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, 1996
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 0-15681
WESTMED VENTURE PARTNERS, L.P.
===============================================================================
(Exact name of registrant as specified in its charter)
Delaware 13-3443230
============================================================ ==================
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Oppenheimer Tower, World Financial Center
New York, New York 10281
=========================================== ===================================
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 667-7000
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)
<PAGE>
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 21, 1997, 66,919 units of limited partnership interest ("Units") were
held by non-affiliates of the registrant. There is no established public trading
market for such Units.
<PAGE>
PART I
Item 1. Business.
Formation
WestMed Venture Partners, L.P. (the "Partnership" or the "Registrant") is a
Delaware limited partnership organized in February 1987. In May 1987, the
Partnership elected to operate as a business development company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Partnership's
investment objective is to achieve long-term capital appreciation from its
portfolio of venture capital investments, consisting of companies engaged in the
health-care industry. The Partnership considers this activity to constitute the
single industry segment of venture capital investing.
The general partners of the Partnership consist of two individuals (the
"Independent General Partners") and WestMed Venture Management, L.P., a Delaware
limited partnership (the "Managing General Partner"), the general partner of
which is Medical Venture Holdings, Inc. ("MVH"), a Delaware corporation and an
affiliate of Oppenheimer & Co., Inc. ("Opco").
In 1987, the Partnership publicly offered 100,000 units of limited partnership
interest (the "Units") at $500 per Unit. The Units were registered under the
Securities Act of 1933, pursuant to a Registration Statement on Form N-2 (File
No. 33-11926), which was declared effective on July 2, 1987. The Partnership
held its initial closing on September 1, 1987 and completed the offering on
April 1, 1988, at which time it had accepted subscriptions for a total of 66,929
Units. Gross capital contributions to the Partnership from the public offering
totaled $33,802,529; $33,464,500 from the limited partners (the "Limited
Partners" and collectively with the Managing General Partner, the "Partners")
and $338,029 from the Managing General Partner.
The Venture Capital Investments
From its inception through December 31, 1996, the Partnership had invested $28.6
million in 23 portfolio companies (including venture capital fees and other
acquisition costs totaling $2 million). At December 31, 1996, the Partnership's
investment portfolio consisted of investments in 12 companies. Such investments
had an aggregate cost of $9.2 million and a fair value of $11.5 million. From
its inception through December 31, 1996, the Partnership had either fully
liquidated or partially liquidated portfolio investments with a cost of $19.4
million. These liquidated investments returned $11.4 million to the Partnership
for a net realized loss of $8.0 million. At December 31, 1996, the Partnership
had a cumulative net realized loss from its venture capital investments totaling
$7.5 million, including $504,000 of interest and other income from portfolio
investments. As discussed below, during 1996 the Partnership sold its investment
in Corvita Corporation. Also during 1996, the Partnership invested $212,000 in
Aprogenix, Inc., an existing portfolio company, and recorded a partial write-off
totaling $230,000 on its investment in Argonaut Medical, Inc. (formerly Nimbus
Medical, Inc.). These investment transactions and other events affecting the
Partnership's portfolio security holdings during 1996 are listed below.
In May 1996, UroCor, Inc. completed its initial public offering at $11 per
share. In connection with the offering, the Partnership exchanged its 368,930
preferred shares for 384,982 common shares of the company.
In June 1996, the Partnership made a $212,000 follow-on investment in Aprogenix,
Inc. (including venture capital fees totaling $12,120), acquiring a 10%
convertible note due 5/29/98 and a warrant to purchase 13,000 shares of common
stock at $1.10 per share, expiring on 5/29/99. Additionally, as a result of the
above mentioned financing, the Partnership's warrant to purchase 16,458 shares
of Aprogenix common stock for $7.39 per share was exchanged for a warrant to
purchase 21,450 shares of Aprogenix common stock for $5.67 per share.
In connection with the sale of Nimbus Medical, Inc., completed in December 1996,
the Partnership wrote-off $229,899 of its $380,431 investment in the company.
The surviving entity was renamed Argonaut Medical, Inc.
In February 1996, the Partnership received a $30,289 cash distribution from
Nimbus Medical, L.P.
During 1996, Bellara Medical Products, Ltd. merged with Pharmaction Pty
Limited becoming Pharmaction Holdings Limited. As a result of the merger, the
Partnership exchanged its 442,430 common shares of Bellara for 294,953 ordinary
shares of Pharmaction Holdings and an option to purchase an additional 147,476
ordinary shares at $.20 per share.
On June 10, 1996, HBO & Co. declared a 100% stock distribution. As a result,
the Partnership received an additional 1,963 shares of HBO & Co.common stock.
During May 1996, the Partnership sold its investment in Corvita Corporation
for $4.33 million, realizing a gain of $1.94 million.
Competition
The Partnership encounters competition from other entities having similar
investment objectives. 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 investors and these relationships have
expanded the Partnership's access to investment opportunities.
Employees
The Partnership has no employees. The Managing General Partner, under the
supervision of the Independent General Partners, manages and controls the
Partnership's venture capital investments. The Managing General Partner
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.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Limited Partners was held on June 21, 1996 with respect to
1) a proposal to allow the Managing General Partner to retain the services of a
Sub-Manager to assist the Managing General Partner in the performance of its
duties to the Partnership and 2) a proposal to amend the Partnership Agreement
to reduce the minimum number of Individual General Partners from three to two.
At the meeting, both such proposals were approved.
<TABLE>
Affirmative Negative
Votes Votes Abstentions
<S> <C> <C> <C> <C>
Proposal 1 28,056 3,624 3,409
Proposal 2 29,124 2,864 3,101
</TABLE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Units and it is not
anticipated that a public market for the Units will develop. The number of
individual holders of Units at December 31, 1996 was approximately 6,500.
In November 1996, the General Partners approved a cash distribution to Partners
totaling $4.5 million. The distribution was paid on January 30, 1997 to Limited
Partners of record on December 31, 1996. Limited Partners received $4,484,243,
or $67 per Unit, and the General Partner received $45,295. There were no cash
distributions to Partners during the years ended December 31, 1995 or 1994.
Cumulative cash distributions paid or accrued to Partners from inception to
December 31, 1996, total $10,240,307; $10,137,904 to the Limited Partners, or
approximately $151 per Unit, and $102,403 to the Managing General Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions. However,
if realized gains had been previously allocated in the 80-20 ratio, then losses
are allocated in the reverse order in which profits were allocated.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net assets $ 12,998 $ 15,855 $ 14,533 $ 18,394 $ 19,402
Net investment loss (341) (375) (421) (540) (479)
Net realized gain (loss) from investments 1,706 65 (2,823) (4,043) 2,313
Net unrealized appreciation (depreciation)
of investments 2,286 1,978 345 964 (2,612)
Cost of portfolio investments purchased 212 292 693 177 1,791
Cumulative cost of portfolio investments 28,619 28,407 28,115 27,422 27,245
Cash distributions to Partners 4,530 - - - 4,989
Cumulative cash distributions to Partners 10,240 5,711 5,711 5,711 5,711
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
appreciation (depreciation) of investments $ 192 $ 235 $ 215 $ 272 $ 287
Net investment loss (5) (6) (6) (8) (7)
Net realized gain (loss) on investments 25 1 (42) (60) 34
Net unrealized appreciation (depreciation)
of investments 34 29 5 14 (39)
Cash distributions 67 - - - 74
Cumulative cash distributions 151 84 84 84 84
</TABLE>
* Limited Partners were admitted to the Partnership in eight separate closings
from September 1, 1987 to April 1, 1988. Per Unit amounts shown above are
based on average allocations to all Limited Partners and do not reflect
specific Limited Partner allocations, which are determined by the original
closing date associated with the Units held by each Limited Partner.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1996, the Partnership invested $212,000,
including venture capital fees totaling $12,000, in one existing portfolio
company. At December 31, 1996, the Partnership had invested an aggregate of
$28.6 million in 23 portfolio companies, including acquisition costs and venture
capital fees totaling $2 million. The Partnership has invested approximately 95%
of its original $30 million of net proceeds received from the offering of Units.
Although the Partnership will not make any new portfolio investments, it does
expect to make additional follow-on investments in existing portfolio companies.
In May 1996, the Partnership received $4.3 million from the sale of its
investment in Corvita Corporation.
At December 31, 1996, the Partnership held $6.1 million in cash and short-term
investments as follows: $5.7 million in short-term securities with maturities of
less than three months and $460,000 in an interest-bearing cash account. For the
years ended December 31, 1996, 1995 and 1994, the Partnership earned interest
from such investments totaling $229,000, $129,000 and $105,000, respectively.
Interest earned from short-term investments in future periods is subject to
fluctuations in short-term interest rates and changes in funds available for
investment. It is anticipated that funds needed to cover the Partnership's
future follow-on investments and operating expenses will be obtained from
existing cash reserves, interest earned from its short-term securities and
proceeds from the sale of portfolio investments.
On November 12, 1996, the General Partners approved a cash distribution to
Partners totaling $4,529,538. The distribution was paid on January 30, 1997 to
Limited Partners of record on December 31, 1996. Limited Partners received
$4,484,243, or $67 per Unit, and the General Partner received $45,295. The
distribution was paid January 30, 1997. Cumulative cash distributions to
Partners total, including the distribution paid in January 1997, $10,240,307.
Results of Operations
For the year ended December 31, 1996, the Partnership had a net realized gain
from operations of $1.4 million. For the years ended December 31, 1995 and 1994,
the Partnership had a net realized loss from operations of $309,000 and $3.2
million, respectively. Net realized gain or loss from operations is comprised of
(i) net realized gains or losses from portfolio investments and (ii) net
investment income or loss (interest and dividends less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1996, the Partnership had a net realized gain from portfolio
investments of $1.7 million. In May the Partnership sold its investment in
Corvita Corporation for $4.3 million, resulting in a $1.9 million realized gain.
Nimbus Medical, Inc. was sold during 1996 and the surviving entity was renamed
Argonaut Medical, Inc. As a result of the sale and transfer of the company's
assets, the Partnership recorded a $230,000 realized loss on its investment in
Argonaut, reflecting a partial write-off of its original investment.
For the year ended December 31, 1995, the Partnership had a net realized gain
from portfolio investments of $65,000 resulting from the sale of 51,000 common
shares of Aprogenix, Inc. in the public market for $276,000.
For the year ended December 31, 1994, the Partnership had a net realized loss of
$2.8 million from its portfolio investments. During March and April 1994, the
Partnership sold 20,000 common shares of CliniCom Incorporated in the public
market for $422,000, realizing a loss of $944,000. Additionally at December 31,
1994, the Partnership wrote-off $166,000 of cost relating to its remaining 4,908
shares of common stock of CliniCom due to the continued depressed public market
price of such shares. During 1995, CliniCom was acquired by HBO & Co. Also, in
December 1994, the Partnership wrote-off its $323,000 investment in Vaso
Products Inc., $576,000 of its $826,000 investment in Bellara Medical Products
Inc. (Pharmaction Holdings, Ltd.) and $801,000 of its $1.3 million investment in
Ultramed, Inc. due to continued business and financial difficulties at these
companies.
Investment Income and Expenses - Net investment loss for the years ended
December 31, 1996, 1995 and 1994 was $341,000, $375,000 and $421,000,
respectively. The $34,000 decrease in net investment loss for 1996 compared to
1995 resulted from a $114,000 increase in investment income offset by an $80,000
increase in operating expenses for 1996. The increase in investment income
primarily resulted from an increase in interest earned from short-term
investments for 1996. This increase resulted from an increase in funds available
for investment in such securities during 1996 due to the receipt of $4.3 million
in May 1996 from the sale of the Partnership's investment in Corvita, as
discussed above. The increase in operating expenses for 1996 primarily resulted
from a $47,000 increase in the management fee, as discussed below and a $40,000
increase in professional fees, resulting from the preparation of a proxy
statement in connection with the Special Meeting of Limited Partners held on
June 21, 1996.
The decrease in net investment loss for 1995 compared to 1994, primarily
resulted from the $41,000 increase in investment income for 1995. This increase
reflects a $24,000 increase in interest from short-term investments for 1995
compared to 1994, due to higher short-term interest rates during the 1995
period. Additionally, accrued interest income from portfolio investments
totaling $2,400 and $19,000 was reversed in 1995 and 1994, respectively,
resulting in an additional $17,000 increase in investment income for 1995
compared to 1994. Operating expenses remained relatively flat, decreasing only
$5,000 from 1995 compared to 1994. Management and custodial fees decreased by
$96,000, while professional fees and other expenses increased by $91,000 for the
1995 period.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions of the Partnership, net of selling commissions
and organizational expenses, reduced by capital distributed. Such fee is
determined and payable quarterly. Additionally, the Managing General Partner has
agreed to reduce the management fee payable by the Partnership for any
director's fees earned by the Managing General Partner from any of the
Partnership's portfolio companies. For the years ended December 31, 1996, 1995
and 1994, the management fee was $315,000, $268,000 and $361,000, respectively.
The increased management fee for 1996 compared to 1995 resulted from the
Partnership's higher quarterly net asset values during 1996 compared to 1995. To
the extent possible, the management fee and other operating expenses are paid
with funds provided from operations. Funds provided from operations are obtained
from interest received from short-term investments, interest and dividend income
from portfolio investments and proceeds received from the sale of portfolio
investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the year ended December 31, 1996,
the Partnership had a $437,000 net unrealized gain, resulting from the net
upward revaluation of its portfolio investments during 1996. Additionally,
$129,000 of net unrealized gain was transferred to realized gain relating to the
sale of the Partnership's investment in Corvita and the partial write-off of the
Partnership's investment in Argonaut, as discussed above. The $437,000
unrealized gain offset by the $129,000 net transfer from unrealized gain to
realized gain resulted in a $308,000 increase in net unrealized appreciation of
investments for 1996.
For the year ended December 31, 1995, the Partnership had a $1.6 million
unrealized gain from the net upward revaluation of its publicly-held portfolio
investments, primarily Somatogen, Inc. and Corvita Corporation.
For the year ended December 31, 1994, the Partnership had a $3.5 million net
unrealized loss from its portfolio investments, primarily resulting from the net
downward revaluation of its publicly-held portfolio investments. Additionally
during 1994, $2.9 million was transferred from unrealized loss to realized loss
relating to the write-off of certain portfolio investments. The $3.5 million
unrealized loss partially offset by the $2.9 million transfer from unrealized
loss to realized loss resulted in a $618,000 decrease in net unrealized
appreciation of investments for 1994.
Net Assets - Changes to net assets resulting from operations is comprised of (i)
net realized gains and losses from operations and (ii) changes to net unrealized
appreciation or depreciation of portfolio investments.
At December 31, 1996, the Partnership's net assets were $13 million, reflecting
a decrease of $2.8 million from $15.8 million at December 31, 1995. This
decrease reflects the $4.5 million cash distribution exceeding the $1.7 million
net increase in net assets from operations for 1996.
At December 31, 1995, the Partnership's net assets were $15.8 million,
reflecting an increase of $1.3 million from $14.5 million at December 31, 1994.
This increase resulted from the $1.3 million increase in net assets from
operations for 1995.
At December 31, 1994, the Partnership's net assets were $14.5 million,
reflecting a decrease of $3.9 million from $18.4 million at December 31, 1993.
This decrease resulted from the $3.9 million net decrease in net assets from
operations for 1994.
At December 31, 1996, 1995 and 1994, the net asset value per $500 Unit,
including an allocation of net unrealized appreciation or depreciation of
investments, was $192, $235 and $215, respectively. Such per Unit amounts are
based on average allocations to all Limited Partners and do not reflect specific
Limited Partner allocations, which are determined by the original closing date
associated with the Units held by each Limited Partner.
Summary of Changes to Net Assets for the Year Ended December 31, 1996
Portfolio transactions completed during 1996, resulted in a realized gain of
$1,705,622. As shown below, these transactions returned $4,360,607 to the
Partnership and increased its net asset value for the year by $1,126,316. Net
upward revaluations of the Partnership's remaining portfolio investments during
1996, further increased net asset value by $887,266. The completed portfolio
transactions and revaluations increased the Partnership's net asset value on a
net basis by $2,013,582 for 1996. This increase in net assets from portfolio
transactions for 1996 was offset by the $341,253 net investment loss for the
year.
<TABLE>
Fair Value Return/Fair Value Effect on
Investment at 12/31/95 at 12/31/96 Net Assets
Liquidations for the year ended 12/31/96:
<S> <C> <C> <C>
Corvita $ 3,204,002 $ 4,330,318 $ 1,126,316
Nimbus Medical, Inc. 30,289 30,289 0
------------- -------------- ---------------
Sub-total from liquidations 3,234,291 4,360,607 1,126,316
------------- -------------- ---------------
Revaluations for the year ended 12/31/96
Aprogenix, Inc. (1) 837,839 414,734 (423,105)
Pharmaction Holdings Ltd. (Bellara) 36,810 0 (36,810)
Cortex Pharmaceuticals, Inc. 560,535 546,532 (14,003)
Exocell, Inc. 767,296 517,296 (250,000)
HBO & Co. 149,727 233,106 83,379
MNI Group, Inc. 95,854 78,918 (16,936)
Argonaut (Nimbus) (2) 238,401 180,054 (58,347)
Oclassen Pharmaceuticals, Inc. 2,705,842 3,400,000 694,158
Somatogen, Inc. 2,439,107 1,379,444 (1,059,663)
Ultramed, Inc. 157,500 157,500 0
UroCor, Inc. 1,880,947 3,784,854 1,903,907
Xenova Group plc 776,227 840,913 64,686
---------------
Sub-total from revaluations 887,266
---------------
Sub-total from portfolio transactions 2,013,582
Net investment loss for the year ended 12/31/96 (341,253)
----------------
Net Change to Net Assets for the Year Ended
December 31, 1996 $ 1,672,329
===============
</TABLE>
(1) Adjusted for follow-on investments made during 1996.
(2) Adjusted for cash distribution received during 1996.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
WESTMED VENTURE PARTNERS, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31,
1994, 1995 and 1996
Notes to Financial Statements
NOTE - All other schedules 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
WestMed Venture Partners, L.P.:
We have audited the accompanying balance sheets of WestMed Venture Partners,
L.P. (the "Partnership"), including the schedules of portfolio investments, as
of December 31, 1996 and 1995, 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, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 and 1995 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 WestMed Venture Partners, L.P. at December
31, 1996 and 1995, and the results of its operations, its cash flows and the
changes in its partners' capital for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$6,150,162 and $11,079,422 at December 31, 1996 and 1995, respectively,
representing 47% and 70% 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.
Deloitte & Touche LLP
New York, New York
February 17, 1997, except for note 7 as to which the date is March 14, 1997
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1996 1995
---------------- ----------
ASSETS
Portfolio investments, at fair value
(cost $9,247,669 at December 31, 1996 and
<S> <C> <C> <C> <C> <C> <C>
$11,690,534 at December 31, 1995) - Notes 2 and 4 $ 11,533,351 $ 13,668,256
Cash and cash equivalents - Note 2 6,135,508 2,310,697
Prepaid Assets 39,419 37,588
Accrued interest receivable 13,659 1,500
---------------- ----------------
TOTAL ASSETS $ 17,721,937 $ 16,018,041
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash Distribution Payable - Note 5 $ 4,529,538 $ -
Accounts Payable and Accrued Expenses 120,823 64,979
Due to Managing General Partner - Note 4 63,428 82,705
Due to Independent General Partners - Note 4 10,000 15,000
---------------- ----------------
Total liabilities 4,723,789 162,684
---------------- ----------------
Partners' Capital:
Managing General Partner 129,985 158,557
Limited Partners (66,929 Units) 12,868,163 15,696,800
---------------- ----------------
Total Partners' capital 12,998,148 15,855,357
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 17,721,937 $ 16,018,041
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Aprogenix, Inc.(A)(B)
<C> <C> <C> <C>
476,739 shares of Common Stock Jan. 1989 $ 1,471,807 $ 202,614
10% convertible promissory note due 5/29/98 ` 212,120 212,120
Warrant to purchase 21,450 shares of Common Stock
at $5.67 per share, expiring 10/15/98 0 0
Warrant to purchase 13,000 shares of Common Stock
at $1.10 per share, expiring 5/29/99 0 0
--------------- ---------------
1,683,927 414,734
- -------------------------------------------------------------------------------------------------------------------------------
Cortex Pharmaceuticals, Inc.(A)
140,833 shares of Common Stock May 1988 504,038 519,392
75,000 shares of Preferred Stock(C) 53,030 27,140
--------------- ---------------
557,068 546,532
- -------------------------------------------------------------------------------------------------------------------------------
Exocell, Inc.*
598,083 shares of Preferred Stock Feb. 1988 714,266 464,266
Convertible note due 3/31/97 53,030 53,030
--------------- ---------------
767,296 517,296
- -------------------------------------------------------------------------------------------------------------------------------
HBO & Co.(A)(D)
3,926 shares of Common Stock Dec. 1987 165,934 233,106
- -------------------------------------------------------------------------------------------------------------------------------
MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 78,918
- -------------------------------------------------------------------------------------------------------------------------------
Argonaut Medical, Inc. (E)
200,709 shares of Common Stock Apr. 1988 150,532 150,532
Nimbus Medical, L.P. (F)
38,340 units of limited partnership interest 635 29,522
--------------- ---------------
151,167 180,054
- -------------------------------------------------------------------------------------------------------------------------------
Oclassen Pharmaceuticals, Inc.
292,955 shares of Preferred Stock Jan. 1989 1,351,405 3,400,000
- -------------------------------------------------------------------------------------------------------------------------------
Pharmaction Holdings, Ltd.(A) (G)
294,953 Ordinary shares Sept. 1987 250,000 0
Option to purchase 147,476 Ordinary shares
at $.20 per share, expiring 3/31/99 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Somatogen, Inc.(A)
125,404 shares of Common Stock Dec. 1988 657,194 1,379,444
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc. (H)
1,886,704 shares of Common Stock Oct. 1987 500,000 157,500
Warrant to purchase 7,500 shares of Common Stock
at $.05 per share, expiring 2/1/97 0 0
-------------- ---------------
500,000 157,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1996
<TABLE>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
UroCor, Inc.(A) (I)
<C> <C> <C> <C>
384,982 shares of Common Stock May 1991 $ 1,097,258 $ 3,638,549
Warrant to purchase 8,000 shares of Common Stock
at $1.25 per share, expiring 2/13/01 0 66,504
Warrant to purchase 8,995 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 47,341
Warrant to purchase 9,000 shares of Common Stock
at $5.00 per share, expiring 6/2/00 0 32,460
--------------- ---------------
1,097,258 3,784,854
- -------------------------------------------------------------------------------------------------------------------------------
Xenova Group plc* (A)
304,403 Ordinary shares Aug. 1988 1,614,963 840,913
- -------------------------------------------------------------------------------------------------------------------------------
Totals From Active Portfolio Investments $ 9,247,669 $ 11,533,351
=================================
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(J)
Cost Realized Loss Return
Totals From Liquidated Portfolio Investments(K) $ 19,371,245 $ (7,988,351) $ 11,382,894
=====================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Net Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,618,914 $ (5,702,669) $ 22,916,245
=====================================================
</TABLE>
(A) Public company
(B) During June 1996, the Partnership made a $200,000 follow-on investment in
Aprogenix, Inc., acquiring a 10% convertible note due 5/29/98 and a warrant
to purchase 13,000 shares of common stock at $1.10 per share, expiring on
5/29/99. The Partnership paid a venture capital fee of $12,120 to the
Managing General Partner relating to this investment. Additionally, in
connection with this investment, the Partnership's warrant to purchase
16,458 shares of Aprogenix common stock for $7.39 per share was exchanged
for a warrant to purchase 21,450 shares of Aprogenix common stock for $5.67
per share.
(C)The 75,000 preferred shares of Cortex Pharmaceuticals, Inc. held by the
Partnership are convertible into 7,359 shares of the company's common stock.
(D) On June 10, 1996, HBO & Co. declared a 100% stock distribution. As a
result, the Partnership received an additional 1,963 shares of HBO & Co.
common stock.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1996
(E) In connection with the sale of Nimbus Medical, Inc., completed in December
1996, the Partnership wrote-off $229,899 of its $380,431 investment in the
company. The surviving entity was renamed Argonaut Medical, Inc.
(F) In February 1996, the Partnership received a $30,289 cash distribution from
Nimbus Medical, L.P.
(G) During 1996, Bellara Medical Products, Ltd. merged with Pharmaction Pty
Limited becoming Pharmaction Holdings Limited. As a result of the merger,
the Partnership exchanged its 442,430 common shares of Bellara for 294,953
ordinary shares of Pharmaction Holdings and an option to purchase and
additional 147,476 ordinary shares at $.20 per share.
(H) Pursuant to a letter agreement, the Partnership converted its Ultramed, Inc.
preferred stock and promissory notes into 1,886,704 shares of common stock.
(I) In May 1996, UroCor, Inc. completed its initial public offering at $11 per
share. In connection with the offering, the Partnership exchanged its
368,930 preferred shares for 384,982 common shares of the company.
(J) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1996.
(K) During May 1996, the Partnership sold its investment in Corvita Corporation
for $4.33 million, realizing a gain of $1.94 million.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Aprogenix, Inc.(A)
<C> <C> <C> <C>
476,739 shares of Common Stock Jan. 1989 $ 1,471,807 $ 625,719
Warrant to purchase 16,458 shares of Common Stock
at $7.39 per share, expiring 10/15/98 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Bellara Medical Products Ltd.(A)
442,430 shares of Common Stock Sept. 1987 250,000 36,810
- -------------------------------------------------------------------------------------------------------------------------------
Cortex Pharmaceuticals, Inc.(A)
140,833 shares of Common Stock May 1988 504,038 532,700
75,000 shares of Preferred Stock 53,030 27,835
--------------- ---------------
557,068 560,535
- -------------------------------------------------------------------------------------------------------------------------------
Corvita Corporation*(A)
410,765 shares of Common Stock Aug. 1988 2,394,797 3,204,002
Warrant to purchase 36,916 shares of Common Stock
at $7 per share, expiring 11/1/99 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Exocell, Inc.*
598,083 shares of Preferred Stock Feb. 1988 714,266 714,266
Convertible note due 3/31/97 53,030 53,030
--------------- ---------------
767,296 767,296
- -------------------------------------------------------------------------------------------------------------------------------
HBO & Co.(A)
1,963 shares of Common Stock Dec. 1987 165,934 149,727
- -------------------------------------------------------------------------------------------------------------------------------
MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 95,854
- -------------------------------------------------------------------------------------------------------------------------------
Nimbus Medical, Inc.
200,709 shares of Common Stock Apr. 1988 380,431 192,374
Nimbus Medical, L.P.
38,340 units of limited partnership interest 30,924 76,316
--------------- ---------------
411,355 268,690
- -------------------------------------------------------------------------------------------------------------------------------
Oclassen Pharmaceuticals, Inc.
292,955 shares of Preferred Stock Jan. 1989 1,351,405 2,705,842
- -------------------------------------------------------------------------------------------------------------------------------
Somatogen, Inc.(A)
125,404 shares of Common Stock Dec. 1988 657,194 2,439,107
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc.
954,545 shares of Preferred Stock Oct. 1987 333,410 0
18% Convertible Promissory Notes 159,090 150,000
12% Promissory Note 7,500 7,500
Warrant to purchase 7,500 shares of Common Stock
at $.05 per share, expiring 2/1/97 0 0
-------------- ---------------
500,000 157,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
UroCor, Inc.
<C> <C> <C> <C>
368,930 shares of Preferred Stock May 1991 $ 1,097,258 $ 1,844,650
Warrant to purchase 8,000 shares of Common Stock
at $1.25 per share, expiring 2/13/01 0 30,000
Warrant to purchase 8,995 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 6,297
Warrant to purchase 9,000 shares of Common Stock
at $5.00 per share, expiring 6/2/00 0 0
--------------- ---------------
1,097,258 1,880,947
- -------------------------------------------------------------------------------------------------------------------------------
Xenova Group plc*(A)
304,403 Ordinary shares Aug. 1988 1,614,963 776,227
- -------------------------------------------------------------------------------------------------------------------------------
Totals From Active Portfolio Investments $ 11,690,534 $ 13,668,256
=================================
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(B)
Cost Realized Loss Return
Totals From Liquidated Portfolio Investments $ 16,716,260 $ (9,693,973) $ 7,022,287
=====================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,406,794 $ (7,716,251) $ 20,690,543
=====================================================
</TABLE>
(A) Public company
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1995.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
-------------- -------------- ---------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 229,112 $ 128,996 $ 104,856
Interest and dividend income from portfolio
investments - net 11,741 (2,351) (19,032)
-------------- -------------- ---------------
Total 240,853 126,645 85,824
-------------- -------------- ---------------
Expenses:
Management fee - Note 4 315,201 267,975 361,029
Professional fees 103,916 63,665 47,170
Mailing and Printing 49,381 43,526 10,940
Insurance Expense 74,579 85,240 43,986
Custodial Fees 5,280 5,865 9,278
Independent General Partners' fees - Note 4 12,377 15,000 15,000
Miscellaneous 21,372 20,239 19,538
-------------- -------------- ---------------
Total 582,106 501,510 506,941
-------------- -------------- ---------------
NET INVESTMENT LOSS (341,253) (374,865) (421,117)
Net realized gain (loss) from investments 1,705,622 65,470 (2,822,688)
-------------- -------------- ---------------
NET REALIZED GAIN (LOSS) FROM OPERATIONS 1,364,369 (309,395) (3,243,805)
Net change in unrealized appreciation or depreciation
of investments 307,960 1,632,227 (618,032)
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
(allocable to Partners) - Note 3 $ 1,672,329 $ 1,322,832 $ (3,861,837)
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
------------- -------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (341,253) $ (374,865) $ (421,117)
Adjustments to reconcile net investment loss to cash used for operating
activities:
(Increase) decrease in prepaid expenses and
accrued interest receivable (13,990) 9,928 (6,653)
Increase (decrease) in payables 31,567 24,477 (19,407)
-------------- -------------- ---------------
Cash used for operating activities (323,676) (340,460) (447,177)
-------------- -------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Cost of portfolio investments purchased (212,120) (291,665) (692,965)
Proceeds from the sale of portfolio investments 4,330,318 275,850 421,875
Cash distribution from investment in Limited Partnership 30,289 57,944 62,052
Repayment of notes due from portfolio companies - - 201,392
-------------- -------------- ---------------
Cash provided from (used for) investing activities 4,148,487 42,129 (7,646)
-------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 3,824,811 (298,331) (454,823)
Cash and cash equivalents at beginning of period 2,310,697 2,609,028 3,063,851
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 6,135,508 $ 2,310,697 $ 2,609,028
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 183,947 $ 18,210,415 $ 18,394,362
Net decrease in net assets resulting
from operations (38,618) (3,823,219) (3,861,837)
------------ --------------- ----------------
Balance at December 31, 1994 145,329 14,387,196(A) 14,532,525
Net increase in net assets resulting
from operations 13,228 1,309,604 1,322,832
------------ --------------- ----------------
Balance at December 31, 1995 158,557 15,696,800(A) 15,855,357
Net increase in net assets resulting
from operations 16,723 1,655,606 1,672,329
Accrued cash distribution, paid
January 30, 1997 (45,295) (4,484,243) (4,529,538)
------------ --------------- ----------------
Balance at December 31, 1996 $ 129,985 $ 12,868,163(A) $ 12,998,148
============ =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized appreciation or depreciation of investments,
was $192, $235, and $215 at December 31, 1996, 1995 and 1994, respectively.
Such per unit amounts are based on average allocations to all limited
partners and do not reflect specific limited partner allocations, which are
determined by the original closing date associated with the units of
limited partnership interest held by each limited partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
WestMed Venture Partners, L.P. (the "Partnership") was formed under Delaware law
on February 5, 1987. The Partnership operates as a business development company
under the Investment Company Act of 1940, as amended. The Partnership is a
closed-end investment fund and accordingly its units of limited partnership
interest ("Units") are not redeemable. A total of 66,929 Units were sold to
limited partners (the "Limited Partners" and together with the Managing General
Partner (as hereinafter defined), the "Partners") at $500 per Unit.
The general partners of the Partnership include two individuals (the
"Independent General Partners") and the managing general partner, WestMed
Venture Management, L.P., a Delaware limited partnership (the "Managing General
Partner" and collectively with the Independent General Partners, the
"General Partners"). The general partner of the Managing General Partner is
Medical Venture Holdings, Inc., a Delaware corporation affiliated with
Oppenheimer & Co., Inc. ("Opco"). The limited partners of the Managing GeneraL
Partner are Oppenheimer Holdings, Inc., MVP Holdings, Inc. and BSW, Inc., a
Delaware corporation owned by John A. Balkoski, Philippe L. Sommer and Howard
S. Wachtler. Alsacia Venture Management, Inc. (the "Sub-Manager"), a
corporation controlled by Philippe L. Sommer, is the sub-manager of the
Partnership pursuant to a sub-management agreement among the Partnership,
the Managing General Partner and the Sub-Manager. The Sub-Manager has been
retained by the Managing General Partner to assist the Managing General Partner
in the performance of its duties to the Partnership.
Opco, a member firm of the New York Stock Exchange, the National Association of
Securities Dealers, Inc., and all principal United States securities exchanges,
is a diversified investment banking and securities firm and registered
investment advisor, providing a broad range of services to individual,
corporate, and institutional clients. Opco operates in the capacity of broker
and dealer for its customers, as well as trader for its own account. The
services provided by Opco and its subsidiaries, and the activities in which it
is engaged, include securities brokerage, securities research, customer
financing, securities trading, corporate finance, mergers and acquisitions,
underwriting and investment advisory services.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership is scheduled to terminate on December
31, 1997, subject to the right of the General Partners to extend the term for up
to two additional two-year periods, if they determine that such extensions are
in the best interest of the Partnership.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Independent General Partners. The fair value of publicly-held portfolio
securities is adjusted to the closing public market price for the last trading
day of the
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
accounting period discounted 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 of the portfolio company under
consideration or is greater than a 5% shareholder thereof, 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 (i) to reflect meaningful third-party
transactions in the private market and (ii) to reflect significant progress or
slippage in the development of the company's business such that cost no longer
reflects 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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. For portfolio investments, transactions are recorded on the date which
the Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold are computed on a
specific identification basis.
Statements of Cash Flows - Cash and cash equivalents include short-term
interest-bearing investments in commercial paper and other money market
investments. The Partnership considers its interest-bearing cash account to be
cash equivalents.
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 $2.3
million at December 31, 1996, which was recorded for financial statement
purposes, was not recognized for tax purposes. Additionally, from inception to
December 31, 1996, other timing differences totaling $8.2 million, relating to
net realized losses, original sales commissions paid and other costs of selling
the Units, have been recorded on the Partnership's financial statements but have
not yet been deducted for tax purposes.
3. Allocations of Partnership Profits and Losses
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
their capital contributions, until all Partners have been allocated an amount
equal to 6% per annum, simple interest, on their total Adjusted Invested
Capital; i.e., original capital contributions reduced by previous distributions
(the "Priority Return"). Thereafter, net income and net realized gains from
venture capital investments in excess of the amount used to cover the Priority
Return are allocated 20% to the Managing General Partner and 80% to all Partners
in proportion to their capital contributions. Any net income from non-venture
capital investments in excess of the amount used to cover the Priority Return is
allocated to all Partners in proportion to their capital contributions. Realized
losses are allocated to all Partners in proportion to their capital
contributions. However, if realized gains had been previously allocated in the
80-20 ratio, then losses are allocated in the reverse order in which profits
were allocated. From its inception to December 31, 1996, the Partnership had a
$7.5 million net loss from its venture capital investments including interest
and other income from portfolio investments totaling $504,000.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. For the years ended December 31, 1996, 1995 and 1994,
the Partnership incurred venture capital fees of $12,000, $17,000 and $40,000
respectively. Cumulative venture capital fees incurred from inception to
December 31, 1996 totaled $1.6 million.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership (net of selling commissions
and organizational expenses) reduced by capital distributed. Such fee is
determined and payable quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner.
For services rendered to the Partnership, each of the two Independent General
Partners receives a $5,000 annual fee and reimbursement for all out-of-pocket
expenses relating to attendance at meetings of the General Partners.
5. Cash Distributions
In November 1996, the General Partners approved a cash distribution to Partners
totaling $4.5 million. The distribution was paid on January 30, 1997 to Limited
Partners of record on December 31, 1996. Limited Partners received $4,484,243,
or $67 per Unit, and the General Partner received $45,295. There were no cash
distributions to Partners during the years ended December 31, 1995 or 1994.
Cumulative cash distributions paid or accrued to Partners from inception to
December 31, 1996, total $10,240,307; $10,137,904 to the Limited Partners, or
approximately $151 per Unit, and $102,403 to the Managing General Partner.
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
6. Classification of Investments
As of December 31, 1996, the Partnership's investments were categorized as
follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value of Net Assets*
- ------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Common Stock $ 6,363,183 $ 7,189,773 55.31%
Preferred Stock 2,452,111 3,891,406 29.94%
Debt Securities 431,740 422,650 3.25%
Limited Partnerships 635 29,522 .23%
---------------- --------------- -------
$ 9,247,669 $ 11,533,351 88.73%
================ =============== ======
Country/Geographic Region
United States $ 7,382,706 $ 10,692,438 82.26%
United Kingdom 1,614,963 840,913 6.47%
Australia 250,000 0 .00%
---------------- --------------- -------
$ 9,247,669 $ 11,533,351 88.73%
================ =============== ======
Industry
Biotechnology $ 5,530,448 $ 3,698,919 28.46%
Computer Systems 165,934 233,106 1.79%
Medical Devices 651,167 337,554 2.59%
Medical Services 1,097,258 3,784,854 29.12%
Nutritional Products 451,457 78,918 .61%
Pharmaceuticals 1,351,405 3,400,000 26.16%
---------------- --------------- ------
$ 9,247,669 $ 11,533,351 88.73%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
7. Subsequent Event
On February 27, 1997, Oclassen Pharmeceuticals, Inc. merged with Watson
Pharmaceuticals, Inc. As a result of the merger, the Partnership exchanged its
292,955 preferred shares of Oclassen for 108,321 common shares of Watson, of
which 8,124 shares are to be held in escrow for a period of one year pursuant to
the merger agreement.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The Independent General Partners
The Independent General Partners have full authority over the management of the
Partnership and provide overall guidance and supervision with respect to the
operations of the Partnership and perform the various duties imposed on the
general partners of business development companies under the 1940 Act. In
addition to general fiduciary duties, the Independent General Partners, among
other things, supervise the management arrangements of the Partnership, the
custody arrangement with respect to portfolio securities, the selection of
accountants, fidelity bonding and the activities of the Managing General
Partner. As required by the 1940 Act, a majority of the general partners must be
individuals who are not "interested persons" of the Partnership as defined in
the 1940 Act. In 1987, the Securities and Exchange Commission issued an
exemptive order declaring that Messrs. Elliott and White, the Independent
General Partners of the Partnership, are not "interested persons" of the
Partnership as defined in the 1940 Act solely by reason of their being general
partners of the Partnership. Such individuals also comprise the Audit Committee
of the Partnership.
Presented below is information concerning the Independent General Partners of
the Partnership as of March 21, 1997:
Thomas E. White, Age 63, Independent General Partner since 1987
485 Madison Avenue
New York, New York 10022
Mr. White is an attorney in private practice in New York City. He is
also an independent general partner of WestMed Venture Partners 2, L.P.
("WVP2"). From 1974 to 1983, Mr. White was Senior Vice President and
Director of Howmedica, Inc. with responsibility for various health-care
operations in the United States, Europe and Latin America.
Robert A. Elliott, Age 57, Independent General Partner since 1987
Elliott Investment Co.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Mr. Elliott, currently a private investor, was the Chairman and Chief
Executive Officer of VLI Corporation from 1983 to 1987. Mr. Elliott is
also an independent general partner of WVP2, a member of the Board of
Trustees of Chapman University and a member of the Board of Directors of
two privately-held medical device companies. He is a former Director
of the Health Industries Manufacturers Association. From 1979 until
1983, Mr. Elliott was Vice President and Director of Howmedica, Inc.
with responsibility for the Medical Specialty Products Division,
including domestic and international manufacturing and distribution.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership's venture capital investments. Subject to the supervision of the
Independent General Partners, the Managing General Partner is authorized to make
all decisions regarding the Partnership's venture capital investment portfolio,
including, among other things, to find, evaluate, structure, monitor and
liquidate such investments and to provide, or arrange for the provision of,
managerial assistance to the portfolio companies in which the Partnership
invests.
The general partner of the Managing General Partner is MVH, a Delaware
corporation affiliated with Opco. The limited partners of the Managing General
Partner are (i) Oppenheimer Holdings, Inc. ("OHI"), a Delaware corporation and
the parent of Opco, (ii) MVP Holdings, Inc., ("MVP"), a Delaware corporation,
and (iii) BSW, Inc., ("BSW"), a Delaware corporation wholly-owned by John A.
Balkoski, Philippe L. Sommer and Howard S. Wachtler, the individuals originally
responsible for the Partnership's venture capital investments.
In June 1996, the Managing General Partner engaged Alsacia Venture Management,
Inc. (the "Sub-Manager") to assist the Managing General Partner in the
performance of its duties to the Partnership. The Sub-Manager is controlled by
Phillipe L. Sommer. The compensation of the Sub-Manager is paid directly by the
Managing General Partner. No additional management fees will be incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager.
Presented below is information as of March 21, 1997 concerning the directors
and officers of MVH that are principally involved with the operations of the
Partnership. Mr. McGrath has been a director and/or officer of MVH since June
1990. Mr. Rothstein and Ms. Fusco have been officers of MVH since April
1996 and June 1996, respectively. The address of each such person is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
Stephen M. McGrath, Sr., Age 61, Vice President and Director
Mr. McGrath has been Executive Vice President of Opco and director of
its Investment Banking Group since July 1985. He also served as President
of Oppenheimer Strategic Investments, Inc. between May 1983 and April
1985. Mr. McGrath was Senior Vice President of Planning and
Development at Warner-Lambert until 1985 and has been a director of
Alliance Pharmaceutical Corp. since June 1989. He also serves as an
executive officer and director of certain current and/or former
affiliates of Opco.
Gerald A. Rothstein, Age 54, Vice President
Mr. Rothstein has been a Managing Director of Opco since 1983. He is
primarily responsible for the creation of Opco's international research
department and focuses upon the emerging markets of Latin America and
India. Mr. Rothstein has served on Opco's Management Committee since
1983 and is also a member of Opco's Commitment and Due Diligence
committees.
Ann O. Fusco, Age 42, Vice President
Ms. Fusco has been Vice President of Oppenheimer Properties, Inc. since
July 1986 and has been employed by Oppenheimer & Co., Inc. since April
1984. In June 1996 Ms. Fusco became Vice President of MVH. Ms. Fusco is
a Certified Public Accountant in the state of New York.
There are no family relationships among any of the Independent General
Partners and the officers and directors of MVH or the Sub-Manager. MVH is
owned 100% by OHI. The Sub-Manager is wholly-owned by Phillipe L. Sommer.
Presented below is information concerning Mr. Sommer as of March 27, 1997.
Philippe L. Sommer, Age 45, Executive Vice President and Managing Director
Mr. Sommer is a Managing Director of BSW and a member of the Board of
Directors of BSW and one portfolio company of WVP2. He has been involved in
health-care industry management for the past 15 years. He was a Managing
Director of MVP from April 1987 to June 1990. From January 1982 to
September 1986, he was a Director of Business Development for HPG and as
such was responsible for directing HPG's merger and acquisition activities
for medium to larger acquisitions and for the financial evaluation and
valuation of all of HPG's acquisition, venture and licensing projects.
Opco, a member firm of the New York Stock Exchange, Inc., the National
Association of Securities Dealers, Inc. and all principal U.S. securities
exchanges, is a diversified investment banking and securities firm, providing a
broad range of services to individual, corporate and institutional clients. Opco
is registered as a broker-dealer and investment adviser with the Commission, and
also is registered as a broker-dealer in all of the states of the United States
and with the Securities Association in the United Kingdom and with the Commodity
Futures Trading Commission as a futures commission merchant. Opco operates in
the capacity of broker and dealer for its customers, as well as trader for its
own account.
The services provided by Opco and its subsidiaries, and the activities in which
it is engaged, include investment banking, securities brokerage, securities
research, customer financing, securities trading and arbitrage, corporate
finance, real estate financing and investment advisory services. Opco's
investment banking activities include an active engagement in the health-care
area. Opco provides public equity and debt financing to clients in the
biotechnology, instrumentation and pharmaceutical products and services sectors
in the health-care field. Opco also provides private financing, and merger,
acquisition and divestiture assistance to health-care companies. Opco's
Health-care Investment Banking Group is supported by Opco's securities research
team which reports on public companies in the human health-care sector.
Item 11. Executive Compensation.
Each Independent General Partner receives an annual fee from the Partnership of
$5,000 together with all out-of-pocket expenses relating to attendance at
meetings of the General Partners. During 1996, Thomas White, an Independent
General Partner of the Partnership, received an $11,600 payment from the
Partnership relating to legal services in connection with the Sub-Management
Agreement.
The description of the allocation and distribution of the Partnership's profits
and losses to the Managing General Partner set forth in Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters is incorporated
herein by reference.
For the year ended December 31, 1996, the Managing General Partner was allocated
$16,700 of the Partnership's net increase in net assets from operations. For the
year ended December 31, 1995, the Managing General Partner was allocated $13,200
of the Partnership's net increase in net assets from operations and for the year
ended December 31, 1994, the Managing General Partner was allocated $38,600 of
the Partnership's net decrease in net assets from operations.
Pursuant to the Management Agreement, the Managing General Partner performs, or
arranges for others to perform, the management, administrative and certain
investment advisory services necessary for the operation of the Partnership. For
such services, the Managing General Partner received a management fee at the
annual rate of 2% of the lesser of the net assets of the Partnership or the net
contributed capital of the Partnership; i.e., gross capital contributions to the
Partnership (net of selling commissions and organizational expenses) reduced by
capital distributed. Such fee is determined and payable quarterly. For the years
ended December 31, 1996, 1995 and 1994, the Managing General Partner received
management fees of $315,000, $268,000, and $361,000 respectively.
In June 1996, the Managing General Partner engaged Alsacia Venture Management,
Inc. (the "Sub-Manager") to assist the Managing General Partner in the
performance of its duties to the Partnership. The Sub-Manager is controlled by
Phillipe L. Sommer. The compensation of the Sub-Manager is paid directly by the
Managing General Partner. No additional management fees will be incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. For the years ended December 31, 1996, 1995 and 1994,
the Managing General Partner received venture capital fees of $12,000, $17,000
and $40,000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 21, 1997, no person or group is known by the Partnership to be the
beneficial owner of more than 5% of the Units. The Independent General Partners
and the directors, officers and employees of MVH, and the Sub-Manager own as a
group ten Units, or less than one-tenth of one percent of the total Units
outstanding.
Item 13. Certain Relationships and Related Transactions.
The description of the management fee and the venture capital fee set forth in
Item 11, Executive Compensation, is incorporated herein by reference.
The description of the allocation and distribution of the Partnership's profits
and losses to the Managing General Partner set forth in Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters is incorporated
herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Statements of Changes in Partners' Capital for the years ended
December 31, 1994, 1995 and 1996
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership(3)
3.2 Amendment to Amended and Restated Certificate of Limited
Partnership(3)
3.3 Partnership Agreement(1)
3.4 Amendment No. 1 to the Partnership Agreement(2)
4 Articles Five through Eleven of the Partnership Agreement(1)
10.1 Management Agreement between the Partnership and the
Managing General Partner(2)
[?] Sub-Management agreement among the Partnership, the Managing
General Partner and the Sub-Manager(4)
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors
Fiduciary Trust Company(1)
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
- -------------------------------
(1) Filed as an exhibit to the Partnership's Registration Statement on
Form N-2 (33-11926), and incorporated herein by reference.
(2) Filed as an exhibit to the Partnership's Report on Form 8-K dated July
10, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to the Partnership's Report on Form 10-K for the year
ended December 31, 1990.
(4) Filed as an exhibit to the Partnership's proxy statement dated May 17,
1996 and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 27th day of March 1997.
WESTMED VENTURE PARTNERS, L.P.
By: WestMed Venture Management, L.P.,
Managing General Partner
By: Medical Venture Holdings, Inc.,
General Partner
By: /s/ Stephen McGrath
Stephen McGrath
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated on the 27th day of March 1997.
<TABLE>
WESTMED VENTURE
<S> <C> <C> <C> <C> <C> <C>
MANAGEMENT, L.P. Managing General Partner of WestMed Venture Partners, L.P.
By: Medical Venture Holdings, Inc. General Partner of WestMed Venture Management, L.P.
By: /s/ Stephen McGrath Executive Vice President (principal executive officer) of Medical
Stephen McGrath Venture Holdings, Inc.
By: /s/ Ann Oliveri Fusco Vice President (principal financial and accounting officer) of Medical Ann
Oliveri Fusco Venture Holdings, Inc.
By: /s/ Thomas E. White General Partner of WestMed Venture Partners, L.P.
Thomas E. White
By: /s/ Robert A. Elliott General Partner of WestMed Venture Partners, L.P.
Robert A. Elliott
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
WESTMED VENTURE PARTNERS, L.P.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9,247,669
<INVESTMENTS-AT-VALUE> 11,533,351
<RECEIVABLES> 13,659
<ASSETS-OTHER> 39,419
<OTHER-ITEMS-ASSETS> 6,135,508
<TOTAL-ASSETS> 17,721,937
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,723,789
<TOTAL-LIABILITIES> 4,723,789
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 66,929
<SHARES-COMMON-PRIOR> 66,929
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 12,998,148
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 240,853
<OTHER-INCOME> 0
<EXPENSES-NET> 582,106
<NET-INVESTMENT-INCOME> (341,253)
<REALIZED-GAINS-CURRENT> 1,705,622
<APPREC-INCREASE-CURRENT> 307,960
<NET-CHANGE-FROM-OPS> 1,672,329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,529,538
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,857,209)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 14,426,753
<PER-SHARE-NAV-BEGIN> 235
<PER-SHARE-NII> (5)
<PER-SHARE-GAIN-APPREC> 29
<PER-SHARE-DIVIDEND> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
