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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-17383
ML-LEE ACQUISITION FUND II, L.P.
(Exact name of registrant as specified in its Governing Instruments)
Delaware 04-3028398
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2 World Financial Center - 14th Floor
New York, New York 10281-6114
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 236-6576
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
None Not Applicable
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 a 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]
Documents Incorporated by Reference: Portions of the Prospectus of the
Registrant dated September 6, 1989, filed with the Securities and Exchange
Commission pursuant to Rule 497(b), are incorporated by reference in Parts I, II
and III hereof.
Part I
Item l. Business
Formation
ML-Lee Acquisition Fund II, L.P. ("Fund II") (formerly T.H. Lee Acquisition
Fund II, L.P.) was formed along with ML-Lee Acquisition Fund (Retirement
Accounts) II, L.P. the ("Retirement Fund" collectively referred to as the
"Funds") and the Certificates of Limited Partnership were filed under the
Delaware Revised Uniform Limited Partnership Act on September 23, 1988. Fund
II's operations commenced on November 10, 1989 and were scheduled to terminate
on January 5, 2000. However, the initial ten year term of Fund II has been
extended for an additional two year period. The Individual General Partners (as
defined below) have the right to extend the term of Fund II for an additional
one year period if they determine that such extension is in the best interest of
Fund II. Fund II will then have an additional five year period to liquidate its
remaining assets.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual General Partners (as defined below and
hereinafter with the Managing General Partner as the "General Partners"), is
responsible for overseeing and monitoring Fund II's investments. The Managing
General Partner is a Delaware limited partnership in which ML Mezzanine II Inc.
is the general partner and Thomas H. Lee Advisors II, L.P. (the "Investment
Adviser" to the Funds) is the limited partner. The Individual General Partners
are Vernon R. Alden, Joseph L. Bower and Stanley H. Feldberg (the "Independent
General Partners") and Thomas H. Lee. ML Fund Administrators Inc. (the "Fund
Administrator") is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. and is responsible for the day-to-day administrative services necessary for
the operations of Fund II.
Fund II elected to operate as a business development company under the
Investment Company Act of 1940, as amended ("Investment Company Act"). Fund II's
primary investment objective is to provide current income and capital
appreciation potential by investing in privately structured, friendly leveraged
buyouts and other leveraged transactions. Fund II pursued this objective by
investing primarily in subordinated debt and related equity securities issued in
conjunction with the "mezzanine financing" of friendly leveraged buyout
transactions, leveraged acquisitions and recapitalizations. Fund II could also
invest in "bridge investments" if it believed that such investments would
facilitate the consummation of a mezzanine financing. Fund II considers this
activity to constitute a single industry segment of mezzanine financing
investing.
Fund II invested substantially all of its net proceeds in Mezzanine
Investments consisting of high-yield subordinated debt and/or preferred stock
linked with an equity participation, of middle market companies in connection
with friendly leveraged acquisitions, recapitalizations and other leveraged
financings. Fund II's Mezzanine Investments typically were issued in private
placement transactions which are generally subject to certain restrictions on
sales thereby limiting their liquidity. Fund II was fully invested as of
December 20, 1992, which was within 36 months from the date of the final closing
(after including the reserve for follow-on investments and exclusive of amounts
available for reinvestment). The reinvestment period for various amounts of
capital proceeds received during the last twelve months of Fund II's investment
period terminated at various times through December 21, 1993.
The Funds offered an aggregate of 1 million units of limited partnership
interest ("Units") at $1,000 per Unit with the Securities and Exchange
Commission pursuant to a Registration Statement on Form N-2 (File No. 33-25816),
effective September 6, 1989. The information set forth under the heading "Risk
and Other Important Factors", "Estimated Use of Proceeds", "Mezzanine
Financing", "Investment Objectives and Policies" and "Conflicts of Interest" in
the Prospectus dated September 6, 1989, filed with the Securities and Exchange
Commission pursuant to Rule 497(b) under the Securities Act of 1933 (the
"Prospectus"), is incorporated herein by reference.
The offering of Units commenced on September 6, 1989. On November 10 and
December 20, 1989 and January 5, 1990, Fund II had its first, second and third
closings, respectively, at which time the Managing General Partner admitted
additional Limited Partners to Fund II representing 221,745 Units of limited
partnership interest. The additional Limited Partners' total capital
contributions were $205,114,126, which excludes discounts allowed of $3,119,607
and is net of sales commissions and advisory fees of $13,511,267. The Managing
General Partner's aggregate contribution was $500,000. Thomas H. Lee, as an
Individual General Partner, contributed $50,000. For their services as selling
agent, Fund II paid sales commissions to Merrill Lynch, Pierce, Fenner and Smith
Incorporated ("MLPF&S") in the amount of $10,800,450 (exclusive of discounts of
$2,504,250). In addition, Fund II paid a financial advisory fee to MLPF&S in the
amount of $2,710,817 (exclusive of discounts of $615,357).
Mezzanine and Bridge Investments
As of December 31, 2000, Fund II had outstanding a total (at cost) of
$16,720,000 invested in Mezzanine Investments representing $14,537,000 Managed
and $2,183,000 Non-Managed portfolio investments. At December 31, 2000, there
were no Bridge Investments outstanding for the Funds. The Funds co-invest in all
Mezzanine and Bridge Investments, allocating such investments in proportion to
their capital available for investment.
Fund II's reinvestment period ended on December 21, 1993 and, accordingly,
no new investments were made after that date other than the funding of
investments which were committed to prior to that date.
REVIEW OF INVESTMENTS IN MANAGED COMPANIES,
INCLUDING INVESTMENT DISPOSITIONS AND EXPIRATIONS DURING 2000
-------------------------------------------------------------
The following is a brief description of the companies in Fund II's Managed
Company portfolio as of December 31, 2000:
Big V Supermarkets, Inc. ("Big V")
----------------------------------
Big V is a regional supermarket retailer in the Northeastern United States
doing business under the ShopRite name. Big V currently operates several
supermarkets principally in the Hudson Valley region of New York State. The
investment in Big V is valued at cost as of December 31, 2000. On June 15, 2000,
Big V made a scheduled principal payment of $2,607,000 with respect to Fund II's
$13,037,000 senior subordinated Note. Fund II recorded no gain or loss from this
transaction. Although $3,911,000 and $6,519,000 were scheduled to mature on
December 15, 2000 and March 15, 2001, respectively, Big V failed to make these
two principal payments; see also Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources,
for a discussion of this matter and certain bankruptcy proceedings commenced by
Big V.
Cole National Corporation ("Cole")
----------------------------------
Fund II's remaining investment in Cole, common stock purchase warrants for
CNC Holding Corporation valued at zero, expired on September 25, 2000.
REVIEW OF INVESTMENTS IN NON-MANAGED COMPANIES,
INCLUDING INVESTMENT DISPOSITIONS DURING 2000
-----------------------------------------------
The following is a brief description of the companies in Fund II's
Non-Managed Company portfolio as of December 31, 2000:
BioLease, Inc. ("Biolease") and BioTransplant, Inc. ("BioTransplant")
---------------------------------------------------------------------
BioLease provides built-to-suit wet-laboratory space in the Boston area to
a consortium of emerging growth bio-technology companies sponsored by the
venture capital funds managed by Health Care Investment Corporation. Fund II's
investment in BioLease Common Stock was written down to zero, and the
Subordinated Notes were written down to approximately 50% of par value during
the year ended December 31, 1997. As of December 31, 2000, total net unrealized
depreciation was $364,000.
On April 28, 2000, BioLease refinanced existing construction and term loans
and utilized a portion of the refinancing proceeds to make a $116,000 partial
paydown to Fund II of BioLease's 13% Senior Subordinated Note. Fund II realized
a loss from this transaction of $7,000, after the payment of $18,000 in
transaction costs and the write-off of $11,000 of unamortized note discount.
On November 9, 2000, Fund II exercised its rights under the BioTransplant
common stock purchase warrants and purchased 10,014 shares of BioTransplant
common stock for $30,000, exclusive of $11,000 of transaction costs. On November
27, 2000, Fund II sold these shares and received net proceeds of $91,000 and
realized a gain of $36,000.
FLA. Orthopedics, Inc.
---------------------
FLA. Orthopedics, Inc., headquartered in Miami, manufactures, markets and
distributes production in two major lines of business: ergonomically designed
safety products and orthopedic soft goods. Fund II has valued its remaining
investment in FLA. Orthopedics, Inc. at zero, which resulted in total net
unrealized depreciation of $1,513,000 as of December 31, 2000.
Competition
Fund II has completed its investment period and its reinvestment program
and, therefore, will no longer have to compete for investments. A majority of
the portfolio companies are participating in extremely competitive businesses.
Employees
Fund II has no employees. The Investment Adviser, subject to the
supervision of the Managing General Partner and the Individual General Partners,
manages and controls Fund II's investments. The Managing General Partner is
responsible for managing the Temporary Investments of Fund II. The Fund
Administrator performs administrative services for Fund II. The Fund
Administrator is a subsidiary of Merrill Lynch & Co, Inc., the parent of MLPF&S.
Item 2. Properties
Fund II does not own or lease any physical properties.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of the Limited Partners of Fund II
during the fourth quarter ended December 31, 2000.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for the Units. The Partnership
Agreement contains restrictions that are intended to prevent the development of
a public market. Accordingly, accurate information as to the market values of
Units at any given date is not available.
The approximate number of Unit holders as of January 1, 2001, the last
effective date of transfer (as described below), was 10,022. The Managing
General Partner and Thomas H. Lee as an Individual General Partner also hold
general partnership interests in Fund II.
MLPF&S reports estimated values of limited partnerships and other direct
investments on client account statements and no longer reports the general
partner's estimate of limited partnership net asset value to Unit holders.
Pursuant to MLPF&S guidelines, estimated values for limited partnership
interests originally sold by MLPF&S (such as Fund II's Units) are provided by
independent valuation services. MLPF&S clients may contact their MLPF&S
Financial Consultants to obtain a general description of the methodology used by
the independent valuation services to determine their estimates of value. The
estimated values provided by the independent services and Fund II's current net
asset value as estimated by the general partner 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 Fund II's current net asset value upon the liquidation of
assets over its remaining life.
Fund II distributes Distributable Cash from Investments and Distributable
Capital Proceeds in accordance with the terms of the Partnership Agreement.
Pursuant to the Partnership Agreement, transfers of Units are recognized on
the first day of the fiscal quarter after which the Managing General Partner has
been duly notified of a transfer pursuant to the Partnership Agreement. Until a
transfer is recognized, the limited partner of record (i.e. the transferor) will
continue to receive all of the benefits and burdens of ownership of Units
(including allocations of profit and loss and distributions), and any transferee
will have no rights to distributions of sale proceeds generated at any time
prior to the recognition of the transfer and assignment.
Accordingly, Distributable Cash from Investments for a quarter and
Distributable Capital Proceeds from sales after transfer or assignment have been
entered into, but before such transfer and assignment is recognized by the
Managing General Partner, will be payable to the transferor and not the
transferee.
Cash Distributions
Generally, Fund II has made quarterly distributions including both
Distributable Cash from Investments and Distributable Capital Proceeds. However,
Fund II's ability to make future cash distributions is restricted. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources, the information in which is
incorporated herein by reference.
Item 6. Selected Financial Data
Supplemental Information Schedule
For the Years Ended December 31,
----------------------------------------------------------------
TOTAL FUND INFORMATION: 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ------------
Net Investment Income $ 1,923,644 $ 1,096,665 $ 2,822,809 $ 8,426,190 $ 11,023,166
Net Realized Gain (Loss) on Sales of
Investments 29,324 (4,532,421) (26,634,967) 92,648 5,894,176
Net Change in Unrealized Appreciation
(Depreciation) on Investments 46,899 13,635,980 33,816,479 (6,129,993) (15,723,691)
Cash Distributions to Partners - 8,350,808 25,810,638 26,672,357 49,261,781
Net Assets 34,874,963 32,875,097 31,025,683 46,832,011 71,115,538
Cost of Mezzanine Investments 16,719,729 19,440,708 41,110,511 91,989,046 103,597,216
Total Assets 35,040,577 33,034,443 31,176,545 47,105,834 71,678,160
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Investment Income $ 11.97 $ 7.58 $ 17.84 $ 36.43 $ 50.33
Expenses (4.61) (4.13) (6.81) (7.79) (15.11)
---------- ----------- ----------- ----------- ------------
Net Investment Income $ 7.36 $ 3.45 $ 11.03 $ 28.64 $ 35.22
========== =========== =========== =========== ============
Net Realized Gain (Loss) on Sales of
Investments $ .13 $ (20.61) $ (124.73) $ .42 $ 14.47
Net Change in Unrealized Appreciation
(Depreciation) on Investments .21 61.34 152.12 (27.58) (70.73)
Cash Distributions - 34.92 109.19 106.00 192.87
Cumulative Cash Distributions 1,302.98 1,302.98 1,267.87 1,158.68 1,052.68
Net Asset Value 154.44 146.74 137.49 209.93 314.44
See cash distributions schedule for additional information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity & Capital Resources
At the regular quarterly meeting of the General Partners of ML-Lee
Acquisition Fund II, L.P. ("Fund II"), held on December 14, 1999, Vernon R.
Alden, Joseph L. Bower, Stanley H. Feldberg and Thomas H. Lee (the "Individual
General Partners") determined to extend the initial ten year term of Fund II,
which was due to terminate January 5, 2000, for an additional two year period,
pursuant to Section 2.4 of the Partnership Agreement. Such extension will allow
Fund II to more effectively deal with its assets pending their liquidation. The
term of Fund II will now expire on January 5, 2002. In addition, the Individual
General Partners have the right, pursuant to the Partnership Agreement, to
extend the term of Fund II for an additional one year period if they determine
that such extension is in the best interest of Fund II. Fund II will then have
an additional five year period to liquidate its remaining assets.
On August 6, 1991, the Independent General Partners approved a reserve for
follow-on investments of approximately $24,900,000 for Fund II. As of March 30,
2001, this remaining reserve balance was approximately $3,100,000 due to
follow-on investments in Petco Animal Supplies, Fitz and Floyd, Inc., Fine
Clothing, Inc., Hills Stores, Ghirardelli Holdings, Anchor Advanced Products and
BioTransplant, Inc. Additionally, approximately $8,300,000 of the reserve has
been returned to the partners. The level of the reserve was based upon an
analysis of potential follow-on investments in specific portfolio companies that
may become necessary to protect or enhance Fund II's existing investment.
On April 28, 2000, BioLease, Inc. ("BioLease") refinanced existing
construction and term loans and utilized a portion of the refinancing proceeds
to make a $116,000 partial paydown to Fund II of BioLease's 13% Senior
Subordinated Note. Fund II realized a loss from this transaction of $7,000,
after the payment of $18,000 in transaction costs and the write-off of $11,000
of unamortized note discount.
On June 15, 2000, Big V Supermarkets, Inc. ("Big V") made a scheduled
principal payment of $2,607,000 with respect to Fund II's $13,037,000 senior
subordinated Note. Fund II recorded no gain or loss from this transaction.
Although $3,911,000 and $6,519,000 were scheduled to mature on December 15, 2000
and March 15, 2001, respectively, Big V failed to make these two principal
payments, as discussed below.
On September 25, 2000, Fund II's rights under the CNC Holding Corporation
common stock purchase warrants expired. Fund II had valued such investment at
zero and, accordingly, recorded no gain or loss upon the expiration of the
rights.
On November 9, 2000, Fund II exercised its rights under the BioTransplant,
Inc. ("BioTransplant") common stock purchase warrants and purchased 10,014
shares of BioTransplant common stock for $30,000, exclusive of $11,000 of
transaction costs. On November 27, 2000, Fund II sold these shares for net
proceeds of $91,000 and realized a gain of $36,000.
In September 2000, the court approved a settlement in respect of certain
litigation commenced by Hills Stores Company ("Hills") against its former
directors, including Thomas H. Lee (who had been serving on the Hills Board of
Directors as a representative of Fund II). The settlement provided a complete
release of Mr. Lee in his role as a director of Hills. As a result, the reserves
which had been maintained by Fund II for future indemnification obligations are
no longer required for such purpose.
However, before consenting to the disposition of all or part of Fund II's
reserves, at the quarterly meeting held on September 19, 2000, the General
Partners reviewed certain contractual covenants, commitments and contingencies
Fund II has in respect of its investments in Big V and Big V Holdings Corp.
("BVH", Big V's parent company), resulting from letter agreements (the
"Agreements") entered into by Wakefern Food Corporation ("Wakefern"), Big V
(together with certain of its related companies) and Fund II (together with
other investor groups in Big V) in December 1990 and November 1993. Since the
covenants, commitments and contingencies associated with the Agreements may have
the effect of delaying and/or decreasing the amount of future distributions, the
General Partners determined that further distributions should not be made until
any responsibilities of Fund II with respect to such covenants, commitments and
contingencies have been determined.
In November 2000, Fund II and ML-Lee Acquisition Fund (Retirement
Accounts)II, L.P.(the "Retirement Fund") agreed to guarantee, in aggregate,
$1,000,000 of certain short-term financing requirements of Big V, all of which
have since been repaid; as a result, the guarantee was never called upon.
On November 22, 2000, following careful analysis of its business
operations, finances, and the outlook for the operating region in which Big V
competes with other supermarket retailers, Big V and other related entities
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the "Big V
Bankruptcy"), in order to implement a major financial and operational
restructuring of its business. Fund II believes that Big V's management
currently intends to put forward a reorganization plan that fully pays all of
its creditors' claims, including Wakefern's, and changes its distribution
agreement, currently with Wakefern.
At issue in the Big V Bankruptcy and related litigation, among other
things, are the terms under which change in the Wakefern distribution agreement
will be effectuated and the cost of such change, if any, to Big V. In the event
Big V is unsuccessful in its reorganization plan, Wakefern may have certain
remedies available to it under the Agreements, including the potential of
gaining control of Big V by acquiring, among other interests, Fund II's equity
interests in Big V at a price to be determined by investment bankers.
Currently, Fund II holds a Senior Subordinated Note issued by Big V with
outstanding principal of $10.4 million, as well as 117,333 shares of BVH common
stock. The carrying value of Fund II's investments in Big V and BVH at December
31, 2000 was $14.5 million. At the time of the Big V Bankruptcy filing, Big V
had failed to make the November 15, 2000 interest payment due Fund II under the
Senior Subordinated Note held by Fund II. Subsequently, Big V also failed to
make the December 15, 2000 and March 15, 2001 principal payments and the
February 15, 2001 and March 15, 2001 interest payments due Fund II under such
note.
If the Big V Bankruptcy proceedings are resolved in Big V's favor and the
Wakefern distribution agreement is transferred with minimal cost to Big V, the
Investment Adviser believes that the value of Fund II's debt investments should
be preserved and the value of Fund II's equity investments may be enhanced. On
the other hand, if the Big V Bankruptcy proceedings are not resolved in Big V's
favor and/or the costs to Big V of transferring the Wakefern distribution
agreement are substantial, the value of Fund II's debt and equity investments
may be impaired, and Fund II could conceivably be exposed to losses in excess of
its original investment. Currently, neither the Investment Adviser nor the
Managing General Partner can predict the outcome of the Big V Bankruptcy
proceedings, including such proceedings' impact on the value of the Senior
Subordinated Note or the BVH equity held by Fund II, or the timing or amount of
payments, if any, that might be made to Fund II pursuant to Big V's plan of
reorganization. In addition, the General Partners cannot currently predict how
the Big V Bankruptcy may affect the timing of the ultimate liquidation of Fund
II.
The General Partners will continue to review such reserves each quarter in
light of the foregoing matter, and distributions will be made in accordance with
Fund II's Partnership Agreement. Currently, Fund II has reserved all the net
proceeds received from the 1999 sale of Fitz and Floyd, Inc. ("Fitz and Floyd"),
the 2000 partial paydown of the BioLease Note, the 2000 partial maturity of the
Big V Note, and the 2000 sale of BioTransplant Common Stock, as well as income
from operations from the third quarter 1999 and subsequent quarters.
Pursuant to the sale of Stablex Canada, Inc. and Seaway TLC Inc. on March
12, 1999, the Funds received rights to a contingent payment which entitles them,
collectively, to receive twenty percent (20%) of the net proceeds of any payment
or consideration or distribution (whether received in cash, property, securities
or any combination thereof) arising out of transfer, disposition,
recapitalization or exchange of substantially all of the stock or other equity
interest in either Stablex Canada, Inc. or Seaway TLC Inc. if such transaction
is consummated within forty-two (42) months from the closing of the sale
agreement. Any Distributable Capital Proceeds relating to future receipts by
Fund II pursuant to the Agreement will be payable to Partners of record as of
the date of the receipt of such proceeds. Fund II ascribes no value to this
contingent payment for financial reporting purposes.
At December 31, 2000, Fund II had outstanding a total (at cost) of
$16,720,000 invested in Mezzanine Investments representing $14,537,000 Managed
and $2,183,000 Non-Managed portfolio investments. The remaining proceeds were
invested in Temporary Investments primarily comprised of commercial paper with
maturities of less than 60 days.
As provided by the Partnership Agreement, the Managing General Partner of
Fund II is entitled to receive an incentive distribution after Limited Partners
have received their Priority Return of 10% per annum ("MGP Distributions"). The
Managing General Partner is required to defer a portion of any MGP Distribution
earned from the sale of portfolio investments in excess of 20% of realized
capital gains, net realized capital losses and unrealized depreciation, in
accordance with the Partnership Agreement (the "Deferred Distribution Amount").
Any Deferred Distribution Amount is distributable to the Partners pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from distributable cash from operations are instead
payable to the Managing General Partner until the Deferred Distribution Amount
is paid. As of December 31, 2000 there is no outstanding Deferred Distribution
Amount.
As recovered capital from portfolio company sales is distributed to Limited
Partners, the Limited Partners' net asset value ("NAV") per Unit is reduced
accordingly, and the corresponding interest income previously generated by such
holdings will no longer be received by Fund II. Fund II has three portfolio
companies remaining, only one of which is currently income producing; the amount
of interest income received by Fund II from such portfolio companies is not
significant. As a result, it is expected that any future cash available to pay
distributions to Partners (to the extent such cash is not reserved for expenses
and contingencies - see discussion of the Big V Bankruptcy above) will be
derived almost entirely from recovered capital and gains, if any, from asset
sales, which are subject to market conditions and are inherently unpredictable
as to timing.
Investment in High-Yield Securities
Fund II invested primarily in subordinated debt and preferred stock
securities ("High-Yield Securities"), generally linked with an equity
participation, issued in conjunction with the mezzanine financing of privately
structured, friendly leveraged acquisitions, recapitalizations and other
leveraged financings. High-Yield Securities are debt and preferred equity
securities that are unrated or are rated by Standard & Poor's Corporation as BB
or lower and by Moody's Investor Services, Inc. as Ba or lower. Risk of loss
upon default by the issuer is significantly greater with High-Yield Securities
than with investment grade securities because High-Yield Securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, these issuers usually have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment grade issuers. Most of these securities are
subject to resale restrictions and generally there is no quoted market for such
securities.
Although Fund II cannot eliminate the risks associated with its investments
in High-Yield Securities, it has established risk management policies. Fund II
subjected each prospective investment to rigorous analysis and made only those
investments that were recommended by the Investment Advisor and that met Fund
II's investment guidelines or that had otherwise been approved by the Managing
General Partner and the Independent General Partners. Fund II's investments were
measured against specified Fund II investment and performance guidelines. To
limit the exposure of Fund II's capital in any single issuer, Fund II limited
the amount of its investment in a particular issuer. Fund II's Investment
Adviser also continually monitors portfolio companies in order to minimize the
risks associated with its investments in High-Yield Securities.
The Investment Adviser reviews each portfolio company's financial
statements quarterly. In addition, the Investment Adviser routinely reviews and
discusses financial and operating results with the company's management and
where appropriate, attends board of director meetings. In some cases,
representatives of the Investment Adviser, acting on behalf of the Funds (and
affiliated investors where applicable), serve as one or more of the directors on
the boards of portfolio companies. Fund II may, from time to time, make
follow-on investments to the extent necessary to protect or enhance its existing
investments.
Forward Looking Information
In addition to historical information contained or incorporated by
reference in this report on Form 10-K, Fund II may make or publish
forward-looking statements about management expectations, strategic objectives,
business prospects, anticipated financial performance, and other similar
matters. In order to comply with the terms of the safe harbor for such
statements provided by the Private Securities Litigation Reform Act of 1995,
Fund II notes that a variety of factors, many of which are beyond its control,
affect its operations, performance, business strategy, and results and could
cause actual results and experience to differ materially from the expectations
expressed in these statements. These factors include, but are not limited to,
the effect of changing economic and market conditions, trends in business and
finance and in investor sentiment, the level of volatility of interest rates,
the actions undertaken by both current and potential new competitors, the impact
of current, pending, and future legislation and regulation both in the United
States and throughout the world, the impact of current ongoing litigation as it
relates to Fund II, and the other risks and uncertainties detailed in this Form
10-K. Fund II undertakes no responsibility to update publicly or revise any
forward-looking statements.
Results of Operations
Net Investment Income
For the year ended December 31, 2000, Fund II had net investment income of
$1,923,000 as compared to $1,097,000 and $2,823,000 for the years ended December
31, 1999 and 1998, respectively. The increase in net investment income during
2000 as compared to 1999 is primarily attributable to an increase in interest
and discount income from Temporary Investments partially offset by a decrease in
interest income from Mezzanine Investments and other factors, as discussed
below. The decrease in net investment income during 1999 as compared to 1998 is
primarily attributable to the sales of income producing companies during 1999
and 1998.
Investment Income and Expenses
The total investment income from operations for the years ended December
31, 2000, 1999 and 1998 consists primarily of interest and discount income
earned on the investment of proceeds from Partner's contributions in Mezzanine
Investments and short-term money market instruments. For 2000, Fund II had
investment income of $3,127,000, as compared to $2,409,000 and $4,336,000 for
1999 and 1998, respectively.
The increase in investment income during 2000, as compared to 1999, is
primarily attributable to an increase in income earned on Temporary Investments
as a result of investing the Fitz and Floyd sale proceeds, the BioLease partial
paydown proceeds, the Big V partial maturity proceeds, the BioTransplant stock
sale proceeds and income from operations from the third quarter 1999 and
forward, all of which have been reserved. This increase was partially offset by
a decrease in income earned on Mezzanine Investments as a result of the August
1999 sale of Fitz and Floyd the April 2000 partial paydown of the BioLease
subordinated note and the June 2000 partial maturity of the Big V senior
subordinated note. In addition, the increase in investment income during 2000,
as compared to 1999, is attributable to a $205,000 adjustment in the first
quarter of 2000 to correct for a 1999 understatement of Mezzanine Investment
income. The decrease in investment income during 1999 as compared to 1998 is
directly attributable to the sales of income producing companies during 1999 and
1998.
Major expenses for the years ended December 31, 2000, 1999 and 1998
consisted of Investment Advisory Fees and Administrative Expenses.
The Investment Adviser and Fund Administrator both receive their
compensation on a quarterly basis. The total Investment Advisory Fees incurred
by Fund II to the Investment Adviser for the years ended December 31, 2000, 1999
and 1998 were $666,000, $666,000 and $654,000, respectively, and were calculated
at an annual rate of 1.0% of assets under management (net offering proceeds
reduced by cumulative capital reductions and realized losses), with a minimum
annual amount of $1,200,000 for the Funds on a combined basis.
As compensation for its services, the Fund Administrator is entitled to
receive an annual amount of $400,000 for the Funds on a combined basis, plus
reimbursement of 100% of out-of-pocket expenses incurred by the Fund
Administrator on behalf of Fund II ("Reimbursable Administrative Expenses").
Reimbursable Administrative Expenses primarily consist of printing, audit, tax
preparation, legal fees and expenses, and custodian fees. For each of the years
ended December 31, 2000, 1999 and 1998 Fund II incurred Fund Administration Fees
of $222,000. For the years ended December 31, 2000, 1999 and 1998 Fund II
incurred $172,000, $276,000 and $295,000, respectively, in Reimbursable
Administrative Expenses. The decrease in Reimbursable Administrative Expenses
for 2000, as compared to 1999 and 1998, is due to an overall reduction in
custodian, printing and legal administrative fees during 2000 and 1999 resulting
from fewer investments held by Fund II during 2000 and 1999.
Legal and professional fees for the years ended December 31, 2000, 1999 and
1998 were $43,000, $52,000 and $247,000, respectively. These expenses are
largely attributable to legal fees incurred and advanced on behalf of
indemnified defendants as well as fees incurred directly by Fund II in
connection with certain litigation proceedings. The decrease in legal and
professional fees for 2000 and 1999 as compared to 1998 is primarily
attributable to the legal fees incurred by Fund II in connection with the
settlement of the Seidel litigation in 1998.
Net Assets
Fund II's net assets increased by $1,999,000 during the year ended December
31, 2000, due to net investment income of $1,923,000, net realized gain from the
sales of Mezzanine Investments of $29,000 and reversal of net unrealized
depreciation of $47,000.
Fund II's net assets increased by $1,849,000 during the year ended December
31, 1999, due to net investment income of $1,097,000 and reversal of net
unrealized depreciation of $13,636,000, partially offset by cash distributions
to partners of $8,351,000 ($6,387,000 of which was return of capital from the
sales of Mezzanine Investments) and net realized loss from the sales of
Mezzanine Investments of $4,533,000.
Fund II's net assets decreased by $15,807,000 during the year ended
December 31, 1998, due to the payment of cash distributions to partners of
$25,811,000 ($15,389,000 of which was return of capital from the sales of
Mezzanine Investments) and net realized loss from the sales of Mezzanine
Investments of $26,635,000, partially offset by net investment income of
$2,823,000 and reversal of net unrealized depreciation of $33,816,000.
Unrealized Appreciation and Depreciation on Investments
As a result of dispositions of Mezzanine Investments, Fund II recorded a
reversal of net unrealized depreciation of $47,000 during the year ended
December 31, 2000, as compared to a $13,636,000 reversal of net unrealized
depreciation during the year ended December 31, 1999 and a $33,816,000 reversal
of net unrealized depreciation during the year ended December 31, 1998. Fund
II's cumulative net unrealized depreciation on investments as of December 31,
2000 totaled $1,877,000.
For securities without a readily ascertainable market value, fair value is
determined, on a quarterly basis, in good faith by the Investment Adviser and is
approved by the Managing General Partner with final approval from the Individual
General Partners of Fund II. Portfolio investments are valued at original cost
plus accreted value in the case of original issue discount or deferred pay
securities. Such investments will be revalued if there is an objective basis for
doing so at a different price. Investments will be written down in value if the
Investment Adviser and the General Partners believe adverse credit developments
of a significant nature require a write-down of such securities. Investments
will be written up in value only if there has been an arms'-length third party
transaction to justify the increased valuation.
Approximately 46.5% of Fund II's investments (at cost) are invested in
private placement securities for which there are no ascertainable market values.
Although the Managing General Partner and Investment Adviser use their best
judgment in estimating the fair value of these investments, there are inherent
limitations in any estimation technique. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amount which Fund II
could realize in a current transaction. As of December 31, 2000, Fund II's
investments in Big V and BVH represent approximately 42.4% of Fund II's fair
value. As discussed above in Liquidity and Capital Resources, neither the
Investment Adviser nor the Managing General Partner can currently predict the
outcome of the Big V Bankruptcy proceedings, including such proceedings impact
on the value of Fund II's investments in Big V and BVH.
As a result of total net realized and unrealized appreciation and
depreciation recorded by Fund II through December 31, 2000, Limited Partners'
net asset value ("NAV") was $154.44 per Unit. Fund II's net assets as of that
date included its holdings in Big V and BVH (approximately 41.7% of net assets,
valued at cost) and other private placement securities (approximately 1.0% of
net assets), for which there are no ascertainable market values, and commercial
paper (approximately 55.6% of net assets), which is stated at amortized cost.
The December 31, 2000 NAV figure does not reflect any change that may
subsequently have occurred in the value of Fund II's holdings. Moreover, in
light of the recent Big V Bankruptcy filing, there is a high degree of
uncertainty associated with Fund II's estimate of the value of its investments
in Big V and BVH (see also Liquidity and Capital Resources above). In addition,
the Big V Bankruptcy and related litigation may potentially have an effect on
other assets of Fund II. The previously computed NAV does not represent the
Units' current market value, and Limited Partners may not be able to realize
this value upon a sale of their Units or ultimate liquidation of Fund II's
assets.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of December
31, 2000. Although the Managing General Partner and Investment Adviser are not
aware of any factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and the current estimated fair value of these
investments may have changed significantly since that point in time.
For additional information please refer to Supplemental Schedule of
Net Unrealized Appreciation and Depreciation - Schedule 2.
Net Realized Gains and Losses
For the year ended December 31, 2000, Fund II recorded a net realized gain
from investments of $29,000, as compared to a net realized loss of $4,533,000
for the year ended December 31, 1999 and a net realized loss of $26,635,000 for
the year ended December 31, 1998. For additional information related to the
current year, please refer to the Supplemental Schedule of Net Realized Gain -
Schedule 1.
Cash Distributions
As recovered capital from portfolio company sales is distributed to the
Limited Partners, the NAV per Unit is reduced accordingly, and the corresponding
interest income previously generated by such holdings will no longer be received
by Fund II. Fund II has three porfolio companies remaining, only one of which is
currently income producing; the amount of interest income received by Fund II
from such portfolio companies is not significant. As a result, it is expected
that any future cash available to pay distributions to Partners (to the extent
such cash is not reserved for expenses and contingencies - see discussion of the
Big V Bankruptcy above) will be derived almost entirely from recovered capital
and gains, if any, from asset sales, which are subject to market conditions and
are inherently unpredictable as to timing.
Should a Limited Partner decide to sell his Units, any such sale will be
recorded on the books and records of Fund II quarterly, only upon the
satisfactory completion and acceptance of Fund II's transfer documents. There
can be no assurances that such transfer will be effected before any specified
date. Additionally, pursuant to the Partnership Agreement, until a transfer is
recognized, the Limited Partner of record (i.e. the transferor) is entitled to
receive all the benefits and burdens of ownership of Units, and any transferee
has no rights to distributions of sale proceeds generated at any time prior to
the recognition of the transfer and assignment. Accordingly, Distributable Cash
from Investments for a quarter and Distributable Capital Proceeds from sales
after transfer or assignment have been entered into, but before such transfer
and assignment is recognized, would be payable to the transferor and not the
transferee.
Cash Distributions
The following table represents distributions approved by the Individual General Partners of Fund II,
since inception (November 10, 1989):
Total Limited Per Unit Managing Individual
Distributed Partners Per Return of General Incentive General
Cash(a) Amount Unit Capital Partner Fee(b) Partner
------------ ------------ -------- ---------- ----------- ---------- ----------
Fourth Quarter 1989 $ 1,224,768 $ 1,221,692 $ 6.27 $ - $ 2,796 $ - $ 280
First Quarter 1990 3,776,596 3,767,253 17.00 - 8,494 - 849
Second Quarter 1990 4,943,920 4,751,996 21.43 - 11,120 179,692 1,112
Third Quarter 1990 3,487,811 3,479,179 15.69 - 7,847 - 785
Fourth Quarter 1990 6,045,031 5,705,499 25.73 - 13,598 324,574 1,360
First Quarter 1991 2,889,835 2,882,685 13.00 - 6,500 - 650
Second Quarter 1991 4,216,058 4,205,629 19.56 - 9,481 - 948
Third Quarter 1991 2,936,520 2,929,252 13.21 - 6,607 - 661
Fourth Quarter 1991 3,438,901 3,430,395 15.47 - 7,733 - 773
First Quarter 1992 3,599,446 3,590,052 16.19 - 8,584 - 810
Second Quarter 1992 3,829,652 3,820,667 17.23 - 8,124 - 861
Third Quarter 1992 2,905,394 2,898,207 13.07 - 6,534 - 653
Fourth Quarter 1992 3,027,660 3,020,167 13.62 - 6,812 - 681
First Quarter 1993 21,642,642 21,589,093 97.36 85.75 48,681 - 4,868
Second Quarter 1993 1,442,695 1,439,125 6.49 - 3,245 - 325
Third Quarter 1993 5,074,991 5,062,438 22.83 2.45 11,412 - 1,141
Fourth Quarter 1993 11,803,865 11,774,660 53.10 1.33 26,550 - 2,655
First Quarter 1994 16,087,488 16,047,686 72.37 59.42 36,184 - 3,618
Second Quarter 1994 4,214,710 4,204,285 18.96 12.24 9,477 - 948
Third Quarter 1994 1,298,201 1,294,991 5.84 3.42 2,918 - 292
Snapple Distribution
on 12/15/94 68,497,700 58,336,675 263.08 9.70 164,845 9,979,695 16,485
Fourth Quarter 1994 375,092 241,702 1.09 - 543 132,793 54
EquiCredit Distribution
on 2/14/95 7,276,582 6,359,647 28.68 2.68 16,826 898,426 1,683
First Quarter 1995 6,731,899 5,505,928 24.83 23.77 12,418 1,212,311 1,242
Second Quarter 1995 3,477,482 2,084,403 9.40 .57 6,215 1,386,242 622
Third Quarter 1995 2,019,088 1,124,247 5.07 4.50 2,536 892,051 254
Sun Pharmaceuticals
Distribution on 12/11/95 9,610,616 9,587,798 43.24 37.42 20,744 - 2,074
Fourth Quarter 1995 333,445 166,765 .75 - 752 165,853 75
CST Distribution
on 5/03/96 25,825,311 21,023,644 94.81 63.04 47,165 4,749,785 4,717
First Quarter 1996 1,766,006 1,263,947 5.70 - 2,849 498,925 285
Ghirardelli Distribution
on 5/03/96 9,409,746 9,386,466 42.33 32.57 21,164 - 2,116
Second Quarter 1996 11,494,950 10,745,763 48.46 20.09 24,229 722,535 2,423
Third Quarter 1996 432,323 181,831 .82 - 410 250,041 41
Fourth Quarter 1996 1,833,044 1,226,250 5.53 5.04 2,764 603,754 276
First Quarter 1997 696,267 79,828 .36 .01 180 616,241 18
Anchor Distribution
on 5/15/97 19,963,239 18,158,698 81.89 66.06 40,946 1,759,500 4,095
Second Quarter 1997 3,203,136 2,818,379 12.71 7.43 6,353 377,769 635
Third Quarter 1997 1,304,854 1,221,815 5.51 4.49 2,757 80,006 276
Fourth Quarter 1997 525,375 412,445 1.86 .20 836 112,010 84
First Quarter 1998 2,169,871 2,044,489 9.22 6.47 4,610 120,311 461
First Alert Distribution
on May 15, 1998 10,807,982 10,781,242 48.62 14.94 24,309 - 2,431
Second Quarter 1998 4,808,219 4,607,861 20.78 20.43 10,391 188,928 1,039
Third Quarter 1998 242,195 46,566 .21 - 106 195,512 11
Cinnabon Distribution on
November 16, 1998 6,928,824 6,361,864 28.69 27.19 14,345 551,180 1,435
Fourth Quarter 1998 2,120,360 1,711,871 7.72 3.52 3,859 404,244 386
First Quarter 1999 5,926,743 5,814,154 26.22 25.21 13,113 98,165 1,311
Second Quarter 1999 303,705 217,310 .98 - 491 85,855 49
------------- ------------ --------- -------- --------- ----------- --------
Totals (c) $ 315,970,238 $288,626,539 $1,302.98 $ 539.94 $ 688,453 $26,586,398 $ 68,848
============= ============ ========= ======== ========= =========== ========
(a) Distributions are paid no later than 45 days after the end of each quarter.
(b) MGP Distributions to the Managing General Partner are the result of Limited Partners achieving cumulative
Priority Returns on Mezzanine Investments, in accordance with the Partnership Agreement.
(c) As more fully discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources, the Individual General Partners have determined that it
would not be prudent to make distributions to Partners at this time. Accordingly, Fund II has reserved all
the proceeds received from the sale of Fitz and Floyd, the partial paydown of the BioLease note,
the partial maturity of the Big V note, and the sale of BioTransplant stock, as well as income from
operations from the third quarter 1999 and subsequent quarters.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
As of December 31, 2000, Fund II maintains a portion of its cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate risk, and will
decline in value if interest rates increase. A significant increase or decrease
in interest rates is not expected to have a material effect on Fund II's
financial position.
Item 8. Financial Statements and Supplemental Data
ML-LEE ACQUISITION FUND II, L.P.
TABLE OF CONTENTS
Report of Independent Accountants
Statements of Assets, Liabilities and Partners' Capital
As of December 31, 2000 and December 31, 1999
Statements of Operations
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Changes in Net Assets
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Cash Flows
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2000, 1999 and 1998
Schedule of Portfolio Investments
as of December 31, 2000
Notes to Financial Statements
Supplemental Schedule of Net Realized Gain - Schedule 1
Supplemental Schedule of Net Unrealized Appreciation
and Depreciation - Schedule 2
Report of Independent Accountants
To the General and Limited Partners of ML-Lee Acquisition Fund II, L.P.
In our opinion, the accompanying statements of assets, liabilities and
partners' capital, including the schedule of portfolio investments, and the
related statements of operations, of changes in net assets, of cash flows, and
of changes in partners' capital present fairly, in all material respects, the
financial position of ML-Lee Acquisition Fund II, L.P. (the "Fund") at December
31, 2000 and December 31, 1999, and the results of its operations, the changes
in its net assets, and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2000 by correspondence with the custodian, provide a reasonable
basis for our opinion.
The financial statements include securities, valued at $14.9 million at
December 31, 2000 (42.6% of net assets), whose values have been estimated by the
Managing General Partner and the Investment Adviser (with the approval of the
Independent General Partners) in the absence of readily ascertainable market
values, as further described in Note 2. 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 to the financial
statements.
As discussed in Note 1, the Fund is scheduled to dissolve on January 5,
2002. The Individual General Partners have the right to extend the term of the
Fund for an additional one year period.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule of net realized gain
(Schedule 1) and the schedule of net unrealized appreciation and depreciation
(Schedule 2) are presented for the purposes of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Fund's management. Such schedules have been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 23, 2001
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
December 31, December 31,
2000 1999
------------ ------------
Assets:
Investments - Notes 2, 4, 5
Portfolio Investments at fair value
Managed Companies (amortized cost $14,537
at December 31, 2000 and $17,144 at December 31, 1999) $ 14,537 $ 17,144
Non-Managed Companies (amortized cost $2,183
at December 31, 2000 and $2,297 at December 31, 1999) 334 406
Temporary Investments, at amortized cost (cost $19,271
at December 31, 2000 and $15,255 at December 31, 1999) 19,393 15,280
Cash 162 36
Accrued Interest - Note 2 591 163
Prepaid Expenses 23 6
---------- ----------
Total Assets $ 35,040 $ 33,035
========== ==========
Liabilities and Partners' Capital:
Liabilities
Reimbursable Administrative Expenses Payable - Note 8 $ 104 $ 105
Independent General Partners' Fees Payable - Note 9 16 6
Legal and Professional Fees Payable 42 5
Deferred Interest Income - Note 2 4 44
---------- ----------
Total Liabilities 166 160
---------- ----------
Partners' Capital - Note 2
Individual General Partner 13 13
Managing General Partner 612 322
Limited Partners (221,745 Units) 34,249 32,540
---------- ----------
Total Partners' Capital 34,874 32,875
---------- ----------
Total Liabilities and Partners' Capital $ 35,040 $ 33,035
========== ==========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
------------------------------------
2000 1999 1998
--------- --------- ---------
Investment Income - Notes 2, 4, 6:
Interest $ 2,092 $ 2,062 $ 3,933
Discount and Other Income 1,035 347 403
--------- --------- ---------
Total Investment Income 3,127 2,409 4,336
--------- --------- ---------
Expenses:
Investment Advisory Fee - Note 7 666 666 654
Fund Administration Fee - Note 8 222 222 222
Reimbursable Administrative Expenses - Note 8 172 276 295
Independent General Partners' Fees and Expenses - Note 9 93 91 91
Legal and Professional Fees 43 52 247
Insurance Expense 8 5 4
--------- --------- ---------
Total Expenses 1,204 1,312 1,513
--------- --------- ---------
Net Investment Income 1,923 1,097 2,823
--------- --------- ---------
Net Realized Gain (Loss) on Sales of Investments - Note 4 and Schedule 1 29 (4,533) (26,635)
--------- --------- ---------
Net Change in Unrealized Appreciation (Depreciation)
on Investments - Note 5 and Schedule 2
Publicly Traded Securities - - 33,816
Nonpublic Securities 47 13,636 -
--------- --------- ---------
Subtotal 47 13,636 33,816
--------- --------- ---------
Net Increase in Net Assets Resulting from Operations 1,999 10,200 10,004
Less: Earned MGP Distributions to Managing General Partner (297) (380) (1,460)
--------- --------- ---------
Net Increase Available For Pro-Rata Distribution to All Partners $ 1,702 $ 9,820 $ 8,544
========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
From Operations:
Net Investment Income $ 1,923 $ 1,097 $ 2,823
Net Realized Gain (Loss) on Sales of Investments 29 (4,533) (26,635)
Net Change in Unrealized Appreciation (Depreciation) on Investments 47 13,636 33,816
--------- --------- ---------
Net Increase in Net Assets Resulting from Operations 1,999 10,200 10,004
Cash Distributions to Partners - (8,351) (25,811)
--------- --------- ---------
Total Increase (Decrease) 1,999 1,849 (15,807)
Net Assets:
Beginning of Year 32,875 31,026 46,833
--------- --------- ---------
End of Year $ 34,874 $ 32,875 $ 31,026
========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
-----------------------------------------
2000 1999 1998
---------- ---------- ----------
Increase (Decrease) in Cash
Cash Flows From Operating Activities:
Interest, Discount and Other Income $ 2,562 $ 3,586 $ 3,135
Investment Advisory Fee (666) (666) (654)
Fund Administration Fee (222) (222) (222)
Independent General Partners' Fees and Expenses (83) (103) (84)
Reimbursable Administrative Expenses (173) (193) (284)
Legal and Professional Fees (17) (77) (317)
Insurance Expense (25) (8) (4)
(Purchase) Sale of Temporary Investments, Net (4,016) (11,854) 210
Purchase of Portfolio Company Investments (30) - -
Proceeds from Sales, Maturities and Paydowns
of Portfolio Company Investments 2,796 17,919 23,462
--------- --------- ---------
Net Cash Provided by Operating Activities 126 8,382 25,242
--------- --------- ---------
Cash Flows From Financing Activities:
Cash Distributions to Partners - (8,351) (25,482)
--------- --------- ---------
Net Cash Used in Financing Activities - (8,351) (25,482)
--------- --------- ---------
Net Increase (Decrease) in Cash 126 31 (240)
Cash at Beginning of Year 36 5 245
--------- --------- ---------
Cash at End of Year $ 162 $ 36 $ 5
========= ========= =========
Reconciliation of Net Investment Income
to Net Cash Provided by Operating Activities:
Net Investment Income $ 1,923 $ 1,097 $ 2,823
--------- --------- ---------
Adjustments to Reconcile Net Investment Income
to Net Cash Provided by Operating Activities:
(Increase) Decrease in Investments at Cost (1,290) 9,816 51,089
(Increase) Decrease in Receivable for Investments Sold - 782 (782)
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivable (565) 1,177 (1,201)
(Increase) Decrease in Prepaid Expenses (17) (3) 1
Increase (Decrease) in Legal and Professional Fees Payable 37 (25) (70)
Increase (Decrease) in Reimbursable Administrative Expenses Payable (1) 83 11
Increase (Decrease) in Independent General Partners' Fees Payable 10 (12) 6
Net Realized Gain (Loss) on Sales of Investments 29 (4,533) (26,635)
--------- --------- ---------
Total Adjustments (1,797) 7,285 22,419
--------- --------- ---------
Net Cash Provided by Operating Activities $ 126 $ 8,382 $ 25,242
========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
Individual Managing
General General Limited
Partner Partner Partners Total
---------- ---------- ---------- ----------
Partners' Capital at January 1, 1998 $ 15 $ 266 $ 46,552 $ 46,833
Allocation of Net Investment Income 1 376 2,446 2,823
Allocation of Net Realized Loss on Sales of Investments (6) 1,030 (27,659) (26,635)
Allocation of Net Change in Unrealized
Depreciation on Investments 8 76 33,732 33,816
Cash Distributions to Partners (5) (1,223) (24,583) (25,811)
--------- --------- --------- ---------
Partners' Capital at December 31, 1998 13 525 30,488 31,026
Allocation of Net Investment Income - 332 765 1,097
Allocation of Net Realized Loss on Sales of Investments (1) 40 (4,572) (4,533)
Allocation of Net Change in Unrealized
Depreciation on Investments 3 31 13,602 13,636
Cash Distributions to Partners (2) (606) (7,743) (8,351)
--------- --------- --------- ---------
Partners' Capital at December 31, 1999 13 322 32,540 32,875
Allocation of Net Investment Income - 290 1,633 1,923
Allocation of Net Realized Gain on Sales of Investments - - 29 29
Allocation of Net Change in Unrealized Depreciation
on Investments - - 47 47
--------- --------- --------- ---------
Partners' Capital at December 31, 2000 $ 13 $ 612 $ 34,249 $ 34,874
========= ========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(f) (Note 2) Investments
- ------------- ---------- ---------- ---------- -------- -----------
MEZZANINE INVESTMENTS
MANAGED COMPANIES
BIG V SUPERMARKETS, INC. (a) - Note 4
$10,430 Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(b)(g) 12/27/90 $ 10,430 $ 10,430
117,333 Shares Big V Holding Corp., Common Stock (c) 12/27/90 4,107 4,107
(16.6% of fully diluted common equity) (e)
-------------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 14,537 $ 14,537 42.43%
===============================
NON-MANAGED COMPANIES
BIOLEASE, INC.- Note 4 and Schedule 2
$668 BioLease, Inc., 13% Sub. Nt. due 06/06/04 (b) 06/08/94 $ 576 $ 334
96.56 Shares BioLease, Inc., Common Stock (c) 06/08/94 94 -
9,362 Options BioTransplant, Inc., Common Stock Purchase Options(c) 02/02/96 - -
-------------------------------
670 334 0.97%
-------------------------------
FLA. ORTHOPEDICS, INC. - Note 6 and Schedule 2
19,366 Shares FLA. Holdings, Inc. Series B Preferred Stock (a) (c) (d) 08/02/93 1,513 -
3,822 Warrants FLA. Holdings, Inc. Common Stock Purchase Warrants (a) (c) 08/02/93 - -
$4,842 12.5% Subordinated Note
Purchased 08/02/93 $ 4,842
Surrendered 08/16/96 $ 0
Realized Loss $(4,842)
121,040 Common Stock
Purchased 08/02/93 $ 1,513
Exchanged 08/02/96
19,366 Series B Preferred Stock $ 1,513
Realized Gain $ 0
Total Realized Loss $(4,842)
-------------------------------
1,513 - 0.00%
-------------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 2,183 $ 334 0.97%
===============================
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes Various $ 11,006 $ 10,764 31.41%
Preferred Stock, Common Stock, Options, Warrants and Stock Rights Various 5,714 4,107 11.99%
-------------------------------
TOTAL MEZZANINE INVESTMENTS $ 16,720 $ 14,871 43.40%
===============================
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$10,000 General Electric Capital Corp, 6.44% due 1/3/01 11/27/00 $ 9,934 $ 9,996
$ 9,400 Clipper Receivable Corp., 6.50% due 1/3/01 11/27/00 9,337 9,397
-------------------------------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 19,271 $ 19,393 56.60%
-------------------------------
TOTAL TEMPORARY INVESTMENTS $ 19,271 $ 19,393 56.60%
===============================
TOTAL INVESTMENT PORTFOLIO $ 35,991 $ 34,264 100.00%
===============================
(a) Represents investment in affiliates as defined in the Investment Company Act of 1940.
(b) Restricted security.
(c) Restricted non-income producing equity security.
(d) Non-accrual investment status.
(e) Percentages of Common Equity have not been audited by PricewaterhouseCoopers LLP.
(f) Represents original cost and excludes accretion of discount of $28 for
Mezzanine Investments and $122 for Temporary Investments.
(g) Principal payments were scheduled to be made on December 15, 2000 for $3,911,000 and on
March 15, 2001 for the remaining $6,519,000. However, Big V failed to make these two principal
payments and also failed to make the November 15, 2000, February 15, 2001 and March 15, 2001
interest payments due under the note. See also Note 4 of Notes to Financial Statements.
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Organization and Purpose
ML-Lee Acquisition Fund II, L.P. ("Fund II") (formerly T.H. Lee Acquisition
Fund II, L.P.) was formed along with ML-Lee Acquisition Fund (Retirement
Accounts) II, L.P. (the "Retirement Fund"; collectively referred to as the
"Funds") and the Certificates of Limited Partnership were filed under the
Delaware Revised Uniform Limited Partnership Act on September 23, 1988. The
Funds' operations commenced on November 10, 1989. Capital contributions from the
Limited Partners and the General Partners (as defined below) totaled
$222,295,000 in the public offering of Fund II, the final closing for which was
held on January 5, 1990.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual General Partners (as defined below and
hereinafter with the Managing General Partner as the "General Partners"), is
responsible for overseeing and monitoring of Fund II's investments. The Managing
General Partner is a Delaware limited partnership in which ML Mezzanine II Inc.
is the general partner and Thomas H. Lee Advisors II, L.P., the Investment
Adviser to the Funds, is the limited partner. The Individual General Partners
are Vernon R. Alden, Joseph L. Bower and Stanley H. Feldberg (the "Independent
General Partners") and Thomas H. Lee. ML Fund Administrators Inc. (the "Fund
Administrator") is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. and is responsible for the day to day administrative services necessary for
the operations of Fund II.
Fund II elected to operate as a business development company under the
Investment Company Act of 1940. Fund II's primary investment objective is to
provide current income and capital appreciation potential by investing in
privately-structured, friendly leveraged buyouts and other leveraged
transactions. Fund II pursues this objective by investing primarily in
subordinated debt and related equity securities issued in conjunction with the
"mezzanine financing" of friendly leveraged buyout transactions, leveraged
acquisitions and leveraged recapitalizations. Fund II could also invest in
"bridge investments" if it believed that such investments would facilitate the
consummation of a mezzanine financing. Fund II was fully invested as of December
20, 1992, which was within 36 months from the date of the final closing (after
including the reserve for follow-on investments and exclusive of amounts
available for reinvestment). The reinvestment period for various amounts of
capital proceeds received during the last twelve months of Fund II's investment
period terminated at various times through December 21, 1993.
At the regular quarterly meeting of the General Partners of Fund II held on
December 14, 1999, the Individual General Partners determined to extend the
initial ten year term of Fund II, which was due to terminate January 5, 2000,
for an additional two year period, pursuant to Section 2.4 of the Partnership
Agreement. Such extension will allow Fund II to more effectively deal with its
assets pending their liquidation. The term of Fund II will now expire on January
5, 2002. In addition, the Individual General Partners have the right, pursuant
to the Partnership Agreement, to extend the term of Fund II for an additional
one year period if they determine that such extension is in the best interest of
Fund II. Fund II will then have an additional five year period to liquidate its
remaining assets.
2. Significant Accounting Policies
Basis of Accounting
For financial reporting purposes, the records of Fund II are maintained
using the accrual method of accounting. For federal income tax reporting
purposes, the results of operations are adjusted to reflect statutory
requirements arising from book to tax differences. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts and
disclosures in the financial statements. Actual reported results could vary from
these estimates.
Valuation of Investments
Securities for which market quotations are readily available are valued by
reference to such market quotation using the last trade price (if reported) or
the last bid price for the period. For securities without a readily
ascertainable market value (including securities restricted as to resale for
which a corresponding publicly traded class exists), fair value is determined,
on a quarterly basis, in good faith by the Investment Adviser and is approved by
the Managing General Partner with final approval from the Individual General
Partners of Fund II. For privately issued securities in which Fund II typically
invests, the fair value of an investment is generally its original cost plus
accrued value in the case of original issue discount or deferred pay securities.
Such investments generally will be revalued if there is an objective basis for
doing so at a different price. Investments will be written down in value if the
Investment Adviser and the General Partners believe adverse credit developments
of a significant nature require a write-down of such securities. Investments
will be written up in value only if there has been an arms'-length third party
transaction to justify the increased valuation. Although the Investment Adviser
and the General Partners use their best judgment in estimating the fair value of
these investments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amount which Fund II could realize in a current transaction.
Future confirming events will also affect the estimates of fair value and the
effect of such events on the estimates of fair value could be material.
Temporary Investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value.
The information presented herein is based on pertinent information
available to the Investment Adviser and General Partners as of December 31,
2000. Although the Investment Adviser and General Partners are not aware of any
factors not disclosed herein that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued since that
time.
Interest Receivable on Investments
Investments generally will be placed on non-accrual status in the event of
a default (after the applicable grace period expires) or if the Investment
Adviser and the Managing General Partner determine that there is no reasonable
assurance of collecting interest.
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash interest payments
by Fund II's portfolio companies are recorded at face value (which approximates
accrued interest), unless the Investment Adviser and the Managing General
Partner determine that there is no reasonable assurance of collecting the full
principal amounts of such securities. In accordance with this policy, as of
December 31, 2000 and 1999, Fund II's portfolio of investments excluded
approximately $168,000 and $131,000, respectively, of such payment-in-kind notes
received from BioLease, Inc.
Investment Transactions
Fund II recorded Mezzanine Investment transactions on the date on which it
obtained an enforceable right to demand the securities or payment therefore.
Fund II records Temporary Investment transactions on the trade date.
Net realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.
Deferred Interest Income
All fees received by Fund II upon the funding of Mezzanine or Bridge
Investments are treated as deferred interest income and amortized over the
maturity of such investments.
Partners' Capital
Partners' Capital represents Fund II's equity divided in proportion to the
Partners' Capital Contributions and does not represent the Partners' Capital
Accounts. Profits and losses, as defined in the Partnership Agreement, when
realized, are allocated in accordance with the provisions of the Partnership
Agreement summarized in Note 3.
3. Allocations of Profits and Losses
Pursuant to the Partnership Agreement, all profits from Temporary
Investments generally will be allocated 99.75% to the Limited Partners, 0.23% to
the Managing General Partner and 0.02% to the Individual General Partner.
Profits from Mezzanine Investments will, in general, be allocated as follows:
first, if the capital accounts of any partners have negative balances, to
such partners in proportion to the negative balances in their capital
accounts until the balances of all such capital accounts equal zero;
second, 99.75% to the Limited Partners, 0.23% to the Managing General
Partner and 0.02% to the Individual General Partner until the sum allocated
to the Limited Partners equals any previous losses allocated together with a
cumulative Priority Return of 10% on the average daily amount in Mezzanine
Investments, and any outstanding Compensatory Payments;
third, 69.75% to the Limited Partners, 30.225% to the Managing General
Partner and 0.025% to the Individual General Partner until the Managing
General Partner has received 20.281% of the total profits allocated; and
thereafter, 79.75% to the Limited Partners, 20.225% to the Managing General
Partner and 0.025% to the Individual General Partner.
4. Investment Transactions
On April 28, 2000, BioLease, Inc. ("BioLease") refinanced existing
construction and term loans and utilized a portion of the refinancing proceeds
to make a $116,000 partial paydown to Fund II of BioLease's 13% Senior
Subordinated Note. Fund II realized a loss from this transaction of $7,000,
after the payment of $18,000 in transaction costs and the write-off of $11,000
of unamortized note discount.
On June 15, 2000, Big V Supermarkets, Inc. ("Big V") made a scheduled
principal payment of $2,607,000 with respect to Fund II's $13,037,000 Senior
Subordinated Note. Fund II recorded no gain or loss from this transaction.
Although $3,911,000 and $6,519,000 were scheduled to mature on December 15, 2000
and March 15, 2001, respectively, Big V failed to make these two principal
payments, as discussed below.
On September 25, 2000, Fund II's rights under the CNC Holding Corporation
common stock purchase warrants expired. Fund II had valued such investment at
zero and, accordingly, recorded no gain or loss upon the expiration of the
rights.
On November 9, 2000, Fund II exercised its rights under the BioTransplant,
Inc. ("BioTransplant") common stock purchase warrants and purchased 10,014
shares of BioTransplant common stock for $30,000, exclusive of $11,000 of
transaction costs. On November 27, 2000, Fund II sold these shares and received
net proceeds of $91,000 and realized a gain of $36,000.
In September 2000, the court approved a settlement in respect of certain
litigation commenced by Hills Stores Company ("Hills") against its former
directors, including Thomas H. Lee (who had been serving on the Hills Board of
Directors as a representative of Fund II). The settlement provided a complete
release of Mr. Lee in his role as a director of Hills. As a result, the reserves
which had been maintained by Fund II for future indemnification obligations are
no longer required for such purpose.
However, before consenting to the disposition of all or part of Fund II's
reserves, at the quarterly meeting held on September 19, 2000, the General
Partners reviewed certain contractual covenants, commitments and contingencies
Fund II has in respect of its investments in Big V and Big V Holdings Corp.
("BVH", Big V's parent company), resulting from letter agreements (the
"Agreements") entered into by Wakefern Food Corporation ("Wakefern"), Big V
(together with certain of its related companies) and Fund II (together with
other investor groups in Big V) in December 1990 and November 1993. Since the
covenants, commitments and contingencies associated with the Agreements may have
the effect of delaying and/or decreasing the amount of future distributions, the
General Partners determined that further distributions should not be made until
any responsibilities of Fund II with respect to such covenants, commitments and
contingencies have been determined.
In November 2000, Fund II and the Retirement Fund agreed to guarantee, in
aggregate, $1,000,000 of certain short-term financing requirements of Big V, all
of which have since been repaid; as a result, the guarantee was never called
upon.
On November 22, 2000, following careful analysis of its business
operations, finances, and the outlook for the operating region in which Big V
competes with other supermarket retailers, Big V and other related entities
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the "Big V
Bankruptcy"), in order to implement a major financial and operational
restructuring of its business. Fund II believes that Big V's management
currently intends to put forward a reorganization plan that fully pays all of
its creditors' claims, including Wakefern's, and changes its distribution
agreement, currently with Wakefern.
At issue in the Big V Bankruptcy and related litigation, among other
things, are the terms under which change in the Wakefern distribution agreement
will be effectuated and the cost of such change, if any, to Big V. In the event
Big V is unsuccessful in its reorganization plan, Wakefern may have certain
remedies available to it under the Agreements, including the potential of
gaining control of Big V by acquiring, among other interests, Fund II's equity
interests in Big V at a price to be determined by investment bankers.
Currently, Fund II holds a Senior Subordinated Note issued by Big V with
outstanding principal of $10.4 million, as well as 117,333 shares of BVH common
stock. The carrying value of Fund II's investments in Big V and BVH at December
31, 2000 was $14.5 million. At the time of the Big V Bankruptcy filing, Big V
had failed to make the November 15, 2000 interest payment due Fund II under the
Senior Subordinated Note held by Fund II. Subsequently, Big V also failed to
make the December 15, 2000 and March 15, 2001 principal payments and the
February 15, 2001 and March 15, 2001 interest payments due Fund II under such
note.
If the Big V Bankruptcy proceedings are resolved in Big V's favor and the
Wakefern distribution agreement is transferred with minimal cost to Big V, the
Investment Adviser believes that the value of Fund II's debt investments should
be preserved and the value of Fund II's equity investments may be enhanced. On
the other hand, if the Big V Bankruptcy proceedings are not resolved in Big V's
favor and/or the costs to Big V of transferring the Wakefern distribution
agreement are substantial, the value of Fund II's debt and equity investments
may be impaired, and Fund II could conceivably be exposed to losses in excess of
its original investment. Currently, neither the Investment Adviser nor the
Managing General Partner can predict the outcome of the Big V Bankruptcy
proceedings, including such proceedings impact on the value of the Senior
Subordinated Note or the BVH equity held by Fund II, or the timing or amount of
payments, if any, that might be made to Fund II pursuant to Big V's plan of
reorganization. In addition, the General Partners cannot currently predict how
the Big V Bankruptcy may affect the timing of the ultimate liquidation of Fund
II.
The General Partners will continue to review such reserves each quarter in
light of the foregoing matter, and distributions will be made in accordance with
Fund II's Partnership Agreement. Currently, Fund II has reserved all the net
proceeds received from the 1999 sale of Fitz and Floyd, Inc., the 2000 partial
paydown of the BioLease Note, the 2000 partial maturity of the Big V Note, and
the 2000 sale of BioTransplant Common Stock, as well as income from operations
from the third quarter 1999 and subsequent quarters.
Because Fund II primarily invests in high-yield private placement
securities, the risk of loss upon default by an issuer is greater than with
investment grade securities because high-yield securities are generally
unsecured and are often subordinated to other creditors of the issuer. Also,
high-yield issuers usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions.
Although Fund II cannot eliminate the risks associated with its investments
in high-yield securities, it has procedures in place to continually monitor the
risks associated with its investments under a variety of market conditions. Any
potential Fund II loss would generally be limited to its investment in the
portfolio company as reflected in the portfolio of investments.
Should bankruptcy proceedings commence, either voluntarily or by action of
the court against a portfolio company, the ability of Fund II to liquidate the
position or collect proceeds from the action may be delayed or limited. See
discussion of the Big V Bankruptcy above.
5. Net Unrealized Appreciation and Depreciation of Investments
For information, please refer to the Supplemental Schedule of Net
Unrealized Appreciation and Depreciation - Schedule 2.
6. Non-Accrual of Investments
In accordance with Fund II's Accounting Policy, Florida Orthopedics, Inc.
has been on non-accrual status since January 1, 1995.
7. Investment Advisory Fee
The Investment Adviser provides the identification, management and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds, the Investment Adviser receives a quarterly fee at the
annual rate of 1% of assets under management (net offering proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1,200,000 for Fund II and the Retirement Fund on a combined basis. The
Investment Advisory Fee is calculated and paid quarterly, in advance.
In addition, the Investment Adviser receives 95% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10).
8. Fund Administration Fees and Expenses
As compensation for its services, the Fund Administrator, an affiliate of
the Managing General Partner, is entitled to receive a Fund Administration Fee.
The Fund Administration Fee is an annual amount of $400,000 for the Funds on a
combined basis. The Fund Administration Fee is calculated and paid quarterly, in
advance, by each Fund.
In addition, the Fund Administrator is entitled to reimbursement of 100% of
all out-of-pocket expenses incurred by the Fund Administrator on behalf of the
Funds ("Reimbursable Administrative Expenses"). Reimbursable Administrative
Expenses primarily consist of printing, audit, tax preparation, legal fees and
expenses, and custodian fees.
In addition, ML Mezzanine II Inc., an affiliate of the Fund Administrator
and Merrill Lynch & Co., Inc., receives 5% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10).
9. Independent General Partners' Fees and Expenses
As compensation for their services, each Independent General Partner will
receive a combined annual fee of $40,000 (payable quarterly) from the Funds in
addition to a $1,000 fee for each meeting attended ($500 if a meeting is held on
the same day as a committee meeting of the General Partners) plus reimbursement
for any out-of-pocket expenses incurred. Fees and expenses are allocated between
the Funds in proportion to the number of units issued by each fund. Compensation
for each of the Individual General Partners is reviewed annually.
10. Related Party Transactions
Fund II's investments generally were made as co-investments with the
Retirement Fund. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by Fund II involved co-investments with entities
affiliated with the Investment Adviser. Such co-investments are generally
prohibited absent exemptive relief from the Securities and Exchange Commission
(the "Commission"). As a result of these affiliations and Fund II's expectation
of engaging in such co-investments, the Funds together with ML-Lee Acquisition
Fund, L.P., sought an exemptive order from the Commission allowing such
co-investments, which was received on September 1, 1989. Fund II's
co-investments in Managed Companies, and in certain cases its co-investments in
Non-Managed Companies, typically involve the entry by the Funds and other equity
security holders into stockholders' agreements. While the provisions of such
stockholders' agreements vary, such agreements may include provisions as to
corporate governance, registration rights, rights of first offer or first
refusal, rights to participate in sales of securities to third parties, rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions, and preemptive rights.
Thomas H. Lee Company, a sole proprietorship owned by Thomas H. Lee, an
Individual General Partner of Fund II and an affiliate of the Investment
Adviser, typically performs certain management services for Managed Companies
and receives management fees in connection therewith, usually pursuant to
written agreements with such companies. In addition, certain of the portfolio
companies have contractual or other relationships pursuant to which they do
business with one another.
The Investment Adviser, pursuant to an investment management agreement
among the Investment Adviser, the Thomas H. Lee Company and Fund II dated
November 10, 1989, is responsible for the identification, management and
liquidation of Mezzanine Investments and Bridge Investments for Fund II. The
Investment Adviser received an Investment Advisory Fee as compensation for these
services as outlined in Note 7 to the Financial Statements.
As provided by the Partnership Agreement, the Managing General Partner of
Fund II is entitled to receive an incentive distribution after Limited Partners
have received their Priority Return of 10% per annum ("MGP Distributions"). The
Managing General Partner is required to defer a portion of any MGP Distribution
earned from the sale of portfolio investments in excess of 20% of realized
capital gains, net realized capital losses and unrealized depreciation, in
accordance with the Partnership Agreement (the "Deferred Distribution Amount").
This Deferred Distribution Amount is distributable to the Partners pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from distributable cash from operations are instead
payable to the Managing General Partner until any Deferred Distribution Amount
is paid in full.
An officer of the Investment Adviser also serves as a Director/Trustee of a
managed company.
11. Income Taxes
No provision for income taxes has been made because all income and losses
are allocated to Fund II's partners for inclusion in their respective tax
returns.
Pursuant to the Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes, Fund II is required to disclose any difference in
the tax basis of Fund II's assets and liabilities versus the amounts reported in
the financial statements. As of December 31, 2000, the tax basis of Fund II's
assets are greater than the amounts reported in the financial statements by
approximately $1,900,000. This difference is primarily attributable to net
unrealized depreciation on investments which has not been recognized for tax
purposes.
SCHEDULE 1
ML-LEE ACQUISITION FUND II, L.P.
SUPPLEMENTAL SCHEDULE OF NET REALIZED GAIN
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Net
Par Value/ Investment Net Realized
Security Number of Shares Cost Proceeds Gain (Loss)
- ----------------------------- ---------------- ---------- -------- -----------
Big V Supermarkets, Inc. (Note) $2,607 $ 2,607 $ 2,607 $ -
BioLease, Inc. (Note) $116 105 98 (7)
BioTransplant, Inc. (Common Stock) 10,014 shares 55 91 36
-------- -------- --------
Total at December 31, 2000 $ 2,767 $ 2,796 $ 29
======== ======== ========
See Accompanying Notes to Financial Statements.
SCHEDULE 2
ML-LEE ACQUISITION FUND II, L.P.
SUPPLEMENTAL SCHEDULE OF NET UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Total
Net Unrealized
Appreciation Unrealized Appreciation (Depreciation) for
(Depreciation) ------------------------------------------------------
Investment Fair at December 31, 1995 &
Security Cost Value 2000 2000 1999 1998 1997 1996 Prior
- -------- ---------- ----- -------------- -------- ------- ------- -------- ------- --------
Non Public Securities
BioLease, Inc.
Common Stock* $ 94 $ - $ (94) $ - $ - $ - $ (94) $ - $ -
Subordinated Note*(a) 576 334 (270) - - - (270) - -
FLA. Orthopedics, Inc.
Preferred Stock* 1,513 - (1,513) - - - - - (1,513)
Subordinated Note* - - - - - - - 4,842 (4,842)
-------- -------- ------- ------- ------- -------- --------
Total Unrealized Depreciation
from Non Public Securities $ (1,877) $ - $ - $ - $ (364) $ 4,842 $ (6,355)
-------- -------- ------- ------- ------- -------- --------
Reversal of Unrealized Appreciation
(Depreciation) from Securities Sold in 2000
BioLease, Inc. - Subordinated Note* $ - $ 47 $ - $ - $ (47) $ - $ -
Reversal of Unrealized Appreciation (Depreciation)
from Securities Sold Prior to 2000 - - 13,636 33,816 (5,718) (20,566) (21,168)
-------- -------- ------- ------- ------- -------- --------
Total Unrealized Appreciation (Depreciation)
from Securities Sold $ - $ 47 $13,636 $33,816 $(5,765) $(20,566)$(21,168)
-------- -------- ------- ------- ------- -------- --------
Net Unrealized Appreciation (Depreciation) $ (1,877) $ 47 $13,636 $33,816 $(6,129) $(15,724)$(27,523)
======== ======== ======= ======= ======= ======== ========
* Restricted Security
(a) Investment cost excludes accretion of discount of $28.
See Accompanying Notes to Financial Statements.
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 five General Partners of Fund II are responsible for the management and
administration of Fund II and have the same positions and responsibilities with
respect to the Retirement Fund. The General Partners of Fund II and the
Retirement Fund consist of four Individual General Partners: Vernon R. Alden,
Joseph L. Bower, Stanley H. Feldberg (the "Independent General Partners") and
Thomas H. Lee; and Mezzanine Investments II, L.P., the Managing General Partner.
Pursuant to exemptive orders issued by the Securities and Exchange Commission,
each Independent General Partner is not an "interested person" of Fund II as
such term is defined in the Investment Company Act of 1940.
Individual General Partners
The Individual General Partners provide overall guidance and supervision
with respect to the operations of Fund II and perform the various duties imposed
on the directors of business development companies by the Investment Company Act
of 1940. The Individual General Partners supervise the Managing General Partner
and must, with respect to any Mezzanine Investment transactions, either certify
that it meets Fund II investment guidelines or specifically approve it as a
non-Guideline Investment or Bridge Investment. Fund II's investment and
reinvestment period expired in December, 1993, and the only investments now
permitted are follow on investments in existing portfolio companies. In
addition, if a Portfolio Company's performance is in default of a material
provision of a lending agreement or has a ratio of operating cash flow to
current cash fixed charges for its four most recent fiscal quarters of less than
or equal to 1.1 to 1, the Independent General Partners are required to approve
any changes in the terms of or sale of such Portfolio Company.
Messrs. Alden, Bower, Feldberg and Lee have served as Individual General
Partners of Fund II and the Retirement Fund since 1989. Each Individual General
Partner shall hold office until his removal or withdrawal pursuant to the
provisions of Fund II's Partnership Agreement.
Mr. Alden, 77, Individual General Partner of Fund II and the Retirement
Fund (used together with Fund II as the "Funds"). Director of Sonesta
International Hotels Corporation. Chairman of the Japan Society of Boston,
Trustee Emeritus of the Boston Symphony Orchestra and the Boston Museum of
Science and Honorary Consul General of the Royal Kingdom of Thailand.
Mr. Bower, 62, Individual General Partner of the Funds. Donald Kirk David
Professor of Business Administration, Harvard Business School faculty member
since 1963. Director of Anika Therapeutics, Inc., Brown Shoe Co., New America
High Income Fund, Sonesta International Hotels Corporation, and The Lincoln
Foundation. Trustee of the DeCordova & Dana Museum and Sculpture Park and the
New England Conservatory of Music.
Mr. Feldberg, 76, Individual General Partner of the Funds. Chairman of the
Board of Storm Eye Institute at Medical University of South Carolina. Past
Director of TJX Companies, Inc., and Waban Inc., Trustee - Emeritus of Brandeis
University, Honorary Trustee of Beth Israel Deaconess Medical Center.
Mr. Lee, 56, Individual General Partner of the Funds. Chairman of the
Administrative General Partner of the Investment Adviser to the Funds since
1989; Chairman of the Administrative General Partner of Thomas H. Lee Equity
Partners L.P. since 1989. Chairman of the Administrative General Partner of
Thomas H. Lee Equity Fund III, L.P. since 1996, Chairman of the General Partner
of Thomas H. Lee Equity Fund IV, L.P. since 1998 and Chairman of the General
Partner of Thomas H. Lee Equity Fund V, L.P. since 2000. Founder of the Thomas
H. Lee Company (the "Lee Company") and its President from 1974 to 1999; Chairman
of the General Partner of Thomas H. Lee Partners, L.P. since 1999. Director of
Finlay Enterprises Inc., Metris Companies, Inc., Vertis Holdings, Inc., Miller
Import Corporation, Wyndham International, Inc., The Smith and Wollensky
Restaurant Group, Inc., and Vail Resorts, Inc. Mr. Lee also serves in a trustee
or other capacity for numerous civic and charitable organizations.
The Investment Adviser
The Investment Adviser, pursuant to an investment management agreement
among the Investment Adviser, the Thomas H. Lee Company and Fund II dated
November 10, 1989, is responsible for the identification, management and
liquidation of Mezzanine Investments and Bridge Investments for Fund II. The
Investment Adviser received an Investment Advisory Fee in compensation for these
services outlined in Note 7 to the Financial Statements.
Certain officers of the Thomas H. Lee Company have been designated as
trustees and executive officers of T. H. Lee Mezzanine II, the administrative
general partner of the Investment Adviser.
Served in
Present
Name Capacity Since Title
--------- -------------- -------
Thomas H. Lee 11/10/89 Chairman, Trustee
Thomas R. Shepherd 11/10/89 Executive Vice President
David V. Harkins 11/10/89 Senior Vice President, Trustee
C. Hunter Boll 11/10/89 Vice President, Trustee
Scott A. Schoen 11/10/89 Vice President
Wendy L. Masler 11/10/89 Treasurer, Clerk
Information concerning Mr. Lee is set forth above.
Mr. Shepherd, 71, is Chairman of TSG Equity Partners, LLC. Mr. Shepherd is
also currently a director of CCI, Inc., Community Resource Systems, Inc., 4R
Systems, Inc., Myutility, Inc., OptaSite, Inc., Rayovac Corporation and Vermont
Teddy Bear Co.
Mr. Harkins, 60, has been affiliated with Thomas H. Lee Partners, L.P., and
its predecessor Thomas H. Lee Company, since 1974 and currently serves as
President. Mr. Harkins has served as Chairman of National Dentex Corporation
since 1983. He is also a director of National Dentex Corporation, Fisher
Scientific International, Inc., Conseco, Inc., Cott Corp., Metris Companies
Inc., Tucker Anthony Sutro, Syratec Corporation and Stanley Furniture Co.
Mr. Boll, 45, served as a Managing Director of the Thomas H. Lee Company
from 1991 to 1999 and as a Managing Director of the General Partner of Thomas H.
Lee Partners, L.P. since 1999. From 1986 to 1991 he served as a Vice President
of the Thomas H. Lee Company. Mr. Boll is a Director of Big V Supermarkets,
Inc., Cott Corp., Tucker Anthony Sutro, Metris Companies, Inc., Smith and
Wollensky Restaurant Group, Inc., Transwestern Publishing, L.P. and United
Industries Corporation.
Mr. Schoen, 42, served as a Managing Director of the Thomas H. Lee Company
from 1991 to 1999 and as a Managing Director of the General Partner of Thomas H.
Lee Partners, L.P. since 1999. From 1986 to 1990 he served as a Vice President
of the Thomas H. Lee Company. Mr. Schoen is also a Director of Rayovac
Corporation, ARC Holdings, LLC, Syratech Corporation, Transwestern Publishing
L.P., United Industries Corporation and Wyndham International Inc.
Ms. Masler, 47, has been Treasurer of the Thomas H. Lee Partners, L.P. and
its predecessor, Thomas H. Lee Company, since 1984.
The Managing General Partner
The Managing General Partner is a limited partnership in which ML Mezzanine
II Inc. is the sole general partner and the Investment Adviser is the limited
partner. The Managing General Partner is responsible for the supervision of the
Fund II's investments.
The executive officers of ML Mezzanine II Inc. are as follows:
Served in
Present
Name Capacity Since (1) Title
--------- ------------------ -------
Kevin K. Albert 7/31/89 Chairman, President and Director
James V. Caruso 1/28/93 Executive Vice President
1/27/93 Director
Rosalie Y. Goldberg 7/31/89 Vice President, Director
Diane T. Herte 11/5/99 Vice President
11/8/99 Director
Kevin T. Seltzer 11/5/99 Vice President, Treasurer
(1) Directors hold office until their successors are elected and qualified. All
executive officers serve at the pleasure of the Board of Directors.
Kevin K. Albert, 48, a Managing Director of Merrill Lynch Investment
Banking Group ("ML Investment Banking") and is responsible for the Private
Equity Group and Exclusive Sales and Divestitures Group. He joined Merrill Lynch
in 1981. Mr. Albert's work in the Private Equity Group is involved in
structuring and placing a diversified array of private equity financing
including common stock, preferred stock, limited partnership interests and other
equity-related securities. His work in the Exclusive Sales and Divestitures
Group involves managing a team of investment bankers executing middle-market
exclusive sales transactions. Mr. Albert is also a director of ML Media
Management Inc. ("ML Media"), an affiliate of ML Mezzanine II Inc. ("ML
Mezzanine II") and a joint venturer of Media Management Partners, the general
partner of ML Media Partners, L.P.; a director of ML Opportunity Management Inc.
("ML Opportunity") an affiliate of ML Mezzanine II and a joint Venturer of Media
Opportunity Management Partners, the general partner of ML Opportunity, Media
Partners, L.P.; a director of Merrill Lynch Venture Capital Inc. ("ML Venture"),
an affiliate of ML Mezzanine II and the general partner of the Managing General
Partner of ML Venture Partners II, L.P. ("Venture II"); and a director of
Merrill Lynch R&D Management Inc. ("ML R&D"), an affiliate of ML Mezzanine II
and the general partner of the General Partner of ML Technology Ventures, L.P.;
Mr. Albert also serves as an independent general partner of Venture II.
James V. Caruso, 49, a Director of ML Investment Banking, joined Merrill
Lynch in 1975. Mr. Caruso is the Director of Technology for the Global
Investment Banking Group. He is responsible for ensuring that the business
requirements of Investment Banking are supported by managing the development of
new technologies and enhancing existing systems. He is also responsible for
certain merchant banking business related activities. Mr. Caruso is also
director of ML Venture, ML R&D, ML Media and ML Opportunity.
Rosalie Y. Goldberg, 63, a Managing Director of Merrill Lynch Investment
Managers ("MLIM"), joined Merrill Lynch in 1975. Ms. Goldberg has held a number
of management positions in the Special Investments area, including the position
of Manager for Product Development and Origination from 1983 to 1989. Ms.
Goldberg is also a Director of ML Media and ML Opportunity.
Diane T. Herte, 40, a Director of MLIM since 2001 and previously a Vice
President of ML Investment Banking since 1996 and an Assistant Vice President of
Merrill Lynch & Co. Corporate Credit Group since 1992, joined Merrill Lynch in
1984. Ms. Herte's responsibilities include controllership, financial management,
administrative and operational functions for certain partnerships and other
entities for which subsidiaries of Merrill Lynch are the general partner or
manager.
Kevin T. Seltzer, 34, a Vice President of MLIM since 2001 and previously a
Vice President of ML Investment Banking, joined Merrill Lynch in 1995. Mr.
Seltzer's responsibilities include controllership, financial management, and
financial reporting and administrative functions for certain partnerships and
other entities for which subsidiaries of Merrill Lynch are the general partner
or manager.
The Fund Administrator
ML Fund Administrators Inc., a Delaware corporation and a subsidiary of
Merrill Lynch & Co., Inc., is responsible for the provision of administrative
services necessary for the operation of the Funds. The Fund Administrator
receives Fund Administration Fees as compensation for these services as outlined
in Note 8 to the Financial Statements.
The Fund Administrator is responsible for the day-to-day administrative
affairs of the Funds and for the management of the accounts of Limited Partners.
The Fund Administrator also provides the Funds, at the Fund Administrator's
expense, with office space, facilities, equipment and personnel necessary to
carry out its obligations under the Administrative Services Agreement.
Item 11. Executive Compensation
The information with respect to compensation of the Individual General
Partners set forth under the caption "Management Arrangements - the Individual
General Partners" in the Prospectus pages 73 - 74 is incorporated herein by
reference. Fund II paid Independent General Partners, Mr. Alden, Mr. Bower and
Mr. Feldberg $80,000 collectively for their services as Independent General
Partners in 2000.
The information with respect to the allocation and distribution of Fund
II's profits and losses to the Managing General Partner set forth under the
caption "Distributions and Allocations - Allocations of Profits and Losses" in
the Prospectus pages 86 - 87 is incorporated herein by reference. The Managing
General Partner received no distributions during 2000.
The information with respect to the Investment Advisory Fee payable to the
Investment Adviser (and distributions from the Managing General Partner) set
forth under the caption "Management Arrangements - Description of the Advisory
Agreement" in the Prospectus pages 74 - 75 is incorporated herein by reference.
Pursuant to the Investment Advisory Agreement, Fund II paid the Investment
Adviser $666,000 with respect to 2000.
The information with respect to the Fund Administration Fees and Expenses
payable to the Fund Administrator set forth under the caption "Management
Arrangements - The Fund Administrator" in the Prospectus pages 72 - 73 is
incorporated herein by reference. Pursuant to the Administrative Services
Agreement, Fund II paid the Fund Administrator a total of $395,000 in 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Fund II is aware of the following persons who are beneficial owners of more
than five percent of its Units of limited partnership interest, based upon
Schedules 13D and 13G filed with the Securities and Exchange Commission and a
review of Fund II's records.
Amount of Percent of Units of the
Name and Address Benificial Fund Beneficially Owned
of Beneficial Owner Ownership at January 1, 2001
- ------------------- ---------- ------------------------
Yale University 20,954 9.4%
Investment Office
230 Prospect Street
New Haven, CT 06511
Farallon Capital Partners, L.P. 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Tinicum Partners, L.P. 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Thomas F. Steyer 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Fleur E. Fairman 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
David I. Cohen 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Joseph F. Downes 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Jason M. Fish 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
William F. Mellin 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Meridee A. Moore 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Eric M. Ruttenberg 21,341(1) 10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
(1) By reason of Rule 13d-5 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Farallon Capital Partners, L.P., a California
limited partnership ("FCP"), and Tinicum Partners, L.P., a New York limited
partnership ("Tinicum"), each may be deemed to own 21,341 Units of limited
partnership interest beneficially owned at January 1, 2001 as a result of
the direct ownership by FCP of 16,722 such Units and as a result of the
direct ownership by Tinicum of 4,619 such Units. FCP and Tinicum, however,
consider their beneficial interest to be limited to their direct ownership.
In addition, by reason of Rule 13d-3 under the Exchange Act, each of the
general partners of FCP and Tinicum, Thomas F. Steyer, Fleur E. Fairman,
David I. Cohen,, Joseph F. Downes, Jason M. Fish, William F. Mellin,
Meridee A. Moore and Eric M. Ruttenberg, may be deemed to own beneficially
the Units of limited partnership interest by FCP and Tinicum.
Ownership of Fund II's Units by the General Partners and Officers of the
Investment Adviser and Mezzanine II are as follows:
Name of Amount of Percent of Units
Beneficial Owner Beneficial Ownership of Class
- ---------------------------------------------------------------------
Vernon R. Alden 50 Units *
Joseph L. Bower None 0.00%
Stanley H. Feldberg 25 Units *
Thomas H. Lee 11,011 Units 4.97%
All General Partners and
Officers as a Group 13,533 Units 6.10%
* Less than one percent.
For more information regarding Beneficial Ownership, see Item 3 Legal
Proceedings.
There exists no arrangement known to Fund II, the execution of which may at
a subsequent date, result in a change of control of Fund II.
Item 13. Certain Relationships and Related Transactions
Fund II's investments generally are made as co-investments with the
Retirement Fund. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by Fund II may involve co-investments with entities
affiliated with the Investment Adviser. Such co-investments are generally
prohibited absent exemptive relief from the Securities and Exchange Commission
(the "Commission"). As a result of these affiliations and Fund II's expectation
of engaging in such co-investments, Fund II together with the Retirement Fund
and ML-Lee Acquisition Fund, L.P., sought an exemptive order from the Commission
allowing such co-investments, which was received on September 1, 1989. Fund II's
co-investments in Managed Companies, and in certain cases its co-investments in
Non-Managed Companies, typically involve the entry by the Funds and other equity
security holders into stockholders' agreements. While the provisions of such
stockholders' agreements vary, such agreements may include provisions as to
corporate governance, registration rights, rights of first offer or first
refusal, rights to participate in sales of securities to third parties, rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions, and preemptive rights.
Thomas H. Lee Company, a sole proprietorship owned by Thomas H. Lee, an
Individual General Partner of Fund II and an affiliate of the Investment
Adviser, typically performs certain management services for Managed Companies
and receives management fees in connection therewith usually pursuant to written
agreements with such companies. The Funds have one Managed Company in their
portfolios at December 31, 2000, which paid management fees to Thomas H. Lee
Company of $150,000 for the fiscal year ended December 31, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements.
See Item 8. "Financial Statments and Supplemental Data."
(2) Financial Statement Schedules.
No Financial Statement Schedules are included because of the
absence of conditions which require their inclusion or
because the required information is included in the financial
statements or set forth herein the Notes thereto.
(3) Exhibits.
3.1 Amended and Restated Certificate Incorporated by reference
of Limited Partnership, dated as to Exhibit 3.1 to
of August 25, 1989 registrant's Registration
Statement on Form N-2
number 33-25816.
3.2 Amended and Restated Agreement of Incorporated by reference
Limited Partnership, dated to Exhibit 3.2. to
November 10, 1989 Amendment No. 1, registrant's Annual Report
dated January 30, 1990. of Form 10-K for the year
ending December 31, 1989.
10.1 Investment Advisory Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.1 to
between Registrant, Thomas H. Lee registrant's Annual Report
Advisors II, L.P. and Thomas H. of Form 10-K for the year
Lee Company. ended December 31, 1991.
10.2 Custodian Agreement, dated Incorporated by reference
November 10, 1989, by and between to Exhibit 10.2 to
Registrant and State Street Bank registrant's Annual Report
and Trust Company. of Form 10-K for the year
ended December 31, 1991.
10.3 Administrative Services Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.3 to
between Registrant and ML Fund registrant's Annual Report
Administrators Inc. of Form 10-K for the year
ended December 31, 1991.
28 Pages 21-91 of the Prospectus Incorporated by reference
dated September 6,1989, filed to Exhibit 28 to
pursuant to Rule 497(b) under the registrant's Annual Report
Securities Act of 1933. of Form 10-K for the year
ended December 31, 1991.
(b) Reports on Form 8-K.
The following Report on Form 8-K ("Reports") was filed during the
last quarter of the fiscal period covered by this annual report.
(1) A Current Report on Form 8-K was filed on November 29, 2000 to
disclose that Big V Supermarkets, Inc. voluntarily filed for
reorganization and bankruptcy protection.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
See (a)(2) above.
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 2nd day of
April, 2001.
ML-LEE ACQUISITION FUND II, L.P.
By: Mezzanine Investments II, L.P.
Managing General Partner
By: ML Mezzanine II Inc.,
its General Partner
Dated: April 2, 2001 By: /s/ Kevin K. Albert
-------------------
Kevin K. Albert
President, ML Mezzanine II Inc.,
General Partner of Mezzanine
Investments II, L.P., the Managing
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 in the capacities indicated on the 2nd day of April, 2001.
Signature Title
/s/ Kevin K. Albert ML Mezzanine II Inc.
- ------------------- President and Director
Kevin K. Albert (Principal Executive Officer of Registrant)
/s/ Vernon R. Alden Individual General Partner
- ------------------- ML-Lee Acquisition Fund II, L.P.
Vernon R. Alden
/s/ Joseph L. Bower Individual General Partner
- ------------------- ML-Lee Acquisition Fund II, L.P.
Joseph L. Bower
/s/ Stanley H. Feldberg Individual General Partner
- ----------------------- ML-Lee Acquisition Fund II, L.P.
Stanley H. Feldberg
/s/ Thomas H. Lee Individual General Partner
- ----------------- ML-Lee Acquisition Fund II, L.P.
Thomas H. Lee
/s/ Kevin T. Seltzer ML Mezzanine II Inc.
- -------------------- Vice President and Treasurer
Kevin T. Seltzer (Principal Financial Officer of Registrant)