalents at the end of year $ 2,936,616 $ 628,469 $ 2,273,203
------------ ------------ ------------
------------ ------------ ------------
- -------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 5,570,951 $ (2,130,645) $ (651,120)
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Gain on sale of investments in equity securities (5,058,228) -- (1,346,953)
Termination of royalty rights (983,130) -- --
Gain on sale of technology (27,418) -- --
Monitoring fee income -- -- (225,494)
Write-off of investments in equity securities -- 1,489,410 1,417,712
Write-off of stock warrants -- -- 10,000
Recovery of R&D commitment income -- (41,854) --
Interest income from receipt of stock warrants -- (32,495) --
Changes in:
Accrued management fee (1,500,000) 1,500,000 --
Interest receivable 916,859 (343,381) (129,827)
Royalties receivable 13,541 143,126 (44,446)
Due from affiliate (462,5860) -- --
Other assets -- 4,065 3,387
Accrued expenses and other liabilities 8,355 (32,177) 41,000
------------ ------------ ------------
Total adjustments (7,092,607) 2,686,694 (274,621)
------------ ------------ ------------
Net cash (used in) provided by operating activities $ (1,521,656) $ 556,049 $ (925,741)
------------ ------------ ------------
------------ ------------ ------------
(continued on next page)
7
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF CASH FLOWS (CONT'D)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
1995
Biocompatibles International plc convertible preferred stock was converted from
preferred to common stock (see Note D).
Partially exercised a warrant to acquire, on a net issuance basis, 23,731 shares
of Silicon Valley Research, Inc. common stock.
Received 281 shares of Texas Biotechnology Corporation common stock after
certain contractual conditions were met.
1994
Satisfied a $43,400 royalty receivable from Optical Specialities, Inc., by
accepting 144,666 shares of that company's preferred stock.
Lombart Lenses Limited, Inc. transferred all of its assets and liabilities to a
wholly-owned subsidiary of Biocompatibles International plc in exchange for
161,448 shares of Biocompatibles convertible preferred stock (see Note D).
Received $550,000 in cash and a warrant to acquire 150,000 shares of common
stock from Silicon Valley Research, Inc. in satisfaction of its outstanding
note (principal and interest of $591,854 and $32,495, respectively).
The General Partner concluded that an impairment in value that was not temporary
had occurred in the Partnership's equity investments in Synbiotics
Corporation and Somatix Therapy Corporation. As a result, the value of the
Partnership's common stock was written down by $949,375 and $540,035,
respectively.
1993
Exchanged 84,500 shares of Seattle Silicon Corporation common stock and
warrants for 88,834 shares of the company exercisable at $.50 per share for
43,333 shares of common stock of the company. The common stock has no cost
basis or readily determinable market value at December 31, 1993.
The General Partner concluded that an impairment in value that was not temporary
had occurred in the Partnership's equity investments in Somatix Therapy
Corporation. As a result, the value of the Partnership's common stock was
written down by $1,417,712.
Solitec, Inc. reincorporated as Turn Technology, Inc. in mid-December 1993; a
10:1 reverse split resulted in receipt of 126 shares of common stock in
exchange for 1,260 shares of common stock.
Navigation Technologies Series A preferred stock was converted from preferred to
common stock.
The terms of a warrant to purchase 600,000 shares of Silvar-Lisco common
stock at $6.7675 per share were changed to purchase 677,567 shares at
$5.9948 per share.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
8
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
PruTech Research and Development Partnership II (the "Partnership"), a
California limited partnership, was formed on October 4, 1984 and will terminate
on December 31, 2004 unless terminated sooner under the provisions of the
Agreement of Limited Partnership, as amedned (the "Partnership Agrement").
Capital resources were originally provided by the sale of limited partnership
units and by contributions of the General Partner equal to 10% of limited
partnership contributions. The Partnership was formed to seek cash flow from
the research and development of new technology with potential commercial
applications. The general partner of the Partnership is R&D Funding Corp (the
"General Partner"), a wholly-owned subsidiary of Prudential Securities Group
Inc. ("PSGI"). At December 31, 1995, the Partnership held equity investments, a
note receivable and/or active royalty rights relating to eight portfolio
companies.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market funds.
INVESTMENTS
The Partnership's equity securities that have readily determinable fair
values are classified as available-for-sale securities. These securities are
measured at fair value in the statements of financial condition and unrealized
gains and losses are reported as a separate component of partners' capital.
Equity securities traded on a national securities exchange or NASDAQ national
market are valued at the last reported sales price on the primary exchange on
which they are traded. Equity securities traded in the over-the-counter market
and thinly-traded securities are valued at the mean between the last reported
bid and asked prices. Equity securities which are not readily marketable are
accounted for under the cost method.
The carrying value of an investment is written down to its fair value when a
decline in value is considered to be other than temporary. The Partnership uses
the average cost method to determine gains or losses on the sale of securities.
ROYALTY INCOME
Royalty income represents revenue generated from licenses granted by the
Partnership.
MONITORING FEE INCOME
Payments received from research and development companies to reimburse the
Partnerhip for its cost of monitoring during the development and marketing
periods of a product were deferred and fully amortized over an eight-year period
which ended December 31, 1993.
MANAGEMENT FEE
The General Partner is paid a management fee equal to two percent of the
limited partners' original capital contributions per annum. This fee provides
for the cost of overseeing, supervising and monitoring the conduct of the
development projects and for overseeing and monitoring product exploitation
resulting from the development projects.
9
INCOME TAXES
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
PROFIT AND LOSS ALLOCATIONS AND DISTRIBUTIONS
Net losses are allocated 90% to the limited partners and 10% to the General
Partner until such time as the total net profits allocated to each limited
partner equal all losses previously allocated whereupon the General Partner will
be allocated net profits in an additional amount of 25% with a corresponding
reduction to the limited partners to be shared in proportion to their capital
contributions.
Distributions of cash are made in accordance with the Partnership Agreement
and are allocated 90% to the limited partners and 10% to the General Partner.
C. ROYALTIES
In March 1995, the Partnership and MacNeal-Schwendler Corporation ("MNS")
agreed to terminate the Partnership's contractual rights with respect to MNS
software and to transfer the technology relating to the software to MNS in
exchange for $983,130. No further royalty payments will be received by the
Partnership from MNS as a result of this agreement.
D. INVESTMENTS
In connection with certain of its research and development contracts, the
Partnership has exercised its warrants or has converted its technology, royalty
rights, warrants or notes receivable into an equity position in the companies
performing the research and development. Investments in equity securities
include the following:
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------------------ ----------------------------------------------
GROSS
GROSS UNREALIZED
COST UNREALIZED CARRYING COST GAIN CARRYING
MARKETABLE EQUITY SECURITIES SHARES BASIS GAINS VALUE SHARES BASIS (LOSS) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
Ecogen Inc. - Common Stock 510,827 $ 20,537 $ 713,777 $ 734,314 510,827 $ 20,537 $1,799,284 $1,819,821
Somatix Therapy Corpora-
tion - Common Stock 113,692 341,076 341,076 682,152 113,692 341,076 -- 341,076
Synbiotics Corporation -
Common Stock 460,303 891,837 201,383 1,093,220 460,303 891,837 -- 891,837
Silicon Valley Research,
Inc. - Common Stock 293,612 -- 1,101,044 1,101,044 -- -- -- --
Texas Biotechnology Corpo-
ration - Common Stock 603 770 474 1,244 322 770 (307) 463
---------- ---------- ---------- ---------- --------- ---------
1,254,220 2,357,754 3,611,974 1,254,220 1,798,977 3,053,197
--------- ---------- ---------- ---------- --------- ---------
NOT READILY MARKETABLE EQUITY
SECURITIES
- -----------------------------
Optical Specialties, Inc. -
Common Stock 108,229 -- -- -- 108,229 -- -- --
Optical Specialties, Inc. -
Preferred Stock 144,666 43,400 -- 43,400 144,666 43,400 -- 432,400
Biocompatibles International
plc - Common Stock 968,688 253,474 -- 253,474 -- -- -- --
Biocompatibles International
plc - Series D
Convertible Preferred Stock -- -- -- -- 161,488 403,620 -- 403,620
Navigation Technologies Cor-
poration - Common Stock 2,284,541 2,218 -- 2,218 4,569,083 4,435 -- 4,345
Silicon Valley Research
Inc. - Common Stock -- -- -- -- 324,861 -- -- --
--------- ---------- ---------- ---------- --------- ---------
299,092 -- 299,092 451,455 -- 451,455
--------- ---------- ---------- ---------- --------- ---------
$1,553,312 $2,357,754 $3,911,066 $1,705,675 $1,798,977 $3,504,652
--------- ---------- ---------- ---------- --------- ---------
--------- ---------- ---------- ---------- --------- ---------
The gross unrealized gain would be allocated 90% to the limited partners
and 10% to the General Partner if realized at December 31, 1995; however, there
is no assurance that the Partnership would receive these amounts in the event of
the sale of its position in these securities.
10
SOMATIX THERAPY CORPORATION
The General Partner concluded that an impairment in value that was not
temporary had occurred in the Partnership's equity investment in Somatix Therapy
Corporation in 1994 and 1993. As a result, the value of the Partnership's
common stock was written down by $540,035 and $1,417,712 for the years ended
December 31, 1994 and 1993, respectively.
SYNBIOTICS CORPORATION
In 1994, the General Partner concluded that an impairment in value that was
not temporary had occurred in the Partnership's equity investment in Synbiotics
Corporation. As a result, the value of the Partnership's common stock was
written down by $949,375. These shares were originally received by the
Partnership in June 1993 in exchange for its holdings in the company's warrants,
royalty rights on certain of the company's animal diagnostic and therapeutic
products as well as funding its final research and development commitment of
$494, 259. This transaction resulted in a gain of $1,346,953 during the year
ended December 31, 1993.
NAVIGATION TECHNOLOGIES CORPORATION
In June 1995, the Partnership sold 2,284,542 shares of Navigation
Technologies Corporation common stock for $1,941,861. This transaction resulted
in a gain of $1,939,643, which represented approximately 25% of the
Partnership's total revenues.
SILICON VALLEY RESEARCH, INC.
In July 1995, the Partnership partially exercised a warrant to acquire, on
a net issuance basis, 23,731 shares of Silicon Valley Research, Inc. ("SVRI")
common stock. During July and August 1995, the Partnership sold 55,000 shares
of SVRI common stock resulting in a gain of $226,875. During 1995, SRVI stock
was listed on the NASDAQ national market; accordingly, the Partnership's
investment in this stock was reclassified as marketable equity securities.
The Partnership received a promissory note in 1989 as part of a
restructuring agreement with Silvar-Lisco (now named SVRI) in which the company
agreed to repay a portion of its R&D funds as a result of its failure to
complete the Partnership's R&D project. In September 1994, the Partnership
received $550,000 in cash and a warrant to purchase 150,000 shares of common
stock from SVRI in satisfaction of its outstanding note (principal and interest
of $591,854 and $32,495, respectively). Principal repayments were recognized by
the Partnership as a recovery of R&D commitment income. The warrants, which
have a book value of $74,349 as of December 31, 1995 and 1994, are exercisable,
subject to certain restrictions, at $.75 per share and expire on September 15,
1997.
TEXAS BIOTECHNOLOGY CORPORATION
In July 1994, a subsidiary of Synbiotics Corporation merged with Texas
Biotechnology Corporation ("TBC"). Pursuant to the merger agreement, the
Partnership exercised its option to purchase 322 shares of TBC common stock and
was entitled to receive additional shares if certain conditions were met. In
July 1995, the merger contingencies were satisfied and the Partnership received
an additional 281 shares of TBC common stock.
BIOCOMPATIBLES INTERNATIONAL PLC
In September 1994, Lombart Lenses Limited, Inc. ("Lombart") transferred all
of its assets and liabilities to a wholly-owned subsidiary of Biocompatibles
International plc ("Biocompatibles") in a tax-free exchange for 200,000 shares
of Biocompatibles Series D Convertible Preferred Stock, of which the
Partnership's portion was 161,448. Concurrent with the transaction, Lombart
changed its name to Bolssevain, Ltd. ("Boissevain"). Of the 161,448 shares
received, an escrow agent held 72,652 shares to cover any breach of
representations and warranty claims against Lombart. In April 1995, Boissevain
converted all of the Partnership's Biocompatibles preferred stock into 1,614,480
shares of common stock of that company, of which 363,258 shares remained in
escrow. In September 1995, the remaining shares held in escrow were released
without any claims.
In connection with this transaction, a promissory note previously issued to the
Partnership by Lombart was cancelled and a new promissory note was executed.
The principal balance of the new note (approximately $88,000) was equal to the
outstanding principal and interest balance of the cancelled note as of the
11
closing date of the transaction. The new note accrued interest at 5% per annum
and matured on March 23, 1996 at which time all principal and interest was
satisfied.
In October 1995, the Partnership sold 645,792 shares of Biocompatibles
common stock resulting in a gain of $2,891,710, which represented approximately
37% of the Partnership's total revenues.
E. NOTE AND INTEREST RECEIVABLE
The Partnership received a promissory note of $937,612 from a subsidiary of
American Telephone and Telegraph Inc. ("AT&T") on June 23, 1988 in exchange for
its stock in Tridom Corporation. The note accrued interest at 11.06% and
matured on June 22, 1995 at which time all principal and interest was satisfied.
F. INCOME TAXES
The following is a reconciliation of net income (loss) for financial
reporting purposes with net income (loss) for tax reporting purposes:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
Net income (loss) per financial statements $5,570,951 $(2,130,645) $ (651,120)
Write-off of investments in equity securities (708,332) 1,489,410 1,417,712
Expiration of warrants (186,620) -- --
Gain on sale of investment in equity securities (136,932) -- --
Recovery of R&D commitment per financial
statements -- (691,854) (577,742)
Amortization of evaluation fees -- -- (17,442)
Monitoring fee income -- -- (225,495)
---------- ----------- ----------
Tax basis net income (loss) $4,539,067 $(1,333,089) $ (54,087)
---------- ----------- ----------
---------- ----------- ----------
The differences between the tax basis and book basis of partners' capital
are primarily attributable to the cumulative effect of the book to tax income
adjustments.
G. RELATED PARTIES
The General Partner and its affiliates perform certain services for the
Partnership for which they are reimbursed through the management fee which
include, but are not limited to: accounting and financial management; registrar,
transfer and assignment functions; asset management; investor communications and
other administrative services. The Partnership also reimburses an affiliate of
the General Partner for printing services. The costs and expenses were:
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------------------------------------
Management fee $2,000,000 $2,000,000 $2,000,000
Printing 21,761 13,152 25,540
---------- ---------- ----------
$2,021,761 $2,013,152 $2,025,540
---------- ---------- ----------
---------- ---------- ----------
Printing costs payable to an affiliate of the General Partner (which are
included in accrued expenses and other liabilities) as of December 31, 1995 and
1994 were $9,700 and $8,994, respectively.
Prudential Securities Incorporated, an affiliate of R&D Funding Corp, owned
340 limited partnership units at December 31, 1995.
The Partnership maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of R&D Funding Corp, for investment of
its available cash in short-terms instruments pursuant to the guidelines
established by the Partnership Agreement.
The Partnership has engaged in research and development co-investment
projects with PruTech Research and Development Partnership, PruTech Research and
Development Partnership III, and PruTech Project Development Partnership
(collectively, the "PruTech R&D Partnerships") for which R&D Funding Corp serves
as the general partner. The allocation of the co-investment projects' profits
or losses among the
12
PruTech R&D Partnerships is consistent with the costs incurred to fund the
research and development projects.
H. CONTINGENCIES
On June 30, 1988, the Partnership and an affiliated partnership guaranteed
for Optical Specialties, Inc. ("OSI") $750,000 of a $1.5 million bank credit
line (later changed to a term loan) of which the Partnership was responsible for
$651,000. The loan was obtained to sustain OSI's operations. The Partnership
purchased U.S. Treasury bills to collateralize its portion of the guarantee.
OSI has paid $75,000 on the loan, reducing the Partnership's guarantee to
$585,900. The General Partner believes the Partnership's guarantee expired on
February 15, 1995; however, the bank does not concur. The General Partner is
negotiating for the release of the escrowed funds.
On May 4, 1992, the General Partner of the Partnership was served with a
complaint captioned HENRY J. FLANAGAN, ET AL. V. R&D FUNDING CORP, ET AL. filed
in the Supreme Court of the State of New York, County of New York, which named
as a defendant the General Partner of the Partnership.
The complaint alleged that plaintiffs purchased units of the Partnership,
and of PruTech Research and Development Partnership and PruTech Research and
Development Partnership III, in reliance on certain alleged misrepresentations
made by the defendants in, among other things, the offering materials.
Plaintiffs' complaint alleged fraud, negligent misrepresentation and breach of
fiduciary duty and also asserted claims under the federal Racketeer Influenced
and Corrupt Organizations Act of 1970 ("RICO").
On July 28, 1992, the defendants moved to dismiss. On July 29, 1992,
plaintiffs filed a motion for class action certification. By order entered July
21, 1994, all claims relating to the Partnership and PruTech Research and
Development Partnership, and the RICO claim relating to PruTech Research and
Development Partnership III were dismissed on the grounds that they were barred
by the applicable statute of limitations. Plaintiffs filed an amended notice of
appeal on August 29, 1994. By order dated August 22, 1995, the trial court
dismissed the remaining claims against PruTech Research and Development
Partnership III. As a result of the settlement of the Multidistrict action
(discussed below), plaintiffs are enjoined from further prosecution of this
case.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceedings under the caption IN RE PRUDENTIAL SECURITIES INCORPORATED LIMITED
PARTNERSHIPS LITIGATION (MDL Docket 1005). On June 8, 1994 plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, Prudential Securities
Incorporated, certain of its present and former employees and the General
Partner. The Partnership is not named a defendant in the consolidated
complaint, but the name of the Partnership is listed as being among the limited
partnerships at issue in the case.
On August 9, 1995, the General Partner, Prudential Securities Incorporated
and other Prudential defendants entered into a Stipulation and Agreement of
Partial Compromise and Settlement with legal counsel representing plaintiffs in
the consolidated actions. The court preliminarily approved the settlement
agreement by order dated August 29, 1995 and following a hearing held November
17, 1995, found that the agreement was fair, reasonable, adequate and in the
best interest of the plaintiffs class. The court gave final approval to the
settlement, certified a class of purchasers of specific limited partnerships,
including the Partnership, released all settled claims by members of the class
against the Prudential Securities Incorporated settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by Prudential Securities
Incorporated.
On April 15, 1994 a multiparty petition captioned MACK ET AL. V. PRUDENTIAL
SECURITIES INCORPORATED ET AL. (Cause No. 94-17695) was filed in the 80th
Judicial District Court of Harris County, Texas, purportedly on behalf of
investors in the Partnership against the Partnership, the General Partner,
Prudential Securities Incorporated, The Prudential Insurance Company of America
and a number of other defendants. The petition alleges common law fraud, fraud
in the inducement and negligent misrepresentation in connection with the
offering of the Partnership units; negligence and breach of fiduciary duty in
connection with the operation of the Partnership; civil conspiracy; and
violations of the federal Securities Act of 1933 (sections 11 and 12) and of the
Texas Securities and Deceptive Trade Practices statutes. The suit seeks, among
other
13
things, compensatory and punitive damages, costs and attorneys' fees. The
ultimate outcome of this litigation as well as the impact on the Partnership
cannot presently be determined.
The General Partner, Prudential Securities Incorporated and the Partnership
believe they have meritorious defenses to the complaint and intend to vigorously
defend themselves against this action.
I. SUBSEQUENT EVENTS
Pursuant to an agreement which closed January 26, 1996 between the
Partnership, an affiliate of the Partnership and Boston Scientific Corporation
("BSC"), the Partnership and its affiliate assigned to BSC all of their rights,
titles and interests in and to certain technologies licensed to BSC and agreed
to terminate all license agreements with BSC in exchange for $4,000,000 in cash,
of which the Partnership's portion was $3,472,000.
In February 1996, the Partnership sold 48,608 shares of Biocompatibles
International pic common stock for approximately $396,000.
From the period January 1, 1996 through March 27, 1996 the Partnership sold
its remaining 113,692 shares of Somatix Therapy Corporation common stock for
approximately $765,000.
14
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Partnership had cash and cash equivalents of
approximately $2.9 million. This amount is approximately $2.3 million
greater than the Partnership's cash balance at December 31, 1994 due to the
proceeds received in 1995 relating to the termination of royalty rights of
MacNeal Schwendler Corporation ("MNS"), the collection of the note and
related interest held as a result of the Partnership's investment in Tridom
Corporation, the receipt of royalties and from the sales of common stock of
Navigation Technologies Corporation ("NavTech"), Biocompatibles International
plc ("Biocompatibles") and Silicon Valley Research, Inc. ("SVRI") offset, in
part, by the payment of the management fee and the July and November 1995
distributions, as further discussed below.
As of December 31, 1995, the Partnership had approximately $1.6 million
invested in equity securities including publicly traded stock with an aggregate
market value which exceeded its cost. Certain of these investments are in
development stage companies which are more speculative and higher in risk than
other equity investments. The realization of this market value is further
impacted by certain sale restrictions and market volume capacity. The amount to
be distributed by the Partnership in future quarters will be based on the extent
to which the market value of its investments can be realized, the revenue stream
from royalties, and, to a lesser extent, interest income. The General Partner
is considering various alternatives with respect to the orderly liquidation of
the Partnership. It is not expected that the Partnership's total distributions
will equal the partners' initial investments.
In March 1995, the Partnership and MNS agreed to terminate the Partnership's
contractual rights with respect to MNS software and to transfer the technology
relating to the software to MNS in exchange for approximately $983,000.
Royalties received by the Partnership relating to this technology were $27,000,
$194,000 and $214,000 in 1995, 1994 and 1993, respectively. No further royalty
payments will be received by the Partnership from MNS as a result of this
agreement.
In June 1995, the Partnership collected the note receivable held as a result
of the Partnership's investment in Tridom Corporation along with related accrued
interest totaling approximately $1,954,000.
The Partnership sold 2,284,542 shares of NavTech common stock in June 1995
for approximately $1,942,000 ($.85 per share). The sale of these shares
resulted in a gain of approximately $1,940,000.
In July 1995, the Partnership partially exercised a warrant to acquire, on a
net issuance basis, 23,731 shares of SVRI common stock. During July and August
1995, the Partnership sold 55,000 shares of SVRI common stock resulting in a
gain of approximately $227,000.
In October 1995, the Partnership sold 645,752 shares of Biocompatibles common
stock resulting a gain of approximately $2,892,000.
The management fee to the General Partner for managing and overseeing the
conduct resulting from the research programs undertaken by the Partnership had
been accrued but unpaid during 1994 and the first six months of 1995. The
Partnership paid $3,500,000 in accrued management fees in 1995.
The Partnership made two distributions during 1995 from net proceeds
resulting from the transactions described above. The Partnership distributed
approximately $2,222,000 to the partners in July 1995. Limited partners
received a total $2,000,000 ($20 per unit) and the General Partner received
approximately $222,000. The Partnership distributed approximately $1,111,000 to
the partners in November 1995. Limited partners received a total of $1,000,000
($10 per unit) and the General Partner received approximately $111,000.
The Partnership owns U.S. Treasury bills which are held in escrow as
collateral in connection with a guarantee of a term loan for Optical
Specialties, Inc. The General Partner believes the Partnership's guarantee
expired on February 15, 1995; however, the bank does not concur. The General
Partner is negotiating for the release of the escrowed funds in addition to the
transfer of the Partnership's technology positions to Optical Specialties, Inc.
15
RESULTS OF OPERATIONS
SUMMARY
The Partnership recorded net income of approximately $5.6 million for the
year ended December 31, 1995 as compared to a net loss of approximately $2.1
million in 1994. This increase was primarily due to gains for the sale of
investments in equity securities in 1995 and the termination of royalty rights
of MNS as discussed above as well as the write-downs of investments in equity
securities in 1994.
The Partnership's net loss increased by approximately $1.5 million for the
year ended December 31,1 994 as compared to 1993 primarily because there were no
gains from the sale of investments in equity securities in 1994.
REVENUES
Royalty income for the year ended December 31, 1995 increased by
approximately $1,042,000 from 1994. This increase resulted from increased
royalties received from Optical Specialties, Inc., Boston Scientific
Corporation, Ecogen Inc. and Toray Industries offset, in part, by the
elimination of royalties from MNS.
The Partnership recorded gains of approximately $2,892,000, $1,940,000,
$227,000, respectively, on the sales of 645,792 shares of Biocompatibles common
stock, half of its NavTech common stock and 55,000 shares of SVRI common stock
as more fully discussed above.
In 1989, the Partnership entered into a restructure agreement with Silvar-
Lisco, now named SVRI, in which the company agreed to repay a portion of its R&D
funds in the form of cash and a promissory note as a result of its failure to
complete the Partnership's R&D project. Subsequent note repayments were
recognized by the Partnership as a recovery of R&D commitment income when
received. In early 1994, the Partnership received a warrant to purchase 100,000
shares of SVRI common stock as consideration for restructuring the final year's
payments as well as $100,000 in cash. In September 1994, the Partnership
received $550,000 in cash and a warrant to purchase 150,000 shares of common
stock from SVRI in full satisfaction of its outstanding note (principal and
interest of $591,854 and $32,495, respectively).
Interest and other income for the year ended December 31, 1995 decreased by
approximately $202,000 as compared to 1994 but increased by approximately
$164,000 for the year ended December 31, 1994 as compared to 1993. These
fluctuations were primarily due to additional interest recorded in 1994 in
conjunction with the note receivable relating to the Partnership's investment in
Tridom Corporation and, to a lesser extent, the elimination of interest income
in connection with the note receivable from SVRI discussed above and the sale of
technology developed by ENI Diagnostics, Inc. ("ENI") in 1995.
Through 1993, the Partnership recorded monitoring fee income which
represented the amortization of previously deferred payments received form
research and development companies to reimburse the Partnership for its costs of
monitoring during the development and marketing periods of a product.
EXPENSES
General and administrative expenses decreased by approximately $23,000 for
the year ended December 31, 1995 as compared to 1994 but increased by
approximately $105,000 for the year ended December 31, 1994 as compared to 1993.
These fluctuations were primarily due to legal costs incurred in 1994 relating
to the Lombart Lenses Limited, Inc. transaction (see Note D to the financial
statements) and certain litigation which settled in March 1995.
INFLATION
Inflation has had no material direct impact on operations or on the financial
condition of the Partnership from inception through December 31, 1995.
16
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
PruTech Research and Development Partnership II
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1995
/ / 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 0-21464
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 13-3268435
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 Mission Court, Suite 250, Fremont, California 94539
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 656-1855
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Limited Partners for the year ended December
31, 1995 is incorporated by reference into Parts I, II and IV of this Annual
Report on Form 10-K.
Agreement of Limited Partnership, included as part of the Registration
Statement on Form S-1 (File No. 2-94273) filed with the Securities and Exchange
Commission on March 4, 1985 pursuant to Rule 424(b) of the Securities Act of
1933, and amended on May 31, 1990, is incorporated by reference into Part IV of
this Annual Report on Form 10-K.
Index to exhibits can be found on page 8.
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
TABLE OF CONTENTS
PART I PAGE
Item 1 Business...................................................... 3
Item 2 Properties.................................................... 4
Item 3 Legal Proceedings............................................. 4
Item 4 Submission of Matters to a Vote of Limited Partners........... 4
PART II
Item 5 Market for the Registrant's Units and Related Limited
Partner Matters............................................. 4
Item 6 Selected Financial Data....................................... 5
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
Item 8 Financial Statements and Supplementary Data................... 5
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 5
PART III
Item 10 Directors and Executive Officers of the Registrant............ 5
Item 11 Executive Compensation........................................ 6
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 7
Item 13 Certain Relationships and Related Transactions................ 7
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules........ 8
Exhibits...................................................... 8
Reports on Form 8-K........................................... 8
SIGNATURES............................................................... 9
2
PART I
ITEM 1. BUSINESS
GENERAL
PruTech Research and Development Partnership II (the "Registrant"), a
California limited partnership, was formed on October 4, 1984 and will terminate
on December 31, 2004 unless terminated sooner under the provisions of the
Agreement of Limited Partnership, as amended (the "Partnership Agreement").
The Registrant was formed to seek cash flow from the research and development of
new technologies with potential commercial applications with proceeds raised
from the initial sale of 100,000 limited partnership interests ("Units"). The
General Partner also contributed an amount equal to 10% of the gross proceeds
raised by the sale of Units. The Registrant's fiscal year for book and tax
purposes ends on December 31.
The Registrant entered into total commitments of approximately $91 million
for 18 research and development projects in both publicly and privately held
companies, all of which have been fully funded. At December 31, 1995, the
Registrant held equity investments, notes receivable and/or active royalty
rights relating to eight companies. For more information regarding the
Registrant's operations, see Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Registrant is engaged solely in the business of research and development;
therefore, presentation of industry segment information is not applicable.
For the years ended December 31, 1995, 1994, and 1993, respectively, revenue
from the following portfolio company investments exceeded 15% of the
Registrant's total revenue:
1995 1994 1993
---- ---- ----
Navigation Technologies Corporation 25% --% --%
Biocompatibles International plc 37 -- --
Silicon Valley Research, Inc. -- 45 23
Tridom Corporation -- 21 --
Boston Scientific Corporation -- 19 --
Synbiotics Corporation -- -- 45
GENERAL PARTNER
The general partner of the Registrant is R&D Funding Corp (the "General
Partner"), an affiliate of Prudential Securities Incorporated ("PSI"). Both
the General Partner and PSI are wholly-owned subsidiaries of Prudential
Securities Group Inc. In its capacity as General Partner, R&D Funding Corp was
responsible for locating, evaluating, negotiating and structuring the
Registrant's research and development projects and continues to monitor these
projects. R&D Funding Corp is also responsible for the management of and
provides the administrative services necessary for the operation of the
Registrant.
COMPETITION
The Registrant faces substantial competition in the markets for the products
and technologies which are the sources of the Registrant's revenue. There are no
assurances that the Registrant's currently active products and technologies will
not be rendered obsolete due to the development by others of technologically
superior products.
EMPLOYEES
The Registrant has no employees. Management and administrative services
for the Registrant are performed by the General Partner and its affiliates
pursuant to the Partnership Agreement. See Notes B and G to the financial
statements in the Registrant's annual report to limited partners for the year
ended December 31, 1995 ("Registrant's 1995 Annual Report") which is filed as
an exhibit hereto.
3
INVESTMENT PORTFOLIO SUMMARY
For a description of the companies in which the Registrant's investments or
royalty rights were active during 1995 or had value at December 31, 1995, see
pages 2 and 3 of the Registrant's 1995 Annual Report, which is filed as an
exhibit hereto.
ITEM 2. PROPERTIES
The Registrant does not own or lease any property.
ITEM 3. LEGAL PROCEEDINGS
This information is incorporated by reference to Note H to the financial
statements in the Registrant's 1995 Annual Report which is filed as an exhibit
hereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED LIMITED PARTNER MATTERS
As of March 14, 1996, there were 9,233 holders of record owning 100,000
Units. A significant secondary market for the Units has not developed and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in Article 8 of the Partnership Agreement limiting the
ability of a limited partner to transfer Units. Consequently, holders of Units
may not be able to liquidate their investments in the event of an emergency or
for any other reason.
The following per Unit cash distributions were paid to limited partners
during the following calendar quarters:
QUARTER ENDED 1995 1994
--------------------- ------ ------
March 31 $ -- $ --
June 30 -- 20.00
September 30 20.00 --
December 31 10.00 --
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. The Registrant paid distributions of $3,333,333 during
1995 of which $3,000,000 ($30 per unit) was paid to the limited partners and the
remainder to the General Partner. The sources for the distributions were
proceeds from the promissory note and interest relating to the Registrant's
investment in Tridom Corporation which matured in June 1995, the sales of a
portion of the Registrant's equity position in Biocompatibles International plc,
Silicon Valley Research, Inc. and Navigation Technologies Corporation, the
termination of royalty rights of MacNeal-Schwendler Corporation and royalties
received from Boston Scientific Corporation, Optical Specialties, Inc. and Toray
Industries. The amount to be distributed by the Registrant in future quarters
will be based on the extent to which the market value of its investments can be
realized, the revenue streams from royalties, and to a lesser extent, interest
income. It is not expected that the Registrant's eventual total distributions
will equal the partners' initial investments.
4
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 4 through 14 of the Registrant's 1995
Annual Report which is filed as an exhibit hereto.
Year Ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ----------- ----------- ----------- -----------
Gain on sale of investments in
equity securities $5,058,228 $ -- $ 1,346,953 $ 3,932,657 $13,232,555
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Royalty income $1,516,735 $ 474,663 $ 493,252 $ 525,353 $ 363,095
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Total revenues $7,859,432 $ 1,670,074 $ 2,982,778 $ 5,970,952 $15,345,379
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Write-off of investments
in equity securities $ -- $ 1,489,410 $ 1,417,712 $ -- $ --
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Net income (loss) $5,570,951 $(2,130,645) $ (651,120) $ 3,765,143 $13,078,146
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Net income (loss) per Unit $ 50.14 $ (19.18) $ (5.86) $ 33.89 $ 117.70
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Total assets (1) $8,142,500 $ 6,837,750 $12,039,000 $10,029,026 $11,739,087
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Total limited partner
distributions $3,000,000 $ 2,000,000 $ -- $ 4,050,000 $ 8,100,000
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Limited partner distributions
per Unit $ 30.00 $ 20.00 $ -- $ 40.50 $ 81.00
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
- ---------------
(1) Includes $2,357,754, $1,798,977 and $3,423,329 of unrealized gain on
investments in equity securities at December 31, 1995, 1994 and 1993,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is incorporated by reference to pages 15 and 16 of the
Registrant's 1995 Annual Report which is filed as an exhibit hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are incorporated by reference to pages 4 through 14
of the Registrant's 1995 Annual Report which is filed as an exhibit hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partner.
The General Partner's directors and executive officers, and any persons
holding more than ten percent of the Registrant's Units ("Ten Percent Owners")
are required to report their initial ownership of such Units and any subsequent
changes in that ownership to the Securities and Exchange Commission on Forms 3,
4 and 5. Such executive officers, directors and Ten Percent Owners are required
by Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these requirements were
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partner's directors and
executive officers or copies of the reports
5
they have filed with the Securities and Exchange Commission during and with
respect to its most recent fiscal year.
The directors and executive officers of R&D Funding Corp and their positions
with regard to managing the Registrant are as follows:
NAME POSITION
---- --------
Thomas F. Lynch, III Chief Executive Officer, Chairman of the Board
of Directors and Director
Russell L. Allen President and Director
Barbara J. Brooks Vice President--Finance, Chief Financial Officer
and Director
Steven Carlino Vice President and Chief Accounting Officer
Frank W. Giordano Director
Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 37, is the Chief Executive Officer, Chairman of the
Board of Directors and a Director of R&D Funding Corp. He is a Senior Vice
President of PSI. Mr. Lynch also serves in various capacities for other
affiliated companies. Mr. Lynch joined PSI in November 1989.
RUSSELL L. ALLEN, age 51, is the President and a Director of R&D Funding
Corp. Mr. Allen has been an independent financial consultant since May 1992 and
has been providing services to Prudential Securities Group Inc. in that capacity
since July 1993. Prior to May 1992, Mr. Allen was Senior Vice President, Chief
Financial Officer and a Director of Adobe Resources Corporation. Mr. Allen is a
certified public accountant.
BARBARA J. BROOKS, age 47, is the Vice President-Finance, Chief Financial
Officer and a Director of R&D Funding Corp. She is a Senior Vice President of
PSI. Ms. Brooks also serves in various capacities for other affiliated
companies. She has held several positions within PSI since 1983. Ms. Brooks is a
certified public accountant.
STEVEN CARLINO, age 32, is a Vice President of R&D Funding Corp. He is a
First Vice President of PSI. Mr. Carlino also serves in various capacities for
other affiliated companies. Prior to joining PSI in October 1992, he was with
Ernst & Young for six years. Mr. Carlino is a certified public accountant.
FRANK W. GIORDANO, age 53, is a Director of R&D Funding Corp. He is a Senior
Vice President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, Inc., an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 45, is a Director of R&D Funding Corp. She is a Senior
Vice President and Deputy General Counsel of PSI and supervises non-litigation
legal work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in various capacities for other affiliated companies.
During August 1995, Thomas F. Lynch, III replaced James M. Kelso as Chief
Executive Officer, Chairman of the Board of Directors and a Director of R&D
Funding Corp and Steven Carlino replaced Robert J. Alexander as Vice President
of R&D Funding Corp and Chief Accounting Officer on behalf of the Registrant.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partner for their
services. Certain officers and directors of the General Partner receive
compensation from affiliates of the General Partner, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partner believes
that any compensation attributable to services performed for the Registrant is
immaterial.
6
See Item 13 Certain Relationships and Related Transactions for information
regarding compensation to the General Partner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 14, 1996, no director or officer of the General Partner owns
directly or beneficially any interest in the voting securities of the General
Partner.
As of March 14, 1996, no director or officer of the General Partner owns
directly or beneficially any of the Units issued by the Registrant.
As of March 14, 1996, no owner of Units beneficially owns more than five
percent (5%) of the outstanding Units of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates. However, there have been no direct financial
transactions between the Registrant and the directors or officers of the General
Partner.
Reference is made to Notes B and G to the financial statements in the
Registrant's 1995 Annual Report which is filed as an exhibit hereto, which
identify the related parties and discuss the services provided by these parties
and the amounts paid or payable for their services.
7
PART IV
PAGE NUMBER
IN ANNUAL
REPORT
--------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Independent Auditors' Report--Incorporated by
reference to the Registrant's 1995 Annual Report which is filed as an
exhibit hereto
Independent Auditors' Report 4
Financial Statements:
Statements of Financial Condition--December 31, 1995 and 1994 5
Statements of Operations--Three years ended December 31, 1995 6
Statements of Changes in Partners' Capital--Three years ended December 31, 1995 6
Statements of Cash Flows--Three years ended December 31, 1995 7
Notes to Financial Statements 9
2. Financial Statement Schedules and Independent Auditors' Report on Schedules
All schedules have been omitted because they are not applicable or the
required information is included in the financial statements or the notes
thereto.
3. Exhibits
Description:
PruTech Research and Development Partnership II Agreement of Limited
Partnership (Incorporated by reference to Exhibit 3.1 included with
Registrant's Form S-1 Registration Statement (No. 2-94273) filed on
November 9, 1984)
Escrow Agreement (Incorporated by reference to Exhibit 10.1 included with
Registrant's Amendment No. 1 to Form S-1 Registration Statement (No.
2-94273) filed on March 4, 1985)
Form of Agreement for Services (Incorporated by reference to Exhibit 10.2
included with Registrant's Amendment No. 1 to Form S-1 Registration
Statement (No. 2-94273) filed on March 4, 1985)
First Amendment to the Agreement of Limited Partnership of PruTech Research
and Development Partnership II (Incorporated by reference to Exhibit 3
included with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991)
Registrant's 1995 Annual Report (with the exception of the information and
data incorporated by reference in Items 3, 7 and 8 of this Annual Report on
Form 10-K, no other information or data appearing in the Registrant's 1995
Annual Report is to be deemed filed as part of this report) (filed
herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PruTech Research and Development Partnership II
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: March 29, 1996
-------------------------------------------
STEVEN CARLINO
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Thomas F. Lynch, III Date: March 29, 1996
----------------------------------------
THOMAS F. LYNCH, III
CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE
BOARD OF DIRECTORS AND DIRECTOR
By: /s/ Russell L. Allen Date: March 29, 1996
----------------------------------------
RUSSELL L. ALLEN
PRESIDENT AND DIRECTOR
By: /s/ Barbara J. Brooks Date: March 29, 1996
----------------------------------------
BARBARA J. BROOKS
VICE PRESIDENT--FINANCE, CHIEF FINANCIAL
OFFICER AND DIRECTOR
By: /s/ Steven Carlino Date: March 29, 1996
----------------------------------------
STEVEN CARLINO
VICE PRESIDENT
By: /s/ Frank W. Giordano Date: March 29, 1996
----------------------------------------
FRANK W. GIORDANO
DIRECTOR
By: /s/ Nathalie P. Maio Date: March 29, 1996
----------------------------------------
NATHALIE P. MAIO
DIRECTOR
9
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
/ / 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 0-21464
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 13-3268435
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION No.)
440 Mission Court, Suite 250, Fremont, California 94539
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (510) 656-1855
N/A
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
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
--- ---
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
JUNE 30, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,614,426 $2,936,616
Investments in equity securities 3,470,173 3,911,066
U.S. Treasury bills held in escrow, at amortized cost 325,227 585,707
Royalties receivable 105,000 147,560
Stock warrants 74,349 74,349
Interest receivable 53 5,585
Due from affiliate -- 462,586
Note receivable, net -- 19,031
----------- ------------
Total assets $ 7,589,228 $8,142,500
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accrued management fee $ 500,000 $ 500,000
Accrued expenses and other liabilities 174,740 102,103
----------- ------------
Total liabilities 674,740 602,103
----------- ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners (100,000 units issued and outstanding) 4,108,213 4,595,879
General partner 532,579 586,764
Unrealized gain on investments in equity securities 2,273,696 2,357,754
----------- ------------
Total partners' capital 6,914,488 7,540,397
----------- ------------
Total liabilities and partners' capital $ 7,589,228 $8,142,500
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF OPERATIONS
(unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
REVENUES
Royalty income $ 289,415 $ 478,730 $ 105,000 $ 292,467
Gain on sale of investment in equity
securities 814,818 1,939,643 6,768 1,939,643
Termination of royalty rights 3,472,000 983,130 -- --
Interest and other income 504,172 192,071 352,852 87,435
---------- ---------- ---------- ----------
5,080,405 3,593,574 464,620 2,319,545
---------- ---------- ---------- ----------
EXPENSES
Management fee 1,000,000 1,000,000 500,000 500,000
General and administrative 177,812 164,222 101,530 83,039
---------- ---------- ---------- ----------
1,177,812 1,164,222 601,530 583,039
---------- ---------- ---------- ----------
Net income (loss) $3,902,593 $2,429,352 $ (136,910) $1,736,506
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $3,512,334 $2,186,417 $ (123,219) $1,562,855
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
General partner $ 390,259 $ 242,935 $ (13,691) $ 173,651
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per limited partnership
unit $ 35.12 $ 21.86 $ (1.23) $ 15.63
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(unaudited)
UNREALIZED
LIMITED GENERAL GAIN ON
PARTNERS PARTNER INVESTMENTS TOTAL
- ----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995 $4,595,879 $586,764 $2,357,754 $ 7,540,397
Net income 3,512,334 390,259 -- 3,902,593
Distribution (4,000,000) (444,444) -- (4,444,444)
Change in unrealized gain on investments
in equity securities -- -- (84,058) (84,058)
---------- -------- ----------- -----------
Partners' capital--June 30, 1996 $4,108,213 $532,579 $2,273,696 $ 6,914,488
---------- -------- ----------- -----------
---------- -------- ----------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
3
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Royalty income received $ 331,975 $ 509,631
Interest and other income received 504,755 1,069,686
General and administrative expenses paid (86,861) (150,228)
Evaluation and monitoring expenses paid (18,314) (16,632)
Management fee paid (1,000,000) (500,000)
Cash received from affiliate 462,586 --
------------ -----------
Net cash provided by operating activities 194,141 912,457
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of investment in equity securities 1,171,652 1,941,860
Proceeds from the termination of royalty rights 3,472,000 983,130
Collection of note receivable 19,031 937,612
Purchase of U.S. Treasury bills held in escrow (1,991,217) (582,671)
Redemption of U.S. Treasury bills held in escrow 2,256,647 585,900
Proceeds from the sale of technology -- 27,418
------------ -----------
Net cash provided by investing activities 4,928,113 3,893,249
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITY
Distribution paid (4,444,444) --
------------ -----------
Net increase in cash and cash equivalents 677,810 4,805,706
Cash and cash equivalents at beginning of period 2,936,616 628,469
------------ -----------
Cash and cash equivalents at end of period $ 3,614,426 $ 5,434,175
------------ -----------
------------ -----------
- ----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 3,902,593 $ 2,429,352
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investment in equity securities (814,818) (1,939,643)
Termination of royalty rights (3,472,000) (983,130)
Gain on sale of technology -- (27,418)
Changes in:
Royalties receivable 42,560 30,901
Interest receivable 583 905,033
Due from affiliate 462,586 --
Accrued management fee -- 500,000
Accrued expenses and other liabilities 72,637 (2,638)
------------ -----------
Total adjustments (3,708,452) (1,516,895)
------------ -----------
Net cash provided by operating activities $ 194,141 $ 912,457
------------ -----------
------------ -----------
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
1996
Received 17,360 shares of Optical Specialties, Inc. common stock for granting an extension of its
term loan as further discussed in Note E.
Ecogen Inc. completed a 5:1 reverse stock split which resulted in the receipt of 102,165 shares of
common stock in exchange for 510,827 shares of common stock.
Silicon Valley Research, Inc. completed a 2:1 reverse stock split which resulted in the receipt of
146,806 shares of common stock in exchange for 293,612 shares of common stock.
1995
Converted 161,448 shares of Biocompatibles International plc preferred stock into 1,614,480 shares
of common stock.
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
4
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
A. GENERAL
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of PruTech Research and Development Partnership II (the "Partnership")
as of June 30, 1996, the results of its operations for the six and three months
ended June 30, 1996 and 1995 and its cash flows for the six months ended June
30, 1996 and 1995. However, the operating results for the interim periods may
not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
Financial statements prepared in accordance with generally accepted accounting
Principles have been omitted. It is suggested that these financial statements be
Read in conjunction with the financial statements and notes thereto included in
The partnership's annual report on form 10-k filed with the securities and
Exchange commission for the year ended december 31, 1995.
Certain balances for prior periods have been reclassified to conform with
current financial statement presentation.
B. ROYALTIES
Pursuant to an agreement which closed January 26, 1996 between the
Partnership, an affiliate of the Partnership and Boston Scientific Corporation
("BSX"), the Partnership and its affiliate assigned to BSX all of their
rights, titles and interests in and to certain technologies licensed to BSX and
agreed to terminate all license agreements with BSX in exchange for $4,000,000
in cash, of which the Partnership's portion was $3,472,000. No further royalty
payments will be received by the Partnership from BSX as a result of this
agreement.
C. INVESTMENTS
Investments in equity securities include the following:
JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
MARKETABLE EQUITY GROSS GROSS
SECURITIES COST UNREALIZED CARRYING COST UNREALIZED CARRYING
AVAILABLE-FOR-SALE SHARES BASIS GAINS VALUE SHARES BASIS GAINS VALUE
----------------------------------------------------------------------------------------------------
Ecogen Inc.--Common Stock 102,165 $ 20,537 $ 464,749 $ 485,286 510,827 $ 20,537 $ 713,777 $ 734,314
Somatix Therapy Corpora-
tion--Common Stock -- -- -- -- 113,692 341,076 341,076 682,152
Synbiotics Corporation--
Common Stock 458,003 887,381 944,631 1,832,012 460,303 891,837 201,383 1,093,220
Silicon Valley Research,
Inc.--Common Stock 146,806 -- 862,485 862,485 293,612 -- 1,101,044 1,101,044
Texas Biotechnology
Corporation--Common
Stock 603 770 1,830 2,600 603 770 474 1,244
---------- ---------- ---------- ---------- ---------- ----------
908,688 2,273,695 3,182,383 1,254,220 2,357,754 3,611,974
---------- ---------- ---------- ---------- ---------- ----------
NOT READILY MARKETABLE
EQUITY
SECURITIES
- --------------------------
Optical Specialties,
Inc.--
Common Stock 125,589 -- -- -- 108,229 -- -- --
Optical Specialties,
Inc.--
Preferred Stock 144,666 43,400 -- 43,400 144,666 43,400 -- 43,400
Biocompatibles
International
plc--Common Stock 920,080 242,172 -- 242,172 968,688 253,474 -- 253,474
Navigation Technologies
Corporation--Common
Stock 2,284,541 2,218 -- 2,218 2,284,541 2,218 -- 2,218
---------- ---------- ---------- ---------- ---------- ----------
287,790 -- 287,790 299,092 -- 299,092
---------- ---------- ---------- ---------- ---------- ----------
$1,196,478 $2,273,695 $3,470,173 $1,553,312 $2,357,754 $3,911,066
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
5
The gross unrealized gains would be allocated 90% to the limited partners and
10% to R&D Funding Corp (the "General Partner") if realized at June 30, 1996;
however, there is no assurance that the Partnership would receive these amounts
in the event of the sale of its position in these securities.
During January 1996, Ecogen Inc. completed a 5:1 reverse stock split which
resulted in the receipt of 102,165 shares of common stock in exchange for
510,827 shares of common stock. Also during January 1996, Silicon Valley
Research, Inc. completed a 2:1 reverse stock split which resulted in the receipt
of 146,806 shares of common stock in exchange for 293,612 shares of common
stock. These transactions resulted in no gain or loss to the Partnership.
In February 1996, the Partnership sold 48,608 shares of Biocompatibles
International plc ("Biocompatibles") common stock for approximately $396,000
resulting in a gain of approximately $384,000.
During the first quarter of 1996, the Partnership sold its remaining 113,692
shares of Somatix Therapy Corporation common stock for approximately $765,000
resulting in a gain of approximately $424,000.
During April 1996, Biocompatibles launched a rights offering to its
shareholders. Under the offering, the Partnership was entitled to purchase one
unit (stock and warrant) for each six Biocompatibles common stock shares owned.
The Partnership decided not to participate in the offering, but instead sold the
Partnership's rights in the marketplace. This sale of rights resulted in a gain
of approximately $289,000 which is included in interest and other income on the
statement of operations.
During April 1996, the Partnership received 17,360 shares of Optical
Specialties, Inc. ("OSI") common stock for granting an extension of its term
loan as further discussed in Note E.
In June 1996, the Partnership sold 2,300 shares of Synbiotics Corporation
common stock for approximately $11,000 resulting in a gain of approximately
$7,000.
D. RELATED PARTIES
The General Partner and its affiliates perform certain services for the
Partnership (for which they are reimbursed through the management fee) which
include but are not limited to: accounting and financial management; registrar,
transfer and assignment functions; asset management; investor communications and
other administrative services. The Partnership also reimburses an affiliate of
the General Partner for printing services. The management fee and printing costs
were:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------
1996 1995 1996 1995
---------- ---------- -------- --------
Management fee $1,000,000 $1,000,000 $500,000 $500,000
Printing 5,336 13,510 1,123 8,533
---------- ---------- -------- --------
$1,005,336 $1,013,510 $501,123 $508,533
---------- ---------- -------- --------
---------- ---------- -------- --------
Printing costs payable to an affiliate of the General Partner (which are
included in accrued expenses and other liabilities) as of June 30, 1996 and
December 31, 1995 were approximately $11,000 and $10,000, respectively.
Prudential Securities Incorporated, an affiliate of the General Partner,
owned 340 limited partnership units at June 30, 1996.
The Partnership maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of the General Partner, for investment
of its available cash in short-term instruments pursuant to the guidelines
established by the Partnership
Agreement.
The Partnership has engaged in research and development co-investment
projects with PruTech Research and Development Partnership, PruTech Research and
Development Partnership III, and PruTech Project Development Partnership
(collectively, the "PruTech R&D Partnerships"), for which R&D Funding Corp
serves as the general partner. The allocation of the co-investment projects'
profits or losses among the PruTech R&D Partnerships is consistent with the
costs incurred to fund the research and development projects.
6
E. COMMITMENTS AND CONTINGENCIES
On June 30, 1988, the Partnership and an affiliated partnership guaranteed
for OSI $750,000 of a $1.5 million bank credit line (later changed to a term
loan) of which the Partnership was responsible for $651,000. The loan was
obtained to sustain OSI's operations. The Partnership purchased U.S. Treasury
bills which were held in escrow to collateralize its portion of the guarantee.
Prior to 1996, OSI paid $75,000 of the loan reducing the Partnership's guarantee
to $585,900. Additionally, the General Partner agreed to extend the
Partnership's guarantee in return for shares of OSI common stock as discussed in
Note C. During the three months ended June 30, 1996, OSI paid $260,400 of the
loan and subsequent to June 30, 1996, OSI paid the balance. Therefore, the
Partnership's guarantee was eliminated and the remaining escrowed funds were
released.
On April 15, 1994 a multiparty petition captioned MACK ET AL. V. PRUDENTIAL
SECURITIES INCORPORATED ET AL. (Cause No. 94-17695) was filed in the 80th
Judicial District Court of Harris County, Texas, purportedly on behalf of
investors in the Partnership against the Partnership, the General Partner,
Prudential Securities Incorporated, The Prudential Insurance Company of America
and a number of other defendants. The petition alleges common law fraud, fraud
in the inducement and negligent misrepresentation in connection with the
offering of the Partnership units; negligence and breach of fiduciary duty in
connection with the operation of the Partnership; civil conspiracy; and
violations of the federal Securities Act of 1933 (sections 11 and 12), as
amended, and of the Texas Securities and Deceptive Trade Practices statutes. The
suit seeks, among other things, compensatory and punitive damages, costs and
attorneys' fees. The ultimate outcome of this litigation as well as the impact
on the Partnership cannot presently be determined.
The General Partner, Prudential Securities Incorporated and the Partnership
believe they have meritorious defenses to the complaint and intend to
vigorously defend themselves against this action.
7
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Partnership had cash and cash equivalents of
approximately $3.6 million which is approximately $678,000 greater than the
Partnership's cash balance at December 31, 1995. This increase in cash was
primarily due to proceeds received in 1996 relating to the termination of
royalty rights, the sales of stock and the release of cash held in escrow
offset, in part, by the payment of the management fee and the April 1996
distribution as further discussed below.
As of June 30, 1996, the Partnership had approximately $1.2 million invested
in equity securities with an aggregate market value which exceeded its cost.
Certain of these investments are in development stage companies which are more
speculative and higher in risk than other equity investments. Additionally, the
realization of this market value is further impacted by certain sale
restrictions and market volume capacity. The amount to be distributed by the
Partnership in future quarters will be based on the extent to which the market
value of its investments can be realized, the revenue streams from royalties,
and to a lesser extent, interest income. The General Partner is considering
various alternatives with respect to the orderly liquidation of the Partnership.
It is not expected that the Partnership's eventual total distributions will
equal the partners' initial investments.
Pursuant to an agreement which closed January 26, 1996 between the
Partnership, an affiliate of the Partnership and Boston Scientific Corporation
("BSX"), the Partnership and its affiliate assigned to BSX all of their
rights, titles and interests in and to certain technologies licensed to BSX and
agreed to terminate all license agreements with BSX in exchange for $4,000,000
in cash, of which the Partnership's portion was $3,472,000. No further royalty
payments will be received by the Partnership from BSX as a result of this
agreement.
In February 1996, the Partnership sold 48,608 shares of Biocompatibles
International plc ("Biocompatibles") common stock for approximately $396,000
resulting in a gain of approximately $384,000.
During the first quarter of 1996, the Partnership sold its remaining 113,692
shares of Somatix Therapy Corporation ("Somatix") common stock for approximately
$765,000 resulting in a gain of approximately $424,000.
In April 1996, the Partnership distributed $4,444,444 to its partners from
net proceeds resulting primarily from the transactions described above. Limited
partners received $4,000,000 ($40 per unit) and the General Partner received the
remainder.
During April 1996, Biocompatibles launched a rights offering to its
shareholders. Under the offering, the Partnership was entitled to purchase
one unit (stock and warrant) for each six Biocompatibles common stock shares
owned. The Partnership decided not to participate in the offering, but rather
sell the Partnership's rights in the market place. The sale resulted in a
gain of approximately $289,000.
In June 1996, the Partnership sold 2,300 shares of Synbiotics Corporation
("Synbiotics") common stock for $11,225 resulting in a gain of approximately
$6,800.
The Partnership owned U.S. Treasury bills which were held in escrow as
collateral in connection with a guarantee of a term loan for Optical
Specialties, Inc. ("OSI"). Through June 30, 1996, OSI paid half of the original
loan. In July 1996, OSI paid the balance of the loan and the remaining escrowed
funds were released.
RESULTS OF OPERATIONS
The Partnership's net income increased by approximately $1,473,000 but
decreased by $1,873,000 for the six and three months ended June 30, 1996,
respectively, as compared to the same periods in 1995. The six month increase
was primarily due to the 1996 transactions with BSX, Somatix and Biocompatibles
discussed above offset, in part, by income of approximately $983,000 from the
termination of the Partnership's royalty rights with MacNeal Schwendler
Corporation during March 1995. The three month decrease
8
was primarily due to a gain of approximately $1,940,000 during June 1995 on the
sale of 2,284,542 shares of Navigation Technologies Corporation common stock.
Royalty income for the six and three months ended June 30, 1996 decreased by
approximately $189,000 and $187,000 as compared to the same periods in 1995.
These decreases were due primarily to lower 1996 royalties received from BSX (as
a result of the termination of royalty rights discussed above) and OSI offset,
in part, by increased royalties received in 1996 from Ecogen Inc.
Interest and other income for the six and three months ended June 30, 1996
increased by approximately $312,000 and $265,000 as compared with the same
periods in 1995. These increases were due primarily to income from the
Biocompatibles rights offering as discussed above and the recognition of
previously deferred income upon the collection of a note receivable from Lombart
Lenses Limited, Inc. (which was recorded at a net value of $19,000) during March
1996 offset, in part, by interest recorded in 1995 in conjunction with a note
receivable which matured in June 1995, relating to the Partnership's investment
in Tridom Corporation.
General and administrative expenses increased by approximately $14,000 and
$18,000 for the six and three months ended June 30, 1996 as compared with the
same periods in 1995. These increases were due primarily to professional and
other costs incurred in 1996 in evaluating various alternatives with respect to
the orderly liquidation of the Partnership.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--This information is incorporated by reference to Note
E to the financial statements filed herewith in Item 1 of Part I of the
Registrant's Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits--
PruTech Research and Development Partnership II Agreement of Limited
Partnership (incorporated by reference to Exhibit 3.1 included with
Registrant's Form S-1 Registration Statement, File No. 2-94273, dated
November 9, 1984)
First Amendment to the Agreement of Limited Partnership of PruTech
Research and Development Partnership II (incorporated by reference to
Exhibit 3 included with Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991)
Financial Data Schedule (filed herewith)
b. Reports on Form 8-K--None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PruTech Research and Development Partnership II
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Michael S. Hasley Date: August 14, 1996
----------------------------------------
MICHAEL S. HASLEY
PRESIDENT FOR THE REGISTRANT
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 14, 1996
----------------------------------------
STEVEN CARLINO
VICE PRESIDENT
CHIEF ACCOUNTING OFFICER FOR THE
REGISTRANT
11
CONSENT
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
CONSENT CARD
THIS CONSENT IS SOLICITED BY R&D FUNDING CORP, THE GENERAL PARTNER OF THE
PARTNERSHIP, WHICH RECOMMENDS APPROVAL OF THE PLAN OF DISSOLUTION AND
LIQUIDATION.
The undersigned, a limited partner of PruTech Research and Development
Partnership II (the "Partnership"), hereby votes, as follows:
Approval of the Plan of Dissolution and Liquidation of Prutech Research and
Development Partnership II
/ / FOR / / AGAINST / / ABSTAIN
(Continued, and to be signed on the other side)
IN WITNESS WHEREOF, the undersigned, a limited partner of PruTech Research
and Development Partnership II, hereby executes this Consent as of the date set
forth below.
_______________________________
_______________________________
Dated: _____________, 19__
Please sign exactly as name appears on the certificate of Interest. Executors,
administrators, trustees, guardians, attorneys-in-fact, etc., should give their
full titles. If a signer is a corporation, please give full corporate name and
have a duly authorized officer sign, stating title. If a partnership, please
sign in partnership name by authorized person. If partnership interest is
registered in two names, both should sign.
Please vote, sign, date and return this Consent promptly.