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 0-17198
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
===============================================================================
(Exact name of registrant as specified in its charter)
Oklahoma 73-1329487
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Meridian Tower, Suite 1060
5100 East Skelly Drive
Tulsa, Oklahoma 74135
================================================================================
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 663-2500
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]
As of March 21, 1998, 10,243 units of limited partnership interest ("Units")
were held by non-affiliates of the Registrant. There is no established public
trading market for such Units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated December 1, 1988, filed with
the Securities and Exchange Commission, as supplemented by a supplement dated
April 25, 1989, are incorporated by reference in Part I, Part II and Part III
hereof.
<PAGE>
PART I
Item 1. Business.
Formation
ML Oklahoma Venture Partners, Limited Partnership (the "Partnership" or the
"Registrant") was organized under the Revised Uniform Limited Partnership Act of
the State of Oklahoma on July 15, 1988. MLOK Co., Limited Partnership (the
"Managing General Partner") and four individuals (the "Individual General
Partners") are the general partners of the Partnership. The Managing General
Partner is an Oklahoma limited partnership in which Merrill Lynch Venture
Capital Inc. (the "Management Company") is the general partner. The Management
Company is an indirect subsidiary of Merrill Lynch & Co., Inc. and an affiliate
of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new or developing companies, primarily
Oklahoma companies, and other special investment situations. The Partnership
does not engage in any other business or activity. The Partnership is scheduled
to terminate on December 31, 1998, subject to the right of the Individual
General Partners to extend the term for up to two additional two-year periods.
The Partnership was organized as a "qualified venture capital company" under
Oklahoma law and, therefore, was required to invest over 55% of its
capitalization in companies which constitute "Oklahoma business ventures", as
that term is defined under Oklahoma law. Accordingly, the Partnership's limited
partners (the "Limited Partners") were entitled to a credit against their 1989
Oklahoma state income tax in an amount equal to 20% of their original investment
in the Partnership. From its inception through December 31, 1997, the
Partnership had invested $9,919,136 in 18 portfolio investments of which
$6,478,342, or 65.31%, represents investments in Oklahoma business ventures.
The Partnership publicly offered, through Merrill Lynch, 25,000 units of limited
partnership interest at $1,000 per unit (the "Units"). The Units were registered
under the Securities Act of 1933 pursuant to a Registration Statement on Form
N-2 (File No. 33-24547), which was declared effective on December 1, 1988. The
Partnership completed its offering on August 14, 1989. A total of 10,248 Units
were sold to the Limited Partners. Gross capital contributions to the
Partnership total $10,355,556; $10,248,000 from the Limited Partners, $103,556
from the Managing General Partner and $4,000 from the Individual General
Partners.
The information set forth under the captions "Risk and Other Important Factors"
(pages 11 through 18), "Investment Objective and Policies" (pages 21 through 26)
and "Oklahoma Considerations" (pages 26 through 28) in the Prospectus of the
Partnership dated December 1, 1988 filed with the Securities and Exchange
Commission pursuant to Rule 497(b) under the Securities Act of 1933, as
supplemented by a supplement dated April 25, 1989 filed pursuant to Rule 497(d)
under the Securities Act of 1933 (the "Prospectus"), is incorporated herein by
reference.
The Venture Capital Investments
During 1997, the Partnership completed follow-on investments totaling $650,000
in three existing portfolio companies. From August 14, 1989 (commencement of
operations) to December 31, 1997, the Partnership had invested $9,919,136 in 18
portfolio companies. The Partnership has now fully invested its original net
proceeds from the offering of Units and will not make investments in any new
portfolio companies. However, the Partnership may make additional follow-on
investments in existing portfolio companies as required. As of December 31,
1997, the Partnership's investment portfolio consisted of eight active
investments with a cost basis of $4,673,359 and a fair value of $7,697,927. From
its inception to December 31, 1997, the Partnership had liquidated investments
with an aggregate cost basis of $5,245,777. These liquidated investments
returned $6,318,519 for a cumulative net realized gain of $1,072,742 as of
December 31, 1997. The Partnership also has earned interest and other income
from its portfolio investments totaling $391,889 from its inception to December
31, 1997. Following is a detail of portfolio activity during 1997:
In October 1997, the Partnership exercised a warrant to purchase 875,000
shares of Data Critical Corp. common stock at an exercise price of $.40 per
share and a total cost of $350,000. Additionally, in December 1997, the
Partnership sold 100,000 shares of Data Critical Corp. common stock for
$100,000, realizing a gain of $60,000.
In December 1997, the Partnership made a $50,000 follow-on investment in
Excel Energy Technologies, Ltd. acquiring a 15% promissory note.
In December 1997, the Partnership made a $250,000 follow-on investment in
Silverado Foods, Inc. acquiring a 14% bridge loan and a warrant to purchase
35,000 shares of common stock at $.625 per share expiring on December 19,
2002.
On November 3, 1997, ZymeTx, Inc. completed its initial public offering.
In connection with the offering, the company effected a 1-for-4 reverse
stock split resulting in an exchange of the Partnership's 1,218,315 shares
of ZymeTx common stock for 304,579 shares.
During 1997, the Partnership sold its investment of 275,317 shares of C.R.
Anthony Company common stock for $2,184,292, realizing a gain of $1,584,101. In
June 1997, Diagnetics, Inc. sold its assets and liquidated, resulting in a
return of $87,001 to the Partnership and a realized loss of $726,609.
Competition
The Partnership encounters competition from other entities having similar
investment objectives, including other entities affiliated with Merrill Lynch &
Co., Inc. 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.
Employees
The Partnership has no employees. The Managing General Partner, subject to the
supervision of the Individual General Partners, manages and controls the
Partnership's venture capital investments. The Management Company performs, or
arranges for others to perform, the management and administrative services
necessary for the operation of the Partnership and is responsible for managing
the Partnership's short-term investments.
<PAGE>
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information with respect to the market for the Units set forth under the
subcaption "Substituted Limited Partners" on page 40 of the Prospectus, is
incorporated herein by reference. An established public market for Registrant's
Units does not now exist, and it is not anticipated that such a market will
develop in the future. Accordingly, accurate information as to the market value
of a Unit at any given date is not available. The approximate number of holders
of Units as of March 21, 1998 is 1,071. The Managing General Partner and the
four Individual General Partners of the Partnership also hold interests in the
Partnership.
Beginning with the December 1994 client account statements, Merrill Lynch
implemented new guidelines for reporting estimated values of limited
partnerships and other direct investments on client account statements. As a
result, Merrill Lynch no longer reports general partner estimates of limited
partnership net asset value on its client account statements, although the
Registrant may continue to provide its estimate of net asset value to Unit
holders. Pursuant to the new guidelines, Merrill Lynch will report estimated
values for limited partnership interests originally sold by Merrill Lynch (such
as Registrant's Units) two times per year. Such estimated values will be
provided to Merrill Lynch by independent valuation services based on financial
and other information available to the independent services on (i) the prior
August 15th for reporting on December year-end and subsequent client account
statements through the following May's month-end client account statements, and
on (ii) March 31st for reporting on June month-end and subsequent client account
statements through the November month-end client account statements of the same
year.
The Managing General Partner's estimate of net asset value as of December 31,
1997 is $734 per Unit, including an assumed allocation of net unrealized
appreciation of investments. The Managing General Partner's estimate of net
asset value as set forth above reflects the value of the Partnership's
underlying assets remaining at year end, whereas the value provided by the
independent services reflects the estimated value of the Partnership Units
themselves based on information that was available on August 15th. Merrill Lynch
clients may contact their Merrill Lynch Financial Consultants or telephone the
number provided to them on their account statements to obtain a general
description of the methodology used by the independent valuation services to
determine their estimated values. The estimated values provided by the
independent services and the Registrant's current net asset value are not market
values and Unit holders may not be able to sell their Units or realize either
amount upon a sale of their Units. In addition, Unit holders may not realize the
independent estimated value or the Registrant's current net asset value amount
upon the liquidation of Registrant's assets over its remaining life.
Cash Distributions
Cash distributions paid during the periods presented and cumulative cash
distributions to Partners from the inception of the Partnership through December
31, 1997 are listed below:
<TABLE>
Managing Independent
General General Limited Per $1,000
Distribution Date Partner Partners Partners Unit
<S> <C> <C> <C> <C> <C> <C>
April 17, 1995 $ 0 $ 0 $ 2,049,600 $ 200
October 19, 1995 25,889 1,000 512,400 50
January 21, 1997 4,984 192 512,400 50
July 1, 1997 5,370 208 512,400 50
October 22, 1997 12,945 500 1,281,000 125
------------ ----------- -------------- -----------
Cumulative totals as of December 31, 1997 $ 49,188 $ 1,900 $ 4,867,800 $ 475
============ =========== ============== ===========
</TABLE>
<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>
Net investment loss $ (251) $ (373) $ (289) $ (143) $ (159)
Net realized gain (loss) on investments 939 370 1,651 (272) (1,043)
Change in unrealized appreciation of investments (1,995) 2,046 (950) 3,424 (388)
Total assets 7,784 11,427 9,317 11,472 8,483
Net unrealized appreciation of investments 3,025 5,020 2,974 3,924 500
Cash distributions to Partners 1,812 518 2,589 - -
Cumulative cash distributions to Partners 4,919 3,107 2,589 - -
Cost of portfolio investments purchased 650 151 213 1,121 2,543
Cumulative cost of portfolio investments
purchased 9,919 9,269 9,118 8,905 7,784
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net investment loss $ (24) $ (37) $ (28) $ (14) $ (15)
Net realized gain (loss) on investments 91 36 159 (26) (101)
Cash distributions to Partners 175 50 250 - -
Cumulative cash distributions to Partners 475 300 250 - -
Net unrealized appreciation of investments 292 485 287 379 48
Net asset value, including net unrealized
appreciation of investments 734 1,035 888 1,098 807
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
As of December 31, 1997, the Partnership held $85,653 in an interest-bearing
cash account. Interest earned on such cash balances and other short-term
investments for the years ended December 31, 1997, 1996 and 1995 was $67,561,
$36,435, and $46,514, respectively. Interest earned from short-term investments
in future periods is subject to fluctuations in short-term interest rates and
changes in amounts available for investment in such securities.
During 1997, the Partnership made follow-on investments totaling $650,000 in
three existing portfolio companies. The Partnership has fully invested its
original net proceeds and will not make additional investments in new portfolio
companies. Generally, the Partnership will distribute to Partners all proceeds
received from the sale of its portfolio investments, after an adequate reserve
for future operating expenses or follow-on investments in existing portfolio
companies, as soon as practicable after receipt. Funds needed to cover the
Partnership's future operating expenses and follow-on investments in existing
companies are expected to be obtained from existing cash reserves, interest and
other investment income and proceeds from the sale of portfolio investments.
During 1997, the Partnership realized proceeds of $2.4 million from the sale of
certain portfolio investments and, as a result, made two cash distributions to
Partners totaling $1,812,423. Limited Partners received $1,793,400, or $175 per
Unit, and the General Partners received $19,023. Cumulative cash distributions
to Partners from inception of the Partnership to December 31, 1997 total
$4,918,888. Limited Partners received $4,867,800, or $475 per Unit, and the
General Partners received $51,088.
Results of Operations
For the year ended December 31, 1997, the Partnership had a net realized gain
from operations of $688,367. For the years ended December 31, 1996 and 1995, the
Partnership had a net realized loss from operations of $2,389 and a net realized
gain from operations of $1,361,908, respectively. Net realized gain or loss from
operations is comprised of (1) net realized gains or losses from portfolio
investments and (2) net investment income or loss (interest and dividend income
less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1997, the Partnership had a net realized gain from portfolio
investments of $939,317. During 1997, the Partnership sold its investment of
275,317 shares of C.R. Anthony Company common stock in the public market for
$2,184,292, realizing a gain of $1,584,101. In December 1997, the Partnership
sold 100,000 shares of Data Critical Corp. common stock in a private transaction
for $100,000, realizing a gain of $60,000. In June 1997, Diagnetics, Inc. sold
its assets and liquidated, resulting in a return of $87,001 to the Partnership
and a realized loss of $726,609. Finally, during 1997, the Partnership
recognized a gain of $21,825, upon the receipt of the final escrow release in
connection with the 1996 acquisition of Enerpro International, Inc. by Energy
Ventures, Inc. ("EVI"), as discussed below.
For the year ended December 31, 1996, the Partnership had a net realized gain
from portfolio investments of $370,161. In May 1996, Enerpro International, Inc.
merged with EVI, a public company. In connection with the merger, the
Partnership received 24,500 shares of EVI common stock for its Enerpro holdings.
The Partnership sold such shares in the public market during 1996 for $737,967.
Additionally, pursuant to the merger agreement, $72,353 of such proceeds were
held in escrow and released in 1997, as discussed above. In 1996, the
Partnership had recorded a contingency reserve of $21,825 relating to the escrow
holdings and, therefore, recognized a $366,212 realized gain on a net basis in
connection with this transaction. Additionally during 1996, the Partnership sold
32,000 shares of Envirogen, Inc. in the public market for $115,949, realizing a
gain of $3,949.
For the year ended December 31, 1995, the Partnership had a $1,650,738 net
realized gain from its portfolio investments. In February 1995, the Partnership
sold its investment in BACE Manufacturing, Inc., for $2,138,475, realizing a
gain of $1,599,475. In July 1995, the Partnership sold its 15,491 shares of
Eckerd Corporation common stock for $479,911, realizing a gain of $336,919.
Additionally in September 1995, the Partnership sold its remaining 90,000 common
stock warrants of Envirogen for $39,344, realizing a gain of $39,344. Finally,
in December 1995, the Partnership wrote-off its $325,000 investment in Great
Outdoors Publishing Inc. due to continued business and financial difficulties at
the company.
Investment Income and Expenses - For the years ended December 31, 1997, 1996 and
1995, the Partnership had a net investment loss of $250,950, $372,550 and
$288,830, respectively. The $121,600 decrease in net investment loss for 1997
compared to 1996 resulted from a $73,315 increase in investment income and a
$48,285 decline in operating expenses. The increase in investment income
primarily resulted from an increase of $31,126 in interest from short-term
investments due to an increase in funds available for such investments during
1997 compared to 1996. The Partnership invests proceeds received from the sale
of portfolio investments in short-term securities until such funds are used for
operations or distributions are made to Partners. Also contributing to the
increase in investment income was a $42,189 positive change in income from
portfolio investments, primarily due to the 1996 write-off of a $51,106 accrued
interest receivable relating to promissory notes due from Americo Publishing,
Inc., which were fully reserved for in 1996. The decrease in operating expenses
for 1997 compared to 1996 primarily resulted from a $39,404 reduction in
professional fees. This reduction primarily was due to the reversal in 1997 of
excess professional fee accruals made in prior periods. Custodial fees also
declined primarily due to the reversal of excess accruals made in prior periods.
The $83,720 increase in net investment loss for 1996 compared to 1995 resulted
from a $100,130 decline in investment income partially offset by a $16,410
decline in operating expenses for 1996 compared to 1995. The decline in
investment income primarily resulted from the $51,106 write-off of accrued
interest receivable, as discussed above. Also contributing to the decline in
investment income was a $10,079 decrease in interest from short-term investments
resulting from a reduction in funds available for investment in such securities
during 1996. The reduction in operating expenses for 1996 compared to 1995
primarily resulted from a $12,062 decrease in Independent General Partners'
("IGPs") fees and expenses due to a decline in the number of IGP meetings held
during 1996.
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee of 2.5% of the gross capital contributions to the
Partnership, reduced by selling commissions and organizational and offering
expenses paid by the Partnership, capital distributed and realized losses, with
a minimum fee of $200,000 annually. Such fee is determined and paid quarterly.
The management fee for each year ended December 31, 1997, 1996 and 1995, was
$200,000.
Unrealized Gains and Losses and Changes in Unrealized Appreciation of Portfolio
Investments - For the year ended December 31, 1997, the Partnership recorded a
$1,679,349 net unrealized loss resulting from the net downward revaluation of
certain portfolio investments. These downward revaluations primarily were due to
declines in the public market prices of Silverado Foods, Inc. and UroCor, Inc.,
partially offset by an upward revaluation of ZymeTx, Inc., which completed its
initial public offering in November 1997. Additionally, during 1997 there was a
net transfer of $315,767 from unrealized gain to realized gain resulting from
sales or liquidations of C.R. Anthony, Data Critical and Diagnetics, as
discussed above. As a result, net unrealized appreciation of investments
decreased $1,995,116 for 1997.
For the year ended December 31, 1996, the Partnership recorded a $2,239,648 net
unrealized gain from its portfolio investments, primarily resulting from the net
upward revaluation of certain portfolio investments, primarily UroCor, Inc.,
which completed its initial public offering in May 1996. Offsetting the
unrealized gain for 1996 was the net transfer of $194,016 from unrealized gain
to realized gain resulting from the sale of Enerpro and Envirogen as discussed
above. As a result, net unrealized appreciation of investments increased
$2,045,632 for 1996.
For the year ended December 31, 1995, the Partnership recorded a $464,602 net
unrealized gain resulting from the net upward revaluation of certain portfolio
investments. Additionally during 1995, there was a net transfer of $1,414,514
from unrealized gain to realized gain resulting from portfolio investments sold
or written-off during 1995, as discussed above. As a result, net unrealized
appreciation of investments decreased $949,912 for 1995.
Net Assets - Changes to net assets resulting from operations are comprised of
(1) net realized gains and losses and (2) changes to net unrealized appreciation
of portfolio investments.
For the year ended December 31, 1997, the Partnership had a $1,306,749 decrease
in net assets resulting from operations, comprised of the $1,995,116 decrease in
net unrealized appreciation partially offset by the $688,367 realized gain from
operations for 1997. As of December 31, 1997, the Partnership's net assets were
$7,600,021, down $3,119,172 from $10,719,193 as of December 31, 1996. This
decrease reflects the $1,306,749 decrease in net assets from operations and the
cash distributions of $1,812,423 paid to Partners during 1997.
For the year ended December 31, 1996, the Partnership had a $2,043,243 increase
in net assets resulting from operations, primarily due to the $2,045,632
increase in net unrealized appreciation for 1996. As of December 31, 1996, the
Partnership's net assets were $10,719,193, up $1,525,667 from $9,193,526 as of
December 31, 1995. This increase reflects the $2,043,243 increase in net assets
from operations exceeding the accrued cash distribution of $517,576 paid to
Partners in January 1997.
As of December 31, 1995, the Partnership had a $411,996 increase in net assets
resulting from operations, comprised of the $1,361,908 net realized gain from
operations partially offset by the $949,912 net decrease in unrealized
appreciation for 1995. As of December 31, 1995, the Partnership's net assets
were $9,193,526, down $2,176,893 from $11,370,419 as of December 31, 1994. This
decrease reflects the $2,588,889 of cash distributions paid to Partners during
1995 exceeding the $411,996 increase in net assets resulting from operations for
1995.
Gains or losses from investments are allocated to the Partners' capital accounts
when realized in accordance with the Partnership Agreement (see Note 3 of Notes
to Financial Statements). However, for purposes of calculating the net asset
value per unit of limited partnership interest, net unrealized appreciation or
depreciation of investments has been included as if the net appreciation or
depreciation had been realized and allocated to the Limited Partners in
accordance with the Partnership Agreement. Pursuant to such calculation, the net
asset value per $1,000 Unit at December 31, 1997, 1996 and 1995 was $734, $1,035
and $888, respectively.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
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
ML Oklahoma Venture Partners, Limited Partnership:
We have audited the accompanying balance sheets of ML Oklahoma Venture Partners,
Limited Partnership (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 the Partnership as of 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
$4,424,331 and $10,098,594 as of December 31, 1997 and 1996, respectively,
representing 58.2% and 94.2% 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 24, 1998
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
<TABLE>
1997 1996
-------------- ----------
ASSETS
Investments
Portfolio investments, at fair value (cost $4,673,359 as of
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 and $5,477,160 as of December 31, 1996) $ 7,697,927 $ 10,496,844
Short-term investments, at amortized cost - 498,737
Cash and cash equivalents 85,653 380,685
Receivable from securities sold - 50,528
Accrued interest receivable 480 -
---------------- -----------------
TOTAL ASSETS $ 7,784,060 $ 11,426,794
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 517,576
Accounts payable 60,068 84,160
Due to Management Company 108,971 90,365
Due to Independent General Partners 15,000 15,500
---------------- -----------------
Total liabilities 184,039 707,601
---------------- -----------------
Partners' Capital:
Managing General Partner 45,754 57,186
Individual General Partners 1,771 2,213
Limited Partners (10,248 Units) 4,527,928 5,640,110
Unallocated net unrealized appreciation of investments 3,024,568 5,019,684
---------------- -----------------
Total partners' capital 7,600,021 10,719,193
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 7,784,060 $ 11,426,794
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS
As of December 31, 1997
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Americo Publishing, Inc.
<S><C> <C> <C> <C>
8%-10% Demand Promissory Notes Feb. 1994 $ 364,000 $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Data Critical Corp.*(B)(C)
762,500 shares of Preferred Stock April 1993 700,000 1,150,000
775,000 shares of Common Stock 310,000 620,000
- -------------------------------------------------------------------------------------------------------------------------------
Envirogen, Inc.(A)
118,000 shares of Common Stock Sept. 1991 413,000 177,000
- -------------------------------------------------------------------------------------------------------------------------------
Excel Energy Technologies, Ltd.*(B)(D)
3,492 shares of Preferred Stock Oct. 1993 663,907 66,391
17 shares of Common Stock 2,500 0
15% Promissory Note 50,000 50,000
- -------------------------------------------------------------------------------------------------------------------------------
Independent Gas Company Holdings, Inc.
464 shares of Preferred Stock June 1993 464,000 464,000
5,192 shares of Common Stock 3,336 3,336
- -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.*(A)(B)(E)
705,681 shares of Common Stock June 1992 529,900 297,709
Warrant to purchase 12,121 shares of Common Stock
at $8.25 per share, expiring 6/2/99 0 0
Warrant to purchase 35,000 shares of Common Stock
at $.625 per share, expiring 12/19/02 0 0
14% Bridge Loan 250,000 250,000
- -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc. (A)(B)
496,635 shares of Common Stock May 1991 921,305 3,072,929
Warrant to purchase 12,539 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 23,667
- -------------------------------------------------------------------------------------------------------------------------------
ZymeTx, Inc.(A)(B)(F)
304,579 shares of Common Stock July 1994 1,411 1,522,895
- -------------------------------------------------------------------------------------------------------------------------------
Total from Active Portfolio Investments(G) $ 4,673,359 $ 7,697,927
===================================
</TABLE>
Supplemental Information: Liquidated Portfolio Investments(H)
<TABLE>
Liquidation Realized
Company Date Cost Gain (Loss) Return
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bace Manufacturing, Inc. 1995 $ 539,000 $ 1,599,475 $ 2,138,475
C.R. Anthony Company 1994-1997 602,366 1,581,926 2,184,292
Data Critical Corp.(B) 1997 40,000 60,000 100,000
Diagnetics, Inc.(B) 1997 813,610 (726,609) 87,001
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
As of December 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
Eckerd Corporation 1995 $ 142,992 $ 336,919 $ 479,911
- -------------------------------------------------------------------------------------------------------------------------------
Envirogen, Inc. 1994-1996 112,000 49,290 161,290
Energy Ventures, Inc./Enerpro International, Inc. 1996 350,000 388,037 738,037
Great Outdoors Publishing, Inc.(B) 1995 325,000 (325,000) 0
- -------------------------------------------------------------------------------------------------------------------------------
Independent Gas Company Holdings, Inc. 1995 100 0 100
Quan Tem Laboratories, Inc.(B) 1990-1994 89,000 (48,713) 40,287
- -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.(B) 1994 280,000 0 280,000
- -------------------------------------------------------------------------------------------------------------------------------
Sports Tactics International, Inc. 1993-1994 450,000 (430,884) 19,116
- -------------------------------------------------------------------------------------------------------------------------------
Symex Corporation(B) 1993-1994 838,899 (838,899) 0
Tricon America Corporation(B) 1990-1991 662,810 (572,800) 90,010
Totals from Liquidated Portfolio Investments $ 5,245,777 $ 1,072,742 $ 6,318,519
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 9,919,136 $ 4,097,310 $ 14,016,446
=========================================================
</TABLE>
(A) Public company
(B) Qualifies as an "Oklahoma business venture" under Oklahoma law.
(C) In October 1997, the Partnership exercised a warrant to purchase 875,000
shares of Data Critical Corp. common stock at an exercise price of $.40 per
share and a total cost of $350,000. Additionally, in December 1997, the
Partnership sold 100,000 shares of Data Critical Corp. common stock for
$100,000, realizing a gain of $60,000.
(D) In December 1997, the Partnership made a $50,000 follow-on investment in
Excel Energy Technologies, Ltd. acquiring a 15% promissory note.
(E) In December 1997, the Partnership made a $250,000 follow-on investment in
Silverado Foods, Inc., acquiring a 14% bridge loan and a warrant to
purchase 35,000 shares of common stock at $.625 per share expiring on
December 19, 2002.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
As of December 31, 1997
(F) On November 3, 1997, ZymeTx, Inc. completed its initial public offering.
Additionally, during 1997, the company effected a 1-for-4 reverse stock
split. As a result, the Partnership exchanged its 1,218,315 shares of
common stock for 304,579 shares.
(G) During 1997, the Partnership sold its investment of 275,317 shares of C.R.
Anthony Company common stock for $2,184,292, realizing a gain of
$1,584,101. Additionally, in June 1997, the Partnership sold its investment
in Diagnetics, Inc. for $87,001, realizing a loss of $726,609.
(H) 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>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS
As of December 31, 1996
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Americo Publishing, Inc.
<S><C> <C> <C> <C>
8%-10% Demand Promissory Notes Feb. 1994 $ 364,000 $ 0
- -------------------------------------------------------------------------------------------------------------------------------
C.R. Anthony Company(A)
275,317 shares of Common Stock Oct. 1992 600,191 1,293,990
- -------------------------------------------------------------------------------------------------------------------------------
Data Critical Corp.*(B)
762,500 shares of Preferred Stock April 1993 700,000 1,150,000
Warrant to purchase 875,000 shares of Common Stock
at $.40 per share, expiring 10/6/97 0 350,000
- -------------------------------------------------------------------------------------------------------------------------------
Diagnetics, Inc.(B)
314,807 shares of Preferred Stock April 1991 756,115 406,805
44,227 shares of Common Stock 57,495 0
- -------------------------------------------------------------------------------------------------------------------------------
Envirogen, Inc.(A)
118,000 shares of Common Stock Sept. 1991 413,000 398,250
- -------------------------------------------------------------------------------------------------------------------------------
Excel Energy Technologies, Ltd.*(B)
3,492 shares of Preferred Stock Oct. 1993 663,907 166,602
17 shares of Common Stock 2,500 0
- -------------------------------------------------------------------------------------------------------------------------------
Independent Gas Company Holdings, Inc.
464 shares of Preferred Stock June 1993 464,000 464,000
5,192 shares of Common Stock 3,336 3,336
- -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.*(A)(B)
705,681 shares of Common Stock June 1992 529,900 1,455,467
Warrant to purchase 12,121 shares of Common Stock
at $8.25 per share, expiring 6/2/99 0 0
- -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc.(A)(B)
496,635 shares of Common Stock May 1991 921,305 4,274,393
Warrant to purchase 12,539 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 54,001
- -------------------------------------------------------------------------------------------------------------------------------
ZymeTx, Inc. (B)
1,218,315 shares of Common Stock July 1994 1,411 480,000
- -------------------------------------------------------------------------------------------------------------------------------
Totals $ 5,477,160 $ 10,496,844
===================================
</TABLE>
(A) Public company
(B) Qualifies as an "Oklahoma business venture" under Oklahoma law.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
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 $ 67,561 $ 36,435 $ 46,514
Interest and other income (loss) from portfolio investments 480 (41,709) 48,342
--------------- -------------- -------------
Total investment income 68,041 (5,274) 94,856
--------------- -------------- -------------
Expenses:
Management fee 200,000 200,000 200,000
Professional fees 42,789 82,193 86,850
Independent General Partners' fees 60,947 60,183 72,245
Mailing and printing 14,486 16,392 17,483
Custodial fees (1,638) 5,735 5,938
Miscellaneous 2,407 2,773 1,170
--------------- -------------- -------------
Total expenses 318,991 367,276 383,686
--------------- -------------- -------------
NET INVESTMENT LOSS (250,950) (372,550) (288,830)
Net realized gain from investments 939,317 370,161 1,650,738
--------------- -------------- -------------
NET REALIZED GAIN (LOSS) FROM OPERATIONS
(allocable to Partners) 688,367 (2,389) 1,361,908
Net change in unrealized appreciation of investments (1,995,116) 2,045,632 (949,912)
--------------- -------------- -------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (1,306,749) $ 2,043,243 $ 411,996
=============== ============== =============
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
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 $ (250,950) $ (372,550) $ (288,830)
Adjustments to reconcile net investment loss to cash
used for operating activities:
(Decrease) increase in payables (5,986) 66,249 22,034
Decrease (increase) in accrued interest on short-term investments 5,276 (4,880) 489
(Increase) decrease in receivables and other assets (480) 44,653 5,866
-------------- ------------- -------------
Cash used for operating activities (252,140) (266,528) (260,441)
-------------- ------------- -------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Cost of portfolio investments purchased (650,000) (151,200) (212,807)
Proceeds from the sale of portfolio investments 2,443,646 781,633 2,684,017
Net return from (purchase of) short-term investments 493,461 (244,530) 347,922
-------------- ------------- -------------
Cash provided from investing activities 2,287,107 385,903 2,819,132
-------------- ------------- -------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to Partners (2,329,999) - (2,588,889)
-------------- ------------- ----------
(Decrease) increase in cash and cash equivalents (295,032) 119,375 (30,198)
Cash and cash equivalents at beginning of year 380,685 261,310 291,508
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 85,653 $ 380,685 $ 261,310
============== ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation
Partner Partners Partners of Investments Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1994 $ 74,464 $ 2,878 $ 7,369,113 $ 3,923,964 $ 11,370,419
Cash distribution, paid
April 17, 1995 - - (2,049,600) - (2,049,600)
Cash distribution, paid
October 19, 1995 (25,889) (1,000) (512,400) - (539,289)
Net investment loss (2,888) (111) (285,831) - (288,830)
Net realized gain from investments 16,507 638 1,633,593 - 1,650,738
Net change in unrealized
appreciation of investments - - - (949,912) (949,912)
---------- -------- ------------- ------------- --------------
Balance as of December 31, 1995 62,194 2,405 6,154,875(A) 2,974,052 9,193,526
Accrued cash distribution, paid
January 21, 1997 (4,984) (192) (512,400) - (517,576)
Net investment loss (3,726) (143) (368,681) - (372,550)
Net realized gain from investments 3,702 143 366,316 - 370,161
Net change in unrealized
appreciation of investments - - - 2,045,632 2,045,632
---------- -------- ------------- ------------- --------------
Balance as of December 31, 1996 57,186 2,213 5,640,110(A) 5,019,684 10,719,193
Cash distribution, paid
July 1, 1997 (5,370) (208) (512,400) - (517,978)
Cash distribution, paid
October 22, 1997 (12,945) (500) (1,281,000) - (1,294,445)
Net investment loss (2,510) (97) (248,343) - (250,950)
Net realized gain from investments 9,393 363 929,561 - 939,317
Net change in unrealized
appreciation of investments - - - (1,995,116) (1,995,116)
---------- -------- ------------- ------------- --------------
Balance as of December 31, 1997 $ 45,754 $ 1,771 $ 4,527,928(A) $ 3,024,568 $ 7,600,021
========== ======== ============= ============= ==============
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net appreciation of investments, was $734, $1,035,
and $888 as of December 31, 1997, 1996 and 1995, respectively. Cumulative
cash distributions paid to Limited Partners totaled $475 per Unit as of
December 31, 1997.
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
ML Oklahoma Venture Partners, Limited Partnership (the "Partnership") was formed
on July 15, 1988 under the Revised Uniform Limited Partnership Act of the State
of Oklahoma. The Partnership's operations commenced on August 14, 1989. MLOK
Co., Limited Partnership, the managing general partner of the Partnership (the
"Managing General Partner"), is an Oklahoma limited partnership formed on July
15, 1988, the general partner of which is Merrill Lynch Venture Capital Inc.
(the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc.
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new or developing companies, primarily
Oklahoma companies, and other special investment situations. The Partnership
does not engage in any other business or activity. The Partnership will
terminate on December 31, 1998, subject to the right of the Individual General
Partners to extend the term for up to two additional two-year periods.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Individual General Partners. The Managing General Partner determines the
fair value of its portfolio investments by applying consistent guidelines. The
fair value of public securities is adjusted to the closing public market price
for the last trading day of the accounting period less an appropriate discount
for sales restrictions, the size of the Partnership's holdings and the public
market trading volume. Private securities are carried at cost until significant
developments affecting a portfolio investment provide a basis for change in
valuation. The fair value of private securities is adjusted 1) to reflect
meaningful third-party transactions in the private market or 2) 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. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
therefor. Realized gains and losses on investments sold are computed on a
specific identification basis.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
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 appreciation of
approximately $3.0 million as of December 31, 1997, which was recorded for
financial statement purposes, has not been recognized for tax purposes.
Additionally, from inception to December 31, 1997, other timing differences
totaling $1.0 million relating to the 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.
Statements of Cash Flows - The Partnership considers its interest-bearing cash
account to be cash equivalents.
3. Allocation of Partnership Profits and Losses
Pursuant to the Partnership Agreement, profits from venture capital investments
are allocated to all Partners in proportion to their capital contributions until
all Partners have been allocated a 10% Priority Return from liquidated
investments. Profits in excess of this amount are allocated 30% to the Managing
General Partner and 70% to all Partners in proportion to their capital
contributions until the Managing General Partner has been allocated 20% of the
total profits from venture capital investments. Thereafter, profits from venture
capital investments are allocated 20% to the Managing General Partner and 80% to
all Partners in proportion to their capital contributions. Profits from other
sources are allocated to all Partners in proportion to their capital
contributions.
Losses are allocated to all Partners in proportion to their capital
contributions. However, if profits had been previously allocated in the 70-30 or
80-20 ratios as discussed above, then losses will be allocated in the reverse
order in which profits were allocated.
4. Related Party Transactions
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee at an annual rate of 2.5% of the gross capital
contributions to the Partnership, reduced by selling commissions and
organizational and offering expenses paid by the Partnership, capital
distributed and realized losses, with a minimum annual fee of $200,000. Such fee
is determined and paid quarterly.
5. Limitation on Operating Expenses
The Management Company has undertaken to the Partnership that it will reduce its
management fee or otherwise reimburse the Partnership in order to limit the
annual operating expenses of the Partnership, exclusive of the management fee,
to an amount equal to $203,720.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
6. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives $16,000 annually in quarterly
installments, $1,000 for each meeting of the General Partners attended, $1,000
for each committee meeting attended ($500 if a committee meeting is held on the
same day as a meeting of the General Partners) and $500 for meetings held by
telephone conference.
7. Cash Distributions
Cash distributions paid during the periods presented and cumulative cash
distributions to Partners from the inception of the Partnership through December
31, 1997 are listed below:
<TABLE>
Managing Independent
General General Limited Per $1,000
Distribution Date Partner Partners Partners Unit
<S> <C> <C> <C> <C> <C> <C>
April 17, 1995 $ 0 $ 0 $ 2,049,600 $ 200
October 19, 1995 25,889 1,000 512,400 50
January 21, 1997 4,984 192 512,400 50
July 1, 1997 5,370 208 512,400 50
October 22, 1997 12,945 500 1,281,000 125
------------ ----------- -------------- -----------
Cumulative totals as of December 31, 1997 $ 49,188 $ 1,900 $ 4,867,800 $ 475
============ =========== ============== ===========
</TABLE>
8. Short-Term Investments
The Partnership held no short-term securities as of December 31, 1997. As of
December 31, 1996 the Partnership's short-term securities consisted of the
following investment in commercial paper:
<TABLE>
Maturity Purchase Amortized
Issuer Yield Date Price Cost Face Value
December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Korean Development Bank 5.35% 1/17/97 $ 493,461 $ 498,737 $ 500,000
------------ ------------ ---------------
</TABLE>
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
9. Portfolio Investments
As of December 31, 1997, the Partnership's portfolio investments were
categorized as follows:
<TABLE>
% of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 2,181,452 $ 5,717,536 75.23%
Preferred Stock 1,827,907 1,680,391 22.11%
Debt Securities 664,000 300,000 3.95%
---------------- --------------- ----------
$ 4,673,359 $ 7,697,927 101.29%
================ =============== ==========
Country/Geographic Region
Oklahoma $ 3,429,023 $ 7,053,591 92.81%
Non-Oklahoma 1,244,336 644,336 8.48%
---------------- --------------- ----------
$ 4,673,359 $ 7,697,927 101.29%
================ =============== ==========
Industry
Publishing $ 364,000 $ 0 0.00%
Food Manufacturing & Distribution 779,900 547,709 7.21%
Energy/Natural Gas 1,183,743 583,727 7.68%
Data Communications 1,010,000 1,770,000 23.29%
Environmental Technology 413,000 177,000 2.33%
Healthcare/Biotechnology 922,716 4,619,491 60.78%
---------------- --------------- ----------
$ 4,673,359 $ 7,697,927 101.29%
================ =============== ==========
</TABLE>
* Represents fair value as a percentage of net assets.
10. Subsequent Event
During the first quarter of 1998, the Partnership sold 40,000 common shares of
Envirogen, Inc. for $56,924, realizing a loss of $83,076.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
GENERAL PARTNERS
The General Partners of the Partnership consist of the four Individual General
Partners and the Managing General Partner. The five General Partners are
responsible for the management and administration of the Partnership. As
required by the Investment Company Act of 1940 (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 1989, the Securities and Exchange
Commission issued an order declaring that the independent general partners of
the Partnership (the "Independent General Partners") are not "interested
persons" of the Partnership as defined in the 1940 Act solely by reason of their
being general partners of the Partnership. The Managing General Partner and the
four Individual General Partners will serve as the General Partners of the
Partnership until successors have been elected or until their earlier
resignation or removal.
The Individual 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
directors of business development companies under the 1940 Act. In addition to
general fiduciary duties, the Individual General Partners, among other things,
supervise the management arrangements of the Partnership and the activities of
the Managing General Partner.
The Managing General Partner has exclusive power and authority to manage and
control the Partnership's venture capital investments, subject to the
supervision of the Individual General Partners. Additionally, subject to the
supervision of the Individual General Partners, the Managing General Partner is
authorized to make all decisions regarding the Partnership's venture capital
investment portfolio including, among other things, 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.
<PAGE>
Individual General Partners
William C. Liedtke, III (1)
P.O. Box 54369
Oklahoma City, OK 73154
Age 46
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 21, 1998 (3)
Since 1997, Chief Executive Officer of Redeco Energy, Inc.; from 1996 to 1997,
Chief Operating Officer of Redex Co. Ventures,
Ltd.; from 1991 to 1996, Energy consultant; from 1989 to 1991, Assistant to
the Governor of the State of Oklahoma; since 1984, an independent natural
gas marketing consultant; an oil and gas marketing manager for Trigg
Drilling Company, Inc.; a member of the State Bar of Texas.
Richard P. Miller (1)
7500 N. Mockingbird Lane
Paradise Valley, AZ 85253
Age 70
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 21, 1998 (3)
Since1988 Director of Techlaw, Inc.; since 1995, President of Paice Corp.; from
1983 to 1990, Executive Vice President of Private Sector Counsel; in 1983
and 1984, Vice President, Corporate Finance, Union Bank of California; from
1968 to 1983, founder and Chief Executive Officer of Systems Control Inc.
George A. Singer (1)
2222 E. 25th Place
Tulsa, OK 74114
Age 50
Individual General Partner since 1995
0 Units of the Partnership beneficially owned as of March 21, 1998 (3)
Since 1978, Manager and Principal of Singer Bros. and General Partner of several
related family entities; since 1978, Executive
Vice President, Pedestal Oil Company, Inc.; since 1981, Director of
Manchester Pipeline Corporation; a member of the Independent Petroleum
Association of America.
Bruce W. Shewmaker (2)
12 Briarwood Drive
Short Hills, NJ 07078
Age 52
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 21, 1998 (3)
SinceJanuary 1997, President and CEO of The U.S. Russia Investment Fund; from
1991 to 1996, President of New Century Management, Inc., a venture caital
management and advisory firm; from 1990 to 1991, venture investment advisor
with Vector Securities International, Inc., an investment banking firm
specializing in health care companies; from 1984 to 1990, President of
Merrill Lynch R&D Management, Inc., from 1982 to 1983 and from 1988 to
1990, Vice President of Merrill Lynch Venture Capital, Inc.
(1) Independent General Partner and Member of Audit Committee.
(2) Interested person, as defined in the Investment Company Act, of the
Partnership.
(3) Each Individual General Partner has contributed $1,000 to the capital of
the Partnership. Mr. Shewmaker is a limited partner of the Managing General
Partner of the Partnership. The Managing General Partner contributed
$103,556 to the capital of the Partnership. George A. Singer succeeded to
the interest of a prior Independent General Partner who contributed $1,000
to the capital of the Partnership.
The Managing General Partner
MLOK Co., Limited Partnership (the "Managing General Partner") is a limited
partnership organized on July 15, 1988 under the laws of the State of Oklahoma.
The Managing General Partner maintains its legal address at Meridian Tower, 5100
East Skelly Drive, Suite 1060, Tulsa, OK 74135. The Managing General Partner has
acted as the managing general partner of the Partnership since the Partnership
commenced operations on August 14, 1989. The Managing General Partner is engaged
in no other activity. The Managing General Partner has contributed $103,556 to
the capital of the Partnership, equal to 1% of the aggregate capital
contributions of all Partners of the Partnership.
The general partner of the Managing General Partner is Merrill Lynch Venture
Capital Inc. (the "Management Company") and the limited partners of the Managing
General Partner include Joe D. Tippens, C. James Bode and John Frick,
independent contractors to the Management Company. Information concerning the
Management Company is set forth below.
The Management Company
Merrill Lynch Venture Capital Inc. (the "Management Company") has served as the
management company for the Partnership since the Partnership commenced
operations. The Management Company performs, or arranges for others to perform,
the management and administrative services necessary for the operation of the
Partnership pursuant to a Management Agreement between the Partnership and the
Management Company.
The Management Company is an indirect subsidiary of Merrill Lynch & Co., Inc.
The Management Company, which was incorporated under Delaware law on January 25,
1982, maintains its principal office at North Tower, World Financial Center, New
York, New York 10281-1326. Listed below is information concerning the directors
and officers of the Management Company, who are principally involved with the
Partnership's operations. Unless otherwise noted, the address of each such
person is World Financial Center, North Tower, New York, New York 10281.
Kevin K. Albert, Age 45, Director, President
Officer or Director since 1990
Managing Director of Merrill Lynch & Co. Investment Banking Division ("MLIBK")
since 1988; Vice President of MLIBK from 1983 to 1988.
<PAGE>
Robert F. Aufenanger, Age 44, Director and Executive Vice President
Officer or Director since 1990
Vice President of Merrill Lynch & Co. Corporate Credit and Director of the
Partnership Management Group since 1991; Director of MLIBK from 1990 to
1991; Vice President of MLIBK from 1984 to 1990.
Steven N. Baumgarten, Age 42, Vice President Officer or Director since 1993 Vice
President of MLPF&S since 1986.
Michael E. Lurie, Age 54, Director, Vice President
Officer or Director since 1995
First Vice President of Merrill Lynch & Co. Corporate Credit and Director
of the Asset Recovery Management Department, joined Merrill Lynch in 1970. Prior
to his present position, Mr. Lurie was the Director of Debt and Equity Markets
Credit responsible for the global allocation of credit limits and the approval
and structuring of specific transactions related to debt and equity products.
Mr. Lurie also served as Chairman of the Merrill Lynch International Bank Credit
Committee.
Diane T. Herte
Vice President and Treasurer
Age 37
Officer or Director since 1995
Vice President of Merrill Lynch & Co. Investment Banking Group since 1996 and
previously an Assistant Vice President of Merrill Lynch & Co. Corporate
Credit Group since 1992, joined Merrill Lynch in 1984. Ms. Herte's
responsibilities include controllership and financial management functions
for certain partnerships and other entities for which subsidiaries of
Merrill Lynch are the general partner, manager and administrator.
The directors of the Management Company will serve as directors until the next
annual meeting of stockholders and until their successors are elected and
qualify. The officers of the Management Company will hold office until the next
annual meeting of the Board of Directors of the Management Company and until
their successors are elected and qualify.
There are no family relationships among any of the Individual General Partners
of the Partnership and the officers and directors of the Management Company.
The Management Company 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 Management
Company.
Item 11. Executive Compensation.
Compensation - The Partnership pays each Independent General Partner an annual
fee of $16,000 in quarterly installments, $1,000 per meeting of the Individual
General Partners attended and $500 for participating in each special meeting of
the Individual General Partners conducted by telephone conference call and pays
all non-interested Individual General Partners' actual out-of-pocket expenses
relating to attendance at meetings. Additionally, the Independent General
Partners receive $1,000 for each meeting of the Audit Committee attended unless
such committee meeting is held on the same day as a meeting of the Individual
General Partners. In such case, the Independent General Partners receive $500
for each meeting of the Audit Committee attended. The aggregate fees and
expenses paid by the Partnership to the Independent General Partners for the
years ended December 31, 1997, 1996, and 1995, totaled $60,947, $60,183 and
$72,245, respectively.
Allocations and Distributions - The information with respect to the allocation
and distribution of the Partnership's profits and losses to the Managing General
Partner set forth under the caption "Partnership Distributions and Allocations"
on pages 35 - 37 of the Prospectus is incorporated herein by reference.
For the year ended December 31, 1997, the Partnership had a net realized gain
from operations of $688,367. For the years ended December 31, 1996 and 1995, the
Partnership had a net realized loss from operations of $2,389 and a net realized
gain from operations of $1,361,908, respectively. In accordance with the
Partnership's allocation procedure, the Managing General Partner was allocated
$6,883, $24 and $13,619 of such gains and losses for the years ended December
31, 1997, 1996 and 1995, respectively.
During 1997, the Partnership made cash distributions to Partners totaling
$1,812,423. Limited Partners received $1,793,400, or $175 per Unit. The
Individual General Partners received $708 and the Managing General Partner
received $18,315. During 1996, the Partnership made cash distributions to
Partners totaling $517,576. Limited Partners received $512,400, or $50 per Unit.
The Individual General Partners received $192 and the Managing General Partner
received $4,984. During 1995, the Partnership made cash distributions to
Partners totaling $2,588,889. Limited Partners received $2,562,000, or $250 per
Unit. The Individual General Partners received $1,000 and the Managing General
Partner received $25,889. There were no distributions paid to Partners prior to
1995.
Management Fee - Pursuant to the Management Agreement, the Management Company
receives a management fee at the annual rate of 2.5% of the amount of the
Partners' gross capital contributions (net of selling commissions and
organizational and offering expenses paid by the Partnership), reduced by
capital distributed and realized capital losses, with a minimum annual fee of
$200,000. Such fee is determined and paid quarterly in arrears. The management
fee was $200,000 for each of the years ended December 31, 1997, 1996 and 1995.
The Management Company has agreed to reduce its management fee, or otherwise
reimburse the Partnership in order to limit the annual operating expenses of the
Partnership, exclusive of the management fee, to an amount equal to $203,720.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General
Partners set forth in Item 10 under the subcaption "Individual General Partners"
is incorporated herein by reference. As of March 21, 1997, no person or group is
known by the Partnership to be the beneficial owner of more than 5 percent of
the Units.
The Partnership is not aware of any arrangement which may, at a subsequent date,
result in a change of control of the Partnership.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Kevin K. Albert, a Director and President of the Management Company and a
Managing Director of Merrill Lynch Investment Banking Group ("ML Investment
Banking"), joined Merrill Lynch in 1981. Robert F. Aufenanger, a Director and
Executive Vice President of the Management Company, a Vice President of Merrill
Lynch & Co. Corporate Credit and a Director of the Partnership Management
Department, joined Merrill Lynch in 1980. Steven N. Baumgarten, a Vice President
of the Management Company and MLPF&S, joined Merrill Lynch in 1986. Michael E.
Lurie, a Director and Vice President of the Management Company, a First Vice
President of Merrill Lynch & Co. Corporate Credit and the Director of the Asset
Recovery Management Department, joined Merrill Lynch in 1970. Diane T. Herte, a
Vice President and Treasurer of the Management Company and a Vice President of
Merrill Lynch & Co. Investment Banking Group, joined Merrill Lynch in 1984.
Messrs. Albert, Aufenanger, Lurie and Baumgarten and Ms. Herte are involved with
certain other entities affiliated with Merrill Lynch or its affiliates.
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. (a) Exhibits
(3) (a) Amended and Restated Certificate of Limited
Partnership of the Partnership dated as of
November 29, 1988.*
(b) Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of
November 29, 1988.*
(c) Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of
August 14, 1989.**
(10) Management Agreement dated as of November 29,
1988 between the Partnership and the Management
Company.*
(27) Financial Data Schedule.
(28) (a) Prospectus of the Partnership dated
December 1, 1988 filed with the Securities and
Exchange Commission pursuant to Rule 497 (b)
under the Securities Act of 1933, as
supplemented by a supplement dated April 25,
1989 filed pursuant to Rule 497 (d) under the
Securities Act of 1933.***
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
* Incorporated by reference to the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988 filed with the Securities and
Exchange Commission on April 3, 1989.
** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1989 filed with the Securities
and Exchange Commission on November 14, 1989.
*** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989 filed with the Securities and
Exchange Commission on May 15, 1989.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, 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, 1998.
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
By: MLOK Co. Limited Partnership
its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 30th day of March 1998.
By: MLOK Co., Limited Partnership
its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
<TABLE>
By: /s/ Kevin K. Albert By: /s/ Richard P. Miller
----------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Kevin K. Albert Richard P. Miller
President of Merrill Lynch Venture Capital, Inc. General Partner
(Principal Executive Officer) ML Oklahoma Venture Partners, Limited Partnership
By: /s/ Diane T. Herte By: /s/ George A. Singer
Diane T. Herte George A. Singer
V. P. & Treasurer of Merrill Lynch Venture Capital, Inc. General Partner
(Principal Financial and Accounting Officer) ML Oklahoma Venture Partners, Limited Partnership
By: /s/ William C. Liedtke, III By: /s/ Bruce W. Shewmaker
William C. Liedtke, III Bruce W. Shewmaker
General Partner General Partner
ML Oklahoma Venture Partners, Limited Partnership ML Oklahoma Venture Partners, Limited Partnership
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML
OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP'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>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,673,359
<INVESTMENTS-AT-VALUE> 7,697,927
<RECEIVABLES> 480
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 85,653
<TOTAL-ASSETS> 7,784,060
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184,039
<TOTAL-LIABILITIES> 184,039
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 10,248
<SHARES-COMMON-PRIOR> 10,248
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 7,600,021
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<EXPENSES-NET> 318,991
<NET-INVESTMENT-INCOME> (250,950)
<REALIZED-GAINS-CURRENT> 939,317
<APPREC-INCREASE-CURRENT> (1,995,116)
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<DISTRIBUTIONS-OTHER> 1,812,423
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<NET-CHANGE-IN-ASSETS> (3,119,172)
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