SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14217
ML VENTURE PARTNERS II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3324232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, North Tower
New York, New York 10281-1327
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None 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]
At March 18, 1994, 119,966 units of limited partnership interest ("Units")
were held by non-affiliates of the registrant. There is no established
public trading market for such Units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated February 10, 1987, as
supplemented by a supplement thereto dated April 21, 1987, are incorporated
by reference in Part I and Part II hereof.
Portions of the definitive proxy statement relating to the 1994 Annual
Meeting of Limited Partners of the Registrant are incorporated by reference
in Part III hereof.
Portions of the Registrant's Form 10-Q for the quarter ended March 31, 1993
filed with the Securities and Exchange Commission on May 14, 1993 are
incorporated by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended June 30, 1993
filed with the Securities and Exchange Commission on August 13, 1993 are
incorporated by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended September 30,
1993 filed with the Securities and Exchange Commission on November 15, 1993
are incorporated by reference in Part I hereof.
PART I
Item 1. Business.
Formation
ML Venture Partners II, L.P. (the "Partnership" or the "Registrant") is a
Delaware limited partnership organized on February 4, 1986. The General
Partners of the Partnership consist of four individuals (the "Individual
General Partners") and MLVPII Co., L.P. (the "Managing General Partner"), a
New York limited partnership in which Merrill Lynch Venture Capital Inc.
(the "Management Company") is the general partner. The Management Company
is an indirect subsidiary of Merrill Lynch & Co., Inc. and an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). DLJ Capital
Management Corporation (the "Sub-Manager"), an affiliate of Donaldson,
Lufkin and Jenrette, Inc., is the sub-manager pursuant to a sub-management
agreement, dated May 23, 1991, among the Partnership, the Managing General
Partner, the Management Company and the Sub-Manager.
The Partnership operates as a business development company under the
Investment Company Act of 1940. The Partnership's investment objective is
to seek long-term capital appreciation by making venture capital
investments in new and developing companies and other special investment
situations. The Partnership considers this activity to constitute the
single industry segment of venture capital investing.
Through MLPF&S, the Partnership publicly offered 120,000 Units at $1,000
per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form N-2 (File No. 33-3220) which
was declared effective on February 10, 1987. The Partnership held its
initial and final closings on March 31, 1987 and June 10, 1987,
respectively. A total of 120,000 Units were accepted at such closings and
the additional limited partners (the "Limited Partners") were admitted to
the Partnership.
The information set forth under the captions "Risk and Other Important
Factors" (pages 8 through 11), "Investment Objective and Policies" (pages
14 through 16), "Venture Capital Operations" (pages 17 through 20) and
"Portfolio Valuation" (pages 27 and 28) in the prospectus of the
Partnership dated February 10, 1987, filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act of 1933, as
supplemented by a supplement thereto dated April 21, 1987 and filed
pursuant to Rule 424(c) under the Securities Act of 1933 (the
"Prospectus"), is incorporated herein by reference.
The Venture Capital Investments
During the year ended December 31, 1993, the Partnership invested $8
million in its portfolio of investments: $3.6 million in two new portfolio
companies and $4.4 million in six existing portfolio companies. At
December 31, 1993, the Partnership had invested $110.7 million in 58
portfolio investments. In addition, subsequent to year-end, the
Partnership had an outstanding investment commitment totaling $1.1 million
(see Note 6 of Notes to Financial Statements). At December 31, 1993, the
Partnership's investment portfolio consisted of 32 active investments with
a cost of $55.1 million and a fair value of $107 million. From its
inception through December 31, 1993, the Partnership has fully or partially
liquidated investments with an aggregate cost basis of $55.6 million for a
total return of $46.6 million. The Partnership's cumulative net realized
loss from the liquidation of these investments is $9 million at December
31, 1993. Additionally, from December 31, 1993 to February 18, 1994, the
Partnership sold, or partially sold, investments for $13.9 million,
realizing a gain of $12.8 million.
Venture capital investments made in 1993 are as follows:
The descriptions of the Partnership's follow-on investments in Corporate
Express, Inc., Diatech, Inc. and HCTC Investment, L.P. set forth in Item 5
of Part II of the Partnership's quarterly report on Form 10-Q for the
quarter ended March 31, 1993 are incorporated herein by reference.
The descriptions of the Partnership's investments in Inference Corporation
and OccuSystems, Inc. and the Partnership's follow-on investments Corporate
Express, Inc., HCTC Investment, L.P. and Diatech, Inc. set forth in Item 5
of Part II of the Partnership's quarterly report on Form 10-Q for the
quarter ended June 30, 1993 are incorporated herein by reference.
The descriptions of the Partnership's follow-on investments in Trancel
Corporation, Neocrin Corporation (formerly Trancel) and HCTC Investment,
L.P. set forth in Item 5 of Part II of the Partnership's quarterly report
on Form 10-Q for the quarter ended September 30, 1993 are incorporated
herein by reference.
On August 12, 1993, the Partnership converted promissory notes from
Diatech, Inc. with an aggregate face value of $494,000 and accrued interest
totaling $26,015 into 208,006 preferred shares of the company at $2.50 per
share.
On October 6, 1993, the Partnership paid $6,957 to MLMS Cancer Research,
Inc. in connection with a call on a non-interest bearing promissory note
payable on demand to the company. The payment increased the cost basis of
the Partnership's common stock investment in the company from $40,000 to
$46,957 and reduced the outstanding obligation under the promissory note
from $400,000 to $393,043.
Competition
The Partnership encounters competition from other entities having similar
investment objectives, including other entities affiliated with Merrill
Lynch & Co., Inc. Primary competition for venture capital investments has
been from venture capital partnerships, venture capital affiliates of large
industrial and financial companies, small business investment companies and
wealthy individuals. Competition has also been from foreign investors and
from large industrial and financial companies investing directly rather
than through venture capital affiliates. The Partnership has frequently
been a co-investor with other professional venture capital groups and these
relationships generally have expanded the Partnership's access to
investment opportunities.
Employees
The Partnership has no employees. The Partnership Agreement provides that
the Managing General Partner, subject to the supervision of the Individual
General Partners, manages and controls the Partnership's venture capital
investments. The Management Company performs, or arranges for others to
perform, the management and administrative services necessary for the
operation of the Partnership and is responsible for managing the
Partnership's short-term investments. The Sub-Manager, subject to the
supervision of the Management Company and Individual General Partners,
provides management services in connection with the Partnership's venture
capital investments and investments of the Partnership in unaffiliated
venture capital funds.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership has been named as a defendant in an action relating to its
ownership of securities of In-Store Advertising, Inc. ("In-Store
Advertising"). On or about July 16, 1993, a Second Amended Consolidated
Class Action Complaint (the "Amended Complaint") was filed in the United
States District Court for the Southern District of New York in the In Re In-
Store Advertising Securities Litigation. The action is a purported class
action suit wherein the plaintiffs (the "Plaintiffs") are persons who
allegedly purchased shares of In-Store Advertising common stock in the July
19, 1990 initial public offering (the "Offering") and through November 8,
1990. The defendants named in the Amended Complaint include present and
former individual officers and directors of In-Store Advertising, the
underwriters involved in the Offering, KPMG Peat Marwick (In-Store
Advertising's auditors) and certain other defendants, including the
Partnership, who owned In-Store Advertising securities prior to the
Offering (the "Venture Capital Defendants"). Prior to the filing of the
Amended Complaint, In-Store Advertising filed a "prepackaged" plan in U.S.
Bankruptcy Court pursuant to Chapter XI of the U.S. Bankruptcy Code.
The Amended Complaint alleges violations under Sections 11, 12(2) and 15 of
the Securities Act of 1933, as amended (the "1933 Act"), Section 10(b) and
20 of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
Rule 10b-5 promulgated thereunder, and common law claims of negligent
misrepresentation, fraud and deceit in connection with the sale of
securities. The Plaintiffs seek rescission of the purchases of In-Store
Advertising's common stock to the extent the members of the alleged classes
still hold their shares, together with damages and certain costs and
expenses.
The Amended Complaint alleges that the Venture Capital Defendants are
liable under Section 10(b) of the 1934 Act and Rule 10b-5, and are also
liable as controlling persons of In-Store Advertising within the meaning of
Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. The Venture
Capital Defendants are also being sued as alleged knowing and substantial
aiders and abettors of the other defendants' wrongful conduct and under
common law fraud and negligence theories. An individual director of In-
Store Advertising, named as a defendant in the action, was a Vice President
of Merrill Lynch Venture Capital Inc., the General Partner of the Managing
General Partner of the Partnership. The Partnership believes that it has
meritorious defenses to the allegations in the Amended Complaint (see Note
8 of Notes to Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders. The 1994 Annual
Meeting of the limited partners of the Partnership is scheduled to be held
on May 3, 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information with respect to the market for the Units set forth under
the subcaption "Substituted Limited Partners" on pages 30 and 31 of the
Prospectus is incorporated herein by reference. There is no established
public trading market for the Units as of March 18, 1994. The approximate
number of holders of Units as of March 18, 1994 is 13,700. The Managing
General Partner and the Individual General Partners of the Partnership also
hold interests in the Partnership.
Effective November 9, 1992, the Registrant was advised that Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or "MLPF&S")
introduced a new limited partnership secondary service through Merrill
Lynch's Limited Partnership Secondary Transaction Department ("LPSTD").
This service will assist Merrill Lynch clients wishing to buy or sell
Registrant Units. The LPSTD has replaced the Merrill Lynch Investor
Service, a service which was designed to match interested buyers and
sellers of partnership interests, but which had been suspended since
September 1991 for transactions involving the Registrant's Units.
On May 26, 1993, the Partnership made a cash distribution to Limited
Partners of record on March 31, 1993 totaling $15.6 million, or $130 per
Unit. On April 30, 1992, the Partnership made a cash distribution to
Limited Partners of record on March 31, 1992 totaling $9 million, or $75
per Unit. On April 26, 1991, the Partnership made a cash distribution to
Limited Partners of record on March 31, 1991 totaling $6 million, or $50
per Unit. These distributions primarily resulted from proceeds received by
the Partnership from the sale of certain portfolio investments. Cumulative
cash distributions paid to Limited Partners from inception through December
31, 1993 total $42.6 million, or $355 per $1,000 Unit.
On March 2, 1994, the General Partners approved a cash distribution to
Limited Partners totaling $16.2 million, or $135 per Unit. The
distribution will be paid in May 1994 to Limited Partners of record on
March 31, 1994 and will bring cumulative cash distributions paid to Limited
Partners to $58.8 million, or $490 per $1,000 Unit.
Item 6. Selected Financial Data.
($ In Thousands, Except Per Unit Information)
Fiscal Years Ended December 31,
1993 1992 1991 1990 1989
Net Realized Gain (Loss)
on Investments $ 10,605 $ (5,677) $ 1,968$ (15,142) $ 2,931
Net Change in Unrealized
Appreciation of Investments 9,430 11,657 14,361 4,525 1,137
Net Increase (Decrease)
in Net Assets Resulting
from Operations 18,581 4,809 15,954 (9,976) 5,375
Cash Distributions to
Limited Partners 15,600 9,000 6,000 - 12,000
Cumulative Cash Distributions
to Limited Partners 42,600 27,000 18,000 12,000 12,000
Net Assets 112,671 109,690 113,881 103,927 113,903
Net Unrealized Appreciation
of Investments 51,908 42,478 30,821 16,460 11,936
Purchase of Portfolio Investments8,050 13,781 9,845 7,790 21,088
Cumulative Cost of
Portfolio Investments 110,682 102,633 88,852 79,006 71,217
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net Realized Gain (Loss)
on Investments $ 87 $ (47) $ 16 $ (125) $ 25
Net Increase (Decrease)
in Net Assets Resulting
from Operations 120 29 104 (65) 37
Cash Distributions 130 75 50 - 100
Cumulative Cash Distributions 355 225 150 100 100
Net Unrealized Appreciation
of Investments 355 310 225 133 79
Net Asset Value, Including
Net Unrealized Appreciation
of Investments 852 862 908 854 919
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1993, the Partnership invested $8
million in portfolio investments; $3.6 million in two new portfolio
companies and $4.4 million in five existing portfolio companies. From its
inception through December 31, 1993, the Partnership had invested $110.7
million in 58 portfolio investments. Additionally, subsequent to December
31, 1993, the Partnership had a commitment to make a follow-on investment
of $1.1 million in Corporate Express, Inc. As of December 31, 1993, 26 of
the Partnership's 58 portfolio investments had been fully liquidated.
Portfolio investments sold and written-off through December 31, 1993 had a
cost of $55.6 million and returned $46.6 million, resulting in a cumulative
net realized loss of $9 million.
At December 31, 1993, the Partnership held $5.4 million in cash and short-
term investments; $4 million in short-term securities with maturities of
less than one year and $1.4 million in an interest-bearing cash account.
It is anticipated that funds needed to cover future operating expenses will
be obtained from the Partnership's existing cash reserves and from proceeds
received from the future sale of portfolio investments.
Subsequent to the end of fiscal 1993, the Partnership sold or partially
sold investments in three portfolio companies for $13.9 million. As a
result, on March 2, 1994, the General Partners approved a cash distribution
to Limited Partners of $16.2 million, or $135 per Unit. This distribution
will be paid in May 1994 to Limited Partners of record on March 31, 1994
and will bring cumulative cash distributions paid to Limited Partners to
$58.8 million, or $490 per $1,000 Unit.
Results of Operations
Net realized gain or loss from operations is comprised of 1) net realized
gains or losses from portfolio investments sold and written-off and 2) net
investment income or loss. For the year ended December 31, 1993, the
Partnership had a net realized gain from operations of $9.2 million. In
1992, the Partnership had a net realized loss from operations of $6.8
million and in 1991, the Partnership had a net realized gain from
operations of $1.6 million.
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1993, the Partnership had a $10.6 million net realized gain
from portfolio investments sold and written-off. During the year, the
Partnership sold 525,000 common shares of Regeneron Pharmaceuticals, Inc.
in the public market for $8.2 million, realizing a gain of $7.6 million.
In January 1993, the Partnership sold its investment in Pyxis Corporation
in a private transaction for $7.8 million, realizing a gain of $7.2
million. In February 1993, the Partnership sold 187,912 common shares of
Ringer Corporation for $567,000, realizing a gain of $4,000. During the
year, In-Store Advertising, Inc. ("ISA") filed for protection under Chapter
11 of the federal Bankruptcy Code resulting in the write-off of the
Partnership's remaining $1.1 million investment in the company. The
Partnership also received a final liquidation payment from InteLock
Corporation resulting in the write-off of the Partnership's remaining
$123,000 investment in the company. Additionally, the Partnership wrote-off
its $2 million investment in Ogle Resources, Inc. ("Ogle") and the
remaining $900,000 of its investment in Communications International, Inc.
("CII"). Several smaller portfolio transactions completed in 1993 resulted
in an additional $46,000 net realized loss for the period.
For the year ended December 31, 1992, the Partnership had a $5.7 million
net realized loss from portfolio investments sold and written-off. In
February and March 1992, the Partnership sold its remaining 157,500 common
shares of Everex Systems, Inc. in the public market for $1 million,
realizing a gain of $371,000. The Partnership also sold 45,000 common
shares of Regeneron Pharmaceuticals, Inc. in the public market for
$627,000, realizing a gain of $575,000. In September 1992, the Partnership
received 50,111 shares of Bolt Beranek and Newman Inc. common stock in
connection with the termination of BBN Integrated Switch Partners, L.P.
The shares were sold in the public market in October and November 1992 for
$200,000 which resulted in a realized gain of $13,000. In May 1992, Allez,
Inc. filed for protection under Chapter 11 of the federal Bankruptcy Code.
As a result, the Partnership realized a loss from its $1.8 million
investment in the company. The Partnership also realized losses of $1.1
million of its $1.3 million investment in InteLock due to the company's
financial restructuring and continued operating difficulties. In October
1992, the Partnership sold its investment in R-Byte to Exabyte Corporation
for $1.3 million, which resulted in a realized loss of $444,000. Also
during 1992, the Partnership realized a loss of $1.1 million on its $2.3
million investment in ISA due to the continued depressed public market
price of the company's common stock. The Partnership also realized losses
of $919,000 on its $1.8 million investment in CII, $1.1 million on its $1.5
million investment in Target Vision, Inc. and $102,000 on its remaining
investment in TCOM Systems, Inc. due to continued operational and financial
difficulties at the companies.
For the year ended December 31, 1991, the Partnership had a $2 million net
realized gain from investments sold and written-off. In November 1991, the
Partnership sold 500,000 common shares of Regeneron in the public market
for $9.2 million, realizing a gain of $9.0 million. In April 1991, the
Partnership sold 30,000 common shares of Everex in the public market for
$196,000, realizing a gain of $76,000. In January 1991, Ringer completed
its acquisition of Safer, Inc. The Partnership sold its holdings of Safer
for 275,317 common shares of Ringer. The transaction resulted in the
Partnership realizing a loss of $2.2 million of its $3 million original
investment in Safer. The Partnership realized additional losses during
1991 totaling $4.9 million from the full or partial write-off of four
portfolio investments. S&J Industries, Inc. completed a restructuring that
negatively affected the Partnership's investment in the company, resulting
in the write-off of its $1.6 million investment. SF2 Corporation incurred
substantial operating difficulties which led to a financial restructuring
of the company. Consequently, the Partnership wrote-off its $1.9 million
equity investment in SF2. The Partnership also wrote-off its $1.1 million
investment in Touch Communications Incorporated which ceased operations in
1991. Additionally, the Partnership wrote-off its remaining $300,000
investment in The Computer-Aided Design Group, Inc. due to a financial
restructuring of the company which negatively impacted the value of the
Partnership's investment.
Investment Income and Expenses - Net investment loss (investment income
less operating expenses) for the years ended December 31, 1993, 1992 and
1991 was $1.5 million, $1.2 million and $374,000, respectively. The
increase in net investment loss for 1993 compared to 1992 primarily is
attributable to a decrease in investment income, specifically, interest
income earned from the Partnership's short-term investments and the write-
off of $406,000 of accrued interest receivable related to the Partnership's
promissory note due from Ogle in the 1993 period. The reduction in
investment income in 1993 was partially offset by a decrease in the 1993
management fee, as discussed below. The increase in net investment loss
for 1992 compared to 1991 primarily is attributable to a decrease in
interest income earned in 1992 from the Partnership's short-term
investments partially offset by a decrease in the 1992 management fee, as
discussed below. Interest earned from short-term investments for the years
ended December 31, 1993, 1992 and 1991 was $360,000, $805,000 and $1.9
million, respectively. The decrease for each consecutive year primarily is
due to a reduction in funds invested in short-term investments and
declining interest rates. At December 31, 1993, 1992 and 1991, funds
invested in short-term securities totaled $5.4 million, $12 million and
$32.8 million, respectively. Funds available for investment in short-term
securities declined as idle funds were used to purchase venture capital
investments.
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership. The Management Company receives an annual fee of 2.5% of the
gross capital contributions to the Partnership, reduced by selling
commissions, organizational and offering expenses paid by the Partnership,
return of capital and realized capital losses, with a minimum fee of
$200,000. Such fee is determined and payable quarterly. The management
fee for the years ended December 31, 1993, 1992 and 1991 was $1.4 million,
$1.7 million and $1.9 million, respectively. The management fee is
expected to continue to decline in future periods as portfolio investments
mature and capital is returned to Partners. The management fee and other
operating expenses are paid with funds provided from operations. Funds
provided from operations for the period were obtained from interest
received from short-term investments, dividend and interest income from
portfolio investments and proceeds from the sale of certain portfolio
investments.
Unrealized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1993, the Partnership had a $20.8 million unrealized gain from
the net upward revaluation of certain portfolio investments. This
unrealized gain primarily is a result of the net upward revaluation of the
Partnership's investments in Regeneron, CellPro, Incorporated and Corporate
Express, Inc. during 1993. Additionally, during the year, the Partnership
transferred $13.6 million from unrealized gain to realized gain primarily
relating to the sale of its investments in Pyxis and Regeneron and
transferred $2.2 million from unrealized loss to realized loss relating to
the write-offs of its investments in CII, Ogle, InteLock and ISA, as
discussed above. The $20.8 million unrealized gain offset by the $11.4
million net transfer from unrealized gain to realized gain, resulted in a
$9.4 million increase in the Partnership's net unrealized appreciation of
investments for 1993.
For the year ended December 31, 1992, the Partnership had a $6.8 million
unrealized gain from the net upward revaluation of certain portfolio
investments. This unrealized gain primarily resulted from the upward
revaluation of the Partnership's investments in Pyxis and CellPro.
Additionally, during the year, the Partnership transferred $4.9 million
from unrealized loss to realized loss relating to the sale of Everex and
the full or partial write-off of several other investments, as discussed
above. The $6.8 million unrealized gain combined with the $4.9 million
transfer from unrealized loss to realized loss resulted in an $11.7 million
increase in the Partnership's net unrealized appreciation of investments
for 1992.
For the year ended December 31, 1991, the Partnership had a $14.3 million
unrealized gain from the net upward revaluation of certain portfolio
investments. This unrealized gain primarily resulted from the upward
revaluation of the Partnership's investment in Regeneron. Additionally,
during the year, the Partnership transferred a net $56,000 from unrealized
loss to realized loss relating to the sale and write-off of several
investments, as discussed above. The $14.3 million unrealized gain
combined with the $56,000 net transfer from unrealized loss to realized
loss resulted in a $14.4 million increase in the Partnership's net
unrealized appreciation of investments for 1991.
Net Assets - Changes in net assets resulting from operations is comprised
of 1) net realized gains and losses from operations and 2) changes to net
unrealized appreciation or depreciation of portfolio investments. For the
year ended December 31, 1993, 1992 and 1991, the Partnership had a net
increase in net assets resulting from operations of $18.6 million, $4.8
million and $16 million, respectively.
At December 31, 1993, the Partnership's net assets were $112.7 million, an
increase of $3 million from $109.7 million at December 31, 1992. This
increase resulted from the $18.6 million net increase in net assets
resulting from operations for 1993 offset by the $15.6 million cash
distribution to Limited Partners paid in May 1993.
At December 31, 1992, the Partnership's net assets were $109.7 million, a
decrease of $4.2 million from $113.9 million at December 31, 1991. This
decrease resulted from the $9 million cash distribution to Limited Partners
paid in April 1992 exceeding the $4.8 million net increase in net assets
resulting from operations for 1992.
At December 31, 1991, the Partnership's net assets were $113.9 million, an
increase of $10 million from $103.9 million at December 31, 1990. This
increase resulted from the $16 million net increase in net assets resulting
from operations for 1991 offset by the $6 million cash distribution to
Limited Partners paid in April 1991.
Gains and losses from investments are allocated to Partners' capital
accounts when realized, in accordance with the Partnership Agreement (see
Note 3 of Notes to Financial Statements). However, for purposes of
calculating the net asset value per unit of limited partnership interest,
net unrealized appreciation of investments has been included as if the net
appreciation had been realized and allocated to the Limited Partners in
accordance with the Partnership Agreement. Pursuant to such calculation,
the net asset value per $1,000 Unit at December 31, 1993, 1992 and 1991 was
$852, $862 and $908, respectively.
Item 8. Financial Statements and Supplementary Data.
ML VENTURE PARTNERS II, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1993 and 1992
Schedule of Portfolio Investments as of December 31, 1993
Schedule of Portfolio Investments as of December 31, 1992
Statements of Operations for the years ended December 31, 1993, 1992 and
1991
Statements of Cash Flows for the years ended December 31, 1993, 1992 and
1991
Statements of Changes in Partners' Capital for the years ended December 31,
1991, 1992 and 1993
Notes to Financial Statements
Schedule I - Money Market Investments as of December 31, 1993 and 1992
NOTE - All schedules, other than Schedule I, are omitted because of the
absence of conditions under which they are required or because the required
information is included in the financial statements or the notes thereto.
DELOITTE & TOUCHE
1633 Broadway
New York, NY 10019-6754
INDEPENDENT AUDITORS' REPORT
ML Venture Partners II, L.P.:
We have audited the accompanying balance sheets of ML
Venture Partners II, L.P., including the schedules of
portfolio investments, as of December 31, 1993 and 1992, and
the related statements of operations, cash flows, and
changes in partners' capital for each of the three years in
the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the
Index at Item 8 of Form 10-K. These financial statements
and financial statement schedules are the responsibility of
the Partnership's management. Our responsibility is to
express an opinion on these financial statements and
financial statement schedules 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. Our procedures included confirmation
of securities owned at December 31, 1993 and 1992 by
correspondence with the custodian; where confirmation was
not possible, we performed other audit procedures. 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 ML Venture
Partners II, L.P. at December 31, 1993 and 1992, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules,
when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
As explained in Note 2, the financial statements include
securities valued at $107,038,636 and $97,529,004 at
December 31, 1993 and 1992, respectively, representing 95%
and 89% of net assets, respectively, whose values have been
estimated by the Managing General Partner in the absence of
readily ascertainable market values. We have reviewed the
procedures used by the Managing General Partner in arriving
at its estimate of value of such securities and have
inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and
the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values
may differ significantly from the values that would have
been used had a ready market for the securities existed, and
the differences could be material.
As discussed in Note 8 to the financial statements, the
Partnership is a defendant in litigation relating to the
Partnership's ownership of securities of In-Store
Advertising, Inc. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision
for any loss that may result upon resolution of this matter
has been made in the accompanying financial statements.
Deloitte & Touche
February 21, 1994, except for Note 7, as to which the date
is March 2, 1994
ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
December 31, December 31,
1993 1992
ASSETS
Investments - Note 2
Portfolio investments, at fair value
(cost $55,130,444 at December 31, 1993
and $55,051,259 at December 31, 1992) $ 107,038,636 $ 97,529,004
Money market investments, at amortized cost 3,991,697 9,660,277
Cash and cash equivalents 1,412,882 2,306,339
Accrued interest receivable 220,067 53,879
Notes receivable 102,579 454,931
Receivable from securities sold 321,300 144,373
TOTAL ASSETS $ 113,087,161 $ 110,148,803
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 41,535 $ 36,416
Due to Management Company - Note 4 353,242 402,047
Due to Independent General Partners - Note 5 21,450 19,950
Total liabilities 416,227 458,413
Partners' Capital:
Managing General Partner 1,033,457 941,956
Individual General Partners 3,410 3,108
Limited Partners (120,000 Units) 59,725,875 66,267,581
Unallocated net unrealized appreciation
of investments - Note 2 51,908,192 42,477,745
Total partners' capital 112,670,934 109,690,390
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 113,087,161 $ 110,148,803
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1993
ACTIVE PORTFOLIO INVESTMENTS:
Initial
Investment Fair
Company / Position Date Cost Value
Biocircuits Corporation*+
515,269 shares of Common Stock May 1991 $1,422,501 $1,356,446
Borg-Warner Automotive, Inc.*+(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 9,485,000
Borg-Warner Security Corporation*+(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 7,584,375
CellPro, Incorporated*+(B)
783,333 shares of Common Stock Mar. 1989 1,455,944 19,417,868
Children's Discovery Centers of America, Inc.*+
115,267 shares of Common Stock July 1988 2,000,259 920,695
Clarus Medical Systems, Inc.*
507,458 shares of Preferred Stock Jan. 1991 2,037,290 807,350
Warrants to purchase 20,238 shares of Common Stock
at $3.75 per share, expiring on 7/31/97 0 0
Corporate Express, Inc.*
442,136 shares of Common Stock May 1992 99,478 2,431,748
914,250 shares of Preferred Stock 1,830,435 5,028,375
Diatech, Inc.*(C)
1,258,006 shares of Preferred Stock Dec. 1991 2,620,015 3,145,015
Eckerd Corporation*+(D)
92,843 shares of Common Stock July 1992 857,004 1,156,824
Elantec, Inc.
2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,069,569
852,273 shares of Common Stock 340,909 340,909
Home Express, Inc.*
486,067 shares of Preferred Stock Jan. 1992 1,822,751 1,822,751
Horizon Cellular Telephone Company, L.P.:
HCTC Investment, L.P.
10% Promissory Note May 1992 2,587,500 2,587,500
SPTHOR Corporation
10% Promissory Note May 1992 646,875 646,875
34.5 shares of Common Stock 215,625 215,625
I.D.E. Corporation*
493,391 shares of Preferred Stock Mar. 1988 1,110,909 555,455
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1993
ACTIVE PORTFOLIO INVESTMENTS (CONTINUED):
Initial
Investment Fair
Company / Position Date Cost Value
IDEC Pharmaceuticals Corporation+:
ML/MS Associates, L.P.*
34.4% Limited Partnership interest June 1989 $3,960,000 $3,960,000
Warrants to purchase 380,000 shares of Common Stock
of IDEC Pharmaceuticals Corporation at $7.25 per
share, expiring on 2/17/95 217,391 0
MLMS Cancer Research, Inc.
400,000 shares of Common Stock July 1989 46,957 46,957
Inference Corporation
702,427 shares of Preferred Stock Apr. 1993 785,032 785,032
Warrants to purchase 193,682 shares of Preferred Stock
at $1 per share, expiring on 4/19/99 22,777 22,777
Warrants to purchase 24,233 shares of Preferred Stock
at $1.05 per share, expiring on 12/16/97 6,531 6,531
Warrants to purchase 295,827 shares of Common Stock
at $1 per share, expiring on 6/10/98 79,725 79,725
Komag, Incorporated+
234,486 shares of Common Stock Aug. 1988 2,160,987 3,724,810
Ligand Pharmaceuticals Inc.*+
115,440 shares of Class A Common Stock Apr. 1989 304,116 872,293
346,323 shares of Class B Common Stock 912,350 1,477,346
Warrants to purchase 5,158 shares of Common Stock
at $4.80 per share, expiring between
1/18/96 and 7/31/97 0 3,556
Micro Linear Corporation(E)
800,214 shares of Common Stock Aug. 1988 1,120,300 960,257
Neocrin Corporation(F)
1,586,831 shares of Preferred Stock June 1991 3,369,046 2,102,381
OccuSystems, Inc.
531,400 shares of Preferred Stock June 1993 2,657,000 2,657,000
Photon Dynamics, Inc.*
990,530 shares of Preferred Stock Sept. 1988 2,034,090 990,530
Raytel Medical Corporation*
1,000,000 shares of Preferred Stock Feb. 1990 1,000,000 1,000,000
Regeneron Pharmaceuticals, Inc.*+(G)
1,517,895 shares of Common Stock Jan. 1988 1,778,052 19,577,845
Research Applications, Inc.*
4,000 shares of Common Stock Apr. 1988 100,000 0
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1993
ACTIVE PORTFOLIO INVESTMENTS (CONTINUED):
Initial
Investment Fair
Company / Position Date Cost Value
Ringer Corporation+(H)
78,271 shares Common Stock Apr. 1987 $234,813 $254,381
Sanderling Biomedical, L.P.*(I)
80% Limited Partnership interest May 1988 2,000,000 2,833,665
Shared Resource Exchange, Inc.
2,777 shares of Common Stock Apr. 1987 250,000 0
SDL, Inc.*(J)
8% Subordinated Note July 1992 2,019,721 2,019,721
97,011 shares of Common Stock 169,769 169,769
26,270 shares of Preferred Stock 849,834 849,834
Target Vision, Inc.*
395,000 shares of Preferred Stock Apr. 1987 395,000 0
The Business Depot Ltd.*(K)
94,435 shares of Preferred Stock May 1992 1,214,184 1,214,184
United States Paging Corporation*+
450,053 shares of Common Stock Apr. 1987 1,479,405 1,446,290
Warrants to purchase 16,887 shares of Common Stock
at $3.33 per share, expiring between
2/27/95 and 4/28/95 0 0
Warrants to purchase 5,537 shares of Common Stock
at $4.22 per share, expiring on 6/23/94 0 0
Warrants to purchase 25,330 shares of Common Stock
at $.89 per share, expiring between
12/15/95 and 3/8/96 0 40,072
Viasoft, Inc.
806,647 shares of Preferred Stock Dec. 1987 846,300 1,371,300
TOTALS FROM ACTIVE PORTFOLIO INVESTMENTS $55,130,444$107,038,636
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - CONTINUED
DECEMBER 31, 1993
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(L)
PORTFOLIO INVESTMENTS SOLD AT A LOSS OR WRITTEN-OFF:
Liquidation Realized
Company Date Cost Loss Return
Allez, Inc. 1992 $1,781,320 $(1,781,320) $0
The Aqua Group, Inc. 1990 2,000,000 (1,999,999) 1
BBN Advanced Computer Partners, L.P. 1990 868,428 (864,028) 4,400
BBN Integrated Switch Partners, L.P. 1990/1992 5,022,380 (4,822,797) 199,583
Communications International, Inc. 1992/199 1,819,332 (1,819,332) 0
Computer-Aided Design Group 1990/1991 1,131,070 (1,131,069) 1
Dastek International 1991 204,250 0 204,250
Data Recording Systems, Inc. 1988 1,615,129 (1,499,999) 115,130
Elantec, Inc. 1993 1,640 (1,640) 0
Hoffman & Company, L.P. 1993 40,000 (40,000) 0
In-Store Advertising, Inc. 1992 2,259,741 (2,259,741) 0
InteLock Corporation 1992 1,254,125 (1,251,274) 2,851
Ligand Pharmaceuticals Inc. 1992 187,250 0 187,250
Magnesys 1989 1,440,997 (1,412,049) 28,948
Meteor Message Corporation 1990 1,501,048 (1,501,047) 1
Ogle Resources, Inc. 1993 1,974,286 (1,974,186) 100
Pandora Industries, Inc. 1990 2,060,139 (2,060,138) 1
R-Byte Inc. 1992 1,991,098 (497,601) 1,493,497
Ringer Corporation 1991 2,794,839 (2,227,580) 567,259
S & J Industries 1991/1992 1,600,150 (1,555,149) 45,001
Saxpy Computer Corporation 1988 2,000,000 (2,000,000) 0
SDL, Inc. 1993 1,717,941 0 1,717,941
SF2 Corporation 1991 2,193,293 (1,864,223) 329,070
Shared Resource Exchange, Inc. 1990 749,999 (749,999) 0
Special Situations, Inc. 1988 215,000 (187,175) 27,825
Target Vision, Inc. 1992 1,105,000 (1,105,000) 0
TCOM Systems, Inc. 1990/1992 4,715,384 (4,711,536) 3,848
Touch Communications Incorporated 1991 1,119,693(1,119,693)
0
TOTALS FROM PORTFOLIO INVESTMENTS SOLD
AT A LOSS OR WRITTEN-OFF $45,363,532 $(40,436,575) $4,926,957
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - CONTINUED
DECEMBER 31, 1993
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(L)
PORTFOLIO INVESTMENTS SOLD AT A GAIN:
Fiscal Realized
Company Year Sold Cost Gain Return
Amdahl Corporation 1989 $729,742 $1,837,787 $2,567,529
Everex Systems, Inc. 1991/1992 750,000 447,606 1,197,606
Regeneron Pharmaceuticals, Inc. 1991-1993 900,083 17,152,467 18,052,550
Pyxis Corporation 1993 634,598 7,169,424 7,804,022
Storage Technology Corporation 1990 2,174,000 1,466,802 3,640,802
Telecom USA, Inc. 1989 5,000,000 3,361,778 8,361,778
TOTALS FROM PORTFOLIO INVESTMENTS
SOLD AT A GAIN $10,188,423 $31,435,864 $41,624,287
Cost Realized Loss Return
TOTALS FROM LIQUIDATED
PORTFOLIO INVESTMENTS $55,551,955 $(9,000,711) $46,551,244
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
TOTALS FROM ACTIVE & LIQUIDATED
PORTFOLIO INVESTMENTS $110,682,399 $42,907,481 $153,589,880
(A) As part of a financial restructuring completed in January 1993, the
automotive division of Borg-Warner Corporation, now Borg-Warner
Automotive, Inc. ("BWA"), was spun out to existing shareholders in a
tax free transaction. As a result of this restructuring, the
Partnership received 500,000 common shares of BWA. Additionally, in
connection with the restructuring, Borg-Warner Corporation changed its
name to Borg-Warner Security Corporation ("BWS") and on January 20,
1993, BWS completed its initial public offering. The Partnership
exchanged its 500,000 common shares of Borg-Warner Corporation for
500,000 common shares of BWS. On August 12, 1993, Borg-Warner
Automotive, Inc. completed its initial public offering.
(B) Subsequent to the end of 1993, the Partnership sold 370,000 common
shares of CellPro, Incorporated for $11.3 million, realizing a gain of
$10.6 million.
(C) In November 1993, the Partnership exchanged its promissory notes due
from Diatech, Inc. totaling $494,000 and accrued interest of $26,015
for 208,006 preferred shares of the company.
(D) On August 5, 1993, Eckerd Corporation completed its initial public
offering. In connection with the offering, the Partnership exchanged
its 71,417 common shares of EDS Holdings Inc. for 92,843 common shares
of Eckerd Corporation.
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - CONTINUED
DECEMBER 31, 1993
(E) In August 1993, the Partnership converted 11,203 preferred shares of
Micro Linear Corporation into 800,214 common shares of the company.
(F) As a result of a restructuring of Trancel Corporation and a subsequent
merger with Neocrin Corporation, formerly a joint venture between
Trancel and a wholly-owned subsidiary of Baxter Healthcare
Corporation, the Partnership exchanged its 2,393,685 preferred shares
and 18,197 common shares of Trancel for 1,123,423 preferred shares of
Neocrin. Additionally, during the year, the Partnership purchased
463,408 preferred shares of Neocrin for $463,408.
(G) During the fiscal year, the Partnership sold 525,000 common shares of
Regeneron Pharmaceuticals, Inc. for $8.2 million, realizing a gain of
$7.6 million. Additionally, subsequent to the end of 1993, the
Partnership sold 140,000 shares of Regeneron for $2.3 million,
realizing a gain of $2.2 million.
(H) In February 1993, the Partnership sold 187,912 common shares of Ringer
Corporation for $567,000, realizing a gain of $4,000. Subsequent to
the end of fiscal 1993, the Partnership sold its remaining 78,271
common shares of Ringer for $254,000, realizing a gain of $20,000.
(I) Indirectly, the Partnership has an additional investment in Regeneron
Pharmaceuticals, Inc. through its 80% limited partnership interest in
Sanderling Biomedical, L.P.
(J) During the year, Spectra Diode Laboratories, Inc. changed its name to
SDL, Inc. Additionally, in July 1993, the Partnership received a $1.7
million principal payment on its $3.5 million subordinated note due
from SDL. In connection with this payment, $246,000 of accrued
interest was capitalized to the note.
(K) In February 1994, the Partnership sold an option to purchase all of
its 94,435 preferred shares of The Business Depot Ltd. for $208,000.
The option is exercisable by the holder at 33 Canadian dollars per
share (approximately $26.40 per share) before August 1994 or 38
Canadian dollars per share (approximately $30.40 per share) before
February 1995.
(L) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1993.
+ Publicly-held company
* Company may be deemed an affiliated person of the Partnership as such
term is defined in the Investment Company Act of 1940.
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1992
ACTIVE PORTFOLIO INVESTMENTS:
Initial
Investment Fair
Company / Position Date Cost Value
Biocircuits Corporation
515,269 shares of Common Stock May 1991 $1,422,501 $1,819,956
Borg-Warner Corporation
500,000 shares of Common Stock Sept. 1988 5,000,000 15,262,500
CellPro, Incorporated
783,333 shares of Common Stock Mar. 1989 1,455,944 10,488,829
Children's Discovery Centers of America, Inc.
115,267 shares of Common Stock July 1988 2,000,259 305,313
Clarus Medical Systems, Inc.
507,458 shares of Preferred Stock Jan. 1991 2,037,290 2,537,290
Warrants to purchase 20,238 shares of Common Stock
at $3.75 per share, expiring on 7/31/97 0 12,649
Communications International, Inc.
900 shares of Preferred Stock Apr. 1987 900,000 0
Corporate Express, Inc.
442,136 shares of Common Stock May 1992 99,478 99,478
507,200 shares of Preferred Stock 862,240 1,115,840
Diatech, Inc.
1,050,000 shares of Preferred Stock Dec. 1991 2,100,000 2,100,000
EDS Holdings Inc.
71,417 shares of Common Stock July 1992 857,004 2,142,510
Elantec, Inc.
2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,069,569
852,273 shares of Common Stock 340,909 340,909
Warrants to purchase 164,030 shares of Common Stock
at $.55 per share, expiring on 8/12/93 1,640 1,640
Hoffman & Company, L.P.
33% Limited Partnership Interest Jan. 1991 40,000 40,000
Home Express, Inc.
486,067 shares of Preferred Stock June 1992 1,822,751 1,822,751
Horizon Cellular Telephone Company, L.P.:
HCTC Investment, L.P.
10% Promissory Note May 1992 900,000 900,000
SPTHOR Corporation
10% Promissory Note May 1992 225,000 225,000
12 shares of Common Stock 75,000 75,000
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1992
ACTIVE PORTFOLIO INVESTMENTS - CONTINUED:
Initial
Investment Fair
Company / Position Date Cost Value
I.D.E. Corporation
493,391 shares of Preferred Stock Mar. 1988 $1,110,909 $1,110,909
IDEC Pharmaceuticals Corporation:
ML/MS Associates, L.P.
34.4% Limited Partnership Interest June 1989 3,960,000 3,960,000
Warrants to purchase 380,000 shares of Common Stock of
IDEC Pharmaceuticals Corporation at $7.25 per share,
expiring on 2/17/95 217,391 0
MLMS Cancer Research, Inc.
400,000 shares of Common Stock July 1989 40,000 40,000
In-Store Advertising, Inc.
728,859 shares of Common Stock May 1988 1,130,000 313,701
InteLock Corporation
357,143 shares of Preferred Stock Dec. 1989 125,412 0
Komag, Incorporated
234,486 shares of Common Stock Aug. 1988 2,160,987 3,682,603
Ligand Pharmaceuticals Inc.
115,440 shares of Class A Common Stock Apr. 1989 304,116 591,632
346,323 shares of Class B Common Stock 912,350 1,232,562
Warrants to purchase 5,158 shares of Common Stock
at $4.80 per share, expiring between 1/18/96
and 7/31/97 0 418
Micro Linear Corporation
11,203 shares of Preferred Stock Aug. 1988 1,120,300 960,257
MTI Technology Corporation
3,496 shares of Common Stock Feb. 1991 0 0
404 shares of Common Stock (in escrow) 0 0
8% Demand Note due 9/3/93 277,780 138,890
Ogle Resources Inc.
216 shares of Common Stock Mar. 1988 120,000 0
280 shares of Junior Preferred Stock 140,000 0
9% Promissory Note due 1/28/98 1,714,286 1,714,286
Photon Dynamics, Inc.
990,530 shares of Preferred Stock Sept. 1988 2,034,090 2,034,090
Pyxis Corporation
195,262 shares of Common Stock May 1992 634,598 7,804,022
Raytel Medical Corporation
1,000,000 shares of Preferred Stock Feb. 1990 1,000,000 1,000,000
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1992
ACTIVE PORTFOLIO INVESTMENTS (CONTINUED):
Initial
Investment Fair
Company / Position Date Cost Value
Regeneron Pharmaceuticals, Inc.
2,042,895 shares of Common Stock Jan. 1988 $2,382,975 $20,010,714
Research Applications, Inc.
4,000 shares of Common Stock Apr. 1988 100,000 0
Ringer Corporation
266,183 shares of Common Stock Apr. 1987 798,549 609,273
Sanderling Biomedical, L.P.
80% Limited Partnership Interest May 1988 2,000,000 2,000,000
Shared Resource Exchange, Inc.
2,777 shares of Common Stock Apr. 1987 250,000 0
Spectra Diode Laboratories, Inc.
8% Subordinated Note July 1992 3,491,200 3,491,200
97,011 shares of Common Stock 169,769 169,769
26,270 shares of Preferred Stock 849,834 849,834
Target Vision, Inc.
395,000 shares of Preferred Stock Apr. 1987 395,000 0
The Business Depot Ltd.
94,435 shares of Preferred Stock May 1992 1,214,184 1,214,184
Trancel Corporation
2,027,093 shares of Preferred Stock June 1991 2,860,259 1,593,594
15,840 shares of Common Stock 1,980 1,980
United States Paging Corporation
450,053 shares of Common Stock Apr. 1987 1,479,405 1,243,270
Warrants to purchase 16,887 shares of Common Stock
at $3.33 per share, expiring between 2/27/95
and 4/28/95 0 0
Warrants to purchase 5,537 shares of Common Stock
at $4.22 per share, expiring on 6/23/94 0 0
Warrants to purchase 25,330 shares of Common Stock
at $.89 per share, expiring between 12/15/95
and 3/8/96 0 31,282
Viasoft, Inc.
806,647 shares of Preferred Stock Dec. 1987 846,300 1,371,300
TOTALS FROM ACTIVE PORTFOLIO INVESTMENTS $55,051,259 $97,529,004
ML VENTURE PARTNERS II, L.P.
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS (A)
DECEMBER 31, 1992
Cost Realized Loss Return
TOTALS FROM LIQUIDATED PORTFOLIO
INVESTMENTS $47,581,639 $(19,605,730) $27,975,909
Combined Combined
Cost of Net Unrealized Fair Value
Investments and Realized Gain and Return
TOTALS FROM ACTIVE & LIQUIDATED
PORTFOLIO INVESTMENTS $102,632,898 $22,872,015 $125,504,913
(A) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1992.
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
INVESTMENT INCOME
Interest from money market investments $ 360,441 $ 805,138 $ 1,860,148
Interest and other income
from portfolio investments 134,921 385,311 192,120
Total investment income 495,362 1,190,449 2,052,268
Expenses:
Management fee - Note 4 1,444,988 1,680,176 1,854,537
Mailing and printing 210,561 145,708 211,904
Professional fees 184,665 233,288 237,601
Independent General Partners' fees
- Note 5 93,841 102,901 92,651
Custodial fees 14,979 13,833 15,966
Consulting fees - 2,357 3,733
Miscellaneous 1,250 450 3,697
Amortization of deferred organizational
costs - Note 2 - 1,509 6,096
Interest expense - Note 4 - 180,521 -
Total expenses 1,950,284 2,360,743 2,426,185
NET INVESTMENT LOSS (1,454,922) (1,170,294) (373,917)
NET REALIZED GAIN (LOSS) FROM
INVESTMENTS SOLD AND WRITTEN-OFF 10,605,019 (5,677,493) 1,967,746
NET REALIZED GAIN (LOSS) FROM OPERATIONS
(allocable to Partners) - Note 3 9,150,097 (6,847,787) 1,593,829
NET CHANGE IN UNREALIZED APPRECIATION 9,430,447 11,656,947 14,360,547
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 18,580,544 $ 4,809,160 $ 15,954,376
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
Net investment loss $ (1,454,922)$ (1,170,294) $ (373,917)
Adjustments to reconcile net investment loss
to cash provided from operating activities:
(Increase) decrease in receivables
and other assets 186,164 (201,294) (52,826)
Decrease in accrued interest on money
market investments 14,803 259,633 77,213
Decrease in payables (42,186) (96,487) (43,708)
Amortization of deferred organizational
costs - 1,509 6,096
Total (1,296,141) (1,206,933) (387,142)
Net return (purchase) of money
market investments 5,653,777 20,793,496 1,062,210
Purchase of portfolio investments (8,049,501)(13,781,370) (9,845,164)
Net proceeds from the sale of
portfolio investments 16,334,397 3,011,360 9,433,929
Repayment of investments in notes 2,064,011 431,737 204,250
Cash provided from operating activities 14,706,543 9,248,290 468,083
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distributions to Limited Partners (15,600,000) (9,000,000) (6,000,000)
Increase (decrease) in cash and cash
equivalents (893,457) 248,290 (5,531,917)
Cash and cash equivalents at beginning
of period 2,306,339 2,058,049 7,589,966
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,412,882$ 2,306,339 $ 2,058,049
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation of
Partner Partners Partners Investments Total
Balance at
December 31, 1990 $994,496 $3,281 $86,468,826 $16,460,251 $103,926,854
Cash distribution
paid April 26, 1991
- - Note 7 - - (6,000,000) - (6,000,000)
Allocation of net
investment loss
- - Note 3 (3,739) (12) (370,166) - (373,917)
Allocation of net realized
gain on investments
- - Note 3 19,677 65 1,948,004 - 1,967,746
Net change in
unrealized appreciation
of investments - - - 14,360,547 14,360,547
Balance at
December 31, 19911,010,434 3,334 82,046,664(A) 30,820,798 113,881,230
Cash distribution
paid April 30, 1992
- - Note 7 - - (9,000,000) - (9,000,000)
Allocation of net
investment loss
- - Note 3 (11,703) (39) (1,158,552) - (1,170,294)
Allocation of net realized
loss on investments
- - Note 3 (56,775) (187) (5,620,531) - (5,677,493)
Net change in
unrealized appreciation
of investments - - - 11,656,947 11,656,947
Balance at
December 31, 1992 941,956 3,108 66,267,581(A) 42,477,745 109,690,390
Cash distribution paid
May 26, 1993 - Note 7 - - (15,600,000) - (15,600,000)
Allocation of net
investment loss
- - Note 3 (14,549) (48) (1,440,325) - (1,454,922)
Allocation of net realized
gain on investments
- - Note 3 106,050 350 10,498,619 - 10,605,019
Net change in
unrealized appreciation
of investments - - - 9,430,447 9,430,447
Balance at
December 31, 1993$1,033,457 $3,410 $59,725,875(A) $51,908,192 $112,670,934
(A) The net asset value per unit of limited partnership interest,
including an assumed allocation of net unrealized appreciation of
investments, was $908, $862 and $852 at December 31, 1991, 1992 and
1993, respectively. Cumulative cash distributions paid to Limited
Partners from inception to December 31, 1993 totaled $355 per Unit.
See notes to financial statements.
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
ML Venture Partners II, L.P. (the "Partnership") is a Delaware limited
partnership formed on February 4, 1986. MLVPII Co., L.P., the managing
general partner of the Partnership (the "Managing General Partner") and
four individuals (the "Individual General Partners") are the general
partners of the Partnership. The general partner of MLVPII Co., L.P. is
Merrill Lynch Venture Capital Inc. (the "Management Company"), an indirect
subsidiary of Merrill Lynch & Co., Inc.
The Partnership's objective is to achieve long-term capital appreciation
from its portfolio of venture capital investments, originally made in new
and developing companies and other special investment situations. The
Partnership does not engage in any other business or activity. The
Partnership is scheduled to terminate on December 31, 1997. The Individual
General Partners can extend the termination date for up to two additional
two-year periods if they determine that such extensions would be in the
best interest of the Partnership.
2. Significant Accounting Policies
Valuation of Investments - Money market investments are carried at
amortized cost which approximates market. Portfolio investments are
carried at fair value as determined quarterly by the Managing General
Partner under the supervision of the Individual General Partners. The fair
value of publicly-held portfolio securities is adjusted to the average
closing public market price for the last five trading days of each quarter
discounted by a factor of 0% to 50% for sales restrictions. Factors
considered in the determination of an appropriate discount include,
underwriter lock-up or Rule 144 trading restrictions, insider status where
the Partnership either has a representative serving on the Board of
Directors or is greater than a 10% shareholder, and other liquidity factors
such as the size of the Partnership's position in a given company compared
to the trading history of the public security. Privately-held portfolio
securities are carried at cost until significant developments affecting the
portfolio company provide a basis for change in valuation. The fair value
of private securities is adjusted 1) to reflect meaningful third-party
transactions in the private market or 2) to reflect significant progress or
slippage in the development of the company's business such that cost is
clearly no longer reflective of fair value. As a venture capital
investment fund, the Partnership's portfolio investments involve a high
degree of business and financial risk that can result in substantial
losses. The Managing General Partner considers such risks in determining
the fair value of the Partnership's portfolio investments.
Investment Transactions - Investment transactions are recorded on the
accrual method. Portfolio investments are recorded on the trade date, the
date the Partnership obtains an enforceable right to demand the securities
or payment therefor. Realized gains and losses on investments sold are
computed on a specific identification basis.
Income Taxes - No provision for income taxes has been made since all income
and losses are allocable to the Partners for inclusion in their respective
tax returns. The Partnership's net assets for financial reporting purposes
differ from its net assets for tax purposes. Net unrealized appreciation
of $51.9 million at December 31, 1993, which was recorded for financial
statement purposes, was not recognized for tax purposes. Additionally,
from inception to December 31, 1993, other timing differences relating to
realized losses totaling $5.5 million have been recorded on the
Partnership's financial statements but have not yet been reflected as
realized losses for tax purposes.
Statements of Cash Flows - The Partnership considers its interest-bearing
cash account to be cash equivalents.
Organizational Costs - Organizational costs of $30,465 were amortized over
a sixty-month period beginning April 1, 1987.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that the Managing General Partner will
be allocated, on a cumulative basis over the life of the Partnership, 20%
of the Partnership's aggregate investment income and net realized gains and
losses from venture capital investments, provided that such amount is
positive. All other gains and losses of the Partnership are allocated
among all the Partners (including the Managing General Partner) in
proportion to their respective capital contributions to the Partnership.
From its inception to December 31, 1993, the Partnership had a $7.4 million
net realized loss from its venture capital investments.
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. Related Party Transactions
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership and receives a management fee at the annual rate of 2.5% of the
gross capital contributions to the Partnership, reduced by selling
commissions, organizational and offering expenses paid by the Partnership,
capital distributed and realized capital losses with a minimum annual fee
of $200,000. Such fee is determined and payable quarterly.
On May 11, 1992, the Securities and Exchange Commission (the "SEC") issued
an exemptive order permitting the Partnership, subject to certain
conditions including review and approval by the Independent General
Partners, to make venture capital investments with affiliates of DLJ
Capital Management Corporation, the Partnership's sub-manager (the "Sub-
Manager"). On May 20, 1992, the Partnership purchased four venture capital
investments from the Management Company for $2,441,060 representing
reimbursement of the original cost of such investments totaling $2,367,061
plus $73,999 of interest expense. Since an affiliate of the Sub-Manager is
an investor in each of these companies, the Management Company had
purchased these investments on the Partnership's behalf while the
Partnership awaited SEC exemptive relief to co-invest with affiliates of
the Sub-Manager. The four investments purchased by the Partnership on May
20, 1992 were:
47,218 shares of series A preferred stock of The Business Depot Ltd.,
acquired by the Management Company on June 19, 1991, for $651,233
representing original cost of $620,745 plus interest expense of
$30,488,
195,262 shares of series G preferred stock of Pyxis Corporation,
acquired by the Management Company on August 21, 1991, for $658,686
representing original cost of $634,598 plus interest expense of
$24,088,
507,200 shares of series A convertible preferred stock and 442,136
shares of common stock of Corporate Express, Inc., acquired by the
Management Company on November 27, 1991, for $980,186 representing
original cost of $961,718 plus interest expense of $18,468 and
a $112,500 promissory note from HCTC Investment, L.P., a $28,125
promissory note from SPTHOR Corporation and 1.5 shares of common stock
of SPTHOR Corporation, acquired by the Management Company on March 27,
1992, for $150,955 representing original cost of $150,000 plus interest
expense of $955.
Additionally, on May 29, 1992, the SEC issued an exemptive order permitting
the Partnership to acquire 71,417 shares of class A common stock of EDS
Holdings Inc. from an affiliate of the Management Company subject to
certain conditions and approval by the Independent General Partners. On
July 20, 1992, the Partnership purchased these shares for $963,526,
representing original cost of $857,004 plus interest expense of $106,522.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners ("IGP's") receives $19,000 annually in
quarterly installments, $1,200 for each meeting of the General Partners
attended or for each other meeting, conference or engagement in connection
with Partnership activities at which attendance by an IGP is required and
$1,200 for each committee meeting attended ($500 if a committee meeting is
held on the same day as a meeting of the General Partners).
6. Commitments
Subsequent to the end of the fiscal year, the Partnership approved a
commitment to make a follow-on investment of $1.1 million in Corporate
Express, Inc. On January 26, 1994, the Management Company purchased this
investment on behalf of the Partnership and will hold the investment until
the Partnership obtains an exemptive order from the Securities and Exchange
Commission allowing the Partnership to acquire this investment from the
Management Company. The purchase price to the Partnership will be the
lesser of the fair value of the investment or the Management Company's
cost, plus interest, as of the date of acquisition by the Partnership.
Additionally, the Partnership has guaranteed $1.8 million of bank debt of
SDL, Inc. which is payable by the company on or before June 30, 1995. The
Partnership also has a $393,043 non-interest bearing obligation payable on
demand to MLMS Cancer Research, Inc.
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. Cash Distributions
On May 26 1993, the Partnership made a cash distribution to Limited
Partners of record on March 31, 1993 totaling $15.6 million, or $130 per
$1,000 Unit. On April 30, 1992, the Partnership made a cash distribution
to Limited Partners of record on March 31, 1992 totaling $9 million, or $75
per $1,000 Unit. On April 26, 1991, the Partnership made a cash
distribution to Limited Partners of record on March 31, 1991, totaling $6
million, or $50 per Unit. These distributions primarily represented
proceeds received by the Partnership from the sale of certain portfolio
investments. Cumulative cash distributions paid to Limited Partners from
inception through December 31, 1993 total $42.6 million, or $355 per $1,000
Unit.
Additionally, on March 2, 1994, the General Partners approved a cash
distribution to Limited Partners of $16.2 million, or $135 per Unit. This
distribution will be paid in May 1994 to Limited Partners of record on
March 31, 1994 and will bring cumulative cash distributions paid to Limited
Partners to $58.8 million, or $490 per $1,000 Unit.
8. Pending Litigation
The Partnership has been named as a defendant, along with other entities
and individuals, in an action relating to its ownership interest in In-
Store Advertising, Inc. ("ISA"). The action is a purported class action
suit wherein the plaintiffs, who purchased shares of ISA in its July 19,
1990 initial public offering through November 8, 1990, allege violations
under certain sections of the Securities Act of 1933, the Securities
Exchange Act of 1934 and common law. The plaintiffs seek rescission of
their purchases of ISA common stock together with damages and certain costs
and expenses. The Partnership believes it has meritorious defenses to the
allegations and that the cost of resolution of the litigation will not have
a material impact on the financial condition and results of operations of
the Partnership (see Part I, Item 3, Legal Proceedings, for additional
information).
ML VENTURE PARTNERS II, L.P.
MONEY MARKET INVESTMENTS SCHEDULE I
DECEMBER 31, 1993 AND 1992
Principal Amortized
Amount Cost Cost
COMMERCIAL PAPER
Golden Managers Acceptance
Corporation $ 2,000,000 $ 1,988,275 $ 1,996,464
Golden Managers Acceptance
Corporation 2,000,000 1,991,933 1,995,233
Total at December 31, 1993 $ 4,000,000 $ 3,980,208 $ 3,991,697
BANKER'S ACCEPTANCE
Tokai Bank $ 3,000,000 $ 2,969,521 $ 2,982,675
CERTIFICATE OF DEPOSIT
Chemical Bank 202,378 202,378 202,378
COMMERCIAL PAPER
Golden Managers Acceptance
Corporation 3,000,000 2,985,627 2,993,467
Golden Managers Acceptance
Corporation 2,000,000 1,990,146 1,993,163
Dunlop Tire Corporation 1,500,000 1,486,313 1,488,594
Total at December 31, 1992 $ 9,702,378 $ 9,633,985 $ 9,660,277
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
The information set forth under the caption "Election of General Partners"
in the Partnership's proxy statement in connection with the 1994 Annual
Meeting of Limited Partners to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934 (the "Proxy Statement") is incorporated herein by reference.
The Management Company
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership pursuant to a Management Agreement, dated as of May 23, 1991,
between the Partnership and the Management Company. At March 18, 1994, the
directors of the Management Company and the officers of the Management
Company involved in the administrative support of the Partnership are:
Served in Present
Name and Age Position Held Capacity Since
Kevin K. Albert (41) Director April 2, 1990
President July 5, 1991
Robert F. Aufenanger (40) Director April 2, 1990
Executive Vice President February 2, 1993
Robert W. Seitz (47) Director February 1, 1993
Vice President February 2, 1993
Joseph W. Sullivan (36) Treasurer February 2, 1993
The directors of the Management Company will serve as directors until the
next annual meeting of stockholders and until their successors are elected
and qualify. The officers of the Management Company will hold office until
the next annual meeting of the Board of Directors of the Management Company
and until their successors are elected and qualify.
Information with respect to Messrs. Aufenanger, Seitz and Sullivan is set
forth under Item 13 "Certain Relationships and Related Transactions". The
information with respect to Mr. Albert set forth under the subcaption
"Individual General Partners" in the Proxy Statement is incorporated herein
by reference.
There are no family relationships among any of the Individual General
Partners of the Partnership and the officers and directors of the
Management Company.
Item 11. Executive Compensation.
The information with respect to the compensation of the Individual General
Partners set forth under the subcaption "Individual General Partners -
Compensation" in the Proxy Statement is incorporated herein by reference.
The information with respect to the allocation and distribution of the
Partnership's profits and losses to the Managing General Partner set forth
under the subcaption "Managing General Partner - Allocations and
Distributions" in the Proxy Statement is incorporated herein by reference.
The information with respect to the management fee payable to the
Management Company set forth under the subcaption "Terms of the Management
Agreement - Management Fee" in the Proxy Statement is incorporated herein
by reference.
The information with respect to the sub-management fee payable to the Sub-
Manager set forth under the subcaption "Terms of Contracts - Sub-Management
Agreement" in the Proxy Statement is incorporated herein by reference.
The Management Company has arranged for Palmeri Fund Administrators, Inc.,
an independent administrative services company, to provide administrative
services to the Partnership. Fees for such services are paid directly by
the Management Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General
Partners set forth under the subcaption "Individual General Partners" in
the Partnership's Proxy Statement is incorporated herein by reference.
As of March 18, 1994, no person or group is known by the Partnership to be
the beneficial owner of more than 5 percent of the Units. Mark Clein, a
limited partner of the Managing General Partner, owns 34 Units of the
Partnership. The Individual General Partners and the directors and
officers of the Management Company do not own any Units.
The Partnership is not aware of any arrangement which may, at a subsequent
date, result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
Kevin K. Albert, a Director and President of the Management Company and a
Managing Director of Merrill Lynch Investment Banking Group ("ML Investment
Banking"), joined Merrill Lynch in 1981. Robert F. Aufenanger, a Director
and Executive Vice President of the Management Company, a Vice President of
Merrill Lynch & Co. Corporate Strategy, Credit and Research and a Director
of the Partnership Management Department, joined Merrill Lynch in 1980.
Robert W. Seitz, a Director and Vice President of the Management Company, a
First Vice President of Merrill Lynch & Co. Corporate Strategy, Credit and
Research and a Managing Director within the Corporate Credit Division of
Merrill Lynch, joined Merrill Lynch in 1981. Joseph W. Sullivan, a
Treasurer of the Management Company and a Controller in the Partnership
Analysis and Management Department, joined Merrill Lynch in 1990. From
1988 to 1990, Mr. Sullivan was an Assistant Vice President with Standard &
Poor's Debt Rating Group.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Balance Sheets as of December 31, 1993 and December 31, 1992
Schedule of Portfolio Investments as of December 31, 1993
Schedule of Portfolio Investments as of December 31, 1992
Statements of Operations for the years ended December 31, 1993,
1992 and 1991
Statements of Cash Flows for the years ended December 31, 1993,
1992 and 1991
Statements of Changes in Partners' Capital for the years ended
December 31, 1993, 1992 and 1991
Notes to Financial Statements
2. Schedule I - Money Market Investments as of December 31, 1993
and 1992
3. Exhibits
(3) (a) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated as of January
12, 1987. (1)
(3) (b) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated July 27, 1990.
(2)
(3) (c) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated March 25, 1991.
(3)
(3) (d) Amended and Restated Agreement of Limited Partnership
of the Partnership, dated as of May 4, 1987. (4)
(3) (e) Amendment No. 1 dated February 14, 1989 to Amended
and Restated Agreement of Limited Partnership of the
Partnership. (5)
(3) (f) Amendment No. 2 dated July 27, 1990 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (2)
(3) (g) Amendment No. 3 dated March 25, 1991 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (3)
(3) (h) Amendment No. 4 dated May 23, 1991 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (6)
(10) (a) Management Agreement dated as of May 23, 1991 among
the Partnership, Management Company and the Managing
General Partner. (6)
(10) (b) Form of Sub-Management Agreement among the
Partnership, Management Company, the Managing General
Partner and the Sub-Manager. (8)
(13) (a) Page 20 of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
(13) (b) Page 19 of the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
(13) (c) Page 17 of the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(28) Prospectus of the Partnership dated February 10, 1987
filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of
1933, as supplemented by a supplement thereto dated
April 21, 1987 filed pursuant to Rule 424(c) under
the Securities Act of 1933. (7)
(b) No reports on Form 8-K have been filed since the beginning of
the last quarter of the period for which this report is filed.
(1) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1988 filed with the Securities
and Exchange Commission on March 27, 1989.
(2) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1990 filed with the
Securities and Exchange Commission on November 14, 1990.
(3) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1990 filed with the Securities
and Exchange Commission on March 28, 1991.
(4) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987 filed with the
Securities and Exchange Commission on August 14, 1987.
(5) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1989 filed with the
Securities and Exchange Commission on May 15, 1989.
(6) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991 filed with the
Securities and Exchange Commission on August 14, 1991.
(7) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987 filed with the
Securities and Exchange Commission on May 15, 1987.
(8) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1992 filed with the Securities
and Exchange Commission on March 26, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on the
25th day of March 1994.
ML VENTURE PARTNERS II, L.P.
/s/ Kevin K. Albert
By: Kevin K. Albert
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 25th day of March 1994.
By: MLVPII Co., L.P.
its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ Joseph W. Sullivan
Joseph W. Sullivan
Treasurer
(Principal Financial and Accounting Officer)
By: /s/ Steward S. Flaschen
Steward S. Flaschen
General Partner
ML Venture Partners II, L.P.
By: /s/ Jerome Jacobson
Jerome Jacobson
General Partner
ML Venture Partners II, L.P.
By: /s/ William M. Kelly
William M. Kelly
General Partner
ML Venture Partners II, L.P.
Exhibit Index
Exhibits Page
(3) (a) Amended and Restated Certificate of Limited Partnership
of the Partnership, dated January 12, 1987. (1)
(3) (b) Amended and Restated Certificate of Limited Partnership
of the Partnership, dated July 27, 1990. (2)
(3) (c) Amended and Restated Certificate of Limited Partnership
of the Partnership, dated March 25, 1991. (3)
(3) (d) Amended and Restated Agreement of Limited Partnership
of the Partnership, dated as of May 4, 1987. (4)
(3) (e) Amendment No. 1 dated February 14, 1989 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (5)
(3) (f) Amendment No. 2 dated July 27, 1990 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (2)
(3) (g) Amendment No. 3 dated March 25, 1991 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (3)
(3) (h) Amendment No. 4 dated May 23, 1991 to Amended and
Restated Agreement of Limited Partnership of the
Partnership. (6)
(10) (a) Management Agreement dated as of May 23, 1991 among the
Partnership, Management Company and the Managing
General Partner. (6)
(10) (b) Form of Sub-Management Agreement among the Partnership,
Management Company, the Managing General Partner and
the Sub-Manager. (8)
(13) (a) Page 20 of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
(13) (b) Page 19 of the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
(13) (c) Page 17 of the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(28) Prospectus of the Partnership dated February 10, 1987
filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of
1933, as supplemented by a supplement thereto dated
April 21, 1987 filed pursuant to Rule 424(c) under the
Securities Act of 1933. (7)
______________________________
(1) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1988 filed with the Securities
and Exchange Commission on March 27, 1989.
(2) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1990 filed with the
Securities and Exchange Commission on November 14, 1990.
(3) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1990 filed with the Securities
and Exchange Commission on March 28, 1991.
(4) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987 filed with the
Securities and Exchange Commission on August 14, 1987.
(5) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1989 filed with the
Securities and Exchange Commission on May 15, 1989.
(6) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991 filed with the
Securities and Exchange Commission on August 14, 1991.
(7) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987 filed with the
Securities and Exchange Commission on May 15, 1987.
(8) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1992 filed with the Securities
and Exchange Commission on March 26, 1993.
Item 5. Other Information.
On February 25, 1993, the Partnership purchased 253,600 shares of
preferred stock of Corporate Express, Inc. for $431,120. This
investment is in addition to the 507,200 shares of preferred stock and
442,136 shares of common stock previously held by the Partnership.
On February 26, 1993, the Partnership invested $228,000 in a 10%
promissory note from Diatech, Inc. This investment is in addition to
the 1,050,000 shares of preferred stock previously held by the
Partnership.
During the quarter ended March 31, 1993, in connection with the
Partnership's remaining commitment to invest in Horizon Cellular
Telephone Company, L.P., the Partnership completed a $450,000 follow-on
investment by acquiring an $84,375 promissory note and 4.5 shares of
common stock of SPTHOR Corporation and a $337,500 promissory note from
HCTC Investment, L.P. This investment is in addition to the 12 shares
of common stock and the $225,000 promissory note of SPTHOR and the
$900,000 promissory note of HCTC previously held by the Partnership. At
March 31, 1993, the Partnership's investment in Horizon Cellular totaled
$1.7 million.
Item 5. Other Information.
On April 15, 1993 and on June 3, 1993, the Partnership purchased 702,427
preferred shares, warrants to purchase 217,915 preferred shares and
warrants to purchase 295,827 common shares of Inference Corporation for
$894,065. Inference, located in El Segundo, California, designs and
markets client/server application software development tools.
On April 19, 1993, the Partnership purchased 153,450 preferred shares of
Corporate Express, Inc. for $537,075. This investment is in addition to
the 760,800 preferred shares and 442,136 common shares previously held
by the Partnership.
On June 9, 1993, the Partnership purchased 531,400 preferred shares of
Occusystems, Inc. for $2,657,000. Occusystems, located in Dallas,
Texas, owns and operates health centers serving the workers compensation
marketplace.
On June 17, 1993, in connection with the Partnership's remaining
commitment to invest in Horizon Cellular Telephone Company, L.P., the
Partnership completed a $240,000 follow-on investment, acquiring a
$45,000 promissory note and 2.4 common shares of SPTHOR Corporation and
a $180,000 promissory note from HCTC Investment, L.P. This investment
is in addition to the 16.5 common shares and the $309,375 promissory
note of SPTHOR and the $1,237,500 promissory note of HCTC previously
held by the Partnership. At June 30, 1993, the Partnership's investment
in Horizon Cellular totaled $1.9 million.
On June 24, 1993, the Partnership invested $266,000 in a 10%
subordinated note from Diatech, Inc. This investment is in addition to
the 1,050,000 preferred shares and the $228,000 subordinated note
previously held by the Partnership.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership has been named as a defendant in an action relating to
its ownership of securities of In-Store Advertising, Inc. ("In-Store
Advertising"). On or about July 16, 1993, a Second Amended Consolidated
Class Action Complaint (the "Amended Complaint") was filed in the United
States District Court for the Southern District of New York in the In Re
In-Store Advertising Securities Litigation. The action is a purported
class action suit wherein the plaintiffs (the "Plaintiffs") are persons
who allegedly purchased shares of In-Store Advertising common stock in
the July 19, 1990 initial public offering (the "Offering") and through
November 8, 1990. The defendants named in the Amended Complaint include
present and former individual officers and directors of In-Store
Advertising, the underwriters involved in the Offering, KPMG Peat
Marwick (In-Store Advertising's auditors) and certain other defendants,
including the Partnership, who owned In-Store Advertising securities
prior to the Offering (the "Venture Capital Defendants"). Prior to the
filing of the Amended Complaint, In-Store Advertising filed a
"prepackaged" plan in U.S. Bankruptcy Court pursuant to Chapter XI of
the U.S. Bankruptcy Code.
The Amended Complaint alleges violations under Sections 11, 12(2) and 15
of the Securities Act of 1933, as amended (the "1933 Act"), Section
10(b) and 20 of the Securities Exchange Act of 1934, as amended (the
"1934 Act") and Rule 10b-5 promulgated thereunder, and common law claims
of negligent misrepresentation, fraud and deceit in connection with the
sale of securities. The Plaintiffs seek rescission of the purchases of
In-Store Advertising's common stock to the extent the members of the
alleged classes still hold their shares, together with damages and
certain costs and expenses.
The Amended Complaint alleges that the Venture Capital Defendants are
liable under Section 10(b) of the 1934 Act and Rule 10b-5, and are also
liable as controlling persons of In-Store Advertising within the meaning
of Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. The
Venture Capital Defendants are also being sued as alleged knowing and
substantial aiders and abettors of the other defendants' wrongful
conduct and under common law fraud and negligence theories. An
individual director of In-Store Advertising, named as a defendant in the
action, was a Vice President of Merrill Lynch Venture Capital Inc., the
General Partner of the Managing General Partner of the Partnership. The
Partnership believes that it has meritorious defenses to the allegations
in the Amended Complaint (see Note 8 of Notes to Financial Statements).
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
On August 27, 1993, the Partnership purchased 2,357 common shares and
372,144 preferred shares of Trancel Corporation. On September 1, 1993,
as a result of a restructuring and merger, the Partnership exchanged its
preferred shares and common shares of Trancel Corporation for preferred
shares of Neocrin Corporation. Additionally on September 20, 1993, the
Partnership purchased 463,408 preferred shares of Neocrin Corporation
for $463,408. These investments were in addition to the 2,021,541
preferred shares and 15,840 common shares of Trancel Corporation owned
by the Partnership at June 30, 1993.
During the quarter ended September 30, 1993, the Partnership completed
the funding of its $3.45 million investment commitment to Horizon
Cellular Telephone Company, L.P. The Partnership made follow-on
investments totaling $1.56 million, acquiring a $292,500 promissory note
and 15.6 common shares of SPTHOR Corporation and a $1.17 million
promissory note from HCTC Investment, L.P. This investment is in
addition to the 18.9 common shares and the $354,375 promissory note of
SPTHOR and the $1,417,500 promissory note of HCTC previously held by the
Partnership.
