<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934)
NATIONAL PATENT DEVELOPMENT CORPORATION
(Name of Issuer)
NATIONAL PATENT DEVELOPMENT CORPORATION
(Name of Person(s) Filing Statement)
6% Convertible Bonds Due March 7, 1995,
5 3/4% Convertible Bonds Due May 9, 1995,
5 5/8% Convertible Bonds Due March 18, 1996,
8% Bonds Due March 1, 1995, or
(collectively, the "Old Swiss Franc Bonds")
7% Dual Currency Convertible Bonds Due March 18, 1996
(the "Old U.S. Dollar Bonds," and collectively with
the Old Swiss Franc Bonds, the "Bonds")
(Title of Class of Securities)
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996,
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995, or
(Swiss Security No. 887282)
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(Cusip Number & Class of Securities)
Lawrence M. Gordon
National Patent Development Corporation
9 West 57th Street
New York, New York 10019
(212) 230-9500
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the
Person(s) Filing Statement)
June 10, 1994
(Date Tender Offer First Published,
Sent or Given to Security Holders)
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Calculation of Filing Fee
Transaction Amount of Filing Fee
Valuation*
$13,737,598 $2,747.52
/ / Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
Amount Previously Paid: Filing Party:
Form or Registration No.: Date Filed:
_________________
* Based on the aggregate value of the securities proposed to be
acquired.
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<PAGE>
This Schedule 13E-4 relates to an offer by National Patent
Development Corporation (the "Company") (i) to exchange common stock,
par value $.01 per share (the "Common Stock"), of the Company with a
market value of SFr. 1,000 for each SFr. 1,000 in principal amount of
the Old Swiss Franc Bonds validly tendered and not withdrawn prior to
the Expiration Date, and (ii) to exchange Common Stock with a market
value of US $1,000 for each US $1,000 in principal amount of Old U.S.
Dollar Bonds validly tendered and not withdrawn prior to the Expiration
Date. Interest accrued on the Bonds up to the Payment Date will be paid
in shares of Common Stock of the Company for each SFr. 1,000 principal
amount of Old Swiss Franc Bonds (such amounts referred to collectively
as "Swiss Bond Accrued Interest") and for each US $1,000 principal
amount of the Old U.S. Dollar Bonds (such amount referred to as "U.S.
Bond Accrued Interest," and together with the Swiss Bond Accrued
Interest, the "Accrued Interest"). Fractional shares of Common Stock
resulting from such exchange will be rounded up to the nearest integral
multiple.
The Company is concurrently making separate offers to (i) U.S.
holders to purchase any and all Bonds held by such holders (the "United
States Offer") and (ii) holders of Bonds held by persons that are not in
the United States and are not U.S. persons (the "Foreign Offer"). As
used herein, the term "Offer" shall refer collectively to the United
States Offer and the Foreign Offer. In connection with both of the
above, a copy of the Company's Offering Circular dated June 10, 1994
with respect to the United States Offer (the "U.S. Offering Circular")
and a copy of the Company's Offering Circular dated June 10, 1994 with
respect to the Foreign Offer (the "Foreign Offering Circular") are
attached hereto as Exhibits (a)(1) and (2) and are incorporated herein
by reference. As used herein, the term "Offering Circular" shall refer
collectively to the U.S. Offering Circular and the Foreign Offering
Circular.
Item Response or Cross-Reference to
the Offering Circular
Item 1 Security and Issuer.
(a) The name of the issuer and the address of its principal
executive office are: National Patent Development
Corporation, 9 West 57th Street, New York, New York 10019.
(b) The exact title and amount of the class of securities being
sought are: 60% of the aggregate principal amount of the
outstanding Bonds validly tendered in response to the Offer
and not withdrawn prior to the Expiration Date. The Company
reserves the right to exchange Bonds representing up to 62% of
the aggregate principal amount of the outstanding Bonds
pursuant to the Offer. If more than 60% of the aggregate
principal amount of the outstanding Bonds have been properly
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tendered by holders thereof prior to the Expiration Date and
not withdrawn pursuant to the United States Offer and the
Foreign Offer, the Company may, upon the terms and subject to
the conditions of the Offer, either (i) accept Bonds tendered
on a pro rata basis according to the aggregate principal
amount of all Bonds properly tendered by the holders thereof
prior to the Expiration Date and not withdrawn pursuant to the
United States Offer and the Foreign Offer or (ii) amend the
terms of the Offer by notice to the holders of the Bonds, in
which case the Offer shall remain open for an additional ten
(10) business days from the date that such notice is first
given. On April 30, 1994 there were outstanding SFr.
8,635,000 of the 6% Convertible Bonds due 1995, SFr. 3,520,000
of the 5 3/4% Convertible Bonds due 1995, SFr. 4,735,000 of
the 5 5/8% Convertible Bonds due 1996, SFr. 7,401,000 of the
8% Bonds due 1995 and US $3,926,000 of the 7% Dual Currency
Bonds. With respect to the consideration being offered for
the Bonds, the cover page of the Offering Circular and the
section of the Offering Circular entitled "Terms of the Offer"
are hereby incorporated herein by reference. To the best of
the Company's knowledge, no officer, director or affiliate of
the Company owns any of the Bonds.
(c) Reference is made to the section of the Offering Circular
entitled "Price Range of the Bonds"; said section is hereby
incorporated herein by reference.
(d) Not applicable.
Item 2 Source and Amount of Funds or Other
Consideration.
(a) The Company has offered to exchange common stock, par value
$.01 per share (the "Common Stock"), of the Company with a
market value of SFr. 1,000 for each SFr. 1,000 in principal
amount of the Old Swiss Franc Bonds validly tendered and not
withdrawn prior to the Expiration Date, and Common Stock with
a market value of US $1,000 for each US $1,000 in principal
amount of Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date. The section of the
Offering Circular entitled "Terms of the Offer" is hereby
incorporated herein by reference. Assuming 60% in aggregate
principal amount of the outstanding Bonds are exchanged, the
Company will issue Common Stock with a value of US
$13,737,598.
(b) Not applicable.
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<PAGE>
Item 3 Purpose of the Tender Offer and Plans or
Proposals of the Issuer or Affiliate.
With respect to purposes of the Offer, the section of the
Offering Circular entitled "Purpose of the Offer" is hereby
incorporated herein by reference and with respect to the plans
of the Issuer the Introduction of the Offering Circular is
hereby incorporated herein by reference.
Item 4 Interest in Securities of the Issuer.
During the period of 40 business days prior to the date hereof
the Company has not repurchased any of the Bonds. The section
of the Offering Circular entitled "Price Range of the Bonds"
is hereby incorporated herein by reference.
Item 5 Contracts, Arrangements, Understandings or
Relationships with Respect to the Issuer's
Securities.
Neither the Company nor, to the best of the Company's
knowledge, any of its directors or executive officers, or any
of the executive officers or directors of any of its
subsidiaries, is a party to any contract, arrangement or
understanding with respect to any securities of the Company
required to be disclosed herein.
Item 6 Persons Retained, Employed or to be
Compensated.
Reference is made to the section of the Foreign Offering
Circular entitled "Exchange Agents"; said section is hereby
incorporated herein by reference.
Item 7 Financial Information.
(a) Reference is made to the section of the Offering Circular
entitled "Selected Consolidated Financial Information of the
Company," and the financial statements included in the
Offering Circular; said section and financial statements are
hereby incorporated herein by reference.
(b) Reference is made to the section of the Offering Circular
entitled "Selected Consolidated Financial Information of the
Company," said section is hereby incorporated herein by
reference.
Item 8 Additional Information.
(a) None.
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(b) Not applicable.
(c) Not applicable.
(d) None.
(e) Additional information with respect to the Offer and related
matters is included throughout the Offering Circular, which is
hereby incorporated herein by reference in its entirety.
Item 9 Material to be filed as Exhibits.
(a) (1) U.S. Offering Circular dated June 10, 1994.
(2) Foreign Offering Circular dated June 10, 1994.
(3) Form of U.S. Letter of Instructions.
(4) Form of Foreign Letter of Instructions.
(5) Advertisement dated June 10, 1994 published in The New
York Times.
(b) None.
(c) None.
(d) None.
(e) None.
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<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true,
complete and correct.
June 9, 1994
(Date)
NATIONAL PATENT DEVELOPMENT CORPORATION
By Lawrence M. Gordon
Name: Lawrence M. Gordon
Title:Vice President
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<PAGE>
EXHIBIT INDEX
Page Number in
sequentially
Numbered Volume
EXHIBIT (a) (1) U.S. Offering Circular dated
June 10, 1994.
(2) Foreign Offering Circular
dated June 10, 1994.
(3) Form of U.S. Letter of
Instructions.
(4) Form of Foreign Letter of
Instructions.
(5) Advertisement dated June 10,
1994 published in The New
York Times.
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<PAGE>
UNITED STATES
OFFERING CIRCULAR
National Patent Development Corporation
Offer to Exchange
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF SFr. 1,000
For
Each Swiss Francs 1,000 Principal Amount of
Any and All
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996, or
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995
(Swiss Security No. 887282)
(collectively, the "Old Swiss Franc Bonds")
and
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF US $1,000
For
Each United States Dollars 1,000 Principal Amount of
Any and All
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(the "Old U.S. Dollar Bonds," and, collectively with
the Old Swiss Franc Bonds, the "Bonds")
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MONDAY, JULY 11, 1994 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
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National Patent Development Corporation (the "Company"), New York, New
York, hereby offers (the "Offer"), upon the terms and subject to the conditions
set forth in this Offering Circular (the "Offering Circular") and in the
accompanying Letter of Instructions (the "Letter of Instructions"), to exchange
(i) common stock, par value $.01 per share (the "Common Stock"), of the Company
with a market value of SFr. 1,000, for each SFr. 1,000 in principal amount of
the Old Swiss Franc Bonds validly tendered and not withdrawn prior to the
Expiration Date and (ii) Common Stock with a market value of US $1,000 for each
US $1,000 in principal amount of Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date. Concurrently with the Offer, the
Company is making a separate offer on the same terms and for the same
consideration as the Offer to foreign holders of the Bonds (the "Foreign
Offer").
On April 30, 1994, there were outstanding SFr. 8,635,000 of the 6%
Convertible Bonds due 1995, SFr. 3,520,000 of the 5 3/4% Convertible Bonds due
1995, SFr. 4,735,000 of the 5 5/8% Convertible Bonds due 1996, SFr. 7,401,000 of
the 8% Bonds due 1995 and US $3,926,000 of the 7% Dual Currency Convertible
Bonds due 1996. Interest accrued on the Bonds up to July 22, 1994, or, if the
Company shall have extended the Expiration Date, the tenth (10th) business day
after such adjusted Expiration Date (the "Payment Date"), will be paid in shares
of Common Stock of the Company for each SFr. 1,000 principal amount of each
respective class of Old Swiss Franc Bonds (such amounts referred to collectively
as "Swiss Bond Accrued Interest") and for each US $1,000 principal amount of the
Old U.S. Dollar Bonds (such amount referred to as "U.S. Bond Accrued Interest,"
and together with the Swiss Bond Accrued Interest, the "Accrued Interest").
In the event that Bonds in excess of 60% of the aggregate principal amount
of the outstanding Bonds have been properly tendered by the holders thereof
prior to the Expiration Date and not withdrawn pursuant to the Offer and the
Foreign Offer, the Company may, upon the terms and subject to the conditions of
the Offer, either (i) accept Bonds tendered on a pro rata basis according to the
aggregate principal amount of all Bonds properly tendered by the holders thereof
prior to the Expiration Date and not withdrawn pursuant to the Offer and the
Foreign Offer or (ii) amend the terms of the Offer by notice to the holders of
the Bonds, in which case the Offer shall remain open for an additional ten (10)
business days from the date that such notice is first given. If not more than
60% in aggregate principal amount of the outstanding Bonds are properly tendered
by the Expiration Date and not withdrawn pursuant to the Offer and the Foreign
Offer, all Bonds so tendered and not withdrawn will, upon the terms and subject
to the conditions of the Offer and the Foreign Offer, be exchanged. The Company
has the right, in its sole discretion, to waive any such conditions.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING
OF THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS IS
MAKING ANY RECOMMENDATION TO ANY HOLDER OF BONDS TO TENDER BONDS PURSUANT TO
THE OFFER. EACH HOLDER OF BONDS SHOULD MAKE ITS OWN DECISION WHETHER TO TENDER
ITS BONDS AFTER READING THIS OFFERING CIRCULAR.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Offering Circular is June 10, 1994
<PAGE>
The Common Stock to be issued pursuant to the Offer has not been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered or sold except in transactions exempt from the
registration requirements of the Securities Act or pursuant to an effective
registration statement. In recognition of the fact that exchanging holders of
Bonds ("Holders"), even though holding shares of Common Stock for investment,
may wish to be legally permitted to sell such stock when they deem appropriate,
the Company has agreed to prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to the
resale of the Common Stock from time to time on the American Stock Exchange,
Inc. or Pacific Stock Exchange, Inc., in privately-negotiated transactions or
otherwise. The Company has agreed to use its best efforts to cause such
registration statement to become effective on or before August 1, 1994. If such
registration statement is not declared effective by the Commission by August 15,
1994, each exchanging holder will have the option to withdraw the Bonds tendered
by it and to renounce its rights to the Common Stock received for its account in
exchange for such Bonds. Notice of such withdrawal must be given to the Company
prior to August 30, 1994. Offers and sales of Common Stock would constitute a
violation of United States law unless made in compliance with the registration
requirements of the Securities Act or pursuant to an exemption therefrom.
In order to exchange Bonds pursuant to the Offer a Letter of Instructions
must be submitted by or on behalf of each Holder to the Company at its office at
9 West 57th Street, New York, New York, and the Bonds must be tendered to the
appropriate Exchange Agent at its specified office in Switzerland. Banque
Scandinave en Suisse, acting through its specified office in Switzerland, has
agreed to provide services as the Exchange Agent with respect to the exchange of
the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank Leu AG, acting through
its specified office in Switzerland, has agreed to provide services as the
Exchange Agent with respect to the exchange of all Bonds other than the 8%
Bonds. Banque Scandinave en Suisse and Bank Leu AG may be referred to
hereinafter individually as the "Exchange Agent" or, collectively, as the
"Exchange Agents." The Company will deliver Common Stock to the Exchange Agents
outside the United States, and the Exchange Agents will deliver, on behalf of
the Company, Common Stock pursuant to the Offer only to an account or address
outside the United States. For purposes of this Offering Circular, the term
"United States" means the United States of America (including the States and the
District of Columbia), its possessions, its territories and other areas subject
to its jurisdiction.
In order to receive payments pursuant to the Offer without reservation for
backup withholding tax, each exchanging holder of Bonds will be required to
provide and certify its correct taxpayer identification number in the Letter of
Instructions.
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT, OR THE SECURITIES LAWS OF CERTAIN STATES, AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH
LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The Offer is being made by the Company in reliance on an exemption from the
registration requirements of the Securities Act, contained in Section 3(a)(9) of
the Securities Act. In order to be eligible for that exemption, the Company
will not pay any commission or other remuneration to any broker, dealer,
salesman or other person for soliciting tenders of Bonds. However, regular
employees of the Company (who will not be additionally compensated therefor) may
solicit tenders and will answer inquiries concerning the Offer.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its Regional Offices located at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such material can also be inspected at the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York and at the Pacific Stock
Exchange, Inc., 301 Pine Street, San Francisco, California, on which exchanges
the Common Stock is listed.
EXCHANGE AGENTS
Banque Scandinave en Suisse, acting through its specified office in
Switzerland, has agreed to provide services as the Exchange Agent with respect
to the exchange of the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank Leu
AG, acting through its specified office in Switzerland, has agreed to provide
services as the Exchange Agent with respect to the exchange of all Bonds other
than the 8% Bonds. Banque Scandinave en Suisse and Bank Leu AG may be referred
to hereinafter individually as the "Exchange Agent" or, collectively, as the
"Exchange Agents."
If you require additional copies of the Offering Circular, the Letter of
Instructions or assistance with the Offer, please contact the Company at (212)
230-9500.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Introduction.............................................................. 1
Description of the Company
Summary Terms and Conditions of the Offer
The Offer
1. Terms of the Offer.................................................. 5
2. Purpose of the Offer................................................ 6
3. Investment Considerations........................................... 7
4. Risks to Non-Exchanging Holders..................................... 8
5. Price Range of the Bonds............................................ 8
6. Selected Consolidated Financial Information of the Company.......... 11
7. Acceptance for Exchange and Payment................................. 16
8. Procedures for Tendering Bonds...................................... 16
9. Withdrawal Rights................................................... 17
10. Certain Federal Income Tax Consequences............................. 17
11. Fees and Expenses................................................... 20
12. Exchange Agents..................................................... 21
13. Description of Common Stock......................................... 21
14. Certain Conditions of the Offer..................................... 21
15. Condition to Acceptance for Exchange................................ 22
16. Miscellaneous...................................................... 22
</TABLE>
Annex A--National Patent Development Corporation--Annual Report on Form 10-K/A
for the year ended December 31, 1993, Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, Proxy Statement for the Annual Meeting of
Stockholders held on June 8, 1994.
<PAGE>
INTRODUCTION
Description of the Company
General
National Patent Development Corporation (the "Company"), incorporated in
Delaware in 1959, is primarily a holding company, which is a legal entity
separate and distinct from its various operating subsidiaries. The Company's
operations consist of four operating business segments: Physical Science,
Distribution, Optical Plastics and Electronics. The Company also has an
investment in two companies in the Health Care industry.
Physical Science
The Company's Physical Science Group consists of (i) GPS Technologies,
Inc. ("GPS"), an approximately 92% owned subsidiary, and (ii) GTS Duratek, Inc.
("Duratek"), an approximately 66% owned subsidiary.
GPS provides a wide range of management and technical training as well as
specialized engineering services to various commercial industries and the United
States government. Principal clients of GPS include electric utilities, process
industries, manufacturing plants, Federal agencies and the aerospace industries.
In addition, the Company currently owns approximately a 28% investment in
General Physics Corporation ("General Physics"), which provides a wide range of
personnel training and technical support services to the domestic commercial
nuclear power industry and the United States Departments of Energy and Defense,
as well as environmental engineering, training and support services to
governmental and commercial clients.
On April 7, 1994, General Physics entered into an agreement with GPS and
the Company to acquire substantially all of the operating assets of GPS and
certain of its subsidiaries. General Physics agreed to pay GPS a purchase price
with a current present value of approximately $36 million. The purchase price
will be payable to GPS as follows: $10 million in cash; 3.5 million shares of
General Physics common stock valued at approximately $13,500,000 (based upon the
price per share of General Physics common stock prior to the announcement of the
transaction which was $3.875); warrants to acquire 1,000,000 shares of General
Physics common stock at $6.00 per share valued at approximately $1,300,000;
warrants to acquire up to 475,644 additional shares of General Physics common
stock at $7.00 per share valued at approximately $500,000; and 6% Senior
Subordinated Debentures due 2004 (the "Debentures"), in the aggregate principal
amount of $15,000,000, valued at approximately $10,700,000. The values assigned
to each component of consideration were based upon (i) discussions with the
independent investment banker to the Independent Committee of General Physics
and the investment banker to GPS and (ii) negotiations between the Independent
Committee of General Physics and the Board of Directors of GPS. Portions of the
cash and stock consideration of the purchase price will be (a) used to repay
outstanding bank debt of GPS which at March 31, 1994 was $6,350,000 and long-
term debt of GPS which at March 31, 1994 was $8,975,000 to be repaid to the
Company and (b) held in escrow.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, the approval of the transaction by the
stockholders of General Physics and GPS. The transaction is anticipated to
close as soon as practicable in the second half of 1994, if all necessary
approvals are obtained and conditions satisfied. The Company anticipates that,
if the aforementioned transaction is consummated, it will own approximately 52%
of the outstanding common stock of General Physics, and if the Company were to
exercise all of its warrants, it would own approximately 58% of the outstanding
common stock of General Physics.
Duratek's operations consist of two operating groups: (1) "Environmental
Services" engaged in cleanup of water and other liquids containing radioactive
and/or hazardous (mixed waste) contaminants and minimum additive vitrification
for long-term stabilization of such waste and (2) "Consulting and Staff
Augmentation" services. Duratek provides services for various utility,
industry, government and commercial clients.
<PAGE>
Distribution
The Company's Distribution Group, incorporated under the name Five Star
Group, Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products.
Healthcare
The Company's investment in the Health Care industry consists of the
Company's ownership of approximately 36% of the outstanding shares of common
stock of Interferon Sciences, Inc. ("ISI"). ISI is a biopharmaceutical company
engaged in the manufacture and sale of ALFERON N Injection, the only product
approved by the Food and Drug Administration that is based upon a natural
source, multi-species alpha interferon. ISI also is developing its existing
injectable, topical and/or oral formulations of its natural alpha interferon for
the potential treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis,
cancers and other indications.
Additionally, the Company owns approximately 4.9% of the outstanding
shares of common stock of American White Cross, Inc. (formerly, NPM Healthcare
Products, Inc.) ("White Cross"). White Cross is a leading manufacturer and
marketer of private label adhesive and cotton-based health and personal care
products.
Optical Plastic
The Company's Optical Plastics Group, through its wholly owned subsidiary
MXL Industries, Inc., manufactures molded and coated optical products, such as
shields and face masks and non-optical plastic products.
Electronics
The Company's Electronics Group, through its subsidiary Eastern
Electronics Mfg. Corporation, is engaged in contract manufacturing, such as
printed circuit board assembly for the electronics industry.
Recent Developments
American Drug Company
On February 2, 1994, the Board of Directors of the Company approved a
dividend of approximately 46.1% of the common stock of American Drug Company to
holders of record of the Company's Common Stock and Class B Capital Stock.
American Drug Company is currently a wholly-owned subsidiary of the Company.
The dividend will be at the rate of one share, plus one warrant to purchase one
share of American Drug Company common stock at an exercise price per share of
$1.00, for every four outstanding shares of Common Stock and Class B Capital
Stock of the Company. The distribution of American Drug Company common stock to
the Company's stockholders will result in direct ownership in a company focused
on developing markets for American-made generic pharmaceutical and personal care
products in Russia and the other states of the Commonwealth of Independent
States and on developing other business opportunities. Following the
distribution, the Company will own 6,000,000 shares of the common stock of
American Drug Company, representing approximately 53.9% of the outstanding
common stock of American Drug Company, without accounting for outstanding
options and warrants.
Interferon Sciences, Inc.
On May 13, 1994, ISI filed a registration statement with the Commission
relating to a proposed public offering of 3,000,000 shares of its common stock
(with an additional 450,000 shares of its common stock subject to an over-
allotment option). D. Blech & Company, Incorporated is the underwriter of the
offering.
The Company is a Delaware corporation, incorporated in 1959, and its
headquarters are located at 9 West 57th Street, New York, New York 10019. Its
telephone number is (212) 230-9500. The Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, Quarterly Report on Form 10-Q for the
quarter ended
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<PAGE>
March 31, 1994 and Proxy Statement for the Annual Meeting of Stockholders held
on June 8, 1994, each of which provide additional information regarding the
Company and its subsidiaries, are attached hereto as Annex A.
Summary Bond Information
The following table sets forth certain information with respect to the
Bonds:
<TABLE>
<CAPTION>
Repurchased and Held
Principal Amount by the Company (or
Original Principal Outstanding as of affiliates) as of
Name of Issue Amount April 30, 1994* April 30, 1994** Scheduled Maturity
- ------------------ ----------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
6% Convertible Bonds SFr. 60,000,000 SFr. 8,635,000 SFr. 1,990,000 March 7, 1995
5 3/4% Convertible Bonds SFr. 50,000,000 SFr. 3,520,000 SFr. 1,825,000 May 9, 1995
5 5/8% Convertible Bonds SFr. 50,000,000 SFr. 4,735,000 SFr. 1,135,000 March 18, 1996
8% Bonds SFr. 51,264,000 SFr. 7,401,000 SFr. 6,582,000 March 1, 1995
7% Dual Currency Bonds US $ 15,000,000 US $ 3,926,000 US $285,000 March 18, 1996
- ----------------------
</TABLE>
* Does not include any Bonds outstanding that are owned by the Company or
affiliates.
** All Bonds that have been repurchased and are owned by the Company or its
affiliates (except SFr. 6,582,000 of the 8% Bonds which have been repurchased
and are held by affiliates of the Company) will be retired upon the completion
of the Offer.
Repurchases by the Company
The Company and its affiliates have repurchased in the open market and
hold SFr. 11,532,000 and US $285,000 of the Bonds. The Company intends to
deliver to the Exchange Agents for cancellation approximately SFr. 4,950,000 and
US $285,000 of Bonds repurchased by it. The remaining SFr. 6,582,000 of 8%
Bonds are owned by affiliates of the Company as collateral for loans made by
such affiliates to the Company and will not be retired.
As of March 31, 1994, the Company had an aggregate of $40,469,000 of
long-term indebtedness, including $20,797,000 of the Bonds, of which $11,025,000
is included in current maturities of long-term debt. For a description of the
outstanding indebtedness of the Company, see "Capitalization."
The Company is making the Offer to reduce its long-term indebtedness,
to increase its book value and to provide the Company with additional financial
flexibility in its operations. See "Purpose of the Offer" and "Capitalization."
Concurrently with the Offer, the Company is making a separate offer on the same
terms and for the same consideration as the Offer to foreign holders of the
Bonds (the "Foreign Offer"). The Company will accept for exchange in the Offer
and the Foreign Offer Bonds representing up to 60% of the aggregate principal
amount outstanding of the Bonds. As of April 30, 1994, 60% of the aggregate
principal amount outstanding of the Bonds was equal to SFr. 17,900,000, assuming
an exchange rate of 1.4115 with respect to the Old U.S. Dollar Bonds.
Summary Terms and Conditions of the Offer
Exchange Consideration
In exchange for each SFr. 1,000 principal amount and each US$ 1,000
principal amount of any of the Bonds validly tendered, the Company offers shares
of its common stock with a par value of US$ 0.01 per share (the "Common Stock")
and with a market value of SFr. 1,000 with respect to Old Swiss Francs Bonds and
of US$ 1,000 with respect to Old U.S. Dollar Bonds. Interest accrued on the
Bonds up to the Payment Date (as defined
-3-
<PAGE>
below) will also be paid in Common Stock. Fractional shares of Common Stock
resulting from such exchange will be rounded up to the nearest integral
multiple.
The exchange rate between US$ and Swiss Francs will be determined by
the Exchange Agents on the basis of the Swiss Franc/US$ spot rate reported in
the Wall Street Journal Europe Edition on the fifth trading day prior to July
11, 1994.
The market value of the Common Stock offered in exchange for the Bonds
will be determined on the basis of the average of the last sale prices on the
American Stock Exchange, Inc. of the Common Stock for the ten (10) trading days
ending five (5) trading days prior to July 11, 1994.
Offering Period
The offer to tender the Bonds for exchange is open from June 10, 1994
to July 11, 1994. The Company reserves the right to extend the Offer for an
additional ten (10) business days, until July 25, 1994. The date on which the
offer, or any extension thereof, expires is hereinafter referred to as the
"Expiration Date."
Payment Date
Subject to the conditions set forth in Section 14, the "Payment Date"
is July 25, 1994, or, if the Expiration Date has been extended beyond July 11,
1994, the tenth (10th) business day after the Expiration Date.
Maximum Acceptance
Subject to the condition set forth in Section 15, the Company will
accept for exchange Bonds representing up to 60% of the aggregate principal
amount of the outstanding Bonds (the percentage limitation being calculated on
the overall principal amount of all outstanding Bonds, i.e. irrespective of the
individual series of Bonds). The Company reserves the right to exchange Bonds
representing up to 62% of the aggregate principal amount of the outstanding
Bonds pursuant to the Offer and the Foreign Offer. In the event Bonds in excess
of 60% of the aggregate principal amount are tendered, the Company may either
(i) accept Bonds tendered on a pro rata basis according to the aggregate
principal amount of all Bonds properly tendered by the Expiration Date or (ii)
amend the terms of the Offer by notice to the holders of the Bonds, in which
case the Offer shall remain open for an additional ten (10) business days from
the date that such notice is first given. The Company reserves the right to
waive the maximum acceptance restriction. In no event will the Offer be
extended beyond July 25, 1994.
Registration of Common Stock
The Company shall apply for registration of the newly issued shares of
Common Stock with the United States Securities and Exchange Commission (the
"Commission"). Exchanging holders of Bonds may not offer or sell the Common
Stock received in the Offer except in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or pursuant to an effective registration statement.
Conditions of Offer
The Offer is subject to certain conditions as more fully
described in this Offering Circular.
Withdrawal Rights
Bonds tendered pursuant to the Offer may be withdrawn by holders of
Bonds at any time prior to the Expiration Date. After the Expiration Date,
Bonds may be withdrawn if the registration statement of the Company with respect
to the Common Stock has not been declared effective by the Commission on or
prior to August 15, 1994.
-4-
<PAGE>
Exchange Agents
Banque Scandinave en Suisse, acting through its specified office in
Switzerland, has agreed to provide services as the Exchange Agent with respect
to the exchange of the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank Leu
AG, acting through its specified office in Switzerland, has agreed to provide
services as the Exchange Agent with respect to the exchange of all Bonds other
than the 8% Bonds. Banque Scandinave en Suisse and Bank Leu AG may be referred
to hereinafter individually as the "Exchange Agent" or, collectively, as the
"Exchange Agents."
Taxes
Any securities transfer tax due on the exchange of Bonds for
Common Stock will be borne by the Company.
The Offer
1. Terms of the Offer. Upon the terms and subject to
the conditions of the Offer, the Company will accept for exchange Bonds
representing up to 60% of the aggregate principal amount of the outstanding
Bonds which are validly tendered pursuant to the Offer and the Foreign Offer on
or prior to the Expiration Date and not theretofore withdrawn as permitted by
Section 9 of the Offer. The term "Expiration Date" means 5:00 p.m., New York
City time, on July 11, 1994, unless the Company, in its sole discretion, shall
have extended the period of time for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date, not beyond 5:00
p.m., New York City time, on July 25, 1994, at which time the Offer, as so
extended by the Company, shall expire. The payment date (the "Payment Date")
for Bonds accepted for payment by the Company pursuant to the Offer will be July
25, 1994. However, if the Company shall have extended the period of time for
which the Offer is open, the Payment Date shall be the tenth (10th) business day
after the adjusted Expiration Date.
The consideration offered by the Company in exchange for each SFr.
1,000 principal amount of any and all Old Swiss Franc Bonds and each US $1,000
principal amount of any and all Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date is Common Stock with a market value of
SFr. 1,000, with respect to the Old Swiss Franc Bonds, and of US $1,000, with
respect to the Old U.S. Dollar Bonds. Interest accrued on the Bonds up to the
Payment Date will be paid in shares of Common Stock of the Company for each SFr.
1,000 principal amount of Old Swiss Franc Bonds (such amounts referred to
collectively as "Swiss Bond Accrued Interest") and for each US $1,000 principal
amount of the Old U.S. Dollar Bonds (such amount referred to as "U.S. Bond
Accrued Interest," and together with the Swiss Bond Accrued Interest, the
"Accrued Interest"). Fractional shares of Common Stock resulting from such
exchange will be rounded up to the nearest integral multiple.
The Company currently intends to exchange Bonds representing 60% of
the aggregate principal amount of the outstanding Bonds, irrespective of the
individual series of the Bonds, pursuant to the Offer and the Foreign Offer.
The Company reserves the right to exchange Bonds representing up to 62% of the
aggregate principal amount of the outstanding Bonds pursuant to the Offer and
the Foreign Offer. In the event that Bonds in excess of 60% of the aggregate
principal amount of the outstanding Bonds have been properly tendered by the
holders thereof prior to the Expiration Date and not withdrawn, the Company may,
upon the terms and subject to the conditions of the Offer, either (i) accept
Bonds tendered on a pro rata basis to the holders according to the aggregate
principal amount of all Bonds properly tendered by the Expiration Date and not
withdrawn or (ii) amend the terms of the Offer by notice to the holders of the
Bonds, in which case the Offer shall remain open for an additional ten (10)
business days from the date that such notice is first given. If not more than
60% in aggregate principal amount of the outstanding Bonds are properly tendered
by the Expiration Date and not withdrawn, all Bonds so tendered and not
withdrawn will, upon the terms and subject to the conditions of the Offer, be
exchanged. The Company has the right, in its sole discretion, to waive any such
conditions.
-5-
<PAGE>
For each SFr. 1,000 principal amount of Old Swiss Franc Bonds
exchanged, the holder will receive Common Stock with a value equal to the sum of
SFr. 1,000 and the respective amount of Swiss Bond Accrued Interest for the
tendered Old Swiss Franc Bond (the "Swiss Bond Common Stock Value"). For each
US $1,000 principal amount of Old U.S. Dollar Bonds exchanged, the holder will
receive Common Stock with a value equal to the sum of US $1,000 and the U.S.
Bond Accrued Interest (the "U.S. Bond Common Stock Value"). The number of shares
of Common Stock issued for each SFr. 1,000 principal amount of Old Swiss Franc
Bonds exchanged will be equal to the number obtained by dividing (i) the Swiss
Bond Common Stock Value by (ii) the Swiss Franc/U.S. Dollar spot rate reported
in The Wall Street Journal-Europe Edition on the fifth trading day prior to July
11, 1994 (as determined by the Company), and then dividing the resulting
quotient by the average of the last sale prices on the American Stock Exchange,
Inc. ("AMEX") of the Common Stock for the ten trading days ending five trading
days prior to July 11, 1994. The number of shares of Common Stock issued for
each US $1,000 principal amount of Old U.S. Dollar Bonds exchanged will be equal
to the number obtained by dividing (i) the U.S. Bond Common Stock Value by (ii)
the average of the last sale prices on the AMEX of the Common Stock for the ten
trading days ending five trading days prior to July 11, 1994. Fractional shares
of Common Stock resulting from such exchange will be rounded up to the nearest
integral multiple.
In recognition of the fact that holders of Common Stock, even though
holding Common Stock for investment, may wish to be legally permitted to sell
their shares of Common Stock when they deem appropriate, the Company has agreed
to prepare and file with the Commission a registration statement with respect to
the resale of the shares of Common Stock from time to time on the AMEX, on the
Pacific Stock Exchange, Inc., in privately-negotiated transactions or otherwise.
In any event, the holders of Common Stock may not sell shares of Common Stock
except (a) in transactions exempt from the registration requirements of the
Securities Act or (b) pursuant to an effective registration statement covering
the Common Stock.
The Company will use its best efforts to cause the registration
statement to become effective on or before August 1, 1994. There can, however,
be no assurance that the registration statement will have become effective on
such date. If such registration statement is not declared effective by the
Commission on or before August 15, 1994, each exchanging holder will have the
option to withdraw the Bonds tendered by it and to renounce its rights to the
Common Stock received for its account in exchange for such Bonds. Notice of
such withdrawal must be given to the Company prior to August 30, 1994.
If the Company shall decide, in its sole discretion, to increase the
consideration offered in the Offer or the percentage of Bonds sought in the
Offer beyond 62% and, at the time that notice of such increase is first
published in the manner specified below, the Offer is scheduled to expire
earlier than the tenth (10th) United States business day from, and including,
the date that such notice is first so published in the manner specified below,
then the Offer will be extended until the expiration of such period of ten (10)
United States business days. For purposes of the Offer, a "United States
business day" means any day other than a Saturday, Sunday or United States
federal holiday and consists of the time period from 12:01 A.M. through 12:00
midnight, New York City time.
The Company expressly reserves the right (i) to terminate the Offer
and not accept for exchange any Bonds, upon the occurrence of the event
specified in Section 15, by giving notice in writing or by telex of such
termination to the Exchange Agents, and (ii) to amend the Offer at any time, or
from time to time, in any respect other than to decrease the consideration
offered for the Bonds in the Offer. Any termination, extension or amendment
will be made by public announcement in The Wall Street Journal.
-----------------------
2. Purpose of the Offer. The purpose of the Offer is to reduce the
Company's long-term indebtedness and annual interest expense, to increase the
Company's book value and to provide the Company with additional financial
flexibility in its operations. In addition, the issuance of the Common Stock
in the Offer will enable the Company to lower its ratio of long-term debt to
total capitalization.
Assuming that 60% of the Bonds had been exchanged on March 31, 1994,
the Company would have reduced its consolidated long-term debt, less current
maturities, from approximately $25,778,000 to approximately $19,914,000 and
increased its book value from approximately $66,158,000 to approximately
$79,292,000.
-6-
<PAGE>
3. Investment Considerations.
(a) Liquidity; Financial Condition. The Company believes that it has
sufficient cash and cash equivalents and borrowing availability under existing
and potential lines of credit to satisfy its cash requirements until the first
scheduled maturity of its Swiss Franc denominated indebtedness on March 1,
1995. However, in order for the Company to meet its long-term cash needs,
which include the repayment of $13,518,000 of Swiss Franc denominated
indebtedness scheduled to mature in 1995 and $7,279,000 of Swiss Franc
denominated indebtedness which is scheduled to mature in 1996, the Company
must obtain additional funds. The Company has reduced and is continuing to
reduce its long-term debt through the issuance of equity securities in
exchange for long-term debt (including the shares of the Company's Common
Stock issued in the Offer), and is also exploring new credit arrangements on
an ongoing basis. However, there is no assurance that the Company will be able
to obtain any new credit arrangements.
At March 31, 1994, the Company and its majority-owned subsidiaries
held cash and cash equivalents totaling $9,848,000. Of these amounts,
approximately $7,748,000 is held by the Company and is available for the general
corporate purposes of the Company.
(b) Recent Historical Operating Losses, Retained Earnings Deficit. Since
1987, the Company has experienced losses before income taxes, discontinued
operations and extraordinary items. These losses were the result of operating
losses at certain of its subsidiaries, which were not wholly offset by
operating profits from certain of its other subsidiaries. The Company's
current strategy is to consolidate certain related operating businesses and to
improve their operating results, while continuing to make investments in new
ventures or make selected divestitures based on market conditions.
For the quarter ended March 31, 1994, the Company's loss from
operations before income taxes and extraordinary items was $2,394,000, as
compared to a loss of $2,939,000 for the quarter ended March 31, 1993. For the
year ended December 31, 1993, the Company's loss from operations before income
taxes and extraordinary items was $8,371,000, as compared to a loss of
$13,178,000 for the year ended December 31, 1992. As of March 31, 1994, the
Company had stockholders' equity of $66,158,000 and a deficit of $41,488,000.
Losses in future years may adversely affect the Company's ability to service its
debt.
(c) Ratio of Earnings to Fixed Charges. The ratio of earnings to fixed
charges represents the number of times that fixed charges were covered by
income before income taxes, discontinued operations and extraordinary items,
as adjusted by such fixed charges. For the three months ended March 31, 1994
and the year ended December 31, 1993, the Company had a deficiency in the
coverage of fixed charges to earnings before fixed charges of $2,326,000 and
$10,747,000, respectively.
(d) Holding Company; Dependence on Subsidiaries. The Company is primarily
a holding company, which is a legal entity separate and distinct from its
various operating subsidiaries. As a holding company, the Company is dependent
upon management fees, dividends and other payments or advances from operating
subsidiaries as its principal source of cash to service outstanding debt. The
ability of the Company to obtain cash from an operating subsidiary depends
upon, among other factors, the operating results of the subsidiary,
restrictions on payments to the Company imposed by creditors of the
subsidiary, restrictions on payments to the Company imposed by other
agreements governing the subsidiary and the degree of dilution of dividend
payments resulting from public ownership of equity securities of the
subsidiary.
As of March 31, 1994, there is currently at the holding company level
approximately $7,748,000 of cash and cash equivalents. Duratek, under its
Revolving Line of Credit, is prohibited from making any payments to the Company.
GPS, under the terms of its Amended and Restated Revolving Credit and Term Loan
and Security Agreement, may only pay the Company an amount equal to 80% of the
amount GPS would have paid in federal income taxes if it filed its federal
income tax return on a stand-alone basis. However, GPS may be prohibited from
distributing approximately $1,200,000 of management fees and tax sharing
payments to the Company in 1994 if GPS were to be in violation of certain
covenants in its bank agreements.
-7-
<PAGE>
The rights of the Company and its creditors to participate in the
assets of any of the Company's subsidiaries upon bankruptcy or liquidation of a
subsidiary are subject to the prior claims of the subsidiary's creditors except
to the extent the Company may itself be a creditor with recognized claims
against the subsidiary; however, the Company's claims may be subordinate to the
claims of any secured creditors of the subsidiary. See "The Company."
(e) Currency Fluctuations. On March 31, 1994, the value of the Swiss
Franc to the U.S. dollar was approximately 1.412 to 1. At March 31, 1994, the
Company had an aggregate of SFr. 26,318,000 of Swiss Franc denominated
indebtedness outstanding, of which SFr. 23,823,000 represents principal amount
outstanding and SFr. 2,495,000 represents interest accrued thereon. Foreign
currency valuation fluctuations may adversely affect the results of operations
and financial condition of the Company. In order to protect itself against
foreign currency valuation fluctuations, the Company has at times swapped or
hedged a portion of its obligations denominated in Swiss Francs; however, at
March 31, 1994, the Company had not swapped or hedged any of its Swiss Franc
obligations. If the value of the Swiss Franc to the U.S. dollar increases, the
Company will recognize transaction losses on its Swiss Franc obligations.
There can be no assurance that the Company will be able in the future to swap
or hedge obligations denominated in foreign currencies at prices acceptable to
the Company, or at all. The Company will review its policy as to hedging on a
continuing basis.
(f) Ranking of Common Stock; Certain Bankruptcy Law Considerations.
Consummation of the Offer may have significant bankruptcy consequences for
exchanging holders of Bonds. In general, a note, bond or other evidence of
indebtedness represents a potential bankruptcy claim equal to its face amount,
plus accrued and unpaid interest as of the date of the commencement of the
bankruptcy case, less any unamortized original issue discount. The
determination of original issue discount for bankruptcy purposes may not be
the same as that applicable for tax purposes. Equity securities rank below all
debt claims and claims of holders of common stock rank below claims of holders
of preferred stock. Accordingly, exchanging holders will have a bankruptcy
claim that ranks below the claims of all remaining holders of Bonds, as well
as $16,006,000 of other long-term indebtedness less current maturities at
March 31, 1994.
4. Risks to Non-Exchanging Holders. Holders of the Bonds who do not
participate in the Offer may be subject to certain adverse consequences.
The purchase of Bonds pursuant to the Offer will reduce the aggregate
principal amount of Bonds that might otherwise trade publicly, will reduce the
number of holders of Bonds and could adversely affect the liquidity and market
value of the remaining Bonds held by the public. A debt security with a
smaller float may command a lower price than a comparable debt security with a
greater float. Therefore, the market price for a Bond may be adversely
affected to the extent that the principal amount of the Bonds tendered
pursuant to the Offer reduces the float of the Bonds. This reduced float may
also tend to make the trading price more volatile.
5. Price Range of the Bonds. The Bonds are traded in Switzerland on the
Stock Exchanges of Zurich, Basle and Geneva. The following table sets forth
the range of high and low sale prices of each of the classes of Bonds in
percentages of principal amount as reported by the Zurich Stock Exchange for
the periods set forth below:
6% Convertible Bonds due 1995
<TABLE>
<CAPTION>
1992 1993 1994
- ---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Lo
- ---- --- ---- --- ---- ---
56% 37% 85% 46% 93% 80%
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
5 3/4% Convertible Bonds due 1995
1992 1993 1994
- ---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
- ---- --- ---- --- ---- ---
53% 38% 80% 42% 91% 70%
5 5/8% Convertible Bonds due 1996
1992 1993 1994
- ---- ---- ----
(through April 30, 1994)
High Low High Low High Low
- ---- --- ---- --- ---- ---
55% 36.5% 80% 48% 91% 75%
8% Bonds due 1995
1992 1993 1994
- ---- ---- ----
(through April 30, 1994)
High Low High Low High Low
- ---- --- ---- --- ---- ---
55% 37% 85% 38.5% 95% 81%
7% Dual Currency Convertible Bonds due 1996
1992 1993 1994
- ---- ---- ----
(through April 30, 1994)
High Low High Low High Low
- ---- --- ---- --- ---- ---
65% 45% 75% 47% 88% 76%
</TABLE>
On April 29, 1994, the last sales prices of the 6% Convertible Bonds due
1995, the 5 3/4% Convertible Bonds due 1995, the 5 5/8% Convertible Bonds due
1996, the 8% Bonds due 1995 and the 7% Bonds due 1996 on the Zurich Stock
Exchange were 86%, 82%, 82%, 88% and 83% of the principal amount, respectively.
Bondholders are urged to obtain a current market quotation for the Bonds prior
to tendering Bonds pursuant to the Offer.
The Company has not sold any Bonds during the three-month period preceding
the Offer.
-9-
<PAGE>
During the forty (40) business days prior to the public announcement by the
Company of the Offer, the Company has not repurchased any of the Bonds.
-10-
<PAGE>
6. Selected Consolidated Financial Information of the Company.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at March 31, 1994 to give effect to the exchange of the Common Stock for 60% of
the Bonds, as if such exchange had occurred on March 31, 1994. The Company's
Swiss Franc denominated indebtedness has been translated at an exchange rate of
approximately SFr. 1.412 per US $1.00.
<TABLE>
<CAPTION>
March 31, 1994
--------------
Outstanding Pro Forma
----------- ---------
(unaudited, in thousands)
<S> <C> <C>
SHORT-TERM DEBT
Current maturities of long-term debt.. $17,281 $10,666
Line of credit and other agreements... 26,537 26,537
------- -------
Total short-term debt............... 43,818 37,203
======= =======
LONG-TERM DEBT LESS CURRENT
MATURITIES
Bonds
5.75% Convertible Swiss Bonds due
1995.............................. $ 2,493 $ 997
5.625% Convertible Swiss Bonds due
1996.............................. 3,353 1,341
7% Dual Currency Convertible Bonds
due 1996.......................... 3,926 1,570
12% Subordinated Debentures due
1997.............................. 6,790 6,790
5% Convertible Bonds due 1999...... 2,079 2,079
Mortgage notes payable, equipment
lease
obligations and other............... 7,137 7,137
------- -------
25,778 19,914
------ --------
Common stock issued subject to repurchase
obligation............................. 3,876 3,876
-------- -------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share,
10,000,000 shares authorized, no shares
issued and outstanding................ ---- ----
Common stock........................... 192 233A(a)(b)
Class B capital stock.................. 2 2
Capital in excess of par value......... 107,452 120,635(a)(b)
Deficit................................ (41,488) (41,578)(b)(c)
-------- --------
Total stockholders' equity............ 66,158 79,292
-------- --------
Total capitalization.................. $ 95,812 $103,082
======== ========
- --------------------
</TABLE>
(a) Assumes the Company issues 3,925,028 shares of its Common Stock at a price
of $3.50 per share in exchange for debt and accrued interest with a value
of $12,639,000, which represents an 8% discount to market value.
(b) Assumes the Company issues 167,243 shares of its Common Stock at a price of
$3.50 per share with a guaranteed value of approximately $585,000 in
payment of commissions and fees to the Exchange Agents.
(c) Assumes a loss in the Offer (net of taxes) of $90,000.
-11-
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
The following table sets forth the unaudited consolidated condensed balance
sheet of the Company at March 31, 1994 and as adjusted to give effect to the
exchange of the Common Stock for 60% of the Bonds, as if such exchange had
occurred on March 31, 1994.
<TABLE>
<CAPTION>
ASSETS
Actual Pro Forma
----------- ------------
(unaudited, in thousands)
<S> <C> <C>
Current Assets
- --------------
Cash and cash equivalents.................... $ 9,848 $ 9,598(a)
Accounts and other receivables............... 37,667 37,667
Inventories.................................. 26,616 26,616
Costs and estimated earnings in excess of
billings
on uncompleted contracts.................... 15,528 15,528
Prepaid expenses and other current assets.... 3,613 3,613
-------- --------
Total current assets........................ 93,272 93,022
-------- --------
Investments and advances...................... 27,282 27,282
-------- --------
Property, plant and equipment at cost......... 35,255 35,255
Less accumulated depreciation................. (20,786) (20,786)
-------- --------
14,469 14,469
-------- --------
Intangible assets, net of amortization........ 29,607 29,452(a)
-------- --------
Investment in financed assets................. 2,246 2,246
-------- --------
Other assets.................................. 3,226 3,226
-------- --------
$170,102 $169,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Current maturities of
long-term debt........... $ 17,281 $ 10,666
Short-term borrowings..... 26,537 26,537
Accounts payable and
accrued expenses......... 22,492 21,432(b)
Billings in excess of
costs and estimated
earnings on uncompleted
contracts............... 4,693 4,693
-------- --------
Total current liabilities 71,003 63,328
-------- --------
Long-term debt, less
current maturities........ 25,778 19,914
-------- --------
Minority interests......... 3,287 3,287
-------- --------
Common stock issued
subject to repurchase
obligation................ 3,876 3,876
-------- --------
Stockholders' equity
- ---------------------------
Common stock.............. 192 233
Class B capital stock..... 2 2
Capital in excess of par
value.................... 107,452 120,635(c)(d)
Deficit................... (41,488) (41,578)(d)(e)
-------- --------
Total stockholders' equity 66,158 79,292
-------- --------
$170,102 $169,697
======== ========
</TABLE>
-12-
<PAGE>
(a) Assumes a reduction of deferred finance costs of $155,000 and cash
expenses of $250,000.
(b) Assumes a reduction in accrued expenses, as a result of reduced accrued
interest, of $1,060,000.
(c) Assumes the Company issues 3,925,028 shares of its Common Stock at a price
of $3.50 per share in exchange for debt and accrued interest with a value
of $12,639,000, which represents an 8% discount to market value.
(d) Assumes the Company issues 167,243 shares of its Common Stock at a price of
$3.50 per share with a guaranteed value of approximately $585,000 in
payment of commissions and fees to the Exchange Agent.
(e) Assumes a loss in the Offer (net of taxes) of $90,000.
-13-
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
The following table sets forth the consolidated condensed statement of
operations of the Company and its subsidiaries for the fiscal year ended
December 31, 1993 and quarter ended March 31, 1994 and as adjusted to reflect
the exchange of the Common Stock for 60% of the Bonds.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Quarter Ended March 31, 1994
----------------------------- -------------------------------
Actual Pro Forma Actual Pro Forma
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales $189,683 $189,683 $45,232 $45,232
Investment and other income, net 3,358 3,213(a) (752) (229)(a)
-------- -------- ------- -------
193,041 192,896 44,480 45,003
-------- -------- ------- -------
Costs and expenses
Cost of goods sold 162,164 162,164 36,985 36,985
Selling, general & administrative 35,600 35,600 8,198 8,198
Research & development 2,847 2,847 120 120
Interest 8,325 7,129(b) 1,503 1,199(b)
-------- -------- ------- -------
208,936 207,740 46,806 46,502
-------- -------- ------- -------
Gain on disposition of stock of
a subsidiary and an affiliate 3,795 3,795 -- --
-------- -------- ------- -------
Gain on issuance of stock by a
subsidiary 1,353 1,353 -- --
-------- -------- ------- -------
Minority interests 2,376 2,376 (68) (68)
-------- -------- ------- -------
Loss before income taxes, discontinued
operations and extraordinary items (8,371) (7,320) (2,394) $(1,567)
Income tax benefit (expense) 575 575 (66) (66)
-------- -------- ------- -------
Loss before discontinued operations
and extraordinary items $ (7,796) $ (6,745) $(2,460) $(1,633)
======== ======== ======= =======
Loss per share before discontinued
operations and extraordinary item $(.46) $(.32) $(.13) $(.07)
Fixed charges in excess of earnings $ 10,747 $ 9,696 $ 2,326 $ 1,499
======== ======== ======= =======
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, 1993 March 31, 1994
----------------- ----------------
<S> <C> <C>
(a) The change in investment and
other income, net will be the
result of the following factors
(in thousands):
Reduced investment income as a
result of the use of cash
and cash equivalents in the
Offer $ (10) $ (3)
Elimination of foreign
currency transaction gain/
loss as a result of the Offer (135) 526
----- -----
$(145) $ 523
===== =====
(b) The decrease in interest expense
will be caused by the follow-
ing factors (in thousands):
Interest on the Bonds $ 831 $212
Amortization of Original Issue
discount on the 8% Bonds 233 59
Amortization of the deferred
finance costs on the Bonds 132 33
----- -----
$1,196 $ 304
====== =====
</TABLE>
-15-
<PAGE>
7. Acceptance for Exchange and Payment. Upon the terms and subject to the
condition to acceptance for exchange set forth in Section 15 and the other
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the Company will
accept for exchange up to 60% of the aggregate principal amount outstanding of
the Bonds validly tendered on or prior to the Expiration Date and not properly
withdrawn as permitted by Section 9. In the event that Bonds in excess of 60%
of the aggregate principal amount of the outstanding Bonds have been properly
tendered by the Expiration Date and not withdrawn, the Company may, upon the
terms and subject to the conditions of the Offer, either (i) accept Bonds
tendered on a pro rata basis according to the aggregate principal amount of all
Bonds properly tendered by the Expiration Date and not withdrawn or (ii) amend
the terms of the Offer by notice to holders of the Bonds, in which case the
Offer shall remain open for an additional ten (10) business days from the date
that such notice is first given. If not more than 60% in aggregate principal
amount of the Bonds are properly tendered by the Expiration Date and not
withdrawn, all Bonds so tendered and not withdrawn will, upon the terms and
subject to the conditions of the Offer, be exchanged.
Subject to the conditions set forth in Section 14, the Payment Date for
Bonds accepted for payment by the appropriate Exchange Agent will be July 25,
1994, provided, however, if the Company shall have extended the period of time
for which the Offer is open, the Payment Date shall be the tenth (10th) business
day after the Expiration Date of the Offer. The term "Expiration Date" means
5:00 p.m., New York City time, on July 11, 1994, unless the Company in its sole
discretion shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date,
not beyond 5:00 p.m., New York City time on July 25, 1994 at which time the
Offer, as so extended by the Company, shall expire. In all cases, payment for
Bonds exchanged pursuant to the Offer will be made only upon timely receipt by
the Company at its office in New York of the Letter of Instructions and by the
appropriate Exchange Agent at its specified office in Switzerland of such Bonds,
together with any and all unmatured and matured but unpaid coupons. In the event
that unmatured and matured but unpaid coupons are not submitted with Bonds
tendered, such Bonds will not be accepted for tender. The respective amount of
Swiss Bond Accrued Interest will be paid on the Old Swiss Franc Bonds and the
U.S. Bond Accrued Interest will be paid on the Old U.S. Dollar Bonds, all to be
paid in the Company's Common Stock. Tenders of Old Swiss Franc Bonds will be
accepted only in principal amounts of SFr. 1,000 and integral multiples thereof
and tenders of Old U.S. Dollar Bonds will be accepted only in principal amounts
of US $1,000 and integral multiples thereof. If fractional Bonds result from
proration, such fractions shall be rounded up to the nearest integral multiple
of SFr. 1,000 or US $1,000, as the case may be.
For purposes of the Offer, the Company shall be deemed to have accepted
for exchange tendered Bonds on the Expiration Date, provided that the condition
to the Offer set forth in Section 15 has been waived or satisfied, unless it
gives notice to the contrary to the Exchange Agents and by publication in The
---
Wall Street Journal no later than five (5) business days after the Expiration
- -------------------
Date. Payment for Bonds so accepted for exchange will be made on the Payment
Date, unless the conditions set forth in Section 14 have not been waived or
satisfied, by delivery of the stock certificates representing the Common Stock
to the Exchange Agents at their specified offices in Switzerland.
If any tendered Bonds are not exchanged for any reason, the Exchange
Agents will return the Bonds tendered to the holder thereof without expense to
the tendering bondholder as promptly as practicable after the expiration or
termination of the Offer.
8. Procedures for Tendering Bonds. In order to exchange Bonds validly
pursuant to the Offer, a Letter of Instructions for acceptance of the Offer must
be submitted by or on behalf of each beneficial owner of Bonds to the Company at
its office in New York and such Bonds must be submitted to the appropriate
Exchange Agent at its specified office in Switzerland. Any financial
institution holding Bonds on behalf of one or more beneficial owners may submit
one Letter of Instructions for all such beneficial owners. Tenders on behalf of
bondholders will be valid only if received by the appropriate Exchange Agent
prior to the Expiration Date.
Except as set forth below, all questions as to the validity, form and
eligibility (including time of receipt) of any tendered Bonds pursuant to any of
the procedures described above will be determined in the sole discretion of the
Company, whose decision will be final and binding. The Company reserves the
absolute right to reject any or all tenders of any Bonds determined by it not to
be in proper form or if the acceptance of or payment for such
-16-
<PAGE>
Bonds may, in the opinion of the Company's counsel, be unlawful or result in
adverse tax consequences to the Company. The Company also reserves the absolute
right to waive any of the conditions of the Offer or any defect or irregularity
in any tender with respect to Bonds of any particular bondholder and the
Company's interpretation of the terms and conditions of the Offer will be final
and binding. The Company will be under no duty to give notification of any
defect or irregularity in tender and shall not incur any liability for failure
to give any such notification.
9. Withdrawal Rights. Except as stated in this Section 9, tenders of Bonds
made pursuant to the Offer are irrevocable. Bonds tendered pursuant to the Offer
may be withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely sent or delivered by or on
behalf of the bondholder to the appropriate Exchange Agent and received by the
appropriate Exchange Agent prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the bank having tendered on behalf of the
bondholder, the Bonds to be withdrawn and the aggregate principal amount of
Bonds to be withdrawn. Withdrawals may only be made in principal amounts of
SFr. 1,000 or integral multiples thereof in the case of the Old Swiss Franc
Bonds or US $1,000 or integral multiples thereof in the case of the Old U.S.
Dollar Bonds. Bonds tendered pursuant to the Offer may also be withdrawn after
the Expiration Date if the registration statement of the Company with respect to
the Common Stock has not been declared effective by the Commission on or prior
to August 15, 1994.
All questions as to validity (including time of receipt) of notices of
withdrawal will be determined by the appropriate Exchange Agent, in its sole
discretion, which determination will be final and binding. The Company will not
be under any duty to give notification of any defect or irregularity in any
notice of withdrawal and shall not incur any liability for failure to give any
such notification.
Withdrawals of Bonds may not be rescinded, and any Bonds withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Bonds may be returned at any subsequent time prior to the Expiration
Date by again following the procedures described in Section 8.
10. Certain Federal Income Tax Consequences.
The following is a summary of certain United States federal income tax
considerations that may be relevant to a holder of Bonds that is a United States
person or that otherwise is subject to United States federal income taxation on
a net income basis in respect of Bonds (a "United States holder"). For this
purpose, a "United States person" is a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
The summary is based upon the current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and upon regulations, rulings and judicial
decisions now in effect (or, in the case of certain regulations, now in proposed
form), all of which are subject to change. The summary deals only with United
States holders that hold Bonds, and that will hold Common Stock, as capital
assets (within the meaning of Section 1221 of the Code), and does not address
tax considerations that may be relevant to a United States holder that is
subject to special tax rules under the Code, such as banks, insurance companies,
tax-exempt organizations, dealers in securities or currencies, regulated
investment companies, persons that hold Bonds, or that will hold Common Stock,
as a hedge against currency risks or as a position in a "straddle" for tax
purposes or persons that have a "functional currency" other than the U.S.
dollar.
Substantial uncertainties exist with respect to the United States federal
income tax consequences of the Offer, and no ruling has been or will be
requested from the Internal Revenue Service (the "Service") on any aspect of the
Offer. Further, the discussion herein is not binding on the Service.
Accordingly, no assurances can be given with respect to the United States
federal income tax consequences of the Offer. Each United States holder of
Bonds is urged to consult its own tax advisor in determining the specific tax
consequences to such holder of the Offer, including the application to its
particular situation of the tax considerations discussed below, as well as the
application of state, local or other tax laws.
-17-
<PAGE>
The Exchange
In General. The Company believes that the exchange (the "Exchange") of Bonds
----------
for Common Stock will constitute a reorganization and recapitalization (within
the meaning of Section 368(a)(1)(E) of the Code).
The Exchange will be treated as a recapitalization to United States holders of
the Bonds only if the Bonds are treated as "securities" for purposes of the
reorganization provisions of the Code. The Company intends to take the position
for all federal income tax purposes that all of the Bonds constitute securities.
However, because the term "securities" is not defined in the Code or in the
regulations promulgated thereunder, and the applicable judicial decisions are
not entirely consistent, there can be no assurance that the Service or a court
will agree with the position taken by the Company.
If the Bonds that a United States holder surrenders in the Exchange are not
treated as securities, then the Exchange will be treated as a taxable
transaction, rather than as a recapitalization. In such a case, in general, an
exchanging United States holder will recognize gain or loss in an amount equal
to the difference between the fair market value of the Common Stock received by
such holder and the adjusted tax basis of the Bonds exchanged therefor in the
hands of the United States holder. United States holders of Bonds should
consult their own tax advisors with respect to the federal income tax
considerations arising from treatment of the Exchange as a taxable transaction.
Except as specifically noted otherwise, the remainder of this summary assumes
that the Exchange will be treated as a recapitalization and that all of the
Bonds will be treated as securities.
Old U.S. Dollar Bonds. The treatment of the Exchange to a United States
---------------------
holder of Old U.S. Dollar Bonds is complicated by uncertainty as to the basic
tax treatment of the Old U.S. Dollar Bonds. Under proposed regulations, which
are proposed to be effective only for "transactions" entered into on or after
the date on which the regulations are finalized (the "Proposed Foreign Currency
Regulations"), each Old U.S. Dollar Bond would be considered for federal income
tax purposes to be split into its two currency components. In particular, the
principal amount of an Old U.S. Dollar Bond would be treated as a U.S. dollar-
denominated zero-coupon bond (the "Constructive Zero Coupon Bond") and the
interest payments on the Old U.S. Dollar Bond would be treated as a Swiss Franc-
denominated level-payment installment note (the "Constructive Installment
Note"). The issue price of the Constructive Zero Coupon Bond would be
determined by discounting the principal amount of the Old U.S. Dollar Bond at a
yield appropriate for dollar-denominated zero coupon obligations issued by the
Company; the "principal amount" of the Constructive Installment Note would be
the difference between the principal amount of the Old U.S. Dollar Bond and the
issue price of the Constructive Zero Coupon Bond. Under this bifurcation
approach, it appears that a subsequent holder of an Old U.S. Dollar Bond would
allocate its purchase price between the Constructive Zero Coupon Bond and the
Constructive Installment Note by reference to their relative fair market value
at the purchase date.
The Proposed Foreign Currency Regulations do not make it clear whether the
bifurcation approach is intended to apply for all federal income tax purposes.
It is clear that the bifurcation approach is intended to apply for purposes of
the original issue discount provisions of the Code and for purposes of the
foreign currency rules contained in Section 988 of the Code. It is less clear
whether the bifurcation approach should apply for purposes of computing the gain
or loss realized by a United States holder on the Exchange (so that an
exchanging United States holder of an Old U.S. Dollar Bond would realize gain or
loss separately with respect to the Constructive Zero Coupon Bond and the
Constructive Installment Note and would be required to allocate its amount
realized between the Constructive Zero Coupon Bond and the Constructive
Installment Note). It is also unclear whether the bifurcation approach is
intended to apply for purposes of the reorganization provisions of the Code (so
that one component of an Old U.S. Dollar Bond might fail to qualify as a
security) or for other collateral purposes.
The bifurcation approach adopted in the Proposed Foreign Currency Regulations
(i) has been criticized as wrong in theory and unworkable in practice and (ii)
in any event, as noted above, is proposed to be effective only for transactions
entered into on or after the publication of final regulations. To date, the
Company has treated the Old U.S. Dollar Bonds as unitary obligations issued with
[$132] of original issue discount per $1,000 of principal amount, and has
accounted for the Swiss Franc-denominated interest payments in accordance with
the usual rules under Section 988 (as to which, see "Tax Consequences of the
Exchange" below). At present, the Company intends
-18-
<PAGE>
to continue this treatment. United States holders of Old U.S. Dollar Bonds are
urged to consult their own tax advisors.
Tax Consequences of the Exchange. If the Exchange is treated as a
--------------------------------
recapitalization, then, except as discussed below under "Accrued Interest on
Bonds", the Exchange should have the following federal income tax consequences:
1. An exchanging United States holder will realize an overall gain or loss on
the Exchange, in an amount equal to the difference between (i) the fair market
value of the Common Stock received by such United States holder (other than
Common Stock received in respect of accrued interest on the Bonds) and (ii) the
adjusted tax basis of the Bonds in the hands of such United States holder. Gain
realized by a United States holder on the Exchange will be recognized to the
extent discussed below with respect to Section 988 of the Code. Except as
discussed below with respect to Section 988 of the Code, loss realized by a
United States holder on the Exchange may not be recognized.
2. It appears that the accrued market discount, if any, on a Bond in the
hands of an exchanging United States holder will carry over to the Common Stock
received by the United States holder in the Exchange. See "Common Stock-- Sale
or Exchange" below. For this purpose, in general, the aggregate amount of
market discount on an Old Swiss Franc Bond in the hands of an exchanging United
States holder is the excess, if any, determined in Swiss Francs, of (i) the
stated redemption price at maturity of the Old Swiss Franc Bond over (ii) the
tax basis of the Old Swiss Franc Bond in the hands of the exchanging United
States holder immediately after its acquisition. In general, such market
discount accrues on a straight-line basis from the date of acquisition of the
Old Swiss Franc Bond by the United States holder over the remaining term of the
Old Swiss Franc Bond; the U.S. dollar amount of accrued market discount on the
Old Swiss Franc Bond as of the exchange date will be determined by translating
the portion of the Swiss Franc market discount that has accrued as of the
exchange date into U.S. dollars at the spot exchange rate on the exchange date.
In the case of the Old U.S. Dollar Bonds, under the bifurcation approach
adopted in the Proposed Foreign Currency Regulations, a United States holder
presumably would determine market discount separately with respect to the
Constructive Zero Coupon Bond and the Constructive Installment Note.
Presumably, the amount of market discount on each portion of an Old U.S. Dollar
Bond in the hands of an exchanging United States holder would be the excess, if
any, determined in the applicable currency, of (i) the "revised issue price" of
such portion over (ii) the tax basis of such portion in the hands of the
exchanging United States holder immediately after its acquisition. For this
purpose, the "revised issue price" of each portion of the Old U.S. Dollar Bond
should be the issue price of such portion, plus the aggregate amount of original
issue discount accrued on such portion for periods prior to the acquisition of
the Old U.S. Dollar Bond by the United States holder and less all payments made
on such portion prior to such acquisition. The market discount on the
Constructive Installment Note would be computed in Swiss Francs, would accrue
under the special rules for installment obligations (under which, in general,
the portion of the aggregate market discount that accrues in any period is
determined by reference to the ratio that the original issue discount accruing
in the period bears to aggregate original issue discount) and would be
translated into U.S. dollars at the spot exchange rate on the exchange date.
3. The foreign currency rules contained in Section 988 of the Code may affect
the amount and character of gain or loss recognized by a United States holder on
the Exchange.
The regulations under Section 988 provide that upon the exchange of a foreign
currency-denominated debt instrument for stock of the obligor, any gain or loss
realized by the exchanging holder on the exchange generally must be recognized
and treated as ordinary income or loss, to the extent of the foreign currency
gain or foreign currency loss realized by the holder with respect to the
principal amount of, and any accrued interest on, the debt instrument.
Accordingly, it appears that to the extent that a United States holder realizes
but does not otherwise recognize gain or loss on the Exchange, that gain or loss
will be recognized and treated as ordinary income or loss, to the extent of the
foreign currency gain or the foreign currency loss, respectively, realized by
the United States holder on the Exchange.
-19-
<PAGE>
For purposes of the foregoing rules, in general, the amount of foreign
currency gain or loss realized by a United States holder with respect to the
"principal amount" of an Old Swiss Franc Bond will be determined by (i)
translating the principal amount into U.S. dollars at the spot rate on the date
of the Exchange and (ii) subtracting from that amount the amount computed by
translating the principal amount into U.S. dollars at the spot rate on the date
that the United States holder acquired the Old Swiss Franc Bond. For this
purpose, the principal amount of an Old Swiss Franc Bond will be the purchase
price of the Old Swiss Franc Bond in Swiss Francs. In addition, the United
States holder may realize foreign currency gain or loss with respect to any
interest (including original issue discount) accrued by the United States holder
prior to, and received by the United States holder in connection with, the
Exchange. Notwithstanding any of the general rules described above, however,
the aggregate foreign currency gain realized by a United States holder on the
Exchange may not exceed the total gain, if any, realized on the Exchange;
similarly, the aggregate foreign currency loss realized by a United States
holder on the Exchange may not exceed the total loss, if any, realized on the
Exchange.
As discussed above, the tax treatment of the Old U.S. Dollar Bonds is unclear
in various respects. Under the bifurcation approach adopted in the Proposed
Foreign Currency Regulations, only the Constructive Installment Note
(representing the interest payments on the Old U.S. Dollar Bonds) would be
subject to Section 988.
4. The tax basis of the Common Stock (other than Common Stock received in
respect of accrued interest) in the hands of an exchanging United States holder
will equal the adjusted tax basis of the Bonds transferred in the Exchange,
increased by any gain and, presumably, decreased by any loss recognized on the
Exchange. The holding period of the Common Stock (other than Common Stock
received in respect of accrued interest) generally should include the period
during which the exchanging holder held the Bonds transferred in the Exchange.
Accrued Interest on Bonds. Under Section 354(a)(2)(B) of the Code, it appears
-------------------------
that an exchanging United States holder will recognize ordinary income or loss
on the Exchange, in an amount equal to the difference between (i) the portion of
the Common Stock received that is attributable to the claim of the United States
holder for accrued interest on the Bonds surrendered and (ii) the amount, if
any, of such accrued interest that the United States holder, under its
accounting method, has previously included in income, regardless of whether such
United States holder realizes an overall gain or loss on the Exchange. As
discussed above, under Section 988 of the Code, the United States holder may
recognize foreign currency gain or loss with respect to accrued interest or
accrued original issue discount on the Bonds.
Common Stock.
Dividends. Distributions, if any, paid on the Common Stock, to the extent
---------
made from the current or accumulated earnings and profits of the Company, as
determined for federal income tax purposes, will be included in income by a
United States holder when paid.
Sale or Exchange. Upon the sale or exchange of Common Stock, a United States
----------------
holder will recognize gain or loss in an amount equal to the difference between
(i) the amount of cash and the fair market value of the property received and
(ii) the adjusted tax basis of the Common Stock in the hands of the United
States holder. Such gain or loss generally will be treated as capital gain or
loss, except that such gain will be treated as ordinary income to the extent of
any market discount carried over to the Common Stock (see "The Exchange -
General" above).
Non-Exchanging United States Holders of Bonds
The Offer and the Foreign Offer will have no federal income tax consequences
to United States holders of Bonds that do not participate in the Offer.
11. Fees and Expenses. The Company is not paying any fees for soliciting the
exchange of the Bonds in the Offer. However, assuming that 60% of the Bonds are
tendered for exchange, total fees and expenses of the Offer and the Foreign
Offer, including legal, accounting and printing fees, are not expected to exceed
[$500,000].
-20-
<PAGE>
Requests for additional information or additional copies of this Offering
Circular should be directed to the Company.
12. Exchange Agents. Banque Scandinave en Suisse, acting through its
specified office in Switzerland, will serve as Exchange Agent with respect to
the exchange of the 8% Bonds, and Bank Leu AG, acting through its specified
office in Switzerland, will serve as Exchange Agent with respect to all other
Bonds. BANQUE SCANDINAVE EN SUISSE and BANK LEU AG may be referred to
individually as the "Exchange Agent" or, collectively, as the "Exchange Agents."
Each Exchange Agent will receive a fee equal to 3.5% of the aggregate
principal amount of all Bonds tendered for exchange pursuant to the Foreign
Offer, not this Offer, plus a bonus if the aggregate amount of Bonds tendered
reaches certain thresholds. In addition, the Exchange Agents will be reimbursed
for their costs and expenses.
Assuming that 60% of the Bonds are tendered for exchange, total fees and
expenses of the Offer, including legal, accounting, investment, banking
presentation and printing fees, are not expected to exceed approximately SFr.
1,180,000 based on the April 30, 1994 exchange rate of 1.4115.
13. Description of Common Stock.
Description of Common Stock.
As of May 12, 1994 the Company had outstanding two classes of common stock:
20,310,706 shares of Common Stock, par value $.01 per share, entitled to one
vote per share on all matters, and 250,000 shares of Class B Capital Stock, par
value $.01 per share ("Class B Stock"), entitled to ten votes per share on all
matters, without distinction between classes except when approval of a majority
of each class is required by statute. The Class B Stock is convertible at any
time into shares of Common Stock on a share for share basis.
Since the Common Stock and Class B Stock do not have cumulative voting
rights, the holders of shares having more than 50% of the voting power, if they
choose to do so, may elect all the directors of the Company and the holders of
the remaining shares would not be able to elect any directors.
The holders of Common Stock and Class B Stock are entitled to share equally
in any dividends (other than stock dividends) that may be declared, and if any
stock dividends are declared, they are to be declared and paid at the same rate
on each class of stock in the shares of such class. In the event of liquidation,
dissolution or winding up of the Company, the holders of the Common Stock and
Class B Stock are entitled to share equally, share and share alike, in the
corporate assets available for distribution to stockholders. None of the shares
of either class has any preemptive or redemption rights or sinking fund
provisions applicable to it, and all the presently outstanding shares are fully
paid and nonassessable.
14. Certain Conditions of the Offer. Notwithstanding any other provision
of the Offer, the Company shall not be required to pay for Bonds on the Payment
Date, and may, in its sole discretion, terminate the Offer if on or after the
Expiration Date of the Offer, and prior to the time of payment for any Bonds
tendered, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action,
proceeding or application by or before any court or governmental agency or
other regulatory or administrative agency or commission, in the United
States or elsewhere, by any government or governmental authority or other
regulatory agency or commission in the United States or elsewhere, or by
any other person, (i) challenging the exchange by the Company of Bonds
pursuant to the Offer (or the Foreign Offer) or seeking to restrain or
prohibit the consummation of the transactions contemplated by the Offer (or
the Foreign Offer) or seeking to obtain any material damages or otherwise
directly or indirectly relating to the transactions contemplated by the
Offer (or the Foreign Offer), (ii) making, or seeking to make, the exchange
of, or payment for, some or all of the Bonds pursuant to the Offer illegal
or resulting in a delay in the ability (including the Foreign Offer) of the
Company to accept for payment or pay for some or all of the Bonds, or
making
-21-
<PAGE>
consummation of the Offer unduly burdensome to the Company, (iii) imposing,
or seeking to impose, material limitations on the ability of the Company
effectively to acquire or hold or to exercise full rights of ownership of
the Bonds acquired by it, (iv) which, in any event, in the reasonable
judgment of the Company, adversely affect, or may adversely affect, the
Company or any of its subsidiaries, or the value of the Bonds or (v) which,
in the reasonable judgment of the Company might result in a material
limitation in the benefits expected to be derived by the Company as a
result of the transactions contemplated by the Offer (or the Foreign
Offer); or
(b) there shall be any action taken, or proposed or threatened, or
any statute, rule, regulation, judgment, order or injunction (preliminary
or permanent) proposed, sought, enacted, promulgated, entered, enforced or
deemed applicable to the Offer (or the Foreign Offer), by any government,
governmental authority or other regulatory or administrative agency or
commission or court, in the United States or elsewhere, that, in the sole
judgment of the Company, might, directly or indirectly, result in any of
the consequences referred to in clauses (i) through (v) of paragraph (a)
above; or
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any United States
national securities exchange or in the over-the-counter market or on any
Swiss national securities exchange or over-the-counter market, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in Switzerland or in the United States, (iii) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or Switzerland,
(iv) any limitation by any governmental agency (whether or not mandatory)
on, or any other event which, in the sole judgment of the Company, might
affect the extension of credit by banks or other lending institutions, (v)
a suspension of, or limitation on, the free marketability or convertibility
of the currency of the United States and/or Switzerland or (vi) in the case
of any of the foregoing existing at the time of the commencement of the
Offer (or the Foreign Offer), a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Company) or may be waived by
the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right and may be asserted at any time and from
time to time. Any determination by the Company concerning the events described
in this Section 13 will be final and binding upon all parties.
15. Condition to Acceptance for Exchange. Notwithstanding any other
provision of the Offer, the Company shall not be required to accept Bonds for
exchange on the Expiration Date, and may, in its sole discretion, terminate the
Offer if on the Expiration Date the average of the last sale prices on the AMEX
of the Common Stock for the ten (10) trading days ending five (5) trading days
prior to the Expiration Date is less than $3.00. The foregoing condition is for
the sole benefit of the Company and may be asserted by the Company regardless of
the circumstances giving rise to any such condition (including any action or
inaction by the Company) or may be waived by the Company in whole or in part at
any time and from time to time in its sole discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right and each such right shall be deemed an ongoing right
and may be asserted at any time and from time to time. Any determination by the
Company concerning the events described in this Section 14 will be final and
binding upon all parties.
16. Miscellaneous. The Offer is not being made to (nor will tenders of
Bonds be accepted from or on behalf of) holders of Bonds in any jurisdiction in
which the Offer or the acceptance thereof would not be in compliance with the
securities or other laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Company not contained in this Offering Circular
or the Letter of Instructions, and, if given or made, such information or
representation must not be relied upon as having been authorized.
-22-
<PAGE>
The Company has filed with the Commission a Statement on Schedule 13E-4,
together with exhibits, pursuant to Rule 13e-4 promulgated under the Exchange
Act, furnishing certain additional information with respect to the Offer (and
the Foreign Offer). Such Statement and any amendments thereto, including
exhibits, may be examined and copies may be obtained at the same places and in
the same manner as set forth in the Introduction of this Offering Circular with
respect to information concerning the Company (except that such statement will
not be available at the regional offices of the Commission).
June 10, 1994
NATIONAL PATENT DEVELOPMENT CORPORATION
-23-
<PAGE>
ANNEX A
National Patent Development Corporation--Annual Report on Form 10-K/A for the
year ended December 31, 1993, Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, Proxy Statement for the Annual Meeting of Stockholders
held on June 8, 1994.
<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
- ------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.01 Par Value American Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
As of March 15, 1994, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $.01 per share, held by non-affiliates
was approximately $87,454,237 based on the closing price of the Common Stock on
the American Stock Exchange on March 15, 1994. None of the Class B Capital
Stock, par value $.01 per share, was held by non-affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the most recent practicable date.
<TABLE>
<CAPTION>
===============================================================================
CLASS OUTSTANDING AT MARCH 15, 1994
- -------------------------------------------------------------------------------
<S> <C>
Common Stock, par value $.01 per share 20,299,388 shares
- -------------------------------------------------------------------------------
Class B Capital Stock, par value $.01 per share 250,000 shares
===============================================================================
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1994 Annual
Meeting of Stockholders is incorporated by reference into Part III hereof.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General Development of Business ............... 1
(b) Financial Information About
Industry Segments ............................. 2
(c) Narrative Description of Business ............. 2
(d) Financial Information About Foreign
and Domestic Operations and Export Sales ...... 14
Item 2. Properties ....................................... 14
Item 3. Legal Proceedings ................................ 16
Item 4. Submission of Matters to a Vote of
Security Holders ................................. 16
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters ......................................... 16
Item 6. Selected Financial Data .......................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 19
Item 8. Financial Statements and Supplementary
Data ............................................ 28
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ...................................... 74
PART III
Item 10. Directors and Executive Officers of the
Registrant ...................................... 74
Item 11. Executive Compensation ........................... 74
Item 12. Security Ownership of Certain Beneficial
Owners and Management ........................... 74
Item 13. Certain Relationships and Related
Transactions .................................... 74
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ......................... 75
<PAGE>
PART I
Item 1. Business
--------
(a) General Development of Business
National Patent Development Corporation (the "Company"), incorporated
in Delaware in 1959, is primarily a holding company, which is a legal entity
separate and distinct from its various operating subsidiaries. The Company's
operations consist of four operating business segments: Physical Science,
Distribution, Optical Plastics and Electronics. The Company also has an
investment in two companies in the Health Care industry.
The Company's Physical Science Group consists of (i) GPS Technologies,
Inc. ("GPS"), an approximately 92% owned subsidiary and (ii) GTS Duratek, Inc.
("Duratek"), an approximately 66% owned subsidiary.
GPS provides a wide range of management and technical training as
well as specialized engineering services to various commercial industries and
the United States government. Principal clients of GPS include electric
utilities, process industries, manufacturing plants, Federal agencies, and the
aerospace industries. In addition, the Company currently owns approximately a
28% investment in General Physics Corporation ("General Physics"), which
provides a wide range of personnel training and technical support services to
the domestic commercial nuclear power industry, United States Departments of
Energy and Defense, as well as environmental engineering, training and support
services to governmental and commercial clients.
Duratek's operations consist of two operating groups: (1)
"Environmental Services" engaged in cleanup of water and other liquids
containing radioactive and/or hazardous (mixed waste) contaminants and minimum
additive vitrification for long-term stabilization of such waste, and
(2) "Consulting and Staff Augmentation" services. Duratek provides services for
various utility, industry, government and commercial clients.
The Company's Distribution Group, incorporated under the name Five Star
Group, Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products.
The Company's Health Care Group consists of an approximately 36%
investment in Interferon Sciences, Inc. ("ISI"). ISI is a biopharmaceutical
company engaged in the manufacture and sale of ALFERON N Injection and the
research and development of other uses of ALFERON N Injection and other alpha
interferon-based formulations for the treatment of certain viral diseases,
cancers, and diseases of the immune system.
The Company currently owns approximately a 14% investment in American
White Cross, Inc. (formerly, NPM Healthcare Products, Inc., "White Cross").
White Cross is a
<PAGE>
leading manufacturer and marketer of private label adhesive and cotton based
health and personal care products.
The Company's Optical Plastics Group, through its wholly owned
subsidiary MXL Industries, Inc. ("MXL") manufactures molded and coated optical
products, such as shields and face masks and non-optical plastic products.
The Company's Electronics Group, through its subsidiary Eastern
Electronics Mfg. Corporation is engaged in contract manufacturing, such as
printed circuit board assembly for the electronics industry.
(b) Financial Information About Industry Segments
Certain financial information about business segments (classes of
similar products or services) is included in Note 17 of Notes to Consolidated
Financial Statements.
(c) Narrative Description of Business
RECENT DEVELOPMENTS
GENERAL PHYSICS CORPORATION AND
GPS TECHNOLOGIES, INC. PROPOSED TRANSACTION
- -------------------------------------------
On January 13, 1994, General Physics signed a Letter of Intent with
GPS and the Company to acquire substantially all of the operating assets of
GPS and certain of its subsidiaries. The Company currently owns approximately
92% of the outstanding common stock of GPS and approximately 28% of the
outstanding common stock of General Physics. On March 28, 1994 the Board of
Directors of both GPS and General Physics approved the transaction. The
parties are currently negotiating the terms of a definitive agreement and the
transaction is anticipated to close as soon as practicable in the second half
of 1994, if all necessary approvals are obtained and conditions satisfied.
The purchase price has a current present value of approximately $36
million based on current market prices. The purchase price will be payable to
GPS as follows: $10 million cash; 3.5 million shares of General Physics common
stock valued at approximately $13,500,000 (based upon the price per share of
General Physics common stock prior to the announcement of the transaction which
was $3.875); warrants to acquire 1,000,000 shares of General Physics common
stock at $6.00 per share valued at approximately $1,300,000; warrants to acquire
up to 475,644 additional shares of General Physics common stock at $7 per share
valued at approximately $500,000; a $15 million ten-year senior subordinated
debenture (the "Debentures") valued at approximately $10,700,000, accruing
interest at 6% per annum, interest payable only for the first five years, with
70% of principal payable in equal quarterly installments during the remaining
five years until maturity. The values assigned to each component of
consideration were based upon discussions with the
2
<PAGE>
independent investment banker to the Independent Committee of General Physics
and the investment banker to GPS. Portions of the cash and stock consideration
of the purchase price will be (a) used to repay outstanding bank debt of
$5,650,000 (as of December 31, 1993) and long-term debt of GPS of $8,809,000
(as of December 31, 1993) to be repaid to the Company. In addition $1.5
million of Debentures are held in escrow for the benefit of General Physics in
connection with certain indemnification obligations.
The transaction was recommended by an Independent, Committee of General
Physics' Board of Directors and was approved by the Board of Directors of both
General Physics and GPS and is contingent upon the occurrence of certain
events, including, without limitation: approval of the transaction by the
stockholders of both General Physics and GPS.
The Company anticipates that if the aforementioned transaction is
consummated, it will own approximately 52% of the outstanding common stock of
General Physics, and if the Company were to exercise all of its warrants, it
will own approximately 58% of the outstanding common stock of General Physics.
Although an agreement in principle has been reached, there can be no
assurance that a definitive agreement will be successfully negotiated and
signed, or that the transaction will close as anticipated.
PHYSICAL SCIENCE GROUP
GPS TECHNOLOGIES, INC.
- ----------------------
General
GPS Technologies, Inc. ("GPS"), provides a wide range of management and
technical training as well as specialized engineering consulting services to
various industries and the United States Government. GPS's principal clients
include electric utilities, process industries, manufacturing plants, Federal
agencies, and the aerospace industry. As of December 31, 1993, GPS and its
subsidiaries employed nearly 800 people and maintained 27 office locations
throughout the United States.
GPS is organized into three operating Business Units: the Training and
Technical Services Division Business Unit, the Engineering and Technical
Services Business Unit, and the Federal Systems Business Unit. The Training &
Technical Services Business Unit, and the Engineering & Technical Services
Business Unit are each comprised of several Strategic Business Units ("SBUs"),
with each SBU focused on a specific customer, project, industry, product,
service, or geographic area or some combination thereof. GPS Technologies,
Inc. Federal Systems Group, a wholly-owned subsidiary of GPS, forms the
Federal Systems Business Unit and is comprised of three divisions, each
providing services to a specifc segment of the Federal government. GP
Environmental Services, Inc. ("GPES"), General Physics Asia Pte. Ltd., and
General Physics (Malaysia) Sdn. Bhd., all wholly-owned
3
<PAGE>
subsidiaries of GPS, operate with other SBUs within the Engineering & Technical
Services Business Unit.
The Training & Technical Services Business Unit
The Training & Technical Services Business Unit focuses on the human
performance improvement needs of GPS'commercial and government customers,
providing technical training and other technical services to customers who
design, operate, and maintain equipment and facilities. This Business Unit
analyzes the human, organizational, and technical issues confronting its
customers and recommends solutions to improve performance. Business Unit staff
possess expertise in a wide variety of subject matter and instruction design,
with a subject matter diversity frequently allowing GPS to supplement the
expertise within the customer organization and offer comprehensive, turn-key
solutions.
Customers of the Training & Technical Business Unit represent a wide
range of industries with diverse technical and geographic needs. This Business
Unit is organized into eleven SBUs.
The Engineering & Technical Services Business Unit
The Engineering & Technical Services Business Unit provides engineering
services to the Government, utilities and petrochemical industries.
Multi-discipline capabilities include mechanical, structural, chemical,
electrical, environmental, and systems engineering, augmented with
nondestructive examination, industrial chemistry, and computer aided
design/drafting technical services. Specialized engineering expertise is
recognized nationally in areas of mechanical integrity programs including
design, analysis, inspection and safety of capital intensive and inherently
hazardous facilities and systems, and in electric power generation including
operations, maintenance and performance engineering.
This Business Unit's engineering and technical services are designed to
increase reliability and availability of plants and facilities, reduce
probability of component failure and address consequences of component or
system failure. Components include pressure vessels, above and underground
tanks, boilers, piping systems, rotating equipment and associated
instrumentation and controls. This Business Unit also provides a full service
environmental analytical laboratory with certified specialization in soils,
water, and military ordinance analysis and testing. The Engineering &
Technical Services Business Unit is comprised of seven SBUs.
The Federal Systems Business Unit
GPS Technologies, Inc. Federal Systems Group, a wholly-owned
subsidiary of GPS, is comprised of three divisions providing technical services
to a variety of commands within the Department of the Navy and other Federal
government agencies. These services include program management support, multi-
media/video production, technical training, quality
4
<PAGE>
assurance and independent verification and validation of weapon systems,
weapon systems life cycle support,and full spectrum integrated logistics
support. Major customers include NAVAIR, NAVSEA, Naval Research, Development,
Test and Evaluation Laboratories, and related Naval commands. Additionally,
the Federal Systems Business Unit provides services to several non-DOD
agencies of the Federal Government, including the Internal Revenue Service,
the Office of Personnel Management and the Department of Energy. The Business
Unit is organized into three divisions.
GP International Engineering and Simulation, Inc. provides real-time,
high fidelity, engineering grade modeling and simulation of nuclear power
plant systems for inclusion in new full-scale power plant control room
simulators, such as in used in training simulators worldwide. Similar services
are also provided to upgrade existing simulators. Simulators and engineering
services are provided to a variety of domestic, European, and far eastern
clients.
Customers
GPS provides services to more than 320 customers,including several of the
largest companies in the United States. Other significant customers include
the Department of the Navy, the Department of the Air Force, the Department of
the Army, major automotive manufacturers, major defense contractors and other
United States Government agencies. Revenue from the United States Government
accounted for approximately 46% of GPS' revenue for the year ended December
31, 1993. However, such revenue was derived from many separate contractors and
subcontracts with a variety of Government agencies and contractors, that are
regarded by GPS as separate customers. United States Government contracts
generally are terminable by the United States Government at any time. However
no significant terminations have occurred.
Contracts
GPS is currently providing services under more than 500 contracts, many
of which are General Service Agreements pursuant to which multiple purchase
orders are placed. GPS'contracts with its customers provide for charges on a
time-and-materials basis, a fixed-price basis and a cost-plus-fee basis.
Competition
The principal competitive factors in GPS's markets are the experience
and capability of technical personnel, performance, reputation and price. GPS's
principal resource is its technical personnel.
5
<PAGE>
GTS DURATEK, INC.
- -----------------
General
GTS Duratek, Inc. ("Duratek") was incorporated in the State of Delaware
in December 1982. At December 31, 1993 Duratek was an approximately 66%
controlled subsidiary of the Company.
Duratek's operations consist of two operating groups: (i)
"Environmental Services", engaged in cleanup of water and other liquids
containing radioactive and/or hazardous (mixed waste) contaminants and
in-furnance vitrification for long-term stabilization of such waste, and (ii)
"Consulting and Staff-Augmentation" services. Duratek provides services for
various utility, industry, government and commercial clients.
During 1992, Environmental Services received a U.S. Department of Energy
("DOE") funded contract called MAWS for minimum additive waste stabilization.
This agreement enabled Environmental Services to further develop its
vitrification technology being used for processing actual mixed waste in a
demonstration at the DOE's Fernald facility.
During 1993 Duratek designed, constructed and operated a 300
kilogram per day vitrification melter ("Duramelter") at Fernald under the
first phase of the MAWS project and began the second phase requiring
processing of actual mixed waste through the melter that it designed and built
at Fernald under varying controlled operating conditions. During 1993, Duratek
was also awarded a $1.2 million contract to study the chemical composition of
waste streams at DOE sites across the country to determine their suitability
for conversion into glass using the MAWS technology. Additionally, at the end
of 1993 Duratek was awarded a $13.9 million three year contract to stabilize
700,000 gallons of mixed waste sludges at the DOE's Savannah River nuclear
weapons production site. This project is Duratek's first commercial scale
project using its vitrification technology to convert the nuclear weapons
by-product waste materials into glass for long term stabilization and storage.
Consulting and Staff Augmentation revenues decreased by 12% due to
lower utilization of contract services by its commercial nuclear power
customers. This decrease resulted from an overall effort by electric utilities
to reduce operating costs in response to competitive pressures to become low
cost producers of electric power. The group continued to provide support to
Duke Power, Vermont Yankee, New York Power Authority, Tennessee Valley
Authority, GPUN, the DOE, and to a number of other utility, commercial, and
government customers. Duke Power accounted for approximately 20% of Duratek's
revenue in 1993. In addition, new service contracts were won with Philadelphia
Electric and Duke Power. In response to the changing market conditions Duratek
implemented additional cost reduction efforts and expanded services to include
higher margin non-destructive examination (NDE) and professional health
physics training and consulting.
6
<PAGE>
Environmental Services
Environmental Services provides products and services to support the
DOE and its prime contractors in research and development, development and
implementation of minimum additive vitrification (glass making) process for
long-term waste stabilization, waste water cleanup, advanced site remediation
processes, consulting, and analysis. Environmental Services' principal
products are its proprietary DURASILR ion exchange media, its Enhanced Volume
Reduction (EVRTM) processing system, Heat Enhanced Dewatering (HEDTM) system
and Integrated Nuclear Waste Removal System which is a combination of EVR and
HED. These systems and the DURASIL ion exchange media are similar to those
products formerly used in the domestic commercial nuclear power plant
low-level radioactive waste business sold to Chem-Nuclear Systems, Inc.
("Chem-Nuclear") in 1990. Duratek continues to sell DURASIL products to
Chem-Nuclear. Duratek also has the right to sell processing systems and ion
exchange media to government agencies such as the DOE and Department of
Defense ("DOD") and to nuclear power plants outside the U.S. In addition to
liquid waste treatment, Environmental Services is engaged in the development
of in-furnace vitrification for long-term stabilization of mixed waste.
DOE's Five Year Plan states that environmental cleanup and
refurbishment of inactive DOE nuclear facilities is a critical objective. Many
of the remediation tasks at these facilities involve dealing with wastes that
are both radioactive and hazardous. Restrictions on disposal of these "mixed"
wastes and limited burial space further compound the problem. The DOE and its
prime contractors are looking for innovative new approaches for separating the
radioactive and hazardous components and for long-term stabilization of these
wastes. Management believes that its experience in mixed waste streams and its
newly developed vitrification technology give Duratek an advantage in this
market.
Consulting and Staff Augmentation
Duratek's Consulting and Staff Augmentation Group ("Consulting")
provides technicians, specialists, and professionals in a wide range of
consulting, training and staff augmentation services for a broad base of
utility, industrial, commercial, and government clients.
According to the Nuclear News publication of "The World List of
Nuclear Power Plants", March 1993, there are 119 nuclear power generating units
in the United States. Of that number, approximately 107 are operational and the
remainder are in long-term shutdown or under construction. To control costs,
utilities maintain their permanent staffs at the level needed for steady-state
power operations. They supplement their full-time staffs during refueling and
maintenance outages with skilled contract personnel. These temporary personnel
typically work under the general supervision of members of the full-time staffs
of utilities.
7
<PAGE>
Although services for operating nuclear power plants provides a
considerable market, the fact that no new plants have been ordered in over 10
years means that the current market will expand through incorporation of
changes required by new regulations; extensive overhaul required to extend the
life of aging plants; replacement of major components such as steam
generators; startup of newly built plants and those recovering from long-term
shutdown; and decommissioning of plants that have reached the end of their
useful lives.
Building on its solid base of nuclear power industry clients, Duratek
has expanded its services in quality assurance/control, radiation protection,
computer and communications, and environmental technologies. Duratek's
potential client base has been expanded to include other industries,
government agencies and commercial businesses. Since many of the skills needed
for support at commercial nuclear power plants are readily transferable to the
DOE cleanup market, Duratek is also expanding its consulting and staff
augmentation services in that area.
GENERAL PHYSICS CORPORATION
- ---------------------------
The Company currently owns approximately a 28% investment in General
Physics Corporation ("General Physics"). General Physics provides a wide range
of personnel training, engineering, environmental and technical support
services to the domestic commercial nuclear power industry and to the DOE and
DOD. General Physics believes it is a leader in the field of developing
training materials, conducting training programs and providing support
services to operators, technical staff and management personnel at commercial
nuclear power plants and at nuclear weapons production and waste processing
sites in the United States.
General Physics currently provides services to more than 400 clients,
including eight of the largest electric power companies in the United States
and four prime contractors serving the DOE. During 1993, Westinghouse Savannah
River Company ("Westinghouse"), a prime contractor at DOE facilities,
accounted for approximately 23% of General Physics' revenue. No other customer
accounted for more than 10% of General Physics' revenue during 1993. Prior to
October, 1988, when it started its DOE Services business, the Company derived
virtually all of its revenue from contracts with nuclear utilities.
From late 1988 through mid 1992, General Physics experienced growth in
revenue primarily from services provided to the DOE at its Savannah River site
under subcontracts with Westinghouse, and to a lesser extent from services
provided to the commercial nuclear power industry. During 1992 and 1993,
General Physics experienced lower levels of contract activity at DOE
facilities which resulted in declining revenue. General Physics Nuclear
Services revenue was adversely affected in 1993 by cost reduction efforts at
many commercial nuclear utilities which are expected to continue.
Environmental Services revenue increased slightly in 1993 and General Physics
was recently awarded a one-year contract with
8
<PAGE>
four option years to provide environmental engineering support services at
the DOD's Aberdeen Proving Ground. This contract has a potential value of
approximately $17 million if all option years are exercised.
In January 1994, General Physics acquired substantially all of the
operating businesses of Cygna Energy Services (CES), other than its non-nuclear
seismic engineering business. CES provides design engineering, seismic
engineering, systems engineering, materials management and safety analysis
services to the commercial nuclear power industry and to the DOE.
In January 1994, General Physics also entered into a letter of intent
to acquire substantially all of the assets and operations of GPS. GPS provides
a wide range of training, engineering, technical support and analytical
services to various commercial industries, fossil powered electric generating
plants and the DOD. Although an agreement in principle has been reached, there
can be no assurance that a definitive agreement will be successfully
negotiated or that the transaction will close as anticipated. See "Recent
Developments - General Physics' Corporation and GPS Technologies, Inc. Proposed
Transaction".
DISTRIBUTION GROUP
FIVE STAR GROUP, INC.
- ---------------------
The Distribution Group, incorporated under the name Five Star Group,
Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products. Five Star has three strategically
located warehouses and office locations, with approximately 380,000 square
feet of space in New Jersey, New York and Connecticut, which enables Five Star
to service the market from Maine to Virginia.
Five Star is the largest distributor in the U.S. of paint sundry items,
interior and exterior stains, brushes, rollers and caulking compounds and
offers products from leading manufacturers such as Olympic, Cabot, Thompson,
Dap, 3-M, Minwax and Rustoleum. Five Star distributes its products to retail
dealers which include discount chains, lumber yards, "do-it-yourself" centers,
hardware stores and paint suppliers principally in the northeast region. It
carries an extensive inventory of the products it distributes and provides
delivery generally within 48 to 72 hours from the placement of an order.
The primary working capital investment for Five Star is inventory.
Inventory levels will vary throughout the year reflecting the seasonal nature of
the business. Five Star's strongest sales are typically in March through
October because of strong seasonal consumer demand for its products. As a
result, inventory levels tend to peak in the spring and reach their lowest
levels in late fall.
The largest customer accounted for approximately 12% of Five Star's
sales in 1993 and its 10 largest customers accounted for approximately 29% of
such sales. No other
9
<PAGE>
customer accounted for in excess of 10% of Five Star's sales in 1993. All such
customers are unaffiliated companies and neither Five Star nor the Company has
a long-term contractual relationship with any of them.
Competition within the industry is intense. There are much larger
national companies commonly associated with national franchises such as
Servistar and True Value as well as smaller regional distributors all of whom
offer similar products and services. Additionally, in some instances
manufacturers will bypass the distributor and choose to sell and ship their
products directly to the retail outlet. The principal means of competition for
Five Star are its strategically placed distribution centers and its extensive
inventory of quality name brand products. Five Star will continue to focus its
efforts on supplying its products to its customers at a competitive price and on
a timely, and consistent basis. In the future, Five Star will attempt to
acquire complementary distributors and to expand the distribution of its line of
private-label products sold under the "Five Star" name.
HEALTH CARE
INTERFERON SCIENCES, INC.
- -------------------------
Interferon Sciences, Inc. ("ISI") is a biopharmaceutical company
engaged in the manufacture and sale of ALFERON N Injection and the research and
development of other uses of ALFERON N Injection and other alpha
interferon-based formulations for the treatment of certain viral diseases,
cancers,and diseases of the immune system.
ALFERON N Injection is the only natural-source, multi-species alpha
interferon product approved by the FDA for sale in the United States and is
approved for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in patients 18 years of age or
older.
On March 5, 1985, the United States Patent and Trademark Office
issued a patent to Hoffmann-La Roche Inc. ("Hoffmann") claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). ISI obtained a
non-exclusivelicense from Hoffmann which allows ISI to make, use, and sellin the
United States, without a potential patent infringement claim from Hoffmann, (i)
ALFERON N Injection for the treatment of genital warts, (ii) injectable
formulations of interferon alfa-n3 (which is the same active ingredient
contained in ALFERON N Injection) for the treatment of patients who are
refractory to recombinant interferon therapy, (iii) low dose oral formulations
of alpha interferon for the treatment of human disease, and (iv) topical
formulations of interferon alfa-n3 (which is the same active ingredient
contained in ALFERON N Injection). Hoffmann presently owns approximately 3% of
the common stock of ISI.
ALFERON N Injection is marketed and distributed in the United States
exclusively by Purdue Pharma L.P.("Purdue"), utilizing the sales force of The
Purdue Frederick Company, a privately-held United States pharmaceutical company.
In addition, ISI has exclusive
10
<PAGE>
marketing and distribution agreements with Mundipharma Pharmaceutical Company
in Canada and with Industria Farmaceutica Andromaco in Mexico. ISI has
anoption to reacquire the United States, Canadian, and Mexican marketing and
distribution rights under certain terms and conditions. Submissions for
regulatory approval to sell ALFERON N Injection have been filed in Austria,
Canada, Israel, Mexico and the United Kingdom.
At the present time, alpha interferon injectable products are approved
for 17 different medical uses in 63 countries. In 1993, the worldwide alpha
interferon injectable market was estimated to be over $1 billion. In an effort
to expand the market for ALFERON N Injection in the United States and obtain
additional regulatory approvals around the world, ISI is presently conducting
three multi-center randomized, open dose ranging studies with patients
infected with hepatitis C virus. In addition, based upon favorable results
from an in vitro study and a Phase 1 clinical study conducted at Walter Reed
Army Institute of Research in Bethesda, Maryland on 20 asymptomatic HIV
infected patients, ISI is planning a multi-center, randomized, controlled
clinical trial with asymptomatic HIV-infected patients. ISI is also planning
to conduct clinical trials utilizing ALFERON N Injection for the treatment of
Kaposi's sarcoma in patients with AIDS and hepatitis B.
Additional products under development by ISI include ALFERON N Gel and
ALFERON LDO. ALFERON N Gel is a topical interferon preparation which ISI
believes has potential in the treatment of cervical dysplasia, recurrent
genital herpes, other viral diseases, and cancers. A clinical trial using
ALFERON N Gel for the treatment of patients with cervical dysplasia is
currently underway at Columbia Presbyterian Medical Center. ALFERON LDO is a
low dose oral liquid alpha interferon preparation which ISI believes has
potential for treating the symptoms of patients infected with the HIV virus
and other viral diseases. ISI conducted two clinical trials using ALFERON LDO
on patients infected with HIV virus at New York's Mount Sinai Hospital. The
National Institute of Allergy and Infectious Disease ("NIAID") is planning to
conduct a randomized, double-blind, placebo controlled clinical study with low
dose alpha interferons administered orally (including ALFERON LDO) to
determine interferon's effect on HIV related symptoms.
On May 28, 1993, David Blech, the Chief Executive Officer, sole
shareholder and a director of D. Blech & Company, Incorporated ("DBC"), and
ISI entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to
which David Blech or his designees purchased for $4.00 per unit, an aggregate
of 2,500,000 units ("Units"), each Unit consisting of two shares of common
stock, one Class A Warrant to purchase one share of common stock at an
exercise price of $3.25 per share and one Class B Warrant to purchase one
share of common stock at an exercise price of $5.00 per share. The Class A
Warrants and the Class B Warrants expire on August 31, 2000.
Pursuant to the Purchase Agreement, a 10-year Voting Agreement (the
"Voting Agreement") among David Blech, the Company, Five Star and MXL became
effective as of May 28, 1993 pursuant to which the Company, Five Star and MXL
agreed to (a) vote all of their shares of common stock (an aggregate of
6,985,148 shares as of the date hereof), for
11
<PAGE>
the election of the Blech Nominees as directors of ISI unless Blech or his
designees dispose of more than 1,000,000 shares of Common Stock and (b)
restrict transfer of the Common Stock held by them for one year, subject to
certain exceptions. Pursuant to the Voting Agreement, Mr. Blech and any other
purchasers under the Purchase Agreement agreed to vote for the election of two
nominees of NPDC as directors of the Company unless NPDC, MXL and Five Star
dispose of more than 2,000,000 shares of Common Stock.
Concurrently with the execution of the Purchase Agreement, ISI entered
into a Consulting Agreement with DBC under which ISI agreed to pay $100,000
per year, payable monthly, to DBC for advisory services with respect to the
Company's field of interest and business, strategic and commercial matters
related to the biotechnology industry. The term of the Consulting Agreement
was one year and commenced on June 1, 1993.
AMERICAN WHITE CROSS, INC.
- --------------------------
The Company currently owns approximately a 14% investment in American
White Cross, Inc. (formerly, NPM Healthcare Products, Inc.), ("White Cross").
White Cross is a leading manufacturer and marketer of private label adhesive and
cotton based health and personal care products. White Cross' primary products
include adhesive bandages, cotton swabs, cosmetic puffs, rounds and squares,
waterproof tape, sterile cotton balls, first aid kits and cotton coil used in
the packaging of drugs and vitamins in bottles. White Cross also sells adhesive
bandages under its own national brand products, including Mickey & Pals
(marketed under license from The Walt Disney Company) and STAT-STRIP (patented
easy opening bandages).
OPTICAL PLASTICS GROUP
- ----------------------
The Optical Plastics Group is engaged in the manufacture of molded and
coated optical products, such as shields and face masks and non-optical plastic
products through the Company's wholly owned subsidiary MXL Industries, Inc.
("MXL").
MXL is a state-of-the-art injection molder and precision coater of large
optical products such as shields and face masks and non-optical plastics. MXL
believes that the principal strengths of its business are its state-of-the-art
injection molding equipment, advanced production technology, high quality
standards, and on time deliveries. Through its Woodland Mold and Tool Division,
MXL also designs and engineers state-of-the-art injection molding tools as well
as providing a commodity custom molding shop.
As the market for optical injection molding, tooling and coating is
focused, MXL believes that the combination of its proprietary "Anti-Fog"
coating, precise processing of the "Anti-Scratch" coatings, and precise
molding and proprietary grinding and polishing methods for its injection tools
will enable it to increase its sales in the future and to expand into related
products.
12
<PAGE>
MXL uses only polycarbonate resin to manufacture shields, face masks and
lenses for over 55 clients in the safety, recreation and military industries.
For its manufacturing work as a subcontractor in the military industry, MXL is
required to comply with various federal regulations including Military
Specifications and Federal Acquisition Regulations for military end use
applications.
MXL is dependent upon one client which accounts for approximately 27% of
MXL's total sales and another client which accounts for approximately 16% of
MXL's total sales. Over the last several years, MXL has implemented a variety
of programs designed to reduce its overhead expenses, enhance its processing
capabilities, improve operating efficiency and expand the range of services
offered to its customers.
The Company's sales and marketing effort concentrates on industry trade
shows. In addition, the Company employs one marketing and sales executive and
one sales engineer.
ELECTRONICS GROUP
- -----------------
The Electronics Group, through Eastern Electronics Mfg. Corporation
("Eastern") is engaged in contract manufacturing for the electronics industry.
Eastern offers a variety of services to its customers ranging from printed
circuit board assemblies, to in-circuit testing, to functional testing, to
turnkey production and to final system production. Eastern's customers are
among the largest United States electronics companies.
There is significant competition within the electronics industry for
contract manufacturing from much larger national companies as well as smaller
companies. While the electronics industry at large is experiencing a downturn
in business, Eastern feels that the lessening of off-shore competition and
"just in time" manufacturing requirements will enable it to compete more
effectively in the changing environment. The principal means of competition
for Eastern are its twenty two years of experience in printed circuit board
assembly, state-of-the-art automatic insertion, surface mount equipment and
state-of-the-art in circuit test equipment.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 1993, NPDC incurred $2,847,000 as
research and development costs, $2,181,000 of which were incurred at ISI.
EMPLOYEES
At December 31, 1993, the Company and its subsidiaries employed
approximately 1,722 persons, including approximately 16 in the Company's
headquarters, 1,257 in the Physical Science Group, 283 in the Distribution
Group, 73 in the Optical Plastics Group and 58 in the Electronics Group. Of
these, approximately 4 persons were engaged in research and development. The
Company considers its employee relations to be satisfactory.
13
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the names of the principal executive
officers of the Company as of March 15, 1994 and their positions with the
Company. The principal business experience of the executive officers for the
last five years is also described below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jerome I. Feldman 65 President, Chief Executive
Officer and a Director since 1959
Martin M. Pollak 66 Executive Vice President,
Treasurer and a Director since 1959
Scott N. Greenberg 37 Vice President, Chief Financial
Officer since 1989, and a Director
since 1987
Lawrence M. Gordon 40 General Counsel since 1986,
Vice President since 1991
</TABLE>
Jerome I. Feldman is a founder, and since 1959 has been President, Chief
Executive Officer and a director of the Company.
Martin M. Pollak is a founder, and since 1959 has been Executive Vice
President, Treasurer and a director of the Company.
Scott N. Greenberg has been Vice President, Chief Financial Officer of
the Company since 1989 and a Director since 1987.
Lawrence M. Gordon is Vice President, General Counsel of the Company.
Mr. Gordon has been General Counsel of the Company since 1986 and Vice President
since 1991.
PATENTS AND LICENSES
The operating businesses of NPDC are not materially dependent upon
patents, or patent and know-how licenses. The know-how and expertise gained
with respect to the manufacture and 15 sale of its products, acquired as a
result of its license and ownership of patents, are of greater importance to its
future ability to manufacture and sell such products than are the patents
themselves.
(d) Financial Information about Foreign and Domestic operations and Export
Sales.
The Company has no material Foreign Operations or Export Sales.
14
<PAGE>
Item 2. Properties
----------
The following table sets forth information with respect to the material
physical properties owned or leased by NPDC and its subsidiaries:
<TABLE>
<CAPTION>
Lease Square
Activity and Location Own Expires Footage Description
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution
- --------------------------------------------------------------------------------
East Hanover, NJ No 2002 219,000 Office &
Warehouse
Port Washington, NY No 1996 49,000 Office &
Warehouse
Newington, CT No 1996 112,000 Office &
Warehouse
- --------------------------------------------------------------------------------
Optical Plastics
- --------------------------------------------------------------------------------
Lancaster, PA Yes N/A 33,000 Manufacturing,
Warehouse and
Office
Westmont, IL Yes N/A 12,594 Office,
Warehouse &
Manufacturing
- --------------------------------------------------------------------------------
Electronics
- --------------------------------------------------------------------------------
E. Hartford, CT No 1996 35,000 Office,
Warehouse &
Manufacturing
- --------------------------------------------------------------------------------
Physical Science
- --------------------------------------------------------------------------------
Columbia, MD No 1995 12,075 Office
Beltsville, MD No 1994 8,500 Office,
Manufacturing,
Warehouse &
Laboratory
Pittsburgh, PA No 1994 4,800 Repair Shop &
Warehouse
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Groton, CT No 1995 136,654 Office
Gaithersburg, MD &
Columbia, MD
</TABLE>
The facilities owned or leased by NPDC are considered to be suitable and
adequate for their intended uses and are considered to be well maintained and in
good condition.
In addition to the above properties, NPDC also leases office space in
New York, New York.
Item 3. Legal Proceedings
-----------------
The Company is a party to several lawsuits incidental to its business.
It is not possible at the present time to estimate the ultimate legal and
financial liability, if any, of the Company in respect to such litigations;
however, management believes that the ultimate liability, if any, will not
have a material adverse effect on the Company's Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------
The Company's Common Stock, $.01 par value, is traded on the American
Stock Exchange, Inc. and the Pacific Stock Exchange, Inc. The following tables
present its high and low market prices for the last two years.
<TABLE>
<CAPTION>
Quarter High Low
------- ------ -------
<S> <C> <C> <C>
1993 First 3 5/8 2 1/2
Second 4 1/4 2 1/2
Third 3 3/4 2 7/8
Fourth 5 3/4 3 7/16
1992 First 5 5/8 4 1/8
Second 4 5/8 3 3/8
Third 3 3/4 2 13/16
Fourth 3 1/4 2 1/16
</TABLE>
16
<PAGE>
The number of shareholders of record of the Common Stock as of March 15,
1994 was 5,275. On March 15, 1994, the closing price of the Common Stock on the
American Stock Exchange was $4.44. In March 1989, the Company decided to
discontinue payment of its quarterly dividend because the Board of Directors
believed that the resources available for the quarterly dividend would be better
invested in operations and the reduction of long-term debt.
17
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Operating Data (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $193,041 $201,986 $261,723 $293,504 $278,470
Sales 189,683 195,765 258,933 293,091 268,168
Gross margin 27,519 29,772 36,013 42,711 45,402
Research and development costs 2,847 4,645 4,651 7,892 7,196
Interest expense 8,325 11,044 15,579 20,447 19,520
Income (loss) before discontinued
operations and extraordinary
items (7,796) (13,605) 608 (37,993) (17,014)
Net income (loss) (5,977) (11,943) 2,645 (32,738) 6,797
- ------------------------------------------------------------------------------------------------
Earnings (loss) per share
Income (loss) before discontinued
operations and extraordinary items $ (.46) $ (.86) $ .04 $ (3.32) $ (1.20)
Net income (loss) (.35) (.76) .17 (2.86) .62
- ------------------------------------------------------------------------------------------------
Cash dividends declared per share
Balance Sheet Data
- ------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, restricted
cash and marketable securities $ 10,976 $ 23,674 $ 35,968 $ 16,722 $ 39,602
Short-term borrowings 21,390 28,977 26,317 62,144 42,926
Working capital 33,224 44,877 55,560 25,316 62,533
Total assets 166,057 192,649 214,041 269,564 302,179
Long-term debt 40,858 61,441 70,787 91,888 97,249
Stockholders' equity 67,438 63,823 72,405 55,416 84,379
- ------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
Overview
During 1993, the Company took steps to significantly reduce its long-term
debt. The Company, through an Exchange Offer for a large portion of its Swiss
Denominated Debt (See Note 9(a) to Notes to Consolidated Financial
Statements), as well as other repurchases from various bondholders throughout
1993, was able to reduce its long-term debt by approximately $20,583,000. As a
result of the reduction in long-term debt, the Company will be able to reduce
its annual interest expense by approximately $2,100,000. Due to the inclusion
of a portion of the Company's shares of common stock of Interferon Sciences,
Inc. (ISI) as part of the consideration in the Exchange Offer in the third
quarter of 1993, the Company currently owns less than 50% of ISI (36%), and
therefore now accounts for the results of ISI on the equity basis. In 1993,
the Company realized an extraordinary gain, net of taxes, on the early
extinguishment of debt of $1,819,000. In 1993, the Company also incurred
reduced interest expense at the corporate level on the Company's long-term
Swiss Debt obligations due to the Company's continuing practice of
repurchasing and reducing its Swiss Debt. In addition, the Company incurred
reduced interest relating to short-term borrowings due to reduced borrowings
at lower rates of interest. In 1993, the loss before income taxes and
extraordinary item was $8,371,000, as compared to a loss of $13,178,000 in
1992 and income of $1,157,000 in 1991. The decrease in the loss in 1993 is due
to several factors. As a result of the Exchange Offer discussed above, the
Company realized a $3,795,000 gain from the transfer of a portion of the
Company's holdings of shares of ISI and GTS Duratek, Inc.'s (Duratek) common
stock. In addition, the Company realized a gain of $1,353,000 on the issuance
of common stock and common stock warrants by Duratek, relating to its
acquisition of an option to acquire certain technologies relating to the
vitrification of certain medical and hazardous wastes. The Health Care and the
Electronics Groups experienced reduced operating losses in 1993. The Health
Care Group which is comprised of the results of ISI experienced reduced
operating losses in 1993 as a result of ISI being accounted for on the equity
basis commencing in the third quarter of 1993. The Electronics Group, which is
Eastern Electronics Manufacturing Corporation (Eastern), the Company's
electronic assembly and manufacturing subsidiary, incurred reduced operating
losses as a result of their successful efforts to reduce overhead and costs of
sales. The above improvements in 1993 were partially offset by reduced
operating profits at the Distribution and Physical Science Groups, in addition
to a foreign currency transaction gain of $901,000 realized in 1993 as
compared to a net foreign currency transaction gain of $3,362,000 realized in
1992, relating to the Company's decision not to hedge its Swiss denominated
debt. The Distribution Group, which is the Five Star Group, Inc. (Five Star),
the Company's distributor of home decorating, hardware and finishing products
had reduced operating profits as a result of reduced gross margin percentages
and increased operating
19
<PAGE>
costs. The Physical Science Group, which is comprised of GPS Technologies Inc.
(GPS), a 92% owned subsidiary, and GTS Duratek, Inc. (Duratek), a 66% owned
subsidiary, had reduced operating profits as a result of losses incurred by
Duratek due to reduced revenues and gross margin percentages achieved. The
Optical Plastics Group, which is MXL Industries, Inc. (MXL), the Company's
injection molding and coating subsidiary, had a marginal decrease in operating
profits.
During 1992, the loss before income taxes and extraordinary items was
$13,178,000 compared to income of $1,157,000 in 1991. The change from a profit
in 1991 to a loss in 1992 was primarily the result of the public offering by
General Physics Corporation (GP) in October 1991, through which the Company
sold 68% of its GP common stock and recognized a gain on the transaction of
$18,844,000. The Company currently owns approximately 28% of GP. The effect of
the gain on GP was partially offset by improved operating results achieved in
1992 by the remaining companies within the Physical Science Group, GPS and
Duratek. At the corporate level, improved operating results in 1992 were
partially the result of gains recognized on the sale of certain investments
and the continuing reduction in interest expense as a result of reduced
short-term borrowings, lower rates of interest on the Company's variable rate
obligations and reduced interest on the Company's Swiss Debt obligation due to
the Company's continuing practice of repurchasing its Swiss Debt from time to
time. The improved operating results within the Physical Science Group were
due to both GPS and Duratek achieving operating profits in 1992 as opposed to
operating losses in 1991. GPS achieved a significant turnaround as a result of
reduced losses at its subsidiary, GP International Engineering & Simulation,
Inc. (GPI), an operating profit generated for the first time by its subsidiary
GP Environmental Services, Inc. (GPE) and an overall improvement within the
core businesses of GPS. Duratek showed an improvement in operations during
1992 as a result of increased sales and gross profit in both its Environmental
Services and Consulting and Staff Augmentation businesses, as well as the
impact of the effort in the latter half of 1991 to consolidate and streamline
its administrative structure. The improvements in operations achieved by the
current members of the Physical Science Group and at the corporate level were
partially offset by an increased operating loss at the Electronics Group and
reduced operating profits at the Optical Plastics Group. The Electronics
Group, incurred increased operating losses due to reduced sales and inceased
operating costs and the effect of reserves taken for obsolete inventory. The
Optical Plastics Group had a small decrease in operating profit as a result of
weakness in the precision tooling part of its business,as well as reduced
orders from a number of MXL's establishedcustomers in the beginning of 1992.
The Health Care Group's operating loss and the Distribution Group's operating
profit remained virtually unchanged in 1992.
Sales
Consolidated sales from continuing operations decreased by $6,082,000 in 1993
to $189,683,000 as a result of reduced sales in the Physical Science, Health
Care and Electronics Groups, partially offset by increased sales achieved by
the Distribution Group. Sales decreased by $63,168,000 in 1992, to
$195,765,000, as a result of the transfer in April 1991 of a majority interest
in American White Cross, Inc. (AWC), formerly NPM
20
<PAGE>
Healthcare,Inc., in which the Company currently has a 14% interest, and the
public offering by GP in October 1991, which resulted in GP and AWC no longer
being consolidated entities. The decrease in 1992 was partially offset by
increased sales within the Distribution Group and by the remaining companies
in the Physical Science Group.
The Physical Science Group sales decreased from $162,727,000 in 1991 to
$109,303,000 in 1992 and to $102,977,000 in 1993. The reduced sales of
$6,326,000 in 1993 were primarily attributable to reduced sales achieved by
Duratek as a result of reduced revenues generated by its consulting and staff
augmentation business, as a result of a reduced demand for services provided
to nuclear utilities. In addition, Duratek's sales decreased as a result of
reduced revenues achieved by the environmental services business due to delays
in the award of certain technology contracts by the Department of Energy.
During 1992, sales decreased by $53,424,000, due to the public offering by GP
on October 3, 1991, from which time the results of GP were accounted for on
the equity basis, since the Company's percentage of ownership was reduced to
approximately 28%. In 1991, the Physical Science Group included sales of
$62,325,000 for GP. The loss of GP's sales in 1992 was partially offset by
increased sales at both GPS and Duratek. Duratek generated increased sales in
1992 as a result of work performed on two new environmental technology
projects, as well as an increase in services provided by the consulting and
staff augmentation business. GPS generated increased revenues in new business
areas such as environmental analytical services and full scope simulation.
These increases at GPS were partially offset by a reduction in revenue for
certain subcontracts, which terminated in 1991, for construction management
services provided to the Department of the Army.
The Distribution Group sales increased from $64,788,000 in 1991 to $68,450,000
in 1992 and to $74,109,000 in 1993. The increase of $5,659,000, or 8% in 1993
was due to reduced competition in one of Five Star's geographic regions, as
well as continued growth in the hardware business, which was introduced in
1992. The increase of $3,662,000, or 6%, in 1992 was attributable to the
introduction during the year of a new line of hardware supplies.
The Health Care Group sales decreased from $14,607,000 in 1991 to $4,042,000
in 1992 and to zero in 1993. The reduction in sales in 1993 was due to ISI not
having any sales of its product, ALFERONR N Injection, in 1993. In January
1994, ISI received an order for 45,000 vials of ALFERONR N Injection from the
Purdue Frederick Company (Purdue). As a result of the Exchange Offer, through
which the Company's interest in ISI fell below 50%, ISI is currently being
accounted for on the equity basis. The $10,565,000 reduction in sales in 1992
was due to the transfer on April 8, 1991 of a majority interest in AWC,
partially offset by increased sales by ISI of ALFERONR N Injection to its
marketing partner, Purdue. In December 1991, Purdue agreed to purchase an
aggregate of 45,000 vials of ALFERONR N Injection from the Company over
approximately a six month period which commenced in March 1992 and was
completed in September 1992.
The Optical Plastics Group sales decreased from $9,454,000 in 1991 to
$7,862,000 in 1992 and to $7,817,000 in 1993. The decreased sales in 1992 was
due to weakness at MXL's
21
<PAGE>
precision tooling division, as well as reduced orders from a number of MXL's
established customers in the beginning of 1992.
The Electronics Group sales decreased from $7,151,000 in 1991 to $5,968,000 in
1992 and to $3,836,000 in 1993. The decreased sales in 1992 and the continued
weakness in 1993 was the result of the weakness in the electronics industry
and Eastern's plan to concentrate its efforts on sales to customers who
provide more profitable margins.
Gross margin
Consolidated gross margin was $36,013,000 or 14% of net sales in 1991,
$29,772,000 or 15% of net sales in 1992 and $27,519,000 or 15% in 1993. In
1993, the decrease in gross margin of $2,253,000 occurred within the Health
Care, Distribution and Physical Science Groups. In 1992, the decrease in gross
margin of $6,241,000 occurred primarily in the Physical Science Group as a
result of the public offering by GP in October 1991, and to a lesser extent,
in the Health Care Group due to the transfer in April 1991 of a majority
interest in AWC in which the Company currently has a 14% interest. The reduced
gross margin in 1992 was partially offset by increased gross margin achieved
by the Distribution Group as a result of increased sales.
The Physical Science Group gross margin decreased from $18,370,000, or 11% of
net sales in 1991 to $13,728,000 or 13% of net sales in 1992 and to
$12,941,000, or 13% of net sales in 1993. In 1993, the reduced gross margin
was primarily attributable to reduced gross margins achieved by Duratek as a
result of reduced sales as well as a decrease in the gross margin percentage
achieved within Duratek's consulting and staff augmentation business because
of increasing competitive pressures within the industry. The reduced gross
margin achieved by Duratek was partially offset by GPS, which generated
increased gross margins as a result of an improved mix of services during
1993. In 1992, the decreased gross margin was due to the public offering by GP
in October 1991, partially offset by increased gross margins at Duratek and
GPS. The increased gross margin dollars and percentage at GPS was due to
increased sales, significant profit improvements at GPI and GPE during 1992,
as well as an improved mix of services performed at higher margins within the
core businesses. Duratek achieved increased gross margins in 1992 as a result
of increased revenues generated by its environmental technology projects.
The Distribution Group gross margin increased from $11,679,000 or 18% in 1991
to $12,355,000 or 18% of sales in 1992 and decreased to $11,718,000 or 16% in
1993. In 1993, the reduced gross margin was the result of the reduced gross
margin percentage achieved in 1993. The reduced gross margin percentage in
1993 was the result of a change in the product mix as well as competitive
price pressures within the industry. In 1994, the Group has started taking
steps to reduce its costs of sales in order to improve its operating margins
in the future. In 1992, the increased gross margin was the result of increased
sales due to the introduction of a new line of hardware products.
The Health Care Group gross margin decreased from $2,509,000 or 17% of net
sales in
22
<PAGE>
1991 to $358,000 or 9% of net sales in 1992 and to $(699,000) in 1993. The
negative gross margin in 1993 was the result of facility costs incurred by
ISI, notwithstanding the suspension of production, and lack of sales of
ALFERONR N Injection during 1993. The decrease in gross margin in 1992 was the
result of the transfer on April 8, 1991 of a majority interest in AWC, as
discussed above. The reduced gross margin percentage in 1992 is attributable
to the low gross margin percentages achieved by ISI due to the write-down of
inventory to its estimated net realizable value, as a result of increased unit
production costs caused by limited production volumes.
The Optical Plastics Group gross margin decreased from $3,231,000 or 34% of
net sales in 1991 to $2,740,000 or 35% of net sales in 1992 and to $2,642,000
or 34% of net sales in 1993. The small decrease in gross margin in 1993 was
the result of marginally reduced sales and gross margin percentage. In 1992,
the reduced gross margin was the result of reduced sales volume.
The Electronics Group gross margin increased from $221,000 or 3% of net sales
in 1991 to $561,000 or 9% of net sales in 1992 and decreased to $546,000 or
14% of net sales in 1993. The small decrease in gross margin in 1993 and
increased gross margin in 1992, in spite of reduced sales at Eastern in both
years, was attributable to the continuing improvement in gross margin
percentages as a result of a better product mix, a reduction in the fixed
manufacturing costs and improved operating efficiencies.
Investment and other income, net
Investment and other income was $2,790,000 in 1991, $6,221,000 in 1992 and
$3,358,000 in 1993, respectively. In 1993 the decrease in investment and other
income, net was primarily attributable to a net foreign currency transaction
gain of $901,000 in 1993 as compared to a gain of $3,362,000 in 1992. In
addition, in 1993 the Company realized reduced revenues relating to interest
income, and in the equity in earnings of 20% to 50% owned subsidiaries as
compared to 1992. These decreases were partially offset by reserves taken and
losses realized by the Company on certain assets and investments in 1992. In
1992, the increase in investment and other income, net was primarily due to
two factors. In 1992, the Company realized increased gains on the sales of
certain investments, and recognized an expense for reserves taken and losses
realized on certain assets of $1,336,000 in 1992 as compared to $4,774,000 in
1991. In 1992, the Company realized a net foreign currency transaction gain of
$3,362,000, as compared to a gain of $3,042,000 in 1991. The reserves were
taken in 1992 and 1991 due primarily to reduced values and impairments
relating to long-term investments and related assets accounted for on the cost
basis. The Company evaluates its long-term investments at least annually. An
investment is written down or written off if it is judged to have sustained a
decline in value which is other than temporary. During 1991, a 19% interest in
and advances to a vendor and distributor of pay telephones was written down by
$3,100,000, to an estimated residual value of $175,000, since the telephone
company ceased marketing its principal product in 1991. This resulted from (a)
the loss by the telephone company of two major vending accounts in 1991, which
substantially reduced revenues and (b) the telephone company's effort to sell
telephones as well as to vend them
23
<PAGE>
was unsuccessful in 1991. Based upon the fact that the remaining vending
revenues were insufficient to support operations the telephone company ceased
operations. In 1992, the estimated residual value of $175,000 of this
investment, which was based upon estimated proceeds on liquidation of
telephone equipment, was written off since it was determined that such sales
could not be consummated. Additionally, in 1992, the Company fully reserved
its investment of $305,000 in a medical blood center company. The blood center
company ceased operations in 1992 as its major investor, a large financial
institution decided to no longer provide financing and working capital. In
1991 and prior years, the medical blood center company received substantial
funding for its centers and the financial institution provided working capital
and equity financing. In both 1991 and 1992, a number of other relatively
small investments were written off or written down because the Company's
periodic evaluations indicated declines in value which were judged to be other
than temporary.
At December 31, 1993, there was an aggregate of SFr. 25,398,000 of Swiss
denominated indebtedness outstanding, of which SFr. 23,680,000 represents
principal amount outstanding and SFr. 1,718,000 represents interest accrued
thereon. Foreign currency valuation fluctuations may adversely affect the
results of operations and financial condition of the Company. In order to
protect itself against currency valuation fluctuations, the Company has at
times swapped or hedged a portion of its obligations denominated in Swiss
Francs. At December 31, 1993, the Company had not hedged its Swiss Franc
obligations. If the value of the Swiss Franc to the U.S. Dollar increases, the
Company will recognize transaction losses on the portion of its Swiss Franc
obligations which are not hedged. On December 31, 1993, the value of the Swiss
Franc to the U.S. Dollar was 1.485 to 1. There can be no assurance that the
Company will be able to swap or hedge obligations denominated in foreign
currencies at prices acceptable to the Company or at all. The Company will
continue to review this policy on a continuing basis.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) decreased from $38,356,000
in 1991 to $36,274,000 in 1992 and to $35,600,000 in 1993. In 1993, the
decrease in SG&A was primarily attributable to ISI being accounted for on the
equity basis during the third quarter of 1993, as a result of the Exchange
Offer discussed above, in which the Company's interest in ISI fell below 50%.
In addition, the Electronics Group also experienced reduced SG&A expenses as a
result of reduced personnel requirements due to reduced sales in 1993 and
Eastern's continuing effort to streamline its organization. The reduced SG&A
within the Health Care and Electronics Groups in 1993 were partially offset by
increased SG&A incurred by the Distribution and Physical Science Groups. The
increased SG&A at The Physical Science Group was due to increased operating
costs and the increased SG&A at the Distribution Group was the result of the
large increase in sales which led to increased selling expenses, as well as
additional costs incurred by Five Star to support the growth in sales. The
Optical Plastics Group had a marginal increase in SG&A in 1993. In 1992, the
decrease in SG&A expenses was primarily due to decreases in the Health Care
Group and the Physical Science Group as a result of the transfer on April 8,
1991 of a majority interest in AWC and
24
<PAGE>
the public offering by GP in October 1991, respectively. The decrease was
partially offset by increased SG&A within the Distribution Group as a result
of Five Star's expansion into the hardware supply distribution business and
increased SG&A within the Electronics Group due to costs connected with
Eastern's efforts to restructure its business operations.
Research and development costs
The Company's research and development activities are conducted both
internally and under various types of arrangements at outside facilities.
Research and development costs, which are primarily attributable to ISI, were
$4,651,000, $4,645,000 and $2,847,000 for 1991, 1992, 1993, respectively. In
1993, the reduced research and development costs were the result of the
Company's ownership in ISI falling below 50% in the third quarter of 1993, due
to the Exchange Offer discussed above, and therefore, the Company began
accounting for ISI on the equity method from that time. In 1992, ISI
experienced increased research and development costs because of increased
levels of research on ALFERONR N Gel, ALFERONR LDO and other proprietary
research. The increased spending at ISI in 1992 was offset by reduced spending
on various corporate projects.
Interest expense
Interest expense aggregated $15,579,000 in 1991, $11,044,000 in 1992 and
$8,325,000 in 1993. The reduced interest expense in 1992 and the further
reduction in 1993, was the result of the Company's continuing successful
effort to reduce its interest expense at the corporate level due to reduced
short-term borrowings, lower rates of interest on the Company's variable rate
obligations and reduced interest on the Company's Swiss Debt obligations due
to the Exchange Offer in 1993 and the Company's practice of repurchasing Swiss
Debt from time to time.
Income taxes and extraordinary item
Income tax benefit (expense) from operations for 1991, 1992 and 1993 was
$(549,000), $(427,000) and $575,000, respectively.
In 1993, the Company recorded an income tax benefit of $1,043,000, of which
$973,000 relates to Federal income taxes, in continuing operations as a result
of the income tax expense allocated to the extraordinary gain recognized on
the early extinguishment of debt under the provisions of FASB No. 109.
In 1992, the Company's loss before income taxes from operations exceeded its
gains from extraordinary items: therefore, pursuant to accounting policies of
the Company, then in effect under APB No. 11, "Accounting for Income Taxes",
no income tax expense applicable to such extraordinary gains was recognized.
The income tax expense for 1992 of $427,000 represents state and local income
taxes.
In 1991, despite the Company's $1,157,000 income before income taxes from
operations, no Federal income tax expense was recognized. This is due
principally to significant permanent differences between financial and tax
reporting of 1991 transactions, including the
25
<PAGE>
elimination for tax purposes of the $18,844,000 gain on the sale of GP stock,
net of a gain recognized only for tax purposes upon ISI ceasing to be a member
of the Company's consolidated Federal income tax return group on May 31, 1991.
The income tax expense for 1991 of $549,000 represents state and local income
taxes.
As of December 31, 1993, the Company has approximately $34,770,000 of
consolidated net operating losses available for financial statement reporting
purposes.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted by the Company in 1993 on a prospective basis. (See Note
15 to the Consolidated Financial Statements). This standard requires that
deferred income taxes be recorded following the liability method of accounting
and adjusted periodically when income tax rates change. As of December 31,
1993, the Company was not carrying any deferred tax accounts. Adoption of the
new Statement did not have a material effect on the Company's financial
condition or results of operations.
Liquidity and capital resources
At December 31, 1993, the Company had cash, cash equivalents and marketable
securities totaling $10,976,000. GPS and Duratek had cash, cash equivalents
and marketable securities of $547,000 at December 31, 1993. The minority
interests of these companies are owned by the general public, and therefore,
the assets of these subsidiaries have been dedicated to the operations of
these companies and may not be readily available for the general corporate
purpose of the parent.
The Company believes that it has sufficient cash, cash equivalents and
marketable securities and borrowing availability under existing and potential
lines of credit to satisfy its cash requirements until the first scheduled
maturity of its Swiss Franc denominated indebtedness on March 1, 1995.
However, in order for the Company to meet its long-term cash needs, which
include the repayment of $12,757,000 of Swiss Franc denominated indebtedness
scheduled to mature in 1995 and $7,115,000 of Swiss Franc denominated
indebtedness which is scheduled to mature in 1996, the Company must obtain
additional funds from among various sources. The Company has historically
reduced its long-term debt through the issuance of equity securities in
exchange for long- term debt. In addition to its ability to issue equity
securities, the Company believes that it has sufficient marketable long-term
investments, as well as the ability to obtain additional funds from its
operating subsidiaries and the potential to enter into new credit
arrangements. The Company reasonably believes that it will be able to
accomplish some or all of the above transactions in order to fund the
scheduled repayment of the Company's long-term Swiss debt in 1995.
For the year ended December 31, 1993, the Company's working capital decreased
by $11,653,000 to $33,224,000, reflecting the effect of the Company's interest
in ISI falling below 50%, and being accounted for on the equity basis.
Consolidated cash and cash equivalents decreased by $6,945,000 to $10,976,000
at December 31, 1993.
26
<PAGE>
The decrease in cash and cash equivalents of $6,945,000 in 1993 primarily
resulted from the effect of the Company's interest in ISI falling below 50%,
and being accounted for on the equity basis as well as cash used, in
operations of $2,507,000, investing activities of $2,593,000 and financing
activities of $1,845,000. Cash used in operations was primarily required to
fund the operating loss for the year. The cash used in investing activities
was for increases in certain investments and for investment in property, plant
and equipment and intangible assets. Financing activities consisted primarily
of repayments and reductions in short-term borrowings and repayments of long-
term debt, offset by proceeds from short-term borrowings and long-term debt.
At December 31, 1993, the Company at the parent company level had
substantially exhausted its ability to borrow funds from its subsidiaries
under their respective line of credit arrangements.
The Company's principal manufacturing facilities were constructed subsequent
to 1976 and management does not anticipate having to replace major facilities
in the near term. As of December 31, 1993, the Company has not contractually
committed itself for any other new major capital expenditures.
27
<PAGE>
TARGET=[.10ka]
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------------------
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 29
Financial Statements:
Consolidated Balance Sheets - December 31, 1993
and 1992 30
Consolidated Statements of Operations - Years ended
December 31, 1993, 1992, and 1991 32
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1993, 1992,
and 1991 33
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1992, and 1991 35
Notes to Consolidated Financial Statements 38
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 73
</TABLE>
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation:
We have audited the consolidated financial statements of National Patent
Development Corporation and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Patent Development Corporation and subsidiaries at December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 15 the Company has adopted SFAS No. 109, "Accounting for
Income Taxes", as of January 1, 1993.
KPMG PEAT MARWICK
New York, New York
March 30, 1994
29
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------
December 31, 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 10,976 $ 17,921
Restricted cash 1,200
Marketable securities, at lower of
aggregate cost or market 4,553
Accounts and other receivables (of which
$7,694 and $9,970 are from government
contracts) less allowance
for doubtful accounts of
$1,689 and $1,581 36,285 41,171
Inventories 22,605 24,353
Costs and estimated earnings in
excess of billings on uncompleted
contracts, of which $2,913 and
$5,073 relates to government
contracts 13,081 10,702
Prepaid expenses and other current assets 4,160 4,009
- -------------------------------------------------------------------
Total current assets 87,107 103,909
- -------------------------------------------------------------------
Investments and advances 28,303 23,168
- -------------------------------------------------------------------
Property, plant and equipment, at cost 3,873 43,583
Less accumulated depreciation and
amortization (20,035) (22,043)
- -------------------------------------------------------------------
13,838 21,540
- -------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $24,691 and $23,987
Goodwill 25,463 29,421
Patents, licenses and deferred charges 4,641 3,547
- -------------------------------------------------------------------
30,104 32,968
- -------------------------------------------------------------------
Investment in financed assets 2,797 5,507
- -------------------------------------------------------------------
Other assets 3,908 5,557
- -------------------------------------------------------------------
$166,057 $192,649
- -------------------------------------------------------------------
</TABLE>
30
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands, except shares and par value per share)
- -------------------------------------------------------------------------------
December 31, 1993 1992
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 6,750 $ 7,067
Short-term borrowings 21,390 28,977
Accounts payable and accrued expenses 20,256 18,992
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,487 3,996
- -------------------------------------------------------------------------------
Total current liabilities 53,883 59,032
- -------------------------------------------------------------------------------
Long-term debt less current maturities 36,638 57,085
- -------------------------------------------------------------------------------
Notes payable for financed assets 579 3,109
- -------------------------------------------------------------------------------
Minority interests 3,277 9,600
- -------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------
Common stock issued subject to
repurchase obligation 4,242
- -------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share,
none issued
Common stock, authorized 30,000,000
shares, par value $.01 per share,
issued 19,023,357 and 15,934,840
shares (of which 22,645 shares are
held in the treasury) 190 159
Class B capital stock, authorized 2,800,000
shares, par value $.01 per share, issued
and outstanding 250,000 shares 2 2
Capital in excess of par value 106,274 96,713
Deficit (39,028) (33,051)
Total stockholders' equity 67,438 63,823
- -------------------------------------------------------------------------------
$166,057 $192,649
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per share data)
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Revenues
Sales $189,683 $195,765 $258,933
Investment and other income, net
(including interest income
of $875, $1,275 and $941) 3,358 6,221 2,790
- -------------------------------------------------------------------------------
193,041 201,986 261,723
- -------------------------------------------------------------------------------
Costs and expenses
Cost of goods sold 162,164 165,993 222,920
Selling, general and
administrative 35,600 36,274 38,356
Research and development 2,847 4,645 4,651
Interest 8,325 11,044 15,579
- -------------------------------------------------------------------------------
208,936 217,956 281,506
- -------------------------------------------------------------------------------
Gain on sale of stock of a subsidiary 18,844
- -------------------------------------------------------------------------------
Gain on disposition of stock of
a subsidiary and an affiliate 3,795
- -------------------------------------------------------------------------------
Gain on issuance of stock by a
subsidiary 1,353
- -------------------------------------------------------------------------------
Minority interests 2,376 2,792 2,096
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item (8,371) (13,178) 1,157
Income tax benefit (expense) 575 (427) (549)
- -------------------------------------------------------------------------------
Income (loss) before
extraordinary item (7,796) (13,605) 608
- -------------------------------------------------------------------------------
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 1,819 1,662 2,037
- -------------------------------------------------------------------------------
Net income (loss) $ (5,977) $(11,943) $ 2,645
- -------------------------------------------------------------------------------
Income (loss) per share
Income (loss) before
extraordinary item $ (.46) $ (.86) $ .04
Extraordinary item .11 .10 .13
- -------------------------------------------------------------------------------
Net income (loss) per share $ (.35) $ (.76) $ .17
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Capital in Total
Common capital excess Treasury stock-
stock stock of par stock holders'
($.01 Par) ($.01 Par) value Deficit at cost equity
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1990 $132 $ 2 $93,522 $(23,753) $(14,487) $55,416
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 526 528
Issuances of treasury stock
(1,153,621 common shares) (9,907) 13,019 3,112
Conversion of 12% debentures 10 4,377 4,387
Issuance of stock in connection with
Swiss Bonds 4 1,899 1,903
Shares issuable in settlement of debt 529 529
Issuances of stock to a subsidiary 2 1,156 1,158
Issuance and sale of common stock 1 382 383
Effect of issuance and sale
stock by a subsidiary, net 2,344 2,344
Net income 2,645 2,645
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 $151 $ 2 $94,828 $(21,108) $ (1,468) $72,405
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
<TABLE>
<CAPTION>
Class B Capital in Total
Common capital excess Treasury stock-
stock stock of par stock holders'
($.01 Par) ($.01 Par) value Deficit at cost equity
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 $ 151 $ 2 $94,828 $(21,108) $ (1 ,468) $72,405
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 280 282
Issuances of treasury stock
(102,772 common shares) (1,074) 1,468 394
Net loss $(11,943) (11,943)
Conversion of 12% Debentures 1 164 165
Issuance of stock in connection with
Swiss Bonds 2 911 913
Effect of exercise of warrants to
purchase the stock of a subsidiary 674 674
Shares issuable in settlement of debt 186 186
Issuance and sale of common stock 3 744 747
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 159 2 96,713 (33,051) 63,823
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale of common stock 3 375 378
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 190 $ 2 $106,274 $(39,028) $67,438
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
- -----------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss) $(5,977) $(11,943) $ 2,645
- -----------------------------------------------------------------------------
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 5,296 6,107 8,542
Income tax benefit allocated to
continuing operations (1,043)
Gain on sale of stock of
a subsidiary (18,844)
Gain from early extinguishment
of debt, net of income
tax in 1993 (1,819) (1,662) (2,037)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on issuance of stock by
a subsidiary (1,353)
Changes in other operating items,
net of effect of acquisitions
and disposals:
Accounts and other receivables 4,817 1,641 (1,243)
Inventories (381) (2,223) 4,574
Costs and estimated earnings in
excess of billings on
uncompleted contracts (2,379) (2,012) 3,158
Prepaid expenses and other
current assets (44) 279 529
Accounts payable and accrued
expenses 2,680 (341) (3,040)
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,491 (1,861) 2,719
Income taxes payable (25) (452)
- -----------------------------------------------------------------------------
Total adjustments 3,470 (97) (6,094)
- -----------------------------------------------------------------------------
Net cash used in operations $(2,507) $(12,040) $ (3,449)
- -----------------------------------------------------------------------------
</TABLE>
35
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)
- ------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from public sale of
a subsidiary's stock $ $ $43,997
Proceeds from disposal of business 7,192
Proceeds from sale of an investment 4,500
Marketable securities 651 2,419 (6,743)
Additions to property, plant and
equipment, net (2,077) (3,399) (2,079)
Additions to intangible assets (303) (1,339) (705)
Reduction of (additions to)
investments and other assets (864) 3,096 1,018
Net cash provided by (used in)
investing activities (2,593) 5,277 42,680
- ------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of short-term
borrowings (28,011) (6,150) (31,827)
Proceeds from short-term
borrowings 20,424 8,810
Decrease in restricted cash 1,200 3,800 10,000
Proceeds from issuance of
long-term debt 10,973 203 7,561
Reduction of long-term debt (8,515) (6,244) (15,675)
Repayments of notes payable for
financed assets (28) (207)
Proceeds from public sale of
common stock by a subsidiary 9,588
Proceeds from issuance of
common stock 198 1,539
Proceeds from issuance of stock
by a subsidiary 1,473 750
Exercise of common stock options
and warrants 413 282 718
Issuance of treasury stock 15 825
Net cash provided by (used in)
financing activities (1,845) 688 (16,728)
Net (decrease) increase in cash
and cash equivalents (6,945) (6,075) 22,503
Cash and cash equivalents at
beginning of year 17,921 23,996 1,493
- ------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 10,976 $17,921 $ 23,996
- ------------------------------------------------------------------------
</TABLE>
36
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,344 $ 8,324 $14,138
- -------------------------------------------------------------------------------
Income taxes $ 692 $ 703 $ 1,472
- -------------------------------------------------------------------------------
Supplemental schedule of
noncash transactions:
Reduction of intangibles $ $ $ (532)
Reduction of debt 21,900 1,819 7,430
Issuances of treasury stock (1,468) (2,098)
Additions to other assets
and prepaid expenses 179 130 275
Reduction of accounts payable 597
Reduction of accrued interest payable 607 1,744
Issuances of common stock (8,981) (1,078) (6,819)
Issuance of long-term debt (3,006)
Common stock issued subject
to repurchase obligation (4,242)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on exchange of debt before
income tax effect (2,662)
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation and investments. The consolidated financial
statements include the operations of National Patent Development Corporation and
its majority-owned subsidiaries (the Company). Investments in 20% - 50% owned
companies are accounted for on the equity basis, and marketable equity
securities of less than 20% owned companies are accounted for at the lower of
aggregate cost or market. Other investments in less than 20% owned companies are
accounted for on the cost basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
Statements of cash flows. For purposes of the statement of cash flows, the
Company considers all highly liquid instruments with maturities of three months
or less from purchase date to be cash equivalents.
Marketable securities. Marketable securities at December 31, 1992 consisted of
United States Government obligations, carried on the balance sheet at cost by
the Company. The market value of marketable securities at December 31, 1992 was
$4,606,000.
Inventories. Inventories are valued at the lower of cost or market, principally
using the first-in, first-out (FIFO) method.
Foreign currency transactions. The Company's Swiss Bonds (see Note 9) are
subject to currency fluctuations and the Company has hedged portions of such
debt from time to time. During the years ended December 31, 1993, 1992, and
1991, the Company realized foreign currency transaction gains of $901,000,
$3,362,000 and $3,042,000, respectively. These amounts are included in
investment and other income, net. At December 31, 1993, the Company had not
hedged its Swiss Franc obligations.
Contract revenue and cost recognition. The Company provides services under time-
and-materials, cost-plus-fixed-fee, and fixed-price contracts. Revenue from
contracts is recognized on the percentage-of-completion method as costs are
incurred and includes estimated fees at predetermined rates. Differences between
recorded costs, estimated fees, and final billings are recognized in the period
in which they become determinable. Costs and estimated earnings in excess of
billings on uncompleted contracts are recorded as an asset. Billings in excess
of costs and estimated earnings on uncompleted contracts are recorded as a
liability. Generally, contracts provide for the billing of costs incurred and
estimated fees on a monthly basis and do not provide for retainage. Retainages,
amounts subject to future negotiation, amounts expected to be collected after
one year, and amounts related to claims are not material.
38
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of significant accounting policies (Continued)
Property, plant, and equipment. Property, plant, and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently. Gain
or loss on the disposition of property, plant, and equipment is recognized in
operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated useful
lives:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
CLASS OF ASSETS USEFUL LIFE
- ---------------------------------------------------------------------
<S> <C>
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 20 years
Leasehold improvements Shorter of asset life
or term of lease
</TABLE>
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis generally over periods ranging from 5 to 40 years. The Company capitalizes
costs incurred to obtain and maintain patents and licenses. Patent costs are
amortized over the lesser of 17 years or the remaining lives of the patents, and
license costs over the lives of the licenses. The Company also capitalizes costs
incurred to obtain long-term debt financing. Such costs are amortized on an
effective yield basis over the terms of the related debt and such amortization
is classified as interest expense in the Consolidated Statements of Operations.
The periods of amortization of goodwill are evaluated at least annually to
determine whether events and circumstances warrant revised estimates of useful
lives. This evaluation considers, among other factors, expected cash flows and
profits of the businesses to which the goodwill relates. Goodwill is written off
when it becomes evident that it has become permanently impaired.
Treasury stock. Treasury stock is recorded at cost. Reissuances of treasury
stock are valued at market value at the date of reissuance. The cost of the
treasury stock is relieved from the treasury stock account and the difference
between the cost and market value is recorded as additional paid in capital.
39
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of significant accounting policies (Continued)
Sales of stock by a subsidiary. The Company records in the Consolidated
Statement of Operations any gain or loss realized when a subsidiary sells its
shares at an offering price which differs from the Company's carrying amount per
share of such subsidiary's stock.
Income taxes. The Company files a consolidated Federal income tax return that
includes each domestic subsidiary in which the Company has at least 80% voting
control. The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", effective Janaury 1, 1993. Adoption of the
new Statement did not have a significant effect on the Company's financial
condition or results of operations.
Income (loss) per share. Per share data is based on the weighted average number
of shares outstanding, including Class B capital stock, and dilutive common
stock equivalents. Presentation of fully diluted earnings per share is not
required because the effect is less than 3% or is antidilutive. The weighted
average number of shares outstanding for the years ended December 31, 1993, 1992
and 1991 were 17,125,900, 15,771,301 and 15,393,781, respectively.
2. GPS Technologies, Inc.
On October 3, 1991, General Physics Corporation (GP)completed a public of 4
million shares of common stock at a price of $13 per share. The Company offered
3,846,540 shares of stock, and the remainder was offered by certain non-
affiliated shareholders. The Company received net proceeds after expenses of
$43,997,000, and from the proceeds was required to make several repayments of
long-term debt and short-term borrowings. The Company repaid $16,735,000 of
short-term borrowings, $5,163,000 of long-term debt and $2,039,000 of accrued
interest payable on its Swiss Convertible Bonds. Included in expenses were
legal, printing and accounting costs, bonuses paid to key employees of the
Company, as well as other costs. The Company recognized a gain of $18,844,000
from this transaction.
40
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. GPS Technologies, Inc. (Continued)
In connection with the public offering, a reorganization was effected on
September 25, 1991 whereby GP transferred certain operations and related assets
and liabilities to a new subsidiary, GPS Technologies, Inc. (GPS), formerly
named General Physics Services Corp. GP retained the business, assets and
liabilities of its Nuclear Services, Department of Energy Services and
Environmental Services Groups. Included among the businesses and assets
transferred to GPS were certain leases of property and equipment, and two
finance subsidiaries that own power plant control room simulators. As a result
of the public offering and the reorganization, the Company owns approximately
28% of GP and 92% of GPS. The financial position and results of operations of GP
are included in the consolidated accounts of the Company for all periods
presented through September 30, 1991. On October 3, 1991, the Company's
ownership fell below 50%. Thereafter, the Company's investment in GP has been
accounted for on the equity basis and the Company's share of GP's income (loss)
for the three months ended December 31, 1991 and years ended December 31, 1992
and 1993 in the amount of $432,000, $(144,000) and $316,000, respectively, after
the amortization of the underlying goodwill, is included in the caption
"Investment and other income, net" appearing in the consolidated statements of
operations. The financial position and results of operations of GPS are included
in the consolidated accounts of the Company. At December 31, 1993, the Company's
investment in GP was approximately $11,753,000, of which $6,829,000 represents
the difference between the carrying amount of the investment and the amount of
the underlying equity in the net assets. Such amount is included in investments
and advances on the Company's consolidated balance sheet and is being amortized
on a straight-line basis over its estimated benefit period, 30 years. At
December 31, 1993, the Company owned 1,771,407 shares of GP with a total market
value of $6,864,000.
Condensed financial information for GP is as follows as of December 31, 1993 and
1992 and for the years then ended (in thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Total assets $21,872 $23,086
Stockholders' equity 17,584 17,052
Revenues 62,402 73,314
Net income 1,763 139
</TABLE>
41
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. GTS Duratek, Inc.
On November 2, 1990, GTS Duratek, Inc. (Duratek), a majority owned subsidiary,
purchased General Technical Services, Inc. (GTS) from GP for a purchase price of
$7,500,000 in cash, 3,500,000 shares of Duratek's common stock and a $1,250,000
note. GTS, based in Columbia, Maryland, is a supplier of consulting and staff
augmentation services to utilities, Government agencies, and commercial
businesses. On December 31, 1992, Duratek issued 450,000 shares of Duratek
common stock to GPS in exchange for the $1,250,000 note and $150,000 of accrued
interest. In 1993, the Company distributed 667,134 shares of Duratek stock as
part of an Exchange Offer (See Note 9(a)). After the acquisition of GTS, the
retirement of the note and accrued interest and the Exchange Offer,
approximately 46% of the outstanding shares of Duratek's common stock is owned
by GPS (after the reorganization discussed in Note 2) and 20% of the shares are
owned by the Company. The Company, as a result of owning 92% of GPS, now
controls approximately 66% of Duratek. Duratek also provides environmental
services which includes the cleanup of water and other liquids containing
radioactive and/or hazardous (mixed waste) contaminants and in-furnace
vitrification for long-term stabilization of such waste.
In the fourth quarter of 1993, Duratek entered into a series of agreements which
resulted in the formation of a 50% owned company,Vitritek Environmental, Inc.
(Vitritek). The purpose of Vitritek is to develop technologies relating to the
vitrification of medical, hazardous and asbestos waste. In consideration for its
50% interest in Vitritek, Duratek contributed its option to acquire all rights,
title and interest in certain medical and hazardous waste vitrification
technologies. Duratek acquired this option for warrants to purchase 500,000
shares of Duratek's common stock for $4.00 per share and cash of $500,000
provided by the owners of the other 50% interest in Vitritek. The warrants
expire on September 30, 1997. In connection with these transactions, Duratek
agreed to sell to the two principal shareholders of the corporation which
contributed certain technologies relating to asbestos waste vitrification, and
who hold the other 50% interest in Vitritek, a total of 562,500 shares of
Duratek's common stock at $4.00 per share. Duratek received in consideration for
the shares, $1,500,000 in cash, and the two shareholders' interests in other
assets valued at $750,000.
42
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Interferon Sciences, Inc.
Interferon Sciences, Inc. (ISI) is a 36% owned affiliate of the Company. It is
engaged in the manufacture and sale of ALFERONR N Injection, ISI's first product
commercially approved by the FDA for the treatment of recurring and refractory
external genital warts, and the research and development of other alpha
interferon based products for the treatment of viral diseases, cancers and
diseases of the immune system.
On July 12, 1993, the Company commenced an Exchange Offer for its Swiss Franc
denominated Bonds and its Dual Currency Bonds. (See Note 9(a)). As a result of
the inclusion of a portion of the Company's shares of Common Stock of ISI as
part of the consideration in the Exchange Offer, the Company's ownership in ISI
fell below 50%, and therefore, commencing during the third quarter of 1993, the
Company accounted for the results of ISI on the equity basis. The Company's
investment in ISI of approximately $6,167,000 is included in "Investments and
Advances" on the Consolidated Balance Sheet. At December 31, 1993, the Company
owned 6,985,000 shares of ISI, with a market value of $32,743,000. The Company's
share of ISI's loss included in Investment and other income, net is $857,000 in
1993.
At December 31, 1993 and for the year then ended, condensed financial
information for ISI is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Total assets $20,301
Stockholders' equity 17,131
Revenues 51
Net loss (8,460)
</TABLE>
On May 28, 1993, David Blech, the Chief Executive Officer, sole shareholder and
a director of D. Blech & Company, Incorporated (DBC), and ISI entered into a
Purchase Agreement (the Purchase Agreement), pursuant to which David Blech or
his designees purchased for $4.00 per unit, an aggregate of 2,500,000 units
(Units), each Unit consisting of two shares of common stock of ISI; one Class A
Warrant to purchase one share of common stock of ISI at an exercise price of
$3.25 per share and one Class B Warrant to purchase one share of common stock of
ISI at an exercise price of $5.00 per share. The Class A Warrants and the Class
B Warrants expire on August 31, 2000. The purchasers have certain registration
rights as to the securities acquired by them under the Purchase Agreement.
43
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Interferon Sciences, Inc. (Continued)
On October 29, 1991, ISI completed a public offering of 2,300,000 shares of its
common stock at $5.00 per share resulting in net proceeds to ISI of
approximately $9,588,000. In connection with the public offering, the Company
converted its outstanding advance to ISI at September 30, 1991 of $4,985,000
into $2,200,000 of common stock and contributed the remainder to capital in
excess of par value.
On May 30, 1991, the Company exchanged its ISI Class B common stock for an equal
number of shares of common stock. As a result, on that date, ISI ceased to be
included in the Company's consolidated Federal income tax return.
On April 12, 1991, ISI, the Company, The Purdue Frederick Company (Purdue
Frederick) and certain other companies (The Purdue Affiliates) entered into an
agreement (the Funding Agreement). Under the terms of the Funding Agreement, (i)
The Purdue Affiliates agreed to purchase $3,600,000 of ISI common stock at a
price of $4.10 per share (which occurred on June 14, 1991), (ii) on June 3,
1991, the Company exchanged $3,800,000 of the Company's common stock (with a
guaranteed value of $3,800,000 of proceeds for ISI from the sale of the
Company's common stock) for an equal value of ISI common stock and, (iii) Purdue
Frederick agreed to convert $1,975,000 of the prepayments for product made by
it, $850,000 in 1990, $425,000 in January 1991, and $700,000 in February 1991
into shares of ISI common stock at $4.10 per share (which occurred on June 14,
1991). Between August and October, 1991, ISI received $1,200,000 in net proceeds
from the sale of the Company's common stock and the Company paid ISI the
remaining $2,600,000 on October 31, 1991 (which represents the difference
between the guaranteed amount of $3,800,000 and the amount realized from the
sale of the ISI common stock which was $1,200,000).
5. Inventories
Inventories, consisting of material, labor, and overhead, are classified as
follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,836 $ 2,536
Work in process 675 1,713
Finished goods 16,394 17,316
Land held for resale 2,700 2,788
- ----------------------------------------------------------------
$22,605 $24,353
- ----------------------------------------------------------------
</TABLE>
44
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, plant, and equipment
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Land $ 173 $ 314
Buildings and improvements 1,365 8,754
Machinery and equipment 19,308 22,039
Furniture and fixtures 7,951 7,175
Leasehold improvements 5,076 4,829
Construction in progress 472
- ----------------------------------------------------------------
33,873 43,583
Accumulated depreciation and
amortization (20,035) (22,043)
- ----------------------------------------------------------------
$ 13,838 $ 21,540
- ----------------------------------------------------------------
</TABLE>
7. Short-term borrowings
Short-term borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31, 1993 1992
- ------------------------------------------------------------------
<S> <C> <C>
Revolving Credit and Term Loan
Agreement (a) $ $ 4,196
Line of Credit Agreement (b) 11,732 13,506
Revolving Credit and Term Loan
Agreement (c) 5,650 3,700
Revolving Loan and Line of Credit
Arrangements (d) 898 1,153
Revolving Line of Credit
Agreement (e) 3,110 6,239
Notes Payable (f) 183
- ------------------------------------------------------------------
$21,390 $28,977
- ------------------------------------------------------------------
</TABLE>
45
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(a) On April 8 and October 3, 1991, the Company entered into two amendments to
its November 1, 1989, $15,000,000 Revolving Credit and Term Loan Agreement (the
Loan Agreement). Under the terms of the amendments, the outstanding balance of
$10,346,000 at October 3, 1991, was payable in nine equal quarterly installments
of $1,150,000 which commenced on March 31, 1992. The loan bore interest at a
rate equal to 1/2% in excess of the bank's prime rate. On September 9, 1992, the
Company amended the Loan Agreement. Under the terms of the amendment, the
outstanding balance at January 1, 1992 is payable in four quarterly installments
of $1,150,000, $2,308,000, $1,156,000 and $5,732,000, commencing September 30,
1992. In October 1992, the bank released the $5,000,000 in cash collateral,
which was used to reduce the loan balance and the last scheduled payment by
$5,000,000. The bank agreed to defer the December 31, 1992 payment of $2,308,000
to April 1993. The entire loan balance of $4,196,000 at December 31, 1992 was
classified as a current liability. In April 1993, the Company repaid the balance
of the loan. (See Note 7(b)).
(b) In April 1990, the Five Star Group, Inc., (Five Star) entered into a three
year line of credit arrangement with a bank. Five Star could borrow up to a
maximum of $17,000,000, subject to the level of its qualified accounts
receivable and inventory, at an interest rate of 3/4% in excess of the prime
rate, subject to reduction, based upon certain financial criteria. The line of
credit was secured by substantially all the intangible and tangible property of
Five Star. As part of the agreement, the Company could borrow up to a maximum of
$7,000,000 from Five Star. As of December 31, 1992, $13,506,000 was borrowed by
Five Star.
In April 1993, Five Star and MXL Industries, Inc. ("MXL") entered into a
revolving credit and term loan agreement (the "Five Star Loan Agreement" and
"MXL Loan Agreement"). The Five Star Loan Agreement, which replaced the above
agreement, provided for a $20,000,000 revolving credit facility (the "Five Star
Revolving Credit Facility") and a $5,000,000 term loan (the "Five Star Term
Loan"). The Five Star Revolving Credit Facility is a three year committed
facility which allows Five Star to borrow amounts equal to 40% of Eligible
Inventory (as defined) and 75% of Eligible Receivables (as defined) at an
interest rate of 1% in excess of the prime rate. At December 31, 1993, the
interest rate was 7%. As of December 31 1993, $11,732,000 was borrowed under the
Five Star Revolving Credit Facility and Five Star had no additional
availability.
46
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
The Five Star Term Loan is repayable in 10 quarterly payments of approximately
$417,000 which commenced October 31, 1993, and a final payment of approximately
$830,000 on April 30, 1996. The Five Star Term Loan bears interest at 1 % in
excess of the prime rate, and was 7 3/8 % at December 31, 1993. The Five Star
Revolving Credit Agreement and the Five Star Term Loan are secured by all of the
assets of Five Star and 1,359,375 shares of common stock of ISI and 1,062,500
shares of common stock of GP, which were contributed to Five Star in connection
with the forgoing transactions. At December 31, 1993, $4,583,000 was outstanding
under the Five Star Term Loan.
The MXL Loan Areement provides for a $1,500,000 revolving credit facility (the
"MXL Revolving Credit Facility") and a $4,500,000 term loan (The "MXL Term
Loan"). The MXL Revolving Credit Facility is a three year committed facility
which allows MXL to borrow amounts equal to 25% of Eligible Inventory (as
defined) and 80% of Eligible Receivables (as defined) at an interest rate of 1%
in excess of the prime rate. At December 31, 1993, the interest rate was 7%. As
of December 31, 1993, there were no borrowings under the MXL Revolving Credit
Facility and the balance of the MXL Term Loan was $4,125,000. The MXL Term Loan
is repayable in 10 quarterly payments of approximately $375,000, which commenced
on October 31, 1993 with a final payment of $750,000 on April 30, 1996. The MXL
Term Loan bears interest at 1 3/8 % in excess of the prime rate, and was 7 3/8%
at December 31, 1993. The facilities are secured by all of the assets (other
than certain equipment) of MXL and by 815,625 shares of common stock of ISI
and 637,500 shares of common stock of GP, which were contributed to MXL in
connection with the forgoing transactions.
The Five Star Revolving Credit Facility and Five Star Term Loan and the MXL
Revolving Credit Agreement and MXL Term Loan are guaranteed by the Company. The
Agreements, among other things, limit the amount that Five Star and MXL may
borrow from other sources,the amount and nature of certain expenditures,
acquisitions and sales of assets, and the amount that Five Star and MXL can loan
or dividend to the Company. The agreements have several covenants, including
provisions regarding working capital, tangible net worth, leverage and cash flow
ratios.
47
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(c) On October 3, 1991, GPS entered into an Amended and Restated Revolving
Credit and Term Loan and Security Agreement (the Agreement) with two banks. The
Agreement provided for a Term Loan of $5,000,000 and additional Revolving Credit
borrowings of up to $5,000,000. Borrowings under the Agreement were provided
equally by the participating banks, secured by accounts receivable, and bore
interest at rates set by such banks under options provided for in the Agreement.
Such Agreement, among other things, limited the amount that GPS may borrow from
other sources and the amount and nature of certain expenditures and required GPS
to maintain tangible net worth, working capital, cash flow, and debt ratios, as
defined in the Agreement. Term Loan borrowings were due in quarterly
installments which commenced December 31, 1991 and were to end on September 30,
1994.
On June 30, 1993, GPS replaced the above agreement with a new three year
$10,000,000 credit facility. The credit facility is secured by the accounts
receivable and fixed assets of GPS. The initial $5,000,000 of the credit
facility is fixed at an interest rate of 7.98% and the second $5,000,000 of the
credit facility bears interest at a rate equal to 1.25% in excess of the bank's
prime rate. At December 31, 1993, $5,650,000 was borrowed under the credit
facility.
(d) In August 1991, Eastern Electronics Manufacturing Corporation (Eastern)
assigned the remaining balance on its line of credit with a bank to a finance
company, with whom Eastern entered into a Security Agreement. Under the terms of
the Agreement, Eastern can borrow up to 80% of the net amount of eligible and
outstanding accounts receivable, as defined, at an interest rate of 5 1/2% over
the prime rate of interest (11.5% at December 31, 1993). At December 31, 1993,
$898,000 was borrowed under the Agreement.
48
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(e) On February 9, 1993, Duratek entered into a $7,000,000 Revolving Line of
Credit (the Line) and a $400,000 Loans to Facility (the Facility) for fixed
asset purchases with a commercial bank. On June 11, 1993, the Line was
increased to $7,750,000 and the Facility was increased to $750,000. Term Loans
under the Facility will be due over a 36 month period from the date of issue
and bear interest at the bank's prime rate plus 1 %. The Facility is secured
by the specific fixed assets financed under the Facility. The Line bears
interest at the bank's prime interest rate plus 1% and is secured by the
accounts receivable, inventory and property, plant and equipment of Duratek.
The Line requires Duratek to meet certain covenants concerning, among other
things, minimum tangible net worth, total liabilities to tangible net worth,
and profitability. It also contains limitations with respect to dividends or
other distributions to stockholders, mergers, acquisitions, and research and
development expenses. Short-term borrowings during 1992 were under an
agreement similar to the current agreement described above. At December 31,
1993, borrowings were $3,110,000 under the Line and $500,000 is outstanding
under the Facility.
(f) In December 1992, the Company repurchased SFr. 1,264,000 of its
outstanding Swiss Bonds for a $466,000 Note, which bore interest at 1/2% per
month, due February 24, 1993. The Note was secured by 250,000 shares of the
Company's common stock. The principal amount of the Note could be reduced by
the proceeds from the sale of the common stock by the Company. At December 31,
1992, the balance of the Note, reduced for the proceeds from the sale of the
Company's common stock, was $183,000. The balance was repaid in February 1993.
8. Accounts payable and accrued expenses
<TABLE>
<CAPTION>
Accounts payable and accrued expenses are comprised of the
following (in thousands):
- --------------------------------------------------------------------------------
December 31, 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $10,234 $ 9,824
Payroll and related costs 4,202 3,969
Interest 1,369 1,385
Other 4,451 3,814
- --------------------------------------------------------------------------------
$20,256 $18,992
- --------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 31, 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C>
5% Convertible Bonds due 1999 (a) $ 2,300 $
8% Swiss Bonds due 1995 (b) 4,572 20,075
6% Convertible Swiss Bonds due 1995 (c) 5,815 9,733
5.75% Convertible Swiss Bonds
due 1995 (c) 2,370 4,436
5.625% Convertible Swiss Bonds
due 1996 (d) 3,189 5,887
7% Dual Currency Convertible Bonds
due 1996 (d) 3,926 5,118
12% Subordinated Debentures due 1997 (e) 6,829 6,932
Term loan with banks (Note 7(b)) 8,708 2,917
Note payable for manufacturing facility
and equipment (i) 3,026
Notes payable in connection with
settlement of litigation (f) and (g) 951 951
Equipment lease obligations (2) 2,198 1,582
9.6% Industrial Revenue Bond (3) (h) 195
Mortgage Notes maturing 1993 (1) 130
Note payable (j) 459
- --------------------------------------------------------------------------
40,858 61,441
Less current maturities 4,220 4,356
- --------------------------------------------------------------------------
$36,638 $57,085
- --------------------------------------------------------------------------
</TABLE>
(1) Secured by manufacturing and other facilities.
(2) Secured by assets held under capital lease obligations.
(3) Secured by equipment of ISI.
(a) The Company commenced an Exchange Offer on July 12, 1993, for any and
all of its Swiss Franc denominated 8% Bonds due March 1, 1995, 6% Convertible
Bonds due March 7, 1995, 5 3/4% Convertible Bonds due May 9, 1995, 5 5/8%
Convertible bonds due March 18, 1996 (collectively, the "Old Swiss Franc
Bonds") and 7% Dual Currency Bonds due March 18, 1996 (the "Old U.S. Dollar
Bonds" and collectively with the Old Swiss Franc Bonds, the "Old Bonds"). The
purpose of the Exchange Offer was to reduce the Company's long-term
indebtedness and related interest expense.
50
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
The consideration offered by the Company for each SFr. 1,000 principal
amount of Old Swiss Franc Bonds validly tendered and not withdrawn prior to
the Expiration Date (August 19, 1993) was: a) 5% U.S. dollar denominated
Convertible Bonds of the Company due August 31, 1999 (the "New 5% Bonds") in a
principal amount of $130 and convertible into 30 shares of the Company's
Common Stock ("Common Stock"), b) 54 shares of Common Stock, c) 26 shares of
Common Stock of ISI (the "ISI Common Stock"), d) 26 shares of Common Stock of
Duratek (the "Duratek Common Stock") and e) $43 in cash.
The consideration offered by the Company for each $1,000 principal
amount of Old U.S. Dollar Bonds validly tendered and not withdrawn prior to
the Expiration Date was: a) New 5% Bonds in a principal amount of $200 and
convertible into 46 shares of Common Stock, b) 81 shares of Common Stock, c)
39 shares of ISI Common Stock, d) 39 shares of Duratek Common Stock and e) $60
in cash.
On the Expiration Date the Company accepted the following amounts of
Old Bonds for exchange: SFr. 3,640,000 of the 6% Bonds due March 7, 1995, SFr.
1,125,000 of the 5 3/4% Bonds due May 9, 1995, SFr. 2,765,000 of the 5 5/8%
Bonds due March 18, 1996, SFr. 16,806,000 of the 8% Bonds due March 1, 1995 and
$882,000 of the 7% Bonds due March 18, 1996. Under the terms of the Offer,
which included all unpaid accrued interest thereon, the Company issued the
following amounts of consideration to the exchanging bondholders a) 1,385,586
shares of Common Stock, valued at $5,582,000, b) 667,134 shares of ISI Common
Stock, valued at $2,536,000, c) 667,134 shares of Duratek Common Stock, valued
at $2,536,000, d) $3,340,080 principal amount of New 5% Bonds which will be
convertible into 767,833 shares of the Common Stock, and e) $1,099,368 in
cash. The Company recorded an original issue discount on the New 5% Bonds of
10%. At December 31, 1993, $2,536,000 of the New 5% Bonds were outstanding.
As a result of the Exchange Offer, the Company realized a gain of
$3,795,000 from the issuance of the ISI and Duratek Common Stock, and an
extraordinary gain from the early extinguishment of debt, before income tax
effect, of $1,227,000.
51
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Contiuned)
(b) On December 20, 1989, in exchange for Swiss Francs (SFr.) 32,420,000
($20,318,000) of its 6% Convertible Swiss Bonds due March 7, 1995, SFr.
26,335,000 ($16,515,000) of its 5.75% Convertible Swiss Bonds due May 9, 1995,
and SFr. 26,685,000 ($16,734,000) of its 5.625% Convertible Swiss Bonds due
March 18, 1996, (collectively, the Old Bonds), each in the principal amount of
SFr. 5,000, plus all unpaid accrued interest thereon, the Company issued: (a)
SFr. 51,264,000 ($32,140,000) of its 8% Swiss Bonds due March 1, 1995, each in
the principal amount of SFr. 3,000, (the New Bonds) of which SFr. 7,401,000
are currently outstanding, (b) 17,088 Reset Warrants, each of which entitles
the holder to purchase 75 shares of the Company's common stock, at a price
determined by formula, exercisable until March 1, 1995, (c) 17,088 Common
Stock Warrants, each of which entitles the holder to acquire without further
consideration shares of the Company's common stock with a market value of SFr.
250, exercisable until March 1, 1995, and (d) SFr. 750 in cash.
The Company recorded an original issue discount on the New Bonds of
40%, based upon exchange values estimated by the Swiss exchange agent.
Expenses of the exchange offer totaled $2,116,000. The discount and the
offering expenses, which have been deferred, are being amortized over the term
of the New Bonds.
(c) On March 7, 1985, the Company issued, pursuant to a Swiss Public Bond
Issue Agreement, 6% Convertible Bonds due March 7, 1995 representing an
aggregate principal amount of SFr. 60,000,000, of which SFr. 8,635,000 are
currently outstanding (see (a) and (b) above). The outstanding bonds are
convertible into 148,522 shares of the Company's common stock at any time
prior to February 10, 1995 at a conversion price of approximately $39.15 per
share based on an exchange rate of SFr 1.485 per U.S. $1.00. In addition, on
May 9, 1985, the Company issued, pursuant to a second Swiss Public Bond Issue
Agreement, 5.75% Convertible Bonds due May 9, 1995, representing an aggregate
principal amount of SFr. 50,000,000, of which SFr. 3,520,000 are currently
outstanding (see (a) and (b) above). These outstanding bonds are convertible
into 75,328 shares of the Company's common stock at a conversion price of
$31.47 per share based on an exchange rate of SFr 1.485 per U.S. $1.00 at any
time prior to April 22, 1995. Expenses of both Swiss Public Bond Issues
totaled approximately $1,793,000 and at December 31, 1993 and 1992, the
unamortized balances of such expenses were $30,000 and $91,000, respectively.
52
<PAGE>
(d) On March 18, 1986, the Company issued, pursuant to a third Swiss Public
Bond Issue Agreement, 5.625% Convertible Bonds payable in 1996, representing
an aggregate principal amount of SFr. 50,000,000, of which SFr. 4,735,000 are
currently outstanding (see (a) and (b) above). Additionally, the Company
issued 7% Dual Currency Convertible Bonds, payable in 1996, representing an
aggregate principal amount of SFr. 25,000,000, but payable at maturity at the
fixed amount of $15,000,000. The outstanding Bonds are convertible into
218,800 shares of the Company's common stock at any time prior to March 8,
1996 at a conversion price of $34.71 per share based on an exchange rate of
SFr 1.485 per U.S. $1.00. Under certain circumstances, the Company may redeem
all of the Bonds (but not a part only) at a redemption price equal to par
value. Expenses related to the issuance of the Bonds totaled approximately
$1,660,000 and at December 31, 1993 and 1992, the unamortized balances of such
expenses were $61,000 and $132,000, respectively. The Dual Currency Bonds were
issued as part of the Company's overall financing strategy, without any intent
to either speculate in foreign exchange or to hedge any existing foreign
currency exposure. It is the Company's policy to record periodic interest
expense on the Dual Currency Bonds at the then current exchange rate. At
December 31, 1993 and 1992, based on year end exchange rates, the effective
rates of interest would be approximately 8%. At December 31, 1993, the
effective rate of interest of approximately 8% would result in an additional
$33,000 of interest expense per year, through March 1996.
On August 10, 1990, the Company completed an Exchange Offer pursuant to which
it received $4,659,000 of its 7% Dual Currency Convertible Bonds due March 18,
1996 (Bonds). In exchange, the Company issued 540,444 shares of its Common
Stock and warrants to purchase 465,900 shares of the Common Stock, par value
$.01 per share, of ISI, currently the Company's 36% owned affiliate,
exercisable at a price of $6.88 per share until August 16, 1992. The Exchange
Offer was completed on August 10, 1990 and the Company recorded an
extraordinary gain of $1,477,000 on the early extinguishment of the Bonds.
During February 1992, ISI called the warrants, resulting in net proceeds to
ISI of $2,956,000 from the issuance of 432,600 shares of ISI common stock upon
exercise of the warrants.
In addition to the bonds exchanged (see (a) and (b) above), during 1993, 1992
and 1991 the Company repurchased a portion of each of the Swiss Public Bond
Issues as well as Dual Currency Convertible Bonds. Extraordinary gains from
the early extinguishment of the Bonds in all such transactions amounted to
$1,819,000 (net of income taxes), $1,662,000 and $2,037,000, respectively.
53
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
(e) During the third quarter of 1987, the Company issued $12,500,000 of
Subordinated Debentures (Debentures) which mature in 1997. Each $100 principal
amount Debenture was sold with warrants to purchase four shares of the
Company's common stock at a price of $18.50 per share. Expenses of the
offering amounted to approximately $1,908,000 and as of December 31, 1993 and
1992, the unamortized balances of such expenses were $432,000 and $550,000. In
connection with the terms of the Debentures, the Company is subject to certain
covenants which limit the amount that may be used for the payment of dividends
and for the purchase of the Company's outstanding equity securities (common or
Class B). In September 1990, under the terms of an Indenture, the Debentures
became exchangeable for the Company's Common Stock, for the remaining term of
the Debentures, at a price of approximately $5.00 per share. In 1993 and 1992,
$82,000 and $179,000, respectively, of Debentures were converted into 16,579
and 35,933 shares, respectively, of the Company's Common Stock. At December
31, 1993, the Debentures are convertible into approximately 1,374,000 shares
of the Company's Common Stock.
(f) In March 1987, the Company and Ryder International Corporation (Ryder)
agreed to a settlement of litigation relating to the Company's Caridex/R/
system. Under the terms of the settlement agreement, the Company agreed to pay
Ryder (i) $1,000,000 in cash; (ii) $2,000,000 in common stock of the Company
(133,333 shares, valued at $2,000,000 were issued from treasury stock during
1987, and subsequently repurchased for $2,000,000 during 1988); and (iii)
$300,000 per year (in cash or common stock of the Company) for a ten year
period commencing January 15, 1988, the present value of which is discounted
at 10%, and included in long-term debt.
(g) In May 1987, the Company and George K. Burke, Sr. and Concetta J. Burke
(the Burkes) settled a lawsuit asserting various claims for relief against the
Company with respect to several agreements concerning the marketing and
development of the EPIC/R/ system of intravenous devices, which the Company had
discontinued in December 1983. As a result of the settlement the Burkes
received $500,000 in cash upon execution of the settlement agreement and
received $250,000 a year (in cash or common stock of the Company) for a five
year period commencing in May 1988. In 1987, the Company recorded an
additional loss from this discontinued operation totaling $1,500,000,
representing the present value of the amounts due the Burkes plus the costs
relating to the litigation and settlement. The final payment was made in the
common stock of the Company in 1992.
54
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
(h) During May 1983, ISI, a currently 36% controlled affiliate of the
Company, completed the sale of a 9.6% $1,450,000 Industrial Revenue Bond to
the New Jersey Economic Development Authority. The net proceeds were used to
pay for laboratory construction and equipment. The terms of the bond indenture
call for annual principal installments of $195,000 through 1993.
(i) In March 1990, ISI borrowed $4,200,000 from a subsidiary of a bank at
an effective interest rate of 12.4% principally for the expansion of its
manufacturing facility. The loan calls for monthly payments of $41,500 for
months 1 to 24, which is comprised of interest only, and $139,500 (principal
and interest) for months 25 to 60. The loan is secured by certain equipment of
ISI and is guaranteed by the Company.
(j) In December 1991, ISI issued a $459,000 note to Purdue Pharma L.P., an
affiliate of The Purdue Frederick Company, its marketing partner. The note
bears interest at 7.5% per annum, and required payment of interest and
principal on December 31, 1993, which was subsequently extended to April 27,
1994. As a result of the Exchange Offer (See (a)), ISI is currently accounted
for on the equity basis.
Aggregate annual maturities of long-term debt outstanding at December 31, 1993
for each of the next five years are as follows (in thousands):
1994 $ 4,220
1995 17,052
1996 10,007
1997 7,235
1998 44
10. Investment in finance subsidiaries
GPS Technologies, Inc. is a high technology service company that assists
industry and the Navy in maximizing the effectiveness of their equipment and
facilities through the rigorous training of technical personnel and the
development and implementation of operational procedures and maintenance
programs. GPS conducts certain of its services using power plant training
simulators, the majority of which are owned by its clients. However, at
December 31, 1993, two simulators are owned by wholly owned subsidiaries of
GPS.
55
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in finance subsidiaries (Continued)
Through these subsidiaries, GPS has entered into long-term agreements with two
domestic utilities to provide nuclear power plant simulator training services
along with the attendant nuclear power plant training simulators and related
training equipment. Under the provisions of the agreements, the subsidiaries
obtained non-recourse long-term financing from a bank to finance the purchase
of the simulators and training equipment. The agreements provide that the
subsidiaries are compensated, in part, for use of the simulators on
essentially a lease financing basis.
The agreements provide that the payments by the utilities will enable the
subsidiaries to recover the cost of the simulators plus interest at floating
rates which range from prime to 115% of prime, as well as the cost of
simulator replacement parts, taxes, and insurance. Such amounts will be
sufficient to fully service the related long-term debt discussed below. All
training services are performed by GPS personnel and are billed at established
hourly rates. Revenues for these services are recognized by GPS.
Under the agreements, the utilities have options to purchase the simulators
and other training equipment at the end of the loan terms.
Non-recourse long-term debt relating to the simulators consists of the
following (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------
<S> <C> <C>
Notes payable to bank (1) $ 3,109 $ 5,820
Less current maturities 2,530 2,711
- ---------------------------------------------------
Long-term debt $ 579 $ 3,109
- ---------------------------------------------------
</TABLE>
(1) These loans bear interest at floating rates, which range from the bank's
prime rate to 115% of the bank's prime rate, and are payable in monthly
installments over periods of up to 15 years from the initial dates of each of
the loans.
The loans are secured by the equipment and all rights under the agreements
with the utilities. Under these agreements, GPS has agreed to guarantee the
service performance with the utilities but has not guaranteed the obligations
of its subsidiaries under the loan agreements. GPS has also agreed to maintain
a minimum debt to equity ratio, a minimum tangible net worth and a minimum
working capital, as defined.
56
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in finance subsidiaries (Continued)
Aggregate annual maturities of the non-recourse notes payable at December 31,
1993 for each of the succeeding years are as follows (in thousands):
1994 $ 2,530
1995 579
Summarized combined financial information of the finance subsidiaries is as
follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------
<S> <C> <C>
Balance Sheet Data
Assets
Investments in financed assets $ 2,797 $ 5,507
Other assets 413 439
- ---------------------------------------------------
Total assets $ 3,210 $ 5,946
- ---------------------------------------------------
Liabilities and stockholders'
equity
Non-recourse notes payable $ 3,109 $ 5,820
Other liabilities 27
Stockholders' equity 101 99
- ---------------------------------------------------
Total liabilities and
stockholders' equity $ 3,210 $ 5,946
- ---------------------------------------------------
</TABLE>
11. Common stock issued subject to repurchase obligation
During the fourth quarter of 1993, the Company entered into several privately
negotiated agreements (the Agreements), pursuant to which it reacquired
previously outstanding Swiss Bonds in exchange for newly issued common stock.
In addition to common stock, the Company issued to the exchanging bondholder
in each transaction a non-negotiable, non interest bearing promissory note
(the Note) in a principal amount equal to the market value of the common stock
issued in the exchange. The recipient in each transaction obtained the rights,
exercisable within approximately a one year period from the date of the
Agreement, to sell, retain, or return to the Company the common stock
received, in whole or in part. Net proceeds of any sales of common stock by
the recipient during the period reduces the amount due under the Note, and
sales of common stock for net proceeds equal to or in excess of the principal
amount of the Note would cause the Note to be deemed as paid in full. Any
excess proceeds of sale of the stock over the principal amount of the Note are
retained by the stockholder.
57
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Common stock issued subject to repurchase obligation (Continued)
The Company has accounted for the issuance of the common stock as permanent
equity to the extent of the proceeds of subsequent sales of stock by the
recipients, and as temporary equity for the balance of the market value of the
common stock issued. The Notes serve as a guarantee of the amounts which may
be refundable to the recipients of the common stock under the Agreement. The
Company's maximum repurchase or refund obligation under these Agreements as of
December 31, 1993 aggregated $4,242,000.
12. Treasury stock transactions
Treasury stock was issued as follows in 1992 and 1991:
<TABLE>
<CAPTION>
Number of Shares
----------------
1992 1991
---- ----
<S> <C> <C>
In settlement of litigation
(see Note 9(f) and (g)) 205,245
Investment banking fees 78,348
Interest due on note payable 225,763
Note payable 93,788
Purchase stock of subsidiary 19,608
Employee bonuses 2,250
Repurchase 8% Swiss Bonds 97,772 69,142
ISI funding agreement 50,000
In payment of interest due
on 8% Swiss Bonds 200,000
Consulting fees 5,000 73,335
Other 136,142
------- ---------
102,772 1,153,621
------- ---------
</TABLE>
There were no issuances of treasury stock in 1993.
58
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Disposal of business
On April 8, 1991, the Company transferred substantially all the assets of
its National Patent Medical Division to a new partnership, National Patent
Medical Partnership, L.P. (NPM). In return, the Company received a 49%
interest in the partnership, $7,200,000 in cash and a $1,800,000 note at the
prime rate of interest plus 1/2%. The note is due in two equal installments in
1996 and 1997. In addition, the new partnership repaid $4,000,000 of short-
term borrowings attributable to the National Patent Medical Division. The
Company did not recognize any gain or loss as a result of this transaction.
NPM is involved in the manufacturing and distribution of first-aid products,
surgical dressings and other disposable hospital products. The financial
position and results of operations of NPM are included in the consolidated
accounts of the Company for all periods presented through April 8, 1991, the
date that the Company's ownership of NPM fell below 50%. Since then, the
accounts of NPM have not been consolidated with those of the Company. NPM's
net sales and operating loss through April 8, 1991 were $11,129,000 and
$(81,000), respectively. In November 1992, NPM Healthcare Products, Inc.
(NPMH), a successor to NPM, completed an initial public offering. As a result
of the public offering, the Company received approximately $4,500,000 in net
proceeds, which approximated the carrying value of the shares sold.
The Company has accounted for its investment in NPMH on the equity basis for
the period from April 9, 1991, when its equity in NPMH fell below 50%, to
December 31, 1991, and for the period from January 1, 1992 to October 1992,
when its equity fell to approximately 14% as a result of the public offering.
The Company's share in the net income (loss) of NPMH for the periods ended
December 31, 1991 and October 31, 1992, amounted to $(805,000) and $35,000,
respectively, after amortization of the underlying goodwill. At December 31,
1993, the Company's investment in NPMH was $3,914,000. In 1994, NPMH changed
its name to American White Cross, Inc.
59
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee benefit plans
The Company had a Defined Benefit Pension Plan (the Plan) for employees of
certain divisions and subsidiaries. Benefits were based primarily on years of
service and a fixed rate of benefits per year of service. Contributions were
intended to provide not only for benefits attributed to service to date but
also for those expected to be earned in the future.
Effective December 31, 1991, the Plan benefits were frozen. Accrued vested
benefits will be paid to terminated participants in the form of a lump sum
distribution in cases where the accrued vested benefit is less than $3,500.
Terminated participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the $7,500 payable limit
as outlined in the Plan, payment will be deferred until a terminated vested
participant reaches age 65 or elects early retirement at an earlier date, at
age 60 or later. The pension expense amounted to $377,000, $23,000 and
$552,000, for 1993, 1992 and 1991, respectively.
The following table sets forth the funded status of the plan and the amount
recognized in the Company's Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit
plan obligations:
Accumulated benefit obligation (including
vested benefits of $4,838,
$3,976 and $3,967) $ (4,917) $ (3,976) $(3,967)
- -------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $ (4,917) $ (3,976) $(3,967)
Plan assets at fair value 3,528 3,120 2,659
- -------------------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets (1,389) (856) (1,308)
Unrecognized net loss from past
experience different
from that assumed 339
- -------------------------------------------------------------------------------
Accrued pension cost included in accounts
payable and accrued expenses in the
consolidated balance sheets $(1,050) $ (856) $(1,308)
- -------------------------------------------------------------------------------
The net periodic pension expense
is as follows:
Service cost-benefits earned $ $ $ 346
Interest cost on projected benefit
obligations 341 340 360
Actual return on plan assets (414) (317) (209)
Net amortization and deferraland other 450 55
- -------------------------------------------------------------------------------
Net periodic pension expense $ 377 $ 23 $ 552
- -------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee benefit plans (Continued)
The Company's assumptions used as of December 31, 1993, 1992, and 1991 in
determining the pension cost and pension cost liability shown above were as
follows:
Percent
-------
1993 1992 1991
---- ---- ----
Discount rate 7.5 8.5 8.5
Long-term rate of return
on assets 10.0 10.0 10.0
Effective March 1, 1992, the Company adopted the 1992 401(K) Savings Plan (the
Savings Plan). Effective December 31, 1991, the Plan participants would no
longer accrue benefits under the Defined Benefit Pension Plan, but became
eligible to participate in the Company's Savings Plan.
The Company's Savings Plan is for employees who have completed one year of
service; however, past vesting service credit was recognized for employees who
participated in the Savings Plan at the date of initial enrollment, March 1,
1992.
The Savings Plan permits pre-tax contributions to the Savings Plan by
participants pursuant to Section 401(K) of the Internal Revenue Code of 2% to
6% of base compensation. The Company matches 40% of the participants' eligible
contributions based on a formula set forth in the Savings Plan. Participants
are fully vested in their contributions and may withdraw such contributions at
time of employment termination, or at age 59 or earlier in the event of
financial hardship. Amounts otherwise are paid at retirement or in the event
of death or disability. Employer contributions vest at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the Board of
Directors of the Company and all contributions are held by the trustee and
invested at the participants' direction in various mutual funds. The expense
associated with the Savings Plan was $236,000 and $214,000 in 1993 and 1992,
respectively. During the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standard No. 106 (SFAS No. 106), "Employers'
Accounting for Post Retirement Benefits Other Than Pensions". This statement
requires that the expected cost of post retirement benefits be fully accrued
by the first date of full benefit eligibility, rather then expensing the
benefit when payment is made. As the Company generally does not provide post
retirement benefits, other than pension, the new statement did not have any
material effect on the Company's financial condition or results of
operations.
61
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income taxes
The components of pretax income (loss) are as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $(8,371) $(13,178) $ 1,157
Extraordinary gain 2,862 1,662 2,037
- -------------------------------------------------------------------------------
$(5,509) $(11,516) $ 3,194
- -------------------------------------------------------------------------------
</TABLE>
The components of income tax benefit (expense) from continuing operations are
as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
State and local,net $ (398) $ (427) $ (549)
Federal tax benefit 973
- -------------------------------------------------------------------------------
$ 575 $ (427) $ (549)
- -------------------------------------------------------------------------------
</TABLE>
In 1991, despite the Company's $1,157,000 income before income taxes, as well
as its $2,037,000 gain from extraordinary item, no Federal income tax expense
was recognized. This is due principally to significant permanent differences
between financial and tax reporting of 1991 transactions, including the
elimination for tax purposes of the $18,844,000 gain on the sale of GP stock
net of a gain recognized only for tax purposes upon ISI ceasing to be a member
of the Company's consolidated Federal income tax return group on May 31, 1991.
The income tax expense for 1991 of $549,000 represents state and local income
taxes.
In 1992, the Company's loss before income taxes exceeded its gains from
extraordinary items; therefore, no income tax expense applicable to such
extraordinary gains was recognized. The income tax expense for 1992 of
$427,000 represents state and local income taxes.
In 1993, the Company recorded an income tax benefit of $1,043,000, of which
$973,000 relates to Federal income taxes, in continuing operations as a result
of the income tax expense allocated to the extraordinary gain recognized on
the early extinguishment of debt under the provisions of FASB No. 109.
62
<PAGE>
As of December 31, 1993, the Company has approximately $22,520,000 of
consolidated net operating loss carryovers for Federal income tax return
purposes, which expire beginning in the years 2002 through 2008. In addition,
the Company has approximately $2,784,000 of available credit carryovers.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
This statement requires that deferred income taxes be recorded following the
liability method of accounting and adjusted periodically when income tax rates
change. Adoption of the new Statement did not have a material effect on the
Company's financial condition or results of operations since the Company does
not carry any deferred tax accounts on its balance sheet.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.
The Company has, as of December 31, 1993, deferred tax assets of approximately
$19,267,000, deferred tax liabilities of approximately $5,909,000 and a
valuation allowance of approximately $13,358,000.
63
<PAGE>
These deferred tax assets and liabilities relate to the following as of
December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Deferred tax assets:
- -------------------
<S> <C>
Accounts receivable, principally due to allowance for doubtful accounts $ 618
Investment in partially owned companies 6,492
Inventory 55
Lawsuit settlements 468
Accrued expenses 67
Net operating loss carryforwards 8,783
Investment tax credit carryforwards 2,784
------
19,267
------
Deferred tax liabilities:
- ------------------------
Property and equipment, principally due to
differences in depreciation 1,885
Unamortized debt discount 1,224
Unrealized exchange gain 2,383
State taxes 417
------
5,909
------
Net deferred tax assets 13,358
------
Less valuation allowance (13,358)
------
Net deferred taxes $
------
</TABLE>
64
<PAGE>
16. Stock options, warrants and other shares reserved
Under the Company's non-qualified stock option plan, employees and certain other
parties may be granted options to purchase shares of common stock. The options
may be granted at a price not less than 85% of the fair market value of the
common stock on the date of grant and are exercisable over periods not exceeding
ten years from the date of grant. Shares of common stock are also reserved for
issuance pursuant to other agreements, as described below. Changes in options
and warrants outstanding during 1991, 1992, and 1993, options and warrants
exercisable and shares reserved for issuance at December 31, 1991, 1992, and
1993 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Common Stock Class B Capital Stock
- -----------------------------------------------------------------------------------
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1990 2.25 - 18.50 5,609,334 2.25 1,550,000
Granted 3.75 - 5.625 90,000
Exercised 2.25 - 3.75 (247,700)
Terminated 2.25 - 15.00 (232,750)
- -----------------------------------------------------------------------------------
December 31, 1991 2.25 - 18.50 5,218,884 2.25 1,550,000
- -----------------------------------------------------------------------------------
Granted 2.25 - 2.75 32,500
Exercised 2.25 (128,930)
Terminated 2.25 - 18.50 (540,850)
- -----------------------------------------------------------------------------------
December 31, 1992 2.25 - 6.00 4,581,604 2.25 1,550,000
- -----------------------------------------------------------------------------------
Granted 2.875 - 4.125 18,000
Exercised 2.25 - 5.15 (175,125)
Terminated 2.25 - 5.625 (47,040)
- -----------------------------------------------------------------------------------
December 31, 1993 2.25 - 6.00 4,377,439 2.25 1,550,000
- -----------------------------------------------------------------------------------
Options and warrants
exercisable
December 31, 1991 2.25 - 18.50 4,853,464 2.25 1,550,000
December 31, 1992 2.25 - 6.00 4,458,864 2.25 1,550,000
December 31, 1993 2.25 - 6.00 4,317,679 2.25 1,550,000
- -----------------------------------------------------------------------------------
Shares reserved for
issuance
December 1991 11,258,647 1,550,000
- -----------------------------------------------------------------------------------
December 1992 10,583,723 1,550,000
- -----------------------------------------------------------------------------------
December 1993 11,387,458 1,550,000
- -----------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
At December 31, 1993, 1992, and 1991, options outstanding included 2,017,334
shares for two officers who are principal shareholders of the Company. In
December 1992, the exercisable period of 200,000 options previously granted in
December 1987, was extended to December 1997.
Class B capital stock aggregating 1,550,000 shares at December 31, 1993, 1992,
and 1991 were reserved for issuance to these same two officers.
The holders of common stock are entitled to one vote per share and the holders
of Class B capital stock are entitled to ten votes per share on all matters
without distinction between classes, except when approval of a majority of each
class is required by statute. The Class B capital stock is convertible at any
time, at the option of the holders of such stock, into shares of common stock on
a share-for-share basis. Common shares reserved for issuance at December 31,
1993, 1992, and 1991 include 1,800,000 shares in connection with Class B shares.
At December 31, 1993, 1992, and 1991, shares reserved for issuance were
primarily related to shares reserved for options, warrants and the conversion of
long-term debt.
17. Business segments
The operations of the Company consist of the following business segments:
Physical Science Group - products and services for the power industry, as well
as for governmental agencies and industry in general; Distribution Group -
wholesale distribution of home decorating, hardware and finishing products;
Health Care Group -interferon research and production; Optical Plastics Group -
the manufacture and distribution of coated and molded plastic products;
Electronics Group - electronic manufacturing and assembly.
As a result of the Exchange Offer, (See Note 9(a)), ISI is currently accounted
for on the equity basis. Therefore, its operating activities are reflected in
the Health Care Group only through the completion of the Exchange Offer (See
Note 4).
66
<PAGE>
The following tables set forth the revenues and operating results (in thousands)
attributable to each line of business and include a reconciliation of the
groups' revenues to consolidated revenues and operating results to consolidated
income (loss) from operations before income taxes and extraordinary items for
the periods presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Physical Science $103,152 $109,966 $163,922
Distribution 74,974 69,121 65,624
Health Care 1,533 4,762 14,909
Optical Plastics 7,952 8,015 9,573
Electronics 3,815 5,481 7,271
Other 989 851 461
- --------------------------------------------------------------------------------
192,415 198,196 261,760
Investment and other
income, net 626 3,790 (37)
- --------------------------------------------------------------------------------
Total revenues $193,041 $201,986 $261,723
- --------------------------------------------------------------------------------
Operating results
Physical Science $ 500 $ 2,410 $ 5,346
Distribution 1,948 2,877 2,852
Health Care (4,431) (6,583) (5,690)
Optical Plastics 1,378 1,565 1,855
Electronics (821) (1,849) (707)
Other (587) (99) (463)
- --------------------------------------------------------------------------------
Total operating profit (loss) (2,013) (1,679) 3,193
Interest expense (8,325) (11,044) (15,579)
Indirect administrative expenses,
net of gains or losses from
dispositions of investments,
minority interests, foreign
currency exchange gains
or losses, and other revenue 1,967 (455) 13,543
- --------------------------------------------------------------------------------
Income (loss) from operations
before income taxes and
extraordinary item $ (8,371) $(13,178) $ 1,157
- --------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
Operating profits represent gross revenues less operating expenses. In computing
operating profits, none of the following items have been added or deducted;
general corporate expenses, foreign currency transaction gains and losses,
investment income and interest expense.
For the years ended December 31, 1993, 1992 and 1991, sales to the United States
government and its agencies represented approximately 17%, 18% and 9%,
respectively, of sales.
Additional information relating to the Company's business segments is as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets
Physical Science $ 74,551 $ 79,271 $ 92,959
Distribution 34,255 32,584 29,306
Health Care 21,486 37,407
Optical Plastics 7,129 7,051 6,714
Electronics 6,001 6,858 7,364
Corporate and other 44,121 45,399 40,291
- --------------------------------------------------------------------------------
$166,057 $192,649 $214,041
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Additions to property,
plant, and equipment, net
Physical Science $ 1,360 $ 1,490 $ 705
Distribution 557 723 338
Health Care 241 441
Optical Plastics 41 887 588
Electronics 30 20 (22)
Corporate and other 89 38 29
- --------------------------------------------------------------------------------
$ 2,077 $ 3,399 $ 2,079
- --------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization
Physical Science $ 2,193 $ 2,299 $ 2,940
Distribution 710 718 688
Health Care 552 1,048 1,248
Optical Plastics 876 578 660
Electronics 165 165 357
Corporate and other 800 1,299 2,649
- --------------------------------------------------------------------------------
$ 5,296 $ 6,107 $ 8,542
- --------------------------------------------------------------------------------
</TABLE>
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each segment. Corporate and other assets are principally
cash and cash equivalents, marketable securities and un-allocated intangibles.
18. Fair value of financial instruments
The carrying value of financial instruments including cash, short-term
investments, accounts receivable,restricted cash, accounts payable and short-
term borrowings approximate estimated market values because of short maturities
and interest rates that approximate current rates.
The carrying values of investments, other than those accounted for on the equity
basis, approximate fair values based upon quoted market prices. The investments
for which there is no quoted market price are not significant.
The estimated fair value for the Company's major long-term debt components are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
------------------ ------------------
Carrying Estimated Carrying Estimated
------------------ ------------------
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Swiss Bonds $15,946 $12,429 $40,131 $15,048
5% Convertible Bonds 2,300 2,231
7% Dual Currency
Convertible Bonds 3,926 1,743 5,118 1,459
12% Subordinated
Debentures 6,829 5,805 6,932 4,159
Other long-term debt 11,857 11,857 9,260 9,260
</TABLE>
69
<PAGE>
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
19. Commitments and contingencies
The Company has several noncancellable leases which cover real property,
machinery and equipment and certain manufacturing facilities. Such leases expire
at various dates with, in some cases, options to extend their terms.
Minimum rentals under long-term operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Real Machinery &
- -------------------------------------------------------------------------------
property equipment Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 $ 5,191 $ 1,536 $ 6,727
1995 4,188 737 4,925
1996 2,083 336 2,419
1997 1,462 131 1,593
1998 1,252 26 1,278
After 1998 5,203 12 5,215
- -------------------------------------------------------------------------------
Total $19,379 $ 2,778 $22,157
- -------------------------------------------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor. Rent
expense for real and personal property was approximately $7,792,000, $7,806,000
and $4,691,000 for 1993, 1992 and 1991, respectively.
70
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Commitments and contingencies (Continued)
In February 1986, Duratek completed its initial public offering of common
stock. In connection with Duratek's public offering, the Company issued to
certain officers of Duratek and the Company 358,609 options for the purchase
of Duratek common stock owned by the Company at a price equal to the greater
of (a) $1.75 per share or (b) the net book value per share of Duratek's common
stock as of the end of the most recently completed fiscal quarter which ends
not less than 60 days before the date of exercise of such option. In 1991, an
additional 270,000 options for the purchase of Duratek common stock owned by
the Company at a price of $1.90 per share were issued to certain employees and
officers of the Company. Through December 31, 1993, 28,600 options under the
plan were exercised, 57,500 were cancelled, and at December 31, 1993, 369,750
options are currently exercisable. At December 31, 1993, the Company owned
approximately 66% of Duratek.
The Company is party to several lawsuits and claims incidental to its
business, including claims regarding environmental matters, one of which is in
the early stages of investigation. It is not possible at the present time to
estimate the ultimate legal and financial liability, if any, of the Company in
respect to such litigation and claims; however, management believes that the
ultimate liability, if any, will not have a material adverse effect on the
Company's Consolidated Financial Statements.
20. Subsequent event
On January 13, 1994, GP signed a Letter of Intent with GPS and the Company to
acquire substantially all of the operating assets of GPS and certain of its
subsidiaries. The Company currently owns approximately 92% of the outstanding
common stock of GPS and approximately 28% of the outstanding common stock of
GP. On March 28, 1994, the Board of Directors of both GP and GPS approved the
transaction. The parties are currently negotiating the terms of a definitive
agreement and the transaction is anticipated to close as soon as practicable
in the second half of 1994, if all necessary approvals are obtained and
conditions satisfied.
71
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Subsequent event (Continued)
The purchase price has a current present value of approximately $36 million
based on current market prices. The purchase price will be payable to GPS as
follows: $10 million cash; 3.5 million shares of GP common stock valued at
approximately $13,500,000 (based upon the price per share of GP common stock
prior to the announcement of the transaction which was $3.875); warrants to
acquire 1,000,000 shares of GP common stock at $6.00 per share valued at
approximately $1,300,000; warrants to acquire up to 475,644 additional shares
of GP common stock at $7 per share valued at approximately $500,000; a $15
million ten-year senior subordinated debenture valued at approximately
$10,700,000, accruing interest at 6% per annum, interest payable only for the
first five years, with 70% of principal payable in equal quarterly
installments during the remaining five years until maturity.
Portions of the cash and stock consideration of the purchase price will be (a)
used to repay outstanding bank debt of $5,650,000 (as of December 31, 1993)
and long-term debt of GPS of $8,809,000 (as of December 31, 1993) to be repaid
to the Company. In addition, $1.5 million of Debentures are held in escrow for
the benefit of GP in connection with certain indemnification obligations.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, approval of the transaction by the stockholders
of both GPS and GP.
The Company anticipates that if the aforementioned transaction is consummated,
it will own approximately 52% of the outstanding common stock of GP, and if
the Company were to exercise all of its warrants, it will own approximately
58% of the outstanding common stock of GP.
The Company will account for this transaction as a purchase of GP. The Company
believes that any gain or loss to be recognized on this transaction would not
be significant, since the transaction (based upon the currently contemplated
assets to be sold), if consummated, is expected to be consummated at or near
the carrying value of the underlying assets.
Although an agreement in principle has been reached, there can be no assurance
that a definitive agreement will be successfully negotiated and signed, or
that the transaction will close as anticipated.
72
<PAGE>
National Patent Supplementary Data
Development Corporation
and Subsidiaries
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept.30, Dec.31, March 31, June 30, Sept.30, Dec. 31,
1993 1993 1993 1993 1992 1992 1992 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $44,964 $55,114 $47,250 $42,355 $45,759 $51,594 $52,554 $45,858
Gross margin 6,193 8,960 7,601 4,765 6,562 9,297 8,664 5,249
Income (loss) before
extraordinary item * (2,904) (1,988) (581) (2,323) 384 (5,674) (7,284) (1,031)
Net income (loss) (2,778) (1,887) 348 (1,660) 1,321 (5,228) (7,284) (752)
Earnings (loss) per share:
Before extraordinary
item * (.18) (.12) (.03) (.12) .02 (.36) (.46) (.06)
Net income (loss) (.17) (.11) .02 (.09) .07 (.33) (.46) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reclassified in 1993 to conform with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" presentation.
73
<PAGE>
Item 9.
Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There have been no Reports on Form 8-K filed within 24 months prior to
the date of the most recent financial statements reporting a change of
accountants and/or reporting a disagreement on any matter of accounting
principle or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information with respect to the directors of NPDC is incorporated herein
by reference to NPDC's definitive proxy statement pursuant to Regulation 14A,
which proxy statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 11. Executive Compensation
----------------------
Information with respect to Executive Compensation is incorporated
herein by reference to NPDC's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management
----------
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is incorporated herein by reference to NPDC's definitive
proxy statement pursuant to Regulation 14A, which statement will be filed not
later than 120 days after the end of the fiscal year covered by this Report.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information with respect to Certain relationships and related transactions
is incorporated herein by reference to NPDC's definitive proxy statement
pursuant to Regulation 14A, which statement will be filed not later than 120
days after the end of the fiscal year covered by this Report.
74
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K is hereby amended in its entirely as follows:
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a)(1) The following financial statements are included in
Part II, Item 8. Financial Statements and
Supplementary Data:
Independent Auditors' Report............................ 29
Financial Statements:
Consolidated Balance Sheets - December 31, 1993 and
1992.................................................... 30
Consolidated Statements of Operations - Years ended
December 31, 1993, 1992 and 1991........................ 32
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1993, 1992 and
1991.................................................... 33
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1992 and 1991........................ 35
Notes to Consolidated Financial Statements..................... 38
(a)(2) Financial Statement Schedules.*
Schedule II -Amounts receivable from related parties
and underwriters, promoters and
employees other than related parties..... i
Schedule III -Condensed financial information of
registrant................................ ii
Schedule VIII-Valuation and qualifying accounts......... ix
Schedule IX -Short-term borrowings..................... x
Schedule X -Supplementary income statement
information............................... xi
Independent Auditors' Report............................ xii
</TABLE>
(a)(3) Exhibit - Consent of Independent Auditors.
(b) There were no Reports on Form 8-K filed by the Registrant
during the last quarter of the period covered by this report.
75
<PAGE>
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.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY:/s/ Jerome I. Feldman
----------------------------
Jerome I. Feldman, President
and Chief Executive Officer
Dated: March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
/s/Jerome I. Feldman President and Chief Executive
- -------------------------- Officer and Director (Principal Executive
Jerome I. Feldman Officer)
/s/Martin M. Pollak Executive Vice President,Treasurer
- --------------------------
Martin M. Pollak and Director
/s/Scott N. Greenberg Vice President, Chief Financial
- -------------------------- a Director (Principal Financial and
Scott N. Greenberg Accounting Officer)
/s/Ogden R. Reid Director
- --------------------------
Ogden R. Reid
/s/Roald Hoffmann, Ph.D. Director
- --------------------------
Roald Hoffmann, Ph.D.
/s/Paul A. Gould Director
- --------------------------
Paul A. Gould
Dated: March 30, 1994
76
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Name of Debtor
- --------------------------------------------------------------------------------------------------
Balance at Additions Deductions Balance at
Beginning Amounts Amounts End of Year
of Year Loaned Collected Not Current
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Lawrence M. Gordon $200,000 $ - $200,000/2/ $ -
- --------------------------------------------------------------------------------------------------
Year ended December 31, 1992:
Lawrence M. Gordon $ - $500,000 $300,000 $200,000/1/
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The above represents a note receivable due on July 9, 1997. Interest at 6%
per annum is payable quarterly.
(2) The above is a note receivable recorded on the balance sheet of Interferon
Sciences, Inc. (ISI). As a result of the Company's interest in ISI falling
below 50% in 1993, ISI is accounted for on the equity method, and
accordingly the balance of $150,000 at December 31, 1993 is not included in
the Company's financial statements. During 1993, $50,000 of the note
receivable was repaid by the borrower.
i
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
ASSETS
Current assets December 31,
- -------------- ---------------------
1993 1992
-------- --------
<S> <C> <C>
Cash and cash equivalents $ 9,058 $ 12,524
Restricted cash 270
Accounts and other receivables 2,768 2,741
Inventories 2,877 2,948
Prepaid expenses and other current assets 471 519
-------- --------
Total current assets 15,174 19,002
-------- --------
Investments in subsidiaries 164,122 162,769
-------- --------
Other investments and advances 14,807 23,003
-------- --------
Property, plant and equipment, at cost 4,655 4,633
Less accumulated depreciation (4,423) (4,179)
-------- --------
232 454
-------- --------
Intangible assets, net of amortization 915 2,350
-------- --------
Other assets 76 237
-------- --------
$195,326 $207,815
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
ii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED BALANCE SHEET (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
--------------------------
Current liabilities 1993 1992
- ------------------- -------- --------
<S> <C> <C>
Current maturities of long-term debt $ 205 $
Short-term borrowings 4,379
Accounts payable and accrued expenses 3,626 2,862
-------- --------
Total current liabilities 3,831 7,241
-------- --------
Long-term debt, less current maturities 29,747 53,131
-------- --------
Amounts due subsidiaries, net 90,068 83,620
-------- --------
Commitments and contingencies
Common stock issued subject to repurchase
obligation 4,242
Stockholders' equity
- --------------------
Common stock 190 159
Class B capital stock 2 2
Capital in excess of par value 106,274 96,713
Deficit (39,028) (33,051)
-------- --------
Total stockholders' equity 67,438 63,823
-------- --------
$195,326 $207,815
-------- --------
</TABLE>
See accompanying notes to the condensed financial statements.
iii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
Revenues 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Sales $ 945 $ 915 $12,406
Investment and other income, net 1,388 3,767 396
------- ------- -------
2,333 4,682 12,802
------- ------- -------
Costs and expenses
Cost of goods sold 573 632 9,746
Selling, general and administrative 8,294 8,131 9,647
Research and development 326 301 784
Interest 6,414 8,769 11,808
------- ------ ------
15,607 17,833 31,985
------- ------ ------
Gain on sale of stock of a subsidiary 18,844
Gain on disposition of stock of
a subsidiary and an affiliate 3,795
Gain on issuance of stock of
a subsidiary 1,353
Equity in earnings (losses) of
subsidiaries (713) (454) 947
------- ------- -------
Income (loss) before income taxes
and extraordinary item (8,839) (13,605) 608
------- ------- -------
Income tax benefit 1,043
------- ------- -------
Income (loss) before extraordinary item (7,796) (13,605) 608
------- ------- -------
Extraordinary item
Gain from early extinguishment
of debt, net of tax of
$1,043 in 1993 1,819 1,662 2,037
------- ------- -------
Net income (loss) $(5,977) $(11,943) $ 2,645
======= ======= =======
Income (loss) per share
Income (loss) before extraordinary
item $ (.46) $ (.86) $ .04
Extraordinary item .11 .10 .13
------- ------- -------
Income (loss) per share $ (.35) $ (.76) $ .17
======= ======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
iv
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss) $ (5,977)$(11,943) $ 2,645
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 798 1,332 3,928
Equity in (earnings) losses
of subsidiaries 713 454 (947)
Income tax benefit allocated to
continuing operations (1,043)
Gain on sale of stock of a subsidiary (18,844)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on issuance of stock of
a subsidiary (1,353)
Gains from early extinguishment
of debt, net of income tax in 1993 (1,819)(1,662) (2,037)
Changes in other operating items 1,662(204) 2,764
Total adjustments (4,837)(80) (15,136)
Net cash used for operations (10,814)(12,023) (12,491)
Cash flows from investing activities:
Proceeds from public sale of
a subsidiary's stock 43,997
Proceeds from disposal of business 7,192
Proceeds from sale of an investment 4,500
Marketable securities 229
Additions to property, plant & equipment(22) 34 (1,891)
Reduction of (additions to)
intangible assets 477 (1,083)
Reduction of investments and
other assets, net 13,841 5,787 2,340
Net cash provided by investing
activities 14,296 10,321 50,784
Cash flows from financing activities:
Net repayments of short-term borrowings(4,379)(5,967) (18,499)
Decrease in restricted cash 270 4,730 10,000
Reduction of long-term debt (3,450)(2,683) (15,039)
Proceeds from issuance of common stock198 1,539
Exercise of common stock options
and warrants 413 282 718
Issuance of treasury stock $ $ 15$ 825
Net cash used for financing
activities (6,948)(3,623) (20,456)
Net increase (decrease) in
cash and cash equivalents (3,466)(5,325) 17,837
Cash and cash equivalents
at beginning of year 12,524 17,849 12
Cash and cash equivalents at
end of year $ 9,058 $ 12,524$ 17,849
v
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF CASH FLOWS (Continued)
(in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
Supplemental disclosures of cash flow information:
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 2,375 $ 6,145$ 9,201
Income taxes $ 44 $ 103$ 139
Supplemental schedule of noncash transactions:
Increase in investment in
subsidiaries $ $$ 4,985
Reduction of intangibles (532)
Additions to other assets and
prepaid expenses 179 130 275
Reduction of accrued interest payable 607 1,744
Reduction of debt 21,900 1,819 7,430
Additions to (reduction of)
receivables from affiliates 597 (4,985)
Issuances of treasury stock (1,468)(2,098)
Issuances of common stock (8,981) (1,078)
Issuance of long-term debt (3,006)
Common stock issued subject to
repurchase obligation (4,242)
Gain on disposition of stock
of a subsidiary and
an affiliate (3,795)
Gain on exchange of debt,
before income tax effect (2,662)
</TABLE>
See accompanying notes to the condensed financial
statements.
vi
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note (a): INVENTORIES
Inventories are valued at the lower cost or
market,
principally using the first-in, first-out (FIFO) method
of
costing. Inventories consisting of material, labor,
and overhead
are classified as follows (in thousands):
<TABLE>
<CAPTION>
December31,
1993 1992
<S> <C> <C>
Raw materials $ 95 $89
Work in process 2 1
Finished goods 80 70
Land for resale 2,700 2,788
$ 2,877 $2,948
</TABLE>
Note (b): LONG-TERM DEBT
Long-term debt consists of the following
(in
thousands):
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
5% Convertible Bonds $ 2,300
8% Swiss Bonds 4,572 $20,075
Old Swiss convertible bonds 15,300 25,173
12% Subordinated debentures 6,829 6,932
Notes payable in
connection with settlements
of litigation 951 951
29,952 53,131
Less current maturities 205
$29,747 $53,131
</TABLE>
Aggregate annual maturities of long-term debt
outstanding at
December 31, 1993 for each of the next five years are
as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1994 $ 205
1995 12,983
1996 7,363
1997 7,101
1998 -
</TABLE>
See Note 9 of the Notes to Consolidated Financial
Statements for
additional information with respect to the Company's
long-term
debt.
vii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
Note (c): COMMITMENTS AND CONTINGENCIES
The Company has several noncancellable leases which
cover real
property and machinery and equipment. Such leases
expire at
various dates with, in some cases, options to extend
their terms.
Minimum rentals under long-term operating leases are as
follows
(in thousands):
<TABLE>
<CAPTION>
Real Machinery &
property equipment
<S> <C> <C> <C>
Total
1994 $ 640 $ 92 $732
1995 636 57 693
1996 636 22 658
1997 636 7 643
1998 656 656
After 1998 2,584 2,584
Total $5,788 $178 $5,966
</TABLE>
Several of the leases contain provisions for rent
escalation
based primarily on increases in real estate taxes and
operating
costs incurred by the lessor.
The Company is party to several lawsuits incidental to
its
business. It is not possible at the present time to
estimate the
ultimate legal and financial liability, if any, of the
Company
with respect to such litigation; however, management
believes
that the ultimate liability, if any, will not have a
material
adverse effect on the Company's Financial Statements.
viii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE VIII
<TABLE>
<CAPTION>
Valuation and qualifying accounts (in thousands)
Additions
Balance at Charged to
Balance at
Beginning Costs &
Close of
of Period Expenses
Deductions(a) Period
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful
accounts $1,581 $1,077 $969 $1,689
Year ended December 31, 1992:
Allowance for doubtful
accounts 1,795 1,2871,501 1,581
Year ended December 31, 1991:
Allowance for doubtful
accounts 1,341 1,409 955 1,795
</TABLE>
(a) Write-off of uncollectible accounts, net of
recoveries.
ix
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE IX
Short-term borrowings
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted
Maximum Average
Average
Weighted Amount Amount
Interest
Average OutstandingOutstanding
Rate
Balance at Interest
During theDuring the
During the
End of Year Rate Year Year (a)
Year (b)
Year ended December 31, 1993
Short-term
borrowings $21,390 7.46% $30,212 $23,768 8.2%
Year ended December 31, 1992
Short-term
borrowings $28,977 6.99% $33,795 $30,729 9.18%
Year ended December 31, 1991
Short-term
borrowings $26,317 7.11% $51,629 $41,017 9.28%
</TABLE>
(a) Average amount outstanding during the year is
computed by
dividing the total of the average monthly outstanding
principal
balances by 12.
(b) Average interest rate for the year is computed by
dividing
the actual short-term interest expense by the average
short-term
debt outstanding.
See Note 7 of the Notes to Consolidated Financial
Statements for
additional information with respect to the Company's
short-term
borrowings.
x
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE X
B. Supplementary income statement information
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992
<S> <C> <C>
1991
Amortization of intangibles $ * $2,317,000 $4,231,000
</TABLE>
* Less than 1% of total revenues
xi
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation
Under date of March 30, 1994, we reported on the consolidated balance sheet of
National Patent Development Corporation and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993, as contained in the annual report on Form 10-K
for the year 1993. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedules as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
New York, New York
March 30, 1994
xii
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exhange Act of 1934
For the quarter ended Mdarch 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------------------------------
Commission File Number: 1-7234
-------------------------------------------
NATIONAL PATENT DEVELOPMENT CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9 West 57th Street, New York, NY 10019
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(212) 826-8500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
Number of shares outstanding of each of issuer's classes of common stock as of
May 12, 1994:
Common Stock 20,310,706 shares
Class B Capital 250,000 shares
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Qualification Relating to Financial Information 11
Part II. Other Information 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
ASSETS (unaudited) *
Current assets
- --------------
<S> <C> <C>
Cash and cash equivalents $ 9,848 $ 10,976
Accounts and other receivables 37,667 36,285
Inventories 26,616 22,605
Costs and estimated earnings in excess
of billings on uncompleted contracts 15,528 13,081
Prepaid expenses and other current assets 3,613 4,160
-------- --------
Total current assets 93,272 87,107
-------- --------
Investments and advances 27,282 28,303
-------- --------
Property, plant and equipment, at cost 35,255 33,873
Less accumulated depreciation (20,786) (20,035)
-------- --------
14,469 13,838
-------- --------
Intangible assets, net of amortization 29,607 30,104
-------- --------
Investment in financed assets 2,246 2,797
-------- --------
Other assets 3,226 3,908
-------- --------
$170,102 $166,057
======== ========
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1993 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
1
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
- -------------------
<S> <C> <C>
Current maturities of long-term debt
and notes payable $ 17,281 $ 6,750
Short-term borrowings 26,537 21,390
Accounts payable and accrued expenses 22,492 20,256
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,693 5,487
-------- --------
Total current liabilities 71,003 53,883
-------- --------
Long-term debt less current maturities 25,778 36,638
-------- --------
Notes payable for financed assets 579
-------- --------
Minority interests and other 3,287 3,277
-------- --------
Common stock issued subject to repurchase
obligation 3,876 4,242
-------- --------
Stockholders' equity
- --------------------
Common stock 192 190
Class B capital stock 2 2
Capital in excess of par value 107,452 106,274
Deficit (41,488) (39,028)
-------- --------
Total stockholders' equity 66,158 67,438
-------- --------
$170,102 $166,057
======== ========
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1993 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
2
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Revenues
Sales $ 45,232 $44,964
Investment and other income, net (752) 1,908
-------- -------
44,480 46,872
-------- -------
Costs and expenses
Costs of goods sold 36,985 38,771
Selling, general & administrative 8,198 8,297
Research & development 120 1,190
Interest 1,503 2,473
-------- -------
46,806 50,731
-------- -------
Minority interests (68) 920
-------- -------
Loss before income tax
expense and extraordinary item (2,394) (2,939)
Income tax benefit (expense) (66) 35
-------- -------
Loss before extraordinary item (2,460) (2,904)
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 126
-------- -------
Net loss $ (2,460) $(2,778)
======== =======
Income (loss) per share
Loss before extraordinary
item $ (.13) $ (.18)
Extraordinary item .01
-------- -------
Net loss per share $ (.13) $ (.17)
======== =======
Dividends per share none none
======== =======
</TABLE>
See accompanying notes to the consolidated condensed financial
statements.
3
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------
1994 1993
--------- ---------
Cash flows from operations:
<S> <C> <C>
Net loss $ (2,460) $(2,778)
--------- -------
Adjustments to reconcile net loss
to net cash provided by (used for) operating
activities:
Depreciation and amortization 1,248 1,579
Income tax benefit allocated to
continuing operations (73)
Gains from early extinguishment of debt (126)
Changes in other operating items (5,680) (3,232)
--------- -------
Total adjustments (4,432) (1,852)
--------- -------
Net cash used for operations (6,892) (4,630)
--------- -------
Cash flows from investing activities:
Reduction in marketable securities 299
Additions to property, plant & equipment (1,382) (673)
Additions to intangible assets (387)
Reduction in (additions to) investments
and other assets, net 1,685 (1,322)
--------- -------
Net cash provided by (used for) investing
activities 303 (2,083)
--------- -------
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings 5,147 (204)
Proceeds from issuance of long-term debt 924 626
Reduction of long-term debt (778) (1,769)
Proceeds from issuance of common stock 88
Exercise of common stock options and warrants 80 36
--------- -------
Net cash provided by (used for) financing
activities 5,461 (1,311)
--------- -------
Net decrease in cash and cash equivalents (1,128) (8,024)
Cash and cash equivalents at the beginning
of the periods 10,976 17,921
--------- -------
Cash and cash equivalents at the end of the
periods $ 9,848 $ 9,897
========= =======
</TABLE>
4
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
1994 1993
------ ------
<S> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 919 $2,603
======= ======
Income taxes $ 143 $ 212
======= ======
</TABLE>
See accompanying notes to the consolidated condensed financial
statements.
5
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories are valued at the lower cost or market, principally
using the first-in, first-out (FIFO) method. Inventories consisting of
material, labor, and overhead are classified as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Raw materials $ 2,682 $ 2,836
Work in process 675 675
Finished goods 20,559 16,394
Land held for resale 2,700 2,700
-------- --------
$ 26,616 $ 22,605
======== ========
</TABLE>
2. Long-term debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
8% Swiss bonds $ 4,910 $ 4,572
Swiss convertible bonds 15,887 15,300
New 5% convertible bonds 2,300 2,300
12% Subordinated debentures 6,790 6,829
Other 10,582 11,857
-------- --------
40,469 40,858
Less current maturities 14,691 4,220
-------- --------
$ 25,778 $ 36,638
======== ========
</TABLE>
6
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Subsequent event
On April 7, 1994, General Physics Corporation (GP) entered into an
agreement with GPS Technologies, Inc. (GPS) and the Company to acquire
substantially all of the operating assets of GPS and certain of its
subsidiaries. The Company currently owns approximately 92% of the outstanding
common stock of GPS and approximately 28% of the outstanding common stock of
GP. GP agreed to pay GPS a purchase price with current present value of
approximately $36 million based on current market prices. The purchase price
will be payable to GPS as follows: $10 million in cash; 3.5 million shares of
GP common stock valued at approximately $13,500,000 (based upon the price per
share of GP common stock prior to the announcement of the transaction which
was $3.875); warrants to acquire 1,000,000 shares of GP common stock at $6.00
per share valued at approximately $1,300,000; warrants to acquire up to
475,644 additional shares of GP common stock at $7 per share valued at
approximately $500,000; and 6% Senior Subordinated Debentures due 2004 (the
"Debentures"), in the aggregate principal amount of $15,000,000, valued at
approximately $10,700,000. The values assigned to each component of
consideration were based upon discussions with the independent investment
banker to the Independent Committee of GP and the investment banker to GPS.
Portions of the cash and stock consideration of the purchase price will be (a)
used to repay outstanding bank debt of $5,650,000 and long-term debt of GPS of
$8,809,000 to be repaid to the Company and (b) held in escrow.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, the approval of the transaction by the
stockholders of GP and GPS. The transaction is anticipated to close as soon as
practicable in the second half of 1994, if all necessary approvals are
obtained and conditions satisfied. The Company anticipates that, if the
aforementioned transaction is consummated, it will own approximately 52% of
the outstanding common stock of GP, and if the Company were to exercise all of
its warrants, it would own approximately 58% of the outstanding common stock
of GP. The Company will account for this transaction as a purchase by the
Company of GP.
7
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a loss before income taxes and extraordinary item of
$(2,394,000) for the quarter ended March 31, 1994 compared to $(2,939,000) for
the quarter ended March 31, 1993. During the first quarter of 1994, the
Company realized net foreign currency transaction losses of $(897,000), as
compared to a gain of $670,000 for the first quarter of 1993 as a result of
the weakness of the U.S. dollar relative to the Swiss Franc and the Company's
decision not to hedge its Swiss currency obligations. At March 31, 1994, there
was an aggregate of SFr. 26,318,000 of Swiss denominated indebtedness
outstanding, of which SFr. 23,823,000 represents principal amount outstanding
and SFr. 2,495,000 represents interest accrued thereon. Foreign currency
valuation fluctuations may adversely affect the results of operations and
financial condition of the Company. In order to protect itself against
currency valuation fluctuations, the Company has at times swapped or hedged a
portion of its obligations denominated in Swiss Francs. At March 31, 1994, the
Company had not hedged its Swiss Franc obligations. If the value of the Swiss
Franc to the U.S. dollar increases, the Company will recognize transaction
losses on its Swiss Franc obligations. On March 31, 1994, the value of the
Swiss Franc to the U.S. dollar was 1.4120 to 1. There can be no assurance that
the Company will be able to swap or hedge obligations denominated in foreign
currencies at prices acceptable to the Company or at all. The Company will
continue to review this policy on a continuing basis.
The foreign currency transaction loss was offset by reduced interest
expense due to a reduction in long-term debt, as well as improved operating
results within the Optical Plastics and Physical Science Groups. The Optical
Plastics Group achieved improved operating results due to increased sales and
gross margin percentages. The Physical Science Group achieved improved results
due to a favorable change in the mix of products and services provided to its
customers.
Sales
- -----
For the quarter ended March 31, 1994, consolidated sales increased by
$268,000 to $45,232,000 from the $44,964,000 in the corresponding quarter of
1993. The increased sales were the result of increased sales within the
Distribution and Optical Plastics Groups, offset by reduced sales by the
Physical Sciences Group due to the end of a long-term staff augmentation
contract at GTS Duratek, Inc. (Durtek).
8
<PAGE>
Gross margin
- ------------
Consolidated gross margin of $8,247,000, or 18%, for the quarter ended
March 31, 1994, increased by $2,054,000 compared to the consolidated gross
margin of $6,193,000, or 14%, for the quarter ended March 31, 1993. The
increased gross margin in 1994 was primarily the result of increased sales and
gross margin percentage achieved by the Optical Plastics Group, as well
increased gross margin achieved by the Physical Science Group due to the
higher gross margin generated by Duratek's Environmental Services business and
a more profitable mix of services generated by GPS Technologies, Inc.
Selling, general and administrative expenses
- --------------------------------------------
For the three months ended March 31, 1994, selling, general and
administrative (SG&A) expenses were $8,198,000 compared to the $8,297,000
incurred in the first quarter of 1993. The decrease in SG&A for the first
quarter of 1994 was the result of ISI being accounted for on the equity method
since the third quarter of 1993, partially offset by increased costs incurred
by the Distribution, Optical Plastics and Physical Sciences Groups.
Interest expense
- ----------------
For the three months ended March 31, 1994, interest expense was
$1,503,000 compared to $2,473,000 for the three months ended March 31, 1993.
The decreased interest expense for the quarter was the result of reduced long-
term debt.
Investment and other income, net
- --------------------------------
Investment and other income, net of $(752,000) for the quarter ended
March 31, 1994, decreased by $2,660,000 as compared to $1,908,000 for the
first quarter of 1993. The reduced investment and other income was principally
due to the effect of the following two factors; $(897,000) and $670,000 of
foreign currency transaction gains (losses), for the quarters ended March 31,
1994 and 1993, respectively, and a loss of $(770,000) realized in the quarter
ended March 31, 1994, on the share of losses of 20% to 50% owned subsidiaries,
compared to $175,000 earned in the quarter ended March 31, 1993, as a result
of the results of Interferon Sciences, Inc. (ISI) being accounted for on the
equity basis since the third quarter of 1993. For the quarter ended March 31,
1994, the Company's share of ISI's loss was $845,000. In the quarter ended
March 31, 1993, ISI was included in the consolidated results of the Company
and its loss was therefore not reflected in Investment and other income, net.
9
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has sufficient cash, cash equivalents and
borrowing availability under existing and potential lines of credit to satisfy
its cash requirements until the first scheduled maturity of its Swiss Franc
denominated indebtedness on March 1, 1995. However, in order for the Company
to meet its long-term cash needs, which include the repayment of $13,518,000
of Swiss Franc denominated indebtedness scheduled to mature in 1995 and
$7,279,000 of Swiss Franc denominated indebtedness which is scheduled to
mature in 1996, the Company must obtain additional funds from among various
sources. The Company has historically reduced its long-term debt through the
issuance of equity securities in exchange for long-term debt. In addition to
its ability to issue equity securities, the Company believes that it has
sufficient marketable long-term investments, as well as the ability to obtain
additional funds from its operating subsidiaries and the potential to enter
into new credit arrangements. The Company reasonably believes that it will be
able to accomplish some or all of the above transactions in order to fund the
scheduled repayment of the Company's long-term Swiss debt in 1995.
At March 31, 1994, the Company had cash and, cash equivalents totaling
$9,848,000. GPS Technologies, Inc. and GTS Duratek, Inc. had cash and, cash
equivalents of $392,000 at March 31, 1994. The minority interests of these two
companies are owned by the general public, and therefore the assets of these
subsidiaries have been dedicated to the operations of these companies and may
not be readily available for the general corporate purpose of the parent.
10
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 1994
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under
generally accepted accounting principles because certain note information
included in the Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. The results for the 1994
interim period are not necessarily indicative of results to be expected for
the entire year.
11
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
none
b. Reports
-------
none
12
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 1994
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
DATE: May 13, 1994 BY: /s/Jerome I. Feldman
----------------------
Jerome I. Feldman
President and Chief
Executive Officer
DATE: May 13, 1994 BY: /s/Scott N. Greenberg
-----------------------
Scott N. Greenberg
Vice President,
Chief Financial Officer
13
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
9 West 57th Street
Suite 4170
New York, New York 10019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 8, 1994
To The Stockholders:
The Annual Meeting of Stockholders of National Patent
Development Corporation (the "Company") will be held at The
Brunswick Hilton, Three Tower Center Boulevard, East Brunswick,
New Jersey on the 8th day of June, 1994, at 1:30 P.M., Eastern
Standard Daylight Savings Time, for the following purposes:
1. To elect six Directors to serve until the next Annual
Meeting and until their respective successors are elected and
qualify.
2. To consider and act upon a proposal to amend the
Company's Restated Certificate of Incorporation to increase the
total number of authorized shares of common stock which the
Company shall have authority to issue from 30,000,000 shares to
40,000,000 shares.
3. To consider and act upon a proposal to approve the
selection by the Board of Directors of KPMG Peat Marwick,
independent certified public accountants, as auditors for the
Company for the current year.
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record as of the close of business on
April 15, 1994 are entitled to receive notice of and to vote at
the meeting. A list of such stockholders shall be open to the
examination of any stockholder during ordinary business hours,
for a period of ten days prior to the meeting, at the principal
executive offices of the Company, 9 West 57th Street, Suite 4170,
New York, New York.
By Order of the Board of Directors
Lydia M. DeSantis
Secretary
New York, New York
April 28, 1994
If you do not expect to be present at the meeting, please
fill in, date and sign the enclosed Proxy and return it promptly
in the enclosed return envelope.
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
9 West 57th Street
Suite 4170
New York, New York 10019
April 28, 1994
New York, New York
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the
Board of Directors of National Patent Development Corporation, a
Delaware corporation (the "Company"), for use only at the Annual
Meeting of Stockholders to be held at The Brunswick Hilton, Three
Tower Center Boulevard, East Brunswick, New Jersey on the 8th day
of June, 1994 at 1:30 P.M., Eastern Standard Daylight Savings
Time, and at any adjournments thereof. The approximate date on
which this Proxy Statement and the accompanying Proxy were first
given or sent to security holders was April 28, 1994.
Each Proxy executed and returned by a stockholder may be
revoked at any time thereafter, by written notice to that effect
to the Company, attention of the Secretary, prior to the Annual
Meeting, or to the Chairman of, or the Inspectors of Election, in
person, at the Annual Meeting, or by the execution and return of
a later-dated Proxy, except as to any matter voted upon prior to
such revocation.
The Proxies in the accompanying form will be voted in
accordance with the specifications made and where no
specifications are given, such Proxies will be voted FOR the six
nominees for election as directors named herein, FOR the
amendment to the Company's Restated Certificate of Incorporation
to increase the total number of shares of common stock which the
Company shall have authority to issue, and FOR the approval of
the selection of KPMG Peat Marwick as auditors. In the discretion
of the proxy holders, the Proxies will also be voted FOR or
AGAINST such other matters as may properly come before the
meeting. The management of the Company is not aware that any
other matters are to be presented for action at the meeting.
Although it is intended that the Proxies will be voted for the
nominees named herein, the holders of the Proxies reserve
discretion to cast votes for individuals other than such nominees
in the event of the unavailability of any such nominee. The
Company has no reason to believe that any of the nominees will
become unavailable for election. The Proxies may not be voted for
a greater number of persons than the number of nominees named.
The election of directors will be determined by a plurality of
the votes of the shares of common stock, par value $.01 per share
(the "Common Stock") and Class B Capital Stock, par value $.01
per shares (the "Class B Stock") present in person or represented
<PAGE>
by proxy at the Annual Meeting and entitled to vote on the
election of directors. A majority of the votes represented by the
outstanding shares of Common Stock and a majority of the votes
represented by the outstanding shares of Class B Stock, each
voting separately as a class, is required to approve the proposal
to amend the Restated Certificate of Incorporation to increase
the total number of shares of Common Stock which the Company
shall have authority to issue, while approval of the selection of
auditors for the current year will require the affirmative vote
of holders of Common Stock and Class B Stock representing a
majority of the outstanding shares present in person or
represented by proxy. Accordingly, in the case of shares that are
present or represented at the Annual Meeting for quorum purposes,
not voting such shares for a particular nominee for director,
including by withholding authority on the Proxy, will not operate
to prevent the election of such nominee if he or she otherwise
receives affirmative votes; with respect to the approval of the
Amendment to the Company's Restated Certificate of Incorporation,
an abstention will operate to prevent approval of the item to the
same extent as a vote against approval, and a broker "non-vote"
(which results when a broker holding shares for a beneficial
owner has not received timely voting instructions on certain
matters from such beneficial owner) will effect the outcome of
the vote the same as a negative vote with respect to the approval
of the Amendment to the Company's Restated Certificate of
Incorporation.
VOTING SECURITIES
The Board of Directors has fixed the close of business on
April 15, 1994 as the record date for the determination of
stockholders entitled to receive notice of and to vote at the
Annual Meeting. The issued and outstanding stock of the Company
on April 15, 1994 consisted of 20,310,706 shares of Common Stock,
each entitled to one vote, and 250,000 shares of Class B Stock,
each entitled to ten votes. A quorum of the stockholders is
constituted by the presence, in person or by proxy, of holders of
record of Common Stock and Class B Stock representing a majority
of the number of votes entitled to be cast. The only difference
in the rights of the holders of Common Stock and the rights of
holders of Class B Stock is that the former class has one vote
per share and the latter class has ten votes per share. The
Class B Stock is convertible at any time into shares of Common
Stock on a share for share basis at the option of the holders
thereof.
PRINCIPAL HOLDERS OF SECURITIES
As of March 1, 1994, no person was known to the Company to
own beneficially more than 5% of the Common Stock or Class B
Stock of the Company except as set forth below.
2
<PAGE>
The following table shows as of such date the Class B Stock
beneficially owned directly by Mr. Jerome I. Feldman, President
and Chief Executive Officer and a director of the Company, and
Mr. Martin M. Pollak, Executive Vice President and Treasurer and
a director of the Company (for information with respect to the
shares of Common Stock beneficially owned by Messrs. Feldman and
Pollak, see "Security Ownership of Directors and Named Executive
Officers"):
Amount of
Title of Name and Address Beneficial Percent
Class of Beneficial Owners Ownership of Class
Class B Jerome I. Feldman 900,000 shares<F1> 50<F2>
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
Class B Martin M. Pollak 900,000 shares<F1> 50<F2>
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
(1)Includes 775,000 shares each for Messrs. Feldman and Pollak
which they currently have the right to purchase pursuant to the
exercise of stock options.
(2)Percentage could increase up to approximately 88% if either
individual exercised all of his stock options and the other
individual did not exercise any.
Based upon the Common Stock and Class B Stock of the Company
outstanding at March 1, 1994, Mr. Feldman and Mr. Pollak
controlled approximately 13% of the voting power of all voting
securities of the Company. This percentage for Mr. Feldman and
Mr. Pollak would increase to approximately 51% if they exercised
all the presently outstanding options to purchase shares of the
Common Stock and Class B Stock of the Company held by them.
On March 26, 1986, Mr. Feldman and Mr. Pollak entered into
an agreement (i) granting each other the right of first refusal
over the sale or hypothecation of the Class B Stock and options
to purchase Class B Stock now owned or subsequently acquired by
each of them and (ii) in the event of the death of either of them
granting the survivor a right of first refusal over the sale or
hypothecation of the Class B Stock or options to acquire shares
of Class B Stock held by the estate of the decedent. The
aforesaid right of first refusal is for the duration of the life
of the survivor of Mr. Feldman or Mr. Pollak.
3
<PAGE>
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc.,
Princeton Services, Inc., Fund Asset Management, L.P., and
Merrill Lynch Phoenix Fund, Inc. filed a 13-G which disclosed the
ownership of 1,278,200 shares of the Common Stock representing
7.7% of the outstanding Common Stock as of December 31, 1993.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 1, 1994,
beneficial ownership of shares of Common Stock of the Company and
subsidiaries by each director, each of the named executive
officers and all directors and executive officers as a group.
4
<PAGE>
Total Number of
Shares Beneficially
Name Owned
Jerome I. Feldman <F1><F2><F3><F4><F6> 2,165,892
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 2,161,373
Ogden R. Reid <F3><F4><F7> 14,000
Scott N. Greenberg <F3><F4> 197,300
Roald Hoffmann, Ph.D. <F3><F7> 17,800
Paul A. Gould <F1><F7> 71,400
Lawrence M. Gordon <F1><3><f4> 142,612
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 4,770,377
Percent of
Common Stock
Owned
Jerome I. Feldman <F1><F2><F3><F4><F6> 9.75
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 9.73
Ogden R. Reid <F3><F4><F7> *
Scott N. Greenberg <F3><F4> *
Roald Hoffmann, Ph.D. <F3><F7> *
Paul A. Gould <F1><F7> *
Lawrence M. Gordon <F1><3><f4> *
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 19.49
Of Total Number of
Shares Beneficially
Owned,
Shares Which May Be
Acquired Within 60 Days
Jerome I. Feldman <F1><F2><F3><F4><F6> 1,778,667
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 1,788,667
Ogden R. Reid <F3><F4><F7> 12,000
Scott N. Greenberg <F3><F4> 180,700
Roald Hoffmann, Ph.D. <F3><F7> 16,000
Paul A. Gould <F1><F7> 4,000
Lawrence M. Gordon <F1><3><f4> 140,100
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 3,920,134
* The number of shares owned is less than one percent of the
outstanding shares of Common Stock.
(1) Included in the table are 125,000 shares for each of
Messrs. Feldman and Pollak which they currently have the right to
5
<PAGE>
acquire through the conversion of shares of Class B Stock into
shares of Common Stock which they currently own, (see "Principal
Holders of Securities"). Also included in the table are 2,904 shares
for a foundation of which Mr. Feldman is a trustee and 6,469 shares
for a foundation of which Mr. Pollak is a trustee. Also included in
the table are 4,426 shares for Mr. Feldman, 2,414 shares for Mr.
Pollak and 2,012 shares for Mr. Gordon and 8,852 shares for all
directors and executive officers as a group, issuable upon the
conversion of bonds issued with the Company's 12% Subordinated
Debentures Due 1997. Mr. Feldman disclaims beneficial ownership of
the 2,414 shares issuable upon conversion of bonds held by his wife
pursuant to the Debentures. Messrs. Feldman, Pollak and Gould
disclaim beneficial ownership of 8,447, 23,006 and 100 shares,
respectively, held by members of their families which are included
in the table.
(2) Included in the table are options to purchase 775,000 shares of
Class B Options for each of Messrs. Feldman and Pollak which they
currently have the right to acquire through the exercise of stock
options, which shares are convertible into shares of Common Stock.
(3) Of the directors and executive officers of the Company, the
following beneficially own the number of shares of common stock of
Interferon Sciences, Inc. ("Interferon") indicated: Jerome I.
Feldman 458,300 (2.31%); Martin M. Pollak 442,500 (2.23%); Ogden R.
Reid 5,100 (.026%); Scott N. Greenberg 145,000 (.74%); Roald
Hoffmann 2,000 (.010%) and Lawrence M. Gordon 162,500 (.83%). These
shares include 440,000, 440,000, 5,000, 145,000, 2,000 and 162,500
shares for Messrs. Feldman, Pollak, Reid, Greenberg, Hoffmann and
Gordon, respectively, which are subject to currently exercisable
stock options. In addition, all directors and executive officers as
a group beneficially own 1,215,400 shares, of which 1,194,500 shares
are subject to currently exercisable stock options. Certain members
of the families of Messrs. Feldman and Pollak hold 5,800 and 1,000
shares, respectively, as to which Messrs. Feldman and Pollak
disclaim beneficial ownership. Mr. Feldman and Mr. Pollak through
their ownership of the Company's Common Stock, may be deemed to
beneficially own an aggregate of 6,975,148 shares of Common Stock of
Interferon beneficially owned by the Company and Five Star Group,
Inc. ("Five Star") and MXL Industries, Inc. ("MXL"), wholly owned
subsidiaries of the Company. However, Mr. Feldman and Mr. Pollak
disclaim benefical ownership of such 6,975,148 shares (7,433,448 and
7,417,648 shares in the aggregate for Mr. Feldman and Mr. Pollak,
respectively). The total number of shares owned by all directors and
executive officers of the Company as a group (other than Messrs.
Feldman and Pollak) is 1.6% of the outstanding shares of
Interferon's common stock. All such persons have sole voting and
investment power as to all shares except as indicated.
6
<PAGE>
(4) Of the directors and executive officers of the Company, the
following beneficially own the number of shares of common stock of
GTS Duratek, Inc. ("Duratek") indicated: Jerome I. Feldman-176,000
(2.05%) (of which 165,000 shares are subject to currently
exercisable stock options); Martin M. Pollak-167,500 (1.95%) (of
which 165,000 shares are subject to currently exercisable stock
options); Scott N. Greenberg-35,250 (.41%) (of which 35,000 shares
are subject to currently exercisable stock options); Lawrence M.
Gordon-25,000 (.29%) (of which all shares are subject to currently
exercisable stock options). In addition, all directors and executive
officers as a group beneficially own 414,750 shares, of which
407,000 shares are subject to currently exercisable stock options.
Members of Mr. Feldman's family hold 6,000 shares, as to which Mr.
Feldman disclaims beneficial ownership. Mr. Feldman and Mr. Pollak
through their ownership of the Company's Common Stock, may be deemed
to beneficially own an aggregate of 5,652,101 shares of Duratek
beneficially owned by the Company and GPS Technologies, Inc.
("GPS"), a subsidiary of the Company. However, Mr. Feldman and Mr.
Pollak disclaim beneficial ownership of such 5,652,101 shares
(5,828,101 and 5,819,601 shares in the aggregate for Mr. Feldman and
Mr. Pollak, respectively). The total number of shares owned by all
directors and executive officers of the Company as a group (other
than Messrs. Feldman and Pollak) is .90% of the outstanding shares
of Duratek's common stock. All such persons have sole voting and
investment power as to all shares except as indicated.
(5) Of the directors of the Company, Mr. Pollak is the beneficial
owner of 1,000 shares of common stock of GPS.
(6) Member of the Executive Committee.
(7) Member of the Audit Committee.
As of March 1, 1994 the Company owned 4,800,148 shares of
Interferon common stock, constituting approximately 25% of the
outstanding shares, Five Star owned approximately 1,359,375
shares constituting approximately 7% and MXL owned approximately
815,625 shares constituting approximately 4% of the outstanding
shares of Interferon Common Stock. Accordingly, the Company's
voting control of Interferon is approximately 36%.
As of March 1, 1994 the Company owned 1,702,101 shares of
Duratek common stock, constituting approximately 19.9% of the
outstanding shares and GPS owned 3,950,000 shares of Duratek
common stock, constituting approximately 46.2% of the outstanding
shares. Since the Company owns approximately 92% of the
outstanding shares of GPS, its voting control of Duratek is
approximately 66%.
7
<PAGE>
As of March 1, 1994 the Company owned 2,842,300 shares of GPS
common stock, constituting approximately 92% of the outstanding
shares.
ELECTION OF DIRECTORS
Six directors will be elected at the meeting to hold office
until the next Annual Meeting of Stockholders and until their
respective successors are elected and qualify. The By-Laws of the
Company permit the Board of Directors to fix the number of directors
at no less than three nor more than fifteen persons, and the Board
of Directors has fixed the number of directors at six persons. The
Proxies solicited by this proxy statement may not be voted for a
greater number of persons than the number of nominees named. It is
intended that these Proxies will be voted for the following
nominees, but the holders of these Proxies reserve discretion to
cast votes for individuals other than the nominees for director
named below in the event of the unavailability of any such nominee.
The Company has no reason to believe that any of the nominees will
become unavailable for election. Set forth below are the names of
the nominees, the principal occupation of each, the year in which
first elected a director of the Company and certain other
information concerning each of the nominees.
Jerome I. Feldman is founder of, and since 1959, has been
President and Chief Executive Officer and a Director of the Company.
He has been Chairman of the Executive Committee and a Director of
Interferon, which is a biopharmaceutical company engaged in the
manufacture and sale of ALFERON N Injection since 1981; a Director
since 1981 and Chairman of the Board since 1985 of Duratek, a
company which provides environmental technology and consulting
services to various utilities, industrial and commercial clients; a
Director since 1987 and Chairman of the Executive Committee since
1988 of General Physics Corporation ("Physics"), a company which
provides personnel training and technical support services to the
domestic commercial nuclear power industry and to the United States
Department of Energy; and Chief Executive Officer, Chairman of the
Executive Committee and a Director of GPS, which provides training,
engineering, technical services, computer simulation services and
analytical laboratory services to commercial industries and the
United States Government, since 1991. He has been a Director of
Hamilton Financial Services, Inc., a financial service holding
company since 1983. Mr. Feldman is also a Trustee of the New England
Colleges Fund and of Bard College. Age 65
Martin M. Pollak is founder of, and since 1959, has been
Executive Vice President, Treasurer and a Director of the Company.
He has been Chairman of the Board of Interferon since 1981; a
Director of Duratek since 1983 and Chairman of the
8
<PAGE>
Executive Committee since 1985; a Director of Physics since 1987 and
Chairman of the Board since 1988; and Chairman of the Board of GPS
since 1991. Mr. Pollak is Chairman of the Czech and Slovak United
States Economic Counsel and a member of the Board of Trustees of the
Worcester Foundation for Experimental Biology and a Director of
Brandon Systems Corporation, a personnel recruiting company, since
1986. Age 66
Scott N. Greenberg has been a Director of the Company since
1987, Vice President and Chief Financial Officer since 1989 and Vice
President, Finance from 1985. He has been a Director of Duratek
since 1991; a Director of Physics since 1987 and a Director of GPS
since 1991. Age 37
Ogden R. Reid has been a Director of the Company since 1979. He
has been a Director of Interferon since 1982; Vice Chairman of the
Board of Duratek since 1991; a Director of Physics since 1988 and
Vice Chairman and Director of GPS since 1992. Mr. Reid had been
Editor and Publisher of the New York Herald Tribune and of its
International Edition; United States Ambassador to Israel; a six-
term member of the United States Congress and a New York State
Environmental Commissioner. Age 67
Roald Hoffmann, Ph.D. has been a Director of the Company since
1988 and a Director of Interferon since 1991. He has been a John
Newman Professor of Physical Science at Cornell University since
1974. Dr. Hoffmann is a member of the National Academy of Sciences
and the American Academy of Arts and Sciences. In 1981, he shared
the Nobel Prize in Chemistry with Dr. Kenichi Fukui. Age 56
Paul A. Gould has been a Director of the Company since March
1993. He has been Managing Director since 1979 of Allen & Company
Incorporated, an investment banking firm. He has been a Director
since 1992 of Liberty Media Corp., a cable programming company and a
Director since April 1994 of Resource Recycling Technologies, Inc.,
which is engaged in solid waste material management alternatives. Age
48
Board of Directors
The Board of Directors has the responsibility for establishing
broad corporate policies and for the overall performance of the
Company, although it is not involved in day-to-day operating
details. Members of the Board are kept informed of the Company's
business by various reports and documents sent to them as well as by
operating and financial reports made at Board and Committee
meetings. The Board held three meetings in 1993, at which all of the
directors attended the meetings of the Board and Committees on which
they served, except for Paul A. Gould, who attended fewer than 75%
of the meetings.
9
<PAGE>
Directors Compensation
Directors who are not employees of the Company receive a fee of
$1,500 for each meeting of the Board of Directors attended, but do
not receive any additional compensation for service on committees of
the Board of Directors. Officers of the Company do not receive
additional compensation for serving as directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman and
Martin M. Pollak, meets on call and has authority to act on most
matters during the intervals between Board meetings. The committee
formally acted 24 times in 1993 through unanimous written consents.
Audit Committee
The Audit Committee reviews the internal controls of the Company
and the objectivity of its financial reporting. It meets with
appropriate Company financial personnel and the Company's
independent certified public accountants in connection with these
reviews. This committee recommends to the Board the appointment of
the independent certified public accountants, subject to the
ratification by the stockholders at the Annual Meeting, to serve as
auditors for the following year in examining the books and records
of the Company. This Committee met two times in 1993. The Audit
Committee currently consists of Ogden R. Reid, Roald Hoffmann and
Paul A. Gould.
EXECUTIVE COMPENSATION
The following table and notes present the compensation paid by
the Company and subsidiaries to its Chief Executive Officer and the
Company's most highly compensated executive officers for 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Salary Bonus
<S> <C> <C> <C>
Name and Principal Position Year ($) ($)
Jerome I. Feldman 1993 316,526 120,000
President and Chief 1992 326,243 -0-
Executive Officer 1991 367,781 75,000
Martin M. Pollak 1993 315,110 -0-
Executive Vice President 1992 325,110 151,250
and Treasurer 1991 352,223 200,000
Scott N. Greenberg 1993 156,625 -0-
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Vice President and 1992 151,000 -0-
Chief Financial Officer 1991 156,311 235,000
Lawrence M. Gordon 1993 183,205 50,000
Vice President and 1992 183,507 -0-
General Counsel 1991 187,354 235,000
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
All Other
Options Compensation
<S> <C> <C>
Name and Principal Position ($) ($)
Jerome I. Feldman -0- 3,598(f1)
President and Chief -0- 253,491(f1)
Executive Officer -0- 250,000(f1)
Martin M. Pollak -0- 3,598(f1)
Executive Vice President -0- 253,491(f1)
and Treasurer -0- 250,000(f1)
Scott N. Greenberg -0- 3,598(f2)
Vice President and 22,500 2,932
Chief Financial Officer -0- -0-
Lawrence M. Gordon -0- 2,937(f2)
Vice President and -0- 3,392
General Counsel -0- -0-
</TABLE>
(1) Includes $3,598 and $3,491 as a matching contribution by the
Company to the 401(k) Savings Plan, which became effective on
March 1, 1992 and $250,000 in 1991 and 1992 pursuant to a Non-
Compete Agreement between Messrs. Feldman and Pollak and
SmithKline Beecham Corporation. See "Employment Contracts and
Termination of Employment and Change in Control Arrangements."
(2) Matching contribution by the Company to the 401(k) Savings Plan.
For the year ended 1993, none of the named executive officers
were granted non-qualified stock options.
The following table and notes set forth information for the
named executive officers regarding the exercise of stock options
during 1993 and unexercised options held at the end of 1993.
12
<PAGE>
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1993
AND YEAR-END OPTION VALUES
Shares Acquired
on Exercise
(#) (f1) Value Realized
($)
Name
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
Number of Unexercised
Options at December 31,
1993 (#)
Exercisable/Unexercisable
Name
Jerome I. Feldman 1,778,667(f2) -0-
Martin M. Pollak 1,788,667(f2) -0-
Scott N. Greenberg 180,700 4,000
Lawrence M. Gordon 140,100 4,000
Value of Unexercised
In-the-Money Options at
December 31, 1993 ($)
Name Exercisable/Unexercisable (f3)
Jerome I. Feldman 3,335,001 -0-
Martin M. Pollak 3,353,751 -0-
Scott N. Greenberg 338,813 7,500
Lawrence M. Gordon 262,688 7,500
(1) None of the named executive officers exercised any stock options
during 1993.
(2) Includes 775,000 Class B Options, which options are convertible
into shares of Common Stock on a share for share basis.
(3) Calculated based on the closing price of the Common Stock
($4.125) as reported by the American Stock Exchange on December
31, 1993.
13
<PAGE>
Board Compensation Committee Report on Executive Compensation
During the year ended December 31, 1993, the Company did not
have a Compensation Committee. Accordingly, the full Board of
Directors is responsible for determining and implementing the
compensation policies of the Company.
The executive compensation policies are designed to offer
competitive compensation opportunities for all executives which are
based on personal performance, individual initiative and
achievement, and assist the Company in attracting and retaining
qualified executives.
The Board also endorses the position that stock ownership by
management and stock-based compensation arrangements are beneficial
in aligning managements' and shareholders' interests in the
enhancement of shareholder value and recommends to the Stock Option
Committee the grant of stock options to executive officers whose
performance has a significant effect on the success of the Company.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus and
grant of stock options. The compensation for Mr. Pollak is
determined on the same basis as that of Mr. Feldman, the Chief
Executive Officer. The compensation for the other executive officers
of the Company is determined by a consideration of each officer's
initiative and contribution to overall corporate performance, the
officer's managerial abilities and the performance in any special
projects that the officer may have undertaken. Competitive base
salaries that reflect the individual's level of responsibility are
important elements of the Company's executive compensation
philosophy. Subjective considerations of individual performance are
considered by the Board in establishing annual bonuses and other
incentive compensation.
The Company has certain broad-based employee benefit plans in
which all employees, including the named executives are permitted to
participate on the same terms and conditions relating to eligibility
and subject to the same limitations on amounts that may be
contributed. In 1993, the Company also made a matching contribution
to the 401(k) Savings Plan for those participants.
Mr. Feldman's 1993 Compensation
Mr. Feldman's compensation is determined principally by the
terms of his employment agreement. As of January 1, 1989, the
Company entered into an Employment Agreement (the "Agreement") with
Mr. Feldman which provides that Mr. Feldman will serve as
14
<PAGE>
President and Chief Executive Officer of the Company for the period
through December 31, 1994. See "Employment Contracts and Termination
of Employment and Change in Control Arrangements." The Agreement was
approved by a vote of the entire Board. The Agreement provides Mr.
Feldman with annual compensation (a minimum base salary) of $300,000
(subject to review by the Board of Directors). Mr. Feldman also
received a cash bonus of $120,000 in 1993. Among the factors the
Board considered in awarding Mr. Feldman a cash bonus, were Mr.
Feldman's significant contribution to the Company's reduction of its
long-term debt and improvement of the financial performance of
certain operating units of the Company. In addition, in 1993 Mr.
Feldman received compensation of $16,250 for serving as a Director
and Chairman of the Executive Committee of General Physics
Corporation, a public company, in which National Patent has an
approximately 28% investment.
The Board of Directors
Jerome I. Feldman
Martin M. Pollak
Scott N. Greenberg
Ogden R. Reid
Roald Hoffmann, Ph.D.
Paul A. Gould
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1993 the Company did not
have a Compensation Committee and the entire Board of Directors made
decisions on compensation of the Company's executives. Mr. Feldman,
the Company's Chief Executive Officer and a director, Mr. Pollak,
the Company's Executive Vice President and Treasurer and a director
and Mr. Greenberg, the Company's Vice President and Chief Financial
Officer and a director participated in Board executive compensation
deliberations.
Employment Contracts and Termination of Employment and Change in
Control Arrangements
Agreements with Messrs. Feldman and Pollak. As of January 1, 1989,
the Company entered into the Agreements with its President and Chief
Executive Officer, Jerome I. Feldman, and with its Executive Vice
President and Treasurer, Martin M. Pollak (the "Employees").
Pursuant to the Agreements, Mr. Feldman will serve as President
and Chief Executive Officer of the Company and Mr. Pollak will serve
as Executive Vice President and Treasurer of the Company for the
period through December 31, 1994. The Agreements provide for each
Employee to receive annual compensation (a minimum base salary) of
$300,000 (subject to
15
<PAGE>
increase by the Board of Directors). The Agreements provide for the
termination of employment upon the Employee's death, physical or
mental disability or retirement. In addition, the Company may
terminate the Employee's employment "for cause" (including a failure
to perform required duties or the engaging in of gross misconduct)
and each Employee may voluntarily terminate his employment for "Good
Reason", which occurs if the Employee determines in good faith that
due to a change in control of the Company he is not able to
effectively discharge his duties. "Change in control" is defined to
include (1) any "person" (other than the Employees or certain
persons who may acquire securities of the Company from an Employee)
acquiring the beneficial ownership of more than 30% of the Company's
outstanding securities or (2) certain changes in the composition of
the Board of Directors of the Company.
Upon termination by the Company "for cause", all obligations of
the Company under the Employee's Agreement terminates. Upon
termination by the Company other than "for cause", disability, or
retirement, or by the Employee for "Good Reason", such Employee is
entitled to receive as severance pay an amount equal to his full
base salary (which at the present time is a minimum of $300,000 for
each of the Employees) at the rate then in effect, multiplied by the
greater of (1) the number of years (including fractions thereof)
remaining in the term of the employment, or (2) the number three. In
addition, the Employee would receive an amount in cash equal to the
aggregate spread between the exercise prices of all options held by
the Employee under the Company's 1973 Non-Qualified Stock Option
Plan and the higher of (x) the market value of the Common Stock, and
(y) the highest price paid in connection with any change in control
of the Company. Subject to certain conditions, the Company would
also maintain for two years (or until the Employee's commencement of
full-time employment with a new employer) certain insurance, health
and disability plans in effect, or arrange for substantially similar
benefits. The Agreements also contain non-competition and
confidentiality provisions.
PERFORMANCE GRAPH
The following table compares the performance of the Company for
the periods indicated with the performance of the AMEX Market Value
Index and the Dow Jones Industry Group BTC Biotechnology. Total
Return Indices reflect reinvested dividends and are weighted on a
market capitalization basis at the time of each reported data point.
Assumes $100 invested on December 31, 1988 in National Patent Common
Stock, AMEX Market Value Index and Dow Jones Industry Group
BTC - Biotechnology. Values are as of December 31 of specified year
assuming that dividends are reinvested.
16
<PAGE>
Comparison of 5-Year Cumulative Total Return
Index 1988 1989 1990 1991 1992 1993
NPDC 100 114 41 71 42 64
AMEX Market 100 127 103 126 135 159
Dow Jones
Biotech 100 131.28 159.48 335.74 310.57 292.04
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
Increase in Authorized Shares
The Board of Directors unanimously recommends that the
stockholders adopt an amendment to the Company's Certificate of
Incorporation which will increase the authorized shares of Common
Stock, par value $.01 per share, from 30,000,000 shares to
40,000,000 shares. On March 1, 1994, 20,295,388 of the 30,000,000
shares of Common Stock presently authorized were outstanding and an
aggregate of 9,710,257 shares were reserved for issuance.
The Company's Board of Directors has unanimously recommended
for approval by stockholders the proposal to amend the first
sentence of Article Fourth of the Certificate of Incorporation as
follows:
"FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
fifty-two million eight hundred thousand (52,800,000) shares of
which forty million (40,000,000) are to be Common Stock of the
par value of one cent ($.01) per share (hereinafter called the
"Common Stock"); of which two million eight hundred thousand
(2,800,000) shares are to be Class B Capital Stock with a par
value of one cent ($.01) per share (hereinafter called the
"Class B Capital Stock"); and of which ten million (10,000,000)
shares are to be Preferred Stock with a par value of one cent
($.01) per share (hereinafter called the "Preferred Stock"), to
be issued in such series and with such terms and conditions as
the Board of Directors may determine.
The Board of Directors believes that it would be in the best
interests of the Company to have additional shares of Common Stock
available for issuance at its discretion and without the necessity
for a special stockholders' meeting to enhance the
17
<PAGE>
Company's flexibility in connection with possible future actions,
such as acquisitions, financings, investment opportunites, internal
development, retirement of outstanding indebtedness, and other
corporate purposes.
If the amendment is approved by the stockholders as described
below, the additional shares may be issued from time to time upon
authorization of the Board of Directors without further
authorization of the stockholders for such consideration as the
Board of Directors may determine and as may be permitted by the laws
of Delaware. The amendment is not being proposed as a means of
preventing a change in control or takeover of the Company. However,
the use of these shares for such a purpose is possible. For
instance, shares of authorized but unissued or unreserved Common
Stock could be issued in an effort to dilute the stock ownership and
voting power of persons seeking to obtain control of the Company or
could be issued to purchasers who would support the Board of
Directors in opposing a takeover proposal. Such possibilities may
have the effect of discouraging a challenge for control or making it
less likely that such a challenge would take place. The unissued and
unreserved shares of Common stock, Class B Capital Stock and
Preferred Stock will still be available for issuance for any proper
corporate purpose, as authorized from time to time by the Board of
Directors without further approval by the stockholders of the
Company. The additional shares of Common Stock will be identical to
the currently authorized shares of Common Stock in all respects.
Holders of such shares will not have preemptive rights to purchase
any capital stock of the Company.
Reasons for and Effect of Authorization
The Board of Directors believes that the complexity of modern
business financing requires greater flexibility in the Company's
capital structure than now exists. For example, the Company has in
the past issued Common Stock as consideration for the retirement of
outstanding Swiss indebtedness and accrued and unpaid interest
thereon, in order to strengthen the financial position of the
Company. The Company may make similar offers in the future, on terms
and conditions approved by the Board of Directors. If the amendment
is approved by the stockholders, the Company expects that such
transaction will in most cases not be subject to further approval of
stockholders. The additional shares of Stock to be authorized by the
proposed amendment would be available for issuance from time to time
for any proper corporate purpose, including, as appropriate,
acquisitions and public or private sales for cash as a means of
obtaining capital for use in the Company's business, retirement of
outstanding indebtedness, and other corporate purposes.
It is not possible to state the actual effect of the
authorization of the additional shares of stock upon the rights
18
<PAGE>
of holders of the Common Stock, however the effect of the additional
shares of Common Stock might include dilution of the equity interest
of the Common Stock.
APPROVAL OF SELECTION OF KPMG PEAT MARWICK AS AUDITORS
The Board of Directors has selected KPMG Peat Marwick to audit
the accounts of the Company for the year ending December 31, 1994.
KPMG Peat Marwick has no financial interest in the Company and
neither it nor any member or employee of the firm has had any
connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee. KPMG
Peat Marwick has audited the accounts of the Company since 1970. The
Delaware General Corporation Law does not require the approval of
the selection of auditors by the Company's stockholders, but in view
of the importance of the financial statements to the stockholders,
the Board of Directors deems it desirable that they pass upon its
selection of auditors. In the event the stockholders disapprove the
selection, the Board of Directors will consider the selection of
other auditors. The Board of Directors recommends that you vote in
favor of the above proposal in view of the familiarity of KPMG Peat
Marwick with the Company's financial and other affairs acquired
during its previous service as auditors for the Company.
A representative of KPMG Peat Marwick is expected to be present
at the Annual Meeting, with the opportunity to make a statement if
he desires to do so, and is expected to be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the
Company's 1995 proxy statement provided they are received by the
Company no later than January 13, 1995, and are otherwise in
compliance with applicable Securities and Exchange Commission
regulations.
GENERAL
So far as is now known, there is no business other than that
described above to be presented for action by the stockholders at
the meeting, but it is intended that the proxies will be voted upon
any other matters and proposals that may legally come before the
meeting and any adjournments thereof in accordance with the
discretion of the persons named therein.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the
Company. It is expected that the solicitations will be made
primarily by mail, but regular employees or representatives of
19
<PAGE>
the Company may also solicit proxies by telephone or telegraph and
in person, and arrange for brokerage houses and other custodians,
nominees and fiduciaries to send proxy material to their principals
at the expense of the Company.
Lydia M. DeSantis
Secretary
20
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
COMMON STOCK Annual Meeting of Stockholders PROXY
To Be Held June 8, 1994
This proxy is solicited on behalf of the Board of Directors
Revoking any such prior appointment, the undersigned, a stockholder
of National Patent Development Corporation hereby appoints Jerome I.
Feldman and Martin M. Pollak, and each of them, attorneys and agents
of the undersigned, with full power of substitution, to vote all
shares of the Common Stock of the undersigned in said Company at the
Annual Meeting of Stockholders of said Company to be held at The
Brunswick Hilton, Three Tower Center Boulevard, East Brunswick, New
Jersey on June 8, 1994, at 1:30 P.M. Eastern Standard Daylight
Savings Time and at any adjournments thereof, as fully and
effectually as the undersigned could do if personally present and
voting, hereby approving, ratifying and confirming all that said
attorneys and agents or their substitutes may lawfully do in place
of the undersigned as indicated below.
This proxy when properly executed will be voted as directed. If no
direction is indicated, this proxy will be voted for proposals (1)
(2) and (3).
1. Election of Directors: Jerome I. Feldman, Martin M. Pollak, Scott
N. Greenberg, Roald Hoffmann, Odgen R. Reid, and Paul A. Gould.
For All
(Except
Nominees
Written
(INSTRUCTION: To withhold For Withhold Below)
authority to vote for any
individual nominee, write
that nominee's name in the
space provided below)
2. Proposal to amend the Restated Certificate of Incorporation to
increase the total number of authorized shares of common stock.
FOR AGAINST ABSTAIN
21
<PAGE>
3. Proposal to approve the selection of KPMG Peat Marwick to audit
the accounts of the Company for the current year.
FOR AGAINST ABSTAIN
4. Upon any other matters which may properly come before the meeting
or any adjournments thereof.
Please sign exactly as name appear below.
Dated , 1994
Signature
Signature if held jointly
Please mark, sign, date and
return the proxy card promptly
using the enclosed envelope.
When shares are held by joint
tenants both should sign.
When signing as attorney, as
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership
please sign in partnership
name by authorized person.
22
<PAGE>
OFFERING CIRCULAR
National Patent Development Corporation
Offer to Exchange
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF SFr. 1,000
For
Each Swiss Francs 1,000 Principal Amount of
Any and All
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996, or
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995
(Swiss Security No. 887282)
(collectively, the "Old Swiss Franc Bonds")
and
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF US $1,000
For
Each United States Dollars 1,000 Principal Amount of
Any and All
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(the "Old U.S. Dollar Bonds," and, collectively with
the Old Swiss Franc Bonds, the "Bonds")
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, GENEVA TIME, ON
MONDAY, JULY 11, 1994 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
<PAGE>
National Patent Development Corporation (the "Company"), New York, New
York, hereby offers (the "Offer"), upon the terms and subject to the
conditions set forth in this Offering Circular (the "Offering Circular") and
in the accompanying Letter of Instructions (the "Letter of Instructions"), to
exchange (i) common stock, par value $.01 per share (the "Common Stock"), of
the Company with a market value of SFr. 1,000, for each SFr. 1,000 in
principal amount of the Old Swiss Franc Bonds validly tendered and not
withdrawn prior to the Expiration Date and (ii) Common Stock with a market
value of US $1,000 for each US $1,000 in principal amount of Old U.S. Dollar
Bonds validly tendered and not withdrawn prior to the Expiration Date. In
accordance with United States securities laws, the Company is making a
concurrent separate offer on the same terms and for the same consideration as
the Offer to U.S. holders of the Bonds (the "United States Offer").
On April 30, 1994, there were outstanding SFr. 8,635,000 of the 6%
Convertible Bonds due 1995, SFr. 3,520,000 of the 5 3/4% Convertible Bonds due
1995, SFr. 4,735,000 of the 5 5/8% Convertible Bonds due 1996, SFr. 7,401,000
of the 8% Bonds due 1995 and US $3,926,000 of the 7% Dual Currency Convertible
Bonds due 1996. Interest accrued on the Bonds up to July 22, 1994, or, if the
Company shall have extended the Expiration Date, the tenth (10th) business day
after such adjusted Expiration Date (the "Payment Date"), will be paid in
shares of Common Stock of the Company for each SFr. 1,000 principal amount of
each respective class of Old Swiss Franc Bonds (such amounts referred to
collectively as "Swiss Bond Accrued Interest") and for each US $1,000
principal amount of the Old U.S. Dollar Bonds (such amount referred to as
"U.S. Bond Accrued Interest," and together with the Swiss Bond Accrued
Interest, the "Accrued Interest").
In the event that Bonds in excess of 60% of the aggregate principal
amount of the outstanding Bonds have been properly tendered by the holders
thereof prior to the Expiration Date and not withdrawn pursuant to the Offer
and the United States Offer, the Company may, upon the terms and subject to
the conditions of the Offer, either (i) accept Bonds tendered on a pro rata
basis according to the aggregate principal amount of all Bonds properly
tendered by the holders thereof prior to the Expiration Date and not withdrawn
pursuant to the Offer and the United States Offer or (ii) amend the terms of
the Offer by notice to the holders of the Bonds, in which case the Offer shall
remain open for an additional ten (10) business days from the date that such
notice is first given. If not more than 60% in aggregate principal amount of
the outstanding Bonds are properly tendered by the Expiration Date and not
withdrawn pursuant to the Offer and the United States Offer, all Bonds so
tendered and not withdrawn will, upon the terms and subject to the conditions
of the Offer and the United States Offer, be exchanged. The Company has the
right, in its sole discretion, to waive any such conditions.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING
OF THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS IS
MAKING ANY RECOMMENDATION TO ANY HOLDER OF BONDS TO TENDER BONDS PURSUANT TO
THE OFFER. EACH HOLDER OF BONDS SHOULD MAKE ITS OWN DECISION WHETHER TO TENDER
ITS BONDS AFTER READING THIS OFFERING CIRCULAR.
The date of this Offering Circular is June 10, 1994
<PAGE>
The Common Stock to be issued pursuant to the Offer has not been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered, sold or delivered, directly or
indirectly, in the United States or to, or for the account of, any U.S. person
except in transactions exempt from the registration requirements of the
Securities Act. In recognition of the fact that exchanging holders of Bonds
("Holders"), even though holding shares of Common Stock for investment, may
wish to be legally permitted to sell such stock when they deem appropriate,
the Company has agreed to prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to the
resale of the Common Stock from time to time on the American Stock Exchange,
Inc. or Pacific Stock Exchange, Inc., in privately-negotiated transactions or
otherwise. The Company has agreed to use its best efforts to cause such
registration statement to become effective on or before August 1, 1994. If
such registration statement is not declared effective by the Commission by
August 15, 1994, each exchanging holder will have the option to withdraw the
Bonds tendered by it and to renounce its rights to the Common Stock received
for its account in exchange for such Bonds. Notice of such withdrawal must be
given to the appropriate Exchange Agent prior to August 30, 1994. In any
event, Holders will be required to agree not to sell Common Stock received by
them in the Offer until the earlier of (a) the date which is 40 days after the
payment date for Bonds accepted for payment by the Exchange Agents pursuant to
the Offer (the "Payment Date") and (b) the date on which the registration
statement covering such stock is declared effective by the Commission. Offers
and sales of Common Stock in the United States or to U.S. persons would
constitute a violation of United States law unless made in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom.
Tenders of Bonds pursuant to the Offer may be made only to the specified
offices of the Exchange Agents outside the United States. The Company will
deliver Common Stock to the Exchange Agents outside the United States, and the
Exchange Agents will deliver, on behalf of the Company, Common Stock pursuant
to the Offer only to an account or address outside the United States.
In this Offering Circular, references to "dollars", "$" and "US $" are to
United States dollars, the term "United States" means the United States of
America (including the States and the District of Columbia), its possessions,
its territories and other areas subject to its jurisdiction, and the term
"U.S. person" shall have the meaning set forth in Sections 230.901 through
.904 of Title 17 of the United States Code of Federal Regulations ("Regulation
S").
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its Regional Offices located at Seven
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material can also be
inspected at the American Stock Exchange, Inc., 86 Trinity Place, New York,
New York and at the Pacific Stock Exchange, Inc., 301 Pine Street, San
Francisco, California, on which exchanges the Common Stock is listed and can
be obtained from the Exchange Agents as set forth on the back cover of this
Offering Circular.
EXCHANGE AGENTS
Banque Scandinave en Suisse, acting through its specified office in
Switzerland, has agreed to provide services as the Exchange Agent with respect
to the exchange of the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank
Leu AG, acting through its specified office in Switzerland, has agreed to
provide services as the Exchange Agent with respect to the exchange of all
Bonds other than the 8% Bonds. Banque Scandinave en Suisse and Bank Leu AG may
be referred to hereinafter individually as the "Exchange Agent" or,
collectively, as the "Exchange Agents."
If you require additional copies of the Offering Circular, or assistance
with the Offer, please contact either of the Exchange Agents.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction........................................................ 1
Description of the Company
Summary Terms and Conditions of the Offer
The Offer
1. Terms of the Offer.......................................... 5
2. Purpose of the Offer........................................ 7
3. Investment Considerations................................... 7
4. Risks to Non-Exchanging Holders............................. 9
5. Price Range of the Bonds.................................... 9
6. Selected Consolidated Financial Information of the Company.. 11
7. Acceptance for Exchange and Payment.......................... 16
8. Procedures for Tendering Bonds.............................. 16
9. Withdrawal Rights........................................... 17
10. Certain Tax Consequences.................................... 17
11. Exchange Agents............................................. 18
12. Description of Common Stock................................. 18
13. Certain Conditions of the Offer............................. 18
14. Condition to Acceptance for Exchange........................ 19
15. Miscellaneous............................................... 20
</TABLE>
Annex A--National Patent Development Corporation--Annual Report on Form 10-K/A
for the year ended December 31, 1993, Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, Proxy Statement for the Annual Meeting of
Stockholders held on June 8, 1994.
<PAGE>
INTRODUCTION
Description of the Company
General
National Patent Development Corporation (the "Company"), incorporated in
Delaware in 1959, is primarily a holding company, which is a legal entity
separate and distinct from its various operating subsidiaries. The Company's
operations consist of four operating business segments: Physical Science,
Distribution, Optical Plastics and Electronics. The Company also has an
investment in two companies in the Health Care industry.
Physical Science
The Company's Physical Science Group consists of (i) GPS Technologies,
Inc. ("GPS"), an approximately 92% owned subsidiary, and (ii) GTS Duratek,
Inc. ("Duratek"), an approximately 66% owned subsidiary.
GPS provides a wide range of management and technical training as well as
specialized engineering services to various commercial industries and the
United States government. Principal clients of GPS include electric utilities,
process industries, manufacturing plants, Federal agencies and the aerospace
industries. In addition, the Company currently owns approximately a 28%
investment in General Physics Corporation ("General Physics"), which provides
a wide range of personnel training and technical support services to the
domestic commercial nuclear power industry and the United States Departments
of Energy and Defense, as well as environmental engineering, training and
support services to governmental and commercial clients.
On April 7, 1994, General Physics entered into an agreement with GPS and
the Company to acquire substantially all of the operating assets of GPS and
certain of its subsidiaries. General Physics agreed to pay GPS a purchase
price with a current present value of approximately $36 million. The purchase
price will be payable to GPS as follows: $10 million in cash; 3.5 million
shares of General Physics common stock valued at approximately $13,500,000
(based upon the price per share of General Physics common stock prior to the
announcement of the transaction which was $3.875); warrants to acquire
1,000,000 shares of General Physics common stock at $6.00 per share valued at
approximately $1,300,000; warrants to acquire up to 475,644 additional shares
of General Physics common stock at $7.00 per share valued at approximately
$500,000; and 6% Senior Subordinated Debentures due 2004 (the "Debentures"),
in the aggregate principal amount of $15,000,000, valued at approximately
$10,700,000. The values assigned to each component of consideration were based
upon (i) discussions with the independent investment banker to the Independent
Committee of General Physics and the investment banker to GPS and (ii)
negotiations between the Independent Committee of General Physics and the
Board of Directors of GPS. Portions of the cash and stock consideration of the
purchase price will be (a) used to repay outstanding bank debt of GPS which at
March 31, 1994 was $6,350,000 and long-term debt of GPS which at March 31,
1994 was $8,975,000 to be repaid to the Company and (b) held in escrow.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, the approval of the transaction by the
stockholders of General Physics and GPS. The transaction is anticipated to
close as soon as practicable in the second half of 1994, if all necessary
approvals are obtained and conditions satisfied. The Company anticipates that,
if the aforementioned transaction is consummated, it will own approximately
52% of the outstanding common stock of General Physics, and if the Company
were to exercise all of its warrants, it would own approximately 58% of the
outstanding common stock of General Physics.
Duratek's operations consist of two operating groups: (1) "Environmental
Services" engaged in cleanup of water and other liquids containing radioactive
and/or hazardous (mixed waste) contaminants and minimum additive vitrification
for long-term stabilization of such waste and (2) "Consulting and Staff
Augmentation" services. Duratek provides services for various utility,
industry, government and commercial clients.
<PAGE>
Distribution
The Company's Distribution Group, incorporated under the name Five Star
Group, Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products.
Healthcare
The Company's investment in the Health Care industry consists of the
Company's ownership of approximately 36% of the outstanding shares of common
stock of Interferon Sciences, Inc. ("ISI"). ISI is a biopharmaceutical company
engaged in the manufacture and sale of ALFERON N Injection, the only product
approved by the Food and Drug Administration that is based upon a natural
source, multi-species alpha interferon. ISI also is developing its existing
injectable, topical and/or oral formulations of its natural alpha interferon
for the potential treatment of HIV, hepatitis C, hepatitis B, multiple
sclerosis, cancers and other indications.
Additionally, the Company owns approximately 4.9% of the outstanding
shares of common stock of American White Cross, Inc. (formerly, NPM Healthcare
Products, Inc.) ("White Cross"). White Cross is a leading manufacturer and
marketer of private label adhesive and cotton-based health and personal care
products.
Optical Plastic
The Company's Optical Plastics Group, through its wholly owned subsidiary
MXL Industries, Inc., manufactures molded and coated optical products, such as
shields and face masks and non-optical plastic products.
Electronics
The Company's Electronics Group, through its subsidiary Eastern
Electronics Mfg. Corporation, is engaged in contract manufacturing, such as
printed circuit board assembly for the electronics industry.
Recent Developments
American Drug Company
On February 2, 1994, the Board of Directors of the Company approved a
dividend of approximately 46.1% of the common stock of American Drug Company
to holders of record of the Company's Common Stock and Class B Capital Stock.
American Drug Company is currently a wholly-owned subsidiary of the Company.
The dividend will be at the rate of one share, plus one warrant to purchase
one share of American Drug Company common stock at an exercise price per share
of $1.00, for every four outstanding shares of Common Stock and Class B
Capital Stock of the Company. The distribution of American Drug Company common
stock to the Company's stockholders will result in direct ownership in a
company focused on developing markets for American-made generic pharmaceutical
and personal care products in Russia and the other states of the Commonwealth
of Independent States and on developing other business opportunities.
Following the distribution, the Company will own 6,000,000 shares of the
common stock of American Drug Company, representing approximately 53.9% of the
outstanding common stock of American Drug Company, without accounting for
outstanding options and warrants.
Interferon Sciences, Inc.
On May 13, 1994, ISI filed a registration statement with the Commission
relating to a proposed public offering of 3,000,000 shares of its common stock
(with an additional 450,000 shares of its common stock subject to an over-
allotment option). D. Blech & Company, Incorporated is the underwriter of the
offering.
The Company is a Delaware corporation, incorporated in 1959, and its
headquarters are located at 9 West 57th Street, New York, New York 10019. Its
telephone number is (212) 230-9500. The Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, Quarterly Report on Form 10-Q for the
quarter ended
-2-
<PAGE>
March 31, 1994 and Proxy Statement for the Annual Meeting of Stockholders held
on June 8, 1994, each of which provide additional information regarding the
Company and its subsidiaries, are attached hereto as Annex A.
Summary Bond Information
The following table sets forth certain information with respect to the Bonds:
<TABLE>
<CAPTION>
Repurchased and Held
Principal Amount by the Company (or
Original Principal Outstanding as of affiliates) as of
Name of Issue Amount April 30, 1994* April 30, 1994** Scheduled Maturity
------------- ------------------ ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
6% Convertible Bonds SFr. 60,000,000 SFr. 8,635,000 SFr. 1,990,000 March 7, 1995
5 3/4% Convertible Bonds SFr. 50,000,000 SFr. 3,520,000 SFr. 1,825,000 May 9, 1995
5 5/8% Convertible Bonds SFr. 50,000,000 SFr. 4,735,000 SFr. 1,135,000 March 18, 1996
8% Bonds SFr. 51,264,000 SFr. 7,401,000 SFr. 6,582,000 March 1, 1995
7% Dual Currency Bonds US $ 15,000,000 US $ 3,926,000 US$ 285,000 March 18, 1996
</TABLE>
- ----------------------
* Does not include any Bonds outstanding that are owned by the Company or its
affiliates.
** All Bonds that have been repurchased and are owned by the Company or its
affiliates (except SFr. 6,582,000 of the 8% Bonds which have been repurchased
and are owned by affiliates of the Company) will be retired upon the completion
of the Offer.
Repurchases by the Company
The Company and its affiliates have repurchased in the open market and
hold SFr. 11,532,000 and US $285,000 of the Bonds. The Company intends to
deliver to the Exchange Agents for cancellation approximately SFr. 4,950,000 and
US $285,000 of Bonds repurchased by it. The remaining SFr. 6,582,000 of 8%
Bonds are owned by affiliates of the Company as collateral for loans made by
such affiliates to the Company and will not be retired.
As of March 31, 1994, the Company had an aggregate of $40,469,000 of
long-term indebtedness, including $20,797,000 of the Bonds, of which $11,025,000
is included in current maturities of long-term debt. For a description of the
outstanding indebtedness of the Company, see "Capitalization."
The Company is making the Offer to reduce its long-term indebtedness,
to increase its book value and to provide the Company with additional financial
flexibility in its operations. See "Purpose of the Offer" and "Capitalization."
In accordance with United States securities laws, the Company is making a
concurrent separate offer on the same terms and for the same consideration as
the Offer to U.S. holders of the Bonds (the "United States Offer"). The Company
will accept for exchange in the Offer and the United States Offer Bonds
representing up to 60% of the aggregate principal amount outstanding of the
Bonds. As of April 30, 1994, 60% of the aggregate principal amount outstanding
of the Bonds was equal to SFr. 17,900,000, assuming an exchange rate of 1.4115
with respect to the Old U.S. Dollar Bonds.
Summary Terms and Conditions of the Offer
Exchange Consideration
In exchange for each SFr. 1,000 principal amount and each US$ 1,000
principal amount of any of the Bonds validly tendered, the Company offers shares
of its common stock with a par value of US$ 0.01 per share (the "Common Stock")
and with a market value of SFr. 1,000 with respect to Old Swiss Francs Bonds and
of US$ 1,000 with respect to Old U.S. Dollar Bonds. Interest accrued on the
Bonds up to the Payment Date (as defined
-3-
<PAGE>
below) will also be paid in Common Stock. Fractional shares of Common Stock
resulting from such exchange will be rounded up to the nearest integral
multiple.
The exchange rate between US$ and Swiss Francs will be determined by
the Exchange Agents on the basis of the Swiss Franc/US$ spot rate reported in
the Wall Street Journal Europe Edition on the fifth trading day prior to July
11, 1994.
The market value of the Common Stock offered in exchange for the Bonds
will be determined on the basis of the average of the last sale prices on the
American Stock Exchange, Inc. of the Common Stock for the ten (10) trading days
ending five (5) trading days prior to July 11, 1994.
Offering Period
The offer to tender the Bonds for exchange is open from June 10, 1994
to July 11, 1994. The Company reserves the right to extend the Offer for an
additional ten (10) business days, until July 25, 1994. The date on which the
offer, or any extension thereof, expires is hereinafter referred to as the
"Expiration Date."
Payment Date
Subject to the conditions set forth in Section 13, the "Payment Date"
is July 25, 1994, or, if the Expiration Date has been extended beyond July 11,
1994, the tenth (10th) business day after the Expiration Date.
Maximum Acceptance
Subject to the condition set forth in Section 14, the Company will
accept for exchange Bonds representing up to 60% of the aggregate principal
amount of the outstanding Bonds (the percentage limitation being calculated on
the overall principal amount of all outstanding Bonds, i.e. irrespective of the
individual series of Bonds). The Company reserves the right to exchange Bonds
representing up to 62% of the aggregate principal amount of the outstanding
Bonds pursuant to the Offer and the United States Offer. In the event Bonds in
excess of 60% of the aggregate principal amount are tendered, the Company may
either (i) accept Bonds tendered on a pro rata basis according to the aggregate
principal amount of all Bonds properly tendered by the Expiration Date or (ii)
amend the terms of the Offer by notice to the holders of the Bonds, in which
case the Offer shall remain open for an additional ten (10) business days from
the date that such notice is first given. The Company reserves the right to
waive the maximum acceptance restriction. In no event will the offer be
extended beyond July 25, 1994.
Registration of Common Stock
The Company shall apply for registration of the newly issued shares of
Common Stock with the United States Securities and Exchange Commission (the
"Commission"). Exchanging holders of Bonds may not sell the Common Stock
received in the Offer within the United States or to a U.S. person until forty
(40) days after the Payment Date or the date on which the registration statement
is declared effective by the Commission, whichever is earlier.
Conditions of Offer
The Offer is subject to certain conditions as more fully described in this
Offering Circular.
Withdrawal Rights
Bonds tendered pursuant to the Offer may be withdrawn by holders of
Bonds at any time prior to the Expiration Date. After the Expiration Date,
Bonds may be withdrawn if the registration statement of the Company with respect
to the Common Stock has not been declared effective by the Commission on or
prior to August 15, 1994.
-4-
<PAGE>
Exchange Agents
The Exchange Agent with respect to the Swiss Franc 8% Bonds due March
1, 1995 is Banque Scandinave en Suisse, Cours de Rive 11, 1211 Geneve 3 and the
Exchange Agent for all other Bonds is Bank Leu AG, Corporate Finance, P.O. Box,
8022 Zurich.
Taxes
Any securities transfer tax due on the exchange of Bonds for Common Stock
will be borne by the Company.
Governing Law
The terms and conditions of the Offer shall be governed by and construed
in accordance with the laws of Switzerland.
The Offer
1. Terms of the Offer. Upon the terms and subject to the conditions of
the Offer, the Company will accept for exchange Bonds representing up to 60%
of the aggregate principal amount of the outstanding Bonds which are validly
tendered pursuant to the Offer and the United States Offer on or prior to the
Expiration Date and not theretofore withdrawn as permitted by Section 9 of the
Offer. The term "Expiration Date" means 12:00 Noon, Geneva time, on July 11,
1994, unless the Company, in its sole discretion, shall have extended the
period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date, not beyond 12:00 Noon,
Geneva time, on July 25, 1994, at which time the Offer, as so extended by the
Company, shall expire. The payment date (the "Payment Date") for Bonds
accepted for payment by the Exchange Agents pursuant to the Offer will be July
25, 1994. However, if the Company shall have extended the period of time for
which the Offer is open, the Payment Date shall be the tenth (10th) business
day after the adjusted Expiration Date.
The consideration offered by the Company in exchange for each SFr. 1,000
principal amount of any and all Old Swiss Franc Bonds and each US $1,000
principal amount of any and all Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date is Common Stock with a market value of
SFr. 1,000, with respect to the Old Swiss Franc Bonds, and of US $1,000, with
respect to the Old U.S. Dollar Bonds. Interest accrued on the Bonds up to the
Payment Date will be paid in shares of Common Stock of the Company for each
SFr. 1,000 principal amount of Old Swiss Franc Bonds (such amounts referred to
collectively as "Swiss Bond Accrued Interest") and for each US $1,000
principal amount of the Old U.S. Dollar Bonds (such amount referred to as
"U.S. Bond Accrued Interest," and together with the Swiss Bond Accrued
Interest, the "Accrued Interest"). Fractional shares of Common Stock resulting
from such exchange will be rounded up to the nearest integral multiple.
The Company currently intends to exchange Bonds representing 60% of the
aggregate principal amount of the outstanding Bonds, irrespective of the
individual series of the Bonds, pursuant to the Offer and the United States
Offer. The Company reserves the right to exchange Bonds representing up to 62%
of the aggregate principal amount of the outstanding Bonds pursuant to the
Offer and the United States Offer. In the event that Bonds in excess of 60% of
the aggregate principal amount of the outstanding Bonds have been properly
tendered by the holders thereof prior to the Expiration Date and not
withdrawn, the Company may, upon the terms and subject to the conditions of
the Offer, either (i) accept Bonds tendered on a pro rata basis to the holders
according to the aggregate principal amount of all Bonds properly tendered by
the Expiration Date and not withdrawn or (ii) amend the terms of the Offer by
notice to the holders of the Bonds, in which case the Offer shall remain open
for an additional ten (10) business days from the date that such notice is
first given. If not more than 60% in aggregate principal amount of the
outstanding Bonds are properly tendered by the Expiration Date and not
withdrawn, all Bonds so tendered and not withdrawn will, upon the terms and
subject to the conditions of the Offer, be exchanged. The Company has the
right, in its sole discretion, to waive any such conditions.
-5-
<PAGE>
For each SFr. 1,000 principal amount of Old Swiss Franc Bonds exchanged,
the holder will receive Common Stock with a value equal to the sum of SFr.
1,000 and the respective amount of Swiss Bond Accrued Interest for the
tendered Old Swiss Franc Bond (the "Swiss Bond Common Stock Value"). For each
US $1,000 principal amount of Old U.S. Dollar Bonds exchanged, the holder will
receive Common Stock with a value equal to the sum of US $1,000 and the U.S.
Bond Accrued Interest (the "U.S. Bond Common Stock Value"). The number of
shares of Common Stock issued for each SFr. 1,000 principal amount of Old
Swiss Franc Bonds exchanged will be equal to the amount obtained by dividing
(i) the Swiss Bond Common Stock Value by (ii) the Swiss Franc/U.S. Dollar spot
rate reported in The Wall Street Journal-Europe Edition on the fifth trading
day prior to July 11, 1994 (as determined by the Exchange Agents), and then
dividing the resulting quotient by the average of the last sale prices on the
American Stock Exchange ("AMEX") of the Common Stock for the ten trading days
ending five trading days prior to July 11, 1994. The number of shares of
Common Stock issued for each US $1,000 principal amount of Old U.S. Dollar
Bonds exchanged will be equal to the number obtained by dividing (i) the U.S.
Bond Common Stock Value by (ii) the average of the last sale prices on the
AMEX of the Common Stock for the ten trading days ending five trading days
prior to July 11, 1994. Fractional shares of Common Stock resulting from such
exchange will be rounded up to the nearest integral multiple.
In recognition of the fact that holders of Common Stock, even though
holding Common Stock for investment, may wish to be legally permitted to sell
their shares of Common Stock when they deem appropriate, the Company has
agreed to prepare and file with the Commission a registration statement with
respect to the resale of the shares of Common Stock from time to time on the
AMEX, on the Pacific Stock Exchange, Inc., in privately-negotiated
transactions or otherwise. In any event, the holders of Common Stock may not
be able to sell shares of Common Stock until the registration statement has
been declared effective by the United States Securities and Exchange
Commission (the "Commission"). Exchanging holders of Bonds may not sell the
Common Stock received in the Offer within the United States or to, or for the
account or benefit of, U.S. persons, until the earlier of (a) the date which
is 40 days after the Payment Date and (b) the date on which the registration
statement covering the Common Stock is declared effective by the Commission.
In the event that the registration statement covering the Common Stock is not
declared effective by the Commission prior to the Payment Date, the Common
Stock issued pursuant to the Offer will be represented by temporary global
stock certificates until the earlier of the dates referred to in the
immediately preceding sentence.
The Company will use its best efforts to cause the registration statement
to become effective on or before August 1, 1994. There can, however, be no
assurance that the registration statement will have become effective on such
date. If such registration statement is not declared effective by the
Commission on or before August 15, 1994, each exchanging holder will have the
option to withdraw the Bonds tendered by it and to renounce its rights to the
Common Stock received for its account in exchange for such Bonds. Notice of
such withdrawal must be given to the appropriate Exchange Agent prior to
August 30, 1994.
If the Company shall decide, in its sole discretion, to increase the
consideration offered in the Offer or the percentage of Bonds sought in the
Offer beyond 62% and, at the time that notice of such increase is first
published in the manner specified below, the Offer is scheduled to expire
earlier than the tenth (10th) United States business day from, and including,
the date that such notice is first so published in the manner specified below,
then the Offer will be extended until the expiration of such period of ten
(10) United States business days. For purposes of the Offer, a "United States
business day" means any day other than a Saturday, Sunday or United States
federal holiday and consists of the time period from 12:01 A.M. through 12:00
midnight, New York City time.
The Company expressly reserves the right (i) to terminate the Offer and
not accept for exchange any Bonds, upon the occurrence of the event specified
in Section 14, by giving notice in writing or by telex of such termination to
the Exchange Agents, and (ii) to amend the Offer at any time, or from time to
time, in any respect other than to decrease the consideration offered for the
Bonds in the Offer.
-6-
<PAGE>
Any extension or amendment of the Offer will be followed as promptly as
practicable by public announcement thereof, such announcement in the case of
an amendment or extension to be issued no later than 9:00 a.m., New York City
time (3:00 p.m., Geneva time), within two United States business days after
the previously scheduled Expiration Date. Without limiting the manner in which
the Company may choose to make any public announcement, the Company will have
no obligation to publish, advertise or otherwise communicate any such public
announcement, other than by delivering a written copy thereof to the Exchange
Agents, which will act as the Company's agents in issuing the announcement to
the Feuille Officielle Suisse du Commerce and to a daily newspaper in the
cities of Basle, Geneva and Zurich within two United States business days
after the previously scheduled Expiration Date. The Company may terminate the
Offer, in its sole discretion, at any time after the Expiration Date and prior
to the Payment Date, pursuant to Section 13.
This Offering Circular will be provided to all principal offices of the
Exchange Agents in Switzerland. The Offering Circular will not be provided to
any person in the U.S. or to any U.S. person. A separate offering circular
will be circulated to U.S. holders of the Bonds in connection with the United
States Offer.
2. Purpose of the Offer. The purpose of the Offer is to reduce the
Company's long-term indebtedness and annual interest expense, to increase the
Company's book value and to provide the Company with additional financial
flexibility in its operations. In addition, the issuance of the Common Stock
in the Offer will enable the Company to lower its ratio of long-term debt to
total capitalization.
Assuming that 60% of the Bonds had been exchanged on March 31, 1994, the
Company would have reduced its consolidated long-term debt, less current
maturities, from approximately $25,778,000 to approximately $19,914,000 and
increased its book value from approximately $66,158,000 to approximately
$79,292,000.
3. Investment Considerations.
(a) Liquidity; Financial Condition. The Company believes that it has
sufficient cash and cash equivalents and borrowing availability under existing
and potential lines of credit to satisfy its cash requirements until the first
scheduled maturity of its Swiss Franc denominated indebtedness on March 1,
1995. However, in order for the Company to meet its long-term cash needs,
which include the repayment of $13,518,000 of Swiss Franc denominated
indebtedness scheduled to mature in 1995 and $7,279,000 of Swiss Franc
denominated indebtedness which is scheduled to mature in 1996, the Company
must obtain additional funds. The Company has reduced and is continuing to
reduce its long-term debt through the issuance of equity securities in
exchange for long-term debt (including the shares of the Company's Common
Stock issued in the Offer), and is also exploring new credit arrangements on
an ongoing basis. However, there is no assurance that the Company will be able
to obtain any new credit arrangements.
At March 31, 1994, the Company and its majority-owned subsidiaries held
cash and cash equivalents totaling $9,848,000. Of these amounts, approximately
$7,748,000 is held by the Company and is available for the general corporate
purposes of the Company.
(b) Recent Historical Operating Losses, Retained Earnings Deficit. Since
1987, the Company has experienced losses before income taxes, discontinued
operations and extraordinary items. These losses were the result of operating
losses at certain of its subsidiaries, which were not wholly offset by
operating profits from certain of its other subsidiaries. The Company's
current strategy is to consolidate certain related operating businesses and to
improve their operating results, while continuing to make investments in new
ventures or make selected divestitures based on market conditions.
For the quarter ended March 31, 1994, the Company's loss from operations
before income taxes and extraordinary items was $2,394,000, as compared to a
loss of $2,939,000 for the quarter ended March 31, 1993. For the year ended
December 31, 1993, the Company's loss from operations before income taxes and
extraordinary items was $8,371,000, as compared to a loss of $13,178,000 for
the year ended December 31, 1992. As of March
-7-
<PAGE>
31, 1994, the Company had stockholders' equity of $66,158,000 and a deficit of
$41,488,000. Losses in future years may adversely affect the Company's ability
to service its debt.
(c) Ratio of Earnings to Fixed Charges. The ratio of earnings to fixed
charges represents the number of times that fixed charges were covered by
income before income taxes, discontinued operations and extraordinary items,
as adjusted by such fixed charges. For the three months ended March 31, 1994
and the year ended December 31, 1993, the Company had a deficiency in the
coverage of fixed charges to earnings before fixed charges of $2,326,000 and
$10,747,000, respectively.
(d) Holding Company; Dependence on Subsidiaries. The Company is
primarily a holding company, which is a legal entity separate and distinct
from its various operating subsidiaries. As a holding company, the Company is
dependent upon management fees, dividends and other payments or advances from
operating subsidiaries as its principal source of cash to service outstanding
debt. The ability of the Company to obtain cash from an operating subsidiary
depends upon, among other factors, the operating results of the subsidiary,
restrictions on payments to the Company imposed by creditors of the
subsidiary, restrictions on payments to the Company imposed by other
agreements governing the subsidiary and the degree of dilution of dividend
payments resulting from public ownership of equity securities of the
subsidiary.
As of March 31, 1994, there is currently at the holding company level
approximately $7,748,000 of cash and cash equivalents. Duratek, under its
Revolving Line of Credit, is prohibited from making any payments to the
Company. GPS, under the terms of its Amended and Restated Revolving Credit and
Term Loan and Security Agreement, may only pay the Company an amount equal to
80% of the amount GPS would have paid in federal income taxes if it filed its
federal income tax return on a stand-alone basis. However, GPS may be
prohibited from distributing approximately $1,200,000 of management fees and
tax sharing payments to the Company in 1994 if GPS were to be in violation of
certain covenants in its bank agreements.
The rights of the Company and its creditors to participate in the assets
of any of the Company's subsidiaries upon bankruptcy or liquidation of a
subsidiary are subject to the prior claims of the subsidiary's creditors
except to the extent the Company may itself be a creditor with recognized
claims against the subsidiary; however, the Company's claims may be
subordinate to the claims of any secured creditors of the subsidiary. See "The
Company."
(e) Currency Fluctuations. On March 31, 1994, the value of the Swiss
Franc to the U.S. dollar was approximately 1.412 to 1. At March 31, 1994, the
Company had an aggregate of SFr. 26,318,000 of Swiss Franc denominated
indebtedness outstanding, of which SFr. 23,823,000 represents principal amount
outstanding and SFr. 2,495,000 represents interest accrued thereon. Foreign
currency valuation fluctuations may adversely affect the results of operations
and financial condition of the Company. In order to protect itself against
foreign currency valuation fluctuations, the Company has at times swapped or
hedged a portion of its obligations denominated in Swiss Francs; however, at
March 31, 1994, the Company had not swapped or hedged any of its Swiss Franc
obligations. If the value of the Swiss Franc to the U.S. dollar increases, the
Company will recognize transaction losses on its Swiss Franc obligations.
There can be no assurance that the Company will be able in the future to swap
or hedge obligations denominated in foreign currencies at prices acceptable to
the Company, or at all. The Company will review its policy as to hedging on a
continuing basis.
(f) Ranking of Common Stock; Certain Bankruptcy Law Considerations.
Consummation of the Offer may have significant bankruptcy consequences for
exchanging holders of Bonds. In general, a note, bond or other evidence of
indebtedness represents a potential bankruptcy claim equal to its face amount,
plus accrued and unpaid interest as of the date of the commencement of the
bankruptcy case, less any unamortized original issue discount. The
determination of original issue discount for bankruptcy purposes may not be
the same as that applicable for tax purposes. Equity securities rank below all
debt claims and claims of holders of common stock rank below claims of holders
of preferred stock. Accordingly, exchanging holders will have a bankruptcy
claim that ranks below the claims of all remaining holders of Bonds, as well
as $16,006,000 of other long-term indebtedness less current maturities at
March 31, 1994.
-8-
<PAGE>
4. Risks to Non-Exchanging Holders. Holders of the Bonds who do not
participate in the Offer may be subject to certain adverse consequences.
The purchase of Bonds pursuant to the Offer will reduce the aggregate
principal amount of Bonds that might otherwise trade publicly, will reduce the
number of holders of Bonds and could adversely affect the liquidity and market
value of the remaining Bonds held by the public. A debt security with a
smaller float may command a lower price than a comparable debt security with a
greater float. Therefore, the market price for an Old Bond may be adversely
affected to the extent that the principal amount of the Bonds tendered
pursuant to the Offer reduces the float of the Bonds. This reduced float may
also tend to make the trading price more volatile.
5. Price Range of the Bonds. The Bonds are traded in Switzerland on the
Stock Exchanges of Zurich, Basle and Geneva. The following table sets forth
the range of high and low sale prices of each of the classes of Bonds in
percentages of principal amount as reported by the Zurich Stock Exchange for
the periods set forth below:
6% Convertible Bonds due 1995
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
---- --- ---- --- ---- ---
56% 37% 85% 46% 93% 80%
<CAPTION>
5 3/4% Convertible Bonds due 1995
1992 1993 1994
---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
---- --- ---- --- ---- ---
53% 38% 80% 42% 91% 70%
<CAPTION>
5 5/8% Convertible Bonds due 1996
1992 1993 1994
---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
---- --- ---- --- ---- ---
55% 36.5% 80% 48% 91% 75%
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
8% Bonds due 1995
1992 1993 1994
---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
---- --- ---- --- ---- ---
55% 37% 85% 38.5% 95% 81%
<CAPTION>
7% Dual Currency Convertible Bonds due 1996
1992 1993 1994
---- ---- ----
(through April 30, 1994)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
---- --- ---- --- ---- ---
65% 45% 75% 47% 88% 76%
</TABLE>
On April 29, 1994, the last sales prices of the 6% Convertible Bonds due
1995, the 5 3/4%Convertible Bonds due 1995, the 5 5/8% Convertible Bonds due
1996, the 8% Bonds due 1995 and the 7% Bonds due 1996 on the Zurich Stock
Exchange were 86%, 82%, 82%, 88% and 83% of the principal amount, respectively.
Bondholders are urged to obtain a current market quotation for the Bonds prior
to tendering Bonds pursuant to the Offer.
The Company has not sold any Bonds during the three-month period preceding
the Offer.
During the forty (40) business days prior to the public announcement by the
Company of the Offer, the Company has not repurchased any of the Bonds.
-10-
<PAGE>
6. Selected Consolidated Financial Information of the Company.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at March 31, 1994 to give effect to the exchange of the Common Stock for 60% of
the Bonds, as if such exchange had occurred on March 31, 1994. The Company's
Swiss Franc denominated indebtedness has been translated at an exchange rate of
approximately SFr. 1.412 per US $1.00.
<TABLE>
<CAPTION>
March 31, 1994
--------------------------------
Outstanding Pro Forma
----------- ---------
(unaudited, in thousands)
<S> <C> <C>
SHORT-TERM DEBT
Current maturities of long-term debt............... $ 17,281 $ 10,666
Line of credit and other agreements................ 26,537 26,537
-------- --------
Total short-term debt.......................... 43,818 37,203
======== ========
LONG-TERM DEBT LESS CURRENT MATURITIES
Bonds
5.75% Convertible Swiss Bonds due 1995........ $ 2,493 $ 997
5.625% Convertible Swiss Bonds due 1996....... 3,353 1,341
7% Dual Currency Convertible Bonds due 1996... 3,926 1,570
12% Subordinated Debentures due 1997.......... 6,790 6,790
5% Convertible Bonds due 1999................. 2,079 2,079
Mortgage notes payable, equipment lease
obligations and other......................... 7,137 7,137
-------- --------
25,778 19,914
-------- --------
Common stock issued subject to repurchase
obligation.................................... 3,876 3,876
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share,
10,000,000 shares authorized, no shares
issued and outstanding............................ -------- --------
Common stock...................................... 192 233(a)(b)
Class B capital stock............................. 2 2
Capital in excess of par value.................... 107,452 120,635(a)(b)
Deficit........................................... (41,488) (41,578)(b)(c)
-------- --------
Total stockholders' equity.................... 66,158 79,292
-------- --------
Total capitalization.......................... $ 95,812 $103,082
======== ========
</TABLE>
- --------------------
(a) Assumes the Company issues 3,925,028 shares of its Common Stock at a price
of $3.50 per share in exchange for debt and accrued interest with a value
of $12,639,000, which represents an 8% discount to market value.
(b) Assumes the Company issues 167,243 shares of its Common Stock at a price of
$3.50 per share with a guaranteed value of approximately $585,000 in
payment of commissions and fees to the Exchange Agents.
(c) Assumes a loss in the Offer (net of taxes) of $90,000.
-11-
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
The following table sets forth the unaudited consolidated condensed balance
sheet of the Company at March 31, 1994 and as adjusted to give effect to the
exchange of the Common Stock for 60% of the Bonds, as if such exchange had
occurred on March 31, 1994.
<TABLE>
<CAPTION>
ASSETS
Actual Pro Forma
------ ---------
(unaudited, in thousands)
<S> <C> <C>
Current Assets
- --------------
Cash and cash equivalents............ $ 9,848 $ 9,598(a)
Accounts and other receivables....... 7,667 37,667
Inventories.......................... 26,616 26,616
Costs and estimated earnings in
excess of billings
on uncompleted contracts........... 15,528 15,528
Prepaid expenses and other
current assets..................... 3,613 3,613
-------- --------
Total current assets.............. 93,272 93,022
-------- --------
Investments and advances................ 27,282 27,282
-------- --------
Property, plant and equipment at cost... 35,255 35,255
Less accumulated depreciation........... (20,786) (20,786)
-------- --------
14,469 14,469
-------- --------
Intangible assets, net of amortization.. 29,607 29,452(a)
-------- --------
Investment in financed assets........... 2,246 2,246
-------- --------
Other assets............................ 3,226 3,226
-------- --------
$170,102 $169,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Current maturities of
long-term debt.................... $ 17,281 $ 10,666
Short-term borrowings................ 26,537 26,537
Accounts payable and
accrued expenses.................. 22,492 21,432(b)
Billings in excess of cost and
estimated earnings on
uncompleted contracts............. 4,693 4,693
-------- --------
Total current liabilities......... 71,003 63,328
-------- --------
Long-term debt, less current maturities. 25,778 19,914
-------- --------
Minority interests...................... 3,287 3,287
-------- --------
Common stock issued subject to
repurchase obligation.................. 3,876 3,876
-------- --------
Stockholders' equity
- ---------------------------
Common stock......................... 192 233
Class B capital stock................ 2 2
Capital in excess of par value....... 107,452 120,635(c)(d)
Deficit.............................. (41,488) (41,578)(d)(e)
-------- --------
Total stockholders' equity........... 66,158 79,292
-------- --------
$170,102 $169,697
======== ========
</TABLE>
-12-
<PAGE>
- ------------------------
(a) Assumes a reduction of deferred finance costs of $155,000 and cash
expenses of $250,000.
(b) Assumes a reduction in accrued expenses, as a result of reduced accrued
interest, of $1,060,000.
(c) Assumes the Company issues 3,925,028 shares of its Common Stock at a price
of $3.50 per share in exchange for debt and accrued interest with a value
of $12,639,000, which represents an 8% discount to market value.
(d) Assumes the Company issues 167,243 shares of its Common Stock at a price of
$3.50 per share with a guaranteed value of approximately $585,000 in
payment of commissions and fees to the Exchange Agent.
(e) Assumes a loss in the Offer (net of taxes) of $90,000.
-13-
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
The following table sets forth the consolidated condensed statement of
operations of the Company and its subsidiaries for the fiscal year ended
December 31, 1993 and quarter ended March 31, 1994 and as adjusted to reflect
the exchange of the Common Stock for 60% of the Bonds.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993: Quarter Ended March 31, 1994
----------------------------- ------------------------------
Actual Pro Forma Actual Pro Forma
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 189,683 $ 189,683 $ 45,232 $ 45,232
Investment and other income, net 3,358 3,213(a) (752) (229)(a)
--------- --------- --------- ---------
193,041 192,896 44,480 45,003
--------- --------- --------- ---------
Costs and expenses
Cost of goods sold 162,164 162,164 36,985 36,985
Selling, general & administrative 35,600 35,600 8,198 8,198
Research & development 2,847 2,847 120 120
Interest 8,325 7,129(b) 1,503 1,199(b)
--------- --------- --------- ---------
208,936 207,740 46,806 46,502
--------- --------- --------- ---------
Gain on disposition of stock of
a subsidiary and an affiliate 3,795 3,795 -- --
--------- --------- --------- ---------
Gain on issuance of stock by a
subsidiary 1,353 1,353 -- --
--------- --------- --------- ---------
Minority interests 2,376 2,376 (68) (68)
--------- --------- --------- ---------
Loss before income taxes, discontinued
operations and extraordinary items (8,371) (7,320) (2,394) $ (1,567)
Income tax benefit (expense) 575 575 (66) (66)
--------- --------- --------- ---------
Loss before discontinued operations
and extraordinary items $ (7,796) $ (6,745) $ (2,460) $ (1,633)
========= ========= ========= =========
Loss per share before discontinued
operations and extraordinary item $ (.46) $ (.32) $ (.13) $ (.07)
========= ========= ========= =========
Fixed charges in excess of earnings $ 10,747 $ 9,696 $ 2,326 $ 1,499
========= ========= ========= =========
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, 1993 March 31, 1994
----------------- ----------------
<S> <C> <C>
(a) The change in investment and
other income, net will be the
result of the following factors
(in thousands):
Reduced investment income as a
result of the use of cash
and cash equivalents in the
Offer $ (10) $ (3)
Elimination of foreign
currency transaction gain/
loss as a result of the Offer (135) 526
----- ---
$(145) $523
====== ====
(b) The decrease in interest expense
will be caused by the follow-
ing factors (in thousands):
Interest on the Bonds $ 831 $212
Amortization of Original Issue
discount on the 8% Bonds 233 59
Amortization of the deferred
finance costs on the Bonds 132 33
------ ----
$1,196 $304
====== ====
</TABLE>
-15-
<PAGE>
7. Acceptance for Exchange and Payment. Upon the terms and subject to
the condition to acceptance for exchange set forth in Section 14 and the other
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the Company will
accept for exchange up to 60% of the aggregate principal amount outstanding of
the Bonds validly tendered on or prior to the Expiration Date and not properly
withdrawn as permitted by Section 9. In the event that Bonds in excess of 60%
of the aggregate principal amount of the outstanding Bonds have been properly
tendered by the Expiration Date and not withdrawn, the Company may, upon the
terms and subject to the conditions of the Offer, either (i) accept Bonds
tendered on a pro rata basis according to the aggregate principal amount of
all Bonds properly tendered by the Expiration Date and not withdrawn or (ii)
amend the terms of the Offer by notice to holders of the Bonds, in which case
the Offer shall remain open for an additional ten (10) business days from the
date that such notice is first given. If not more than 60% in aggregate
principal amount of the Bonds are properly tendered by the Expiration Date and
not withdrawn, all Bonds so tendered and not withdrawn will, upon the terms
and subject to the conditions of the Offer, be exchanged.
Subject to the conditions set forth in Section 13, the Payment Date for
Bonds accepted for payment by the appropriate Exchange Agent will be July 25,
1994, provided, however, if the Company shall have extended the period of time
for which the Offer is open, the Payment Date shall be the tenth (10th)
business day after the Expiration Date of the Offer. The term "Expiration
Date" means 12:00 Noon, Geneva time, on July 11, 1994, unless the Company in
its sole discretion shall have extended the period of time for which the Offer
is open, in which event the term "Expiration Date" shall mean the latest time
and date, not beyond 12:00 Noon, Geneva time on July 25, 1994 at which time
the Offer, as so extended by the Company, shall expire. In all cases, payment
for Bonds exchanged pursuant to the Offer will be made only upon timely
receipt by the appropriate Exchange Agent at its specified office in
Switzerland of such Bonds, together with any and all unmatured and matured but
unpaid coupons. In the event that unmatured and matured but unpaid coupons are
not submitted with Bonds tendered, such Bonds will not be accepted for tender.
The respective amount of Swiss Bond Accrued Interest will be paid on the Old
Swiss Franc Bonds and the U.S. Bond Accrued Interest will be paid on the Old
U.S. Dollar Bonds, all to be paid in the Company's Common Stock. Tenders of
Old Swiss Franc Bonds will be accepted only in principal amounts of SFr. 1,000
and integral multiples thereof and tenders of Old U.S. Dollar Bonds will be
accepted only in principal amounts of US $1,000 and integral multiples
thereof. If fractional Bonds result from proration, such fractions shall be
rounded up to the nearest integral multiple of SFr. 1,000 or US $1,000, as the
case may be.
For purposes of the Offer, the Company shall be deemed to have accepted for
exchange tendered Bonds on the Expiration Date, provided that the condition to
the Offer set forth in Section 14 has been waived or satisfied, unless it gives
notice to the contrary in writing or by telex to the appropriate Exchange
Agents. The Company will give notice and the Exchange Agents shall publish such
notice in the Feuille Officielle Suisse du Commerce and a daily newspaper in the
cities of Basle, Geneva and Zurich no later than five (5) business days after
the Expiration Date. Payment for Bonds so accepted for exchange will be made on
the Payment Date, unless the conditions set forth in Section 13 have not been
waived or satisfied, by delivery of the stock certificates representing the
Common Stock to the Exchange Agents at their specified offices in Switzerland.
If any tendered Bonds are not exchanged for any reason, the Exchange
Agents will return the Bonds tendered to the holder thereof without expense to
the tendering bondholder as promptly as practicable after the expiration or
termination of the Offer.
8. Procedures for Tendering Bonds. In order to exchange Bonds validly
pursuant to the Offer, a Letter of Instructions for acceptance of the Offer
must be submitted by or on behalf of each beneficial owner of Bonds to one of
the Exchange Agents in Switzerland. Any financial institution holding Bonds on
behalf of one or more beneficial owners may submit one Letter of Instructions
for all such beneficial owners. Bonds held directly by a beneficial owner must
be tendered, through a bank in Switzerland, to an Exchange Agent accompanied
by a Letter of Instructions signed by such beneficial owner. Tenders on behalf
of bondholders will be valid only if made through banks in Switzerland and
received by Banque Scandinave en Suisse, with respect to the 8% Bonds, or Bank
Leu AG, with respect to all of the Bonds except the 8% Bonds, prior to the
Expiration Date.
-16-
<PAGE>
Except as set forth below, all questions as to the validity, form and
eligibility (including time of receipt) of any tendered Bonds pursuant to any
of the procedures described above will be determined in the sole discretion of
the appropriate Exchange Agent, whose decision will be final and binding. The
Company reserves the absolute right to reject any or all tenders of any Bonds
determined by it, after consultation with the appropriate Exchange Agent, not
to be in proper form or if the acceptance of or payment for such Bonds may, in
the opinion of the Company's counsel, be unlawful or result in adverse tax
consequences to the Company. The Company also reserves the absolute right to
waive any of the conditions of the Offer or, after consultation with the
appropriate Exchange Agent, any defect or irregularity in any tender with
respect to Bonds of any particular bondholder and the Company's interpretation
of the terms and conditions of the Offer will be final and binding. None of
the Company, the Exchange Agents or any other person will be under any duty to
give notification of any defect or irregularity in tender and none shall incur
any liability for failure to give any such notification.
9. Withdrawal Rights. Except as stated in this Section 9, tenders of
Bonds made pursuant to the Offer are irrevocable. Bonds tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely sent or delivered
by or on behalf of the bondholder to the appropriate Exchange Agent and
received by such Exchange Agent prior to the Expiration Date. Any such notice
of withdrawal must specify the name of the bank having tendered on behalf of
the bondholder, the Bonds to be withdrawn and the aggregate principal amount
of Bonds to be withdrawn. Withdrawals may only be made in principal amounts of
SFr. 1,000 or integral multiples thereof in the case of the Old Swiss Franc
Bonds or US $1,000 or integral multiples thereof in the case of the Old U.S.
Dollar Bonds. Bonds tendered pursuant to the Offer may also be withdrawn after
the Expiration Date if the registration statement of the Company with respect
to the Common Stock has not been declared effective by the Commission on or
prior to August 15, 1994.
All questions as to validity (including time of receipt) of notices of
withdrawal will be determined by the appropriate Exchange Agent, in its sole
discretion, which determination will be final and binding. None of the
Company, the Exchange Agents or any other person will be under any duty to
give notification of any defect or irregularity in any notice of withdrawal
and none shall incur any liability for failure to give any such notification.
Withdrawals of Bonds may not be rescinded, and any Bonds withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Bonds may be returned at any subsequent time prior to the Expiration
Date by again following the procedures described in Section 8.
10. Certain Tax Consequences. The following is a summary of certain
Swiss tax consequences and certain United States federal income tax
consequences arising with respect to the Offer. The summary does not address
any tax consequences that may affect a bondholder in any jurisdiction other
than Switzerland and the United States. Each bondholder is urged to consult
his own tax advisor to understand fully the tax consequences of accepting the
Offer or of not accepting the Offer and continuing to own Bonds.
Switzerland. The Offer will not give rise to any stamp taxes on the
exchange of securities.
United States. Under current United States federal income tax law, no
withholding of United States federal income tax will be required on the
payment effected outside the United States to an exchanging holder of Bonds
that is a United States Alien (as defined below) of Common Stock (the
"Exchange Consideration") by the Company or the Exchange Agents provided that
(i) the holder does not actually or constructively own 10 percent or more of
the total combined voting power of all classes of voting stock of the Company
and (ii) the holder is not a controlled foreign corporation that is related to
the Company through stock ownership. The Company has determined and will
certify on and as of the Payment Date that it is not, and at no relevant time
has been, a "United States real property holding corporation" under Section
897(c)(2) of the Internal Revenue Code. Accordingly, an exchanging holder of
Bonds will not be subject to withholding of United States federal income tax
under the United States Foreign Investment in Real Property Tax Act of 1980 on
the receipt of the Exchange Consideration pursuant to the Offer.
Under current United States federal income tax law, a holder of Common
Stock that is a United States Alien will not be subject to withholding of
United States federal income tax on a sale of such stock effected outside
-17-
<PAGE>
the United States, provided that the Company at no time is a United States real
property holding corporation. A holder of Common Stock that is a United States
Alien, upon the distribution of dividends with respect to such stock, ordinarily
will be subject to withholding of United States federal income tax at a rate of
30 percent, unless a lower treaty rate applies. The Company will not pay any
additional amounts in respect of any such withholding tax.
For purposes of this Offering Circular, the term "United States Alien"
means any person who, for United States federal income tax purposes, (i) is a
foreign corporation, a non-resident alien individual, a non-resident alien
fiduciary of a foreign estate or trust, or a foreign partnership one or more
of the members of which is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual or a non-resident alien
fiduciary of a foreign estate or trust and (ii) is not engaged in a trade or
business in the United States (and is not treated as so engaged through a
partnership or otherwise), to which trade or business income in respect of the
Bonds or Common Stock is (or is treated as) effectively connected.
11. Exchange Agents. Banque Scandinave en Suisse, acting through its
specified office in Switzerland, will serve as Exchange Agent with respect to
the exchange of the 8% Bonds, and Bank Leu AG, acting through its specified
office in Switzerland, will serve as Exchange Agent with respect to all other
Bonds. BANQUE SCANDINAVE EN SUISSE and BANK LEU AG may be referred to
individually as the "Exchange Agent" or, collectively, as the "Exchange
Agents."
Each Exchange Agent will receive a fee equal to 3.5% of the aggregate
principal amount of all Bonds tendered for exchange pursuant to this Offer,
and not the United States Offer, plus a bonus if the aggregate amount of Bonds
tendered reaches certain thresholds. In addition, the Exchange Agents will be
reimbursed for their costs and expenses.
Assuming that 60% of the Bonds are tendered for exchange, total fees and
expenses of the Offer, including legal, accounting, investment, banking
presentation and printing fees, are not expected to exceed approximately SFr.
1,180,000 based on the April 30, 1994 exchange rate of 1.4115.
Requests for additional information or additional copies of this Offering
Circular should be directed to the Exchange Agents at their specified offices
in Switzerland.
12. Description of Common Stock.
Description of Common Stock.
As of May 12, 1994 the Company had outstanding two classes of common
stock: 20,310,706 shares of Common Stock, par value $.01 per share, entitled
to one vote per share on all matters, and 250,000 shares of Class B Capital
Stock, par value $.01 per share ("Class B Stock"), entitled to ten votes per
share on all matters, without distinction between classes except when approval
of a majority of each class is required by statute. The Class B Stock is
convertible at any time into shares of Common Stock on a share for share
basis.
Since the Common Stock and Class B Stock do not have cumulative voting
rights, the holders of shares having more than 50% of the voting power, if
they choose to do so, may elect all the directors of the Company and the
holders of the remaining shares would not be able to elect any directors.
The holders of Common Stock and Class B Stock are entitled to share
equally in any dividends (other than stock dividends) that may be declared,
and if any stock dividends are declared, they are to be declared and paid at
the same rate on each class of stock in the shares of such class. In the event
of liquidation, dissolution or winding up of the Company, the holders of the
Common Stock and Class B Stock are entitled to share equally, share and share
alike, in the corporate assets available for distribution to stockholders.
None of the shares of either class has any preemptive or redemption rights or
sinking fund provisions applicable to it, and all the presently outstanding
shares are fully paid and nonassessable.
13. Certain Conditions of the Offer. Notwithstanding any other provision
of the Offer, the Company shall not be required to pay for Bonds on the
Payment Date, and may, in its sole discretion, terminate the Offer
-18-
<PAGE>
if on or after the Expiration Date of the Offer, and prior to the time of
payment for any Bonds tendered, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action,
proceeding or application by or before any court or governmental agency
or other regulatory or administrative agency or commission, in the United
States or elsewhere, by any government or governmental authority or other
regulatory agency or commission in the United States or elsewhere, or by
any other person, (i) challenging the exchange by the Company of Bonds
pursuant to the Offer (or the United States Offer) or seeking to restrain
or prohibit the consummation of the transactions contemplated by the
Offer (or the United States Offer) or seeking to obtain any material
damages or otherwise directly or indirectly relating to the transactions
contemplated by the Offer (or the United States Offer), (ii) making, or
seeking to make, the exchange of, or payment for, some or all of the
Bonds pursuant to the Offer illegal or resulting in a delay in the
ability (including the United States Offer) of the Company to accept for
payment or pay for some or all of the Bonds, or making consummation of
the Offer unduly burdensome to the Company, (iii) imposing, or seeking to
impose, material limitations on the ability of the Company effectively to
acquire or hold or to exercise full rights of ownership of the Bonds
acquired by it, (iv) which, in any event, in the reasonable judgment of
the Company, adversely affect, or may adversely affect, the Company or
any of its subsidiaries, or the value of the Bonds or (v) which, in the
reasonable judgment of the Company might result in a material limitation
in the benefits expected to be derived by the Company as a result of the
transactions contemplated by the Offer (or the United States Offer); or
(b) there shall be any action taken, or proposed or threatened, or
any statute, rule, regulation, judgment, order or injunction (preliminary
or permanent) proposed, sought, enacted, promulgated, entered, enforced
or deemed applicable to the Offer (or the United States Offer), by any
government, governmental authority or other regulatory or administrative
agency or commission or court, in the United States or elsewhere, that,
in the sole judgment of the Company, might, directly or indirectly,
result in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above; or
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any United States
national securities exchange or in the over-the-counter market or on any
Swiss national securities exchange or over-the-counter market, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in Switzerland or in the United States, (iii) the
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States or
Switzerland, (iv) any limitation by any governmental agency (whether or
not mandatory) on, or any other event which, in the sole judgment of the
Company, might affect the extension of credit by banks or other lending
institutions, (v) a suspension of, or limitation on, the free
marketability or convertibility of the currency of the United States
and/or Switzerland or (vi) in the case of any of the foregoing existing
at the time of the commencement of the Offer (or the United States
Offer), a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Company) or may be
waived by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time
and from time to time. Any determination by the Company concerning the events
described in this Section 13 will be final and binding upon all parties.
14. Condition to Acceptance for Exchange. Notwithstanding any other
provision of the Offer, the Company shall not be required to accept Bonds for
exchange on the Expiration Date, and may, in its sole discretion, terminate
the Offer if on the Expiration Date the average of the last sale prices on the
AMEX of the Common Stock for the ten (10) trading days ending five (5) trading
days prior to the Expiration Date is less than $3.00. The foregoing condition
is for the sole benefit of the Company and may be asserted by the Company
regardless of the circumstances giving rise to any such condition (including
any action or inaction by the Company) or may be waived by the Company in
whole or in part at any time and from time to time in its sole discretion. The
failure by the
-19-
<PAGE>
Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right and may be asserted at any time and from time to time. Any
determination by the Company concerning the events described in this Section
14 will be final and binding upon all parties.
15. Miscellaneous. The Offer is not being made to (nor will tenders of
Bonds be accepted from or on behalf of) holders of Bonds in any jurisdiction
in which the Offer or the acceptance thereof would not be in compliance with
the securities or other laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Company not contained in this Offering
Circular or the Letter of Instructions, and, if given or made, such
information or representation must not be relied upon as having been
authorized.
The Company has filed with the Commission a Statement on Schedule 13E-4,
together with exhibits, pursuant to Rule 13e-4 promulgated under the Exchange
Act, furnishing certain additional information with respect to the Offer. Such
Statement and any amendments thereto, including exhibits, may be examined and
copies may be obtained at the same places and in the same manner as set forth
in the Introduction of this Offering Circular with respect to information
concerning the Company (except that such statement will not be available at
the regional offices of the Commission).
June 10, 1994
NATIONAL PATENT DEVELOPMENT CORPORATION
-20-
<PAGE>
ANNEX A
National Patent Development Corporation--Annual Report on Form 10-K/A for the
year ended December 31, 1993, Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, Proxy Statement for the Annual Meeting of Stockholders
held on June 8, 1994.
<PAGE>
EXCHANGE AGENTS
Banque Scandinave en Suisse and Bank Leu AG have agreed to act as the
Exchange Agents in connection with the Offer. Letters of Instructions (or
facsimile copies thereof) and Bonds should be sent or delivered by
bondholders, or their broker, dealer, commercial bank or trust company, to the
Exchange Agents at the appropriate address below.
BANQUE SCANDINAVE EN SUISSE
Cours de Rive 11
1211 Geneva 3
Switzerland
BANK LEU AG
Corporate Finance
Bahnhofstrasse 32
P.O. Box CH-8022
Zurich, Switzerland
<PAGE>
<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
- ------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.01 Par Value American Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
As of March 15, 1994, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $.01 per share, held by non-affiliates
was approximately $87,454,237 based on the closing price of the Common Stock on
the American Stock Exchange on March 15, 1994. None of the Class B Capital
Stock, par value $.01 per share, was held by non-affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the most recent practicable date.
<TABLE>
<CAPTION>
===============================================================================
CLASS OUTSTANDING AT MARCH 15, 1994
- -------------------------------------------------------------------------------
<S> <C>
Common Stock, par value $.01 per share 20,299,388 shares
- -------------------------------------------------------------------------------
Class B Capital Stock, par value $.01 per share 250,000 shares
===============================================================================
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1994 Annual
Meeting of Stockholders is incorporated by reference into Part III hereof.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General Development of Business ............... 1
(b) Financial Information About
Industry Segments ............................. 2
(c) Narrative Description of Business ............. 2
(d) Financial Information About Foreign
and Domestic Operations and Export Sales ...... 14
Item 2. Properties ....................................... 14
Item 3. Legal Proceedings ................................ 16
Item 4. Submission of Matters to a Vote of
Security Holders ................................. 16
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters ......................................... 16
Item 6. Selected Financial Data .......................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 19
Item 8. Financial Statements and Supplementary
Data ............................................ 28
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ...................................... 74
PART III
Item 10. Directors and Executive Officers of the
Registrant ...................................... 74
Item 11. Executive Compensation ........................... 74
Item 12. Security Ownership of Certain Beneficial
Owners and Management ........................... 74
Item 13. Certain Relationships and Related
Transactions .................................... 74
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ......................... 75
<PAGE>
PART I
Item 1. Business
--------
(a) General Development of Business
National Patent Development Corporation (the "Company"), incorporated
in Delaware in 1959, is primarily a holding company, which is a legal entity
separate and distinct from its various operating subsidiaries. The Company's
operations consist of four operating business segments: Physical Science,
Distribution, Optical Plastics and Electronics. The Company also has an
investment in two companies in the Health Care industry.
The Company's Physical Science Group consists of (i) GPS Technologies,
Inc. ("GPS"), an approximately 92% owned subsidiary and (ii) GTS Duratek, Inc.
("Duratek"), an approximately 66% owned subsidiary.
GPS provides a wide range of management and technical training as
well as specialized engineering services to various commercial industries and
the United States government. Principal clients of GPS include electric
utilities, process industries, manufacturing plants, Federal agencies, and the
aerospace industries. In addition, the Company currently owns approximately a
28% investment in General Physics Corporation ("General Physics"), which
provides a wide range of personnel training and technical support services to
the domestic commercial nuclear power industry, United States Departments of
Energy and Defense, as well as environmental engineering, training and support
services to governmental and commercial clients.
Duratek's operations consist of two operating groups: (1)
"Environmental Services" engaged in cleanup of water and other liquids
containing radioactive and/or hazardous (mixed waste) contaminants and minimum
additive vitrification for long-term stabilization of such waste, and
(2) "Consulting and Staff Augmentation" services. Duratek provides services for
various utility, industry, government and commercial clients.
The Company's Distribution Group, incorporated under the name Five Star
Group, Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products.
The Company's Health Care Group consists of an approximately 36%
investment in Interferon Sciences, Inc. ("ISI"). ISI is a biopharmaceutical
company engaged in the manufacture and sale of ALFERON N Injection and the
research and development of other uses of ALFERON N Injection and other alpha
interferon-based formulations for the treatment of certain viral diseases,
cancers, and diseases of the immune system.
The Company currently owns approximately a 14% investment in American
White Cross, Inc. (formerly, NPM Healthcare Products, Inc., "White Cross").
White Cross is a
<PAGE>
leading manufacturer and marketer of private label adhesive and cotton based
health and personal care products.
The Company's Optical Plastics Group, through its wholly owned
subsidiary MXL Industries, Inc. ("MXL") manufactures molded and coated optical
products, such as shields and face masks and non-optical plastic products.
The Company's Electronics Group, through its subsidiary Eastern
Electronics Mfg. Corporation is engaged in contract manufacturing, such as
printed circuit board assembly for the electronics industry.
(b) Financial Information About Industry Segments
Certain financial information about business segments (classes of
similar products or services) is included in Note 17 of Notes to Consolidated
Financial Statements.
(c) Narrative Description of Business
RECENT DEVELOPMENTS
GENERAL PHYSICS CORPORATION AND
GPS TECHNOLOGIES, INC. PROPOSED TRANSACTION
- -------------------------------------------
On January 13, 1994, General Physics signed a Letter of Intent with
GPS and the Company to acquire substantially all of the operating assets of
GPS and certain of its subsidiaries. The Company currently owns approximately
92% of the outstanding common stock of GPS and approximately 28% of the
outstanding common stock of General Physics. On March 28, 1994 the Board of
Directors of both GPS and General Physics approved the transaction. The
parties are currently negotiating the terms of a definitive agreement and the
transaction is anticipated to close as soon as practicable in the second half
of 1994, if all necessary approvals are obtained and conditions satisfied.
The purchase price has a current present value of approximately $36
million based on current market prices. The purchase price will be payable to
GPS as follows: $10 million cash; 3.5 million shares of General Physics common
stock valued at approximately $13,500,000 (based upon the price per share of
General Physics common stock prior to the announcement of the transaction which
was $3.875); warrants to acquire 1,000,000 shares of General Physics common
stock at $6.00 per share valued at approximately $1,300,000; warrants to acquire
up to 475,644 additional shares of General Physics common stock at $7 per share
valued at approximately $500,000; a $15 million ten-year senior subordinated
debenture (the "Debentures") valued at approximately $10,700,000, accruing
interest at 6% per annum, interest payable only for the first five years, with
70% of principal payable in equal quarterly installments during the remaining
five years until maturity. The values assigned to each component of
consideration were based upon discussions with the
2
<PAGE>
independent investment banker to the Independent Committee of General Physics
and the investment banker to GPS. Portions of the cash and stock consideration
of the purchase price will be (a) used to repay outstanding bank debt of
$5,650,000 (as of December 31, 1993) and long-term debt of GPS of $8,809,000
(as of December 31, 1993) to be repaid to the Company. In addition $1.5
million of Debentures are held in escrow for the benefit of General Physics in
connection with certain indemnification obligations.
The transaction was recommended by an Independent, Committee of General
Physics' Board of Directors and was approved by the Board of Directors of both
General Physics and GPS and is contingent upon the occurrence of certain
events, including, without limitation: approval of the transaction by the
stockholders of both General Physics and GPS.
The Company anticipates that if the aforementioned transaction is
consummated, it will own approximately 52% of the outstanding common stock of
General Physics, and if the Company were to exercise all of its warrants, it
will own approximately 58% of the outstanding common stock of General Physics.
Although an agreement in principle has been reached, there can be no
assurance that a definitive agreement will be successfully negotiated and
signed, or that the transaction will close as anticipated.
PHYSICAL SCIENCE GROUP
GPS TECHNOLOGIES, INC.
- ----------------------
General
GPS Technologies, Inc. ("GPS"), provides a wide range of management and
technical training as well as specialized engineering consulting services to
various industries and the United States Government. GPS's principal clients
include electric utilities, process industries, manufacturing plants, Federal
agencies, and the aerospace industry. As of December 31, 1993, GPS and its
subsidiaries employed nearly 800 people and maintained 27 office locations
throughout the United States.
GPS is organized into three operating Business Units: the Training and
Technical Services Division Business Unit, the Engineering and Technical
Services Business Unit, and the Federal Systems Business Unit. The Training &
Technical Services Business Unit, and the Engineering & Technical Services
Business Unit are each comprised of several Strategic Business Units ("SBUs"),
with each SBU focused on a specific customer, project, industry, product,
service, or geographic area or some combination thereof. GPS Technologies,
Inc. Federal Systems Group, a wholly-owned subsidiary of GPS, forms the
Federal Systems Business Unit and is comprised of three divisions, each
providing services to a specifc segment of the Federal government. GP
Environmental Services, Inc. ("GPES"), General Physics Asia Pte. Ltd., and
General Physics (Malaysia) Sdn. Bhd., all wholly-owned
3
<PAGE>
subsidiaries of GPS, operate with other SBUs within the Engineering & Technical
Services Business Unit.
The Training & Technical Services Business Unit
The Training & Technical Services Business Unit focuses on the human
performance improvement needs of GPS'commercial and government customers,
providing technical training and other technical services to customers who
design, operate, and maintain equipment and facilities. This Business Unit
analyzes the human, organizational, and technical issues confronting its
customers and recommends solutions to improve performance. Business Unit staff
possess expertise in a wide variety of subject matter and instruction design,
with a subject matter diversity frequently allowing GPS to supplement the
expertise within the customer organization and offer comprehensive, turn-key
solutions.
Customers of the Training & Technical Business Unit represent a wide
range of industries with diverse technical and geographic needs. This Business
Unit is organized into eleven SBUs.
The Engineering & Technical Services Business Unit
The Engineering & Technical Services Business Unit provides engineering
services to the Government, utilities and petrochemical industries.
Multi-discipline capabilities include mechanical, structural, chemical,
electrical, environmental, and systems engineering, augmented with
nondestructive examination, industrial chemistry, and computer aided
design/drafting technical services. Specialized engineering expertise is
recognized nationally in areas of mechanical integrity programs including
design, analysis, inspection and safety of capital intensive and inherently
hazardous facilities and systems, and in electric power generation including
operations, maintenance and performance engineering.
This Business Unit's engineering and technical services are designed to
increase reliability and availability of plants and facilities, reduce
probability of component failure and address consequences of component or
system failure. Components include pressure vessels, above and underground
tanks, boilers, piping systems, rotating equipment and associated
instrumentation and controls. This Business Unit also provides a full service
environmental analytical laboratory with certified specialization in soils,
water, and military ordinance analysis and testing. The Engineering &
Technical Services Business Unit is comprised of seven SBUs.
The Federal Systems Business Unit
GPS Technologies, Inc. Federal Systems Group, a wholly-owned
subsidiary of GPS, is comprised of three divisions providing technical services
to a variety of commands within the Department of the Navy and other Federal
government agencies. These services include program management support, multi-
media/video production, technical training, quality
4
<PAGE>
assurance and independent verification and validation of weapon systems,
weapon systems life cycle support,and full spectrum integrated logistics
support. Major customers include NAVAIR, NAVSEA, Naval Research, Development,
Test and Evaluation Laboratories, and related Naval commands. Additionally,
the Federal Systems Business Unit provides services to several non-DOD
agencies of the Federal Government, including the Internal Revenue Service,
the Office of Personnel Management and the Department of Energy. The Business
Unit is organized into three divisions.
GP International Engineering and Simulation, Inc. provides real-time,
high fidelity, engineering grade modeling and simulation of nuclear power
plant systems for inclusion in new full-scale power plant control room
simulators, such as in used in training simulators worldwide. Similar services
are also provided to upgrade existing simulators. Simulators and engineering
services are provided to a variety of domestic, European, and far eastern
clients.
Customers
GPS provides services to more than 320 customers,including several of the
largest companies in the United States. Other significant customers include
the Department of the Navy, the Department of the Air Force, the Department of
the Army, major automotive manufacturers, major defense contractors and other
United States Government agencies. Revenue from the United States Government
accounted for approximately 46% of GPS' revenue for the year ended December
31, 1993. However, such revenue was derived from many separate contractors and
subcontracts with a variety of Government agencies and contractors, that are
regarded by GPS as separate customers. United States Government contracts
generally are terminable by the United States Government at any time. However
no significant terminations have occurred.
Contracts
GPS is currently providing services under more than 500 contracts, many
of which are General Service Agreements pursuant to which multiple purchase
orders are placed. GPS'contracts with its customers provide for charges on a
time-and-materials basis, a fixed-price basis and a cost-plus-fee basis.
Competition
The principal competitive factors in GPS's markets are the experience
and capability of technical personnel, performance, reputation and price. GPS's
principal resource is its technical personnel.
5
<PAGE>
GTS DURATEK, INC.
- -----------------
General
GTS Duratek, Inc. ("Duratek") was incorporated in the State of Delaware
in December 1982. At December 31, 1993 Duratek was an approximately 66%
controlled subsidiary of the Company.
Duratek's operations consist of two operating groups: (i)
"Environmental Services", engaged in cleanup of water and other liquids
containing radioactive and/or hazardous (mixed waste) contaminants and
in-furnance vitrification for long-term stabilization of such waste, and (ii)
"Consulting and Staff-Augmentation" services. Duratek provides services for
various utility, industry, government and commercial clients.
During 1992, Environmental Services received a U.S. Department of Energy
("DOE") funded contract called MAWS for minimum additive waste stabilization.
This agreement enabled Environmental Services to further develop its
vitrification technology being used for processing actual mixed waste in a
demonstration at the DOE's Fernald facility.
During 1993 Duratek designed, constructed and operated a 300
kilogram per day vitrification melter ("Duramelter") at Fernald under the
first phase of the MAWS project and began the second phase requiring
processing of actual mixed waste through the melter that it designed and built
at Fernald under varying controlled operating conditions. During 1993, Duratek
was also awarded a $1.2 million contract to study the chemical composition of
waste streams at DOE sites across the country to determine their suitability
for conversion into glass using the MAWS technology. Additionally, at the end
of 1993 Duratek was awarded a $13.9 million three year contract to stabilize
700,000 gallons of mixed waste sludges at the DOE's Savannah River nuclear
weapons production site. This project is Duratek's first commercial scale
project using its vitrification technology to convert the nuclear weapons
by-product waste materials into glass for long term stabilization and storage.
Consulting and Staff Augmentation revenues decreased by 12% due to
lower utilization of contract services by its commercial nuclear power
customers. This decrease resulted from an overall effort by electric utilities
to reduce operating costs in response to competitive pressures to become low
cost producers of electric power. The group continued to provide support to
Duke Power, Vermont Yankee, New York Power Authority, Tennessee Valley
Authority, GPUN, the DOE, and to a number of other utility, commercial, and
government customers. Duke Power accounted for approximately 20% of Duratek's
revenue in 1993. In addition, new service contracts were won with Philadelphia
Electric and Duke Power. In response to the changing market conditions Duratek
implemented additional cost reduction efforts and expanded services to include
higher margin non-destructive examination (NDE) and professional health
physics training and consulting.
6
<PAGE>
Environmental Services
Environmental Services provides products and services to support the
DOE and its prime contractors in research and development, development and
implementation of minimum additive vitrification (glass making) process for
long-term waste stabilization, waste water cleanup, advanced site remediation
processes, consulting, and analysis. Environmental Services' principal
products are its proprietary DURASILR ion exchange media, its Enhanced Volume
Reduction (EVRTM) processing system, Heat Enhanced Dewatering (HEDTM) system
and Integrated Nuclear Waste Removal System which is a combination of EVR and
HED. These systems and the DURASIL ion exchange media are similar to those
products formerly used in the domestic commercial nuclear power plant
low-level radioactive waste business sold to Chem-Nuclear Systems, Inc.
("Chem-Nuclear") in 1990. Duratek continues to sell DURASIL products to
Chem-Nuclear. Duratek also has the right to sell processing systems and ion
exchange media to government agencies such as the DOE and Department of
Defense ("DOD") and to nuclear power plants outside the U.S. In addition to
liquid waste treatment, Environmental Services is engaged in the development
of in-furnace vitrification for long-term stabilization of mixed waste.
DOE's Five Year Plan states that environmental cleanup and
refurbishment of inactive DOE nuclear facilities is a critical objective. Many
of the remediation tasks at these facilities involve dealing with wastes that
are both radioactive and hazardous. Restrictions on disposal of these "mixed"
wastes and limited burial space further compound the problem. The DOE and its
prime contractors are looking for innovative new approaches for separating the
radioactive and hazardous components and for long-term stabilization of these
wastes. Management believes that its experience in mixed waste streams and its
newly developed vitrification technology give Duratek an advantage in this
market.
Consulting and Staff Augmentation
Duratek's Consulting and Staff Augmentation Group ("Consulting")
provides technicians, specialists, and professionals in a wide range of
consulting, training and staff augmentation services for a broad base of
utility, industrial, commercial, and government clients.
According to the Nuclear News publication of "The World List of
Nuclear Power Plants", March 1993, there are 119 nuclear power generating units
in the United States. Of that number, approximately 107 are operational and the
remainder are in long-term shutdown or under construction. To control costs,
utilities maintain their permanent staffs at the level needed for steady-state
power operations. They supplement their full-time staffs during refueling and
maintenance outages with skilled contract personnel. These temporary personnel
typically work under the general supervision of members of the full-time staffs
of utilities.
7
<PAGE>
Although services for operating nuclear power plants provides a
considerable market, the fact that no new plants have been ordered in over 10
years means that the current market will expand through incorporation of
changes required by new regulations; extensive overhaul required to extend the
life of aging plants; replacement of major components such as steam
generators; startup of newly built plants and those recovering from long-term
shutdown; and decommissioning of plants that have reached the end of their
useful lives.
Building on its solid base of nuclear power industry clients, Duratek
has expanded its services in quality assurance/control, radiation protection,
computer and communications, and environmental technologies. Duratek's
potential client base has been expanded to include other industries,
government agencies and commercial businesses. Since many of the skills needed
for support at commercial nuclear power plants are readily transferable to the
DOE cleanup market, Duratek is also expanding its consulting and staff
augmentation services in that area.
GENERAL PHYSICS CORPORATION
- ---------------------------
The Company currently owns approximately a 28% investment in General
Physics Corporation ("General Physics"). General Physics provides a wide range
of personnel training, engineering, environmental and technical support
services to the domestic commercial nuclear power industry and to the DOE and
DOD. General Physics believes it is a leader in the field of developing
training materials, conducting training programs and providing support
services to operators, technical staff and management personnel at commercial
nuclear power plants and at nuclear weapons production and waste processing
sites in the United States.
General Physics currently provides services to more than 400 clients,
including eight of the largest electric power companies in the United States
and four prime contractors serving the DOE. During 1993, Westinghouse Savannah
River Company ("Westinghouse"), a prime contractor at DOE facilities,
accounted for approximately 23% of General Physics' revenue. No other customer
accounted for more than 10% of General Physics' revenue during 1993. Prior to
October, 1988, when it started its DOE Services business, the Company derived
virtually all of its revenue from contracts with nuclear utilities.
From late 1988 through mid 1992, General Physics experienced growth in
revenue primarily from services provided to the DOE at its Savannah River site
under subcontracts with Westinghouse, and to a lesser extent from services
provided to the commercial nuclear power industry. During 1992 and 1993,
General Physics experienced lower levels of contract activity at DOE
facilities which resulted in declining revenue. General Physics Nuclear
Services revenue was adversely affected in 1993 by cost reduction efforts at
many commercial nuclear utilities which are expected to continue.
Environmental Services revenue increased slightly in 1993 and General Physics
was recently awarded a one-year contract with
8
<PAGE>
four option years to provide environmental engineering support services at
the DOD's Aberdeen Proving Ground. This contract has a potential value of
approximately $17 million if all option years are exercised.
In January 1994, General Physics acquired substantially all of the
operating businesses of Cygna Energy Services (CES), other than its non-nuclear
seismic engineering business. CES provides design engineering, seismic
engineering, systems engineering, materials management and safety analysis
services to the commercial nuclear power industry and to the DOE.
In January 1994, General Physics also entered into a letter of intent
to acquire substantially all of the assets and operations of GPS. GPS provides
a wide range of training, engineering, technical support and analytical
services to various commercial industries, fossil powered electric generating
plants and the DOD. Although an agreement in principle has been reached, there
can be no assurance that a definitive agreement will be successfully
negotiated or that the transaction will close as anticipated. See "Recent
Developments - General Physics' Corporation and GPS Technologies, Inc. Proposed
Transaction".
DISTRIBUTION GROUP
FIVE STAR GROUP, INC.
- ---------------------
The Distribution Group, incorporated under the name Five Star Group,
Inc. ("Five Star"), is engaged in the wholesale distribution of home
decorating, hardware and finishing products. Five Star has three strategically
located warehouses and office locations, with approximately 380,000 square
feet of space in New Jersey, New York and Connecticut, which enables Five Star
to service the market from Maine to Virginia.
Five Star is the largest distributor in the U.S. of paint sundry items,
interior and exterior stains, brushes, rollers and caulking compounds and
offers products from leading manufacturers such as Olympic, Cabot, Thompson,
Dap, 3-M, Minwax and Rustoleum. Five Star distributes its products to retail
dealers which include discount chains, lumber yards, "do-it-yourself" centers,
hardware stores and paint suppliers principally in the northeast region. It
carries an extensive inventory of the products it distributes and provides
delivery generally within 48 to 72 hours from the placement of an order.
The primary working capital investment for Five Star is inventory.
Inventory levels will vary throughout the year reflecting the seasonal nature of
the business. Five Star's strongest sales are typically in March through
October because of strong seasonal consumer demand for its products. As a
result, inventory levels tend to peak in the spring and reach their lowest
levels in late fall.
The largest customer accounted for approximately 12% of Five Star's
sales in 1993 and its 10 largest customers accounted for approximately 29% of
such sales. No other
9
<PAGE>
customer accounted for in excess of 10% of Five Star's sales in 1993. All such
customers are unaffiliated companies and neither Five Star nor the Company has
a long-term contractual relationship with any of them.
Competition within the industry is intense. There are much larger
national companies commonly associated with national franchises such as
Servistar and True Value as well as smaller regional distributors all of whom
offer similar products and services. Additionally, in some instances
manufacturers will bypass the distributor and choose to sell and ship their
products directly to the retail outlet. The principal means of competition for
Five Star are its strategically placed distribution centers and its extensive
inventory of quality name brand products. Five Star will continue to focus its
efforts on supplying its products to its customers at a competitive price and on
a timely, and consistent basis. In the future, Five Star will attempt to
acquire complementary distributors and to expand the distribution of its line of
private-label products sold under the "Five Star" name.
HEALTH CARE
INTERFERON SCIENCES, INC.
- -------------------------
Interferon Sciences, Inc. ("ISI") is a biopharmaceutical company
engaged in the manufacture and sale of ALFERON N Injection and the research and
development of other uses of ALFERON N Injection and other alpha
interferon-based formulations for the treatment of certain viral diseases,
cancers,and diseases of the immune system.
ALFERON N Injection is the only natural-source, multi-species alpha
interferon product approved by the FDA for sale in the United States and is
approved for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in patients 18 years of age or
older.
On March 5, 1985, the United States Patent and Trademark Office
issued a patent to Hoffmann-La Roche Inc. ("Hoffmann") claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). ISI obtained a
non-exclusivelicense from Hoffmann which allows ISI to make, use, and sellin the
United States, without a potential patent infringement claim from Hoffmann, (i)
ALFERON N Injection for the treatment of genital warts, (ii) injectable
formulations of interferon alfa-n3 (which is the same active ingredient
contained in ALFERON N Injection) for the treatment of patients who are
refractory to recombinant interferon therapy, (iii) low dose oral formulations
of alpha interferon for the treatment of human disease, and (iv) topical
formulations of interferon alfa-n3 (which is the same active ingredient
contained in ALFERON N Injection). Hoffmann presently owns approximately 3% of
the common stock of ISI.
ALFERON N Injection is marketed and distributed in the United States
exclusively by Purdue Pharma L.P.("Purdue"), utilizing the sales force of The
Purdue Frederick Company, a privately-held United States pharmaceutical company.
In addition, ISI has exclusive
10
<PAGE>
marketing and distribution agreements with Mundipharma Pharmaceutical Company
in Canada and with Industria Farmaceutica Andromaco in Mexico. ISI has
anoption to reacquire the United States, Canadian, and Mexican marketing and
distribution rights under certain terms and conditions. Submissions for
regulatory approval to sell ALFERON N Injection have been filed in Austria,
Canada, Israel, Mexico and the United Kingdom.
At the present time, alpha interferon injectable products are approved
for 17 different medical uses in 63 countries. In 1993, the worldwide alpha
interferon injectable market was estimated to be over $1 billion. In an effort
to expand the market for ALFERON N Injection in the United States and obtain
additional regulatory approvals around the world, ISI is presently conducting
three multi-center randomized, open dose ranging studies with patients
infected with hepatitis C virus. In addition, based upon favorable results
from an in vitro study and a Phase 1 clinical study conducted at Walter Reed
Army Institute of Research in Bethesda, Maryland on 20 asymptomatic HIV
infected patients, ISI is planning a multi-center, randomized, controlled
clinical trial with asymptomatic HIV-infected patients. ISI is also planning
to conduct clinical trials utilizing ALFERON N Injection for the treatment of
Kaposi's sarcoma in patients with AIDS and hepatitis B.
Additional products under development by ISI include ALFERON N Gel and
ALFERON LDO. ALFERON N Gel is a topical interferon preparation which ISI
believes has potential in the treatment of cervical dysplasia, recurrent
genital herpes, other viral diseases, and cancers. A clinical trial using
ALFERON N Gel for the treatment of patients with cervical dysplasia is
currently underway at Columbia Presbyterian Medical Center. ALFERON LDO is a
low dose oral liquid alpha interferon preparation which ISI believes has
potential for treating the symptoms of patients infected with the HIV virus
and other viral diseases. ISI conducted two clinical trials using ALFERON LDO
on patients infected with HIV virus at New York's Mount Sinai Hospital. The
National Institute of Allergy and Infectious Disease ("NIAID") is planning to
conduct a randomized, double-blind, placebo controlled clinical study with low
dose alpha interferons administered orally (including ALFERON LDO) to
determine interferon's effect on HIV related symptoms.
On May 28, 1993, David Blech, the Chief Executive Officer, sole
shareholder and a director of D. Blech & Company, Incorporated ("DBC"), and
ISI entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to
which David Blech or his designees purchased for $4.00 per unit, an aggregate
of 2,500,000 units ("Units"), each Unit consisting of two shares of common
stock, one Class A Warrant to purchase one share of common stock at an
exercise price of $3.25 per share and one Class B Warrant to purchase one
share of common stock at an exercise price of $5.00 per share. The Class A
Warrants and the Class B Warrants expire on August 31, 2000.
Pursuant to the Purchase Agreement, a 10-year Voting Agreement (the
"Voting Agreement") among David Blech, the Company, Five Star and MXL became
effective as of May 28, 1993 pursuant to which the Company, Five Star and MXL
agreed to (a) vote all of their shares of common stock (an aggregate of
6,985,148 shares as of the date hereof), for
11
<PAGE>
the election of the Blech Nominees as directors of ISI unless Blech or his
designees dispose of more than 1,000,000 shares of Common Stock and (b)
restrict transfer of the Common Stock held by them for one year, subject to
certain exceptions. Pursuant to the Voting Agreement, Mr. Blech and any other
purchasers under the Purchase Agreement agreed to vote for the election of two
nominees of NPDC as directors of the Company unless NPDC, MXL and Five Star
dispose of more than 2,000,000 shares of Common Stock.
Concurrently with the execution of the Purchase Agreement, ISI entered
into a Consulting Agreement with DBC under which ISI agreed to pay $100,000
per year, payable monthly, to DBC for advisory services with respect to the
Company's field of interest and business, strategic and commercial matters
related to the biotechnology industry. The term of the Consulting Agreement
was one year and commenced on June 1, 1993.
AMERICAN WHITE CROSS, INC.
- --------------------------
The Company currently owns approximately a 14% investment in American
White Cross, Inc. (formerly, NPM Healthcare Products, Inc.), ("White Cross").
White Cross is a leading manufacturer and marketer of private label adhesive and
cotton based health and personal care products. White Cross' primary products
include adhesive bandages, cotton swabs, cosmetic puffs, rounds and squares,
waterproof tape, sterile cotton balls, first aid kits and cotton coil used in
the packaging of drugs and vitamins in bottles. White Cross also sells adhesive
bandages under its own national brand products, including Mickey & Pals
(marketed under license from The Walt Disney Company) and STAT-STRIP (patented
easy opening bandages).
OPTICAL PLASTICS GROUP
- ----------------------
The Optical Plastics Group is engaged in the manufacture of molded and
coated optical products, such as shields and face masks and non-optical plastic
products through the Company's wholly owned subsidiary MXL Industries, Inc.
("MXL").
MXL is a state-of-the-art injection molder and precision coater of large
optical products such as shields and face masks and non-optical plastics. MXL
believes that the principal strengths of its business are its state-of-the-art
injection molding equipment, advanced production technology, high quality
standards, and on time deliveries. Through its Woodland Mold and Tool Division,
MXL also designs and engineers state-of-the-art injection molding tools as well
as providing a commodity custom molding shop.
As the market for optical injection molding, tooling and coating is
focused, MXL believes that the combination of its proprietary "Anti-Fog"
coating, precise processing of the "Anti-Scratch" coatings, and precise
molding and proprietary grinding and polishing methods for its injection tools
will enable it to increase its sales in the future and to expand into related
products.
12
<PAGE>
MXL uses only polycarbonate resin to manufacture shields, face masks and
lenses for over 55 clients in the safety, recreation and military industries.
For its manufacturing work as a subcontractor in the military industry, MXL is
required to comply with various federal regulations including Military
Specifications and Federal Acquisition Regulations for military end use
applications.
MXL is dependent upon one client which accounts for approximately 27% of
MXL's total sales and another client which accounts for approximately 16% of
MXL's total sales. Over the last several years, MXL has implemented a variety
of programs designed to reduce its overhead expenses, enhance its processing
capabilities, improve operating efficiency and expand the range of services
offered to its customers.
The Company's sales and marketing effort concentrates on industry trade
shows. In addition, the Company employs one marketing and sales executive and
one sales engineer.
ELECTRONICS GROUP
- -----------------
The Electronics Group, through Eastern Electronics Mfg. Corporation
("Eastern") is engaged in contract manufacturing for the electronics industry.
Eastern offers a variety of services to its customers ranging from printed
circuit board assemblies, to in-circuit testing, to functional testing, to
turnkey production and to final system production. Eastern's customers are
among the largest United States electronics companies.
There is significant competition within the electronics industry for
contract manufacturing from much larger national companies as well as smaller
companies. While the electronics industry at large is experiencing a downturn
in business, Eastern feels that the lessening of off-shore competition and
"just in time" manufacturing requirements will enable it to compete more
effectively in the changing environment. The principal means of competition
for Eastern are its twenty two years of experience in printed circuit board
assembly, state-of-the-art automatic insertion, surface mount equipment and
state-of-the-art in circuit test equipment.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 1993, NPDC incurred $2,847,000 as
research and development costs, $2,181,000 of which were incurred at ISI.
EMPLOYEES
At December 31, 1993, the Company and its subsidiaries employed
approximately 1,722 persons, including approximately 16 in the Company's
headquarters, 1,257 in the Physical Science Group, 283 in the Distribution
Group, 73 in the Optical Plastics Group and 58 in the Electronics Group. Of
these, approximately 4 persons were engaged in research and development. The
Company considers its employee relations to be satisfactory.
13
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the names of the principal executive
officers of the Company as of March 15, 1994 and their positions with the
Company. The principal business experience of the executive officers for the
last five years is also described below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jerome I. Feldman 65 President, Chief Executive
Officer and a Director since 1959
Martin M. Pollak 66 Executive Vice President,
Treasurer and a Director since 1959
Scott N. Greenberg 37 Vice President, Chief Financial
Officer since 1989, and a Director
since 1987
Lawrence M. Gordon 40 General Counsel since 1986,
Vice President since 1991
</TABLE>
Jerome I. Feldman is a founder, and since 1959 has been President, Chief
Executive Officer and a director of the Company.
Martin M. Pollak is a founder, and since 1959 has been Executive Vice
President, Treasurer and a director of the Company.
Scott N. Greenberg has been Vice President, Chief Financial Officer of
the Company since 1989 and a Director since 1987.
Lawrence M. Gordon is Vice President, General Counsel of the Company.
Mr. Gordon has been General Counsel of the Company since 1986 and Vice President
since 1991.
PATENTS AND LICENSES
The operating businesses of NPDC are not materially dependent upon
patents, or patent and know-how licenses. The know-how and expertise gained
with respect to the manufacture and 15 sale of its products, acquired as a
result of its license and ownership of patents, are of greater importance to its
future ability to manufacture and sell such products than are the patents
themselves.
(d) Financial Information about Foreign and Domestic operations and Export
Sales.
The Company has no material Foreign Operations or Export Sales.
14
<PAGE>
Item 2. Properties
----------
The following table sets forth information with respect to the material
physical properties owned or leased by NPDC and its subsidiaries:
<TABLE>
<CAPTION>
Lease Square
Activity and Location Own Expires Footage Description
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution
- --------------------------------------------------------------------------------
East Hanover, NJ No 2002 219,000 Office &
Warehouse
Port Washington, NY No 1996 49,000 Office &
Warehouse
Newington, CT No 1996 112,000 Office &
Warehouse
- --------------------------------------------------------------------------------
Optical Plastics
- --------------------------------------------------------------------------------
Lancaster, PA Yes N/A 33,000 Manufacturing,
Warehouse and
Office
Westmont, IL Yes N/A 12,594 Office,
Warehouse &
Manufacturing
- --------------------------------------------------------------------------------
Electronics
- --------------------------------------------------------------------------------
E. Hartford, CT No 1996 35,000 Office,
Warehouse &
Manufacturing
- --------------------------------------------------------------------------------
Physical Science
- --------------------------------------------------------------------------------
Columbia, MD No 1995 12,075 Office
Beltsville, MD No 1994 8,500 Office,
Manufacturing,
Warehouse &
Laboratory
Pittsburgh, PA No 1994 4,800 Repair Shop &
Warehouse
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Groton, CT No 1995 136,654 Office
Gaithersburg, MD &
Columbia, MD
</TABLE>
The facilities owned or leased by NPDC are considered to be suitable and
adequate for their intended uses and are considered to be well maintained and in
good condition.
In addition to the above properties, NPDC also leases office space in
New York, New York.
Item 3. Legal Proceedings
-----------------
The Company is a party to several lawsuits incidental to its business.
It is not possible at the present time to estimate the ultimate legal and
financial liability, if any, of the Company in respect to such litigations;
however, management believes that the ultimate liability, if any, will not
have a material adverse effect on the Company's Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------
The Company's Common Stock, $.01 par value, is traded on the American
Stock Exchange, Inc. and the Pacific Stock Exchange, Inc. The following tables
present its high and low market prices for the last two years.
<TABLE>
<CAPTION>
Quarter High Low
------- ------ -------
<S> <C> <C> <C>
1993 First 3 5/8 2 1/2
Second 4 1/4 2 1/2
Third 3 3/4 2 7/8
Fourth 5 3/4 3 7/16
1992 First 5 5/8 4 1/8
Second 4 5/8 3 3/8
Third 3 3/4 2 13/16
Fourth 3 1/4 2 1/16
</TABLE>
16
<PAGE>
The number of shareholders of record of the Common Stock as of March 15,
1994 was 5,275. On March 15, 1994, the closing price of the Common Stock on the
American Stock Exchange was $4.44. In March 1989, the Company decided to
discontinue payment of its quarterly dividend because the Board of Directors
believed that the resources available for the quarterly dividend would be better
invested in operations and the reduction of long-term debt.
17
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Operating Data (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $193,041 $201,986 $261,723 $293,504 $278,470
Sales 189,683 195,765 258,933 293,091 268,168
Gross margin 27,519 29,772 36,013 42,711 45,402
Research and development costs 2,847 4,645 4,651 7,892 7,196
Interest expense 8,325 11,044 15,579 20,447 19,520
Income (loss) before discontinued
operations and extraordinary
items (7,796) (13,605) 608 (37,993) (17,014)
Net income (loss) (5,977) (11,943) 2,645 (32,738) 6,797
- ------------------------------------------------------------------------------------------------
Earnings (loss) per share
Income (loss) before discontinued
operations and extraordinary items $ (.46) $ (.86) $ .04 $ (3.32) $ (1.20)
Net income (loss) (.35) (.76) .17 (2.86) .62
- ------------------------------------------------------------------------------------------------
Cash dividends declared per share
Balance Sheet Data
- ------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, restricted
cash and marketable securities $ 10,976 $ 23,674 $ 35,968 $ 16,722 $ 39,602
Short-term borrowings 21,390 28,977 26,317 62,144 42,926
Working capital 33,224 44,877 55,560 25,316 62,533
Total assets 166,057 192,649 214,041 269,564 302,179
Long-term debt 40,858 61,441 70,787 91,888 97,249
Stockholders' equity 67,438 63,823 72,405 55,416 84,379
- ------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
Overview
During 1993, the Company took steps to significantly reduce its long-term
debt. The Company, through an Exchange Offer for a large portion of its Swiss
Denominated Debt (See Note 9(a) to Notes to Consolidated Financial
Statements), as well as other repurchases from various bondholders throughout
1993, was able to reduce its long-term debt by approximately $20,583,000. As a
result of the reduction in long-term debt, the Company will be able to reduce
its annual interest expense by approximately $2,100,000. Due to the inclusion
of a portion of the Company's shares of common stock of Interferon Sciences,
Inc. (ISI) as part of the consideration in the Exchange Offer in the third
quarter of 1993, the Company currently owns less than 50% of ISI (36%), and
therefore now accounts for the results of ISI on the equity basis. In 1993,
the Company realized an extraordinary gain, net of taxes, on the early
extinguishment of debt of $1,819,000. In 1993, the Company also incurred
reduced interest expense at the corporate level on the Company's long-term
Swiss Debt obligations due to the Company's continuing practice of
repurchasing and reducing its Swiss Debt. In addition, the Company incurred
reduced interest relating to short-term borrowings due to reduced borrowings
at lower rates of interest. In 1993, the loss before income taxes and
extraordinary item was $8,371,000, as compared to a loss of $13,178,000 in
1992 and income of $1,157,000 in 1991. The decrease in the loss in 1993 is due
to several factors. As a result of the Exchange Offer discussed above, the
Company realized a $3,795,000 gain from the transfer of a portion of the
Company's holdings of shares of ISI and GTS Duratek, Inc.'s (Duratek) common
stock. In addition, the Company realized a gain of $1,353,000 on the issuance
of common stock and common stock warrants by Duratek, relating to its
acquisition of an option to acquire certain technologies relating to the
vitrification of certain medical and hazardous wastes. The Health Care and the
Electronics Groups experienced reduced operating losses in 1993. The Health
Care Group which is comprised of the results of ISI experienced reduced
operating losses in 1993 as a result of ISI being accounted for on the equity
basis commencing in the third quarter of 1993. The Electronics Group, which is
Eastern Electronics Manufacturing Corporation (Eastern), the Company's
electronic assembly and manufacturing subsidiary, incurred reduced operating
losses as a result of their successful efforts to reduce overhead and costs of
sales. The above improvements in 1993 were partially offset by reduced
operating profits at the Distribution and Physical Science Groups, in addition
to a foreign currency transaction gain of $901,000 realized in 1993 as
compared to a net foreign currency transaction gain of $3,362,000 realized in
1992, relating to the Company's decision not to hedge its Swiss denominated
debt. The Distribution Group, which is the Five Star Group, Inc. (Five Star),
the Company's distributor of home decorating, hardware and finishing products
had reduced operating profits as a result of reduced gross margin percentages
and increased operating
19
<PAGE>
costs. The Physical Science Group, which is comprised of GPS Technologies Inc.
(GPS), a 92% owned subsidiary, and GTS Duratek, Inc. (Duratek), a 66% owned
subsidiary, had reduced operating profits as a result of losses incurred by
Duratek due to reduced revenues and gross margin percentages achieved. The
Optical Plastics Group, which is MXL Industries, Inc. (MXL), the Company's
injection molding and coating subsidiary, had a marginal decrease in operating
profits.
During 1992, the loss before income taxes and extraordinary items was
$13,178,000 compared to income of $1,157,000 in 1991. The change from a profit
in 1991 to a loss in 1992 was primarily the result of the public offering by
General Physics Corporation (GP) in October 1991, through which the Company
sold 68% of its GP common stock and recognized a gain on the transaction of
$18,844,000. The Company currently owns approximately 28% of GP. The effect of
the gain on GP was partially offset by improved operating results achieved in
1992 by the remaining companies within the Physical Science Group, GPS and
Duratek. At the corporate level, improved operating results in 1992 were
partially the result of gains recognized on the sale of certain investments
and the continuing reduction in interest expense as a result of reduced
short-term borrowings, lower rates of interest on the Company's variable rate
obligations and reduced interest on the Company's Swiss Debt obligation due to
the Company's continuing practice of repurchasing its Swiss Debt from time to
time. The improved operating results within the Physical Science Group were
due to both GPS and Duratek achieving operating profits in 1992 as opposed to
operating losses in 1991. GPS achieved a significant turnaround as a result of
reduced losses at its subsidiary, GP International Engineering & Simulation,
Inc. (GPI), an operating profit generated for the first time by its subsidiary
GP Environmental Services, Inc. (GPE) and an overall improvement within the
core businesses of GPS. Duratek showed an improvement in operations during
1992 as a result of increased sales and gross profit in both its Environmental
Services and Consulting and Staff Augmentation businesses, as well as the
impact of the effort in the latter half of 1991 to consolidate and streamline
its administrative structure. The improvements in operations achieved by the
current members of the Physical Science Group and at the corporate level were
partially offset by an increased operating loss at the Electronics Group and
reduced operating profits at the Optical Plastics Group. The Electronics
Group, incurred increased operating losses due to reduced sales and inceased
operating costs and the effect of reserves taken for obsolete inventory. The
Optical Plastics Group had a small decrease in operating profit as a result of
weakness in the precision tooling part of its business,as well as reduced
orders from a number of MXL's establishedcustomers in the beginning of 1992.
The Health Care Group's operating loss and the Distribution Group's operating
profit remained virtually unchanged in 1992.
Sales
Consolidated sales from continuing operations decreased by $6,082,000 in 1993
to $189,683,000 as a result of reduced sales in the Physical Science, Health
Care and Electronics Groups, partially offset by increased sales achieved by
the Distribution Group. Sales decreased by $63,168,000 in 1992, to
$195,765,000, as a result of the transfer in April 1991 of a majority interest
in American White Cross, Inc. (AWC), formerly NPM
20
<PAGE>
Healthcare,Inc., in which the Company currently has a 14% interest, and the
public offering by GP in October 1991, which resulted in GP and AWC no longer
being consolidated entities. The decrease in 1992 was partially offset by
increased sales within the Distribution Group and by the remaining companies
in the Physical Science Group.
The Physical Science Group sales decreased from $162,727,000 in 1991 to
$109,303,000 in 1992 and to $102,977,000 in 1993. The reduced sales of
$6,326,000 in 1993 were primarily attributable to reduced sales achieved by
Duratek as a result of reduced revenues generated by its consulting and staff
augmentation business, as a result of a reduced demand for services provided
to nuclear utilities. In addition, Duratek's sales decreased as a result of
reduced revenues achieved by the environmental services business due to delays
in the award of certain technology contracts by the Department of Energy.
During 1992, sales decreased by $53,424,000, due to the public offering by GP
on October 3, 1991, from which time the results of GP were accounted for on
the equity basis, since the Company's percentage of ownership was reduced to
approximately 28%. In 1991, the Physical Science Group included sales of
$62,325,000 for GP. The loss of GP's sales in 1992 was partially offset by
increased sales at both GPS and Duratek. Duratek generated increased sales in
1992 as a result of work performed on two new environmental technology
projects, as well as an increase in services provided by the consulting and
staff augmentation business. GPS generated increased revenues in new business
areas such as environmental analytical services and full scope simulation.
These increases at GPS were partially offset by a reduction in revenue for
certain subcontracts, which terminated in 1991, for construction management
services provided to the Department of the Army.
The Distribution Group sales increased from $64,788,000 in 1991 to $68,450,000
in 1992 and to $74,109,000 in 1993. The increase of $5,659,000, or 8% in 1993
was due to reduced competition in one of Five Star's geographic regions, as
well as continued growth in the hardware business, which was introduced in
1992. The increase of $3,662,000, or 6%, in 1992 was attributable to the
introduction during the year of a new line of hardware supplies.
The Health Care Group sales decreased from $14,607,000 in 1991 to $4,042,000
in 1992 and to zero in 1993. The reduction in sales in 1993 was due to ISI not
having any sales of its product, ALFERONR N Injection, in 1993. In January
1994, ISI received an order for 45,000 vials of ALFERONR N Injection from the
Purdue Frederick Company (Purdue). As a result of the Exchange Offer, through
which the Company's interest in ISI fell below 50%, ISI is currently being
accounted for on the equity basis. The $10,565,000 reduction in sales in 1992
was due to the transfer on April 8, 1991 of a majority interest in AWC,
partially offset by increased sales by ISI of ALFERONR N Injection to its
marketing partner, Purdue. In December 1991, Purdue agreed to purchase an
aggregate of 45,000 vials of ALFERONR N Injection from the Company over
approximately a six month period which commenced in March 1992 and was
completed in September 1992.
The Optical Plastics Group sales decreased from $9,454,000 in 1991 to
$7,862,000 in 1992 and to $7,817,000 in 1993. The decreased sales in 1992 was
due to weakness at MXL's
21
<PAGE>
precision tooling division, as well as reduced orders from a number of MXL's
established customers in the beginning of 1992.
The Electronics Group sales decreased from $7,151,000 in 1991 to $5,968,000 in
1992 and to $3,836,000 in 1993. The decreased sales in 1992 and the continued
weakness in 1993 was the result of the weakness in the electronics industry
and Eastern's plan to concentrate its efforts on sales to customers who
provide more profitable margins.
Gross margin
Consolidated gross margin was $36,013,000 or 14% of net sales in 1991,
$29,772,000 or 15% of net sales in 1992 and $27,519,000 or 15% in 1993. In
1993, the decrease in gross margin of $2,253,000 occurred within the Health
Care, Distribution and Physical Science Groups. In 1992, the decrease in gross
margin of $6,241,000 occurred primarily in the Physical Science Group as a
result of the public offering by GP in October 1991, and to a lesser extent,
in the Health Care Group due to the transfer in April 1991 of a majority
interest in AWC in which the Company currently has a 14% interest. The reduced
gross margin in 1992 was partially offset by increased gross margin achieved
by the Distribution Group as a result of increased sales.
The Physical Science Group gross margin decreased from $18,370,000, or 11% of
net sales in 1991 to $13,728,000 or 13% of net sales in 1992 and to
$12,941,000, or 13% of net sales in 1993. In 1993, the reduced gross margin
was primarily attributable to reduced gross margins achieved by Duratek as a
result of reduced sales as well as a decrease in the gross margin percentage
achieved within Duratek's consulting and staff augmentation business because
of increasing competitive pressures within the industry. The reduced gross
margin achieved by Duratek was partially offset by GPS, which generated
increased gross margins as a result of an improved mix of services during
1993. In 1992, the decreased gross margin was due to the public offering by GP
in October 1991, partially offset by increased gross margins at Duratek and
GPS. The increased gross margin dollars and percentage at GPS was due to
increased sales, significant profit improvements at GPI and GPE during 1992,
as well as an improved mix of services performed at higher margins within the
core businesses. Duratek achieved increased gross margins in 1992 as a result
of increased revenues generated by its environmental technology projects.
The Distribution Group gross margin increased from $11,679,000 or 18% in 1991
to $12,355,000 or 18% of sales in 1992 and decreased to $11,718,000 or 16% in
1993. In 1993, the reduced gross margin was the result of the reduced gross
margin percentage achieved in 1993. The reduced gross margin percentage in
1993 was the result of a change in the product mix as well as competitive
price pressures within the industry. In 1994, the Group has started taking
steps to reduce its costs of sales in order to improve its operating margins
in the future. In 1992, the increased gross margin was the result of increased
sales due to the introduction of a new line of hardware products.
The Health Care Group gross margin decreased from $2,509,000 or 17% of net
sales in
22
<PAGE>
1991 to $358,000 or 9% of net sales in 1992 and to $(699,000) in 1993. The
negative gross margin in 1993 was the result of facility costs incurred by
ISI, notwithstanding the suspension of production, and lack of sales of
ALFERONR N Injection during 1993. The decrease in gross margin in 1992 was the
result of the transfer on April 8, 1991 of a majority interest in AWC, as
discussed above. The reduced gross margin percentage in 1992 is attributable
to the low gross margin percentages achieved by ISI due to the write-down of
inventory to its estimated net realizable value, as a result of increased unit
production costs caused by limited production volumes.
The Optical Plastics Group gross margin decreased from $3,231,000 or 34% of
net sales in 1991 to $2,740,000 or 35% of net sales in 1992 and to $2,642,000
or 34% of net sales in 1993. The small decrease in gross margin in 1993 was
the result of marginally reduced sales and gross margin percentage. In 1992,
the reduced gross margin was the result of reduced sales volume.
The Electronics Group gross margin increased from $221,000 or 3% of net sales
in 1991 to $561,000 or 9% of net sales in 1992 and decreased to $546,000 or
14% of net sales in 1993. The small decrease in gross margin in 1993 and
increased gross margin in 1992, in spite of reduced sales at Eastern in both
years, was attributable to the continuing improvement in gross margin
percentages as a result of a better product mix, a reduction in the fixed
manufacturing costs and improved operating efficiencies.
Investment and other income, net
Investment and other income was $2,790,000 in 1991, $6,221,000 in 1992 and
$3,358,000 in 1993, respectively. In 1993 the decrease in investment and other
income, net was primarily attributable to a net foreign currency transaction
gain of $901,000 in 1993 as compared to a gain of $3,362,000 in 1992. In
addition, in 1993 the Company realized reduced revenues relating to interest
income, and in the equity in earnings of 20% to 50% owned subsidiaries as
compared to 1992. These decreases were partially offset by reserves taken and
losses realized by the Company on certain assets and investments in 1992. In
1992, the increase in investment and other income, net was primarily due to
two factors. In 1992, the Company realized increased gains on the sales of
certain investments, and recognized an expense for reserves taken and losses
realized on certain assets of $1,336,000 in 1992 as compared to $4,774,000 in
1991. In 1992, the Company realized a net foreign currency transaction gain of
$3,362,000, as compared to a gain of $3,042,000 in 1991. The reserves were
taken in 1992 and 1991 due primarily to reduced values and impairments
relating to long-term investments and related assets accounted for on the cost
basis. The Company evaluates its long-term investments at least annually. An
investment is written down or written off if it is judged to have sustained a
decline in value which is other than temporary. During 1991, a 19% interest in
and advances to a vendor and distributor of pay telephones was written down by
$3,100,000, to an estimated residual value of $175,000, since the telephone
company ceased marketing its principal product in 1991. This resulted from (a)
the loss by the telephone company of two major vending accounts in 1991, which
substantially reduced revenues and (b) the telephone company's effort to sell
telephones as well as to vend them
23
<PAGE>
was unsuccessful in 1991. Based upon the fact that the remaining vending
revenues were insufficient to support operations the telephone company ceased
operations. In 1992, the estimated residual value of $175,000 of this
investment, which was based upon estimated proceeds on liquidation of
telephone equipment, was written off since it was determined that such sales
could not be consummated. Additionally, in 1992, the Company fully reserved
its investment of $305,000 in a medical blood center company. The blood center
company ceased operations in 1992 as its major investor, a large financial
institution decided to no longer provide financing and working capital. In
1991 and prior years, the medical blood center company received substantial
funding for its centers and the financial institution provided working capital
and equity financing. In both 1991 and 1992, a number of other relatively
small investments were written off or written down because the Company's
periodic evaluations indicated declines in value which were judged to be other
than temporary.
At December 31, 1993, there was an aggregate of SFr. 25,398,000 of Swiss
denominated indebtedness outstanding, of which SFr. 23,680,000 represents
principal amount outstanding and SFr. 1,718,000 represents interest accrued
thereon. Foreign currency valuation fluctuations may adversely affect the
results of operations and financial condition of the Company. In order to
protect itself against currency valuation fluctuations, the Company has at
times swapped or hedged a portion of its obligations denominated in Swiss
Francs. At December 31, 1993, the Company had not hedged its Swiss Franc
obligations. If the value of the Swiss Franc to the U.S. Dollar increases, the
Company will recognize transaction losses on the portion of its Swiss Franc
obligations which are not hedged. On December 31, 1993, the value of the Swiss
Franc to the U.S. Dollar was 1.485 to 1. There can be no assurance that the
Company will be able to swap or hedge obligations denominated in foreign
currencies at prices acceptable to the Company or at all. The Company will
continue to review this policy on a continuing basis.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) decreased from $38,356,000
in 1991 to $36,274,000 in 1992 and to $35,600,000 in 1993. In 1993, the
decrease in SG&A was primarily attributable to ISI being accounted for on the
equity basis during the third quarter of 1993, as a result of the Exchange
Offer discussed above, in which the Company's interest in ISI fell below 50%.
In addition, the Electronics Group also experienced reduced SG&A expenses as a
result of reduced personnel requirements due to reduced sales in 1993 and
Eastern's continuing effort to streamline its organization. The reduced SG&A
within the Health Care and Electronics Groups in 1993 were partially offset by
increased SG&A incurred by the Distribution and Physical Science Groups. The
increased SG&A at The Physical Science Group was due to increased operating
costs and the increased SG&A at the Distribution Group was the result of the
large increase in sales which led to increased selling expenses, as well as
additional costs incurred by Five Star to support the growth in sales. The
Optical Plastics Group had a marginal increase in SG&A in 1993. In 1992, the
decrease in SG&A expenses was primarily due to decreases in the Health Care
Group and the Physical Science Group as a result of the transfer on April 8,
1991 of a majority interest in AWC and
24
<PAGE>
the public offering by GP in October 1991, respectively. The decrease was
partially offset by increased SG&A within the Distribution Group as a result
of Five Star's expansion into the hardware supply distribution business and
increased SG&A within the Electronics Group due to costs connected with
Eastern's efforts to restructure its business operations.
Research and development costs
The Company's research and development activities are conducted both
internally and under various types of arrangements at outside facilities.
Research and development costs, which are primarily attributable to ISI, were
$4,651,000, $4,645,000 and $2,847,000 for 1991, 1992, 1993, respectively. In
1993, the reduced research and development costs were the result of the
Company's ownership in ISI falling below 50% in the third quarter of 1993, due
to the Exchange Offer discussed above, and therefore, the Company began
accounting for ISI on the equity method from that time. In 1992, ISI
experienced increased research and development costs because of increased
levels of research on ALFERONR N Gel, ALFERONR LDO and other proprietary
research. The increased spending at ISI in 1992 was offset by reduced spending
on various corporate projects.
Interest expense
Interest expense aggregated $15,579,000 in 1991, $11,044,000 in 1992 and
$8,325,000 in 1993. The reduced interest expense in 1992 and the further
reduction in 1993, was the result of the Company's continuing successful
effort to reduce its interest expense at the corporate level due to reduced
short-term borrowings, lower rates of interest on the Company's variable rate
obligations and reduced interest on the Company's Swiss Debt obligations due
to the Exchange Offer in 1993 and the Company's practice of repurchasing Swiss
Debt from time to time.
Income taxes and extraordinary item
Income tax benefit (expense) from operations for 1991, 1992 and 1993 was
$(549,000), $(427,000) and $575,000, respectively.
In 1993, the Company recorded an income tax benefit of $1,043,000, of which
$973,000 relates to Federal income taxes, in continuing operations as a result
of the income tax expense allocated to the extraordinary gain recognized on
the early extinguishment of debt under the provisions of FASB No. 109.
In 1992, the Company's loss before income taxes from operations exceeded its
gains from extraordinary items: therefore, pursuant to accounting policies of
the Company, then in effect under APB No. 11, "Accounting for Income Taxes",
no income tax expense applicable to such extraordinary gains was recognized.
The income tax expense for 1992 of $427,000 represents state and local income
taxes.
In 1991, despite the Company's $1,157,000 income before income taxes from
operations, no Federal income tax expense was recognized. This is due
principally to significant permanent differences between financial and tax
reporting of 1991 transactions, including the
25
<PAGE>
elimination for tax purposes of the $18,844,000 gain on the sale of GP stock,
net of a gain recognized only for tax purposes upon ISI ceasing to be a member
of the Company's consolidated Federal income tax return group on May 31, 1991.
The income tax expense for 1991 of $549,000 represents state and local income
taxes.
As of December 31, 1993, the Company has approximately $34,770,000 of
consolidated net operating losses available for financial statement reporting
purposes.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted by the Company in 1993 on a prospective basis. (See Note
15 to the Consolidated Financial Statements). This standard requires that
deferred income taxes be recorded following the liability method of accounting
and adjusted periodically when income tax rates change. As of December 31,
1993, the Company was not carrying any deferred tax accounts. Adoption of the
new Statement did not have a material effect on the Company's financial
condition or results of operations.
Liquidity and capital resources
At December 31, 1993, the Company had cash, cash equivalents and marketable
securities totaling $10,976,000. GPS and Duratek had cash, cash equivalents
and marketable securities of $547,000 at December 31, 1993. The minority
interests of these companies are owned by the general public, and therefore,
the assets of these subsidiaries have been dedicated to the operations of
these companies and may not be readily available for the general corporate
purpose of the parent.
The Company believes that it has sufficient cash, cash equivalents and
marketable securities and borrowing availability under existing and potential
lines of credit to satisfy its cash requirements until the first scheduled
maturity of its Swiss Franc denominated indebtedness on March 1, 1995.
However, in order for the Company to meet its long-term cash needs, which
include the repayment of $12,757,000 of Swiss Franc denominated indebtedness
scheduled to mature in 1995 and $7,115,000 of Swiss Franc denominated
indebtedness which is scheduled to mature in 1996, the Company must obtain
additional funds from among various sources. The Company has historically
reduced its long-term debt through the issuance of equity securities in
exchange for long- term debt. In addition to its ability to issue equity
securities, the Company believes that it has sufficient marketable long-term
investments, as well as the ability to obtain additional funds from its
operating subsidiaries and the potential to enter into new credit
arrangements. The Company reasonably believes that it will be able to
accomplish some or all of the above transactions in order to fund the
scheduled repayment of the Company's long-term Swiss debt in 1995.
For the year ended December 31, 1993, the Company's working capital decreased
by $11,653,000 to $33,224,000, reflecting the effect of the Company's interest
in ISI falling below 50%, and being accounted for on the equity basis.
Consolidated cash and cash equivalents decreased by $6,945,000 to $10,976,000
at December 31, 1993.
26
<PAGE>
The decrease in cash and cash equivalents of $6,945,000 in 1993 primarily
resulted from the effect of the Company's interest in ISI falling below 50%,
and being accounted for on the equity basis as well as cash used, in
operations of $2,507,000, investing activities of $2,593,000 and financing
activities of $1,845,000. Cash used in operations was primarily required to
fund the operating loss for the year. The cash used in investing activities
was for increases in certain investments and for investment in property, plant
and equipment and intangible assets. Financing activities consisted primarily
of repayments and reductions in short-term borrowings and repayments of long-
term debt, offset by proceeds from short-term borrowings and long-term debt.
At December 31, 1993, the Company at the parent company level had
substantially exhausted its ability to borrow funds from its subsidiaries
under their respective line of credit arrangements.
The Company's principal manufacturing facilities were constructed subsequent
to 1976 and management does not anticipate having to replace major facilities
in the near term. As of December 31, 1993, the Company has not contractually
committed itself for any other new major capital expenditures.
27
<PAGE>
TARGET=[.10ka]
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------------------
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 29
Financial Statements:
Consolidated Balance Sheets - December 31, 1993
and 1992 30
Consolidated Statements of Operations - Years ended
December 31, 1993, 1992, and 1991 32
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1993, 1992,
and 1991 33
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1992, and 1991 35
Notes to Consolidated Financial Statements 38
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 73
</TABLE>
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation:
We have audited the consolidated financial statements of National Patent
Development Corporation and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Patent Development Corporation and subsidiaries at December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 15 the Company has adopted SFAS No. 109, "Accounting for
Income Taxes", as of January 1, 1993.
KPMG PEAT MARWICK
New York, New York
March 30, 1994
29
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------
December 31, 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 10,976 $ 17,921
Restricted cash 1,200
Marketable securities, at lower of
aggregate cost or market 4,553
Accounts and other receivables (of which
$7,694 and $9,970 are from government
contracts) less allowance
for doubtful accounts of
$1,689 and $1,581 36,285 41,171
Inventories 22,605 24,353
Costs and estimated earnings in
excess of billings on uncompleted
contracts, of which $2,913 and
$5,073 relates to government
contracts 13,081 10,702
Prepaid expenses and other current assets 4,160 4,009
- -------------------------------------------------------------------
Total current assets 87,107 103,909
- -------------------------------------------------------------------
Investments and advances 28,303 23,168
- -------------------------------------------------------------------
Property, plant and equipment, at cost 3,873 43,583
Less accumulated depreciation and
amortization (20,035) (22,043)
- -------------------------------------------------------------------
13,838 21,540
- -------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $24,691 and $23,987
Goodwill 25,463 29,421
Patents, licenses and deferred charges 4,641 3,547
- -------------------------------------------------------------------
30,104 32,968
- -------------------------------------------------------------------
Investment in financed assets 2,797 5,507
- -------------------------------------------------------------------
Other assets 3,908 5,557
- -------------------------------------------------------------------
$166,057 $192,649
- -------------------------------------------------------------------
</TABLE>
30
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands, except shares and par value per share)
- -------------------------------------------------------------------------------
December 31, 1993 1992
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 6,750 $ 7,067
Short-term borrowings 21,390 28,977
Accounts payable and accrued expenses 20,256 18,992
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,487 3,996
- -------------------------------------------------------------------------------
Total current liabilities 53,883 59,032
- -------------------------------------------------------------------------------
Long-term debt less current maturities 36,638 57,085
- -------------------------------------------------------------------------------
Notes payable for financed assets 579 3,109
- -------------------------------------------------------------------------------
Minority interests 3,277 9,600
- -------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------
Common stock issued subject to
repurchase obligation 4,242
- -------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share,
none issued
Common stock, authorized 30,000,000
shares, par value $.01 per share,
issued 19,023,357 and 15,934,840
shares (of which 22,645 shares are
held in the treasury) 190 159
Class B capital stock, authorized 2,800,000
shares, par value $.01 per share, issued
and outstanding 250,000 shares 2 2
Capital in excess of par value 106,274 96,713
Deficit (39,028) (33,051)
Total stockholders' equity 67,438 63,823
- -------------------------------------------------------------------------------
$166,057 $192,649
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per share data)
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Revenues
Sales $189,683 $195,765 $258,933
Investment and other income, net
(including interest income
of $875, $1,275 and $941) 3,358 6,221 2,790
- -------------------------------------------------------------------------------
193,041 201,986 261,723
- -------------------------------------------------------------------------------
Costs and expenses
Cost of goods sold 162,164 165,993 222,920
Selling, general and
administrative 35,600 36,274 38,356
Research and development 2,847 4,645 4,651
Interest 8,325 11,044 15,579
- -------------------------------------------------------------------------------
208,936 217,956 281,506
- -------------------------------------------------------------------------------
Gain on sale of stock of a subsidiary 18,844
- -------------------------------------------------------------------------------
Gain on disposition of stock of
a subsidiary and an affiliate 3,795
- -------------------------------------------------------------------------------
Gain on issuance of stock by a
subsidiary 1,353
- -------------------------------------------------------------------------------
Minority interests 2,376 2,792 2,096
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item (8,371) (13,178) 1,157
Income tax benefit (expense) 575 (427) (549)
- -------------------------------------------------------------------------------
Income (loss) before
extraordinary item (7,796) (13,605) 608
- -------------------------------------------------------------------------------
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 1,819 1,662 2,037
- -------------------------------------------------------------------------------
Net income (loss) $ (5,977) $(11,943) $ 2,645
- -------------------------------------------------------------------------------
Income (loss) per share
Income (loss) before
extraordinary item $ (.46) $ (.86) $ .04
Extraordinary item .11 .10 .13
- -------------------------------------------------------------------------------
Net income (loss) per share $ (.35) $ (.76) $ .17
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Capital in Total
Common capital excess Treasury stock-
stock stock of par stock holders'
($.01 Par) ($.01 Par) value Deficit at cost equity
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1990 $132 $ 2 $93,522 $(23,753) $(14,487) $55,416
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 526 528
Issuances of treasury stock
(1,153,621 common shares) (9,907) 13,019 3,112
Conversion of 12% debentures 10 4,377 4,387
Issuance of stock in connection with
Swiss Bonds 4 1,899 1,903
Shares issuable in settlement of debt 529 529
Issuances of stock to a subsidiary 2 1,156 1,158
Issuance and sale of common stock 1 382 383
Effect of issuance and sale
stock by a subsidiary, net 2,344 2,344
Net income 2,645 2,645
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 $151 $ 2 $94,828 $(21,108) $ (1,468) $72,405
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1993, 1992, and 1991
(in thousands, except shares, par value per share and per share amounts)
<TABLE>
<CAPTION>
Class B Capital in Total
Common capital excess Treasury stock-
stock stock of par stock holders'
($.01 Par) ($.01 Par) value Deficit at cost equity
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 $ 151 $ 2 $94,828 $(21,108) $ (1 ,468) $72,405
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 280 282
Issuances of treasury stock
(102,772 common shares) (1,074) 1,468 394
Net loss $(11,943) (11,943)
Conversion of 12% Debentures 1 164 165
Issuance of stock in connection with
Swiss Bonds 2 911 913
Effect of exercise of warrants to
purchase the stock of a subsidiary 674 674
Shares issuable in settlement of debt 186 186
Issuance and sale of common stock 3 744 747
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 159 2 96,713 (33,051) 63,823
- ---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale of common stock 3 375 378
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 190 $ 2 $106,274 $(39,028) $67,438
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
- -----------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss) $(5,977) $(11,943) $ 2,645
- -----------------------------------------------------------------------------
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 5,296 6,107 8,542
Income tax benefit allocated to
continuing operations (1,043)
Gain on sale of stock of
a subsidiary (18,844)
Gain from early extinguishment
of debt, net of income
tax in 1993 (1,819) (1,662) (2,037)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on issuance of stock by
a subsidiary (1,353)
Changes in other operating items,
net of effect of acquisitions
and disposals:
Accounts and other receivables 4,817 1,641 (1,243)
Inventories (381) (2,223) 4,574
Costs and estimated earnings in
excess of billings on
uncompleted contracts (2,379) (2,012) 3,158
Prepaid expenses and other
current assets (44) 279 529
Accounts payable and accrued
expenses 2,680 (341) (3,040)
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,491 (1,861) 2,719
Income taxes payable (25) (452)
- -----------------------------------------------------------------------------
Total adjustments 3,470 (97) (6,094)
- -----------------------------------------------------------------------------
Net cash used in operations $(2,507) $(12,040) $ (3,449)
- -----------------------------------------------------------------------------
</TABLE>
35
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)
- ------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from public sale of
a subsidiary's stock $ $ $43,997
Proceeds from disposal of business 7,192
Proceeds from sale of an investment 4,500
Marketable securities 651 2,419 (6,743)
Additions to property, plant and
equipment, net (2,077) (3,399) (2,079)
Additions to intangible assets (303) (1,339) (705)
Reduction of (additions to)
investments and other assets (864) 3,096 1,018
Net cash provided by (used in)
investing activities (2,593) 5,277 42,680
- ------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of short-term
borrowings (28,011) (6,150) (31,827)
Proceeds from short-term
borrowings 20,424 8,810
Decrease in restricted cash 1,200 3,800 10,000
Proceeds from issuance of
long-term debt 10,973 203 7,561
Reduction of long-term debt (8,515) (6,244) (15,675)
Repayments of notes payable for
financed assets (28) (207)
Proceeds from public sale of
common stock by a subsidiary 9,588
Proceeds from issuance of
common stock 198 1,539
Proceeds from issuance of stock
by a subsidiary 1,473 750
Exercise of common stock options
and warrants 413 282 718
Issuance of treasury stock 15 825
Net cash provided by (used in)
financing activities (1,845) 688 (16,728)
Net (decrease) increase in cash
and cash equivalents (6,945) (6,075) 22,503
Cash and cash equivalents at
beginning of year 17,921 23,996 1,493
- ------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 10,976 $17,921 $ 23,996
- ------------------------------------------------------------------------
</TABLE>
36
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,344 $ 8,324 $14,138
- -------------------------------------------------------------------------------
Income taxes $ 692 $ 703 $ 1,472
- -------------------------------------------------------------------------------
Supplemental schedule of
noncash transactions:
Reduction of intangibles $ $ $ (532)
Reduction of debt 21,900 1,819 7,430
Issuances of treasury stock (1,468) (2,098)
Additions to other assets
and prepaid expenses 179 130 275
Reduction of accounts payable 597
Reduction of accrued interest payable 607 1,744
Issuances of common stock (8,981) (1,078) (6,819)
Issuance of long-term debt (3,006)
Common stock issued subject
to repurchase obligation (4,242)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on exchange of debt before
income tax effect (2,662)
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation and investments. The consolidated financial
statements include the operations of National Patent Development Corporation and
its majority-owned subsidiaries (the Company). Investments in 20% - 50% owned
companies are accounted for on the equity basis, and marketable equity
securities of less than 20% owned companies are accounted for at the lower of
aggregate cost or market. Other investments in less than 20% owned companies are
accounted for on the cost basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
Statements of cash flows. For purposes of the statement of cash flows, the
Company considers all highly liquid instruments with maturities of three months
or less from purchase date to be cash equivalents.
Marketable securities. Marketable securities at December 31, 1992 consisted of
United States Government obligations, carried on the balance sheet at cost by
the Company. The market value of marketable securities at December 31, 1992 was
$4,606,000.
Inventories. Inventories are valued at the lower of cost or market, principally
using the first-in, first-out (FIFO) method.
Foreign currency transactions. The Company's Swiss Bonds (see Note 9) are
subject to currency fluctuations and the Company has hedged portions of such
debt from time to time. During the years ended December 31, 1993, 1992, and
1991, the Company realized foreign currency transaction gains of $901,000,
$3,362,000 and $3,042,000, respectively. These amounts are included in
investment and other income, net. At December 31, 1993, the Company had not
hedged its Swiss Franc obligations.
Contract revenue and cost recognition. The Company provides services under time-
and-materials, cost-plus-fixed-fee, and fixed-price contracts. Revenue from
contracts is recognized on the percentage-of-completion method as costs are
incurred and includes estimated fees at predetermined rates. Differences between
recorded costs, estimated fees, and final billings are recognized in the period
in which they become determinable. Costs and estimated earnings in excess of
billings on uncompleted contracts are recorded as an asset. Billings in excess
of costs and estimated earnings on uncompleted contracts are recorded as a
liability. Generally, contracts provide for the billing of costs incurred and
estimated fees on a monthly basis and do not provide for retainage. Retainages,
amounts subject to future negotiation, amounts expected to be collected after
one year, and amounts related to claims are not material.
38
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of significant accounting policies (Continued)
Property, plant, and equipment. Property, plant, and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently. Gain
or loss on the disposition of property, plant, and equipment is recognized in
operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated useful
lives:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
CLASS OF ASSETS USEFUL LIFE
- ---------------------------------------------------------------------
<S> <C>
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 20 years
Leasehold improvements Shorter of asset life
or term of lease
</TABLE>
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis generally over periods ranging from 5 to 40 years. The Company capitalizes
costs incurred to obtain and maintain patents and licenses. Patent costs are
amortized over the lesser of 17 years or the remaining lives of the patents, and
license costs over the lives of the licenses. The Company also capitalizes costs
incurred to obtain long-term debt financing. Such costs are amortized on an
effective yield basis over the terms of the related debt and such amortization
is classified as interest expense in the Consolidated Statements of Operations.
The periods of amortization of goodwill are evaluated at least annually to
determine whether events and circumstances warrant revised estimates of useful
lives. This evaluation considers, among other factors, expected cash flows and
profits of the businesses to which the goodwill relates. Goodwill is written off
when it becomes evident that it has become permanently impaired.
Treasury stock. Treasury stock is recorded at cost. Reissuances of treasury
stock are valued at market value at the date of reissuance. The cost of the
treasury stock is relieved from the treasury stock account and the difference
between the cost and market value is recorded as additional paid in capital.
39
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of significant accounting policies (Continued)
Sales of stock by a subsidiary. The Company records in the Consolidated
Statement of Operations any gain or loss realized when a subsidiary sells its
shares at an offering price which differs from the Company's carrying amount per
share of such subsidiary's stock.
Income taxes. The Company files a consolidated Federal income tax return that
includes each domestic subsidiary in which the Company has at least 80% voting
control. The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", effective Janaury 1, 1993. Adoption of the
new Statement did not have a significant effect on the Company's financial
condition or results of operations.
Income (loss) per share. Per share data is based on the weighted average number
of shares outstanding, including Class B capital stock, and dilutive common
stock equivalents. Presentation of fully diluted earnings per share is not
required because the effect is less than 3% or is antidilutive. The weighted
average number of shares outstanding for the years ended December 31, 1993, 1992
and 1991 were 17,125,900, 15,771,301 and 15,393,781, respectively.
2. GPS Technologies, Inc.
On October 3, 1991, General Physics Corporation (GP)completed a public of 4
million shares of common stock at a price of $13 per share. The Company offered
3,846,540 shares of stock, and the remainder was offered by certain non-
affiliated shareholders. The Company received net proceeds after expenses of
$43,997,000, and from the proceeds was required to make several repayments of
long-term debt and short-term borrowings. The Company repaid $16,735,000 of
short-term borrowings, $5,163,000 of long-term debt and $2,039,000 of accrued
interest payable on its Swiss Convertible Bonds. Included in expenses were
legal, printing and accounting costs, bonuses paid to key employees of the
Company, as well as other costs. The Company recognized a gain of $18,844,000
from this transaction.
40
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. GPS Technologies, Inc. (Continued)
In connection with the public offering, a reorganization was effected on
September 25, 1991 whereby GP transferred certain operations and related assets
and liabilities to a new subsidiary, GPS Technologies, Inc. (GPS), formerly
named General Physics Services Corp. GP retained the business, assets and
liabilities of its Nuclear Services, Department of Energy Services and
Environmental Services Groups. Included among the businesses and assets
transferred to GPS were certain leases of property and equipment, and two
finance subsidiaries that own power plant control room simulators. As a result
of the public offering and the reorganization, the Company owns approximately
28% of GP and 92% of GPS. The financial position and results of operations of GP
are included in the consolidated accounts of the Company for all periods
presented through September 30, 1991. On October 3, 1991, the Company's
ownership fell below 50%. Thereafter, the Company's investment in GP has been
accounted for on the equity basis and the Company's share of GP's income (loss)
for the three months ended December 31, 1991 and years ended December 31, 1992
and 1993 in the amount of $432,000, $(144,000) and $316,000, respectively, after
the amortization of the underlying goodwill, is included in the caption
"Investment and other income, net" appearing in the consolidated statements of
operations. The financial position and results of operations of GPS are included
in the consolidated accounts of the Company. At December 31, 1993, the Company's
investment in GP was approximately $11,753,000, of which $6,829,000 represents
the difference between the carrying amount of the investment and the amount of
the underlying equity in the net assets. Such amount is included in investments
and advances on the Company's consolidated balance sheet and is being amortized
on a straight-line basis over its estimated benefit period, 30 years. At
December 31, 1993, the Company owned 1,771,407 shares of GP with a total market
value of $6,864,000.
Condensed financial information for GP is as follows as of December 31, 1993 and
1992 and for the years then ended (in thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Total assets $21,872 $23,086
Stockholders' equity 17,584 17,052
Revenues 62,402 73,314
Net income 1,763 139
</TABLE>
41
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. GTS Duratek, Inc.
On November 2, 1990, GTS Duratek, Inc. (Duratek), a majority owned subsidiary,
purchased General Technical Services, Inc. (GTS) from GP for a purchase price of
$7,500,000 in cash, 3,500,000 shares of Duratek's common stock and a $1,250,000
note. GTS, based in Columbia, Maryland, is a supplier of consulting and staff
augmentation services to utilities, Government agencies, and commercial
businesses. On December 31, 1992, Duratek issued 450,000 shares of Duratek
common stock to GPS in exchange for the $1,250,000 note and $150,000 of accrued
interest. In 1993, the Company distributed 667,134 shares of Duratek stock as
part of an Exchange Offer (See Note 9(a)). After the acquisition of GTS, the
retirement of the note and accrued interest and the Exchange Offer,
approximately 46% of the outstanding shares of Duratek's common stock is owned
by GPS (after the reorganization discussed in Note 2) and 20% of the shares are
owned by the Company. The Company, as a result of owning 92% of GPS, now
controls approximately 66% of Duratek. Duratek also provides environmental
services which includes the cleanup of water and other liquids containing
radioactive and/or hazardous (mixed waste) contaminants and in-furnace
vitrification for long-term stabilization of such waste.
In the fourth quarter of 1993, Duratek entered into a series of agreements which
resulted in the formation of a 50% owned company,Vitritek Environmental, Inc.
(Vitritek). The purpose of Vitritek is to develop technologies relating to the
vitrification of medical, hazardous and asbestos waste. In consideration for its
50% interest in Vitritek, Duratek contributed its option to acquire all rights,
title and interest in certain medical and hazardous waste vitrification
technologies. Duratek acquired this option for warrants to purchase 500,000
shares of Duratek's common stock for $4.00 per share and cash of $500,000
provided by the owners of the other 50% interest in Vitritek. The warrants
expire on September 30, 1997. In connection with these transactions, Duratek
agreed to sell to the two principal shareholders of the corporation which
contributed certain technologies relating to asbestos waste vitrification, and
who hold the other 50% interest in Vitritek, a total of 562,500 shares of
Duratek's common stock at $4.00 per share. Duratek received in consideration for
the shares, $1,500,000 in cash, and the two shareholders' interests in other
assets valued at $750,000.
42
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Interferon Sciences, Inc.
Interferon Sciences, Inc. (ISI) is a 36% owned affiliate of the Company. It is
engaged in the manufacture and sale of ALFERONR N Injection, ISI's first product
commercially approved by the FDA for the treatment of recurring and refractory
external genital warts, and the research and development of other alpha
interferon based products for the treatment of viral diseases, cancers and
diseases of the immune system.
On July 12, 1993, the Company commenced an Exchange Offer for its Swiss Franc
denominated Bonds and its Dual Currency Bonds. (See Note 9(a)). As a result of
the inclusion of a portion of the Company's shares of Common Stock of ISI as
part of the consideration in the Exchange Offer, the Company's ownership in ISI
fell below 50%, and therefore, commencing during the third quarter of 1993, the
Company accounted for the results of ISI on the equity basis. The Company's
investment in ISI of approximately $6,167,000 is included in "Investments and
Advances" on the Consolidated Balance Sheet. At December 31, 1993, the Company
owned 6,985,000 shares of ISI, with a market value of $32,743,000. The Company's
share of ISI's loss included in Investment and other income, net is $857,000 in
1993.
At December 31, 1993 and for the year then ended, condensed financial
information for ISI is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Total assets $20,301
Stockholders' equity 17,131
Revenues 51
Net loss (8,460)
</TABLE>
On May 28, 1993, David Blech, the Chief Executive Officer, sole shareholder and
a director of D. Blech & Company, Incorporated (DBC), and ISI entered into a
Purchase Agreement (the Purchase Agreement), pursuant to which David Blech or
his designees purchased for $4.00 per unit, an aggregate of 2,500,000 units
(Units), each Unit consisting of two shares of common stock of ISI; one Class A
Warrant to purchase one share of common stock of ISI at an exercise price of
$3.25 per share and one Class B Warrant to purchase one share of common stock of
ISI at an exercise price of $5.00 per share. The Class A Warrants and the Class
B Warrants expire on August 31, 2000. The purchasers have certain registration
rights as to the securities acquired by them under the Purchase Agreement.
43
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Interferon Sciences, Inc. (Continued)
On October 29, 1991, ISI completed a public offering of 2,300,000 shares of its
common stock at $5.00 per share resulting in net proceeds to ISI of
approximately $9,588,000. In connection with the public offering, the Company
converted its outstanding advance to ISI at September 30, 1991 of $4,985,000
into $2,200,000 of common stock and contributed the remainder to capital in
excess of par value.
On May 30, 1991, the Company exchanged its ISI Class B common stock for an equal
number of shares of common stock. As a result, on that date, ISI ceased to be
included in the Company's consolidated Federal income tax return.
On April 12, 1991, ISI, the Company, The Purdue Frederick Company (Purdue
Frederick) and certain other companies (The Purdue Affiliates) entered into an
agreement (the Funding Agreement). Under the terms of the Funding Agreement, (i)
The Purdue Affiliates agreed to purchase $3,600,000 of ISI common stock at a
price of $4.10 per share (which occurred on June 14, 1991), (ii) on June 3,
1991, the Company exchanged $3,800,000 of the Company's common stock (with a
guaranteed value of $3,800,000 of proceeds for ISI from the sale of the
Company's common stock) for an equal value of ISI common stock and, (iii) Purdue
Frederick agreed to convert $1,975,000 of the prepayments for product made by
it, $850,000 in 1990, $425,000 in January 1991, and $700,000 in February 1991
into shares of ISI common stock at $4.10 per share (which occurred on June 14,
1991). Between August and October, 1991, ISI received $1,200,000 in net proceeds
from the sale of the Company's common stock and the Company paid ISI the
remaining $2,600,000 on October 31, 1991 (which represents the difference
between the guaranteed amount of $3,800,000 and the amount realized from the
sale of the ISI common stock which was $1,200,000).
5. Inventories
Inventories, consisting of material, labor, and overhead, are classified as
follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,836 $ 2,536
Work in process 675 1,713
Finished goods 16,394 17,316
Land held for resale 2,700 2,788
- ----------------------------------------------------------------
$22,605 $24,353
- ----------------------------------------------------------------
</TABLE>
44
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, plant, and equipment
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Land $ 173 $ 314
Buildings and improvements 1,365 8,754
Machinery and equipment 19,308 22,039
Furniture and fixtures 7,951 7,175
Leasehold improvements 5,076 4,829
Construction in progress 472
- ----------------------------------------------------------------
33,873 43,583
Accumulated depreciation and
amortization (20,035) (22,043)
- ----------------------------------------------------------------
$ 13,838 $ 21,540
- ----------------------------------------------------------------
</TABLE>
7. Short-term borrowings
Short-term borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31, 1993 1992
- ------------------------------------------------------------------
<S> <C> <C>
Revolving Credit and Term Loan
Agreement (a) $ $ 4,196
Line of Credit Agreement (b) 11,732 13,506
Revolving Credit and Term Loan
Agreement (c) 5,650 3,700
Revolving Loan and Line of Credit
Arrangements (d) 898 1,153
Revolving Line of Credit
Agreement (e) 3,110 6,239
Notes Payable (f) 183
- ------------------------------------------------------------------
$21,390 $28,977
- ------------------------------------------------------------------
</TABLE>
45
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(a) On April 8 and October 3, 1991, the Company entered into two amendments to
its November 1, 1989, $15,000,000 Revolving Credit and Term Loan Agreement (the
Loan Agreement). Under the terms of the amendments, the outstanding balance of
$10,346,000 at October 3, 1991, was payable in nine equal quarterly installments
of $1,150,000 which commenced on March 31, 1992. The loan bore interest at a
rate equal to 1/2% in excess of the bank's prime rate. On September 9, 1992, the
Company amended the Loan Agreement. Under the terms of the amendment, the
outstanding balance at January 1, 1992 is payable in four quarterly installments
of $1,150,000, $2,308,000, $1,156,000 and $5,732,000, commencing September 30,
1992. In October 1992, the bank released the $5,000,000 in cash collateral,
which was used to reduce the loan balance and the last scheduled payment by
$5,000,000. The bank agreed to defer the December 31, 1992 payment of $2,308,000
to April 1993. The entire loan balance of $4,196,000 at December 31, 1992 was
classified as a current liability. In April 1993, the Company repaid the balance
of the loan. (See Note 7(b)).
(b) In April 1990, the Five Star Group, Inc., (Five Star) entered into a three
year line of credit arrangement with a bank. Five Star could borrow up to a
maximum of $17,000,000, subject to the level of its qualified accounts
receivable and inventory, at an interest rate of 3/4% in excess of the prime
rate, subject to reduction, based upon certain financial criteria. The line of
credit was secured by substantially all the intangible and tangible property of
Five Star. As part of the agreement, the Company could borrow up to a maximum of
$7,000,000 from Five Star. As of December 31, 1992, $13,506,000 was borrowed by
Five Star.
In April 1993, Five Star and MXL Industries, Inc. ("MXL") entered into a
revolving credit and term loan agreement (the "Five Star Loan Agreement" and
"MXL Loan Agreement"). The Five Star Loan Agreement, which replaced the above
agreement, provided for a $20,000,000 revolving credit facility (the "Five Star
Revolving Credit Facility") and a $5,000,000 term loan (the "Five Star Term
Loan"). The Five Star Revolving Credit Facility is a three year committed
facility which allows Five Star to borrow amounts equal to 40% of Eligible
Inventory (as defined) and 75% of Eligible Receivables (as defined) at an
interest rate of 1% in excess of the prime rate. At December 31, 1993, the
interest rate was 7%. As of December 31 1993, $11,732,000 was borrowed under the
Five Star Revolving Credit Facility and Five Star had no additional
availability.
46
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
The Five Star Term Loan is repayable in 10 quarterly payments of approximately
$417,000 which commenced October 31, 1993, and a final payment of approximately
$830,000 on April 30, 1996. The Five Star Term Loan bears interest at 1 % in
excess of the prime rate, and was 7 3/8 % at December 31, 1993. The Five Star
Revolving Credit Agreement and the Five Star Term Loan are secured by all of the
assets of Five Star and 1,359,375 shares of common stock of ISI and 1,062,500
shares of common stock of GP, which were contributed to Five Star in connection
with the forgoing transactions. At December 31, 1993, $4,583,000 was outstanding
under the Five Star Term Loan.
The MXL Loan Areement provides for a $1,500,000 revolving credit facility (the
"MXL Revolving Credit Facility") and a $4,500,000 term loan (The "MXL Term
Loan"). The MXL Revolving Credit Facility is a three year committed facility
which allows MXL to borrow amounts equal to 25% of Eligible Inventory (as
defined) and 80% of Eligible Receivables (as defined) at an interest rate of 1%
in excess of the prime rate. At December 31, 1993, the interest rate was 7%. As
of December 31, 1993, there were no borrowings under the MXL Revolving Credit
Facility and the balance of the MXL Term Loan was $4,125,000. The MXL Term Loan
is repayable in 10 quarterly payments of approximately $375,000, which commenced
on October 31, 1993 with a final payment of $750,000 on April 30, 1996. The MXL
Term Loan bears interest at 1 3/8 % in excess of the prime rate, and was 7 3/8%
at December 31, 1993. The facilities are secured by all of the assets (other
than certain equipment) of MXL and by 815,625 shares of common stock of ISI
and 637,500 shares of common stock of GP, which were contributed to MXL in
connection with the forgoing transactions.
The Five Star Revolving Credit Facility and Five Star Term Loan and the MXL
Revolving Credit Agreement and MXL Term Loan are guaranteed by the Company. The
Agreements, among other things, limit the amount that Five Star and MXL may
borrow from other sources,the amount and nature of certain expenditures,
acquisitions and sales of assets, and the amount that Five Star and MXL can loan
or dividend to the Company. The agreements have several covenants, including
provisions regarding working capital, tangible net worth, leverage and cash flow
ratios.
47
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(c) On October 3, 1991, GPS entered into an Amended and Restated Revolving
Credit and Term Loan and Security Agreement (the Agreement) with two banks. The
Agreement provided for a Term Loan of $5,000,000 and additional Revolving Credit
borrowings of up to $5,000,000. Borrowings under the Agreement were provided
equally by the participating banks, secured by accounts receivable, and bore
interest at rates set by such banks under options provided for in the Agreement.
Such Agreement, among other things, limited the amount that GPS may borrow from
other sources and the amount and nature of certain expenditures and required GPS
to maintain tangible net worth, working capital, cash flow, and debt ratios, as
defined in the Agreement. Term Loan borrowings were due in quarterly
installments which commenced December 31, 1991 and were to end on September 30,
1994.
On June 30, 1993, GPS replaced the above agreement with a new three year
$10,000,000 credit facility. The credit facility is secured by the accounts
receivable and fixed assets of GPS. The initial $5,000,000 of the credit
facility is fixed at an interest rate of 7.98% and the second $5,000,000 of the
credit facility bears interest at a rate equal to 1.25% in excess of the bank's
prime rate. At December 31, 1993, $5,650,000 was borrowed under the credit
facility.
(d) In August 1991, Eastern Electronics Manufacturing Corporation (Eastern)
assigned the remaining balance on its line of credit with a bank to a finance
company, with whom Eastern entered into a Security Agreement. Under the terms of
the Agreement, Eastern can borrow up to 80% of the net amount of eligible and
outstanding accounts receivable, as defined, at an interest rate of 5 1/2% over
the prime rate of interest (11.5% at December 31, 1993). At December 31, 1993,
$898,000 was borrowed under the Agreement.
48
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Short-term borrowings (Continued)
(e) On February 9, 1993, Duratek entered into a $7,000,000 Revolving Line of
Credit (the Line) and a $400,000 Loans to Facility (the Facility) for fixed
asset purchases with a commercial bank. On June 11, 1993, the Line was
increased to $7,750,000 and the Facility was increased to $750,000. Term Loans
under the Facility will be due over a 36 month period from the date of issue
and bear interest at the bank's prime rate plus 1 %. The Facility is secured
by the specific fixed assets financed under the Facility. The Line bears
interest at the bank's prime interest rate plus 1% and is secured by the
accounts receivable, inventory and property, plant and equipment of Duratek.
The Line requires Duratek to meet certain covenants concerning, among other
things, minimum tangible net worth, total liabilities to tangible net worth,
and profitability. It also contains limitations with respect to dividends or
other distributions to stockholders, mergers, acquisitions, and research and
development expenses. Short-term borrowings during 1992 were under an
agreement similar to the current agreement described above. At December 31,
1993, borrowings were $3,110,000 under the Line and $500,000 is outstanding
under the Facility.
(f) In December 1992, the Company repurchased SFr. 1,264,000 of its
outstanding Swiss Bonds for a $466,000 Note, which bore interest at 1/2% per
month, due February 24, 1993. The Note was secured by 250,000 shares of the
Company's common stock. The principal amount of the Note could be reduced by
the proceeds from the sale of the common stock by the Company. At December 31,
1992, the balance of the Note, reduced for the proceeds from the sale of the
Company's common stock, was $183,000. The balance was repaid in February 1993.
8. Accounts payable and accrued expenses
<TABLE>
<CAPTION>
Accounts payable and accrued expenses are comprised of the
following (in thousands):
- --------------------------------------------------------------------------------
December 31, 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $10,234 $ 9,824
Payroll and related costs 4,202 3,969
Interest 1,369 1,385
Other 4,451 3,814
- --------------------------------------------------------------------------------
$20,256 $18,992
- --------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 31, 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C>
5% Convertible Bonds due 1999 (a) $ 2,300 $
8% Swiss Bonds due 1995 (b) 4,572 20,075
6% Convertible Swiss Bonds due 1995 (c) 5,815 9,733
5.75% Convertible Swiss Bonds
due 1995 (c) 2,370 4,436
5.625% Convertible Swiss Bonds
due 1996 (d) 3,189 5,887
7% Dual Currency Convertible Bonds
due 1996 (d) 3,926 5,118
12% Subordinated Debentures due 1997 (e) 6,829 6,932
Term loan with banks (Note 7(b)) 8,708 2,917
Note payable for manufacturing facility
and equipment (i) 3,026
Notes payable in connection with
settlement of litigation (f) and (g) 951 951
Equipment lease obligations (2) 2,198 1,582
9.6% Industrial Revenue Bond (3) (h) 195
Mortgage Notes maturing 1993 (1) 130
Note payable (j) 459
- --------------------------------------------------------------------------
40,858 61,441
Less current maturities 4,220 4,356
- --------------------------------------------------------------------------
$36,638 $57,085
- --------------------------------------------------------------------------
</TABLE>
(1) Secured by manufacturing and other facilities.
(2) Secured by assets held under capital lease obligations.
(3) Secured by equipment of ISI.
(a) The Company commenced an Exchange Offer on July 12, 1993, for any and
all of its Swiss Franc denominated 8% Bonds due March 1, 1995, 6% Convertible
Bonds due March 7, 1995, 5 3/4% Convertible Bonds due May 9, 1995, 5 5/8%
Convertible bonds due March 18, 1996 (collectively, the "Old Swiss Franc
Bonds") and 7% Dual Currency Bonds due March 18, 1996 (the "Old U.S. Dollar
Bonds" and collectively with the Old Swiss Franc Bonds, the "Old Bonds"). The
purpose of the Exchange Offer was to reduce the Company's long-term
indebtedness and related interest expense.
50
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
The consideration offered by the Company for each SFr. 1,000 principal
amount of Old Swiss Franc Bonds validly tendered and not withdrawn prior to
the Expiration Date (August 19, 1993) was: a) 5% U.S. dollar denominated
Convertible Bonds of the Company due August 31, 1999 (the "New 5% Bonds") in a
principal amount of $130 and convertible into 30 shares of the Company's
Common Stock ("Common Stock"), b) 54 shares of Common Stock, c) 26 shares of
Common Stock of ISI (the "ISI Common Stock"), d) 26 shares of Common Stock of
Duratek (the "Duratek Common Stock") and e) $43 in cash.
The consideration offered by the Company for each $1,000 principal
amount of Old U.S. Dollar Bonds validly tendered and not withdrawn prior to
the Expiration Date was: a) New 5% Bonds in a principal amount of $200 and
convertible into 46 shares of Common Stock, b) 81 shares of Common Stock, c)
39 shares of ISI Common Stock, d) 39 shares of Duratek Common Stock and e) $60
in cash.
On the Expiration Date the Company accepted the following amounts of
Old Bonds for exchange: SFr. 3,640,000 of the 6% Bonds due March 7, 1995, SFr.
1,125,000 of the 5 3/4% Bonds due May 9, 1995, SFr. 2,765,000 of the 5 5/8%
Bonds due March 18, 1996, SFr. 16,806,000 of the 8% Bonds due March 1, 1995 and
$882,000 of the 7% Bonds due March 18, 1996. Under the terms of the Offer,
which included all unpaid accrued interest thereon, the Company issued the
following amounts of consideration to the exchanging bondholders a) 1,385,586
shares of Common Stock, valued at $5,582,000, b) 667,134 shares of ISI Common
Stock, valued at $2,536,000, c) 667,134 shares of Duratek Common Stock, valued
at $2,536,000, d) $3,340,080 principal amount of New 5% Bonds which will be
convertible into 767,833 shares of the Common Stock, and e) $1,099,368 in
cash. The Company recorded an original issue discount on the New 5% Bonds of
10%. At December 31, 1993, $2,536,000 of the New 5% Bonds were outstanding.
As a result of the Exchange Offer, the Company realized a gain of
$3,795,000 from the issuance of the ISI and Duratek Common Stock, and an
extraordinary gain from the early extinguishment of debt, before income tax
effect, of $1,227,000.
51
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Contiuned)
(b) On December 20, 1989, in exchange for Swiss Francs (SFr.) 32,420,000
($20,318,000) of its 6% Convertible Swiss Bonds due March 7, 1995, SFr.
26,335,000 ($16,515,000) of its 5.75% Convertible Swiss Bonds due May 9, 1995,
and SFr. 26,685,000 ($16,734,000) of its 5.625% Convertible Swiss Bonds due
March 18, 1996, (collectively, the Old Bonds), each in the principal amount of
SFr. 5,000, plus all unpaid accrued interest thereon, the Company issued: (a)
SFr. 51,264,000 ($32,140,000) of its 8% Swiss Bonds due March 1, 1995, each in
the principal amount of SFr. 3,000, (the New Bonds) of which SFr. 7,401,000
are currently outstanding, (b) 17,088 Reset Warrants, each of which entitles
the holder to purchase 75 shares of the Company's common stock, at a price
determined by formula, exercisable until March 1, 1995, (c) 17,088 Common
Stock Warrants, each of which entitles the holder to acquire without further
consideration shares of the Company's common stock with a market value of SFr.
250, exercisable until March 1, 1995, and (d) SFr. 750 in cash.
The Company recorded an original issue discount on the New Bonds of
40%, based upon exchange values estimated by the Swiss exchange agent.
Expenses of the exchange offer totaled $2,116,000. The discount and the
offering expenses, which have been deferred, are being amortized over the term
of the New Bonds.
(c) On March 7, 1985, the Company issued, pursuant to a Swiss Public Bond
Issue Agreement, 6% Convertible Bonds due March 7, 1995 representing an
aggregate principal amount of SFr. 60,000,000, of which SFr. 8,635,000 are
currently outstanding (see (a) and (b) above). The outstanding bonds are
convertible into 148,522 shares of the Company's common stock at any time
prior to February 10, 1995 at a conversion price of approximately $39.15 per
share based on an exchange rate of SFr 1.485 per U.S. $1.00. In addition, on
May 9, 1985, the Company issued, pursuant to a second Swiss Public Bond Issue
Agreement, 5.75% Convertible Bonds due May 9, 1995, representing an aggregate
principal amount of SFr. 50,000,000, of which SFr. 3,520,000 are currently
outstanding (see (a) and (b) above). These outstanding bonds are convertible
into 75,328 shares of the Company's common stock at a conversion price of
$31.47 per share based on an exchange rate of SFr 1.485 per U.S. $1.00 at any
time prior to April 22, 1995. Expenses of both Swiss Public Bond Issues
totaled approximately $1,793,000 and at December 31, 1993 and 1992, the
unamortized balances of such expenses were $30,000 and $91,000, respectively.
52
<PAGE>
(d) On March 18, 1986, the Company issued, pursuant to a third Swiss Public
Bond Issue Agreement, 5.625% Convertible Bonds payable in 1996, representing
an aggregate principal amount of SFr. 50,000,000, of which SFr. 4,735,000 are
currently outstanding (see (a) and (b) above). Additionally, the Company
issued 7% Dual Currency Convertible Bonds, payable in 1996, representing an
aggregate principal amount of SFr. 25,000,000, but payable at maturity at the
fixed amount of $15,000,000. The outstanding Bonds are convertible into
218,800 shares of the Company's common stock at any time prior to March 8,
1996 at a conversion price of $34.71 per share based on an exchange rate of
SFr 1.485 per U.S. $1.00. Under certain circumstances, the Company may redeem
all of the Bonds (but not a part only) at a redemption price equal to par
value. Expenses related to the issuance of the Bonds totaled approximately
$1,660,000 and at December 31, 1993 and 1992, the unamortized balances of such
expenses were $61,000 and $132,000, respectively. The Dual Currency Bonds were
issued as part of the Company's overall financing strategy, without any intent
to either speculate in foreign exchange or to hedge any existing foreign
currency exposure. It is the Company's policy to record periodic interest
expense on the Dual Currency Bonds at the then current exchange rate. At
December 31, 1993 and 1992, based on year end exchange rates, the effective
rates of interest would be approximately 8%. At December 31, 1993, the
effective rate of interest of approximately 8% would result in an additional
$33,000 of interest expense per year, through March 1996.
On August 10, 1990, the Company completed an Exchange Offer pursuant to which
it received $4,659,000 of its 7% Dual Currency Convertible Bonds due March 18,
1996 (Bonds). In exchange, the Company issued 540,444 shares of its Common
Stock and warrants to purchase 465,900 shares of the Common Stock, par value
$.01 per share, of ISI, currently the Company's 36% owned affiliate,
exercisable at a price of $6.88 per share until August 16, 1992. The Exchange
Offer was completed on August 10, 1990 and the Company recorded an
extraordinary gain of $1,477,000 on the early extinguishment of the Bonds.
During February 1992, ISI called the warrants, resulting in net proceeds to
ISI of $2,956,000 from the issuance of 432,600 shares of ISI common stock upon
exercise of the warrants.
In addition to the bonds exchanged (see (a) and (b) above), during 1993, 1992
and 1991 the Company repurchased a portion of each of the Swiss Public Bond
Issues as well as Dual Currency Convertible Bonds. Extraordinary gains from
the early extinguishment of the Bonds in all such transactions amounted to
$1,819,000 (net of income taxes), $1,662,000 and $2,037,000, respectively.
53
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
(e) During the third quarter of 1987, the Company issued $12,500,000 of
Subordinated Debentures (Debentures) which mature in 1997. Each $100 principal
amount Debenture was sold with warrants to purchase four shares of the
Company's common stock at a price of $18.50 per share. Expenses of the
offering amounted to approximately $1,908,000 and as of December 31, 1993 and
1992, the unamortized balances of such expenses were $432,000 and $550,000. In
connection with the terms of the Debentures, the Company is subject to certain
covenants which limit the amount that may be used for the payment of dividends
and for the purchase of the Company's outstanding equity securities (common or
Class B). In September 1990, under the terms of an Indenture, the Debentures
became exchangeable for the Company's Common Stock, for the remaining term of
the Debentures, at a price of approximately $5.00 per share. In 1993 and 1992,
$82,000 and $179,000, respectively, of Debentures were converted into 16,579
and 35,933 shares, respectively, of the Company's Common Stock. At December
31, 1993, the Debentures are convertible into approximately 1,374,000 shares
of the Company's Common Stock.
(f) In March 1987, the Company and Ryder International Corporation (Ryder)
agreed to a settlement of litigation relating to the Company's Caridex/R/
system. Under the terms of the settlement agreement, the Company agreed to pay
Ryder (i) $1,000,000 in cash; (ii) $2,000,000 in common stock of the Company
(133,333 shares, valued at $2,000,000 were issued from treasury stock during
1987, and subsequently repurchased for $2,000,000 during 1988); and (iii)
$300,000 per year (in cash or common stock of the Company) for a ten year
period commencing January 15, 1988, the present value of which is discounted
at 10%, and included in long-term debt.
(g) In May 1987, the Company and George K. Burke, Sr. and Concetta J. Burke
(the Burkes) settled a lawsuit asserting various claims for relief against the
Company with respect to several agreements concerning the marketing and
development of the EPIC/R/ system of intravenous devices, which the Company had
discontinued in December 1983. As a result of the settlement the Burkes
received $500,000 in cash upon execution of the settlement agreement and
received $250,000 a year (in cash or common stock of the Company) for a five
year period commencing in May 1988. In 1987, the Company recorded an
additional loss from this discontinued operation totaling $1,500,000,
representing the present value of the amounts due the Burkes plus the costs
relating to the litigation and settlement. The final payment was made in the
common stock of the Company in 1992.
54
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt (Continued)
(h) During May 1983, ISI, a currently 36% controlled affiliate of the
Company, completed the sale of a 9.6% $1,450,000 Industrial Revenue Bond to
the New Jersey Economic Development Authority. The net proceeds were used to
pay for laboratory construction and equipment. The terms of the bond indenture
call for annual principal installments of $195,000 through 1993.
(i) In March 1990, ISI borrowed $4,200,000 from a subsidiary of a bank at
an effective interest rate of 12.4% principally for the expansion of its
manufacturing facility. The loan calls for monthly payments of $41,500 for
months 1 to 24, which is comprised of interest only, and $139,500 (principal
and interest) for months 25 to 60. The loan is secured by certain equipment of
ISI and is guaranteed by the Company.
(j) In December 1991, ISI issued a $459,000 note to Purdue Pharma L.P., an
affiliate of The Purdue Frederick Company, its marketing partner. The note
bears interest at 7.5% per annum, and required payment of interest and
principal on December 31, 1993, which was subsequently extended to April 27,
1994. As a result of the Exchange Offer (See (a)), ISI is currently accounted
for on the equity basis.
Aggregate annual maturities of long-term debt outstanding at December 31, 1993
for each of the next five years are as follows (in thousands):
1994 $ 4,220
1995 17,052
1996 10,007
1997 7,235
1998 44
10. Investment in finance subsidiaries
GPS Technologies, Inc. is a high technology service company that assists
industry and the Navy in maximizing the effectiveness of their equipment and
facilities through the rigorous training of technical personnel and the
development and implementation of operational procedures and maintenance
programs. GPS conducts certain of its services using power plant training
simulators, the majority of which are owned by its clients. However, at
December 31, 1993, two simulators are owned by wholly owned subsidiaries of
GPS.
55
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in finance subsidiaries (Continued)
Through these subsidiaries, GPS has entered into long-term agreements with two
domestic utilities to provide nuclear power plant simulator training services
along with the attendant nuclear power plant training simulators and related
training equipment. Under the provisions of the agreements, the subsidiaries
obtained non-recourse long-term financing from a bank to finance the purchase
of the simulators and training equipment. The agreements provide that the
subsidiaries are compensated, in part, for use of the simulators on
essentially a lease financing basis.
The agreements provide that the payments by the utilities will enable the
subsidiaries to recover the cost of the simulators plus interest at floating
rates which range from prime to 115% of prime, as well as the cost of
simulator replacement parts, taxes, and insurance. Such amounts will be
sufficient to fully service the related long-term debt discussed below. All
training services are performed by GPS personnel and are billed at established
hourly rates. Revenues for these services are recognized by GPS.
Under the agreements, the utilities have options to purchase the simulators
and other training equipment at the end of the loan terms.
Non-recourse long-term debt relating to the simulators consists of the
following (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------
<S> <C> <C>
Notes payable to bank (1) $ 3,109 $ 5,820
Less current maturities 2,530 2,711
- ---------------------------------------------------
Long-term debt $ 579 $ 3,109
- ---------------------------------------------------
</TABLE>
(1) These loans bear interest at floating rates, which range from the bank's
prime rate to 115% of the bank's prime rate, and are payable in monthly
installments over periods of up to 15 years from the initial dates of each of
the loans.
The loans are secured by the equipment and all rights under the agreements
with the utilities. Under these agreements, GPS has agreed to guarantee the
service performance with the utilities but has not guaranteed the obligations
of its subsidiaries under the loan agreements. GPS has also agreed to maintain
a minimum debt to equity ratio, a minimum tangible net worth and a minimum
working capital, as defined.
56
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in finance subsidiaries (Continued)
Aggregate annual maturities of the non-recourse notes payable at December 31,
1993 for each of the succeeding years are as follows (in thousands):
1994 $ 2,530
1995 579
Summarized combined financial information of the finance subsidiaries is as
follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------
<S> <C> <C>
Balance Sheet Data
Assets
Investments in financed assets $ 2,797 $ 5,507
Other assets 413 439
- ---------------------------------------------------
Total assets $ 3,210 $ 5,946
- ---------------------------------------------------
Liabilities and stockholders'
equity
Non-recourse notes payable $ 3,109 $ 5,820
Other liabilities 27
Stockholders' equity 101 99
- ---------------------------------------------------
Total liabilities and
stockholders' equity $ 3,210 $ 5,946
- ---------------------------------------------------
</TABLE>
11. Common stock issued subject to repurchase obligation
During the fourth quarter of 1993, the Company entered into several privately
negotiated agreements (the Agreements), pursuant to which it reacquired
previously outstanding Swiss Bonds in exchange for newly issued common stock.
In addition to common stock, the Company issued to the exchanging bondholder
in each transaction a non-negotiable, non interest bearing promissory note
(the Note) in a principal amount equal to the market value of the common stock
issued in the exchange. The recipient in each transaction obtained the rights,
exercisable within approximately a one year period from the date of the
Agreement, to sell, retain, or return to the Company the common stock
received, in whole or in part. Net proceeds of any sales of common stock by
the recipient during the period reduces the amount due under the Note, and
sales of common stock for net proceeds equal to or in excess of the principal
amount of the Note would cause the Note to be deemed as paid in full. Any
excess proceeds of sale of the stock over the principal amount of the Note are
retained by the stockholder.
57
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Common stock issued subject to repurchase obligation (Continued)
The Company has accounted for the issuance of the common stock as permanent
equity to the extent of the proceeds of subsequent sales of stock by the
recipients, and as temporary equity for the balance of the market value of the
common stock issued. The Notes serve as a guarantee of the amounts which may
be refundable to the recipients of the common stock under the Agreement. The
Company's maximum repurchase or refund obligation under these Agreements as of
December 31, 1993 aggregated $4,242,000.
12. Treasury stock transactions
Treasury stock was issued as follows in 1992 and 1991:
<TABLE>
<CAPTION>
Number of Shares
----------------
1992 1991
---- ----
<S> <C> <C>
In settlement of litigation
(see Note 9(f) and (g)) 205,245
Investment banking fees 78,348
Interest due on note payable 225,763
Note payable 93,788
Purchase stock of subsidiary 19,608
Employee bonuses 2,250
Repurchase 8% Swiss Bonds 97,772 69,142
ISI funding agreement 50,000
In payment of interest due
on 8% Swiss Bonds 200,000
Consulting fees 5,000 73,335
Other 136,142
------- ---------
102,772 1,153,621
------- ---------
</TABLE>
There were no issuances of treasury stock in 1993.
58
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Disposal of business
On April 8, 1991, the Company transferred substantially all the assets of
its National Patent Medical Division to a new partnership, National Patent
Medical Partnership, L.P. (NPM). In return, the Company received a 49%
interest in the partnership, $7,200,000 in cash and a $1,800,000 note at the
prime rate of interest plus 1/2%. The note is due in two equal installments in
1996 and 1997. In addition, the new partnership repaid $4,000,000 of short-
term borrowings attributable to the National Patent Medical Division. The
Company did not recognize any gain or loss as a result of this transaction.
NPM is involved in the manufacturing and distribution of first-aid products,
surgical dressings and other disposable hospital products. The financial
position and results of operations of NPM are included in the consolidated
accounts of the Company for all periods presented through April 8, 1991, the
date that the Company's ownership of NPM fell below 50%. Since then, the
accounts of NPM have not been consolidated with those of the Company. NPM's
net sales and operating loss through April 8, 1991 were $11,129,000 and
$(81,000), respectively. In November 1992, NPM Healthcare Products, Inc.
(NPMH), a successor to NPM, completed an initial public offering. As a result
of the public offering, the Company received approximately $4,500,000 in net
proceeds, which approximated the carrying value of the shares sold.
The Company has accounted for its investment in NPMH on the equity basis for
the period from April 9, 1991, when its equity in NPMH fell below 50%, to
December 31, 1991, and for the period from January 1, 1992 to October 1992,
when its equity fell to approximately 14% as a result of the public offering.
The Company's share in the net income (loss) of NPMH for the periods ended
December 31, 1991 and October 31, 1992, amounted to $(805,000) and $35,000,
respectively, after amortization of the underlying goodwill. At December 31,
1993, the Company's investment in NPMH was $3,914,000. In 1994, NPMH changed
its name to American White Cross, Inc.
59
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee benefit plans
The Company had a Defined Benefit Pension Plan (the Plan) for employees of
certain divisions and subsidiaries. Benefits were based primarily on years of
service and a fixed rate of benefits per year of service. Contributions were
intended to provide not only for benefits attributed to service to date but
also for those expected to be earned in the future.
Effective December 31, 1991, the Plan benefits were frozen. Accrued vested
benefits will be paid to terminated participants in the form of a lump sum
distribution in cases where the accrued vested benefit is less than $3,500.
Terminated participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the $7,500 payable limit
as outlined in the Plan, payment will be deferred until a terminated vested
participant reaches age 65 or elects early retirement at an earlier date, at
age 60 or later. The pension expense amounted to $377,000, $23,000 and
$552,000, for 1993, 1992 and 1991, respectively.
The following table sets forth the funded status of the plan and the amount
recognized in the Company's Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit
plan obligations:
Accumulated benefit obligation (including
vested benefits of $4,838,
$3,976 and $3,967) $ (4,917) $ (3,976) $(3,967)
- -------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $ (4,917) $ (3,976) $(3,967)
Plan assets at fair value 3,528 3,120 2,659
- -------------------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets (1,389) (856) (1,308)
Unrecognized net loss from past
experience different
from that assumed 339
- -------------------------------------------------------------------------------
Accrued pension cost included in accounts
payable and accrued expenses in the
consolidated balance sheets $(1,050) $ (856) $(1,308)
- -------------------------------------------------------------------------------
The net periodic pension expense
is as follows:
Service cost-benefits earned $ $ $ 346
Interest cost on projected benefit
obligations 341 340 360
Actual return on plan assets (414) (317) (209)
Net amortization and deferraland other 450 55
- -------------------------------------------------------------------------------
Net periodic pension expense $ 377 $ 23 $ 552
- -------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee benefit plans (Continued)
The Company's assumptions used as of December 31, 1993, 1992, and 1991 in
determining the pension cost and pension cost liability shown above were as
follows:
Percent
-------
1993 1992 1991
---- ---- ----
Discount rate 7.5 8.5 8.5
Long-term rate of return
on assets 10.0 10.0 10.0
Effective March 1, 1992, the Company adopted the 1992 401(K) Savings Plan (the
Savings Plan). Effective December 31, 1991, the Plan participants would no
longer accrue benefits under the Defined Benefit Pension Plan, but became
eligible to participate in the Company's Savings Plan.
The Company's Savings Plan is for employees who have completed one year of
service; however, past vesting service credit was recognized for employees who
participated in the Savings Plan at the date of initial enrollment, March 1,
1992.
The Savings Plan permits pre-tax contributions to the Savings Plan by
participants pursuant to Section 401(K) of the Internal Revenue Code of 2% to
6% of base compensation. The Company matches 40% of the participants' eligible
contributions based on a formula set forth in the Savings Plan. Participants
are fully vested in their contributions and may withdraw such contributions at
time of employment termination, or at age 59 or earlier in the event of
financial hardship. Amounts otherwise are paid at retirement or in the event
of death or disability. Employer contributions vest at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the Board of
Directors of the Company and all contributions are held by the trustee and
invested at the participants' direction in various mutual funds. The expense
associated with the Savings Plan was $236,000 and $214,000 in 1993 and 1992,
respectively. During the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standard No. 106 (SFAS No. 106), "Employers'
Accounting for Post Retirement Benefits Other Than Pensions". This statement
requires that the expected cost of post retirement benefits be fully accrued
by the first date of full benefit eligibility, rather then expensing the
benefit when payment is made. As the Company generally does not provide post
retirement benefits, other than pension, the new statement did not have any
material effect on the Company's financial condition or results of
operations.
61
<PAGE>
NATIONAL PATENT DEVELOPEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income taxes
The components of pretax income (loss) are as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $(8,371) $(13,178) $ 1,157
Extraordinary gain 2,862 1,662 2,037
- -------------------------------------------------------------------------------
$(5,509) $(11,516) $ 3,194
- -------------------------------------------------------------------------------
</TABLE>
The components of income tax benefit (expense) from continuing operations are
as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
State and local,net $ (398) $ (427) $ (549)
Federal tax benefit 973
- -------------------------------------------------------------------------------
$ 575 $ (427) $ (549)
- -------------------------------------------------------------------------------
</TABLE>
In 1991, despite the Company's $1,157,000 income before income taxes, as well
as its $2,037,000 gain from extraordinary item, no Federal income tax expense
was recognized. This is due principally to significant permanent differences
between financial and tax reporting of 1991 transactions, including the
elimination for tax purposes of the $18,844,000 gain on the sale of GP stock
net of a gain recognized only for tax purposes upon ISI ceasing to be a member
of the Company's consolidated Federal income tax return group on May 31, 1991.
The income tax expense for 1991 of $549,000 represents state and local income
taxes.
In 1992, the Company's loss before income taxes exceeded its gains from
extraordinary items; therefore, no income tax expense applicable to such
extraordinary gains was recognized. The income tax expense for 1992 of
$427,000 represents state and local income taxes.
In 1993, the Company recorded an income tax benefit of $1,043,000, of which
$973,000 relates to Federal income taxes, in continuing operations as a result
of the income tax expense allocated to the extraordinary gain recognized on
the early extinguishment of debt under the provisions of FASB No. 109.
62
<PAGE>
As of December 31, 1993, the Company has approximately $22,520,000 of
consolidated net operating loss carryovers for Federal income tax return
purposes, which expire beginning in the years 2002 through 2008. In addition,
the Company has approximately $2,784,000 of available credit carryovers.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
This statement requires that deferred income taxes be recorded following the
liability method of accounting and adjusted periodically when income tax rates
change. Adoption of the new Statement did not have a material effect on the
Company's financial condition or results of operations since the Company does
not carry any deferred tax accounts on its balance sheet.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.
The Company has, as of December 31, 1993, deferred tax assets of approximately
$19,267,000, deferred tax liabilities of approximately $5,909,000 and a
valuation allowance of approximately $13,358,000.
63
<PAGE>
These deferred tax assets and liabilities relate to the following as of
December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Deferred tax assets:
- -------------------
<S> <C>
Accounts receivable, principally due to allowance for doubtful accounts $ 618
Investment in partially owned companies 6,492
Inventory 55
Lawsuit settlements 468
Accrued expenses 67
Net operating loss carryforwards 8,783
Investment tax credit carryforwards 2,784
------
19,267
------
Deferred tax liabilities:
- ------------------------
Property and equipment, principally due to
differences in depreciation 1,885
Unamortized debt discount 1,224
Unrealized exchange gain 2,383
State taxes 417
------
5,909
------
Net deferred tax assets 13,358
------
Less valuation allowance (13,358)
------
Net deferred taxes $
------
</TABLE>
64
<PAGE>
16. Stock options, warrants and other shares reserved
Under the Company's non-qualified stock option plan, employees and certain other
parties may be granted options to purchase shares of common stock. The options
may be granted at a price not less than 85% of the fair market value of the
common stock on the date of grant and are exercisable over periods not exceeding
ten years from the date of grant. Shares of common stock are also reserved for
issuance pursuant to other agreements, as described below. Changes in options
and warrants outstanding during 1991, 1992, and 1993, options and warrants
exercisable and shares reserved for issuance at December 31, 1991, 1992, and
1993 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Common Stock Class B Capital Stock
- -----------------------------------------------------------------------------------
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1990 2.25 - 18.50 5,609,334 2.25 1,550,000
Granted 3.75 - 5.625 90,000
Exercised 2.25 - 3.75 (247,700)
Terminated 2.25 - 15.00 (232,750)
- -----------------------------------------------------------------------------------
December 31, 1991 2.25 - 18.50 5,218,884 2.25 1,550,000
- -----------------------------------------------------------------------------------
Granted 2.25 - 2.75 32,500
Exercised 2.25 (128,930)
Terminated 2.25 - 18.50 (540,850)
- -----------------------------------------------------------------------------------
December 31, 1992 2.25 - 6.00 4,581,604 2.25 1,550,000
- -----------------------------------------------------------------------------------
Granted 2.875 - 4.125 18,000
Exercised 2.25 - 5.15 (175,125)
Terminated 2.25 - 5.625 (47,040)
- -----------------------------------------------------------------------------------
December 31, 1993 2.25 - 6.00 4,377,439 2.25 1,550,000
- -----------------------------------------------------------------------------------
Options and warrants
exercisable
December 31, 1991 2.25 - 18.50 4,853,464 2.25 1,550,000
December 31, 1992 2.25 - 6.00 4,458,864 2.25 1,550,000
December 31, 1993 2.25 - 6.00 4,317,679 2.25 1,550,000
- -----------------------------------------------------------------------------------
Shares reserved for
issuance
December 1991 11,258,647 1,550,000
- -----------------------------------------------------------------------------------
December 1992 10,583,723 1,550,000
- -----------------------------------------------------------------------------------
December 1993 11,387,458 1,550,000
- -----------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
At December 31, 1993, 1992, and 1991, options outstanding included 2,017,334
shares for two officers who are principal shareholders of the Company. In
December 1992, the exercisable period of 200,000 options previously granted in
December 1987, was extended to December 1997.
Class B capital stock aggregating 1,550,000 shares at December 31, 1993, 1992,
and 1991 were reserved for issuance to these same two officers.
The holders of common stock are entitled to one vote per share and the holders
of Class B capital stock are entitled to ten votes per share on all matters
without distinction between classes, except when approval of a majority of each
class is required by statute. The Class B capital stock is convertible at any
time, at the option of the holders of such stock, into shares of common stock on
a share-for-share basis. Common shares reserved for issuance at December 31,
1993, 1992, and 1991 include 1,800,000 shares in connection with Class B shares.
At December 31, 1993, 1992, and 1991, shares reserved for issuance were
primarily related to shares reserved for options, warrants and the conversion of
long-term debt.
17. Business segments
The operations of the Company consist of the following business segments:
Physical Science Group - products and services for the power industry, as well
as for governmental agencies and industry in general; Distribution Group -
wholesale distribution of home decorating, hardware and finishing products;
Health Care Group -interferon research and production; Optical Plastics Group -
the manufacture and distribution of coated and molded plastic products;
Electronics Group - electronic manufacturing and assembly.
As a result of the Exchange Offer, (See Note 9(a)), ISI is currently accounted
for on the equity basis. Therefore, its operating activities are reflected in
the Health Care Group only through the completion of the Exchange Offer (See
Note 4).
66
<PAGE>
The following tables set forth the revenues and operating results (in thousands)
attributable to each line of business and include a reconciliation of the
groups' revenues to consolidated revenues and operating results to consolidated
income (loss) from operations before income taxes and extraordinary items for
the periods presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Physical Science $103,152 $109,966 $163,922
Distribution 74,974 69,121 65,624
Health Care 1,533 4,762 14,909
Optical Plastics 7,952 8,015 9,573
Electronics 3,815 5,481 7,271
Other 989 851 461
- --------------------------------------------------------------------------------
192,415 198,196 261,760
Investment and other
income, net 626 3,790 (37)
- --------------------------------------------------------------------------------
Total revenues $193,041 $201,986 $261,723
- --------------------------------------------------------------------------------
Operating results
Physical Science $ 500 $ 2,410 $ 5,346
Distribution 1,948 2,877 2,852
Health Care (4,431) (6,583) (5,690)
Optical Plastics 1,378 1,565 1,855
Electronics (821) (1,849) (707)
Other (587) (99) (463)
- --------------------------------------------------------------------------------
Total operating profit (loss) (2,013) (1,679) 3,193
Interest expense (8,325) (11,044) (15,579)
Indirect administrative expenses,
net of gains or losses from
dispositions of investments,
minority interests, foreign
currency exchange gains
or losses, and other revenue 1,967 (455) 13,543
- --------------------------------------------------------------------------------
Income (loss) from operations
before income taxes and
extraordinary item $ (8,371) $(13,178) $ 1,157
- --------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
Operating profits represent gross revenues less operating expenses. In computing
operating profits, none of the following items have been added or deducted;
general corporate expenses, foreign currency transaction gains and losses,
investment income and interest expense.
For the years ended December 31, 1993, 1992 and 1991, sales to the United States
government and its agencies represented approximately 17%, 18% and 9%,
respectively, of sales.
Additional information relating to the Company's business segments is as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets
Physical Science $ 74,551 $ 79,271 $ 92,959
Distribution 34,255 32,584 29,306
Health Care 21,486 37,407
Optical Plastics 7,129 7,051 6,714
Electronics 6,001 6,858 7,364
Corporate and other 44,121 45,399 40,291
- --------------------------------------------------------------------------------
$166,057 $192,649 $214,041
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Additions to property,
plant, and equipment, net
Physical Science $ 1,360 $ 1,490 $ 705
Distribution 557 723 338
Health Care 241 441
Optical Plastics 41 887 588
Electronics 30 20 (22)
Corporate and other 89 38 29
- --------------------------------------------------------------------------------
$ 2,077 $ 3,399 $ 2,079
- --------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization
Physical Science $ 2,193 $ 2,299 $ 2,940
Distribution 710 718 688
Health Care 552 1,048 1,248
Optical Plastics 876 578 660
Electronics 165 165 357
Corporate and other 800 1,299 2,649
- --------------------------------------------------------------------------------
$ 5,296 $ 6,107 $ 8,542
- --------------------------------------------------------------------------------
</TABLE>
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each segment. Corporate and other assets are principally
cash and cash equivalents, marketable securities and un-allocated intangibles.
18. Fair value of financial instruments
The carrying value of financial instruments including cash, short-term
investments, accounts receivable,restricted cash, accounts payable and short-
term borrowings approximate estimated market values because of short maturities
and interest rates that approximate current rates.
The carrying values of investments, other than those accounted for on the equity
basis, approximate fair values based upon quoted market prices. The investments
for which there is no quoted market price are not significant.
The estimated fair value for the Company's major long-term debt components are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
------------------ ------------------
Carrying Estimated Carrying Estimated
------------------ ------------------
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Swiss Bonds $15,946 $12,429 $40,131 $15,048
5% Convertible Bonds 2,300 2,231
7% Dual Currency
Convertible Bonds 3,926 1,743 5,118 1,459
12% Subordinated
Debentures 6,829 5,805 6,932 4,159
Other long-term debt 11,857 11,857 9,260 9,260
</TABLE>
69
<PAGE>
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
19. Commitments and contingencies
The Company has several noncancellable leases which cover real property,
machinery and equipment and certain manufacturing facilities. Such leases expire
at various dates with, in some cases, options to extend their terms.
Minimum rentals under long-term operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Real Machinery &
- -------------------------------------------------------------------------------
property equipment Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 $ 5,191 $ 1,536 $ 6,727
1995 4,188 737 4,925
1996 2,083 336 2,419
1997 1,462 131 1,593
1998 1,252 26 1,278
After 1998 5,203 12 5,215
- -------------------------------------------------------------------------------
Total $19,379 $ 2,778 $22,157
- -------------------------------------------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor. Rent
expense for real and personal property was approximately $7,792,000, $7,806,000
and $4,691,000 for 1993, 1992 and 1991, respectively.
70
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Commitments and contingencies (Continued)
In February 1986, Duratek completed its initial public offering of common
stock. In connection with Duratek's public offering, the Company issued to
certain officers of Duratek and the Company 358,609 options for the purchase
of Duratek common stock owned by the Company at a price equal to the greater
of (a) $1.75 per share or (b) the net book value per share of Duratek's common
stock as of the end of the most recently completed fiscal quarter which ends
not less than 60 days before the date of exercise of such option. In 1991, an
additional 270,000 options for the purchase of Duratek common stock owned by
the Company at a price of $1.90 per share were issued to certain employees and
officers of the Company. Through December 31, 1993, 28,600 options under the
plan were exercised, 57,500 were cancelled, and at December 31, 1993, 369,750
options are currently exercisable. At December 31, 1993, the Company owned
approximately 66% of Duratek.
The Company is party to several lawsuits and claims incidental to its
business, including claims regarding environmental matters, one of which is in
the early stages of investigation. It is not possible at the present time to
estimate the ultimate legal and financial liability, if any, of the Company in
respect to such litigation and claims; however, management believes that the
ultimate liability, if any, will not have a material adverse effect on the
Company's Consolidated Financial Statements.
20. Subsequent event
On January 13, 1994, GP signed a Letter of Intent with GPS and the Company to
acquire substantially all of the operating assets of GPS and certain of its
subsidiaries. The Company currently owns approximately 92% of the outstanding
common stock of GPS and approximately 28% of the outstanding common stock of
GP. On March 28, 1994, the Board of Directors of both GP and GPS approved the
transaction. The parties are currently negotiating the terms of a definitive
agreement and the transaction is anticipated to close as soon as practicable
in the second half of 1994, if all necessary approvals are obtained and
conditions satisfied.
71
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Subsequent event (Continued)
The purchase price has a current present value of approximately $36 million
based on current market prices. The purchase price will be payable to GPS as
follows: $10 million cash; 3.5 million shares of GP common stock valued at
approximately $13,500,000 (based upon the price per share of GP common stock
prior to the announcement of the transaction which was $3.875); warrants to
acquire 1,000,000 shares of GP common stock at $6.00 per share valued at
approximately $1,300,000; warrants to acquire up to 475,644 additional shares
of GP common stock at $7 per share valued at approximately $500,000; a $15
million ten-year senior subordinated debenture valued at approximately
$10,700,000, accruing interest at 6% per annum, interest payable only for the
first five years, with 70% of principal payable in equal quarterly
installments during the remaining five years until maturity.
Portions of the cash and stock consideration of the purchase price will be (a)
used to repay outstanding bank debt of $5,650,000 (as of December 31, 1993)
and long-term debt of GPS of $8,809,000 (as of December 31, 1993) to be repaid
to the Company. In addition, $1.5 million of Debentures are held in escrow for
the benefit of GP in connection with certain indemnification obligations.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, approval of the transaction by the stockholders
of both GPS and GP.
The Company anticipates that if the aforementioned transaction is consummated,
it will own approximately 52% of the outstanding common stock of GP, and if
the Company were to exercise all of its warrants, it will own approximately
58% of the outstanding common stock of GP.
The Company will account for this transaction as a purchase of GP. The Company
believes that any gain or loss to be recognized on this transaction would not
be significant, since the transaction (based upon the currently contemplated
assets to be sold), if consummated, is expected to be consummated at or near
the carrying value of the underlying assets.
Although an agreement in principle has been reached, there can be no assurance
that a definitive agreement will be successfully negotiated and signed, or
that the transaction will close as anticipated.
72
<PAGE>
National Patent Supplementary Data
Development Corporation
and Subsidiaries
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept.30, Dec.31, March 31, June 30, Sept.30, Dec. 31,
1993 1993 1993 1993 1992 1992 1992 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $44,964 $55,114 $47,250 $42,355 $45,759 $51,594 $52,554 $45,858
Gross margin 6,193 8,960 7,601 4,765 6,562 9,297 8,664 5,249
Income (loss) before
extraordinary item * (2,904) (1,988) (581) (2,323) 384 (5,674) (7,284) (1,031)
Net income (loss) (2,778) (1,887) 348 (1,660) 1,321 (5,228) (7,284) (752)
Earnings (loss) per share:
Before extraordinary
item * (.18) (.12) (.03) (.12) .02 (.36) (.46) (.06)
Net income (loss) (.17) (.11) .02 (.09) .07 (.33) (.46) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reclassified in 1993 to conform with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" presentation.
73
<PAGE>
Item 9.
Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There have been no Reports on Form 8-K filed within 24 months prior to
the date of the most recent financial statements reporting a change of
accountants and/or reporting a disagreement on any matter of accounting
principle or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information with respect to the directors of NPDC is incorporated herein
by reference to NPDC's definitive proxy statement pursuant to Regulation 14A,
which proxy statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 11. Executive Compensation
----------------------
Information with respect to Executive Compensation is incorporated
herein by reference to NPDC's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management
----------
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is incorporated herein by reference to NPDC's definitive
proxy statement pursuant to Regulation 14A, which statement will be filed not
later than 120 days after the end of the fiscal year covered by this Report.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information with respect to Certain relationships and related transactions
is incorporated herein by reference to NPDC's definitive proxy statement
pursuant to Regulation 14A, which statement will be filed not later than 120
days after the end of the fiscal year covered by this Report.
74
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K is hereby amended in its entirely as follows:
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a)(1) The following financial statements are included in
Part II, Item 8. Financial Statements and
Supplementary Data:
Independent Auditors' Report............................ 29
Financial Statements:
Consolidated Balance Sheets - December 31, 1993 and
1992.................................................... 30
Consolidated Statements of Operations - Years ended
December 31, 1993, 1992 and 1991........................ 32
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1993, 1992 and
1991.................................................... 33
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1992 and 1991........................ 35
Notes to Consolidated Financial Statements..................... 38
(a)(2) Financial Statement Schedules.*
Schedule II -Amounts receivable from related parties
and underwriters, promoters and
employees other than related parties..... i
Schedule III -Condensed financial information of
registrant................................ ii
Schedule VIII-Valuation and qualifying accounts......... ix
Schedule IX -Short-term borrowings..................... x
Schedule X -Supplementary income statement
information............................... xi
Independent Auditors' Report............................ xii
</TABLE>
(a)(3) Exhibit - Consent of Independent Auditors.
(b) There were no Reports on Form 8-K filed by the Registrant
during the last quarter of the period covered by this report.
75
<PAGE>
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.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY:/s/ Jerome I. Feldman
----------------------------
Jerome I. Feldman, President
and Chief Executive Officer
Dated: March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
/s/Jerome I. Feldman President and Chief Executive
- -------------------------- Officer and Director (Principal Executive
Jerome I. Feldman Officer)
/s/Martin M. Pollak Executive Vice President,Treasurer
- --------------------------
Martin M. Pollak and Director
/s/Scott N. Greenberg Vice President, Chief Financial
- -------------------------- a Director (Principal Financial and
Scott N. Greenberg Accounting Officer)
/s/Ogden R. Reid Director
- --------------------------
Ogden R. Reid
/s/Roald Hoffmann, Ph.D. Director
- --------------------------
Roald Hoffmann, Ph.D.
/s/Paul A. Gould Director
- --------------------------
Paul A. Gould
Dated: March 30, 1994
76
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Name of Debtor
- --------------------------------------------------------------------------------------------------
Balance at Additions Deductions Balance at
Beginning Amounts Amounts End of Year
of Year Loaned Collected Not Current
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Lawrence M. Gordon $200,000 $ - $200,000/2/ $ -
- --------------------------------------------------------------------------------------------------
Year ended December 31, 1992:
Lawrence M. Gordon $ - $500,000 $300,000 $200,000/1/
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The above represents a note receivable due on July 9, 1997. Interest at 6%
per annum is payable quarterly.
(2) The above is a note receivable recorded on the balance sheet of Interferon
Sciences, Inc. (ISI). As a result of the Company's interest in ISI falling
below 50% in 1993, ISI is accounted for on the equity method, and
accordingly the balance of $150,000 at December 31, 1993 is not included in
the Company's financial statements. During 1993, $50,000 of the note
receivable was repaid by the borrower.
i
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
ASSETS
Current assets December 31,
- -------------- ---------------------
1993 1992
-------- --------
<S> <C> <C>
Cash and cash equivalents $ 9,058 $ 12,524
Restricted cash 270
Accounts and other receivables 2,768 2,741
Inventories 2,877 2,948
Prepaid expenses and other current assets 471 519
-------- --------
Total current assets 15,174 19,002
-------- --------
Investments in subsidiaries 164,122 162,769
-------- --------
Other investments and advances 14,807 23,003
-------- --------
Property, plant and equipment, at cost 4,655 4,633
Less accumulated depreciation (4,423) (4,179)
-------- --------
232 454
-------- --------
Intangible assets, net of amortization 915 2,350
-------- --------
Other assets 76 237
-------- --------
$195,326 $207,815
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
ii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED BALANCE SHEET (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
--------------------------
Current liabilities 1993 1992
- ------------------- -------- --------
<S> <C> <C>
Current maturities of long-term debt $ 205 $
Short-term borrowings 4,379
Accounts payable and accrued expenses 3,626 2,862
-------- --------
Total current liabilities 3,831 7,241
-------- --------
Long-term debt, less current maturities 29,747 53,131
-------- --------
Amounts due subsidiaries, net 90,068 83,620
-------- --------
Commitments and contingencies
Common stock issued subject to repurchase
obligation 4,242
Stockholders' equity
- --------------------
Common stock 190 159
Class B capital stock 2 2
Capital in excess of par value 106,274 96,713
Deficit (39,028) (33,051)
-------- --------
Total stockholders' equity 67,438 63,823
-------- --------
$195,326 $207,815
-------- --------
</TABLE>
See accompanying notes to the condensed financial statements.
iii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
Revenues 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Sales $ 945 $ 915 $12,406
Investment and other income, net 1,388 3,767 396
------- ------- -------
2,333 4,682 12,802
------- ------- -------
Costs and expenses
Cost of goods sold 573 632 9,746
Selling, general and administrative 8,294 8,131 9,647
Research and development 326 301 784
Interest 6,414 8,769 11,808
------- ------ ------
15,607 17,833 31,985
------- ------ ------
Gain on sale of stock of a subsidiary 18,844
Gain on disposition of stock of
a subsidiary and an affiliate 3,795
Gain on issuance of stock of
a subsidiary 1,353
Equity in earnings (losses) of
subsidiaries (713) (454) 947
------- ------- -------
Income (loss) before income taxes
and extraordinary item (8,839) (13,605) 608
------- ------- -------
Income tax benefit 1,043
------- ------- -------
Income (loss) before extraordinary item (7,796) (13,605) 608
------- ------- -------
Extraordinary item
Gain from early extinguishment
of debt, net of tax of
$1,043 in 1993 1,819 1,662 2,037
------- ------- -------
Net income (loss) $(5,977) $(11,943) $ 2,645
======= ======= =======
Income (loss) per share
Income (loss) before extraordinary
item $ (.46) $ (.86) $ .04
Extraordinary item .11 .10 .13
------- ------- -------
Income (loss) per share $ (.35) $ (.76) $ .17
======= ======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
iv
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss) $ (5,977)$(11,943) $ 2,645
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 798 1,332 3,928
Equity in (earnings) losses
of subsidiaries 713 454 (947)
Income tax benefit allocated to
continuing operations (1,043)
Gain on sale of stock of a subsidiary (18,844)
Gain on disposition of stock of
a subsidiary and an affiliate (3,795)
Gain on issuance of stock of
a subsidiary (1,353)
Gains from early extinguishment
of debt, net of income tax in 1993 (1,819)(1,662) (2,037)
Changes in other operating items 1,662(204) 2,764
Total adjustments (4,837)(80) (15,136)
Net cash used for operations (10,814)(12,023) (12,491)
Cash flows from investing activities:
Proceeds from public sale of
a subsidiary's stock 43,997
Proceeds from disposal of business 7,192
Proceeds from sale of an investment 4,500
Marketable securities 229
Additions to property, plant & equipment(22) 34 (1,891)
Reduction of (additions to)
intangible assets 477 (1,083)
Reduction of investments and
other assets, net 13,841 5,787 2,340
Net cash provided by investing
activities 14,296 10,321 50,784
Cash flows from financing activities:
Net repayments of short-term borrowings(4,379)(5,967) (18,499)
Decrease in restricted cash 270 4,730 10,000
Reduction of long-term debt (3,450)(2,683) (15,039)
Proceeds from issuance of common stock198 1,539
Exercise of common stock options
and warrants 413 282 718
Issuance of treasury stock $ $ 15$ 825
Net cash used for financing
activities (6,948)(3,623) (20,456)
Net increase (decrease) in
cash and cash equivalents (3,466)(5,325) 17,837
Cash and cash equivalents
at beginning of year 12,524 17,849 12
Cash and cash equivalents at
end of year $ 9,058 $ 12,524$ 17,849
v
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
CONDENSED STATEMENT OF CASH FLOWS (Continued)
(in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
Supplemental disclosures of cash flow information:
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 2,375 $ 6,145$ 9,201
Income taxes $ 44 $ 103$ 139
Supplemental schedule of noncash transactions:
Increase in investment in
subsidiaries $ $$ 4,985
Reduction of intangibles (532)
Additions to other assets and
prepaid expenses 179 130 275
Reduction of accrued interest payable 607 1,744
Reduction of debt 21,900 1,819 7,430
Additions to (reduction of)
receivables from affiliates 597 (4,985)
Issuances of treasury stock (1,468)(2,098)
Issuances of common stock (8,981) (1,078)
Issuance of long-term debt (3,006)
Common stock issued subject to
repurchase obligation (4,242)
Gain on disposition of stock
of a subsidiary and
an affiliate (3,795)
Gain on exchange of debt,
before income tax effect (2,662)
</TABLE>
See accompanying notes to the condensed financial
statements.
vi
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note (a): INVENTORIES
Inventories are valued at the lower cost or
market,
principally using the first-in, first-out (FIFO) method
of
costing. Inventories consisting of material, labor,
and overhead
are classified as follows (in thousands):
<TABLE>
<CAPTION>
December31,
1993 1992
<S> <C> <C>
Raw materials $ 95 $89
Work in process 2 1
Finished goods 80 70
Land for resale 2,700 2,788
$ 2,877 $2,948
</TABLE>
Note (b): LONG-TERM DEBT
Long-term debt consists of the following
(in
thousands):
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
5% Convertible Bonds $ 2,300
8% Swiss Bonds 4,572 $20,075
Old Swiss convertible bonds 15,300 25,173
12% Subordinated debentures 6,829 6,932
Notes payable in
connection with settlements
of litigation 951 951
29,952 53,131
Less current maturities 205
$29,747 $53,131
</TABLE>
Aggregate annual maturities of long-term debt
outstanding at
December 31, 1993 for each of the next five years are
as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1994 $ 205
1995 12,983
1996 7,363
1997 7,101
1998 -
</TABLE>
See Note 9 of the Notes to Consolidated Financial
Statements for
additional information with respect to the Company's
long-term
debt.
vii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE III (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
Note (c): COMMITMENTS AND CONTINGENCIES
The Company has several noncancellable leases which
cover real
property and machinery and equipment. Such leases
expire at
various dates with, in some cases, options to extend
their terms.
Minimum rentals under long-term operating leases are as
follows
(in thousands):
<TABLE>
<CAPTION>
Real Machinery &
property equipment
<S> <C> <C> <C>
Total
1994 $ 640 $ 92 $732
1995 636 57 693
1996 636 22 658
1997 636 7 643
1998 656 656
After 1998 2,584 2,584
Total $5,788 $178 $5,966
</TABLE>
Several of the leases contain provisions for rent
escalation
based primarily on increases in real estate taxes and
operating
costs incurred by the lessor.
The Company is party to several lawsuits incidental to
its
business. It is not possible at the present time to
estimate the
ultimate legal and financial liability, if any, of the
Company
with respect to such litigation; however, management
believes
that the ultimate liability, if any, will not have a
material
adverse effect on the Company's Financial Statements.
viii
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE VIII
<TABLE>
<CAPTION>
Valuation and qualifying accounts (in thousands)
Additions
Balance at Charged to
Balance at
Beginning Costs &
Close of
of Period Expenses
Deductions(a) Period
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful
accounts $1,581 $1,077 $969 $1,689
Year ended December 31, 1992:
Allowance for doubtful
accounts 1,795 1,2871,501 1,581
Year ended December 31, 1991:
Allowance for doubtful
accounts 1,341 1,409 955 1,795
</TABLE>
(a) Write-off of uncollectible accounts, net of
recoveries.
ix
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE IX
Short-term borrowings
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted
Maximum Average
Average
Weighted Amount Amount
Interest
Average OutstandingOutstanding
Rate
Balance at Interest
During theDuring the
During the
End of Year Rate Year Year (a)
Year (b)
Year ended December 31, 1993
Short-term
borrowings $21,390 7.46% $30,212 $23,768 8.2%
Year ended December 31, 1992
Short-term
borrowings $28,977 6.99% $33,795 $30,729 9.18%
Year ended December 31, 1991
Short-term
borrowings $26,317 7.11% $51,629 $41,017 9.28%
</TABLE>
(a) Average amount outstanding during the year is
computed by
dividing the total of the average monthly outstanding
principal
balances by 12.
(b) Average interest rate for the year is computed by
dividing
the actual short-term interest expense by the average
short-term
debt outstanding.
See Note 7 of the Notes to Consolidated Financial
Statements for
additional information with respect to the Company's
short-term
borrowings.
x
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND
SUBSIDIARIES
SCHEDULE X
B. Supplementary income statement information
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992
<S> <C> <C>
1991
Amortization of intangibles $ * $2,317,000 $4,231,000
</TABLE>
* Less than 1% of total revenues
xi
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation
Under date of March 30, 1994, we reported on the consolidated balance sheet of
National Patent Development Corporation and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993, as contained in the annual report on Form 10-K
for the year 1993. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedules as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
New York, New York
March 30, 1994
xii
<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exhange Act of 1934
For the quarter ended Mdarch 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------------------------------
Commission File Number: 1-7234
-------------------------------------------
NATIONAL PATENT DEVELOPMENT CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9 West 57th Street, New York, NY 10019
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(212) 826-8500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
Number of shares outstanding of each of issuer's classes of common stock as of
May 12, 1994:
Common Stock 20,310,706 shares
Class B Capital 250,000 shares
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Qualification Relating to Financial Information 11
Part II. Other Information 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
ASSETS (unaudited) *
Current assets
- --------------
<S> <C> <C>
Cash and cash equivalents $ 9,848 $ 10,976
Accounts and other receivables 37,667 36,285
Inventories 26,616 22,605
Costs and estimated earnings in excess
of billings on uncompleted contracts 15,528 13,081
Prepaid expenses and other current assets 3,613 4,160
-------- --------
Total current assets 93,272 87,107
-------- --------
Investments and advances 27,282 28,303
-------- --------
Property, plant and equipment, at cost 35,255 33,873
Less accumulated depreciation (20,786) (20,035)
-------- --------
14,469 13,838
-------- --------
Intangible assets, net of amortization 29,607 30,104
-------- --------
Investment in financed assets 2,246 2,797
-------- --------
Other assets 3,226 3,908
-------- --------
$170,102 $166,057
======== ========
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1993 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
1
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
- -------------------
<S> <C> <C>
Current maturities of long-term debt
and notes payable $ 17,281 $ 6,750
Short-term borrowings 26,537 21,390
Accounts payable and accrued expenses 22,492 20,256
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,693 5,487
-------- --------
Total current liabilities 71,003 53,883
-------- --------
Long-term debt less current maturities 25,778 36,638
-------- --------
Notes payable for financed assets 579
-------- --------
Minority interests and other 3,287 3,277
-------- --------
Common stock issued subject to repurchase
obligation 3,876 4,242
-------- --------
Stockholders' equity
- --------------------
Common stock 192 190
Class B capital stock 2 2
Capital in excess of par value 107,452 106,274
Deficit (41,488) (39,028)
-------- --------
Total stockholders' equity 66,158 67,438
-------- --------
$170,102 $166,057
======== ========
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1993 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
2
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Revenues
Sales $ 45,232 $44,964
Investment and other income, net (752) 1,908
-------- -------
44,480 46,872
-------- -------
Costs and expenses
Costs of goods sold 36,985 38,771
Selling, general & administrative 8,198 8,297
Research & development 120 1,190
Interest 1,503 2,473
-------- -------
46,806 50,731
-------- -------
Minority interests (68) 920
-------- -------
Loss before income tax
expense and extraordinary item (2,394) (2,939)
Income tax benefit (expense) (66) 35
-------- -------
Loss before extraordinary item (2,460) (2,904)
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 126
-------- -------
Net loss $ (2,460) $(2,778)
======== =======
Income (loss) per share
Loss before extraordinary
item $ (.13) $ (.18)
Extraordinary item .01
-------- -------
Net loss per share $ (.13) $ (.17)
======== =======
Dividends per share none none
======== =======
</TABLE>
See accompanying notes to the consolidated condensed financial
statements.
3
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------
1994 1993
--------- ---------
Cash flows from operations:
<S> <C> <C>
Net loss $ (2,460) $(2,778)
--------- -------
Adjustments to reconcile net loss
to net cash provided by (used for) operating
activities:
Depreciation and amortization 1,248 1,579
Income tax benefit allocated to
continuing operations (73)
Gains from early extinguishment of debt (126)
Changes in other operating items (5,680) (3,232)
--------- -------
Total adjustments (4,432) (1,852)
--------- -------
Net cash used for operations (6,892) (4,630)
--------- -------
Cash flows from investing activities:
Reduction in marketable securities 299
Additions to property, plant & equipment (1,382) (673)
Additions to intangible assets (387)
Reduction in (additions to) investments
and other assets, net 1,685 (1,322)
--------- -------
Net cash provided by (used for) investing
activities 303 (2,083)
--------- -------
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings 5,147 (204)
Proceeds from issuance of long-term debt 924 626
Reduction of long-term debt (778) (1,769)
Proceeds from issuance of common stock 88
Exercise of common stock options and warrants 80 36
--------- -------
Net cash provided by (used for) financing
activities 5,461 (1,311)
--------- -------
Net decrease in cash and cash equivalents (1,128) (8,024)
Cash and cash equivalents at the beginning
of the periods 10,976 17,921
--------- -------
Cash and cash equivalents at the end of the
periods $ 9,848 $ 9,897
========= =======
</TABLE>
4
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
1994 1993
------ ------
<S> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 919 $2,603
======= ======
Income taxes $ 143 $ 212
======= ======
</TABLE>
See accompanying notes to the consolidated condensed financial
statements.
5
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories are valued at the lower cost or market, principally
using the first-in, first-out (FIFO) method. Inventories consisting of
material, labor, and overhead are classified as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Raw materials $ 2,682 $ 2,836
Work in process 675 675
Finished goods 20,559 16,394
Land held for resale 2,700 2,700
-------- --------
$ 26,616 $ 22,605
======== ========
</TABLE>
2. Long-term debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
8% Swiss bonds $ 4,910 $ 4,572
Swiss convertible bonds 15,887 15,300
New 5% convertible bonds 2,300 2,300
12% Subordinated debentures 6,790 6,829
Other 10,582 11,857
-------- --------
40,469 40,858
Less current maturities 14,691 4,220
-------- --------
$ 25,778 $ 36,638
======== ========
</TABLE>
6
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Subsequent event
On April 7, 1994, General Physics Corporation (GP) entered into an
agreement with GPS Technologies, Inc. (GPS) and the Company to acquire
substantially all of the operating assets of GPS and certain of its
subsidiaries. The Company currently owns approximately 92% of the outstanding
common stock of GPS and approximately 28% of the outstanding common stock of
GP. GP agreed to pay GPS a purchase price with current present value of
approximately $36 million based on current market prices. The purchase price
will be payable to GPS as follows: $10 million in cash; 3.5 million shares of
GP common stock valued at approximately $13,500,000 (based upon the price per
share of GP common stock prior to the announcement of the transaction which
was $3.875); warrants to acquire 1,000,000 shares of GP common stock at $6.00
per share valued at approximately $1,300,000; warrants to acquire up to
475,644 additional shares of GP common stock at $7 per share valued at
approximately $500,000; and 6% Senior Subordinated Debentures due 2004 (the
"Debentures"), in the aggregate principal amount of $15,000,000, valued at
approximately $10,700,000. The values assigned to each component of
consideration were based upon discussions with the independent investment
banker to the Independent Committee of GP and the investment banker to GPS.
Portions of the cash and stock consideration of the purchase price will be (a)
used to repay outstanding bank debt of $5,650,000 and long-term debt of GPS of
$8,809,000 to be repaid to the Company and (b) held in escrow.
The transaction is contingent upon the occurrence of certain events,
including, without limitation, the approval of the transaction by the
stockholders of GP and GPS. The transaction is anticipated to close as soon as
practicable in the second half of 1994, if all necessary approvals are
obtained and conditions satisfied. The Company anticipates that, if the
aforementioned transaction is consummated, it will own approximately 52% of
the outstanding common stock of GP, and if the Company were to exercise all of
its warrants, it would own approximately 58% of the outstanding common stock
of GP. The Company will account for this transaction as a purchase by the
Company of GP.
7
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a loss before income taxes and extraordinary item of
$(2,394,000) for the quarter ended March 31, 1994 compared to $(2,939,000) for
the quarter ended March 31, 1993. During the first quarter of 1994, the
Company realized net foreign currency transaction losses of $(897,000), as
compared to a gain of $670,000 for the first quarter of 1993 as a result of
the weakness of the U.S. dollar relative to the Swiss Franc and the Company's
decision not to hedge its Swiss currency obligations. At March 31, 1994, there
was an aggregate of SFr. 26,318,000 of Swiss denominated indebtedness
outstanding, of which SFr. 23,823,000 represents principal amount outstanding
and SFr. 2,495,000 represents interest accrued thereon. Foreign currency
valuation fluctuations may adversely affect the results of operations and
financial condition of the Company. In order to protect itself against
currency valuation fluctuations, the Company has at times swapped or hedged a
portion of its obligations denominated in Swiss Francs. At March 31, 1994, the
Company had not hedged its Swiss Franc obligations. If the value of the Swiss
Franc to the U.S. dollar increases, the Company will recognize transaction
losses on its Swiss Franc obligations. On March 31, 1994, the value of the
Swiss Franc to the U.S. dollar was 1.4120 to 1. There can be no assurance that
the Company will be able to swap or hedge obligations denominated in foreign
currencies at prices acceptable to the Company or at all. The Company will
continue to review this policy on a continuing basis.
The foreign currency transaction loss was offset by reduced interest
expense due to a reduction in long-term debt, as well as improved operating
results within the Optical Plastics and Physical Science Groups. The Optical
Plastics Group achieved improved operating results due to increased sales and
gross margin percentages. The Physical Science Group achieved improved results
due to a favorable change in the mix of products and services provided to its
customers.
Sales
- -----
For the quarter ended March 31, 1994, consolidated sales increased by
$268,000 to $45,232,000 from the $44,964,000 in the corresponding quarter of
1993. The increased sales were the result of increased sales within the
Distribution and Optical Plastics Groups, offset by reduced sales by the
Physical Sciences Group due to the end of a long-term staff augmentation
contract at GTS Duratek, Inc. (Durtek).
8
<PAGE>
Gross margin
- ------------
Consolidated gross margin of $8,247,000, or 18%, for the quarter ended
March 31, 1994, increased by $2,054,000 compared to the consolidated gross
margin of $6,193,000, or 14%, for the quarter ended March 31, 1993. The
increased gross margin in 1994 was primarily the result of increased sales and
gross margin percentage achieved by the Optical Plastics Group, as well
increased gross margin achieved by the Physical Science Group due to the
higher gross margin generated by Duratek's Environmental Services business and
a more profitable mix of services generated by GPS Technologies, Inc.
Selling, general and administrative expenses
- --------------------------------------------
For the three months ended March 31, 1994, selling, general and
administrative (SG&A) expenses were $8,198,000 compared to the $8,297,000
incurred in the first quarter of 1993. The decrease in SG&A for the first
quarter of 1994 was the result of ISI being accounted for on the equity method
since the third quarter of 1993, partially offset by increased costs incurred
by the Distribution, Optical Plastics and Physical Sciences Groups.
Interest expense
- ----------------
For the three months ended March 31, 1994, interest expense was
$1,503,000 compared to $2,473,000 for the three months ended March 31, 1993.
The decreased interest expense for the quarter was the result of reduced long-
term debt.
Investment and other income, net
- --------------------------------
Investment and other income, net of $(752,000) for the quarter ended
March 31, 1994, decreased by $2,660,000 as compared to $1,908,000 for the
first quarter of 1993. The reduced investment and other income was principally
due to the effect of the following two factors; $(897,000) and $670,000 of
foreign currency transaction gains (losses), for the quarters ended March 31,
1994 and 1993, respectively, and a loss of $(770,000) realized in the quarter
ended March 31, 1994, on the share of losses of 20% to 50% owned subsidiaries,
compared to $175,000 earned in the quarter ended March 31, 1993, as a result
of the results of Interferon Sciences, Inc. (ISI) being accounted for on the
equity basis since the third quarter of 1993. For the quarter ended March 31,
1994, the Company's share of ISI's loss was $845,000. In the quarter ended
March 31, 1993, ISI was included in the consolidated results of the Company
and its loss was therefore not reflected in Investment and other income, net.
9
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has sufficient cash, cash equivalents and
borrowing availability under existing and potential lines of credit to satisfy
its cash requirements until the first scheduled maturity of its Swiss Franc
denominated indebtedness on March 1, 1995. However, in order for the Company
to meet its long-term cash needs, which include the repayment of $13,518,000
of Swiss Franc denominated indebtedness scheduled to mature in 1995 and
$7,279,000 of Swiss Franc denominated indebtedness which is scheduled to
mature in 1996, the Company must obtain additional funds from among various
sources. The Company has historically reduced its long-term debt through the
issuance of equity securities in exchange for long-term debt. In addition to
its ability to issue equity securities, the Company believes that it has
sufficient marketable long-term investments, as well as the ability to obtain
additional funds from its operating subsidiaries and the potential to enter
into new credit arrangements. The Company reasonably believes that it will be
able to accomplish some or all of the above transactions in order to fund the
scheduled repayment of the Company's long-term Swiss debt in 1995.
At March 31, 1994, the Company had cash and, cash equivalents totaling
$9,848,000. GPS Technologies, Inc. and GTS Duratek, Inc. had cash and, cash
equivalents of $392,000 at March 31, 1994. The minority interests of these two
companies are owned by the general public, and therefore the assets of these
subsidiaries have been dedicated to the operations of these companies and may
not be readily available for the general corporate purpose of the parent.
10
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 1994
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under
generally accepted accounting principles because certain note information
included in the Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. The results for the 1994
interim period are not necessarily indicative of results to be expected for
the entire year.
11
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
none
b. Reports
-------
none
12
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 1994
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
DATE: May 13, 1994 BY: /s/Jerome I. Feldman
----------------------
Jerome I. Feldman
President and Chief
Executive Officer
DATE: May 13, 1994 BY: /s/Scott N. Greenberg
-----------------------
Scott N. Greenberg
Vice President,
Chief Financial Officer
13
<PAGE>
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
9 West 57th Street
Suite 4170
New York, New York 10019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 8, 1994
To The Stockholders:
The Annual Meeting of Stockholders of National Patent
Development Corporation (the "Company") will be held at The
Brunswick Hilton, Three Tower Center Boulevard, East Brunswick,
New Jersey on the 8th day of June, 1994, at 1:30 P.M., Eastern
Standard Daylight Savings Time, for the following purposes:
1. To elect six Directors to serve until the next Annual
Meeting and until their respective successors are elected and
qualify.
2. To consider and act upon a proposal to amend the
Company's Restated Certificate of Incorporation to increase the
total number of authorized shares of common stock which the
Company shall have authority to issue from 30,000,000 shares to
40,000,000 shares.
3. To consider and act upon a proposal to approve the
selection by the Board of Directors of KPMG Peat Marwick,
independent certified public accountants, as auditors for the
Company for the current year.
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record as of the close of business on
April 15, 1994 are entitled to receive notice of and to vote at
the meeting. A list of such stockholders shall be open to the
examination of any stockholder during ordinary business hours,
for a period of ten days prior to the meeting, at the principal
executive offices of the Company, 9 West 57th Street, Suite 4170,
New York, New York.
By Order of the Board of Directors
Lydia M. DeSantis
Secretary
New York, New York
April 28, 1994
If you do not expect to be present at the meeting, please
fill in, date and sign the enclosed Proxy and return it promptly
in the enclosed return envelope.
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
9 West 57th Street
Suite 4170
New York, New York 10019
April 28, 1994
New York, New York
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the
Board of Directors of National Patent Development Corporation, a
Delaware corporation (the "Company"), for use only at the Annual
Meeting of Stockholders to be held at The Brunswick Hilton, Three
Tower Center Boulevard, East Brunswick, New Jersey on the 8th day
of June, 1994 at 1:30 P.M., Eastern Standard Daylight Savings
Time, and at any adjournments thereof. The approximate date on
which this Proxy Statement and the accompanying Proxy were first
given or sent to security holders was April 28, 1994.
Each Proxy executed and returned by a stockholder may be
revoked at any time thereafter, by written notice to that effect
to the Company, attention of the Secretary, prior to the Annual
Meeting, or to the Chairman of, or the Inspectors of Election, in
person, at the Annual Meeting, or by the execution and return of
a later-dated Proxy, except as to any matter voted upon prior to
such revocation.
The Proxies in the accompanying form will be voted in
accordance with the specifications made and where no
specifications are given, such Proxies will be voted FOR the six
nominees for election as directors named herein, FOR the
amendment to the Company's Restated Certificate of Incorporation
to increase the total number of shares of common stock which the
Company shall have authority to issue, and FOR the approval of
the selection of KPMG Peat Marwick as auditors. In the discretion
of the proxy holders, the Proxies will also be voted FOR or
AGAINST such other matters as may properly come before the
meeting. The management of the Company is not aware that any
other matters are to be presented for action at the meeting.
Although it is intended that the Proxies will be voted for the
nominees named herein, the holders of the Proxies reserve
discretion to cast votes for individuals other than such nominees
in the event of the unavailability of any such nominee. The
Company has no reason to believe that any of the nominees will
become unavailable for election. The Proxies may not be voted for
a greater number of persons than the number of nominees named.
The election of directors will be determined by a plurality of
the votes of the shares of common stock, par value $.01 per share
(the "Common Stock") and Class B Capital Stock, par value $.01
per shares (the "Class B Stock") present in person or represented
<PAGE>
by proxy at the Annual Meeting and entitled to vote on the
election of directors. A majority of the votes represented by the
outstanding shares of Common Stock and a majority of the votes
represented by the outstanding shares of Class B Stock, each
voting separately as a class, is required to approve the proposal
to amend the Restated Certificate of Incorporation to increase
the total number of shares of Common Stock which the Company
shall have authority to issue, while approval of the selection of
auditors for the current year will require the affirmative vote
of holders of Common Stock and Class B Stock representing a
majority of the outstanding shares present in person or
represented by proxy. Accordingly, in the case of shares that are
present or represented at the Annual Meeting for quorum purposes,
not voting such shares for a particular nominee for director,
including by withholding authority on the Proxy, will not operate
to prevent the election of such nominee if he or she otherwise
receives affirmative votes; with respect to the approval of the
Amendment to the Company's Restated Certificate of Incorporation,
an abstention will operate to prevent approval of the item to the
same extent as a vote against approval, and a broker "non-vote"
(which results when a broker holding shares for a beneficial
owner has not received timely voting instructions on certain
matters from such beneficial owner) will effect the outcome of
the vote the same as a negative vote with respect to the approval
of the Amendment to the Company's Restated Certificate of
Incorporation.
VOTING SECURITIES
The Board of Directors has fixed the close of business on
April 15, 1994 as the record date for the determination of
stockholders entitled to receive notice of and to vote at the
Annual Meeting. The issued and outstanding stock of the Company
on April 15, 1994 consisted of 20,310,706 shares of Common Stock,
each entitled to one vote, and 250,000 shares of Class B Stock,
each entitled to ten votes. A quorum of the stockholders is
constituted by the presence, in person or by proxy, of holders of
record of Common Stock and Class B Stock representing a majority
of the number of votes entitled to be cast. The only difference
in the rights of the holders of Common Stock and the rights of
holders of Class B Stock is that the former class has one vote
per share and the latter class has ten votes per share. The
Class B Stock is convertible at any time into shares of Common
Stock on a share for share basis at the option of the holders
thereof.
PRINCIPAL HOLDERS OF SECURITIES
As of March 1, 1994, no person was known to the Company to
own beneficially more than 5% of the Common Stock or Class B
Stock of the Company except as set forth below.
2
<PAGE>
The following table shows as of such date the Class B Stock
beneficially owned directly by Mr. Jerome I. Feldman, President
and Chief Executive Officer and a director of the Company, and
Mr. Martin M. Pollak, Executive Vice President and Treasurer and
a director of the Company (for information with respect to the
shares of Common Stock beneficially owned by Messrs. Feldman and
Pollak, see "Security Ownership of Directors and Named Executive
Officers"):
Amount of
Title of Name and Address Beneficial Percent
Class of Beneficial Owners Ownership of Class
Class B Jerome I. Feldman 900,000 shares<F1> 50<F2>
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
Class B Martin M. Pollak 900,000 shares<F1> 50<F2>
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
(1)Includes 775,000 shares each for Messrs. Feldman and Pollak
which they currently have the right to purchase pursuant to the
exercise of stock options.
(2)Percentage could increase up to approximately 88% if either
individual exercised all of his stock options and the other
individual did not exercise any.
Based upon the Common Stock and Class B Stock of the Company
outstanding at March 1, 1994, Mr. Feldman and Mr. Pollak
controlled approximately 13% of the voting power of all voting
securities of the Company. This percentage for Mr. Feldman and
Mr. Pollak would increase to approximately 51% if they exercised
all the presently outstanding options to purchase shares of the
Common Stock and Class B Stock of the Company held by them.
On March 26, 1986, Mr. Feldman and Mr. Pollak entered into
an agreement (i) granting each other the right of first refusal
over the sale or hypothecation of the Class B Stock and options
to purchase Class B Stock now owned or subsequently acquired by
each of them and (ii) in the event of the death of either of them
granting the survivor a right of first refusal over the sale or
hypothecation of the Class B Stock or options to acquire shares
of Class B Stock held by the estate of the decedent. The
aforesaid right of first refusal is for the duration of the life
of the survivor of Mr. Feldman or Mr. Pollak.
3
<PAGE>
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc.,
Princeton Services, Inc., Fund Asset Management, L.P., and
Merrill Lynch Phoenix Fund, Inc. filed a 13-G which disclosed the
ownership of 1,278,200 shares of the Common Stock representing
7.7% of the outstanding Common Stock as of December 31, 1993.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 1, 1994,
beneficial ownership of shares of Common Stock of the Company and
subsidiaries by each director, each of the named executive
officers and all directors and executive officers as a group.
4
<PAGE>
Total Number of
Shares Beneficially
Name Owned
Jerome I. Feldman <F1><F2><F3><F4><F6> 2,165,892
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 2,161,373
Ogden R. Reid <F3><F4><F7> 14,000
Scott N. Greenberg <F3><F4> 197,300
Roald Hoffmann, Ph.D. <F3><F7> 17,800
Paul A. Gould <F1><F7> 71,400
Lawrence M. Gordon <F1><3><f4> 142,612
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 4,770,377
Percent of
Common Stock
Owned
Jerome I. Feldman <F1><F2><F3><F4><F6> 9.75
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 9.73
Ogden R. Reid <F3><F4><F7> *
Scott N. Greenberg <F3><F4> *
Roald Hoffmann, Ph.D. <F3><F7> *
Paul A. Gould <F1><F7> *
Lawrence M. Gordon <F1><3><f4> *
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 19.49
Of Total Number of
Shares Beneficially
Owned,
Shares Which May Be
Acquired Within 60 Days
Jerome I. Feldman <F1><F2><F3><F4><F6> 1,778,667
Martin M. Pollak <F1><F2><F3><F4><F5><F6> 1,788,667
Ogden R. Reid <F3><F4><F7> 12,000
Scott N. Greenberg <F3><F4> 180,700
Roald Hoffmann, Ph.D. <F3><F7> 16,000
Paul A. Gould <F1><F7> 4,000
Lawrence M. Gordon <F1><3><f4> 140,100
Directors and Executive Officers as a Group
(7 persons) <F1><F3><F4> 3,920,134
* The number of shares owned is less than one percent of the
outstanding shares of Common Stock.
(1) Included in the table are 125,000 shares for each of
Messrs. Feldman and Pollak which they currently have the right to
5
<PAGE>
acquire through the conversion of shares of Class B Stock into
shares of Common Stock which they currently own, (see "Principal
Holders of Securities"). Also included in the table are 2,904 shares
for a foundation of which Mr. Feldman is a trustee and 6,469 shares
for a foundation of which Mr. Pollak is a trustee. Also included in
the table are 4,426 shares for Mr. Feldman, 2,414 shares for Mr.
Pollak and 2,012 shares for Mr. Gordon and 8,852 shares for all
directors and executive officers as a group, issuable upon the
conversion of bonds issued with the Company's 12% Subordinated
Debentures Due 1997. Mr. Feldman disclaims beneficial ownership of
the 2,414 shares issuable upon conversion of bonds held by his wife
pursuant to the Debentures. Messrs. Feldman, Pollak and Gould
disclaim beneficial ownership of 8,447, 23,006 and 100 shares,
respectively, held by members of their families which are included
in the table.
(2) Included in the table are options to purchase 775,000 shares of
Class B Options for each of Messrs. Feldman and Pollak which they
currently have the right to acquire through the exercise of stock
options, which shares are convertible into shares of Common Stock.
(3) Of the directors and executive officers of the Company, the
following beneficially own the number of shares of common stock of
Interferon Sciences, Inc. ("Interferon") indicated: Jerome I.
Feldman 458,300 (2.31%); Martin M. Pollak 442,500 (2.23%); Ogden R.
Reid 5,100 (.026%); Scott N. Greenberg 145,000 (.74%); Roald
Hoffmann 2,000 (.010%) and Lawrence M. Gordon 162,500 (.83%). These
shares include 440,000, 440,000, 5,000, 145,000, 2,000 and 162,500
shares for Messrs. Feldman, Pollak, Reid, Greenberg, Hoffmann and
Gordon, respectively, which are subject to currently exercisable
stock options. In addition, all directors and executive officers as
a group beneficially own 1,215,400 shares, of which 1,194,500 shares
are subject to currently exercisable stock options. Certain members
of the families of Messrs. Feldman and Pollak hold 5,800 and 1,000
shares, respectively, as to which Messrs. Feldman and Pollak
disclaim beneficial ownership. Mr. Feldman and Mr. Pollak through
their ownership of the Company's Common Stock, may be deemed to
beneficially own an aggregate of 6,975,148 shares of Common Stock of
Interferon beneficially owned by the Company and Five Star Group,
Inc. ("Five Star") and MXL Industries, Inc. ("MXL"), wholly owned
subsidiaries of the Company. However, Mr. Feldman and Mr. Pollak
disclaim benefical ownership of such 6,975,148 shares (7,433,448 and
7,417,648 shares in the aggregate for Mr. Feldman and Mr. Pollak,
respectively). The total number of shares owned by all directors and
executive officers of the Company as a group (other than Messrs.
Feldman and Pollak) is 1.6% of the outstanding shares of
Interferon's common stock. All such persons have sole voting and
investment power as to all shares except as indicated.
6
<PAGE>
(4) Of the directors and executive officers of the Company, the
following beneficially own the number of shares of common stock of
GTS Duratek, Inc. ("Duratek") indicated: Jerome I. Feldman-176,000
(2.05%) (of which 165,000 shares are subject to currently
exercisable stock options); Martin M. Pollak-167,500 (1.95%) (of
which 165,000 shares are subject to currently exercisable stock
options); Scott N. Greenberg-35,250 (.41%) (of which 35,000 shares
are subject to currently exercisable stock options); Lawrence M.
Gordon-25,000 (.29%) (of which all shares are subject to currently
exercisable stock options). In addition, all directors and executive
officers as a group beneficially own 414,750 shares, of which
407,000 shares are subject to currently exercisable stock options.
Members of Mr. Feldman's family hold 6,000 shares, as to which Mr.
Feldman disclaims beneficial ownership. Mr. Feldman and Mr. Pollak
through their ownership of the Company's Common Stock, may be deemed
to beneficially own an aggregate of 5,652,101 shares of Duratek
beneficially owned by the Company and GPS Technologies, Inc.
("GPS"), a subsidiary of the Company. However, Mr. Feldman and Mr.
Pollak disclaim beneficial ownership of such 5,652,101 shares
(5,828,101 and 5,819,601 shares in the aggregate for Mr. Feldman and
Mr. Pollak, respectively). The total number of shares owned by all
directors and executive officers of the Company as a group (other
than Messrs. Feldman and Pollak) is .90% of the outstanding shares
of Duratek's common stock. All such persons have sole voting and
investment power as to all shares except as indicated.
(5) Of the directors of the Company, Mr. Pollak is the beneficial
owner of 1,000 shares of common stock of GPS.
(6) Member of the Executive Committee.
(7) Member of the Audit Committee.
As of March 1, 1994 the Company owned 4,800,148 shares of
Interferon common stock, constituting approximately 25% of the
outstanding shares, Five Star owned approximately 1,359,375
shares constituting approximately 7% and MXL owned approximately
815,625 shares constituting approximately 4% of the outstanding
shares of Interferon Common Stock. Accordingly, the Company's
voting control of Interferon is approximately 36%.
As of March 1, 1994 the Company owned 1,702,101 shares of
Duratek common stock, constituting approximately 19.9% of the
outstanding shares and GPS owned 3,950,000 shares of Duratek
common stock, constituting approximately 46.2% of the outstanding
shares. Since the Company owns approximately 92% of the
outstanding shares of GPS, its voting control of Duratek is
approximately 66%.
7
<PAGE>
As of March 1, 1994 the Company owned 2,842,300 shares of GPS
common stock, constituting approximately 92% of the outstanding
shares.
ELECTION OF DIRECTORS
Six directors will be elected at the meeting to hold office
until the next Annual Meeting of Stockholders and until their
respective successors are elected and qualify. The By-Laws of the
Company permit the Board of Directors to fix the number of directors
at no less than three nor more than fifteen persons, and the Board
of Directors has fixed the number of directors at six persons. The
Proxies solicited by this proxy statement may not be voted for a
greater number of persons than the number of nominees named. It is
intended that these Proxies will be voted for the following
nominees, but the holders of these Proxies reserve discretion to
cast votes for individuals other than the nominees for director
named below in the event of the unavailability of any such nominee.
The Company has no reason to believe that any of the nominees will
become unavailable for election. Set forth below are the names of
the nominees, the principal occupation of each, the year in which
first elected a director of the Company and certain other
information concerning each of the nominees.
Jerome I. Feldman is founder of, and since 1959, has been
President and Chief Executive Officer and a Director of the Company.
He has been Chairman of the Executive Committee and a Director of
Interferon, which is a biopharmaceutical company engaged in the
manufacture and sale of ALFERON N Injection since 1981; a Director
since 1981 and Chairman of the Board since 1985 of Duratek, a
company which provides environmental technology and consulting
services to various utilities, industrial and commercial clients; a
Director since 1987 and Chairman of the Executive Committee since
1988 of General Physics Corporation ("Physics"), a company which
provides personnel training and technical support services to the
domestic commercial nuclear power industry and to the United States
Department of Energy; and Chief Executive Officer, Chairman of the
Executive Committee and a Director of GPS, which provides training,
engineering, technical services, computer simulation services and
analytical laboratory services to commercial industries and the
United States Government, since 1991. He has been a Director of
Hamilton Financial Services, Inc., a financial service holding
company since 1983. Mr. Feldman is also a Trustee of the New England
Colleges Fund and of Bard College. Age 65
Martin M. Pollak is founder of, and since 1959, has been
Executive Vice President, Treasurer and a Director of the Company.
He has been Chairman of the Board of Interferon since 1981; a
Director of Duratek since 1983 and Chairman of the
8
<PAGE>
Executive Committee since 1985; a Director of Physics since 1987 and
Chairman of the Board since 1988; and Chairman of the Board of GPS
since 1991. Mr. Pollak is Chairman of the Czech and Slovak United
States Economic Counsel and a member of the Board of Trustees of the
Worcester Foundation for Experimental Biology and a Director of
Brandon Systems Corporation, a personnel recruiting company, since
1986. Age 66
Scott N. Greenberg has been a Director of the Company since
1987, Vice President and Chief Financial Officer since 1989 and Vice
President, Finance from 1985. He has been a Director of Duratek
since 1991; a Director of Physics since 1987 and a Director of GPS
since 1991. Age 37
Ogden R. Reid has been a Director of the Company since 1979. He
has been a Director of Interferon since 1982; Vice Chairman of the
Board of Duratek since 1991; a Director of Physics since 1988 and
Vice Chairman and Director of GPS since 1992. Mr. Reid had been
Editor and Publisher of the New York Herald Tribune and of its
International Edition; United States Ambassador to Israel; a six-
term member of the United States Congress and a New York State
Environmental Commissioner. Age 67
Roald Hoffmann, Ph.D. has been a Director of the Company since
1988 and a Director of Interferon since 1991. He has been a John
Newman Professor of Physical Science at Cornell University since
1974. Dr. Hoffmann is a member of the National Academy of Sciences
and the American Academy of Arts and Sciences. In 1981, he shared
the Nobel Prize in Chemistry with Dr. Kenichi Fukui. Age 56
Paul A. Gould has been a Director of the Company since March
1993. He has been Managing Director since 1979 of Allen & Company
Incorporated, an investment banking firm. He has been a Director
since 1992 of Liberty Media Corp., a cable programming company and a
Director since April 1994 of Resource Recycling Technologies, Inc.,
which is engaged in solid waste material management alternatives. Age
48
Board of Directors
The Board of Directors has the responsibility for establishing
broad corporate policies and for the overall performance of the
Company, although it is not involved in day-to-day operating
details. Members of the Board are kept informed of the Company's
business by various reports and documents sent to them as well as by
operating and financial reports made at Board and Committee
meetings. The Board held three meetings in 1993, at which all of the
directors attended the meetings of the Board and Committees on which
they served, except for Paul A. Gould, who attended fewer than 75%
of the meetings.
9
<PAGE>
Directors Compensation
Directors who are not employees of the Company receive a fee of
$1,500 for each meeting of the Board of Directors attended, but do
not receive any additional compensation for service on committees of
the Board of Directors. Officers of the Company do not receive
additional compensation for serving as directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman and
Martin M. Pollak, meets on call and has authority to act on most
matters during the intervals between Board meetings. The committee
formally acted 24 times in 1993 through unanimous written consents.
Audit Committee
The Audit Committee reviews the internal controls of the Company
and the objectivity of its financial reporting. It meets with
appropriate Company financial personnel and the Company's
independent certified public accountants in connection with these
reviews. This committee recommends to the Board the appointment of
the independent certified public accountants, subject to the
ratification by the stockholders at the Annual Meeting, to serve as
auditors for the following year in examining the books and records
of the Company. This Committee met two times in 1993. The Audit
Committee currently consists of Ogden R. Reid, Roald Hoffmann and
Paul A. Gould.
EXECUTIVE COMPENSATION
The following table and notes present the compensation paid by
the Company and subsidiaries to its Chief Executive Officer and the
Company's most highly compensated executive officers for 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Salary Bonus
<S> <C> <C> <C>
Name and Principal Position Year ($) ($)
Jerome I. Feldman 1993 316,526 120,000
President and Chief 1992 326,243 -0-
Executive Officer 1991 367,781 75,000
Martin M. Pollak 1993 315,110 -0-
Executive Vice President 1992 325,110 151,250
and Treasurer 1991 352,223 200,000
Scott N. Greenberg 1993 156,625 -0-
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Vice President and 1992 151,000 -0-
Chief Financial Officer 1991 156,311 235,000
Lawrence M. Gordon 1993 183,205 50,000
Vice President and 1992 183,507 -0-
General Counsel 1991 187,354 235,000
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
All Other
Options Compensation
<S> <C> <C>
Name and Principal Position ($) ($)
Jerome I. Feldman -0- 3,598(f1)
President and Chief -0- 253,491(f1)
Executive Officer -0- 250,000(f1)
Martin M. Pollak -0- 3,598(f1)
Executive Vice President -0- 253,491(f1)
and Treasurer -0- 250,000(f1)
Scott N. Greenberg -0- 3,598(f2)
Vice President and 22,500 2,932
Chief Financial Officer -0- -0-
Lawrence M. Gordon -0- 2,937(f2)
Vice President and -0- 3,392
General Counsel -0- -0-
</TABLE>
(1) Includes $3,598 and $3,491 as a matching contribution by the
Company to the 401(k) Savings Plan, which became effective on
March 1, 1992 and $250,000 in 1991 and 1992 pursuant to a Non-
Compete Agreement between Messrs. Feldman and Pollak and
SmithKline Beecham Corporation. See "Employment Contracts and
Termination of Employment and Change in Control Arrangements."
(2) Matching contribution by the Company to the 401(k) Savings Plan.
For the year ended 1993, none of the named executive officers
were granted non-qualified stock options.
The following table and notes set forth information for the
named executive officers regarding the exercise of stock options
during 1993 and unexercised options held at the end of 1993.
12
<PAGE>
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1993
AND YEAR-END OPTION VALUES
Shares Acquired
on Exercise
(#) (f1) Value Realized
($)
Name
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
Number of Unexercised
Options at December 31,
1993 (#)
Exercisable/Unexercisable
Name
Jerome I. Feldman 1,778,667(f2) -0-
Martin M. Pollak 1,788,667(f2) -0-
Scott N. Greenberg 180,700 4,000
Lawrence M. Gordon 140,100 4,000
Value of Unexercised
In-the-Money Options at
December 31, 1993 ($)
Name Exercisable/Unexercisable (f3)
Jerome I. Feldman 3,335,001 -0-
Martin M. Pollak 3,353,751 -0-
Scott N. Greenberg 338,813 7,500
Lawrence M. Gordon 262,688 7,500
(1) None of the named executive officers exercised any stock options
during 1993.
(2) Includes 775,000 Class B Options, which options are convertible
into shares of Common Stock on a share for share basis.
(3) Calculated based on the closing price of the Common Stock
($4.125) as reported by the American Stock Exchange on December
31, 1993.
13
<PAGE>
Board Compensation Committee Report on Executive Compensation
During the year ended December 31, 1993, the Company did not
have a Compensation Committee. Accordingly, the full Board of
Directors is responsible for determining and implementing the
compensation policies of the Company.
The executive compensation policies are designed to offer
competitive compensation opportunities for all executives which are
based on personal performance, individual initiative and
achievement, and assist the Company in attracting and retaining
qualified executives.
The Board also endorses the position that stock ownership by
management and stock-based compensation arrangements are beneficial
in aligning managements' and shareholders' interests in the
enhancement of shareholder value and recommends to the Stock Option
Committee the grant of stock options to executive officers whose
performance has a significant effect on the success of the Company.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus and
grant of stock options. The compensation for Mr. Pollak is
determined on the same basis as that of Mr. Feldman, the Chief
Executive Officer. The compensation for the other executive officers
of the Company is determined by a consideration of each officer's
initiative and contribution to overall corporate performance, the
officer's managerial abilities and the performance in any special
projects that the officer may have undertaken. Competitive base
salaries that reflect the individual's level of responsibility are
important elements of the Company's executive compensation
philosophy. Subjective considerations of individual performance are
considered by the Board in establishing annual bonuses and other
incentive compensation.
The Company has certain broad-based employee benefit plans in
which all employees, including the named executives are permitted to
participate on the same terms and conditions relating to eligibility
and subject to the same limitations on amounts that may be
contributed. In 1993, the Company also made a matching contribution
to the 401(k) Savings Plan for those participants.
Mr. Feldman's 1993 Compensation
Mr. Feldman's compensation is determined principally by the
terms of his employment agreement. As of January 1, 1989, the
Company entered into an Employment Agreement (the "Agreement") with
Mr. Feldman which provides that Mr. Feldman will serve as
14
<PAGE>
President and Chief Executive Officer of the Company for the period
through December 31, 1994. See "Employment Contracts and Termination
of Employment and Change in Control Arrangements." The Agreement was
approved by a vote of the entire Board. The Agreement provides Mr.
Feldman with annual compensation (a minimum base salary) of $300,000
(subject to review by the Board of Directors). Mr. Feldman also
received a cash bonus of $120,000 in 1993. Among the factors the
Board considered in awarding Mr. Feldman a cash bonus, were Mr.
Feldman's significant contribution to the Company's reduction of its
long-term debt and improvement of the financial performance of
certain operating units of the Company. In addition, in 1993 Mr.
Feldman received compensation of $16,250 for serving as a Director
and Chairman of the Executive Committee of General Physics
Corporation, a public company, in which National Patent has an
approximately 28% investment.
The Board of Directors
Jerome I. Feldman
Martin M. Pollak
Scott N. Greenberg
Ogden R. Reid
Roald Hoffmann, Ph.D.
Paul A. Gould
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1993 the Company did not
have a Compensation Committee and the entire Board of Directors made
decisions on compensation of the Company's executives. Mr. Feldman,
the Company's Chief Executive Officer and a director, Mr. Pollak,
the Company's Executive Vice President and Treasurer and a director
and Mr. Greenberg, the Company's Vice President and Chief Financial
Officer and a director participated in Board executive compensation
deliberations.
Employment Contracts and Termination of Employment and Change in
Control Arrangements
Agreements with Messrs. Feldman and Pollak. As of January 1, 1989,
the Company entered into the Agreements with its President and Chief
Executive Officer, Jerome I. Feldman, and with its Executive Vice
President and Treasurer, Martin M. Pollak (the "Employees").
Pursuant to the Agreements, Mr. Feldman will serve as President
and Chief Executive Officer of the Company and Mr. Pollak will serve
as Executive Vice President and Treasurer of the Company for the
period through December 31, 1994. The Agreements provide for each
Employee to receive annual compensation (a minimum base salary) of
$300,000 (subject to
15
<PAGE>
increase by the Board of Directors). The Agreements provide for the
termination of employment upon the Employee's death, physical or
mental disability or retirement. In addition, the Company may
terminate the Employee's employment "for cause" (including a failure
to perform required duties or the engaging in of gross misconduct)
and each Employee may voluntarily terminate his employment for "Good
Reason", which occurs if the Employee determines in good faith that
due to a change in control of the Company he is not able to
effectively discharge his duties. "Change in control" is defined to
include (1) any "person" (other than the Employees or certain
persons who may acquire securities of the Company from an Employee)
acquiring the beneficial ownership of more than 30% of the Company's
outstanding securities or (2) certain changes in the composition of
the Board of Directors of the Company.
Upon termination by the Company "for cause", all obligations of
the Company under the Employee's Agreement terminates. Upon
termination by the Company other than "for cause", disability, or
retirement, or by the Employee for "Good Reason", such Employee is
entitled to receive as severance pay an amount equal to his full
base salary (which at the present time is a minimum of $300,000 for
each of the Employees) at the rate then in effect, multiplied by the
greater of (1) the number of years (including fractions thereof)
remaining in the term of the employment, or (2) the number three. In
addition, the Employee would receive an amount in cash equal to the
aggregate spread between the exercise prices of all options held by
the Employee under the Company's 1973 Non-Qualified Stock Option
Plan and the higher of (x) the market value of the Common Stock, and
(y) the highest price paid in connection with any change in control
of the Company. Subject to certain conditions, the Company would
also maintain for two years (or until the Employee's commencement of
full-time employment with a new employer) certain insurance, health
and disability plans in effect, or arrange for substantially similar
benefits. The Agreements also contain non-competition and
confidentiality provisions.
PERFORMANCE GRAPH
The following table compares the performance of the Company for
the periods indicated with the performance of the AMEX Market Value
Index and the Dow Jones Industry Group BTC Biotechnology. Total
Return Indices reflect reinvested dividends and are weighted on a
market capitalization basis at the time of each reported data point.
Assumes $100 invested on December 31, 1988 in National Patent Common
Stock, AMEX Market Value Index and Dow Jones Industry Group
BTC - Biotechnology. Values are as of December 31 of specified year
assuming that dividends are reinvested.
16
<PAGE>
Comparison of 5-Year Cumulative Total Return
Index 1988 1989 1990 1991 1992 1993
NPDC 100 114 41 71 42 64
AMEX Market 100 127 103 126 135 159
Dow Jones
Biotech 100 131.28 159.48 335.74 310.57 292.04
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
Increase in Authorized Shares
The Board of Directors unanimously recommends that the
stockholders adopt an amendment to the Company's Certificate of
Incorporation which will increase the authorized shares of Common
Stock, par value $.01 per share, from 30,000,000 shares to
40,000,000 shares. On March 1, 1994, 20,295,388 of the 30,000,000
shares of Common Stock presently authorized were outstanding and an
aggregate of 9,710,257 shares were reserved for issuance.
The Company's Board of Directors has unanimously recommended
for approval by stockholders the proposal to amend the first
sentence of Article Fourth of the Certificate of Incorporation as
follows:
"FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
fifty-two million eight hundred thousand (52,800,000) shares of
which forty million (40,000,000) are to be Common Stock of the
par value of one cent ($.01) per share (hereinafter called the
"Common Stock"); of which two million eight hundred thousand
(2,800,000) shares are to be Class B Capital Stock with a par
value of one cent ($.01) per share (hereinafter called the
"Class B Capital Stock"); and of which ten million (10,000,000)
shares are to be Preferred Stock with a par value of one cent
($.01) per share (hereinafter called the "Preferred Stock"), to
be issued in such series and with such terms and conditions as
the Board of Directors may determine.
The Board of Directors believes that it would be in the best
interests of the Company to have additional shares of Common Stock
available for issuance at its discretion and without the necessity
for a special stockholders' meeting to enhance the
17
<PAGE>
Company's flexibility in connection with possible future actions,
such as acquisitions, financings, investment opportunites, internal
development, retirement of outstanding indebtedness, and other
corporate purposes.
If the amendment is approved by the stockholders as described
below, the additional shares may be issued from time to time upon
authorization of the Board of Directors without further
authorization of the stockholders for such consideration as the
Board of Directors may determine and as may be permitted by the laws
of Delaware. The amendment is not being proposed as a means of
preventing a change in control or takeover of the Company. However,
the use of these shares for such a purpose is possible. For
instance, shares of authorized but unissued or unreserved Common
Stock could be issued in an effort to dilute the stock ownership and
voting power of persons seeking to obtain control of the Company or
could be issued to purchasers who would support the Board of
Directors in opposing a takeover proposal. Such possibilities may
have the effect of discouraging a challenge for control or making it
less likely that such a challenge would take place. The unissued and
unreserved shares of Common stock, Class B Capital Stock and
Preferred Stock will still be available for issuance for any proper
corporate purpose, as authorized from time to time by the Board of
Directors without further approval by the stockholders of the
Company. The additional shares of Common Stock will be identical to
the currently authorized shares of Common Stock in all respects.
Holders of such shares will not have preemptive rights to purchase
any capital stock of the Company.
Reasons for and Effect of Authorization
The Board of Directors believes that the complexity of modern
business financing requires greater flexibility in the Company's
capital structure than now exists. For example, the Company has in
the past issued Common Stock as consideration for the retirement of
outstanding Swiss indebtedness and accrued and unpaid interest
thereon, in order to strengthen the financial position of the
Company. The Company may make similar offers in the future, on terms
and conditions approved by the Board of Directors. If the amendment
is approved by the stockholders, the Company expects that such
transaction will in most cases not be subject to further approval of
stockholders. The additional shares of Stock to be authorized by the
proposed amendment would be available for issuance from time to time
for any proper corporate purpose, including, as appropriate,
acquisitions and public or private sales for cash as a means of
obtaining capital for use in the Company's business, retirement of
outstanding indebtedness, and other corporate purposes.
It is not possible to state the actual effect of the
authorization of the additional shares of stock upon the rights
18
<PAGE>
of holders of the Common Stock, however the effect of the additional
shares of Common Stock might include dilution of the equity interest
of the Common Stock.
APPROVAL OF SELECTION OF KPMG PEAT MARWICK AS AUDITORS
The Board of Directors has selected KPMG Peat Marwick to audit
the accounts of the Company for the year ending December 31, 1994.
KPMG Peat Marwick has no financial interest in the Company and
neither it nor any member or employee of the firm has had any
connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee. KPMG
Peat Marwick has audited the accounts of the Company since 1970. The
Delaware General Corporation Law does not require the approval of
the selection of auditors by the Company's stockholders, but in view
of the importance of the financial statements to the stockholders,
the Board of Directors deems it desirable that they pass upon its
selection of auditors. In the event the stockholders disapprove the
selection, the Board of Directors will consider the selection of
other auditors. The Board of Directors recommends that you vote in
favor of the above proposal in view of the familiarity of KPMG Peat
Marwick with the Company's financial and other affairs acquired
during its previous service as auditors for the Company.
A representative of KPMG Peat Marwick is expected to be present
at the Annual Meeting, with the opportunity to make a statement if
he desires to do so, and is expected to be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the
Company's 1995 proxy statement provided they are received by the
Company no later than January 13, 1995, and are otherwise in
compliance with applicable Securities and Exchange Commission
regulations.
GENERAL
So far as is now known, there is no business other than that
described above to be presented for action by the stockholders at
the meeting, but it is intended that the proxies will be voted upon
any other matters and proposals that may legally come before the
meeting and any adjournments thereof in accordance with the
discretion of the persons named therein.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the
Company. It is expected that the solicitations will be made
primarily by mail, but regular employees or representatives of
19
<PAGE>
the Company may also solicit proxies by telephone or telegraph and
in person, and arrange for brokerage houses and other custodians,
nominees and fiduciaries to send proxy material to their principals
at the expense of the Company.
Lydia M. DeSantis
Secretary
20
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
COMMON STOCK Annual Meeting of Stockholders PROXY
To Be Held June 8, 1994
This proxy is solicited on behalf of the Board of Directors
Revoking any such prior appointment, the undersigned, a stockholder
of National Patent Development Corporation hereby appoints Jerome I.
Feldman and Martin M. Pollak, and each of them, attorneys and agents
of the undersigned, with full power of substitution, to vote all
shares of the Common Stock of the undersigned in said Company at the
Annual Meeting of Stockholders of said Company to be held at The
Brunswick Hilton, Three Tower Center Boulevard, East Brunswick, New
Jersey on June 8, 1994, at 1:30 P.M. Eastern Standard Daylight
Savings Time and at any adjournments thereof, as fully and
effectually as the undersigned could do if personally present and
voting, hereby approving, ratifying and confirming all that said
attorneys and agents or their substitutes may lawfully do in place
of the undersigned as indicated below.
This proxy when properly executed will be voted as directed. If no
direction is indicated, this proxy will be voted for proposals (1)
(2) and (3).
1. Election of Directors: Jerome I. Feldman, Martin M. Pollak, Scott
N. Greenberg, Roald Hoffmann, Odgen R. Reid, and Paul A. Gould.
For All
(Except
Nominees
Written
(INSTRUCTION: To withhold For Withhold Below)
authority to vote for any
individual nominee, write
that nominee's name in the
space provided below)
2. Proposal to amend the Restated Certificate of Incorporation to
increase the total number of authorized shares of common stock.
FOR AGAINST ABSTAIN
21
<PAGE>
3. Proposal to approve the selection of KPMG Peat Marwick to audit
the accounts of the Company for the current year.
FOR AGAINST ABSTAIN
4. Upon any other matters which may properly come before the meeting
or any adjournments thereof.
Please sign exactly as name appear below.
Dated , 1994
Signature
Signature if held jointly
Please mark, sign, date and
return the proxy card promptly
using the enclosed envelope.
When shares are held by joint
tenants both should sign.
When signing as attorney, as
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership
please sign in partnership
name by authorized person.
22
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
OFFER TO EXCHANGE
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT CORPORATION
WITH A MARKET VALUE OF SFR. 1,000
FOR
EACH SWISS FRANCS 1,000 PRINCIPAL AMOUNT OF
ANY AND ALL
6% CONVERTIBLE BONDS DUE MARCH 7, 1995,
(SWISS SECURITY NO. 887283)
5 3/4% CONVERTIBLE BONDS DUE MAY 9, 1995,
(SWISS SECURITY NO. 887284)
5 5/8% CONVERTIBLE BONDS DUE MARCH 18, 1996, OR
(SWISS SECURITY NO. 887286)
8% BONDS DUE MARCH 1, 1995
(SWISS SECURITY NO. 887282)
(COLLECTIVELY, THE "OLD SWISS FRANC BONDS")
AND
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF US $1,000
FOR
EACH UNITED STATES DOLLARS 1,000 PRINCIPAL AMOUNT OF
ANY AND ALL
7% DUAL CURRENCY CONVERTIBLE BONDS DUE MARCH 18, 1996
(SWISS SECURITY NO. 887287)
(THE "OLD U.S. DOLLAR BONDS," AND, COLLECTIVELY WITH
THE OLD SWISS FRANC BONDS, THE "BONDS")
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, JULY 11, 1994 (THE "EXPIRATION
DATE"), UNLESS THE OFFER IS EXTENDED.
BONDS MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
<PAGE>
<PAGE>
To _________________
National Patent Development Corporation (the "Company") has offered
(the "Offer") to exchange (i) common stock, par value $.01 per share
(the "Common Stock"), of the Company with a market value of SFr. 1,000
for each SFr. 1,000 in principal amount of the Old Swiss Franc Bonds
validly tendered and not withdrawn prior to the Expiration Date, and
(ii) Common Stock with a market value of US $1,000 for each US $1,000 in
principal amount of the Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date. A summary of the procedures for
the Offer is described below and is fully set forth in the Offering
Circular dated June 10, 1994 (the "Offering Circular") which can be
obtained at the Company's offices in New York as set forth in the
Offering Circular. Banque Scandinave en Suisse, acting through its
specified office in Switzerland, has agreed to provide services as the
Exchange Agent with respect to the exchange of the 8% Bonds due March 1,
1995 (the "8% Bonds") and Bank Leu AG, acting through its specified
office in Switzerland, has agreed to provide services as the Exchange
Agent with respect to the exchange of all Bonds other than the 8% Bonds.
Banque Scandinave en Suisse and Bank Leu AG may be referred to
hereinafter individually as the "Exchange Agent" or, collectively, as
the "Exchange Agents." The undersigned hereby directs you to exchange
Bonds held by you for the undersigned's account or which the undersigned
hereby delivers to you in the principal amount set forth below in
accordance with the provisions of the Offer.
The Common Stock to be issued pursuant to the Offer has not
been registered under the United States Securities Act of 1933,
as amended (the "Securities Act"), and may not be offered, sold
or delivered, directly or indirectly, in the United States or to,
or for the account of, any U.S. person except in transactions
exempt from the registration requirements of the Securities Act.
In recognition of the fact that exchanging holders of Bonds
("Holders"), even though holding shares of Common Stock for
investment, may wish to be legally permitted to sell such stock
when they deem appropriate, the Company has agreed to prepare and
file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to the resale
of the Common Stock from time to time on the American Stock
Exchange, Inc. or Pacific Stock Exchange, Inc., in privately-
negotiated transactions or otherwise. The Company has agreed to
use its best efforts to cause such registration statement to
become effective on or before August 1, 1994. If such
registration statement is not declared effective by the
Commission by August 15, 1994, each exchanging holder will have
the option to withdraw the Bonds tendered by it and to renounce
its rights to the Common Stock received for its account in
exchange for such Bonds. Notice of such withdrawal must be given
to the appropriate Exchange Agent prior to August 30, 1994. In
any event, Holders will be required to agree not to sell Common
Stock received by them in the Offer until the earlier of (a) the
date which is 40 days after the payment date for Bonds accepted
for payment by the Exchange Agents pursuant to the Offer (the
"Payment Date") and (b) the date on which the registration
statement covering such stock is declared effective by the
Commission. Offers and sales of Common Stock in the United
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<PAGE>
<PAGE>
States or to U.S. persons would constitute a violation of United
States law unless made in compliance with the registration
requirements of the Securities Act or pursuant to an exemption
therefrom.
The Offer is being made by the Company in reliance on an
exemption from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), contained in
Section 3(a)(9) of the Securities Act. The Offer is intended for
investors purchasing for investment and not with a view to
distribution.
Tenders of Bonds pursuant to these instructions are
irrevocable, except that they may be withdrawn at any time prior
to the Expiration Date. Bonds may not be withdrawn after the
Expiration Date, except under certain circumstances.
Payment for Bonds will be made on July 25, 1994 (the
"Payment Date"); provided, however, if the Company shall have
extended the period of time for which the Offer is open, the
Payment Date shall be the tenth (10th) business day after the
Expiration Date of the Offer. The term "Expiration Date" means
5:00 P.M., New York City time, on July 11, 1994, unless the
Company in its sole discretion shall have extended the period of
time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date, not beyond
5:00 P.M., New York City time, on July 25, 1994, at which time
the Offer, as so extended by the Company, shall expire. Upon
acceptance by the Company, the undersigned directs you to
deliver, or cause to be delivered, to the appropriate Exchange
Agent at its specified office in Switzerland, the Bonds being
accepted for exchange, together with all unmatured and matured
but unpaid coupons. In the event that unmatured and matured but
unpaid coupons are not submitted with Bonds tendered, such Bonds
will not be accepted for tender.
Payment for Bonds so accepted for exchange will be made on
the Payment Date by delivery of the stock certificates
representing the Common Stock to the Exchange Agents at their
specified offices in Switzerland. The Exchange Agents will
deliver Common Stock only to an account or address outside the
United States. The Exchange Agents will act as agent for the
exchanging Holders for the purpose of receiving payment from the
Company and transmitting payments to exchanging Holders.
Under federal income tax laws, each tendering holder of
Bonds must provide the Company with such holder's correct
taxpayer identification number by completing the Substitute Form
W-9 set forth below, unless an exemption applies. In general, if
a holder of Bonds is an individual, the taxpayer identification
number is the Social Security number of such individual. If the
Company is not provided with the correct taxpayer identification
number, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. For further information concerning
backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification
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<PAGE>
<PAGE>
number if you do not have one and how to complete the Substitute
Form W-9 if Bonds are held in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by
itself, cause Bonds to be deemed invalidly tendered, but may
require the Company to withhold 31% of certain payments made
pursuant to the Offer. Backup withholding is not an additional
federal income tax. Rather, the federal income tax liability of
a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
In case the Offer is terminated or expires pursuant to its
terms, this Letter of Instructions shall be cancelled and Bonds
tendered will thereupon be at the undersigned's free disposal.
Name (in print characters)
________________________________________
Company _______________________________________________
Address _______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
Aggregate principal amount of
Bonds tendered: /SFr./ /US $/ _________________________
Date _____________________________________________________
Signature___________________________________________________
-4-
<PAGE>
<PAGE>
Name (if joint names, list first and circle the name of the person
or entity whose number you enter below)
Business Name (Sole proprietors see the instructions in the
enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "Guidelines"))
Address
City, State and Zip Code
PART I - TAXPAYER IDENTIFICATION NUMBER
Enter your taxpayer identification
number in the appropriate box. For
individuals, this is your social
SUBSTITUTE FORM W-9 security number. For sole proprietors,
Department of the Treasury see the instructions in the Guidelines.
Internal Revenue Service For other entities, it is your employer
identification number. If you do not
have a number, see Obtaining a Number in
the Guidelines.
Request for Taxpayer
Identification Number and Note: If the account is in more than
Certification one name, see the chart on page 1 of the
Guidelines on whose number to enter.
Social Security Number
OR
Employer Identification Number
<PAGE>
<PAGE>
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), AND
(2) I am not subject to backup withholding because (a) I am
exempt from backup withholding or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I
am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if
you have been notified by the IRS that you are currently subject to
backup withholding because of underreporting interest or dividends
on your tax return.
SIGNATURE: DATE:
, 1994
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF CERTAIN PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE GUIDELINES FOR ADDITIONAL DETAILS.
<PAGE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT NAME AND NUMBER TO PROVIDE:
GIVE THE GIVE THE NAME
FOR THIS TYPE OF NAME AND FOR THIS TYPE OF AND EMPLOYER
ACCOUNT: SOCIAL ACCOUNT: IDENTIFICATION
SECURITY # OF NUMBER OF
1. Individual The 6. Sole The owner3
individual proprietorship
2. Two or more
individuals The actual
(joint account) owner of the
account or, Legal entity
if combined 7. A valid trust, (Do not
funds, the estate, or furnish the
first individual pension trust identifying
3. Custodian on the number of the
account of a account1 personal
minor (Uniform representative
Gift to or trustee
Minors Act) The minor2 unless the
legal entity
4. (a) The usual itself is not
revocable designated in
savings trust the account
(grantor is The grantor- title.)4
also trustee) trustee1
8. Corporate The corporation
(b) So-called
trust account that 9. Association,
is not a legal or club, religious, The organization
valid trust under charitable,
State law The actual educational or
owner1 other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or
5. Sole The owner3 registered nominee nominee
proprietorship
12. Account with
the Department of
Agriculture in
the name of a
public entity The public
(such as a State entity
or local
government, school
district,
or prison)
that receives
agricultural
program payments
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show the individual's name. If you are a sole proprietor, you must
furnish your individual name and either your Social Security number or your
employer identification number. You may also enter your business name or
"doing business as" name on the business name line. Enter your name(s) as
shown on your social security card and/or as it was used to apply for your
employer identification number on Form SS-4.
4 List first and circle the name of the legal trust, estate, or pension
trust.
NOTE:
(i) If no name is circled when there is more than one name, the
number will be considered to be that of the first name listed.
<PAGE>
<PAGE>
(ii) If you are an individual, you must generally provide the name
shown on your social security card. However, if you have changed
your last name, for instance, due to marriage, without informing
the Social Security Administration of the name change, please
enter your first name, the last name shown on your social
security card, and your new last name.
(iii) For a joint account, only the person whose Taxpayer
Identification Number is shown on Substitute Form W-9 should sign
the form.
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<PAGE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER:
If you do not have a taxpayer identification number, apply for one
immediately. To apply, obtain Form SS-5, Application for a Social Security
Number Card (for individuals), from your local office of the Social
Security Administration, or Form SS-4, Application for Employer
Identification Number (for businesses and all other entities), from your
local office of the Internal Revenue Service.
PAYEES EXEMPT FROM BACKUP WITHHOLDING:
Payees that are exempt from backup withholding with respect to amounts
received in the Offer include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement account or a custodial account under section 403(b)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.-A foreign government, a
political subdivision of a foreign government, or any agency or
instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A dealer in securities or commodities required to register in the
United States or a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
<PAGE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FOR W-9
Exempt payees described above should file Substitute Form W-9 to avoid
possible erroneous backup withholding. Such payees should furnish their
taxpayer identification number, write "exempt" on the face of the form
(Part II), and sign and date the form.
EXEMPT FOREIGN PAYEES:
A payee that is a nonresident alien individual or foreign entity not
subject to backup withholding should complete and execute Form W-8,
Certificate of Foreign Status, and return the executed form with the Letter
of Instructions.
PENALTIES:
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to
furnish your correct taxpayer identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If
you make a false statement with no reasonable basis that results in no
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
(4) MISUSE OF TINS. -- If the requester discloses or uses TINs in
violation of Federal law, the requester may be subject to civil and
criminal penalties.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct
TIN to persons who must file information returns with the IRS to report
interest, dividends, and certain other income paid to you, mortgage
interest you paid, the acquisition or abandonment of secured property, or
contributions you made to an IRA. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
You must provide your TIN whether or not you are required to file a tax
return. Payors must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a TIN to a
payor. Certain penalties may also apply.
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<PAGE>
<PAGE>
The Offering Circular, which provides detailed information on
the conditions of the Offer and on the Company, will be available
at the principal offices in New York of the Company. Its
contents may materially influence any decision to be made in
respect of the Offer.
OFFER TO EXCHANGE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, JULY 11, 1994, UNLESS THE OFFER IS
EXTENDED OR, IN THE CASE OF WITHDRAWAL RIGHTS, SUBJECT TO
CERTAIN OTHER EXCEPTIONS. BONDS MAY NOT BE WITHDRAWN AFTER THE
EXPIRATION DATE.
National Patent Development Corporation (the "Company"), New
York, New York, hereby offers (the "Offer") to exchange (i)
common stock, par value $.01 per share (the "Common Stock"), of
the Company with a market value of SFr. 1,000 for each SFr. 1,000
in principal amount of the Old Swiss Franc Bonds validly tendered
and not withdrawn prior to the Expiration Date, and (ii) Common
Stock with a market value of US $1,000, for each US $1,000 in
principal amount of the Old U.S. Dollar Bonds validly tendered
and not withdrawn prior to the Expiration Date, upon the terms
and subject to the conditions set forth in the Offering Circular,
dated June 10, 1994 (the "Offering Circular"), and in the Letter
of Instructions. Interest accrued on the Bonds up to the Payment
Date will be paid in shares of Common Stock of the Company for
each SFr. 1,000 principal amount of Old Swiss Franc Bonds (such
amounts referred to collectively as "Swiss Bond Accrued
Interest") and for each US $1,000 principal amount of the Old
U.S. Dollar Bonds (such amount referred to as "U.S. Bond Accrued
Interest," and together with the Swiss Bond Accrued Interest, the
"Accrued Interest"). Fractional shares of Common Stock resulting
from such exchange will be rounded up to the nearest integral
multiple. Concurrently with the Offer, the Company is making a
separate offer on the same terms and for the same consideration
as the Offer to foreign holders of the Bonds (the "Foreign
Offer").
The Offer is conditioned upon, among other things, the
nonoccurrence of certain events. The Company has the right, in
its sole discretion, to waive any such conditions.
The Board of Directors of the Company has unanimously
approved the making of the Offer; however, neither the Company
nor its Board of Directors is making any recommendation to any
holder of Bonds to tender Bonds pursuant to the Offer. Each
holder of Bonds should make his own decision whether to tender
his Bonds after reading the Offering Circular.
<PAGE>
<PAGE>
Banque Scandinave en Suisse, acting through its specified
office in Switzerland, has agreed to provide services as the
Exchange Agent with respect to the exchange of the 8% Bonds due
March 1, 1995 (the "8% Bonds") and Bank Leu AG, acting through
its specified office in Switzerland, has agreed to provide
services as the Exchange Agent with respect to the exchange of
all Bonds other than the 8% Bonds. Banque Scandinave en Suisse
and Bank Leu AG may be referred to hereinafter individually as
the "Exchange Agent" or, collectively, as the "Exchange Agents."
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Company will
accept for exchange on the Expiration Date Bonds representing up
to 60% of the aggregate principal amount of the outstanding Bonds
which are validly tendered pursuant to the Offer and the Foreign
Offer on or prior to the Expiration Date and not properly
withdrawn as permitted by Section 9 of the Offering Circular.
"Expiration Date" shall mean 5:00 P.M., New York City time, on
Monday July 11, 1994, unless the Company, in its sole discretion,
shall have extended the period of time for which the Offer is
open, in which event the term "Expiration Date" shall mean the
latest time and date, not beyond 5:00 P.M., New York City time,
on July 25, 1994, at which time the Offer, as so extended by the
Company, shall expire. Payment for Bonds exchanged pursuant to
the Offer will be made on July 25, 1994 (the "Payment Date"),
provided, however, if the Company shall have extended the period
of time for which the Offer is open, the Payment Date shall be
the tenth (10th) business day after the Expiration Date, upon
timely receipt by the appropriate Exchange Agent of such Bonds,
together with all unmatured and matured but unpaid coupons.
Tenders of Old Swiss Franc Bonds will be accepted only in
principal amounts of SFr. 1,000 and integral multiples thereof
and tenders of Old U.S. Dollar Bonds will be accepted only in
principal amounts of US $1,000 and integral multiples thereof.
If fractional Bonds result from proration, such fractions shall
be rounded up to the nearest integral multiple of SFr. 1,000 or
US $1,000, as the case may be.
The Company currently intends to exchange Bonds representing
60% of the aggregate principal amount of the outstanding Bonds,
irrespective of the individual series of the Bonds, pursuant to
the Offer. The Company reserves the right to exchange Bonds
representing up to 62% of the aggregate principal amount of the
outstanding Bonds pursuant to the Offer. If more than 60% of the
aggregate principal amount of the outstanding Bonds have been
properly tendered by the holders thereof prior to the Expiration
Date and not withdrawn, the Company may, upon the terms and
subject to the conditions of the Offer, either (i) accept Bonds
tendered on a pro rata basis according to the aggregate principal
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<PAGE>
<PAGE>
amount of all Bonds properly tendered by the holders thereof
prior to the Expiration Date and not withdrawn or (ii) amend the
terms of the Offer by notice to the holders of the Bonds, in
which case the Offer shall remain open for an additional ten (10)
business days from the date that such notice is first given. If
not more than 60% in aggregate principal amount of the
outstanding Bonds are properly tendered by the Expiration Date
and not withdrawn, all Bonds so tendered and not withdrawn will,
upon the terms and subject to the conditions of the Offer, be
exchanged. The Company has the right, in its sole discretion, to
waive any such conditions.
For purposes of the Offer, the Company shall be deemed to
have accepted for exchange tendered Bonds on the Expiration Date,
provided that the condition to the Offer set forth in Section 15
of the Offering Circular has been waived or satisfied, unless it
gives notice to the contrary to the Exchange Agents and by
publication in The Wall Street Journal no later than five (5)
business days after the Expiration Date. Payment for Bonds so
accepted for exchange will be made on the Payment Date, unless
the conditions set forth in Section 14 have not been waived or
satisfied, by delivery of the stock certificates representing the
Common Stock to the Exchange Agents at their specified offices in
Switzerland. The Exchange Agents will deliver Common Stock only
to an account or address outside the United States. The Exchange
Agents will act as agent for the exchanging bondholders for the
purpose of receiving payment from the Company and transmitting
payments to exchanging bondholders.
For Bonds to be exchanged validly pursuant to the Offer, a
properly completed and duly executed Letter of Instructions or
facsimile thereof must be submitted by or on behalf of each
beneficial owner of Bonds to the Company and Bonds must be
submitted to the appropriate Exchange Agent in Switzerland. Any
financial institution holding Bonds on behalf of one or more
beneficial owners may submit one Letter of Instructions for all
such beneficial owners.
For a withdrawal to be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be
timely sent or delivered by or on behalf of the bondholder to the
appropriate Exchange Agent and received by such Exchange Agent
prior to the Expiration Date. Bonds may not be withdrawn after
the Expiration Date. Any such notice of withdrawal must specify
the name of the bank having tendered on behalf of the bondholder,
the Bonds to be withdrawn and the aggregate principal amount of
Bonds to be withdrawn. Withdrawals may only be made in principal
amounts of SFr. 1,000 or integral multiples thereof in the case
of the Old Swiss Franc Bonds or US $1,000 or integral multiples
thereof in the case of the Old U.S. Dollar Bonds. However, Bonds
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<PAGE>
<PAGE>
tendered pursuant to the Offer also may be withdrawn after the
Expiration Date if the registration statement of the Company with
respect to the Common Stock has not been declared effective by
the Securities and Exchange Commission (the "Commission") on or
prior to August 15, 1994.
The Common Stock to be issued pursuant to the Offer has not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold except in
transactions exempt from the registration requirements of the
Securities Act or pursuant to an effective registration
statement. In recognition of the fact that holders of Bonds
("Holders"), even though holding shares of Common Stock for
investment, may wish to be legally permitted to sell such stock
when they deem appropriate, the Company, has agreed to prepare
and file with the Commission a registration statement with
respect to the resale of the Common Stock from time to time on
the American Stock Exchange, Inc., the Pacific Stock Exchange,
Inc., in the over-the-counter market, in privately-negotiated
transactions or otherwise. The Company has agreed to use its
best efforts to cause such registration statement to become
effective on or before August 1, 1994. If such registration
statement is not declared effective by the Commission by August
15, 1994, each exchanging holder will have the option to withdraw
the Bonds tendered by it and to renounce its rights to the Common
Stock received for its account in exchange for such Bonds.
Notice of such withdrawal must be given to the Company prior to
August 30, 1994. Offers and sales of Common Stock would
constitute a violation of United States law unless made in
compliance with the registration requirements of the Securities
Act or pursuant to an exemption therefrom.
Tenders of Bonds pursuant to the Offer may be made only to
the specified offices of the Exchange Agents outside the United
States. The Company will deliver Common Stock to the Exchange
Agents outside the United States, and the Exchange Agents will
deliver, on behalf of the Company, Common Stock pursuant to the
Offer only to an account or address outside the United States.
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<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION
OFFER TO EXCHANGE
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT CORPORATION
WITH A MARKET VALUE OF SFR. 1,000,
FOR
EACH SWISS FRANCS 1,000 PRINCIPAL AMOUNT OF
Any and All
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996, or
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995
(Swiss Security No. 887282)
(COLLECTIVELY, THE "OLD SWISS FRANC BONDS")
and
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT CORPORATION
WITH A MARKET VALUE OF US $1,000
For
EACH UNITED STATES DOLLARS 1,000 PRINCIPAL AMOUNT OF
Any and All
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(the "Old U.S. Dollar Bonds," and, collectively with
the Old Swiss Franc Bonds, the "Old Bonds")
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON,
GENEVA TIME, ON MONDAY, JULY 11, 1994 (THE "EXPIRATION DATE"),
UNLESS THE OFFER IS EXTENDED OR, IN THE CASE OF
WITHDRAWAL RIGHTS, SUBJECT TO CERTAIN OTHER EXCEPTIONS. BONDS
MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
<PAGE>
<PAGE>2
To _________________
National Patent Development Corporation (the "Company") has
offered (the "Offer") to exchange (i) common stock, par value $.01 per
share (the "Common Stock"), of the Company with a market value of SFr.
1,000 for each SFr. 1,000 in principal amount of the Old Swiss Franc
Bonds validly tendered and not withdrawn prior to the Expiration Date
and
(ii) Common Stock with a market value of US $1,000 for each US $1,000
in principal amount of Old U.S. Dollar Bonds validly tendered and not
withdrawn prior to the Expiration Date. A summary of the procedures
for the Offer is described below and is fully set forth in the
Offering Circular dated June 10, 1994 (the "Offering Circular") which
can be obtained at the offices in Switzerland of the Exchange Agents
set forth in the Offering Circular. Banque Scandinave en Suisse,
acting through its specified office in Switzerland, has agreed to
provide services as the Exchange Agent with respect to the exchange of
the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank Leu AG,
acting through its specified office in Switzerland, has agreed to
provide services as the Exchange Agent with respect to the exchange of
all Bonds other than the 8% Bonds. Banque Scandinave en Suisse and
Bank Leu AG may be referred to hereinafter individually as the
"Exchange Agent" or, collectively, as the "Exchange Agents." The
undersigned hereby directs you to exchange Bonds held by you for the
undersigned's account or which the undersigned hereby delivers to you
in the principal amount set forth below in accordance with the
provisions of the Offer.
The Common Stock to be issued pursuant to the Offer has not been
registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered, sold or delivered,
directly or indirectly, in the United States or to, or for the account
of, any U.S. person except in transactions exempt from the
registration requirements of the Securities Act. In recognition of
the fact that exchanging holders of Bonds ("Holders"), even though
holding shares of Common Stock for investment, may wish to be legally
permitted to sell such stock when they deem appropriate, the Company
has agreed to prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to
the resale of the Common Stock from time to time on the American Stock
Exchange, Inc. or Pacific Stock Exchange, Inc., in privately-
negotiated transactions or otherwise. The Company has agreed to use
its best efforts to cause such registration statement to become
effective on or before August 1, 1994. If such registration statement
is not declared effective by the Commission by August 15, 1994, each
exchanging holder will have the option to withdraw the Bonds tendered
by it and to renounce its rights to the Common Stock received for its
account in exchange for such Bonds. Notice of such withdrawal must be
given to the appropriate Exchange Agent prior to August 30, 1994. In
any event, Holders will be required to agree not to, and the
undersigned hereby represents and agrees that it will not, sell Common
Stock received by them in the Offer until the earlier of (a) the date
which is 40 days after the payment date for Bonds accepted for payment
by the Exchange Agents pursuant to the Offer (the "Payment Date") and
(b) the date on which the registration statement covering such stock
is declared effective by the Commission. Offers and sales of Common
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<PAGE>
<PAGE>3
Stock in the United States or to U.S. persons would constitute a
violation of United States law unless made in compliance with the
registration requirements of the Securities Act or pursuant to an
exemption therefrom.
In this Letter of Instructions, references to "dollars", "$" and
"US $" are to United States dollars, the term "United States" means
the United States of America (including the States and the District of
Columbia), its possessions, its territories and other areas subject to
its jurisdiction, and the term "U.S. person" shall have the meaning
set forth in Sections 230.901 through .904 of Title 17 of the United
States Code of Federal Regulations ("Regulation S").
CONSISTENT WITH THE FOREGOING LIMITATIONS, THE OFFER DOES NOT
APPLY TO, IS NOT MADE TO, AND MAY NOT BE ACCEPTED BY, HOLDERS OF BONDS
THAT ARE IN THE UNITED STATES OR THAT ARE U.S. PERSONS.
Tenders of Bonds pursuant to these instructions are irrevocable,
except that they may be withdrawn at any time prior to the Expiration
Date (or, in certain circumstances as described above, at a later
time). Bonds may not be withdrawn after the Expiration Date.
The Payment Date for Bonds will be July 25, 1994; provided,
however, if the Company shall have extended the period of time for
which the Offer is open, the Payment Date shall be the tenth (10th)
business day after the Expiration Date of the Offer. The term
"Expiration Date" means 12:00 Noon, Geneva time, on July 11, 1994,
unless the Company in its sole discretion shall have extended the
period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date, not beyond
12:00 Noon, Geneva time on July 25, 1994, at which time the Offer, as
so extended by the Company, shall expire. Upon acceptance by the
Company, the undersigned directs you to deliver, or cause to be
delivered, to the appropriate Exchange Agent at its specified office
in Switzerland, the Bonds being accepted for exchange, together with
all unmatured and matured but unpaid coupons. In the event that
unmatured and matured but unpaid coupons are not submitted with Bonds
tendered, such Bonds will not be accepted for tender.
Payment for Bonds so accepted for exchange will be made on the
Payment Date by delivery of the stock certificates representing the
Common Stock to the Exchange Agents at their specified offices in
Switzerland. However, if the registration statement covering the
Common Stock is not declared effective by the Commission prior to the
Payment Date, the Common Stock issued pursuant to the Offer will be
represented by temporary global stock certificates until the earlier
of (x) such time as the registration statement covering the Common
Stock is declared effective by the Commission and (y) 40 days after
the Payment Date. Such global stock certificates will be exchanged
for definitive stock certificates upon certification that the
beneficial owners of such securities are not U.S. persons and have not
acquired such securities for purposes of resale to a U.S. person.
Prior to exchange for definitive certificates, no stock represented by
global certificates, or interests therein, may be transferred. The
Exchange Agents will deliver Common Stock only to an account or
address outside the United States. The Exchange Agents will act as
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<PAGE>
<PAGE>4
agent for the exchanging Holders for the purpose of receiving payment
from the Company and transmitting payments to exchanging Holders.
In case the Offer is terminated or expires pursuant to its terms,
this Letter of Instructions shall be cancelled and Bonds tendered
will thereupon be at the undersigned's free disposal.
Name (in print characters) _______________________________________
Company _______________________________________________
Address _______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
Aggregate principal amount of
Bonds tendered: /SFr./ /US $/ ___________________________________
Date ______________________________________________________
Signature______________________________________________________
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<PAGE>
<PAGE>1
The Offering Circular which provides detailed information on the
conditions of the Offer and on the Company will be available at the
principal offices in Switzerland of Banque Scandinave en Suisse or
Bank Leu AG (individually, the "Exchange Agent," or, collectively, the
"Exchange Agents"). Its contents may materially influence any
decision to be made in respect of the Offer.
OFFER TO EXCHANGE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, GENEVA TIME, ON
MONDAY, JULY 11, 1994 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED
OR, IN THE CASE OF WITHDRAWAL RIGHTS, SUBJECT TO CERTAIN OTHER EXCEPTIONS.
BONDS MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
National Patent Development Corporation (the "Company"), New
York, New York, hereby offers (the "Offer") to exchange (i) common
stock, par value $.01 per share (the "Common Stock"), of the Company
with a market value of SFr. 1,000 for each SFr. 1,000 in principal
amount of the Old Swiss Franc Bonds validly tendered and not withdrawn
prior to the Expiration Date and (ii) Common Stock with a market value
of US $1,000 for each US $1,000 in principal amount of Old U.S. Dollar
Bonds validly tendered and not withdrawn prior to the Expiration Date,
upon the terms and subject to the conditions set forth in the Offering
Circular, dated June 10, 1994 (the "Offering Circular"), and in the
Letter of Instructions. Interest accrued on the Bonds up to the
Payment Date will be paid in shares of Common Stock of the Company for
each SFr. 1,000 principal amount of Old Swiss Franc Bonds (such
amounts referred to collectively as "Swiss Bond Accrued Interest") and
for each US $1,000 principal amount of the Old U.S. Dollar Bonds (such
amount referred to as "U.S. Bond Accrued Interest," and together with
the Swiss Bond Accrued Interest, the "Accrued Interest"). Fractional
shares of Common Stock resulting from such exchange will be rounded up
to the nearest integral multiple. In accordance with United States
securities laws, the Company is making a concurrent separate offer on
the same terms and for the same consideration as the Offer to U.S.
holders of the Bonds (the "United States Offer").
The Offer is conditioned upon, among other things, the
nonoccurrence of certain events. The Company has the right, in its
sole discretion, to waive any such conditions.
The Board of Directors of the Company has unanimously approved
the making of the Offer; however, neither the Company nor its Board of
Directors is making any recommendation to any holder of Bonds to
tender Bonds pursuant to the Offer. Each holder of Bonds should make
his own decision whether to tender his Bonds after reading the
Offering Circular.
Banque Scandinave en Suisse, acting through its specified office
in Switzerland, has agreed to provide services as the Exchange Agent
with respect to the exchange of the 8% Bonds due March 1, 1995 (the
"8% Bonds") and Bank Leu AG, acting through its specified office in
Switzerland, has agreed to provide services as the Exchange Agent with
respect to the exchange of all Bonds other than the 8% Bonds. Banque
Scandinave en Suisse and Bank Leu AG may be referred to hereinafter
individually as the "Exchange Agent" or, collectively, as the
"Exchange Agents."
<PAGE>
<PAGE>2
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Company will
accept for exchange on the Expiration Date Bonds representing up to
60% of the aggregate principal amount of the outstanding Bonds which
are validly tendered pursuant to the Offer and the United States Offer
on or prior to the Expiration Date and not properly withdrawn as
permitted by Section 9 of the Offering Circular. "Expiration Date"
shall mean 12:00 noon, Geneva time on Monday, July 11, 1994, unless
the Company, in its sole discretion, shall have extended the period of
time for which the Offer is open, in which event the term "Expiration
Date" shall mean the latest time and date, not beyond 12:00 Noon,
Geneva Time, on July 25, 1994, at which time the Offer, as so extended
by the Company, shall expire. Payment for Bonds exchanged pursuant to
the Offer will be made on July 25, 1994 (the "Payment Date"),
provided, however, if the Company shall have extended the period of
time for which the Offer is open, the Payment Date shall be the tenth
(10th) business day after the Expiration Date, upon timely receipt by
the Exchange Agents of such Bonds, together with all unmatured and
matured but unpaid coupons. Tenders of Old Swiss Franc Bonds will be
accepted only in principal amounts of SFr. 1,000 and integral
multiples thereof and tenders of Old U.S. Dollar Bonds will be
accepted only in principal amounts of US $1,000 and integral multiples
thereof. If fractional Bonds result from proration, such fractions
shall be rounded up to the nearest integral multiple of SFr. 1,000 or
US $1,000, as the case may be.
The Company currently intends to exchange Bonds representing 60%
of the aggregate principal amount of the outstanding Bonds,
irrespective of the individual series of the Bonds, pursuant to the
Offer. The Company reserves the right to exchange Bonds representing
up to 62% of the aggregate principal amount of the outstanding Bonds
pursuant to the Offer. If more than 60% of the aggregate principal
amount of the outstanding Bonds have been properly tendered by the
holders thereof prior to the Expiration Date and not withdrawn, the
Company may, upon the terms and subject to the conditions of the
Offer, either (i) accept Bonds tendered on a pro rata basis according
to the aggregate principal amount of all Bonds properly tendered by
the holders thereof prior to the Expiration Date and not withdrawn or
(ii) amend the terms of the Offer by notice to the holders of the
Bonds, in which case the Offer shall remain open for an additional ten
(10) business days from the date that such notice is first given. If
not more than 60% in aggregate principal amount of the outstanding
Bonds are properly tendered by the Expiration Date and not withdrawn,
all Bonds so tendered and not withdrawn will, upon the terms and
subject to the conditions of the Offer, be exchanged. The Company has
the right, in its sole discretion, to waive any such conditions.
For purposes of the Offer, the Company shall be deemed to have
accepted for exchange tendered Bonds on the Expiration Date provided
that the condition to the Offer set forth in Section 14 of the
Offering Circular has been waived or satisfied, unless it gives notice
to the contrary in writing or by telex to the appropriate Exchange
Agent. The Company will give notice and the Exchange Agents shall
publish such notice in the Feuille Officielle Suisse du Commerce and a
daily newspaper in the cities of Basle, Geneva and Zurich no later
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<PAGE>
<PAGE>
than five (5) business days after the Expiration Date. Payment for
Bonds so accepted for exchange will be made on the Payment Date,
unless the conditions set forth in Section 13 of the Offering Circular
have not been waived or satisfied, by delivery of stock certificates
representing the Common Stock to the Exchange Agents at their
specified offices in Switzerland. Until the earlier of (x) such time
as the registration statement covering the Common Stock is declared
effective by the Securities and Exchange Commission (the "Commission")
and (y) 40 days after the Payment Date, the Common Stock will be
represented by temporary global stock certificates. Such global stock
certificates will be exchanged for definitive stock certificates upon
certification that the beneficial owners of such securities are not
U.S. persons. Prior to exchange for definitive certificates, no stock
represented by global certificates, or interests therein, may be
transferred. The Exchange Agents will deliver Common Stock only to an
account or address outside the U.S. The Exchange Agents will act as
agent for the exchanging bondholders for the purpose of receiving
payment from the Company and transmitting payments to exchanging
bondholders.
For Bonds to be validly exchanged pursuant to the Offer, a
properly completed and duly executed Letter of Instructions for
acceptance of the Offer or facsimile thereof must be submitted by or
on behalf of each beneficial owner of Bonds to one of the Exchange
Agents in Switzerland. Any financial institution holding Bonds on
behalf of one or more beneficial owners may submit one Letter of
Instructions for all such beneficial owners. Bonds physically held
must be tendered, through a bank in Switzerland, to an Exchange Agent
accompanied by a Letter of Instructions signed by such beneficial
owner. Tenders on behalf of bondholders will be valid only if made
through banks in Switzerland and received by Banque Scandinave en
Suisse, with respect to the 8% Bonds, or Bank Leu AG, with respect to
all of the Bonds except the 8% Bonds, prior to the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex
or facsimile transmission notice of withdrawal must be timely sent or
delivered by or on behalf of the bondholder to the appropriate
Exchange Agent and received by such Exchange Agent prior to the
Expiration Date. Any such notice of withdrawal must specify the name
of the bank having tendered on behalf of the bondholder, the Bonds to
be withdrawn and the aggregate principal amount of Bonds to be
withdrawn. Withdrawals may only be made in principal amounts of SFr.
1,000 or integral multiples thereof in the case of the Old Swiss Franc
Bonds or US $1,000 or integral multiples thereof in the case of the
Old U.S. Dollar Bonds. However, Bonds tendered pursuant to the Offer
also may be withdrawn after the Expiration Date if the registration
statement of the Company with respect to the Common Stock has not been
declared effective by the Commission on or prior to August 15, 1994.
The Common Stock to be issued pursuant to the Offer has not been
registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered, sold or delivered,
directly or indirectly, in the United States or to, or for the account
of, any U.S. person except in transactions exempt from the
registration requirements of the Securities Act. In recognition of
the fact that exchanging holders of Bonds ("Holders"), even though
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<PAGE>
<PAGE>
holding shares of Common Stock for investment, may wish to be legally
permitted to sell such stock when they deem appropriate, the Company
has agreed to prepare and file with the Commission a registration
statement with respect to the resale of the Common Stock from time to
time on the American Stock Exchange, Inc., or the Pacific Stock
Exchange, Inc., in privately-negotiated transactions or otherwise.
The Company has agreed to use its best efforts to cause such
registration statement to become effective on or before August 1,
1994. If such registration statement is not declared effective by the
Commission by August 15, 1994, each exchanging holder will have the
option to withdraw the Bonds tendered by it and to renounce its rights
to the Common Stock received for its account in exchange for such
Bonds. Notice of such withdrawal must be given to the appropriate
Exchange Agent prior to August 30, 1994. Holders agree not to, and
the undersigned hereby represents and agrees that it will not, sell
Common Stock received by them in the Offer until the earlier of (a)
the date which is 40 days after the Payment Date and (b) the date on
which the registration statement covering such stock is declared
effective by the Commission. Offers and sales of Common Stock in the
United States or to U.S. persons would constitute a violation of
United States law unless made in compliance with the registration
requirements of the Securities Act or pursuant to an exemption
therefrom.
Tenders of Bonds pursuant to the Offer may be made only to the
specified offices of the Exchange Agents outside the United States.
The Company will deliver Common Stock to the Exchange Agents outside
the United States, and the Exchange Agents will deliver, on behalf of
the Company, Common Stock pursuant to the Offer only to an account or
address outside the United States.
References herein to "dollars", "$" and "US $" are to United
States dollars, the term "United States" means the United States of
America (including the States and the District of Columbia), its
possessions, its territories and other areas subject to its
jurisdiction, and the term "U.S. person" shall have the meaning set
forth in Sections 230.901 through .904 of Title 17 of the United
States Code of Federal Regulations ("Regulation S").
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<PAGE>
<PAGE>
This announcement is neither an offer to sell nor a solicitation of
an offer to buy any securities. The Offer is made solely by the
Offering Circular and the related Letter of Instructions and is not
being made to, and tenders will not be accepted from, holders in any
jurisdiction in which the making or acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.
National Patent Development Corporation
Notice of Offer to Exchange
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT CORPORATION
WITH A MARKET VALUE OF SFr. 1,000
For
Each Swiss Francs 1,000 Principal Amount of
Any and All
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996, or
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995
(Swiss Security No. 887282)
(collectively, the "Old Swiss Franc Bonds")
and
COMMON STOCK OF NATIONAL PATENT DEVELOPMENT
CORPORATION WITH A MARKET VALUE OF US $1,000
For
Each United States Dollars 1,000 Principal Amount of
Any and All
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(the "Old U.S. Dollar Bonds," and, collectively with
the Old Swiss Franc Bonds, the "Bonds")
National Patent Development Corporation ("National Patent") is
offering (the "Offer"), upon the terms and subject to the conditions
set forth in its Offering Circular and Letter of Instructions,
to exchange (i) common stock, par value $.01 per share (the
"Common Stock"), of National Patent with a market value of SFr. 1,000
for each SFr. 1,000 in principal amount of the Old Swiss Franc Bonds
validly tendered and not
<PAGE>
withdrawn prior to the Expiration Date and (ii) Common Stock with a
market value of US $1,000 for each US $1,000 in principal amount of Old
U.S. Dollar Bonds validly tendered and not withdrawn prior to the
Expiration Date. Interest accrued on the Bonds up to the Payment Date
will be paid in shares of Common Stock of the Company for each SFr.
1,000 principal amount of Old Swiss Franc Bonds (such amounts referred
to collectively as "Swiss Bond Accrued Interest") and for each US $1,000
principal amount of the Old U.S. Dollar Bonds (such amount referred to
as "U.S. Bond Accrued Interest," and together with the Swiss Bond
Accrued Interest, the "Accrued Interest"). Fractional shares of Common
Stock resulting from such exchange will be rounded up to the nearest
integral multiple.
National Patent is concurrently making separate offers to (i)
U.S. persons holding Bonds and (ii) persons that are not in the United
States and are not U.S. persons holding Bonds to purchase 60% of the
aggregate principal amount of the outstanding Bonds. National Patent is
offering to pay the same consideration to all holders of the Bonds.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
The purpose of the Offer is to reduce National Patent's
long-term indebtedness and annual interest expense, to increase National
Patent's book value and to provide National Patent with additional
financial flexibility in its operations. In addition, the issuance of
the Common Stock in the Offer will enable National Patent to lower its
ratio of long-term debt to total capitalization.
Subject to the terms and conditions of the Offer, National
Patent will accept for exchange Bonds representing up to 60% of the
aggregate principal amount of the outstanding Bonds which are validly
tendered in response to the Offer and not withdrawn prior to the
Expiration Date. The term "Expiration Date" means 5:00 P.M., New York
City time, on July 11, 1994, unless National Patent, in its sole
discretion, shall have extended the period of time for which the Offer
is open, in which event the term "Expiration Date" shall mean the latest
time and date, not beyond 5:00 P.M., New York City time, on July 25,
1994, at which the Offer, as so extended by National Patent, shall
expire. Tenders are irrevocable, except that Bonds tendered pursuant to
the Offer may be withdrawn prior to 5:00 P.M., New York City time, on
July 11, 1994 and may be withdrawn thereafter only in certain
circumstances.
The Company reserves the right to exchange Bonds representing
up to 62% of the aggregate principal amount of the outstanding Bonds
pursuant to the Offer. In the event that Bonds in excess of 60% of the
aggregate principal amount are tendered, the Company may either (i)
accept Bonds tendered on a pro rata basis according to the aggregate
principal amount of all Bonds properly tendered by the Expiration Date
or (ii) amend the terms of the Offer by notice to the holders of the
Bonds, in which case the Offer shall remain open for an additional ten
(10) business days from the date that such notice is first given. If
not more than 60% in aggregate principal amount of the outstanding Bonds
are properly tendered by the Expiration Date and not withdrawn, all
Bonds so tendered and not withdrawn will, upon the terms and subject to
the conditions of the Offer, be exchanged. The Company has the right,
in its sole discretion, to waive any such conditions.
In order to exchange Bonds validly pursuant to the Offer, a
Letter of Instructions for acceptance of the Offer must be submitted by
or on behalf of each bondholder to National Patent at its office in New
York and such Bonds must be submitted to the appropriate Exchange Agent
at its specified office in Switzerland. Banque Scandinave en Suisse,
acting through its specified office in Switzerland, has agreed to
provide services as the Exchange Agent with respect to the exchange of
the 8% Bonds due March 1, 1995 (the "8% Bonds") and Bank Leu AG, acting
through its specified office in Switzerland, has agreed to provide
services as the Exchange Agent with respect to the exchange of all Bonds
other than the 8% Bonds. Any person holding Bonds on behalf of one or
more beneficial owners may submit one Letter of Instructions for all
such beneficial owners.
Tenders on behalf of bondholders will be valid only if received
by the Exchange Agents prior to the Expiration Date.
The Offer is being made by National Patent in reliance on an
exemption from the requirements of the Securities Act of 1933, as
amended, contained in Section 3(a)(9) of such Act. This notice is being
published solely in order to comply with the requirements of Rule 13e-4.
Pursuant to such Rule, a Schedule 13E-4 has been filed with the
Securities and Exchange Commission, which information is incorporated by
reference herein.
All questions regarding the Offer and requests for assistance
or copies of the Offering Circular and Letter of Instructions may be
directed to General Counsel, National Patent Development Corporation, 9
West 57th Street, New York, N.Y. 10019, telephone: (212) 230-9500.
June 10, 1994
<PAGE>
