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, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3443230
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CIBC Oppenheimer Tower, World Financial Center
New York, New York 10281
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(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 16, 1998, 66,929 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 include 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 CIBC Oppenheimer Corp., a Delaware corporation ("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, including $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, 1997, 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, 1997, the Partnership's
investment portfolio consisted of investments in 9 portfolio companies with an
aggregate cost of $4.6 million and a fair value of $3.5 million. From its
inception through December 31, 1997, the Partnership had either fully liquidated
or partially liquidated portfolio investments with a cost of $24.0 million.
These liquidated investments returned $17.3 million to the Partnership for a net
realized loss of $6.7 million. Additionally, from its inception to December 31,
1997, the Partnership earned $493,000 of interest and other income from its
portfolio investments. As a result, as of December 31, 1997, the Partnership had
a cumulative net realized loss from its venture capital investments of $6.2
million. As discussed below, during 1997, the Partnership sold its remaining
investments in HBO & Co. and Somatogen, Inc. Also during 1997, the Partnership
wrote-off its investment in Aprogenex, Inc. These transactions and other events
affecting the Partnership's portfolio investments during 1997 are listed below.
In January 1997, the Partnership received partial liquidating cash
distributions of $120,425 from Argonaut Medical, Inc. and $29,522 from
Nimbus Medical, L.P. realizing a gain of $28,887 on the Nimbus
distribution.
On February 27, 1997, Oclassen Pharmaceuticals, Inc. merged into 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 Pharmaceuticals, of which 8,124 shares were placed into escrow for a
period of one year pursuant to the merger agreement. During June 1997, the
Partnership sold 100,197 common shares of Watson Pharmaceuticals for
$3,896,375, realizing a gain of $2,646,329. In October 1997, Watson
Pharmaceuticals declared a 2-for-1 stock split for shareholders of record
on October 22, 1997. As a result, the Partnership held 16,248 common shares
of Watson Pharmaceuticals as of December 31, 1997.
The Partnership's warrants to purchase 7,500 common shares of Ultramed,
Inc. expired unexercised in February 1997. Also, during February 1997, the
Partnership sold its remaining 3,926 common shares of HBO & Co. for $244,385,
realizing a gain of $78,451. In March 1997, the Partnership sold its 294,953
ordinary shares of Pharmaction Holdings, Ltd. for $36,509, realizing a loss of
$213,491. In May and June 1997, the Partnership sold its remaining 125,404
common shares of Somatogen, Inc. for $666,660, realizing a gain of $9,466.
During 1997, the Partnership sold 100,000 common shares of UroCor, Inc. for
$928,954, realizing a gain of $439,486.
During the second half of 1997, the Partnership wrote-off its remaining
$1,683,927 investment in Aprogenex, Inc. and wrote-off an additional
$21,872 of accrued interest relating to the promissory note due from
Aprogenex, Inc.
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 (the "Meeting") of Limited Partners of the Partnership was
held on September 30, 1997. The Meeting was held for the following purposes: (i)
to approve or disapprove a new management agreement between the Managing General
Partner and the Partnership; and (ii) to approve or disapprove a new
sub-management agreement between the Managing General Partner and Alsacia
Venture Management, Inc. (the "Sub-Manager"). At the Meeting, both such
proposals were approved.
<TABLE>
Affirmative Negative
Votes Votes Abstentions
<S> <C> <C> <C> <C>
Proposal 1 32,426 3,238 2,333
Proposal 2 31,940 3,581 2,476
</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 as of March 16, 1998 was approximately 5,500.
In August 1997, the General Partners approved a cash distribution to Partners
totaling $5,543,614. The distribution was paid on October 21, 1997 to Limited
Partners of record on September 30, 1997. Limited Partners received $5,488,178,
or $82 per Unit, and the General Partner received $55,436. In November 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. There were no cash distributions paid to
Partners during the year ended December 31, 1995. Cumulative cash distributions
paid to Partners from inception to December 31, 1997, total $15,783,921,
including $15,626,082 to the Limited Partners, or approximately $233 per $500
Unit, and $157,839 to the Managing General Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions. However,
if realized gains had been previously allocated in the 80-20 ratio, then losses
are allocated in the reverse order in which profits were allocated.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total assets $ 5,275 $ 17,722 $ 16,018 $ 14,671 $ 18,552
Net assets 5,166 12,998 15,855 14,533 18,394
Cost of portfolio investments purchased - 212 292 693 177
Cumulative cost of portfolio investments 28,619 28,619 28,407 28,115 27,422
Cash distributions to Partners 5,544 4,530 - - -
Cumulative cash distributions to Partners 15,784 10,240 5,711 5,711 5,711
Net investment loss (190) (341) (375) (421) (540)
Net realized gain (loss) from investments 1,305 1,706 65 (2,823) (4,043)
Change in unrealized appreciation or
depreciation of investments (3,404) 308 1,632 (618) 3,576
Change in net assets resulting from operations (2,288) 1,672 1,323 (3,862) (1,007)
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
appreciation or depreciation of investments $ 76 $ 192 $ 235 $ 215 $ 272
Net investment loss (3) (5) (6) (6) (8)
Net realized gain (loss) on investments 19 25 1 (42) (60)
Change in unrealized appreciation or
depreciation of investments (50) 5 24 (9) 53
Cash distributions 82 67 - - -
Cumulative cash distributions 233 151 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
At December 31, 1997, 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. The
Partnership will not make investments in new portfolio companies and does not
expect to make follow-on investments in its existing companies, as it has begun
its liquidation process. The General Partner will continue to manage the
Partnership, with continued focus on achieving long-term capital appreciation
from the Partnership's remaining investment portfolio through the date of
liquidation, which will occur when all liabilities and obligations to creditors
have been satisfied and all investments in portfolio companies have been sold,
distributed or otherwise disposed.
At December 31, 1997, the Partnership held $1.7 million in cash and short-term
investments, including $1.5 million in short-term securities with maturities of
less than three months and $229,000 in an interest-bearing cash account. For the
years ended December 31, 1997, 1996 and 1995, the Partnership earned interest
from such investments totaling $187,000, $229,000 and $129,000, 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.
During the year ended December 31, 1997, the Partnership received $5.9 million
in proceeds from the sale of certain portfolio investments, as discussed below.
As a result, on October 21, 1997, the Partnership made a cash distribution to
Partners totaling $5.5 million. Limited Partners of record on September 30, 1997
received $5,488,178, or $82 per Unit, and the General Partner received $55,436.
Cumulative cash distributions paid to Partners from inception through December
31, 1997, total $15,626,082 to the Limited Partners, or approximately $233 per
$500 Unit, and $157,839 to the General Partner.
It is anticipated that funds needed to cover the Partnership's future operating
expenses will be obtained from existing cash reserves, interest from short-term
investments and proceeds received from the sale of portfolio investments.
Results of Operations
For the years ended December 31, 1997 and 1996, the Partnership had a net
realized gain from operations of $1.1 million and $1.4 million, respectively.
For the year ended December 31, 1995, the Partnership had a net realized loss
from operations of $309,000. Net realized gain or loss from operations is
comprised of (i) net realized gain or loss from portfolio investments and (ii)
net investment income or loss (interest and dividend income less operating
expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1997, the Partnership had a net realized gain from portfolio
investments of $1.3 million. During 1997, the Partnership sold certain of its
publicly-traded securities as follows: 100,000 common shares of UroCor, Inc. for
$928,954, realizing a gain of $439,486; its remaining 125,404 common shares of
Somatogen, Inc. for $666,660, realizing a gain of $9,466; 100,197 common shares
of Watson Pharmaceuticals, Inc. for $3,896,375, realizing a gain of $2,646,329;
its remaining 3,926 common shares of HBO & Co., Inc. for $244,385, realizing a
gain of $78,451; and its remaining 294,953 ordinary shares of Pharmaction
Holding, Ltd. for $36,509, realizing a loss of $213,491. Also during 1997, the
Partnership received cash distributions from Argonaut Medical., Inc. and Nimbus
Medical, L.P. totaling $149,947, resulting in a realized gain of $28,887.
Finally, during 1997, the Partnership wrote-off its remaining $1,683,927
investment in Aprogenex, Inc., due to an announcement by the company indicating
additional financing to support continued operations was not available to the
Company.
For the year ended December 31, 1996, the Partnership had a net realized gain
from portfolio investments of $1.7 million. In May 1996, in connection with the
merger of Corvita Corporation and a wholly-owned subsidiary of Pfizer Inc., the
Partnership sold its investment in Corvita for $4.3 million, realizing a gain of
$1.9 million. Additionally, 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 in the company.
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 Aprogenex, Inc. in the public market for $276,000.
Investment Income and Expenses - Net investment loss for the years ended
December 31, 1997, 1996 and 1995 was $190,000, $341,000 and $375,000,
respectively. The $151,000 decrease in net investment loss for 1997 compared to
1996 primarily resulted from a $217,000 decrease in operating expenses offset by
a $65,000 decrease in investment income for 1997. The reduction in operating
expenses includes a $125,000 decrease in the management fee, as discussed below,
and a $61,000 decrease in professional fees for the 1997 period compared to
1996. Professional fees for the 1996 period, also discussed below, include legal
fees incurred in connection with the preparation of a Special Meeting of Limited
Partners held in 1996. The decrease in investment income included a $42,000
decrease in interest income from short-term investments, primarily related to
the reduced balance of funds available for such investments during 1997 as
compared to 1996. Additionally, a negative variance of $23,000 in interest
income from portfolio investments for 1997 compared to 1996, primarily was due
to the write-off in 1997 of $22,000 of accrued interest relating to the
promissory note due from Aprogenex. Such accrued interest was written-off in
conjunction with the write-off of the Partnership's investment in Aprogenex
during 1997, as discussed above.
The $34,000 decrease in net investment loss for 1996 compared to 1995, included
a $114,000 increase in investment income offset by an increase in operating
expenses of $81,000 for 1996. The increase in investment income reflects a
$100,000 increase in interest from short-term investments for 1996 as compared
to 1995, resulting from an increase in funds available for investment in such
securities during 1996. 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 for 1996 as compared to 1995, due to
legal costs relating to the preparation of a proxy statement in connection with
the Special Meeting of Limited Partners held on June 21, 1996. 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. The compensation of the Sub-Manager is paid directly by
the Managing General Partner. For the years ended December 31, 1997, 1996 and
1995, the management fee was $190,000, $315,000 and $268,000, respectively. The
reduced management fee for 1997 compared to 1996 reflects the reduced net asset
value of the Partnership, primarily resulting from the cash distributions paid
to Partners during 1997. The management fee will continue to decline in future
periods as the Partnership's remaining portfolio investments are liquidated and
subsequent distributions are paid to Partners. 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, 1997,
the Partnership had a $2.4 million net unrealized loss, primarily resulting from
the net downward revaluation of its publicly-traded portfolio securities during
1997. Additionally, $1.0 million was transferred from unrealized gain to
realized gain in connection with the portfolio securities liquidated during the
year, as discussed above.
As a result, net unrealized appreciation of investments declined $3.4 million
for 1997.
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. As a result, net unrealized appreciation of
investments increased $308,000 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.
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, 1997, the Partnership's net assets were $5.2 million, reflecting
a decrease of $7.8 million from $13.0 million at December 31, 1996. This
decrease in net assets reflects the $5.5 million cash distribution and the $2.3
million net decrease in net assets from operations for 1997. The $2.3 million
decrease in net assets from operations was comprised of the $3.4 million
decrease to net unrealized appreciation of investments partially offset by the
$1.1 million net realized gain from operations for 1997.
At December 31, 1996, the Partnership's net assets were $13.0 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, 1997, 1996 and 1995, the net asset value per $500 Unit,
including an allocation of net unrealized appreciation or depreciation of
portfolio investments, was $76, $192 and $235, 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
WESTMED VENTURE PARTNERS, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended December 31,
1995, 1996 and 1997
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996 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, 1997 and 1996, 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, 1997 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$1,458,809 and $6,150,162 at December 31, 1997 and 1996, respectively,
representing 28% and 47% 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, 1998
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1997 1996
---------------- ----------
ASSETS
Portfolio investments, at fair value
(cost $4,630,040 at December 31, 1997 and $9,247,669 at
<S> <C> <C> <C> <C>
December 31, 1996) $ 3,511,745 $ 11,533,351
Cash and cash equivalents 1,725,666 6,135,508
Prepaid expenses 37,451 39,419
Accrued interest receivable 635 13,659
---------------- ----------------
TOTAL ASSETS $ 5,275,497 $ 17,721,937
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 4,529,538
Accounts payable and accrued expenses 73,487 120,823
Due to Managing General Partner 25,960 63,428
Due to Independent General Partners 10,000 10,000
---------------- ----------------
Total liabilities 109,447 4,723,789
---------------- ----------------
Partners' Capital:
Managing General Partner 51,664 129,985
Limited Partners (66,929 Units) 5,114,386 12,868,163
---------------- ----------------
Total Partners' Capital 5,166,050 12,998,148
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 5,275,497 $ 17,721,937
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
Cortex Pharmaceuticals, Inc.(A)
<S><C> <C> <C> <C>
140,833 shares of Common Stock May 1988 $ 504,038 $ 211,250
75,000 shares of Preferred Stock(B) 53,030 11,039
--------------- ---------------
557,068 222,289
- -------------------------------------------------------------------------------------------------------------------------------
Exocell, Inc.*
598,083 shares of Preferred Stock Feb. 1988 714,266 100,000
Convertible note due upon demand 53,030 50,000
--------------- ---------------
767,296 150,000
- -------------------------------------------------------------------------------------------------------------------------------
MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 64,684
- -------------------------------------------------------------------------------------------------------------------------------
Argonaut Medical, Inc. (C)
200,709 shares of Common Stock Apr. 1988 30,107 30,107
Nimbus Medical, L.P. (C)
38,340 units of limited partnership interest 0 0
--------------- ---------------
30,107 30,107
- -------------------------------------------------------------------------------------------------------------------------------
Pharmaction Holdings, Ltd.(A) (D)
Option to purchase 147,476 shares of Common Stock
at $.20 per share, expiring 3/31/99 Sept. 1987 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc.(E)
1,850,904 shares of Common Stock Oct. 1987 492,500 150,000
12% promissory note 7,500 7,500
-------------- ---------------
500,000 157,500
- -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc.(A) (F)
284,982 shares of Common Stock May 1991 607,790 1,763,468
Warrant to purchase 8,000 shares of Common Stock
at $1.25 per share, expiring 2/13/01 0 39,504
Warrant to purchase 8,995 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 16,983
Warrant to purchase 9,000 shares of Common Stock
at $5.00 per share, expiring 6/2/00 0 10,692
--------------- ---------------
607,790 1,830,647
- -------------------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. (A) (G)
16,248 shares of Common Stock Jan. 1989 101,359 474,347
- -------------------------------------------------------------------------------------------------------------------------------
Xenova Group plc* (A)
304,403 Ordinary shares Aug. 1988 1,614,963 582,171
- -------------------------------------------------------------------------------------------------------------------------------
Totals From Active Portfolio Investments $ 4,630,040 $ 3,511,745
=================================
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1997
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(H)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Totals From Liquidated Portfolio Investments(I) $ 23,988,874 $ (6,683,150) $ 17,305,724
======================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Net Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,618,914 $ (7,801,445) $ 20,817,469
======================================================
</TABLE>
(A) Public company
(B) 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.
(C) In January 1997, the Partnership received partial liquidating cash
distributions of $120,425 from Argonaut Medical, Inc. and $29,522 from
Nimbus Medical, L.P., realizing a gain of $28,887.
(D) In March 1997, the Partnership sold its 294,953 ordinary shares of
Pharmaction Holdings, Ltd. for $36,509, realizing a loss of $213,491.
(E) The Partnership's warrants to purchase 7,500 common shares of Ultramed, Inc.
expired unexercised in February 1997. (F) During 1997, the Partnership sold
100,000 common shares of UroCor, Inc. for $928,954, realizing a gain of
$439,486. (G) On February 27, 1997, Oclassen Pharmaceuticals, Inc. merged into
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 Pharmaceuticals of which 8,124 shares were
placed into escrow for a period of one year pursuant to the merger
agreement. During June 1997, the Partnership sold 100,197 common shares of
Watson Pharmaceuticals for $3,896,375, realizing a gain of $2,646,329. In
October 1997, Watson Pharmaceuticals declared a 2-for-1 stock split for
shareholders of record on October 22, 1997.
(H) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1997.
(I) During February 1997, the Partnership sold its remaining 3,926 common shares
of HBO & Co. for $244,385, realizing a gain of $78,451. In May and June
1997, the Partnership sold its remaining 125,404 common shares of Somatogen,
Inc. for $666,660, realizing a gain of $9,466. During 1997, the Partnership
wrote-off its remaining $1,683,927 investment in Aprogenex, Inc. and
wrote-off an additional $21,872 of accrued interest relating to the
promissory note due from Aprogenex, Inc.
* 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, 1996
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Aprogenex, Inc.(A)
<S><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(B) 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)
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.
200,709 shares of Common Stock Apr. 1988 150,532 150,532
Nimbus Medical, L.P.
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)
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
--------------- ---------------
250,000 0
- -------------------------------------------------------------------------------------------------------------------------------
Somatogen, Inc.(A)
125,404 shares of Common Stock Dec. 1988 657,194 1,379,444
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc.
1,850,904 shares of Common Stock Oct. 1987 492,500 150,000
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
- -------------------------------------------------------------------------------------------------------------------------------
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1996
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
UroCor, Inc.(A)
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(C)
Cost Realized Loss Return
Totals From Liquidated Portfolio Investments $ 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) The 75,000 preferred shares of Cortex Pharmaceuticals, Inc. held by the
Partnership are convertible into 7,359 shares of Cortex's common stock.
(C) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1996.
* 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>
1997 1996 1995
-------------- -------------- ---------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 187,003 $ 229,112 $ 128,996
Interest and dividend income from portfolio investments (11,346) 11,741 (2,351)
--------------- -------------- ---------------
Total investment income 175,657 240,853 126,645
--------------- -------------- ---------------
Expenses:
Management fee 189,704 315,201 267,975
Professional fees 60,898 121,916 81,665
Mailing and printing 29,718 49,381 43,526
Insurance expense 72,169 74,579 85,240
Custodial fees 2,626 5,280 5,865
Independent General Partners' fees 10,000 12,377 15,000
Miscellaneous 250 3,372 2,239
--------------- -------------- ---------------
Total investment expenses 365,365 582,106 501,510
--------------- -------------- ---------------
NET INVESTMENT LOSS (189,708) (341,253) (374,865)
Net realized gain from investments 1,305,201 1,705,622 65,470
--------------- -------------- ---------------
NET REALIZED GAIN (LOSS) FROM OPERATIONS 1,115,493 1,364,369 (309,395)
Net change in unrealized appreciation or depreciation
of investments (3,403,977) 307,960 1,632,227
--------------- -------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (2,288,484) $ 1,672,329 $ 1,322,832
=============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1997 1996 1995
------------- -------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (189,708) $ (341,253) $ (374,865)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease (increase) in prepaid expenses and
accrued interest receivable 14,992 (13,990) 9,928
(Decrease) increase in payables (84,804) 31,567 24,477
-------------- -------------- ---------------
Cash used for operating activities (259,520) (323,676) (340,460)
-------------- -------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Proceeds from the sale of portfolio investments 5,772,883 4,330,318 275,850
Cost of portfolio investments purchased - (212,120) (291,665)
Cash distribution from investment in Limited Partnership 149,947 30,289 57,944
-------------- -------------- ---------------
Cash provided from investing activities 5,922,830 4,148,487 42,129
-------------- -------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to Partners (10,073,152) - -
-------------- -------------- ---------------
(Decrease) increase in cash and cash equivalents (4,409,842) 3,824,811 (298,331)
Cash and cash equivalents at beginning of year 6,135,508 2,310,697 2,609,028
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 1,725,666 $ 6,135,508 $ 2,310,697
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 145,329 $ 14,387,196 $ 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
Net decrease in net assets resulting
from operations (22,885) (2,265,599) (2,288,484)
Cash distribution, paid October 21, 1997 (55,436) (5,488,178) (5,543,614)
------------ --------------- ----------------
Balance at December 31, 1997 $ 51,664 $ 5,114,386(A) $ 5,166,050
============ =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized appreciation or depreciation of investments,
was $76, $192, and $235 at December 31, 1997, 1996 and 1995, 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 CIBC Oppenheimer
Corp. ("Opco") (formerly Oppenheimer & Co., Inc.). Opco is the successor
corporation to Oppenheimer & Co., Inc., following the acquisition and subsequent
merger of Oppenheimer & Co., Inc. and CIBC Wood Gundy Corp. in November 1997.
Opco is a subsidiary of Canadian Imperial Bank of Commerce. The limited partners
of the Managing General Partner are Opco, 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, serves as the sub-manager of the Partnership
pursuant to a sub-management agreement between 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 certain of
its duties to the Partnership.
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's originally scheduled termination
date was December 31, 1997, with provision for extension for two additional two
year periods. The General Partners have elected not to extend the Partnership's
termination date. However, pursuant to the Partnership Agreement (as hereinafter
defined) and Delaware Law, the General Partner will continue to manage the
Partnership through its date of liquidation, which will occur when it has
satisfied all liabilities and obligations to creditors and has sold, distributed
or otherwise disposed of its investments in portfolio companies.
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 accounting period discounted for sales restrictions, if any. Factors
considered in the determination of an
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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 also 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 depreciation of $1,118,295
at December 31, 1997, which was recorded for financial statement purposes, was
not recognized for tax purposes. Additionally, from inception to December 31,
1997, other timing differences totaling $8.8 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 - continued
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, 1997, the Partnership has a
$6.2 million net realized loss from its venture capital investments including
interest and other income from portfolio investments totaling $493,000.
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 to 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. There were no venture capital fees incurred during
the year ended December 31, 1997. For the years ended December 31, 1996 and
1995, the Partnership incurred venture capital fees of $12,000 and $17,000,
respectively. Cumulative venture capital fees incurred from inception to
December 31, 1997 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.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
5. Cash Distributions
Cash distributions paid or accrued during the periods presented and cumulative
cash distributions to Partners from inception of the Partnership through
December 31, 1997 are listed below:
<TABLE>
General Limited Per $500*
Distribution Date Partners Partners Unit
- ------------------------------------------------ --------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Inception to December 31, 1994 $ 57,108 $ 5,653,661 $ 84
January 30, 1997 (accrued at 12/31/96) 45,295 4,484,243 67
October 21, 1997 55,436 5,488,178 82
--------------- ---------------- ---------
Cumulative totals at December 31, 1997 $ 157,839 $ 15,626,082 $ 233
=============== ================ =========
</TABLE>
* 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.
6. Classification of Investments
As of December 31, 1997, 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 $ 3,802,214 $ 3,343,206 64.72%
Preferred Stock 767,296 111,039 2.15%
Debt Securities 60,530 57,500 1.11%
---------------- --------------- -------
$ 4,630,040 $ 3,511,745 67.98%
================ =============== ======
Country/Geographic Region
Eastern U.S. $ 1,718,753 $ 372,184 7.20%
Midwestern U.S. 607,790 1,830,647 35.44%
Western U.S. 688,534 726,743 14.07%
United Kingdom 1,614,963 582,171 11.27%
---------------- --------------- -------
$ 4,630,040 $ 3,511,745 67.98%
================ =============== ======
Industry
Biotechnology $ 2,939,327 $ 954,460 18.48%
Medical Devices 530,107 187,607 3.63%
Medical Services 607,790 1,830,647 35.44%
Nutritional Products 451,457 64,684 1.25%
Pharmaceuticals 101,359 474,347 9.18%
---------------- --------------- -------
$ 4,630,040 $ 3,511,745 67.98%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
<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 16, 1998:
Thomas E. White, Age 64, Independent General Partner since 1987
260 Barnard Road
Larchmont, New York 10538
Mr. White is an attorney in private practice in New York. 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 58, 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 three
privately-held medical device companies and one public company. 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 CIBC Oppenheimer Corp. ("Opco") (formerly
Oppenheimer & Co., Inc.). The limited partners of the Managing General Partner
are (i) 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 are 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 16, 1998 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 CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281.
Stephen M. McGrath, Sr., Age 62, Vice President and Director
Mr. McGrath has been a Managing Director of Opco since the merger of Opco
in November 1997. Prior to the merger, he was the 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 and of Petro Corp. since 1992. He also
serves as an executive officer and director of certain current and/or former
affiliates of Opco.
Gerald A. Rothstein, Age 55 Vice President
Mr. Rothstein has been a Managing Director of Opco since 1983. He is
primarily responsible for Opco's private equity efforts and focuses upon the
emerging markets of Latin America and India. Mr. Rothstein is a member and
chairperson of Opco's Commitment committee and also, a member of Opco's Due
Diligence committee.
Ann O. Fusco, Age 43, Vice President
Ms. Fusco has been Director of Opco since the merger of Opco in November
1997. Prior to the merger she was Vice President of Oppenheimer Properties, Inc.
since July 1986 and has been employed by Opco 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 Opco.
The Sub-Manager
The Sub-Manager is wholly-owned by Phillipe L. Sommer. Presented below is
information concerning Mr. Sommer as of March 16, 1998.
Philippe L. Sommer, Age 46, Sole Director, Officer and Stockholder
Mr. Sommer is a Managing Director of BSW, Inc. and a member of the Board of
Directors of BSW and two portfolio companies of WVP2. He has been involved
in health-care industry management for the past 18 years. From June 1990
until July 1996, Mr. Sommer served as an Executive Vice President and a
Managing Director of MVH. He was a Managing Director of MVP Holdings, Inc.
from April 1987 to June 1990. From January 1982 to September 1986, he was a
Director of Business Development for Pfizer Hospital Products Group ("HPG")
and in such capacity 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.
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.
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, 1997, the Managing General Partner was allocated
$22,900 of the Partnership's net decrease in net assets from operations. For the
years ended December 31, 1996 and 1995, the Managing General Partner was
allocated $16,700 and $13,200 of the Partnership's net increase in net assets
from operations, respectively.
Pursuant to a 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, 1997, 1996 and 1995, the Managing General Partner received
management fees of $190,000, $315,000, and $268,000, 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 are 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, 1997, 1996 and 1995,
the Managing General Partner received venture capital fees of $0, $12,000, and
$17,000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 16, 1998, 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, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31, 1997,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
Statements of Changes in Partners' Capital for the years ended
December 31, 1995, 1996 and 1997
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 dated as of September 30, 1997
between the Partnership and the Managing General
Partner(4)
10.2 Sub-Management agreement dated as of September 30,
1997 among the Partnership, the Managing General
Partner and the Sub-Manager(5)
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 Exhibit A to the Partnership's proxy statement dated August 29,
1997 and incorporated herein by reference.
(5) Filed as Annex I to the Partnership's proxy statement dated August 29,
1997 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 30th day of March 1998.
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 30th day of March 1998.
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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