SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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)
CIBC Oppenheimer Tower, World Financial Center
New York, New York 10281
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 667-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
================================================================================
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On March 16, 1998, 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 include 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 which is Medical Venture Holdings, Inc. ("MVH"), a Delaware
corporation and an affiliate of CIBC Oppenheimer Corp., a Delaware corporation
("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, including $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, 1997, the Partnership had invested $16.7
million in eleven portfolio companies (including venture capital fees and other
acquisition costs totaling $1.05 million). At December 31, 1997, the
Partnership's investment portfolio consisted of nine active investments with a
cost of $10.1 million and a fair value of $6.8 million. From its inception
through December 31, 1997, the Partnership had liquidated investments with an
aggregate cost of $6.6 million. These liquidated investments returned $2.8
million to the Partnership resulting in a cumulative net realized loss of $3.8
million. Additionally, from its inception to December 31, 1997, the Partnership
earned $248,000 of interest and other income from its portfolio investments. As
a result, as of December 31, 1997, the Partnership had a cumulative net loss
from its venture capital investments totaling $3.6 million.
During 1997, the Partnership invested $1.1 million in a new portfolio company,
and made a follow-on investment of $189,000 in one of its existing portfolio
companies. Also during the year, the Partnership partially liquidated two of its
publicly-traded portfolio securities, having an aggregate cost of $330,000. The
venture capital investments purchased and sold during 1997 and other events
affecting the Partnership's portfolio investments are listed below.
In March 1997, the Partnership completed a $999,999 investment in Abtox,
Inc., acquiring 454,545 shares of Series F Preferred Stock. Abtox, located
in Illinois, manufacturers and markets a proprietary line of plasma
sterilizers used by hospitals. The Partnership paid the Managing General
Partner a venture capital fee of $60,601 in connection with this
investment.
In October 1997, the Partnership made a $178,095 follow-on investment in
Hepatix, Inc., acquiring a 9.5% promissory note and a warrant to purchase
an additional 26,714 shares of Hepatix's common stock at $1.60 per share.
The Partnership paid the Managing General Partner a venture capital fee of
$10,793 in connection with this investment.
In December 1997, the Partnership sold 20,000 common shares of Gliatech,
Inc. for $257,276, realizing a gain of $96,696.
During 1997, the Partnership sold 20,000 common shares of Synaptic
Pharmaceutical Corporation for $300,200, realizing a gain of $130,503.
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.
On June 5, 1996, the Partnership and Philippe L. Sommer, among others, were
named in an action filed in Harris County, Texas by James Kelly and Norman L.
Sussman (the "Action"). The plaintiffs in the Action assert certain causes of
action against all defendants, including violations of the securities laws,
fraud, fraudulent inducement, civil conspiracy and wrongful sequestration. All
of the aforesaid causes of action arise out of the Partnership's investment,
with other venture capital funds, in Hepatix, Inc., a company founded to develop
and pursue approval of an extracorporeal liver assist device. The plaintiffs in
the Action are two of the original founders of Hepatix. The Action was
subsequently removed to Federal District Court in Houston and on October 15,
1996 a motion was made to dismiss the Action against the Partnership and Mr.
Sommer.
On January 29, 1998, the court dismissed all but four of the plaintiffs' counts.
The Action was then remanded back to State court. The remaining claims involve
allegations of breach of fiduciary duty, fraud and fraudulent inducement. The
Partnership and Mr. Sommer believe the remaining allegations are without merit
and intend to continue to vigorously contest the Action.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting (the "Meeting") of Limited Partners of the Partnership was
held on September 30, 1997. The Meeting was held for the following purposes: (i)
to approve or disapprove a new management agreement between the Managing General
Partner and the Partnership and (ii) to approve or disapprove a new
sub-management agreement between the Managing General Partner and Alsacia
Venture Management, Inc. (the "Sub-Manager"). At the Meeting, both such
proposals were approved.
<TABLE>
Affirmative Negative
Votes Votes Abstentions
<S> <C> <C> <C> <C>
Proposal 1 18,617 1,473 1,304
Proposal 2 18,420 1,644 1,330
</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 as of March 16, 1998 was
3,554.
In November 1996, the General Partner approved a cash distribution to Partners
totaling $3,012,100. Such distribution was paid on January 21, 1997. Limited
Partners of record on December 31, 1996 received $2,981,979, or $77 per Unit,
and the Managing General Partner received $30,121. There were no distributions
approved for the years ended December 31, 1997 or 1995. Cumulative cash
distributions paid to Partners from inception through December 31, 1997 total
$3,289,717, including $3,256,820 to the Limited Partners, or approximately $84
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,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total assets $ 7,724 $ 11,494 $ 12,324 $ 13,252 $ 13,555
Net assets 7,611 8,324 12,192 13,145 13,432
Cost of portfolio investments purchased 1,249 1,202 688 1,384 1,068
Cumulative cost of portfolio investments 16,654 15,404 14,202 13,514 12,131
Cash distributions to Partners - 3,012 - - -
Cumulative cash distributions to Partners 3,290 3,290 278 278 278
Net investment loss (264) (190) (63) (88) (125)
Realized gain (loss) on investments 227 (1,025) (91) - 111
Change in unrealized depreciation of
investments (677) 359 (800) (198) (1,325)
Change in net assets resulting from operations (714) (856) (953) (286) (1,339)
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
depreciation of investments $ 195 $ 213 $ 312 $ 336 $ 343
Net investment loss (7) (5) (2) (2) (3)
Net realized gain (loss) on investments 6 (26) (2) - 3
Change in unrealized depreciation of
investments (17) 9 (20) (5) (34)
Cash distributions - 77 - - -
Cumulative cash distributions 84 84 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, 1997, the Partnership invested $1.2 million
(including venture capital fees totaling $71,000) in one new and one existing
portfolio company. From its inception through December 31, 1997, the Partnership
had invested an aggregate of $16.7 million in eleven portfolio companies
(including acquisition costs and venture capital fees totaling $1.05 million).
At December 31, 1997, the Partnership had invested approximately 96% of its
original $17.3 million of net proceeds received from the offering of Units. The
Partnership will not invest in any new portfolio companies but will make
additional follow-on investments in existing companies as required.
At December 31, 1997, the Partnership held $593,000 in cash and short-term
investments, including $296,000 in short-term securities with maturities of less
than one year and $297,000 in an interest-bearing cash account. The Partnership
earned interest totaling $49,000, $283,000, and $375,000 from such investments
for the years ended December 31, 1997, 1996 and 1995, respectively. Interest
earned from short-term investments in future periods is subject to fluctuations
in short-term interest rates and changes in amounts invested in such securities.
It is anticipated that funds needed to cover the Partnership's future operating
expenses and follow-on investments will be obtained from existing cash reserves,
interest from short-term investments and proceeds received from the sale of
portfolio investments.
Results of Operations
For the years ended December 31, 1997, 1996 and 1995, the Partnership had a net
realized loss from operations of $36,000, $1,215,000 and $153,000, respectively.
Net realized gain or loss from operations is comprised of (i) net realized gain
or loss from portfolio investments and (ii) net investment income or loss
(interest, dividends and other income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1997, the Partnership had a $227,000 net realized gain from its
portfolio investments. During the year, the Partnership sold 20,000 common
shares of Synaptic Pharmaceutical Corporation for $300,200, realizing a gain of
$131,000 and 20,000 common shares of Gliatech, Inc. for $257,276, realizing a
gain of $97,000.
For the year ended December 31, 1996, the Partnership had a $1,025,000 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 Hepatix'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.
Investment Income and Expenses - For the years ended December 31, 1997, 1996 and
1995, the Partnership had a net investment loss of $264,000, $190,000 and
$63,000, respectively.
The $74,000 increase in net investment loss for 1997 compared to 1996 resulted
from a $219,000 decline in investment income offset by a $146,000 reduction in
operating expenses for 1997. The decrease in investment income primarily
resulted from a decrease in interest earned from short-term investments due to
the reduced amount of funds invested in such securities during the 1997 period
compared to the same period in 1996. Amounts invested in short-term investments
declined during the 1997 period primarily due to the $3.0 million cash
distribution paid to Partners in January 1997 and the $1.2 million of
investments made in new and follow-on portfolio companies during the year.
Partially offsetting the decrease in interest from short-term investments was a
$15,000 positive variance in interest and dividend income from portfolio
investments for the 1997 period compared to 1996, primarily due to the
write-off, during 1996, of accrued interest relating to promissory notes due
from Hepatix, Inc. The decrease in operating expenses for 1997 primarily
resulted from a $65,000 decrease in the management fee, as discussed below, and
a $50,000 decrease in professional fees, compared to the same period in 1996.
Professional fees for the 1996 period, also discussed below, include legal fees
incurred in connection with the preparation of a Special Meeting of Limited
Partners held in 1996.
The 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.
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 paid quarterly. For the years ended December 31, 1997, 1996 and
1995 the management fee was $160,000, $225,000 and $260,000, respectively. The
reduced management fee for the 1997 and 1996 periods is due to a decrease in the
Partnership's net asset value during each such period. The decline in the
management fee for 1997 compared to 1996 primarily is the result of the cash
distribution paid to Partners, which reduced net assets by $3 million in January
1997. To the extent possible, the management fee and other operating expenses
are paid with funds provided from operations. Funds provided from operations are
obtained from interest received from short-term investments, interest and
dividend income from portfolio investments and proceeds from the sale of
portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Depreciation of Portfolio
Investments - For the year ended December 31, 1997, the Partnership had a
$543,000 net unrealized loss, resulting from the net downward revaluation of its
portfolio investments. Additionally, $134,000 was transferred from unrealized
gain to realized gain relating to the sale of Synaptic and Gliatech, as
discussed above. As a result, net unrealized depreciation of investments
increased $677,000 for 1997.
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 from unrealized loss to
realized loss relating to the partial write-off of the Partnership's investment
in Hepatix, as discussed above. As a result, net unrealized depreciation of
investments decreased $359,000 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 depreciation of investments increased by $800,000 for 1995.
Net Assets - Changes to net assets resulting from operations is comprised of (i)
net realized gains and losses from operations and (ii) changes to net unrealized
appreciation or depreciation of portfolio investments.
For the year ended December 31, 1997, the Partnership had a $713,000 net
decrease in net assets from operations, comprised of the $36,000 net realized
loss from operations and the $677,000 increase in net unrealized depreciation of
investments for 1997. As a result, the Partnership's net assets were $7.6
million at December 31, 1997, down from $8.3 million at December 31, 1996.
For the year ended December 31, 1996, the Partnership had an $856,000 net
decrease in net assets from operations, comprised of the $1.2 million net
realized loss from operations offset by the $359,000 decrease in net unrealized
depreciation 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 $153,000 net realized loss from
operations and the $800,000 increase in net unrealized depreciation of
investments for 1995. As a result, the Partnership's net assets were $12.2
million at December 31, 1995, down from $13.1 million at December 31, 1994.
The net asset value per $500 Unit, including an allocation of the net unrealized
depreciation of investments, at December 31, 1997, 1996 and 1995 was $195, $213
and $312, 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, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended December 31,
1995, 1996 and 1997
Notes to Financial Statements
NOTE - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
WestMed Venture Partners 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, 1997 and 1996, and the related statements of operations, cash
flows, and changes in partners' capital for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997 and 1996 by correspondence
with the custodian; where confirmation was not possible, we performed other
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of WestMed Venture Partners 2, L.P. at December
31, 1997 and 1996, and the results of its operations, its cash flows and the
changes in its partners' capital for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$3,049,800 and $3,317,907 at December 31, 1997 and 1996, respectively,
representing 40% and 40% 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, 1998
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1997 1996
--------------- ----------
ASSETS
Portfolio investments at fair value (cost $10,057,579 at
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 and $9,138,368 at December 31, 1996) $ 6,828,199 $ 6,585,790
Cash and cash equivalents 593,258 4,876,135
Receivable from security sold 257,276 -
Accrued interest receivable 8,989 2,377
Prepaid expenses 36,722 29,710
--------------- ----------------
TOTAL ASSETS $ 7,724,444 $ 11,494,012
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 3,012,100
Accounts payable and accrued expenses 55,130 106,263
Due to Managing General Partner 48,733 41,828
Due to Independent General Partners 10,000 10,000
--------------- ----------------
Total liabilities 113,863 3,170,191
--------------- ----------------
Partners' Capital:
Managing General Partner 76,106 83,238
Limited Partners (38,727 Units) 7,534,475 8,240,583
--------------- ----------------
Total Partners' capital 7,610,581 8,323,821
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 7,724,444 $ 11,494,012
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Abtox, Inc.(B)
<S><C> <C> <C> <C>
454,545 shares of Preferred Stock Mar. 1997 $ 1,060,600 $ 1,060,600
- -------------------------------------------------------------------------------------------------------------------------------
Gliatech, Inc.(A)(C)
104,210 shares of Common Stock Feb. 1992 801,429 1,068,153
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*(D)
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
$178,095 9.5% Promissory Note 188,888 188,888
Warrant to purchase 26,714 shares of Common Stock
at $1.60 per share, expiring 10/30/00 0 0
--------------- ---------------
1,747,069 1,673,011
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)
211,672 shares of Common Stock Mar. 1989 2,322,426 383,761
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
68,728 shares of Common Stock Nov. 1992 530,300 438,141
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 445,499
25,076 warrants to purchase 12,538 shares of Common
Stock at $6.00 per share, expiring 6/3/99 0 20,387
Warrant to purchase 5,015 shares of Common Stock
at $5.00 per share, expiring 6/3/99 0 0
--------------- ---------------
678,579 465,886
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.*
2,750,000 shares of Preferred Stock June 1993 1,175,579 293,895
412,500 shares of Common Stock 4,375 1,094
$39,976 10% Promissory Note 42,399 21,200
--------------- ---------------
1,222,353 316,189
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)(E)
76,395 shares of Common Stock June 1991 627,470 830,796
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)(F)
225,395 shares of Common Stock June 1992 1,067,353 591,662
Warrant to purchase 16,666 shares of Common Stock
at $4.68 per share, expiring 1/31/98 0 0
--------------- ---------------
1,067,353 591,662
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 10,057,579 $ 6,828,199
=============== ===============
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1997
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(G)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments $ 6,595,960 $ (3,798,522) $ 2,797,438
=============== ================= ===============
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 16,653,539 $ (7,027,902) $ 9,625,637
=============== ================= ===============
</TABLE>
(A) Public company
(B) In March 1997, the Partnership completed a $999,999 investment in Abtox,
Inc., acquiring 454,545 shares of Series F Preferred Stock. The Partnership
paid the Managing General Partner a venture capital fee of $60,601 in
connection with this investment.
(C) In December 1997, the Partnership sold 20,000 common shares of Gliatech,
Inc. for $257,276, realizing a gain of $96,696.
(D) In October 1997, the Partnership made a $178,095 follow-on investment in
Hepatix, Inc., acquiring a 9.5% promissory note and a warrant to purchase
26,714 shares of common stock at $1.60 per share. The Partnership paid the
Managing General Partner a venture capital fee of $10,793 in connection
with this investment.
(E) During 1997, the Partnership sold 20,000 common shares of Synaptic
Pharmaceutical Corporation for $300,200, realizing a gain of $130,503.
(F) On July 28, 1997, Targeted Genetics, Inc. extended the expiration date of a
warrant issued to the Partnership from July 31, 1997 to January 31, 1998.
Such warrant expired unexercised on that date.
(G) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1997.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
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)
<S><C> <C> <C> <C>
124,210 shares of Common Stock Feb. 1992 $ 962,009 $ 799,471
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)
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.*
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
-------------- ---------------
1,067,353 984,279
- -------------------------------------------------------------------------------------------------------------------------------
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(B)
<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) 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.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1997 1996 1995
------------- -------------- ---------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 49,199 $ 283,323 $ 375,163
Interest and dividend income from portfolio investments 7,129 (7,819) 13,311
------------- -------------- ---------------
Total investment income 56,328 275,504 388,474
------------- -------------- ---------------
Expenses:
Management fee 160,485 225,496 260,417
Professional fees 66,797 116,596 74,235
Mailing and printing 21,617 39,066 30,741
Insurance expense 58,152 64,188 62,050
Custodial fees 2,664 4,488 6,592
Independent General Partners' fees 10,000 12,377 15,000
Miscellaneous 250 3,372 2,079
------------- -------------- ---------------
Total investment expenses 319,965 465,583 451,114
------------- -------------- ---------------
NET INVESTMENT LOSS (263,637) (190,079) (62,640)
Net realized gain (loss) from investments 227,199 (1,025,168) (90,696)
------------- -------------- ---------------
NET REALIZED LOSS FROM OPERATIONS (36,438) (1,215,247) (153,336)
Net change in unrealized depreciation of investments (676,802) 358,875 (799,700)
------------- -------------- ---------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (713,240) $ (856,372) $ (953,036)
============= ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1997 1996 1995
-------------- -------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (263,637) $ (190,079) $ (62,640)
Adjustments to reconcile net investment loss to cash used for operating
activities:
(Increase) decrease in accrued interest receivable
and other assets (13,624) 16,135 (19,335)
(Decrease) increase in payables (44,228) 25,894 25,992
-------------- -------------- ---------------
Cash used for operating activities (321,489) (148,050) (55,983)
-------------- -------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Proceeds from sale of portfolio investments 300,200 - -
Cost of portfolio investments purchased (1,249,488) (1,201,880) (687,801)
-------------- -------------- ---------------
Cash used for investing activities (949,288) (1,201,880) (687,801)
-------------- -------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution paid to Partners (3,012,100) - -
-------------- -------------- ---------------
Decrease in cash and cash equivalents (4,282,877) (1,349,930) (743,784)
Cash and cash equivalents at beginning of year 4,876,135 6,226,065 6,969,849
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 593,258 $ 4,876,135 $ 6,226,065
============== ============== ===============
</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, 1995, 1996 and 1997
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 131,453 $ 13,013,876 $ 13,145,329
Net decrease in net assets resulting
from operations (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 (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
Net decrease in net assets resulting
from operations (7,132) (706,108) (713,240)
------------- --------------- ----------------
Balance at December 31, 1997 $ 76,106 $ 7,534,475(A) $ 7,610,581
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized depreciation of investments, is $195, $213 and
$312 at December 31, 1997, 1996 and 1995, respectively. Such per Unit
amounts are based on average allocations to all limited partners and do not
reflect specific limited partner allocations, which are determined by the
original closing date associated with the units of limited partnership
interest held by each limited partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 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 CIBC
Oppenheimer Corp. ("Opco") (formerly Oppenheimer & Co., Inc.). Opco is the
successor corporation to Oppenheimer & Co., Inc., following the acquisition and
subsequent merger of Oppenheimer & Co., Inc. and CIBC Wood Gundy Corp. in
November 1997. Opco is a subsidiary of Canadian Imperial Bank of Commerce. The
limited partners of the Managing General Partner are Opco, MVP Holdings, Inc.
and BSW, Inc., a Delaware corporation owned by John A. Balkoski, Philippe L.
Sommer and Howard S. Wachtler. Alsacia Venture Management, Inc. (the
"Sub-Manager"), a corporation controlled by Philippe L. Sommer, serves as the
sub-manager of the Partnership pursuant to a sub-management agreement between
the Managing General Partner and the Sub-Manager. The Sub-Manager has been
retained by the Managing General Partner to assist the Managing General Partner
in the performance of certain of its duties to the Partnership.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership 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 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
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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 $3.2
million at December 31, 1997, which was recorded for financial statement
purposes, was not recognized for tax purposes. Additionally, from inception to
December 31, 1997, other timing differences totaling $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.
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
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
investments in excess of the amount used to cover the Priority Return is
allocated to all Partners in proportion to their capital contributions. Realized
losses are allocated to all Partners in proportion to their capital
contributions. However, if realized gains had been previously allocated in the
80-20 ratio, then losses are allocated in the reverse order in which profits
were allocated. From its inception to December 31, 1997, the Partnership had a
$3.6 million net realized loss from its venture capital investments, including
$248,000 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
$71,394 for the year ended December 31, 1997. Cumulative venture capital fees
incurred from inception to December 31, 1997 totaled $953,000.
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.
5. Cash Distributions
On January 31, 1997, the Partnership made a cash distribution to Limited
Partners of record on December 31, 1996, totaling $3,012,100. Limited Partners
received $2,981,979, or $77 per Unit, and the General Partner received $30,121.
Cumulative cash distributions paid to Partners from inception through December
31, 1997, total $3,256,820 to the Limited Partners, or approximately $84 per
$500 Unit, and $32,897 to the General Partner.
6. Litigation
On June 5, 1996, the Partnership and Philippe L. Sommer, among others, were
named in an action filed in Harris County, Texas by
James Kelly and Norman L. Sussman (the "Action"). The plaintiffs in the Action
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
assert certain causes of action against all defendants, including violations of
the securities laws, fraud, fraudulent inducement, civil conspiracy and wrongful
sequestration. All of the aforesaid causes of action arise out of the
Partnership's investment, with other venture capital funds, in Hepatix, Inc., a
company founded to develop and pursue approval of an extracorporeal liver assist
device. The plaintiffs in the Action are two of the original founders of
Hepatix. The Action was subsequently removed to Federal District Court in
Houston and on October 15, 1996 a motion was made to dismiss the Action against
the Partnership and Mr. Sommer.
On January 29, 1998, the court dismissed all but four of the plaintiffs' counts.
The Action was then remanded back to State court. The remaining claims involve
allegations of breach of fiduciary duty, fraud and fraudulent inducement. The
Partnership and Mr. Sommer believe the remaining allegations are without merit
and intend to continue to vigorously contest the Action.
7. Classification of Investments
As of December 31, 1997, the Partnership's investments were categorized as
follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 6,031,932 $ 3,779,493 49.66%
Preferred Stock 3,794,360 2,838,618 37.30%
Debt Securities 231,287 210,088 2.76%
---------------- --------------- -------
Total $ 10,057,579 $ 6,828,199 89.72%
================ =============== ======
Country/Geographic Region
Eastern U.S. $ 2,949,896 $ 1,214,557 15.96%
Midwestern U.S. 1,862,029 2,128,753 27.97%
Western U.S. 4,023,301 3,168,700 41.64%
Southwestern U.S. 1,222,353 316,189 4.15%
---------------- --------------- -------
Total $ 10,057,579 $ 6,828,199 89.72%
================ =============== ======
Industry
Biotechnology $ 5,457,784 $ 4,333,286 56.94%
Medical Devices 2,277,369 2,111,152 27.74%
Medical Services 2,322,426 383,761 5.04%
---------------- --------------- -------
$ 10,057,579 $ 6,828,199 89.72%
================ =============== ======
</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 16, 1998:
Thomas E. White, Age 64, Independent General Partner since 1987
260 Barnard Road
Larchmont, New York 10538
Mr. White is an attorney in private practice in New York. He is also an
independent general partner of WestMed Venture Partners, 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 58, Independent General Partner since 1987
Elliott Investment Co.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Mr. Elliott, currently a private investor, was the Chairman and Chief
Executive Officer of VLI Corporation ("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 three
privately-held medical device companies and one public company. He is a former
Director of the Health Industries Manufacturers Association. From 1979 until
1983, Mr. Elliott was Vice President and Director of Howmedica, Inc. with
responsibility for the Medical Specialty Products Division, including domestic
and international manufacturing and distribution.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership's venture capital investments. Subject to the supervision of the
Independent General Partners, the Managing General Partner is authorized to make
all decisions regarding the Partnership's venture capital investment portfolio,
including, among other things, to find, evaluate, structure, monitor and
liquidate such investments and to provide, or arrange for the provision of,
managerial assistance to the portfolio companies in which the Partnership
invests.
The general partner of the Managing General Partner is MVH, a Delaware
corporation affiliated with CIBC Oppenheimer Corp. ("Opco") (formerly
Oppenheimer & Co., Inc.). The limited partners of the Managing General Partner
are (i) Opco, (ii) MVP Holdings, Inc. ("MVP"), a Delaware corporation, and (iii)
BSW, Inc. ("BSW"), a Delaware corporation wholly-owned by John A. Balkoski,
Philippe L. Sommer and Howard S. Wachtler, the individuals originally
responsible for the Partnership's venture capital investments.
In June 1996, the Managing General Partner engaged Alsacia Venture
Management, Inc. (the "Sub-Manager") to assist the Managing General Partner in
the performance of its duties to the Partnership. The Sub-Manager is controlled
by Philippe L. Sommer. The compensation of the Sub-Manager is paid directly by
the Managing General Partner. No additional management fees are incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager. Presented below is information as of March 16, 1998 concerning the
directors and officers of MVH that are principally involved with the operations
of the Partnership. Mr. McGrath has been a director and/or officer of MVH since
June 1990. Mr. Rothstein and Ms. Fusco have been officers of MVH since April
1996 and June 1996, respectively. The address of each such person is CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281.
Stephen M. McGrath, Sr., Age 62, Vice President and Director
Mr. McGrath has been a Managing Director of Opco since the merger of Opco
in November 1997. Prior to the merger, he was the Executive Vice President of
Opco and director of its Investment Banking Group since July 1985. He also
served as President of Oppenheimer Strategic Investments, Inc. between May 1983
and April 1985. Mr. McGrath was Senior Vice President of Planning and
Development at Warner- Lambert until 1985 and has been a director of Alliance
Pharmaceutical Corp. since June 1989 and of Petro Corp. since 1992. He also
serves as an executive officer and director of certain current and/or former
affiliates of Opco.
Gerald A. Rothstein, Age 55, Vice President
Mr. Rothstein has been a Managing Director of Opco since 1983. He is
primarily responsible for Opco's private equity efforts and focuses upon the
emerging markets of Latin America and India. Mr. Rothstein is a member and
chairperson of Opco's Commitment committee and also, a member of Opco's Due
Diligence committee.
Ann O. Fusco, Age 43, Vice President
Ms. Fusco has been Director of Opco since the merger of Opco in November
1997. Prior to the merger, she was Vice President of Oppenheimer Properties,
Inc. since July 1986 and has been employed by Opco since April 1984. In June
1996 Ms. Fusco became Vice President of MVH. Ms. Fusco is a Certified Public
Accountant in the state of New York.
There are no family relationships among any of the Independent General Partners
and the officers and directors of MVH or the Sub-Manager. MVH is owned 100% by
Opco.
The Sub-Manager
The Sub-Manager is wholly-owned by Philippe L. Sommer. Presented below is
information concerning Mr. Sommer as of March 16, 1998.
Philippe L. Sommer, Age 46, Sole Director, Officer and Stockholder
Mr. Sommer is a Managing Director of BSW, Inc. and a member of the Board of
Directors of BSW and two portfolio companies of the Partnership, Hepatix, Inc.
and Sennes Drug Innovations, Inc. He has been involved in health-care industry
management for the past 18 years. From June 1990 until July 1996, Mr. Sommer
served as an Executive Vice President and a Managing Director of MVH. He was a
Managing Director of MVP Holdings, Inc. from April 1987 to June 1990. From
January 1982 to September 1986, he was a Director of Business Development for
Pfizer Hospital Products Group ("HPG") and in such capacity was responsible for
directing HPG's merger and acquisition activities for medium to larger
acquisitions, and for the financial evaluation and valuation of all of HPG's
acquisition, venture and licensing projects.
Item 11. Executive Compensation.
Each Independent General Partner receives an annual fee from the Partnership of
$5,000 together with all out-of-pocket expenses relating to attendance at
meetings of the General Partners.
For the years ended December 31, 1997, 1996 and 1995, the Managing General
Partner was allocated $7,000, $9,000 and $10,000 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 a management agreement, the Managing General Partner performs, or
arranges for others to perform, the management, administrative and certain
investment advisory services necessary for the operation of the Partnership. For
such services, the Managing General Partner 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, 1997, 1996 and 1995, the Managing General Partner received
management fees of $160,000, $225,000, and $260,000, 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 are incurred by the
Partnership as a result of the Managing General Partner's relationship with the
Sub-Manager.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. For the years ended December 31, 1997, 1996 and 1995,
the Managing General Partner received venture capital fees of $71,000, $69,000
and $39,000, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 16, 1998, no person or group is known by the Partnership to be the
beneficial owner of more than 5% of the Units. The Independent General Partners
and the directors, officers and employees of MVH and the Sub-Manager 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, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31, 1997,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
Statements of Changes in Partners' Capital for the years ended
December 31, 1995, 1996 and 1997
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership(3)
3.2 Amendment to Amended and Restated Certificate of Limited
Partnership(3)
3.3 Partnership Agreement(1)
3.4 Amendment No. 1 to the Partnership Agreement(2)
4 Articles Five through Eleven of the Partnership Agreement(1)
10.1 Management Agreement dated as of September 30, 1997
between the Partnership and the Managing General
Partner(4)
10.2 Sub-Management agreement dated as of September 30, 1997
among the Partnership, the Managing General
Partner and the Sub-Manager(5)
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors
Fiduciary Trust Company(1)
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- -------------------------------
(1) Filed as an exhibit to the Partnership's Registration Statement on Form
N-2 (33-11926), and incorporated herein by reference.
(2) Filed as an exhibit to the Partnership's Report on Form 8-K dated July 10,
1990 and incorporated herein by reference.
(3) Filed as an exhibit to the Partnership's Report on Form 10-K
for the year ended December 31, 1990.
(4) Filed as Exhibit A to the Partnership's proxy statement dated
August 29, 1997 and incorporated herein by reference.
(5) Filed as Annex I to the Partnership's proxy statement dated
August 29, 1997 and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 31st day of March 1998.
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 31st day of March 1998.
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
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