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PROSPECTUS
ENVIRODYNE INDUSTRIES, INC.
OFFER TO EXCHANGE ITS 12% FIRST PRIORITY SENIOR SECURED NOTES DUE 2000,
SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), FOR ANY AND
ALL OF ITS OUTSTANDING 12% FIRST PRIORITY SENIOR SECURED NOTES DUE 2000,
SERIES A,
AND ITS FLOATING RATE FIRST PRIORITY SENIOR SECURED NOTES DUE 2000, SERIES D,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL
OF ITS OUTSTANDING FLOATING RATE FIRST PRIORITY SENIOR SECURED NOTES DUE 2000,
SERIES C
------------------------------
The Exchange Offer will expire at 5:00 p.m., New York City time on December
8, 1995, unless extended.
Envirodyne Industries, Inc., a Delaware corporation ("Envirodyne" or the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
(i) $1,000 principal amount of its new 12% First Priority Senior Secured Notes
due 2000, Series B (the "New Series B Notes"), for each $1,000 principal amount
of its outstanding 12% First Priority Senior Secured Notes due 2000, Series A
(the "Old Series A Notes"), of which $151,500,000 aggregate principal amount is
outstanding, and (ii) $1,000 principal amount of its new Floating Rate First
Priority Senior Secured Notes due 2000, Series D (the "New Series D Notes" and
collectively with the New Series B Notes, the "New Notes"), for each $1,000
principal amount of its outstanding Floating Rate First Priority Senior Secured
Notes due 2000, Series C (the "Old Series C Notes" and collectively with the Old
Series A Notes, the "Old Notes"), of which $8,500,000 aggregate principal amount
is outstanding. The form and terms of the New Notes are the same as the form and
terms of the Old Notes, except that the New Notes will have been registered
under the Securities Act. The New Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under, and entitled to benefits
of, the indenture governing the Old Notes dated as of June 20, 1995 (the
"Indenture"). All references herein to the "Notes" shall be references to the
Old Notes and/or the New Notes, whichever was, is or will be outstanding in the
particular context. See "The Exchange Offer" and "Description of Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on December 8, 1995,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date.
The Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer." Old Notes may be tendered only in integral multiples of $1,000 principal
amount.
The Old Notes were sold on June 20, 1995 in a transaction not registered
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act. The New Notes are being offered to satisfy the
obligations of the Company under the Exchange and Registration Rights Agreement
relating to the Old Notes. See "The Exchange Offer -- Purpose and Effect of the
Exchange Offer." New Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold or otherwise transferred by a
holder thereof (other than any holder which is an affiliate of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of such New Notes. Any broker or dealer
participating in the Exchange Offer will be required to acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the New Notes received by it in the Exchange
Offer. Only brokers or dealers who hold Old Notes that were acquired for their
own accounts as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company), may use this
Prospectus (as amended or supplemented) to satisfy the prospectus delivery
requirements of the Securities Act. The delivery of this Prospectus by such a
broker or dealer shall not constitute an admission that such a broker or dealer
is an "underwriter" under the Securities Act. See "Plan of Distribution."
The Notes are senior secured obligations of the Company which rank senior to
all senior unsecured and subordinated indebtedness of the Company (approximately
$223.6 million of which was outstanding at June 29, 1995). The Notes rank pari
passu with all other existing senior secured indebtedness secured by the same
collateral as the Notes ($4 million at June 29, 1995) and any permitted senior
secured indebtedness of the Company other than indebtedness under a letter of
credit facility (which may not exceed $28 million in principal amount). The
permitted senior secured indebtedness includes indebtedness of the Company's
subsidiaries in the amount of approximately $161.4 million which is secured by
assets other than those in the collateral pool securing the Notes. Subject to
restrictions in the Company's debt instruments (including the Indenture), the
Company may incur additional indebtedness. See "Description of Notes -- Certain
Covenants -- Limitation on Indebtedness."
The Notes constitute securities for which there is no established trading
market. Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the New Notes
on any securities exchange. To the extent that any Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. No assurances can be given as to the liquidity of
the trading market for either the Old Notes or the New Notes.
Interest on the New Notes shall accrue from the last June 15 or December 15
(an "Interest Payment Date") on which interest was paid on the Old Notes so
surrendered, or, if no interest has been paid on such Old Notes, from June 20,
1995.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE
EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 27, 1995
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE EXCHANGE OFFER IS NOT BEING
MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF
OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
Until January 25, 1995 (90 days after commencement of this offering), all
dealers effecting transactions in the New Notes, whether or not participating in
this offering, may be required to deliver a Prospectus.
------------------
AVAILABLE INFORMATION
The Company and each of Clear Shield National, Inc., Sandusky Plastics,
Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding
Corporation and Viskase Sales Corporation (collectively the "Subsidiary
Guarantors") have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act for
the registration of the New Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company, the Subsidiary Guarantors and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and financial statements and notes filed as a part thereof. Statements
made in this Prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. As long as the Company is subject to such periodic reporting and
informational requirements, it will furnish all reports and other information
required thereby to the Commission and will furnish copies of such reports and
other information to Shawmut Bank Connecticut, National Association, as trustee
(the "Trustee"). In the event the Company ceases to be required to file periodic
reports and other information with the Commission, the Company is required under
the Indenture, so long as the Notes remain outstanding, to file with the
Commission and distribute to holders of the Notes copies of the financial
information that would have been contained in such reports, information and
other documents that the Company would have been required to file with the
Commission pursuant to the Exchange Act.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used herein, unless the context otherwise
requires, the "Company" refers to Envirodyne Industries, Inc. and its direct and
indirect wholly owned subsidiaries. Certain defined terms used throughout this
Prospectus have the meanings set forth in "Description of Notes -- Certain
Definitions."
THE COMPANY
Envirodyne Industries, Inc. manufactures food packaging products and
foodservice supplies through three primary operating subsidiaries -- Viskase
Corporation ("Viskase"), Sandusky Plastics, Inc. (together with Sandusky
Plastics of Delaware, Inc., "Sandusky") and Clear Shield National, Inc. ("Clear
Shield"). Viskase is the leading producer of cellulosic casings used in
preparing and packaging processed meat products and is a major producer of heat
shrinkable plastic bags and specialty films for packaging and preserving fresh
and processed meat products, poultry and cheeses. The Company is also a leading
domestic and international manufacturer of plasticized polyvinyl chloride
("PVC") films, primarily for use in packaging food items. Through Sandusky, the
Company is a producer of thermoformed and injection molded plastic containers,
used in the packaging of cultured dairy and delicatessen products, and of
horticultural trays and inserts. Finally, through Clear Shield, the Company is a
major domestic producer of disposable plastic cutlery, drinking straws, custom
dining kits and related products. The market positions of the Company's
subsidiaries set forth in this Prospectus represent management's belief based
upon internally generated information. No independent marketing information has
been used to confirm the stated market positions.
On June 20, 1995, the Company completed the sale to certain institutional
investors in a private placement of $160,000,000 aggregate principal amount of
Old Notes. The Company used the net proceeds of the offering primarily to repay
the Company's $86.1 million domestic term loan facility and reduce the amount of
the Company's revolving credit obligations by approximately $68.3 million,
approximately $29.0 million of which had been drawn down in the prior twelve
months for operating and working capital purposes. See "Use of Proceeds" and
"Capitalization." Concurrently with the sale of the Old Notes, the Company
entered into a $20 million domestic revolving credit facility (the "Revolving
Credit Facility") and a $28 million letter of credit facility (the "Letter of
Credit Facility"). The Notes and the obligations under the Revolving Credit
Facility and the Letter of Credit Facility are guaranteed by the Company's
significant domestic subsidiaries (the "Subsidiary Guarantors") and secured by
the following pool of collateral (the "Collateral Pool"): (i) all accounts
receivable (including intercompany receivables) and inventory; (ii) all patents,
trademarks and other intellectual property (subject to non-exclusive licensing
agreements); (iii) substantially all domestic fixed assets (other than assets
subject to a lease agreement with General Electric Capital Corporation); and
(iv) a pledge of 100% of the capital stock of the Company's significant domestic
subsidiaries (Viskase, Viskase Holding Corporation, Viskase Sales Corporation,
Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc. and Clear Shield)
and 65% of the capital stock of Viskase, S.A., a subsidiary of the Company
organized under the laws of France ("Viskase, S.A."). Such guarantees and
security are shared by the holders of the Notes and the holders of the
obligations under the Revolving Credit Facility on a pari passu basis pursuant
to an intercreditor agreement. Pursuant to such intercreditor agreement, the
security interest of the holders of the obligations under the Letter of Credit
Facility has priority over all other liens on the Collateral Pool. In addition,
the intercreditor arrangements restrict the ability of the holders of the Notes
to exercise collateral rights or remedies without the consent of the lenders
under the Revolving Credit Facility and the Letter of Credit Facility. See
"Description of Notes -- Collateral and Security" and "Description of
Intercreditor Arrangements."
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THE EXCHANGE OFFER
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT.............. The Old Notes were sold in a private placement
by the Company on June 20, 1995 to certain
institutional investors through The Argosy
Securities Group L.P., as placement agent (the
"Placement Agent"). In connection therewith,
the Company executed and delivered, for the
benefit of the holders of the Old Notes, an
Exchange and Registration Rights Agreement
dated June 20, 1995 (the "Registration Rights
Agreement"), which grants the holders of Old
Notes certain exchange and registration rights.
See "The Exchange Offer -- Termination of
Certain Rights." The Exchange Offer is intended
to satisfy such rights, which terminate upon
the consummation of the Exchange Offer.
Therefore, the holders of New Notes will not be
entitled to any exchange or registration rights
with respect to the New Notes.
THE EXCHANGE OFFER............ $1,000 principal amount of New Series B Notes
in exchange for each $1,000 principal amount of
Old Series A Notes, and $1,000 principal amount
of New Series D Notes for each $1,000 principal
amount of Old Series C Notes. As of the date
hereof, $160,000,000 aggregate principal amount
of Old Notes is outstanding, $151,500,000 of
which is Old Series A Notes and $8,500,000 of
which is Old Series C Notes. The terms of the
New Notes are substantially identical in all
respects (including principal amount, interest
rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant
to the Exchange Offer, except that the New
Notes will have been registered under the
Securities Act and will not bear legends
restricting their transfer. See "The Exchange
Offer -- Terms of the Exchange Offer" and "The
Exchange Offer -- Procedures for Tendering."
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
any holder or beneficial owner thereof (other
than any such holder or beneficial owner which
is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act or
a "broker" or "dealer" registered under the
Exchange Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such New
Notes are acquired in the ordinary course of
such holder's or beneficial owner's business
and that such holder or beneficial owner is not
participating, does not intend to participate,
and has no arrangement or understanding with
any person to participate, in the distribution
of such New Notes. See "The Exchange Offer --
Resales of the New Notes."
EXPIRATION DATE............... 5:00 p.m., New York City time, on December 8,
1995, unless the Exchange Offer is extended by
the Company in its sole discretion, in which
case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
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CONDITIONS OF THE EXCHANGE
OFFER......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. These conditions include the
absence of adverse governmental proceedings,
changes in the financial affairs of the Company
or changes in law which would materially impair
the ability of the Company to proceed with the
Exchange Offer or the failure to obtain any
required governmental approval. See "The
Exchange Offer -- Conditions of the Exchange
Offer."
PROCEDURES FOR TENDERING OLD
NOTES......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to Shawmut Bank
Connecticut, National Association, as exchange
agent, at the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the New Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such New Notes, whether or
not such person is the holder, that neither the
holder nor any such other person is
participating, intends to participate, or has
an arrangement or understanding with any person
to participate, in the distribution of such New
Notes and that neither the holder nor any such
other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. See "The Exchange Offer -- Procedures
for Tendering."
BROKERS OR DEALERS............ Any broker or dealer participating in the
Exchange Offer will be required to acknowledge
that it will deliver a prospectus in connection
with any resales of the New Notes received by
it in the Exchange Offer. A broker or dealer
registered under the Exchange Act that acquired
Old Notes for its own account pursuant to its
market-making or other trading activities
(other than Old Notes acquired directly from
the Company) may participate in the Exchange
Offer but may be deemed an underwriter under
the Securities Act and, therefore, must deliver
a prospectus relating to the New Notes in
connection with any resales by it of New Notes
acquired by it for its own account in the
Exchange Offer; only such brokers or dealers
may use this Prospectus in connection with
resales of the New Notes. See "Plan of
Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. See "The Exchange Offer --
Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Notes
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according to the guaranteed delivery procedures
set forth under "The Exchange Offer --
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............. Old Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES......... Subject to satisfaction or waiver of the
conditions of the Exchange Offer set forth
under "The Exchange Offer -- Conditions of the
Exchange Offer," the Company will accept for
exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior
to the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES.................. An exchange of Old Notes for New Notes pursuant
to the Exchange Offer should not be treated as
a sale, exchange or other taxable event for
federal income tax purposes because the New
Notes should not be considered to differ
materially in kind or extent from the Old
Notes. As a result, no material federal income
tax consequences should result from an exchange
of Old Notes for New Notes pursuant to the
Exchange Offer. For federal income tax
purposes, a New Note received by a beneficial
owner of an Old Note should be treated as a
continuation of the Old Note in the hands of
such owner. See "Certain Federal Income Tax
Consequences."
EFFECT ON HOLDERS OF THE OLD
NOTES......................... As a result of the making of, and upon
acceptance for exchange of all validly tendered
Old Notes pursuant to the terms of, the
Exchange Offer, the Company will have fulfilled
certain of its obligations contained in the
Registration Rights Agreement and, accordingly,
there will be no increase in the interest rate
on the Old Notes pursuant to the applicable
terms of the Registration Rights Agreement.
Holders of the Old Notes who do not tender
their Old Notes will be entitled to all the
rights and limitations applicable thereto under
the Indenture, dated as of June 20, 1995, (the
"Indenture") between the Company and Shawmut
Bank Connecticut, National Association, as
trustee (the "Trustee"), relating to the Old
Notes and the New Notes, and the Registration
Rights Agreement, except for any rights under
the Indenture or the Registration Rights
Agreement which by their terms, terminate or
cease to have further effect as a result of the
making of, and the acceptance for exchange of
all validly tendered Old Notes pursuant to, the
Exchange Offer. All untendered Old Notes will
continue to be subject to the restrictions on
transfer provided for in the Old Notes and in
the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer,
the trading market for untendered Old Notes
could be adversely affected.
USE OF PROCEEDS............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer. See "Use of Proceeds."
EXCHANGE AGENT................ Shawmut Bank Connecticut, National Association,
as Trustee, is serving as exchange agent (the
"Exchange Agent") in connection with the
Exchange Offer.
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SUMMARY OF TERMS OF THE NEW NOTES
The Exchange Offer relates to $160,000,000 aggregate principal amount of
Old Notes, consisting of $151,500,000 of Old Series A Notes and $8,500,000 of
Old Series C Notes. The form and terms of the New Notes are the same in all
material respects as the Old Notes except that the New Notes will have been
registered under the Securities Act and will not bear legends restricting their
transfer. The New Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under, and be entitled to the benefits of, the
Indenture governing the Old Notes. See "Description of Notes."
PRINCIPAL AMOUNT.............. $160,000,000, of which $151,500,000 are New
Series B Notes and $8,500,000 are New Series D
Notes.
MATURITY DATE................. $80,000,000 aggregate principal amount will be
subject to a mandatory redemption on June 15,
1999 and the remaining principal amount
outstanding will mature on June 15, 2000.
INTEREST RATE................. The New Series B Notes will bear interest at a
rate of 12% per annum. The New Series D Notes
will bear interest at a rate equal to the sum
of 5.75% plus the six month London Interbank
Offered Rate ("LIBOR").
INTEREST PAYMENT DATES........ June 15 and December 15 of each year,
commencing December 15, 1995. Interest on the
New Notes will accrue from the last June 15 or
December 15 on which interest was paid on the
Old Notes, or, if no interest has been paid on
the Old Notes, from June 20, 1995.
RANKING....................... The Notes are senior secured obligations of
Envirodyne, which rank senior to all senior
unsecured and subordinated indebtedness of
Envirodyne (approximately $223.6 million of
which was outstanding at June 29, 1995). The
Notes rank pari passu with all other existing
senior secured indebtedness secured by the same
collateral as the Notes ($4 million at June 29,
1995) and any permitted senior secured
indebtedness of Envirodyne other than
indebtedness under the Letter of Credit
Facility (which may not exceed $28 million in
principal amount). The permitted senior secured
indebtedness includes indebtedness of
Envirodyne's subsidiaries in the amount of
approximately $161.4 million which is secured
by assets other than those in the collateral
pool securing the Notes.
SECURITY; GUARANTEES.......... The Notes are guaranteed by the Company's
significant domestic subsidiaries (the
"Subsidiary Guarantors") and secured by a
collateral pool (the "Collateral Pool")
comprised of: (i) all domestic accounts
receivable (including intercompany receivables)
and inventory; (ii) all patents, trademarks and
other intellectual property (subject to
non-exclusive licensing agreements); (iii)
substantially all domestic fixed assets (other
than assets subject to a lease agreement with
General Electric Capital Corporation); and (iv)
a senior pledge of 100% of the capital stock of
the Company's significant domestic subsidiaries
and 65% of the capital stock of Viskase, S.A.
The net book value of the Collateral Pool was
approximately $400 million as of June 29, 1995.
Such guarantees and security are shared with
lenders under the Revolving Credit Facility on
a pari passu basis pursuant to an intercreditor
agreement. The security interest of the holders
of obligations under the
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<PAGE> 8
Letter of Credit Facility (which may not exceed
$28 million in principal amount) has priority
over all other liens on the Collateral Pool. In
addition, the intercreditor arrangements
restrict the ability of the holders of the
Notes to exercise collateral rights or remedies
without the consent of the lenders under the
Revolving Credit Facility and the Letter of
Credit Facility.
EXCESS CASH FLOW OFFER........ In the event that the Company has Excess Cash
Flow (as defined in "Description of
Notes -- Certain Definitions") in excess of $5
million in any fiscal year, beginning with the
fiscal year ending December 28, 1995, the
Company will be required to make an offer to
purchase Notes from all holders on a pro rata
basis in an amount equal to the Excess CF
Amount (as defined in "Description of
Notes -- Certain Definitions") at a purchase
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of purchase.
OPTIONAL REPAYMENT WITH
PREMIUM....................... Commencing immediately, the Notes are
redeemable by the Company, at its option, in
whole or in part, at a price equal to (i) 100%
of the principal amount of the Notes being
redeemed, plus (ii) accrued and unpaid interest
thereon to the optional redemption date and
(iii) the Yield Maintenance Amount (as defined
in "Description of Notes -- Certain
Definitions"), if any, with respect thereto.
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control (as
defined in "Description of Notes -- Certain
Definitions"), each holder of the Notes will
have the right to require the Company to
repurchase such holder's Notes at a price equal
to 100% of the outstanding principal amount
thereof together with interest thereon to the
date of purchase and the Yield-Maintenance
Amount with respect thereto.
CERTAIN COVENANTS............. The Indenture contains covenants that, among
other things, limit (i) the incurrence of
Indebtedness by the Company and its
Subsidiaries, (ii) the payment of Restricted
Payments by the Company and its Subsidiaries,
(iii) the creation of Liens on any of the
Assets of the Company or its Subsidiaries, (iv)
the making of certain Investments by the
Company and its Subsidiaries (including the
Company and its Subsidiaries), (v) certain
transactions with affiliates by the Company and
its Subsidiaries and (vi) certain mergers,
consolidations and sales of assets of the
Company or its Subsidiaries. See "Description
of Notes -- Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors to be considered by
prospective investors.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary data for the six months ended June 29, 1995 and June
30, 1994 are derived from unaudited financial statements of the Company which,
in the opinion of management, have been prepared on the same basis as the
audited data and include all adjustments considered necessary for a fair
presentation of the financial position and results of operations for these
periods.
The following summary financial data of the Company for the periods January
1, 1990 to December 29, 1994; January 1, 1990 to December 31, 1992 for Balance
Sheet Data and January 1, 1990 to December 31, 1993 for Statement of Operations
(Pre-consummation); and the periods January 1, 1993 to December 29, 1994 for
Balance Sheet Data and January 1, 1994 to December 29, 1994 for Statement of
Operations (Post-consummation) are derived from the Company's consolidated
financial statements audited by Coopers & Lybrand L.L.P., independent
accountants. The historical results of operations for the periods ended December
31, 1992 and prior for Balance Sheet Data and December 31, 1993 and prior for
Statement of Operations consist of the periods prior to the implementation of
the Plan of Reorganization and Fresh Start Reporting, Pre-consummation.
Subsequent periods reflect the Fresh Start Reporting that took place upon the
implementation of the Plan of Reorganization, Post-consummation. The information
below should be read in conjunction with the Consolidated Financial Statements
of Envirodyne Industries, Inc. and Subsidiaries and related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Prospectus. Results for the interim
periods are not necessarily indicative of results for the years as a whole.
<TABLE>
<CAPTION>
PRE-CONSUMMATION
POST-CONSUMMATION ----------------------------
------------------------------------------ DECEMBER 27,
JANUARY 1 JANUARY 1 1991
TO TO TO
JANUARY 1 DECEMBER 29, DECEMBER 31, DECEMBER 31,
TO 1994(1) 1993(1) 1992
JUNE 30, ------------ ------------ ------------
1994(1)
------------
DECEMBER 30,
1994 (UNAUDITED)
TO
JUNE 29,
1995(1)
------------
(UNAUDITED) (DOLLARS IN THOUSANDS,
EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales....................................... $321,008 $293,381 $599,029 $ 587,385 $ 575,705
Patent infringement settlement income........... 9,457 9,457
Cost of sales................................... 235,772 210,202 432,746 416,410 398,876
Selling, general and administrative expenses.... 66,458 64,187 127,063 117,343 109,623
-------- -------- -------- --------- ----------
Operating Income................................ 18,778 28,449 48,677 53,632 67,206
Interest expense, net........................... 27,147 24,242 49,207 30,259 105,558
Minority interest in loss of subsidiary......... 50 50 717
Other income (expense), net..................... 1,139 1,684 1,668 (5,540) (12,644)(2)
-------- -------- -------- --------- ----------
Income (loss) before income taxes,
reorganization items and extraordinary gain
(loss)......................................... (7,230) 5,941 1,188 18,550 (50,996)
Reorganization items, net....................... 104,745
-------- -------- -------- --------- ----------
Income (loss) before income taxes, and
extraordinary gain (loss)...................... (7,230) 5,941 1,188 (86,195) (50,996)
Provision (benefit) for income taxes............ (18) 5,000 4,800 12,000 (14,000)
-------- -------- -------- --------- ----------
Income (loss) before extraordinary items........ (7,212) 941 (3,612) (98,195) (36,996)
Extraordinary gain (loss), net of tax(3)........ (4,196) 183,784
-------- -------- -------- --------- ----------
Net income (loss)............................... $(11,408) $ 941 $ (3,612) $ 85,589 $ (36,996)
======== ======== ======== ========= ==========
Per share (loss) before extraordinary gains
(loss)......................................... (0.53) 0.07 (.27) (306,859) (115,613)
Per share income (loss) including extraordinary
gain (loss).................................... (0.84) 0.07 (.27) 267,466 (115,613)
BALANCE SHEET DATA:
Total assets.................................... $919,431 $896,989 $896,636 $ 867,680 $1,026,962
Working capital................................. 134,802 97,182 91,727 82,440 (736,643)(4)
Cash and cash equivalents and time deposits..... 6,291 8,657 7,289 7,743 14,062
Net property, plant and equipment including
those under capital lease...................... 470,592 459,049 470,338 455,554 452,401
Debt obligations:
Short-term debt(5)............................. 14,798 22,885 25,798 15,610 40,365
Long-term debt reclassified as current......... 758,300
Long-term debt................................. 534,298 491,821 489,358 482,379 12,524
Stockholders' equity (deficit)(6)............... 127,735 138,696 135,349 135,000 (83,545)
OTHER DATA:
Ratio of earnings to fixed charges(7)........... 1.21 1.00 1.52
Deficiency in the coverage of fixed charges by
earnings before fixed charges.................. $ (7,525) $ (52,200)
Depreciation and amortization under capital
lease.......................................... 20,132 17,996 35,775 36,687 33,763
Amortization of intangibles and excess
reorganization value........................... 7,815 7,687 15,612 15,711 15,547
Amortization of deferred financing fees and
discount....................................... 1,031 729 1,569 2,418 30,820
Capital expenditures............................ 13,597 15,967 32,566 40,887 29,018
<CAPTION>
DECEMBER 28,
1990 JANUARY 1
TO TO
DECEMBER 26, DECEMBER 27,
1991 1990
------------ ------------
<S> <C<C> <C>
STATEMENT OF OPERATIONS:
Net sales....................................... $ 543,969 $ 544,138
Patent infringement settlement income...........
Cost of sales................................... 374,214 368,823
Selling, general and administrative expenses.... 108,256 104,154
---------- ----------
Operating Income................................ 61,499 71,161
Interest expense, net........................... 101,450 99,898
Minority interest in loss of subsidiary.........
Other income (expense), net..................... (332) 6,563
---------- ----------
Income (loss) before income taxes,
reorganization items and extraordinary gain
(loss)......................................... (40,283) (22,174)
Reorganization items, net.......................
---------- ----------
Income (loss) before income taxes, and
extraordinary gain (loss)...................... (40,283) (22,174)
Provision (benefit) for income taxes............ (11,030) (7,000)
---------- ----------
Income (loss) before extraordinary items........ (29,253) (15,174)
Extraordinary gain (loss), net of tax(3)........ (2,502)
---------- ----------
Net income (loss)............................... $ (31,755) $ (15,174)
========== ==========
Per share (loss) before extraordinary gains
(loss)......................................... (91,416) (47,419)
Per share income (loss) including extraordinary
gain (loss).................................... (99,234) (47,419)
BALANCE SHEET DATA:
Total assets.................................... $1,086,457 $1,062,508
Working capital................................. (708,064)(4) 87,683
Cash and cash equivalents and time deposits..... 16,075 29,133
Net property, plant and equipment including
those under capital lease...................... 476,604 421,269
Debt obligations:
Short-term debt(5)............................. 34,937 42,670
Long-term debt reclassified as current......... 792,557
Long-term debt................................. 18,833 761,606
Stockholders' equity (deficit)(6)............... (40,303) (8,275)
OTHER DATA:
Ratio of earnings to fixed charges(7)...........
Deficiency in the coverage of fixed charges by
earnings before fixed charges.................. $ (41,301) $ (23,000)
Depreciation and amortization under capital
lease.......................................... 28,994 26,726
Amortization of intangibles and excess
reorganization value........................... 15,120 15,637
Amortization of deferred financing fees and
discount....................................... 26,792 24,022
Capital expenditures............................ 44,938 49,478
</TABLE>
- ---------------
(1) Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, financial statements including outstanding shares for the new
restructured company (effective December 31, 1993) are not comparable to
those of the prior years.
(2) The 1992 amount includes $3,945 of fees and expenses associated with the
renegotiation of debt.
(3) Includes extraordinary losses on debt extinguishment in 1995 and 1991, and
an extraordinary gain from the implementation of the Plan of Reorganization
in 1993.
(4) Includes $758,300 and $792,557 of long-term debt reclassified as current at
December 31, 1992 and December 26, 1991, respectively.
(5) Includes current portion of long-term debt.
(6) The Company has never paid a cash dividend.
(7) For purposes of these computations, the ratio of earnings to fixed charges
has been calculated by dividing earnings by fixed charges. Earnings, as used
to compute the ratio, equal the sum of income before income taxes,
reorganization items and extraordinary items, and fixed charges excluding
capitalized interest. Fixed charges are the total interest expenses
including capitalized interest, amortization of debt expense and a rental
factor that is representative of an interest factor (estimated to be one
third of annual rent expense) on operating leases.
9
<PAGE> 10
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The table below presents summary unaudited pro forma consolidated
statements of operations of the Company for the periods December 30, 1994 to
June 29, 1995 and January 1, 1994 to December 29, 1994 as if the Company's
issuance of $160 million principal amount of Old Notes and the application of
the proceeds thereof had occurred at the start of fiscal year 1994. This summary
data should be read in conjunction with the unaudited pro forma consolidated
statements of operations of the Company and the notes thereto appearing
elsewhere herein. See "Unaudited Pro Forma Consolidated Statements of
Operations." The unaudited pro forma results of operations do not necessarily
indicate either future results or the results that would have occurred if the
events described above had occurred on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 30, 1994 JANUARY 1
TO TO
JUNE 29, 1995 DECEMBER 29, 1994
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Net sales.................................................... $321,008 $599,029
Cost of sales................................................ 235,772 432,746
Selling, general and administrative(1)....................... 66,458 117,606
-------- --------
Operating income............................................. 18,778 48,677
Interest expense, net........................................ 29,643 59,268
Other income, net............................................ 1,139 1,718
-------- --------
Loss before income taxes..................................... (9,726) (8,873)
Income tax provision (benefit)............................... (991) 876
-------- --------
Net loss..................................................... $ (8,735) $ (9,749)
======== ========
Pro forma ratio of earnings to fixed charges(2).............. -- --
Pro forma deficiency in the coverage of fixed charges by
earnings before fixed charges.............................. $(10,021) $ (9,851)
</TABLE>
- ---------------
(1) Fiscal year January 1 to December 29, 1994 benefitted from a $9,457
settlement of a patent infringement suit.
(2) For purposes of these computations, the ratio of earnings to fixed charges
has been calculated by dividing earnings by fixed charges. Earnings, as
used to compute the ratio, equal the sum of income before income taxes and
fixed charges excluding capitalized interest. Fixed charges are the total
interest expenses including capitalized interest, amortization of debt
expense and a rental factor that is representative of an interest factor
(estimated to be one third of annual rent expense) on operating leases.
10
<PAGE> 11
RISK FACTORS
Prospective investors should carefully consider the following factors as
well as the other information set forth in this Prospectus.
HIGH LEVEL OF INDEBTEDNESS; POSSIBLE INABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged. At June 29, 1995, after giving effect to
the sale of the Old Notes and the use of the proceeds therefrom, the Company had
approximately $534 million of long-term debt. In addition, subject to the
restrictions in the Company's debt instruments (including the Indenture), the
Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including the following: (i) a substantial portion of
the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future, as needed, may be limited; (iii) the
Company's leveraged position and covenants contained in its debt instruments
(including the Indenture) could limit its ability to expand and make capital
improvements and acquisitions; and (iv) the Company's level of indebtedness
could make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures and limit its flexibility in reacting to changes
in the industry and economic conditions generally. The failure of the Company to
comply with covenants contained in the Indenture, the instruments governing the
Revolving Credit Facility and the Letter of Credit Facility and in the GECC
Lease Documents (as defined) would permit the Company's lenders under these
instruments to accelerate the maturity of the obligations thereunder and to
create cross-defaults permitting acceleration of substantially all of the
indebtedness of the Company.
The Company anticipates that its operating cash flow will be sufficient to
meet its operating expenses and to service its interest payments on the Notes
and its other outstanding indebtedness. The Company will be required to satisfy
its $80 million mandatory redemption obligation with respect to the Notes in
1999 and to pay the remaining principal amount of the Notes in 2000.
Additionally, the Company's 10.25% Senior Notes (the "10.25% Notes"), of which
$219.3 million principal amount is outstanding, will mature in December 2001.
The Company expects that in order to make these payments it will be required to
pursue one or more alternative strategies, such as refinancing its indebtedness,
selling additional equity capital, reducing or delaying capital expenditures, or
selling assets. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
POTENTIAL DEFAULT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (which includes the acquisition
by any person of more than 50% of the Company's Common Stock), each holder of
the Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 100% of the outstanding principal amount thereof,
together with interest thereon to the date of purchase and the Yield-Maintenance
Amount (as defined in "Description of Notes -- Certain Definitions") with
respect thereto. In addition, in the event of a change of control (defined in
the indenture governing the 10.25% Notes in a manner substantially similar to
the Indenture), the holders of the 10.25% Notes will have the right to require
the Company to repurchase all of their 10.25% Notes at a purchase price equal to
101% of their aggregate principal amount plus accrued and unpaid interest, if
any, to the date of purchase. There can be no assurance that the Company will
have, or will have access to, sufficient funds to pay the required purchase
price for all Notes and 10.25% Notes tendered by holders under such
circumstances. The Company's failure to repurchase the Notes and the 10.25%
Notes tendered in connection therewith would constitute an event of default
under the Notes, the indenture governing the 10.25% Notes and under certain
other debt instruments of the Company. Certain of the events constituting a
Change of Control are beyond the control of the Company.
11
<PAGE> 12
ACQUISITION OF COMMON STOCK BY ZAPATA CORPORATION
On August 7, 1995, Zapata Corporation ("Zapata") acquired 4,189,298 shares
of Common Stock of the Company (approximately 31%) from The Malcolm I. Glazer
Trust in a private transaction. Mr. Malcolm I. Glazer and Avram A. Glazer,
directors of the Company, are the Chairman and Chief Executive Officer,
respectively, of Zapata. Zapata has publicly announced its intention to evaluate
the possibility of acquiring additional shares or proposing a merger with or
acquisition of the Company in the future.
HOLDING COMPANY ISSUER
The Company is a holding company. Substantially all of the assets of the
Company are held by its subsidiaries and substantially all of the Company's
operating revenue is derived from operations of its subsidiaries. Accordingly,
the Company's ability to make interest and principal payments when due to
holders of the Notes depends upon the receipt of sufficient funds from its
subsidiaries.
LIQUIDITY
The Company finances its working capital needs through a combination of
cash generated through operations and borrowings under the Revolving Credit
Facility. The availability of funds under the Revolving Credit Facility is
subject to the Company's compliance with certain covenants (which are
substantially similar to those included in the Indenture), to borrowing base
limitations measured by accounts receivable and inventory of the Company and to
reserves which may be established in the discretion of the lenders. The
available borrowing capacity under the Revolving Credit Facility was
approximately $16 million at June 29, 1995.
EFFECT OF INTERCREDITOR ARRANGEMENTS WITH LENDERS
The Company has entered into intercreditor agreements with the lenders
under the Revolving Credit Facility and the Letter of Credit Facility and with
General Electric Capital Corporation. These intercreditor arrangements provide
that with respect to the guarantees by the Subsidiary Guarantors and the
Collateral Pool, the lenders under the Letter of Credit Facility will have a
right to payment prior to the holders of the Notes and the holders of
obligations under the Revolving Credit Facility, who will share such security on
a pari passu basis. In addition, the intercreditor arrangements restrict the
ability of the holders of the Notes to exercise collateral rights or remedies
without the consent of the lenders under the Revolving Credit Facility and the
Letter of Credit Facility. See "Description of Intercreditor Arrangements."
COMPETITION
The Company faces competition in the U.S. and internationally from
competitors which may have substantially greater financial and other resources
than the Company. See "Business -- Viskase -- Competition." Viscofan, S.A., a
Spanish producer which had been barred from competing in the U.S. market since
1985, was allowed to enter the U.S. small diameter casings market in November
1994. The ten year ban was imposed by an administrative law judge who determined
that Viscofan had violated certain trade and patent laws by infringing on a
valid patent owned by Teepak, Inc. (a U.S. based producer of cellulosic casing),
and misappropriating Viskase's trade secrets. Viskase currently competes against
Viscofan in markets outside the United States in small diameter casings.
Although the Company has not experienced any significant volume loss to Viscofan
, management believes that Viskase will continue to experience pricing pressure
as a result of Viscofan's entrance into the U.S. market.
LIMITS ON COLLATERAL FOR NOTES; FRAUDULENT CONVEYANCE OR TRANSFER
Although the net book value of the Company's assets securing the Notes was
approximately $400 million as of June 29, 1995, there can be no assurance that
the proceeds from the sale of the collateral included in the Collateral Pool
following a default under the Notes would be sufficient to satisfy the Company's
obligations under the Notes.
12
<PAGE> 13
The Notes are an obligation of the Company and are guaranteed by the
Subsidiary Guarantors. The Company is a holding company. A substantial amount of
the assets of the Company are held by the Subsidiary Guarantors and a
substantial amount of the Company's operating revenue is derived from operations
of the Subsidiary Guarantors. Accordingly, the Company's ability to make
interest and principal payments when due to holders of the Notes substantially
depends upon the receipt of sufficient funds from the Subsidiary Guarantors. To
the extent that a court were to find that (i) a guarantee was incurred or a
security interest in connection therewith was granted by a Subsidiary Guarantor
with actual intent to hinder, delay or defraud any present or future creditor of
a Subsidiary Guarantor or (ii) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value in exchange for issuing its
guarantee or granting a security interest in connection with such guarantee and
such Subsidiary Guarantor (a) was insolvent on the date that such guarantee was
issued or such security interest was granted, (b) was rendered insolvent by
reason of the issuance of such guarantee or the grant of such security interest,
(c) was engaged in business or a transaction or was about to engage in business
or a transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital, or (d) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
the court could avoid the obligation incurred by a Subsidiary Guarantor pursuant
to such guarantee or the security interest granted in connection therewith or
potentially subordinate such guarantee to the obligations owed by such
Subsidiary Guarantor to its other creditors. There can be no assurance as to
what standard a court would apply in order to determine solvency. Any legal
challenge of a guarantee on fraudulent conveyance grounds would likely involve,
among other things, consideration of the benefits, if any, realized by a
Subsidiary Guarantor as a result of the issuance by the Company of the Notes. To
the extent any guarantee were avoided as a fraudulent conveyance or held to be
unenforceable for any other reason, holders of the Notes would cease to have any
claim against such Subsidiary Guarantor in respect of such guarantee and would
continue to be creditors of the Company and any Subsidiary Guarantor whose
guarantee was not avoided or otherwise held unenforceable.
The incurrence by the Company of indebtedness (including the Notes) and the
Company's grant of a security interest in connection with such indebtedness may
be subject to review under relevant federal and state fraudulent conveyance and
similar laws in a bankruptcy or reorganization case or similar insolvency
proceeding or a lawsuit by or on behalf of creditors of the Company. Under such
laws, if a court were to find that (i) the obligations (including the Notes)
were incurred or a security interest in connection therewith was granted by the
Company with actual intent to hinder, delay or defraud any present or future
creditor of the Company or (ii) the Company did not receive fair consideration
or reasonably equivalent value in exchange for incurring its obligations or
granting a security interest in connection therewith and the Company either (a)
was insolvent at the time of incurring such obligations or granting such
security interest, (b) was rendered insolvent by reason of incurring such
indebtedness or granting such security interest, (c) was engaged in business or
a transaction or was about to engage in business or a transaction for which the
remaining assets of the Company constituted unreasonably small capital, or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, the court could avoid such obligations
(including the Notes) or the security interest granted in connection therewith
or potentially subordinate such obligations (including the Notes) to the
obligations owed by the Company to its other creditors. There can be no
assurance as to what standard a court would apply in order to determine
solvency. To the extent any obligations (including the Notes) were avoided as a
fraudulent conveyance or held to be unenforceable for any other reason, holders
of the Notes would cease to have any claim against the Company in respect of
such obligations and would continue to be creditors of any Subsidiary Guarantor
whose guarantee was not avoided or otherwise held unenforceable.
RISE IN RAW MATERIAL PRICES
The total manufactured cost of the Company's products includes the cost of
certain raw materials, particularly certain pulp and resin products. The prices
of such raw materials have fluctuated significantly in the past. Significant
fluctuations in the price of these raw materials, without a coincident ability
to reflect such fluctuations in selling prices, could have a material adverse
effect on the Company's results of operations.
13
<PAGE> 14
INTERNATIONAL OPERATIONS
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 or 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. In
addition, international operations in certain parts of the world may be subject
to international balance of payments difficulties which may raise the
possibility of delay or loss in the collection of accounts receivable from sales
to customers in those countries. The aggregate of domestic exports and net sales
of foreign operations represents approximately 42% of Viskase's fiscal 1994
total net sales. International sales by Clear Shield and Sandusky are de
minimis.
LITIGATION; ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of litigation claims and environmental
regulations, none of which management believes will have a material adverse
effect on the Company's results of operations or financial condition. See
"Business -- Environmental Regulations" and "-- Legal Proceedings" and Note 11
of Notes to Consolidated Financial Statements.
RECENT BANKRUPTCY
On January 7, 1993, Envirodyne and certain of its subsidiaries filed
petitions under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Illinois, Eastern Division.
On December 31, 1993, Envirodyne and these subsidiaries consummated a plan of
reorganization and emerged from bankruptcy. For additional information regarding
the bankruptcy and the plan of reorganization, see Note 1 of Notes to
Consolidated Financial Statements.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were offered and sold to a small number of institutional investors and are
eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages ("PORTAL") Market. Prior to the Exchange Offer, there has
been no market for the New Notes and the Company does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System. Future
trading prices of the New Notes will depend upon many factors including
prevailing interest rates, the Company's operating results and the market for
similar securities.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
As a condition to the obligations of the purchasers under the note
agreement relating to the offering of the Old Notes (the "Note Agreement"), the
Company and certain institutional investors entered into the Registration Rights
Agreement on June 20, 1995. Pursuant to the Registration Rights Agreement the
Company agreed (i) to file with the Commission a registration statement under
the Securities Act with respect to the New Notes within 30 days after the
closing of the sale of the Old Notes, (ii) to use its reasonable best efforts to
cause such registration statement to become effective under the Securities Act
as soon as practicable, but in no event later than 120 days after the Closing
Date, and (iii) upon effectiveness of the registration statement, to commence
the Exchange Offer and offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of New Notes. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. This Registration Statement is
intended to satisfy the Company's obligations under the Registration Rights
Agreement and the Note Agreement.
Following the Consummation (as defined under "-- Termination of Certain
Rights") of the Exchange Offer, holders of Old Notes not tendered will not have
any further registration rights or rights to receive
14
<PAGE> 15
certain specified liquidated damages and the Old Notes will continue to be
subject to certain restrictions on transfer. See "-- Termination of Certain
Rights" and "-- Consequences of Failure to Exchange." Accordingly, the liquidity
of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to the Expiration Date. The Company
will issue $1,000 principal amount of New Notes of a series in exchange for each
$1,000 principal amount of outstanding Old Notes of the series accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000 principal amount.
The form and terms of the New Notes are the same in all material respects
as the form and terms of the Old Notes except that (i) the New Notes will have
been registered under the Securities Act and hence will not bear legends
restricting their transfer pursuant to the Securities Act and (ii) holders of
New Notes will not be entitled to certain rights of holders of Old Notes under
the Registration Rights Agreement which will terminate upon the Consummation of
the Exchange Offer. The New Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture governing the Old Notes.
As of the date of this Prospectus, $160,000,000 aggregate principal amount
of the Old Notes was outstanding, $115,000,000 of which was registered in the
name of Cede & Co., as nominee for The Depository Trust Company (the
"Depository" or "DTC"), and there were approximately 20 beneficial owners.
Solely for reasons of administration (and for no other purpose) the Company has
fixed the close of business of October 27, 1995 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered holder
of Old Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of Old Notes entitled to participate in the Exchange Offer.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned (or,
in the case of Old Notes tendered by book-entry transfer through DTC, will be
credited to an account maintained with DTC), without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date. See "--
Procedures for Tendering."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December 8, 1995, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
15
<PAGE> 16
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "-- Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of Old Notes, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents, to the Exchange Agent at the
address set forth below under "-- Exchange Agent" for receipt prior to the
Expiration Date; provided, however, that in lieu of the foregoing, a holder may
either (i) tender the Old Notes pursuant to the procedure for book-entry tender
set forth below, or (ii) comply with the guaranteed delivery procedure set forth
below.
The tender by a holder will constitute an agreement between such holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder from Beneficial Owner" included with the Letter of
Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Delivery Instructions" on the
Letter of Transmittal, or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by a
member of one of the following signature guarantee programs: the Securities
Transfer Agents
16
<PAGE> 17
Medallion Program (STAMP), the New York Stock Exchange Medallion Signature
Program (MSP) and the Stock Exchange Medallion Program (SEMP) (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company, in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each registered holder will represent to the Company that,
among other things, (i) the New Notes to be acquired by the holder and any
beneficial owner(s) of Old Notes ("Beneficial Owner(s)") in connection with the
Exchange Offer are being acquired by the holder and any Beneficial Owner(s) in
the ordinary course of business of the holder and any Beneficial Owner(s), (ii)
the holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the New Notes, (iii) the holder and each
Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offer for the purpose of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by such
person and cannot rely on the position of the Staff of the Commission set forth
in no-action letters that are discussed herein under "-- Resales of the New
Notes", (iv) the holder and each Beneficial Owner understands that a secondary
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Commission, and (v)
neither the holder nor any Beneficial Owner(s) is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing.
EXCHANGING BOOK-ENTRY OLD NOTES
The Exchange Agent and DTC have confirmed that any financial institution
that has an account with DTC (a "Participant") may utilize DTC's Automated
Tender Offer Program ("ATOP") to tender Old Notes.
The Exchange Agent will request that DTC establish an account with respect
to the Old Notes for purposes of the Exchange Offer within two business days
after the date of the Exchange Offer. Any Participant may make book-entry
delivery of Old Notes by causing DTC to transfer such Old Notes into such
Exchange Agent's account in accordance with DTC's ATOP procedures for transfer.
However, the exchange for the Old Notes so tendered will only be made after
timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer of
Old Notes into the Exchange Agent's account, and timely receipt by the Exchange
17
<PAGE> 18
Agent of an Agent's Message (as defined) and any other documents required by the
Letter of Transmittal. The term "Agent's Message" means a message, transmitted
by DTC and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a Participant tendering Old Notes which are the subject of such Book-Entry
Confirmation that such Participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such Participant.
The method of delivery of Old Notes is at the option and risk of the
tendering holder and, except as otherwise provided in the Letter of Transmittal,
the delivery will be deemed to be made only when actually received by the
Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot comply with the procedure for book-entry
tender on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of the Old Notes being tendered,
stating that the tender is being made thereby and guaranteeing that, within
five business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Notes and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five
business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, Old Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers (except in the case of
book-entry tenders) and principal amount at maturity (regardless of the means of
tendering) of such Old Notes), (iii) be signed by the holder in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the Depositor
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If the Old Notes
have been tendered pursuant to the procedure for book-entry tender set forth
above under "Exchanging Book-Entry Old Notes," a notice of withdrawal must
specify, in lieu of certificate numbers, the name and account number at DTC to
be credited with the withdrawn Old Notes. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company in its sole discretion, which determination shall be final and
binding on all parties. Any Old
18
<PAGE> 19
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no New Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
exchange due to rejection of tender or termination of the Exchange Offer, or
which have been validly withdrawn, will be returned as soon as practicable to
the holder thereof without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
(or, in the case of Old Notes tendered by book-entry transfer through DTC,
promptly credit to an account maintained with DTC) all tendered Old Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the Expiration Date, subject, however, to the rights of
holders to withdraw such Old Notes (see "-- Withdrawal of Tenders") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period. In the absence of any objective criteria, the satisfaction of the
conditions in the sole judgment of the Company may be the equivalent of a waiver
of the condition. In such case, the Company will extend the Exchange Offer in a
manner consistent with the second preceding sentence.
TERMINATION OF CERTAIN RIGHTS
Holders of the Old Notes to whom this Exchange Offer is made have special
rights under the Registration Rights Agreement that will terminate upon the
Consummation of the Exchange Offer. Under the Registration Rights Agreement, the
Exchange Offer shall be deemed consummated (the "Consummation") upon the
occurrence of (i) the filing and effectiveness under the Securities Act of a
registration statement relating to the New Notes to be issued in the Exchange
Offer, (ii) the maintenance of such registration statement continuously
effective for a period of not less than the minimum period required under
applicable
19
<PAGE> 20
federal and state securities law (provided that in no event shall such Exchange
Offer remain open and the registration statement relating thereto remain
continuously effective, in each case, for less than 30 days), and (iii) the
delivery by the Company to the Trustee under the Indenture of New Notes in the
same aggregate principal amount as the aggregate principal amount of Old Notes
tendered by holders thereof pursuant to the Exchange Offer. Such special rights
which will terminate include (a) the right to require the Company to comply with
the following: (x) to file with the Commission a registration statement under
the Securities Act with respect to the New Notes within 30 days after the
closing date of the private placement (the "Closing Date"), (y) to use its
reasonable best efforts to cause such registration statement to become effective
under the Securities Act as soon as practicable, but in no event later than 120
days after the Closing Date (the "Effectiveness Deadline"), and (z) upon
effectiveness of the registration statement, to commence the Exchange Offer and
offer to the holders of the Old Notes the opportunity to exchange their Old
Notes for a like principal amount at maturity of New Notes; and (b) the right to
receive liquidated damages as follows: if the above has not been complied with,
commencing on the 121st day after the Closing Date (the "Registration Default
Date"), the Company will pay liquidated damages to each holder of Old Notes
during the first 90-day period immediately following such Registration Default
Date such that the per annum interest rate on the Notes shall increase to a rate
that is fifty (50) basis points above the interest rate on the Notes immediately
prior to such date and, for each subsequent 90-day period, the per annum
interest shall further increase over the rate then in effect by an additional
twenty-five (25) basis points.
EXCHANGE AGENT
Shawmut Bank Connecticut, National Association, has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or the Letter of Transmittal
and requests for Notices of Guaranteed Delivery should be directed to the
Exchange Agent at (203) 986-1271 or addressed as follows:
By Overnight Courier/Mail/Hand: By Facsimile:
Shawmut Bank Connecticut, N.A. Shawmut Bank Connecticut, N.A.
Corporate Trust Operations, MSN 224 Attn: Patricia Williams
777 Main Street, Lower Level (203) 986-7908
Hartford, Connecticut 06115
Attn: Patricia Williams
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitations are being made by mail; however, additional
solicitations may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$250,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
20
<PAGE> 21
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes which are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities under the Securities Act.
Accordingly, such Old Notes may be resold only (i) to the Company (upon
redemption thereof or otherwise), (ii) so long as the Old Notes are eligible for
resale pursuant to Rule 144A under the Securities Act to a person whom the
seller reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A, purchasing for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or other
transfer is being made in reliance on Rule 144A, (iii) in an offshore
transaction in accordance with Regulation S under the Securities Act, but only
in the case of a transfer that is effected by the delivery to the transferee of
Old Notes registered in its name (or its nominee's name) on the books maintained
by the registrar of the Old Notes, (iv) pursuant to an exemption from
registration in accordance with Rule 144 (if available) or Rule 145 under the
Securities Act, (v) in reliance on another exemption from the registration
requirements of the Securities Act, but only in the case of a transfer that is
effected by the delivery to the transferee of Old Notes registered in its name
(or its nominee's name) on the books maintained by the registrar of the Old
Notes, and subject to the receipt by the registrar or co-registrar of a
certification of the transferor and an opinion (satisfactory to the Company) of
counsel (satisfactory to the Company) to the effect that such transfer is in
compliance with the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States. Following the
Consummation of the Exchange Offer, holders of Old Notes will have no further
rights under the Registration Rights Agreement.
ACCOUNTING TREATMENT
The carrying value of the Old Notes is not expected to be materially
different from the fair value of the New Notes at the time of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be amortized over the term of the New Notes.
RESALES OF THE NEW NOTES
With respect to resales of New Notes, based on an interpretation by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that any holder or beneficial owner (other than a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act or a "broker" or "dealer" registered under the Exchange Act) who
exchanges Old Notes for New Notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, will be allowed to resell the New Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes a prospectus that satisfies the requirements of Section 10
thereof. The Company has not entered into any arrangement or understanding with
any person to participate in the distribution of the New Notes and, to
management's knowledge, the persons participating in the Exchange Offer are
acquiring the New Notes in the ordinary course of business and have not entered
into any arrangement or understanding with any person to participate in the
distribution of the New Notes. However, if any holder or beneficial owner
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder or beneficial
owner cannot rely on the position of the staff of the Commission enunciated in
Exxon Capital Holdings Corporation (available April 13, 1988) or similar
no-action letters or any similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
A broker or dealer registered under the Exchange Act that acquired Old
Notes for its own account pursuant to its market-making or other trading
activities (other than Old Notes acquired directly from the Company) may
participate in the Exchange Offer but may be deemed to be an underwriter within
the meaning of the Securities Act and, therefore, must deliver a prospectus
relating to the New Notes in connection with any resales by it of New Notes
acquired for its own account in the Exchange Offer. The Company has agreed in
the Registration Rights Agreement that this Prospectus (as it may be amended or
supplemented by the Company) may be used by brokers and dealers in connection
with their resales of the
21
<PAGE> 22
New Notes for a period of six months from the date on which the Registration
Statement relating to the New Notes is declared effective. The delivery of the
Prospectus by a broker or dealer in connection with its resales of the New Notes
does not constitute an admission that such broker or dealer is an "underwriter"
under the Securities Act.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder participating in the Exchange Offer is required by the
Letter of Transmittal to represent that (i) the New Notes are to be acquired by
the holder and any beneficial owners in the ordinary course of business, (ii)
the holder and any beneficial owners are not engaging and do not intend to
engage in the distribution of the New Notes, (iii) neither the holder nor any
beneficial owner is an affiliate of the Company within the meaning of Rule 405
under the Securities Act, and (iv) the holder and each beneficial owner
acknowledge that if such holder or beneficial owner participates in the Exchange
Offer for the purpose of distributing the New Notes such holder or beneficial
owner must comply with the registration and prospectus delivery requirements of
the Securities Act and cannot rely on the above no-action letters. See "Plan of
Distribution."
22
<PAGE> 23
THE COMPANY
Envirodyne Industries, Inc. manufactures food packaging products and
foodservice supplies through three primary operating subsidiaries -- Viskase
Corporation ("Viskase"), Sandusky Plastics, Inc. (together with Sandusky
Plastics of Delaware, Inc. "Sandusky") and Clear Shield National, Inc. ("Clear
Shield"). Viskase is the leading producer of cellulosic casings used in
preparing and packaging processed meat products and is a major producer of heat
shrinkable plastic bags and specialty films for packaging and preserving fresh
and processed meat products, poultry and cheeses. The Company is also a leading
domestic and international manufacturer of plasticized polyvinyl chloride
("PVC") films, primarily for use in packaging food items. Through Sandusky, the
Company is a producer of thermoformed and injection molded plastic containers,
used in the packaging of cultured dairy and delicatessen products, and of
horticultural trays and inserts. Finally, through Clear Shield, the Company is a
major domestic producer of disposable plastic cutlery, drinking straws, custom
dining kits and related products. The market positions of the Company's
subsidiaries set forth in this Prospectus represent management's belief based
upon internally generated information. No independent marketing information has
been used to confirm the stated market positions.
Envirodyne Industries, Inc. was incorporated under the laws of the state of
Delaware in 1970 and its principal executive offices are located at 701 Harger
Road, Suite 190, Oak Brook, Illinois 60521 (tel. 708-571-8800).
THE SUBSIDIARY GUARANTORS
The Old Notes are and the New Notes will be unconditionally guaranteed, on
a secured basis, as to payment of principal, the Yield-Maintenance Amount, if
any, and interest, jointly and severally, by the Subsidiary Guarantors, each of
which is a direct or indirect wholly-owned subsidiary of the Company. As of the
date hereof, the Subsidiary Guarantors are Viskase, Viskase Holding Corporation,
Viskase Sales Corporation, Sandusky Plastics, Inc., Sandusky Plastics of
Delaware, Inc. and Clear Shield National, Inc. The Indenture requires the
Company to cause future Significant Domestic Subsidiaries (as defined in the
Indenture), if any, of the Company to become Subsidiary Guarantors of the Notes.
In addition, the capital stock of each of the Subsidiary Guarantors has been
pledged as security for repayment of the Notes.
23
<PAGE> 24
USE OF PROCEEDS
The Company will receive no proceeds from the exchange of New Notes for Old
Notes.
The aggregate proceeds from the sale by the Company of the Notes were $160
million. In addition, concurrently with the sale of the Old Notes, the Company
borrowed $4 million under the Revolving Credit Facility. The Company used these
funds to (i) repay the Company's $86.1 million domestic term loan facility (the
"Bank Term Loan"), (ii) reduce the amount of the Company's revolving credit
obligations by $68.3 million (approximately $29.0 million of which had been
drawn down in the prior twelve months for operating and working capital
purposes) and (iii) pay transaction fees and expenses.
The following table illustrates the sources and uses of these funds
(dollars in thousands):
<TABLE>
<S> <C>
Sources of Proceeds:
Sale of Notes................................................ $160,000
Revolving Credit Facility.................................... 4,000
--------
$164,000
========
Use of Proceeds:
Repayment of Bank Term Loan.................................. $ 86,125
Reduction of revolving credit obligations.................... 68,316
General corporate purposes................................... 2,359
Fees and expenses............................................ 7,200
--------
$164,000
========
</TABLE>
The weighted average interest rate of the debt repaid by the Company from
the proceeds of the Old Notes was approximately 8.8%. For additional information
regarding the debt repaid by the Company, see Note 8 of Notes to Consolidated
Financial Statements.
The issuance of the Old Notes allowed Envirodyne to refinance its
amortizing senior bank financing with secured debt having a four and one-half
year average life. The elimination of scheduled maturities under the senior bank
financing resulted in improved cash flow available for operating and investing
activities.
24
<PAGE> 25
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of June 29, 1995 after the issuance of $160 million principal amount of Old
Notes and the refinancing of the Company's bank debt with the proceeds
therefrom.
<TABLE>
<CAPTION>
JUNE 29, 1995
-------------
(UNAUDITED)
<S> <C>
Current maturity of Viskase capital lease obligation............................ $ 6,012
Current maturity of Viskase Limited term loan................................... 2,056
Other........................................................................... 6,730
--------
Total short-term debt including current portion of long-term debt............... $ 14,798
========
Revolving loans................................................................. $ 4,000
12% Senior Secured Notes due 2000............................................... 160,000
10.25% Senior Notes Due 2001.................................................... 219,262
Viskase capital lease obligation................................................ 141,182
Viskase Limited term loan....................................................... 8,367
Other........................................................................... 1,487
--------
Total long-term debt............................................................ 534,298
--------
Total stockholders' equity...................................................... 127,735
--------
Total capitalization............................................................ $676,831
========
</TABLE>
25
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated statements of operations for
periods December 30, 1994 to June 29, 1995 and January 1, 1994 to December 29,
1994 give effect to the Company's issuance of $160 million principal amount of
Old Notes used to refinance existing indebtedness and for general corporate
purposes as if the transaction had been completed on December 31, 1993.
<TABLE>
<CAPTION>
DECEMBER 30, 1994 TO JUNE 29, 1995
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES.............................................. $ 321,008 $ 321,008
Costs and Expense
Cost of sales........................................ 235,772 235,772
Selling, general and administrative.................. 58,643 58,643
Amortization of intangibles and excess reorganization
value............................................. 7,815 7,815
---------- ----------- ----------
OPERATING INCOME....................................... 18,778 18,778
Interest income...................................... 83 83
Interest expense..................................... 27,230 2,836(1) 30,066
Other income, net.................................... 1,139 1,139
---------- ----------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES.................. (7,230) (2,836) (10,066)
Income tax provision (benefit)....................... (18) (1,106)(2) (1,124)
---------- ----------- ----------
NET (LOSS)............................................. $ (7,212) $(1,730) $ (8,942)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES......................... 13,515,000 13,515,000
========= =========
PER SHARE AMOUNTS:
NET (LOSS)............................................. $ (0.53) $ (0.66)
========= =========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1 TO DECEMBER 29, 1994
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES.............................................. $ 599,029 $ 599,029
Patent infringement settlement income................ 9,457 9,457
Costs and Expense
Cost of sales........................................ 432,746 432,746
Selling, general and administrative.................. 111,451 111,451
Amortization of intangibles and excess reorganization
value............................................. 15,612 15,612
---------- ----------- ----------
OPERATING INCOME....................................... 48,677 48,677
Interest income...................................... 307 307
Interest expense..................................... 49,514 10,061(1) 59,575
Other income, net.................................... 1,668 1,668
Minority interest in loss of subsidiary.............. 50 50
---------- ----------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES.................. 1,188 (10,061) (8,873)
Income tax provision (benefit)....................... 4,800 (3,924)(2) 876
---------- ----------- ----------
NET (LOSS)............................................. $ (3,612) $(6,137) $ (9,749)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES......................... 13,500,703 13,500,703
========= =========
PER SHARE AMOUNTS:
NET (LOSS)............................................. $ (0.27) $ (0.72)
========= =========
</TABLE>
26
<PAGE> 27
- ---------------
(1) Adjustments to increase interest expense based upon pro forma debt
capitalization following the issuance of $160 million of Old Notes and
repayment of the prior bank debt.
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
-------- ------------
<S> <C> <C>
Interest associated with the Old Notes(A)..................... $ 9,744 $ 20,640
Interest associated with the retired Senior Bank Term
Loan(B)..................................................... (4,322) (7,817)
Interest associated with the retired Senior Bank Revolving
Loans(B).................................................... (2,586) (2,513)
Interest associated with elimination of outstanding credit
lines(C).................................................... -- (249)
-------- ------------
Net increase in interest expense.............................. $ 2,836 $ 10,061
======= ==========
(A) Represents interest expense associated with the Old Notes reflecting $160 million in
principal amount at 12% interest rate. Also included in these amounts is amortization
of the deferred financing fees related to the Old Notes.
(B) Represents interest expense associated with the retired Senior Bank Term Loan and
the retired Senior Bank Revolving Loans. The interest rate for these instruments
over the periods presented was the Eurodollar rate plus 2.75%. Also included in
these amounts is deferred financing fees and commitment fees related to these debt
instruments. Refer to Note 8 of the Notes to Consolidated Financial Statements for
principal amounts outstanding and repayment schedules.
(C) Represents interest expense associated with the outstanding lines of credit
eliminated with the proceeds of the Old Notes. The principal amounts and interest
rates varied over the period.
</TABLE>
(2) Reflects income tax effect of the increased interest expense.
27
<PAGE> 28
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary data for the six months ended June 29, 1995 and June
30, 1994 are derived from unaudited financial statements of the Company which,
in the opinion of management, have been prepared on the same basis as the
audited data and include all adjustments considered necessary for a fair
presentation of the financial position and results of operations for these
periods.
The following selected historical consolidated financial data of the Company
for the periods January 1, 1990 to December 29, 1994; January 1, 1990 to
December 31, 1992 for Balance Sheet Data and January 1, 1990 to December 31,
1993 for Statement of Operations (Pre-consummation); and the periods January 1,
1993 to December 29, 1994 for Balance Sheet Data and January 1, 1994 to December
29, 1994 for Statement of Operations (Post-consummation) are derived from the
Company's consolidated financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants. The historical results of operations for the periods
ended December 31, 1992 and prior for Balance Sheet Data and December 31, 1993
and prior for Statement of Operations consist of the periods prior to the
implementation of the Plan of Reorganization and Fresh Start Reporting,
Pre-consummation. Subsequent periods reflect the Fresh Start Reporting that took
place upon the implementation of the Plan of Reorganization, Post-consummation.
The information below should be read in conjunction with the Consolidated
Financial Statements of Envirodyne Industries, Inc. and Subsidiaries and related
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this Prospectus. Results for
the interim periods are not necessarily indicative of results for the years as a
whole.
<TABLE>
<CAPTION>
PRE-CONSUMMATION
POST-CONSUMMATION ----------------------------------------------------------
-------------------------------------- DECEMBER 27, DECEMBER 28,
JANUARY 1 JANUARY 1 1991 1990 JANUARY 1
TO TO TO TO TO
JANUARY 1 DECEMBER 29, DECEMBER 31, DECEMBER 31, DECEMBER 26, DECEMBER 27,
TO 1994(1) 1993(1) 1992 1991 1990
JUNE 30, ------------ ------------ ------------ ------------ ------------
1994(1)
----------
DECEMBER 30,
1994 (UNAUDITED)
TO
JUNE 29
1995(1)
------------
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales..................... $321,008 $293,381 $599,029 $ 587,385 $ 575,705 $ 543,969 $ 544,138
Patent infringement settlement
income....................... 9,457 9,457
Cost of sales................. 235,772 210,202 432,746 416,410 398,876 374,214 368,823
Selling, general and
administrative expenses...... 66,458 64,187 127,063 117,343 109,623 108,256 104,154
-------- -------- -------- --------- ---------- ---------- ----------
Operating Income.............. 18,778 28,449 48,677 53,632 67,206 61,499 71,161
Interest expense, net......... 27,147 24,242 49,207 30,259 105,558 101,450 99,898
Minority interest in loss of
subsidiary................... 50 50 717
Other income (expense), net... 1,139 1,684 1,668 (5,540) (12,644)(2) (332) 6,563
-------- -------- -------- --------- ---------- ---------- ----------
Income (loss) before income
taxes, reorganization items
and extraordinary gain
(loss)....................... (7,230) 5,941 1,188 18,550 (50,996) (40,283) (22,174)
Reorganizations item, net..... 104,745
-------- -------- -------- --------- ---------- ---------- ----------
Income (loss) before income
taxes, and extraordinary gain
(loss)....................... (7,230) 5,941 1,188 (86,195) (50,996) (40,283) (22,174)
Provision (benefit) for income
taxes........................ (18) 5,000 4,800 12,000 (14,000) (11,030) (7,000)
-------- -------- -------- --------- ---------- ---------- ----------
Income (loss) before
extraordinary items.......... (7,212) 941 (3,612) (98,195) (36,996) (29,253) (15,174)
Extraordinary gain (loss), net
of tax(3).................... (4,196) 183,784 (2,502)
-------- -------- -------- --------- ---------- ---------- ----------
Net income (loss)............. $(11,408) $ 941 $ (3,612) $ 85,589 $ (36,996) $ (31,755) $ (15,174)
======== ======== ======== ========= ========== ========== ==========
Per share (loss) before
extraordinary gains (loss)... (0.53) 0.07 (.27) (306,859) (115,613) (91,416) (47,419)
Per share income (loss)
including extraordinary gain
(loss)....................... (0.84) 0.07 (.27) 267,466 (115,613) (99,234) (47,419)
BALANCE SHEET DATA:
Total assets.................. $919,431 $896,989 $896,636 $ 867,680 $1,026,962 $1,086,457 $1,062,508
Working capital............... 134,802 97,182 91,727 82,440 (736,643)(4) (708,064)(4) 87,683
Cash and cash equivalents and
time deposits................ 6,291 8,657 7,289 7,743 14,062 16,075 29,133
Net property, plant and
equipment including those
under capital lease.......... 470,592 459,049 470,338 455,554 452,401 476,604 421,269
Debt obligations:
Short-term debt(5)........... 14,798 22,885 25,798 15,610 40,365 34,937 42,670
Long-term debt reclassified
as current................. 758,300 792,557
Long-term debt............... 534,298 491,821 489,358 482,379 12,524 18,833 761,606
Stockholders' equity
(deficit)(6)................. 127,735 138,696 135,349 135,000 (83,545) (40,303) (8,275)
OTHER DATA:
Ratio of earnings to fixed
charges(7)................... 1.21 1.00 1.52
Deficiency in the coverage of
fixed charges by earnings
before fixed charges......... $ (7,525) $ (52,200) $ (41,301) $ (23,000)
Depreciation and amortization
under capital lease.......... 20,132 17,996 35,775 36,687 33,763 28,994 26,726
Amortization of intangibles
and excess reorganization
value........................ 7,815 7,687 15,612 15,711 15,547 15,120 15,637
Amortization of deferred
financing fees and
discount..................... 1,031 729 1,569 2,418 30,820 26,792 24,022
Capital expenditures.......... 13,597 15,967 32,566 40,887 29,018 44,938 49,478
</TABLE>
- ---------------
(1) Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, financial statements including outstanding shares for the new
restructured company (effective December 31, 1993) are not comparable to
those of the prior years.
(2) The 1992 amount includes $3,945 of fees and expenses associated with the
renegotiation of debt.
(3) Includes extraordinary losses on debt extinguishment in 1995 and 1991, and
an extraordinary gain from the implementation of the Plan of Reorganization
in 1993.
(4) Includes $758,300 and $792,557 of long-term debt reclassified as current at
December 31, 1992 and December 26, 1991, respectively.
(5) Includes current portion of long-term debt.
(6) The Company has never paid a cash dividend.
(7) For purposes of these computations, the ratio of earnings to fixed charges
has been calculated by dividing earnings by fixed charges. Earnings, as used
to compute the ratio, equal the sum of income before income taxes,
reorganization items and extraordinary items, and fixed charges excluding
capitalized interest. Fixed charges are the total interest expenses including
capitalized interest, amortization of debt expense and a rental factor that
is representative of an interest factor (estimated to be one third of annual
rent expense) on operating leases.
28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's operations include food packaging products (Viskase and
Sandusky) and disposable foodservice supplies (Clear Shield).
The accompanying management's discussion and analysis of financial
condition and results of operations should be read in conjunction with the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 27,
-------------------- JANUARY 1 JANUARY 1, 1991 TO
JUNE 29, JUNE 30, TO DECEMBER TO DECEMBER DECEMBER 31,
1995 1994 29, 1994 31, 1993 1992
-------- -------- ------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales:
Food packaging products................ $144,261 $133,013 $530,179 $522,363 $513,777
Disposable foodservice supplies........ 20,923 17,775 68,996 66,383 62,918
Other and eliminations................. (146) (1,361) (990)
-------- -------- -------- -------- --------
$165,184 $150,788 $599,029 $587,385 $575,705
======== ======== ======== ======== ========
Operating income:
Food packaging products................ $ 9,958 $ 18,922 $ 48,145 $ 53,432 $ 66,949
Disposable foodservice supplies........ 1,683 1,374 6,514 5,223 5,913
Other and eliminations................. (1,552) (1,557) (5,982) (5,023) (5,656)
-------- -------- -------- -------- --------
$ 10,089 $ 18,739 $ 48,677 $ 53,632 $ 67,206
======== ======== ======== ======== ========
Depreciation and amortization under
capital lease and amortization of
intangibles expense:
Food packaging products................ $ 12,897 $ 11,495 $ 47,207 $ 46,715 $ 43,857
Disposable foodservice supplies........ 1,133 1,327 4,125 5,624 5,402
Corporate and other.................... 21 15 55 59 51
-------- -------- -------- -------- --------
$ 14,051 $ 12,837 $ 51,387 $ 52,398 $ 49,310
======== ======== ======== ======== ========
Capital expenditures:
Food packaging products................ $ 5,278 $ 7,563 $ 28,534 $ 37,673 $ 26,618
Disposable foodservice supplies........ 655 1,042 4,012 3,100 2,387
Corporate and other.................... 33 8 20 114 13
-------- -------- -------- -------- --------
$ 5,966 $ 8,613 $ 32,566 $ 40,887 $ 29,018
======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Six Months and Second Quarter Ended June 29, 1995 compared to the Six
Months and Second Quarter Ended June 30, 1994
The Company's net sales for the first six months and second quarter of 1995
were $321.0 million and $165.2 million, respectively, which represented an
increase of 9.4% and 9.5% over the comparable periods of 1994, respectively.
Second quarter net sales at Viskase increased by 11.1% over the prior year due
to the expansion of European and Latin American sales, selected price increases,
strong worldwide film sales, combined with the favorable effects of foreign
currency translation. Second quarter net sales at Sandusky declined 19.0% due to
the loss of Scott Paper Company's premoistened baby wipe container business,
combined with an 11.8% reduction in dairy and deli container sales. The loss in
container sales is primarily attributed to a shift in demand from thermoformed
to injection molded containers. The Company has purchased injection molding
equipment that will increase capacity. This effort is expected to substantially
29
<PAGE> 30
contribute to improving the Company's competitiveness in this market. Second
quarter net sales at Clear Shield increased 17.7% from the prior year primarily
due to selling price increases.
Operating income for the first six months and second quarter of 1995 was
$18.8 million and $10.1 million, respectively, representing decreases of $9.7
million and $8.7 million, respectively, from the comparable periods of 1994. The
operating income decline for the first six months and second quarter from the
prior year is the result of 1994 benefitting from a net $8.7 million settlement
of a patent infringement suit. In addition, for the first six months of 1995 the
Company continued to experience resin price increases, price competition in
domestic and foreign markets, coupled with additional selling, general and
administrative expenses resulting from strategic expansions in foreign markets,
including Europe, Latin America and Australia and the decline in Sandusky's
sales, partially offset by the consolidation of manufacturing operations at its
Sandusky, Ohio facility.
External factors affecting casing sales in both the domestic and foreign
markets include a general softness in hot dog sales in the U.S. and a weakening
of processed meat sales in Europe. In addition, Viscofan, S.A., a Spanish small
diameter casing producer entered the U.S. market in November 1994. Although the
Company has yet to experience any significant volume loss to Viscofan,
management believes that Viskase will experience further pricing pressures as a
result of Viscofan's entrance into the domestic market.
Net interest expense for the six months period totaled $27.2 million
representing an increase of $2.9 million from the first six months of 1994. The
increase is primarily the result of both increased borrowing and higher interest
rates on the term and revolving loan facilities.
Other income of $1.1 million and $1.7 million in the first six months of
1995 and 1994, respectively, consists principally of foreign currency
transaction gains and losses.
The Company has entered into forward foreign exchange contracts to hedge
certain foreign currency transactions on a continuing basis for periods
consistent with its committed foreign exchange exposures. The effect of this
practice is to minimize the effect of foreign exchange rate movements on the
Company's operating results. The Company's hedging activities do not subject the
Company to additional exchange risk because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The cash flows from
forward contracts are classified consistent with the cash flows from the
transactions or events being hedged.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
was issued in March 1995 and established financial accounting and reporting
standards for the impairment of long-lived assets and certain identifiable
intangibles to be disposed of. The Company is not required to adopt this
statement until the first quarter of fiscal year 1996, although earlier adoption
is permitted. The adoption of this statement is not expected to have a
significant impact on the Company's income from continuing operations nor cash
flows.
The tax benefit for the first six months resulted from the benefit of U.S.
losses partially offset by the provision related to income from foreign
subsidiaries. Due to the permanent differences in the U.S. resulting from
non-deductible amortization and foreign losses for which no tax benefit is
provided, a benefit of $18 thousand was provided on a loss before income taxes
and extraordinary items of $7.2 million. The U.S. tax benefit is recorded as a
reduction of the deferred tax liability and does not result in a refund of
income taxes.
The extraordinary loss represents the write-off of unamortized financing
fees related to the Company's senior secured bank facility that was refinanced
by the private placement. The extraordinary loss of $4.2 million is net of a tax
benefit of $2.6 million.
Year Ended December 29, 1994 Compared to Prior Periods
The Company's 1994 net sales were $599 million, which represented a 2.0%
increase over the prior year's sales of $587.4 million.
Net sales in 1994 for Viskase increased 2.5% over the prior year due to the
impact of increased film sales and foreign currency translation. Sandusky's
sales declined 8.1% due to the reduction in the baby wipe
30
<PAGE> 31
container sales partially offset by an increase in dairy and deli container
volumes. Clear Shield's net sales increased 3.9% primarily due to the impact of
third and fourth quarter price increases combined with some volume increases in
the wrapped cutlery and retail product lines.
Operating income for 1994 was $48.7 million, which represented a decline of
$5.0 million from the prior year. Pro forma operating income for 1993, giving
effect to fresh start reporting and the implementation of the Plan of
Reorganization with the related financing as if such events had taken place on
January 1, 1993, was $54.6 million. The decline in gross margin in 1994 was due
to the impact of price competition in dairy and deli containers and in foreign
markets, reduced baby wipe container sales and increased resin prices. Operating
income in 1994 benefitted from a $9.5 million settlement of a patent
infringement suit. Selling, general and administrative expenses in 1994 include
$1.6 million of additional patent legal expenses (approximately $.8 million of
which were legal expenses related to the $9.5 million patent infringement
litigation settlement), costs relating to the expansion in Central and South
America, additional corporate costs relating to increased insurance and other
costs associated with Envirodyne's status as a public company following its
emergence from bankruptcy, as well as increased expenditures on research and
development.
In November 1994, Viscofan, S.A., a Spanish small diameter casing producer
entered the U.S. market. Although the Company has yet to experience any
significant volume loss to Viscofan, management believes that Viskase will
experience further pricing pressures as a result of Viscofan's entrance into the
domestic market.
During 1993, Scott notified Sandusky of its intention to purchase
containers from other suppliers, and the change was completed in September 1994.
Sandusky closed its Clayton, Delaware facility, which was primarily dedicated to
the production of baby wipe containers, in December 1994, and is consolidating
its manufacturing operations at its Sandusky, Ohio facility.
Net interest expense for 1994 totaled $49.2 million, which represented an
increase of $18.9 million from 1993. The 1994 net interest expense includes
$22.5 million of interest expense relating to the Company's 10 1/4% senior notes
due 2001 (the "10.25% Notes") versus $1.3 million of interest expense for the
first six days of 1993 on the Company's 14 1/2% Senior Discount Notes
(amortization of discount), 14% Senior Subordinated Debentures, 13 1/2%
Subordinated Notes and the 11 1/4% Pay-in-Kind Notes. As of January 7, 1993,
interest expense on those debt issues was no longer recorded due to the
Envirodyne bankruptcy case. The 1994 net interest expense benefitted from a
lower effective interest rate on the Company's domestic term loan and revolving
credit facility.
Other income (expense) of $1.7 million and $(5.5) million in 1994 and 1993,
respectively, included net foreign currency translation gains (losses) of $2.7
million and $(4.6) million, respectively.
The 1994 and 1993 tax provisions consisted of the provisions on income from
the U.S. and foreign subsidiaries. Due to the permanent differences in the U.S.
resulting from non-deductible reorganization expenses and amortization and
foreign losses for which no tax benefit is provided, a provision of $4.8 million
and $12.0 million, respectively, was provided on income (loss) before income
taxes and extraordinary items of $1.2 million and $(86.2) million, respectively,
for 1994 and 1993. The 1992 period effective tax benefit rate of 27% for income
taxes resulted from the benefit of U.S. losses partially offset by the provision
related to income from foreign subsidiaries. Domestic cash income taxes paid in
1994, 1993 and 1992 were $1.5 million, $91 thousand and $2.0 million,
respectively. Foreign cash income taxes paid in 1994, 1993 and 1992 were $3.5
million, $1.1 million and $3.1 million, respectively.
The 1993 reorganization items of $104.7 million consisted of $4.1 million
for the write-off of deferred financing fees on the Company's bank credit
agreement, $14.9 million for legal, financial advisory and other fees incurred
in connection with the Envirodyne bankruptcy case and $85.7 million of
adjustment to the fair value of assets and liabilities due to the reorganization
and adoption of Fresh Start Reporting (see Note 1 of Notes to Consolidated
Financial Statements). Fees and expenses of $3.9 million in 1992 associated with
the renegotiation of the Company's debt consisted of legal, financial advisory
and other fees.
31
<PAGE> 32
The 1993 extraordinary gain of $183.8 million results from the
reorganization cancellation of indebtedness offset by the fair value of debt and
equity issued and is net of a tax provision of $8.3 million. For a further
discussion, see Note 1 of Notes to Consolidated Financial Statements.
The Company's 1993 net sales were $587.4 million, which represented a 2.0%
increase over the prior year's sales of $575.7 million.
Net sales in 1993 for Viskase were comparable to the prior year. Sandusky's
sales increased by 26.3% due to container volume increases resulting from the
liquidation of a major competitor offset partially by the effects of intense
price competition. Clear Shield's net sales increased 5.5% due to strong volumes
across all major product lines offset partially by competitive price conditions.
Operating income for 1993 was $53.6 million, which represented a decline of
$13.6 million from the prior year. The decline in operating income resulted from
intense price competition in containers and large diameter casings as well as
price pressure in European, Latin American, Japanese and Canadian markets. The
Company also recorded an additional $2 million of before tax expense for
postretirement benefits due to the adoption on January 1, 1993 of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." For further discussion, see Note
10 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
On June 20, 1995, the Company completed the sale to certain institutional
investors in a private placement of $160 million aggregate principal amount of
Old Notes, $151.5 million of which bears interest at a rate of 12% per annum and
$8.5 million of which bears interest at a rate equal to the sum of 5.75% plus
the six month London Interbank Offered Rate. The Company used the net proceeds
of the offering primarily to repay the Company's $86.1 million domestic term
loan facility and reduce the amount of the Company's revolving credit
obligations by $68.3 million. See "Use of Proceeds" and "Capitalization."
Concurrently with the sale of the Old Notes, the Company entered into the
Revolving Credit Facility and the Letter of Credit Facility. The Notes and the
obligations under the Revolving Credit Facility and the Letter of Credit
Facility are guaranteed by the Company's significant domestic subsidiaries and
secured by the Collateral Pool. Such guarantees and security are shared by the
holders of the Notes and the holders of the obligations under the Revolving
Credit Facility on a pari passu basis pursuant to an intercreditor agreement.
Pursuant to such intercreditor agreement, the security interest of the holders
of the obligations under the Letter of Credit Facility has priority over all
other liens on the Collateral Pool. See "Description of Notes -- Collateral and
Security" and "Description of Intercreditor Arrangements."
Cash and equivalents decreased by $1 million during the six months ended
June 29, 1995. Cash flows used in investing activities of $13.6 million and used
in operating activities of $11.6 million exceeded cash flows provided by
financing activities of $24.9 million. Cash flows used in investing activities
consist principally of capital expenditures for property, plant and equipment.
Cash flows used in operating activities were principally attributable to the
Company's loss from operations and an increase in operating assets and
liabilities offset by the effect of depreciation and amortization. Cash flows
provided by financing activities were principally attributable to the June 20,
1995 placement of $160 million of Old Notes net of repayment of the senior
secured bank credit facility and the payment of the transaction fees and
expenses.
Cash and equivalents decreased by $.5 million during the fiscal year ended
December 29, 1994. Cash flows used in investing activities of $36.4 million
exceeded cash flows provided by operating activities of $23.3 million and cash
flows provided by financing activities of $13.4 million. Cash flows used in
investing activities consist principally of capital expenditures for property,
plant and equipment and the purchase of the minority interest in Viskase's
Brazilian subsidiary. Cash flows provided by operating activities were
principally attributable to the effect of depreciation and amortization offset
by the Company's loss from operations and an increase in operating assets and
liabilities. Cash flows provided by financing activities were principally
attributable to borrowings under the Company's senior secured bank credit
facility net of scheduled payments under the Company's senior secured bank
credit facility, Viskase's capital lease obligation and Viskase Limited's term
loan.
32
<PAGE> 33
The Company finances its working capital needs through a combination of
cash generated through operations and borrowings under the Revolving Credit
Facility. The availability of funds under the Revolving Credit Facility is
subject to the Company's compliance with certain covenants (which are
substantially similar to those included in the Indenture), to borrowing base
limitations measured by accounts receivable and inventory of the Company and to
reserves which may be established in the discretion of the lenders. The
available borrowing capacity under the Revolving Credit Facility was
approximately $16 million at June 29, 1995.
The Company anticipates that its operating cash flow will be sufficient to
meet its operating expenses and to service its interest payments on the Notes
and its other outstanding indebtedness. The Company will be required to satisfy
its $80 million mandatory redemption obligation with respect to the Notes in
1999 and to pay the remaining principal amount of the Notes in 2000.
Additionally, the Company's 10.25% Notes, of which $219.3 million principal
amount is outstanding, will mature in December 2001. The Company expects that in
order to make these payments it will be required to pursue one or more
alternative strategies, such as refinancing its indebtedness, selling additional
equity capital, reducing or delaying capital expenditures, or selling assets.
There can be no assurance that any of these strategies could be effected on
satisfactory terms, if at all.
Capital expenditures for the first six months of 1995 and 1994 totaled
$13.6 million and $16.0 million, respectively. Capital expenditures for 1995 and
future years are expected to be approximately $30 million. Capital expenditures
totaled $32.6 million during 1994. This represents an $8.3 million decrease from
1993 capital expenditure levels. The decreased level of capital expenditures in
1994 was principally related to the completion of both the second phase of the
European expansion program and initial productive capacity investment program in
Brazil during the prior year.
The Company has entered into interest rate agreements that cap $50 million
of interest rate exposure at an average LIBOR rate of 6.50% until January 1997.
These interest rate cap agreements were entered into under the terms of the
senior bank financing that was repaid on June 20, 1995. Interest expense
includes $.3 million of amortization of interest rate cap premium during the
six-month period ended June 29, 1995. The Company has not received any payments
under the interest rate protection agreements.
The Company acquired the minority shareholder's interest in Viskase's
Brazilian subsidiary for $4.2 million during the first quarter of 1994.
The Company has spent approximately $12 million to $17 million annually on
research and development programs, including product and process development,
and on new technology development during each of the past three years, and the
1995 research and development and product introduction expenses are expected to
be approximately $16 million. Among the projects included in the current
research and development efforts is the application of certain patents and
technology recently licensed by Viskase to the manufacture of cellulosic
casings. The commercialization of these applications and the related fixed asset
expense associated with such commercialization may require substantial financial
commitments in future periods.
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BUSINESS
Envirodyne Industries, Inc. manufactures food packaging products and
foodservice supplies through three primary operating subsidiaries -- Viskase,
Sandusky and Clear Shield. Viskase is the leading producer of cellulosic casings
used in preparing and packaging processed meat products and is a major producer
of heat shrinkable plastic bags and specialty films for packaging and preserving
fresh and processed meat products, poultry and cheeses. The Company is also a
leading domestic and international manufacturer of plasticized polyvinyl
chloride ("PVC") films, primarily for use in packaging food items. Through
Sandusky, the Company is a producer of thermoformed and injection molded plastic
containers, used in the packaging of cultured dairy and delicatessen products,
and of horticultural trays and inserts. Finally, through Clear Shield, the
Company is a major domestic producer of disposable plastic cutlery, drinking
straws, custom dining kits and related products. The market positions of the
Company's subsidiaries set forth in this Prospectus represent management's
belief based upon internally generated information. No independent marketing
information has been used to confirm the stated market positions.
On January 7, 1993, Envirodyne and certain of its subsidiaries
(collectively, the "Debtors") filed petitions under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (the "Bankruptcy Court"). On December 31,
1993, the Debtors consummated a plan of reorganization (the "Plan of
Reorganization") and emerged from bankruptcy. For additional information
regarding the Plan of Reorganization, see Note 1 of Notes to Consolidated
Financial Statements.
VISKASE
General
Viskase developed the basic process for producing cellulosic casings and
began commercial production in 1925. Since that time, management believes that
Viskase has been the leading worldwide producer of cellulosic casings. In 1964
Viskase entered the specialty films business. Since then, it has continued to
introduce new specialty films products to customers in the fresh and processed
meat, poultry and cheese industries. Viskase also manufactures and sells PVC
plastic film for wrapping fresh meats, poultry and other products.
Cellulosic Casings
Cellulosic casing products 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 the casings prior to smoking and cooking. 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.
The production of regenerated cellulose casings generally involves three
principal steps: production of a viscose slurry from wood pulp, extrusion of a
continuous tube during the regeneration process, and "shirring" of the final
product. Shirring is a highly technical process of folding or compressing the
casing in tubular form for subsequent use in high-speed stuffing machines. The
production of regenerated cellulose involves a complex and continuous series of
chemical and manufacturing processes, and Viskase believes that its facilities
and expertise in the manufacturing 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
sausage products such as hot dogs and paper-reinforced cellulosic casings for
large sausages, salami, hams and other processed meat products. Reinforced
cellulosic casings are known in the meat industry as fibrous casings.
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Specialty Film Products
Since developing a technology for the extrusion of bioriented plastic films
in 1964, Viskase has continued to expand its product line of heat shrinkable
bags made from its specialty films. These shrinkable bags are sold under the
brand name PERFLEX(R). Viskase's shrinkable plastic bags are used by major
poultry, fresh and processed meat and cheese producers to package and preserve
their products during wholesale and retail distribution.
Viskase produces single layer and multilayer heat shrinkable plastic bags.
Single layer film bags are used primarily to protect fresh and frozen whole
turkeys and chickens from moisture loss and handling damage. Multilayer film
bags, referred to in the food industry as "barrier bags," are made of layers of
coextruded films, each of which contributes a special property. For example,
individual layers can provide mechanical strength or can reduce the transmission
of moisture, oxygen 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 on the bags and
films directly with designs, illustrations and text in up to eight colors
further enhances the appeal of its customers' products.
PVC and Other Film Products
Viskase manufactures PVC stretch and single layer shrink films under the
Filmco(R) brand name, used for wrapping grocery products and for packaging
foods. In Europe, Viskase also converts oriented polypropylene films for use in
packaging bakery goods and manufactures rigid food packaging materials made from
oriented polystyrene.
International Operations
Viskase has seven manufacturing facilities located outside the continental
United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada;
Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos,
Brazil and Nuevo Laredo, Mexico.
The aggregate of domestic exports and net sales of foreign operations
represents approximately 42% 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 which may raise the possibility
of delay or loss in the collection of accounts receivable from sales to
customers in those countries. Viskase believes that its allowance for doubtful
accounts makes adequate provision for the collectibility of its 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.
Sales and Distribution
Viskase has a broad base of customers, with no single customer accounting
for more than 5% of sales. Viskase sells its products in virtually every country
in the world. In the United States, Viskase has a staff of technical sales
representatives responsible for sales to fresh meat, processed meat and poultry
producers. Approximately 50 distributors market Viskase products to customers in
Europe, Africa, Asia, and Latin America. Its products are marketed through its
own subsidiaries in the United Kingdom, Germany, France, Italy, Brazil, Mexico
and Australia.
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In the United States, Viskase sells its PVC film products primarily to the
retail grocery industry through packaging material distributors, food
wholesalers and a direct sales force. Additionally the sales organization is
supported by a technical service group. The United Kingdom operation sells
directly and through distributors, primarily to the retail grocery and
foodservice industries in Europe.
In the United States, Viskase operates casings service centers in Santa Fe
Springs, California; Atlanta, Georgia; and Bensalem, Pennsylvania, as well as
service centers within the Chicago, Illinois, and Pauls Valley, Oklahoma,
plants. In Europe, Viskase operates casings service centers in Milan, Italy and
Pulheim, Germany. Viskase also operates a service center in Brisbane, Australia.
These service centers provide finishing, inventory and delivery services to
Viskase customers.
Competition
Viskase is the world's leading producer of cellulosic casings and is a
major producer of films. Viskase seeks to maintain a competitive advantage by
introducing new products having 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 particular individual customer requirements, by
providing technical support services to its customers and by manufacturing
products having outstanding quality and performance. From time to time, Viskase
experiences reduced market share or reduced profits due to price competition.
Viskase's principal competitors in cellulosic casings are Teepak, Inc. and
Viscofan, S.A. (located in Spain). Some of the other important competitors in
the cellulosic casings industry are Kalle Niederlassung der Hoechst AG located
in Germany; Wolff Walsrode AG, a wholly-owned subsidiary of Bayer AG, located in
Germany; Oy Visko AB located in Finland; Celanese Mexicana located in Mexico;
and Trificel located in Brazil.
In the specialty films area, the largest producer of heat shrinkable bags
is the Cryovac Division of W.R. Grace & Company. Cryovac developed heat
shrinkable films and a vacuumizing process for applying them in the early
1960's. Cryovac sells bags on a worldwide basis to all segments of the food
industry, including meat and poultry producers. American Can Company, a
subsidiary of Pechiney Corp., is another competitor in the specialty films area.
Management believes that Viskase is in the number two position in the world
behind Cryovac in the sale of heat shrinkable bags.
In the PVC films area, major competitors in the U.S. and Europe include
Borden, Inc., Huntsman Film Products Corporation and Anchor Plastics, which may
have substantially greater financial and other resources than those of the
Company.
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 efficiency,
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 founded its Food Science and Quality Institute (the "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 providing responsible, high-quality technical service to, and
support of, Viskase customers. The Institute is able to reproduce customers'
products and processes in order to help customers to solve their problems and to
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.
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Seasonality
Historically, domestic sales and profits of Viskase have been seasonal in
nature, increasing in the spring and summer months and again near the year-end
holiday season. Sales of specialty films to the fresh meat industry and sales
outside of the United States follow a relatively stable pattern throughout the
year. Sales of PVC films experience only minor seasonality with sales generally
increasing during the second and third quarters.
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 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.
SANDUSKY
Sandusky is a leading producer of thermoformed and injection molded plastic
containers, used in the packaging of cultured dairy and delicatessen products,
and of horticultural trays and inserts. Sandusky sells a majority of its
products to dairy product manufacturers for packaging items such as yogurt and
cottage cheese and to supermarkets for in-store packaging of take-home foods.
The containers are normally custom printed in various colors with product
identification, company names, logos, nutritional information and universal
product codes in accordance with the customers' requirements. Sandusky and its
predecessors had been the principal supplier to Scott Paper Company ("Scott") of
containers for its premoistened baby wipes. During 1993, Scott notified Sandusky
of its intention to purchase containers from other suppliers, and the change was
completed in September 1994. Sandusky closed its Clayton, Delaware facility,
which was primarily dedicated to the production of baby wipe containers, in
December 1994, and is consolidating its manufacturing operations at its
Sandusky, Ohio facility.
Sandusky sells directly to its dairy and non-food customers through its
sales and marketing group. Delicatessen containers and horticultural products
are sold both directly and through commissioned brokers. Sandusky markets its
products primarily in the northeastern, southern and midwestern regions of the
United States. Plastic container sales are somewhat seasonal in nature, with
slightly higher delicatessen container sales in late spring and summer and
higher dairy sales in the fourth quarter.
All of Sandusky's thermoformed and injection molded products are produced
at its two Sandusky, Ohio plants. Thermoforming is a process by which plastic
resin pellets are melted and extruded into sheet stock, which is then heated and
formed into finished containers, lids and trays. Injection molding is a process
by which polypropylene and polyethylene pellets are melted and injected at high
pressure into precision molds to produce a finished container. The principal raw
materials used by Sandusky are prime high impact polystyrene, polypropylene and
polyethylene resins, which currently are available from several domestic
sources.
The dairy and delicatessen containers industry is highly fragmented.
Sandusky competes in the manufacture and sale of dairy and delicatessen
containers with several domestic manufacturers of thermoformed and injection
molded plastic containers. Major competitive factors in the dairy and
delicatessen container business are price, quality and customer service. Major
competitive factors in the specialized thermoformed container business are price
and technical and customer service capabilities.
CLEAR SHIELD
Clear Shield, headquartered in Wheeling, Illinois, is a major domestic
producer of disposable plastic cutlery, drinking straws, custom dining kits and
related foodservice products. Clear Shield is one of the largest producers of
plastic cutlery and drinking straws in the United States. These products are
sold primarily to
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<PAGE> 38
institutional users, comprising principally major fast-food restaurant chains,
schools, and hospitals, and also to consumers through retail outlets. Sales are
made under registered trade names including CLEAR SHIELD(R) and CARNIVAL(R).
Institutional customers include such leading fast-food chains as McDonald's
Corporation, Burger King Corporation, Taco Bell, Hardee's, KFC Restaurants and
Pizza Hut.
Clear Shield's products are produced at plants in Wheeling, Illinois;
Leominster, Massachusetts; and Shreveport, Louisiana. Plastic cutlery is made by
melting polystyrene or polypropylene beads, which are then injected into
specially designed custom molds within high-speed injection molding machines.
Drinking straws are made by extruding molten polypropylene through specially
designed dies within high-speed extrusion machines. Certain completed products
are then specially wrapped using high-speed wrapping machines. Raw materials
used in the manufacturing process currently are available from alternative
sources. Raw material costs, in particular of polystyrene and polypropylene, are
a major portion of Clear Shield's production costs. Although Clear Shield is
generally able to pass on most raw material cost increases to customers, there
can be a delay which varies by customer and market.
Sales are made predominantly in the United States, primarily east of the
Rocky Mountains, using Clear Shield's own sales force augmented by a network of
non-exclusive, independent sales representatives. The majority of Clear Shield's
sales, consisting of bulk and individually packaged products for institutional
users, generally is not seasonal. Sales of retail packaged products are
seasonal, however, with the highest sales and operating profits historically
being achieved in the second and third quarters.
While competitive pricing generally is of key importance, Clear Shield also
competes by emphasizing responsive service to customers, by maintaining
consistent quality in its products and by capitalizing on its efficient and
flexible operations. These efficiencies stem largely from proprietary
improvements to the manufacturing process, high-volume manufacturing facilities
and a flexible work force that enable Clear Shield to produce and ship more than
50 million items per working day.
Clear Shield's primary competitors include several major corporations, some
of which are larger and better capitalized than Clear Shield and, in some cases,
offer a wider product line than Clear Shield. Clear Shield's competitors
periodically engage in aggressive price discounting to gain business. Clear
Shield believes, however, that such market conditions will not result in any
long-term material loss of business for Clear Shield, although its profit
margins may be affected from time to time.
EMPLOYEES
The Company generally maintains productive and amicable relationships with
its 4,900 employees worldwide. One of Viskase's domestic plants, located in
Loudon, Tennessee, is unionized, and all of 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 1,500 of
Viskase's 4,000 employees. None of Clear Shield's approximate 525 employees is
represented by a union. Certain of the hourly production personnel of Sandusky's
Ohio thermoforming facility are members of a union.
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. Viskase, as part
of its research and development program, 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 competitive 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 to generate
royalty income.
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The other Company operations also own trademarks and tradenames that are
used actively in marketing products. Sandusky has patents on new product
developments, but, with the exception of Viskase, patent protection is not
currently material to any of the operations as now conducted.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and, on a
consolidated basis, totaled $16.9 million, $15.2 million and $12.3 million for
1994, 1993 and 1992, respectively. The majority of such costs are attributable
to Viskase's extensive research and development program.
Viskase believes it has achieved and maintained its position as a leading
producer of cellulosic casings and as a major domestic 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.
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 is 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.
For several years prior to 1989, Viskase was involved in regulatory
proceedings before the Illinois Pollution Control Board ("IPCB") in which the
IPCB sought to adopt air pollution control requirements applicable to emissions
of volatile organic material ("VOM") from sources located in the Chicago
metropolitan area. The IPCB was required to adopt such regulations pursuant to
provisions of the Clean Air Act requiring states to promulgate State
Implementation Plans ("SIP's") providing for reduction of VOM emissions. Such
regulations require sources to control their emissions using "reasonably
available control technology" ("RACT"). The IPCB ultimately adopted a RACT
regulation for Viskase's Chicago facility that did not require installation of
additional control technology and did not impose substantial compliance costs
with respect to the facility.
In addition, the USEPA proposed rules for controlling VOM emissions in the
Chicago area on December 27, 1989. Viskase submitted extensive comments in
response to the regulatory proposal. Among those comments was that the rules do
not constitute RACT with respect to Viskase's Chicago facility. On June 29,
1990, the USEPA promulgated the rules in substantially the same form as had been
proposed. For most sources, the "effective date" of the rule was July 30, 1990,
and the compliance date was one year thereafter. On May 31, 1991, USEPA extended
the effective date of the rules for Viskase indefinitely to provide the USEPA
with enough time to fully consider the rules as applied to Viskase.
In 1991, pursuant to certain amendments to the federal Clean Air Act, the
Illinois Environmental Protection Agency ("IEPA") proposed to the IPCB emissions
control rules that were virtually identical to the federal regulations. Viskase
submitted comments on the proposed rules that pointed out that the IPCB had
previously adopted a site-specific rule for Viskase. Therefore, Viskase
requested that the IPCB exempt Viskase from the proposed new rules. The IPCB
granted Viskase's request and then submitted the proposed rules, which included
an exemption for Viskase, to the USEPA for review. The USEPA subsequently
commented on the proposed rules, but made no mention of the exemption for
Viskase. The IPCB then
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promulgated the rules, including the exemption for Viskase. The final IPCB rules
were submitted to the USEPA for its formal approval as part of the state's SIP.
During its technical review of the SIP, the USEPA objected to certain
provisions of the Illinois rules and requested that the IEPA incorporate
revisions. The revised rules, which the IPCB submitted to the USEPA in mid-1993,
codify the stay as to the effective date and compliance date of the rules
previously granted to Viskase.
In late 1994, the USEPA proposed a revision to the federal implementation
plan. The proposed USEPA rule would be virtually identical to the site-specific
rule applicable to Viskase that was adopted by the IPCB, the only difference
relating to monitoring requirements. Viskase believed that it could comply with
the USEPA proposed rules, and submitted comments on the proposed rule urging its
adoption. On August 21, 1995, USEPA adopted a final rule identical to the
proposed rule. Management believes that this matter has been resolved
satisfactorily and that the costs of compliance with the USEPA rule will be
minimal.
The Economic Development Administration, an agency of the United States
Department of Commerce ("EDA"), and the USEPA filed a proof of claim in the
Envirodyne bankruptcy case relating to recovery of environmental response costs
incurred or to be incurred in connection with certain real property located at
2701 East 106th Street, Chicago, Illinois, the former location (the "Site") of
the operations of the subsidiaries of the Company constituting the former steel
and mining segment. Navistar International Transportation Corp. ("Navistar
Transportation"), which was the previous owner of the Site also filed a proof of
claim in the Envirodyne bankruptcy case in an unspecified amount with respect to
environmental liabilities at the Site. Envirodyne, Navistar Transportation, EDA
and USEPA have negotiated a definitive settlement agreement, subject to final
approval by the Bankruptcy Court and public comment pursuant to regulations
applicable to EDA and USEPA, to settle the claims against Envirodyne through the
payment of $5,000 to the USEPA and the issuance of 64,460 shares of Common Stock
to Navistar Transportation. In the event that the settlement is not completed,
Envirodyne believes that it has valid defenses to the claims and will continue
its objections to the claims. To the extent that USEPA, EDA or Navistar
Transportation were able to establish liability and damages as to their
respective proofs of claim, such parties would receive Common Stock under the
Plan of Reorganization in satisfaction of such claims. See Note 1 of Notes to
Consolidated Financial Statements.
As noted above, new environmental and health and safety laws can impose
significant compliance costs, including two 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 manufacture 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 recently proposed that would, in some cases, impose additional effluent
limitations on wastewater discharged from wastewater treatment systems employing
surface impoundments. In addition, RCRA regulations to be proposed in the future
may impose design and/or operating requirements on such impoundments. Two of
Viskase's plants use surface impoundments. The Company is currently assessing
the potential impact of the proposed regulations.
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.
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PROPERTIES
Viskase facilities
<TABLE>
<CAPTION>
LOCATION SQUARE FEET PRIMARY USE
- ----------------------------------- ----------- ---------------------------------------------
<S> <C> <C>
Manufacturing Facilities
Aurora, Ohio..................... 73,000 PVC film production
Barceloneta, Puerto Rico......... 156,000 Idle plant facilities held for sale
Beauvais, France (a)............. 235,000 Casings production and finishing
Centerville, Iowa................ 223,000 Specialty films production and finishing
Chicago, Illinois................ 991,000 Casings production, administration and
research
Guarulhos, Brazil................ 81,000 Specialty films production and casings
finishing
Huntsville, Alabama.............. 27,000 Idle plant facilities held for sale
Kentland, Indiana................ 125,000 Casings finishing
Lindsay, Ontario, Canada......... 269,000 Casings finishing and specialty films
finishing
Loudon, Tennessee................ 250,000 Casings production
Nuevo Laredo, Mexico (a)......... 22,000 Casings finishing
Osceola, Arkansas................ 223,000 Casings production and finishing
Pauls Valley, Oklahoma........... 110,000 Casings finishing, specialty films production
and finishing
Sedgefield, England.............. 132,000 PVC and rigid OPS production and OPP
conversion
Swansea, Wales (Great Britain)... 77,000 Specialty films production and finishing
Swansea, Wales (a)............... 28,000 Administrative facilities
Thaon, France.................... 239,000 Casings production and finishing
Service Centers
Atlanta, Georgia (a)
Bensalem, Pennsylvania
Brisbane, Australia (a)
Chicago, Illinois
Milan, Italy
Pauls Valley, Oklahoma
Pulheim, Germany (a)
Santa Fe Springs, California
Headquarters
Worldwide: Chicago, Illinois
Europe: Paris, France (a)
</TABLE>
- -------------------------
(a) Leased. All other properties are owned by the respective company or its
subsidiaries.
Clear Shield facilities
<TABLE>
<CAPTION>
LOCATION SQUARE FEET PRIMARY USE
- ----------------------------------- ----------- ---------------------------------------------
<S> <C> <C>
Leominster, Massachusetts........ 135,000 Cutlery, straws and combination kits
Shreveport, Louisiana............ 148,000 Cutlery, straws and combination kits
Wheeling, Illinois (two
plants)....................... 260,000 Cutlery, straws and combination kits;
Headquarters
</TABLE>
Sandusky facilities
<TABLE>
<CAPTION>
LOCATION SQUARE FEET PRIMARY USE
- ----------------------------------- ----------- ---------------------------------------------
<S> <C> <C>
Sandusky, Ohio................... 195,000 Manufacturing; Headquarters
Sandusky, Ohio................... 31,000 Warehouse
Sandusky, Ohio (a)............... 97,000 Warehouse
Sandusky, Ohio (a)............... 90,000 Manufacturing
Clayton, Delaware (a)............ 81,000 Vacant (lease expires October 1995)
</TABLE>
- -------------------------
(a) Leased. All other properties are owned by the respective company or its
subsidiaries.
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The Company's headquarters are located in leased facilities in Oak Brook,
Illinois. The Company believes that its properties generally are suitable and
adequate to satisfy the Company's present and anticipated needs. The United
States real property owned by the Company are included in the Collateral Pool.
LEGAL PROCEEDINGS
Lumpkin Litigation
On February 17, 1989, a complaint was filed against Envirodyne in the
United States District Court for the Northern District of Illinois ("District
Court") by a plaintiff class consisting of former union employees of WSC Corp.
("WSC"). WSC was a wholly-owned subsidiary of EDC Holding Company ("EDC") whose
operations consisted of the former steel and mining segment ("SMD") of Navistar
International Corp. ("Navistar"). EDC, then a wholly-owned subsidiary of
Envirodyne, acquired SMD from Navistar in 1977 and transferred the SMD assets to
WSC and to other wholly-owned subsidiaries of EDC. In 1980, EDC and WSC filed
voluntary bankruptcy petitions and halted operations. The plaintiffs are seeking
to recover from Envirodyne certain pension and other benefits allegedly owed by
WSC under a collective bargaining agreement to which WSC (but not Envirodyne)
was a party. The complaint seeks to hold Envirodyne directly liable for these
benefits on an alter ego theory of liability. The plaintiffs seek (1) damages
under the WSC 1977-1980 collective bargaining agreement of $80 million to $100
million (less the amount of the plaintiffs' $14.8 million received in settlement
of litigation with Navistar), (2) unspecified equitable relief under ERISA
Section 502, and (3) other compensatory damages and punitive damages,
unspecified in amount, under ERISA Section 502 and Section 301 of the Labor
Management Relations Act.
After the bankruptcy of EDC and WSC, the same plaintiff class now suing
Envirodyne brought suit against Navistar for recovery of the same benefits now
claimed against Envirodyne. In determining whether a settlement agreement in the
Navistar case released Envirodyne from the liabilities asserted, the United
States Court of Appeals for the Seventh Circuit ("Court of Appeals") held that
the interpretation of the settlement agreement would require lower court
findings of fact with respect to the parties' intent in entering into the
settlement agreement. In addition, the Court of Appeals commented on the legal
principles that would be applicable to the plaintiffs' alter ego claim. While
the Court of Appeals observed that concerns for corporate form should be
secondary to the congressional intent of ERISA to provide for pension benefits,
the Court proceeded to note that to be successful the plaintiffs must establish
the presence of two factors: firstly, that there was a unity of interest and
ownership such that the separate corporate identities of Envirodyne and the two
subsidiaries no longer existed; and, secondly, that recognition of separate
corporate existence would sanction a fraud or promote injustice.
The Lumpkin litigation was stayed by the commencement of the Envirodyne
bankruptcy case in January 1993. Envirodyne and the plaintiffs are currently
participating in a District Court mediation process to attempt to resolve the
case. Because the claims relating to the Lumpkin litigation arose prior to the
commencement of the Envirodyne bankruptcy case, such claims are subject to the
Plan of Reorganization. Accordingly, to the extent that the plaintiffs in the
Lumpkin litigation were able to establish liability and damages, the plaintiffs
would under the Plan of Reorganization receive Common Stock in satisfaction of
such damages. For a description of the amount of Common Stock to which
Envirodyne general unsecured creditors were generally entitled, see Note 1 of
Notes to Consolidated Financial Statements. The Company denies liability in the
Lumpkin litigation and believes it has sufficient defenses to all of plaintiffs'
claims. In the absence of successful mediation or other settlement negotiations,
the Company will continue to vigorously defend the case. While Envirodyne cannot
predict with certainty the outcome of these claims, when ultimately concluded or
adjudicated, these claims will not, in the opinion of management, have a
material effect on the results of operations or the financial condition of the
Company. However, inasmuch as the Plan of Reorganization provides for the
issuance of common stock with respect to prepetition Envirodyne general
unsecured claims, an adverse finding of liability and damages could result in
substantial dilution to the holders of the common stock. If additional shares of
common stock have to be issued to the former SMD employees, as holders of
allowed Envirodyne general unsecured claims under the Plan of Reorganization,
such additional shares of common stock would be distributed as follows: (i)
approximately 2.58 additional shares per five hundred dollars in claims in the
event allowed general unsecured claims of Envirodyne are between $125,000
42
<PAGE> 43
and $25,000,000; (ii) approximately 5.61 additional shares per five hundred
dollars in claims in the event allowed general unsecured claims of Envirodyne
are between $25,000,000 and $50,000,000; (iii) approximately 9.22 additional
shares per five hundred dollars in the event allowed general unsecured claims of
Envirodyne are between $50,000,000 and $75,000,000; and (iv) approximately 13.58
additional shares per five hundred dollars in claims in the event allowed
general unsecured claims of Envirodyne are between $75,000,000 and $100,000,000.
Indemnification Claims
Litigation has been initiated with respect to events arising out of the
Envirodyne bankruptcy case and the 1989 acquisition of Envirodyne by Emerald
Acquisition Corporation ("Emerald") with respect to which, although Envirodyne
is not presently a party to such litigation, certain defendants have asserted
indemnity rights against Envirodyne.
In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc,
Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K.
Bobrinskoy, James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93
A 1616, United States Bankruptcy Court for the Northern District of Illinois,
Eastern Division, ARTRA Group Incorporated ("ARTRA") alleges breach of fiduciary
duty and tortious inference in connection with the negotiation and consummation
of the Plan of Reorganization. In ARTRA Group Incorporated v. Salomon Brothers
Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald
P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198,
Circuit Court of the Eighteenth Judicial Circuit, DuPage County, Illinois, ARTRA
alleges negligence, breach of fiduciary duty, fraudulent misrepresentation and
deceptive business practices in connection with the 1989 acquisition of
Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136.2
million plus interest and punitive damages of $408.6 million. D.P. Kelly &
Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman
have asserted common law and contractual rights of indemnity against Envirodyne
for attorneys' fees, costs and any ultimate liability relating to the claims set
forth in the complaints. Envirodyne is continuing its evaluation of the merits
of the indemnification claims against Envirodyne and the underlying claims in
the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay
such funds in the event it is ultimately determined that there is no right to
indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and
Mr. Kelly for the payment of legal fees in the case pending before the
Bankruptcy Court. Although the case is in a preliminary stage and the Company is
not a party thereto, the Company believes that the plaintiff's claims raise
similar factual issues to those raised in the Envirodyne bankruptcy case which,
if resolved in a manner similar to that in the Envirodyne bankruptcy case, would
render it difficult for the plaintiff to establish liability. Accordingly, the
Company believes that the indemnification claims would not have a material
adverse effect upon the business or financial position of the Company, even if
the claimants were successful in establishing their right to indemnification.
Treatment of Untendered Shares Under Plan of Reorganization
Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne
by Emerald failed to exchange their certificates representing old Envirodyne
common stock for the $40 per share cash merger consideration specified by the
applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne
sought to equitably subordinate the interests of the holders of untendered
shares, in which event such holders would receive no distribution pursuant to
the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for
summary judgment to equitably subordinate the holders of untendered shares. The
United States District Court for the Northern District of Illinois has affirmed
the Bankruptcy Court's summary judgment and certain of the affected holders are
appealing to the Court of Appeals. If such holders were nonetheless ultimately
successful in their appeal of this matter, Envirodyne believes that the maximum
number of shares of Common Stock that it would be required to issue to such
claimants is approximately 106,000.
43
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Donald P. Kelly........................ 73 Chairman of the Board, President and Chief
Executive Officer and Director
F. Edward Gustafson.................... 54 Executive Vice President, Chief Operating
Officer and Director
J. S. Corcoran......................... 52 Executive Vice President and Chief Financial
Officer
Stephen M. Schuster.................... 39 Vice President, Secretary and General Counsel
Gordon S. Donovan...................... 42 Vice President and Treasurer
Robert N. Dangremond................... 52 Director
Avram A. Glazer........................ 35 Director
Malcolm I. Glazer...................... 67 Director
Michael E. Heisley..................... 58 Director
Gregory R. Page........................ 44 Director
Mark D. Senkpiel....................... 42 Director
</TABLE>
Donald P. Kelly. Mr. Kelly has been Chairman of the Board, President and
Chief Executive Officer of the Company since May 1989. Mr. Kelly has also served
as President and Chief Executive Officer of D.P. Kelly & Associates, L.P.
("DPK"), a management services and private investment firm, since November 1988.
Mr. Kelly has served as a director of the Company since 1989. On January 7,
1993, Envirodyne and its major domestic subsidiaries filed petitions under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). On
December 31, 1993, Envirodyne and the debtor subsidiaries consummated a plan of
reorganization and emerged from bankruptcy.
Mr. Kelly is Chairman, President, Chief Executive Officer and a Director of
Emerald Acquisition Corporation (Emerald). Emerald was the sole stockholder of
Envirodyne prior to Envirodyne's consummation of a plan of reorganization and
emergence from bankruptcy. On August 20, 1993, Emerald filed a petition under
Chapter 11 of the Bankruptcy Code. The bankruptcy filing is still pending before
the Bankruptcy Court.
F. Edward Gustafson. Mr. Gustafson has been Executive Vice President and
Chief Operating Officer of the Company since May 1989. Mr. Gustafson was
President of Viskase Corporation, a wholly-owned subsidiary of the Company, from
February 1990 to August 1994. Mr. Gustafson has also served as Executive Vice
President and Chief Operating Officer of DPK since November 1988. Mr. Gustafson
has served as a director of the Company since 1993. On January 7, 1993,
Envirodyne and its major domestic subsidiaries filed petitions under Chapter 11
of the Bankruptcy Code. On December 31, 1993, Envirodyne and the debtor
subsidiaries consummated a plan of reorganization and emerged from bankruptcy.
Mr. Gustafson is an Executive Vice President of Emerald. Emerald was the
sole stockholder of Envirodyne prior to Envirodyne's consummation of a plan of
reorganization and emergence from bankruptcy. On August 20, 1993, Emerald filed
a petition under Chapter 11 of the Bankruptcy Code. The bankruptcy filing is
still pending before the Bankruptcy Court.
J. S. Corcoran. Mr. Corcoran has been Executive Vice President and Chief
Financial Officer of the Company since May 1989. Mr. Corcoran has also served as
Executive Vice President and Chief Financial Officer of DPK since November 1988.
On January 7, 1993, Envirodyne and its major domestic subsidiaries filed
petitions under Chapter 11 of the Bankruptcy Code. On December 31, 1993,
Envirodyne and the debtor subsidiaries consummated a plan of reorganization and
emerged from bankruptcy.
Mr. Corcoran is an Executive Vice President and Chief Financial Officer of
Emerald. Emerald was the sole stockholder of Envirodyne prior to Envirodyne's
consummation of a plan of reorganization and emergence from bankruptcy. On
August 20, 1993, Emerald filed a petition under Chapter 11 of the Bankruptcy
Code. The bankruptcy filing is still pending before the Bankruptcy Court.
44
<PAGE> 45
Stephen M. Schuster. Mr. Schuster has been Vice President, Secretary and
General Counsel of the Company since May 1989. Mr. Schuster has also served as
Vice President and General Counsel of DPK since January 1989. On January 7,
1993, Envirodyne and its major domestic subsidiaries filed petitions under
Chapter 11 of the Bankruptcy Code. On December 31, 1993, Envirodyne and the
debtor subsidiaries consummated a plan of reorganization and emerged from
bankruptcy.
Mr. Schuster is Vice President, Secretary and General Counsel of Emerald.
Emerald was the sole stockholder of Envirodyne prior to Envirodyne's
consummation of a plan of reorganization and emergence from bankruptcy. On
August 20, 1993, Emerald filed a petition under Chapter 11 of the Bankruptcy
Code. The bankruptcy filing is still pending before the Bankruptcy Court.
Gordon S. Donovan. Mr. Donovan has been Treasurer of the Company since
November 1989 and was elected as Vice President in May 1995. On January 7, 1993,
Envirodyne and its major domestic subsidiaries filed petitions under Chapter 11
of the Bankruptcy Code. On December 31, 1993, Envirodyne and the debtor
subsidiaries consummated a plan of reorganization and emerged from bankruptcy.
Robert N. Dangremond. Mr. Dangremond has been a principal with Jay Alix &
Associates, a consulting and accounting firm specializing in corporate
restructurings and turnaround activities, since August 1989. In July 1995, Mr.
Dangremond became Chief Executive Officer of Forstmann & Co., a producer of
clothing fabrics. Previously, Mr. Dangremond was Chairman of the Board,
President and Chief Executive Officer of AM International, Inc., a provider of
graphics arts equipment, supplies and services, from February 1993 to September
1994. Mr. Dangremond is also a director of Standard Brands Paint Company, a
manufacturer and retailer of paints and related items, Barry's Jewelers, a
jewelry retailer, and AM International, Inc. Mr. Dangremond has served as a
director of the Company since December 31, 1993.
Mr. Dangremond was appointed Chairman of the Board, President and Chief
Executive Officer of AM International, Inc. ("AMI") in connection with
turnaround consulting services provided to AMI by Jay Alix & Associates, of
which Mr. Dangremond is a principal. On May 17, 1993, AMI filed a petition under
Chapter 11 of the Bankruptcy Code. On September 29, 1993, a plan of
reorganization was confirmed with respect to AMI.
Avram A. Glazer. Mr. Avram A. Glazer has been employed by and worked on
behalf of, Malcolm I. Glazer and a number of entities owned and controlled by
Malcolm I. Glazer, for more than the past nine years, with his principal
responsibilities including identifying, implementing, monitoring and disposing
of Malcolm I. Glazer's investment interests, including serving as a Vice
President of First Allied Corporation ("First Allied"), an investment company,
since 1985. He has served as the President and Chief Executive Officer of Zapata
Corporation ("Zapata"), a natural gas company, since March 1995. He is also a
director of Zapata. He also serves as a director of Houlihan's Restaurant Group,
Inc. ("Houlihan's"), a restaurant holding company, and Specialty Equipment
Companies, Inc. ("Specialty"), a restaurant equipment manufacturer. Avram A.
Glazer is the son of Malcolm I. Glazer, who is a member of the Board of
Directors, and has served as a director of the Company since May 1995.
Malcolm I. Glazer. Mr. Malcolm I. Glazer has been a self-employed private
investor, whose diversified portfolio consists of investments in television
broadcasting, restaurants, health care, banking, real estate, stock and
corporate bonds, for more than the past nine years. He has been President and
Chief Executive Officer of First Allied since 1984. He is Chairman of the Board
of Zapata and Chairman of the Board of Houlihan's. He also serves as a director
of Specialty. Malcolm I. Glazer is the father of Avram A. Glazer, who is a
member of the Board of Directors, and has served as a director of the Company
since May 1995.
Michael E. Heisley. Mr. Heisley has for more than five years been the Chief
Executive Officer of Heico Acquisitions, an investment holding company, through
which Mr. Heisley has interests in various manufacturing companies. Mr. Heisley
is also a director of Capsonic Group, Inc. (a designer and manufacturer of
molded components for the electronics and automotive industries); Pettibone
Corporation (a manufacturer of material handling equipment for the construction,
forestry, railroad and metals industries); Davis Wire Corp. (a manufacturer of
wire and wire products in the Western United States); Tom's Foods, Inc. (a
manufacturer and distributor of snack foods in the Southern United States);
Robertson CECO, Inc. (a major construction company engaged in the manufacture of
metal buildings, concrete forms and curtain walls); and Nutri/
45
<PAGE> 46
System, Inc. (a national weight maintenance company in North America). Mr.
Heisley has served as a director of the Company since December 31, 1993.
Gregory R. Page. Mr. Page is President of Worldwide Beef Operations of
Cargill, Inc., a multi-national trader and processor of foodstuffs and other
commodities, since 1994, and has prior thereto held various other positions with
Cargill, Inc. From 1992 to 1994, Mr. Page was President of Cargill, Inc.'s North
American Beef Operations. From 1989 to 1992, Mr. Page was Managing Director of
Sun Valley Thailand, a joint venture between Cargill, Inc. and Nippon Meat
Packers, as an integrated processor of poultry-based foods for the Japanese
marketplace. Mr. Page has served as a director of the Company since December 31,
1993.
Mark D. Senkpiel. Mr. Senkpiel has for more than five years been Investment
Director of the Investment Management Division of The Allstate Corporation (a
property, liability and life insurance company). Mr. Senkpiel has served as a
director of the Company since December 31, 1993.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors. Each director who is not an officer of the
Company received an annual retainer of $20,000 in 1994 and a fee of $1,000 for
each attended meeting of the Board of Directors. Chairmen of committees of the
Board of Directors received an annual retainer of $1,500 in 1994. Directors also
received a fee for each attended meeting of a committee of the Board of
Directors of $1,000 ($500 in the case of committee meetings occurring
immediately before or after meetings of the full Board of Directors). Directors
who are officers of the Company do not receive compensation in their capacity as
members of the Board of Directors. On May 10, 1995 (the date of the Company's
annual meeting of stockholders), each non-employee director of the Company
received non-qualified stock options to purchase 2,000 shares of Common Stock at
an option exercise price equal to the fair market value of a share of Common
Stock on the date of grant in accordance with the terms of the 1993 Stock Option
Plan. Pursuant to such Plan, on the date of each subsequent annual meeting of
stockholders, non-employee directors will automatically be granted non-qualified
options to purchase 1,000 shares of Common Stock at an option exercise price
equal to the fair market value of a share of Common Stock on the date of grant.
The Board of Directors has established the following standing committees:
Audit Committee. The principal responsibilities and authority of the Audit
Committee are to review and recommend to the Board of Directors the selection of
the Company's independent accountants; to review with the independent
accountants the scope and results of the annual audit engagement and the system
of internal accounting controls; and to direct and supervise special audit
inquiries. The current members of the Audit Committee are Michael E. Heisley,
Chairman, and Mark D. Senkpiel.
Compensation and Nominating Committee. The principal responsibilities and
authority of the Compensation and Nominating Committee are to review and approve
certain matters involving executive compensation; to review and approve grants
of stock options and stock appreciation rights under the Company's incentive
plans; to review and recommend adoption of or revisions to compensation plans
and policies; and to review and make recommendations to the Board of Directors
regarding such matters as the size and composition of the Board of Directors,
criteria for director nominations, director candidates and such other related
matters as the Board of Directors may request from time to time. The current
members of the Compensation and Nominating Committee are Robert N. Dangremond,
Chairman, and Gregory R. Page.
The Board of Directors may from time to time establish other committees to
assist it in the discharge of its responsibilities.
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 of Worldwide Beef Operations of Cargill, Inc.
In fiscal 1994, Viskase had sales of $14,779,000 made in the ordinary course and
on arm's-length terms to Cargill, Inc. and its affiliates. Cargill Financial
Services Corporation is the beneficial owner of 10.1% of the Company's
outstanding Common Stock.
46
<PAGE> 47
Summary of Cash and Certain Other Compensation of Executive Officers. The
Summary Compensation Table below provides certain summary information concerning
cash compensation paid by the Company during 1994, 1993 and 1992 for services
rendered by the Company's Chief Executive Officer and each of the other
executive officers of the Company serving at the end of the last completed
fiscal year whose total annual salary and bonus exceeded $100,000 in 1994. For
additional information, including a description of the Amended and Restated
Management Services Agreement dated as of December 31, 1993 between the Company
and DPK, see "Certain Relationships and Related Transactions."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- AWARDS
OTHER ANNUAL ------------ ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) $(2) (#)(3) ($)(4)
- -------------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donald P. Kelly................. 1994 450,000 -- 48,125 -- 472
Chairman of the Board, President 1993 450,000 -- -- -- 472
and Chief Executive Officer 1992 450,000 -- 202,771 -- 469
F. Edward Gustafson............. 1994 390,000 -- 61,496 -- 16,203
Executive Vice President and 1993 390,000 -- 110,370 -- 10,976
Chief Operating Officer 1992 390,000 -- 140,503 -- 9,724
J. S. Corcoran.................. 1994 390,000 -- 78,072 -- 472
Executive Vice President 1993 390,000 -- 85,186 -- 472
and Chief Financial Officer 1992 390,000 -- 81,287 -- 469
Stephen M. Schuster............. 1994 151,375 63,261 -- 22,850 6,197
Vice President, Secretary 1993 144,750 47,406 -- -- 6,320
and General Counsel(5) 1992 138,125 46,437 -- -- 6,136
</TABLE>
- -------------------------
(1) The salaries set forth above for Messrs. Kelly, Gustafson and Corcoran in
each year do not include $770,000 paid to DPK for management services. See
"Certain Relationships and Related Transactions." Messrs. Kelly, Gustafson
and Corcoran are principals and officers of DPK. See "Security Ownership."
(2) In 1994 and 1992 Mr. Kelly was reimbursed for personal travel expenses in
the amounts of $40,500 and $193,579, respectively. In 1994 and 1993 Mr.
Gustafson was reimbursed $33,503 and $31,543, respectively, for payment of
income taxes (gross ups) on certain benefits and in 1993 had personal use of
a Company auto at an aggregate incremental cost to the Company of $50,000.
In 1992 Mr. Gustafson was reimbursed for personal travel expenses in the
amount of $86,291. In 1994 Mr. Corcoran was reimbursed $30,092 for payment
of income taxes (gross ups) on certain benefits. In 1994 and 1993 Mr.
Corcoran had personal use of a Company auto at an aggregate incremental cost
to the Company of $30,861 and $33,000, respectively. Mr. Corcoran was
reimbursed for personal travel expenses in the amounts of $30,780 and
$33,870 in 1993 and 1992, respectively.
(3) Incentive stock options were granted on May 27, 1994 under the 1993 Stock
Option Plan.
(4) All Other Compensation consists primarily of the Company's contributions
pursuant to defined contribution plans. In 1994, Mr. Gustafson and Mr.
Schuster received $12,750 and $5,963, respectively, with respect to such
Company contributions.
(5) Mr. Schuster is eligible for payments under the Envirodyne Management
Incentive Plan. Bonus payments are determined based upon the Company's
overall financial performance and the individual's performance. Cash bonuses
under the Management Incentive Plan are earned with respect to the year
indicated and paid in the following year.
47
<PAGE> 48
Stock Option Grants. The following table provides information concerning
the grant of stock options to Mr. Schuster under the Company's 1993 Stock Option
Plan during fiscal 1994. Messrs. Kelly, Gustafson and Corcoran are not eligible
to participate in the 1993 Stock Option Plan. No stock appreciation rights
("SARs") have been granted under the 1993 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION
OPTIONS EMPLOYEES EXERCISE OR TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------
NAME (#)(1) YEAR ($/SHARE)(2) DATE 5%($) 10%($)
- ----------------------------- ---------- ---------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Schuster.......... 22,850 5.7% 5.0625 05/27/04 72,749 184,361
</TABLE>
- -------------------------
(1) This grant provided that one-third of the options would become exercisable
on the first anniversary of the date of grant and an additional one-third of
the options would become exercisable on the second and third anniversaries,
respectively, of the date of grant, subject to the acceleration of
exercisability upon the occurrence of certain events. Such an acceleration
event occurred in November 1994.
(2) Exercise price is equal to the market value of the Common Stock on the grant
date, calculated as the average of the closing bid and asked prices on such
date as reported on the National Association of Securities Dealers Automated
Quotation System.
(3) The potential realizable value is based on the term of the option at the
date of grant (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 option is exercised and sold on
the last day of the 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 of the Common
Stock and overall stock market conditions. There can be no assurance that
the amounts reflected in this table will be achieved.
Stock Option Exercises and Holdings. The following table provides
information concerning the exercise of options by Mr. Schuster during the last
fiscal year and the value of unexercised options held as of December 29, 1994.
Messrs. Kelly, Gustafson and Corcoran are not eligible to participate in the
1993 Stock Option Plan. No SARs have been granted under the 1993 Stock Option
Plan.
AGGREGATED OPTION EXERCISES IN 1994 AND DECEMBER 29, 1994 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
SHARES UNEXERCISED UNEXERCISED
ACQUIRED OPTIONS AT OPTIONS AT
ON VALUE 12/29/94(#) 12/29/94($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE(1) UNEXERCISABLE
- --------------------------------------------- -------- -------- ---------------- -------------
<S> <C> <C> <C> <C>
Stephen M. Schuster.......................... -- -- -0-/22,850 -0-/-0-
</TABLE>
- -------------------------
(1) The grant of these options provided that one-third of the options would
become exercisable on the first anniversary of the date of grant and an
additional one-third of the options would become exercisable on the second
and third anniversaries, respectively, of the date of grant, subject to the
acceleration of exercisability upon the occurrence of certain events. Such
an acceleration event occurred in November 1994. Upon approval of the 1993
Stock Option Plan by the stockholders of the Company in May 1995, these
options became exercisable.
48
<PAGE> 49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DPK currently provides corporate management services to the Company under
the Amended Management Services Agreement. The initial term of the Amended
Management Services Agreement expires December 31, 1995. After the initial term,
the Amended Management Services Agreement extends for successive one-year
periods unless otherwise canceled upon one year's prior notice. The Amended
Management Services Agreement may be terminated at any time by the Company with
a severance payment equal to 12 months' compensation thereunder. The Amended
Management Services Agreement provides for the payment of $2,000,000, payable in
management fees and salaries, the reimbursement of expenses and the payment of
an annual bonus of up to $1,000,000 tied to the Company's earnings in comparison
to the projections set forth in the disclosure statement relating to the Plan of
Reorganization. No bonus was earned in either fiscal 1994 or 1993. For each of
fiscal 1994, 1993 and 1992, the Company paid DPK $770,000 for management
services. In each of these years, Messrs. Kelly, Gustafson and Corcoran,
executive officers and limited partners in DPK, received directly from the
Company combined annual salaries of $1,230,000 as executive officers of the
Company.
In fiscal 1994, 1993 and 1992, the Company made payments of $560,000,
$354,000 and $681,000, respectively, to an affiliate of DPK for the use of a jet
aircraft on an as-needed basis. The usage charge is based upon an hourly rate
comparable to that which would be charged by a non-affiliated company for use of
a chartered corporate aircraft. During fiscal 1994, 1993 and 1992, the Company
purchased products (principally chemicals used in the production process and
packaging materials sold to customers in the poultry industry) in the ordinary
course from affiliates of DPK in the amounts of $1,367,000, $941,000 and
$285,000, respectively. During fiscal 1994, 1993 and 1992, the Company sublet
office space from DPK for which it paid $151,000, $150,000 and $150,000,
respectively, in rent. The rent is comparable to that which would be charged to
a non-affiliated company for use of this office space.
In connection with the litigation described under "Business -- Legal
Proceedings -- Indemnification Claims," DPK and Mr. Kelly have asserted common
law and contractual rights of indemnity against the Company for attorneys' fees,
costs and any ultimate liability relating to the claims set forth in the
complaints. During fiscal 1994, the Company advanced a total of $118,000 to DPK
and Mr. Kelly with respect to the defense costs in the bankruptcy court
proceeding described therein, based upon DPK's undertaking to repay such funds
in the event it is ultimately determined that DPK is not entitled to
indemnification.
In fiscal 1994 and 1993, Viskase had sales of $14,779,000 and $13,030,000,
respectively, to Cargill, Inc. and its affiliates. Such sales were made in the
ordinary course and on arm's-length terms. Cargill Financial Services
Corporation is the beneficial owner of 10.1% of the Company's outstanding Common
Stock, and Gregory R. Page, President of Worldwide Beef Operations of Cargill,
Inc., is a director of the Company.
SECURITY OWNERSHIP
The following table and notes set forth as of August 15, 1995 the
beneficial ownership, as defined by the regulations of the Commission, of Common
Stock held by (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 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
49
<PAGE> 50
upon ownership filings made by such persons with the Commission or upon
information provided by such persons to the Company.
<TABLE>
<CAPTION>
AMOUNT OF NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- --------------------------------------------------------- ------------------- --------
<S> <C> <C>
Zapata Corporation....................................... 4,189,298(1) 31.0%
P.O. Box 4240
Houston, Texas 77210
Malcolm I. Glazer........................................ 4,191,298(2) 31.0%
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Donald P. Kelly.......................................... 1,760,665(3)(4) 12.9%
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Cargill Financial Services Corporation................... 1,363,343(5) 10.1%
6000 Clearwater Drive
Minnetonka, Minnesota 55343
James D. Bennett......................................... 1,347,156(6) 10.0%
Restructuring Capital Associates, L.P.
450 Park Avenue
New York, New York 10022
Bennett Restructuring Fund, L.P. ........................ 1,087,893 8.0%
450 Park Avenue
New York, New York 10022
F. Edward Gustafson...................................... 1,080,066(4)(7) 8.0%
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
J. S. Corcoran........................................... 1,007,752(4)(8) 7.5%
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Volk Enterprises, Inc. .................................. 939,190 6.9%
1230-1232 South Avenue
Turlock, California 95380
American Express Financial Corporation................... 818,006(9) 6.1%
IDS Tower 10
Minneapolis, Minnesota 55440
Robert N. Dangremond..................................... 4,000 *
Avram A. Glazer.......................................... 2,000 *
Michael E. Heisley....................................... 2,000 *
Gregory R. Page.......................................... 4,000 *
Stephen M. Schuster...................................... 39,944(10) *
Mark D. Senkpiel......................................... 4,000 *
All directors and executive officers of the Company
as a group (11 persons)................................ 6,106,767(2)(3)(4)
(7)(8)(10)(11) 44.6%
</TABLE>
- -------------------------
* Less than 1%
(1) On August 7, 1995 Zapata Corporation ("Zapata") acquired 4,189,298 shares
from The Malcolm I. Glazer Trust (the "Glazer Trust") in a private
transaction. Mr. Malcolm I. Glazer is the sole trustee,
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<PAGE> 51
and during his lifetime, the sole beneficiary of the Glazer Trust. Mr.
Malcolm I. Glazer is Chairman of Zapata's Board of Directors and Avram A.
Glazer is the Chief Executive Officer and a director of Zapata.
(2) The ownership indicated includes 4,189,298 shares owned by Zapata and 2,000
currently exercisable options to purchase shares of Common Stock granted to
Mr. Glazer as a non-employee director of the Company. Mr. Glazer may be
deemed to be a beneficial owner of the shares held by Zapata because Mr.
Glazer beneficially owns approximately 35.3% of the outstanding common
stock of Zapata and is the Chairman of the Board of Zapata. Mr. Glazer
disclaims beneficial ownership of such shares.
(3) The ownership indicated includes 181,266 shares owned by Mr. Kelly directly
and 462,012 shares owned by 701 Partners L.P., an Illinois limited
partnership of which Mr. Kelly is the general partner. The address of 701
Partners L.P. is 701 Harger Road, Suite 190, Oak Brook, Illinois 60521. 701
Partners also owns 111,658 warrants ("Warrants") to purchase Common Stock
at an exercise price of $17.25 per share, which are assumed to have been
exercised for purposes of disclosing the ownership indicated.
(4) The ownership indicated includes 62,434 shares owned by D.P. Kelly &
Associates, L.P. ("DPK") of which Messrs. Corcoran, Gustafson and Kelly are
principals and officers. The general partner of DPK is C&G Management
Company, Inc. ("C&G Management"), which is owned by Messrs. Corcoran,
Gustafson and Kelly. The address of DPK and C&G Management is 701 Harger
Road, Suite 190, Oak Brook, Illinois 60521. DPK also owns 4,105 Warrants,
which are assumed to have been exercised for purposes of disclosing the
ownership indicated. The ownership indicated includes 939,190 shares owned
by Volk Enterprises, Inc. ("Volk"), whose address is 1230-1232 South
Avenue, Turlock, California 95380. Volk is controlled by Volk Holdings L.P.
("Volk Holdings"), whose general partner is Wexford Partners I L.P.
("Wexford Partners"). The general partner of Wexford Partners is Wexford
Corporation ("Wexford Corp."), which is owned by Messrs. Corcoran,
Gustafson and Kelly. The address for each of Volk Holdings, Wexford
Partners and Wexford Corp. is 701 Harger Road, Suite 190, Oak Brook,
Illinois 60521.
(5) The ownership indicated includes 931,678 shares owned by Cargill Financial
Services Corporation ("CFSC"), 318,053 shares owned by Minnetonka Limited
Fund, L.P. ("MLFLP") and 113,612 shares owned by GAM-CARGILL Minnetonka
Fund Inc. ("GAM"). A subsidiary of CFSC acts as the general partner of
MLFLP and as the investment advisor to GAM.
(6) The ownership indicated includes 1,087,893 shares owned by Bennett
Restructuring Fund, L.P., whose address is 450 Park Avenue, New York, New
York 10022, 101,913 shares held by a managed account over which Mr. Bennett
and Restructuring Capital Associates, L.P. ("RCA") have investment
discretion and 157,350 shares held by Bennett Offshore Restructuring Fund,
Inc. ("Bennett Offshore"). RCA is the general partner of Bennett
Restructuring Fund, L.P. The general partner of RCA is Bennett Capital
Corporation, of which Mr. Bennett is the sole shareholder. Mr. Bennett is
also the President and controlling shareholder of Bennett Offshore
Investment Corporation, an entity that is the investment manager for
Bennett Offshore.
(7) The ownership indicated includes 39,224 shares owned directly by Mr.
Gustafson and 23,619 shares owned by Mr. Gustafson's spouse. Mr. Gustafson
also owns 11,494 Warrants, which are assumed to have been exercised for
purposes of disclosing the ownership indicated.
(8) The ownership indicated includes 1,367 shares owned directly by Mr.
Corcoran. Mr. Corcoran also owns 656 Warrants, which are assumed to have
been exercised for purposes of disclosing the ownership indicated.
(9) American Express Company ("American Express"), whose address is American
Express Tower, World Financial Center, New York, New York 10285, is the
parent of American Express Financial Corporation ("Financial") and may
therefore be deemed to be the beneficial owner of securities owned by
Financial. American Express disclaims ownership of the Common Stock owned
by Financial. The ownership indicated includes 727,116 shares owned by IDS
Extra Income Fund, Inc., whose address is IDS Tower 10, Minneapolis,
Minnesota 55440. IDS Extra Income Fund, Inc. is advised by Financial.
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<PAGE> 52
(10) The ownership indicated includes 15,094 shares owned directly by Mr.
Schuster and 2,000 shares owned by Mr. Schuster's spouse. Mr. Schuster has
been granted 22,850 options under the Company's 1993 Stock Option Plan, all
of which are currently exercisable.
(11) The ownership indicated includes currently exercisable options to purchase
an aggregate of 12,000 shares of Common Stock held by the non-employee
directors of the Company.
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<PAGE> 53
DESCRIPTION OF NOTES
GENERAL
The Old Notes have been, and the New Notes will be, issued pursuant to an
indenture (the "Indenture") dated as of June 20, 1995 between the Company and
Shawmut Bank Connecticut, National Association, as trustee (the "Trustee"). The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect on the date of the Indenture. The following
summary of certain provisions of the Indenture does not purport to be complete
and is qualified in its entirety by reference to the Indenture. The definitions
of certain terms used in the Indenture and in the following summary are set
forth below under "-- Certain Definitions." Capitalized terms used herein,
unless otherwise defined, have the meanings given them in the Indenture.
RANKING
The Notes are senior secured obligations of Envirodyne, which rank senior
to all senior unsecured and subordinated indebtedness of Envirodyne
(approximately $223.6 million of which was outstanding at June 29, 1995). The
Notes rank pari passu with all other existing senior secured indebtedness
secured by the Collateral ($4 million at June 29, 1995) and any permitted senior
secured indebtedness of Envirodyne other than the indebtedness under the Letter
of Credit Facility (which may not exceed $28 million in principal amount). The
permitted senior secured indebtedness includes indebtedness of Envirodyne's
subsidiaries in the amount of approximately $161.4 million which is secured by
assets other than those in the Collateral.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount at any time to
$160,000,000. The stated maturity of the Notes is June 15, 2000. The New Series
B Notes (to be exchanged for outstanding Old Series A Notes) will be limited in
aggregate principal amount to $151,500,000, and the New Series D Notes (to be
exchanged for outstanding Old Series C Notes) will be limited in aggregate
principal amount to $8,500,000.
The Old Series A Notes and New Series B Notes will bear interest at the
rate of 12% per annum, and the Old Series C Notes and New Series D Notes will
bear interest at the LIBOR Rate. Interest on the Securities will accrue from
June 20, 1995, or from the most recent date on which interest has been paid or
duly provided for, and be payable on December 15 and June 15 of each year,
commencing December 15, 1995. The Company will pay interest on overdue principal
at the Default Rate. In addition, the Company will pay interest on overdue
installments of interest and on overdue payments of the Yield Maintenance Amount
at the Default Rate.
FORM OF NOTES
Upon issuance, except as provided below, each series of Notes will be
represented by a Global Note. Each Global Note will be deposited with, or on
behalf of, the Depository and registered in the name of Cede & Co. as nominee of
the Depository. Notwithstanding the foregoing, any purchaser that is not a
"Qualified Institutional Buyer" under Rule 144A under the Securities Act will
receive the Notes in certificated form and will not be able to trade such
securities through the Depository until the Notes are sold to a Qualified
Institutional Buyer. If (i) the Depository is at any time unwilling or unable to
continue as Depository and a successor depositary is not appointed by the
Company within 90 days or (ii) an Event of Default has occurred and is
continuing under the Indenture, then upon surrender of each Global Note, Notes
in certificated form will be issued to each such person that the Depository or
its nominee identifies as the beneficial owner of the related Notes. In
addition, subject to certain conditions, any person having a beneficial interest
in any Global Note may, upon request to the Trustee, exchange that beneficial
interest for Notes in certificated form. Upon any such issuance, the Trustee is
required to register such Notes in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof) in fully
registered form. To the extent Notes in definitive form are issued, such Notes
will be issued in denominations of $1,000 and integral multiples thereof. Notes
in certificated form were issued to certain persons at the closing of the sale
of the Old Notes.
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<PAGE> 54
Upon the issuance of each Global Note, the Depository will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by each Global Note to the accounts of institutions that
have accounts with the Depository ("Participants"). Ownership of beneficial
interests in each Global Note will be limited to Participants or persons that
hold interests through Participants. Ownership of beneficial interests in each
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depository with respect to
Participants' interests or by Participants or by persons that hold through
Participants with respect to beneficial owners' interests. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Those ownership limits and laws may impair
the ability to transfer beneficial interests in each Global Note.
Principal and interest payments on Notes registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the Global Note representing such Notes.
The Company expects that the Depository, upon receipt of any payment of
principal or interest in respect of a Global Note, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depository. The Company also expects that payments
by Participants to owners of beneficial interests in each Global Note held
through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of those Participants. None of the Company, the Trustee, any
paying agent or any registrar for the Notes will have any responsibility or
liability for any aspect of the records relating to or payment made on account
of beneficial ownership interests in each Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Depository Trust Company, New York, New York (the "Depository" or
"DTC"), will be the initial Depository with respect to the Notes. DTC has
advised the Company that it is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities of its Participants and to
facilitate the clearance and settlement of securities transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical movement
of securities certificates. DTC's Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by DTC only through
Participants.
So long as the Depository, or its nominee, is a holder of the Global Note,
the Depository or its nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture and such Global Note. Except as set forth above, owners of
beneficial interests in such Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Notes or such Global Note and will
not be considered the owners or holders thereof under the Indenture or such
Global Note. Accordingly, each person owning a beneficial interest in a Global
Note must rely on the procedures of the Depository and, if such person is not a
Participant, on the procedures of the Participant through which such person
directly or indirectly owns its interest, to exercise any rights of a holder
under the Indenture or each Global Note.
DTC has informed the Company that under existing DTC policies and industry
practices, if the Company requests any action of holders, or if any owner of a
beneficial interest in a Global Note desires to give any notice or take any
action that a holder is entitled to give or take under the Indenture or a Global
Note, DTC would authorize and cooperate with each Participant to whose account
any portion of the Notes represented by a Global Note is credited on DTC's books
and records to give such notice or take such action. Any person owning a
beneficial interest in such Global Note that is not a Participant must rely on
any contractual
54
<PAGE> 55
arrangements it has directly, or indirectly through its immediate financial
intermediary, with a Participant to give such notice or take such action.
GUARANTEES
The Company's obligations under the Notes will be guaranteed on a secured
basis by each Subsidiary Guarantor. The guarantees of the Notes by each
Subsidiary Guarantor (the "Guarantees") will rank pari passu in right of payment
with the guarantee by such guarantor of all obligations under the Revolving
Credit Agreement and will rank junior in right of payment with the guarantee by
such guarantor of all obligations under the Letter of Credit Agreement. In
addition, the intercreditor arrangements restrict the ability of the holders of
the Notes to exercise collateral rights or remedies without the consent of the
lenders under the Revolving Credit Facility and the Letter of Credit Facility.
The Guaranty Agreement provides that in the event of a sale or disposition
of a Subsidiary Guarantor (or all or substantially all of its assets) to an
entity which is not a Subsidiary of the Company, such Subsidiary Guarantor shall
be released and relieved of its obligations under the Guarantee; provided that
such sale or disposition is otherwise in compliance with the terms of the
Indenture.
COLLATERAL AND SECURITY
Pursuant to the Collateral Documents, the Company and the Subsidiary
Guarantors have pledged to the Collateral Agent, for its benefit and the benefit
of the Holders of the Notes, the holders of obligations under the Revolving
Credit Agreement and the Letter of Credit Agreement, each of the following
assets of the Company and the Subsidiary Guarantors: (a) substantially all
domestic fixed assets (other than assets subject to the GECC Lease Documents),
(b) all domestic accounts receivable, (c) all items of equipment and fixtures,
(d) all inventory, (e) all patents, trademarks and other intellectual property
(subject to non-exclusive licensing agreements), (f) all capital stock of the
Company's Significant Domestic Subsidiaries and 65% of the capital stock of
Viskase, S.A., and (g) all proceeds of the foregoing.
The Holders of the Notes will share any proceeds of the foregoing
collateral on a pari passu basis with the holders of obligations under the
Revolving Credit Agreement pursuant to an intercreditor agreement. Pursuant to
such intercreditor agreement, the holders of obligations under the Letter of
Credit Agreement (which may not exceed $28 million in principal amount) will
have priority over all other liens on such collateral. See "Description of
Intercreditor Arrangements."
No appraisals of any of the Collateral have been prepared by or on behalf
of the Company or in connection with the sale of the New Notes. However, the net
book value of assets included in the Collateral as of June 29, 1995 was
approximately $400 million. There can be no assurance that the proceeds of any
sale of the Collateral in whole pursuant to the Indenture and the Collateral
Documents following an Event of Default would be sufficient to satisfy payments
due on the Notes. In addition, the ability of the Holders of Notes to realize
upon the Collateral may be subject to certain Bankruptcy Law limitations in the
event of a bankruptcy. See "-- Certain Bankruptcy Limitations."
The release of any Collateral from the terms of the Collateral Documents
will not be deemed to impair the security under the Indenture in contravention
of the provisions thereof if and to the extent the Collateral is released
pursuant to the Collateral Documents. In connection with the release of
Collateral, the Trustee shall determine whether it has received all
documentation required by Section 314(d) of the Trust Indenture Act to permit
such release.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent, as agent for the holders of the
Consolidated Secured Debt (including the Notes), to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the Company or a Subsidiary Guarantor prior
to the Collateral Agent having repossessed and disposed of the Collateral. Under
Bankruptcy Law, secured creditors such as the holders of the Consolidated
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<PAGE> 56
Secured Debt are prohibited from repossessing their security from a debtor in a
bankruptcy case, or potentially from disposing of security repossessed from such
debtor, without bankruptcy court approval. Moreover, Bankruptcy Law permits the
debtor to continue to retain and to use collateral even though the debtor is in
default under the applicable debt instruments; provided that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances, but it is generally construed
to protect the value of the secured creditor's interest in the collateral as of
the date of the commencement of the bankruptcy proceeding and may include
interim cash payments or the granting of replacement liens, if and at such times
as the court in its discretion determines, for any diminution in the value of
the collateral as a result of the stay or any use or other disposition of the
collateral by the debtor during the pendency of the bankruptcy case. In view of
the lack of a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Notes could be delayed following commencement of a bankruptcy
case, whether or when the Collateral Agent could vacate the automatic stay and
ultimately repossess or dispose of the Collateral or whether or to what extent
Holders of the Notes would be compensated for any diminution in the value of the
Collateral during the bankruptcy proceeding through the requirement of "adequate
protection."
MANDATORY REDEMPTION
The Company is required to redeem, on June 15, 1999 (the "Mandatory
Redemption Date"), Securities in the principal amount of $80,000,000 (or, if
less, the aggregate principal amount of all Securities then outstanding) at a
price (the "Mandatory Redemption Price") equal to 100% of the principal amount
thereof plus accrued and unpaid interest to the Mandatory Redemption Date. The
Mandatory Redemption Price will be due and payable on June 15, 1999.
OPTIONAL REDEMPTION
The Company may redeem (an "Optional Redemption") all or any portion of the
Securities at any time after the Effective Date at a price (the "Optional
Redemption Price") equal to 100% of the principal amount thereof, plus accrued
and unpaid interest to the Optional Redemption Date and plus the
Yield-Maintenance Amount, if any, with respect to the Securities to be so
redeemed.
If less than all of the outstanding Securities are to be redeemed, the
principal amount so redeemed will be allocated to all Securities at the time
outstanding in proportion to the respective outstanding principal amounts
thereof. In any proration, the Company will, in good faith, make such
adjustments, reallocations and eliminations as shall be necessary to the end
that the principal amount of Securities so prorated shall be $1,000 or a
multiple thereof, by increasing or decreasing or eliminating the amount which
would be allocable to any Holder on the basis of exact proportion by an amount
not exceeding $1,000.
At least 30 but not more than 60 days before a date fixed for redemption,
the Company will give a notice of redemption to each Holder whose Securities are
to be redeemed.
The notice shall identify the Securities to be redeemed and will state,
among other things, (a) the aggregate principal amount to be redeemed, the
amount of accrued interest, if any, thereon to be paid and whether a
Yield-Maintenance Amount is to be paid; and (b) if any Security is being
redeemed in part, the portion of the principal amount (equal to $1,000 or any
integral multiple thereof) of such Security to be redeemed and that, on or after
the date fixed for redemption, upon surrender of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion thereof will
be issued. On and after any redemption date, interest will cease to accrue on
the Notes or part thereof called redemption as long as the Company has deposited
with the paying agent funds in satisfaction of the redemption price pursuant to
the Indenture.
OFFERS TO PURCHASE FOLLOWING CHANGE OF CONTROL AND EXCESS CASH FLOW.
Upon the occurrence of a Change of Control, each Holder of a Security shall
have the right to have such Security repurchased by the Company on the terms and
conditions precedent set forth in the Indenture. The Company shall, within 25
days following the date of the consummation of a transaction resulting in a
Change
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<PAGE> 57
of Control, mail an offer with respect to an offer to purchase all outstanding
Securities at a purchase price equal to 100% of the outstanding principal amount
thereof together with interest thereon to the date of purchase and the
Yield-Maintenance Amount with respect thereto; provided, however, that
installments of interest whose Stated Maturity is on or prior to the purchase
date shall be payable to the Holders of such Securities, registered as such at
the close of business on the relevant record dates according to the terms of the
Securities. Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the offer to purchase. The Company
shall cause the purchase date to be not less than five (5) Business Days prior
to the "Purchase Date" (as such term is defined in the 10.25% Notes Indenture)
and any other purchase date that may arise with respect to the repurchase or
repayment of any debt instruments following a Change of Control or other change
in control, other than debt instruments constituting Consolidated Senior Debt.
In the event that the Company has Excess Cash Flow in excess of $5,000,000
in any fiscal year of the Company, beginning with the fiscal year of the Company
ending in December 1995, the Company shall make an offer to purchase Securities
having an aggregate outstanding principal amount equal to the Excess CF Amount
relating to such Excess Cash Flow in such fiscal year, and, no later than April
15 of the year immediately following such fiscal year of the Company in which
Excess Cash Flow exceeds $5,000,000, mail an offer to each Holder to purchase
such outstanding principal amount of Securities at a purchase price equal to
100% of the outstanding principal amount thereof together with interest accrued
thereon to the purchase date therefor; provided, however, that installments of
interest whose Stated Maturity is on or prior to such purchase date shall be
payable to the Holders of such Securities, registered as such at the close of
business on the relevant record dates according to the terms of the Securities;
provided, further, that no such offer shall be made if, at the time of mailing
such offer, a Default or an Event of Default exists or would exist after giving
effect to the transactions contemplated by such offer (assuming such offer were
fully subscribed); provided, still further, that the Company, at its option, may
reduce the principal amount of Securities it must purchase by the principal
amount of Securities acquired by the Company in the open market prior to the
purchase date applicable to such purchase if (i) such previously acquired
Securities are retired prior to such purchase date, (ii) no such previously
acquired Security has theretofore been used as a credit by the Company or
otherwise to satisfy any obligations of the Company (including, without
limitation, the obligation of the Company pursuant to this covenant), and (iii)
the Company delivers an officers' certificate to the Trustee and each Holder to
the effect set forth in clauses (i) and (ii) above not less than ten (10)
Business Days prior to the applicable purchase date. To the extent that an offer
to purchase is not fully subscribed, the Company may retain the unutilized
amount of such Excess CF Amount for general corporate purposes in accordance
with the terms of the Indenture. To the extent that an offer to purchase is
over-subscribed, the principal amount of the Securities to be purchased shall be
allocated on a pro rata basis in proportion to the relative principal amounts as
to which the offer was accepted, and in connection with such proration the
Company shall, in good faith, make such adjustments, reallocations and
eliminations as shall be necessary to maintain the Securities in integral
multiples of $1,000.
On the purchase date in each of the foregoing offers, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
offer, (ii) deposit with the paying agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust) money sufficient to pay the
purchase price of all Securities or portions thereof so accepted and (iii)
deliver or cause to be delivered to the Trustee all Securities so accepted
together with an officers' certificate stating the Securities or portions
thereof accepted for payment by the Company. The paying agent shall promptly
mail or deliver to Holders of Securities so accepted payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security or Securities equal in principal amount
to any unpurchased portion of the Security surrendered as requested by the
Holder. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the offer to purchase on or as soon as practicable after
the purchase date.
Prior to the time required for the mailing of an offer with respect to the
foregoing, the Company will in good faith (i) seek to obtain any required
consent under the GECC Lease Documents so as to permit the making of the offer
to purchase and the purchase of Securities, or (ii) repay all or a portion of
the
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<PAGE> 58
Indebtedness under the GECC Lease Documents to the extent necessary (including,
if necessary payment in full of such Indebtedness and payment of any prepayment
premiums, fees, expenses or penalties) to permit the making of the offer to
purchase and the purchase of Securities without such consent.
If any such offer to purchase is made, the Company covenants that it shall
(and if applicable shall cause its Subsidiaries to) comply with all applicable
tender offer rules and regulations under all state and Federal securities laws,
including, but not limited to, Section 14(e) under the Exchange Act and Rule
14e-1 thereunder.
CERTAIN COVENANTS
Consolidated Tangible Net Worth. The Company covenants that it will not
cause or permit Consolidated Tangible Net Worth, at any time:
(i) During each "Clause (i) Test Period" (as defined below) occurring
during the period commencing on the Effective Date and ending on December
28, 1995, to be less than an amount (the "Clause (i) Amount") equal to (1)
negative $37,000,000, plus (2) 50% of Consolidated Net Income for such
Clause (i) Test Period (or zero in the case of a deficit), plus (3) the
amount of any net gain realized by the Company or any of its Subsidiaries
on the exchange, redemption, purchase or other acquisition of any of its
debt securities (including, without limitation, the 10.25% Notes) during
such Clause (i) Test Period; where "Clause (i) Test Period" means, at any
time, the period (taken as one accounting period) commencing on March 31,
1995 and ending on the then most recently ended fiscal quarter of the
Company;
(ii) During each "Clause (ii) Test Period" (as defined below)
occurring during the period commencing on December 29, 1995 and ending on
December 26, 1996, to be less than an amount (the "Clause (ii) Amount")
equal to (1) the greater of (X) the Clause (i) Amount at December 28, 1995,
and (Y) negative $37,000,000, plus (2) 50% of Consolidated Net Income for
such Clause (ii) Test Period (or zero in the case of a deficit), plus (3)
the amount of any net gain realized by the Company or any of its
Subsidiaries on the exchange, redemption, purchase or other acquisition of
any of its debt securities (including, without limitation, the 10.25%
Notes) during such Clause (ii) Test Period; where "Clause (ii) Test Period"
means, at any time, the period (taken as one accounting period) commencing
on December 29, 1995 and ending on the then most recently ended fiscal
quarter of the Company;
(iii) During each "Clause (iii) Test Period" (as defined below)
occurring during the period commencing on December 27, 1996 and ending on
December 25, 1997, to be less than an amount (the "Clause (iii) Amount")
equal to (1) the greater of (X) the Clause (ii) Amount at December 26,
1996, and (Y) negative $37,000,000, plus (2) the greater of (X) 50% of
Consolidated Net Income for such Clause (iii) Test Period (or zero in the
case of a deficit), and (Y) $1,250,000 multiplied by the number of the
Company's fiscal quarters that have ended during such Clause (iii) Test
Period, plus (3) the amount of any net gain realized by the Company or any
of its Subsidiaries on the exchange, redemption, purchase or other
acquisition of any of its debt securities (including, without limitation,
the 10.25% Notes) during such Clause (iii) Test Period; where "Clause (iii)
Test Period" means, at any time, the period (taken as one accounting
period) commencing on December 27, 1996 and ending on the then most
recently ended fiscal quarter of the Company;
(iv) During each "Clause (iv) Test Period" (as defined below)
occurring during the period commencing on December 26, 1997 and ending on
December 31, 1998, to be less than an amount (the "Clause (iv) Amount")
equal to (1) the greater of (X) the Clause (iii) Amount at December 25,
1997, and (Y) negative $37,000,000, plus (2) the greater of (X) 50% of
Consolidated Net Income for such Clause (iv) Test Period (or zero in the
case of a deficit), and (Y) $2,500,000 multiplied by the number of the
Company's fiscal quarters, at the time of determination, that have ended
during such Clause (iv) Test Period, plus (3) the amount of any net gain
realized by the Company or any of its Subsidiaries on the exchange,
redemption, purchase or other acquisition of any of its debt securities
(including, without limitation, the 10.25% Notes) during such Clause (iv)
Test Period; where "Clause (iv) Test Period"
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means, at any time, the period (taken as one accounting period) commencing
on December 26, 1997 and ending on the then most recently ended fiscal
quarter of the Company; and
(v) During each "Clause (v) Test Period" (as defined below) occurring
after January 1, 1999 and thereafter, to be less than an amount equal to
(1) the greater of (X) the Clause (iv) Amount at December 31, 1998, and (Y)
negative $37,000,000, plus (2) 50% of Consolidated Net Income for such
Clause (v) Test Period (or zero in the case of a deficit), plus (3) the
amount of any net gain realized by the Company or any of its Subsidiaries
on the exchange, redemption, purchase or other acquisition of any of its
debt securities (including, without limitation, the 10.25% Notes) during
such Clause (v) Test Period; where "Clause (v) Test Period" means, at any
time, the period (taken as one accounting period) commencing on January 1,
1999 and ending on the then most recently ended fiscal quarter of the
Company.
Fixed Charge Coverage Ratio. The Company covenants that it will not cause
or permit the ratio of (i) Consolidated Cash Flow for the twelve month period
ending at the end of any fiscal quarter of the Company to (ii) Consolidated
Fixed Charges for each such twelve month period to be less than the ratio set
forth below for the period set forth below in which such fiscal quarter ends:
<TABLE>
<CAPTION>
RATIO PERIOD
- ------ ----------------------------------------------
<S> <C>
1.45:1 Effective Date through December 28, 1995
1.50:1 December 29, 1995 through December 26, 1996
1.55:1 December 27, 1996 and thereafter.
</TABLE>
Limitation on Restricted Payments and Restricted Investments.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other distribution or payment on or in respect of Capital Stock of the
Company or its Subsidiaries or make any payment to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or its
Subsidiaries, other than dividends, distributions or payments payable or made
solely in shares of Capital Stock in the Company of the same class held by such
holders (other than Redeemable Stock) or in options, warrants or other rights to
purchase such shares; (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock of the Company or any Subsidiary; (iii) make
any principal payment on, or purchase, redeem, repurchase, defease (including,
but not limited to, in-substance or legal defeasance) or otherwise acquire or
retire for value, prior to any stated or scheduled maturity, scheduled repayment
or scheduled sinking fund or mandatory redemption payment, any Restricted Debt
(the foregoing actions, set forth in clauses (i) through (iii) being referred to
as "Restricted Payments"); or (iv) make any Investment (the foregoing action
being referred to as a "Restricted Investment"); unless at the time of, and
immediately after giving effect to (determined on a pro forma basis), such
proposed Restricted Payment or proposed Restricted Investment:
(1) no Default or Event of Default exists or would exist; and
(2) (i) the aggregate amount expended for all Restricted Payments
subsequent to March 30, 1995, plus (ii) the aggregate amount expended for
all Restricted Investments made subsequent to March 30, 1995, does not
exceed the sum of:
(A) 50% (or minus 100% in the event of a deficit) of Consolidated
Net Income calculated on a cumulative basis for the period commencing on
March 31, 1995 and continuing through the last day of the Company's
fiscal quarter immediately preceding the Company's fiscal quarter in
which the Restricted Payment or Restricted Investment, as the case may
be, is proposed to be made; plus
(B) the aggregate net cash proceeds received by the Company (i)
from the issuance or sale (other than to a Subsidiary of the Company),
after the Effective Date, of Capital Stock in the Company (other than
Redeemable Stock), (ii) upon conversion after the Effective Date of any
Debt of the Company that is, by its original terms, convertible into
Capital Stock (other than Redeemable Stock) in the Company (with the
aggregate net cash proceeds being deemed to be the
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<PAGE> 60
principal amount of the Debt so converted), or (iii) from the exercise
for cash after the Effective Date of any options, warrants or other
rights to acquire Capital Stock (other than Redeemable Stock) in the
Company; plus
(C) $10,000,000;
provided, however, that in no event may Restricted Payments made subsequent to
March 30, 1995 exceed the sum of the amounts described in clause (A) and (B)
above plus $5,000,000.
Notwithstanding the foregoing, the following will not be prohibited:
(1)(A) the payment by any Subsidiary of the Company of dividends or
other distributions to the Company or a Wholly Owned Subsidiary of the
Company or the redemption or repurchase by any such Subsidiary of any
Capital Stock in such Subsidiary owned by the Company or a Wholly Owned
Subsidiary of the Company, or (B) the payment of pro rata dividends to
holders of minority interests in the Capital Stock in a Subsidiary of the
Company; provided, however, that, in the case of clause (B) no Default or
Event or Default has occurred and is continuing or would occur as a result
thereof;
(2)(A) consummation of the 10.25% Notes Exchange, so long as no
Default or Event of Default has occurred and is continuing or would occur
as a result thereof; and (B) consummation of the exchange of Series B
Securities for Series A Securities, and Series D Securities for Series C
Securities, as contemplated by the Registration Rights Agreement and (C)
consummation of an exchange of Subsequent Second Priority Notes solely for
Second Priority Notes;
(3) certain approved Investments in the amounts existing on the
Effective Date;
(4) Investments by the Company in Wholly Owned Subsidiaries of the
Company having lines of business that are substantially similar or
materially related to the Company's lines of business existing on the
Effective Date, so long as no Default or Event of Default has occurred and
is continuing or would occur as a result thereof;
(5) Investments in Cash Equivalents;
(6) the acquisition, redemption or retirement of Capital Stock in the
Company solely in exchange for (A) Capital Stock in the Company of the same
class as the Capital Stock that is being acquired, redeemed or retired or
(B) Common Stock of the Company; and
(7) the acquisition, redemption or retirement of Debt of the Company
or its Subsidiaries (A) which is subordinated in right of payment to the
Securities solely in exchange for Common Stock in the Company, or (B) as
part of a refinancing thereof permitted by the Indenture.
Limitation on Indebtedness.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, directly or indirectly permit to exist, create, incur, issue,
assume, guaranty or otherwise become liable with respect to, extend the maturity
of or become responsible for the payment of, any Debt (including, without
limitation, any Acquired Debt) other than:
(i) Debt of the Company evidenced by the Securities;
(ii) Debt of the Company evidenced by the 10.25% Notes;
(iii) Debt of the Company evidenced by the Second Priority Notes and
the Subsequent Second Priority Notes, provided, however, that: (1) the
aggregate principal amount of the Second Priority Notes and the Subsequent
Second Priority Notes do not at any time exceed $50,000,000, (2) such
Second Priority Notes and Subsequent Second Priority Notes have terms
substantially identical to the 10.25% Notes and in any event no less
favorable to the Company than those set forth in the 10.25% Notes and the
10.25% Notes Indenture (provided, however, that the Second Priority Notes
and Subsequent Second Priority Notes may be secured by Liens that are
Permitted Liens described in clause (xi) of the definition of Permitted
Liens and the final maturity thereof may be prior to the final maturity of
the 10.25% Notes,
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<PAGE> 61
subject to clause (3) below), (3) the final maturity of such Second
Priority Notes and Subsequent Second Priority Notes is not prior to June
15, 2000, and (4) without limiting the foregoing clause (3), such Second
Priority Notes and Subsequent Second Priority Notes will not have any
scheduled principal installment or other principal payments due until after
the final maturity of the Securities;
(iv) Debt of the Company under the Revolving Credit Agreement
(including any refinancings thereof), provided, that the aggregate
principal amount of such Debt does not at any time exceed $35,000,000;
(v) Debt of the Company or any of its Subsidiaries under the Letter of
Credit Agreement (and any refinancing thereof), provided the aggregate
amount of such Debt does not exceed $28,000,000 at any time;
(vi) Debt of the Company and certain Subsidiaries of the Company under
the GECC Lease Documents (including any refinancings thereof) in an
aggregate principal amount not to exceed the principal amount thereof
outstanding as of the Effective Date less any scheduled amortization after
the Effective Date of such Indebtedness when actually paid by the Company
or its Subsidiaries; provided, however, that no refinancing of such Debt
under the GECC Lease Documents will be permitted unless: (1) such
refinancing Debt will have an Average Life at the time such refinancing is
incurred that is equal to or greater than the Average Life of the Debt to
be refinanced, (2) such refinancing Debt will be in a principal amount not
in excess of the principal amount of the Debt to be refinanced (including
the amount (if any), up to $10,000,000, by which the Stipulated Loss Value
exceeds the then outstanding principal amount of the Debt to be
refinanced);
(vii) Debt evidenced by guaranties made by the Company's Subsidiaries
of the Debt described in clauses (i), (iii), (iv) and (v) above;
(viii) Debt of the Company or any of its Subsidiaries under Currency
Agreements and Interest Rate Agreements; provided, that such Currency
Agreements and Interest Rate Agreements do not increase the outstanding
Debt of the Company other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(ix) Debt of a Wholly Owned Subsidiary of the Company to the Company
or another Wholly Owned Subsidiary of the Company;
(x) approved Debt of the Company's Subsidiaries existing on the
Effective Date;
(xi) other Debt of a Subsidiary of the Company that directly
refinances any Debt of such Subsidiary described in the immediately
foregoing clause (x); provided, however, that (1) the principal amount of
such refinancing Debt does not exceed the principal amount of the Debt to
be refinanced, (2) the terms of such refinancing Debt are, in all material
respects, no less favorable to such Subsidiary than the terms of the Debt
to be refinanced and (3) without limiting the foregoing clause (2) no
refinancing Debt may be secured to any greater extent than is the Debt to
be refinanced; provided, further, that notwithstanding clause (1) above,
the aggregate principal amount of Debt refinancing existing lines of credit
of the Company's Subsidiaries may equal up to $10,000,000 (or the
applicable foreign currency equivalent thereof reasonably determined by the
Company at the time any such refinancing Debt is incurred);
(xii) Debt of the Company or any of its Subsidiaries (A) resulting
from the endorsement of negotiable instruments for collection in the
ordinary course of business, or (B) arising under guarantees incurred in
the ordinary course of business (and not in connection with the borrowing
of money) with respect to suppliers, licensees, franchisees or customers of
the Company or such Subsidiary;
(xiii) other Debt of the Company and the Company's Subsidiaries
(including, without limitation, Purchase Money Indebtedness and Acquired
Debt); provided, however, that the aggregate outstanding principal amount
thereof will at no time exceed $15,000,000 (or the applicable foreign
currency equivalent thereof reasonably determined by the Company at the
time such Debt is incurred); provided, further, that the aggregate
outstanding amount of Purchase Money Indebtedness to be incurred in
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<PAGE> 62
connection with the purchase of any Property will not exceed 90% of the
cash purchase price to be paid for such Property; and
(xiv) other Debt of the Company (not secured by any Lien);
provided, however, that at no time will (1) Consolidated Senior Debt be more
than 52.5% of Consolidated Total Capitalization, or (2) Consolidated Debt be
more than 85% of Consolidated Total Capitalization.
Limitation on Liens.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including, without
limitation, Capital Stock), whether owned on the Effective Date or thereafter
acquired, other than Permitted Liens.
Limitation on Company Mergers, Consolidations, and Sales.
The Company covenants that it will not merge or consolidate with any other
Person or, directly or indirectly, Transfer, all or substantially all of its
Property in a single transaction or series of related transactions, unless in
any such case:
(i) at the time of, and immediately after giving effect to (determined
on a pro forma basis), such proposed merger, consolidation or Transfer, no
Default or Event of Default exists or would exist after giving effect
thereto;
(ii) in the event that the Company is to consolidate with or merge
into another Person, or to Transfer all or substantially all of its
Property to another Person, such Person will be a corporation organized and
validly existing under the laws of a State of the United States of America
or the District of Columbia and will expressly assume in writing all
obligations of the Company under all credit documents to which the Company
is a party pursuant to such written agreements and instruments as the
Trustee may request (which will include an indenture supplemental to the
Indenture) and which in each case will be in form and substance
satisfactory to the Trustee; and
(iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger or Transfer (and if a supplemental indenture is
required, such supplemental indenture) complies with this covenant and that
all conditions precedent with respect thereto have been completely
satisfied.
Upon any consolidation of the Company with, or merger of the Company with
or into, any other Person or any Transfer of all or substantially all of the
Property of the Company in accordance with this covenant, the entity formed by
or surviving such transaction will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such successor Person had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor Person will be
relieved of all obligations and covenants under the Indenture and the
Securities.
Limitation on Certain Asset Sales and Subsidiary Mergers.
The Company covenants that (i) it will not, and will not permit any of its
Subsidiaries to, directly or indirectly Transfer any of its Property, and (ii)
the Company will not permit any of its Subsidiaries to merge or consolidate with
any other Person except:
(a) any Wholly Owned Subsidiary of the Company may merge with, or sell
all or substantially all of its Property to, the Company or another Wholly
Owned Subsidiary of the Company if at the time of and immediately after
giving effect to (determined on a pro forma basis) such proposed
transaction no Default or Event of Default exists or would exist after
giving effect thereto;
(b) the Company may Transfer assets (excluding Capital Stock of a
Material Subsidiary) to the extent permitted under the "Limitation on
Company Mergers, Consolidation, and Sales" covenant;
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<PAGE> 63
(c) the Company or any such Subsidiary may sell inventory in the
ordinary course of business and equipment that is determined to be obsolete
in accordance with GAAP or concurrently replaced by equipment (not subject
to any Lien other than Permitted Liens) of the same type having a fair
market value at least equal to the fair market value of the equipment so
replaced;
(d) the Company or any such Subsidiary (subject to clause (f) below)
may otherwise Transfer Property (excluding Capital Stock of a Material
Subsidiary), and any such Subsidiary (subject to clause (f) below) may
consummate a Transfer by Merger; provided that after giving effect thereto
(1) the Percentage of Total Assets Transferred in any fiscal year of the
Company (excluding assets described in clauses (a) and (c) above) will not
exceed 10%; and (2) the Percentage of Total Assets Transferred (excluding
assets described in clauses (a) and (c) above) at any time after the
Effective Date on a cumulative basis will not exceed 15%; and
(e) the Company or any Subsidiary of the Company (subject to clause
(f) below) may Transfer other Property (not constituting Capital Stock of
any Material Subsidiary), and any Subsidiary of the Company (subject to
clause (f) below) may consummate other Transfers by Merger if:
(1) at the time of and immediately after giving effect to
(determined on a pro forma basis) such proposed Transfer of Property or
Transfer by Merger (as the case may be) no Default or Event of Default
exists or would exist;
(2) the consideration to be paid to the Company or such Subsidiary
(as the case may be) is at least equal to the fair market value of the
assets to be Transferred (or, in the case of a Transfer by Merger, the
fair market value of the Subsidiary subject thereto), in each case as
reasonably determined by the Board of Directors; and
(3) the proceeds from such Transfer of Property or Transfer by
Merger (net of (X) reasonable expenses incurred by the Company or the
Subsidiary (as the case may be) incidental thereto, (Y) the amount of
any taxes (reasonably determined by the Company in good faith) owing by
the Company or such Subsidiary (as the case may be) as a result thereof,
and (Z) any mandatory repayment of permitted Debt (if any) secured by a
Permitted Lien on the Property being Transferred that is prior to the
Lien securing the Consolidated Secured Debt) are immediately applied to
redeem the Securities and otherwise repay the other Consolidated Secured
Debt outstanding at such time, such application of proceeds to be made
pro rata to the holders of the Consolidated Secured Debt based on the
then outstanding principal amount of each such holder's holding of
Consolidated Secured Debt (or, in the case of the Lender, the Revolving
Loan Commitment) in proportion to the aggregate amount of Consolidated
Secured Debt then outstanding (or, in the case of the Lender, the
Revolving Loan Commitment); provided, however, that such redemption or
repayment pursuant to this clause (3) will be deferred until the amount
of proceeds to be so redeemed and otherwise repaid equals or exceeds
$5,000,000, with any such lesser amounts not used for redemption or
repayment to be aggregated with proceeds subsequently received from
Transfers to be utilized for redemption or repayment at such point as
such aggregate amount equals or exceeds $5,000,000.
The Company will make each redemption required under clause (e)(3)
above on a date (the "Transfer Redemption Date") which is the first
Business Day next following the 30th day after the date of the Transfer or
Transfer by Merger giving rise thereto (such date of Transfer or Merger by
Transfer, the "Transfer Date"). If less than all of the outstanding
Securities are to be redeemed under clause (e)(3) above, the principal
amount so redeemed will be allocated to all Securities at the time
outstanding in proportion to the respective outstanding principal amounts
thereof. The redemption price for each Security (or portion thereof)
redeemed under clause (e)(3) above (the "Transfer Redemption Price") will
equal 100% of the principal amount thereof plus the Yield-Maintenance
Amount, if any, with respect thereto. The Company will give written notice
on the Transfer Date of such redemption to the Trustee and all Holders.
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(f) Notwithstanding anything to the contrary, the Company will not
permit any Material Subsidiary, directly or indirectly, to Transfer all or
substantially all of its assets in a single transaction or series of
related transactions or merge or consolidate with any Person other than as
permitted under clause (a) above.
Limitation on Payment Restrictions Affecting Subsidiaries.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction which by its terms
expressly restricts the ability of any Subsidiary of the Company to: (a) pay
dividends or make any other distributions on the Capital Stock in such
Subsidiary or any other interest or participation in, or measured by, its
profits owned by, or pay any Debt owed to, the Company or any such Subsidiary,
(b) make any loans or advances to the Company or any such Subsidiary or (c)
transfer any of its Property to the Company or to any such Subsidiary, except
for (i) such encumbrances or restrictions existing under or by reason of any
encumbrance or restriction existing by reason of applicable law; (ii) such
encumbrances or restrictions existing and approved on the Effective Date; (iii)
such encumbrances or restrictions as may exist under refinancing Debt permitted
under the Indenture; provided, however, that any such encumbrances or
restrictions are, in no material respect, any more onerous to the Company or
such Subsidiary than the encumbrances or restrictions included in the Debt to be
refinanced; (iv) such encumbrances or restrictions as may exist under any
Acquired Debt at the time incurred by the Company or such Subsidiary; provided,
however, that such encumbrances or restrictions are, in no material respect, any
more onerous to the Company or such Subsidiary as the then existing most onerous
such encumbrances and restrictions applicable to the Company or such Subsidiary;
(v) the provisions of any lease governing a leasehold interest or of any supply,
license or other agreement entered into in the ordinary course of business of
the Company or any Subsidiary that restrict in a customary manner transfer,
subleasing or assignment; and (vi) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of
Capital Stock or assets of such Subsidiary pending the closing of such sale or
disposition.
Transactions with Affiliates.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
any purchase, sale or exchange of Property, the making of any Investment, the
giving of any guarantee or the rendering of any service), with any Affiliate of
the Company or of any Subsidiary of the Company unless the terms of such
transaction or series of related transactions are no less favorable to the
Company or such Subsidiary, as the case may be, than those that might be
obtained at the time of such transaction from a Person who is not such an
Affiliate; provided, however, that in addition to the foregoing, any such
transaction (or series of related transactions), other than certain exempted
transactions, that has a fair market value to the Company or such Subsidiary of
$10,000,000 or more will be deemed to be on terms no less favorable to the
Company or such Subsidiary than those obtainable at the time of the transaction
from a Person who is not such an Affiliate only if the Board of Directors of the
Company receives and delivers to the Trustee, prior to such transaction, a
written opinion of a nationally recognized investment banking firm stating that
the transaction is fair to the Company or such Subsidiary from a financial point
of view.
The provisions set forth above will not apply to (i) the payment of fees,
salaries or other amounts to DPK in accordance with the express terms of the
Management Agreement, provided, however, that the aggregate amount of all such
fees, salaries and other amounts will not exceed $5,000,000 (determined without
regard to the value of options to purchase the Company's Common Stock) in the
aggregate in any consecutive twelve month period, (ii) any transaction between
the Company and any of its Wholly Owned Subsidiaries, (iii) the payment of
reasonable and customary fees (including options to purchase the Company's
Common Stock) to directors of the Company or any of the Subsidiaries of the
Company who are not employees of the Company or any Subsidiary of the Company as
the same may be deemed advisable or appropriate by the Board of Directors, or
(iv) loans or advances to officers, members of the Board of Directors and
employees of the Company or any of its Subsidiaries for travel, entertainment or
moving and other relocation expenses made in
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<PAGE> 65
the ordinary course of business of the Company and its Subsidiaries as the same
may be deemed advisable or appropriate by the Board of Directors.
Limitations on the Sale of Stock and Debt of Subsidiaries.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, sell or otherwise dispose of, or part with control of, any
Capital Stock (other than directors' qualifying shares or nominee shares) or
Indebtedness of any Subsidiary of the Company, except to the Company or a Wholly
Owned Subsidiary of the Company, and except that all Capital Stock and
Indebtedness of any such Subsidiary may be sold as an entirety provided that (a)
at the time of such sale, such Subsidiary will not own, directly or indirectly,
any Capital Stock or Indebtedness of any other Subsidiary (unless all of the
Capital Stock and Indebtedness of such other Subsidiary are simultaneously being
sold), and (b) such sale would be permitted by the "Limitation on Company
Mergers, Consolidations, and Sales" covenant and the "Limitation on Certain
Asset Sales and Subsidiary Mergers" covenant.
Limitation on Issuance and Sale of Capital Stock of Subsidiaries.
The Company covenants that it will not (a) permit any Subsidiary of the
Company to issue or sell any Capital Stock in such Subsidiary other than to the
Company or a Wholly Owned Subsidiary of the Company or (b) permit any Person
other than the Company or a Wholly Owned Subsidiary of the Company to hold any
Capital Stock issued after the Effective Date in any Subsidiary of the Company;
provided, however, that the Company or any Subsidiary of the Company may sell
Common Stock to the extent permitted under the "Limitation on Certain Asset
Sales and Subsidiary Mergers" covenant; provided, further, that this covenant
will not be deemed to prohibit the Company or any Subsidiary of the Company from
making any Investment (including, without limitation, Investments in a Person
such that after giving effect thereto such Person may be a less than wholly
owned Subsidiary of the Company) permitted by the "Restricted Payments"
covenant.
EVENTS OF DEFAULT
Events of Default under the Indenture include the following:
(a) the Company defaults in the payment of any principal of, or
Yield-Maintenance Amount with respect to, any Security when the same will
become due, either by the terms thereof or otherwise as provided in the
Indenture or any note purchase agreement relating thereto; or
(b) the Company defaults in the payment of any interest on any
Security for more than 5 Business Days after the date due; or
(c) the Company or any Subsidiary of the Company defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on the 10.25% Notes, the Second Priority Notes (if
any), the Subsequent Second Priority Notes (if any), any loan under the
Revolving Credit Agreement, any reimbursement obligations under the Letter
of Credit Agreement, any Capital Lease Obligation under the GECC Lease
Documents or any other obligation for money borrowed (or any Capital Lease
Obligation, any obligation under a conditional sale or other title
retention agreement, any obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money mortgage or
any obligation under notes payable or drafts accepted representing
extensions of credit or any obligation to pay or reimburse any Person for
any amount paid under any letter of credit, any proposal, bid, performance
or other bond, or under any indemnity agreement) beyond any period of grace
provided with respect thereto, or the Company or any such Subsidiary fails
to perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any other
event thereunder or under any such agreement will occur and be continuing)
and the effect of such failure or other event is to cause, or to permit the
holder or holders of such obligation (or a trustee on behalf of such holder
or holders) to cause, such obligation to become due (or to be repurchased
by the Company or any such Subsidiary) prior to any stated maturity,
provided that, except in respect of the Revolving Credit Agreement, the
Letter of Credit Agreement and the GECC Lease Documents, the aggregate
amount of all obligations as to which such a payment default will occur and
be
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continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Subsidiary) will occur and be
continuing exceeds $5,000,000; or
(d) any representation or warranty made by the Company or any
Subsidiary of the Company or any Responsible Officer thereof in any writing
or statement furnished in connection with or pursuant to the Indenture, the
Securities or any other credit document will be false in any material
respect on the date as of which made; or
(e) the Company fails to observe or perform its obligation to purchase
Securities following a Change of Control or in the event the Company has
Excess Cash Flow or the Company fails to observe any negative covenant
contained in the Indenture; or
(f) the Company fails to observe or perform any covenant, condition or
agreement on the part of the Company to be observed or performed pursuant
to the terms of the Indenture or the Securities (other than a covenant,
condition or agreement which is specifically dealt with elsewhere as an
Event of Default), and such failure continues for 30 days after any
Responsible Officer of the Company learns thereof; or
(g) the Company or any Material Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(h) any decree or order for relief in respect of the Company or any
Material Subsidiary is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (herein
called the "Bankruptcy Law"), of any jurisdiction; or
(i) the Company or any Material Subsidiary petitions or applies to any
tribunal for, or consents to the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company
or any Material Subsidiary, or of any substantial part of its assets or
commences a voluntary case under the Bankruptcy Law of any jurisdiction or
any proceedings relating to the Company or any such Material Subsidiary
under the Bankruptcy Law of any jurisdiction; or
(j) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Material Subsidiary and the
Company or such Material Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(k) any order, judgment or decree is entered in any proceedings
against the Company or any Material Subsidiary decreeing the dissolution of
the Company or any such Material Subsidiary and such order, judgment or
decree remains unstayed and in effect for more than 60 days; or
(l) any order, judgment or decree is entered in any proceedings
against the Company or any Material Subsidiary of the Company decreeing a
split-up of the Company or such Material Subsidiary, and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(m) one or more judgments or orders in an aggregate amount in excess
of $5,000,000 (net of cash proceeds actually received by, or paid on behalf
of, the Company with respect to such judgments or orders) are rendered
against the Company or any Subsidiary of the Company and, within 60 days
after entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after the expiration of any such
stay, such judgment is not discharged; or
(n) the occurrence of any "Event of Default" (as defined in any Credit
Document other than the Indenture) or the breach of any covenant, warranty
or agreement set forth in any Credit Document (other than the Indenture or
the Securities), which Event of Default or breach continues beyond any
period of grace therein provided; or
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(o) the Guaranty Agreement will fail to remain in full force or effect
or any action will be taken to discontinue or to assert the invalidity or
unenforceability or the Guaranty Agreement, or any guarantor thereunder
will fail to comply with any of the terms or provisions of the Guaranty
Agreement or denies that it has any further liability under the Guaranty
Agreement, or gives notice to such effect; or
(p) the Collateral Agent will cease to possess at any time a valid,
first priority (subject to Permitted Liens) perfected Lien in and on any of
the Collateral (other than Collateral having a de minimis value); or
(q) certain defaults relating to ERISA;
then (1) if such event is an Event of Default specified in clause (h), (i) or
(j) above with respect to the Company, all of the Securities at the time
outstanding will automatically become immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if any,
with respect to such Security, without presentment, demand, protest or notice of
any kind, all of which are waived by the Company, (2) if such event is an Event
of Default specified in clause (a) or clause (b) above, any Holder of a Security
at any time such Event of Default is continuing, at its option, by notice in
writing to the Company, may declare all or any part of the Securities owned by
such Holder to be, and all such Securities will thereupon be and become,
forthwith due and payable at par together with interest accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are waived by
the Company, and (3) if such event is an Event of Default other than an Event of
Default specified in clause (h), (i) or (j) above with respect to the Company,
the Required Holders may at their option, or the Trustee will upon the written
request of the Required Holders, by notice in writing to the Company, declare
all of the Securities to be, and all of the Securities will thereupon be and
become, immediately due and payable together with interest accrued thereon and
together with the Yield-Maintenance Amount, if any, with respect to each
Security, without presentment, demand, protest or other notice of any kind, all
of which are waived by the Company.
TERMINATION OF COMPANY'S OBLIGATIONS
The Company may terminate, and will be discharged from, all its obligations
under the Securities and the provisions of the Indenture (except as to (i)
rights of registrations of transfer, substitution and exchange of Securities),
(ii) rights of Holders to receive payments of principal and interest and
Yield-Maintenance Amount (if any) on the Securities, (iii) the rights,
obligations and immunities of the Trustee under the Indenture and (iv) certain
other specified provisions of the Indenture) when all Securities previously
authenticated and delivered (other than mutilated, destroyed, lost or stolen
Securities which have been replaced or paid or Securities for whose payment
money or securities have theretofore been held in trust and thereafter repaid to
the Company have been delivered to the Trustee for cancellation and the Company)
has paid to all Holders all sums payable by it under the Securities and the
provisions of the Indenture.
REPORTS
The Company will file with the Trustee within 15 days after it files them
with the Commission copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which the Company
files with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not subject to Section 13 or 15(d) of the Exchange Act, the
Company will continue to file with the Commission and the Trustee on the same
timely basis such reports, information and other documents as the Company would
file if the Company were subject to the requirements of Section 13 or 15(d) of
the Exchange Act. The Company and any other obligor on the Securities also will
comply with the other provisions of Trust Indenture Act Section 314(a).
So long as Securities representing 5% or more of the aggregate principal
amount of Securities issued under the Indenture remain outstanding, the Company
will cause an annual report to stockholders and quarterly or other financial
reports furnished by it to stockholders, excluding internal management reports
and distributions to stockholders in their capacity as directors or officers of
the Company, to be filed with the Trustee and mailed to the Holders at their
addresses appearing in the register of Securities maintained by the
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Registrar, in each case at the time of such furnishing to stockholders. If the
Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act at any time during which Securities
representing 5% or more of the aggregate principal amount of Securities issued
hereunder are outstanding, the Company will cause its consolidated financial
statements, including any notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," comparable to that
which would have been required to appear in annual or quarterly reports filed
under Section 13 or 15(d) of the Exchange Act to be so filed with the Trustee
and mailed to the Holders at their addresses appearing in the register of
Securities maintained by the Registrar within 105 days after the end of each
fiscal year and within 60 days after the end of each of the Company's first
three fiscal quarters in each fiscal year.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of such Note
for all purposes. See "Form of Notes" above.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture will provide that without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for the assumption of
the Company's obligations to holders of the Notes in the case of a merger or
consolidation, to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act or
to evidence the acceptance of appointment by a successor trustee.
In addition, the Indenture or the Notes may be amended or supplemented with
the consent of the holders of a majority in principal amount of the Notes then
outstanding (subject to the terms of the Intercreditor Agreement), provided that
no modification or supplement of the Indenture may be made that would (a) reduce
the amount of Securities whose Holders must consent to an amendment or waiver of
any provision of the Indenture; (b) reduce the rate of or change the method of
calculation, the time for payment or the manner of payment of interest or
Yield-Maintenance Amount on any Security; (c) reduce the principal of or change
the Stated Maturity of any Security, or change the date on which any Security
may be subject to redemption or reduce the Redemption Price therefor; (d) make
any Security payable in money other than that stated in the Security; (e) make
any change in the "Change of Control" or " Excess Cash Flow" covenants or the
definitions of "Change of Control" or "Excess Cash Flow"; (f) waive a Default in
the payment of the principal of, interest on or redemption payment under any
Security; or (g) affect the rankings or with respect to the Collateral, the
priority of the Securities, in each case in a manner adverse to the Holders.
Any existing Default or compliance with any provision of the Indenture or
the Notes may be waived (other than a continuing Default or Event of Default in
the payment of the principal or interest and Yield-Maintenance Amount (if any)
on any Note) with the consent of the holders of a majority in principal amount
of the then outstanding Notes (subject to the terms of the Intercreditor
Agreement).
CONCERNING THE TRUSTEE
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a complete description of all such terms, as well
as any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Debt of a Person existing on or prior to the time at
which such Person became a Subsidiary and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with such specified Person, (ii) which
beneficially owns or holds 10% or more of any class of the Voting Securities of
such specified Person, or (iii) of which 10% or more of the Voting Securities is
beneficially owned or held by such specified Person or by a Subsidiary of such
specified Person.
"Agent" means any Registrar, Paying Agent or Co-Registrar.
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the numbers
of years from such date to the dates of each successive scheduled principal
payment (including any sinking fund or mandatory redemption payment
requirements) of such debt security multiplied by (y) the amount of such
principal payment by (ii) the sum of all such principal payments.
"BTCC" means BT Commercial Corporation, a Delaware corporation, and its
successors and permitted assigns.
"Bankruptcy Law" means Title 11, U.S. code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" of any corporation means the board of directors of
such corporation or any duly authorized committee of the board of directors of
such corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banks in New York City or Hartford, Connecticut are required or
authorized to be closed.
"Called Principal" means, with respect to any Security, the principal of
such Security that is to be redeemed or prepaid (as the case may be) pursuant to
the "Change of Control" covenant, the redemption obligations following a
Transfer of Property equal to $5,000,000 or more or an optional redemption, or
is declared to be immediately due and payable pursuant to an Event of Default,
as the context requires.
"Capital Lease Obligation" means, at any time, the amount of the liability
with respect to a lease that would be required at such time to be capitalized on
a balance sheet of such Person prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Cash Equivalents" means: (i) debt instruments, with maturities of one year
or less from the date of acquisition, issued by the government of the United
States of America or any agency thereof (if fully guaranteed or insured by the
government of the United States of America), (ii) certificates of deposit, with
maturities of one year or less from the date of acquisition, of any commercial
bank incorporated under the laws of the United States of America having a
combined capital, surplus and undivided profits of not less than $100,000,000,
(iii) commercial paper of an issuer rated at least A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., and (iv) tax exempt
floating rate tender bonds, as to which payments of principal, interest and
other charges may be made at the option of the holder upon not more than one
week's notice which are payable upon tender or any default from the proceeds of
an unconditional and irrevocable letter of credit issued by a United States
office of any commercial bank all of whose long-term debt securities are rated
at least AA by Standard & Poor's Corporation or Aa by Moody's Investors Service,
Inc.
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"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company or otherwise
permitted by the terms of the Indenture): (i) any person (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act), or any Affiliate of any such
person, is or becomes a "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall also be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the Common Stock of the
Company or such other amount of Voting Securities to provide the ability to
elect, directly or indirectly, a majority of the members of the Board of
Directors of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new or replacement directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; (iii) any direct or indirect Transfer (in one transaction or a
series of related transactions) of all or substantially all of the consolidated
assets of the Company and its Subsidiaries to any person (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act) or any Affiliate of any such
person; or (iv) the approval by the Company or its shareholders of any plan of
liquidation; or (v) any event constituting a "Change of Control" in respect of
10.25% Notes, the Revolving Credit Agreement, the Second Priority Notes or the
Subsequent Second Priority Notes.
"Collateral" means all the real, personal and mixed property made, or
intended or purported to be made, subject to a Lien pursuant to the Collateral
Documents.
"Collateral Agent" means BTCC, in its capacity as collateral agent under
the Intercreditor Agreement and the other Collateral Documents, and any
successor thereto.
"Collateral Documents" means, collectively, the Guaranty Agreement, Pledge
Agreement, Intercreditor Agreement, Intellectual Property Pledge Agreement,
Mortgage, Security Agreement, and all other instruments or documents now or
hereafter granting (or purporting to grant) Liens on property of the Company or
any of its Subsidiaries to the Collateral Agent, for the benefit of the "Secured
Parties" (as defined in the Intercreditor Agreement).
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalent (however designated) of Capital
Stock in such Person which is not preferred as to the payment of dividends or
the distribution of assets on any voluntary or involuntary liquidation over
shares of any other class of Capital Stock in such Person.
"Company" means Envirodyne Industries, Inc. unless and until a successor of
Envirodyne Industries, Inc. replaces it pursuant to the Indenture, and
thereafter means such successor.
"Consolidated Cash Flow" means, for any period, Consolidated Net Income for
such period, (A) increased by the sum of (i) Consolidated Fixed Charges for such
period, other than interest capitalized by the Company and its Subsidiaries
during such period, (ii) income tax expense of the Company and its Subsidiaries,
on a consolidated basis, for such period (other than income tax expense
attributable to sales or other dispositions of assets (other than sales of
inventory in the ordinary course of business)), (iii) depreciation expense of
the Company and its Subsidiaries, on a consolidated basis, for such period, (iv)
amortization expense of the Company and its Subsidiaries, on a consolidated
basis, for such period, and (v) other non-cash items reducing Consolidated Net
Income minus non-cash items increasing Consolidated Net Income for such period,
and (B) decreased by any revenues received or accrued by the Company or any of
its Subsidiaries from any other Person (other than the Company or any of its
Subsidiaries) in respect of any Investment for such period, all as determined in
accordance with GAAP.
"Consolidated Debt" means the aggregate amount of Debt of the Company and
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP.
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"Consolidated Fixed Charges" means, for any period, (A) the sum of, without
duplication, (i) the aggregate amount of interest expense of the Company and its
Subsidiaries during such period (including, without limitation, all commissions,
discounts and other fees and charges owed by the Company and its Subsidiaries
with respect to letters of credit and bankers' acceptances or similar financing
facilities and the net costs associated with Interest Rate Agreements and
Currency Agreements of the Company and its Subsidiaries) paid, accrued or
scheduled to be paid or accrued during such period, including interest expense
not required to be paid in cash (including any amortization of original issue
debt discount), all determined in accordance with GAAP, plus all interest
capitalized by the Company and its Subsidiaries during such period, (ii) the
aggregate amount of the interest expense component of rentals in respect of
Capital Lease Obligations paid or accrued by the Company and its Subsidiaries
during such period, determined in accordance with GAAP, (iii) the aggregate
amount of all operating lease expense of the Company and its Subsidiaries during
such period, determined in accordance with GAAP, and (iv) to the extent any
interest payment obligation of any other Person is guaranteed by the Company or
any of its Subsidiaries (other than guarantees relating to obligations of
customers of the Company or any of its Subsidiaries that are made in the
ordinary course of business consistent with past practices of the Company or its
Subsidiaries), the aggregate amount of interest paid or accrued by such Person
in accordance with GAAP during such period attributable to any such interest
payment obligation, less (B) to the extent included in (A) above, amortization
or write-off of deferred financing costs by the Company and its Subsidiaries
during such period; in each case after elimination of intercompany accounts
among the Company and its Subsidiaries and as determined in accordance with
GAAP.
"Consolidated Intangible Assets" means, as at any date, (i) the amount of
all write-ups in the book value of any asset resulting from the revaluation
thereof and all write-ups in excess of the cost of assets acquired, plus (ii)
the amount of all unamortized original issue discount, unamortized debt expense
(exclusive of amounts attributable to unamortized debt expense in existence as
of June 29, 1995), goodwill, patents (exclusive of amounts attributable to
patents owned by the Company and its Subsidiaries as of June 29, 1995),
trademarks, service marks, trade names, copyrights, organization and development
expense and other intangible assets, in each case as would be taken into account
in preparing a consolidated balance sheet of the Company and its subsidiaries on
a consolidated basis as at such date in accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income
(or net loss, as the case may be) of the Company and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided,
that there shall be excluded therefrom, without duplication, (i) gains and
losses from the sale or other disposition of assets (other than sales of
inventory in the ordinary course) or reserves relating thereto, (ii) items
classified as extraordinary or nonrecurring (including, without limitation, any
gains from any exchange of debt securities) and gains (but not losses) from
discontinued operations, (iii) the income (or loss) of any Joint Venture, except
to the extent of the amount of cash dividends or other distributions in respect
of Capital Stock therein actually paid during such period to the Company or any
of its Subsidiaries by such Joint Venture out of funds legally available
therefor (or, in the case of a loss, to the extent such loss is funded by the
Company or any such Subsidiary during such period), (iv) except to the extent
includable pursuant to clause (iii), the income (or loss) of any other Person
accrued or attributable to any period prior to the date it becomes a Subsidiary
of such Person or is merged into or consolidated with such Person or any of its
Subsidiaries or such other Person's Property (or a portion thereof) is acquired
by such Person or any of its Restricted Subsidiaries, and (v) non-cash items
decreasing or increasing Consolidated Net Income arising out of currency
translation effects.
"Consolidated Net Worth" means Net Worth without giving effect to any
purchase accounting adjustments if Consolidated Net Worth is being determined in
connection with any merger, consolidation or other acquisition of, or by, the
Company or any of its Subsidiaries.
"Consolidated Secured Debt" means, collectively, the outstanding principal
balance of the Debt evidenced by the Securities, the 10.25% Notes, the Second
Priority Notes and the Subsequent Second Priority Notes, if any, in an aggregate
principal amount of up to $50,000,000 and under the Revolving Credit Agreement
and the outstanding amount of unpaid reimbursement obligations for drawn letters
of credit with respect to the Debt under the Letter of Credit Agreement.
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"Consolidated Senior Debt" means, at any time, all Consolidated Debt at
such time, other than the then outstanding principal amount of: (i) the 10.25%
Notes, (ii) the Second Priority Notes, (iii) the Subsequent Second Priority
Notes, (iv) Debt of any Subsidiary of the Company payable to the Company or any
Wholly Owned Subsidiary of the Company, and (v) Debt of the Company that is not
secured by a Lien or that is junior in right of payment, and subordinate to, the
Securities, which Debt matures after the Stated Maturity of the Securities, and
has no principal payments scheduled until, a date which is at least six (6)
months after the maturity date of the Securities.
"Consolidated Tangible Net Worth" means, at any time, Consolidated Net
Worth at such time, less Consolidated Intangible Assets at such time.
"Consolidated Total Capitalization" means, at any time, the sum of: (i)
Consolidated Net Worth at such time, plus (ii) Consolidated Debt.
"Credit Documents" means, collectively, the Indenture, the Securities, the
Note Agreement, the Collateral Documents and all other agreements, instruments
and documents (including, without limitation, security agreements, loan
agreements, notes, guarantees, mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, subordination agreements, pledges, powers of attorney,
consents, assignments, intercreditor agreements, mortgagee waivers,
reimbursement agreements, contracts, notices, leases, financing statements and
all other written items) relating in any way to the aforementioned agreements
and instruments.
"Currency Agreement" of any Person means any foreign exchange contract,
currency swap agreement, option or futures contract or other similar agreement
or arrangement designed to protect such Person or any of its Subsidiaries
against fluctuations in currency values (as opposed to being used in any way for
speculative trading purposes).
"Current Debt" means, with respect to any Person, all Indebtedness of such
Person for borrowed money which by its terms or by the terms of any instrument
or agreement relating thereto matures on demand or within one year from the date
of the creation thereof and is not directly or indirectly renewable or
extendible at the option of the debtor to a date more than one year from the
date of the creation thereof, provided that Indebtedness for borrowed money
outstanding under a revolving credit or similar agreement which obligates the
lender or lenders to extend credit over a period of more than one year shall
constitute Funded Debt and not Current Debt, even though such Indebtedness by
its terms matures on demand or within one year from the date of the creation
thereof.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official appointed under any Bankruptcy Law.
"Debt" means Current Debt and Funded Debt.
"Default" means any event which through the passage of time, the giving of
notice or both would mature into an Event of Default.
"Default Rate" means a rate per annum from time to time equal to the
greater of (i) 14.00%, and (ii) the LIBOR Rate plus 2.00%.
"Depository" means, with respect to any Security issuable or issued in the
form of one or more Global Securities, the Person designated as Depository by
the Company in or pursuant to the Indenture, which Person must be, to the extent
required by applicable law or regulation, a clearing agency registered under the
Exchange Act, and, if so provided with respect to any Security, any successor to
such Person. If at any time there is more than one such Person, "Depository"
shall mean, with respect to any Securities, the qualifying entity which has been
appointed with respect to such Securities. Unless and until otherwise designated
by the Company to the Trustee, the Depository shall be The Depository Trust
Company.
"Discounted Value" means, with respect to the Called Principal of any
Security, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
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accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Securities is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
"Domestic Subsidiary" means any Subsidiary organized under the laws of any
state of the United States of America or the District of Columbia.
"DPK" means D.P. Kelly & Associates, L.P., a Delaware limited partnership,
and its successors and assigns.
"Effective Date" means June 20, 1995.
"Excess CF Amount" means, as to any Excess Cash Flow in any fiscal year of
the Company, the aggregate amount of such Excess Cash Flow, less any repayments
of Debt under the Revolving Credit Agreement required to be made pursuant to the
terms of such Revolving Credit Agreement; provided, however, that the amount of
any such required repayment shall not exceed the Revolver Pro Rata Share of the
aggregate amount of such Excess Cash Flow.
"Excess Cash Flow" means, for any period, the Company's Consolidated Cash
Flow, less the sum of (i) consolidated cash interest expense (including the
interest portion of any payments associated with Capital Lease Obligations) of
the Company during such period, (ii) consolidated capital expenditures of the
Company during such period, (iii) principal payments on indebtedness (including
the principal portion of any Capital Lease Obligations) of the Company made or
paid during such period, (iv) additions (reductions) to Working Capital of the
Company during such period, (v) consolidated income tax expense of the Company
that is actually paid during such period, and (vi) $15,000,000, all determined
on a consolidated basis in accordance with GAAP.
"Funded Debt" means, with respect to any Person, all Indebtedness of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than one
year from, or is directly or indirectly renewable or extendable at the option of
the debtor to a date more than one year (including an option of the debtor under
a revolving credit or similar agreement obligating the lender or lenders to
extend credit over a period of more than one year) from, the date of the
creation thereof.
"GAAP" means, at any date, United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board, or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States, which are applicable
to the circumstances as of the date of determination.
"GECC" means General Electric Capital Corporation, a New York corporation,
and its successors and assigns.
"GECC Intercreditor Agreement" means that certain GECC Intercreditor
Agreement, dated as of the Effective Date, among the Collateral Agent, GECC,
Shawmut Bank Connecticut, National Association, as Owner Trustee, and the
Company, as amended, supplemented or otherwise modified from time to time.
"GECC Lease Documents" means (i) the Lease Agreement dated as of December
18, 1990 between The Connecticut National Bank (now known as Shawmut Bank
Connecticut, National Association; "TCNB"), Owner Trustee, as lessor and Viskase
Corporation, as lessee, (ii) the Participation Agreement dated as of December
18, 1990 among Viskase Corporation, the Company, GECC and TCNB and (iii) the
related instruments and agreements with respect thereto, in each case as the
same may have heretofore been or may hereinafter be amended, modified, restated,
renewed or extended or refinanced from time to time.
"Global Security" means a Security issued in global form.
"Guaranty Agreement" means that certain Guaranty Agreement, dated as of the
Effective Date, made by each Significant Domestic Subsidiary in favor of the
Collateral Agent, as amended, supplemented or otherwise modified from time to
time.
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"Guarantee" means, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"Holder" means any Person in whose name a Security is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all items (excluding items of contingency reserves or of reserves for deferred
income taxes) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as of the date on which Indebtedness is to be determined, (ii) all
indebtedness secured by any Lien on any property or asset owned or held by such
Person subject thereto, whether or not the indebtedness secured thereby shall
have been assumed, (iii) all indebtedness of others with respect to which such
Person has become liable by way of a Guarantee (including, without limitation,
all obligations of such Person with respect to surety bonds, bank acceptances,
and letters of credit and other similar obligations), (iv) all obligations of
such Person in respect of Currency Agreements or Interest Rate Agreements and
(v) the maximum fixed repurchase price of any Redeemable Stock. For purposes of
the preceding sentence, the maximum fixed repurchase price of any Redeemable
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Stock as if such Redeemable Stock
were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; provided, that if such Redeemable Stock is
not then permitted to be repurchased, the repurchase price shall be the book
value of such Redeemable Stock.
"Intellectual Property Pledge Agreement" means, collectively, each
Intellectual Property Security Agreement made at any time by the Company or any
Subsidiary of the Company, respectively, in favor of the Collateral Agent, as
amended, supplemented or modified from time to time.
"Intercreditor Agreement" means that certain Intercreditor and Collateral
Agency Agreement, dated as of the Effective Date, by and among the Lender, the
Trustee, and BTCC, individually and as Collateral Agent and agent for the Letter
of Credit Lenders, as the same may be amended, amended and restated,
supplemented or modified from time to time.
"Interest Rate Agreement" of any Person means any arrangement with any
other Person whereby, directly or indirectly, such Person is entitled to receive
from time to time periodic payments calculated by applying either a floating or
fixed rate of interest on a notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed or floating rate of interest
on the same notional amount and shall include, without limitation, any interest
rate swap agreement, interest rate cap, floor or collar agreement, option or
futures contract or other similar agreements or arrangements, designed to
protect such Person or any of its Subsidiaries from fluctuations in interest
rates (as opposed to being used in any way for speculative trading purposes).
"Investment" means, as to any investing Person, any direct or indirect
advance, loan (other than extensions of trade credit on commercially reasonable
terms in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of such Person or any of its Subsidiaries in
accordance
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with GAAP) or other extension of credit, guarantee or capital contribution to,
or any acquisition by, such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by any other
Person. In determining the amount of any Investment involving a transfer of
Property, such Property shall be valued at its fair market value at the time of
such transfer, and such fair market value shall be determined in good faith by
the Board of Directors of the investing Person, whose determination in such
regard shall be conclusive.
"Joint Venture" of a Person means any Person in which the investing Person
has a joint or shared equity interest but which is not a Subsidiary of such
investing Person.
"Lender" means, collectively, The Prudential Insurance Company of America,
as lender under the Revolving Credit Agreement and all other lenders (if any)
that exist under the Revolving Credit Agreement from time to time.
"Letter of Credit Agreement" means the Credit Agreement, dated as of the
Effective Date, between the Letter of Credit Lenders, BTCC, as agent for the
Letter of Credit Lenders, and the Company, as amended, supplemented or otherwise
modified from time to time.
"Letter of Credit Lenders" means the financial institutions party to the
Letter of Credit Agreement as "Lenders" from time to time.
"LIBOR Business Day" means a day of the year on which dealings are carried
on in the London interbank market and banks are open for business in London and
not required or authorized to close in New York City.
"LIBOR Rate" means (i) for any Rate Period, the sum of 5.75% plus the six
month London Interbank Offered Rate at 11:00 A.M. (London time) two LIBOR
Business Days prior to Rate Day, for U.S. dollar deposits in the London
interbank market as such rate is reported on page 3750 by Telerate -- The
Financial Information Network published by Telerate Systems Incorporated
(Telerate), or its successor company; or (ii) if Telerate shall cease to report
such rates on a regular basis, the LIBOR Rate shall mean, for any Rate Period,
the sum of 5.75% plus the rate determined by the Trustee to be the arithmetic
average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates
quoted to the Trustee by the Reference Banks two LIBOR Business Days prior to
Rate Day, for U.S. dollar deposits in the London interbank market.
"Lien" means any mortgage, pledge, lien, charge, security interest,
conditional sale or other title retention agreement (including, without
limitation, any Capital Lease Obligations in the nature thereof) or other
encumbrance of any kind or description, including, without limitation, any
agreement to give or grant a Lien.
"Management Agreement" means the Management Services Agreement dated as of
December 4, 1991 between the Company and DPK, as the same was amended and
restated by the Amended and Restated Management Services Agreement dated as of
December 31, 1993 between the Company and DPK and as the same may from time to
time, hereafter be amended, modified or restated upon the good faith approval,
pursuant to duly adopted resolutions, of a majority of members of the Company's
Board of Directors who are not Affiliates of DPK.
"Material Subsidiary" means (a) any Subsidiary of the Company if (i) the
total assets of such Subsidiary (and its Subsidiaries) exceed 10% of the total
assets of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, or (ii) the revenues (or losses, as the case may be) of
such Subsidiary (and its Subsidiaries) for the four consecutive fiscal quarters
of such Subsidiary most recently ended (determined on a consolidated basis in
accordance with GAAP and whether or not such Person was a Subsidiary of the
Company during all or any part of the fiscal period of the Company referred to
below) exceed an amount equal to 10% of the revenues (or losses, as the case may
be) of the Company and its Subsidiaries for the four consecutive fiscal quarters
of the Company most recently ended (determined on a consolidated basis in
accordance with GAAP), and (b) in any event each of (i) Sandusky Plastics of
Delaware, Inc., a Delaware corporation; (ii) Sandusky Plastics, Inc., a Delaware
corporation; (iii) Viskase Corporation, a Pennsylvania corporation; (iv) Clear
Shield National, Inc., a California corporation; (v) Viskase Holding
Corporation, a Delaware corporation; (vi) Viskase Sales Corporation, a Delaware
corporation; and (vii) Viskase S.A.
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"Mortgage" means, collectively, any or all of the mortgages, deeds of trust
or other security instruments now or hereafter granting (or purporting to grant)
Liens on the real property or leasehold estates or on any other real property or
leasehold estates of the Company or its Subsidiaries to the Collateral Agent, as
they may be amended, supplemented or otherwise modified from time to time.
"Net Worth" means as of any date the aggregate amount of the capital,
surplus and retained earnings of the Company and its Subsidiaries as would be
shown on a consolidated balance sheet of the Company and its Subsidiaries
prepared as of such date in accordance with GAAP (and excluding minority
interests); provided that capital and surplus attributable to Redeemable Stock
and accumulated translation adjustments shall be excluded.
"Percentage of Total Assets Transferred" means, with respect to each asset
Transferred pursuant to the terms of the Indenture (including assets transferred
pursuant to a Transfer by Merger), the ratio (expressed as a percentage) of (i)
the greater of such asset's fair market value or the net book value of such
assets on the date of Transfer to (ii) the book value of the consolidated assets
of the Company and its Subsidiaries as of the last day of the fiscal quarter of
the Company immediately preceding the day of Transfer.
"Permitted Liens" in respect of any Person means (i) pledges or deposits
made by such Person under workers' compensation, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than contracts for the payment of money) or operating leases to
which such Person is a party, or deposits to secure statutory or regulatory
obligations of such Person or deposits of cash or U.S. Government Obligations to
secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (ii) Liens arising by
operation of law such as carriers', warehousemen's and mechanics' Liens, in each
case arising in the ordinary course of business and with respect to amounts not
yet due or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens for taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iv) Liens evidenced by the Capitalized Lease
Obligations under GECC Lease Documents and Liens securing Debt of the Company or
its Subsidiaries permitted under the Indenture for refinancing the Debt under
the GECC Lease Documents; provided, however, that in connection with any such
refinancing any such new Lien shall be limited to all or part of the same
Property to which the original Lien applied; (v) minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of others for, rights of
way, sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real properties or
Liens incidental to the conduct of the business of such Person or to the
ownership of its Property which were not incurred in connection with Debt or
other extensions of credit and which do not in the aggregate materially
adversely affect the value of said Property or materially impair the use of such
Property in the operation of the business of such Person; (vi) Liens in favor of
the Collateral Agent to secure Debt evidenced by the Securities, Debt under the
Revolving Credit Agreement and the Letter of Credit Agreement and any related
guaranties; (vii) certain other Liens existing on the Effective Date; (viii)
Liens arising out of judgments or awards against such Person not giving rise to
an Event of Default with respect to which such Person is diligently prosecuting
an appeal or other proceedings for review; (ix) Liens to secure certain
refinancing Debt; provided, however, that any such new Lien shall be limited to
all or part of the same Property to which the original Lien applied; (x) Liens
to secure Purchase Money Indebtedness and Acquired Debt (to the extent such
Liens attach prior to or at the time of incurrence of such Debt); (xi) Liens to
secure the Debt (if any) evidenced by the Second Priority Notes and the
Subsequent Second Priority Notes in an aggregate principal amount not to exceed
$50,000,000; provided, however, that (a) the Lien securing such Debt is granted
only to the Collateral Agent and made subject to the terms of the Intercreditor
Agreement, and (b) the intercreditor Agreement is amended to the reasonable
satisfaction of the Collateral Agent to add the Second Priority Notes Trustee as
a party thereto, and to provide for such matters incidental thereto as the
Collateral Agent may reasonably require; and
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(xii) Liens securing Debt of Wholly Owned Subsidiaries of the Company to the
Company or another such Wholly Owned Subsidiary.
"Person" means any individual, partnership, corporation, limited liability
company, venture, joint venture, unincorporated organization, joint-stock
company, trust or any government or agency or political subdivision thereof or
other entity of any kind.
"Pledge Agreement" means, collectively, each Pledge Agreement made at any
time by the Company or any Subsidiary of the Company in favor of the Collateral
Agent, as amended, supplemented or otherwise modified from time to time.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person.
"Purchase Money Indebtedness" means, as to any Person, the Debt of such
Person incurred and owing in respect of all or part of the purchase price of
Property purchased where such Debt is fully secured by the Property purchased.
"Rate Day" means for each Rate Period the first day of such Rate Period;
provided, however, that if such day is not a LIBOR Business Day, then the next
LIBOR Business Day succeeding the first day of such Rate Period.
"Rate Period" means the period during which the LIBOR Rate remains in
effect and unchanged. For purposes of the Indenture, the Rate Period shall begin
on the fifteenth day of each June and December of each year, commencing with
June 15, 1995.
"Redeemable Stock" means, with respect to any Person, any class or series
of Capital Stock that, either by its terms, by the terms of any security into
which it is convertible or exchangeable by contract or otherwise, is or upon the
happening of an event or the passage of time would be, required to be redeemed
or is redeemable at the option of the holder thereof at any time prior to the
Stated Maturity of the principal of the Securities, or, at the option of the
holder thereof, is convertible into or exchangeable for debt securities maturing
at any time prior to the Stated Maturity of the principal of the Securities.
"Registered Exchange Offer" means the offer to exchange the Series B
Securities for all of the outstanding Series A Securities and the Series D
Securities for all of the outstanding Series C Securities, in each case in
accordance with the Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement by and between the Company and the Holders party thereto, relating to
the Securities and dated the Effective Date, as amended, supplemented or
otherwise modified from time to time.
"Reinvestment Yield" means, with respect to the Called Principal of any
Security, 1.0% over the yield to maturity implied by (i) the yields reported, as
of 10:00 A.M. (New York City time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page 678" on the Telerate Service (or such other display as may replace Page
678 on the Telerate Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or if such yields shall not be reported as of such time or
the yields reported as of such time shall not be ascertainable, (ii) the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported as of the Business Day next preceding
the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date. Such
implied yield shall be determined, if necessary, by (a) converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between reported yields.
"Remaining Average Life" means, with respect to the Called Principal of any
Security, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the
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sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called Principal
of any Security, all payments of such Called Principal and interest thereon that
would be due on or after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Restricted Debt" means all Consolidated Debt other than Consolidated
Senior Debt.
"Required Holders" means the Holder or Holders of at least a majority of
the aggregate principal amount of the Securities from time to time outstanding
(without giving effect to any Securities owned of record by the Company or any
of its Affiliates).
"Responsible Officer" means, with respect to any corporation, the chief
executive officer, chief operating officer, chief financial officer, treasurer,
or chief accounting officer of such corporation or any other officer of such
corporation involved principally in its financial administration or its
controllership function.
"Revolving Credit Agreement" means that certain Revolving Credit Agreement,
dated as of the Effective Date between the Company and The Prudential Insurance
Company of America, as amended, supplemented or otherwise modified from time to
time or as replaced pursuant to a refinancing thereof.
"Revolving Loan Commitment" means, at any time, the aggregate principal
amount which may be borrowed under the Revolving Loan Agreement at such time
(determined without giving effect to any suspension or termination of the
Lender's obligation to make loans thereunder upon the occurrence of a default or
an "Event of Default" thereunder).
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold by such Person
or a Subsidiary of such Person and thereafter leased back from the purchaser
thereof by such Person or one of the Subsidiaries of such Person.
"Second Priority Notes" means the debt securities which may be issued by
the Company under an indenture (the "Second Priority Notes Indenture") pursuant
to the 10.25% Note Exchange.
"Second Priority Notes Indenture" has the meaning given to such term in the
definition of Second Priority Notes.
"Second Priority Notes Trustee" means trustee for the Second Priority Notes
and Subsequent Second Priority Notes, respectively (in such capacity) and each
successor thereto in such capacity.
"Security Agreement" means, collectively, each Security Agreement made at
any time by the Company or any Subsidiary of the Company in favor of the
Collateral Agent, as amended, supplemented or otherwise modified from time to
time.
"Securities" means the outstanding Series A Securities, Series B
Securities, Series C Securities or Series D Securities, as the case may be.
"Series A Securities" means the 12% First Priority Senior Secured Notes due
2000, Series A, being issued pursuant to the Indenture.
"Series B Securities" means the 12% First Priority Senior Secured Notes due
2000, Series B (the terms of which are identical to the Series A Securities
except that the Series B Securities shall be registered under the Securities
Act, and shall not contain the restrictive legend on the face of the form of the
Series A Securities), to be issued in exchange for the Series A Securities
pursuant to the Exchange Offer.
"Series C Securities" means the Floating Rate First Priority Senior Secured
Notes due 2000, Series C, being issued pursuant to the Indenture.
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"Series D Securities" means the Floating Rate First Priority Senior Secured
Notes due 2000, Series D (the terms of which are identical to the Series C
Securities except that the Series D Securities shall be registered under the
Securities Act, and shall not contain the restrictive legend on the face of the
form of the Series C Securities), to be issued in exchange for the Series C
Securities pursuant to the Exchange Offer.
"Settlement Date" means, with respect to the Called Principal of any
Security, the date on which such Called Principal is to be redeemed or prepaid
(as the case may be) pursuant to the "Change of Control" covenant, the
redemption obligations following a Transfer of Property equal to $5,000,000 or
more or an optional redemption, or is declared to be immediately due and payable
pursuant to an Event of Default, as the context requires.
"Significant Domestic Subsidiary" means each Domestic Subsidiary that, at
any time, is a Material Subsidiary.
"Stated Maturity" when used with respect to any Security or any installment
of interest thereon, means the date specified in such Security as the fixed date
on which the principal of such Security or such installment of interest is due
and payable.
"Stipulated Loss Value" means the Stipulated Loss Value, as defined in the
GECC Lease Documents (as such GECC Lease Documents are in effect on the
Effective Date.)
"Subsequent Second Priority Notes" means any and all debt securities issued
by the Company under an indenture in exchange for Second Priority Notes and
having terms identical to the Second Priority Notes and otherwise being the same
as the Second Priority Notes except that such debt securities are registered
under the Securities Act.
"Subsequent Securities" means, collectively, any and all Series B
Securities and Series D Securities issued by the Company.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Securities is at the time directly or indirectly owned
or Controlled by such Person, by one or more Subsidiaries of such Person or by
such Person and one or more Subsidiaries thereof, or (ii) any other Person
(other than a corporation) in which such Person, one or more Subsidiaries
thereof or such Person and one or more Subsidiaries thereof, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest with respect to voting in the election of directors or
trustees thereof (or such other Persons performing similar functions). For
purposes of this definition, any directors' qualifying shares shall be
disregarded in determining the ownership of a Subsidiary.
"Subsidiary Guarantor" means (i) each of the Significant Domestic
Subsidiaries existing on the Effective Date, and (ii) each of the Company's
other Subsidiaries which becomes a guarantor of the Securities.
"10.25% Note Exchange" means an exchange by the Company pursuant to which
the Company issues Second Priority Notes in an aggregate face amount of not more
than $50,000,000 in exchange for 10.25% Notes pursuant to an exchange ratio
(based on aggregate face amount) of no greater than 1:1.
"10.25% Notes" means, collectively, the 10.25% Senior Notes due 2001 issued
by the Company pursuant to the 10.25% Notes Indenture.
"10.25% Notes Indenture" means that certain Indenture, dated as of December
31, 1993, between the Company and Bankers Trust Company, as trustee, as amended,
supplemented or otherwise modified from time to time.
"Transfer" means any sale, exchange, conveyance, lease, transfer or other
disposition.
"Transfer by Merger" means, with respect to any Subsidiary of the Company,
a merger or consolidation of such Subsidiary with another Person such that after
giving effect thereto the surviving entity is no longer a Subsidiary of the
Company.
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"Voting Securities" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof,
under ordinary circumstances and in the absence of contingencies, to vote for
members of the Board of Directors of such Person (or Persons performing
functions equivalent to those of such members).
"Wholly Owned Subsidiary" of a Person means any Subsidiary of such Person
100% of the total capital stock of which, other than directors' qualifying
shares, is at the time owned by such Person and/or one or more Wholly Owned
Subsidiaries of such Person.
"Working Capital" means, current assets less current liabilities where
current assets equals accounts receivable, inventory and other current assets
(excluding cash and cash equivalents) and current liabilities equals accounts
payable and accrued liabilities (both excluding accrued interest payable,
accrued income taxes payable and any payables related to capital expenditures),
all as reflected on the Company's consolidated financial statements prepared in
accordance with GAAP.
"Yield-Maintenance Amount" means, with respect to any Security, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Security over the sum of (i) such Called Principal plus (ii) interest
accrued thereon as of (including interest due on) the Settlement Date with
respect to such Called Principal. The Yield-Maintenance Amount shall in no event
be less than zero. The Yield-Maintenance Amount shall be calculated for purposes
of the Series C Securities and Series D Securities as if interest on such
Securities accrues at the same per annum rate as interest accrues on the Series
A Securities and Series B Securities.
DESCRIPTION OF INTERCREDITOR ARRANGEMENTS
In the event of a default under the Revolving Credit Agreement, the Letter
of Credit Agreement or the Indenture, collateral rights or remedies cannot be
exercised without the consent of the "Requisite Working Capital Lenders" (as
defined below) and Holders of 35% of the Notes; provided, however, that
following a "Serious Default" (as defined below), the Requisite Working Capital
Lenders may unilaterally commence "Enforcement" (as defined below) after
provision of notice to the Trustee under the Indenture and the passage of ninety
days. If the Requisite Working Capital Lenders, after the passage of such 90 day
period and at any time thereafter prior to the passage of 180 days, exercise
their unilateral enforcement rights without the consent of Holders of 35% of the
Notes, then the Requisite Working Capital Lenders are solely responsible for
indemnifying the Collateral Agent, the Holders of the Notes and any other
lenders not joining in such enforcement action against any liability, costs or
expenses incurred by any of them in connection with such Enforcement.
The term "Requisite Working Capital Lenders" means (i) at any time
commitments are outstanding under the Letter of Credit Agreement, letters of
credit are issued and outstanding under the Letter of Credit Agreement or the
Company has any payment obligations owing under the Letter of Credit Agreement,
the holders of the majority of the sum of (a) the commitments under the Letter
of Credit Agreement and (b) the outstanding reimbursement obligations and other
payment obligations under the Letter of Credit Agreement, and (ii) at any other
time, the holders of a majority of the revolving loans made under the Revolving
Credit Agreement.
The term "Serious Default" means an event of default under the Revolving
Credit Agreement or the Letter of Credit Agreement resulting from (i) a payment
default under either such agreement, or (ii) a violation by the Company of the
any of the negative covenants or of any of the other default provisions in
either such agreement.
The term "Enforcement" means (i) the exercise of any remedial provisions
under the Indenture, the Letter of Credit Agreement or the Revolving Credit
Agreement or the termination of any commitments to lend thereunder, (ii) the
exercise of enforcement remedies by the Collateral Agent, or (iii) the
commencement by or against the Company or any Subsidiary Guarantor, of any
bankruptcy proceeding.
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The Letter of Credit Lenders have agreed (i) not to increase the facility
provided under the Letter of Credit Agreement to the Company above $28,000,000
and (ii) not to amend, modify or waive any default provision (other than waivers
of default provisions neither relating to payment defaults or breaches of
negative covenants), negative covenant or material economic terms (such
defaults, covenants and material economic terms being collectively referred to
hereinafter as the "Specified Provisions") of the Letter of Credit Agreement
without the written consent of the lenders under the Revolving Credit Agreement
and of Holders of 35% of the Notes.
The lenders under the Revolving Credit Agreement have agreed not to make
revolving loans in excess of an aggregate of $35,000,000 at any one time
outstanding or to amend, modify or waive any Specified Provision in the
Revolving Credit Agreement without the written consent of the agent under the
Letter of Credit Agreement and Holders of 35% of the Notes.
The Trustee under the Indenture has agreed not to amend, modify or waive
any Specified Provision in the Indenture without the written consent of the
Requisite Working Capital Lenders.
Amounts received by the Collateral Agent or by any holder of the Notes or
the holders of indebtedness outstanding under the Letter of Credit Agreement or
the Revolving Credit Agreement (including amounts received in connection with
the exercise of setoff or similar rights) after Enforcement has occurred are in
relevant part applied to obligations of the Company in the following order of
priority:
(i) first, to reimburse the Collateral Agent for all costs, expenses
and indemnities incurred in connection with the performance of its duties
as Collateral Agent;
(ii) second, to pay any outstanding obligations under the Letter of
Credit Agreement;
(iii) third, to reimburse the Trustee under the Indenture for all
costs, expenses and indemnities owing to it under the Indenture;
(iv) fourth, to pay on a pari passu basis, interest and unpaid
prepayment premium due under the Revolving Credit Agreement and with
respect to the Notes;
(v) fifth, to pay on a pari passu basis, principal due under the
Revolving Credit Agreement and with respect to the Notes; and
(vi) sixth, to pay on a pari passu basis, all other amounts
outstanding under the Revolving Credit Agreement and with respect to the
Notes.
Pursuant to the Intercreditor Agreement, the Collateral Agent on behalf of
the holders of the Notes and the lenders under the Letter of Credit Agreement
and the Revolving Credit Agreement have entered into an Intercreditor Agreement
with General Electric Capital Corporation, as Owner Participant ("GECC"), and
Shawmut Bank Connecticut, National Association, as Owner Trustee (the "GECC
Intercreditor Agreement"). The GECC Intercreditor Agreement permits the
Collateral Agent to cure certain payment and nonpayment defaults which may arise
under the lease agreements relating to the plants subject thereto. In the event
GECC repossesses any of such plants, it must cooperate with the collateral agent
to utilize such plants to convert any inventory consisting of work in process
into finished goods inventory.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based on the opinion of Sidley & Austin, counsel to
the Company, is a general discussion of all material United States federal
income tax consequences of acquiring, holding and disposing of the New Notes.
The summary is based upon the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), existing and proposed Treasury regulations,
administrative pronouncements and judicial decisions now in effect, all of which
are subject to change (possibly on a retroactive basis). This summary does not
discuss all aspects of federal income taxation that may be relevant to investors
in light of their particular circumstances or to certain types of investors
subject to special treatment under the federal income tax laws (for example,
dealers in securities, tax-exempt organizations and insurance companies). This
summary does not discuss the federal income tax consequences to a beneficial
owner of a Note who, for United States federal
81
<PAGE> 82
income tax purposes, is a non-resident alien individual, a foreign corporation,
a foreign partnership or a foreign estate or trust. Furthermore, this summary
does not discuss the consequences to an investor under state, local or foreign
tax laws. Prospective investors are advised to consult their own tax advisors
regarding the federal, state, local and other tax considerations of holding and
disposing of the New Notes.
The following summary assumes that holders of the New Notes will hold them
as "capital assets" within the meaning of Section 1221 of the Code. The
discussion is not binding on the courts or the Internal Revenue Service ("IRS").
The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed herein. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of holding and disposing of the New Notes.
The Exchange
An exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as a sale, exchange or other taxable event for federal
income tax purposes because the New Notes should not be considered to differ
materially in kind or extent from the Old Notes. As a result, no material
federal income tax consequences should result from an exchange of Old Notes for
New Notes pursuant to the Exchange Offer.
For federal income tax purposes, a New Note received by a beneficial owner
of an Old Note should be treated as a continuation of the Old Note in the hands
of such owner.
Stated Interest
A beneficial owner of a New Note (a "Holder") will generally be required to
report as ordinary income for federal income tax purposes interest received or
accrued on the New Note in accordance with the Holder's method of tax
accounting.
Market Discount and Bond Premium
A subsequent purchaser of a Note will be treated as having acquired a Note
at a "market discount" to the extent that such purchaser's tax basis in the Note
is less than (by more than a specified de minimis amount) the Note's outstanding
principal amount at the time of purchase. A Holder in whose hands a Note has
market discount generally will be required to treat as ordinary income any gain
recognized on the sale, exchange, redemption or other disposition of, or any
full or partial principal payment on, the Note to the extent of accrued market
discount. In general, market discount accrues on a ratable basis, although a
Holder of a Note may elect to accrue market discount on a constant-yield basis.
A Holder of a Note having market discount may be required to defer the deduction
of all or a portion of the interest on any indebtedness incurred or maintained
to purchase or carry the Note generally until the Note is disposed of in a
taxable transaction. A Holder of a Note having market discount may elect to
include market discount in income as it accrues, in which case the foregoing
market discount rules would not apply. The election generally applies to all
market discount bonds acquired by the electing Holder on or after the first day
of the first year of election and is generally irrevocable without the consent
of the IRS.
A subsequent purchaser of a Note will be treated as having acquired a Note
with "bond premium" to the extent that such purchaser's tax basis in the Note
(exclusive of any amount attributable to accrued and unpaid interest) exceeds
the Note's outstanding principal amount at the time of purchase. A Holder may
elect to amortize bond premium. In general, in the case of debt instruments,
such as the Notes, that are callable prior to maturity, the amortizable bond
premium will be determined with reference to the amount payable on maturity or,
if it results in a smaller amortization of premium attributable to the period
through the earlier call date, with reference to the amount payable on the
earlier call date (with adjustments to the amortization of bond premium
attributable to periods after the call date). The application of that rule is
not entirely clear in the case of debt instruments, such as the Notes, that are
callable on each day during their term. If bond premium is amortized, the amount
of interest which must be included in the Holder's income during a period will
be reduced by the portion of the premium allocable to such period. The election
to amortize bond
82
<PAGE> 83
premium generally applies to all debt instruments held by the Holder at the
beginning of the year of election or acquired thereafter.
Sale, Exchange or Redemption of Notes
Upon the sale, redemption or other disposition of a Note, a Holder will
recognize gain or loss equal to the difference between the amount of sale or
redemption proceeds (exclusive of proceeds attributable to accrued but unpaid
interest) and the Holder's adjusted tax basis in the Note. Proceeds attributable
to accrued but unpaid interest will be treated as interest income to the extent
not previously taken into income by a Holder. A Holder's adjusted tax basis
generally will equal the Holder's purchase price for the Note increased by any
market discount previously included in income by such Holder with respect to
such Note, and decreased by the aggregate amount of principal previously
received and any bond premium previously amortized by such Holder with respect
to such Note. Generally, any gain or loss recognized by a Holder of a Note upon
a sale, redemption or other disposition of the Note will be capital gain or
loss, except as described under "Market Discount and Bond Premium," above. Such
capital gain or loss will be long-term capital gain or loss provided the Note
has been held for more than one year.
Backup Withholding
A Holder of a Note may be subject to backup withholding at the rate of 31
percent with respect to interest and premium paid on the Notes and gross
proceeds from the sale of a Note, unless such Holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (b) provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A Holder of a Note who
does not provide the Company with the Holder's correct taxpayer identification
number may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the Holder's tax liability.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS NOT
TAX ADVICE. ACCORDINGLY, EACH PERSON CONSIDERING THE ACQUISITION OF NEW NOTES
SHOULD CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM, HER OR
IT OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Prior to the Offering, there was no market for any of the Notes and the
Company does not intend to apply for the listing of any of its securities on any
national securities exchange or for their quotation through the NASDAQ system.
The Old Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automatic Linkages ("PORTAL") market. There can be no assurance
that an active trading market will develop for, or as to the liquidity of, any
of the Notes.
With respect to resales of New Notes, based on an interpretation by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that any holder or beneficial owner (other than a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act or a "broker" or "dealer" registered under the Exchange Act) who
exchanges Old Notes for New Notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, will be allowed to resell the New Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes a prospectus that satisfies the requirements of Section 10
thereof. However, if any holder or beneficial owner acquires New Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder or beneficial owner cannot rely on
the position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1988) or similar no-action letters or any
similar interpretive letters and must comply with the
83
<PAGE> 84
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder and any beneficial owners in the ordinary course of
business, (ii) the holder and any beneficial owners are not engaging and do not
intend to engage in the distribution of the New Notes, (iii) neither the holder
nor any beneficial owner is an affiliate of the Company within the meaning of
Rule 405 under the Securities Act, and (iv) the holder and each beneficial owner
acknowledge that if such holder or beneficial owner participates in the Exchange
Offer for the purpose of distributing the New Notes, such holder or beneficial
owner must comply with the registration and prospectus delivery requirements of
the Securities Act and cannot rely on the above no-action letters.
Any broker or dealer registered under the Exchange Act (each a
"Broker-Dealer") who holds Old Notes that were acquired for its own account as a
result of market-making activities or other trading activities (other than Old
Notes acquired directly from the Company), may exchange such Old Notes for New
Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed
an underwriter within the meaning of the Securities Act and, therefore, must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the New Notes received by it in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of this Prospectus. Any Broker-Dealer participating in the
Exchange Offer will be required to acknowledge that it will deliver a prospectus
in connection with any resales of New Notes received by it in the Exchange
Offer. However only Broker-Dealers who exchange Old Notes that were acquired for
their own account as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company), may use
this Prospectus to satisfy the prospectus delivery requirements of the
Securities Act. The delivery by a Broker-Dealer of a prospectus in connection
with resales of New Notes shall not be deemed to be an admission by such Broker-
Dealer that it is an underwriter within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the
Subsidiary Guarantors by Stephen M. Schuster, Esq., Oak Brook, Illinois. Mr.
Schuster, an executive officer of the Company, beneficially owns 39,944 shares
of Common Stock of the Company (which includes options to purchase 22,850 shares
and 2,000 shares owned by Mr. Schuster's spouse).
EXPERTS
The consolidated balance sheets as of December 29, 1994 and December 31,
1993 and the consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the period January 1 to December 29, 1994
(Post-Consummation); the period January 1 to December 31, 1993
(Pre-Consummation) and the period December 27, 1991 to December 31, 1992
(Pre-Consummation) for Envirodyne Industries, Inc. and Subsidiaries and Viskase
Holding Corporation and Subsidiaries included in this Prospectus, have been
included in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
84
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets at June 29, 1995 (unaudited) and December 29, 1994....... F-3
Unaudited consolidated statements of operations for the three months ended June 29,
1995 and June 30, 1994 and for the six months ended June 29, 1995 and June 30,
1994............................................................................... F-4
Unaudited consolidated statements of cash flows for the six months ended June 29,
1995 and June 30, 1994............................................................. F-5
Notes to consolidated financial statements........................................... F-6
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Report of independent accountants.................................................... F-20
Consolidated balance sheets at December 29, 1994 and December 31, 1993............... F-21
Consolidated statements of operations for the years ended December 29, 1994, December
31, 1993 and December 31, 1992..................................................... F-22
Consolidated statements of stockholders' equity (deficit) for the years ended
December 29, 1994, December 31, 1993, December 31, 1992 and December 26, 1991...... F-23
Consolidated statements of cash flows for the years ended December 29, 1994, December
31, 1993 and December 31, 1992..................................................... F-24
Notes to consolidated financial statements........................................... F-25
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets at June 29, 1995 (unaudited) and December 29, 1994....... F-60
Unaudited consolidated statements of operations for the three months ended June 29,
1995 and June 30, 1994 and for the six months ended June 29, 1995 and June 30,
1994............................................................................... F-61
Unaudited consolidated statements of cash flows for six months ended June 29, 1995
and June 30, 1994.................................................................. F-62
Notes to consolidated financial statements........................................... F-63
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Report of independent accountants.................................................... F-64
Consolidated balance sheets at December 29, 1994 and December 31, 1993............... F-65
Consolidated statements of operations for the years ended December 29, 1994, December
31, 1993 and December 31, 1992..................................................... F-66
Consolidated statements of stockholder's equity for the years ended December 29,
1994, December 31, 1993 and December 31, 1992...................................... F-67
Consolidated statements of cash flows for the years ended December 29, 1994, December
31, 1993 and December 31, 1992..................................................... F-68
Notes to consolidated financial statements........................................... F-69
</TABLE>
F-1
<PAGE> 86
The financial information included in these unaudited interim consolidated
financial statements has been prepared in conformity with the accounting
principles and practices reflected in the consolidated financial statements
included herein for the year ended December 29, 1994 (1994 Financial
Statements). These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the 1994
Financial Statements. The accompanying financial information, which is
unaudited, reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The condensed consolidated balance sheet as of December 29, 1994 was
derived from the audited consolidated financial statements in the Company's 1994
Financial Statements.
Reported interim results of operations are based in part on estimates which
may be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
F-2
<PAGE> 87
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................ $ 6,291 $ 7,289
Receivables, net.................................................... 95,460 86,868
Inventories......................................................... 125,754 110,483
Other current assets................................................ 27,173 19,466
--------- ---------
Total current assets........................................ 254,678 224,106
Property, plant and equipment, including those under capital lease.... 527,129 506,099
Less accumulated depreciation and amortization...................... 56,537 35,761
--------- ---------
Property, plant and equipment, net.................................. 470,592 470,338
Deferred financing costs.............................................. 9,081 9,143
Other assets.......................................................... 44,446 47,181
Excess reorganization value........................................... 140,634 145,868
--------- ---------
$ 919,431 $ 896,636
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion of long-term debt and
obligation under capital lease................................... $ 14,798 $ 25,798
Accounts payable.................................................... 42,455 34,335
Accrued liabilities................................................. 62,623 72,246
--------- ---------
Total current liabilities................................... 119,876 132,379
Long-term debt including obligation under capital lease............... 534,298 489,358
Accrued employee benefits............................................. 56,851 56,217
Deferred and noncurrent income taxes.................................. 80,671 83,333
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; none outstanding...................
Common stock, $.01 par value; 13,515,000 shares issued and
outstanding...................................................... 135 135
Paid in capital..................................................... 134,865 134,865
Accumulated (deficit)............................................... (15,020) (3,612)
Cumulative foreign currency translation adjustments................. 7,755 3,961
--------- ---------
Total stockholders' equity.................................. 127,735 135,349
--------- ---------
$ 919,431 $ 896,636
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 88
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES................................. $165,184 $150,788 $321,008 $293,381
Patent infringement settlement income... 9,457 9,457
COSTS AND EXPENSES
Cost of sales........................... 122,083 108,083 235,772 210,202
Selling, general and administrative..... 29,107 29,582 58,643 56,500
Amortization of intangibles and excess
reorganization value................. 3,905 3,841 7,815 7,687
OPERATING INCOME.......................... 10,089 18,739 18,778 28,449
Interest income......................... 19 71 83 132
Interest expense........................ 13,796 12,315 27,230 24,374
Other income, net....................... 548 1,403 1,139 1,684
Minority interest in loss of
subsidiary........................... 50
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM...................... (3,140) 7,898 (7,230) 5,941
Income tax provision (benefit).......... 177 4,450 (18) 5,000
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (3,317) 3,448 (7,212) 941
Extraordinary loss, net of tax.......... 4,196 4,196
NET INCOME (LOSS)......................... $ (7,513) $ 3,448 $(11,408) $ 941
WEIGHTED AVERAGE COMMON SHARES............ 13,515,000 13,500,000 13,515,000 13,500,000
PER SHARE AMOUNTS:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... $ (.25) $ .26 $ (.53) $ .07
NET INCOME (LOSS)......................... $ (.56) $ .26 $ (.84) $ .07
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 89
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 29, JUNE 30,
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income (loss) before extraordinary item............................. $ (7,212) $ 941
Extraordinary (loss) on debt extinguishment......................... (4,196)
--------- ---------
Net income (loss)................................................... (11,408) 941
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization under capital lease................ 20,132 17,996
Amortization of intangibles and excess reorganization value...... 7,815 7,687
Amortization of deferred financing fees and discount............. 1,031 729
Increase (decrease) in deferred and noncurrent income taxes...... (3,705) 995
Loss on debt extinguishment...................................... 6,778
Foreign currency transaction (gain).............................. (2,079) (2,659)
(Gain) on sales of property, plant and equipment................. (11) (2)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (6,130) (9,608)
Inventories...................................................... (12,851) (11,585)
Other current assets............................................. (7,360) (5,777)
Accounts payable and accrued liabilities......................... (3,834) 7,841
Other............................................................ (25) 15
--------- ---------
Total adjustments........................................... (239) 5,632
--------- ---------
Net cash provided by (used in) operating activities......... (11,647) 6,573
Cash flows from investing activities:
Capital expenditures................................................ (13,597) (15,967)
Proceeds from sale of property, plant and equipment................. 29 76
Purchase of minority interest in subsidiary......................... (4,200)
--------- ---------
Net cash (used in) investing activities..................... (13,568) (20,091)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings............... 206,053 23,188
Deferred financing costs............................................ (7,667) (227)
Repayment of revolving loan, long-term borrowings and capital lease
obligations...................................................... (173,494) (8,003)
--------- ---------
Net cash provided by financing activities................... 24,892 14,958
Effect of currency exchange rate changes on cash...................... (675) (526)
--------- ---------
Net increase (decrease) in cash and equivalents............. (998) 914
Cash and equivalents at beginning of period........................... 7,289 7,743
--------- ---------
Cash and equivalents at end of period................................. $ 6,291 $ 8,657
========= =========
- -----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid....................................................... $ 33,373 $ 28,459
Income taxes paid................................................... $ 3,996 $ 2,715
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 90
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION PROCEEDINGS, (DOLLARS IN THOUSANDS)
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.
Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales
Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky
Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance
Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the
Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as
twice modified (Plan of Reorganization) with respect to Envirodyne Industries,
Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization
was consummated and Envirodyne and certain of its subsidiaries emerged from
Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the
Plan of Reorganization was deemed to be effective as of December 31, 1993.
The Plan of Reorganization provided for the initial issuance of
approximately 13,500,000 shares of Envirodyne common stock, warrants to purchase
an additional 1,500,000 shares (subject to adjustment) and $219,262 principal
amount of 10 1/4% Senior Notes Due 2001 (10 1/4% Notes).
Holders of allowed general unsecured claims of Envirodyne (as opposed to
subsidiaries of Envirodyne) became entitled to receive 32.28 shares of common
stock for each five hundred dollars of their prepetition claims, or a total of
8,070 shares of common stock, representing .06% of the common stock initially
issued pursuant to the Plan of Reorganization. These claims totaled
approximately $125. If the allowed amount of general unsecured claims of
Envirodyne exceeds $125, for example upon the resolution of disputed claims,
additional shares of common stock will have to be issued to the holders of
allowed general unsecured claims of Envirodyne in order to provide equitable
allocation of value among Envirodyne's unsecured creditors under the Plan of
Reorganization. Such additional shares of common stock would be distributed with
respect to allowed general unsecured claims of Envirodyne as follows: (i)
approximately 2.58 additional shares per five hundred dollars in claims in the
event allowed general unsecured claims of Envirodyne are between $125 and
$25,000; (ii) approximately 5.61 additional shares per five hundred dollars in
claims in the event allowed general unsecured claims of Envirodyne are between
$25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred
dollars in claims in the event allowed general unsecured claims of Envirodyne
are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares
per five hundred dollars in claims in the event allowed general unsecured claims
of Envirodyne are between $75,000 and $100,000. Refer to Note 5 for a discussion
of disputed claims which, if determined adversely to Envirodyne, would result in
the issuance of common stock.
The Company accounted for the reorganization using the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities were restated to reflect their reorganization value. A
reorganization value of the Company's equity of $135,000 was based on the
consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings valuation techniques
believed by management and its financial advisors to be representative of the
Company's business and industry. Factors considered by the Company included the
following:
- Forecasted operating and cash flow results which gave effect to the
estimated impact of debt restructuring and other operational
reorganization.
- Discounted residual value at the end of the forecasted period based on
the capitalized cash flows for the last year of that period.
- Competition and general economic considerations
F-6
<PAGE> 91
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Projected sales growth
- Potential profitability
- Seasonality and working capital requirements
The excess of the reorganization value over the fair value of net assets
and liabilities has been reported as excess reorganization value and is being
amortized over a fifteen-year period. The Company continues to evaluate the
recoverability of excess reorganization value based on the operating performance
and expected undiscounted future cash flows of the operating business units.
2. INVENTORIES, (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
-------- ------------
<S> <C> <C>
Raw materials.............................................. $ 23,378 $ 20,358
Work in process............................................ 41,250 37,613
Finished products.......................................... 61,126 52,512
-------- --------
$125,754 $110,483
======== ========
</TABLE>
Approximately 52% of the inventories at June 29, 1995 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost
by approximately $3.7 million at June 29, 1995.
3. DEBT OBLIGATIONS, (DOLLARS IN THOUSANDS)
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes to certain institutional investors in a
private placement. The senior secured notes were issued pursuant to an indenture
dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior
Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due
2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds
of the offering primarily to (i) repay the Company's $86,125 domestic term loan,
(ii) repay the $68,316 of obligations under the Company's domestic and foreign
revolving loans and (iii) pay transaction fees and expenses. Concurrently with
the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic
revolving credit facility (Revolving Credit Facility) and a new $28,000 letter
of credit facility (Letter of Credit Facility). The Senior Secured Notes and the
obligations under the Revolving Credit Facility and the Letter of Credit
Facility are guaranteed by Envirodyne's significant domestic subsidiaries and
secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic
accounts receivable (including intercompany receivables) and inventory; (ii) all
patents, trademarks and other intellectual property (subject to non-exclusive
licensing agreements); (iii) substantially all domestic fixed assets (other than
assets subject to a lease agreement with General Electric Capital Corporation);
and (iv) a senior pledge of 100% of the capital stock of Envirodyne's
significant domestic subsidiaries and 65% of the capital stock of Viskase S.A.
Such guarantees and security are shared by the holders of the Senior Secured
Notes and the holders of the obligations under the Revolving Credit Facility on
a pari passu basis pursuant to an intercreditor agreement. Pursuant to such
intercreditor agreement, the security interest of the holders of the obligations
under the Letter of Credit Facility has priority over all other liens on the
Collateral Pool.
The Company recognized an extraordinary loss of $6,778 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of applicable income taxes of $2,582,
has been included in the Company's Statement of Operations for the quarter ended
June 29, 1995.
The $151,500 tranche of Senior Secured Notes bears interest at a rate of
12% per annum and the $8,500 tranche bears interest at a rate equal to the six
month London Interbank Offered Rate (LIBOR) plus
F-7
<PAGE> 92
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
575 basis points. The initial interest rate on the floating rate tranche was
approximately 11.7%. The interest rate on the floating rate tranche is reset
semi-annually on June 15 and December 15. Interest on the Senior Secured Notes
is payable each June 15 and December 15, commencing December 15, 1995.
On June 15, 1999, $80,000 of the aggregate principal amount of the Senior
Secured Notes is subject to a mandatory redemption. The remaining principal
amount outstanding will mature on June 15, 2000.
In the event the Company has Excess Cash Flow (as defined) in excess of
$5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be
required to make an offer to purchase Senior Secured Notes together with any
borrowed money obligations outstanding under the Revolving Credit Facility, on a
pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price
of 100% plus any accrued interest to the date of purchase.
The Senior Secured Notes are redeemable, in whole or from time to time in
part, at Envirodyne's option, at the greater of (i) the outstanding principal
amount or (ii) the present value of the expected future cash flows from the
Senior Secured Notes discounted at a rate equal to the Treasury Note yield
corresponding closest to the remaining average life of the Senior Secured Notes
at the time of prepayment plus 100 basis points, plus accrued interest thereon
to the date of purchase.
Upon the occurrence of a Change of Control (which includes the acquisition
by any person of more than 50% of Envirodyne's Common Stock), each holder of the
Senior Secured Notes has the right to require the Company to repurchase such
holder's Senior Secured Notes at a price equal to the greater of (i) the
outstanding principal amount or (ii) the present value of the expected cash
flows from the Senior Secured Notes discounted at a rate equal to the Treasury
Note yield corresponding closest to the remaining average life of the Senior
Secured Notes at the time of prepayment plus 100 basis points, plus accrued
interest thereon to the date of purchase.
The Indenture contains covenants with respect to Envirodyne and its
subsidiaries limiting (subject to a number of important qualifications), among
other things, (i) the ability to pay dividends or redeem or repurchase common
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)
certain affiliate transactions and (v) the ability to consolidate with or merge
into another entity and to dispose of assets.
Borrowings under the Revolving Credit Facility bear interest at a rate per
annum equal to the three month London Interbank Offered Rate (LIBOR) on the
first day of each calendar quarter plus 300 basis points. The Revolving Credit
Facility expires on June 20, 1998.
Envirodyne has entered into interest rate agreements that cap $50 million
of interest rate exposure at an average LIBOR rate of 6.50% until January 1997.
These interest rate cap agreements were entered into under terms of the senior
bank financing that was repaid on June 20, 1995. Interest expense includes $306
of amortization of the interest rate cap premium during the six-month period
ended June 29, 1995. Envirodyne has not received any payments under the interest
rate protection agreements.
The Letter of Credit Facility expires on June 20, 1998. Fees on the
outstanding amount of letters of credit are 2.0% per annum, with an issuance fee
of 0.5% on the face amount of the letter of credit. There is a commitment fee of
0.5% per annum on the unused portion of the Letter of Credit Facility plus an
issuance fee.
F-8
<PAGE> 93
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had the refinancing taken place at the beginning of 1995, the pro forma
Envirodyne consolidated statement of operations would have been:
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS ENDED
JUNE 29, 1995
---------------------------
(IN THOUSANDS, EXCEPT FOR
NUMBER OF SHARES AND PER
SHARE AMOUNTS)
<S> <C>
Net sales..................................................... $ 321,008
Cost of sales............................................... 235,772
Selling, general and administrative......................... 58,643
Amortization of intangibles and excess reorganization
cost..................................................... 7,815
---------------
Operating income.............................................. 18,778
Interest income............................................. 83
Interest expense............................................ 30,066
Other expense (income), net................................. (1,139)
---------------
(Loss) before income taxes.................................... (10,066)
Income tax (benefit)........................................ (1,124)
---------------
Net (loss).................................................... $ (8,942)
====================
Weighted average common shares................................ 13,515,000
Net (loss) per share.......................................... $ (.66)
====================
</TABLE>
The pro forma information reflects the change in interest expense and
related tax effect due to the issuance of $160 million principal amount of
Senior Secured Notes and refinancing of the Company's bank debt.
The $219,262 principal amount of 10 1/4% Notes were issued pursuant to an
Indenture dated as of December 31, 1993 (10 1/4% Note Indenture) between
Envirodyne and Bankers Trust Company, as Trustee. The 10 1/4% Notes are the
unsecured senior obligations of Envirodyne, bear interest at the rate of 10 1/4%
per annum, payable on each June 1 and December 1, and mature on December 1,
2001. The 10 1/4% Notes are redeemable, in whole or from time to time in part,
at the option of Envirodyne, at the percentages of principal amount specified
below plus accrued and unpaid interest to the redemption date, if the 10 1/4%
Notes are redeemed during the twelve-month period commencing on January 1 of the
following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
1995...................................................................... 105%
1996...................................................................... 104%
1997...................................................................... 103%
1998...................................................................... 102%
1999...................................................................... 101%
2000 and thereafter....................................................... 100%
</TABLE>
The 10 1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important qualifications),
among other things, (i) the ability to pay dividends on or redeem or repurchase
capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate
transactions and (iv) the ability of the Company to consolidate with or merge
with or into another entity or to dispose of substantially all its assets.
F-9
<PAGE> 94
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
-------- -------------
<S> <C> <C>
Short-term debt, current maturity of long-term debt, and
capital lease obligation:
Current maturity of Bank Term Loan.......................... $ 11,100
Current maturity of Viskase Capital Lease Obligation........ $ 6,012 5,450
Current maturity of Viskase Limited Term Loan (5.2%)........ 2,056 1,882
Other....................................................... 6,730 7,366
-------- ---------
Total short-term debt............................... $ 14,798 $ 25,798
======== =========
Long-term debt:
Bank Credit Agreement:
Term Loan due 1999....................................... $ 80,575
Revolving Loan due 1999.................................. 32,524
Revolving loans (9.3%)................................... $ 4,000
12% Senior Secured Notes due 2000........................ 160,000
10.25% Senior Notes due 2001............................. 219,262 219,262
Viskase Capital Lease Obligation......................... 141,182 147,194
Viskase Limited Term Loan (5.2%)......................... 8,367 8,466
Other.................................................... 1,487 1,337
-------- ---------
Total long-term debt................................ $534,298 $ 489,358
======== =========
</TABLE>
The fair value of the Company's debt obligation (excluding capital lease
obligation) is estimated based upon the quoted market prices for the same or
similar issues or on the current rates offered to the Company for the debt of
the same remaining maturities. At June 29, 1995, the carrying amount and
estimated fair value of debt obligations (excluding capital lease obligation)
were $401,690 and $348,741, respectively.
On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production and
finishing equipment at Viskase's four domestic casing production and finishing
facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee;
Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the
relevant agreements, will continue to operate all of the facilities. The lease
has been accounted for as a capital lease.
The principal terms of the sale and leaseback transaction include: (a) a 15
year basic lease term (plus selected renewals at Viskase's option), (b) annual
rent payments in advance beginning in February 1991, and (c) a fixed price
purchase option at the end of the basic 15 year term and fair market purchase
options at the end of the basic term and each renewal term. Further, the Lease
Documents contain covenants requiring maintenance by the Company of certain
financial ratios and restricting the Company's ability to pay dividends, make
payments to affiliates, make investments and incur indebtedness.
Annual rental payments under the Lease will be approximately $19.2 million
through 1997, $21.4 million in 1998 and $23.5 million through the end of the
basic 15-year term. Viskase is required to provide credit support consisting of
a standby letter of credit in an amount up to one year's rent through at least
1997. This credit support can be reduced up to $4 million currently if the
Company achieves and maintains certain financial ratios. As of June 29, 1995,
the Company had met the required financial ratios and the letter of credit has
been reduced by $4 million. The letter can be further reduced in 1997 or
eliminated after 1998 if the Company achieves and maintains certain financial
ratios. Envirodyne and its other principal subsidiaries guaranteed the
obligations of Viskase under the Lease.
F-10
<PAGE> 95
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of minimum future lease payments under the
capital lease together with the present value of the net minimum lease payments
as of June 29, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
--------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 19,227
1997...................................................................... 19,227
1998...................................................................... 21,363
1999...................................................................... 23,499
2000...................................................................... 23,499
Thereafter................................................................ 117,495
--------
Net minimum lease payments................................................ 224,310
Less:
Amount representing interest............................................ (77,116)
--------
$147,194
========
</TABLE>
The 1995 rental payment of $19,227 was paid on February 28, 1995. Principal
payments under the capital lease obligation for the years ended 1995 through
1999 range from approximately $5 million to $13 million.
Aggregate maturities of remaining long-term debt, after reflecting the June
20, 1995 refinancing, for each of the next five fiscal years are:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
1995 (last six months only)................................................ $ 3,181
1996....................................................................... 8,258
1997....................................................................... 8,880
1998....................................................................... 11,920
1999....................................................................... 95,082
</TABLE>
4. SUBSIDIARY GUARANTORS
Envirodyne's payment obligations under the Senior Secured Notes are fully
and unconditionally guaranteed on a joint and several basis (collectively,
"Subsidiary Guarantees") by Viskase Corporation, Viskase Holding Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc.
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent
substantially all of the operations of Envirodyne conducted in the United
States. The remaining subsidiaries of Envirodyne generally are foreign
subsidiaries or otherwise relate to foreign operations.
The obligations of each Guarantor under its Subsidiary Guarantee are the
senior obligation of such Guarantor, and are collateralized, subject to certain
permitted liens, by substantially all of the domestic assets of the Guarantor
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the
capital stock of Viskase S.A. In addition, the collateral securing the Notes
includes a senior pledge of 100% of the capital stock of each Guarantor. The
Subsidiary Guarantees and security are shared with the lenders under the
Revolving Credit Agreement on a pari passu basis and are subject to the priority
interest of the holders of obligations under the Letter of Credit Facility, each
pursuant to an intercreditor agreement.
The following consolidating condensed financial data illustrate the
composition of the combined Guarantors. No single Guarantor has any significant
legal restrictions on the ability of investors or creditors to obtain access to
its assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above. Separate financial
statements of the guarantors are not presented because management has determined
that these would not be material to investors. Based on the book value and the
F-11
<PAGE> 96
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market value of the pledged securities of Viskase Corporation, Viskase Sales
Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. and Sandusky
Plastics of Delaware, Inc., these Subsidiary Guarantors do not constitute a
substantial portion of the collateral and, therefore, the separate financial
statements of these subsidiaries have not been provided. Separate audited
financial statements of Viskase Holding Corporation are being filed within this
Prospectus.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for purposes of the supplemental consolidating
presentation. Earnings of subsidiaries are therefore reflected in the parent's
and Subsidiary Guarantors' investment accounts and earnings. The principal
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
F-12
<PAGE> 97
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
JUNE 29, 1995
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL
--------- ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents........... $ 3,062 $ (549) $ 3,778 $ 6,291
Receivables, net............... 73,992 55,411 $ (33,943) 95,460
Inventories.................... 73,441 54,386 (2,073) 125,754
Other current assets........... 663 18,948 7,562 27,173
--------- ------------ ------------ --------------- ------------
Total current assets... 3,725 165,832 121,137 (36,016) 254,678
Property, plant and equipment
including those under capital
lease.......................... 260 377,376 149,493 527,129
Less accumulated depreciation
and amortization............ 113 41,002 15,422 56,537
--------- ------------ ------------ --------------- ------------
Property, plant and equipment,
net............................ 147 336,374 134,071 470,592
Deferred financing costs......... 9,044 37 9,081
Other assets..................... 42,991 1,455 44,446
Investment in subsidiaries....... 85,380 115,956 (201,336)
Excess reorganization value...... 98,096 42,538 140,634
--------- ------------ ------------ --------------- ------------
$ 98,296 $759,249 $299,238 $(237,352) $919,431
========= ========= ========== =========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including
current portion of long-term
debt and obligation under
capital lease............... $ 8,236 $ 6,562 $ 14,798
Accounts payable............... $ 113 26,051 50,234 $ (33,943) 42,455
Accrued liabilities............ 9,669 29,052 23,902 62,623
--------- ------------ ------------ --------------- ------------
Total current
liabilities.......... 9,782 63,339 80,698 (33,943) 119,876
Long-term debt including
obligations under capital
lease.......................... 383,262 141,804 9,232 534,298
Accrued employee benefits........ 52,684 4,167 56,851
Deferred and noncurrent income
taxes.......................... 28,096 28,415 24,160 80,671
Intercompany loans and
advances....................... (450,579) 399,710 50,832 37
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par
value;
none outstanding............
Common stock, $.01 par value;
13,515,000 shares issued and
outstanding................. 135 3 32,738 (32,741) 135
Paid in capital................ 134,865 83,887 89,524 (173,411) 134,865
Accumulated earnings
(deficit)................... (15,020) (18,293) 180 18,113 (15,020)
Cumulative foreign currency
translation adjustments..... 7,755 7,700 7,707 (15,407) 7,755
--------- ------------ ------------ --------------- ------------
Total stockholders'
equity............... 127,735 73,297 130,149 (203,446) 127,735
--------- ------------ ------------ --------------- ------------
$ 98,296 $759,249 $299,238 $(237,352) $919,431
========= ========= ========== =========== =========
</TABLE>
- -------------------------
(1) Elimination of intercompany receivables, payables and investment accounts.
F-13
<PAGE> 98
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 29, 1995
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $211,180 $129,214 $(19,386) $321,008
COSTS AND EXPENSES
Cost of sales...................... 154,687 100,359 (19,274) 235,772
Selling, general and
administrative.................. $ 3,125 33,391 22,127 58,643
Amortization of intangibles and
excess reorganization value..... 6,133 1,682 7,815
-------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS).............. (3,125) 16,969 5,046 (112) 18,778
Interest income.................... 4 38 41 83
Interest expense................... 18,232 7,033 1,965 27,230
Intercompany interest expense
(income)........................ (18,441) 17,000 1,441
Management fees (income)........... (3,700) 3,219 481
Other expense (income), net........ (2,714) 9 1,566 (1,139)
Equity Loss (income) in
subsidiary...................... 10,072 2,369 (12,441)
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. (6,570) (12,623) (366) 12,329 (7,230)
Income tax provision (benefit)..... 1,332 (2,663) 1,313 (18)
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................... (7,902) (9,960) (1,679) 12,329 (7,212)
Extraordinary loss, net of tax..... 3,506 690 4,196
-------- ------------ ------------ ------------ ------------
NET INCOME (LOSS).................... $(11,408) $ (9,960) $ (2,369) $ 12,329 $(11,408)
======== ========= ========== ========= =========
</TABLE>
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 29, 1995
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................. $108,891 $ 66,694 $(10,401) $165,184
COSTS AND EXPENSES
Cost of sales....................... 79,618 52,722 (10,257) 122,083
Selling, general and
administrative................... $ 1,552 16,037 11,518 29,107
Amortization of intangibles and
excess reorganization value...... 3,067 838 3,905
------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS)............... (1,552) 10,169 1,616 (144) 10,089
Interest income..................... 4 13 2 19
Interest expense.................... 9,148 3,541 1,107 13,796
Intercompany interest expense
(income)......................... (9,089) 8,498 591
Management fees (income)............ (1,850) 1,661 189
Other expense (income), net......... (562) 52 (38) (548)
Equity loss (income) in
subsidiary....................... 4,532 1,613 (6,145)
------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.................. (3,727) (5,183) (231) 6,001 (3,140)
Income tax provision (benefit)...... 280 (795) 692 177
------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................ (4,007) (4,388) (923) 6,001 (3,317)
Extraordinary loss, net of tax...... 3,506 690 4,196
------- ------------ ------------ ------------ ------------
NET INCOME (LOSS)..................... $(7,513) $ (4,388) $ (1,613) $ 6,001 $ (7,513)
======= ========= ========== ========= =========
</TABLE>
F-14
<PAGE> 99
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOWS
FOR SIX MONTHS ENDED JUNE 29, 1995
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.............. $ 867 $(11,421) $ (1,093) $ (11,647)
Cash flows from investing
activities:
Capital expenditures.............. (33) (10,289) (3,275) (13,597)
Proceeds from sale of property,
plant and equipment............ 29 29
--------- ------------ ------------ ------------ ------------
Net cash (used in) investing
activities................... (33) (10,289) (3,246) (13,568)
Cash flows from financing
activities:
Proceeds from revolving loan and
long term borrowings........... 164,000 42,053 206,053
Deferred financing costs.......... (7,667) (7,667)
Repayment of revolving loan, long-
term borrowings and capital
lease obligations.............. (119,275) (5,578) (48,641) (173,494)
Increase (decrease) in Envirodyne
loan and advances.............. (35,385) 24,886 10,499
--------- ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities................ 1,673 19,308 3,911 24,892
Effect of currency exchange rate
changes on cash................... (675) (675)
--------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
equivalents....................... 2,507 (2,402) (1,103) (998)
Cash and equivalents at beginning of
period............................ 555 1,853 4,881 7,289
--------- ------------ ------------ ------------ ------------
Cash and equivalents at end of
period............................ $ 3,062 $ (549) $ 3,778 $ 6,291
========= ========= ========== ========= =========
</TABLE>
F-15
<PAGE> 100
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES.............................. $206,154 $101,885 $(14,658) $293,381
Patent infringement settlement
income............................ 9,457 9,457
COSTS AND EXPENSES
Cost of sales........................ 147,087 77,430 (14,315) 210,202
Selling, general and
administrative.................... $ 3,182 38,455 14,863 56,500
Amortization of intangibles and
excess reorganization value....... 6,129 1,558 7,687
-------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS)................ (3,182) 23,940 8,034 (343) 28,449
Interest income...................... 3 20 109 132
Interest expense..................... 15,628 7,012 1,734 24,374
Intercompany interest expense
(income).......................... (16,168) 14,168 2,000
Management fees (income)............. (3,700) 3,225 475
Other expense (income), net.......... (2,640) (24) 980 (1,684)
Equity loss (income) in subsidiary... 1,315 45 (1,360)
Minority interest in loss of
subsidiary........................ 50 50
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES...... 2,386 (466) 2,954 1,067 5,941
Income tax provision (benefit)....... 1,445 556 2,999 5,000
-------- ------------ ------------ ------------ ------------
NET INCOME (LOSS)...................... $ 941 $ (1,022) $ (45) $ 1,067 $ 941
======== ========= ========== ========= =========
</TABLE>
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................... $107,794 $ 51,534 $ (8,540) $150,788
Patent infringement settlement
income............................. 9,457 9,457
COSTS AND EXPENSES
Cost of sales......................... 76,486 40,018 (8,421) 108,083
Selling, general and administrative... $ 1,564 20,841 7,177 29,582
Amortization of intangibles and excess
reorganization value............... 3,062 779 3,841
------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS)................. (1,564) 16,862 3,560 (119) 18,739
Interest income....................... 1 11 59 71
Interest expense...................... 7,959 3,474 882 12,315
Intercompany interest expense
(income)........................... (9,375) 8,499 876
Management fees (income).............. (1,850) 1,610 240
Other expense (income), net........... (1,834) (144) 575 (1,403)
Equity loss (income) in subsidiary.... (1,205) 755 450
------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES....... 4,742 2,679 1,046 (569) 7,898
Income tax provision (benefit)........ 1,294 1,355 1,801 4,450
------- ------------ ------------ ------------ ------------
NET INCOME (LOSS)....................... $ 3,448 $ 1,324 $ (755) $ (569) $ 3,448
======= ========= ========== ========= =========
</TABLE>
F-16
<PAGE> 101
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ (354) $ 3,002 $3,925 $ 6,573
Cash flows from investing activities:
Capital expenditures............... (15) (10,205) (5,747) (15,967)
Proceeds from sales of property,
plant and equipment............. 76 76
Purchase of minority interest in
subsidiary...................... (4,200) (4,200)
-------- ------------ ------------ ------------ ------------
Net cash (used in)
investing activities..... (15) (14,329) (5,747) (20,091)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings............ 15,050 8,138 23,188
Deferred financing costs........... (174) (53) (227)
Repayment of revolving loan,
long-term borrowings and capital
lease obligations............... (5,058) (2,945) (8,003)
Increase (decrease) in Envirodyne
loan and advances............... (15,563) 18,750 (3,187)
-------- ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities............... (687) 13,692 1,953 14,958
Effect of currency exchange rate
changes on cash.................... (526) (526)
-------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
equivalents........................ (1,056) 2,365 (395) 914
Cash and equivalents at beginning of
period............................. 930 1,922 4,891 7,743
-------- ------------ ------------ ------------ ------------
Cash and equivalents at end of
period............................. $ (126) $ 4,287 $4,496 $ 8,657
======== ========= ========== ========= =========
</TABLE>
5. CONTINGENCIES, (DOLLARS IN THOUSANDS)
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was
pending as of the commencement of the bankruptcy case in which the plaintiffs
are seeking substantial damages. The Company and the plaintiffs are currently
participating in a mediation process to attempt to resolve the case. Envirodyne
denies liability and believes it has sufficient defenses to all of plaintiffs'
claims. In the absence of successful mediation or other settlement negotiations,
the Company will continue to vigorously defend these claims. While Envirodyne
cannot predict with certainty the outcome of these claims, when ultimately
concluded or adjudicated, these claims will not, in the opinion of management,
have a material adverse effect on the results of operations or the financial
condition of the Company. However, inasmuch as the Plan of Reorganization
provides for the issuance of common stock with respect to prepetition Envirodyne
general unsecured claims (refer to Note 1), an adverse finding of liability and
damages could result in substantial dilution to the holders of the common stock.
If additional shares of common stock have to be issued to the former SMD
employees, as holders of allowed Envirodyne general unsecured claims under the
Plan of Reorganization, such additional shares of common stock would be
distributed as follows: (i) approximately 2.58 additional shares per five
hundred dollars in
F-17
<PAGE> 102
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
claims in the event allowed general unsecured claims of Envirodyne are between
$125 and $25,000; (ii) approximately 5.61 additional shares per five hundred
dollars in claims in the event allowed general unsecured claims of Envirodyne
are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per
five hundred dollars in the event allowed general unsecured claims of Envirodyne
are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares
per five hundred dollars in claims in the event allowed general unsecured claims
of Envirodyne are between $75,000 and $100,000 (refer to Note 1).
Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald Acquisition
Corporation (Emerald) with respect to which, although Envirodyne is not
presently a party to such litigation, certain defendants have asserted indemnity
rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers
Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald
P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael
Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (Bankruptcy Court), ARTRA Group
Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in
connection with the negotiation and consummation of the Plan of Reorganization.
In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon
Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K.
Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the
Eighteenth Judicial Circuit, County of DuPage, State of Illinois, ARTRA alleges
negligence, breach of fiduciary duty and duty of loyalty, fraudulent
misrepresentation and breach of contract in connection with the 1989 acquisition
of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of
$136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly
& Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman
have asserted common law and contractual rights of indemnity against Envirodyne
for attorneys' fees, costs and any ultimate liability relating to the claims set
forth in the complaints. Envirodyne is continuing its evaluation of the merits
of the indemnification claims against Envirodyne and the underlying claims in
the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay
such funds in the event it is ultimately determined that there is no right to
indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and
Mr. Kelly for the payment of legal fees in the case pending before the
Bankruptcy Court. Although the case is in a preliminary stage and the Company is
not a party thereto, the Company believes that the plaintiff's claims raise
similar factual issues to those raised in the Envirodyne bankruptcy cases which,
if resolved in a manner similar to that in the Envirodyne bankruptcy cases,
would render it difficult for the plaintiff to establish liability. Accordingly,
the Company believes that the indemnification claims would not have a material
adverse effect upon the business or financial position of the Company, even if
the claimants were successful in establishing their right to indemnification.
In the Envirodyne bankruptcy case the United States Environmental
Protection Agency (USEPA), the Economic Development Authority (EDA), and
Navistar International Transportation Corp. (Navistar Transportation) filed
proofs of claim with respect to unreimbursed environmental response costs at the
location of the former SMD operations. Envirodyne, Navistar Transportation, EDA
and USEPA have negotiated a definitive settlement agreement, subject to final
approval by the Bankruptcy Court and public comment pursuant to regulations
applicable to EDA and USEPA, to settle the claims against Envirodyne through the
payment of five thousand dollars to the USEPA and the issuance of 64,460 shares
of common stock to Navistar Transportation. In the event that the settlement is
not completed, Envirodyne believes that it has valid defenses to the claims and
will continue its objections to the claims. To the extent that USEPA, EDA or
Navistar Transportation were able to establish liability and damages as to their
respective proofs of claim, such parties would receive Common Stock under the
Plan of Reorganization in satisfaction of their claims.
Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne
by Emerald failed to exchange their certificates representing old Envirodyne
common stock for the forty dollar per share cash merger consideration specified
by the applicable acquisition agreement. In the Envirodyne bankruptcy case,
F-18
<PAGE> 103
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Envirodyne sought to equitably subordinate the interests of the holders of
untendered shares, in which event such holders would receive no distribution
pursuant to the Plan of Reorganization. The Bankruptcy Court granted
Envirodyne's motion for summary judgment to equitably subordinate the holders of
untendered shares. The United States District Court for the Northern District of
Illinois has affirmed the Bankruptcy Court's summary judgment. If such holders
were nonetheless ultimately successful in a further appeal of this matter,
Envirodyne believes that the maximum number of shares of common stock that it
would be required to issue to such claimants is approximately 106,000.
Clear Shield National, Inc. and some of its employees have received
subpoenas from the Antitrust Division of the United States Department of Justice
relating to a grand jury investigation of the disposable plastic cutlery
industry. Clear Shield National, Inc. is cooperating fully with the
investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
F-19
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Envirodyne Industries, Inc.
We have audited the consolidated financial statements of Envirodyne
Industries, Inc. and Subsidiaries. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on
December 31, 1993, the Company completed a comprehensive financial restructuring
through the implementation of reorganization under Chapter 11 of the United
States Bankruptcy Code and applied fresh start reporting.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Envirodyne
Industries, Inc. and Subsidiaries as of December 29, 1994 and December 31, 1993,
and the consolidated results of their operations and their cash flows for the
period January 1 to December 29, 1994 (Post-consummation) and January 1 to
December 31, 1993 and December 27, 1991 to December 31, 1992 (Pre-consummation),
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 15, 1995,
(except with respect to the
matters discussed in Note 21,
as to which the date is July
19, 1995)
F-20
<PAGE> 105
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................................ $ 7,289 $ 7,743
Receivables, net............................................ 86,868 72,516
Inventories................................................. 110,483 98,824
Other current assets........................................ 19,466 17,538
-------- --------
Total current assets................................. 224,106 196,621
Property, plant and equipment, including those under capital
lease....................................................... 506,099 455,554
Less accumulated depreciation and amortization.............. 35,761
-------- --------
Property, plant and equipment, net.......................... 470,338 455,554
Deferred financing costs....................................... 9,143 8,989
Other assets................................................... 47,181 50,765
Excess reorganization value.................................... 145,868 155,751
-------- --------
$896,636 $867,680
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion of long-term debt
and obligation under capital lease........................ $ 25,798 $ 15,610
Accounts payable............................................ 34,335 37,524
Accrued liabilities......................................... 72,246 61,047
-------- --------
Total current liabilities............................ 132,379 114,181
Long-term debt including obligation under capital lease........ 489,358 482,379
Accrued employee benefits...................................... 56,217 53,622
Deferred and noncurrent income taxes........................... 83,333 78,565
Minority interest in consolidated subsidiary................... 3,933
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,515,000 shares issued and outstanding at December 29,
1994, and 13,500,000 shares at December 31, 1993....... 135 135
Paid in capital............................................. 134,865 134,865
Accumulated (deficit)....................................... (3,612)
Cumulative foreign currency translation adjustments......... 3,961
-------- --------
Total stockholders' equity........................... 135,349 135,000
-------- --------
$896,636 $867,680
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
<PAGE> 106
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES.......................................... $599,029 $ 587,385 $ 575,705
Patent infringement settlement income............ 9,457
COSTS AND EXPENSES
Cost of sales.................................... 432,746 416,410 398,876
Selling, general and administrative.............. 111,451 101,632 94,076
Amortization of intangibles and excess
reorganization value.......................... 15,612 15,711 15,547
--------- ------------ ------------
OPERATING INCOME................................... 48,677 53,632 67,206
Interest income.................................. 307 931 964
Interest expense................................. 49,514 31,190 106,522
Other expense (income), net...................... (1,668) 5,540 8,699
Fees and expenses associated with renegotiation
of debt....................................... 3,945
Minority interest in loss of subsidiary.......... 50 717
--------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES, REORGANIZATION
ITEMS AND EXTRAORDINARY ITEMS.................... 1,188 18,550 (50,996)
Reorganization items, net........................ 104,745
--------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS 1,188 (86,195) (50,996)
Income tax provision (benefit)................... 4,800 12,000 (14,000)
--------- ------------ ------------
(LOSS) BEFORE EXTRAORDINARY ITEMS.................. (3,612) (98,195) (36,996)
Extraordinary gain, net of tax................... 183,784
--------- ------------ ------------
NET INCOME (LOSS).................................. $ (3,612) $ 85,589 $ (36,996)
--------- ----------- -----------
--------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES..................... 13,500,703 320 320
----------- ----------- -----------
----------- ----------- -----------
PER SHARE AMOUNTS:
(LOSS) BEFORE EXTRAORDINARY ITEMS.................. $(.27) $ (306,859) $ (115,613)
----- ----------- -----------
----- ----------- -----------
NET INCOME (LOSS).................................. $(.27) $ 267,466 $ (115,613)
----- ----------- -----------
----- ----------- -----------
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operation for the fiscal year ended
December 29, 1994 is not comparable to the prior years. (Refer to Note 1 of
Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE> 107
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED FOREIGN CURRENCY TOTAL
COMMON PAID IN EARNINGS TRANSLATION STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY (DEFICIT)
------ -------- --------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance December 26, 1991....... $ 1 $ 12,900 $ (61,780) $ 8,576 $(40,303)
Net (loss)...................... (36,996) (36,996)
Translation adjustments......... (6,246) (6,246)
---- -------- --------- -------- --------
Balance December 31, 1992....... 1 12,900 (98,776) 2,330 (83,545)
Net income...................... 85,589 85,589
Translation adjustments......... (2,044) (2,044)
Cancellation of preconsummation
Common Stock.................. (1) (12,900) (12,901)
Elimination of accumulated
deficit and cumulative foreign
currency translation
adjustments................... 13,187 (286) 12,901
---- -------- --------- -------- --------
$ 0 $ 0 $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Issuance of new Common Stock.... $135 $134,865 $135,000
---- -------- --------
Balance December 31, 1993....... 135 134,865 135,000
Net (loss)...................... $ (3,612) (3,612)
Translation adjustments......... $ 3,961 3,961
---- -------- --------- -------- --------
Balance December 29, 1994....... $135 $134,865 $ (3,612) $ 3,961 $135,349
==== ======== ========= ======== ========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholders' equity at and subsequent to December 31, 1993 is
not comparable to the prior years. (Refer to Note 1 of Notes to Consolidated
Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 108
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) before extraordinary gain..................... $ (3,612) $ (98,195) $(36,996)
Extraordinary gain................................... 183,784
------------ ------------ ------------
Net income (loss).................................... (3,612) 85,589 (36,996)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Depreciation and amortization under capital
lease........................................... 35,775 36,687 33,763
Amortization of intangibles and excess
reorganization value............................ 15,612 15,711 15,547
Amortization of deferred financing fees and
discount........................................ 1,569 2,418 30,820
Increase (decrease) in deferred and noncurrent
income taxes.................................... (52) 9,547 (14,994)
Foreign currency transaction loss (gain).......... (3,465) 3,380 5,089
Loss (gain) on sales of property, plant and
equipment....................................... (9) 650 2,089
Reorganization items and fresh start reporting.... (79,039)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable...... (11,257) (1,319) 1,747
Decrease (increase) in inventories.............. (10,548) 4,163 6,527
Decrease (increase) in other current assets..... (1,607) (2,152) 1,137
Increase in accounts payable and accrued
liabilities.................................. 3,774 15,894 41,130
Other........................................... (2,894) 672 2,564
------------ ------------ ------------
Total adjustments................................. 26,898 6,612 125,419
------------ ------------ ------------
Net cash provided by operating activities before
reorganization expense....................... 23,286 92,201 88,423
Net cash used for reorganization items.......... (14,929)
------------ ------------ ------------
Total net cash provided by operating
activities................................... 23,286 77,272 88,423
Cash flows from investing activities:
Capital expenditures................................. (32,566) (40,887) (29,018)
Proceeds from sale of property, plant and
equipment......................................... 359 124 173
Investments and advances to affiliated companies..... (4,990)
Purchase of minority interest in subsidiary.......... (4,200)
Proceeds from sale of time deposits in Puerto Rico... 6,600
------------ ------------ ------------
Net cash (used in) investing activities......... (36,407) (40,763) (27,235)
Cash flows from financing activities:
Proceeds from revolving loan and long-term
borrowings........................................ 37,668 106,003 3
Deferred financing costs............................. (1,608) (9,779) (12)
Repayment of revolving loan, long-term borrowings and
capital lease obligations......................... (22,617) (138,736) (57,439)
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................... 13,443 (42,512) (57,448)
Effect of currency exchange rate changes on cash....... (776) (316) 847
------------ ------------ ------------
Net increase (decrease) in cash and equivalents........ (454) (6,319) 4,587
Cash and equivalents at beginning of period............ 7,743 14,062 9,475
------------ ------------ ------------
Cash and equivalents at end of period.................. $ 7,289 $ 7,743 $ 14,062
========== ========== ==========
- ------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid........................................ $ 43,484 $ 28,001 $ 31,461
Income taxes paid.................................... $ 5,058 $ 1,154 $ 5,158
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of cash flows for the fiscal year ended
December 29, 1994 is not comparable to the prior years. (Refer to Note 1 of
Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE> 109
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION PROCEEDINGS, (DOLLARS IN THOUSANDS)
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.
Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales
Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky
Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance
Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the
Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as
twice modified (Plan of Reorganization) with respect to Envirodyne Industries,
Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization
was consummated and Envirodyne and certain of its subsidiaries emerged from
Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the
Plan of Reorganization was deemed to be effective as of December 31, 1993.
Pursuant to the Plan of Reorganization, Envirodyne's shares of common stock
that were outstanding prior to the effective date were canceled. Emerald
Acquisition Corporation, the sole stockholder of Envirodyne prior to the
consummation of the bankruptcy, received no distribution pursuant to the Plan of
Reorganization. The Plan of Reorganization provided for the initial issuance of
approximately 13,500,000 new shares of Envirodyne common stock (subject to
adjustment), warrants to purchase an additional 1,500,000 shares and
distributions to major creditors as follows:
-- Holders of the Envirodyne's former Senior Discount Notes Due 1997
(14.5%) (Old Discount Notes) with an accreted value as of January 6, 1993
of $200,838 became entitled to receive a pro rata portion of $219,262
principal amount of 10 1/4% Senior Notes Due 2001 (10 1/4% Notes).
-- Holders of Envirodyne's former $200,000 principal amount of 14% Senior
Subordinated Debentures Due 2001 (Old 14% Debentures), with accrued but
unpaid interest through January 6, 1993 of $42,812 became entitled to
receive a pro rata portion of 12,142,737 shares of the Envirodyne common
stock, par value $.01 per share, representing in the aggregate
approximately 89.95% of the common stock initially issued pursuant to the
Plan of Reorganization.
-- Holders of the Envirodyne's former $91,350 principal amount of 13 1/2%
Subordinated Notes Due 1996 (Old 13 1/2% Notes), with accrued but unpaid
interest through January 6, 1993 of $13,604 became entitled to receive a
pro rata portion of (i) 903,625 shares of Envirodyne common stock,
representing in the aggregate approximately 6.69% of the common stock
initially issued pursuant to the Plan of Reorganization, and (ii)
warrants (Warrants) to purchase 1,500,000 shares of common stock. The
Warrants were issued pursuant to a Warrant Agreement dated as of December
31, 1993 between Envirodyne and Bankers Trust Company, as Warrant Agent.
The Warrants are exercisable at any time until December 31, 1998 at an
exercise price of $17.25 per share. The number of shares of common stock
for which a Warrant is exercisable, and the exercise price of the
Warrants, are subject to adjustment upon the occurrence of certain
events. In addition, holders of Old 13 1/2% Notes, other than Salomon
Brothers Inc (Salomon Brothers) and certain of its affiliates, who
elected to grant a limited release to Salomon Brothers and its affiliates
pursuant to the Plan of Reorganization, of all claims arising out of the
1989 leveraged buyout acquisition of Envirodyne, the Old 13 1/2% Notes or
Envirodyne, were entitled to share ratably in 445,928 shares of common
stock, representing in the aggregate approximately 3.30% of the common
stock initially issued pursuant to the Plan of Reorganization.
-- Holders of allowed general unsecured claims of Envirodyne (as opposed to
subsidiaries of Envirodyne) became entitled to receive 32.28 shares of
common stock for each five hundred dollars of their prepetition claims,
or a total of 8,070 shares of common stock, representing .06% of the
common stock initially issued pursuant to the Plan of Reorganization.
These claims totaled approximately
F-25
<PAGE> 110
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$125. If the allowed amount of general unsecured claims of Envirodyne
exceeds $125, for example upon the resolution of disputed claims,
additional shares of common stock will have to be issued to the holders
of allowed general unsecured claims of Envirodyne in order to provide
equitable allocation of value among Envirodyne's unsecured creditors
under the Plan of Reorganization. Such additional shares of common stock
would be distributed with respect to allowed general unsecured claims of
Envirodyne as follows: (i) approximately 2.58 additional shares per five
hundred dollars in claims in the event allowed general unsecured claims
of Envirodyne are between $125 and $25,000; (ii) approximately 5.61
additional shares per five hundred dollars in claims in the event allowed
general unsecured claims of Envirodyne are between $25,000 and $50,000;
(iii) approximately 9.22 additional shares per five hundred dollars in
claims in the event allowed general unsecured claims of Envirodyne are
between $50,000 and $75,000; and (iv) approximately 13.58 additional
shares per five hundred dollars in claims in the event allowed general
unsecured claims of Envirodyne are between $75,000 and $100,000. Refer to
Note 11 for a discussion of disputed claims which, if determined
adversely to Envirodyne, would result in the issuance of common stock.
-- Holders of Envirodyne subsidiary allowed trade claims were paid in full.
-- Salomon Brothers Holding Company Inc 11.25% Pay-in-Kind Notes issued by
Envirodyne with an accreted value as of January 6, 1993 of $5,658 were
canceled.
The contracts constituting the sale and leaseback transaction with General
Electric Capital Corporation were assumed by the relevant Envirodyne
subsidiaries under the Plan of Reorganization with minor changes thereto.
The Chapter 11 filing was related only to the Company's domestic operations
and did not include the foreign subsidiaries and various inactive domestic
subsidiaries.
The Company accounted for the reorganization using the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities have been restated to reflect their reorganization value, which
approximates fair value.
The reorganization value of the Company's equity of $135,000 was based on
the consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings valuation techniques
believed by management and its financial advisors to be representative of the
Company's business and industry. Factors considered by the Company included the
following:
- Forecasted operating and cash flow results which gave effect to the
estimated impact of debt restructuring and other operational
reorganization.
- Discounted residual value at the end of the forecasted period based on
the capitalized cash flows for the last year of that period.
- Competition and general economic considerations.
- Projected sales growth.
- Potential profitability.
- Seasonality and working capital requirements.
The excess of the reorganization value over the fair value of net assets and
liabilities is reported as excess reorganization value and is being amortized
over a fifteen-year period. The Company continues to evaluate the recoverability
of excess reorganization value based on the operating performance and expected
future undiscounted cash flows of the operating business units.
F-26
<PAGE> 111
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reorganization and the adoption of Fresh Start Reporting resulted in
the following adjustments to the Company's Consolidated Statement of Operations
for the period January 1 to December 31, 1993:
<TABLE>
<CAPTION>
INCOME
(EXPENSE)
---------
<S> <C>
Reorganization Items
- ---------------------------------------------------------------------------------
Legal, financial advisory and other fees associated with the Chapter 11
proceedings.................................................................... $ (14,929)
Write-off of deferred financing fees associated with the Bank Credit Agreement... (4,071)
Write-off of existing excess investment over net assets acquired, net of excess
reorganization value recorded, and fair market value adjustments to assets and
liabilities.................................................................... (85,745)
---------
$(104,745)
=========
Extraordinary Gain
- ---------------------------------------------------------------------------------
Accreted value of the Old Discount Notes less unamortized deferred financing..... $ 197,379
Principal amount of Old 14% Debentures plus accrued interest less unamortized
deferred financing............................................................. 237,125
Principal amount of Old 13 1/2% Notes plus accrued interest less unamortized
deferred financing............................................................. 103,918
Accreted value of 11 1/4% Pay-in-Kind Notes due to Related Party................. 5,658
Envirodyne untendered shares..................................................... 2,176
Envirodyne general unsecured creditors allowed claims............................ 90
Principal amount of 10 1/4% Notes exchanged for Old Discount Notes............... (219,262)
Fair value of equity exchanged for Old 14% Debentures, Old 13 1/2% Notes and
Envirodyne unsecured claims.................................................... (135,000)
---------
Extraordinary gain before tax provision.......................................... 192,084
Tax provision on extraordinary gain............................................ 8,300
---------
Extraordinary gain net of taxes.................................................. $ 183,784
=========
</TABLE>
The following balance sheet details adjustments made as of the effective
date, December 31, 1993, to record the Reorganization adjustments, including the
refinancing of the indebtedness under the Post-petition Credit Agreement and
certain foreign credit facilities on December 31, 1993 (refer to Note 8) and to
implement Fresh Start Reporting.
F-27
<PAGE> 112
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the Plan of Reorganization on the Company's balance sheet was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 BEFORE 1993 AFTER
REORGANIZATION REORGANIZATION
AND REORGANIZATION FRESH START AND
FRESH START ADJUSTMENTS ADJUSTMENTS FRESH START
-------------- -------------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................ $ 19,839 $ (12,096)(5) $ 7,743
Restricted cash..................................... 5,127 (5,127)(5)
Receivables, net.................................... 72,516 72,516
Inventories......................................... 98,824 98,824
Other current assets................................ 17,538 17,538
---------- ---------- --------
Total current assets.......................... 213,844 (17,223) 196,621
Property, plant and equipment, including those under
capital lease....................................... 581,633 $(126,079) (8) 455,554
Less accumulated depreciation and amortization...... 126,079 (126,079) (8)
---------- ---------- --------- --------
Property, plant and equipment, net.................. 455,554 455,554
Deferred financing costs.............................. 12,001 (3,012)(4) 8,989
Other assets.......................................... 32,151 18,614 (9) 50,765
Excess investment over net assets acquired, net....... 304,811 (304,811)(10)
Excess reorganization value........................... 155,751 (10) 155,751
---------- ---------- --------- --------
$1,018,361 $ (20,235) $(130,446) $867,680
========== ========== ========= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities not subject to compromise:
Short-term debt including current portion of
long-term debt and obligation under capital
lease............................................. $ 35,029 $ (19,419)(3) $ 15,610
Accounts payable.................................... 35,515 2,009 (1) 37,524
Accrued liabilities................................. 59,040 3,013 (1) $ (1,006)(11) 61,047
Long-term debt reclassified as current, including
amounts due to related party...................... 13,589 (13,589)(2)
---------- ---------- --------- --------
Total current liabilities not subject to
compromise.................................. 143,173 (27,986) (1,006) 114,181
Liabilities subject to compromise including amounts
due to related party................................ 728,586 (728,586)(1)
Long-term debt not subject to compromise.............. 73,126 409,253 (2) 482,379
Accrued employee benefits............................. 43,524 10,098 (12) 53,622
Deferred and noncurrent income taxes.................. 91,139 8,300 (6) (20,874)(13) 78,565
Deferred gain on capital lease........................ 32,919 (32,919)(14)
Minority interest in consolidated subsidiary.......... 3,933 3,933
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, no par value; none outstanding
Common stock, $.01 par value; 320 shares issued and
outstanding....................................... 1 (1)(15)
Preferred stock, $.01 par value; none outstanding...
Common stock, $.01 par value; 13,500,000 shares
issued and outstanding............................ 135 (7) 135
Paid in capital..................................... 12,900 134,865 (7) (12,900)(15) 134,865
Accumulated (deficit)............................... (111,226) 183,784 (6) (72,558)(15)
Cumulative foreign currency translation
adjustments....................................... 286 (286)(15)
---------- ---------- --------- --------
Total stockholders' equity (deficit).......... (98,039) 318,784 (85,745) 135,000
---------- ---------- --------- --------
$1,018,361 $ (20,235) $(130,446) $867,680
========== ========== ========= ========
</TABLE>
F-28
<PAGE> 113
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REORGANIZATION ADJUSTMENTS:
<TABLE>
<S> <C> <C>
(1) Liabilities subject to compromise including amount due to related party
consisted of:
Viskase Capital Lease Obligation........................................ $157,584(a)
11 1/4% Pay-in-Kind Notes due to Related Party.......................... 5,658(b)
Old Discount Notes...................................................... 200,838(c)
Old 14% Debentures plus accrued interest thereon........................ 242,812(d)
Old 13 1/2% Notes plus accrued interest thereon......................... 104,954(d)
Accounts payable and other.............................................. 16,740(e)
--------
$728,586
========
(a) Reclassified to short-term debt.................................... $ 4,940
Reclassified to long-term debt..................................... 152,644
--------
$157,584
========
(b) Pursuant to the Plan of Reorganization, the liability for the
Pay-in-Kind Notes due to the Related Party were canceled.
(c) Pursuant to the Plan of Reorganization, the Old Discount Notes
were exchanged for the New 10 1/4% Notes.
(d) Pursuant to the Plan of Reorganization, these liabilities were
exchanged for common stock.
(e) Pursuant to the Plan of Reorganization.
Envirodyne subsidiary prepetition account payable paid
on December 31, 1993............................................. $ 9,699
Envirodyne subsidiary prepetition accounts payable reclassified to
accounts payable................................................. 2,009
Envirodyne subsidiary prepetition accrued liabilities reclassified
to accrued liabilities........................................... 2,766(i)
Envirodyne corporate untendered shares (refer to Note 11).......... 2,176
Envirodyne corporate prepetition accounts payable exchanged for
common stock..................................................... 90
--------
$ 16,740
========
(i) The balance of the adjustment activity in accrued liabilities are
accruals for deferred financing professional fees partially offset
by payments of accrued interest on December 31, 1993.
(2) The adjustment of long-term debt consisted of the following:
Issuance of the New 10 1/4% Notes.................................. $219,262
Viskase capital lease obligation reclassified from liabilities
subject to compromise............................................ 152,644
Repayment of loans outstanding under the Postpetition Credit
Agreement........................................................ (63,856)
Repayment of certain foreign credit facilities net of draw under
new Credit Agreement -- multicurrency facility................... (4,061)
Draw under new Credit Agreement -- domestic facility............... 91,675
Long-term debt previously reclassified as current.................. 13,589
--------
$409,253
========
</TABLE>
F-29
<PAGE> 114
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C>
(3) The adjustment to short-term debt including current portion of long-term
debt and obligation under capital lease consisted of the following:
Viskase capital lease obligation reclassified from liabilities
subject to compromise............................................ $ 4,940
Repayment of Postpetition Credit Agreement......................... (22,000)
Repayment of certain foreign credit facilities net of draw under
new Credit Agreement -- multicurrency facility................... (10,684)
Draw under new Credit Agreement -- domestic facility............... 8,325
--------
$(19,419)
========
(4) The adjustment to deferred financing consisted of the following:
Write-off deferred financing on Old Discount Notes, Old 14%
Debentures and Old 13 1/2% Notes................................. $(10,182)
Deferred financing -- new Credit Agreement......................... 6,170
Deferred financing -- New 10 1/4% Notes............................ 1,000
--------
$ (3,012)
========
(5) Adjustments to cash and equivalents and restricted cash consist of the
following:
Restricted cash reclassified to cash on December 31, 1993.......... $ 5,127
Use of cash and equivalents for repayment of certain foreign credit
facilities net of draw under new Credit
Agreement -- multicurrency facility.............................. (12,494)
Payment of prepetition accounts payable on December 31, 1993....... (9,699)
Source of cash and equivalents from draw under new Credit
Agreement -- domestic facility net of payment of deferred
financing fees and repayment of loans under Postpetition Credit
Agreement........................................................ 4,970
--------
$(12,096)
========
(6) Represents extraordinary gain previously discussed and recording of
related deferred tax.
(7) Represents issuance of the new common stock.
FRESH START ADJUSTMENTS:
(8) Eliminate accumulated depreciation at December 31.
(9) Adjustments to other assets consist of the following:
Writeup patents and trademarks to fair value....................... $ 20,160
Adjust other assets, primarily pension intangibles, to fair
value............................................................ (1,546)
--------
$ 18,614
========
(10) Eliminate existing excess investment over net assets acquired and
record reorganization value in excess of amounts allocable to
identifiable assets and liabilities.
(11) Adjustments to accrued liabilities consist of the following:
Write-off current portion of deferred gain on capital lease........ $ (3,006)
Adoption of current portion of liability under SFAS No. 112.
Employers Accounting for Postemployment Benefits................. 2,000
--------
$ (1,006)
========
</TABLE>
F-30
<PAGE> 115
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
(12) Adjust pension assets and liabilities and the liability for postretirement
benefits to fair value. Also includes adjustment for the long-term liability under
SFAS No. 112.
(13) Represents the net adjustment to deferred tax due to impacts of Fresh Start
Reporting.
(14) Write-off the deferred gain on capital lease to reflect the fair value of
equipment under capital lease.
(15) Eliminate old common stock, paid-in capital, retained earnings and cumulative
foreign currency translation adjustments.
</TABLE>
Had the Fresh Start reporting and the Plan of Reorganization been
implemented with the related financing at the beginning of 1993, the pro forma
Envirodyne consolidated statement of operations would have been as follows:
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 1 TO
DECEMBER 31, 1993
-----------------
(UNAUDITED)
<S> <C>
Net sales.................................................................. $ 587,385
Cost of sales............................................................ 415,498
Selling, general and administrative...................................... 101,632
Amortization of intangibles and excess reorganization cost............... 15,612
-----------
Operating income........................................................... 54,643
Interest income.......................................................... 931
Interest expense......................................................... 51,198
Other expense (income), net.............................................. 5,540
Minority interest in loss of subsidiary.................................. 717
-----------
Income before income taxes................................................. (447)
Income tax provision..................................................... 6,140
-----------
Net (loss)................................................................. $ (6,587)
===========
Weighted average common shares............................................. 13,500,703
Net (loss) per share....................................................... $(.49)
=====
</TABLE>
The pro forma information reflects the changes in interest cost and
depreciation and amortization due to the implementation of the Plan of
Reorganization and Fresh Start Reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on the
last Thursday of December. The 1993 financial statements include December 31,
1993 in order to present the effect of the consummation of the Plan of
Reorganization.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Envirodyne
Industries, Inc. and its subsidiaries (the Company).
F-31
<PAGE> 116
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications have been made to the prior year's financial statement to
conform to the 1994 presentation.
(C) CASH EQUIVALENTS, (DOLLARS IN THOUSANDS)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an
initial maturity of approximately three months or less. Due to the short-term
nature of these instruments, the carrying values approximate the fair market
value. Cash equivalents include $821 and $1,757 of short-term investments at
December 29, 1994 and December 31, 1993, respectively.
(D) INVENTORIES
Domestic inventories are valued primarily at the lower of last-in,
first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are
valued at the lower of first-in, first-out (FIFO) cost or market.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement
or other disposition, cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in results of operations.
Effective December 31, 1993 and in conjunction with the Fresh Start Reporting,
property, plant and equipment was reported at the estimated fair value (refer to
Note 1).
(F) DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred financing
costs is classified as interest expense.
(G) PATENTS
Patents are amortized on the straight-line method over an estimated average
useful life of ten years.
The carrying value of patents is periodically reviewed by the Company and
impairments are recognized when the expected undiscounted future operating cash
flows derived from such patents is less than the carrying value. If impairment
is identified, valuation techniques deemed appropriate under the particular
circumstances will be used to determine the asset's fair value. The loss will be
measured based on the excess of carrying value over the determined fair value.
The review for impairment is performed at least on a quarterly basis.
(H) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS ACQUIRED,
NET
Excess reorganization value is amortized on the straight-line method over
15 years.
The Company continues to evaluate the recoverability of excess
reorganization value based on operating performance and undiscounted cash flows
of the operating business units. Impairment will be recognized when the expected
undiscounted future operating cash flows derived from such intangible is less
than its carrying value. If impairment is identified, valuation techniques
deemed appropriate under the particular circumstances will be used to determine
the intangible's fair value. The loss will be measured based on the excess of
carrying value over the determined fair value. The review for impairment is
performed at least on a quarterly basis.
Cost in excess of net assets acquired, net was amortized on a straight-line
method over 40 years in fiscal years 1993 and 1992.
F-32
<PAGE> 117
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(I) PENSIONS
The North American operations of Viskase and the Company's operations in
Europe have defined benefit retirement plans covering substantially all salaried
and full time hourly employees. Pension cost is computed using the projected
unit credit method.
The Company's funding policy is consistent with funding requirements of the
applicable federal and foreign laws and regulations.
(J) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The North American operations of Viskase have postretirement health care
and life insurance benefits. Effective January 1, 1993, postretirement benefits
other than pensions are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Prior year's
financial statements were accounted for using the pay-as-you-go method.
(K) POSTEMPLOYMENT BENEFITS
Effective December 31, 1993 and in conjunction with the Fresh Start
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material.
(L) INCOME TAXES
Income taxes were accounted for in accordance with SFAS No. 109 for the
years ended December 29, 1994 and December 31, 1993.
(M) NET INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year. No effect
has been given to options outstanding under the Company's stock option plans and
warrants issued pursuant to the Plan of Reorganization as their effect is
anti-dilutive.
(N) REVENUE RECOGNITION
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
(O) FOREIGN CURRENCY CONTRACTS
The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses
revenue cash flows within its European operations. The foreign exchange
contracts are denominated predominantly in the major European currencies and
have varying maturities up to eighteen months. The effect of this practice is to
minimize the effect of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the Company
to additional exchange rate risk because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The cash flows from
forward contracts accounted for as hedges of identifiable transactions or events
are classified consistent with the cash flows from the transactions or events
being hedged.
F-33
<PAGE> 118
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RECEIVABLES, (DOLLARS IN THOUSANDS)
Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $2,136 and $2,872 at December 29, 1994,
and at December 31, 1993, respectively.
4. INVENTORIES, (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Raw materials.................................................... $ 20,358 $ 17,477
Work in process.................................................. 37,613 34,158
Finished products................................................ 52,512 47,189
-------- --------
$110,483 $ 98,824
======== ========
</TABLE>
Approximately 55% and 60% of the Company's inventories at December 29,
1994, and December 31, 1993, respectively, were valued at LIFO. These LIFO
values exceeded current manufacturing cost by approximately $7,000 and $11,000
at December 29, 1994, and December 31, 1993, respectively. Inventories were net
of reserves for obsolete and slow moving inventory of $5,353 and $5,425 at
December 29, 1994 and December 31, 1993, respectively.
5. PROPERTY, PLANT AND EQUIPMENT, (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Property, plant and equipment:
Land and improvements.......................................... $ 15,930 $ 15,288
Buildings and improvements..................................... 76,202 60,867
Machinery and equipment........................................ 256,621 213,099
Construction in progress....................................... 20,178 29,132
Capital lease:
Machinery and equipment........................................ 137,168 137,168
-------- --------
$506,099 $455,554
======== ========
</TABLE>
Maintenance and repairs charged to costs and expenses for 1994, 1993, and
1992 aggregated $33,045, $32,636 and $31,747, respectively. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 32 years.
6. OTHER ASSETS, (DOLLARS IN THOUSANDS)
Other assets were comprised of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Patents.......................................................... $ 50,000 $ 50,000
Less accumulated amortization.................................. 5,000
-------- --------
Patents, net................................................ 45,000 50,000
Other............................................................ 2,181 765
-------- --------
$ 47,181 $ 50,765
======== ========
</TABLE>
Patents are amortized on the straight-line method over an estimated average
useful life of ten years.
F-34
<PAGE> 119
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED LIABILITIES, (DOLLARS IN THOUSANDS)
Accrued liabilities were comprised of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Compensation and employee benefits............................... $33,521 $30,712
Taxes, other than on income...................................... 6,454 4,956
Accrued interest................................................. 3,630 235
Accrued volume and sales discounts............................... 11,958 9,309
Accrued reorganization fees and expenses......................... 3,167 7,011
Other............................................................ 13,516 8,824
------- -------
$72,246 $61,047
======= =======
</TABLE>
8. DEBT OBLIGATIONS, (DOLLARS IN THOUSANDS)
As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne
and certain of its domestic Subsidiaries emerged from Chapter 11 on December 31,
1993.
The $219,262 principal amount of 10 1/4% Notes were issued pursuant to an
Indenture dated as of December 31, 1993 (10 1/4% Note Indenture) between
Envirodyne and Bankers Trust Company, as Trustee. The 10 1/4% Notes are the
unsecured senior obligations of Envirodyne, bear interest at the rate of 10 1/4%
per annum, payable on each June 1 and December 1, and mature on December 1,
2001. The 10 1/4% Notes are redeemable, in whole or from time to time in part,
at the option of Envirodyne, at the percentages of principal amount specified
below plus accrued and unpaid interest to the redemption date, if the 10 1/4%
Notes are redeemed during the 12-month period commencing on January 1 of the
following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- -----------
<S> <C>
1995...................................................... 105%
1996...................................................... 104%
1997...................................................... 103%
1998...................................................... 102%
1999...................................................... 101%
2000 and thereafter....................................... 100%
</TABLE>
The 10 1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important qualifications),
among other things, (i) the ability to pay dividends on or redeem or repurchase
capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate
transactions and (iv) the ability of the Company to consolidate with or merge
with or into another entity or to dispose of substantially all its assets.
In connection with the consummation of the Plan of Reorganization,
Envirodyne and certain of its subsidiaries (Borrowers) entered into a Credit
Agreement dated December 31, 1993 (Credit Agreement) with the lenders party
thereto (Lenders) and with Bank of America Illinois (formerly Continental Bank
N.A.), Citibank International PLC and Citicorp North America, Inc., as agents
for the Lenders. The Credit Agreement provides for a $195,000 facility,
consisting of a $100,000 domestic term loan facility, a $65,000 domestic
revolving credit facility (which includes a $27,000 domestic letter of credit
facility) and a $30,000 amortizing multicurrency revolving credit facility
(which includes a $3,000 multicurrency letter of credit facility). The
commitment under the amortizing multicurrency revolver was $27,800 at December
29, 1994. The initial borrowings under the Credit Agreement were used (i) to pay
indebtedness under the Postpetition Credit Agreement dated as of February 5,
1993 among the Debtors, the lenders party thereto
F-35
<PAGE> 120
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DIP Lenders) and Continental Bank N.A., as agent for the DIP Lenders, (ii) to
pay indebtedness under certain foreign credit facilities, (iii) to pay the
claims of subsidiary trade creditors under the Plan of Reorganization and (iv)
to pay certain fees and expenses relating to the Plan of Reorganization and the
Credit Agreement. Obligations under the Credit Agreement are collateralized by
substantially all of the assets of Envirodyne and its domestic subsidiaries and
by the pledge of the capital stock of substantially all of Envirodyne's
subsidiaries. Availability of funds under the Credit Agreement is subject to a
borrowing base measured by certain assets of Envirodyne and its subsidiaries.
The available borrowing capacity under the Credit Agreement was
approximately $41 million at December 29, 1994.
Borrowings under the domestic term loan facility and the domestic revolving
credit facility bear interest, at the Company's election, at a rate per annum
equal to (i) the Bank of America Illinois base rate plus 1.5% or (ii) the
Eurodollar rate plus 2.75%, subject to step downs of up to 0.5% if the Company
meets certain debt and interest coverage tests. The domestic term loan facility
terminates on December 31, 1999 and is subject to quarterly repayments of
principal as follows:
<TABLE>
<CAPTION>
QUARTERLY TOTAL REPAYMENT
CALENDAR YEAR REPAYMENT AMOUNT FOR CALENDAR YEAR
---------------------------------- ---------------- -----------------
<S> <C> <C>
1995.............................. $2,775 $11,100
1996.............................. 4,075 16,300
1997.............................. 4,450 17,800
1998.............................. 4,625 18,500
1999.............................. 6,300 25,200
</TABLE>
The domestic revolving credit facility expires on December 31, 1999, with a
commitment fee of 0.5% per annum on the unused portion of the commitment. The
domestic letter of credit facility expires December 16, 1999, with fees on the
outstanding amount of the domestic letters of credit of 0.25% per annum to the
issuers and 2.5% per annum to the domestic Lenders, subject to step downs of up
to 0.5% if the Company meets certain debt and interest coverage tests.
The multicurrency revolving credit facility permits borrowings in U.S.
Dollars, German Marks, French Francs or Pounds Sterling at an interest rate per
annum equal to the applicable Eurocurrency rate plus 2.75%, subject to step
downs of up to 0.5% if the Company meets certain debt and interest coverage
tests. The multicurrency revolving credit facility expires on December 31, 1999
and the commitments thereunder are subject to mandatory quarterly reductions as
follows:
<TABLE>
<CAPTION>
QUARTERLY TOTAL REDUCTION
CALENDAR YEAR COMMITMENT REDUCTION FOR CALENDAR YEAR
------------------------------- -------------------- -----------------
<S> <C> <C>
1995........................... $ 500 $2,000
1996........................... 950 3,800
1997........................... 1,075 4,300
1998........................... 1,150 4,600
1999........................... 775 3,100
</TABLE>
There is a commitment fee of 0.5% per annum on the unused portion of the
multicurrency revolving credit facility. The multicurrency letter of credit
facility expires December 16, 1999, with fees on the outstanding amount of the
multicurrency letters of credit of 0.25% per annum to the issuers and 2.5% per
annum to the multicurrency Lenders, subject to step downs of up to 0.5% if the
Company meets certain debt and interest coverage tests.
F-36
<PAGE> 121
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Envirodyne's obligations under the Credit Agreement bear interest at rates
that are expected to fluctuate over time. Envirodyne is required under the
Credit Agreement to enter into interest rate agreements in an amount equal to at
least 50% of both the term loan outstanding and the multicurrency loans in
excess of $10 million outstanding. Envirodyne has entered into $50 million of
interest rate agreements that cap the Company's LIBOR interest component
(excludes spread) at an average rate of 6.50% until January 1997. Interest
expense includes $51 of amortization of the interest rate cap premium during the
fiscal period ended December 29, 1994. The Company has not received any payments
under the interest rate protection agreements. The fair value of interest rate
cap agreements is estimated by obtaining quotes from banks. At December 29,
1994, the carrying amount and estimated fair value of interest rate cap
agreements were $1,174 and $1,432, respectively.
The Borrowers have made certain representations and have agreed to certain
covenants that restrict the operations of the Borrowers and their subsidiaries'
businesses. Among other things, the Borrowers may not, with limited exceptions,
place liens on their properties or assets, incur additional indebtedness, make
dividend or other distributions on capital stock, make investments (other than
cash equivalent investments), merge or consolidate with any other person,
dispose of assets outside the ordinary course of business or exceed stated
levels of capital expenditures. The Credit Agreement also contains a number of
financial covenants, including covenants relating to cash flow, interest and
fixed charge coverage ratios, net worth and debt to cash flow levels.
Unless cured within any applicable grace period, events of default include
failure to pay principal, interest or other amounts due to the Lenders, a
material breach of a representation or warranty, certain events related to
employee benefit plans, certain events of bankruptcy or insolvency, defaults on
other indebtedness having a principal amount in the aggregate in excess of
$5,000, failure to discharge judgments in an amount in excess of $5,000, a
change of control (as defined) and failure to comply with covenants, including
the financial covenants described above.
The Company and the Lenders entered into an amendment of the Credit
Agreement as of January 24, 1995 easing certain financial covenants and
permanently waiving the event of default arising from the ownership by the
Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's Common Stock,
provided that the Trust's ownership does not later exceed 49% of the Company's
outstanding Common Stock. The Company is currently in compliance with the terms
of the Credit Agreement, including the financial covenants.
F-37
<PAGE> 122
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Short-term debt, current maturity of long-term debt, and capital
lease obligation:
Current maturity of Bank Term Loan (8.0%)...................... $ 11,100 $ 8,325
Current maturity of Viskase Capital Lease Obligation........... 5,450 4,940
Current maturity of Viskase Limited Term Loan (5.9%)........... 1,882 1,679
Other.......................................................... 7,366 666
-------- --------
Total short-term debt.......................................... $ 25,798 $ 15,610
======== ========
Long-term debt:
Bank Credit Agreement:
Term Loan due 1999 (8.0%)................................... $ 80,575 $ 91,675
Revolving Loan due 1999 (8.9%).............................. 32,524 5,999
10.25% Senior Notes due 2001................................... 219,262 219,262
Viskase Capital Lease Obligation............................... 147,194 152,644
Viskase Limited Term Loan (5.9%)............................... 8,466 9,233
Other.......................................................... 1,337 3,566
-------- --------
Total long-term debt........................................... $489,358 $482,379
======== ========
</TABLE>
The fair value of the Company's debt obligation (excluding capital lease
obligation) is estimated based upon the quoted market prices for the same or
similar issues or on the current rates offered to the Company for the debt of
the same remaining maturities. At December 29, 1994, the carrying amount and
estimated fair value of debt obligations (excluding capital lease obligation)
were $362,512 and $298,926, respectively.
On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production and
finishing equipment at Viskase's four domestic casing production and finishing
facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee;
Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the
relevant agreements, will continue to operate all of the facilities. Sales
proceeds on the sale-leaseback transaction were $171.5 million; proceeds were
used to repay approximately $154 million of bank debt and a $15 million
convertible note outstanding at the time. The lease has been accounted for as a
capital lease.
The principal terms of the sale and leaseback transaction include: (a) a 15
year basic lease term (plus selected renewals at Viskase's option); (b) annual
rent payments in advance beginning in February 1991; and (c) a fixed price
purchase option at the end of the basic 15 year term and fair market purchase
options at the end of the basic term and each renewal term. Further, the Lease
Documents contain covenants requiring maintenance by the Company of certain
financial ratios and restricting the Company's ability to pay dividends, make
payments to affiliates, make investments and incur indebtedness.
Annual rental payments under the Lease will be approximately $19.2 million
through 1997, $21.4 million in 1998 and $23.5 million through the end of the
basic 15-year term. Viskase is required to provide credit support consisting of
a standby letter of credit in an amount up to one year's rent through at least
1997. This credit support can be reduced up to $4 million currently if the
Company achieves and maintains certain financial ratios. As of December 29,
1994, the Company had met the required financial ratios and the letter of credit
has been reduced by $4 million. The letter can be further reduced in 1997 or
eliminated after 1998 if the Company achieves and maintains certain financial
ratios. Envirodyne and its other principal subsidiaries guaranteed the
obligations of Viskase under the Lease.
F-38
<PAGE> 123
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of minimum future lease payments under the
capital lease together with the present value of the net minimum lease payments
as of December 29, 1994:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
--------------------------------------------------------
<S> <C>
1995.................................................... $ 19,227
1996.................................................... 19,227
1997.................................................... 19,227
1998.................................................... 21,363
1999.................................................... 23,499
Thereafter.............................................. 140,994
--------
Net minimum lease payments.............................. 243,537
Less:
Amount representing interest............................ (90,893)
--------
$152,644
========
</TABLE>
The 1995 rental payment of $19,227 was paid on February 28, 1995. Principal
payments under the capital lease obligation for the years ended 1995 through
1999 range from approximately $5 million to $13 million.
Aggregate maturities of remaining long-term debt for each of the next five
fiscal years are:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
1995..................................................... $20,897
1996..................................................... 23,258
1997..................................................... 26,305
1998..................................................... 34,870
1999..................................................... 33,982
</TABLE>
9. OPERATING LEASES, (DOLLARS IN THOUSANDS)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay
maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 29,
1994, are:
<TABLE>
<S> <C>
1995...................................................... $4,748
1996...................................................... 2,876
1997...................................................... 1,175
1998...................................................... 747
1999...................................................... 287
Total thereafter..........................................
------
Total minimum lease payments.............................. $9,833
======
</TABLE>
Total rent expense during 1994, 1993 and 1992 amounted to $5,982, $5,401
and $5,673, respectively.
F-39
<PAGE> 124
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS
The Company and its subsidiaries have defined contribution and defined
benefit plans varying by country and subsidiary.
At December 29, 1994, the North American operations of Viskase maintained
several non-contributory defined benefit retirement plans. The Viskase plans
cover substantially all salaried and full-time hourly employees, and benefits
are based on final average compensation and years of credited service. The
Company's policy is to fund the minimum actuarially computed annual contribution
required under the Employee Retirement Income Security Act of 1974 (ERISA).
As of the Viskase acquisition date, the former owner assumed the liability
for the accumulated benefit obligation under its plans. The effect of expected
future compensation increases on benefits accrued is recorded as a liability on
the Company's consolidated balance sheet.
PENSIONS -- NORTH AMERICA, (DOLLARS IN THOUSANDS):
Net pension cost for the Viskase North American plans consisted of:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the year..... $ 3,662 $ 3,186 $ 3,031
Interest cost on projected benefit obligation....... 4,249 4,000 3,578
Actual (gain) loss on plan assets................... 874 (2,306) (1,168)
Net amortization and deferral....................... (3,696) (74) (1,026)
-------- -------- --------
Net pension cost.................................... $ 5,089 $ 4,806 $ 4,415
======== ======== ========
</TABLE>
The amounts included in the consolidated balance sheet for the North
American plans of Viskase were:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits................................................ $ 39,165 $ 34,233
Nonvested benefits............................................. 4,316 3,369
-------- --------
Accumulated benefit obligation................................... 43,481 37,602
Effect of projected future compensation increases................ 16,651 23,896
-------- --------
Projected benefit obligation..................................... 60,132 61,498
Plan assets at fair value, primarily listed stocks and investment
grade corporate bonds.......................................... 33,678 31,736
-------- --------
Amount underfunded............................................... 26,454 29,762
Unrecognized gain (loss)......................................... 3,778
Unrecognized prior service costs................................. 71
-------- --------
Accrued liability included in consolidated balance sheet......... $ 30,303 $ 29,762
======== ========
Assumed discount rate............................................ 8.0% 7.0%
Assumed long-term compensation factor............................ 5.0% 4.5%
Assumed long-term return on plan assets.......................... 8.5% 8.0%
</TABLE>
F-40
<PAGE> 125
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SAVINGS PLANS, (DOLLARS IN THOUSANDS):
The Company also has defined contribution savings and similar plans, which
vary by subsidiary, and, accordingly, are available to substantially all
full-time U.S. employees not covered by collective bargaining agreements. The
Company's aggregate contributions to these plans are based on eligible employee
contributions and certain other factors. The Company expense for these plans was
$2,109, $2,026 and $2,001 in 1994, 1993, and 1992, respectively.
INTERNATIONAL PLANS, (DOLLARS IN THOUSANDS):
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1994, 1993 and 1992
was $1,043, $864 and $515, respectively. As of their most recent valuation
dates, in plans where vested benefits exceeded plan assets, the actuarially
computed value of vested benefits exceeded those plans' assets by approximately
$1,902; conversely, plan assets exceeded the vested benefits in certain other
plans by approximately $1,708.
OTHER POSTRETIREMENT BENEFITS, (DOLLARS IN THOUSANDS):
The Company provides postretirement health care and life insurance benefits
to Viskase's North American employees. The Company does not fund postretirement
health care and life benefits in advance, and has the right to modify these
plans in the future.
Effective January 1, 1993, the company adopted the provisions of SFAS No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions."
SFAS No. 106 requires that the expected cost of these benefits must be charged
to expense during the years that the employee renders service. In connection
with the 1989 acquisition of the Company, an accrual of $15,000 had been
recorded for the estimated postretirement benefits liability at the acquisition
date. On January 1, 1993, an additional liability and transition obligation was
recorded on a prospective basis for $6,500. The transaction obligation was to be
amortized over 20 years. Subsequently, Fresh Start Reporting resulted in the
write-off of the transition obligation and statement of the liability for
postretirement health care and life insurance benefits at fair value. Net
periodic postretirement benefit cost for 1994 and 1993 includes the following
components:
<TABLE>
<CAPTION>
MEDICAL LIFE TOTAL
----------------- --------------- -----------------
1994 1993 1994 1993 1994 1993
------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic postretirement
benefit cost:
Service cost -- benefits earned during
the current year...................... $ 511 $ 417 $ 176 $ 176 $ 687 $ 593
Interest cost -- on accumulated
postretirement benefit obligation..... 1,208 1,150 442 437 1,650 1,587
Amortization of unrecognized transition
obligation............................ 142 53 195
------- ------- ------ ------ ------- -------
Net periodic benefit cost................ $ 1,719 $ 1,709 $ 618 $ 666 $ 2,337 $ 2,375
======= ======= ====== ====== ======= =======
Actuarial present value of benefit
obligations:
Retirees................................. $ 6,836 $ 6,488 $2,184 $2,170 $ 9,020 $ 8,658
Fully eligible active participants....... 2,238 2,358 2,435 2,586 4,673 4,944
Other active participants................ 7,660 8,075 1,612 1,767 9,272 9,842
------- ------- ------ ------ ------- -------
Total................................. 16,734 16,921 6,231 6,523 22,965 23,444
Unrecognized gains....................... 979 581 1,560
------- ------- ------ ------ ------- -------
Accumulated postretirement benefit
obligation............................... $17,713 $16,921 $6,812 $6,523 $24,525 $23,444
======= ======= ====== ====== ======= =======
Assumed discount rate.............................. 8.00%
Assumed medical trend rate......................... 11.00% in 1995 decreasing to 6.50% in 2004
Assumed long-term compensation factor.............. 5.00%
</TABLE>
F-41
<PAGE> 126
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The postretirement benefit obligation was determined by application of the
terms of the various plans, together with relevant actuarial assumptions. The
effect of a 1% annual increase in these assumed cost trend rates would increase
the accumulated postretirement benefit obligation at December 29, 1994 and
December 31, 1993 by $198 and $215, respectively, and the service and interest
cost components for 1994 and 1993 by a total of $22 and $13, respectively.
11. CONTINGENCIES, (DOLLARS IN THOUSANDS)
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was
pending as of the commencement of the bankruptcy case in which the plaintiffs
are seeking substantial damages. The Company and the plaintiffs are currently
participating in a mediation process to attempt to resolve the case. Envirodyne
denies liability and believes it has sufficient defenses to all of plaintiffs'
claims. In the absence of successful mediation or other settlement negotiations,
the Company will continue to vigorously defend these claims. While Envirodyne
cannot predict with certainty the outcome of these claims, when ultimately
concluded or adjudicated, these claims will not, in the opinion of management,
have a material effect on the results of operations or the financial condition
of the Company. However, inasmuch as the Plan of Reorganization provides for the
issuance of common stock with respect to prepetition Envirodyne general
unsecured claims, an adverse finding of liability and damages could result in
substantial dilution to the holders of the common stock. If additional shares of
common stock have to be issued to the former SMD employees, as holders of
allowed Envirodyne general unsecured claims under the Plan of Reorganization,
such additional shares of common stock would be distributed as follows: (i)
approximately 2.58 additional shares per five hundred dollars in claims in the
event allowed general unsecured claims of Envirodyne are between $125 and
$25,000; (ii) approximately 5.61 additional shares per five hundred dollars in
claims in the event allowed general unsecured claims of Envirodyne are between
$25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred
dollars in claims in the event allowed general unsecured claims of Envirodyne
are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares
per five hundred dollars in claims in the event allowed general unsecured claims
of Envirodyne are between $75,000 and $100,000 (refer to Note 1).
Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald with respect
to which, although Envirodyne is not presently a party to such litigation,
certain defendants have asserted indemnity rights against Envirodyne. In ARTRA
Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers
Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy,
James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616,
United States Bankruptcy Court for the Northern District of Illinois, Eastern
Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of
fiduciary duty and tortious inference in connection with the negotiation and
consummation of the Plan of Reorganization. In ARTRA Group Incorporated v.
Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly &
Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman,
Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of
DuPage, State of Illinois, ARTRA alleges negligence, breach of fiduciary duty,
fraudulent misrepresentation and deceptive business practices in connection with
the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in
the total amount of $136,200 plus interest and punitive damages of $408,600.
D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and
Zimmerman have asserted common law and contractual rights of indemnity against
Envirodyne for attorneys' fees, costs and any ultimate liability relating to the
claims set forth in the complaints. Upon the undertaking of D.P. Kelly &
Associates, L.P. to repay such funds in the event it is ultimately determined
that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly
& Associates, L.P. and Mr. Kelly for the payment of legal fees in the case
pending before the Bankruptcy Court. Although the case is in a preliminary stage
and the Company is not a party thereto, the Company believes that the
plaintiff's claims raise similar factual issues to those raised in the
bankruptcy cases
F-42
<PAGE> 127
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which, if adjudicated in a manner similar to that in the bankruptcy cases, would
render it difficult for the plaintiff to establish liability. Accordingly, the
Company believes that the indemnification claims would not have a material
adverse effect upon the business or financial position of the Company, even if
the claimants were ultimately successful in establishing their right to
indemnification.
In the Envirodyne bankruptcy case the United States Environmental
Protection Agency (USEPA), the Economic Development Authority (EDA), and
Navistar International Transportation Corp. (Navistar Transportation) filed
proofs of claim with respect to unreimbursed environmental response costs at the
location of the former SMD operations. The parties have agreed in principle,
subject to the negotiation of a definitive settlement agreement, Bankruptcy
Court approval and public comment pursuant to regulations applicable to EDA and
USEPA, to settle the claims against Envirodyne through the payment of $5 to the
USEPA and the issuance of 64,460 shares of common stock to Navistar
Transportation. In the event that the settlement is not completed, Envirodyne
believes that it has valid defenses to the claims and will continue its
objections to the claims. To the extent that USEPA, EDA or Navistar
Transportation were able to establish liability and damages as to their
respective proofs of claim, such parties would receive Common Stock under the
Plan of Reorganization in satisfaction of their claims.
Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne
by Emerald failed to exchange their certificates representing old Envirodyne
common stock for the forty dollar per share cash merger consideration specified
by the applicable acquisition agreement. In the Envirodyne bankruptcy case,
Envirodyne is seeking to equitably subordinate the interests of the holders of
untendered shares, in which event such holders would receive no distribution
pursuant to the Plan of Reorganization. The Bankruptcy Court granted
Envirodyne's motion for summary judgment to equitably subordinate the holders of
untendered shares. Certain holders have appealed the summary judgment to the
United States District Court for the Northern District of Illinois. If such
holders were ultimately successful, Envirodyne believes that the maximum number
of shares of common stock that it would be required to issue to such claimants
is approximately 106,000.
In August 1993, Clear Shield National, Inc. received a subpoena from the
Antitrust Division of the United States Department of Justice relating to a
grand jury investigation of the disposable plastic cutlery industry. Clear
Shield National, Inc. has cooperated fully with the investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
12. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS
Authorized shares of preferred stock ($.01 par value per share) and common
stock ($.01 par value per share) for the reorganized Envirodyne are 25,000,000
shares and 50,000,000 shares, respectively. 13,515,000 shares of common stock
were issued and outstanding as of December 29, 1994. In accordance with the Plan
of Reorganization, an additional 15,000 shares of common stock were issued to
the general unsecured creditors of Envirodyne during 1994. (Refer to Note 1.)
Prior to the December 31, 1993 reorganization, the authorized shares of
preferred stock and common stock were 1,000 shares and 320 shares, respectively.
Envirodyne issued 1,500,000 warrants pursuant to the Plan of
Reorganization. Each warrant is exercisable at any time until December 31, 1998
for one share of common stock at an exercise price of $17.25 per share. The
exercise price and the number of shares of common stock for which a warrant is
exercisable are subject to adjustment upon the occurrence of certain events.
F-43
<PAGE> 128
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Plan of Reorganization provides for the issuance of common stock to
general unsecured creditors of Envirodyne. As of the date hereof, certain
parties have made claims as general unsecured creditors of Envirodyne the
allowance of which Envirodyne has denied. To the extent that such parties are
successful in establishing the allowance of their claims, they would be entitled
to receive common stock in satisfaction of such claims, which would result in
dilution to the existing holders of the common stock. (Refer to Note 11.)
13. INCOME TAXES, (DOLLARS IN THOUSANDS)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 200
Foreign........................................... 4,652 $ 2,453 $ 994
State and local...................................
------ ------- ----------
4,852 2,453 994
------ ------- ----------
Deferred:
Federal........................................... (194) 17,188 (13,206)
Foreign........................................... 128 (1,434) 174
State and local................................... 14 2,093 (1,962)
------ ------- --------
(52) 17,847 (14,994)
------ ------- --------
$4,800 $20,300 $(14,000)
====== ======= ========
</TABLE>
The income tax expense for the 1993 period was allocated between loss
before extraordinary gain for $12,000 and to the extraordinary gain for $8,300.
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal tax rate.......................... 35.0% 35.0% (34.0)%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax
benefit........................................ .8 1.3 (2.5)
Net effect of taxes relating to foreign
operations..................................... 140.3 1.5 1.6
Intangibles amortization.......................... 214.1 2.3 5.8
U.S. alternative minimum tax
Non-taxable debt discharge income, fresh start
accounting and other bankruptcy related
expenses....................................... (22.9)
Tax rate changes.................................. 1.7
Other............................................. 13.8 .3 1.7
----- ----- -----
Consolidated effective tax rate..................... 404.0% 19.2% (27.4)%
===== ===== =====
</TABLE>
F-44
<PAGE> 129
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1994 are as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCE TAX EFFECTED
----------------------------- -----------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences......... $319,256 $120,418
Inventory basis differences............ 31,456 12,268
Intangible basis differences........... 40,226 15,688
Lease transaction...................... $152,644 $59,531
Pension and healthcare................. 53,589 20,936
Employee benefits accruals............. 12,897 5,030
Valuation allowances................... 3,825 1,492
Other accruals and reserves............ 6,857 2,674
Foreign exchange and other............. 8,806 71,255 3,128 27,750
-------- -------- --------- --------
$238,618 $462,193 $92,791 $176,124
======== ======== ======= ========
</TABLE>
At December 29, 1994, the Company had $11,066 of undistributed earnings of
foreign subsidiaries considered permanently invested for which deferred taxes
have not been provided.
At December 29, 1994, the Company had federal income tax net operating loss
carryforwards of approximately $36 million. Such losses will expire in the year
2008, if not previously utilized. In addition the Company has alternative
minimum tax credit carryforwards of $3.5 million. Alternative minimum tax
credits have an indefinite carryforward period. Significant limitations on the
utilization of the net operating loss carryforwards and the alternative minimum
tax credit carryforwards exist under federal income tax rules and thus these
carryforwards have not been recognized for financial statement purposes due to
these limitations.
Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $(7,705), $107,622 and $(50,300) in 1994, 1993
and 1992, respectively. Foreign earnings or (losses) before income taxes were
approximately $8,893, $(1,733) and $(700) in 1994, 1993 and 1992, respectively.
The Company joins in filing a U.S. consolidated federal income tax return
including all of its domestic subsidiaries.
14. RESEARCH AND DEVELOPMENT COSTS, (DOLLARS IN THOUSANDS)
Research and development costs are expensed as incurred and totaled
$16,852, $15,216 and $12,323, for 1994, 1993, and 1992, respectively.
15. RELATED PARTY TRANSACTIONS, (DOLLARS IN THOUSANDS)
During each of 1994, 1993 and 1992, the Company paid DPK $770 for
management services. In fiscal 1994, 1993 and 1992, the Company made payments of
approximately $560, $354 and $681, respectively, to an affiliate of DPK for the
use of a jet aircraft on an as-needed basis.
During fiscal 1994, 1993, and 1992, the Company purchased product and
services from affiliates of DPK in the amounts of approximately $1,367, $941 and
$285, respectively. During fiscal 1994, 1993, and 1992, the Company sublet
office space from DPK for which it paid approximately $151, $150 and $150,
respectively, in rent.
During fiscal 1994, the Company advanced funds to and made payments on
behalf of DPK and Donald P. Kelly in the amount of $118 for legal fees related
to the litigation involving ARTRA GROUP Incorporated (refer to Note 11).
F-45
<PAGE> 130
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC
AREA INFORMATION, (DOLLARS IN THOUSANDS)
Envirodyne primarily manufactures and sells polymeric food casings and
plastic packaging films and containers (food packaging products) and disposable
foodservice supplies. The Company's operations are primarily in North America
and Europe. Intercompany sales and charges (including royalties) have been
reflected as appropriate in the following information. Other income for 1994,
1993, and 1992 includes net foreign exchange transaction gains (losses) of
approximately $2,707, $(4,631), and $(7,568), respectively.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Food packaging products................................... $530,179 $522,363 $ 513,777
Disposable foodservice supplies........................... 68,996 66,383 62,918
Other and eliminations.................................... (146) (1,361) (990)
-------- -------- ----------
$599,029 $587,385 $ 575,705
======== ======== ==========
Earnings before income taxes:
Operating income:
Food packaging products................................... $ 48,145 $ 53,432 $ 66,949
Disposable foodservice supplies........................... 6,514 5,223 5,913
Unallocated expenses, net -- primarily corporate.......... (5,982) (5,023) (5,656)
-------- -------- ----------
48,677 53,632 67,206
Interest expense, net....................................... 49,207 30,259 105,558
Other expense (income), net................................. (1,668) 5,540 8,699
Fees and expenses associated with renegotiation of debt..... 3,945
Minority interest in loss of subsidiary..................... 50 717
-------- -------- -----------
$ 1,188 $ 18,550 $ (50,996)
======== ======== ==========
Identifiable assets:
Food packaging products................................... $814,731 $790,125 $ 911,834
Disposable foodservice supplies........................... 71,530 64,879 89,753
Corporate and other, primarily cash equivalents........... 10,375 12,676 25,375
-------- -------- ----------
$896,636 $867,680 $1,026,962
======== ======== ==========
Depreciation and amortization under capital lease and
amortization of intangibles expense:
Food packaging products................................... $ 47,207 $ 46,715 $ 43,857
Disposable foodservice supplies........................... 4,125 5,624 5,402
Corporate and other....................................... 55 59 51
-------- -------- ----------
$ 51,387 $ 52,398 $ 49,310
======== ======== ==========
Capital expenditures:
Food packaging products................................... $ 28,534 $ 37,673 $ 26,618
Disposable foodservice supplies........................... 4,012 3,100 2,387
Corporate and other....................................... 20 114 13
-------- -------- ----------
$ 32,566 $ 40,887 $ 29,018
======== ======== ==========
</TABLE>
F-46
<PAGE> 131
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
North/South American operations...................... $423,049 $426,644 $ 409,831
European operations.................................. 184,395 164,717 171,844
Other and eliminations............................... (8,415) (3,976) (5,970)
-------- -------- ----------
$599,029 $587,385 $ 575,705
======== ======== ==========
Operating profit:
North/South American operations...................... $ 28,124 $ 37,495 $ 48,263
European operations.................................. 20,553 16,137 18,943
-------- -------- ----------
$ 48,677 $ 53,632 $ 67,206
======== ======== ==========
Identifiable assets:
North/South American operations...................... $667,358 $669,240 $ 804,203
European operations.................................. 229,278 198,440 222,759
-------- -------- ----------
$896,636 $867,680 $1,026,962
======== ======== ==========
</TABLE>
The total assets and net assets of foreign businesses were approximately
$275,067 and $106,662 at December 29, 1994.
17. QUARTERLY DATA
Quarterly financial information for 1994 is as follows (in thousands,
except for per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1994 QUARTER QUARTER QUARTER QUARTER ANNUAL
- --------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $142,593 $150,788 $151,883 $153,765 $599,029
Operating Income....................... 9,710 18,739 9,755 10,473 48,677
Net income (loss)...................... (2,507) 3,448 (3,261) (1,292) (3,612)
Net income (loss) per share............ (0.19) 0.26 (0.24) (0.10) (0.27)
</TABLE>
The second quarter operating income benefitted from a $9.5 million
settlement of a patent infringement suit.
Net income (loss) per share amounts are computed independently for each of
the quarters presented using weighted average shares outstanding during each
quarter.
F-47
<PAGE> 132
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. STOCK OPTIONS
At December 29, 1994, the Company had outstanding options under the 1993
Stock Option Plan. Options were issued to certain employees to purchase shares
at not less than the fair market value of the shares on the grant date. The plan
options generally vest in three equal annual amounts beginning one year from the
grant date and expire ten years from the grant date.
Stock option activity for the year ended December 29, 1994, was:
<TABLE>
<CAPTION>
NUMBER OF
OPTION OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding, December 31, 1993..................................... 0 --
Granted.......................................................... 402,020 $ 5.06
Exercised........................................................ -- --
Terminated....................................................... (13,100) 5.06
---------
Outstanding, December 29, 1994..................................... 388,920 5.06
========
</TABLE>
At December 29, 1994, none of the option grants were exercisable because
the grants are conditioned upon the approval of the 1993 Stock Option Plan by
the Company's stockholders at the 1995 annual meeting.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS, (DOLLARS IN THOUSANDS)
The following table presents the carrying value and estimated fair value as
of December 29, 1994 of the Company's financial instruments. (Refer to Notes 2
and 8.)
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and equivalents............................................... $ 7,289 $ 7,289
Foreign currency contracts......................................... 4,614 4,649
Interest rate agreements........................................... 1,174 1,432
Liabilities:
Long-term debt (excluding capital lease)........................... 362,512 298,926
</TABLE>
20. PATENT LITIGATION SETTLEMENT, (DOLLARS IN THOUSANDS)
In 1989 certain competitors of Viskase filed a declaratory action
challenging the validity and enforceability of a Viskase patent relating to
casings used in the manufacture of food products. In May 1994, the trial court
upheld the validity and enforceability of the Viskase patent and found
infringement of the patent. Before the trial on damages was conducted, Viskase
entered into agreements to settle the claims and grant licenses to the
competitors. Under the terms of these agreements Viskase received $9,457 for
past infringement and advance royalties and established royalty rates for future
patent use.
21. SUBSEQUENT EVENT, (DOLLARS IN THOUSANDS)
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes to certain institutional investors in a
private placement. The senior secured notes were issued pursuant to an indenture
dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior
Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due
2000 (collectively, the Notes).
F-48
<PAGE> 133
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Envirodyne used the net proceeds of the offering primarily to (i) repay the
Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations
under the Company's domestic and foreign revolver and (iii) pay transaction fees
and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered
into a new $20,000 domestic revolving credit facility (Revolving Credit
Facility) and a new $28,000 letter of credit facility (Letter of Credit
Facility).
The $151,500 tranche of Notes bear interest at a rate of 12% per annum and
the $8,500 tranche bears interest at a rate equal to the six month London
Interbank Offered Rate (LIBOR) plus 575 basis points. The initial interest rate
on the floating rate tranche was approximately 11.7%. The interest rate on the
floating rate tranche is reset semi-annually on June 15 and December 15.
Interest on the Notes is payable each June 15 and December 15, commencing
December 15, 1995.
On June 15, 1999, $80,000 of the aggregate principal amount of the Notes is
subject to a mandatory redemption. The remaining principal amount outstanding
will mature on June 15, 2000.
In the event the Company has Excess Cash Flow (as defined) in excess of
$5,000 in any fiscal year, beginning with fiscal 1995, the Company will be
required to make an offer to purchase Notes together with any borrowed money
obligations outstanding under the Revolving Credit Facility, on a pro rata
basis, in an amount equal to the Excess Cash Flow at a purchase price of 100%
plus any accrued interest to the date of purchase.
The Notes are redeemable, in whole or from time to time in part, at
Envirodyne's option, at the greater of (i) the outstanding principal amount or
(ii) the present value of the expected future cash flows from the Notes
discounted at a rate equal to the Treasury Note yield corresponding closest to
the remaining average life of the Notes at the time of prepayment plus 100 basis
points; plus accrued interest thereon to the date of purchase.
Upon the occurrence of a Change in Control (which includes the acquisition
by any person of more than 50% of Envirodyne's Common Stock), each holder of the
Notes has the right to require the Company to repurchase such holder's Notes at
a price equal to the greater of (i) the outstanding principal amount or (ii) the
present value of the expected cash flows from the Notes discounted at a rate
equal to the Treasury Note yield corresponding closest to the remaining average
life of the Notes at the time of prepayment plus 100 basis points; plus accrued
interest thereon to the date of purchase.
The Indenture contains covenants with respect to Envirodyne and its
subsidiaries limiting (subject to a number of important qualifications), among
other things, (i) the ability to pay dividends or redeem or repurchase common
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)
certain affiliate transactions and (v) the ability to consolidate with or merge
into another entity and to dispose of assets.
Borrowings under the Revolving Credit Facility bear interest at a rate per
annum equal to the three month London Interbank Offered Rate (LIBOR) on the
first day of each calendar quarter plus 300 basis points. The Revolving Credit
Facility expires on June 20, 1998.
The Letter of Credit Facility expires on June 20, 1998, with fees on the
outstanding amount of letters of credit equal to 2.0% per annum and an issuance
fee of 0.5% on the face amount of the letter of credit. There is a commitment
fee of 0.5% per annum on the unused portion of the Letter of Credit Facility.
Envirodyne's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Viskase Corporation, Viskase Holding Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc.
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent
substantially all of the operations of Envirodyne conducted in the United
States. The remaining subsidiaries of Envirodyne generally are foreign
subsidiaries or otherwise relate to foreign operations.
F-49
<PAGE> 134
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The obligations of each Guarantor under its Subsidiary Guarantee are the
senior obligation of such Guarantor, and are collateralized, subject to certain
permitted liens, by substantially all of the domestic assets of the Guarantor
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the
capital stock of Viskase S.A. In addition, the collateral securing the Notes
includes a senior pledge of 100% of the capital stock of each Guarantor. The
Subsidiary Guarantees and security are shared with the lenders under the
Revolving Credit Agreement on a pari passu basis and are subject to the priority
interest of the holders of obligations under the Letter of Credit Facility, each
pursuant to an intercreditor agreement.
The following consolidating condensed financial data illustrate the
composition of the combined Guarantors. No single Guarantor has any significant
legal restrictions on the ability of investors or creditors to obtain access to
its assets in the event of a default on the Subsidiary Guarantor other than its
subordination to senior indebtedness described above. Separate financial
statements of the guarantors are not presented because management has determined
that these would not be material to investors. Based on the book value and the
market value of the pledged securities of Viskase Corporation, Viskase Sales
Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. and Sandusky
Plastics of Delaware, Inc., these Subsidiary Guarantors do not constitute a
substantial portion of the collateral and, therefore, the separate financial
statements of these subsidiaries have not been provided. Separate audited
financial statements of Viskase Holding Corporation are being filed within this
Prospectus.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for purposes of the supplemental consolidating
presentation. Earnings of subsidiaries are therefore reflected in the parent's
and Subsidiary Guarantors' investment accounts and earnings. The principal
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
F-50
<PAGE> 135
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
DECEMBER 29, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL
--------- ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents........... $ 555 $ 1,853 $ 4,881 $ 7,289
Receivables, net............... 63,949 49,378 $ (26,459) 86,868
Inventories.................... 68,719 43,725 (1,961) 110,483
Other current assets........... 181 12,999 6,286 19,466
--------- ------------ ------------ --------------- ------------
Total current assets... 736 147,520 104,270 (28,420) 224,106
Property, plant and equipment,
including those under capital
lease.......................... 189 367,880 138,030 506,099
Less accumulated depreciation
and amortization............ 55 26,739 8,967 35,761
--------- ------------ ------------ --------------- ------------
Property, plant and equipment,
net......................... 134 341,141 129,063 470,338
Deferred financing costs......... 8,062 1,081 9,143
Other assets..................... 45,757 1,424 47,181
Investment in subsidiaries....... 91,576 116,360 (207,936)
Excess reorganization
value..................... 102,230 43,638 145,868
--------- ------------ ------------ --------------- ------------
$ 100,508 $753,008 $279,476 $(236,356) $896,636
========= ========= ========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including
current portion of long-term
debt and obligation under
capital lease............... $ 11,100 $ 7,720 $ 6,978 $ 25,798
Accounts payable............... 726 20,162 39,906 $ (26,459) 34,335
Accrued liabilities............ 10,254 36,634 25,358 72,246
--------- ------------ ------------ --------------- ------------
Total current
liabilities.......... 22,080 64,516 72,242 (26,459) 132,379
Long-term debt including
obligations under capital
lease.......................... 327,437 147,898 14,023 489,358
Accrued employee benefits........ 52,248 3,969 56,217
Deferred and noncurrent income
taxes.......................... 29,006 31,927 22,400 83,333
Intercompany loans and
advances....................... (413,364) 373,031 40,333
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par
value; none outstanding.....
Common stock, $.01 par value;
13,515,000 shares issued and
outstanding................. 135 4 32,608 (32,612) 135
Paid in capital................ 134,865 87,805 87,440 (175,245) 134,865
Accumulated earnings
(deficit)................... (3,612) (8,333) 2,549 5,784 (3,612)
Cumulative foreign currency
translation adjustments..... 3,961 3,912 3,912 (7,824) 3,961
--------- ------------ ------------ --------------- ------------
Total stockholders'
equity............... 135,349 83,388 126,509 (209,897) 135,349
--------- ------------ ------------ --------------- ------------
$ 100,508 $753,008 $279,476 $(236,356) $896,636
========= ========= ========== =========== =========
</TABLE>
- -------------------------
(1) Includes elimination of intercompany receivables, payables, loans and
investment accounts.
F-51
<PAGE> 136
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES................................ $406,988 $220,787 $(28,746) $599,029
Patent infringement settlement
income.............................. 9,457 9,457
COSTS AND EXPENSES
Cost of sales.......................... 295,356 165,877 (28,487) 432,746
Selling, general and administrative.... $ 6,015 71,092 34,344 111,451
Amortization of intangibles and excess
reorganization value................ 12,266 3,346 15,612
-------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS).................. (6,015) 37,731 17,220 (259) 48,677
Interest income........................ 13 46 248 307
Interest expense....................... 31,937 14,124 3,453 49,514
Intercompany interest expense
(income)............................ (35,077) 31,170 3,907
Management fees (income)............... (7,400) 6,544 856
Other expense (income), net............ (3,448) 7 1,923 (150) (1,668)
Equity loss (income) in subsidiary..... 8,392 (2,549) (5,843)
Minority interest in subsidiary........ 50 50
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES........ (406) (11,519) 7,329 5,784 1,188
Income tax provision (benefit)......... 3,206 (3,186) 4,780 4,800
-------- ------------ ------------ ------------ ------------
NET INCOME (LOSS)........................ $ (3,612) $ (8,333) $ 2,549 $ 5,784 $ (3,612)
======== ========= ========== ========= =========
</TABLE>
F-52
<PAGE> 137
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 1994
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................. $ (1,414) $ 13,575 $ 11,125 $ 23,286
Cash flows from investing activities:
Capital expenditures................. (20) (21,666) (10,880) (32,566)
Proceeds from sales of property,
plant and equipment............... 239 120 359
Purchase of minority interest in
subsidiary........................ (4,200) (4,200)
-------- ------------ ------------ --------------- ------------
Net cash (used in) investing
activities...................... (20) (25,627) (10,760) (36,407)
Cash flows from financing activities:
Proceeds from revolving loan and long
term borrowings................... 27,600 10,068 37,668
Deferred financing costs............. (1,608) (1,608)
Repayment of revolving loan,
long-term borrowings and capital
lease obligations................. (8,325) (5,180) (9,112) (22,617)
Increase (decrease) in Envirodyne
loan and advances................. (16,608) 17,163 (555)
-------- ------------ ------------ --------------- ------------
Net cash provided by (used in)
financing activities............ 1,059 11,983 401 13,443
Effect of currency exchange rate
changes on cash...................... (776) (776)
-------- ------------ ------------ --------------- ------------
Net (decrease) in cash and
equivalents.......................... (375) (69) (10) (454)
Cash and equivalents at
beginning of period.................. 930 1,922 4,891 7,743
-------- ------------ ------------ --------------- ------------
Cash and equivalents at
end of period........................ $ 555 $ 1,853 $ 4,881 $ 7,289
======== ========= ========== =========== =========
</TABLE>
F-53
<PAGE> 138
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1993
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL
-------- ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 930 $ 1,922 $ 4,891 $ 7,743
Receivables, net................ 47,611 35,364 $ (10,459) 72,516
Inventories..................... 68,225 32,301 (1,702) 98,824
Other current assets............ 33 12,762 4,743 17,538
-------- ------------ ------------ --------------- ------------
Total current assets.... 963 130,520 77,299 (12,161) 196,621
Property, plant and equipment
including those under capital
lease........................... 168 347,829 107,557 455,554
Less accumulated depreciation
and amortization.............
-------- ------------ ------------ --------------- ------------
Property, plant and equipment,
net............................. 168 347,829 107,557 455,554
Deferred financing costs.......... 8,916 73 8,989
Other assets...................... 50,513 252 50,765
Investment in subsidiaries........ 419,030.. 84,409 (503,439)
Excess reorganization value....... 109,001 46,750 155,751
-------- ------------ ------------ --------------- ------------
$429,077 $722,272 $231,931 $(515,600) $867,680
======== ========= ========== =========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including
current portion of long-term
debt and obligation under
capital lease................ $ 8,325 $ 5,180 $ 2,105 $ 15,610
Accounts payable................ 2,835 22,726 22,422 $ (10,459) 37,524
Accrued liabilities............. 11,525 32,466 17,056 61,047
-------- ------------ ------------ --------------- ------------
Total current
liabilities........... 22,685 60,372 41,583 (10,459) 114,181
Long-term debt including
obligations under capital
lease........................... 310,937 155,618 15,824 482,379
Accrued employee benefits......... 50,909 2,713 53,622
Deferred and noncurrent income
taxes........................... 25,731 34,006 18,828 78,565
Minority interest in consolidated
subsidiary...................... 3,933 3,933
Intercompany loans and advances... (65,276) 8,411 56,944 (79)
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding.............
Common stock, $.01 par value;
13,500,000 shares issued and
outstanding.................. 135 4 16,830 (16,834) 135
Paid in capital................. 134,865 412,952 79,209 (492,161) 134,865
Accumulated earnings
(deficit)....................
Cumulative foreign currency
translation adjustments......
-------- ------------ ------------ --------------- ------------
Total stockholders'
equity................ 135,000 412,956 96,039 (508,995) 135,000
-------- ------------ ------------ --------------- ------------
$429,077 $722,272 $231,931 $(515,600) $867,680
======== ========= ========== =========== =========
</TABLE>
- -------------------------
(1) Includes elimination of intercompany receivables, payables and investment
accounts.
F-54
<PAGE> 139
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $408,872 $195,291 $(16,778) $587,385
COSTS AND EXPENSES
Cost of sales...................... 283,743 149,412 (16,745) 416,410
Selling, general and
administrative.................. $ 5,021 65,992 30,619 101,632
Amortization of intangibles and
excess reorganization value..... 13,170 2,541 15,711
-------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS).............. (5,021) 45,967 12,719 (33) 53,632
Interest income.................... 1 20 910 931
Interest expense................... 10,388 14,589 6,213 31,190
Intercompany interest expense
(income)........................ (21,970) 61,416 (39,446)
Management fees (income)........... (7,600) 6,748 852
Other expense (income), net........ 3,432 (86) 2,194 5,540
Minority interest in subsidiary.... 717 717
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES,
REORGANIZATION ITEMS AND
EXTRAORDINARY ITEM................. 10,730 (35,963) 43,816 (33) 18,550
Reorganization items, net.......... 92,745 12,000 104,745
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. (82,015) (47,963) 43,816 (33) (86,195)
Income tax provision (benefit)..... (1,430) (4,442) 17,872 12,000
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................... (80,585) (43,521) 25,944 (33) (98,195)
Extraordinary gain, net of tax..... 183,784 183,784
-------- ------------ ------------ ------------ ------------
NET INCOME (LOSS).................... $103,199 $(43,521) $ 25,944 $ (33) $ 85,589
======== ========= ========== ========= =========
</TABLE>
F-55
<PAGE> 140
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities before reorganization
expense........................... $ 24,623 $ 33,840 $ 33,738 $ 92,201
Net cash used for reorganization
items............................. (2,929) (12,000) (14,929)
--------- ------------ ------------ ------------ ------------
Total net cash provided by
operating activities...... 21,694 21,840 33,738 77,272
Cash flows from investing
activities:
Capital expenditures.............. (114) (27,289) (13,484) (40,887)
Proceeds from sales of property,
plant and equipment............ 4 120 124
--------- ------------ ------------ ------------ ------------
Net cash (used in) investing
activities................ (114) (27,285) (13,364) (40,763)
Cash flows from financing
activities:
Proceeds from revolving loan and
long term borrowings........... 100,000 6,003 106,003
Deferred financing costs.......... (8,659) (1,120) (9,779)
Repayment of revolving loan,
long-term borrowings and
capital
lease obligations.............. (103,100) (4,698) (30,938) (138,736)
Increase (decrease) in Envirodyne
loan and advances.............. (8,891) 10,519 (1,628)
--------- ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities................ (20,650) 5,821 (27,683) (42,512)
Effect of currency exchange rate
changes on cash................... (316) (316)
--------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
equivalents....................... 930 376 (7,625) (6,319)
Cash and equivalents at beginning of
period............................ 1,546 12,516 14,062
--------- ------------ ------------ ------------ ------------
Cash and equivalents at end of
period............................ $ 930 $ 1,922 $ 4,891 $ 7,743
========= ========= ========== ========= =========
</TABLE>
F-56
<PAGE> 141
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $401,066 $192,425 $(17,786) $575,705
COSTS AND EXPENSES
Cost of sales........................ 275,200 141,925 (18,249) 398,876
Selling, general and
administrative..................... $ 5,620 59,489 28,967 94,076
Amortization of intangibles and
excess reorganization value........ 13,219 2,328 15,547
-------- ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS).............. (5,620) 53,158 19,205 463 67,206
Interest income...................... 224 740 964
Interest expense..................... 83,856 14,919 7,747 106,522
Intercompany interest expense
(income)........................... (25,853) 65,473 (39,620)
Management fees (income)............. (7,190) 6,319 871
Other expense (income), net.......... 3,257 122 5,320 8,699
Fees and expenses associated with
renegotiation of debt.............. (115) 4,060 3,945
Equity loss (income) in subsidiary... (331) 1,045 (714)
-------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.... (59,244) (38,556) 45,627 1,177 (50,996)
Income tax provision (benefit)....... (22,248) (9,756) 18,004 (14,000)
-------- ------------ ------------ ------------ ------------
NET INCOME (LOSS).................... $(36,996) $(28,800) $ 27,623 $ 1,177 $(36,996)
======== ========= ========== ========= =========
</TABLE>
F-57
<PAGE> 142
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities......................... $ 15,509 $ 58,772 $ 14,142 $ 88,423
Cash flows from investing activities:
Capital expenditures............... (13) (20,839) (8,166) (29,018)
Proceeds from sales of property,
plant and equipment............. 173 173
Investments and advances to
affiliated companies............ (4,990) (4,990)
Proceeds from sale of time deposits
in Puerto Rico.................. 6,600 6,600
-------- ------------ ------------ ------------ ------------
Net cash (used in) investing
activities................. (13) (19,229) (7,993) (27,235)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings............ 3 3
Deferred financing costs........... (12) (12)
Repayment of revolving loan,
long-term borrowings and capital
lease obligations............... (45,400) (4,904) (7,135) (57,439)
Increase (decrease) in Envirodyne
loan and advances............... 29,722 (32,926) 3,204
-------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities....... (15,678) (37,842) (3,928) (57,448)
Effect of currency exchange rate
changes on cash.................... 847 847
-------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
equivalents........................ (182) 1,701 3,068 4,587
Cash and equivalents at beginning of
period............................. 182 (155) 9,448 9,475
-------- ------------ ------------ ------------ ------------
Cash and equivalents at end of
period............................. $ -- $ 1,546 $ 12,516 $ 14,062
======== ========= ========== ========= =========
</TABLE>
F-58
<PAGE> 143
FINANCIAL STATEMENTS
The information included in these quarterly financial statements has been
prepared in conformity with the accounting principles and practices reflected in
the financial statements of Viskase Holding Corporation and Subsidiaries that
are being filed within this Prospectus. These quarterly financial statements
should be read in conjunction with the financial statements and the notes
thereto of Viskase Holding Corporation and Subsidiaries. The accompanying
financial information, which is unaudited, reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the results for
the periods presented.
The condensed consolidated balance sheet as of December 29, 1994 was
derived from the audited consolidated financial statements of Viskase Holding
Corporation that are being filed within this Prospectus.
Reported quarterly results of operations are based in part on estimates
which may be subject to year-end adjustments. In addition, these quarterly
results of operations are not necessarily indicative of those expected for the
year.
F-59
<PAGE> 144
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................ $ 3,778 $ 6,201
Receivables, net.................................................... 52,434 46,834
Receivables, affiliates............................................. 50,018 48,138
Inventories......................................................... 54,386 43,725
Other current assets................................................ 7,562 6,515
-------- --------
Total current assets............................................. 168,178 151,413
Property, plant and equipment......................................... 149,493 138,030
Less accumulated depreciation....................................... 15,422 8,967
-------- --------
Property, plant and equipment, net.................................. 134,071 129,063
Deferred financing costs.............................................. 37 1,081
Other assets.......................................................... 1,455 1,424
Excess reorganization value........................................... 42,538 43,638
-------- --------
$346,279 $326,619
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion of long-term debt......... $ 6,562 $ 6,978
Accounts payable.................................................... 18,754 15,479
Accounts payable, affiliates........................................ 48,534 42,756
Accrued liabilities................................................. 24,002 25,358
-------- --------
Total current liabilities........................................ 97,852 90,571
Long-term debt........................................................ 9,232 14,023
Accrued employee benefits............................................. 4,167 3,969
Deferred and noncurrent income taxes.................................. 24,160 22,400
Intercompany loans and advances....................................... 88,842 78,343
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value, 1,000 shares authorized; 100 shares
issued and outstanding
Paid in capital..................................................... 105,106 103,463
Retained earnings................................................... 9,213 9,938
Cumulative foreign currency translation adjustments................. 7,707 3,912
-------- --------
Total stockholders' equity....................................... 122,026 117,313
-------- --------
$346,279 $326,619
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-60
<PAGE> 145
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED SIX MONTHS SIX MONTHS
JUNE 29, JUNE 30, ENDED ENDED
1995 1994 JUNE 29, 1995 JUNE 30, 1994
------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES.................................... $ 66,694 $ 51,534 $ 129,214 $ 101,885
Patent infringement settlement income...... 9,457 9,457
COSTS AND EXPENSES
Cost of sales.............................. 52,722 40,018 100,359 77,430
Selling, general and administrative........ 9,744 6,424 19,856 13,318
Amortization of intangibles and excess
reorganization value.................... 838 779 1,682 1,558
------- ------- -------- --------
OPERATING INCOME............................. 3,390 13,770 7,317 19,036
Interest income............................ 2 59 41 109
Interest expense........................... 1,107 882 1,965 1,734
Intercompany interest expense.............. 591 865 1,429 1,980
Management fees............................ 189 240 481 475
Other (income) expense, net................ (343) 425 1,261 980
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM......................... 1,848 11,417 2,222 13,976
Income tax provision (benefit)............. 1,409 5,812 2,257 7,290
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...... 439 5,605 (35) 6,686
Extraordinary loss, net of tax............. 690 690
------- ------- -------- --------
NET INCOME (LOSS)............................ $ (251) $ 5,605 $ (725) $ 6,686
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES............... 100 100 100 100
PER SHARE AMOUNTS:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... $ 4,390 $ 56,050 $ (350) $ 66,860
======= ======= ======== ========
NET INCOME (LOSS)............................ $ (2,510) $ 56,050 $ (7,250) $ 66,860
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-61
<PAGE> 146
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 29, JUNE 30,
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income (loss) before extraordinary item............................... $ (35) $ 6,686
Extraordinary loss on debt extinguishment............................. 690
-------- --------
Net income (loss)..................................................... (725) 6,686
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation..................................................... 5,761 5,399
Amortization of intangibles and excess reorganization value...... 1,682 1,558
Amortization of deferred financing fees and discount............. 94 101
Increase (decrease) in deferred and noncurrent income taxes...... (89) 45
Loss on debt extinguishment...................................... 1,030
(Gain) on sales of property, plant and equipment................. (11)
Changes in operating assets and liabilities:
Accounts receivable........................................... (3,138) (3,680)
Accounts receivable, affiliates............................... (2,002) (16,413)
Inventories................................................... (8,241) (8,751)
Other current assets.......................................... (700) (305)
Accounts payable and accrued liabilities...................... (605) 5,300
Accounts payable, affiliates.................................. 4,531 18,203
-------- --------
Total adjustments................................................ (1,688) 1,457
-------- --------
Net cash provided by (used in) operating activities........... (2,413) 8,143
Cash flows from investing activities:
Capital expenditures.................................................. (3,275) (5,747)
Proceeds from sale of property, plant and equipment................... 29
Purchase of minority interest in subsidiary........................... (4,200)
-------- --------
Net cash (used in) investing activities....................... (3,246) (9,947)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings................. 42,053 8,138
Deferred financing costs.............................................. (53)
Repayment of revolving loan and long-term borrowings.................. (48,641) (2,945)
Increase (decrease) in Envirodyne loan and advances................... 10,499 (3,187)
-------- --------
Net cash provided by financing activities..................... 3,911 1,953
Effect of currency exchange rate changes on cash........................ (675) (526)
-------- --------
Net increase (decrease) in cash and equivalents......................... (2,423) (377)
Cash and equivalents at beginning of period............................. 6,201 6,170
-------- --------
Cash and equivalents at end of period................................... $ 3,778 $ 5,793
======== ========
- -----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid......................................................... $ 987 $ 992
Income taxes paid..................................................... $ 3,536 $ 1,316
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-62
<PAGE> 147
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES, (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1995 1994
-------- ------------
<S> <C> <C>
Raw materials.......................................................... $ 8,229 $ 5,778
Work in process........................................................ 18,686 13,975
Finished products...................................................... 27,471 23,972
------- -------
$ 54,386 $ 43,725
======= =======
</TABLE>
2. CONTINGENCIES, (DOLLARS IN THOUSANDS)
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
F-63
<PAGE> 148
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Viskase Holding Corporation
We have audited the consolidated financial statements of Viskase Holding
Corporation and Subsidiaries. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on
December 31, 1993, Envirodyne Industries, Inc. and its domestic subsidiaries
completed a comprehensive financial restructuring through the implementation of
reorganization under Chapter 11 of the United States Bankruptcy Code and applied
fresh start reporting.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Viskase Holding
Corporation and Subsidiaries as of December 29, 1994 and December 31, 1993, and
the consolidated results of their operations and their cash flows for the period
January 1 to December 29, 1994 (Post-consummation) and January 1 to December 31,
1993 and December 27, 1991 to December 31, 1992 (Pre-consummation), in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 15, 1995
(except with respect to the matters
discussed in Note 16, as to which the
date is July 19, 1995)
F-64
<PAGE> 149
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................................. $ 6,201 $ 6,170
Receivables, net.................................................. 46,834 34,663
Receivables, affiliates........................................... 48,138 30,316
Inventories....................................................... 43,725 32,301
Other current assets.............................................. 6,515 4,743
-------- --------
Total current assets........................................... 151,413 108,193
Property, plant and equipment....................................... 138,030 107,557
Less accumulated depreciation..................................... 8,967
-------- --------
Property, plant and equipment, net................................ 129,063 107,557
Deferred financing costs............................................ 1,081 73
Other assets........................................................ 1,424 252
Excess reorganization value......................................... 43,638 46,750
-------- --------
$326,619 $262,825
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt including current portion of long-term debt....... $ 6,978 $ 2,105
Accounts payable.................................................. 15,479 12,615
Accounts payable, affiliates...................................... 42,756 12,108
Accrued liabilities............................................... 25,358 17,059
-------- --------
Total current liabilities...................................... 90,571 43,887
Long-term debt...................................................... 14,023 15,824
Accrued employee benefits........................................... 3,969 2,713
Deferred and noncurrent income taxes................................ 22,400 18,828
Minority interest in consolidated subsidiary........................ 3,933
Intercompany loans and advances..................................... 78,343 94,954
Commitments and contingencies.......................................
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized; 100 shares
issued and outstanding.........................................
Paid in capital................................................... 103,463 82,686
Retained earnings................................................. 9,938 0
Cumulative foreign currency translation adjustments............... 3,912 0
-------- --------
Total stockholder's equity..................................... 117,313 82,686
-------- --------
$326,619 $262,825
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-65
<PAGE> 150
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES............................................... $220,787 $195,291 $192,425
Patent infringement settlement income................. 9,457
COSTS AND EXPENSES
Cost of sales......................................... 165,877 151,694 141,925
Selling, general and administrative................... 30,668 25,171 25,654
Amortization of intangibles and excess reorganization
value.............................................. 3,346 2,541 2,328
-------- -------- --------
OPERATING INCOME........................................ 30,353 15,885 22,518
Interest income....................................... 248 910
Interest expense...................................... 3,453 6,213 7,007
Intercompany interest expense......................... 3,861 6,084 5,838
Management fees....................................... 856 852 871
Other expense (income), net........................... 2,518 1,723 5,320
Minority interest in loss of subsidiary............... 50 717
-------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 19,963 2,640 3,482
Income tax provision (benefit)........................ 10,025 2,645 2,590
-------- -------- --------
NET INCOME (LOSS)....................................... $ 9,938 $ (5) $ 892
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES.......................... 100 100 100
======== ======== ========
PER SHARE AMOUNTS:
NET INCOME (LOSS)..................................... $ 99,380 $ (50) $ 8,920
======== ======== ========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operation for the fiscal year ended
December 29, 1994 is not comparable to the prior years. (Refer to Note 2 of
Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-66
<PAGE> 151
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TOTAL
COMMON PAID IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
------- -------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance December 26, 1991............... $ $ 20,119 $ 78,566 $ 3,890 $ 102,575
Net income.............................. 892 892
Translation adjustments................. (6,246) (6,246)
------- -------- -------- ------- --------
Balance December 31, 1992............... 20,119 79,458 (2,356) 97,221
Net (loss).............................. (5) (5)
Capital contributions................... 4,295 4,295
Fresh start revaluation adjustments..... 58,272 58,272
Translation adjustments................. (2,044) (2,044)
Elimination of accumulated earnings and
cumulative foreign currency
translation adjustments............... (79,453) 4,400 (75,053)
------- -------- -------- ------- --------
Balance December 31, 1993............... $ 82,686 $ 0 $ 0 $ 82,686
Net income.............................. 9,938 9,938
Capital contributions................... 16,056 16,056
Fresh start revaluation adjustments..... 4,721 4,721
Translation adjustments................. 3,912 3,912
------- -------- -------- ------- --------
Balance December 29, 1994............... $ $103,463 $ 9,938 $ 3,912 $ 117,313
======= ======== ======== ======= ========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholder's equity at and subsequent to December 31, 1993 is
not comparable to the prior years. (Refer to Note 2 of Notes to Consolidated
Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-67
<PAGE> 152
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 9,938 $ (5) $ 892
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................... 9,018 11,024 10,018
Amortization of intangibles and excess reorganization
value.................................................... 3,346 2,541 2,328
Amortization of deferred financing fees and discount....... 210 935 299
Increase (decrease) in deferred and noncurrent income
taxes.................................................... 128 (1,436) 174
Foreign currency transaction loss (gain)................... (68) 1,820
Loss (gain) on sales of property, plant and equipment...... 32 424 898
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............... (9,076) (3,055) (2,201)
Decrease (increase) in accounts receivable, affiliates... (18,214) 9,373 2,221
Decrease (increase) in inventories....................... (8,895) (1,467) (93)
Decrease (increase) in other current assets.............. (1,462) (461) 219
Increase (decrease) in accounts payable and accrued
liabilities........................................... 8,314 3,219 1,178
Increase (decrease) in accounts payable, affiliates...... 21,739 13,359 2,532
Other.................................................... 288 (908) 390
------- ------- -------
Total adjustments.......................................... 5,428 33,480 19,783
------- ------- -------
Net cash provided by operating activities................ 15,366 33,475 20,675
Cash flows from investing activities:
Capital expenditures......................................... (10,880) (13,484) (8,166)
Proceeds from sale of property, plant and equipment.......... 120 120 173
Investments and advances to affiliated companies............. (4,990)
Purchase of minority interest in subsidiary.................. (4,200)
------- ------- -------
Net cash (used in) investing activities.................. (14,960) (13,364) (12,983)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings........ 10,068 6,003 3
Deferred financing costs..................................... (1,120)
Repayment of revolving loan and long-term borrowings......... (9,112) (30,938) (7,135)
Increase (decrease) in Envirodyne loan and advances.......... (555) (1,628) 3,204
------- ------- -------
Net cash provided by (used in) financing activities...... 401 (27,683) (3,928)
Effect of currency exchange rate changes on cash............... (776) (316) 847
------- ------- -------
Net increase (decrease) in cash and equivalents................ 31 (7,888) 4,611
Cash and equivalents at beginning of period.................... 6,170 14,058 9,447
------- ------- -------
Cash and equivalents at end of period.......................... $ 6,201 $ 6,170 $ 14,058
======= ======= =======
- --------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid................................................ $ 1,808 $ 4,403 $ 6,278
Income taxes paid............................................ $ 3,548 $ 1,063 $ 3,131
</TABLE>
Supplemental schedule of noncash investing and financing activities:
FISCAL 1993
Viskase Holding Corporation's capital increased by $4.3 million due to the
forgiveness of an Envirodyne loan.
Viskase Holding Corporation contributed capital consisting of $160 thousand
of equipment to Viskase Brasil Embalagens LTDA.
FISCAL 1994
Viskase S.A. and its subsidiary Viskase Canada Inc.'s capital increased by
$16 million due to the forgiveness of an Envirodyne loan.
Viskase Corporation transferred equipment totaling $1.5 million, $174
thousand, and $2.1 million to Viskase S.A., Viskase de Mexico S.A. de C.V.,
and Viskase Brasil Embalagens LTDA, respectively.
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of cash flows for the fiscal year ended
December 29, 1994 is not comparable to the prior years. (Refer to Note 2 of
Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-68
<PAGE> 153
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Viskase Holding Corporation is a wholly owned subsidiary of Viskase
Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary of
Envirodyne Industries, Inc. Viskase Holding Corporation serves as the direct or
indirect parent company for the majority of Viskase Corporation's non-domestic
operations. These subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY PARENT OF SUBSIDIARY COUNTRY OF BUSINESS
- -------------------------------- ----------------------------- -------------------
<S> <C> <C>
Viskase Brasil Embagens LTDA. Viskase Holding Corporation Brazil
Viskase Australia Limited Viskase Holding Corporation Australia
Viskase de Mexico S.A. de C.V. Viskase Holding Corporation Mexico
Viskase S.A. Viskase Holding Corporation France
Viskase Gmbh Viskase S.A. Germany
Viskase SPA Viskase S.A. Italy
Viskase Canada Inc. Viskase S.A. Canada
Viskase ZAO Viskase S.A. Russia
Viskase Holdings Limited Viskase S.A. United Kingdom
Filmco International Limited Viskase Holdings Limited United Kingdom
Viskase Limited Viskase Holdings Limited United Kingdom
Viskase (UK) Limited Viskase Limited United Kingdom
Envirodyne S.A.R.L. Viskase (UK) Limited France
</TABLE>
Viskase Holding Corporation conducts its operations through its
subsidiaries and, for the most part, has no assets or liabilities other than its
investments, accounts receivable and payable with affiliates, and intercompany
loan and advances.
2. CHAPTER 11 REORGANIZATION PROCEEDINGS, (DOLLARS IN THOUSANDS)
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.
Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Holding
Corporation, and certain of Envirodyne's other domestic subsidiaries each filed
voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Illinois, Eastern Division
(the Bankruptcy Court). On December 17, 1993, the Bankruptcy Court confirmed the
First Amended Joint Plan of Reorganization as twice modified (Plan of
Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne),
Viskase Corporation, Viskase Holding Corporation, and certain of Envirodyne's
other subsidiaries. The Plan of Reorganization was consummated and Envirodyne,
Viskase Corporation, Viskase Holding Corporation, and certain of Envirodyne's
other subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective
Date). For accounting purposes, the Plan of Reorganization was deemed to be
effective as of December 31, 1993.
The Chapter 11 filing was related only to the Company's domestic operations
and did not include the foreign subsidiaries and various inactive domestic
subsidiaries.
The Company accounted for the reorganization using the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities have been restated to reflect their reorganization value, which
approximates fair value.
The reorganization value of the Company's equity of $135,000 was based on
the consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings
F-69
<PAGE> 154
valuation techniques believed by management and its financial advisors to be
representative of the Company's business and industry. Factors considered by the
Company included the following:
- Forecasted operating and cash flow results which gave effect to the
estimated impact of debt restructuring and other operational
reorganization.
- Discounted residual value at the end of the forecasted period based on
the capitalized cash flows for the last year of that period.
- Competition and general economic considerations.
- Projected sales growth.
- Potential profitability.
- Seasonality and working capital requirements.
The excess of the reorganization value over the fair value of net assets and
liabilities is reported as excess reorganization value and is being amortized
over a fifteen-year period. The Company continues to evaluate the recoverability
of excess reorganization value based on the operating performance and expected
future undiscounted cash flows of the operating business units.
The reorganization and the adoption of Fresh Start Reporting resulted in no
material adjustments to the Company's Consolidated Statement of Operations for
the period January 1 to December 31, 1993.
The following balance sheet adjustments were made as of the Effective Date,
December 31, 1993, to record the Reorganization and Fresh Start adjustments,
including the refinancing of the indebtedness under the Post-petition Credit
Agreement and certain foreign credit facilities on December 31, 1993 and to
implement Fresh Start Reporting.
REORGANIZATION ADJUSTMENTS:
<TABLE>
<S> <C>
Reduction of cash and equivalents for repayment of certain foreign credit
facilities and accrued interest thereon net of concurrent draw under new
multicurrency loan facility................................................. $(12,494)
Reduction of accrued interest payable to reflect refinancing of certain
foreign credit facilities................................................... 598
Increase in long-term debt to reflect the reclassification of long-term debt
previously reclassified as current.......................................... (10,615)
Decrease in long-term debt reclassified as current to reflect the
reclassification of long-term debt previously reclassified as current....... 10,615
Decrease in short-term debt to reflect repayment of certain foreign credit
facilities.................................................................. 10,684
Decrease in long-term debt to reflect repayment of certain foreign credit
facilities net of concurrent draw under new multicurrency facility.......... 4,061
Increase intercompany advance from Envirodyne for the repayment of the
existing Canadian loan facility............................................. (2,849)
</TABLE>
F-70
<PAGE> 155
FRESH START ADJUSTMENTS:
<TABLE>
<S> <C>
Write down of fixed assets.................................................... (30,744)
Elimination of accumulated depreciation at December 31........................ 30,744
Elimination of existing excess investment over net assets acquired............ (63,531)
Recording of reorganization value in excess of amounts allocable to
identifiable assets and liabilities......................................... 46,750
Elimination of retained earnings.............................................. 79,453
Elimination of cumulative foreign currency translation adjustments............ (4,400)
Increase in intercompany revaluation.......................................... (58,272)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week fiscal
year ending on the last Thursday of December. Viskase Holding Corporation's 1993
financial statements include December 31, 1993 in order to present the effect of
the consummation of the Plan of Reorganization.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the accounts of Viskase
Holding Corporation and its subsidiaries. All significant intercompany
transactions and balances between and among Viskase Holding Corporation and its
subsidiaries have been eliminated in the consolidation.
(C) CASH EQUIVALENTS, (DOLLARS IN THOUSANDS)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an
initial maturity of approximately three months or less. Due to the short-term
nature of these instruments, the carrying values approximate the fair market
value. Cash equivalents include $821 and $1,757 of short-term investments at
December 29, 1994 and December 31, 1993, respectively.
(D) INVENTORIES
Inventories, primarily foreign, are valued at the lower of first-in,
first-out (FIFO) cost or market.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement
or other disposition, cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in results of operations.
Effective December 31, 1993 and in conjunction with the Fresh Start Reporting,
property, plant and equipment was reported at the estimated fair value.
(F) DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred financing
costs is classified as interest expense.
(G) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS ACQUIRED,
NET
Excess reorganization value is amortized on the straight-line method over
15 years.
F-71
<PAGE> 156
Cost in excess of net assets acquired, net was amortized on a straight-line
method over 40 years in fiscal years 1993 and 1992.
The Company continues to evaluate the recoverability of excess
reorganization value based on operating performance and undiscounted cash flows
of the operating business units. Impairment will be recognized when the expected
undiscounted future operating cash flows derived from such intangible is less
than its carrying value. If impairment is identified, valuation techniques
deemed appropriate under the particular circumstances will be used to determine
the intangible's fair value. The loss will be measured based on the excess of
carrying value over the determined fair value. The review for impairment is
performed at least on a quarterly basis.
(H) PENSIONS
The Company's operations in Europe have defined benefit retirement plans
covering substantially all salaried and full time hourly employees. Pension cost
is computed using the projected unit credit method.
The Company's funding policy is consistent with funding requirements of the
applicable foreign laws and regulations.
(I) POSTEMPLOYMENT BENEFITS
Effective December 31, 1993 and in conjunction with the Fresh Start
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material.
(J) INCOME TAXES
Income taxes were accounted for in accordance with SFAS No. 109 for the
years ended December 29, 1994 and December 31, 1993.
(K) NET INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year.
(L) REVENUE RECOGNITION
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
(M) FOREIGN CURRENCY CONTRACTS
The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses
revenue cash flows within its European operations. The foreign exchange
contracts are denominated predominantly in the major European currencies and
have varying maturities up to eighteen months. The effect of this practice is to
minimize the effect of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the Company
to additional exchange rate risk because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The cash flows from
forward contracts accounted for as hedges of identifiable transactions or events
are classified consistent with the cash flows from the transactions or events
being hedged.
4. RECEIVABLES, (DOLLARS IN THOUSANDS)
Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $1,364 and $1,867 at December 29, 1994,
and at December 31, 1993, respectively.
F-72
<PAGE> 157
5. INVENTORIES, (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Raw materials...................................... $ 5,778 $ 4,037
Work in process.................................... 13,975 9,138
Finished products.................................. 23,972 19,126
------- -------
$ 43,725 $ 32,301
======= =======
</TABLE>
Inventories were net of reserves for obsolete and slow moving inventory of
$1,686 and $1,466 at December 29, 1994 and December 31, 1993, respectively.
6. PROPERTY, PLANT AND EQUIPMENT, (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Property, plant and equipment:
Land and improvements............................ $ 4,982 $ 4,596
Buildings and improvements....................... 28,588 22,041
Machinery and equipment.......................... 103,293 76,721
Construction in progress......................... 1,167 4,199
-------- --------
$138,030 $107,557
======== ========
</TABLE>
Maintenance and repairs charged to costs and expenses for 1994, 1993, and
1992 aggregated $10,748, $9,782 and $10,097, respectively. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 32 years.
7. ACCRUED LIABILITIES, (DOLLARS IN THOUSANDS)
Accrued liabilities were comprised of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Compensation and employee benefits................ $ 10,408 $ 7,560
Taxes, other than on income....................... 2,006 1,249
Accrued volume and sales discounts................ 5,445 4,301
Other............................................. 7,499 3,949
------- -------
$ 25,358 $ 17,059
======= =======
</TABLE>
8. DEBT OBLIGATIONS, (DOLLARS IN THOUSANDS)
As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne
and certain of its domestic Subsidiaries (including Viskase Holding Corporation)
emerged from Chapter 11 on December 31, 1993.
In connection with the consummation of the Plan of Reorganization,
Envirodyne and certain of its subsidiaries entered into a Credit Agreement dated
December 31, 1993 (Credit Agreement) with the lenders party thereto and with
Bank of America Illinois (formerly Continental Bank N.A.), Citibank
International PLC and Citicorp North America, Inc., as agents for the Lenders.
The Credit Agreement provides a $30,000 amortizing multicurrency revolving
credit facility (which includes a $3,000 multicurrency letter of credit
facility) to Viskase S.A. The commitment under the amortizing multicurrency
revolver was $27,800 at December 29, 1994.
F-73
<PAGE> 158
Availability of funds under the multicurrency revolver is subject to a
borrowing base measured by certain assets of Envirodyne and its subsidiaries.
The available borrowing capacity under the multicurrency revolving credit
facility was approximately $24 million at December 29, 1994.
The multicurrency revolving credit facility permits borrowings in U.S.
Dollars, German Marks, French Francs or Pounds Sterling at an interest rate per
annum equal to the applicable Eurocurrency rate plus 2.75%, subject to step
downs of up to 0.5% if Envirodyne meets certain debt and interest coverage
tests. The multicurrency revolving credit facility expires on December 31, 1999
and the commitments thereunder are subject to mandatory quarterly reductions as
follows:
<TABLE>
<CAPTION>
QUARTERLY TOTAL REPAYMENT
CALENDAR YEAR REPAYMENT AMOUNT FOR CALENDAR YEAR
---------------------------------------------- ---------------- -----------------
<S> <C> <C>
1995.......................................... $ 500 $ 2,000
1996.......................................... 950 3,800
1997.......................................... 1,075 4,300
1998.......................................... 1,150 4,600
1999.......................................... 775 3,100
</TABLE>
There is a commitment fee of 0.5% per annum on the unused portion of the
multicurrency revolving credit facility. The multicurrency letter of credit
facility expires December 16, 1999, with fees on the outstanding amount of the
multicurrency letters of credit of 0.25% per annum to the issuers and 2.5% per
annum to the multicurrency Lenders, subject to step downs of up to 0.5% if the
Company meets certain debt and interest coverage tests.
The Viskase Limited term facility is with a foreign financial institution.
The term facility, which is collateralized by substantially all of the assets of
Viskase Limited, bears a variable interest rate and is payable in 16 equal
semiannual installments that began in December 1992.
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Short-term debt and current maturity of long-term
debt:
Current maturity of Viskase Limited Term Loan
(5.9%)........................................... $ 1,882 $ 1,679
Other............................................... 5,096 426
------- -------
Total short-term debt............................... $ 6,978 $ 2,105
======= =======
Long-term debt:
Bank Credit Agreement:
Multicurrency Loan due 1999 (8.9%)............... 4,924 5,999
Viskase Limited Term Loan (5.9%).................... 8,466 9,233
Other............................................... 633 592
------- -------
Total long-term debt................................ $ 14,023 $ 15,824
======= =======
</TABLE>
The weighted average interest rate on short-term borrowings in 1994 was
5.93%.
The fair value of the Company's debt obligation is estimated based upon the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for the debt of the same remaining maturities. At
December 29, 1994, the fair value of debt obligations approximated their
carrying value.
F-74
<PAGE> 159
Aggregate maturities of remaining long-term debt for each of the next five
fiscal years are:
<TABLE>
<CAPTION>
TOTAL
------
<S> <C>
1995................................................................. $2,077
1996................................................................. 2,077
1997................................................................. 2,076
1998................................................................. 2,077
1999................................................................. 1,881
</TABLE>
9. OPERATING LEASES, (DOLLARS IN THOUSANDS)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay
maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 29,
1994, are:
<TABLE>
<S> <C>
1995................................................................. $1,842
1996................................................................. 1,333
1997................................................................. 282
1998................................................................. 182
1999................................................................. 160
Total thereafter.....................................................
------
Total minimum lease payments......................................... $3,799
======
</TABLE>
Total rent expense during 1994, 1993 and 1992 amounted to $2,350, $2,140
and $2,456, respectively.
10. RETIREMENT PLANS, (DOLLARS IN THOUSANDS)
At December 29, 1994, Viskase Canada Inc., a subsidiary of Viskase Holding
Corporation, maintained a non-contributory defined benefit retirement plan. The
plan covers substantially all salaried and full-time hourly employees, and
benefits are based on final average compensation and years of credited service.
The Company's policy is to fund the minimum actuarially computed annual
contribution.
As of the Viskase Holding Corporation acquisition date, the former owner
assumed the liability for the accumulated benefit obligation under its plans.
The effect of expected future compensation increases on benefits accrued is
recorded as a liability on the Company's consolidated balance sheet.
PENSIONS -- NORTH AMERICA:
Net pension cost for the Viskase Canada Inc. plan consisted of:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the year...... $196 $190 $188
Interest cost on projected benefit obligation..... 357 360 395
Actual (gain) loss on plan assets................. (350) (290) (292)
Net amortization and deferral..................... 51 52 109
------ ------ ------
Net pension cost.................................. $254 $312 $400
========== ========== ==========
</TABLE>
F-75
<PAGE> 160
The amounts included in the consolidated balance sheet for the Viskase
Canada Inc. plan were:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................ $2,273 $2,325
Nonvested benefits......................................... 7 8
------------ ------------
Accumulated benefit obligation............................... 2,280 2,333
Effect of projected future compensation increases............ 1,736 1,710
------------ ------------
Projected benefit obligation................................. 4,016 4,043
Plan assets at fair value, primarily listed stocks and
investment grade corporate bonds........................... 3,667 3,925
------------ ------------
Amount underfunded........................................... 349 118
Unrecognized gain (loss)..................................... 460
------------ ------------
Accrued liability included in consolidated balance sheet..... $ 809 $ 118
========== ==========
Assumed discount rate........................................ 9.0% 9.0%
Assumed long-term compensation factor........................ 6.0% 6.0%
Assumed long-term return on plan assets...................... 8.5% 8.0%
</TABLE>
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1994, 1993 and 1992
was $1,043, $864 and $515, respectively. As of their most recent valuation
dates, in plans where vested benefits exceeded plan assets, the actuarially
computed value of vested benefits exceeded those plans' assets by approximately
$1,902; conversely, plan assets exceeded the vested benefits in certain other
plans by approximately $1,708.
The Company's postretirement benefits are not material.
11. CONTINGENCIES, (DOLLARS IN THOUSANDS)
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
12. INCOME TAXES, (DOLLARS IN THOUSANDS)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................. $ 4,479 $ 1,368 $1,181
Foreign............................. 4,652 2,453 994
State and local..................... 766 258 241
------- ------ ------
9,897 4,079 2,416
------- ------ ------
Deferred:
Federal............................. 128 (1,434) 174
Foreign.............................
State and local.....................
------- ------ ------
128 (1,434) 174
------- ------ ------
$ 10,025 $ 2,645 $2,590
======= ====== ======
</TABLE>
F-76
<PAGE> 161
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, DECEMBER 27,
TO TO 1991 TO
DECEMBER 29, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal tax rate............................ 35.0% 35.0% 34.0%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax
benefit.......................................... 2.5 6.4 4.6
Net effect of taxes relating to foreign
operations....................................... 11.1 61.6 32.3
Other............................................... 1.6 (2.8) 3.5
---- ----- ----
Consolidated effective tax rate....................... 50.2% 100.2% 74.4%
==== ===== ====
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1994 are as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCE TAX EFFECTED
----------------------------- -----------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences............ $ 70,635 $ 23,456
Pension and healthcare.................... 643 214
Other accruals, reserves, and other....... $5,348 1,407 $1,779 509
------ ------- ------ -------
$5,348 $ 72,685 $1,779 $ 24,179
====== ======= ====== =======
</TABLE>
At December 29, 1994, the Company had $11,066 of undistributed earnings of
foreign subsidiaries considered permanently invested for which deferred taxes
have not been provided.
Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $12,634, $4,373 and $3,359 in 1994, 1993 and
1992, respectively. Foreign earnings or (losses) before income taxes were
approximately $7,329, $(1,733) and $123 in 1994, 1993 and 1992, respectively.
13. RESEARCH AND DEVELOPMENT COSTS, (DOLLARS IN THOUSANDS)
Research and development costs are expensed as incurred and totaled $1,562,
$1,180 and $482, for 1994, 1993, and 1992, respectively.
14. RELATED PARTY TRANSACTIONS, (DOLLARS IN THOUSANDS)
INTERCOMPANY LOANS AND ADVANCES:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Viskase S.A. promissory note due to Envirodyne........ $ 35,249 $ 45,236
Accrued interest on Viskase S.A. promissory note...... 1,688 5,645
Viskase United Kingdom Limited promissory note due to
Envirodyne, including accrued interest.............. 2,919 2,719
Advances:
Envirodyne to Viskase S.A. ......................... 2,868
Viskase Corporation to Viskase Holding
Corporation...................................... 38,010 38,010
Other............................................... 477 476
------- -------
$ 78,343 $ 94,954
======= =======
</TABLE>
The Viskase S.A. promissory note due to Envirodyne is payable on demand and
bears interest at a rate of 10.00%. Interest is payable semiannually on June 30
and December 31. During 1993, the Viskase S.A.
F-77
<PAGE> 162
promissory note bore interest at a rate of 12.88%. Interest for the fiscal year
is payable annually in arrears on March 31.
The $2.5 million Viskase United Kingdom Limited promissory note due to
Envirodyne is payable on demand and bears interest at a rate of 8.00%.
The Viskase Corporation advance to Viskase Holding Corporation is payable
on demand and is non-interest bearing.
RECEIVABLES, AFFILIATES; ACCOUNTS PAYABLE, AFFILIATES:
These accounts represent intercompany billings of goods, services,
royalties and other parent subsidiaries transactions.
LICENSE AGREEMENTS
Viskase Holding Corporation has been granted the right to license Viskase
Corporation's patents and technology pursuant to a license agreement between
Viskase Corporation and Viskase Holding Corporation.
INTERCOMPANY TRANSACTIONS:
In 1994, 1993 and 1992, the Company paid $756, $752 and $771, respectively,
to Viskase Corporation for management services. During each of 1994, 1993 and
1992, the Company accrued $100 payable to Envirodyne for management services.
During 1994, 1993 and 1992, the Company purchased semi-finished and
finished inventory from Viskase Sales Corporation in the amount of $23,114,
$15,439 and $16,408, respectively. In addition, during 1994, 1993 and 1992, the
Company had sales of inventory to Viskase Sales Corporation in the amount of
$5,632, $1,338 and $1,379, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS, (DOLLARS IN THOUSANDS)
The following table presents the carrying value and estimated fair value as
of December 29, 1994 of the Company's financial instruments. (Refer to Notes 3
and 8.)
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and equivalents..................................... $ 6,201 $ 6,201
Foreign currency contracts............................... 4,614 4,649
Liabilities:
Long-term debt........................................... 21,001 21,001
</TABLE>
16. SUBSEQUENT EVENT, (DOLLARS IN THOUSANDS)
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes to certain institutional investors in a
private placement. The senior secured notes were issued pursuant to an indenture
dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior
Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due
2000 (collectively, the Notes). Envirodyne used the net proceeds of the offering
primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the
$68,316 of obligations under the Company's domestic and foreign revolver and
(iii) pay transaction fees and expenses. Concurrently with the June 20, 1995
placement, Envirodyne entered into a new $20,000 domestic revolving credit
facility (Revolving Credit Facility) and a new $28,000 letter of credit facility
(Letter of Credit Facility).
The $151,500 tranche of Notes bear interest at a rate of 12% per annum and
the $8,500 tranche bears interest at a rate equal to the six month London
Interbank Offered Rate (LIBOR) plus 575 basis points. The initial interest rate
on the floating rate tranche was approximately 11.7%. The interest rate on the
floating rate
F-78
<PAGE> 163
tranche is reset semi-annually on June 15 and December 15. Interest on the Notes
is payable each June 15 and December 15, commencing December 15, 1995.
On June 15, 1999, $80,000 of the aggregate principal amount of the Notes is
subject to a mandatory redemption. The remaining principal amount outstanding
will mature on June 15, 2000.
In the event Envirodyne has Excess Cash Flow (as defined) in excess of
$5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be
required to make an offer to purchase Notes together with any borrowed money
obligations outstanding under the Revolving Credit Facility, on a pro rata
basis, in an amount equal to the Excess Cash Flow at a purchase price of 100%
plus any accrued interest to the date of purchase.
The Notes are redeemable, in whole or from time to time in part, at
Envirodyne's option, at the greater of (i) the outstanding principal amount or
(ii) the present value of the expected future cash flows from the Notes
discounted at a rate equal to the Treasury Note yield corresponding closest to
the remaining average life of the Notes at the time of prepayment plus 100 basis
points; plus accrued interest thereon to the date of purchase.
Upon the occurrence of a Change in Control (which includes the acquisition
by any person of more than 50% of Envirodyne's Common Stock), each holder of the
Notes has the right to require the Company to repurchase such holder's Notes at
a price equal to the greater of (i) the outstanding principal amount or (ii) the
present value of the expected cash flows from the Notes discounted at a rate
equal to the Treasury Note yield corresponding closest to the remaining average
life of the Notes at the time of prepayment plus 100 basis points; plus accrued
interest thereon to the date of purchase.
The Indenture contains covenants with respect to Envirodyne and its
subsidiaries limiting (subject to a number of important qualifications), among
other things, (i) the ability to pay dividends or redeem or repurchase common
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)
certain affiliate transactions and (v) the ability to consolidate with or merge
into another entity and to dispose of assets.
F-79
<PAGE> 164
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................... 2
Prospectus Summary...................... 3
Risk Factors............................ 11
The Exchange Offer...................... 14
The Company............................. 23
The Subsidiary Guarantors............... 23
Use of Proceeds......................... 24
Capitalization.......................... 25
Unaudited Pro Forma Consolidated
Statements of Operations.............. 26
Selected Historical Consolidated
Financial Data........................ 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 29
Business................................ 34
Management.............................. 44
Summary Compensation Table.............. 47
Certain Relationships and Related
Transactions.......................... 49
Security Ownership...................... 49
Description of Notes.................... 53
Description of Intercreditor
Arrangements.......................... 80
Certain Federal Income Tax
Consequences.......................... 81
Plan of Distribution.................... 83
Legal Matters........................... 84
Experts................................. 84
Index to Financial Statements........... F-1
</TABLE>
Until January 25, 1995, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligations of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotment or subscriptions.
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ENVIRODYNE INDUSTRIES, INC.
OFFER TO EXCHANGE ITS 12%
FIRST PRIORITY SENIOR SECURED
NOTES DUE 2000, SERIES B, FOR ANY AND ALL OF ITS
OUTSTANDING 12% FIRST PRIORITY SENIOR SECURED
NOTES DUE 2000, SERIES A, AND ITS
FLOATING RATE FIRST PRIORITY
SENIOR SECURED NOTES DUE 2000, SERIES D, FOR ANY
AND ALL OF ITS OUTSTANDING FLOATING RATE
FIRST PRIORITY SENIOR SECURED NOTES
DUE 2000, SERIES C
--------------------
PROSPECTUS
--------------------
OCTOBER 27, 1995
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