<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
SCHEDULE 13E-4
______________________
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934)
NATIONAL PATENT DEVELOPMENT CORPORATION
(Name of Issuer)
NATIONAL PATENT DEVELOPMENT CORPORATION
(Name of Person(s) Filing Statement)
6% Convertible Bonds Due March 7, 1995,
5 3/4% Convertible Bonds Due May 9, 1995,
5 5/8% Convertible Bonds Due March 18, 1996,
8% Bonds Due March 1, 1995, or
(collectively, the "Old Swiss Franc Bonds")
7% Dual Currency Convertible Bonds Due March 18, 1996
(the "Old U.S. Dollar Bonds," and collectively with
the Old Swiss Franc Bonds, the "Bonds")
(Title of Class of Securities)
6% Convertible Bonds Due March 7, 1995,
(Swiss Security No. 887283)
5 3/4% Convertible Bonds Due May 9, 1995,
(Swiss Security No. 887284)
5 5/8% Convertible Bonds Due March 18, 1996,
(Swiss Security No. 887286)
8% Bonds Due March 1, 1995, or
(Swiss Security No. 887282)
7% Dual Currency Convertible Bonds Due March 18, 1996
(Swiss Security No. 887287)
(Cusip Number & Class of Securities)
Lawrence M. Gordon
National Patent Development Corporation
9 West 57th Street
New York, New York 10019
(212) 230-9500
_________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the
Person(s) Filing Statement)
May 16, 1995
---------------------------------------
(Date Tender Offer First Published,
Sent or Given to Security Holders)
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Calculation of Filing Fee
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Transaction Amount of Filing Fee
Valuation*
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$6,803,998 $1,360.80
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/ / Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: _____________ Filing Party: __________
Form or Registration No.: ___________ Date Filed: ____________
_________________
* Based on the aggregate value of the securities proposed to be acquired.
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<PAGE> 3
This Schedule 13E-4 relates to an offer by National Patent
Development Corporation (the "Company") to exchange (i) 8% Bonds denominated in
Swiss Francs ("SFr.") and issued by the Company due June 28, 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 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.
The Company is concurrently making separate offers to (i) U.S.
holders to purchase any and all Bonds held by such holders (the "United States
Offer") and (ii) holders of Bonds held by persons that are not in the United
States and are not U.S. persons (the "Foreign Offer"). As used herein, the
term "Offer" shall refer collectively to the United States Offer and the
Foreign Offer. In connection with both of the above, a copy of the form of the
Company's Offering Circular dated May 16, 1995 with respect to the United
States Offer (the "U.S. Offering Circular") and a copy of the Company's
Offering Circular dated May 16, 1995 with respect to the Foreign Offer (the
"Foreign Offering Circular") are attached hereto as Exhibits (a)(1) and (a)(2)
and are incorporated herein by reference. As used herein, the term "Offering
Circular" shall refer collectively to the U.S. Offering Circular and the
Foreign Offering Circular.
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Item Response or Cross-Reference to
- ---- the Offering Circular
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Item 1 Security and Issuer.
(a) The name of the issuer and the address of its principal
executive office are: National Patent Development Corporation,
9 West 57th Street, New York, New York 10019.
(b) The exact title and amount of the class of securities being
sought are: any and all Old Bonds validly tendered in response
to the Offer and not withdrawn prior to the Expiration Date.
On March 31, 1995 there were outstanding, excluding Old Bonds
outstanding that are owned by the Company or its affiliates,
SFr. 1,685,000 of the 6% Convertible Bonds due 1995, SFr.
1,065,000 of the 5 3/4% Convertible Bonds due 1995, SFr.
1,415,000 of the 5 5/8% Convertible Bonds due 1996, SFr.
1,584,000 of the 8% Bonds due 1995 and US $2,037,000 of the 7%
Dual Currency Bonds. With respect to the consideration being
offered for the Old Bonds,
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the cover page of the Offering Circular and the section of the
Offering Circular entitled "Terms of the Offer" are hereby
incorporated herein by reference. To the best of the Company's
knowledge, no officer, director or affiliate of the Company
owns any of the Old Bonds.
(c) Reference is made to the section of the Offering Circular
entitled "Price Range of the Old Bonds"; said section is hereby
incorporated herein by reference.
(d) Not applicable.
Item 2 Source and Amount of Funds or Other
Consideration.
(a) The Company has offered to exchange (i) 8% Bonds denominated in
Swiss Francs ("SFr.") and issued by the Company due June 28,
2000 (the "New Bonds") in a principal amount and accrued
interest thereon 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 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. The sections of the
Offering Circular entitled "Terms of the Offer" and "Source and
Amount of Funds" are hereby incorporated herein by reference.
Assuming 100% in aggregate principal amount of the outstanding
Old Swiss Franc Bonds are exchanged, the Company will issue New
Bonds in an aggregate principal amount of SFr. 3,736,850 and
SFr. 3,449,400 in cash. Assuming 100% in aggregate principal
amount of the outstanding Old U.S. Dollar Bonds are exchanged,
the Company will issue New Bonds in an aggregate principal
amount equivalent to US $1,324,050 and Swiss Francs cash with a
value of US $1,222,200.
(b) Not applicable.
Item 3 Purpose of the Tender Offer and Plans or
Proposals of the Issuer or Affiliate.
With respect to purposes of the Offer, the section of the
Offering Circular entitled "Purpose of the Offer" is hereby
incorporated herein by reference and with
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respect to the plans of the Issuer the Introduction of the
Offering Circular is hereby incorporated herein by reference.
Item 4 Interest in Securities of the Issuer.
During the period of 40 business days prior to the date hereof
(on March 14, March 22 and March 24) the Company 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.
On March 14, 1995 the Company repurchased the aggregate
SFr. 87,000 8% Bonds, SFr. 355,000 6% Convertible Bonds, and
SFr. 80,000 5 3/4% Convertible Bonds including all accrued
interest for a total consideration of SFr. 282,090 in cash
and $256,400 (128,200 shares) of the Company's common stock.
On March 22, 1995 the Company repurchased the aggregate SFr.
960,000 8% Bonds, SFr. 820,000 6% Convertible Bonds, SFr.
875,000 5 3/4% Convertible Bonds, and SFr. 405,000 5 5/8%
Convertible Bonds, and US $3,000 7% Dual Currency Bonds
including accrued interest for a total consideration of
$1,125,920 and $1,522,199 (845,666 shares) of the Company's
common stock.
On March 24, 1995 the Company repurchased SFr. 411,000 8%
Bonds, SFr. 85,000 6% Convertible Bonds, SFr. 100,000
5 3/4% Convertible Bonds and SFr. 120,000 5 5/8% Convertible
Bonds including accrued interest for a total consideration of
SFr. 382,500 in cash and $339,300 (188,500 shares) of the
Company's common stock. All of the above transactions were
privately negotiated.
The section of the Offering Circular entitled "Price Range
of the Old Bonds" is hereby incorporated herein by reference.
Item 5 Contracts, Arrangements, Understandings or
Relationships with Respect to the Issuer's
Securities.
Neither the Company nor, to the best of the Company's
knowledge, any of its directors or executive officers, or any
of the executive officers or directors of any of its
subsidiaries, is a party to any contract, arrangement or
understanding with respect to any securities of the Company
required to be disclosed herein.
The New Bonds will be issued under an Indenture (the
"Indenture") between the Company and Bank of Montreal Trust
Company, as Trustee (the "Trustee"), a draft of which was filed
as Exhibit T3C to the Company's Form T-3 filed on May 11, 1995.
A brief summary of the material terms of the Indenture is set
forth in Section 14 - "Terms of the New Bonds" of the U.S.
Offering Circular.
Item 6 Persons Retained, Employed or to be
Compensated.
Reference is made to the section of the Foreign Offering
Circular entitled "Exchange Agents"; said section is hereby
incorporated herein by reference.
Item 7 Financial Information.
(a) Reference is made to the section of the Offering Circular
entitled "Selected Consolidated Financial Information of the
Company," and the financial statements included in the Offering
Circular; said section and financial statements are hereby
incorporated herein by reference.
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(b) Reference is made to the section of the Offering Circular
entitled "Selected Consolidated Financial Information of the
Company;" said section is hereby incorporated herein by
reference.
Item 8 Additional Information.
(a) None.
(b) Not applicable.
(c) Not applicable.
(d) None.
(e) Additional information with respect to the Offer and related
matters is included throughout the Offering Circular, which is
hereby incorporated herein by reference in its entirety.
Item 9 Material to be filed as Exhibits.
(a) (1) U.S. Offering Circular dated May 16, 1995.
(2) Foreign Offering Circular dated May 16, 1995.
(3) Form of U.S. Letter of Instructions.
(4) Form of Acceptance.
(5) Advertisement dated May 16, 1995 published in The New York Times.
(b) None.
(c) (1) Draft of Indenture to be entered into between the
Company and Bank of Montreal Trust Company, as
Trustee, incorporated by reference to Exhibit T3C to
the Form T-3 filed by the Company on May 11, 1995.
(d) None.
(e) None.
(f) None.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete
and correct.
May 16, 1995
---------------------------------------
(Date)
NATIONAL PATENT DEVELOPMENT CORPORATION
By Lawrence M. Gordon
------------------------------------
Name: Lawrence M. Gordon
Title:Vice President
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EXHIBIT INDEX
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Page Number in
sequentially
Numbered Volume
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EXHIBIT (a) (1) U.S. Offering Circular dated May 16, 1995.
(2) Foreign Offering Circular dated May 16, 1995.
(3) Form of U.S. Letter of Instructions.
(4) Form of Acceptance.
(5) Advertisement dated May 16, 1995 published in
The New York Times.
(c) (1) Draft of Indenture to be entered into between
the Company and Bank of Montreal Trust Company,
as Trustee, incorporated by reference to
Exhibit T3C to the Form T-3 filed by the
Company on May 11, 1995.
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<PAGE> 1
EXHIBIT (a)(1)
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 28, 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 28, 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
WEDNESDAY, JUNE 14, 1995 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
<PAGE> 2
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 28, 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 OLD BONDS TO TENDER OLD BONDS PURSUANT TO
THE OFFER. EACH HOLDER OF OLD BONDS SHOULD MAKE ITS OWN DECISION WHETHER TO
TENDER ITS OLD 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 16, 1995
<PAGE> 3
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.
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.
<PAGE> 4
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 Bank of Montreal Trust
Company, 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> 5
TABLE OF CONTENTS
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PAGE
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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Description of the Company . . . . . . . . . . . . . . . . . . . 1
Summary Terms and Conditions of the Offer . . . . . . . . . . . . 3
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 . . . . . . . . . . . . . . . . . 14
9. Acceptance for Exchange and Payment . . . . . . . . . . . . . 14
10. Procedures for Tendering Old Bonds . . . . . . . . . . . . . 14
11. Withdrawal Rights . . . . . . . . . . . . . . . . . . . . . . 15
12. Certain Tax Consequences . . . . . . . . . . . . . . . . . . 15
13. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 21
14. Terms of the New Bonds . . . . . . . . . . . . . . . . . . . 22
15. Certain Conditions of the Offer . . . . . . . . . . . . . . . 23
16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 25
17. Source of Information . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
Annex A--National Patent Development Corporation--Annual Report on Form 10-K/A
for the year ended December 31, 1994.
<PAGE> 6
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 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
<PAGE> 7
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.
SUMMARY BOND INFORMATION
The following table sets forth certain information with respect to the Old
Bonds:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT HELD BY THE COMPANY
ORIGINAL PRINCIPAL OUTSTANDING AS OF (OR AFFILIATES) AS OF
NAME OF ISSUE AMOUNT MARCH 31, 1995* MARCH 31, 1995** SCHEDULED MATURITY
------------- ------------------ ----------------- --------------------- ------------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------------------
* 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."
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").
-2-
<PAGE> 8
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 16, 1995 to
June 14, 1995. The Company reserves the right to extend the Offer for an
additional ten (10) business days, until June 28, 1995. The date on which the
Offer, or any extension thereof, expires is hereinafter referred to as the
"Expiration Date."
PAYMENT DATE
Subject to the conditions set forth in Section 15, the "Payment Date" is
June 28, 1995, or, if the Expiration Date has been extended beyond June 14,
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.
-3-
<PAGE> 9
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.
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" means 5:00 p.m., New York City time, on June
14, 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 28, 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 28, 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 28, 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 28, 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
-4-
<PAGE> 10
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 prior to the due date of the payment. Fractional shares
of Common Stock resulting from such calculation shall be rounded up to the
nearest integral multiple. 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 28 of each year,
commencing June 28, 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. Fractional shares of Common Stock resulting from such
calculation shall be rounded up to the nearest integral multiple. 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.
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,
-5-
<PAGE> 11
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.
(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.
-6-
<PAGE> 12
<TABLE>
<CAPTION>
NEW BONDS OLD BONDS
--------- --------------------------------------------------------
6% 5 3/4% BONDS 5 5/8% BONDS
-- ------------ ------------
BONDS
-----
<S> <C> <C> <C> <C>
Principal Amount SFr. 0 SFr. 1,685,000 SFr. 1,065,000 SFr. 1,415,000
Outstanding as of
March 31, 1995:
Interest Rate: 8%(a) 6% 5 3/4% 5 5/8%
Scheduled Maturity: June 28, 2000 March 7, 1995 May 9, 1995 March 18, 1996
Interest Payment Annually on June Annually on Annually on May Annually on
Dates: 28 March 7 9 March 18
Mandatory None None None None
Redemption:
Optional Redemption: 25% or more (a (b) (b) (b)
minimum of SFR.
250,000) of the
principal amount
of the New Bonds
then outstanding
are redeemable at
any time at a
redemption price
in cash equal to
100% of their
principal amount
or in Common
Stock equal to
105% of their
principal amount
Conversion: Not Convertible No longer No longer Convertible
Convertible Convertible into shares of
Common Stock
prior to March 8,
1996 at an
effective
conversion price
of $34.46 per
share, which is
based upon an
exchange rate of
SFr. 1,495 per
US $1.00
Denominations: SFr. 10, SFr. 5,000 SFr. 5,000 SFr. 5,000
SFr.100 or
SFr.1,000
Limitation of None Negative Pledge Negative Pledge Negative Pledge
indebtedness
Listing: None (e) (e) (e)
<CAPTION>
--------------------------------------
8% 7%
-- --
BONDS BONDS
----- -----
<S> <C> <C>
Principal Amount SFr. 1,584,000 US $2,037,000
Outstanding as of
March 31, 1995:
Interest Rate: 8% 7%
Scheduled Maturity: March 1, 1995 March 18, 1996
1996
Interest Payment Semi-Annually on Annually on
Dates: June 20 and March 18
December 20 and
at maturity
Mandatory None None
Redemption:
Optional 25% or more (a (b)
Redemption: minimum of SFr.
2,000,000) of the
principal amount
of 8% Bonds then
outstanding are
redeemable at
any time at a
redemption price
equal to 100% of
their principal
amount
Conversion: Not Convertible
Convertible into shares of
(c) Common Stock
prior to March
8, 1996 at a
conversion
price of $30.93
per share.
Denominations: SFr. 3,000 US $3,000
Limitation of Negative Negative
indebtedness Pledge(d) Pledge
Listing: (e) (e)
</TABLE>
-7-
<PAGE> 13
- ------------------------
(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.
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:
<TABLE>
<CAPTION>
6% CONVERTIBLE BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
85% 46% 93% 80% 101% 90.5%
<CAPTION>
5 3/4% CONVERTIBLE BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
80% 42% 96% 70% 100% 91.25%
</TABLE>
-8-
<PAGE> 14
<TABLE>
<CAPTION>
5 5/8% CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
80% 48% 95% 75% 98% 84%
<CAPTION>
8% BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
85% 38.5% 95% 81% 105% 90%
<CAPTION>
7% DUAL CURRENCY CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
75% 47% 95% 76% 86% 80%
</TABLE>
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.
-9-
<PAGE> 15
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
OUTSTANDING PRO FORMA
----------- ---------
(unaudited, in thousands)
<S> <C> <C>
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
======== =======
</TABLE>
- -------------------
(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.
-10-
<PAGE> 16
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.
<TABLE>
<CAPTION>
ASSETS
Actual Pro Forma
------ ---------
(unaudited, in thousands)
Current Assets
- --------------
<S> <C> <C>
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
========== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
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-sale
securities.......................................... (1,783) (1,783)
---------- --------
Total stockholders' equity.............................. 65,165 66,543
---------- --------
$ 175,546 $167,324
========== ========
</TABLE>
------------------------
(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.
-11-
<PAGE> 17
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)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Actual Pro Forma
---------- ------------
<S> <C> <C>
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
======== ==========
</TABLE>
-12-
<PAGE> 18
<TABLE>
<CAPTION>
Year ended
December 31, 1994
-----------------
<S> <C>
(a) The change in investment and other income,
net will be the result of the following
factors (in thousands):
Reduced investment income as a result of
the use of cash and cash equivalents in
the Offer $ (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)
------
$ (168)
------
Amortization of discount
on the New Bonds $1,095
======
</TABLE>
<PAGE> 19
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 28,
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 14, 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 28, 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.
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 bondholders
will be valid only if received by the appropriate Exchange Agent prior to the
Expiration Date.
Except as set forth below, all questions as to the validity, form and
eligibility (including time of receipt) of any tendered 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
-14-
<PAGE> 20
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 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.
-15-
<PAGE> 21
THE EXCHANGE
In General. The Company believes that, as a result of the
relatively short 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.
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.
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 United States holder 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.
-16-
<PAGE> 22
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 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)
-17-
<PAGE> 23
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.
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.
-18-
<PAGE> 24
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 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
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
-19-
<PAGE> 25
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 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 New
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 "
- -- Payments 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.
-20-
<PAGE> 26
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.
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.
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.
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<PAGE> 27
14. Terms of the New Bonds.
GENERAL
The Company will issue the New Bonds under an Indenture (the "Indenture"),
between the Company and Bank of Montreal Trust Company, 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 from 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.
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 the laws of the United States of America or any State thereof or
the District of Columbia; (ii) the person assumes by the 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
-22-
<PAGE> 28
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
(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 set forth in the Indenture 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 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
set forth in the Indenture 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.
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
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<PAGE> 29
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 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.
-24-
<PAGE> 30
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 16, 1995
NATIONAL PATENT DEVELOPMENT CORPORATION
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<PAGE> 31
ANNEX A
National Patent Development Corporation--Annual Report on Form 10-K/A for the
year ended December 31, 1994.
<PAGE> 32
EXCHANGE AGENTS
Banque Scandinave en Suisse and Bank Leu AG have agreed to act as the
Exchange Agents in connection with the Offer. Letters of Instructions (or
facsimile copies thereof) and Old Bonds should be sent or delivered by
bondholders, or their broker, dealer, commercial bank or trust company, to the
Exchange Agents at the appropriate address below.
BANQUE SCANDINAVE EN SUISSE
Cours de Rive 11
1211 Geneva 3
Switzerland
BANK LEU AG
Financial Engineering
Post Office Box 8022
Zurich, Switzerland
<PAGE> 33
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.
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> 34
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
<PAGE> 35
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").
1
<PAGE> 36
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.
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
2
<PAGE> 37
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, 1994, 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
3
<PAGE> 38
resources on 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.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Training and Technology Services $ 46,466
DOD Services 18,078
DOE Services 18,805
Engineering Services 31,781
Total Revenue $115,130
</TABLE>
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
4
<PAGE> 39
advantage of the United States Government's increased focus on environmental,
health and safety matters 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.
5
<PAGE> 40
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.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Year Ended December 31, 1994
<S> <C>
Time-and Materials 37%
Fixed-Price 39%
Cost-plus-Fixed-Fee 24%
100%
</TABLE>
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.
6
<PAGE> 41
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
7
<PAGE> 42
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.
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.
8
<PAGE> 43
Competition within the industry is intense. There are much larger
national companies commonly associated with national franchises such as
Servistar and True Value as well as smaller regional distributors all of whom
offer similar products and services. Additionally, in some instances
manufacturers will bypass the distributor and choose to sell and ship their
products directly to the retail outlet. The principal means of competition
for Five Star are its strategically placed distribution centers and its
extensive inventory of quality name brand products. Five Star will continue
to focus its efforts on supplying its products to its customers at a
competitive price and on a timely, and consistent basis. In the future, Five
Star will attempt to acquire complementary distributors and to expand the
distribution of its line of private-label products sold under the "Five Star"
name.
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.
9
<PAGE> 44
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 Hydron(R) in applications other than the soft contact 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 B(R) 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
Hydron(R) 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
10
<PAGE> 45
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").
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
1992 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 1993, Duratek designed, built and
operated a 100 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
11
<PAGE> 46
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.
Near the end of 1993, 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.
12
<PAGE> 47
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.
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.
13
<PAGE> 48
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.
<TABLE>
<CAPTION>
PRODUCT
INDICATIONS POTENTIAL APPLICATION/ STATUS OF CLINICAL TRIAL(1) SPONSOR
- ----------- ---------------------- -------------------------- -------
<S> <C> <C> <C>
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 shortly Investigator(5)
Multiple Sclerosis Phase 2 being planned ISI
Hepatitis B Phase 2 proposed (4)
</TABLE>
14
<PAGE> 49
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ALFERON N Cervical dysplasia Phase 2 completed ISI
Gel
Cervical dysplasia Phase 2 to commence shortly Investigator(5)
(in HIV-infected 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
</TABLE>
(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.
15
<PAGE> 50
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
16
<PAGE> 51
and agreed to purchase an additional $500,000 of Common Stock on February 6,
1996, based on the then current market price.
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.
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<PAGE> 52
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 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
18
<PAGE> 53
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.
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.
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<PAGE> 54
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, is traded on the
American Stock Exchange, Inc. and the Pacific Stock Exchange, Inc. The
following tables present its high and low market prices for the last two
years.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C> <C>
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
</TABLE>
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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<PAGE> 55
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
------------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------------------------------------
</TABLE>
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<PAGE> 56
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 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
22
<PAGE> 57
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 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
23
<PAGE> 58
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, ALFERON(R) 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 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.
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<PAGE> 59
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 ALFERON(R) 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 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
25
<PAGE> 60
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.
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
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<PAGE> 61
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.
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
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<PAGE> 62
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).
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
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<PAGE> 63
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.
29
<PAGE> 64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
30
<PAGE> 65
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
31
<PAGE> 66
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------------------------
December 31, 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 67
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 68
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
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)
-----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 69
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)
<TABLE>
<CAPTION>
Net unrealized
gain
Class B Capital in (loss) on Total
Common capital excess available- Treasury stock-
stock stock of par for-sales stock holders'
($.01 Par) ($.01 Par) value Deficit securities at cost equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 $ 151 $ 2 $ 94,828 $(21,108) $ $ (1,468) $72,405
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options
and warrants 2 280 282
Issuances of treasury stock (1,074) 1,468 394
(102,772 common shares)
Net loss (11,943) (11,943)
Conversion of 12% Debentures 1 164 165
Issuance of stock in
connection with Swiss Bonds 2 911 913
Effect of exercise of warrants to
purchase the stock of a
subsidiary 674 674
Shares issuable in settlement of debt 186 186
Issuance and sale of common stock 3 744 747
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 $ 159 $ 2 $ 96,713 $(33,051) $ $ $63,823
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale of common stock 3 375 378
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $ 190 $ 2 $106,274 $(39,028) $ $ $67,438
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 70
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS, EXCEPT SHARES, PAR VALUE PER SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Net unrealized
gain
Class B Capital in (loss) on Total
Common capital excess available- Treasury stock-
stock stock of par for-sales stock holders'
($.01 Par) ($.01 Par) value Deficit securities at cost equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 71
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
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)
----------------------------------------------------------------------------
</TABLE>
37
<PAGE> 72
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
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
---------------------------------------------------------------------------
</TABLE>
38
<PAGE> 73
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
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)
-------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 74
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.
40
<PAGE> 75
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment. Property, plant and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently.
Gain or loss on the disposition of property, plant and equipment is
recognized in operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated
useful lives:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
CLASS OF ASSETS USEFUL LIFE
- -----------------------------------------------------------------------------
<S> <C>
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 20 years
Leasehold improvements Shorter of asset life
or term of lease
</TABLE>
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a
straight-line basis generally over periods ranging from 5 to 40 years. The
Company capitalizes costs incurred to obtain and maintain patents and
licenses. Patent costs are amortized over the lesser of 17 years or the
remaining lives of the patents, and license costs over the lives of the
licenses. The Company also capitalizes costs incurred to obtain long-term
debt financing. Such costs are amortized on an effective yield basis over the
terms of the related debt and such amortization is classified as interest
expense in the Consolidated Statements of Operations.
The periods of amortization of goodwill are evaluated at least annually to
determine whether events and circumstances warrant revised estimates of
useful lives. This evaluation considers, among other factors, expected cash
flows and profits of the businesses to which the goodwill relates. Goodwill
is written off when it becomes evident that it has become permanently
impaired.
Treasury stock. Treasury stock is recorded at cost. Reissuances of treasury
stock are valued at market value at the date of reissuance. The cost of the
treasury stock is relieved from the treasury stock account and the difference
between the cost and market value is recorded as additional paid in capital.
41
<PAGE> 76
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales of stock by a subsidiary. The Company records in the Consolidated
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 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.
42
<PAGE> 77
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. GENERAL PHYSICS CORPORATION (CONTINUED)
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.
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.
43
<PAGE> 78
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. GENERAL PHYSICS CORPORATION (CONTINUED)
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):
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993
---- ----
(unaudited)
<S> <C> <C>
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)
</TABLE>
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.
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.
44
<PAGE> 79
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GTS DURATEK, INC. (CONTINUED)
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
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.
45
<PAGE> 80
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 ALFERON(R) 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):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Total assets $8,182 $20,301
Stockholders' equity 2,979 17,131
Revenues 1,166 51
Net loss (12,078) (8,460)
</TABLE>
46
<PAGE> 81
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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
-------------------------------------------------------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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 (22,843) (20,035)
amortization
-------------------------------------------------------
$ 14,580 $ 13,838
-------------------------------------------------------
</TABLE>
47
<PAGE> 82
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS
Short-term borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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
-------------------------------------------------------
</TABLE>
(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.
48
<PAGE> 83
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS (CONTINUED)
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 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.
49
<PAGE> 84
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS (CONTINUED)
(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 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.
50
<PAGE> 85
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1994 1993
----------------------------------------------------------
<S> <C> <C>
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
----------------------------------------------------------
</TABLE>
10. LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1994 1993
----------------------------------------------------------
<S> <C> <C>
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
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
----------------------------------------------------------
</TABLE>
(*) Secured by assets held under capital lease obligations.
51
<PAGE> 86
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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.
52
<PAGE> 87
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
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.
53
<PAGE> 88
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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.
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.
54
<PAGE> 89
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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 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.
55
<PAGE> 90
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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
Caridex(R) 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.
56
<PAGE> 91
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt outstanding at December
31, 1994 for each of the next five years are as follows (in
thousands):
<TABLE>
<S> <C>
1995 $ 13,700
1996 7,351
1997 7,188
1998 44
1999 2,249
</TABLE>
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):
<TABLE>
<CAPTION>
-------------------------------------------------
December 31, 1994 1993
-------------------------------------------------
<S> <C> <C>
Notes payable to bank $ 579 $ 3,109
Less current maturities 579 2,530
-------------------------------------------------
Long-term debt $ $ 579
-------------------------------------------------
</TABLE>
57
<PAGE> 92
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INVESTMENT IN FINANCE SUBSIDIARIES (CONTINUED)
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 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.
58
<PAGE> 93
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
December 31, 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
-------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
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:
<TABLE>
<CAPTION>
Percent
-------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.25 7.5 8.5
Long-term rate of return
on assets 10.0 10.0 10.0
</TABLE>
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 59 1/2 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.
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.
60
<PAGE> 95
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES
<TABLE>
<CAPTION>
The components of pretax income (loss) are as follows (in
thousands):
--------------------------------------------------------------
Years ended December 31, 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
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
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The components of income tax (benefit) expense from continuing
operations are as follows (in thousands):
------------------------------------------------------------
Years ended December 31, 1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
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
------------------------------------------------------------
</TABLE>
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.
61
<PAGE> 96
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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
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.
62
<PAGE> 97
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
---------------------------------------------------------------
December 31, 1994 1993
---------------------------------------------------------------
DEFERRED TAX ASSETS:
<S> <C> <C>
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 $
---------------------------------------------------------------
</TABLE>
63
<PAGE> 98
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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.
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.
64
<PAGE> 99
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. DISCONTINUED OPERATION (CONTINUED)
Assets and liabilities of Eastern included in the consolidated balance
sheet at December 31, 1994 were as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 3,284
-------------------------------
Current liabilities (1,247)
2,037
-------------------------------
Property and equipment 1,155
-------------------------------
</TABLE>
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:
65
<PAGE> 100
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Common Stock Class B Capital Stock
----------------------------------------------------------------------------------------
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1991 $2.25 - 18.50 5,218,884 $ 2.25 1,550,000
Granted 2.25 - 2.75 32,500
Exercised 2.25 (128,930)
Terminated 2.25 - 18.50 (540,850)
----------------------------------------------------------------------------------------
December 31, 1992 2.25 - 6.00 4,581,604 2.25 1,550,000
----------------------------------------------------------------------------------------
Granted 2.875- 4.125 18,000
Exercised 2.25 - 5.15 (175,125)
Terminated 2.25 - 5.625 (47,040)
----------------------------------------------------------------------------------------
December 31, 1993 2.25 - 6.00 4,377,439 2.25 1,550,000
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
</TABLE>
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.
66
<PAGE> 101
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED (CONTINUED)
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.
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.
67
<PAGE> 102
NATIONAL PATENT DEVELOPMENT CORPORATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------------------------
Years ended December 31, 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
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)
--------------------------------------------------------------
</TABLE>
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.
68
<PAGE> 103
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
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.
Additional information relating to the Company's business segments is
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------------
</TABLE>
69
<PAGE> 104
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
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.
The estimated fair value for the Company's major long-term debt
components are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------ ------------------
Carrying Estimated Carrying Estimated
------------------ ------------------
amount fair value amount fair value
----------------- -----------------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
70
<PAGE> 105
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The amortized cost, gross unrealized holding losses and fair
value for available-for-sale securities at December 31, 1994, were as
follows (in thousands):
<TABLE>
<CAPTION>
Gross
Amortized Unrealized
Cost Holding Losses Fair Value
-----------------------------------------------------------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE:
Equity Securities $9,186 $(1,783) $7,403
-----------------------------------------------------------------
</TABLE>
The gains and losses realized on available-for-sale securities
sold in 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
Unamortized Sales Realized
Cost Proceeds gain (loss)
-----------------------------------------------------------------
<S> <C> <C> <C>
Realized loss $1,850 $1,514 $ (336)
Realized gain 461 1,260 799
Net realized
gain (loss) $2,311 $2,774 $ 463
</TABLE>
71
<PAGE> 106
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
Real Machinery &
-------------------------------------------------------------
property equipment Total
-------------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based
primarily on increases in real estate taxes and operating costs
incurred by the lessor. Rent expense for real and personal property
was approximately $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 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).
72
<PAGE> 107
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
73
<PAGE> 108
NATIONAL PATENT SUPPLEMENTARY DATA
DEVELOPMENT CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT.30, DEC.31, March 31, June 30, Sept.30, Dec.31,
1994 1994 1994 1994 1993 1993 1993 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior quarters have been restated to reflect the discontinued operation.
74
<PAGE> 109
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.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
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
</TABLE>
75
<PAGE> 110
<TABLE>
<S> <C> <C>
Ogden R. Reid 68 Director
Herbert R. Silverman 77 Director
</TABLE>
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
76
<PAGE> 111
the law firm of Debevoise & Plimpton in New York City.
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.
77
<PAGE> 112
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 $1,500
for each meeting of the Board of Directors attended, but do not receive any
additional compensation for service on committees of the Board of Directors.
Officers of the Company do not receive additional compensation for serving as
directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman and Martin M.
Pollak, meets on call and has authority to act on most matters during the
intervals between Board meetings. The committee formally acted 26 times in 1994
through unanimous written consents.
Audit Committee
The Audit Committee reviews the internal controls of the Company and
the objectivity of its financial reporting. It meets with appropriate Company
financial personnel and the Company's independent certified public accountants
in connection with these reviews. This committee recommends to the Board the
appointment of the independent certified public accountants, subject to the
ratification by the stockholders at the Annual Meeting, to serve as auditors for
the following year in examining the books and records of the Company. This
Committee met twice in 1994. The Audit Committee currently consists of Ogden R.
Reid, Roald Hoffmann and Paul A. Gould.
ITEM 11. EXECUTIVE COMPENSATION IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
The following table and notes present the compensation paid by the
Company and subsidiaries to its Chief Executive Officer and the Company's most
highly compensated executive officers for 1994.
78
<PAGE> 113
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL
COMPENSATION AWARDS
--------------------- ------------ ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerome I. Feldman 1994 322,304 40,000(1) -0- 3,696(2)
President and Chief 1993 316,526 120,000 -0- 3,598(2)
Executive Officer 1992 326,243 -0- -0- 253,491(2)
Martin M. Pollak 1994 322,259(3) 40,000(1) -0- 3,696(2)(4)
Executive Vice President 1993 315,110 -0- -0- 3,598(2)
and Treasurer 1992 325,110 151,250 -0- 253,491(2)
Scott N. Greenberg 1994 216,375 20,000(1) -0- 3,696(5)
Vice President and 1993 156,625 -0- -0- 3,598
Chief Financial Officer 1992 151,000 -0- 22,500 2,932
Lawrence M. Gordon 1994 233,205 50,000(1) -0- 3,696(5)
Vice President and 1993 183,205 50,000 -0- 2,937
General Counsel 1992 183,507 -0- -0- 3,392
</TABLE>
- ------------------------------
(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.
(1) Includes $3,696, $3,598 and $3,491 as a matching contribution by the
Company to the 401(k) Savings Plan, and $250,000 in 1992 pursuant to a
Non-Compete Agreement between Messrs. Feldman and Pollak and SmithKline
Beecham Corporation. See "Employment Contracts and Termination of
Employment and Change in Control Arrangements."
(2) Constitutes matching contributions made by ADC and the Company equally on
behalf of Mr. Pollak pursuant to the Company's 401(k) Savings Plan.
(3) Matching contribution by the Company to the 401(k) Savings Plan.
For the year ended 1994, none of the named executive officers were
granted non-qualified stock options.
The following table and notes set forth information for the named
executive officers regarding the exercise of stock options during 1994 and
unexercised options held at the end of 1994.
79
<PAGE> 114
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1994
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
ON EXERCISE REALIZED
NAME (#) (1) ($)
- -----------------------------------------------------------------
<S> <C> <C>
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT DECEMBER 31,
1994 (#)
NAME EXERCISABLE/UNEXERCISABLE
- -----------------------------------------------------------------
<S> <C> <C>
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-
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1994 (#)
NAME EXERCISABLE/UNEXERCISABLE(3)
- -----------------------------------------------------------------
<S> <C> <C>
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
</TABLE>
- ----------------------
(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.
80
<PAGE> 115
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"):
81
<PAGE> 116
<TABLE>
<CAPTION>
AMOUNT OF
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNERS OWNERSHIP OF CLASS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
- ---------------------
(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.
82
<PAGE> 117
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.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES BENEFICIALLY
NAME OWNED
- -------------------------------------------------------------------------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
OWNED
- ---------------------------------------------------------------------
<S> <C>
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) *
Roald Hoffmann, Ph.D.(3)(4)(6) *
Ogden R. Reid(3)(4)(5)(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
</TABLE>
<TABLE>
<CAPTION>
OF TOTAL NUMBER OF
SHARES BENEFICIALLY
OWNED,
SHARES WHICH MAY BE
ACQUIRED WITHIN 60 DAYS
- ----------------------------------------------------------------------------
<S> <C>
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)(4)(6) 21,000
Ogden R. Reid(3)(4)(5)(6) 16,000
Paul A. Gould(1)(4)(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
</TABLE>
- -----------------------
* 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.
83
<PAGE> 118
(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 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.
84
<PAGE> 119
(5) Member of the Executive Committee.
(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).
85
<PAGE> 120
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 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.
86
<PAGE> 121
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:
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
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.
</TABLE>
87
<PAGE> 122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY: /s/ Jerome I. Feldman,
------------------------
Jerome I. Feldman,
President and Chief
Executive Officer
Dated: May 1, 1995
88
<PAGE> 123
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
Current assets December 31,
-------------- -------------------
1994 1993
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
i
<PAGE> 124
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED BALANCE SHEET (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------------
Current liabilities 1994 1993
------------------- -------- -------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
ii
<PAGE> 125
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Revenues
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)
======= ======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
Prior years have been restated to reflect the discontinued operation.
iii
<PAGE> 126
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
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
-------- -------- -------
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
======= ======= =======
</TABLE>
iv
<PAGE> 127
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes to the condensed financial statements.
v
<PAGE> 128
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):
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
------- -------
<S> <C> <C>
Raw materials $ 50 $ 95
Work in process 1 2
Finished goods 46 80
Land for resale 2,650 2,700
------- -------
$ 2,747 $ 2,877
======= =======
</TABLE>
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
---------------------
<S> <C> <C>
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
======== ========
</TABLE>
Aggregate annual maturities of long-term debt outstanding at December 31, 1994
for each of the next five years are as follows (in thousands):
<TABLE>
<S> <C>
1995 $ 9,275
1996 4,355
1997 7,055
1998
1999 2,129
</TABLE>
See Note 10 of the Notes to Consolidated Financial Statements for additional
information with respect to the Company's long-term debt.
vi
<PAGE> 129
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):
<TABLE>
<CAPTION>
Real Machinery &
-----------------------------------------------
property equipment Total
-----------------------------------------------
<S> <C> <C> <C>
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
-----------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor.
The Company is party to several lawsuits incidental to its business. It is not
possible at the present time to estimate the ultimate legal and financial
liability, if any, of the Company with respect to such litigation; however,
management believes that the ultimate liability, if any, will not have a
material adverse effect on the Company's Financial Statements.
vii
<PAGE> 130
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
<TABLE>
<CAPTION>
Valuation and qualifying accounts (in thousands)
-------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs & Close of
of Period Expenses Deductions(a) Period
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 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
-------------------------------------------------------------------------------------
</TABLE>
(a) Write-off of uncollectible accounts, net of recoveries.
viii
<PAGE> 131
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
ix
<PAGE> 1
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 28, 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 28, 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 12:00 NOON, SWISS TIME, ON
WEDNESDAY, JUNE 14, 1995 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
<PAGE> 2
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 FORM OF ACCEPTANCE (THE "FORM OF ACCEPTANCE"), TO EXCHANGE (I) 8%
BONDS DENOMINATED IN SWISS FRANCS ("SFR.") AND ISSUED BY THE COMPANY DUE JUNE
28, 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 FORM OF
ACCEPTANCE, 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 U.S. HOLDERS OF THE OLD BONDS (THE "UNITED STATES 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, 1995, (II) THE 5 3/4%
CONVERTIBLE BONDS DUE MAY 9, 1995 AND (III) THE 8% BONDS DUE MARCH 1, 1995. 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.
THE DATE OF THIS OFFERING CIRCULAR IS MAY 16, 1995
<PAGE> 3
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, SOLD OR DELIVERED, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OF, ANY U.S. PERSON
EXCEPT IN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. OFFERS AND SALES OF NEW BONDS IN THE UNITED STATES OR TO OR FOR
THE ACCOUNT OR BENEFIT OF U.S. PERSONS WOULD CONSTITUTE A VIOLATION OF UNITED
STATES LAW UNLESS MADE IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR PURSUANT TO AN EXEMPTION THEREFROM.
AS TO THE COMPANY, THE NEW BONDS ARE INTENDED TO BE OBLIGATIONS THAT
ARE NOT REQUIRED TO BE IN REGISTERED FORM FOR PURPOSES OF UNITED STATES FEDERAL
TAX LAWS. ACCORDINGLY, THE NEW BONDS MAY NOT, AS PART OF THE OFFER OR OTHERWISE
AS PART OF THE INITIAL DISTRIBUTION, BE OFFERED FOR SALE OR RESALE, SOLD OR
DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO A UNITED STATES
PERSON. CONSISTENT WITH THESE LIMITATIONS, THE OFFER DOES NOT APPLY TO, IS NOT
MADE TO AND MAY NOT BE ACCEPTED BY HOLDERS OF OLD BONDS THAT ARE WITHIN THE
UNITED STATES OR THAT ARE UNITED STATES PERSONS OR FOR THE ACCOUNT OR BENEFIT OF
HOLDERS OF OLD BONDS THAT ARE U.S. PERSONS. IN ORDER TO TENDER OLD BONDS VALIDLY
PURSUANT TO THE OFFER, A FORM OF ACCEPTANCE MUST BE SUBMITTED BY OR ON BEHALF OF
A HOLDER OF OLD BONDS (I) CERTIFYING THAT THE OLD BONDS BEING TENDERED ARE NOT
HELD BY OR ON BEHALF OF A PERSON WITHIN THE UNITED STATES OR A UNITED STATES
PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND (II) REPRESENTING AND
AGREEING THAT (A) SUCH HOLDER (OR ANY AFFILIATE THAT ACQUIRES NEW BONDS FROM A
HOLDER FOR THE PURPOSE OF OFFERING OR SELLING SUCH NEW BONDS DURING THE
RESTRICTED PERIOD (AS DEFINED BELOW)) HAS NOT OFFERED OR SOLD, AND, DURING THE
PERIOD BEGINNING ON THE EARLIER OF THE DATE THAT THE NEW BONDS ARE FIRST OFFERED
OR THE PAYMENT DATE FOR OLD BONDS ACCEPTED FOR PAYMENT BY THE EXCHANGE AGENTS
PURSUANT TO THE OFFER ("THE PAYMENT DATE"), AND ENDING ON THE DATE FORTY (40)
DAYS AFTER THE PAYMENT DATE (SUCH 40-DAY (OR LONGER) PERIOD BEING REFERRED TO AS
THE "RESTRICTED PERIOD"), SUCH HOLDER (OR SUCH AFFILIATE) WILL NOT OFFER OR SELL
NEW BONDS TO A PERSON WHO IS WITHIN THE UNITED STATES OR TO A UNITED STATES
PERSON OR TO OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON, (B) SUCH HOLDER (OR
ANY SUCH AFFILIATE) HAS NOT DELIVERED AND WILL NOT DELIVER WITHIN THE UNITED
STATES DEFINITIVE NEW BONDS THAT ARE SOLD DURING THE RESTRICTED PERIOD, (C) IN
THE CASE OF A HOLDER THAT OFFERS OR SELLS NEW BONDS DURING THE RESTRICTED
PERIOD, SUCH HOLDER (OR SUCH AFFILIATE) HAS AND THROUGHOUT THE RESTRICTED PERIOD
WILL HAVE IN EFFECT PROCEDURES REASONABLY DESIGNED TO ENSURE THAT ITS EMPLOYEES
OR AGENTS WHO ARE DIRECTLY ENGAGED IN SELLING NEW BONDS ARE AWARE THAT SUCH NEW
BONDS MAY NOT BE OFFERED OR SOLD DURING THE RESTRICTED PERIOD TO A PERSON WHO IS
WITHIN THE UNITED STATES OR TO A UNITED STATES PERSON OR TO OR FOR THE ACCOUNT
OR BENEFIT OF A U.S. PERSON AND (D) SUCH HOLDER HAS NOT ENTERED AND WILL NOT
ENTER INTO ANY CONTRACTUAL ARRANGEMENT WITH RESPECT TO THE DISTRIBUTION AND
DELIVERY OF THE NEW BONDS, EXCEPT WITH ITS AFFILIATES OR WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY. FOR THE PURPOSES OF THIS PARAGRAPH, WHETHER AN OFFER,
SALE OR DELIVERY IS MADE WITHIN THE UNITED STATES OR TO A UNITED STATES PERSON
WILL BE DETERMINED UNDER THE RULES SET OUT IN THE UNITED STATES INTERNAL REVENUE
CODE OF 1986 (THE "CODE") AND UNITED STATES TREASURY REGULATION SECTION
1.163-5(C)(2)(I)(D).
THE NEW BONDS WILL BE REPRESENTED INITIALLY BY A TEMPORARY GLOBAL NEW
BOND (THE "GLOBAL NEW BOND"), WITHOUT INTEREST COUPONS, TO BE DEPOSITED BY THE
COMPANY WITH BANQUE SCANDINAVE EN SUISSE ON BEHALF OF THE EXCHANGE AGENTS ON THE
PAYMENT DATE. THE GLOBAL NEW BOND MAY BE EXCHANGED, AS A WHOLE OR IN PART, FOR
APPROPRIATE DEFINITIVE NEW BONDS, IN BEARER FORM IN THE DENOMINATIONS OF SFR.
10, SFR. 100 OR SFR. 1,000, WITH INTEREST COUPONS (THE "COUPONS") ATTACHED, NOT
EARLIER THAN 40 DAYS AFTER THE LATER OF THE DATE ON WHICH THE NEW BONDS ARE
FIRST OFFERED OR THE PAYMENT DATE, BEFORE WHICH TIME NO NEW BONDS OR INTERESTS
THEREIN REPRESENTED BY THE GLOBAL NEW BOND MAY BE TRANSFERRED. SUCH EXCHANGE
SHALL BE MADE UPON CERTIFICATION THAT THE BENEFICIAL OWNERS OF THE NEW BONDS ARE
NOT UNITED STATES PERSONS OR U.S. PERSONS OR ARE FINANCIAL INSTITUTIONS (WITHIN
THE MEANING OF UNITED STATES TREASURY REGULATION SECTION 1.165-12(C)(1)(V)) NOT
LOCATED WITHIN THE UNITED STATES THAT HAVE PURCHASED SUCH NEW BONDS FOR RESALE
DURING THE RESTRICTED PERIOD AND THAT CERTIFY THAT THEY HAVE NOT ACQUIRED THE
NEW BONDS FOR PURPOSES OF RESALE DIRECTLY OR INDIRECTLY TO A UNITED STATES
PERSON OR TO A PERSON WITHIN THE UNITED STATES OR FOR THE ACCOUNT OR BENEFIT OF
A U.S. PERSON. A BENEFICIAL OWNER OF NEW BONDS MUST EXCHANGE ITS SHARE OF THE
GLOBAL NEW BOND FOR DEFINITIVE NEW BONDS BEFORE SUCH NEW BONDS OR INTERESTS
THEREIN MAY BE TRANSFERRED OR INTEREST PAYMENTS OR OTHER PAYMENTS IN RESPECT OF
THE NEW BONDS WILL BE MADE.
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 AND CASH 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.
IN THIS OFFERING CIRCULAR, REFERENCES TO "DOLLARS", "$" AND "US $" ARE
TO UNITED STATES DOLLARS, THE TERM "UNITED STATES" MEANS THE UNITED STATES OF
AMERICA (INCLUDING THE STATES AND THE DISTRICT OF COLUMBIA), ITS POSSESSIONS,
ITS TERRITORIES AND OTHER AREAS SUBJECT TO ITS JURISDICTION, AND THE TERM
"UNITED STATES PERSON" MEANS 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. "U.S. PERSON" SHALL HAVE THE MEANING SET FORTH IN
SECTIONS 230.901 THROUGH .904 OF TITLE 17 OF THE UNITED STATES CODE OF FEDERAL
REGULATIONS ("REGULATION S").
<PAGE> 4
THE FOLLOWING LEGEND WILL APPEAR ON ALL NEW BONDS AND COUPONS ISSUED
PURSUANT TO THE OFFER: "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." THE SECTIONS REFERRED TO IN THE LEGEND PROVIDE THAT, WITH CERTAIN
EXCEPTIONS, A UNITED STATES PERSON WILL NOT BE PERMITTED TO DEDUCT ANY LOSS, AND
WILL NOT BE ELIGIBLE FOR CAPITAL GAIN TREATMENT WITH RESPECT TO ANY GAIN,
REALIZED ON A SALE, EXCHANGE OR REDEMPTION OF SUCH NEW BONDS OR COUPONS.
AVAILABLE INFORMATION
THE COMPANY IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE UNITED
STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "ACT"), AND, IN
ACCORDANCE THEREWITH, FILES REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE 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 DUE MARCH 1, 1995 (THE "8% BONDS") AND BANK LEU
LTD., 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.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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.......................................... 6
3. Investment Considerations..................................... 6
4. Risks to Non-Exchanging Holders............................... 7
5. Summary Comparison of the New Bonds and the Old Bonds......... 7
7. Selected Consolidated Financial Information of the Company.... 11
8. Source and Amount of Funds.................................... 17
10. Procedures for Tendering Old Bonds............................ 17
11. Withdrawal Rights............................................. 18
12. Certain Tax Consequences...................................... 18
13. Exchange Agents............................................... 19
14. Terms of the New Bonds........................................ 19
15. Certain Conditions of the Offer............................... 26
16. Miscellaneous................................................. 26
17. Source of Information......................................... 27
</TABLE>
Annex A--National Patent Development Corporation--Annual Report on Form 10-K/A
for the year ended December 31, 1994.
<PAGE> 6
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 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
<PAGE> 7
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.
SUMMARY BOND INFORMATION
The following table sets forth certain information with respect to the Old
Bonds:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT HELD BY THE COMPANY
ORIGINAL PRINCIPAL OUTSTANDING AS OF (OR AFFILIATES) AS
NAME OF ISSUE AMOUNT MARCH 31, 1995* OF MARCH 31, 1995** SCHEDULED MATURITY
-------------------- ------------------ ----------------- ------------------- ------------------
<C> <C> <C> <C> <C>
6% Convertible Bonds Sfr. 60,000,000 Sfr. 1,685,000 Sfr. 3,595,000 March 7, 1995
5 3/4% Convertible Bonds Sfr. 50,000,000 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 U.S. $15,000,000 US $ 2,037,000 US $ 357,000 March 18, 1996
</TABLE>
- ------------------------
* 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 for 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 the 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."
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 U.S. holders of the Old Bonds (the "United
States Offer").
-2-
<PAGE> 8
BONDS DUE FOR REPAYMENT
The following Old Bonds have matured and are currently due for
repayment: (i) the 6% Convertible Bonds due March 7, 1995, (ii) the 5 3/4%
Convertible Bonds due May 9, 1995 and (iii) the 8% Bonds due March 1, 1995. 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 16,
1995 to June 14, 1995. The Company reserves the right to extend the Offer for an
additional ten (10) business days, until June 28, 1995. The date on which the
Offer, or any extension thereof, expires is hereinafter referred to as the
"Expiration Date."
PAYMENT DATE
Subject to the conditions set forth in Section 15, the "Payment Date"
is June 28, 1995, or, if the Expiration Date has been extended beyond June 14,
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 Form of Acceptance.
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.
-3-
<PAGE> 9
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 Ltd., 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 United States Offer on or prior to the
Expiration Date and not theretofore withdrawn as permitted by Section 11 of the
Offer. The term "Expiration Date" means 12:00 Noon, Swiss time, on June 14,
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 12:00 Noon, Swiss time, on June
28, 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 28, 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 28, 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 bearer form in the
denominations of SFr. 10, SFr. 100 or SFr. 1,000 principal amount, with coupons
attached, and are scheduled to mature on June 28, 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
-4-
<PAGE> 10
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 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 28 of each year,
commencing June 28, 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 extension or amendment of the Offer will be followed as promptly as
practicable by public announcement thereof, such announcement in the case of an
amendment or extension to be issued no later than 9:00 a.m., New York City time
(3:00 p.m., Swiss time), within two United States business days after the
previously scheduled Expiration Date. Without limiting the manner in which the
Company may choose to make any public announcement, the Company will have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by delivering a written copy thereof to the Exchange
Agents, which will act as the Company's agents in issuing the announcement to
the Feuille Officielle Suisse du Commerce and to a daily newspaper in the cities
of Basle, Geneva and Zurich within two United States business days after the
previously scheduled Expiration Date. The Company may terminate the Offer, in
its sole discretion, at any time after the Expiration Date and prior to the
Payment Date, pursuant to Section 15.
This Offering Circular will be provided to all principal offices of the
Exchange Agents in Switzerland. The Offering Circular will not be provided to
any person in the United States or to any United States person. A
-5-
<PAGE> 11
separate offering circular will be circulated to U.S. holders of the Old Bonds
in connection with the United States Offer.
2. Purpose of the Offer. The purpose of the Offer is to reduce the
Company's long-term indebtedness and related annual interest expense and to
provide the Company with additional financial flexibility in its operations.
Assuming that 100% of the Old Bonds had been exchanged on December 31,
1994 and reflecting the repurchase of 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.
(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
-6-
<PAGE> 12
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.
<TABLE>
<CAPTION>
NEW BONDS OLD BONDS
--------- ----------------------------------------------------------------
6% 5 3/4% 5 5/8% 8% 7%
BONDS BONDS BONDS BONDS BONDS
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Principal Amount SFr. 0 SFr. SFr. SFr. SFr. US
Outstanding as 1,685,000 1,065,000 1,415,000 1,584,000 $2,037,000
of March 31, 1995:
Interest Rate: 8% (a) 6% 5 3/4% 5 5/8% 8% 7%
Scheduled June 28, 2000 March 7, May 9, March 18, March 1,
Maturity: 1995 1995 1996 1995 March
18, 1996
Interest Payment Annually on Annually on Annually on Annually on Semi-annually Annually on
Dates: June 28 March 7 May 9 March 18 on June 20 March 18
and December
20 and at
maturity
Mandatory None None None None None None
Redemption:
Optional 25% or more (b) (b) (b) 25% or more (b)
Redemption: (a minimum of (a minimum
SFr. 250,000) of SFr.
of the 2,000,000) of
principal the principal
amount of the amount of 8%
New Bonds Bonds then
then out- outstanding
standing are are redeem-
redeemable at able at any
any time at a time at a
redemption redemption
price in cash price equal to
</TABLE>
-7-
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
equal to 100% 100% of their
of their principal
principal amount
amount or in
Common Stock
equal to 105%
of their
principal
amount
Not Convertible
Conversion: Not Con- No longer No longer Convertible Convertible into shares
vertible Convertible Convertible into shares of (c) of Common
Common Stock prior
Stock prior to to March 8,
March 8, 1996 at a
1996 at an conversion
effective price of
conversion $30.93 per
price of share.
$34.46 per
share, which
is based upon
an exchange
rate of SFr.
1,495 per US
$1.00.
Denominations: SFr. 10, SFr. 5,000 SFr. 5,000 SFr. 5,000 SFr. 3,000 US $3,000
SFr. 100 or
SFr. 1,000
Limitation of None Negative Negative Negative Negative Negative
indebtedness: Pledge Pledge Pledge Pledge(d) Pledge
Listing: None (e) (e) (e) (e) (e)
</TABLE>
- ------------------------
(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.
-8-
<PAGE> 14
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
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(through March 31, 1995)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
85% 46% 93% 80% 101% 90.5%
<CAPTION>
5 3/4% CONVERTIBLE BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
80% 42% 96% 70% 100% 91.25%
<CAPTION>
5 5/8% CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
80% 48% 95% 75% 98% 84%
<CAPTION>
8% BONDS DUE 1995
1993 1994 1995
---- ---- ----
(through March 31, 1995)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
85% 38.5% 95% 81% 105% 90%
</TABLE>
-9-
<PAGE> 15
<TABLE>
<CAPTION>
7% DUAL CURRENCY CONVERTIBLE BONDS DUE 1996
1993 1994 1995
---- ---- ----
(through March 31, 1995)
<S> <C> <C> <C> <C> <C>
High Low High Low High Low
75% 47% 95% 76% 86% 80%
</TABLE>
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.
-10-
<PAGE> 16
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------
OUTSTANDING PRO FORMA
----------- ---------
(unaudited, in thousands)
<S> <C> <C>
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 shares
issued 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
========== ==========
</TABLE>
- --------------------
(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.
-11-
<PAGE> 17
(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.
-12-
<PAGE> 18
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.
<TABLE>
<CAPTION>
ASSETS
Actual Pro Forma
------ ---------
(unaudited, in thousands)
<S> <C> <C>
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
========= =========
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-sale
securities ....................................... (1,783) (1,783)
</TABLE>
-13-
<PAGE> 19
<TABLE>
<S> <C> <C>
--------- ---------
Total stockholders' equity ........................... 65,165 66,543
--------- ---------
$ 175,546 $ 167,324
========= =========
</TABLE>
- ------------------------
(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.
-14-
<PAGE> 20
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)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Actual Pro Forma
------ ---------
<S> <C> <C>
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 10,648 8,173
--------- ---------
operations and extraordinary items
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
========= =========
</TABLE>
-15-
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(a) The change in investment and
other income, net will be the
result of the following factors
(in thousands):
Reduced investment income as a
result of the use of cash and
cash equivalents in the Offer $ (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)
$ (168)
-------
Amortization of discount on the
New Bonds $ 1,095
=======
</TABLE>
-16-
<PAGE> 22
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 $5,083,000 for the Old Swiss Franc Bonds
and $2,082,000 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
28, 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 12:00 Noon, Swiss time, on June 14, 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 12:00 Noon, Swiss time on June 28, 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
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. The
Company will give notice and the Exchange Agents shall publish such notice in
the Feuille Officielle Suisse du Commerce and a daily newspaper in the cities of
Basle, Geneva and Zurich no later than 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 Global New Bond and by deposit of the
cash exchange price with the Exchange Agents at their specified offices in
Switzerland. The New Bonds will be represented initially by a temporary Global
New Bond (the "Global New Bond"), without interest coupons, to be deposited by
the Company with Banque Scandinave en Suisse on behalf of the Exchange Agents on
the Payment Date. The Global New Bond may be exchanged, as a whole or in part,
for appropriate definitive New Bonds, in bearer form in the denominations of
SFr. 10, SFr. 100 or SFr. 1,000, with coupons attached, not earlier than 40 days
after the later of the date on which the New Bonds are first offered or the
Payment Date, before which time no New Bonds or interests therein represented by
a Global New Bond may be transferred. Such exchange shall be made upon
certification that the beneficial owners of the New Bonds are not U.S. persons
or United States persons or are financial institutions that have purchased such
New Bonds for resale during the Restricted Period and that certify that they
have not acquired the New Bonds for purposes of resale directly or indirectly to
a United States person or to a person within the United States or to or for the
account or benefit of a U.S. person. A beneficial owner of New Bonds must
exchange its share of the Global New Bond for definitive New Bonds before such
New Bonds or interests therein may be transferred or interest payments or other
payments in respect of the New Bonds will be made.
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.
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 Form of Acceptance for acceptance of the Offer
must be submitted by or on behalf of each beneficial owner of Old Bonds to the
appropriate Exchange Agent at its specified office in Switzerland. Any financial
institution holding Old Bonds on behalf of one or more beneficial owners may
submit one Form of Acceptance for all such beneficial owners. Old Bonds held
directly by a beneficial owner must
-17-
<PAGE> 23
be tendered, through a bank in Switzerland, to the appropriate Exchange Agent
accompanied by a Form of Acceptance signed by such beneficial owner. Tenders on
behalf of bondholders will be valid only if made through banks in Switzerland
and received by Banque Scandinave en Suisse, with respect to the 8% Bonds, or
Bank Leu AG, with respect to all of the Old Bonds except the 8% Bonds, 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 appropriate Exchange Agent, 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, after consultation with the
appropriate Exchange Agent, 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. None of the Company, the Exchange Agents or any other person will be
under any duty to give notification of any defect or irregularity in tender and
none shall incur any liability for failure to give any such notification.
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. None of the Company,
the Exchange Agents or any other person will be under any duty to give
notification of any defect or irregularity in any notice of withdrawal and none
shall incur any liability for failure to give any such notification.
Withdrawals of 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 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
Swiss tax consequences and certain United States federal income tax consequences
arising with respect to the Offer. The summary does not address any tax
consequences that may affect a bondholder in any jurisdiction other than
Switzerland and the United States. Each bondholder is urged to consult his own
tax advisor to understand fully the tax consequences of accepting the Offer or
of not accepting the Offer and continuing to own Old Bonds.
Switzerland. A Swiss stamp tax, if any, payable with respect to the
issuance of New Bonds under the Offer will be paid by the Company.
United States. Under current United States federal income tax law, no
withholding of United States federal income tax will be required on the payment
effected outside the United States to an exchanging holder of Old Bonds that is
a United States Alien (as defined below) of New Bonds and cash (the "Exchange
Consideration") by the Company or the Exchange Agents provided that (i) the
holder does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of voting stock of the Company and (ii) the
holder is not a controlled foreign corporation that is related to the Company
through stock ownership. The Company has determined and will certify on and as
of the Payment Date that it is not, and at no relevant time has been, a "United
States real property holding corporation" under Section 897(c)(2) of the
Internal Revenue Code. Accordingly, an
-18-
<PAGE> 24
exchanging holder of Old Bonds will not be subject to withholding of United
States federal income tax under the United States Foreign Investment in Real
Property Tax Act of 1980 on the receipt of the Exchange Consideration pursuant
to the Offer.
For purposes of this Offering Circular, the term "United States Alien"
means any person who, for United States federal income tax purposes, (i) is a
foreign corporation, a non-resident alien individual, a non-resident alien
fiduciary of a foreign estate or trust, or a foreign partnership one or more of
the members of which is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual or a non-resident alien
fiduciary of a foreign estate or trust and (ii) is not engaged in a trade or
business in the United States (and is not treated as so engaged through a
partnership or otherwise), to which trade or business income in respect of the
Old Bonds or New Bonds is (or is treated as) effectively connected.
13. Exchange Agents. Banque Scandinave en Suisse, acting through its
specified office in Switzerland, will serve as Exchange Agent with respect to
the exchange of the 8% Bonds, and Bank Leu AG, acting through its specified
office in Switzerland, will serve as Exchange Agent with respect to all other
Old Bonds. BANQUE SCANDINAVE EN SUISSE and BANK LEU AG may be referred to
individually as the "Exchange Agent" or, collectively, as the "Exchange Agents."
Each Exchange Agent will receive a basic fee equal to 3.5% of the
aggregate principal amount of all Old Bonds tendered for exchange pursuant to
this Offer, and not the United States Offer. Each Exchange Agent will receive a
minimum fee equal to SFr. 50,000, to be credited against the basic fee. If the
aggregate amount of Old Bonds tendered reaches certain thresholds, the Exchange
Agents will receive additional payments. In addition, the Exchange Agents will
be reimbursed for certain costs and expenses.
Assuming that all of the Old Bonds are tendered for exchange, total
fees and expenses of the Offer, including legal, accounting, investment banking
presentation and printing fees, are not expected to exceed approximately
$300,000, based on the March 31, 1995 exchange rate of 1.308.
Requests for additional information or additional copies of this
Offering Circular should be directed to the Exchange Agents at their specified
offices in Switzerland.
14. Terms of the New Bonds. For purposes of this Section 14, the New
Bonds issued pursuant to this Offer shall be referred to as the "Bonds." The
Coupon Due Dates set forth hereinafter will be modified to correspond with any
extension of the Expiration Date of the Offer. Any such modification will be
published as set forth in Section 12 of the Terms of the Bonds.
(1) Form and Denomination
The Bonds are issuable in bearer form in the denominations of SFr. 10,
SFr. 100 or SFr. 1,000 nominal amount each, with interest coupons (the
"coupons") attached. Fractional portions of New Bonds resulting from the
exchange will be rounded up to the nearest integral multiple of SFr. 10 of New
Bonds. The Bonds will be represented initially by a temporary Global Bond (the
"Global Bond"), without interest coupons, to be deposited by the Company with
Banque Scandinave en Suisse on behalf of Banque Scandinave en Suisse and Bank
Leu Ltd (in such capacity hereinafter also called the "Exchange Agents") on the
Payment Date. The Global Bond may be exchanged, as a whole or in part, for
appropriate definitive Bonds, in bearer form in the denominations of SFr. 10,
SFr. 100 or SFr. 1,000, with the coupons attached, not earlier than 40 days
after the later of the date on which the Bonds are first offered or the payment
date for Old Bonds accepted for payment by the Exchange Agents pursuant to the
Offer (the "Payment Date"). Such exchange shall be made upon certification that
the beneficial owners of the Bonds are not United States persons or are
financial institutions (within the meaning of United States Treasury Regulation
Section 1.165-12(c)(1)(v)) that have purchased such Bonds for resale during the
Restricted Period and that certify that they have not acquired the Bonds for
purposes of resale directly or indirectly to a United States person or to a
person within the United States or to or for the account or benefit of a U.S.
person. A beneficial owner of Bonds must exchange its share of the Global Bond
for definitive Bonds before interest payments or other payments in respect of
the Bonds will be made.
-19-
<PAGE> 25
For purposes hereof, (i) the term "Restricted Period" means the period
beginning on the earlier of the date that the Bonds are first offered or the
Payment Date and ending on the date forty (40) days after the Payment Date, (ii)
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, (iii) the term "United States person" means 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 and
(iv) the term "U.S. person" shall have the meaning set forth in Sections 230.901
through .904 of Title 17 of the United States Code of Federal Regulations.
(2) Interest
The Bonds bear interest from June 28, 1995 at the rate of 8% per annum,
payable annually in arrears on June 28 of each year, commencing June 28, 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, but not a combination thereof. Eight business days prior to the
date that any interest payment is due, the Company will declare 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 Bonds shall equal the amount of the interest
payment 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 prior to the due date of the payment. 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 date on
which such interest is paid. Interest on the Bonds will be computed on the basis
of a 360-day year of twelve 30-day months.
(3) Repayment
The Company undertakes to repay the principal amount of the Bonds,
unless previously redeemed, without any previous notice on June 28, 2000 (the
"Repayment Date"). Such principal is payable, at the sole discretion of the
Company, in either Swiss Francs cash or shares of Common Stock of the Company,
but not a combination thereof. 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 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.
(4) Optional Redemption
(a) At any time, the Company shall have the right 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 of 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 Common Stock. Either within the notice of
redemption given by the Company to Banque Scandinave en Suisse, or eight
business days prior to the date fixed for redemption, the Company will declare
irrevocably whether the redemption price will be paid in Swiss Francs or shares
of Common Stock, but not a combination thereof. 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 of Bonds 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.
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<PAGE> 26
(b) Any Bonds called for redemption pursuant to Section 4(a) above will
be drawn by lot, in the presence of a notary public, in the offices of Banque
Scandinave en Suisse. Any such drawing will take place within 10 business days
of receipt by Banque Scandinave en Suisse of the Company's intention to redeem
all or a portion of the Bonds then outstanding, including, at the option of the
Company, the Company's irrevocable declaration of whether the redemption price
will be paid in Swiss Francs or shares of Common Stock, and the serial numbers
of the Bonds drawn will thereafter be published in the newspapers mentioned in
Section 12 hereof by Banque Scandinave en Suisse. Bonds called for redemption
will become due 60 days after receipt of notice of redemption from the Company
by Banque Scandinave en Suisse, which notice may, at the option of the Company,
irrevocably declare whether the redemption price will be paid in Swiss Francs or
Common Stock. If the Company does not provide such information in the notice,
the Company shall irrevocably declare such information eight business days prior
to the redemption date. Bonds called for redemption shall cease to bear interest
from the date fixed for such redemption, unless the Company shall default in
providing for the payment of the redemption price. The Bonds must be presented
for repayment with all unmatured coupons attached. An amount equal to any
missing unmatured coupon shall be deducted from the amount due on redemption.
Such coupons shall, however, be paid upon subsequent presentation provided they
shall not have become barred pursuant to Section 11 hereof.
(5) Payments
Payments with respect to the Bonds and coupons, if paid in cash, shall
be made in such coin or currency of the Swiss Confederation as at the time of
payment shall be legal tender for the payment of private and public debts
therein, or, if paid in Common Stock, shall be made by delivery of stock
certificates representing shares of Common Stock, in each case against
presentation and surrender of such Bonds or coupons at any office of the Paying
Agent in Switzerland. Such payments shall be made without cost to the
bondholders, without any limitations and under all circumstances notwithstanding
any transfer restrictions, regardless of any bilateral or multilateral payment
or clearing agreement in existence between the United States of America and the
Swiss Confederation, irrespective of the nationality, residence or domicile of
any of the bondholders and without requiring any affidavit or the fulfillment of
any formalities. The funds or stock certificates required for the payment of
principal and interest shall be made available, or delivered, respectively, to
Banque Scandinave en Suisse in Switzerland as Paying Agent by the Company prior
to each Coupon Due Date and Repayment Date. The receipt of the funds by Banque
Scandinave en Suisse in Switzerland shall release the Company from its
obligations in respect of the payments due on the respective dates for principal
and interest.
The Paying Agent will arrange for payment of such funds or delivery of
stock certificates as and when due to the holders of Bonds and coupons. If the
due date for any payment by the Company does not fall on a day on which banks
are open for business in Switzerland, payment will be effected on the first
business day following such date. Bonds and coupons may be presented for payment
at the principal amount printed on the Bonds and the amount of interest printed
on the coupons only at the offices in Switzerland of BANQUE SCANDINAVE EN
SUISSE. No payment on the Bonds or coupons, whether in Swiss Francs or shares of
Common Stock, will be made by transfer to an account in, or by mailing to an
address in, the United States.
If at any time during the life of the Bonds, Banque Scandinave en
Suisse shall at any time be incapable, for any reason, of accepting funds for
the payment of principal, interest or any other additional amounts pursuant to
Section 5 hereof, or of acting as contemplated by the terms and conditions of
the Bonds, then the Company shall appoint the replacement. In the event of any
replacement of Banque Scandinave en Suisse hereunder, then all references to
Banque Scandinave en Suisse shall be deemed to include such replacement for the
purposes of the Bonds. The appointment of the replacement shall be published in
the manner described in Section 12.
The substitute Paying Agent must enter into an Agreement whereby it
agrees to comply with all obligations with which Banque Scandinave en Suisse
would otherwise have been obligated to comply.
(6) Tax Status
All payments of principal and interest on the Bonds and coupons shall
be made without deduction for or on account of any present or future tax,
assessment or other governmental charge ("Taxes") imposed upon such payment by
the United States of America or any political subdivision or taxing authority
thereof or therein. If the
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<PAGE> 27
Company shall at any time be required by law to withhold any such Taxes, the
Company will pay as additional amounts to Banque Scandinave en Suisse for the
account of the holders of Bonds and coupons, such amounts as may be necessary so
that every net payment on each Bond or coupon, after withholding for or on
account of any such Taxes (including any backup withholding tax or similar
charge that may be required in order for such payment to be made without any
certification or disclosure of the nationality, residence or identity of the
beneficial owner of such Bond or coupon) will not be less than the amount
provided in such Bond or coupon to be then due or payable; provided, however,
that the Company will not be required to pay such additional amounts for or on
account of any such Taxes that are imposed (i) otherwise than by withholding
from a payment on a Bond or coupon, or (ii) upon a holder of a Bond or coupon
who is subject to taxation by the United States for any reason other than such
holder's ownership or receipt of payments in respect of such Bond or coupon. Any
reference in this Bond to the payment of principal or interest shall be deemed
to include payment of the additional amounts payable pursuant to the provisions
of this paragraph.
The Company understands that pursuant to the Swiss federal laws at
present in force, interest payments on the Bonds are not subject to Swiss
withholding tax.
(7) Authorizations
The Company has confirmed to Banque Scandinave en Suisse that no
authorizations or approvals are required under the laws of the United States for
performance of its obligations hereunder.
(8) Status of the Bonds
The Bonds constitute unsecured direct obligations of the Company,
ranking equally with other unsecured and unsubordinated indebtedness for
borrowed money of the Company.
(9) Events of Default
Subject to the provisions of Section 14, each bondholder shall have the
right to declare by notice to the Company the Bonds held by such bondholder,
plus accrued interest, to be due and payable if any of the following events of
default shall occur:
(a) default in the payment of principal, or, for a period of 30 days,
in the payment of interest on any Bond; or
(b) default 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
(c) a default shall occur 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) the 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
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<PAGE> 28
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
(f) if 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 U.S. counsel reasonably
satisfactory to Banque Scandinave en Suisse and the Company, or (iii) the
Company or the surviving or transferee corporation irrevocably deposits in trust
with the Paying Agent, money or U.S. government obligations sufficient to pay
principal and interest on the Bonds to maturity.
Upon the occurrence of an event of default, the Company shall promptly
give notice thereof to the Paying Agent which shall publish such notice of
default in accordance with Section 12 hereof. The Paying Agent shall in relation
to any event of default have no other obligation than the publication of such
event of default.
The principal amount of all Bonds declared to be due and payable plus
accrued interest thereon shall become due and payable 30 days after notice to
the Company by each bondholder of such event of default; provided, however, that
such declaration shall be rescinded if, within 15 days of such notice, such
event of default shall have been remedied by payment, in the case of a payment
default, or in a manner satisfactory to such bondholder.
In the event that a Resolution or Extraordinary Resolution is passed at
a meeting of bondholders held pursuant to Section 14, any actions taken pursuant
to this Section 9 by a bondholder shall be subject to any previously taken
action pursuant to such Section 14.
(10) Prescription
In accordance with the Swiss Statute of Limitations the coupons will
become barred five years and the Bonds ten years after their respective due
dates.
(11) Notices and Publications
All notices to the bondholders shall be deemed to have been duly given
if published in the Feuille Officielle Suisse du Commerce and in a daily
newspaper in Basle, Geneva and Zurich. All notices to the Company by any
bondholder shall be deemed to have been duly given if sent by cable, telex or
registered mail to the principal office of the Company.
So long as any Bonds remain outstanding, the Company will furnish the
Paying Agent, to he held at the disposal of the bondholders, with 50 copies of
each report on Form 10-K, Form 10-Q and Form 8-K, promptly after such report is
filed by the Company with the Securities and Exchange Commission, and of any
financial statements or other reports that the Company may from time to time
furnish generally to its shareholders.
(12) Listing of the Bonds
No application will be made for the admission and quotation of the
Bonds on the Stock Exchanges of Basle, Geneva and Zurich for as long as the
Bonds are outstanding.
(13) Replacement of Bonds or Coupons
If any Bond or coupon is defaced, mutilated, destroyed, stolen or lost,
it may be renewed or replaced at the offices of Banque Scandinave en Suisse on
payment of such costs as may be incurred in connection therewith and on
presentation of such evidence and indemnity as Banque Scandinave en Suisse may
require. Defaced or mutilated Bonds or coupons must be surrendered before
replacements may be issued.
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<PAGE> 29
(14) Bondholders' Meeting
(a) A meeting of the bondholders (hereinafter called a "Meeting) may be
convened by the Company or shall be convened by the Company if so requested by
bondholders representing not less than 25% of the aggregate principal amount of
all Bonds outstanding under the Terms of the Bonds (i) after an event of default
shall have occurred and be continuing to consider a waiver of an event of
default or any modification or amendment of the provisions of the terms of the
Bonds, or (ii) to consider a substitution of the Paying Agent.
The cost and expenses of a Meeting shall be borne by the Company.
(b) Notice of the Meeting specifying the place, day and hour of the
Meeting shall be given at least 20 days prior to the proposed date thereof
(exclusive of the day on which the notice is given and the day on which the
Meeting is to be held) in accordance with Section 10 hereof. Such notice shall
state generally the nature of the business to be transacted at the Meeting
thereby convened but (except for an Extraordinary Resolution (as defined below))
it shall not be necessary to specify in such notice the terms of any resolution
to be proposed.
(c) The meeting shall be held in Geneva and shall be chaired by a
representative of the Company or if such representative of the Company shall not
be present within 30 minutes after the time appointed for the holding of the
Meeting, the bondholders present shall choose one of their members to be
chairman.
(d) Resolutions shall only be passed if a quorum of two or more persons
holding 25% or more of the aggregate principal amount of all Bonds outstanding
are present. The quorum at any Meeting for passing an Extraordinary Resolution
shall be two or more persons holding two-thirds or more of the aggregate
principal amount of all Bonds outstanding. Resolutions shall be passed if
approved by the absolute majority of votes cast save that an Extraordinary
Resolution shall be passed only if approved by three-fourths or more of votes
cast. Any resolution passed at a Meeting duly convened and held in accordance
with the terms of the Bonds shall be binding upon all the bondholders, whether
present or not present at such Meeting and whether or not voting, and upon all
the holders of coupons.
(e) If within 30 minutes after the time appointed for any such Meeting
a quorum is not present, the Meeting shall, if convened upon the request of
bondholders, be dissolved. In any other case, it shall stand adjourned for such
period being not less than 14 days nor more than 28 days, and at such place as
may be appointed by the Company. At such adjourned Meeting, two or more persons
present holding 10% or more of the aggregate principal amount of all Bonds
outstanding shall form a quorum, provided that if the business of such adjourned
Meeting includes consideration of a proposed Extraordinary Resolution, the
quorum shall be two or more persons present holding one-third or more of the
aggregate principal amount of all Bonds for the time being outstanding.
(f) If within 30 minutes after the time appointed for any such
adjourned Meeting the respective quorum is not present the Meeting shall stand
further adjourned for such period being not less than 14 days nor more than 28
days, and at such place as may be appointed by the Company and at such further
adjourned Meeting two or more persons present holding any Bonds outstanding
(whatever the principal amount of the Bonds so held by them) shall form a
quorum, provided that if the business of such further adjourned Meeting includes
consideration of a proposed Extraordinary Resolution, the quorum shall be two or
more persons present holding one-third or more of the aggregate principal amount
of all Bonds for the time being outstanding.
(g) Notice of any adjourned Meeting or further adjourned Meeting shall
be given in the same manner as notice of an original Meeting and such notice
shall state, in the case of an adjourned Meeting, that two or more persons
present holding 10% (or in the case of a Meeting the business of which includes
consideration of a proposed Extraordinary Resolution, one-third) or more of the
aggregate principal amount of all Bonds for the time being outstanding will form
a quorum, or, in the case of a further adjourned Meeting, that two or more
persons present holding any Bonds outstanding (or in the case of a Meeting the
business of which includes the consideration of a proposed Extraordinary
Resolution, two or more persons present holding one-third or more of the
aggregate principal amount of all Bonds for the time being outstanding), shall
form a quorum.
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<PAGE> 30
(h) The voting rights of the bondholders shall be determined according
to the principal amount of Bonds held, each Bond giving the right to one vote.
Holders of the Coupons shall not have any voting rights. Bonds held by or on
behalf of the Company shall have no voting rights and shall be disregarded for
the purpose of this Section 14, save that the Company shall be entitled to vote
in respect of Bonds held by it for the benefit of and at the direction of an
independent third party. In the case of an equality of votes the chairman shall
have a casting vote in addition to the vote or votes (if any) to which he may be
entitled as a bondholder.
(i) Any director or officer of the Company and its lawyers and any
other person authorized on its behalf by it may attend and speak at any Meeting.
(j) The Meeting shall have the following powers exercisable by
Extraordinary Resolution:
(i) modification of the date fixed for final maturity of
the Bonds;
(ii) reduction or cancellation of the principal payable on
the Bonds;
(iii) reduction or cancellation of the rate or amount
payable, or modification of the date of payment, in
respect of any coupons;
(v) alteration of the majority required to pass an
Extraordinary Resolution; and
(vi) waiver of any Event of Default.
(k) Any reference in these Terms of the Bonds to an "Extraordinary
Resolution" shall be construed as references to resolutions of the bondholders
passed in accordance with the foregoing provisions of this Section 14 with
respect to any of the matters stated in sub-section (j) above.
(15) Applicable Law and Jurisdiction
The terms, conditions and form of the Bonds and coupons (the English
language version of which shall govern) shall be governed by and construed in
accordance with Swiss law.
Any action or proceedings against the Company relating to the Bonds may
be brought and enforced in the ordinary courts of the Canton of Geneva, venue
being in the City of Geneva, and the Company hereby irrevocably submits to the
jurisdiction of such courts in respect of any such action or proceeding, with
the right to appeal, as provided by law, to the Swiss Federal Court in Lausanne,
the judgment of which shall be final. Solely for that purpose, the Company
hereby elects legal and special domicile at the principal office of Lenz &
Staehlin, Grand rue 25, 1211 Geneva 11, Switzerland. The Company covenants that
so long as any Bonds are outstanding it will maintain an agent for service of
process in Switzerland. The aforementioned jurisdiction shall also be valid for
the cancellation and replacement of lost, stolen, defaced, mutilated or
destroyed Bonds and coupons. Payment effected to a bondholder who has been
identified as the legitimate holder of a Bond or coupon by a final judgment of a
Swiss court shall release the Company from its payment obligations under such
Bond or coupon.
Any bondholder shall also have the right to bring any legal action or
proceeding against the Company in respect of a Bond or coupon and all covenants
contained therein in any state or federal court in the United States of America
which may have jurisdiction.
(16) Amendment to the Terms of the Bonds
The Terms and Conditions of the Bonds may be amended from time to time
by agreement between the Company and the Paying Agent on behalf of the
bondholders and coupon holders, provided that in the sole opinion of the Paying
Agent, such amendment is of a formal, minor or technical nature, is made to
correct a manifest error, or is not materially prejudicial to the interests of
the bondholders and/or the coupon holders. Notice of such amendment shall be
given in accordance with Section 11 above. Any such amendment shall be binding
on the bondholders and coupon holders in accordance with its terms.
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<PAGE> 31
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
United States Offer) or seeking to restrain or prohibit the
consummation of the transactions contemplated by the Offer (or the
United States Offer) or seeking to obtain any material damages or
otherwise directly or indirectly relating to the transactions
contemplated by the Offer (or the United States Offer), (ii) making, or
seeking to make, the exchange of, or payment for, some or all of the
Old Bonds pursuant to the Offer illegal or resulting in a delay in the
ability (including the United States Offer) of the Company to accept
for payment or pay for some or all of the 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 United States Offer); or
(b) there shall be any action taken, or proposed or
threatened, or any statute, rule, regulation, judgment, order or
injunction (preliminary or permanent) proposed, sought, enacted,
promulgated, entered, enforced or deemed applicable to the Offer (or
the United States Offer), by any government, governmental authority or
other regulatory or administrative agency or commission or court, in
the United States or elsewhere, that, in the sole judgment of the
Company, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a)
above; or
(c) there shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on any United States
national securities exchange or in the over-the-counter market or on
any Swiss national securities exchange or over-the-counter market, (ii)
the declaration of a banking moratorium or any suspension of payments
in respect of banks in Switzerland or in the United States, (iii) the
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States or
Switzerland, (iv) any limitation by any governmental agency (whether or
not mandatory) on, or any other event which, in the sole judgment of
the Company, might affect the extension of credit by banks or other
lending institutions, (v) a suspension of, or limitation on, the free
marketability or convertibility of the currency of the United States
and/or Switzerland or (vi) in the case of any of the foregoing existing
at the time of the commencement of the Offer (or the United States
Offer), a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition (including any action or inaction by the Company) or may be
waived by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described in this Section 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.
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<PAGE> 32
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 Form of Acceptance, 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 16, 1995
NATIONAL PATENT DEVELOPMENT CORPORATION
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<PAGE> 33
ANNEX A
National Patent Development Corporation--Annual Report on Form 10-K/A for the
year ended December 31, 1994.
<PAGE> 34
EXCHANGE AGENTS
Banque Scandinave en Suisse and Bank Leu AG have agreed to act as the
Exchange Agents in connection with the Offer. Forms of Acceptance (or facsimile
copies thereof) and Bonds should be sent or delivered by bondholders, or their
broker, dealer, commercial bank or trust company, to the Exchange Agents at the
appropriate address below.
BANQUE SCANDINAVE EN SUISSE
Cours de Rive 11
1211 Geneva 3
Switzerland
BANK LEU AG
Corporate Finance
Bahnhofstrasse 32
P.O. Box CH-8022
Zurich, Switzerland
<PAGE> 35
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.
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> 36
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
<PAGE> 37
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").
1
<PAGE> 38
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.
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
2
<PAGE> 39
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, 1994, 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
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<PAGE> 40
resources on 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.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Training and Technology Services $ 46,466
DOD Services 18,078
DOE Services 18,805
Engineering Services 31,781
Total Revenue $115,130
</TABLE>
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
4
<PAGE> 41
advantage of the United States Government's increased focus on environmental,
health and safety matters 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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<PAGE> 42
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.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Year Ended December 31, 1994
<S> <C>
Time-and Materials 37%
Fixed-Price 39%
Cost-plus-Fixed-Fee 24%
100%
</TABLE>
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.
6
<PAGE> 43
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
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<PAGE> 44
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.
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.
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<PAGE> 45
Competition within the industry is intense. There are much larger
national companies commonly associated with national franchises such as
Servistar and True Value as well as smaller regional distributors all of whom
offer similar products and services. Additionally, in some instances
manufacturers will bypass the distributor and choose to sell and ship their
products directly to the retail outlet. The principal means of competition
for Five Star are its strategically placed distribution centers and its
extensive inventory of quality name brand products. Five Star will continue
to focus its efforts on supplying its products to its customers at a
competitive price and on a timely, and consistent basis. In the future, Five
Star will attempt to acquire complementary distributors and to expand the
distribution of its line of private-label products sold under the "Five Star"
name.
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.
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<PAGE> 46
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 Hydron(R) in applications other than the soft contact 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 B(R) 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
Hydron(R) 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
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<PAGE> 47
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").
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
1992 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 1993, Duratek designed, built and
operated a 100 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
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<PAGE> 48
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.
Near the end of 1993, 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.
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<PAGE> 49
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.
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.
13
<PAGE> 50
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.
<TABLE>
<CAPTION>
PRODUCT
INDICATIONS POTENTIAL APPLICATION/ STATUS OF CLINICAL TRIAL(1) SPONSOR
- ----------- ---------------------- -------------------------- -------
<S> <C> <C> <C>
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 shortly Investigator(5)
Multiple Sclerosis Phase 2 being planned ISI
Hepatitis B Phase 2 proposed (4)
</TABLE>
14
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ALFERON N Cervical dysplasia Phase 2 completed ISI
Gel
Cervical dysplasia Phase 2 to commence shortly Investigator(5)
(in HIV-infected 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
</TABLE>
(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.
15
<PAGE> 52
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
16
<PAGE> 53
and agreed to purchase an additional $500,000 of Common Stock on February 6,
1996, based on the then current market price.
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.
17
<PAGE> 54
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 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
18
<PAGE> 55
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.
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.
19
<PAGE> 56
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, is traded on the
American Stock Exchange, Inc. and the Pacific Stock Exchange, Inc. The
following tables present its high and low market prices for the last two
years.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C> <C>
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
</TABLE>
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.
20
<PAGE> 57
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
------------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 58
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 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
22
<PAGE> 59
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 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
23
<PAGE> 60
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, ALFERON(R) 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 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.
24
<PAGE> 61
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 ALFERON(R) 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 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
25
<PAGE> 62
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.
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
26
<PAGE> 63
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.
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
27
<PAGE> 64
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).
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
28
<PAGE> 65
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.
29
<PAGE> 66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
30
<PAGE> 67
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
31
<PAGE> 68
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------------------------
December 31, 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 69
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 70
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
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)
-----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 71
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)
<TABLE>
<CAPTION>
Net unrealized
gain
Class B Capital in (loss) on Total
Common capital excess available- Treasury stock-
stock stock of par for-sales stock holders'
($.01 Par) ($.01 Par) value Deficit securities at cost equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 $ 151 $ 2 $ 94,828 $(21,108) $ $ (1,468) $72,405
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options
and warrants 2 280 282
Issuances of treasury stock (1,074) 1,468 394
(102,772 common shares)
Net loss (11,943) (11,943)
Conversion of 12% Debentures 1 164 165
Issuance of stock in
connection with Swiss Bonds 2 911 913
Effect of exercise of warrants to
purchase the stock of a
subsidiary 674 674
Shares issuable in settlement of debt 186 186
Issuance and sale of common stock 3 744 747
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 $ 159 $ 2 $ 96,713 $(33,051) $ $ $63,823
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 2 410 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 26 8,694 8,720
Issuance and sale of common stock 3 375 378
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $ 190 $ 2 $106,274 $(39,028) $ $ $67,438
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 72
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS, EXCEPT SHARES, PAR VALUE PER SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Net unrealized
gain
Class B Capital in (loss) on Total
Common capital excess available- Treasury stock-
stock stock of par for-sales stock holders'
($.01 Par) ($.01 Par) value Deficit securities at cost equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 73
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
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)
----------------------------------------------------------------------------
</TABLE>
37
<PAGE> 74
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
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
---------------------------------------------------------------------------
</TABLE>
38
<PAGE> 75
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
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)
-------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 76
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.
40
<PAGE> 77
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment. Property, plant and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently.
Gain or loss on the disposition of property, plant and equipment is
recognized in operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated
useful lives:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
CLASS OF ASSETS USEFUL LIFE
- -----------------------------------------------------------------------------
<S> <C>
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 20 years
Leasehold improvements Shorter of asset life
or term of lease
</TABLE>
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a
straight-line basis generally over periods ranging from 5 to 40 years. The
Company capitalizes costs incurred to obtain and maintain patents and
licenses. Patent costs are amortized over the lesser of 17 years or the
remaining lives of the patents, and license costs over the lives of the
licenses. The Company also capitalizes costs incurred to obtain long-term
debt financing. Such costs are amortized on an effective yield basis over the
terms of the related debt and such amortization is classified as interest
expense in the Consolidated Statements of Operations.
The periods of amortization of goodwill are evaluated at least annually to
determine whether events and circumstances warrant revised estimates of
useful lives. This evaluation considers, among other factors, expected cash
flows and profits of the businesses to which the goodwill relates. Goodwill
is written off when it becomes evident that it has become permanently
impaired.
Treasury stock. Treasury stock is recorded at cost. Reissuances of treasury
stock are valued at market value at the date of reissuance. The cost of the
treasury stock is relieved from the treasury stock account and the difference
between the cost and market value is recorded as additional paid in capital.
41
<PAGE> 78
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales of stock by a subsidiary. The Company records in the Consolidated
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 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.
42
<PAGE> 79
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. GENERAL PHYSICS CORPORATION (CONTINUED)
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.
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.
43
<PAGE> 80
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. GENERAL PHYSICS CORPORATION (CONTINUED)
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):
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993
---- ----
(unaudited)
<S> <C> <C>
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)
</TABLE>
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.
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.
44
<PAGE> 81
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GTS DURATEK, INC. (CONTINUED)
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
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.
45
<PAGE> 82
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 ALFERON(R) 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):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Total assets $8,182 $20,301
Stockholders' equity 2,979 17,131
Revenues 1,166 51
Net loss (12,078) (8,460)
</TABLE>
46
<PAGE> 83
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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
-------------------------------------------------------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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 (22,843) (20,035)
amortization
-------------------------------------------------------
$ 14,580 $ 13,838
-------------------------------------------------------
</TABLE>
47
<PAGE> 84
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS
Short-term borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------
<S> <C> <C>
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
-------------------------------------------------------
</TABLE>
(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.
48
<PAGE> 85
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS (CONTINUED)
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 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.
49
<PAGE> 86
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS (CONTINUED)
(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 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.
50
<PAGE> 87
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1994 1993
----------------------------------------------------------
<S> <C> <C>
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
----------------------------------------------------------
</TABLE>
10. LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1994 1993
----------------------------------------------------------
<S> <C> <C>
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
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
----------------------------------------------------------
</TABLE>
(*) Secured by assets held under capital lease obligations.
51
<PAGE> 88
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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.
52
<PAGE> 89
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
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.
53
<PAGE> 90
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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.
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.
54
<PAGE> 91
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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 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.
55
<PAGE> 92
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(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
Caridex(R) 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.
56
<PAGE> 93
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt outstanding at December
31, 1994 for each of the next five years are as follows (in
thousands):
<TABLE>
<S> <C>
1995 $ 13,700
1996 7,351
1997 7,188
1998 44
1999 2,249
</TABLE>
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):
<TABLE>
<CAPTION>
-------------------------------------------------
December 31, 1994 1993
-------------------------------------------------
<S> <C> <C>
Notes payable to bank $ 579 $ 3,109
Less current maturities 579 2,530
-------------------------------------------------
Long-term debt $ $ 579
-------------------------------------------------
</TABLE>
57
<PAGE> 94
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INVESTMENT IN FINANCE SUBSIDIARIES (CONTINUED)
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 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.
58
<PAGE> 95
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
December 31, 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
-------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 96
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
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:
<TABLE>
<CAPTION>
Percent
-------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.25 7.5 8.5
Long-term rate of return
on assets 10.0 10.0 10.0
</TABLE>
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 59 1/2 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.
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.
60
<PAGE> 97
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES
<TABLE>
<CAPTION>
The components of pretax income (loss) are as follows (in
thousands):
--------------------------------------------------------------
Years ended December 31, 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
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
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The components of income tax (benefit) expense from continuing
operations are as follows (in thousands):
------------------------------------------------------------
Years ended December 31, 1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
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
------------------------------------------------------------
</TABLE>
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.
61
<PAGE> 98
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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
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.
62
<PAGE> 99
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
---------------------------------------------------------------
December 31, 1994 1993
---------------------------------------------------------------
DEFERRED TAX ASSETS:
<S> <C> <C>
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 $
---------------------------------------------------------------
</TABLE>
63
<PAGE> 100
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
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.
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.
64
<PAGE> 101
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. DISCONTINUED OPERATION (CONTINUED)
Assets and liabilities of Eastern included in the consolidated balance
sheet at December 31, 1994 were as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 3,284
-------------------------------
Current liabilities (1,247)
2,037
-------------------------------
Property and equipment 1,155
-------------------------------
</TABLE>
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:
65
<PAGE> 102
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Common Stock Class B Capital Stock
----------------------------------------------------------------------------------------
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1991 $2.25 - 18.50 5,218,884 $ 2.25 1,550,000
Granted 2.25 - 2.75 32,500
Exercised 2.25 (128,930)
Terminated 2.25 - 18.50 (540,850)
----------------------------------------------------------------------------------------
December 31, 1992 2.25 - 6.00 4,581,604 2.25 1,550,000
----------------------------------------------------------------------------------------
Granted 2.875- 4.125 18,000
Exercised 2.25 - 5.15 (175,125)
Terminated 2.25 - 5.625 (47,040)
----------------------------------------------------------------------------------------
December 31, 1993 2.25 - 6.00 4,377,439 2.25 1,550,000
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
</TABLE>
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.
66
<PAGE> 103
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED (CONTINUED)
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.
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.
67
<PAGE> 104
NATIONAL PATENT DEVELOPMENT CORPORATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------------------------
Years ended December 31, 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
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)
--------------------------------------------------------------
</TABLE>
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.
68
<PAGE> 105
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
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.
Additional information relating to the Company's business segments is
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------------
</TABLE>
69
<PAGE> 106
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENTS (CONTINUED)
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.
The estimated fair value for the Company's major long-term debt
components are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------ ------------------
Carrying Estimated Carrying Estimated
------------------ ------------------
amount fair value amount fair value
----------------- -----------------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
70
<PAGE> 107
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The amortized cost, gross unrealized holding losses and fair
value for available-for-sale securities at December 31, 1994, were as
follows (in thousands):
<TABLE>
<CAPTION>
Gross
Amortized Unrealized
Cost Holding Losses Fair Value
-----------------------------------------------------------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE:
Equity Securities $9,186 $(1,783) $7,403
-----------------------------------------------------------------
</TABLE>
The gains and losses realized on available-for-sale securities
sold in 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
Unamortized Sales Realized
Cost Proceeds gain (loss)
-----------------------------------------------------------------
<S> <C> <C> <C>
Realized loss $1,850 $1,514 $ (336)
Realized gain 461 1,260 799
Net realized
gain (loss) $2,311 $2,774 $ 463
</TABLE>
71
<PAGE> 108
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
Real Machinery &
-------------------------------------------------------------
property equipment Total
-------------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based
primarily on increases in real estate taxes and operating costs
incurred by the lessor. Rent expense for real and personal property
was approximately $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 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).
72
<PAGE> 109
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
73
<PAGE> 110
NATIONAL PATENT SUPPLEMENTARY DATA
DEVELOPMENT CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT.30, DEC.31, March 31, June 30, Sept.30, Dec.31,
1994 1994 1994 1994 1993 1993 1993 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior quarters have been restated to reflect the discontinued operation.
74
<PAGE> 111
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.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
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
</TABLE>
75
<PAGE> 112
<TABLE>
<S> <C> <C>
Ogden R. Reid 68 Director
Herbert R. Silverman 77 Director
</TABLE>
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
76
<PAGE> 113
the law firm of Debevoise & Plimpton in New York City.
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.
77
<PAGE> 114
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 $1,500
for each meeting of the Board of Directors attended, but do not receive any
additional compensation for service on committees of the Board of Directors.
Officers of the Company do not receive additional compensation for serving as
directors.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman and Martin M.
Pollak, meets on call and has authority to act on most matters during the
intervals between Board meetings. The committee formally acted 26 times in 1994
through unanimous written consents.
Audit Committee
The Audit Committee reviews the internal controls of the Company and
the objectivity of its financial reporting. It meets with appropriate Company
financial personnel and the Company's independent certified public accountants
in connection with these reviews. This committee recommends to the Board the
appointment of the independent certified public accountants, subject to the
ratification by the stockholders at the Annual Meeting, to serve as auditors for
the following year in examining the books and records of the Company. This
Committee met twice in 1994. The Audit Committee currently consists of Ogden R.
Reid, Roald Hoffmann and Paul A. Gould.
ITEM 11. EXECUTIVE COMPENSATION IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
The following table and notes present the compensation paid by the
Company and subsidiaries to its Chief Executive Officer and the Company's most
highly compensated executive officers for 1994.
78
<PAGE> 115
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL
COMPENSATION AWARDS
--------------------- ------------ ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerome I. Feldman 1994 322,304 40,000(1) -0- 3,696(2)
President and Chief 1993 316,526 120,000 -0- 3,598(2)
Executive Officer 1992 326,243 -0- -0- 253,491(2)
Martin M. Pollak 1994 322,259(3) 40,000(1) -0- 3,696(2)(4)
Executive Vice President 1993 315,110 -0- -0- 3,598(2)
and Treasurer 1992 325,110 151,250 -0- 253,491(2)
Scott N. Greenberg 1994 216,375 20,000(1) -0- 3,696(5)
Vice President and 1993 156,625 -0- -0- 3,598
Chief Financial Officer 1992 151,000 -0- 22,500 2,932
Lawrence M. Gordon 1994 233,205 50,000(1) -0- 3,696(5)
Vice President and 1993 183,205 50,000 -0- 2,937
General Counsel 1992 183,507 -0- -0- 3,392
</TABLE>
- ------------------------------
(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.
(1) Includes $3,696, $3,598 and $3,491 as a matching contribution by the
Company to the 401(k) Savings Plan, and $250,000 in 1992 pursuant to a
Non-Compete Agreement between Messrs. Feldman and Pollak and SmithKline
Beecham Corporation. See "Employment Contracts and Termination of
Employment and Change in Control Arrangements."
(2) Constitutes matching contributions made by ADC and the Company equally on
behalf of Mr. Pollak pursuant to the Company's 401(k) Savings Plan.
(3) Matching contribution by the Company to the 401(k) Savings Plan.
For the year ended 1994, none of the named executive officers were
granted non-qualified stock options.
The following table and notes set forth information for the named
executive officers regarding the exercise of stock options during 1994 and
unexercised options held at the end of 1994.
79
<PAGE> 116
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1994
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
ON EXERCISE REALIZED
NAME (#) (1) ($)
- -----------------------------------------------------------------
<S> <C> <C>
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT DECEMBER 31,
1994 (#)
NAME EXERCISABLE/UNEXERCISABLE
- -----------------------------------------------------------------
<S> <C> <C>
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-
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1994 (#)
NAME EXERCISABLE/UNEXERCISABLE(3)
- -----------------------------------------------------------------
<S> <C> <C>
Jerome I. Feldman -0- -0-
Martin M. Pollak -0- -0-
Scott N. Greenberg -0- -0-
Lawrence M. Gordon -0- -0-
</TABLE>
- ----------------------
(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.
80
<PAGE> 117
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"):
81
<PAGE> 118
<TABLE>
<CAPTION>
AMOUNT OF
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNERS OWNERSHIP OF CLASS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
- ---------------------
(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.
82
<PAGE> 119
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.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES BENEFICIALLY
NAME OWNED
- -------------------------------------------------------------------------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
OWNED
- ---------------------------------------------------------------------
<S> <C>
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) *
Roald Hoffmann, Ph.D.(3)(4)(6) *
Ogden R. Reid(3)(4)(5)(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
</TABLE>
<TABLE>
<CAPTION>
OF TOTAL NUMBER OF
SHARES BENEFICIALLY
OWNED,
SHARES WHICH MAY BE
ACQUIRED WITHIN 60 DAYS
- ----------------------------------------------------------------------------
<S> <C>
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)(4)(6) 21,000
Ogden R. Reid(3)(4)(5)(6) 16,000
Paul A. Gould(1)(4)(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
</TABLE>
- -----------------------
* 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.
83
<PAGE> 120
(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 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.
84
<PAGE> 121
(5) Member of the Executive Committee.
(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).
85
<PAGE> 122
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 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.
86
<PAGE> 123
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:
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
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.
</TABLE>
87
<PAGE> 124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY: /s/ Jerome I. Feldman,
------------------------
Jerome I. Feldman,
President and Chief
Executive Officer
Dated: May 1, 1995
88
<PAGE> 125
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
Current assets December 31,
-------------- -------------------
1994 1993
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
i
<PAGE> 126
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED BALANCE SHEET (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------------
Current liabilities 1994 1993
------------------- -------- -------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
ii
<PAGE> 127
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Revenues
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)
======= ======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
Prior years have been restated to reflect the discontinued operation.
iii
<PAGE> 128
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
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
-------- -------- -------
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
======= ======= =======
</TABLE>
iv
<PAGE> 129
NATIONAL PATENT DEVELOPMENT CORPORATION
SCHEDULE I (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes to the condensed financial statements.
v
<PAGE> 130
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):
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
------- -------
<S> <C> <C>
Raw materials $ 50 $ 95
Work in process 1 2
Finished goods 46 80
Land for resale 2,650 2,700
------- -------
$ 2,747 $ 2,877
======= =======
</TABLE>
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
---------------------
<S> <C> <C>
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
======== ========
</TABLE>
Aggregate annual maturities of long-term debt outstanding at December 31, 1994
for each of the next five years are as follows (in thousands):
<TABLE>
<S> <C>
1995 $ 9,275
1996 4,355
1997 7,055
1998
1999 2,129
</TABLE>
See Note 10 of the Notes to Consolidated Financial Statements for additional
information with respect to the Company's long-term debt.
vi
<PAGE> 131
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):
<TABLE>
<CAPTION>
Real Machinery &
-----------------------------------------------
property equipment Total
-----------------------------------------------
<S> <C> <C> <C>
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
-----------------------------------------------
</TABLE>
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor.
The Company is party to several lawsuits incidental to its business. It is not
possible at the present time to estimate the ultimate legal and financial
liability, if any, of the Company with respect to such litigation; however,
management believes that the ultimate liability, if any, will not have a
material adverse effect on the Company's Financial Statements.
vii
<PAGE> 132
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
<TABLE>
<CAPTION>
Valuation and qualifying accounts (in thousands)
-------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs & Close of
of Period Expenses Deductions(a) Period
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 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
-------------------------------------------------------------------------------------
</TABLE>
(a) Write-off of uncollectible accounts, net of recoveries.
viii
<PAGE> 133
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
ix
<PAGE> 1
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 28, 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 28, 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 "OLD BONDS")
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
WEDNESDAY, JUNE 14, 1995 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
OLD BONDS MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
<PAGE> 2
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 28, 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 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 16, 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 of which the undersigned hereby delivers to you
in the principal amount set forth 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 purusant 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 28, 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 14, 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 28, 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 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 deposits 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.
-2-
<PAGE> 3
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 __________________________________________________
-3-<PAGE> 4
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
------------------------------------------------
SUBSTITUTE FORM W-9 Enter your taxpayer identification number in
Department of the Treasury the appropriate box. For individuals, this is
Internal Revenue Service your social security number. For sole
proprietors, see the instructions in the
Request for Taxpayer Guidelines. For other entities, it is your
Identification Number and employer identification number. If you do not
Certification have a number, see Obtaining a Number in the
Guidelines.
Note: If the account is in more than one name,
see the chart on page 1 of the Guidelines on
whose number to enter.
Social Security Number
--------------------------------
OR
Employer Identification 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> 5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT NAME AND NUMBER TO PROVIDE:
<TABLE>
<CAPTION>
====================================================================================================================================
Give the Name and Give the Name and
For this type of account SOCIAL SECURITY For this type of account: EMPLOYER
number of -- IDENTIFICATION number
of --
====================================================================================================================================
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first individual
on the account(1) 7. A valid trust, estate, or Legal entity (Do not
pension trust furnish the identifying
number of the personal
3. Custodian account of a The minor(2) representative or trustee
minor (Uniform Gift to unless the legal entity
Minors Act) itself is not designated
in the account title.)(4)
4. (a) The usual revocable The grantor-trustee(1)
savings trust (grantor is 8. Corporate The corporation
also trustee)
9. Association, club, religious, The organization
(b) So-called trust account The actual owner(1) charitable, educational or
that is not a legal or other tax-exempt organization
valid trust under State law
10. Partnership The partnership
5. Sole proprietorship The owner(3)
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
===================================================================================================================================
</TABLE>
(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
Administraton 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> 6
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.
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> 7
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
WEDNESDAY, JUNE 14, 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 16, 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 28, 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 Old 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 Banque 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 Offering Circular. "Expiration Date" shall mean
5:00 P.M., New York City time, on Wednesday, June 14, 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 28, 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 28, 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 afer 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
U.S. $1,000 and integral mutliples 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.
<PAGE> 8
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.
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.
-2-
<PAGE> 1
Exhibit (a)(4)
F O R M O F A C C E P T A N C E
Exchange Offer, National Patent Development Corporation 1995
This Form of Acceptance applies to the Offer of National Patent Development
Corporation, New York, to the Bondholders who are not "U.S. Persons" according
to the definition of the "Offering Circular".
As holder of total
<TABLE>
<S> <C>
/ / Sfr. . . . . . . . . . . . . . . nom. 8% Sfr. Bonds of National Patent Development
Corporation, due March 1, 1995 (Swiss Security N0.
887.282)
/ / Sfr.. . . . . . . . . . . . . . nom. 6% Sfr. Convertible Bonds of National Patent
Development Corporation, due March 7, 1995 (Swiss
Security No. 887.283)
/ / Sfr.. . . . . . . . . . . . nom. 5 3/4% Sfr. Convertible Bonds of National Patent
Development Corporation, due May 9, 1995 (Swiss
Security No. 887.284)
/ / Sfr.. . . . . . . . . . . . nom. 5 5/8% Sfr. Convertible Bonds of National Patent
Development Corporation, due March 18, 1996 (Swiss
Security No. 887.286)
/ / US$. . . . . . . . . . . . . . . nom. 7% Dual Currency Convertible Bonds of National Patent
Development Corporation, due March 18, 1996 (Swiss
Security No. 887.287)
</TABLE>
<PAGE> 2
I/we herewith declare to agree to the exchange of my/our Bond(s) according to
the terms and conditions of the Exchange Offer of May 16, 1995 in the English
language.
The Bonds delivered for exchange are blocked and shall not be traded until the
exchange has actually been performed. However, any Bondholder may at any time
withdraw the Declaration of Acceptance during the exchange period.
The terms and conditions of the Offer provide that National Patent Development
Corporation will accept for exchange any and all Bonds validly tendered. The
Company reserves the right to extend the exchange period for an additional ten
(10) business days.
All terms of the Exchange Offer are subject to the complete Exchange Offer of
May 16, 1995 in the English language (available at Bank Leu AG, Financial
Markets Consulting, 8022 Zurich, as well as at Banque Scandinave en Suisse,
Cours de Rive 11, 1211 Geneva 3).
THE TERMS CONTAINED IN ANNEX A ATTACHED HERETO ARE INCORPORATED HEREIN BY
REFERENCE AND FORM AN INTEGRAL PART HEREOF.
I/we herewith declare that
(i) I/we have received and taken notice of the English text of the
"Offering Circular" of May 16, 1995 and acknowledge that this
document (in the English language) is the only binding
Exchange Offer;
(ii) I/we are not "U.S. Person(s)" according to "Regulation S" of
the U.S. Securities Act of 1933;
(iii) I/we authorize my/or bank to make the confirmations in my/our
name, to accept the "Exchange Offer" and to exchange the
Bonds.
- --------------------------------------------------------------------------------
I/we wish that the new securities shall be physically delivered to
- ---------------------------------- -----------------------------
(name of the Bank) deposit no.
in my/our favour.
2
<PAGE> 3
- --------------------------------------------------------------------------------
I/we wish that the cash payment in Swiss francs shall be made to
- ---------------------------------- -----------------------------
(name of the bank) account no.
in my/our favour.
Name/Firm:
---------------------
First name:
---------------------
Address:
---------------------
Residence:
---------------------
Place and Date:
---------------------
Signature:
----------------------------
3
<PAGE> 4
A N N E X A
As to the Company, the New Bonds are intended to be obligations
that are not required to be in registered form for purposes of United States
federal tax laws. Accordingly, the New Bonds may not, as part of the Offer or
otherwise as part of the initial distribution, be offered for sale or resale,
sold or delivered, directly or indirectly, in the United States or to a United
States person. Consistent with these limitations, the Offer does not apply to,
is not made to and may not be accepted by holders of Old Bonds that are within
the United States or that are United States persons or for the account or
benefit of holders of Old Bonds that are U.S. persons. By accepting the Offer
and executing this Letter of Instructions, the undersigned hereby (i) certifies
that the Old Bonds being tendered are not held by or on behalf of a person
within the United States or a United States person or for the account or
benefit of a U.S. person, (ii) represents and agrees that (a) the undersigned
(or any affiliate that acquires New Bonds from it for the purpose of offering
or selling such New Bonds during the Restricted Period (as defined below) has
not offered or sold, and, during the period beginning on the earlier of the
date that the New Bonds are first offered or the payment date for Old Bonds
accepted for payment by the Exchange Agents pursuant to the Offer (the "Payment
Date"), and ending on the date forty (40) days after the Payment Date (such
40-day (or longer) period being referred to as the "Restricted Period"), it (or
such affiliate) will not offer or sell New Bonds to a person who is within the
United States or to a United States person or to or for the account or benefit
of a U.S. person, (b) the undersigned (or any such affiliate) has not delivered
and will not deliver within the United States definitive New Bonds that are
sold during the Restricted Period, (c) in the case of a holder that offers or
sells New Bonds during the Restricted Period, the undersigned (or such
affiliate) has and throughout the Restricted Period will have in effect
procedures reasonably designed to ensure that its employees or agents who are
directly engaged in selling New Bonds are aware that such New Bonds may not be
offered or sold during the Restricted Period to a person who is within the
United States or a United States person or to or for the account or benefit of
a U.S. person and (d) the undersigned has not entered and will not enter into
any contractual arrangement with respect to the distribution and delivery of
the New Bonds, except with its affiliates or with the prior written consent of
the Company, and (iii) with respect to each affiliate that acquires New Bonds
from the undersigned for the purpose of offering or selling such New Bonds
during the Restricted Period, repeats and confirms the representations and
agreements contained in clauses (ii)(a), (b) and (c) on each such affiliate's
behalf. For the purposes of this paragraph, whether an offer, sale or delivery
is made within the United States or to a United States person will be
determined
<PAGE> 5
under the rules set out in the United States Internal Revenue Code of 1986 (the
"Code") and United States Treasury Regulation Section 1.163-5(c)(2)(i)(D).
In this Form of Acceptance, references to "dollars", "$"
and "US $" are to United States dollars, the term "United States" means the
United States of America (including the States and the District of Columbia),
its possessions, its territories and other areas subject to its jurisdiction,
and the term "United States person" means 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. "U.S. person" shall have the meaning set
forth in Sections 230.901 through .904 of Title 17 of the United States Code of
Federal Regulations ("Regulation S").
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 Global New Bond
and by deposit of the cash exchange price with the Exchange Agents at their
specified offices in Switzerland. The New Bonds will be represented initially
by a temporary Global New Bond (the "Global New Bond"), without interest
coupons, to be deposited by the Company with Banque Scandinave en Suisse on
behalf of the Exchange Agents on the Payment Date. The Global New Bond may be
exchanged, as a whole or in part, for appropriate definitive New Bonds, in
bearer form in the denominations of Sfr. 10.--, Sfr. 100.-- or Sfr. 1'000.--
, with coupons attached, not earlier than 40 days after the later of the date
on which the New Bonds are first offered or the Payment Date, before which time
no New Bonds or interests therein represented by a Global New Bond may be
transferred. Such exchange shall be made upon certification that the
beneficial owners of the New Bonds are not U.S. persons or United States
persons or are financial institutions that have purchased such New Bonds for
resale during the Restricted Period and that certify that they have not
acquired the New Bonds for purposes of resale directly or indirectly to a
United States person or to a person within the United States or to or for the
account or benefit of a U.S. person. A beneficial owner of New Bonds must
exchange its share of the Global New Bond for definitive New Bonds before such
New Bonds or interests therein may be transferred or interest payments or other
payments in respect of the New Bonds will be made. 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.
2
<PAGE> 6
The name, address and signature set out on the Form of
Acceptance must be of (i) the beneficial owner of the Old Bonds tendered or (ii)
a financial institution (within the meaning of United States Treasury Regulation
Section 1.165- 12(c)(1)(v)) that is not a United States person and through which
the beneficial owner directly or indirectly holds the Old Bonds tendered.
3
<PAGE> 1
This announcement is neither an offer to sell nor a solicitation of an
offer to buy any securities. The Offer is made solely by the Offering Circular
and the related Letter of Instructions and is not being made to, and tenders
will not be accepted from, holders in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the securities or blue sky
laws of such jurisdiction.
NATIONAL PATENT DEVELOPMENT CORPORATION
NOTICE OF OFFER TO EXCHANGE
(A) SFR. 650 PRINCIPAL AMOUNT OF 8% SWISS FRANC DENOMINATED
BONDS OF NATIONAL PATENT DEVELOPMENT CORPORATION
DUE JUNE 28, 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 28, 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")
National Patent Development Corporation ("National Patent") is offering
(the "Offer"), upon the terms and subject to the conditions set forth in its
Offering Circular and Letter of Instructions, to exchange (i) 8% Bonds
denominated in Swiss Francs ("SFr.") and issued by National Patent due June 28,
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, National Patent is offering, upon the terms and subject to
the conditions set forth in its Offering Circular and 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.
Fractional portions of New Bonds resulting from such exchange will be rounded up
to the nearest integral multiple of SFr. 10 of New Bonds.
National Patent 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 OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
WEDNESDAY, JUNE 14, 1995 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
The purpose of the Offer is to reduce National Patent's long-term
indebtedness and related annual interest expense and to provide National Patent
with additional financial flexibility in its operations.
Subject to the terms and conditions of the Offer, National Patent will
accept for exchange any and all Old Bonds which are validly tendered in response
to the Offer and not withdrawn prior to the Expiration Date. The term
"Expiration Date" means 5:00 P.M., New York City time, on June 14, 1995, unless
National Patent, in its sole discretion, shall have extended the period of time
for which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date, not beyond 5:00 P.M., New York City time, on June
28, 1995, at which time the Offer, as so extended by National Patent, shall
expire. Tenders are irrevocable, except that Old Bonds tendered pursuant to the
Offer may be withdrawn prior to the Expiration Date and may be withdrawn
thereafter only in certain circumstances.
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 National Patent at its office in
New York. 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. Any person 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 bondholders will be valid only if received by the
Exchange Agents prior to the Expiration Date.
The Offer is being made by National Patent in reliance on an exemption
from the requirements of the Securities Act of 1933, as amended, contained in
Section 3(a)(9) of such Act. This notice is being published solely in order to
comply with the requirements of Rule 13e-4. Pursuant to such Rule, a Schedule
13E-4 has been filed with the Securities and Exchange Commission, which
information is incorporated by reference herein.
All questions regarding the Offer and requests for assistance or copies
of the Offering Circular and Letter of Instructions may be directed to General
Counsel, National Patent Development Corporation, 9 West 57th Street, New York,
N.Y. 10019, telephone: (212) 230-9500.
May 16, 1995
