<PAGE>1 of 13
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-3
APPLICATION FOR QUALIFICATION OF INDENTURE
UNDER THE TRUST INDENTURE ACT OF 1939
NATIONAL PATENT DEVELOPMENT CORPORATION
_________________________________________________________________
(Name of applicant)
9 West 57th Street
New York, New York 10019
_________________________________________________________________
(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE
TO BE QUALIFIED:
TITLE OF CLASS AMOUNT
-------------- ------
8% Bonds due June 28, 2000 Swiss Francs 5,260,000
Approximate date of proposed public offering: As soon as practicable
after this application for qualification becomes effective.
Name and address of agent With a copy to:
for service:
Lawrence M. Gordon, Esq. David W. Pollak, Esq.
Vice President and General Counsel Morgan, Lewis & Bockius
National Patent Development 101 Park Avenue
Corporation New York, NY 10178
9 West 57th Street
New York, New York 10019
The obligor hereby amends this application for qualification
on such date or dates as may be necessary to delay its
effectiveness until (i) the 20th day after the filing of an
amendment which specifically states that it shall supersede this
application, or (ii) such date as the Commission, acting pursuant
to Section 307(c) of the Act, may determine upon the written
request of the obligor.
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GENERAL
1. General Information
-------------------
(a) The applicant, National Patent Development Corporation
("National Patent"), is a corporation.
(b) National Patent was organized under the laws of the
State of Delaware.
2. Securities Act Exemption Applicable
-----------------------------------
Pursuant to the terms of an exchange offer (the
"Offer"), (i) 8% Bonds denominated in Swiss Francs ("SFr.") and
issued by National Patent under the Indenture to be qualified
hereby due June 28, 2000 (the "New Bonds"), in a principal amount
of SFr. 650, and (ii) SFr. 600 in cash will be exchanged for each
Swiss Francs 1,000 in principal amount and accrued interest
thereon of any and all of National Patent's 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 and 8% Bonds due March
1, 1995 (collectively, the "Old Swiss Franc Bonds") currently
outstanding, and (a) New Bonds in a principal amount equivalent
to United States Dollars ("US $") 650 and (b) Swiss Francs cash
with a value equivalent to US $600 will be exchanged by National
Patent, for each US $1,000 in principal amount and accrued
interest thereon of any and all of National Patent's 7% Dual
Currency Convertible Bonds due March 18, 1996 (the "Old U.S.
Dollar Bonds," and, collectively with the Old Swiss Franc Bonds,
the "Old Bonds"). The terms of the Offer are contained in the
form of the Offering Circular attached hereto as Exhibit T3E.1
(the "Offering Circular") and the Form of Letter of Instructions
attached hereto as Exhibit T3E.2. No New Bonds will be issued
before the effective date of this Application for Qualification.
The Offer is being made pursuant to the Offering
Circular only to U.S. holders of Old Bonds. Concurrently
herewith, National Patent is making an offer to holders of Old
Bonds held by persons that are not in the United States and are
not U.S. persons.
Since the Old Bonds are being exchanged for the New
Bonds and cash by National Patent "with its existing security-
holders exclusively where no commission or other remuneration is
paid or given directly or indirectly for soliciting such
exchange," the New Bonds are exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"),
pursuant to the provisions of Section 3(a)(9) thereof. National
Patent has not sold and will not sell, by or through an
underwriter or otherwise, New Bonds at or about the same time as
the Offer is outstanding. National Patent has not compensated
and will not compensate, directly or indirectly, any person in
connection with the solicitation of the Offer. No holder of Old
Bonds will be required to make any cash payment in connection
with the Offer.
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AFFILIATIONS
3. Affiliates
----------
For purposes of this Application, the directors and
executive officers of National Patent named in response to Item 4
hereof may be deemed affiliates of National Patent by virtue of
the positions held by such persons with National Patent.
The following table sets forth the other affiliates of
National Patent as of March 1, 1995.
Company Ownership by National Patent
------- ----------------------------
SGLG, Inc. 92%
6700 Alexander Bell Drive
Columbia, Maryland 21046
GTS Duratek, Inc. 40.6%
6700 Alexander Bell Drive
Columbia, Maryland 21046
General Physics Corporation 50.58% controlled
6700 Alexander Bell Drive (includes 10% owned by
Columbia, Maryland 21046 Five Star Group, Inc.
and 6% owned by MXL
Industries, Inc.)
Interferon Sciences, Inc. 31% controlled
783 Jersey Avenue (includes 6% owned by
New Brunswick, NJ 08901 Five Star Group Inc.
and 6% owned by MXL
Industries, Inc.)
Five Star Group, Inc. 100%
903 Murray Road
East Hanover, NJ 07936
MXL Industries, Inc. 100%
1764 Rohrerstown Road
Lancaster, PA 17601
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MANAGEMENT AND CONTROL
4. Directors and Executive Officers
--------------------------------
The following table lists the names of all directors and
executive officers of National Patent, and all offices held with
National Patent by each such person:
Name Office
---- ------
Jerome I. Feldman President, Chief Executive
National Patent Development Officer and Director
Corporation
9 West 57th Street
New York, NY 10019
Martin M. Pollak Executive Vice President,
National Patent Development Treasurer and Director
Corporation
9 West 57th Street
New York, NY 10019
Scott N. Greenberg Vice President, Chief
National Patent Development Financial Officer and Director
Corporation
9 West 57th Street
New York, NY 10019
Lawrence M. Gordon Vice President and
National Patent Development General Counsel
Corporation
9 West 57th Street
New York, NY 10019
Ogden R. Reid Director
Mead Street
Waccabuc, NY 10597
Roald Hoffmann Director
Cornell University
Department of Chemistry
Baker Laboratory
Ithaca, NY 14853
Paul A. Gould Director
Allen & Company Incorporated
New York, NY
Herbert R. Silverman Director
150 Central Park South
New York, NY 10019
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5. Principal Owners of Voting Securities
-------------------------------------
As of May 1, 1995 no person was known to National Patent to
own beneficially more than 10% of the Common Stock or Class B
Capital Stock of National Patent except as set forth below.
The following table shows as of such date the Class B
Capital Stock beneficially owned directly by Mr. Jerome I.
Feldman, President and Chief Executive Officer and a director of
National Patent, and Mr. Martin M. Pollak, Executive Vice
President and Treasurer and a director of National Patent.
Amount of
Name and Complete Title of Beneficial Percent
Mailing Address Class owned Ownership of Class
----------------- ----------- ---------- --------
Jerome I. Feldman Class B Capital 900,000 shares(1) 50(2)
National Patent
Development
Corporation
9 West 57th Street
New York, NY 10019
Martin M. Pollak Class B Capital 900,000 shares(1) 50(2)
National Patent
Development
Corporation
9 West 57th Street
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 Capital Stock
of National Patent outstanding at May 1, 1995 Mr. Feldman and Mr.
Pollak controlled approximately 10.2% of the voting power of all
voting securities of National Patent. This percentage for Mr.
Feldman and Mr. Pollak would increase to approximately 43% if
they exercised all the presently outstanding options to purchase
shares of the Common Stock and Class B Capital Stock of National
Patent 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 Capital
Stock and options to purchase Class B Capital 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
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Capital Stock or options to acquire shares of Class B Capital
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.
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc.,
Princeton Services, Inc. and Merrill Lynch Phoenix Fund, Inc.
filed a Schedule 13G which disclosed the ownership of 1,426,100
shares of the Common Stock representing approximately 5.9% of the
outstanding Common Stock as of December 31, 1994.
UNDERWRITERS
6. Underwriters
------------
(a) None
(b) There is no underwriter for the New Bonds.
CAPITAL SECURITIES
7. Capitalization
--------------
(a) Authorized Securities.
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Capital Stock
-------------
As of May 1, 1995
Number of Shares
-----------------------------------------
Reserved
Authorized for
by Charter Issuance Outstanding
---------- --------- -----------
Common Stock,
$.01 Par Value 40,000,000 8,858,137 26,812,321
Class B Capital
Stock, $.01 Par
Value 2,800,000 1,800,000 250,000
Preferred Stock, 10,000,000 0 0
$.01 Par Value
DEBT SECURITIES
---------------
As of May 1, 1995, debt securities of National Patent and
its subsidiaries were as follows:
Amount Amount
Authorized Outstanding
---------- -----------
8% Swiss Bonds due 1995 SFr. 51,264,000 SFr. 1,584,000
6% Convertible Swiss Bonds
Due 1995 SFr. 60,000,000 SFr. 1,685,000
5.75% Convertible Swiss Bonds
Due 1995 SFr. 50,000,000 SFr. 1,065,000
5.625% Convertible Swiss Bonds
Due 1996 SFr. 50,000,000 SFr. 1,415,000
7% Dual Currency Convertible
Bonds Due 1996 US $15,000,000 US $2,037,000
As of May 1, 1995 (i) options and warrants to purchase
4,288,909 shares of Common stock were exercisable at prices
ranging from $2.25 to $6.00 per share and (ii) options and
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warrants to purchase 1,550,000 shares of Class B Common Stock
were exercisable at a price of $2.25 per share.
(b) Each share of Common Stock entitles the holder thereof
to one vote. Each share of Class B Capital Stock entitles the
holder thereof to ten votes. Cumulative voting for the election
of directors is not authorized.
INDENTURE SECURITIES
8. Analysis of Indenture Provisions
--------------------------------
The New Bonds will be issued under an Indenture (the
"Indenture") between National Patent and ___________________, as
Trustee (the "Trustee"). The following is a general description
of certain provisions of the Indenture to be qualified, and the
description is qualified in its entirety by reference to the form
of the Indenture to be qualified, filed as an exhibit hereto.
Terms used herein without definition have the same meanings as in
the Indenture.
(a) Events of Default; Withholding of Notices.
------------------------------------------
The Indenture provides that if an Event of Default shall
have occurred and be continuing, either the Trustee, by notice to
National Patent, or the holders of at least 25% in principal
amount of the New Bonds then outstanding by notice to National
Patent may declare the principal of and accrued interest on all
such New Bonds to be due and payable immediately; provided,
however, that if any and all defaults (other than the nonpayment
of principal of and interest on New Bonds which shall have become
due solely by acceleration) shall have been remedied, the holders
of a majority in principal amount of New Bonds then outstanding
may rescind such declaration of default and annul its
consequences. (Section 6.2).
The Indenture provides that no holder of New Bonds, as such,
may institute any action against National Patent under the
Indenture (except actions for payment of overdue principal or
interest on his New Bonds) unless the holders of at least 25% of
the principal amount of New Bonds then outstanding shall have
requested the Trustee to institute such action and the Trustee
shall not have instituted such action within 60 days of such
request. (Section 6.6).
Events of Default are defined in the Indenture as being
default for 30 days in payment of any interest installment or
failure to make payment when due of the principal of the New
Bonds; failure to perform or observe in any material respect any
other covenant or agreement in the New Bonds for 30 days after
notice of such default has been given to National Patent; default
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involving the failure to pay when due or resulting in the right
by any holder of indebtedness of National Patent or guaranty of
such indebtedness to accelerate such indebtedness in an amount in
excess of $1,000,000 which has not been remedied within 30 days
after notice has been given to the Company; failure of the Common
Stock of National Patent, for a period of 90 consecutive days, to
be traded on the American Stock Exchange, on another recognized
national securities exchange in the United States or on the
NASDAQ National Market System; National Patent's merger or
consolidation with, or sale or conveyance of all or substantially
all of its assets to, any other corporation, unless (i) National
Patent is the surviving corporation, or (ii) the surviving or
transferee corporation expressly assumes all obligations of
National Patent under the New Bonds by supplemental agreement,
confirmed by an opinion of counsel or (iii) National Patent or
the surviving or transferee corporation irrevocably deposits in
trust pursuant to arrangements reasonably satisfactory to the
Trustee, money or U.S. Government Obligations sufficient to pay
principal and interest on the New Bonds to maturity; and certain
events of bankruptcy, insolvency and reorganization. (Section
6.1).
The Indenture provides that the Trustee shall, within 90
days after the occurrence of a Default, give to the holders of
the New Bonds notice; provided that, (a) if the default arises
from a consolidation, a merger, or a transfer of all or
substantially all of its assets to a person (i) not organized
under the laws of the United States or any state thereof or the
District of Columbia; (ii) that does not assume by supplemental
indenture all the obligations of National Patent under the New
Bonds and the Indenture; and (iii) so that immediately after such
transaction a Default exists or (b) if National Patent shall
commence a voluntary case under any bankruptcy, insolvency or
other similar law, the Trustee shall mail the notice within 30
days after the Default occurs. (Section 7.5).
The Indenture contains a provision entitling the
Trustee, subject to the duty of the Trustee during the occurrence
and continuance of an Event of Default, to use the same degree of
care and skill in its exercise, as a prudent man would exercise
or use, to be indemnified by National Patent against any loss or
liability incurred by it. (Sections 7.1 and 7.7)
(b) Authentication and Delivery of New
Debentures; Application of Proceeds.
------------------------------------
The New Bonds shall be executed on behalf of National
Patent by two officers under its corporate seal (or a facsimile
thereof). Signatures of officers of National Patent may be manual
or by facsimile. A New Bond shall not be valid until
authenticated by a manual signature of the Registrar. (Section
2.2)
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The New Bonds and cash are being offered in exchange
for the Old Bonds.
(c) Release or Substitution of Property.
-----------------------------------
Not applicable.
(d) Satisfaction and Discharge of the Indenture and the New
Bonds.
--------------------------------------------------------
The Company may terminate its obligations under the
Indenture and the New Bonds at any time; however, several of the
Bonds are no longer outstanding. (Section 8.1).
The Transfer Agent and Paying Agent shall forward to
the Registrar any New Bonds surrendered to them for registration
of transfer, exchange or payment. The Registrar shall cancel all
New Bonds surrendered for registration of transfer, exchange,
payment or cancellation and shall dispose of cancelled New Bonds
as National Patent directs. National Patent may not issue New
Bonds to replace New Bonds that it has paid or delivered to the
Registrar for cancellation. (Section 2.11).
(e) Statement as to Compliance.
---------------------------
Upon any request or application by National Patent to
the Trustee to take any action under the Indenture, National
Patent shall if so requested furnish to the Trustee:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in the Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion
of such counsel, all such conditions precedent have been complied
with. (Section 10.4).
9. Other Obligors
--------------
No person other than National Patent is an obligor on
the New Bonds.
Contents of Application for Qualification.
-----------------------------------------
This application for qualification comprises:
(a) Pages numbered 1 through 12, consecutively.
(b) A statement of eligibility and qualification of the
Trustee on Form T-l.
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(c) The following exhibits in addition to those to be filed
as part of the statement of eligibility and qualification of the
Trustee:
**T3A.1 Certificate of Amendment of Restated Certificate of
Incorporation of National Patent Development
Corporation, is incorporated herein by reference to
National Patent's Annual Report on Form l0-K for the
year ended December 31, 1984.
**T3A.2 Amendment to the Restated Certificate of Incorporation
of National Patent Development Corporation, is
incorporated by reference to National Patent's Annual
Report on Form 10-K for the year ended December 31,
1987.
**T3B By-laws of National Patent Development Corporation, as
amended, are incorporated herein by reference to
National Patent's Annual Report on Form 10-K for the
year ended December 31, 1986.
*T3C Form of Indenture to be entered into between National
Patent Development Corporation and Bank of Montreal
Trust Company, as Trustee, relating to the New Bonds.
*T3E.1 Form of Offering Circular.
*T3E.2 Form of Letter of Instructions.
***T3E.3 Form of Advertisement to be published in The New York
Times.
*T3F Cross-reference sheet (included as part of Exhibit
T3C).
__________________________________
* Filed herewith.
** Incorporated by reference to the filing indicated.
*** To be filed by amendment.
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, the applicant, National Patent Development Corporation, a
corporation organized and existing under the laws of the State of
Delaware, has duly caused this Application to be signed on its
behalf by the undersigned, thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of New
York, and the State of New York, on the 10th day of May, 1995.
NATIONAL PATENT DEVELOPMENT
CORPORATION
By:Lawrence M. Gordon
------------------------
Name: Lawrence M. Gordon
Title: Vice President
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EXHIBIT INDEX
Document Page Number
**T3A.1 Certificate of Amendment of Restated
Certificate of Incorporation of National
Patent Development Corporation, is
incorporated herein by reference to National
Patent's Annual Report on Form l0-K for the
year ended December 31, 1984.
**T3A.2 Amendment to the Restated Certificate of
Incorporation of National Patent Development
Corporation, is incorporated by reference to
National Patent's Annual Report on Form l0-K
for the year ended December 31, 1987.
**T3B By-laws of National Patent Development
Corporation, as amended, are incorporated
herein by reference to National Patent's
Annual Report on Form l0-K for the year ended
December 31, 1986.
*T3C Form of Indenture to be entered into between
National Patent Development Corporation and
Bank of Montreal Trust Company, as Trustee,
relating to the New Bonds.
*T3E.1 Form of Offering Circular.
*T3E.2 Form of Letter of Instructions.
***T3E.3 Form of Advertisement to be published in The
New York Times.
*T3F Cross-reference sheet (included as part of
Exhibit T3C).
___________________
* Filed herewith.
** Incorporated by reference to the filing indicated.
*** To be filed by amendment.
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Exhibit T3C
NATIONAL PATENT DEVELOPMENT CORPORATION
and
___________________________, as Trustee
INDENTURE
Dated as of June __, 1995
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INDENTURE, dated as of June __, 1995, between NATIONAL PATENT
DEVELOPMENT CORPORATION, a Delaware corporation (the "Company"), and
_____________________, a New York chartered bank (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the
Company's Swiss Franc __________ principal amount of 8% Bonds due June
28, 2000.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
Section 1.1. Definitions.
-----------
"Affiliate" means any person directly or indirectly
controlling or controlled by or under direct or indirect common control
with the Company.
"Agent" means any Transfer Agent or Paying Agent.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board of Directors.
"Bonds" means the Company's Swiss Franc _______ principal
amount of 8% Bonds due June 28, 2000 in the form set forth as Exhibit A
to this Indenture.
"Common Stock" means the Company's common stock, par value
$.01 per share.
"Common Stock Price" means the quotient of the average of the
last sale prices on the American Stock Exchange, Inc. of the Common
Stock for the five trading days ending two days prior to the due date of
a payment divided by the Swiss Franc/U.S. Dollar spot rate on the second
day prior to the due date of the payment.
"Company" means the party named as such above until a
successor replaces it and thereafter means the successor and any other
obligor.
"Debt" of any person means to the extent required in
accordance with generally accepted accounting principles to be included
in the financial statements of such person or the footnotes thereto, (i)
all obligations of such person for borrowed money, (ii) all obligations
of such person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such person for installment
purchase transactions, involving the purchase of property or services,
over $5,000,000 for any particular transaction, except trade accounts
payable and expense accruals arising in the ordinary course of business,
(iv) all obligations of such person as lessee under any capital lease
requiring aggregate payments of $1,000,000 or more, (v) all contingent
or non-contingent obligations of such person to reimburse any bank or
other person in respect of amounts paid or to be paid under a letter of
credit or similar instrument and (vi) any direct or indirect guarantee
by such person of Debt of another person.
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"Default" means any event which is, or after notice passage of
time would be, an Event of Default.
"Holder" or "Bondholder" means a person in whose name a Bond
is registered.
"Indenture" means this Indenture as amended from time to time.
"Officer" means the Chairman, any Vice-Chairman, the
President, any Vice-President, the Treasurer, the Secretary, the
Controller or any Assistant Treasurer of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Secretary or Assistant
Controller of the Company.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof,
or any other entity.
"Principal" of a debt security means the principal of the
security plus the premium, if and when applicable, on the security.
"SEC" means the Securities and Exchange Commission.
"TIA" means the Trust Indenture Act of 1939, 15 U.S. Code
7aaa-bbbb, as in effect on the date shown above.
"Trustee" means the party named as such above until a
successor replaces it, and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
Section 1.2. Other Definitions.
-----------------
Term Defined in Section
---- ------------------
"Event of Default" 6.1
"Legal Holiday" 11.7
"Paying Agent" 2.3
"Registrar" 2.3
"Transfer Agent" 2.3
"U.S. Government Obligations" 8.2
-2-
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Section 1.3. Incorporation by Reference of Trust Indenture
Act.
----------------------------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Bonds.
"indenture security holder" means a Bondholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" of the indenture securities means the Company or any
other obligor thereon.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings assigned to them by such definitions.
Section 1.4. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) generally accepted accounting principles are those
applicable from time to time;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the
plural include the singular; and
(6) provisions apply to successive events and transactions.
-3-
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ARTICLE 2
THE BONDS
---------
Section 2.1. Form and Dating.
---------------
The Bonds shall be substantially in the form of Exhibit A,
which is part of this Indenture. The Bonds may have notations, legends
or endorsements required by law, stock exchange rule, agreement or
usage. Each Bond shall be dated the date of its authentication by the
Registrar.
Section 2.2. Execution and Authentication.
----------------------------
Two Officers shall sign the Bonds for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the
Bonds.
If an Officer whose signature is on a Bond no longer holds
that office at the time the Bond is authenticated, the Bond shall
nevertheless be valid.
A Bond shall not be valid until authenticated by a manual
signature of the Registrar. The signature shall be conclusive evidence
that the Bond has been authenticated under this Indenture.
The Registrar shall authenticate Bonds for original issue in
the aggregate principal amount stated in paragraph 3 of Exhibit A upon a
written order of the Company signed by an officer. The aggregate
principal amount of Bonds outstanding at any time may not exceed that
amount except as provided in Section 2.7.
Section 2.3. Bond Agents.
-----------
The Company shall maintain an office or agency where Bonds may
be authenticated (the "Registrar"), where Bonds may be presented for
registration of transfer or for exchange (the "Transfer Agent"), and
where Bonds may be presented for payment (the "Paying Agent"). Whenever
the Company must issue or deliver Bonds pursuant to this Indenture, the
Registrar shall authenticate the Bonds at the Company's request. The
Transfer Agent shall keep a register of the Bonds and of their transfer
and exchange.
The Company may appoint more than one Registrar, Transfer
Agent or Paying Agent. The Company shall notify the Trustee of the name
and address of any Agent not a party to this Indenture. If the Company
fails to maintain a Registrar, Transfer Agent or Paying Agent, the
Trustee shall act as such.
-4-
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Section 2.4. Paying Agent to Hold Money in Trust.
-----------------------------------
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold the trust
for the benefit of Bondholders or the Trustee all money held by the
Paying Agent for the payment of principal or interest on the Bonds, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at
any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent shall have
no further liability for the money. If the Company or an Affiliate acts
as Paying Agent, it shall segregate and hold as a separate trust fund
all money held by it as Paying Agent.
Section 2.5. Bondholder Lists.
----------------
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names
and addresses of Bondholders. If the Trustee is not the Transfer Agent,
the Company shall furnish to the Trustee on or before each interest
payment date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Bondholders.
Section 2.6. Transfer and Exchange.
---------------------
Where Bonds are presented to the Transfer Agent with a request
to register transfer or to exchange them for an equal principal amount
of Bonds of other denominations, the Transfer Agent shall register the
transfer or make the exchange if its requirements for such transactions
are met.
Section 2.7. Replacement Bonds.
-----------------
If the Holder of a mutilated Bond surrenders it to the
Transfer Agent or if the Holder of a Bond claims that the Bond has been
lost, destroyed or wrongfully taken, the Company shall issue a
replacement Bond if the Trustee's requirements are met. If required by
the Trustee or the Company, an indemnity bond must be sufficient in the
judgment of both to protect the Company, the Trustee or any Agent from
any loss which any of them may suffer if a Bond is replaced. The
Company may charge for its expenses in replacing a Bond.
Every replacement Bond is an additional obligation of the
Company.
Section 2.8. Outstanding Bonds.
-----------------
The Bonds outstanding at any time are all the Bonds
authenticated by the Registrar except for those cancelled by it, those
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delivered to it for cancellation, and those described in this Section as
not outstanding.
If a Bond is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof
satisfactory to them that the replaced Bond is held by a bona fide
purchaser.
If Bonds are considered paid under Section 4.1, they cease to
be outstanding and any interest on them ceases to accrue.
A Bond does not cease to be outstanding because the Company or
an Affiliate holds the Bond.
Section 2.9. Treasury Bonds.
--------------
In determining whether the Holders of the required principal
amount of Bonds have concurred in any direction, waiver or consent,
Bonds owned by the Company or an Affiliate shall be disregarded and
treated as not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
waiver or consent, only Bonds which the Trustee knows are so owned shall
be so disregarded.
Section 2.10. Temporary Bonds.
---------------
Until definitive Bonds are ready for delivery, the Company may
use temporary Bonds. Temporary Bonds shall be substantially in the form
of definitive Bonds but may have variations that the Company considers
appropriate for temporary Bonds. Without unreasonable delay, the
Company shall deliver definitive Bonds in exchange for temporary Bonds.
Section 2.11. Cancellation.
------------
The Company at any time may deliver Bonds to the Registrar for
cancellation. The Transfer Agent and Paying Agent shall forward to the
Registrar any Bonds surrendered to them for registration of transfer,
exchange or payment. The Registrar shall cancel all Bonds surrendered
for registration of transfer, exchange, payment or cancellation and
shall dispose of cancelled Bonds as the Company directs. The Company
may not issue new Bonds to replace Bonds that it has paid or delivered
to the Registrar for cancellation.
Section 2.12 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Bonds,
it shall pay the defaulted interest in any lawful manner. It may pay
the defaulted interest to the persons who are Bondholders on a
subsequent special record date. The Company shall fix the record date
and payment date. At least 15 days before the record date, the Company
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shall mail to Bondholders a notice that states the record date, payment
date and amount of interest to be paid.
ARTICLE 3
REDEMPTION
----------
Section 3.1. Option to Redeem.
----------------
The Company will have the right at any time to redeem 25% or
more (which in all cases shall be at least SFr. 250,000) of the
principal amount of the Bonds then outstanding at a redemption price
equal to 100% of their principal amount, plus accrued interest to the
date fixed for redemption, if redeemed for Swiss Francs, or 105% of the
principal amount, plus accrued interest to the date fixed for
redemption, if redeemed for shares of Common Stock. If the Company
elects to pay the redemption price in shares of Common Stock, the number
of shares of Common Stock distributed to each redeeming Holder shall
equal 105% of the redemption price due divided by the Common Stock
Price. In the event that the Company elects to pay the redemption price
in shares of Common Stock, the Company shall file a registration
statement with respect to such shares and shall cause such registration
statement to become effective prior to the date fixed for redemption.
Section 3.2. Notices to Trustee.
------------------
In the case of a redemption pursuant to paragraph __ of the
Bonds, the Company shall notify the Trustee of the redemption date and
the principal amount of Bonds to be redeemed at least 30 days before the
redemption date.
Section 3.3. Selection of Bonds to be Redeemed.
---------------------------------
If less than all the Bonds are to be redeemed, the Trustee
shall, within 10 business days of receipt by the Trustee of the
Company's notice of redemption, select the Bonds to be redeemed by lot
or by a method the Trustee considers fair and appropriate. The Trustee
shall make the selection from Bonds outstanding not previously called
for redemption. The Trustee may select for redemption portions of the
principal of Bonds that have denominations larger than United States
Dollars 10,000. Bonds and portions of them it selects shall be in
amounts of United States Dollars 10,000 or whole multiples of United
States Dollars 10,000. Provisions of this Indenture that apply to Bonds
called for redemption also apply to portions of Bonds called for
redemption. The Transfer Agent need not exchange or register the
transfer of any Bonds for a period of up to 15 days before the selection
of Bonds to be redeemed.
Section 3.4. Notice of Redemption.
--------------------
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Bonds called for redemption will become due 60 days after the
Company mails a notice of redemption by first class mail to the Trustee
and the Transfer Agent.
The notice shall identify the Bonds to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Bonds called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) that interest on Bonds called for redemption ceases to
accrue on and after the redemption date; and
(6) at the Company's option, irrevocably whether the
redemption price will be paid all in Swiss Francs or all in shares of
Common Stock.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
If the Company does not provide the information described in
(6) above in the notice of redemption, it shall irrevocably declare such
information eight business days prior to the redemption date.
Section 3.5. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Bonds called for
redemption become due and payable on the redemption date at the
redemption price stated in the notice.
Section 3.6. Deposit of Redemption Price.
---------------------------
On or before the redemption date, the Company shall deposit
with the Paying Agent money or shares of Common Stock, as appropriate,
sufficient to pay the redemption price of and accrued interest on all
Bonds to be redeemed on that date.
Section 3.7. Bonds Redeemed in Part.
----------------------
Upon surrender of a Bond that is redeemed in part, the Company
shall deliver to the Holder a new Bond equal in principal amount to the
unredeemed portion of the Bond surrendered.
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ARTICLE 4
COVENANTS
---------
Section 4.1. Payment of Bonds.
----------------
The Company shall pay the principal of and interest on the
Bonds on the dates and in the manner provided in the Bonds. Principal
and interest shall be considered paid on the date due if the Paying
Agent holds on that date money or shares of Common Stock, as
appropriate, sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the
rate borne by the Bonds and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Section 4.2. SEC Reports.
-----------
The Company shall file with the Trustee, within 15 days after
it files them with the SEC, copies of the annual reports and of the
information, documents and other reports (or copies of such portion of
any of the foregoing as the SEC may by rules and regulations prescribe)
which the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended. The
Company also shall comply with the other provisions of TIA Sec.314(a).
In the event the Company is at any time no longer subject to
the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, it shall continue to provide the
Trustee with reports containing substantially the same information as
would have been subject to such reporting requirements. In such event,
such reports shall be provided at the times the Company would have been
required to provide reports had it continued to have been subject to
such reporting requirements.
Section 4.3. Compliance Certificate.
----------------------
The Company shall deliver to the Trustee within 120 days after
the end of each fiscal year of the Company an Officers' Certificate
stating whether or not the signers know of any Default that occurred
during the fiscal year. If they do, the certificate shall describe the
Default and its status.
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ARTICLE 5
SUCCESSORS
----------
Section 5.1. When Company May Merge, etc.
---------------------------
The Company shall not consolidate or merge into, or transfer
all or substantially all of its assets to, any person unless:
(1) the person is organized under the laws of the United
States of America or any State thereof or the District of Columbia;
(2) the person assumes by supplemental indenture all the
obligations of the Company under the Bonds and this Indenture; and
(3) immediately after the transaction no Default exists.
The successor shall be substituted for the Company, and
thereafter all obligations of the Company under the Bonds and this
Indenture shall terminate.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
Section 6.1. Events of Default.
-----------------
An "Event of Default" occurs if:
(1) the Company defaults in the payment of principal, or, for
a period of 30 days, in the payment of interest on any Bond; or
(2) the Company defaults in the performance or observance in
any material respect of any covenant or agreement of the Company in
the Bonds if such default continues for a period of 30 days after
notice thereof has been given to the Company; or
(3) the Company defaults under any evidence of indebtedness
for money borrowed by the Company or under any instrument under
which there may be issued or by which there may be secured or
guaranteed any indebtedness for money borrowed by the Company,
which default involves the failure to pay when due (after any
applicable grace period), or results in the acceleration of,
indebtedness in an amount in excess of $1,000,000 without such
indebtedness having been discharged, or such acceleration having
been rescinded or annulled, within a period of 30 days after notice
thereof shall have been given to the Company; or
(4) there is an entry of a decree or order in respect of the
Company in an involuntary case under any bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, trustee or
other similar official of the Company or for any substantial part
of its property, or ordering the winding up or liquidation of its
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affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 30 consecutive days; or
(5) the Company shall commence a voluntary case under any
bankruptcy, insolvency or other similar law, or consent to the
appointment of or taking possession by a receiver, liquidator,
trustee or other similar official, of the Company or for any
substantial part of its property, or the making by it of a general
assignment for the benefit of creditors, or if it shall fail
generally to pay its debts as they become due, or shall take any
corporate action in furtherance of any of the foregoing; or
(6) the Company shall merge or consolidate with, or sell or
convey all or substantially all of its assets to, any other
corporation, unless (i) the Company is the surviving corporation,
or (ii) the surviving or transferee corporation expressly assumes
all obligations of the Company under the Bonds by supplemental
agreement, confirmed by an opinion of counsel, or (iii) the Company
or the surviving or transferee corporation irrevocably deposits in
trust pursuant to arrangements reasonably satisfactory to the
Trustee, money or U.S. Government Obligations (as defined in
Section 8.2) sufficient to pay principal and interest on the Bonds
to maturity.
Section 6.2. Acceleration.
------------
If an Event of Default occurs and is continuing, the Trustee
by notice to the Company, or the Holders of at least 25% in principal
amount of the Bonds by notice to the Company and the Trustee, may
declare the principal of and accrued interest on all the Bonds to be due
and payable immediately. Upon such declaration the principal and
interest on the Bonds shall be due and payable immediately. The Holders
of a majority in principal amount of the Bonds by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
Section 6.3. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal of
or interest on the Bonds or to enforce the performance of any provision
of the Bonds or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Bonds or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Bondholder in
exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence
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in the Event of Default. All remedies are cumulative to the extent
permitted by law.
Section 6.4. Waiver of Past Defaults.
-----------------------
The Holders of a majority in principal amount of the Bonds by
notice to the Trustee may waive an existing Default and its consequences
except:
(1) a Default in the payment of the principal of or interest
on any Bond; or
(2) a Default in respect of a provision that under Section
9.2 cannot be amended without the consent of each Bondholder
affected.
Section 6.5. Control of Majority.
-------------------
The Holders of a majority in principal amount of the Bonds may
direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture.
Section 6.6. Limitation on Suits.
-------------------
A Bondholder may pursue a remedy with respect to this
Indenture or the Bonds only if:
(1) the Holder gives to the Trustee notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the
Bonds makes a request of the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the Bonds do not give the Trustee a direction
inconsistent with the request.
A Bondholder may not use this Indenture to prejudice the
rights of another Bondholder or to obtain a preference or priority over
another Bondholder.
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Section 6.7. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on
the Bonds, on or after the respective due dates addressed in the Bonds,
or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the
consent of the Holder.
Section 6.8. Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.01(1) or (2)
occurs and is continuing, the Trustee may recover judgment in its own
name and as trustee of an express trust against the Company for the
whole amount of principal and interest remaining unpaid on the Bonds.
Section 6.9. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee and the Bondholders allowed in any judicial proceedings
relative to the Company, its creditors or its property.
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee for the amounts due under Section 7.7;
Second: to Bondholders for amounts due and unpaid on the
Bonds for principal and interest, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Bonds for principal and interest, respectively;
and
Third: to the Company.
The Trustee may fix a record date and payment date for any
payment to Bondholders.
Section 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken
or omitted by it as Trustee, a court in its discretion may require the
filing by any party litigant in the suit other than the Trustee of any
undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in the suit, having due regard to the
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merits and good faith of the claims of defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder pursuant to Section 6.7, or a suit by Holders or more than
10% in principal amount of the Bonds.
ARTICLE 7
TRUSTEE
-------
Section 7.1. Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 6.5.
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(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee may refuse to perform any duty or exercise
any right or power which it reasonably believes may expose it to any
loss, liability or expense unless it receives indemnity satisfactory to
it against such loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company. Money
held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) If an Event of Default has occurred and is continuing,
the Trustee's duties as described in paragraph (a) of this Section are
measured from the occurrence of the Default and are not in any way
dependent on the Trustee having actual knowledge of the Default.
Section 7.2. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting upon a
request made under this Indenture, it may require an Officers'
Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on
the Officer's Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with
due care.
Section 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become
the owner or pledgee of Bonds and may otherwise deal with the Company or
an Affiliate with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Bonds. It shall not be accountable
for the Company's use of the proceeds from the Bonds, it shall not be
responsible for any statement in the Bonds, and it shall not be
responsible for any overissue of Bonds.
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Section 7.5. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to Bondholders a notice of the
Default within 90 days after it occurs. If the Default is under Section
5.1 or 6.1(5), the Trustee shall mail the notice within 30 days after
the Default occurs. Except in the case of a Default in payment on any
Bond the Trustee may withhold the notice if and so long as a committee
of its Trust Officers in good faith determines that withholding the
notice is in the interests of Bondholders.
Section 7.6. Reports by Trustee to Holders.
-----------------------------
The Trustee shall mail to Bondholders on or before September
30 of each year, beginning with September 30, 1993, a brief report that
complies with TIA Sec.313(a). The Trustee also shall comply with TIA
Sec.313(b)(2).
A copy of each report at the time of its mailing to
Bondholders shall be filed with the SEC and each stock exchange on which
the Bonds are listed. The Company shall notify the Trustee when the
Bonds are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for
all reasonable out-of-pocket expenses incurred by it. Such expenses
shall include the reasonable compensation and out-of-pocket expenses of
the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or
liability incurred by it. The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any
settlement made without its consent.
The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through bad faith.
Section 7.8. Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor
Trustee's acceptance of appointment as provided in this Section.
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The Trustee may resign by so notifying the Company. The
Holders of a majority in principal amount of the Bonds may remove the
Trustee by so notifying the Trustee and may appoint a successor Trustee
with the Company's consent.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint
a successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of a majority in principal amount of the
Bonds may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Bondholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties
of the Trustee under this Indenture. The successor Trustee shall mail a
notice of its succession to Bondholders. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor
Trustee.
Section 7.9. Successor Trustee by Merger, etc.
--------------------------------
If the Trustee consolidates, merges or converts into, or
transfer all or substantially all of its corporate trustee business to,
another corporation, the successor corporation without any further act
shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfied the
requirements of TIA Sec.310(a)(1). The Trustee shall always have a
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combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee is
subject to TIA Sec.310(b), including the optional provision permitted by
the second sentence of TIA Sec.310(b)(9).
Section 7.11. Preferential Collection of Claims Against
Company.
------------------------------------------------------------------
The Trustee is subject to TIA Sec.311(a), excluding any
creditor relationship listed in TIA Sec.311(b). A Trustee who has
resigned or been removed is subject to TIA Sec.311(a) to the extent
indicated.
ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
Section 8.1. Defeasance.
----------
The Company at any time may terminate all of its obligations
under the Bonds and this Indenture ("legal defeasance option"). The
Company at any time may terminate its obligations under Section 6.1(5)
of this Indenture ("covenant defeasance option"). However, in the case
of the legal defeasance option, the Company's obligations in Sections
2.3, 2.4, 2.6, 2.7, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the
Bonds are no longer outstanding; thereafter the Company's obligations in
Section 7.7, 8.4 and 8.5 shall survive.
The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Bonds may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Bonds
may not be accelerated by an Event of Default specified in Section
6.1(5).
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Bonds at a future date
in accordance with Article 3.
The Trustee upon request shall acknowledge in writing the
discharge of those obligations that the Company terminates.
Section 8.2. Conditions to Defeasance.
------------------------
The Company may exercise its legal defeasance option or its
covenant defeasance option if:
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(1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing
their opinion that the payments of principal and interest when due
on the deposited U.S. Government obligations without reinvestment
plus any deposited money without investment will provide cash at
such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Bonds to maturity or
redemption, as the case may be;
(3) 30 days pass after the deposit is made and during such
period no Default specified in Section 6.1(6) or (7) occurs which
is continuing at the end of the period;
(4) immediately after the deposit no Default exists;
(5) the deposit does not constitute a default under any other
agreement binding on the Company; and
(6) the Company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940.
"U.S. Government Obligations" means direct obligations of the
United States of America which have the full faith and credit of the
United States of America pledged for payment and which are not callable
at the issuer's option, or certificates representing an ownership
interest in such obligations.
Section 8.3. Application of Trust Money.
--------------------------
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.2. It shall apply
the deposited money and the money from U.S. Government Obligations
through the Paying Agent and in accordance with this Indenture to the
payment of principal and interest on the Bonds.
Section 8.4. Repayment to Company.
--------------------
The Trustee and the Paying Agent shall promptly turn over to
the Company upon request any excess money or securities held by them at
any time.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or interest
that remains unclaimed for two years. After payment to the Company,
Bondholders entitled to the money must look to the Company for payment
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as general unsecured creditors unless an abandoned property law
designates another person.
Section 8.5. Indemnity for Government Obligations.
------------------------------------
The Company shall indemnify the Trustee against any tax or
governmental charge imposed on or assessed against deposited money or
U.S. Government Obligations, or on the principal or interest received on
such U.S. Government Obligations.
Section 8.6. Reinstatement of Company's Obligations.
--------------------------------------
If the Trustee cannot apply deposited money or U.S. Government
Obligations in accordance with Section 8.3 because of court order, the
Company's obligations to pay principal and interest on the Bonds shall
be reinstated to the extent necessary to cover a deficiency on any
payment date. The Company's interest in the deposited money and
securities shall be reinstated to the extent the Company's payment
obligations are reinstated.
ARTICLE 9
AMENDMENTS
----------
Section 9.1. Without Consent of Holders.
--------------------------
The Company and the Trustee may amend this Indenture or the
Bonds without the consent of any Bondholder:
(1) to cure an ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5 hereof; or
(3) to make any change that does not materially adversely
affect the rights of any Bondholder.
Section 9.2. With Consent of Holders.
-----------------------
The Company and the Trustee may amend this Indenture or the
Bonds with the written consent of the Holders of a majority in principal
amount of the Bonds. However, without the consent of each Bondholder
affected, an amendment under this Section may not:
(1) reduce the amount of Bonds whose Holders must consent to
an amendment;
(2) reduce the rate of or extend the time for payment of
interest on any Bonds;
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<PAGE>
<PAGE>22 of 33
(3) reduce the principal of or extend the fixed maturity of
any Bonds;
(4) make any Bond payable in money other than that stated in
the Bonds; or
(5) make any change in Sections 6.4, 6.7 and 9.2 (second
sentence).
After an amendment under this Section becomes effective, the
Company shall mail to Bondholders a notice briefly describing the
amendment. The Company need not give the notice if it has previously
communicated the substance of the amendment to Bondholders generally.
Section 9.3. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to this Indenture or the Bonds shall be set
forth in a supplemental indenture that complies with the TIA as then in
effect.
Section 9.4. Effect of Consents.
------------------
An amendment or waiver becomes effective in accordance with
its terms and thereafter binds every Bondholder.
The Company may fix a record date for the determination of
Bondholders entitled to give a consent.
Section 9.5. Notation on or Exchange of Bonds.
--------------------------------
The Company or the Trustee may place an appropriate notation
about an amendment or waiver on any Bond thereafter authenticated. The
Company may issue in exchange for all Bonds new Bonds that reflect the
amendment or waiver.
Section 9.6. Trustee Protected.
-----------------
The Trustee need not sign any supplemental indenture that
adversely affects its rights. In signing a supplemental indenture, the
Trustee shall be fully protected in relying upon an Officers'
Certificate and an Opinion of Counsel stating that the supplemental
indenture is permitted by this Indenture.
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<PAGE>
<PAGE>23 of 33
ARTICLE 10
MISCELLANEOUS
-------------
Section 10.1. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in
this Indenture by the TIA, the required provision shall control.
Section 10.2. Notices.
-------
Any notice or communication by the Company or the Trustee to
the other is duly given if in writing and delivered in person or mailed
by first-class mail to the other's address shown below.
Company: National Patent Development Corporation
9 West 57th Street
New York, New York
Attention: General Counsel
----------
Trustee:
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication to a Bondholder shall be mailed to
his address shown on the register kept by the Transfer Agent. Failure
to mail a notice or communication to a Bondholder or any defect in it
shall not effect its sufficiency with respect to other Bondholders.
If a notice or communication is mailed in the manner Provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to a
Bondholder, it shall mail a copy to the Trustee and to each Agent at the
same time.
All notices or communications shall be in writing.
Section 10.3. Communication by Holders with Other Holders.
-------------------------------------------
Bondholders may communicate pursuant to TIA Sec.312(b) with
other Bondholders with respect to their rights under this indenture or
the Bonds. The Company, the Trustee, the Registrar and anyone else
shall have the protection of TIA Sec.312(c).
-22-
<PAGE>
<PAGE>24 of 33
Section 10.4. Certificate and Opinion as to Conditions
Precedent.
-----------------------------------------------------------------
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to
the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
and
(b) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied
with.
Section 10.5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has
made such examination, or investigation as is necessary to enable
him to express an informed opinion as to whether or not such a
covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion or such
person, such condition or covenant has been complied with.
Section 10.6. Rules by Company and Agents.
---------------------------
The Company may make reasonable rules for action by or a
meeting of Bondholders. An Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, Sunday or a day on which
banking institutions are not required to be open. If a payment date is
a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
-23-
<PAGE>
<PAGE>25 of 33
Section 10.8. No Recourse Against Others.
--------------------------
All liability described in paragraph __ of the Bonds of any
director, officer, employee or stockholder, as such, of the Company is
waived and released.
Section 10.9. Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.
Section 10.10. Governing Law.
-------------
The laws of the State of New York shall govern this Indenture
and the laws of Switzerland shall govern the Bonds.
IN WITNESS WHEREOF, the undersigned have executed this
Indenture and have caused their respective corporate seals to be
hereunto affixed and attested this ____ day of June, 1995.
NATIONAL PATENT DEVELOPMENT CORPORATION
By: ____________________________________
Title: _________________________________
____________________________,
as Trustee
By: ____________________________________
Title: _________________________________
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<PAGE>
<PAGE>26 of 33
EXHIBIT A
Any United States person who holds this obligation will be
subject to limitations under the United States income tax laws including
the limitations provided in Sections 165(j) and 1287(a) of the Internal
Revenue Code.
This Bond has not been and will not be registered under the
United Securities Act of 1933, as amended, and may not be offered, sold
or delivered, directly or indirectly, in the United States or to any
United States Person.
NATIONAL PATENT DEVELOPMENT CORPORATION
Swiss Francs ,000,000
5% Bonds due June __, 2000
This Bond without interest coupons is a Bond in respect of a
duly authorized issue of 8% Bonds due June __, 2000 of National Patent
Development Corporation (the "Company"), a corporation duly organized
and existing under the laws of the State of Delaware, in the principal
amount of ______ Swiss Francs and issued pursuant to an Indenture dated
as of June __, 1995 (the "Indenture"), between the Company and
______________________ ____________, as Trustee.
Subject to the provisions of the Indenture, National Patent
Development Corporation, for value received, hereby certifies that it
owes to the holder of this Bond, payable upon presentation and surrender
hereof, the amount of Swiss Francs ___________, (____________) and
interest thereon at 8% per annum, in accordance with the terms of the
Bonds set forth in the Indenture and on the reverse hereof.
The terms of the Bonds set forth in the Indenture and on the
reverse hereof are hereby incorporated by reference herein mutatis
mutandis and, except as otherwise provided herein, shall be binding on
the Company and the holder hereof as if fully set forth herein. Except
as otherwise provided herein, the Company shall make all payments
hereunder as and when provided in the terms of the Bonds and shall be
bound by all its covenants set forth therein.
This Bond shall be governed by and construed in accordance
with the laws of Switzerland.
<PAGE>
<PAGE>27 of 33
IN WITNESS WHEREOF, the Company has caused this Bond to be
duly executed under its corporate seal as of June __, 1995.
NATIONAL PATENT DEVELOPMENT CORPORATION
By______________________________________
By______________________________________
(Seal)
This Bond is hereby authenticated.
____________________________________
By__________________________________
<PAGE>
<PAGE>28 of 33
REVERSE OF BONDS
----------------
(1) Form and Denomination
The Bonds are issuable in registered form in the denomination
of Swiss Francs ______ and Swiss Francs _____ nominal amount each, with
interest coupons attached.
This Bond is one of a duly authorized issue of Bonds of the Company
designated as its 8% Bonds due June __, 2000 (herein called the
"Bonds"), limited in aggregate principal amount to Swiss Francs
__________ issued and to be issued under an indenture (herein called the
"Indenture") dated as of June __, 1995 between the Company and
______________________________, as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is made for
a statement of the respective rights thereunder of the Company, the
Trustee and the Holders of the Bonds, and the terms upon which the Bonds
are, and are to be authenticated and delivered.
(2) Interest
The Bonds bear interest from the Payment Date at the rate of 8% per
annum, payable annually in arrears on June __ of each year, commencing
June __, 1996 and at maturity (the "Coupon Due Dates"). Such interest
is payable, at the sole discretion of the Company in either Swiss Francs
cash or shares of Common Stock of the Company. Eight business days
prior to the Coupon Due Date, the Company shall declare irrevocably
whether the interest payment will be made in Swiss Francs or shares of
Common Stock. If the Company elects to pay interest in shares of Common
Stock, the number of shares of Common Stock distributed to each holder
of Bonds shall equal the amount of the interest payment due divided by
the average of the last sale prices on the American Stock Exchange, Inc.
("AMEX") of the Common Stock for the five trading days ending two days
prior to the relevant Coupon Due Date. In the event that the Company
elects to make an interest payment in shares of Common Stock, the
Company shall file a registration statement with respect to such shares
and shall cause such registration statement to become effective prior to
the Coupon Due Date.
(3) Repayment
The Company undertakes to repay the principal amount of the Bonds,
unless previously redeemed, without any previous notice on June __,
2000. Such principal is payable, at the sole discretion of the Company,
in either Swiss Francs cash of shares of Common Stock of the Company.
Eight business days prior to the Repayment Date, the Company will
declare irrevocably whether the principal will be paid in Swiss Francs
or shares of Common Stock. If the Company elects to pay the principal
amount in Swiss Francs, holders shall receive 100% of the principal
amount in cash. If the Company elects to pay the principal amount in
<PAGE>
<PAGE>29 of 33
shares of Common Stock, the number of shares of Common Stock distributed
to each holder of Bonds shall equal 105% of the principal amount due
divided by the Common Stock Price. In the event that the Company elects
to make a principal payment in shares of Common Stock, the Company shall
file a registration statement with respect to such shares and shall
cause such registration statement to become effective prior to the date
on which such principal is paid.
<PAGE>
<PAGE>30 of 33
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . 3
Section 1.3. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . 3
Section 1.4. Rules of Construction . . . . . . . . . . . . . 3
ARTICLE 2
THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . 4
Section 2.2. Execution and Authentication . . . . . . . . . 4
Section 2.3. Bond Agents . . . . . . . . . . . . . . . . . . 4
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . 5
Section 2.5. Bondholder Lists . . . . . . . . . . . . . . . 5
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . 5
Section 2.7. Replacement Bonds . . . . . . . . . . . . . . . 5
Section 2.8. Outstanding Bonds . . . . . . . . . . . . . . . 6
Section 2.9. Treasury Bonds . . . . . . . . . . . . . . . . 6
Section 2.10. Temporary Bonds . . . . . . . . . . . . . . . . 6
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . 6
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . 7
ARTICLE 3
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Option to Redeem . . . . . . . . . . . . . . . 7
Section 3.2. Notices to Trustee . . . . . . . . . . . . . . 7
Section 3.3. Selection of Bonds to be Redeemed . . . . . . . 7
Section 3.4. Notice of Redemption . . . . . . . . . . . . . 8
Section 3.5. Effect of Notice of Redemption . . . . . . . . 8
Section 3.6. Deposit of Redemption Price . . . . . . . . . . 8
Section 3.7. Bonds Redeemed in Part . . . . . . . . . . . . 9
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1. Payment of Bonds . . . . . . . . . . . . . . . 9
Section 4.2. SEC Reports . . . . . . . . . . . . . . . . . . 9
Section 4.3. Compliance Certificate . . . . . . . . . . . . 9
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.1. When Company May Merge, etc . . . . . . . . . . 10
<PAGE>
<PAGE>31 of 33
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.1. Events of Default . . . . . . . . . . . . . . . 10
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . 11
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . 12
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . 12
Section 6.5. Control of Majority . . . . . . . . . . . . . . 12
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . 12
Section 6.7. Rights of Holders to Receive Payment . . . . . 13
Section 6.8. Collection Suit by Trustee . . . . . . . . . . 13
Section 6.9. Trustee May File Proofs of Claim . . . . . . . 13
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . 13
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . 14
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . 14
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . 15
Section 7.3. Individual Rights of Trustee . . . . . . . . . 16
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . 16
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . 16
Section 7.6. Reports by Trustee to Holders . . . . . . . . . 16
Section 7.7. Compensation and Indemnity . . . . . . . . . . 17
Section 7.8. Replacement of Trustee . . . . . . . . . . . . 17
Section 7.9. Successor Trustee by Merger, etc . . . . . . . 18
Section 7.10. Eligibility; Disqualification . . . . . . . . . 18
Section 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . 18
ARTICLE 8
DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.1. Defeasance . . . . . . . . . . . . . . . . . . 19
Section 8.2. Conditions to Defeasance . . . . . . . . . . . 19
Section 8.3. Application of Trust Money . . . . . . . . . . 20
Section 8.4. Repayment to Company . . . . . . . . . . . . . 20
Section 8.5. Indemnity for Government Obligations . . . . . 20
Section 8.6. Reinstatement of Company's Obligations . . . . 20
ARTICLE 9
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.1. Without Consent of Holders . . . . . . . . . . 21
Section 9.2. With Consent of Holders . . . . . . . . . . . . 21
Section 9.3. Compliance with Trust Indenture Act . . . . . . 22
Section 9.4. Effect of Consents . . . . . . . . . . . . . . 22
Section 9.5. Notation on or Exchange of Bonds . . . . . . . 22
Section 9.6. Trustee Protected . . . . . . . . . . . . . . . 22
<PAGE>
<PAGE>32 of 33
ARTICLE 10
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls . . . . . . . . . 22
Section 10.2. Notices . . . . . . . . . . . . . . . . . . . . 22
Section 10.3. Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . . . . . 23
Section 10.4. Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . 23
Section 10.5. Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . . . . . 24
Section 10.6. Rules by Company and Agents . . . . . . . . . . 24
Section 10.7. Legal Holidays . . . . . . . . . . . . . . . . 24
Section 10.8. No Recourse Against Others . . . . . . . . . . 24
Section 10.9. Duplicate Originals . . . . . . . . . . . . . . 24
Section 10.10. Governing Law . . . . . . . . . . . . . . . . . 25
SIGNATURES
EXHIBIT A--FORM OF BOND
<PAGE>
<PAGE>33 of 33
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
------- ---------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.8; 7.10; 11.2
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.5
(b) 11.3
(c) 11.3
313(a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(a) 11.2
(d) 7.6
314(a) 4.2; 11.2
(b) N.A.
(c)(1) 11.4
(c)(2) 11.4
(c)(3) N.A.
(d) N.A.
(e) 11.5
(f) N.A.
315(a) 7.1(b)
(b) 7.5; 11.2
(c) 7.1(a)
(d) 7.1(c)
(e) 6.11
316(a)(last sentence) 2.9
(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N.A.
(b) 6.7
317(a)(1) 6.8
(a)(2) 6.9
(b) 2.4
318(a) 11.1
N.A. means Not Applicable
<PAGE>1 of 42
UNITED STATES
OFFERING CIRCULAR
NATIONAL PATENT DEVELOPMENT CORPORATION
OFFER TO EXCHANGE
(A) SFR. 650 PRINCIPAL AMOUNT OF 8% SWISS FRANC
DENOMINATED BONDS OF NATIONAL PATENT DEVELOPMENT
CORPORATION DUE JUNE__, 2000 AND
SWISS FRANCS 600 IN CASH
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
(B) 8% SWISS FRANC DENOMINATED BONDS OF
NATIONAL PATENT DEVELOPMENT
CORPORATION DUE JUNE__, 2000 IN A PRINCIPAL
AMOUNT EQUIVALENT TO US $650 AND SWISS FRANCS
CASH WITH A VALUE OF US $600
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 5:00 P.M., NEW
YORK CITY TIME, ON ______, JUNE __, 1995 (THE "EXPIRATION
DATE"), UNLESS THE OFFER IS EXTENDED.
<PAGE>
<PAGE>2 of 42
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) 8% Bonds denominated in Swiss Francs
("SFr.") and issued by the Company due June __, 2000 (the "New Bonds"),
in a principal amount of SFr. 650, and (ii) SFr. 600 in cash for each
SFr. 1,000 in principal amount and accrued interest thereon of the Old
Swiss Franc Bonds validly tendered and not withdrawn prior to the
Expiration Date. In addition, the Company hereby offers, upon the terms
and subject to the conditions set forth in this Offering Circular and in
the Letter of Instructions, to exchange (a) New Bonds in a principal
amount equivalent to United States Dollars ("US $") 650 and (b) Swiss
Francs cash with a value equivalent to US $600 for each US $1,000 in
principal amount and accrued interest thereon 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 foreign holders of the Old Bonds (the
"Foreign Offer").
On March 31, 1995, there were outstanding SFr. 1,685,000 of the 6%
Convertible Bonds due March 7,1995, SFr. 1,065,000 of the 5 3/4%
Convertible Bonds due May 9, 1995, SFr. 1,415,000 of the 5 5/8%
Convertible Bonds due March 18, 1996, SFr. 1,584,000 of the 8% Bonds due
March 1, 1995 and US $2,037,000 of the 7% Dual Currency Convertible
Bonds due March 18, 1996.
The following Old Bonds have matured and are currently due for
repayment: (i) the 6% Convertible Bonds due March 7, l995, (ii) the 5
3/4% Convertible Bonds due May 9, l995 and (iii) the 8% Bonds due March
1, l995. All such Old Bonds due for repayment are included in the
Offer.
Subject to the conditions set forth in Section 15 of "The Offer,"
the Company will accept any and all Old Bonds validly tendered in
response to the Offer and not withdrawn prior to the Expiration Date.
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 May __, 1995
<PAGE>
<PAGE>3 of 42
The New Bonds to be issued pursuant to the Offer have 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. Offers and
sales of New Bonds 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 Old Bonds pursuant to the Offer a Letter of
Instructions must be submitted by or on behalf of each exchanging holder
of Old Bonds to the Company at its office at 9 West 57th Street, New
York, New York, and the Old 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 Old Bonds other than the 8% Bonds. Bank
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 New Bonds to the Exchange Agents
outside the United States, and the Exchange Agents will deliver, on
behalf of the Company, New Bonds and cash 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 Old
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
RESTRICTIONS 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.
<PAGE>
<PAGE>4 of 42
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 Old Bonds. However, regular employees of the Company (who will not
be additionally compensated therefor) may solicit tenders and will
answer inquiries concerning the Offer.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
United States Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission (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, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. 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 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 Old Bonds other
than the 8% Bonds. Banque Scandinave en Suisse and Bank Leu AG may be
referred to hereinafter individually as an "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.
An application has been filed on Form T-3 with the Commission for
qualification of the Indenture between the Company and _________________
_____________, as Trustee, under the Trust Indenture Act of 1939, but
such application has not yet become effective. Qualification of the
Indenture is a condition to the Company's obligation to accept Old Bonds
for exchange. See "Certain Conditions of the Offer."
<PAGE>
<PAGE>5 of 42
TABLE OF CONTENTS
PAGE
Introduction . . . . . . . . . . . . . . . . . . . . .
Description of the Company
Summary Terms and Conditions of the Offer
The Offer
1. Terms of the Offer . . . . . . . . . . . . . . . . . . . . . 4
2. Purpose of the Offer . . . . . . . . . . . . . . . . . . . . 5
3. Investment Considerations . . . . . . . . . . . . . . . . . . 5
4. Risks to Non-Exchanging Holders . . . . . . . . . . . . . . . 6
5. Summary Comparison of the New Bonds and the Old Bonds . . . . 6
6. Price Range of the Old Bonds . . . . . . . . . . . . . . . . 8
7. Selected Consolidated Financial Information of the Company . 10
8. Source and Amount of Funds . . . . . . . . . . . . . . . . . 15
9. Acceptance for Exchange and Payment . . . . . . . . . . . . . 15
10. Procedures for Tendering Old Bonds . . . . . . . . . . . . . 15
11. Withdrawal Rights . . . . . . . . . . . . . . . . . . . . . . 16
12. Certain Tax Consequences . . . . . . . . . . . . . . . . . . 16
13. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 16
14. Terms of the New Bonds . . . . . . . . . . . . . . . . . . . 16
15. Certain Conditions of the Offer . . . . . . . . . . . . . . . 18
16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 19
17. Source of Information . . . . . . . . . . . . . . . . . . . . . 25
Annex A--National Patent Development Corporation--Annual Report on Form
10-K/A for the year ended December 31, 1994.
<PAGE>
<PAGE>6 of 42
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 three operating
business segments: Physical Science, Distribution and Optical Plastics.
The Company also has an investment in one company in the health care
industry and an investment in one company in the environmental
technology and consulting area. In addition, the Company owns
approximately 54% of the outstanding shares of common stock in a company
that distributes generic pharmaceutical products in Russia.
The Company's Physical Science Group consists of (i) SGLG, Inc.
(formerly, GPS Technologies, Inc.) ("SGLG"), an approximately 92% owned
subsidiary, and (ii) General Physics Corporation ("General Physics"), an
approximately 56% owned subsidiary.
General Physics provides a wide range of personnel training,
engineering, environmental and technical support services to commercial
nuclear and fossil power utilities, the United States Departments of
Defense and Energy, Fortune 500 companies and other commercial and
governmental customers. SGLG is a holding company that has a 35%
interest in GSE Systems, Inc., a software simulator company, and in
addition owns a small finance subsidiary.
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 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.
In addition, the Company has a division, Hydro Med Sciences
("HMS"), involved in the manufacture of medical devices, drugs and
cosmetic polymer products.
The Company's investment in the health care industry consists of
an approximately 31% investment in 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 United States
Food and Drug Administration (the "FDA") that is based upon a natural
source, multi-species alpha interferon ("Natural Alpha Interferon").
ALFERON N Injection is approved for the treatment of certain types of
genital warts. ISI also is developing its existing injectable, topical
and/or oral formulations of Natural Alpha Interferon for the potential
<PAGE>
<PAGE>7 of 42
treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis, cancers
and other indications.
The Company currently owns approximately 40% of the outstanding
shares of common stock of GTS Duratek, Inc. ("Duratek"). Duratek's
operations consist of two operating groups: (1) the "Technology Group"
(formerly Environmental Services) is engaged in converting radioactive,
hazardous and mixed (both radioactive and hazardous) waste to glass,
using in-furnace vitrification processes, and removing radioactive
and/or hazardous contaminants from waste water and other liquids using
filtration and ion exchange processes, and (2) the "Services Group"
(formerly Consulting and Staff Augmentation) is engaged in consulting,
engineering, training and staff augmentation services. Duratek provides
services and technologies for various utility, industrial, governmental
and commercial clients.
The Company owns approximately 54% of the outstanding common stock
of American Drug Company ("ADC"), which was organized in 1993 as a
wholly-owned subsidiary of the Company to initiate marketing activities
for American generic pharmaceuticals and medical pharmaceuticals in
Russia and the Commonwealth of Independent States (the "CIS"). ADC's
subsidiary, NPD Trading (USA) Inc., provides consulting services to
western businesses in Russia and Eastern Europe. ADC intends to sell
American-made generic pharmaceutical and health care products under its
own label in Russia and the CIS.
In December 1994, the Company decided to sell its Eastern
Electronics Manufacturing Corporation subsidiary ("Eastern"), which was
the only company in the electronics group. As a result of this
decision, the Company has reflected Eastern as a discontinued operation
in its financial statements.
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/A for the fiscal year ended December 31, 1994 which
provides additional information regarding the Company and its
subsidiaries is attached hereto as Annex A.
<PAGE>
<PAGE>8 of 42
SUMMARY BOND INFORMATION
The following table sets forth certain information with respect to
the Old Bonds:
Principal Held by the
Amount Company (or
Outstanding affilates)
Original as of as of
Principal March 31, March 31, Scheduled
Name of Issue Amount 1995* 1995** Maturity
------------- --------- ------------ ---------- ---------
6% Convertible
Bonds Sfr.60,000,00 Sfr.1,685,000 Sfr.3,595,000 March 7, 1995
5 3/4% Convertible
Bonds Sfr.50,000,00 Sfr.1,065,000 Sfr.1,570,000 May 9, 1995
5 5/8% Convertible
Bonds Sfr.50,000,000 Sfr.1,415,000 Sfr. 830,000 March 18, 1996
8% Bonds Sfr.51,264,000 Sfr.1,584,000 Sfr.8,982,000 March 1, 1995
7% Dual
Currency Bonds US$15,000,000 US $2,037,000 US $ 357,000 March 18, 1996
______________________
* Does not include any Old Bonds outstanding that are owned by the
Company or its affiliates.
** All Old Bonds that have been repurchased and are owned by the
Company or its affiliates will be retired upon the completion of the
Offer except Sfr. 6,582,000 of the 8% Bonds which are owned by
affiliates of the Company.
REPURCHASES BY THE COMPANY
The Company and its affiliates have repurchased in the open market
and hold Sfr. 14,977,000 and US $357,000 of the Old Bonds. The Company
intends to deliver to the Exchange Agents for cancellation Sfr.
8,395,000 and US $357,000 of Old 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, 1995, the Company had an aggregate of approximately
$23,300,000 of long-term indebtedness, including approximately
$7,000,000 of the Old Bonds, of which approximately $3,700,000 is
included in current maturities of long-term debt. For a description of
the outstanding indebtedness of the Company, see "Capitalization."
<PAGE>
<PAGE>9 of 42
The Company is making the Offer to reduce its current maturities of
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
foreign holders of the Old Bonds (the "Foreign Offer").
BONDS DUE FOR REPAYMENT
The following Old Bonds have matured and are currently due for
repayment: (i) the 6% Convertible Bonds due March 7, l995, (ii) the 5
3/4% Convertible Bonds due May 9, l995 and (iii) the 8% Bonds due March
1, l995. All such Old Bonds due for repayment are included in the
Offer.
SUMMARY TERMS AND CONDITIONS OF THE OFFER
EXCHANGE CONSIDERATION
In exchange for each SFr. 1,000 principal amount and accrued
interest thereon of Old Swiss Franc Bonds validly tendered, the Company
offers SFr. 650 principal amount of New Bonds and SFr. 600 in cash. In
exchange for each US $1,000 principal amount and accrued interest
thereon of Old U.S. Dollar Bonds validly tendered, the Company offers
New Bonds in a principal amount equivalent to US $650 and Swiss Francs
cash with a value of US $600. Fractional portions of New Bonds
resulting from such exchange will be rounded up to the nearest integral
multiple of SFr. 10 of New Bonds.
The exchange rate between US$ 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 the Expiration Date.
PAYMENT OF PRINCIPAL OF AND INTEREST ON NEW BONDS
The principal amount of and the interest payable on the New Bonds
will be payable, in the discretion of the Company, in either Swiss
Francs or shares of Common Stock, but not a combination thereof. Eight
business days prior to the date that the payment of principal or
interest is due, the Company will declare irrevocably whether the
principal or interest will be paid in Swiss Francs or shares of Common
Stock. Section 14 of "The Offer" describes more fully the terms and
conditions of the New Bonds.
OFFERING PERIOD
The offer to tender the Old Bonds for exchange is open from May __,
1995 to June __, 1995. The Company reserves the right to extend the
Offer for an additional ten (10) business days, until June __, 1995.
The date on which the Offer, or any extension thereof, expires is
hereinafter referred to as the "Expiration Date."
<PAGE>
<PAGE>10 of 42
PAYMENT DATE
Subject to the conditions set forth in Section 15, the "Payment
Date" is June __, 1995, or, if the Expiration Date has been extended
beyond June __, 1995, the tenth (10th) business day after the Expiration
Date.
ACCEPTANCE OF OLD BONDS
Subject to the conditions set forth in Section 15 of "The Offer,"
the Company will accept any and all Old Bonds validly tendered in
response to the Offer and not withdrawn prior to the Expiration Date.
The Company has the right, in its sole discretion, to waive any such
conditions.
To be validly tendered, Old Bonds must be physically delivered to
the appropriate Exchange Agent, together with all unmatured and matured
but unpaid coupons, accompanied by a duly executed Letter of
Instructions.
CONDITIONS OF OFFER
The Offer is subject to certain conditions set forth in Section 15
of "The Offer" and as more fully described in this Offering Circular.
WITHDRAWAL RIGHTS
Old Bonds tendered pursuant to the Offer may be withdrawn by
holders of Old Bonds at any time prior to the Expiration Date.
EXCHANGE AGENTS
The Exchange Agent with respect to the 8% Bonds is Banque
Scandinave en Suisse, Cours de Rive 11, 1211 Geneve 3 and the Exchange
Agent for all other Old Bonds is Bank Leu AG, Financial Engineering,
P.O. Box, 8022 Zurich.
TAXES
Any securities transfer tax due on the exchange of Old Bonds for
New Bonds 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 all Old
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 11 of the Offer. The term "Expiration Date"
<PAGE>
<PAGE>11 of 42
means 5:00 p.m., New York City time, on June __, 1995, 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 June __, 1995, at which time the Offer, as so extended by the
Company, shall expire. The payment date (the "Payment Date") for Old
Bonds accepted for payment by the Exchange Agents pursuant to the Offer
will be June __, 1995. 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, and
other dates, such as the interest payment dates of the New Bonds, shall
be appropriately adjusted. However, the maturity date of the New Bonds
shall remain June __, 2000, notwithstanding any extension of the Offer.
The consideration offered by the Company in exchange for each SFr.
1,000 principal amount and accrued interest thereon of Old Swiss Franc
Bonds validly tendered and not withdrawn prior to the Expiration Date is
SFr. 650 principal amount of New Bonds and SFr. 600 in cash. In
exchange for each US $1,000 principal amount and accrued interest
thereon of Old U.S. Dollar Bonds validly tendered and not withdrawn
prior to the Expiration Date, the consideration offered by the Company
is New Bonds in a principal amount equivalent to US $650 and Swiss
Francs cash with a value of US $600. Fractional portions of New Bonds
resulting from such exchange will be rounded up to the nearest integral
multiple of SFr. 10 of New Bonds.
Subject to the conditions set forth in Section 15, the Company will
accept any and all Old Bonds validly tendered in response to the Offer
and not withdrawn prior to the Expiration Date. The Company has the
right, in its sole discretion, to waive any such conditions.
The New Bonds, the terms and conditions of which are set forth in
Section 14 ("Terms of the New Bonds"), will be issued in registered form
in the denominations of SFr. 10, SFr. 100 or SFr. 1,000 principal amount
and are scheduled to mature on June __, 2000. The principal amount of
New Bonds issued for each US $1,000 principal amount of Old U.S. Dollar
Bonds exchanged will be obtained by dividing (i) US $650 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 the Expiration Date (as
determined by the Exchange Agents). The principal amount of the New
Bonds is payable, at the discretion of the Company, in either Swiss
Francs or shares of Common Stock, but not a combination thereof. Eight
business days prior to the date that the payment of principal is due,
the Company will declare irrevocably whether the principal will be paid
in Swiss Francs or shares of Common Stock. If the Company elects to pay
the principal amount in Swiss Francs, holders shall receive 100% of the
principal amount in cash. If the Company elects to pay the principal
amount in shares of Common Stock, the number of shares of Common Stock
distributed to each holder of New Bonds shall equal 105% of the
principal amount due divided by the Common Stock Price. The "Common
Stock Price" shall be determined by dividing the average of the last
sale prices on the American Stock Exchange, Inc. ("AMEX") of the Common
Stock for the five trading days ending two days prior to the due date of
the payment by the Swiss Franc/U.S. Dollar spot rate on the second day
<PAGE>
<PAGE>12 of 42
prior to the due date of the payment. In the event that the Company
decides to make the principal payment in shares of Common Stock, the
Company shall file a registration statement with respect to such shares
and shall cause such registration statement to become effective prior to
the date on which such principal is paid.
Interest on the New Bonds is denominated in Swiss Francs and will
be payable at the rate of 8% per annum, payable annually on June __ of
each year, commencing June __, 1996. Such interest is payable, at the
discretion of the Company, in either Swiss Francs or shares of Common
Stock, but not a combination thereof. Eight business days prior to the
date that any interest payment is due, the Company will declare
irrevocably whether the interest will be paid in Swiss Francs or shares
of Common Stock. If the Company elects to pay interest in shares of
Common Stock, the number of shares of Common Stock distributed to each
holder of New Bonds shall equal the amount of the interest payment due
divided by the Common Stock Price. In the event that the Company
decides to make an interest payment in shares of Common Stock, the
Company shall file a registration statement with respect to such shares
and shall cause such registration statement to become effective prior to
the date on which such interest is paid.
If the Company shall decide, in its sole discretion, to increase
the consideration offered in the Offer 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 Old Bonds, upon the occurrence of any of
the events 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 Old 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 related annual interest expense
and to provide the Company with additional financial flexibility in its
operations.
-7-
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<PAGE>13 of 42
Assuming that 100% of the Old Bonds had been exchanged on December
31, 1994 and reflecting the repurchase of the Old Bonds during the
quarter ended March 31, 1995, the Company would have reduced its
consolidated long-term debt, less current maturities, from approximately
$17,513,000 to approximately $16,774,000 and reduced its total short
term debt from approximately $45,337,000 to approximately $36,290,000.
3. Investment Considerations.
(a) Liquidity; Financial Condition. At March 31, 1995, the
Company had cash, cash equivalents and marketable securities totaling
approximately $10,000,000, of which the Company's publicly held
subsidiaries had cash, cash equivalents and marketable securities
totaling approximately $66,000. In addition, as of April 6, 1995, the
Company received an additional $5,000,000 pursuant to a term loan with a
bank. One of the Company's wholly-owned subsidiaries had cash, cash
equivalents and marketable securities totaling approximately $1,153,000,
which is not available to the Company due to restrictions within the
subsidiary's line of credit agreement.
The Company is launching this Offer in order to repay the Old Bonds
scheduled to mature in 1995 and 1996, while preserving its cash, cash
equivalents and marketable securities which are needed to support and
fund its operations.
(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 year ended December 31, 1994, the Company's loss from
operations before income taxes, discontinued operations and
extraordinary items was $10,648,000, as compared to a loss of $7,424,000
for the year ended December 31, 1993. As of December 31, 1994, the
Company had stockholders' equity of $65,165,000 and a deficit of
$53,151,000. 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 year
ended December 31, 1994, the Company had a deficiency in the coverage of
fixed charges to earnings before fixed charges of $10,439,000.
<PAGE>
<PAGE>14 of 42
(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.
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."
4. Risks to Non-Exchanging Holders. Holders of the Old Bonds who
do not participate in the Offer may be subject to certain adverse
consequences.
The purchase of Old Bonds pursuant to the Offer will reduce the
aggregate principal amount of Old Bonds that might otherwise trade
publicly, will reduce the number of holders of Old Bonds and could
adversely affect the liquidity and market value of the remaining Old
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 Old Bonds
tendered pursuant to the Offer reduces the float of the Old Bonds. This
reduced float may also tend to make the trading price more volatile.
5. Summary Comparison of the New Bonds and the Old Bonds. The
following is a brief comparison of the principal features of the New
Bonds and the Old Bonds. The summary is qualified in its entirety by
reference to the New Bonds and the Old Bonds.
<PAGE>
<PAGE>15 of 42
NEW BONDS OLD BONDS
--------- -------------------------------------------------------
6% 5 3/4% 5 5/8% 8% 7%
BONDS BONDS BONDS BONDS BONDS
----- ------ ------ ----- -----
Principal SFr. SFr. SFr. SFr. SFr. US
Amount 1,685,000 1,065,000 1,415,000 1,584,000 $2,037,000
Outstanding
as of March
31, 1995:
Interest 8%(a) 6% 5 3/4% 5 5/8% 8% 7%
Rate:
Scheduled June __, March 7, May 9, March 18, March 1, March 18,
Maturity: 2000 1995 1995 1996 1995 1996
Interest Annually Annually Annually Annually Semi- Annually
Payment on June on March on May 9 on March annually on March
Dates: __ 7 18 on June 18
20 and
December
20 and at
maturity
Mandatory None None None None None None
Redemption:
<PAGE>
<PAGE>16 of 42
Optional 25% or (b) (b) (b) 25% or (b)
Redemption: more (a more (a
minimum minimum
of SFr. of SFr.
250,000) 2,000,000)
of the of the
principal principal
amount of amount of
the New 8% Bonds
Bonds then
then out- outstanding
standing are
are redeemable
redeemable at
at any any time
time at a at a
redemption redemption
price price
in cash equal to
equal to 100% of
100% of their
their principal
principal amount
amount or
in Common
Stock
equal to
105% of
their
principal
amount
Conversion: Not Con- No longer No longer Convertibe Not Convertible
vertible Convertible Convertible into Con- into shares
shares of vert- of Common
Common ible(c) Stock prior
Stock to March 8,
prior to 1996 at a
March 8, conversion
1996 at price of
an $30.93 per
effective share.
conversion
price of
$34.46 per
share,
which is
based upon
an exchange
rate of
SFr. 1,495
per US $1.00.
<PAGE>
<PAGE>17 of 42
Denomi- SFr. 10, SFr. SFr. SFr. SFr. US $3,000
nations: SFr.100 5,000 5,000 5,000 3,000
or
SFr.1,000
Limitation None Negative Negative Negative Negative Negative
of Pledge Pledge Pledge Pledge(d)
indebted-
ness:
Listing: None (e) (e) (e) (e) (e)
________________________
(a) Principal and interest on the New Bonds is payable, at the sole
discretion of the Company, in either Swiss Francs or shares of
Common Stock.
(b) The Old Bonds, except for the 8% Bonds, may be redeemed by the
Company at par, or at a premium to par, in certain circumstances.
(c) The holders of 8% Bonds received Reset Warrants to purchase
initially 75 shares of Common Stock and Common Stock Warrants to
acquire without further consideration Common Stock with a market
value of SFr. 250.
(d) The negative pledge clause in the 8% Bonds does not contain any
restrictions on the principal subsidiaries of the Company.
(e) Listed on the Stock Exchanges of Zurich, Geneva and Basle.
<PAGE>
<PAGE>18 of 42
6. Price Range of the Old Bonds. The Old 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 Old Bonds in percentages of principal amount as
reported by the Zurich Stock Exchange for the periods set forth below:
6% CONVERTIBLE BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
85% 46% 93% 80% 101% 90.5%
5 3/4% CONVERTIBLE BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
80% 42% 96% 70% 100% 91.25%
5 5/8% CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
80% 48% 95% 75% 98% 84%
8% BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
85% 38.5% 95% 81% 105% 90%
7% DUAL CURRENCY CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
75% 47% 95% 76% 86% 80%
<PAGE>
<PAGE>19 of 42
On March 31, 1995, 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 98%, 96%, 90%, 96% and 86% of the
principal amount, respectively. Bondholders are urged to obtain a
current market quotation for the Old Bonds prior to tendering Old Bonds
pursuant to the Offer.
The Company has not sold any Old 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 repurchased an
aggregate of SFr. 4,298,000 of the Old Swiss Franc Bonds and US $3,000
of the Old U.S. Dollar Bonds.
<PAGE>
<PAGE>20 of 42
7. Selected Consolidated Financial Information of the Company.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1994 to give effect to the repurchase of Old Bonds by the
Company during the quarter ended March 31, 1995 and the exchange of the
New Bonds and cash for the Old Bonds, as if such repurchases and
exchange had occurred on December 31, 1994. The Company's Swiss Franc
denominated indebtedness has been translated at an exchange rate of
approximately SFr. 1.308 per US $1.00.
DECEMBER 31, 1994
--------------------------
OUTSTANDING PRO FORMA
----------- ---------
(unaudited, in thousands)
SHORT-TERM DEBT
Current maturities of long-term debt $ 14,279 $ 5,230
Line of credit and other agreements 31,060 31,060
--------- ---------
Total short-term debt . . . . $ 45,339 $ 36,290
========= =========
LONG-TERM DEBT LESS CURRENT MATURITIES
Bonds
8% Swiss Bonds due 2000 . . . $ $ 3,371(a)
5.625% Convertible Swiss Bonds
due 1996 1,716
7% Dual Currency Convertible Bonds
due 1996 2,391
12% Subordinated Debentures due 1997 6,783 6,783
5% Convertible Bonds due 1999 2,129 2,129
Mortgage notes payable, equipment lease
obligations and other . . . . 4,491 4,491
--------- --------
. . . . . . . . 17,513 16,774
--------- --------
Common stock issued subject to
repurchase obligation 1,510 3,136
--------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share,
10,000,000 shares authorized,
no sharesissued and outstanding. . .
Common stock . . . . . . . . . . . . 241(b) 260(c)
Class B capital stock . . . . . . . 2 2
Capital in excess of par value . . . 119,856 121,834
Deficit(d) . . . . . . . . . . . . . (53,151) (53,770)
Net unrealized loss on available-for-sale
securities . . . . . . . . . (1,783) (1,783)
-------- -------
Total stockholders' equity . 65,165 66,543
-------- -------
Total capitalization . . . . $ 84,188 $86,453
======== =======
<PAGE>
<PAGE>21 of 42
____________________
(a) Assumes New Bonds are recorded on the pro forma financial statement
at 80% of face value.
(b) Assumes Common Stock, par value $.01 per share, with 40,000,000
shares authorized, 24,140,757 shares issued and outstanding (of
which 22,645 shares are held in treasury) and 13,357,471 shares
reserved for issuance.
(c) Assumes 40,000,000 shares authorized, approximately 26,000,000
shares issued and outstanding (of which 22,645 shares are held in
treasury) and 11,387,458 shares reserved for issuance.
(d) Assumes a loss in the Offer (net of taxes) of $479,000.
<PAGE>
<PAGE>22 of 42
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
The following table sets forth the consolidated condensed balance
sheet of the Company at December 31, 1994 and as adjusted to give effect
to the repurchase of Old Bonds by the Company during the quarter ended
March 31, 1995 and the exchange of the New Bonds and cash for the Old
Bonds, as if such repurchases and exchange had occurred on December 31,
1994.
ASSETS
Actual Pro Forma
------ ---------
(unaudited, in thousands)
Current Assets
--------------
Cash and cash equivalents . . . . . $ 10,875 $ 2,724
Accounts and other receivables . . . 52,487 52,487
Inventories . . . . . . . . . . . . 20,642 20,642
Costs and estimated earnings in
excess of billings
on uncompleted contracts . . 15,237 15,237
Prepaid expenses and other current assets 5,970 5,970
--------- -------
Total current assets . . . . 105,211 97,060
--------- -------
Investments and advances . . . . . . . 11,600 11,600
--------- -------
Property, plant and equipment at cost . 37,423 37,423
Less accumulated depreciation . . . . . (22,843) (22,843)
--------- -------
14,580 14,580
--------- -------
Intangible assets, net of amortization 37,025 36,954
--------- -------
Investment in financed assets . . . . . 684 684
--------- -------
Other assets . . . . . . . . . . . . . 6,446 6,446
--------- -------
$ 175,546 $167,324
========= =======
<PAGE>
<PAGE>23 of 42
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
-------------------
Current maturities of long-term debt $ 14,279 $ 5,230
Short-term borrowings . . . . . . . 31,060 31,060
Accounts payable and accrued expenses 27,958 26,520
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,091 6,091
-------- -------
Total current liabilities . . 79,388 68,901
-------- -------
Long-term debt, less current maturities 17,513 16,774
-------- -------
Minority interests . . . . . . . . . . 11,970 11,970
-------- -------
Common stock issued subject to
repurchase obligation 1,510 3,136
-------- -------
Stockholders' equity
--------------------
Common stock . . . . . . . . . . . . 241 260
Class B capital stock . . . . . . . 2 2
Capital in excess of par value . . . 119,856 121,834
Deficit(c) . . . . . . . . . . . . . (53,151) (53,770)
Net unrealized loss on
available-for-salesecurities. . . . .(1,783) (1,783)
-------- -------
Total stockholders' equity . . . . . 65,165 66,543
-------- -------
$ 175,546 $167,324
========= ========
________________________
(a) Assumes a reduction of deferred finance costs of $4,000 and cash
expenses of $378,000.
(b) Assumes a reduction in accrued expenses, as a result of reduced
accrued interest, of $699,000.
(c) Assumes a loss in the Offer (net of
taxes) of $479,000.
<PAGE>
<PAGE>24 of 42
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, 1994 and as adjusted to reflect the repurchases of
Old Bonds by the Company during the quarter ended March 31, 1995 and the
exchange of the New Bonds and cash for the Old Bonds, as if such
repurchases and exchange had occurred on December 31, 1994.
(in thousands, except per share data)
Year Ended December 31, 1994
----------------------------
Actual Pro Forma
---------- -------------
Revenues
Sales $ 204,774 $ 204,774
Investment and other income,
net (a) (1,808) (428)
---------- -----------
202,966 204,346
---------- -----------
Costs and expenses
Cost of goods sold 172,215 172,215
Selling, general & administrative 34,301 34,301
Research & development 431 431
Interest (b) 6,458 5,363
---------- -----------
213,405 212,310
---------- -----------
Minority interests (209) (209)
---------- -----------
Loss before income taxes, discontinued
operations and extraordinary items 10,648 8,173
---------- -----------
Income tax benefit (expense) (749) (749)
---------- -----------
Loss before discontinued operations
and extraordinary items $(11,397) $(8,922)
========== ===========
Loss per share before discontinued
operations and extraordinary item $ (.52) $ (.41)
========== ===========
Fixed charges in excess of earnings $10,439 $ 7,964
========== ===========
<PAGE>
<PAGE>25 of 42
Year ended
December 31, 1994
-----------------
(a) The change ininvestment 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 $ (326)
Elimination of foreign currency transaction
gain/loss as a result of the Offer 1,706
------
$1,380
------
(b) The decrease in interest expense will
be caused by the following factors
(in thousands):
Interest on the Old Bonds $1,120
Amortization of original issue discount
on the 8% Bonds due 1995 330
Amortization of the deferred finance
costs on the Bonds due 1995 150
Interest on the New Bonds (337)
------
Amortization of discount on discount
on the New Bonds $(168)
------
$1,095
======
<PAGE>
<PAGE>26 of 42
8. Source and Amount of Funds. The total amount of cash required
by the Company to exchange 100% of the Old Bonds, based on the SFr. to
United States dollar exchange rate of 1.1310 Swiss francs to the U.S.
dollar as of March 31, 1995, is expected to be approximately $3,449,000
for the Old Swiss Franc Bonds and $1,222,000 for the Old U.S. Dollar
Bonds. The Company will obtain such funds from its working capital.
9. Acceptance for Exchange and Payment. 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 all of the Old Bonds
validly tendered on or prior to the Expiration Date and not properly
withdrawn as permitted by Section 11.
Subject to the conditions set forth in Section 15, the Payment Date
for Old Bonds accepted for payment by the appropriate Exchange Agent
will be June __, 1995, 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 June __, 1995, 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 June __, 1995, at which time
the Offer, as so extended by the Company, shall expire. In all cases,
payment for Old 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 Old 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 Old
Bonds tendered, such Old Bonds will not be accepted for tender. 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.
For purposes of the Offer, the Company shall be deemed to have
accepted for exchange tendered Old Bonds on the Expiration Date, unless
it gives notice to the contrary in writing or by telex to the
appropriate Exchange Agents and by publication in The Wall Street
Journal no later than four (4) business days after the Expiration Date.
Payment for Old Bonds so accepted for exchange will be made on the
Payment Date, unless the conditions set forth in Section 15 have not
been waived or satisfied, by delivery of the New Bonds and by deposit of
the cash exchange price with the Exchange Agents at their specified
offices in Switzerland.
If any tendered Old Bonds are not exchanged for any reason, the
Exchange Agents will return the Old Bonds tendered to the holder thereof
without expense to the tendering bondholder as promptly as practicable
after the expiration or termination of the Offer.
<PAGE>
<PAGE>27 of 42
10. Procedures for Tendering Old Bonds. In order to exchange Old
Bonds validly pursuant to the Offer, the Old Bonds must be physically
delivered to the appropriate Exchange Agent in Switzerland, together
with all unmatured and matured but unpaid coupons, and a Letter of
Instructions for acceptance of the Offer must be submitted by or on
behalf of each beneficial owner of Old Bonds to the Company at its
office in New York. Any financial institution holding Old Bonds
on behalf of one or more beneficial owners may submit one Letter of
Instructions for all such beneficial owners. Tenders on behalf of bond-
holders 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 Old 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 Old 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 Old 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 Old 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.
11. Withdrawal Rights. Except as stated in this Section 11,
tenders of Old Bonds made pursuant to the Offer are irrevocable.
Old 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 Old Bonds to be withdrawn and the aggregate
principal amount of Old 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.
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 Old Bonds may not be rescinded, and any Old Bonds
withdrawn will thereafter be deemed not validly tendered for purposes of
the Offer. However, withdrawn Old Bonds may be returned at any
<PAGE>
<PAGE>28 of 42
subsequent time prior to the Expiration Date by again following the
procedures described in Section 10.
12. Certain Tax Consequences. The following is a summary of
certain United States federal income tax considerations that may be
relevant to a holder of Old 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 Old 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 Old Bonds, and that will hold New Bonds, as capital assets
(within the meaning of Section 1221 of the Code), and that hold Old
Bonds in a manner that complies with the anti-bearer bond rules
contained in Section 165(j) and Section 1287(a) of the Code; the summary
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 Old Bonds, or that will hold New Bonds, 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 Old 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.
THE EXCHANGE
In General. The Company believes that, as a result of the
less-than-five-year term of the New Bonds, the exchange (the "Exchange")
of Old Bonds for New Bonds and cash (collectively, the "Exchange
Consideration") will be treated as a taxable exchange, rather than as a
tax-free reorganization under Section 368 of the Code. Accordingly, in
general, an exchanging United States holder will recognize gain or loss
in an amount equal to the difference between the "amount realized" by
such holder on receipt of the Exchange Consideration (as discussed more
fully below) and the adjusted tax basis of the Old Bonds in the hands of
the United States holder.<PAGE>
<PAGE>29 of 42
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 the Exchange Consideration between the Constructive Zero Coupon
Bond and the Constructive Installment Note). It is also unclear whether
the bifurcation approach is intended to apply 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 "New
Bonds -- Payments of Stated Interest" below). At present, the Company
intends to continue this treatment. United States holders of Old U.S.
Dollar Bonds are urged to consult their own tax advisors.
<PAGE>
<PAGE>30 of 42
Tax Consequences of the Exchange. Assuming that the Exchange
is treated as a taxable exchange, then, except to the extent that the
Exchange Consideration is deemed to be attributable to accrued but
unpaid interest on the Old Bonds (as discussed more fully below under
"Accrued Interest on Old Bonds"), the Exchange should have the following
federal income tax consequences:
1. An exchanging holder United States should recognize gain
or loss on the Exchange, in an amount equal to the difference between
(i) the amount realized by such United States holder on receipt of the
Exchange Consideration and (ii) the adjusted tax basis of the Old Bonds
in the hands of such United States holder.
2. The "amount realized" by an exchanging United States
holder in respect of the New Bonds received will be the "issue price" of
the New Bonds (as to which, see "New Bonds -- Original Issue Discount"
below), irrespective of whether the holder employs the cash method or
the accrual method of accounting. Accordingly, the aggregate amount
realized by an exchanging United States holder will be the sum of such
issue price and the amount of cash received.
3. In general, except as described in the two immediately
following numbered paragraphs, any gain or loss recognized by an
exchanging United States holder will be treated as capital gain or loss.
4. In general, gain recognized by an exchanging United
States holder will be treated as ordinary income, to the extent of the
amount of "market discount" on the exchanged Old Bonds that accrued
during the period that the exchanging United States holder held the Old
Bonds. 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
<PAGE>
<PAGE>31 of 42
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.
5. The foreign currency rules contained in Section 988 of
the Code may affect the character of any gain or loss recognized by a
United States holder on the Exchange. In particular, under Section 988
of the Code, any gain or loss recognized by a United States holder on
the Exchange will be treated as ordinary income or loss, to the extent
of any foreign currency gain or loss realized by the United States
holder on the disposition of the Old Bonds.
Under Section 988, 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 the general rules described above, however,
the aggregate foreign currency gain realized by a United States holder
on the Exchange (including in respect of interest or original issue
discount) 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 (including in respect of interest
or original issue discount) 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.
6. The tax basis of the New Bonds in the hands of an
exchanging United States holder will be equal to their "issue price"
(see "New Bonds -- Original Issue Discount" below), and the holding
period of the New Bonds will begin on the day after the Exchange.
<PAGE>
<PAGE>32 of 42
7. The foregoing discussion assumes that a United States
holder should recognize all of the gain or loss that it realizes on the
Exchange, including all such gain or loss that is attributable to
changes in currency exchange rates, even though the United States holder
continues to hold, at least in part, a Swiss franc-denominated
obligation of the Company. It is possible that future regulations under
Section 988 may provide that a portion of the gain or loss realized by a
United States holder on the Exchange, representing the foreign currency
gain or loss inherent in the portion of the Old Bond that is considered
to be exchanged for a New Bond, should be deferred until the maturity or
other disposition of the New Bond.
Accrued Interest on Old Bonds. The Company will take the
position that the positive difference, if any, between (i) the amount of
the Exchange Consideration paid for an Old Bond and (ii) the adjusted
issue price of the Old Bond is paid in exchange for accrued but unpaid
stated interest on the Old Bonds. 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, if any, of
the Exchange Consideration that is deemed to be attributable to the
claim of the United States holder for accrued but unpaid stated interest
on the Old Bonds surrendered and (ii) the amount, if any, of such
accrued but unpaid stated 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.
NEW BONDS
Registered Form. The New Bonds issued pursuant to the Offer
will be issued only in registered form, and those New Bonds will not be
convertible into bearer form at any time. In contrast, the Old Bonds
were issued, and the New Bonds issued pursuant to the Foreign Offer will
be issued, in bearer form. ACCORDINGLY, THE NEW BONDS ISSUED PURSUANT
TO THE OFFER WILL NOT BE FUNGIBLE WITH THE NEW BONDS ISSUED PURSUANT TO
THE FOREIGN OFFER; AS A CONSEQUENCE, AND IN VIEW OF THE GENERAL
PREFERENCE OF CERTAIN NON-U.S. BOND MARKETS FOR BEARER-FORM INSTRUMENTS,
THE SECONDARY MARKET FOR NEW BONDS ISSUED PURSUANT TO THE OFFER MAY BE
COMPARATIVELY ILLIQUID.
Payments of Stated Interest. A United States holder will
recognize ordinary interest income on the receipt or accrual, in
accordance with its method of accounting, of stated interest payments on
the New Bonds. In the case of stated interest that the Company elects
to pay in shares of Common Stock, the amount of interest income should
be equal to the fair market value of the Common Stock.
A United States holder that uses the cash method of accounting
and that receives a payment of stated interest in Swiss Francs with
respect to a New Bond will be required to include in income as ordinary
interest income the U.S. dollar value of the Swiss Franc payment
(translated at the spot rate on the date such payment is received), and
will not recognize foreign currency gain or loss except on actual
disposition of the Swiss Francs received.
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<PAGE>33 of 42
A United States holder that uses the accrual method of
accounting will be required to include in income as ordinary interest
income the U.S. dollar value of any stated interest that has accrued
and is otherwise required to be taken into account with respect to a New
Bond during an accrual period. The U.S. dollar value of the accrued
interest will be determined by translating the accrued interest at the
average rate of exchange for the accrual period or, with respect to an
accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. Such United States holder will
recognize additional foreign currency gain or loss, treated as ordinary
income or loss, with respect to accrued interest income on the date such
income is actually received (whether in Swiss Francs or in Common
Stock). The interest amount of ordinary income or loss recognized will
equal the difference between the U.S. dollar value of the payment on the
date of receipt and the accrued amount previously included in income. A
United States holder may elect to translate accrued interest income into
U.S. dollars at the spot rate on the last day of the interest accrual
period (or, in the case of a partial accrual period, the spot rate on
the last day of the taxable year) or, if the date of receipt is within
five business days of the last day of the interest accrual period, the
spot rate on the date of receipt. A United States holder that makes
such an election must apply it consistently to all debt instruments from
year to year and cannot change the election without the consent of the
Service.
The translation rules described in the preceding paragraph
also will apply to the translation of original issue discount on the New
Bonds, whether the United States holder uses the cash method or the
accrual method of accounting.
Original Issue Discount. In general, the amount of original
issue discount on a New Bond will be the amount, if any, determined in
Swiss Francs, by which the stated redemption price at maturity of the
New Bond exceeds the "issue price" of the New Bond. Although the matter
is not entirely clear, it appears, and the discussion below assumes,
that the New Bonds issued in the Offer and the New Bonds issued in the
Foreign Offer should be treated as a single "issue" for original issue
discount purposes.
Under Section 1273(b)(3) of the Code, the issue price of a New
Bond will depend upon whether either the New Bonds are, or the Old Bond
for which the particular New Bond is issued is, "traded on an
established securities market." If the New Bonds are traded on an
established securities market, then the issue price of the New Bonds
should be their fair market value as of the issue date. If the New
Bonds are not traded on an established securities market, but the Old
Bond for which a New Bond is issued is traded on an established
securities market, then the issue price of the New Bond issued in
exchange for the Old Bond should be equal to the fair market value of
the Old Bond as of the issue date, less the amount of cash included in
the Exchange Consideration. If neither the New Bonds nor the Old Bond
for which a New Bond is issued are traded on an established securities
market, then, under Section 1274 of the Code, the issue price of the New
Bonds should be the present value at the exchange date of the aggregate
interest and principal payments due on the New Bonds, determined by
<PAGE>
<PAGE>34 of 42
discounting those payments to the exchange date at a rate based on the
yields borne by the highest grade of Swiss Franc-denominated marketable
securities (excluding tax-exempt securities), with due consideration
given to the maturities of such securities.
Section 1273 of the Code does not specify when a debt
instrument will be considered to be traded on an established securities
market. Pursuant to regulations under Section 1273, (the "OID
Regulations"), however, a debt instrument is "traded on an established
market" for purposes of Section 1273, if, at any time during a 60-day
period that straddles the issue date, (i) the debt instrument is listed
on any of certain specified exchanges or quotation systems (not, at
present, including the Swiss securities exchanges), (ii) the debt
instrument appears on a system of general circulation (a quotation
medium) that provides a reasonable basis to determine fair market value
by disseminating either recent price quotations of identified brokers
and dealers (including those of a single identified broker or dealer) or
actual prices of recent sales transactions or (iii) in certain
circumstances, price quotations for the debt instrument are readily
available from dealers and brokers. The Company anticipates that the
New Bonds issued in the Foreign Offer will appear on certain computer
screen-based market information systems that disseminate price quotes to
brokers and dealers in Eurobonds. Under the OID Regulations, while the
issue is not free from doubt, the anticipated appearance of the New
Bonds on these computer-based quotation systems should cause the New
Bonds to be treated as traded property. Accordingly, the Company
intends to treat the New Bonds as traded property and to determine the
issue price of the New Bonds by reference to their apparent fair market
value on or shortly after the issue date.
If the New Bonds are issued with original issue discount,
then, very generally, an exchanging United States holder, and any
subsequent United States holder of a New Bond, will be required to
include in ordinary gross income each year the portion of the original
issue discount on the New Bond that is considered for tax purposes to
accrue in that year, before receipt of the cash attributable to that
income. As discussed below, the amount of original issue discount that
accrues in each year will be computed under a constant-yield method,
with the consequence that a United States holder will include in gross
income progressively larger amounts of original issue discount over
time.
The amount of original issue discount includible in income by
a United States holder of a New Bond will be the sum of the daily
portions of original issue discount with respect to the New Bond for
each day during the taxable year or portion thereof on which the United
States holder holds the New Bond. The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the
original issue discount allocable to that accrual period. Accrual
periods with respect to a New Bond may be of any length selected by the
United States holder and may vary in length over the term of the New
Bond, so long as (i) no accrual period is longer than one year and (ii)
each scheduled payment of interest or principal on the New Bond occurs
on either the final or first day of an accrual period. In general, the
amount of original issue discount allocable to an accrual period equals
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<PAGE>35 of 42
the excess of (i) the product of the New Bond's adjusted issue price at
the beginning of the accrual period and the yield to maturity of the New
Bond (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual
period) over (ii) the aggregate amount of stated interest on the New
Bond allocable to the accrual period. The "adjusted issue price" of a
New Bond at the beginning of any accrual period is the issue price of
the Bond, increased by the amount of accrued original issue discount for
each prior accrual period and decreased by the amount of any payments
previously made on the New Bond other than stated interest payments.
The amount of original issue discount includible by a United States
holder will be determined in Swiss Francs and translated into U.S.
Dollars in the manner described above under " -- Payment of Stated
Interest".
A United States holder may elect to include in gross income
all interest that accrues on a New Bond, using the constant-yield method
described above with the modifications described below. For purposes of
this election, interest includes stated interest, original issue
discount and market discount, subject to certain special rules and
adjustments. In applying the constant-yield method to a New Bond with
respect to which this election has been made, the issue price of the New
Bond will equal the electing United States holder's adjusted tax basis
in the New Bond immediately after its acquisition, the issue date of the
New Bond will be the date of its acquisition by the electing United
States holder, and no payments on the New Bond will be treated as
payments of stated interest. This election will generally apply only to
the New Bond with respect to which it is made and may not be revoked
without the consent of the Service.
Under proposed regulations (the "Proposed Contingent Interest
Regulations"), it is technically possible that the Company's right to
elect to pay the principal of or interest on the New Bonds in shares of
Common Stock could cause the New Bonds to be treated as contingent-
payment obligations that are subject, as such, to various special rules.
The Proposed Contingent Interest Regulations, which do not clearly
address the treatment of a payment of a basically fixed amount in cash
or property, are proposed to be effective only for debt instruments
issued at least 60 days after the date on which the regulations are
finalized. Because the New Bonds call for the payment of basically
fixed amounts, in either cash or shares of Common Stock, the Company
does not believe that any portion of such payments properly should be
regarded as contingent payments for purposes of the original issue
discount rules.
United States holders are urged to consult their own tax
advisors as to the original issue discount characteristics of the New
Bonds.
Purchase, Sale and Retirement. In general, the adjusted tax
basis of a New Bond in the hands of a United States holder will be equal
to the initial tax basis of such New Bond to such holder (determined in
the manner described in "The Exchange -- Tax Consequences of the
Exchange", in the case of an original holder of New Bonds), increased by
any amount includible in income by the holder as original issue discount
and reduced by any amortized premium.
<PAGE>
<PAGE>36 of 42
Upon the sale, exchange or retirement of a New Bond, a United
States holder generally will recognize gain or loss in an amount equal
to the difference between (i) the amount of cash and the fair market
value of any property received on the sale, exchange or retirement (less
any amount received in respect of accrued interest, which will be
taxable as such) and (ii) the adjusted tax basis of the New Bond in the
hands of the United States holder. Except as discussed below with
respect to foreign currency gain or loss and market discount, gain or
loss recognized by a United States holder on the sale, exchange or
retirement of a New Bond generally will be capital gain or loss.
Gain or loss realized upon the sale, exchange or retirement of
a New Bond that is attributable to fluctuations in currency exchange
rates will be treated as ordinary income or loss. Gain or loss
attributable to fluctuations in exchange rates will equal the difference
between (i) the U.S. dollar value of the Swiss Franc principal amount of
such Bond, and any payment with respect to accrued interest, translated
at the spot rate on the date such payment is received or such Bond is
disposed of, and (ii) the U.S. dollar value of the principal amount of
such Bond, on the date such United States holder acquired such Bond, and
the U.S. dollar amounts previously included in income in respect of the
accrued interest received. For purposes of determining foreign currency
gain or loss, a New Bond will be treated as having a principal amount
equal to the holder's purchase price (in units of Swiss Francs). Such
foreign currency gain or loss will be recognized only to the extent of
the total gain or loss realized by a United States holder on the sale,
exchange or retirement of the New Bond.
In general, if the tax basis of a New Bond in the hands of a
United States holder immediately after its acquisition is less than the
stated redemption price at maturity of such New Bond (or, if the New
Bonds are issued with original issue discount, if such basis is less
than the revised issue price of the New Bond), then the New Bond will be
considered to bear "market discount" in the hands of such United States
holder. In such case, gain realized by the United States holder on the
sale, exchange or retirement of the New Bond generally will be treated
as ordinary income to the extent of the market discount that accrued on
the New Bond while held by such holder. In addition, the United States
holder could be required to defer the deduction of a portion of the
interest paid on any indebtedness incurred or continued to purchase or
carry the New Bond. In general terms, market discount on a New Bond
will be treated as accruing ratably over the term of such New Bond, or,
at the election of the holder, under a constant yield method.
NON-EXCHANGING UNITED STATES HOLDERS OF OLD BONDS
The Offer and the Foreign Offer will have no federal income
tax consequences to United States holders of Old Bonds that do not
participate in the Offer.
<PAGE>
<PAGE>37 of 42
13. Fees and Expenses. The Company is not paying any fees for
soliciting the exchange of the Old Bonds in the Offer. However,
assuming that 100% of the Old 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 $300,000.
Requests for additional information or additional copies of this
Offering Circular should be directed to the Company.
14. Terms of the New Bonds.
GENERAL
The Company will issue the New Bonds under an Indenture (the
"Indenture"), between the Company and ______________________________, as
trustee ("Trustee"). The terms of the New Bonds include those stated in
the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on
the date of the Indenture. All capitalized terms used herein and not
defined herein shall have the meanings set forth in the Indenture.
DENOMINATIONS, TRANSFER, EXCHANGE
The New Bonds are issued in registered form without coupons in
denominations of SFr. 10, SFr. 100 or SFr. 1,000. Fractional portions
of New Bonds resulting form the exchange will be rounded up to the
nearest integral multiple of SFr. 10 of New Bonds. The transfer of New
Bonds may be registered and New Bonds may be exchanged as provided in
the Indenture. The Transfer Agent may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and
to pay any taxes and fees required of any New Bonds or portion of New
Bonds selected for redemption. Also, it need not exchange or register
the transfer of any New Bonds for a period of up to 15 days before a
a selection of New Bonds to be redeemed.
COMPLIANCE
Reports to Trustee. The Company will provide the Trustee with
copies of the annual reports and other information, documents and
reports filed with the Commission pursuant to the Exchange Act. In the
event the Company is no longer subject to the reporting requirements of
the Exchange Act, it will continue to provide the Trustee with copies of
reports containing substantially the same information as would be
required to be filed pursuant to the Exchange Act.
Compliance Certificate. The Company will deliver to the Trustee
within 120 days after the end of each fiscal year of the Company an
officers' certificate stating whether or not the signer knows of any
Default that occurred during such period. If they do, the certificate
will describe the Default and its status.
<PAGE>
<PAGE>38 of 42
SUCCESSOR COMPANY
The Company will not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless (i) the person is
organized under laws of the United States of America or any State
thereof or the District of Columbia; (ii) the person assumes by
supplemental indenture all the obligations of the Company under the New
Bonds and the Indenture; and (iii) immediately after the transaction no
default exists.
The successor shall be substituted for the Company, and thereafter
all obligations of the Company under the New Bonds and the Indenture
shall terminate.
DEFAULTS AND REMEDIES
Each of the following shall constitute an Event of Default under
the Indenture:
(a) The Company defaults in the payment of principal, or, for a
period of 30 days, in the payment of interest on any New Bond; or
(b) The Company defaults in the performance or observance in any
material respect of any covenant or agreement of the Company in the New
Bonds if such default continues for a period of 30 days after notice
thereof has been given to the Company; or
(c) The Company defaults under any evidence of indebtedness for
money borrowed by the Company or under any instrument under which there
may be issued or by which there may be secured or guaranteed any
indebtedness for money borrowed by the Company, which default involves
the failure to pay when due (after any applicable grace period), or
results in the acceleration of, indebtedness in an amount in excess of
$1,000,000 without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 30
days after notice thereof shall have been given to the Company; or
(d) There is an entry of a decree or order in respect of the
Company in an involuntary case under any bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, trustee or other
similar official of the Company or for any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 30 consecutive days; or
(e) The Company shall commence a voluntary case under any
bankruptcy, insolvency or other similar law, or consent to the
appointment of or taking possession by a receiver, liquidator, trustee
or other similar official, of the Company or for any substantial part of
its property, or the making by it of a general assignment for the
benefit of creditors, or if it shall fail generally to pay its debts as
they become due, or shall take any corporate action in furtherance of
any of the foregoing; or
<PAGE>
<PAGE>39 of 42
(f) The Company shall merge or consolidate with, or sell or convey
all or substantially all of its assets to, any other corporation, unless
(i) the Company is the surviving corporation, or (ii) the surviving or
transferee corporation expressly assumes all obligations of the Company
under the New Bonds by supplemental agreement, confirmed by an opinion
of counsel, or (iii) the Company or the surviving or transferee
corporation irrevocably deposits in trust pursuant to arrangements
reasonably satisfactory to the Trustee, money or U.S. government
obligations satisfactory to the Trustee, sufficient to pay principal and
interest on the Bonds to maturity.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the New Bonds may
be amended, and any default may be waived, with the consent of the
holders of a majority in principal amount of the New Bonds (except a
default in the payment of the principal of or interest on any New Bonds
and a default with respect to certain amendments of the Indenture which
require the consent of each Bondholder affected). Without the consent
of any Bondholder, the Indenture or the New Bonds may be amended to cure
any ambiguity, omission, defect or inconsistency; to provide for
assumption of Company obligations to Bondholders; or to make any change
that does not materially adversely affect the rights of any Bondholder.
DEFEASANCE AND COVENANT DEFEASANCE
The Company at any time may terminate all of its obligations
(except for certain obligations respecting the defeasance trust and
obligations to register the transfer or exchange of the New Bonds, to
replace mutilated, destroyed, lost or stolen New Bonds and to maintain
agencies in respect of the New Bonds) under the New Bonds and the
Indenture ("defeasance"). The Company at any time may terminate its
obligations under the covenants described under "Certain Covenants" and
the operation of the cross acceleration provision described under
"Defaults and Remedies" ("covenant defeasance").
The Company may exercise its defeasance option notwithstanding its
prior exercise of the New Bonds covenant defeasance option. If the
Company exercises its defeasance option, payment of the New Bonds may
not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the New Bonds may
not be accelerated by reference to the covenants described under
"Certain Covenants" or because of the cross acceleration provision
described under "Defaults and Remedies."
In order to exercise either option, the Company must deposit in
trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the New Bonds
to redemption or maturity and must comply with certain other conditions.
U.S. Government Obligations are securities backed by the full faith and
credit of the United States of America or certificates representing an
ownership interest in such Obligations.
<PAGE>
<PAGE>40 of 42
15. Certain Conditions of the Offer. Notwithstanding any other
provision of the Offer, the Company shall not be required to pay for Old
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 Old 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 Old 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 Old 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 Old 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 Old 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 Old 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
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<PAGE>41 of 42
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; or
(d) the Indenture shall not have been qualified under the
Trust Indenture Act.
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 15 will be final and binding upon all parties.
16. Miscellaneous. The Offer is not being made to (nor will
tenders of Old Bonds be accepted from or on behalf of) holders of Old
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.
17. Source of Information. All information contained in this
Offering Circular was provided by the Company.
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).
May __, 1995
NATIONAL PATENT DEVELOPMENT CORPORATION
<PAGE>
<PAGE>42 of 42
ANNEX A
National Patent Development Corporation--Annual Report on Form 10-K/A
for the year ended December 31, 1994.
<PAGE>1 OF 94
FORM 10K/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, 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 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/A or any amendment to this Form 10-K/A. /X/
As of March 21, 1995, 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 $45,327,419 based on the closing
price of the Common Stock on the American Stock Exchange on March 21,
1995. 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.
<PAGE>
<PAGE>2 OF 94
Class Outstanding at March 21, 1995
Common Stock,
par value $.01 per share 25,734,591 shares
Class B Capital Stock,
par value $.01 per share 250,000 shares
DOCUMENTS INCORPORATED BY REFERENCE None
<PAGE>
<PAGE>3 OF 94
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 21
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of
Security Holders 22
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 25
Item 8. Financial Statements and Supplementary
Data 35
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 75
PART III
Item 10. Directors and Executive Officers
of the Registrant 75
Item 11. Executive Compensation 79
Item 12. Security Ownership of Certain
Beneficial Owners and Management 83
Item 13. Certain Relationships and Related
Transactions 88
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 89
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PART I
Item 1. Business is hereby amended and restated in its entirety as
follows:
(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 three operating business segments:
Physical Science, Distribution and Optical Plastics. The Company also
has an investment in one company in the health care industry and an
investment in one company in the environmental technology and consulting
area. In addition, the Company owns approximately 54% of the
outstanding shares of common stock in a company that distributes generic
pharmaceutical products in Russia.
The Company's Physical Science Group consists of (i)SGLG,
Inc. (formerly, GPS Technologies, Inc.) ("SGLG"), an approximately 92%
owned subsidiary and (ii) General Physics Corporation ("General
Physics"), an approximately 51% owned subsidiary.
General Physics provides a wide range of personnel
training, engineering, environmental and technical support services to
commercial nuclear and fossil power utilities, the United States
Departments of Defense ("DOD") and Energy (the "DOE"), Fortune 500
companies and other commercial and governmental customers. SGLG is a
holding company that has a 35% interest in GSE Systems, Inc., a software
simulator company and in addition owns a small finance subsidiary.
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 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.
In addition, the Company has a division, Hydro Med Sciences
("HMS"), involved in the manufacture of medical devices, drugs and
cosmetic polymer products.
The Company's investment in the health care industry
currently consists of approximately 31% investment in 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 United States Food and Drug Administration ("FDA") that
is based upon a natural source, multi-species alpha interferon ("Natural
Alpha Interferon"). ALFERON N Injection is approved for the treatment
of certain types of genital warts. ISI also is developing its existing
injectable, topical, and/or oral formulations of Natural Alpha
Interferon for the potential treatment of HIV, hepatitis C, hepatitis B,
multiple sclerosis, cancers, and other indications.
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The Company currently owns approximately 40% of the
currently outstanding shares of common stock of GTS Duratek,
Inc.("Duratek"). Duratek's operations consist of two operating groups:
(1) "Technology Group" (formerly Environmental Services) is engaged in
converting radioactive, hazardous and mixed (both radioactive and
hazardous) waste to glass, using in-furnace vitrification processes, and
removing radioactive and/or hazardous contaminants from waste water and
other liquids using filtration and ion exchange processes, and (2)
"Services Group" (formerly Consulting and Staff Augmentation) engaged in
consulting, engineering, training and staff augmentation services.
Duratek provides services and technologies for various utility,
industrial, governmental and commercial clients.
The Company owns approximately 54% of the outstanding common
stock of American Drug Company ("ADC"), which was organized in 1993, as
a wholly-owned subsidiary of the Company to initiate marketing
activities for American generic pharmaceutical and medical
pharmaceutical in Russia and the Commonwealth of Independent states (the
"CIS"). ADC's subsidiary, NPD Trading (USA) Inc. provides consulting
services to Western businesses in Russia and Eastern Europe. ADC intends
to make sales of American-made generic pharmaceutical and health care
products for sale under its own label in Russia and the CIS.
In December 1994, the Company decided to sell its Eastern
Electronics Manufacturing Corporation subsidiary ("Eastern"), which was
the only company in the electronics group. As a result of this decision,
the Company has reflected Eastern as a discontinued operation.
(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
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PHYSICAL SCIENCE GROUP
GENERAL PHYSICS CORPORATION
General
General Physics Corporation ("General Physics") provides a
wide range of personnel training, engineering, environmental and
technical support services to commercial nuclear and fossil power
utilities, the United States Departments of Defense ("DOD") and Energy
(the "DOE"), Fortune 500 companies and other commercial and governmental
customers. 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.
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, materials management and safety
analysis services to the commercial nuclear power industry and to the
DOE.
On August 31, l994, General Physics acquired substantially
all of the assets and operations of SGLG, Inc. (formerly GPS
Technologies) and certain of its subsidiaries (together the "GPST
Businesses") for approximately $34 million, consisting of $10 million
cash, 3,500,000 shares of General Physics common stock, warrants to
acquire up to 1,000,000 shares of General Physics common stock at $6.00
per share, warrants to acquire up to 475,664 shares of General Physics
common stock at $7.00 per share, and General Physics' 6% ten year senior
subordinated debentures in the aggregate principal amount of $15
million. The senior subordinated debentures require payment of interest
only on a quarterly basis for the first five years, quarterly
installments of $525,000 principal plus interest for the next five years
and the balance of $4.3 million at maturity. The fair value of the
senior subordinated debentures was estimated to be $10.7 million at the
date of the acquisition.
The Company which owned approximately 92% of the GPST
Businesses and 28% of General Physics prior to the transaction, owned
approximately 54% of the outstanding shares of General Physics after the
acquisition.
General Physics is organized into four groups: Training and
Technology, Engineering and Applied Sciences, Federal Systems and
Department of Energy. General Physics performance is significantly
affected by the timing of performance on contracts. Results of
operations are not seasonal, since contracts are performed throughout
the year.
While General Physics continues to provide services to the
DOE and DOD and the commercial nuclear power industry, it is unsure what
effect cutbacks will have on future results. In response to these
factors, General Physics has begun to focus its marketing resources on
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expanding management and technical training services to the
manufacturing and process industries, and specialized engineering
services to Federal agencies. During the latter part of 1994 General
Physics experienced growth in these areas and anticipates future growth
to come from these areas. In addition, General Physics continues to
take steps to reduce costs by eliminating positions and implementing
other cost cutting activities.
The following table sets forth the approximate pro forma
revenue attributable to the categories of services provided by General
Physics for the year ended December 31, 1994 assuming 12 months revenue
for each of SGLG and General Physics.
(in thousands)
Training and Technology Services $ 46,466
DOD Services 18,078
DOE Services 18,805
Engineering Services 31,781
Total Revenue $115,130
General Physics currently provides services to more than 410
clients, including eight of the largest electric power companies in the
United States and four prime contractors serving the DOE. During 1994,
no customer accounted for more than 10% of General Physics revenue.
Prior to October, 1988, when it started its DOE services business,
General Physics derived virtually all of its revenue from contracts with
nuclear utilities.
TRAINING AND TECHNOLOGY GROUP
The Training and Technology Group focuses on training and human
performance improvement needs of commercial nuclear utilities, Fortune
500 and other commercial companies, and government customers, providing
technical training and other technical services to customers that
design, operate, and maintain equipment and facilities. This Group
analyzes the human, organizational and technical issues confronting its
customers and recommends solutions to improve performance.
DOE SERVICES GROUP
The DOE has overall responsibility for the nation's nuclear weapons
complex. The operation of United States Government nuclear weapons
production and waste processing facilities recently has, like the
commercial nuclear power industry, come under increasingly intense
public scrutiny. The DOE has since the late 1980's focused its attention
upon the safe production of nuclear weapons and, in particular, the
cleanup of serious pollution problems at active and inactive weapons
plants in more than 30 states. As a result, the DOE has begun a
research and cleanup program that it estimates could cost $200 billion
or more over the next 30 years. General Physics organized its DOE
services group in order to take advantage of the United States
Government's increased focus on environmental, health and safety matters
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at DOE facilities (and the DOE's resulting desire to improve personnel
training and support services to a level consistent with that of the
commercial nuclear power industry). The DOE typically does not itself
perform many of the tasks relating to nuclear weapons production and
waste processing at these facilities; rather, it awards large, multi-
year, cost-plus-award-fee prime contracts to companies such as
Westinghouse, Martin Marietta and EG & G. These prime contractors, in
turn, enter into a large number of contracts with firms such as General
Physics to provide a wide variety of services in support of nuclear
weapons production and waste processing facilities. The Group at the
DOE's Savannah River site, a 300-square mile nuclear weapons production
and waste processing site near Aiken, South Carolina predominantly
provides professional services in such areas as the development and
upgrade of detailed operating and maintenance procedures, training
program design, development and accreditation assistance, maintenance
engineering, technical support and quality assurance and various other
engineering and operations support services. General Physics also has
staff augmentation contracts at many of the DOE's research laboratories
including Los Alamos National Laboratory, Princeton Plasma Physics
Laboratory, Lawrence Livermore National Laboratory, and Brookhaven
National Laboratory for similar services.
ENGINEERING AND APPLIED SCIENCES GROUP
The Engineering and Applied Sciences Group provides engineering
services to the Government, utilities and petrochemical industries.
Multi-discipline capabilities include environmental, mechanical,
structural, chemical, electrical, 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 electric
power generation (including operations, maintenance and performance
engineering).
FEDERAL SYSTEMS GROUP (FSG)
GPS Technologies, Inc. Federal Systems Group, a wholly-owned
subsidiary, provides 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 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, this
Group provides services to several non-DOD agencies of the Federal
Government, including the Internal Revenue Service, the Office of
Personnel Management and the DOE, and to several commercial clients
including Electronic Data Systems Corp. and Trane Air Conditioning.
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CONTRACTS
General Physics is currently performing under approximately 700
contracts. General Physics' contracts with its clients provide for
charges on a time-and-materials basis, a fixed-price basis or a cost-
plus-fixed-fee basis. General Physics' subcontracts with the Government
have predominantly been cost-plus-fixed-fee contracts and time-and-
materials contracts. As with all United States Government contractors,
General Physics is required to comply with the Federal Acquisition
Regulations and the Government Cost Accounting Standards with respect to
all of the services provided to the United States Government and
agencies thereof. These Regulations and Standards govern the
procurement of goods and services by the United States Government and
the nature of costs that can be charged with respect to such goods and
services. General Physics does not believe that complying with these
Regulations and Standards places it in any competitive disadvantage. In
addition, all such contracts are subject to audit by a designated
government audit agency, which in most cases is the Defense Contract
Audit Agency (the DCAA). Although these contracts are subject to audit,
General Physics anticipates no material cost disallowances. The DCAA
has audited the General Physics contracts through 1989 without any
material disallowances. The following table illustrates the percentage
of total pro forma revenue attributable to each type of contract for the
year ended December 31, 1994 assuming 12 months for each of SGLG and
General Physics.
Percentage of Total Revenue
Year Ended December 31,
1994
Time-and Materials 37%
Fixed-Price 39%
Cost-plus-Fixed-Fee 24%
100%
CUSTOMERS
General Physics provides services to more than 410 customers,
including several of the largest companies in the United States.
Significant customers include commercial nuclear utilities, 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 48% of the pro forma
revenue of the Company for 1994 assuming 12 months for each of SGLG and
General Physics. However, such revenue was derived from many separate
contracts and subcontracts with a variety of Government agencies and
contractors that are regarded by General Physics as separate customers.
In 1994 no other customer accounted for more than 10% of General Physics
revenue.
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COMPETITION
The principal competitive factors in General Physics markets are
the experience and capability of technical personnel, performance,
reputation and price. A significant factor determining the business
available to General Physics and its competitors is the ability of
customers to use their own personnel to perform services provided by
General Physics and its competitors. Another factor affecting the
competitive environment is the small, specialty companies located at or
near particular customer facilities which are dedicated solely to
servicing the technical needs of those particular facilities. In the DOE
services industry, competition comes from a number of companies,
including defense contractors, architect-engineering firms, smaller
independent service companies such as the Company and small and
disadvantaged businesses under Section 8(a) of the Small Business
Administration Act. Competition in the industries served by the Federal
Systems Group is strong and comes from large defense contractors and
other service corporations, many of which have significantly greater
resources than General Physics as well as competition from small and
disadvantaged businesses, which receive certain preferential treatment
in the awarding of government contracts.
PERSONNEL
As of March 1, 1995, General Physics employed 1312 persons. Many
of General Physics' employees perform multiple functions depending upon
changes in the mix of demand for the services provided by General
Physics. None of General Physics' employees is represented by a labor
union. General Physics generally has not entered into employment
agreements with its employees, but has employment agreements with
certain officers. General Physics believes its relations with its
employees are good.
BACKLOG
As of December 31, 1994, General Physics' backlog for services
under signed contracts and subcontracts was approximately $64,844,000
consisting of approximately $22,278,000 respectively, for the Training
and Technology Group, approximately $6,613,000, for the DOE Group,
approximately $25,392,000, for the Engineering and Applied Sciences
Group and approximately $10,561,000, for the Federal Systems Group.
General Physics anticipates that most of its backlog as of December 31,
1994 will be recognized as revenue during 1995; however, the rate at
which services are performed under certain contracts, and thus the rate
at which backlog will be recognized, is at the discretion of the client,
and most contracts are, as mentioned above, subject to termination by
the client upon written notice.
ENVIRONMENTAL STATUTES AND REGULATIONS
General Physics provides environmental engineering services to its
clients, including the development and management of site environmental
remediation plans. Due to the increasingly strict requirements imposed
by Federal, state and local environmental laws and regulations
(including without limitation, the Clean Water Act, the Clean Air Act,
Superfund, the Resource Conservation and Recovery Act and the
Occupational Safety and Health Act), General Physics' opportunities to
provide such services may increase.
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General Physics activities in connection with providing
environmental engineering services may also subject General Physics
itself to such Federal, state and local environmental laws and
regulations. Although General Physics subcontracts most remediation
construction activities and all removal and off-site disposal and
treatment of hazardous substances, General Physics could still be held
liable for clean-up or violations of such laws as an "operator" or
otherwise under such Federal, state and local environmental laws and
regulations with respect to a site where it has provided environmental
engineering and support services. General Physics believes, however,
that it is in compliance in all material respects with such environmental
laws and regulations.
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 two
strategically located warehouses and office locations, with
approximately 380,000 square feet of space in New Jersey 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 13% of Five Star's
sales in 1994 and its 10 largest customers accounted for approximately
27% of such sales. No other customer accounted for in excess of 10% of
Five Star's sales in 1994. 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
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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.
OPTICAL PLASTICS GROUP
MXL INDUSTRIES, INC.
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.
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
38% of MXL's total sales and another client which accounts for
approximately 14% 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.
HYDRO MED SCIENCES
Hydro Med Sciences ("HMS") is a division of the Company involved in
the manufacture of medical devices, drugs and cosmetic polymer products.
HMS was established to investigate potential uses of a unique group of
polymers called HydronR in applications other than the soft contact
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lens area. These polymers, which absorb water without dissolving, are
excellent candidates for biomedical applications.
HMS has been involved in the development of human and veterinary
drugs, as well as medical and dental devices since the early 1970's. HMS
developed the Syncro-Mate BR implant which is presently manufactured by
HMS and sold in the United States by Sanofi Animal Health, Inc., and is
used for the synchronized breeding of bovine heifers. This product was
the first veterinary drug implant to be approved by the FDA.
HMS also commercially manufactures a solvent soluble, water
insoluble HydronR polymer for use in a series of cosmetic products,
such as hand and body lotions, facial, whole body and fragile eye
moisturizers and sunscreens.
HMS also has been collaborating with The Population Council on the
development of an implant for humans capable of delivering luteinizing
hormone releasing hormone (LHRH) at controlled therapeutic levels for
one to two years. This implant is currently in Phase I clinical trials
for the treatment of prostatic cancer. The purpose of this study is to
determine appropriate dose and elicit any unexpected adverse reactions.
THE COMPANY'S INVESTMENTS
GTS DURATEK, INC.
GENERAL
GTS DURATEK INC. ("Duratek") was incorporated in the State of
Delaware in December 1982. At December 31, 1994, Duratek was an
approximately 61% controlled subsidiary of the Company. However, as of
March 1 1995, the Company owned approximately 40% of the outstanding
shares of common stock of Duratek.
Duratek's operations consist of two operating groups: (i)
"Technology Group" engaged in converting radioactive, hazardous and
mixed (both radioactive and hazardous waste to glass, using in-furnace
vitrification processes, and removing radioactive and/or hazardous
contaminants from waste water and other liquids using filtration and ion
exchange processes and (2) "Services Group" (formerly Consulting and
Staff Augmentation)engaged in consulting, engineering, training, and
staff augmentation services. Duratek provides services and technologies
for various utility, industrial, governmental, and commercial clients.
On January 24, 1995, the Company sold 1,666,667 shares of its
Duratek common stock at a price of $3.00 per share to The Carlyle Group
("Carlyle") in connection with a $16 million financing by Duratek with
Carlyle, a Washington, D.C. based private merchant bank. In addition,
the Company granted Carlyle an option to purchase up to an additional
500,000 shares of the Company's Duratek common stock over the next year
at $3.75 per share (the "Carlyle Transaction").
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Duratek received $16 million from Carlyle in exchange for 160,000
shares of newly issued 8% cumulative convertible preferred stock
(convertible into 5,333,333 shares of Duratek common stock at $3.00 per
share). Duratek granted Carlyle an option to purchase up to 1,250,000
shares of newly issued Duratek common stock from Duratek over the next
four years.
As of March 1, 1995, the Company owned 3,534,972 shares of Duratek
common stock (approximately 40% of the currently outstanding shares of
common stock). Assuming, (i) Carlyle converted all of its cumulative
convertible preferred stock into Duratek common stock and exercised its
option to purchase additional shares of Duratek common stock from each
of Duratek and National Patent and (ii) National Patent employees
exercised their options to purchase an aggregate of 497,750 shares of
Duratek common stock, the Company would own 2,537,222 shares of Duratek
common stock (approximately 16.5% of the then outstanding shares of
common stock).
TECHNOLOGY GROUP
During 1991 and 1992, Duratek and The Catholic University of
America's Vitreous State Laboratory (VSL) jointly conducted bench-scale
vitrification research with the U.S. Department of Energy ("DOE") waste
simulants and actual DOE radioactive and mixed waste samples. This led
to the l992 award of a $3.4 million DOE-funded contract to conduct a
minimum additive waste stabilization (MAWS) demonstration, which enabled
the Company to significantly advance the development of its
vitrification technology. The MAWS project integrated soil washing,
water purification, and in-furnace vitrification to reduce waste volume
and then convert the reduced waste to a durable, leach-resistant form
(glass) for long-term storage or burial.
During the first half of l993, Duratek designed, built and operated
a l00 kilogram-per-day pilot-scale melter at the VSL to gather test data
while building a similar 300 kilogram-per-day unit at the DOE's Fernald
Environmental Management Project (FEMP) for the MAWS demonstration.
These melters were designated DuraMelter 100 and 300, respectively.
Duratek engineers and operators started up the DuraMelter 300 at
the FEMP in September 1993 and began conducting continuous melt
campaigns with nonradioactive waste stimulants. In August 1994,
following approximately one year of nonradioactive test melts, the
Company operators processed about 7,000 gallons of FEMP wastes
consisting of soil wash concentrates , contaminated with uranium,
thorium and other heavy metals, blended with magnesium-fluoride sludge
from Pit #5. Duratek thus became the first company to successfully
complete a continuous vitrification run with low-level radioactive waste
at a DOE site.
The MAWS success led to a $1.2 million DOE-funded contract for
Duratek and the VSL to characterize and catalog the physical and
chemical properties of nationwide DOE waste streams. The data gathered
will be the basis for a compositional envelope: a sophisticated
computerized model which will be used to determine which waste streams
can be blended in a vitrification process to achieve the MAWS goals of
substantial waste volume reduction and long-term waste form stability.
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Near the end of l993, Duratek won a $13.9 million, three-year
contract in competition with companies providing traditional waste
stabilization methods- to stabilize 700,000 gallons of uranium-
contaminated sludge at the DOE's Savannah River Site. Duratek is
designing and building its first commercial-scale melter, a DuraMelter
5,000 for the project.
In 1994, Duratek won a DOE-funded contract worth approximately $2
million to design, build and test a high-temperature melter and "gem"
matching ( a device which converts the molten glass discharge stream
into droplets) for Fernald Environmental Restoration Management
Company's (FERMCO) CRU4 project.
SERVICES GROUP
The Services Group provides technical personnel to support nuclear
power plant outages and operation and DOE environmental restoration
projects. The group has retained its major customers: Duke Power
Company, Vermont Yankee Nuclear Power "Corporation, New York Power
Authority, Tennessee Valley Authority, GPU Nuclear Corporation, PECO
Energy Company (formerly Philadelphia Electric Company), and FERMCO.
Through efforts to expand its higher margin professional services
business, the Services Group has increased its consulting and training
sales.
The Services Group has also aligned its services to support and
complement the Technology Group's environmental restoration business.
These include environmental safety and health consulting and training,
hazardous materials training, quality assurance/quality control and
radiological controls. Waste melter operator trainees are often
recruited from the Services Group Field Work Force.
INTERFERON SCIENCES, INC.
Interferon Sciences, Inc. ("ISI"), which was incorporated in
Delaware in May 1980, commenced operations in January 1981, by
obtaining from the Company, assets relating to its programs in human
alpha (leukocyte) interferon, recombinant DNA, and hybridoma technology.
ISI is a biopharmaceutical company engaged in the manufacture and
sale of ALFERON N Injection, the only product approved by the United
States Food and Drug Administration ("FDA") that is based upon a natural
source, multi-species alpha interferon ("Natural Alpha Interferon").
ALFERON N Injection is approved for the treatment of certain types of
genital warts. ISI also is developing its existing injectable, topical,
and/or oral formulations of Natural Alpha Interferon for the potential
treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis, cancers,
and other indications. Interferons occur naturally in the body, in
essence nature's own medicine. Interferons are a group of proteins
produced and secreted by cells to combat diseases.
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Currently, various alpha interferon products, approved for 17
different medical uses in over 60 countries, are, as a group, one of the
largest selling of all biopharmaceuticals with estimated 1994 sales
approaching $2 billion. The majority of these sales consisted of sales
of alpha interferon produced from genetically engineered cells
(recombinant alpha interferon).
ALFERON N Injection is approved for sale in the United States for
the intralesional treatment of adults with refractory (resistant to
other treatment) or recurring external genital warts. ALFERON N
Injection is marketed and distributed in the United States exclusively
by Purdue Pharma L.P. through its affiliate, The Purdue Frederick
Company (collectively, "Purdue"). Submissions for regulatory approval to
sell ALFERON N Injection for the treatment of genital warts have been
filed in Austria, Canada, Hong Kong, Israel, Mexico, Singapore and the
United Kingdom. Regulatory approval to sell ALFERON N Injection was
recently obtained in Mexico.
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. ALFERON LDO
is a low dose oral liquid alpha interferon formulation which ISI
believes has potential for treating certain symptoms of patients
infected with the HIV virus and treating other viral diseases.
CLINICAL TRIALS SUMMARY
In an effort to obtain approval to market Natural Alpha Interferon
for additional indications in the United States and around the world,
ISI is focusing its research program on conducting and planning various
clinical trials for new indications.
The table appearing below summarizes the data concerning clinical
trials of ALFERON N Injection, ALFERON N Gel, and ALFERON LDO being
conducted or proposed to be conducted.
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PRODUCT POTENTIAL APPLICATION/ STATUS OF CLINICALTRIAL(1) SPONSOR
INDICATIONS
ALFERON N HIV infected patients:
Injection
Asymptomatic Initial Phase 1 completed Walter
Reed(2)
Asymptomatic/Symptomatic Phase 2/3 in final ISI
stages of planning
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with
recombinant alpha
interferon
Hepatitis C Three multi-center Phase 2 ISI(3)
in progress
Kaposi's sarcoma Phase 2 in progress ISI
(in AID's patients)
Small cell lung cancer Phase 2 to commence Investi-
shortly gator(5)
Multiple Sclerosis Phase 2 being planned ISI
Hepatitis B Phase 2 proposed (4)
ALFERON N Cervical dysplasia Phase 2 completed ISI
Gel
Cervical dysplasia Phase 2 to commence Investi-
(in HIV-infected shortly igator(5)
patients)
Mucocutaneous herpes in Phase 2 proposed (4)
immunocompromised
patients
Recurrent genital herpes Phase 2 proposed (4)
ALFERON HIV-infected patients Initial Phase 2 completed ISI
LDO
HIV-infected patients Phase 2 in final stages of NIAID
planning
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(1) Generally, clinical trials for pharmaceutical products are conducted
in three phases. In Phase 1, studies are conducted to determine safety
and tolerance. In Phase 2, studies are conducted to gain preliminary
evidence as to the efficacy of the product as well as additional
safety data. In Phase 3, studies are conducted to provide sufficient
data to establish safety and statistical proof of efficacy in a
specific dose. Phase 3 is the final stage of such clinical studies
prior to the submission of an application for approval of a new
drug or licensure of a biological product or for new uses of a
previously-approved product.
(2) Partially funded by Purdue.
(3) Previously funded by Purdue; currently funded by ISI.
(4) The sponsor and the timing of this trial will be dependent upon
future funding.
(5) Investigator-sponsored IND.
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In March 1995, ISI entered into an amendment of the 1994 Purdue
Amendments (the "1995 Purdue Amendment") pursuant to which ISI obtained
an option, exercisable until June 30, 1995, (the "Option") to reacquire
the marketing and distribution rights from Purdue and Mundipharma. The
1995 Amendment provides for (i) the payment of $3 million in cash upon
exercise of the option and (ii) the issuance of 2.5 million shares of
Common Stock. Eighteen months from the date of exercise of the Option by
ISI (the "Valuation Date"), the 2.5 million shares of Common Stock must
have a value of at least $9 million, which value will be calculated
using the average of the closing bid and asked prices of the Common
Stock as quoted by NASDAQ National Market System for the ten trading
days ending two days prior to the Valuation Date. In the event of a
shortfall, ISI has agreed to issue a note, for such shortfall, if any,
which will bear interest at the prime rate, and will become due and
payable 24 months from the Valuation Date. ISI agrees that the 2.5
million shares of Common Stock will be registered and freely tradeable
18 months from the date of exercise of the ISI option. The 1995 Purdue
Amendment, if exercised, would replace in its entirety the royalty
obligations and the Repurchase Option contained in the 1994 Amendments
with Purdue and Mundipharma.
OTHER MARKETING AND DISTRIBUTION ARRANGEMENTS
In February 1994, ISI entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Andromaco, a privately-
held pharmaceutical company headquartered in Mexico City which
specializes in oncology and immunology products. Under the agreement,
Andromaco applied for and recently obtained approval from the Mexican
regulatory authorities to sell ALFERON N Injection in Mexico. As part of
the agreement, Andromaco also agreed to sponsor clinical research with
ALFERON N Injection in Mexico. The agreement also establishes
performance milestones for the maintenance of exclusive distribution
rights by Andromaco in Mexico. In addition, ISI has a buy-out option to
reacquire the marketing and distribution rights in Mexico under certain
terms and conditions.
On February 7, 1995 ISI concluded an agreement with Fujimoto
Diagnostics, Inc. ("Fujimoto") of Osaka, Japan, for the
commercialization of ALFERON N Injection in Japan (the "Fujimoto
Agreement"). Fujimoto is affiliated with Fujimoto Pharmaceutical
Company, a 60-year old company with facilities in Central Japan. The
Fujimoto Agreement grants Fujimoto exclusive rights to develop,
distribute and sell ALFERON N Injection and ALFERON N Gel in Japan.
Pursuant to the terms of the Fujimoto Agreement, Fujimoto agreed to fund
and conduct all preclinical and clinical studies required for regulatory
approval in Japan. For the injectable product, ALFERON N Injection,
Fujimoto will initially focus on its use for the treatment of patients
infected with the hepatitis C virus. ISI will supply Fujimoto with
ALFERON N Injection and will also manufacture and supply Fujimoto with
ALFERON N Gel. The first indication to be developed for ALFERON N Gel
has not yet been finalized. Fujimoto will also purchase certain
quantities of ALFERON N Injection and ALFERON N Gel at agreed-upon
prices during the preclinical and clinical phases. In connection with
the Fujimoto Agreement, Fujimoto purchased $1,500,000 of Common Stock
and agreed to purchase an additional $500,000 of Common Stock on
February 6, 1996, based on the then current market price.
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Although ISI has exclusive marketing and distribution agreements
with Purdue, Mundipharma, Andromaco and Fujimoto and has the right to
sell ALFERON N Injection in the Returned Territories, no sales of
ALFERON N Injection can be made in Canada, or the Returned Territories
until such product is approved for sale in these countries. Submissions
for regulatory approval to sell ALFERON N Injection for treatment of
genital warts have been filed in Canada, Austria, Hong Kong, Israel, and
the United Kingdom and has been obtained in Mexico. There can be no
assurance, however, that any such approval will be granted.
AMERICAN DRUG COMPANY
American Drug Company ("ADC") was organized in 1993, as a wholly-
owned subsidiary of the Company to initiate marketing activities for
American generic pharmaceutical and medical products in Russia and the
Commonwealth of Independent States (the "CIS"). The Company's
predecessor, NPD Trading (USA), Inc. ("NPD Trading"), was formed in
January 1990 as a wholly-owned subsidiary of the Company to provide
consulting services to Western businesses in Russia and Eastern Europe.
In August 1994, the Company entered into a Transfer and
Distribution Agreement (the "Distribution Agreement") with ADC whereby
the Company transferred to ADC, (the "Distribution") immediately prior
to the closing of the Distribution, all of its interest in NPD Trading
and in two newly-formed, 50% owned joint ventures, in exchange for (i)
the issuance by ADC of 6,990,990 shares of Common Stock to the Company
(ii) the issuance of approximately 6,017,775 shares of Common Stock to
the Company's stockholders and (iii) the issuance of 6,017,775 warrants
to be distributed to the Company's stockholders. Each warrant is
exercisable for a period of two years commencing on August 5, 1994, at
an exercise price per share of $1.00, subject to ADC's right to cancel
unexercised warrants under certain circumstances. Upon the consummation
of this reorganization, NPD Trading became a wholly-owned subsidiary of
ADC.
The Distribution was at the rate of one share plus one warrant
to purchase one share of common stock at an exercise price of $1.00,
expiring August 5, 1996, for every four outstanding shares of Common
Stock of the Company. Upon completion of the Distribution, ADC became a
separate public company.
ADC's diverse activities to date have focused on developing, and
assisting Western businesses to develop, trade, manufacturing and
investment opportunities in Russia, the Czech and Slovak Republics and,
to a lesser extent, other countries of the CIS and Eastern Europe. ADC
intends to make sales of American-made generic pharmaceutical and health
care products for sale under its own label in Russia and the CIS.
In 1993, ADC initiated activities aimed at the export of American-
made generic pharmaceutical (prescription drugs and over-the-counter
personal care products) and other medical products and equipment to
Russia and the CIS. Among the products anticipated to be sold by ADC
are antibiotic ointments, pain relief medication, vitamins, bandages,
prescription injectable anti-cancer drugs, antibiotics and other
prescription drugs. ADC has launched marketing operations with major
Russian hospitals, individual Russian pharmacies, and other hospitals
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<PAGE21 OF 94
and clinics throughout the CIS, as well as with distributors in the
region. ADC has initiated these operations in order to enable consumers
to benefit from the superior quality and low cost of American-made
generic drug and medical products in markets in which ADC believes
demand for such products to be high and availability limited. ADC
intends to register, market and sell a wide variety of products under
its own label and to develop a distribution of its products throughout
the CIS. In October 1994, ADC's "Shiny" brand baking soda toothpaste
with fluoride and its "Aurora" feminine maxi pads and mini shields
received medical certification by health authorities in Russia.
ADC believes that contracting for the supply of its products
enables it to avoid significant capital expenditures and the time and
expense associated with the U.S. Food and Drug Administration (the
"FDA") approval process. ADC has entered into some supply agreements
with chemical and pharmaceutical manufacturers to date and is currently
in negotiations with several others. The terms of each of these
agreements may vary, but generally provide for the supply to ADC of
approximately five or six generic pharmaceutical products, in a variety
of potency levels, for marketing and resale under the ADC label in
Russia and other states which formerly comprised the Soviet Union. The
agreements generally carry a ten-year term with options to renew for
successive one-year periods. They prohibit price increases on products
supplied to ADC during the first year of the agreement unless a
substantial increase in the price of raw materials occurs. The
agreements also provide that ADC will pay all foreign registration fees
and labeling costs and that the supplier will undertake the labeling and
packaging of all products sold to ADC in accordance with federal
regulations. In addition, the supplier represents that products will be
manufactured in accordance with the good manufacturing practices
established by the FDA and that it will name ADC as an additional
insured on product liability policies providing sufficient coverage.
In its four years of operation, ADC has provided through its
subsidiary, NPD Trading, a broad range of business services to a
significant number of American and Western corporations. ADC's employees
have backgrounds in diverse disciplines, such as medicine, law,
engineering, physics and international economics, which appropriately
meet the industrial makeup of ADC's clients. ADC is able to provide the
contacts necessary for interested clients to locate a venture partner
and to establish viable financing. Recognizing that successful
conclusion of project negotiations in this region often depends upon
financing, ADC works closely with the U.S. Exim-Bank, OPIC, the World
Bank and its affiliates, including the European Bank for Reconstruction
and Development, as well as private commercial banks. Additionally, ADC
advises its clients with respect to new commercial, tax, currency and
other laws of Eastern Europe, as well as U.S. foreign government
regulations and policies which directly affect business operations.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 1994, NPDC incurred $431,000 as
research and development costs.
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<PAGE>22 OF 94
EMPLOYEES
At December 31, 1994, the Company and its subsidiaries employed
2,368 persons, including 16 in the Company's headquarters, 1,840 in the
Physical Science Group, 340 in the Distribution Group, 74 in the Optical
Plastics Group and 51 at Eastern Electronics, which is a discontinued
operation. Of these, 4 persons were engaged in research and development.
The Company considers its employee relations to be satisfactory.
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 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.
ITEM 2. PROPERTIES
The following information describes the material physical
properties owned or leased by the Company and its subsidiaries.
The Company leases approximately 10,000 square feet of space for
its New York City principal executive offices. The Company's Physical
Science Group leases (i) approximately 78,000 square feet of an office
building in Columbia, Maryland and (ii) approximately 275,000 square
feet of office space at various other locations throughout the United
States and (iii) 37 branch offices of General Physics occupy
approximately 197,000 square feet of this space.
The Distribution Group leases 219,000 square feet in New Jersey and
112,000 square feet in Connecticut. The Optical Plastics Group owns
33,000 square feet of office space in Lancaster, PA and 12,594 square
feet of office space in Westmont, IL.
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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings the outcome
of which is believed by management to have a reasonable likelihood of
having any material effect upon the Company's business, results of
operations, or financial condition.
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.
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<PAGE>23 OF 94
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.
Quarter High Low
1994 First 4 7/8 3 7/8
Second 3 15/16 2 11/16
Third 3 3/8 2 5/8
Fourth 2 13/16 1 1/2
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
The number of shareholders of record of the Common Stock as
of March 21, 1995 was 5,275. On March 21, 1995, the closing price of
the Common Stock on the American Stock Exchange was
1 13/16. 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.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
Operating Data (in thousands, except per share data)
Years ended December 31, 1994 1993 1992 1991 1990
Revenues $202,966 $189,225 $196,506 $254,452 $286,639
Sales 204,774 185,846 189,797 251,782 286,219
Gross margin 32,559 26,974 29,211 35,792 42,087
Research and
development costs 431 2,847 4,645 4,651 7,892
Interest expense 6,458 8,199 10,866 15,438 20,261
Income (loss)
before discontinued
operations and
extraordinary items (11,397) (6,849) (11,578) 1,456 (33,304)
Net income (loss) (13,971) (5,977) (11,943) 2,645 (32,738)
Earnings (loss) per share
Income (loss) before
discontinued operations
and extraordinary items $ (.52) $ (.40) $ (.73) $ .10 $ (2.91)
Net income (loss) (.64) (.35) (.76) .17 (2.86)
Cash dividends declared per share
Balance Sheet Data
December 31, 1994 1993 1992 1991 1990
Cash, cash equivalents,
restricted cash and
marketable securities $ 10,075 $ 10,976 $ 23,674 $ 35,968 $ 16,722
Short-term borrowings 31,060 21,390 28,977 26,317 62,144
Working capital 25,823 33,224 44,877 55,560 25,316
Total assets 175,546 166,057 192,649 214,041 269,564
Long-term debt 31,213 40,858 61,441 70,787 91,888
Stockholders' equity 65,165 67,438 63,823 72,405 55,416
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Overview
During 1994 the Company continued its overall plan of debt
reduction, as well as the strengthening of its operating
companies. As a result of an Exchange Offer as well as several
other repurchases from various bondholders throughout the year,
(See Note 10 to Notes to Consolidated Financial Statements) the
Company was able to significantly reduce its Swiss Debt by
approximately $6,716,000. In addition, in the first quarter of
1995, the Company repurchased an additional SFr. 8,386,000 of
Swiss Debt. At March 24, 1995 the Company had approximately
$3,700,000 of Swiss Debt due in 1995 and approximately $3,300,000
of Swiss Debt due in 1996. The continuing reduction of the
Company's long-term debt has resulted in reduced interest expense
at the Corporate level. In September 1994, the Company
strengthened one of its core operating companies when General
Physics Corporation (GP) acquired substantially all the assets of
SGLG, Inc. (formerly GPS Technologies, Inc) (See Note 2 to
Consolidated Financial Statements).
In 1994, the loss before income taxes, discontinued operation and
extraordinary item was $10,648,000, as compared to a loss of
$7,424,000 in 1993. The increase in the loss is due to several
factors. Investment and other income (expense), net, decreased
from $3,379,000 in 1993 to a loss of $1,808,000 in 1994. The
$5,187,000 reduction is due to a foreign currency transaction
loss of $2,124,000 realized in 1994 as compared to a net foreign
currency transaction gain of $901,000 realized in 1993, related
to the Company's decision not to hedge its Swiss denominated
debt, as well as increased losses incurred on investments in 20%
to 50% owned subsidiaries due to increased losses attributable to
the Company's 36% investment in Interferon Sciences, Inc. (ISI).
The loss recognized in 1994 relating to ISI was $4,409,000,
compared to $1,599,000 in 1993. In 1993, an additional
$2,074,000 of ISI's loss was included in the Company's
consolidated results of operations through September 1993, when
the Company's investment in ISI fell below 50%. The increased
loss incurred on investments in 20% to 50% subsidiaries was
partially offset by gains realized on the sale of certain
investments. In addition, in 1993 the Company realized a
$3,975,000 gain from the transfer in an Exchange Offer of a
portion of the Company's holdings of shares of ISI and GTS
Duratek, Inc.'s (Duratek) common stock and an additional
$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 wastes. The above losses were partially offset
by increased operating profits at the Optical Plastics and
Physical Science Groups due to increased sales and gross margin
percentage and dollars within both groups. The Optical Plastics
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Group, which is MXL Industries, Inc. (MXL), the Company's
injection molding and coating subsidiary, experienced increased
operating profits due to both increased sales and gross margin
percentage. The Physical Science Group was comprised of GP and
Duratek. GP provides engineering, environmental, training,
analytical and technical support services to the commercial power
industries, the US government and industry in general. Duratek
provides cleanup and vitrification of radioactive or contaminated
waste streams, as well as services to various utilities, the
government and commercial clients. 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 costs incurred to
close its Long Island, New York warehouse and consolidate its
sales volume into Five Star's New Jersey facility.
In 1993, the loss before income taxes, discontinued operation and
extraordinary item was $7,424,000, as compared to a loss of
$11,151,000 in 1992. 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
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. The Health Care Group experienced reduced
operating losses in 1993. The Health Care Group, which was
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 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 had reduced operating profits as a result of
reduced gross margin percentages and increased operating costs.
The Physical Science Group 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
had a marginal decrease in operating profits.
Sales
Consolidated sales from continuing operations decreased by
$3,951,000 in 1993 to $185,846,000 and increased by $18,928,000
in 1994 to $204,774,000. In 1994, the Company achieved increased
sales in the Physical Science, Distribution and Optical Plastics
Groups. In 1993 the reduced sales were the result of reduced
sales in the Physical Science and Health Care Groups, partially
offset by increased sales achieved by the Distribution Group.
The Physical Science Group's sales decreased from $109,303,000 in
1992 to $102,977,000 in 1993 and increased to $118,421,000 in
1994. The increased sales of $15,444,000 in 1994 were the result
of consolidating the sales of GP since September 1, 1994 (See
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Note 2 to the consolidated Financial Statements). In addition,
Duratek also achieved increased sales as a result of work
performed under a three year contract to construct a
vitrification facility for the conversion of mixed waste into
stable glass. 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.
The Distribution Group sales increased from $68,450,000 in 1992
to $74,109,000 in 1993 and to $75,551,000 in 1994. The increase
of $1,442,000 in 1994 was due to the continued growth of the
hardware business. 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 Health Care Group sales decreased from $4,042,000 in 1992 to
zero in 1993 and 1994. The reduction in sales in 1993 was due to
ISI not having any sales of its product, ALFERONR N Injection, in
1993. 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. In 1994, the results of ISI
were recorded on the equity basis, and therefore, its sales were
not included with those of the Company.
The Optical Plastics Group sales decreased from $7,862,000 in
1992 to $7,817,000 in 1993 and increased to $9,290,000 in 1994.
The increased sales in 1994 was the result of increased orders
from MXL's largest customer, due to increased worldwide demand
for its product.
Gross margin
Consolidated gross margin was $29,211,000 or 15% of net sales in
1992, $26,974,000 or 14% in 1993 and $32,559,000 or 16% in 1994.
The increased gross margin of $5,585,000 in 1994 occurred
primarily within the Optical Plastics and Physical Science
Groups. In 1993, the decrease in gross margin of $2,237,000
occurred within the Health Care, Distribution and Physical
Science Groups.
The Physical Science Group gross margin decreased from
$13,728,000 or 13% of net sales in 1992 to $12,941,000, or 13%
in 1993 and increased to $16,670,000 or 14% in 1994. In 1994,
the increased gross margin was attributable to both GP and
Duratek. GP realized increased gross margin due to higher
revenues, reduced overhead and higher direct labor utilization.
Duratek realized increased gross margin in 1994 as a result of
increased sales as well as higher margins achieved on both
technology and services contracts. In 1993, the reduced gross
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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 SGLG, which
generated increased gross margins as a result of an improved mix
of services during 1993.
The Distribution Group gross margin decreased from $12,355,000 or
18% of sales in 1992 to $11,718,000 or 16% in 1993 and increased
to $11,785,000 or 16% in 1994. In 1994, the increased gross
margin was due to increased sales. The gross margin in 1994 was
affected by increased warehousing costs incurred as a result of
the decision to close Five Star's New York facility and to
consolidate its operations into the New Jersey facility. The
increased warehousing costs were partially offset by increased
margins achieved due to changes in merchandising practices. In
1995, the Group has started taking steps to reduce its
warehousing costs through the implementation of advanced
warehouse management systems. 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.
The Health Care Group gross margin decreased from $358,000 or 9%
of net sales in 1992 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. As a result of the Exchange
Offer in 1993, through which the Company's interest in ISI fell
below 50%, ISI is currently being accounted for on the equity
basis.
The Optical Plastics Group gross margin decreased from $2,740,000
or 35% of net sales in 1992 to $2,642,000 or 34% of net sales in
1993 and increased to $3,635,000 or 39% of net sales in 1994.
The small decrease in gross margin in 1993 was the result of
marginally reduced sales and gross margin percentage. In 1994,
the increased gross margin was the result of increased sales as
well as an improved mix of products.
Investment and other income (expense), net
Investment and other income (expense) was $6,709,000 in 1992,
$3,379,000 in 1993 and $(1,808,000) in 1994, respectively. In
1994, the $5,187,000 reduction in Investment and other income
(expense), net was due to two factors. The Company realized a
foreign currency transaction loss of $2,124,000 in 1994, as
compared to a net foreign currency transaction gain of $901,000
realized in 1993, related to the Company's decision not to hedge
its Swiss denominated debt. In addition, the Company recognized
increased losses on their investments in 20% to 50% owned
subsidiaries as a result of the Company's share of ISI's loss,
which was $4,409,000, being included in Investment and other
income (expense), net for the year ended December 31, 1994. In
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1993, the results of ISI were consolidated with the Company for
the first nine months of the year, until the Company's ownership
fell below 50%. The results of operations for ISI have been
accounted for on the equity method since the fourth quarter of
1993, and the Company recognized a $1,599,000 loss in 1993
related to its equity investment in ISI. The above losses were
partially offset by increased gains realized on the sale of
certain investments in 1994. In 1993, the decrease in Investment
and other income (expense), 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. The reserves were taken
in 1992 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. In 1992, the estimated residual value of a 19%
interest in, and advances to, a vendor and distributor of pay
telephones totaling $175,000, 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 prior years, the blood center company
received substantial funding for its centers and the financial
institution provided working capital and equity financing. In
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, 1994, there was an aggregate of SFr. 15,963,000
of Swiss denominated indebtedness outstanding, of which SFr.
14,084,000 represents principal amount outstanding and SFr.
1,879,000 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 obliga-
tions denominated in Swiss Francs. At December 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 the portion of its Swiss Franc
obligations which are not hedged. On December 31, 1994, the
value of the Swiss Franc to the U.S. Dollar was 1.308 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. As of March 24,
1995 the Company had reduced the aggregate principal amount
outstanding to SFr. 5,749,000.<PAGE>
<PAGE>30 OF 94
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) decreased
from $34,352,000 in 1992 to $34,255,000 in 1993 and increased to
$34,301,000 in 1994. In 1994, the marginal increase was
primarily the result of increased general and administrative
expenses incurred by the Distribution Group, primarily as a
result of costs associated with the closing of Five Star's New
York warehouse and the consolidation of the New York sales and
operations into the New Jersey facility, as well as increased
depreciation and amortization expense. Five Star has taken steps
in 1995 to reduce their overall level of general & administrative
costs. American Drug Company (ADC) also incurred increased SG&A
as a result of increased consulting expenses and costs related to
the opening and staffing of the Moscow office. ADC is the
Company's 54% owned subsidiary which exports American made
generic and prescription drugs and over-the-counter healthcare
products in both Russia and the Commonwealth of Independent
States. The increased general & administrative costs at Five
Star and ADC were partially mitigated by ISI being accounted for
on the equity basis since the third quarter of 1993 and reduced
costs incurred at the corporate level. 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%. The reduced SG&A within the Health Care
Group in 1993 was 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.
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 were
primarily attributable to ISI, were $4,645,000, $2,847,000 and
$431,000 for 1992, 1993 and 1994, 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 the Company
began accounting for ISI on the equity method from that time.
Interest expense
Interest expense aggregated $10,866,000 in 1992, $8,199,000 in
1993 and $6,458,000 in 1994. The reduced interest expense in
1993 and the further reduction in 1994, was the result of the
Company's continuing successful effort to reduce its interest
expense at the corporate level due to reduced interest on the
Company's Swiss Debt obligations due to the Exchange Offers in
1993 and 1994, as well as the Company's practice of repurchasing
Swiss Debt from time to time.
<PAGE>
<PAGE>31 OF 94
Income taxes and accounting developments
Income tax expense (benefit) from operations for 1992, 1993 and
1994 was $427,000, $(575,000) and $749,000, respectively.
In 1994, the Company recorded an income tax expense of $749,000.
The current income tax provision of $283,000 represents the
estimated taxes payable by the Company for the year ended
December 31, 1994. The deferred income tax provision of $466,000
represents the deferred taxes of GP, the Company's 51% owned
subsidiary.
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.
As of December 31, 1994, the Company has approximately
$23,920,000 of consolidated net operating losses available for
Federal income tax purposes.
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". There was no
material effect on the Company's financial condition or results
of operations as a result of the adoption of this principle.
Liquidity and capital resources
At December 31, 1994, the Company had cash and cash equivalents
totaling $10,075,000. GP, SGLG, ADC and Duratek had cash and
cash equivalents of $412,000 at December 31, 1994. 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 purposes of the parent. At
March 24, 1995 the Company had cash, cash equivalents and
marketable securities totaling $10,000,000, of which the
Company's publicly held subsidiaries, GP, SGLG, and ADC had cash,
cash equivalents and marketable securities totaling $66,000. In
addition, MXL had cash, cash equivalents and marketable
securities totaling $1,153,000, which is not available to the
Company due to restrictions within MXL's Line of credit agreement
(See Note 8 to the Consolidated Financial Statements).
<PAGE>
<PAGE>32 OF 94
The Company has sufficient cash, cash equivalents and marketable
securities and borrowing availability under existing and
potential lines of credit to satisfy its cash requirements for
its Swiss Franc denominated indebtedness due in 1995, which
totaled approximately $3,700,000 at March 24, 1995. As of April
3,1995, the Company had not yet paid approximately $3,000,000 of
such indebtedness which was due in March 1995 (See Note 10(a) to
the Consolidated Financial Statements). In order for the Company
to meet its long-term cash needs, which include the repayment of
approximately $3,300,000 of Dual Currency and Swiss Franc
denominated indebtedness 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 1996.
For the year ended December 31, 1994, the Company's working
capital decreased by $7,401,000 to $25,823,000, reflecting the
effect of increased current maturities of long-term debt and
short-term borrowings, partially offset by increased current
assets related to GP. Consolidated cash and cash equivalents
decreased by $901,000 to $10,075,000 at December 31, 1994.
The decrease in cash and cash equivalents of $901,000 in 1994
primarily resulted from the effect of cash used, in operations of
$4,918,000 and investing activities of $4,696,000, partially
offset by cash provided by financing activities of $8,713,000.
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 investments in property, plant
and equipment and intangible assets, partially offset by cash
provided from the sale of certain assets and businesses of a
subsidiary. 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, 1994, 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,
1994, the Company has not contractually committed itself for any
other new major capital expenditures.
<PAGE>
<PAGE>33 OF 94
Item 8. Financial Statements and Supplementary Data
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 36
Financial Statements:
Consolidated Balance Sheets - December 31, 1994
and 1993 37
Consolidated Statements of Operations - Years ended
December 31, 1994, 1993, and 1992 39
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1994, 1993,
and 1992 40
Consolidated Statements of Cash Flows - Years ended
December 31, 1994, 1993, and 1992 42
Notes to Consolidated Financial Statements 45
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 74
<PAGE>
<PAGE>34 OF 94
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, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 19, the Company has adopted SFAS 115,
"Accounting for Certain Investments in Debt and Equity
Securities," as of January 1, 1994.
KPMG Peat Marwick LLP
New York, New York
April 3, 1995
<PAGE>
<PAGE>35 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1994 1993
Assets
Current assets
Cash and cash equivalents $ 10,075 $ 10,976
Accounts and other receivables (of which
$15,152 and $7,694 are from government
contracts) less allowance for doubtful
accounts of $2,092 and $1,689 52,487 36,285
Inventories 20,642 22,605
Costs and estimated earnings in excess of
billings on uncompleted contracts, of which
$6,897 and $2,913 relates to government
contracts 15,237 13,081
Prepaid expenses and other current assets 6,770 4,160
Total current assets 105,211 87,107
Investments and advances 11,600 28,303
Property, plant and equipment, at cost 37,423 33,873
Less accumulated depreciation and
amortization (22,843) (20,035)
14,580 13,838
Intangible assets, net of accumulated
amortization of $26,970 and $24,691
Goodwill 35,986 25,463
Patents, licenses and deferred charges 1,039 4,641
37,025 30,104
Investment in financed assets 684 2,797
Other assets 6,446 3,908
$175,546 $166,057
<PAGE>
<PAGE>36 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
December 31, 1994 1993
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 14,279 $ 6,750
Short-term borrowings 31,060 21,390
Accounts payable and accrued expenses 27,958 20,256
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,091 5,487
Total current liabilities 79,388 53,883
Long-term debt less current maturities 17,513 36,638
Notes payable for financed assets 579
Minority interests 11,970 3,277
Commitments and contingencies
Common stock issued subject to
repurchase obligation 1,510 4,242
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none
issued
Common stock, authorized 40,000,000
and 30,000,000 shares, par value
$.01 per share, issued 24,140,757
and 19,023,357 shares (of which 22,645
shares are held in treasury) 241 190
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 119,856 106,274
Deficit (53,151) (39,028)
Net unrealized loss on
available-for-sale securities (1,783)
Total stockholders' equity 65,165 67,438
$175,546 $166,057
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>37 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31, 1994 1993 1992
Revenues
Sales $204,774 $185,846 $189,797
Investment and other income
(expense), net (including
interest income of $360,
$875 and $1,275) (1,808) 3,379 6,709
202,966 189,225 196,506
Costs and expenses
Cost of goods sold 172,215 158,872 160,586
Selling, general and
administrative 34,301 34,255 34,352
Research and development 431 2,847 4,645
Interest 6,458 8,199 10,866
213,405 204,173 210,449
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 (209) 2,376 2,792
Loss before income taxes,
discontinued operation
and extraordinary item (10,648) (7,424) (11,151)
Income tax expense (benefit) 749 (575) 427
Loss before discontinued operation
and extraordinary item (11,397) (6,849) (11,578)
Discontinued operation
Loss from discontinued operation (2,574) (947) (2,027)
Loss before extraordinary item (13,971) (7,796) (13,605)
Extraordinary item
Early extinguishment of debt,
net of income tax in 1993 1,819 1,662
Net loss $ (13,971) $ (5,977) $(11,943)
Loss per share
Loss before discontinued
operation and extraordinary
item $ (.52) $ (.40) $ (.73)
Discontinued operation (.12) (.06) (.13)
Extraordinary item .11 .10
Net loss per share $ (.64) $ (.35) $ (.76)
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>38 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1994, 1993, and 1992
(in thousands, except shares, par value per share and per share amounts)
Net unreal-
ized gain
Class B Capital in (loss) on Trea- Total
Common capital excess available- sury stock-
stock stock of par for-sales stock holders'
($.01 Par)($.01 Par) value Deficit securities at cost equity
Balance at
December 31,
1991 $ 151 $ 2 $ 94,828 $(21,108) $ (1,468) $72,405
Exercise of
stock options
and warrants 2 280 282
Issuances of
treasury stock
(102,772 common
shares) (1,074) 1,468 394
Net loss (11,943) (11,943)
Conversion of
12% Debentures 1 164 165
Issuance of
stock in
connection
with Swiss Bonds 2 911 913
Effect of exercise
of warrants to
purchase the
stock of a
subsidiary 674 674
Shares issuable in
settlement of debt 186 186
Issuance and sale of
common stock 3 744 747
Balance at
December 31,
1992 159 2 96,713 (33,051) 63,823
Exercise of stock
options and
warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of
12% Debentures 82 82
Issuance of stock
in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale
of common stock 3 375 378
<PAGE>
<PAGE>39 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1994, 1993, and 1992
(in thousands, except shares, par value per share and per share amounts)
Net unreal-
ized gain
Class B Capital in (loss) on Trea- Total
Common capital excess available- sury stock-
stock stock of par for-sales stock holders'
($.01 Par)($.01 Par) value Deficit securities at cost equity
Balance at
December 31,
1993 190 2 106,274 (39,028) 67,438
Implementation of
SFAS 115 1,157 1,157
Exercise of stock
options and
warrants 1 98 99
Issuance of stock in
connection with
Swiss Bonds 42 9,953 9,995
Transfer from common
stock issued subject
to repurchase
obligation 5 2,727 2,732
Conversion of
12% Debentures 35 35
Distribution of shares in
a subsidiary (152) (152)
Issuance and sale of
common stock 3 769 772
Net unrealized loss on
available-for-sales
securities (2,940) (2,940)
Net loss (13,971) (13,971)
Balance at
December 31,
1994 $ 241 $ 2 $119,856 $(53,151) $(1,783) $65,165
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>40 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31, 1994 1993 1992
Cash flows from operations:
Net loss $ (13,971) $ (5,977) $(11,943)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Provision for discontinued
operation 1,570
Depreciation and amortization 6,063 5,296 6,107
Income tax benefit allocated to
continuing operations (1,043)
Gain from early extinguishment
of debt, net of income
tax in 1993 (1,819) (1,662)
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 (3,887) 4,817 1,641
Inventories 1,163 (381) (2,223)
Costs and estimated earnings in
excess of billings on
uncompleted contracts 1,349 (2,379) (2,012)
Prepaid expenses and other
current assets (817) (44) 279
Accounts payable and accrued
expenses 4,626 2,680 (341)
Billings in excess of costs and
estimated earnings on
uncompleted contracts (1,014) 1,491 (1,861)
Income taxes payable (25)
Net cash used in operations $ (4,918) $ (2,507) $(12,040)
<PAGE>
<PAGE>41 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Years ended December 31, 1994 1993 1992
Cash flows from investing activities:
Sales of certain net assets and
businesses of a subsidiary $ 4,470 $ $
Proceeds from sale of an investment 4,500
Marketable securities 651 2,419
Additions to property, plant and
equipment (4,006) (2,077) (3,399)
Additions to intangible assets (5,824) (303) (1,339)
Reduction of (additions to)
investments and other assets 664 (864) 3,096
Net cash provided by (used in)
investing activities (4,696) (2,593) 5,277
Cash flows from financing activities:
Repayments of short-term
borrowings (5,650) (28,011) (6,150)
Proceeds from short-term borrowings 15,320 20,424 8,810
Decrease in restricted cash 1,200 3,800
Proceeds from issuance of
long-term debt 3,638 10,973 203
Reduction of long-term debt (4,882) (8,515) (6,244)
Repayments of notes payable for
financed assets (28)
Proceeds from issuance of
common stock 188 198
Proceeds from issuance of stock
by a subsidiary 1,473
Exercise of common stock options
and warrants 99 413 282
Issuance of treasury stock 15
Net cash provided by (used in)
financing activities 8,713 (1,845) 688
Net decrease in cash
and cash equivalents (901) (6,945) (6,075)
Cash and cash equivalents at
beginning of year 10,976 17,921 23,996
Cash and cash equivalents
at end of year $ 10,075 $ 10,976 $ 17,921
<PAGE>
<PAGE>42 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Years ended December 31, 1994 1993 1992
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 4,147 $ 5,344 $ 8,324
Income taxes $ 607 $ 692 $ 703
Supplemental schedule of
noncash transactions:
Reduction of debt $ 9,167 $21,900 $ 1,819
Issuances of treasury stock (1,468)
Additions to other assets
and prepaid expenses 100 179 130
Reduction of accounts payable 267 597
Reduction of accrued interest payable 1,045 607
Issuances of common stock (10,579) (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)
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>43 OF 94
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. All significant intercompany balances
and transactions have been eliminated in consolidation.
Statements of cash flows. For purposes of the statements of cash
flows, the Company considers all highly liquid instruments with
original maturities of three months or less from purchase date to
be cash equivalents.
Marketable investment securities. Marketable investment
securities at December 31, 1994 consist of U.S. corporate equity
securities. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (Statement 115) at
January 1, 1994. Under Statement 115, the Company classifies its
marketable equity securities as available-for-sale.
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 10) are subject to currency fluctuations and the Company has
hedged portions of such debt from time to time. During the years
ended December 31, 1994, 1993, and 1992, the Company realized
foreign currency transaction gains (losses) of $(2,124,000),
$901,000 and $3,362,000, respectively. These amounts are
included in Investment and other income (expense), net. At
December 31, 1994, 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.
<PAGE>
<PAGE>44 OF 94
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:
CLASS OF ASSETS USEFUL LIFE
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
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.
Sales of stock by a subsidiary. The Company records in the
Consolidated Statements 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
<PAGE>
<PAGE>45 OF 94
for Income Taxes", effective January 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,
1994, 1993 and 1992 was 21,724,665, 17,125,900 and 15,771,301,
respectively.
2. General Physics Corporation
On August 31, 1994, General Physics Corporation, a formerly
28% owned affiliate, (GP) acquired substantially all of the
operations and assets of SGLG, Inc. (SGLG) (formerly GPS
Technologies, Inc.), a 92% owned subsidiary, and assumed certain
liabilities of SGLG, related to its business of providing
management and technical training services, and specialized
engineering consulting services, to various commercial industries
and to the United States government. However, for accounting and
financial reporting purposes, the transaction has been treated as
a reverse acquisition of GP by SGLG since, among other factors,
the Company became the beneficial owner of approximately 54% of
the outstanding shares of GP's common stock as a result of the
transaction. The assets acquired by GP also included all of the
outstanding common stock of four wholly-owned subsidiaries of
SGLG: GPS Technologies, Inc. Federal Systems Group (GPSTFSG),
which provides technical services to the U.S. Department of the
Navy and other federal government agencies; GP Environmental
Services, Inc. (GPES), which provides environmental laboratory
analytical services; and General Physics Asia Pte. Ltd., located
in Singapore, and General Physics (Malaysia) Sdn. Bhd., located
in Malaysia, which provide operations support, engineering and
technical services to power and process industries in Southeast
Asia.
The consideration paid by GP totaled approximately
$34,000,000 and consisted of (a) $10,000,000 in cash, (b)
3,500,000 shares of GP common stock, (c) GP's 6% Senior
Subordinated Debentures due 2004 in the aggregate principal
amount of $15,000,000 ($1,500,000 of which was paid into escrow),
(valued at $10,700,000 after a $4,300,000 discount), (d) warrants
to purchase an aggregate of 1,000,000 shares of GP common stock
at $6.00 per share, and (e) warrants to purchase an aggregate of
475,664 shares of GP common stock at $7.00 per share. In
addition, GP entered into a lease with SGLG of certain fixed
assets of SGLG for a period of 10 years for an aggregate rent of
$2,000,000, payable in equal quarterly installments of $50,000.
The Company did not recognize a gain or loss on this transaction.
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The cash portion of the purchase price for the SGLG
operations and assets was derived from funds borrowed by GP under
a $20,000,000 revolving credit facility secured by liens on the
assets of GP, GPSTFSG, GPES and Inventory Management Corporation,
all wholly-owned subsidiaries of GP. The revolving credit
facility was established with a bank on August 31, 1994, and
permits GPC to borrow funds at a rate of interest equal to the
bank's prime rate or LIBOR, as determined by GP.
Prior to the transaction, the Company directly and
indirectly owned approximately 28% of the outstanding common
stock of GP, and approximately 92% of the outstanding common
stock of SGLG. The Company currently owns directly or indirectly
approximately 51% of the outstanding common stock of GP.
In December 1994, as part of the above transaction, SGLG
distributed its shares of GTS Duratek, Inc. (Duratek) common
stock, totaling 3,950,000 shares, on a pro rata basis to its
shareholders. Therefore, the Company received 3,630,538 shares
of Duratek, and the minority shareholders received the remaining
319,462 shares.
From October 3, 1991 through August 31, 1994, 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 eight months
ended August 31, 1994 and the years ended December 31, 1993 and
1992 in the amount of $(719,000), $316,000 and $(144,000),
respectively, after the amortization of the underlying goodwill,
was included in the caption "Investment and other income
(expense), net" appearing in the consolidated statements of
operations. The financial position and results of operations of
SGLG were included in the consolidated accounts of the Company
for the years ended December 31, 1992, 1993 and 1994.
The following information shows on a pro forma basis, the
results of operations for the Company as if the above transaction
had occurred as of January 1, 1993 (in thousands):
Year ended December 31,
1994 1993
(unaudited)
Revenues $239,416 $251,187
Loss before discontinued
operation and extraordinary item (11,238) (6,132)
Net loss (13,812) (5,260)
Loss per share before discontinued
operation and extraordinary item (.52) (.36)
Loss per share (.64) (.31)
The above pro forma information is not necessarily indicative of
the actual financial position or results of operations that would
have been achieved if the transactions had occurred as of or for
the period indicated, or of future results that may be achieved.
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3. GTS Duratek, Inc.
On January 24, 1995, the Company sold 1,666,667 shares of
common stock of its subsidiary, GTS Duratek,Inc. (Duratek) at a
price of $3.00 per share to The Carlyle Group (Carlyle) in
connection with a $16 million financing by Duratek with Carlyle,
a Washington, D.C. based private merchant bank. In addition, the
Company granted Carlyle an option to purchase up to an additional
500,000 shares of the Company's Duratek common stock over the
next year at $3.75 per share.
Duratek received $16 million from Carlyle in exchange for
160,000 shares of newly issued 8% cumulative convertible
preferred stock (convertible into 5,333,333 shares of Duratek
common stock at $3.00 per share). Duratek granted Carlyle an
option to purchase up to 1,250,000 shares of newly issued
Duratek common stock from Duratek over the next four years.
As a result of the above transaction, the Company owns
3,534,972 shares of Duratek's common stock (approximately 40% of
the outstanding shares of common stock). As a result of the
Company's ownership in Duratek falling below 50%, commencing on
January 24, 1995 the Company will account for its investment in
Duratek on the equity basis.
In connection with the transaction, Carlyle will have the right,
through its preferred stock, to elect a majority of Duratek's
Board of Directors. Upon conversion of the preferred stock,
Carlyle would own approximately 50% of Duratek's common stock if
all of its options are exercised.
On November 2, 1990, Duratek 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 GP
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 10(b)). In
December 1994, SGLG distributed all its Duratek shares to its
shareholders on a pro rata basis, (See Note 2), thereby, reducing
the Company's voting percentage. 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
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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.
4. Interferon Sciences, Inc.
At March 31, 1995, Interferon Sciences, Inc. (ISI) is a 31% 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. At December
31, 1994, the Company owned 36% of ISI.
On July 12, 1993, the Company commenced an Exchange Offer for its
Swiss Franc denominated Bonds and its Dual Currency Bonds. (See
Note 10(b)). 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 $2,224,000 as of December 31, 1994 is included in
"Investments and Advances" on the Consolidated Balance Sheet of
which $1,072,000 represents the Company's percentage of
underlying net assets and $1,152,000 represents goodwill. At
December 31, 1994, the Company owned 6,975,000 shares of ISI,
with a market value of $9,373,000. The Company's share of ISI's
loss included in Investment and other income (expense), net is
$4,409,000 in 1994.
Condensed financial information for ISI is as follows as of
December 31, 1994 and 1993 and for the years then ended (in
thousands):
1994 1993
Total assets $8,182 $20,301
Stockholders' equity 2,979 17,131
Revenues 1,166 51
Net loss (12,078) (8,460)
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5. American Drug Company
The Company owns approximately 54% of the outstanding common
stock of American Drug Company (ADC), which was organized in
1993, as a wholly-owned subsidiary of the Company to initiate
marketing activities for American generic pharmaceutical and
medical pharmaceuticals in Russia and the Commonwealth of
Independent States (the "CIS"). ADC's subsidiary, NPD Trading
(USA), Inc. provides consulting services to Western businesses in
Russia and Eastern Europe. ADC intends to make sales of
American-made generic pharmaceutical and health care products for
sale under its own label in Russia and the CIS.
In August 1994, pursuant to a Transfer and Distribution
Agreement, the Company distributed 46% of its interest in ADC to
the Company's shareholders. In addition, ADC issued warrants to
the Company's shareholders to purchase its stock for a period of
two years, subject to cancellation under certain circumstances.
6. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows (in thousands):
December 31, 1994 1993
Raw materials $ 1,973 $ 2,836
Work in process 462 675
Finished goods 15,557 16,394
Land held for resale 2,650 2,700
$ 20,642 $ 22,605
7. Property, plant and equipment
Property, plant and equipment consists of the following
(in thousands):
December 31, 1994 1993
Land $ 173 $ 173
Buildings and improvements 1,367 1,365
Machinery and equipment 16,357 19,308
Furniture and fixtures 14,650 7,951
Leasehold improvements 4,876 5,076
37,423 33,873
Accumulated depreciation and
amortization (22,843) (20,035)
$ 14,580 $ 13,838
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8. Short-term borrowings
Short-term borrowings are as follows (in thousands):
December 31, 1994 1993
Line of Credit Agreement (a) $ 12,409 $11,732
Revolving Credit and Term Loan
Agreement (b) 5,650
Revolving Loan and Line of Credit
Arrangements (c) 920 898
Revolving Line of Credit
Agreement (d) 7,631 3,110
Revolving Credit Agreement (e) 10,100
$ 31,060 $ 21,390
(a) In April 1993, Five Star Group, Inc. (Five Star) and MXL
Industries, Inc. (MXL) each entered into a revolving credit and
term loan agreement (the "Five Star Loan Agreement" and "MXL Loan
Agreement"). The Five Star Loan 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 50% 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, 1994, the interest rate was
9.5%. As of December 31, 1994, $12,409,000 was borrowed under
the Five Star Revolving Credit Facility and Five Star had no
additional availability.
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 1.375% in excess of the
prime rate, and was 9.875% at December 31, 1994. 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, 1994, $2,916,000 was
outstanding under the Five Star Term Loan.
The MXL Loan Agreement 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. As of December 31, 1994,
there were no borrowings under the MXL Revolving Credit Facility
and the balance of the MXL Term Loan was $2,625,000. 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
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interest at 1.375% in excess of the prime rate, and was 9.875% at
December 31, 1994. 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. As additional collateral for the
above agreements, the Company has provided SFr. 6,582,000
principal amount of the Company's Swiss Bonds, which had been
reacquired by the Company from the bondholders, but not
cancelled. In April 1993, $4,196,000 of the proceeds were used
to repay the balance of a revolving credit and term loan
agreement entered into 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. As of March 31, 1995 the Company was not in compliance
with certain provisions as a result of the non-payment of
approximately $3,000,000 of Swiss Bonds. Management has advised
the bank of such violations and has obtained a waiver.
(b) On June 30, 1993, SGLG entered into a new three year
$10,000,000 credit facility, which replaced a previous agreement.
The credit facility was secured by the accounts receivable and
fixed assets of SGLG. The initial $5,000,000 of the credit
facility was fixed at an interest rate of 7.98% and the second
$5,000,000 of the credit facility bore 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. As a
result of the acquisition by GP on August 31,1994 of
substantially all the assets and operations of SGLG (see Note 2)
the balance of the credit facility was repaid.
(c) In August 1991, Eastern Electronics Manufacturing
Corporation (Eastern) assigned the outstanding 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 (14% at
December 31, 1994). At December 31, 1994, $920,000 was borrowed
under the Agreement.
(d) 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
1.5%. The Facility is secured by the specific fixed assets
financed under the Facility. The Line bears interest at the
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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. At December 31, 1994,
borrowings were $7,631,000 under the Line and $425,000 is
outstanding under the Facility. In January 1995, Duratek used
proceeds from the Carlyle financing (See Note 3) to retire
amounts outstanding under the Line. On February 2, 1995, Duratek
had $7,000,000 available under the Line.
(e) On August 31, 1994, GP entered into a $20,000,000 secured
revolving credit agreement with a commercial bank. Borrowings
under this agreement bear interest at the prime rate, which was
8.5% at December 31, 1994. This agreement contained certain
covenants, which among other things, limit the amount and nature
of certain expenditures and requires GP to maintain certain
financial ratios. There were available borrowings of
approximately $7,900,000, based upon 80% of available accounts
receivable, under this agreement at December 31, 1994.
9. Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the
following (in thousands):
December 31, 1994 1993
Accounts payable $ 15,371 $ 10,234
Payroll and related costs 4,098 4,202
Interest 1,882 1,369
Other 6,607 4,451
$ 27,958 $ 20,256
10. Long-term debt
Long-term debt is comprised of the following (in thousands):
December 31, 1994 1993
5% Convertible Bonds due 1999 (b) $ 2,129 $ 2,300
8% Swiss Bonds due 1995 (a)(c) 2,999 4,572
6% Convertible Swiss Bonds
due 1995 (a)(d) 4,036 5,815
5.75% Convertible Swiss Bonds
due 1995 (d) 2,014 2,370
5.625% Convertible Swiss Bonds
due 1996 (e) 1,716 3,189
7% Dual Currency Convertible Bonds
due 1996 (e) 2,391 3,926
12% Subordinated Debentures
due 1997 (f) 6,783 6,829
Term loan with banks (Note 8(a)) 5,541 8,708
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Senior Subordinated Debentures (g) 801
Notes payable in connection with
settlement of litigation (h) 745 951
Equipment lease obligations (*) 2,058 2,198
31,213 40,858
Less current maturities 13,700 4,220
$ 17,513 $ 36,638
(*) Secured by assets held under capital lease obligations.
(a) On June 10, 1994, the Company commenced an Exchange Offer
for up to 60% of its Swiss denominated 8% Bonds due March 1,
1995, 6% Convertible Bonds due March 7, 1995, 5.75% Convertible
Bonds due May 9, 1995, 5.625% Convertible Bonds due March 18,
1996 and 7% Dual Currency Bonds due March 18, 1996, ("the
Bonds"). The Company offered for exchange its Common Stock with
a value of $1,000 for each $1,000 principal amount of the Bonds.
In addition, the Company offered for exchange its Common Stock
with a value of SFr. 1,000 for each SFr. 1,000 principal amount
of the Bonds. Accrued interest on the Bonds accepted for
exchange by the Company was paid in Common Stock of the Company.
The purpose of the Exchange Offer was to reduce the Company's
long-term indebtedness and related interest expense.
In July, as a result of the Exchange Offer, the Company received
an aggregate of SFr. 2,569,000 principal amount of its Swiss
denominated bonds and $1,377,000 of its 7% Dual Currency
Convertible Bonds. In addition, the Company completed four
private transactions for SFr. 6,971,000 principal amount of its
Swiss denominated bonds and $159,000 of its 7% Dual Currency
Convertible Bonds.
As a result of the above transactions, the Company issued
approximately 3,406,000 shares of its common stock and reduced
its long-term debt by approximately $8,582,000.
In the first quarter of 1995, the Company repurchased SFr.
8,386,000 of its Swiss denominated bonds and $309,000 of its Dual
Currency Bonds, in exchange for a combination of cash, the
Company's common stock and notes. At March 24, 1995, the Company
had SFr. 4,434,000 and $2,082,000 due in 1995, and SFr. 1,415,000
due in 1996.
The Company did not pay the balance of approximately $3,000,000
due on its 8% and 6% Swiss Bonds in March 1995; however, the
Company is conducting discussions with the trustee for the Swiss
bond holders. The Company believes that it will be able to enter
into an agreement for the repayment of such Swiss Bonds. At
April 3, 1995, the Company has sufficient cash and cash
equivalents available to repay its Swiss Bonds due in 1995.
(b) The Company commenced an Exchange Offer on July 12, 1993,
for any and all of the Bonds. The purpose of the Exchange Offer
was to reduce the Company's long-term indebtedness and related
interest expense.
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The consideration offered by the Company for each SFr. 1,000
principal amount of the 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 the 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 5.75% Bonds due May 9,
1995, SFr. 2,765,000 of the 5.625% 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, 1994,
$2,309,000 of the New 5% Bonds were outstanding.
As a result of the Exchange Offer, in 1993 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.
(c) 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. 2,389,000 are outstanding at
December 31, 1994, (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.
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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.
(d) 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. 5,280,000 are outstanding as of
December 31, 1994 (see (a) and (b) above). The outstanding bonds
are convertible into 90,816 shares of the Company's common stock
at any time prior to February 10, 1995 at a conversion price of
approximately $44.45 per share based on an exchange rate of SFr.
1.308 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.
2,635,000 are outstanding as of December 31, 1994 (see (a) and
(b) above). These outstanding bonds are convertible into 56,389
shares of the Company's common stock at a conversion price of
$35.73 per share based on an exchange rate of SFr. 1.308 per U.S.
$1.00 at any time prior to April 22, 1995.
(e) 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. 2,245,000 are currently
outstanding (see (a), (b) and (c) 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 120,862
shares of the Company's common stock at any time prior to March
8, 1996 at a conversion price of $39.41 per share based on an
exchange rate of SFr 1.308 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. 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, 1994 and 1993, based on year end exchange
rates, the effective rates of interest would be approximately 9%
and 8%, respectively. At December 31, 1994, the effective rate
of interest of approximately 9% would result in an additional
$55,000 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, the Company's affiliate, exercisable at a price of
$6.88 per share until August 16, 1992. The Exchange Offer was
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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), (b) and (c) above),
during 1994, 1993 and 1992 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
zero, $1,819,000 (net of income taxes) and $1,662,000, in 1994,
1993 and 1992, respectively.
(f) 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, 1994 and 1993,
the unamortized balances of such expenses were $308,000 and
$432,000. 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 1994 and 1993, $35,000 and
$82,000, respectively, of Debentures were converted into 7,042
and 16,579 shares, respectively, of the Company's Common Stock.
At December 31, 1994, the Debentures are convertible into
approximately 1,365,000 shares of the Company's Common Stock.
(g) In August 1994, GP, as a result of the acquisition of
substantially all the assets of SGLG (See Note 2), issued $15
million of 6% Senior Subordinated Debentures, which have a
carrying value of $10,813,000, net of a debt discount of
$4,187,000. The debentures are unsecured and require payments of
interest only on a quarterly basis through June 30, 1999,
quarterly principal installments of $525,000 plus interest
through June 30, 2004 and the balance of $4.5 million on June 30,
2004. The debentures are subordinated to borrowings under the
line of credit agreement. At December 31, 1994, the carrying
value of the debentures held by the Company was $10,012,000,
which was eliminated in consolidation, and the remaining $801,000
of debentures were held by the minority shareholders of SGLG.
(h) In March 1987, the Company and Ryder International
Corporation (Ryder) agreed to a settlement of litigation relating
to the Company's CaridexR system. Under the terms of the
settlement agreement, the Company agreed to pay Ryder amongst
other things, $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.
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Aggregate annual maturities of long-term debt outstanding at
December 31, 1994 for each of the next five years are as follows
(in thousands):
1995 $ 13,700
1996 7,351
1997 7,188
1998 44
1999 2,249
11. Investment in finance subsidiaries
SGLG, Inc. (formerly GPS Technologies, Inc., See Note 2) through
two subsidiaries, has entered into long-term agreements with two
domestic utilities to provide non-recourse long-term financing
from a bank to finance the purchase of two 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 nuclear power
plant simulator training services are performed by GP personnel
and are billed at established hourly rates. Revenues for these
services are recognized by GP.
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):
December 31, 1994 1993
Notes payable to bank $ 579 $ 3,109
Less current maturities 579 2,530
Long-term debt $ $ 579
The loans are secured by the equipment and all rights under the
agreements with the utilities. Under these agreements, SGLG has
agreed to guarantee the service performance with the utilities
but has not guaranteed the obligations of its subsidiaries under
the loan agreements. SGLG has also agreed to maintain a minimum
debt to equity ratio, a minimum tangible net worth and a minimum
working capital, as defined.
12. 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
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<PAGE>58 OF 94
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.
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, 1994 aggregated $1,510,000. Shares
as to which the holders' rights of return to the Company expired
during 1994 were transferred to stockholders' equity.
13. 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 age 60 or later. The pension expense
amounted to $31,000, $377,000 and $23,000, for 1994, 1993 and
1992, 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):
December 31, 1994 1993 1992
Actuarial present value of benefit
plan obligations:
Accumulated benefit obligation (including
vested benefits of $4,436,
$4,838 and $3,976) $ (4,469)$ (4,917) $(3,976)
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Projected benefit obligation for
service rendered to date $ (4,469)$ (4,917) $(3,976)
Plan assets at fair value 3,405 3,528 3,120
Projected benefit obligation in
excess of plan assets (1,064) (1,389) (856)
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 $(1,064) $(1,050) $ (856)
The net periodic pension expense
is as follows:
Service cost-benefits earned $ $ $
Interest cost on projected benefit
obligations 360 341 340
Actual return on plan assets (350) (414) (317)
Net amortization and deferral
and other 21 450
Net periodic pension expense $ 31 $ 377 $ 23
The Company's assumptions used as of December 31, 1994, 1993, and
1992 in determining the pension cost and pension cost liability
shown above were as follows:
Percent
1994 1993 1992
Discount rate 8.25 7.5 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 available to 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 591/2 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.
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<PAGE>60 OF 94
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 $285,000, $236,000 and $214,000 in 1994, 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.
14. Income taxes
The components of pretax income (loss) are as follows (in
thousands):
Years ended December 31, 1994 1993 1992
Continuing operations $(10,648) $ (7,424) $(11,151)
Discontinued operation (2,574) (947) (2,027)
Extraordinary gain, net
of income tax effect in 1993 1,819 1,662
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<PAGE>61 OF 94
The components of income tax (benefit) expense from continuing
operations are as follows (in thousands):
Years ended December 31, 1994 1993 1992
Current
State and local $ 283 $ 398 $ 427
Federal tax (benefit) expense (973)
283 (575) 427
Deferred
State and local 11
Federal 455
466
$ 749 $ (575) $ 427
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.
For U.S. Federal income tax purposes, a parent corporation with
an 80% or greater equity interest in its subsidiary may file a
consolidated tax return. Accordingly, the Company and its
greater than 80% owned subsidiaries will file a consolidated
Federal income tax return for the year ended December 31, 1994.
The subsidiaries, in which the Company has an equity ownership
between 50% and 80%, are consolidated for financial reporting
purposes, but file separate U.S. Federal income tax returns for
the year ended December 31, 1994. In 1994, the Company recorded
an income tax expense of $749,000. The current income tax
provision of $283,000 reflected above, represents the estimated
taxes payable by the Company for the year ended December 31,
1994. The deferred income tax provision of $466,000 represents
the deferred taxes of GP, the Company's 51% owned subsidiary.
As of December 31, 1994, the Company has approximately
$23,920,000 of net operating loss carryovers consisting of
$19,424,000 with respect to net operating losses generated from
the Company's consolidated tax return and $4,496,000 generated by
ADC and Duratek as separate tax filers for Federal income tax
return purposes. These carryovers expire in the years 2000
through 2008. In addition, the Company has approximately
$2,784,000 of available credit carryovers which expire in the
years 1998 through 2003.
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
<PAGE>
<PAGE>62 OF 94
effect on the Company's financial statements or results of
operations since the Company did not carry any deferred tax
accounts on its balance sheet for the year ended December 31,
1993.
The tax effects of temporary differences between the financial
reporting and tax bases of assets and liabilities that are
included in the net deferred tax assets are summarized as
follows:
December 31, 1994 1993
Deferred tax assets
Accounts receivable, principally due
to allowance for doubtful accounts $ 854 $ 618
Investment in partially owned companies 3,151 6,492
Inventory 406 55
Lawsuit settlements 351 468
Accrued expenses 310 67
Litigation accrual 535
Other accrued liabilities 496
Net operating loss carryforwards 9,329 8,783
Investment tax credit carryforwards 2,784 2,784
Deferred tax assets 18,216 19,267
Deferred tax liabilities
Property and equipment, principally due to
differences in depreciation 1,650 1,885
Unamortized debt discount 65 1,224
Unrealized exchange gain 1,555 2,383
State taxes 115 417
Prepaid expenses 186
Deferred tax liabilities 3,571 5,909
Net deferred tax assets 14,645 13,358
Less valuation allowance (13,170) (13,358)
Net deferred tax asset $ 1,475 $
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which temporary differences are deductible. Management considers
income taxes paid in the past three years and future taxable
income in making this assessment. Based upon the level of
historical taxable income and projections for future taxable
income over the periods in which temporary differences are
deductible, management has determined that it is more likely than
not, that results of future operation will generate sufficient
taxable income to realize the deferred tax assets of GP, which is
not included in the Company's Federal income tax return.
However, a full valuation allowance is appropriate for the
Company and its greater than 80% owned subsidiaries included in
the Company's consolidated Federal income tax return, based on
the Company's recent history of annual net losses. As a result,
effective December 31, 1994, the Company has deferred tax assets
of approximately $18,216,000, deferred tax liabilities of
$3,571,000 and a valuation allowance of approximately
$13,170,000.<PAGE>
<PAGE>63 OF 94
15. Discontinued operation
In December 1994, the Company decided to sell its Eastern
Electronics Manufacturing Corporation (Eastern) subsidiary, which
was the only company in the Electronics Group. As a result of
the decision to sell Eastern, the Company reflected Eastern as a
discontinued operation. In 1994, the Company wrote down various
assets to their estimated net realizable value and recorded a
$100,000 reserve for the cost of discontinuing Eastern, totaling
$1,570,000. The total loss for discontinued operation recognized
in 1994 was $2,574,000, of which $1,789,000 was from operations
and $785,000 was a loss on disposal, which included $100,000 for
expected losses through the date of disposal.
The consolidated statements of operations have been restated for
all years presented to report the results of discontinued
operations for Eastern separately from continuing operations and
where applicable, related notes to the consolidated financial
statements exclude the amounts for discontinued operations. The
balance sheets for 1993 have not been reclassified from those
previously presented.
Assets and liabilities of Eastern included in the consolidated
balance sheet at December 31, 1994 were as follows (in
thousands):
Current assets $ 3,284
Current liabilities (1,247)
2,037
Property and equipment 1,155
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 1992, 1993, and 1994, options and warrants exercisable and
shares reserved for issuance at December 31, 1992, 1993, and 1994
are as follows:
Common Stock Class B Capital Stock
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
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
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<PAGE>64 OF 94
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
Granted
Exercised 2.25 (43,100)
Terminated 2.25 - 4.50 (26,280)
December 31, 1994 2.25 - 6.00 4,308,059 2.25 1,550,000
Options and warrants
exercisable
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
December 31, 1994 2.25 - 6.00 4,288,909 2.25 1,550,000
Shares reserved for
issuance
December 31, 1992 10,583,723 1,550,000
December 31, 1993 11,387,458 1,550,000
December 31, 1994 13,357,471 1,550,000
At December 31, 1994, 1993, and 1992, 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, 1994, 1993, and 1992 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, 1994, 1993, and 1992
include 1,800,000 shares in connection with Class B shares.
At December 31, 1994, 1993, and 1992, 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. <PAGE>
<PAGE>65 OF 94
As a result of the Exchange Offer, (See Note 10(b)), 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 in 1993 (See Note
4).
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, discontinued operation and
extraordinary item for the periods presented.
Years ended December 31, 1994 1993 1992
Revenues
Physical Science $119,341 $103,152 $109,966
Distribution 76,746 74,974 69,121
Optical Plastics 9,426 7,952 8,015
Health Care 1,533 4,762
Other 2,649 989 851
208,162 188,600 192,715
Investment and other
income (expense), net (5,196) 625 3,791
Total revenues $202,966 $189,225 $196,506
Operating results
Physical Science $ 5,053 $ 500 $ 2,410
Distribution 1,484 1,948 2,877
Optical Plastics 2,227 1,378 1,565
Health Care (4,431) (6,583)
Other (1,854) (587) (99)
Total operating profit (loss) 6,910 (1,192) 170
Interest expense (6,458) (8,199) (10,866)
Indirect administrative expenses,
net of gains or losses from
dispositions of investments,
minority interests, foreign
currency exchange gains
or losses, and other revenue (11,100) 1,967 (455)
Loss from operations
before income taxes,
discontinued operation
and extraordinary item $ (10,648) $ (7,424) $ (11,151)
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, 1994, 1993 and 1992, sales to
the United States government and its agencies represented
approximately 23%, 17% and 18%, respectively, of sales.
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Additional information relating to the Company's business
segments is as follows (in thousands):
December 31, 1994 1993 1992
Identifiable assets
Physical Science $104 572 $ 74,551 $ 79,271
Distribution 42,879 34,255 32,584
Optical Plastics 11,552 7,129 7,051
Health Care 21,486
Corporate and other 12,104 44,121 45,399
Assets relating to
discontinued operation 4,439 6,001 6,858
$175,546 $166,057 $192,649
Years ended December 31, 1994 1993 1992
Additions to property,
plant, and equipment, net
Physical Science $ 2,599 $ 1,360 $ 1,490
Distribution 1,336 557 723
Optical Plastics 189 41 887
Health Care 241
Corporate and other 62 89 38
Discontinued operation, net (180) 30 20
$ 4,006 $ 2,077 $ 3,399
Years ended December 31, 1994 1993 1992
Depreciation and amortization
Physical Science $ 3,523 $ 2,193 $ 2,299
Distribution 1,000 710 718
Optical Plastics 839 876 578
Health Care 552 1,048
Corporate and other 503 800 1,299
Discontinued operation 198 165 165
$ 6,063 $ 5,296 $ 6,107
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 unallocated intangibles.
18. Fair value of financial instruments
The carrying value of financial instruments including cash,
short-term investments, accounts receivable, 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.
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The estimated fair value for the Company's major long-term debt
components are as follows (in thousands):
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Swiss Bonds $10,765 $ 9,537 $15,946 $12,429
5% Convertible Bonds 2,129 1,980 2,300 2,231
7% Dual Currency
Convertible Bonds 2,391 1,769 3,926 1,743
12% Subordinated
Debentures 6,783 3,052 6,829 5,805
Other long-term debt 9,145 9,145 11,857 11,857
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. Adoption of new Accounting Principle - Accounting for
Certain Investments in Debt and Equity Securities
As of January 1, 1994 the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). The
Company's marketable securities consist of corporate equity
securities which are included in Investments and Advances on the
Consolidated Balance Sheet. Under SFAS No. 115, the Company
classifies these equity securities as available-for-sale and
records the securities at their fair value. Unrealized holding
gains and losses on available-for-sale securities are excluded
from earnings and are reported as a separate component of
stockholders' equity until realized. The effect of the change in
accounting principle did not have a material effect on the
Company's financial condition or results of operations.
A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost
basis for the security.
Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using
the specific identification method for determining the cost of
securities sold.
Marketable investment securities at December 31, 1994
consist of common stocks.
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The amortized cost, gross unrealized holding losses and fair
value for available-for-sale securities at December 31, 1994,
were as follows (in thousands):
Gross
Amortized Unrealized
Cost Holding Losses Fair Value
Available-for-sale:
Equity Securities $9,186 $(1,783) $7,403
The gains and losses realized on available-for-sale
securities sold in 1994 were as follows (in thousands):
Unamortized Sales Realized
Cost Proceeds gain (loss)
Realized loss $1,850 $1,514 $ (336)
Realized gain 461 1,260 799
Net realized
gain (loss) $2,311 $2,774 $ 463
20. 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):
Real Machinery &
property equipment Total
1995 $ 4,899 $ 1,115 $ 6,014
1996 2,795 851 3,646
1997 2,308 707 3,015
1998 1,874 715 2,589
1999 1,756 711 2,467
After 1999 3,973 101 4,074
Total $17,605 $ 4,200 $21,805
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 $8,114,735, $7,792,000 and $7,806,000
for 1994, 1993 and 1992, respectively.
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
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<PAGE>69 OF 94
of $1.90 per share were issued to certain employees and officers
of the Company. Through December 31, 1994, 28,600 options under
the plan were exercised, 57,500 were cancelled, and at December
31, 1994, 423,750 options are currently exercisable. At December
31, 1994, the Company owned approximately 61% of Duratek and
currently owns approximately 40% (See Note 3).
In 1990, ISI entered into a 5 year loan, principally for the
expansion of its manufacturing facility. The loan is secured by
certain equipment of ISI and is guaranteed by the Company. At
December 31, 1994, the balance of the loan was $409,000.
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.
National Patent Supplementary Data
Development Corporation
and Subsidiaries
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,
1994 1994 1994 1994 1993 1993 1993 1993
Sales $44,530 $51,430 $51,653 $57,161 $43,996 $54,129 $46,392 $41,329
Gross
margin 8,012 9,514 7,911 7,122 6,005 8,834 7,524 4,611
Income (loss)
before
discontinued
operation and
extraordinary
item * (2,217) (2,059) (2,174) (4,947) (2,777) (1,809) (292) (1,971)
Net income
(loss) (2,460) (2,343) (2,424) (6,744) (2,778) (1,887) 348 (1,660)
Earnings (loss) per share:
Before
discontinued
operation and
extraordinary
item * (.11) (.10) (.10) (.20) (.17) (.11) (.02) (.10)
Net income (loss)(.13) (.12) (.11) (.28) (.17) (.11) .02 (.09)
* Prior quarters have been restated to reflect the discontinued operation.
<PAGE>
<PAGE>70 OF 94
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
is hereby amended and restated in its entirety as
follows:
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information
concerning the principal executive officers and directors of
the Company as of March 21, 1995. The principal business
experience of the executive officers and directors for the
last five years is also described below.
Name Age Position
Jerome I. Feldman 66 President, Chief Executive
Officer and a Director
since 1959
Martin M. Pollak 67 Executive Vice President,
Treasurer and a Director
since 1959
Scott N. Greenberg 38 Vice President, Chief
Financial Officer since
1989, and a Director since
1987
Lawrence M. Gordon 41 General Counsel since 1986,
Vice President since 1991
Robert A. Feinberg 32 Vice President Corporate
Development, since January
1995
Paul A. Gould 49 Director
Roald Hoffmann, Ph.D. 57 Director
Ogden R. Reid 68 Director
Herbert R. Silverman 77 Director
<PAGE>
<PAGE>71 OF 94
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
from 1985 to January 1995 of GTS Duratek Inc, ("Duratek") a
company which provides environmental technology and consulting
services to various utilities, industrial and commercial
clients; a Director since 1987, Chairman of the Executive
Committee since 1988 and Chief Executive Officer since
September 1994 of GPC, 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; President since October 1994 and Chief
Executive Officer, Chairman of the Executive Committee and a
Director of SGLG since 1991, a holding company; and a director
and consultant to American Drug Company ("ADC"), a generic
drug distribution company since January 1994. 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.
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
Executive Committee from 1985 to January 1995; a Director of
GPC since 1987 and Chairman of the Board since 1988; Chairman
of the Board of SGLG since 1991; and President, Chief
Executive Officer and a director of ADC since January 1994.
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.
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 GPC since 1987; a Director of SGLG since 1991;
Chief Financial Officer and a Director of ADC since January
1994 and from 1991 to January 1995, a Director of Duratek.
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. He has been
a Director of GPC since October 1994.
Robert A. Feinberg is Vice President, Corporate
Development of the Company since January 1995. From July 1990
to January 1995, Mr. Feinberg was an Assistant United States
Attorney in the Criminal Division of the United States
Attorney's Office for the Eastern District of New York. From
October 1988 to June 1990, Mr. Feinberg was an associate with
the law firm of Debevoise & Plimpton in New York City.
<PAGE>
<PAGE>72 OF 94
Paul A. Gould has been a Director of the Company since
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.
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.
Ogden R. Reid has been a Director of the Company since
1979. He has been a Director of Interferon since 1982; a
Director of GPC since 1988 and Vice Chairman and Director of
SGLG since 1992; from 1991 to January 1995 he was Vice
Chairman of the Board of Duratek. 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.
Herbert R. Silverman has been a Director of the Company
since November 1994. Since 1975 he has been a Senior Advisor
to Bank Julius Baer (New York), Zurich, Switzerland, Chairman
of the Executive Committee of Baer American Banking
Corporation since 1976 and is a member of the Board of
Directors of Partners Funds, Inc. and Focus Fund, both of
which are mutual stock funds managed by Neuberger & Berman
since 1965. He is also a life trustee of New York University
and New York University Medical Center.
Section 16 Reporting
Section 16(a) of the Securities Exchange Act 1934
requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's
equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the
"SEC") and the American Stock Exchange, Inc. Officers,
directors and greater than 10% shareholders are required by
SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of copies of such forms
received by it and written representations from certain
reporting persons that no Forms 5 were required for those
persons, the Company believes that during the period January
1, 1994 to March 30, 1995, all filing requirements applicable
to its officers, directors and greater than 10% beneficial
owners were complied with, except for Paul A. Gould, a
Director of the Company, who filed a late report on Form 4.
<PAGE>
<PAGE>73 OF 94
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 1994, at which all of the directors attended
the meetings of the Board and Committees on which they served,
except for Roald Hoffmann, who attended fewer than 75% of the
meetings.
Directors Compensation
Directors who are not employees of the Company receive a
fee of $1,500 for each meeting of the Board of Directors
attended, but do not receive any additional compensation for
service on committees of the Board of Directors. Officers of
the Company do not receive additional compensation for serving
as directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman
and Martin M. Pollak, meets on call and has authority to act
on most matters during the intervals between Board meetings.
The committee formally acted 26 times in 1994 through
unanimous written consents.
Audit Committee
The Audit Committee reviews the internal controls of the
Company and the objectivity of its financial reporting. It
meets with appropriate Company financial personnel and the
Company's independent certified public accountants in
connection with these reviews. This committee recommends to
the Board the appointment of the independent certified public
accountants, subject to the ratification by the stockholders
at the Annual Meeting, to serve as auditors for the following
year in examining the books and records of the Company. This
Committee met twice in 1994. The Audit Committee currently
consists of Ogden R. Reid, Roald Hoffmann and Paul A. Gould.
Item 11. Executive Compensation is hereby amended and
restated in its entirety as follows:
The following table and notes present the compensation
paid by the Company and subsidiaries to its Chief Executive
Officer and the Company's most highly compensated executive
officers for 1994.
<PAGE>
<PAGE>74 OF 94
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary
Bonus
Name and Principal Position Year ($) ($)
Jerome I. Feldman 1994 322,304
40,000 (1)
President and Chief 1993 316,526
120,000
Executive Officer 1992 326,243 -0-
Martin M. Pollak 1994 322,259(2)
40,000 (1)
Executive Vice President 1993 315,110 -0-
and Treasurer 1992 325,110
151,250
Scott N. Greenberg 1994 216,375
20,000 (1)
Vice President and 1993 156,625 -0-
Chief Financial Officer 1992 151,000 -0-
Lawrence M. Gordon 1994 233,205
50,000 (1)
Vice President and 1993 183,205
50,000
General Counsel 1992 183,507 -0-
(1) For 1994, Messrs. Feldman, Pollak, Greenberg and Gordon
received their respective cash bonuses for services rendered
to Interferon.
(2) For 1994, $150,000, of Mr. Pollak's compensation was paid
by ADC, as a consequence of his services to both companies.
Long Term
Compensation
Awards All Other
Options Compensation
Name and Principal Position ($) ($)
Jerome I. Feldman -0- 3,696(1)
President and Chief -0- 3,598(l)
Executive Officer -0- 253,491(1)
Martin M. Pollak -0- 3,696(1)(2)
Executive Vice President -0- 3,598(1)
and Treasurer -0- 253,491(1)
<PAGE>
<PAGE>75 OF 94
Scott N. Greenberg -0- 3,696(3)
Vice President and -0- 3,598
Chief Financial Officer 22,500 2,932
Lawrence M. Gordon -0- 3,696(3)
Vice President and -0- 2,937
General Counsel -0- 3,392
(1) Includes $3,696, $3,598 and $3,491 as a matching
contribution by the Company to the 401(k) Savings Plan, and
$250,000 in 1992 pursuant to a Non-Compete Agreement between
Messrs. Feldman and Pollak and SmithKline Beecham Corporation.
See "Employment Contracts and Termination of Employment and
Change in Control Arrangements."
(2) Constitutes matching contributions made by ADC and the
Company equally on behalf of Mr. Pollak pursuant to the
Company's 401(k) Savings Plan.
(3) Matching contribution by the Company to the 401(k)
Savings Plan.
For the year ended 1994, none of the named executive
officers were granted non-qualified stock options.
The following table and notes set forth information for
the named executive officers regarding the exercise of stock
options during 1994 and unexercised options held at the end of
1994.
<PAGE>
<PAGE>76 OF 94
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1994
AND YEAR-END OPTION VALUES
Shares Acquired
on Exercise
(#) (1) Value
Realized ($)
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,
1994 (#)
Exercisable/Unexercisable
Name
Jerome I. Feldman 1,778,667(2) -0-
Martin M. Pollak 1,788,667(2) -0-
Scott N. Greenberg 184,700 -0-
Lawrence M. Gordon 144,100 -0-
Value of Unexercised
In-the-Money Options at
December 31, 1994 ($)
Name Exercisable/Unexercisable(3)
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
(1) None of the named executive officers exercised any
stock options during 1994.
(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 (1.8125) as reported by the American Stock
Exchange on December 30, 1994.
<PAGE>
<PAGE>77 OF 94
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1994 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
Agreements with Messrs. Feldman and Pollak. The Company
entered into an Agreement with its President and Chief
Executive Officer, Jerome I. Feldman, and with its Executive
Vice President and Treasurer, Martin M. Pollak (the
"Employees"), which was extended for an additional year by
vote of the entire Board as of January 1, 1995.
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, 1995. The
Agreements provide for each Employee to receive annual
compensation (a minimum base salary) of $300,000 (subject to
increase by the Board of Directors).
Item 12. Security Ownership of Certain Beneficial Owners
and Management is hereby amended and restated in
its entirety as follows:
As of March 21, 1995, 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.
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"):
<PAGE>
<PAGE>78 OF 94
Amount of
Title of Name and Address Beneficial
Percent
Class of Beneficial Owners Ownership of
Class
Class B Jerome I. Feldman 900,000 shares(1)
50(2)
c/o National Patent
Development Corp.
9 West 57th Street
Suite 4170
New York, NY 10019
Class B Martin M. Pollak 900,000 shares(1)
50(2)
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 21, 1995, Mr. Feldman and Mr.
Pollak controlled in the aggregate approximately 10.6% of the
voting power of all voting securities of the Company. This
percentage for Mr. Feldman and Mr. Pollak would increase to
approximately 45% 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.
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc.,
Princeton Services, Inc., Fund Asset Management, L.P.,
Princeton Services, Inc. and Merrill Lynch Phoenix Fund, Inc.
filed a 13-G which disclosed the ownership of 1,426,100 shares
of the Common Stock representing approximately 5.9% of the
outstanding Common Stock as of December 31, 1994.
<PAGE>
<PAGE>79 OF 94
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 21, 1995,
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.
Total Number of
Shares Beneficially
NameOwned
Jerome I. Feldman(1)(2)(3)(4)(5)2,161,636
Martin M. Pollak(1)(2)(3)(4)(5)2,161,373
Scott N. Greenberg(3)(4)201,300
Roald Hoffmann, Ph.D.(3)(4)(6)22,800
Ogden R. Reid(3)(4)(5)(6)17,000
Paul A. Gould(1)(4)(6)212,600
Herbert R. Silverman 5,000
Lawrence M. Gordon(1)(3)(4) 146,612
Directors and Executive Officers as a Group
(9 persons) (1)(3)(4)4,928,346
Percent of
Common Stock
Owned
Jerome I. Feldman (1)(2)(3)(4)(5) 7.82
Martin M. Pollak (1)(2)(3)(4)(5) 7.82
Scott N. Greenberg(3)(4)*
Ogden R. Reid(3)(4)(6)*
Roald Hoffmann, Ph.D.(3)(6)*
Paul A. Gould(1)(4)(6)*
Herbert R. Silverman*
Lawrence M. Gordon (1)(3)(4)*
Directors and Executive Officers as a Group
(9 persons)(1)(3)(4)16.46
<PAGE>
<PAGE>80 OF 94
Of Total Number of
Shares Beneficially
Owned,
Shares Which May Be
Acquired Within 60 Days
Jerome I. Feldman(1)(2)(3)(4)(5)1,778,667
Martin M. Pollak(1)(2)(3)(4)(5)1,788,667
Scott N. Greenberg(3)(4)184,700
Roald Hoffmann, Ph.D.(3)(6)21,000
Ogden R. Reid(3)(6)16,000
Paul A. Gould(1)(6)6,000
Herbert A. Silverman-0-
Lawrence M. Gordon(1)(3)(4)144,100
Directors and Executive Officers as a Group
(9 persons)(1)(3)(4)3,939,134
* 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 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 4,691, 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 496,450 (2.16%); Martin M. Pollak 482,500
(2.10%); Scott N. Greenberg 165,000 (.73%); Roald
Hoffmann 3,000(.013%) Ogden R. Reid 7,100 (.032%) and Lawrence
M. Gordon 182,500 (.80%). These shares include 480,000,
480,000, 165,000, 3,000, 7,000 and 182,500 shares for Messrs.
Feldman, Pollak, Greenberg, Hoffmann, Reid and Gordon,
respectively, which are subject to currently exercisable stock
<PAGE>
<PAGE>81 OF 94
options. In addition, all directors and executive officers as
a group beneficially own 1,336,500 shares, of which 1,317,500
shares are subject to currently exercisable stock options.
Certain members of the families of Messrs. Feldman and Pollak
hold 2,950 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, Five Star Group, Inc. ("Five Star") and
MXL Industries, Inc. ("MXL"), wholly owned subsidiaries of the
Company. However, Mr. Feldman and Mr. Pollak disclaim
beneficial ownership of such 6,975,148 shares (7,471,598 and
7,457,648 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.
(4) Of the directors and executive officers of the
Company, the following beneficially own the number of shares
of common stock of General Physics Corporation ("GPC")
indicated: Jerome I. Feldman-58,766 (.6%), of which 56,666 are
subject to currently exercisable stock options; Martin M.
Pollak-63,036 (.6%), of which 56,666 are subject to currently
exercisable stock options and 470 are warrants to acquire 470
shares of GPC Common Stock, Scott N. Greenberg-29,333, of
which 28,333 are subject to currently exercisable stock
options (.21%) and Ogden R. Reid 5,000 (.04%), all of which
are subject to currently exercisable stock options. In
addition, all directors and executive officers as a group
beneficially own 9,000 shares. Mr. Feldman and Mr. Pollak
through their ownership of the Company's Common Stock, may be
deemed to beneficially own an aggregate of 5,120,495 shares of
GPC beneficially owned by the Company, Five Star and MXL,
wholly-owned subsidiaries of the Company. However, Mr. Feldman
and Mr. Pollak disclaim beneficial ownership of such 5,120,495
shares (5,122,595 and 5,126,395 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
.01% of the outstanding shares of GPC's common stock. All such
persons have sole voting and investment power as to all shares
except as indicated.
(5) Member of the Executive Committee.
<PAGE>
<PAGE>82 OF 94
(6) Member of the Audit Committee.
As of March 21, 1995 the Company owned 4,800,148 shares
of Interferon common stock, constituting approximately 21% of
the outstanding shares, Five Star owned approximately
1,359,375 shares constituting approximately 6% 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 31%.
As of March 21, 1995 the Company owned 3,420,495 shares
of GPC common stock, constituting approximately 34% of the
outstanding shares, Five Star owned 1,062,500 shares
constituting approximately 10% and MXL owned 637,500 shares
constituting approximately 6% of the outstanding shares of GPC
common stock. All of the shares of GPC common stock owned by
the Company, Five Star and MXL have been pledged to a bank as
collateral to secure indeptedness owed to such bank. In
addition, the Company owns warrants to purchase 1,357,355
shares of GPC common stock. Accordingly, the Company's voting
control of GPC is approximately 56.28%.
As of March 1, 1995 the Company owned 2,842,300 shares
of SGLG, Inc. ("SGLG") common stock, constituting
approximately 92% of the outstanding shares. In addition, Mr.
Pollak owns 1,000 shares of SGLG common stock.
Item 13. Certain Relationships and Related Transactions is
hereby amended and restated in its entirety as
follows:
GTS Duratek, Inc.
On January 24, 1995, the Company sold 1,666,667 shares of
its Duratek common stock at a price of $3.00 per share to the
Carlyle Group ("Carlyle") in connection with a $16 million
financing by Duratek with Carlyle, a Washington, D.C. based
private merchant bank. In addition, the Company granted
Carlyle an option to purchase up to an additional 500,000
shares of Duratek common stock over the next year at $3.75 per
share (the "Carlyle Transaction").
Duratek received $16 million from Carlyle in exchange for
160,000 shares of newly issued 8% cumulative convertible
preferred stock (convertible into 5,333,333 shares of Duratek
common stock at $3.00 per share). Duratek granted Carlyle an
option to purchase up to 1,250,000 shares of newly issued
Duratek common stock from Duratek over the next four years.
As of March 1, 1995, the Company owns 3,534,972 shares of
Duratek common stock (approximately 40.4% of the currently
outstanding shares of common stock). Assuming, (i) Carlyle
converted all of its cumulative convertible preferred stock
into Duratek common stock and exercised its option to purchase
additional shares of Duratek common stock from each of Duratek
and the Company and (ii) the Company's employees exercised
<PAGE>
<PAGE>83 OF 94
their options to purchase an aggregate of 497,750 shares of
Duratek common stock, the Company would own 2,537,222 shares
of Duratek common stock (approximately 16.5% of the then
outstanding shares of common stock).
In connection with the Carlyle Transaction, Carlyle will
have the right, through its preferred stock, to elect a
majority of Duratek's Board of Directors. Upon conversion of
the preferred stock, Carlyle would own approximately 50% of
Duratek's common stock if all of its options are exercised.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K is hereby amended and
restated in its entirety as follows:
(a)(1) The following financial statements are
included in Part II, Item 8. Financial Statements and
Supplementary Data:
Page
Independent Auditors' Report 36
Financial Statements:
Consolidated Balance Sheets -
December 31, 1994 and 1993 37
Consolidated Statements of
Operations - Years ended
December 31, 1994, 1993 and 1992 39
Consolidated Statements of Changes in
Stockholders' Equity - Years ended
December 31, 1994, 1993 and 1992 40
Consolidated Statements of Cash
Flows - Years ended December 31,
1994, 1993 and 1992 42
Notes to Consolidated Financial
Statements 45
(a)(2) Financial Statement Schedules
Schedule I - Condensed Financial
Information of Registrant i
Schedule II - Valuation and Qualifying
Accounts ii
<PAGE>
<PAGE>84 OF 94
Independent Auditors' Report x
(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.
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: Jerome I. Feldman,
President and Chief
Executive Officer
Dated: May 1, 1995
<PAGE>
<PAGE>85 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(in thousands)
ASSETS
Current assets December 31,
1994 1993
Cash and cash equivalents $ 9,165 $ 9,058
Accounts and other receivables 903 2,768
Inventories 2,747 2,877
Prepaid expenses and other current assets 937 471
Total current assets 13,752 15,174
Investments in subsidiaries 79,247 164,122
Other investments and advances 7,253 14,807
Property, plant and equipment, at cost 4,684 4,655
Less accumulated depreciation (4,540) (4,423)
144 232
Intangible assets, net of amortization 772 915
Other assets 1,877 76
$103,045 $195,326
See accompanying notes to the condensed financial statements.
i
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<PAGE>86 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED BALANCE SHEET (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
Current liabilities 1994 1993
Current maturities of long-term debt $ 9,275 $ 205
Accounts payable and accrued expenses 3,526 3,626
Total current liabilities 12,801 3,831
Long-term debt, less current maturities 13,539 29,747
Amounts due subsidiaries, net 10,030 90,068
Commitments and contingencies
Common stock issued subject to
repurchase obligation 1,510 4,242
Stockholders' equity
Common stock 241 190
Class B capital stock 2 2
Capital in excess of par value 119,856 106,274
Deficit (53,151) (39,028)
Net unrealized loss on available-for-
-sale securities (1,783)
Total stockholders' equity 65,165 67,438
$103,045 $195,326
See accompanying notes to the condensed financial statements.
ii
<PAGE>
<PAGE>87 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Year ended December 31,
Revenues 1994 1993 1992
Sales $ 812 $ 945 $ 915
Investment and other income
(expense), net (3,899) 1,388 3,767
(3,087) 2,333 4,682
Costs and expenses
Cost of goods sold 586 573 632
Selling, general and administrative 6,847 8,294 8,131
Research and development 431 326 301
Interest 4,086 6,414 8,769
11,950 15,607 17,833
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 of subsidiaries 3,640 234 1,573
Loss before income taxes,
discontinued operation and
extraordinary item (11,397) (7,892) (11,578)
Income tax benefit 1,043
Loss before discontinued
operation and extraordinary item (11,397) (6,849) (11,578)
Discontinued operation
Loss from discontinued operation (2,574) (947) (2,027)
Loss before extraordinary item (13,971) (7,796) (13,605)
Extraordinary item
Gain from early extinguishment
of debt, net of tax of $1,043
in 1993 1,819 1,662
Net loss $(13,971) $ (5,977)$(11,943)
Income (loss) per share
Loss before discontinued
operation and extraordinary item $ (.52) $ (.40) $ (.73)
Discontinued operation (.12) (.06) (.13)
Extraordinary item .11 .10
Net loss per share $ (.64) $ (.35) $ (.76)
See accompanying notes to the condensed financial statements.
iii
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<PAGE>88 OF 94
Prior years have been restated to reflect the discontinued
operation.
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1994 1993 1992
Cash flows from operations:
Net loss $(13,971) $(5,977)$(11,943)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 392 798 1,332
Equity in earnings of subsidiaries (3,640) (234) (1,573)
Provision for discontinued operation 1,570
Share of loss of discontinued
operation 1,004 947 2,027
Income tax benefit allocated to
continuing operations (1,043)
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)
Changes in other operating items 994 1,662 (204)
Net cash used for operations (13,651) (10,814) (12,023)
Cash flows from investing activities:
Proceeds from sale of an investment 4,500
(Additions to) reductions of
property, plant & equipment (29) (22) 34
Reduction of (additions to)
intangible assets (37) 477
Reduction of investments and
other assets, net 11,473 13,841 5,787
Net cash provided by investing
activities 11,407 14,296 10,321
iv
<PAGE>
<PAGE>89 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1994 1993 1992
Cash flows from financing activities:
Net repayments of short-term borrowings $ $ (4,379) $(5,967)
Decrease in restricted cash 270 4,730
Reduction of long-term debt (295) (3,450) (2,683)
Proceeds from issuance of common stock 188 198
Exercise of common stock options
and warrants 99 413 282
Proceeds from issuance of
long-term debt 2,359
Issuance of treasury stock 15
Net cash provided by (used
for) financing activities 2,351 (6,948) (3,623)
Net increase (decrease) in
cash and cash equivalents 107 (3,466) (5,325)
Cash and cash equivalents
at beginning of year 9,058 12,524 17,849
Cash and cash equivalents at
end of year $ 9,165 $ 9,058 $ 12,524
v
<PAGE>
<PAGE>90 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
CONDENSED STATEMENT OF CASH FLOWS (Continued)
(in thousands, except per share data)
Year ended December 31,
1994 1993 1992
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,009 $ 2,375 $ 6,145
Income taxes $ 42 $ 44 $ 103
Supplemental schedule of noncash transactions:
Additions to other assets and
prepaid expenses 100 179 130
Reduction of accrued interest payable 1,045 607
Reduction of debt 9,167 21,900 1,819
Reduction of accounts payable 267 597
Issuances of treasury stock (1,468)
Issuances of common stock (10,579) (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)
See accompanying notes to the condensed financial statements.
vi
<PAGE>
<PAGE>91 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. 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):
December 31,
1994 1993
Raw materials $ 50 $ 95
Work in process 1 2
Finished goods 46 80
Land for resale 2,650 2,700
$ 2,747 $ 2,877
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1994 1993
5% Convertible Bonds $ 2,129 $ 2,300
8% Swiss Bonds 2,999 $ 4,572
Old Swiss convertible bonds 10,158 15,300
12% Subordinated debentures 6,783 6,829
Notes payable in
connection with settlements
of litigation 745 951
22,814 29,952
Less current maturities 9,275 205
$ 13,539 $ 29,747
Aggregate annual maturities of long-term debt outstanding at
December 31, 1994 for each of the next five years are as follows
(in thousands):
1995 $ 9,275
1996 4,355
1997 7,055
1998
1999 2,129
See Note 10 of the Notes to Consolidated Financial Statements for
additional information with respect to the Company's long-term
debt.
vii
<PAGE>
<PAGE>92 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
3. 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):
Real Machinery &
property equipment Total
1995 $ 636 $ 92 $ 728
1996 636 46 682
1997 636 29 665
1998 656 15 671
1999 656 10 666
After 1999 1,968 1,968
Total $5,188 $ 192 $5,380
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
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<PAGE>93 OF 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
Valuation and qualifying accounts (in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs & Close of
of Period Expenses Deductions(a) Period
Year ended December 31, 1994:
Allowance for doubtful
accounts $1,689 $1,733 $1,330 $2,092
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 1,287 1,501 1,581
(a) Write-off of uncollectible accounts, net of recoveries.
ix
<PAGE>
<PAGE>94 OF 94
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation
Under date of April 3, 1995, we reported on the consolidated
balance sheet of National Patent Development Corporation and
subsidiaries as of December 31, 1994 and 1993, 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, 1994, as contained in the annual report
on Form 10-K for the year ended 1994. 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 LLP
New York, New York
April 3, 1995
x
<PAGE>1 of 11
NATIONAL PATENT DEVELOPMENT CORPORATION
OFFER TO EXCHANGE
(A) SFR. 650 PRINCIPAL AMOUNT OF 8% SWISS FRANC DENOMINATED BONDS
OF NATIONAL PATENT DEVELOPMENT CORPORATION
DUE JUNE ___, 2000 AND SWISS FRANCS 600 IN CASH
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
(B)8% SWISS FRANC DENOMINATED BONDS OF
NATIONAL PATENT DEVELOPMENT CORPORATION
DUE JUNE __, 2000 IN A PRINCIPAL EQUIVALENT TO US $650
AND SWISS FRANCS CASH WITH A VALUE OF US $600
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 ________, JUNE __, 1995 (THE "EXPIRATION
DATE"), UNLESS THE OFFER IS EXTENDED.
BONDS MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
<PAGE>
<PAGE>2 of 11
To _________________
National Patent Development Corporation (the "Company") has offered
(the "Offer") to exchange (i) 8% Bonds denominated in Swiss Francs
("SFr.") and issued by the Company due June __, 2000 (the "New Bonds")
in a principal amount of SFr. 650, and (ii) SFr. 600 in cash 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 to exchange
(a) New Bonds in a principal amount equivalent to United States Dollars
("US $") 650 and (b) Swiss Francs cash with a value of US $600 for each
US $1,000 in principal amount and accrued interest thereon 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 May __, 1995
(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 Old 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 Old 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 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.
The New Bonds issued pursuant to the Offer will be issued only in
registered form, and such New Bonds will not be convertible into
bearer form at any time.
Tenders of Old 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.
The Payment Date for Old Bonds will be June ___, 1995; 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 June __, 1995,
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 June __, 1995, 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
-2-<PAGE>
<PAGE>3 of 11
Old 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 Old Bonds tendered, such Old Bonds
will not be accepted for tender.
Payment for Old Bonds so accepted for exchange will be made on the
Payment Date, unless the conditions set forth in Section 15 of the
Offering Circular have not been waived or satisfied, by delivery of the
New Bonds to and by deposit of the cash exchange price with the Exchange
Agents at their specified offices in Switzerland. The Exchange Agents
will deliver New Bonds and cash 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 Old 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 Old
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 number if you do not have one and how to complete the
Substitute Form W-9 if Old 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 Old 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 Old Bonds tendered
will thereupon be at the undersigned's free disposal.
Name (in print characters) ______________________________
Company _______________________________________________
Address _______________________________________________
_______________________________________________
Aggregate principal amount of
Old Bonds tendered: /SFr./ /US $/ _________________________
Date _____________________________________________________
Signature___________________________________________________
<PAGE>
<PAGE>4 of 11
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
Department of the proprietors, see the instructions in
Treasury the Guidelines. For other entities, it
Internal Revenue is your employer identification number.
Service If you do not have a number,
see Obtaining a Number in the
Guidelines.
Request for
Taxpayer Note: If the account is in more than
Identification one name, see the chart on page 1 of
Number and the Guidelines on whose number to
Certification enter.
Social Security Number
OR
Employer Identificatin Number
PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(SEE INSTRUCTIONS IN THE GUIDELINES)
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: ________________, 1995
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>5 of 11
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 NUMBER OF --
NUMBER OF --
1. Individual The 6. Sole The owner(3)
individual proprietorship
2. Two or more The actual Legal entity
individuals owner of the (Do not
(joint account) account or, furnish the
if combined identifying
funds, the number of
first the personal
individual representative
on the or trustee
account(1) 7. A valid trust, unless the
estate, or legal entity
itself is not
designated in
the account
title.)(4)
3. Custodian The minor(2)
account of a
minor (Uniform
Gift to
Minors Act)
4. (a) The usual The grantor- 8. Corporate The
revocable savings trustee(1) corporation
trust (grantor
is also
trustee) 9. Association, club, The
religious, organization
(b) So-called The actual charitable,
trust account owner(1) educational or
that is not a other tax-exempt
legal or organization
valid trust under
State law 10. Partnership The
partnership
5. Sole The owner(3)
proprietorship 11. A broker or The broker
registered or nominee
nominee
<PAGE>
<PAGE>6 of 11
12. Account with the The public
Agriculture in entity
the name of a
public entity
(such as a State
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.
(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.
<PAGE>
<PAGE>7 of 11
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>8 of 11
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.
<PAGE>
<PAGE>9 of 11
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 ______, JUNE __, 1995, 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"), upon the terms and subject to the
conditions set forth in the Offering Circular, dated May __, 1995 (the
"Offering Circular"), and in the Letter of Instructions (the "Letter of
Instructions"), to exchange (i) 8% Bonds denominated in Swiss Francs
("SFr.") and issued by the Company due June __, 2000 (the "New Bonds"),
in a principal amount of SFr. 650, and (ii) SFr. 600 in cash for each
SFr. 1,000 in principal amount and accrued interest thereon of the Old
Swiss Franc Bonds validly tendered and not withdrawn prior to the
Expiration Date and to exchange (a) New Bonds in a principal amount
equivalent to United States Dollars ("US $"), 650 and (b) Swiss Francs
cash with a value equivalent to US $600 for each US $1,000 in principal
amount and accrued interest thereon of the 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").
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 Old Bonds to
tender Old Bonds pursuant to the Offer. Each holder of Old Bonds should
make his own decision whether to tender his Old 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 Old 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 all Old Bonds which are validly tendered pursuant to the
Offer and the Foreign Offer on or prior to the Expiration Date and not
theretofore properly withdrawn as permitted by Section 11 of the
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<PAGE>10 of 11
Offering Circular. "Expiration Date" shall mean 5:00 P.M., New York
City time, on ______, June __, 1995, 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 June __,
1995, at which time the Offer, as so extended by the Company, shall
expire. Payment for Old Bonds exchanged pursuant to the Offer will be
made on June __, 1995 (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 Old 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.
For purposes of the Offer, the Company shall be deemed to have
accepted for exchange tendered Old Bonds on the Expiration Date, 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 Old Bonds so accepted for
exchange will be made on the Payment Date, unless the conditions set
forth in Section 15 have not been waived or satisfied, by delivery of
the New Bonds to and deposit of the cash exchange price with the
Exchange Agents at their specified offices in Switzerland. The Exchange
Agents will deliver New Bonds and cash 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 Old 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
Old Bonds to the Company and Old Bonds must be physically delivered to
the appropriate Exchange Agent in Switzerland, together with all
unmatured and matured but unpaid coupons. Any financial institution
holding Old 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.
Old 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 Old Bonds to be withdrawn and the
aggregate principal amount of Old 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.
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<PAGE>11 of 11
The New Bonds to be issued pursuant to the Offer have 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. Offers and sales of New Bonds 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 Old 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 New Bonds to and deposit the cash exchange price
with the Exchange Agents outside the United States, and the Exchange
Agents will deliver, on behalf of the Company, New Bonds and cash
pursuant to the Offer only to an account or address outside the United
States.
