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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3473015
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 15, 2000, 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" and collectively
with the Independent General Partners, the "General Partners"). The general
partner of the Managing General Partner is Medical Venture Holdings, Inc., a
Delaware corporation affiliated with CIBC Oppenheimer Corp. ("Opco") (formerly
Oppenheimer & Co., Inc.). Opco is the successor corporation to Oppenheimer &
Co., Inc., following the acquisition and subsequent merger of Oppenheimer & Co.,
Inc. and CIBC Wood Gundy Corp. in November 1997. Opco is a subsidiary of
Canadian Imperial Bank of Commerce. The limited partners of the Managing General
Partner are Opco, MVP Holdings, Inc. and BSW, Inc., a Delaware corporation owned
by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler. Alsacia Venture
Management, Inc. (the "Sub-Manager"), a corporation controlled by Philippe L.
Sommer, serves as the sub-manager of the Partnership pursuant to a
sub-management agreement between the Managing General Partner and the
Sub-Manager. The Sub-Manager has been retained by the Managing General Partner
to assist the Managing General Partner in the performance of certain of its
duties to the Partnership.
In 1988, 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 to December 31, 1999, the Partnership had invested
$16,842,427 in twelve portfolio companies, including venture capital fees and
other acquisition costs totaling $1,063,133. During 1999, the Partnership sold
or wrote-off securities having an aggregate cost of $5,194,257, resulting in a
loss of $3,449,633. These transactions and other events affecting the
Partnership's portfolio investments during 1999 are listed below.
<PAGE>
During 1999, the Partnership sold its remaining investment in the following
portfolio companies:
o 100,383 common shares of La Jolla Pharmaceutical Company and a
warrant to purchase an additional 12,538 common shares of La Jolla
Pharmaceutical at $6.00 per share for $71,761, realizing a loss of
$606,818,
o 52,918 common shares of Integramed America, Inc. for $182,567,
realizing a loss of $2,139,859,
o 36,395 common shares of Synaptic Pharmaceutical Corporation for
$200,664, realizing a loss of $96,561,
o 225,395 common shares of Targeted Genetics, Inc. for $338,450,
realizing a loss of $728,903,
o 58,728 common shares of KeraVision, Inc. for $936,782, realizing a
gain of $483,641,
o the remaining holdings of VitaGen, Inc. for $14,400, realizing a loss
of $7,600.
Also during 1999, the Partnership realized a loss of $353,533 from the write-off
of its remaining investment in Abtox, Inc.
As of December 31, 1999, the Partnership had liquidated all of its portfolio
investments, except for a warrant to purchase 5,015 common shares of La Jolla
Pharmaceutical Company at $5.00 per share, which expires on June 3, 2000. The
warrant, which was acquired in a private transaction, is not listed in a public
market, has no cost basis and had a fair value of $0 as of December 31, 1999.
The investments liquidated by the Partnership through December 31, 1999 had an
aggregate cost of $16,842,427. These investments returned $7,292,841 to the
Partnership, resulting in a net realized loss of $9,549,586. Additionally, from
its inception to December 31, 1999, the Partnership earned $239,574 of interest
and other income from its portfolio investments. As a result, as of December 31,
1999, the Partnership had a cumulative net realized loss of $9,310,012 from its
portfolio of venture capital investments.
Termination
The Managing General Partner is pursuing the termination of the Partnership as
soon as practical with the goal of maximizing returns to Partners. The
Partnership's originally scheduled termination date was December 31, 1998, with
provision for extension for two additional two-year periods. The Independent
General Partners determined not to extend the Partnership's termination date.
However, pursuant to the Partnership Agreement and Delaware Law, the Managing
General Partner will continue to manage the Partnership through its date of
liquidation, which will occur when it has satisfied all liabilities and
obligations to creditors and has sold, distributed or otherwise disposed of its
investments in portfolio companies.
Competition
The Partnership encounters competition from other entities having similar
investment objectives. Primary competition for venture capital investments has
been from venture capital partnerships, venture capital affiliates of large
industrial and financial companies, small business investment companies and
wealthy individuals. Competition has also been from foreign investors and from
large industrial and financial companies investing directly rather than through
venture capital affiliates. The Partnership has frequently been a co-investor
with other professional venture capital groups and these relationships have
expanded the Partnership's access to investment opportunities. However, as
discussed, the Partnership is pursuing its termination and will not make any
additional investments.
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 is
responsible for the management and administrative services necessary for the
operation of the Partnership, including managing the Partnership's short-term
investments. The Sub-Manager, subject to the supervision of the Managing General
Partner and Individual General Partners, has provided management services in
connection with the Partnership's venture capital investments. Fees paid to the
Sub-Manager are paid directly by the Managing General Partner.
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 VitaGen, Inc., formerly 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, Inc. 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. On September 13, 1999, a
mediation was held between the parties and the matter was settled in principal.
Under the current terms of the settlement, the defendants paid $175,000, of
which the Partnership's share was $21,000, exclusive of legal fees.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
There is no established public trading market for the Units and it is not
anticipated that any public market for the Units will develop. Accordingly,
accurate information as to the market value of a Unit at any given date is not
available. The approximate number of individual holders of Units as of March 15,
2000 was 3,496.
On January 28, 2000, the Partnership paid a cash distribution to Partners
totaling $4,342,118. Limited Partners of record on December 31, 1999 received
$4,298,697 or $111 per Unit and the Managing General Partner received $43,421.
There were no cash distributions paid during the years ended December 31, 1998
and 1997. Cumulative cash distributions paid to Partners from inception through
December 31, 1999 totaled $7,631,835, including $7,555,517 to the Limited
Partners, or approximately $195 per Unit, and $76,318 to the Managing General
Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions, provided
that, if realized gains had been previously allocated in the 80-20 ratio
discussed above, then losses are allocated in the reverse order in which profits
were allocated.
<PAGE>
Item 6. Selected Financial Data.
-----------------------
<TABLE>
($ In Thousands, Except For Per Unit Information)
Years Ended December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total assets $ 4,897 $ 5,676 $ 7,724 $ 11,494 $ 12,324
Net assets 512 5,590 7,611 8,324 12,192
Cash distributions paid and accrued to Partners 4,342 - - 3,012 -
Cumulative cash distributions paid and accrued
to Partners 7,632 3,290 3,290 3,290 278
Net investment loss (46) (189) (264) (190) (63)
Realized (loss) gain on investments (3,450) (2,301) 227 (1,025) (91)
Change in unrealized depreciation of
investments 2,760 469 (677) 359 (800)
Change in net assets resulting from operations (736) (2,021) (714) (856) (953)
PER UNIT OF LIMITED PARTNERSHIP INTEREST:*
Net asset value, including net unrealized
depreciation of investments $ 13 $143 $ 195 $ 213 $ 312
Net investment loss (1) (5) (7) (5) (2)
Net realized (loss) gain on investments (88) (59) 6 (26) (2)
Change in unrealized depreciation of
investments 70 12 (17) 9 (20)
Cash distributions 111 - - 77 -
Cumulative cash distributions 195 84 84 84 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
As of December 31, 1999, the Partnership had a cash and cash equivalent balance
of $4,867,693, comprised of $4,380,298 in a short-term investment with a
maturity of less than one year and $487,395 in an interest-bearing cash account.
For the years ended December 31, 1999, 1998 and 1997, the Partnership earned
interest from such investments totaling $179,018, $92,422, and $49,199,
respectively. Interest earned in future periods is subject to fluctuations in
short-term interest rates and changes in amounts available for investment in
such securities.
Subsequent to the end of the year, on January 28, 2000, the Partnership paid a
cash distribution to Partners totaling $4,342,118. Limited Partners of record on
December 31, 1999 received $4,298,697 or $111 per Unit and the Managing General
Partner received $43,421. There were no cash distributions paid during the years
ended December 31, 1998 and 1997. Cumulative cash distributions paid to Partners
from inception through December 31, 1999 total $7,631,835, including $7,555,517
to the Limited Partners, or approximately $195 per Unit, and $76,318 to the
Managing General Partner.
The Partnership will not make any additional portfolio investments. Generally,
net proceeds received from the sale of portfolio investments are distributed to
Partners as soon as practicable, after an adequate reserve for operating
expenses. Funds needed to cover the Partnership's future operating expenses
primarily will be obtained from the Partnership's existing cash reserves.
The Managing General Partner is pursuing the termination of the Partnership as
soon as practical with the goal of maximizing returns to Partners. The
Partnership's originally scheduled termination date was December 31, 1998, with
provision for extension for two additional two-year periods. The Independent
General Partners determined not to extend the Partnership's termination date.
However, pursuant to the Partnership Agreement and Delaware Law, the Managing
General Partner will continue to manage the Partnership through its date of
liquidation, which will occur when it has satisfied all liabilities and
obligations to creditors and has sold, distributed or otherwise disposed of its
investments in portfolio companies.
Results of Operations
For the years ended December 31, 1999, 1998 and 1997, the Partnership had a net
realized loss from operations of $3,495,788, $2,490,260 and $36,438,
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, 1999, the Partnership had a $3,449,633 net realized loss from its
portfolio investments. During 1999, the Partnership sold the following
publicly-traded securities: 100,383 common shares of La Jolla Pharmaceutical
Company and a warrant to purchase an additional 12,538 common shares of La Jolla
Pharmaceutical at $6.00 per share for $71,761, realizing a loss of $606,818;
52,918 common shares of Integramed America, Inc. for $182,567, realizing a loss
of $2,139,859; 36,395 common shares of Synaptic Pharmaceutical Corporation for
$200,664, realizing a loss of $96,561; 225,395 common shares of Targeted
Genetics, Inc. for $338,450, realizing a loss of $728,903; 58,728 common shares
of KeraVision, Inc. for $936,782, realizing a gain of $483,641; and the
remaining holdings of VitaGen, Inc. (formerly Hepatix, Inc.) for $14,400,
realizing a loss of $7,600. Also during 1999, the Partnership realized a loss of
$353,533 from the write-off of its remaining investment in Abtox, Inc.
For the year ended December 31, 1998, the Partnership had a $2,301,431 net
realized loss from its portfolio investments. During 1998, the Partnership sold
the following publicly-traded securities: the remaining 104,210 shares of
Gliatech, Inc. common stock for $1,656,467, realizing a gain of $855,038; 40,000
common shares of Synaptic Pharmaceutical Corporation for $597,562 realizing a
gain of $267,317; and 10,000 common shares of KeraVision, Inc. for $110,643
realizing a gain of $33,484. Additionally, in September 1998, the Partnership
liquidated its investment in Sennes Drug Innovations, Inc. in connection with
the settlement of a lawsuit between Sennes and certain shareholders, including
the Partnership, against Baylor College of Medicine, an original investor in
Sennes. The Partnership received $386,107, which resulted in a realized loss of
$836,246, in exchange for its holdings in Sennes and release of all claims
against Baylor. Also in September 1998, the Partnership realized an additional
loss of $707,067, from the partial write-off of its $1,060,000 investment in
Abtox, Inc. During 1998, Abtox filed for protection under Chapter 11 of the
federal bankruptcy code and is currently seeking funding to reorganize. Finally,
on December 31, 1998, the Partnership wrote-off $1,913,957 of its $1,935,957
investment in VitaGen, Inc. due to a financial restructuring of the company
completed in December 1998.
For the year ended December 31, 1997, the Partnership had a $227,199 net
realized gain from its portfolio investments. During 1997, the Partnership sold
20,000 common shares of Synaptic Pharmaceutical Corporation for $300,200,
realizing a gain of $130,503 and 20,000 common shares of Gliatech, Inc. for
$257,276, realizing a gain of $96,696.
Investment Income and Expenses - For the years ended December 31, 1999, 1998 and
1997, the Partnership had a net investment loss of $46,155, $188,829 and
$263,637, respectively.
The $142,674 favorable change in net investment loss for 1999 compared to 1998
resulted from a $94,782 increase in investment income and a $47,892 reduction in
operating expenses. The increase in investment income primarily resulted from an
$86,596 increase in interest earned from short-term investments for 1999
compared to 1998. This increase resulted from an increase in amounts invested in
short-term securities during 1999 compared to 1998 resulting from proceeds
received from the liquidation of most of the Partnership's remaining portfolio
investments during 1999. The Partnership invests such proceeds in short-term
securities until the funds are either used for operations or distributed to
Partners. The remaining positive variance in investment income for 1999 compared
to 1998, resulted from the one-time write-off, during 1998, of accrued interest
relating to promissory notes due from VitaGen, Inc. The decrease in operating
expenses for 1999 primarily resulted from a $56,833 decrease in the management
fee, as discussed below. Additionally, a net decrease in other operating
expenses of $12,059 was offset by a one-time payment of $21,000 relating to the
September 1999 settlement of the VitaGen litigation. See note 6 of notes to
financial statements for additional information.
The $74,808 favorable change in net investment loss for 1998 compared to 1997
resulted from a $46,900 reduction in operating expenses and a $27,908 increase
in investment income. The decrease in operating expenses for 1998 primarily
resulted from a $27,307 decrease in the management fee, as discussed below, and
a $22,764 decrease in insurance expense due to reduced liability insurance
premiums. The increase in investment income primarily resulted from a $43,223
increase in interest earned from short-term investments due to an increase in
the amount of funds available for investment in such securities during the 1998
period compared to the same period in 1997. Partially offsetting the increase in
interest from short-term investments was a $15,315 negative variance in interest
and dividend income from portfolio investments for the 1998 period compared to
1997, primarily due to the write-off, during 1998, of accrued interest relating
to promissory notes due from VitaGen, Inc., as discussed above.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions 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, 1999, 1998 and
1997 the management fee was $76,345, $133,178 and $160,485, respectively. The
steady decline in the management fee over the three-year period ended December
31, 1999, reflects the reduced net asset value of the Partnership during this
period. The Partnership's net asset value was reduced during this period by
reductions to the fair value of its portfolio investments and cash distributions
paid or accrued to Partners. The management fee will continue to decline as the
Partnership continues with its liquidation. To the extent possible, the
management fee and other operating expenses have been 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. As
noted above, funds needed to cover the Partnership's future operating expenses
primarily will be obtained from its existing cash reserves.
Unrealized Gains and Losses and Changes in Unrealized Depreciation of Portfolio
Investments - For the year ended December 31, 1999, the Partnership had a
$2,759,802 favorable net change in unrealized depreciation of investments.
During 1999, $3,388,700 was transferred from unrealized loss to realized loss in
connection with the portfolio investments sold or written-off during the year,
as discussed above. Partially offsetting this favorable change was a $628,898
net downward revaluation of the Partnership's portfolio investments during 1999.
For the year ended December 31, 1998, the Partnership had a $469,578 favorable
net change in unrealized depreciation of investments. During 1998, $909,359 was
transferred from unrealized loss to realized loss in connection with the
portfolio investments sold or written-off during the year, as discussed above.
Partially offsetting this favorable change was a $530,498 net downward
revaluation of the Partnership's portfolio investments during 1998.
For the year ended December 31, 1997, the Partnership had a $676,802 unfavorable
net change in unrealized depreciation of investments. During 1997, the
Partnership reduced the fair value of its portfolio investments by $542,954 due
to a net downward revaluation of its publicly held securities during 1997.
Additionally, during 1997, $133,848 was transferred from unrealized gain to
realized gain in connection with the portfolio securities sold during the year,
as discussed above.
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.
As of December 31, 1999, the Partnership's net assets were $511,795, reflecting
a decrease of $5,078,104 from net assets of $5,589,899 as of December 31, 1998.
This change represents the $4,342,188 accrued cash distribution to Partners,
paid in January 2000, and the $735,986 decrease in net assets resulting from
operations for 1999. The decrease in net assets resulting from operations for
1999 was comprised of the $3,495,788 net realized loss from operations partially
offset by the $2,759,802 favorable change in net unrealized depreciation of
investments for 1999.
As of December 31, 1998, the Partnership's net assets were $5,589,899,
reflecting a decrease of $2,020,682 from net assets of $7,610,581 as of December
31, 1997. This change represents the decrease in net assets resulting from
operations for 1998, comprised of the $2,490,260 net realized loss from
operations, partially offset by the $469,578 favorable change in net unrealized
depreciation of investments for 1998.
As of December 31, 1997, the Partnership's net assets were $7,610,581,
reflecting a decrease of $713,240 from net assets of $8,323,821 as of December
31, 1996. This change represents the decrease in net assets resulting from
operations for 1997, comprised of the $36,438 net realized loss from operations
and the $676,802 unfavorable change in net unrealized depreciation of
investments for 1997.
The net asset value per $500 Unit, including an allocation of the net unrealized
depreciation of investments, as of December 31, 1999, 1998 and 1997 was $13,
$143 and $195, 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.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments and interest-bearing cash equivalents, including
short-term securities, which may result from fluctuations in interest rates and
equity prices. The Partnership has calculated its market risk related to its
holdings of these investments based on changes in interest rates and equity
prices utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
As of December 31, 1999, the Partnership held one short-term investment in a
discounted commercial paper instrument with a remaining maturity of 30 days.
This short-term investment was carried at an aggregate amortized cost of
$4,380,298 as of December 31, 1999. An assumed 10% increase in the market
interest rate of such short-term investment held by the Partnership as of
December 31, 1999, would result in a reduction to the fair value of such
investment and an unrealized loss which is considered to be immaterial.
Market risk relating to the Partnership's interest-bearing cash equivalents held
as of December 31, 1999 is considered to be immaterial.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
WESTMED VENTURE PARTNERS 2, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1999 and 1998
Schedule of Portfolio Investments as of December 31, 1999
Schedule of Portfolio Investments as of December 31, 1998
Statements of Operations for the years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Statements of Changes in Partners' Capital for the years ended December 31,
1997, 1998 and 1999
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998 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, 1999 and 1998, 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, 1999 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$22,000 at December 31, 1998, representing .004% of net assets, 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 25, 2000
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
<TABLE>
December 31,
1999 1998
--------------- ----------
ASSETS
Portfolio investments at fair value (cost of $0 as of December 31, 1999
<S> <C> <C> <C> <C> <C>
and $5,194,257 as of December 31, 1998) $ 0 $ 2,434,455
Cash and cash equivalents 4,867,693 3,076,472
Receivable from security sold 5,743 110,643
Accrued interest receivable 1,205 1,186
Prepaid insurance 22,289 53,072
--------------- ----------------
TOTAL ASSETS $ 4,896,930 $ 5,675,828
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ 4,342,118 $ -
Accounts payable and accrued expenses 40,445 43,337
Due to Managing General Partner 2,572 32,592
Due to Independent General Partners - 10,000
--------------- ----------------
Total liabilities 4,385,135 85,929
--------------- ----------------
Partners' Capital:
Managing General Partner 5,119 55,900
Limited Partners (38,727 Units) 506,676 5,533,999
--------------- ----------------
Total Partners' capital 511,795 5,589,899
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 4,896,930 $ 5,675,828
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
<TABLE>
As of December 31, 1999
Initial
Investment
Company / Position Date Cost Fair Value
La Jolla Pharmaceutical Company(A)
Warrant to purchase 5,015 shares of Common Stock Nov. 1991 $ $
<S> <C> <C> <C> <C> <C>
at $5.00 per share, expiring 6/3/00 0 0
--------------- ---------------
Active Portfolio Investments $ 0 $ 0
=============== ===============
Supplemental Information: Liquidated Portfolio Investments (D)
Cost Realized Loss Return
Liquidated Portfolio Investments (B) (C) $ 16,842,427 $ (9,549,586) $ 7,292,841
================= =============== ===============
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Active and Liquidated Portfolio Investments $ 16,842,427 $ (9,549,586) $ 7,292,841
================= =============== ===============
</TABLE>
(A) During 1999, the Partnership sold its remaining 100,383 common shares of La
Jolla Pharmaceutical Company and a warrant to purchase an additional 12,538
common shares of La Jolla Pharmaceutical at $6.00 per share for $71,761,
realizing a loss of $606,818.
(B) During 1999, the Partnership sold its remaining investment in the following
portfolio companies:
o 52,918 common shares of Integramed America, Inc. for $182,567,
realizing a loss of $2,139,859,
o 36,395 common shares of Synaptic Pharmaceutical Corporation for
$200,664, realizing a loss of $96,561,
o 225,395 common shares of Targeted Genetics, Inc. for $338,450,
realizing a loss of $728,903,
o 58,728 common shares of KeraVision, Inc. for $936,782, realizing a gain
of $483,641,
o its remaining holdings of VitaGen, Inc. for $14,400, realizing a loss
of $7,600.
(C) During 1999, the Partnership realized a loss of $353,533 from the write-off
of its remaining investment in Abtox, Inc.
(D) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1999.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
<TABLE>
As of December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Company / Position Date Cost Fair Value
Abtox, Inc.
<C> <C> <C> <C>
454,545 shares of Preferred Stock Mar. 1997 $ 353,533 $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)
52,918 shares of Common Stock Mar. 1989 2,322,426 274,512
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
58,728 shares of Common Stock Nov. 1992 453,141 840,545
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 451,724
25,076 warrants to purchase 12,538 shares of Common
Stock at $6.00 per share, expiring 6/3/99 0 3,918
Warrant to purchase 5,015 shares of Common Stock
at $5.00 per share, expiring 6/3/99 0 0
--------------- ---------------
678,579 455,642
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)
36,395 shares of Common Stock June 1991 297,225 545,925
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)
225,395 shares of Common Stock June 1992 1,067,353 295,831
- -------------------------------------------------------------------------------------------------------------------------------
VitaGen, Inc.*
1,484,123 shares of Series A Preferred Stock Jan. 1992 17,706 17,706
356,190 shares of Series B Preferred Stock Oct.1997 4,294 4,294
--------------- ---------------
22,000 22,000
- -------------------------------------------------------------------------------------------------------------------------------
Active Portfolio Investments $ 5,194,257 $ 2,434,455
=============== ===============
Supplemental Information: Liquidated Portfolio Investments (B)
Cost Realized Loss Return
Liquidated Portfolio Investments $ 11,648,170 $ (6,099,953) $ 5,548,217
============== =============== ===============
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Active and Liquidated Portfolio Investments $ 16,842,427 $ (8,859,755) $ 7,982,672
=============== =============== ===============
</TABLE>
(A) Public company
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1998.
* 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
<TABLE>
For the Years Ended December 31,
1999 1998 1997
------------- --------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 179,018 $ 92,422 $ 49,199
Interest and dividend income from portfolio investments - (8,186) 7,129
------------- --------------- -------------
Total investment income 179,018 84,236 56,328
------------- --------------- -------------
Expenses:
Management fee 76,345 133,178 160,485
Professional fees 56,387 66,082 66,797
Litigation expense 21,000 - -
Mailing and printing 21,902 26,105 21,617
Insurance expense 31,794 35,388 58,152
Custodial fees 2,390 2,312 2,664
Independent General Partners' fees 10,000 10,000 10,000
Other 5,355 - 250
------------- --------------- -------------
Total investment expenses 225,173 273,065 319,965
------------- --------------- -------------
NET INVESTMENT LOSS (46,155) (188,829) (263,637)
Net realized (loss) gain from investments (3,449,633) (2,301,431) 227,199
------------- --------------- -------------
NET REALIZED LOSS FROM OPERATIONS (3,495,788) (2,490,260) (36,438)
Change in unrealized depreciation of investments 2,759,802 469,578 (676,802)
------------- --------------- -------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (735,986) $ (2,020,682) $ (713,240)
============= =============== =============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
For the Years Ended December 31,
1999 1998 1997
-------------- -------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (46,155) $ (188,829) $ (263,637)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease (increase) in receivables and other assets 30,764 (8,547) (13,624)
Decrease in payables (42,912) (27,934) (44,228)
-------------- --------------- ---------------
Cash used for operating activities (58,303) (225,310) (321,489)
-------------- -------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Proceeds from the sale of portfolio investments 1,849,524 2,897,412 300,200
Cost of portfolio investments purchased - (188,888) (1,249,488)
-------------- -------------- ---------------
Cash provided from (used for) investing activities 1,849,524 2,708,524 (949,288)
-------------- -------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution paid to Partners - - (3,012,100)
-------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 1,791,221 2,483,214 (4,282,877)
Cash and cash equivalents at beginning of year 3,076,472 593,258 4,876,135
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,867,693 $ 3,076,472 $ 593,258
============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
For the Years Ended December 31, 1997, 1998 and 1999
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 $ 83,238 $ 8,240,583 $ 8,323,821
Net decrease in net assets from operations (7,132) (706,108) (713,240)
----------- -------------- ---------------
Balance as of December 31, 1997 76,106 7,534,475(A) 7,610,581
Net decrease in net assets from operations (20,206) (2,000,476) (2,020,682)
----------- -------------- ---------------
Balance as of December 31, 1998 55,900 5,533,999(A) 5,589,899
Accrued cash distribution, paid January 28, 2000 (43,421) (4,298,697) (4,342,118)
Net decrease in net assets from operations (7,360) (728,626) (735,986)
----------- -------------- ---------------
Balance as of December 31, 1999 $ 5,119 $ 506,676(A) $ 511,795
=========== ============== ===============
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
allocation of net unrealized depreciation of investments, is $13, $143 and
$195 as of December 31, 1999, 1998 and 1997, 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"). Opco is the successor corporation to Oppenheimer &
Co., Inc., following the acquisition and subsequent merger of Oppenheimer & Co.,
Inc. and CIBC Wood Gundy Corp. in November 1997. Opco is a subsidiary of
Canadian Imperial Bank of Commerce. The limited partners of the Managing General
Partner are Opco, MVP Holdings, Inc. and BSW, Inc., a Delaware corporation owned
by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler. Alsacia Venture
Management, Inc. (the "Sub-Manager"), a corporation controlled by Philippe L.
Sommer, serves as the sub-manager of the Partnership pursuant to a
sub-management agreement between the Managing General Partner and the
Sub-Manager. The Sub-Manager has been retained by the Managing General Partner
to assist the Managing General Partner in the performance of certain of its
duties to the Partnership.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership's originally scheduled termination
date was December 31, 1998, with provision for extension for two additional
two-year periods. The General Partners have elected not to extend the
Partnership's termination date. However, pursuant to the Partnership Agreement
(as hereinafter defined) and Delaware Law, the Managing General Partner will
continue to manage the Partnership through its date of liquidation, which will
occur when it has satisfied all liabilities and obligations to creditors and has
sold, distributed or otherwise disposed of its investments in portfolio
companies.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are valued quarterly by the
Managing General Partner under the supervision of the Independent General
Partners. Publicly-held portfolio securities are valued at the closing public
market price on the valuation date 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
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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 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. From inception to December 31, 1999, other
timing differences totaling $3.3 million, primarily relating to original sales
commissions paid and other costs of selling the Units, have been recorded on the
Partnership's financial statements but have not yet been deducted for tax
purposes.
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
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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, 1999, the
Partnership had a $9.3 million net realized loss from its venture capital
investments, including approximately $240,000 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 no venture capital fees for
the year ended December 31, 1999. Cumulative venture capital fees incurred from
inception to December 31, 1999 totaled approximately $964,000.
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.
The Managing General Partner also provides certain shareholder services and
database management support for the Limited Partners of the Partnership. For
such services, the Managing General Partner charges the Partnership $4,500 per
quarter. This amount is paid to the Managing General Partner in addition to the
regular management fee discussed above.
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. 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 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 VitaGen, Inc., formerly Hepatix, Inc.,
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
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, Inc. 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. On September 13, 1999, a
mediation was held between the parties and the matter was settled in principal.
Under the current terms of the settlement, the defendants paid $175,000, of
which the Partnership's share was $21,000, exclusive of legal fees.
7. Cash Distributions
In December 1999, the Managing General Partner approved a cash distribution to
Partners totaling $4,342,118. Such distribution was paid on January 28, 2000.
Limited Partners of record on December 31, 1999 received $4,298,697, or $111 per
unit of limited partnership interest, and the Managing General Partner received
$43,421. Cumulative cash distributions paid or accrued as of December 31, 1999
total $7,631,835, including $7,555,517 to the Limited Partners, or approximately
$195 per unit of limited partnership interest, and $76,318 to the Managing
General Partner.
<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 15, 2000:
Thomas E. White, Age 66, Independent General Partner since 1987
260 Barnard Road
Larchmont, New York 10538
Units of the Partnership owned as of March 15, 2000 - none.
Mr. White, an attorney in private practice in New York, was an independent
general partner of WestMed Venture Partners, L.P. ("WVP") until its termination
in September 1999. 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 60, Independent General Partner since 1987
Elliott Investment Co.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Units of the Partnership owned as of March 15, 2000 - none.
Mr. Elliott, currently a private investor, was the Chairman and Chief
Executive Officer of VLI Corporation ("VLI") from 1983 to 1987. Mr. Elliott
was an independent general partner of WVP until its termination in
September 1999, and currently is a member of the Board of Trustees of
Chapman University and a member of the Board of Directors of three
privately-held medical device companies and one public company. He is a
former Director of the Health Industries Manufacturers Association. From
1979 until 1983, Mr. Elliott was Vice President and Director of Howmedica,
Inc. with responsibility for the Medical Specialty Products Division,
including domestic and international manufacturing and distribution.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership's venture capital investments. Subject to the supervision of the
Independent General Partners, the Managing General Partner is authorized to make
all decisions regarding the Partnership's venture capital investment portfolio,
including, among other things, to find, evaluate, structure, monitor and
liquidate such investments and to provide, or arrange for the provision of,
managerial assistance to the portfolio companies in which the Partnership
invests.
The general partner of the Managing General Partner is Medical Venture
Holdings, Inc. ("MVH"), a Delaware corporation affiliated with CIBC Oppenheimer
Corp. ("Opco") (formerly Oppenheimer & Co., Inc.). The limited partners of the
Managing General Partner are (i) Opco, (ii) MVP Holdings, Inc. ("MVP"), a
Delaware corporation, and (iii) BSW, Inc. ("BSW"), a Delaware corporation
wholly-owned by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler, the
individuals originally responsible for the Partnership's venture capital
investments.
In June 1996, the Managing General Partner engaged Alsacia Venture
Management, Inc. (the "Sub-Manager") to assist the Managing General Partner in
the performance of its duties to the Partnership. The Sub-Manager is controlled
by 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 15, 2000 concerning the directors and
officers of MVH that are principally involved with the operations of the
Partnership. Mr. Rothstein and Ms. Fusco have been officers of MVH since April
1996 and June 1996, respectively. The address of each such person is CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281.
Gerald A. Rothstein, Age 57, President
Units of the Partnership owned as of March 15, 2000 - 0 Units
Mr. Rothstein has been a Managing Director of Opco since 1983. He is
primarily responsible for Opco's private equity efforts and focuses upon the
emerging markets of Latin America and India. Mr. Rothstein is a member and
chairperson of Opco's Commitment committee and also, a member of Opco's Due
Diligence committee.
Ann O. Fusco, Age 45, Vice President
Units of the Partnership owned as of March 15, 2000 - 0 Units
Ms. Fusco has been Director of Opco since the merger of Opco in November
1997. Prior to the merger, she was Vice President of Oppenheimer Properties,
Inc. since July 1986 and has been employed by Opco since April 1984. In June
1996 Ms. Fusco became Vice President of MVH. Ms. Fusco is a Certified Public
Accountant in the state of New York.
There are no family relationships among any of the Independent General Partners
and the officers and directors of MVH or the Sub-Manager. MVH is owned 100% by
Opco.
The Sub-Manager
The Sub-Manager is wholly-owned by Philippe L. Sommer. Presented below is
information concerning Mr. Sommer as of March 15, 2000.
Philippe L. Sommer, Age 48, Sole Director, Officer and Stockholder Units of the
Partnership owned as of March 15, 2000 - 0 Units
Mr. Sommer is a Managing Director of BSW, Inc. and a member of the Board of
Directors of BSW. He has been involved in health-care industry management
for the past 20 years. From June 1990 until July 1996, Mr. Sommer served as
an Executive Vice President and a Managing Director of MVH. He was a
Managing Director of MVP from April 1987 to June 1990. From January 1982 to
September 1986, he was a Director of Business Development for Pfizer
Hospital Products Group ("HPG") and in such capacity was responsible for
directing HPG's merger and acquisition activities for medium to larger
acquisitions, and for the financial evaluation and valuation of all of
HPG's acquisition, venture and licensing projects.
Item 11. Executive Compensation.
----------------------
Each Independent General Partner receives an annual fee from the Partnership of
$5,000 together with all out-of-pocket expenses relating to attendance at
meetings of the General Partners.
The description of the allocation and distribution of the Partnership's profits
and losses to the Managing General Partner set forth in Item 5. "Market for
Registrant's Common Equity and Related Stockholder Matters" is incorporated
herein by reference.
For the years ended December 31, 1999, 1998 and 1997, the Managing General
Partner was allocated $7,360, $20,206 and $7,132 of the net decrease in the
Partnership's net assets from operations for each of the respective periods.
Pursuant to a management agreement, 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. For the years ended December 31,
1999, 1998 and 1997, the Managing General Partner received management fees of
$76,345, $133,178 and $160,485, respectively.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investment. The Partnership incurred venture capital fees of $0,
$10,793 and 71,394 for the years ended December 31, 1999, 1998 and 1997,
respectively. Cumulative venture capital fees incurred from inception to
December 31, 1999 totaled $964,036.
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.
The Managing General Partner has arranged for Palmeri Fund Administrators,
Inc., an independent administrative services company, to provide administrative
services to the Partnership. Fees for such services are paid directly by the
Managing General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
Security Ownership
As of March 15, 2000, 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, 1999 and 1998
Schedule of Portfolio Investments as of December 31, 1999
Schedule of Portfolio Investments as of December 31, 1998
Statements of Operations for the years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Statements of Changes in Partners' Capital for the years ended
December 31, 1997, 1998 and 1999
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership(3)
3.2 Amendment to Amended and Restated Certificate of Limited
Partnership(3)
3.3 Partnership Agreement(1)
3.4 Amendment No. 1 to the Partnership Agreement(2)
4 Articles Five through Eleven of the Partnership Agreement(1)
10.1 Management Agreement dated as of September 30, 1997
between the Partnership and the Managing General Partner(4)
10.2 Sub-Management agreement dated as of September 30, 1997
among the Partnership, the Managing General Partner and
the Sub-Manager(5)
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors
Fiduciary Trust Company(1)
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- -------------------------------
(1) Filed as an exhibit to the Partnership's Registration Statement on Form
N-2 (33-11926), and incorporated herein by reference.
(2) Filed as an exhibit to the Partnership's Report on Form 8-K dated
July 10, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to the Partnership's Report on Form 10-K for the year
ended December 31, 1990.
(4) Filed as Exhibit A to the Partnership's proxy statement dated
August 29, 1997 and incorporated herein by reference.
(5) Filed as Annex I to the Partnership's proxy statement dated
August 29, 1997 and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 30th day of March 2000.
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/ Gerald A. Rothstein
Gerald A. Rothstein
President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated on the 30th day of March 2000.
WESTMED VENTURE
<TABLE>
<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/ Gerald A. Rothstein President (principal executive officer) of Medical Venture Holdings, Inc.
-------------------------------------------
Gerald A. Rothstein
By: /s/ Ann Oliveri Fusco Vice President (principal financial and accounting officer) of Medical Ann
-------------------------------------------
Oliveri Fusco Venture Holdings, Inc.
By: /s/ Thomas E. White Independent General Partner of WestMed Venture Partners 2, L.P.
-------------------------------------------
Thomas E. White
By: /s/ Robert A. Elliott Independent 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 6,948
<ASSETS-OTHER> 22,289
<OTHER-ITEMS-ASSETS> 4,867,693
<TOTAL-ASSETS> 4,896,930
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,385,135
<TOTAL-LIABILITIES> 4,385,135
<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> 0
<NET-ASSETS> 511,795
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 179,018
<OTHER-INCOME> 0
<EXPENSES-NET> 225,173
<NET-INVESTMENT-INCOME> (46,155)
<REALIZED-GAINS-CURRENT> (3,449,663)
<APPREC-INCREASE-CURRENT> 2,759,802
<NET-CHANGE-FROM-OPS> (735,986)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,342,118
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,078,104)
<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> 3,050,847
<PER-SHARE-NAV-BEGIN> 143
<PER-SHARE-NII> (1)
<PER-SHARE-GAIN-APPREC> (18)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (111)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13
<EXPENSE-RATIO> 0
</TABLE>
