SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
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(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 21, 1997, 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 two 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, 1996, the Partnership had invested $15.4
million in ten portfolio companies (including venture capital fees and other
acquisition costs totaling $981,000). At December 31, 1996, the Partnership's
investment portfolio consisted of eight active investments with a cost of $9.1
million and a fair value of $6.6 million. From its inception through December
31, 1996, the Partnership had liquidated investments with an aggregate cost of
$6.3 million. These liquidated investments returned $2.2 million to the
Partnership resulting in a cumulative net realized loss of $4.0 million. At
December 31, 1996, the Partnership had a cumulative net loss from its venture
capital investments totaling $3.8 million, including $241,000 of cumulative
interest and other income from portfolio investments. During the year ended
December 31, 1996, the Partnership invested $1.2 million in two existing
portfolio companies and wrote-off $1.0 million of the cost of an additional
portfolio investment. The venture capital investments made during 1996 and other
events affecting the Partnership's portfolio investments are listed below.
During 1996, the Partnership made follow-on investments in Hepatix, Inc.
totaling $1,159,481, including venture capital fees totaling $66,195. Also
during 1996, in connection with a financial restructuring of Hepatix, the
Partnership wrote-off the cost of the old common stock and common stock
warrants of Hepatix previously held, realizing a loss of $1,025,168.
In May 1996, IVF America, Inc. changed its name to Integramed America, Inc.
In July 1996, the Partnership's warrant to purchase 18,340 common shares of
Integramed America, Inc. expired unexercised.
In September 1996, the Partnership completed a $42,399 follow-on investment in
Sennes Drug Innovations, Inc., including venture capital fees totaling $2,423,
acquiring a 10% promissory note due 10/7/97.
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.
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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Limited Partners was held on June 21, 1996 with respect to
1) a proposal to allow the Managing General Partner to retain the services of a
Sub-Manager to assist the Managing General Partner in the performance of its
duties to the Partnership and 2) a proposal to amend the Partnership Agreement
to reduce the minimum number of Individual General Partners from three to two.
At the meeting, both such proposals were approved.
<TABLE>
Affirmative Negative
Votes Votes Abstentions
<S> <C> <C> <C> <C>
Proposal 1 15,331 1,652 2,499
Proposal 2 16,046 1,236 2,200
</TABLE>
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, 1996 was
4,000.
In November 1996, the General Partners approved a cash distribution to Partners
totaling $3.0 million. The distribution was paid on January 31, 1997 to Limited
Partners of record on December 31, 1996. The Partnership did not make any cash
distributions to Partners during the years ended December 31, 1995 and 1994.
Cumulative cash distributions paid, or accrued, to Partners from inception
through December 31, 1996 totaled $3,289,717; $3,256,820 to the Limited
Partners, or approximately $84.00 per Unit, and $32,897 to the Managing General
Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions, provided
that, if realized gains had been previously allocated in the 80-20 ratio
discussed above, then losses are allocated in the reverse order in which profits
were allocated.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net assets $ 8,324 $ 12,192 $ 13,145 $ 13,432 $ 14,771
Net unrealized depreciation of investments (2,553) (2,911) (2,112) (1,914) (589)
Net investment loss (190) (63) (88) (125) (29)
Realized gain (loss) on investments (1,025) (91) - 111 (2,088)
Cost of portfolio investments purchased 1,202 688 1,384 1,068 2,518
Cumulative cost of portfolio investments 15,404 14,202 13,514 12,131 11,063
Cash distributions to Partners 3,012 - - - -
Cumulative cash distributions to Partners 3,290 278 278 278 278
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
depreciation of investments $ 213 $ 312 $ 336 $ 343 $ 378
Net unrealized depreciation of investments (65) (74) (54) (49) (15)
Net investment loss (5) (2) (2) (3) (1)
Net realized gain (loss) on investments (26) (2) - 3 (53)
Cash distributions 77 - - - -
Cumulative cash distributions 84 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, 1996, the Partnership invested $1.2 million
(including venture capital fees totaling $69,000) in two existing portfolio
companies. From its inception through December 31, 1996, the Partnership had
invested an aggregate of $15.4 million in ten portfolio companies (including
acquisition costs and venture capital fees totaling $981,000). At December 31,
1996, the Partnership had invested approximately 89% of its original $17.3
million of net proceeds received from the offering of Units.
At December 31, 1996, the Partnership held $4.9 million in cash and short-term
investments; $4.5 million in short-term securities with maturities of less than
three months and $394,000 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 $283,000, $375,000, and $288,000 from such investments for the
years ended December 31, 1996, 1995 and 1994, 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 securities and proceeds from the sale of portfolio
investments.
On November 12, 1996, the General Partners approved a cash distribution to
Partners totaling $3,012,100. The distribution was paid on January 31, 1997 to
Limited Partners of record on December 31, 1996.
Results of Operations
Investment Income and Expenses - For the years ended December 31, 1996, 1995 and
1994, the Partnership had a net investment loss (investment income less
operating expenses) of $190,000, $63,000 and $88,000, respectively.
The increased net investment loss for 1996 compared to 1995 includes a $92,000
decrease in interest earned from short-term investments and a $21,000 decrease
in income from portfolio investments. The reduction in interest earned from
short-term investments primarily resulted from reduced interest rates and a
decrease in funds available for investment in such securities during 1996. The
decrease in interest from portfolio investments primarily was due to a reversal
during 1996 of accrued interest relating to promissory notes due from Hepatix,
Inc. Also contributing to the increase in net investment loss for 1996 compared
to 1995 was a $42,000 increase in professional fees, primarily due to increased
legal fees relating to the preparation of a proxy statement in connection with
the Special Meeting of Limited Partners held on June 21, 1996. Partially
offsetting the increase in legal fees was a $35,000 reduction of the management
fee, as discussed below.
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 increases in insurance expense of
$34,000, mailing and printing expense of $23,000 and professional fees of
$27,000. The Partnership initiated directors and officers liability insurance
coverage for its Independent General Partners, beginning in August 1994,
increasing insurance expense for 1995 compared to 1994. The increases to mailing
and printing expense and professional fees primarily resulted from corrections
to prior year accruals. These increases in operating expense for 1995 were
partially offset by a $12,000 reduction in the management fee, as discussed
below.
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 paid quarterly. For the years ended December 31, 1996, 1995 and
1994 the management fee was $225,000, $260,000 and $272,000, 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, 1996, the Partnership had a $1 million net realized loss from its
portfolio investments. In September 1996, Hepatix, Inc. completed a
post-bankruptcy financing and recapitalization, resulting in the write-off of
the Partnership's $1,025,000 investment in the company's old common stock.
For the year ended December 31, 1995, the Partnership had a $91,000 realized
loss from its portfolio investments, resulting from the write-off of acquisition
costs and venture capital fees relating to its investment in Hepatix.
There were no realized gains or losses from portfolio investments for the year
ended December 31, 1994.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the year ended December 31, 1996,
the Partnership had a $666,000 net unrealized loss, resulting from the net
downward revaluation of its portfolio investments. Additionally, $1,025,000 was
transferred to realized loss due to the partial write-off of the Partnership's
investment in the common stock of Hepatix, as discussed above. The $1,025,000
transfer to realized loss, partially offset by the $666,000 additional
unrealized loss, resulted in a $359,000 increase in net unrealized appreciation
of investments for 1996.
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, which was partially offset by a $712,000 net
upward revaluation of the Partnership's publicly-held securities. As a result,
net unrealized appreciation of investments declined 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.
Net Assets - For the year ended December 31, 1996, the Partnership had an
$856,000 net decrease in net assets from operations, comprised of the net
investment loss of $190,000 and the net realized loss from portfolio investments
of $1,025,000. These losses were offset by the $359,000 increase in net
unrealized appreciation of investments for 1996. The Partnership's net assets
were further reduced by the $3.0 million accrued cash distribution to Partners,
which was approved in November 1996. As a result, the Partnership's net assets
were $8.3 million at December 31, 1996, down from $12.2 million at December 31,
1995.
The Partnership had a $953,000 decrease in net assets from operations for the
year ended December 31, 1995, resulting from the $63,000 net investment loss,
the $91,000 net realized loss from portfolio investment and the $800,000
reduction to net unrealized appreciation of investments for 1995. There were no
cash distributions paid or accrued during 1995.
For the year ended December 31, 1994, the Partnership had a $286,000 net
decrease in net assets from operations, comprised of the $88,000 net
investment loss and the $198,000 net decrease in net unrealized appreciation
of investments for 1994. There were no cash distributions paid or accrued
during 1994.
The net asset value per $500 Unit, including an allocation of the net unrealized
depreciation of investments, at December 31, 1996, 1995 and 1994 was $213, $312
and $336, 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>
Summary of Changes to Net Assets for the Year Ended December 31, 1996
The write-off of a portion of the Partnership's investment in Hepatix, Inc.
during 1996, resulted in a realized loss of $1,025,168. As shown below, due to
reserves taken in prior periods, this write-off reduced the Partnership's net
asset value for 1996 by $512,584. This decrease was further reduced by the
downward revaluation of the Partnership's remaining portfolio investments during
1996, as shown below. The completed portfolio transactions and revaluations
reduced the Partnership's net asset value on a net basis by $666,293 for 1996.
The Partnership's net assets were further reduced by the $190,079 net investment
loss for 1996.
<TABLE>
Fair Value Return/Fair Value Effect on
Investment at 12/31/95 at 12/31/96 Net Assets
Liquidations for the year ended 12/31/96:
<S> <C> <C> <C>
Hepatix, Inc. $ 512,584 $ 0 $ (512,584)
------------ ------------- ---------------
Revaluations for the year ended 12/31/96:
Gliatech, Inc. 789,789 799,471 9,682
Hepatix, Inc. (1) 1,358,831 1,484,123 125,292
Integramed America, Inc. 518,014 292,372 (225,642)
KeraVision, Inc. 603,758 945,010 341,252
LaJolla Pharmaceutical Company 392,831 607,607 214,776
Sennes Drug Innovations, Inc. (1) 1,222,353 316,188 (906,165)
Synaptic Pharmaceutical Corporation 932,621 1,156,740 224,119
Targeted Genetics, Inc. 921,302 984,279 62,977
---------------
Sub-total from revaluations (153,709)
----------------
Sub-total from portfolio transactions (666,293)
Net investment loss for the year ended 12/31/96 (190,079)
----------------
Net Change to Net Assets for the Year Ended
December 31, 1996 $ (856,372)
================
</TABLE>
(1) Adjusted for follow-on investments made during 1996.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
WESTMED VENTURE PARTNERS 2, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31,
1994, 1995 and 1996
Notes to Financial Statements
NOTE - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
WestMed Venture Partners 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, 1996 and 1995, and the related statements of operations, cash
flows, and changes in partners' capital for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 and 1995 by correspondence
with the custodian; where confirmation was not possible, we performed other
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of WestMed Venture Partners 2, L.P. at December
31, 1996 and 1995, and the results of its operations, its cash flows and the
changes in its partners' capital for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$3,317,907 and $6,050,203 at December 31, 1996 and 1995, respectively,
representing 40% and 50% 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 20, 1997
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1996 1995
--------------- ----------
ASSETS
Portfolio investments, at fair value
(cost $9,138,368 at December 31, 1996 and
<S> <C> <C> <C> <C> <C> <C>
$8,961,656 at December 31, 1995) - Notes 2 and 4 $ 6,585,790 $ 6,050,203
Cash and cash equivalents 4,876,135 6,226,065
Accrued interest receivable 2,377 12,331
Other assets 29,710 35,891
--------------- ----------------
TOTAL ASSETS $ 11,494,012 $ 12,324,490
=============== ================
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
Liabilities:
<S> <C> <C>
Cash distribution payable $ 3,012,100 $ -
Accounts payable and accrued expenses 106,263 55,929
Due to Managing General Partner - Note 4 41,828 61,268
Due to Independent General Partners - Note 4 10,000 15,000
--------------- ----------------
Total liabilities 3,170,191 132,197
--------------- ----------------
Partners' Capital:
Managing General Partner 83,238 121,923
Limited Partners (38,727 Units) 8,240,583 12,070,370
--------------- ----------------
Total Partners' capital 8,323,821 12,192,293
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,494,012 $ 12,324,490
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Gliatech, Inc.(A)
<C> <C> <C> <C>
124,210 shares of Common Stock Feb. 1992 $ 962,009 $ 799,471
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*(B)
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)(C)
211,672 shares of Common Stock Mar. 1989 2,322,426 292,372
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
68,728 shares of Common Stock Nov. 1992 530,300 945,010
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 587,253
25,076 warrants to purchase 12,538 shares of Common
Stock at $6.00 per share, expiring 6/3/99 0 18,348
Warrant to purchase 5,015 shares of Common Stock
at $5.00 per share, expiring 6/3/99 0 2,006
-------------- ---------------
678,579 607,607
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.(D)*
2,750,000 shares of Preferred Stock June 1993 1,175,579 293,894
412,500 shares of Common Stock 4,375 1,094
$39,976 10% Promissory Note due 10/7/97 42,399 21,200
-------------- ---------------
1,222,353 316,188
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)
96,395 shares of Common Stock June 1991 797,167 1,156,740
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)
225,395 shares of Common Stock June 1992 1,067,353 984,279
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 $ 9,138,368 $ 6,585,790
==================================
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1996
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(E)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Total from Liquidated Portfolio Investments $ 6,265,683 $ (4,025,721) $ 2,239,962
==========================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 15,404,051 $ (6,578,299) $ 8,825,752
==========================================================
</TABLE>
(A) Public company
(B) In February 1996, the Partnership made a $93,286 follow-on investment in
Hepatix, Inc., acquiring a 10% convertible note and a warrant to purchase
186,572 shares of common stock at $.01 per share. In June 1996, the
Partnership made an additional $29,572 follow-on investment in Hepatix,
acquiring a 10% promissory note. The Partnership paid the Managing
General Partner venture capital fees totaling $7,445 relating to these
investments. In September 1996, in connection with a financial
restructuring of Hepatix, the Partnership invested an additional
$969,478 and exchanged its $491,986 convertible notes, its $29,572
promissory note, and accrued interest of $950 for 1,484,123 shares of
the company's preferred stock. The Partnership paid the Managing
General Partner $58,750 in venture capital fees relating to this
additional investment in Hepatix. Additionally, the Partnership wrote-
off the cost of its common stock and common stock warrants of Hepatix
previously held, realizing a loss of $1,025,168.
(C) In May 1996, IVF America, Inc. changed its name to Integramed America,
Inc. In July 1996, the Partnership's warrant to purchase 18,340 common
shares of Integramed America, Inc. expired unexercised.
(D) In September 1996, the Partnership completed a $39,976 follow-on investment
in Sennes Drug Innovations, Inc., acquiring a 10% promissory note due
10/7/97. The Partnership paid the Managing General Partner $2,423 in
venture capital fees relating to this investment.
(E) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1996.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
<TABLE>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
Gliatech, Inc.(A)
<C> <C> <C> <C>
124,210 shares of Common Stock Feb. 1992 $ 962,009 $ 789,789
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*
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)
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)
96,395 shares of Common Stock June 1991 797,167 932,621
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)
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>
(A) Public company
* 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.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
------------- -------------- ---------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest from short-term investments $ 283,323 $ 375,163 $ 288,164
Interest and dividend income from portfolio investments (7,819) 13,311 1,260
-------------- -------------- ---------------
Total investment income 275,504 388,474 289,424
------------- -------------- ---------------
Expenses:
Management fee - Note 4 225,496 260,417 272,327
Professional fees 98,596 56,235 28,812
Mailing and printing 39,066 30,741 7,622
Insurance expense 64,188 62,050 28,442
Custodial fees 4,488 6,592 7,044
Independent General Partners' fees - Note 4 12,377 15,000 15,000
Miscellaneous 21,372 20,079 18,461
------------- -------------- ---------------
Total expenses 465,583 451,114 377,708
------------- -------------- ---------------
NET INVESTMENT LOSS (190,079) (62,640) (88,284)
Net realized loss from portfolio investments (1,025,168) (90,696) -
-------------- -------------- ---------------
NET REALIZED LOSS FROM OPERATIONS (1,215,247) (153,336) (88,284)
Net change in unrealized depreciation of investments 358,875 (799,700) (198,119)
------------- -------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS (allocable to Partners) - Note 3 $ (856,372) $ (953,036) $ (286,403)
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
-------------- -------------- ---------
CASH FLOWS USED FOR OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (190,079) $ (62,640) $ (88,284)
Adjustments to reconcile net investment loss to cash
used for operating activities:
Increase (decrease) in payables 25,894 25,992 (17,394)
(Increase) decrease in accrued interest receivable
and other assets 16,135 (19,335) (15,365)
-------------- --------------- ---------------
Cash used for operating activities (148,050) (55,983) (121,043)
-------------- -------------- ---------------
CASH FLOWS USED FOR INVESTING
ACTIVITIES
Purchase of portfolio investments (1,201,880) (687,801) (1,383,740)
-------------- -------------- ---------------
Cash used for investing activities (1,201,880) (687,801) (1,383,740)
-------------- -------------- ---------------
Decrease in cash and cash equivalents (1,349,930) (743,784) (1,504,783)
Cash and cash equivalents at beginning of period 6,226,065 6,969,849 8,474,632
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 4,876,135 $ 6,226,065 $ 6,969,849
============== ============== ===============
</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, 1994, 1995 and 1996
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 134,317 $ 13,297,415 $ 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
Net decrease in net assets resulting
from operations - Note 3 (8,564) (847,808) (856,372)
Accrued cash distribution, paid
January 31, 1997 (30,121) (2,981,979) (3,012,100)
-------------- --------------- ----------------
Balance at December 31, 1996 $ 83,238 $ 8,240,583(A) $ 8,323,821
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized depreciation of investments, is $213, $312 and
$336 at December 31, 1996, 1995 and 1994, respectively. Such per Unit
amounts are based on average allocations to all limited partners and do not
reflect specific limited partner allocations, which are determined by the
original closing date associated with the units of limited partnership
interest held by each limited partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 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 two 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. Alsacia Venture Management, Inc. (the "Sub-Manager"), a
corporation controlled by Philippe L. Sommer, is the sub-manager of the
Partnership pursuant to a sub-management agreement among the Partnership,
the Managing General Partner and the Sub-Manager. The Sub-Manager has been
retained by the Managing General Partner to assist the Managing General Partner
in the performance of its duties to the Partnership.
Opco, a member firm of the New York Stock Exchange, the National Association of
Securities Dealers, Inc., and all principal United States securities exchanges,
is a diversified investment banking and securities firm and registered
investment advisor, providing a broad range of services to individual,
corporate, and institutional clients. Opco operates in the capacity of broker
and dealer for its customers, as well as trader for its own account. The
services provided by Opco and its subsidiaries, and the activities in which it
is engaged, include securities brokerage, securities research, customer
financing, securities trading, corporate finance, mergers and acquisitions,
underwriting and investment advisory services.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership is scheduled to terminate on December
31, 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 closing public market price for the last trading
day of the accounting period discounted for sales restrictions. Factors
considered in the determination of an appropriate
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
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 $2.6
million at December 31, 1996, which was recorded for financial statement
purposes, was not recognized for tax purposes. Additionally, from inception to
December 31, 1996, other timing differences totaling $2.2 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.
<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, 1996, the Partnership had a
$3.8 million net loss from its venture capital investments, including $241,000
of 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 investment. The Partnership incurred venture capital fees of
$68,618 for the year ended December 31, 1996. Cumulative venture capital fees
incurred from inception to December 31, 1996 totaled $882,000.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership (net of selling commissions
and organizational expenses) reduced by capital distributed. Such fee is
determined and payable quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner.
For services rendered to the Partnership, each of the two Independent General
Partners receives a $5,000 annual fee and reimbursement for all out-of-pocket
expenses relating to attendance at meetings of the General Partners.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
5. Subsequent Event - Cash Distribution
On November 12, 1996, the General Partners approved a cash distribution to
Partners totaling $3,012,100. The distribution was paid on January 31, 1997 to
Limited Partners of record on December 31, 1996. Limited Partners received
$2,981,979, or $77 per Unit, and the General Partner received $30,121.
6. Classification of Investments
As of December 31, 1996, the Partnership's investments were categorized as
follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 6,362,209 $ 4,786,573 57.51%
Preferred Stock 2,733,760 1,778,017 21.36%
Debt Securities 42,399 21,200 0.25%
---------------- --------------- -------
$ 9,138,368 $ 6,585,790 79.12%
================ =============== ======
Country/Geographic Region
United States $ 9,138,368 $ 6,585,790 79.12%
================ =============== ======
Industry
Biotechnology $ 4,727,461 $ 3,864,285 46.43%
Medical Devices 2,088,481 2,429,133 29.18%
Medical Services 2,322,426 292,372 3.51%
---------------- --------------- -------
$ 9,138,368 $ 6,585,790 79.12%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The Independent General Partners
The Independent General Partners have full authority over the management of the
Partnership and provide overall guidance and supervision with respect to the
operations of the Partnership and perform the various duties imposed on the
general partners of business development companies under the 1940 Act. In
addition to general fiduciary duties, the Independent General Partners, among
other things, supervise the management arrangements of the Partnership, the
custody arrangement with respect to portfolio securities, the selection of
accountants, fidelity bonding and the activities of the Managing General
Partner. As required by the 1940 Act, a majority of the general partners must be
individuals who are not "interested persons" of the Partnership as defined in
the 1940 Act. In 1987, the Securities and Exchange Commission issued an
exemptive order declaring that Messrs. Elliott and White, the two Independent
General Partners of the Partnership, are not "interested persons" of the
Partnership as defined in the 1940 Act solely by reason of their being general
partners of the Partnership. Such individuals also comprise the Audit Committee
of the Partnership.
Presented below is information concerning the Independent General Partners of
the Partnership as of March 21, 1997:
Thomas E. White, Age 63, Independent General Partner since 1987
485 Madison Avenue
New York, New York 10022
Mr. White is an attorney in private practice in New York City. He is
also an independent general partner of WestMed Venture Partners, 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 57, Independent General Partner since 1987
Elliott Investment Co.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Mr. Elliott, currently a private investor, was the Chairman and Chief
Executive Officer of VLI Corporation ("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 Association. From
1979 until 1983, Mr. Elliott was Vice President and Director of Howmedica,
Inc. with responsibility for the Medical Specialty Products Division,
including domestic and international manufacturing and distribution.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership's venture capital investments. Subject to the supervision of the
Independent General Partners, the Managing General Partner is authorized to make
all decisions regarding the Partnership's venture capital investment portfolio,
including, among other things, to find, evaluate, structure, monitor and
liquidate such investments and to provide, or arrange for the provision of,
managerial assistance to the portfolio companies in which the Partnership
invests.
The general partner of the Managing General Partner is MVH, a Delaware
corporation affiliated with Opco. The limited partners of the Managing General
Partner are (i) Oppenheimer Holdings, Inc. ("OHI"), a Delaware corporation and
the parent of Opco, (ii) MVP Holdings, Inc. ("MVP"), a Delaware corporation,
and (iii) BSW, Inc. ("BSW"), a Delaware corporation wholly-owned by John A.
Balkoski, Philippe L. Sommer and Howard S. Wachtler, the individuals
originally responsible for the Partnership's venture capital investments.
In June 1996, the Managing General Partner engaged Alsacia Venture Management,
Inc. (the "Sub-Manager") to assist the Managing General Partner in the
performance of its duties to the Partnership. The Sub-Manager is controlled by
Philippe L. Sommer. The compensation of the Sub-Manager is paid directly by the
Managing General Partner. No additional management fees will be incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager.
Presented below is information as of March 21, 1997 concerning the directors
and officers of MVH that are principally involved with the operations of the
Partnership. Mr. McGrath has been a director and/or officer of MVH since June
1990. Mr. Rothstein and Ms. Fusco have been officers of MVH since April
1996 and June 1996, respectively. The address of each such person is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
Stephen M. McGrath, Sr., Age 61, Vice President and Director
Mr. McGrath has been Executive Vice President of Opco and director of
its Investment Banking Group since July 1985. He also served as President
of Oppenheimer Strategic Investments, Inc. between May 1983 and April
1985. Mr. McGrath was Senior Vice President of Planning and
Development at Warner- Lambert until 1985 and has been a director of
Alliance Pharmaceutical Corp. since June 1989. He also serves as an
executive officer and director of certain current and/or former affiliates
of Opco.
Gerald A. Rothstein, Age 54, Vice President
Mr. Rothstein has been a Manageing Director of Opco since 1983. He
is primarily responsible for the creation of Opco's international
research department and focuses upon the emerging markets of Latin
America and India. Mr. Rothstein has served on Opco's Management
Committee since 1983 and is also a member of Opco's Commitment and
Due Diligence committees.
Ann O. Fusco, Age 42, Vice President
Ms. Fusco has been Vice President of Oppenheimer Properties, Inc. since
July 1986 and has been employed by Oppenheimer & Co., Inc. since April
1984. In June 1996 Ms. Fusco became Vice President of MVH. Ms. Fusco is
a Certified Public Accountant in the state of New York.
There are no family relationships among any of the Independent General Partners
and the officers and directors of MVH or the Sub-Manager. MVH is owned 100% by
OHI.
The Sub-Manager is wholly-owned by Philippe L. Sommer. Presented below is
information concerning Mr. Sommer as of March 27, 1997.
Philippe L. Sommer, Age 45, Executive Vice President and Managing Director
Mr. Sommer is a Managing Director of BSW and a member of the Board of
Directors of BSW, 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.
Opco, a member firm of the New York Stock Exchange, Inc., the National
Association of Securities Dealers, Inc. and all principal U.S. securities
exchanges, is a diversified investment banking and securities firm, providing a
broad range of services to individual, corporate and institutional clients. Opco
is registered as a broker-dealer and investment adviser with the Commission, and
also is registered as a broker-dealer in all of the states of the United States
and with the Securities Association in the United Kingdom and with the Commodity
Futures Trading Commission as a futures commission merchant. Opco operates in
the capacity of broker and dealer for its customers, as well as trader for its
own account.
The services provided by Opco and its subsidiaries, and the activities in which
it is engaged, include investment banking, securities brokerage, securities
research, customer financing, securities trading and arbitrage, corporate
finance, real estate financing and investment advisory services. Opco's
investment banking activities include an active engagement in the health-care
area. Opco provides public equity and debt financing to clients in the
biotechnology, instrumentation and pharmaceutical products and services sectors
in the health-care field. Opco also provides private financing, and merger,
acquisition and divestiture assistance to health-care companies. Opco's
Health-care Investment Banking Group is supported by Opco's securities research
team which reports on public companies in the human health-care sector.
Item 11. Executive Compensation.
Each Independent General Partner receives an annual fee from the Partnership of
$5,000 together with all out-of-pocket expenses relating to attendance at
meetings of the General Partners. During 1996, Thomas White, an Independent
General Partner of the Partnership, received an $11,600 payment from the
Partnership relating to legal services in connection with the Sub-Management
Agreement.
For the years ended December 31, 1996, 1995 and 1994, the Managing General
Partner was allocated $9,000, $10,000 and $3,000 of the Partnership's net
decrease in net assets from operations for each of the respective periods.
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.
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, 1996, 1995 and 1994, the Managing General Partner received
management fees of $225,000, $260,000 and $272,000 respectively.
In June 1996, the Managing General Partner engaged Alsacia Venture Management,
Inc. (the "Sub-Manager") to assist the Managing General Partner in the
performance of its duties to the Partnership. The Sub-Manager is controlled by
Philippe L. Sommer. The compensation of the Sub-Manager is paid directly by the
Managing General Partner. No additional management fees will be incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. For the years ended December 31, 1996, 1995 and 1994,
the Managing General Partner received venture capital fees of $69,000, $39,000
and $79,000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 21, 1997, no person or group is known by the Partnership to be the
beneficial owner of more than 5% of the Units. The Independent General Partners
and the directors, officers and employees of MVH and the Sub-Manager 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, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Statements of Changes in Partners' Capital for the years ended
December 31, 1994, 1995 and 1996
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership(3)
3.2 Amendment to Amended and Restated Certificate of Limited
Partnership(3)
3.3 Partnership Agreement(1)
3.4 Amendment No. 1 to the Partnership Agreement(2)
4 Articles Five through Eleven of the Partnership Agreement(1)
10.1 Management Agreement between the Partnership and the
Managing General Partner(2)
[?] Sub-Management agreement among the Partnership, the
Managing General Partner and the Sub-Manager(4)
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors
Fiduciary Trust Company(1)
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- -------------------------------
(1) Filed as an exhibit to the Partnership's Registration Statement on
Form N-2 (33-11926), and incorporated herein by reference.
(2) Filed as an exhibit to the Partnership's Report on Form 8-K dated July
10, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to the Partnership's Report on Form 10-K for the year
ended December 31, 1990.
(4) Filed as an exhibit to the Partnership's proxy statement dated May 17,
1996 and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 27th day of March 1997.
WESTMED VENTURE PARTNERS 2, L.P.
By: WestMed Venture Management 2, L.P.,
Managing General Partner
By: Medical Venture Holdings, Inc.,
General Partner
By: /s/ Stephen McGrath
Stephen McGrath
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated on the 27th day of March 1997.
<TABLE>
WESTMED VENTURE
<S> <C> <C>
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/ Stephen McGrath Executive Vice President (principal executive officer) of Medical
Stephen McGrath Venture Holdings, Inc.
By: /s/ Ann Oliveri Fusco Vice President (principal financial and accounting officer) of Medical Ann
Oliveri Fusco Venture Holdings, Inc.
By: /s/ Thomas E. White General Partner of WestMed Venture Partners 2, L.P.
Thomas E. White
By: /s/ Robert A. Elliott General Partner of WestMed Venture Partners 2, L.P.
Robert A. Elliott
</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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9,138,368
<INVESTMENTS-AT-VALUE> 6,585,790
<RECEIVABLES> 2,377
<ASSETS-OTHER> 29,710
<OTHER-ITEMS-ASSETS> 4,876,135
<TOTAL-ASSETS> 11,494,012
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,170,191
<TOTAL-LIABILITIES> 3,170,191
<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> (2,552,578)
<NET-ASSETS> 8,323,821
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 275,504
<OTHER-INCOME> 0
<EXPENSES-NET> 465,583
<NET-INVESTMENT-INCOME> (109,079)
<REALIZED-GAINS-CURRENT> (1,025,168)
<APPREC-INCREASE-CURRENT> 358,875
<NET-CHANGE-FROM-OPS> (856,372)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 3,012,100
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,868,472)
<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
<AVERAGE-NET-ASSETS> 10,258,057
<PER-SHARE-NAV-BEGIN> 312
<PER-SHARE-NII> (5)
<PER-SHARE-GAIN-APPREC> (17)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 77
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 213
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
