-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VXkBt86n4O3btYN/89rhhjHfhIcdFIBu/69tBQsmDRfKBgQPaGcWDUmWm3TXD9P7 qFbx/7hlwsmrfeXCJolKYg== 0000033073-02-000005.txt : 20020415 0000033073-02-000005.hdr.sgml : 20020415 ACCESSION NUMBER: 0000033073-02-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISKASE COMPANIES INC CENTRAL INDEX KEY: 0000033073 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 952677354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05485 FILM NUMBER: 02598663 BUSINESS ADDRESS: STREET 1: 6855 W. 65TH ST. CITY: CHICAGO STATE: IL ZIP: 60638 BUSINESS PHONE: 7084964200 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRODYNE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-K 1 final10k2001.txt VISKASE COMPANIES, INC. 2001 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 ----------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to -------- -------- Commission file number 0-5485 ---------- VISKASE COMPANIES, INC. ----------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 - ------------------------ ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Willowbrook Centre Parkway, Willowbrook, IL 60527 - ----------------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 789-4900 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K. Yes X No ----- ----- As of March 28, 2002 the aggregate market value of the voting stock held by non-affiliates of the registrant was $469,859. As of March 28, 2002, there were 15,317,112 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. VISKASE COMPANIES, INC. Form 10-K Annual Report - 2001 Table of Contents PART I Page Item 1. Business 1 Item 2. Properties 5 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition, Results of Operations 10 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 PART I ------ ITEM 1. BUSINESS -------- (a) General development of business: ------------------------------- General Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation organized in 1970. As used herein, the "Company" means Viskase Companies, Inc. and its subsidiaries. The Company, through Viskase Corporation (Viskase), operates in the casing product segment of the food industry. Viskase is a major producer of cellulosic and plastic casings used in preparing and packaging processed meat products. The market positions of the Company's subsidiaries set forth in this Form 10-K represent management's belief based upon internally generated information. No independent marketing information has been used to confirm the stated market positions. In recent years, the Company has sold certain of its operations in order to reduce indebtedness and increase its operational focus. As a result of these efforts, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky) in June 1998, its wholly owned subsidiary Clear Shield National, Inc. (Clear Shield) in July 1998 and its plastic barrier and non-barrier shrink film business (Films Business) in August 2000. These divestitures have left the cellulosic and plastics casings business as the Company's primary operating activity. In addition, during this period the Company has announced a series of restructuring measures to reduce the fixed cost structure of its remaining business and to address competitive price pressures and increases in various production costs in the Company's business. (b) Financial information about industry segments: --------------------------------------------- Reference is made to Part IV, Item 14, Note 24 of Notes to Consolidated Financial Statements. (c) Description of business ----------------------- General Viskase invented the basic process for producing casings from regenerated cellulose for commercial production in 1925. Management believes that Viskase has been a leading worldwide producer of cellulosic casings since that time. CASINGS Cellulosic Casings Cellulosic casings are used in the production of processed meat and poultry products, such as hot dogs, salami and bologna. To manufacture these products, meat is stuffed into a casing, which is then cooked and smoked. The casings, which are non-edible, serve to hold the shape of the product during these processes. For certain products, such as hot dogs, the casings are removed and discarded prior to retail sale. Casings made of regenerated cellulose were developed by Viskase to replace casings made of animal intestines. Cellulosic casings generally afford greater uniformity, lower cost and greater reliability of supply and also provide producers with the ability to cook and smoke products in the casing. Cellulosic casings are required for the high-speed production of many processed meats. The production of regenerated cellulose casings generally involves four principal steps: (i) production of a viscose slurry from wood pulp, (ii) regeneration of cellulosic fibers, (iii) extrusion of a continuous tube during the regeneration process, and (iv) "shirring" of the final product. Shirring is a finishing process that involves pleating and compressing the casing in tubular form for subsequent use in high-speed stuffing machines. The production of regenerated cellulose casings involves a complex and continuous series of chemical and manufacturing processes, and Viskase believes that its facilities and expertise in the manufacture of extruded cellulose are important factors in maintaining its product quality and operating efficiencies. Viskase's product line includes NOJAX(r) cellulosic casings for small- diameter processed meat products, such as hot dogs, Precision(r) and Zephyr(r) for large diameter processed meats and ham products, fibrous or large-diameter casings, which are paper-reinforced cellulosic casings used in the production of large-diameter sausages, salami, hams and other processed meat products, and Visflex(tm) plastic casing used for a wide range of processed meat, poultry and cheese applications. International Operations Viskase has four manufacturing and/or finishing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Guarulhos, Brazil and Caronno, Italy. The aggregate of domestic exports and net sales of foreign operations represents approximately 56% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes its allowance for doubtful accounts makes adequate provision for the collectibility of receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. While overall consumption of processed meat products in North America and Western Europe is stable, there is a potential for market growth in Eastern Europe, Latin America and Southeast Asia. Sales and Distribution Viskase has a broad base of customers, with no single customer accounting for more than 6% of sales. Viskase sells its products in virtually every country in the world. In the United States, Viskase has a staff of technical sales teams responsible for sales to processed meat and poultry producers. Approximately 70 distributors market Viskase products to customers in Europe, Africa, the Middle East, Asia, and Latin America. Its products are marketed through its own subsidiaries in France, Germany, Italy, Poland, Brazil, and Canada. As of December 31, 2001 and 2000, Viskase had backlog orders of approximately $20 million and $26 million, respectively. Viskase maintains ten service and distribution centers worldwide. The service centers perform limited product finishing and provide sales, customer service, warehousing and distribution. Distribution centers provide only warehousing and distribution. In North America, Viskase operates distribution centers in Atlanta, Georgia; Buffalo, New York; Fresno, California; Remington, Indiana; Saskatoon, Saskatchewan, Canada and Lindsay, Ontario, Canada. Viskase operates a service center in Guarulhos, Brazil, and in Europe, Viskase operates a service center in Caronno, Italy and distribution centers in Pulheim, Germany and Warsaw, Poland. Competition Viskase is one of the world's leading producers of cellulosic casings. Viskase seeks to maintain a competitive advantage by manufacturing products having outstanding quality and superior performance characteristics over competitive products, by responding quickly to customer product requirements, by providing technical support services to its customers for production and formulation opportunities and by producing niche products to fill individual customer requirements. During the previous five years, Viskase has experienced reduced market share and reduced profits due to intense price competition. Viskase's principal competitors in cellulosic casings are Teepak LLC, located in the United States with plants in the United States and Belgium; Viscofan, S.A., located in Spain, Germany, Brazil, Czech Republic and the United States; Kalle Nalo GmbH, located in Germany; Case Tech, a wholly owned subsidiary of Bayer AG, located in Germany; Oy Visko AB located in Finland; KoSa, located in Mexico and the United States and two Japanese manufacturers, Meatlonn and Toho. Viskase's primary competitors include several major corporations that are larger and better capitalized than Viskase. Research and Development; Customer Support Viskase's continuing emphasis on research and development is central to its ability to maintain industry leadership. In particular, Viskase focuses on the development of new products that increase customers' operating efficiencies, reduce their operating costs and expand their markets. Viskase's projects include development of new processes and products to improve its manufacturing efficiencies. Viskase's research scientists, engineers and technicians are engaged in continuing product and equipment development and also provide direct technical and educational support to its customers. Viskase believes it has achieved and maintained its position as a leading producer of cellulosic casings 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. Research and development costs from continuing operations are expensed as incurred and totaled $4,837 thousand, $5,474 thousand, and $4,211 thousand for 2001, 2000, and 1999, respectively. Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months. Sales outside of the United States follow a relatively stable pattern throughout the year. Raw Materials Raw materials used by Viskase include cellulose (from wood pulp), specialty fibrous paper, and various other chemicals. Viskase generally purchases its raw materials from a single source or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or that raw material substitutes are available, which Viskase could modify its processes to utilize. Employees The Company maintains productive and amicable relationships with its approximately 1,400 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. Unions represent a total of approximately 525 of Viskase's 1,400 employees. Trademarks and Patents Viskase holds patents on many of its major technologies, including those used in its manufacturing processes and the technology embodied in products sold to its customers. The Company believes its ongoing market leadership benefits from its technology, Viskase vigorously protects and defends its patents against infringement by competitors on an international basis. As part of its research and development program, Viskase has developed and expects to continue to develop new proprietary technology and has licensed proprietary technology from third parties. Management believes these activities will enable Viskase to maintain its competitive position. Viskase also owns numerous trademarks and registered trade names that are used actively in marketing its products. Viskase periodically licenses its process and product patents to competitors on a royalty basis. Environmental Regulations In manufacturing its products, the Company employs certain hazardous chemicals and generates toxic and hazardous wastes. The use of these chemicals and the disposal of such waste are subject to stringent regulation by several governmental entities, including the United States Environmental Protection Agency (USEPA) and similar state, local and foreign environmental control entities. The Company is subject to various environmental, health and safety laws, rules and regulations including those of the United States Occupational Safety and Health Administration and USEPA. These laws, rules and regulations are subject to amendment and to future changes in public policy or interpretation, which may affect the operations of the Company. The Company uses its best reasonable efforts to comply with promulgated laws, rules and regulations and participates in the rulemaking process. Certain of the Company's facilities are or may become potentially responsible parties with respect to off-site waste disposal facilities. As noted above, new environmental and health and safety laws can impose significant compliance costs, including forthcoming rules. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet air emissions standards for certain chemicals based on use of the "maximum achievable control technology" (MACT). MACT Standards for new and existing cellulose casing manufacturing sources were proposed by EPA on August 28, 2000. Viskase Corporation has submitted extensive comments to EPA during the public comment period. Final rulemaking is expected sometime in the year 2002. Compliance will be required within 3 years of promulgation. MACT rules will apply to all casing manufacturers in the United States. Under the Resource Conservation and Recovery Act (RCRA), regulations have been proposed that, in the future, may impose design and/or operating requirements on the use of surface impoundments of wastewater. Two of Viskase's plants use surface impoundments. The Company does not foresee these regulations being imposed for several years. (d) Financial information about foreign and domestic operations and export ----------------------------------------------------------------------- sales ----- Reference is made to Part IV, Item 14, Note 24 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The following table sets forth the names and ages of the Company's executive officers, together with the positions with the Company held by such executive officers, and a summary of their recent business experience. Under the Company's Amended and Restated By-Laws, the Company's officers are elected for such terms as may be determined from time to time by the Board of Directors. Name, Age and Office Business Experience - -------------------- ------------------- F. Edward Gustafson, 60, Mr. Gustafson has been Chairman of the Chairman of the Board, Board, President and Chief Executive President and Chief Officer of the Company since March 1996 Executive Officer and a director of the Company since December 1993. (Mr. Gustafson has been President and Chief Executive Officer of Viskase since June 1998, and previously from February 1990 to August 1994.) From May 1989 to March 1996 Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gordon S. Donovan, 48, Mr. Donovan has been Chief Financial Vice President, Chief Officer of the Company since January 1997 Financial Officer, Treasurer and Vice President and Chief Financial and Assistant Secretary Officer of Viskase since June 1998. Mr. Donovan has served as Treasurer and Assistant Secretary of the Company since November 1989 and as Vice President since May 1995. Kimberly K. Duttlinger, 37, Ms. Duttlinger has been Vice President, Vice President, Secretary Secretary and General Counsel of the and General Counsel Company since April 2000. From August 1998 through April 2000, Ms. Duttlinger served as Associate General Counsel of the Company. From May 1997 to August 1998, Ms. Duttlinger served as Corporate Counsel of the Company. From May 1993 to August 1996, Ms. Duttlinger served as Corporate Counsel to Alberto-Culver Company, a manufacturer and distributor of personal care and household products. ITEM 2. PROPERTIES ---------- VISKASE FACILITIES LOCATION SQUARE FEET PRIMARY USE - -------------- ---------------- --------------- Manufacturing Facilities Beauvais, France (a) 235,000 Casings production and finishing Caronno, Italy 73,000 Casings finishing Chicago, Illinois 991,000 Idle plant facilities held for sale Guarulhos, Brazil (a) 25,000 Casings finishing Kentland, Indiana 125,000 Casings finishing Loudon, Tennessee 250,000 Casings production Osceola, Arkansas 223,000 Casings production and finishing Thaon, France 239,000 Casings finishing Distribution Centers Atlanta, Georgia (a) Buffalo, New York (a) Fresno, California (a) Remington, Indiana (a) Pulheim, Germany (a) Saskatoon, Saskatchewan, Canada (a) Lindsay, Ontario, Canada (a) Warsaw, Poland (a) Service Centers Guarulhos, Brazil (a) Caronno, Italy Headquarters Worldwide: Willowbrook, Illinois (a) Europe: Paris, France (a) (a) Leased. All other properties are owned. The Company believes that its properties generally are suitable and adequate to satisfy the Company's present and anticipated needs. The Company's United States real property collateralizes the Company's obligations under various financing arrangements. For a discussion of these financing arrangements, refer to Part IV, Item 14, Note 8 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS ----------------- In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada claimed that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In 1992, Union Carbide and Viskase Canada jointly put in place a continuous pumping program at the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2,000,000 (Canadian). The lawsuit is still pending and is expected to proceed to trial sometime during fourth quarter 2002 or first quarter 2003. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company and its subsidiaries are involved in these and various other legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER -------------------------------------------------------------- MATTERS ------- (a) Market Information. The Company's Common Stock is traded in the over- the-counter market. The high and low closing bid prices of the Common Stock during 2001 and 2000 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions. 2001 First Quarter Second Quarter Third Quarter Fourth Quarter - ---- ------------- -------------- ------------- -------------- High $2.00 $2.06 $1.50 $ .30 Low .92 .90 .25 .01 2000 First Quarter Second Quarter Third Quarter Fourth Quarter - ---- ------------- -------------- ------------- -------------- High $2.81 $3.00 $3.00 $3.06 Low 1.00 1.75 1.06 .98 (b) Holders. As of March 28, 2002, there were approximately 102 holders of record and approximately 2,700 beneficial holders of the Company's Common Stock. (c) Dividends. The Company has never paid a cash dividend on shares of its Common Stock. The payment of dividends is restricted by the terms of various financing agreements to which the Company is a party. The Company has no present intention of paying dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA
Year Ended 53/52 Weeks Ending ------------------------------------ ----------------------------- December December December December December 31, 2001 31, 2000(1) 31, 1999(1) 31, 1998(1) (2) 25, 1997(2) -------- ----------- ----------- --------------- ----------- (in thousands, except for per share amounts) Net sales $189,315 $200,142 $225,767 $246,932 $498,333 Net (loss) from continuing operations (3) (36,852) (95,967) (29,927) (147,871) (10,362) Net income (loss) from discontinued operations 3,435 (1,831) (33,389) 717 Net gain on sales of discontinued operations 3,189 68,185 39,057 Net (loss) before extraordinary item (3) (33,663) (24,347) (31,758) (142,203) (9,645) Net (loss) (4) (25,526) (17,836) (31,758) (148,996) (9,645) Per share net (loss) from continuing operations - basic and diluted (3) (2.41) (6.34) (2.00) (9.97) (.71) Per share net income (loss) from discontinued operations - basic and diluted .23 (.12) (2.25) .05 Gain on sale of discontinued operations .21 4.50 2.63 Per share net (loss) before extraordinary item - basic and diluted (Loss) per share (3) (2.20) (1.61) (2.12) (9.59) (.66) Per share net (loss) - basic and diluted (Loss) per share (4) (1.67) (1.18) (2.12) (10.05) (.66) Cash and equivalents 25,540 55,350 6,243 9,028 24,407 Restricted cash 26,558 41,038 Working capital (178,952) (106,958) 34,480 41,725 85,815 Total assets 234,028 322,364 493,818 531,069 813,853 Debt obligations: Short-term debt (5) (6) 236,059 200,676 23,095 16,120 12,880 Long-term debt 194 73,183 404,151 388,880 511,183 Stockholders' (deficit) equity (138,053) (107,397) (89,442) (55,907) 90,920 Cash dividends none none none none none
(1) Year 2000 and 1999 and fiscal year 1998 net sales and net loss from continuing operations exclude the results of the Films Business, which was sold in 2000. (2) Fiscal 1998, and 1997, net sales and net loss from continuing operations exclude the results of Sandusky and Clear Shield, which were sold in 1998. (3) Included in 2001 is an asset write-down of $4,766 and a lower of cost or market charge of $3,612. Included in 2000, 1998 and 1997 are restructuring charges of $94,910, $119,579 and $3,500, respectively. (4) Includes extraordinary gain (loss) on debt extinguishment in 2001, 2000 and 1998, respectively. (5) Includes current portion of long-term debt. (6) Year 2001 includes $64,106 of long-term debt reclassified to current due to covenant restrictions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Results of Operations - --------------------- The Company's 2001 net sales from continuing operations was $189.3 million, which represents a decrease of 5.4% from 2000. The decline in sales reflects the continuing effect of reduced selling prices in the worldwide casings industry and lower sales volumes in Europe due to outbreaks of both mad cow disease and foot-and-mouth disease during the first half of the year. The Company's 2000 net sales from continuing operations was $200.1 million, which represented a decrease of 11.4% from 1999. The decline in sales reflects the continuing effect of reduced selling prices in the casings industry. European sales were also negatively affected by foreign currency translation due to a strong U.S. dollar. With the entrance of a foreign competitor in the mid-1990's, the Company experienced significant pricing pressure and volume loss. While the Company has maintained or increased its volume during the past several years, the market for cellulosic casings has continued to see price declines each year. The Company does not expect to experience significant future volume loss; however, the Company believes pricing pressures will continue. The Company has previously implemented facility realignment and other cost-cutting measures aimed at offsetting the effect of lower prices. The Company does not expect to see an improvement in its operating income until prices begin to increase. The operating loss from continuing operations for 2001 was $(13.7) million. The 2001 operating loss included an asset write-down of $4.8 million for the write-down of Viskase's Chicago facility to fair value and a $3.6 million write-down of inventories to its lower of cost or market value included in cost of sales. Operating loss from continuing operations, excluding the asset write-down and lower of cost or market charge, was $(5.4) million. This compares unfavorably to the 2000 operating income of $1.2 million, excluding the 2000 restructuring charge of $94.9 million. The decrease in operating income resulted primarily from declines in sales and gross margins caused by continued price competition in the worldwide casings industry. The operating loss from continuing operations for 2000 was $(93.7) million. The operating loss included a restructuring charge of $94.9 million. Operating income from continuing operations, excluding the restructuring charge for 2000 was $1.2 million. This compares unfavorably to operating income from continuing operations for the comparable prior year period of $15.8 million. Reduced selling prices in the worldwide casings industry continue to negatively affect operating income. Net interest expense from continuing operations for 2001 totaled $23.0 million, which represented a decrease of $20.1 million from 2000. The decrease is primarily due to reduced interest expense related to the repurchase of a portion of the Company's 10.25% Senior Notes (10.25% Notes), repayment of the senior secured credit facility and junior term loans. Other expense from continuing operations of approximately $3.4 million and $5.3 million in 2001 and 2000, respectively, consists principally of foreign exchange losses. In 2000, the Company received a payment in resolution of the American National Can Company (ANC) Litigation in the amount of $54.75 million, offset by patent litigation expenses of $7.85 million. The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other expense and not material for disclosure. In 2001 any income tax benefit from the loss from continuing operations offset the income tax provision which would have been provided on the extraordinary gain and the gain from the sale of discontinued operations. The net benefit recognized of $(3.4) million results from a reduction of prior accrued foreign taxes payable. The 2000 and 1999 tax benefit from operations consisted of the benefit of U.S. losses partially offset by the provision related to operations of foreign subsidiaries. A provision (benefit) of $(3.4) million, $.7 million, and $(2.2) million, respectively, was provided on loss from continuing operations before taxes of $(40.2) million, $(95.2) million, and $(32.1) million respectively for 2001, 2000 and 1999. The company's effective tax rate from continuing operations reflect the permanent differences in the U.S. resulting from the change in the valuation allowance and the reversal of over-accrued foreign taxes. The tax provision (benefit) for income from discontinued operations in 2000 and 1999 was $.3 million, and $(.9) million, respectively. The tax provision with respect to the gain on disposal in 2001 and 2000 was $0 and $6.6 million, respectively. In addition, an extraordinary gain in 2001 and 2000 recognized an income tax provision of $0 and $.6 million, respectively. The total income tax provision (benefit) was $(3.4) million, $8.3 million, and $(3.1) million, respectively, in 2001, 2000 and 1999. Domestic cash income taxes paid in 2001, 2000, and 1999, were $2.2 million, $.5 million, and $.01 million, respectively. Foreign cash income taxes paid during the same periods were $2.5 million, $.3 million, and $3.5 million, respectively. Discontinued Operations - ----------------------- On January 17, 2000, the Company's Board of Directors announced its intent to sell the Company's plastic barrier and non-barrier shrink Films Business. The sale of the Films Business was completed on August 31, 2000. The aggregate proceeds of $255 million, including a working capital adjustment of $10.3 million, were used to retire debt, pay General Electric Capital Corporation (GECC) and for general corporate purposes. The Company recognized a net gain in the amount of $3.2 million in 2001 and $68.2 million in 2000. The business sold included production facilities in the United States, United Kingdom, and Brazil. In conjunction with the sale of the Films Business, the Company shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of these are included in the business discontinuance. Liquidity and Capital Resources - ------------------------------- The SEC recently issued Financial Reporting Release No. 61, which sets forth the views of the SEC regarding enhanced disclosures relating to liquidity and capital resources. The information provided below about the Company's cash flows, debt, credit facilities, capital and operating lease obligations, and future commitments is included here to facilitate a review of the Company's liquidity. Cash and equivalents decreased by $29.8 million during the year ended December 31, 2001. Cash flows used in operating activities were $17.5 million, provided by investing activities were $19.8 million, and used in financing activities were $31.3 million. Cash flows used in operating activities were principally attributable to the Company's loss from operations, an increase in working capital usage, the gain on the debt extinguishment and the gain on disposition of assets offset by the effect of depreciation and amortization. Cash flows provided by investing activities were principally attributable to a release of restrictions on cash and the proceeds on disposition of assets offset by capital expenditures for property, plant and equipment. Cash flows used in financing activities were principally due to the repurchase of a portion of the 10.25% Notes and costs incurred in connection with the restructuring process. The Company has from time to time purchased 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2001 there was $163.1 million principal amount of 10.25% Notes outstanding, net of repurchased notes. The Company recognized an $8.1 million net gain on the repurchase of $28.6 million of Notes during the year. The Company's cash flows from operations were insufficient to pay the 10.25% Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163.1 million principal and $8.4 million interest that became due at that time. In September 2001, certain of the holders of the 10.25% Notes formed a committee (Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs (Restructuring). No assurances can be given that an agreement will be reached with the Committee or what the terms of any such agreement would be. The Company believes that the likely result of the Restructuring or any other restructuring of the Company's capital structure would be the substantial dilution or effective elimination of the current common stock of the Company. The Committee retained legal counsel, the fees and expenses of which are being paid by the Company, and the Company and the Committee are engaged in negotiations with respect to the Restructuring. The Company believes, after consultation with its advisors, that it would be in the best interest of the Company to enter into a consensual (prepackaged) plan of restructuring, agreed to by GECC and the Committee, that would be implemented in accordance with Chapter 11 of the United States Bankruptcy Code. The Company believes that this form of restructuring can be consummated more quickly and with less disruption than a Chapter 11 filing without any agreement with its creditors. If the Company is unable to reach an agreement with its creditors, the Company will be required to file under Chapter 11 to reorganize its capital structure. The Company expects that during the pendency of a Chapter 11 case it will operate in the ordinary course with respect to its customers, suppliers and employees. Letters of credit in the amount of $25.8 million were outstanding under a letter of credit facility with commercial banks, and were cash collateralized at December 31, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. The Company anticipates that it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements during 2002. Under the terms of an April 13, 2000 Agreement and Amendment with GECC, the Company agreed to amend the amortization schedule of annual lease payments, maintain a letter of credit in the amount of $23.5 million at all times, limit additional borrowings and provide a subordinated security interest collateralized by substantially all of the assets of the Company. Holders of the senior secured credit facility and the junior term loans consented to the payment extensions and the subordinated security interest granted to GECC. The revised amortization schedule is presented below: February 28, 2002 $11,749 February 28, 2003 23,499 February 28, 2004 23,499 February 28, 2005 23,500 On February 28, 2002, the Company paid the scheduled lease payment of $11,749. GECC, Viskase's equipment lessor has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's late payment of the basic rent payment due on November 1, 2001 or the late reinstatement of the rent letter of credit, (ii) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on September 30, 2001 and December 31, 2001, (iii) Viskase's failure to deliver any documents required to be delivered, (iv) the failure by the Company to pay the 10.25% Notes at maturity and (v) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause (v) shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after June 30, 2002. Furthermore, GECC agreed to forbear until June 30, 2002 from exercising its rights and remedies under the lease for failure to meet the Fixed Charge Coverage Ratio for the fiscal quarter ending on March 31, 2002. There is no agreement with GECC to extend the forbearance beyond June 30, 2002, and the Company can make no assurance that any extension will be received. Capital expenditures for continuing operations for the year ended December 31, 2001 and 2000 totaled $5.9 and $12.5 million, respectively. Significant 2001 capital expenditures for continuing operations included costs associated with the Visflex(tm) plastic casing product line and the corporate office relocation. Significant 2000 capital expenditures for continuing operations included costs associated with the Nucel(r) project. Capital expenditures in 2000 for discontinued operations included additional production capacity for specialty films. Capital expenditures for 2002 are expected to be approximately $6 million. At December 31, 2001, the Company had capital expenditure commitments outstanding of approximately $0.7 million. The Company also has operating lease agreements for machinery, equipment and facilities. As discussed in Note 9 to the consolidated financial statements, the Company's consolidated rent expense for 2001 was $1.7 million. Accordingly, the Company does not consider its operating lease commitments to be a significant determinant of the Company's liquidity. In 2001, the Company spent approximately $5 million on research and development programs, including product and process development, and on new technology development. Prior to 2001, the Company was spending approximately $8 million on research and development programs. The decrease is due to the sale of the Films Business. The 2002 research and development and product introduction expenses are expected to be in the $5 million range. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings. Critical Accounting Policies - ---------------------------- The preparation of financial statements in conformity with generally accepted accounting principles accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements. In preparing these financial statements, management bases its estimates on historical experience and other assumptions that they believe is reasonable. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to uncertainties and, as a result, actual results could differ from these estimates. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company's results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company's estimates and actual amounts in any year have not had a significant impact on the Company's consolidated financial statements. The "Summary of Significant Accounting Policies" is included as Note 2 of The Notes To Consolidated Financial Statements. Revenue Recognition Substantially all of the Company's revenues are recognized at the time products are shipped to customers, under F.O.B. Shipping Point and F.O.B. Port Terms. Revenues are net of any discounts and allowances. The Company records all related shipping and handling costs as a component of cost of goods sold. The SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company's revenue recognition policy is in accordance with generally accepted accounting principles and SAB No. 101. Allowance for Doubtful Accounts Receivables Accounts receivables have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is primarily based upon management's evaluation of the financial condition of the customer and historical write-offs. Allowance for Obsolete and Slow Moving Inventories Inventories are valued at the lower of cost or market. The inventories have been reduced by an allowance for slow moving and obsolete inventories. The estimated allowance is based upon management's estimate of specifically identified items and historical write-offs of obsolete and excess inventories. Deferred Income Taxes Deferred tax assets and liabilities are measured using enacted tax laws and tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more likely than not basis. Pension Plans and Other Postretirement Benefit Plans The measurements of liabilities related to pension plans and other postretirement benefit plans is based upon management's assumptions related to future events including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by generally accepted accounting principles, the effect of the modifications is generally recorded or amortized over future periods. Property, Plant and Equipment The Company carries property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 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. Long-lived assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. Other Matters The Company does not have off-balance sheet arrangements, sometimes referred to as "special purpose entities", financing or other relations with unconsolidated entities or other persons. In the ordinary course of business, the Company leases certain casing manufacturing and finishing equipment, certain real property, consisting of manufacturing and distribution facilities and office facilities. The casing manufacturing and finishing equipment capital lease obligation is described under "Debt Obligations", Note 8 of Notes to Consolidated Financial Statements. Operating leases are described under "Operating Leases", Note 9 of Notes to Consolidated Financial Statements. Transactions with related parties are in the ordinary course of business, are conducted at an arm's length basis, and are not material to the Company's financial position, results of operations or cash flows. Contingencies In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada claimed that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In 1992, Union Carbide and Viskase Canada jointly put in place a continuous pumping program at the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2,000,000 (Canadian). The lawsuit is still pending and is expected to proceed to trial sometime during fourth quarter 2002 or first quarter 2003. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casing manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company and its subsidiaries are involved in these and various other legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. Contractual Obligations Related to Debt, Leases and Related Risk Disclosure - ---------------------------------------------------------------------------
2001 Expected Maturity Date In There- Default 2002 2003 2004 2005 2006 after Total Long-term debt, including current portion: Fixed interest rate ($000) $163,060 $66 $163,126 Interest rate 10.25% 0% 10.25% Capital lease obligations(1) $8,894 $19,433 $21,300 $23,500 $73,127 Third party license fees $2,366 $2,414 $2,616 $3,139 $3,202 $0 $13,737
(1) Capital lease obligations relate primarily to GECC Capitalized Lease Obligations classified as current in the financial statements. GECC lease payment maturities conform to contractual payments under the lease. Other - ----- In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations". This statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". The provisions of this statement apply to all business combinations initiated after June 30, 2001. Management believes that adoption of Statement 141 will not have a material effect on the Company's financial statements. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. Management believes that adoption of Statement 142 will not have a material effect on the Company's financial statements. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations". The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. Management believes that adoption of Statement 143 will not have a material effect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes FASB Statement 121. This statement addresses financial accounting and reporting for long-lived assets impaired and disposed of by sale. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management believes that adoption of Statement No. 144 will not have a material effect on the Company's financial statements. Forward-looking Statements - -------------------------- Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and Company plans and objectives to differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive pricing pressures for the Company's products; changes in other costs; opportunities that may be presented to and pursued by the Company; determinations by regulatory and governmental authorities; the ability to achieve other cost reductions and efficiencies; and the effect of negotiations with the Company's creditors and the restructuring of the Company's indebtedness. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company is exposed to certain market risks related to foreign currency exchange rates. The Company does not enter into derivatives for trading purposes. The Company also prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of the U.S. dollar relative to the European receivables and payables denominated in U.S. dollars. Based on its sensitivity analyses at December 31, 2001, a 10% devaluation of the U.S. dollar would affect the Company's annual consolidated operating results, financial position and cash flows by approximately $5 thousand. The Company has used foreign exchange forward contracts to manage the risk associated with its exposure to foreign currency exchange rate fluctuations. As of December 31, 2001, there were no foreign exchange forward contracts outstanding. The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other expense and not material for disclosure. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- Financial statements and supplementary financial information meeting the requirements of Regulation S-X are listed in the index to financial statements and schedules, as included under Part IV, Item 14 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ---------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- There were no disagreements on accounting and financial disclosure required to be disclosed under this Item. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by this Item is set forth in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (Proxy Statement) in the section entitled "Election of Directors," the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and in the third paragraph of the section entitled "Certain Relationships and Related Transactions," and is incorporated herein by reference to the Proxy Statement. For information regarding executive officers of the Company, see the information set forth under "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Compensation of Directors and Executive Officers" and is incorporated herein by reference to the Proxy Statement. The information set forth in the Proxy Statement in the sections entitled "Compensation Committee Report on Executive Compensation" and "Performance Graph" is not required by this item and is not incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Security Ownership" and is incorporated herein by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Certain Relationships and Related Transactions" and is incorporated by reference to the Proxy Statement. See also Part IV, Item 14, Note 23 of Notes to Consolidated Financial Statements. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- (a)1. Financial statements: PAGE -------------------- ---- Report of independent accountants F-2 Consolidated balance sheets, December 31, 2001 and December 31, 2000 F-3 Consolidated statements of operations, for the years ended December 31, 2001 and December 31, 2000 and December 31, 1999. F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2001 and December 31, 2000 and December 31, 1999. F-6 Consolidated statements of cash flows, for the years ended December 31, 2001 and December 31, 2000 and December 31, 1999. F-7 Notes to consolidated financial statements F-8 (a)2. Financial statement schedules for the years ended December 31, 2001 ------------------------------------------------------------------- and December 31, 2000 and December 31, 1999: ------------------------------------------- II Valuation and qualifying accounts F-33 Schedules other than those listed are omitted because they are not required, are not applicable, or because equivalent information has been included in the financial statements and notes thereto or elsewhere herein. (b) Reports on Form 8-K. ------------------- 1. On October 29, 2001, the Company filed a Form 8-K to announce that the Company amended its Rights Agreement, dated June 26, 1996, between the Company and Harris Trust and Savings Bank. Under the Rights Agreement, as amended, from the date of the amendment through December 31, 2001, all Rights outstanding (other than those held by a 41%-or-more stockholder and certain other specified persons) will automatically, without any further action of the Board of Directors, be exchanged for shares of Common Stock of the Company at an exchange rate of one share of Common Stock per Right simultaneous with any Person becoming a 41%-or-more stockholder (c) Exhibits: -------- Exhibit No. Description of Exhibits Page - ----------------------------------------------------------------------------- 2.0 Purchase Agreement, dated July 7, 2000 among the Company and certain of its subsidiaries and Bemis Company, Inc. (incorporated herein by reference to Exhibit 2 to Form 8-K filed September 25, 2000). * 2.1 Amendment No. 1 to Purchase Agreement, dated August 31, 2000, among the Company and certain of its subsidiaries and Bemis Company, Inc. (incorporated herein by reference to Exhibit 2.1 of Form 10-Q for the fiscal quarter ended September 30, 2000 filed November 15, 2000). * 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed January 19, 1994). * 3.2 Certificate of Ownership and Merger of Viskase Companies, Inc. into Envirodyne Industries, Inc. * 3.3 Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to Form 8-K filed May 16, 1997). * 4.1 Indenture, dated as of December 31, 1993, between the Company and Bankers Trust Company, as Trustee, relating to the 10-1/4% Notes Due 2001 of the Company including form of 10-1/4% Note Due 2001 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed January 19, 1994). * 4.3 Rights Agreement, dated as of June 26, 1996, between the Company and Harris Trust and Savings Bank, as Rights Agent (incorporated herein by reference to Exhibit 4.1 of Form 8-K dated June 26, 1996 filed June 28, 1996). * 10.1 Participation Agreement, dated as of December 18, 1990, among Viskase Corporation, as Lessee, the Company, as Guarantor, General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.24 to Form 8-K filed January 22, 1991). * 10.2 Lease Agreement, dated as of December 18, 1990, between The Connecticut National Bank, Owner Trustee, as Lessor and Viskase Corporation, as Lessee (incorporated herein by reference to Exhibit 10.25 to Form 8-K filed January 22, 1991). * 10.3 Appendix A; Definitions relating to the Participation Agreement, the Lease and the Ground Lease (incorporated herein by reference to Exhibit 10.26 to Form 8-K filed January 22, 1991). * 10.4 Ground Lease, dated as of December 18, 1990, between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K filed January 22, 1991). * * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page - ----------------------------------------------------------------------------- 10.5 Guaranty Agreement, dated as of December 18, 1990, among the Company; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner Participant (incorporated herein by reference to Exhibit 10.28 to Form 8-K filed January 22, 1991). * 10.6 Trust Agreement, dated as of December 18, 1990, between General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.29 to Form 8-K, filed January 22, 1991, of Viskase Companies, Inc.). * 10.7 Non-Employee Directors' Compensation Plan (incorporated herein by reference to Appendix B of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.8 1993 Stock Option Plan, as amended and restated through March 27, 1996 (incorporated herein by reference to Appendix A of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.9 Viskase Companies, Inc. Parallel Non-Qualified Thrift Plan (incorporated herein by reference to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended June 27, 1991 filed August 12, 1991). + * 10.10 Amended and Restated Employment Agreement, effective March 27, 1996, between the Company and F. Edward Gustafson (incorporated herein by reference to Exhibit 10.20 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998). + * 10.11 Corporate Office Severance Pay Policy (incorporated herein by reference to Exhibit 10.21 to Form 10-Q for the fiscal quarter ended June 26, 1997 filed August 11, 1997). + * 10.12 Amendment to Viskase Companies, Inc. 1999 Parallel Non-Qualified Savings Plan (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8, #333-33508, filed on March 29, 2000). + * 10.13 Viskase Corporation Severance Pay Policy (incorporated herein by reference to Exhibit 10.34 to Form 10-K for the year ended December 31, 1999, filed September 22, 2000). + * 10.14 Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee), and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended March 31, 2000 filed September 25, 2000). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page - ----------------------------------------------------------------------------- 10.15 Extension executed March 9, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.36 to Form 10-Q for the fiscal quarter ended March 31, 2000 filed September 25, 2000). * 10.16 Extension executed March 23, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.37 to Form 10-Q for the fiscal quarter ended March 31, 2000 filed September 25, 2000). * 10.17 Extension executed March 30, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.38 to Form 10-Q for the fiscal quarter ended March 31, 2000 filed September 25, 2000). * 10.18 Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor) as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof, between the Lessee and the Lessor, as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank (incorporated herein by reference to Exhibit 10.39 to Form 10Q for the fiscal quarter ended June 30, 2000 filed September 25, 2000). * 10.19 Letter Agreement dated June 13, 2000, from GECC re (i) Financing Agreement dated as of June 14, 1999, among The CIT Group/Business Credit, Inc., the lenders party thereto and Viskase Corporation and Viskase Sales Corporation, (ii) a Financing Agreement dated as of June 14, 1999 among D.P. Kelly & Associates, L.P. and Viskase, and (iii) a Financing Agreement dated as of June 14, 1999, among the lenders party thereto and Viskase (incorporated herein by reference to Exhibit 10.40 to Form 10Q for the fiscal quarter ended June 30, 2000 filed September 25, 2000). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page - ----------------------------------------------------------------------------- 10.20 Amendment No. 1 dated as of June 30, 2000, to the Letter Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 as amended and supplemented to the date hereof, (incorporated herein by reference to Exhibit 10.44 to Form 10Q for the fiscal quarter ended June 30, 2000 filed September 25, 2000). * 10.21 Viskase Corporation Management Incentive Plan for Fiscal Year 2001. + ** 10.22 Agreement and Waiver dated as of March 22, 2001 between Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor) relating to Participation Agreement dated December 18, 1990 among Viskase Corporation, as Lessee, Viskase Companies, Inc. as Guarantor, General Electric Capital Corporation, as Owner Participant, and State Street Bank and Trust Company, as Owner Trustee, (incorporated herein by reference to Exhibit 10.36 of Form 10-Q for the fiscal quarter ended March 31, 2001 filed May 16, 2001). * 10.23 Master Letter of Credit Agreement dated June 29, 2001 between Viskase Corporation and LaSalle Bank National Association (incorporated herein by reference to Exhibit 10.37 of the Form 10-Q for the fiscal quarter ended June 30, 2001 filed August 15, 2001). * 10.24 Amendment No. 1 (the "Amendment") dated October 27, 2001 to the Rights Agreement dated June 26, 1996 (the "Agreement") between Envirodyne Industries, Inc., a Delaware corporation (now known as Viskase Companies, Inc. and Harris Trust Savings Bank, an Illinois banking corporation (the "Rights Agent") (incorporated herein by reference to Exhibit 4 to Form 8-K filed October 29, 2001). * 10.25 Agreement and waiver dated August 2, 2001 between Viskase Corporation and State Street Bank and Trust Company as Owner Trustee, relating to Participation Agreement dated December 18, 1990 (incorporated herein by reference to Exhibit 10.38 to Form 10-Q for the fiscal quarter ended September 30, 2001 filed November 14, 2001). * 10.26 Amendment dated August 30, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996, between F. Edward Gustafson and Viskase Companies, Inc. + ** 10.27 Employment Agreement dated August 30, 2001 between Viskase Corporation and F. Edward Gustafson. + ** 10.28 Amendment dated November 1, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996 between F. Edward Gustafson and Viskase Companies, Inc. + ** 10.29 Amendment dated November 1, 2001 to the Employment Agreement between F. Edward Gustafson and Viskase Corporation dated August 30, 2001. + ** + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith. Exhibit No. Description of Exhibits Page - ----------------------------------------------------------------------------- 10.30 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Gordon S. Donovan. + ** 10.31 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Kimberly K. Duttlinger. + ** 10.32 Amendment No. 2 (the "Amendment") dated December 20, 2001 to the Rights Agreement dated June 26, 1996 (the "Agreement") between Envirodyne Industries, Inc., a Delaware corporation (now known as Viskase Companies, Inc. and Harris Trust Savings Bank, an Illinois banking corporation (the "Rights Agent") (incorporated herein by reference to Exhibit 4 to Form 8-K filed January 4, 2002). * 10.33 Waiver, Forbearance and Consent Agreement dated as of December 21, 2001 between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee, and General Electric Capital Corporation, as Owner Participant relating to the Lease Agreement dated December 18, 1990. ** 10.34 Amendment No. 1 dated as of January 17, 2002 to the Waiver, Forbearance and Consent Agreement dated as of December 21, 2001 between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee, and General Electric Capital Corporation, as Owner Participant relating to the Lease Agreement dated December 18, 1990. ** 21.1 Subsidiaries of the registrant. ** 23.1 Consent of independent accountants. ** + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith. (d) Financial statement schedules required by Regulation S-X. F-1 --------------------------------------------------------- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VISKASE COMPANIES, INC. (Registrant) By: /s/ ----------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ ----------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: April 1, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 1st day of April 2002. /s/ /s/ - ------------------------------ ------------------------------ F. Edward Gustafson Gordon S. Donovan Chairman of the Board, Chief Vice President, Chief Financial Executive Officer and President Officer and Treasurer (Principal (Principal Executive Officer) Financial and Accounting Officer) /s/ /s/ - ------------------------------ ------------------------------ Robert N. Dangremond (Director) Gregory R. Page (Director) VISKASE COMPANIES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of independent accountants........................................... F-2 Consolidated balance sheets, December 31, 2001 and December 31, 2000 .................................................... F-3 Consolidated statements of operations, for the years ending December 31, 2001 and December 31, 2000 December 31, 1999 .................................................... F-4 Consolidated statements of stockholders' deficit, for the years ending December 31, 2001 and December 31, 2000 and December 31, 1999 ................................................ F-5 Consolidated statements of cash flows, for the years ending December 31, 2001 and December 31, 2000 and for December 31, 1999 ................................................... F-7 Notes to consolidated financial statements............................. F-8 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X Schedule II - Valuation and qualifying accounts........................ F-33 Exhibit 21.1 Subsidiaries of the registrant............................ F-34 Exhibit 23.1 Consent of independent accountants........................ F-35
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Companies, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a) (1) on page 19 present fairly, in all material respects, the financial position of Viskase Companies, Inc. and its subsidiaries (Company) at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 (a) (2) on page 19 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company's current cash position and operating cash flows were insufficient to pay the principal and accrued interest on the 10.25% Notes which matured on December 1, 2001 which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Chicago, Illinois March 22, 2002 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 ---------------------- 2001 2000 ------ ------ (in thousands) ASSETS Current assets: Cash and equivalents $ 25,540 $ 55,350 Restricted cash 26,558 41,038 Receivables, net 25,838 27,334 Inventories 29,064 39,405 Other current assets 9,691 23,168 -------- -------- Total current assets 116,691 186,295 Property, plant and equipment, including those under capital leases 233,637 240,110 Less accumulated depreciation and amortization 127,338 110,845 -------- -------- Property, plant and equipment, net 106,299 129,265 Deferred financing costs, net 2,024 184 Other assets 9,014 6,620 -------- -------- Total Assets $234,028 $322,364 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $236,059 $200,676 Accounts payable 9,784 15,887 Accrued liabilities 48,203 73,309 Current deferred income taxes 1,597 3,381 -------- -------- Total current liabilities 295,643 293,253 Long-term debt including obligations under capital leases 194 73,183 Accrued employee benefits 51,116 40,773 Noncurrent deferred income taxes 25,128 22,552 Commitments and contingencies Stockholders' (deficit): Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding, 15,317,112 shares at December 31, 2001 and 15,276,764 shares at December 31, 2000 153 153 Paid in capital 138,014 137,967 Accumulated (deficit) (272,574) (247,048) Accumulated other comprehensive (loss) gain (3,461) 1,840 Unearned restricted stock issued for future service (185) (309) -------- -------- Total stockholders' (deficit) (138,053) (107,397) -------- -------- Total Liabilities and Stockholders' deficit $234,028 $322,364 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31 ------------------------------ 2001 2000 1999 ------- ------ ------ (in thousands, except for number of shares and per share amounts) NET SALES $189,315 $200,142 $225,767 COSTS AND EXPENSES Cost of sales 156,258 157,560 166,079 Selling, general and administrative 40,027 39,374 41,854 Amortization of intangibles 2,000 2,000 2,000 Restructuring charges 4,766 94,910 -------- -------- -------- OPERATING (LOSS) INCOME (13,736) (93,702) 15,834 Interest income 2,479 2,299 375 Interest expense 25,520 45,406 44,403 Other expense, net 3,445 5,330 3,923 Patent infringement settlement income, net 46,900 -------- -------- -------- (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (40,222) (95,239) (32,117) Income tax (benefit) provision (3,370) 728 (2,190) -------- -------- -------- NET (LOSS) FROM CONTINUING OPERATIONS (36,852) (95,967) (29,927) DISCONTINUED OPERATIONS: Income (loss) from discontinued operations net of income taxes (Note 12) 3,435 (1,831) Gain on sale from discontinued operations net of income tax provision of $0 in 2001 and $6,633 in 2000 3,189 68,185 -------- -------- -------- NET (LOSS) BEFORE EXTRAORDINARY ITEM (33,663) (24,347) (31,758) Extraordinary gain on early extinguishment of debt net of income tax provision of $0 in 2001 and $633 in 2000 8,137 6,511 -------- -------- -------- NET (LOSS) (25,526) (17,836) (31,758) Other comprehensive (loss) income, net of tax (see Note 20) Foreign currency translation adjustments (129) (2,730) (1,542) Reclassification of foreign currency translation adjustment for discontinued operations 2,532 Minimum pension liability adjustments (5,172) -------- -------- -------- Other comprehensive (loss) net of tax (5,301) (198) (1,542) -------- -------- -------- COMPREHENSIVE (LOSS) $(30,827) $(18,034) $(33,300) ======== ======== ========
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Cont'd)
Years Ended December 31 ------------------------------- 2001 2000 1999 ------- ------ ------ (in thousands, except for number of shares and per share amounts) WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,309,616 15,126,670 14,949,965 ========== ========== ========== PER SHARE AMOUNTS: NET (LOSS) EARNINGS PER SHARE - basic and diluted Continuing operations $(2.41) $(6.34) $(2.00) Discontinued operations: Income (loss) from discontinued operations .23 (.12) Gain on sale from discontinued operations .21 4.50 ------ ------ ------ (Loss) before extraordinary item (2.20) (1.61) (2.12) Extraordinary gain .53 .43 ------ ------ ------ Net (Loss) $(1.67) $(1.18) $(2.12) ====== ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Accumulated Other Comprehensive (Loss) Gain ------------------------- Foreign Minimum Restricted Accumu- Currency Pension Stock Total Common Paid In lated Translation Liability Issued For Equity Stock Capital (Deficit) Adjustments Adjustments Future Service (Deficit) ------ ------- -------- ----------- ----------- -------------- --------- (in thousands) Balance December 31, 1998 $149 $136,715 $(197,454) $4,693 $ $ (10) $ (55,907) Net (loss) (31,758) (31,758) Issuance of Common Stock 2 739 10 751 Other comprehensive (loss) (2,528) (2,528) ----- -------- -------- ------ ------- ----- --------- Balance December 31, 1999 151 137,454 (229,212) 2,165 (89,442) Net (loss) (17,836) (17,836) Issuance of Common Stock 2 513 (309) 206 Other comprehensive (loss) (325) (325) ----- -------- -------- ------ ------- ----- --------- Balance December 31, 2000 153 137,967 (247,048) 1,840 (309) (107,397) Net (loss) (25,526) (25,526) Issuance of Common Stock 47 124 171 Other comprehensive (loss) (129) (5,172) (5,301) ----- -------- -------- ------ ------- ----- --------- Balance December 31, 2001 $153 $138,014 $(272,574) $1,711 $(5,172) $(185) $(138,053) ===== ======== ========= ====== ======= ===== =========
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 -------------------------------- 2001 2000 1999 ------ ------ ------ (in thousands) Cash flows from operating activities: Net (Loss) $(25,526) $(17,836) $(31,758) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 21,125 30,427 38,672 Amortization of intangibles 2,000 4,000 5,000 Amortization of deferred financing fees and discount 185 4,860 3,658 (Decrease) increase in deferred income taxes (698) 407 (4,989) Foreign currency transaction loss 533 857 190 Loss (gain) on disposition of assets (2,807) (74,541) 630 Bad debt provision 425 433 1,239 Net property, plant and equipment write-off 4,766 55,482 Extraordinary (gain) on debt extinguishment (8,137) (7,144) Changes in operating assets and liabilities (net of effects of dispositions): Receivables 803 20,431 (3,896) Inventories 9,596 8,617 12,038 Other current assets 6,361 (12,733) 233 Accounts payable and accrued liabilities (30,111) (50) (13,845) Other 3,984 3,064 192 -------- -------- -------- Total adjustments 8,025 34,110 39,122 -------- -------- -------- Net cash (used in) provided by operating activities (17,501) 16,274 7,364 Cash flows from investing activities: Capital expenditures (5,882) (13,735) (27,943) Proceeds from disposition of assets 11,156 235,844 623 Restricted cash 14,480 (41,038) -------- -------- -------- Net cash provided by (used in) investing activities 19,754 181,071 (27,320) Cash flows from financing activities: Issuance of common stock 171 206 751 Proceeds from revolving loan and long-term borrowings 123,776 Deferred financing costs (2,047) (2,092) (5,796) Repayment of revolving loan, long-term borrowings and capital lease obligations (29,448) (146,119) (100,971) -------- -------- -------- Net cash (used in) provided by financing activities (31,324) (148,005) 17,760 Effect of currency exchange rate changes on cash (739) (233) (589) -------- -------- -------- Net (decrease) increase in cash and equivalents (29,810) 49,107 (2,785) Cash and equivalents at beginning of period 55,350 6,243 9,028 -------- -------- -------- Cash and equivalents at end of period $ 25,540 $ 55,350 $ 6,243 ======== ======== ======== Supplemental cash flow information and noncash investing and financing activities: Interest paid $12,006 $50,327 $43,190 Income taxes paid $ 4,690 $ 750 $ 3,531 Capital lease obligations (machinery and equipment) $ 0 $ 694 $ 345
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GOING CONCERN PRESENTATION Viskase Companies, Inc. (Company) consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Except for the classification of certain debt as discussed in Note 8, the consolidated financial statements do not include any adjustment relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. The Company's cash flows from operations were insufficient to pay the 10.25% Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163.1 million principal and $8.4 million interest that became due at that time. In September 2001, certain of the holders of the 10.25% Notes formed a committee (Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs (Restructuring). No assurances can be given that an agreement will be reached with the Committee or what the terms of any such agreement would be. The Company believes that the likely result of the Restructuring or any other restructuring of the Company's capital structure would be the substantial dilution or effective elimination of the current common stock of the Company. The Committee retained legal counsel, the fees and expenses of which are being paid by the Company, and the Company and the Committee are engaged in negotiations with respect to the Restructuring. GECC, Viskase's equipment lessor has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's late payment of the basic rent payment due on November 1, 2001 or the late reinstatement of the rent letter of credit, (ii) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on September 30, 2001 and December 31, 2001, (iii) Viskase's failure to deliver any documents required to be delivered, (iv) the failure by the Company to pay the 10.25% Notes at maturity and (v) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause (v) shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after June 30, 2002. Furthermore, GECC agreed to forbear until June 30, 2002 from exercising its rights and remedies under the lease for failure to meet the Fixed Charge Coverage Ratio for the fiscal quarter ending on March 31, 2002. There is no agreement with GECC to extend the forbearance beyond June 30, 2002, and the Company can make no assurance that any extension will be received. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Principles of consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. (B) Reclassification Reclassifications have been made to the prior years' financial statements to conform to the 2001 presentation. (C) Use of estimates in the preparation of financial statements The preparation of all financial statements includes the use of estimates and assumptions that affect a number of amounts included in the Company's financial statements, including, among other things, pensions and other postretirement benefits and related disclosures, inventories valued under the last-in-first-out (LIFO) method, reserves for excess and obsolete inventory, restructuring charges and income taxes. Management bases its estimates on historical experience and other assumptions that they believe is reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company's results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company's estimates and actual amounts in any year have not had a significant impact on the Company's consolidated financial statements. (D) 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 and restricted cash include $44,840 and $47,902 of short-term investments at December 31, 2001 and December 31, 2000, respectively. The 2001 restricted cash is principally cash held as collateral for outstanding letters of credit with commercial banks. (E) 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. (F) Property, plant and equipment The Company carries property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 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. (G) 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. (H) Patents (dollars in thousands) Patents are amortized on the straight-line method over an estimated average useful life of ten years. Patent defense costs are capitalized. There were no capitalized patent defense costs at December 31, 2001. Patent defense costs of $7,850 were written off at the time of the settlement of certain patent litigation in 2000 (See Note 15). (I) Long-lived assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their 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 once a year. (J) Accounts Payable (dollars in thousands) The Company's cash management system provides for the daily replenishment of its bank accounts for check-clearing requirements. The outstanding check balances of $721 and $2,114 at December 31, 2001 and December 31, 2000, respectively, are not deducted from cash but are reflected in accounts payable in the consolidated balance sheets. (K) Pensions and other postretirement benefits 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. The North American operations of Viskase have postretirement health care and life insurance benefits. The Company accrues for the accumulated postretirement benefit obligation that represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions. (L) Income taxes Deferred tax assets and liabilities are measured using enacted tax laws and tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more likely than not basis. (M) Net (loss) per share Net (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 plan, as their effect is anti-dilutive. (N) Other comprehensive income Comprehensive income includes all other non-shareholder changes in equity. As of December 31, 2001, changes in other comprehensive income primarily resulted from changes in foreign currency translation adjustments and on a minimum pension liability adjustment. (O) Revenue recognition Substantially all of the Company's revenues are recognized at the time products are shipped to customers, under F.O.B. Shipping Point and F.O.B. Port Terms. Revenues are net of any discounts and allowances. The Company records all related shipping and handling costs as a component of cost of goods sold. The SEC's SAB No. 101, "Revenue Recognition in Financial Statements", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company's revenue recognition policy is in accordance with generally accepted accounting principles and SAB No. 101. (P) Futures contracts The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other expense and not material for disclosure. (Q) Stock-based compensation SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock- based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS 123 (see Note 19). (R) Accounting standards In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations". This statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". The provisions of this statement apply to all business combinations initiated after June 30, 2001. Management believes that adoption of Statement 141 will not have a material effect on the Company's financial statements. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. Management believes that adoption of Statement 142 will not have a material effect on the Company's financial statements. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations". The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. Management believes that adoption of Statement 143 will not have a material effect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes FASB Statement 121. This statement addresses financial accounting and reporting for long-lived assets impaired and disposed of by sale. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management believes that adoption of Statement No. 144 will not have a material effect on the Company's financial statements. 3. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,470 and $1,675 at December 31, 2001 and December 31, 2000, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 6% of sales. 4. INVENTORIES (dollars in thousands) Inventories consisted of: 2001 2000 ------ ------ Raw materials $ 3,173 $ 2,867 Work in process 13,131 17,827 Finished products 12,760 18,711 -------- -------- $29,064 $39,405 ======== ======== Approximately 54% and 56% of the Company's inventories at December 31, 2001, and December 31, 2000, respectively, were valued at LIFO. At December 31, 2001 and December 31, 2000 the LIFO values exceeded current manufacturing cost by approximately $799 and $4,521, respectively. During 2001, the Company wrote down $3,612 of LIFO inventories to its lower of cost or market value. The charge is included in cost of sales. Inventories were net of reserves for obsolete and slow moving inventory of $2,816 and $5,029 at December 31, 2001 and December 31, 2000, respectively. 5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) 2001 2000 ------ ------- Property, plant and equipment: Land and improvements $ 4,468 $ 4,925 Buildings and improvements 26,242 32,159 Machinery and equipment 111,193 109,490 Construction in progress 2,797 4,599 Capital leases: Machinery and equipment 88,937 88,937 -------- -------- $233,637 $240,110 ======== ======== Capitalized interest in 2001, 2000, and 1999 totaled $290, $443, and $3,206, respectively. Maintenance and repairs charged to costs and expenses for 2001, 2000, and 1999, aggregated $12,789, $22,836, and $25,070, respectively. The decrease in maintenance and repairs expense is due to the sale of the Films Business in August of 2000. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land and improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment, including capital leases, range from 2 to 15 years. Land and buildings include property held for sale. The properties have a net book value of $4,678 and $9,424 at December 31, 2001 and December 31, 2000, respectively. 6. OTHER ASSETS (dollars in thousands) 2001 2000 ------- ------- Patents $20,000 $20,000 Less accumulated amortization 16,000 14,000 ------- ------- Patents, net 4,000 6,000 Miscellaneous 5,014 620 ------- ------- $ 9,014 $ 6,620 ======= ======= Patents are amortized on the straight-line method over an estimated average useful life of ten years. Included in the 2001 miscellaneous is an income tax refund receivable in the amount of $3,949. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of: 2001 2000 ------ ------ Compensation and employee benefits $10,668 $19,715 Taxes 3,070 8,255 Accrued volume and sales discounts 2,124 2,097 Restructuring (see Note 11) 15,094 27,138 Accrued Interest 9,821 1,646 Other 7,426 14,458 ------- ------- $48,203 $73,309 ======= ======= 8. DEBT OBLIGATIONS (dollars in thousands) Outstanding short-term and long-term debt consisted of: 2001 2000 ------ ------- Short-term debt, current maturity of long-term debt and capital lease obligations: Viskase Capital Lease Obligation $ 72,855 $ 8,750 10.25% Senior Notes due 2001 163,060 191,703 Other 144 223 -------- -------- Total short-term debt $236,059 $200,676 ======== ======== Long-term debt: Viskase Capital Lease Obligation $ $ 72,855 Other 194 328 -------- -------- Total long-term debt $ 194 $ 73,183 ======== ======== 10.25% Notes The Company's cash flows from operations were insufficient to pay the 10.25% Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163.1 million principal and $8.4 million interest that became due at that time. In September 2001, certain of the holders of the 10.25% Notes formed a committee (Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs (Restructuring). No assurances can be given that an agreement will be reached with the Committee or what the terms of any such agreement would be. The Company believes that the likely result of the Restructuring or any other restructuring of the Company's capital structure would be the substantial dilution or effective elimination of the current common stock of the Company. The Committee retained legal counsel, the fees and expenses of which are being paid by the Company, and the Company and the Committee are engaged in negotiations with respect to the Restructuring. The Company believes, after consultation with its advisors, that it would be in the best interest of the Company to enter into a consensual (prepackaged) plan of restructuring, agreed to by GECC and the Committee, that would be implemented in accordance with Chapter 11 of the United States Bankruptcy Code. The Company believes that this form of restructuring can be consummated more quickly and with less disruption than a Chapter 11 filing without any agreement with its creditors. If the Company is unable to reach an agreement with its creditors, the Company will be required to file under Chapter 11 to reorganize its capital structure. The Company expects that during the pendency of a Chapter 11 case it will operate in the ordinary course with respect to its customers, suppliers and employees. The 10.25% Note Indenture contains covenants with respect to Viskase Companies, Inc. 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. The Company has from time to time purchased 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2001 there was $163.1 million principal amount of 10.25% Notes outstanding, net of repurchase. The Company recognized an $8.1 million gain on the repurchase of the 10.25% Notes during the year ended December 31, 2001. Letter of Credit Facility Letters of credit in the amount of $25.8 million were outstanding under a letter of credit facility with commercial banks, and were cash collateralized at December 31, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. The Company anticipates that it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements during 2002. GECC Under the terms of an April 13, 2000 Agreement and Amendment with GECC, the Company agreed to amend the amortization schedule of annual lease payments, maintain a letter of credit in the amount of $23.5 million at all times, limit additional borrowings and provide a subordinated security interest collateralized by the Collateral Pool. Holders of the Senior Secured Credit Facility and the Junior Term Loans consented to the payment extensions and the subordinated security interest granted to GECC. The revised amortization schedule is presented below: February 28, 2002 $11,749 February 28, 2003 23,499 February 28, 2004 23,499 February 28, 2005 23,500 On February 28, 2002, the Company paid the scheduled lease payment of $11,749. GECC, Viskase's equipment lessor has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's late payment of the basic rent payment due on November 1, 2001 or the late reinstatement of the rent letter of credit, (ii) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on September 30, 2001 and December 31, 2001, (iii) Viskase's failure to deliver any documents required to be delivered, (iv) the failure by the Company to pay the 10.25% Notes at maturity and (v) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause (v) shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after June 30, 2002. Furthermore, GECC agreed to forbear until June 30, 2002 from exercising its rights and remedies under the lease for failure to meet the Fixed Charge Coverage Ratio for the fiscal quarter ending on March 31, 2002. There is no agreement with GECC to extend the forbearance beyond June 30, 2002, and the Company can make no assurance that any extension will be received. The following is a schedule of minimum future lease payments under the GECC capital lease obligations together with the present value of the net minimum lease payments as of December 31, 2001: Year ending December 2002 $11,749 2003 23,499 2004 23,499 2005 23,500 ------- Net minimum lease payments 82,247 Less: Amount representing interest (9,392) ------- $72,855 ======= Other The fair value of the Company's debt obligation (excluding capital lease obligations) 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 31, 2001, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $163.1 million and $45.7 million respectively. There were no short-term borrowings in 2001. Aggregate maturities of debt for each of the next five years are: GECC (1) Other Total -------- ----- --------- 2002 $ 8,749 $144 $ 8,893 2003 19,306 128 19,434 2004 21,300 21,300 2005 23,500 23,500 2006 Thereafter 66 66 ------- ---- ------- Total $72,855 $338 $73,193 ======= ==== ======== (1) The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. However, the lease payment maturities above conform to contractual payments under the lease. 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 31, 2001, are: 2002 $ 1,739 2003 1,587 2004 1,477 2005 1,356 2006 1,371 Total thereafter 3,669 ------- Total minimum lease payments $11,199 ======= Total rent expense during 2001, 2000, and 1999 amounted to $1,682, $2,122, and $2,561, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 2001, 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 date that the Company acquired the Viskase subsidiaries, the former owner of the Viskase operations 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 sheets.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands): Pension Benefits Other Benefits ---------------- -------------- 2001 2000 2001 2000 ------ ------ ------ ------ ACCUMULATED BENEFIT OBLIGATION (ABO) $ 93,215 $ 83,022 CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $103,641 $108,239 $41,404 $41,866 Adjustment to actual (3) (10,492) (3,139) Service cost 1,806 2,888 762 971 Interest cost 7,347 7,347 3,021 3,106 Actuarial losses (gain) 1,946 2,772 1,458 5,100 Benefits paid (7,136) (5,814) (1,877) (1,361) Effect of special termination benefits 4,732 Effect of settlement/curtailments (5,849) (5,059) Translation (350) (182) (153) (80) -------- -------- ------- ------- Estimated benefit obligation at end of year $107,251 $103,641 $44,615 $41,404 ======== ======== ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 98,687 $ 92,413 $ $ Adjustment to actual (1,317) Actual return on plan assets (6,308) 3,671 Employer contribution 4,162 9,939 1,877 1,361 Benefits paid (7,136) (5,814) (1,877) (1,361) Translation (347) (205) --------- --------- ------- ------- Estimated fair value of plan assets at end of year $ 89,058 $ 98,687 $ 0 $ 0 ========= ======== ======= ======= RECONCILIATION OF ACCRUED BENEFIT COST, AT YEAR END Funded status $ (18,193) $ (4,954) $(44,615) $(41,404) Unrecognized actuarial (gain) loss Unrecognized net pension obligation Unrecognized net (gain) loss 13,117 (3,673) 5,118 3,796 Unrecognized prior service cost 499 566 --------- -------- -------- -------- Accrued benefit cost (4,577) $ (8,061) $(39,497) $(37,608) $======== ======== ======== ======== AMOUNTS RECOGNIZED IN STATEMENT OF FINANCIAL POSITION Prepaid benefit cost Accrued benefit liability $ (10,134) $ (8,205) Intangible asset 385 144 Accumulated other comprehensive income 5,172 --------- -------- Net amount recognized $ (4,577) $ (8,061) ========= ========
The change in benefit obligation and change in plan assets ending balances are based on estimates and are retroactively adjusted to actual.
WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR Discount rate 7.22% 7.50% 7.23% 7.46% Expected return on plan assets 8.81% 9.00% Rate of compensation increase 4.25% 4.25%
For measurement purposes, an 8.0% and 11% annual rate of increase in the per capita cost of covered health care benefits was assumed in 2001 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease gradually to 6.5% and 5.0% in 2005 and remain at that level thereafter for the U.S. and Canadian plans, respectively.
COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $1,806 $2,888 $ 762 $ 971 Interest cost 7,347 7,347 3,021 3,106 Expected return on plan assets (8,627) (8,541) Amortization of net pension obligation 33 Amortization of prior service cost 67 126 53 Amortization of actuarial (gain) loss 91 (119) 136 443 ------ ------ ------ ------ Net periodic benefit cost 684 1,734 3,919 4,573 FAS No. 88 curtailment (gain) loss (950) 597 ------ ------ ------ ------ Total net periodic benefit cost $ 684 $ 784 $3,919 $5,170 ====== ====== ====== ======
The Films Business was sold effective August 31, 2000. The sale reduced the number of employees covered under the plan and eliminated future accruals for this group, and thus was reflected as a curtailment under FAS No. 88. Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage point change in assumed healthcare cost trend rates would have the following effects: Effect of 1% change in medical trend cost Based on a 1% increase Change in accumulated postretirement benefit obligation $2,018 Change in service cost and interest 162 Based on a 1% decrease Change in accumulated postretirement benefit obligation $(2,311) Change in service cost and interest (190) 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 United States employees not covered by collective bargaining agreements. The defined contribution savings plans allow employees to choose among various investment alternatives. 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 $762, $1,158, and $1,348, in 2001, 2000, and 1999, 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 2001, 2000, and 1999, was $301, $202, and $1,402, 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 $2,281. EMPLOYEE RELATIONS The Company maintains productive and amicable relationships with its approximately 1,400 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. Unions represent approximately 525 of Viskase's 1,400 employees. As of December 31, 2001, approximately 340 of the Company's employees are covered by collective bargaining agreements that will expire within one year. 11. RESTRUCTURING CHARGES During 2000, the Company committed to a restructuring plan to refocus its remaining business. The Company charged $55.8 million to writedown building and equipment to net realizable value. The restructuring actions, which were implemented to reduce the Company's fixed cost structure resulted in a before tax charge to continuing operations of $94.9 million consisting of:
Year 2000 Write- Other Ending Charge Payments down Adjustments 2000 ------ -------- ----- ----------- ------ Employee costs $13.4 $(2.1) $(0.1) $11.2 Write-down of building and equipment 13.4 $(13.4) Nucel(r) building and equipment 42.4 (42.4) Nucel(r) other 24.2 (3.0) (5.9) 15.3 Decommissioning 2.3 (0.1) (1.6) 0.6 ----- ----- ------ ----- ----- Subtotal $95.7 $(5.2) $(55.8) $(7.6) $27.1 ===== ====== ===== ===== Reversal of excess reserve (.8) ----- RESTRUCTURING CHARGE $94.9 =====
The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2001:
Restructuring Restructuring Reserve as of Other Reserve as of December 31, 2000 Payments Adjustments December 31, 2001 ----------------- -------- ----------- ----------------- Employee costs $11.2 $(9.8) $(.4) $ 1.0 Nucel(r) and other 15.3 (1.6) .1 13.8 Decommissioning .6 (.3) .0 .3 ----- ------ ---- ----- Total restructuring reserve $27.1 $(11.7) $(.3) $15.1 ===== ====== ==== =====
Approximately 15% of the Company's worldwide workforce was laid off due to the 2000 restructuring plan. The Nucel(r) third party license fee payments are estimated at $2.4 million, $2.4 million, $2.6 million, $3.2 million and $3.2 million for the next five years and are reserved for in the 2000 restructuring reserve. During 2001, the Company incurred a restructuring charge of $4.8 million for the write-down of facilities held for sale. 12. DISCONTINUED OPERATIONS (dollars in thousands) On January 17, 2000, the Company's Board of Directors announced its intent to sell the Company's plastic barrier and non-barrier shrink Films Business. The sale of the Films Business was completed on August 31, 2000. The aggregate proceeds of approximately $255,000, including a Working Capital Adjustment of $10,300, were used to retire debt, pay GECC and for general corporate purposes. The Company recognized a net gain in the amount of $3,189 in 2001 and $68,185 in 2000. The business sold included production facilities in the United States, United Kingdom, and Brazil. In conjunction with the sale of the Films Business, the Company shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of these are included in the business discontinuance. The operating results of the Films Business have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. Operating results from discontinued operations for 2000 and 1999 are:
Years Ended December 31 ----------------------- 2000 1999 ------ ------ Net sales $110,017 $159,886 Costs and expenses Cost of sales 83,502 127,075 Selling, general and administrative 19,096 29,210 Amortization of intangibles 2,000 3,000 -------- -------- Operating income 5,419 601 Interest income 19 175 Interest expense 98 154 Other expense 1,608 3,321 -------- -------- Income (loss) from discontinued operations before taxes 3,732 (2,699) Income tax provision (benefit) 297 (868) -------- -------- Net income (loss) from discontinued operations $ 3,435 $ (1,831) ======== ========
13. INCOME TAXES (dollars in thousands)
2001 2000 1999 ------ ------ ------ Pre-tax income from continuing operations consisted of: Domestic $(28,353) $(70,065) $(29,232) Foreign (11,869) (25,174) (2,885) -------- -------- -------- Total $(40,222) $(95,239) $(32,117) ======== ======== ========
The provision (benefit) for income taxes from continuing operations consisted of:
2001 2000 1999 ------ ------ ------ Current: Federal Foreign $ (2,810) $728 $ 5,090 State 138 -------- ---- ------- Total current (2,672) 728 5,090 Deferred: Federal (1,906) Foreign (698) (4,898) State (476) -------- ---- ------- Total deferred (698) (7,280) -------- ---- ------- Total $ (3,370) $728 $(2,190) ======== ==== =======
The total provision (benefit) for income taxes was allocated to the following categories:
2001 2000 1999 ------ ------ ------ Continuing operations $(3,370) $ 728 $(2,190) Income (loss) from discontinued operations 297 (868) Gain on sale from discontinued operations 6,633 Extraordinary gain 633 ------- ------ ------- Total income tax provision (benefit) $(3,370) $8,291 $(3,058) ======= ====== =======
A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows:
2001 2000 1999 ------ ------ ------ Statutory federal tax rate 35.00% 35.00% 35.00% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit (.34) .89 Net effect of taxes relating to foreign operations (1.61) (10.02) (6.73) Reversal of overaccrued taxes (25.74) 7.97 Valuation allowance changes and other (24.67) (28.35) ------ ------ ------ Effective tax rate from continuing operations 8.38% (.76)% 8.78% ====== ===== =====
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 2001 and 2000 are as follows:
Year 2001 ------------------------------------------------------ Temporary Difference Tax Effected ------------------------ --------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------ ----------- ------------ ------------ Depreciation basis differences $ $ 65,954 $ $ 25,722 Inventory basis differences 4,110 1,603 Intangible basis differences 4,000 1,560 Lease transaction 72,855 28,413 Pension and healthcare 42,262 16,482 Employee benefits accruals 5,715 2,229 Loss and other carryforwards 26,175 10,208 AMT carryover 15,877 5,557 2000 Restructuring Reserve 42,123 16,428 Self insurance accruals and reserves 1,434 559 Other accruals and reserves 15 6 Foreign exchange and other 25,088 9,784 Valuation allowances 174,202 67,939 -------- -------- ------- -------- $206,456 $273,354 $79,882 $106,608 ======== ======== ======= ========
Year 2000 ------------------------------------------------------ Temporary Difference Tax Effected ------------------------- -------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------ ----------- ------------ ------------ Depreciation basis differences $ 85,622 $ 33,393 Inventory basis differences 8,684 3,387 Intangible basis differences 6,000 2,340 Lease transaction $81,604 $31,826 Pension and healthcare 48,971 19,099 Employee benefits accruals 6,390 2,492 AMT carryover 15,300 5,967 2000 restructuring reserve 74,041 28,876 Other accruals and reserves 15 5 Foreign exchange and other 24,047 9,378 Valuation allowances 168,462 65,700 -------- -------- ------- -------- $226,321 $292,815 $88,265 $114,198 ======== ======== ======= ========
At December 31, 2001, the Company had federal income tax net operating loss carryforwards of approximately $26,175 which had been substantially offset by a valuation allowance. In addition, at December 31, 2001 and December 31, 2000, the Company had alternative minimum tax credit carryforwards of $5,557 and $5,967, respectively. 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. The Company joins in filing a United States consolidated federal income tax return including all of its domestic subsidiaries. 14. COMMITMENTS (dollars in thousands) As of December 31, 2001, the Company had capital expenditure commitments outstanding of approximately $642. 15. PATENT INFRINGEMENT SETTLEMENT INCOME (dollars in thousands) In late 1993, Viskase commenced a legal action against ANC in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651 (ANC Litigation). Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102,400 in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. On September 29, 2000, the Company and Viskase entered into a Settlement and License Agreement (Agreement) with ANC, Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe (collectively, "Pechiney") resolving the ANC Litigation. Pursuant to the Agreement, Viskase received a payment of $54,750 on October 2, 2000. In addition, an additional payment of $60,250 would have been made to Viskase if the United States Court of Appeals for the Federal Circuit had affirmed the monetary award in its entirety in the ANC Litigation. The Company recorded $54,750 as patent infringement settlement income during the third quarter 2000 and expensed $7,850 patent defense costs. On July 31, 2001, the Court of Appeals affirmed the lower court's decision in part, reversed the decision in part and remanded the case back to the District Court for the Northern District of Illinois. Under the Agreement, Viskase Corporation was paid $54,750 in settlement and agreed not to pursue the patent litigation further if the monetary damages award was not affirmed in its entirety. Because the monetary damages were not affirmed in its entirety, Viskase Corporation will not receive any additional payments under the agreement and no further legal proceedings will take place. The patents, which were the subject of the ANC Litigation, were part of the Company's Films Business which was sold in August 2000. 16. CONTINGENCIES In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada claimed that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In 1992, Union Carbide and Viskase Canada jointly put in place a continuous pumping program at the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2,000,000 (Canadian). The lawsuit is still pending and is expected to proceed to trial sometime during fourth quarter 2002 or first quarter 2003. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company and its subsidiaries are involved in these and various other legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 17. CAPITAL STOCK AND PAID IN CAPITAL Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the Company are 25,000,000 shares and 50,000,000 shares, respectively. A total of 15,317,112 shares of common stock were issued and outstanding as of December 31, 2001. A total of 46,723 shares were issued during 2001 for directors' compensation. The Company issued 116,025 shares of stock to its employees in 2000 to celebrate its 75-year anniversary. The shares issued have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value at the date of grant was approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to the plan totaled $105 thousand and $18 thousand in 2001 and 2000, respectively. The shares issued under this plan are subject to forfeiture until October 27, 2003. On June 26, 1996, the Board of Directors adopted a Stockholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Common Stock Purchase Right (Right) for each outstanding common share of the Company. Rights were issued to the stockholders of record on June 26, 1996. The Rights are attached to and automatically trade with the outstanding shares of the Company's common stock. Under the plan, if any person acquires 41% or more of the Company's Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 41%-or-more stockholder, after receiving advice from one or more investment banking firms, each Right not owned by a 41%-or-more stockholder would automatically, without any further action of the Board of Directors, be exchanged for shares of Common Stock at an exchange ratio of one share of Common Stock per Right simultaneous with any person becoming a 41% or more stockholder. Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on June 26, 2006. 18. EARNINGS PER SHARE (dollars in thousands) Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
Years Ended December 31 ------------------------------- 2001 2000 1999 ------ ------ ------ Numerator: Net (loss) available to common stockholders: From continuing operations $(36,852) $(95,967) $(29,927) Discontinued operations net of income taxes: Income (Loss) from discontinued operations 3,435 (1,831) Gain on disposal 3,189 68,185 -------- -------- -------- Net (loss) before extraordinary item (33,663) (24,347) (31,758) Extraordinary gain, net of income taxes: 8,137 6,511 -------- -------- -------- Net loss available to common stockholders for basic and diluted EPS $(25,526) $(17,836) $(31,758) ======== ======== ======== Denominator: Weighted average shares outstanding for basic EPS 15,309,616 15,126,670 14,949,965 Effect of dilutive securities ---------- ---------- ---------- Weighted average shares outstanding for diluted EPS 15,309,616 15,126,670 14,949,965 ========== ========== ==========
Common stock equivalents are excluded from the loss-per-share calculations, as the result is antidilutive. 19. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains a stock option plan. The plan provides for the granting of incentive and nonqualified stock options to employees, officers, and directors. Stock options have been granted at prices at or above the fair market value on the date of grant. Options generally vest in three equal installments beginning one year from the grant date and expire ten years from the grant date. Non-employee director options, however, vest on the date of grant. The options are subject to acceleration upon the occurrence of certain events. Such an acceleration event occurred in March 2001. No compensation expense resulted from this event. The Company accounts for these plans under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. Accordingly, compensation expense is recognized using the intrinsic value-based method for options granted under the plans. Compensation expense associated with these plans has not been recognized to date in accordance with APB 25. The Company has adopted only the disclosure provisions required by SFAS No. 123, "Accounting for Stock Based Compensation." A summary of the Company's stock option activity during the years ended December 31, 2001, 2000 and 1999 is presented below:
2001 2000 1999 ------------------ ----------------- ----------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price -------- -------- -------- -------- ------- -------- Outstanding at beginning of year 945,710 $2.83 646,760 $4.19 956,326 $4.57 Granted 7,000 1.78 550,000 1.78 4,000 4.50 Exercised Forfeited (80,780) 4.35 (251,050) 4.04 (313,566) 5.36 ------- -------- -------- Outstanding at year end 871,930 2.68 945,710 $2.83 646,760 $4.19 ======= ======= ======= Options exercisable at year end 871,930 $2.68 344,389 $4.28 434,075 $4.43 ======= ======= ======= Future option grants available at year end 413,398 339,618 638,568 ======= ======= =======
As of December 31, 2001, total stock options outstanding have a weighted- average remaining contractual life of 7.46 years. The exercise price of options outstanding as of December 31, 2001 ranged from $1.78 to $7.25. The weighted average grant date fair value of options granted during years 2001, 2000, and 1999 was $1.68, $1.45, and $3.42, respectively. Had the Company elected to apply the provisions of SFAS No. 123 regarding recognition of compensation expense to the extent of the calculated fair value of compensatory options, reported net loss and loss per share would have been increased to the following amounts (only options granted in years 1995 and forward are included in the calculation of pro forma net income and earnings per share):
2001 2000 1999 ------ ------ ------ Net (Loss) before extraordinary item $(33,663) $(24,347) $(31,758) Pro forma net (loss) before extraordinary item (34,178) (24,507) (31,877) Net (loss) (25,526) (17,836) (31,758) Pro forma net (loss) (26,041) (17,996) (31,877) PER SHARE AMOUNTS: Net (loss) before extraordinary item - basic and diluted EPS $(2.20) $(1.61) $(2.12) Pro forma net (loss) before extraordinary item - basic and diluted EPS (2.23) (1.62) (2.13) Net (loss) - basic and diluted EPS $(1.67) $(1.18) $(2.12) Pro forma net (loss) - basic and diluted EPS (1.70) (1.19) (2.13)
The effects of applying SFAS 123 in the above pro forma disclosure are not likely to be representative of the effects disclosed in future years as SFAS 123 does not apply to grants prior to 1995. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (1) expected volatility of 181.31% in 2001, 138.8% in 2000, and 91.81% in 1999, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date was 4.65% in 2001, 5.69% to 5.97% in 2000, and 5.77% in 1999, and (3) the expected life of 5 years in 2001, 2000, and 1999. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. Pursuant to the employment agreement between the Company and its chief executive officer, the Company issued 35,000 shares of common stock to its chief executive officer, which vested on March 27, 1999. The shares issued under the employment agreement have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value per share was $3.50. The unearned portion was amortized as compensation expense on a straight- line basis over the related vesting period and included $10 thousand during 1999. The Company also has a stock compensation plan for the non-employee directors of the Company that was approved during fiscal 1996. These directors may elect to receive director's fees in the form of common stock of the Company based upon the average market price of the Company's common stock on the grant date. Under this plan, during 2001, 2000, and 1999, 46,723 shares were issued at $1.38, 44,302 shares were issued at $2.29, and 32,616 shares of stock were issued at $3.65, respectively. The Company issued shares of stock to its employees to celebrate its 75-year anniversary. The shares issued have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value at the date of grant is approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to the plan totaled $105 thousand in 2001. The shares issued under this plan are subject to forfeiture until October 27, 2003. 20. COMPREHENSIVE (LOSS) (in thousands) The following sets forth the components of other comprehensive (loss) income and the related income tax (benefit) provision:
Years Ended ---------------------------------------- December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ Other comprehensive (loss) income: Foreign currency translation Adjustment (1) $ (129) $(2,730) $(1,542) Less reclassification of foreign currency translation adjustment for discontinued operations (2) 2,532 Minimum pension liability adjustment (3) (5,172) ------- ------- ------- Other comprehensive (loss), net of tax $(5,301) $ (198) $(1,542) ======= ======= =======
(1) Net of related tax (benefit) of $0, $(1,746), and $(986) for the years ended 2001, 2000, and 1999, respectively. (2) Reclassification adjustment for losses due to sale of Films Business, included in net (loss) of $4,151, net of related tax provision of $1,619. (3) Minimum pension liability adjustment, net of a related tax provision of $0 in 2001. 21. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 2001 of the Company's financial instruments. (Refer to Notes 2 and 8.)
Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and equivalents $ 25,540 $ 25,540 Restricted cash 26,558 26,558 Liabilities: Long-term debt (excluding capital lease obligations) $163,126 $ 45,723
22. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $4,837, $5,474, and $4,211 for 2001, 2000, and 1999, respectively. 23. RELATED PARTY TRANSACTIONS (dollars in thousands) During 2001, 2000 and 1999, the Company purchased product in the ordinary course of business and on arm's-length terms from affiliates of DPK in the amounts of approximately $377, $444 and $9, respectively. Donald P. Kelly, a beneficial owner of greater than 5% of the outstanding shares of Common Stock, and Mr. Gustafson, a beneficial owner of greater than 5% of the outstanding shares of Common Stock and the Chairman, Chief Executive Officer and President of the Company, are executive officers and limited partners of DPK. During years 2001, 2000, and 1999, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $689, $23,229, and $32,577, respectively, to Cargill, Inc. and its affiliates. The majority of sales to Cargill, Inc. are related to the Films Business which was sold in August 2000. Such sales were made in the ordinary course of business. Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., is a director of the Company. 24. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (dollars in thousands) The Company primarily manufactures and sells cellulosic food casings. The Company's operations are primarily in North America, South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Certain items are maintained at the Company's corporate headquarters and are not allocated to the segments. They include most of the Company's debt and related interest expense and income tax benefits. Other expense for 2001, 2000, and 1999, includes net foreign exchange transaction (losses) of approximately $(2,309), $(4,171), and $(5,680), respectively.
Business Segment Information Years Ended December 31 ------------------------ 2001 2000 1999 ------ ------ ------ Net sales: Casings - Continuing operations $189,315 $200,142 $225,767 Films - Discontinued operations 110,017 159,886 -------- -------- -------- $189,315 $310,159 $385,653 ======== ======== ======== Operating (loss) income: Casings - Continuing operations $(13,736) $(93,702) $ 15,834 Films - Discontinued operations 5,419 601 -------- -------- -------- $(13,736) $(88,283) $ 16,435 ======== ======== ======== Identifiable assets: Casings - Continuing operations $234,028 $322,364 $313,044 Films - Discontinued operations 146,318 180,774 -------- -------- -------- $234,028 $468,682 $493,818 ======== ======== ======== Depreciation and amortization: Casings - Continuing operations $ 23,125 $ 25,012 $ 26,922 Films - Discontinued operations 9,415 16,750 -------- -------- -------- $ 23,125 $ 34,427 $ 43,672 ======== ======== ======== Capital expenditures: Casings - Continuing operations $ 5,882 $ 12,350 $ 19,181 Films - Discontinued operations 1,385 8,762 -------- -------- -------- $ 5,882 $ 13,735 $ 27,943 ======== ======== ========
Geographic Area Information Years Ended December 31 ------------------------ 2001 2000 1999 ------ ------ ------ Net sales: North America $128,488 $202,362 $243,826 South America 7,861 25,025 32,523 Europe 70,058 100,885 132,445 Other and eliminations (17,092) (18,113) (23,141) -------- -------- -------- $189,315 $310,159 $385,653 ======== ======== ======== Operating (loss) income: North America $(10,757) $(74,282) $ 10,065 South America (633) 4,146 4,978 Europe (2,346) (18,228) 1,322 Other and eliminations 81 70 -------- -------- -------- $(13,736) $(88,283) $ 16,435 ======== ======== ======== Identifiable assets: North America $145,002 $326,876 $320,323 South America 9,487 27,526 30,123 Europe 79,539 113,651 142,713 Other and eliminations 629 659 -------- -------- -------- $234,028 $468,682 $493,818 ======== ======== ========
United States export sales: (reported in North America net sales above) Asia $11,578 $15,319 $19,901 South and Central America 11,664 14,515 15,005 Other International 4,298 72 94 ------- ------- ------- $27,540 $29,906 $35,000 ======= ======= =======
The total assets and net assets of foreign businesses were approximately $95,788 and $37,023, at December 31, 2001. 25. QUARTERLY DATA (unaudited) Quarterly financial information for 2001 and 2000 is as follows (in thousands, except for per share amounts):
First Second Third Fourth 2001 Quarter Quarter Quarter Quarter Annual - ---- ------- ------- ------- ------- -------- Net sales $48,040 $46,503 $48,483 $46,289 $189,315 Gross margin 8,758 8,538 10,843 4,918 33,057 Operating income (loss) (2,663) (2,536) 569 (9,106) (13,736) Net (loss) (1,040) (7,821) (4,696) (11,969) (25,526) Net (loss) per share - basic and diluted (.07) (.51) (.31) (.78) (1.67) First Second Third Fourth 2000 Quarter Quarter Quarter Quarter Annual - ---- ------- ------- ------- ------- -------- Net sales $51,770 $51,134 $48,389 $48,849 $200,142 Gross margin 13,065 10,449 11,425 7,643 42,582 Operating income (loss) 1,379 (3,688) (7,501) (83,892) (93,702) Net income (loss) (8,896) (15,191) 82,109 (75,858) (17,836) Net income (loss) per share - basic and diluted (.59) (1.01) 5.43 (4.98) (1.18)
Net (loss) income per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 2000 does not equal the total for the year because of rounding and stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. During the 2001 first and second quarters, the Company recognized a net gain on early extinguishment of debt of $4,930 and $3,207, respectively. Additionally, during the second quarter of 2001, the Company recognized a net gain on disposal of discontinued operations of $3,189. During the 2001 fourth quarter the Company recognized a $3,612 charge to cost of sales related to the write-down of Inventories to its lower of cost or market value. Additionally, the Company recognized a restructuring charge of $4,766 for the write-down of the Chicago facility. In 2000, the Company's Board of Directors announced its intention to sell the Company's plastic barrier and non-barrier shrink Films Business. The sale was completed on August 31, 2000. As a result, the operating results of the Films Business have been segregated from continuing operations and reported as a separate line item on the income statement under the heading discontinued operations. In the 2000 second, third and fourth quarters, the Company recognized a restructuring charge of $2,700, $7,639 and $84,571, respectively (see Note 11). In the third quarter, the Company recognized $54,750 of patent infringement settlement income. Additionally, $7,850 of patent infringement litigation expenses were recognized. The patent infringement settlement income, net of $46,900 was reclassed from the third quarter operating results. In the fourth quarter, an extraordinary gain on early extinguishment of debt of $6,511, net of income taxes of $633 or $.43 per share, was recognized.
VISKASE COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance at Provision Balance Beginning Charged to at End Description of Period Expense Write-offs Recoveries Other(1) of Period - ----------- ---------- ---------- ---------- ---------- -------- --------- 2001 for the year ended December 31 Allowance for doubtful accounts $1,675 $ 425 $ (554) $54 $ (130) $1,470 2000 for the year ended December 31 Allowance for doubtful accounts $1,642 $ 433 $ (269) $46 $ (177) $1,675 1999 for the year ended December 31 Allowance for doubtful accounts $1,507 $1,239 $(1,097) $33 $ (40) $1,642 2001 for the year ended December 31 Reserve for obsolete and slow moving inventories $5,029 $1,150 $(2,029) $ $(1,334) $2,816 2000 for the year ended December 31 Reserve for obsolete and slow moving inventories $4,110 $4,032 $(5,076) $ $ 1,963 $5,029 1999 for the year ended December 31 Reserve for obsolete and slow moving inventories $3,825 $2,483 $(2,150) $ $ (48) $4,110
(1) Foreign currency translation and the disposition of Films Business. EXHIBIT 21.1 ------------ SUBSIDIARIES OF THE REGISTRANT ------------------------------ The Company has the following subsidiaries, each of which is wholly owned by the Company or by a wholly owned subsidiary of the Company. Indented names are subsidiaries of the company under which they are indented. Envirodyne Subsidiary, Inc. (Delaware) Envirosonics, Inc. (California) Viskase Corporation (Pennsylvania) Viskase Holding Corporation (Delaware) Viskase Australia Limited (Delaware) Viskase Brasil Embalagens Ltda. (Brazil) Viskase Canada Inc. (Ontario) Viskase Europe Limited (United Kingdom) Viskase S.A.S. (France) Viskase GMBH (Germany) Viskase Holdings Limited (United Kingdom) Filmco International Limited (United Kingdom) Viskase Limited (United Kingdom) Viskase (U.K.) Limited (United Kingdom) Envirodyne S.A.R.L. (France) Viskase S.p.A. (Italy) Viskase Polska SP.ZO.O (Poland) Viskase Sales Corporation (Delaware) Viskase Puerto Rico Corporation (Delaware) Viskase Films, Inc. (Delaware) WSC Corp. (Delaware) EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-10689 and 333-24033 and 033-63807) of Viskase Companies, Inc. and Subsidiaries of our report dated March 22, 2002, relating to the financial statements and financial statement schedule of Viskase Companies, Inc. and Subsidiaries which appears in this Form 10-K. Chicago, Illinois April 1, 2002 EX-1 2 ex1021.txt VISKASE MANAGEMENT INCENTIVE PLAN FOR 2001 VISKASE WORLDWIDE MANAGEMENT INCENTIVE PLAN Fiscal Year 2001 I. Purpose The Viskase Worldwide Management Incentive Plan (MIP) has been established for Fiscal Year 2001 for those covered employees defined under Section III below. The purpose of this Management Incentive Plan is to provide additional compensation to participants for their contribution to the achievement of the objectives of the Company including: - Assisting in attracting and retaining highly qualified key employees. - Encouraging and stimulating superior performance by such personnel. II. Definitions A. Base Salary equals the salary earnings for the portion of the Fiscal Year during which the participant was an active employee in the particular level of management for which the computation is being made. Salary earnings do not include Plan awards, long-term incentive awards, imputed income from such programs as executive life insurance or non-recurring earnings such as moving expenses and is based on salary earnings before reductions for such items as contributions under Section 401-(K) of the Internal Revenue Code of 1986 as amended. B. Company means Viskase Worldwide, its successors and assigns. C. Fiscal Year means the Company's Fiscal Year beginning January 1 and ending the last day of December. D. Plan means the Viskase Worldwide Management Incentive Plan as from time to time amended. E. Chairman of the Board and Chief Executive Officer means the Chairman of the Board and Chief Executive Officer of Viskase Companies, Inc. F. Financial Targets are the financial goal(s) appropriate to the company for the Fiscal Year. These goals are identified in Exhibit B and are specifically identified by participant in Exhibit C. G. Discretionary Goals refer to the personal goals and objectives set by each participant and his/her supervisor at the beginning of each Fiscal Year against which performance is measured. III. EMPLOYEES COVERED BY THIS PLAN The Plan is applicable to those management employees and other key personnel in the management levels specified. IV. FINANCIAL AWARD A participant in the Plan shall be entitled to a Financial Award computed in accordance with the following formula: Base Financial Bonus Financial Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Financial Targets Where: - "Base Salary" is as defined in Section II A. - "Financial Performance Incentive Earned" is determined by the relationship of actual achievement to targeted goals, with full attainment of the financial goals equating to target for each measure as set forth in the business plan. The target for each participant is a function of management level slotting. Actual performance below target will result in no award being paid on that particular financial measure. - "Bonus Percent Allocated To Financial Targets" shall range from 0% to 100%. If a participant was in more than one management level during a Fiscal Year, a separate computation shall be made for each level applicable to the participant during such Fiscal Year; the sum of the separate computations shall be the participant's Financial Performance Award. V. Personal Performance Award Goals for each participant are to be developed jointly by the participant and his/her supervisor at the beginning of a Fiscal Year. It is anticipated that both quantifiable and non-quantifiable goals will be developed in the process. Each goal should be weighted from 0% to 100%, with the sum of the weights equal to 100%. A participant in the Plan shall be entitled to a Personal Performance Award computed in accordance with the following formula: Base Personal Bonus Personal Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Personal Objectives Where: - "Base Salary" is as defined in Section II A. - "Percent of Personal Objectives Achieved" ranges from 0% to 100% and is determined by the agreed upon performance of the individual against pre-established individual goals. - "Percent of Bonus Allocated to Personal Objectives" shall range from 0% to 100%. It is intended that the participant and his or her supervisor will agree on meaningful individual goals. The following is a partial list of the type of goals or objectives that may be developed: - Achievement of income goals - Development of subordinates - Successful development of new accounts/products - Improvement in product merchandising programs - Attainment of self-development objectives - Control or reduction of operating expenses At the end of a Fiscal Year, each participant will review and evaluate his/her accomplishment of personal goals and objectives. The participant and his/her supervisor will then review the preliminary rating. Thereafter, the supervisor will assign a Personal Performance %, from 0% to 100%, reflecting the participant's achievement of his/her goals during such Fiscal Year. The Personal Performance % recommendation of the supervisor shall be reviewed by the appropriate member of the Management Committee, who shall recommend an appropriate Personal Performance % to the Chairman of the Board and Chief Executive Officer who shall approve the final Personal Performance % for each participant. VI. Performance Measures, Targets and Payout Ranges The financial performance measures, targets and payout ranges used for incentive purposes shall be established by the Company based on the annual business plan. Those measures, targets and payout ranges, as appropriate, shall be approved by the Chairman of the Board and Chief Executive Officer. The performance measures, targets and payout ranges are defined in Exhibit B. VII. Participant Bonus Composition The composition of each participant's bonus shall be determined by the Chairman of the Board and Chief Executive Officer. The composition may have a Discretionary portion and a Financial portion. The composition of the bonuses are established by Management Level and communicated individually to each participant. VIII. Computation and Disbursement of Funds As soon as possible after the close of the Fiscal Year, the members of the Management Committee will recommend a final personal goal achievement percentage and incentive award payment to the Chairman of the Board and Chief Executive Officer. Once approved, payment of the awards shall be made as soon as possible after the completion of the annual audit. If the participant dies before receiving his/her award, the amount due will be paid to the designated beneficiaries on file with the Company and, in the absence of such designation, to the participant's estate. All payment awards shall be reduced by amounts required to be withheld for taxes at the time payments are made. IX. Changes to Target The Chairman of the Board and Chief Executive Officer, at any time prior to the final determination of awards and in consultation with the Management Committee, may consider changes to the performance measures, targets, and payout ranges used for incentive purposes. If, in the judgment of the Chairman of the Board and Chief Executive Officer, such change(s) is/are desirable in the interests of equitable treatment of the participants and the Company as a result of extraordinary or non- recurring events, changes in applicable accounting rules or principles, changes in the Company's methods of accounting, changes in applicable law, changes due to consolidation, acquisitions, or reorganization, the Chairman of the Board and Chief Executive Officer shall authorize and approve such change(s) for immediate incorporation into the Plan. Further, should actual performance on any one or all of the financial measure(s) be less than or greater than target by twenty-five percent (25%) or more, the award actually earned under that measure(s) will be at the sole discretion of the Chairman of the Board and Chief Executive Officer subject to approval by the Compensaton Committee of the Board. X. Partial Awards A participant shall be entitled to payment of a partial Financial Award and a partial Personal Objectives Award, computed in accordance with Sections IV and V, and based on Base Salary in a Fiscal Year, if prior to the end of such Fiscal Year, a participant: - Dies, - Retires (is eligible to immediately receive retirement benefits under a Company sponsored retirement plan), - Becomes permanently disabled, - Transfers to a position with a salary grade not eligible for participation in the Plan, - Enters military service, - Takes an approved leave of absence, - Is appointed or elected to public office, - Is terminated due to position elimination, provided that the participant was an active employee for a minimum of 30 consecutive calendar days during such Fiscal Year. Such partial awards shall be paid when payments of non-deferred awards for such Fiscal Year are made. Participants hired during the course of a Fiscal Year and who are employed through the end of such Fiscal Year shall be eligible for an award based on their Base Salary during such Fiscal Year, provided that such employees begin active service prior to February 1 of such Fiscal Year. XI. Forfeiture of Bonus Except as provided in Section X, no participant who ceases to be an employee of the Company prior to the end of a Fiscal Year shall be entitled to any amounts under this Plan for such Fiscal Year unless the Chairman of the Board and Chief Executive Officer, in consultation with the Vice President, Administration, decides otherwise. Participants who cease to be an employee of the Company between the end of a Fiscal Year and the payment date of awards for such Fiscal Year shall be entitled to awards earned during such Fiscal Year. XII. Administration This Plan shall be administered by the Vice President, Administration of Viskase Corporation, subject to the control and supervision of the Chairman of the Board and Chief Executive Officer and the Compensation Committee of the Board of Directors of Viskase Companies, Inc. Any changes to the context of the Plan, the performance ranges, Plan adjustments and actual payouts will be reviewed with and approved by the Compensation Committee of the Board of Directors. In the event of a claim or dispute brought forth by a participant, the decision of the Chairman of the Board and Chief Executive Officer as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final and conclusive. XIII. No Employment Contract; Future Plans Participation in this Plan shall not confer upon any participant any right to continue in the employ of the Company nor interfere in any way with the right of the Company to terminate any participant's employment at any time. The company is under no obligation to continue the Plan in future Fiscal Years. XIV. Amendment or Termination The Company may at any time, or from time to time, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of this Plan or a termination of participation, the Company shall provide the partial awards to the affected participant(s) for the portion of the Fiscal Year during which such employee(s) were participants in this Plan, in a manner in which the Company, in its sole judgment, determines to be equitable to such participants and the Company. XV. General Provisions (a) No right under the Plan shall be assignable, either voluntarily or involuntarily by way of encumbrance, pledge, attachment, level or charge of any nature (except as may be required by state or federal law). (b) Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award. No participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the close of the Fiscal Year, or in any property of the Company or its subsidiaries. --------------------- --------------------------- Final Approval Date Chairman of the Board and Chief Executive Officer EX-2 3 ex1026.txt 8/30/01 AMENDMENT F.E.GUSTAFSON EMPLOYMENT AGREEMENT WITH VISKASE COMPANIES, INC. AMENDMENT to the AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of the 30th day of August, 2001, to the Amended and Restated Employment Agreement between F. Edward Gustafson ("Executive") and Viskase Companies, Inc. (formerly known as Envirodyne Industries, Inc. and hereinafter referred to as the "Company") dated as of the 27th day of March, 1996 (the "Agreement"), is entered into between Executive and the Company (hereinafter together referred to as the "parties"). Pursuant to Section 16 of the Agreement, the parties hereby agree to amend the Agreement pursuant to this Amendment. The Agreement is amended as follows: Section 1: Definitions. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Agreement. Section 2. Amendment of Section 2. The following sentence shall be added after the third sentence of Section 2 of the Agreement: "The Company acknowledges (i) that Executive is the Chairman of the Board, President and Chief Executive Officer of Viskase Corporation ("Viskase"), a wholly-owned subsidiary of the Company, and Executive is party to an Employment Agreement dated as of August 30, 2001 with Viskase (the "Viskase Employment Agreement") and (ii) that Executive's performance under the Viskase Employment Agreement shall deemed not to be in conflict with this Agreement." Section 3. Amendment of Section 15. Section 15 of the Agreement is hereby replaced with the following: "15. Non-Exclusivity of Rights. Nothing in this Agreement shall limit or reduce such rights as Executive may have under any other agreements with the Company or any of its subsidiaries; provided, however, that the payments and benefits provided under Section 8 shall be in lieu of any other termination benefits (including severance, notice and pay and salary continuation) to which Executive may otherwise be entitled from the Company; and provided, further, however, (i) that any amounts payable under Section 3 of this Agreement shall be set off by amounts paid to Executive under Section 3 of the Viskase Employment Agreement for the same period of employment and (ii) that any amounts payable under Section 8 of this Agreement shall be set off by amounts paid to Executive under Section 8 of the Viskase Employment Agreement. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement." Section 4. Choice of Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. Section 5. Effectiveness. Except as expressly modified above, all other terms, conditions and provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be signed as of the first date written above. VISKASE COMPANIES, INC. By: -------------------------------------- Name: Gordon S. Donovan Title: Vice President ------------------------------------------- F. Edward Gustafson EX-3 4 ex1027.txt 8/30/01 EMPLOYMENT AGREEMENT F.E.GUSTAFSON WITH VISKASE CORP. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is effective as of the 30th day of August, 2001 by and between Viskase Corporation, a Pennsylvania corporation with its principal office at 625 Willowbrook Centre Parkway, Willowbrook, IL 60527 (the "Company") and F. Edward Gustafson, an individual ("Executive") (hereinafter together referred to as "the parties"). WHEREAS, Executive has served as Chairman of the Board, President and Chief Executive Officer of the Company; and WHEREAS, the Company and Executive desire that Executive continue to serve as Chairman of the Board, President and Chief Executive Office of the Company on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree as follows: 1. Employment Term. The Company shall employ Executive and Executive agrees to be employed by the Company pursuant to the terms and conditions hereof for the period (the "Employment Term") commencing on the date hereof and ending on March 26, 2004; provided, however, that on March 26, 2002 and on each subsequent anniversary thereof, the Employment Term shall automatically be extended for a period of one year unless either party shall have given written notice to the other party not less than thirty days prior to March 26, 2002 or any subsequent anniversary thereof that the Employment Term shall not be so extended. 2. Duties. During the Employment Term, Executive shall serve as Chairman of the Board, President and Chief Executive Officer of the Company. Executive shall perform such services and duties prescribed for such positions by the Company's By-laws and as are otherwise incident to such positions and such other services and duties not inconsistent with such positions as may be determined from time to time by the Board of Directors of the Company (the "Board"). Subject to the terms and conditions of this Agreement, Executive shall devote his full business time, attention and skills, to the best of his abilities, to the performance of such services and duties, and use his best efforts to promote the interests of the Company and its subsidiaries, as well as Viskase Companies, Inc. ("VCI"), of which the Company is a wholly-owned subsidiary. The Company acknowledges (i) that Executive is the Chairman of the Board, President and Chief Executive Officer of VCI and is party to an Amended and Restated Employment dated as of March 27, 1996 with VCI (the "VCI Employment Agreement") and (ii) that Executive's performance under the VCI Employment Agreement shall be deemed not to be in conflict with this Agreement. Nothing in this Agreement shall preclude Executive from engaging in charitable and community affairs, from managing his personal investments or, except as otherwise provided in Sections 9(b) and (c), from serving as a member of the board of directors or a trustee of other companies, associations or entities, provided, however, that such activities do not interfere in any material respect with Executive's performance of his obligations to the Company hereunder. Executive's principal place of employment shall be located in the greater Chicago metropolitan area, and the Company shall not require Executive to relocate from such area without Executive's prior written consent. 3. Compensation. In consideration of the performance by Executive of his obligations hereunder, the Company shall pay Executive the amounts hereinafter set forth. During the Employment Term, the Company shall pay Executive (i) a salary (the "Base Salary") at an annual rate of not less than $513,000, plus (ii) $30,000 per year in lieu of a Company-provided automobile, both payable in substantially equal installments in accordance with the normal payroll practices of the Company then in effect for other officers of the Company. As of March 26, 2002 and any subsequent anniversary thereof, Executive's Base Salary shall be increased by such amount as shall be determined by the Compensation Committee of the Board of Directors of VCI in connection with the VCI Employment Agreement and otherwise in a manner consistent with the most recent determination of increases in base salary of other senior officers of the Company. The annual bonus payable to Executive for each fiscal year of the Company ending during the Employment Term shall be based upon the attainment of financial or other performance criteria related to the Company and its businesses, which criteria shall be established by the Compensation Committee of the Board of Directors of VCI, in its sole discretion, upon consultation with the Executive. 4. Benefits. During the Employment Term, Executive shall be entitled to participate in any employee benefit plans (including, but not limited to, any life insurance, disability, medical, dental, hospitalization, savings, retirement and other benefit plans of the Company) then in effect for executive officers of the Company and to receive any other fringe benefits that the Company then provides to executive officers of the Company to the extent Executive meets the eligibility requirements for any such plan or benefit; provided, however, that Executive shall be provided life insurance protection in an amount not less than $500,000. 5. Reimbursements for Expenses. Executive is authorized to incur reasonable expenses in the performance of his duties hereunder, including without limitation, country club dues (up to $9,600 per year), expenses for travel and similar items related to such duties. The Company also shall pay or reimburse Executive up to $5,000 per year for financial consulting services. The Company shall reimburse Executive or pay for all such expenses upon presentation by Executive from time to time of an itemized account of such expenditures. The Company also shall establish a nonqualified, unfunded program whereby Executive can defer compensation under the terms of the Company's "401(k) plan" in excess of the limits imposed on such deferrals by the Internal Revenue Code. The Company shall pay or reimburse Executive for the reasonable attorneys' fees and related expenses incurred by Executive in connection with the negotiation of this Agreement. 6. Vacations. During the Employment Term, Executive shall be entitled to paid vacations of no less than six weeks per year. 7. Termination. Executive's employment hereunder may be terminated under the following circumstances: (a) Death. Executive's employment hereunder shall terminate automatically upon Executive's death. (b) Disability. The Company or Executive may terminate Executive's employment after having established Executive's Disability. For purposes of this Agreement, "Disability" shall be established if Executive shall be unable to perform fully his duties hereunder because of illness, physical or mental disability or other incapacity, as confirmed by medical evidence satisfactory to the Compensation Committee of the Board of Directors of VCI, that is expected to prevent him from returning to the full performance of his duties hereunder for six months or longer. (c) Cause. The Company may terminate Executive's employment for "Cause." Cause shall mean a finding adopted in good faith by the Board of Directors of VCI that Executive (i) willfully failed to substantially perform his services or duties for the Company (other than a failure resulting from Executive's Disability) and such failure continues for 30 days after the Board of Directors of VCI has given written notice to Executive providing a reasonable description of the basis for the determination that Executive has failed to perform his services or duties, (ii) has been convicted of (or plead nolo contendere to) a felony or to a misdemeanor involving moral turpitude or the use of a controlled substance, (iii) has breached this Agreement in any material respect if such breach is not cured or remedied within 30 days after the Board of Directors of VCI has given written notice to Executive providing a reasonable description of the breach, or (iv) engaged in embezzlement or misappropriation of the assets of the Company or any of its subsidiaries or (v) engaged in conduct constituting willful malfeasance in connection with his employment which is materially injurious to the Company and its subsidiaries taken as a whole. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Executive after Notice of Termination (as hereinafter defined) is given by Executive shall constitute Cause for purposes of this Agreement. No act, or failure to act, on Executive's part, shall be considered "willful" for purposes of (i) or (v) above unless he has acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interests of the Company. Any action of the Board of Directors of VCI to terminate Executive for cause under clause (i), (iii), (iv) or (v) of the preceding sentence shall not be made until after Executive and his legal advisors have been provided an opportunity to meet with the Board of Directors of VCI, contest the basis for such termination and to demonstrate that Executive's continued employment is in the best interests of the Company. (d) (1) Good Reason. Executive may terminate his employment for "Good Reason." As used in this Section 7(d), the term "Company" shall also refer to its successor entity or any entity which has acquired control of the Company as a result of a Change in Control. For purposes of this Agreement, Good Reason shall mean the occurrence of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) Executive no longer serving as Chairman of the Board, President and Chief Executive Officer of the Company for any reason, including, but not limited to, as a result of a vote of the stockholders at an annual or special meeting, action taken by the Board of Directors of VCI without Cause or as a result of the merger, reorganization or restructuring of the Company, or the assignment to Executive of duties or responsibilities which are inconsistent with the status, title, position or responsibilities of Chairman of the Board, President and Chief Executive Officer of the Company (which assignment is not rescinded after the Company receives written notice from Executive providing a reasonable description of such inconsistency); (ii) the Company's requiring Executive to be based at any place outside a 30-mile radius from the principal location from which Executive served as an employee of the Company immediately prior to the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements prior to a Change in Control; (iii) the failure by the Company to provide Executive with compensation and benefits substantially comparable, in the aggregate, to those provided for under the employee benefit plans, programs and practices in effect immediately prior to a Change in Control; (iv) any material breach by the Company of any provision of this Agreement which has not been cured or corrected by the Company within two weeks after Executive has given the Company written notice of such breach; (v) the failure of the Company to obtain an agreement, satisfactory to Executive, from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Section 13 hereof; or (vi) there shall have occurred a Change in Control of the Company. (2) Executive's right to terminate his employment pursuant to this Section 7(d) shall not be affected by his Disability if as of the occurrence of an event constituting Good Reason, his Employment has not been terminated pursuant to paragraph 7(b) hereof. (e) Change in Control. For purposes of this Agreement, a "Change in Control" shall mean any of the following events: (i) any person or entity becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, a "Beneficial Owner"), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, other than beneficial ownership by the Company, any employee benefit plan of the Company or any person or entity organized, appointed or established pursuant to the terms of any such benefit plan; (ii) the Company's stockholders approve an agreement to merge or consolidate the Company with another corporation, or an agreement providing for the sale of substantially all of the assets of the Company to one or more corporations, in any case other than with or to a corporation 50% or more of which is controlled by or is under common control with, the Company; or (iii) there shall occur a "Change in Control" under the VCI Employment Agreement. (f) Notice of Termination. Any purported termination of Executive's employment hereunder by the Company for Cause or by Executive for Good Reason or by reason of Executive's Disability shall be communicated by a written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon as a basis for termination. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (g) Termination Date. "Termination Date" shall mean in the case of Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination; provided, however, that if Executive terminates his employment for Good Reason, the date specified in the Notice of Termination shall not be more than 30 days from the date the Notice of Termination is given to the Company and if the Company terminates Executive's employment other than for Cause, the date specified in the Notice of Termination shall be no less than 30 days from the date the Notice of Termination is given to Executive. 8. Compensation Upon Termination. Upon termination of Executive's employment during the Employment Term, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated by the Company for Cause or by Executive (other than for Good Reason or Executive's Disability), the Company shall pay to Executive all amounts earned or accrued hereunder through the Termination Date but not paid as of the Termination Date, including (i) Base Salary, (ii) reimbursement (in accordance with the terms of this Agreement) for any and all monies advanced or expenses incurred in connection with Executive's employment for reasonable and necessary expenses incurred by Executive on behalf of the Company for the period ending on the Termination Date, (iii) accrued but unpaid vacation pay, (iv) any earned or awarded and vested, but unpaid bonus for any fiscal year of the Company ending prior to the year in which such termination occurs and (v) any previous compensation which Executive has previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect and all unexercisable stock options and unvested restricted stock shall be forfeited. (b) Subject to Section 8(c), if Executive's employment is terminated by the Company for any reason other than for Cause, death or Disability, or by Executive for Good Reason, the Company shall pay to Executive all Accrued Compensation plus (ii) 300% of Executive's Base Salary and the amount of the bonus which would have been payable to Executive pursuant to Section 3 hereof in respect of the year of the Employment Term in which the Termination Date occurs and calculated as if Executive were employed by the Company as of the end of such year (but, to the extent the bonus is contingent on the achievement of performance targets, based on whether such targets were actually achieved as of the Termination Date) multiplied by a fraction, the numerator of which shall be the number of days in such year which have elapsed prior to the Termination Date and the denominator of which shall be the number of days in such year. In addition, Executive shall be entitled to coverage for 24 calendar months following the month on which the Termination Date occurs under the life insurance, medical, dental and hospitalization benefits which Executive would have been entitled to receive if he had continued his employment with the Company for such period, on the terms and conditions applicable to other executive officers of the Company as in effect from time to time during such period. Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other programs and practices then in effect. All outstanding stock options and restricted stock granted or issued pursuant to this Agreement or the VCI Employment Agreement shall become exercisable, vested and nonforfeitable. (c) If Executive's employment by the Company is terminated by the Company following a Change in Control other than for Cause, death or Disability, or by Executive following a Change in Control for Good Reason, then Executive shall be entitled to the amounts described in paragraph (b) above and except that in applying clause (ii) thereof, it shall be assumed that the bonus to which the Executive shall be entitled shall be equal to 50% of Base Salary irrespective of the Company's performance or the date on which the termination occurs. (d) The first sentence of Section 8(b) notwithstanding, if Executive's employment by the Company is terminated by the Company following a Change in Control wherein the Beneficial Owner is D.P. Kelly & Associates or a company in which D.P. Kelly has a substantial interest, the Company shall pay Executive all Accrued Compensation plus 200% of Executive's Base Salary. All other commitments set forth in Section 8(b) and Section 8(c) shall remain controlling and binding. (e) If Executive's employment by the Company is terminated by reason of Executive's death, Executive's estate or designated beneficiaries shall receive (i) all of Executive's Accrued Compensation; and (ii) and any death benefits provided under the employee benefits plans specified in Section 4 hereof. (f) If Executive's employment by the Company is terminated by the Company or Executive by reason of Executive's Disability, Executive shall be entitled to receive or continue to receive (i) his Base Salary for the first six months of such Disability (including any period of such Disability prior to termination of Executive's employment), and (ii) $7,500 per month thereafter until the first to occur of his 65th birthday and his death. Any amounts payable pursuant to clause (ii) of the preceding sentence shall be offset by any amounts payable to Executive pursuant to any plan or program described in Section 4 hereof. (g) The amounts (other than any life insurance and medical, dental and hospitalization coverage) provided for in this Section 8 shall be paid within five (5) business days after Executive's Termination Date. The continuation of any life insurance, medical, dental or hospitalization benefits pursuant to Section 8(b) or 8(c) shall be in satisfaction of the Company's obligations under Section 4980B of the Internal Revenue Code of 1986, or any similar state law requiring continuation of such insurance or benefits, with respect to the period of time during which such insurance or benefits are continued hereunder. 9. Nondisclosure of Confidential Information; Non-Competition. (a) Executive shall not, without the prior written consent of the Company, divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity any Confidential Information pertaining to the business of the Company, except (i) while employed by the Company, in the business of and for the benefit of the Company, or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. When Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all Confidential Information obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in this paragraph or which were paid for by the Company or any of its subsidiary; provided, however, that the Executive may retain copies of such documents as necessary for the Executive's personal records for federal income tax purposes. For purposes of this Section 9(a), "Confidential Information" shall mean non-public information concerning the financial data of the Company or any subsidiary, strategic business plans, product development, bidding information (or other proprietary product data), customer lists, marketing plans and other proprietary and confidential information of the Company or any of its subsidiaries, in each case which is not otherwise available to the public. (b) During the Employment Term and for a period of two years thereafter, except with the prior written consent of the Board, the Executive: (i) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than as the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (1) the businesses conducted at the date hereof by the Company or any of its subsidiaries or affiliates over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Term (the "Managed Companies"), or (2) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (ii) shall not solicit, in competition with the Company, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (iii) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. For purposes of Section 9(b) hereof, a business shall be deemed to be in competition with the Company if it is significantly involved in the sale of any product or the rendering of any service significantly sold or rendered by the Company or its subsidiaries. Nothing in this Section 9 shall be construed so as to preclude Executive from investing in any publicly held company, provided Executive's beneficial ownership of any class of such company's securities does not exceed 5% of the outstanding securities of such class. (c) The following provisions shall apply to the covenants of the Executive contained in Sections 9(a) and 9(b): (i) the covenants contained in Sections 9(a) and 9(b) shall apply within all territories in which any of the Managed Companies are actively engaged in the conduct of business during the Employment Term, including, without limitation, the territories in which customers are then being solicited; (ii) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in Sections 9(a) and 9(b), it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (iii) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 9(a) and 9(b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (iv) the covenants contained in Sections 9(a) and 9(b) shall survive the conclusion of the Employment Term. 10. Conditional Adjustments in Compensation. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Total Compensation")), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax") and if it is determined that the amount of Total Compensation remaining after payment of the Excise Tax is less than the maximum amount of Total Compensation that could be paid without becoming subject to such Excise Tax, the Total Compensation shall be reduced to such maximum amount. (b) All determinations required to be made under this Section 10, and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of a request therefor by either Executive or the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. 11. Withholding. Anything to the contrary herein notwithstanding, all payments required to be made by the Company hereunder to Executive, or his estate or beneficiaries, shall be subject to the withholding of such amounts as the Company may reasonably determine it should withhold pursuant to any applicable tax law or regulation. 12. Beneficiaries; References. Executive shall be entitled but shall not be required to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 13. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all of the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal personal representative. 14. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail return receipt requested, postage prepaid, addressed to the respective address last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 15. Non-Exclusivity of Rights. Nothing in this Agreement shall limit or reduce such rights as Executive may have under any other agreements with the Company, VCI or any of the Company's subsidiaries; provided, however, that the payments and benefits provided under Section 8 shall be in lieu of any other termination benefits (including severance, notice and pay and salary continuation) to which Executive may otherwise be entitled from the Company; and provided, further, however, (i) that any amounts payable under Section 3 of this Agreement shall be set off by amounts paid to Executive under Section 3 of the VCI Employment Agreement for the same period of employment and (ii) that any amounts payable under Section 8 of this Agreement shall be set off by amounts paid to Executive under Section 8 of the VCI Employment Agreement. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 16. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 17. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. 18. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 19. Entire Agreement. This Agreement, together with the VCI Employment Agreement, constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the day and year first above written. VISKASE CORPORATION By: ---------------------------- Frank R. Fryer Vice President Administration -------------------------------- F. Edward Gustafson EX-4 5 ex1028.txt 11/01/01 AMEND F.E.GUSTAFSON RESTATED EMPLOYMENT AGREEMENT WITH VISKASE WITH VISKASE COMPANIES, INC. AMENDMENT NUMBER TWO to the AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER TWO (the "Amendment") dated as of the 1st day of November, 2001, to the Amended and Restated Employment Agreement between F. Edward Gustafson ("Executive") and Viskase Companies, Inc. (formerly known as Envirodyne Industries, Inc. and hereinafter referred to as the "Company") dated as of the 27th day of March, 1996, as amended by the Amendment thereto dated as of the 30th day of August, 2001 (as so amended, the "Agreement"), is entered into between Executive and the Company (hereinafter together referred to as the "parties"). WHEREAS, pursuant to Section 7 of the Agreement, Executive has the right to terminate his employment with the Company for Good Reason, which is defined to include, among other things, that there shall have occurred a Change in Control; and WHEREAS, one or more Changes in Control have occurred on or before the date hereof; and WHEREAS, Executive and the Company would like to further define Executive's rights under Section 7 of the Agreement; NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree to amend the Agreement as follows: Section 1: Definitions. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Agreement. Section 2. Amendment. (a) The following provisions shall be added after the last sentence of Section 7(f) of the Agreement: With respect to a termination of Executive's employment by Executive for Good Reason pursuant to Section 7(d)(1)(vi) for Changes in Control which may have occurred on or prior to the date hereof, Executive may provide the Company with a Notice of Termination by no later than November 1, 2002. With respect to a termination of Executive's employment by Executive for Good Reason pursuant to Section 7(d)(1)(vi) for Changes in Control occurring after the date hereof, Executive may provide the Company with a Notice of Termination for each such Change in Control by no later than the one year anniversary of such Change in Control. (b) The following provision shall be added as Section 20 of the Agreement: 20. Attorneys' Fees and Costs. The Company agrees to pay all costs and expenses, including attorneys' fees, which may be incurred by Executive in enforcing this Agreement against the Company or in connection with any contest of the validity or enforceability of this Agreement by the Company or any third party, including without limitation any rejection of this Agreement in any bankruptcy or similar procedure. Section 3. Choice of Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. Section 4. Effectiveness. Except as expressly modified above, all other terms, conditions and provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be signed as of the first date written above. VISKASE COMPANIES, INC. By: ----------------------------------- Name: Gordon S. Donovan Title: Vice President & CFO --------------------------------------- F. Edward Gustafson EX-5 6 ex1029.txt 11/01/01 AMEND F.E.GUSTAFSON EMPLOYMENT AGREEMENT WITH VISKASE CORP. AMENDMENT to the EMPLOYMENT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of the 1st day of November, 2001, to the Employment Agreement between F. Edward Gustafson ("Executive") and Viskase Corporation (the "Company") dated as of the 30th day of August, 2001 (the "Agreement"), is entered into between Executive and the Company (hereinafter together referred to as the "parties"). WHEREAS, pursuant to Section 7 of the Agreement, Executive has the right to terminate his employment with the Company for Good Reason, which is defined to include, among other things, that there shall have occurred a Change in Control; and WHEREAS, one or more Changes in Control have occurred on or before the date hereof; and WHEREAS, Executive and the Company would like to further define Executive's rights under Section 7 of the Agreement; NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree to amend the Agreement as follows: Section 1: Definitions. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Agreement. Section 2. Amendment. (a) The following provisions shall be added after the last sentence of Section 7(f) of the Agreement: With respect to a termination of Executive's employment by Executive for Good Reason pursuant to Section 7(d)(1)(vi) for Changes in Control which may have occurred on or prior to the date hereof, Executive may provide the Company with a Notice of Termination by no later than November 1, 2002. With respect to a termination of Executive's employment by Executive for Good Reason pursuant to Section 7(d)(1)(vi) for Changes in Control occurring after the date hereof, Executive may provide the Company with a Notice of Termination for each such Change in Control by no later than the one year anniversary of such Change in Control. (b) The following provision shall be added as Section 20 of the Agreement. 20. Attorneys' Fees and Costs. The Company agrees to pay all costs and expenses, including attorneys' fees, which may be incurred by Executive in enforcing this Agreement against the Company or in connection with any contest of the validity or enforceability of this Agreement by the Company or any third party, including without limitation any rejection of this Agreement in any bankruptcy or similar procedure. Section 3. Choice of Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. Section 4. Effectiveness. Except as expressly modified above, all other terms, conditions and provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be signed as of the first date written above. VISKASE CORPORATION By: ----------------------------------- Name: Gordon S. Donovan Title: Vice President & CFO --------------------------------------- F. Edward Gustafson EX-6 7 ex1030.txt 11/29/01 EMPLOYMENT AGREEMENT G.S.DONOVAN WITH VISKASE COMPANIES, INC. AND VISKASE CORP. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is effective as of the 29th day of November, 2001 by and among Viskase Companies, Inc. ("VCI"), a Delaware corporation, Viskase Corporation ("Viskase"), a Pennsylvania corporation, both with principal offices at 625 Willowbrook Centre Parkway, Willowbrook, IL 60527 (VCI and Viskase shall be collectively referred to herein as the "Company") and Gordon S. Donovan, an individual ("Executive") (hereinafter together referred to as "the parties"). WHEREAS, the Company wishes to provide incentive to Executive to remain in the employ of the Company during the period of restructuring and thereafter; WHEREAS, Executive has served as Vice President, Chief Financial Officer and Treasurer of VCI and Vice President, Chief Financial Officer and Treasurer of Viskase; and WHEREAS, the Company and Executive desire that Executive continue to serve as Vice President, Chief Financial Officer and Treasurer of VCI and Vice President, Chief Financial Officer and Treasurer of Viskase, respectively, on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree as follows: 1. Employment Term. The Company shall employ Executive and Executive agrees to be employed by the Company; pursuant to the terms and conditions hereof; for the period (the "Employment Term") commencing on the date hereof and ending on December 31, 2004; provided, however, that on January 1, 2003 and on each subsequent anniversary thereof, the Employment Term shall automatically be extended for a period of one year unless either party shall have given written notice to the other party not less than thirty days prior to January 1, 2003 or any subsequent anniversary thereof that the Employment Term shall not be so extended. 2. Duties. During the Employment Term, Executive shall serve as Vice President, Chief Financial Officer and Treasurer of each of VCI and Viskase. Executive shall perform such services and duties prescribed for such positions by VCI's and Viskase's Bylaws and as are otherwise incident to such positions and such other services and duties not inconsistent with such positions as may be determined from time to time by the President of VCI and Viskase or the Board of Directors of VCI ("VCI Board") or the Board of Directors of Viskase (the "Board"). Subject to the terms and conditions of this Agreement, Executive shall devote his full business time, attention and skills, to the best of his abilities, to the performance of such services and duties, and use his best efforts to promote the interests of the Company and its subsidiaries. Nothing in this Agreement shall preclude Executive from engaging in charitable and community affairs, from managing his personal investments or, except as otherwise provided in Sections 8(b) and (c), from serving as a member of the board of directors or a trustee of other companies, associations or entities, provided, however, that such activities do not interfere in any material respect with Executive's performance of his obligations to the Company hereunder. 3. Compensation. In consideration of the performance by Executive of his obligations hereunder, the Company shall pay Executive the amounts hereinafter set forth. (a) During the Employment Term, the Company shall pay Executive (i) a salary (the "Base Salary") at an annual rate of not less than $178,728 payable in substantially equal installments in accordance with the normal payroll practices of the Company then in effect for other officers of the Company. Thereafter, Executive's Base Salary shall be increased by such amount as shall be determined by the President of the Company in a manner consistent with its most recent determination of increases in base salary of other senior officers of the Company. (b) During the Employment Term, Executive will be eligible to participate in the Executive Auto Allowance Program, Viskase Companies, Inc. Non-Qualified Parallel Plan, the Management Incentive Plan or any replacement thereof, and the 1993 Stock Option Plan and any replacement thereof. 4. Benefits. During the Employment Term, Executive shall be entitled to participate in any employee benefit plans (including, but not limited to, any life insurance, disability, medical, dental, hospitalization, savings, retirement and other benefit plans of the Company) then in effect for executive officers of the Company and to receive any other fringe benefits that the Company then provides to executive officers of the Company. 5. Vacations. During the Employment Term, Executive shall be entitled to paid vacations of no less than five (5) weeks per year. In addition, Executive's vacation entitlement shall increase in accordance with the Company's general vacation policy. 6. Termination. Executive's employment hereunder may be terminated under the following circumstances: (a) Death. Executive's employment hereunder shall terminate automatically upon Executive's death. (b) Disability. The Company or Executive may terminate Executive's employment after having established Executive's Disability. For purposes of this Agreement, "Disability" shall be established if Executive shall be unable to perform fully his duties hereunder because of illness, physical or mental disability or other incapacity, as confirmed by medical evidence satisfactory to the Company, that is expected to prevent him from returning to the full performance of his duties hereunder for six months or longer. (c) Cause. The Company may terminate Executive's employment for "Cause." Cause shall mean a finding adopted in good faith by the Board that Executive (i) willfully failed to substantially perform his services or duties for the Company (other than a failure resulting from Executive's Disability) and such failure continues for 30 days after the Board has given written notice to Executive providing a reasonable description of the basis for the determination that Executive has failed to perform his services or duties, (ii) has been convicted of (or plead nolo contendere to) a felony or to a misdemeanor involving moral turpitude or the use of a controlled substance, (iii) has breached this Agreement in any material respect if such breach is not cured or remedied within 30 days after the Board has given written notice to Executive providing a reasonable description of the breach, or (iv) engaged in embezzlement or misappropriation of the assets of the Company or any of its subsidiaries or (v) engaged in conduct constituting willful malfeasance in connection with his employment which is materially injurious to the Company and its subsidiaries taken as a whole. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Executive after Notice of Termination (as hereinafter defined) is given by Executive shall constitute Cause for purposes of this Agreement. No act, or failure to act, on Executive's part, shall be considered "willful" for purposes of (i) or (v) above unless he has acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interests of the Company. Any action of the Board to terminate Executive for cause under clause (i), (iii), (iv) or (v) of the preceding sentence shall not be made until after Executive and his legal advisors have been provided an opportunity to meet with the Board, contest the basis for such termination and to demonstrate that Executive's continued employment is in the best interests of the Company. (d) Good Reason. Executive may terminate his employment for "Good Reason." For purposes of this Agreement, Good Reason shall mean the occurrence of one of the following events within a period of twenty-four (24) months following a Change of Control (as hereinafter defined) or consolidation or elimination of the corporate office: (i) a reduction in Executive's base compensation and incentive bonus opportunity from that in effect on the day immediately before the effective date of a Change of Control; (ii) a reduction in Executive's principal responsibilities from those in effect on the day immediately before the effective date of a Change of Control; (iii) any change in Executive's work location which is different than that on the day immediately before the effective date of a Change of Control by more than fifty (50) miles; and (iv) a material breach of this Agreement by the Company which is not cured within thirty (30) days written notice thereof. As used in this Section 7(d), the term "Company" shall also refer to its successor entity or any entity which has acquired control of VCI or Viskase as a result of a Change of Control. (e) Notice of Termination. Any purported termination of Executive's employment hereunder shall be communicated by a written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon as a basis for termination. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) Termination Date. "Termination Date" shall mean in the case of Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination; provided, however, that if the Company terminates Executive's employment other than for Cause, or Executive terminates his employment for any reason other than Good Reason, the date specified in the Notice of Termination shall be no less than 30 days from the date the Notice of Termination is given to Executive. 7. Compensation Upon Termination. Upon termination of Executive's employment during the Employment Term, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated by the Company for Cause, or by Executive for any reason other than Good Reason, the Company shall pay to Executive all amounts earned or accrued hereunder through the Termination Date but not paid as of the Termination Date, including (i) Base Salary, (ii) accrued but unpaid vacation pay, (iii) any earned or awarded and vested, but unpaid bonus for any fiscal year of the Company ending prior to the year in which such termination occurs and (iv) any previous compensation which Executive has previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. (b) Subject to Section 7(c), if Executive's employment is terminated by the Company for any reason other than for Cause, death or Disability, or by Executive for Good Reason, the Company shall pay to Executive an amount equal to (i) all Accrued Compensation, plus (ii) 200% of Executive's Base Salary, plus (iii) the bonus which would have been payable to Executive under the Management Incentive Plan in respect of the year of the Employment Term in which the Termination Date occurs and calculated as if Executive were employed by the Company as of the end of such year (but, to the extent the bonus is contingent on the achievement of performance targets, based on whether such targets were actually achieved as of the Termination Date) multiplied by a fraction, the numerator of which shall be the number of days in such year which have elapsed prior to the Termination Date and the denominator of which shall be the number of days in such year. The Company shall also provide outplacement services consistent with outplacement services provided to executive officers in the past; provided, however, no payment shall be made to Executive in lieu of outplacement services. In addition, Executive shall be entitled to coverage for twenty-four (24) calendar months following the month on which the Termination Date occurs under the life insurance, medical, dental and hospitalization benefits which Executive would have been entitled to receive if he had continued his employment with the Company for such period, on the terms and conditions applicable to other executive officers of the Company as in effect from time to time during such period. Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other programs and practices then in effect. All outstanding stock options granted or issued pursuant to this Agreement shall become exercisable, vested and nonforfeitable. (c) If Executive's employment by the Company is terminated by the Company following a Change of Control other than for Cause, death or Disability, or by Executive for Good Reason, then Executive shall be entitled to the amounts described in paragraph (b) above, except that in applying clause (iii) thereof, it shall be assumed that the bonus to which the Executive shall be entitled shall be equal to 40% of Base Salary irrespective of the Company's performance or the date on which the termination occurs. (d) For purposes of this Agreement, a "Change of Control" shall mean any of the following events: (1) any Person (an "Acquiring Person") becomes the "beneficial owner" (as such term is defined in Rule 13d3 promulgated under the Exchange Act, a "Beneficial Owner"), directly or indirectly, of securities of VCI or Viskase representing 20% or more of the combined voting power of VCI's or Viskase's then outstanding securities, other than beneficial ownership by VCI or Viskase, any employee benefit plan of VCI or Viskase or any person or entity organized, appointed or established pursuant to the terms of any such benefit plan; (2) VCI's or Viskase's stockholders approve an agreement to merge or consolidate VCI or Viskase with another corporation, or an agreement providing for the sale of substantially all of the assets of VCI or Viskase to one or more corporations, in any case other than with or to a corporation 50% or more of which is controlled by or is under common control with, VCI or Viskase; (3) during any two-year period, individuals who at the date on which the period commences constitute a majority of the VCI Board cease to constitute a majority thereof for any reason; provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the two-year requirement if such director was elected by, or on the recommendation of, at least a majority of the directors who were directors at the beginning of such period (either actually or by prior operation of this provision), other than any director who is so approved in connection with any actual or threatened contest for election to positions on the VCI Board; or (4) at any time, a majority of the members of the VCI Board shall consist of individuals who were not nominated for election to the VCI Board by VCI's Compensation and Nominating Committee or such other committee of the VCI Board (including the VCI Board itself) as shall, from time to time, be performing the function of proposing nominees for election to the VCI Board. (e) If Executive's employment by the Company is terminated by reason of Executive's death, Executive's estate or designated beneficiaries shall receive: (i) all of Executive's Accrued Compensation; and (ii) and any death benefits provided under the employee benefits plans specified in Section 4 hereof; and (f) If Executive's employment by the Company is terminated by the Company or Executive by reason of Executive's Disability, Executive shall be entitled to receive those amounts provided for under the Company's short-term and long-term disability plans. (g) The amounts (other than any life insurance and medical, dental and hospitalization coverage) provided for in this Section 7 shall be paid within five (5) business days after Executive's Termination Date. The continuation of any life insurance, medical, dental or hospitalization benefits pursuant to Section 7(b) or 7(c) shall be in satisfaction of the Company's obligations under Section 4980B of the Internal Revenue Code of 1986, or any similar state law requiring continuation of such insurance or benefits, with respect to the period of time during which such insurance or benefits are continued hereunder. (h) The Company shall use its best efforts to ensure that shares of the Company's common stock obtained by Executive from the Company by reason of the exercise of stock options shall be covered by an effective registration statement on Form S-8 (or similar or successor form) with the intention that Executive may sell such shares in compliance with the Securities Act of 1933 (whether or not he is employed by the Company at the time of the sale). 8. Nondisclosure of Confidential Information; Non-Competition. (a) Executive shall not, without the prior written consent of the Company, divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity any Confidential Information pertaining to the business of the Company, except (i) while employed by the Company, in the business of and for the benefit of the Company, or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. When Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all Confidential Information obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in this paragraph or which were paid for by the Company or any of its subsidiary; provided, however, that the Executive may retain copies of such documents as necessary for the Executive's personal records for federal income tax purposes. For purposes of this Section 9(a), "Confidential Information" shall mean nonpublic information concerning the financial data of the Company or any subsidiary, strategic business plans, product development, bidding information (or other proprietary product data), customer lists, marketing plans and other proprietary and confidential information of the Company or any of its subsidiaries, in each case which is not otherwise available to the public. (b) During the Employment Term and for a period of two years thereafter, except with the prior written consent of the Board, the Executive: (1) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (1) the businesses conducted at the date hereof by the Company or any of its subsidiaries or affiliates over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Term (the "Managed Companies"), or (2) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Company, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (c) For purposes of Section 8(b) hereof, a business shall be deemed to be in competition with the Company if it is significantly involved in the sale of any product or the rendering of any service significantly sold or rendered by the Company or its subsidiaries. Nothing in this Section 8 shall be construed so as to preclude Executive from investing in any publicly held company, provided Executive's beneficial ownership of any class of such company's securities does not exceed 5% of the outstanding securities of such class. (d) The following provisions shall apply to the covenants of the Executive contained in Sections 8.01 and 8.02 (1) the covenants contained in paragraphs (A) and (B) of Section 8(1)(b).01 shall apply within all territories in which any of the Managed Companies are actively engaged in the conduct of business during the Employment Term, including, without limitation, the territories in which customers are then being solicited; (2) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in Sections 8(a) and 8(b), it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (3) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 8(a) and 8(b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 8(a) and 8(b) shall survive the conclusion of Executive's Employment by the Company. 9. Conditional Adjustments in Compensation. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Total Compensation")), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax") and if it is determined that the amount of Total Compensation remaining after payment of the Excise Tax is less than the maximum amount of Total Compensation that could be paid without becoming subject to such Excise Tax, the Total Compensation shall be reduced to such maximum amount. (b) All determinations required to be made under this Section 9, and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of a request therefor by either Executive or the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change of Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. 10. Withholding. Anything to the contrary herein notwithstanding, all payments required to be made by the Company hereunder to Executive, or his estate or beneficiaries, shall be subject to the withholding of such amounts as the Company may reasonably determine it should withhold pursuant to any applicable tax law or regulation. 11. Joint and Several Obligation. The obligations of VCI and Viskase hereunder shall be joint and several. 12. General Release. In order to receive any payment hereunder (other than Accrued Compensation), Executive shall be required to execute a General Release, in such form as determined by the Company, which releases the Company and its subsidiaries, shareholders, directors, officers, employees, successors and assigns from any existing and future claims except as such claims relate directly to the payment of any amount under this Agreement. 13. Beneficiaries; References. Executive shall be entitled but shall not be required to select (and change, to the extent permitted under any applicable law) a beneficiary of beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 14. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all of the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal personal representative. 15. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail return receipt requested, postage prepaid, addressed to the respective address last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 16. Non-Exclusivity of Rights. Nothing in this Agreement shall limit or reduce such rights as Executive may have under any other agreements with the Company or any of its subsidiaries concerning any subject matter other than that which is addressed herein; provided, however, that the payments and benefits provided under Section 8 shall be in lieu of any other termination benefits (including severance, notice and pay and salary continuation) to which Executive may otherwise be entitled, and executive hereby waives any and all rights to such other termination benefits. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 17. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 18. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. 19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 21. Attorneys' Fees and Costs. The Company agrees to pay all costs and expenses, including attorneys' fees, which may be incurred by Executive in enforcing this Agreement against the Company or in connection with any contest of the validity or enforceability of this Agreement by the Company or any third party, including without limitation any rejection of this Agreement in any bankruptcy or similar procedure. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the day and year first above written. VISKASE COMPANIES, INC. By: ------------------------ Title: ------------------------ VISKASE CORPORATION By: ------------------------ Title: ------------------------ ------------------------------- Gordon S. Donovan 10 EX-7 8 ex1031.txt 11/29/01 EMPLOYMENT AGREEMENT K.K.DUTTLINGER WITH VISKASE WITH VISKASE COMPANIES, INC. AND VISKASE CORP. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is effective as of the 29th day of November, 2001 by and among Viskase Companies, Inc. ("VCI"), a Delaware corporation, Viskase Corporation ("Viskase"), a Pennsylvania corporation, both with principal offices at 625 Willowbrook Centre Parkway, Willowbrook, IL 60527 (VCI and Viskase shall be collectively referred to herein as the "Company") and Kimberly K. Duttlinger, an individual ("Executive") (hereinafter together referred to as "the parties"). WHEREAS, the Company wishes to provide incentive to Executive to remain in the employ of the Company during the period of restructuring and thereafter; WHEREAS, Executive has served as Vice President, Secretary and General Counsel of VCI and Vice President, Secretary and General Counsel of Viskase; and WHEREAS, the Company and Executive desire that Executive continue to serve as Vice President, Secretary and General Counsel of VCI and Vice President, Secretary and General Counsel of Viskase, respectively, on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree as follows: 1. Employment Term. The Company shall employ Executive and Executive agrees to be employed by the Company; pursuant to the terms and conditions hereof; for the period (the "Employment Term") commencing on the date hereof and ending on December 31, 2004; provided, however, that on January 1, 2003 and on each subsequent anniversary thereof, the Employment Term shall automatically be extended for a period of one year unless either party shall have given written notice to the other party not less than thirty days prior to January 1, 2003 or any subsequent anniversary thereof that the Employment Term shall not be so extended. 2. Duties. During the Employment Term, Executive shall serve as Vice President, Secretary and General Counsel of each of VCI and Viskase. Executive shall perform such services and duties prescribed for such positions by VCI's and Viskase's Bylaws and as are otherwise incident to such positions and such other services and duties not inconsistent with such positions as may be determined from time to time by the President of VCI and Viskase or the Board of Directors of VCI ("VCI Board") or the Board of Directors of Viskase (the "Board"). Subject to the terms and conditions of this Agreement, Executive shall devote her full business time, attention and skills, to the best of her abilities, to the performance of such services and duties, and use her best efforts to promote the interests of the Company and its subsidiaries. For purposes of this Agreement, Executive will be deemed to devote her full business time if she works at least three (3) days a week in the office and makes herself reasonably available at other times. Nothing in this Agreement shall preclude Executive from engaging in charitable and community affairs, from managing her personal investments or, except as otherwise provided in Sections 8(b) and (c), from serving as a member of the board of directors or a trustee of other companies, associations or entities, provided, however, that such activities do not interfere in any material respect with Executive's performance of her obligations to the Company hereunder. 3. Compensation. In consideration of the performance by Executive of her obligations hereunder, the Company shall pay Executive the amounts hereinafter set forth. (a) During the Employment Term, the Company shall pay Executive (i) a salary (the "Base Salary") at an annual rate of not less than $120,408 payable in substantially equal installments in accordance with the normal payroll practices of the Company then in effect for other officers of the Company. Thereafter, Executive's Base Salary shall be increased by such amount as shall be determined by the President of the Company in a manner consistent with its most recent determination of increases in base salary of other senior officers of the Company. (b) During the Employment Term, Executive will be eligible to participate in the Executive Auto Allowance Program, Viskase Companies, Inc. Non-Qualified Parallel Plan, the Management Incentive Plan or any replacement thereof, and the 1993 Stock Option Plan and any replacement thereof. 4. Benefits. During the Employment Term, Executive shall be entitled to participate in any employee benefit plans (including, but not limited to, any life insurance, disability, medical, dental, hospitalization, savings, retirement and other benefit plans of the Company) then in effect for executive officers of the Company and to receive any other fringe benefits that the Company then provides to executive officers of the Company. 5. Vacations. During the Employment Term, Executive shall be entitled to paid vacations of no less than three (3) weeks per year. In addition, Executive's vacation entitlement shall increase in accordance with the Company's general vacation policy. 6. Termination. Executive's employment hereunder may be terminated under the following circumstances: (a) Death. Executive's employment hereunder shall terminate automatically upon Executive's death. (b) Disability. The Company or Executive may terminate Executive's employment after having established Executive's Disability. For purposes of this Agreement, "Disability" shall be established if Executive shall be unable to perform fully her duties hereunder because of illness, physical or mental disability or other incapacity, as confirmed by medical evidence satisfactory to the Company, that is expected to prevent him from returning to the full performance of her duties hereunder for six months or longer. (c) Cause. The Company may terminate Executive's employment for "Cause." Cause shall mean a finding adopted in good faith by the Board that Executive (i) willfully failed to substantially perform her services or duties for the Company (other than a failure resulting from Executive's Disability) and such failure continues for 30 days after the Board has given written notice to Executive providing a reasonable description of the basis for the determination that Executive has failed to perform her services or duties, (ii) has been convicted of (or plead nolo contendere to) a felony or to a misdemeanor involving moral turpitude or the use of a controlled substance, (iii) has breached this Agreement in any material respect if such breach is not cured or remedied within 30 days after the Board has given written notice to Executive providing a reasonable description of the breach, or (iv) engaged in embezzlement or misappropriation of the assets of the Company or any of its subsidiaries or (v) engaged in conduct constituting willful malfeasance in connection with her employment which is materially injurious to the Company and its subsidiaries taken as a whole. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Executive after Notice of Termination (as hereinafter defined) is given by Executive shall constitute Cause for purposes of this Agreement. No act, or failure to act, on Executive's part, shall be considered "willful" for purposes of (i) or (v) above unless he has acted or failed to act with an absence of good faith and without a reasonable belief that her action or failure to act was in the best interests of the Company. Any action of the Board to terminate Executive for cause under clause (i), (iii), (iv) or (v) of the preceding sentence shall not be made until after Executive and her legal advisors have been provided an opportunity to meet with the Board, contest the basis for such termination and to demonstrate that Executive's continued employment is in the best interests of the Company. (d) Good Reason. Executive may terminate her employment for "Good Reason." For purposes of this Agreement, Good Reason shall mean the occurrence of one of the following events within a period of twenty-four (24) months following a Change of Control (as hereinafter defined) or consolidation or elimination of the corporate office: (i) a reduction in Executive's base compensation and incentive bonus opportunity from that in effect on the day immediately before the effective date of a Change of Control; (ii) a reduction in Executive's principal responsibilities from those in effect on the day immediately before the effective date of a Change of Control; (iii) any change in Executive's work location which is different than that on the day immediately before the effective date of a Change of Control by more than fifty (50) miles; and (iv) a material breach of this Agreement by the Company which is not cured within thirty (30) days written notice thereof. As used in this Section 7(d), the term "Company" shall also refer to its successor entity or any entity which has acquired control of VCI or Viskase as a result of a Change of Control. (e) Notice of Termination. Any purported termination of Executive's employment hereunder shall be communicated by a written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon as a basis for termination. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (f) Termination Date. "Termination Date" shall mean in the case of Executive's death, her date of death, or in all other cases, the date specified in the Notice of Termination; provided, however, that if the Company terminates Executive's employment other than for Cause, or Executive terminates her employment for any reason other than Good Reason, the date specified in the Notice of Termination shall be no less than 30 days from the date the Notice of Termination is given to Executive. 7. Compensation Upon Termination. Upon termination of Executive's employment during the Employment Term, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated by the Company for Cause, or by Executive for any reason other than Good Reason, the Company shall pay to Executive all amounts earned or accrued hereunder through the Termination Date but not paid as of the Termination Date, including (i) Base Salary, (ii) accrued but unpaid vacation pay, (iii) any earned or awarded and vested, but unpaid bonus for any fiscal year of the Company ending prior to the year in which such termination occurs and (iv) any previous compensation which Executive has previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. (b) Subject to Section 7(c), if Executive's employment is terminated by the Company for any reason other than for Cause, death or Disability, or by Executive for Good Reason, the Company shall pay to Executive an amount equal to (i) all Accrued Compensation, plus (ii) 200% of Executive's Base Salary, plus (iii) the bonus which would have been payable to Executive under the Management Incentive Plan in respect of the year of the Employment Term in which the Termination Date occurs and calculated as if Executive were employed by the Company as of the end of such year (but, to the extent the bonus is contingent on the achievement of performance targets, based on whether such targets were actually achieved as of the Termination Date) multiplied by a fraction, the numerator of which shall be the number of days in such year which have elapsed prior to the Termination Date and the denominator of which shall be the number of days in such year. For purposes of this Section 7(b), Base Salary shall be deemed to be the highest base salary in effect during the three year period prior to termination. The Company shall also provide outplacement services consistent with outplacement services provided to executive officers in the past; provided, however, no payment shall be made to Executive in lieu of outplacement services. In addition, Executive shall be entitled to coverage for twenty-four (24) calendar months following the month on which the Termination Date occurs under the life insurance, medical, dental and hospitalization benefits which Executive would have been entitled to receive if he had continued her employment with the Company for such period, on the terms and conditions applicable to other executive officers of the Company as in effect from time to time during such period. Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other programs and practices then in effect. All outstanding stock options granted or issued pursuant to this Agreement shall become exercisable, vested and nonforfeitable. (c) If Executive's employment by the Company is terminated by the Company following a Change of Control other than for Cause, death or Disability, or by Executive for Good Reason, then Executive shall be entitled to the amounts described in paragraph (b) above, except that in applying clause (iii) thereof, it shall be assumed that the bonus to which the Executive shall be entitled shall be equal to 40% of Base Salary irrespective of the Company's performance or the date on which the termination occurs. (d) For purposes of this Agreement, a "Change of Control" shall mean any of the following events: (1) any Person (an "Acquiring Person") becomes the "beneficial owner" (as such term is defined in Rule 13d3 promulgated under the Exchange Act, a "Beneficial Owner"), directly or indirectly, of securities of VCI or Viskase representing 20% or more of the combined voting power of VCI's or Viskase's then outstanding securities, other than beneficial ownership by VCI or Viskase, any employee benefit plan of VCI or Viskase or any person or entity organized, appointed or established pursuant to the terms of any such benefit plan; (2) VCI's or Viskase's stockholders approve an agreement to merge or consolidate VCI or Viskase with another corporation, or an agreement providing for the sale of substantially all of the assets of VCI or Viskase to one or more corporations, in any case other than with or to a corporation 50% or more of which is controlled by or is under common control with, VCI or Viskase; (3) during any two-year period, individuals who at the date on which the period commences constitute a majority of the VCI Board cease to constitute a majority thereof for any reason; provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the two-year requirement if such director was elected by, or on the recommendation of, at least a majority of the directors who were directors at the beginning of such period (either actually or by prior operation of this provision), other than any director who is so approved in connection with any actual or threatened contest for election to positions on the VCI Board; or (4) at any time, a majority of the members of the VCI Board shall consist of individuals who were not nominated for election to the VCI Board by VCI's Compensation and Nominating Committee or such other committee of the VCI Board (including the VCI Board itself) as shall, from time to time, be performing the function of proposing nominees for election to the VCI Board. (e) If Executive's employment by the Company is terminated by reason of Executive's death, Executive's estate or designated beneficiaries shall receive: (i) all of Executive's Accrued Compensation; and (ii) and any death benefits provided under the employee benefits plans specified in Section 4 hereof; and (f) If Executive's employment by the Company is terminated by the Company or Executive by reason of Executive's Disability, Executive shall be entitled to receive those amounts provided for under the Company's short-term and long-term disability plans. (g) The amounts (other than any life insurance and medical, dental and hospitalization coverage) provided for in this Section 7 shall be paid within five (5) business days after Executive's Termination Date. The continuation of any life insurance, medical, dental or hospitalization benefits pursuant to Section 7(b) or 7(c) shall be in satisfaction of the Company's obligations under Section 4980B of the Internal Revenue Code of 1986, or any similar state law requiring continuation of such insurance or benefits, with respect to the period of time during which such insurance or benefits are continued hereunder. (h) The Company shall use its best efforts to ensure that shares of the Company's common stock obtained by Executive from the Company by reason of the exercise of stock options shall be covered by an effective registration statement on Form S-8 (or similar or successor form) with the intention that Executive may sell such shares in compliance with the Securities Act of 1933 (whether or not he is employed by the Company at the time of the sale). 8. Nondisclosure of Confidential Information; Non-Competition. (a) Executive shall not, without the prior written consent of the Company, divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity any Confidential Information pertaining to the business of the Company, except (i) while employed by the Company, in the business of and for the benefit of the Company, or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. When Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all Confidential Information obtained by him or entrusted to him during the course of her employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in this paragraph or which were paid for by the Company or any of its subsidiary; provided, however, that the Executive may retain copies of such documents as necessary for the Executive's personal records for federal income tax purposes. For purposes of this Section 9(a), "Confidential Information" shall mean nonpublic information concerning the financial data of the Company or any subsidiary, strategic business plans, product development, bidding information (or other proprietary product data), customer lists, marketing plans and other proprietary and confidential information of the Company or any of its subsidiaries, in each case which is not otherwise available to the public. (b) During the Employment Term and for a period of two years thereafter, except with the prior written consent of the Board, the Executive: (1) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (1) the businesses conducted at the date hereof by the Company or any of its subsidiaries or affiliates over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Term (the "Managed Companies"), or (2) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Company, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate her employment relationship in order to enter into competitive employment. (c) For purposes of Section 8(b) hereof, a business shall be deemed to be in competition with the Company if it is significantly involved in the sale of any product or the rendering of any service significantly sold or rendered by the Company or its subsidiaries. Nothing in this Section 8 shall be construed so as to preclude Executive from investing in any publicly held company, provided Executive's beneficial ownership of any class of such company's securities does not exceed 5% of the outstanding securities of such class. (d) The following provisions shall apply to the covenants of the Executive contained in Sections 8.01 and 8.02 (1) the covenants contained in paragraphs (A) and (B) of Section 8(1)(b).01 shall apply within all territories in which any of the Managed Companies are actively engaged in the conduct of business during the Employment Term, including, without limitation, the territories in which customers are then being solicited; (2) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in Sections 8(a) and 8(b), it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (3) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 8(a) and 8(b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 8(a) and 8(b) shall survive the conclusion of Executive's Employment by the Company. 9. Conditional Adjustments in Compensation. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Total Compensation")), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax") and if it is determined that the amount of Total Compensation remaining after payment of the Excise Tax is less than the maximum amount of Total Compensation that could be paid without becoming subject to such Excise Tax, the Total Compensation shall be reduced to such maximum amount. (b) All determinations required to be made under this Section 9, and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of a request therefor by either Executive or the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change of Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. 10. Withholding. Anything to the contrary herein notwithstanding, all payments required to be made by the Company hereunder to Executive, or her estate or beneficiaries, shall be subject to the withholding of such amounts as the Company may reasonably determine it should withhold pursuant to any applicable tax law or regulation. 11. Joint and Several Obligation. The obligations of VCI and Viskase hereunder shall be joint and several. 12. General Release. In order to receive any payment hereunder (other than Accrued Compensation), Executive shall be required to execute a General Release, in such form as determined by the Company, which releases the Company and its subsidiaries, shareholders, directors, officers, employees, successors and assigns from any existing and future claims except as such claims relate directly to the payment of any amount under this Agreement. 13. Beneficiaries; References. Executive shall be entitled but shall not be required to select (and change, to the extent permitted under any applicable law) a beneficiary of beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of her incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to her beneficiary, estate or other legal representative. 14. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all of the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive, her beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal personal representative. 15. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail return receipt requested, postage prepaid, addressed to the respective address last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 16. Non-Exclusivity of Rights. Nothing in this Agreement shall limit or reduce such rights as Executive may have under any other agreements with the Company or any of its subsidiaries concerning any subject matter other than that which is addressed herein; provided, however, that the payments and benefits provided under Section 8 shall be in lieu of any other termination benefits (including severance, notice and pay and salary continuation) to which Executive may otherwise be entitled, and executive hereby waives any and all rights to such other termination benefits. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 17. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 18. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. 19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 21. Attorneys' Fees and Costs. The Company agrees to pay all costs and expenses, including attorneys' fees, which may be incurred by Executive in enforcing this Agreement against the Company or in connection with any contest of the validity or enforceability of this Agreement by the Company or any third party, including without limitation any rejection of this Agreement in any bankruptcy or similar procedure. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the day and year first above written. VISKASE COMPANIES, INC. By: ------------------------- Title: ------------------------- VISKASE CORPORATION By: ------------------------- Title: ------------------------- --------------------------------- Kimberly K. Duttlinger EX-8 9 ex1033.txt 12/21/01 WAIVER, FOREBEARANCE AND CONSENT AGREEMENT BETWEEN VISKASE CORP., OWNER TRUSTEE AND GECC AS OWNER PARTICIPANT EXECUTION COPY WAIVER, FORBEARANCE AND CONSENT AGREEMENT, dated as of December 21, 2001 (this "Agreement"), between VISKASE CORPORATION, a Pennsylvania corporation (the "Lessee"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its individual capacity but solely as successor Owner Trustee under that certain Trust Agreement with General Electric Capital Corporation, as Owner Participant dated as of December 18, 1990 (the "Lessor"), relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof, the "Lease"), between the Lessee and the Lessor, as successor Owner Trustee to Fleet National Bank, formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank (capitalized terms used herein and not defined have the meanings assigned to such terms in the Lease). Whereas, the Lessee has failed to comply with certain provisions, and may have failed to comply with certain other provisions, of the Lease Documents; Whereas, the Lessee has requested in accordance with the Lease Documents that the Lessor consent to certain transactions; Whereas, the Lessor has agreed, subject to the terms and conditions set forth herein, to waive, or forbear from the exercise of any rights and remedies with respect to, such non-compliance and grant such consents pursuant to the terms and subject to the conditions set forth herein; and Whereas, simultaneously with the execution of this agreement, Lessee has reinstated the Rent Letter of Credit to $23,499,190.49; Now therefore, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Waiver and Forbearance. (a) The Lessor hereby waives any Default or Event of Default under any of the Lease Documents arising from (i) the Lessee's failure to make the Basic Rent payment due on November 1, 2001 or to reinstate the Rent Letter of Credit before the date of this Agreement, (ii) the Lessee's failure to meet the Fixed Charge Coverage Ratio required under Section 5.09 of the Participation Agreement for the fiscal quarters ending on September 30, 2001 and December 31, 2001, (iii) to the extent the documents set forth on Schedule I hereto shall be delivered to the Lessor on or before January 30, 2002, the Lessee's failure to deliver any documents required to be delivered under Sections 5.04 and 5.10 of the Participation Agreement prior to the date of this Agreement, (iv) the failure to pay the Guarantor's 10 1/4% Senior Notes due 2001 at maturity and (v) the Guarantor being a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause (v) shall be rescinded if the Guarantor shall be a debtor under the Bankruptcy Code on or after June 30, 2002; and provided, further, that the waivers granted pursuant to this paragraph (a) shall be rescinded if the payment of Basic Rent due on February 28, 2002 shall not be paid by the Lessee on February 28, 2002, it being understood that a draw by the Lessor against the Rent Letter of Credit shall not be deemed to be a payment by the Lessee for the purposes hereof. (b) The Lessor hereby agrees to forbear until June 30, 2002 from exercising its rights and remedies under the Lease with respect to a breach of Section 5.09 of the Participation Agreement with respect to the fiscal quarter ending on March 31, 2002. SECTION 2. Consent. (a) Anything in the Lease Documents to the contrary notwithstanding, the Lessor hereby consents to the sale of the parcels of real estate identified in the letter attached hereto and agrees to execute such documents as may be reasonably necessary to release such parcels from the Ground Lease, the Security Agreement, the Security Agreement dated as of July 28, 2000 among Viskase Holding Corporation, Viskase Companies, Inc., the Corporation, Viskase Sales Corporation, the Lessor and General Electric Capital Corporation and any security interest or mortgage created by or pursuant to any of the foregoing or related documents or agreements. (b) The Lessor and the Lessee agree to negotiate in good faith within 45 days of the date of this Agreement the conditions of and arrangements for the future demolition, sale or disposition of the Chicago Plant, that portion of the Chicago Site located thereunder and any other property, plant or equipment located in Bedford Park or Chicago, Illinois. SECTION 3. Effectiveness. This Agreement shall become effective as of the date first above written when (i) the parties hereto shall have received counterparts of this Agreement that, when taken together, bear the signatures of the Lessee and the Lessor and (ii) the Rent Letter of Credit shall have been reinstated as set forth in the fourth recital of this Agreement. SECTION 4. Lease. Except with respect to the relevant provisions hereof, the Lease shall continue in full force and effect in accordance with the provisions thereof as in existence on the date hereof. This Agreement shall be a Basic Document as defined in Appendix A to the Lease and each other Basic Document to which the Lessee and the Lessor are a party (and the Lease and each other Basic Document are hereby amended to reflect such revision) . Accordingly, the parties hereto acknowledge that any breach of the Lessee's representations, warranties or covenants hereunder may result in an Event of Default, together with any consequences relating thereto, as set forth in the Basic Documents. SECTION 5. Effect of Agreement. Except as expressly set forth herein, the provisions of this Agreement shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lessor under the Lease or the Lessor or Owner Participant under any other Basic Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Lease or any other Basic Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Except with respect to the specific provisions hereof, nothing herein shall be deemed to entitle the Lessee or the Guarantor to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Lease or any other Basic Document in similar or different circumstances. SECTION 6. Expenses. The Lessee agrees to promptly reimburse the Owner Participant and the Lessor [$195,338.64], representing all expenses, including the reasonable fees, charges and disbursements of its counsel, incurred by the Owner Participant and the Lessor prior to the date hereof which are reimbursable to the Owner Participant and the Lessor under the Basic Documents. SECTION 7. Covenants; Further Assurances. (a) The Lessee hereby covenants and agrees with the Lessor that, from and after the date of this Agreement until satisfaction of all of the obligations of the Lessee hereunder, at any time and from time to time, upon the written request of the Lessor, and at the sole expense of the Lessee, Lessee will promptly and fully execute and deliver such further instruments and documents and take such further actions as the Lessor may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights herein granted. (b) The Lessor hereby covenants and agrees with the Lessee that, from and after the date of this Agreement until satisfaction of all of the obligations of the Lessor hereunder, at any time and from time to time, upon the written request of the Lessee, Lessor will promptly and fully execute and deliver such further instruments and documents and take such further actions as the Lessee may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights herein granted. SECTION 8. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED BY ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one agreement. Delivery of an executed signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Agreement. SECTION 10. Integration. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and there are no other promises or representations, written or oral, by the parties relative to the subject matter hereof not reflected or referred to herein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, all as of the daze and year first above written. STATE STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee By: ----------------------------------- Name: Title: VISKASE CORPORATION By: ----------------------------------- Name: F. Edward Gustafson Title: President and CEO EX-9 10 ex1034.txt 01/17/02 AMENDMENT TO WAIVER, FOREBEARANCE AND CONSENT AGREEMENT BETWEEN VISKASE CORP. OWNER TRUSTEE AND GECC AS OWNER PARTICIPANT EXECUTION COPY This Amendment No. 1 (the "Amendment"), dated as of January 17, 2002, to the WAIVER, FORBEARANCE AND CONSENT AGREEMENT, dated as of December 21, 2001 (the "Agreement"), between VISKASE CORPORATION, a Pennsylvania corporation (the "Lessee"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its individual capacity but solely as successor Owner Trustee under that certain Trust Agreement with General Electric Capital Corporation, as Owner Participant dated as of December 18, 1990 (the "Lessor"), relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof, the "Lease"), between the Lessee and the Lessor, as successor Owner Trustee to Fleet National Bank, formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank (capitalized terms used herein and not defined have the meanings assigned to such terms in the Lease). Whereas, the Lessee and the Owner Trustee desire to amend Section 2(a) of the Agreement on terms set forth in this Amendment; Now therefore, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto agree as follows: 1. SECTION 2(a) of the Agreement is hereby amended and restated to read in its entirety as follows: "SECTION 2. Consent. (a) Anything in the Lease Documents to the contrary notwithstanding, the Lessor hereby consents to (i) the sale of the parcels of real estate identified in the letter attached hereto and agrees to execute such documents as may be reasonably necessary to release such parcels from the Ground Lease, the Security Agreement, the Security Agreement dated as of July 28, 2000 among Viskase Holding Corporation, Viskase Companies, Inc., the Corporation, Viskase Sales Corporation, the Lessor and General Electric Capital Corporation (the "2000 Security Agreement") and any security interest or mortgage created by or pursuant to any of the foregoing or related documents, agreements and (ii) the demolition, sale and/or other disposition of any property, plant or equipment located in Bedford Park or Chicago, Illinois (other than the Chicago Plant (and that portion of the Chicago Site to the extent it is located thereunder)) and agrees to execute such documents as are necessary to release such property, plant or equipment from the 2000 Security Agreement and any security interest created by or pursuant to the foregoing or any related documents." 2. Effectiveness. This Amendment shall become effective as of the date first above written when (i) the parties hereto shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Lessee and the Owner Trustee. 3. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED BY ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 4. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one agreement. Delivery of an executed signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Amendment. 5. Integration. This Amendment represents the entire agreement of the parties with respect to the subject matter hereof and there are no other promises or representations, written or oral, by the parties relative to the subject matter hereof not reflected or referred to herein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the daze and year first above written. STATE STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee By: ------------------------------------ Name: Title: VISKASE CORPORATION By: ------------------------------------ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----