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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5485
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VISKASE COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2677354
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6855 W. 65th Street, Chicago, Illinois 60638
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 496-4200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
-----
As of March 30, 2000, the aggregate market value of the voting
stock held by non-affiliates of the registrant was $14,724,774.
As of March 30, 2000, there were 15,089,790 shares outstanding
of the registrant's Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
VISKASE COMPANIES, INC.
Form 10-K Annual Report - 1999
Table of Contents
PART I Page
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 7a. Quantitative and Qualitative Disclosures
about Market Risk 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management 27
Item 13. Certain Relationships and Related Transactions 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 30
i
PART I
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ITEM 1. BUSINESS
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(a) General development of business:
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General
Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is
a Delaware corporation organized in 1970. As used herein, the
"Company" means Viskase Companies, Inc. and its subsidiaries. The
Company, through Viskase Corporation (Viskase), operates in the
film and casing packaging product segments of the food industry.
Viskase is a major producer of cellulosic casings used in preparing
and packaging processed meat products and is a leading producer of
heat shrinkable specialty plastic bags for packaging and preserving
fresh and processed meat products, poultry and cheese. The market
positions of the Company's subsidiaries set forth in this Form 10-K
represent management's belief based upon internally generated
information. No independent marketing information has been used to
confirm the stated market positions.
In September 1997 the Company retained Donaldson, Lufkin and
Jenrette Securities Corporation to assist the Board of Directors in
evaluating the Company's strategic alternatives. Such alternatives
included, among other things, sale of the entire company, sale of
business units or recapitalization. In June 1998, the Company sold
its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky), and
in July 1998 the Company sold its wholly owned subsidiary Clear
Shield National, Inc. (Clear Shield). In January 2000, the Company
announced its intention to sell its plastic barrier and non-barrier
shrink film business. (See Part IV, Item 14, Note 25 of Notes to
Consolidated Financial Statements.)
(b) Financial information about industry segments:
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Reference is made to Part IV, Item 14, Note 23 of Notes to
Consolidated Financial Statements.
(c) Description of business
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General
Viskase invented the basic process for producing casings from
regenerated cellulose for commercial production in 1925. Management
believes that Viskase has been a leading worldwide producer of
cellulosic casings since that time. In 1964 Viskase entered the
specialty films business and it has continued to introduce new
specialty film products to customers in the fresh and processed
meat, poultry and cheese industries.
CASINGS
Cellulosic Casings
Cellulosic casings are used in the production of processed meat and
poultry products, such as hot dogs, salami and bologna. To
manufacture these products, meat is stuffed into a casing, which is
then cooked and smoked. The casings, which are non-edible, serve to
hold the shape of the product during these processes. For certain
products, such as hot dogs, the casings are removed and discarded
prior to retail sale. Casings made of regenerated cellulose were
developed by Viskase to replace casings made of animal intestines.
Cellulosic casings generally afford greater uniformity, lower cost
and greater reliability of supply and also provide producers with
the ability to cook and smoke products in the casing. Cellulosic
casings are required for the high speed production of many
processed meats.
The production of regenerated cellulose casings generally involves
four principal steps: (i) production of a viscose slurry from wood
pulp, (ii) regeneration of cellulosic fibers, (iii) extrusion of a
continuous tube during the regeneration process, and (iv)
"shirring" of the final product. Shirring is a finishing process
that involves pleating and compressing the casing in tubular form
for subsequent use in high-speed stuffing machines. The production
of regenerated cellulose casings involves a complex and continuous
series of chemical and manufacturing processes, and Viskase
believes that its facilities and expertise in the manufacture of
extruded cellulose are important factors in maintaining its product
quality and operating efficiencies.
Viskase's product line includes both NOJAX(R) cellulosic casings for
small-diameter processed meat products, such as hot dogs, and
fibrous or large-diameter casings, which are paper-reinforced
cellulosic casings, used in the production of large-diameter
sausages, salami, hams and other processed meat products.
FILMS
Specialty Film Products
Since developing technology for the extrusion of bi-oriented
plastic films in 1964, Viskase has continued to expand its product
line of heat shrinkable bags made from specialty plastic films.
Viskase's heat-shrinkable plastic bags, sold primarily under the
brand name PERFLEX(R), are used by major producers of fresh and
processed meat products, poultry and cheese to package and preserve
their products during wholesale and retail distribution. Viskase
also manufactures thin-gauge plastic films used for industrial
packaging. This film is sold under the brand name CLEAR-LOC(R).
The production of specialty plastic bags involves four principal
steps: (i) plastic resin pellets are melted and extruded into a
tubular film; (ii) the tube is "bi-oriented" whereby it is
stretched along its length and width to enhance the heat-shrink
characteristics of the final product; (iii) the tube is irradiated
to improve its strength and sealability characteristics; and (iv)
the tube is processed through a bag machine to form individual
bags.
Specialty plastic films are divided into two types: single layer
and multilayer. Single layer specialty plastic films are used
primarily to protect fresh and frozen whole turkeys and chickens
from moisture loss and handling damage. Multilayer specialty
plastic films, referred to in the food industry as "barrier films,"
are made of layers of co-extruded films, each of which contributes
a specific product characteristic. For example, individual layers
can provide mechanical strength, puncture resistance or can reduce
the transmission of moisture, gases or ultraviolet light and can
protect bagged products, such as fresh meats, from weight loss and
spoilage.
As part of its service orientation, Viskase also provides graphic
art and design services to its customers. Viskase's ability to
print designs, illustrations and text in up to eight colors
directly on the bags and films further enhances the appeal of its
customers' products.
Oriented Polypropylene Film Products
Viskase converts oriented polypropylene (OPP) films for use in
packaging bakery goods. These films are sold under the brand name
CRUSTPAK(R).
International Operations
Viskase has six manufacturing facilities located outside the
continental United States, in Beauvais, France; Thaon, France;
Lindsay, Ontario, Canada; Newton Aycliffe, England; Swansea, Wales;
and Guarulhos, Brazil.
The aggregate of domestic exports and net sales of foreign
operations represents approximately 53% of Viskase's total net
sales.
International sales and operations may be subject to various risks
including, but not limited to, possible unfavorable exchange rate
fluctuations, political instability, governmental regulations
(including import and export controls), restrictions on currency
repatriation, embargoes, labor relations laws and the possibility
of governmental expropriation. Viskase's foreign operations
generally are subject to taxes on the repatriation of funds.
International operations in certain parts of the world may be
subject to international balance of payments difficulties that may
raise the possibility of delay or loss in the collection of
accounts receivable from sales to customers in those countries.
Viskase believes its allowance for doubtful accounts makes adequate
provision for the collectibility of receivables. Management
believes that growth potential exists for many of Viskase's
products outside the United States and that Viskase is well
positioned to participate in these markets. While overall
consumption of processed meat products in North America and Western
Europe is stable, there is a potential for market growth in Eastern
Europe, Latin America and Southeast Asia. Flexible packaging is
growing due to the movement towards product differentiation.
Sales and Distribution
Viskase has a broad base of customers, with no single customer
accounting for more than 9% of sales. Viskase sells its products in
virtually every country in the world. In the United States, Viskase
has a staff of technical sales teams responsible for sales to fresh
meat, processed meat and poultry producers. Approximately 75
distributors market Viskase products to customers in Europe,
Africa, Middle East Asia, and Latin America. Its products are
marketed through its own subsidiaries in the United Kingdom,
Germany, France, Italy, Brazil, Chile, Canada and Poland. At the
end of the years 1999 and 1998, Viskase had backlog orders of $53
million and $38 million, respectively.
Viskase maintains nine service and distribution centers worldwide.
The service centers perform limited product finishing and provide
sales, customer service, warehousing and distribution. Distribution
centers provide only warehousing and distribution.
In the United States, Viskase operates distribution centers in
Chicago, Illinois and Bensalem, Pennsylvania; as well as a center
within the Pauls Valley, Oklahoma, plant. In Latin America, Viskase
operates a service center within the Guarulhos, Brazil plant and a
distribution center in Santiago, Chile. In Europe, Viskase operates
service centers in Caronno, Italy and Pulheim, Germany and
distribution centers in Dublin, Ireland and Warsaw, Poland.
Competition
Viskase is one of the world's leading producers of cellulosic
casings and is a major producer of specialty plastic films. Viskase
seeks to maintain a competitive advantage by manufacturing products
having outstanding quality and superior performance characteristics
over competitive products, by responding quickly to customer
product requirements, by providing customers with assistance in
production or formulation problems, by producing niche products to
fill individual customer requirements, and by providing technical
support services to its customers. From time to time, Viskase
experiences reduced market share or reduced profits due to price
competition.
Viskase's principal competitors in cellulosic casings are Devro
PLC, located in Scotland with plants in the United States and
Belgium; Viscofan, S.A., located in Spain, Germany, Brazil, Czech
Republic and the United States and Alfacel, located in Spain. Some
of the other important competitors in the cellulosic casings
industry are Kalle Nalo GmbH, located in Germany; Wolff Walsrode
AG, a wholly owned subsidiary of Bayer AG, located in Germany; Oy
Visko AB located in Finland; KoSa, located in Mexico and two
Japanese manufacturers, Fujimori and Toho.
In the specialty films area, the largest producer of heat
shrinkable bags is the Cryovac Division of Sealed Air Corporation.
Cryovac developed heat shrinkable films and a vacuumizing process
for applying them in the early 1960's. Cryovac sells its bags
worldwide to all segments of the food industry, including meat and
poultry producers. Pechiney Plastic Packaging is another competitor
in the specialty films area. Management believes that Viskase is in
the number two position worldwide in the sale of heat shrinkable
bags.
Viskase's primary competitors include several major corporations
that are larger and better capitalized than Viskase.
Research and Development; Customer Support
Viskase's continuing emphasis on research and development is
central to its ability to maintain industry leadership. In
particular, Viskase focuses on the development of new products that
increase customers' operating efficiencies, reduce their operating
costs and expand their markets. Viskase's projects include
development of new processes and products to improve its
manufacturing efficiencies. Viskase's research scientists,
engineers and technicians are engaged in continuing product and
equipment development and also provide direct technical and
educational support to its customers.
Viskase believes it has achieved and maintained its position as a
leading producer of cellulosic casings and as a major worldwide
producer of specialty films for packaging meats through significant
expenditures on research and development. The Company expects to
continue its research and development efforts. The
commercialization of certain of these product and process
applications and related capital expenditures to achieve
commercialization may require substantial financial commitments in
future periods. Should these activities be curtailed or if capital
resources are not available to develop its projects, Viskase's
ability to maintain its present market share could be materially
impaired. Research and development costs from continuing operations
are expensed as incurred and totaled $7,799 thousand, $7,375
thousand and $6,907 thousand for 1999, 1998 and 1997, respectively.
Viskase founded its Food Science and Quality Institute (Institute)
in 1941 to assist the meat and poultry industry in the development
of new food items and more efficient production and packaging
methods using Viskase products. The Institute's staff works closely
with Viskase's sales and marketing professionals to provide
responsible, high-quality technical service to, and in support of,
Viskase customers. The Institute is able to reproduce customers'
products and processes in order to help customers solve their
problems and experiment with new foods and production techniques.
The Institute conducts Meat Science Seminars that are attended by
Viskase customers and production, research and quality assurance
personnel, as well as food scientists from leading academic
institutions.
NUCEL(R) Technology
In May 1997, Viskase announced a technological breakthrough in the
production process of viscose for the manufacture of cellulosic
casings using NUCEL(R) technology. Engineers at Viskase have adapted
this NUCEL(R) technology for its use in the manufacture of
cellulosic casings for food production. Viskase has determined that
this technology is commercially viable and constructed a full-scale
production line which will begin commercial production in 2000.
Management believes that a sizable capital investment will be
required to fully commercialize the NUCEL(R) technology.
Seasonality
Historically, domestic sales and profits of Viskase have been
seasonal in nature, increasing in the spring and summer months due
to casings and again near the year-end holiday season due to
processed meat specialty films. Sales of specialty films to the
fresh meat industry and sales outside of the United States follow
a relatively stable pattern throughout the year.
Raw Materials
Raw materials used by Viskase include cellulose (from wood pulp),
fibrous paper, petroleum-based resins, plasticizers and various
other chemicals. Viskase generally purchases its raw materials from
a single source or small number of suppliers with whom it maintains
good relations. Certain primary and alternative sources of supply
are located outside the United States. Viskase believes, but there
can be no assurance, that adequate alternative sources of supply
currently exist for all of Viskase's raw materials or raw material
substitutes that Viskase could modify its processes to utilize.
Employees
The Company generally maintains productive and amicable
relationships with its 2,940 employees worldwide. One of Viskase's
domestic plants, located in Loudon, Tennessee, is unionized, and
its Canadian and European plants have unions. From time to time
union organization efforts have occurred at other individual plant
locations. Unions represent a total of approximately 750 of
Viskase's 2,940 employees.
Trademarks and Patents
Viskase holds patents on many of its major technologies, including
those used in its manufacturing processes and the technology
embodied in products sold to its customers. Because it believes its
ongoing market leadership depends heavily upon its technology,
Viskase vigorously protects and defends its patents against
infringement by competitors on an international basis. As part of
its research and development program, Viskase has developed and
expects to continue to develop new proprietary technology and has
licensed proprietary technology from third parties. Management
believes these activities will enable Viskase to maintain its com-
petitive position. Viskase also owns numerous trademarks and
registered tradenames that are used actively in marketing its
products. Viskase periodically licenses its process and product
patents to competitors on a royalty basis.
Environmental Regulations
In manufacturing its products, the Company employs certain
hazardous chemicals and generates toxic and hazardous wastes. The
use of these chemicals and the disposal of such waste are subject
to stringent regulation by several governmental entities, including
the United States Environmental Protection Agency (USEPA) and
similar state, local and foreign environmental control entities.
The Company is subject to various environmental, health and safety
laws, rules and regulations including those of the United States
Occupational Safety and Health Administration and USEPA. These
laws, rules and regulations are subject to amendment and to future
changes in public policy or interpretation, which may affect the
operations of the Company. The Company uses its best reasonable
efforts to comply with promulgated laws, rules and regulations and
participates in the rulemaking process.
Certain of the Company's facilities are or may become potentially
responsible parties with respect to other off-site waste disposal
facilities.
As noted above, new environmental and health and safety laws can
impose significant compliance costs, including forthcoming rules.
Under the Clean Air Act Amendments of 1990, various industries,
including casings manufacturers, will be required to meet air
emissions standards for certain chemicals based on use of the
"maximum achievable control technology" (MACT). MACT standards for
casings manufacturers have not yet been proposed or promulgated;
therefore, at this time no estimate of the cost of complying with
MACT standards can be made. Such rules, however, will likely impose
similar costs on all casings manufacturers in the United States.
Under the Resource Conservation and Recovery Act (RCRA),
regulations have been proposed that, in the future, may impose
design and/or operating requirements on the use of surface
impoundments of wastewater. Two of Viskase's plants use surface
impoundments. The Company does not foresee these regulations being
imposed for several years.
Various state, local and foreign governments have enacted or are
considering enacting laws, rules or regulations concerning the
disposal of plastic products. While such legislative action has had
a minor effect on certain product sales and may have further effect
in the future, the Company is not aware of any existing legislative
action that it currently expects to have a material adverse effect
on the Company.
(d) Financial information about foreign and domestic operations
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and export sales
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Reference is made to Part IV, Item 14, Note 23 of Notes to
Consolidated Financial Statements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the Company's
executive officers, together with the positions with the Company
held by such executive officers, and a summary of their recent
business experience. Under the Company's Amended and Restated By-
Laws, the Company's officers are elected for such terms as may be
determined from time to time by the Board of Directors.
Emerald Acquisition Corporation (Emerald), the sole stockholder of
Viskase Companies, Inc. prior to Viskase Companies, Inc.'s
emergence from bankruptcy in 1993, filed a petition under Chapter
11 of the Bankruptcy Code on August 20, 1993. In March 1998, the
bankruptcy petition was dismissed by the Bankruptcy Court.
In addition to the positions with Viskase Companies, Inc. held by
the persons specified below for the periods indicated, Mr.
Gustafson has served as executive officer of Emerald since May
1989.
Name, Age and Office Business Experience
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F. Edward Gustafson, 58 Mr. Gustafson has been Chairman of the Board, President and
Chairman of the Board, Chief Executive Officer of the Company since March 1996 and a
President and Chief director of the Company since December 1993. Mr. Gustafson has
Executive Officer been President and Chief Executive Officer of Viskase since
June 1998, and previously from February 1990 to August 1994.
From May 1989 to March 1996 Mr. Gustafson served as Executive
Vice President and Chief Operating Officer of the Company. Mr.
Gustafson has also served as Executive Vice President and Chief
Operating Officer of D.P. Kelly and Associates, L.P. (DPK)
since November 1988.
Gordon S. Donovan, 46 Mr. Donovan has been Chief Financial Officer of the Company
Vice President, Chief since January 1997 and Vice President and Chief Financial
Financial Officer, Officer of Viskase since June 1998. Mr. Donovan has served as
Treasurer and Treasurer and Assistant Secretary of the Company since November
Assistant Secretary 1989 and as Vice President since May 1995.
Kimberly K. Duttlinger, 36 Ms. Duttlinger has been Vice President, Secretary and General Vice
President, Secretary Counsel of the Company since April 2000. From August 1998
and General Counsel through April 2000, Ms. Duttlinger served as Associate General
Counsel of the Company. From May 1997 to August 1998, Ms.
Duttlinger served as Corporate Counsel of the Company. From May
1993 to August 1996, Ms. Duttlinger served as Corporate Counsel
to Alberto-Culver Company, a manufacturer and distributor of
personal care and household products.
ITEM 2. PROPERTIES
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VISKASE FACILITIES
LOCATION SQUARE FEET PRIMARY USE
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Manufacturing Facilities
Beauvais, France (a) 235,000 Casings production and finishing
Centerville, Iowa 223,000 Specialty films production and finishing
Guarulhos, Brazil 81,000 Specialty films production and casings finishing
Kentland, Indiana 125,000 Casings finishing
Lindsay, Ontario, Canada 166,000 Specialty films finishing
Loudon, Tennessee 250,000 Casings production
Osceola, Arkansas 223,000 Casings production
Pauls Valley, Oklahoma 110,000 Casings finishing, specialty films production
and finishing
Newton Aycliffe, England (a) 30,000 OPP conversion - films
Swansea, Wales 275,000 Specialty films production and finishing
Thaon, France 239,000 Casings production and finishing
Distribution Centers - Domestic
Bensalem, Pennsylvania
Chicago, Illinois
Pauls Valley, Oklahoma
Service Centers - Foreign
Guarulhos, Brazil
Pulheim, Germany (a)
Milan, Italy
Distribution Centers - Foreign
Santiago, Chile (a)
Dublin, Ireland
Warsaw, Poland (a)
Headquarters
Worldwide: Chicago, Illinois
Europe: Paris, France (a)
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(a) Leased. All other properties are owned.
The Company believes that its properties generally are suitable and
adequate to satisfy the Company's present and anticipated needs.
The Company's United States real property collateralizes the Company's
obligations under various financing arrangements. For a discussion
of these financing arrangements, refer to Part IV, Item 14, Note 8 of
Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
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In late 1993, Viskase commenced a legal action against American National
Can Company (ANC) in Federal District Court for the Northern District of
Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of
two different very low density polyethylene plastic resins in the
manufacture of ANC's multi-layer barrier shrink film products was
infringing various Viskase patents relating to multi-layer barrier
plastic films used for fresh red meat, processed meat and poultry
product applications. In November 1996, after a three-week trial, a jury
found that ANC had willfully infringed Viskase's patents and awarded
Viskase $102.4 million in compensatory damages. The Court also entered
an order permanently enjoining ANC from making or selling infringing
products.
In September 1997, the Court set aside the jury verdict in part and
ordered a retrial on certain issues. The Court upheld the jury finding
on the validity of all of Viskase's patents and the jury finding that
ANC had willfully infringed Viskase's patents by ANC's use of Dow
Chemical Company's "Attane" brand polyethylene plastic resin in ANC's
products. However, the Court ordered a new trial on the issue of whether
ANC's use of Dow Chemical Company's "Affinity" brand polyethylene
plastic resin infringed Viskase's patents and whether such conduct was
willful. Because the jury rendered one general damage verdict, the Court
ordered a retrial of all damage issues. By operation of the Court's
order, the injunction in respect of ANC's future use of the "Affinity"
brand resin was removed.
On August 19, 1998, the Court granted Viskase's motion for partial
summary judgment finding that ANC's use of the "Affinity" brand resin
infringed Viskase's patents. The Court also reinstated the permanent
injunction. Viskase filed a motion to have the jury verdict as to
compensatory damages reinstated. ANC filed a motion to dismiss the
lawsuit claiming that Viskase's patents are invalid and Viskase failed
to join an indispensable party to the lawsuit. On May 10, 1999, the
Court granted Viskase's motion to have the jury verdict as to the
compensatory damages reinstated. In May and June 1999, the parties
briefed the issue of enhanced damages and on July 2, 1999, the Court
awarded Viskase total damages of $164.9 million. ANC filed a motion for
reconsideration which was denied.
On May 3, 1999, ANC commenced legal action in the Federal District Court
for the Northern District of Illinois seeking declaratory relief that
one of the litigated patents is invalid. ANC also filed a motion to
consolidate the declaratory action with the 1993 suit. ANC's motion to
consolidate was granted and then the Court dismissed ANC's suit with
prejudice at the same time the Court awarded Viskase total damages of
$164.9 million.
ANC has filed a notice of appeal to the United States Court of Appeals
for the Federal Circuit. Oral arguments before the United States Circuit
of Appeals for the Federal Circuit were held on June 6, 2000 and Viskase
expects a decision during fourth quarter of 2000 or first quarter of
2001.
In addition, ANC has challenged two of the five Viskase patents in suit
by filing requests for reexamination with the United States Patent and
Trademark office (USPTO). Both patents under reexamination have been
rejected by the USPTO. In both cases, Viskase has filed appeals to the
Board of Patent Appeals and Interferences of the USPTO. For the first
patent, Viskase's brief was filed July 13, 2000, and the Examiner's
Answer is awaited. For the second patent, Viskase's brief is due
October 23, 2000.
On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney
Emballage Flexible Europe, Inc. (successors in interest in ANC) filed
suit against the Company and Viskase in the United States District Court
for the Northern District of Illinois, Eastern Division. This suit
alleges infringement of U.S. Reissue Patent No. 35,567, which patent is
set to expire on April 26, 2002, and further alleges patent interference
with one of the five Viskase patents litigated in Viskase's legal action
against ANC. In May 2000, the District Court dismissed the patent
interference count. Pechiney filed an Amended Complaint on June 30,
2000 seeking to reinstate the dismissed count (Count III). On July 25,
2000, Viskase filed a Motion to Dismiss Count III of the Amended
Complaint and also filed a Motion for Sanctions related thereto. On
August 9, 2000, Viskase filed a Supplemental Motion for Sanctions. On
August 24, 2000, Pechiney responded to these motions and Viskase filed
its reply on September 14, 2000. Rulings on these motions are presently
set for October 13, 2000. Viskase's Answer to the Amended Complaint is
presently due October 23, 2000.
No part of the pending claims has been recorded in the Company's finan-
cial statements. Through December 31, 1999, $4.9 million in patent
defense costs had been accrued and capitalized.
In March 1997, Viskase received a subpoena from the Antitrust Division
of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. In September 1999,
Viskase Corporation received a subpoena from the Antitrust Division of
the United States Department of Justice relating to the expansion of the
grand jury investigation into the specialty films industry. Viskase is
cooperating fully with the investigations.
In November 1999, the Company and certain of its subsidiaries and one
other sausage casings manufacturer were named in a civil complaint,
Leon's Sausage Company, on behalf of itself and all others similarly
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situated v. Viskase Companies, Inc., Envirodyne Industries, Inc.,
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Viskase Corporation, Devro-Teepak, Inc., Civil Action No. 99C7200,
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United States District Court for the Northern District of Illinois,
Eastern Division. This complaint alleged that the defendants unlawfully
conspired to fix prices and allocate business in the sausage casings
industry. In December 1999, the plaintiff in this action voluntarily
dismissed the complaint without prejudice.
In late 1999 and early 2000, the Company and certain of its subsidiaries
and one other sausage manufacturer were named in ten virtually identical
civil complaints filed in the District of New Jersey by the following
plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage
Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.;
Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.;
Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co.
The District Circuit ordered all of these cases consolidated in the
District of New Jersey. Civil Action No. 99-5195-MLC (D.N.J.). Each
complaint brought on behalf of a purported class of sausage casings
customers alleges that the defendants unlawfully conspired to fix prices
and allocate business in the sausage casings industry. The Company and
its subsidiaries have filed answers to each of these complaints denying
liability.
The Company and its subsidiaries are involved in various legal
proceedings arising out of their business and other environmental
matters, none of which is expected to have a material adverse effect
upon results of operations, cash flows or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------
(a) Market Information. Viskase Companies, Inc.'s Common Stock is
------------------
traded in the over-the-counter market. The high and low closing bid
prices of the Common Stock during 1999 and 1998 are set forth in the
following table. Such prices reflect interdealer prices without markup,
markdown or commissions and may not represent actual transactions.
1999 First Quarter Second Quarter Third Quarter Fourth Quarter
- ------ ------------- -------------- ------------- --------------
High $4.25 $4.94 $4.75 $3.37
Low 3.31 2.88 2.62 1.50
1998 First Quarter Second Quarter Third Quarter Fourth Quarter
High $8.75 $8.72 $6.75 $4.50
Low 6.68 6.50 3.56 2.88
(b) Holders. As of March 30, 2000, there were approximately 107 holders
-------
of record and an approximate 1,300 beneficial holders of Viskase
Companies, Inc.'s Common Stock.
(c) Dividends. Viskase Companies, Inc. has never paid a cash dividend
---------
on shares of its Common Stock. The payment of dividends is restricted by
the terms of various financing agreements to which the Company is a
party. The Company has no present intention of paying dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
53/52 week ending
-------------------------------------------------------------
December December December December
1999 31, 1998 (1) 25, 1997 (1) 26, 1996 (1) 28, 1995
---------- ------------ ------------ ------------- ------------
(in thousands, except for per share amounts)
Net sales $385,653 $409,169 $498,333 $534,420 $650,212
Net (loss) from continuing
operations (31,758) (181,673) (10,362) (14,580)
Net income from discontinued
operations 413 717 898
Gain on sales
of discontinued operations 39,057
(Loss) before extraordinary item (2) (31,758) (142,203) (9,645) (13,682) (17,323)
Net (loss) (3) (31,758) (148,996) (9,645) (13,682) (21,519)
Per share net (loss)
from continuing operations
- basic and diluted (2.12) (12.25) (.71) (1.02)
Per share net income
from discontinued operations
- basic and diluted .03 .05 .06
Gain on sales from
discontinued operations 2.63
Per share (loss)
before extraordinary item
- basic and diluted
Earnings per share (2) (2.12) (9.59) (.66) (.96) (1.28)
Per share net (loss)
- basic and diluted
Earnings per share (3) (2.12) (10.05) (.66) (.96) (1.59)
Cash and equivalents 6,243 9,028 24,407 41,794 30,325
Working capital 34,480 41,725 85,815 97,382 121,725
Total assets 493,818 531,069 813,853 873,747 899,567
Debt obligations:
Short-term debt (4) 23,095 16,120 12,880 11,291 12,504
Long-term debt 404,151 388,880 511,183 521,179 530,181
Stockholders' (deficit) equity (89,442) (55,907) 90,920 103,645 117,096
Cash dividends none none none none none
(1) Fiscal 1998, 1997, and 1996 net sales and net loss from
continuing operations exclude the results of Sandusky and Clear
Shield, which were sold in 1998. Fiscal 1995 has not been
restated.
(2) Includes $150,069 in unusual charges in 1998 and $3,500 in
unusual charges in 1997.
(3) Includes an extraordinary loss on debt extinguishment in 1998 and
1995.
(4) Includes current portion of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
- ---------------------
The Company's 1999 net sales from continuing operations were $385.7
million, which represented a 5.7% decrease from the prior year's
net sales from continuing operations of $409.2 million. The decline
in net sales reflects the continuing effect of competitive selling
prices in the worldwide casings industry partially offset by volume
gains. Additionally, the decline in net sales reflects the
translation effect of the strengthening U.S. dollar against the
French franc and Brazilian real. Brazilian sales increased over the
prior year due to significant volume gains in both the casing and
plastic film segments.
The Company's 1998 net sales from continuing operations were $409.2
million, which represented a 17.9% decrease from the prior year's
net sales from continuing operations of $498.3 million. After
excluding the sales of both the oriented polystyrene (OPS) business
(which was sold in January 1997) and the polyvinyl chloride (PVC)
business (which was sold in December 1997) of $48.8 million, the
effective decrease was 9.0%. The decline in net sales is
principally due to reduced worldwide casing volume brought by
intense price competition and to the adverse economic conditions in
the Russian and Southeast Asian markets.
On June 8, 1998, the Company's Board of Directors approved the sale
of two of the Company's subsidiaries, Clear Shield and Sandusky.
Accordingly, the operating results of the two subsidiaries have
been segregated from continuing operations and reported as a
separate line item on the income statement under the heading
Discontinued Operations. The Company has restated its prior
financial statements to present the operating results as
Discontinued Operations. The sales of Sandusky and Clear Shield
were completed on June 11, 1998 and July 23, 1998, respectively. A
$39.1 million combined gain, net of taxes, was recognized on these
sales.
Viscofan, S.A., a Spanish small-diameter casing producer, entered
the United States market in November 1994. The Company and its
domestic competitors have experienced significant pricing pressures
and volume losses to Viscofan. Management believes that Viskase
will continue to experience casing pricing pressures from its
competitors. Viskase's management is aware of other smaller
competitors that from time to time attempt to enter the casing
market. Although the Company does not expect to experience signifi-
cant volume loss to these competitors, management believes that
additional pricing pressures will result.
Operating income from continuing operations for 1999 of $16.4
million showed a significant improvement over 1998 operating income
of $5.4 million after exclusion of the 1998 unusual charges of
$150.1 million. Operating income benefitted from an increase of
barrier shrink bag sales volume, the effect of cost cutting efforts
undertaken during the fourth quarter of 1998 to reduce selling and
administrative expenses of $13.1 million, and reduced amortization
of $6.7 million. Savings in operating expenses were partially
offset by the reduction in gross margin due to competitive selling
prices in the worldwide casings industry.
Operating loss from continuing operations for 1998 was $144.6
million. The operating loss resulted primarily from a third quarter
unusual charge comprised of a $91.2 million excess reorganization
impairment and a $57.4 million unusual charge due to the previously
announced restructuring of Viskase's worldwide operations, neither
of which had a significant effect on cash flow. The impairment and
unusual charges were the result of business conditions leading to
the Viskase plan of restructuring.
Net interest expense from continuing operations for 1999 totaled
$44.0 million, which represented a decrease of $5.8 million from
1998. The decrease is primarily due to interest savings from the
August 1998 redemption of $105 million of the 12% Senior Secured
Notes.
Other expense from continuing operations of approximately $7.2
million and $1.2 million in 1999 and 1998, respectively, consists
principally of foreign exchange losses.
The extraordinary loss in 1998 of $6.8 million, net of a tax
benefit of $4.3 million, represents the loss on the early
extinguishment of $105 million of the 12% Senior Secured Notes. The
extraordinary loss before taxes is comprised of a $8.9 million
prepayment penalty and a $2.1 million write-off of the unamortized
portion of financing fees attributable to the debt that was
redeemed.
The Company uses foreign exchange forward contracts to hedge some
of its non-functional currency receivables and payables which are
denominated in major currencies that can be traded on open markets.
This strategy is used to reduce the overall exposure to the effects
of currency fluctuations on cash flows. The Company's policy is not
to speculate in financial instruments. There were no foreign
currency contracts at year end.
Receivables and payables which are denominated in non-functional
currencies are translated to the functional currency at month end
and the resulting gain or loss is taken to other income (expense)
on the income statement. Gains and losses on hedges of receivables
and payables are marked to market. The result is recognized in
other net expense on the income statement.
The 1999, 1998, and 1997 tax benefits from continuing operations
consisted of the benefits of U.S. losses partially offset by the
provision related to operations of foreign subsidiaries. A benefit
of $3.1 million, $14.0 million, and $23.7 million, respectively,
was provided on loss from continuing operations before income taxes
of $34.8 million, $195.7 million, and $34.0 million, respectively,
for 1999, 1998, and 1997. The Company's effective tax rate from
continuing operations reflects the permanent differences in the
U.S. resulting from non-deductible amortization, foreign losses for
which no tax benefit is provided, and changes in the valuation
allowance. The increase in the valuation allowance has affected the
rate for the year. The U.S. benefit for income taxes from
continuing operations is recorded as a reduction of the deferred
tax liability and does not result in a refund of income taxes.
The tax provision for income from operations discontinued in 1998
and 1997 was $0.6 million and $1.4 million, respectively. The tax
provision with respect to the gain from the sale of operations
discontinued in 1998 was $19.6 million. In addition, an
extraordinary loss in 1998 provided an income tax benefit of $4.3
million. The total income tax provision (benefit) was $1.8 million
and $(22.3) million, respectively, in 1998 and 1997.
Domestic cash income taxes paid in 1999, 1998, and 1997 were $.01
million, $2.2 million, and $0.4 million, respectively. Foreign cash
income taxes paid during the same periods were $3.5 million, $2.3
million, and $4.9 million, respectively.
Discontinued Operations
- -----------------------
On January 17, 2000, the Company's Board of Directors announced its
intent to sell the plastic barrier and non-barrier shrink film
business. The business being sold includes production facilities in
the United States, United Kingdom, and Brazil. The sale of the
films business was completed on August 31, 2000. The aggregate
purchase price of $245 million will be used principally to retire
debt, including the Senior Secured Credit Facility and Junior Term
Loans, pay GECC $47.0 million per the amended amortization
schedule, and for general corporate purposes. The Company expects
an approximate net gain on the sale in the amount of $52 million.
The gain will be recorded in the third quarter 2000 results. In
conjunction with the sale of the films business, the Company will
shut down its oriented polypropylene (OPP) films business located
in Newton Aycliffe, England and the films operation in Canada; the
costs of this are included in the business discontinuance.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents decreased by $2.8 million during the year
ended December 31, 1999. Funds used in investing activities of
$27.3 million exceeded funds provided by operating activities of
$7.4 million and financing activities of $17.8 million. Cash flows
provided by operating activities were principally attributable to
the Company's loss from operations offset by the effect of
depreciation, amortization, and a decrease in working capital
usage. Cash flows used in investing activities consist principally
of capital expenditures for property, plant and equipment. Cash
flows provided by financing activities were principally due to the
Company's June 1999 refinancing. The Company entered into a $100
million Senior Secured Credit Facility and secured $35 million of
Junior Term Loans. The proceeds were used to redeem $55 million of
its 12% Senior Secured Notes and the $30 million existing credit
facility. In the first quarter of 1999, a $13 million principal
repayment was made under the General Electric Capital Corporation
(GECC) lease.
During June 1999, Viskase Corporation and Viskase Sales Corporation
entered into two-year secured credit agreements consisting of a $50
million senior revolving credit facility, including a $26 million
sublimit for issuance of letters of credit (Senior Revolving Credit
Facility), a $50 million senior term facility (Senior Term
Facility), collectively the "Senior Secured Credit Facility," and
a $35 million junior secured term loan (Junior Term Loan). The
proceeds of the Senior Secured Credit Facility and the Junior Term
Loan were used to repay the $55 million Senior Secured Notes
outstanding and obligations outstanding under the Company's
existing Revolving Credit Facility. The Senior Secured Credit
Facility has a maturity date of June 30, 2001.
The Company finances its working capital needs through a
combination of internally generated cash from operations and
borrowings under its $50 million Senior Revolving Credit Facility
entered into in June 1999. The availability of funds under the
Senior Revolving Credit Facility is subject to the Company's
compliance with certain covenants, to borrowing base limitations
measured by accounts receivable and inventory of the Company and to
reserves that may be established in the discretion of the lenders.
There is approximately $8.6 million outstanding under the Senior
Revolving Credit Facility.
The Company's Senior Secured Credit Facility contains a number of
financial covenants that, among other things, require the
maintenance of a minimum level of tangible net worth, a minimum
fixed charge coverage leverage ratio of total liabilities to
earnings before depreciation, interest, amortization, and taxes
(EBDIAT) and a limitation on capital expenditures. The Company is
in compliance with the covenants under the Company's Senior Secured
Credit Facility and Junior Term Loans at December 31, 1999 and
March 31, 2000.
As of June 30, 2000, the Company received an amendment and waiver
under the Company's Senior Secured Credit Facility and Junior Term
Loans. The Company determined that, as of June 30, 2000, without
the amendment and waiver, it would not have been in compliance with
the tangible net worth and leverage ratio covenants.
The sales of Sandusky and Clear Shield were completed on June 11,
1998 and July 23, 1998, respectively. The aggregate purchase price
was $163.8 million. A $39.1 million combined gain, net of taxes,
was recognized on these sales.
Concurrent with the Clear Shield divestiture, the Company mailed a
notice of redemption to holders of its 12% Senior Secured Notes to
redeem $105 million of aggregate principal amount of the $160
million outstanding together with accrued interest payable and
yield maintenance premium thereon. The notes were redeemed on
August 24, 1998 at a price of 108.5%. The Company used $116.3
million of the proceeds for the redemption of the 12% Senior
Secured Notes. In addition, the remainder of the proceeds, after
deducting taxes and transaction expenses, were used to repay
balances outstanding under the Company's Revolving Credit Facility.
The Company anticipates that its current cash position, its
operating cash flows and the availability under its credit
agreement will be sufficient to meet its operating expenses and
current debt service requirements. The Company's 10.25% Notes, of
which $219.3 million principal amount is outstanding, will mature
in December 2001. The Company anticipates it will refinance the
10.25% Notes or seek alternative strategies including, but not
limited to, using proceeds from asset sales, litigation, or selling
additional equity capital.
Capital expenditures for continuing operations for fiscals 1999 and
1998 totaled $27.9 million and $35.4 million, respectively. Capital
expenditures for discontinued operations for fiscal 1998 totaled
$9.0 million. Significant 1999 and 1998 capital expenditures for
continuing operations included a new information technology system
at Viskase, costs associated with the Nucel(R) project, and
additional production capacity for specialty films. Capital
expenditures in fiscal 1998 for discontinued operations included
the construction of Clear Shield's Twin Falls, Idaho facility.
Capital expenditures are expected to approximate $13 million in
2000 and subsequent years for costs associated with casings,
including Nucel(R).
The Company has spent approximately $8.0 million annually on
research and development programs, including product and process
development, and on new technology development during each of the
past three years. The 2000 research and development and product
introduction expenses are expected to be in the $9.0 million range.
Among the projects included in the current research and development
efforts is the application of certain patents and technology
licensed by Viskase to the manufacture of cellulosic casings under
the Nucel(R) process. The commercialization of these applications
and the related fixed asset expense associated with such
commercialization may require substantial financial commitments in
future periods.
Year 2000
- ---------
In January 1996, the Company began a system conversion which
incorporated Year 2000 (Y2K) readiness. Conversions by country were
complete by December 1999.
Significant Business Information Technology Systems
The Company's significant business information technology (IT)
system is run on servers and a wide-area network outsourced to IBM
Global Services. IBM was certified Y2K compliant for all its system
components. By September 30, 1999, all of the Company's personal
computers, network server hardware and software had been checked
for Y2K compatibility with the vendors. Of the equipment, 100% is
compatible. The expenditures associated with this are approximately
$100 thousand. The expenditures for the European implementation
totaled approximately $5.1 million in fiscal 1998 and 1999. The
Company has capitalized the costs necessary to upgrade its
significant business systems.
Internal Non-Information Technology (Non-IT) Systems
The Non-IT systems consist primarily of PC-based manufacturing
systems and process control units. These systems were tested and
were compliant by September 30, 1999. The Company has estimated the
cost of Y2K readiness to be approximately $.4 million for its non-
financial systems. A contingency plan is in place.
Y2K Compliance by Customers and Vendors
Questionnaires were mailed to all material third party vendors in
January 1999 to address Y2K readiness. Responses were received from
most key suppliers and those failing to respond to the
questionnaire were contacted. To date, no significant compliance
issues have been uncovered.
There have been no Y2K issues materially affecting the business
subsequent to December 31, 1999.
Other
- ------
In late 1993, Viskase commenced a legal action against American
National Can Company (ANC) in Federal District Court for the
Northern District of Illinois, Eastern Division, 93C7651. Viskase
claimed that ANC's use of two different very low density
polyethylene plastic resins in the manufacture of ANC's multi-layer
barrier shrink film products was infringing various Viskase patents
relating to multi-layer barrier plastic films used for fresh red
meat, processed meat and poultry product applications. In November
1996, after a three-week trial, a jury found that ANC had willfully
infringed Viskase's patents and awarded Viskase $102.4 million in
compensatory damages. The Court also entered an order permanently
enjoining ANC from making or selling infringing products.
In September 1997, the Court set aside the jury verdict in part and
ordered a retrial on certain issues. The Court upheld the jury
finding on the validity of all of Viskase's patents and the jury
finding that ANC had willfully infringed Viskase's patents by ANC's
use of Dow Chemical Company's "Attane" brand polyethylene plastic
resin in ANC's products. However, the Court ordered a new trial on
the issue of whether ANC's use of Dow Chemical Company's "Affinity"
brand polyethylene plastic resin infringed Viskase's patents and
whether such conduct was willful. Because the jury rendered one
general damage verdict, the Court ordered a retrial of all damage
issues. By operation of the Court's order, the injunction in
respect of ANC's future use of the "Affinity" brand resin was
removed.
On August 19, 1998, the Court granted Viskase's motion for partial
summary judgment finding that ANC's use of the "Affinity" brand
resin infringed Viskase's patents. The Court also reinstated the
permanent injunction. Viskase filed a motion to have the jury
verdict as to compensatory damages reinstated. ANC filed a motion
to dismiss the lawsuit claiming that Viskase's patents are invalid
and Viskase failed to join an indispensable party to the lawsuit.
On May 10, 1999, the Court granted Viskase's motion to have the
jury verdict as to the compensatory damages reinstated. In May and
June 1999, the parties briefed the issue of enhanced damages and on
July 2, 1999, the Court awarded Viskase total damages of $164.9
million. ANC filed a motion for reconsideration which was denied.
On May 3, 1999, ANC commenced legal action in the Federal District
Court for the Northern District of Illinois seeking declaratory
relief that one of the litigated patents is invalid. ANC also filed
a motion to consolidate the declaratory action with the 1993 suit.
ANC's motion to consolidate was granted and then the Court
dismissed ANC's suit with prejudice at the same time the Court
awarded Viskase total damages of $164.9 million.
ANC has filed a notice of appeal to the United States Court of
Appeals for the Federal Circuit. Oral arguments before the United
States Circuit of Appeals for the Federal Circuit were held on June
6, 2000 and Viskase expects a decision during fourth quarter of
2000 or first quarter of 2001.
In addition, ANC has challenged two of the five Viskase patents in
suit by filing requests for reexamination with the United States
Patent and Trademark office (USPTO). Both patents under
reexamination have been rejected by the USPTO. In both cases,
Viskase has filed appeals to the Board of Patent Appeals and
Interferences of the USPTO. For the first patent, Viskase's brief
was filed July 13, 2000, and the Examiner's Answer is awaited. For
the second patent, Viskase's brief is due October 23, 2000.
On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney
Emballage Flexible Europe, Inc. (successors in interest in ANC)
filed suit against the Company and Viskase in the United States
District Court for the Northern District of Illinois, Eastern
Division. This suit alleges infringement of U.S. Reissue Patent
No. 35,567, which patent is set to expire on April 26, 2002, and
further alleges patent interference with one of the five Viskase
patents litigated in Viskase's legal action against ANC. In May
2000, the District Court dismissed the patent interference count.
Pechiney filed an Amended Complaint on June 30, 2000 seeking to
reinstate the dismissed count (Count III). On July 25, 2000,
Viskase filed a Motion to Dismiss Count III of the Amended
Complaint and also filed a Motion for Sanctions related thereto.
On August 9, 2000, Viskase filed a Supplemental Motion for
Sanctions. On August 24, 2000, Pechiney responded to these motions
and Viskase filed its reply on September 14, 2000. Rulings on
these motions are presently set for October 13, 2000. Viskase's
Answer to the Amended Complaint is presently due October 23, 2000.
No part of the pending claims has been recorded in the Company's
financial statements. Through December 31, 1999, $4.9 million in
patent defense costs had been accrued and capitalized.
In March 1997, Viskase received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a
grand jury investigation of the sausage casings industry. In
September 1999, Viskase Corporation received a subpoena from the
Antitrust Division of the United States Department of Justice
relating to the expansion of the grand jury investigation into the
specialty films industry. Viskase is cooperating fully with the
investigations.
In November 1999, the Company and certain of its subsidiaries and
one other sausage casings manufacturer were named in a civil
complaint, Leon's Sausage Company, on behalf of itself and all
---------------------------------------------------
others similarly situated v. Viskase Companies, Inc., Envirodyne
- ----------------------------------------------------------------
Industries, Inc., Viskase Corporation, Devro-Teepak, Inc., Civil
- ---------------------------------------------------------
Action No. 99C7200, United States District Court for the Northern
District of Illinois, Eastern Division. This complaint alleged that
the defendants unlawfully conspired to fix prices and allocate
business in the sausage casings industry. In December 1999, the
plaintiff in this action voluntarily dismissed the complaint
without prejudice.
In late 1999 and early 2000, the Company and certain of its
subsidiaries and one other sausage manufacturer were named in ten
virtually identical civil complaints filed in the District of New
Jersey by the following plaintiffs: Smith Provision Co., Inc.;
Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage
Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises,
Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods,
Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District
Circuit ordered all of these cases consolidated in the District of
New Jersey. Civil Action No. 99-5195-MLC (D.N.J.). Each complaint
brought on behalf of a purported class of sausage casings customers
alleges that the defendants unlawfully conspired to fix prices and
allocate business in the sausage casings industry. The Company and
its subsidiaries have filed answers to each of these complaints
denying liability.
The Company and its subsidiaries are involved in various legal
proceedings arising out of their business and other environmental
matters, none of which is expected to have a material adverse
effect upon results of operations, cash flows or financial
position.
Forward-looking Statements
- --------------------------
Forward-looking statements in this report are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are not guarantees of
future performance and are subject to risks and uncertainties that
could cause actual results and Company plans and objectives to
differ materially from those projected. Such risks and
uncertainties include, but are not limited to, general business and
economic conditions; competitive pricing pressures for the
Company's products; changes in other costs; and opportunities that
may be presented to and pursued by the Company; determinations by
regulatory and governmental authorities; and the ability to achieve
synergistic and other cost reductions and efficiencies.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to certain market risks related to foreign
currency exchange rates. In order to manage the risk associated
with this exposure to such fluctuations, the Company uses
derivative financial instruments. The Company does not enter into
derivatives for trading purposes.
The Company also prepared sensitivity analyses to determine the
impact of a hypothetical 10% devaluation of the U.S. dollar
relative to the European receivables and payables denominated in
U.S. dollars. Based on its sensitivity analyses at December 31,
1999, a 10% devaluation of the U.S. dollar would affect the
Company's annual consolidated operating results, financial position
and cash flows by approximately $0.2 million. The Company uses
foreign exchange forward contracts to manage the risk associated
with its exposure to foreign currency exchange rate fluctuations.
At December 31, 1999, there were no foreign exchange forward
contracts outstanding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Financial statements and supplementary financial information
meeting the requirements of Regulation S-X are listed in the index
to financial statements and schedules, as included under Part IV,
Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
There were no disagreements on accounting and financial disclosure
required to be disclosed under this Item.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Officers. The directors of the Company, their ages,
- ----------------------
principal occupations and certain other information with respect to the
directors are provided below.
Name Age Principal Occupation
- -------------------- ---- -------------------------------------
Robert N. Dangremond 57 Mr. Dangremond has been a managing
principal with Jay Alix & Associates,
a consulting and accounting firm
specializing in corporate
restructurings and turnaround
activities, since August 1989. From
June 1998 to December 31, 1999, Mr.
Dangremond served as Restructuring
Officer of Zenith Electronics
Corporation, a manufacturer of
televisions ("Zenith"). From December
1997 to June 1998, Mr. Dangremond held
the position of Chief Financial Officer
of Zenith. Previously, Mr. Dangremond
held the positions of interim Chief
Executive Officer and President of
Forstmann & Company, Inc.
("Forstmann"), a producer of clothing
fabrics. Mr. Dangremond is also a
director of Multigraphics, Inc.
(formerly AM International, Inc.), a
provider of graphics arts and services.
Mr. Dangremond has served as a director
of the Company since 1993.
Mr. Dangremond's appointments at
Zenith, Forstmann and Multigraphics,
all of which successfully confirmed
plans of reorganization under Chapter
11 of the United States Bankruptcy
Code, were made in connection with
turnaround consulting services provided
by Jay Alix & Associates.
Avram A. Glazer 39 Mr. Glazer has served as the President
and Chief Executive Officer of Zapata
Corporation since March 1995. From
1985 to 1995, Mr. Glazer served
as Vice President of First Allied
Corporation ("First Allied"), an
investment company. He is a director of
Zapata Corporation and Specialty
Equipment Companies, Inc.
("Specialty"), a food services
equipment manufacturer. He is also a
director and Chairman of the Board of
Omega Protein Corp., a marine protein
company. Avram A. Glazer is the son of
Malcolm I. Glazer. Mr. Glazer has
served as a director of the Company
since 1998.
Malcolm I. Glazer 72 Mr. Glazer has been a self-employed
private investor, whose diversified
portfolio consists of investments in
television broadcasting, restaurant
equipment, food services equipment,
health care, banking, real estate,
stocks, government securities and
corporate bonds, for more than the past
five (5) years. He is also the owner of
the Tampa Bay Buccaneers, a National
Football League franchise. Mr. Glazer
has been President and Chief Executive
Officer of First Allied since 1984. He
is the Chairman of the Board of
Directors of Zapata Corporation. He is
also a director of Specialty. Malcolm
I. Glazer is the father of Avram A.
Glazer. Mr. Glazer has served as a
director of the Company since 1998.
F. Edward Gustafson 58 Mr. Gustafson has been Chairman of the
Board, President and Chief Executive
Officer of the Company since March 1996
and a director of the Company since
1993. Mr. Gustafson has also been the
President and Chief Executive Officer
of Viskase Corporation, a wholly owned
subsidiary of the Company, since June
1998. Mr. Gustafson was Executive Vice
President and Chief Operating Officer
of the Company from May 1989 to March
1996 and President of Viskase
Corporation from February 1990 to
August 1994. Mr. Gustafson has also
served as Executive Vice President and
Chief Operating Officer of D.P. Kelly
& Associates, L.P., a management
services and private investment firm,
since November 1988.
Mr. Gustafson is Executive Vice
President of Emerald Acquisition
Corporation ("Emerald"), the former
parent company of Viskase. On August
20, 1993, Emerald filed a petition
under Chapter 11 of the United States
Bankruptcy Code. In March 1998, the
bankruptcy petition was dismissed by
the Bankruptcy Court.
Gregory R. Page 48 Mr. Page has been President and Chief
Operating Officer of Cargill, Inc.
(Cargill), a multinational trader and
processor of foodstuffs and other
commodities, since June 2000. From
May 1998 to June 2000, Mr. Page served
as Corporate Vice President and Section
President of Cargill. From August 1995
to May 1998, Mr. Page served as
President of the Red Meat Group of
Cargill. Mr. Page has served as a
director of the Company since 1993.
For information regarding executive officers of the Company, see
information set forth under "Executive Officers of the Registrant" in
Part I of this report.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
- -------------------------------------------------------
of the Securities Exchange Act of 1934 requires the Company's officers,
directors and persons who beneficially own more than 10% of the
Company's outstanding Common Stock to file reports of ownership and
changes in ownership of Common Stock with the Securities and Exchange
Commission, NASDAQ and the Company. Based upon a review of relevant
filings and written representations from the Company's officers,
directors, and persons who own more than 10% of the Company's Common
Stock, the Company believes that all required filings by such persons
with respect to the year ended December 31, 1999 have been made on a
timely basis.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation of Executive Officers.
- --------------------------------------------------------------------
The Summary Compensation Table below provides certain summary
information concerning compensation by the Company for 1999, 1998 and
1997 for services rendered by the Company's Chief Executive Officer and
each of the other executive officers of the Company whose total annual
salary and bonus exceeded $100,000 in 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------------------ -----------------------------
Other Annual Restricted All Other
Name and Salary Bonus Compensation Stock Award Options Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
- ------------------------ ------ --------- --------- ----------------- -------------- ----------- ------------
F. Edward Gustafson 1999 492,000 -- -- -- 175,000 (1) 18,479 (2)
Chairman of the Board, 1998 470,000 117,500 -- -- 350,000 (3) 18,570
President and Chief 1997 465,231 -- 48,786 (4) -- -- 18,517
Executive Officer
Gordon S. Donovan 1999 167,044 -- 19,302 (5) -- -- 7,535 (6)
Vice President, Chief 1998 157,000 32,742 4,483 -- 36,000 (7) 9,567
Financial Officer, 1997 150,542 31,400 4,804 -- -- 7,254
Treasurer and Assistant
Secretary
- -----------------------
(1) In 1999, Mr. Gustafson was granted a stock option to purchase up
to 175,000 shares of Common Stock depending on the financial
performance of the Company based on EBDIAT for fiscal year 1999.
No part of this stock option became exercisable and it expired by
its terms. See the "Option/SAR Grants in Last Fiscal Year" Table.
(2) Includes $194 paid for group life insurance, $4,385 contributed
to the Viskase SAVE Plan and $13,900 contributed to
the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan.
(3) In March 1998, Mr. Gustafson was granted a stock option to
purchase up to 175,000 shares of Common Stock depending on the
financial performance of the Company based on EBDIAT for fiscal
year 1998. In November 1998, this stock option was replaced with
a stock option to purchase up to 175,000 shares of Common Stock
upon the same terms and conditions of the original grant other
than the exercise price and a revised EBDIAT performance level in
part to reflect the divestiture of certain business operations.
Based on the Company's EBDIAT for fiscal year 1998, a portion
(i.e., 50,000 shares of Common Stock) of this stock option will
vest in three equal annual installments commencing March 27,
2000.
(4) Pursuant to his Amended and Restated Employment Agreement,
effective March 27, 1996 (the "Employment Agreement"), in 1997,
Mr. Gustafson received a cash payment of $30,000 in lieu of a
Company automobile.
(5) Includes an automobile allowance of $6,600.
(6) Includes $43 paid for group life insurance, $5,494 contributed to
the Viskase SAVE Plan and $1,998 contributed to the
Viskase Companies, Inc. Parallel Non-Qualified Savings Plan.
(7) In January 1998, Mr. Donovan was granted a stock option to
purchase 18,000 shares of Common Stock contingent upon the
Company's financial performance based on the Company's EBDIAT for
fiscal year 1998. In November 1998, this stock option was
replaced with a new stock option to purchase the same number of
shares upon the same terms and conditions other than the exercise
price. In addition, the new stock option granted was not
contingent upon the financial performance of the Company.
Stock Option Grants. The following table provides information
- -------------------
concerning stock options granted to the persons named in the Summary
Compenstion Table during the fiscal year ended December 31, 1999. No
stock appreciation rights have been granted.
Option/SAR Grants in Last Fiscal Year
Percent of Potential Realizable
Number of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise Appreciation for Option
Options Employees or Base Term (2)
Granted in Fiscal Price Expiration ------------------------
Name (#)(1) Year ($/Share) Date 5% ($) 10% ($)
- ------------------------- ------------ ----------- ----------- ----------- ---------- -----------
F. Edward Gustafson (3) 175,000 100% $3.625 2/03/09 $398,955 $1,011,030
- -------------------------
(1) Stock options are granted under the Viskase Companies, Inc. 1993
Stock Option Plan, as amended and restated (the "Stock Option
Plan"). Stock options generally become exercisable on a
cumulative basis in annual increments of one-third of the
optioned shares, commencing on the first anniversary of the grant
date. Upon a "Change of Control" of the Company, as defined in
the Stock Option Plan, all outstanding stock options become
immediately exercisable.
(2) The potential realizable value is based on the term of the stock
option at the date of grant (ten (10) years). It is calculated
by assuming that the stock price on the date of grant appreciates
at the indicated annual rate, compounded annually for the entire
term, and that the stock option is exercised and sold on the last
day of the stock option term for the appreciated stock price.
These amounts represent certain assumed rates of appreciation
only. Actual gains, if any, on stock option exercises and on the
sale of shares of Common Stock acquired upon exercise are
dependent on the future performance the Common Stock and overall
stock market conditions. There can be no assurance that the
amounts reflected in this table will be achieved.
(3) Mr. Gustafson's stock option was granted pursuant to his
Employment Agreement. See "Employment Agreements and Change-in
-Control Arrangements." Mr. Gustafson's stock option is subject
to and governed by the Stock Option Plan. Mr. Gustafson was
granted a stock option to purchase up to 175,000 shares of Common
Stock depending on the financial performance of the Company based
on EBDIAT for fiscal year 1999. No portion of this stock option
became exercisable and it expired pursuant to its terms.
Stock Option Exercises and Holdings. The following table provides
- -----------------------------------
information concerning the exercise of stock options during the fiscal
year ended December 31, 1999 and the fiscal year-end value of stock
options with respect to each of the persons named in the Summary
Compensation Table.
Aggregated Option/SAR Exercises in 1999 and
December 31, 1999 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value 12/31/99 (#) 12/31/99 ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- --------------------------- -------------- ------------ ------------------- ---------------
F. Edward Gustafson -- -- 79,334 / 61,666 0 / 0
Gordon S. Donovan -- -- 45,000 / 12,000 0 / 0
Pension Plan Table. The following table sets forth estimated annual
- ------------------
benefits payable upon retirement under the Retirement Program for
Employees of Viskase Corporation (the "Retirement Plan") to employees
of the Company and its wholly owned subsidiary, Viskase Corporation,
in specified remuneration and years of service classifications.
Pension Plan Table
Assumed Final Average Annual Benefits for Years of Service Indicated (2)
Annual Salary (1)
15 20 25 30 35
- -------------- ---------- ----------- ---------- ---------- ------------
100,000 18,000 24,000 30,000 36,000 42,000
150,000 27,000 36,000 45,000 54,000 63,000
200,000 36,000 48,000 60,000 72,000 84,000
250,000 45,000 60,000 75,000 90,000 105,000
300,000 54,000 72,000 90,000 108,000 126,000
350,000 63,000 84,000 105,000 126,000 147,000
400,000 72,000 96,000 120,000 144,000 168,000
450,000 81,000 108,000 135,000 162,000 189,000
500,000 90,000 120,000 150,000 180,000 210,000
(1) Annual benefits payable under the Retirement Program are
calculated based on the participant's average base salary for the
consecutive thirty-six (36) month period immediately prior to
retirement.
(2) The annual benefits payable are based on straight-life annuity
basis at normal retirement age. The benefits reported in this
table are not subject to any reduction for benefits paid by other
sources, including Social Security. As of December 31, 1999,
Messrs. Gustafson and Donovan are credited with 10 and 12 years
of service, respectively.
Compensation of Directors. Each director who is not an officer of the
- -------------------------
Company received an annual retainer of $20,000 in 1999 and a fee of
$1,000 for each attended meeting of the Board of Directors. Chairmen of
committees (other than the Interested Person Transaction Committee) of
the Board of Directors received an annual retainer of $1,500 in 1999.
Directors also received a fee for each attended meeting of a committee
of the Board of Directors (other than the Interested Person Transaction
Committee) of $1,000 ($500 in the case of committee meetings occurring
immediately before or after meetings of the full Board of Directors).
Members of the Interested Person Transaction Committee did not receive
a fee in 1999. Directors who are officers of the Company do not receive
compensation in their capacity as directors. Pursuant to Viskase
Companies, Inc. 1993 Stock Option Plan, as amended, on the date of the
1999 Annual Meeting of Stockholders, non-employee directors were granted
a stock option to purchase 1,000 shares of Common Stock at an option
exercise price equal to the fair market value of the Common Stock on the
date of grant. Pursuant to the Non-Employee Directors' Compensation
Plan, non-employee directors may elect to receive their director fees in
the form of shares of Common Stock. The number of shares received is
based on the average of the closing bid and asked price of the Common
Stock on the business day preceding the date the Common Stock is issued.
Compensation Committee Interlocks and Insider Participation. The
- -----------------------------------------------------------
Compensation and Nominating Committee of the Board of Directors consists
of Messrs. Dangremond and Page, each of whom is a non-employee director
of the Company. Mr. Page is the President and Chief Operating Officer of
Cargill, Inc. In fiscal year 1999, Viskase Corporation, a wholly owned
subsidiary of the Company, had sales of $32,577 made in the ordinary
course to Cargill, Inc. and its affiliates.
Employment Agreements and Change-in-Control Arrangements
Employment Agreement with F. Edward Gustafson. On March 27, 1996, the
- ---------------------------------------------
Company entered into an Employment Agreement with Mr. F. Edward
Gustafson. The Employment Agreement was amended and restated during 1997
(the "Employment Agreement"). Pursuant to the Employment Agreement, Mr.
Gustafson has agreed to serve as Chairman of the Board, President and
Chief Executive Officer of the Company, and the Company has agreed to
use its best efforts to cause Mr. Gustafson to be elected as a director
of the Company, during the term of the Agreement. The initial term of
the Employment Agreement is three (3) years, provided, however, that on
March 26, 1997 and each subsequent anniversary thereof, the term of the
Employment Agreement will be automatically extended for a period of one
(1) year unless the Company or Mr. Gustafson gives written notice to the
other at least thirty (30) days prior to the anniversary date that the
term shall not be so extended.
Under the Employment Agreement, Mr. Gustafson will receive an initial
annual base salary of at least $450,000 and $30,000 per year in lieu of
a Company-provided automobile. Mr. Gustafson's base salary will be
increased by the Compensation and Nominating Committee of the Board of
Directors each year in a manner consistent with increases in base salary
for other senior officers of the Company. In addition, the Employment
Agreement provides that with respect to the fiscal year ended December
25, 1997, Mr. Gustafson would be eligible to receive a bonus based on a
percentage of his base salary depending on the Company's performance
based on EBDIAT. Mr. Gustafson will be eligible to receive an annual
bonus for future fiscal years of the Company based on such financial
performance or other performance-related criteria as established by the
Compensation and Nominating Committee after consultation with Mr.
Gustafson. For information concerning actual bonuses earned by Mr.
Gustafson, see the "Summary Compensation Table." Mr. Gustafson is also
entitled to participate in any employee benefit plans in effect for, and
to receive other fringe benefits provided to, other executive officers.
Pursuant to and upon execution of the Employment Agreement, Mr.
Gustafson was granted two (2) stock options, each to purchase 35,000
shares of Common Stock. One (1) stock option becomes exercisable in
cumulative annual increments of one-third commencing on the first
anniversary of the date of grant. The other stock option becomes
exercisable in cumulative annual increments of one-third commencing on
the second anniversary of the date of grant. In addition, Mr. Gustafson
was granted a stock option to purchase up to 75,000 shares of Common
Stock depending on the financial performance of the Company based on
EBDIAT for fiscal year 1996. The Company did not achieve the minimum
goal for EBDIAT. Therefore, no portion of this stock option became
exercisable or will become exercisable in the future. Lastly, Mr.
Gustafson was granted 35,000 restricted shares of Common Stock which
could not be transferred, and were subject to forfeiture, until March
27, 1999.
If Mr. Gustafson's employment is terminated by the Company for Cause, as
defined in the Employment Agreement, or by Mr. Gustafson other than for
Good Reason or Disability, as defined in the Employment Agreement, Mr.
Gustafson will be paid all Accrued Compensation, as defined in the
Employment Agreement, through the date of termination of employment. If
Mr. Gustafson's employment with the Company is terminated by the Company
for any reason other than for Cause, death or Disability, or by Mr.
Gustafson for Good Reason, (i) Mr. Gustafson will be paid all Accrued
Compensation plus 300% of his base salary (or 200% in the event that
D.P. Kelly & Associates, L.P., or a company in which D.P. Kelly &
Associates, L.P. has a substantial interest, is the beneficial owner of
the Company following a Change of Control) and the prorated amount of
annual bonus that would have been payable to Mr. Gustafson with respect
to the fiscal year in which Mr. Gustafson's employment is terminated,
provided that the performance targets have been actually achieved as of
the date of termination (unless such termination of employment follows
a Change in Control, as defined in the Agreement, in which case Mr.
Gustafson will receive a bonus equal to 50% of his base salary
regardless of the Company's performance), (ii) Mr. Gustafson will
continue to receive life insurance, medical, dental and hospitalization
benefits for a period of twenty-four (24) months following termination
of employment, and (iii) all outstanding stock options and restricted
shares of Common Stock will become immediately exercisable, vested and
nonforfeitable.
Pursuant to the Employment Agreement, Mr. Gustafson is generally
prohibited during the term of the Agreement, and for a period of two (2)
years thereafter, from competing with the Company, soliciting any
customer of the Company or inducing or attempting to persuade any
employee of the Company to terminate his or her employment with the
Company in order to enter into competitive employment. For purposes of
the Employment Agreement, the Company includes Viskase Companies, Inc.
and any of its subsidiaries over which Mr. Gustafson exercised, directly
or indirectly, any supervisory, management, fiscal or operating control
during the term of the Employment Agreement.
Severance Pay Policies. Mr. Donovan is eligible for severance benefits
- ----------------------
as set forth in the Corporate Office Severance Pay Policy (the
"Corporate Pay Policy") upon a Change of Control (as defined in the
Corporate Pay Policy) or corporate office consolidation or elimination
and the occurrence of one of the following events (an "Event"): (i)
- ---
involuntary separation of employment from the Company for any reason
other than death, disability or willful misconduct, (ii) voluntary
separation of employment from the Company (a) following a reduction in
base compensation or incentive bonus opportunity from that in effect on
the day immediately before the effective date of a Change in Control, or
office consolidation or elimination, or (b) following a reduction in the
person's principal responsibilities from those in effect on the day
immediately before the effective date of a Change in Control, or office
consolidation or elimination. Upon the occurrence of an Event and
subject to the Company obtaining a general release, Mr. Donovan would
receive severance pay equal to the equivalent to twenty-four (24)
months' salary (at the highest annual rate in effect during the three-
year period prior to separation of employment) plus a target bonus under
the Management Incentive Plan in effect at the time of separation. In
addition, Mr. Donovan would continue to receive medical, life and
dental insurance benefits in effect at the time of separation of
employment for a period of time following such separation depending on
form of payment of the severance pay elected (e.g., lump sum or
installment) and whether he is covered by another employer's plan. The
Corporate Pay Policy may be amended or terminated at any time by the
Company except that in the event that a Change in Control or elimination
or consolidation of all of part of the corporate office occurs during
the term of the Corporate Pay Policy, the Corporate Pay Policy will be
automatically extended for a period of twenty-four (24) months following
the effective date of the Change in Control or office consolidation or
elimination.
In addition, Mr. Donovan is eligible for severance benefits as set forth
in the Viskase Corporation Severance Pay Policy (the "Viskase Pay
Policy"). The Viskase Pay Policy is substantially similar to the
Corporate Pay Policy except that it applies only to a Change of Control
(as defined in the Viskase Pay Policy) and not an office consolidation
or elimination. Any benefits received by Mr. Donovan under either policy
would be credited against benefits payable under the other policy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth the beneficial ownership of Common Stock
as of September 15, 2000 of (a) each person or group of persons known to
the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (b) each director and nominee for director of the
Company, (c) each executive officer of the Company listed in the Summary
Compensation Table above, and (d) all executive officers and directors
of the Company as a group. All information is taken from or based upon
ownership filings made by such persons with the Securities and Exchange
Commission or upon information provided by such persons to the Company.
Percent
Name and Address of Number of Shares of Class
Beneficial Owner Beneficially Owned (1) (1)
- ------------------------------- ----------------------- --------
Malcolm I. Glazer 5,907,737 (2) 39.09%
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Zapata Corporation 5,877,304 38.89%
100 Meridian Centre, Suite 350
Rochester, New York 14618
Donald P. Kelly 2,070,287 (3) 13.70%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
Katana Fund LLC 1,996,052 (4) 13.21%
Katana Capital Advisors LLC
1859 San Leandro Lane
Santa Barbara, California 93108
F. Edward Gustafson 1,857,897 (3)(5)(6) 12.22%
6855 W. 65th Street
Chicago, Illinois 60638
Volk Enterprises, Inc. 1,300,000 8.60%
618 S. Kilroy
Turlock, California 95380
Robert N. Dangremond 43,606 (7) *
Gordon S. Donovan 74,260 (5)(8) *
Avram A. Glazer 31,244 (9) *
Gregory R. Page 33,150 (7) *
All directors and executive
officers of the
Company as a group (7 persons) 7,967,200 (10) 52.15%
- ---------------------------
* Less than 1%.
(1) Beneficial ownership is calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder. Accordingly, the "Number of Shares
Beneficially Owned" and the "Percent of Class" shown for each
person listed in the table are based on the assumption that stock
options which are exercisable currently or within 60 days of
September 15, 2000, held by such person, have been exercised.
Unless otherwise indicated, the persons listed in the table have
sole voting and investment power over those securities listed for
such person.
(2) The ownership indicated includes 2,000 shares subject to stock
options owned by Mr. Glazer. The ownership indicated also
includes 5,877,304 shares owned by Zapata Corporation ("Zapata"),
which shares may be deemed to be beneficially owned by Mr. Glazer
because Mr. Glazer is the Chairman of the Board of Zapata and may
be deemed to be a controlling stockholder of Zapata. Mr. Glazer
disclaims beneficial ownership of such shares.
(3) The ownership indicated includes 70,287 shares owned by D.P.
Kelly & Associates, L.P. ("DPK"), of which Mr. Kelly and Mr.
Gustafson are principals and officers. The general partner of DPK
is C&G Management Company, Inc. ("C&G Management"), which is
owned by Mr. Kelly and Mr. Gustafson. The ownership indicated
also includes 1,300,000 shares owned by Volk Enterprises, Inc.
("Volk"). Volk is controlled by Volk Holdings L.P., whose general
partner is Wexford Partners I L.P. ("Wexford Partners"). The
general partner of Wexford Partners is Wexford Corporation, which
is owned by Mr. Kelly and Mr. Gustafson. Mr. Kelly and Mr.
Gustafson share voting and investment power over the shares owned
by DPK and Volk. However, Mr. Kelly and Mr. Gustafson each
disclaim beneficial ownership of shares owned by DPK and Volk
except to the extent of their respective pecuniary interest in
such entities.
(4) Katana Capital Advisors LLC manages the Katana Fund LLC and
therefore is deemed to indirectly own the shares owned by the
Katana Fund LLC.
(5) The ownership indicated includes 86,667 shares subject to stock
options owned by Mr. Gustafson. The ownership indicated also
includes 70,619 shares owned by Mr. Gustafson's spouse. Mr.
Gustafson does not have or share voting or investment power over
the shares owned by his spouse and disclaims beneficial ownership
of such shares.
(6) The ownership indicated also includes 193,000 and 2,998 shares
acquired by Messrs. Gustafson and Donovan, respectively, pursuant
to the Viskase Companies, Inc. Parallel Non-Qualified Savings
Plan (the "Non-Qualified Plan").
(7) The ownership indicated includes 6,000 shares subject to stock
options owned by each of Messrs. Dangremond and Page.
(8) The ownership indicated includes 45,000 shares subject to stock
options owned by Mr. Donovan, 8,000 shares held by Mr. Donovan as
trustee for the benefit of his spouse, with whom Mr. Donovan
shares voting and investment power over such shares and 1,000
shares owned by Mr. Donovan's spouse. Mr. Donovan does not have
or share voting power over the 1,000 shares owned by his spouse.
Mr. Donovan disclaims beneficial ownership of the shares held by
him as trustee and the shares owned by his spouse.
(9) The ownership indicated includes 2,000 shares subject to stock
options owned by Mr. Glazer.
(10) See Footnotes (2), (3), (5), (6), (7), (8) and (9).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
During 1999, 1998 and 1997, the Company purchased product and services
from affiliates of DPK in the amounts of approximately $9, $200 and
$187, respectively. During fiscal 1998 and 1997, the Company sublet
office space from DPK for which it paid approximately $77 and $133,
respectively, in rent. During fiscal 1997, the Company reimbursed a non-
affiliated medical and benefit plan in the aggregate amount of $34 for
medical claims and benefits of certain officers.
During 1997, the Company advanced funds to and made payments on behalf
of DPK and Donald P. Kelly in the amount of $27 for legal fees related
to litigation for the period when Mr. Kelly was an executive officer of
the Company.
During years 1999, 1998 and 1997, Viskase Corporation, a wholly owned
subsidiary of the Company, had sales of $32,577, $21,804 and $21,825,
respectively, to Cargill, Inc. and its affiliates. Such sales were made
in the ordinary course of business. During 1999 Cargill Financial
Services Corporation had beneficial ownership of less than 5% of the
Company's outstanding Common Stock, and Gregory R. Page, President and
Chief Operating Officer of Cargill, Inc., is a director of the Company.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
-----------------------------------------------------------
8-K
---
(a) 1. Financial statements: PAGE
-------------------- ------
Report of independent accountants F-2
Consolidated balance sheets, December 31, 1999 and
December 31, 1998 F-3
Consolidated statements of operations, for the
year ended December 31, 1999 and for the
53/52 week periods ending December 31, 1998,
and December 25, 1997 F-4
Consolidated statements of stockholders' equity,
for the year ended December 31, 1999 and
for the 53/52 week periods ending December 31, 1998,
and December 25, 1997 F-5
Consolidated statements of cash flows, for the
year ended December 31, 1999 and for the
53/52 week periods ending December 31, 1998,
and December 25, 1997 F-6
Notes to consolidated financial statements F-7
2. Financial statement schedules for the year ended
------------------------------------------------
December 31, 1999 and for the 53/52 week periods
------------------------------------------------
ending December 31, 1998, and December 25, 1997:
-----------------------------------------------
II Valuation and qualifying accounts F-32
Schedules other than those listed are omitted because they are not
required, are not applicable, or because equivalent information has been
included in the financial statements and notes thereto or elsewhere
herein.
(b) Reports on Form 8-K.
-------------------
None.
(c) Exhibits:
---------
Exhibit No. Description of Exhibits Page
- ------------------------------------------------------------------
2.1 Debtors First Amended Joint Plan of Reorganization as
Twice Modified dated December 15, 1993 of the Company and
certain of its subsidiaries (incorporated herein by
reference to Exhibit 2 to Form 8-K filed January 19,
1994). *
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1 to
Form 8-K filed January 19, 1994). *
3.2 Certificate of Ownership and Merger of Viskase Companies,
Inc. into Envirodyne Industries, Inc. *
3.3 Amended and Restated By-Laws of the Company (incorporated
herein by reference to Exhibit 3.2 to Form 8-K filed May 16,
1997). *
4.1 Indenture, dated as of December 31, 1993, between the
Company and Bankers Trust Company, as Trustee, relating to
the 10-1/4% Notes Due 2001 of the Company including form of
10-1/4% Note Due 2001 (incorporated herein by reference to
Exhibit 4.1 to Form 8-K filed January 19, 1994). *
4.2 Indenture, dated as of June 20, 1995 (the "Indenture"),
between the Company and Shawmut Bank Connecticut, National
Association, as Trustee (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-4 filed
July 20, 1995). *
4.3 Forms of the Notes issued pursuant to the Indenture
(included in Exhibit 4.2). *
4.4 Guaranty Agreement, dated as of June 20, 1995, made by Clear
Shield National, Inc., Sandusky Plastics, Inc., Sandusky
Plastics of Delaware, Inc., Viskase Corporation, Viskase
Holding Corporation and Viskase Sales Corporation, in favor
of BT Commercial Corporation, as Collateral Agent
(incorporated herein by reference to Exhibit 4.6 to the
Registration Statement on Form S-4 filed July 20, 1995). *
4.5 Pledge Agreement, dated as of June 20, 1995, made by the
Company to BT Commercial Corporation, as Collateral Agent
(incorporated herein by reference to Exhibit 4.7 to
Amendment No. 2 to the Registration Statement on Form S-4
filed September 21, 1995). *
4.6 Security Agreement, dated as of June 20, 1995, made by the
Company in favor of BT Commercial Corporation, as Collateral
Agent (incorporated herein by reference to Exhibit 4.8 to
Amendment No. 2 to the Registration Statement on Form S-4
filed September 21, 1995). *
4.7 Form of Subsidiary Security Agreement, dated as of June 20,
1995, made by each applicable Subsidiary in favor of BT
Commercial Corporation, as Collateral Agent (incorporated
herein by reference to Exhibit 4.9 to Amendment No. 2 to the
Registration Statement on Form S-4 filed September 21,
1995). *
4.8 Intellectual Property Security Agreement, dated as of June
20, 1995, made by Viskase Corporation in favor of BT
Commercial Corporation, as Collateral Agent (incorporated
herein by reference to Exhibit 4.10 to Amendment No. 2 to
the Registration Statement on Form S-4 filed September 21,
1995). *
4.9 First Supplemental Indenture, dated as of October 13, 1995,
between the Company and Shawmut Bank Connecticut, National
Association, as Trustee (incorporated herein by reference to
Exhibit 4.11 to Amendment No. 3 to the Registration
Statement on Form S-4 filed October 17, 1995). *
4.10 Rights Agreement, dated as of June 26, 1996, between the
Company and Harris Trust and Savings Bank, as Rights Agent
(incorporated herein by reference to Exhibit 4.1 of Form 8-K
dated June 26, 1996). *
4.11 Second Supplemental Indenture, dated as of September 2,
1997, between the Company and Fleet National Bank (formerly
Shawmut Bank of Connecticut, National Association), as
Trustee (incorporated herein by reference to Exhibit 10.23
to Form 10-Q for the fiscal quarter ended September 25, 1997
filed November 10, 1997). *
4.12 Third Supplemental Indenture, dated as of July 2, 1998,
between the Company and State Street Bank and Trust Company
of Connecticut, N.A. (formerly or successor to Fleet
National Bank and Shawmut Bank of Connecticut, National
Association), as Trustee (incorporated herein by reference
to Exhibit 10.4 to Form 10-Q for the fiscal quarter ended
September 24, 1998 filed November 9, 1998). *
4.13 Fourth Supplemental Indenture, dated as of October 26, 1998,
between the Company and State Street Bank and Trust Company
of Connecticut, N.A. (formerly Fleet National Bank and
previously Shawmut Bank of Connecticut, National
Association), as Trustee. *
4.14 Fifth Supplemental Indenture, dated as of March 17, 1999,
between the Company and State Street Bank and Trust Company
of Connecticut, N.A. (formerly Fleet National Bank
Connecticut and previously Shawmut Bank Connecticut,
National Association), as Trustee (incorporated herein by
reference to Exhibit 4.14 to Form 10-Q for the fiscal
quarter ended March 31, 1999). *
10.1 Participation Agreement, dated as of December 18, 1990,
among Viskase Corporation, as Lessee, the Company, as
Guarantor, General Electric Capital Corporation, as Owner
Participant, and The Connecticut National Bank, as Owner
Trustee (incorporated herein by reference to Exhibit 10.24
to Form 8-K filed January 22, 1991). *
10.2 Lease Agreement, dated as of December 18, 1990, between The
Connecticut National Bank, Owner Trustee, as Lessor and
Viskase Corporation, as Lessee (incorporated herein by
reference to Exhibit 10.25 to Form 8-K filed January 22,
1991). *
10.3 Appendix A; Definitions relating to the Participation
Agreement, the Lease and the Ground Lease (incorporated
herein by reference to Exhibit 10.26 to Form 8-K filed
January 22, 1991). *
10.4 Ground Lease, dated as of December 18, 1990, between Viskase
Corporation, as Ground Lessor, and The Connecticut National
Bank, as Ground Lessee (incorporated herein by reference to
Exhibit 10.27 to Form 8-K filed January 22, 1991). *
10.5 Guaranty Agreement, dated as of December 18, 1990, among the
Company; Clear Shield National, Inc.; Sandusky Plastics of
Delaware, Inc.; Viskase Sales Corporation, all as
Guarantors; The Connecticut National Bank, as Owner Trustee;
and General Electric Capital Corporation, as Owner Partici-
pant (incorporated herein by reference to Exhibit 10.28 to
Form 8-K filed January 22, 1991). *
10.6 Trust Agreement, dated as of December 18, 1990, between
General Electric Capital Corporation, as Owner Participant,
and The Connecticut National Bank, as Owner Trustee
(incorporated herein by reference to Exhibit 10.29 to Form
8-K, filed January 22, 1991, of Viskase Companies, Inc.). *
10.7 Non-Employee Directors' Compensation Plan (incorporated
herein by reference to Appendix B of the Company's Proxy
Statement for its 1996 Annual Meeting of Stockholders).+ *
10.8 1993 Stock Option Plan, as amended and restated through
March 27, 1996 (incorporated herein by reference to Appendix
A of the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders). + *
10.9 Corporate Office Management Incentive Plan for Fiscal Year
1999 (incorporated herein by reference to Exhibit 10.23 to
Form 10-Q for the fiscal quarter ended March 31, 1999). + *
10.10 Viskase Companies, Inc. Parallel Non-Qualified Thrift Plan
(incorporated herein by reference to Exhibit 10.35 to Form
10-Q for the fiscal quarter ended June 27, 1991 filed August
12, 1001). + *
10.11 Note Agreement, dated as of June 20, 1995, between the
Company and each of the purchasers identified therein
(incorporated herein by reference to Exhibit 10.10 to the
Registration Statement on Form S-4 filed July 20, 1995). *
10.12 Letter Agreement, dated as of June 20, 1995, between the
Company and certain purchasers of the Notes (incorporated
herein by reference to Exhibit 10.11 to the Registration
Statement on Form S-4 filed July 20, 1995). *
10.13 Intercreditor and Collateral Agency Agreement, dated as of
June 20, 1995, among BT Commercial Corporation, The
Prudential Insurance Company of America, Shawmut Bank
Connecticut, National Association, and certain other parties
identified therein (incorporated herein by reference to
Exhibit 10.14 to the Registration Statement on Form S-4
filed July 20, 1995). *
10.14 GECC Intercreditor Agreement, dated as of June 20, 1995,
among BT Commercial Corporation, General Electric Capital
Corporation, Shawmut Bank Connecticut, National Association,
the Company and Viskase Corporation (incorporated herein by
reference to Exhibit 10.15 to the Registration Statement on
Form S-4 filed July 20, 1995). *
10.15 Amended and Restated Employment Agreement, effective March
27, 1996, between the Company and F. Edward Gustafson
(incorporated herein by reference to Exhibit 10.20 to Form
10-Q for the fiscal quarter ended June 25, 1998 filed August
10, 1998).+ *
10.16 Corporate Office Severance Pay Policy (incorporated herein
by reference to Exh