-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OLNFYtSTqyz5W9EGIhE5/ycPUruF61e0S7Br2bQEJ9GAB4Bj6gs7+B3wOVgnSov1 PXsQCJwZJ80xutnEzqIT5A== 0001094889-00-000012.txt : 20000331 0001094889-00-000012.hdr.sgml : 20000331 ACCESSION NUMBER: 0001094889-00-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML VENTURE PARTNERS II LP CENTRAL INDEX KEY: 0000789538 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133324232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 814-00043 FILM NUMBER: 587769 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR N TOWER STREET 2: 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10281-1330 BUSINESS PHONE: 2124491000 10-K 1 FORM 10K 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 0-14217 ML VENTURE PARTNERS II, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3324232 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) World Financial Center, North Tower New York, New York 10281-1326 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 449-1000 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) 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 15, 2000, 119,636 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 February 10, 1987, as supplemented by a supplement thereto dated April 21, 1987, are incorporated by reference in Part I and Part II hereof. PART I Item 1. Business. -------- Formation ML Venture Partners II, L.P. (the "Partnership" or the "Registrant") is a Delaware limited partnership organized on February 4, 1986. The General Partners of the Partnership consist of four individuals (the "Individual General Partners") and MLVPII Co., L.P. (the "Managing General Partner"), a New York 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"). DLJ Capital Management Corporation (the "Sub-Manager"), an affiliate of Donaldson, Lufkin and Jenrette, Inc., is the sub-manager pursuant to a sub-management agreement among the Partnership, the Managing General Partner, the Management Company and the Sub-Manager. The Partnership operates as a business development company under the Investment Company Act of 1940. The Partnership's investment objective is to seek long-term capital appreciation from its portfolio of venture capital investments. The Partnership considers this activity to constitute the single industry segment of venture capital investing. Through Merrill Lynch, the Partnership publicly offered 120,000 units of limited partnership interest (the "Units") at $1,000 per Unit. The Units were registered under the Securities Act of 1933 pursuant to a Registration Statement on Form N-2 (File No. 33-3220) which was declared effective on February 10, 1987. The Partnership held its initial and final closings on March 31, 1987 and June 10, 1987, respectively. A total of 120,000 Units were accepted at such closings and the additional limited partners (the "Limited Partners") were admitted to the Partnership. The information set forth under the captions "Risk and Other Important Factors" (pages 8 through 11), "Investment Objective and Policies" (pages 14 through 16), "Venture Capital Operations" (pages 17 through 20) and "Portfolio Valuation" (pages 27 and 28) in the prospectus of the Partnership dated February 10, 1987, filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as supplemented by a supplement thereto dated April 21, 1987 and filed pursuant to Rule 424(c) under the Securities Act of 1933 (the "Prospectus"), is incorporated herein by reference. The Venture Capital Investments The Partnership has fully invested the net proceeds received 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 its remaining portfolio companies. The Partnership made no new or follow-on investments during the years ended December 31, 1999 and 1998. As of December 31, 1999, the Partnership's investment portfolio consisted of five active investments with a cost of $2,964,006 and a fair value of $5,414,349. During the year ended December 31, 1999, the Partnership liquidated certain portfolio investments, realizing a net return of $13,259,269, resulting in a net realized gain of $6,025,590. Portfolio investments sold or written-off during 1999 are listed below: Portfolio Liquidations for the Year Ended December 31, 1999 (1): Shares Realized Investment Sold Cost Gain (Loss) Return - -------------------------------------------------------------------------------------------------------------------------- Clarus Medical Systems, Inc. - write-off n/a $ 1,000,548 $ (1,000,548) $ 0 CoCensys, Inc. (Sanderling) 19,063 (2) 192,504 (173,433) 19,071 Corporate Express, Inc. 60,000 12,000 570,000 582,000 Diatide, Inc. 809,704 2,986,023 4,706,165 7,692,188 Horizon Cellular Telephone Company, L.P. - liquidation n/a 0 389,118 389,118 IDE Corporation - write-off n/a 227,000 (227,000) 0 MLMS Cancer Research, Inc. - liquidation n/a 0 1,567 1,567 Neocrin Company - write-off n/a 363,378 (363,378) 0 Ogle Resources, Inc. n/a 0 8,304 8,304 Photon Dynamics, Inc. 428,879 (3) 2,452,226 2,114,795 4,567,021 -------------- ---------------- --------------- Total $ 7,233,679 $ 6,025,590 $ 13,259,269 ============== ================ ===============
(1) See Schedule of Portfolio Investments, included in the December 31, 1999 audited financial statements for the cumulative results of liquidations of these investments. (2) Adjusted for a 1-for-8 reverse stock split effective in April 1999. (3) Includes 3,643 shares received in a non-cash exchange for the Partnership's warrant to purchase 6,062 shares. Additionally, in March 1999, in a non-cash transaction, the Partnership exchanged its warrant to purchase 38,737 common shares of Brightware, Inc. at $.40 per share for 28,407 shares of Brightware common stock. As of December 31, 1999, the Partnership had invested $116,532,996 in its portfolio of venture capital investments. From its inception through December 31, 1999, the Partnership had fully or partially sold or wrote-off investments with an aggregate cost basis of $113,568,990. These liquidated investments returned $230,873,385 to the Partnership, resulting in a net realized gain of $117,304,395. Additionally, the Partnership earned interest and dividend income from its venture capital investments totaling $4,258,437 from inception to December 31, 1999. Termination In November 1999, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2001. However, the Managing General Partner continues to work toward liquidating the Partnership's remaining assets and terminating the Partnership as soon as practicable with the goal of maximizing returns to partners. 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. Competition has also been from foreign investors and from large industrial and financial companies investing directly rather than through venture capital affiliates. The Partnership was frequently a co-investor with other professional venture capital investors and these relationships generally had expanded the Partnership's access to investment opportunities. However, as discussed above, the Partnership will not make any new portfolio investments. Employees The Partnership has no employees. The Partnership Agreement provides that 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 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 Management Company and Individual General Partners, provides management services in connection with the Partnership's venture capital investments. Item 2. Properties. ---------- The Partnership does not own or lease physical properties. Item 3. Legal Proceedings. ----------------- The Partnership is not a party to any material pending legal proceedings. 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 pages 30 and 31 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 15, 2000 was 12,434. The Managing General Partner and the Individual General Partners of the Partnership also hold interests in the Partnership. Merrill Lynch has implemented guidelines pursuant to which it reports estimated values of 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) the prior 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 of the Partnership as of December 31, 1999 is $43 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 the prior August 15th as stated above. The estimated value provided by the independent valuation 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. Cash Distributions Cash distributions paid or accrued during the periods covered by this report and cumulative cash distributions paid to partners from inception of the Partnership through December 31, 1999 are listed below: Managing Individual Per General General Limited $1,000 Distribution Date Partner Partners Partners Unit - ------------------------------------------------ ----------------- ------------- ----------------- ------- Inception to December 31, 1996 $ 21,132,691 $ 5,200 $ 156,000,000 $ 1,300 July 11, 1997 2,590,089 640 19,200,000 160 October 16, 1997 411,084 260 7,800,000 65 January 26, 1999 314,632 140 4,200,000 35 October 7, 1999 180,589 140 4,200,000 35 January 25, 2000 (accrued) 1,384,720 244 7,320,000 61 ----------------- ---------- ----------------- --------- Cumulative totals as of December 31, 1999 $ 26,013,805 $ 6,624 $ 198,720,000 $ 1,656 ================= ========== ================= =========
Item 6. Selected Financial Data. ----------------------- ($ In Thousands, Except For Per Unit Information) Years Ended December 31, 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- -------- Net Realized Gain (Loss) on Investments $ 6,026 $ (2,166) $ 15,606 $ 46,879 $ 41,368 Net Change in Unrealized Appreciation of Investments (2,322) 765 (5,873) (25,245) 12,661 Net Increase (Decrease) in Net Assets Resulting from Operations 3,430 (1,554) 9,786 20,947 54,512 Cash Distributions paid or accrued to Partners 13,086 4,515 30,002 59,366 57,572 Cumulative Cash Distributions paid or accrued to Partners 224,741 211,655 207,140 177,138 117,772 Total Assets 14,946 20,359 21,919 42,268 95,045 Net Unrealized Appreciation of Investments 2,450 4,773 4,008 9,880 35,125 PER UNIT OF LIMITED PARTNERSHIP INTEREST: Net Realized Gain (Loss) on Investments $ 40 $ (14) $ 103 $ 309 $ 273 Net Increase (Decrease) in Net Assets Resulting from Operations 22 (10) 64 137 358 Cash Distributions 96 35 225 410 400 Cumulative Cash Distributions 1,656 1,560 1,525 1,300 890 Net Unrealized Appreciation of Investments 16 32 26 65 232 Net Asset Value, including Net Unrealized Appreciation of Investments 43 117 162 323 596
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 held $8,471,368 in short-term investments with maturities of less than one year and $1,059,973 in an interest-bearing cash account. For the years ended December 31, 1999, 1998 and 1997, the Partnership earned interest from such investments totaling $202,271, $280,896 and $638,556, 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. Funds needed to cover the Partnership's future operating expenses and follow-on investments, if any, will be obtained from the Partnership's existing cash reserves, interest and other investment income and proceeds received from the sale of portfolio investments. In November 1999, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2001. However, the Managing General Partner continues to work toward liquidating the Partnership's remaining assets and terminating the Partnership as soon as practicable with the goal of maximizing returns to partners. The Partnership will not make any new 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 and follow-on investments in the remaining portfolio companies. Subsequent to the end of the year, on January 25, 2000, the Partnership made a cash distribution to partners totaling $8,704,964, including $7,320,000, or $61 per Unit, to Limited Partners of record on December 31, 1999. The Managing General Partner received $1,384,720 and the Individual General Partners received $244. Cumulative cash distributions to partners as of December 31, 1999, including the accrued distribution paid in January 2000, total $224,740,429, including $198,720,000 to the Limited Partners, or $1,656 per $1,000 Unit, $26,013,805 to the Managing General Partner and $6,624 to the Individual General Partners. Results of Operations For the year ended December 31, 1999, the Partnership had a net realized gain from operations of $5,752,709. For the years ended December 31, 1998 and 1997, the Partnership had a net realized loss from operations of $2,319,244 and a net realized gain from operations of $15,659,055, respectively. Net realized gain or loss from operations is comprised of 1) net realized gain or loss from portfolio investments and 2) net investment income or loss (interest, dividend and other income less operating expenses). Realized Gains and Losses from Portfolio Investments - For the year ended December 31, 1999, the Partnership had a $6,025,590 net realized gain from its portfolio investments. During 1999, the Partnership sold its 809,704 common shares of Diatide, Inc. in connection with a cash tender offer of the company's outstanding shares for $7,692,188, or $9.50 per share, resulting in a realized gain of $4,706,165. Also during 1999, the Partnership sold the following securities in the public market: 428,879 common shares of Photon Dynamics, Inc. for $4,567,021, realizing a gain of $2,114,795; 19,063 common shares of CoCensys, Inc. for $19,071, realizing a loss of $173,433; and 60,000 common shares of Corporate Express, Inc. for $582,000, realizing a gain of $570,000. Also during 1999, the Partnership realized a gain of $389,118 reflecting the receipt of the final liquidation payment from Horizon Cellular Telephone Company, L.P. The Partnership realized additional gains during 1999 resulting from the receipt of $8,304 from the sale of its remaining interest in Ogle Resources, Inc., an investment that had been previously written-off, and $1,567 from a final liquidating distribution payment from MLMS Cancer Research, Inc. Finally during 1999, the Partnership realized losses of $1,000,548, $227,000 and $363,378 resulting from the write-off of its remaining investments in Clarus Medical Systems, Inc., IDE Corporation and Neocrin Company, respectively, due to continued business and financial difficulties at these companies. For the year ended December 31, 1998, the Partnership had a $2,166,356 net realized loss from its portfolio investments. During 1998, Sanderling Biomedical, L.P. completed the liquidation of its remaining portfolio investments, resulting in the termination of Sanderling in December 1998. The Partnership, which had an 80% limited partnership interest in Sanderling, received three in-kind liquidating distributions and a $325,567 cash distribution from Sanderling during 1998. The in-kind distributions included 93,745 shares of Depotech Corp. Inc., a public company. The Partnership sold its shares of Depotech in November 1998 for $136,878, resulting in a realized gain of $79,822. The Partnership also realized a loss of $775,338 during 1998 resulting from the write-off of the unreturned cost of its Sanderling investment. Also during 1998, the Partnership received $187,194 plus interest of $13,069 from Horizon Cellular Telephone Company, L.P., representing the liquidation payments relating to the sale of the Partnership's investment in Horizon. These payments and the corresponding write-off of the unreturned cost of the Partnership's investment in Horizon resulted in a net realized loss of $18,044 for 1998. Finally, during 1998, the Partnership realized a loss of $1,488,884 from the write-off of its remaining investment in Biocircuits Corporation, which ceased operations during the year. For the year ended December 31, 1997, the Partnership had a $15,605,512 net realized gain from its portfolio investments. During 1997, the Partnership liquidated portfolio investments, including positions in several of its publicly-traded securities, for $30,571,957, realizing a gain of $22,400,099. This gain was offset by a $6,794,587 realized loss, resulting from the partial write-off of the Partnership's investments in Biocircuits Corporation, Clarus Medical Systems, Inc., Neocrin Company, Inc. and Horizon Cellular Telephone Company, L.P. during 1997. Investment Income and Expenses - For the years ended December 31, 1999 and 1998 the Partnership had a net investment loss of $272,881 and $152,888, respectively. For the year ended December 31, 1997, the Partnership had net investment income of $53,543. The unfavorable change in net investment income for 1999 compared to 1998 resulted from a decrease in investment income of $91,022 and an increase in operating expenses of $28,971. The decline in investment income primarily was due to a $78,625 decrease in interest income from short-term investments resulting from a decrease in funds available for investment in such securities during 1999 compared to 1998. The small increase in operating expenses reflects increases in professional fees of $14,331, fees paid to the Independent General Partners of $9,000 and small increases in mailing and printing and other expenses. The unfavorable change in net investment income for 1998 compared to 1997 resulted from a decrease in investment income of $409,615 partially offset by a decrease of $203,184 in operating expenses. The decline in investment income was due to a $357,660 decrease in interest income from short-term investments and a $51,955 decrease in interest, dividend and other income from portfolio investments for 1998 compared to 1997. The decline in interest income from short-term investments primarily resulted from a decrease in funds available for investment in such securities during 1998 compared to 1997. The decrease in interest, dividend and other income from portfolio investments primarily was due to the elimination of dividend income from Borg-Warner Automotive, Inc. during 1998. The Partnership sold its investment in Borg-Warner Automotive and received a final dividend payment of $37,754 during the first quarter of 1997. The decline in operating expenses primarily resulted from reduced management fees, as discussed below, and a reduction in professional fees and mailing and printing expenses incurred during the 1998 period. 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, organizational and offering expenses paid by the Partnership, return of capital and realized capital losses, with a minimum annual fee of $200,000. Such fee is determined and payable quarterly. The management fee for the years ended December 31, 1999, 1998 and 1997, was $200,000, $200,000 and $282,686, respectively. The management fee and other operating expenses are paid with funds provided from operations. Funds provided from operations for the periods presented were obtained from interest received from short-term investments, interest and other income from portfolio investments and proceeds from the sale of certain portfolio investments. Unrealized Gains and Losses and Changes in Unrealized Appreciation of Portfolio Investments - During the year ended December 31, 1999, the Partnership reduced the fair value of its portfolio of investments on a net basis by $2,723,316. Additionally during 1999, a net $5,045,561 was transferred from unrealized gain to realized gain relating to portfolio investments liquidated and written-off during 1999, as discussed above. As a result, unrealized appreciation of investments decreased by $2,322,245 for 1999. During the year ended December 31, 1998, the Partnership reduced the fair value of its portfolio of investments on a net basis by $1,209,743. Additionally during 1998, a net $1,974,768 was transferred from unrealized loss to realized loss relating to portfolio investments liquidated and written-off during 1998, as discussed above. As a result, unrealized appreciation of investments increased by $765,025 for 1998. During the year ended December 31, 1997, the Partnership increased the fair value of its portfolio of investments on a net basis by $1,200,665. Additionally during 1997, a net $7,073,490 was transferred from unrealized gain to realized gain relating to portfolio investments sold and written-off during 1997, as discussed above. As a result, unrealized appreciation of investments was reduced by $5,872,825 for 1997. Net Assets - Changes to net assets resulting from operations are comprised of 1) net realized gain or loss from operations and 2) changes to net unrealized appreciation or depreciation of portfolio investments. For the year ended December 31, 1999, the Partnership had a $3,430,464 net increase in net assets resulting from operations, comprised of the $5,752,709 net realized gain from operations offset by the $2,322,245 decrease in unrealized appreciation of investments for 1999. As of December 31, 1999, the Partnership's net assets were $5,982,973 down $9,655,229 from $15,638,202 as of December 31, 1998. This decrease is the result of the $13,085,693 of cash distributions paid or accrued to partners during 1999 exceeding the $3,430,464 increase in net assets from operations for 1999. For the year ended December 31, 1998, the Partnership had a $1,554,219 net decrease in net assets resulting from operations, comprised of the $2,319,244 net realized loss from operations partially offset by the $765,025 increase in unrealized appreciation of investments for the year. As of December 31, 1998, the Partnership's net assets were $15,638,202, down $6,068,991 from $21,707,193 as of December 31, 1997. This decrease is the result of the $4,514,772 cash distribution to partners, which was accrued as of December 31, 1998 and the $1,554,219 decrease in net assets from operations for 1998. For the year ended December 31, 1997, the Partnership had a $9,786,230 net increase in net assets resulting from operations, comprised of the $15,659,055 net realized gain from operations offset by the $5,872,825 decrease in unrealized appreciation of investments for the year. As of December 31, 1997, the Partnership's net assets were $21,707,193, down $20,215,843 from $41,923,036 as of December 31, 1996. This decrease is the result of the $30,002,073 of cash distributions paid to partners during 1997 exceeding the $9,786,230 increase in net assets from operations for 1997. Gains and losses from investments are allocated to 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 of investments has been included as if the net unrealized appreciation 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 as of December 31, 1999, 1998 and 1997, was $43, $117 and $162, respectively. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Partnership is subject to market risk arising from changes in the value of its portfolio investments, short-term investments and interest-bearing cash equivalents, 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. The Partnership's portfolio investments had an aggregate fair value of $5,414,349 as of December 31, 1999. An assumed 10% decline from this December 31, 1999 fair value, including an assumed 10% decline of the per share market prices of the Partnership's publicly-traded securities, would result in a reduction to the fair value of such investments and an unrealized loss of $541,435. As of December 31, 1999, the Partnership held short-term investments consisting of two separate discounted commercial paper instruments with remaining maturities of 20 days or less. These short-term investments were carried at an aggregate amortized cost of $8,471,368 as of December 31, 1999. An assumed 10% increase in the market interest rates of such short-term investments held by the Partnership as of December 31, 1999, would result in a reduction to the fair value of such investments 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 also considered to be immaterial. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- ML VENTURE PARTNERS II, 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. INDEPENDENT AUDITORS' REPORT ML Venture Partners II, L.P.: We have audited the accompanying balance sheets of ML Venture Partners II, 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 ML Venture Partners II, L.P. as of 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 $5,414,349 and $14,970,273 as of December 31, 1999 and 1998, respectively, representing 90% and 96% of net assets, respectively, whose values have been estimated by the Sub-Manager under the supervision of the Individual General Partners and the Managing General Partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the Sub-Manager in arriving at its estimate of value of such securities and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Deloitte & Touche LLP New York, New York February 20, 2000 ML VENTURE PARTNERS II, L.P. BALANCE SHEETS As of December 31, 1999 1998 ---------------- ---------- ASSETS Portfolio investments, at fair value (cost $2,964,006 as of December 31, 1999 and $10,197,685 as of December 31, 1998) $ 5,414,349 $ 14,970,273 Short-term investments, at amortized cost 8,471,368 4,488,454 Cash and cash equivalents 1,059,973 423,675 Receivable from securities sold - 475,435 Accrued interest receivable - 1,291 ---------------- ---------------- TOTAL ASSETS $ 14,945,690 $ 20,359,128 ================ ================ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Cash distribution payable $ 8,704,964 $ 4,514,772 Accounts payable and accrued expenses 91,518 85,874 Due to Management Company 166,235 100,410 Due to Independent General Partners - 19,870 ---------------- ---------------- Total liabilities 8,962,717 4,720,926 ---------------- ---------------- Partners' Capital: Managing General Partner 338,194 652,777 Individual General Partners 107 341 Limited Partners (120,000 Units) 3,194,329 10,212,496 Unallocated net unrealized appreciation of investments 2,450,343 4,772,588 ---------------- ---------------- Total partners' capital 5,982,973 15,638,202 ---------------- ---------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 14,945,690 $ 20,359,128 ================ ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS As of December 31, 1999 Initial Investment Company / Position Date Cost Fair Value - ----------------------------------------------------------------------------------------------------------------------------------- Burns International Services Corporation* (A) Protective services 500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 4,325,000 - ------------------------------------------------------------------------------------------------------------------------------- Brightware, Inc. (B) Client/server and internet software development tools and services 200,057 shares of Common Stock May 1995 44,703 300,086 - ------------------------------------------------------------------------------------------------------------------------------- Raytel Medical Corporation(A) Pacemaker monitoring service and MRI centers 62,500 shares of Common Stock Feb. 1990 241,639 153,125 Options to purchase 27,969 shares of Common Stock at $1.42 per share, expiring on 10/31/01 0 28,808 - ------------------------------------------------------------------------------------------------------------------------------- ReGen Biologics, Inc. Joint and spine regeneration products 72,800 shares of Common Stock Apr. 1991 364 263,900 62,400 shares of Preferred Stock 114,400 226,200 - ------------------------------------------------------------------------------------------------------------------------------- Stereotaxis, Inc. Drug delivery and brain surgery systems 21,632 shares of Common Stock Apr. 1990 216 16,224 134,674 shares of Preferred Stock 62,684 101,006 - ------------------------------------------------------------------------------------------------------------------------------- Total Portfolio Investments (C) $ 2,964,006 $ 5,414,349 ---------------------------------
Supplemental Information: Liquidated Portfolio Investments(D) Liquidation Realized Company Date Cost Gain (Loss) Return - ------------------------------------------------------------------------------------------------------------------------------- Allez, Inc. 1992 $ 1,781,320 $ (1,781,320) $ 0 Amdahl Corporation 1989 729,742 1,837,787 2,567,529 Aqua Group, Inc. 1990 2,000,000 (1,999,999) 1 BBN Advanced Computer Partners, L.P. 1990 868,428 (864,028) 4,400 BBN Integrated Switch Partners, L.P. 1990-1992 5,022,380 (4,822,797) 199,583 Biocircuits Corporation 1997-1998 2,653,751 (2,653,751) 0 Borg-Warner Automotive, Inc. 1994-1997 2,500,000 14,628,202 17,128,202 Business Depot, Ltd. 1994 1,214,184 1,539,476 2,753,660
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS, continued As of December 31, 1999 Supplemental Information: Liquidated Portfolio Investments(D) Liquidation Realized Company Date Cost Gain (Loss) Return - ------------------------------------------------------------------------------------------------------------------------------------ CellPro, Incorporated 1994-1996 $ 1,560,944 $ 15,999,505 $ 17,560,449 Children's Discovery Centers of America, Inc. 1995 2,000,259 (236,187) 1,764,072 Clarus Medical Systems, Inc. (C) 1997-1999 2,389,168 (2,389,168) 0 Communications International, Inc. 1992-1994 1,819,332 (1,819,331) 1 Computer-Aided Design Group 1990-1991 1,131,070 (1,131,069) 1 Corporate Express, Inc. (C) 1994-1999 2,999,912 26,069,494 29,069,406 Data Recording Systems, Inc. 1988 1,615,129 (1,499,999) 115,130 Diatide, Inc.(C) 1999 2,986,023 4,706,165 7,692,188 Eckerd Corporation 1995 857,004 2,019,272 2,876,276 Elantec, Inc. 1993-1997 1,412,118 2,105,168 3,517,286 Everex Systems, Inc. 1991-1992 750,000 447,606 1,197,606 Hoffman & Company, L.P. 1993 40,000 (40,000) 0 Home Express, Inc. 1995 1,822,751 (1,822,751) 0 Horizon Cellular Telephone Company, L.P.(C) 1996-1999 3,678,926 2,091,744 5,770,670 I.D.E Corporation (C) 1996-1999 1,110,909 (1,110,909) 0 IDEC Pharmaceuticals Corporation 1994-1997 4,261,036 8,378,635 12,639,671 Inference Corporation 1995-1996 849,362 3,280,433 4,129,795 In-Store Advertising, Inc. 1992 2,259,741 (2,259,741) 0 InteLock Corporation 1992 1,254,125 (1,251,274) 2,851 Komag, Incorporated 1991-1995 2,365,237 4,477,842 6,843,079 Ligand Pharmaceuticals Inc. 1992-1996 1,414,435 4,227,245 5,641,680 Magnesys 1989 1,440,997 (1,412,049) 28,948 Meteor Message Corporation 1990 1,501,048 (1,501,047) 1 Micro Linear Corporation 1994-1995 1,120,300 2,897,886 4,018,186 Mobile Telecommunications Technologies Corporation 1995 1,558,155 3,439,923 4,998,078 Neocrin Company (C) 1996-1999 4,203,938 (4,203,938) 0 ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS, continued As of December 31, 1999 Supplemental Information: Liquidated Portfolio Investments(F) Liquidation Realized Company Date Cost Gain (Loss) Return - ------------------------------------------------------------------------------------------------------------------------------------ OccuSystems, Inc. 1994-1996 $ 2,657,000 $ 9,353,722 $ 12,010,722 Ogle Resources, Inc. (C) 1993-1999 1,974,286 (1,965,882) 8,404 Pandora Industries, Inc. 1990 2,060,139 (2,060,138) 1 Photon Dynamics, Inc. (C) 1999 2,452,226 2,114,795 4,567,021 Pyxis Corporation 1993 634,598 7,169,424 7,804,022 Raytel Medical Corp. 1996-1997 1,807,664 4,370,155 6,177,819 R-Byte Inc. 1992-1994 1,991,098 (443,566) 1,547,532 Regeneron Pharmaceuticals, Inc. 1991-1995 2,678,135 30,203,091 32,881,226 Research Applications, Inc. 1994 100,000 (100,000) 0 Ringer Corporation 1991-1994 3,029,652 (2,208,012) 821,640 S & J Industries, Inc. 1991-1992 1,600,150 (1,555,149) 45,001 Sanderling Biomedical, L.P. (C) 1995-1999 1,822,336 1,075,112 2,897,448 Saxpy Computer Corporation 1988 2,000,000 (2,000,000) 0 SDL, Inc. 1993-1996 4,757,265 10,502,531 15,259,796 SF2 Corporation 1991-1994 2,193,293 (1,856,570) 336,723 Shared Resource Exchange, Inc. 1990-1994 999,999 (999,998) 1 Special Situations, Inc. 1988 215,000 (187,175) 27,825 Storage Technology Corporation 1990 2,174,000 1,466,802 3,640,802 Target Vision, Inc. 1992-1995 1,500,000 (1,253,750) 246,250 TCOM Systems, Inc. 1990-1992 4,715,384 (4,711,536) 3,848 Telecom USA, Inc. 1989 5,000,000 3,361,778 8,361,778 Touch Communications Incorporated 1991 1,119,693 (1,119,693) 0 Viasoft, Inc. 1995-1996 915,348 2,801,429 3,716,777 - ---------------------------------------------------------------------------------------------------------------------------------- Net Cost Realized Gain Return Totals from Liquidated Portfolio Investments $ 113,568,990 $117,304,395 $ 230,873,385 ========================================================= Combined Net Combined Unrealized and Fair Value Cost Realized Gain and Return Totals from Active and Liquidated Portfolio Investments $ 116,532,996 $ 119,754,738 $ 236,287,734 ========================================================= ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS, continued As of December 31, 1999 (A) Public company (B) In March 1999, in a non-cash transaction, the Partnership exchanged its warrant to purchase 38,737 common shares of Brightware, inc. at $.40 per share for 28,407 shares of Brightware common stock. (C) See Note 5 of Notes to Financial Statements for portfolio investments sold or written-off during 1999. (D) Amounts provided for "Supplemental Information: Liquidated Portfolio Investments" are cumulative from inception through December 31, 1999. * May be deemed an affiliated person of the Partnership as defined in the Investment Company Act of 1940. See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS As of December 31, 1998 Initial Investment Company / Position Date Cost Fair Value Borg-Warner Security Corporation* (A) 500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 7,031,250 - ------------------------------------------------------------------------------------------------------------------------------- Brightware, Inc. 171,650 shares of Common Stock May 1995 43,565 257,475 Warrants to purchase 38,737 shares of Common Stock at $.40 per share, expiring on 4/19/99 1,138 42,611 - ------------------------------------------------------------------------------------------------------------------------------- Clarus Medical Systems, Inc.* 179,028 shares of Preferred Stock Jan. 1991 1,000,548 895,152 Warrants to purchase 14,043 shares of Common Stock at $.05 per share, expiring between 3/7/00 and 7/3/00 0 0 Warrants to purchase 2,826 shares of Preferred Stock at $5.00 per share, expiring on 3/7/00 0 0 - ------------------------------------------------------------------------------------------------------------------------------- CoCensys, Inc. (A) 152,507 shares of Common Stock Feb. 1989 192,504 30,978 - ------------------------------------------------------------------------------------------------------------------------------- Corporate Express, Inc. (A) 60,000 shares of Common Stock May 1992 12,000 249,000 - ------------------------------------------------------------------------------------------------------------------------------- Diatide, Inc.* (A) 809,704 shares of Common Stock Dec. 1991 2,986,023 3,815,731 - ------------------------------------------------------------------------------------------------------------------------------- I.D.E. Corporation 113,322 shares of Common Stock Mar. 1988 227,000 0 - ------------------------------------------------------------------------------------------------------------------------------- Neocrin Company 48,429 shares of Preferred Stock June 1991 363,378 0 - ------------------------------------------------------------------------------------------------------------------------------- Photon Dynamics, Inc.* (A) 425,236 shares of Common Stock Sept. 1988 2,452,226 1,743,464 Warrants to purchase 6,062 shares of Common Stock at $5.40 per share, expiring on 6/30/00 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Raytel Medical Corporation (A) 62,500 shares of Common Stock Feb. 1990 241,639 232,813 Options to purchase 27,969 shares of Common Stock at $1.42 per share, expiring on 10/31/01 0 64,469 - ------------------------------------------------------------------------------------------------------------------------------- ReGen Biologics, Inc. 72,800 shares of Common Stock Apr. 1991 364 263,900 62,400 shares of Preferred Stock 114,400 226,200 - ------------------------------------------------------------------------------------------------------------------------------- Stereotaxis, Inc. 21,632 shares of Common Stock Apr. 1990 216 16,224 134,674 shares of Preferred Stock 62,684 101,006 - ------------------------------------------------------------------------------------------------------------------------------- Total Portfolio Investments $ 10,197,685 $ 14,970,273 ---------------------------------
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS, continued As of December 31, 1998 Net Cost Realized Gain Return Totals from Liquidated Portfolio Investments (B) $ 106,335,311 $ 111,278,805 $ 217,614,116 ==================================================================== Combined Net Combined Unrealized and Fair Value Cost Realized Gain and Return Totals from Active & Liquidated Portfolio Investments $ 116,532,996 $ 116,051,393 $ 232,584,389 =========================================================
(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. ML VENTURE PARTNERS II, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999 1998 1997 --------------- --------------- --------- INVESTMENT INCOME AND EXPENSES Income: Interest from short-term investments $ 202,271 $ 280,896 $ 638,556 Interest and other income from portfolio investments 672 13,069 27,270 Dividend income from portfolio investments - - 37,754 --------------- --------------- ---------------- Total investment income 202,943 293,965 703,580 --------------- --------------- ---------------- Expenses: Management fee 200,000 200,000 282,686 Professional fees 92,921 78,590 140,089 Mailing and printing 80,953 77,897 126,589 Independent General Partners' fees 91,500 82,500 91,800 Custodial fees 2,222 2,198 373 Other 8,228 5,668 8,500 --------------- --------------- ---------------- Total investment expenses 475,824 446,853 650,037 --------------- --------------- ---------------- NET INVESTMENT (LOSS) INCOME (272,881) (152,888) 53,543 Net realized gain (loss) from portfolio investments 6,025,590 (2,166,356) 15,605,512 --------------- --------------- ---------------- NET REALIZED GAIN (LOSS) FROM OPERATIONS 5,752,709 (2,319,244) 15,659,055 Change in unrealized appreciation of investments (2,322,245) 765,025 (5,872,825) --------------- --------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,430,464 $ (1,554,219) $ 9,786,230 =============== =============== ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS Years Ended December 31, 1999 1998 1997 --------------- --------------- ----------- CASH FLOWS USED FOR OPERATING ACTIVITIES Net investment (loss) income $ (272,881) $ (152,888) $ 53,543 Adjustments to reconcile net investment (loss) income to cash used for operating activities: (Increase) decrease in accrued interest from short-term investments (13,201) (8,895) 19,695 Decrease (increase) in accrued interest receivable 1,291 (1,291) 49,442 Increase (decrease) in payables, net 51,599 (5,783) (133,258) --------------- --------------- ---------------- Cash used for operating activities (233,192) (168,857) (10,578) --------------- --------------- ---------------- CASH FLOWS PROVIDED FROM (USED FOR) INVESTING ACTIVITIES Net (purchase) return of short-term investments (3,969,713) (1,500,007) 1,487,155 Cost of portfolio investments purchased - - (474,255) Net proceeds from the sale of portfolio investments 13,734,704 174,204 28,190,298 Repayment of investments in notes - - 2,381,659 --------------- --------------- ---------------- Cash provided from (used for) investing activities 9,764,991 (1,325,803) 31,584,857 --------------- --------------- ---------------- CASH FLOWS USED FOR FINANCING ACTIVITIES Cash distributions paid to Partners (8,895,501) - (30,002,073) --------------- --------------- ----------- Increase (decrease) in cash and cash equivalents 636,298 (1,494,660) 1,572,206 Cash and cash equivalents at beginning of year 423,675 1,918,335 346,129 --------------- --------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,059,973 $ 423,675 $ 1,918,335 =============== =============== ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL Years Ended December 31, 1997, 1998 and 1999 Unallocated Managing Individual Net Unrealized General General Limited Appreciation of Partner Partners Partners Investments Total - ------------------------------------------------------------------------------------------------------------ ---------- Balance as of December 31, 1996 $ 1,158,769 $ 1,029 $ 30,882,850 $ 9,880,388 $ 41,923,036 Cash distributions paid or accrued (3,001,173) (900) (27,000,000) - (30,002,073) Net investment income 13,410 2 40,131 - 53,543 Net realized gain on investments 3,245,946 412 12,359,154 - 15,605,512 Change in unrealized appreciation on investments - - - (5,872,825) (5,872,825) ------------- ------- -------------- -------------- ---------------- Balance as of December 31, 1997 1,416,952 543 16,282,135(A) 4,007,563 21,707,193 Cash distributions - paid or accrued (314,632) (140) (4,200,000) - (4,514,772) Net investment income (loss) 1,059 (5) (153,942) - (152,888) Net realized loss on investments (450,602) (57) (1,715,697) - (2,166,356) Change in unrealized appreciation on investments - - - 765,025 765,025 ------------- ------- -------------- -------------- ---------------- Balance as of December 31, 1998 652,777 341 10,212,496(A) 4,772,588 15,638,202 Cash distributions - paid or accrued (1,565,309) (384) (11,520,000) - (13,085,693) Net investment loss (2,597) (9) (270,275) - (272,881) Net realized gain on investments 1,253,323 159 4,772,108 - 6,025,590 Change in unrealized appreciation on investments - - - (2,322,245) (2,322,245) ------------- ------- -------------- -------------- ---------------- Balance as of December 31, 1999 $ 338,194 $ 107 $ 3,194,329(A) $ 2,450,343 $ 5,982,973 ============= ======= ============== ============== ================
(A) The net asset value per unit of limited partnership interest ("Unit"), including an assumed allocation of net unrealized appreciation of investments, was $43, $117, and $162 as of December 31, 1999, 1998 and 1997, respectively. Cumulative cash distributions paid, or payable, to limited partners from inception to December 31, 1999, 1998 and 1997 totaled $1,656, $1,560 and $1,525 per Unit, respectively. See notes to financial statements. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS 1. Organization and Purpose ML Venture Partners II, L.P. (the "Partnership") is a Delaware limited partnership formed on February 4, 1986. MLVPII Co., L.P., the managing general partner of the Partnership (the "Managing General Partner"), and four individuals (the "Individual General Partners") are the general partners of the Partnership. The general partner of MLVPII Co., L.P. is Merrill Lynch Venture Capital Inc. (the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc. DLJ Capital Management Corporation (the "Sub-Manager"), an indirect subsidiary of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of the Partnership, pursuant to a sub-management agreement among the Partnership, the Management Company, the Managing General Partner and the Sub-Manager. The Partnership's objective is to achieve long-term capital appreciation from its portfolio of venture capital investments in new and developing companies and other special investment situations. The Partnership does not engage in any other business or activity. In November 1999, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2001. However, the Managing General Partner is working toward liquidating the Partnership's remaining assets and terminating the Partnership as soon as practical with the goal of maximizing returns to partners. 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 Sub-Manager under the supervision of the Individual General Partners and the Managing General Partner. Publicly-held portfolio securities are valued at the closing public market price on the valuation date, discounted by a factor of up to 50% for sales restrictions, if any. 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 company's Board of Directors or is greater than a 10% shareholder, and other liquidity factors such as the size of the Partnership's position in a given company compared to the trading history of the public security. Privately-held portfolio securities are carried at cost until significant developments affecting the portfolio company provide a basis for change in valuation. The fair value of private securities is adjusted to reflect 1) meaningful third-party transactions in the private market or 2) 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 Sub-Manager 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. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS, continued 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. 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 investments of approximately $2.5 million as of December 31, 1999, was recorded for financial statement purposes, but was not recognized for tax purposes. Additionally, from inception to December 31, 1999, timing differences of approximately $2.4 million have been deducted on the Partnership's financial statements and syndication costs relating to the offering of limited partnership interests totaling $11.3 million were charged to partners' capital on the financial statements. These amounts have not been deducted or charged against partners' capital for tax purposes. Statements of Cash Flows - The Partnership considers its interest-bearing cash account to be a cash equivalent. 3. Allocation of Partnership Profits and Losses Pursuant to the Partnership Agreement, the Managing General Partner is allocated, on a cumulative basis over the life of the Partnership, 20% of the Partnership's aggregate investment income and net realized gains and losses from venture capital investments, provided such amount is positive. All other gains and losses of the Partnership are allocated among all partners (including the Managing General Partner) in proportion to each partners' respective capital contribution to the Partnership. From its inception to December 31, 1999, the Partnership had a $121.6 million net realized gain from its venture capital investments, including interest and other income from portfolio investments totaling $4.3 million. 4. Related Party Transactions The Management Company is responsible for the management and administrative services necessary for the operation of the Partnership and receives a management fee at the annual rate of 2.5% of the gross capital contributions to the Partnership, reduced by selling commissions, organizational and offering expenses paid by the Partnership, capital distributed and realized capital losses with a minimum annual fee of $200,000. Such fee is determined and paid quarterly. Each of the three Independent General Partners receives $20,000 annually in quarterly installments, $1,500 for each meeting of the General Partners attended or for each other meeting, conference or engagement in connection with Partnership activities at which attendance by an Independent General Partner is required and $1,500 for each audit committee meeting attended ($500 if an audit committee meeting is held on the same day as a meeting of the Independent General Partners). ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS, continued 5. Portfolio Investments Portfolio investments liquidated during the years ended December 31, 1999 and 1998 are shown below: Shares Realized Investment Sold Cost Gain (Loss) Return - -------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 (1): Clarus Medical Systems, Inc. - write-off n/a $ 1,000,548 $ (1,000,548) $ 0 CoCensys, Inc. (Sanderling) 19,063 (2) 192,504 (173,433) 19,071 Corporate Express, Inc. 60,000 12,000 570,000 582,000 Diatide, Inc. 809,704 2,986,023 4,706,165 7,692,188 Horizon Cellular Telephone Company, L.P. - liquidation n/a 0 389,118 389,118 IDE Corporation - write-off n/a 227,000 (227,000) 0 MLMS Cancer Research, Inc. - liquidation n/a 0 1,567 1,567 Neocrin Company - write-off n/a 363,378 (363,378) 0 Ogle Resources, Inc. n/a 0 8,304 8,304 Photon Dynamics, Inc. 428,879 (3) 2,452,226 2,114,795 4,567,021 -------------- ---------------- --------------- Total $ 7,233,679 $ 6,025,590 $ 13,259,269 ============== ================ ===============
(1) See Schedule of Portfolio Investments for the cumulative results of liquidations of these investments. (2) Adjusted for a 1-for-8 reverse stock split effective in April 1999. (3) Includes 3,643 shares received in a non-cash exchange for the Partnership's warrant to purchase 6,062 shares. Year ended December 31, 1998: Biocircuits Corporation - partial write-off n/a $ 1,488,884 $ (1,488,884) $ 0 Depotech Corp., Inc. (Sanderling) 93,745 57,056 79,822 136,878 Horizon Cellular Telephone Company Investment, L.P. - sale of options n/a 0 187,194 187,194 Horizon Cellular Telephone Company Investment, L.P. - partial write-off n/a 169,150 (169,150) 0 Sanderling Biomedical, L.P. - liquidation n/a 1,100,905 (775,338) 325,567 -------------- ---------------- --------------- Total $ 2,815,995 $ (2,166,356) $ 649,639 ============== ================ ===============
6. Cash Distributions Cash distributions paid or accrued during the periods presented and cumulative cash distributions to partners from inception of the Partnership through December 31, 1999 are listed below: Managing Individual Per General General Limited $1,000 Distribution Date Partner Partners Partners Unit - -------------------------------------- ---------------- -------- ------------------ ------ Inception to December 31, 1996 $ 21,132,691 $ 5,200 $ 156,000,000 $ 1,300 July 11, 1997 2,590,089 640 19,200,000 160 October 16, 1997 411,084 260 7,800,000 65 January 26, 1999 314,632 140 4,200,000 35 October 7, 1999 180,589 140 4,200,000 35 January 25, 2000 (accrued) 1,384,720 244 7,320,000 61 ---------------- ---------- ------------------ ---------- Cumulative totals as of December 31, 1999 $ 26,013,805 $ 6,624 $ 198,720,000 $ 1,656 ================ ========== ================== ==========
ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS, continued 7. Classification of Portfolio Investments As of December 31, 1999, the Partnership's investments in portfolio companies were categorized as follows: % of Type of Investments Cost Fair Value Net Assets* - ------------------- -------------- --------------- ----------- Common Stock and Warrants $ 2,786,922 $ 5,087,143 85.03% Preferred Stock 177,084 327,206 5.47% -------------- --------------- ------- Total $ 2,964,006 $ 5,414,349 90.50% ============== =============== ====== Country/Geographic Region Midwestern U.S. $ 2,562,900 $ 4,442,230 74.25% Western U.S. 401,106 972,119 16.25% -------------- --------------- ------ Total $ 2,964,006 $ 5,414,349 90.50% ============== =============== ====== Industry Business Services $ 2,500,000 $ 4,325,000 72.29% Biotechnology 177,664 607,330 10.15% Medical Devices and Services 241,639 181,933 3.04% Computer Hardware/Software 44,703 300,086 5.02% -------------- --------------- ------ Total $ 2,964,006 $ 5,414,349 90.50% ============== =============== ======
* Percentage of net assets is based on fair value. As of December 31, 1998, the Partnership's investments in portfolio companies were categorized as follows: % of Type of Investments Cost Fair Value Net Assets* - ------------------- -------------- --------------- ----------- Common Stock and Warrants $ 8,656,675 $ 13,747,915 87.91% Preferred Stock 1,541,010 1,222,358 7.82% -------------- --------------- ------- Total $ 10,197,685 $ 14,970,273 95.73% ============== =============== ====== Country/Geographic Region Midwestern U.S. $ 3,575,448 $ 8,292,632 53.03% Western U.S. 3,409,214 2,861,910 18.30% Eastern U.S. 3,213,023 3,815,731 24.40% -------------- --------------- ------ Total $ 10,197,685 $ 14,970,273 95.73% ============== =============== ====== Industry Business Services $ 2,512,000 $ 7,280,250 46.55% Biotechnology 3,356,191 4,454,039 28.48% Semiconductors/Electronics 2,452,226 1,743,464 11.15% Medical Devices and Services 1,605,565 1,192,434 7.63% Computer Hardware/Software 271,703 300,086 1.92% -------------- --------------- ------- Total $ 10,197,685 $ 14,970,273 95.73% ============== =============== ======
* Percentage of net assets is based on fair value. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS, continued 8. Short-Term Investments As of December 31, 1999 and 1998, the Partnership had short-term investments in commercial paper as detailed below. Maturity Purchase Amortized Value at Issuer Yield Date Price Cost Maturity - ---------------------------------------------------------------------------------------------------------------------------- December 31, 1999: Lexington Parker Capital Corp. 6.10% 1/20/00 $ 492,884 $ 498,306 $ 500,000 Golden Crown Managers 6.38% 1/19/00 7,931,947 7,973,062 8,000,000 --------------- --------------- ---------------- Total as of December 31, 1999 $ 8,424,831 $ 8,471,368 $ 8,500,000 =============== =============== ================ December 31, 1998: Amoco Managers Acceptance Corp. 5.58% 1/12/99 $ 1,485,818 $ 1,497,211 $ 1,500,000 Star Marketers Acceptance Corp. 5.45% 1/19/99 1,487,510 1,495,685 1,500,000 Park Avenue Receivables Corp. 5.33% 1/20/99 1,481,789 1,495,558 1,500,000 --------------- --------------- ---------------- Total as of December 31, 1998 $ 4,455,117 $ 4,488,454 $ 4,500,000 =============== =============== ================
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. ---------------------------------------------------------------- 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 are individuals who are not "interested persons" of the Partnership as defined in the 1940 Act. In 1987, the Securities and Exchange Commission (the "SEC") issued an order declaring that the three 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 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 by the 1940 Act. In addition to general fiduciary duties, the Individual General Partners, among other things, supervise the management arrangements of the Partnership. The Managing General Partner, subject to the supervision of the Individual General Partners, has authority to provide, or arrange for the provision of, management services in connection with the venture capital investments of the Partnership. The general partner of the Managing General Partner is Merrill Lynch Venture Capital Inc. (the "Management Company"). The Management Company is an indirect subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."). Individual General Partners - --------------------------- Dr. Steward S. Flaschen (1) 592 Weed Street New Canaan, Connecticut 06840 Age 73 Individual General Partner since 1987 Units of the Partnership beneficially owned as of March 15, 2000 - None (3) President of Flaschen & Davies, a management consulting firm, since 1986; Corporate Senior Vice President and member of the Management Policy Board of ITT Corporation from 1982 to 1986 and General Technical Director from 1969 to 1986; Chairman of Telco Systems Inc. from 1990 to 1998; Chairman of TranSwitch Corp. from 1989 to present; Director of Sipex Corp. from 1996 to present. Jerome Jacobson (1) 4200 Massachusetts Avenue, N.W. Washington, D.C. 20016 Age 78 Individual General Partner since 1987 Units of the Partnership beneficially owned as of March 15, 2000 - None (3) President of Economic Studies Inc., an economic consulting firm, since 1984. William M. Kelly (1) 500 Fifth Ave, 50th Floor New York, New York 10110 Age 56 Individual General Partner since 1991 Units of the Partnership beneficially owned as of March 15, 2000 - None (3) Managing Associate of Lingold Associates, since 1980; Vice President of National Aviation and Technology Company, a registered investment company, from 1977 to 1980; Director of First Eagle Fund of America since 1998, First Eagle International Fund from 1994 to present, First Eagle Sogen Funds from 1999 to present. Kevin K. Albert (2) World Financial Center North Tower, 26th Floor New York, New York 10281-1326 Age 47 Individual General Partner since 1990 Units of the Partnership beneficially owned as of March 15, 2000 - None (3) Director and President of the Management Company; Managing Director of Merrill Lynch Investment Banking Division ("MLIBK") since 1988. (1) Independent General Partner and member of the Audit Committee. (2) Interested person of the Partnership as defined by the 1940 Act. (3) Messrs. Flaschen and Jacobson have each contributed $1,000 to the capital of the Partnership. Messrs. Kelly and Albert succeeded to the interest of prior Individual General Partners who each contributed $1,000 to the capital of the Partnership. The Management Company Merrill Lynch Venture Capital Inc. (the "Management Company") serves as the Partnership's management company and performs, or arranges for the performance of, the management and administrative services necessary for the operations of the Partnership pursuant to a management agreement dated May 23, 1991 (the "Management Agreement"). The Management Company has served as the management company for the Partnership since the Partnership commenced operations in 1987. The Management Company is a wholly-owned subsidiary of ML Leasing Equipment Corp., which 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. On May 23, 1991, the limited partners of the Partnership approved a sub-management agreement among the Partnership, the Management Company, the Managing General Partner and DLJ Capital Management Corporation (the "Sub-Manager"). Under the terms of such sub-management agreement, the Sub-Manager agreed to provide, subject to the supervision of the Managing General Partner, the Management Company and the Individual General Partners, certain of the management services previously provided by the Management Company. Due to certain transactions involving The Equitable Companies Incorporated, the indirect parent of the Sub-Manager, a substantially similar sub-management agreement (the "Sub-Management Agreement") was approved by the limited partners of the Partnership at their 1992 annual meeting held on May 26, 1992. 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. The following table sets forth information concerning the directors of the Management Company and the executive officers of the Management Company involved with the Partnership. Information concerning Kevin K. Albert, Director and President of the Management Company, is set forth under "General Partners - Individual General Partners". The address of Mr. Caruso, Mr. Giobbe and Mr. Bruno is South Tower, World Financial Center, New York, New York 10080. James V. Caruso Executive Vice President and Director Age 48 Officer or Director since 1998 Director of MLIBK, joined Merrill Lynch in January 1975. Mr. Caruso is the director of Technology for the Global Investment Banking Group. He is responsible for ensuring that the business requirements of MLIBK are supported by managing the development of new technologies and enhancing existing systems. Michael Giobbe Vice President and Director Age 41 Officer or Director since 2000 Vice President of MLIBK, joined Merrill Lynch in 1986. Mr. Giobbe's responsibilities include the business management function for certain partnerships and other entities for which subsidiaries of Merrill Lynch are the general partner. James V. Bruno Vice President and Treasurer Age 33 Officer or Director since 1998 Vice President of MLIBK, joined Merrill Lynch in 1997. Mr. Bruno's responsibilities include controllership and financial management functions for certain partnerships and other entities for which subsidiaries of Merrill Lynch are the general partner or manager. 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. DLJ Capital Management Corporation - The Sub-Management Company DLJ Capital Management Corporation (the "Sub-Manager"), a Delaware corporation, is an indirect wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), a holding company which through its subsidiaries engages in the following activities: investment banking, merchant banking, public finance, trading, distribution and research. The Sub-Manager maintains its principal office at 277 Park Avenue, New York, New York 10172. The Sub-Manager is a wholly-owned subsidiary of DLJ Capital Corporation ("DLJ Capital"). DLJ Capital, which was founded in 1969, has established ten institutional venture capital funds ("Sprout Funds") and several smaller funds, with total committed capital of over $1.6 billion. Six of such institutional funds, with capital exceeding $1.5 billion, are currently operating. As of December 31, 1999, DLJ Capital's most recent limited partnership is Sprout Capital VIII, L.P., which was established in 1998 with an excess of 72 percent of its $750 million capital provided by participants in earlier Sprout Funds. DLJ Capital's principal office is located at 277 Park Avenue, New York, New York 10172, and it maintains additional offices in Menlo Park, California and Deerfield, Illinois. The following table sets forth information concerning the directors, principal executive officers and other officers of the Sub-Manager. Unless otherwise noted, the address of each such person is 277 Park Avenue, New York, New York 10172. Richard E. Kroon President, Chief Executive Officer and Director Age 57 Officer or Director since 1977 Managing General Partner of Sprout Group, the venture capital affiliate of DLJ, since 1981. Dr. Robert E. Curry(1) Vice President Age 53 Officer or Director since 1991 President and Director of the Management Company from 1989 to 1991; Managing Director of MLIBK from 1990 to 1991; President of Merrill Lynch R&D Management Inc. ("ML R&D") from 1990 to 1991, Vice President of ML R&D from 1984 to 1990 and Director of ML R&D from 1987 to 1991; General Partner of Sprout Group since 1991. Robert Finzi(1) Vice President Age 46 Officer or Director since 1991 Vice President of the Management Company from 1985 to 1991; Associate with Menlo Ventures from 1983 to 1984; General Partner of Sprout Group since 1991. Anthony F. Daddino Vice President and Director Age 59 Officer or Director since 1989 Director, Executive Vice President and Chief Financial Officer of DLJ. Marjorie S. White Secretary, Treasurer and Director Age 46 Officer or Director since 1997 Vice President and Secretary of DLJ. (1) The address of these officers is 3000 Sand Hill Road, Menlo Park, California 94025. The Managing General Partner MLVPII Co., L.P. (the "Managing General Partner") is a limited partnership organized on February 4, 1986 under the laws of the State of New York. The Managing General Partner maintains its principal office at North Tower, World Financial Center, New York, New York 10281-1326. The Managing General Partner has acted as the managing general partner of the Partnership since the Partnership commenced operations. The Managing General Partner is engaged in no other activities at the date hereof. The general partner of the Managing General Partner is the Management Company. The limited partners of the Managing General Partner include DLJ Capital Management Corporation ("DLJ"), Dr. Robert E. Curry and Robert Finzi. Messrs. Curry and Finzi are currently officers of DLJ and were previously officers of the Management Company. The Partnership Agreement obligates the Managing General Partner to contribute cash to the capital of the Partnership so that the Managing General Partner's capital contribution at all times will be equal to one percent (1%) of the aggregate capital contributions of all partners of the Partnership. The Managing General Partner has contributed $1,212,162 to the capital of the Partnership. Item 11. Executive Compensation. ---------------------- Compensation - The Partnership currently pays each Independent General Partner an annual fee of $20,000 in quarterly installments plus $1,500 for each meeting of the Individual General Partners attended or for each other meeting, conference or engagement in connection with Partnership activities at which attendance by the Individual General Partner is required. The Partnership pays all actual out-of-pocket expenses incurred by the Independent General Partners relating to attendance at such meetings. The Independent General Partners receive $1,500 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. For the year ended December 31, 1999, the aggregate fees paid by the Partnership to the Independent General Partners totaled $91,500. Allocations and Distributions - Profits and losses of the Partnership are determined and allocated as of the end of and within sixty days after the end of each calendar year. If the aggregate of the investment income and net realized capital gains and losses from venture capital investments is positive, calculated on a cumulative basis over the life of the Partnership through such year, the Managing General Partner is allocated investment income and net realized capital gains or losses from venture capital investments for such year so that, together with all investment income and gains and losses previously allocated to the Managing General Partner, it has received 20% of the aggregate of such income and gains calculated on a cumulative basis over the life of the Partnership through such year. Such allocation is referred to herein as the "Managing General Partner's Allocation" and is applicable only to the investment income and net realized capital gains and losses resulting from venture capital investments. The Partnership's investment income and net realized capital gains and losses in excess of the Managing General Partner's Allocation and all other profits and losses, including interest or other income on funds not invested in venture capital investments, are allocated among all the Partners (including the Managing General Partner) in proportion to their capital contributions. Cash or other assets otherwise distributable to the Managing General Partner are not distributed to the Managing General Partner to the extent that the net realized gains allocated to the Managing General Partner are offset by an amount equal to 20% of the net unrealized losses of the Partnership. For its fiscal year ended December 31, 1999, the Partnership had a net realized gain of $6,025,590 from the liquidation of certain portfolio investments. On a cumulative basis, from inception to December 31, 1999, the Partnership had $121,562,832 of net realized gains and investment income from its portfolio of venture capital investments. On October 7, 1999, the Partnership made a cash distribution to partners totaling $4,380,729. Limited Partners of record received $4,200,000 or $35 per Unit, the Managing General Partner received $180,589 and the Individual General Partners received $140. Additionally, subsequent to the end of the year, on January 25, 2000, the Partnership made a cash distribution to partners totaling $8,704,964 including $7,320,000, or $61 per Unit, to Limited Partners of record on December 31, 1999. The Managing General Partners received $1,384,720 and the Individual General Partners received $244. Management Fee - Pursuant to the Management Agreement, the Partnership pays the Management Company a management fee at the annual rate of 2.5% of the gross capital contributions to the Partnership (net of selling commissions and organizational and offering expenses paid by the Partnership), reduced by capital distributed to the Partners and realized capital losses, with a minimum annual fee of $200,000. Such fee is payable quarterly based on the adjusted capital contributions, as described above, at the end of the preceding calendar quarter. As described previously, the Management Company has entered into a Sub-Management Agreement with DLJ, pursuant to which the Management Company compensates DLJ for management services provided to the Partnership. For the year ended December 31, 1999, management fees incurred by the Partnership to the Management Company aggregated $200,000. Item 12. Security Ownership of Certain Beneficial Owners and Management. -------------------------------------------------------------- Reference is made to Item 10 "Individual General Partners" concerning information with respect to 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 percent of the Units. Mark Clein and Stephen Warner, limited partners of the Managing General Partner, own an aggregate of 134 Units of the Partnership and Merrill Lynch Pierce Fenner & Smith, Incorporated owns 230 Units. The Individual General Partners and the directors and officers of the Management Company do not own any Units. The Partnership is not aware of any arrangement which may, at a subsequent date, result in a change of control of the Partnership. 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. James V. Caruso, a Director and Executive Vice President of the Management Company and a Director of ML Investment Banking, joined Merrill Lynch in 1975. Michael Giobbe, Director and Vice President of the Management Company and a Vice President of ML Investment Banking, joined Merrill Lynch in 1986. James V. Bruno, a Vice President and Treasurer of the Management Company and a Vice President of ML Investment Banking, joined Merrill Lynch in 1997. Messrs. Albert, Caruso, Giobbe and Bruno are involved with certain other entities affiliated with Merrill Lynch or its affiliates. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. --------------------------------------------------------------- (a) 1. Financial Statements 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) (a) Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of January 12,1987. (1) (3) (b) Amended and Restated Certificate of Limited Partnership of the Partnership, dated July 27, 1990. (2) (3) (c) Amended and Restated Certificate of Limited Partnership of the Partnership, dated March 25, 1991.(3) (3) (d) Amended and Restated Agreement of Limited Partnership of the Partnership,dated as of May 4, 1987. (4) (3) (e) Amendment No. 1 dated February 14, 1989 to Amended and Restated Agreement of Limited Partnership of the Partnership. (5) (3) (f) Amendment No. 2 dated July 27, 1990 to Amended and Restated Agreement of Limited Partnership of the Partnership. (2) (3) (g) Amendment No. 3 dated March 25, 1991 to Amended and Restated Agreement of Limited Partnership of the Partnership. (3) (3) (h) Amendment No. 4 dated May 23, 1991 to Amended and Restated Agreement of Limited Partnership of the Partnership. (6) (10) (a) Management Agreement dated as of May 23, 1991 among the Partnership, Management Company and the Managing General Partner. (6) (10) (b) Form of Sub-Management Agreement among the Partnership, Management Company, the Managing General Partner and the Sub-Manager. (8) (27) Financial Data Schedule. (28) Prospectus of the Partnership dated February 10, 1987 filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as supplemented by a supplement thereto dated April 21, 1987 filed pursuant to Rule 424(c) under the Securities Act of 1933. (7) (b) No reports on Form 8-K have been filed since the beginning of the last quarter of the period for which this report is filed. (1) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988 filed with the Securities and Exchange Commission on March 27, 1989. (2) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 filed with the Securities and Exchange Commission on November 14, 1990. (3) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990 filed with the Securities and Exchange Commission on March 28, 1991. (4) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987 filed with the Securities and Exchange Commission on August 14, 1987. (5) 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. (6) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 filed with the Securities and Exchange Commission on August 14, 1991. (7) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987 filed with the Securities and Exchange Commission on May 15, 1987. (8) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992 filed with the Securities and Exchange Commission on March 26, 1993. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of 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 29th day of March 2000. ML VENTURE PARTNERS II, L.P. /s/ Kevin K. Albert By: Kevin K. Albert Individual General Partner 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 29th day of March 2000. By: MLVPII Co., L.P. By: /s/ Steward S. Flaschen ------------------------- its Managing General Partner Steward S. Flaschen Individual General Partner By: Merrill Lynch Venture Capital Inc. ML Venture Partners II, L.P. its General Partner By: /s/ Kevin K. Albert By: /s/ Jerome Jacobson ------------------------------ --------------------- Kevin K. Albert Jerome Jacobson President Individual General Partner (Principal Executive Officer) ML Venture Partners II, L.P. By: /s/ James V. Bruno By: /s/ William M. Kelly ------------------------------------- ---------------------- James V. Bruno William M. Kelly Vice President and Treasurer Individual General Partner (Principal Financial and Accounting Office ML Venture Partners II, L.P. By: /s/ Michael Giobbe Michael Giobbe Vice President EX-27 2 EXHIBIT 27
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML VENTURE PARTNERS II, 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 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 2,964,006 5,414,349 0 0 9,531,341 14,945,690 0 0 8,962,717 8,962,717 0 0 120,000 120,000 0 0 0 0 2,450,343 5,982,973 0 202,943 0 475,824 (272,881) 6,025,590 (2,322,245) 3,430,464 0 0 0 13,085,693 0 0 0 (9,655,229) 0 0 0 0 0 0 0 10,810,587 117 (2) 24 0 (96) 0 43 0
-----END PRIVACY-ENHANCED MESSAGE-----