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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-17382
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
(Exact name of registrant as specified in its Governing Instruments)
Delaware 04-3028397
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2 World Financial Center - 14th Floor
New York, New York 10281-6114
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 236-6576
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Documents Incorporated by Reference: Portions of the Prospectus of the
Registrant dated September 6, 1989, filed with the Securities and Exchange
Commission pursuant to Rule 497(b), are incorporated by reference in Parts I, II
and III hereof.
Part I
Item l. Business
Formation
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement
Fund") (formerly T.H. Lee Acquisition Fund (Retirement Accounts) II, L.P.) was
formed along with ML-Lee Acquisition Fund II, L.P. ("Fund II"); 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 Retirement Fund's operations commenced on November 10, 1989 and
were scheduled to terminate on December 20, 1999. However, the initial ten year
term of the Retirement Fund has been extended for an additional two year period.
The Individual General Partners (as defined below) have the right to extend the
term of the Retirement Fund for an additional one year period if they determine
that such extension is in the best interest of the Retirement Fund. The
Retirement Fund will then have an additional five year period to liquidate its
remaining assets.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual General Partners (as defined below and herein
after with the Managing General Partner as the "General Partners"), is
responsible for overseeing and monitoring the Retirement Fund'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 the Retirement Fund.
The Retirement Fund elected to operate as a business development company
under the Investment Company Act of 1940 as amended ("Investment Company Act").
The Retirement Fund'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. The Retirement Fund
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 leveraged
recapitalizations. The Retirement Fund could also invest in "bridge investments"
if it believed that such investments would facilitate the consummation of a
mezzanine financing. The Retirement Fund considers this activity to constitute a
single industry segment of mezzanine financing investing.
The Retirement Fund 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. The Retirement Fund's Mezzanine Investments typically were
issued in private placement transactions which are generally subject to certain
restrictions on sales thereby limiting their liquidity. The Retirement Fund 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
the Retirement Fund's investment period terminated at various times through
December 21, 1993.
The Funds offered an aggregate of 1 million units of limited partnership
interest ("Units") at $1,000 per Unit with the Securities and Exchange
Commission pursuant to a Registration Statement on Form N-2 (File No. 33-25816),
effective September 6, 1989. The information set forth under the heading "Risk
and Other Important Factors", "Estimated Use of Proceeds", "Mezzanine
Financing", "Investment Objectives and Policies" and "Conflicts of Interest" in
the Prospectus of the Retirement Fund 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, the Retirement Fund had its first and second closings
respectively, at which time the Managing General Partner admitted additional
Limited Partners to the Retirement Fund representing 177,515 Units of limited
partnership interest. The additional Limited Partners' total capital
contributions were $164,201,375, which excludes discounts allowed of $1,447,740
and is net of sales commissions and advisory fees of $11,865,885. 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, the Retirement Fund paid sales commissions to Merrill Lynch, Pierce,
Fenner and Smith Incorporated ("MLPF&S") in the amount of $9,492,708 (exclusive
of discounts of $1,158,192). In addition, the Retirement Fund paid a financial
advisory fee to MLPF&S in the amount of $2,373,177 (exclusive of discounts of
$289,548).
Mezzanine and Bridge Investments
As of December 31, 2000, the Retirement Fund had outstanding a total (at
cost) of $9,189,000 invested in Mezzanine Investments representing $7,763,000
Managed and $1,426,000 Non-Managed portfolio investments. At December 31, 2000,
there were no Bridge Investments outstanding for the Funds. The Funds co-invest
in all Mezzanine and Bridge Investments, allocating such investments in
proportion to their capital available for investment.
The Retirement Fund's reinvestment period ended on December 21, 1993 and,
accordingly, no new investments were made after that date other than the funding
of investments which were committed to prior to that date.
REVIEW OF INVESTMENTS IN MANAGED COMPANIES,
INCLUDING INVESTMENT DISPOSITIONS AND EXPIRATIONS DURING 2000
-------------------------------------------------------------
The following is a brief description of the companies in the Retirement
Fund's Managed Company portfolio as of December 31, 2000:
Big V Supermarkets, Inc. ("Big V")
----------------------------------
Big V is a regional supermarket retailer in the Northeastern United States
doing business under the ShopRite name. Big V currently operates several
supermarkets principally in the Hudson Valley region of New York State. The
investment in Big V is valued at cost as of December 31, 2000. On June 15, 2000,
Big V made a scheduled principal payment of $1,393,000 with respect to the
Retirement Fund's $6,963,000 senior subordinated Note. The Retirement Fund
recorded no gain or loss from this transaction. Although $2,089,000 and
$3,481,000 were scheduled to mature on December 15, 2000 and March 15, 2001,
respectively, Big V failed to make these two principal payments; see also Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources, for a discussion of this matter
and certain bankruptcy proceedings commenced by Big V.
Cole National Corporation ("Cole")
----------------------------------
The Retirement Fund's remaining investment in Cole, common stock purchase
warrants for CNC Holding Corporation valued at zero, expired on September 25,
2000.
REVIEW OF INVESTMENTS IN NON-MANAGED COMPANIES,
INCLUDING INVESTMENT DISPOSITIONS DURING 2000
-----------------------------------------------
The following is a brief description of the companies in the Retirement
Fund's Non-Managed Company portfolio as of December 31, 2000:
BioLease, Inc. ("Biolease") and BioTransplant, Inc. ("BioTransplant")
---------------------------------------------------------------------
BioLease provides built-to-suit wet-laboratory space in the Boston area to
a consortium of emerging growth bio-technology companies sponsored by the
venture capital funds managed by Health Care Investment Corporation. The
Retirement Fund's investment in BioLease Common Stock was written down to zero,
and the Subordinated Notes were written down to approximately 50% of par value
during the year ended December 31, 1997. As of December 31, 2000, total net
unrealized depreciation was $238,000.
On April 28, 2000, BioLease refinanced existing construction and term loans
and utilized a portion of the refinancing proceeds to make a $76,000 partial
paydown to the Retirement Fund of BioLease's 13% Senior Subordinated Note. The
Retirement Fund realized a loss from this transaction of $5,000, after the
payment of $12,000 in transaction costs and the write-off of $7,000 of
unamortized note discount.
On November 9, 2000, the Retirement Fund exercised its rights under the
BioTransplant common stock purchase warrants and purchased 6,554 shares of
BioTransplant common stock for $20,000, exclusive of $7,000 of transaction
costs. On November 27, 2000, the Retirement Fund sold these shares and received
net proceeds of $60,000 and realized a gain of $24,000.
FLA. Orthopedics, Inc.
----------------------
FLA. Orthopedics, Inc., headquartered in Miami, manufactures, markets and
distributes production in two major lines of business: ergonomically designed
safety products and orthopedic soft goods. The Retirement Fund has valued its
remaining investment in FLA. Orthopedics, Inc. at zero, which resulted in total
net unrealized depreciation of $987,000 as of December 31, 2000.
Competition
The Retirement Fund 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
The Retirement Fund has no employees. The Investment Adviser, subject to
the supervision of the Managing General Partner and the Individual General
Partners, manages and controls the Retirement Fund's investments. The Managing
General Partner is responsible for managing the Temporary Investments of the
Retirement Fund. The Fund Administrator performs administrative services for the
Retirement Fund. The Fund Administrator is a subsidiary of Merrill Lynch & Co.
Inc., the parent of MLPF&S.
Item 2. Properties
The Retirement Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of the Limited Partners of the
Retirement Fund during the fourth quarter ended December 31, 2000.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for the Units. The Partnership
Agreement contains restrictions that are intended to prevent the development of
a public market. Accordingly, accurate information as to the market values of
Units at any given date is not available.
The approximate number of Unit holders as of January 1, 2001, the last
effective date of transfer (as described below), was 17,394. The Managing
General Partner and Thomas H. Lee as an Individual General Partner also hold
general partner interests in the Retirement Fund.
MLPF&S reports estimated values of limited partnerships and other direct
investments on client account statements and no longer reports the general
partner's estimate of limited partnership net asset value to Unit holders.
Pursuant to MLPF&S guidelines, estimated values for limited partnership
interests originally sold by MLPF&S (such as the Retirement Fund's Units) are
provided by independent valuation services. MLPF&S clients may contact their
MLPF&S Financial Consultants to obtain a general description of the methodology
used by the independent valuation services to determine their estimates of
value. The estimated values provided by the independent services and the
Retirement 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 the Retirement Fund's current net
asset value upon the liquidation of the Retirement Fund's assets over its
remaining life.
The Retirement Fund distributes Distributable Cash from Investments and
Distributable Capital Proceeds in accordance with the terms of the Partnership
Agreement.
Pursuant to the Partnership Agreement, transfers of Units are recognized on
the first day of the fiscal quarter after which the Managing General Partner has
been duly notified of a transfer pursuant to the Partnership Agreement. Until a
transfer is recognized, the limited partner of record (i.e. the transferor) will
continue to receive all of the benefits and burdens of ownership of Units
(including allocations of profit and loss and distributions), and any transferee
will have no rights to distributions of sale proceeds generated at any time
prior to the recognition of the transfer and assignment.
Accordingly, Distributable Cash from Investments for a quarter and
Distributable Capital Proceeds from sales after transfer or assignment have been
entered into, but before such transfer and assignment is recognized by the
Managing General Partner, will be payable to the transferor and not the
transferee.
Cash Distributions
Generally, the Retirement Fund has made quarterly distributions including
both Distributable Cash from Investments and Distributable Capital Proceeds.
However, the Retirement Fund's ability to make future cash distributions is
restricted. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, the
information in which is incorporated herein by reference.
Item 6. Selected Financial Data
Supplemental Information Schedule
For the Years Ended December 31,
--------------------------------------------------------------------------
TOTAL FUND INFORMATION: 2000 1999 1998 1997 1996
----------- ----------- ------------ ------------ ------------
Net Investment Income $ 885,393 $ 337,251 $ 1,922,189 $ 4,275,516 $ 5,516,846
Net Realized Gain (Loss) on Sales of 19,054 (3,468,662) (9,869,500) 74,228 4,755,563
Investments
Net Change in Unrealized Appreciation
(Depreciation) on Investments 30,703 10,881,662 17,438,728 (6,285,381) (14,768,911)
Cash Distributions to Partners - 8,325,079 20,876,516 14,242,934 34,722,409
Net Assets 22,053,778 21,118,625 21,693,451 33,078,550 49,257,119
Cost of Mezzanine Investments 9,189,522 10,656,462 28,049,200 57,865,408 63,818,387
Total Assets 22,213,889 21,277,376 21,798,979 33,261,494 49,627,131
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Investment Income $ 9.71 $ 6.40 $ 16.66 $ 31.03 $ 35.32
Expenses (5.21) (4.94) (7.58) (7.99) (15.56)
----------- ------------ ------------ ------------ ------------
Net Investment Income $ 4.50 $ 1.46 $ 9.08 $ 23.04 $ 19.76
=========== ============ ============ ============ ============
Net Realized Gain (Loss) on Sales
of Investments $ .11 $ (19.65) $ (63.45) $ .42 $ 21.99
Net Change in Unrealized Appreciation
(Depreciation) on Investments .17 61.11 98.00 (35.30) (82.94)
Cash Distributions - 43.98 107.11 65.96 166.55
Cumulative Cash Distributions 1,476.31 1,476.31 1,432.33 1,325.22 1,259.26
Net Asset Value 122.67 117.89 118.96 185.13 262.93
See cash distributions schedule for additional information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity & Capital Resources
At the regular quarterly meeting of the General Partners of ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement Fund") held on
December 14, 1999, the Individual General Partners determined to extend the
initial ten year term of the Retirement Fund, which was due to terminate
December 20, 1999, for an additional two year period, pursuant to the terms set
forth under Section 2.4 of the Partnership Agreement. Such extension will allow
the Retirement Fund to more effectively deal with its assets pending their
liquidation. The term of the Retirement Fund will now expire on December 20,
2001. The Individual General Partners have the right to extend the term of the
Retirement Fund for an additional one year period if they determine that such
extension is in the best interest of the Retirement Fund. The Retirement Fund
will then have an additional five year period to liquidate its remaining assets.
On August 6, 1991, the Independent General Partners approved a reserve for
follow-on investments of approximately $20,000,000 for the Retirement Fund. As
of March 30, 2000, this remaining reserve balance was approximately $3,400,000
due to follow-on investments in Petco Animal Supplies, Fitz and Floyd, Inc.,
Fine Clothing, Inc., Hills and Ghirardelli Holdings, Anchor Advanced Products
and BioTransplant, Inc. Additionally, approximately $7,700,000 of the reserve
had 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 the Retirement Fund's existing
investment.
On April 28, 2000, BioLease, Inc. ("BioLease") refinanced existing
construction and term loans and utilized a portion of the refinancing proceeds
to make a $76,000 partial paydown to the Retirement Fund of BioLease's 13%
Senior Subordinated Note. The Retirement Fund realized a loss from this
transaction of $5,000, after the payment of $12,000 in transaction costs and the
write-off of $7,000 of unamortized note discount.
On June 15, 2000, Big V supermarkets, Inc. ("Big V") made a scheduled
principal payment of $1,393,000 with respect to the Retirement Fund's $6,963,000
senior subordinated Note. The Retirement Fund recorded no gain or loss from this
transaction. Although $2,089,000 and $3,481,000 were scheduled to mature on
December 15, 2000 and March 15, 2001, respectively, Big V failed to make these
two principal payments, as discussed below.
On September 25, 2000, the Retirement Fund's rights under the CNC Holding
Corporation common stock purchase warrants expired. The Retirement Fund had
valued such investment at zero and, accordingly, recorded no gain or loss upon
the expiration of the rights.
On November 9, 2000, the Retirement Fund exercised its rights under the
BioTransplant, Inc. ("BioTransplant")common stock purchase warrants and
purchased 6,554 shares of BioTransplant common stock for $20,000, exclusive of
$7,000 of transaction costs. On November 27, 2000, the Retirement Fund sold
these shares for net proceeds of $60,000 and realized a gain of $24,000.
In September 2000, the court approved a settlement in respect of certain
litigation commenced by Hills Stores Company ("Hills") against its former
directors, including Thomas H. Lee (who had been serving on the Hills Board of
Directors as a representative of the Retirement Fund). The settlement provided a
complete release of Mr. Lee in his role as a director of Hills. As a result, the
reserves which had been maintained by the Retirement Fund for future
indemnification obligations are no longer required for such purpose.
However, before consenting to the disposition of all or part of the
Retirement Fund's reserves, at the quarterly meeting held on September 19, 2000,
the General Partners reviewed certain contractual covenants, commitments and
contingencies the Retirement Fund has in respect of its investments in Big V and
Big V Holdings Corp. ("BVH", Big V's parent company), resulting from letter
agreements (the "Agreements") entered into by Wakefern Food Corporation
("Wakefern"), Big V (together with certain of its related companies) and the
Retirement Fund (together with other investor groups in Big V) in December 1990
and November 1993. Since the covenants, commitments and contingencies associated
with the Agreements may have the effect of delaying and/or decreasing the amount
of future distributions, the General Partners determined that further
distributions should not be made until any responsibilities of the Retirement
Fund with respect to such covenants, commitments and contingencies have been
determined.
In November 2000, the Retirement Fund and ML-Lee Acquisition Fund II,
L.P.("Fund II") agreed to guarantee, in aggregate, $1,000,000 of certain
short-term financing requirements of Big V, all of which have since been repaid;
as a result, the guarantee was never called upon.
On November 22, 2000, following careful analysis of its business
operations, finances, and the outlook for the operating region in which Big V
competes with other supermarket retailers, Big V and other related entities
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the "Big V
Bankruptcy"), in order to implement a major financial and operational
restructuring of its business. The Retirement Fund believes Big V's management
currently intends to put forward a reorganization plan that fully pays all of
its creditors' claims, including Wakefern's, and changes its distribution
agreement, currently with Wakefern.
At issue in the Big V Bankruptcy and related litigation, among other
things, are the terms under which change in the Wakefern distribution agreement
will be effectuated and the cost of such change, if any, to Big V. In the event
Big V is unsuccessful in its reorganization plan, Wakefern may have certain
remedies available to it under the Agreements, including the potential of
gaining control of Big V by acquiring, among other interests, the Retirement
Fund's equity interests in Big V at a price to be determined by investment
bankers.
Currently, the Retirement Fund holds a Senior Subordinated Note issued by
Big V with outstanding principal of $5.6 million, as well as 62,667 shares of
BVH common stock. The carrying value of the Retirement Fund's investments in Big
V and BVH at December 31, 2000 was $7.8 million. At the time of the Big V
Bankruptcy filing, Big V had failed to make the November 15, 2000 interest
payment due the Retirement Fund under the Senior Subordinated Note held by the
Retirement Fund. Subsequently, Big V also failed to make the December 15, 2000
and March 15, 2001 principal payments and the February 15, 2001 and March 15,
2001 interest payments due the Retirement Fund under such note.
If the Big V Bankruptcy proceedings are resolved in Big V's favor and the
Wakefern distribution agreement is transferred with minimal cost to Big V, the
Investment Adviser believes that the value of the Retirement Fund's debt
investments should be preserved and the value of the Retirement Fund's equity
investments may be enhanced. On the other hand, if the Big V Bankruptcy
proceedings are not resolved in Big V's favor and/or the costs to Big V of
transferring the Wakefern distribution agreement are substantial, the value of
the Retirement Fund's debt and equity investments may be impaired, and the
Retirement Fund could conceivably be exposed to losses in excess of its original
investment. Currently, neither the Investment Adviser nor the Managing General
Partner can predict the outcome of the Big V Bankruptcy proceedings, including
such proceedings' impact on the value of the Senior Subordinated Note or the BVH
equity held by the Retirement Fund, or the timing or amount of payments, if any,
that might be made to the Retirement Fund pursuant to Big V's plan of
reorganization. In addition, the General Partners cannot currently predict how
the Big V Bankruptcy may affect the timing of the ultimate liquidation of the
Retirement Fund.
The General Partners will continue to review such reserves each quarter in
light of the foregoing matter, and distributions will be made in accordance with
the Retirement Fund's Partnership Agreement. Currently, the Retirement Fund has
reserved all the net proceeds received from the 1999 sale of Fitz and Floyd,
Inc.("Fitz and Floyd"), the 2000 partial paydown of the BioLease Note, the 2000
partial maturity of the Big V Note, and the 2000 sale of BioTransplant Common
Stock as well as income from operations from the third quarter 1999 and
subsequent quarters.
Pursuant to the sale of Stablex Canada, Inc. and Seaway TLC Inc. on March
12, 1999, the Funds received rights to a contingent payment which entitles them,
collectively, to receive twenty percent (20%) of the net proceeds of any payment
or consideration or distribution (whether received in cash, property, securities
or any combination thereof) arising out of transfer, disposition,
recapitalization or exchange of substantially all of the stock or other equity
interest in either Stablex Canada, Inc. or Seaway TLC Inc. if such transaction
is consummated within forty-two (42) months from the closing of the sale
agreement. Any Distributable Capital Proceeds relating to future receipts by the
Retirement Fund pursuant to the Agreement will be payable to Partners of record
as of the date of the receipt of such proceeds. The Retirement Fund ascribes no
value to this contingent payment for financial reporting purposes.
At December 31, 2000, the Retirement Fund had outstanding a total (at cost)
of $9,189,000 invested in Mezzanine Investments representing $7,763,000 Managed
and $1,426,000 Non-Managed portfolio investments. The remaining proceeds were
invested in a Temporary Investment in commercial paper with a maturity of less
than 60 days.
As provided by the Partnership Agreement, the Managing General Partner of
the Retirement Fund is entitled to receive incentive distributions after Limited
Partners have received their Priority Return of 10% per annum ("MGP
Distributions"). The Managing General Partner is required to defer a portion of
any MGP Distribution earned from the sale of portfolio investments in excess of
20% of realized capital gains, net realized capital losses and unrealized
depreciation, in accordance with the Partnership Agreement (the "Deferred
Distribution Amount"). Any Deferred Distribution Amount is distributable to the
Partners pro-rata in accordance with their capital contributions, and certain
amounts otherwise later payable to Limited Partners from distributable cash from
operations are instead payable to the Managing General Partner until the
Deferred Distribution Amount is paid in full. As of December 31, 2000 there is
no outstanding Deferred Distribution Amount.
As recovered capital from portfolio company sales is distributed to Limited
Partners, the Limited Partners' net asset value ("NAV") per Unit is reduced
accordingly, and the corresponding interest income previously generated by such
holdings will no longer be received by the Retirement Fund. The Retirement Fund
has three portfolio companies remaining, only one of which is currently income
producing; the amount of interest income received by the Retirement Fund from
such portfolio companies is not significant. As a result, it is expected that
any future cash available to pay distributions to Partners (to the extent such
cash is not reserved for expenses and contingencies - see discussion of the Big
V Bankruptcy above) will be derived almost entirely from recovered capital and
gains, if any, from asset sales, which are subject to market conditions and are
inherently unpredictable as to timing.
Investment in High-Yield Securities
The Retirement Fund 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 the Retirement Fund cannot eliminate the risks associated with its
investments in High-Yield Securities, it has established risk management
policies. The Retirement Fund subjected each prospective investment to rigorous
analysis and made only those investments that were recommended by the Investment
Adviser and that met the Retirement Fund's investment guidelines or that had
otherwise been approved by the Managing General Partner and the Independent
General Partners. The Retirement Fund's investments were measured against
specified Retirement Fund investment and performance guidelines. To limit the
exposure of the Retirement Fund's capital in any single issuer, the Retirement
Fund limited the amount of its investment in a particular issuer. The Retirement
Fund's Investment Adviser also continually monitors portfolio companies in order
to minimize the risks associated with its investments in High-Yield Securities.
The Investment Adviser reviews each portfolio company's financial
statements quarterly. In addition, the Investment Adviser routinely reviews and
discusses financial and operating results with the company's management and
where appropriate, attends board of director meetings. In some cases,
representatives of the Investment Adviser, acting on behalf of the Funds (and
affiliated investors where applicable), serve as one or more of the directors on
the boards of portfolio companies. The Retirement Fund may, from time to time,
make follow-on investments to the extent necessary to protect or enhance its
existing investments.
Forward Looking Information
In addition to historical information contained or incorporated by
reference in this report on Form 10-K, the Retirement Fund may make or publish
forward-looking statements about management expectations, strategic objectives,
business prospects, anticipated financial performance, and other similar
matters. In order to comply with the terms of the safe harbor for such
statements provided by the Private Securities Litigation Reform Act of 1995, the
Retirement Fund notes that a variety of factors, many of which are beyond its
control, affect its operations, performance, business strategy, and results and
could cause actual results and experience to differ materially from the
expectations expressed in these statements. These factors include, but are not
limited to, the effect of changing economic and market conditions, trends in
business and finance and in investor sentiment, the level of volatility of
interest rates, the actions undertaken by both current and potential new
competitors, the impact of current, pending, and future legislation and
regulation both in the United States and throughout the world, the impact of
current ongoing litigation as it relates to the Retirement Fund, and the other
risks and uncertainties detailed in this Form 10-K. The Retirement Fund
undertakes no responsibility to update publicly or revise any forward-looking
statements.
Results of Operations
Net Investment Income
For the year ended December 31, 2000, the Retirement Fund had net
investment income of $885,000 as compared to $337,000 and $1,922,000 for the
years ended December 31, 1999 and 1998, respectively. The increase in net
investment income during 2000 as compared to 1999 is primarily attributable to
an increase in interest and discount income from Temporary Investments partially
offset by a decrease in interest income from Mezzanine Investments and other
factors, as discussed below. The decrease in net investment income during 1999
as compared to 1998 is primarily attributable to the sales of income producing
companies during 1999 and 1998.
Investment Income and Expenses
The total investment income from operations for the years ended December
31, 2000, 1999 and 1998 consists primarily of interest and discount income
earned on the investment of proceeds from Partner's contributions in Mezzanine
Investments and short-term money market instruments. For 2000, the Retirement
Fund had investment income of $1,911,000, as compared to $1,482,000 and
$3,271,000 for 1999 and 1998, respectively.
The increase in investment income during 2000, as compared to 1999, is
primarily attributable to an increase in income earned on Temporary Investments
as a result of investing the Fitz and Floyd sale proceeds, the BioLease partial
paydown proceeds, the Big V partial maturity proceeds, the BioTransplant stock
sale proceeds and income from operations from the third quarter 1999 and
forward, all of which have been reserved. This increase was partially offset by
a decrease in income earned on Mezzanine Investments as a result of the August
1999 sale of Fitz and Floyd the April 2000 partial paydown of the BioLease
subordinated note and the June 2000 partial maturity of the Big V senior
subordinated note. In addition, the increase in investment income during 2000,
as compared to 1999, is attributable to a $120,000 adjustment in the first
quarter of 2000 to correct for a 1999 understatement of Mezzanine Investment
income. The decrease in investment income during 1999 as compared to 1998 is
directly attributable to the sales of income producing companies during 1999 and
1998.
Major expenses for the years ended December 31, 2000, 1999 and 1998
consisted of Investment Advisory Fees and Administrative Expenses.
The Investment Adviser and Fund Administrator both receive their
compensation on a quarterly basis. The total Investment Advisory Fees incurred
by the Retirement Fund to the Investment Adviser for the years ended December
31, 2000, 1999 and 1998 were $534,000, 534,000 and $550,000, respectively, and
were calculated at an annual rate of 1.0% of assets under management (net
offering proceeds reduced by cumulative capital reductions and realized losses),
with a minimum annual amount of $1,200,000 for the Funds on a combined basis.
As compensation for its services, the Fund Administrator is entitled to
receive an annual amount of $400,000 for the Funds on a combined basis, plus
reimbursement of 100% of out-of-pocket expenses incurred by the Fund
Administrator on behalf of the Retirement Fund ("Reimbursable Administrative
Expenses"). Reimbursable Administrative Expenses primarily consist of printing,
audit, tax preparation, legal fees and expenses, and custodian fees. For each of
the years ended December 31, 2000, 1999 and 1998 the Retirement Fund incurred
Fund Administration Fees of $178,000. For the years ended December 31, 2000,
1999 and 1998 the Retirement Fund incurred $210,000, $314,000 and $336,000,
respectively, in Reimbursable Administrative Expenses. The decrease in
Reimbursable Administrative Expenses for 2000, as compared to 1999 and 1998, is
due to an overall reduction in custodian, printing and legal administrative fees
during 2000 and 1999 resulting from fewer investments held by the Retirement
Fund during 2000 and 1999.
Legal and professional fees for the years ended December 31, 2000, 1999 and
1998 were $25,000, $42,000 and $208,000, respectively. These expenses are
largely attributable to legal fees incurred and advanced on behalf of
indemnified defendants as well as fees incurred directly by the Retirement Fund
in connection with certain litigation proceedings. The decrease in legal and
professional fees for 2000 and 1999 as compared to 1998 is primarily
attributable to the legal fees incurred by the Retirement Fund in connection
with the settlement of the Seidel litigation in 1998.
Net Assets
The Retirement Fund's net assets increased by $935,000 during the year
ended December 31, 2000, due to net investment income of $885,000, net realized
gain from the sales of Mezzanine Investments of $19,000 and reversal of net
unrealized depreciation of $31,000.
The Retirement Fund's net assets decreased by $575,000 during the year
ended December 31, 1999, due to cash distributions to partners of $8,325,000
($6,372,000 of which was return of capital from the sales of Mezzanine
Investments) and net realized loss from the sales of Mezzanine Investments of
$3,468,000, partially offset by net investment income of $337,000 and reversal
of net unrealized depreciation of $10,881,000.
The Retirement Fund's net assets decreased by $11,385,000 during the year
ended December 31, 1998, due to the payment of cash distributions to partners of
$20,877,000 ($10,877,000 of which was return of capital from the sales of
Mezzanine Investments) and net realized loss from the sales of Mezzanine
Investments of $9,869,000, partially offset by net investment income of
$1,922,000 and reversal of net unrealized depreciation of $17,439,000.
Unrealized Appreciation and Depreciation on Investments
As a result of dispositions of Mezzanine Investments, the Retirement Fund
recorded a reversal of net unrealized depreciation of $31,000 during the year
ended December 31, 2000, as compared to a $10,881,000 reversal of net unrealized
depreciation during the year ended December 31, 1999 and a $17,439,000 reversal
of net unrealized depreciation during the year ended December 31, 1998. The
Retirement Fund's cumulative net unrealized depreciation on investments as of
December 31, 2000 totaled $1,225,000.
For securities without a readily ascertainable market value, fair value is
determined, on a quarterly basis, in good faith by the Investment Adviser and is
approved by the Managing General Partner with final approval from the Individual
General Partners of the Retirement Fund. Portfolio investments are valued at
original cost plus accreted value in the case of original issue discount or
deferred pay securities. Such investments will be revalued if there is an
objective basis for doing so at a different price. Investments will be written
down in value if the Investment Adviser and the General Partners believe adverse
credit developments of a significant nature require a write-down of such
securities. Investments will be written up in value only if there has been an
arms'-length third party transaction to justify the increased valuation.
Approximately 40.2% of the Retirement Fund'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
the Retirement Fund could realize in a current transaction. As of December 31,
2000, the Retirement Fund's investments in Big V and BVH represents
approximately 35.7% of the Retirement Fund's fair value. As discussed above in
Liquidity and Capital Resources, neither the Investment Adviser nor the Managing
General Partner can currently predict the outcome of the Big V Bankruptcy
proceedings, including such proceedings impact on the value of the Retirement
Fund's investments in Big V and BVH.
As a result of total net realized and unrealized appreciation and
depreciation recorded by the Retirement Fund through December 31, 2000, Limited
Partners' net asset value ("NAV") was $122.67 per Unit. The Retirement Fund's
net assets as of that date included its holdings in Big V and BVH (approximately
35.2% of net assets, valued at cost) and other private placement securities
(approximately 1.0% of net assets), for which there are no ascertainable market
values, and commercial paper (approximately 62.3% of net assets), which is
stated at amortized cost. The December 31, 2000 NAV figure does not reflect any
change that may subsequently have occurred in the value of the Retirement Fund's
holdings. Moreover, in light of the Big V Bankruptcy filing, there is a high
degree of uncertainty associated with the Retirement Fund's estimate of the
value of its investment in Big V (see also Liquidity and Capital Resources
above). In addition, the Big V Bankruptcy and related litigation may potentially
have an effect on other assets of the Retirement Fund. The previously computed
NAV does not represent the Units' current market value, and Limited Partners may
not be able to realize this value upon a sale of their Units or ultimate
liquidation of the Retirement Fund's assets.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of December
31, 2000. Although the Managing General Partner and Investment Adviser are not
aware of any factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and the current estimated fair value of these
investments may have changed significantly since that point in time.
For additional information please refer to Supplemental Schedule of
Net Unrealized Appreciation and Depreciation - Schedule 2.
Net Realized Gains and Losses
For the year ended December 31, 2000, the Retirement Fund recorded a net
realized gain from investments of $19,000, as compared to a net realized loss of
$3,468,000 for the year ended December 31, 1999 and a net realized loss of
$9,869,000 for the year ended December 31, 1998. For additional information
related to the current year, please refer to the Supplemental Schedule of Net
Realized Gain - Schedule 1.
Cash Distributions
As recovered capital from portfolio company sales is distributed to the
Limited Partners, the NAV per Unit is reduced accordingly, and the corresponding
interest income previously generated by such holdings will no longer be received
by the Retirement Fund. The Retirement Fund has three porfolio companies
remaining, only one of which is currently income producing; the amount of
interest income received by the Retirement Fund from such portfolio companies is
not significant. As a result, it is expected that any future cash available to
pay distributions to Partners (to the extent such cash is not reserved for
expenses and contingencies - see discussion of the Big V Bankruptcy above) will
be derived almost entirely from recovered capital and gains, if any, from asset
sales, which are subject to market conditions and are inherently unpredictable
as to timing.
Should a Limited Partner decide to sell his Units, any such sale will be
recorded on the books and records of the Retirement Fund quarterly, only upon
the satisfactory completion and acceptance of the Retirement Fund'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 the Retirement Fund since inception (November 10, 1989):
Total Limited Per Unit Managing Individual
Distributed Partners Return of General Incentive General
Cash(a) Amount Per Unit Capital Partner Fee (b) Partner
------------ ---------- -------- --------- --------- --------- ----------
Fourth Quarter 1989 $ 1,049,749 $ 1,046,507 $ 6.59 $ - $ 2,947 $ - $ 295
First Quarter 1990 2,906,023 2,897,045 16.32 - 8,162 816
Second Quarter 1990 3,586,751 3,479,294 19.60 - 10,073 96,377 1,007
Third Quarter 1990 2,735,077 2,726,630 15.36 - 7,679 - 768
Fourth Quarter 1990 4,076,832 3,891,129 21.92 - 11,446 173,112 1,145
First Quarter 1991 2,297,038 2,289,944 12.90 - 6,449 - 645
Second Quarter 1991 2,920,264 2,911,246 16.40 - 8,198 - 820
Third Quarter 1991 2,327,308 2,320,120 13.07 - 6,535 - 653
Fourth Quarter 1991 2,646,044 2,637,873 14.86 - 7,428 - 743
First Quarter 1992 3,055,858 3,046,157 17.16 - 8,843 - 858
Second Quarter 1992 3,272,572 3,262,726 18.38 - 8,927 - 919
Third Quarter 1992 2,638,921 2,630,772 14.82 - 7,408 - 741
Fourth Quarter 1992 2,897,119 2,888,169 16.27 - 8,136 - 814
Snapple Distribution
on 4/13/93 12,786,849 12,747,352 71.81 71.81 35,906 - 3,591
First Quarter 1993 19,889,862 19,828,426 111.70 97.16 55,851 - 5,585
Second Quarter 1993 1,230,430 1,226,629 6.91 3.49 3,455 - 346
Third Quarter 1993 5,555,625 5,538,468 31.20 1.89 15,597 - 1,560
Fourth Quarter 1993 13,364,699 11,905,931 67.07 - 38,388 1,416,541 3,839
First Quarter 1994 14,934,550 14,117,768 79.53 72.50 41,938 770,650 4,194
Second Quarter 1994 3,184,138 2,792,311 15.73 10.00 8,941 381,992 894
Third Quarter 1994 810,197 807,693 4.55 2.79 2,276 - 228
Snapple Distribution
on 12/15/94 78,114,228 63,770,489 359.24 13.81 237,847 14,082,107 23,785
Fourth Quarter 1994 279,288 221,894 1.25 - 627 56,704 63
EquiCredit Distribution
on 2/14/95 8,303,171 6,860,956 38.65 3.82 24,411 1,415,363 2,441
First Quarter 1995 5,893,413 4,899,415 27.60 26.48 13,801 978,817 1,380
Second Quarter 1995 2,077,699 1,352,664 7.62 .38 4,820 719,733 482
Third Quarter 1995 1,890,622 1,088,166 6.13 5.61 3,069 799,080 307
Sun Pharmaceuticals
Distribution on
12/11/95 10,606,018 10,574,568 59.57 51.57 28,591 - 2,859
Fourth Quarter 1995 19,587 19,527 .11 - 55 - 5
CST Distribution on
5/3/96 13,800,125 9,773,975 55.06 42.04 27,529 3,995,868 2,753
First Quarter 1996 765,250 76,331 .43 - 217 688,680 22
Ghirardelli
Distribution on
5/3/96 10,731,976 10,698,829 60.27 46.38 30,134 - 3,013
Second Quarter 1996 9,302,264 8,889,952 50.08 26.52 25,043 384,765 2,504
Third Quarter 1996 106,839 106,509 .60 - 300 - 30
Fourth Quarter 1996 1,361,776 1,175,149 6.62 6.17 3,310 182,986 331
First Quarter 1997 268,515 55,030 .31 .01 157 213,312 16
Anchor Distribution
on 5/15/97 10,162,057 7,821,311 44.06 44.04 22,029 2,316,514 2,203
Second Quarter 1997 1,783,646 1,586,984 8.94 5.11 4,471 191,744 447
Third Quarter 1997 1,091,200 1,070,415 6.03 5.62 3,015 17,469 301
Fourth Quarter 1997 276,969 236,096 1.33 .19 514 40,308 51
First Quarter 1998 1,151,505 1,098,818 6.19 4.39 3,092 49,286 309
First Alert Distribution
on May 15, 1998 11,975,068 11,080,486 62.42 20.66 31,213 860,248 3,121
Second Quarter 1998 2,471,545 2,463,908 13.88 13.62 6,943 - 694
Third Quarter 1998 40,829 26,627 .15 - 79 14,115 8
Cinnabon Distribution on
November 16, 1998 4,536,339 4,162,727 23.45 22.22 11,725 360,714 1,173
Fourth Quarter 1998 1,684,249 1,237,280 6.97 2.34 3,489 443,131 349
First Quarter 1999 6,527,847 6,479,297 36.50 35.92 18,250 28,475 1,825
Second Quarter 1999 112,983 90,533 .51 - 252 22,173 25
------------ ------------ --------- --------- --------- ----------- ---------
Totals (c) $293,500,914 $261,910,126 $1,476.31 $ 636.54 $ 809,566 $30,700,264 $ 80,958
============ ============ ========= ========= ========= =========== =========
(a) Distributions are paid no later than 45 days after the end of each quarter.
(b) MGP Distributions to the Managing General Partner are the result of Limited Partners achieving cumulative
Priority Returns on Mezzanine Investments, in accordance with the Partnership Agreement.
(c) As more fully discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources, the Individual General Partners have determined that it
would not be prudent to make distributions to Partners at this time. Accordingly, the Retirement Fund has
reserved all the proceeds received from the sale of Fitz and Floyd the partial paydown of the BioLease note,
the partial maturity of the Big V note, and the sale of BioTransplant stock, as well as income from
operations from the third quarter 1999 and subsequent quarters.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
As of December 31, 2000, the Retirement Fund maintains a portion of its
cash equivalents in financial instruments with original maturities of three
months or less. These financial instruments are subject to interest rate risk,
and will decline in value if interest rates increase. A significant increase or
decrease in interest rates is not expected to have a material effect on the
Retirement Fund's financial position.
Item 8. Financial Statements and Supplemental Data
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
TABLE OF CONTENTS
Report of Independent Accountants
Statements of Assets, Liabilities and Partners' Capital
As of December 31, 2000 and December 31, 1999
Statements of Operations
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Changes in Net Assets
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Cash Flows
For the Years Ended December 31, 2000, 1999 and 1998
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2000, 1999 and 1998
Schedule of Portfolio Investments
as of December 31, 2000
Notes to Financial Statements
Supplemental Schedule of Net Realized Gain - Schedule 1
Supplemental Schedule of Net Unrealized Appreciation
and Depreciation - Schedule 2
Report of Independent Accountants
To the General and Limited Partners of ML-Lee Acquisition Fund (Retirement
Accounts) 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 (Retirement Accounts) II, L.P.
(the "Fund") at December 31, 2000 and December 31, 1999, and the results of its
operations, the changes in its net assets, and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2000 by correspondence with the custodian, provide
a reasonable basis for our opinion.
The financial statements include securities, valued at $8.0 million at
December 31, 2000 (36.2% of net assets), whose values have been estimated by the
Managing General Partner and the Investment Adviser (with the approval of the
Independent General Partners) in the absence of readily ascertainable market
values, as further described in Note 2. Those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material to the financial
statements.
As discussed in Note 1, the Fund is scheduled to dissolve on December 20,
2001. The Individual General Partners have the right to extend the term of the
Fund for an additional one year period.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule of net realized gain
(Schedule 1) and the schedule of net unrealized appreciation and depreciation
(Schedule 2) are presented for the purposes of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Fund's management. Such schedules have been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 23, 2001
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
December 31, December 31,
2000 1999
------------ ------------
Assets:
Investments - Notes 2, 4, 5
Portfolio Investments at fair value
Managed Companies (amortized cost $7,763
at December 31, 2000 and $9,156 at December 31, 1999) $ 7,763 $ 9,156
Non-Managed Companies (amortized cost $1,426
at December 31, 2000 and $1,500 at December 31, 1999) 219 266
Temporary Investments, at amortized cost (cost $13,659
at December 31, 2000 and $11,698 at December 31, 1999) 13,745 11,727
Cash 153 32
Accrued Interest - Note 2 319 92
Prepaid Expenses 15 4
------------ ------------
Total Assets $ 22,214 $ 21,277
============ ============
Liabilities and Partners' Capital:
Liabilities
Reimbursable Administrative Expenses Payable - Note 8 $ 122 $ 125
Independent General Partners' Fees Payable - Note 9 13 5
Legal and Professional Fees Payable 24 5
Deferred Interest Income - Note 2 2 24
------------ ------------
Total Liabilities 161 159
------------ ------------
Partners' Capital - Note 2
Individual General Partner 11 11
Managing General Partner 268 181
Limited Partners (177,515 Units) 21,774 20,926
------------ ------------
Total Partners' Capital 22,053 21,118
------------ ------------
Total Liabilities and Partners' Capital $ 22,214 $ 21,277
============ ============
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
-----------------------------------
2000 1999 1998
------- ------- -------
Investment Income - Notes 2, 4, 6:
Interest $ 1,154 $ 1,174 $ 2,861
Discount and Other Income 757 308 410
------- ------- -------
Total Investment Income 1,911 1,482 3,271
------- ------- -------
Expenses:
Investment Advisory Fee - Note 7 534 534 550
Fund Administration Fee - Note 8 178 178 178
Reimbursable Administrative Expenses - Note 8 210 314 336
Independent General Partners' Fees and Expenses - Note 9 74 73 73
Legal and Professional Fees 25 42 208
Insurance Expense 5 4 4
------- ------- -------
Total Expenses 1,026 1,145 1,349
------- ------- -------
Net Investment Income 885 337 1,922
------- ------- -------
Net Realized Gain (Loss) on Sales of Investments - Note 4 and Schedule 1 19 (3,468) (9,869)
------- ------- -------
Net Change in Unrealized Appreciation (Depreciation)
on Investments - Note 5 and Schedule 2
Publicly Traded Securities - - 17,439
Nonpublic Securities 31 10,881 -
------- ------- -------
Subtotal 31 10,881 17,439
------- ------- -------
Net Increase in Net Assets Resulting From Operations 935 7,750 9,492
Less: Earned MGP Distributions to Managing General Partner (91) (108) (1,727)
------- ------- -------
Net Increase Available For Pro-Rata Distribution to All Partners $ 844 $ 7,642 $ 7,765
======= ======= =======
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
---------------------------------------
2000 1999 1998
-------- --------- ---------
From Operations:
Net Investment Income $ 885 $ 337 $ 1,922
Net Realized Gain (Loss) on Sales of Investments 19 (3,468) (9,869)
Net Change in Unrealized Appreciation (Depreciation) on Investments 31 10,881 17,439
-------- --------- ---------
Net Increase in Net Assets Resulting from Operations 935 7,750 9,492
Cash Distributions to Partners - (8,325) (20,877)
-------- --------- ---------
Total Increase (Decrease) 935 (575) (11,385)
Net Assets:
Beginning of Year 21,118 21,693 33,078
-------- --------- ---------
End of Year $ 22,053 $ 21,118 $ 21,693
======== ========= =========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
---------------------------------
2000 1999 1998
-------- -------- -------
Increase (Decrease) in Cash
Cash Flows From Operating Activities:
Interest, Discount and Other Income $ 1,605 $ 2,747 $ 1,983
Investment Advisory Fee (534) (534) (550)
Fund Administration Fee (178) (178) (178)
Independent General Partners' Fees and Expenses (66) (83) (68)
Reimbursable Administrative Expense (213) (211) (322)
Legal and Professional Fees (29) (67) (267)
(Purchase) Sale of Temporary Investments, Net (1,961) (7,669) 175
Purchase of Portfolio Company Investments (20) - -
Proceeds from Sales, Maturities and Paydowns of Portfolio
Company Investments 1,517 14,341 19,529
------- ------- --------
Net Cash Provided By Operating Activities 121 8,346 20,302
------- ------- --------
Cash Flows From Financing Activities:
Cash Distributions to Partners - (8,325) (20,452)
------- ------- --------
Net Cash Used in Financing Activities - (8,325) (20,452)
------- ------- --------
Net Increase (Decrease) in Cash 121 21 (150)
Cash at Beginning of Year 32 11 161
------- ------- --------
Cash at End of Year $ 153 $ 32 $ 11
======= ======= ========
Reconciliation of Net Investment Income
to Net Cash Provided by Operating Activities:
Net Investment Income $ 885 $ 337 $ 1,922
------- ------- --------
Adjustments to Reconcile Net Investment Income
to Net Cash Provided by Operating Activities:
(Increase) Decrease in Investments at Cost (490) 9,723 29,989
(Increase) Decrease in Receivable for Investment Sold - 417 (417)
(Increase) Decrease in Accrued Interest, Dividend and Discount Receivable (306) 1,265 (1,288)
(Increase) Decrease in Prepaid Expenses (11) (1) 1
Increase (Decrease) in Legal and Professional Fees Payable 19 (20) (55)
Increase (Decrease) in Reimbursable Administrative Expenses Payable (3) 103 13
Increase (Decrease) in Independent General Partners' Fees Payable 8 (10) 6
Net Realized Gain (Loss) on Sales of Investments 19 (3,468) (9,869)
------- ------- --------
Total Adjustments (764) 8,009 18,380
------- ------- --------
Net Cash Provided by Operating Activities $ 121 $ 8,346 $ 20,302
======= ======= ========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
Individual Managing
General General Limited
Partner Partner Partners Total
----------- ---------- ---------- ----------
Partners' Capital at January 1, 1998 $ 14 $ 202 $ 32,862 $ 33,078
Allocation of Net Investment Income 1 309 1,612 1,922
Allocation of Net Realized Loss on Sales of Investments (3) 1,396 (11,262) (9,869)
Allocation of Net Change in Unrealized
Depreciation on Investments 4 39 17,396 17,439
Cash Distributions to Partners (5) (1,378) (19,494) (20,877)
---------- ---------- ---------- ----------
Partners' Capital at December 31, 1998 11 568 21,114 21,693
Allocation of Net Investment Income - 79 258 337
Allocation of Net Realized Loss on Sales of Investments (1) 20 (3,487) (3,468)
Allocation of Net Change in Unrealized
Depreciation on Investments 3 30 10,848 10,881
Cash Distributions to Partners (2) (516) (7,807) (8,325)
---------- ---------- ---------- ----------
Partners' Capital at December 31, 1999 11 181 20,926 21,118
Allocation of Net Investment Income - 87 798 885
Allocation of Net Realized Gain on Sales of Investments - - 19 19
Allocation of Net Change in Unrealized Depreciation
on Investment - - 31 31
---------- ---------- ---------- ----------
Partners' Capital at December 31, 2000 $ 11 $ 268 $ 21,774 $ 22,053
========== ========== ========== ==========
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(f) (Note 2) Investments
- ------------- ---------- ---------- ---------- -------- -----------
MEZZANINE INVESTMENTS
MANAGED COMPANIES
BIG V SUPERMARKETS, INC. (a) - Note 4
$5,570 Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(b)(g) 12/27/90 $ 5,570 $ 5,570
62,667 Shares Big V Holding Corp., Inc., Common Stock(c) 12/27/90 2,193 2,193
(8.8% of fully diluted common equity) (e)
-----------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 7,763 $ 7,763 35.73%
=============================
NON-MANAGED COMPANIES
BIOLEASE, INC. - Note 4 and Schedule 2
$437 Biolease, Inc., 13% Sub. Nt. due 06/06/04(b) 06/08/94 $ 377 $ 219
63.20 Shares Biolease, Inc., Common Stock(c) 06/08/94 62 -
6,128 Options BioTransplant, Inc., Common Stock Purchase Options(c) 02/02/96 - -
-----------------------------
439 219 1.01%
-----------------------------
FLA. ORTHOPEDICS, INC. - Note 6 and Schedule 2
12,634 Shares FLA. Holdings, Inc. Series B Preferred Stock (a)(c)(d) 08/02/93 987 -
2,493 Warrants FLA. Holdings, Inc. Common Stock Purchase Warrants (a)(c) 08/02/93 - -
$3,158 12.5% Subordinated Note
Purchased 08/02/93 $ 3,158
Surrendered 08/16/96 $ 0
Realized Loss $(3,158)
78,960 Common Stock
Purchased 08/02/93 $ 987
Exchanged 08/02/96
2,493 Series B Preferred Stock $ 987
Realized Gain $ 0
Total Realized Loss $(3,158)
-----------------------------
987 - 0.00%
-----------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 1,426 219 1.01%
=============================
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes Various $ 5,947 $ 5,789 26.65%
Preferred Stock, Common Stock, Options, Warrants and Stock Rights Various 3,242 2,193 10.09%
-----------------------------
TOTAL MEZZANINE INVESTMENTS $ 9,189 $ 7,982 36.74%
=============================
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$10,000 Ford Motor Credit Corp., 6.45% due 1/3/01 11/27/00 $ 9,934 $ 9,996
$ 3,750 Prudential Funding, 6.40% due 1/3/01 11/27/00 3,725 3,749
----------------------------
TOTAL INVESTMENT IN COMMERCIAL PAPER $13,659 $13,745 63.26%
----------------------------
TOTAL TEMPORARY INVESTMENTS $13,659 $13,745 63.26%
============================
TOTAL INVESTMENT PORTFOLIO $22,848 $21,727 100.00%
============================
(a) Represents investment in affiliates as defined in the Investment Company Act of 1940.
(b) Restricted security.
(c) Restricted non-income producing equity security.
(d) Non-accrual investment status.
(e) Percentages of Common Equity have not been audited by PricewaterhouseCoopers LLP.
(f) Represents original cost and excludes accretion of discount of $18 for Mezzanine
Investments and $86 for Temporary Investments.
(g) Principal payments were scheduled to be made on December 15, 2000 for $2,089,000 and on
March 15, 2001 for the remaining $3,481,000. However, Big V failed to make these two principal
payments and also failed to make the November 15, 2000, February 15, 2001 and March 15, 2001
interest payments due under the note. See also Note 4 of Notes to Financial Statements.
See the Accompanying Notes to Financial Statements.
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Organization and Purpose
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement
Fund") (formerly T.H. Lee Acquisition Fund (Retirement Accounts) II, L.P.) was
formed along with ML-Lee Acquisition Fund II, L.P. ("Fund II"; collectively
referred to as the "Funds") and the Certificates of Limited Partnership were
filed under the Delaware Revised Uniform Limited Partnership Act on September
23, 1988. The Funds' operations commenced on November 10, 1989. Capital
contributions from the Limited Partners and the General Partners (as described
below) totaled $178,065,000 in the public offering of the Retirement Fund, the
final closing for which was held on December 20, 1989.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual General Partners (as defined below and
hereinafter with the Managing General Partner as the "General Partners"), is
responsible for overseeing and monitoring the Retirement Fund'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 the Retirement Fund.
The Retirement Fund elected to operate as a business development company
under the Investment Company Act of 1940. The Retirement Fund'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. The Retirement Fund 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. The
Retirement Fund could also invest in "bridge investments" if it believed that
such investments would facilitate the consummation of a mezzanine financing. The
Retirement Fund 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 the Retirement Fund's investment period terminated at
various times through December 21, 1993.
At the regular quarterly meeting of the General Partners of the Retirement
Fund held on December 14, 1999, the Individual General Partners determined to
extend the term of the Retirement Fund, which was due to terminate December 20,
1999, for an additional two year period, pursuant to Section 2.4 of the
Partnership Agreement. Such extension will allow the Retirement Fund to more
effectively deal with its assets pending their liquidation. The term of the
Retirement Fund will now expire on December 20, 2001. The Individual General
Partners have the right to extend the term of the Retirement Fund for an
additional one year period if they determine that such extension is in the best
interest of the Retirement Fund. The Retirement Fund will then have an
additional five year period to liquidate its remaining assets.
2. Significant Accounting Policies
Basis of Accounting
For financial reporting purposes, the records of the Retirement Fund are
maintained using the accrual method of accounting. For federal income tax
reporting purposes, the results of operations are adjusted to reflect statutory
requirements arising from book to tax differences. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts and
disclosures in the financial statements. Actual reported results could vary from
these estimates.
Valuation of Investments
Securities for which market quotations are readily available are valued by
reference to such market quotation using the last trade price (if reported) or
the last bid price for the period. For securities without a readily
ascertainable market value (including securities restricted as to resale for
which a corresponding publicly traded class exists), fair value is determined,
on a quarterly basis, in good faith by the Investment Adviser and is approved by
the Managing General Partner with final approval from the Individual General
Partners of the Retirement Fund. For privately issued securities in which the
Retirement Fund typically invests, the fair value of an investment is generally
its original cost plus accrued value in the case of original issue discount or
deferred pay securities. Such investments generally will be revalued if there is
an objective basis for doing so at a different price. Investments will be
written down in value if the Investment Adviser and the General Partners believe
adverse credit developments of a significant nature require a write-down of such
securities. Investments will be written up in value only if there has been an
arms'-length third party transaction to justify the increased valuation.
Although the Investment Adviser and the General Partners use their best judgment
in estimating the fair value of these investments, there are inherent
limitations in any estimation technique. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amount which the
Retirement Fund could realize in a current transaction. Future confirming events
will also affect the estimates of fair value and the effect of such events on
the estimates of fair value could be material.
Temporary Investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value.
The information presented herein is based on pertinent information
available to the Investment Adviser and the General Partners as of December 31,
2000. Although the Investment Adviser and the General Partners are not aware of
any factors not disclosed herein that would significantly affect the estimated
fair value amounts, such amounts have not been comprehensively revalued since
that time.
Interest Receivable on Investments
Investments generally will be placed on non-accrual status in the event of
a default (after the applicable grace period expires) or if the Investment
Adviser and the Managing General Partner determine that there is no reasonable
assurance of collecting interest.
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash interest payments
by the Retirement Fund's portfolio companies are recorded at face value (which
approximates accrued interest), unless the Investment Adviser and the Managing
General Partner determine that there is no reasonable assurance of collecting
the full principal amounts of such securities. In accordance with this policy,
as of December 31, 2000 and 1999, the Retirement Fund's portfolio of
investments, excluded approximately $110,000 and $86,000, respectively, of such
payment-in-kind notes received from BioLease, Inc.
Investment Transactions
The Retirement Fund recorded Mezzanine Investment transactions on the date
on which it obtained an enforceable right to demand the securities or payment
therefore. The Retirement Fund records Temporary Investment transactions on the
trade date.
Net realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.
Deferred Interest Income
All fees received by the Retirement Fund 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 the Retirement Fund'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 99.69% to the Limited Partners, 0.28% to
the Managing General Partner and 0.03% 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, 99.69% to the Limited Partners, 0.28% to the Managing General
Partner and 0.03% 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, 69.69% to the Limited Partners, 30.281% to the Managing General
Partner and .029% to the Individual General Partner until the Managing
General Partner has received 20.281% of the total profits allocated; and
thereafter, 79.69% to the Limited Partners, 20.281% to the Managing
General Partner and 0.029% to the Individual General Partner.
4. Investment Transactions
On April 28, 2000, BioLease, Inc. ("BioLease") refinanced existing
construction and term loans and utilized a portion of the refinancing proceeds
to make a $76,000 partial paydown to the Retirement Fund of BioLease's 13%
Senior Subordinated Note. The Retirement Fund realized a loss from this
transaction of $5,000, after the payment of $12,000 in transaction costs and the
write-off of $7,000 of unamortized note discount.
On June 15, 2000, Big V supermarkets, Inc. ("Big V") made a scheduled
principal payment of $1,393,000 with respect to the Retirement Fund's $6,963,000
senior subordinated Note. The Retirement Fund recorded no gain or loss from this
transaction. Although $2,089,000 and $3,481,000 were scheduled to mature on
December 15, 2000 and March 15, 2001, respectively, Big V failed to make these
two principal payments, as discussed below.
On September 25, 2000, the Retirement Fund's rights under the CNC Holding
Corporation common stock purchase warrants expired. The Retirement Fund had
valued such investment at zero and, accordingly, recorded no gain or loss upon
the expiration of the rights.
On November 9, 2000, the Retirement Fund exercised its rights under the
BioTransplant, Inc. ("BioTransplant") common stock purchase warrants and
purchased 6,554 shares of BioTransplant common stock for $20,000, exclusive of
$7,000 of transaction costs. On November 27, 2000, the Retirement Fund sold
these shares and received net proceeds of $60,000 and realized a gain of
$24,000.
In September 2000, the court approved a settlement in respect of certain
litigation commenced by Hills Stores Company ("Hills") against its former
directors, including Thomas H. Lee (who had been serving on the Hills Board of
Directors as a representative of the Retirement Fund). The settlement provided a
complete release of Mr. Lee in his role as a director of Hills. As a result, the
reserves which had been maintained by the Retirement Fund for future
indemnification obligations are no longer required for such purpose.
However, before consenting to the disposition of all or part of the
Retirement Fund's reserves, at the quarterly meeting held on September 19, 2000,
the General Partners reviewed certain contractual covenants, commitments and
contingencies the Retirement Fund has in respect of its investments in Big V and
Big V Holdings Corp. ("BVH", Big V's parent company), resulting from letter
agreements (the "Agreements") entered into by Wakefern Food Corporation
("Wakefern"), Big V (together with certain of its related companies) and the
Retirement Fund (together with other investor groups in Big V) in December 1990
and November 1993. Since the covenants, commitments and contingencies associated
with the Agreements may have the effect of delaying and/or decreasing the amount
of future distributions, the General Partners determined that further
distributions should not be made until any responsibilities of the Retirement
Fund with respect to such covenants, commitments and contingencies have been
determined.
In November 2000, the Retirement Fund and Fund II agreed to guarantee, in
aggregate, $1,000,000 of certain short-term financing requirements of Big V, all
of which have since been repaid; as a result, the guarantee was never called
upon.
On November 22, 2000, following careful analysis of its business
operations, finances, and the outlook for the operating region in which Big V
competes with other supermarket retailers, Big V and other related entities
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the "Big V
Bankruptcy"), in order to implement a major financial and operational
restructuring of its business. The Retirement Fund believes Big V's management
currently intends to put forward a reorganization plan that fully pays all of
its creditors' claims, including Wakefern's, and changes its distribution
agreement, currently with Wakefern.
At issue in the Big V Bankruptcy and related litigation, among other
things, are the terms under which change in the Wakefern distribution agreement
will be effectuated and the cost of such change, if any, to Big V. In the event
Big V is unsuccessful in its reorganization, Wakefern may have certain remedies
available to it under the Agreements, including the potential of gaining control
of Big V by acquiring, among other interests, the Retirement Fund's equity
interests in Big V at a price to be determined by investment bankers.
Currently, the Retirement Fund holds a Senior Subordinated Note issued by
Big V with outstanding principal of $5.6 million, as well as 62,667 shares of
BVH common stock. The carrying value of the Retirement Fund's investments in Big
V and BVH at December 31, 2000 was $7.8 million. At the time of the Big V
Bankruptcy filing, Big V had failed to make the November 15, 2000 interest
payment due the Retirement Fund under the Senior Subordinated Note held by the
Retirement Fund. Subsequently, Big V also failed to make the December 15, 2000
and March 15, 2001 principal payments and the February 15, 2001 and March 15,
2001 interest payments due the Retirement Fund under such note.
If the Big V Bankruptcy proceedings are resolved in Big V's favor and the
Wakefern distribution agreement is transferred with minimal cost to Big V, the
Investment Adviser believes that the value of the Retirement Fund's debt
investments should be preserved and the value of the Retirement Fund's equity
investments may be enhanced. On the other hand, if the Big V Bankruptcy
proceedings are not resolved in Big V's favor and/or the costs to Big V of
transferring the Wakefern distribution agreement are substantial, the value of
the Retirement Fund's debt and equity investments may be impaired, and the
Retirement Fund could conceivably be exposed to losses in excess of its original
investment. Currently, neither the Investment Adviser nor the Managing General
Partner can predict the outcome of the Big V Bankruptcy proceedings, including
such proceedings impact on the value of the Senior Subordinated Note or the BVH
equity held by the Retirement Fund, or the timing or amount of payments, if any,
that might be made to the Retirement Fund pursuant to Big V's plan of
reorganization. In addition, the General Partners cannot currently predict how
the Big V Bankruptcy may affect the timing of the ultimate liquidation of the
Retirement Fund.
The General Partners will continue to review such reserves each quarter in
light of the foregoing matter, and distributions will be made in accordance with
the Retirement Fund's Partnership Agreement. Currently, the Retirement Fund has
reserved all the net proceeds received from the 1999 sale of Fitz and Floyd,
Inc., the 2000 partial paydown of the BioLease Note, the 2000 partial maturity
of the Big V Note, and the 2000 sale of BioTransplant Common Stock, as well as
income from operations from the third quarter 1999 and subsequent quarters.
Because the Retirement Fund primarily invests in high-yield private
placement securities, the risk of loss upon default by an issuer is greater than
with investment grade securities because high-yield securities are generally
unsecured and are often subordinated to other creditors of the issuer. Also,
high-yield issuers usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions.
Although the Retirement Fund 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 Retirement Fund 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 the Retirement Fund to
liquidate the position or collect proceeds from the action may be delayed or
limited. See discussion of the Big V Bankruptcy above.
5. Net Unrealized Appreciation and Depreciation of Investments
For information, please refer to the Supplemental Schedule of Net
Unrealized Appreciation and Depreciation - Schedule 2.
6. Non-Accrual of Investments
In accordance with the Retirement Fund's Accounting Policy, Florida
Orthopedics, Inc. has been on non-accrual status since January 1, 1995.
7. Investment Advisory Fee
The Investment Adviser provides the identification, management and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds, the Investment Adviser receives a quarterly fee at the
annual rate of 1% of assets under management (net offering proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1,200,000 for the Retirement Fund and Fund II on a combined basis. The
Investment Advisory Fee is calculated and paid quarterly, in advance.
In addition, the Investment Adviser receives 95% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10).
8. Fund Administration Fees and Expenses
As compensation for its services, the Fund Administrator, an affiliate of
the Managing General Partner, is entitled to receive a Fund Administration Fee.
The Fund Administration Fee is an annual amount of $400,000 for the Funds on a
combined basis. The Fund Administration Fee is calculated and paid quarterly, in
advance, by each Fund.
In addition, the Fund Administrator is entitled to reimbursement of 100% of
all out-of-pocket expenses incurred by the Fund Administrator on behalf of the
Funds ("Reimbursable Administrative Expenses"). Reimbursable Administrative
Expenses primarily consist of printing, audit, tax preparation, legal fees and
expenses, and custodian fees.
In addition, ML Mezzanine II Inc., an affiliate of the Fund Administrator
and Merrill Lynch & Co., Inc., receives 5% of the benefit of any MGP
Distributions paid to the Managing General Partner (see Note 10).
9. Independent General Partners' Fees and Expenses
As compensation for their services, each Independent General Partner will
receive a combined annual fee of $40,000 (payable quarterly) from the Funds in
addition to a $1,000 fee for each meeting attended ($500 if a meeting is held on
the same day as a committee meeting of the General Partners) plus reimbursement
for any out-of-pocket expenses incurred. Fees and expenses are allocated between
the Funds in proportion to the number of units issued by each fund. Compensation
for each of the Individual General Partners is reviewed annually.
10. Related Party Transactions
The Retirement Fund's investments generally were made as co-investments
with Fund II. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by the Retirement Fund involved co-investments with
entities affiliated with the Investment Adviser. Such co-investments are
generally prohibited absent exemptive relief from the Securities and Exchange
Commission (the "Commission"). As a result of these affiliations and the
Retirement Fund'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. The Retirement Fund'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 the Retirement Fund and an affiliate of the
Investment Adviser, typically performs certain management services for Managed
Companies and receives management fees in connection therewith, usually pursuant
to written agreements with such companies. In addition, certain of the portfolio
companies have contractual or other relationships pursuant to which they do
business with one another.
The Investment Adviser, pursuant to an investment management agreement
among the Investment Adviser, the Thomas H. Lee Company and the Retirement Fund
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 as compensation
for these services as outlined in Note 7 to the Financial Statements.
As provided by the Partnership Agreement, the Managing General Partner of
the Retirement Fund is entitled to receive an incentive distribution after
Limited Partners have received their Priority Return of 10% per annum ("MGP
Distributions"). The Managing General Partner is required to defer a portion of
any MGP Distribution earned from the sale of portfolio investments in excess of
20% of realized capital gains, net realized capital losses and unrealized
depreciation, in accordance with the Partnership Agreement (the "Deferred
Distribution Amount"). This Deferred Distribution Amount is distributable to the
Partners pro-rata in accordance with their capital contributions, and certain
amounts otherwise later payable to Limited Partners from distributable cash from
operations are instead payable to the Managing General Partner until any
Deferred Distribution Amount is paid in full.
An officer of the Investment Adviser also serves as a Director/Trustee of a
managed company.
11. Income Taxes
No provision for income taxes has been made because all income and losses
are allocated to the Retirement Fund's partners for inclusion in their
respective tax returns.
Pursuant to the Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes, the Retirement Fund is required to disclose any
difference in the tax basis of the Retirement Fund's assets and liabilities
versus the amounts reported in the financial statements. As of December 31,
2000, the tax basis of the Retirement Fund's assets are greater than the amounts
reported in the financial statements by approximately $1,240,000. This
difference is primarily attributable to net unrealized depreciation on
investments which has not been recognized for tax purposes.
SCHEDULE 1
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SUPPLEMENTAL SCHEDULE OF NET REALIZED GAIN
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Net
Par Value/ Investment Net Realized
Security Number of Shares Cost Proceeds Gain (Loss)
- --------------------------------- ---------------- ---------- ---------- -----------
Big V Supermarkets, Inc. (Note) $1,393 $ 1,393 $ 1,393 $ -
BioLease, Inc. (Note) $76 69 64 (5)
BioTransplant, Inc. (Common Stock) 6,554 shares 36 60 24
-------- -------- -------
Total at December 31, 2000 $ 1,498 $ 1,517 $ 19
======== ======== =======
See the Accompanying Notes to Financial Statements.
SCHEDULE 2
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SUPPLEMENTAL SCHEDULE OF NET UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
Total
Net Unrealized
Appreciation Unrealized Appreciation (Depreciation) for
(Depreciation) ------------------------------------------------------
Investment Fair at December 31, 1995 &
Security Cost Value 2000 2000 1999 1998 1997 1996 Prior
- -------- ---------- ------ -------------- ------- ------- ------- -------- -------- -------
Non Public Securities:
BioLease, Inc.
Common Stock* $ 62 $ - $ (62) $ - $ - $ - $ (62) $ - $ -
Subordinated Notes* (a) 377 219 (176) - - - (176) - -
FLA. Orthopedics, Inc.
Preferred Stock* 987 - (987) - - - - - (987)
Subordinated Note* - - - - - - - 3,158 (3,158)
---------- ------- ------- ------- -------- -------- -------
Total Unrealized Depreciation
from Non Public Securities $ (1,225) $ - $ - $ - $ (238) $ 3,158 $(4,145)
---------- ------- ------- ------- -------- -------- -------
Reversal of Unrealized Appreciation
(Depreciation) from Securities Sold in 2000
BioLease, Inc. - Subordinated Note* $ - $ 31 $ - $ - $ (31) $ - $ -
Reversal of Unrealized Appreciation
(Depreciation) from Securities Sold prior to 2000 - - 10,881 17,439 (6,016) (17,927) (4,377)
---------- ------- ------- ------- -------- -------- -------
Total Reversal of Unrealized Appreciation
(Depreciation) from Securities Sold $ - $ 31 $10,881 $17,439 $ (6,047) $(17,927) $(4,377)
---------- ------- ------- ------- -------- -------- -------
Net Unrealized Appreciation (Depreciation) $ (1,225) $ 31 $10,881 $17,439 $ (6,285) $(14,769) $(8,522)
========== ======= ======= ======= ======== ======== =======
* Restricted Security
(a) Investment cost excludes accretion of discount of $18.
See Accompanying Notes to Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The five General Partners of the Retirement Fund are responsible for the
management and administration of the Retirement Fund and have the same positions
and responsibilities with respect to Fund II. The General Partners of Fund II
and the Retirement Fund consist of four Individual General Partners: Vernon R.
Alden, Joseph L. Bower, Stanley H. Feldberg (the "Independent General Partners")
and Thomas H. Lee; and Mezzanine Investments II, L.P., the Managing General
Partner. Pursuant to exemptive orders issued by the Securities and Exchange
Commission, each Independent General Partner is not an "interested person" of
the Retirement Fund 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 the Retirement Fund 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 the Retirement Fund investment
guidelines or specifically approve it as a non-Guideline Investment or Bridge
Investment. The Retirement Fund'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 the Retirement Fund and Fund II since 1989. Each Individual General
Partner shall hold office until his removal or withdrawal pursuant to the
provisions of the Retirement Fund's Partnership Agreement.
Mr. Alden, 77, Individual General Partner of the Retirement Fund and Fund
II (used together with the Retirement Fund as the "Funds"). Director of Sonesta
International Hotels Corporation. Chairman of the Japan Society of Boston,
Trustee Emeritus of the Boston Symphony Orchestra and the Boston Museum of
Science and Honorary Consul General of the Royal Kingdom of Thailand.
Mr. Bower, 62, Individual General Partner of the Funds. Donald Kirk David
Professor of Business Administration, Harvard Business School faculty member
since 1963. Director of Anika Therapeutics, Inc., Brown Shoe Co., New America
High Income Fund, Sonesta International Hotels Corporation, and The Lincoln
Foundation. Trustee of the DeCordova & Dana Museum and Sculpture Park and the
New England Conservatory of Music.
Mr. Feldberg, 76, Individual General Partner of the Funds. Chairman of the
Board of Storm Eye Institute at Medical University of South Carolina. Past
Director of TJX Companies, Inc., and Waban Inc., Trustee - Emeritus of Brandeis
University, Honorary Trustee of Beth Israel Deaconess Medical Center.
Mr. Lee, 56, Individual General Partner of the Funds. Chairman of the
Administrative General Partner of the Investment Adviser to the Funds since
1989; Chairman of the Administrative General Partner of Thomas H. Lee Equity
Partners L.P. since 1989. Chairman of the Administrative General Partner of
Thomas H. Lee Equity Fund III, L.P. since 1996, Chairman of the General Partner
of Thomas H. Lee Equity Fund IV, L.P. since 1998 and Chairman of the General
Partner of Thomas H. Lee Equity Fund V, L.P. since 2000. Founder of the Thomas
H. Lee Company (the "Lee Company") and its President from 1974 to 1999; Chairman
of the General Partner of Thomas H. Lee Partners, L.P. since 1999. Director of
Finlay Enterprises Inc., Metris Companies, Inc., Vertis Holdings, Inc., Miller
Import Corporation, Wyndham International, Inc., The Smith and Wollensky
Restaurant Group, Inc., and Vail Resorts, Inc. Mr. Lee also serves in a trustee
or other capacity for numerous civic and charitable organizations.
The Investment Adviser
The Investment Adviser, pursuant to an investment management agreement
among the Investment Adviser, the Thomas H. Lee Company and the Retirement Fund
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 Thomas H. Lee Company have been designated as
trustees and executive officers of T. H. Lee Mezzanine II, the administrative
general partner of the Investment Adviser.
Served in
Present
Name Capacity Since Title
--------- -------------- -------
Thomas H. Lee 11/10/89 Chairman, Trustee
Thomas R. Shepherd 11/10/89 Executive Vice President
David V. Harkins 11/10/89 Senior Vice President, Trustee
C. Hunter Boll 11/10/89 Vice President, Trustee
Scott A. Schoen 11/10/89 Vice President
Wendy L. Masler 11/10/89 Treasurer, Clerk
Information concerning Mr. Lee is set forth above.
Mr. Shepherd, 71, is Chairman of TSG Equity Partners, LLC. Mr. Shepherd is
also currently a director of CCI, Inc., Community Resource Systems, Inc., 4R
Systems, Inc., Myutility, Inc., OptaSite, Inc., Rayovac Corporation and Vermont
Teddy Bear Co.
Mr. Harkins, 60, has been affiliated with Thomas H. Lee Partners, L.P., and
its predecessor Thomas H. Lee Company, since 1974 and currently serves as
President. Mr. Harkins has served as Chairman of National Dentex Corporation
since 1983. He is also a director of National Dentex Corporation, Fisher
Scientific International, Inc., Conseco, Inc., Cott Corp., Metris Companies
Inc., Tucker Anthony Sutro, Syratec Corporation and Stanley Furniture Co.
Mr. Boll, 45, served as a Managing Director of the Thomas H. Lee Company
from 1991 to 1999 and as a Managing Director of the General Partner of Thomas H.
Lee Partners, L.P. since 1999. From 1986 to 1991 he served as a Vice President
of the Thomas H. Lee Company. Mr. Boll is a Director of Big V Supermarkets,
Inc., Cott Corp., Tucker Anthony Sutro, Metris Companies, Inc., Smith and
Wollensky Restaurant Group, Inc., Transwestern Publishing, L.P. and United
Industries Corporation.
Mr. Schoen, 42, served as a Managing Director of the Thomas H. Lee Company
from 1991 to 1999 and as a Managing Director of the General Partner of Thomas H.
Lee Partners, L.P. since 1999. From 1986 to 1990 he served as a Vice President
of the Thomas H. Lee Company. Mr. Schoen is also a Director of Rayovac
Corporation, ARC Holdings, LLC, Syratech Corporation, Transwestern Publishing
L.P., United Industries Corporation and Wyndham International Inc.
Ms. Masler, 47, has been Treasurer of the Thomas H. Lee Partners, L.P. and
its predecessor, Thomas H. Lee Company, since 1984.
The Managing General Partner
The Managing General Partner is a limited partnership in which ML Mezzanine
II Inc. is the sole general partner and the Investment Adviser is the limited
partner. The Managing General Partner is responsible for the supervision of the
Retirement Fund's investments.
The executive officers of ML Mezzanine II Inc. are as follows:
Served in
Present
Name Capacity Since (1) Title
--------- ------------------ -------
Kevin K. Albert 7/31/89 Chairman, President and Director
James V. Caruso 1/28/93 Executive Vice President
1/27/93 Director
Rosalie Y. Goldberg 7/31/89 Vice President, Director
Diane T. Herte 11/5/99 Vice President
11/8/99 Director
Kevin T. Seltzer 11/5/99 Vice President, Treasurer
(1) Directors hold office until their successors are elected and qualified. All
executive officers serve at the pleasure of the Board of Directors.
Kevin K. Albert, 48, a Managing Director of Merrill Lynch Investment
Banking Group ("ML Investment Banking") and is responsible for the Private
Equity Group and Exclusive Sales and Divestitures Group. He joined Merrill Lynch
in 1981. Mr. Albert's work in the Private Equity Group is involved in
structuring and placing a diversified array of private equity financing
including common stock, preferred stock, limited partnership interests and other
equity-related securities. His work in the Exclusive Sales and Divestitures
Group involves managing a team of investment bankers executing middle-market
exclusive sales transactions. Mr. Albert is also a director of ML Media
Management Inc. ("ML Media"), an affiliate of ML Mezzanine II Inc. ("ML
Mezzanine II") and a joint venturer of Media Management Partners, the general
partner of ML Media Partners, L.P.; a director of ML Opportunity Management Inc.
("ML Opportunity") an affiliate of ML Mezzanine II and a joint Venturer of Media
Opportunity Management Partners, the general partner of ML Opportunity, Media
Partners, L.P.; a director of Merrill Lynch Venture Capital Inc. ("ML Venture"),
an affiliate of ML Mezzanine II and the general partner of the Managing General
Partner of ML Venture Partners II, L.P. ("Venture II"); and a director of
Merrill Lynch R&D Management Inc. ("ML R&D"), an affiliate of ML Mezzanine II
and the general partner of the General Partner of ML Technology Ventures, L.P.;
Mr. Albert also serves as an independent general partner of Venture II.
James V. Caruso, 49, a Director of ML Investment Banking, joined Merrill
Lynch in 1975. Mr. Caruso is the Director of Technology for the Global
Investment Banking Group. He is responsible for ensuring that the business
requirements of Investment Banking are supported by managing the development of
new technologies and enhancing existing systems. He is also responsible for
certain merchant banking business related activities. Mr. Caruso is also
director of ML Venture, ML R&D, ML Media and ML Opportunity.
Rosalie Y. Goldberg, 63, a Managing Director of Merrill Lynch Investment
Managers ("MLIM"), joined Merrill Lynch in 1975. Ms. Goldberg has held a number
of management positions in the Special Investments area, including the position
of Manager for Product Development and Origination from 1983 to 1989. Ms.
Goldberg is also a Director of ML Media and ML Opportunity.
Diane T. Herte, 40, a Director of MLIM since 2001 and previously a Vice
President of ML Investment Banking since 1996 and an Assistant Vice President of
Merrill Lynch & Co. Corporate Credit Group since 1992, joined Merrill Lynch in
1984. Ms. Herte's responsibilities include controllership, financial management,
administrative and operational functions for certain partnerships and other
entities for which subsidiaries of Merrill Lynch are the general partner or
manager.
Kevin T. Seltzer, 34, a Vice President of MLIM since 2001 and previously a
Vice President of ML Investment Banking, joined Merrill Lynch in 1995. Mr.
Seltzer's responsibilities include controllership, financial management, and
financial reporting and administrative functions for certain partnerships and
other entities for which subsidiaries of Merrill Lynch are the general partner
or manager.
The Fund Administrator
ML Fund Administrators Inc., a Delaware corporation and a subsidiary of
Merrill Lynch & Co., Inc., is responsible for the provision of administrative
services necessary for the operation of the Funds. The Fund Administrator
receives Fund Administration Fees as compensation for these services as outlined
in Note 8 to the Financial Statements.
The Fund Administrator is responsible for the day-to-day administrative
affairs of the Funds and for the management of the accounts of Limited Partners.
The Fund Administrator also provides the Funds, at the Fund Administrator's
expense, with office space, facilities, equipment and personnel necessary to
carry out its obligations under the Administrative Services Agreement.
Item 11. Executive Compensation
The information with respect to compensation of the Individual General
Partners set forth under the caption "Management Arrangements - the Individual
General Partners" in the Prospectus pages 73 - 74 is incorporated herein by
reference. The Retirement Fund paid Independent General Partners, Mr. Alden, Mr.
Bower and Mr. Feldberg $64,000, collectively for their services as Independent
General Partners in 2000.
The information with respect to the allocation and distribution of the
Retirement Fund's profits and losses to the Managing General Partner set forth
under the caption "Distributions and Allocations - Allocations of Profits and
Losses" in the Prospectus pages 86 - 87 is incorporated herein by reference. The
Managing General Partner received no distributions during 2000.
The information with respect to the Investment Advisory Fee payable to the
Investment Adviser (and distributions from the Managing General Partner) set
forth under the caption "Management Arrangements - Description of the Advisory
Agreement" in the Prospectus pages 74 - 75 is incorporated herein by reference.
Pursuant to the Investment Advisory Agreement, the Retirement Fund paid the
Investment Adviser $534,000 with respect to 2000.
The information with respect to the Fund Administration Fees and Expenses
payable to the Fund Administrator set forth under the caption "Management
Arrangements - The Fund Administrator" in the Prospectus pages 72 - 73 is
incorporated herein by reference. Pursuant to the Administrative Services
Agreement, the Retirement Fund paid the Fund Administrator a total of $391,000
in 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of January 1, 2001, the Common Fund, which owns 21,448 Units of the
outstanding Units of limited partnership interest, or 12.08% of the Retirement
Fund, is the only entity known to the management of the Retirement Fund which
may be deemed to be a beneficial owner of more than five percent of the
outstanding units of the Retirement Fund. The Common Fund is located at 363 Reef
Road, P.O. Box 940, Fairfield, CT 06430. Mr. Lee owns 6,975 Units, or 3.93% of
the Units, of the Retirement Fund. Mr. Bower owns 11 units of the Retirement
Fund. All General Partners and certain Officers of the Investment Adviser own
8,537 Units, or 4.81% of the Units, of the Retirement Fund.
There exists no arrangement known to the Retirement Fund, the execution of
which may at a subsequent date, result in a change of control of the Retirement
Fund.
Item 13. Certain Relationships and Related Transactions
The Retirement Fund's investments generally are made as co-investments with
Fund II. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by the Retirement Fund 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 the
Retirement Fund's expectation of engaging in such co-investments, the Retirement
Fund together with Fund II and ML-Lee Acquisition Fund, L.P., sought an
exemptive order from the Commission allowing such co-investments, which was
received on September 1, 1989. The Retirement Fund'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 the Retirement Fund and an affiliate of the
Investment Adviser, typically performs certain management services for Managed
Companies and receives management fees in connection therewith usually pursuant
to written agreements with such companies. The Funds have one Managed Company in
their portfolios at December 31, 2000, which paid management fees to Thomas H.
Lee Company of $150,000 for the fiscal year ended December 31, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements.
See Item 8. "Financial Statements and Supplemenatary Data."
(2) Financial Statement Schedules.
No financial statement schedules are included because of the
absence of conditions which require their inclusion or because
the required information is included in the financial statements
or set forth herein the notes thereto.
(3) Exhibits.
3.1 Amended and Restated Certificate Incorporated by reference
of Limited Partnership, dated as to Exhibit 3.1 to
of August 25, 1989 registrant's Registration
Statement on Form N-2
number 33-25816.
3.2 Amended and Restated Agreement of Incorporated by reference
Limited Partnership, dated to Exhibit 3.2. to
November 10, 1989 Amendment No. 1, registrant's Annual Report
dated January 30, 1990. of Form 10-K for the year
ending December 31, 1989.
10.1 Investment Advisory Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.1 to
between Registrant, Thomas H. Lee registrant's Annual Report
Advisors II, L.P. and Thomas H. of Form 10-K for the year
Lee Company. ended December 31, 1991.
10.2 Custodian Agreement, dated Incorporated by reference
November 10, 1989, by and between to Exhibit 10.2 to
Registrant and State Street Bank registrant's Annual Report
and Trust Company. of Form 10-K for the year
ended December 31, 1991.
10.3 Administrative Services Agreement, Incorporated by reference
dated November 10, 1989 by and to Exhibit 10.3 to
between Registrant and ML Fund registrant's Annual Report
Administrators Inc. of Form 10-K for the year
ended December 31, 1991.
28 Pages 21-91 of the Prospectus Incorporated by reference
dated September 6,1989, filed to Exhibit 28 to
pursuant to Rule 497(b) under the registrant's Annual Report
Securities Act of 1933. of Form 10-K for the year
ended December 31, 1991.
(b) Reports on Form 8-K.
The following Report on Form 8-K ("Report") was filed during the
last quarter of the fiscal period covered by this annual report.
(1) A Current Report on Form 8-K was filed on November 29, 2000
to disclose that Big V Supermarkets, Inc. voluntarily filed for
reorganization and bankruptcy protection.
(c) Exhibits.
See (a) (3) above.
(d) Financial Statement schedules.
See (a) (2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 2nd day of
April, 2001.
ML-LEE ACQUISITION FUND
(RETIREMENT ACCOUNTS) II, L.P.
By: Mezzanine Investments II, L.P.
Managing General Partner
By: ML Mezzanine II Inc.,
its General Partner
Dated: April 2, 2001 By: /s/ Kevin K. Albert
-------------------
Kevin K. Albert
President, ML Mezzanine II Inc.,
General Partner of Mezzanine
Investments II, L.P., the Managing
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 2nd day of April, 2001.
Signature Title
/s/ Kevin K. Albert ML Mezzanine II Inc.
- ------------------- President and Director
Kevin K. Albert (Principal Executive Officer of Registrant)
/s/ Vernon R. Alden Individual General Partner
- ------------------- ML-Lee Acquisition Fund
Vernon R. Alden (Retirement Accounts) II, L.P.
/s/ Joseph L. Bower Individual General Partner
- -------------------- ML-Lee Acquisition Fund
Joseph L. Bower (Retirement Accounts) II, L.P.
/s/ Stanley H. Feldberg Individual General Partner
- ----------------------- ML-Lee Acquisition Fund
Stanley H. Feldberg (Retirement Accounts) II, L.P.
/s/ Thomas H. Lee Individual General Partner
- ----------------- ML-Lee Acquisition Fund
Thomas H. Lee (Retirement Accounts) II, L.P.
/s/ Kevin T. Seltzer ML Mezzanine II Inc.
- -------------------- Vice President and Treasurer
Kevin T. Seltzer (Principal Financial Officer of Registrant)