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 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 1 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. 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 PHYSICAL SCIENCE GROUP GENERAL PHYSICS CORPORATION General General Physics Corporation ("General Physics") provides a wide range of personnel training, engineering, environmental and technical support services to commercial nuclear and fossil power utilities, the United States Departments of Defense ("DOD") and Energy (the "DOE"), Fortune 500 companies and other commercial and governmental customers. General Physics believes it is a leader in the field of developing training materials, conducting training programs and providing support services to operators, technical staff and management personnel. In January 1994, General Physics acquired substantially all of the operating businesses of Cygna Energy Services("CES"), other than its non-nuclear seismic engineering business. CES provides design engineering, seismic engineering, materials management and safety analysis services to the commercial nuclear power industry and to the DOE. On August 31, l994, General Physics acquired substantially all of the assets and operations of SGLG, Inc. (formerly GPS Technologies) and certain of its subsidiaries (together the "GPST Businesses") for approximately $34 million, consisting of $10 million cash, 3,500,000 shares of General Physics common stock, warrants to acquire up to 1,000,000 shares of General Physics common stock at $6.00 per share, warrants to acquire up to 475,664 shares of General Physics common stock at $7.00 per share, and General Physics' 6% ten year senior subordinated debentures in the aggregate principal amount of $15 million. The senior subordinated debentures require payment of interest only on a quarterly basis for the first five years, quarterly installments of $525,000 principal plus interest for the next five years and the balance of $4.3 million at maturity. The fair value of the senior subordinated debentures was estimated to be $10.7 million at the date of the acquisition. The Company which owned approximately 92% of the GPST Businesses and 28% of General Physics prior to the transaction, owned approximately 54% of the outstanding shares of General Physics after the acquisition. General Physics is organized into four groups: Training and Technology, Engineering and Applied Sciences, Federal Systems and Department of Energy. General Physics performance is significantly affected by the timing of performance on contracts. Results of operations are not seasonal, since contracts are performed throughout the year. 3 While General Physics continues to provide services to the DOE and DOD and the commercial nuclear power industry, it is unsure what effect cutbacks will have on future results. In response to these factors, General Physics has begun to focus its marketing resources on expanding management and technical training services to the manufacturing and process industries, and specialized engineering services to Federal agencies. During the latter part of 1994 General Physics experienced growth in these areas and anticipates future growth to come from these areas. In addition, General Physics continues to take steps to reduce costs by eliminating positions and implementing other cost cutting activities. The following table sets forth the approximate pro forma revenue attributable to the categories of services provided by General Physics for the year ended December 31, 1994 assuming 12 months revenue for each of SGLG and General Physics. (in thousands) Training and Technology Services $ 46,466 DOD Services 18,078 DOE Services 18,805 Engineering Services 31,781 Total Revenue $115,130 General Physics currently provides services to more than 410 clients, including eight of the largest electric power companies in the United States and four prime contractors serving the DOE. During 1994, no customer accounted for more than 10% of General Physics revenue. Prior to October, 1988, when it started its DOE services business, General Physics derived virtually all of its revenue from contracts with nuclear utilities. TRAINING AND TECHNOLOGY GROUP The Training and Technology Group focuses on training and human performance improvement needs of commercial nuclear utilities, Fortune 500 and other commercial companies, and government customers, providing technical training and other technical services to customers that design, operate, and maintain equipment and facilities. This Group analyzes the human, organizational and technical issues confronting its customers and recommends solutions to improve performance. DOE SERVICES GROUP The DOE has overall responsibility for the nation's nuclear weapons complex. The operation of United States Government nuclear weapons production and waste processing facilities 4 recently has, like the commercial nuclear power industry, come under increasingly intense public scrutiny. The DOE has since the late 1980's focused its attention upon the safe production of nuclear weapons and, in particular, the cleanup of serious pollution problems at active and inactive weapons plants in more than 30 states. As a result, the DOE has begun a research and cleanup program that it estimates could cost $200 billion or more over the next 30 years. General Physics organized its DOE services group in order to take advantage of the United States Government's increased focus on environmental, health and safety matters 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 5 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. 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. 6 Percentage of Total Revenue Year Ended December 31, 1994 Time-and Materials 37% Fixed-Price 39% Cost-plus-Fixed-Fee 24% 100% CUSTOMERS General Physics provides services to more than 410 customers, including several of the largest companies in the United States. Significant customers include commercial nuclear utilities, the Department of the Navy, the Department of the Air Force, the Department of the Army, major automotive manufacturers, major defense contractors, and other United States Government agencies. Revenue from the United States Government accounted for approximately 48% of the pro forma revenue of the Company for 1994 assuming 12 months for each of SGLG and General Physics. However, such revenue was derived from many separate contracts and subcontracts with a variety of Government agencies and contractors that are regarded by General Physics as separate customers. In 1994 no other customer accounted for more than 10% of General Physics revenue. 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. 7 PERSONNEL As of March 1, 1995, General Physics employed 1312 persons. Many of General Physics' employees perform multiple functions depending upon changes in the mix of demand for the services provided by General Physics. None of General Physics' employees is represented by a labor union. General Physics generally has not entered into employment agreements with its employees, but has employment agreements with certain officers. General Physics believes its relations with its employees are good. BACKLOG As of December 31, 1994, General Physics' backlog for services under signed contracts and subcontracts was approximately $64,844,000 consisting of approximately $22,278,000 respectively, for the Training and Technology Group, approximately $6,613,000, for the DOE Group, approximately $25,392,000, for the Engineering and Applied Sciences Group and approximately $10,561,000, for the Federal Systems Group. General Physics anticipates that most of its backlog as of December 31, 1994 will be recognized as revenue during 1995; however, the rate at which services are performed under certain contracts, and thus the rate at which backlog will be recognized, is at the discretion of the client, and most contracts are, as mentioned above, subject to termination by the client upon written notice. ENVIRONMENTAL STATUTES AND REGULATIONS General Physics provides environmental engineering services to its clients, including the development and management of site environmental remediation plans. Due to the increasingly strict requirements imposed by Federal, state and local environmental laws and regulations (including without limitation, the Clean Water Act, the Clean Air Act, Superfund, the Resource Conservation and Recovery Act and the Occupational Safety and Health Act), General Physics' opportunities to provide such services may increase. 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 8 where it has provided environmental enginering and support services. General Physics believes, however, that it is in compliance in all material respects with such environmental laws and regulations. DISTRIBUTION GROUP FIVE STAR GROUP, INC. The Distribution Group, incorporated under the name Five Star Group, Inc. ("Five Star"), is engaged in the wholesale distribution of home decorating, hardware and finishing products. Five Star has two strategically located warehouses and office locations, with approximately 380,000 square feet of space in New Jersey and Connecticut, which enables Five Star to service the market from Maine to Virginia. Five Star is the largest distributor in the U.S. of paint sundry items, interior and exterior stains, brushes, rollers and caulking compounds and offers products from leading manufacturers such as Olympic, Cabot, Thompson, Dap, 3-M, Minwax and Rustoleum. Five Star distributes its products to retail dealers which include discount chains, lumber yards, "do-it-yourself" centers, hardware stores and paint suppliers principally in the northeast region. It carries an extensive inventory of the products it distributes and provides delivery generally within 48 to 72 hours from the placement of an order. The primary working capital investment for Five Star is inventory. Inventory levels will vary throughout the year reflecting the seasonal nature of the business. Five Star's strongest sales are typically in March through October because of strong seasonal consumer demand for its products. As a result, inventory levels tend to peak in the spring and reach their lowest levels in late fall. The largest customer accounted for approximately 13% of Five Star's sales in 1994 and its 10 largest customers accounted for approximately 27% of such sales. No other customer accounted for in excess of 10% of Five Star's sales in 1994. All such customers are unaffiliated companies and neither Five Star nor the Company has a long-term contractual relationship with any of them. Competition within the industry is intense. There are much larger national companies commonly associated with national franchises such as Servistar and True Value as well as smaller regional distributors all of whom offer similar products and services. Additionally, in some instances manufacturers will bypass the distributor and choose to sell and ship their products directly to the retail outlet. The principal means of competition for Five Star are its strategically placed 9 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 The Optical Plastics Group is engaged in the manufacture of molded and coated optical products, such as shields and face masks and non-optical plastic products through the Company's wholly owned subsidiary MXL Industries, Inc. ("MXL"). MXL is a state-of-the-art injection molder and precision coater of large optical products such as shields and face masks and non-optical plastics. MXL believes that the principal strengths of its business are its state-of-the-art injection molding equipment, advanced production technology, high quality standards, and on time deliveries. Through its Woodland Mold and Tool Division, MXL also designs and engineers state-of-the-art injection molding tools as well as providing a commodity custom molding shop. As the market for optical injection molding, tooling and coating is focused, MXL believes that the combination of its proprietary "Anti-Fog" coating, precise processing of the "Anti- Scratch" coatings, and precise molding and proprietary grinding and polishing methods for its injection tools will enable it to increase its sales in the future and to expand into related products. MXL uses only polycarbonate resin to manufacture shields, face masks and lenses for over 55 clients in the safety, recreation and military industries. For its manufacturing work as a subcontractor in the military industry, MXL is required to comply with various federal regulations including Military Specifications and Federal Acquisition Regulations for military end use applications. MXL is dependent upon one client which accounts for approximately 38% of MXL's total sales and another client which accounts for approximately 14% of MXL's total sales. Over the last several years, MXL has implemented a variety of programs designed to reduce its overhead expenses, enhance its processing capabilities, improve operating efficiency and expand the range of services offered to its customers. The Company's sales and marketing effort concentrates on industry trade shows. In addition, the Company employs one marketing and sales executive and one sales engineer. 10 HYDRO MED SCIENCES Hydro Med Sciences ("HMS") is a division of the Company involved in the manufacture of medical devices, drugs and cosmetic polymer products. HMS was established to investigate potential uses of a unique group of polymers called HydronR in applications other than the soft contact lens area. These polymers, which absorb water without dissolving, are excellent candidates for biomedical applications. HMS has been involved in the development of human and veterinary drugs, as well as medical and dental devices since the early 1970's. HMS developed the Syncro-Mate BR implant which is presently manufactured by HMS and sold in the United States by Sanofi Animal Health, Inc., and is used for the synchronized breeding of bovine heifers. This product was the first veterinary drug implant to be approved by the FDA. HMS also commercially manufactures a solvent soluble, water insoluble HydronR polymer for use in a series of cosmetic products, such as hand and body lotions, facial, whole body and fragile eye moisturizers and sunscreens. HMS also has been collaborating with The Population Council on the development of an implant for humans capable of delivering luteinizing hormone releasing hormone (LHRH) at controlled therapeutic levels for one to two years. This implant is currently in Phase I clinical trials for the treatment of prostatic cancer. The purpose of this study is to determine appropriate dose and elicit any unexpected adverse reactions. THE COMPANY'S INVESTMENTS GTS DURATEK, INC. GENERAL GTS DURATEK INC. ("Duratek") was incorporated in the State of Delaware in December 1982. At December 31, 1994, Duratek was an approximately 61% controlled subsidiary of the Company. However, as of March 1 1995, the Company owned approximately 40% of the outstanding shares of common stock of Duratek. Duratek's operations consist of two operating groups: (i) "Technology Group" engaged in converting radioactive, hazardous and mixed (both radioactive and hazardous waste to glass, using in-furnace vitrification processes, and removing radioactive and/or hazardous contaminants from waste water and other liquids using filtration and ion exchange processes and (2) "Services Group" (formerly Consulting and Staff Augmentation)engaged in consulting, engineering, training, and staff augmentation services. Duratek provides services and technologies for various 11 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 l992 award of a $3.4 million DOE-funded contract to conduct a minimum additive waste stabilization (MAWS) demonstration, which enabled the Company to significantly advance the development of its vitrification technology. The MAWS project integrated soil washing, water purification, and in-furnace vitrification to reduce waste volume and then convert the reduced waste to a durable, leach-resistant form (glass) for long-term storage or burial. During the first half of l993, Duratek designed, built and operated a l00 kilogram-per-day pilot-scale melter at the VSL to gather test data while building a similar 300 kilogram-per-day unit at the DOE's Fernald Environmental Management Project (FEMP) for the MAWS demonstration. These melters were designated DuraMelter 100 and 300, respectively. 12 Duratek engineers and operators started up the DuraMelter 300 at the FEMP in September 1993 and began conducting continuous melt campaigns with nonradioactive waste stimulants. In August 1994, following approximately one year of nonradioactive test melts, the Company operators processed about 7,000 gallons of FEMP wastes consisting of soil wash concentrates , contaminated with uranium, thorium and other heavy metals, blended with magnesium-fluoride sludge from Pit #5. Duratek thus became the first company to successfully complete a continuous vitrification run with low-level radioactive waste at a DOE site. The MAWS success led to a $1.2 million DOE-funded contract for Duratek and the VSL to characterize and catalog the physical and chemical properties of nationwide DOE waste streams. The data gathered will be the basis for a compositional envelope: a sophisticated computerized model which will be used to determine which waste streams can be blended in a vitrification process to achieve the MAWS goals of substantial waste volume reduction and long-term waste form stability. Near the end of l993, Duratek won a $13.9 million, three- year contract in competition with companies providing traditional waste stabilization methods- to stabilize 700,000 gallons of uranium-contaminated sludge at the DOE's Savannah River Site. Duratek is designing and building its first commercial-scale melter, a DuraMelter 5,000 for the project. In 1994, Duratek won a DOE-funded contract worth approximately $2 million to design, build and test a high- temperature melter and "gem" matching ( a device which converts the molten glass discharge stream into droplets) for Fernald Environmental Restoration Management Company's (FERMCO) CRU4 project. SERVICES GROUP The Services Group provides technical personnel to support nuclear power plant outages and operation and DOE environmental restoration projects. The group has retained its major customers: Duke Power Company, Vermont Yankee Nuclear Power "Corporation, New York Power Authority, Tennessee Valley Authority, GPU Nuclear Corporation, PECO Energy Company (formerly Philadelphia Electric Company), and FERMCO. Through efforts to expand its higher margin professional services business, the Services Group has increased its consulting and training sales. The Services Group has also aligned its services to support and complement the Technology Group's environmental restoration business. These include environmental safety and health consulting and training, hazardous materials training, quality 13 assurance/quality control and radiological controls. Waste melter operator trainees are often recruited from the Services Group Field Work Force. INTERFERON SCIENCES, INC. Interferon Sciences, Inc. ("ISI"), which was incorporated in Delaware in May 1980, commenced operations in January 1981, by obtaining from the Company, assets relating to its programs in human alpha (leukocyte) interferon, recombinant DNA, and hybridoma technology. ISI is a biopharmaceutical company engaged in the manufacture and sale of ALFERON N Injection, the only product approved by the United States Food and Drug Administration ("FDA") that is based upon a natural source, multi-species alpha interferon ("Natural Alpha Interferon"). ALFERON N Injection is approved for the treatment of certain types of genital warts. ISI also is developing its existing injectable, topical, and/or oral formulations of Natural Alpha Interferon for the potential treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis, cancers, and other indications. Interferons occur naturally in the body, in essence nature's own medicine. Interferons are a group of proteins produced and secreted by cells to combat diseases. 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 14 and treating other viral diseases. CLINICAL TRIALS SUMMARY In an effort to obtain approval to market Natural Alpha Interferon for additional indications in the United States and around the world, ISI is focusing its research program on conducting and planning various clinical trials for new indications. The table appearing below summarizes the data concerning clinical trials of ALFERON N Injection, ALFERON N Gel, and ALFERON LDO being conducted or proposed to be conducted. 15 PRODUCT POTENTIAL APPLICATION/ STATUS OF CLINICALTRIAL(1) SPONSOR INDICATIONS ALFERON N HIV infected patients: Injection Asymptomatic Initial Phase 1 completed Walter Reed(2) Asymptomatic/Symptomatic Phase 2/3 in final stages of ISI planning Comparison of side effects in Phase 1 completed Purdue 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 Investi- gator(5) Multiple Sclerosis Phase 2 being planned ISI Hepatitis B Phase 2 proposed (4) ALFERON N Cervical dysplasia Phase 2 completed ISI Gel 16 Cervical dysplasia Phase 2 to commence shortly Investi- (in HIV-infected patients) igator(5) 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 (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. 17 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 18 Injection and will also manufacture and supply Fujimoto with ALFERON N Gel. The first indication to be developed for ALFERON N Gel has not yet been finalized. Fujimoto will also purchase certain quantities of ALFERON N Injection and ALFERON N Gel at agreed-upon prices during the preclinical and clinical phases. In connection with the Fujimoto Agreement, Fujimoto purchased $1,500,000 of Common Stock and agreed to purchase an additional $500,000 of Common Stock on February 6, 1996, based on the then current market price. 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 19 completion of the Distribution, ADC became a separate public company. ADC's diverse activities to date have focused on developing, and assisting Western businesses to develop, trade, manufacturing and investment opportunities in Russia, the Czech and Slovak Republics and, to a lesser extent, other countries of the CIS and Eastern Europe. ADC intends to make sales of American-made generic pharmaceutical and health care products for sale under its own label in Russia and the CIS. In 1993, ADC initiated activities aimed at the export of American-made generic pharmaceutical (prescription drugs and over-the-counter personal care products) and other medical products and equipment to Russia and the CIS. Among the products anticipated to be sold by ADC are antibiotic ointments, pain relief medication, vitamins, bandages, prescription injectable anti-cancer drugs, antibiotics and other prescription drugs. ADC has launched marketing operations with major Russian hospitals, individual Russian pharmacies, and other hospitals 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 20 manufactured in accordance with the good manufacturing practices established by the FDA and that it will name ADC as an additional insured on product liability policies providing sufficient coverage. In its four years of operation, ADC has provided through its subsidiary, NPD Trading, a broad range of business services to a significant number of American and Western corporations. ADC's employees have backgrounds in diverse disciplines, such as medicine, law, engineering, physics and international economics, which appropriately meet the industrial makeup of ADC's clients. ADC is able to provide the contacts necessary for interested clients to locate a venture partner and to establish viable financing. Recognizing that successful conclusion of project negotiations in this region often depends upon financing, ADC works closely with the U.S. Exim-Bank, OPIC, the World Bank and its affiliates, including the European Bank for Reconstruction and Development, as well as private commercial banks. Additionally, ADC advises its clients with respect to new commercial, tax, currency and other laws of Eastern Europe, as well as U.S. foreign government regulations and policies which directly affect business operations. RESEARCH AND DEVELOPMENT For the year ended December 31, 1994, NPDC incurred $431,000 as research and development costs. 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. 21 Item 10. Directors and Executive Officers of the Registrant is hereby amended and restated in its entirety as follows: EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information concerning the principal executive officers and directors of the Company as of March 21, 1995. The principal business experience of the executive officers and directors for the last five years is also described below. Name Age Position Jerome I. Feldman 66 President, Chief Executive Officer and a Director since 1959 Martin M. Pollak 67 Executive Vice President, Treasurer and a Director since 1959 Scott N. Greenberg 38 Vice President, Chief Financial Officer since 1989, and a Director since 1987 Lawrence M. Gordon 41 General Counsel since 1986, Vice President since 1991 Robert A. Feinberg 32 Vice President Corporate Development, since January 1995 Paul A. Gould 49 Director Roald Hoffmann, Ph.D. 57 Director Ogden R. Reid 68 Director Herbert R. Silverman 77 Director 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 22 which provides personnel training and technical support services to the domestic commercial nuclear power industry and to the United States Department of Energy; President since October 1994 and Chief Executive Officer, Chairman of the Executive Committee and a Director of SGLG since 1991, a holding company; and a director and consultant to American Drug Company ("ADC"), a generic drug distribution company since January 1994. He has been a Director of Hamilton Financial Services, Inc., a financial service holding company since 1983. Mr. Feldman is also a Trustee of the New England Colleges Fund and of Bard College. Martin M. Pollak is founder of, and since 1959, has been Executive Vice President, Treasurer and a Director of the Company. He has been Chairman of the Board of Interferon since 1981; a Director of Duratek since 1983 and Chairman of the Executive Committee from 1985 to January 1995; a Director of GPC since 1987 and Chairman of the Board since 1988; Chairman of the Board of SGLG since 1991; and President, Chief Executive Officer and a director of ADC since January 1994. Mr. Pollak is Chairman of the Czech and Slovak United States Economic Counsel and a member of the Board of Trustees of the Worcester Foundation for Experimental Biology and a Director of Brandon Systems Corporation, a personnel recruiting company, since 1986. Scott N. Greenberg has been a Director of the Company since 1987, Vice President and Chief Financial Officer since 1989 and Vice President, Finance from 1985. He has been a Director of GPC since 1987; a Director of SGLG since 1991; Chief Financial Officer and a Director of ADC since January 1994 and from 1991 to January 1995, a Director of Duratek. Lawrence M. Gordon is Vice President, General Counsel of the Company. Mr. Gordon has been General Counsel of the Company since 1986 and Vice President since 1991. He has been a Director of GPC since October 1994. Robert A. Feinberg is Vice President, Corporate Development of the Company since January 1995. From July 1990 to January 1995, Mr. Feinberg was an Assistant United States Attorney in the Criminal Division of the United States Attorney's Office for the Eastern District of New York. From October 1988 to June 1990, Mr. Feinberg was an associate with the law firm of Debevoise & Plimpton in New York City. 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. 23 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. 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 24 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 $1,500 for each meeting of the Board of Directors attended, but do not receive any additional compensation for service on committees of the Board of Directors. Officers of the Company do not receive additional compensation for serving as directors. Executive Committee The Executive Committee, consisting of Jerome I. Feldman and Martin M. Pollak, meets on call and has authority to act on most matters during the intervals between Board meetings. The committee formally acted 26 times in 1994 through unanimous written consents. Audit Committee The Audit Committee reviews the internal controls of the Company and the objectivity of its financial reporting. It meets with appropriate Company financial personnel and the Company's independent certified public accountants in connection with these reviews. This committee recommends to the Board the appointment of the independent certified public accountants, subject to the ratification by the stockholders at the Annual Meeting, to serve as auditors for the following year in examining the books and records of the Company. This Committee met twice in 1994. The Audit Committee currently consists of Ogden R. Reid, Roald Hoffmann and Paul A. Gould. Item 11. Executive Compensation is hereby amended and restated in its entirety as follows: The following table and notes present the compensation paid by the Company and subsidiaries to its Chief Executive Officer and the Company's most highly compensated executive officers for 1994. 25 SUMMARY COMPENSATION TABLE Annual Compensation Salary Bonus Name and Principal Position Year ($) ($) Jerome I. Feldman 1994 322,3 40,000(1) President and Chief 1993 316,526 120,000 Executive Officer 1992 326,243 -0- Martin M. Pollak 1994 322,259 40,000(2) Executive Vice President 1993 315,110 -0- and Treasurer 1992 325,110 151,250 Scott N. Greenberg 1994 216,375 20,000(1) Vice President and 1993 156,625 -0- Chief Financial Officer 1992 151,000 -0- Lawrence M. Gordon 1994 233,205 50,000(1) Vice President and 1993 183,20 50,000 General Counsel 1992 183,507 -0- (1) For 1994, Messrs. Feldman, Pollak, Greenberg and Gordon received their respective cash bonuses for services rendered to Interferon. (2) For 1994, $150,000, of Mr. Pollak's compensation was paid by ADC, as a consequence of his services to both companies. Long Term Compensation Awards Options All Other Name and Principal Position ($) Compensation Jerome I. Feldman -0- 3,696(1) President and Chief -0- 3,598(l) Executive Officer -0- 253,491(1) Martin M. Pollak -0- 3,696(1) Executive Vice President -0- 3,598(1) and Treasurer -0- 253,491(1) Scott N. Greenberg -0- 3,696(3) Vice President and -0- 3,598 Chief Financial Officer 22,500 2,932 Lawrence M. Gordon -0- 3,696(3) Vice President and -0- 2,937 General Counsel -0- 3,392 (1) Includes $3,696, $3,598 and $3,491 as a matching 26 contribution by the Company to the 401(k) Savings Plan, and $250,000 in 1992 pursuant to a Non-Compete Agreement between Messrs. Feldman and Pollak and SmithKline Beecham Corporation. See "Employment Contracts and Termination of Employment and Change in Control Arrangements." (2) Constitutes matching contributions made by ADC and the Company equally on behalf of Mr. Pollak pursuant to the Company's 401(k) Savings Plan. (3) Matching contribution by the Company to the 401(k) Savings Plan. For the year ended 1994, none of the named executive officers were granted non-qualified stock options. The following table and notes set forth information for the named executive officers regarding the exercise of stock options during 1994 and unexercised options held at the end of 1994. 27 AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1994 AND YEAR-END OPTION VALUES Shares Acquired on Exercise (#) (1) Value Realized ($) Name Jerome I. Feldman -0- -0- Martin M. Pollak -0- -0- Scott N. Greenberg -0- -0- Lawrence M. Gordon -0- -0- Number of Unexercised Options at December 31, 1994 (#) Exercisable/Unexercisable Name Jerome I. Feldman 1,778,667(2) -0- Martin M. Pollak 1,788,667(2) -0- Scott N. Greenberg 184,700 -0- Lawrence M. Gordon 144,100 -0- Value of Unexercised In-the-Money Options at December 31, 1994 ($) Name Exercisable/Unexercisable(3) Jerome I. Feldman -0- -0- Martin M. Pollak -0- -0- Scott N. Greenberg -0- -0- Lawrence M. Gordon -0- -0- (1) None of the named executive officers exercised any stock options during 1994. (2) Includes 775,000 Class B Options, which options are convertible into shares of Common Stock on a share for share basis. (3) Calculated based on the closing price of the Common Stock (1.8125) as reported by the American Stock Exchange on December 30, 1994. 28 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"): 29 Amount of Title of Name and Address Beneficial Percent Class of Beneficial Owners Ownership of Class Class B Jerome I. Feldman 900,000 shares(1) 50(2) c/o National Patent Development Corp. 9 West 57th Street Suite 4170 New York, NY 10019 Class B Martin M. Pollak 900,000 shares(1) 50(2) c/o National Patent Development Corp. 9 West 57th Street Suite 4170 New York, NY 10019 (1) Includes 775,000 shares each for Messrs. Feldman and Pollak which they currently have the right to purchase pursuant to the exercise of stock options. (2) Percentage could increase up to approximately 88% if either individual exercised all of his stock options and the other individual did not exercise any. Based upon the Common Stock and Class B Stock of the Company outstanding at March 21, 1995, Mr. Feldman and Mr. Pollak controlled in the aggregate approximately 10.6% of the voting power of all voting securities of the Company. This percentage for Mr. Feldman and Mr. Pollak would increase to approximately 45% if they exercised all the presently outstanding options to purchase shares of the Common Stock and Class B Stock of the Company held by them. On March 26, 1986, Mr. Feldman and Mr. Pollak entered into an agreement (i) granting each other the right of first refusal over the sale or hypothecation of the Class B Stock and options to purchase Class B Stock now owned or subsequently acquired by each of them and (ii) in the event of the death of either of them granting the survivor a right of first refusal over the sale or hypothecation of the Class B Stock or options to acquire shares of Class B Stock held by the estate of the decedent. The aforesaid right of first refusal is for the duration of the life of the survivor of Mr. Feldman or Mr. Pollak. Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc., Princeton Services, Inc., Fund Asset Management, L.P., Princeton Services, Inc. and Merrill Lynch Phoenix Fund, Inc. filed a 13-G which disclosed the ownership of 1,426,100 shares of the Common Stock representing approximately 5.9% of the outstanding Common Stock as of December 31, 1994. 30 SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS The following table sets forth, as of March 21, 1995, beneficial ownership of shares of Common Stock of the Company and subsidiaries by each director, each of the named executive officers and all directors and executive officers as a group. Total Number of Shares Beneficially Name Owned Jerome I. Feldman(1)(2)(3)(4)(5) 2,161,636 Martin M. Pollak(1)(2)(3)(4)(5) 2,161,373 Scott N. Greenberg(3)(4) 201,300 Roald Hoffmann, Ph.D.(3)(4)(6) 22,800 Ogden R. Reid(3)(4)(5)(6) 17,000 Paul A. Gould(1)(4)(6) 212,600 Herbert R. Silverman 5,000 Lawrence M. Gordon(1)(3)(4) 146,612 Directors and Executive Officers as a Group (9 persons) (1)(3)(4) 4,928,346 Percent of Common Stock Owned Jerome I. Feldman (1)(2)(3)(4)(5) 7.82 Martin M. Pollak (1)(2)(3)(4)(5) 7.82 Scott N. Greenberg(3)(4) * Ogden R. Reid(3)(4)(6) * Roald Hoffmann, Ph.D.(3)(6) * Paul A. Gould(1)(4)(6) * Herbert R. Silverman * Lawrence M. Gordon (1)(3)(4) * Directors and Executive Officers as a Group (9 persons)(1)(3)(4) 16.46 31 Of Total Number of Shares Beneficially Owned, Shares Which May Be Acquired Within 60 Days Jerome I. Feldman(1)(2)(3)(4)(5) 1,778,667 Martin M. Pollak(1)(2)(3)(4)(5) 1,788,667 Scott N. Greenberg(3)(4) 184,700 Roald Hoffmann, Ph.D.(3)(6) 21,000 Ogden R. Reid(3)(6) 16,000 Paul A. Gould(1)(6) 6,000 Herbert A. Silverman -0- Lawrence M. Gordon(1)(3)(4) 144,100 Directors and Executive Officers as a Group (9 persons)(1)(3)(4) 3,939,134 * The number of shares owned is less than one percent of the outstanding shares of Common Stock. (1) Included in the table are 125,000 shares for each of Messrs. Feldman and Pollak which they currently have the right to acquire through the conversion of shares of Class B Stock into shares of Common Stock which they currently own, (see "Principal Holders of Securities"). Also included in the table are 2,904 shares for a foundation of which Mr. Feldman is a trustee and 6,469 shares for a foundation of which Mr. Pollak is a trustee. Also included in the table are 4,426 shares for Mr. Feldman, 2,414 shares for Mr. Pollak and 2,012 shares for Mr. Gordon and 8,852 shares for all directors and executive officers as a group, issuable upon the conversion of bonds issued with the Company's 12% Subordinated Debentures Due 1997. Mr. Feldman disclaims beneficial ownership of the 2,414 shares issuable upon conversion of bonds held by his wife pursuant to the Debentures. Messrs. Feldman, Pollak and Gould disclaim beneficial ownership of 4,691, 23,006 and 100 shares, respectively, held by members of their families which are included in the table. (2) Included in the table are options to purchase 775,000 shares of Class B Options for each of Messrs. Feldman and Pollak which they currently have the right to acquire through the exercise of stock options, which shares are convertible into shares of Common Stock. (3) Of the directors and executive officers of the Company, the following beneficially own the number of shares of common stock of Interferon Sciences, Inc. ("Interferon") indicated: Jerome I. Feldman 496,450 (2.16%); Martin M. Pollak 482,500 (2.10%); Scott N. Greenberg 165,000 (.73%); Roald Hoffmann 3,000(.013%) Ogden R. Reid 7,100 (.032%) and Lawrence M. Gordon 182,500 (.80%). These shares include 480,000, 480,000, 165,000, 3,000, 7,000 and 182,500 shares for Messrs. Feldman, Pollak, Greenberg, Hoffmann, 32 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. (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 33 outstanding shares, Five Star owned approximately 1,359,375 shares constituting approximately 6% and MXL owned approximately 815,625 shares constituting approximately 4% of the outstanding shares of Interferon Common Stock. Accordingly, the Company's voting control of Interferon is approximately 31%. As of March 21, 1995 the Company owned 3,420,495 shares of GPC common stock, constituting approximately 34% of the outstanding shares, Five Star owned 1,062,500 shares constituting approximately 10% and MXL owned 637,500 shares constituting approximately 6% of the outstanding shares of GPC common stock. All of the shares of GPC common stock owned by the Company, Five Star and MXL have been pledged to a bank as collateral to secure indeptedness owed to such bank. In addition, the Company owns warrants to purchase 1,357,355 shares of GPC common stock. Accordingly, the Company's voting control of GPC is approximately 56.28%. As of March 1, 1995 the Company owned 2,842,300 shares of SGLG, Inc. ("SGLG") common stock, constituting approximately 92% of the outstanding shares. In addition, Mr. Pollak owns 1,000 shares of SGLG common stock. Item 13. Certain Relationships and Related Transactions is hereby amended and restated in its entirety as follows: GTS Duratek, Inc. On January 24, 1995, the Company sold 1,666,667 shares of its Duratek common stock at a price of $3.00 per share to the Carlyle Group ("Carlyle") in connection with a $16 million financing by Duratek with Carlyle, a Washington, D.C. based private merchant bank. In addition, the Company granted Carlyle an option to purchase up to an additional 500,000 shares of Duratek common stock over the next year at $3.75 per share (the "Carlyle Transaction"). Duratek received $16 million from Carlyle in exchange for 160,000 shares of newly issued 8% cumulative convertible preferred stock (convertible into 5,333,333 shares of Duratek common stock at $3.00 per share). Duratek granted Carlyle an option to purchase up to 1,250,000 shares of newly issued Duratek common stock from Duratek over the next four years. As of March 1, 1995, the Company owns 3,534,972 shares of Duratek common stock (approximately 40.4% of the currently outstanding shares of common stock). Assuming, (i) Carlyle converted all of its cumulative convertible preferred stock into Duratek common stock and exercised its option to purchase additional shares of Duratek common stock from each of Duratek and the Company and (ii) the Company's employees exercised their options to purchase an aggregate of 497,750 shares of Duratek 34 common stock, the Company would own 2,537,222 shares of Duratek common stock (approximately 16.5% of the then outstanding shares of common stock). In connection with the Carlyle Transaction, Carlyle will have the right, through its preferred stock, to elect a majority of Duratek's Board of Directors. Upon conversion of the preferred stock, Carlyle would own approximately 50% of Duratek's common stock if all of its options are exercised. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K is hereby amended and restated in its entirety as follows: (a)(1) The following financial statements are included in Part II, Item 8. Financial Statements and Supplementary Data: Page Independent Auditors' Report 37 Financial Statements: Consolidated Balance Sheets - December 31, 1994 and 1993 38 Consolidated Statements of Operations - Years ended December 31, 1994, 1993 and 1992 40 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1994, 1993 and 1992 41 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 43 Notes to Consolidated Financial Statements 46 (a)(2) Financial Statement Schedules Schedule I - Condensed Financial Information of Registrant i Schedule II - Valuation and Qualifying Accounts ii Independent Auditors' Report x 35 (a)(3) Exhibit Consent of Independent Auditors. (b) There were no Reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL PATENT DEVELOPMENT CORPORATION BY: Jerome I. Feldman, President and Chief Executive Officer Dated: May 1, 1995 36 NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET (in thousands) ASSETS Current assets December 31, 1994 1993 Cash and cash equivalents $ 9,165 $ 9,058 Accounts and other receivables 903 2,768 Inventories 2,747 2,877 Prepaid expenses and other current assets 937 471 Total current assets 13,752 15,174 Investments in subsidiaries 79,247 164,122 Other investments and advances 7,253 14,807 Property, plant and equipment, at cost 4,684 4,655 Less accumulated depreciation (4,540) (4,423) 144 232 Intangible assets, net of amortization 772 915 Other assets 1,877 76 $103,045 $195,326 See accompanying notes to the condensed financial statements. i NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) CONDENSED BALANCE SHEET (Continued) (in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, Current liabilities 1994 1993 Current maturities of long-term debt $ 9,275 $ 205 Accounts payable and accrued expenses 3,526 3,626 Total current liabilities 12,801 3,831 Long-term debt, less current maturities 13,539 29,747 Amounts due subsidiaries, net 10,030 90,068 Commitments and contingencies Common stock issued subject to repurchase obligation 1,510 4,242 Stockholders' equity Common stock 241 190 Class B capital stock 2 2 Capital in excess of par value 119,856 106,274 Deficit (53,151) (39,028) Net unrealized loss on available-for- -sale securities (1,783) Total stockholders' equity 65,165 67,438 $103,045 $195,326 See accompanying notes to the condensed financial statements. ii NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) CONDENSED STATEMENT OF OPERATIONS (in thousands, except per share data) Year ended December 31, Revenues 1994 1993 1992 Sales $ 812 $ 945 $ 915 Investment and other income (expense), net (3,899) 1,388 3,767 (3,087) 2,333 4,682 Costs and expenses Cost of goods sold 586 573 632 Selling, general and administrative 6,847 8,294 8,131 Research and development 431 326 301 Interest 4,086 6,414 8,769 11,950 15,607 17,833 Gain on disposition of stock of a subsidiary and an affiliate 3,795 Gain on issuance of stock of a subsidiary 1,353 Equity in earnings of subsidiaries 3,640 234 1,573 Loss before income taxes, discontinued operation and extraordinary item (11,397) (7,892) (11,578) Income tax benefit 1,043 Loss before discontinued operation and extraordinary item (11,397) (6,849) (11,578) Discontinued operation Loss from discontinued operation (2,574) (947) (2,027) Loss before extraordinary item (13,971) (7,796) (13,605) Extraordinary item Gain from early extinguishment of debt, net of tax of $1,043 in 1993 1,819 1,662 Net loss $(13,971) $ (5,977)$(11,943) Income (loss) per share Loss before discontinued operation and extraordinary item $ (.52) $ (.40) $ (.73) Discontinued operation (.12) (.06) (.13) Extraordinary item .11 .10 Net loss per share $ (.64) $ (.35) $ (.76) See accompanying notes to the condensed financial statements. Prior years have been restated to reflect the discontinued operation. iii NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) CONDENSED STATEMENT OF CASH FLOWS (in thousands) Year ended December 31, 1994 1993 1992 Cash flows from operations: Net loss $(13,971) $(5,977)$(11,943) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 392 798 1,332 Equity in earnings of subsidiaries (3,640) (234) (1,573) Provision for discontinued operation 1,570 Share of loss of discontinued operation 1,004 947 2,027 Income tax benefit allocated to continuing operations (1,043) Gain on disposition of stock of a subsidiary and an affiliate (3,795) Gain on issuance of stock of a subsidiary (1,353) Gains from early extinguishment of debt, net of income tax in 1993 (1,819) (1,662) Changes in other operating items 994 1,662 (204) Net cash used for operations (13,651) (10,814) (12,023) Cash flows from investing activities: Proceeds from sale of an investment 4,500 (Additions to) reductions of property, plant & equipment (29) (22) 34 Reduction of (additions to) intangible assets (37) 477 Reduction of investments and other assets, net 11,473 13,841 5,787 Net cash provided by investing activities 11,407 14,296 10,321 iv NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) CONDENSED STATEMENT OF CASH FLOWS (in thousands) Year ended December 31, 1994 1993 1992 Cash flows from financing activities: Net repayments of short-term borrowings $ $ (4,379) $(5,967) Decrease in restricted cash 270 4,730 Reduction of long-term debt (295) (3,450) (2,683) Proceeds from issuance of common stock 188 198 Exercise of common stock options and warrants 99 413 282 Proceeds from issuance of long-term debt 2,359 Issuance of treasury stock 15 Net cash provided by (used for) financing activities 2,351 (6,948) (3,623) Net increase (decrease) in cash and cash equivalents 107 (3,466) (5,325) Cash and cash equivalents at beginning of year 9,058 12,524 17,849 Cash and cash equivalents at end of year $ 9,165 $ 9,058 $ 12,524 v NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) CONDENSED STATEMENT OF CASH FLOWS (Continued) (in thousands, except per share data) Year ended December 31, 1994 1993 1992 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 1,009 $ 2,375 $ 6,145 Income taxes $ 42 $ 44 $ 103 Supplemental schedule of noncash transactions: Additions to other assets and prepaid expenses 100 179 130 Reduction of accrued interest payable 1,045 607 Reduction of debt 9,167 21,900 1,819 Reduction of accounts payable 267 597 Issuances of treasury stock (1,468) Issuances of common stock (10,579) (8,981) (1,078) Issuance of long-term debt (3,006) Common stock issued subject to repurchase obligation (4,242) Gain on disposition of stock of a subsidiary and an affiliate (3,795) Gain on exchange of debt, before income tax effect (2,662) See accompanying notes to the condensed financial statements. vi NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. INVENTORIES Inventories are valued at the lower cost or market, principally using the first-in, first-out (FIFO) method of costing. Inventories consisting of material, labor, and overhead are classified as follows (in thousands): December 31, 1994 1993 Raw materials $ 50 $ 95 Work in process 1 2 Finished goods 46 80 Land for resale 2,650 2,700 $ 2,747 $ 2,877 2. LONG-TERM DEBT Long-term debt consists of the following (in thousands): December 31, 1994 1993 5% Convertible Bonds $ 2,129 $ 2,300 8% Swiss Bonds 2,999 $ 4,572 Old Swiss convertible bonds 10,158 15,300 12% Subordinated debentures 6,783 6,829 Notes payable in connection with settlements of litigation 745 951 22,814 29,952 Less current maturities 9,275 205 $ 13,539 $ 29,747 Aggregate annual maturities of long-term debt outstanding at December 31, 1994 for each of the next five years are as follows (in thousands): 1995 $ 9,275 1996 4,355 1997 7,055 1998 1999 2,129 See Note 10 of the Notes to Consolidated Financial Statements for additional information with respect to the Company's long-term debt. vii NATIONAL PATENT DEVELOPMENT CORPORATION SCHEDULE I (Continued) NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) 3. COMMITMENTS AND CONTINGENCIES The Company has several noncancellable leases which cover real property and machinery and equipment. Such leases expire at various dates with, in some cases, options to extend their terms. Minimum rentals under long-term operating leases are as follows (in thousands): Real Machinery & property equipment Total 1995 $ 636 $ 92 $ 728 1996 636 46 682 1997 636 29 665 1998 656 15 671 1999 656 10 666 After 1999 1,968 1,968 Total $5,188 $ 192 $5,380 Several of the leases contain provisions for rent escalation based primarily on increases in real estate taxes and operating costs incurred by the lessor. The Company is party to several lawsuits incidental to its business. It is not possible at the present time to estimate the ultimate legal and financial liability, if any, of the Company with respect to such litigation; however, management believes that the ultimate liability, if any, will not have a material adverse effect on the Company's Financial Statements. viii NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES SCHEDULE II Valuation and qualifying accounts (in thousands) Additions Balance at Charged to Balance Beginning Costs & Close of of Period Expenses Deductions(a) Period Year ended December 31, 1994: Allowance for doubtful accounts $1,689 $1,733 $1,330 $2,092 Year ended December 31, 1993: Allowance for doubtful accounts 1,581 1,077 969 1,689 Year ended December 31, 1992: Allowance for doubtful accounts 1,795 1,287 1,501 1,581 (a) Write-off of uncollectible accounts, net of recoveries. ix INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders National Patent Development Corporation Under date of April 3, 1995, we reported on the consolidated balance sheet of National Patent Development Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the annual report on Form 10-K for the year ended 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP New York, New York April 3, 1995 x