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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, 1996
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)
World Financial Center
South Tower - 23rd Floor
New York, New York 10080-6123
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 236-7339
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]
Aggregate market value of voting securities held by non-affiliates: Not
Applicable.
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. The
Funds' operations commenced on November 10, 1989.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual 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 has 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 may also
invest in "bridge investments" if it is 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 18, 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 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
At December 31, 1996, Fund II had outstanding a total of (at cost) $103.6
million invested in Mezzanine Investments representing $82 million Managed and
$21.6 million Non-Managed portfolio investments. At December 31, 1996, 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 SOLD DURING 1996
CST Office Products Corp. ("CST")
CST is a provider of stock computer forms to the resale market. CST
operates several manufacturing plants throughout the U.S., which produce
business forms and related office products. On March 22, 1996, Fund II sold its
entire investment in CST and realized a gain of $4.3 million and recognized $7.2
million of interest income for payment in kind notes previously classified as
non-accrual. Net Distributable proceeds of $94.33 per Unit were distributed on
May 3, 1996 to Limited Partners of record as of the date of such sale.
Ghirardelli Holdings Company ("Ghirardelli")
Ghirardelli is a marketer of premium chocolate products. Ghirardelli's
products are sold through a variety of distribution channels including three
company-owned retail shops, two of which are located in Ghirardelli Square, a
prominent San Francisco landmark.
On April 1, 1996, Fund II sold its entire investment in Ghirardelli to an
investor group comprised of the Chief Executive Officer of Ghirardelli and
certain other investors. Fund II realized a gain of $2.3 million on this
transaction. Net Distributable proceeds of $42.33 per Unit were distributed on
May 3, 1996 to Limited Partners of record as of the date of such sale.
National Tobacco Company
National Tobacco Company is a producer of loose-leaf chewing tobacco in the
United States whose product is primarily sold under the Beech-Nut brand name. On
May 17, 1996, Fund II sold its entire investment in National Tabocco Company and
received net proceeds of $5.2 million. Fund II realized a gain of $1.3 million
on this transaction.
Petco Animal Supplies, Inc. ("Petco")
Petco is a leading retailer of premium pet food and supplies, operating
more stores than any other specialty pet food and supply retailer in the United
States.
On April 4, 1996, Petco filed a registration statement with the Securities
and Exchange Commission for an offering of 5 million shares of Common Stock. Of
the 5 million shares offered, 2.6 million were offered by Petco and the
remaining shares were offered by certain current stockholders, including Fund
II. The offering was effected on April 30, 1996, and on this date, Fund II sold
its entire investment in Petco, which consisted of 175,238 shares of Common
Stock. Fund II realized a gain of $2.9 million on the sale.
REVIEW OF INVESTMENTS IN MANAGED COMPANIES
The following is a brief description of the companies in Fund II's Managed
Company portfolio during the year ended December 31, 1996:
Anchor Advanced Products, Inc. ("Anchor")
Anchor is a large manufacturer of toothbrushes and cosmetic packaging
products. Anchor holds a major share of the U.S. market for contract
manufacturing of toothbrushes, supplying many of the brand marketers. In
addition, Anchor has a strong position in key areas of the cosmetic packaging
market, including nail polish brushes, mascara packages and applicators and
lipstick packaging products. This investment is valued at cost at December 31,
1996.
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 at December 31, 1996.
Cole National Corp. ("Cole")
Cole was founded in 1944 as a provider of key duplication services. Since
then, Cole has grown as a retailer and operates three separate retail
subsidiaries: Cole Vision, Things Remembered and Cole Key. The investment in
Cole is valued at cost at December 31, 1996.
First Alert, Inc. ("First Alert")
First Alert is a designer and manufacturer of residential smoke detectors,
fire extinguishers, portable rechargeable lights and other security and safety
products. Fund II owns 2,058,474 shares of First Alert common stock. The closing
market price at December 31, 1996 reflects unrealized depreciation of $10.8
million for the year ended December 31, 1996, bringing the aggregate net
unrealized appreciation through December 31, 1996 to $3.6 million.
Hills Stores Company ("Hills")
Hills is an operator of discount department stores in the Northeast and
Midwest and offers a broad selection of merchandise at everyday low prices,
targeted primarily at the female shopper. Fund II recorded net unrealized
depreciation of approximately $2.0 million on this investment for the year ended
December 31, 1996. The closing market price of this investment reflects an
aggregate net unrealized depreciation of approximately $31.7 million through
December 31, 1996.
Playtex Products, Inc. ("Playtex")
Playtex manufactures and sells feminine hygiene and nursery products,
household rubber gloves, toothbrushes and Jhirmack and LaCoupe haircare
products. Fund II's year-end valuation of this investment reflects approximately
$172,000 of unrealized appreciation recorded for the year ended December 31,
1996 and $2.5 million of cumulative net unrealized depreciation through December
31, 1996.
Stanley Furniture Company, Inc. ("Stanley Furniture")
Stanley Furniture designs, manufactures and markets furniture and fabric
products.
On November 13, 1996, Stanley Furniture completed a public offering of
1,000,000 shares of common stock at $16.00 per share. Following the offering,
Stanley purchased a total of 150,000 shares from the selling shareholders
including Fund II at the same price per share. Pursuant to these transactions,
Fund II sold a total of 9,631 shares of Stanley Furniture common stock for a net
price of $15.12 per share. Fund II received total proceeds of $145,621 and
recognized a gain of approximately $25,000.
Based upon the closing bid price at December 31, 1996, Fund II's valuation
of Stanley Furniture reflects an aggregate of approximately $98,000 in net
unrealized appreciation through December 31, 1996.
During February 1997, Fund II sold an additional 272 shares of Stanley
common stock pursuant to the provisions of Rule 144 under the Securities Act of
1933, as amended. Total proceeds from the sale were approximately $6,528.
Cinnabon International, Inc. ("Cinnabon") (formerly Restaurants Unlimited)
On August 7, 1996, Restaurants Unlimited, Inc sold its full service
restaurant business division to a company owned and controlled by certain
members of the Company's management group. As part of the agreement to sell the
restaurant division, the Company agreed to change its name from Restaurants
Unlimited, Inc., to Cinnabon and agreed to modify the terms of its Class A and B
Preferred Stock, resulting in the buyer of the restaurant division having
indirect responsibility for payment of one-third of the obligation to the
preferred stockholders. Proceeds from the sale of approximately $24.5 million
were used to pay down Cinnabon's then existing bank debt.
Cinnabon operates and franchises a national chain of specialty cinnamon
roll bakeries in more than 250 locations, operating under the Cinnabon World
Famous Cinnamon Rolls brand name. The investment in Cinnabon is valued at cost
at December 31, 1996.
REVIEW OF INVESTMENTS IN NON-MANAGED COMPANIES
The following is a brief description of the companies in Fund II's
Non-Managed Company portfolio during the year ended December 31, 1996:
BioLease, Inc. ("BioLease")
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. The
investment in BioLease is valued at amoritized cost at December 31, 1996.
Fitz and Floyd Corporation ("FFSC")
During 1996, FFSC filed a voluntary petition for protection under Chapter
11 of the US Bankruptcy Code. Fund II has surrendered its equity holdings in
FFSC, which resulted in a realized loss of approximately $20,000. As of December
31, 1996, Fund II wrote down the Senior Adjustable Rate Notes to $3.0 million,
which resulted in aggregate unrealized depreciation of $9.7 million on this
investment. See Note 4 to the financial statements for more information.
FLA. Orthopedics, Inc.
FLA. Orthopedics, headquartered in Miami, manufactures, markets and
distributes production in two major lines of business: ergonomically designed
safety products and orthopedic soft goods. On August 2, 1996 Fund II surrendered
its 12.5% subordinate note and exchanged all common equity for preferred stock
and new common stock purchase warrants. Fund II realized a loss of $4.8 million
on the note surrendered.
As of December 31, 1996, Fund II has valued its remaining investment in
FLA. Orthopedics, Inc. at zero, which resulted in cumulative unrealized
depreciation of $1.5 million.
Soretox
Soretox, through its wholly-owned subsidiary Stablex Canada Inc., is an
inorganic hazardous waste management company operating in Eastern Canada and the
Northeastern United States. Fund II is currently not accruing interest on this
investment. Fund II's year end valuation reflects total unrealized depreciation
of approximately $1.6 million through December 31, 1996.
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
On February 3, 1992 and February 5, 1992, respectively, one Limited Partner
from Fund II and one Limited Partner from the Retirement Fund each commenced
class actions in the US District Court for the District of Delaware, purportedly
on behalf of all persons who purchased limited partnership interests in the
Funds between November 10, 1989 and January 5, 1990, against the Funds, the
Managing General Partner, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. These
actions, alleging that the defendants made material misrepresentations or
omitted material information in the offering materials for the Funds concerning
the investment purposes of the Funds, were consolidated by the court on March
31, 1992, and a consolidated complaint was filed by the plaintiffs on May 14,
1992. In April 1993, plaintiffs filed an amended complaint, adding claims that
certain transactions by the Funds were prohibited by the federal securities laws
applicable to the Funds and their affiliates under the Investment Company Act of
1940, as amended. The amended complaint also named the Funds' counsel as a
defendant. Defendants moved to dismiss the amended complaint, and, by Opinion
and Order dated March 31, 1994, the Court granted in part and denied in part the
motions to dismiss. Additionally, by its March 31, 1994 Opinion and Order, the
Court certified the case as a class action, and ordered plaintiffs to replead by
filing a new complaint reflecting the Court's rulings. On April 15, 1994,
plaintiffs served and filed a new complaint, which defendants moved to strike
for not conforming to the Court's ruling. On August 3, 1994, the Court granted
defendants' motion to strike the new complaint. Plaintiffs thereafter filed a
revised second amended complaint dated September 26, 1994. Factual discovery in
this litigation has concluded, although plaintiffs have made application to the
Court for permission to conduct additional fact discovery. The parties have
conducted expert discovery, the conclusion of which is subject to the Courts'
decision on a pending matter. The defendants in this action believe that the
remaining claims are without merit, although whether or not the plaintiffs
prevail, the Funds may be obligated to indemnify and advance litigation expenses
to certain of the defendants under the terms and conditions of various indemnity
provisions in the Funds' Partnership Agreements and separate indemnification
agreements, and the amount of such indemnification and expenses could be
material. Fund II has advanced amounts to the indemnified parties based upon
amounts which are deemed reimbursable in accordance with the indemnification
provisions and has included these amounts in professional fees. In the opinion
of legal council, the outcome of this case is not determinable at this time.
On August 9, 1994, the same two Limited Partners as noted in the preceding
paragraph commenced another putative class action in the US District Court for
the District of Delaware, purportedly on behalf of all persons who owned limited
partnership interests in the Funds on November 4, 1993, against the Funds, the
Managing General Partners, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. Plaintiffs
allege that the defendants violated certain provisions of the Investment Company
Act of 1940 and the common law in connection with the sale by certain of the
defendants of shares of common stock of Snapple Beverage Corp. in a November
1993 secondary offering and seek actual and punitive damages and an accounting
in connection therewith. Defendants' motion to dismiss this complaint was denied
on December 29, 1995. On August 4, 1995, while defendants' motion to dismiss the
original complaint was pending, plaintiffs filed an amended complaint alleging
additional violations of the Investment Company Act of 1940 and common law
arising out of the secondary offering. The plaintiffs moved for summary judgment
on certain of these claims. On October 13, 1995, the defendants in this
litigation each filed briefs in opposition to plaintiffs motion and moved to
dismiss the amended complaint. By an Opinion dated March 30, 1996, the Court
denied plaintiffs' motion for partial summary judgment. By order of the same
date, and without opposition by defendants, the Court certified the case as a
class action. Defendants also filed separate motions to dismiss, which the Court
denied by an order dated June 30, 1996. The parties are now engaged in
discovery. Whether or not the plaintiffs prevail, the Funds may be obligated to
indemnify and advance litigation expenses to certain of the defendants under the
terms and conditions of various indemnity provisions in the Funds' Partnership
Agreements and separate indemnification agreements. In the opinion of legal
council, the outcome of this case is not determinable at this time.
On November 27, 1995, one Limited Partner from Fund II and one Limited
Partner from the Retirement Fund filed a putative class action in the United
States District Court for the District of Delaware, purportedly on behalf of all
persons or entities who owned Units in the Funds between April 5, 1991 and
November 27, 1995, against the Funds, the Managing General Partner, the
Individual General Partners, the Investment Adviser to the Funds, and certain
named affiliates of such persons. The complaint contends that the Funds
improperly advanced legal fees and litigation costs to the defendants in
connection with three previously filed lawsuits. The plaintiffs are seeking an
accounting, rescissory or actual damages, punitive damages, plaintiffs'
litigation costs and attorneys fees, pre-judgment and post-judgment interest,
and an injunction barring the defendants from further indemnifying themselves.
The defendants in this action believe that the claims are without merit and have
moved to dismiss the case. On December 18, 1996 the Court denied the defendants'
motion to dismiss. Although the defendants believe the advancement of legal fees
and litigation costs was properly made pursuant to indemnification agreements
signed by the defendants. In the opinion of legal council, the outcome of this
case is not determinable at this time.
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 of the year ended December 31, 1996.
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, 1997, the last
effective date of transfer (as described below), was 11,566. The Managing
General Partner and Thomas H. Lee as an Individual General Partner also hold
general partnership interests in Fund II.
Effective November 9, 1992, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch" or "MLPF&S") introduced a new limited partnership
secondary service through Merrill Lynch's Limited Partnership Secondary
Transaction Department ("LPSTD"). This service assists Merrill Lynch clients
wishing to buy or sell limited partnership interests, but does not represent an
established trading market for the Units.
Beginning with the December 1994 client account statements, MLPF&S
implemented new guidelines for providing estimated values of limited
partnerships and other direct investments reported on client account statements.
As a result, MLPF&S no longer reports the General Partner's estimates of limited
partnership net asset value to Unit holders. Pursuant to such MLPF&S guidelines,
estimated values for limited partnership interests originally sold by MLPF&S
(such as Fund II's Units) will be provided two times per year to MLPF&S by
independent services. These estimated values will be based on financial and
other information available to the independent services on the prior August 15th
for reporting on December year-end client account statements and month-end
account statements through May of the following year, and on information
available to the services on March 31st for reporting on June through November
MLPF&S client account statements of the same year. MLPF&S clients may contact
their MLPF&S Financial Consultants or telephone the number provided to them on
their account statements to obtain a general description of the methodology used
by the independent valuation services to determine their 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
Fund II's 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 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 transferred and assignment is recognized by the
Managing General Partner, will be payable to the transferor and not the
transferee.
Cash Distributions
Fund II has made quarterly distributions including both Distributable Cash
from Investments and Distributable Capital Proceeds. 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
Selected Financial Data
For the Years Ended December 31,
TOTAL FUND INFORMATION: 1996 1995 1994 1993 1992
------------- -------------- ---------------- --------------- -------------
Net Investment Income $ 11,023,166 $ 4,146,846 $ 7,816,305 $ 4,967,971 $ 11,835,023
Net Realized Gain on Sales of Investments 5,894,176 8,372,906 63,853,148 13,201,921 1,102,509
Net Change in (Depreciation) Appreciation
on Investments (15,723,691) (30,559,313) (100,354,280) 80,586,157 38,881,428
Cash Distributions to Partners (a) 49,261,781 29,490,761 101,901,964 31,187,989 13,773,393
Net Assets 71,115,538 119,183,669 166,713,991 297,300,782 229,732,722
Cost of Mezzanine Investments 103,597,216 135,797,397 144,603,700 148,865,244 150,751,778
Total Assets 71,678,160 120,346,488 167,805,653 299,130,035 231,416,644
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Investment Income $ 50.33 $ 32.05 $ 49.88 $ 52.20 $ 73.49
Expenses (15.11) (19.71) (19.70) (29.85) (20.25)
------------- ----------- ------------ ------------- ------------
Net Investment Income $ 35.22 $ 12.34 $ 30.18 $ 22.35 $ 53.24
============= =========== ============ ============= ============
Net Realized Gain on Sales of
Investments $ 14.47 $ 34.23 $ 225.61 $ 59.39 $ 4.96
Net Change in (Depreciation) Appreciation
on Investments (70.73) (137.47) (451.45) 362.52 174.91
Cash Distributions 193.14 (a) 110.56 413.35 140.30 61.96
Cumulative Cash Distributions 1,051.20 858.06 747.50 334.15 193.85
Net Asset Value 314.44 528.63 730.09 1,339.10 1,035.14
(a) Includes $25.7 million or $115.70 per limited partnership Unit return of capital
from the sale of portfolio investments during 1996.
See Cash Distributions Schedule for additional information including return of capital.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity & Capital Resources
As of December 31, 1996, capital contributions from the Limited Partners
and the General Partners totaled $222,295,000 in the public offering of ML-Lee
Acquisition Fund II, L.P. ("Fund II") the final closing for which was held on
December 20, 1989. Net proceeds available for investment by Fund II as of
December 31, 1996 were $137,973,085, after adjusting for returns of capital
distributed to partners, volume discounts, sales commissions and organizational,
offering, sales and marketing expenses.
At December 31, 1996, Fund II had outstanding a total of $103.6 million
invested in Mezzanine Investments representing (at cost) $82 million Managed and
$21.6 million Non-Managed portfolio investments. The remaining proceeds were
invested in Temporary Investments primarily comprised of commercial paper with
maturities of less than one month.
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 18, 1993.
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. The Managing General
Partner is required to defer a portion of any incentive fee 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 the Deferred Distribution Amount is paid in
full. As of March 20, 1997, there is a Deferred Distribution Amount owed to the
Managing General Partner of $867,350.
On August 6, 1991, the Independent General Partners approved a reserve for
follow-on investments of $24.9 million for Fund II. As of March 31, 1997 the
reserve balance was reduced to $8.9 million due to follow-on investments in
Petco Animal Supplies, FFSC, Inc., Fine Clothing, Inc., Hills Stores and
Ghirardelli Holdings. Additionally $6.29 million of the reserve has been
returned to the partners during 1995 and $1 million was returned to the partners
as part of the 1996 fourth quarter distribution that was made on February 14,
1997. 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. During 1996, the Independent General
Partners have approved an additional follow-on investment in FFSC, Inc. of $2.4
million, which has not beed funded as of March 20, 1997.
All net proceeds from the sale of Mezzanine Investments received by Fund II
in the future will be distributed to its partners unless applied to or set aside
for expenses or follow-on investments.
The proportion of distributions provided by net investment income has
decreased significantly from prior years, due primarily to increased sales and
redemptions of Mezzanine Investments and a resulting decrease in investment
income as those holdings cease to generate interest income. Pursuant to the
terms of the Partnership Agreement, all net investment income from Mezzanine
Investments will be distributed to the Managing General Partner until the
Managing General Partner receives an amount equal to any outstanding Deferred
Distribution Amount. Given these circumstances, it is expected that the majority
of future cash distributions to Limited Partners will almost entirely be derived
from gains and recovered capital from asset sales, which are subject to market
conditions and are inherently unpredictable as to timing. Assuming there are no
asset sales in a particular quarter, Limited Partners are expected to receive
only small amounts of net distributable cash from Temporary Investments,
estimated to be less than one dollar per Limited Partnership Unit each quarter
for the next few years. Distributions therefore are expected to vary
significantly in amount and may not be made in every quarter.
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 and implemented risk management
policies. Fund II subjected each prospective investment to rigorous analysis and
made only those investments that were recommended by the Investment Adviser 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.
Certain issuers of High-Yield Securities held by Fund II (First Alert,
Hills, Playtex and Stanley Furniture) have registered their equity securities in
public offerings. Although the equity securities of the same class presently
held by Fund II were not registered in these offerings, Fund II has the ability
under Rule 144 under the Securities Act of 1933 to sell publicly traded equity
securities held by it for at least two years on the open market, subject to the
volume restrictions set forth in that rule. The Rule 144 volume restrictions
generally are not applicable to equity securities of non-affiliated companies
held by Fund II for at least three years. In certain cases, Fund II has agreed
not to make any sales of equity securities for a specified hold-back period
following a public offering.
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.
Results of Operations
Investment Income and Expenses
The investment income from operations for the period consists primarily of
interest and discount income earned on the investment of proceeds from partners'
contributions in Mezzanine Investments and short-term money market instruments.
For the year ended December 31, 1996, Fund II had investment income of
$14.4 million, as compared to $8.5 million for the same period in 1995 and $12.9
million for the same period in 1994. The increase in 1996 investment income from
1995 is due to the recognition of interest income from payment-in-kind
securities related to the sale of CST Office Products, Inc. The decrease in 1995
investment income from 1994 is due primarily to the decline in short term
interest rates and the decrease in Temporary Investments held by Fund II after
distributions of return of capital to limited partners during 1995.
Major expenses for the period consisted of Legal and Professional Fees,
Investment Advisory Fees, Fund Administration Fees and Reimbursable
Administrative Expenses.
Legal and Professional Fees were primarily incurred in connection with the
litigation proceedings as described in Note 11 to the Financial Statements.
Legal and Professional fees for the years ended December 31, 1996, 1995 and 1994
were $1.3 million, $1.7 million and $2 million, respectively. These expenses are
attributable to legal fees incurred and advanced on behalf of indemnified
defendants as well as fees incurred directly by Fund II in connection with the
litigation proceedings described in Note 11 to the Financial Statements.
The Investment Adviser and Fund Administrator both receive their
compensation on a quarterly basis. The total Investment Advisory Fees paid by
Fund II to the Investment Adviser for the years ended December 31, 1996, 1995
and 1994 were $988,882, $1.5 million and $1.7 million, 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 $1.2 million for Fund II and the Retirement Fund on a
combined basis. These decreases in Investment Advisory Fees are a direct result
of the sales of investments, returns of capital distributed to partners and
realized losses on investments.
The Fund Administration Fees paid to the Fund Administrator by Fund II for
the years ended December 31, 1996, 1995 and 1994 were $675,250, $798,478 and
$835,643, respectively, and were calculated at an annual rate of 0.45% of the
excess of net offering proceeds, less 50% of capital reductions and 50% of
realized losses. These decreases in Fund Administration Fees are a direct result
of sales of investments, returns of capital distributed to partners and realized
losses on investments.
Pursuant to the administrative services agreement between Fund II and the
Fund Administrator, effective November 10, 1993, a portion of the actual
out-of-pocket expenses incurred in connection with the administration of Fund II
is reimbursable to the Fund Administrator. Actual out-of-pocket expenses
("reimbursable expenses") primarily consist of printing, audit, tax preparation
and custodian fees. For the years ended December 31, 1996, 1995 and 1994, Fund
II incurred $139,158, $125,816 and $275,079, respectively, in reimbursable
expenses.
For the year ended December 31, 1996, Fund II had net investment income of
$11 million as compared to $4.1 million for the same period in 1995 and $7.8
million for the same period in 1994. The increase in net investment income from
1995 to 1996 is the result of additional payment-in-kind interest income
recorded upon the sale of CST in the first quarter of 1996 and lower Investment
Advisory, Fund Administration and Legal and Professional Fees recorded in 1996.
The decrease in 1995 as compared to 1994 net investment income is primarily
attributable to a decrease in income from Mezzanine Investments and Temporary
Investments partially offset by lower expenses, primarily Legal and Professional
Fees.
Net Assets
Fund II's net assets decreased by $48.1 million during the year ended
December 31, 1996, due to the payment of cash distributions to partners of $49.3
million($25.7 million of the cash distributions paid was return of capital from
the sales of portfolio investments) and net unrealized depreciation of $15.7
million, partially offset by net investment income of $11 million and realized
gains of $5.9 million from the sales of Mezzanine Investments.
Unrealized Appreciation and Depreciation on Investments
For the year ended December 31, 1996, Fund II recorded net unrealized
depreciation of $15.7 million of which $12.5 million was related to net
depreciation in market value of publicly traded securities held as of December
31, 1996. The unrealized depreciation can be attributed primarily to the
decrease in value of First Alert and Hills Stores Company at December 31, 1996,
as well as the reversal of unrealized appreciation of Petco upon the sale of
Petco Securities held by Fund II. This compares to a net unrealized depreciation
of $30.6 million at December 31, 1995, of which $22.7 million was related to net
depreciation in market value of publicly traded securities. Fund II's cumulative
net unrealized depreciation on investments as of December 31, 1996 totaled $43.2
million.
For the year ended December 31, 1994, Fund II recorded net unrealized
depreciation of $100.3 million of which $96.5 million was related to net
unrealized depreciation in market value of publicly traded securities. The
decrease can be attributed primarily to the reversal of unrealized appreciation
from the sale of Snapple Beverage Corp.
Fund II's valuation of the common stock of First Alert, Hills, Playtex and
Stanley Furniture reflect their closing market prices at December 31, 1996.
The Managing General Partner and the Investment Adviser review the
valuation of Fund II's portfolio investments that do not have a readily
ascertainable market value on a quarterly basis with final approval from the
Individual General Partners. Portfolio investments are valued at original cost
plus accrued 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
Managing General Partner and Investment Adviser 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 53% 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.
The First Alert, Hills, Stanley Furniture and Playtex securities held by
Fund II are restricted securities under the SEC's Rule 144 and can only be sold
under that rule in a registered public offering or pursuant to an exemption from
the registration requirement. In addition, resale in some cases is restricted by
lockup or other agreements. Fund II may be considered an affiliate of First
Alert and Stanley Furniture pursuant to Rule 144 under the Securities Act of
1933 and, therefore, any resale of securities of those companies under Rule 144
is limited by the volume limitations in that rule. Accordingly, the values
referred to in the financial statements for the remaining First Alert, Hills,
Playtex and Stanley Furniture securities held by Fund II do not necessarily
represent the prices at which these securities could currently be sold.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of December
31, 1996. 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 the Supplemental Schedule of
Unrealized Appreciation and Depreciation - Schedule 2.
Realized Gains and Losses
For the year ended December 31, 1996, Fund II had net realized gains from
investments of $5.9 million as compared to $8.4 million and $63.9 million for
the years ended December 31, 1995 and 1994, respectively. For additional
information, please refer to the Supplemental Schedule of Realized Gains and
Losses - Schedule 1.
Cash Distributions
On February 3, 1997, the Individual General Partners approved the fourth
quarter 1996 cash distribution totalling $1,833,044 which represents net
investment income of $603,179 from Mezzanine Investments, $84,245 from Temporary
Investments and Net Distributable Capital proceeds from the sale of Stanley
Furniture of $145,620 (which includes a return of capital of $121,192).
Additionally, $1 million of the reserve for follow-on investments has been
returned to the partners. The total amount distributed to Limited Partners was
$1,226,250 or $5.53 per Unit, which was paid on February 14, 1997. The Managing
General Partner received a total of $2,764 with respect to its interest in Fund
II and $603,754 in incentive distributions. Thomas H. Lee, as an Individual
General Partner, received $276 with respect to his interest in Fund II.
Cash Distributions
The following table represents distributions approved by the Individual
General Partners of ML-Lee Acquisition Fund II, L.P. 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 9,200,200 41.49 37.42 20,744 387,598 2,074
Fourth Quarter 1995 333,445 332,618 1.50 - 752 - 75
CST Distribution
on 5/03/96 25,825,311 20,917,206 94.33 63.04 47,165 4,856,223 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
------------- ------------ --------- -------- --------- ----------- --------
Totals $ 256,969,468 $234,021,834 $1,056.73 $ 363.99 $ 566,157 $22,324,860(c) $ 56,617
============= ============ ========= ======== ========= =========== ========
(a) Distributions are paid no later than 45 days after the end of each quarter.
(b) Incentive distribution to the Managing General Partner for exceeding the
cumulative Priority Return on Mezzanine Investments to Limited Partners.
(c) Subsequent to the Distribution paid on February 14, 1997, there was a
Deferred Distribution Amount outstanding of $867,350 or $3.91 per Limited
Partner Unit that is payable to the Managing General Partner. This amount will
be paid to the Managing General Partner from certain future Distributable Cash
from Operations until the Deferred Distribution Amount is paid in full.
Item 8. Financial Statements and Supplementary 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, 1996 and December 31, 1995
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Net Assets
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1996, 1995 and 1994
Schedule of Portfolio Investments - December 31, 1996
Notes to Financial Statements
Supplementary Schedule of Realized Gains and Losses (Schedule 1)
Supplementary Schedule of 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, 1996 and 1995, and the results of its operations, the changes in its net
assets, its cash flows, and the changes in its partners' capital for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted
auditing standards which require that we plan and perform the audits 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, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations were not received, provide a reasonable
basis for the opinion expressed above.
The financial statements include securities, valued at $60,380,895 at
December 31, 1996 (84.9% 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. We have reviewed the procedures used by
the Managing General Partner and the Investment Adviser in arriving at their
estimate of value and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, 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.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule of realized gains and
losses (Schedule 1) and the schedule of unrealized appreciation and depreciation
(Schedule 2) are presented for the purpose 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 our audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects when considered
in relation to the basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1997
execpt as to Note 13 which is as of March 26, 1997
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
For the Year Ended
December 31, December 31,
1996 1995
---------- ----------
ASSETS:
Investments - Notes 2,4,5
Portfolio Investments at fair value
Managed Companies (amortized cost $81,990
at December 31, 1996 and $105,477 at December 31, 1995) $ 51,516 $ 88,955
Non-Managed Companies (amortized cost $21,608
at December 31, 1996 and $30,341 at December 31, 1995) 8,865 19,340
Temporary Investments, at amortized cost (cost $10,199
at December 31, 1996 and $10,024 at December 31, 1995) 10,217 10,042
Cash (of which $115 is restricted at December 31, 1996) 125 1
Accrued Interest Receivable - Note 2 951 2,005
Prepaid Expenses 4 4
---------- ----------
TOTAL ASSETS $ 71,678 $ 120,347
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Legal and Professional Fees Payable $ 159 $ 363
Reimbursable Administrative Expenses Payable - Note 8 45 57
Independent General Partners' Fees Payable - Note 9 33 66
Deferred Interest Income - Note 2 326 678
---------- ----------
Total Liabilities 563 1,164
---------- ----------
Partners' Capital - Note 2
Individual General Partner 19 29
Managing General Partner 1,368 1,932
Limited Partners (221,745 Units) 69,728 117,222
---------- ----------
Total Partners' Capital 71,115 119,183
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 71,678 $ 120,347
========== ==========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
For the Year Ended December 31,
1996 1995 1994
--------- --------- ---------
INVESTMENT INCOME - Notes 2,4,6:
Interest $ 13,462 $ 7,523 $ 11,395
Discount and Dividend Income 920 1,004 1,522
--------- --------- ---------
TOTAL INCOME 14,382 8,527 12,917
--------- --------- ---------
EXPENSES:
Investment Advisory Fee - Note 7 989 1,537 1,700
Fund Administration Fee - Note 8 675 798 836
Reimbursable Administrative Expenses - Note 8 139 126 275
Legal and Professional Fees 1,345 1,651 2,051
Independent General Partners' Fees and Expenses - Note 9 207 263 184
Insurance Expense 4 5 5
Amortization of Deferred Organization Expenses Note 2 -- -- 50
--------- --------- ---------
TOTAL EXPENSES 3,359 4,380 5,101
--------- --------- ---------
NET INVESTMENT INCOME 11,023 4,147 7,816
--------- --------- ---------
Net Realized Gain on Investments - Note 4 and Schedule 1 5,895 8,373 63,853
Net Change in Unrealized Depreciation --------- --------- ---------
on Investments: Note 5 and Schedule 2
Publicly Traded Securities (13,952) (22,693) (96,537)
Nonpublic Securities (1,772) (7,867) (3,817)
--------- --------- ---------
SUBTOTAL (15,724) (30,560) (100,354)
NET INCREASE (DECREASE) IN NET ASSETS --------- --------- ---------
RESULTING FROM OPERATIONS 1,194 (18,040) (28,685)
Less: Incentive Fees Earned by Managing General Partner (5,366) (2,162) (14,773)
--------- --------- ---------
NET DECREASE AVAILABLE FOR PRO-RATA
DISTRIBUTION TO ALL PARTNERS $ (4,172) $ (20,202) $ (43,458)
========= ========= =========
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 Year Ended December 31,
1996 1995 1994
--------- --------- ---------
FROM OPERATIONS:
Net Investment Income $ 11,023 $ 4,147 $ 7,816
Net Realized Gain on Investments 5,895 8,373 63,853
Net Change in Unrealized Depreciation
From Investments (15,724) (30,560) (100,354)
--------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,194 (18,040) (28,685)
Cash Distributions to Partners (49,262) (29,491) (101,902)
--------- --------- ---------
Total Decrease (48,068) (47,531) (130,587)
NET ASSETS:
Beginning of Year 119,183 166,714 297,301
--------- --------- ---------
End of Period $ 71,115 $ 119,183 $ 166,714
========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For The Year December 31,
1996 1995 1994
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 15,268 $ 7,650 $ 13,218
Legal and Professional Fees (1,549) (1,363) (2,161)
Investment Advisory Fee (989) (1,537) (1,700)
Fund Administration Fee (675) (799) (836)
Independent General Partners' Fees and Expenses (240) (242) (222)
Reimbursable Administrative Expenses (151) (156) (187)
(Purchase) Sale of Temporary Investments, Net (175) 8,321 24,728
Proceeds from Sales of Portfolio Company Investments 37,901 19,256 80,364
Purchase of Portfolio Company Investments -- (1,635) (11,358)
Insurance Expense (4) (4) (4)
Closing Fees Received -- -- 60
--------- --------- ---------
Net Cash Provided by Operating Activities 49,386 29,491 101,902
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (49,262) (29,491) (101,902)
--------- --------- ---------
Net Cash Applied to Financing Activities (49,262) (29,491) (101,902)
--------- --------- ---------
Net Increase in Cash 124 -- --
Cash at Beginning of Year 1 1 1
--------- --------- ---------
Cash at End of Year $ 125 $ 1 $ 1
========= ========= =========
RECONCILIATION OF NET INVESTMENT INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income $ 11,023 $ 4,147 $ 7,816
--------- --------- ---------
Adjustments to Reconcile Net Investment Income to
Net Cash Provided by Operating Activities:
Decrease in Investments 32,015 17,569 30,370
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivable 702 (878) 301
Decrease in Prepaid Expenses -- -- 15
(Decrease) Increase in Legal and Professional Fees Payable (204) 291 (109)
(Decrease) Increase in Reimbursable Administrative Expenses Payable (12) (31) 88
(Decrease) Increase in Independent General Partners' Fees Payable (33) 20 (39)
Amortization of Deferred Organization Expenses -- -- 50
Increase in Deferred Closing Fees ` -- -- 60
Decrease in Option Payable -- -- (503)
Net Realized Gain on Sales of Investments 5,895 8,373 63,853
--------- --------- ---------
Total Adjustments 38,363 25,344 94,086
--------- --------- ---------
Net Cash Provided by Operating Activities $ 49,386 $ 29,491 $ 101,902
========= ========= =========
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
---------- --------- ----------- -----------
Notes 2 and 3
For the Year Ended December 31, 1994
Partners' Capital at January 1, 1994 $ 71 $ 291 $ 296,939 $ 297,301
Allocation of Net Investment Income 2 1,122 6,692 7,816
Allocation of Net Realized Gain on Investments 14 13,812 50,027 63,853
Allocation of Net Change in Unrealized Depreciation
From Investments (23) (225) (100,106) (100,354)
Cash Distributions to Partners (24) (10,220) (91,658) (101,902)
--------- --------- ----------- -----------
Partners' Capital at December 31, 1994 $ 40 $ 4,780 $ 161,894 $ 166,714
========= ========= =========== ===========
For the Year Ended December 31, 1995
Partners' Capital at January 1, 1995 $ 40 $ 4,780 $ 161,894 $ 166,714
Allocation of Net Investment Income 1 1,410 2,736 4,147
Allocation of Net Realized Gain on Investments 1 780 7,592 8,373
Allocation of Net Change in Unrealized Depreciation (7) (69) (30,484) (30,560)
From Investments
Cash Distributions to Partners (6) (4,969) (24,516) (29,491)
--------- --------- ----------- -----------
Partners' Capital at December 31, 1995 $ 29 $ 1,932 $ 117,222 $ 119,183
========= ========= =========== ===========
For the Year Ended December 31, 1996
Partners' Capital at January 1, 1996 $ 29 $ 1,932 $ 117,222 $ 119,183
Allocation of Net Investment Income 2 3,211 7,810 11,023
Allocation of Net Realized Gain on Investments 1 2,684 3,210 5,895
Allocation of Net Change in Unrealized
Depreciation From Investments (3) (35) (15,686) (15,724)
Cash Distributions to Partners (10) (6,424) (42,828) (49,262)
--------- --------- ----------- -----------
Partners' Capital at December 31, 1996 $ 19 $ 1,368 $ 69,728 $ 71,115
========= ========= =========== ==========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(e) (Note 2) Investments
MEZZANINE INVESTMENTS
MANAGED COMPANIES
ANCHOR ADVANCED PRODUCTS, INC. (b)
$5,867 Anchor Advanced Products, Inc., Sr. Sub. Nt.11.67% due 04/30/00(c) 04/30/90 $ 5,867 $ 5,867
$7,822 Anchor Advanced Products, Inc., Jr. Sub. Nt.17.5% due 04/30/00(c) 04/30/90 7,822 7,822
162,967 Shares Anchor Holdings Inc., Common Stock (d) 04/30/90 1,548 1,548
247,710 Warrants Anchor Holdings Inc., Common Stock Purchase Warrants(d) 04/30/90 0 0
(26.1% of fully diluted common equity assuming exercise ------------------------------
of warrants) (i) 15,237 15,237 21.58
------------------------------
BIG V SUPERMARKETS, INC. (b)
$13,037 Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(c) 12/27/90 13,037 13,037
117,333 Shares Big V Holding Corp., Common Stock(d) 12/27/90 4,107 4,107
(16.6% of fully diluted common equity) (i) ------------------------------
17,144 17,144 24.28
------------------------------
COLE NATIONAL CORPORATION
1,341 Warrants Cole National Corporation, Common Stock Purchase Warrants(d) 09/26/90 0 0
(0.0% of fully diluted common equity assuming exercise
of warrants)(i)
$1,393 13% Sr. Secured Bridge Note
Purchased 09/25/90 $1,393
Repaid 11/15/90 $1,393 ------------------------------
Realized Gain $ 0 0 0 0.00
------------------------------
2,058,474 Shares FIRST ALERT, INC., (b) Note 5
First Alert, Inc., Common Stock(a)(d) 07/31/92 3,320 6,947
(8.1% of fully diluted common equity) (i)
$ 10,198 12.5% Sub. Note
Purchased 07/31/92 $10,198
Repaid 03/28/94 $10,198
Realized Gain $ 0 ------------------------------
3,320 6,947 9.84
------------------------------
HILLS STORES COMPANY - Notes 4,5
458,432 Shares Hills Stores Company, Common Stock(a)(d) 04/03/90 30,246 2,750
62,616 Shares Hills Stores Company, Common Stock(a)(d) 08/21/95 4,530 376
(4.1% of fully diluted common equity) (i) ------------------------------
34,776 3,126 4.43
------------------------------
PLAYTEX PRODUCTS, INC. (b) - Note 5
343,726 Shares Playtex Products, Inc., Common Stock(a)(d) 03/29/90 5,299 2,750
(.6% of fully diluted common equity) (i)
$7,333 15% Subordinated Note
Purchased 03/29/90 $7,333
Sold 09/28/90 $7,349
Realized Gain $ 16
84,870 Shares Common Stock
Purchased 03/29/90 $ 282
Sold 12/20/91 $ 328
Realized Gain $ 46
$7,334 15% Subordinated Note
Purchased 03/29/90 $7,334
Sold 02/01/93 $7,327
Realized Loss $ (7)
Total Net Realized Gain $ 55 -----------------------------
5,299 2,750 3.90
-----------------------------
CINNABON INTERNATIONAL, INC. (formerly Restaurants Unlimited)
$6,044 Restaurants Unlimited, 11% Subordinated Note due 06/30/02(c) 06/03/94 6,044 6,044
391,302 Warrants Restaurants Unlimited, Common Stock Warrants(d) 06/03/94 0 0
(2.1% of fully diluted common equity) (i) -----------------------------
6,044 6,044 8.56
-----------------------------
STANLEY FURNITURE COMPANY, INC. (b) - Notes 4, 5
13,474 Shares Stanley Furniture Company, Inc., Common Stock(a)(d) 06/30/91 170 268
(0.4% of fully diluted common equity) (i)
9,631 Shares Common Stock
Purchased 6/30/91 $ 121
Sold 8,375 Shares 11/13/96 $ 127
Sold 1,256 Shares 12/13/96 $ 19
Realized Gain $ 25 ----------------------------
170 268 0.38
----------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 81,990 $ 51,516 72.97
============================
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(e) (Note 2) Investments
NON-MANAGED COMPANIES
BIOLEASE, INC.
$784 Biolease, Inc., 13% Sub. Nt. due 06/06/04 (c) 06/08/94 $ 676 $ 704
96.56 Shares BioLease, Inc., Common Stock (d) 06/08/94 94 94
10,014 Warrants Biotransplant, Inc., Common Stock Purchase Warrants(d) 06/08/94 14 14
-----------------------------
784 812 1.15
-----------------------------
FITZ AND FLOYD - Notes 4,5,6
$10,281 FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)(g) 03/31/93 10,266 2,448
$ 2,419 FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)(g) 07/30/93 2,414 576
1,324,508 Shares Common Stock
Purchased Various $ 20
Surrendered May 1996 -
Realized Loss $ (20) -----------------------------
12,680 3,024 4.28
-----------------------------
FLA. ORTHOPEDICS, INC. - Notes 4,5
19,366 Shares FLA. Holdings, Inc. Series B Preferred Stock (d) 08/02/93 1,513 0
3,822 Warrants FLA. Holdings, Inc. Common Stock Purchase Warrants(d) 08/02/93 0 0
$4,842 12.5 Sub. Note
Purchased 8/02/93 $ 4,842
Surrendered 8/02/96 $ -
Realized Loss $(4,842) -----------------------------
1,513 0 0.00
-----------------------------
SORETOX - Notes 5,6
$3,503 Stablex Canada, Inc., Sub. Nt. 10% due 06/30/07(c)(f)(g) 06/29/95 3,503 2,590
$3,128 Stablex Canada, Inc., Jr. Sub. Nt. 11% due 06/30/09(c)(f)(g) 06/29/95 3,128 2,439
2,004 Warrants Seaway TLC, Inc. Common Stock Purchase Warrants 12/06/91 0 0
-----------------------------
6,631 5,029 7.13
-----------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $21,608 8,865 12.56
=============================
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes Various 52,757 41,527 58.82
Preferred Stock, Common Stock, Warrants and Stock Rights Various 50,841 18,854 26.71
-----------------------------
TOTAL MEZZANINE INVESTMENTS $103,598 $ 60,381 85.53
=============================
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 4,650 State Street Clipper Receivable, 5.46% due 1/02/97 12/17/96 4,639 4,649
$ 614 Ford Motor Credit Company, 5.55% due 01/06/97 12/20/96 612 613
$ 4,960 Ford Motor Credit Company, 5.62%, due 01/08/97 12/24/96 4,948 4,955
-----------------------------
TOTAL INVESTMENT IN COMMERCIAL PAPER 10,199 10,217 14.47
-----------------------------
TOTAL TEMPORARY INVESTMENTS 10,199 10,217 14.47
-----------------------------
TOTAL INVESTMENT PORTFOLIO $113,797 $ 70,598 100.00%
=============================
(a) Publicly traded class of securities.
(b) Represents investment in affiliates as defined in the Investment Company Act of 1940.
(c) Restricted security.
(d) Restricted non-income producing equity security.
(e) Represents original cost and excludes accretion of discount of $28 for
Mezzanine Investments and $18 for Temporary Investments.
(f) Inclusive of receipt of payment-in-kind securities.
(g) Non-accrual investment status.
(h) Non-income producing equity security.
(i) Percentages of common equity have not been audited by Price Waterhouse LLP.
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual 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.
Fund II has 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 may also invest in "bridge
investments" if it is believed that such investments would facilitate the
consummation of a mezzanine financing.
As described in the Prospectus, Fund II will terminate no later than
January 5, 2000, subject to the right of the Individual General Partners to
extend the term for up to one additional two-year period and one additional
one-year period if it is in the best interest of Fund II. Fund II will then have
five additional years to liquidate its remaining investments.
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 Managing General Partner and the
Investment Adviser 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 its original cost plus accrued 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 Managing General Partner and
Investment Adviser 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 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.
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.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of December
31, 1996. 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 because the portfolio investments of companies
whose equity is publicly traded are valued at the last price at December 31,
1996, the current estimated fair value of these investments may have changed
significantly since that point in 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. As of December 31, 1996 and December 31,
1995, Fund II had in its portfolio of investments $441,900 and $751,907,
respectively, of payment-in-kind notes which excludes $1.1 million and $7.6
million, respectively, of payment-in-kind notes received from notes placed on
non-accrual status. As of December 31, 1996 and December 31, 1995, Fund II had
in its portfolio of investments $29,059 and $2.3 million respectively, of
payment-in-kind equity securities.
Deferred Organization Expenses
Organization costs of $292,128 for Fund II were fully amortized as of
November 10, 1994.
Investment Transactions
Fund II records investment transactions on the date on which it obtains an
enforceable right to demand the securities or payment therefor. Fund II records
Temporary Investment transactions on the trade date.
Realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.
Sales and Marketing Expenses, Offering Expenses and Sales Commissions
Sales commissions and selling discounts were allocated to the specific
partners' accounts in which they were applied. Sales and marketing expenses and
offering expenses were allocated between the Funds in proportion to the number
of Units issued by each fund and to the partners in proportion to their capital
contributions.
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,
thereafter, 79.75% to the Limited Partners, 20.225% to the Managing General
Partner and 0.025% to the Individual General Partner.
Losses will be allocated in reverse order of profits previously allocated
and thereafter 99.75% to the Limited Partners, 0.23% to the Managing General
Partner and 0.02% to the Individual General Partner.
4. Investment Transactions
On March 22, 1996, by means of merger of Lee-CST Holding Corp. with an
unaffilated third party, Fund II sold its entire investment in CST Office
Products ("CST") for total proceeds of $26.5 million. Fund II received an
aggregate of $21.1 million for the $6.4 million principal amount 12% senior
subordinated note, the $6.4 million principal amount 18% junior subordinated
note, approximately $7.5 million in principal amount of 15% payment in kind
subordinated notes issued with respect thereto, plus all outstanding accrued
interest on these notes. Additionally, Fund II received $2.6 million, or $16 per
share, for its common stock and $2.8 million, or $15.99 per share, for its
common stock purchase warrants. Fund II realized a gain of $4.3 million and
additional interest income of $7.2 million for the payment-in-kind subordinated
notes that were previously classified as non-accrual.
On April 4, 1996, Petco filed a registration statement with the Securities
and Exchange Commission for an offering of 5 million shares of Common Stock. Of
the 5 million shares offered, 2.6 million were offered by Petco and the
remaining shares were offered by certain current stockholders, including Fund
II. The offering was effected on April 30, 1996, and on this date, Fund II sold
its entire investment in Petco, which consisted of 175,238 shares of Common
Stock. Fund II realized a gain of $2.9 million on the sale.
On April 1, 1996, Fund II sold its entire investment in Ghirardelli
Holdings Corp. ("Ghirardelli") to an investor group comprised of the Chief
Executive Officer of Ghirardelli and certain other investors. Fund II received
net proceeds from the sale of $9.6 million, which consisted of $4.9 million as
prepayment for the 13% Subordinated Note (including $77,607 of accrued
interest), $3.2 million for the common stock (of which $114,730 is proceeds held
in escrow) and $1.5 million for the preferred stock (including $26,475 of
accrued dividends). The sale resulted in a realized gain of $2.3 million to Fund
II.
Operating performance at Fitz & Floyd Corp. ("FFSC"), has fallen
substantially below plan. On March 29, 1996, FFSC filed a voluntary petition for
protection under Chapter 11 of the United States Bankruptcy Code, and continues
operating the business as debtor-in-possession. In May 1996, Fund II surrendered
its common stock in FFSC and realized a loss of $20,000. The Investment Adviser
is working to implement a plan of joint reorganization for FFSC.
On May 17, 1996, pursuant to a Redemption and Repurchase Agreement with
National Tobacco Company, a Non-Managed Company in Fund II's portfolio, and
certain existing lenders, Fund II received net proceeds of $5.2 million from the
repayment and redemption of its investment in National Tobacco. In connection
with the Agreement, National Tobacco prepaid the Subordinated Notes, plus all
accrued and unpaid interest, and redeemed the partnership interest in National
Tobacco held by Fund II. Fund II recognized a gain of $1.3 million from the
transaction.
On August 2, 1996, Fund II entered into a Stock Purchase and Settlement
Agreement with Florida Orthopedics Inc. and various other affiliated entities.
In connection with this agreement, Fund II (I) surrrendered its 12.5%
subordinated note and, (II) exchanged all of its common stock and common stock
purchase warrants for the issuance of new preferred equity and new common stock
purchase warrants. Fund II realized a loss of $4.8 million on the subordinated
note surrendered.
On November 13, 1996, Stanley Furniture completed a public offering of
1,000,000 shares of common stock at $16.00 per share. Following the offering,
Stanley purchased a total of 150,000 shares from the selling shareholders
including Fund II at the same price per share. Pursuant to these transactions,
Fund II sold a total of 9,631 shares of Stanley Furniture common stock for a net
price of $15.12 per share. Fund II received total proceeds of $145,621 and
recognized a gain of approximately $25,000.
On August 6, 1991, the Independent General Partners approved a reserve for
follow-on investments of $24.9 million for Fund II. Following the fourth quarter
1996 Cash Distribution made on February 14, 1997, the reserve balance was
reduced to $8.9 million due to follow-on investments in Petco Animal Supplies,
FFSC, Inc., Fine Clothing, Inc., Hills Stores and Ghirardelli Holdings.
Additionally, $6.29 million of the reserve was returned to the partners during
1995 and $1 million was returned to partners on February 14, 1997. 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. During 1996, the Independent General Partners
have approved an additional follow on investment in FFSC,Inc. for $2.4 million,
which has not been funded as of March 20, 1997.
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.
5. Unrealized Appreciation and Depreciation of Investments
For the year ended December 31, 1996, Fund II recorded net unrealized
depreciation of $15.7 million of which $12.5 million was related to net
depreciation in market value of publicly traded securities held as of December
31, 1996. The unrealized depreciation can be attributed primarily to the
decrease in value of First Alert and Hills Stores Company at December 31, 1996,
as well as the reversal of unrealized appreciation of Petco from the sale of the
Petco securities held by Fund II. This compares to a net unrealized depreciation
of $30.6 million at December 31, 1995 of which $22.7 million was related to net
depreciation in market value of publicly traded securities. Fund II's cumulative
net unrealized depreciation on investments as of December 31, 1996 totaled $43.2
million
For the year ended December 31, 1994, Fund II recorded net unrealized
depreciation of $100.3 million of which $96.5 million was related to net
unrealized depreciation in market value of publicly traded securities.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
6. Non-Accrual of Investments
In accordance with Fund II's Accounting Policy, the following securities
have been on non-accrual status since the date indicated:
FFSC, Inc. on January 1, 1994.
Stablex Canada, Inc. on June 29, 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
$1.2 million for Fund II and the Retirement Fund on a combined basis. The
Investment Advisory Fee is calculated and paid quarterly in advance. For the
years ended December 31, 1996, 1995 and 1994, Fund II paid $988,882, $1.5
million and $1.7 million, respectively, in Investment Advisory Fees to Thomas H.
Lee Advisors II, L.P.
8. Fund Administration Fees and Expenses
As compensation for its services, ML Fund Administrators Inc. (the "Fund
Administrator"; an affiliate of the Managing General Partner), is entitled to
receive from the Funds an annual amount of the greater of $500,000 or 0.45% of
the excess of net offering proceeds less 50% of capital reductions and 50% of
realized losses. In addition, ML Mezzanine II Inc., an affiliate of the Fund
Administrator and of Merrill Lynch & Co. Inc., receives 5% of the benefit of any
MGP Distributions paid to the Managing General Partner (see Note 10). The Fund
Administration Fee is calculated and paid quarterly, in advance, by each fund in
proportion with the net offering proceeds. For the years ended December 31,
1996, 1995 and 1994, Fund II paid $675,250, $798,478 and $835,643, respectively,
in Fund Administration Fees.
Pursuant to the administrative services agreement between Fund II and the
Fund Administrator, effective November 10, 1993, a portion of the actual
out-of-pocket expenses incurred in connection with the administration of Fund II
is being reimbursed to the Fund Administrator. Actual out-of-pocket expenses
("reimbursable expenses") primarily consist of printing, audit, tax preparation
and custodian fees. For the year ended December 31, 1996, 1995 and 1994, Fund II
incurred $139,158, $125,816 and $275,079, respectively, in reimbursable
expenses.
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 and
compensation for each of the Independent General Partners is reviewed annually
by the Individual General Partners. For the years ended December 31, 1996, 1995
and 1994, Fund II incurred $207,269, $262,832 and $184,280, respectively, in
Independent General Partners' Fees and Expenses.
10. Related Party 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 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, 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.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio companies of the Funds, which may include investment banking
services, broker/dealer services and economic forecasting, and receive in
consideration therewith various fees, commissions and reimbursements.
Furthermore, MLPF&S and its affiliates or investment companies advised by
affiliates of MLPF&S may, from time to time, purchase or sell securities issued
by portfolio companies of the Funds in connection with its ordinary investment
operations.
During 1996, Fund II paid Managing General Partner distributions totaling
$6,424,293 (which included $6,327,724 of incentive distributions and $96,569
with respect to its interest in Fund II). Of this incentive distribution amount,
95% or $6,011,338 was paid to the Investment Adviser and the remaining 5%
totaling $316,386 was paid to ML Mezzanine II Inc. The Managing General Partner
earned a total of $22.8 million in incentive distributions, of which $867,350
was deferred in payment to the Managing General Partner as a Deferred
Distribution Amount in accordance with the Partnership Agreement. 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 will instead be payable
to the Managing General Partner until the Deferred Distribution Amount is paid
in full.
11. Litigation
On February 3, 1992 and February 5, 1992, respectively, one Limited Partner
from Fund II and one Limited Partner from the Retirement Fund each commenced
class actions in the US District Court for the District of Delaware, purportedly
on behalf of all persons who purchased limited partnership interests in the
Funds between November 10, 1989 and January 5, 1990, against the Funds, the
Managing General Partner, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. These
actions, alleging that the defendants made material misrepresentations or
omitted material information in the offering materials for the Funds concerning
the investment purposes of the Funds, were consolidated by the court on March
31, 1992, and a consolidated complaint was filed by the plaintiffs on May 14,
1992. In April 1993, plaintiffs filed an amended complaint, adding claims that
certain transactions by the Funds were prohibited by the federal securities laws
applicable to the Funds and their affiliates under the Investment Company Act of
1940, as amended. The amended complaint also named the Funds' counsel as a
defendant. Defendants moved to dismiss the amended complaint, and, by Opinion
and Order dated March 31, 1994, the Court granted in part and denied in part the
motions to dismiss. Additionally, by its March 31, 1994 Opinion and Order, the
Court certified the case as a class action, and ordered plaintiffs to replead by
filing a new complaint reflecting the Court's rulings. On April 15, 1994,
plaintiffs served and filed a new complaint, which defendants moved to strike
for not conforming to the Court's ruling. On August 3, 1994, the Court granted
defendants' motion to strike the new complaint. Plaintiffs thereafter filed a
revised second amended complaint dated September 26, 1994. Factual discovery in
this litigation has concluded, although plaintiffs have made application to the
Court for permission to conduct additional fact discovery. The parties have
conducted expert discovery, the conclusion of which is subject to the Courts'
decision on a pending matter. The defendants in this action believe that the
remaining claims are without merit, although whether or not the plaintiffs
prevail, the Funds may be obligated to indemnify and advance litigation expenses
to certain of the defendants under the terms and conditions of various indemnity
provisions in the Funds' Partnership Agreements and separate indemnification
agreements, and the amount of such indemnification and expenses could be
material. Fund II has advanced amounts to the indemnified parties based upon
amounts which are deemed reimbursable in accordance with the indemnification
provisions and has included these amounts in professional fees. In the opinion
of legal council, the outcome of this case is not determinable at this time.
On August 9, 1994, the same two Limited Partners as noted in the preceding
paragraph commenced another putative class action in the US District Court for
the District of Delaware, purportedly on behalf of all persons who owned limited
partnership interests in the Funds on November 4, 1993, against the Funds, the
Managing General Partners, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. Plaintiffs
allege that the defendants violated certain provisions of the Investment Company
Act of 1940 and the common law in connection with the sale by certain of the
defendants of shares of common stock of Snapple Beverage Corp. in a November
1993 secondary offering and seek actual and punitive damages and an accounting
in connection therewith. Defendants' motion to dismiss this complaint was denied
on December 29, 1995. On August 4, 1995, while defendants' motion to dismiss the
original complaint was pending, plaintiffs filed an amended complaint alleging
additional violations of the Investment Company Act of 1940 and common law
arising out of the secondary offering. The plaintiffs moved for summary judgment
on certain of these claims. On October 13, 1995, the defendants in this
litigation each filed briefs in opposition to plaintiffs motion and moved to
dismiss the amended complaint. By an Opinion dated March 30, 1996, the Court
denied plaintiffs' motion for partial summary judgment. By order of the same
date, and without opposition by defendants, the Court certified the case as a
class action. Defendants also filed separate motions to dismiss, which the Court
denied by an order dated June 30, 1996. The parties are now engaged in
discovery. Whether or not the plaintiffs prevail, the Funds may be obligated to
indemnify and advance litigation expenses to certain of the defendants under the
terms and conditions of various indemnity provisions in the Funds' Partnership
Agreements and separate indemnification agreements. In the opinion of legal
council, the outcome of this case is not determinable at this time.
On November 27, 1995, one Limited Partner from Fund II and one Limited
Partner from the Retirement Fund filed a putative class action in the United
States District Court for the District of Delaware, purportedly on behalf of all
persons or entities who owned Units in the Funds between April 5, 1991 and
November 27, 1995, against the Funds, the Managing General Partner, the
Individual General Partners, the Investment Adviser to the Funds, and certain
named affiliates of such persons. The complaint contends that the Funds
improperly advanced legal fees and litigation costs to the defendants in
connection with three previously filed lawsuits. The plaintiffs are seeking an
accounting, rescissory or actual damages, punitive damages, plaintiffs'
litigation costs and attorneys fees, pre-judgment and post-judgment interest,
and an injunction barring the defendants from further indemnifying themselves.
The defendants in this action believe that the claims are without merit and have
moved to dismiss the case. On December 18, 1996 the Court denied the defendants'
motion to dismiss. Although the defendants believe the advancement of legal fees
and litigation costs was properly made pursuant to indemnification agreements
signed by the defendants. In the opinion of legal council, the outcome of this
case is not determinable at this time.
12. Income Taxes (Statement of Financial Accounting Standards No. 109)
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, 1996, the tax basis of Fund II's
assets are greater than the amounts reported in the financial statements by
$44.1 million. This difference is primarily attributable to net unrealized
depreciation and appreciation on investments which has not been recognized for
tax purposes.
13. Subsequent Events
On February 3, 1997, the Individual General Partners approved the fourth
quarter 1996 cash distribution totaling $1,833,044 which represents net
investment income of $603,179 from Mezzanine Investments, $84,245 from Temporary
Investments and Net Distributable Capital Proceeds from the sale of Stanley
Furniture of $145,620 (which includes a return of capital of $121,192).
Additionally, $1 million of the reserve for follow-on investments has been
returned to the partners. The total amount distributed to Limited Partners was
$1,226,250 or $5.53 per Unit, which was paid on February 14, 1997. The Managing
General Partner received a total of $2,764 with respect to its interest in Fund
II and $603,754 in incentive distributions. Thomas H. Lee, as an Individual
General Partner, received $276 with respect to his interest in Fund II.
Anchor Advanced Products, Inc. ("Anchor") is in the process of completing a
bond financing pursuant to Rule 144A under the Securities Act of 1933, as
amended. On March 26, 1997, the Investment Adviser informed the fund that the
pricing terms of the bond financing had been established. If the financing is
completed, the proceeds of the bond financing and related transactions will be
used to repay substantially all of Anchor's outstanding debt (including accrued
interest and premiums, if any), and to pay a dividend on the capital stock of
Anchor Holdings, Inc., the parent of Anchor (collectively, the
"Recapitalization"). The Fund's share of this dividend, assuming exercise of the
warrants as discussed below, will be $7.8 milion. The Recapitalization is
expected to be consummated during the first week of April, 1997. In connection
with the Recapitalization, the Fund anticipates that it will exercise its
warrants to purchase common stock of Anchor Holdings, Inc. at $9.50 per share.
SCHEDULE 1
ML-LEE ACQUISITION FUND II, L.P.
SUPPLEMENTARY SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
Principle Amount/ Investment Realized
SECURITY Number of Shares Cost Net Proceeds Gain
---------------- ------------ ------------ ------------
CST Office Products, Inc.
` Common Stock 162,949 $ 1,304 $ 2,607 $ 1,303
Notes $ 12,710 12,710 12,837 127
Warrants 177,207 -- 2,834 2,834
Ghirardelli Chocolate
Notes $ 4,672 4,672 4,854 182
Common Stock 540,892 1,168 3,167 1,999
Preferred Stock 14,016 1,402 1,505 103
Petco
Common Stock 175,238 1,915 4,794 2,879
FFSC, Inc.
Common Stock 2,542,337 20 - (20)
National Tobacco
Notes $ 3,618 3,618 4,843 1,225
Partnership Interest $ 234 234 314 80
Florida Orthopedics
Subordinated Note $ 4,842 4,842 -- (4,842)
Stanley Furniture
Common Stock 9,631 121 146 25
------------ ------------ ------------
$ 32,006 $ 37,901 $ 5,895
============ ============ ============
SCHEDULE 2
SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
ML-LEE ACQUISITION FUND II, L.P
FOR THE PERIOD ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
Total
Unrealized
Appreciation
Investment Fair (Depreciation) Unrealized Appreciation/ (Depreciation) For 1991
SECURITY Cost Value Dec. 31, 1996 1996 1995 1994 1993 1992 & Prior
- --------------------------------- -------- -------- -------- --------- --------- --------- --------- ------ -------
PUBLICLY TRADED SECURITIES:
First Alert, Inc.
Common Stock * $ 3,320 $ 6,947 $ 3,627 $ (10,807) $ (12,351) $ 26,785 $ -- $ -- $ --
Hills Stores Company
Common Stock * 34,776 3,126 (31,650) (2,019) (5,722) 189 (24,098) -- --
Playtex Products, Inc.
Common Stock * 5,299 2,750 (2,549) 172 129 (2,522) (1,092) -- 764
Stanley
Common Stock * 170 268 98 204 (46) (78) 18 -- --
-------- --------- --------- --------- --------- ------ -------
TOTAL UNREALIZED APPRECIATION $(30,474) $ (12,450) $ (17,990) $ 24,374 $ (25,172) $ -- $ 764
(DEPRECIATION) FROM PUBLICLY -------- --------- --------- --------- --------- ------ -------
TRADED SECURITIES
NON PUBLIC SECURITIES:
FFSC, Inc.
Common Stock $ -- $ -- $ -- $ 20 $ -- $ (20) $ -- $ -- $ --
Adjusted Rate Senior Note * 12,680 3,024 (9,659) (6,634) (3,025) -- -- -- --
FLA. Orthopedics, Inc.
Preferred Stock* 1,513 -- (1,513) -- -- (1,513) -- -- --
Subordinated Note -- -- -- 4,842 (4,842) -- -- -- --
Stablex Canada Inc.
Subordinated Notes* 6,631 5,029 (1,602) -- -- (1,602) -- -- --
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM NON PUBLIC -------- --------- --------- --------- --------- ------ -------
SECURITIES $(12,774) $ (1,772) $ (7,867) $ (3,135) $ -- $ -- $ --
-------- --------- --------- --------- --------- ------ -------
Reversal of Unrealized
Appreciation/(Depreciation)
For Investments Sold
Sold in 1996
Petco
Common Stock $ -- $ -- $ -- $ (1,502) $ 1,951 $ (449) $ -- $ -- $ --
Sold Prior to 1996
Various -- -- -- -- (6,654) (121,144) 105,758 38,881 (16,841)
Total Unrealized
Appreciation/(Depreciation) -------- --------- --------- --------- --------- ------ -------
for Investments sold: -- (1,502) (4,703) (121,593) 105,758 38,881 (16,841)
-------- --------- --------- --------- --------- ------ -------
NET UNREALIZED APPRECIATION
(DEPRECIATION) $(43,248) $ (15,724) $ (30,560) $(100,354) $ 80,586 $38,881 $(16,077)
======== ========= ========= ========= ========= ======= ========
* Restricted Security
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
Fund II
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"),
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 Fund II's investment in 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, age 74, is a director of Colgate - Palmolive Company, Digital
Equipment Corporation, Intermet Corporation and Sonesta International Hotels
Corporation. Mr. Alden also serves as Chairman of the Japan Society of Boston,
Trustee Emeritus of the Boston Symphony Orchestra and the Boston Museum of
Science and Honorary Counsel General of the Royal Kingdom of Thailand. Mr. Alden
has also served as an Individual General Partner of ML-Lee Acquisition Fund,
L.P. ("Fund I") since its inception in 1987.
Mr. Bower, age 58, is the Donald Kirk David Professor of Business
Administration at the Harvard University Graduate School of Business
Administration. He has served as a faculty member of the University since 1963.
Mr. Bower is also a director of Anika Research, Inc., Brown Group, Inc., New
America High Income Fund, Sonesta International Hotels Corporation and The
Lincoln Foundation. Mr. Bower serves as trustee of the DeCordova & Dana Museum
and Park and the New England Conservatory of Music. Mr. Bower has also served as
an Individual General Partner of Fund I since its inception in 1987.
Mr. Feldberg, age 72, is director of Waban Inc. He also serves as a Trustee
of Brandeis University. Mr. Feldberg has also served as an Individual General
Partner of Fund I since its inception in 1987.
Mr. Lee, age 53, founded the Thomas H. Lee Company in 1974 and since that
time has served as its Chief Executive Officer. Mr. Lee also is Chairman and a
Trustee of Thomas H. Lee Advisors I and Thomas H. Lee Advisors II, L.P., the
respective investment advisers to Fund I and the Funds, is an Individual General
Partner of THL Equity Advisors Limited Partnership, the investment adviser to
Thomas H. Lee Equity Partners, L.P. which participates in equity or
equity-related investments of certain companies acquired by the respective
funds. In addition, Mr. Lee has also served as an Individual General Partner of
Fund I since its inception in 1987. In addition, Mr. Lee is an Individual
General Partner of the Equity Advisors III Limited Partnership, the Investment
Advisor to Thomas H. Lee Equity Fund III, L.P.
From 1966 through 1974, Mr. Lee was with First National Bank of Boston
where he directed the bank's high technology lending group and became a Vice
President in 1973. Prior to 1966, Mr. Lee was a Securities Analyst in the
institutional research department of L.F. Rothschild in New York. Mr. Lee serves
as a director of Autotote Corporation, Finlay Enterprises Inc., Health o meter
Products, Inc., First Security Services Corporation, Livent Inc, Miller Import
Corporation, Vail Resorts, Inc. and Playtex Products Inc.
Mr. Lee is a trustee of Brandeis University (Vice Chairman), Museum of Fine
Arts (Boston), the Wang Center for the Performing Arts, Boston's Beth Israel
Hospital (Treasurer) and the Whitney Muuseum of American Art. Mr. Lee is also an
overseer of Boston Symphony Orchestra and New England Conservatory of Music, a
member of the Dean's Council and an Executive Committee Member of the Committee
on University Resources at Harvard University and a member of the Corporation of
Belmont Hill School.
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 Lee Company have been designated as trustees and
executive officers of T. H. Lee Mezzanine II, the administrative general partner
of the Investment Adviser.
Title
Thomas H. Lee Chairman, Trustee
John W. Childs President, Trustee
Thomas R. Shepherd Executive Vice President
David V. Harkins Senior Vice President, Trustee
C. Hunter Boll Vice President
Scott A. Schoen Vice President
Wendy L. Masler Treasurer, Clerk
Information concerning Mr. Lee is set forth above.
John W. Childs, age 55, is the founder of J.W. Childs Associates, L.P. Mr.
Childs, was a Senior Managing Director of the Thomas H. Lee Company ("Lee
Company"), from 1987 to 1995. For the 17 years prior to joining the company, Mr.
Childs was with the Prudential Insurance Company of America where he was most
recently Senior Managing Director in charge of the Capital Markets Group. In
that position he was responsible for Prudential's approximately $77 billion
fixed income portfolio, including all of the Capital Markets Group's investments
in leveraged acquisitions. Mr. Child's past positions at Prudential include,
from 1982 to 1984, Senior Vice President of PruCaptial, Inc., a Prudential
subsidiary; from 1981 to 1982, Vice President, responsible for private
placements of the Capital Markets Group; and from 1980 to 1981, Vice President
in Corporate Finance of the Capital Markets Group. Mr. Childs serves as
President and Trustee of Thomas H. Lee Advisors I ("Advisors I"), the investment
advisor to Fund I. Mr. Childs also serves as Chairman of the Jane Coffin Childs
Fund for medical research.
Mr. Shepherd, age 67, has been engaged as a consultant to the Thomas H. Lee
Company since 1986 and is currently a Managing Director. Mr. Shepherd is
currently a director of General Nutrition Companies, Inc., Health o meter
Products, Inc. and Rayovac Corporation. He is Executive Vice President of Thomas
H. Lee Advisors I and T.H. Lee Mezzanine II. Previously, Mr. Shepherd was
Chairman of Amerace Corporation from 1986 to 1988 and President of GTE
(Sylvania) Lighting Products Group from 1983 to 1986. Mr. Shepherd served as
President of North American Philips Commercial Electronics Corporation from 1981
to 1983 and from 1979 to 1981, he served as Senior Vice President and general
manager of GTE Entertainment Products Group.
Mr. Harkins, age 56, has been a Managing Director of the Lee Company since
1986 and the Chairman of National Dentex Corporation since 1983. He served as
President of Massachusetts Capital Corporation and Masscap Investment Company,
Inc. from 1976 to 1983, and as President of First American Investment Company,
Inc. from 1982 to 1983. Mr. Harkins is a Senior Vice President and Trustee of
Advisors I. He also is a director of Kevlin Microwave Corp., National Dentex
Corporation, Stanley Furniture Corp. and First Alert, Inc.
Mr. Boll, age 41, has served as a Managing Director of the Lee Company
since 1991. From 1986 to 1991 he served as a Vice President of the Lee Company.
Prior to joining the Lee Company, he worked as a consultant with The Boston
Consulting Group from 1984 to 1986, and was Assistant Vice President of the
Energy and Minerals Division of Chemical Bank from 1977 to 1982. Mr. Boll is a
Vice President of Advisors I and a director of Stanley Furniture Corp., Petco
Animal Supplies, Inc. and Big V Supermarkets, Inc.
Mr. Schoen, age 38, has served as a Managing Director of the Lee Company
since 1991. From 1986 to 1990 he served as a Vice President of the Lee Company.
Prior to joining the Lee Company he was an Associate in the Private Finance
Department of Goldman, Sachs & Co. from 1984 to 1986. Mr. Schoen is a Vice
President of Advisors I. Mr. Schoen is also a Director of First Alert, Inc.,
Health o meter Products, Inc. and LaSalle Reinsurance Ltd., Rayovac Corporation
and Anchor Advanced Products, Inc.
Ms. Masler, age 43, has been Treasurer of the Lee Company since 1984. From
1981 to 1984 she was employed by Paine Webber Properties Incorporated and prior
to that she was a Senior Auditor with Touche Ross & Co. Ms. Masler is also
Treasurer and Clerk of Advisors I.
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 Fund
II's investments.
The executive officers of ML Mezzanine II Inc. are as follows:
Title
Kevin K. Albert Chairman and President
Robert Aufenanger Executive Vice President, Director
James V. Caruso Executive Vice President, Director
Rosalie Y. Goldberg Vice President, Director
Audrey L. Bommer Vice President, Treasurer
Roger F. Castoral, Jr. Vice President, Assistant Treasurer
Kevin Albert, age 44, a Vice President and a Managing Director of Merrill
Lynch Investment Banking Group ("ML Investment Banking") joined Merrill Lynch in
1981. Mr. Albert works in the Equity Private Placement Group and is involved in
structuring and placing a diversified array of private equity financings
including common stock, preferred stock, limited partnership interests and other
equity-related securities. Mr. Albert is also a director ML Media Management
Inc. ("ML Media"), an affiliate of the managing general partner and a joint
venturer of Media Managemnt Partners, the general partner of ML Media Partners,
LP.; a director of ML Film Entertainment Inc. ("ML Film"), an affiliate of the
managing general partner, the general partners of Delphi Film Associates IV, V
and ML Delphi Premier Partners, L.P.; a director of ML Opportunity Management
Inc. ("ML Opportunity"), a joint venture in Media Opportunity Management
Partners, the general partner of ML Media Opportunity Partners, L.P.; a director
of ML Mezzanine Inc. ("ML Mezzanine"), a director of Merrill Lynch Venture
Capital Inc. ("ML Venture"), an affiliate of the managing general partner and
general partner of the managing general partner of ML Venture Partners I, L.P.
("Venture I"), ML Venture Partners II, L.P. ("Venture II"), and ML Oklahoma
Venture Partners Limited Partnership; a director of Merrill Lynch R&D Management
Inc. ("ML R&D"), the general partner of the general partner of ML Technology
Ventures, L.P. Mr. Albert also serves as an independent general partner of
Venture I and Venture II.
Robert Aufenanger, age 43, a Vice President of Merrill Lynch & Co.
Corporate Credit and a Director of the Partnership Management Department, joined
Merrill Lynch in 1980. Mr. Aufenanger is responsible for the ongoing management
of the operations of the equipment, real estate and project related limited
partnerships for which subsidiaries of ML Leasing Equipment Corp., and Merrill
Lynch, Hubbard Inc., affiliates of Merrill Lynch, are general partners. Mr.
Aufenanger is also a director of, ML Opportunity Management Inc., MLH Real
Estate Inc., ML Film, ML Venture, ML R&D, ML Mezzanine, and ML Media.
James V. Caruso, age 45, a Director in the Investment Banking Group of
Merrill Lynch & Co., joined Merrill Lynch in 1975. Since June 1992, Mr. Caruso
has served as Manager of Merrill Lynch's Partnership Analysis & Finance
Department, which is responsible for accounting and the ongoing administration
and operations of more than 150 investment limited partnership as well as the
Merrill Lynch affiliated entities that manage or administer such partnerships.
He serves as a director of ML Mezzanine and KECALP Inc., an affiliate of the MGP
and the general partner.
Rosalie Y. Goldberg, age 59, serves as Vice President of Merrill Lynch
Private Client, Manager of the Special Investments Group, Vice President and
Director of ML Mezzanine, Inc. and Director of MLL Antiquities and MLL
Collectibles. Ms. Goldberg joined Merrill Lynch & Co. in 1975.
Audrey L. Bommer, age 30, joined ML Investment Banking in 1994 and serves
as Treasurer and Chief Financial Officer to the Funds. Ms. Bommer, manages all
accounting, financial reporting and administrative functions in the Merrill
Lynch Partnership Analysis and Finance Department. She also serves as Vice
President and Treasurer of ML Mezzanine.
Roger F. Castoral, Jr., age 29, joined Merrill Lynch Investment Banking in
1995 and serves as Vice President, Assistant Treasurer and Controller to the
funds. Mr. Castoral is responsible for financial reporting and fund accounting
in the Merrill Lynch Partnership Analysis and Finance Department and is also
Vice President and Assistant Treasurer of ML Mezzanine.
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 each $27,492, for their services in 1996 as Independent General
Partners.
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 distributions of $6,424,295 with respect to 1996,
including Incentive Distributions of $6,327,724 that it distributed, $6,011,338
to the Investment Adviser and $316,386 to ML Mezzanine II Inc.
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 $988,882 with respect to 1996.
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 $826,407 in 1996.
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 of Beneficial Beneficial Fund Beneficially Owned
Owner Ownership at January 1, 1997
Yale University 20,954 9.4%
Investment Office
230 Prospect Street
New Haven, CT 06511
Farallon Capital Partners, L.P. 20,569(1) 9.3%
Farallon Capital Management,Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Tinicum Partners, L.P. 20,569(1) 9.3%
Farallon Capital Management,Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Thomas F. Steyer 20,569(1) 9.3%
Farallon Capital Management,Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Fleur E. Fairman 20,569(1) 9.3%
Farallon Capital Management,Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
David I. Cohen 20,569(1) 9.3%
Farallon Capital Management,Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Joseph F. Downes 20,569(1) 9.3%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Jason M. Fish 20,569(1) 9.3%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
William F. Mellin 20,569(1) 9.3%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Meridee A. Moore 20,569(1) 9.3%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Eric M. Ruttenberg 20,569(1) 9.3%
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
20,569 Units of limited partnership interest beneficially owned at
January 1, 1997 as a result of the direct ownership by FCP of 15,950
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.
Amount of
Name of Beneficial Percent of Units of
Beneficial Owner Ownership Class
- ------------------------------------
Vernon R. Alden 50 Units *
Joseph L. Bower None *
Stanley H. Feldberg 25 Units *
Thomas H. Lee None *
General Partners and Officers as a Group
* Less than one percent.
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 Fund I, 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. Of the total of eight Managed Companies held by
the Funds at December 31, 1996, six paid management fees to Thomas H. Lee
Company ranging from $120,000 to $270,000 for the fiscal year ended December 31,
1996. In addition, certain of the Managed Companies have contractual or other
relationships pursuant to which they do business with one another.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio companies of the Funds, which may include investment banking
services, broker/dealer services, economic forecasting and pension plan
services, and receives in consideration therewith various fees, commissions and
reimbursements. The aggregate revenue received by MLPF&S and its affiliates
during 1996 for providing such services to Managed Companies in which the Funds
have a material interest was not in excess of $100,000. Furthermore, MLPF&S and
its affiliates or investment companies advised by affiliates of MLPF&S may, from
time to time, purchase or sell securities issued by portfolio companies of the
Funds in connection with their ordinary investment operations.
During 1996, the Fund II paid Managing General Partner distributions
totaling $6,424,295, (which included $6,327,724 of incentive distributions and
$96,569 with respect to its interest in Fund II). Of this incentive distribution
amount, 95% or $6,011,338 was paid to the Investment Adviser and the remaining
5% totaling $316,386 was paid to ML Mezzanine II Inc. The Managing General
Partner earned a total of $22,791,959 in Incentive Fees of which $867,350 was
deferred in payment to the Managing General Partner as a Deferred Distribution
Amount in accordance with the Partnership Agreement. To the extent not payable
to the Managing General Partner, 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 will instead be payable to the Managing
General Partner until the Deferred Distribution Amount is paid in full.
CST Office Products, Inc.
On March 22, 1996, Fund II sold its entire investment in CST Office
Products, Inc. See Note 4 to the Financial Statements for further information.
First Alert
As of December 31, 1996, Fund II, the Retirement Fund and the Lee
Affiliates hold 2,058,474, 2,281,524 and 10,102,268 shares, respectively, of
First Alert common stock, representing 8.1%, 8.9%, and 39.6%, respectively, of
its common equity.
David V. Harkins, Scott A. Schoen and Anthony J. DiNovi, officers of the
Investment Adviser to the Funds, serve as directors of First Alert.
Ghirardelli
On April 1, 1996, Fund II sold its entire investment in Ghirardelli to an
investor group comprised of the Chief Executive Officer of Ghirardelli and
certain other investors. See Note 4 to the Financial Statements for further
information.
Petco Animal Supplies, Inc.
On April 4, 1996, Petco filed a registration statement with the Securities
and Exchange Commission for an offering of 5 million shares of Common Stock. Of
the 5 million shares offered, 2.6 million were offered by Petco and the
remaining shares were offered by certain current stockholders, including Fund
II. The offering was effected on April 30, 1996 and Fund II sold its entire
investment in Petco, which consisted of 175,238 shares of Common Stock and
received net proceeds of $4,794,457 or $27.36 per share. Fund II realized a gain
of $2,879,333 on the sale.
C. Hunter Boll, an officer of the Investment Adviser to Fund I, Fund II and
the Retirement Fund, serves as a director of Petco.
Playtex Products, Inc.
As of December 31, 1996, Fund II holds 343,726 shares of common stock of
Playtex and the Retirement Fund holds 183,560 shares of Playtex common stock. In
addition, Fund I holds 1,406,204 shares of Playtex common stock and the Lee
Affiliates hold 2,249,307 shares. Fund II, Retirement Fund, Fund I and the other
Lee Affiliates own, respectively, .6%, .3%, 2.6% and 4.2% of the common equity
of Playtex.
Thomas H. Lee, who is an Individual General Partner of the Funds and an
officer of the Investment Adviser, serves as a director of Playtex.
Stanley Furniture Company, Inc.
On November 13, 1996, Stanley Furniture completed a public offering of
1,000,000 shares of its common stock at $16.00 per share. These shares were sold
by Fund II, the Retirement Fund, Fund I and the Lee Affiliates. In the offering,
Fund II, the Retirement Fund, Fund I and the Lee Affiliates, respectively, sold
8,375, 6,710, 969,788 and 14,330 shares of Stanley Common Stock, generating
proceeds of $126,630, $101,455, $14.7 million and $216,670, respectively.
Following the offering, Stanley purchased a total of 150,000 shares from the
selling stockholders for the same net price per share. Pursuant to this
transaction, Stanley purchased 1,256, 1,006, 145,468 and 2,529 shares of Stanley
Common Stock from the Fund, Fund II the Retirement Fund, Fund I and the Lee
Affiliates, respectively, generating proceeds of $18,990, $15,210, $2.2 million
and $38,238, respectively. As of December 31, 1996, Fund II, the Retirement
Fund, Fund I and the Lee Affiliates, respectively, held 13,474, 10,795,
1,560,296 and 24,437 shares of Stanley Common Stock.
During February 1997, Fund II, the Retirement Fund, Fund I and the Lee
Affiliates respectively, sold 272, 218, 31,515, and 495 shares of Stanley Common
Stock pursuant to the provisions of Rule 144 under the Securities Act of 1933,
as amended, generating proceeds of $6,528, $5,232, $756,335 and $11,880,
respectively.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
Exhibits
3.1 Amended and Restated Certificate of Incorporated by reference
Limited Partnership, dated as of to Exhibit 3.1 to
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 November to Exhibit 3.2. to
10, 1989 Amendment No. 1, dated registrant's Annual Report
January 30, 1990. of Form 10-K for the year
ending December 31, 1989.
10.1 Investment Advisory Agreement, dated Incorporated by reference
November 10, 1989 by and between to Exhibit 10.1 to
Registrant, Thomas H. Lee Advisors registrant's Annual Report
II, L.P. and Thomas H. Lee Company. of Form 10-K for the year
ended December 31, 1991.
10.2 Custodian Agreement, dated November Incorporated by reference
10, 1989, by and between Registrant to Exhibit 10.2 to
and State Street Bank and Trust registrant's Annual Report
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.
27 Financial Data Schedule for the year Filed herewith.
ended December 31 1995.
28 Pages 21-91 of the Prospectus dated Incorporated by reference
September 6,1989, filed pursuant to to Exhibit 28 to
Rule 497(b) under the Securities Act registrant's Annual Report
of 1933. of Form 10-K for the year
ended December 31, 1991.
(b) Forms 8-K
None.
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 27th day of March,
1997.
ML-LEE ACQUISITION FUND II, L.P.
By: Mezzanine Investments II, L.P.
Managing General Partner
By: ML Mezzanine II Inc.
its General Partner
/s/ Kevin K. Albert
Dated: March 27, 1997 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 27th day of March, 1997.
Signature Title
/s/ Kevin K. Albert ML Mezzanine II Inc.
Kevin K. Albert President and Director
(Principal Executive Officer of Registrant)
/s/ Vernon R. Alden Individual General Partner
Vernon R. Alden ML-Lee Acquisition Fund II, L.P.
/s/ Audrey Bommer ML Mezzanine II Inc.
Audrey Bommer Vice President and Treasurer
(Principal Financial Officer of Registrant)
/s/ Joseph L. Bower Individual General Partner
Joseph L. Bower ML-Lee Acquisition Fund II, L.P.
/s/ Roger F. Castoral, Jr. ML Mezzanine II Inc.
Roger F. Castoral, Jr. Vice President and Assistant Treasurer
(Principal Accounting Officer of Registrant)
/s/ Stanley H. Feldberg General Partner
Stanley H. Feldberg ML-Lee Acquisition Fund II, L.P.
/s/ Thomas H. Lee Individual General Partner
Thomas H. Lee ML-Lee Acquisition Fund II, L.P.
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.
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: March 27, 1997 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 27th day of March, 1997.
Signature Title
____________________ ML Mezzanine II Inc.
Kevin K. Albert President and Director
(Principal Executive Officer of Registrant)
____________________ Individual General Partner
Vernon R. Alden ML-Lee Acquisition Fund II, L.P.
____________________ ML Mezzanine II Inc.
Audrey Bommer Vice President and Treasurer
(Principal Financial Officer of Registrant)
____________________ Individual General Partner
Joseph L. Bower ML-Lee Acquisition Fund II, L.P.
____________________ ML Mezzanine II Inc.
Roger F. Castoral, Jr. Vice President and Assistant Treasurer
(Principal Accounting Officer of Registrant)
____________________ Individual General Partner
Stanley H. Feldberg ML-Lee Acquisition Fund II, L.P.
____________________ Individual General Partner
Thomas H. Lee ML-Lee Acquisition Fund II, L.P.