-----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, D8mateEzUcdOrwICq4i859hDImlD7miKPyjPkg9v7qU77GDpFUapJPNPWD6L1N0j HUsKQNlh3vfWg0h20fcpTg== 0000033073-03-000004.txt : 20030331 0000033073-03-000004.hdr.sgml : 20030331 20030331164606 ACCESSION NUMBER: 0000033073-03-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 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: 03631484 BUSINESS ADDRESS: STREET 1: VISKASE COMPANIES INC STREET 2: 625 WILLOWBROOK CENTRE PKWY CITY: WILLOWBROOK STATE: IL ZIP: 60527 BUSINESS PHONE: 6307894900 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 vci200210k.txt VISKASE COMPANIES, INC. 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, 2002 -------------------------- 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 whether the registrant is an accelerated filer (as defined in Rule 12b2 of the Act). Yes No X ----- ----- 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 No X ----- ----- As of March 21, 2003 the aggregate market value of the voting stock held by non-affiliates of the registrant was $53,682. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- As of March 31, 2003, there were 15,314,562 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 139 Pages An Index to Exhibits required by Item 15 is found at page 35. VISKASE COMPANIES, INC. Form 10-K Annual Report - 2002 Table of Contents PART I Page Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition, Results of Operations 15 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 23 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 32 Item 13. Certain Relationships and Related Transactions 33 Item 14. Controls and Procedures 33 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 35 PART I ITEM 1. BUSINESS (a) General development of business: (in thousands, except number of shares and per share and per bond amounts) 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, since 1998 the Company has implemented a number 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. For more information about us, our products, services and solutions, visit www.viskase.com. Also, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K will be made available free of charge through the Investor Relations section of our website as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Bankruptcy and Plan of Reorganization On November 13, 2002, Viskase Companies, Inc. (VCI) filed a prepackaged Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (Bankruptcy Court). The Chapter 11 filing is for VCI only and does not include any of the Company's domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed VCI's Prepackaged Plan of Reorganization as Modified (The Plan, as modified). VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003 (Effective Date). Cash flows from operations for the Company were insufficient to pay the 10.25% Senior Notes (Senior Notes) when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an ad hoc committee (Ad Hoc Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for new 8% Senior Subordinated Secured Notes due 2008 (New Notes) and shares of Series A Preferred Stock (Preferred Stock). The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for a prepackaged plan of reorganization (Plan) for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the old common stock (Old Shares) will receive warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share (Warrant). Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees. Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise as of the Petition Date are as follows (refer to Note 1 to the consolidated financial statements): (in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ======== The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. 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) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. (b) Financial information about industry segments: Reference is made to Part IV, Item 15, 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. 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) and Vismax(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 56.0% 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 77 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 and Brazil. As of December 31, 2002 and 2001, Viskase had backlog orders of approximately $18.3 million and $20.0 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 Dormagen, 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 profits due to over-capacity in the industry and 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, Futamura Chemical marketed by 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 $4,070 thousand, $4,837 thousand, and $5,474 thousand for 2002, 2001, and 2000, 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 1,380 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its European and Brazilian plants have National Agreements with annual renewals. Employees at the Company's European plants have negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect protracted work stoppages to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. Unions represent approximately 575 of Viskase's 1,380 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 promulgated June 11, 2002. Viskase submitted extensive comments to the EPA during the public comment period. Compliance with the new rules is required within three years (by June 13, 2005). 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 15, 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, 61, Mr. Gustafson has been Chairman of the Board, Chairman of the Board, President and Chief Executive Officer of the President and Chief Company since March 1996 and Executive Officer 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, 49, Mr. Donovan has been Chief Financial Officer of Vice President, Chief the Company since January 1997 and Vice Financial Officer, Treasurer President and Chief Financial Officer Assistant Secretary 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, 38, Ms. Duttlinger has been Vice President, Vice President, Secretary Secretary and General Counsel of the Company and General Counsel 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. 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 casings finishing Thaon, France 239,000 Casings finishing Distribution Centers Atlanta, Georgia (a) Buffalo, New York (a) Fresno, California (a) Remington, Indiana (a) Dormagen, Germany (a) Saskatoon, Saskatchewan, Canada (a) Lindsay, Ontario, Canada Warsaw, Poland (a) Service Centers Guarulhos, Brazil (a) Caronno, Italy Headquarters Worldwide: Willowbrook, Illinois (a) Europe Pantin, 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 15, 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 is claiming that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on 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 advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. 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 expects to amend the lawsuit prior to June 1, 2003. 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 $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings 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. 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 strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint. 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 condition. 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 2002 and 2001 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions.
2002 First Quarter Second Quarter Third Quarter Fourth Quarter High .045 .08 .06 .035 Low .020 .01 .02 .002
2001 First Quarter Second Quarter Third Quarter Fourth Quarter High $2.00 $2.06 $1.50 $.30 Low .92 .90 .25 .01
(b) Holders. As of March 21, 2003, there were approximately 106 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 Weeks Ending ---------------------------------------- --------------------------- December December December December December 31, 2002 31, 2001 31, 2000(1) 31, 1999(1) 31, 1998(1)(2) ------- -------- ----------- ----------- -------------- (in thousands, except for per share amounts) Net sales $183,577 $189,315 $200,142 $225,767 $246,932 (Loss) from continuing operations (3) (19,330) (36,852) (95,967) (29,927) (147,871) Income (loss) from discontinued operations 3,435 (1,831) (33,389) Gain on sales of discontinued operations 3,189 68,185 39,057 (Loss) before extraordinary item (3) (19,330) (33,663) (24,347) (31,758) (142,203) Net (loss) (4) (19,330) (25,526) (17,836) (31,758) (148,996) Per share (loss) from continuing operations - basic and diluted (3) (1.26) (2.41) (6.34) (2.00) (9.97) Per share income (loss) from discontinued operations - basic and diluted .23 (.12) (2.25) Gain on sale of discontinued operations .21 4.50 2.63 Per share (loss) before extraordinary item - basic and diluted (Loss) per share (3) (1.26) (2.20) (1.61) (2.12) (9.59) Per share net (loss) - basic and diluted (Loss) per share (4) (1.26) (1.67) (1.18) (2.12) (10.05) Cash and equivalents 27,700 25,540 55,350 6,243 9,028 Restricted cash 28,347 26,558 41,038 Working capital (174,203) (178,952) (106,958) 34,480 41,725 Total assets 218,681 234,028 322,364 493,818 531,069 Debt obligations: Short-term debt (5) (6) (7) 227,343 236,059 200,676 23,095 16,120 Long-term debt 85 194 73,183 404,151 388,880 Stockholders' (deficit) (175,146) (138,053) (107,397) (89,442) (55,907) Cash dividends none none none none none
(1) Year 2000 and 1999 and fiscal year 1998 net sales and loss from continuing operations exclude the results of the Films Business, which was sold in 2000. (2) Fiscal 1998 net sales and loss from continuing operations exclude the results of Sandusky and Clear Shield, which were sold in 1998. (3) Included in 2002 is net restructuring income of $6,132 and reorganization expense of $3,401. Included in 2001 is an asset write-down of $4,766 and an inventory lower of cost or market charge of $3,612. Included in 2000 and 1998 are restructuring charges of $94,910 and $119,579, respectively. (4) Includes a net extraordinary gain (loss) on debt extinguishment of $8,137, $6,511 and $(6,793) or $.53, $.43 and $(.46) per share in 2001, 2000 and 1998, respectively. SFAS No. 145 requires that gains and losses on debt extinguishment will no longer be classified as extraordinary for fiscal years beginning after May 15, 2002. In 2003 these prior period extraordinary items will be reclassified in the consolidated statements of operations. (5) Year 2002 includes $163,060 of debt classified as current liabilities subject to compromise on the balance sheet. (6) Years 2002 and 2001 include $64,106 of long-term debt reclassified to current due to covenant restrictions. (7) Years 2001 and 2000 include the current portion of long-term debt. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's 2002 net sales from continuing operations was $183.6 million, which represents a decrease of 3% from 2001. The decline in sales reflects the continuing effect of reduced selling prices in the worldwide casings industry and slightly lower volumes, offset by the strengthening Euro against the U.S. Dollar that positively benefited net sales by approximately $3.2 million. The Company's 2001 net sales from continuing operations was $189.3 million, which represented a decrease of 5.4% from 2000. The decline in sales reflects the continuing effect of reduced selling prices in the 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 2001. With the entrance of a foreign competitor in the mid-1990's, the Company experienced significant pricing pressure and volume loss. The market for cellulosic casings has continued to see price declines each year based on competitor factors including excess production capacity. 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 operating income from continuing operations for 2002 was $2.3 million. Operating income includes net restructuring income of $6.1 million recognized in the second quarter of 2002. The restructuring income is the result of a reversal of $9.3 million of excess reserves that were originally recorded in 2000 due to the negotiation of reduced Nucel(r) technology third party license fees, offset by a year 2002 restructuring charge of $3.2 million. During the second quarter of 2002, the Company committed to a restructuring plan to address the industry's competitive environment. Operating loss from continuing operations, excluding the net restructuring income of $6.1 million, was $(3.8) million. This (loss) compares favorably to the operating loss from the comparable prior year period of $(5.4) million, excluding the 2001 asset write-down and the 2001 lower of cost or market charge as described below. The improvement in the operating loss results primarily from operating efficiencies from previous cost saving measures and reduced raw material costs. The Company does not, however, expect to see additional improvement in its operating income until prices begin to increase in the industry. 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. Net interest expense from continuing operations for 2002 totaled $21.1 million, which represented a decrease of $1.9 million from 2001. The decrease is primarily due to reduced interest expense related to the GECC lease payment. Other income (expense) from continuing operations of approximately $1.5 million and $(3.4) million in 2002 and 2001, respectively, consists principally of foreign exchange gains and (losses). The reorganization expenses of $3.4 million consist principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding. 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 income and is immaterial. In 2002, the tax benefit of $(1.3) million on the (loss) from continuing operations before income taxes of $(20.6) million resulted from the benefit of a U.S. income tax refund resulting from the Job Creation Act enacted in March 2002, offset by the tax provision related to operations of foreign subsidiaries. In 2001, the 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. A provision (benefit) of $(3.4) million and $.7 million, respectively, was provided on loss from continuing operations before taxes of $(40.2) million and $(95.2) million, respectively for 2001 and 2000. 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 was $.3 million. 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 $(1.3) million, $(3.4) million, and $8.3 million, respectively, in 2002, 2001 and 2000. Net domestic cash income taxes (refunded) paid in 2002, 2001 and 2000, were $(2.1) million, $2.2 million and $.5 million, respectively. Net foreign cash income taxes paid during the same periods were $.9 million, $2.5 million and $.3 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 Cash and equivalents increased by $2.2 million during the year ended December 31, 2002. Cash flows provided by operating activities were $18.3 million, used for reorganization items were $1.3 million, used in investing activities were $5.0 million, and used in financing activities were $8.9 million. Cash flows provided by operating activities were principally attributable to the effect of depreciation, amortization, and a decrease in working capital usage. Cash flows used for reorganization items consist principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding. Cash flows used in investing activities were principally attributable to capital expenditures for property, plant and equipment, an increase in restrictions on cash offset by the proceeds on disposition of assets. Cash flows used in financing activities principally consisted of the payment of the scheduled GECC capital lease obligation. In 2001 and 2000 the Company was able to purchase 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2002 there was $163.1 million principal amount of 10.25% Notes outstanding, net of repurchased notes. The Company was able to repurchase debt due to the sale of the Films business in 2000. The Company recognized an $8.1 million net gain on the repurchase of Notes during 2001 and a $6.5 million net gain in 2000. Cash flows from operations for the Company were insufficient to pay the Senior 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 Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Letters of credit in the amount of $27.6 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations, cash on hand, and a revolving credit facility that the Company anticipates that it will enter into upon emergence from bankruptcy. Certain identified production and finishing equipment at Viskase's domestic facilities are subject to a capital lease with GECC. In connection with the lease, GECC holds a security interest in (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets; and (iv) certain real property and improvements thereon. The security interest will be subordinated to the working capital facility. The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease: (in thousands) February 28, 2003 $18,499 April 11, 2003 $ 5,000 February 28, 2004 $11,750 August 28, 2004 $11,749 February 28, 2005 $23,500 GECC 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) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2.3 million. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows (refer to Note 1 to the consolidated financial statements): (in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ======== Capital expenditures for continuing operations for the year ended December 31, 2002 and 2001 totaled $3.8 and $5.9 million, respectively. Significant 2002 expenditures included costs associated with the Viskase Food Science Quality Institute (FSQI) and numerous smaller projects throughout the plants worldwide. Significant 2001 capital expenditures for continuing operations included costs associated with the Visflex(tm) and Vismax(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 2003 are expected to increase approximately $7 million. The increase is related to the installation of environmental equipment to conform with MACT standards for casing manufacturers. At December 31, 2002, the Company had capital expenditure commitments outstanding of approximately $.3 million. The Company also has lease agreements for machinery, equipment and facilities during 2002; rent expenses on these were $2.0 million. Accordingly, the Company does not consider its operating lease commitments to be a significant determinant of the Company's liquidity. In 2002 and 2001, the Company spent approximately $4.1 million and $5.0 million, respectively, 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 and mothballing the Nucel(r) project. The 2003 research and development and product introduction expenses are expected to be approximately $4.0 million. Among the projects included in the current research and development efforts are the anti-listeria NOJAX(r) AL(tm) casing, SmokeMaster(tm) casing, and the application of certain patents and technology being licensed by Viskase to the manufacture of cellulosic casings. The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally 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 are 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 Receivable Accounts receivable 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, the customer's ability to pay 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 are 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 is claiming that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on 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 advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. 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 expects to amend the lawsuit prior to June 1, 2003. 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 $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings 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. 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 strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint. 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 condition. Contractual Obligations Related to Debt, Leases and Related Risk Disclosure (in thousands)
2002 Expected Maturity Date --------------------------------------------------------------- Current Liabilities Subject to There- Compromise 2003 2004 2005 2006 after Total - ----------------------------------------------------------------------------------------------------------------------- Long-term debt, including current portion: Fixed interest rate ($000) $163,060 $85 $163,145 Interest rate 10.25% 0% 10.25% Accrued interest on Senior Notes $25,098 $25,098 Capital lease obligations(1) $19,483 $21,300 $23,500 $64,283 Operating leases $1,425 $1,253 $1,097 $997 $3,503 $8,275 Third party license fees $865 $400 $250 $200 $450 $2,165 Employment agreement $2,109 $2,109
(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 Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 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. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement is applicable for fiscal years beginning after May 15, 2002 and requires, among other things, that any gain or loss on extinguishment of debt that does not meet criteria in Opinion 30, as amended, no longer be classified as an extraordinary item. The gain of $8.1 million, net of income taxes, relating to the repurchase of Senior Notes in 2001 and the gain of $6.5 million, net of income taxes, relating to the repurchase of Senior Notes in 2000, were reported as extraordinary items in the Company's consolidated statements of operations for the years then ended. In 2003, these prior period extraordinary items will be reclassified in the consolidated statements of operations as a separate caption along with interest expense in accordance with this statement. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by Emerging Issues Task Force (EITF) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The provisions of this Statement will prospectively apply to exit or disposal activities initiated after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. Management has adopted the footnote disclosure provisions (see Note 2 to the consolidated financial statements) and is considering the recognition provisions of the standard and its effects on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company will apply the provisions of this interpretation to guarantees issued after December 31, 2002. The Company is in compliance with the disclosure requirements of the interpretation. 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. In order to manage the risk associated with this exposure to such fluctuations, the Company occasionally uses derivative financial instruments. The Company does not enter into derivatives for trading purposes. The Company also prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of the U.S. dollar relative to the European receivables and payables denominated in U.S. dollars. Based on its sensitivity analyses at December 31, 2002, a 10% devaluation of the U.S. dollar would affect the Company's consolidated financial position by approximately $44 thousand. 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 income and is immaterial. 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 15 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 following sets forth the name, age and positions, of the Company's officers and directors. Also set forth below is information as to the principal occupation and background for such persons. Directors Robert N. Dangremond, 60, has been a principal with Jay Alix & Associates, a consulting and accounting firm specializing in corporate restructurings and turnaround activities, since August 1989. Mr. Dangremond also serves as a Director for the Furr's Restaurant Group. Mr. Dangremond has served as a director of the Company since 1993. Mr. Dangremond will be resigning as a director of the Company as of the Effective Date of the Plan. F. Edward Gustafson, 61, has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since December 1993. Mr. Gustafson has been President and Chief Executive Officer of Viskase Corporation 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. Gregory R. Page, 51, has been President and Chief Operating Officer of Cargill, Inc. ("Cargill"), a multinational trader and processor of foodstuffs and other commodities, since June 2000. From May 1998 to June 2000, Mr. Page served as Corporate Vice President and Section President of Cargill. From August 1995 to May 1998, Mr. Page served as President of the Red Meat Group of Cargill. Mr. Page has served as a director of the Company since 1993. Mr. Page will be resigning as a director of the Company as of the Effective Date of the Plan. Executive Officers F. Edward Gustafson, 61, has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since December 1993. Mr. Gustafson has been President and Chief Executive Officer of Viskase Corporation 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 DPK since November 1988. Gordon S. Donovan, 49, has been Chief Financial Officer of the Company since January 1997, and Vice President and Chief Financial Officer of Viskase Corporation 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, 38, has been Vice President, Secretary and General Counsel of the 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. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Exchange Act requires the Company's executive officers and directors and persons who own more than 10% of a registered class of the Company's equity securities to file reports of their ownership thereof and changes in that ownership with the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all such reports they file. Based solely upon its review of copies of such forms received by it, or on written representations from certain reporting persons that other filings were required for such persons, the Company believes that, during the year ended December 31, 2002, there were no individuals who failed to comply with the applicable Section 16(a) filing requirements, except that Donald P. Kelly, a greater than 10% stockholder inadvertently failed to timely file one Form 4 reporting one transaction. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation of Executive Officers. The Summary Compensation Table below provides certain summary information concerning the compensation by the Company for fiscal years 2002, 2001 and 2000 for services rendered by the Company's Chief Executive Officer and each of the other executive officers of the Company whose total annual salary and bonus exceeded $100,000 in 2002. SUMMARY COMPENSATION TABLE
Restricted Other Annua Stock Name and Salary Bonus Compensation Award(s) Options (1) All Other Principal Position Year ($) ($) ($) ($) (#) Compensation - ----------------------------------------------------------------------------------------------------------------------- F. Edward Gustafson 2002 535,000 267,500 67,004 (2) - - 16,050 (3) Chairman of the Board, 2001 513,000 - - - - 24,745 President and Chief 2000 497,250 273,488 74,423 212 (4) 200,000 (5) 17,239 Executive Officer Gordon S. Donovan 2002 186,060 74,052 10,989 - - 6,496 (6) Vice President, Chief 2001 178,728 14,012 10,663 - - 7,855 Financial Officer, Treasurer 2000 169,965 66,626 9,835 212 (4) 22,000 5,621 and Assistant Secretary Kimberly K. Duttlinger 2002 125,340 43,518 4,720 - - 4,093 (7) Vice President, Secretary, 2001 133,072 9,121 5,318 - - 4,325 and General Counsel 2000 143,127 49,093 2,147 212 (4) 15,000 4,294 - -------------------------------
(1) Under the terms of the Plan, stock options outstanding as of the Effective Date under the Plan would be canceled upon emergence from bankruptcy. (2) Includes $30,000 for automobile allowance and $20,084 for reimbursement of legal services. (3) Includes $660 paid for group life insurance, $8,175 contributed to the Viskase SAVE Plan and $7,215 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan (Non-Qualified Plan). (4) Grant of 75 restricted shares of Common Stock to each of Messrs. Gustafson and Donovan and Ms. Duttlinger under the Company's "Diamond Anniversary Grant." The shares would be converted to Warrants under the Plan, and are subject to forfeiture until October 27, 2003. (5) In 2000, Mr. Gustafson was granted a stock option to purchase up to 200,000 shares of Common Stock depending on the financial performance of the Company based on earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal year 2000. Based on the Company's EBITDA for fiscal year 2000, a portion (i.e., 50,000 shares of Common Stock, which would be canceled under the Plan) of this stock option was earned. (6) Includes $494 paid for group life insurance, $5,582 contributed to the Viskase SAVE Plan and $420 contributed to the Non-Qualified Plan. (7) Includes $333 paid for group life insurance and $3,760 contributed to the Viskase SAVE Plan. Stock Option Exercises and Holdings. The following table provides information concerning the exercise of stock options for Common Stock during the fiscal year ended December 31, 2002 and the fiscal year-end value of stock options for Common Stock with respect to each of the persons named in the Summary Compensation Table. Pursuant to the Plan, all stock options outstanding as of the Effective Date under the Plan would be canceled. Aggregated Option/SAR Exercises in 2002 and December 31, 2002 Option Values
Number of Securities $ Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Value 12/31/02 12/31/02 on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable - -------------------------------------------------------------------------------------------- F. Edward Gustafson........ -- -- 170,000 / 0 0 / 0 Gordon S. Donovan.......... -- -- 79,000 / 0 0 / 0 Kimberly K. Duttlinger..... -- -- 40,000 / 0 0 / 0
Restricted Stock Plan. Upon the emergence from bankruptcy under chapter 11 of the Bankruptcy Code, Mr. Donovan and Ms. Duttlinger would be granted 37,500 and 10,000 restricted shares, respectively, of New Common Stock under the Restricted Stock Plan. Based upon the number of shares of Common Stock held in their 401(k) accounts, Mr. Donovan and Ms. Duttlinger would also be granted an additional 8,105 and 153 restricted shares of New Common Stock, respectively, under the Restricted Stock Plan. Restricted stock grants issued under the Restricted Stock Plan would vest 12- 1/2% on the date of the grant, 17-1/2% on the first anniversary of the grant, 20% on the second anniversary of the grant, 20% on the third anniversary of the grant, and 30% on the fourth anniversary of the grant, subject to acceleration under certain defined events. Equity Compensation Plan Information Table. The following table provides information as of December 31, 2002 regarding the number of shares of the Company's Common Stock that may be issued under the Company's equity compensation plans.
(a) (b) (c) Number of securities remaining available for future issuance Number of under equity securities to be Weighted compensation issued upon average exercise plans excluding exercise of price of securities outstanding outstanding reflected in Plan Category options options column (a) - ----------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 835,430 $2.71 449,898 Equity compensation plans not approved by security holders -- -- -- ------- ----- ------- Total 835,430 $2.71 449,898 ======= ===== =======
These options will be canceled under terms of the Plan on the Emergence Date. Pension Plan Table. The following table sets forth estimated annual benefits payable upon retirement under the Retirement Program for Employees of Viskase Corporation (the "Retirement Program") to employees of the Company and its wholly owned subsidiary, Viskase Corporation, in specified remuneration and years of service classifications. Pension Plan Table
Assumed Final Average Annual Benefits for Years of Service Indicated (2) Annual Salary (1) 15 20 25 30 35 - --------------------- ------- -------- -------- --------- -------- $100,000 $18,000 $24,000 $30,000 $36,000 $42,000 150,000 27,000 36,000 45,000 54,000 63,000 200,000 36,000 48,000 60,000 72,000 84,000 250,000 45,000 60,000 75,000 90,000 105,000 300,000 54,000 72,000 90,000 108,000 126,000 350,000 63,000 84,000 105,000 126,000 147,000 400,000 72,000 96,000 120,000 144,000 168,000 450,000 81,000 108,000 135,000 162,000 189,000 500,000 90,000 120,000 150,000 180,000 210,000 550,000 99,000 132,000 165,000 198,000 231,000
(1) Annual benefits payable under the Retirement Program are calculated based on the participant's average base salary for the consecutive thirty-six (36) month period immediately prior to retirement. (2) The annual benefits payable are based on straight-life annuity basis at normal retirement age. The benefits reported in this table are not subject to any reduction for benefits paid by other sources, including Social Security. As of December 31, 2002, Messrs. Gustafson and Donovan and Ms. Duttlinger are credited with 13, 15 and 6 years of service, respectively. Compensation of Directors. Each director who is not an officer of the Company received an annual retainer of $20,000 in 2002 and a fee of $4,000 for each attended meeting of the Board of Directors. Chairmen of committees (other than the Interested Person Transaction Committee) of the Board of Directors received an annual retainer of $1,500 in 2002. Directors also received a fee for each attended meeting of a committee of the Board of Directors (other than the Interested Person Transaction Committee) of $1,000 ($500 in the case of committee meetings occurring immediately before or after meetings of the full Board of Directors). Members of the Interested Person Transaction Committee did not receive a fee in 2002. Directors who are officers of the Company do not receive compensation in their capacity as directors. Pursuant to Viskase Companies, Inc. 1993 Stock Option Plan, as amended, on the date of each annual meeting of stockholders, non-employee directors are granted a stock option to purchase 1,000 shares of Common Stock at an option exercise price equal to the fair market value of the Common Stock the date of grant. The Company did not hold an annual meeting of stockholders during 2002. Pursuant to the Non-Employee Directors' Compensation Plan, non-employee directors may elect to receive their director fees in the form of shares of Common Stock. The number of shares received is based on the average of the closing bid and ask price of the Common Stock on the business day preceding the date the Common Stock is issued. None of the directors currently receive their fees in the form of Common Stock. Compensation Committee Interlocks and Insider Participation. During 2002, the Compensation and Nominating Committee of the Board of Directors consisted of Messrs. Robert N. Dangremond and Gregory R. Page, each of whom is a non- employee director of the Company and will be resigning as a director as of the Effective Date of the Plan. Mr. Page is the President and Chief Operating Officer of Cargill, Inc. During 2002, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $592,000 made in the ordinary course to Cargill, Inc. and its affiliates. Employment Agreements and Change-in-Control Arrangements Employment Agreements with F. Edward Gustafson. On March 27, 1996, the Company entered into an Employment Agreement with Mr. F. Edward Gustafson. The Employment Agreement was amended and restated during 1997, amended twice during 2001 and once during 2002 (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Gustafson has agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company, and the Company has agreed to use its best efforts to cause Mr. Gustafson to be elected as a director of the Company, during the term of the Agreement. The initial term of the Employment Agreement is three (3) years, provided, however, that on March 26, 1997 and each subsequent anniversary thereof, the term of the Employment Agreement will be automatically extended for a period of one (1) year unless the Company or Mr. Gustafson gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Employment Agreement, Mr. Gustafson receives an annual base salary of $535,000 and $30,000 per year in lieu of a Company-provided automobile. Mr. Gustafson's base salary will be increased by the Board of Directors each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Employment Agreement provides that Mr. Gustafson would be eligible to receive a bonus based on a percentage of his base salary depending on the Company's performance based on EBITDA. Mr. Gustafson will be eligible to receive an annual bonus for future fiscal years of the Company based on such financial performance or other performance- related criteria as established by the Board of Directors after consultation with Mr. Gustafson. For information concerning actual bonuses earned by Mr. Gustafson, see the "Summary Compensation Table." Mr. Gustafson is also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers. Pursuant to and upon execution of the Employment Agreement, Mr. Gustafson was granted two (2) stock options, each to purchase 35,000 shares of Common Stock. One (1) stock option is exercisable in cumulative annual increments of one-third commencing on the first anniversary of the date of grant. The other stock option is exercisable in cumulative annual increments of one-third commencing on the second anniversary of the date of grant. In addition, Mr. Gustafson was granted a third stock option to purchase up to 75,000 shares of Common Stock dependent on the Company's financial performance for fiscal year 1996. The Company did not meet the financial performance targets and, therefore, no portion of this stock option became exercisable or will become exercisable in the future. Lastly, Mr. Gustafson was granted 35,000 restricted shares of Common Stock that could not be transferred, and were subject to forfeiture, until March 27, 1999. If Mr. Gustafson's employment is terminated by the Company for Cause, as defined in the Employment Agreement, or by Mr. Gustafson other than for Good Reason or Disability, as defined in the Employment Agreement, Mr. Gustafson will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Gustafson's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Gustafson for Good Reason, (i) Mr. Gustafson will be paid all Accrued Compensation plus 300% of his base salary (or 200% in the event that DPK, or a company in which DPK has a substantial interest, is the beneficial owner of the Company following a Change of Control) and the prorated amount of annual bonus that would have been payable to Mr. Gustafson with respect to the fiscal year in which Mr. Gustafson's employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of employment follows a Change in Control, as defined in the Agreement, in which case Mr. Gustafson will receive a bonus equal to 50% of his base salary regardless of the Company's performance) ("Termination Compensation"), (ii) Mr. Gustafson will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares of Common Stock will become immediately exercisable, vested and nonforfeitable. Under the Employment Agreement, with respect to any Change in Control that occurred prior to November 1, 2001, Mr. Gustafson has until thirty (30) days following the earlier to occur of (i) the date on which the Company has provided written notice of acceptance to the exchange offer agent with respect to the Exchange Offer (as defined in Amendment Number Three to the Employment Agreement); (ii) the effective date of the Plan (as defined in Amendment Number Three to the Employment Agreement) of the Company and Viskase Corporation under chapter 11 of the United States Bankruptcy Code or the date on which the Company's and Viskase Corporation's bankruptcy is converted from a chapter 11 proceeding to a chapter 7 proceeding; or (iii) the closing date contained in any agreement related to the sale of substantially all of the assets of the Company and/or Viskase Corporation or the sale or other issuance of at least a majority of the stock of the Company or Viskase Corporation, to provide notice that he intends to terminate his employment for Good Reason because of such Change in Control. With respect to any Change in Control occurring after November 1, 2001, Mr. Gustafson has one year after such Change in Control to terminate his Employment Agreement for Good Reason based upon such Change in Control. During 2002, the Company and Viskase Corporation entered into a Letter of Credit Agreement with Mr. Gustafson that requires the Company and Viskase Corporation to secure and maintain a standby letter of credit in amount equal to the Accrued Compensation and Termination Compensation. Pursuant to the Employment Agreement, Mr. Gustafson is generally prohibited during the term of the Agreement, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Employment Agreement, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Gustafson exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Employment Agreement. On August 30, 2001, Viskase Corporation entered into an employment agreement with Mr. Gustafson ("Viskase Employment Agreement"). The Viskase Employment Agreement was amended once during 2001 and once during 2002. The Viskase Employment Agreement is substantially similar to the Employment Agreement. Any benefits received by Mr. Gustafson under either employment agreement would be credited against benefits payable under the other employment agreement. Employment Agreements with Gordon S. Donovan and Kimberly K. Duttlinger. On November 29, 2001, the Company and Viskase entered into employment agreements with Mr. Donovan and Ms. Duttlinger ("Executive Employment Agreements"). Pursuant to the Executive Employment Agreement, Mr. Donovan has agreed to serve as Vice President, Chief Financial Officer and Treasurer of the Company and Viskase Corporation and Ms. Duttlinger has agreed to serve as Vice President, Secretary and General Counsel of the Company and Viskase Corporation, during the term of the Executive Employment Agreements. The initial term of the Executive Employment Agreements is approximately three (3) years ending December 31, 2004, provided, however, that on January 1, 2003 and each subsequent anniversary thereof, the term of the Executive Employment Agreements will be automatically extended for a period of one (1) year unless the Company or Mr. Donovan or Ms. Duttlinger gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Executive Employment Agreements, Mr. Donovan and Ms. Duttlinger receive an annual base salary of at least $193,020 and $129,840, respectively. Mr. Donovan's and Ms. Duttlinger's base salary will be increased by the President of the Company each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Executive Employment Agreements provide that Mr. Donovan and Ms. Duttlinger are eligible to participate in the (i) Management Incentive Plan, a bonus program calculated as a percentage of his/her base salary depending on the Company's performance based on EBITDA and his/her personal performance; (ii) Non-Qualified Parallel Plan; (iii) Executive Auto Allowance Program; and (iv) 1993 Stock Option Plan and any replacement thereof. Mr. Donovan and Ms. Duttlinger are also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers. If Mr. Donovan's or Ms. Duttlinger's employment is terminated by the Company for Cause, as defined in the Executive Employment Agreements, or by Mr. Donovan or Ms. Duttlinger other than for Good Reason or Disability, as defined in the Executive Employment Agreements, Mr. Donovan or Ms. Duttlinger will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Donovan's or Ms. Duttlinger's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Donovan or Ms. Duttlinger for Good Reason, (i) Mr. Donovan or Ms. Duttlinger will be paid all Accrued Compensation plus 200% of his/her base salary and the prorated amount of annual bonus that would have been payable to Mr. Donovan or Ms. Duttlinger with respect to the fiscal year in which his/her employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of employment follows a Change in Control, as defined in the Agreement, in which case Mr. Donovan will receive a bonus equal to 40% of his base salary regardless of the Company's performance and Ms. Duttlinger will receive a bonus equal to 35% of her base salary regardless of the Company's performance), (ii) Mr. Donovan and Ms. Duttlinger will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares will become immediately exercisable, vested and nonforfeitable. Pursuant to the Executive Employment Agreements, Mr. Donovan and Ms. Duttlinger are generally prohibited during the term of their respective Agreements, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Executive Employment Agreements, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Donovan or Ms. Duttlinger exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Executive Employment Agreements. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock as of March 28, 2003 of (a) each person or group of persons known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (b) each director and nominee for director of the Company, (c) each executive officer of the Company listed in the Summary Compensation Table above, and (d) all executive officers and directors of the Company as a group. All information is taken from or based upon ownership filings made by such persons with the Securities and Exchange Commission or upon information provided by such persons to the Company.
Name and Address of Number of Shares Percent Beneficial Owner Beneficially Owned (1) of Class (1) - -------------------- ---------------------- ------------ Pacificor, Inc. 5,000,000 32.65% 1575 N. Ontare Road Santa Barbara, CA 93105 Steven L. Gevirtz 3,495,652 (2) 22.83% Katana Fund LLC Katana Capital Advisors LLC 1859 San Leandro Lane Santa Barbara, California 93108 F. Edward Gustafson 1,979,610 (3)(4)(5) 12.78% 625 Willowbrook Centre Parkway Willowbrook, Illinois 60527 Donald P. Kelly 1,570,287 (3) 10.25% 701 Harger Road, Suite 190 Oak Brook, Illinois 60523 Volk Enterprises, Inc. 1,300,000 8.49% 618 S. Kilroy Turlock, California 95380 Robert N. Dangremond 64,340 (6) * Gordon S. Donovan 108,208 (5)(7) * Kimberly K. Duttlinger 40,306 (8) * Gregory R. Page 34,150 (6) * All directors and executive officers of the Company as a group (5 persons) 2,226,614 (9) 14.26% - -------------------------------- * Less than 1%.
(1) Beneficial ownership is calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder. Accordingly, the "Number of Shares Beneficially Owned" and the "Percent of Class" shown for each person listed in the table are based on the assumption that stock options which are exercisable currently or within 60 days of March 30, 2003, held by such person, have been exercised. Unless otherwise indicated, the persons listed in the table have sole voting and investment power over those securities listed for such person. (2) Katana Capital Advisors, LLC manages the Katana Fund LLC and therefore is deemed to indirectly own the shares owned by the Katana Fund LLC. (3) The ownership indicated includes 70,287 shares owned by DPK, of which Mr. Kelly and Mr. Gustafson are principals and officers. The general partner of DPK is C&G Management Company, Inc. ("C&G Management"), which is owned by Mr. Kelly and Mr. Gustafson. The ownership indicated also includes 1,300,000 shares owned by Volk Enterprises, Inc. ("Volk"). Volk is controlled by Volk Holdings L.P., whose general partner is Wexford Partners I L.P. ("Wexford Partners"). The general partner of Wexford Partners is Wexford Corporation, which is owned by Mr. Kelly and Mr. Gustafson. Mr. Kelly and Mr. Gustafson share voting and investment power over the shares owned by DPK and Volk. However, Mr. Kelly and Mr. Gustafson each disclaim beneficial ownership of shares owned by DPK and Volk except to the extent of their respective pecuniary interest in such entities. (4) The ownership indicated includes 170,000 shares subject to stock options owned by Mr. Gustafson. The ownership indicated also includes 70,619 shares owned by Mr. Gustafson's spouse. Mr. Gustafson does not have or share voting or investment power over the shares owned by his spouse and disclaims beneficial ownership of such shares. (5) The ownership indicated also includes 218,000 and 2,998 shares acquired by Messrs. Gustafson and Donovan, respectively, pursuant to the Non- Qualified Plan. (6) The ownership indicated includes 7,000 shares subject to stock options owned by each of Messrs. Dangremond and Page. (7) The ownership indicated includes 79,000 shares subject to stock options owned by Mr. Donovan, 8,000 shares held by Mr. Donovan as trustee for the benefit of his spouse, with whom Mr. Donovan shares voting and investment power over such shares and 1,000 shares owned by Mr. Donovan's spouse. Mr. Donovan does not have or share voting power over the 1,000 shares owned by his spouse. Mr. Donovan disclaims beneficial ownership of the shares held by him as trustee and the shares owned by his spouse. (8) The ownership indicated includes 40,000 shares subject to stock option owned by Ms. Duttlinger. (9) See Footnotes (3), (4), (5), (6), (7) and (8). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 2002, the Company purchased product in the ordinary course of business and on arm's-length terms from affiliates of Mr. Gustafson, Chairman of the Board, President and Chief Executive Officer of the Company, including Volk, in the amount of $321. During 2002, Viskase had sales of $592 to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of the business. Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., became a director of the Company in 1993 and is currently serving in that capacity. Mr. Page will be resigning as a director as of the Effective Date. ITEM 14. CONTROLS AND PROCEDURES CEO and CFO Certifications This annual report contains two separate forms of certifications of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The first form of certification, appearing immediately following the Signatures section of this annual report is required by SEC rules promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (302 Certifications). In the 302 Certifications, there are several certifications made by the CEO and CFO relating to the Company's disclosure controls and procedures and internal controls. This section of this annual report should be read in conjunction with the 302 Certifications relating to the Company's disclosure controls and procedures and the Company's internal controls. Evaluation of Disclosure Controls and Procedures Within 90 days prior to the filing of this annual report (Evaluation Date), the Company's management, under the supervision and with the participation of the CEO and the CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation by the CEO and CFO, the Company's disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. Evaluation of Internal Controls The Company's management also evaluated the effectiveness of the Company's internal controls. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) the Company's transactions are properly authorized; (2) the Company's assets are safeguarded against unauthorized or improper use; and (3) the Company's transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. In accord with SEC requirements, the CEO and CFO note that, since the Evaluation Date, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Limitations on the Effectiveness of Controls A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system will be subject to various limitations, such as resource constraints, expertise of personnel and cost- benefit constraints. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. PART IV ITEM 15. 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, 2002 and 2001 F-3 Consolidated statements of operations, for the years ended December 31, 2002, 2001 and 2000 F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2002, 2001 and 2000 F-6 Consolidated statements of cash flows, for the years ended December 31, 2002, 2001 and 2000 F-7 Notes to consolidated financial statements F-8 (a)2. Financial statement schedules for the years ended December 31, 2002, 2001 and 2000: II Valuation and qualifying accounts F-38 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 17, 2002, the Company announced that the Department of Justice had closed its investigation of the sausage casings and specialty plastic films industries. 2. On October 21, 2002, the Company announced extension of the expiration date of its exchange offer relating to its 10-1/4% Senior Notes until 5:00 p.m. on November 4, 2002. 3. On November 13, 2002, the Company announced expiration of exchange offer and filing of voluntary prepackaged bankruptcy petition. 4. On December 9, 2002, the Company announced breakthrough technology to control listeria in hot dogs and sausages. 5. On December 20, 2002, the Company announced confirmation of its prepackaged plan of reorganization. 6. On December 30, 2002, 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 April 19, 2003, 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). * 2.2 Amendment No. 2 to Purchase Agreement, dated May 18, 2001, among the Company and certain of its subsidiaries and Bemis Company, Inc. ** 2.3 Debtor's Prepackaged Plan of Reorganization as Modified, dated March 18, 2003. ** 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). * * Previously filed by the Company, incorporated by reference. ** Filed herewith. Exhibit No. Description of Exhibits Page 10.4 Ground Lease, dated as of December 18, 1990, between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K filed January 22, 1991). * 10.5 Guaranty Agreement, dated as of December 18, 1990, among the Company; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner 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 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). + * 10.12 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). + * 10.13 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). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page 10.14 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). * 10.15 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 r eference to Exhibit 10.36 of Form 10-Q for the fiscal quarter ended March 31, 2001 filed May 16, 2001). * 10.16 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). * 10.17 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). * 10.18 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). * 10.19 Amendment dated August 30, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996, between F. Edward Gustafson and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 10.26 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.20 Employment Agreement dated August 30, 2001 between Viskase Corporation and F. Edward Gustafson. (incorporated herein by reference to Exhibit 10.27 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.21 Amendment Number Two dated November 1, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996 between F. Edward Gustafson and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 10.28 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.22 Amendment Number Three dated April 9, 2002 to the Amended and Restated Employment Agreement, effective March 27, 1996 between F. Edward Gustafson and Viskase Companies, Inc.+ ** + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith Exhibit No. Description of Exhibits Page 10.23 Amendment dated November 1, 2001 to the Employment Agreement between F. Edward Gustafson and Viskase Corporation dated August 30, 2001 (incorporated herein by reference to Exhibit 10.29 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.24 Amendment Number Two dated April 9, 2002 to the Employment Agreement between F. Edward Gustafson and Viskase Corporation dated August 30, 2001.+ ** 10.25 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Gordon S. Donovan (incorporated herein by reference to Exhibit 10.30 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.26 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Kimberly K. Duttlinger (incorporated herein by reference to Exhibit 10.31 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.27 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). * 10.28 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 (incorporated herein by reference to Exhibit 10.33 to Form 10-K for the fiscal year ended December 31, 2001). * 10.29 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 (incorporated herein by reference to Exhibit 10.34 to Form 10-K for the fiscal year ended December 31, 2001). * 10.30 Viskase Corporation Management Incentive Plan for Fiscal Year 2002.+ ** 10.31 Amendment No. 3 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation (incorporated herein by reference to Exhibit 4 to Form 8-K filed June 27, 2002). * 10.32 Forbearance and Consent Agreement, dated as of June 28, 2002, between Viskase Corporation, as Lessee, and State Street Bank and Trust Company, as successor Owner Trustee, and General Electric Capital Corporation, as Owner Participant, relating to Lease Agreement dated as of December 19, 1990 (incorporated herein by reference to Exhibit 10 to Form 8-K filed June 28, 2002). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith. Exhibit No. Description of Exhibits Page 10.33 Restructuring Agreement, dated as of July 15, 2002 by and among High River Limited Partnership, Debt Strategies Fund, Inc., and Northeast Investors Trust and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 99.1 to Form 8-K filed August 21, 2002). * 10.34 Forbearance Agreement, dated as of November 14, 2002 between Viskase Corporation, a Pennsylvania corporation (the "Lessee"), and State Street Bank and Trust Company, a Massachusetts trust company. ** 10.35 Side Letter Agreement of December 20, 2002 between Viskase Companies, Inc. and General Electric Capital Corporation together with the Draft Amendment to the Lease Agreement and the Draft Amendment to the Participation Agreement. ** 10.36 Amendment No. 4 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation (incorporated herein by reference to Exhibit 1 to Form 8-K filed January 2, 2003). * 21.1 Subsidiaries of the registrant. ** 23.1 Consent of independent accountants. ** 99-1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 ** 99-2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 ** * 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 ------------------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ Gordon S. Donovan ------------------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: March 31, 2003 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 31st day of March 2003. /s/ F. Edward Gustafson /s/ Gordon S. Donovan - ------------------------------- --------------------------------- 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/ Robert N. Dangremond /s/ Gregory R. Page - ------------------------------- --------------------------------- Robert N. Dangremond (Director) Gregory R. Page (Director) CERTIFICATIONS I, F. Edward Gustafson, certify that: 1) I have reviewed this annual report on Form 10-K of Viskase Companies, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ F. Edward Gustafson ------------------------ F. Edward Gustafson Chairman, Chief Executive Officer and President I, Gordon S. Donovan, certify that: 1) I have reviewed this annual report on Form 10-K of Viskase Companies, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ Gordon S. Donovan ---------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer VISKASE COMPANIES, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of independent accountants .................................. F-2 Consolidated balance sheets, December 31, 2002 and 2001 ............ F-3 Consolidated statements of operations, for the years ended December 31, 2002, 2001 and 2000 ................................ F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2002, 2001 and 2000 ............ F-6 Consolidated statements of cash flows, for the years ended December 31, 2002, 2001 and 2000 ................................ F-7 Notes to consolidated financial statements ......................... F-8 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X Schedule II - Valuation and qualifying accounts ................... F-38 Exhibit 21.1 Subsidiaries of the registrant ....................... F-39 Exhibit 23.1 Consent of independent accountants ................... F-40 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 15 (a) (1) on page 35 present fairly, in all material respects, the financial position of Viskase Companies, Inc. and its subsidiaries (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 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 15 (a) (2) on page 35 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 consolidated financial statements have been prepared assuming that Viskase Companies, Inc. and its subsidiaries will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, on November 13, 2002, Viskase Companies, Inc. filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, which raises substantial doubt about the Company's ability to continue as a going concern. Management's intentions with respect to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Chicago, Illinois March 14, 2003 VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED BALANCE SHEETS (in thousands)
December 31 -------------------------- 2002 2001 -------- --------- ASSETS Current assets: Cash and cash equivalents $ 27,700 $ 25,540 Restricted cash 28,347 26,558 Receivables, net 25,563 25,838 Inventories 30,587 29,064 Other current assets 7,245 9,691 -------- -------- Total current assets 119,442 116,691 Property, plant and equipment, including those under capital leases 246,434 233,637 Less accumulated depreciation and amortization 154,088 127,338 -------- -------- Property, plant and equipment, net 92,346 106,299 Deferred financing costs, net 39 2,024 Other assets 6,854 9,014 -------- -------- Total Assets $218,681 $234,028 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities not subject to compromise: Short-term debt including current portion of long-term debt and obligations under capital leases $ 64,283 $236,059 Accounts payable 11,649 9,784 Accrued liabilities 27,918 48,203 Current deferred income taxes 1,597 1,597 -------- -------- Total current liabilities not subject to compromise 105,447 295,643 Current liabilities subject to compromise 188,198 Long-term debt including obligations under capital leases not subject to compromise 85 194 Accrued employee benefits 75,621 51,116 Noncurrent deferred income taxes 24,476 25,128 Commitments and contingencies Stockholders' (deficit): Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding, 15,314,562 shares at December 31, 2002 and 15,317,112 shares at December 31, 2001 153 153 Paid in capital 138,007 138,014 Accumulated (deficit) (291,904) (272,574) Accumulated other comprehensive (loss) (21,323) (3,461) Unearned restricted stock issued for future service (79) (185) -------- -------- Total stockholders' (deficit) (175,146) (138,053) -------- -------- Total Liabilities and Stockholders' Deficit $218,681 $234,028 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31 ----------------------------------------------- 2002 2001 2000 -------- -------- -------- (in thousands, except for number of shares and per share amounts) NET SALES $183,577 $189,315 $200,142 COSTS AND EXPENSES Cost of sales 146,841 156,258 157,560 Selling, general and administrative 38,526 40,027 39,374 Amortization of intangibles 2,000 2,000 2,000 Restructuring (income) expense (6,132) 4,766 94,910 --------- --------- --------- OPERATING INCOME (LOSS) 2,342 (13,736) (93,702) Interest income 1,161 2,479 2,299 Interest expense 22,222 25,520 45,406 Other (income) expense, net (1,493) 3,445 5,330 Patent infringement settlement income, net 46,900 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND REORGANIZATION EXPENSE (17,226) (40,222) (95,239) Reorganization expense 3,401 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (20,627) (40,222) (95,239) Income tax (benefit) provision (1,297) (3,370) 728 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS (19,330) (36,852) (95,967) DISCONTINUED OPERATIONS: Income from discontinued operations net of income taxes (Note 12) 3,435 Gain on sale from discontinued operations net of income tax provision of $0 in 2001 and $6,633 in 2000 3,189 68,185 --------- --------- --------- (LOSS) BEFORE EXTRAORDINARY ITEM (19,330) (33,663) (24,347) 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) (19,330) (25,526) (17,836) Other comprehensive (loss) income, net of tax (see Note 20) Foreign currency translation adjustments 3,711 (129) (2,730) Reclassification of foreign currency translation adjustment for discontinued operations 2,532 Minimum pension liability adjustments (21,573) (5,172) --------- --------- --------- Other comprehensive (loss) net of tax (17,862) (5,301) (198) --------- --------- --------- COMPREHENSIVE (LOSS) $(37,192) $(30,827) $(18,034) ========= ========= =========
VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (Cont'd)
Years Ended December 31 ------------------------------------------------ 2002 2001 2000 ---------- ---------- ---------- (in thousands, except for number of shares and per share amounts) WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,316,183 15,309,616 15,126,670 ========== ========== ========== PER SHARE AMOUNTS: (LOSS) EARNINGS PER SHARE - basic and diluted Continuing operations $(1.26) $(2.41) $(6.34) Discontinued operations: Income from discontinued operations .23 Gain on sale from discontinued operations .21 4.50 ------- ------- ------- (Loss) before extraordinary item $(1.26) (2.20) (1.61) Extraordinary gain .53 .43 ------- ------- ------- Net (Loss) $(1.26) $(1.67) $(1.18) ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Accumulated Other Comprehensive (Loss) Gain ------------------------- Foreign Minimum Restricted Accumu- Currency Pension Stock Common Paid In lated Translation Liability Issued For Total Stock Capital (Deficit) Adjustments Adjustments Future Service Equity (Deficit) ------ ------- --------- ----------- ----------- -------------- ---------------- (in thousands) 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) Net (loss) (19,330) (19,330) Issuance of Common Stock (7) 106 99 Other comprehensive income (loss) 3,711 (21,573) (17,862) ---- --------- ---------- ------- --------- ------ ---------- Balance December 31, 2002 $153 $138,007 $(291,904) $5,422 $(26,745) $(79) $(175,146) ==== ========= ========== ======= ========= ====== ==========
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 --------------------------------------- 2002 2001 2000 ---------- ---------- --------- (in thousands) Cash flows from operating activities: Net (Loss) $(19,330) $(25,526) $(17,836) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 20,959 21,125 30,427 Amortization of intangibles 2,000 2,000 4,000 Amortization of deferred financing fees and discount 18 185 4,860 Reorganization expense 3,401 (Decrease) increase in deferred income taxes (718) (698) 407 Foreign currency transaction (gain) loss (920) 533 857 Gain on disposition of assets (27) (2,807) (74,541) Bad debt provision 558 425 433 Net property, plant and equipment write-off 1,029 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 2,746 803 20,431 Inventories 507 9,596 8,617 Other current assets 2,860 6,361 (12,733) Accounts payable and accrued liabilities 4,432 (30,111) (50) Other 749 4,155 3,270 --------- --------- --------- Total adjustments 37,594 8,196 34,316 --------- --------- --------- Net cash provided by (used in) operating activities 18,264 (17,330) 16,480 before reorganization expense Net cash used for reorganization items (1,259) Cash flows from investing activities: Capital expenditures (3,824) (5,882) (13,735) Proceeds from disposition of assets 575 11,156 235,844 Restricted cash (1,789) 14,480 (41,038) --------- --------- --------- Net cash (used in) provided by investing activities (5,038) 19,754 181,071 Cash flows from financing activities: Deferred financing costs (2,047) (2,092) Repayment of revolving loan, long-term borrowings and capital lease obligations (8,882) (29,448) (146,119) --------- --------- --------- Net cash (used in) financing activities (8,882) (31,495) (148,211) Effect of currency exchange rate changes on cash (925) (739) (233) --------- --------- --------- Net increase (decrease) in cash and equivalents 2,160 (29,810) 49,107 Cash and equivalents at beginning of period 25,540 55,350 6,243 --------- --------- --------- Cash and equivalents at end of period $ 27,700 $ 25,540 $ 55,350 ========= ========= ========= Supplemental cash flow information and noncash investing and financing activities: Interest paid less capitalized interest $ 3,150 $ 11,716 $ 49,884 Income taxes (refunded) paid $ (1,210) $ 4,690 $ 750 Capital lease obligations (machinery and equipment) $ 0 $ 0 $ 694
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION (in thousands, except number of shares and per share and per bond amounts) On November 13, 2002, Viskase Companies, Inc., a stand-alone entity (VCI), filed a prepackaged Chapter 11 bankruptcy in the Bankruptcy Court. The Chapter 11 filing is for VCI only and does not include any domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed The Plan, as modified. VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003. Cash flows from operations for the Company ("Company" means Viskase Companies, Inc. and its subsidiaries) were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66- 2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the old common stock (Old Shares) will receive Warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share (Warrant). Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees. Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows (dollars in thousands):
December 31, 2002 Petition Date ----------------- ------------- 10.25% Senior Notes $163,060 $163,060 Accrued interest 25,098 25,098 Other current liabilities 40 40 -------- -------- $188,198 $188,198 ======== ========
The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Accordingly, all pre-petition liabilities subject to compromise have been segregated in the consolidated balance sheets and have been classified as such at the estimated amount of allowable claims. Liabilities not subject to compromise have been separately classified as current and non-current. Expenses and gains and losses resulting from the reorganization have been separately reported as reorganization items on the consolidated statements of operations. Cash used for reorganization is disclosed separately in the consolidated statements of cash flows. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. Condensed financial information of the Debtor subsequent to the Petition Date is presented below: VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION STATEMENT OF OPERATIONS (UNAUDITED) DOLLARS IN THOUSANDS
November 13, 2002 to December 31, 2002 ----------------- Selling, general and administrative $ 49 Other (income) expense, net 30 Intercompany interest income, net 5,049 ------ Income from continuing operations before taxes and reorganization items 4,970 Reorganization expense 452 Income tax provision 0 ------ NET INCOME $4,518 ======
VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) DOLLARS IN THOUSANDS
November 13, 2002 to December 31, 2002 ----------------- Cash flows from operating activities: Net income $ 4,518 Adjustments to reconcile net income to net cash: Changes in operating assets and liabilities Other current assets (169) Accrued liabilities 461 (Decrease) in deferred tax (26) Intercompany accounts (4,855) Other 19 -------- Net cash (used in) operating activities (52) Net decrease in cash and equivalents (52) Cash and equivalents at Petition Date 0 -------- Cash and equivalents at end of period $ (52) ========
VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION BALANCE SHEET (UNAUDITED) DOLLARS IN THOUSANDS
December 31, 2002 ----------------- ASSETS Current assets Other current assets $ 169 --------- Total current assets 169 Property, plant and equipment, net 0 Deferred financing 39 Intercompany receivables 411,629 Investment in affiliate entities (348,254) ---------- Total assets $ 63,583 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities not subject to compromise: Overdrafts payable $ 52 Accounts payable 407 Accrued liabilities 54 ---------- Total current liabilities not subject to compromise 513 Current liabilities subject to compromise 188,198 Deferred income taxes 50,018 ---------- Total liabilities 238,729 Stockholders' deficit (175,146) ---------- Total Liabilities and Stockholders' Deficit $ 63,583 ==========
In addition to the Company's financial reporting obligations as prescribed by the U.S. Securities and Exchange Commission (SEC), the Debtor is also required, under the rules and regulations under the Bankruptcy Code, to periodically file certain statements and schedules and a monthly operating report with the Bankruptcy Court. This information is available to the public through the Bankruptcy Court. This information is prepared in a format that may not be comparable to information in the Company's quarterly and annual financial statements as filed with the SEC. The monthly operating reports are not audited, do not purport to represent the financial position or results of operations and cash flows of the Company on a consolidated basis and should not be relied on for such purposes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 2002 presentation. (C) Use of estimates in the preparation of financial statements The preparation of 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 are 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 $52,193 and $44,840 of short-term investments at December 31, 2002 and December 31, 2001, respectively. The 2002 restricted cash is principally cash held as collateral for outstanding letters of credit with a commercial bank. Included within restricted cash is a letter of credit of $2,109 which F. Edward Gustafson, Chairman of the Board, President and Chief Executive Officer, is the beneficiary. The letter of credit supports amounts payable under his Employment Agreements. (E) Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining inventories, 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, 2002. 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 or when circumstances warrant. (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 $420 and $721 at December 31, 2002 and December 31, 2001, 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 which 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, 2002, changes in other comprehensive income primarily resulted from changes in foreign currency translation adjustments and 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 was immaterial. (Q) Stock-based compensation In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. The provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. Management has adopted the footnote disclosure provisions and is considering the recognition provisions of the standard and its effects on the Company's financial statements. 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 No. 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 No. 123 and SFAS No. 148 as follows:
2002 2001 2000 --------- --------- --------- Net (loss) before extraordinary item, as reported $(19,330) $(33,663) $(24,347) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (0) (515) (160) --------- --------- --------- Pro forma net (loss) before extraordinary item (19,330) (34,178) (24,507) Net (loss), as reported (19,330) (25,526) (17,836) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (0) (515) (160) --------- --------- --------- Pro forma net (loss) (19,330) (26,041) (17,996) PER SHARE AMOUNTS: Net (loss) before extraordinary item, as reported - basic and diluted EPS $(1.26) $(2.20) $(1.61) Pro forma net (loss) before extraordinary item - basic and diluted EPS (1.26) (2.23) (1.62) Net (loss) - basic and diluted EPS, as reported $(1.26) $(1.67) $(1.18) Pro forma net (loss) - basic and diluted EPS (1.26) (1.70) (1.19)
(R) Accounting standards In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 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. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement is applicable for fiscal years beginning after May 15, 2002 and requires, among other things, that any gain or loss on extinguishment of debt that does not meet criteria in Opinion 30, as amended, no longer be classified as an extraordinary item. The gain of $8,137, net of income taxes, relating to the repurchase of Senior Notes in 2001 and the gain of $6,511, net of income taxes, relating to the repurchase of Senior Notes in 2000, were reported as extraordinary items in the Company's consolidated statements of operations for the years then ended. In 2003, these prior period extraordinary items will be reclassified in the consolidated statements of operations as a separate caption along with interest expense in accordance with this statement. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by Emerging Issues Task Force (EITF) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The provisions of this Statement will prospectively apply to exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company will apply the provisions of this interpretation to guarantees issued after December 31, 2002. The Company is in compliance with the disclosure requirements of the interpretation. 3. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,334 and $1,470 at December 31, 2002 and December 31, 2001, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 6% of sales or 4% of receivables. 4. INVENTORIES (dollars in thousands) Inventories consisted of:
2002 2001 ------- ------- Raw materials $ 3,872 $ 3,173 Work in process 13,394 13,131 Finished products 13,321 12,760 ------- ------- $30,587 $29,064 ======= =======
Approximately 52% and 54% of the Company's inventories at December 31, 2002 and December 31, 2001, respectively, were valued at LIFO. Remaining inventories, primarily foreign, are valued at the lower of first-in, first- out (FIFO) cost or market. At December 31, 2002 and December 31, 2001 the LIFO values exceeded current manufacturing cost by approximately $687 and $799, respectively. During 2002 and 2001, the Company wrote down $383 and $3,612 of LIFO inventories, respectively, 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 $2,725 and $2,816 at December 31, 2002 and December 31, 2001 respectively. 5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
2002 2001 -------- -------- Property, plant and equipment: Land and improvements $ 4,253 $ 4,468 Buildings and improvements 28,631 26,242 Machinery and equipment 121,185 111,193 Construction in progress 3,428 2,797 Capital leases: Machinery and equipment 88,937 88,937 -------- -------- $246,434 $233,637 ======== ========
Capitalized interest in 2002, 2001 and 2000 totaled $81, $290 and $443, respectively. Maintenance and repairs charged to costs and expenses for 2002, 2001 and 2000 aggregated $13,142, $12,789 and $22,836, respectively. The decrease in maintenance and repairs expense in 2002 and 2001 is due to the sale of the Films Business in August 2000. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land 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 $4,162 and $4,678 at December 31, 2002 and December 31, 2001, respectively. During 2002, properties held for sale with a net book value of $541 were disposed of. 6. OTHER ASSETS (dollars in thousands)
2002 2001 ------- ------- Patents $20,000 $20,000 Less accumulated amortization 18,000 16,000 ------- ------- Patents, net 2,000 4,000 Miscellaneous 4,854 5,014 ------- ------- $ 6,854 $ 9,014 ======= =======
Patents are amortized on the straight-line method over an estimated average useful life of ten years. Miscellaneous other assets include income tax refund receivables in the amount of $3,870 and $3,949 at December 31, 2002 and December 31, 2001, respectively. 7. ACCRUED LIABILITIES NOT SUBJECT TO COMPROMISE (dollars in thousands) Accrued liabilities were comprised of:
2002 2001 ------- ------- Compensation and employee benefits $13,528 $10,668 Taxes 3,911 3,070 Accrued volume and sales discounts 2,285 2,124 Restructuring (see Note 11) 2,773 15,094 Accrued interest (see Note 8) 0 9,821 Other 5,421 7,426 ------- ------- $27,918 $48,203 ======= =======
8. DEBT OBLIGATIONS (dollars and shares in thousands, except for number of shares and per share and per bond amounts) Outstanding short-term and long-term debt consisted of:
2002 2001 -------- -------- Short-term debt, current maturity of long-term debt and capital lease obligations not subject to compromise: Viskase Capital Lease Obligation $ 64,106 $ 72,855 10.25% Senior Notes due 2001 163,060 Other 177 144 -------- -------- Total short-term debt not subject to compromise: $ 64,283 $236,059 ======== ======== Current liabilities subject to compromise: 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- Total current liabilities subject to compromise: $188,198 ======== Long-term debt not subject to compromise: Other $ 85 $ 194 -------- -------- Total long-term debt not subject to compromise $ 85 $ 194 ======== ========
10.25% Notes On November 13, 2002, VCI filed a prepackaged Chapter 11 bankruptcy in the Bankruptcy Court. The Chapter 11 filing is for VCI only and does not include any of the Company's domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed The Plan, as modified. VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003. Cash flows from operations for the Company were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the Old Shares will receive Warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share. Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees. Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows:
(in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ========
Letter of Credit Facility Letters of credit in the amount of $27,550 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations, cash on hand, and a revolving credit facility that the Company anticipates that it will enter into upon emergence from bankruptcy. GECC The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease: February 28, 2003 $18,499 April 11, 2003 $ 5,000 February 28, 2004 $11,750 August 28, 2004 $11,749 February 28, 2005 $23,500 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) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. 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, 2002. The lease payment maturities conform to contractual payments under the lease:
Year ending December 2003 $23,499 2004 23,499 2005 23,500 ------- Net minimum lease payments 70,498 Less: Amount representing interest 6,392 ------- $64,106 =======
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, 2002, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $163,060 and $34,243, respectively. There were no short-term borrowings in 2002. Aggregate maturities of debt for each of the next five years are:
GECC (1) Other Total -------- ----- ------- 2003 $19,306 $177 $19,483 2004 21,300 21,300 2005 23,500 23,500 2006 2007 Thereafter 85 85 ------- ---- ------- Total $64,106 $262 $64,368 ======= ==== =======
(1) The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The 10.25% Senior Notes due 2001, which are classified as "Current Liabilities Subject to Compromise", are excluded from this schedule. 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, 2002, are: 2003 $1,425 2004 1,253 2005 1,097 2006 997 2007 897 Total thereafter 2,606 ------ Total minimum lease payments $8,275 ====== Total rent expense during 2002, 2001 and 2000 amounted to $1,971, $1,682 and $2,122, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 2002, 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). The Company recognized a minimum pension liability adjustment which is due to changes in plan return assumptions and asset performance (see Note 20 Comprehensive (Loss)). PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands):
Pension Benefits Other Benefits ---------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- ACCUMULATED BENEFIT OBLIGATION (ABO) $102,190 $ 93,215 CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $107,251 $103,641 $44,615 $41,404 Service cost 1,924 1,806 777 762 Interest cost 7,521 7,347 3,270 3,021 Actuarial losses 5,711 1,946 4,481 1,458 Benefits paid (7,275) (7,136) (2,322) (1,877) Plan amendment (4) Translation 58 (353) 25 (153) --------- --------- --------- --------- Estimated benefit obligation at end of year $115,186 $107,251 $50,846 $44,615 ========= ========= ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 89,058 $ 98,687 $ $ Actual return on plan assets (7,888) (6,308) Employer contribution 1,164 4,162 2,322 1,877 Benefits paid (7,275) (7,136) (2,322) (1,877) Translation 56 (347) ------- -------- -------- -------- Estimated fair value of plan assets at end of year $75,115 $89,058 $ 0 $ 0 ======= ======= ======== ======== RECONCILIATION OF ACCRUED BENEFIT COST, AT YEAR END Funded status $(40,071) $(18,193) $(50,846) $(44,615) Unrecognized net loss 33,940 13,117 9,236 5,118 Unrecognized prior service cost 437 499 --------- --------- --------- --------- (Accrued) benefit cost $ (5,694) $ (4,577) $(41,610) $(39,497) ========= ========= ========= =========
Pension Benefits Other Benefits ---------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- AMOUNTS RECOGNIZED IN STATEMENT OF FINANCIAL POSITION Prepaid benefit cost $ 29 Accrued benefit liability (32,806) $(10,134) Intangible asset 338 385 Accumulated other comprehensive loss 26,745 5,172 -------- ---------- Net amount recognized $ (5,694) $ (4,577) ======== ========== WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR Discount rate 6.75% 7.22% 6.73% 7.23% Expected return on plan assets 8.89% 8.81% Rate of compensation increase 3.75% 4.25%
For measurement purposes, a 7.5% and 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed in 2002 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease to 6.5% in 2004 for the U.S. plan and gradually decrease to 5% through 2007 for the Canadian plan. The expected return of pension plan assets in 2002 increased over the prior year because the actual return on Canadian pension plan assets, which were annuitized, was higher than the rate in 2001.
Pension Benefits Other Benefits ------------------------------ ------------------------------ 2002 2001 2000 2002 2001 2000 ---- ---- ---- ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $1,924 $1,806 $2,888 $ 777 $ 762 $ 971 Interest cost 7,522 7,347 7,347 3,270 3,021 3,106 Expected return on plan assets (7,686) (8,627) (8,541) Amortization of net pension obligation 33 Amortization of prior service cost 56 67 126 53 Amortization of actuarial (gain) loss 463 91 (119) 363 136 443 ------ ------ ------- ------ ------ ------ Net periodic benefit cost 2,279 684 1,734 4,410 3,919 4,573 FAS No. 88 curtailment (gain) loss (950) 597 ------- ------ Total net periodic benefit cost $2,279 $ 684 $ 784 $4,410 $3,919 $5,170 ====== ====== ====== ====== ====== ======
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:
Other Benefits ----------------- 2002 2001 ---- ---- Effect of 1% change in medical trend cost: Based on a 1% increase Change in accumulated postretirement benefit obligation $2,272 $2,018 Change in service cost and interest 179 162 Based on a 1% decrease Change in accumulated postretirement benefit obligation (2,593) (2,311) Change in service cost and interest (207) (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 $754, $762 and $1,158 in 2002, 2001 and 2000, 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 2002, 2001 and 2000 was $42, $301 and $202, 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 $2,748. 11. RESTRUCTURING CHARGES During the second quarter of 2002, the Company committed to a restructuring plan to address the industry's competitive environment. The plan resulted in a before tax charge of $3.2 million. Approximately 2% of the Company's worldwide workforce was laid off due to the 2002 restructuring plan. In connection with the restructuring, the Company wrote off the remaining net book value of the Nucel(r) equipment and the costs associated with the decommissioning of this equipment. The Company also reversed an excess reserve of $9.3 million for Nucel(r) technology third party license fees that had been renegotiated during the second quarter of 2002. The Nucel(r) technology license fees were originally reflected in the 2000 restructuring reserve. In the fourth quarter of 2002 and the year-to-date period, the Company paid third party license fees of approximately $.6 million and $2.3 million, respectively. The renegotiated Nucel(r) technology third party license fee payments remaining are estimated at $.9 million, $.4 million, $.2 million, $.2 million and $.5 million for the year periods 2003 to 2007 and are included in the 2000 restructuring reserve. 2002 Restructuring
2002 Restructuring Reserve as of 2002 Write- December Charge Payments down 31, 2002 ------ -------- ----- ------------- Employee costs $1.4 $(.9) $.5 Nucel(r) equipment 1.0 $(1.0) Decommissioning .8 (.7) .1 ----- ------ ------ --- Total restructuring charge $3.2 $(1.6) $(1.0) $.6 ====== ====== === Reversal of 2000 excess reserve (9.3) ------ Restructuring (income) $(6.1) ======
2000 Restructuring The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2002:
2000 2000 Restructuring Restructuring Reserve Reserve as of as of December Other December 31, 2001 Payments Adjustments 31, 2002 ------------- -------- ----------- -------------- Employee costs $1.0 $(1.0) Nucel(r) license fees 13.8 (2.3) $(9.3) $2.2 Decommissioning .3 (.2) .1 ----- ----- ------ ---- Total restructuring reserve $15.1 $(3.5) $(9.3) $2.3 ===== ====== ====== ====
The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2001:
2000 2000 Restructuring Restructuring Reserve Reserve as of as of December Other December 31, 2000 Payments Adjustments 31, 2001 ------------- -------- ------------- -------------- Employee costs $11.2 $(9.8) $(.4) $1.0 Nucel(r) license fees 15.3 (1.6) .1 13.8 Decommissioning .6 (.3) .0 .3 ----- ------ ----- ----- Total restructuring reserve $27.1 $(11.7) $(.3) $15.1 ===== ======= ===== =====
The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2000:
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 ----- ------ ------- ------ ----- Total restructuring charge $95.7 $(5.2) $(55.8) $(7.6) $27.1 ====== ======= ====== ===== Reversal of excess reserve (.8) ------ Restructuring charge $94.9 ======
Approximately 15% of the Company's worldwide workforce was laid off due to the 2000 restructuring plan. During 2001, the Company incurred a restructuring charge of $4.8 million for the write-down of facilities held for sale. These facilities are included in property held for sale (see Note 5). 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 are:
Year Ended December 31, 2000 ----------------- Net sales $110,017 Costs and expenses Cost of sales 83,502 Selling, general and administrative 19,096 Amortization of intangibles 2,000 -------- Operating income 5,419 Interest income 19 Interest expense 98 Other expense, net 1,608 -------- Income from discontinued operations before taxes 3,732 Income tax provision 297 -------- Net income from discontinued operations $ 3,435 ========
13. INCOME TAXES (dollars in thousands)
2002 2001 2000 ---- ---- ---- Pre-tax (loss) from continuing operations consisted of: Domestic $(18,417) $(28,353) $(70,065) Foreign (2,210) (11,869) (25,174) --------- --------- --------- Total $(20,627) $(40,222) $(95,239) ========= ========= =========
The provision (benefit) for income taxes from continuing operations consisted of:
2002 2001 2000 ---- ---- ---- Current: Federal $(2,145) Foreign 1,530 $(2,810) $728 State 36 138 -------- -------- ---- Total current (579) (2,672) 728 Deferred: Federal Foreign (718) (698) State -------- -------- ---- Total deferred (718) (698) -------- -------- ---- Total $(1,297) $(3,370) $728 ======== ======== ====
The total provision (benefit) for income taxes was allocated to the following categories:
2002 2001 2000 ---- ---- ---- Continuing operations $(1,297) $(3,370) $ 728 Income from discontinued operations 297 Gain on sale from discontinued operations 6,633 Extraordinary gain 633 -------- -------- ------ Total income tax provision (benefit) $(1,297) $(3,370) $8,291
A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows:
2002 2001 2000 ---- ---- ---- 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 (.17) (.34) Net effect of taxes relating to foreign operations (2.03) (1.61) (10.02) Reversal of overaccrued taxes (25.74) Valuation allowance changes and other (26.50) (24.67) ------- ------- ------- Effective tax rate from continuing operations 6.30% 8.38% (.76)% ======= ======= ========
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 2002 and 2001 are as follows:
Year 2002 --------------------------------------------------------------- Temporary Difference Tax Effected ----------------------------- ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities Depreciation basis differences $ 57,415 $ 22,392 Inventory basis differences 4,609 1,798 Intangible basis differences 2,000 780 Lease transaction $ 64,105 $ 25,001 Pension and healthcare 47,955 18,702 Employee benefits accruals 6,006 2,342 Loss and other carryforwards 56,875 22,181 AMT carryover 9,749 3,412 Restructuring reserve 20,510 7,999 Self insurance accruals and reserves 3,354 1,308 Other accruals and reserves 551 216 Foreign exchange and other 23,526 9,175 Valuation allowances 187,407 73,089 -------- -------- -------- -------- $209,105 $274,957 $ 81,161 $107,234 ======== ======== ======== ========
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 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
At December 31, 2002, the Company had federal income tax net operating loss carryforwards of approximately $56,875 which had been substantially offset by a valuation allowance. In addition, at December 31, 2002 and December 31, 2001, the Company had alternative minimum tax credit carryforwards of $3,412 and $5,557, respectively. The Company received an income tax refund of $2,145 resulting from the Job Creation Act enacted in March 2002. 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, 2002 and 2001, the Company had capital expenditure commitments outstanding of approximately $332 and $642, respectively. 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") partially 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 partial 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 is claiming that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on 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 advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. 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 expects to amend the lawsuit prior to June 1, 2003. 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 $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings 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. 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 strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint. 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 condition. 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 15,314,562 shares of common stock were issued and outstanding as of December 31, 2002. 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 $99 thousand, $105 thousand and $18 thousand in 2002, 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. Under the Stockholder Rights 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 Stockholder Rights Plan, through April 19, 2003, 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. The Rights Plan will terminate on the Effective Date. 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 ---------------------------------------------- 2002 2001 2000 ---- ---- ---- Numerator: (Loss) available to common stockholders: From continuing operations $(19,330) $(36,852) $(95,967) Discontinued operations net of income taxes: Income from discontinued operations 3,435 Gain on disposal 3,189 68,185 --------- --------- --------- (Loss) before extraordinary item (19,330) (33,663) (24,347) Extraordinary gain, net of income taxes: 8,137 6,511 --------- --------- --------- Net loss available to common stockholders for basic and diluted EPS $(19,330) $(25,526) $(17,836) a ========= ========= ========= Denominator: Weighted average shares outstanding for basic EPS 15,316,183 15,309,616 15,126,670 Effect of dilutive securities ----------- ----------- ----------- Weighted average shares outstanding for diluted EPS 15,316,183 15,309,616 15,126,670 =========== =========== ===========
Common stock equivalents are excluded from the loss-per-share calculations, as the result is anti-dilutive. 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. 148, "Accounting for Stock Based Compensation - Transition and Disclosure." A summary of the Company's stock option activity during the years ended December 31, 2002, 2001 and 2000 is presented below:
2002 2001 2000 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price -------- -------- -------- -------- -------- -------- Outstanding at beginning of year 871,930 $2.68 945,710 $2.83 646,760 $4.19 Granted 0 7,000 1.78 550,000 1.78 Exercised 0 Forfeited (36,500) 1.95 (80,780) 4.35 (251,050) 4.04 -------- -------- ---------- Outstanding at year end 835,430 2.71 871,930 2.68 945,710 $2.83 ======== ======== ========== Options exercisable at year end 835,430 2.71 871,930 $2.68 344,389 $4.28 ======== ======== ========== Future option grants available at year end 449,898 413,398 339,618 ======== ======== ==========
As of December 31, 2002, total stock options outstanding have a weighted- average remaining contractual life of 6.41 years. The exercise price of options outstanding as of December 31, 2002 ranged from $1.78 to $7.25. There were no option grants in 2002. The weighted average grant date fair value of options granted during years 2001 and 2000 was $1.68 and $1.45, respectively. These options will be canceled under the Plan. 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 0% in 2002, 181.31% in 2001, and 138.8% in 2000, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date was 0% in 2002, 4.65% in 2001 and 5.69% to 5.97% in 2000, and (3) the expected life of 5 years in 2002, 2001 and 2000. There were no option grants in 2002. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. 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 directors 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, 46,723 shares were issued at $1.38 during 2001 and 44,302 shares were issued at $2.29 during 2000, respectively. The shares issued under this plan will be converted into Warrants upon the Effective Date. 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 $99 thousand, $105 thousand and $18 thousand in 2002, 2001 and 2000, respectively. The shares issued under this plan are subject to forfeiture until October 27, 2003. The Diamond Anniversary Shares will be converted into Warrants upon emergence from bankruptcy. 20. COMPREHENSIVE (LOSS) (in thousands) The following sets forth the changes in the components of other comprehensive income (loss) and the related income tax (benefit) provision:
Years Ended ---------------------------------------------- December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Other comprehensive income (loss): Foreign currency translation Adjustment (1) $ 3,711 $ (129) $(2,730) Less reclassification of foreign currency translation adjustment for discontinued operations (2) 2,532 Minimum pension liability adjustment (3) (21,573) (5,172) --------- -------- -------- Other comprehensive (loss), net of tax $(17,862) $(5,301) $ (198) ========= ======== ========
(1) Foreign currency translation adjustments, net of related tax (benefit) of $0, $0 and $(1,746) for the years ended 2002, 2001 and 2000, 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 2002 and 2001, respectively. The minimum pension liability adjustment is due to changes in plan return assumptions and asset performance. 21. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 2002 of the Company's financial instruments. (Refer to Notes 2 and 8.)
Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and cash equivalents $27,700 $27,700 Restricted cash 28,347 28,347 Liabilities: Current liabilities subject to compromise $163,060 $34,243
22. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $4,070, $4,837 and $5,474 for 2002, 2001 and 2000, respectively. 23. RELATED PARTY TRANSACTIONS (dollars in thousands) During 2002, 2001 and 2000, 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 $321, $377 and $444, respectively. Donald P. Kelly, a beneficial owner of greater than 5% of the Common Stock, and Mr. Gustafson, a beneficial owner of greater than 5% of the outstanding Common Stock and the Chairman, Chief Executive Officer and President of the Company, are executive officers and limited partners of DPK. During years 2002, 2001 and 2000, Viskase had sales of $592, $689 and $23,229, respectively, to Cargill, Inc. and its affiliates. The majority of sales to Cargill, Inc. were 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., will resign as a director of the Company as of the Effective Date. 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 2002, 2001 and 2000 includes net foreign exchange transaction gains (losses) of approximately $1,659, $(2,309) and $(4,171), respectively. Business Segment Information
Years Ended December 31 ---------------------------------------- 2002 2001 2000 ---- ---- ---- Net sales: Casings - Continuing operations $183,577 $189,315 $200,142 Films - Discontinued operations 110,017 -------- -------- -------- $183,577 $189,315 $310,159 ======== ======== ======== Operating income (loss): Casings - Continuing operations $ 2,342 $(13,736) $(93,702) Films - Discontinued operations 5,419 -------- -------- -------- $ 2,342 $(13,736) $(88,283) ======== ======== ======== Identifiable assets: Casings - Continuing operations $218,681 $234,028 $322,364 Films - Discontinued operations 146,318 -------- -------- -------- $218,681 $234,028 $468,682 ======== ======== ======== Depreciation and amortization: Casings - Continuing operations $ 22,959 $ 23,125 $ 25,012 Films - Discontinued operations 9,415 -------- -------- -------- $ 22,959 $ 23,125 $ 34,427 ======== ======== ======== Capital expenditures: Casings - Continuing operations $ 3,824 $ 5,882 $ 12,350 Films - Discontinued operations 1,385 -------- -------- -------- $ 3,824 $ 5,882 $ 13,735 ======== ======== ========
Geographic Area Information
Years Ended December 31 ---------------------------------------- 2002 2001 2000 ---- ---- ---- Net sales: North America $122,648 $128,488 $202,362 South America 7,424 7,861 25,025 Europe 66,458 70,058 100,885 Other and eliminations (12,953) (17,092) (18,113) --------- --------- --------- $183,577 $189,315 $310,159 ======== ======== ======== Operating (loss) income: North America $ 3,431 $(10,757) $(74,282) South America (1,275) (633) 4,146 Europe 186 (2,346) (18,228) Other and eliminations 81 --------- --------- --------- $ 2,342 $(13,736) $(88,283) ======== ======== ======== Identifiable assets: North America $132,913 $145,002 $326,876 South America 8,849 9,487 27,526 Europe 76,919 79,539 113,651 Other and eliminations 629 --------- --------- --------- $218,681 $234,028 $468,682 ======== ======== ========
United States export sales: (reported in North America net sales above) Asia $15,697 $16,651 $15,319 South and Central America 4,951 6,593 14,515 Other International 5,211 4,296 72 --------- --------- --------- $25,859 $27,540 $29,906 ======== ======== ========
The total assets and net assets of foreign businesses were approximately $87,234 and $26,833, at December 31, 2002. 25. QUARTERLY DATA (unaudited) Quarterly financial information for 2002 and 2001 is as follows (in thousands, except for per share amounts):
First Second Third Fourth 2002 Quarter Quarter Quarter Quarter Annual - ---- ------- ------- ------- ------- ------ Net sales $43,387 $46,291 $48,673 $45,226 $183,577 Gross margin 8,676 10,003 9,972 8,085 36,736 Operating (loss) income (2,435) 6,053 (2,920) 1,644 2,342 Net (loss) income (7,883) 1,131 (8,683) (3,895) (19,330) Net (loss) income per share - basic and diluted (.51) .07 (.57) (.25) (1.26)
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)
During the second quarter of 2002, the Company recognized a net restructuring income of $6,132. The restructuring income is the result of a reversal of $9,289 of excess reserve from the year 2000 for the reduction of the Nucel(r) technology third party license fees, offset by a year 2002 restructuring charge of $3,157 (see Note 11). 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. 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 ----------- ---------- ---------- ---------- ---------- -------- ---------- 2002 for the year ended December 31 Allowance for doubtful accounts $1,470 $ 477 $ (711) $22 $ 76 $1,334 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 2002 for the year ended December 31 Reserve for obsolete and slow moving inventories $2,816 $1,670 $(1,877) $ 116 $2,725 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
(1) Foreign currency translation and the 2000 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) 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 333-12829) of Viskase Companies, Inc. and Subsidiaries of our report dated March 14, 2003, relating to the financial statements and financial statement schedule which appears in this Form 10-K. Chicago, Illinois March 31, 2003 EX-2 3 ex2-2.txt AMENDMENT TO PURCHASE AGREEMENT AMENDMENT NO. 2 TO PURCHASE AGREEMENT THIS AMENDMENT NO. 2, dated as of May 18, 2001 (this "Amendment"), to Purchase Agreement, dated as of July 7, 2000 (the "Purchase Agreement"), by and among Viskase Companies, Inc., a Delaware corporation ("Parent"), Viskase Corporation, a Pennsylvania corporation ("Viskase"), Viskase Holding Corporation, a Delaware corporation ("US Holdings"), Viskase Sales Corporation, a Delaware corporation ("Sales"), Viskase Europe Limited, a company organized under the laws of the United Kingdom ("Europe"), Viskase S.A., a company organized under the laws of France ("Viskase France"), Viskase Limited, a company organized under the laws of the United Kingdom ("UK"), Viskase Canada Inc., a company organized under the laws of Ontario ("Canada"), and Viskase Ireland Limited, a company organized under the laws of Ireland ("Ireland") (Parent, Viskase, US Holdings, Sales, Europe, Viskase France, UK, Canada and Ireland are each referred to herein individually as "Seller" and collectively as "Sellers"), and Bemis Company, Inc., a Missouri corporation ("Buyer"). W I T N E S E T H: WHEREAS, Buyer and Sellers have previously entered into the Purchase Agreement; and WHEREAS, in order to set forth certain mutual agreements with respect to the Purchase Agreement and to resolve certain disagreements with respect to the definitive Valuation Date Statement, the parties desire to enter into this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. In this Amendment, unless the context shall otherwise require, a term defined in the Purchase Agreement has the same meaning when used in this Amendment and a term defined anywhere in this Amendment has the same meaning throughout. 1.2. Interpretation. Each definition in this Amendment includes the singular and the plural, and reference to the neuter gender includes the masculine and feminine where appropriate. References to any statute or regulation means such statute or regulation as amended at the time and include any successor legislation or regulations. The heading to the Articles and Sections are for convenience of reference and shall not affect the meaning or interpretation of this Amendment. Except as otherwise stated, reference to Articles, Sections and Schedules mean the Articles, Sections and Schedules of this Amendment. ARTICLE II EMPLOYEE MATTERS 2.1. Workers' Compensation. (a) The following provisions shall be added to the end of Section 8.3(i) of the Purchase Agreement: Sellers will remain responsible for all workers' compensation claims made by Affected Employees based on an injury occurring prior to the Closing Date, provided that (i) a written record of such injury existed in the employee's files prior to May 14, 2001 or the employee filed a claim regarding such injury with an appropriate Governmental Body prior to May 14, 2001, (ii) no aggravation of the injury has occurred on or after the Closing Date and (iii) the claim is approved on or prior to December 31, 2001. Except as provided in the preceding sentence, Buyer will be responsible for all workers' compensation claims made by Affected Employees. It is understood that Sellers will remain responsible for all workers' compensation claims made by employees of the Business (other than Affected Employees) based on an injury occurring prior to the Closing Date. (b) The parties agree that, as a result of Section 2.1(a) of this Amendment, (i) the original accrual of $179,599 by Parent in its letter dated November 9, 2000, (ii) the revised accrual of $259,000 by Buyer in its letter dated January 5, 2001 and (iii) the additional accrual of $364,000 by Buyer in its letter dated January 5, 2001 are not necessary and will be eliminated in determining the definitive Valuation Date Statement pursuant to Section 3.2 of the Purchase Agreement. The parties hereby further agree that the definitive Valuation Date Statement will not include any liability, reserve or accrual for workers' compensation claims. 2.2. Employee Claims in Brazil. (a) Schedule 2.3(d) to the Purchase Agreement shall be deleted in its entirety and replaced by Schedule 2.3(d) to this Amendment. (b) Schedule 2.4 to the Purchase Agreement shall be amended by adding the claims and proceedings listed in Schedule 2.4 to this Amendment. (c) The parties agree that, as a result of Sections 2.2(a) and (b) of this Amendment, the accrual of $757,000 by Buyer in its letter dated January 5, 2001 is not necessary and will be eliminated in determining the definitive Valuation Date Statement pursuant to Section 3.2 of the Purchase Agreement. Buyer further agrees that the definitive Valuation Date Statement will not include any liability, reserve or accrual related to claims and/or lawsuits by employees in Brazil. ARTICLE III MISCELLANEOUS PROVISIONS 3.1. Counterparts. This Amendment may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 3.2. Entire Agreement. With respect to the subject matter hereof, this Amendment shall supersede anything to the contrary contained in the Purchase Agreement. 3.3. Partial Invalidity. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. 3.4. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of law provisions) of the State of Illinois (without regard to the conflicts of law provisions thereof), except to the extent that the application of substantive laws of the United States or another jurisdiction is mandatory. 3.5. Waiver. Any term or provision of this Amendment may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. Any such waiver shall be validly and sufficiently authorized for the purposes of this Amendment if, as to any party, it is authorized in writing by an authorized representative of such party. The failure of any party hereto to enforce at any time any provision of this Amendment shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Amendment or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Amendment shall be held to constitute a waiver of any other or subsequent breach. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first above written. VISKASE COMPANIES, INC. By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE CORPORATION By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE HOLDING CORPORATION By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE SALES CORPORATION By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE EUROPE LIMITED By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE S.A. By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE LIMITED By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE CANADA INC. By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- VISKASE IRELAND LIMITED By: /s/ Gordon S. Donovan ------------------------- Name: Gordon S. Donovan ------------------------- Title: Vice President ------------------------- BEMIS COMPANY, INC. By: /s/ ------------------------- Name: ------------------------- Title: ------------------------- Schedule 2.3(d) Litigation and Claims --------------------- * United States Department of Labor Investigation regarding Jackie Murphy, a former employee at the Pauls Valley, Oklahoma plant, to the extent the Department of Labor requires the reinstatement of employment of Jackie Murphy at the Pauls Valley, Oklahoma facility. * In accordance with the Licensed Patents License Agreement, Buyer will assume defense of, and be responsible for, certain liabilities with respect to the Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe v. Viskase Companies, Inc. and Viskase Corporation, No. 0-C-0280 (the "Newsome Litigation"). Schedule 2.4 Excluded Liabilities -------------------- ADDITION TO SCHEDULE 2.4: The claims outstanding relating to the Brazilian operations described in the attached summary. EX-2 4 ex2-3.txt PLAN OF REORGANIZATION UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION - ----------------------------------------- In re VISKASE COMPANIES, INC., Chapter 11 Debtor. - ----------------------------------------- DEBTOR'S PREPACKAGED PLAN OF REORGANIZATION AS MODIFIED Viskase Companies, Inc. ("Viskase" or the "Debtor"), along with its Co- Proponents, Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, jointly propose the following prepackaged plan of reorganization pursuant to the provisions of Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101 through 1330. ARTICLE I DEFINITIONS Unless the context otherwise requires, the following terms shall have the following meanings when used in initially capitalized form in this Plan. Such meanings shall be equally applicable to both the singular and plural forms of such terms. Any term used in initial capitalized form in this Plan that is not defined herein but that is used in Title 11 of the United States Code shall have the meaning assigned to such term in the Bankruptcy Code. Share numbers and prices stated in this Plan are not adjusted for a contemplated 100 to 1 reverse split of Old Common Stock that may be implemented prior to the Effective Date. 1.01. Administrative Expense or Administrative Claim means an administrative expense or Claim under section 503 of the Bankruptcy Code that is entitled to priority under section 507(a)(1) of the Bankruptcy Code, including, without limitation, the actual, necessary costs and expenses of preserving the Debtor's estates and operating the business of the Debtor, including wages, salaries and commissions for services, compensation for legal and other services and reimbursement of expenses awarded under section 330(a) or 331 of the Bankruptcy Code, and all fees and charges assessed against the estate under Chapter 123 of Title 28 of the United States Code, 28 U.S.C. Section 1930, rendered after the commencement of the Reorganization Case. 1.02. Allowed means when used with respect to any Claim or Equity Interest, a Claim (a) to the extent it is not a Contested Claim, or (b) a Contested Claim, proof of which was filed with the Bankruptcy Court, and (i) as to which no objection was filed by the Objection Deadline, unless such Claim is to be determined in a forum other than the Bankruptcy Court, in which case such Claim shall not become allowed until determined by Final Order of such other forum and allowed by a Final Order of the Bankruptcy Court, or (ii) as to which an objection was filed by the Objection Deadline to the extent allowed by a Final Order. 1.03. Avoidance Action means any and all avoidance or recovery actions under sections 502(d), 542, 544, 545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code. 1.04. Bankruptcy Code means Title 11 of the United States Code, as amended. 1.05. Bankruptcy Court or Court means the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, or such other court that exercises jurisdiction over the Reorganization Case, including a United States District Court which withdraws the reference of the Reorganization Case pursuant to 28 U.S.C. Section 157(d). 1.06. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under 28 U.S.C. Section 2075 and the local rules of the Bankruptcy Court, as applicable from time to time, to the Reorganization Case. 1.07. Business Day means any day except Saturday, Sunday or any other day on which commercial banks in Illinois or New York are authorized by law to close. 1.08. Certificate of Merger means the certificate of merger pursuant to which Viskase Corporation will be merged with and into Reorganized Viskase on the Effective Date, which certificate of merger shall be substantially in the form set forth in the Reorganization Documents. 1.09. Claim means a claim (as defined in section 101(5) of the Bankruptcy Code) against the Debtor. 1.10. Claimant means a holder of an Allowed Claim. 1.11. Class means a category of holders of Claims or Equity Interests described in Article III hereof that are substantially similar to the other Claims or Equity Interests in such class. 1.12. Collateral means any property, or interest in property, of the Estate of Viskase subject to a Lien to secure the payment or performance of a Claim, which Lien is not subject to avoidance or otherwise invalid under the Bankruptcy Code or other applicable law. 1.13. Confirmation or Confirmation of the Plan means the entry by the Bankruptcy Court of an Order confirming the Plan. 1.14. Confirmation Date means the date on which the Bankruptcy Court enters an order confirming the Plan. 1.15. Confirmation Hearing means the hearing which will be held before the Bankruptcy Court in which the Debtor will seek Confirmation of the Plan. 1.16. Confirmation Order means the order confirming the Plan pursuant to section 1129 of the Bankruptcy Code. 1.17. Contested means when used with respect to a Claim, a Claim (i) that is listed in the Debtor's Schedules as disputed, contingent, or unliquidated, (ii) that is listed in the Debtor's Schedules as undisputed, liquidated, and not contingent and as to which a proof of claim has been filed with the Bankruptcy Court, to the extent the proof of claim exceeds the scheduled amount, (iii) that is not listed in the Debtor's Schedules, but as to which a proof of claim has been filed with the Bankruptcy Court and as to which a timely objection has been filed, or (iv) that is not listed in the Debtor's schedules and as to which no timely proof of claim has been Filed. 1.18. Co-Proponents means Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, in their capacity as co-proponents with the Debtor of the Plan. 1.19. Debtor means Viskase Companies, Inc. 1.20. Debtor-in-Possession means the Debtor, when acting in its capacity as representative of the Estate prior to Confirmation. 1.21. Disbursing Agent means Reorganized Viskase, which shall hold and disburse the New Secured Notes to be disbursed pursuant to the Plan. 1.22. Disclosure Statements means the disclosure statement, as it may be supplemented, amended or modified from time to time, for solicitation of ballots from holders of Old Notes and Old Shares, respectively, in connection with this Plan. 1.23. Disputed Claims means any Claim which has not become an Allowed Claim as of the Effective Date. 1.24. Disputed Claims Reserve means a reserve of cash, New Common Stock, New Secured Notes, Warrants and/or other Distributions under the Plan, established herein for, among other things, the payment or other satisfaction of Disputed Claims that become Allowed Claims after the Effective Date, which reserve shall be held in trust for the benefit of the holders of Disputed Claims. 1.25. Distributions means the distribution to be made in accordance with the Plan of, as the case may be: (a) cash, (b) New Common Stock, (c) New Secured Notes, (d) Warrants, (e) Restricted Stock and (f) any other distributions to holders of Claims under the terms and provisions of the Plan. 1.26. D&O Releasees means all officers, directors, employees, attorneys, financial advisors, accountants, investment bankers, agents and representatives of the Debtor and the Subsidiaries, but in each case only in their capacity as such and only if serving in such capacity on the Petition Date and the Effective Date; provided that any such party serving in such capacity on the Petition Date but who is terminated without cause prior to the Effective Date shall still be considered a "D&O Releasee" hereunder. 1.27. Effective Date means a date selected by the Debtor that is no more than 10 Business Days following the date on which all conditions to consummation set forth in Section 8.01 of the Plan have been satisfied. 1.28. Equity Interest means, as of the Petition Date, any capital stock or other ownership interest in Viskase, whether or not transferable, and any option, call, warrant or right to purchase, sell or subscribe for an ownership interest or other equity security in Viskase, including, but not limited to, (i) the Old Common Stock, (ii) redemption, conversion, exchange, voting, participation, dividend rights and liquidation preferences relating to such Old Common Stock and (iii) the Old Stock Options. 1.29. Estate means the estate of the Debtor created by section 541 of the Bankruptcy Code upon the commencement of the Reorganization Case. 1.30. Filed means filed with the Bankruptcy Court. 1.31. Final Order means an order entered by the Bankruptcy Court or any other court having jurisdiction over the subject matter and the parties as to which (a) no appeal or certiorari proceeding has been commenced or is still pending, and (b) the time for filing a notice of appeal or petition for certiorari shall have expired. 1.32. GECC means General Electric Capital Corporation. 1.33. GECC Lease means that certain Lease Agreement, as amended, dated as of December 18, 1990, between The Connecticut National Bank (n/k/a State Street Bank and Trust Company), as owner trustee, and Viskase Corporation, as Lessee. 1.34. GECC Sale/Leaseback Transaction means that certain transaction between Viskase Corporation and GECC whereby Viskase Corporation sold four domestic cellulosic casings production and finishing facilities to The Connecticut National Bank (n/k/a State Street Bank and Trust Company), as owner trustee for GECC, and Viskase Corporation agreed to lease the facilities from The Connecticut National Bank for a 15-year term. 1.35. GECC Sale/Leaseback Transaction Documents means all of the documents, as such documents may be amended from time to time, which reflect the GECC Sale/Leaseback Transaction, including but not limited to (a) that certain Participation Agreement, dated as of December 18, 1990, among Viskase Corporation as lessee, Envirodyne Industries, Inc. as guarantor, GECC as owner participant and The Connecticut National Bank (n/k/a State Street Bank and Trust Company), as owner trustee, (b) that certain Lease Agreement, dated as of December 18, 1990, between The Connecticut National Bank (n/k/a State Street Bank and Trust Company), owner trustee, and Viskase Corporation, lessee, (c) that certain Ground Lease, dated as of December 18, 1990, between Viskase Corporation, ground lessor, and The Connecticut National Bank (n/k/a State Street Bank and Trust Company), ground lessee, (d) that certain Ground Sublease, dated as of December 18, 1990, between The Connecticut National Bank (n/k/a State Street Bank and Trust Company), ground sublessor, and Viskase Corporation, ground sublessee, (e) that certain Facility Support Agreement, dated as of December 18, 1990, between Viskase Corporation and The Connecticut National Bank (n/k/a State Street Bank and Trust Company), owner trustee, and (f) that certain Guaranty Agreement, dated as of December 18, 1990, between Clear Shield National, Inc., Envirodyne Industries, Inc., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc. and Viskase Sales Corporation, guarantors, and The Connecticut National Bank (n/k/a State Street Bank and Trust Company), owner trustee and GECC, owner participant. 1.36. GECC Security Agreement means that certain Security Agreement, dated as of July 28, 2000, made by Viskase Holding Corporation, Viskase Companies, Inc., Viskase Corporation, and Viskase Sale Corporation in favor of State Street Bank and Trust Company (f/k/a The Connecticut National Bank) and General Electric Capital Corporation. 1.37. GECC Subordination Agreement means the Subordination Agreement to be entered into by GECC, State Street, and Wells Fargo Bank Minnesota, National Association, effective as of the Effective Date, in the form as filed with this Court on December 20, 2002. 1.38. Intercompany Claims means all Allowed Claims held by the Subsidiaries. 1.39. Lien has the meaning ascribed to such term in section 101(37) of the Bankruptcy Code (but a lien that has or may be avoided pursuant to an Avoidance Action shall not constitute a Lien). 1.40. Management Agreements means (i) the Amended and Restated Employment Agreement, dated March 27, 1996, as amended, between F. Edward Gustafson and Viskase, (ii) the Employment Agreement dated August 30, 2001, and the Letter of Credit Agreement dated April 9, 2002, among F. Edward Gustafson, Viskase and Viskase Corporation, (iii) the Employment Agreement, dated November 29, 2001, among Gordon S. Donovan, Viskase and Viskase Corporation and (iv) the Employment Agreement, dated November 29, 2001, among Kimberly K. Duttlinger, Viskase and Viskase Corporation. 1.41. Management Group means the management and other employees who will receive Restricted Stock under the Restricted Stock Plan. 1.42. New Common Stock means the shares of common stock, par value $0.01 per share, of Reorganized Viskase, to be authorized by Reorganized Viskase on the Effective Date. 1.43. New Indenture Trustee means Wells Fargo Bank Minnesota, National Association, the trustee under the New Secured Notes Indenture. 1.44. New Secured Notes means the $60,000,000 in aggregate principal amount of 8% Senior Secured Subordinated Notes due 2008 to be issued by Reorganized Viskase to holders of Allowed Claims in Class 5 pursuant to and in accordance with the terms set forth in Article VI of the Plan, the form of which New Secured Notes will be included with the Reorganization Documents. 1.45. New Secured Notes Indenture means the trust indenture governing the New Secured Notes to be entered into between Reorganized Viskase and the New Indenture Trustee, on the Effective Date, which indenture shall be substantially in the form set forth in the Reorganization Documents. 1.46. Objection Deadline means the first Business Day that is more than 180 days after the Effective Date. 1.47. Old Common Stock means the common stock of Viskase, par value $0.01 per share, authorized and outstanding on the Petition Date, including all rights, claims and interests attendant thereto. 1.48. Old Indenture Trustee means Bankers Trust Company, the trustee under the Old Notes Indenture. 1.49. Old Notes means the 10 1/4% Senior Notes due 2001 that are currently outstanding and that were issued by Envirodyne Industries, Inc. (n/k/a Viskase Companies, Inc.) under the Old Notes Indenture. 1.50. Old Notes Indenture means the Indenture, dated as of December 31, 1993, between Viskase and Bankers Trust Company, as Trustee, relating to the Old Notes. 1.51. Old Shares means, collectively: shares of the Old Common Stock. 1.52. Old Stock Options means the stock options issued by Viskase under the Stock Option Plan and any other options, warrants or other rights to purchase Old Common Stock, whenever granted. 1.53. Order means an order of the Bankruptcy Court. 1.54. Paying Agent means Wells Fargo Bank Minnesota, National Association. 1.55. Person means an individual, a corporation, a partnership, an association, a joint stock company, a joint venture, an estate, a trust, an unincorporated organization, a government, or any political subdivision thereof, or other entity. 1.56. Petition Date means the date Viskase filed its petition for relief commencing the Reorganization Case. 1.57. Plan means this Joint Prepackaged Plan of Reorganization of the Debtor under Chapter 11 of the Bankruptcy Code, as it may be amended or modified by the Debtor from time to time in accordance with the Plan, the Bankruptcy Code and the Bankruptcy Rules. 1.58. Priority Non-Tax Claim means any Claim which, if Allowed, would be entitled to priority under section 507(a) of the Bankruptcy Code, other than an Administrative Claim or a Priority Tax Claim. 1.59. Priority Tax Claim means a Claim of a governmental unity of the kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. 1.60. Record Date means the record date for determining an entitlement to receive Distributions under the Plan on account of Allowed Claims, which shall be the Confirmation Date. 1.61. Reorganization Case means the above-captioned case in the Bankruptcy Court. 1.62. Reorganization Documents means the Certificate of Merger, the Certificate of Incorporation and Bylaws of Reorganized Viskase, the Warrant Agreement, the New Secured Notes Indenture and related security and subordination agreements, the form of New Secured Notes, the Restricted Stock Plan and all other documents necessary to effectuate this Plan, which documents shall be filed by the Debtor with the Bankruptcy Court not later than twenty (20) days before the commencement of the Confirmation Hearing. 1.63. Reorganized Viskase or Reorganized Debtor means Viskase (and any successor thereto by merger, consolidation or otherwise) on and after the occurrence of the Effective Date. 1.64. Restricted Stock Plan means the plan to be adopted by Reorganized Viskase on the Effective Date, pursuant to which approximately 16 million shares of New Common Stock1 will be issued to the Management Group on the Effective Date, and an additional 17 million shares of New Common Stock will be reserved for issuance, subject to the restrictions on transfer, vesting provisions, and other terms and conditions set forth in such plan, which restricted stock plan shall be substantially in the form set forth in the Reorganization Documents. 1.65. Restricted Stock means the shares of New Common Stock to be issued pursuant to and subject to the restrictions set forth in the Restricted Stock Plan. 1.66. Rights Agreement means the Rights Agreement, dated as of June 26, 1996, as amended, between Envirodyne Industries, Inc. (n/k/a Viskase Companies, Inc.) and Harris Trust and Savings Bank, as Rights Agent, pursuant to which the board of directors of Viskase declared a dividend of one Stock Right for each outstanding share of Common Stock. The Stock Rights are attached to and automatically trade with the outstanding shares of the Old Common Stock. 1.67. Schedules means the schedules of assets and liabilities, schedules of executory contracts and the statement of financial affairs that the Debtor is required to file pursuant to section 521 of the Bankruptcy Code, the Official Bankruptcy Forms and the Bankruptcy Rules. 1.68. Secured Claim means a Claim that is secured by a lien on property in which the Estate has an interest or that is subject to setoff under section 553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's interest in the Estate's interest in such property or to the extent of the amount subject to setoff, as applicable, as determined pursuant to section 506(a) of the Bankruptcy Code, subject to the provisions of section 1111(b)(2) of the Bankruptcy Code, if applicable. 1.69. Stock Option Plan means the Viskase Companies, Inc. 1993 Stock Option Plan, as amended and restated, which provides for the granting of incentive and nonqualified stock options to employees, officers and directors. Pursuant to the Stock Option Plan, all of the Old Stock Options were granted at prices at or above the fair market value on the date of grant and have vested. 1.70. Stock Rights means the rights issued by Viskase under the Rights Agreement. 1.71. Subsidiaries means each of Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation. 1.72. Unsecured Claim means any Claim that is not an Administrative Claim, Priority Non-Tax Claim, Priority Tax Claim or Secured Claim. - ---------------------------- 1 Such shares, together with the 17 million additional shares reserved for issuance, will represent approximately 5.838% of the issued and outstanding shares of New Common Stock on a fully diluted basis as of the effective date. 1.73. Unsecured Deficiency Claim means, with reference to a Claim secured by a Lien against Collateral, an amount equal to the difference between (a) the aggregate amount of such Claim after giving effect to the operation of section 1111(b)(1)(A) of the Bankruptcy Code and (b) the amount of such Claim that is a Secured Claim; provided, however, that, in the event that the Class in which such Secured Claim is classified makes the election under section 1111(b)(2) of the Bankruptcy Code in accordance with Rule 3014 of the Bankruptcy Rules, the Unsecured Deficiency Claim otherwise relating to such Secured Claim shall be extinguished. An Unsecured Deficiency Claim is a General Unsecured Claim. 1.74. Warrants means a number of warrants of Reorganized Viskase equal to 2.71% of the number of shares of New Common Stock to be issued and outstanding upon effectiveness of the Plan on a fully diluted basis, which entitle the holders thereof for each warrant so held to purchase one share of New Common Stock for a purchase price of $10.00 per share, which warrants are to be issued by Reorganized Viskase on the Effective Date pursuant to the Warrant Agreement and this Plan. 1.75. Warrant Agreement means that certain warrant agreement between Reorganized Viskase and a warrant agent to be determined prior to the Effective Date, to be executed as of the Effective Date, regarding the issuance of the Warrants, which warrant agreement shall be substantially in the form set forth in the Reorganization Documents. ARTICLE II UNCLASSIFIED CLAIMS 2.01. Administrative Claims. Each holder of an Allowed Administrative Claim, except for any Allowed Secured Claim, will receive from Reorganized Viskase cash equal to the unpaid portion of such Allowed Administrative Claim on the later of (a) the Effective Date, and (b) as soon as practicable after such Claim becomes an Allowed Administrative Claim; provided, however, that Administrative Claims that represent liabilities incurred by the Debtor in the ordinary course of its business during the Reorganization Case may be assumed by Reorganized Viskase and paid in the ordinary course of business in accordance with the terms and conditions of any agreements relating thereto. 2.02. Priority Tax Claims. Unless otherwise agreed to by the parties, each holder of an Allowed Priority Tax Claim will receive from Reorganized Viskase deferred cash payments over a period not exceeding six years from the date of assessment of such Allowed Priority Tax Claim. Payments will be made in annual installments, with the first payment due on the later of (a) the first anniversary of the Effective Date, and (b) the date on which such Priority Tax Claim becomes an Allowed Claim, and subsequent payments to be made on each anniversary of the first payment date, together with interest accrued from the next preceding payment date at the rate of 5% per annum on the unpaid portion of the Allowed Claim; provided, however, that any installments remaining unpaid on the date which is six years after the date of assessment of the Priority Tax Claim upon which the Allowed Claim is based will be paid on the first Business Day following such date, together with any accrued or unpaid interest to that date; and provided further, that Reorganized Viskase reserves the right to pay any such Priority Tax Claim, or any remaining balance of any such Priority Tax Claim, in full at any time on or after the Effective Date, at its option, without premium or penalty. If there is any dispute over the rate of interest to be paid to the holder of a Priority Tax Claim under this section, such dispute shall be resolved by the Bankruptcy Court on or prior to the Confirmation Date. ARTICLE III CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS 3.01. Summary For purposes of all confirmation issues, including, without limitation, voting, confirmation and distribution, except as otherwise provided herein, all Claims against Viskase (except for Administrative Claims and Priority Tax Claims) and Equity Interests in Viskase are classified as follows: Class Type of Claim or Equity Treatment Interest ----- ----------------------- ------------------------- Class 1 Priority Non-Tax Claims Unimpaired - deemed to have accepted the Plan and not entitled to vote Class 2 Secured Claims Unimpaired - deemed to have accepted the Plan Class 3 General Unsecured Claims Unimpaired - deemed to have accepted the Plan Class 4 Old Note Claims Impaired - entitled to vote; voted to accept the Plan Class 5 Old Shares Impaired - entitled to vote 3.02. Class 1 - Priority Non-Tax Claims. Class 1 consists of all Priority Non-Tax Claims against the Debtor. 3.03. Class 2 - Secured Claims. Class 2 consists of all Secured Claims against the Debtor, secured by security interests in or liens upon property of the Debtor, including, but not limited to, Claims secured by mortgages, mechanics' or materialmen's liens, artisan's liens, or of miscellaneous personal property such as office furniture, telephone systems, copiers and mailing equipment. Each Class 2 miscellaneous Secured Claim shall be treated for all purposes of the Plan as a separate Class. 3.04. Class 3 - General Unsecured Claims. Class 3 consists of all Unsecured Claims against the Debtor, including but not limited to any Intercompany Claims, except for those Unsecured Claims in Classes 1 or 4. 3.05. Class 4 - Old Note Claims. Class 4 consists of all Claims that the holders and beneficial owners of the Old Notes have against the Debtor arising out of or relating to the Old Notes. 3.06. Class 5 - Old Shares. Class 5 consists of all Old Shares. ARTICLE IV TREATMENT OF CLASSES NOT IMPAIRED UNDER PLAN 4.01. Class 1 - Priority Non-Tax Claims. Unless otherwise agreed to by the parties, each holder of an Allowed Claim in Class 1 will be paid the Allowed amount of such Claim in full in cash by Reorganized Viskase on or before the later of (a) the Effective Date, and (b) the date such Claim becomes an Allowed Claim. 4.02. Class 2 - Secured Claims. Each holder of an Allowed Secured Claim against Viskase will be deemed to be classified in a separate Class and will be treated as follows: Each holder of an Allowed Secured Claim against Viskase shall, at the sole option of Viskase or Reorganized Viskase, as the case may be, receive on the Effective Date on account of its Allowed Secured Claim (a) treatment as provided under section 1124(2) of the Bankruptcy Code, with any cash payments required under section 1124(2) of the Bankruptcy Code being made on the Effective Date; or (b) such holder's Collateral. If the holder of an Allowed Secured Claim receives treatment as provided in (a) above, such holder shall retain the Liens securing the Allowed Secured Claim until paid in full. Any Unsecured Deficiency Claim relating to an Allowed Secured Claim against Viskase shall be treated as a Class 3 General Unsecured Claim. Notwithstanding the foregoing, Viskase or Reorganized Viskase, as the case may be, and any holder of an Allowed Secured Claim may agree to any alternate treatment of such Secured Claim, which treatment may include preservation of such holder's Lien; provided, however, that such treatment shall not provide a return to such holder having a present value in excess of the amount of such holder's Allowed Secured Claim. Any such agreement between Viskase and the holder of such Claim shall be subject to the approval of the Bankruptcy Court. 4.03. Class 3 - General Unsecured Claims. Unless otherwise agreed to by the parties, the legal, equitable and contractual rights of each holder of an Allowed Unsecured Claim in any subclass of Class 3 will either (a) not be altered by the Plan, or (b) at the option of Reorganized Viskase will be treated in any other manner that will result in such Allowed Unsecured Claim being deemed unimpaired under section 1124 of the Bankruptcy Code. 4.04. Unimpaired Classes. By virtue of the foregoing provisions of this Article IV, the Claims in Classes 1, 2 and 3 are not impaired under the Plan, and each such Class is conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. ARTICLE V TREATMENT OF CLASSES IMPAIRED UNDER PLAN 5.01. Class 4 - Old Notes. On the Effective Date, the holders of Allowed Claims in Class 4 shall receive in full satisfaction of their Class 4 Claims for each $1,000 principal amount of Old Notes: (i) $367.96271 principal amount of New Secured Notes; and (ii) 63.4122 shares of New Common Stock. 5.02. Class 5 - Old Shares. On the Effective Date, the certificates evidencing any and all Equity Interests will be canceled, and the holders of any Old Shares shall receive, in full and final satisfaction of such Equity Interest, such holders' pro rata share of the Warrants. 5.03. Impaired Classes. By virtue of the foregoing provisions of Article V, the Claims in Classes 4 and 5 are impaired under the Plan. And each such Class is entitled to vote to accept or reject the Plan. 5.04. Non-consensual Confirmation. In the event that any of Classes 4 or 5 fail to accept the Plan, Viskase reserves its right (i) to modify the Plan in accordance with Section 10.04 of the Plan and (ii) to request that the Bankruptcy Court confirm the Plan in accordance with section 1129(b) of the Bankruptcy code notwithstanding such lack of acceptance by finding that the Plan provides fair and equitable treatment to any impaired Class of Claims and Old Shares voting to reject the Plan. ARTICLE VI MEANS FOR EXECUTION OF PLAN 6.01. Merger of Viskase Corporation and Reorganized Viskase. On the Effective Date, the Reorganized Debtor shall take all steps necessary to effect the merger of Viskase Corporation with and into Reorganized Viskase including, without limitation, the filing of the Certificate of Merger with the Secretary of State of the State of Delaware. 6.02. Amendment to Certificate of Incorporation; Rights Agreement. On the Effective Date, the Amended and Restated Certificate of Incorporation of Viskase Companies, Inc. shall be further amended and restated in the form included with the Reorganization Documents and shall provide, among other things, for the authorization of 950 million shares of New Common Stock. The Rights Agreement shall be canceled by Viskase on or before the Confirmation Date. 6.03. New Secured Notes. On the Effective Date, Reorganized Viskase shall issue the New Secured Notes, and enter into the New Secured Notes Indenture. New Secured Notes shall be distributed only in whole dollar amounts, rounded to the nearest whole dollar. 6.04. Cancellation of Old Notes and Old Notes Indenture. On the Effective Date, the Old Notes and the Old Notes Indenture, shall be terminated and canceled. To the extent that the Old Indenture Trustee has valid liens on the distributions made with respect to the Old Notes, no provision of the Plan shall be construed as avoiding such liens, provided, however, that such liens shall not attach to the proceeds of any distribution made to the holders of the Old Notes pursuant to the Plan. 6.05. Rights of Old Indenture Trustee Under Old Notes Indenture. The Old Indenture Trustee shall receive full compensation in cash from Reorganized Viskase on the Effective Date for services rendered prior to the Effective Date. Upon payment to the Old Trustee in accordance with this paragraph, distributions to the holders of Allowed Claims in Class 4 pursuant to Section 6.03 hereof shall be free of any lien or claim asserted by the Old Indenture Trustee. 6.06. Rights of New Indenture Trustee Under New Secured Notes Indenture. On the Effective Date, the New Indenture Trustee shall receive compensation on a reasonable basis from Reorganized Viskase for services to be rendered from and after the Effective Date in effectuating the distribution of New Secured Notes as contemplated by the Plan to the holders of Allowed Claims in Class 4. The New Indenture Trustee shall be indemnified by Reorganized Viskase for any loss, liability or expense incurred by it in connection with the performance of such duties to the extent and in the manner as provided in the New Secured Notes Indenture. 6.07. Cancellation of Equity Interests. Except to the extent specifically provided otherwise in the Plan, on the Effective Date, all existing Equity Interests shall, without any further action, be canceled, annulled and extinguished and any certificates representing such Equity Interests shall be null and void and (ii) the Stock Option Plan shall be terminated. 6.08. Distributions under the Plan. On the Effective Date or such later date that Distributions are required to be made on account of Allowed Claims, Viskase or Reorganized Viskase, as the case may be, shall make, or shall make adequate reserve for, the Distributions required to be made to all holders of Claims (whether or not Allowed) under the Plan. Cash necessary to make the Distributions required under the Plan shall be provided from all excess Cash of Viskase or Reorganized Viskase (if any) or any other source. All Distributions reserved pursuant to this Section shall be held by Viskase or Reorganized Viskase, in trust, for the benefit of the holders of Claims entitled to received such Distributions. Viskase or Reorganized Viskase will place cash Distributions reserved under the Plan in a separate segregated account. 6.09. Restricted Stock Plan. On the Effective Date, the Restricted Stock Plan shall be adopted and an aggregate of approximately 385,310 shares of Restricted Stock shall be distributed to the Management Group in such amounts and in accordance with the terms set forth in the Restricted Stock Plan and any agreements entered into thereunder between Reorganized Viskase and the members of the Management Group, and approximately an additional 274,690 shares will be reserved for future issuance. 6.10. Officers and the Board of Directors of Reorganized Viskase. Subject to any requirement of Bankruptcy Court approval pursuant to section 1129(a)(5) of the Bankruptcy Code, as of the Effective date, the initial officers of Reorganized Viskase shall be the officers of Viskase immediately prior to the Effective Date. The initial board of directors of Reorganized Viskase shall consist of five (5) directors, such directors to be the company's Chief Executive Officer and four (4) persons to be designated by the holders of a majority in aggregate principal amount of Old Notes. A list setting forth the identities of the five (5) members of the board of directors for Reorganized Viskase, shall be Filed in a submission to the Bankruptcy Court as part of the Reorganization Documents or otherwise prior to the Effective Date. Each such officer and director shall serve from and after the Effective Date pursuant to the terms of the Certificate of Incorporation and Bylaws of Reorganized Viskase and applicable law. 6.11. Management Agreements. On the Effective Date, the Management Agreements shall be assumed by Reorganized Viskase. 6.12. Continuation of Business. On and after the Effective Date, Reorganized Viskase shall continue to engage in Viskase's business. 6.13. Substantial Consummation. Substantial consummation of the Plan under section 1101(2) of the Bankruptcy Code shall not be deemed to occur, the Chapter 11 Case shall remain open and not be deemed fully administered, and no final decree closing this Chapter 11 Case shall be entered pursuant to section 350(a) of the Bankruptcy Code and Bankruptcy Rule 3022, until the Effective Date, at the earliest. 6.14. Securities Law Matters. It is an integral and essential element of this Plan that the issuance to holders of Allowed Claims of New Secured Notes, New Common Stock and the Warrants pursuant to this Plan, and the subsequent exercise of the Warrants by such holders or transferees to purchase the securities issuable thereunder, shall be exempt from registration under the Securities Act, pursuant to section 1145 of the Bankruptcy Code. Any such securities issued to an "affiliate" of Reorganized Viskase within the meaning of the Securities Act or any Person Reorganized Viskase reasonably determines to be an "underwriter," and which does not agree to resell such securities only in "ordinary trading transactions," within the meaning of section 1145 (b)(1) of the Bankruptcy Code shall be subject to such transfer restrictions and bear such legends as shall be appropriate to ensure compliance with the Securities Act. Subject to applicable laws and rules, it is contemplated that Rule 144 under the Securities Act shall be available to any such "affiliate" that is not otherwise such an "underwriter" for purposes of permitting resales of such securities. Nothing in the Plan is intended to preclude the Securities and Exchange Commission from exercising its police and regulatory powers relating to Viskase or any other entity. ARTICLE VII DISTRIBUTIONS UNDER THE PLAN 7.01. Timing of Distributions. If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. 7.02. Delivery of Distributions; Unclaimed Distributions. Subject to Bankruptcy Rule 9010, and except as otherwise provided herein, Distributions to holders of Allowed Claims shall be made at the address of each of such holders as set forth in the Schedules Filed with the Bankruptcy Court unless superseded by the address set forth on proofs of Claim Filed by such holders (or at the last known address of such holders if no proof of Claim is Filed or if Viskase has been notified in writing of a change of address). If any Distribution to any holder of an Allowed Unsecured Claim is returned as undeliverable, Viskase or Reorganized Viskase shall use reasonable efforts to determine the current address of such holder, but no Distribution to any such holder shall be made unless and until Viskase or Reorganized Viskase has determined the then current address of such holder, at which time such Distribution to such holder shall be made to such holder without interest. Amounts in respect of any undeliverable Distributions made through Reorganized Viskase shall be returned to and held, in trust, by Reorganized Viskase until such Distributions are claimed. Cash, New Secured Notes, New Common Stock, Warrants and other Distributions that are not claimed by the expiration of the later of one year from the Effective Date or one year from the date such Claim becomes an Allowed Claim shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code and shall revest in Reorganized Viskase (and, shall be subject to redistribution, as appropriate, in accordance with the provisions of Articles IV and V of the Plan, as applicable). After the expiration of the one year period referenced in the two preceding sentences, the claim of any holder to such Distributions shall be discharged and forever barred. Nothing contained in the Plan shall require Viskase or Reorganized Viskase to attempt to locate any holder of an Allowed Claim. 7.03. Special Delivery Restrictions Regarding Class 4 Claims of Holder of Old Notes. As a condition to receiving Distributions under the Plan, each holder of an Allowed Class 4 Claim must surrender its Old Note to the Paying Agent. Any holder of an Allowed Class 4 Claim that fails either to (a) surrender such Old Note or (b) execute and deliver an affidavit of loss reasonably satisfactory to the Paying Agent before the first anniversary of the Effective Date shall be deemed to have forfeited all rights and claims with respect to the Distributions relating to such Old Note and Allowed Class 4 Claim and may not participate in any Distribution under the Plan with respect thereto. 7.04. Record Date for Distributions to Holders of Claims. Except as otherwise provided in a Final Order that is not subject to any stay, the transferees of Claims that are transferred pursuant to Bankruptcy Rule 3001 on or prior to the Record Date will be treated as the holders of such Claims for all purposes, notwithstanding that any period provided by Bankruptcy Rule 3001 for objecting to such transfer has not expired by the Record Date. For each Distribution, on the close of business on the Record Date related to such Distribution, the records for transfer of the Old Notes or any other Claims shall be closed and Viskase, Reorganized Viskase and the Paying Agent shall have no obligation to recognize, and shall not recognize, any transfer of Old Notes or other Claims occurring after that date. 7.05. Time Bar to Cash Payments by Check. Checks issued by Viskase or Reorganized Viskase on account of Allowed Claims shall be null and void if not negotiated within ninety (90) days after the date of issuance thereof. Requests for reissuance of any check shall be made in writing directly to Reorganized Viskase by the holder of the Allowed Claim with respect to which such check originally was issued on or before the later of the first anniversary of the Effective Date and the first anniversary of the date on which the Claim at issue became an Allowed Claim. After such dates, all Claims in respect of void checks shall be discharged and forever barred, and the proceeds of such checks shall revest in and become the property of Reorganized Viskase and subject to redistribution, as appropriate, in accordance with the provisions of Articles IV and V of the Plan. 7.06. Manner of Cash Payments Under the Plan. Cash payments made pursuant to the Plan shall be in United States dollars by checks drawn on a domestic bank selected by Reorganized Viskase or by wire transfer from a domestic bank, at the option of Reorganized Viskase. 7.07. Disputed Claims Reserves. On the Effective Date or such later date that Distributions are required to be made on account of Allowed Claims, and after making all Distributions required to be made on any such date under the Plan, Reorganized Viskase shall establish a separate Disputed Claims Reserve for each Class of Claims that contains Disputed Claims, each of which Disputed Claims Reserves shall be administered by Reorganized Viskase. Reorganized Viskase shall reserve the Ratable Proportion of all Cash, New Common Stock, Warrants, or other Distributions allocated for each Disputed Claim, or such amount as may be agreed by the holder of such Disputed Claim and Reorganized Viskase (or, prior to the Effective Date, Viskase) liable on such Claim, or as may otherwise be determined by order of the Bankruptcy Court. All Cash, New Common Stock, Warrants or other Distributions, as applicable, allocable to the relevant Class hereunder shall be distributed by Reorganized Viskase to the relevant Disputed Claims Reserve on the Effective Date or such later date that Distributions are required to be made on account of Allowed Claims. Each Disputed Claims Reserve shall be closed and extinguished by Reorganized Viskase upon its determination that all Distributions and other dispositions of Cash, Common Stock, New Warrants or other Distributions required to be made under the Plan have been made in accordance with the terms of the Plan. Upon closure of a Disputed Claims Reserve, all Cash, New Common Stock, Warrants and other Distributions held in such Disputed Claims Reserve shall be subject to redistribution, as appropriate, in accordance with the provisions of Articles IV and V of the Plan. 7.08. Limitations upon Funding of Disputed Claims Reserves. Reorganized Viskase is solely responsible for the Disputed Claims Reserves relating to the Claims against Reorganized Viskase and no other entity shall have any duty to fund such Disputed Claims Reserves. 7.09. Tax Requirements for Income Generated by Disputed Claims Reserves. Reorganized Viskase shall pay, or cause to be paid, out of the funds held in any of its Disputed Claims Reserves, any tax imposed by any federal, state or local taxing authority on the income generated by the funds or property held in such Disputed Claims Reserve. Reorganized Viskase shall file, or cause to be Filed, any tax or information return related to its Disputed Claims Reserves that is required by any federal, state or local taxing authority. 7.10. Estimation of Claims. Viskase and Reorganized Viskase may, at any time, request that the Bankruptcy Court estimate any contingent or unliquidated Claim for which Viskase is liable under the Plan, including any Claim for taxes, to the extent permitted by section 502(c) of the Bankruptcy Code regardless of whether Viskase or Reorganized Viskase have previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court shall retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any contingent or unliquidated Claim, that estimated amount shall constitute either the Allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on such Claim, Viskase or Reorganized Viskase may elect to pursue supplemental proceedings to object to any ultimate allowance of such Claim. All of the aforementioned Claims objection, estimation and resolution procedures are cumulative and not necessarily exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn or resolved by any mechanism approved by the Bankruptcy Court. 7.11. Distributions After Effective Date. Distributions made after the Effective Date shall be deemed to have been made on the Effective Date. 7.12. Fractional Shares. Notwithstanding any other provision of the Plan to the contrary, no fractional shares shall be issued pursuant to the Plan. Whenever any payment of a fraction of a share under the Plan would otherwise be required, the actual Distribution made shall reflect a rounding of such fraction down to the nearest whole share. 7.13. Fractional Cents. Notwithstanding any other provision of the Plan to the contrary, no payment of fractional cents shall be made pursuant to the Plan. Whenever any payment of a fraction of a cent under the Plan would otherwise be required, the actual Distribution made shall reflect a rounding of such fraction to the nearest whole penny (up or down), with half cents or more being rounded up and fractions less than half of a cent being rounded down. 7.14. De Minimis Distributions. Notwithstanding anything to the contrary contained in the Plan, Reorganized Viskase shall not be required to distribute, and shall not distribute, Cash to the holder of an Allowed Claim if the amount of Cash to be distributed on account of such Claim is less than $100. Any holder of an Allowed Claim on account of which the amount of Cash to be distributed is less than $100 shall have such Claim discharged and shall be forever barred from asserting any such Claim against Viskase, Reorganized Viskase or their respective property. Any Cash not distributed pursuant to this provision shall be the property of Reorganized Viskase, free of any restrictions thereon. 7.15. Interest on Claims. Except as specifically provided for in the Plan or the Confirmation Order, interest shall not accrue on Claims, and no holder of a Claim shall be entitled to interest accruing on or after the Petition Date on any Claim. Interest shall not accrue or be paid on any Disputed Claim in respect of the period from the Petition Date to the date a final Distribution is made thereon if and after such Disputed Claim becomes an Allowed Claim. Except as expressly provided herein, no Prepetition Claim shall be Allowed to the extent that it is for postpetition interest or other similar charges. 7.16. No Distribution in Excess of Allowed Amount of Claim. Notwithstanding anything to the contrary herein, no holder of an Allowed Claim shall receive in respect of such Claim any Distribution in excess of the Allowed Amount of such Claim. 7.17. Ordinary Course Liabilities. Except as specifically provided for in the Plan, holders of Claims against Viskase (other than Claims for Professional Fees) based on Liabilities incurred after the Petition Date in the ordinary course of Viskase's business shall not be required to file any request for payment of such Claims. Such Claims shall be assumed and paid by Reorganized Viskase in the ordinary course of business of Reorganized Viskase, in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing or other documents relating to, the transaction underlying such Claims, without any further action by the holders of such Claims. 7.18. Setoffs. Except as otherwise provided in the Plan, Viskase or Reorganized Viskase, as the case may be, may, but shall not be required to, set off against any Claim and the Distributions to be made pursuant to the Plan in respect of such Claim, any Claims of any nature whatsoever that Viskase may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim under the Plan shall constitute a waiver or release by Viskase or Reorganized Viskase of any right of setoff that either may have against the holder of such Claim. 7.19. Payment of Taxes on Distributions Received Pursuant to Plan. All Persons and Entities that receive Distributions under the Plan shall be responsible for reporting and paying, as applicable, taxes on account of such Distributions. ARTICLE VIII CONDITIONS PRECEDENT 8.01. Conditions to Consummation. A condition to consummation of the Plan is that: (a) the Confirmation Order shall have become effective under Bankruptcy Rule 7062 and shall not have been vacated or stayed; (b) the Debtor shall have received any and all United States or foreign government statutory, regulatory, or antitrust approvals or consents; and (c) the Debtor shall have entered into a working capital facility (the "Working Capital Facility") in the principal amount of $25 million in form and substance reasonably satisfactory to GECC. ARTICLE IX EFFECTS OF PLAN CONFIRMATION 9.01. Discharge. Except as otherwise expressly provided in the Plan, the confirmation of the Plan shall immediately discharge the Debtor from any Claim and any "debt" (as that term is defined in section 101(12) of the Bankruptcy Code) that arose before the Confirmation Date, and the Debtor's liabilities in respect thereof shall be extinguished completely, whether reduced to judgment or not, liquidated or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or not, matured or unmatured, disputed or undisputed, legal or equitable, known or unknown, that arose from any agreement of the Debtor entered into or obligation of the Debtor incurred before the Confirmation Date, or from any conduct of the Debtor prior to the Confirmation Date, or that otherwise arose before the Confirmation Date, including, without limitation, all interest, if any, whether such interest accrued before or after the date of commencement of the Reorganization Case, and from any liability of a kind specified in sections 502(g), 502(h) and 502(i) of the Bankruptcy Code, whether or not a proof of claim is Filed or deemed Filed under section 501 of the Bankruptcy Code, such claim is allowed under section 502 of the Bankruptcy Code, or the holder of such Claim has accepted the Plan. 9.02. Injunction. Except as may be provided in the Confirmation Order, as of the Effective Date, all entities that have held, currently hold or may hold a Claim or other debt or liability that is discharged or an Equity Interest or other right of an equity security holder that is terminated pursuant to the terms of the Plan shall be permanently enjoined from taking any of the following actions on account of any such discharged Claims, debts or liabilities or terminated Equity Interests or rights: (a) commencing or continuing in any manner, any action or other proceeding against Reorganized Viskase or its property, (b) enforcing, attaching, collecting or recovering in any manner, any judgment, award, decree or order against Reorganized Viskase or its property, (c) creating, perfecting or enforcing any lien or encumbrance against Reorganized Viskase or its property, (d) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability or obligation due to Reorganized Viskase or its property, and (e) commencing or continuing any action, in any manner or in any place, that does not comply with, or is inconsistent with, the provisions of the Plan. 9.03. Revesting. Except as otherwise expressly provided in the Plan, on the Effective Date, Reorganized Viskase will be vested with all of the property of its Estate, regardless of whether scheduled by the Debtor, including, without limitation, all causes of action of any kind whatsoever not otherwise released pursuant to the terms of this Plan, free and clear of all claims, liens, encumbrances, charges and other interests of creditors and equity security holders, and may operate its business free of any restrictions imposed by the Bankruptcy Code or by the Court; provided, however, that the Debtor shall continue as debtor-in-possession under the Bankruptcy Code until the Effective Date, and, thereafter, Reorganized Viskase may operate its business free of any restrictions imposed by the Bankruptcy Code or the Court. 9.04. Retention of Jurisdiction. Notwithstanding entry of the Confirmation Order or the Effective Date having occurred, the Court will retain jurisdiction (a) to determine any Disputed Claims, (b) determine requests for payment of Claims entitled to priority under section 507(a)(1) of the Bankruptcy Code, including compensation and reimbursement of expenses of parties entitled thereto, (c) to resolve controversies and disputes regarding interpretation and implementation of the Plan, (d) to enter orders in aid of the Plan, including, without limitation, appropriate orders (which may include contempt or other sanctions) to protect Reorganized Viskase, (e) to modify the Plan pursuant to Section 9.06 of the Plan, (f) to determine any and all applications, Claims, adversary proceedings and contested or litigated matters pending on the Effective Date, (g) to allow, disallow, estimate, liquidate or determine any Claim against the Debtor and to enter or enforce any order requiring the filing of any such Claim before a particular date, (h) to determine any and all pending applications for the rejection or disaffirmance of executory contracts or leases, and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom, and (i) to enter a final decree closing the Reorganization Case. 9.05. Releases. On the Effective Date, the Debtor shall waive, release and forever discharge all persons and entities from any preference claims that the Debtor-in-Possession may be entitled to bring against such parties pursuant to section 547 of the Bankruptcy Code. 9.06. Limited Release by the Debtor and Reorganized Viskase. For good and valuable consideration, including the service of the D&O Releasees to facilitate the expeditious reorganization of the Debtor and the implementation of the restructuring contemplated by the Plan, the D&O Releasees, on and after the Effective Date, are released by the Debtor and Reorganized Viskase from any and all Claims, obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that the Debtor or any Subsidiary, or any person claiming derivatively through or on behalf of the Debtor or any Subsidiary would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the holder of any Claim or Equity Interest or other Person, based in whole or in part upon any act or omission, transaction, agreement, event or other occurrence taking place on or before the Effective Date; provided, however, that this release will not apply to any Claims arising from the gross negligence or willful misconduct of a D&O Releasee. 9.07. Limited Release by Holders of Claims. For good and valuable consideration, including the service of the D&O Releasees to facilitate the expeditious reorganization of the Debtor and the implementation of the restructuring contemplated by the Plan, on and after the Effective Date each holder of a Claim (a) who has accepted or is deemed to accept the Plan or (b) who may be entitled to receive a distribution of property in connection with the Plan (in each case regardless of whether a proof of claim was filed, whether or not Allowed and whether or not the holder of such Claim has voted on the Plan) shall be deemed to have unconditionally released the D&O Releasees from any and all Claims, obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, including any derivative claims on behalf of the Debtor, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that such Person would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event or other occurrence taking place on or before the Effective Date in any way relating or pertaining to (w) the purchase or sale, or the rescission of a purchase or sale, of any security of the Debtor, (x) the Debtor or Reorganized Viskase, (y) the Debtor's chapter 11 case, or (z) the negotiation, formulation and preparation of the Plan, or any related agreements, instruments or other documents; provided, however, that nothing contained in this Section 9.07 shall be deemed to constitute a release by holders of Equity Interests, except to the extent allowed under section 1125(e) of the Bankruptcy Code with respect to solicitation of acceptances of the Plan. 9.08. Paying Agent. The Paying Agent shall act as the disbursement and exchange agent under the Plan. The Paying Agent shall make each required distribution by the date stated in the Plan with respect to such disbursement. Any disbursement required to be made on the Effective Date shall be deemed to be made as soon as practicable after such date and, in any event, within thirty (30) days after such date. At the option of Reorganized Viskase, disbursements may be made in cash, by wire transfer or by a check drawn on a domestic bank. Disbursement of New Secured Notes shall be made by the issuance and delivery of such New Secured Notes, in global or certificated form as provided in the New Notes Indenture. ARTICLE X MISCELLANEOUS PROVISIONS 10.01. Executory Contracts. On the Confirmation Date, all executory contracts, including, without limitation, unexpired leases of the Debtor will be assumed in accordance with the provisions of section 365 and section 1123 of the Bankruptcy Code with such assumption to become effective on the Effective Date, except for (i) any and all executory contracts which are the subject of separate motions Filed pursuant to section 365 of the Bankruptcy Code by the Debtor prior to the commencement of the hearing on confirmation of the Plan, and (ii) any and all such contracts rejected prior to entry of the order confirming the Plan. Contracts entered into after the Petition Date will be performed by Reorganized Viskase in the ordinary course of business. 10.02. Modification of Plan. The Debtor reserves the right, in accordance with the Bankruptcy Code, to amend or modify the Plan prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, Reorganized Viskase may, upon order of the Court, amend or modify the Plan in accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. 10.03. Revocation of Plan. The Debtor reserves the right to revoke and withdraw the Plan prior to entry of the Confirmation Order. If the Debtor revokes or withdraws the Plan, or if confirmation of the Plan does not occur, then, the Plan shall be deemed null and void and nothing contained herein shall be deemed to constitute a waiver or release of any Claims by or against the Debtor or any other person or prejudice in any manner the rights of the Debtor or any Person in any other further proceedings involving the Debtor. 10.04. Headings. The headings used in this Plan are inserted for convenience only and neither constitute a portion of the Plan nor in any manner affect the provisions of the Plan. 10.05. Successors and Assigns. The rights, benefits and obligations of any Person named or referred to in the Plan will be binding upon, and will inure to the benefit of, the heir, executor, administrator, successor or assign of such Person. VISKASE COMPANIES, INC. /s/Gordon S. Donovan ---------------------------------------- Name: Gordon S. Donovan Title: Vice President and Chief Financial Officer Dated: Chicago, Illinois March 18, 2003 Allan S. Brilliant Paul D. Malek Milbank, Tweed, Hadley & McCloy LLP One Chase Manhattan Plaza New York, NY 10005 (212) 530-5000 EX-10 5 ex10-22.txt AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT NUMBER THREE to the AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER THREE (the "Amendment") dated as of the 9th day of April, 2002, 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 and Amendment Number Two thereto, dated as of November 1, 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; WHEREAS, one or more Changes in Control have occurred on or before the date hereof; WHEREAS, Executive and the Company would like to further define Executive's rights under Section 7 of the Agreement; WHEREAS, the Company is currently negotiating an exchange offer plan (the "Exchange Offer") and/or plan of reorganization (the "Plan") with an Ad Hoc Committee of holders of the Company's 10 1/4% Senior Notes ("Notes"); WHEREAS, the Company believes that Executive is integral to the success and completion of the exchange offer and/or reorganization and his departure would disrupt the negotiations with the Ad Hoc Committee, disrupt the stability of the Company's relationship with its employees and customers and substantially increase the cost of successfully completing an exchange offer and/or plan or reorganization; WHEREAS, simultaneous with the execution of this Amendment, Executive, the Company and Viskase Corporation are entering into a Letter of Credit Agreement, pursuant to which Executive will have the right to draw upon a letter of credit upon the occurrence of certain events (the "Letter of Credit Agreement"); and WHEREAS, the Company desires to induce Executive to remain in the employment of the Company and assist in the completion of an Exchange Offer and/or Plan. 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. Amendments. (a) The last two sentences of Section 7(f) shall be deleted in their entirety and replaced with the following: 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 thirty (30) days following the earlier to occur of: (i) the date on which the Company has provided written notice of acceptance to the exchange agent with respect to the Exchange Offer; (ii) the effective date of the Plan of the Company and Viskase under Chapter 11 of the United States Bankruptcy Code or the date on which the Company's and Viskase's bankruptcy is converted from a Chapter 11 proceeding to a Chapter 7 proceeding; or (iii) the closing date contained in any agreement relating to the sale of substantially all of the assets of the Company and/or Viskase or the sale or other issuance of at least a majority of the stock of the Company or Viskase. 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 to the end of Section 8: (i) The Company acknowledges and agrees that the occurrence of any event specified in Section 2(a)(i) or (ii) of the Letter of Credit Agreement shall constitute and be treated for purposes of this Agreement as a termination for Good Reason following a Change of Control for which Executive shall be entitled to the compensation specified in Sections 8(b) and (c) of this Agreement. Accordingly, notwithstanding anything contained herein to the contrary, in the event Executive's employment is terminated for any reason (including Death or Disability) other than Cause during the period of time during which the letter of credit is outstanding under the Letter of Credit Agreement, Executive shall be entitled to receive the compensation provided for in Sections 8(b) and (c) of the Agreement. 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: /s/ Gordon S. Donovan ---------------------------- Gordon S. Donovan Vice President and CFO /s/ F. Edward Gustafson --------------------------------- F. Edward Gustafson EX-10 6 ex10-24.txt AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT NUMBER TWO to the EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER TWO (the "Amendment") dated as of the 9th day of April, 2002, to the Employment Agreement between F. Edward Gustafson ("Executive") and Viskase Corporation (the "Company"), dated as of August 30, 2001, as amended by the Amendment thereto, dated as of November 1, 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; WHEREAS, one or more Changes in Control have occurred on or before the date hereof; WHEREAS, Executive and the Company would like to further define Executive's rights under Section 7 of the Agreement; WHEREAS, Viskase Companies, Inc. ("VCI"), the parent corporation of the Company is currently negotiating an exchange offer plan (the "Exchange Offer") and/or plan of reorganization (the "Plan") with an Ad Hoc Committee of holders of the VCI's 10 1/4% Senior Notes ("Notes"); WHEREAS, the Company believes that Executive is integral to the success and completion of the exchange offer and/or reorganization and his departure would disrupt the negotiations with the Ad Hoc Committee, disrupt the stability of the Company's relationship with its employees and customers and substantially increase the cost of successfully completing an exchange offer and/or plan or reorganization; WHEREAS, simultaneous with the execution of this Amendment, Executive, the Company and VCI are entering into a Letter of Credit Agreement, pursuant to which Executive will have the right to draw upon a letter of credit upon the occurrence of certain events (the "Letter of Credit Agreement"); and WHEREAS, the Company desires to induce Executive to remain in the employment of the Company and assist in the completion of an Exchange Offer and/or Plan. 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. Amendments. (a) The last two sentences of Section 7(f) shall be deleted in their entirety and replaced with the following: 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 thirty (30) days following the earlier to occur of: (i) the date on which the Company has provided written notice of acceptance to the exchange agent with respect to the Exchange Offer; (ii) the effective date of the Plan of the Company and Viskase under Chapter 11 of the United States Bankruptcy Code or the date on which the Company's and Viskase's bankruptcy is converted from a Chapter 11 proceeding to a Chapter 7 proceeding; or (iii) the closing date contained in any agreement relating to the sale of substantially all of the assets of the Company and/or Viskase or the sale or other issuance of at least a majority of the stock of the Company or Viskase.. 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 to the end of Section 8: (i) The Company acknowledges and agrees that the occurrence of any event specified in Section 2(a)(i) or (ii) of the Letter of Credit Agreement shall constitute and be treated for purposes of this Agreement as a termination for Good Reason following a Change of Control for which Executive shall be entitled to the compensation specified in Sections 8(b) and (c) of this Agreement. Accordingly, notwithstanding anything contained herein to the contrary, in the event Executive's employment is terminated for any reason (including Death or Disability) other than Cause during the period of time during which the letter of credit is outstanding under the Letter of Credit Agreement, Executive shall be entitled to receive the compensation provided for in Sections 8(b) and (c) of the Agreement. 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: /s/ Gordon S. Donovan ---------------------------- Gordon S. Donovan Vice President and CFO /s/ F. Edward Gustafson --------------------------------- F. Edward Gustafson EX-10 7 ex10-30.txt MANAGEMENT INCENTIVE PLAN VISKASE WORLDWIDE MANAGEMENT INCENTIVE PLAN Fiscal Year 2002 I. PURPOSE The Viskase Worldwide Management Incentive Plan (MIP) has been established for Fiscal Year 2002 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/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 Compensation 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. Jan. 31, 2002 /s/ F. Edward Gustafson - -------------------------------- --------------------------------- Final Approval Date Chairman of the Board and Chief Executive Officer EX-10 8 ex10-34.txt FORBEARANCE AGREEMENT FORBEARANCE AGREEMENT, dated as of November 14, 2002 (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 the Fixed Charge Coverage Ratio covenant in the Basic Documents; Whereas, the Guarantor may become a debtor under Chapter 11 of the Bankruptcy Code; and Whereas, the Lessee has requested that the Lessor forbear for a certain period from exercising remedies available to it under the Lease; 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. Forbearance. The Lessor hereby agrees to forbear until December 15, 2002 from exercising its rights and remedies under the Lease with respect to any Default or Event of Default arising from (i) 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 March 31 2002, June 30, 2002 and September 30, 2002 and (ii) the Guarantor being a debtor under Chapter 11 of the Bankruptcy Code. SECTION 2. Effectiveness. This Agreement shall become effective as of the date first above written when the parties hereto shall have received counterparts of this Agreement that, when taken together, bear the signatures of the Lessee and the Lessor. SECTION 3. 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 4. 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 5. Expenses. The Lessee agrees to promptly reimburse the Owner Participant and the Lessor $__________ for 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 6. 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 7. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED BY ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 8. 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 9. 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 date 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: EX-10 9 ex10-35.txt SIDE LETTER AGREEMENT VISKASE COMPANIES, INC. 625 Willowbrook Centre Parkway Willowbrook, IL 60527 December 20, 2002 GE Capital Services Structured Finance Group, Inc. 120 Long Ridge Road Stamford, CT 06927 Attention: Anne Kennelly Kratky Re: Viskase Companies, Inc. ("Viskase") ----------------------------------- Dear Anne: This letter will confirm the agreement reached between General Electric Capital Corporation ("GECC") and Viskase as follows: 1. Viskase shall, at or prior to the Confirmation Hearing to be held on December 20, 2002 with respect to its proposed Prepackaged Plan of Reorganization (in the form attached as Exhibit A to the Disclosure Statement Pursuant To Section 1125 Of The Bankruptcy Code Relating To A Prepackaged Plan Of Reorganization Proposed By Viskase Companies, Inc. And Its Co-Proponent Non-Debtor Subsidiaries Under Chapter 11 Of The Bankruptcy Code, the "Plan"), file a modification to the Plan (the "Modification"), in the form attached to this letter as Exhibit A. 2. On the Effective Date of the Plan, (i) Viskase Corporation and State Street Bank and Trust Company ("State Street"), as owner trustee, shall enter into an amendment to the GECC Lease in the form attached as Exhibit B hereto, (ii) Viskase, Viskase Corporation, GECC and State Street shall enter into an amendment to the Participation Agreement, dated as of December 18, 1990, among Viskase Corporation as lessee, Envirodyne Industries, Inc. as guarantor, GECC as owner participant, and the Trustee, in the form attached as Exhibit C hereto, and (iii) GECC, State Street and Wells Fargo Bank Minnesota, National Association, shall enter into a Subordination Agreement in the form attached hereto as Exhibit D. 3. The final Confirmation Order entered by the Court shall be in the form attached hereto as Exhibit E, with such changes as are reasonably acceptable to GECC. 4. GECC agrees not to object to the Plan, as modified pursuant to the Modification (the "Modified Plan"). 5. GECC's forbearance from exercising certain rights and remedies pursuant to the Forbearance Agreement, dated November 11, 2002 between Viskase Corporation and State Street Bank & Trust Company, as owner trustee (as extended by letters of December 13, 2002, December 17, 2002, and December 18, 2002), shall be extended to December 20, 2002 at 5:00 p.m. (Eastern Time); provided, however, that, in the event the Modified Plan is confirmed by an order of the Bankruptcy Court in accordance with paragraph 3 hereof, such forbearance period shall be automatically extended to the earlier of April 21, 2003 and the Effective Date of the Plan; and provided further, however, that in the event the holders of the Old Notes object to confirmation of the Modified Plan (or support an objection to confirmation of the Modified Plan made by any other party), (i) GECC may object to the Plan or the Modified Plan on any and all grounds, and (ii) GECC shall have the right to terminate the extension of the forbearance period provided herein on one (1) business day's written notice of such termination by GECC to Viskase Corporation. [CONTINUED ON FOLLOWING PAGE] If the foregoing correctly reflects our agreement, please sign where indicated below. Very truly yours, VISKASE COMPANIES, INC. By: /s/ Gordon S. Donovan ---------------------- Name: Gordon S. Donovan Title: Vice President and Chief Financial Officer AGREED: Date: December 20, 2002 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Anne Kennelly Kratky ---------------------------- Name: Anne Kennelly Kratky Title: Managing Director AMENDMENT TO LEASE AGREEMENT AMENDMENT TO LEASE AGREEMENT, dated as of ________ __, 2003 (this "Amendment"), among Viskase Corporation, as Lessee (the "Lessee"), and State Street Bank and Trust Company, a Massachusetts trust company and successor in interest to The Connecticut National Bank, not in its individual capacity but solely as Owner Trustee under that certain Trust Agreement with General Electric Capital Corporation dated as of December 18, 1990 (the "Lessor"). W I T N E S S E T H: WHEREAS, the Lessee and the Lessor are parties to that certain Lease Agreement, dated as of December 18, 1990 (as from time to time amended, restated, supplemented or otherwise modified, the "Lease Agreement", and unless the context otherwise requires or unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Lease Agreement); and WHEREAS, Viskase Companies, Inc. (the "Guarantor") filed on or about November __, 2002 a case (the "Reorganization Case") under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code"); and WHEREAS, in contemplation of the Reorganization Case, on or about August 20, 2002, the Guarantor distributed to the holders of its 10-1/4% Senior Notes due 2001 (the "Old Notes") (i) an Offer to Exchange the Old Notes for 8% Senior Subordinated Secured Notes due 2008 and 6% Series A Convertible Preferred Stock, in each case issued by the Guarantor (the "Exchange Offer") and (ii) a Disclosure Statement pursuant to Section 1126(b) of the Bankruptcy Code and a related Debtor's Prepackaged Plan of Reorganization (the "Plan of Reorganization"); and WHEREAS, in connection with such Reorganization Case and Plan of Reorganization, the Lessee and the Lessor have agreed to amend the terms of the Lease; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: Section 1. Amendments To The Lease Agreement. Effective as of the Effective Date (as defined herein), the Lease Agreement is amended as follows: 1.1 By inserting in Section 17(e)(1)(A) after "5.06," the following: "5.07"; and by deleting in Section 17(e)(1)(B) the reference to "5.07". 1.2 By deleting the reference to "or" before "5.23" in Section 17(e)(1)(A) and substituting therefor ","; and by adding in Section 17(e)(1)(A) after "5.23" the following: ", 5.26 or 5.27". 1.3 By amending and restating Section 17(h) in its entirety as follows: "(h)(i) the Lessee, the Guarantor or any Subsidiary Guarantor shall fail to make any payment on any Debt of the Lessee, the Guarantor or a Subsidiary Guarantor or any guaranty obligation in respect of the Debt of any other Person, and, in each case, such failure relates to Debt having a principal amount of $3,000,000 or more, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), (ii) any other event shall occur or condition shall exist which shall constitute an event of default (after giving effect to any applicable grace periods and waivers) under any agreement or instrument relating to any such Debt, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt having a principal amount of $3,000,000 or more, (iii) any such Debt having a principal amount of $3,000,000 or more shall become or be declared to be due and payable, or required to be prepaid or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof or (iv) the occurrence, without the consent of Lessor, of any of the events specified in Section 3 of that certain Agreement and Amendment dated as of April 13, 2000 between Lessee and Lessor; provided that a breach of this clause (iv) that does not also result in a breach of Section 5.07 of the Participation Agreement shall not be deemed to be a violation of this Lease for any purposes other than those specified in Section 20(b) of that certain Security Agreement dated as of July 28, 2000 by Lessee, Guarantor, Viskase Holding Corporation and Viskase Sales Corporation in favor of Owner Trustee and Owner Participant." 1.4 By adding in Section 21.01 the following after the first sentence thereof: "Notwithstanding anything to the contrary in this Lease, including without limitation, Section 21.02, or in any other Basic Document: From and after September 27, 2000 through the L/C Release Date (as defined below), the amount available to be drawn under the Rent Letter of Credit (and each successor thereto or replacement thereof) shall equal (but in no event be less than) the then applicable annual Basic Rent amount due on the next Basic Rent Payment Date. As of each Basic Rent Payment Date, to the extent the amount of the Rent Letter of Credit outstanding on such Basic Rent Payment Date exceeds the amount of the Rent Letter of Credit required by the preceding sentence (provided that the Basic Rent payment then due has been paid) , the Lessee may, at its option, in accordance with Section 21.01(b), cause the existing Rent Letter of Credit to be replaced with a Rent Letter of Credit in the amount then required. The Lessee's obligation to cause a Rent Letter of Credit to be issued in favor of Lessor shall terminate on the L/C Release Date (provided that the Basic Rent payment then due has been paid), at which time Lessor agrees not to make any drawing under any Rent Letter of Credit then outstanding and Lessor shall, as provided in Section 10.19(b) of the Participation Agreement, surrender such Rent Letter of Credit to the issuer thereof for cancellation. "L/C Release Date" shall mean (i) February 28, 2005 (if the Lessee shall not have delivered a timely renewal notice pursuant to Section 5.01(b) of this Agreement and there shall be no Basic Rent payment then due and owing) or (ii) the date that is one year before the end of any Renewal Term (if the Lessee shall not have delivered timely renewal notice for an additional Renewal Term pursuant to Section 5.01(b) of this Agreement and there shall be no Basic Rent payment then due and owing)." Section 2. Conditions Precedent To The Effectiveness Of This Amendment. Except as otherwise expressly provided herein, this Amendment shall become effective as of the first date on which each of the following conditions shall have been satisfied or provided for in a manner satisfactory to the Lessor, or waived by the Lessor in writing (such date is referred to herein as the "Effective Date"): (a) This Amendment shall have been fully executed and delivered by each of the parties hereto. (b) The Amendment to the Participation Agreement, dated as of the date hereof, among the Guarantor, the Lessee, the Owner Participant and the Lessor shall have been fully executed and delivered by each of the parties thereto. (c) The Senior Secured Notes Indenture shall have been fully executed and delivered by each of the parties thereto, substantially in the form of Exhibit A hereto. (d) The Guarantor shall have entered into documentation with respect to a working capital facility in form and substance reasonably satisfactory to the Owner Participant and the Lessor. (e) The Plan of Reorganization shall have been confirmed by the Bankruptcy Court and the transactions contemplated by the Exchange Offer and the Plan of Reorganization shall have been consummated. (f) The Guarantor and the Lessee shall have reimbursed the Owner Participant and the Lessor for all reasonable out-of-pocket fees, costs and expenses, including the reasonable fees, costs and expenses of counsel or other advisors in connection with the preparation, execution, and delivery of this Amendment. Section 3. Lease Agreement. Except with respect to the relevant provisions amended by the terms hereof, the Lease Agreement shall continue in full force and effect in accordance with the provisions thereof as in existence on the date hereof. This Amendment shall be a Basic Document as defined in Appendix A to the Lease Agreement and each other Basic Document to which the Lessee and the Lessor are a party (and the Lease Agreement and each other Basic Document are hereby amended to reflect such revision). Accordingly, the parties hereto acknowledge that any breach of the Lessee's covenants hereunder may result in an Event of Default, together with any consequences relating thereto, as set forth in the Basic Documents. Section 4. Effect of Amendment. Except as expressly set forth herein, the provisions of this Amendment 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 Agreement 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 5. Covenants; Further Assurances. (a) The Lessee hereby covenants and agrees with the Lessor that, from and after the date of this Amendment 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 Amendment and of the rights herein granted. (b) The Lessor hereby covenants and agrees with the Lessee that, from and after the date of this Amendment 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, the 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 Amendment and of the rights herein granted. Section 6. 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. Section 7. GOVERNING LAW. THIS AMENDMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 8. Section Titles. Section titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Section 9. Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above. VISKASE CORPORATION, as Lessee By: ----------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee By: ----------------------------- Name: Title: AMENDMENT TO PARTICIPATION AGREEMENT AMENDMENT TO PARTICIPATION AGREEMENT, dated as of ________ __, 2003 (this "Amendment"), among Viskase Corporation, as Lessee (the "Lessee"), Viskase Companies, Inc., successor in interest to Envirodyne Industries, Inc. as Guarantor (the "Guarantor"), General Electric Capital Corporation, as Owner Participant (the "Owner Participant"), and State Street Bank and Trust Company, a Massachusetts trust company and successor in interest to The Connecticut National Bank, not in its individual capacity but solely as Owner Trustee under that certain Trust Agreement with the Owner Participant dated as of December 18, 1990 (the "Lessor"). W I T N E S S E T H: WHEREAS, the Lessee, the Guarantor, the Owner Participant and the Lessor are parties to that certain Participation Agreement, dated as of December 18, 1990 (as from time to time amended, restated, supplemented or otherwise modified, the "Participation Agreement", and unless the context otherwise requires or unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Participation Agreement); and WHEREAS, the Guarantor filed on or about November __, 2002 a case (the "Reorganization Case") under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code"); and WHEREAS, in contemplation of the Reorganization Case, on or about August 20, 2002, the Guarantor distributed to the holders of its 10-1/4% Senior Notes due 2001 (the "Old Notes") (i) an Offer to Exchange the Old Notes for 8% Senior Subordinated Secured Notes due 2008 and 6% Series A Convertible Preferred Stock, in each case issued by the Guarantor (the "Exchange Offer") and (ii) a Disclosure Statement pursuant to Section 1126(b) of the Bankruptcy Code and a related Debtor's Prepackaged Plan of Reorganization (the "Plan of Reorganization"); and WHEREAS, in connection with such Reorganization Case and Plan of Reorganization, the Guarantor, the Lessee and the Owner Participant have agreed to amend the terms of the Participation Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: Section 1. Amendments To The Participation Agreement. Effective as of the Effective Date (as defined herein), the Participation Agreement is amended as follows: 1.1 By amending and restating Section 5.07 in its entirety as follows: "SECTION 5.07. Limitation on Debt. The Guarantor shall not, and shall not permit any of its Subsidiaries to directly or indirectly create, incur, issue, assume or otherwise become liable with respect to, extend the maturity of or become responsible for the payment of, any Debt other than: (i) Debt under the Basic Documents; (ii) Debt evidenced by (A) the Senior Secured Notes in an aggregate principal amount not to exceed $60,000,000 at any time and (B) the PIK Notes (as defined in the Senior Secured Notes Indenture) to the extent such PIK Notes represent interest accrued on the Senior Secured Notes at a rate no greater than 8% per annum; (iii) Debt of the Guarantor under a working capital facility in a principal amount not to exceed $25,000,000 at any time; (iv) Debt of the Guarantor or any of its Subsidiaries under cash collateralized letters of credit not to exceed $30,000,000 in the aggregate at any time; (v) Debt of the Guarantor to any of its Subsidiaries or of a Subsidiary of the Guarantor to the Guarantor or to another Subsidiary of the Guarantor, but only to the extent that the proceeds of any such Debt incurred by a non-Wholly Owned Subsidiary of the Guarantor are used to make a Restricted Payment to, or an Investment in, the Guarantor or a Wholly Owned Subsidiary of the Guarantor; (vi) Debt of the Guarantor or any of its Subsidiaries under Currency Agreements and Interest Rate Agreements; provided, however, such Currency Agreements and Interest Rate Agreements do not increase the outstanding Debt of the Guarantor other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;1 (vii) Debt of the Guarantor or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Guarantor or any of its Subsidiaries, in any case incurred or assumed in connection with the disposition of any business, Property or Subsidiary of the Guarantor, other than guarantees of Debt incurred by any Person acquiring all or any portion of such business, Property or Subsidiary for the purpose of financing such acquisition; provided, however, that the maximum aggregate liability in respect of all such Debt in the nature of such - ------------------------- 1 Additional language regarding Interest Rate Agreements to come from Viskase. guarantees shall at no time exceed the gross proceeds actually received from the sale of such business, Property or Subsidiary; (viii) Debt of the Guarantor or any of its Subsidiaries (A) resulting from the endorsement of negotiable instruments for collection in the ordinary course of business, or (B) arising under guarantees incurred in the ordinary course of business with respect to suppliers, licensees, franchisees or customers of the Guarantor of such Subsidiary; (ix) Debt of the Guarantor or any of its Subsidiaries under letters of credit issued in the ordinary course of business (A) to finance the purchase of goods by the Guarantor or a Subsidiary of the Guarantor or (B) for the purpose of supporting performance or surety bonds or obligations of the Guarantor or any of its Subsidiaries, in either case not constituting obligations for borrowed money; (x) Debt of the Guarantor or any of its Subsidiaries in respect of performance or surety bonds issued for the account of the Guarantor or any of its Subsidiaries in the ordinary course of business; and (xi) additional Debt incurred by the Guarantor and its Subsidiaries in an aggregate principal amount outstanding not to exceed at any time (A) $0, during periods prior to and including February 28, 2003, (B) $2,000,000, during the period from March 1, 2003 to and including February 28, 2004 and (C) $5,000,000, during all periods thereafter." 1.2 By amending and restating Section 5.08 in its entirety as follows: "SECTION 5.08. Limitation on Restricted Payments. The Guarantor shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any similar distribution or payment on Capital Stock (including, without limitation, any dividend, similar distribution or payment made to stockholders of the Guarantor or such Subsidiary in connection with a merger, consolidation or similar event) of the Guarantor or such Subsidiary to the holders thereof, other than dividends, distributions or payments payable or made solely in shares of Capital Stock of the Guarantor or such Subsidiary, as the case may be, of the same class held by such holders (other than Redeemable Stock or Exchangeable Stock) or in options, warrants or other rights to purchase such shares; (ii) purchase, redeem or otherwise acquire or retire for value, or permit any Subsidiary of the Guarantor to, directly or indirectly, purchase, redeem or otherwise acquire or retire for value, any Capital Stock in the Guarantor or any Subsidiary (other than any such transaction constituting an Investment in such Restricted Party or Affiliate permitted by clause (v) below or Section 5.21(a)); (iii) redeem, repurchase, defease, prepay (including, without limitation, in-substance or legal defeasance) or otherwise acquire or retire for value, or permit any Subsidiary of the Guarantor to, directly or indirectly, redeem, repurchase, defease, prepay (including, without limitation, in-substance or legal defeasance) or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund or mandatory redemption payment, Debt of the Guarantor or any Subsidiary; or (iv) pay any interest amounts accrued on the Senior Secured Notes in cash prior to March 31, 2006 (the foregoing actions set forth in clauses (i) through (iv) being referred to herein as "Restricted Payments"); or (v) make any Investment in an Affiliate of the Guarantor, or permit any Subsidiary of the Guarantor to make any Investment in an Affiliate of the Guarantor (which for purposes of this clause (v) shall not include (1) a Wholly Owned Subsidiary of the Guarantor or (2) an Unrestricted Subsidiary). 1.3 By amending and restating clause (e) of Section 5.09 as follows: "and (e) 0.4 to 1, for each fiscal quarter thereafter". 1.4 By amending and restating Section 5.23 in its entirety as follows: "Section 5.23 Limitation on Liens. The Guarantor shall not, and shall not permit any of its Subsidiaries to, incur or suffer to exist any Liens on any of its assets, except (i) Liens securing the obligations of the Guarantor and its Subsidiaries under the Basic Documents, (ii) Liens securing the Senior Secured Notes and the PIK Notes (as defined in the Senior Secured Notes Indenture) permitted to be incurred pursuant to clause (ii) of Section 5.07, (iii) Liens securing the working capital facility in an aggregate principal amount not to exceed $25,000,000 permitted to be incurred pursuant to clause (iii) of Section 5.07 and (iv) Permitted Liens". 1.5 By adding the following new Section 5.26: "Section 5.26. Asset Sales. The Guarantor shall not, and shall cause its Subsidiaries not to, make any Asset Sale without the prior written consent of the Lessor if the Net Available Proceeds (as defined in the Senior Secured Notes Indenture) to be received from such Asset Sale would be equal to or greater than $20,000,000. 1.6 By adding the following new Section 5.27: "Section 5.27. The Senior Secured Notes Indenture. The Guarantor shall not, without the prior written consent of the Lessor, agree to amend, modify or supplement any terms of the Senior Secured Notes Indenture or the Senior Secured Notes relating to scheduled maturity, scheduled repayment or prepayment, scheduled sinking fund, mandatory redemption or Offer to Purchase with respect to the Senior Secured Notes. 1.7 By adding in Appendix A to the Participation Agreement the following definitions: "Senior Secured Notes" shall mean the 8% Senior Subordinated Secured Notes due 2008 issued pursuant to the Senior Secured Notes Indenture. "Senior Secured Notes Indenture" shall mean the Indenture dated as of ____________ __, 2002 between the Guarantor and Wells Fargo Bank Minnesota, National Association, as trustee, as it may be supplemented, amended or modified from time to time. 1.8 By deleting from clause (i) of the definition of "Permitted Liens", the reference to "Bank Credit Agreement" and substituting therefor the following: "the Senior Secured Notes, the PIK Notes (as defined in the Senior Secured Notes Indenture) permitted to be incurred pursuant to clause (ii) of Section 5.07 of the Participation Agreement and the working capital facility permitted to be incurred pursuant to clause (iii) of Section 5.07 of the Participation Agreement". 1.9 By deleting immediately before clause (l) of the definition of "Permitted Liens" the reference to "and" and adding the following new language to end of such definition: "; (m) Liens arising pursuant to the Rent Letter of Credit and other cash collateralized letters of credit permitted to be incurred pursuant to clause (iv) of Section 5.07; and (n) Liens approved in writing by the Owner Participant". Section 2. No Default; Waiver. As of the Effective Date, the Owner Participant waives any Default or Event of Default arising from (i) 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 March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Guarantor having been until the Effective Date a debtor under Chapter 11 of the Bankruptcy Code and agrees not to exercise any rights with respect to such breach, Default or Event of Default. Section 3. Conditions Precedent To The Effectiveness Of This Amendment. Except as otherwise expressly provided herein, this Amendment shall become effective as of the first date on which each of the following conditions shall have been satisfied or provided for in a manner satisfactory to the Owner Participant, or waived by the Owner Participant in writing (such date is referred to herein as the "Effective Date"): (a) This Amendment shall have been fully executed and delivered by each of the parties hereto. (b) The Amendment to Lease Agreement, dated as of the date hereof, between the Lessee and the Lessor shall have been fully executed and delivered by each of the parties thereto. (c) The Senior Secured Notes Indenture shall have been fully executed and delivered by each of the parties thereto, substantially in the form of Exhibit A hereto. (d) The Guarantor shall have entered into documentation with respect to a working capital facility in form and substance reasonably satisfactory to the Owner Participant and the Lessor. (e) The Plan of Reorganization shall have been confirmed by the Bankruptcy Court and the transactions contemplated by the Exchange Offer and the Plan of Reorganization shall have been consummated. (f) The Guarantor and the Lessee shall have reimbursed the Owner Participant and the Lessor for all reasonable out-of-pocket fees, costs and expenses, including the reasonable fees, costs and expenses of counsel or other advisors in connection with the preparation, execution, and delivery of this Amendment. Section 4. Participation Agreement. Except with respect to the relevant provisions amended by the terms hereof, the Participation Agreement shall continue in full force and effect in accordance with the provisions thereof as in existence on the date hereof. This Amendment shall be a Basic Document as defined in Appendix A to the Participation Agreement and each other Basic Document to which the Lessee and the Lessor are a party (and the Participation Agreement and each other Basic Document are hereby amended to reflect such revision). Accordingly, the parties hereto acknowledge that any breach of the Lessee's 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 Amendment. Except as expressly set forth herein, the provisions of this Amendment 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 Participation Agreement 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. Covenants; Further Assurances. (a) The Lessee hereby covenants and agrees with the Lessor that, from and after the date of this Amendment 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 Amendment and of the rights herein granted. (b) The Lessor hereby covenants and agrees with the Lessee that, from and after the date of this Amendment 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 Amendment and of the rights herein granted. Section 7. 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. Section 8. GOVERNING LAW. THIS AMENDMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 9. Section Titles. Section titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Section 10. Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above. VISKASE COMPANIES, INC., as Guarantor By: ---------------------------------------- Name: Title: VISKASE CORPORATION, as Lessee By: ---------------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, as Owner Participant By: ---------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee By: ---------------------------------------- Name: Title: EX-99 10 ex99-1.txt CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, I, F. Edward Gustafson, Chairman, Chief Executive Officer and President of Viskase Companies, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, fairly represents, in all material respects, the financial condition and results of operations of Viskase Companies, Inc. Date: March 31, 2003 /s/ F. Edward Gustafson ------------------------ F. Edward Gustafson Chairman, Chief Executive Officer and President EX-99 11 ex99-2.txt CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, I, Gordon S. Donovan, Vice President and Chief Financial Officer of Viskase Companies, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Annual Report on Form 10-K of Viskase Companies, Inc. for the year ended December 31, 2002, fairly represents, in all material respects, the financial condition and results of operations of Viskase Companies, Inc. Date: March 31, 2003 /s/ Gordon S. Donovan ---------------------- Gordon S. Donovan Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----