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, 1998
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
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(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]
As of March 16, 1999, 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 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.
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
The Partnership has invested approximately 96% of the net proceeds from the
offering of Units and will not make investments in any new portfolio companies.
From its inception to December 31, 1998, the Partnership had invested
$28,718,270 in 23 portfolio companies, including venture capital fees and other
acquisition costs totaling $1,965,833. The Managing General Partner is working
toward the ultimate termination of the Partnership, with an emphasis on
liquidating the Partnership's remaining assets as soon as practical with the
goal of maximizing returns to Partners. During 1998, the Partnership sold its
remaining investments in Exocell, Inc. and Watson Pharmaceuticals, Inc. and
wrote-off its investment in Ultramed, Inc. These and other transactions
affecting the Partnership's portfolio investments during 1998 are listed below.
o During 1998, the Partnership sold 140,833 shares of Cortex Pharmaceuticals,
Inc. common stock for $71,444, realizing a loss of $432,594. Additionally,
in December 1998, in a non-cash transaction, the Partnership exchanged its
75,000 preferred shares of Cortex for 7,359 shares of the company's common
stock.
o Due to a capital restructuring of Pharmaction Holdings, Ltd. during 1998,
the Partnership's option to purchase 147,476 ordinary shares was exchanged
for 18,434 shares of ordinary stock and options to purchase 18,434 ordinary
shares at $.20 per share expiring June 30, 2000.
o In May 1998, the Partnership exercised its warrants to purchase 25,995
common shares of UroCor, Inc. for $93,679. The Partnership paid the
Managing General Partner a venture capital fee of $5,677 in connection with
this investment. Additionally, during 1998, the Partnership sold 165,000
shares of UroCor, Inc. common stock for $821,679, realizing a gain of
$372,952.
o During 1998, the Partnership sold 284,403 ordinary shares of Xenova Group
plc for $147,072, realizing a loss of $1,379,587.
o During 1998, the Partnership received liquidating cash distributions
totaling $38,135 from Argonaut Medical, Inc., resulting in a gain of
$8,028.
o In April 1998, the Partnership sold its investment in Exocell, Inc. for
$150,000, realizing a loss of $617,296.
o In August 1998, the Partnership sold its remaining investment in Watson
Pharmaceuticals, Inc. for $811,395, realizing a gain of $710,036.
o In December 1998, the Partnership wrote-off its remaining investment in
Ultramed Inc., realizing a loss of $500,000.
From its inception through December 31, 1998, the Partnership had either fully
or partially liquidated portfolio investments with a cost of $27,867,060. These
liquidated investments returned $19,345,449 to the Partnership, for a net
realized loss of $8,521,611. Additionally, from its inception to December 31,
1998, the Partnership earned $492,776 of interest and other income from its
portfolio investments. As a result, as of December 31, 1998, the Partnership had
a cumulative net realized loss from its venture capital investments of
$8,028,835. The Partnership's remaining investment portfolio, as of December 31,
1998, consisted of investments in 5 portfolio companies with an aggregate cost
of $851,210 and a fair value of $942,164.
Termination
The Managing General Partner is working toward the ultimate termination of the
Partnership, with an emphasis on liquidating the remaining assets as soon as
practical with the goal of maximizing returns to Partners. The Partnership's
originally scheduled termination date was December 31, 1997, with provision for
extension for two additional two-year periods. The Independent General Partners
determined not to extend the Partnership's termination date. However, pursuant
to the Partnership Agreement and Delaware Law, the Managing 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.
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. As discussed
above, the Partnership will not make any new portfolio investments.
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.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
<PAGE>
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. Accordingly,
accurate information as to the market value of a Unit at any given date is not
available. The number of holders of Units as of March 16, 1999 was approximately
5,456.
In November, 1998 the General Partners approved a cash distribution to Partners
totaling $3,042,227. The distribution was paid on January 22, 1999 to Limited
Partners of record on December 31, 1998. Limited Partners received $3,011,805,
or $45 per Unit, and the Managing General Partner received $30,422. 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 Managing 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 Managing General Partner received $45,295. Cumulative cash distributions
paid to Partners from inception to December 31, 1998, total $18,826,148,
including $18,637,887 to the Limited Partners, or approximately $278 per $500
Unit, and $188,261 to the Managing General Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions. However,
if realized gains had been previously allocated in the 80-20 ratio, then losses
are allocated in the reverse order in which profits were allocated.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Total assets $ 4,465 $ 5,275 $ 17,722 $ 16,018 $ 14,671
Net assets 1,344 5,166 12,998 15,855 14,533
Cost of portfolio investments purchased 99 - 212 292 693
Cumulative cost of portfolio investments 28,718 28,619 28,619 28,407 28,115
Cash distributions to Partners 3,042 5,544 4,530 - -
Cumulative cash distributions to Partners 18,826 15,784 10,240 5,711 5,711
Net investment loss (151) (190) (341) (375) (421)
Net realized (loss) gain from portfolio
investments (1,838) 1,305 1,706 65 (2,823)
Change in unrealized appreciation or
depreciation of investments 1,209 (3,404) 308 1,632 (618)
Change in net assets resulting from operations (780) (2,288) 1,672 1,323 (3,862)
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
appreciation or depreciation of investments $ 20 $ 76 $ 192 $ 235 $ 215
Net investment loss (2) (3) (5) (6) (6)
Net realized (loss) gain on investments (27) 19 25 1 (42)
Change in unrealized appreciation or
depreciation of investments 18 (50) 5 24 (9)
Cash distributions 45 82 67 - -
Cumulative cash distributions 278 233 151 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
As of December 31, 1998, the Partnership had invested $28,718,270 in 23
portfolio companies, including venture capital fees and other acquisition costs
totaling $1,965,833. The Partnership has invested approximately 96% 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 remaining portfolio companies. The
Managing General Partner is working toward the ultimate termination of the
Partnership and 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 termination , 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.
As of December 31, 1998, the Partnership held $2,594,280 in short-term
securities with a maturity of less than three months and $872,751 in
interest-bearing cash accounts. For the years ended December 31, 1998, 1997 and
1996, the Partnership earned interest from such investments totaling $107,391,
$187,003 and $229,112, respectively. Interest earned 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, 1998, the Partnership received $2,027,622 in
proceeds from the liquidation of certain portfolio investments, as discussed
below. On January 22, 1999, the Partnership made a cash distribution to Partners
totaling $3,042,227. Limited Partners of record on December 31, 1998 received
$3,011,805, or $45 per Unit, and the Managing General Partner received $30,422.
Cumulative cash distributions paid to Partners from inception through December
31, 1998, total $18,637,887 to the Limited Partners, or approximately $278 per
$500 Unit, and $188,261 to the Managing 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 year ended December 31, 1998, the Partnership had a net realized loss
from operations of $1,989,570. For the years ended December 31, 1997 and 1996,
the Partnership had a net realized gain from operations of $1,115,493 and
$1,364,369, respectively. 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, 1998, the Partnership had a net realized loss from portfolio
investments of $1,838,461. During 1998, the Partnership sold the following
publicly-traded securities: 165,000 common shares of UroCor, Inc. for $821,679,
realizing a gain of $372,952; 140,833 common shares of Cortex Pharmaceuticals,
Inc. for $71,444, realizing a loss of $432,594; 284,403 ordinary shares of
Xenova Group plc for $147,072, realizing a loss of $1,379,587; and its remaining
16,248 common shares of Watson Pharmaceuticals, Inc. for $811,395, realizing a
gain of $710,036. Also during 1998, the Partnership received liquidating cash
distributions totaling $38,135 from Argonaut Medical, Inc., resulting in a gain
of $8,028, and sold its investment in Exocell, Inc. for net proceeds of
$150,000, realizing a loss of $617,296. Finally, during 1998, the Partnership
wrote-off its remaining $500,000 investment in Ultramed, Inc. due to continued
financial and operating difficulties at the company.
For the year ended December 31, 1997, the Partnership had a net realized gain
from portfolio investments of $1,305,201. During 1997, the Partnership sold the
following publicly-traded securities: 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 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 $1,705,622. 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 $4,330,318, realizing a gain of
$1,935,521. 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 $229,899 realized
loss on its investment in Argonaut, reflecting a partial write-off of its
original investment in the company.
Investment Income and Expenses - Net investment loss for the years ended
December 31, 1998, 1997 and 1996 was $151,109, $189,708 and $341,253,
respectively. The $38,599 decrease in net investment loss for 1998 compared to
1997 resulted from a $106,865 decrease in operating expenses partially offset by
a $68,266 decrease in investment income for 1998. The reduction in operating
expenses includes a $103,910 decrease in the management fee, as discussed below,
and an $11,739 decrease in insurance expense due to reduced liability insurance
premiums. These decreases in operating expenses were partially offset by slight
increases in professional fees, mailing and printing and miscellaneous expenses
for the 1998 period compared to the 1997 period. The decrease in investment
income primarily resulted from a $79,612 decrease in interest earned from
short-term investments, primarily related to the reduced amount of funds
available for such investments during the 1998 period as compared to the same
period in 1997.
The $151,545 decrease in net investment loss for 1997 compared to 1996 resulted
from a $216,741 decrease in operating expenses partially offset by a $65,196
decrease in investment income for 1997. The reduction in operating expenses
includes a $125,497 decrease in the management fee, as discussed below, and a
$61,018 decrease in professional fees primarily due to legal costs relating to
the preparation of a proxy statement in connection with a Special Meeting of
Limited Partners held on June 21, 1996. The decrease in investment income
includes a $42,109 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 $23,087 in
interest income from portfolio investments for 1997 compared to 1996, primarily
was due to the write-off in 1997 of $21,872 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.
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, net of selling commissions and organizational
expenses, reduced by capital distributed. Such fee is determined and payable
quarterly. For the years ended December 31, 1998, 1997 and 1996, the management
fee was $85,794, $189,704 and $315,201, respectively. The steady decline in the
management fee reflects the reduced net asset value of the Partnership,
resulting from the continuing liquidation of the Partnership's remaining
portfolio investments during 1998 and 1997 and the subsequent cash distributions
paid or accrued during such years. The management fee is expected to continue to
decline in future periods as the Partnership's remaining portfolio investments
are liquidated and additional 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 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, 1998,
the Partnership had a $1,209,249 favorable net change in unrealized depreciation
of investments primarily resulting from the net transfer of $1,541,752 from
unrealized loss to realized loss in connection with the portfolio investments
liquidated during the year, as discussed above. Partially offsetting this
favorable change was a $332,503 net downward revaluation of the Partnership's
publicly-traded securities during 1998.
For the year ended December 31, 1997, the Partnership had a $3,403,977
unfavorable net change in unrealized depreciation of investments, primarily
resulting from a $2,391,035 net downward revaluation of its publicly-traded
portfolio securities during 1997. Additionally, during 1997, $1,012,942 was
transferred from unrealized gain to realized gain in connection with the
portfolio securities liquidated during the year, as discussed above.
For the year ended December 31, 1996, the Partnership had a $307,960 favorable
net change in unrealized depreciation of investments, primarily resulting from a
$436,902 net upward revaluation of its publicly-traded portfolio securities
during 1997. Partially offsetting the upward revaluation was a net transfer of
$128,942 from unrealized gain to realized in connection with the Partnership's
liquidation of certain portfolio securities during the year, as discussed above.
Net Assets - Changes to net assets resulting from operations is comprised of (i)
net realized gain or loss from operations and (ii) changes to net unrealized
appreciation or depreciation of portfolio investments.
As of December 31, 1998, the Partnership's net assets were $1,343,502,
reflecting a decrease of $3,822,548 from net assets of $5,166,050 as of December
31, 1997. This decrease in net assets reflects the $3,042,227 cash distribution
and the $780,321 net decrease in net assets from operations for 1998. The
decrease in net assets from operations was comprised of the $1,989,570 net
realized loss from operations partially offset by the $1,209,249 increase to net
unrealized appreciation of investments for 1998.
As of December 31, 1997, the Partnership's net assets were $5,166,050,
reflecting a decrease of $7,832,098 from net assets of $12,998,148 as of
December 31, 1996. This decrease in net assets reflects the $5,543,614 cash
distribution and the $2,288,484 net decrease in net assets from operations for
1997. The decrease in net assets from operations was comprised of the $3,403,977
decrease to net unrealized appreciation of investments partially offset by the
$1,115,493 net realized gain from operations for 1997.
As of December 31, 1996, the Partnership's net assets were $12,998,148,
reflecting a decrease of $2,857,209 from net assets of $15,855,357 as of
December 31, 1995. This decrease in net assets reflects the $4,529,538 cash
distribution partially offset by the $1,672,329 net increase in net assets from
operations for 1996. The decrease in net assets from operations was comprised of
the $1,364,369 net realized gain from operations and the $307,960 increase to
net unrealized appreciation of investments for 1996.
As of December 31, 1998, 1997 and 1996, the net asset value per $500 Unit,
including an allocation of net unrealized appreciation or depreciation of
portfolio investments, was $20, $76 and $192, 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.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of "19". If not corrected, many computer applications could fail or
create erroneous results. The impact of the Y2K concern on the Partnership's
operations is currently being assessed.
The Managing General Partner is responsible to provide or arrange for the
provision of administrative services necessary to support the Partnership's
operations. The Managing General Partner has arranged for Palmeri Fund
Administrators, Inc. (the "Administrator") to provide certain administrative and
accounting services for the Partnership, including maintenance of the books and
records of the Partnership, maintenance of the Limited Partner database,
issuance of financial reports and tax information to Limited Partners and
processing distribution payments to Limited Partners. Fees charged by the
Administrator are paid directly by the Managing General Partner.
The Administrator is currently assessing its computer hardware and software
systems, specifically as they relate to the operations of the Partnership. As
part of this investigation of potential Y2K problems, the Administrator has
contracted with an outside computer service provider to examine all of the
Administrator's computer hardware and software applications, to identify any Y2K
concerns. This review and evaluation is in process and is expected to be
completed by May 1999. If Y2K problems are identified, the Administrator will
purchase, install and test the necessary software patches and new computer
hardware to ensure that all of its computer systems are Y2K compliant. This
correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Managing General Partner with the
administration of the Partnership's operations to ascertain whether these
entities are addressing the Y2K issue within their own operation. There can be
no guarantee that the Administrator's systems or that systems of other companies
providing services to the Partnership will be corrected in a timely manner. The
estimated costs to the Partnership, relating to the investigation or correction
of Y2K problems affecting the Partnership's operations, are expected to be
nominal.
Finally, the Y2K issue is a global concern that may affect all business
entities, including the Partnership's portfolio companies. The Managing General
Partner is continuing to assess the impact of Y2K concerns affecting its
portfolio companies. However, the extent to which any potential Y2K problems
could affect the valuations of these companies is presently unknown.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments and interest-bearing cash equivalents, including
short-term securities, which may result from fluctuations in interest rates and
equity prices. The Partnership has calculated its market risk related to its
holdings of these investments based on changes in interest rates and equity
prices utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's portfolio investments had an aggregate fair value of $942,164
as of December 31, 1998. An assumed 10% decline from this December 31, 1998 fair
value, including an assumed 10% decline of the per share market prices of the
Partnership's publicly-traded securities, would result in a reduction to the
fair value of such investments and an unrealized loss of $94,216.
As of December 31, 1998, the Partnership held one short-term investment in a
discounted commercial paper instrument with a remaining maturity of 15 days.
This short-term investment was carried at an aggregate amortized cost of
$2,594,280 as of December 31, 1998. An assumed 10% increase in the market
interest rate of such short-term investment held by the Partnership as of
December 31, 1998, would result in a reduction to the fair value of such
investment and an unrealized loss which is considered to be immaterial.
Market risk relating to the Partnership's interest-bearing cash equivalents
held as of December 31, 1998 is considered to be immaterial.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
WESTMED VENTURE PARTNERS, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years ended December 31,
1996, 1997 and 1998
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997 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, 1998 and 1997, 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, 1998 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$170,981 and $1,458,809 at December 31, 1998 and 1997, respectively,
representing 13% and 28% 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
March 24, 1999
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1998 1997
---------------- -----------------
ASSETS
Portfolio investments, at fair value (cost $851,210 as of
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 and $4,630,040 as of December 31, 1997) $ 942,164 $ 3,511,745
Cash and cash equivalents 3,467,031 1,725,666
Receivable from securities sold 12,103 -
Prepaid insurance 42,382 37,451
Accrued interest receivable 1,420 635
---------------- ----------------
TOTAL ASSETS $ 4,465,100 $ 5,275,497
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ 3,042,227 $ -
Accounts payable and accrued expenses 58,120 73,487
Due to Managing General Partner 11,251 25,960
Due to Independent General Partners 10,000 10,000
---------------- ----------------
Total liabilities 3,121,598 109,447
---------------- ----------------
Partners' Capital:
Managing General Partner 13,438 51,664
Limited Partners (66,929 Units) 1,330,064 5,114,386
---------------- ----------------
Total Partners' Capital 1,343,502 5,166,050
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 4,465,100 $ 5,275,497
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
Cortex Pharmaceuticals, Inc.(A) (B)
<C> <C> <C> <C>
7,359 shares of Common Stock May 1988 $ 53,030 $ 4,829
- -------------------------------------------------------------------------------------------------------------------------------
MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 11,261
- -------------------------------------------------------------------------------------------------------------------------------
Pharmaction Holdings, Ltd.(A) (C)
18,434 shares of ordinary stock Sept. 1987 0 1,469
Options to purchase 18,434 ordinary shares 0 0
-------------- ---------------
at $.20 per share expiring 6/30/00 0 1,469
- -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc.(A) (D)
145,977 shares of Common Stock May 1991 258,419 914,031
- -------------------------------------------------------------------------------------------------------------------------------
Xenova Group plc* (A) (E)
20,000 Ordinary shares Aug. 1988 88,304 10,574
- -------------------------------------------------------------------------------------------------------------------------------
Totals From Active Portfolio Investments $ 851,210 $ 942,164
=================================
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(F)
Cost Realized Loss Return
Totals From Liquidated Portfolio Investments(G) $ 27,867,060 $ (8,521,611) $ 19,345,449
======================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Net Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,718,270 $ (8,430,657) $ 20,287,613
======================================================
</TABLE>
(A) Public company
(B) During 1998, the Partnership sold 140,833 shares of Cortex Pharmaceuticals,
Inc. common stock for $71,444, realizing a loss of $432,594. Additionally,
in December 1998, in a non-cash transaction, the Partnership exchanged its
75,000 preferred shares of Cortex for 7,359 shares of the company's common
stock.
(C) Due to a capital restructuring of Pharmaction Holdings, Ltd. during 1998,
the Partnership's option to purchase 147,476 ordinary shares was exchanged
for 18,434 shares of ordinary stock and options to purchase 18,434 ordinary
shares at $.20 per share expiring 6/30/00.
(D) In May 1998, the Partnership exercised its warrants to purchase 25,995
common shares of UroCor, Inc. for $93,679. The Partnership paid the Managing
General Partner a venture capital fee of $5,677 in connection with this
investment. Additionally, during 1998, the Partnership sold 165,000 shares
of UroCor, Inc. common stock for $821,679, realizing a gain of $372,952.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1998
(E) During 1998, the Partnership sold 284,403 ordinary shares of Xenova Group
plc for $147,072, realizing a loss of $1,379,587.
(F) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1998. See
Note 6 of notes to financial statements for portfolio sales completed
subsequent to December 31, 1998.
(G) During the year the following additional portfolio transactions were
completed:
o During 1998, the Partnership received liquidating cash distributions
totaling $38,135 from Argonaut Medical, Inc., resulting in a gain of
$8,028.
o During April 1998, the Partnership sold its investment in Exocell, Inc.
for $150,000, realizing a loss of $617,296.
o During August 1998, the Partnership sold its remaining investment
in Watson Pharmaceuticals, Inc. for $811,395, realizing a gain of
$710,036.
o In December 1998, the Partnership wrote-off its remaining investment
in Ultramed Inc., realizing a loss of $500,000.
* 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, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
Cortex Pharmaceuticals, Inc.(A)
<C> <C> <C> <C>
140,833 shares of Common Stock May 1988 $ 504,038 $ 211,250
75,000 shares of Preferred Stock 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.
200,709 shares of Common Stock Apr. 1988 30,107 30,107
Nimbus Medical, L.P.
38,340 units of limited partnership interest 0 0
--------------- ---------------
30,107 30,107
- -------------------------------------------------------------------------------------------------------------------------------
Pharmaction Holdings, Ltd.(A)
Option to purchase 147,476 shares of Common Stock
at $.20 per share, expiring 3/31/99 Sept. 1987 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc.
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)
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)
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>
<TABLE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1997
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(B)
Cost Realized Loss Return
<S> <C> <C> <C>
Totals From Liquidated Portfolio Investments $ 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) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1997.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
<TABLE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1998 1997 1996
-------------- -------------- ---------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 107,391 $ 187,003 $ 229,112
Interest and dividend income from portfolio investments - (11,346) 11,741
-------------- --------------- --------------
Total investment income 107,391 175,657 240,853
-------------- --------------- --------------
Expenses:
Management fee 85,794 189,704 315,201
Professional fees 62,796 60,898 121,916
Mailing and printing 35,141 29,718 49,381
Insurance expense 60,430 72,169 74,579
Custodial fees 2,100 2,626 5,280
Independent General Partners' fees 10,000 10,000 12,377
Miscellaneous 2,239 250 3,372
-------------- --------------- --------------
Total investment expenses 258,500 365,365 582,106
-------------- --------------- --------------
NET INVESTMENT LOSS (151,109) (189,708) (341,253)
Net realized (loss) gain from portfolio investments (1,838,461) 1,305,201 1,705,622
-------------- --------------- --------------
NET REALIZED (LOSS) GAIN FROM OPERATIONS (1,989,570) 1,115,493 1,364,369
Change in unrealized appreciation or depreciation
of investments 1,209,249 (3,403,977) 307,960
-------------- --------------- --------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (780,321) $ (2,288,484) $ 1,672,329
============== =============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997 1996
------------- -------------- ---------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (151,109) $ (189,708) $ (341,253)
Adjustments to reconcile net investment loss to cash used for operating
activities:
(Increase) decrease in prepaid insurance and
accrued interest receivable (5,716) 14,992 (13,990)
(Decrease) increase in payables (30,076) (84,804) 31,567
-------------- -------------- ---------------
Cash used for operating activities (186,901) (259,520) (323,676)
-------------- -------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Proceeds from the sale of portfolio investments 1,989,487 5,772,883 4,330,318
Liquidating distributions received 38,135 - -
Cost of portfolio investments purchased (99,356) - (212,120)
Cash distribution from investment in Limited Partnership - 149,947 30,289
-------------- -------------- ---------------
Cash provided from investing activities 1,928,266 5,922,830 4,148,487
-------------- -------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to Partners - (10,073,152) -
-------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 1,741,365 (4,409,842) 3,824,811
Cash and cash equivalents at beginning of year 1,725,666 6,135,508 2,310,697
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,467,031 $ 1,725,666 $ 6,135,508
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1996, 1997 and 1998
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 158,557 $ 15,696,800 $ 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 as of 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 as of December 31, 1997 51,664 5,114,386(A) 5,166,050
Net decrease in net assets resulting
from operations (7,804) (772,517) (780,321)
Accrued cash distribution, paid
January 22, 1999 (30,422) (3,011,805) (3,042,227)
------------ --------------- ----------------
Balance as of December 31, 1998 $ 13,438 $ 1,330,064(A) $ 1,343,502
============ =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized appreciation or depreciation of investments,
was $20, $76, and $192 as of December 31, 1998, 1997 and 1996,
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 determined not to extend the
Partnership's termination date. However, pursuant to the Partnership Agreement
(as hereinafter defined) and Delaware Law, the Managing 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 of
December 31, 1998, the financial statements include investments valued at
$170,981 (13% of Partner's Capital) whose values have been estimated by the
Manager. 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 as of the date on
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 $90,954 at
December 31, 1998, which was recorded for financial statement purposes, has not
been recognized for tax purposes. Additionally, from inception to December 31,
1998, other timing differences totaling $9.2 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.
Reclassifications - Certain reclassifications were made to the prior period
financial statements in order to conform to the current period presentation.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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 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, 1998, the Partnership had a net realized loss of $8.0
million 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. For the year ended December 31, 1998, the Partnership
incurred venture capital fees of $5,677. There were no venture capital fees
incurred for the year ended December 31, 1997. For the year ended December 31,
1996, the Partnership incurred venture capital fees of $12,120. Cumulative
venture capital fees incurred from inception to December 31, 1998 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. Classification of Investments
As of December 31, 1998, the Partnership's portfolio investments were
categorized as follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value of Net Assets*
- ------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Common Stock $ 851,210 $ 942,164 70.13%
================ =============== ======
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
5. Classification of Investments - continued
<TABLE>
Country/Geographic Region
<S> <C> <C> <C>
Eastern U.S. $ 451,457 $ 11,261 0.84%
Midwestern U.S. 258,419 914,031 68.03%
Western U.S. 53,030 4,829 0.36%
Australia 0 1,469 0.11%
United Kingdom 88,304 10,574 0.79%
---------------- --------------- -------
$ 851,210 $ 942,164 70.13%
================ =============== ======
Industry
Biotechnology $ 141,334 $ 16,872 1.26%
Medical Services 258,419 914,031 68.03%
Nutritional Products 451,457 11,261 0.84%
---------------- --------------- -------
$ 851,210 $ 942,164 70.13%
================ =============== ======
</TABLE>
* Represents fair value as a percentage of net assets.
6. Cash Distributions
Cash distributions paid or accrued during the periods presented for the period
from inception of the Partnership through December 31, 1998 are listed below:
<TABLE>
Managing
General Limited Per $500*
Distribution Date Partner Partners Unit
- ----------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Inception to December 31, 1995 $ 57,108 $ 5,653,661 $ 84
January 30, 1997 45,295 4,484,243 67
October 21, 1997 55,436 5,488,178 82
January 22, 1999 (accrued as of 12/31/98) 30,422 3,011,805 45
--------------- ---------------- ---------
Cumulative totals as of December 31, 1998 $ 188,261 $ 18,637,887 $ 278
=============== ================ =========
</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.
7. Subsequent Events
Subsequent to the end of the year, in January 1999, the Partnership sold its
remaining investment of 20,000 ordinary shares of Xenova for $10,597, realizing
a loss of $77,707. Additionally, in February 1999, the Partnership sold its
remaining investment of 7,359 shares of Cortex Pharmaceuticals, Inc. for $3,373
realizing a loss of $49,657. Also in February, the Partnership sold its
remaining investment in Pharmaction Holdings, Inc. for $1,428, realizing a gain
of $1,428.
<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 Individual General Partners also comprise the
Audit Committee of the Partnership.
Presented below is information concerning the Independent General Partners of
the Partnership as of March 16, 1999:
Thomas E. White, Age 65, Independent General Partner since 1987
260 Barnard Road
Larchmont, New York 10538
Units of the Partnership owned as of March 16, 1999 - 0 Units
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 59, Independent General Partner since 1987
Elliott Investment Co.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Units of the Partnership owned as of March 16, 1999 - 0 Units
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 Medical Venture
Holding, Inc. ("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, 1999 concerning the directors and
officers of MVH that are principally involved with the operations of the
Partnership. 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.
Gerald A. Rothstein, Age 56 President
Units of the Partnership owned as of March 16, 1999 - 0 Units
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 44, Vice President
Units of the Partnership owned as of March 16, 1999 - 0 Units
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 16,1999.
Philippe L. Sommer, Age 47, Sole Director, Officer and Stockholder
Units of the Partnership owned as of March 16, 1999 - 10 Units
Mr. Sommer is a Managing Director of BSW, Inc. and a member of the Board of
Directors of BSW. He has been involved in health-care industry management
for the past 20 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 years ended December 31, 1998 and 1997, the Managing General Partner was
allocated $7,804 and $22,885 of the Partnership's net decrease in net assets
from operations, respectively. For the year ended December 31, 1996, the
Managing General Partner was allocated $16,723 of the Partnership's net increase
in net assets from operations.
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, 1998, 1997 and 1996, the Managing General Partner received
management fees of $85,794, $189,704, and $315,201, respectively.
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. For the year ended December 31, 1998, the Partnership
incurred venture capital fees of $5,677. There were no venture capital fees
incurred for the year ended December 31, 1997. For the year ended December 31,
1996, the Partnership incurred venture capital fees of $12,120. Cumulative
venture capital fees incurred from inception to December 31, 1998 totaled $1.6
million.
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.
The Managing General Partner has arranged for Palmeri Fund Administrators, Inc.,
an independent administrative services company, to provide administrative
services to the Partnership. Fees for such services are paid directly by the
Managing General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 16, 1999, 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, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years
ended December 31, 1996, 1997 and 1998
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 31st 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/ Gerald A. Rothstein
Gerald A. Rothstein
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 31st day of March 1999.
WESTMED VENTURE
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/ Gerald A. Rothstein President (principal executive officer
of Medical Venture Holdings, Inc.
Gerald A. Rothstein
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 Independent General Partner of
WestMed Venture Partners, L.P.
Thomas E. White
By: /s/ Robert A. Elliott Independent General Partner of
WestMed Venture Partners, L.P.
Robert A. Elliott
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 851,210
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