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, 1995
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 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
================================================================================
(Exact name of registrant as specified in its charter)
Delaware 13-3473015
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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]
On March 26, 1996, 38,727 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 2, L.P. (the "Partnership" or the "Registrant") is a
Delaware limited partnership organized in April 1988. In July 1988, the
Partnership elected to operate as a business development company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Partnership's
investment objective is to achieve long-term capital appreciation from its
portfolio of venture capital investments, consisting of companies engaged in the
health-care industry. The Partnership considers this activity to constitute the
single industry segment of venture capital investing.
The general partners of the Partnership consist of three individuals (the
"Independent General Partners") and WestMed Venture Management 2, L.P., a
Delaware limited partnership (the "Managing General Partner"). The general
partner of the Managing General Partner is Medical Venture Holdings, Inc.
("MVH"), a Delaware corporation and an affiliate of Oppenheimer & Co., Inc.
("Opco").
The Partnership publicly offered 60,000 units of limited partnership interest
(the "Units") at $500 per Unit. The Units were registered under the Securities
Act of 1933, as amended, pursuant to a Registration Statement on Form N-2 (File
No. 33-21281) which was declared effective on August 5, 1988. The Partnership
held its initial and final closings on September 1, 1988 and October 1, 1989,
respectively, and terminated the offering on February 15, 1990. As a result of
the public offering, the Partnership accepted subscriptions for a total of
38,727 Units. Gross capital contributions to the Partnership in connection
therewith totaled $19,559,091; $19,363,500 from the limited partners (the
"Limited Partners" and collectively with the Managing General Partner, the
"Partners") and $195,591 from the Managing General Partner.
The Venture Capital Investments
From its inception through December 31, 1995, the Partnership had invested $14.2
million in ten portfolio companies (including venture capital fees and other
acquisition costs totaling $912,000). At December 31, 1995, the Partnership's
investment portfolio consisted of eight active investments with a cost of $9
million and a fair value of $6.1 million. From its inception through December
31, 1995, the Partnership had liquidated investments with an aggregate cost of
$5.2 million. These liquidated investments returned $2.2 million to the
Partnership resulting in a cumulative net realized loss of $3 million. At
December 31, 1995, the Partnership had a cumulative net loss from its venture
capital investments totaling $2.8 million, including $248,000 of cumulative
interest and other income from portfolio investments. During the year ended
December 31, 1995, the Partnership invested $688,000 in two existing portfolio
companies. The venture capital investments made during 1995 and other events
affecting the Partnership's portfolio investments are listed below.
During 1995, the Partnership made follow-on investments in convertible notes of
Hepatix, Inc. totaling $419,171, including $23,951 of venture capital fees paid
to the Managing General Partner. In connection with a financial restructuring of
Hepatix, Inc., completed in October 1995, such notes totaling $395,220, along
with $3,480 of accrued interest, were exchanged for a new convertible note with
a face value of $398,700, maturing on June 30, 1997, and a warrant to purchase
797,399 common shares of Hepatix at $.01 per share. Finally, in December 1995,
the Partnership wrote-off $90,696 of accrued acquisition costs and venture
capital fees associated with its investment in Hepatix.
On July 13, 1995, the Partnership made a $265,150 follow-on investment in
Targeted Genetics Corporation, acquiring 66,664 shares of common stock and a
warrant to purchase an additional 16,666 shares of common stock at $4.68 per
share. The Partnership paid a $15,150 venture capital fee relating to this
investment.
In July 1995, KeraVision, Inc. completed its initial public offering and
effected a 1-for-2.5 reverse split of its outstanding stock. As a result, the
Partnership exchanged its 171,821 shares of preferred stock of KeraVision for
68,728 shares of the company's common stock.
On October 18, 1995, Gliatech, Inc. completed its initial public offering. In
connection with the offering, Gliatech effected a 5-for-1 reverse split of its
common stock. As a result, the Partnership exchanged its 600,000 preferred
shares of Gliatech for 120,000 shares of the company's common stock.
Additionally, in connection with the offering, the Partnership exchanged its
warrant to purchase 100,000 shares of preferred stock of Gliatech for 4,210
common shares of the company in a non-cash transaction, pursuant to a cashless
exercise provision in the warrant agreement.
On December 13, 1995, Synaptic Pharmaceutical Corporation completed its initial
public offering. In connection with the offering and a 1-for-2 reverse split of
the company's common stock, the Partnership exchanged its 432,870 shares of
Synaptic preferred stock for 96,395 shares of the company's common stock.
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 groups and these relationships have
expanded the Partnership's access to investment opportunities.
Employees
The Partnership has no employees. The Managing General Partner, subject to 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.
<PAGE>
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Partnership's Units and it
is not anticipated that any public market for the Units will develop. The
approximate number of individual holders of Units at December 31, 1995 was
4,000.
The Partnership did not make any cash distributions to Partners during the years
ended December 31, 1995, 1994 and 1993. Cumulative cash distributions paid to
Partners from inception through December 31, 1995 totaled $278,000; $275,000 to
the Limited Partners, or approximately $7.00 per Unit, and $3,000 to the
Managing General Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions, provided
that, if realized gains had been previously allocated in the 80-20 ratio
discussed above, then losses are allocated in the reverse order in which profits
were allocated.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net assets $ 12,192 $ 13,145 $ 13,432 $ 14,771 $ 15,138
Net unrealized depreciation of investments (2,911) (2,112) (1,914) (589) (2,338)
Net investment income (loss) (63) (88) (125) (29) 391
Realized gain (loss) on investments (91) - 111 (2,088) -
Cost of portfolio investments purchased 688 1,384 1,068 2,518 1,343
Cumulative cost of portfolio investments 14,202 13,514 12,131 11,063 8,545
Cash distributions to Partners - - - - -
Cumulative cash distributions to Partners 278 278 278 278 278
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
depreciation of investments $ 312 $ 336 $ 343 $ 378 $ 387
Net unrealized depreciation of investments (74) (54) (49) (15) (60)
Net investment income (loss) (2) (2) (3) (1) 10
Net realized gain (loss) on investments (2) - 3 (53) -
Cash distributions - - - - -
Cumulative cash distributions 7 7 7 7 7
</TABLE>
* Limited Partners were admitted to the Partnership in 12 separate closings
from October 1, 1988 to October 1, 1989. Per Unit amounts shown above are
based on average allocations to all Limited Partners and do not reflect
specific Limited Partner allocations, which are determined by the original
closing date associated with the Units held by each Limited Partner.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1995, the Partnership invested $688,000
(including venture capital fees totaling $39,000) in two existing portfolio
companies. From its inception through December 31, 1995, the Partnership had
invested an aggregate of $14.2 million in ten portfolio companies (including
acquisition costs and venture capital fees totaling $912,000). At December 31,
1995, the Partnership had invested approximately 82% of its original $17.3
million of net proceeds received from the offering of Units.
At December 31, 1995, the Partnership held $6.2 million in cash and short-term
investments; $5.7 million in short-term securities with maturities of less than
three months and $528,000 in an interest-bearing cash account. Such investments
provide the Partnership with the liquidity necessary to make investments in
venture situations as opportunities for investment arise. The Partnership earned
interest totaling $375,000, $288,000 and $276,000 from such investments for the
years ended December 31, 1995, 1994 and 1993, respectively. Interest earned from
short-term investments in future periods is subject to fluctuations in
short-term interest rates and changes in funds available for investment. It is
anticipated that funds needed to cover the Partnership's future investments and
operating expenses will be obtained from existing cash reserves, interest earned
from its short-term investment portfolio and proceeds realized from the sale of
portfolio investments.
Results of Operations
Investment Income and Expenses - For the years ended December 31, 1995, 1994 and
1993, the Partnership had a net investment loss (investment income less
operating expenses) of $63,000, $88,000 and $125,000, respectively.
The reduced net investment loss for 1995 compared to 1994 was the result of a
$99,000 increase in investment income, primarily resulting from an $87,000
increase in interest earned from short-term investments during 1995, partially
offset by a $73,000 increase in operating expenses. The increase in interest
earned from short-term investments was the result of an increase in short-term
interest rates during 1995 as compared to 1994. The increase in operating
expenses for 1995 compared to 1994 included a $58,000 increase in general and
administrative expenses and a $27,000 increase in professional fees offset by a
$12,000 reduction in the management fee. The increase in general and
administrative expenses for 1995 compared to 1994 resulted from directors and
officers liability insurance which was initiated in August 1994.
The reduced net investment loss for 1994 compared to 1993 was the result of a
$35,000 decrease in operating expenses, primarily general and administrative
expenses and professional fees. Total operating expenses declined from $413,000
in 1993 to $378,000 in 1994. General and administrative expenses declined
$21,000 and professional fees declined $8,000 for 1994 compared to 1993 due to
certain cost control measures implemented by the Managing General Partner during
the fourth quarter of 1993.
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 (1) the net
assets of the Partnership or (2) 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, 1995, 1994
and 1993 the management fee was $260,000, $272,000 and $279,000, respectively.
The decrease in the management fee for the respective periods was due to a
decrease in the net assets of the Partnership during each respective period. 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.
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1995, the Partnership had a $91,000 realized loss from portfolio
investments resulting from the write-off of acquisition costs and venture
capital fees relating to its investment in Hepatix, Inc.
There were no realized gains or losses from portfolio investments for the year
ended December, 1994.
For the year ended December 31, 1993, the Partnership had a $111,000 net
realized gain from portfolio investments. In October 1993, the Partnership sold
11,000 common shares of Immune Response, Inc. for $142,000, realizing a gain of
$110,000. These shares were received by the Partnership in connection with the
settlement of a dispute relating to a potential investment in a privately-held
company. The Partnership also realized a nominal gain from the receipt of a
liquidation payment relating to its investment in Biotronic Systems Corporation
which had been written-off in 1992.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the year ended December 31, 1995 the
Partnership had an $800,000 net unrealized loss from its portfolio investments
resulting from a $1.5 million downward revaluation of Hepatix, Inc. which was
partially offset by a $712,000 net upward revaluation of the Partnership's
publicly-held securities. As a result, net unrealized depreciation of
investments increased by $800,000 for 1995.
For the year ended December 31, 1994, the Partnership had a net unrealized loss
from its portfolio investments of $198,000 resulting from the net downward
revaluation of its portfolio investments during 1994.
For the year ended December 31, 1993, the Partnership had a $1.3 million
unrealized loss resulting from the downward revaluation of its investment in IVF
America, Inc. due to the reduced public market price of the company's common
stock during 1993.
Net Assets - Changes in net assets resulting from operations are comprised of
(i) net realized gain or loss from operations and (ii) changes in net unrealized
appreciation or depreciation of investments.
At December 31, 1995, the Partnership's net assets were $12.2 million,
reflecting a decrease of $953,000 from $13.1 million at December 31, 1994. This
decrease resulted from the $800,000 net unrealized loss and the $153,000 net
realized loss from operations for 1995.
At December 31, 1994, the Partnership's net assets were $13.1 million,
reflecting a decrease of $286,000 from $13.4 million at December 31, 1993. This
decrease resulted from the $198,000 net unrealized loss and the $88,000 net
realized loss from operations for 1994.
At December 31, 1993, the Partnership's net assets were $13.4 million,
reflecting a decrease of $1.3 million from $14.8 million at December 31, 1992.
This decrease resulted from the $1.3 million net unrealized loss and the $14,000
net realized loss from operations for 1993.
The net asset value per $500 Unit, including an allocation of net unrealized
depreciation of investments, at December 31, 1995, 1994 and 1993 was $312, $336
and $343, 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 2, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Schedule of Portfolio Investments as of December 31, 1995 Schedule of Portfolio
Investments as of December 31, 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the years ended December 31,
1993, 1994 and 1995
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 2, L.P.:
We have audited the accompanying balance sheets of WestMed Venture Partners 2,
L.P. (the "Partnership"), including the schedules of portfolio investments, as
of December 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994 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 2, L.P. at December
31, 1995 and 1994, 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, 1995 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$6,050,203 and $6,252,798 at December 31, 1995 and 1994, respectively,
representing 50% and 48% 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 15, 1996
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1995 1994
--------------- ----------
ASSETS
Portfolio investments, at fair value
(cost $8,961,656 at December 31, 1995 and
<S> <C> <C> <C> <C> <C> <C>
$8,364,551 at December 31, 1994) - Notes 2 and 4 $ 6,050,203 $ 6,252,798
Cash and cash equivalents 6,226,065 6,969,849
Accrued interest receivable 12,331 1,000
Other assets 35,891 27,887
--------------- ----------------
TOTAL ASSETS $ 12,324,490 $ 13,251,534
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 55,929 $ 25,148
Due to Managing General Partner - Note 4 61,268 66,057
Due to Independent General Partners - Note 4 15,000 15,000
--------------- ----------------
Total liabilities 132,197 106,205
--------------- ----------------
Partners' Capital:
Managing General Partner 121,923 131,453
Limited Partners (38,727 Units) 12,070,370 13,013,876
--------------- ----------------
Total Partners' capital 12,192,293 13,145,329
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 12,324,490 $ 13,251,534
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Gliatech, Inc.(A)(B)
<C> <C> <C> <C>
124,210 shares of Common Stock Feb. 1992 $ 962,009 $ 789,789
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*(C)
668,346 shares of Common Stock Jan. 1992 1,025,168 512,584
$398,700 10% Convertible Note due 6/30/97 398,700 199,350
Warrant to purchase 797,399 shares of Common Stock
at $.01 per share, expiring 10/2/00 0 0
-------------- ---------------
1,423,868 711,934
- -------------------------------------------------------------------------------------------------------------------------------
IVF America, Inc.(A)
211,672 shares of Common Stock Mar. 1989 2,322,426 518,014
Warrant to purchase 18,340 shares of Common Stock
at $10.34 per share, expiring 7/31/96 0 0
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)(D)
68,728 shares of Common Stock Nov. 1992 530,300 603,758
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 371,768
25,076 warrants to purchase 12,538 shares of Common
Stock at $6 per share, expiring 6/3/99 0 21,063
Warrant to purchase 5,015 shares of Common Stock
at $5 per share, expiring 6/3/99 0 0
-------------- ---------------
678,579 392,831
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.*
2,750,000 shares of Preferred Stock June 1993 1,175,579 1,175,579
412,500 shares of Common Stock 4,375 4,375
-------------- ---------------
1,179,954 1,179,954
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)(E)
96,395 shares of Common Stock June 1991 797,167 932,621
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)(F)
225,395 shares of Common Stock June 1992 1,067,353 921,302
Warrant to purchase 16,666 shares of Common Stock
at $4.68 per share, expiring 7/31/97 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 8,961,656 $ 6,050,203
==================================
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(G)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Total from Liquidated Portfolio Investments $ 5,240,515 $ (3,000,553) $ 2,239,962
==========================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 14,202,171 $ (5,912,006) $ 8,290,165
==========================================================
</TABLE>
(A) Public company
(B) On October 18, 1995, Gliatech, Inc. completed its initial public offering.
In connection with the offering, Gliatech effected a 5-for-1 reverse split
of its common stock. As a result, the Partnership exchanged its 600,000
preferred shares of Gliatech for 120,000 shares of the company's common
stock. Additionally, in connection with the offering, the Partnership
exchanged its warrant to purchase 100,000 shares of preferred stock of
Gliatech for 4,210 common shares of the company in a non-cash transaction,
pursuant to a cashless exercise provision in the warrant agreement.
(C) During 1995, the Partnership made follow-on investments in convertible
notes of Hepatix, Inc. totaling $419,171, including $23,951 of venture
capital fees paid to the Managing General Partner. In connection with a
financial restructuring of Hepatix, Inc., completed in 1995, such notes
totaling $395,220, along with $3,480 of accrued interest, were exchanged
for a new convertible note with a face value of $398,700, maturing on June
30, 1997, and a warrant to purchase 797,399 common shares of Hepatix at
$.01 per share. Finally, in December 1995, the Partnership wrote-off
$90,696 of accrued acquisition costs and venture capital fees associated
with its investment in Hepatix.
(D) In July 1995, KeraVision, Inc. completed its initial public offering and
effected a 1-for-2.5 reverse split of its outstanding stock. As a result,
the Partnership exchanged its 171,821 shares of preferred stock of
KeraVision for 68,728 shares of the company's common stock.
(E) On December 13, 1995, Synaptic Pharmaceutical Corporation completed its
initial public offering. In connection with the offering and a 1-for-2
reverse split of the company's common stock, the Partnership exchanged its
432,870 shares of preferred stock for 96,395 shares of the company's common
stock.
(F) On July 13, 1995, the Partnership made a $265,150 follow-on investment in
Targeted Genetics Corporation, acquiring 66,664 shares of common stock and
a warrant to purchase an additional 16,666 shares of common stock at $4.68
per share. The Partnership paid a $15,150 venture capital fee relating to
this investment.
(G) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1995.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994
ACTIVE PORTFOLIO INVESTMENTS:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Gliatech, Inc.
<C> <C> <C> <C>
600,000 shares of Preferred Stock Feb. 1992 $ 962,009 $ 962,009
Warrant to purchase 100,000 shares of Preferred Stock
at $1.50 per share, expiring 7/29/99 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.
668,346 shares of Preferred Stock Jan. 1992 1,091,913 1,891,913
- -------------------------------------------------------------------------------------------------------------------------------
IVF America, Inc.
211,672 shares of Common Stock Mar. 1989 2,322,426 168,756
Warrant to purchase 18,340 shares of Common Stock
at $10.34 per share, expiring 7/31/96 0 0
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.
171,821 shares of Preferred Stock Nov. 1992 530,300 530,300
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company
100,383 shares of Common Stock Nov. 1991 678,579 170,375
25,076 warrants to purchase 12,538 shares of Common
Stock at $6 per share, expiring 6/3/99 0 4,702
Warrant to purchase 5,015 shares of Common Stock
at $5 per share, expiring 6/3/99 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.
2,750,000 shares of Preferred Stock June 1993 1,175,579 1,175,579
412,500 shares of Common Stock 4,375 4,375
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation
432,870 shares of Preferred Stock June 1991 797,167 797,167
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.
158,731 shares of Common Stock June 1992 802,203 547,622
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS FROM ACTIVE PORTFOLIO INVESTMENTS $ 8,364,551 $ 6,252,798
=================================
</TABLE>
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(A)
<TABLE>
Cost Realized Loss Return
TOTAL FROM LIQUIDATED PORTFOLIO
<S> <C> <C> <C>
INVESTMENTS $ 5,149,819 $ (2,909,857) $ 2,239,962
========================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
TOTALS FROM ACTIVE AND LIQUIDATED
PORTFOLIO INVESTMENTS $ 13,514,370 $ (5,021,610) $ 8,492,760
========================================================
</TABLE>
(A) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1994.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1995 1994 1993
------------- -------------- ---------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest from short-term investments $ 375,163 $ 288,164 $ 276,060
Interest and dividend income from portfolio investments 13,311 1,260 11,680
------------- -------------- ---------------
Total investment income 388,474 289,424 287,740
------------- -------------- ---------------
Expenses:
Management fee - Note 4 260,417 272,327 278,603
Professional fees 56,235 28,812 36,851
General and administrative expenses 119,462 61,569 82,507
Independent General Partners' fees - Note 4 15,000 15,000 15,000
------------- -------------- ---------------
Total expenses 451,114 377,708 412,961
------------- -------------- ---------------
NET INVESTMENT LOSS (62,640) (88,284) (125,221)
Net realized gain (loss) from portfolio investments (90,696) - 111,283
------------- -------------- ---------------
NET REALIZED LOSS FROM OPERATIONS (153,336) (88,284) (13,938)
Net change in unrealized depreciation of investments (799,700) (198,119) (1,325,017)
------------- -------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS (allocable to Partners) - Note 3 $ (953,036) $ (286,403) $ (1,338,955)
============= ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1995 1994 1993
-------------- -------------- ---------
CASH FLOWS USED FOR OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (62,640) $ (88,284) $ (125,221)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Increase (decrease) in payables 25,992 (17,394) (13,177)
(Increase) decrease in accrued interest receivable
and other assets (19,335) (15,365) 3,776
--------------- -------------- ---------------
Cash used for operating activities (55,983) (121,043) (134,622)
-------------- -------------- ---------------
CASH FLOWS USED FOR INVESTING
ACTIVITIES
Purchase of portfolio investments (687,801) (1,383,740) (1,068,276)
Proceeds from the sale of portfolio investments - - 142,789
-------------- -------------- ---------------
Cash used for investing activities (687,801) (1,383,740) (925,487)
-------------- -------------- ---------------
Decrease in cash and cash equivalents (743,784) (1,504,783) (1,060,109)
Cash and cash equivalents at beginning of period 6,969,849 8,474,632 9,534,741
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 6,226,065 $ 6,969,849 $ 8,474,632
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 147,707 $ 14,622,980 $ 14,770,687
Net decrease in net assets resulting
from operations - Note 3 (13,390) (1,325,565) (1,338,955)
------------- --------------- ----------------
Balance at December 31, 1993 134,317 13,297,415(A) 13,431,732
Net decrease in net assets resulting
from operations - Note 3 (2,864) (283,539) (286,403)
------------- --------------- ----------------
Balance at December 31, 1994 131,453 13,013,876(A) 13,145,329
Net decrease in net assets resulting
from operations - Note 3 (9,530) (943,506) (953,036)
------------- --------------- ----------------
Balance at December 31, 1995 $ 121,923 $ 12,070,370(A) $ 12,192,293
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized depreciation of investments, is $312, $336 and
$343 at December 31, 1995, 1994 and 1993, 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 2, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
WestMed Venture Partners 2, L.P. (the "Partnership") was formed under Delaware
law in April 1988. The Partnership operates as a business development company
under the Investment Company Act of 1940, as amended. The Partnership is a
closed-end partnership and accordingly its units of limited partnership interest
("Units") are not redeemable by the Partnership. A total of 38,727 Units were
sold to limited partners ("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 three individuals (the
"Independent General Partners") and the managing general partner, WestMed
Venture Management 2, L.P., a Delaware limited partnership (the "Managing
General Partner" and collectively with the Independent General Partners, the
"General Partners"). The general partner of the Managing General Partner is
Medical Venture Holdings, Inc., a Delaware corporation affiliated with
Oppenheimer & Co., Inc. ("Opco"). The limited partners of the Managing General
Partner are Oppenheimer Holdings, Inc., MVP Holdings, Inc. and BSW, Inc., a
Delaware corporation owned by John A. Balkoski, Philippe L. Sommer and Howard S.
Wachtler. Messrs. Sommer and Wachtler are principally responsible for managing
the investments of the Partnership.
Opco, a member firm of the New York Stock Exchange, the National Association of
Securities Dealers, Inc., and all principal United States securities exchanges,
is a diversified investment banking and securities firm, a registered investment
advisor and Futures Commission Merchant providing a broad range of services to
individual, corporate, and institutional clients. Opco operates in the capacity
of broker and dealer for its customers, as well as trader for its own account.
The services provided by Opco and its subsidiaries, and the activities in which
it is engaged, include securities brokerage, securities research, customer
financing, securities trading, corporate finance, mergers and acquisitions,
underwriting and investment advisory services.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership is scheduled to terminate on December
31, 1998. However, the General Partners can extend the term for up to two
additional two-year periods, if they determine that such extensions are in the
best interest of the Partnership.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Independent General Partners. The fair value of publicly-held portfolio
securities is adjusted to the average closing public market price for the last
five
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
trading days of each quarter discounted for sales restrictions. Factors
considered in the determination of an appropriate discount include, underwriter
lock-up or Rule 144 trading restrictions, insider status where the Partnership
either has a representative serving on the board of directors of the portfolio
company under consideration or is greater than a 5% shareholder thereof, and
other liquidity factors such as the size of the Partnership's position in a
given company compared to the trading history of the public security.
Privately-held portfolio securities are carried at cost until significant
developments affecting the portfolio company provide a basis for change in
valuation. The fair value of private securities is adjusted (i) to reflect
meaningful third-party transactions in the private market and (ii) to reflect
significant progress or slippage in the development of the company's business
such that cost is no longer reflective of fair value. As a venture capital
investment fund, the Partnership's portfolio investments involve a high degree
of business and financial risk that can result in substantial losses. The
Managing General Partner considers such risks in determining the fair value of
the Partnership's portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. For portfolio investments, transactions are recorded on the date which
the Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold are computed on a
specific identification basis.
Statements of Cash Flows - Cash and cash equivalents include short-term
interest-bearing investments in commercial paper and other money market
investments. The Partnership considers its interest-bearing cash account to be
cash equivalents.
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized depreciation of $2.9
million at December 31, 1995, which was recorded for financial statement
purposes, was not recognized for tax purposes. Additionally, from inception to
December 31, 1995, other timing differences totaling $2.3 million, primarily
relating to 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 1994 and 1993
financial statements in order to conform with the current period presentation.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
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 (the "Priority
Return") equal to 6% per annum, simple interest, on their total Adjusted
Invested Capital; i.e., original capital contributions reduced by previous
distributions. 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, 1995, the Partnership had a
$2.8 million net loss from its venture capital investments, including $248,000
of cumulative interest and other income from portfolio investments.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. The Partnership incurred venture capital fees of
$39,000, $79,000 and $59,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Cumulative venture capital fees incurred from inception to
December 31, 1995 totaled $813,000.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, 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 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.
For services rendered to the Partnership, each of the three 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 2, L.P.
NOTES TO FINANCIAL STATEMENTS
5. Classification of Investments
As of December 31, 1995, the Partnership's investments were categorized as
follows:
<TABLE>
Type of Investments Cost Fair Value % of Net Assets*
- ------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Common Stock $ 7,387,377 $ 4,675,274 38.34%
Preferred Stock 1,175,579 1,175,579 9.64%
Debt Securities 398,700 199,350 1.64%
---------------- --------------- ----------
$ 8,961,656 $ 6,050,203 49.62%
================ =============== ==========
Country/Geographic Region
United States $ 8,961,656 $ 6,050,203 49.62%
================ =============== ==========
Industry
Biotechnology $ 8,961,656 $ 6,050,203 49.62%
================ =============== ==========
</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, Taylor and White, the three
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 at March 26, 1996:
Thomas E. White, Age 62, Independent General Partner since 1987
485 Madison Avenue
New York, New York 10022
Mr. White is an attorney in private practice in New York City. He is also
an independent general partner of WestMed Venture Partners, L.P. ("WVP").
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 56, 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 ("VLI") from 1983 to 1987. Mr. Elliott
is also an independent general partner of WVP, a member of the Board of
Trustees of Chapman University and a member of the Board of Directors of
two privately-held medical device companies. He is a former Director of the
Health Industries Manufacturers
<PAGE>
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.
Dr. Alan F. Taylor, Age 66, Independent General Partner since 1987
2421 Island Drive
Gainesville, GA 30501
Dr. Taylor is presently Managing Director of Development Southeast, Inc., a
management and marketing consulting firm. Dr. Taylor is also an independent
general partner of WVP. Dr. Taylor has thirty years experience in the
international pharmaceutical industry. From 1985 to 1988, he was President
and Director of CytRx Corporation. From November 1981 until January 1984,
he was President and a director of Elan Pharmaceutical Research Corporation
and was President of Elan Corporation from January 1984 until January 1985.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership's venture capital investments. Subject to the supervision of the
Independent General Partners, the Managing General Partner is authorized to make
all decisions regarding the Partnership's venture capital investment portfolio,
including, among other things, to find, evaluate, structure, monitor and
liquidate such investments and to provide, or arrange for the provision of,
managerial assistance to the portfolio companies in which the Partnership
invests.
The general partner of the Managing General Partner is MVH, a Delaware
corporation affiliated with Opco. The limited partners of the Managing General
Partner are (i) Oppenheimer Holdings, Inc. ("OHI"), a Delaware corporation and
the parent of Opco, (ii) MVP Holdings, Inc., a Delaware corporation ("MVP"), and
(iii) BSW, Inc., a Delaware corporation wholly-owned by John A. Balkoski,
Philippe L. Sommer and Howard S. Wachtler ("BSW"). On July 19, 1991, Mr.
Balkoski voluntarily resigned from all offices he held with MVH to pursue other
interests. Prior to his resignation, Mr. Balkoski shared with Messrs. Sommer and
Wachtler the primary responsibility for managing the venture capital investments
of the Partnership. Messrs. Sommer and Wachtler currently are officers of MVH.
Presented below is information concerning the directors and officers of MVH at
March 26, 1996, that are principally involved with the operations of the
Partnership. Messrs. Sommer, Wachtler and McGrath have been a director and/or
officer of MVH since June 1990. The address of each such person is Oppenheimer
Tower, World Financial Center, New York, New York 10281.
Howard S. Wachtler, Age 47, Executive Vice President and Managing Director
Mr. Wachtler is a Managing Director of BSW and a member of the Board of
Directors of BSW and three portfolio companies of WVP. He has been involved
in health-care industry management for the past 22 years. From April 1988
to June 1990, he was a general partner of the Partnership and a Managing
Director of MVP from April 1987 to June 1990. From November 1982 to October
1986, he was a Director of Business Planning and Development for Pfizer
Hospital Products Group ("HPG") and as such was responsible for all
activities associated with HPG's small acquisition program, licensing and
technology program and venture program. In addition, Mr. Wachtler directed
business and strategic planning projects for HPG worldwide.
Philippe L. Sommer, Age 44, Executive Vice President and Managing Director
Mr. Sommer is a Managing Director of BSW and a member of the Board of
Directors of BSW, one portfolio company of the Partnership and two
portfolio companies of WVP. He has been involved in health-care industry
management for the past 16 years. He was a Managing Director of MVP from
April 1987 to June 1990. From January 1982 to September 1986, he was a
Director of Business Development for HPG and as such was responsible for
directing HPG's merger and acquisition activities for medium to larger
acquisitions and for the financial evaluation and valuation of all of HPG's
acquisition, venture and licensing projects.
Stephen M. McGrath, Sr., Age 60, Vice President and Director
Mr. McGrath has been Executive Vice President of Opco and director of its
Investment Banking Group since July 1985. He also served as President of
Oppenheimer Strategic Investments, Inc. between May 1983 and April 1985.
Mr. McGrath was Senior Vice President of Planning and Development at
Warner-Lambert until 1985 and has been a director of Alliance
Pharmaceutical Corp. since June 1989. He also serves as an executive
officer and director of certain current and/or former affiliates of Opco.
There are no family relationships among any of the Independent General Partners
and the officers and directors of MVH. MVH is owned 100% by OHI.
Opco, a member firm of the New York Stock Exchange, Inc., the National
Association of Securities Dealers, Inc. and all principal U.S. securities
exchanges, is a diversified investment banking and securities firm, providing a
broad range of services to individual, corporate and institutional clients. Opco
is registered as a broker-dealer and investment adviser with the Commission, and
also is registered as a broker-dealer in all of the states of the United States
and with the Securities Association in the United Kingdom and with the Commodity
Futures Trading Commission as a futures commission merchant. Opco operates in
the capacity of broker and dealer for its customers, as well as trader for its
own account.
The services provided by Opco and its subsidiaries, and the activities in which
it is engaged, include investment banking, securities brokerage, securities
research, customer financing, securities trading and arbitrage, corporate
finance, real estate financing and investment advisory services. Opco's
investment banking activities include an active engagement in the health-care
area. Opco provides public equity and debt financing to clients in the
biotechnology, instrumentation and pharmaceutical products and services sectors
in the health-care field. Opco also provides private financing, and merger,
acquisition and divestiture assistance to health-care companies. Opco's
Health-care Investment Banking Group is supported by Opco's securities research
team which reports on public companies in the human health-care sector.
<PAGE>
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.
For a description of the allocation and distribution of the Partnership's
profits and losses to the Managing General Partner, see Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters.
For the years ended December 31, 1995, 1994 and 1993, the Managing General
Partner was allocated $10,000, $3,000, and $13,000 of the Partnership's net
decrease in net assets from operations for each of the respective periods.
Pursuant to the Management Agreement, the Managing General Partner performs, or
arranges for others to perform, the management, administrative and certain
investment advisory services necessary for the operation of the Partnership. For
such services, the Managing General Partner 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. For the years
ended December 31, 1995, 1994 and 1993, the Managing General Partner received
management fees of $260,000 $272,000 and $279,000, 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 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, 1995, 1994 and 1993,
the Managing General Partner received venture capital fees of $39,000, $79,000
and $59,000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 26, 1996, 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 do not own any Units.
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, 1995 and 1994
Schedule of Portfolio Investments as of December 31, 1995 Schedule
of Portfolio Investments as of December 31, 1994
<TABLE>
<S> <C> <C> <C> <C>
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the years ended December 31, 1993, 1994 and 1995
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership***
3.2 Amended to Amended and Restated Certificate of Limited Partnership***
3.3 Partnership Agreement*
3.4 Amendment No. 1 to the Partnership Agreement**
4 Articles Five through Eleven of the Partnership Agreement*
10.1 Management Agreement between the Partnership and the Managing General Partner**
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors Fiduciary Trust Company*
(b) No reports on Form 8-K have been filed during the quarter for which this report is filed.
</TABLE>
<PAGE>
- -------------------------------
* Filed as an exhibit to the Partnership's Registration Statement on Form N-2
(33-11926), and incorporated herein by reference.
** Filed as an exhibit to the Partnership's Report on Form 8-K dated July 10,
1990 and incorporated herein by reference.
*** Filed as an exhibit to the Partnership's Report on Form 10-K for the year
ended December 31, 1990.
<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 26th day of March 1996.
WESTMED VENTURE PARTNERS 2, L.P.
By: WestMed Venture Management 2, L.P.,
Managing General Partner
By: Medical Venture Holdings, Inc.,
General Partner
<TABLE>
<S> <C> <C> <C> <C>
By: /s/ Philippe L. Sommer By: /s/ Howard S. Wachtler
Philippe L. Sommer Howard S. Wachtler
Executive Vice President and Managing Director Executive Vice President and Managing Director
</TABLE>
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 26th day of March 1996.
<TABLE>
<S> <C> <C>
WESTMED VENTURE
MANAGEMENT 2, L.P. Managing General Partner of WestMed Venture Partners 2, L.P.
By: Medical Venture Holdings, Inc. General Partner of WestMed Venture Management 2, L.P.
By: /s/ Philippe L. Sommer Executive Vice President and Managing Director (principal executive,
Philippe L. Sommer financial and accounting officer) of Medical Venture Holdings, Inc.
By: /s/ Howard S. Wachtler Executive Vice President and Managing Director (principal
Howard S. Wachtler executive officer) of Medical Venture Holdings, Inc.
By: /s/ Thomas E. White General Partner of WestMed Venture Partners 2, L.P.
Thomas E. White
By: /s/ Robert A. Elliott General Partner of WestMed Venture Partners 2, L.P.
Robert A. Elliott
By: /s/ Dr. Alan F. Taylor General Partner of WestMed Venture Partners 2, L.P.
Dr. Alan F. Taylor
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTMED
VENTURE PARTNERS 2, L.P.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 8,961,656
<INVESTMENTS-AT-VALUE> 6,050,203
<RECEIVABLES> 12,331
<ASSETS-OTHER> 35,891
<OTHER-ITEMS-ASSETS> 6,226,065
<TOTAL-ASSETS> 12,324,490
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132,197
<TOTAL-LIABILITIES> 132,197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 38,727
<SHARES-COMMON-PRIOR> 38,727
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,911,453)
<NET-ASSETS> 12,192,293
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 388,474
<OTHER-INCOME> 0
<EXPENSES-NET> 451,114
<NET-INVESTMENT-INCOME> (62,640)
<REALIZED-GAINS-CURRENT> (90,696)
<APPREC-INCREASE-CURRENT> (799,700)
<NET-CHANGE-FROM-OPS> (953,036)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (927,044)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
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<PER-SHARE-GAIN-APPREC> (22)
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<EXPENSE-RATIO> 0
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</TABLE>
