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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, 1997
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 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, 1997, Fund II had outstanding a total of $42.6 million
invested in Mezzanine Investments representing $34.2 million Managed and $8.4
million Non-Managed portfolio investments. At December 31, 1997, there were no
Bridge Investments outstanding for the Funds. The Funds co-invest in all
Mezzanine and Bridge Investments, allocating such investments in proportion to
their capital available for investment.
Fund II's reinvestment period ended on December 21, 1993 and, accordingly,
no new investments were made after that date other than the funding of
investments which were committed to prior to that date.
REVIEW OF INVESTMENTS IN MANAGED COMPANIES
------------------------------------------
The following is a brief description of the companies in Fund II's Managed
Company portfolio at December 31, 1997:
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,
1997.
On March 19, 1998 Fund II and Affiliates of the Thomas H. Lee Company sold
their remaining holdings in Anchor. Pursuant to this transaction Fund II sold
410,677 shares of Anchor Common Stock for approximately $1.6 Million ($4.00 per
share) and recognized a gain of $247,000.
On April 2, 1997, Anchor completed a recapitalization pursuant to which
Anchor issued $100,000,000 aggregate principal amount of Senior Notes due 2004
and entered into a new credit facility (the "Recapitalization"). As part of the
Recapitalization, Anchor repaid substantially all of its outstanding debt,
including all accrued interest and any premiums in connection therewith. As a
result, Anchor repaid the Senior Subordinated Note and Junior Subordinated Note
held by Fund II, together with all accrued interest and prepayment premiums for
an aggregate of $14.5 million.
Immediately prior to the Recapitalization, Fund II owned 162,967 shares of
the common stock of Anchor Holdings, Inc., the parent of Anchor. Immediately
after the consummation of the Recapitalization, Fund II exercised its warrants
to purchase common stock (at an exercise price of $9.50 per share) and acquired
an additional 247,710 shares of common stock, bringing its total holdings of
common stock to 410,677 shares. In connection with the Recapitalization,
Holdings paid a dividend to all holders of Holdings common stock of record as of
April 2, 1997, in the amount of $19.02 per share (the "Anchor Dividend"). As a
result of such dividend, the Fund received $7.8 million, of which approximately
32% or $2.5 million was returned to partners as return of capital.
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, 1997.
Cinnabon International, Inc. ("Cinnabon") (formerly Restaurants Unlimited)
-------------------------------------------------------------------------
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, 1997.
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, 1997.
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. As of December 31, 1997 Fund II owned 2,058,474 shares of First Alert
common stock.
On February 28, 1998, First Alert and Sunbeam Corporation ("Sunbeam")
executed a definitive merger agreement whereby Sunbeam will acquire all of the
outstanding shares of First Alert Common Stock for approximately $175 million
($5.25 per share) by means of a tender offer (the "Tender Offer"), and assume
all of the debt of First Alert. Pursuant to the Tender Offer, which was executed
on March 6, 1998, Fund II tendered all of its shares of First Alert Common Stock
and expects to receive proceeds of approximately $10.8 million. The per Unit
amount to be distributed to Fund II's Limited Partners from this transaction is
not determinable at this time. Any distribution of these net Distributable
Capital Proceeds after the payment of expenses and the establishment of
reserves, as provided for in Fund II's Partnership Agreement, will be
distributed to Limited Partners of record as of the date of the expiration of
this Tender Offer, which is scheduled to be on April 2, 1998, unless the Tender
Offer is extended.
The fair market value of this investment as determined by the closing
market price at December 31, 1997 is $4.4 million which reflects total
unrealized appreciation of $1.1 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. The closing market price of this
investment at December 31, 1997 reflects $1.5 million of net unrealized
depreciation, bringing the aggregate net unrealized depreciation to $33.1
million through December 31, 1997.
Playtex Products, Inc. ("Playtex")
---------------------------------
Playtex manufactures and sells feminine hygiene and nursery products,
household rubber gloves, toothbrushes and Jhirmack and LaCoupe haircare
products. The fair market value of this investment as determined by the closing
market price at December 31, 1997 is $3.5 million which reflects total
unrealized depreciation of $1.8 million.
Stanley Furniture Company, Inc. ("Stanley")
------------------------------------------
Stanley Furniture designs, manufactures and markets furniture and fabric
products.
During February 1997, Fund II sold 272 shares of Stanley Furniture for $24
per share and received total proceeds of $6,528 and recognized a gain of $3,105.
On June 30, 1997, Fund II entered into a stock purchase agreement with Stanley
Furniture whereby Fund II sold 6,281 shares of Stanley Furniture for $20 per
share. Fund II received total proceeds of $125,620 and recognized a gain of
$46,582. On November 18, 1997, Fund II sold 3,460 shares of Stanley Furniture
for $25 per share. Fund II received total proceeds of $86,500 and recognized a
gain of $42,961.
On January 6, 1998, Fund II sold its remaining holdings of common stock in
Stanley Furniture Company, Inc. The common stock was sold pursuant to a Form S-3
Registration Statement, which was filed by Stanley on December 22, 1997 and
declared effective by the Securities and Exchange Commission on December 23,
1997. In connection with the sale, Fund II sold its remaining 3,461 shares of
common stock and received net proceeds of $93,447 or $27 per share.
The fair market value of this investment as determined by the closing
market price at December 31, 1997 is $96,475 which reflects total unrealized
appreciation of $52,923.
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, 1997:
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. Fund II's
investment in BioLease Common Stock was written down to zero, and the
Subordinated Notes wre written down to approximately 50% of par value during the
year ending December 31, 1997. These writedowns resulted in total net unrealized
depreciation of $412,000 through December 31, 1997.
Fitz and Floyd Corporation
--------------------------
On April 11, 1997 the Bankruptcy Court confirmed a plan of Reorganization
for Fitz & Floyd. As a result, on April 14, 1997, a follow-on investment of $2.4
million was made in Fitz and Floyd and Fund II received a $2.4 million 12%
subordinated note. Additionally, Fund II exchanged the $12.6 million adjustable
notes, which Fund II previouslly held, for Series A Preferred Stock and Class A
Common Stock in Fitz and Floyd. No gain or loss was recorded on the transaction.
The fair market value of this investment at December 31, 1997 is $5.4 million
which reflects total unrealized depreciation of $9.6 million.
Fitz & Floyd is the maker of fine china dinnerware and ceramic giftware
whose products are retailed through leading specialty and department stores and
catalogs throughout the U.S. and Canada.
FLA. Orthopedics, Inc.
---------------------
As of December 31, 1997, 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 and wrote down its investment in the Stablex Jr. Subordinated Note at
zero during the year ended December 31, 1997. The Retirement Fund's valuation
reflects total unrealized depreciation of approximately $4.0 million through
December 31, 1997.
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 Legal and Professional Fees. In the
opinion of legal counsel, 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
counsel, 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 counsel, 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, 1997.
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, 1998, the last
effective date of transfer (as described below), was 11,132. 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.
MLPF&S provids estimated values of limited partnerships and other direct
investments reported on client account statements and no longer reports the
general partner's estimate of limited partnership net asset value to Unit
holders. Pursuant to MLPF&S guidelines, estimated values for limited partnership
interests originally sold by MLPF&S (such as Fund II's Units) are provided by
independent valuation services. MLPF&S clients may contact their MLPF&S
Financial Consultants 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 the Fund'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 the
Fund'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 transfer 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. 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: 1997 1996 1995 1994 1993
------------- -------------- ---------------- --------------- -------------
Net Investment Income $ 8,426,190 $ 11,023,166 $ 4,146,846 $ 7,816,305 $ 4,967,971
Net Realized Gain on Sales of Investments 92,648 5,894,176 8,372,906 63,853,148 13,201,921
Net Change in (Depreciation) Appreciation
on Investments (6,129,993) (15,723,691) (30,559,313) (100,354,280) 80,586,157
Cash Distributions to Partners (a) 26,672,357 49,261,781 29,490,761 101,901,964 31,187,989
Net Assets 46,832,011 71,115,538 119,183,669 166,713,991 297,300,782
Cost of Mezzanine Investments 91,989,046 103,597,216 135,797,397 144,603,700 148,865,244
Total Assets 47,105,834 71,678,160 120,346,488 167,805,653 299,130,035
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Investment Income $ 36.43 $ 50.33 $ 32.05 $ 49.88 $ 52.20
Expenses (7.79) (15.11) (19.71) (19.70)
(29.85)
----------- ----------- ----------- ------------ ------------
Net Investment Income $ 28.64 $ 35.22 $ 12.34 $ 30.18 $ 22.35
=========== =========== =========== ============ ============
Net Realized Gain on Sales of
Investments $ .42 $ 14.47 $ 34.23 $ 225.61 $ 59.39
Net Change in (Depreciation) Appreciation
on Investments (27.58) (70.73) (137.47) (451.45) 362.52
Cash Distributions (a) 106.00 192.87 (b) 112.31 (b) 413.35 140.30
Cumulative Cash Distributions 1,158.68 1,052.68 859.81 747.50 334.15
Net Asset Value 209.93 314.44 528.63 730.09 1,339.10
(a) Includes $17,293,893 million or $77.99 per Limited Partnership Unit return
of Capital from the sale of Portfolio Investments during 1997.
(b) Certain amounts from prior quarters have been restated to reflect
adjustments made in 1997. See Notes 10 and 13 to the Financial Statements
for further information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity & Capital Resources
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.
At December 31, 1997, Fund II had outstanding a total (at cost) of $91.9
million invested in Mezzanine Investments representing $68 million Managed and
$23.9 million Non-Managed portfolio investments. The remaining proceeds were
invested in Temporary Investments primarily comprised of commercial paper with
maturities 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 ("MGP Distributions")
after Limited Partners have received their Priority Return of 10% per annum. The
Managing General Partner is required to defer a portion of any MGP Distribution
earned from the sale of portfolio investments in excess of 20% of realized
capital gains, net realized capital losses and unrealized depreciation, in
accordance with the Partnership Agreement (the "Deferred Distribution Amount").
Any Deferred Distribution Amount is distributable to the Partners pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from distributable cash from operations are instead
payable to the Managing General Partner until the Deferred Distribution Amount
is paid. As of December 31, 1997 there is no outstanding Deferred Distribution
Amount.
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 19, 1998, the
remaining reserve balance was $3.1 million due to follow-on investments in Petco
Animal Supplies, Fitz and Floyd, Fine Clothing, Inc., Hills Stores, Ghirardelli
Holdings and Anchor Advanced Products. Additionally, $8.29 million of the
reserve has been returned to the partners. The level of the reserve was based
upon an analysis of potential follow-on investments in specific portfolio
companies that may become necessary to protect or enhance Fund II's existing
investment.
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.
The proportion of distributions provided by net investment income has
decreased from prior years due primarily to increased sales and redemptions of
Mezzanine Investments and the resulting decrease in investment income as those
holdings cease to generate interest income. It is expected that the majority of
future cash distributions to Limited Partners will almost entirely be derived
from recovered capital and gains, from asset sales, if any, 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, which are estimated to be
less than one dollar per Limited Partnership Unit each quarter. 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 risk management policies. Fund II
subjected each prospective investment to rigorous analysis and made only those
investments that were recommended by the Investment Advisor and that met Fund
II's investment guidelines or that had otherwise been approved by the Managing
General Partner and the Independent General Partners. Fund II's investments were
measured against specified Fund II investment and performance guidelines. To
limit the exposure of Fund II's capital in any single issuer, Fund II limited
the amount of its investment in a particular issuer. Fund II's Investment
Adviser also continually monitors portfolio companies in order to minimize the
risks associated with its investments in High-Yield Securities.
Certain issuers of Securities held by Fund II (First Alert, Hills and
Playtex) 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 one year 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 two 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 year consists primarily of
interest and discount income earned on the investment of Mezzanine Investments
and short-term money market instruments.
For the year ended December 31, 1997, Fund II had investment income of
$10.2 million, as compared to $14.4 million and $8.5 million for the comparable
years ended 1996 and 1995, respectively. The decrease in 1997 investment income
as compared to 1996 is due to the sale of income producing portfolio companies
in 1997, as well as recognition of previously unrecorded interest income of
payment-in-kind securities totalling $7.2 million related to the sale of CST
Office Products, Inc. in March of 1996. The increase in 1996 investment income
from 1995 is due primarily to the recognition of interest income related to the
sale of CST Office Products, Inc. in the first quarter of 1996.
Major expenses for the period consisted of Investment Advisory Fees and
Fund Administration Fees.
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, 1997, 1996
and 1995 were $759,160, $988,882 and $1.5 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. The decrease in Investment Advisory Fees are a direct result of
sales of investments, returns of capital distributed to partners and realized
losses on investments.
Beginning in November of 1997, the Fund Administration Fee changed to an
annual amount of $400,000 for Fund II and the Retirement Fund on a combined
basis, plus 100% of all reimbursable expenses (as defined below) incurred by
Fund II. Actual out-of-pocket expenses ("reimbursable expenses") primarily
consist of printing, audit, tax preparation and custodian fees. For the years
ended December 31, 1997, 1996 and 1995, Fund II incurred $140,157, $139,158 and
$125,816, respectively, in reimbursable expenses.
The Fund Administration Fees paid to the Fund Administrator for the years
ended December 31, 1996 and 1995 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. The decrease in Fund Administration Fees were a direct result
of sales of investments, returns of capital distributed to partners and realized
losses on investments. For the years ended December 31, 1997, 1996 and 1995,
Fund Administration Fees were $569,224, $675,250 and $798,478, respectively.
Pursuant to the administrative services agreement between Fund II and the
Fund Administrator, for the period ending November 10, 1997, a portion of the
actual out-of-pocket expenses incurred in connection with the administration of
Fund II was reimbursable to the Fund Administrator.
Legal and Professional Fees were incurred in connection with the litigation
proceedings as described in Note 11 to the Financial Statements. Professional
fees for the years ended December 31, 1997, 1996 and 1995 were $152,000, $1.3
million and $1.7 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 aforementioned litigation
proceedings.
For the year ended December 31, 1997, Fund II had net investment income of
$8.4 million as compared to $11 million for the same period in 1996 and $4.1
million for the same period in 1995. The decrease in 1997 net investment income
as compared to 1996 is due to the recognition of interest income from
payment-in-kind securities related to the sale of CST Office Products, Inc., in
March of 1996. The increase in 1996 net investment income as compared to 1995 is
primarily attributable to interest income in 1996 from payment-in-kind
securities related to the sale of CST Office Products, Inc.
Net Assets
Fund II's net assets decreased by $24.3 million during the year ended
December 31, 1997, due to the payment of cash distributions to partners of $26.7
million ($18.4 million of the cash distributions paid was return of capital from
the sales of portfolio investments) and net unrealized depreciation of $6.1
million, partially offset by net investment income of $8.4 million and realized
gains of $92,648 from the sales of Mezzanine Investments.
Unrealized Appreciation and Depreciation on Investments
For the year ended December 31, 1997, Fund II recorded net unrealized
depreciation of $6.1 million of which $3.3 million was related to net
depreciation in market value of publicly traded securities held as of December
31, 1997. This compares to net unrealized depreciation of $15.7 million for 1996
of which $12.5 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, 1997 totaled $49.4 million.
For the year ended December 31, 1995, Fund II recorded net unrealized
depreciation of $30.6 million of which $22.7 million was related to net
unrealized depreciation in market value of publicly traded securities.
Fund II's valuation of the common stock of First Alert, Hills, Playtex and
Stanley Furniture reflect their closing market prices at December 31, 1997.
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 51% 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, Playtex and Stanley Furniture 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 under the SEC's Rule 144 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, 1997. Although the Managing General Partner and Investment Adviser are not
aware of any factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and the current estimated fair value of these
investments may have changed significantly since that point in time.
For additional information please refer to Supplemental Schedule of
Unrealized Appreciation and Depreciation - Schedule 2.
Realized Gains and Losses
For the year ended December 31, 1997, Fund II recorded realized gains from
investments of $92,648 as compared to $5.9 million and $8.4 million for the
years ended December 31, 1996 and 1995, respectively. For additional
information, please refer to the Supplemental Schedule of Realized Gains and
Losses - Schedule 1.
Cash Distributions
On February 2, 1998, the Individual General Partners approved the fourth
quarter 1997 cash distribution which represents net investment income of
$372,822 from Mezzanine Investments, net investment income of $22,982 from
Temporary Investments and Net Distributable Capital proceeds from the sale of
Stanley Furniture of $87,067 (which includes a return of capital of $44,106).
The total amount distributed to Limited Partners was $370,314 or $1.67 per Unit,
which was paid on February 13, 1998. The Managing General Partner received a
total of $2,764 with respect to its interest in Fund II and $112,010 in MGP
Distributions. Thomas H. Lee, as an Individual General Partner, received $84
with respect to his interest in Fund II.
Additionally, on February 2, 1998, the Independent General Partners
approved a cash distribution to Limited Partners consisting of a repayment by
the Managing General Partner of $328,183 representing an overpayment of an MGP
distribution with respect to a transaction effected during the quarter ending
December 31, 1995, and to pay Fund II Limited Partners interest on such amount.
This distribution totaling $1.67 per Unit was distributed on Febuary 13, 1998,
to Limited Partners of record at December 31, 1997.
Because most of Fund II's debt holdings were previously sold or redeemed,
remaining portfolio interest income expected to be received by Fund II may not
be sufficient to cover Fund II's expenses in the future. As a result, any
interest income received will be used to pay Fund II expenses and may not be
available for distribution. The majority of future cash distributions to Limited
Partners will be derived from recovered capital and gains, from asset sales, if
any, which are dependent upon future market conditions and therefore are
inherently unpredictable. Cash distributions, therefore, are likely to vary
significantly in amount and may not be made in every quarter.
Should Limited Partner's decide to sell their Units, any such sale will be
recorded on the books and records of Fund II quarterly, only upon the
satisfactory completion and acceptance of Fund II's transfer documents. There
can be no assurances that such transfer will be effected before any specified
date. Additionally, pursuant to the Partnership Agreement, until a transfer is
recognized, the Limited Partner of record (i.e. the transferor) is entitled to
receive all the benefits and burdens of ownership of Units, and any transferee
has no rights to distributions of sale proceeds generated at any time prior to
the recognition of the transfer and assignment. Accordingly, Distributable Cash
from Investments for a quarter and Distributable Capital Proceeds from sales
after transfer or assignment have been entered into, but before such transfer
and assignment is recognized, would be payable to the transferor and not the
transferee.
Cash Distributions
The following table represents distributions approved by the Individual
General Partners of 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 9,587,798(c) 43.24 37.42 20,744 - (c) 2,074
Fourth Quarter 1995 333,445 166,765(c) .75 - 752 165,853 (c) 75
CST Distribution
on 5/03/96 25,825,311 21,023,644(c) 94.81 63.04 47,165 4,749,785 (c) 4,717
First Quarter 1996 1,766,006 1,263,947 5.70 - 2,849 498,925 285
Ghirardelli Distribution
on 5/03/96 9,409,746 9,386,466 42.33 32.57 21,164 - 2,116
Second Quarter 1996 11,494,950 10,745,763 48.46 20.09 24,229 722,535 2,423
Third Quarter 1996 432,323 181,831 .82 - 410 250,041 41
Fourth Quarter 1996 1,833,044 1,226,250 5.53 5.04 2,764 603,754 276
First Quarter 1997 696,267 79,828 .36 .01 180 616,241 18
Anchor Distribution
on 5/15/97 19,963,238 18,158,698 81.89 66.06 40,946 1,759,500 4,095
Second Quarter 1997 3,203,136 2,818,379 12.71 7.43 6,353 377,769 635
Third Quarter 1997 1,304,854 1,221,815 5.51 4.49 2,757 80,006 276
Fourth Quarter 1997 483,244 370,314 1.67 .20 836 112,010 84
------------- ------------ --------- -------- --------- ----------- --------
Totals $ 282,620,207 $256,999,051 $1,160.35 $ 442.18 $ 617,229 $24,942,203 $ 61,725
============= ============ ========= ======== ========= =========== ========
(a) Distributions are paid no later than 45 days after the end of each quarter.
(b) MGP Distributions to the Managing General Partner are the result of Limited
Partners achieving cumulative Priority Returns on Mezzanine Investments, in
accordance with the Partnership Agreement.
(c) Certain amounts from prior quarters have been restated to reflect
adjustments made in 1997. See Notes 10 and 13 to the Financial Statements
for further information.
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, 1997 and December 31, 1996
Statements of Operations
For the Years Ended December 31, 1997, 1996 and 1995
Statements of Changes in Net Assets
For the Years Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1997, 1996 and 1995
Schedule of Portfolio Investments - December 31, 1997
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, 1997 and 1996, 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, 1997, 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, 1997 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 $42,646,000 at
December 31, 1997 (91.1% of net assets), whose values have been estimated by the
Managing General Partner and the Investment Adviser (with the approval of the
Independent General Partners) in the absence of readily ascertainable market
values, as further described in Note 2. Those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material to the financial
statements.
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 19, 1998
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
December 31, 1997 December 31, 1996
--------------- ---------------
ASSETS:
Investments - Notes 2,4,5
Portfolio Investments at fair value
Managed Companies (amortized cost $68,023
at December 31, 1997 and $81,990 at December 31, 1996) $ 34,206 $ 51,516
Non-Managed Companies (amortized cost $23,967
at December 31, 1997 and $21,608 at December 31, 1996) 8,440 8,865
Temporary Investments, at amortized cost (cost $3,612
at December 31, 1997 and $10,199 at December 31, 1996) 3,627 10,217
Cash (of which $115 is restricted at December 31, 1996) 245 125
Accrued Interest and Other Receivables - Note 2 257 951
Due from Affiliate - Note 10 328 --
Prepaid Expenses 4 4
--------------- ---------------
TOTAL ASSETS $ 47,107 $ 71,678
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Legal and Professional Fees Payable $ 100 $ 159
Reimbursable Administrative Expenses Payable - Note 8 11 45
Independent General Partners' Fees Payable - Note 9 12 33
Deferred Interest Income - Note 2 151 326
--------------- ---------------
Total Liabilities 274 563
--------------- ---------------
Partners' Capital - Note 2
Individual General Partner 15 19
Managing General Partner 266 1,368
Limited Partners (221,745 Units) 46,552 69,728
--------------- ---------------
Total Partners' Capital 46,833 71,115
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 47,107 $ 71,678
=============== ===============
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
--------- --------- ---------
1997 1996 1995
--------- --------- ---------
INVESTMENT INCOME - Notes 2,4,6:
Interest $ 4,354 $ 13,462 7,523
Discount and Dividend Income 5,803 920 1,004
--------- --------- ---------
TOTAL INCOME 10,157 14,382 8,527
--------- --------- ---------
EXPENSES:
Investment Advisory Fee - Note 7 759 989 1,537
Fund Administration Fee - Note 8 570 675 798
Legal and Professional Fees 152 1,345 1,651
Reimbursable Administrative Expenses - Note 8 140 139 126
Independent General Partners' Fees and Expenses - Note 9 106 207 263
Insurance Expense 4 4 5
--------- --------- ---------
TOTAL EXPENSES 1,731 3,359 4,380
--------- --------- ---------
NET INVESTMENT INCOME 8,426 11,023 4,147
--------- --------- ---------
Net Realized Gain on Investments - Note 4 and Schedule 1 93 5,895 8,373
--------- --------- ---------
Net Change in Unrealized Depreciation on Investments:
Note 5 and Schedule 2
Publicly Traded Securities (3,342) (13,952) (22,693)
Nonpublic Securities (2,788) (1,772) (7,867)
--------- --------- ---------
SUBTOTAL (6,130) (15,724) (30,560)
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 2,389 1,194 (18,040)
Less: Earned MGP Distributions to Managing General Partner (2,078) (5,366) (2,162)
--------- --------- ---------
NET INCREASE (DECREASE) AVAILABLE FOR PRO-RATA
DISTRIBUTION TO ALL PARTNERS $ 311 $ (4,172) $ (20,202)
========= ========= =========
See the Accompanying Notes to Financial Statements
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
--------- --------- ---------
1997 1996 1995
--------- --------- ---------
FROM OPERATIONS:
Net Investment Income $ 8,426 $ 11,023 $ 4,147
Net Realized Gain on Investments 93 5,895 8,373
Net Change in Unrealized Depreciation
From Investments (6,130) (15,724) (30,560)
--------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,389 1,194 (18,040)
Cash Distributions to Partners (26,671) (49,262) (29,491)
--------- --------- ---------
Total Decrease (24,282) (48,068) (47,531)
NET ASSETS:
Beginning of Year 71,115 119,183 166,714
--------- --------- ---------
End of Period $ 46,833 $ 71,115 $ 119,183
========= ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
--------- --------- ---------
1997 1996 1995
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 10,677 $ 15,268 7,650
Legal and Professional Fees (207) (1,549) (1,363)
Investment Advisory Fee (759) (989) (1,537)
Fund Administration Fee (570) (675) (799)
Independent General Partners' Fees and Expenses (128) (240) (242)
Reimbursable Administrative Expenses (174) (151) (156)
(Purchase) Sale of Temporary Investments, Net 6,588 (175) 8,321
Purchase of Portfolio Companies (2,420) -- (1,635)
Proceeds from Sales of Portfolio Company Investments 14,117 37,901 19,256
Insurance Expense (4) (4) (4)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,120 49,386 29,491
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (27,000) (49,262) (29,491)
--------- --------- ---------
NET CASH APPLIED TO FINANCING ACTIVITIES (27,000) (49,262) (29,491)
--------- --------- ---------
Net Increase in Cash 120 124 --
Cash at Beginning of Year 125 1 1
--------- --------- ---------
CASH AT END OF PERIOD $ 245 $ 125 $ 1
========= ========= =========
RECONCILIATION OF NET INVESTMENT INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income $ 8,426 $ 11,023 $ 4,147
--------- --------- ---------
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(Increase) Decrease in Investments 18,195 32,015 17,569
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivable 520 702 (878)
(Decrease) Increase in Legal and Professional Fees Payable (59) (204) 291
(Decrease) Increase in Reimbursable Administrative Expenses Payable (34) (12) (31)
(Decrease) Increase in Independent General Partners' Fees Payable (21) (33) 20
Net Realized Gain on Sales of Investments 93 5,895 8,373
--------- --------- ---------
TOTAL ADJUSTMENTS 18,694 38,363 25,344
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 27,120 $ 49,386 $ 29,491
========= ========= =========
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
-------------- -------------- ------------- ------------
For the Twelve Months 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 From Investments (7) (69) (30,484) (30,560)
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 Twelve Months 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
========= ========= ========= ========
For the Twelve Months Ended December 31, 1997
Partners' Capital at January 1, 1997 $ 19 $ 1,368 $ 69,728 $ 71,115
Allocation of Net Investment Income 2 2,073 6,351 8,426
Allocation of Net Realized Gain on Investments - - 93 93
Allocation of Net Change in Unrealized
Depreciation From Investments (1) (14) (6,115) (6,130)
Cash Distributions to Partners (5) (3,161) (23,505) (26,671)
--------- --------- --------- --------
Partners' Capital at December 31, 1997 - Notes 2,3 $ 15 $ 266 $ 46,552 $ 46,833
========= ========= ========= ========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost(e) (Note 2) Investments
MEZZANINE INVESTMENTS
MANAGED COMPANIES
ANCHOR ADVANCED PRODUCTS, INC. (b) - Notes 4, 13
410,677 Shares Anchor Holdings Inc., Common Stock (d) 04/30/90 $ 1,396 $ 1,396
$5,867 11.67 Sr. Sub. Note
$7,822 17.50 Jr. Sub. Note
Purchased 4/30/90 $13,689
Repaid 4/02/97 $13,689
Realized Gain $ -
162,967 Shares Common Stock
Purchased 4/30/90 $ 1,548
Exercised 247,710 Warrants 4/2/97 $ 2,354
Return of Capital Proceeds
from the Anchor Dividend $(2,506)
Cost Basis of Equity $ 1,396 ------------------------------
1,396 1,396 3.02
------------------------------
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) (h) ------------------------------
17,144 17,144 37.05
------------------------------
CINNABON INTERNATIONAL, INC.
(formerly Restaurants Unlimited)
$6,044 Cinnabon, 11% Subordinated Note due 06/30/02(c) 06/03/94 6,044 6,044
391,302 Warrants Cinnabon, Common Stock Warrants(d) 06/03/94 0 0
(2.1% of fully diluted common equity) (h) ------------------------------
6,044 6,044 13.06
------------------------------
COLE NATIONAL CORPORATION
13,161 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) (h)
$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) - Notes 5,13
First Alert, Inc., Common Stock(a)(d) 07/31/92 3,320 4,374
(8.1% of fully diluted common equity)(h)
$10,198 12.5% Sub. Note
Purchased 07/31/92 $10,198
Repaid 03/28/94 $10,198
Realized Gain $ 0
------------------------------
3,320 4,374 9.45
------------------------------
See the Accompanying Notes to the Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost(e) (Note 2) Investments
HILLS STORES COMPANY - Note 5
458,432 Shares Hills Stores Company, Common Stock(a)(d) 04/03/90 $ 30,246 $ 1,433
62,616 Shares Hills Stores Company, Common Stock(a) (d) 08/21/95 4,530 195
(4.1% of fully diluted common equity) (h) --------------------------------
34,776 1,628 3.52
--------------------------------
PLAYTEX PRODUCTS, INC. (b) - Note 5
343,726 Shares Playtex Products, Inc., Common Stock(a)(d) 03/29/90 5,299 3,523
(.6% of fully diluted common equity)(h)
$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 3,523 7.61
--------------------------------
STANLEY FURNITURE COMPANY, INC. (b) - Notes 4,5,13
3,461 Shares Stanley Furniture Company, Inc., Common Stock(a)(d) 06/30/91 44 97
(.3% of the fully diluted common equity)(h)
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
Purchased 272 Shares 6/30/91 $ 4
Sold 2/7/97 $ 7
Realized Gain $ 3
Purchased 6,281 Shares 6/30/91 $ 79
Sold 6/30/97 $ 126
Realized Gain $ 47
Purchased 3,460 Shares 6/30/91 $ 44
Sold 11/18/97 $ 87
Realized Gain $ 43
Total Net Realized Gain $ 118
--------------------------------
44 97 0.21
--------------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 68,023 $ 34,206 73.92
================================
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost(e) (Note 2) Investments
NON-MANAGED COMPANIES
BIOLEASE, INC.- Note 5
$784 BioLease, Inc., 13% Sub. Nt. due 06/06/04 (c) 06/08/94 $ 676 $ 392
96.56 Shares BioLease, Inc., Common Stock (d) 06/08/94 94 -
10,014 Warrants Biotransplant, Inc., Common Stock Purchase Warrants(d) 06/08/94 14 14
-------------------------------
784 406 .88
-------------------------------
FITZ AND FLOYD -Notes 4,5
$2,420 Fitz and Floyd, 12% Sub. Nt. due 04/15/04 (c) 04/11/97 2,420 2,420
8,470 Shares Fitz and Floyd, Series A Preferred Stock (d) 04/11/97 12,619 3,024
1,324,508 Shares Common Stock
Purchased various $ 20
Surrendered May 1996 $ -
Realized Loss $ (20)
$10,281 Sr. Sub. Note
$2,419 Sr. Sub. Note
Purchased various $12,619
Exchanged 04/14/97
8,470 Sh Series A Preferred Stock and
51,245 Shares Common Stock $12,619
Realized Gain $ 0
Total Realized Loss $ (20) -------------------------------
15,039 5,444 11.76
-------------------------------
FLA. ORTHOPEDICS, INC. - Notes 5,6
19,366 Shares FLA. Holdings, Inc. Series B Preferred Stock(d) 08/02/93 1,513 -
3,822 Warrants FLA. Holdings, Inc. Common Stock Purchase Warrants(d) 08/02/93 - -
$4,842 12.5% Subordinated Note
Purchased 08/02/93 $ 4,842
Surrendered 08/16/96 $ 0
Realized Loss $(4,842)
121,040 Common Stock
Purchased 08/02/93 $ 1,513
Exchanged 08/02/96
19,366 Series B Preferred Stock $ 1,513
Realized Gain $ 0
Total Realized Loss $(4,842)
-------------------------------
1,513 - 0.00
-------------------------------
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost(e) (Note 2) Investments
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 0
2,004 Warrants Seaway TLC, Inc. Common Stock Purchase Warrants 12/06/91 0 0
-----------------------------
6,631 2,590 5.60
-----------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 23,967 $ 8,440 18.24
=============================
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes Various 28,808 24,483 52.91
Preferred Stock, Common Stock, Warrants and Stock Rights Various 63,182 18,163 39.25
-----------------------------
TOTAL MEZZANINE INVESTMENTS $ 91,990 $42,646 92.16
=============================
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 3,132 General Electric Corp. 5.81% due 1/5/98 12/04/97 3,116 3,130
$ 497 Clipper Receivables, 5.97% due 1/2/98 12/18/97 496 497
-----------------------------
TOTAL INVESTMENT IN COMMERCIAL PAPER 3,612 3,627 7.84
-----------------------------
TOTAL TEMPORARY INVESTMENTS $ 3,612 $ 3,627 7.84
-----------------------------
TOTAL INVESTMENT PORTFOLIO $ 95,602 $ 46,273 100.00%
=============================
(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 $33 for Mezzanine Investments
and $15 for Temporary Investments.
(f) Inclusive of receipt of payment-in-kind securities.
(g) Non-accrual investment status.
(h) 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, 1997
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 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, 1997. 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,
1997, 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, 1997 and December 31,
1996, Fund II had in its portfolio of investments $441,900 of payment-in-kind
notes which excludes $2.5 million and $1.1 million, respectively, of
payment-in-kind notes received from notes placed on non-accrual status. As of
December 31, 1997 and December 31, 1996, Fund II had in its portfolio of
investments $29,059 of payment-in-kind equity securities.
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
During February 1997, Fund II sold 272 shares of Stanley Furniture for $24
per share and received total proceeds of $6,528 and recognized a gain of $3,105.
On June 30, 1997, Fund II entered into a stock purchase agreement with Stanley
Furniture whereby Fund II sold 6,281 shares of Stanley Furniture for $20 per
share. Fund II received total proceeds of $125,620 and recognized a gain of
$46,582. On November 18, 1997, Fund II sold 3,460 shares of Stanley Furniture
for $25 per share. Fund II received total proceeds of $86,500 and recognized a
gain of $42,961.
On April 2, 1997, Anchor completed a recapitalization pursuant to which
Anchor issued $100,000,000 aggregate principal amount of Senior Notes due 2004
and entered into a new credit facility (the "Recapitalization"). As part of the
Recapitalization, Anchor repaid substantially all of its outstanding debt,
including all accrued interest and any premiums in connection therewith. As a
result, Anchor repaid the Senior Subordinated Note and Junior Subordinated Note
held by Fund II, together with all accrued interest and prepayment premiums for
an aggregate of $14.5 million.
Immediately prior to the Recapitalization, Fund II owned 162,967 shares of
the common stock of Anchor Holdings, Inc., the parent of Anchor. Immediately
after the consummation of the Recapitalization, Fund II exercised its warrants
to purchase common stock (at an exercise price of $9.50 per share) and acquired
an additional 247,710 shares of common stock, bringing its total holdings of
common stock to 410,677 shares. In connection with the Recapitalization,
Holdings paid a dividend to all holders of Holdings common stock of record as of
April 2, 1997, in the amount of $19.02 per share (the "Anchor Dividend"). As a
result of such dividend, the Fund received $7.8 million, of which approximately
32% or $2.5 million was returned to partners as return of capital.
On April 11, 1997 the Bankruptcy Court confirmed a plan of Reorganization
for Fitz & Floyd. As a result, on April 14, 1997, a follow-on investment of $2.4
million was made in Fitz and Floyd and Fund II received a $2.4 million 12%
subordinated note. Additionally, Fund II exchanged the $12.6 million adjustable
notes, which Fund II previouslly held, for Series A Preferred Stock and Class A
Common Stock in Fitz and Floyd. No gain or loss was recorded on the trasaction.
On August 6, 1991, the Independent General Partners approved a reserve for
follow-on investments of $24.9 million for Fund II. As of December 31, 1997, the
remaining reserve balance was $3.1 million due to follow-on investments in Petco
Animal Supplies, Fitz and Floyd, Fine Clothing, Inc., Hills Stores, Ghirardelli
Holdings and Anchor Advanced Products. Additionally, $8.29 million of the
reserve has been returned to the partners. The level of the reserve was based
upon an analysis of potential follow-on investments in specific portfolio
companies that may become necessary to protect or enhance Fund II's existing
investment.
Because Fund II primarily invested 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
Fund II's valuation of the Common Stock of First Alert, Hills, Playtex and
Stanley reflects their closing market prices at December 31, 1997.
For 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:
- Florida Orthopedics, Inc., on January 1, 1995.
- 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. In
addition, the Investment Adviser receives 95% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10). For the years
ended December 31, 1997, 1996 and 1995, Fund II paid $759,160, $988,882 and $1.5
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 Administration Fee and reimbursement for certain
out-of-pocket expenses incurred by the Fund Administrator on behalf of the Funds
("reimbursable expenses"). The Fund Administration Fee is calculated and paid
quarterly, in advance, by each Fund. For the years ended December 31, 1997, 1996
and 1995, Fund II paid $569,224, $675,250 and $798,478, respectively, in Fund
Administration Fees.
Beginning in November of 1997, the Fund Administration Fee changed to an
annual amount of $400,000 for Fund II and the Retirement Fund on a combined
basis, plus 100% of all reimbursable expenses incurred by Funds . Reimbursable
expenses primarily consist of printing, audit, tax preparation and custodian
fees. For the years ended December 31, 1997, 1996 and 1995, Fund II incurred
$140,157, $139,158 and $125,816, respectively, in reimbursable expenses.
For the period ending November 1997, the Fund Administration Fee was
calculated at 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 plus a portion of reimbursable expenses incurred by Fund II.
In addition, ML Mezzanine II Inc., an affiliate of the Fund Administrator
and Merrill Lynch & Co.,Inc., receives 5% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10).
9. Independent General Partners' Fees and Expenses
As compensation for their services, each Independent General Partner will
receive a combined annual fee of $40,000 (payable quarterly) from the Funds in
addition to a $1,000 fee for each meeting attended ($500 if a meeting is held on
the same day as a committee meeting of the General Partners) plus reimbursement
for any out-of-pocket expenses incurred. Fees and expenses are allocated between
the Funds in proportion to the number of units issued by each fund. Compensation
for each of the Individual General Partners is reviewed annually. For the years
ended December 31, 1997, 1996 and 1995, Independent General Partners' Fees and
Expenses were $106,069, $207,269 and $262,832, respectively.
10. Related Party Transactions
Fund II's investments generally were made as co-investments with the
Retirement Fund. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by Fund II 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
Advisor, 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.
As provided by the Partnership Agreement, the Managing General Partner of
Fund II is entitled to receive an incentive distribution ("MGP Distributions")
after Limited Partners have received their Priority Return of 10% per annum. The
Managing General Partner is required to defer a portion of any MGP Distribution
earned from the sale of portfolio investments in excess of 20% of realized
capital gains, net realized capital losses and unrealized depreciation, in
accordance with the Partnership Agreement (the "Deferred Distribution Amount").
This Deferred Distribution Amount is distributable to the Partners pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from distributable cash from operations are instead
payable to the Managing General Partner until any Deferred Distribution Amount
is paid.
During 1997, Fund II paid the Individual General Partner distributions
totaling $5,300 and Managing General Partner distributions totaling $3,490,271
(which includes $3,437,271 of MGP Distributions as defined above). As of
December 31, 1997, the Managing General Partner has earned a total of $24.9
million in MGP Distributions, none of which is deferred in payment to the
Managing General Partner as a Deferred Distribution amount (the "Deferred
Distribution") at this time, in accordance with the Partnership Agreement. To
the extent not payable to the Managing General Partner, any Deferred
Distribution is distributed to the Partners pro-rata in accordance with their
capital contributions, and certain amounts otherwise later payable to Partners
from distributable cash from operations would instead be payable solely to the
Managing General Partner until the Deferred Distribution amount is paid in full.
Fund II has recorded a receivable of $328,183 or $1.48 per Unit, which
represents an amount due from the Managing General Partner at December 31, 1997.
This amount is a correction of an MGP Distribution made on December 11, 1995,
with respect to a transaction effected at that time.
The Managing General Partner has repaid the amount to Fund II, plus
interest, all of which was distributed to Limited Partners along with the fourth
quarter distribution made on February 13, 1998 to Limited Partners of record as
of December 31, 1997. See Note 13 for further information.
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 Legal and Professional Fees. In the
opinion of legal counsel, 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
counsel, 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 counsel, 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, 1997, the tax basis of Fund II's
assets are greater than the amounts reported in the financial statements by
$49.9 million. This difference is attributable to net unrealized depreciation on
investments which has not been recognized for tax purposes.
13. Subsequent Events
On February 2, 1998, the Individual General Partners approved the fourth
quarter 1997 cash distribution which represents net investment income of
$372,822 from Mezzanine Investments, net investment income of $22,982 from
Temporary Investments and Net Distributable Capital proceeds from the sale of
Stanley Furniture of $87,067 (which includes a return of capital of $44,106).
The total amount distributed to Limited Partners was $370,314 or $1.67 per Unit,
which was paid on February 13, 1998. The Managing General Partner received a
total of $2,764 with respect to its interest in Fund II and $112,010 in MGP
Distributions. Thomas H. Lee, as an Individual General Partner, received $84
with respect to his interest in Fund II.
Additionally, on February 2, 1998, the Independent General Partners
approved a cash distribution to Limited Partners consisting of a repayment by
the Managing General Partner of $328,183 representing an overpayment of an MGP
distribution with respect to a transaction effected during the quarter ending
December 31, 1995, and to pay Fund II Limited Partners interest on such amount.
This distribution totaling $1.67 per Unit was distributed on Febuary 13, 1998,
to Limited Partners of record at December 31, 1997.
On January 6, 1998, Fund II sold its remaining holdings of common stock in
Stanley Furniture Company, Inc. The common stock was sold pursuant to a Form S-3
Registration Statement, which was filed by Stanley on December 22, 1997 and
declared effective by the Securities and Exchange Commission on December 23,
1997. In connection with the sale, Fund II sold its remaining 3,461 shares of
common stock and received net proceeds of $93,447 or $27 per share.
On February 28, 1998, First Alert and Sunbeam Corporation ("Sunbeam")
executed a definitive merger agreement whereby Sunbeam will acquire all of the
outstanding shares of First Alert Common Stock for approximately $175 million
($5.25 per share) by means of a tender offer (the "Tender Offer"), and assume
all of the debt of First Alert. Pursuant to the Tender Offer, which was executed
on March 6, 1998, Fund II tendered all of its shares of First Alert Common Stock
and expects to receive proceeds of approximately $10.8 million. The per Unit
amount to be distributed to Fund II's Limited Partners from this transaction is
not determinable at this time. Any distribution of these net Distributable
Capital Proceeds after the payment of expenses and the establishment of
reserves, as provided for in Fund II's Partnership Agreement, will be
distributed to Limited Partners of record as of the date of the expiration of
this Tender Offer, which is scheduled to be on April 2, 1998, unless the Tender
Offer is extended.
On March 19, 1998 Fund II and Affiliates of the Thomas H. Lee Company sold
their remaining holdings in Anchor. Pursuant to this transaction Fund II sold
410,677 shares of Anchor Common Stock for approximately $1.6 Million ($4.00 per
share) and recognized a gain of $247,000.
SCHEDULE 1
ML-LEE ACQUISITION FUND II, L.P.
SUPPLEMENTARY SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Principal Amount/ Investment Net Realized
SECURITY Number of Shares Cost Proceeds Gain
- ----------------------------- ---------------- ---------- -------- ----------
Stanley Furniture Company Inc.
Common Stock 272 $ 3 $ 6 $ 3
Stanley Furniture Company Inc.
Common Stock 6,281 79 126 47
Stanley Furniture Company Inc.
Common Stock 3,460 44 87 43
------ ------ ------ ------
TOTAL REALIZED GAIN $ 126 $ 219 $ 93
====== ====== ======
SCHEDULE 2
SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
ML-LEE ACQUISITION II, L.P.
FOR THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Total
Unrealized
Appreciation
(Decpreciation) Unrealized Appreciation/(Depreciation) For
Investment Fair at December 31, 1992
SECURITY Cost Value 1997 1997 1996 1995 1994 1993 & Prior
--------- -------- --------- -------- --------- ------- ------- ------- -------
PUBLICLY TRADED/UNDERLYING
SECURITY PUBLICLY TRADED:
First Alert, Inc.
Common Stock * $ 3,320 $ 4,374 $ 1,054 $ (2,573) $(10,807) $(12,351) $ 26,785 $ -- $ --
Hills Stores Company
Common Stock * 34,776 1,628 (33,148) (1,498) (2,019) (5,722) 189 (24,098) --
Playtex Products, Inc.
Common Stock * 5,299 3,523 (1,776) 773 172 129 (2,522) (1,092) 764
Stanley Furniture
Common Stock * 43 97 54 (44) 204 (46) (78) 18 --
-------- -------- -------- -------- --------- --------- -------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM PUBLICLY
TRADED SECURITIES $ (33,816) $ (3,342) $(12,450) $(17,990) $ 24,374 $ (25,172) $ 764
--------- -------- -------- -------- --------- --------- -------
NON PUBLIC SECURITIES:
Fitz and Floyd
Preferred Stock * $ 12,619 $ 3,024 $ (9,596) $ 63 $ (6,614) $ (3,025) $ (20) $ -- $ --
Biolease
Common Stock* 94 -- (94) (94) -- -- -- -- --
Subordinated Notes* 709 391 (318) (318) -- -- -- -- --
FLA. Orthopedics, Inc.
Preferred Stock* 1,513 -- (1,513) -- -- -- (1,513) -- --
Subordinated Note -- -- -- -- 4,842 (4,842) -- -- --
Soretox
Subordinated Notes* 6,631 2,590 (4,041) (2,439) -- -- (1,602) -- --
-------- -------- -------- ------- --------- --------- -------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM NON PUBLIC
SECURITIES $ (15,562) $ (2,788) $ (1,772) $ (7,867) $ (3,135) $ -- $ --
--------- --------- -------- -------- --------- --------- -------
Revearsal of Unrealized Appreciation/
(Depreciation) For Investments
Sold prior to 1997 -- -- (1,502) (4,703) (121,593) 105,758 22,040
NET UNREALIZED APPRECIATION --------- --------- -------- -------- --------- --------- -------
(DEPRECIATION) $ (49,378) $ (6,130) $(15,724) $(30,560) $(100,354) $ 80,586 $22,804
========= ========= ======== ======== ========= ======== =======
* 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
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 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 75, Individual General Partner of Fund II, ML-Lee
Acquisition Fund, L.P. ("Lee I") and the Retirement Fund; and together with the
Fund II, the "New Funds"; and together with Lee I, the "Funds"). Director of
Digital Equipment Corporation, Intermet Corporation and Sonesta International
Hotels Corporation. Chairman of the Japan Society of Boston, Trustee Emeritus of
the Boston Symphony Orchestra and the Boston Museum of Science and Honorary
Consul General of the Royal Kingdom of Thailand.
Mr. Bower, age 59, Individual General Partner of the Funds. Donald Kirk
David Professor of Business Administration. Harvard University Graduate School
of Business Administration. Faculty member since 1963. Director of Anika
Research, Inc., Brown Group, Inc., New America High Income Fund, Sonesta
International Hotels Corporation and The Lincoln Foundation. Trustee of the
DeCordova & Dana Museum and Park and the New England Conservatory of Music.
Mr. Feldberg, age 73, Individual General Partner of the Funds. Director of
Waban Inc. Trustee of Brandeis University.
Mr. Lee, age 54, Individual General Partner of the Funds. Chairman of the
Investment Adviser of the Funds since 1987; Chairman of the Administrative
General Partner of the Investment Adviser to the new Funds since 1989; Chairman
of the Administrative General Partner of Thomas H. Lee Equity Partners L.P.
since 1989. Chairman of the Administrative General Partner of Thomas H. Lee
Equity Fund III, L.P. since 1996. Founder of the Thomas H. Lee Company (the "Lee
Company") and its President since 1974. Director of Autotote Corporation, Finlay
Enterprises Inc., First Security Services Corporation, First Security Services
Corporation, Signature Brands USA, Livent, Inc., Miller Import Corporation
Playtex Products, Inc., Sondik Supply Corporation and Vail Resorts, Inc. Trustee
of Brandeis University (Vice Chairman), Museum of Fine Arts (Boston), the Wang
Center for the Performing Arts, Boston's Beth Israel Hospital (Treasurer), NYU
Medical Center and the Whitney Museum of American Art. Overseer of Boston
Symphony Orchestra and New England Conservatory of Music, Member of the Dean's
Council, Faculty of Arts and Sciences and an Executive Committee Member of the
Committee on University and an Executive Committee Member of the Committee on
University Resources at Harvard University; 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 the Retirement
Fund. 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 56, is the founder of J.W. Childs Associates, L.P. Mr.
Childs, was Managing Director of the Thomas H. Lee Company ("Lee Company"), from
1987 to 1995. Mr. Childs also serves as President and Trustee of Thomas H. Lee
Advisors I ("Advisors I"), the investment advisor to Fund I.
Mr. Shepherd, age 68, is a Managing Director of the Thomas H. Lee Company
since 1986. Mr. Shepherd is currently a director of General Nutrition Companies,
Inc., Signature Brands USA Inc. and Rayovac Corporation. He is Executive Vice
President of Thomas H. Lee Advisors I and T.H. Lee Mezzanine II.
Mr. Harkins, age 57, has been a Managing Director of the Lee Company since
1986 and the Chairman of National Dentex Corporation since 1983. Mr. Harkins is
a Senior Vice President and Trustee of Advisors I. He also is a director of
National Dentex Corporation, Stanley Furniture Corp. and First Alert, Inc.
Mr. Boll, age 42, 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.
Mr. Schoen, age 39, 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.
Mr. Schoen is a Vice President of Advisors I. Mr. Schoen is also a Director of
First Alert, Inc., Signature Brands USA Inc. Rayovac Corporation, Syratech
Corporation and Anchor Advanced Products, Inc.
Ms. Masler, age 44, has been Treasurer of the Lee Company since 1984. 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 the Retirement Fund'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 45, 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,
L.P.; a director of ML Film Entertainment Inc. ("ML Film"), an affiliate of the
managing general partner of the general partner of ML Delphi Premier Partners,
L.P.; a director of ML Opportunity Management Inc. ("ML Opportunity"), a joint
venturer 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 44, 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 46, 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 partnerships 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 general partner.
Rosalie Y. Goldberg, age 60, 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 31, serves as Vice President in the Investment
Banking Group of ML & Co. and joined the firm in 1994. She serves as Vice
President and Treasurer of ML Mezzanine Inc. and ML Mezzanine II, Inc. Ms.
Bommer manages all accounting, financial reporting and administrative functions
in the Merrill Lynch Partnership Analysis and Finance Department.
Roger F. Castoral, Jr., age 30, 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 serves as
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 $78,684 collectively for their services as Independent General
Partners in 1997.
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 $3,490,271 during 1997, including MGP
Distributions of $3,437,271 that it distributed, $3,265,407 to the Investment
Adviser and $171,864 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 $759,160 with respect to 1997.
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 $743,298 in 1997.
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
Axhedules 13D and 13G filed with the Securities and Exchange Commission and a
review of Fund II's records.
Amount of Percent of Units of the
Name and Address Benificial Fund Beneficially Owned
of Beneficial Owner Ownership at January 1, 1998
- ------------------- ---------- ------------------------
Yale University 20,954 9.4%
Investment Office
230 Prospect Street
New Haven, CT 06511
Farallon Capital Partners, L.P. 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Tinicum Partners, L.P. 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Thomas F. Steyer 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Fleur E. Fairman 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
David I. Cohen 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Joseph F. Downes 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Jason M. Fish 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
William F. Mellin 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Meridee A. Moore 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Eric M. Ruttenberg 21,341(1) 10.0%
Farallon Capital Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
(1) By reason of Rule 13d-5 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Farallon Capital Partners, L.P., a California
limited partnership ("FCP"), and Tinicum Partners, L.P., a New York limited
partnership ("Tinicum"), each may be deemed to own 21,341 Units of limited
partnership interest beneficially owned at January 1, 1998 as a result of
the direct ownership by FCP of 16,722 such Units and as a result of the
direct ownerhip 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 RTinicum, Thomas F. ASteyer, 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 beneficailly
the Units of limited partnship interst by FCP and Tinicum.
Amount of
Name of Beneficial Percent of Units
Beneficial Owner Ownership of Class
- ---------------------------------------------------------------------
Vernon R. Alden 50 Units *
Jospeh L. Bower None *
Stanley H. Feldberg 25 Units *
Thomas H. Lee None *
General Partnes 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's. 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, 1997, 5 paid management fees to Thomas H. Lee Company
ranging from $110,000 to $180,000 for the fiscal year ended December 31, 1997.
In addition, certain of the Managed Companies may 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 pension plan
services and receives in consideration therewith various fees, commissions and
reimbursements. The aggregate revenue received by MLPF&S and its affiliates
during 1997 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 1997, Fund II paid Managing General Partner distributions totaling
$3,490,271 (which included $3,437,271 of MGP Distributions and $53,000 with
respect to its interest in Fund II). Of this MGP Distribution amount, 95% or
$3,265,407 was paid to the Investment Adviser and the remaining 5% totalling
$171,864 was paid to ML Mezzanine II Inc. The Managing General Partner has
earned a total of $24.9 million in MGP Distributions none of which was deferred
in payment to the Managing General Partner at December 31, 1997, as a Deferred
Distribution Amount in accordance with the Partnership Agreement. Any Deferred
Distribution Amount is distributable to the Partners pro-rata in accordance with
their capital contributions, and certain amounts otherwise later payable to
Limited Partners from distributable cash from operations will instead be payable
to the Managing General Partner until the Deferred Distribution Amount is paid
in full.
Anchor Products
On March 19, 1998 Fund II and Affiliates of the Thomas H. Lee Company sold
their remaining holdings in Anchor. Pursuant to this transaction Fund II sold
410,677 shares of Anchor Common Stock for approximately $1.6 Million ($4.00 per
share) and recognized a gain of $247,000.
On April 2, 1997, Anchor completed a recapitalization pursuant to which
Anchor issued $100,000,000 aggregate principal amount of Senior Notes due 2004
and entered into a new credit facility (the "Recapitalization"). As part of the
Recapitalization, Anchor repaid substantially all of its outstanding debt,
including all accrued interest and any premiums in connection therewith. As a
result, Anchor repaid the Senior Subordinated Note and Junior Subordinated Note
held by Fund II, together with all accrued interest and prepayment premiums for
an aggregate of $14.5 million.
Immediately prior to the Recapitalization, Fund II owned 162,967 shares of
the common stock of Anchor Holdings, Inc., the parent of Anchor. Immediately
after the consummation of the Recapitalization, Fund II exercised its warrants
to purchase common stock (at an exercise price of $9.50 per share) and acquired
an additional 247,710 shares of common stock, bringing its total holdings of
common stock to 410,677 shares. In connection with the Recapitalization,
Holdings paid a dividend to all holders of Holdings common stock of record as of
April 2, 1997, in the amount of $19.02 per share (the "Anchor Dividend"). As a
result of such dividend, the Fund received $7.8 million, of which approximately
32% or $2.5 million was returned to partners as return of capital.
First Alert
On February 28, 1998, First Alert and Sunbeam Corporation ("Sunbeam")
executed a definitive merger agreement whereby Sunbeam will acquire all of the
outstanding shares of First Alert Common Stock for approximately $175 million
($5.25 per share) by means of a tender offer (the "Tender Offer"), and assume
all of the debt of First Alert. Pursuant to the Tender Offer, which was executed
on March 6, 1998, Fund II tendered all of its shares of First Alert Common Stock
and expects to receive proceeds of approximately $10.8 million. The per Unit
amount to be distributed to Fund II's Limited Partners from this transaction is
not determinable at this time. Any distribution of these net Distributable
Capital Proceeds after the payment of expenses and the establishment of
reserves, as provided for in Fund II's Partnership Agreement, will be
distributed to Limited Partners of record as of the date of the expiration of
this Tender Offer, which is scheduled to be on April 2, 1998, unless the Tender
Offer is extended.
As of December 31, 1997, Fund II, the Retirement Fund, and the Lee
Affiliates hold 2,058,474, 2,281,524 and 10,081,808 shares, respectively, of
First Alert common stock, representing 8.1%, 8.9% and 39.5%, 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.
Playtex Products, Inc.
As of December 31, 1997, Fund II, the Retirement Fund, Fund I and the Lee
Affiliates hold 343,726, 183,560, 1,406,204 and 2,249,307 shares of Playtex
Products common stock, respectively. Fund II, the Retirement Fund, Fund I and
the 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
On January 6, 1998 Fund II and affiliates of the Thomas H Lee Company
including Retirement Fund and Fund I, (the "Lee Affiliates", and together with
the Fund, the ("Selling Stockholders") sold their remaining holdings of common
stock in Stanley Furniture. The common stock of each of the Selling Stockholders
was sold pursuant to a Form S-3 Registration Statement, which was filed by
Stanley on December 22, 1997 and declared effective by the Securities and
Exchange Commission on December 23, 1997. In connection with the sale, Fund II
sold its remaining 3,461 shares of common stock and received net proceeds of
$93,447 or $27 per share.
During February 1997, Fund II sold 272 shares of Stanley Furniture for $24
per share and received total proceeds of $6,528 and recognized a gain of $3,105.
On June 30, 1997, Fund II entered into a stock purchase agreement with Stanley
Furniture whereby Fund II sold 6,281 shares of Stanley Furniture for $20 per
share. Fund II received total proceeds of $125,620 and recognized a gain of
$46,582. On November 18, 1997, Fund II sold 3,460 shares of Stanley Furniture
for $25 per share. Fund II received total proceeds of $86,500 and recognized a
gain of $42,961.
As of December 31, 1997, Fund II, the Retirement Fund, Fund I and the Lee
Affiliates held 3,461, 2,773, 400,719 and 6,248 shares, respectively, of Stanley
Furniture representing .3%, .3%, 16% and .4, respectively, of its common equity.
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 Incorporated by reference
of Limited Partnership, dated as to Exhibit 3.1 to
of August 25, 1989 registrant's Registration
Statement on Form N-2
number 33-25816.
3.2 Amended and Restated Agreement of Incorporated by reference
Limited Partnership, dated to Exhibit 3.2. to
November 10, 1989 Amendment No. 1, registrant's Annual Report
dated January 30, 1990. of Form 10-K for the year
ending December 31, 1989.
10.1 Investment Advisory Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.1 to
between Registrant, Thomas H. Lee registrant's Annual Report
Advisors II, L.P. and Thomas H. of Form 10-K for the year
Lee Company. ended December 31, 1991.
10.2 Custodian Agreement, dated Incorporated by reference
November 10, 1989, by and between to Exhibit 10.2 to
Registrant and State Street Bank registrant's Annual Report
and Trust Company. of Form 10-K for the year
ended December 31, 1991.
10.3 Administrative Services Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.3 to
between Registrant and ML Fund registrant's Annual Report
Administrators Inc. of Form 10-K for the year
ended December 31, 1991.
27 Financial Data Schedule for the Filed Herewith.
year ended December 31, 1996
28 Pages 21-91 of the Prospectus Incorporated by reference
dated September 6,1989, filed to Exhibit 28 to
pursuant to Rule 497(b) under the registrant's Annual Report
Securities Act of 1933. of Form 10-K for the year
ended December 31, 1991.
(b) 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 30th day of March,
1998.
ML-LEE ACQUISITION FUND
(RETIREMENT ACCOUNTS) 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 30, 1998 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 30th day of March, 1998.
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
(Retirement Accounts) 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
(Retirement Accounts) 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 Individual General Partner
Stanley H. Feldberg ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P.
/s/ Thomas H. Lee Individual General Partner
Thomas H. Lee ML-Lee Acquisition Fund
(Retirement Accounts) 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
(RETIREMENT ACCOUNTS) II, L.P.
By: Mezzanine Investments II, L.P.
Managing General Partner
By: ML Mezzanine II Inc.,
its General Partner
Dated: March 30, 1998 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 30th day of March, 1998.
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
(Retirement Accounts) 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
(Retirement Accounts) 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
(Retirement Accounts) II, L.P.
_____________________ Individual General Partner
Thomas H. Lee ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P.