SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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PAINEWEBBER R&D PARTNERS II, L.P.
(Name of Subject Company)
PAINEWEBBER R&D PARTNERS II, L.P.
(Name of Person(s) Filing Statement)
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LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
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Dhananjay M. Pai
President
PaineWebber Development Corporation
1285 Avenue of the Americas
New York, New York 10019
(212) 713-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
with a copy to:
James M. Dubin, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
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Item 1. Security and Subject Company
The name of the subject company to which this Solicitation/
Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9") relates is
PaineWebber R&D Partners II, L.P., a Delaware limited partnership (the
"Partnership"). The address of the principal executive offices of the
Partnership is 1285 Avenue of the Americas, New York, New York 10019. The equity
securities to which this Schedule 14D-9 relates are the limited partnership
units (the "Units") of the Partnership.
Item 2. Tender Offer of the Bidder
This Schedule 14D-9 relates to the tender offer by BioRoyalties,
L.L.C., a Delaware limited liability company (the "Offeror"), on behalf of
Pharmaceutical Royalties, L.L.C., a Delaware limited liability company, and
Pharmaceuticals Royalty Investments Ltd., a Bermuda company (together, the
"Funds"), to purchase any and all outstanding Units at a price per Unit of
$3,650, net to the seller in cash, which price will be automatically reduced by
the aggregate amount of any cash or asset distributions made or declared by the
Partnership on or after June 30, 1997 (distributions since June 30, 1997 to date
have totaled $50 per Unit) upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 15, 1997, and the related Letter of
Transmittal (which together constitute the "Offer").
According to the Tender Offer Statement on Schedule 14D-1, dated
August 15, 1997, filed by the Offeror with the Securities and Exchange
Commission (the "Commission"), the address of the principal executive offices of
the Offeror is 70 East 55th Street, New York, NY 10022.
Item 3. Identity and Background
(a) The name and business address of the Partnership, which is the
person filing this Schedule 14D-9, are set forth in Item 1 above. PWDC Holding
Company (the "Manager") is the general partner of PaineWebber Technologies II,
L.P. (the "General Partner"), which is the general partner of the Partnership.
The Manager is a wholly-owned subsidiary of PaineWebber Development Corporation
("PWDC"), an indirect wholly-owned subsidiary of Paine Webber Group Inc.
(b) Each material contract, agreement, arrangement or understanding
and actual or potential conflict of interest between the Partnership and its
affiliates and (i) its executive officers, directors or affiliates and (ii) the
Offeror, its executive officers, directors or affiliates, is set forth below.
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(i) Arrangements with Executive Officers, Directors and
Affiliates of the Partnership.
Prior to July 1, 1996, the Manager received an annual management fee
for management and administrative services provided to the Partnership in an
amount equal to 2% of the aggregate gross proceeds received by the Partnership,
reduced by the Partnership's capital commitment in projects that have been
concluded, and the final proceeds of which, if any, have been distributed to the
General Partner and the limited partners in the Partnership (the "Limited
Partners"). The management fee was payable quarterly in advance and was adjusted
annually on the first day of each fiscal year in an amount proportionate to the
increase in the prior year in the Consumer Price Index by the United States
Department of Labor. Commencing July 1, 1996, the Manager elected to discontinue
the management fee charged to the Partnership.
PaineWebber Capital, Inc. and ATL Inc., which are affiliates of the
Partnership, own 77.0 and 17.5 Units, respectively.
In July 1996, PaineWebber Incorporated ("PWI") entered into a
settlement agreement (the "Settlement") in connection with a class action
lawsuit against PWI and a number of its affiliates relating to PWI's sale of 70
direct investment offerings, including the offering of interests in the
Partnership. Under the terms of the Settlement, PWI has, among other things,
agreed to pay the class $125 million (which had previously been deposited in
escrow with the United States Court for the Southern District of New York) and
certain additional consideration. The additional consideration includes the
assignment of fees and income attributable to the general partnership interest
of the Partnership as well as guarantees of certain minimum returns to class
members. PWI will guarantee that members of the plaintiff class will receive in
distributions and fair market value as of December 31, 2000 at least the par
value (of $10,000) per Unit. To date, the Partnership has distributed $9,721 per
Unit in cash and in kind and the General Partner estimates a reasonable range of
values of the assets underlying each Unit to be between $5,555 and $6,965. See
Item 4(c). Accordingly, the Partnership does not expect any amounts to be
payable by PWI under the guarantee provided for in the Settlement with respect
to the Units.
(ii) Arrangements with Executive Officers, Directors and
Affiliates of the Offeror.
The Offer states that Stephen Evans-Freke, Rory Riggs and David
Madden are members of Pharmaceutical Partners, L.L.C., which manages the Offeror
and the Funds and is the sole member of the Offeror. Mr. Evans-Freke was
President of PWDC until May 1990; Mr. Riggs was a Managing Director of PWI until
November 1990; and Mr. Madden was an associate at PWDC until February 1992.
Messrs. Evans-Freke and Madden were directly involved in and responsible for
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identifying and selecting the investments in which the Partnership invested. In
addition, Messrs. Evans-Freke and Madden were directly involved in structuring,
negotiating and managing the Partnership and its assets. Since the termination
of their employment as indicated, none of Mr. Evans-Freke, Mr. Riggs or Mr.
Madden has been associated with, or employed by, PWDC, PWI or any of their
affiliates.
Under the PaineWebber Development Corporation Carried Interest
Sharing Plan (the "CISP"), fixed percentages of certain warrants and the cash
distributions received by PWDC in respect of certain partnerships in which PWDC
has invested are awarded to participants in the CISP, including Mr. Evans-Freke
and Mr. Madden. Mr. Evans-Freke and Mr. Madden are entitled to receive between
5% and 7% and between 0.85% and 4%, respectively, of amounts distributed to CISP
participants in respect of such partnership investments. Since the respective
dates of their termination of employment with PWDC through March 31, 1997,
Messrs. Evans-Freke and Madden received $560,808 and $54,487, respectively, in
respect of distributions under the CISP.
Pursuant to a confidentiality agreement, dated May 13, 1997 (the
"Confidentiality Agreement"), between an affiliate of the Offeror and the
Partnership, the Partnership agreed to make available to such affiliate, in
connection with its consideration of a possible transaction with the
Partnership, and such affiliate of the Offeror agreed to keep confidential,
certain information concerning the Partnership's pending derivative action (the
"Centocor Litigation") against Centocor, Inc. ("Centocor") and Centocor
Development Corporation III in the Chancery Court of Delaware (the "Court")
arising from the Partnership's former partnership interest in Centocor Partners
III, L.P. ("CPIII") and certain agreements entered into by Centocor and Eli
Lilly & Company (which is more fully described in the Partnership's Form 10- Q
for the quarter ended June 30, 1997). The affiliate of the Offeror also agreed
that until the earlier of (a) public disclosure by the Partnership or Centocor
of the effectiveness of any settlement of the Centocor Litigation or (b) August
15, 1997, unless specifically invited in writing by the Partnership, neither
such affiliate nor any of its affiliates or representatives will, among other
things, effect or seek to effect any tender or exchange offer, merger or other
business combination involving the Partnership. A copy of the Confidentiality
Agreement is attached to this Schedule 14D-9 as Exhibit 3 and is incorporated
herein by reference.
By letter to the General Partner, dated July 23, 1997 (the "List
Undertaking") (the terms of which letter had been negotiated with
representatives of the General Partner), an affiliate of the Offeror requested
use of the list (the "List") of the names and addresses of the Limited Partners.
In support of the request for the List, representatives of the Offeror stated in
such letter, among other things, that such affiliate (i) will hold the List in
strict confidence, and will not give any information derived from the List to
any third party for any purpose whatsoever, except that it may
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provide the List to any information or other agent retained to act on its behalf
in connection with any tender offer for the Units so long as such information or
other agent is advised of the confidential nature of the List and agrees to use
the List solely in connection with such proposed tender offer (with the Offeror
responsible for any breach of these undertakings by such information or other
agent); (ii) will comply fully with the requirements of the Securities Exchange
Act of 1934 and the rules of the Commission thereunder, including full
disclosure of all material facts and, in the case of any tender offer, rights of
proration and withdrawal rights, irrespective of the number of Units sought to
be acquired in such tender offer; (iii) acknowledges that the Partnership's
Agreement of Limited Partnership provides that, prior to the transfer of any
Units, the General Partner shall have consented in writing to the assignment,
which consent may be withheld in the absolute discretion of the General Partner;
(iv) acknowledges that the General Partner may withhold consent, if, among other
reasons, the General Partner concludes based upon the advice of counsel, that
such acquisition would increase the risk of adverse tax consequences to the
Partnership or its partners and that in the event the General Partner withholds
its consent for any number of Units sought to be purchased, it will refrain from
acquiring Units of the number so withheld (see Item 8); (v) undertakes not to
solicit directly, and will instruct its information and other agents not to
solicit directly, any PaineWebber broker with respect to the tender offer,
provided that if a PaineWebber broker contacts the Offeror or its information
agent, either may provide such person with the same information as is provided
to any other person who contacts the Offeror or its information agent with
respect to such tender offer; (vi) within 30 days after the completion of such
tender offer, will return the List including any and all copies of the List and
any related summary material together with any other materials provided by the
Partnership; and (vii) will ensure that any solicitation of Limited Partners
that will be undertaken by it or its information or other agents will be
conducted in a professional and reasonable manner which will respect the privacy
and rights of Limited Partners. A copy of the List Undertaking is attached to
this Schedule 14D-9 as Exhibit 4 and is incorporated herein by reference.
On July 25, 1997, the General Partner consented to the transfer of
2.5 Units by persons the General Partner has been advised are affiliates of the
Offeror, effective as of October 1, 1997.
The Partnership charges each purchaser of Units a $50 processing fee
for each purchase of Units, which fee was charged in connection with the
purchases described above and will be charged to the Offeror with respect to
each purchase of Units by the Offeror pursuant to the Offer.
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Item 4. The Solicitation or Recommendation
(a) Recommendation of the General Partner.
AS MORE FULLY DESCRIBED BELOW, THE GENERAL PARTNER HAS RECOMMENDED
THAT THE LIMITED PARTNERS REJECT THE OFFER AND NOT TENDER THEIR UNITS PURSUANT
TO THE OFFER.
(b) Background of the Offer.
On March 26, 1997, the Partnership received an unsolicited letter
from an affiliate of the Offeror in which such affiliate offered to purchase for
$23 million in cash all of the assets of the Partnership reported in the
Partnership's Form 10-Q for the quarter ended September 30, 1996. The affiliate
of the Offeror also stated in such letter that in "lieu of acquiring all of the
assets of the Partnership, [it] would consider an offer of equivalent value
(taking into account the then existing and potential liabilities of the
Partnership) in a negotiated merger transaction in which [it] would acquire for
cash all of the outstanding" Units.
During April 1997, representatives of the Partnership, including Mr.
Dhananjay Pai, the President of PWDC, had several telephone conversations with
representatives of the Offeror in which the representatives of the Partnership
stated that a material development concerning the settlement negotiations of the
Centocor Litigation may occur shortly and the Partnership's requirement that
before any further information concerning such settlement negotiations could be
disclosed to the Offeror, the Offeror would be required to enter into a
confidentiality agreement. On May 13, 1997, the Offeror and the Partnership
entered into the Confidentiality Agreement and certain information concerning
the Centocor Litigation was disclosed to the Offeror.
The Offeror requested a meeting with Mr. Pai. In a meeting on June
9, 1997 between representatives of the Partnership, including Mr. Pai and
counsel to the Partnership, and representatives of the Offeror, the Offeror
advised the Partnership that it believed that adequate consideration for the
purchase by the Offeror of all of the Partnership's assets described in the
Partnership's Form 10-K for the year ended December 31, 1996 would be $29
million in cash, or approximately $3,500 per Unit. Representatives of the
Offeror stated that if their indication of value of the Partnership's assets was
in accord with the Partnership's valuation of its assets, the Offeror would
proceed with a definitive offer for such assets. Representatives of the
Partnership responded that the Partnership would consider the Offeror's
indication of value of the Partnership's assets and would reexamine the
valuation of the Partnership's assets that it had prepared in preparation for
such meeting, but that based on such valuation, the Offeror's indication of
value of the Partnership's assets was substantially below the Partnership's
valuation of its assets.
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By letter, dated June 10, 1997, to the General Partner, an affiliate
of the Offeror outlined certain assumptions used by it in arriving at its
valuation of the Partnership's assets. On June 19, 1997, the Board of Directors
of the Manager (the "Board") met to consider the Offeror's indication of value
of the Partnership's assets and the valuation issues addressed in the letter of
June 10, 1997. At this meeting, the Board, together with representatives of the
Manager and PWDC, reviewed the valuation prepared by such representatives
following the June 9, 1997 meeting, including the assumptions and methodologies
used in the valuation of each of the Partnership's assets, and unanimously
determined that the Offeror's indication of value of $29 million for the
Partnership's assets was financially inadequate. Subsequent to the Board meeting
of June 19, 1997, representatives of the Partnership informed the Offeror of the
Board's determination.
On July 7, 1997, representatives of the Offeror orally requested the
List. On July 23, 1997, following certain discussions between representatives of
the Partnership and an affiliate of the Offeror, the General Partner received
the List Undertaking. (See Item 3(b)(ii) for a description of the List
Undertaking.) On August 8, 1997, the General Partner provided to the Offeror the
List pursuant to the List Undertaking.
On August 15, 1997, the Offeror commenced the Offer.
On August 18, 1997, following the making of the Offer, the Board
considered the terms of the Offer, and for the reasons discussed below,
determined that the Offer was financially inadequate and that the Partnership
should recommend to the Limited Partners that they reject the Offer and not
tender their Units to the Offeror in the Offer.
As previously disclosed to the Limited Partners, the parties to the
Centocor Litigation entered into an agreement in June 1997 to settle the
Centocor Litigation. In June 1997, the Court entered an order preliminarily
approving the settlement agreement, and the Court scheduled a hearing for
September 4, 1997 to determine whether the proposed settlement should be
approved. In determining the fairness of the Offer, the Board based its
determination of the value of its former CPIII interest on the assumption that
the terms of the proposed settlement of the Centocor Litigation would be
approved and believes that the Offeror made its determination of value of such
CPIII interest based on the same assumption. Counsel to another limited partner
of CPIII, who has filed a complaint against Centocor similar to the
Partnership's complaint, has stated that he intends to object to the proposed
settlement. In addition, an entity named Pharmaceutical Partners II, L.P., which
the Partnership believes was formerly, but is no longer, affiliated with the
Offeror, has also indicated its intention to object to the proposed settlement.
If the Court were to reject the
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proposed settlement, the Partnership cannot predict what actions, if any, the
Offeror may take in response thereto.
(c) Factors Considered by the Board
The Board's determination that the Offer is financially inadequate
and its recommendation that the Limited Partners reject the Offer and not tender
their Units to the Offeror in the Offer are based on a number of factors
including, but not limited to, the following:
1. The General Partner's knowledge of and experience with (i)
the Partnership's business, assets, financial condition and future prospects,
including the terms of the proposed settlement of the Centocor Litigation and
(ii) the value of assets of other entities with assets similar to those of the
Partnership.
2. The opinion of management of PWDC and the Manager that the
Offer is financially inadequate. In response to the Offer, management undertook
a valuation of each of the Partnership's assets, relying generally on the
knowledge and experience described above and, with respect to assets of the
Partnership (including the amounts payable to the Partnership under the proposed
settlement of the Centocor Litigation) whose value is dependent on third-party
product sales, relying on sales projections for such products prepared by Wall
Street and other industry analysts not affiliated with the Partnership. In
addition, in valuing certain assets, management relied on non-public information
furnished to it by the sponsor companies pursuant to confidentiality agreements.
Based on the foregoing, management concluded that a reasonable range of values
for the Partnership's assets on a per Unit basis to be $5,555 to $6,965, making
the Offer a discounted amount of 35% to 48% of such range of values. Management
noted, however, that in arriving at such range of values, it was generally
required to rely on confidential and non-public information provided by sponsor
companies and to make certain assumptions regarding product sales, timing of
regulatory approvals, competitive products and general company conditions, many
of which assumptions are based on factors beyond the control of the General
Partner, the Partnership or any of its affiliates. It is possible that the
actual value of the Partnership's assets may be significantly more or less than
indicated, and management, the General Partner and the Partnership are unable to
provide any assurance that the actual value that may be realized by the
Partnership or any Limited Partner would be as indicated by such range of
values.
In the Offer, the Offeror stated that the price being
offered by it for the Units "is greater than the $29 million valuation of the
Partnership prepared by the General Partner in July 1996 for ERISA purposes. In
addition, since the date of the General Partner's valuation, the Partnership has
distributed approximately $7.7 million in cash." The valuation referred to in
the Offer is a
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valuation prepared by the General Partner for ERISA purposes as of December 31,
1995. The General Partner elected to report "price not available" for the Units
for ERISA purposes as of December 31, 1996 because at that time the parties had
not yet entered into a settlement agreement with respect to the Centocor
Litigation. The General Partner believes that a reasonable current range of
value for the Partnership's assets is as set forth above.
3. The General Partner's belief that in order for the Offeror
to realize any significant return on its investment, the Offeror is required to
purchase the Units at a substantial discount from fair market value. The General
Partner bases this belief on the passive nature of the assets held by the
Partnership, which consist primarily of product royalty rights whose value is
derived from product sales and whose value cannot be affected by the holder of
the royalty right.
4. The General Partner's commitment to protecting the
interests of the Limited Partners. Neither the General Partner nor any of its
affiliates currently receives any fees or other economic benefit from the
Partnership, and the General Partner is making its recommendation to the Limited
Partners not to tender their Units in the Offer based solely on its commitment
to protect the interests of the Limited Partners. (See Item 3(b)(i).)
5. The fact that the General Partner is in the process of
winding-up its operations, which it anticipates will be substantially completed
within the next several years, and that the Limited Partners should receive
substantial value in connection therewith, including a pro rata distribution of
the proceeds of the proposed settlement of the Centocor Litigation, which
distribution may be in the form of cash or other property.
The Board of Directors did not assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Board arrived at its position and recommendation based on the
totality of the information presented to and considered by it.
Item 5. Persons Retained, Employed or to be Compensated
Neither the Partnership nor any person acting on its behalf has
employed, retained or compensated any other person to make solicitations or
recommendations to Limited Partners in connection with the Offer.
Item 6. Recent Transactions and Intent with Respect to Securities
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(a) There have been no transactions in the Units during the past 60
days by the Partnership or, to the best of the Partnership's knowledge, by any
executive officer, director, affiliate or subsidiary of the Partnership.
(b) To the best of the Partnership's knowledge, none of its
executive officers, directors, affiliates or subsidiaries currently intends to
tender, pursuant to the Offer, any Units held of record or beneficially owned by
such persons.
Item 7. Certain Negotiations and Transactions by the Subject
Company
(a) The Partnership is not currently engaged in any negotiation in
response to the Offer which relates to or would result in (i) an extraordinary
transaction, such as a merger or reorganization, involving the Partnership; (ii)
a purchase, sale or transfer of a material amount of assets by the Partnership;
(iii) a tender offer for or other acquisition of securities by or of the
Partnership; or (iv) any material change in the present capitalization or
distribution policy of the Partnership.
(b) There are no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer which relate to or would
result in one or more of the matters referred to in paragraph (a) of this Item
7.
Item 8. Additional Information to be Furnished
Pursuant to the Partnership's Agreement of Limited
Partnership, the General Partner cannot in any event consent to any transfer of
Units which would result in a termination of the Partnership for federal income
tax purposes. Such a termination results from a sale or exchange of 50% or more
of the Units within a 12- month period. During the 12-month period preceding the
date of the Offer, 0.53% of the outstanding Units were sold or exchanged. As a
result, the General Partner cannot consent to any sale of Units in the Offer
aggregating more than 4,084.5 Units, or 49.47% of the outstanding Units.
Item 9. Material to be Filed as Exhibits
Exhibit 1. Letter, dated August 19, 1997, from the General Partner
to the Limited Partners, concerning the Offer (included with the Schedule 14D-9)
Exhibit 2. Letter, dated August 19, 1997, to PaineWebber Investment
Executives
Exhibit 3. Confidentiality Agreement
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Exhibit 4. List Undertaking
Exhibit 5. CISP
SIGNATURE
After reasonable inquiry and to the best of its knowledge and
belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
PAINEWEBBER R&D PARTNERS II, L.P.
By: PaineWebber Technologies II, L.P.,
its general partner
By: PWDC Holding Company
its general partner
By:/s/Dhananjay M. Pai
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Name: Dhananjay M. Pai
Title: President
Dated: August 19, 1997